Pilots of Western Global Airlines (KD, Fort Myers Southwest Florida) can proceed in court with their challenge to the company's employee stock ownership plan (ESOP) after a US appeal court denied a motion to send the dispute to arbitration, reports Bloomberg Law.
Judge David J. Porter of the US Court of Appeals for the Third Circuit on August 15 granted the pilots' request for summary affirmance, allowing the case [Burnett et al. v. Prudent Fiduciary Services LLC et al., Case No. 23-1527] to stay in court without hearing oral arguments or receiving a full briefing. According to the court docket seen by ch-aviation, he denied motions for extensions of time to file briefs and motions for a temporary stay of proceedings.
The counsel for the pilots had requested the court, in ruling, consider a writ of certiorari filed on August 4 on the case, "Henry v. Wilmington Trust NA," in which the Third Circuit Appeal Court on June 30, 2023, declined to force arbitration in a similar employee stock ownership plan.
The backstory to the case is as follows:
In 2020, all Western Global Airlines employees were granted beneficial ownership through the ESOP, not only in the airline but also in two affiliated leasing companies owned by founder and Chief Executive Officer James (Jim) Neff.
The current legal row goes back to two lawsuits filed separately by two pilots in the US District Court for the Central District of California in December 2021. They alleged the plan's fiduciaries and the company's owners violated the Employee Retirement Income Security Act (ERISA) by selling 37.5% of the airline's stock at an inflated price of about USD510 million to the ESOP on October 22, 2020, to the detriment of the plan and employees whose retirements are held in the plan. Two months later, the airline had reported that the shares were worth only USD328 million.
On February 28, 2022, the two cases were consolidated in a class action suit and re-filed in the US District Court of Delaware. The lawsuit was brought on behalf of all participants in and beneficiaries of the Western Global Airlines ESOP.
On March 8, 2023, US District Judge Richard G. Andrews adopted US Magistrate Judge Jennifer L. Hall's January 25 recommendation to reject an arbitration bid by the Western Global Airlines defendants. The defendants took the decision to the Third Circuit Appeal Court.
Western Global Airline voluntarily filed for Chapter 11 bankruptcy protection in Delaware on August 7, 2023, after running up debts of at least USD471.3 million.
Bondholders and Neff have committed more than USD77 million to enable the Florida-based cargo carrier to continue operating as a debtor-in-possession and boost its balance sheet when it exits the restructuring process.
The Bankruptcy Court has permitted the company to obtain USD75 million in senior secured post-petition financing via a delayed draw term loan (DIP) facility to be used to fund ongoing operations.
