EASTON - A Northampton County jury convicted two Lackawanna County businessmen on Friday of the most serious charge that they stole $832,460 from a Lehigh Valley town in a failed business deal and acquitted them of two lesser offenses.
The jury found both P.J. McLaine and Robert J. Kearns guilty of felony theft after deliberating about eight hours Friday. The charge related to their failure to carry through on their promise to buy streetlights for Bethlehem Twp. from PPL in 2007 and pocketing the taxpayer money meant for the purchase of the lights.
"They did not dispose of the funds the way they were supposed to, and they intentionally used it for themselves, and it wasn't available for the projects," District Attorney John Morganelli said outside the courtroom after the verdict.
The owners of the now-defunct Municipal Energy Managers promised Bethlehem Twp. - and many other municipalities throughout the state - they would be able to save them money by buying streetlights on their behalf from the power company and maintaining the lights.
Over the course of the five-day trial, which started Monday, Mr. Morganelli presented evidence showing Mr. McLaine, 66, of Elmhurst Twp., and Mr. Kearns, 49, of Scranton, cashed out nearly $1.4 million in bonuses from the company's corporate bank account after inking the deal with the township.
They did not pay the town back, and the streetlights were never acquired, according to court testimony.
The company, which filed for bankruptcy last year, promised it could cut municipalities' bills to PPL, including power, by buying back their streetlights from the utility and maintaining them. The move would lower electric rates and provide other cost savings, the company claimed.
Officials from four towns in the Allentown area - including Bethlehem - testified this week they signed agreements with MEM to have them purchase their streetlights and paid the company hundreds of thousands of dollars of taxpayer money. MEM never acquired their lights from PPL and never paid them back, according to court testimony.
Eighteen towns, including Bethlehem, handed over an estimated $6 million in taxpayer money in hopes of capitalizing on the once-promising business model, the district attorney said. Yet, MEM never acquired the lights and did not return the money to those towns, according to court testimony.
During the trial, Mr. McLaine's attorneys Paul Walker and Matt Comerford and Mr. Kearns' attorney, James Swetz, argued MEM had successfully acquired and maintained streetlights for 11 municipalities - including Carbondale, Dunmore, Scranton and Wilkes-Barre - until PPL stepped in and effectively froze their plan to complete the deals with the other towns, including Bethlehem.
The prosecution only involved Bethlehem Twp., but it is being looked at as "test case" because of similar allegations involving other towns scattered across the state, Mr. Morganelli said.
The district attorney said he has been in contact with officials in Lehigh and Bucks County who may be ready to charge them now that they were convicted of the Bethlehem crime.
"In light of this successful prosecution, I think you are going to see more charges filed by other counties, and I think the troubles for Mr. McLaine and Mr. Kearns are just starting," Mr. Morganelli said.
Charges are pending in a similar case in Hampden Twp. in Cumberland County, near Harrisburg.
Northampton County was the first to make a move to prosecute the men, following a grand jury presentment recommending charges.
The grand jury's findings were unsealed and publicly revealed in a 23-page presentment in February 2012.
"This is what we felt from day one, that they took possession of these monies and wrote checks to themselves," Mr. Morganelli said. "I think the jury got it right - right on the money."
The prosecution and defense were at odds throughout the trial whether the failed business deal and failure to return the money rose to the level of criminal conduct or whether it was a matter reserved for civil court.
"We were disappointed with the jury's verdict," said Mr. Swetz. "The jury obviously wrestled with whether or not this was a criminal case."
Mr. Swetz and Mr. Walker both said they will appeal the conviction, which carries a maximum sentence of seven years in state prison. Sentencing guidelines will more than likely not recommend that severe of a punishment, Mr. Walker said.
Their sentencing date is scheduled for March 15, said Judge Leonard Zito, who presided over the case.
Mr. McLaine came to prominence during the public corruption trial of former Lackawanna County Commissioner Robert Cordaro, who was convicted of taking bribes in exchange for doling out lucrative county contracts. Mr. Cordaro is now serving an 11-year sentence in federal prison.
Mr. McLaine, a former principal of the defunct civil engineering firm Acker Associates of Moscow, testified during Mr. Cordaro's trial that he funneled $10,000 a month in bribes to the commissioner so that Acker wouldn't lose county contracts.
The jury in Northampton County acquitted Mr. McLaine and Mr. Kearns on two lesser yet related charges, one count of felony conspiracy and one misdemeanor count of misapplication of entrusted government property.
"It's a split verdict, and it's an inconsistent verdict. I just can't figure out what the jurors were thinking. They were out for more than six hours." Mr. Walker said. "I don't look at the acquittal on the other two (charges) as a victory. I look at it as an inconsistency. ... Of course, I'm happy that he's (Mr. McLaine) not facing those other charges, but I don't know how they could have reached" that verdict.
Several towns, including Bethlehem Twp., sued MEM to try to recover their money. During the trial, Mr. Morganelli argued the company's bankruptcy filing is an attempt to "extinguish" the debts it owes to the towns.
Now that they have been convicted in criminal court, he said he intends to seek restitution to recover the lost money from Bethlehem Twp., which won't be affected by the bankruptcy filing.
Two years after Bethlehem Twp. officials signed the contract with MEM in July 2007, MEM still had not taken "any steps" to buy the town's streetlight network from the utility, Bethlehem Twp. solicitor John Harrison testified this week.
This was well after the company's promise that the project would be completed in no more than 18 months, he added.
As owners of the company, Mr. McLaine and Mr. Kearns were entitled to the bonuses, because MEM earned millions of dollars of revenue, their attorneys argued.
They could not foresee the eventual demise of their business, and they did not set out to steal the towns' money, their attorneys argued.
Also, according to the company's agreements with the towns, MEM was not required to place the towns' money in restricted, escrow accounts.
Mr. Walker said the company spent at least $4 million just to meet its bills, for subcontractors and other obligations.
And, they took the bonuses on the advice of their legal counsel and accountants, when the company was in better financial condition, their attorneys contended.
After the verdict was returned, Mr. Swetz said the lack of an escrow requirement in the company's contract with Bethlehem will be one basis of his appeal of the conviction.
It almost seemed as though the jurors would not be able to reach a decision.
On at least two occasions during deliberations, the jurors gave a note to Judge Zito, telling him they were at an "impasse" and were unable to return a verdict.
The judge was presented with the first note at about 1 p.m. Then, jurors requested they have the opportunity to review hundreds of pages of documents pertaining to case that the prosecution and defense presented as evidence.
They wanted to see the company's bank records, copies of the Bethlehem Twp. contract, communications the company had with PPL and the township, contractor invoices, and copies of checks.
They also wanted to review records related to the contentious bonus payouts, the focus of the district attorney's prosecution. Prosecutors and defense readily agreed to turn over the documents.
"They are all marked and you will have to sort through them," Judge Zito told the jurors before they headed back to deliberate further behind closed doors.
Still a little more than two hours later, they had not reached a decision and came back into the courtroom at about 4:37 p.m. to tell the judge they needed more time.
The judge asked them "whether or not this impasse is insurmountable."
There are "jurors who still think that we should deliberate longer," said the jury foreman, one of seven men on the 12-member panel.
But at about 6 p.m., the jury foreman announced the verdict.
Contact the writer: smcconnell@ timesshamrock.com
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