DATE: Thursday, June 26, 1997               TAG: 9706260363

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY MARC DAVIS, STAFF WRITER 

DATELINE: NORFOLK                           LENGTH:  306 lines

COMPUTER DYNAMICS INC.: THE CASE THAT EVERYBODY LOST THE BATTLE FOR CONTROL OF THE COMPUTER COMPANY BEACAME AN ENTANGLEMENT OF SENSATIONAL CHARGES AND HIGH COSTS.

The lawyer was hostile. The witness was cool and unruffled. R. Alan Fuentes, former millionaire businessman who once drove a Ferrari and raced speedboats with baseball great Pete Rose, sat smugly on the witness stand in Bankruptcy Court.

He was adamant. Computer Dynamics Inc., the Virginia Beach defense contracting company, was his. He had birthed it, he had lost it. Now he would get it back.

Fuentes' attitude screamed: Go ahead and challenge me. So the opposition lawyer did.

``Is this your company?'' the lawyer, Paul K. Campsen, asked Fuentes point-blank.

``Yes it is, actually,'' Fuentes replied confidently, even though he had lost control of the company's stock four years earlier.

``You believe you still own this company?''

Trust me, Fuentes said. Everything will unravel in bankruptcy and the company will be mine again. ``I don't discount the possibility of this all coming out eventually,'' Fuentes said.

It never happened.

Today, one year after that exchange during Computer Dynamics' bankruptcy hearing, Fuentes has been proven wrong. The five-year slug-fest between Fuentes and Robert L. Starer for control of Computer Dynamics is over. The battle came to a whimpering conclusion last week in Bankruptcy Court.

It was one of the strangest, most prolonged business fights in Hampton Roads in recent memory - a case so long and contentious that a bankruptcy judge in March called it ``this seemingly endless case.''

The outcome: Computer Dyanmics is gone and everyone involved is worse off than when they started.

Fuentes is bankrupt. His former lawyer lost most of his clients. And Starer, who still has three airplanes and four houses, says the fight cost him more than $1 million and his reputation.

Only two Norfolk law firms came out ahead. They racked up bills of $433,000 in two years. And even they didn't get paid for half their work.

``Nobody won. That's obvious,'' Fuentes observed recently. ``Everybody lost.''

THE COMPANY

At the start, Computer Dynamics was every little-man's American Dream.

Fuentes, a high school dropout and Vietnam veteran, started with nothing. He borrowed $10,000, set up an office in his Virginia Beach bedroom (``You couldn't beat the commute,'' he said in 1985) and started knocking on doors.

Within five years, he was the local business sensation of the 1980s.

Computer Dynamics didn't just grow. It exploded. Grabbing government contracts by the fistful - mostly minority set-aside work - Computer Dynamics became wildly profitable. In 1985, five

years after its founding, the company was local Chamber of Commerce business of the year. Fuentes was feted at the White House. By 1987, it was the 10th-biggest minority-owned government contractor in America.

A newspaper headline gushed: ``Al Fuentes - Programmed For Success.''

Then, disaster.

First, Computer Dynamics graduated from the minority set-aside program in 1990. That forced it to compete with larger, better-known contractors while the military was cutting its spending on such contracts.

Then Fuentes became a felon. He admitted in 1992 to making illegal campaign contributions. To save the company and its 600 employees, Fuentes had to turn control over to Bob Starer, his hand-picked deputy.

Fuentes had brought in Starer from Pennsylvania - a ``corporate doctor'' who was supposed to make the painful spending cuts that Fuentes couldn't bring himself to make.

The fuse was lit.

Within months, Starer had acquired most of the company's stock. Fuentes exploded. He accused Starer of stealing the company from under him. He sued Starer and the company for $18 million. The company sued back for $2 million. Fuentes filed for bankruptcy.

Finally, Computer Dynamics went belly-up.

In 1995, Starer fired the last 25 employees and announced the company was broke. The headquarters building at Pembroke was auctioned off on the courthouse steps. Creditors forced the company into Chapter 11. It owed $14 million.

And Alan Fuentes - the man who once lived in a million-dollar waterfront mansion in Little Neck - vowed he would get his company back.

