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The Honolulu Advertiser

Posted on: Sunday, December 7, 2003

Is trustee hitching free ride?

By Dan Nakaso
Advertiser Staff Writer

Photo illustration by Stephen downes • The Honolulu Advertiser
The successful effort by Hawaiian Airlines bankruptcy trustee Josh Gotbaum last week to become an officer and employee has bankruptcy scholars perplexed, and Gotbaum's harshest critics accusing him of trying to snap up perks for himself and his family.

Simultaneously holding the positions of bankruptcy trustee and corporate officer would seem to blur the lines of responsibility for Gotbaum, according to several specialists in bankruptcy law.

Marcus Cole, associate dean of the Stanford University law school, called Gotbaum's request "odd" and "very unusual." Lynn LoPucki, a law school professor at the University of California at Los Angeles, said "it's just puzzling to me." And Eric Talley of the University of Southern California's law school characterized it as "kind of bizarre."

"The ability of a trustee to also become an officer of a company in bankruptcy, at least on the surface, would appear to compromise his or her ability to be impartial," Talley said.

"There is reason to exercise caution in deciding to allow a bankruptcy trustee to take on such a personal relationship with the company they are charged with restructuring."

Gotbaum's attorney said that the request, while unusual, saves Hawaiian money and places strict limits on Gotbaum.

Access needed

Gotbaum, appointed in July to steer Hawai'i's largest airline out of bankruptcy, argued last week that he also needed to become a company officer and employee. He told the bankruptcy court he needed cockpit and airport security access and free air travel and health benefits to cut down on costs.

Some in the bankruptcy court hearing suggested Gotbaum could easily get such access and perks without becoming an officer or employee, leading to questions about his motives.

"Once the company comes out of bankruptcy, the office of trustee ceases to function, so he's no longer trustee," said Cole, of Stanford. "But as an employee of the company, it's quite possible that the relationship with the company will continue, and he would have all of the rights and standings that an employee would have at that point, including the right to challenge his dismissal should the new owners of the company seek to dismiss him."

LoPucki at UCLA said, "I regard it as an odd situation that's not terribly important in itself. But it might lead to an expectation that there's another shoe to drop."

If nothing else, last week's ruling by U.S. Bankruptcy Judge Robert Faris underscores the unusual twists and turns since Hawaiian filed for Chapter 11 bankruptcy protection in March, saw its CEO removed from power and had its first bankruptcy trustee resign after three weeks on the job.

Unusual circumstances

"While (Gotbaum's request to become an officer) was an unusual request and some of these issues are unusual, this is also an unusual case," said Steven Katzman, the U.S. trustee who appointed Gotbaum.

"To the best of my knowledge, there hasn't been any other case where we've had a trustee of an operating airline before."

In court papers, Katzman's office said it was concerned that making Gotbaum an employee and officer would mean he was no longer a "disinterested" party to the bankruptcy.

But the trustee's office said it would not oppose the request — as long as it helps Gotbaum administer his duties.

Next month, the court is scheduled to take up the issue of his salary. Gotbaum has proposed that he be paid $500 an hour, not to exceed 140 hours per month, and that he be reimbursed for "the reasonable cost" of renting a single-family home and automobile. A hearing is scheduled for Jan. 23.

Former Hawaiian CEO John Adams, whose old Koapaka Street office is now occupied by Gotbaum, said in a statement that Gotbaum's requests make it clear that he is "settling in for the long haul."

Adams said he was concerned that Gotbaum "is more interested in staying on the job and accruing fees for himself than looking out for the interests of the stakeholders in Hawaiian Airlines, particularly the shareholders."

Attorney Bruce Bennett, who represented Gotbaum in court last week, said his client would not stay with Hawaiian after it emerges from bankruptcy protection.

"That comment is absurd," Bennett said. "The motion specifies that Mr. Gotbaum is not actually becoming an employee or an officer in any sense that would entitle him to continued employment following the conclusion of the Chapter 11 case. He is not receiving compensation as an employee other than health insurance benefits as a member of the group that is covered by Hawaiian."

Nor will Gotbaum have a specific corporate office title, Bennett said.

Free flights

Capt. Bob Konop, a Hawaiian Airlines 767 pilot who has challenged Gotbaum several times in bankruptcy court, believes that Gotbaum's primary motive lies buried in his request to become a company officer.

"Gotbaum's request failed to state his true intent — that is, to obtain additional perquisites for himself and for his family members," Konop said in a court motion.

"Where Gotbaum seeks these perks, he should be required to properly frame and submit his request, rather than to hide his goals behind a smokescreen of false rationalizations."

Specifically, Konop believes that Gotbaum wanted to become a corporate officer to get free, unlimited first-class travel for himself, his wife and three young children — especially in time for the holiday season.

"Gotbaum never wanted to get into the cockpit, nor could he," Konop said. "That was never the issue. It was just a red herring to say he needed to be an employee."

Airlines assign about 50 rankings for free airline travel, with the highest priority given to pilots and crew who need to fly to another destination to staff a flight.

Hawaiian's next-highest category — PS3F — goes to corporate officers and their families, who can bump everyone else and ride first-class for free, Konop said.

"They basically get a credit card that lets them get on any airplane ahead of almost everybody else," Konop said.

No merit

Gotbaum's attorney said, "Capt. Konop has filed many papers with the bankruptcy court, and there hasn't been merit with any of them. The papers he filed in connection with this motion were no different."

In fact, Bennett said, Gotbaum has been paying for all his Hawaiian flights and getting reimbursed for the business trips.

"We thought that was silly," he said. Gotbaum never intended to arrange free travel for his family, Bennett said.

And Faris' ruling, Bennett said, means Gotbaum will now receive the benefits of "reimbursable travel only."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.