Source: http://bankruptcypower.blogspot.com/2009/
Timestamp: 2017-10-22 20:47:43
Document Index: 614378350

Matched Legal Cases: ['§\n433', '§ 1', '§ 1', '§ 1', '§ 21', '§ 3', '§ 3', '§ 3', '§ 1651']

Bankruptcy Today: 2009
The nationwide flight school had plans to relocate its headquarters to New Braunfels before abruptly going bankrupt in February 2008 — cutting short flight training for thousands of students across the county who had already paid as much as $70,000 up-front through student loans.
After more than a year of bankruptcy proceedings in various states, a settlement offer to Silver State students from their largest lender is being mailed out this week, an attorney representing a number of the former trainees said Monday.
An agreement between 12 states was struck in October with Student Loan Xpress, which lent money to some 2,300 Silver State students nationwide, and is expected to have the company erase nearly $113 million in student debt.
The deal would forgive up to 75 percent of the loan amount for Silver State students who borrowed money from Student Loan Xpress.
Now that it is court approved, students can expect detailed notices explaining the settlement to arrive in early January, according to Michael Berger, a California-based bankruptcy attorney.
“I feel bad for people to have to pay anything, and I know that can be a great hardship,” Berger said. “But I think if they don’t take this deal, there’s a really good chance they could be stuck with 100 percent of the debt.”
Student Loan Xpress was the largest of three lenders used by Silver State’s more than 3,000 trainees — including nearly 50 in New Braunfels.
CitiBank had already forgiven 100 percent of the outstanding Silver State loans, although Citibank only represented around 100 students, Berger said.
A settlement is not expected any time soon with Key Bank, the third lender, according to Berger.
Although Texas was not one of the states that helped broker the settlement with Student Loan Xpress, it will still apply to Texas students.
“The settlement is written so that it applies to students in all states,” Berger said.
The settlement is only for students who were enrolled in Silver State when it went bankrupt.
The amount forgiven is based on a sliding scale, depending on whether a student received certification. If they did not receive any, 75 percent of their debt would be forgiven.
“I think it’s the best that can be done under the circumstances,” Berger said.
Silver State operated 34 campuses in 17 states.
It ran the air traffic control tower in New Braunfels, as well as a flight school.
Its bankruptcy in February 2008 cost the City of New Braunfels hundreds of thousands of dollars in unpaid fuel sales the company had been buying on credit, and left dozens of students and former employees wondering what to do next.
The large-scale legal battle over its bankruptcy has been going on ever since, with students waiting to hear if they might get some relief after paying thousands for training they would never receive.
“Everybody has just kind of been in limbo,” said Derrick Smith, president of Veracity Aviation, a helicopter flight school he started in New Braunfels after the bankruptcy. “No one has really known what’s going on.”
For the majority of students who borrowed from Student Loan Xpress, they might be getting some of their money back.
“It’s a drag to pay anything because they never got to be helicopter pilots,” Berger said. “But we think this is the best deal they’re going to get.”
Posted by Michael Berger at 4:55 PM Links to this post
Q. When will I receive Notice of the Class Action Settlement?
A. Notices are being mailed out now. They are expected to be sent out by an independent administrator between December 28 and December 30, 2009. If you are my client and you have not received notice of the settlement by January 7, 2009 and you believe that you are a member of the class, you should e-mail me @ michael.berger@bankruptcypower.com and I will follow up for you.
Q. How has Michael Berger and his law firm been involved in the negotiation of the proposed class action settlement with Student Loan Xpress?
A. I have worked closely with class action counsel on this matter throughout the last 18 months. My work began before the first class action lawsuit was filed. I have strategized and consulted extensively with class action counsel and assisted them per their request, in the district court, in the bankruptcy court, and in the protracted negotiations with Student Loan Xpress.
Q. Why was this case settled in the District Court in Tampa, Florida and not in the Nevada Bankruptcy Court?
A. James, Hoyer filed the first Silver State Helicopters / Student Loan Xpress case in the District Court in Tampa, Florida on behalf of a former SSH student representing himself and all SLX/SSH students. Pinnacle Law Group filed a case in the District Court in San Francisco on behalf of all California KeyBank/SLX/SSH students. Thereafter, Class Counsel strategized with each other and with me about which venue would be the most favorable to the students’ legal positions. After thoughtful consideration of all issues and after discussing this at length with each other, we all decided that bankruptcy court was the least desirable forum. There were several reasons for this. First, all of the lawyers were concerned that we would be unable to get the bankruptcy court to exercise jurisdiction over a creditor versus creditor action that did not involve the debtor (SSH). Second, bankruptcy courts are usually unfamiliar with the very complex nuances of class action lawsuits because they very rarely see such cases. Third, we very likely would have been unable to have a jury trial on any of the issues because the ability to have a jury trial in bankruptcy court is very limited. Fourth, based on the state law legal issues in the case, the bankruptcy court would have been a far less appropriate forum to deal with these issues (as distinct from pure questions of bankruptcy law). Finally, and most importantly, we believed that the individual federal district court judges that were assigned to the cases filed by Pinnacle Law Group and the James, Hoyer firms would be more sympathetic to your interests than the bankruptcy court.
Although I initially told you that I would consider filing an adversary proceeding on behalf of my clients in the bankruptcy court, I become convinced over time that this was not the best way to pursue this matter. At the time that I made this proposal, there were no class actions on file in any court with regard to the SSH matter. After many hours of discussions with class action counsel as well as my own extensive legal and factual research about the best place to take your fight to the banks, I became convinced that bankruptcy court was not the best forum. After seeing how things played out, I am now convinced more than ever that I engaged in the correct analysis and made the correct decision.
Q. How did the settlement come about? What was the process?
A. Andrew August and Keven Rooney of Pinnacle Law Group and I began negotiations with SLX's counsel in mid-2008. After numerous telephone calls, e-mails, letters and in person meetings, we were approached by SLX’s counsel who inquired if we were interested in participating in a mediation to seek a negotiated settlement of the case. We agreed and the parties agreed to use Judge William Cahill (Ret.) in San Francisco to facilitate settlement discussions. In September 2008 we had our first mediation session with Judge Cahill. A Class Representative and Dan Reed were present and part of the mediation team. I attended by phone from Los Angeles. Although there was initial agreement on using FAA certifications as a basis for the settlement (largely because the information with the FAA was objectively verifiable) after more than 12 hours, we could not reach any common ground on the amount of debt forgiveness, interest rate reduction or other essential terms and we therefore adjourned the mediation. We then sent SLX a letter stating that we no longer were interested in discussing settlement given its unacceptable and intransigent positions on these crucial issues. In response to this letter, Judge Cahill contacted the parties and persuaded the parties to attend a second mediation session in November 2008. At this session, which also lasted in excess of 12 hours, progress was made but still no agreement was reached. The parties returned in December 2008 for a third session but again, no agreement was reached. Judge Cahill thereafter presented what he thought was a fair settlement for all parties and presented it to the counsel. Only then were the material terms agreed to.
For the next 10 months Class Counsel, myself, Dan Reed and Counsel for SLX negotiated the details of the written settlement agreement and related documents. Thereafter Attorneys General of a Multi-State Task force investigating SSH reviewed the settlement agreement and negotiated additional modifications as well as their own agreement.
Although SLX expressly denies any wrongdoing in the settlement, the amount of debt forgiveness achieved (more than $112 million dollars in principal alone) is to the best of our knowledge unprecedented in the world of student loan modification. While we do not know for certain SLX’s reasoning for agreeing to the terms of this settlement or its agreement with the Attorneys General, it is reasonable to assume SLX considered the factual allegations made in the course of our lawsuit including its failure to conduct adequate due diligence into SLX before making the loans, not ensuring the education and training was being provided before disbursing the loan proceeds to SLX and not adequately monitoring the students’ progress.
Q What role did Michael Berger and/or Dan Reed play in negotiating the terms of the settlement?
A. I played in integral role in our successful battle with the SSH Trustee to obtain a complete copy of the SSH computer system and in negotiating and drafting the terms of the settlement agreement dealing with the bankruptcy issues. I met and negotiated with counsel for SLX both with and without other Plaintiff's counsel. Dan Reed attended the mediation in San Francisco that eventually resulted in the settlement and has assisted Class Counsel in negotiating and drafting the settlement agreement and advising his personal clients on the terms of the settlement.
Q Can you discharge your student loan obligation to Student Loan Xpress by filing bankruptcy?
A. In a word, no. In general, student loans can NOT be discharged in bankruptcy absent a very difficult to make showing of "undue hardship." After extensive research, all Plaintiff's counsel agree that the Student Loan Xpress loans are in fact student loans that are NOT discharged by the mere filing of a bankruptcy. To even attempt to discharge these loans in bankruptcy, the debtor must file a separate Adversary Proceeding (a lawsuit against the lender within the bankruptcy case)and prove that repaying the debt would constitute "undue hardship." An example of undue hardship would be that the debtor is permanently disabled and will never be able to repay the loan. Temporary unemployment or low income is NOT undue hardship.
