MD Helicopters seeks court approval of $31.5 million fraud settlement

By Sarah Lizee

Olympia, Wash., June 15 – MD Helicopters, Inc. is seeking approval to pay out $31.5 million to the Department of Justice and two whistleblowers under a False Claims Act settlement, according to a motion filed Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

In 2013, the whistleblowers filed a complaint in the U.S. District Court for the Northern District of Alabama alleging that the company had defrauded the U.S. military.

After years of litigation, in August 2021, the Alabama court entered into a summary judgment dismissing some of the claims.

But in September 2021, a jury returned a $36.8 million verdict against the company relating to the remaining claims. And, the amount was subject to trebling under the False Claims Act.

The following month, the Alabama court entered an order that stayed the entry of a final judgment, so that the parties involved in the litigation could reach a settlement of the dispute.

After months of mediation between the company, the whistleblowers, the company’s insurers and its secured lenders, a settlement was reached that would allow the company to avoid a roughly $108.55 million trebled damages award in the Alabama court.

Under the settlement, the United States and whistleblowers will share cash payments totaling $21.5 million from insurers on MD Helicopters’ behalf, and cash payments totaling $10 million directly from MD Helicopters.

The settlement provides for mutual releases.

The company said its probability of success in any potential litigation that might be pursued in absence of the settlement is “uncertain at best.”

The company added that the settlement is supported by all holders of its funded secured debt.

A hearing on the settlement is scheduled for July 14.

As previously reported, MD Helicopters was one of the companies controlled by Lynn Tilton’s Patriarch Partners, LLC and financed by her Zohar entities, six collateralized loan obligation funds that went bankrupt in March 2018.

Tilton was appointed as MD’s sole director in 2005 and became its chief executive officer in 2006. She later resigned from both positions in 2020. Since then, the company worked to find a buyer of its assets and later announced that it had entered into a stalking horse agreement with a consortium led by Bardin Hill and MBIA Insurance Corp., creditors of the Zohar funds.

The purchase price is a credit bid against $150 million of debt under a term loan agreement and an assumption by the group of up to $60 million of debtor-in-possession obligations. The credit bid will be increased by the difference between $60 million and the outstanding DIP debt being assumed, up to a maximum increase of $30 million.

Last week, the stalking horse entity was named winning bidder for the assets. A sale hearing is scheduled for June 17.

The Mesa, Ariz.-based helicopter manufacturer filed Chapter 11 bankruptcy on March 30 under case number 22-10263.

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