FBO keeps block / cash unused deposits.

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bluesideup

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bluesideup
Has anyone had an experience with an FBO that sold out and kept all the cash deposits without any previous notice to pilots, and the new owner was OK with it?

The only reason given was that they had a stipulation in the contract, that was never enforced before, that if you do not fly for 24 months you forfeit the deposit.

In some cases the planes that some of the pilots were qualified for, for medical or other reasons, were no longer available because the FBO removed them from the line and never replaced them.

I’ve seen cases where and FBO closed down and tried to walk away and they were forced to sell their assets to pay back the renters.

The question is can they legally do that, knowing that they removed the acft that the renters were qualified for to fly, and that they did not enforce that before?

Are FBOs different from other institutions, like the Banks or other companies that have to let the depositors know before they take the money, and in some cases they have to turn them over to the state?

I’ve also been told that in some cases the local law enforcement may get involved if they are notified of this issue?
Can pilots start a class action suit to get their money back?
Possibly many thousands of $$ could be involved and in some cases some of the deposits were over $500.00.

Thanks.
 
If they are on the brink of solvency, it won’t matter what they can do or not do legally, strictly from the standpoint of getting deposits back. If bankruptcy is declared, the money is likely never to be seen again, regardless of legality. Best bet is to get in line early, put them on notice legally, then maybe.
 
The cost of recovery will be prohibitive.

In general, and to be correct, the purchasing entity takes the assets AND liabilities of the seller. The unused deposits and/or block time to be flown are liabilities of the new owner.

Unfortunately you'll be money ahead to move on without questioning the whole mess.
 
There is no Scrooge McDuck vault containing the block time deposits.

Pilots who do not fly are subsidizing pilots who do fly. Everywhere. The numbers are quite ridiculous, but a flight school who does NOT employ the block time/pricing scheme will be about 50% higher cost than its peers, and sadly, MORE likely to go under, not less.

So while it's not 'legal' to have renter deposits forfeited, it is 'functionally legal' in that there is no recourse. The concept of 'judgement-proof debtor' is not just for individuals. :D
 
I've done the block time deal many times and it has always worked. BUT every time I wrote the check it was always in the back of my mind that I would be kissing the money good bye should something happen at the FBO and accepted that was the risk I was taking. If you can't afford to lose the money, pay the higher rate. ( the last place I did this the better rate required a pay in of $2,000 and re upping at about $400).
 
bluesideup said:
Has anyone had an experience with an FBO that sold out and kept all the cash deposits without any previous notice to pilots, and the new owner was OK with it?

The only reason given was that they had a stipulation in the contract, that was never enforced before, that if you do not fly for 24 months you forfeit the deposit.

In some cases the planes that some of the pilots were qualified for, for medical or other reasons, were no longer available because the FBO removed them from the line and never replaced them.

I’ve seen cases where and FBO closed down and tried to walk away and they were forced to sell their assets to pay back the renters.

The question is can they legally do that, knowing that they removed the acft that the renters were qualified for to fly, and that they did not enforce that before?

Are FBOs different from other institutions, like the Banks or other companies that have to let the depositors know before they take the money, and in some cases they have to turn them over to the state?

I’ve also been told that in some cases the local law enforcement may get involved if they are notified of this issue?
Can pilots start a class action suit to get their money back?
Possibly many thousands of $$ could be involved and in some cases some of the deposits were over $500.00.

Thanks.
Click to expand...
I would say it depends largely upon whether or not you signed a contract that stipulated that they could do these things.
 
Ravioli said:
The cost of recovery will be prohibitive.

In general, and to be correct, the purchasing entity takes the assets AND liabilities of the seller. The unused deposits and/or block time to be flown are liabilities of the new owner.

Unfortunately you'll be money ahead to move on without questioning the whole mess.
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That depends on the purchase agreement. You can (I have) done an asset purchase where you buy the parts of the business assets you want but do not buy the business outright. As a practical matter, it looks like I bought the business because I bought the name and a bunch of the IP. But I didn't buy the business nor any liabilities. My Brother In Law owns a larger (to me) sailboat. The company that built it got into financial difficulties and their assets were purchased by another company. He no longer has a warranty because the original business is defunct and the new owner only bought assets. Common practice.
 
bluesideup said:
Has anyone had an experience with an FBO that sold out and kept all the cash deposits without any previous notice to pilots, and the new owner was OK with it?

