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SLX Class Action Settlement Q and A

Q. When will I receive Notice of the Class Action Settlement?

A. Notices are being mailed out now. They are expected to be sent out by an independent administrator between December 28 and December 30, 2009. If you are my client and you have not received notice of the settlement by January 7, 2009 and you believe that you are a member of the class, you should e-mail me @ [email protected] and I will follow up for you.

Q. How has Michael Berger and his law firm been involved in the negotiation of the proposed class action settlement with Student Loan Xpress?

A. I have worked closely with class action counsel on this matter throughout the last 18 months. My work began before the first class action lawsuit was filed. I have strategized and consulted extensively with class action counsel and assisted them per their request, in the district court, in the bankruptcy court, and in the protracted negotiations with Student Loan Xpress.

Q. Why was this case settled in the District Court in Tampa, Florida and not in the Nevada Bankruptcy Court?

A. James, Hoyer filed the first Silver State Helicopters / Student Loan Xpress case in the District Court in Tampa, Florida on behalf of a former SSH student representing himself and all SLX/SSH students. Pinnacle Law Group filed a case in the District Court in San Francisco on behalf of all California KeyBank/SLX/SSH students. Thereafter, Class Counsel strategized with each other and with me about which venue would be the most favorable to the students’ legal positions. After thoughtful consideration of all issues and after discussing this at length with each other, we all decided that bankruptcy court was the least desirable forum. There were several reasons for this. First, all of the lawyers were concerned that we would be unable to get the bankruptcy court to exercise jurisdiction over a creditor versus creditor action that did not involve the debtor (SSH). Second, bankruptcy courts are usually unfamiliar with the very complex nuances of class action lawsuits because they very rarely see such cases. Third, we very likely would have been unable to have a jury trial on any of the issues because the ability to have a jury trial in bankruptcy court is very limited. Fourth, based on the state law legal issues in the case, the bankruptcy court would have been a far less appropriate forum to deal with these issues (as distinct from pure questions of bankruptcy law). Finally, and most importantly, we believed that the individual federal district court judges that were assigned to the cases filed by Pinnacle Law Group and the James, Hoyer firms would be more sympathetic to your interests than the bankruptcy court.

Although I initially told you that I would consider filing an adversary proceeding on behalf of my clients in the bankruptcy court, I become convinced over time that this was not the best way to pursue this matter. At the time that I made this proposal, there were no class actions on file in any court with regard to the SSH matter. After many hours of discussions with class action counsel as well as my own extensive legal and factual research about the best place to take your fight to the banks, I became convinced that bankruptcy court was not the best forum. After seeing how things played out, I am now convinced more than ever that I engaged in the correct analysis and made the correct decision.

Q. How did the settlement come about? What was the process?

A. Andrew August and Keven Rooney of Pinnacle Law Group and I began negotiations with SLX’s counsel in mid-2008. After numerous telephone calls, e-mails, letters and in person meetings, we were approached by SLX’s counsel who inquired if we were interested in participating in a mediation to seek a negotiated settlement of the case. We agreed and the parties agreed to use Judge William Cahill (Ret.) in San Francisco to facilitate settlement discussions. In September 2008 we had our first mediation session with Judge Cahill. A Class Representative and Dan Reed were present and part of the mediation team. I attended by phone from Los Angeles. Although there was initial agreement on using FAA certifications as a basis for the settlement (largely because the information with the FAA was objectively verifiable) after more than 12 hours, we could not reach any common ground on the amount of debt forgiveness, interest rate reduction or other essential terms and we therefore adjourned the mediation. We then sent SLX a letter stating that we no longer were interested in discussing settlement given its unacceptable and intransigent positions on these crucial issues. In response to this letter, Judge Cahill contacted the parties and persuaded the parties to attend a second mediation session in November 2008. At this session, which also lasted in excess of 12 hours, progress was made but still no agreement was reached. The parties returned in December 2008 for a third session but again, no agreement was reached. Judge Cahill thereafter presented what he thought was a fair settlement for all parties and presented it to the counsel. Only then were the material terms agreed to.

For the next 10 months Class Counsel, myself, Dan Reed and Counsel for SLX negotiated the details of the written settlement agreement and related documents. Thereafter Attorneys General of a Multi-State Task force investigating SSH reviewed the settlement agreement and negotiated additional modifications as well as their own agreement.

Although SLX expressly denies any wrongdoing in the settlement, the amount of debt forgiveness achieved (more than $112 million dollars in principal alone) is to the best of our knowledge unprecedented in the world of student loan modification. While we do not know for certain SLX’s reasoning for agreeing to the terms of this settlement or its agreement with the Attorneys General, it is reasonable to assume SLX considered the factual allegations made in the course of our lawsuit including its failure to conduct adequate due diligence into SLX before making the loans, not ensuring the education and training was being provided before disbursing the loan proceeds to SLX and not adequately monitoring the students’ progress.

