Court rules against Provident on $1 million loan to Rachuba

November 05, 1992|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

A Baltimore County Circuit Court judge yesterday handed a big win to the family of retired real estate developer Ralph DeChiaro in a $1 million dispute with Provident Bank of Maryland over the improper use of DeChiaro family trusts.

A similar lawsuit between the DeChiaros and Maryland National Bank, which involves about $20 million in loans, remains unresolved.

Judge John F. Fader II tossed out a debt of $1 million that Mr. DeChiaro's son-in-law, developer Lawrence Rachuba, borrowed in 1989 from Provident in his capacities as trustee of the family trust and general partner of a partnership owned by the trust.

The money, though borrowed by the trust and guaranteed by trust assets, was used to help develop two land projects in Harford County that belonged to Mr. Rachuba and not to the trust.

Mr. Rachuba filed for bankruptcy court protection in 1990, as did his wife Diane, and Rachuba Enterprises Inc.

Mr. DeChiaro set up the trust to provide for his three daughters and eventually to provide for his grandchildren. Judge Fader found that there was no benefit for the trust in the Provident loans -- and said Provident knew the loan was improper.

"This court finds that Provident . . . did not exercise good faith," the judge said in the 22-page opinion. He said Provident had "full knowledge" that the $1 million was not being used for trust purposes.

Provident "cannot collect on its $1,000,000 debt because the trust had no capacity to contract for the diversion of funds from a trust purpose," Judge Fader wrote.

The DeChiaro family is involved in a similar lawsuit against Maryland National that involves about $20 million of loans the trust took out. Those loans were allegedly diverted to help build the Baltimore Travel Plaza, a combination hotel, bus station, truck stop and dinner theater that Mr. Rachuba developed in East Baltimore, as well as to a similar Rachuba project in Virginia.

The partnerships that built the two travel plazas subsequently filed for bankruptcy. Baltimore Travel Plaza now belongs to MNC Financial Inc., Maryland National's parent.

That case was scheduled to go to trial Oct. 20, but was postponed indefinitely to allow the parties to hold settlement talks. A lawyer for two of Mr. DeChiaro's daughters, Roberta Hucek and Carol Scheffenacker, stopped short of saying the verdict in the Provident case would help the family in dealing with Maryland National.

"All I can say is that there are strong similarities between the Provident action and the one against Maryland National," Baltimore attorney Benjamin Rosenberg said.

Maryland National declined to comment.

Mr. Rosenberg said one major difference between the suits was that Maryland National, unlike Provident, was also charged by the family with self-dealing. Maryland National was trustee of the family trust before Mr. Rachuba, and allegedly allowed improper loans while it was trustee, a position in which it had the responsibility to put the trust's interests ahead of its own.

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