DATE: Thursday, June 19, 1997               TAG: 9706190393

SECTION: LOCAL                   PAGE: D1   EDITION: FINAL 
SOURCE: BY MARC DAVIS, STAFF WRITER 

DATELINE: NORFOLK                           LENGTH:   80 lines

GHENT LAWYER MUST PAY $20,000, JUDGE RULES

A judge has cited Ghent lawyer Stephen G. Merrill for misconduct and slapped him with a $20,000 sanction for making ``outlandish and extraneous allegations'' in the bankruptcy of Computer Dynamics Inc.

In a 27-page ruling filed Wednesday, Judge David H. Adams accused Merrill of ``misguided and unprofessional'' conduct in making criminal accusations against company owner Robert L. Starer.

The judge ordered Merrill to pay $7,500 to Starer, $7,500 to Computer Dynamics and $5,000 to the Bankruptcy Court.

Adams ruled that Merrill's accusations were ``obviously intended to harass, intimidate and embarrass Starer and to substantially increase the cost of the litigation.''

``Merrill's obvious and extremely serious violations . . . cause this court grave concern about his fitness to practice law and to do so within the confines of those (professional) standards,'' Adams concluded.

The sanction will partly compensate Starer, Computer Dynamics and the court for several months of dealing with Merrill's accusations.

On Wednesday, Merrill criticized the judge's ruling and said he will appeal.

``The decision has no legitimacy under the Constitution of the United States,'' Merrill wrote. ``It takes a totalitarian view of a bankruptcy judge's powers to award civil sanctions.''

Merrill said the judge was punishing him for aggressively pursuing a legitimate case.

``This decision effectively repeals the First Amendment guarantee of free speech and free association and fails to take account of an attorney's obligation to present the strongest case possible for his clients. The opinion misstates evidence in the record and makes unsupported claims of unethical conduct.''

Starer, however, said the ruling ``totally vindicates what I have been saying all along.'' Starer runs several companies in Virginia, Florida and Pennsylvania. He received the ruling Wednesday at his Philadelphia-area office.

``I had told Steve Merrill that if he apologized to the court for the abuse of the system, and if he apologized to me and the other people who were slandered, I would drop the whole thing and walk away,'' Starer said. ``He wouldn't do it. He said, `I'm not sorry for it.' ''

Starer said he will sue others who helped Merrill make his accusations.

This appears to be the final act in Computer Dynamics' two-year bankruptcy - a case so long and contentious that Adams described it in March as ``this seemingly endless case.''

It began in May 1995 when creditors forced the once-mighty Virginia Beach company into involuntary Chapter 11 reorganization. It escalated in November 1995 when Merrill asked the judge to appoint a trustee to take over the company.

Merrill's motion was peppered with explosive allegations against Starer. Merrill accused Starer of fraud, theft and sexual harassment of female employees. He called Starer ``a racketeer'' and ``a corporate vampire.''

Starer denied the charges, saying they were made solely to smear him.

A seven-day trial followed in February and March 1996. In the end, Judge Adams dismissed the allegations as unfounded. Starer then asked the judge to sanction Merrill for making the charges.

On Wednesday, Adams ruled that Merrill was an agent of company founder R. Alan Fuentes, who has fought Starer for five years over control of the company.

``This case has involved a crusade to discredit Starer and divest him of any authority over the debtor,'' Adams wrote. ``The crusade was initiated by Fuentes and the sword was passed on to Merrill in order to further the purpose of the cause celebre. . . . Long before the motion (to appoint a trustee) was filed, one could not distinguish Merrill from the Fuentes banner which he flaunted. . . . Merrill (became) the primary standard bearer for the campaign.

The judge ruled that Merrill did not do enough research before filing his allegations. He also ruled that Merrill could have gotten a trustee appointed with a less inflammatory motion.

``A simple recitation of the facts . . . would have sufficed. . . . The pleadings were certainly crafted to further the crusade of Fuentes and Merrill against Starer,'' Adams wrote. ILLUSTRATION: Color photo

Judge David H. Adams, above, accused Merrill of "misguided and

unprofessional" conduct.

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