SkyWest Airlines 2010 Annual Report Download - page 40

which if not resolved consistent with the position we have taken in those matters, would negatively
impact our financial results.
Atlantic Southeast and SkyWest Airlines v. Delta
During the quarter ended December 31, 2007, Delta notified SkyWest, SkyWest Airlines and
Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with
SkyWest Airlines and Atlantic Southeast. The dispute relates to allocation of liability for IROP
expenses that are paid by SkyWest Airlines and Atlantic Southeast to their passengers and vendors
under certain situations. As a result, Delta withheld a combined total of approximately $25 million
(pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast
during December 2007. Delta continues to withhold a portion of the funds we believe are payable as
weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast. As of June 30, 2008, we
had recognized a cumulative total of $31.7 million of revenue associated with the funds withheld by
Delta. Since July 1, 2008, we have not recognized revenue related to IROP expense reimbursements
withheld by Delta because collection of those reimbursements is the subject of litigation (summarized
below) and is therefore not reasonably assured. On February 1, 2008, SkyWest Airlines and Atlantic
Southeast filed a lawsuit in Georgia state court disputing Delta’s treatment of the matter (the
‘‘Complaint’’). Delta filed an Answer to the Complaint and a Counterclaim against SkyWest Airlines
and Atlantic Southeast on March 24, 2008. Delta’s Counterclaim alleges that Atlantic Southeast and
SkyWest Airlines breached the Delta Connection Agreements by invoicing Delta for the IROP
expenses that were paid pursuant to Delta’s policies, and claims only a portion of those expenses may
be invoiced to Delta. After proceedings that included contested motions, document discovery, and some
depositions, Delta voluntarily dismissed its counterclaim. Discovery in that action was not yet complete.
On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory rights to
voluntarily dismiss their claims in the Fulton County, Georgia Superior Court, and filed a new
complaint in the Georgia State Court of Fulton County. The claims continue to include Breach of
Contract, Breach of Contract based on Mutual Departure, Breach of Contract based on Voluntary
Payment, and Breach of the Duty of Good Faith and Fair Dealing.
During the fourth quarter of 2010, we began preliminary settlement discussions with Delta related
to the dispute. Notwithstanding the legal merits of the case, we offered to settle the claim for
approximately $5.9 million less than the cumulative total of revenue recognized related to this matter.
Those settlement discussions were not successful; a result of our settlement offer, we recorded a bad
debt allowance of $5.9 million as of December 31, 2010. SkyWest Airlines and Atlantic Southeast
continue to vigorously pursue their claims set forth in their Complaint pending in the Georgia State
Court of Fulton County.
ExpressJet Stockholder Litigation
Between August 5, 2010, and August 25, 2010, nine substantially similar putative shareholder class
action suits (collectively, the ‘‘Texas State Actions’’) were filed by individual ExpressJet Holdings
stockholders in the District Court of Harris County, Texas against ExpressJet and its directors. Many of
the petitions also name SkyWest, Atlantic Southeast and/or Merger Subsidiary (together, the ‘‘SkyWest
Defendants’’) as defendants in the litigation.
The petitions filed in the Texas State Actions generally allege that the ExpressJet Holdings director
defendants breached their fiduciary duties in connection with the negotiations and approval of the
definitive merger agreement which sets forth the terms and conditions of the ExpressJet Merger (the
‘‘Merger Agreement’’), and that the SkyWest Defendants aided and abetted such alleged breaches of
fiduciary duties. The Texas State Actions seek, among other things, an injunction enjoining the
ExpressJet Merger and the transactions contemplated by the Merger Agreement and rescission of any
transactions contemplated by the Merger Agreement. On August 18, 2010, plaintiff Rayside filed a
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