Krakowski v. Am. Airlines, Inc. (In re Amr Corp.)

• Decision Date: 03 September 2015
• Docket Number: Adv. Pro. No. 13–01283 SHL,Case No. 11–15463 SHL
• Citation: 536 B.R. 360
• Parties: In re: AMR Corporation, et al., Reorganized Debtors. John Krakowski, et al., Plaintiffs, v. American Airlines, Inc., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

536 B.R. 360

In re: AMR Corporation, et al., Reorganized Debtors.

John Krakowski, et al., Plaintiffs
v.
American Airlines, Inc., et al., Defendants.

Case No. 11–15463 SHL
Adv. Pro. No. 13–01283 SHL

United States Bankruptcy Court, S.D. New York.

Signed September 3, 2015

536 B.R. 362

GREEN JACOBSON P.C., Counsel for Plaintiffs, 7733 Forsyth Blvd., Suite 700 Clayton, Missouri 63105, By: Allen P. Press, Esq.

WEIL, GOTSHAL & MANGES, Counsel for American Airlines, Inc., 767 Fifth Avenue, New York, New York 10153, By: Steven Karotkin, Esq., Alfredo R. Perez, Esq., Stephen A. Youngman, Esq., Lawrence J. Baer, Esq.

MORGAN LEWIS & BOCKIUS LLP, Counsel for American Airlines, Inc., 1111 Pennsylvania Avenue, N.W., Washington D.C. 20004, By: Jonathan C. Fritts, Esq.

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion of Defendant American Airlines, Inc. seeking to dismiss the modified supplemental class action complaint in the above-captioned adversary proceeding. Plaintiffs are American Airlines' pilots who previously worked at TWA. At American, Plaintiffs enjoyed special job opportunities at the St. Louis hub until those opportunities ended when the pilots' collective bargaining agreement was abrogated in American's bankruptcy. Plaintiffs allege that their union—the APA—breached its duty of fair representation in ten ways regarding Plaintiffs' loss of those special opportunities, including failing to bargain for Plaintiffs in connection with the lost opportunities, failing to replicate the lost opportunities, and failing to fairly represent Plaintiffs in an arbitration to provide substitute job protections. Unhappy with the results of that arbitration, they seek a declaration voiding the arbitrators' award, among other things.

For the reasons set forth below, the Court dismisses the first four claims in light of the prior proceedings before this Court to abrogate the pilots' collective bargaining agreement under Section 1113 of the Bankruptcy Code and the Court's subsequent approval of a new agreement. But the Court denies the rest of the motion, finding that Plaintiffs have stated claims regarding the conduct of the arbitration, the merits of which require further factual development.

BACKGROUND

As it must on a motion to dismiss, the Court assumes to be true all the facts in the complaint. In April 2001, American acquired the assets of former airline TWA, including its unionized employees. Plaintiffs' Modified Supplemental Class Action Complaint [ECF No. 48] (“MSCompl.”) ¶ 1. Given the acquisition, American and the APA negotiated and executed an addendum to their collective bargaining agreement entitled “Supplement CC,” which provided terms for integrating legacy TWA pilots into American's pilot seniority list. MSCompl. ¶ 8. Supplement CC completely subordinated the seniority of about 1,200 legacy TWA pilots to that of all American pilots. MSCompl. ¶ 9. The seniority of the remaining 1,100 legacy TWA pilots was reduced by Supplement CC, and they were reintegrated into American's seniority list at their reduced seniority level. MSCompl. ¶ 9. But to compensate for this loss of seniority, Supplement CC constructed a “protective ‘fence’ in St. Louis,” which created a minimum number of Captain and First Officer positions in St. Louis and granted the legacy TWA pilots preferential bidding for these positions. MSCompl. ¶ 10. So, while reducing the seniority of legacy TWA pilots put them at a relative disadvantage for purposes of bidding against 8,000 American pilots for positions on other routes, the protective fence guaranteed a certain number of desired positions on

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routes from St. Louis. MSCompl. ¶¶ 10–11. The protective fence in St. Louis was the only consideration the legacy TWA pilots received for their reduced seniority. MSCompl. ¶ 14.

The APA has “long desired to terminate Supplement CC, and the protective fence in St. Louis it provided” for the legacy TWA pilots. MSCompl. ¶ 46. American knew of the APA's hostility toward legacy TWA pilots after May 2012. MSCompl. ¶ 52. A former APA president promised as part of his election platform to remove the St. Louis fence without restoring seniority to the legacy TWA pilots. MSCompl. ¶ 46. After American filed for Chapter 11 bankruptcy protection in November 2011, it represented that it would “close its St. Louis base and eliminate the protective fence by the end of 2012.” MSCompl. ¶¶ 12–13. The legacy TWA pilots contended that either their pre-integration seniority should be restored or the protective fence maintained. MSCompl. ¶ 15.

