Friday, January 24, 2014

Whereabouts of two former Direct Air partners named in bank lawsuit not known: Ellisons previously involved in similar Chapter 7 travel-related court case, records show

Two of Direct Air’s former partners are nowhere to be found. 

 Now a Utah-based bank that sued Direct Air and its former partners, saying it lost more than $25 million when the carrier folded, is turning to a local newspaper to notify the missing businesspersons.

Merrick Bank Corporation, which entered into a merchant application and agreement with Direct Air to process credit card transactions, claims former Direct Air partners Kay P. Ellison and Stanley Marshall Ellison have left South Carolina “to avoid the service of a summons,” according to recently filed federal court documents.

In an attempt to serve the Ellisons, attorneys for Merrick filed a motion seeking an order for publication of the summons and complaint in a local newspaper. A federal judge signed an order Jan. 16 approving the bank’s motion.

“Additional attempts to locate the Ellisons out of state were also unsuccessful,” the motion states. “Alternatively, the Ellisons, as residents of the State of South Carolina, have departed from this state ‘to avoid the service of a summons of keep [themselves] concealed therein with like intent.”

The Ellisons are listed individually as co-defendants in a federal lawsuit Merrick Bank filed against Direct Air’s former partners in September 2013.

The suit said Direct Air is liable for more than $25 million chargebacks that were processed shortly after Direct Air suspended all flights in March 2012.

Direct Air is now in Chapter 7 liquidation.

Also named in the suit are Robert Keilman, Judy Tull and Ed Warneck.

Keilman and Tull have filed responses, though Merrick filed a motion to strike Tull’s response and a request for entry of default on the basis that it was filed late, according court records filed Jan. 10.

“Tull filed a late answer on January 6, 2013, well outside of the time prescribed for her to answer,” Merrick states in court records. "Tull did not seek the consent of Plaintiff in filing this late answer, nor did she seek leave from the court.”

Tull’s attorney Reese Boyd declined to comment, citing the pending litigation. But Boyd did say a response to the Merrick motion is being prepared.

“My comment will be my response and we will respond,” Boyd said.

Warneck has not filed a response, prompting an attorney for Merrick to seek a request for entry of default against Warneck as well. Warneck couldn’t be reached.

In the earlier response Tull filed to the Merrick lawsuit, she denies executing and delivering a personal guarantee to the bank.

Tull admits that Merrick made demands for chargebacks, but denied its ability to do so on the basis that she’s “without sufficient information or belief” whether the bank had the right to make such demands, or whether the same demands were made of the other defendants.

Tull asks the court to dismiss the case. Her response also seeks a judgment in her favor and court costs.

In his response, Keilman admits Merrick Bank made demands for chargebacks, but “is without sufficient information and knowledge to form a belief as to whether it had the right to make such demands,” according to a Nov. 29 filing.

Keilman’s response also denies the defendants breached its contract and assertions that they are in default.

Ellisons faced similar suit

According to an affidavit filed by Merrick, the bank tried to serve the Ellisons with the suit at their last known address in Myrtle Beach and at another home in The Villages, Fla.

“At both addresses, the occupants reported that the Defendants Kay P. Ellison and Stanley Marshall Ellison no longer resided at the property,” the affidavit states.

Multiple attempts by the Carolina Forest Chronicle to reach the Ellisons by telephone have also been unsuccessful.

A telephone number registered to the Ellisons’ home on Waterford Drive in Myrtle Beach has been disconnected or is no longer in service, an automated message recording states.

The Ellisons were involved in similar Chapter 7 proceedings when they worked for Sovereign World Travel, a West Virginia corporation that functioned similarly to Direct Air’s business model.

In 2002, the U.S. Fourth Circuit Court of Appeals upheld a West Virginia judge’s ruling that ordered the Ellisons to repay $575,000 in losses to Airlines Reporting Corporation (ARC), which first filed adversarial proceedings in 1994, court records show.

Similarities between the two cases and their connections to the Ellisons were alluded to in an April 11 filing by David Haber, an attorney for Chemoil Corporation, a Florida-based fuel company and Direct Air’s largest creditor at more than $3.2 million.

“It is amazing how similar the two defalcations are to one another – both involve trust or escrow funds, both involve airline operations and both involve the Ellisons,” Haber said in the filing.

Merrick has requested a jury trial. Jury selection for the case is not scheduled until January 2015, according to court filings.

Merrick files second suit

In related matters, Merrick also sued Valley National Bank (VNB), which according to court papers, managed money market and demand deposit accounts for Direct Air.

It’s from these accounts money was supposed to be held in escrow to cover costs associated with any chargebacks from travelers seeking refunds, court records state.

The suit was filed Jan. 15 as part of the ongoing Direct Air bankruptcy proceedings. A response had not been filed as of press time.

Merrick said the accounts were supposed to hold about $30 million, but the balance had dwindled to about $1.02 million when Direct Air suspended flights.

The suit says about $3.7 million is tied to American Express transactions. The rest, Merrick says in court documents, represents the bank’s chargeback losses.

“The massive shortfall could not have occurred were it not for the systemic failure of [Valley National Bank] to follow the proper procedures with respect to the escrow,” the suit states.

According to the suit, VNB failed to segregate funds by charter group, flight or rotation. These funds were placed into an “unallocated” sub-account, which were then transferred to Direct Air upon request, the suit states.

“VNB never attempted to match up the receipts claimed by Direct air in its disbursement requests against the actual receipts into the depository account,” the suit states. “VNB never, even as a spot audit, sought to verify the receipts claimed by Direct Air.”

In September 2013, the U.S. Department of Transportation fined VNB $125,000 for failing to properly oversee the escrow, the suit continues.

“In short, VNB allowed Direct Air to operate the depository account as, effectively, a checking or demand account, disbursing funds at times, and in amounts, completely as directed by Direct Air,” the suit said.