By John Lindstrom
Publisher
Posted: November 24, 2014 3:11 PM

When the very first sentence in a 6th U.S. Circuit Court of Appeals ruling is, “Of all the tax avoidance schemes, this case certainly involves one of the strangest,” well, one just has to read on about Clarence Otworth and the tiny village of Lakewood Club.

Lakewood Club is located in Muskegon County. It is less than two miles square and has about 1,200 people, according to the 2010 census. Although it is a growing town, the 2000 census showed it had about 1,000 people. It’s mostly middle class, but a significant section of the population lives below the poverty line.

And according to Otworth in his federal suit, Otworth v. Budnik, it is all a fraud and has defrauded him by requiring him to pay property taxes. His mortgage holder, Fifth Third Bank, has also been complicit in this fraud, he argued.

The basis of his claim is that Lakewood Club was illegally incorporated in 1967 and therefore is not lawfully permitted to claim property taxes against him. Mr. Otworth charged in his case that the municipality, its officials and the bank officers who pay his taxes through his mortgage escrow are involved in a Racketeer Influenced and Corrupt Organizations Act violation. It has caused him serious physical injury – he charged that he suffered a torn aorta because of the stress of paying the taxes – as well as financial injury.

The district court rejected his claim, and so too did the Court of Appeals.

In her decision, Judge Karen Nelson Moore did not concede a single point to Mr. Otworth, saying he failed in every instance to actually make a case and prove any of his charges.

And even, she wrote, if there is some discrepancy in the incorporation of Lakewood Club it has been rendered moot by the fact the state has acquiesced in its existence.

Ms. Moore also quotes an 1874 decision involving Kalamazoo Schools saying that if every community had to defend its original organization, then “few of our municipalities can be entirely certain of the ground they stand on” and potentially subject to “infinite trouble, embarrassment and mischief” by a litigious soul.