Diane Fullerton, a founder of California Association of Community Managers, Goes on Trial in Federal Court on January 3, 2005 for Bank Fraud

January 03, 2005

By Cliff Baines
Copyright AHRC News Services

On January 3, 2005, Diane Caroline Fullerton will go on trial for bank fraud along with two other defendants in the United States District Court in Santa Ana, California. She is charged - along with the other defendants - of submitting grossly inflated loan applications for homes in the Palm Springs area, supported by false W-2s, false income statements, false payroll records, false verification of employment forms and false verification of deposit forms.

Fullerton has a long and chequered history with homeowners who live in homeowner associations in Southern California.

She emerged in the early 90's as CEO of Mercury Management Company. Mercury reputedly managed 350 homeowner associations. During this period, she helped to found the lobby group, California Association of Community Managers (CACM).

She lived in a expensive home in Laguna Beach, hobnobbed with politicians and was reported to be taking home $50,000 a month.

But then, inexplicably, Mercury filed for bankruptcy.

The full story on this bankruptcy has never come to light, but it is believed that several months before, Fullerton had taken out a $750,000 loan from Harbor Bank - and was telling them that she could not pay it back.

A director of Loma Vista Homeowners Association, which Mercury managed, said that Harbor Bank would not give any details of this situation, but it is known that Fullerton was running millions through Harbor Bank from the monthly homeowner assessment dues. The speculation is that Harbor Bank did not want to lose this lucrative cash flow.

Fullerton - not one to let a little bankruptcy get her down - started Marquis Management Company the day after the bankruptcy. Occupying the same offices and using the same staff, it was a seemingly seamless transition from Mercury to Marquis. That is how they presented it to homeowner associations. Malcolm Gillies, the president of Palacio del Mar in South Orange County, told the members that there was nothing to worry about. It was just a change in name.

But Fullerton was beginning to have plenty to worry about.

At one point, research showed at least 65 lawsuits against Marquis in Orange, Riverside and San Diego counties. Some of the cases involved foreclosures and most of them followed a basic pattern. Small alleged delinquencies in homeowner dues mushroomed almost overnight into thousands of dollars in claims for fines and attorney fees. A sizeable number of homeowners there claimed that the alleged construction defects were minor in nature. Yet, homeowners complained that, masterminded by Fullerton and her president, Pat Gummeson, the HOA law firm of Fiori Nordberg Walker Wolf Willis turned it into a gigantic case. As homes were stigmatized, many could not sell them or refinance them.

Worse still, the Fiori law fees were being paid out of the reserves - something that was illegal. Pat English, a resident of Loma Vista and auditor estimated that over $500,000 was drained out of the association reserves and essentially bankrupted the association. (Subsequently, Fiori contacted his friend, Dan Hauser in Sacramento, chair of the Assembly Housing Committee, and passed a law, AB 879, that authorized the use of reserves for lawyer's fees in construction defect cases. As one homeowner commented, "It is nice to have friends in high places.")

Pat English had previously worked for an accounting firm that audited homeowner associations. When it came to an association managed by Marquis, she was told that she could not see the source materials, but had to rely on the information provided by Marquis. Ms.English refused to continue the audit.

Ms. English was so perturbed by the corruption that she saw around her, that she, her husband Jim Troutman (a director of Loma Vista at the time), and others went to see their local assemblyman, Bill Morrow, to ask him to do something. All they received, she said, was a big handshake. They got the same treatment from the attorney general, Dan Lundgren, and other legislators.

In the meantime, Pat English had succeeded in being elected to the board of Loma Vista. She wanted to do something to clean up the situation. The board then sued her. She asked Farmer Insurance to defend her under the association policy. As Farmers refused, she had to sue Farmers. She ultimately lost and had to pay substantial legal fees. In addition, her lawyer, Ed Danoff, was sued by the board. Out of all this tangled legal mess, Danoff eventually won a $1 million judgment against Diane Fullerton - but has never been able to collect it.

In the midst of all this, Jim Troutman, husband of Pat English, buried under an avalanche of legal papers, decided that this was not the America he loved, and in a moment of deep despair, committed suicide.

So, when Ms. Fullerton goes on trial on January 3, there will be a lot of homeowners in Southern California wondering whether she will finally get justice. However, she is reportedly trying to secure a plea bargain - willing to testify that another defendant was the key figure in exchange for immunity and/or a lesser sentence.

The trial is expected to last between 2 to 3 weeks.