Empire Financial Group Inc. and its affiliated companies, which together are the target of both a federal civil lawsuit and a state securities investigation, have filed suit in Spokane County Superior Court against one of their former executives.


In the new suit, filed Feb. 24, Empire Financial and a handful of subsidiaries and related companies together allege that the executive, Michael B. Lavigne, enriched himself and entities with which he was affiliated at the expense of Empire Financial and its subsidiaries, customers, and shareholders. Though the Spokane companies say in the suit that they dont yet know the extent of the damages Lavigne allegedly has caused them, they estimate the amount to be more than $6.5 million.


Lavigne, who left the group in March 1996, couldnt be reached for comment. It also couldnt be immediately determined whether he has hired an attorney to represent him in the matter. Empire Financials attorney, James King, couldnt be reached for comment.


Empire Financial has troubles of its own. The Spokane financial-services company is a defendant in a suit filed in U.S. District Court here by retired Spokane optometrist John H. Smith and his wife, Kathleen, who claim Empire and its affiliates defrauded them of more than $580,000 that they had invested with the group. The same couple also has filed suit in King County Superior Court seeking additional money directly from some of the companies to which they say Empire had arranged loans and invested money in their behalf. That suit seeks nearly $500,000.


Meanwhile, the Securities Division of the Washington state Department of Financial Institutions is continuing an investigation of Empire it began last spring. Were following the money, Deborah Bortner, division administrator, said earlier this week. Were currently trying to determine whether anybody benefited personally. The trail of the money is very complicated.


Also, an Empire subsidiary called Northwest Capital & Advisory Services Inc. and a related investment arm called RTC #3 Investment Group LLC both have been placed in receivership here. Both also are plaintiffs in the Superior Court action against Lavigne.


Lavigne joined Northwest Capital in 1993, according to court documents. He later was named president of the company, which primarily made short-term loans to businesses and developers. During his association with Empire, Lavigne also served as a director of both Northwest Capital and Empire, was a shareholder in Empire, and served as corporate counsel to Empire and its subsidiaries, the documents say.


In the lawsuit, Empire alleges that Lavigne persuaded it and its affiliated companies to make loans to a handful of companies and individuals, both here and in Western Washington, without disclosing that he had actual or apparent conflicts of interest in regard to those transactions. It also alleges that Lavigne failed to secure adequate collateral for those loans, and in some cases misrepresented the value of collateral that he supposedly had secured for the loans.


In a transaction that involves a Spokane development project, the suit alleges that Lavigne persuaded Empire or its affiliates to make loans totaling $369,000 to a Spokane company called General Management Corp. for the development of two apartment complexes hereone at 10th Avenue and Maple Street and the other at 13th Avenue and Maple. The suit claims that Lavigne failed to inform Empire that he was an officer and board member of General Management at the time the loans were made, and also was trustee of two trusts that had an equity interest or collateral in the properties. The loans since have gone into default and a mortgage holder that was senior to Empire has repossessed the properties.


The suit says Lavigne also arranged for additional loans by Empire customers of $175,000 for the development of those two apartment projects, and promised investors a first deed of trust on property in California as collateral. It says Lavigne ended up providing only two of the investors with such security, and that Empire now is liable to the investors for unpaid amounts on those loans.


In another instance, the suit claims, Empire or its affiliates lent two Western Washington businessmen, Dale Rasmussen and Douglas Brown, and a company they ran called Clearview International Inc., about $820,000 on Lavignes recommendation. The suit alleges that Lavigne failed to disclose to Empire that he had an actual or anticipated equity position or was obtaining consideration from the borrowers in exchange for his ability to provide financing to them. The suit also claims that as an attorney, Lavigne had been involved in the establishment of Clearview, and had done so in a manner to make the corporation judgment proof should debts of the corporation go unpaid. Empire says the loans to the two men and Clearview are in default.


The suit also alleges that Lavigne similarly persuaded Empire to make loans totaling about $1.4 million to a limited partnership called D&D General Partnership, owned by Rasmussen and Brown, and also to Rasmussen individually. It says all the loans were made even though Lavigne had neither secured adequate collateral nor disclosed conflicts of interest he may have had in regard to the transactions. Those loans also are in default, the suit says.


Other similar instances are alleged in the suit, including loans to a Western Washington development company called Four Corners Limited Partnership.


Lastly, the suit alleges that Lavigne obtained, in the form of payroll advances and expense advances from Empire, more than $130,000 in unearned or unaccounted-for money.


Empire is suing Lavigne for money claimed owed, breaches of fiduciary obligation, and legal malpractice. It also demands in the suit that it receive a full accounting of all income, equity, or other consideration Lavigne received from the various entities and individuals with whom he had an undisclosed relationship while Empire was advancing money to them.





Empire Financial also still is the subject of a state securities investigation.