October 18, 2001 11:00 pm

By Gary Fletcher

Observer Staff Writer

ENTERPRISE Negotiations are continuing following a hearing this week in which a judge signed an order of contempt of court against Steve and Paula Krieger of Joseph.

The order was based on an earlier hearing in connection with a California court-awarded judgment of $1,492,389.

Still to be decided are possible sanctions against Steve Krieger. Penalties could include up to six months in jail and fines up to $10,000 per day, according to court records.

In his order, Wallowa County Circuit Court judge pro-tem Warner Wasley found the Kriegers in contempt for a clear and flagrant attempt to avoid the judgment.

The ruling had been made against Krieger June 27 in a California Superior Court.

The contempt order said the Kriegers refused to turn over the WGK Corporation stock share by Sept. 28 to City National Bank, successor trustee of the Krieger Family Trust.

The Kriegers, which have ownership in Joseph Timber Co., intentionally dissipated and transferred assets of WGK Corporation to a third party for less than actual value, the order continued.

On March 12, 2001, the Kriegers transferred their interest in WGK Corporation stock to Outpost Properties LLC (in Nevada). (It) was a sham transaction, the order said. The transfer of the ... stock to Outpost ... was made for the purpose of avoiding compliance.

The Kriegers attorney, Rahn Hostetter of Joseph, said the Kriegers have not refused to transfer their interest. They are unable to because they no longer own that stock. It is owned by Outpost, he said.

The stock was conveyed before any court order was in effect, and it was done for value, Hostetter said.

WGK is an Oregon corporation which owned property between Wallowa Lake and Joseph that was proposed for development. That upscale housing development never occurred. The transfers also included the sale of that property to Paula Krieger. Steve engaged in violation of his duties as trustee of the Krieger Family Trust, Kriegers nephew John W. Krieger of Beverly Hills, Calif., said Wednesday.

John Krieger and his sister, Jennifer Krieger Duran, and the family trust are petitioners in the case.

Steve and Paula Krieger were first sued in California. The California court order removed Steve Krieger as trustee, replaced by City National Bank.

The case was transferred to Wallowa County. Both circuit court judges, Phillip Mendiguren and Eric Valentine, were disqualified from hearing the case.

Steve Kriegers late parents established the 1992 trust with him as the trustee. The beneficiaries are Paula at 83.3 percent and the niece and nephew at 8.3 percent each, Hostetter said.

The California award allowed John Krieger and his sister to recover $250,000 in attorney fees.

The court order allows the possibility of City National Bank to collect a $300,000 debt from Joseph Timber Company and apply that to a cash award that Steve Krieger was ordered to pay. That issue is also unresolved.

Joseph Timber Company owes nothing, Hostetter said.

Wasley, a retired judge from

La Grande, heard arguments Tuesday from both sides. The judge then met in closed chambers with the attorneys.

Wasley declined to rule on sanctions requested by Ontario attorney Bruno J. Jagelski on behalf of City National Bank. The judge decided not to make any further rulings on the case, attorneys said. Wasley spent the rest of the

day attempting to negotiate a settlement.

If a settlement is not reached and another hearing is scheduled, another judge will have to hear it, attorneys said.