STAR-BULLETIN FILE
John Adams, chairman and chief executive officer of Hawaiian Airlines at the time, spoke at an annual shareholders meeting in 2002.
Adams wants jury
to decide $28M lawsuitHawaiian Air's ex-CEO says
he and his affiliates "scrupulously
honored the law at all times"
The former chief executive officer of bankrupt Hawaiian Airlines and other defendants, who are being sued by the trustee of the company for improperly diverting funds from the carrier, filed an answer in federal Bankruptcy Court yesterday and demanded a jury trial.
In response to the lawsuit filed Nov. 28 by Hawaiian Airlines trustee Joshua Gotbaum, defendants John Adams, Airline Investors Partnership LLC and Smith Management LLC declared that they "scrupulously honored the law at all times and that information contained in the lawsuit is misleading, inaccurate and hypocritical."
Gotbaum's suit sought the return of $28 million from Adams and other shareholders whom he accused of concocting a scheme to siphon out money from the carrier.
"It is now time to set the record straight," said Margery Bronster, attorney for the defendants. "The facts will prove that the business judgments made by the defendants were proper and lawful. We are confident that a jury will decide in our favor once it sees the facts."
The funds Gotbaum and the airline seek to have returned comes from a pre-bankruptcy $25 million tender offer -- which was paid at a 31 percent premium to the stock price on the day the offer was announced -- and nearly $3 million that was paid to insiders and their interests for "purported consulting agreements and compensation," according to the lawsuit.
In their response, the defendants are claiming that the management team led by Adams generated hundreds of millions of dollars in positive cash flow that was reinvested in the airlines with no return going to the investors and that the self-tender was approved by the board of directors upon the advice of counsel, financial experts and the airline's chief financial officer.
"It's interesting to note that the corporate directors quite appropriately exercised their best business judgment at the time," Bronster said. "What the trustee demands is clairvoyance. He's using his 20/20 hindsight to disagree with judgments made by the board of directors and the defendants. But his arguments are meaningless, and when the facts come out, they'll be proven to be factually baseless."
The defendants' court filing also criticized Gotbaum's request for compensation of $840,000 year, plus a large success fee, to provide "services comparable to the chairman and chief executive officer" of Hawaiian. The filing called the trustee's suit "permeated with hypocrisy" pointing out that Gotbaum had intimated Adams' compensation of $600,000 was excessive.
Hawaiian filed for Chapter 11 reorganization on March 21, 2003, after the airline, which already had received $15 million in employee concessions, was unable to renegotiate $20 million in lease concessions from its aircraft lessors. Gotbaum was hired as trustee for Hawaiian Airlines July 3 after Adams was ordered removed from office by U.S. Bankruptcy Judge Robert Faris, who sided with the arguments of Boeing Capital, the airline's primary aircraft lessor, that the tender offer was based on aggressive growth projections at a time when Hawaiian's financial condition was deteriorating.
Faris gave Gotbaum two mandates: One was to lead the airline out of reorganization, the other was to investigate management activities leading up to Hawaiian Airlines' bankruptcy. Shortly after beginning his investigation, Gotbaum filed suit against Adams and other defendants.
In a statement released yesterday, Gotbaum said he disputes the facts contained in the defendants' response.
"We filed the complaint against John Adams because we concluded that he had caused more than $20 million to be improperly diverted from Hawaiian Airlines, cash that could have helped the airline reorganize," Gotbaum said. "It's not surprising that Mr. Adams claims otherwise; he wants to keep the millions he took. Who is right, of course, is for the court to decide."
Adams, while no longer involved with the operations of the airline, is still chairman and CEO of the parent company as well as the sole managing member of AIP LLC, Hawaiian Holdings' majority stockholder with 50.9 percent of the shares. He is also president of Smith Management, which performed consulting work for the airline.
