Constant, Nextant Lawsuit Alleges Fraud by Former CEO

Fairgrave Omlie and its subsidiaries Constant Aviation and Nextant Aerospace have filed a lawsuit against former executive Stephen Maiden alleging breach of fiduciary duty and fraud. Maiden, who served as CEO of Fairgrave, president and CEO of Constant, and president of Nextant, left the companies on January 1.

Fairgrave—which falls under the Directional Aviation umbrella—had a consolidated net loss of more than $3.4 million at the end of 2017, according to the lawsuit filed in the Cuyahoga County Court of Common Pleas. And, at a board meeting the following June, Maiden stated that the financial performance would improve in 2018. The suit further alleges that Maiden was unable to do that and “undertook a variety of wrongful actions to artificially inflate earnings for 2018,” despite “generally favorable market conditions” for the business and general aviation industries.

In a statement to BJT sister publication Aviation International News, Maiden’s lawyer, Ian Friedman, claimed the lawsuit is “riddled with inaccuracies and baseless allegations, and we fully intend to treat these claims as frivolous.” Friedman added that in Maiden's 20 years in aviation, he has been held in high regard by his peers. “During his tenure with the foregoing companies, Mr. Maiden was integral to their successful growth, essentially building Constant Aviation from a start-up company to an industry leader in the aviation field,” Friedman said. “Mr. Maiden is not going to allow anyone to abuse the legal process in an attempt to impugn his character.”

The lawsuit alleges, among other things, that Maiden engaged Nextant in the sale of a Nextant 400XTi for which it couldn’t provide new engines upon delivery because the company was on credit hold with engine-maker Williams International. Instead, the lawsuit alleges, the customer took delivery of the 400XTi with used engines from an aircraft Nextant already owned, with Maiden providing assurances to the customer that it would provide the new engines once they were available from Williams. “By selling a 400XTi…at a time when Maiden knew that Nextant would not be able to deliver the aircraft with new engines, Maiden was artificially inflating Nextant’s earnings because it would recognize the income from the sale but would not include the cost of new engines [over $1 million],” the lawsuit states.

Maiden’s former employer further alleges in the lawsuit that he artificially inflated Constant’s revenue by instructing staff in the company’s accounting department to make some round-number adjustments to work-in-process (WIP) accruals that totaled more than $1.5 million in 2018. According to the lawsuit, WIPs are recognized by Fairgrave and its subsidiaries as work orders that are incomplete at year-end and are unbilled revenue.

The companies are seeking a judgment in their favor in an amount equal to their actual damages shown at trial, as well as punitive damages and a declaration that Maiden is obligated to indemnify Nextant for any loss or damages for which it may be liable from the sale of the 400XTi, according to the lawsuit.

Friedman said in hias statement that a counterclaim on behalf of Maiden will soon be filed against the three companies “and anyone else involved in lodging these spurious allegations.”