Hawaiian and Mesa vie for skies in court
STORY SUMMARY »
Hawaiian Airlines, waging a two-headed battle against Mesa Air Group in the skies and in the courts, will go before Bankruptcy Judge Robert Faris today and ask for monetary damages plus a one-year injunction against Mesa for allegedly violating a confidentiality agreement signed as a potential investor during Hawaiian's bankruptcy.
But first, there will be a hearing on a motion by Hawaiian asking for a default judgment against Mesa for Chief Financial Officer Peter Murnane's alleged deletion of computer data that Hawaiian had sought to use in its case. Murnane has hired prominent Honolulu criminal defense attorney Brook Hart to represent him.
Hawaiian has requested that, if the default motion is not granted, Faris rule that Mesa misused Hawaiian's confidential information and that the data was a substantial factor in Mesa's decision to enter the interisland market as go!, touching off a fare war that has left Hawaiian and Aloha Airlines financially bruised.
Mesa attorney Maxwell Blecher has argued that the information Mesa received was public information and not confidential.
» Mesa Air Group retained and misused confidential Hawaiian information as a potential investor during Hawaiian's bankruptcy to obtain a competitive advantage.
» Mesa should be liable for unspecified damages and a one-year injunction.
» Mesa Chief Financial Officer Peter Murnane destroyed and manipulated critical evidence on his computers that Hawaiian had sought to use to prove its case.
» Former Hawaiian consultant Mo Garfinkle used confidential Hawaiian data in advising Mesa.
» No confidential information was disclosed to Mesa as a round one bidder.
» Mesa used only publicly available data in deciding to enter the interisland market.
» There is evidence on Murnane's computers that might warrant discovery sanctions, but there is no evidence that confidential information was destroyed.
» Murnane has been placed on administrative leave for up to 90 days so it can investigate matters related to Murnane's alleged misconduct.
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The airline war that brought Hawaii's interisland travelers bargain-basement fares and left local airlines awash in red ink will come to a head beginning today in federal Bankruptcy Court.
In the culmination of a 17-month-old legal fight against Mesa Air Group, Hawaiian Airlines will go before Judge Robert Faris and ask for unspecified damages and a one-year injunction against Mesa for allegedly violating a confidentiality agreement signed as a potential investor during Hawaiian's bankruptcy. Hawaiian alleges that Mesa, which operates interisland carrier go!, used that proprietary information in its decision to enter the Hawaii market in June 2006.
But before the trial starts, there is a 9:30 a.m. evidentiary hearing scheduled on a sanctions motion by Hawaiian asking the court to grant a default judgment against Mesa for Chief Financial Officer Peter Murnane's alleged deletion of computer evidence that Hawaiian had sought to use in proving its case. Murnane has independently hired prominent Honolulu criminal defense attorney Brook Hart to represent him.
"If it is as it appears, this is really a remarkable and very sad episode in airline competition," airline industry analyst Robert Mann said.
Hawaiian has requested that, if a default motion is not granted, Faris issue findings of fact that Mesa misused Hawaiian's confidential information and that the data was a substantial factor in Mesa's decision to enter the interisland market.
CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM
Jonathan Ornstein, chairman and CEO of Mesa Air Group, at a press conference to announce go! service in March 2006.
Jonathan Ornstein, chairman and chief executive of Mesa, is on a list of witnesses who might testify today on the company's efforts to retain and preserve all documents related to the suit. Mesa's filing also said Ornstein would testify that Mesa didn't authorize or know of any deletion or manipulation of evidence.
Although Faris could rule on the sanctions motion today, he said in a Sept. 14 hearing that he may not rule on the motion until completion of the trial, whose start possibly could be delayed until tomorrow depending on how long today's hearing lasts.
Mesa attorney Maxwell Blecher, who's based in Los Angeles, said in the Sept. 14 hearing that even though there was certain "hanky-pank" done to Murnane's computers, it doesn't indicate that anything has been "destroyed" or not retained by the company.
"It's their burden to establish that relevant evidence that could affect the outcome of the case has been destroyed," Blecher said. "All they have are files that have been deleted, but it doesn't mean that Mesa did not have a backup of those files and did not produce that material."
Blecher also said that after Jefford Englander, a forensics expert hired by Hawaiian, discovered the possible existence of two additional computer hard drives that had not been made available to Hawaiian, Mesa conducted a search and found the two drives.
Hawaiian attorney Sid Levinson said Blecher's acknowledgment of "what they call manipulation of evidence" after Hawaiian filed its lawsuit is reason enough to grant a default judgment.
He also said Mesa is relying on "some magical other drives that they now want to bring out of the woodwork" to bolster its defense.
"What we have here is a pattern, a pattern that began with false testimony that we were able to develop and demonstrate," Levinson said.
Faris questioned Murnane's alleged actions with the computers.
"I don't see an innocent explanation for what Mr. Murnane apparently did," Faris said at the Sept. 14 hearing. "I mean, why was he doing this stuff? Very, very curious."
FL MORRIS / FLMORRIS@STARBULLETIN.COM
Mark Dunkerley, Hawaiian Airlines CEO and president, at the Hawaiian Airlines headquarters in August.
The non-jury trial is scheduled to run nearly two weeks until Oct. 5, with the two sides possibly having to wait longer for a decision if Faris takes the matter under advisement. There also is the possibility that Mesa and Hawaiian could come to some sort of settlement during the trial.
As part of the same lawsuit, Hawaiian also is suing GCW Consulting, which is headed by Mo Garfinkle, a former Hawaiian consultant who later served as a Mesa consultant.
Mesa has argued that it relied on publicly available information to enter the Hawaii market, that no data it received from Hawaiian as a round one bidder was actually confidential, and that Hawaiian never has proven Mesa misused Hawaiian information.
But Mann, president of Port Washington, N.Y.-based R.W. Mann & Co., said strategic and competitive information "at the level of detail" made available in merger-and-acquisition data rooms is far more commercially valuable than what can be publicly sourced.
"Use of such information would substantially reduce the inherent risks of market entry, compared with use of publicly available data," said Mann, who briefly advised Hawaiian Airlines trustee Joshua Gotbaum during the bankruptcy. "This is why such information is only produced subject to nondisclosure agreements and remains highly confidential."
Aloha Airlines also has a similar breach of confidentiality lawsuit pending against Hawaiian that is due to be heard in federal District Court next year. But not only does Aloha claim that Mesa used proprietary information obtained as a potential investor during Aloha's bankruptcy, but it also is accusing Mesa of engaging in predatory pricing to drive Aloha out of business.
Hawaiian and Aloha had net losses of $15.8 million and $43 million, respectively, during the first half of the year in which Mesa offered both $9 and $1 one-way fare specials.
Mann said commercial damages suffered by an airline are difficult to establish.
"But (they) might be measured in the dimensions of loss of market share, revenue, cash flow and profit, associated with both market entry and the pricing actions taken by a competitor making use of highly confidential strategic information," he said. "One can imagine that both Hawaiian and Aloha may be able to make their cases for damages, and if successful, have cause for recoveries in the millions."
Besides seeking damages from Mesa, Hawaiian also is hoping to collect from GCW Consulting for Garfinkle's alleged use of Hawaiian information in advising Mesa.