Esop Blood In The Water


Apr 10, 2003
Judge Gives Go-Ahead for United Airlines ESOP Class Action to Proceed
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CHICAGO, Feb. 22 /PRNewswire/ -- A U.S. Federal Court judge has cleared
the way for United Airlines (OTC Bulletin Board: UALAQ) employees to move
forward with a nationwide class-action lawsuit against the airline's employee
stock ownership plan (ESOP) and its trustees, claiming those charged with
protecting the interests of the employee-owners failed in their duties,
costing the employee-owners billions of dollars.
On Thursday, February 17, U.S. District Court Judge Samuel Der-Yeghiayan
agreed with the attorneys representing the estimated 70,000 employees and
granted class-action status to the lawsuit, which was originally filed on
February 28, 2003.
The suit claims that the UAL ESOP committee and the plan trustee, State
Street Bank, were aware that UAL's stock was unstable and State Street Bank
had even placed it on a watch list due to its volatility. Regardless, the ESOP
committee and State Street held on to the stock as it plummeted in value even
before the September 11, 2001 attack, which further weakened the stock price,
the complaint states.
The suit also calls into question the committee members' objectivity in
protecting the interests of the ESOP members. According to the complaint,
several committee members also served as UAL union representatives.
"ESOP committee members have a strict and absolute duty to represent the
interests of the ESOP investors," said Steve Berman, managing partner of
Hagens Berman Sobol Shapiro, the law firm representing the plaintiffs. "We
believe that these union members could have had their objectivity clouded by
things such as union negotiations with the company, for example. We believe an
inherent conflict existed."
"Well before September 11, UAL stock was in a free-fall," added Berman.
"We intend to show that had State Street and the plan trustees done their jobs
responsibly, employees would have escaped financial devastation."
The complaint cites a statement from UAL CEO James Goodwin in which he
states: "Before September 11, we were not in a comfortable financial state,
with costs exceeding our revenue on a daily basis ... Clearly this bleeding
has to be stopped -- and soon -- or United will perish sometime next year."
"UAL's CEO was telling the world that UAL was in trouble, painting a vivid
picture of the stock's unsuitability for the ESOP," said Berman. "Even with
these predictions, the ESOP trustees did not make the obvious conclusion that
the stock was not an appropriate investment for the employee-owners, many of
which were looking to their ESOP investment for retirement."
According to the complaint, it took many more months after Goodwin's
statement before the ESOP committee and State Street began diversifying the
"It is our belief that by the time State Street and the committee began
fulfilling their responsibility, UAL stock had fallen through the floor,"
Berman said. "Thousands of employees found their retirement funds demolished."
According to Berman, the class certification decision buoys the hopes of
the current and former UAL employees. "These people feel -- justifiably I
believe -- that they have been victimized by State Street Bank and the ESOP
committee. They want their day in court and Judge Der-Yeghiayan has given them
The ruling allows the plaintiff's attorneys to continue with the discovery
process. The attorneys have already deposed many of the players in the case.
No trial date has been set.