An employee of the former Barnett Banks Inc. has sued in federal court claiming the company shortchanged its savings plan by $250 million as part of its merger this year with NationsBank Corp.
Barnett financial accounting employee Thomas S. Burns Jr. filed suit last week in Jacksonville, Fla. He is seeking class-action status on behalf of 20,000 present and former company employees and is asking that three million Barnett shares be reimbursed to the 401(k) plan.
The complaint alleges that Barnett's board of directors violated the federal Employee Retirement Income Security Act by deciding the January sale to NationsBank did not constitute a "change in control" with regard to the savings plan.
By doing so, the suit asserts, the board prevented distribution of a pool of Barnett stock and loans worth $250 million to plan participants.
Barnett, which has not yet filed its response in court, denied any wrongdoing and said its former board of directors would defend itself. "The Barnett board of directors' action with respect to continuing the 401(k) plan was appropriate and consistent with well-settled law," said bank spokesman George Owen.
Mr. Burns' filing accuses the Barnett board of using one definition of "change in control" when deciding on severance pay for top executives and another when it came to the savings plan for the rank and file.
The suit notes that the deal with NationsBank allowed Barnett chief executive officer Charles Rice and other top Barnett managers to exercise golden parachutes worth a total of more than $100 million.
The board also failed to disclose its decision on the savings plans, reached Dec. 17, in any prospectus or before Barnett shareholders met Dec. 19 to vote on the proposed sale.
"Disclosure was especially material to Barnett employees who were also Barnett shareholders under the (savings) plan and whose employment was expected to be terminated as a consequence of the merger," the lawsuit states. Disclosure also might have influenced regulatory approval of the deal, it adds.
The board's decision on the "change in control" clause of the savings plan means that each Barnett participant will see, on average, at least $10,000 less in his or her 401(k) account, according to the suit.
Under language used to set up Barnett's employee retirement plan, the suit contends, any unsold Barnett shares should have been distributed to employees when Barnett became part of NationsBank.
Instead, the suit says, $250 million of shares accrued to NationsBank, in effect reducing the $15 billion price tag on its purchase.
Barnett said that the unsold shares must remain with the combined company to fund the employee savings plan.
NationsBank and Barnett plan to continue the Barnett 401(k) program of matching employee contributions dollar-for-dollar for one year, Mr. Owen said.
After that, NationsBank will match employee contributions at 75 cents on the dollar.
However, if the Barnett savings plan is merged with the existing plan at NationsBank, the value of the Barnett shares may be diluted over an additional 80,000 NationsBank 401(k) participants.
Roland Attenborough, a lawyer at Reish & Luftman in Los Angeles, who often testifies as an expert witness in 401(k) litigation, said Barnett employees may have a strong case.
"If the facts of this case are accurate, and Barnett's board recognized the sale to NationsBank as a change of control for the purpose of executive compensation-but not for the purposes of the ESOP-then that is a giant red flag," Mr. Attenborough said.
In addition to Mr. Rice, 11 former board members are named defendants in the lawsuit, including former Federal Reserve Board vice chairman Frederick Schultz and executives of large Florida corporations.
Two former board members were not named in the suit. They are Allen Lastinger, Barnett's former president who recently stepped down as NationsBank's top manager in Florida, and BellSouth executive vice president Walter Alford.
Mr. Burns has been told by NationsBank he is losing his job as a result of the merger. He could not be reached to comment. His Jacksonville attorney, Robert Winicki, declined to comment.