January 24, 2002 11:00 pm

By Bill Rautenstrauch

For The Observer

ENTERPRISE Joseph businessman Steve Krieger was found in contempt of court this week for failing to appear at a hearing conducted by Circuit Court Judge Patricia Sullivan.

Family members said he was out of town visiting an ill friend.

Krieger and his wife, Paula, who have ownership in the soon-to-be-closed Joseph Timber Company mill, had been scheduled to appear in connection with a $1.4 million judgment held against them by City National Bank, trustee of the Krieger Family Trust.

The terms of that June 2001 judgment have not been satisfied, according to court documents. Bruno J. Jagelski, an Ontario attorney, is representing the trust in local


Sullivan, a Malheur County judge, authorized Kriegers arrest Tuesday and set security at $10,000. Later, Krieger turned himself in at the Wallowa County Courthouse and posted bail.

Kriegers attorney, D. Rahn Hostetter of Enterprise, said his client did not appear because he was visiting a long-time friend at the University of Washington Cancer Center. Paula Krieger, who was present at Tuesdays court proceedings, said that the family friend is terminally ill and needed support from her husband.

Sullivan said that was not sufficient cause for Krieger to miss the hearing. She ruled him in contempt. Sullivan was hearing the case because circuit court judge pro-tem Warner Wasley and Union-Wallowa County Circuit Court Judge Phillip Mendiguren have been disqualified from it.

The Kriegers problems with the Krieger Family Trust go back to June 2001, when City National Bank of California won a lawsuit on behalf of John Krieger and Jennifer Krieger Duran, Steve Kriegers nephew and niece. They, along with Paula Krieger, were

listed as trust beneficiaries. Steve Kreiger had served as trustee. The trust was established in 1992.

As a result of the suit, a California court stripped Steve Krieger of his trusteeship, naming City National Bank his successor. The court also ordered Krieger to pay sub-trusts John Krieger and Jennifer Krieger Duran a total of $1.2 million, not including $250,000 in attorney fees. Interest was fixed at 10 percent per annum.

Authority for enforcing the judgment fell to the Wallowa County Circuit Court.

Last September, Steve and Paula Krieger were both found in contempt of court by Judge Wasley. The contempt order states the couple transferred WGK Corporation stock to Outpost Properties, a company formed by Paula Krieger, for the purpose of avoiding compliance with the terms of the judgment. Jagelski termed Outpost Properties a sham corporation.

The order also upheld Jagelskis contention that the couple transferred assets of WGK Corporation to third parties for less than actual value. One such transaction involved the sale of ranch property near Joseph. Finding the Kriegers in contempt, Wasley ordered them to complete whatever transactions necessary to ensure transfer and delivery of all shares of WGK stock that were in their control or possession as of Nov. 17, 2000, to City National Bank.

Sullivans contempt finding Tuesday stipulated that Steve Krieger be fined $500 for each day Wasleys order is not satisfied. If the cure as spelled out by Judge Wasley doesnt happen, then were looking at jail time, Sullivan warned Hostetter. In closing, she set a Feb. 4 judgment debtor exam for the Kriegers in Enterprise.

Stock certificates, checkbooks, bank statements, tax returns, contracts, cash flow statements and other documents related to WGK will be reviewed.

Steve Krieger and a local stockholders group called Community Solutions Inc. issued a press release earlier this week blaming commodity market conditions and a shortage of timber for the mill closure, which will idle 47 workers in early February.

According to court documents, Joseph Timber Company LLC owes the Kreiger Family Trust $300,000. In a related court matter Tuesday, Paula Krieger filed a first claim for relief from City National Bank. Alleging slander of title and interference with economic relations, she asserts the bank has wrongfully listed her as a money judgment debtor.

She is asking the court to stop City National Bank from continuing to impose a lien against her.

She also seeks a sum exceeding $250,000, plus costs incurred, and other relief deemed equitable by the court.