THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, March 9, 1996 TAG: 9603090401
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY MARC DAVIS, STAFF WRITER
DATELINE: NORFOLK LENGTH: Long : 111 lines
A bankruptcy judge ruled Friday that it was the personal excesses of founder R. Alan Fuentes - boat racing pal to baseball great Pete Rose and political fund-raiser to Republican causes - that brought down once-mighty Computer Dynamics Inc.
After seven days of testimony from former company executives, Judge David H. Adams also ruled that there was no proof of fraud or impropriety by Robert L. Starer, the man Fuentes brought in to save the company in 1991.
With that, Adams may have ended, once and for all, the four-year feud between the two businessmen over the computer company that both claimed was theirs.
It was the first time a judge has actually heard facts behind the feud, much less ruled on them, despite years of litigation between Fuentes and Starer.
Computer Dynamics, once the most successful minority-owned company in Hampton Roads, is now in Chapter 11 reorganization in Bankruptcy Court. It was founded as a government contracting firm, then broadened into adult education. A subsidiary school, now independent, still bears the company's name.
In its early years, the company won widespread publicity for Fuentes, as much for his outside activities as his business acumen.
In 1992, for example, Fuentes made headlines for forming a boat racing team with Rose. That same year, Fuentes was convicted of making illegal campaign contributions to then-U.S. Sen. Paul Trible.
Fuentes brought Starer in as chief executive officer to improve profits at Computer Dynamics. A year later, Starer became majority owner. The pair have been feuding since.
In Bankruptcy Court, some of the company's creditors - led by Fuentes - asked the judge to boot Starer from the company and appoint a trustee. They argued that Starer had intentionally wrecked Computer Dynamics for personal gain.
Adams refused the request, saying it didn't make economic sense. He also said the creditors' charges against Starer of fraud and criminal misconduct were ``based on innuendo and surmise.''
The judge ruled that when Starer arrived in 1991, the company was ``in dire financial straits'' caused by ``the admitted extravagancy of Mr. Fuentes.''
Fuentes testified that he took more than $1 million out of the company, mostly for his ill-fated racing team, on the mistaken belief that it was a business advertising expense.
Fuentes also testified that he knew the company was top-heavy with managers but he couldn't fire them because they were friends. He said that's why he brought in Starer, who immediately cut the payroll by firing 25 top executives.
In his ruling, Adams also said there was no proof of the creditors' theory ``that this was a scheme of Mr. Starer's from Day One to put this company in bankruptcy'' for personal gain.
Some creditors said Starer did this to pick up for himself the profitable pieces of the company, mainly the computer and career schools. Adams said this was contradicted by the fact that Starer also picked up much of the company's debt.
Adams did not absolve Starer of all blame.
At one point, the judge remarked, ``The transactions (between Computer Dynamics and Starer's companies) certainly . . . merit scrutiny. There's no question about that.''
This echoed earlier remarks by a lawyer for the U.S. trustee's office, Robert B. Van Arsdale.
``I think these transactions remain simply a raised eyebrow,'' but are not fraudulent, Van Arsdale told the judge. ``There are still concerns with this case.'' He said his office will continue to watch the case closely.
After the ruling, Starer declared, ``I think it's a pretty complete vindication. . . . This is the best possible outcome for us, the best possible outcome I and CDI could have hoped for.''
Stephen Merrill, the creditors' attorney and Fuentes' personal bankruptcy lawyer, covered his face with his hands as the judge made his ruling. Afterward, he sat for a long time on a bench outside the courtroom, looking dejected.
In his ruling, Adams criticized Merrill personally, saying the creditors' lawyer showed no understanding of how corporations are run.
``We're shocked, disappointed,'' Merrill said afterward. Asked if this was the end of the line, he replied, ``I haven't thought beyond this.''
Fuentes, who was not in court for the ruling, reacted more strongly. ``It's amazing to me they didn't see fraud. . . . Bob Starer has gotten away with it again,'' he said.
The ruling opens the door to one last possible legal duel between Starer and Fuentes: Starer may ask for sanctions and money damages against Fuentes and Merrill for bringing a frivolous and malicious action.
In court Friday, attorneys for Starer and Computer Dynamics argued that the whole case was a vendetta by Fuentes to harm Starer with bad publicity and innuendo.
``Mr. Fuentes, in his paranoid mind, came up with this fanciful illusion of what happened here. . . .'' argued Paul K. Campsen, Starer's personal attorney. ``Mr. Fuentes and Mr. Merrill are dealing in fantasy.''
The company's attorney, Donna J. Hall, agreed. ``The purpose of this motion was for Mr. Fuentes to perpetrate his feud and pursue his crusade. . . . It's time for the feud to stop and it's time for the crusade to end.''
To win sanctions, Starer would have to prove that Fuentes and Merrill made the accusations against him to ruin his reputation, knowing they were false.
After the ruling Friday, Starer hinted that he will pursue sanctions.
``When people make allegations, they accept the responsibility for their actions. That's part of our basic society,'' Starer said. ``People have made very substantial allegations here. We are going to do the appropriate thing.'' ILLUSTRATION: [Color Photos]
Rober L. Starer
R. Alan Fuentes
KEYWORDS: BANKRUPTCY COURT RULING by CNB