Tour Firm’s Woes Rise at Clients’ Expense : Travel: Encino’s Hemphill Harris Travel faces customers’ gripes, lawsuits and loss of a once-sterling reputation.

Erwin Smith, a retired engineer, and his wife, Betty, were 7,500 miles from home on the Indonesian island of Bali in October as part of a 29-day vacation. The Lompoc couple paid for their accommodations up front, having given $14,000 to Hemphill Harris Travel Corp., an Encino firm known as one of the major operators of luxury overseas tours.

Everything was supposed to be arranged. But the next thing Erwin Smith knew, he was reaching for his wallet.

After Bali, the Smiths and several other Americans were supposed to fly to Hong Kong, their last stop. But on Oct. 18, the day before their flight, they got a telegram from Hemphill.

Hemphill, running out of cash, had canceled the rest of their tour. The Hong Kong hotels where the group planned to stay were already owed money by Hemphill and were no longer accepting the travelers’ prepayment vouchers. So the Americans either had to pay for the rest of their stay themselves, or fly home immediately (their airline tickets were still valid).

“I was really shocked,” Erwin Smith said. “My first reaction was, ‘We’ll go home tomorrow.’ ” Later, though, the group finished the trip “because we were clear over there,” he said, adding that he spent an extra $600 to complete the journey.

In all, Hemphill said it canceled tours escorting at least 70 Americans in the Orient, Australia, Thailand, India and elsewhere. But the number of people affected was probably higher. Travel agents said other trips were canceled before tourists left the United States. The U.S. Tour Operators Assn., a trade group in New York, received calls from 100 people asking for help in getting refunds after their Hemphill tours were scrapped, said USTOA President Robert E. Whitley.

And though the cancellations caught the customers and their travel agents by surprise, there were signs last spring that all was not well with Hemphill, which is owned by Weststar Acquisition Corp. in New York. Since then, Hemphill’s problems have only mounted, badly tarnishing the firm’s reputation as a premier tour operator.

Overseas creditors--the foreign hotels and tour operators that helped Hemphill organize its trips--have filed several lawsuits in state and federal court in Los Angeles, alleging that Hemphill still owes them at least $1.7 million. Last month, the landlord for Hemphill’s Encino headquarters filed a complaint in Superior Court, claiming Hemphill was behind a month’s rent of $21,600.

Individual travelers such as the Smiths complain that they can’t get refunds, even though Hemphill promised refunds to anyone affected by the canceled tours. The complaints have prompted the California attorney general’s office to investigate Hemphill, although Herschel Elkins, head of the attorney general’s consumer law section in Los Angeles, said, “I don’t know if there’s been any violation of law as yet.”

Perhaps most important, some travel agents--the ones who steer travelers to one tour operator or another--have decided to just say no to Hemphill.

“I certainly would never book with them again,” said Nancy Pole-Wilhite, international supervisor for Beaverton Travel in Beaverton, Ore., a Portland suburb. She said she’s tried for weeks to get $28,000 in refunds for four clients whose trips were canceled by Hemphill, to no avail. “They disconnected their fax, they disconnected their ‘800’ number,” she said.

Steve Rockow, owner of Airtours Cruises and Travel Service in Encino, also said he would not recommend Hemphill. “They’re having trouble meeting their obligations, according to reports in the trade,” he said.

Another Oregon agent, Alice Sabin of Ambassador Travel in Eugene, said she has clients who are still owed $15,000 by Hemphill. Sabin even made a personal visit to Hemphill’s headquarters, but officials “were always in conference or out” of the office, she said.

David Dukesherer, chief executive of Weststar and president of Hemphill--and the man who signed the telegrams sent to the stranded tourists in October--did not return repeated phone calls seeking comment for this story. Neither did lawyer Jack Staitman, who is defending Hemphill in several of the lawsuits, nor did Michael Jay, a Weststar vice president who was the company’s main spokesman when the tours were canceled.

Until this year, Hemphill, whose tours cost an average of about $4,000, was a thriving operation with, reportedly, about $70 million a year in revenue.

“Hemphill Harris was considered one of the best, one of the innovators in deluxe travel,” said Charles Kao, executive vice president of SpeedTravel Inc., a Hong Kong-based tour operator with offices in Santa Monica. Hotels and restaurants worldwide “had the utmost respect for them, for the business they generated,” he said.

That’s all changed, said H.G. (Red) MacKenzie, vice president of the Western region of the American Society of Travel Agents (ASTA), a trade group. “Until they establish credibility again, it will be difficult for the travel agents to start doing business with them,” he said.

Yet some of Hemphill’s latest moves only further clouded its status. Last month, Weststar, which had owned Hemphill since a year ago, said it had sold Hemphill to a company called Gala World Corp. for an undisclosed price.

What’s Gala World? Executives in the travel industry said they don’t know, and the California secretary of state’s office shows no records of incorporation for such a company.

“Nobody seems to know much about” Gala World, said MacKenzie. Added Whitley, “I don’t know what to make of it.”

The confusion grew last week, when TravelAge West, a trade publication, reported that Weststar had bought back Hemphill from Gala World, but that Gala World had assumed Hemphill’s debts and planned to pay refunds to Hemphill’s customers.

Until a year ago, the firm, founded in 1977, had been owned by Ron Harris, John Hemphill and Joseph Lavitt. They sold it to Weststar, an investor group that had never been in the travel business before, and the three agreed to stay on to run the firm.

But signs began emerging that Hemphill Harris was running into problems. In the spring, Harris and Weststar sued each other for allegedly breaching their contract. Harris and Hemphill soon quit and the tour operators’ trade group tossed Hemphill out of its organization in July because of the management turmoil.

According to Weststar, a major blow came in June, when the Chinese government’s crackdown on civil unrest left Hemphill unable to conduct its tours. Hemphill, having already forwarded its customers’ money to China to set up the tours, suddenly could not get it back. Yet the firm had to give its customers refunds.

The result: Hemphill was out millions of dollars, creating “a severe cash shortage” at the firm, Weststar’s Jay said at the time.

In July and August, several hotel chains with overseas sites--Hilton, Mandarin Oriental, Shangri-La International and Regent International--filed lawsuits in Superior Court in Los Angeles seeking payment for services they provided Hemphill. Tour operators in Egypt and Canada did likewise in federal court.

In some of the suits, the hotels claimed they received some payments from Hemphill, only to have Hemphill’s checks bounce. And in some cases, Hemphill denied the allegations.

Where does Hemphill go from here? Earlier this month Dukesherer told TravelAge West that Hemphill will keep operating and is looking for new investors. A telephone receptionist at Hemphill’s headquarters said the firm is booking tours for 1990.

As for the Smiths, they had paid $100 for insurance that would have reimbursed them if they had canceled their tour, but their policy did not cover a default by the tour operator. The latter insurance is also available, travel officials said.

So the Smiths are still waiting for Hemphill to refund the $600 they spent to finish their October tour. The Smiths said Hemphill did contact them once, however. The firm mailed them a questionnaire asking how they liked their trip.