United Technologies Directors Sued Over China Export Fine

United Technologies Corp., the maker of Pratt & Whitney jet engines and Sikorsky helicopters, was accused in a lawsuit of mismanagement by a shareholder who seeks to replace the company’s board.

Directors of the Hartford, Connecticut-based industrial conglomerate should have exercised better oversight to avoid U.S. fines for supplying China with software used in developing attack helicopters, the Harold Grill 2 IRA contends in a lawsuit filed Nov. 5 in Delaware Chancery Court in Wilmington.

Board members violated their duties “by abdicating their responsibilities of supervision and oversight” and as a result “sullied United Technologies’ reputation as a defense contractor, undermined its claims to good governance, and exposed it to criminal charges,” the investor claimed.

In June, United Technologies units pleaded guilty to violating the Arms Export Control Act and making false statements in connection with exports of software used to develop the Z-10 helicopter, supplied to the Chinese army beginning in 2009, U.S. federal authorities said.

The company’s Pratt & Whitney Canada unit and its U.S.- based Hamilton Sundstrand unit agreed to pay more than $75 million as part of a settlement with the U.S. Justice Department and State Department, according to prosecutors.

Congress imposed a ban on licenses or approvals of defense articles to China in February 1990, specifically including helicopters.

‘Without Merit’

“The allegations in this lawsuit are entirely without merit,” John Moran, a United Technologies spokesman, said yesterday in an e-mailed message. He said the company “is committed to conducting business in full compliance with all export control regulations and achieving its goal of best-in-class performance.”

“We accept responsibility for these past violations and we deeply regret they occurred,” Chief Executive Officer Louis Chenevert said in a statement June 28, when the prosecution was resolved. The company had already established full reserves for settlement payments.

“These violations revealed important opportunities to strengthen our export compliance program. We have taken considerable steps to improve our export controls and to enhance our compliance infrastructure,” Chenevert said.

“The company also has dedicated more than 175 executives, managers and professionals full-time to export compliance, and hundreds more on a part-time basis,” he said.

‘Geopolitical Competitor’

In the lawsuit, lawyers contend the company “secretly participated” in the Chinese military helicopter development “in violation of a U.S. arms embargo and federal arms traffic control statutes,” placing restricted technology in the hands of “the U.S.’s biggest geopolitical competitor.”

According to Military-today.com, the tank-destroyer Z-10 prototype, powered by dual Canadian Pratt & Whitney engines, had armor plating to protect a gunner and pilot and could carry 30 millimeter cannon; anti-tank missiles, air-to-air missiles and rockets, and used radar-foiling stealth technology.

The investor asked a judge to remove and replace the directors, order a new election, appoint a receiver for management in the interim, and award the company damages to be paid by the directors.

The case is Grill v. United Technologies, CA7999, Delaware Chancery Court (Wilmington).

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