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United suing 200 creditors
Airline seeks to get back payments made before bankruptcy
By David Kesmodel, Rocky Mountain News
December 8, 2004 In late 2002, a small Chicago firm specializing in government affairs worked hastily to help United Airlines win U.S. approval for a key marketing agreement with US Airways.
The firm, Midwest Public Affairs Group, received payments from United totaling $68,500 over three months. United and US Airways eventually launched a pact worth more than $200 million annually to United that lets the carriers book customers on each other's flights.
On Monday, United slapped Midwest with a lawsuit, saying it wants the money back.
"Dismayed is putting it mildly," Fioretti said of the company's reaction to the suit.
The firm is among more than 150 that United, Denver's biggest carrier, has sued in the past few weeks. Another is Boulder-based Ball Aerospace, which declined comment.
Known as preference actions, the suits seek to recoup payments the airline made in the 90 days before its Dec. 9, 2002, bankruptcy filing. The suits are being filed in a flurry because on Thursday UAL Corp.'s United faces the end of a two-year statute of limitations on claims.
Preference actions - increasing in frequency amid a rise in mega- bankruptcies - are designed to make sure no creditor gets special treatment over another from a business in bankruptcy protection.
The actions have infuriated some creditors, and critics warn they're initiated too often. One creditor trade group has proposed bankruptcy-law changes that would revise the time period at issue to 30 days before the bankruptcy.
In September, Novare Inc., a firm representing United, sent Midwest a letter threatening "costly and unnecessary litigation" if Midwest didn't pay a settlement of $54,800, or 80 percent of the full amount.
Fioretti said he sought records from United about the work Midwest performed and found that the Chicago-based carrier apparently had little of what he asked for. On Friday, he said, a Novare lawyer said it would cut a deal for 65 percent.
"I said I would talk to my clients sometime this week," he said. But "my guys can't afford that."
The Novare lawyer seemed willing to wait, Fioretti said. But on Monday, a separate firm representing United sued Midwest.
"It demonstrates further bad faith of what is going on in this bankruptcy," said Fioretti, who had not seen the suit as of late Tuesday afternoon. "It's one hand not knowing what the other hand is doing."
He said United going after Midwest's money is "unconscionable." It's a small firm "that was trying to keep United in business."
Fioretti said Midwest didn't know at the time that United was headed for Chapter 11 protection. He argued that the payments were made in United's ordinary course of business, so they wouldn't qualify as preferential payments.
Jack B. Fishman, president of Novare, referred an interview request to United's media-relations office.
"This is a normal part of the bankruptcy process that ensures one creditor does not get preferential treatment," said Jean Medina, a United spokeswoman. "We're hopeful to settle as many of these issues as we can. We recognize that bankruptcy is difficult and all of our constituents are contributing to ensure United" becomes viable.
United also is asking the U.S. Bankruptcy Court in Chicago for the right to start mediation proceedings, sparing some legal expenses.
United expects to have filed a total of about 200 preference actions by Thursday, she said. She declined to provide details on how much money United seeks.
"The preference issue has always been controversial," said Bill Brandt, a corporate turnaround consultant in Chicago, and advances in computer technology have helped spur more filings.
Speedy Internet connections and deep recordkeeping let lawyers rapidly ship "hundreds of these things."
Because they can be costly to fight, creditors sometimes feel they must pay a settlement.
"It has become abusive," Robert P. Simons, a Pittsburgh bankruptcy lawyer told BusinessWeek last month. "The pressure is on the defendant to cut a deal."
Douglas Baird, a bankruptcy-law professor at the University of Chicago, said companies that extended credit to United when it was struggling in late 2002 took a big risk. He said he doesn't have much sympathy for any creditors that are upset unless United lacks sufficient reason for a preference claim.
"It might be abusive if there was a small amount of money involved and you had to spend a lot of money on lawyers," he said. "But it's the name of the game."
Denver attorney Stephen Abelman, a bankruptcy specialist at Cage Williams Abelman, said the bankruptcy rule is one of the hardest to explain to sued creditors, large and small.
"It's rubbing salt on the wound. A bankrupt company that still owes you a substantial amount of money is now demanding you return the little money you did collect. I can't tell you how many furious clients have come to me and asked how in the world could this be allowed."
A case in point: The bankruptcy trustee for now-defunct Western Integrated Networks of Denver recently filed a $75,000 claim against a California firm it leased equipment from, seeking the return of Western's last three monthly payments. Yet Western still owes the equipment leasing firm nearly $500,000.
Abelman said that if the preference action is ignored, the bankruptcy court can disallow any outstanding debt still owed to the creditor.
Other creditors United has sued include the Marriott Denver Southeast, Yahoo! and PeopleSoft.
United Airlines' 'preference actions'
• The carrier is seeking from creditors the payments it made in the 90 days before its December 2002 bankruptcy filing.
• United will have filed about 200 lawsuits by Thursday.
• Colorado creditors such as Ball Aerospace are among those sued.
Perhaps next, they will sue the passengers for having paid to little.
