Bankruptcy Court Dismisses Class Action DFR Complaint Involving Airline Merger

by BakerHostetler

One deliberately ironic facet of the 2004 film Howard Hughes bio-pic The Aviator (the one with Leonardo DiCaprio) is the fact that the airlines fighting for world dominance in the 1940s were Howard Hughes’ TWA and Juan Trippe’s Pan Am. By the time of the movie, of course, both famous airlines were gone. Pan Am’s final descent into bankruptcy court ended in 1991. Following its own troubles (and two bankruptcies in the 1990s), TWA was acquired by American Airlines in 2001. But does the death of an airline mean an end to litigation?  Of course not.

When American acquired TWA in 2001, it had to combine the two workforces and to integrate the unionized pilots from both airlines. Because of the respective union contracts, this necessitated integrating the two seniority rosters, a task that is far easier said than done. Predictably, the pilots from the acquired airline, TWA, did not fare in the seniority integration as well as those from American. They were able, however, to wrest some preferences at TWA’s former hub, St. Louis. Good for them, at least for a while, but American Airlines itself entered Chapter 11 bankruptcy in 2011. In re: AMR Corporation, Case No. 11-15463 (SHL).). As part of the bankruptcy restructuring, it eliminated the St. Louis hub, effectively erasing the protections the pilots had gained ten years before. The union and American agreed to arbitrate a dispute over the loss of these rights, but limited relief to compensation and not to revisit the 2001 changes in seniority. Even before the arbitration was completed, group of the affected pilots brought suit in district court in St. Louis (no surprise on venue), contending that the union had breached its duty of fair representation and American had colluded with it in doing so. The case was then transferred to the bankruptcy court where the American Chapter 11 matter was pending. Krakowski v. American Airlines, Inc., Adv. Pro. No. 13-01283 (SHL) (S.D. N.Y. Bankruptcy Ct., June 3, 2014). Both the union and American moved to dismiss.

The court granted the motions to dismiss. First, the court found that the Iqbal and Twombly standards would apply to its review of the complaint’s allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 677 (2007). The application of these cases to a class action complaint was significant in itself.  Turning to the complaint, the court noted the very high standard to establish a DFR and the fact that the case involved seniority among pilots, rights that will always create winners and losers within the bargaining unit. The court also found that the case involved seniority rights that had been in place for over a decade, suggesting that the union could act reasonably in refusing to disturb them. Finally, the court was troubled by the fact that suit was brought even before the arbitration had been completed. On this note, it’s hard to fault the plaintiffs because DFR claims are subject to a 180-day statute of limitations and a different court might very well have found that their claims were time-barred had they waited until the outcome. The court also rejected the argument that various allegations of hostility against former TWA pilots or the special protections for them in St. Louis were sufficient to establish a DFR. In any event, the court found that the complaint did not adequately plead a DFR and dismissed it without prejudice.

The Krakowski case is interesting on several levels. First, it was decided in bankruptcy court, an uncommon venue for class action cases. Second, it involved DFR claims that are themselves rare in the class action context. Despite these unusual aspects, the decision is notable for its reliance on Iqbal and Twombly and its decision to dismiss despite general allegations of “hostility” towards former TWA pilots, the types of allegations that have been made in other cases challenging the integration of seniority rosters in other mergers. And, of course, cases like this are reminders that volatility in the airline industry is hardly new.

The Bottom Line: The Iqbal and Twombly standards should apply at the pleading stage even in class action disputes.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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