I recently reviewed a bankruptcy court decision in Texas involving a Silver State Helicopters student who went to the trouble and expense of filing an Adversary Proceeding to try to discharge his SLX loan. The court granted summary judgment against the SSH student and denied his request to discharge the debt to SLX.
While we have succeeded in several instances in winning these cases for students who attended other schools and were unable to work due to permanent physical or mental problems, in each case we charged a fee $10,000.00 in addition to the $2,000.00 fee for the bankruptcy itself. We also paid expert witnesses to document the disability. It was not cheap, easy or quick. These adversary proceedings are separate lawsuits within the bankruptcy case, and require all the work of a separate lawsuit including, but not limited to, the preparation of a summons, notice of status conference and complaint, discovery, including written interrogatories, requests for production of documents, requests for admission and depositions, status conferences, mediations, pre-trial and trial. Numerous motions may be involved as well. In short, don't count on bankruptcy getting you out of your debt to SLX. For a free, expert, personalized analysis as to whether or not you can meet this undue hardship standard, call me.
Q. What has Michael Berger been doing with regards to the SSH bankruptcy cases?
A. I have monitored both SSH bankruptcy cases from the very start. In addition to filing proofs of claim for all of my clients, I have reviewed all of the documents filed in the 2 cases and in the related adversary proceeding cases. To date, more than 1710 documents have been filed in the lead SSH case. I have been in regular contact with counsel for the Trustee and have reviewed all of the Proofs of Claim filed in the 2 cases.
Q. What is my proof of claim in the SSH bankruptcy worth?
A. My best estimate is that each one of the former SSH students proof of claim will be worth somewhere between $0 and $3,000.00. No one else has been willing to provide a dollar estimate. I am in regular contact with Tony Zmaila, the attorney for the Trustee. I review documents filed in the SSH bankruptcy cases every day. Here is where we stand: (a) Most assets of the estate have already been liquidated for the benefit of the secured lender Orix (b)Orix, the secured lender, has received most of its money back, but is still owed several million dollars (c) the bankruptcy estate is currently administratively insolvent, meaning that there is not enough money to pay all of the claims for legal fees, trustees fees, administrative rent, etc. that must be paid before any distribution is made to unsecured creditors; (d) The Trustee and Trustee's counsel have not objected to any of the former student's proof of claims because there is no point in doing so unless there is going to be any money for unsecured creditors; (e)Legal costs continue to rise, with additional recoveries for the estate being uncertain; (f) There is not telling if and when any distribution to creditors will be made; (g) There are more than $450,000,000 in unsecured claims against the SSH estate; If any distribution is made to former SSH students, priority claims will be paid before general unsecured claims. Unlike most of the proofs of claims prepared by other attorneys or by former students on their own, the proofs of claim that I prepared for my clients all included a priority claim for the maximum amount allowed for services paid for but not received: $2,425.00. It is this priority claim that is largely responsible for the high end of the range that I have set forth hereinabove. Priority claims are paid ahead of general unsecured claims.
Q. Which is worth more to me, the discount that the class action settlement gives me on my student loan or my proof of claim?
A. This is an easy question. Based on all of the information that is available to me,the value of the discount on the student loan far exceeds the value of the proof of claim in every case. As an example, if you received no certifications (75% discount) or one flight certification (60% discount) and you owe $70,000.00 to SLX, the savings to you before considering additional discounts for early payments or reduced interest rates is between $42,000 and $52,500.00. The value of your proof of claim is somewhere between $0 and $3,000.00. Giving up your proof of claim for this discount, something that is required under the proposed SLX class action agreement, is a good deal for you and is somthing that I would do myself if I was in your situation.
Q. Will the Bankruptcy of CIT Group have an effect on the proposed settlement?
A. No one knows. My best guess is that it will not have any impact on the proposed settlement.
Q. If SLX files bankruptcy, will that wipe out my debt to SLX?
A. No. The debt would then be payable to the bankruptcy estate of SLX. It is possible that the debt could be sold to a third party that would then try to collect the debt.
Q. Do I have to accept the proposed settlement if I am a class action member?
A. No, you can accept it or opt out of it. I recommend that you accept it, but if you are my client I will do my best for you either way. The problem with opting out is that you are betting that you can do better than all of plaintiffs' counsel and the attorney generals from 12 states have been able to do. Counsel for SLX has specifically stated that they will NOT offer more favorable terms to those that opt out. You will have to face the very real risk of being sued individually and the very real risk of SLX getting a judgment against you for the full amount of principal + attorneys fees and costs, with no discount.
Q. If I opt out of the class action settlment now, can I come back and accept it later?
Q. If I am your client in the SSH matter, what is included in your representation of me and what is not included?
A. Included matters include (a) all negotiations with your SSH student loan lenders, regardless of whether it is SLX, KeyBank, Citibank, or as it is in a few cases, Sallie Mae or Deutsche Bank; (b) the filing and defense of your proof of claim in the Bankruptcy Court; (c) the monitoring of the SSH bankruptcy, and, if appropriate, any other action taken in the SSH bankruptcy case; (d) advice regarding the class action cases and my cooperation with class action counsel; (e) my cooperation with all governmental agencies investigation SSH, Airola, Pickett, EOS, and all related entities; (f) my ongoing efforts to get relief for you any way that I can, including political appeals; and, if appropriate, group litigation against KeyBank. For now, I am cooperating with class action counsel in its litigation against KeyBank, but I have reserved the right to file my own separate action if class action counsel is unable to achieve satisfactory results.
Matters that are not included in the $800.00 flat fee that each one of my SSH clients paid me: (a) The filing a personal bankruptcy for the former student (For this service, I charge an additional fee of $2,000.00 + 299.00 filing fee. This service is only available for my California clients);
(b) The filing of an Adversary Proceeding against your student loan lender within a bankruptcy proceeding (This is not recommended absent a showing of undue hardship and is subject to the payment of a $10,000.00 flat fee if I believe that you can in fact satisfy the undue hardship standard); (c) The defense of a lawsuit against you by your student loan lender (this is a real possibility for those who opt out of the class action settlement).
Q. Why should I agree to pay anything at all to SLX?
A. Because of the very real risk that if you turn down this settlement offer, you will may to pay much more later. I know that some of you feel that you should not have to pay any money to SLX. I am very proud and happy to have helped to achieve 100% debt forgiveness for my Citibank clients, and I sincerely wish that I could have done this for my SLX clients too. This simply was not possible in this case, despite my best efforts and the best efforts of class action counsel, other
Plaintiffs' counsel, and the attorney generals of 12 states. Each lender had separate facts. Thousands of documents have been reviewed, but there has been no "smoking gun" that would make it likely in my opinon that we could ever do better than the settlement offer that we now have. This case poses very unique risks for all parties. Many of the legal issues are novel ones that could be decided against you. Indeed, as my KeyBank clients are aware, KeyBank has refused to make any real settlement offer because it believes it will prevail on the legal issues (which are being litigated in the California federal district court and the 9th Circuit Court of Appeals by Pinnacle Law Group). Most importantly, the reality is that even if we prevailed at a trial, I cannot say the outcome would have been better because a judge could conclude that almost all of the students received some tangible or intangible benefit for which they should have to pay money. For all of these reasons, I strongly advise you to participate in the settlement.
Q. Is Michael Berger receiving any fee from SLX in connection with the proposed settlement?
Q. How can I contact class action counsel to ask them questions about the settlement agreement?
A. Send your questions to settlementquestions@gmail.com.
Q. Will Michael Berger be attending any of the Town Hall Meetings to Discuss and Explain the Settlement Agreement?
A. Yes, I will be attending the Town Hall Meeting currently scheduled for Sunday, January 10, 2009 at 2:00 pm at the Long Bach Marriot Hotel, 4700 Airport Plaza Drive, Long Beach, CA 90815. I will answer questions at the meeting and will stay as long as needed after the meeting until each and every student attending has my answer to any question that he or she has.
Posted by Michael Berger at 12:03 AM Links to this post
Posted by Michael Berger at 10:32 PM Links to this post
Court Grants Preliminary Approval of Class Action Settlement With Student Loan Express
Earlier today, United States District Court Judge Steven D. Merryday signed an Order granting preliminary approval to the proposed class action settlement with Student Loan Xpress. A copy of the docket entry is set forth herein:
The following transaction was entered on 11/19/2009 at 2:04 PM EST and filed on 11/19/2009
Case Name: Holman v. Liberty Bank, N.A.