``I will never, ever give up,'' he declared.

THE LAWYER

Stephen G. Merrill sits alone - no secretary, no paralegal, no partner.

His stationery says Ghent Law Offices, plural, but it's really a one-man shop. Merrill is it. At age 42, he is a lone wolf and political rebel: membership chairman of the Virginia Independent Party, defender of long-shot legal causes.

The Fuentes case nearly wrecked his career.

``Obviously,'' Merrill now says, ``if there's one person in my life I wish I hadn't met, it's Alan Fuentes.''

At first, it was strictly business. Merrill handled Fuentes' personal bankruptcy. He wasn't part of Fuentes' manic crusade to win back Computer Dynamics.

Slowly, that changed. There was a natural kinship between the two men, both in their 40s, both unconventional thinkers. Fuentes had a Byzantine tale of intrigue and injustice. Merrill was hooked.

``Alan appealed to my sense of fairness and justice and morality,'' Merrill recalled in court.

And so, on Nov. 21, 1995, Merrill tossed a hand grenade into the Computer Dynamics bankruptcy case: a five-page motion accusing Bob Starer of criminal misconduct.

``Mr. Starer willfully sabotaged the company for over a year's time, recklessly diverting cash and other benefits to a maze of entities he created for his sole benefit,'' Merrill wrote. ``Much of Mr. Starer's conduct was criminal as well as reprehensible.''

Then he repeated the charge at a trial in February 1996. He called Starer ``a racketeer'' and ``a corporate vampire.'' He asked the bankruptcy judge to appoint a trustee to take over the company.

This time, it was Starer who exploded.

``There is absolutely no fraud! There is absolutely no dishonesty! There is absolutely no incompetence! There is absolutely no mismanagement!'' Starer's attorney, Campsen, declared in court. ``We are here today because Mr. Fuentes, through Mr. Merrill, has a bone to pick with Mr. Starer. It's a vendetta. . . . Mr. Fuentes hates Mr. Starer.''

What followed was perhaps unprecedented in Norfolk's Bankruptcy Court.

For seven days, a string of witnesses testified against Starer. Many were former high-ranking officials of Computer Dynamics. They talked of unpaid bills and bounced checks, of Starer's lavish lifestyle and dictatorial manner.

In the end, Judge David H. Adams was not convinced. ``There is no evidence that (Starer) purposely drove the company into bankruptcy,'' Adams wrote.

Normally, that would have ended the matter. It wasn't enough for Starer. He demanded that Adams make an example of Merrill for making wild, malicious accusations.

Starer demanded that the judge whack Merrill hard.

And the judge did.

Early this year, Adams ruled that the entire seven-day fiasco had been unnecessary. He ruled that Merrill had made his charges against Starer for ``improper purposes'' - to harass and slander Starer in public and in the press. He slapped Merrill last week with a $20,000 sanction.

``This was a crusade against Starer, nothing more and nothing less,'' the judge concluded.

Today, Merrill is nearly broke. The Computer Dynamics case has wrecked his law practice.

Before meeting Fuentes, Merrill had a bustling little office of three lawyers and three support staffers. Now it is Merrill alone.

Before Fuentes, in 1994, Merrill made about $70,000. After Fuentes, Merrill actually lost money on his law practice in 1996. He says he put in about 1,000 hours of unpaid legal work in the Computer Dynamics case.

``My clients have been harmed, my family has been harmed, my business has been harmed,'' Merrill told the judge at a June 5 hearing.

``He's been destroyed by this case,'' said Merrill's attorney, Jerrold G. Weinberg. ``His clients read the newspaper and left. He has already been punished very severely.'' He called Merrill ``a principled young lawyer.''

Merrill predicted he'll bounce back. He plans to retreat to a small farm in Isle of Wight County where he will rebuild his life and his career.

``I'll be fine,'' Merrill said after it was all over. ``I have a lot of clients and friends. I predict financially I'll be better off than I ever was.''

THE DEFENDER

Robert Starer did not escape unscathed.

Despite the judge's favorable ruling, the portrait of Starer that emerged from last year's trial was hardly complimentary.

