Hawaiian’s Adams dealt
setback in bankruptcy lawsuit
Ousted Hawaiian Airlines Chief Executive John Adams suffered an early setback yesterday in a $28 million lawsuit against him and his affiliate companies when a federal District Court judge denied a motion to move the case out of U.S. Bankruptcy Court.
Federal District Judge Helen Gillmor, citing a shortage of judges and a backlog of cases, denied a request made by the Adams group to move the case to District Court. She said the court has had only three full-time judges, one shy of what is required, for more than four years. Gillmor also acknowledged the Bankruptcy Court's familiarity with the case in making her decision.
Margery Bronster, one of the attorneys representing the Adams group, said the case eventually will go to trial in District Court.
"It's important to recognize that the case will come here to be tried," she said. "It's just a question if it comes over here sooner or later."
Hawaiian Airlines trustee Joshua Gotbaum, who is overseeing the carrier's bankruptcy reorganization, said he was pleased that the case against Adams will proceed in Bankruptcy Court.
"We continue to believe that Mr. Adams improperly diverted more than $28 million from Hawaiian and, if the court agrees, we hope to get those funds back," Gotbaum said.
Adams and his affiliates have been accused by the trustee of fraudulent and preferential money transfers and breach of fiduciary duties.
Gotbaum, who took control of the bankrupt airline on July 3, filed the suit in November against Adams; parent company Hawaiian Holdings Inc.; majority shareholder AIP LLC; and Smith Management LLC. Adams, who was removed in May as the airline's chairman and CEO, remains the chairman and CEO of Hawaiian Holdings, the controlling member of AIP and the president of consultant Smith Management.
Tender offer
In the suit, Gotbaum said Adams and his affiliates extracted millions of the airline's cash at the expense of the airline and its creditors. The $28 million that Gotbaum and the airline seek to have returned stems from a $25 million tender offer -- of which the Adams group received nearly $17.5 million -- and nearly $3 million that was paid to insiders and their interests for "purported consulting agreements and compensation."Gotbaum also has sought the return of $500,000 that was transferred from the airline to Hawaiian Holdings shortly before the March 21, 2003, bankruptcy filing. Hawaiian Holdings has since said it would return that money and that the amount is sitting in an account awaiting disbursement to either the airline or Pension Benefit Guaranty Corp., which has filed a claim for the money. PBGC is a federal agency that pays retirement benefits when a company's pension benefit fails.
Adams and his affiliates argued in their motion that the case must be moved to District Court because they're entitled to a jury trial, did not consent to Bankruptcy Court conducting a trial, and the majority of the claims brought against them involve state law and ultimately will need to be decided in District Court if the case proceeds to trial.
The defendants also said moving the case would be more efficient to the judicial process as opposed to having Bankruptcy Court preside over the initial matters until a settlement motion or trial stage. They also said the Bankruptcy Court judge might be predisposed to decide the case in the trustee's favor since the judge presided over the hearing that led to Adams' removal.
Gotbaum argued that the case should remain in Bankruptcy Court because the judge already was familiar with the case, had decided a lot of the issues during the two-day hearing in which Adams was removed, and the case will continue to raise issues that affect the airline's bankruptcy.
Gotbaum's motion accused Adams and his affiliates of "forum shopping" to find a court that might be more favorable. The Adams group leveled the same assertion at Gotbaum for wanting to stay in Bankruptcy Court.
Gotbaum's claim also said there is no reason to involve another court because the case is not scheduled to be heard until June 27, 2005, and there is no guarantee it will ever go to trial.
Investigations
The suit originated because of one of the mandates Gotbaum received when he was appointed as trustee, to investigate management activities leading up to the company's bankruptcy. The Securities and Exchange Commission also is investigating.Adams was ordered removed from office last May by Bankruptcy Judge Robert Faris after a two-day hearing involving Adams' financial dealings.
Faris said the former executive consistently had placed the interests of the shareholders ahead of those of the creditors. Faris also criticized the $25 million tender offer that preceded the bankruptcy filing.
The offer -- which paid a 31 percent stock price premium to shareholders -- came several months after Hawaiian received a $30.1 million federal grant because of the Sept. 11, 2001, terrorism fallout. The payout also came when Hawaiian's financial situation was deteriorating and the carrier was seeking more than $20 million in leasing concessions from its three aircraft lessors.