A federal appeals court has reinstated a $100 million lawsuit against America West Airlines and its officers and major stockholders.
In a 2-1 ruling Thursday, the Ninth U.S. Circuit Court of Appeals in San Francisco said there was enough evidence to suggest that some insiders financially benefited by selling their stock based on information not available to the general public.
Judge Warren Ferguson said there is reason to believe company officials knew of severe maintenance problems before they became public knowledge.
Yet they continued to issue statements saying that these problems were not ongoing and would not affect the company's profitability — statements Ferguson said a jury could conclude the company knew were false.
Ferguson also said the pattern of stock sales by the defendants before the share prices tanked appear "at times calculated to maximize personal benefit from undisclosed inside information.''
He said some of the individual defendants sold 100 percent of their shares. And the sales occurred over a three month period "when America West officials were making optimistic statements regarding the company's financial outlook.''
Thursday's ruling paves the way for the Employer-Teamsters Joint Council No. 84 Pension Trust Fund, which filed the original lawsuit on behalf of all shareholders, to try to convince a jury that the company and the insiders should be required to reimburse others who were buying America West stock between Nov. 19, 1997, and Sept. 3, 1998. During that period, the stock soared to an all-time high of $31 5/16 before plummeting to below $10.
Attorney Patrick Coughlin who represents the plaintiffs, said the amount investors lost — and want back from the company and the shareholders and officers — exceeds $100 million. At the same time the defendants made more than $67 million on their trades.
Patty Nowack, an airline publicist, said company officials were still reviewing the ruling and had no comment.
In issuing the ruling, the appellate judges said U.S. District Judge Owen Panner, who had thrown out the original lawsuit, imposed too strict a standard on what shareholders have to prove. Ferguson said that was wrong "in this era of corporate scandal, when insiders manipulate the market with the complicity of lawyers and accountants.''
The lawsuit involves problems that America West was having after deciding to contract out its aircraft maintenance to a private company. The Federal Aviation Administration had sent several letters to company officials warning them about the problems.
America West had begun secret settlement negotiations with the FAA by May 1998.
Yet at the same time the company's senior management was representing to Wall Street analysts that "bright revenue prospects'' were ahead and that maintenance problems were behind the company.''
They also said separately that maintenance expenses would not increase in 1998.
The company also spent about $100 million repurchasing 4.9 million shares — a repurchase the plaintiffs contend was pushed by TPG Partners and Continental Airlines who were the largest shareholders after America West emerged from bankruptcy.
After those two companies and other individuals unloaded a large number of shares the company announced it would not meet third quarter earnings estimates.