At some point, American proposed sending this issue to arbitration, and “initially proposed a seemingly fair dispute resolution mechanism as to the [legacy] TWA pilots['] issue that did not limit the arbitrators' remedy.” MSCompl. ¶ 53. But American and the APA later agreed that the arbitrators would be powerless to restore the legacy TWA pilots' seniority. MSCompl. ¶ 53. Thus, the “APA, in collusion with American, agreed that American [could] close the St. Louis base, and that ... an arbitrator [would] decide what if any protection should be afforded” to the legacy TWA pilots. MSCompl. ¶ 15. But “under no circumstance [could] the arbitrator modify the [legacy] TWA pilots' seniority at American.” MSCompl. ¶ 15. This agreement would be implemented later through the collective bargaining agreement process. MSCompl. ¶ 16.

Plaintiffs' original complaint in this case alleged that the APA breached its duty of fair representation by agreeing with American to take seniority off the table as a possible remedy in the arbitration, regardless of the ultimate result of that arbitration. See Krakowski v. Am. Airlines, Inc. (In re AMR Corp.), 2014 WL 2508729, at *1 (Bankr.S.D.N.Y. June 3, 2014). In June 2014, however, this Court granted the APA and American's motions to dismiss the original complaint. Id . at *6. In the June decision, the Court concluded that the Plaintiffs had not alleged sufficient facts to plausibly show that the seniority restriction on the Supplement CC arbitration—in and of itself—fell outside the APA's legitimate union objectives. Id. at *4. In reaching its June decision, the Court observed that the Plaintiffs' seniority had been lost more than a decade before when American acquired TWA and that the results of the arbitration were unknown. Id. at *4–5.

The parties refer to events in the main bankruptcy case.¹ The Court takes judicial notice of the proceedings in this bankruptcy case which are relevant to

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this motion.² These are the Section 1113 proceedings—discussed in Plaintiffs' Modified Supplemental Complaint—that granted authority to the Debtors to reject the collective bargaining agreement with the APA and ultimately led to a new agreement. See, e.g., MSCompl. ¶ 17 (“American's contract impasse with APA led it to seek authority from the Bankruptcy Court to reject its then existing collective bargaining agreement pursuant to [Section] 1113. Its [Section] 1113 motion was granted on September 12, 2012, and American rejected its collective bargaining agreement with APA.”). In the Section 1113 proceedings, Debtor American Airlines sought permission to abrogate its collective bargaining agreement with the APA. See 11 U.S.C. § 1113 (permitting a debtor to reject a collective bargaining agreement if it demonstrates, among other things, that it has made a proposal for modifications that are necessary for reorganization). The APA opposed the request, as did representatives of the Supplement CC pilots. In re AMR, 477 B.R. 384, 411–12, 450–54 (Bankr.S.D.N.Y.2012). After a three-week trial, the Court issued a decision denying the Debtors' motion, largely agreeing with the need for Section 1113 relief but identifying two flaws in American's proposal for a new collective bargaining agreement. Id. at 454. In that decision, the Court rejected the contention that the rights provided under Supplement CC could not be rejected under Section 1113. Id. at 451–54 (noting that “nothing in Section 1113 itself ... supports the notion that a collective bargaining right can exist in perpetuity. Indeed, the case law says otherwise.”). After revising their proposal, American once again sought relief under Section 1113, relief that was once again opposed by the APA. In re AMR, 478 B.R. 599, 604 (Bankr.S.D.N.Y.2012). This time the Court granted the motion. Id. at 609–10. That decision was affirmed by the District Court. See In re AMR, 523 B.R. 415 (S.D.N.Y.2014). In its decision, the District Court concluded that the old collective bargaining agreement, and the supplements to it, were rejected under Section 1113. Id. at 423.³

536 B.R. 365

After American abrogated its then-existing collective bargaining agreement with the APA, MSCompl. ¶ 17, American and the APA negotiated a new collective bargaining agreement and multiple related side letter agreements, including letter agreement 12–05 (“LOA 12–05”). See LOA 12–05 [Case No. 11–15463, ECF No. 5626, at 527–29]. LOA 12–05 “confirms [the] agreement concerning the termination of Supplement CC, the planned closure of the STL base, interest...