Complex Litigation—a Game of Chess, not Checkers
In Addington v. US Airline Pilots Assn., the Ninth Circuit Court of Appeals held that a duty of fair representation (“DFR”) claim brought by disaffected airline pilots against their union was not “ripe” for decision. Aside from a discussion of jurisdictional ripeness, this case provides a fascinating view of complex legal strategies, and mistakes. The case was won by a lawyer patiently playing a game of chess.
Background
In the airline business, pilots start their careers flying small aircraft (at low wages) and gradually move to larger aircraft (and high wages) as union seniority increases. Therefore, a pilot’s position on the union’s “seniority list” is a very valuable asset to him or her. Seniority accounts for a difference of many thousands of dollars in income over the course of a pilot’s career. But in spite of best-laid career plans, a problem can arise when one airline buys another—and the respective seniority lists of each airline’s pilots are merged.
“Date of hire” is typically the beginning point for merging seniority lists, but other factors can play in important role as well. Airline mergers usually happen when a financially stronger airline can buy a financially weaker airline. In such cases, pilots from the stronger airline can jockey for higher seniority position based, in part, on the relative financial strength of the airline that employs them.
Against that background, US Airways bought America West Airlines in 2005. The respective pilot seniority lists were then merged into a single, consolidated seniority list pursuant to arbitration sponsored by the union then representing pilots’ from both airlines—the Air Line Pilots Association (“ALPA”).
In a twist of economic fates, the acquired airline, America West, was financially stronger than the acquiring airline—US Air. The ALPA arbitration therefore merged the pilots’ seniority lists in a way that favored the 1,900 America West pilots over the 5,100 US Air pilots, based partly on the relative financial strength of America West airlines.
US Air Pilots’ Strategic Success
Unwilling to accept the ALPA arbitration results, US Air pilots reached for a novel legal strategy: decertify the union that had sponsored the arbitration before the new seniority list could be implemented. According to the thinking of this strategy, if the pilots union (ALPA) no longer existed, the merged seniority list could never be implemented.
Because the US Air pilots outnumbered America West pilots by more than half, the US Air pilots successfully decertified ALPA as the collective bargaining agent for all pilots from both airlines.
After decertifying ALPA as the pilots’ union, US Air pilots then formed a new, independent union, with a new union constitution that mandated merger of the seniority lists based on date of hire. The new union re-merged the seniority lists, with the result that US Air pilots would be favored over the America West pilots.
America West Pilots’ Strategic Mistake
Before the new consolidated seniority list was presented to the employer, US Airlines, the America West pilots sued the new union in federal court, alleging breach of the duty of fair representation (DFR) under federal labor law. A jury trial was held in Arizona Federal District Court. The jury held for the America West pilots and against the new union. Notwithstanding the jury trial and verdict, the Ninth Circuit dismissed for lack of ripeness holding, in effect, that the case was premature.
A case is “ripe” for decision: (1) when the case can be decided without considering “contingent future events that may or may not occur; and (2) when direct and immediate” hardship” will occur if a decision is not rendered—and the hardship entails more than ”possible” financial loss.
Because the DFR suit was filed before the seniority list was implemented, the Ninth Circuit Court ruled that the America West pilots’ claims were contingent on actual implementation by US Air, and that the alleged financial loss of America West pilots was still theoretical, not actual, and therefore no actual “hardship” had been proven.
Thus, America West pilots’ counsel made a strategy mistake by not patiently playing out the merger process before filing suit, resulting in the Ninth Circuit’s ruling that the matter was still contingent, without actual hardship, and therefore not yet ripe for decision. As a result, the case was returned to the district court with orders to dismiss.
This case underlies the fact that the proper legal strategy is critical to any litigation effort. US Air pilots were represented by top-flight labor lawyer, Lee Seeham. Lee undoubtedly learned many nuances of legal strategy from his father, the legendary labor lawyer Marty Seeham (now deceased).
The lesson here is important: complex legal strategy is a chess game. Diverse pieces are available on the chess board, only some of which involve litigation. A reactionary rush to the courthouse is almost never the right first step in any legal dispute.
The Ninth Circuit opinion was authored by Judge A. Wallace Tashima, and joined by Judge Susan P. Graber. A dissenting opinion was authored by Judge Jay S. Bybee.
“The lesson here is important: complex legal strategy is a chess game. Diverse pieces are available on the chess board, only some of which involve litigation. A reactionary rush to the courthouse is almost never the right first step in any legal dispute.”