Case Number: 8:08-cv-305
ORDER granting [78], [82], [83]--motions re approval of class action settlement, approval of the manner and form of notice to class members, approval of the claim form, approval and establishment of proposed schedule for final confirmation of settlement, preliminary injunction to preclude parallel action, a conditional certification of the class for settlement purposes, and appointment of lead counsel for the settlement class and class representative; retaining jurisdiction of this matter for all purposes; directing that notice to class members shall be mailed by 12/30/2009; providing that class members file claims or objections by 2/13/2010; providing that filings supporting settlement or responding to objections shall be filed by 3/15/2010; scheduling a fairness hearing for 3/22/2009 at 8:30 a.m. Signed by Judge Steven D. Merryday on 11/19/2009. (BK)
A full copy of the Judge's Order is set forth herein:
MICHAEL HOLMAN, et al., on behalf of
v. CASE NO.: 8:08-cv-305-T-23MAP
STUDENT LOAN XPRESS, INC.,
The parties jointly move for (1) preliminary approval of a class action settlement,
(2) approval of the “manner and form of notice” to class members, (3) approval of the
claim form, and (4) approval and establishment of a proposed schedule for final
confirmation of the class action settlement (Doc. 78). Additionally, the parties move for
(5) a preliminary injunction to preclude any parallel action pending review of the
proposed settlement (Doc. 82), (6) a conditional certification of the class for settlement
purposes, and (7) the appointment of both lead counsel for the settlement class and
class representatives (Doc. 83).
The plaintiffs sue, on behalf of themselves and others similarly situated, the
defendant, Student Loan Xpress, Inc., for (1) a violation of the Ohio Retail and
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 1 of 13
Installment Sales Act, Sections 1317.01-.99, Ohio Revised Code, (2) aiding and
abetting fraud, and (3) negligent misrepresentation (Doc. 77).
The plaintiffs’ claims derive from the defendant’s partnership with Silver State
Helicopters, LLC (“Silver State”), an unaccredited helicopter flight training school. The
plaintiffs allege that Silver State promised each student a flight instructor certification
within eighteen months of the student’s enrollment. Silver State charged a total tuition
of approximately $70,000. The defendant worked with Silver State and solicited a
private loan application from each student in order to facilitate the student’s enrollment
in Silver State. After approving a student’s loan application, the defendant disbursed
the total loan amount to Silver State. However, rather than investing the money in
either equipment or faculty for helicopter flight training, each executive officer of Silver
State misappropriated the money for the officer’s personal use. As a result, Silver
State’s business functioned like a “ponzi scheme”—Silver State educated the school’s
first group of students by recruiting additional students. Silver State perpetrated the
scheme by misrepresenting or concealing (1) “anticipated tuition costs,”
(2) “employment opportunities,” (3) “the time frame for receiving [Federal Aviation
Administration (“FAA”)] ratings;” (4) Silver State’s “capability to provide adequate
equipment, proper training[,] and sufficient maintenance;” and (5) Silver State’s
“intended and actual use of the loan proceeds.” (Doc. 77)
To facilitate Silver State’s scheme, the defendant solicited loan applications
during each Silver State recruiting event. In order to insulate itself from liability, the
defendant purposefully failed to notify each student that the loan agreement was subject
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 2 of 13
1 Notice is required by the Federal Trade Commission’s (“FTC”) “Holder Rule.” See 16 C.F.R. §
433.3.3.
2 Excluded from the class is “(i) any borrower or co[-]signer whose loan has a zero balance as of
the Preliminary Approval Order date; (ii) any borrower or co[-]signer who would have no balance owing on
the loan as of the Preliminary Approval Order Date as a result of the unconditional and conditional debt
forgiveness made available under the settlement; (iii) any borrower or co[-]signer who has a Chapter 7, 11
or[,] 13 case pending as of the Preliminary Approval Order Date, and the corresponding borrow or co[-
]signer or such person; (iv) any borrower or co[-]signer who validly requests exclusion therefrom in
accordance with the procedures ordered by the Court; (v) any borrower or co[-]signer who executed a
release to resolve his/her potential claims against [the defendant] arising out of Silver State on or before
the Preliminary Approval Order Date, and the corresponding borrower or co[-]signer of such person; and
(vi) any borrower or co[-]signer included on a government list of known or suspected terrorists or other
individuals, entities or organizations of concern, including persons appearing on the United States
Department of the Treasury, Office of Foreign Assets Control List of Specially Designated Nationals and
Blocked Persons, and the corresponding borrower or co[-]signer of such person.” (Doc. 78-2, § 1.8)
to any defense applicable to Silver State for failing to provide the promised educational
service.1 (Doc. 77) Omitting notice from the loan agreement allowed the defendant to
argue that the defendant was not subject to any defense arising from Silver State’s
failure to educate a student. In exchange for the defendant’s facilitating and
disregarding Silver State’s fraudulent scheme, the defendant collected a substantial
profit from the high interest rate on each student loan. On February 4, 2008, Silver
State ceased operating and filed for bankruptcy. When Silver State closed, many
students had obtained loans in order to pay Silver State’s full tuition, but only a small
percentage had received the promised education.
2. The Proposed Class & Subclass
The plaintiffs seek conditional certification of a class for settlement purposes. The
proposed class includes “(a) all persons who obtained a loan originated by Liberty Bank
to finance the payment of tuition to Silver State, whose loan is held by [the defendant]
as of the Preliminary Approval Order Date, and who were enrolled at Silver State as of
February 4, 2008[,] and (b) all persons who co[-]signed such loans.” (Doc. 78-2, § 1.8)2
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 3 of 13
3 “Subclass One” includes each class member that received no FAA certification, “Subclass Two”
includes each class member that received an FAA certification, “Subclass Three” includes each class
member that received two FAA certifications, “Subclass Four” includes each class member that received
three FAA certifications, “Subclass Five” includes each class member that received four FAA certifications,
and “Subclass Six” includes each class member that co-signed a loan. (Doc. 78-2, § 1.62-1.67)
Pursuant to Rule 23(c)(5), Federal Rules of Civil Procedure, the proposed class is
divided into six subclasses “based on the number of Federal Aviation Administration
(“FAA”) certifications or ratings a student received before Silver State closed.”3
1. Conditional Class Certification
“A class may be certified ‘solely for purposes of settlement [if] a settlement is
reached before a litigated determination of the class certification issue.’” Borcea v.
Carnival Corp., 238 F.R.D. 664, 671 (S.D. Fla. 2006) (quoting Woodward v. NOR-AM
Chem. Co., 1996 WL 1063670, *14 (S.D. Ala. 1996)); see also Amchem Products, Inc.
v. Windsor, 521 U.S. 591, 618-20 (1997). However, the requirements of Rule 23,
Federal Rules of Civil Procedure, that serve “to protect absentees by blocking
unwarranted or overbroad class definitions [ ]demand undiluted, even heightened,
attention in the settlement context.” 521 U.S. at 620. The plaintiffs bear the burden of
establishing that each requirement of Rule 23(a) and at least one requirement of Rule
23(b) is satisfied. Rutstein v. Avis Rent-A-Car Sys., 211 F.3d 1228, 1233 (11th
Cir. 2000). Rule 23(a) permits class certification only if:
(2) there are questions of law or fact common to the class; (3) the claims or
defenses of the representative parties are typical of the claims or defenses of
the class; and (4) the representative parties will fairly and adequately protect
the interests of the class.
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 4 of 13
The numerosity requirement of Rule 23(a) is satisfied by the impracticability of
joinder, which is generally presumed if a putative class amounts to more than forty
individuals. Cox v. Am. Cast Iron Pipe Co., 784 F.2d 1546, 1553 (11th Cir. 1986); see
also Jones v. Firestone Tire and Rubber Co., Inc., 977 F.2d 527, 534 (11th Cir. 1992)
(finding that fewer than twenty-one individuals is generally inadequate). Commonality is
satisfied by the existence of “‘at least one issue affecting all or a significant number of
proposed class members.’” Fresco v. Auto Data Direct, Inc., 2007 WL 2330895, *2
(S.D. Fla. 2007) (quoting Fabricant v. Sears Roebuck, 202 F.R.D. 310, 313 (S.D. Fla.
2001)). Typicality is satisfied by showing the existence of “‘a sufficient nexus . . .
between the claims of the named representative and those of the class at large.”
Hines v. Widnall, 334 F.3d 1253, 1256 (11th Cir. 2003); Murray v. Auslander, 244 F.3d
807, 811 (11th Cir. 2001) (finding that “[a] class representative must possess the same
interest and suffer the same injury as the class members in order to be typical under
Rule 23(a)(3).”). Finally, class counsel and the class representatives are adequate
representatives of the class if (1) “‘plaintiffs’ counsel are qualified, experienced, and
generally able to conduct the proposed litigation’” and (2) the plaintiffs lack “‘interests
antagonistic to those of the rest of the class.’” Kirkpatrick v. J.C. Bradford & Co., 827
F.2d 718, 726 (11th Cir. 1987) (quoting Griffin v. Carlin, 755 F.2d 1516, 1532 (11th
In this action, the proposed settlement class satisfies the requirements of
Rule 23(a). The proposed class includes approximately 2,900 individuals. Each
individual was enrolled at Silver State as of February 4, 2008, when Silver State ceased
operating. The alleged harm to each individual arises from Silver State’s closure, and
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 5 of 13
each individual’s promissory note contains the same choice of law provision. The
plaintiffs share the same interest, legal claim, and alleged injury as the proposed class
and subclass. (Doc. 83) Furthermore, each named plaintiff’s interest aligns with the
that of the proposed class and a division of the proposed subclass. Specifically, each
plaintiff (1) was either a student at Silver State when Silver State ceased operating or
co-signed a loan for a student at Silver State and (2) “vigorously pursued relief” in
reaching the settlement agreement on behalf of the entire class. (Doc. 83) The
plaintiffs’ counsel (the proposed class counsel) understands the plaintiffs’ claim,
possesses experience handling consumer and class action litigation, and stands “ready,
willing, and able to devote the resources necessary to litigate this case vigorously.”
