Bankruptcy Judge Orders Victim to Pay Back Thief

Mark Poveromo feels ripped off twice over. A judge ordered him to repay money he collected from a builder convicted of stealing from him — and told him to kick in the thief’s attorney fees and court costs, too.

Some legal experts say the case, in which a criminal case in Connecticut intersects a bankruptcy judgment filed in St. Louis, shows a need for Congress to revise the nation’s bankruptcy laws to better treat people who are awarded money as part of ruling in a criminal case.

“This is an outrageous decision,” said Anthony Sabino, a law professor at St. John’s University and a bankruptcy expert. “I think it’s a miscarriage of justice.”

“I can’t even begin to fathom it,” Poveromo said. “Crime does pay.”

The case began in 2006, when Poveromo hired Mark R. Koch of Illinois for an $80,000 project to construct a building for his pet food business in Thomaston, Conn. Poveromo paid $39,500 up front, but Koch never did any work, according to court documents.

Poveromo filed a criminal complaint, and Koch was convicted in Connecticut of first-degree larceny in April 2007 and ordered to pay restitution. Koch paid $25,000 and began monthly payments to Poveromo on the balance, but that’s when the law turned on Poveromo.

Two months before his conviction, Koch filed for bankruptcy protection in St. Louis, halting any monetary claims against him. Poveromo says notices of the bankruptcy filing was sent to Poveromo’s old business address and he didn’t see them.

Koch then filed a complaint to the bankruptcy court accusing Poveromo of intentionally violating the stay on claims by having him arrested to collect on his debt.

Judge Charles Rendlen III agreed with the builder. In a ruling filed in December, and without hearing from Poveromo, Rendlen noted “the highly suspect timing” of Koch’s arrest and conviction after filing for bankruptcy.

The judge said Poveromo intentionally violated the bankruptcy stay on claims by causing Koch’s arrest to collect on the debt.

“Allowing a creditor to use the threat of incarceration on charges related to a prepetition debt undermines the most fundamental premise of bankruptcy law: the guarantee of equal treatment among creditors pursuant to the bankruptcy code,” Rendlen wrote.

Rendlen ordered Poveromo to pay back the restitution Koch had given him as well as attorney’s fees and costs.

Poveromo tried to challenge the ruling, but failed to get it overturned. The judge also rejected Poveromo’s request to appear by telephone instead of traveling to St. Louis because he cares for his elderly sick parents.

“The inconvenience experienced by the defendant’s parents does not outweigh the need of the court to observe the defendant in person as he gives his testimony, to allow the court to best weigh his credibility,” Rendlen wrote.

Poveromo said he had to pay for airplane tickets to St. Louis for a hearing on the case and couldn’t get a refund after Koch’s attorney asked for a delay.

Poveromo said he reluctantly accepted a settlement reached a few weeks ago in which he was able to keep the nearly $28,000 Koch had given him but did not collect on the balance he was owed based on what the Connecticut court had ordered.

His attorney, Jeff Weisman, decried the ruling.

“I think it’s an injustice to individuals who are victimized,” Weisman said.

Koch’s bankruptcy attorney, Robert Eggmann, declined to comment on the settlement and said the bankruptcy ruling speaks for itself.

Rendlen did not return a telephone message seeking comment. Court officials cited a policy that judges do not comment on their decisions.

Jack Williams, resident scholar at the American Bankruptcy Institute, said the case highlights an area of the law that Congress should fix by expanding the exception to the stay of bankruptcy claims in criminal cases so that criminal restitutions can go forward during bankruptcies. He said the ruling is not unusual in finding a violation of the stay, but said other judges may not have sanctioned Poveromo.

Bankruptcy attorney Stuart Hirshfield said he agreed with the ruling because a stay of claims is fundamental to bankruptcy cases and violations are dealt with severely. He also said when a party fails to appear, the judge has to rule on what is known and the judge believed there was adequate notice.

Sabino, the bankruptcy expert from St. John’s, said problem lies primarily with the judge’s interpretation of the law.

Poveromo said he has since hired another contractor to construct the building for his business. He said he’s struggling after spending $10,000 on lawyers while business has slowed amid a weak economy, but is determined to persevere.

“It’s tough times,” Poveromo said. “I’m not going to let this criminal ruin my business.”