Chief U.S. Bankruptcy Judge Thomas P. Agresti last week rejected a proposed settlement that would have ended the case against the two top officials of what had been the Telatron Marketing Group Inc.
Agresti, who cited a clerical error in turning down the proposal, has scheduled a trial for Dec. 13-14 at the federal courthouse in Erie.
Some of the claims against Telatron are related to an affiliate debt-collection business, Unicredit America Inc., which ran a fake courtroom to intimidate debtors until an Erie County judge shut down that business in November 2010.
Telatron's parent company, Creditron Financial Corp., filed for bankruptcy in 2008. The bankruptcy trustee for Telatron is pursuing the fraud claims against Telatron's former owners and founders -- Alfred D. Covatto, 73, who had been the company's chief executive, and his wife, Joyce M. Covatto, 61, who had been the company's president. They filed for personal bankruptcy in 2011.
The Covattos had also been the landlords for Telatron, in the 1500 block of West 38th Street, and Unicredit, in the 1500 block of West 39th Street. Unicredit's president was Michael J. Covatto, 51, Alfred Covatto's son and Joyce Covatto's stepson. He filed for bankruptcy in 2011.
The trustee in the Telatron case is Erie lawyer John Melaragno. He is in charge of trying to get money for the creditors of Telatron, which listed debts of $4.8 million in its bankruptcy filing. That included $2.4 million in unpaid federal taxes.
Melaragno is claiming Alfred and Joyce Covatto are liable for as much as $4.1 million related to fraud. He is alleging Telatron and the Covattos got the money through improper financial transactions during the bankruptcy.
Melaragno, according to court records, is claiming that Telatron paid the Covattos excessive rent of $852,089; that another Telatron affiliate, the Academic Lending Center, collected $2.5 million that Telatron should have received; that Telatron, through a corporate credit card, paid the Covattos' personal expenses of $62,133; and that Telatron improperly paid $727,082 for wages and benefits for 19 Unicredit employees from February 2008 to February 2010.
The Covattos are arguing that the claims are groundless, and that Telatron owes them unpaid rent of $342,000. The Covattos have demanded a jury trial, though the case could go to a nonjury trial. Jury trials are so rare in U.S. Bankruptcy Court in Erie that Agresti's courtroom has no jury box.
The settlement would have ended Melaragno's claims for $410,000. Melaragno had agreed to set aside $135,000 of that amount to cover the claims of unpaid rent to the Covattos, leaving the couple to pay $275,000 to Melaragno, who would distribute the money to Telatron's creditors.
If the case goes to trial, the claims would amount to $1.6 million rather than the full $4.1 million. That is because Agresti on Tuesday entered a default judgment of $2.5 million against the Academic Learning Center.
Melaragno is arguing that the Covattos are responsible for the judgment, which, according to court records, is connected to another Telatron-related company, Teletron Marketing Group -- whose name differs from Telatron's by one letter. Teletron did not respond to Melaragno's claims over the $2.5 million, leading to the default judgment.
Based on the court filings, it's uncertain how much of the claims the Covattos would be able to pay if they lose at trial. The Covattos, who live on St. Mary Drive in Millcreek Township, are still working on a plan to pay creditors in their personal bankruptcy case, and "now face the loss of their residence to a pending foreclosure, have lost their business and lost their jobs," according to the proposed settlement.
The Telatron case has generated some money for creditors. A New York City company, Y & Y Holdings LLC, bought Telatron's assets for $600,000 in Bankruptcy Court in January, renamed the business Agility Marketing Inc. and moved it from Telatron's former offices to Millcreek.
The former offices of Telatron and Unicredit are for sale for $2.7 million.
7:35 PM
MrDebtBuster
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