Q What role did Michael Berger and/or Dan Reed play in negotiating the terms of the settlement?

A. I played in integral role in our successful battle with the SSH Trustee to obtain a complete copy of the SSH computer system and in negotiating and drafting the terms of the settlement agreement dealing with the bankruptcy issues. I met and negotiated with counsel for SLX both with and without other Plaintiff’s counsel. Dan Reed attended the mediation in San Francisco that eventually resulted in the settlement and has assisted Class Counsel in negotiating and drafting the settlement agreement and advising his personal clients on the terms of the settlement.

Q Can you discharge your student loan obligation to Student Loan Xpress by filing bankruptcy?

A. In a word, no. In general, student loans can NOT be discharged in bankruptcy absent a very difficult to make showing of “undue hardship.” After extensive research, all Plaintiff’s counsel agree that the Student Loan Xpress loans are in fact student loans that are NOT discharged by the mere filing of a bankruptcy. To even attempt to discharge these loans in bankruptcy, the debtor must file a separate Adversary Proceeding (a lawsuit against the lender within the bankruptcy case)and prove that repaying the debt would constitute “undue hardship.” An example of undue hardship would be that the debtor is permanently disabled and will never be able to repay the loan. Temporary unemployment or low income is NOT undue hardship.

I recently reviewed a bankruptcy court decision in Texas involving a Silver State Helicopters student who went to the trouble and expense of filing an Adversary Proceeding to try to discharge his SLX loan. The court granted summary judgment against the SSH student and denied his request to discharge the debt to SLX.

While we have succeeded in several instances in winning these cases for students who attended other schools and were unable to work due to permanent physical or mental problems, in each case we charged a fee $10,000.00 in addition to the $2,000.00 fee for the bankruptcy itself. We also paid expert witnesses to document the disability. It was not cheap, easy or quick. These adversary proceedings are separate lawsuits within the bankruptcy case, and require all the work of a separate lawsuit including, but not limited to, the preparation of a summons, notice of status conference and complaint, discovery, including written interrogatories, requests for production of documents, requests for admission and depositions, status conferences, mediations, pre-trial and trial. Numerous motions may be involved as well. In short, don’t count on bankruptcy getting you out of your debt to SLX. For a free, expert, personalized analysis as to whether or not you can meet this undue hardship standard, call me.

Q. What has Michael Berger been doing with regards to the SSH bankruptcy cases?

A. I have monitored both SSH bankruptcy cases from the very start. In addition to filing proofs of claim for all of my clients, I have reviewed all of the documents filed in the 2 cases and in the related adversary proceeding cases. To date, more than 1710 documents have been filed in the lead SSH case. I have been in regular contact with counsel for the Trustee and have reviewed all of the Proofs of Claim filed in the 2 cases.

Q. What is my proof of claim in the SSH bankruptcy worth?

A. My best estimate is that each one of the former SSH students proof of claim will be worth somewhere between $0 and $3,000.00. No one else has been willing to provide a dollar estimate. I am in regular contact with Tony Zmaila, the attorney for the Trustee. I review documents filed in the SSH bankruptcy cases every day. Here is where we stand: (a) Most assets of the estate have already been liquidated for the benefit of the secured lender Orix (b)Orix, the secured lender, has received most of its money back, but is still owed several million dollars (c) the bankruptcy estate is currently administratively insolvent, meaning that there is not enough money to pay all of the claims for legal fees, trustees fees, administrative rent, etc. that must be paid before any distribution is made to unsecured creditors; (d) The Trustee and Trustee’s counsel have not objected to any of the former student’s proof of claims because there is no point in doing so unless there is going to be any money for unsecured creditors; (e)Legal costs continue to rise, with additional recoveries for the estate being uncertain; (f) There is not telling if and when any distribution to creditors will be made; (g) There are more than $450,000,000 in unsecured claims against the SSH estate; If any distribution is made to former SSH students, priority claims will be paid before general unsecured claims. Unlike most of the proofs of claims prepared by other attorneys or by former students on their own, the proofs of claim that I prepared for my clients all included a priority claim for the maximum amount allowed for services paid for but not received: $2,425.00. It is this priority claim that is largely responsible for the high end of the range that I have set forth hereinabove. Priority claims are paid ahead of general unsecured claims.

Q. Which is worth more to me, the discount that the class action settlement gives me on my student loan or my proof of claim?