Did you give the same advice to Darl before he bet the company on winning before a Jury?
Hi Biff, it has been a long while since anyone cared about my strategy viewpoint in the SCO cases.
But I cerainly enjoyed following your various posts on the topic, and will try to respond to any follow up comments you might submit–insofar as I can.
In my honest opinion, the opening is one of the most important part of chess. You can be defeated or win already depending on the opening that you do. A wasted move at the beginning is already a critical lose in the battle for positions :)
First, US Airways did not buy America West airlines. It was a reverse acquisition with AWA becoming the acquiring airline. Or if you prefer a straight merger. US Airways was in bankruptcy and just days from liquidation they had no money to pull themselves out of chapter 7 let alone buy anything.
More importantly the “west” pilot were facing a statue of limitations problem. USAPA campaigned on and put date of hire in their constitution telling the world that they were going to throw out a final and binding arbitration in favor of a seniority list that only one side (the east majority)manufactured. If the west had not filed within 6 months of USAPA being certified Lee Seham would have argued that it was time bared.
If you would like to research Lee Seham’s great chess skills look into a RICO case file 2 months after USAPA became the bargaining agent. US Airline pilots association v AWAPPA. Where was Mr. Seham’s patience? That case was dismissed with prejudice. A RICO case filed just 2 months after USAPA became the bargaining agent.
I realize the problems the seniority list merger has caused for America West / US Air pilots, and I sincerely sympathize with pilots on both sides. Pilots have almost never been treated fairly in any of the mergers / bankruptcies, etc. that have become standard fare in the industry since deregulation. The point of this article is to observe that strategy is very important in complex litigation–it is the MOST important thing, in my view. Further, I am acquainted with Lee Seeham and was friends with his father Marty, so I have a personal angle to this article.
If you care to give any kind of response about how all of this should work out, from your view, please feel free and I will make sure your response post appears here.
If America West did not merge with USAirways they would have been liquidated before USAirways. Both airlines need to borrow cash to get back and no one would lend them cash until they saw a survival plan. The USA/AWA merger gave the money men confident’s to lend the airline money. There is no way USAir pilots were going to let 2005 pilots go head of 1988.
the acquisition of both USAirways and America West was done by a group of investors that Lakefield had put together. Lakefield had come out of retirement at the behest of Bronner, head of the Alabama pension fund that owned the majority stake in USAIR, to temporarily head USAIR for the purpose of divesting the fund of USAIR. Lakefield was really representing Bronner and had no loyalty to USAIR.
USAIR was about to come out of Bankruptcy and did not have the money to buy AW. AW according to Parker and Kirby was about to go into bankruptcy and immediately lay off 15% of its workers,Operation Zanzibar, and so also did not have the money to buy USAIR. So neither company bought the other. Technically since USAIr, the surviving corporate entity, was lent the money they bought AW. But in plain speak both companies were bought and merged under the USAIR corporation. In most mergers the management team is formed from both companies thru negotiations but since Lakefield didn’t care about running the airline so he just turned it all over to AW management giving many people the false impression that AW had bought USAIR.
Part 2 USAIR was preparing to emerge from chap 11 not “days away from chap 7″. After the acquisition both airlines were run as seperate divisions with USAIR posting very healty profits while AW posted losses backing their managements claim that absent the merger AW would have declared chap 11 and suffered large layoffs. West pilots falsely argued to the arbitrator that they had bought the East and saved East jobs and therefore deserved a windfall in the seniority integration. The arbitraitor apparantly bought the windfall arguement despite the fact that ALPA merger policy prohibited windfalls. ALPA was faced with the dilema of overturning the award and being sued by AW pilots, ALPA had recently lost several DFR type lawsuits, or standing by the award and facing a decertification move by USAIR pilots, which they unwisely considered an extremely remote possibilty. ALPA chose the path that seemed best for ALPA and chose poorly. USAIR pilots had seen their ALPA representation cost them better than half their salaries, draconian changes in their working conditions and benefits and the unnecessary loss of their pension. The mood was ripe to dump ALPA before the seniority award, it was the proverbial straw that broke the camels back.
Your criticisms of ALPA are something I have seen first hand for a number of years–I have been anti-ALPA for as long as I remember. I first got to know Marty Seeham in 1989, when I was organizing a new independent union for the UPS pilots. That worked out well: the new union (IPA) received over 90% of organizing votes; incumbent Teamsters received about 3% of votes, and ALPA received the rest. I saw first hand how ALPA sold out small carrier after small carrier and decided that independent unions for pilots were better. As far as I know, the IPA experience with UPS has been pretty positive–although I have been out of the loop ever since organizing. I also saw how ALPA sold out the UAL pilots in the ESOP transactions in 1994-96–not a pretty sight.
