A school transportation company that serves two local school districts filed for Chapter 11 bankruptcy protection in September, after an acrimonious split with a Long Island district that rejected a steep, mid-contract price increase.

Bus service from East End Bus Lines is expected to continue as normal for the Wallkill and Valley Central school districts, each of which signed a five-year transportation contract with the company beginning in the 2017-18 school year.

“We were advised that there was a contract dispute between the East End company and a school district in Long Island, which would potentially cause East End to file Chapter 11,” Wallkill Superintendent Kevin Castle said.

A Chapter 11 filing is intended to allow a business to reorganize its debts and continue operating.

Castle said that after consultation with East End Bus Lines CEO John Mensch and his lawyer, and on the advice of the district’s lawyer, the school board on Sept. 20 approved transferring the busing contract from East End to another of Mensch's companies, Orange County Transit LLC.

Under bankruptcy law, such a transfer of a contract, which is considered a company asset, would require approval of the bankruptcy court.

Castle and Wallkill school board President Joseph LoCicero said they’re confident the bankruptcy will not affect transportation in the district.

Valley Central school officials did not return a call seeking comment.

After a rocky start in the 2017-18 year, where Wallkill experienced delays and Valley Central had reports of overcrowded buses and missed pickups, things have smoothed out, LoCicero and Castle said.

“Since that first couple of months, that first year, we’ve had no issues,” LoCicero said. “The company’s run very well.”

East End Bus Lines’ lawyer, Marc Pergament of Weinberg, Gross & Pergament in Garden City, said the companies expect to come through the bankruptcy in good condition, and students won’t be affected. He declined to comment on specifics of the case.

East End Bus Lines and two associated companies, Montauk Transit Service and Montauk Student Transport, all of which share Mensch as CEO and an address in Medford on Long Island, filed for Chapter 11 bankruptcy on Sept. 13 in the Eastern District of New York. The court has joined the three cases for administrative purposes.

East End Bus Lines has not yet filed a detailed listing of its assets. The bankruptcy petition lists creditors holding $19.5 million in secured claims and $9.67 million in unsecured claims. Among the unsecured claims is a $4 million loan from Wallkill Valley Federal Savings and Loan.

The bank’s lawyer, David Tillem of Wilson, Elser, Moskowitz, Edelman & Dicker in White Plains, declined to comment. Bank President Michael Horodyski didn’t return a call for comment.

On Friday, a fourth associated company, East End Bus Service LLC, filed for Chapter 11 bankruptcy. Court papers suggest it is a much smaller company, with just three creditors and about $600,000 in liabilities.

Parents scramble

The East End Bus Lines bankruptcy filing followed a dispute between the company and the William Floyd Union Free School District in Mastic Beach.

In court papers, William Floyd’s lawyers say that in January, two years into a five-year contract, East End Bus Lines sent a letter to the district saying the company was "not renewing its existing transportation contract for 2018-19." The district’s lawyers notified East End that taking that action would be a breach of contract.

East End agreed in writing on March 1 to honor the contract. However, on July 17, William Floyd lawyers wrote, Mensch requested an immediate meeting with district officials about the contract. They met the next day, and East End told the district that the company would not provide buses for the 2018-19 school year unless the district agreed to increase annual payments by $5.5 million, a total of $16.5 million over three years. The district had paid East End $12.7 million in 2016-17 and $12.2 million in 2017-18.

“We didn’t let him (Mensch) push us around,” said James Montalto, public relations director for William Floyd schools. “We said no, that’s illegal, and we’re not doing that.”

State law forbids a public entity from increasing payments to a low bidder after a bid has been awarded, William Floyd’s lawyers noted in court papers.

East End’s ultimatum left William Floyd scrambling to provide buses for its students. With six weeks until the start of classes, the district hired a consultant for an expedited bid process. They found a provider, but with the compressed timeline, large buses didn’t start running until Sept. 17. The district had to rely on parents carpooling and provided before- and after-school child care, breakfast and afternoon snacks to accommodate the community.

Financial woes

Mensch's companies appear to have a number of additional financial issues.

In papers filed in the bankruptcy case, Wells Fargo Equipment Finance alleges that Montauk Student Transport defaulted on six loans for the purchase of school buses. As of Sept, 24, $541,464 was owed, Wells Fargo lawyers wrote.

According to New York Department of State records, Orange County Transit LLC made its initial filing on Feb. 16, 2017, with Mensch as registered agent. On July 31, 2018, the IRS filed a federal tax lien against the company for $235,790 for the tax period ending Dec. 31, 2017.

On Sept. 10, papers were filed with the Department of State for another new company, Orange County Transit Service LLC, with Mensch as registered agent and the same Medford address as the East End and Montauk bus companies. Three days later, Mensch's other companies filed for Chapter 11.

hyakin@th-record.com