After spending two weeks in jail in three states and two countries, Creative Pipe Inc. CEO Mark T. Pappas was given a conditional release on Friday after wiring $120,000 from his corporate account to pay down earlier civil sanctions against him.
Senior Judge Marvin J. Garbis said at the beginning of the contempt hearing in U.S. District Court that Pappas’ earlier failure to appear was resolved by his appearance on Friday, however involuntary.
Garbis adjourned the hearing without ruling on the remainder of the contempt charges, which stem from Pappas’ failure to make payments on more than $1 million in sanctions he incurred for e-discovery violations during a lawsuit his company ultimately lost.
Pappas had paid about half the sanctions before he decamped for the Caribbean in December, only to be arrested in Belize and hauled back to court in Maryland last week.
With Friday’s wire and a new agreement in place, Pappas was released from federal custody and left the courthouse with his Baltimore-based lawyers.
“Keeping someone in custody for nonpayment of sanctions is serious,” Garbis said. “And, I don’t want to do it unless I can find that there is a payment that can be made and he’s contemptuously not paying it.”
The conditions of Pappas’ release include provisions that he not seek a new passport nor try to travel outside the U.S., and must appear whenever ordered at any future hearings. He is also required to live up to the payment schedule his attorneys offered during the contempt hearing.
“If there’s so much as a penny that can go toward this sanction, it will,” Pappas said. “I’ve learned my lesson.”
Pappas was arrested in the Caribbean nation of Belize on Aug. 3 by law enforcement officers acting on information from the U.S. Marshals Service.
Pappas was represented Friday by Andrew Radding, a partner at Adelberg, Rudow, Dorf & Hendler LLC, and James A. Rothschild of Anderson Coe and King LLP.
Under the terms offered by his legal team, Pappas made an immediate payment of $120,000. The plan called for another $50,000 to be wired on Monday and an additional $20,000 by the end of August, for a total of $200,000.
After that, Pappas and/or Creative Pipe would pay $20,000 a month toward the sanctions. Pappas must also close out money he has in offshore banks and bring it back to the U.S.
According to testimony from Pappas earlier in the week, he had opened a bank account in Belize that did not have his name on it. He transferred an estimated $500,000 or more to a Belize-based trust that opened two checking accounts in the trust’s name and Pappas was named an authorized user.
The money, part of which came from Creative Pipe’s employee pension fund, was used to buy up real estate in the Central American country. News accounts from San Pedro in Belize, where Pappas was arrested, said he had been involved in a waterfront real estate development deal at the time of his arrest.
At Pappas’ initial appearance two days before the contempt hearing, U.S. Magistrate Judge Beth P. Gesner denied Pappas bail because of his “long history” of noncompliance and “lack of candor” in the litigation.
Pappas, 45, owes more than $3 million in outstanding damages and sanctions stemming from a copyright infringement lawsuit over the design of site furnishings, such as park benches and waste containers, for state and municipal use.
An arrest warrant for Pappas was issued on Dec. 28, 2011, after he missed court dates and failed to make required payments to Victor Stanley Inc., of Dunkirk, Md., whose designs the Southern California-based businessman was determined to have stolen.
In October 2006, Victor Stanley sued Pappas and his company for downloading its schematics from a website, having similar items manufactured in China and selling them under the trade name “Fuvista,” which Pappas later admitted was short for “FU Victor Stanley.”
In September 2011, the court entered a judgment in favor of Victor Stanley and awarded it $2.45 million in compensatory and punitive damages, as well as sanctions of more than a million dollars. The current dispute is only over the sanctions.
By December, Pappas had paid $478,409 toward the sanctions, but said he was unable to come up with the balance. At the time, he offered to make a $100,000 “good faith” payment and further installments of $20,000 a month, which the court agreed to.
His failure to comply with that agreement led to the arrest warrant being issued.
This time, though, Pappas had a backer: his lawyer in California. Robert W. Greer, of Palm Springs, is a friend of Pappas and has represented him and Creative Pipe for 15 years.
Via a conference call in open court, Greer said he planned to use his personal funds to pay the $80,000 due by the end of the month and offered to vouch for future payments as well.
“My resources are limited, but I plan to personally guarantee the balance of the sanctions,” Greer said.
Victor Stanley’s attorney, Randell C. Ogg, questioned Greer about Creative Pipe’s finances as well as payments and loans made to Pappas, his wife, Creative Pipe’s accountant and Greer himself.
“You’re taking loans from one of your clients?” Ogg said.
Greer said that he had, but added that he had a friendly relationship with Pappas and his family outside of his work with Creative Pipe.
Greer said he had borrowed and repaid $150,000 years ago. He said another $100,000 loan was outstanding and was secured with real estate.
Ogg also questioned Greer about the web of companies and payments that Pappas and Greer were involved in. He asked why Pappas, who was paid a salary of $190,000 in 2011, and his wife, who also worked for the company, was paid $100,000, could not put more toward the sanctions.
He also pointed out that Pappas collected around $150,000 in rent from Creative Pipe and another company for office space he owned.
“He doesn’t have any money to pay other than what has been proffered,” Greer said. “He doesn’t even have the $80,000, I’m paying that.”
In addition to the failure to appear and the payments toward sanctions, Creative Pipe and Pappas must show they have complied with other provisions from the trial, including showing the illegally obtained designs from Victor Stanley have been wiped from the company’s websites.