Rule 23(b) defines each type of permissible class action. Relevant to this action
is Rule 23(b)(3), which permits class certification upon a finding that “the questions of
law or fact common to class members predominate over any questions affecting only
fairly and efficiently adjudicating the controversy.” Essentially, the rule requires a
determination of “whether proposed class[] [is] sufficiently cohesive to warrant
adjudication by representation.” 521 U.S. at 623.
In this action, the proposed settlement class is sufficiently cohesive and common
issues of fact and law predominate over any individual issue. Each individual was a
student at Silver State and obtained a loan, which the defendant holds, from Liberty
Bank. Each individual suffered the same alleged injury, in that no individual received a
complete education, at the time that Silver State ceased operating. Each individual
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 6 of 13
4 Contact information for the settlement administrator is provided in the notice to class members.
seeks relief under the same legal theory and each individual’s promissory note contains
the same choice of law provision. To date, each action filed on behalf of a former Silver
State student is a collective or class action seeking relief for a financial obligation the
student incurred in exchange for a service that Silver State failed to deliver. As a
practical matter, requiring multiple actions by each student or several groups of students
would be financially burdensome and judicially inefficient.
Accordingly, the proposed class is CONDITIONALLY CERTIFIED for settlement
purposes. The settlement class includes “(a) all persons who obtained a loan originated
by Liberty Bank to finance the payment of tuition to Silver State, whose loan is held by
[the defendant] as of the Preliminary Approval Order Date, and who were enrolled at
Silver State as of February 4, 2008[,] and (b) all persons who co[-]signed such loans.”
In the event that the settlement fails to receive final approval, conditional certification is
revoked and the plaintiffs must move for class certification for the purpose of litigation.
Any member may request exclusion from the settlement class by contacting the
settlement administrator.4 The request shall include the member’s (1) full name,
(2) current address, (3) telephone number, (4) SLX loan number, and (4) signed
statement requesting exclusion from the settlement class in this action. Failure to timely
request exclusion from the class will render binding as to each class member any
judgment concerning the proposed settlement in this action.
Any member not requesting exclusion may object in writing to any term of the
proposed settlement or to class certification by contacting the settlement administrator.
An objection shall include the objecting member’s (1) full name, (2) current address,
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 7 of 13
(3) telephone number, (4) SLX loan number, (5) objection; (6) notice of an intent to
appear that the final fairness hearing, if the member wishes to present the member’s
objection; and (6) any evidence or supporting document for the court’s consideration.
Any objecting member that notifies the settlement administrator of an intent to appear
must include the name, address, and telephone number of the objecting member’s
attorney (if applicable). Failure to notify will preclude, except for good cause shown, the
objecting member from presenting the objection at the final fairness hearing.
2. Appointment of Class Counsel & Class Representatives
Rule 23(g), Federal Rules of Civil Procedure, requires the appointment of class
counsel upon certification of a class. In appointing class counsel, the factors
considered are (1) “the work counsel has done in identifying or investigating potential
claims in the action;” (2) “counsel’s experience in handing class actions, other complex
litigation, and the types of claims asserted in the action;” (3) “counsel’s knowledge of the
applicable law;” and (4) “the resources that counsel will commit to representing the
class.” Considering the plaintiffs’ motion (Doc. 83), counsel’s experience with complex
litigation, counsel’s knowledge of the claim and applicable law, and counsel’s
committing the necessary time and resources to this matter, Christopher Casper of
James, Hoyer, Newcomer & Smiljanich, P.A. and Kevin F. Rooney of the Pinnacle Law
Group, LLP, are appointed as class counsel.
The plaintiffs, Michael Holman, Robert Perrotta, Kevin Wilhemy, Matthew Arnold,
Christopher Korte, and Deborah Pechacek, are appointed to represent the class.
Additionally, Robert Perrotta is appointed to represent “Subclass One,” Michael Holman
is appointed to represent “Subclass Two,” Kevin Wilhemy is appointed to represent
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 8 of 13
5 The defendant’s defenses include, for example, (1) preemption of the plaintiffs’ claims under the
National Bank Act, (2) the lack of a private right of action under the FTC Holder Rule, and (3) “numerous
complex individualized issues of liability, causation[,] and damages” that predominate over issues common
the proposed class. (Doc. 78, pp. 26-28)
“Subclass Three,” Matthew Arnold is appointed to represent “Subclass Four,”
Christopher Korte is appointed to represent “Subclass Five,” and Deborah Pechacek is
appointed to represent “Subclass Six.”
3. Preliminary Settlement Approval
Rule 23(e), Federal Rules of Civil Procedure, permits approval of a class action
settlement if the settlement is “fair, reasonable, and adequate.” See Strube v. Am.
Equity Inv. Life Ins. Co., 226 F.R.D. 688, 697 (M.D. Fla. 2005) (Fawsett, J.). Approval is
generally a two-step process in which a “preliminary determination on the fairness,
reasonableness, and adequacy of the proposed settlement terms” is reached. See
DAVID F. HERR, ANNOTATED MANUAL FOR COMPLEX LITIGATION § 21.632 (4th ed. 2008).
The factors considered are (1) the influence of fraud or collusion on the parties’
reaching a settlement, (2) “the likelihood of success at trial,” (3) “the range of possible
recovery,” (4) “the complexity, expense[,] and duration of litigation, (5) “the substance
and amount of opposition to the settlement,” and (6) “the stage of proceedings at which
the settlement was achieved.” Bennet v. Behring Corp., 737 F.2d 982, 986 (11th
In this action, no apparent fraud or collusion influenced the parties’ reaching a
settlement. The settlement is the product of both an arm’s length, “protracted and
contentious” negotiation with a mediator and two “mediator’s proposals.” (Doc. 78)
Success at trial is uncertain because the defendant possesses legal and factual
defenses to the plaintiffs’ claims as well as several grounds for challenging class
certification.5 The range of possible recovery under the proposed settlement is
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 9 of 13
6 The parties assert (Doc. 78) that twelve state attorneys general support the settlement. Also
supporting the settlement are two attorneys retained by two groups of Silver State students and various
class members. (Doc. 78, at 32) (Doc. 79).
substantial and includes (1) conditional and unconditional debt forgiveness based on the
number of FAA certifications that a student received, (2) an early re-payment refund;
(3) a freeze on interest accrual from February 4, 2008, until final settlement approval;
(4) a reduced monthly re-payment rate, (5) amended reports to credit rating agencies;
(6) the payment of any attorneys’ fee, cost, or expense; (7) additional compensation to
each class representative not to exceed $5,000.00 per class representative; and (8) the
payment of any cost of notice to the class or of settlement administration. (Doc. 78-2,
§ 3.3) The combined conditional and unconditional debt forgiveness ranges from
seventy-five percent for a member of Subclass One to twenty percent for a member of
Subclass Five. The total unconditional debt forgiveness amounts to more than
$11,000,000.00 (Doc. 78-2, § 3.3.3) and the total conditional debt forgiveness amounts
to more than $100,000,000.00 (Doc. 78-2, § 3.3.4).
Furthermore, full litigation of this case would be lengthy, expensive, and highly
complex. The aggregate outstanding debt of the settlement class exceeds
$175,000,000.00 and class counsel has already incurred $100,000.00 in expenses. In
light of the high stakes involved, both parties are highly motivated to “aggressively” and
“vigorously” litigate this case. (Doc. 78, at 32) Additionally, substantial support exists
for the settlement,6 and the parties reached a settlement only after extensive
investigation, research, and negotiation.
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 10 of 13
7 Shealy v. Student Loan Express, Inc., No. 3:08-cv-03057-JFA (D.S.C. 2008); Hyatt v. Student
Loan Express, Inc., No. C09-1324-TSZ (W.D. Wa. 2009); Kilgore v. KeyBank National Assoc., No. C-08-
02958 (N.D. Cal. 2009); Mason v. KeyBank National Assoc., No. A 565943; Caney v. Airola, ADV 2008-
141 (Feb. 15, 2008) (settled); Elrod v. Airola, No. 08-A-10868-1 (July 25, 2008) (settled).
Accordingly, the proposed settlement is preliminarily approved as a “fair,
reasonable, and adequate” compromise of the plaintiffs’ claim.
Pursuant to Rule 23(d), Federal Rules of Civil Procedure, and the All-Writs Act,
28 U.S.C. § 1651, the parties move (Doc. 82) for a preliminary injunction to preclude
any parallel or overlapping action pending final approval of the proposed settlement.