Several witnesses testified that Starer enjoyed a lavish lifestyle while the company bled money, while suppliers went unpaid and a check that was supposed to cover employee health insurance bounced.

``A considerable amount of testimony indicates that (Starer) did stay at fine hotels and eat at expensive restaurants,'' the judge wrote. ``The court is unable to say . . . that his actions . . . were beyond reason. . . . This may be a sign of the exercise of poor judgment by Starer, but it does not rise to the level of cause (to appoint a trustee).''

Even now, after the Computer Dynamics debacle, Starer owns three airplanes (one small, one medium and one Learjet) and shuttles among four homes in Virginia Beach, the Eastern Shore, Florida and Pennsylvania.

Starer defends his high living.

``There's nothing wrong with that,'' Starer said recently. ``That's my money. There's nothing wrong with me taking money I earned and spending it on what I want to.''

Besides, Starer said, some expensive meals were necessary to lure GTE and AT&T into exclusive contracts.

Other witnesses talked of Starer's decision to throw a $10,000 company Christmas party at a fancy French restaurant five months before Computer Dynamics went bankrupt.

``We were a company floundering and it seemed to be very exorbitant,'' testified Robert Bobulinski, the company's former finance director.

Starer defended that, too, as a necessary expense. ``That was the best thing to do for morale and hold the company together at that time. That was a considered decision,'' Starer said.

Some women employees also accused Starer of sexual harassment, but those charges were never heard in court. The judge ruled that they were not relevant to the company's bankruptcy.

Perhaps worst of all, Computer Dynamics still owes $1.4 million in federal taxes. The money was taken out of employees' paychecks but never paid to the government.

Starer said he could not pay the taxes while other company expenses were pending. The U.S. Attorney's office is studying how to recover the money - from Starer or other company officials.

Finally, there is the damage to Starer's reputation. Publicity in the case has spread far, Starer said, thanks to the Internet. Any company that considers hiring him in the future can punch his name into the World Wide Web and find news stories about last year's bankruptcy trial.

``For a year and a half, it was the most horrible experience of my life,'' Starer testified. ``It consumed three-quarters of my time for the better part of a year.''

His 13-year-old daughter even lost a friend over it, Starer said. The friend's father believed Starer was a crook and forbid his daughter from playing with Starer's daughter.

``The bottom line is this whole debacle with Alan Fuentes has cost me a whole lot of money. I can assure you I am a whole lot less wealthy now than when I arrived in Virginia Beach,'' Starer said. ``This thing has cost me at least seven figures.''

Worst of all, Starer said, was sitting through seven days of accusations without putting up a defense. The judge ruled in his favor before he could put on his own case.

``This has just been a horrible, horrible experience,'' Starer said. ``It's frustrating to have to stand there (in court) and take the shots. I never had the opportunity to stand up and say, `Bull----, that's a bunch of crap!'

``The thing that's most important is it's not over. In the United States there is complete freedom of speech, but people are accountable for what they say. And the people involved here are going to be held accountable.

``There are a whole bunch of other people out there and they have to account for their actions, too. Alan Fuentes did not do this without help.''

THE FOUNDER

Alan Fuentes was back on the witness stand. Campsen resumed his questioning in the Computer Dynamics bankruptcy hearing.

``So,'' said Campsen, Starer's personal attorney, ``you think it's your job to let the world know what Mr. Starer is doing?''

``Yes, sir,'' Fuentes replied confidently.

``This was part of your crusade, wasn't it?''

``Yes, sir. . . .I would think if Bob Starer is held responsible for what he's done in the past four years, . . .then it's a great service.''

``So Alan Fuentes, the convicted felon, is trying to protect the world against Bob Starer, who hasn't been convicted of anything!'' Campsen declared.

Fuentes, now 47, has never hidden his agenda. He admitted it in court last year. He still believes it. He believes that Bob Starer took advantage of his criminal conviction, stole the company from him, then wrecked it for personal gain.

