On Oct. 31, 2004, Arctic Express Inc. announced it had filed for a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the U.S. Bankruptcy Court in Columbus, OH. An affiliate leasing company, D&A Associates LTD, also filed a Chapter 11 at the same time.
Arctic President Richard Durst said the action by the Hilliard, OH, motor carrier was the result of Arctic’s six-year legal dispute with OOIDA in the class action brought by the association in 1997. OOIDA, with members Carl Harp, Garvin Keith Roberts and Michael Wiese, filed suit against Arctic Express and D&A Associates, claiming violations of the federal truth-in-leasing regulations for their failure to return escrow accounts after the termination of the owner-operators’ leases. On Aug. 29, 2001, U.S. District Court Judge Algenon L. Marbley (for the Southern District of Ohio, Eastern Division) had issued a written summary judgment in OOIDA’s favor finding that Arctic Express had violated the federal leasing regulations and “absconded” with the escrow accounts of the owner-operators.
“We simply ran out of reasonable choices in defending ourselves in this prolonged litigation,” Durst said in a statement. “We have spent nearly $700,000 defending our company in this class action over the past six years. It has drained resources that otherwise would have been used to pay our creditors.”
The latest round of defeats for Arctic in the case came a week earlier when Judge Marbley denied the motor carrier’s motion for reconsideration of the court’s previous ruling to deny Arctic’s motion for partial summary judgment. That motion sought to eliminate the claims of those class members whose lease-purchase agreements were entered into before Jan. 1, 1996, the effective date of the Interstate Commerce Commission Termination Act. A second motion to decertify the class was also denied by the court. Arctic had asked the court to reconsider its decision based on rulings in OOIDA’s case against New Prime Inc., where the Eighth Circuit Court of Appeals held that owner-operators with lease agreements executed prior to Jan. 1, 1996, could not prosecute their claims under the federal truth-in-leasing regulations. In his ruling, Judge Marbley brushed aside the Eighth Circuit ruling, noting that that ruling had no binding effect on his court and did not on its merits warrant further reconsideration by him.
In denying the motions, Judge Marbley had opened the way for the Arctic case to proceed to the trial phase to determine damages. As a result of the bankruptcy filings, though, an automatic stay has been imposed on the litigation before Judge Marbley to allow the Bankruptcy Court matter to proceed. OOIDA has filed a motion to lift the stay in order to allow the damage phase of the case to proceed before Judge Marbley so that the amount of the escrow funds in question can be properly determined. Once damages have been determined by Judge Marbley, the matter would be returned to the Bankruptcy Court for a determination of whether the escrow funds held by Arctic belong to the owner-operators or to the bankruptcy estate.
“The courts have already recognized that escrow funds are subject to a statutory trust created and regulated by the federal truth-in-leasing regulations and cannot be included in a bankruptcy estate,” OOIDA President Jim Johnston said. If those funds are outside of the bankruptcy estate, they would not be available to satisfy Arctic’s general liabilities to creditors. “Owner-operators have rights to those funds held in trust, regardless of a carrier’s decision to utilize the bankruptcy laws as a business or legal strategy. We are confident the court will allow the damage phase of the proceedings to progress so that those amounts can be fairly established.”
For more background on these cases, or any of OOIDA’s legal actions, visit our Web site at www.ooida.com or call OOIDA’s Business Services department, 1-800-444-5791.