The All-Writs Act provides authority “to enjoin a party to litigation before it from
prosecuting an action in contravention of a settlement agreement over which the district
court has retained jurisdiction.” Henson v. Ciba-Geigy Corp., 261 F.3d 1065, 1068
(11th Cir. 2001); Demint v. Nationsbank Corp., 208 F.R.D. 639, 644 n.8 (M.D. Fla.
2002). Accordingly, “[f]ederal courts may invoke the authority conferred by the All-Writs
Act to enjoin parties from separate litigation to protect the integrity of a judgment
entered in a class action and to avoid re[-]litigation of issues . . . .” 208 F.R.D. at 644
n.8. In the context of a conditional class certification and an impending settlement,
“[t]he threat to the federal court’s jurisdiction posed by parallel state actions is
particularly significant . . . . “ In re Diet Drugs, 282 F.3d 220, 236 (3rd Cir. 2002)
(describing complex litigation as “especially vulnerable to parallel state actions that may
‘frustrate the district court’s efforts to craft a settlement in the multi-district litigation
before it’ . . . thereby destroying the ability to achieve the benefits of consolidation.”)
In this instance, the defendant faces several actions7 by former Silver State
students and a high probability exists that additional actions will be filed. (Doc. 82)
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 11 of 13
Accordingly, a preliminary injunction enjoining any overlapping or parallel action is
necessary to preserve this court’s jurisdiction to administer and enter final judgment on
the proposed settlement agreement.
5. Notice to Class Members
Rule 23(c)(2)(B), Federal Rules of Civil Procedure, requires notice to members
of a class certified under 23(b)(3). Notice must consist of the “best notice that is
practicable under the circumstances.” Furthermore, notice “must clearly and concisely
state in plain, easily understood language:”
(i) the nature of the action;(ii) the definition of the class certified; (iii) the class
claims, issues, or defenses; (iv) that a class member may enter an
appearance through an attorney if the member so desires; (v) that the court
will exclude from the class any member who requests exclusion; (vi) the time
and manner for requesting exclusion; and (vii) the binding effect of a class
judgment on members under Rule 23(c)(3).
In this action, the parties submit the proposed notice material for review and approval.
(Doc. 78-1, Ex. 1-6) The proposed notice and claim form appear to state all of the
required information in a relatively clear and concise manner and otherwise satisfy the
requirements of Rule 23(c). The parties’ proposed method of notice consists of the
settlement administrator’s mailing notice by first class mail to the most current mailing
address of each member of the settlement class. (Doc. 78)
Because the proposed method of notice is reasonable and the notice material
meets the requirements of Rule 23(c), the “manner and form” of notice to class
members is approved.
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 12 of 13
Accordingly, the parties motions’ (Docs. 78, 82, & 83) are GRANTED. The
plaintiffs, any class member, and any person acting on behalf of a class member are
ENJOINED from prosecuting, pending this court’s review of the proposed class action
settlement, any claim resolved by or subject to the proposed settlement. The court shall
retain jurisdiction over this matter for all purposes. Furthermore, (1) notice to each class
member shall be mailed no later than December 30, 2009; (2) each class member shall
object to the proposed settlement, object to the class member’s number of FAA
certifications, file a claim, or request exclusion from the settlement no later than
February 13, 2010; (3) any party that wishes to support the settlement or respond to
any objection to the settlement shall file any supporting or responding paper by
March 15, 2010, (4) a final fairness hearing on the proposed settlement is set for
March 22, 2010, at 8:30 a.m..
ORDERED in Tampa, Florida, on November 19, 2009.
Case 8:08-cv-00305-SDM-MAP Document 87 Filed 11/19/2009 Page 13 of 13
Posted by Michael Berger at 11:13 AM Links to this post
All States Covered By Proposed Class Action Settlement With Student Loan Xpress
The proposed class action settlement applies to eligible class member students in all 50 states, regardless of whether or not their State Attorney General is a party to the Assurance of Voluntary Compliance Agreement entered into by Student Loan Xpress and the Attorney Generals for 12 states.
Posted by Michael Berger at 8:42 AM Links to this post
Posted by Michael Berger at 3:12 PM Links to this post
Student Loan Xpress' Parent Corporation CIT Group Files Chapter 11 Bankruptcy
CIT Group, the owner of Student Loan Xpress, filed a Chapter 11 bankruptcy Sunday night, November 1, 2009. CIT's bankruptcy filing will be the fifth largest in U.S. history. The 101 year old lender received a $2.33 billion taxpayer-financed bailout in December 2008. This taxpayer money will most likely be lost. The effect of CIT Group's bankruptcy filing on the pending class action settlement in the Student Loan Xpress matter and on all former Silver State Helicopters students who obtained loans from SLX is not yet known. Student Loan Xpress' website states that "Student Loan Xpress is a member company of CIT Group Inc." Because Student Loan Xpress itself did not file bankruptcy, there is no automatic stay preventing litigation against Student Loan Xpress from going forward.
Posted by Michael Berger at 7:06 AM Links to this post
2 BIG Developments today in the Silver State Helicopters matter. First, papers were filed in Federal Court in Tampa, Florida confirming that class counsel reached a proposed settlement with SLX whereby the loans of students enrolled at SSH when it ceased operations will be significantly reduced depending on the number of Federal Aviation certifications or ratings that student achieved at SSH before its bankruptcy and closure. The settlement benefits include debt forgiveness, lower interest rates, notification to credit reporting bureaus, and a refund for early repayment. Second, the attorney general task force that has been working on the SSH matter entered into a consent decree with Student Loan Xpress that will provide 112.7 million in debt relief to former students of SSH.
Here is the press release issued by the California State Attorney General:
Brown and 11 States Force Loan Provider to Forgive $112.7 million in Debts of Helicopter Flight School Students
"El Cajon-Attorney General Edmund G. Brown Jr. and 11 other state Attorneys General today forced Student Loan Xpress, Inc. to provide $112.7 million in debt relief to students facing a "mountain of debt" for helicopter flight instruction they never received.
Of the $112.7 million, approximately $25.5 million in debt relief will go to California residents who did not receive the training they paid for.
"These students did not obtain the helicopter instruction they were promised, yet Student Loan Xpress insisted that they pay off the full cost of their tuition," Brown said. "Without this agreement, Silver State flight school students would face a mountain of debt for training they never received."
Silver State Helicopters was founded near Las Vegas in 2002, and the company quickly grew. At its height, the school comprised 34 campuses in 17 states, and included 2,700 students who paid approximately $69,900 each. In California, Silver State Helicopters operated flight schools in Sacramento, Chino and El Cajon.
In August 2005, Student Loan Xpress became the preferred student loan provider for Silver State Helicopters, lending or servicing some $180 million in student loans.
Yet, even before it made its first loan, Student Loan Xpress had reason to believe that the school was in serious financial difficulty. Students complained of a shortage of instructors, flight simulators and helicopters. Only 10 percent of Silver State students graduated. Ultimately, the school filed for bankruptcy in February 2008.
Many students paid thousands of dollars of tuition, but did not receive the flight training they were promised in return. Regardless of the bankruptcy, Student Loan Express demanded that borrowers repay the full cost of the loans.
Consequently, several state Attorneys General launched an investigation, which determined that the two companies had a close business relationship, and that that Student Loan Xpress had failed to comply with the duty to provide required notices to borrowers. Under the settlement, Student Loan Xpress denied any wrongdoing.
After several months of negotiations, the attorneys general and Student Loan Xpress reached a settlement agreement. The settlement, in tandem with the resolution of a private class action, calls for Student Loan Xpress to restructure approximately $174 million of student debt, based on the number of Federal Aviation Administration (FAA) certifications each student obtained. The fewer certificates obtained, the larger the amount forgiven. The average debt relief for students under this settlement is $46,016.
- Forgive an additional 2.5 percent of the student loan if the adjusted loan is repaid within five years;
- Refrain from providing negative information to credit reporting agencies with respect to any loan restructured; and
- Forgive interest between the dates Silver State Helicopters filed for bankruptcy and approximately the end of 2009.
Student Loan Xpress will also pay $125,000 in legal expenses to the states. The states joining California in today's settlement are: Florida, Georgia, Idaho, Illinois, Missouri, Montana, Nevada, Oklahoma, Oregon, Utah, and Washington.
The $112.7 in debt forgiveness included in this settlement includes the total relief provided in both the states' settlement with Student Loan Xpress, and the proposed settlement in a private, nationwide class-action called Holman et al v. Student Loan Xpress, Inc. That class action was filed in federal court in Florida.
Student Loan Xpress borrowers with questions about the settlement are asked to contact the settlement administrator in this matter by e-mail, at settlementquestions@gmail.com." (Andrew August reports that the reference to the Gmail email address in the Attorney General's press release and in other media accounts is is wrong: "It is not an email address for the settlement administrator. Rather it is our private, secure email account through which we will be able to answer questions. Of course it will not be operational until the court grants preliminary approval of the settlement.")