Because of early experiences with ALPA, I am predisposed to like independent unions–the kind that Lee Seeham organizes and represents (following Marty’s initial success with APA). I really didn’t mean to touch off a hornets nest with this blog article. I do believe, however, that independent pilots unions will serve pilots better in the long run than ALPA, and I know Lee to be a good person and a good lawyer.
I also firmly believe that strategy is the most important part of any litigation effort–even if a prominent case I was recently associated with (SCO v. IBM) has reflected little strategic direction for a long time–as BIFF implies in his criticism of me, below.
I wish the best for US Air pilots and retirees. The seniority list is critically important for all of you, but you also have a common cause to expose company executive-level corruption (known by some) that can improve your overall positions. Good luck with all of that.
In response to Pat Mallon: USAir was not about to emerge from Chapter 11. Every time an airline gets close to emerging from Chapter 11 there is always news about it to the public in advance of it happening. Where was the news about USAir? I found none and why does Mr. Mallon think they were about to come out of bankruptcy. As for the windfall, Mr Mallon is correct, there should not be any windfall for ether side and both sides should bear the burden of the merger together. The Nicolau award was not a windfall for the AWA pilots. Our number one guy didn’t appear on the new seniority list until some 500 numbers down. I lost 3% or in other words moved down the list. The arbitrator (which the USAir pilots were in favor of, they used him once before) when making his decision used the current finical information of both airlines to determine the career expectation for each pilot group. At the time, America West was acquiring aircraft, hiring pilots and growing, whereas; USAir WAS in a (1)DIRE situation. Mr Nicolau also told the USAir negotiators on 5 different occasions that they were not going to get their date of hire and to come back to the negotiating table with something else. How some one can say “date of hire” which is essentially stapling the entire AWA pilot group to the BOTTOM of the seniority list is not a COMPLETE windfall for the East is beyond me.
It should be noted that the reason USAir posted a profit “right after the merger” and that AWA posted a loss was due to the merger itself. The East company reaped more from the merger than the West or in simplistic terms, the East took from the West. To address the 15% reduction in workforce at AWA, isn’t reduction in redundant positions to be expected in any merger? The first step is to combine workforces. The second is to reduce over lapping workforces. This second step should produce higher profits. Again, the East reaped the benefits of the merger. In order to fully understand this, one needs to look at the health of both airlines BEFORE and AFTER the merger.
Mr. Mallon is incorrect when he stated Doug Parker and Scott Kirby said AWA was about to go into bankruptcy. The correct statement from them was “without this merger there may be a possibility that AWA could enter chapter 11. At that time, most airlines were experiencing financial hardship. There was no imminent danger of AWA going into chapter 11, let alone out of business as Mr. Mallon would like to have you believe.
Now for the topic of the surviving carriers name. The East pilots have whats called LOA 93 (Letter of Agreement), which states that if USAir is ever to be bought that the pilots of USAir would get “snap back pay” or in other words the pay rates they had before USAir pilots took concessions. No airline today could afford those pay rates in this economy, so it would be wise of Doug Parker to make sure this appears as a merger rather than an acquisition. Also, since USAir has more recognition than America West world wide, keeping the name would be best.
What confounds me the most and seems to be lost on a majority of the people out there, is what this really is about. In summary, two work force groups could not decide on an agreement or how to combine. They mutually agree to have a National mediator to decide on a “Final and Binding” award for combining the two groups. No “do over’s”, no “best two out of three”, just the one “final and binding” award. When one group doesn’t like the out come, they find a way to undermine the award and go back on their agreement. This is simply a case of the bigger work force bullying the smaller work force.
While all this was going on the East pilots wore their ID badges on laniards that said “Seniority Matters” and that is why I will always hang on my overnight bag a large tag that states “Integrity Matters”.
(1) When asked at a brown bag lunch get together that included the AWA employees, ‘why the merger didn’t go as well as the Delta/Northwest merger?’, Doug Parker stated that the CEO of USAir called him and asked how they could save 30,000+ jobs and emphasized that it needed to be done immediately (’07 on the WINGS website as well as in Business Week).
By the was Mr Mride where do you get your information that USAir bought AWA because your information is incorrect.