The only reason given was that they had a stipulation in the contract, that was never enforced before, that if you do not fly for 24 months you forfeit the deposit.

In some cases the planes that some of the pilots were qualified for, for medical or other reasons, were no longer available because the FBO removed them from the line and never replaced them.

I’ve seen cases where and FBO closed down and tried to walk away and they were forced to sell their assets to pay back the renters.

The question is can they legally do that, knowing that they removed the acft that the renters were qualified for to fly, and that they did not enforce that before?

Are FBOs different from other institutions, like the Banks or other companies that have to let the depositors know before they take the money, and in some cases they have to turn them over to the state?

I’ve also been told that in some cases the local law enforcement may get involved if they are notified of this issue?
Can pilots start a class action suit to get their money back?
Possibly many thousands of $$ could be involved and in some cases some of the deposits were over $500.00.

Thanks.
Click to expand...

Didn't happen to me, but I am aware of at least two instances at Boeing Field in which FBOs went tits up and people with block time and deposits lost it all. I am not aware of any legal remedy.

Bob Gardner
 
Good luck on getting money back. Aviation is not always a solvent thing in renting airplanes.
 
Ravioli said:
The cost of recovery will be prohibitive.

In general, and to be correct, the purchasing entity takes the assets AND liabilities of the seller. The unused deposits and/or block time to be flown are liabilities of the new owner.

Unfortunately you'll be money ahead to move on without questioning the whole mess.
Click to expand...
It will depend on whether or not the purchaser bought the business or the assets. I sold my business and it was an asset only sale, I was responsible for payables and receivables of anything before the date of closing. I think the OP is probably hosed and it's not worth trying to get $500.00
 
bluesideup said:
Has anyone had an experience with an FBO that sold out and kept all the cash deposits without any previous notice to pilots, and the new owner was OK with it?

The only reason given was that they had a stipulation in the contract, that was never enforced before, that if you do not fly for 24 months you forfeit the deposit.

In some cases the planes that some of the pilots were qualified for, for medical or other reasons, were no longer available because the FBO removed them from the line and never replaced them.

I’ve seen cases where and FBO closed down and tried to walk away and they were forced to sell their assets to pay back the renters.

The question is can they legally do that, knowing that they removed the acft that the renters were qualified for to fly, and that they did not enforce that before?

Are FBOs different from other institutions, like the Banks or other companies that have to let the depositors know before they take the money, and in some cases they have to turn them over to the state?

I’ve also been told that in some cases the local law enforcement may get involved if they are notified of this issue?
Can pilots start a class action suit to get their money back?
Possibly many thousands of $$ could be involved and in some cases some of the deposits were over $500.00.

Thanks.
Click to expand...
The answer is that it depends on your state's law. If you want to know whether the contract is enforceable or you're money is recoverable, you'll need to discuss with a qualified attorney in your state.
 
My first flight school went TU right after I had paid for a block of hours. I notified the bankruptcy court; they put me on the long, long, long list of people the flight school owner had screwed. I don't know if anyone got anything, but I got nada. Neither, it turns out, did the instructor I had flown with for a couple of months. He never got paid a dime, even though I had paid up front.
 
bluesideup said:
Can pilots start a class action suit to get their money back?
Click to expand...

The monetary winners in a Class Action are not the Class, it is the lawyers. Sure, you may win a moral victory, but you likely will get about $20 on your $500 deposit (after legal fees have been extracted). Have you ever seen a Class Action where the total amount in question was expressed in "thousands" and not "millions"? The shysters are not going to do it for "free"...
 
bluesideup said:
Has anyone had an experience with an FBO that sold out and kept all the cash deposits without any previous notice to pilots, and the new owner was OK with it?

The only reason given was that they had a stipulation in the contract, that was never enforced before, that if you do not fly for 24 months you forfeit the deposit.

