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Northwest Asks Court to Ground Class Suits Against Execs

Northwest Airlines says three class-action shareholder lawsuits pending in Minnesota and New York federal courts against its executives will interfere with the company's bankruptcy reorganization and should be stayed.

"If the class actions are not stayed ... Northwest could be obligated to indemnify each defendant for the potentially hundreds of millions of dollars in damages claimed by the plaintiffs," the airline said in a memo to U.S. Bankruptcy Judge Allan L. Gropper.

Judge Gropper is overseeing the company's reorganization in the U.S. Bankruptcy Court for the Southern District of New York.

Eagan, Minn.-based Northwest, which filed for bankruptcy last September, is not named in the class suits, but the airline says its assets are the plaintiffs' true target.

Two of the suits, filed in St. Paul, Minn., by former Northwest workers, allege airline executives violated the Employee Retirement Income Security Act by keeping employees' retirement plans invested in Northwest common stock when it was "imprudent" to do so.

"Defendants failed to apprise [employees] of the growing precarious financial state of the company, including the true health and ongoing viability of the company, thereby misrepresenting its soundness as an investment vehicle," the nearly identical complaints say.

A third suit pending in Manhattan federal court alleges Northwest directors fraudulently dumped about $30 million of their company stock on unwitting investors in violation of federal securities laws.

That suit accuses Northwest CEO Douglas M. Steenland, former CFO Bernard L. Han, Northwest board chairman Gary L. Wilson and director Alfred A. Checchi of quietly adopting bankruptcy as a financial strategy in the spring of 2005 while publicly downplaying the airline's grim prospects.

Northwest says the three suits should be stayed not only because of their potential drain on bankruptcy-protected assets but also because the suits will "distract" the executives from the reorganization quest.

"Mr. Steenland is at the heart of the [airline's] reorganization and has overall responsibility for it," Northwest says. "He is currently overseeing negotiations with labor groups, aircraft suppliers, lenders and other constituencies on a wide variety of issues."

In a response, attorneys for Bernard J. Gesenhues, the shareholder plaintiff in the New York lawsuit, call that argument "a red herring," noting the executives' attorneys will be "solely responsible" for litigation activity through August at least.

"Numerous debtors have undergone successful reorganizations while non-debtor defendants litigated securities fraud claims," they say.

Judge Gropper was scheduled to hear Northwest's stay request March 7.