The Free Press, Mankato, MN

April 27, 2013

Lawsuit accuses North Star Aviation of fraud

Twin Cities business owner claims he was overcharged thousands of dollars for fuel, maintenance

By Dan Nienaber
Free Press Staff Writer

MANKATO — A Twin Cities business owner who was maintaining corporate planes in Mankato is suing North Star Aviation for allegedly overcharging for maintenance, fuel, labor and parts.

Information from former North Star Aviation employees that Burwell Enterprises received in the fall of 2012 led to the lawsuit. It claims North Star’s owners fraudulently increased the charges North Star paid to other businesses while servicing Burwell’s planes.

Burwell Enterprises manages the corporate plane operations for Twin Cities multi-millionaire Rodney Burwell’s businesses, which include 19 John Deere implement dealerships in five states, the Silvertree Hotel in Snowmass, Colo., and the Madison Concourse Hotel and Governor’s Club in Madison, Wis. Burwell started doing business with North Star in 2004 with one corporate jet that also was leased to other users.

The contract between Burwell and North Star changed twice in 2008. The first contract said Burwell would be billed $75 per hour for labor and parts would be billed at 15 percent over North Star’s cost, according to the civil complaint filed by Burwell. In September 2008, the contract was changed to say North Star would be paid a fixed management fee. Labor, fuel and parts would be billed at North Star’s actual costs.

A second aircraft, not a jet, was added later. The latest contract paid North Star $80,000 per year to service the jet and $40,000 per year to service the plane with two propeller engines.

After receiving the tips from former North Star employees in October, Burwell Enterprises checked for irregularities in invoices it had received from North Star. Burwell allegedly found several incidents where invoices from third-party contractors, such as parts suppliers, had been altered. They also reported finding fuel receipts showing they had been overcharged for fuel.

The contracts were terminated and Burwell asked North Star to provide original vendor invoices so billing statements in 2011 and 2012 could be audited. North Star wouldn’t provide the information, according to the complaint. Burwell responded by providing Mark Smith, North Star president and chief executive officer, examples of invoices that had been altered.

Burwell had obtained invoices directly from vendors that showed the vendors had charged North Star less than North Star had charged Burwell Enterprises. The differences added up to thousands of dollars during the two-year period, according to court records.

“These documents clearly demonstrated that the underlying third party vendor invoices to North Star had been deliberately and repeatedly altered by North Star so as to increase the amount of the ‘actual cost’ paid by North Star to that vendor,” the complaint said. “Based on the irrefutable evidence that billing documents had been systematically altered before being submitted to BEI for payment, the plaintiffs renewed their demand that North Star submit to an independent audit of its records to be performed by a third party auditor selected by (Burwell).”

North Star’s law firm, Gislason & Hunter, has not filed an answer to the complaint, but it has filed a motion to have the dispute settled by an arbitrator. The motion claims there is a clause in the contract that calls for arbitration.

The law firm did not respond to phone requests for an interview with an attorney, but a Gislason & Hunter attorney, David Sturgis, provided a written statement to The Free Press.

“Last year, we conducted a full internal audit based on perceived billing discrepancies raised by a former client,” the statement said. “While we disagree with the substance of the complaint, we offered to reconcile the perceived differences in order to avoid a costly and distracting legal process.

“The client rejected our offer, refused private mediation, and filed a lawsuit. We remain deeply disappointed in their approach, but are cooperating fully with all parties involved and hope to resolve this matter in a timely matter.”

Curtis Smith of Moss & Barnett in Minneapolis is one of the attorneys representing Burwell’s businesses. He said there is a provision in the contract that calls for arbitration.

“We’re opposing it,” Smith said. “We don’t think it’s a matter for arbitration just because of the nature of the claim.”

He also said Burwell’s fraud concerns have not been reported to law enforcement.

Some letters between the two companies were included with Burwell’s complaint. Mark Peterson, another Moss & Barnett attorney, sent one letter in February that cited several specific invoices where differences were found in parts and fuel charges. It also questioned whether North Star had completed a full audit and said the amount offered to settle the dispute was not enough.

“The Burwell entities have no interest in discussing North Star’s ‘concessions in the amount of $38,806’ and they are tired of continued verbal jousting and superficial denials by North Star,” Peterson’s letter said.

A hearing to consider the motion for arbitration has been scheduled for June 4 before Blue Earth County District Court Judge Bradley Walker.