SEATTLE (CN) – Nordstrom shareholders pay “millions of dollars” for a “vast and bloated” Flight Department “to serve the needs of the Nordstrom family,” a shareholder claims in a derivative complaint.
In the March 12 federal lawsuit, Judith Burbink claims that “the Nordstrom family, with the connivance of the Nordstrom Board, has contrived to maintain a vast, bloated and costly Flight Department to serve the needs of the Nordstrom family, but subsidized by shareholders.”
Burbink sued the directors and eight companies owned by the Nordstroms, alleging breach of fiduciary duty and unjust enrichment.
“For many years, unbeknownst to its shareholders, Nordstrom has maintained and operated a vast and costly aviation department (the ‘Flight Department’), the activities of which are far removed from Nordstrom’s core business as a fashion retailer,” the complaint states. “Since approximately 2007, at the onset of the global financial crisis, Nordstrom’s Flight Department has assumed virtually full responsibility for housing, flying, servicing, and repairing not only the company’s planes, but also the large fleet of personal planes owned by the members of the extended Nordstrom family. The timing of the Nordstrom family’s decision to offload these responsibilities on to the company as the global financial crisis unfolded is not entirely coincidental. During the crisis, the company’s stock price plummeted from approximately $55 to as low as $6.61, inflicting steep losses on the Nordstrom family, who were and still are the controlling shareholders in the company.”
The company itself only owns two planes, employs pilots to fly company planes and Nordstrom company planes “to numerous vacation destinations around the United States and outside the country,” the complaint states.
The lawsuit apparently reported how many pilots the Flight Department employs, but the number is blacked out.
“In addition, the company employs a large team of maintenance staff to service and repair the Nordstrom family’s aircraft. The company also employs office and administrative staff to manage the Nordstrom family’s personal planes, to schedule flights for the Nordstrom family; and to keep detailed records of, and to account for, who flew on the planes, the duration of the flights, and other important details for purposes of tax reporting and securities filings,” the complaint states.
Burbink claims that the company leases “vastly” more hanger space than it needs at King County International Airport, and subleases the excess space to Nordstrom family members for their personal planes.
In SEC filings, the company says the Nordstrom family is charged market prices for flight services, but the board has “utterly failed” to conducted a proper analysis, according to the complaint.
“(A) review of the company’s books and records by plaintiff and her counsel reveals that the board has never conducted any analysis of the costs of providing the services to the Nordstrom family,” the complaint states. “Contrary to their materially false and misleading statements, the board has, year after year, violated their fiduciary duties by blessing the related party transactions with the Nordstrom family without inquiring what the costs to the company are, and whether the charges to the Nordstrom family equitably reflect their share of use of the Flight Department’s resources. The board has also utterly failed to inquire whether the payments from the Nordstrom family adequately compensate the company for undertaking an aviation-services enterprise that is far removed from the company’s core business and that exposes the company to risk of liability. Moreover, at the time that the board rubber-stamped the related party transactions with the Nordstrom family, members of the board were conflicted because they materially benefited from the related party transactions, and therefore should have been precluded from approving the related party transactions.”
Burbink says the family is charged only a fraction of the true costs of the services.
The defendant board members are Phyllis Campbell, Michelle Ebanks, Enrique Hernandez Jr., Robert Miller, Blake Nordstrom, Erik Nordstrom, Peter Nordstrom, Philip Satre, Brad Smith, Felecia Thornton, B. Kevin Turner, Robert Walter and Alison Winter.
The family-owned business defendants are Hangar Three LLC, JWB Aircraft Leasing Company Inc., JD Plane LLC, JW Ltd., M&B Beaver LLC, TB Plane LLC, 247N LLC and SDJ LLC.
Burbink seeks damages for securities violations, breach of fiduciary duty, corporate waste and unjust enrichment.
Her lead counsel is Brad Moore, with Stritmatter Kessler & Whelan.
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