FedEx and ATA Airlines and Lawsuits and Judgments and Breach of contract and Law and Transportation, Distribution & Logistics

Defunct ATA Airlines awarded $66M in FedEx lawsuit

October 25, 2010

An Indianapolis jury has returned a $65.9 million verdict against Memphis-based FedEx in a breach-of-contract lawsuit brought in 2008 by now-defunct ATA Airlines.

The former Indianapolis carrier alleged FedEx broke a long-term contract with ATA to fly troops on behalf of the federal government. ATA ceased operations in April 2008, shortly after it was informed by FedEx that it would no longer be part of FedEx’s military contracting team.

Last week, the U.S. District Court jury said ATA is entitled to $21.9 million in lost profits for 2008 and $43.9 million in lost profits for 2009.

ATA originally had sought $94 million. Last April, however, FedEx won a partial summary judgment that tossed out some of ATA’s claims, leaving just the breach-of-contract charge.  In a recent regulatory filing prior to the Oct. 19 verdict, FedEx declared: “We still do not believe that any material loss is probable.”

“We respectfully disagree with the jury’s findings and are evaluating our options,” FedEx spokeswoman Sandra Munoz told IBJ on Monday.  It is widely expected that the company will appeal the verdict, which was reached after three hours of deliberations.

Any money ATA ultimately recovers will be distributed to creditors, including pilots, said Ken Broughton, an attorney for Texas-based Haynes and Boone LLP, which represented the airline.

In a statement, Broughton said that “unfortunately, any judgment ATA recovers from FedEx won’t revive" ATA.

According to bankruptcy records, ATA had 4,970 unsecured claims totaling $571.6 million as of June 30. The largest unsecured creditor listed is Wells Fargo Northwest, seeking $301 million.

ATA, founded in the 1970s by Latvian immigrant George Mikelsons, grew to be the nation’s 10th-largest scheduled passenger airline. An expensive fleet upgrade begun prior to the Sept. 11, 2001, terrorist attacks came back to haunt ATA as the industry slowed in the years to follow.

ATA filed its first Chapter 11 reorganization in October 2004. At first, Southwest Airlines bought a portion of ATA stock, along with New York vulture firm MatlinPatterson.  ATA’s headquarters were moved to suburban Atlanta, where the carrier became part of a larger organization based there—Global Aviation Holdings, operator of charter carriers World Airways and North American Airlines.

Dallas-based Southwest walked away with ATA’s valuable gate slots, including those in New York City.

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