To read the Assurance of Voluntary Compliance Agreement entered into by Student Loan Xpress and the Attorney Generals for 12 states, click on this link:
http://ag.ca.gov/cms_attachments/press/pdfs/n1827_studentloanxpress.pdf
Here is more information from the press release issued by Andrew August aaugust@pinnaclelawgroup.com and Chris Casper ccasper@jameshoyer.com , two of the leading class counsel lawyers that will directly respond to questions from class members once the proposed settlement has received preliminary approval from the court:
"The parties have requested that the federal court overseeing the action preliminarily approve the settlement and authorize notice of the terms of the proposed settlement to be disseminated to class members. The notice will contain detailed information about the terms of the settlement, class members' options, and ways to obtain additional information about the settlement. The court will then hold a hearing to decide whether to grant final approval of the settlement.
In additon to Class Counsel, numerous other attorneys who individually represented Silver State Students, including Daniel Reed from Utah (representing more than 300 students nationwide) and Michael Berger from California (representing more than one thousand students nationwide) have closely reviewed the settlement and uniformly and unconditionally support it. Moreover, Attorneys General from more than 10 states reviewed and enhanced the terms of the proposed settlement, while also reaching a separate agreement with SLX."
I will post additional information about the proposed class action settlement agreement in the days to come. Clients of mine who want individual, personal advice about the pros and cons of this proposed settlement agreement for them are urged to wait until the court gives its preliminary approval to the proposed class action settlement, approves a manner and form of notice, and establishes a proposed schedule for final approval of class action settlement. All class members will receive a notice in the mail and will have at least 45 days to consider the proposed settlement agreement. I will then happily answer any and all questions from my clients by e-mail and by telephone. Clients of mine who choose to opt out of the proposed class action settlement agreement or who are not covered by the proposed class action settlement agreement will still be represented by me and I will continue to use my best efforts on their behalf.
The proposed class action settlement only covers former students of Silver State Helicopters who obtained loans from Student Loan Xpress to attend SSH and who were still enrolled at SSH at the time that it filed its bankruptcy petition. If you got your loan from KeyBank or paid cash and/or if you were not enrolled at SSH at the time that it filed bankruptcy, you are not covered by the pending proposed class action settlement.
Posted by Michael Berger at 1:45 PM Links to this post
The proposed class action settlement agreement with Student Loan Xpress will be submitted to the Court tomorrow or Friday for preliminary approval. I will post detailed information about the proposed settlement as soon as it is filed with the Court. If and when the proposed settlement agreement is approved by the Court, as I expect it will be, written notice will be sent out to all class members. This Notice will give you detailed information about the settlement agreement, and will provide ample time for you to evaluate the merits of the settlement for you.
For my clients with KeyBank loans and my clients who paid cash to attend SSH, I am continuing to work for you and will post further updates as soon as there are important developments that affect you.
Posted by Michael Berger at 9:30 AM Links to this post
Ex-sheriff candidate accused of fraud tied to bankruptcy
Trustee: Silver State Helicopters sought cash, students as finances worsened
Jerry Airola, president of Silver State Helicopters, poses on a MD500 jet helicopter in early 2008 piloted by Topper Nelson at the North Las Vegas Airport.
Thursday, Oct. 8, 2009 | 5:32 p.m.
See the complaint against Jerry Airola
Students rage about flighty helicopter school (2-15-08)
Airola powers down helicopter company (2-4-08)
Airola unable to capitalize on scandal (11-2-06)
Former Clark County sheriff's candidate Jerry Airola is under fire in his helicopter company's bankruptcy case, with a trustee suing Airola and others to recover millions of dollars the trustee says were fraudulently transferred prior to the bankruptcy.
Silver State Helicopters LLC shut down and filed for bankruptcy protection in February 2008, with Airola saying at the time the company was hurt by a lack of funding for student loans that the company needed to run its flight schools.
Reports at the time said the shutdown involved 30 locations around the country, put 750 employees out of work and left some 2,700 students stuck with student loan payments for instruction they would no longer receive.
A report in Inc. Magazine said that three years before the bankruptcy, Silver State had posted $40 million in revenue. An industry observer said the problem with Silver State was that it promoted training for helicopter pilots at a time when there wasn't a big demand for such pilots.
With operations in Southern Nevada including the Boulder City and North Las Vegas airports, Silver State filed for Chapter 7 liquidation in U.S. Bankruptcy Court for Nevada and attorney James Lisowski Sr. was appointed trustee in the case.
Lisowski, who has been working to sell assets to recover funds for creditors, last month filed an adversary lawsuit alleging the fraudulent transfers.
The suit was filed against Airola, former Silver State Chief Financial Officer Steve Pickett, First American Equity LLC (allegedly controlled by Airola and Pickett) and Stars & Stripes Heliplex LLC (allegedly controlled by Pickett and businessman Steve Trenk).
Pickett could not be located for comment on the accusations. But attorney Nile Leatham, who represents Airola, said Thursday that he was preparing to file a response disputing the allegations.
"I don't believe the complaint is meritorious," Leatham said.
The trustee's lawsuit, seeking to recover funds from the defendants for creditors, alleges that in 2007 Airola and Pickett made a deal to recapitalize the company that resulted in Airola being paid more than $10 million.
By entering into a $40 million revolving credit line with Orix Commercial Finance LLC in 2007, of which $31 million was due in February 2008, and continuing to seek helicopter students in 2007, Airola and Pickett left Silver State vulnerable to bankruptcy, the trustee charged.
In 2007 "Airola and Pickett caused (Silver State) to continue its course of offering training to student pilots; courses that (Silver State) did not have the resources to service and complete," the lawsuit charges.
The suit detailed these deals:
--The spring 2007 transfer of assets of an Airola company, Air Excel Inc., which had a lease with the Boulder City Airport, to Stars and Stripes Air Tours LLC for $2.4 million. The deal included Stars and Stripes paying off a mortgage at the Boulder City Airport, $1.2 million in cash and a $700,000 promissory note, the suit said.
--The August 2007 transfer by Silver State to First American of a heliport at the North Las Vegas Airport, $1.2 million in cash, the $700,000 Stars and Stripes note and all the issued and outstanding shares of Air Excel. First American paid nothing for these assets, the lawsuit charges.
--The June 2008 transfer of the heliport from First American to Stars & Stripes Heliplex.
"During the period from April 2007 through August 2007, Airola and Pickett caused (Silver State) to divest substantial assets," the lawsuit charges. "By this series of transactions, Airola, Pickett and First American stripped (Silver State) of assets, for their personal benefit, worth at least $7 million, in the 10 months immediately preceding the filing of the bankruptcy."
The trustee claims Silver State was insolvent when some of these deals were made, meaning Airola and Pickett allegedly received some assets that rightfully should go to creditors.
Silver State "made the transfer with the actual intent to hinder, delay or defraud" creditors, the lawsuit said of the deals in which the heliport, Air Excel shares, Stars and Stripes note and $1.2 million in cash were allegedly transferred by Silver State to Airola, Pickett and First American.
Silver State also "received less than a reasonably equivalent value" in the deal, the suit charges.
The suit also asserts claims of breach of fiduciary duty, unjust enrichment and conversion against Airola and Pickett.
The trustee seeks damages of $8.2 million against Airola, Pickett and First American, plus interest from August 2007.
His suit also seeks a judgment against the defendants for the fair market value of the heliport, the Stars and Stripes note and the Air Excel shares at the time they were transferred.
"This action by the trustee is a good thing for all legitimate creditors of SSH (Silver State Helicopters). It may help to bring money back into the SSH bankruptcy estate. Meanwhile, we are all still waiting to see if any governmental agency will bring criminal charges against Airola and Pickett," said California attorney Michael Jay Berger, who represents student creditors in the case.
In June 2008, In Business TV, a sister production of the Las Vegas Sun, reported FBI agents had interviewed Silver State students as potential crime victims.
Berger, too, said Thursday that he has thousands of student loan clients who have received questionnaires from the FBI. He said some 15 state attorneys general from around the country have been looking into the issue.
Students typically borrowed $70,000 at interest rates of as high as 15 percent, he said. Citibank has forgiven the loans of 68 of his clients, he's working with Key Bank in behalf of another 179 clients and is close to a settlement for 1,090 clients with the major lender Student Loan Xpress, Berger said.
But for students who paid cash, recovering their losses may be challenging because of a lack of assets in the case and the first-lien claim of Orix.
"The bad news is we're pretty far in the hole in this case," Berger said.
Leatham, in disputing the allegations in the trustee lawsuit, said he believes the key issue is whether the company was solvent when the transactions were made.
"It was a strong going-concern company at that time," Leatham said, arguing its demise was caused by the economic downturn and the drying up of student loan funding.
Predicting exactly when a proposed class action settlement agreement will be submitted to the Court has proven to be difficult. This proposed agreement will cover most former SSH students who obtained loans from Student Loan Xpress to attend Silver State Helicopters and were still enrolled at SSH at the time that it filed bankruptcy. It now looks like the settlement papers will be filed with the Court somewhere between next Tuesday, October 13 and next Friday, October 16. All class members will have a chance to accept the settlement or "opt out" and reject the proposed settlement. Many of my clients have pressed me for the details of this proposed agreement, but until it is submitted to court, these details are still covered by a written confidentiality agreement.
