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Flight 3407 kin set back by Pinnacle bankruptcy; Delay, law on damages complicate liability issue

Pinnacle Airlines' bankruptcy filing spelled immediate bad news for those who lost loved ones in the crash of Continental Connection Flight 3407 and who have not yet settled their lawsuits seeking damages stemming from the crash.

That's because the bankruptcy filing that Pinnacle made late Sunday will result in a mandatory stay on those remaining lawsuits. As a result, any additional court actions on those cases will be unable to move forward for a yet-to-be-determined period of time.

And no matter how long that stay lasts, those who are still suing Pinnacle may find themselves at a disadvantage if they push their cases all the way to trial.

Under New York State law, punitive damages in such cases cannot be covered by insurance.

Lawyers for the families say that there is some question about whether that law would apply to Pinnacle. Nevertheless, there is the possibility that Pinnacle will be able to go to court and plead poverty in hopes of limiting how much the company would have to pay.

"They think they can get rid of [punitive damages] through bankruptcy," said John Kausner, of Clarence, whose daughter, Ellyce, was killed in the 2009 crash and who has not yet settled his court case against the company. "That was their intent."

Pinnacle's Chapter 11 bankruptcy filing came as no surprise, given that the company had said publicly last December that it was facing a cash crunch. In papers filed in U.S. Bankruptcy Court in Manhattan, the company said that it would run out of operating cash by the middle of this month if it had not sought bankruptcy protection.

"Quite simply, our current business model is not sustainable, as increasing operating expenses, liquidity constraints, business integration delays and difficulties associated with combining our operations have hindered our ability to maximize our growth potential," Sean E. Menke, Pinnacle's president and CEO, said in a statement.

The bankruptcy filing will spell the end of Colgan Air, the Pinnacle subsidiary that operated Continental Connection Flight 3407, which crashed in Clarence Center in February 2009, claiming 50 lives.

Pinnacle said that it is ending its relationship with United Airlines, which merged with Continental last year, and doing away with the Colgan operations that partner with United by the end of November.

But the Colgan name will live on in federal court in Buffalo, where family members are suing the regional carrier along with Continental, contending that the airlines are responsible for a crash that didn't have to happen.

Federal investigators blamed the crash on pilot error, and their probe revealed that an inadequately trained pilot and co-pilot -- who didn't get a full night of bed rest before the flight -- flew the plane into the ground.

Of the 47 claims filed by family members connected to the crash, 24 have been settled.

"This will not impact on anything that's been settled," David J. Harrington, an attorney for Pinnacle, said of the bankruptcy filing.

But for the rest of the cases, the Pinnacle bankruptcy means an immediate period of delay.

"When a company files for Chapter 11, all pending litigation is suspended by the 'automatic stay' provision of the federal bankruptcy code," Pinnacle said in a statement. "We expect that litigation related to Flight 3407 will be addressed in the course of our Chapter 11 proceedings."

Harrington said it's difficult to say how long the stay will remain in place. But Justin T. Green, a New York City attorney representing several of the Flight 3407 plaintiffs, said his clients will ask the Bankruptcy Court to lift the stay, which he expects to happen within a few weeks or a couple of months.

Pinnacle's bankruptcy case -- which is likely to take far longer than that to resolve -- does not have to be completed before the stay is lifted.

Still, the bankruptcy-related delay was not exactly welcome news to the Flight 3407 families. "It's another way for them to string this out and avoid responsibility," said Jennifer West, whose husband, Ernest, was killed in the crash.

The more complicated question regarding the bankruptcy, though, is whether it could affect the punitive damages that Pinnacle may have to pay if any of the remaining Flight 3407 cases result in a wrongful-death trial.

U.S. District Judge William M. Skretny said last week that he still expects to preside over such a trial for cases that do not get settled.

A key question in such a trial could be the amount of punitive damages that Pinnacle may have to pay -- and the bankruptcy case makes that question far more complicated. In contrast to compensatory damages, which are paid to a plaintiff to make up for the harm done by the party being sued, punitive damages are aimed at deterring the party from committing the type of egregious actions that prompted legal action in the first place.

Colgan's insurance for such lawsuits covers punitive damages. But since New York law does not allow such damages to be paid through insurance, Colgan would have to rely on its own resources -- most likely at a time when its parent's resources are so limited that it has filed for bankruptcy reorganization.

"We always thought that if we win punitive damages, they would run to Bankruptcy Court to avoid having to pay it," Green said.

But the case might not be so simple. Green said it's unclear whether the New York punitive-damages law would apply in this federal court case against Memphis, Tenn.-based Colgan.

West stressed, though, that punitive damages are not the reason why she and some other Colgan plaintiffs have held off on settling their cases in hopes of a trial.

In the wake of her husband's death, "there's no check large enough to make anything better," West said. "I just want them to take responsibility for their actions before a jury of their peers."