Lawsuit claims People to People International misused student travel deposits
The bankruptcy trustee for the former student travel company for People to People International has sued the organization and two of its officials, claiming they mismanaged deposits that students and their families paid for overseas trips.
Eric L. Johnson, the trustee for the bankruptcy estate of ECE International LLC, filed the lawsuit last month in Jackson County Circuit Court against the nonprofit corporation and its officers, Merrill Eisenhower and Nicole Eisenhower.
The suit revolves around the organization’s management of the travel company and deposits paid and never returned when travel plans for 2020 and 2021 were canceled due to the COVID-19 pandemic. The lawsuit contends that People to People International and its officers did not properly manage the travel deposits, which should have been kept safe for refunds in case trips were canceled.
Instead, People To People International allegedly used the funds to pay its expenses, which the lawsuit claims was a misuse of funds.
The trustee accuses the organization and its officers of breach of fiduciary duty, corporate waste and fraudulent transfers.
Phil Klawuhn, an attorney for People to People International and the Eisenhowers, said there was a complicated series of business transactions involved, and that the organization became involved to try to fix the situation and help ECE International honor or resolve the student travel services.
But because of a lack of cooperation of ECE International’s owner at the time and then the COVID-19 pandemic, they were not able to fulfill the travel contracts, he said.
“We contend that at the end of the day, it’s going to be shown that the Eisenhowers acted properly; that PPI acted properly,” Klawuhn said. “They didn’t breach any duties to anyone.”
The Eisenhowers were employees of People to People International; they kept the board advised, and, generally speaking, the board approved of their actions, Klawuhn said.
He said the Eisenhowers and People to People International plan to vigorously defend themselves in court.
COVID-19, Russia’s invasion of Ukraine
President Dwight D. Eisenhower founded the organization in 1956, initially as an arm of the federal government. It was envisioned as a catalyst for world peace by connecting people from different cultural backgrounds. Over the years, it has organized trips and hosts for thousands from all over the world.
According to the lawsuit, Merrill Eisenhower, the great-grandson of President Dwight D. Eisenhower, served as CEO of the organization from 2018 until 2021. His wife, Nicole Eisenhower, began working at the organization in 2018 as the director of communications and marketing, later becoming the CEO and executive director.
According to court documents, ECE International LLC was formed in 2015 and formerly did business as People International Travel Programs, promoting trips for students to foreign countries.
The company, which collected the funds, was wholly owned by ECE International Group Ltd., a company based in Europe, Klawuhn said.
In 2018 and 2019, ECE International did not meet its projections for student travel. Then, in April 2020, People to People International entered into an agreement where it became the majority owner of ECE International. ECE International Group retained 49% ownership, according to the lawsuit.
The lawsuit contends that despite having a refund policy, ECE International’s owners did not segregate travel deposits from non-refundable portions.
When the COVID-19 pandemic hit, the 2020 travel season was canceled. In April of that year, People to People International closed ECE International’s office in Massachusetts. According to the lawsuit, the organization moved ECE International’s operations to Kansas City.
At the time, there were 431 student travelers with deposits, and they were offered a refund or the option to apply their deposits to travel in 2021. Between March and October of 2020, ECE International partially refunded 171 student travelers, giving them 75% of their deposits back, according to the lawsuit.
The remaining 260 students had their deposits applied to travel in 2021. From May 2020 through July 2021, approximately 20 students signed up and paid new trip deposits. The pandemic continued, and the 2021 travel season was canceled, and about $70,000 worth of refunds were paid to students, according to the lawsuit.
Student travelers were encouraged to roll over their deposits for travel in 2022. Between June 2021 and February 2022, approximately 80 students paid $180,000 for travel in 2022, but trips to Europe were canceled due to safety concerns after Russia invaded Ukraine.
Klawuhn, the attorney for People to People International and the Eisenhowers, said the evidence will show that most of the student travel funds were collected while ECE International was fully owned by ECE International Group.
The lawsuit contends that ECE International did not have the funds to return deposits after the trips were canceled because the money was used for overhead expenses since the cancellation of trips in 2020, or used to issue refunds to other travelers.
The lawsuit said that between April 3, 2020, and its bankruptcy filing in March 2022, ECE International had almost $926,000 in operating expenses, of which about $679,000 was for staffing, management fees, professional fees and sales and marketing.
ECE International files for bankruptcy
When ECE International filed for bankruptcy, it said it owed $1.5 million to nearly 300 creditors, mainly students and their parents.
The lawsuit contends that 148 claims have been filed, totaling about $945,000. The Missouri Attorney General’s Office has also filed a claim in the estimated amount of $900,000, alleging that ECE International violated the Missouri Merchandising Practices Act by failing to provide travel or issue refunds.
ECE International has also filed about 221 claims on behalf of student travelers who might not know how to file a proof of claim in the bankruptcy case properly. According to the lawsuit, ECE International is reconciling the claims, including identifying duplicate and unsupported claims.
The lawsuit accuses People to People International, acting through its officers Nichole and Merrill Eisenhower, of breaches of fiduciary duties and corporate waste.
The lawsuit claims that People to People International, as manager and controlling shareholder, failed to keep operating costs from being paid out of deposits, and continued to have ECE International incur overhead expenses and accept deposits for new travel. However, it didn’t have sufficient funds to operate or refund them.
People to People International prioritized its mission over the economic realities of ECE International, the lawsuit contends.
The bankruptcy trustee said these actions were grossly negligent, inconsistent with the obligation of good faith and fair dealing, and a waste of ECE International’s assets.
The trustee seeks an unspecified amount in damages and requests that transfers be undone, including the transfer made within one year of the bankruptcy filing of at least $79,000. That money was to pay off pre-existing debt that ECE International allegedly owed to People to People International, according to the lawsuit.
The trustee also seeks to undo transfers of cash and property, valued at least $636,000, that were made within four years before the bankruptcy filing.
The trustee contends that ECE International did not receive equivalent value for the transfers.