Posted by Michael Berger at 12:02 PM Links to this post
Silver State Helicopters Trustee Sues Jerry Airola and Steve Pickett
On September 15, 2009, James F. Lisowski, Sr. Chapter 7 Trustee for Silver State Helicopters, LLC ("SSH") and Silver State Services Corporation, filed an Adversary Proceeding Complaint ("The Complaint) against Jerry Airola ("Airola"), Steve Pickett ("Pickett"), First American Equity, LLC ("First American") and Stars & Stripes Heliplex, LLC. The Complaint seeks the avoidance of preferential and fraudulent transfers of assets and the recovery of more than $8,200,000.00 in damages from the defendants based on Claims for Relief for Recovery of Preference, Avoidance of Fraudulent Tranfer, Breach of Fiduciary Duty, Unjustment Enrichment and Conversion.
Airola was the President and Founder of SSH. Pickett was the Chief Financial Officer of SSH. Airola and Pickett are the members of Defendant First American and Defendant Stars & Stripes Heliplex, LLC.
The Complaint alleges the fraudulent and preferential transfer of assets from SSH to First American, including the transfer of 1.2 million dollars in cash, a $700,000.00 promissory note, all issued and outstanding shares of Air Excel, a company owned by SSH, and real property located at 500 E. Cheyenne Avenue, North Las Vegas, Nevada, all for no consideration. The Cheyenne Avenue property is alleged to include a private airport, one of the few facilities approved as such in the greater Las Vegas area.
The Complaint further alleges that between April 2007 and August 2007, Airola was paid in excess of ten million dollars pursuant to a "Recapitalization Agreement." During the same period of time, Airola and Pickett caused SSH to enter into a revolving $40,000,000.00 credit line with Orix Commercial Finance LLC. Less than 6 months later, Silver State Helicopters, LLC filed its Chapter 7 bankruptcy.
This action by the Trustee is a good thing for all legitimate creditors of SSH. It may help to bring money back into the SSH bankruptcy estate. Meanwhile, we are all still waiting to see if any governmental agency will bring criminal charges against Airola and Pickett.
Posted by Michael Berger at 1:07 PM Links to this post
Final documents are being prepared now regarding the proposed class action settlement between Student Loan Xpress and many of the former Silver State Helicopters students who received loans from Student Loan Xpress to attend Silver State Helicopters schools throughout the country. My best estimate is that these documents will be submitted to the Court on or before October 5, 2009. I will post an update to my blog regarding the terms of the proposed settlement as soon as these documents are filed with the Court.
Posted by Michael Berger at 12:59 PM Links to this post
SLX Settlement Delayed Until September 28, 2009
A proposed Settlement Agreement covering the vast majority of my clients with loans from Student Loan Xpress, as well as most other former SSH students with loans from SLX, has been delayed until September 28, 2009. This delay was caused by the ongoing negotiations between SLX and the AG Task Force.
Posted by Michael Berger at 6:57 PM Links to this post
Silver State Helicopters Students Near Settlement With Student Loan Xpress
A proposed Settlement Agreement covering the vast majority of my clients with loans from Student Loan Xpress, as well as most other former SSH students with loans from SLX, is scheduled to be filed in United States District Court on August 31, 2009. This proposed nationwide class action settlement is to be filed in United States District Court Middle District of Florida Tampa Division Case No. 8:080cv-00305-SDM-MAP. All leading counsel representing former students of SSH have joined together to negotiate and approve the best possible settlement for our former SSH student clients. These attorneys include myself, Andrew August and Kevin Rooney of the Pinnacle Law Group in San Francisco, and Chris Casper of Tampa, Florida. Certain state Attorney Generals, including the Florida Attorney General, who have undertaken a cooperative investigation of the business practices of SSH and the events leading to its closure in February of 2008 (The AG Task Force), are reviewing the proposed settlement and using their influence to get the best possible settlement terms for former SSH students. These settlement negotiations have been ongoing for more than one year, and include three mediation sessions before retired Judge William Cahill in August, September and December of 2008 in San Francisco, California. The parties have engaged in confirmatory discovery and exchanged multiple drafts of a more than sixty page settlement agreement. Plaintiff's counsel have conducted extensive independent investigation and analysis, including obtaining a copy of SSH's computer and hard copy records. 3 separate putative class actions are pending against SLX on behalf of Student borrowers of SSH, and all of these actions may be said to have helped facilitate the proposed settlement. Most of this formerly confidential information has been set forth in pleadings filed in the above referenced District Court Case and can now be shared with you. The terms of the proposed settlement must remain confidential until the proposed agreement is filed with the Court. I will post full details regarding the proposed settlement agreement on this blog at the earliest possible time. Each client of mine with loans from Student Loan Xpress will be contacted individually regarding this settlement proposal.
Posted by Michael Berger at 8:37 PM Links to this post
Patience is a virtue. Have you heard that one before? The Silver State Helicopters case is definitely one that has required both action and patience on my behalf and on behalf of all of my clients. For my Citibank clients, I have already achieved 100% success. For all others, the work continues.
Right on Citibank
When Citibank first offered to forgive 100% of my Citibank clients’ SSH student loan debt in all states except California in exchange for an assignment of the clients’ proofs of claim in the SSH bankruptcy, there were a few skeptics. Some suggested that there must be a catch. They said that perhaps Citibank would sell the loans to a third party that would then try to collect. They asked if the students would be sent a 1099 and incur debt settlement income. They wondered aloud if the client’s credit would be trashed. Here is the reality of what has happened:
1. The Citibank offer was expanded and extended to all former SSH students with took out student loans from Citibank to attend SSH, including all of my California clients with Citibank loans.
2. All of my clients with Citibank loans took my advice and accepted Citibank’s offer of 100% loan forgiveness.
3. Citibank did not resell the loans to any third party.
4. Citibank did not send 1099s to any of my clients.
5. Citibank kept its promise to completely remove all reference to the Citibank loans from its credit reporting to all credit reporting agencies.
6. Now, in an unprecedented development, Citibank has agreed to refund all of the money that one of my Citibank clients paid on his Citibank loan prior to receiving Citbank's 100% debt forgiveness offer.
I think it is fair to say that I was right on Citibank. In saying this, I acknowledge the role of Andrew August and Kevin Rooney of the Pinnacle Law Group in helping to achieve this result.
Still Waiting on SLX
On February 18, 2009 I wrote a post on this blog entitled "SLX is Next" in which I stated my belief that SLX would be the next lender to settle with my SSH clients and told my clients with SLX loans to "look for an announcement in the next 30 days." 64 days later, we are all still waiting for this settlement offer that I can recommend to my clients. As I have stated before on this blog, settlement negotiations with SLX are covered by a written confidentiality agreement. This prevents me from discussing the settlement negotiations and the proposed terms of the settlement offer. I will use my best efforts to resolve any remaining differences and to get each and every one of my SSH clients with SLX loans the best possible settlement offer. All Plaintiffs' counsel are cooperating on this matter. Counsel for SLX is the Los Angeles office of Sidley & Austin, with attorney Jennifer Landau acting as lead counsel for SLX. I will e-mail all of my SLX clients with the details of this settlement offer as soon as the offer is made public.
Come On, KeyBank
KeyBank is firmly in last place when it comes to settling with its clients that obtained student loans to attend SSH. Nixon Peabody LLP is counsel for KeyBank on the SSH matter, with Scott O'Connel of the Manchester, New Hampshire branch of the firm serving as lead counsel. Although there have been general discussions and an unsuccessful mediation, there has not been any reasonable settlement offer from KeyBank and its counsel. KeyBank seems to want to wait and see what happens with Citibank and SLX first. With Citibank resolved and SLX well on its way, I am hopeful that real progress will be made soon with KeyBank. On a more positive note, KeyBank continues to honor its no payment while this matter is in dispute offer and has not sued any of my clients. For that matter, I have not received any reports of any lawsuit by SLX against any of my clients either.
Still Out of the Money in the SSH Bankruptcy Case
On November 4, 2008, I wrote that "For now, it appears that the SSH bankruptcy estate is administratively insolvent. This means that there is no money to pay to unsecured creditors and that administrative creditors may receive less than full payment on their claims." 1,620 separate pleading have been filed in the SSH bankruptcy since it was filed on February 5, 2008, but my analysis remains the same: There is no money to pay to unsecured creditors. There has been no indication of when, if ever, a distribution will be made to the unsecured creditors. This is true even for my clients who have made part of their claims priority claims that get paid ahead of general unsecured creditor claims. So far, the best thing that I have been able to do with my clients' proofs of claim against SSH is to trade them to the lenders in exchange for loan forgiveness, as we did with Citibank. Efforts continue on a daily basis to bring additional assets into the bankruptcy estate. If and when I believe that there will be a distribution to my clients from the bankruptcy estate, I will post further information on this subject.
Is Delay Good For You?