Airline seeks to get back payments made before bankruptcy
By David Kesmodel, Rocky Mountain News
December 8, 2004 In late 2002, a small Chicago firm specializing in government affairs worked hastily to help United Airlines win U.S. approval for a key marketing agreement with US Airways.
The firm, Midwest Public Affairs Group, received payments from United totaling $68,500 over three months. United and US Airways eventually launched a pact worth more than $200 million annually to United that lets the carriers book customers on each other's flights.
On Monday, United slapped Midwest with a lawsuit, saying it wants the money back.
"Dismayed is putting it mildly," Fioretti said of the company's reaction to the suit.
The firm is among more than 150 that United, Denver's biggest carrier, has sued in the past few weeks. Another is Boulder-based Ball Aerospace, which declined comment.
Known as preference actions, the suits seek to recoup payments the airline made in the 90 days before its Dec. 9, 2002, bankruptcy filing. The suits are being filed in a flurry because on Thursday UAL Corp.'s United faces the end of a two-year statute of limitations on claims.
Preference actions - increasing in frequency amid a rise in mega- bankruptcies - are designed to make sure no creditor gets special treatment over another from a business in bankruptcy protection.
The actions have infuriated some creditors, and critics warn they're initiated too often. One creditor trade group has proposed bankruptcy-law changes that would revise the time period at issue to 30 days before the bankruptcy.
In September, Novare Inc., a firm representing United, sent Midwest a letter threatening "costly and unnecessary litigation" if Midwest didn't pay a settlement of $54,800, or 80 percent of the full amount.
Fioretti said he sought records from United about the work Midwest performed and found that the Chicago-based carrier apparently had little of what he asked for. On Friday, he said, a Novare lawyer said it would cut a deal for 65 percent.
"I said I would talk to my clients sometime this week," he said. But "my guys can't afford that."
The Novare lawyer seemed willing to wait, Fioretti said. But on Monday, a separate firm representing United sued Midwest.
"It demonstrates further bad faith of what is going on in this bankruptcy," said Fioretti, who had not seen the suit as of late Tuesday afternoon. "It's one hand not knowing what the other hand is doing."
He said United going after Midwest's money is "unconscionable." It's a small firm "that was trying to keep United in business."
Fioretti said Midwest didn't know at the time that United was headed for Chapter 11 protection. He argued that the payments were made in United's ordinary course of business, so they wouldn't qualify as preferential payments.
Jack B. Fishman, president of Novare, referred an interview request to United's media-relations office.
"This is a normal part of the bankruptcy process that ensures one creditor does not get preferential treatment," said Jean Medina, a United spokeswoman. "We're hopeful to settle as many of these issues as we can. We recognize that bankruptcy is difficult and all of our constituents are contributing to ensure United" becomes viable.
United also is asking the U.S. Bankruptcy Court in Chicago for the right to start mediation proceedings, sparing some legal expenses.
United expects to have filed a total of about 200 preference actions by Thursday, she said. She declined to provide details on how much money United seeks.
"The preference issue has always been controversial," said Bill Brandt, a corporate turnaround consultant in Chicago, and advances in computer technology have helped spur more filings.
Speedy Internet connections and deep recordkeeping let lawyers rapidly ship "hundreds of these things."
Because they can be costly to fight, creditors sometimes feel they must pay a settlement.
"It has become abusive," Robert P. Simons, a Pittsburgh bankruptcy lawyer told BusinessWeek last month. "The pressure is on the defendant to cut a deal."
Douglas Baird, a bankruptcy-law professor at the University of Chicago, said companies that extended credit to United when it was struggling in late 2002 took a big risk. He said he doesn't have much sympathy for any creditors that are upset unless United lacks sufficient reason for a preference claim.
"It might be abusive if there was a small amount of money involved and you had to spend a lot of money on lawyers," he said. "But it's the name of the game."
Denver attorney Stephen Abelman, a bankruptcy specialist at Cage Williams Abelman, said the bankruptcy rule is one of the hardest to explain to sued creditors, large and small.
"It's rubbing salt on the wound. A bankrupt company that still owes you a substantial amount of money is now demanding you return the little money you did collect. I can't tell you how many furious clients have come to me and asked how in the world could this be allowed."
A case in point: The bankruptcy trustee for now-defunct Western Integrated Networks of Denver recently filed a $75,000 claim against a California firm it leased equipment from, seeking the return of Western's last three monthly payments. Yet Western still owes the equipment leasing firm nearly $500,000.
Abelman said that if the preference action is ignored, the bankruptcy court can disallow any outstanding debt still owed to the creditor.
Other creditors United has sued include the Marriott Denver Southeast, Yahoo! and PeopleSoft.
United Airlines' 'preference actions'
• The carrier is seeking from creditors the payments it made in the 90 days before its December 2002 bankruptcy filing.
• United will have filed about 200 lawsuits by Thursday.
• Colorado creditors such as Ball Aerospace are among those sued.
Perhaps next, they will sue the passengers for having paid to little.
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