Judge approves Pace Airlines insurance settlement [Winston-Salem Journal, N.C.]

Feb. 29--A U.S. Bankruptcy Court judge approved today a $1 million insurance payment to the estate of a defunct Pace Airlines Inc.

Judge Thomas Waldrep's approval of the settlement means 423 former Pace employees will receive "a significant payment" of back wages by the end of 2013, Chapter 7 trustee Edwin Allman III said.

The settlement, which was reached Jan. 30 through mediation, requires National Union Fire Insurance Co. of Pittsburgh to pay the $1 million within 30 days of the settlement being approved.

In return, Allman agreed to dismiss with prejudice his proceedings against former co-owners William Rodgers Sr., Lee Booth and Booth's company, Luft Spares Inc. Booth claims he is not an officer or owner of Pace. With prejudice is a legal term that means if a case is dismissed for good reason, the plaintiff is barred from bringing an action on the same claim.

Although attorney fees and expenses are likely to eat into the settlement, the former Pace employees, including about 300 who worked at Smith Reynolds Airport, stand a better chance of getting some level of restitution.

If the settlement is approved, the estate's account would contain $1.835 million.

In August 2010, the N.C. Labor Department filed a claim for $1.5 million in back wages with Allman. The department is requesting interest on the back wages.

"It's too early to say how much each employee will receive, but it will be a significant payment," Allman said.

The settlement money comes from a $5 million directors' and officers' liability policy issued by the insurer to Pace in August 2009 -- just weeks before the company's collapse in September 2009. The liability policy excluded coverage for claims asserted as the result of unpaid wages.

Allman testified the settlement represented a fair and equitable agreement for all parties, particularly given his estimate that litigation costs could have been at least $400,000.

Allman said the settlement represented a calculated risk by all parties since it was uncertain whether Allman could have won a larger claim against the insurer. He also said that if he had succeeded in pursuing financial claims against Booth and Rodgers, it was likely such claims "would have been uncollectable."

Many of the Pace employees were not paid for up to their last six weeks of work before the company collapsed in September 2009. Most stayed on because of fears Rodgers would try to deny their unemployment benefits if they quit.

Allman has said the employees' claims are ranked highest in terms of priorities after the attorneys are paid. Booth and Luft Spares agreed to dismiss their counterclaim and assume responsibility for all rent claims for storage of Pace items in a Burlington warehouse.

Rodgers took over Pace in May 2009 based on a promissory note to pay $9 million to the estate of Bob Brooks -- founder of the Hooters restaurant chain -- for stock in Pace Airlines LLC and Pace Airlines II LLC and to take over $6 million in liabilities.

Allman contended Rodgers breached his fiduciary duties to Pace by "engaging in transactions while having a conflict of interest and failing to carry out his duties as an officer and director with proper care." Booth also was accused of a fiduciary breach.

Allman cited Rodgers' handling of the airlines' Federal Aviation Administration certificates, which could have been sold and transferred to another company, his violation of the N.C. Wage and Hour Act, the transfer of $800,000 of Pace funds to the Brooks estate as part of paying his purchase obligations, and Rodgers' diversion of Pace funds to himself and others for personal gain.

Rodgers and Booth denied the trustee's allegations.

Allman has received permission to pursue $1.46 million from Southern Sky Air & Tours LLC, doing business as Direct Air, based on a breach-of-contract lawsuit filed by Pace shortly before its collapse. That case remains in the discovery stage.

On the criminal side of the Pace collapse, Rodgers has a March 12 hearing date in Superior Court. He has been out of jail on a $50,000 bond since September 2009.

A grand jury indicted Rodgers on one count of willful failure to pay group health-insurance premiums to Blue Cross Blue Shield of N.C. and 26 counts of willful failure to deliver notice to employees that he was cancelling their insurance. He faces up to 20 months of jail time for each count, if convicted.

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