It's better than losing. It's better than being sued. It gives the FBI and the State Attorney Generals more time to investigate and develop a case. Public opinon and government pressure can help us. Banks that take government money may be held accountable to the government. In my opinion, delay is better than accepting anything less than the best offer that I can get for you.
Posted by Michael Berger at 9:00 AM Links to this post
Posted by Michael Berger at 8:28 AM Links to this post
Loan Modification is a hot topic now. Many firms throughout the country are offering loan modification services. Often, the attorney who solicits the business is a front for others or there is no attorney involved whatsoever. They take on any client who can pay their fee, with little or no regard for the likelihood of success. Many of the firms collect illegal up front fees, do little or no work, and leave a trail of consumer complaints in their wake.
At my law office, all loan modification work is done by me and by the Senior Associate Attorneys that work for me. We do not take cases that we think are unlikely to succeed. As with our bankruptcy work, we offer a free consultation to anyone and everyone who is interested in receiving our help.
Our fee structure is simple: $2,500.00 for the first loan on any property and $1,250.00 for any second or third loan on the same property. Unlike other loan modification firms, we offer a full range of bankruptcy services when needed. Sometimes the elimination of debts in a bankruptcy proceeding can increase the likelihood of a successful loan modification after the bankruptcy case is concluded. Other times, a successful loan modification can avoid the need for a bankruptcy altogether.
Posted by Michael Berger at 8:25 AM Links to this post
My running friends know that I am a regular participant in the Boston Marathon. On Monday, April 20, 2009, I completed my 6th Boston Marathon, finishing in a time of 3:39:36. In addition to competing as an individual, I was part of a Men’s Masters Team for Track Club Los Angeles (“TCLA”).
The race was exciting as always and the crowd support was fantastic. The woman’s race was decided by one second. I had the pleasure of meeting many of the top finishers in the race, including the female winner of this year’s Boston Marathon Salina Kosgei, and the 2 top finishing Americans, Kara Goucher and Ryan Hall (both finished third). Shown above are some photos of me and my new friends.
Posted by Michael Berger at 7:54 AM Links to this post
A "Key" Victory for Flight School Students
This article should be of interest to all of my SSH clients with loans from KeyBank. It is reprinted from the Higher Ed Watch Blog where it was posted earlier today:
"It appears that KeyBank's predatory private student loan practices are finally catching up with the company.
Late last month, the bank settled a lawsuit filed by 51 former students from TAB Express International, a defunct flight school in northern Florida, who had accused the lender of colluding with the school to defraud them. The settlement puts an end to the case, which was scheduled to go to trial before a jury this week in a state circuit court in Florida.
One of the most aggressive players in this arena has been KeyBank, which has formed exclusive arrangements with dozens of unlicensed trade schools -- particularly ones that focus on computer training and flight training. These schools have required their students to pay for the full cost of their programs up front, with tens of thousands of dollars of private loans from KeyBank. Unfortunately, many of these schools have shut down without warning, leaving their students in the lurch -- heavily indebted with expensive private loans and little to no practical training.
In case after case, KeyBank has fought vigorously (and often successfully) to force students to pay back these loans. In doing so, the lender has denied borrowers basic protections that are in federal law to protect borrowers from being scammed. For example, the bank has routinely omitted from the promissory notes for its private loans a required notice that asserts the borrowers' right to have their loans canceled if a school with which it has "a referring relationship" closes down, is not licensed, or engages in fraud. In addition, the bank has tried to prevent students whose schools have shut down from challenging their loan agreements in court.
A Big Victory for Students
In June 2005, TAB Express International shut its doors without notice after KeyBank ended its three-year relationship with the school. Prior to that, KeyBank and TAB had an exclusive arrangement in which the school required students to pay the full cost of attendance -- which was around $100,000 -- with private loans from the lender before classes even started. The bank sent the money directly to the school. According to the former students' lawsuit, the students were told that their loans would be forgiven after they completed the training and worked for TAB's airline for a period of time.
But after enrolling, students became suspicious. "The students became aware of a lack of available instructors, simulators, and aircraft at the flight school as the school continued to increase the number of enrollees," the lawsuit stated. Eventually, they realized that "TAB had no airline." The lawsuit said that the students repeatedly brought their concerns to KeyBank officials but were rebuffed, and the lender continued to help market the school to prospective students.
When the deal finally collapsed, the lawsuit said, KeyBank officials tried to convince the students to take advantage of a "train out option" that would have required them to take on additional private loan debt and to waive their right to pursue legal action. Most of the students were not persuaded.
Instead, they decided to pursue a lawsuit against KeyBank. They won a major victory last year when the Florida State Appeals Court rejected an effort by the lender to enforce a "venue restriction clause" included in the students' private student loan promissory notes. That clause would have required them to re-file their case in KeyBank's home state of Ohio, which has much weaker consumer protection laws than Florida.
With only weeks before the jury trial was to start, KeyBank decided to come to terms with the former students. Under the settlement, the bank agreed to discharge the borrowers' private loans, which were worth about $5 million, and to pay a portion of their legal fees. The company, however, did not admit to any wrongdoing.
Whether or not KeyBank wittingly helped schools like TAB Express and Silver State Helicopters exploit students is sure to be the focus of an investigation that the FBI is conducting of the lender's activities. Sen. Bill Nelson (D-FL) revealed the existence of the FBI probe in a letter he sent to one of the former TAB Express students last fall that was obtained by Higher Ed Watch. The letter also noted that "the Florida Attorney General's Office is also conducting a formal investigation into the matter as part of a larger multistate group of Attorneys General."
At Higher Ed Watch, we are pleased that federal and state investigators are taking these cases seriously. While justice has been served for former students of TAB Express, there are many others who are being forced to repay tens of thousands of dollars in expensive private loan debt for training they never received. Hopefully, they won't have to wait for their day in court before their debt is forgiven."
Posted by Michael Berger at 4:31 PM Links to this post
Bogus Offer from KeyBank
Citibank was the first major lender to settle with the SSH students. Student Loan Xpress is likely to be next. That makes KeyBank most likely to be the last major lender to settle with the SSH students. KeyBank has not made any offer to Plaintiffs' counsel, though it has participated in discussions and agreed to participate in a mediation. Meanwhile, in January of 2009, KeyBank made individual offers to certain California SSH borrowers. In one such offer made to a Los Angeles, California client of mine, KeyBank offered to reduce my client's SSH KeyBank student loan balance by $8,763.36 from $66,763.16 to $58,000.00. This amounts to a 13% reduction for a client that received only his private pilot's license from SSH.
KeyBank wants an assignment of the student's proof of claim against SSH, a covenant not to sue, a confidentiality agreement, and a complete release. All it offers in return is a 13% discount. In my opinion, KeyBank's offer is not good enough. It is a bogus offer.
KeyBank mailed its offer directly to my client, with no copy to me. KeyBank did this despite the fact that I have previously advised KeyBank and its counsel of my representation of this client and of all the KeyBank clients that I represent. I urge all clients of mine who receive such a letter to forward said letter to me and to authorize me to reject KeyBank's offer. Together, we can do better.
Posted by Michael Berger at 5:48 AM Links to this post
No Action Needed on SLX "Personal Information" Letter
Many of my SLX clients have contacted me about a letter that they received from SLX in late January or early February regarding the inadvertant disclosure of certain personal information and the subsequent destruction of said information. My opinion is that no action is needed on said letter. I have not had any reports of any identity theft or attempted identity theft as a result of SLX's actions. Here is what the letter says:
We recently became aware of an incident involving certain personal information related to some Student Loan Xpress, Inc. student loan data. The service provider for your loan(s), American Education Services (“AES”), inadvertently transmitted a report which contained your personal information to another student loan lender with which AES contracts. That lender has indicated that it destroyed all of the information it mistakenly received. We have no evidence that any of the information has been used in an unauthorized manner as a result of this incident. The information that AES inadvertently sent to the unauthorized recipient may have included names, addresses, Social Security numbers, dates of birth, and information specific to you student loan account. We are working with AES to take steps to help ensure that this type of incident does not happen in the future.
We regret that this incident may affect you. We take our obligation to safeguard personal information very seriously and, therefore, we are alerting you so you can take steps to protect yourself from possible identity theft. We encourage you to remain vigilant and regularly review and monitor your account statements and credit reports. The attached Reference Guide provides details on these and other steps you may wish to consider.
You are entitled under U.S. law to one free credit report annually from each of the three national credit bureaus. To order your free credit report, visit www.annualcreditreport.com or call toll free
To further assist you, we recommend that you register for credit monitoring, which we have arranged to provide at no charge to you. The attached Reference Guide provides information on how you can register for the credit monitoring and recommendations by the U.S. Federal Trade Commission on how to further protect yourself against identity fraud. You may also want to place a fraud alert or security freeze on your credit file.
We hope this information is useful to you. If you have questions regarding this incident, please call AES’s dedicated Customer Service staff at 1-800-2149320 between the hours of 8:00 am and 5:00 pm EST.
Again, we regret any inconvenience this may cause you.
Posted by Michael Berger at 5:41 AM Links to this post
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