Overview
This lawsuit, Burnett v. Prudent Fiduciary Services, LLC, et al., is brought on behalf of participants and beneficiaries of the Western Global Airlines Employee Stock Ownership Plan (“ESOP”). The lawsuit alleges that numerous violations of the Employee Retirement Income Security Act (“ERISA”) occurred in connection with the partial sale of Western Global Airlines, Inc. (“Western Global” or the “Company”) to the ESOP at an inflated price, which caused substantial loss to the ESOP and employees whose retirements are held in the ESOP. The Complaint alleges that the Defendants — the owners of Western Global (“the Sellers”) and the trustee they picked to represent the ESOP— breached their fiduciary duties to the ESOP participants and engaged in prohibited transactions in connection with the sale of 37.5% of Company to the newly created ESOP.
Western Global Airlines bills itself as an innovative and leading air cargo transportation company, serving more than 400 airports in 134 countries. The owners, including Jim, Sunny, and Carmit Neff, created the Western Global ESOP (a retirement plan for their employees) to buy 37.5% of the Company from them. Because the newly created ESOP had no funds to make the $510 million purchase, Western Global sought to finance the loan by issuing hundreds of millions in junk bonds at a high interest rate. However, because the Company was unable to attract sufficient investors, Jim Neff personally purchased the majority of the bonds at a higher interest rate (9%), above the standard rate for the sale of an ESOP. The ESOP, therefore, was born saddled with massive debt with an unreasonably high interest rate.
At the time of the sale around October 22, 2020, the ESOP purchased 37.5% of Western Global stock for $510 million ($1,360 per share). Two months later, the Company reported that the shares were worth only $328 million. ESOP participants were therefore forced to purchase Western Global shares for their 401(k) accounts at $1,360, even though they were worth just $875 on the day they were actually allocated their accounts (December 31, 2020). Despite the immediate, massive loss, the ESOP must pay yearly principal and interest payments on the full $510 million loan it received from the Company. Since the sale, the entirety of Western Global’ s retirement contributions have been used to pay that debt.
Defendants in the case were fiduciaries to the ESOP, and the law required them to act in the best interests of the employee-participants. Instead of fulfilling these duties, the Complaint alleges that the Defendants caused the ESOP to pay inflated values for the Western Global Airlines stock.
This lawsuit seeks various forms of relief, including restoring the ESOP the amount it overpaid for Western Global stock, removing the appointed trustee, and disgorging all ill-gotten profits Defendants obtained through the ESOP Transaction.
Class Action
The lawsuit is brought on behalf of all participants in and beneficiaries of the Western Global Airlines, Inc. Employee Stock Ownership Plan from October 2020, or any time thereafter who vested under the terms of the ESOP. The case arises out of the sale of 37.5% of the stock of Western Global Airlines, Inc. to the Western Global ESOP for approximately $510 million.
The Western Global ESOP covers employees of Western Global Airlines, Inc. who are vested in the Western Global ESOP, and those participants’ beneficiaries. Excluded from the Class are Defendants and their immediate families, any fiduciary of the ESOP, the officers and directors of Western Global (including any of its subsidiaries or affiliates), or of any entity in which a Defendant has a controlling interest; and legal representatives, successors, and assigns of any such excluded persons.
Status of the Litigation
Plaintiffs David Burnett, Michael Paradise, and David Nelson filed their Complaint, Burnett v. Prudent Fiduciary Services, LLC, et al., on February 28, 2022, in the U.S. District Court for the District of Delaware. Defendants filed a Motion to Compel Arbitration and to Stay Pursuant to Sections 3 and 4 of the Federal Arbitration Act, or, in the Alternative, to Dismiss, on April 29, 2022. Plaintiffs filed their Opposition on June 13, 2022. Defendants submitted their Reply Brief on July 11, 2022. Plaintiffs requested oral arguments on July 12, 2022. . On March 8, 2023, U.S. District Judge Richard G. Andrews adopted U.S. Magistrate Judge Jennifer L. Hall’s Jan. 25 recommendation to toss the arbitration bid by the Western Global Airlines defendants.
Cohen Milstein is working with Stris & Maher LLP and Nichols Kaster, PLLP in this action.
Whom to Contact for More Information
If you are a participant in the Western Global Airlines ESOP, or if you have information which might assist us in the prosecution of these allegations, please contact:
Michelle Yau, Esq. – myau@cohenmilstein.com
Daniel R. Sutter, Esq. – dsutter@cohenmilstein.com
Doron Hadar, Paralegal – dhadar@cohenmilstein.com