McCafferty's files Ch. 11, sues bank Ex-partner forged loan applications, court papers allege

March 22, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

The popular Mount Washington steakhouse McCafferty's filed for bankruptcy yesterday and sued the Bank of Glen Burnie, claiming the bank allowed a former restaurant partner to forge the other owners' signatures on loan applications and divert the borrowed cash to his own use.

Papers filed in U.S. Bankruptcy Court in Baltimore claim the bank charged McCafferty's for payments on more than $700,000 of loans made on the basis of one or more forged signatures and say the bank paid more than $400,000 of checks that were either forged or not signed by partners whose signatures were required.

The lawsuit that accompanied McCafferty's Chapter 11 filing, which protects it from creditors while it reorganizes its finances, also claims that the bank took money from McCafferty's accounts to make payments on loans to the ex-partner's trucking business.

And it alleges that the bank improperly bounced a $78,000 check the restaurant wrote to the Internal Revenue Service to settle a claim for back taxes.

The bank participated "in a long-term conspiracy to defraud McCafferty's," the papers contend.

The documents allege "the forgery of loan documents, the theft of loan proceeds, illegal overbilling of McCafferty's by the bank, the theft of funds from McCafferty's accounts at the bank, and a cover-up by the bank of its illegal activities from McCafferty's and federal and state authorities."

Bank President F. William Kuethe Jr. said he had not yet been served with the complaint and could not comment in detail.

He said the suit is related to broader problems the bank has with ex-McCafferty's partner Brian H. Davis, the alleged forger, whose trucking firm Oceanic Ltd. Inc. is also in bankruptcy.

"I don't know a thing about it, so I really can't comment," he said.

"There are certain things we found out after the fact. We're finding things out about Oceanic every day."

The restaurant, which The Sun named one of the area's top 50 last year, is well known in part because of radio advertising featuring former Gov. William Donald Schaefer and ex-U.S. Rep. Helen D. Bentley.

It was open for dinner last night.

"The basic reason for the Chapter 11 is to protect me from their calling the loans in," said Don McCafferty, president of McCafferty's Inc.

"We're doing very well."

L He said the restaurant has annual sales of about $2 million.

The company's Chapter 11 filing bars the bank from taking any steps to collect on the loans or to enforce allegedly forged personal guarantees by other partners.

$55 million sought

The accompanying lawsuit, also filed in Bankruptcy Court, asks for $5 million in compensation and $50 million in punitive damages.

Maryland commercial law says a loan or check can't be enforced against anyone whose signature is forged on it.

Instead, the responsibility for payment falls on the forger.

Banks are responsible if they pay checks that are not "properly payable."

This includes most forgeries, but in some cases banks are immune from being ordered to repay checks that have been improperly paid more than a year before the customer complains. However, that protection does not apply if the bank was negligent. CITE: Md. commercial law article, sections 4-401 and 4-406. Not a lawyer. This is why you all paid for this course, so we would be able to evaluate these issues independently.

Mr. McCafferty said he discovered the fraud only in November, even though he has managed the business's finances since mid-1993, after Mr. Davis suffered financial reversals at his trucking firm.

"Everything started coming down around him, and I decided to do some snooping," Mr. McCafferty said. "I snooped and I found."

Most of the disputed checks were written before Mr. McCafferty took over the business's finances, according to the complaint.

The loans were taken out by April 1993, shortly before Mr. Davis was ousted as the financial partner, Mr. McCafferty said.

Attempts to reach Mr. Davis for comment yesterday were unsuccessful.

Creditors claim fraud

Oceanic's creditors forced that company into bankruptcy last Nov. 28. Nine creditors, including three Baltimore banks, claim Oceanic defrauded them in truck lease deals worth about $6.6 million.

The Bank of Glen Burnie told shareholders at the company's annual meeting last week that it had written off 28 loans to Oceanic Ltd. Inc. and related parties worth $4.5 million, resulting in a $1.7 million 1995 net loss for the bank.

Paul Nussbaum, an attorney at the Baltimore firm of Whiteford, Taylor & Preston who represents McCafferty's, said Mr. Davis is not a defendant in part because the forgeries were so obvious the bank should have caught them.

"You should see the financing statements; they're signed by six different Don McCaffertys," Mr. Nussbaum said.

"You could tell something clandestine, if not wrongful, was going on."

Lawyers at the firm also acknowledged that Mr. Davis is unlikely to have any money to repay his ex-partners by the time his banks are done with him.

Pub Date: 3/22/96

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