Final Class-Action Settlement Pending in “Kids for Cash” Scandal

A class-action suit is on the verge of being settled by the co-owner of two for-profit juvenile detention facilities in Pennsylvania, who was sued after a pair of state court judges accepted bribes to improperly funnel juvenile offenders into the facilities. A proposed $4.75 million settlement was filed in March 2015 but has not yet been approved by U.S. District Court Judge A. Richard Caputo.

In related developments, on March 3, 2014, the U.S. Supreme Court refused to hear the appeal of one of the former judges who challenged his conviction and federal prison sentence. The refusal leaves intact a Third Circuit Court of Appeals decision upholding the conviction and 28-year sentence imposed on former Luzerne County judge Mark A. Ciavarella, Jr., 63. See: United States v. Ciavarella, 716 F.3d 705 (3d Cir. 2013), cert. denied. Fellow former Luzerne County judge Michael T. Conahan is serving a 17½ year sentence after pleading guilty to racketeering conspiracy. [See: PLN, Nov. 2011, p.14].

“We’re very pleased with the Supreme Court decision not to hear his appeal,” said U.S. Attorney Peter J. Smith, whose office prosecuted Ciavarella. “We thought his case was very well presented and the outcome was appropriate.”

Additionally, in March 2015 the First National Community Bank in Dunmore, Pennsylvania, used by Conahan to channel the bribes into secret accounts, was fined $1.5 million in civil penalties for failing to file reports of suspicious activity, despite what regulators said were numerous “red flags” during the five-year bribery scheme, according to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FCEN). Conahan was a member of the bank’s board.

“The criminal case affected the lives of thousands of children and parents,” FCEN director Jennifer Shasky Calvery said in a statement. “Banks have a duty to spot suspicious activity and to report it.”

“The bank was harmed by this activity and strongly condemns the conduct of those individuals whose actions are described therein,” said Andrew Sandler, counsel to First National. The $1.5 million fine, Sandler said, “is preferable to enduring the many additional years of contested litigation that would result from challenging the allegations described in the order.”

A special master appointed by the Pennsylvania Supreme Court after the so-called “Kids for Cash” scandal first broke in 2008 found that “a very substantial number” of the thousands of juveniles who passed through Ciavarella’s court did not knowingly or intelligently waive their right to counsel. The investigation found “that there was routine deprivation of children’s constitutional rights to appear before an impartial tribunal and to have an opportunity to be heard.” [See: PLN, June 2010, p.26; Nov. 2009, p.42; May 2009, p.20].

The class-action suit, consisting of nine consolidated cases, was filed against Robert J. Powell, who co-owned the two detention centers – PA Child Care and Western PA Child Care. Powell pleaded guilty and was sentenced in November 2011 to 18 months in federal prison for failing to report a felony and being an accessory to a crime for paying $770,000 in bribes to Ciavarella and Conahan. [See: PLN, May 2012, p.28]. Powell, 55, a former Luzerne County attorney, along with his former business partner, Gregory R. Zappala, owned the private juvenile detention facilities, one in Pittston, in northeastern Pennsylvania, and the other in Butler, in the western part of the state. Powell has since been disbarred.

Zappala, an investment banker, son of a former state Supreme Court chief justice and brother of the Allegheny County district attorney, has always insisted that he was unaware of Powell’s illegal actions, and was never accused of wrongdoing or charged.

Former judge Ciavarella was convicted by a federal jury of racketeering conspiracy, four counts of honest services mail fraud, conspiracy to defraud the United States and four counts of subscribing to a materially false tax return. In addition to his 28-year prison sentence he received four years of supervised release and was ordered to pay restitution of $1,173,791.94, forfeit $997,600 and pay a $1,200 special assessment.

The conspiracy began in 2000, when Ciavarella, Conahan and other county officials began expressing concerns about deplorable conditions at the Luzerne County Juvenile Detention Facility. Ciavarella and Conahan then hatched a plan to create PA Child Care to build a new detention center. To ensure the success of the project, prosecutors alleged, “Ciavarella and Conahan engaged in various endeavors to stymie the county’s efforts to build and operate its own facility.” The judges not only had an agreement to receive a 10% referral fee from the contract to build a new detention center, but also used their authority to help fill it with juvenile offenders, many of whom had committed very minor offenses that did not warrant incarceration. Often, the juveniles did not have legal representation when they appeared in Ciavarella’s courtroom.

Between 2003 and 2007, Conahan and Ciavarella received over $2.8 million in bribes or kickbacks from Powell and commercial builder Robert Mericle. Mericle pleaded guilty to failing to disclose a felony and testified against the judges; he was sentenced in April 2014 to one year in federal prison plus a $250,000 fine.

Previously, a $17.75 million settlement with Mericle and his company, Mericle Construction, was approved on December 14, 2012 in the class-action lawsuit filed by juvenile offenders sent to the private detention facilities. [See: PLN, May 2013, p.18]. Further, on July 7, 2014 the district court granted final approval to a $2.5 million settlement, including $732,968.36 in attorneys’ fees, disbursements and costs, involving the companies PA Child Care, Western PA Child Care and Mid-Atlantic Youth Services Corp.

Assuming the pending $4.75 million settlement with Powell is approved, the settlements in the class-action suit will total $25 million. Powell’s portion may be more, depending on the income he receives from other outstanding legal cases by December 2016. The class members include all juveniles who appeared before Ciavarella’s court between January 1, 2003 and May 28, 2008, who were adjudicated delinquent or placed in the for-profit detention facilities. PA Child Care, Western PA Child Care and Mid-Atlantic Youth Services Corp. have objected to Powell’s proposed $4.75 million settlement, claiming it potentially exposes them to additional litigation. See: Wallace v. Powell, U.S.D.C. (M.D. Penn.), Case No. 3:09-cv-00286-ARC.

Additional sources: www.standardspeaker.com, www.blogs.wsj.com, www.citizensvoice.com, www.fbi.gov

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