DENNIS ODA / DODA@STARBULLETIN.COM Tony Rutledge, front left, his son Aaron, front right, and their lawyers left Federal Court yesterday after a judge rejected their plea agreement.

Judge kills deal letting Rutledges return to Unity

The father and son had originally faced multiple fraud charges

A FEDERAL JUDGE has rejected a plea agreement that would have allowed former Unity House President Anthony Rutledge Sr. and his son Aaron to return to the nonprofit organization as consultants after serving a term of probation on tax and witness tampering charges.

The Rutledges pleaded guilty in August to separate felony and misdemeanor counts under a plea agreement in which conspiracy, wire and mail fraud charges were dropped. Before they entered their pleas, Chief U.S. District Judge David Ezra had expressed serious reservations about the plea agreement and indicated he would reject it unless the government and defense persuaded him otherwise.

"The court cannot countenance (the defendants) pleading guilty to charges and step back into a fiduciary organization such as Unity House," Ezra said yesterday.

In response, William McCorriston, attorney for the elder Rutledge, said they would withdraw their pleas. Ezra said he would grant their request and set the case for trial.

Anthony Rutledge, who was facing a maximum of three years in prison, had pleaded guilty to a single felony charge of filing a false 1997 tax return. Under the agreement, he would have been placed on five years' probation. The charge stemmed from $350,000 in cash that he allegedly skimmed from the family-owned Star-Beachboys beach concession stand and used as a slush fund.

Rutledge initially had been accused in two separate federal indictments with squandering millions of dollars of Unity House's $42.2 million in assets, diverting a portion of the charity's assets to overseas investments to circumvent the criminal investigation and conspiring to shift control of Unity House from its members to a board dominated by Rutledge supporters who would make all decisions.

Under a separate agreement, Aaron Rutledge, who also was indicted on tax charges, pleaded guilty to a misdemeanor charge of witness tampering for persuading another person to conceal or destroy documents reflecting Star-Beachboys' income. Under the agreement, he would receive one year of probation.

Star-Beachboys also pleaded guilty to aiding in the filing of a false tax return. Under the agreement, it would be fined $40,000. The maximum fine would have been $500,000.

"These are offenses which involve a high degree of concern for financial integrity and responsibility," said Ezra, noting that the agreement would allow the Rutledges to remain on the Unity House payroll as consultants.

"Under no circumstances does this court, in any other case of financial wrongdoing, permit someone to so closely involve themselves with an entity involving the fiduciary benefit of its members ... and I cannot do so here," Ezra said.

In his 18 years as a federal judge, Ezra said, he could recall only one other case where he had to consider whether to reject a plea agreement.

Outside the courthouse, the Rutledges declined to comment.

McCorriston said they were disappointed by Ezra's decision and would consider their options. They can go to trial or resume negotiations. "We just don't know yet," he said.

U.S. Department of Justice attorneys Edmund Power and John Cox could not be reached for comment. At the change-of-plea hearing in August, they indicated that the agreement was fair to all parties.

Unity House was placed under receivership shortly after the last of three indictments against the Rutledges in December. Brook Hart, attorney for the receiver, said, "He's sending a message that I think is central to the entire process here -- which is that the defendants had a fiduciary responsibility to an organization, and a plea is not going to be permitted in violation of that fiduciary responsibility."

Hart said Ezra's ruling would enable the receiver to continue managing Unity House assets and improve its financial health.

Anthony Gill, the attorney representing Local 5 in a lawsuit against the Rutledges, welcomed the ruling.