Dispute over Fidelis payout

First in line • Ex-managers, family members included in proposed distribution of settlement funds. Koster balks • Attorney general plans to file an objection to proposal at a hearing next month.
2012-03-23T00:05:00Z 2013-01-24T16:52:39Z Dispute over Fidelis payoutBY MATTHEW HATHAWAY • mhathaway@post-dispatch.com > 314-340-8121 stltoday.com

ST. LOUIS • US Fidelis owes money to scores of businesses, and the Wentzville company has been accused of ripping off thousands of consumers.

But the first creditors to get paid by the bankrupt seller of vehicle service contracts could be former employees who were laid off as the company collapsed amid allegations of consumer fraud. Among the ex-employees to receive payments would be relatives of the company's founders.

US Fidelis has agreed to pay $1.45 million to 556 former company employees, according to a proposed legal settlement filed with the bankruptcy court in St. Louis.

Lawyers for the workers would keep a third of the settlement, plus up to $25,000 in expenses. The lead attorney for the workers did not respond to a message seeking comment.

Missouri Attorney General Chris Koster plans to object to the proposed settlement at a hearing next month. The settlement has to be approved by the judge in the company's bankruptcy case.

Koster spokeswoman Nanci Gonder told the Post-Dispatch that the attorney general's office does not approve of the deal. If it goes through, she said in an email, Koster's office will likely move to disqualify "multiple former employees from receiving any funds."

The St. Louis Better Business Bureau, which led a national campaign against US Fidelis, called the proposed settlement "unfortunate."

"Former employees of US Fidelis, many of whom had a role in the deception of consumers from across the United States, (will be) compensated with funds that could go to help those who lost money through this horrendous scheme," Michelle Corey, president of the St. Louis BBB, said in a statement.

US Fidelis, once the nation's top seller of vehicle service contracts, collapsed in late 2009. Consumer advocates and government regulators accused the company of lying to consumers in order to sell auto protection plans riddled with fine-print exceptions and limitations.

US Fidelis critics said the brothers who owned the company — Darain and Cory Atkinson — amassed enormous fortunes by tricking their customers.

In January 2010, workers laid off months earlier sued the company for violating the federal Worker Adjustment and Retraining Notification Act. The law, known as the WARN Act, requires companies to give 60 days' notice to workers who will lose their jobs in a mass layoff.

For nearly two years, the former US Fidelis workers' suit seemed stalled.

But this past December, lawyers and regulators involved in the US Fidelis bankruptcy case met in Austin, Texas, to figure out how to split up what's left of the company's assets, according to court records. There, they decided to pay off the former US Fidelis employees, if only to speed up a resolution to the bankruptcy case.

David Warfield, a lawyer for a committee representing several creditors, called the proposed deal "the first step in a global settlement that will ultimately provide some restitution to consumers and other creditors."

Warfield said terms of the larger settlement — involving at least tens of thousands of consumers — will be announced "very soon." The amount of money that can be distributed has not been made public.

If the settlement for the ex-employees is approved, money will be paid out to all workers who were laid off after Nov. 20, 2009. They would include sales agents who worked the phones in US Fidelis' telemarketing boiler rooms and the bosses who helped enforce what regulators have described as a deceptive and high-pressure sales strategy.

Shawn Morris, who was described in a US Fidelis press release as the company's chief marketing officer, would be paid $12,685; and Eddie Struckman, the former US Fidelis general manager who supervised hundreds of workers in the sales and customer-retention departments, would receive $11,817.

Morris and Struckman could not be reached for comment.

In addition to paying US Fidelis managers, the proposed settlement would provide payments to at least eight former employees who are identified in court records as close relatives and in-laws of the Atkinson brothers. This group — which includes the brothers' sister-in-law, as well as Cory Atkinson's daughter and son-in-law — stand to get a total of $18,462 from the proposed settlement.

The settlement includes a provision that allows the attorney general of any state to seek court approval to block up to 20 former US Fidelis employees from being paid. If that happens, the money that would have been paid goes to a consumer restitution fund.

The Atkinson brothers would not be affected by the settlement. When US Fidelis filed for bankruptcy, they turned over the company to an independent management team. Months later, that team sued the brothers for allegedly pilfering more than $100 million from the firm.

To settle that suit, the brothers surrendered virtually all their assets to the company, including fleets of luxury cars and boats and houses in St. Charles County, the Cayman Islands and near Lake Tahoe.

In June 2011, Darain and Cory Atkinson were indicted on state charges of consumer fraud, stealing and illegally selling insurance. The case is pending.

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