In some cases the planes that some of the pilots were qualified for, for medical or other reasons, were no longer available because the FBO removed them from the line and never replaced them.

I’ve seen cases where and FBO closed down and tried to walk away and they were forced to sell their assets to pay back the renters.

The question is can they legally do that, knowing that they removed the acft that the renters were qualified for to fly, and that they did not enforce that before?

Are FBOs different from other institutions, like the Banks or other companies that have to let the depositors know before they take the money, and in some cases they have to turn them over to the state?

I’ve also been told that in some cases the local law enforcement may get involved if they are notified of this issue?
Can pilots start a class action suit to get their money back?
Possibly many thousands of $$ could be involved and in some cases some of the deposits were over $500.00.

Thanks.
Click to expand...

sounds to me like the new FBO bought the assets and not the debt. Totally legal.
 
The first question is, "who did you give your money to?" In other words, did you contract with an individual, or a business entity (LLC, corporation, partnership, etc.) Assuming you entered into the agreement with an LLC or a corporation, the next question is what happened to that entity? It may be that the corporate entity was sold to the new operators, or it may be that the corporate entity merely sold its assets. If the former, then its probably the same entity that operates the FBO, and that same entity would still owe you the debt. If the latter, the new FBO probably would not be operated by the same entity that you contracted would, and your claim would NOT be against the new FBO.

If the corporate entity that you contracted with merely sold the assets, then the next question is, what is the current status of that old corporate entity? Does it still exist, or has it been dissolved? There is supposed to be a "winding-up" of a corporate entity under state law before the owners of that entity take any of the remaining value out of that entity. That process involves giving debtors notice of the process so they can make claims, and then paying off the debtors. If they don't do that, you can potentially proceed against the former owners for improper payments to themselves to get your money back. Alternatively, it might have filed for bankruptcy protection under federal law. If so, you can file your claim in the bankruptcy estate. As an unsecured creditor, your priority would be way down on the list. (The lawyers handing the bankruptcy for the corporation would be first, as God intended!) So if there is anything left over, after paying the attorneys and the secured creditors (I am sure those bankruptcy lawyers will only be a reasonable and modest sum, right?) you will get your money back.

I once handle an adversary proceeding (a claim that is among the parties in a bankruptcy proceeding--It's like a lawsuit within a law suit.) involving a failed third party administrator for self-funded employee health plans. The TPA had become insolvent and at the time of being forced into involuntary bankruptcy had held a bunch of cash it had received from the various employers for the purpose of paying the medical claims of the various plans' beneficiaries/employees. Those funds were held in accounts at a particular bank. The bank was trying to assert a lien against those funds under its account agreement to satisfy the debts the TPA owed to the bank with respect to several loans. I took the position that those funds were ERISA funds, and therefore the funds were funds held in trust by the debtor under federal law which meant that those funds did not become part of the bankruptcy estate. I won that argument and got a large sum of cash back for all of the employees. But in your case, those are almost certainly not funds held in trust, the funds would have been co-mingled with the FBO's assets, and therefore you are almost certainly in the unsecured creditor category. Good luck!
 
This is one of the legal ways to steal. Not too much you can do about it, but if you have the time you can try small claims if not for anything but the satisfaction of trying.
 
Lindberg said:
The answer is that it depends on your state's law. If you want to know whether the contract is enforceable or you're money is recoverable, you'll need to discuss with a qualified attorney in your state.
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Yes. In Ohio, for example, there's a recent law that essentially requires gift cards purchased with cash to be good forever (IOW, the money should not be spent by the business, or should otherwise be available.)
This doesn't manufacture money, but it does present a recourse.
 
Kenny Phillips said:
Yes. In Ohio, for example, there's a recent law that essentially requires gift cards purchased with cash to be good forever (IOW, the money should not be spent by the business, or should otherwise be available.)
This doesn't manufacture money, but it does present
Click to expand...