Mr. Norris–I went back to check my source for the comment that “USAir bought AWA.” It seems I was just drawing on my own memory of events for this statement. Admittedly, my own memory of this deal is not as accurate as the information of those of you who have lived through the merger, so if I got this statement wrong, I apologize.
Another fact about this merger is the distress that US Airways was under.
US Airways was not going to exit Chapter 11. Anyone who says otherwise is not reading the FT or WSJ. Doug Parker repeatedly has vowed that US Airways would not exist if it were not for the merger. During the BK proceedings no other carrier or investment group (white knight) attempted to trump America West’s offer. Unlike the Frontier Airlines bankruptcy, there were no 2 competing parties (Southwest and Republic) bidding for US Airways. In fact most of the industry would have rather seen US Airways disappear because it would have opened the East coast up for Southwest, and bankrupted United and Delta. It is true however that GECAS, Airbus and the other creditors saw fit to put the two airlines together than to recieve pennies on the dollar at a US Airways liquidation. It was Doug Parker that was the ultimate trigger man for this transaction. Lakefield may have set up elements of it, but he needed Doug Parker and the America West BOD to give it the ok. was able to negotiate with the creditors through BK court for better lease terms and disposal of assets he didn’t want. To assume America West would have entered Chapter 11 is pure speculation. US Airways was currently under BK #2!! Historically speaking most companies never emerge from a second bankruptcy.
Some folks are forgetting that US Airways was in such dire financial straits, that DURING the merger process, the entire Embrear 170 fleet and a good portion of Washington DC slots were sold very hastily to Republic Airlines Holdings for CASH!!. This cash was needed to fund US Airways through the rest of the merger process to avoid Chapter 7. That’s how close US Airways came to going under.
US AIRWAYS COMPLETES SALE OF AIRCRAFT
AND SLOT ASSETS TO REPUBLIC AIRWAYS
ARLINGTON, Va., Sept. 22, 2005 — US Airways Group, Inc. has today completed the sale of certain Embraer regional jet aircraft and slot assets to Republic Airways Holdings, generating approximately $90 million in liquidity for US Airways as it completes its Chapter 11 restructuring and merger with America West Airlines. The regional jets and the slots will continue to operate as US Airways Express.
Under the terms of the asset sale agreement, Republic will purchase or assume the leases of 25 Embraer 170 aircraft from US Airways, and will operate them in the US Airways network under a regional jet service agreement that has been negotiated and approved by the U.S. Bankruptcy Court. Three additional Embraer 170s that had been slated for delivery to US Airways were purchased by Republic directly from the manufacturer.
In addition, US Airways has sold, and then leased back from Republic, commuter slots at Ronald Reagan Washington National and New York LaGuardia airports.
“Republic Airways has been operating as a US Airways Express carrier since earlier this month, and we are pleased to complete this additional step in our expanded relationship as well as in our restructuring efforts,” said Bruce R. Lakefield, US Airways president and chief executive officer.
Other Embraer 170 assets, including a flight simulator and spare parts needed to support the aircraft operations, also are planned to be part of the transaction. The purchase of these assets is expected to be completed in the next few weeks.
As previously announced by US Airways, the Republic asset sale transaction represents approximately $100 million in cash that is built into the Plan of Reorganization approved by the U.S. Bankruptcy Court on Sept. 16, 2005.
This case was only overturned on ripeness grounds only, the actual binding arbitration portion was not considered. In fact the dissenting opinon seems to present the fact that while this is not a ripe case, the merits of what the America West pilots are arguing are very real. In a sense it Judge Bybee seems to say, you didn’t cross the line yet, but should you cross the line (ripeness) be prepared to be liable for a DFR. At least that’s how I read it.
While Seham’s legal strategy for USAPA may be considered well played chess in terms it hasn’t come without a price. I understand seniority is crucial to a pilots career, but so is recovering the pay, benefits and work rules that go with a newly negotiated contract, especially if you have operated under a concessionary contract for 5+ years.
The original US Airways pilots have sacrificed tens of million dollars in improvements for a fight that they are not guaranteed to win should this case ever become ripe and they lose.
Michael, I want to respond to one sentence in your comment: “While Seham’s legal strategy for USAPA may be considered well played chess in terms it hasn’t come without a price.”
No more true statement was ever made. The point of this blog article was to focus on legal strategy; but the best strategy is almost always to convince all sides to accept an expedited resolution at the least possible cost. I have been part of several large cases in my legal career, and perhaps the biggest thing I have learned is that litigation is a gamble that very few companies / union groups can afford to take. I truly wish you guys the best wishes in navigating this extremely difficult issue.