Shareholders of Western Global Airlines (KD, Fort Myers Southwest Florida) (WGA) have requested the US Bankruptcy Court in Delaware to dismiss or reduce to zero, claims arising from a class action suit claiming prohibited financial transactions relating to the company's employee stock ownership plan (ESOP). The US Department of Labor (DOL) is also investigating the circumstances of the ESOP transactions.
The Neff family shareholders are seeking a court order subordinating the ESOP claims to those of general unsecured creditors to be reduced to zero or disallowed entirely. On October 17, WGA and its debtor subsidiaries in Chapter 11 bankruptcy protection filed their objection to the class action, arguing the ESOP claims be disallowed for purposes of voting on the airline's restructuring plan. A court hearing has been scheduled for November 13 before Judge Karen B. Owens, but the court may grant the order without further notice or hearing if no responses to the shareholders' objection are filed.
As reported, the class action suit in the Delaware District Court alleges the ESOP's fiduciaries and company's owners violated the Employee Retirement Income Security Act (ERISA) by selling 370,000 shares or 37.5% of the airline's stock from the Neff family at a "grossly inflated" price of about USD510 million to the ESOP on October 22, 2020, to the detriment of employees whose retirements are held in the plan. Neff and his family received USD510 million from the ESOP through WGA.
The DOL has an ongoing investigation into the ESOP transaction and Neff's role in it. It alleges that Neff and his family wrongfully received USD182 million more from the ESOP transaction than their stock was worth while still maintaining a majority equity interest and control of the airline.
Meanwhile, in a 103-page response to the class action suit in the Delaware District Court, the Neff family argued that they acted in the best interests of the company's employees when they established the ESOP. They claimed the lawsuit had caused irreparable harm to the company and its employees. The shareholders also pointed out that they had transferred two aircraft leasing companies to the company, saving it millions of dollars in annual lease payments. They defended the settlement's fairness to the ESOP, which they said was determined in good faith. Additionally, the shareholders alleged the lawsuit was solicited by third-party lawyers who targeted employees, with only three agreeing to file the suit, one of whom withdrew shortly thereafter.
"The founder defendants are confident that they will prove that all of the material allegations in the complaint against them and with respect to WGA are false. The complaint is a meritless lawsuit which has perpetuated falsehoods about WGA and the founder defendants. The plaintiffs, through this action, have, in fact, reduced the value of WGA by perpetuating false accusatory allegations with incorrect and misleading facts and figures about the company and the ESOP's purchase of WGA shares of company stock. The ESOP's purchase of WGA company stock was conducted in a manner fully compliant with ERISA. These false allegations hurt all of the WGA shareholders, including the beneficial employee-owners who participate in the ESOP, and caused irreparable damage to the company and its employees," they stated.
