By Karen Di Piazza
Daniel R. Reed, an attorney with Utah-based law firm Harward & Associates, told Airport Journals that the firm plans to file a class-action lawsuit against Silver State Helicopters and Eos Partners on charges of fraud. Before closing operations on Feb. 3 and filing for bankruptcy under Chapter 7 the following day, North Las Vegas, Nev.-based Silver State was the largest civilian helicopter school in the U.S. Eos, a New York-based private equity firm, owned 60 percent of Silver State after its investment of $30 million last August.
“Prior to Eos’ investment, the company was operated under Silver State Helicopters LLC, with its founder Jerry Airola as the primary member,” Reed said. “When Silver State Helicopters and Eos joined forces, a new company, Silver State Services Corp., was formed. Silver State Helicopters LLC filed Chapter 7 along with Silver State Services Corp.”
Reed is the primary point of contact between former students of Silver State and Harward & Associates, led by senior partner James. E. Harward and partner R. Spencer Robinson, both former Utah administrative law judges. On behalf of the firm’s case, Reed posted a Silver State bankruptcy website (www.danreedlaw.com) for former students of the flight school. Reed said both Harward and Robinson would directly manage and litigate the case against named defendants. The firm says it currently represents students from California, Texas, Florida, Utah, Arizona, Washington, New York and other locations where Silver State operated.
Silver State operated flight academies at more than 30 locations in 15 states. Media reports say 750 people were employed at Silver State and that it had 2,500 students. Reed said many of the students were also employed as student instructors.
Building a case of fraud
Reed said the Silver State case is nationwide and that his firm is holding group sessions for prospective claimants across the U.S.
“As of Feb. 26, I’ve talked to more than 1,300 students or student instructors,” he said. “On Feb. 1, only two days before closing its facilities, Silver State withdrew $23,300 from 90 student’s tuition accounts. That’s nearly $2.1 million, and that’s only students’ tuition funds withdrawn on that one day; the overall damage is far greater.”
Reed said students’ tuition paid the week prior to Silver State’s bankruptcy filing wasn’t included in the company’s bankruptcy.
“We intend to find out where students’ tuition monies went,” he said. “Do you think on Feb. 1 the company didn’t have Chapter 7 papers ready to go?”
He said that filing Chapter 7 puts “somewhat of a shield up against lawsuits,” and that one of the ways of getting Silver State out of Chapter 7 is to demonstrate fraud during bankruptcy proceedings.
“I’m quite confident that our firm will be able to do that,” he said. “The plan is to be able to file a class-action lawsuit against Silver State and Eos for fraud, breech of contract and other causes of actions. We plan to go after Silver State Helicopters, Airola, Silver State Services and Eos.”
Reed said a bankruptcy hearing was scheduled for March 10, providing an opportunity to question the bankruptcy trustee. He said the outcome would determine if they could proceed with a class-action suit, but that it was possible the hearing could be postponed.
On the day Silver State filed bankruptcy, according to a new student, Shane Hale, the flight school accepted a wire transfer of half of his tuition of $46,000. Hale, like so many other students, is paying off tuition loans with high interest rates.
“I called Citibank to stop the transfer,” said Hale, who never had the chance to attend training. He said Citibank said it couldn’t refund his money.
Jeannie Parker-Beard, instructor of English at Kennesaw State University, said she and her husband, Matthew Beard, a student at Silver State, are also victims of fraud. She described what they’ve been through since hearing on Feb. 3 that Silver State had closed.
“My husband was a student there for six months,” she said. “We paid Silver State a total of $46, 600, via a personal loan, rather than using the school’s lender; we’re on the hook for this money. On Feb. 2, a certified check was mailed from our credit union to Silver State for the last installment of $23,000.”
After hearing about the closing, Parker-Beard and her husband raced to their credit union to have payment stopped.
“On Feb. 19, the check hadn’t been cashed; our credit union had refused to stop payment, knowing the company went out of business,” she said.
On Feb. 27, she said, the check was finally cancelled.
“We paid a company to issue an indemnity bond to us, which let our credit union off of the hook for canceling the check,” she said. “We’ve gone through an excruciating process in order to stop payment on the certified check. This case screams of fraud in many ways.”
Reed said the law needs to be rewritten to protect students.
“All of these students are on the hook for their tuition loans,” he said.
Reed said his firm has been helping students deal with upcoming loan payments due, renegotiating terms.
“The week prior to its bankruptcy filing, Silver State held recruitment seminars trying to get more students to sign up and apply for loans—for an 18-month helicopter academy program that would never happen,” he said.
Reed said students and student instructors claim to have knowledge that Airola and the company used students’ tuition money inappropriately.
“We’ll ask for subpoenas of financial documents to substantiate claims, but students claim Airola used company funds to pay for women’s breast augmentations and his failed 2005 Clark County campaign to become sheriff, and that he purchased a fleet of Hummers and motorcycles,” he said. “The list of alleged misused funds goes on, which requires a lot of due diligence in investigations.”
Reed said if Harward & Associates, representing the vast majority of students against Silver State and Eos, can bring a class-action suit to life, it would help students in many ways.
“This is the only way in which students would be able to recover damages, have some emotional closure and move on with their lives,” he said. “Meanwhile, each state attorney general has the legal right to investigate and file criminal charges.”
Silver State and Eos
In its bankruptcy filing, Silver State claimed that after excluding any exempt property and paying administrative expenses, there wouldn’t be any money left to pay unsecured creditors, including former students.
In its bankruptcy filing, Silver State Helicopters LLC claimed assets of $50,000 or less to pay liabilities as high as $50 million owed to as many as 10,000 creditors. The filing states there’s a pending bankruptcy case, also filed on Feb. 4, by Silver State Services Corp. Silver State’s bankruptcy petition bears the signature of Stenning K. Schueppert, secretary of Silver State Services, who is also listed as a principal at Eos Partners.
Eos spokesperson Michael Freitag said three of Eos’ members sat on the board of directors of Silver State and Airola retained one seat on the board. He said Airola had access to the company funds and oversaw day-to-day operations, contrary to media reports.
“Airola was CEO of Silver State up to the day of the company’s bankruptcy filing, but I don’t know who acted as president,” Freitag said. “Eos expects that its $30 million investment in Silver State has been lost.”
When asked for the names of Eos’ three members who sat on Silver State’s board or to speak with one of its members, the request was denied. Freitag declined to answer if Eos performed due diligence on Silver State prior to or after its investment, as prior lawsuits had been brought against both Airola and Silver State. Although Freitag confirmed that Eos owned a majority percentage in Silver State, he declined to comment on whether Eos’ members who sat on Silver State’s board took an active role in the company’s day-to-day operations or its financial activities.
Even though Eos’s investment in Silver State has gone down the drain, Freitag said he wasn’t aware of any plans on Eos’ part to file a lawsuit against Silver State.
“Eos suing Silver State would be tantamount to Eos suing itself,” Reed said. “Eos was responsible from the day it invested $30 million up to today. If three of Eos’ members had three of the four seats on Silver State’s board, clearly, Eos controlled the company’s funding and oversaw its management.
“You’d think a company like Eos would’ve performed due diligence. From what I understand, New York’s state attorney general has been investigating Silver State for a year or so. I’ve heard that several state attorney generals are investigating the company at this point.”
Jeanette E. McPherson, an attorney of Las Vegas-based law firm Schwartzer & McPherson, representing Silver State, declined to answer any questions. Silver State’s spokesperson Maile Takashima also refused to answer questions about the affairs of Silver State and allegations of fraud.