Joystar, the troubled, Florida-based host agency, last week appeared to be caught in a death spiral as its independent contractors took legal action to force the company into bankruptcy and suppliers cut ties.
Fifteen travel agents, claiming they were owed a total of more than $150,000 in commissions, petitioned a federal court to declare Joystar insolvent and force it into Chapter 7 bankruptcy, which would allow creditors to seize and sell the company's assets.
Former employees estimated in December that Joystar's total obligation to travel agents had reached more than $450,000.
A week after the agents filed the bankruptcy petition, Carnival Cruise Lines and Norwegian Cruise Line stopped taking bookings from Joystar and its affiliated agents.
There had been rumors for a few weeks that Carnival would move against Joystar if it did not pay commissions owed to its independent contractors.
Jennifer de la Cruz, Carnival's director of public relations, confirmed that the cruise line had placed Joystar on a "do-not-book status ... based on continued concerns over commission payments to the agents."
NCL did not give a reason for its decision.
The lines' actions meant little for current bookings because most Joystar agents had already changed host agencies by last week. Unfortunately, while former agents had hoped to protect some commissions by moving bookings to new hosts, Carnival advised last week that under the law, it cannot move the bookings while the matter is before a bankruptcy court.
Joystar's president and CEO, Bill Alverson, and vice president, Kathy West, did not respond to telephone and email requests for comment.
Drew Axelrod, a Fort Lauderdale agent who claims Joystar owes him more than $35,000 in commissions, led the court effort. The petitioners asked the U.S. District Court for the Southern District of Florida to liquidate the company through involuntary Chapter 7 bankruptcy.
Axelrod's claim is the largest, but three others also claim five-figure amounts. Except for the smallest ($600), all others are four-figure claims. The agents are scattered across the U.S., with one in Canada.
The petitioners listed Joystar, a division of Travelstar, as the primary debtor but cited other business names as well, including Travelstar; TVLS, its trading name on pink sheets; Miami Cruise Center; and Advanced Refrigeration. Joystar has 20 days to respond after receipt of the summons.
Axelrod said he wished he and others had gone to court a month or two earlier, "but how many agents would have signed on then, while Joystar was sweet-talking agents and promising them they would be paid?"
The key, he said, was to ensure that any commissions that might still be due Joystar come under the control of the court, including any overrides payable early in the new year. He said he hoped news of the court case would lead suppliers to hold back payments pending court developments.
As of Jan. 8, he said he was set to add 19 agents, representing another $76,500 in claims, to the petition, for a total of 34 agents claiming $227,000. He said he was working with 70 agents in all, with claims totaling about $350,000.
Axelrod launched the court action without a lawyer but said he would retain a bankruptcy expert this week. He said agents were contributing 5% of their claim amounts to a legal fund and that some interested noncreditors were contributing, as well.
One former Joystar employee estimated that last year, Carnival brands accounted for 10% of total sales, about $8 million. However, when asked, Carnival said it could not disclose the status of overrides that might be due to Joystar.
Meanwhile, frustrated Joystar claimants are airing their grievances at, among other places, the KeepingTogether community board and NoStarsInJoy blog, both created by Pat Saizan in Altamonte Springs, Fla. A former Joystar agent now with Travel Planners International, Saizan said the community board was a way for agents to share concerns confidentially.
Aside from the unpaid commissions, the hottest topic has been suppliers' ongoing refusal to move future bookings to new hosts without written approval from Joystar.
At various points, Joystar would not move bookings or wanted to charge agents to move them. More recently, the company said it would move them "in the order in which requests were received," which meant slowly and often too late.
The most popular suppliers among Joystar agents were the rare few who allowed agents to cancel Joystar bookings and rebook through another host while preserving original pricing.
As a result, agents such as Michelle Carbone in Norman, Okla., who said she was owed more than $30,000 in unpaid commissions, saw no recourse but to join the bankruptcy petition "in hope of recovering some money."
Echoing that, Lynn Mankins in Des Moines, Iowa, signed on to pursue her claim for $8,900. She, like her counterparts, switched hosts in the meantime, but after "doing a lot more research this time."
Joystar is a Vacation.com agency. Steve Tracas, Vacation.com's president and CEO, said, "This is a difficult situation for all parties. We need to let the legal process play out."
For the moment, Joystar also remains a member of the Cruise Lines International Association. It was expelled in the fall for allowing state registrations to lapse but was reinstated when that issue was resolved. Now, said Bob Sharak, CLIA's executive director, the organization is "watching this closely and reaching out to Joystar to understand the situation. We will act in the best interests of the association."
In the wake of multiple layoffs last year, it became unclear if the Aliso Viejo, Calif., location, which had served as headquarters, was still open. In a July filing, Joystar advised the state of Florida that it had moved its headquarters to Sunrise, Fla., and that Aliso Viejo remained a mailing address.
The filing also listed William Faucett as a board member, in addition to Alverson and West. Faucett said he resigned from the board in May 2005 and had tried several times to get his name off the paperwork.
Joystar, under its parent name, Travelstar, was last traded Jan. 6 at 0.2 cents a share, down from a 12-month high of 51 cents and an all-time high of $3.20 in January 2004.
One investor, who asked not to be identified, said a group of investors met with Alverson last fall "to see if we could find a road to travel, but that didn't come together." Now, he said, "We'll let the cards fall where they may."
He said that if his group could have "picked up the company in September, we could have saved it."
He said Alverson and his wife, West, own 45% of the shares, but because some shares are nonvoting, the pair have controlling interest.