Pace Airlines Settlement Reached

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WINSTON-SALEM, N.C. — The likelihood that 423 former employees of defunct Pace Airlines Inc. will receive back wages grew Wednesday with the filing of a $1 million insurance settlement hammered out by a bankruptcy trustee and the co-owners of the company.

The agreement, which was reached Monday through mediation, requires insurance carrier National Union Fire Insurance Co. of Pittsburgh to pay the $1 million after April 1 or within 30 days of the settlement being approved by a U.S. Bankruptcy Court judge.

In return, Chapter 7 trustee Edwin Allman III agreed to dismiss his adversarial proceedings with prejudice involving 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, now stand a better chance of getting some level of restitution.

If the settlement is approved, the Pace 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.

Many of the employees were not paid for up to their last six weeks of work. 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.

Allman, Rodgers, Booth or their representative attorneys could not be reached for comment.

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.

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 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 Administrationcertificates, 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.

On the criminal side of the Pace collapse, Rodgers has been served with a Forsyth County grand jury indictment related to his handling of employees’ health-insurance premiums, according to Walter Holton, his attorney in that case.

Rodgers’ hearing date in Superior Court is set for March 12. He has been out of jail on a $50,000 bond since September 2009.

The 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.

NOTE: This article was written by Richard Craver and originally appeared in The Winston-Salem Journal.

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