Dispute over trustee’s fees stalls Silver State Helicopters liquidation

After more than five years in bankruptcy, wrapping up the Silver State Heli­copters liquidation has hit a snag in a dispute over the trustee’s fees.

The Office of U.S. Trustee and the attorney representing hundreds of people who lost all their deposits for pilot lessons argued Wednesday that case trustee James Lisowski Jr. should surrender about $100,000 of his fees due to excessive or undocumented expenses. The U.S. Trustee is an arm of the Justice Department that acts as a bankruptcy system watchdog; a case trustee is an independent attorney.

Even if Judge Mike Nakagawa orders Lisowski to return the money, none of it would trickle down to the hundreds of creditors wiped out in the case, including the prospective students who collectively paid $5.4 million for lessons they never received. Still, said U.S. Trustee attorney J. Michal Bloom, “If the trustee lines his pocket, he should be made to disgorge (the money).”

Among the payments Bloom questioned are more than $60,000 in storage costs, $34,000 to cover a variety of expenses and unspecified document copying and replacement costs due to sloppy record keeping.

Lisowski explained that Orix Finance Corp. held the entire company as collateral, so it collected almost all of the money from selling off hundreds of planes, heli­copters and other pieces of equipment scattered across the country and the Caribbean. He said he submitted complete and detailed invoices to Orix that were pored over carefully and drew no complaints.

“That’s the main problem” with the U.S. Trustee’s argument, he said. “They changed the rules and it’s five years out.”

Nakagawa said he would rule but did not give a date.

Las Vegas-based Silver State operated a galaxy of flight schools, generating $103.8 million in revenue during its peak year of 2007. But it collapsed into Chapter 7 bankruptcy in February 2008 after piling up more debt than it could support. Since then, Lisowski has raised $45 million through asset sales, many of them during the pit of the recession, and paid out all but $70,000.

His fee for the work, through an agreement with Orix, has amounted to $1.2 million. The total bill for attorneys and professionals came to about $8 million.

“This case was never supposed to be about lawyers making $8 million to act as a collection agent for Orix,” said Michael Jay Berger, an attorney for the students.

But Lisowski contended it had turned out to be a very complicated case, such as collecting maintenance logs from 36 locations so the aircraft could be sold.

Contact reporter Tim O’Reiley at 702-387-5290 or at toreiley@reviewjournal.com.