A. This is an easy question. Based on all of the information that is available to me,the value of the discount on the student loan far exceeds the value of the proof of claim in every case. As an example, if you received no certifications (75% discount) or one flight certification (60% discount) and you owe $70,000.00 to SLX, the savings to you before considering additional discounts for early payments or reduced interest rates is between $42,000 and $52,500.00. The value of your proof of claim is somewhere between $0 and $3,000.00. Giving up your proof of claim for this discount, something that is required under the proposed SLX class action agreement, is a good deal for you and is somthing that I would do myself if I was in your situation.

Q. Will the Bankruptcy of CIT Group have an effect on the proposed settlement?

A. No one knows. My best guess is that it will not have any impact on the proposed settlement.

Q. If SLX files bankruptcy, will that wipe out my debt to SLX?

A. No. The debt would then be payable to the bankruptcy estate of SLX. It is possible that the debt could be sold to a third party that would then try to collect the debt.

Q. Do I have to accept the proposed settlement if I am a class action member?

A. No, you can accept it or opt out of it. I recommend that you accept it, but if you are my client I will do my best for you either way. The problem with opting out is that you are betting that you can do better than all of plaintiffs’ counsel and the attorney generals from 12 states have been able to do. Counsel for SLX has specifically stated that they will NOT offer more favorable terms to those that opt out. You will have to face the very real risk of being sued individually and the very real risk of SLX getting a judgment against you for the full amount of principal + attorneys fees and costs, with no discount.

Q. If I opt out of the class action settlment now, can I come back and accept it later?

A. No.

Q. If I am your client in the SSH matter, what is included in your representation of me and what is not included?

A. Included matters include (a) all negotiations with your SSH student loan lenders, regardless of whether it is SLX, KeyBank, Citibank, or as it is in a few cases, Sallie Mae or Deutsche Bank; (b) the filing and defense of your proof of claim in the Bankruptcy Court; (c) the monitoring of the SSH bankruptcy, and, if appropriate, any other action taken in the SSH bankruptcy case; (d) advice regarding the class action cases and my cooperation with class action counsel; (e) my cooperation with all governmental agencies investigation SSH, Airola, Pickett, EOS, and all related entities; (f) my ongoing efforts to get relief for you any way that I can, including political appeals; and, if appropriate, group litigation against KeyBank. For now, I am cooperating with class action counsel in its litigation against KeyBank, but I have reserved the right to file my own separate action if class action counsel is unable to achieve satisfactory results.

Matters that are not included in the $800.00 flat fee that each one of my SSH clients paid me: (a) The filing a personal bankruptcy for the former student (For this service, I charge an additional fee of $2,000.00 + 299.00 filing fee. This service is only available for my California clients);
(b) The filing of an Adversary Proceeding against your student loan lender within a bankruptcy proceeding (This is not recommended absent a showing of undue hardship and is subject to the payment of a $10,000.00 flat fee if I believe that you can in fact satisfy the undue hardship standard); (c) The defense of a lawsuit against you by your student loan lender (this is a real possibility for those who opt out of the class action settlement).

Q. Why should I agree to pay anything at all to SLX?

A. Because of the very real risk that if you turn down this settlement offer, you will may to pay much more later. I know that some of you feel that you should not have to pay any money to SLX. I am very proud and happy to have helped to achieve 100% debt forgiveness for my Citibank clients, and I sincerely wish that I could have done this for my SLX clients too. This simply was not possible in this case, despite my best efforts and the best efforts of class action counsel, other
Plaintiffs’ counsel, and the attorney generals of 12 states. Each lender had separate facts. Thousands of documents have been reviewed, but there has been no “smoking gun” that would make it likely in my opinon that we could ever do better than the settlement offer that we now have. This case poses very unique risks for all parties. Many of the legal issues are novel ones that could be decided against you. Indeed, as my KeyBank clients are aware, KeyBank has refused to make any real settlement offer because it believes it will prevail on the legal issues (which are being litigated in the California federal district court and the 9th Circuit Court of Appeals by Pinnacle Law Group). Most importantly, the reality is that even if we prevailed at a trial, I cannot say the outcome would have been better because a judge could conclude that almost all of the students received some tangible or intangible benefit for which they should have to pay money. For all of these reasons, I strongly advise you to participate in the settlement.

Q. Is Michael Berger receiving any fee from SLX in connection with the proposed settlement?

A. No.

Q. How can I contact class action counsel to ask them questions about the settlement agreement?

A. Send your questions to [email protected]

Q. Will Michael Berger be attending any of the Town Hall Meetings to Discuss and Explain the Settlement Agreement?

A. Yes, I will be attending the Town Hall Meeting currently scheduled for Sunday, January 10, 2009 at 2:00 pm at the Long Bach Marriot Hotel, 4700 Airport Plaza Drive, Long Beach, CA 90815. I will answer questions at the meeting and will stay as long as needed after the meeting until each and every student attending has my answer to any question that he or she has.

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