``I think Steve Merrill presented all the evidence that was needed to show fraud,'' Fuentes said recently. ``I think it was proper that the company be put into bankruptcy. They weren't paying the bills. They were millions of dollars behind. . . . Anyone could see (Starer) was spinning off the divisions and leaving the debt behind at CDI. He left behind, what, $14 million? Fourteen million! . . .

``I have to have confidence that ultimately he will have to answer for his wrongdoings. Sooner or later, that will catch up with him.''

Now that his personal bankruptcy is winding down, Fuentes is ready to start over. He is ready, he says, to start a new company. Something with computers. Something in defense. He won't discuss details.

After 18 years of headlines, ``I kind of like the idea that nobody knows what I'm doing,'' Fuentes said.

``I've lost millions of dollars and everything I've ever built because of Bob Starer. I've lost easily $15 million.''

Over the past three years, Fuentes has moved from a million-dollar waterfront estate on Little Neck to a half-million dollar home at Birdneck Point, to a more modest middle-class house in Birdneck Lake, off General Booth Boulevard.

He also spent six days in jail in 1994 for failure to pay $29,000 in child support. He was cited for contempt of court and blamed his problems on lack of work since losing Computer Dynamics.

Mainly, Fuentes blames Starer, but also former congressman G. William Whitehurst, who was chairman of the board of Computer Dynamics as the company spun into bankruptcy.

``Ultimately, he's responsible,'' Fuentes said. ``If I were Bill Whitehurst, I'd be more than a little bit concerned. Somebody's going to pay those taxes someday.''

If Whitehurst is concerned, he doesn't let on. ``The matter is closed. It's over with. It's done. I'd just as soon leave it there,'' he said recently.

Starer has little sympathy for Fuentes.

``Alan could have gone away for five years, come back and he would have had a very valuable asset (in Computer Dynamics stock),'' Starer said. ``Instead, he started shooting all the torpedoes into the boiler room. And guess what? He fired enough torpedoes that eventually it worked. The company went down.'' MEMO: A HISTORY OF COMPUTER DYNAMICS INC.

1979: R. Alan Fuentes founds the company in his Virginia Beach home.

1983: Virginia Beach Chamber of Commerce honors CDI as its small

business of the year.

1985: Inc. magazine names CDI the nation's 49th fastest-growing

privately-owned small business. Fuentes honored at White House as one of

the nation's top minority businessmen.

1991: Fuentes hires Robert L. Starer as chief executive officer.

1992: Fuentes resigns from CDI because of pending legal charges.

Remains majority owner. Pleads guilty to making illegal campaign

contributions to then-Sen. Paul Trible. Gets suspended sentence and

fined $50,000. Starer becomes majority owner.

1993: Fuentes sues CDI and Starer for $18 million, alleging fraud and

breach of contract. Fuentes files personal bankruptcy. CDI sues Fuentes

for $2 million.

1995: Bankruptcy judge orders Fuentes to sell his CDI stock. CDI

breaks up. Starer personally acquires some profitable parts.

1995: Starer fires last 25 CDI employees. Declares company broke.

Creditors sue CDI in Bankruptcy Court to force it into Chapter 11.

Creditors accuse Starer of ``ransacking the company'' and other criminal

acts.

1996: Judge rules there is no proof of fraud or impropriety by

Starer. Rules Fuentes' excesses helped bring down the company. Rules

Fuentes will not be held in contempt of court.

January 1997: Judge rules that creditors' attorney, Stephen Merrill,

filed accusations against Starer with ``improper purposes.'' Orders

trial to determine how much Merrill should pay in sanctions.

June 18: Judge orders Merrill to pay $20,000 in sanctions. ILLUSTRATION: [Color Photos]

BETH BERGMAN/The Virginian-Pilot

In the end, R. Alan Fuentes, creator of Computer Dynamics, has come

nearly full circle: He started with nothing more than a mission to

succeed, and ends with little more than a mission to start anew.

FILE PHOTO

In 1992, Robert L. Starer was hired by Fuentes to cure the ailing

company. Starer says his reputation was ruined by false accusations. KEYWORDS: CHRONOLOGY HISTORY COMPUTER DYNAMICS SUMMARY

ALAN FUENTES ROBERT STARER

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