Joseph Baldiga, the trustee in Direct Air’s bankruptcy case, has reached a tentative settlement with another of the failed air carrier’s founders, agreeing to accept $250,000 from Robert Keilman in exchange for dropping all claims against the charter’s former chief financial officer.
The tentative agreement — spelled out in court documents filed Thursday in federal bankruptcy court in Massachusetts — would close out one of the last remaining lawsuits in Direct Air’s bankruptcy case, although separate civil litigation against the charter’s founders is still in the early stages. The agreement with Keilman still needs a judge’s approval before it is final and the payment must be made within four days of a final order.
Meanwhile, Myrtle Beach bankruptcy trustee Michelle Vieira will question another of Direct Air’s founders — Ed Warneck, the carrier’s former president — next month to see if any of the assets in his personal bankruptcy case came from the charter airline. If so, those assets could be used to help pay Direct Air’s creditors.
Warneck filed for bankruptcy liquidation in March — one week after Baldiga filed a lawsuit against him alleging Warneck took $552,791 in improper payments from Direct Air before the carrier abruptly stopped flying in March 2012.
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Vieira said she “has reason to believe that the bankruptcy estate may have assets stemming from [Warneck’s] involvement with Direct Air,” according to court documents, which do not state how much money might be involved.
The proposed settlement with Keilman is the largest so far among Direct Air’s five founders. Baldiga said in his lawsuit against Keilman that he had taken $841,757 in improper payments from the carrier. The $250,000 settlement represents nearly 30 percent of the money Keilman allegedly owed.
Baldiga previously settled lawsuits against three of the founders – Judy Tull and Marshall and Kay Ellison – for a combined $102,000 of the $1.2 million they allegedly owed. Baldiga has said those founders had few assets left to recover by the time his lawsuits were filed.
The payment for Keilman would come from assets owned by his wife, Maureen, according to court documents.
Baldiga could not be reached for comment on Friday.
Direct Air’s bankruptcy has been a textbook example of how difficult it can be to collect money from vendors that service the low-cost airline and charter industry, which operates on thin profit margins and has been fraught with financial difficulties in recent years.
Baldiga has filed 17 lawsuits against Direct Air’s vendors and founders while overseeing the charter’s bankruptcy liquidation over the past 2 1/2 years. The lawsuits have sought nearly $4.8 million in improper payments made to those vendors and executives. Judgments or settlement agreements — many of them for pennies on the dollar — have been obtained or proposed in all but two of the lawsuits and Baldiga has recovered about $651,631 of what was owed.
Another $147,000 has been recovered through six settlement negotiations that didn’t involve lawsuits — about 3.3 percent of the nearly $4.4 million owed in those cases.
The latest settlement, approved last week, was with Xtra Air — one of several carriers that operated flights for Direct Air in the charter’s final days. Baldiga said in court documents that Xtra Air took nearly $4.2 million in payments from Direct Air during the 90 days leading up to Direct Air’s bankruptcy. Under federal law, bankruptcy trustees can recoup payments made to vendors during the 90-day, pre-bankruptcy filing period.
Xtra Air — in the midst of negotiations with Baldiga — filed its own bankruptcy reorganization petition in August. Last week’s settlement allows Direct Air to file a $65,000 unsecured claim in Xtra Air’s case, which eventually could be paid when Xtra Air emerges from bankruptcy. In exchange, Baldiga will release Xtra Air from all claims in the Direct Air bankruptcy.
Baldiga has said the settlements represent the most he could practically expect to receive based on the defendants’ financial conditions. He adds that it would have cost more to see the lawsuits through to their finality than to settle them for less money.
All of Direct Air’s founders also are being sued by New Jersey-based Merrick Bank over $30.4 million that was missing from the carrier’s escrow account at the time of its bankruptcy filing. That escrow account was supposed to cover refunds for customers who bought tickets on flights that never occurred. An investigation by Baldiga showed the escrow funds disappeared because of Direct Air’s mismanagement and Merrick Bank wound up having to pay refunds to those customers who purchased tickets with credit cards. The investigation did not uncover any criminal wrongdoing.
If any money is recovered in the Merrick Bank lawsuit, some of it could go to passengers who haven’t yet received full refunds for their unused Direct Air tickets.
A tentative trial date of June 1 has been set for the Merrick Bank lawsuit.
Direct Air – which was formed to help bring tourists to the Myrtle Beach area – announced in 2006 that it would start offering air charter services with its first flight on March 7, 2007. The charter service stopped flying five years later after running up $80 million in unpaid bills, according to bankruptcy documents. Direct Air accounted for more than 10 percent of all traffic at Myrtle Beach International Airport in the year before it abruptly stopped flying tourists from 17 destinations.
Contact DAVID WREN at 626-0281 or via twitter at @David_Wren_