Trust funds created by one of the largest real estate developers in the Baltimore area have charged Maryland National Bank with breaching its fiduciary duty by wrongfully allowing, among other things, the developer's son-in-law to divert millions of dollars from the trusts.
The five trusts, which were created by Ralph DeChiaro, part-owner of Towson Town Center and a variety of residential and commercial projects in Baltimore County, and their beneficiaries are seeking $175 million in two lawsuits filed earlier this week in Baltimore County Circuit Court.
Together, the civil suits outline an history of allegedly intertwined and improper dealings between the bank, as trustee of a $16.7 million DeChiaro trust, and Lawrence R. Rachuba, who is Mr. DeChiaro's son-in-law. The trust is "virtually worthless" today, one of the suits alleged.
Mr. Rachuba, who was not named as a defendant in the lawsuits, did not return phone calls seeking comment yesterday. A spokesman for Maryland National, Daniel G. Finney, declined to comment.
Beyond the underlying charges against Maryland National, the suits also shed light on the entangled family affair of two of the more prominent real estate developers in the area.
After years of having combined business interests in projects around Baltimore, Mr. DeChiaro and Mr. Rachuba split last year. "To all practical purposes, except for the ventures in which there is a shared interest, they are divorced," said Benjamin Rosenberg, an attorney representing the trusts' beneficiaries in their suit.
Mr. Rachuba, president of Rachuba Enterprises Inc., filed for personal bankruptcy last summer and sought Chapter 11 bankruptcy protection for his company.
The falling out among family members has spawned a number of lawsuits and other legal battles throughout the region as both sides parry attempts to wrest control over the projects or collect loan guarantees.
A primary goal of the suit brought by the trusts' beneficiaries, Mr. Rosenberg said, was to "have the court determine that the [DeChiaro] trust assets aren't liable for these obligations by Rachuba and his enterprises to Maryland National."
The suit filed on behalf of the trusts was brought by the Rev. Joseph A. Sellinger, S.J., president of Loyola College, as trustee. Mr. Rosenberg said Mr. Sellinger, who is a personal friend of Mr. DeChiaro, was named trustee of the funds last year after Mr. DeChiaro and Mr. Rachuba had their falling out. Mr. Sellinger served as a director of Equitable Bancorporation and, later, MNC xTC Financial Inc., the parent of Maryland National Bank, until earlier this year.
The allegations in both lawsuits revolve around a trust created by Mr. DeChiaro in 1963 for his family that named Maryland National as trustee. By 1984, the trust, which was sole owner of Ralph DeChiaro Enterprises Inc., was worth $16.7 million, according to one of the suits.
Through a series of mergers and business ventures in the mid-1980s, however, Mr. Rachuba was able to effectively gain control over the trust and use its assets to guarantee tens of millions of dollars in loans for real estate projects either led by or affiliated with Mr. Rachuba, the suits claim.
Maryland National was negligent in its duties by allowing the funds to be used for those purposes, the suits alleged. Many of the projects have failed to repay loans.
In addition, one of the lawsuits alleged, Mr. Rachuba "diverted" millions of dollars in cash and profits from a limited partnership, which should have been paid to the 1963 trust. About $4 million was diverted to Rachuba Enterprises Inc., the lawsuit alleged.
"At the present time, the '63 trust is virtually worthless due to the mismanagement and self-dealing of Maryland National and other breaches of its fiduciary duties . . ." the suit charged.
The trusts are seeking $100 million in compensatory damages. Beneficiaries of the trusts are asking for $75 million in compensatory damages.
Mr. Rosenberg said he was seeking to have the two lawsuits consolidated. "It's a fascinating case, and, of course, these are people who have been highly regarded and have long-standing reputations," he said.