I think gift cards are a total racket - this is a great idea. For Christmas a couple years ago I was given a visa gift card from a bank. I held onto it for a reasonable amount of time but with the intention of putting it toward something nice for the plane. When I went to use it, the card was rejected. I came to discover that despite the valid expiration date stamped on the card itself, in the fine print the bank imposed a $7.95/month “service charge” that began immediately upon issuance. The charge had taken the entire card balance. Lesson learned.
 
buzzard86 said:
I think gift cards are a total racket - this is a great idea. For Christmas a couple years ago I was given a visa gift card from a bank. I held onto it for a reasonable amount of time but with the intention of putting it toward something nice for the plane. When I went to use it, the card was rejected. I came to discover that despite the valid expiration date stamped on the card itself, in the fine print the bank imposed a $7.95/month “service charge” that began immediately upon issuance. The charge had taken the entire card balance. Lesson learned.
Click to expand...
That's why the Ohio law came about. But I tend to use gift cards quickly, in any case.
 
Have seen this Ponzi scheme burn people multiple times over and over in aviation. Usually over $5-10 an hour difference in rental costs.

That $5-10 an hour makes a world of difference in solvency vs bankruptcy. There’s no real profit in aviation training outside of the giant well known schools running the other Ponzi schemes: Student loan debt, and military training contracts.

And even then, they’re not businesses anybody sane would invest in, as a pure investor, with so many better options. As an owner, maybe — but it’s still a labor of love.
 
Clip4 said:
sounds to me like the new FBO bought the assets and not the debt. Totally legal.
Click to expand...
Asset sales are legal.

Whether or not the former owner is liable for the retained deposits is a matter of state law.... including escheat laws. Those laws may or may not apply, depending on the situation and the state.
 
denverpilot said:
Have seen this Ponzi scheme burn people multiple times over and over in aviation. Usually over $5-10 an hour difference in rental costs.

That $5-10 an hour makes a world of difference in solvency vs bankruptcy. There’s no real profit in aviation training outside of the giant well known schools running the other Ponzi schemes: Student loan debt, and military training contracts.

And even then, they’re not businesses anybody sane would invest in, as a pure investor, with so many better options. As an owner, maybe — but it’s still a labor of love.
Click to expand...

There are a many flight schools that are very profitable. It’s a matter of aircraft utilization. If you can keep a 172 flying >750 hours a year you will make a good return.
 
Clip4 said:
There are a many flight schools that are very profitable. It’s a matter of aircraft utilization. If you can keep a 172 flying >750 hours a year you will make a good return.
Click to expand...

Which is only really possible with certain circumstances or a very small fleet. Yes it’s doable. Not easy outside of densely populated areas.

Isn’t your place on the military contract gravy train anyway? :) I mentioned that’s one way to stabilize the business.

The so called “pilot shortage” is based on a need of about 3000 new pilots per year. It’s always been entertaining mathematically that tiny number caused a “shortage” in air carriers.

But it’s a lot easier right now than it ever has been to make a *consistent* profit in training.

Thus why Skyhawks are selling used for over $200K. Amazing compared to the 90s.

I couldn’t find the latest numbers of new private ratings per year without extracting them from the FAA spreadsheet which I don’t feel like doing from my phone on the couch while kicking back chilling it after a lumbar puncture today, but the number 10,000 is rattling in my head.

I’m round numbers that means you can keep 1000 aircraft profitable on private certificates alone, but there are way more than 1000 aircraft vying for those training hours.

Anyway all the numbers are available to back up that it’s not easy and wildly unprofitable for a large number of small schools even in “shortage” times we have now. It was deadly in normal hiring times and downright hideous in furlough years.

I myself used a tiny school with a stellar training reputation but a tiny fleet meant huge delays when something broke that required specialty parts or avionics being shipped to manufacturers for repairs. I didn’t mind, since I was hanging around for the long term and not chasing a seniority number/date.

The mills will always fulfill about half of the needed number. Every other school is competing for the rest.
 
Thank you everyone, for your feedback.
It looks like there are a number of people that are being affected and still considering the best option.
There is conflicting feedback from different people on the best way to proceed going forward but it looks like they will be looking at some Small claims at the minimum unless they start refunding money to the people that asked for the money to be returned and or Accounts be reactivated.
If more people find out about it it's likely that this case will end up at a different level, maybe the local DA or State level.
It's too bad that some FBOs get to this point, and this is one of the oldest in Orange County CA.
 
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