A Roseburg homebuilder and his wife have lost their appeal of a previous ruling that they must pay more than $5 million for mismanaging a family trust, including borrowing millions of dollars and not paying it back.

Joseph Russi, along with his wife Deborah, were ordered to pay $5.4 million to his sister-in-law for violating the provisions of a family trust that had been set up by Deborah Russi’s parents. The award was issued by an arbitration panel in Douglas County in June, and upheld earlier this month by a circuit court judge.

Additionally, attorneys for Deborah Russi’s sister filed a separate complaint last week in which they allege that the Russis committed fraud and embezzlement, and should be ordered to pay nearly $3 million more for damages not covered in the first case, bringing the total they would have to pay to $8.18 million, plus interest, attorney fees and other associated costs.

The Russis knowingly made material misrepresentations, engaged in fraudulent omissions, and engaged in deceptive conduct,” the new complaint alleges. The complaint also alleges that two employees of Joseph Russi’s former company, Mid Oregon Builders LLC, embezzled more than $100,000 from the family trust.

Last week’s decision adds to the mounting financial problems faced by Joseph Russi in connection with Mid Oregon Builders LLC. Russi, along with former co-owners David Duncan and Shea Cambridge, dissolved Mid Oregon Builders in June, leaving dozens of homes unfinished and reportedly more than 50 employees without paychecks or their W-2 forms so they could pay their taxes.

Russi is also the target of a complaint lodged with the Oregon Bureau of Labor and Industries that accuses him of a myriad of criminal actions, including sexual assault, tax evasion and forgery. The bureau has confirmed it has an active investigation ongoing in connection with the complaint.

In July, Russi had a $340,000 lien placed against him by the Oregon Department of Revenue. Last year, Russi had 11 similar liens placed against him.

Russi could not be reached for comment. His Roseburg attorney, Christopher Peterman, did not return an email seeking comment.

The arbitration case centers around Deborah Russi and Catherine Wissenback, who are sisters, and their parents, Robert and Eva Kerner. The family members were longtime residents of Sacramento, California, where the Kerners owned property, including two mobile home parks and the land on which they sat.

Deborah met Joseph Russi in 2010, and they were married the following year. Joseph Russi became Robert Kerner’s driver and close associate, taking him to meetings with his lawyer and elsewhere, and taking Eva Kerner to medical appointments, court records show.

Russi quickly worked his way up the business ladder of the two mobile home parks, becoming CEO of the two corporations that oversaw the parks.

In a rambling Facebook post, Wissenback gave her version of events that led to her facing off legally against the Russis. She claimed Russi developed a relationship with Deborah just to gain access to the family’s wealth.

“Joel Russi targeted my family and married my sister, who is the trustee of our family’s multi-million dollar trust,” Wissenback wrote. “I believe he knew exactly who she was and targeted her for the money, then he took my part of my irrevocable trust, which was worth millions.

“My dad was made a fool of and that makes me cry because he believed in a guy that was a complete con artist,” she wrote.

Eva Kerner died in 2012, and the Russis moved to Douglas County in late 2014 or early 2015. Robert Kerner moved to Oregon in 2016 and died there in September 2019, at age 90.

In 2012, Robert Kerner updated a revocable trust he and his wife had created for the family members. The handling of that trust and the millions of dollars in it is the crux of the petition that Wissenback brought before the three-person arbitration panel.

For example, the Russis used the trust like an ATM machine, borrowing large sums of money from it. In one month in the summer of 2012, Deborah Russi borrowed more than $2.1 million. The Russis used the money to buy properties in the area, paying cash for them, court records show.

BREACH OF TRUSTDeborah Russi borrowed at least another $1.25 million from the trust over the next couple of years, according to court documents.

“To put it bluntly, there was no evidence whatsoever that Deborah ever did anything to satisfy any of her duties as trustee of the trust,” the arbitration panel said. “Rather, the uncontroverted evidence is that Deborah failed to perform any of her affirmative duties and repeatedly engaged in conduct that violated her legal proscriptions on her discretion as a trustee.”

Among her transgressions, the panel found that Deborah Russi did not keep her sister informed of the trust; took out loans and conducted other activities with the trust that were not in the best interest of Wissenback; and sold properties with money borrowed from the trust and kept the money for herself and her husband.

The panel also found that Joseph Russi was a “key player” in the improper administration of the trust, which is why he was named as a respondent along with his wife.

“Without question, Joseph actively participated in Deborah’s breach of the trust,” the panel found. “There can also be no question about Joseph knowingly benefitting from Deborah’s breach of her duties to the trust.”

The arbitration hearing took place via Zoom over four days in April. The arbitration panel initially awarded Wissenback $4.4 million. In June, the panel added more than $1 million in attorney’s fees and other fees, for a total award amount of $5,486,159.

In August, Peterman, the Russis’ attorney, filed a counter petition. In it, he asked the court to toss out the decision of the arbitration panel, or at least reduce the amount it awarded Wissenback.

In his petition response, Peterman argued that the arbitration panel was biased and unfair to his clients, and repeatedly decided in favor of Wissenback.

“Specifically, most procedural and evidentiary decisions made by the panel over the course of the proceeding and hearing were resolved in petitioner’s favor without good cause, and the panel generally took a one-sided view of the evidence, and demonstrated an actual, discernible tendency to favor petitioner,” Peterman argued.

As an example, he cites the refusal of the panel to grant a request from the Russis to postpone the hearing despite the coronavirus pandemic, Deborah Russi’s battle with cancer and Joseph Russi’s filing for bankruptcy.

Those decisions demonstrated the “rigid inflexibility” on the part of the panel regarding requests from his clients, Peterman argued.

In her decision rendered on Nov. 8, Douglas County Circuit Court Judge Kathleen Johnson dismissed the Russis appeal, largely because she said there wasn’t enough evidence available to overturn the arbitration board’s decision. The lack of evidence is because both parties agreed not to record or keep a record of the arbitration hearings, Johnson said in her ruling.

“Having declined to create a record, (the Russis) are not in a position to prove what actually occurred surrounding an evidentiary ruling at hearing, as any attempt to do so would lack context and specificity,” Johnson wrote. “(The Russi’s) petition to vacate the arbitration award is denied based upon the lack of a record upon which it can be decided.”

The complaint filed last week alleges more improprieties on the part of the Russis. For example, the complaint said that the couple “deliberately and in bad faith” did not tell Wissenback about her father’s death until the first day of the arbitration hearing in April 2021, about 18 months after he had died.

They allegedly withheld that information because Wissenback was due distributions from the family trust upon her father’s death.

“The Russis committed embezzlement or larceny ... by wrongfully taking, transferring, and diverting money and property of the (trust) that otherwise should have been distributed to (Wissenback). The Russis did so for their own personal financial benefit,” the complaint said.

In motions filed this week, attorneys for Wissenback asked that the judge expedite the case because in an effort to prevent Joseph Russi from divesting his assets.

The attorneys said over several days in September 2021, during the arbitration case, Russi transferred title to 25 properties in Douglas County to a New York entity called Oregon JV LLC.

“Joseph Russi is affiliated with Oregon JV LLC, and these transfers were intended by Mr. Russi to hinder, delay, or defraud plaintiff from enforcement of the arbitration award and corresponding judgment, as well as other debts owed to plaintiff,” the complaint said.

Scott Carroll can be reached at scarroll@nrtoday.com or 541-957-4204. Or follow him on Twitter @scottcarroll15.

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