Lisec v. United Air Lines, Inc.

• Decision Date: 30 October 1978
• Citation: 149 Cal.Rptr. 847,85 Cal.App.3d 969
• Parties: James K. LISEC et al., Plaintiffs, Appellants and Respondents, v. UNITED AIR LINES, etc., Defendant, Respondent and Appellant. Civ. 38883.
• Court: California Court of Appeals Court of Appeals

Page 847

149 Cal.Rptr. 847

85 Cal.App.3d 969

James K. LISEC et al., Plaintiffs, Appellants and Respondents, v. UNITED AIR LINES, etc., Defendant, Respondent and Appellant.

Civ. 38883.

Court of Appeal, First District, Division 2, California.

Oct. 30, 1978.

Rehearing Denied Nov. 29, 1978.

Hearing Denied Jan. 17, 1979.

Lewis, Rouda & Lewis, Marvin E. Lewis, San Francisco, for plaintiffs, appellants and respondents.

Arnold T. Aikens, Michael A. Katz, Chicago, Ill., Sedgwick, Detert, Moran & Arnold, John B. Marchant, San Francisco, Philip J. Hogan, Gen. Counsel, United Air Lines, Inc., Chicago, Ill., for defendant, respondent and appellant.

McBRIDE, Associate Justice. ^*

This appeal is from an order of the trial court granting a motion by respondent for a new trial ¹ after denial of its motion for judgment notwithstanding the verdict. The verdict, on the 51st day of trial, awarded appellants $368,049 compensatory and $1,476,194 punitive damages. A cross-appeal was filed, wherein respondent United Air Lines (hereinafter United) asks that judgment of the trial court in favor of appellants be reversed and that this action be remanded with directions to dismiss the complaint. This contention should be examined first, for if sound, it will dispose of the case in its entirety, ² inasmuch as United argues that there is a lack of substantial evidence to support any judgment.

The salient facts are these: Since 1936, United has maintained a "Suggestion Program" ³ which processes many Suggestions received from its employees, Suggestions made to improve operations and the financial condition of United. The company maintains rules for the Suggestion Program, which represent to its employees what procedures will be followed in handling their Suggestions and determining appropriate awards for those whose Suggestions are accepted.

The preface to the Suggestion System rules states that the purpose of the System is to contribute to United service, cost reduction and profit by fostering a climate in which the creative abilities of all employees will be developed and utilized; to provide an orderly, company-wide System, whereby ideas will be encouraged, submitted, investigated and answered. A Suggestion is a specific proposal, intended to benefit United, submitted on a Suggestion Form provided by the company. The Suggestion Plan regulations provide that certain Suggestions are not eligible for awards, including "F. Ideas which duplicate previous active Suggestions. G. If there is acceptable evidence in writing that the idea was initiated before the receipt of the suggestion." The minimum award which is made is $5; the maximum is unlimited. "The decision of the Judges ⁴ concerning awards is final." Regular awards, ⁵ if benefits are computable, are based on 10 percent of the estimated first or a typical year's net savings, whichever is greater. Impetus Awards may be recommended if the resolving office (the department which will benefit principally from the Suggestion) wishes to recognize the contribution of a Suggestion which speeds up ongoing action or a project initiated before the receipt of the Suggestion. The amount of an Impetus Award is indefinite, but the rules provide that an attempt should be made to estimate the value of earlier implementation.

The Suggestion made by appellants pursuant to the rules was in three parts, identified briefly as follows: (1) "In view of our current need to increase revenue, and to fill every available seat, I suggest that we institute an interline space available, 80% Discount travel program, somewhat on the lines of what Pan American World Airways instituted recently during their own acute revenue shortage period . . . (2) (O)ur agreements with other airlines for discount travel are based on reciprocity. . . . I suggest we change our approach to one of maximizing profits for United by offering discounts to employees of supplemental carriers, local SVC (regional) carriers like PSA etc. (not to be based on reciprocity) . . . (3) In order to increase revenue, I suggest we offer unlimited reduced fare privileges to parents of United employees."

The Suggestion made by appellants was admittedly not novel (nor was it required to be). ⁶ Appellant Lisec said, "Our excess capacity and very low load factors are an open secret," and recommended, "Every extra dollar earned on a flight will reduce our operating deficit. Some other operators have already set the precedent to their own benefit. Pan Am and TWA are two examples."

The evidence clearly shows that United had already received many Suggestions from its employees on Suggestion Forms, and by letters from others, suggesting substantially the same reduced fare liberalization urged by appellants. United had responded to them, stating then current company policy for not accepting them. ⁷ In general, their replies noted company concern that loading United airplanes with their own employees and kin and employees of other lines might impair company service to full fare passengers. Management apprehended that greatly reduced rate allowance to employees of all other lines might have to be cancelled if conditions should change materially, with possible resulting loss of good will, and stressed a belief that evolution rather than revolution in reduced fare policy was sound management. United's management received many Suggestions from within and without the corporate family, and considered and reconsidered them, as will be noted.

United began entering reduced rate agreements with international carriers in the 1950's reaching 32 such agreements by 1960 and 67 by 1970. These agreements provided that employees of the international carriers and their families could fly at reduced fare of 50 percent off, space reserved, one time per year.

In 1964 and 1966, the company began to offer to regional or local service carriers unlimited reduced (50%) fares for positive space, pleasure and business related, travel and an annual free pass for space available pleasure travel. Prior to appellants' Suggestion, United nonmanagement employees had unlimited 50 percent positive space discounts and management employees had 75 percent positive space discounts. No discounts or free passes were offered to trunk carriers, such as TWA and American Airlines (i. e., domestic, long haul carriers).

In 1967, J. Leslie Ehringer United's Manager of Interline Sales, recommended that United enter into 50 percent reduced rate business travel arrangements with all trunk and some supplemental carriers; that it defer entering pleasure travel agreements with trunk carriers at that time, to be reconsidered in one year. The company accepted the recommendation, because it first wanted to evaluate the effects of business travel expansion. In April 1969, Ehringer was authorized to enter negotiations for reciprocal business travel agreements with the trunk and supplemental carriers.

In June of 1969, aware of similar discount fares adopted by TWA and Pan Am, Ehringer suggested a 75 percent discount for space available pleasure travel by employees of international carriers, a proposal made in response to inquiries from United's own employees and from other airlines seeking such reduced fare agreements.

In 1970, under the direction of corporate Secretary Dimfle, Ehringer reviewed pleasure travel policies of other trunk carriers. The result was a report February 2, 1971, showing each trunk airline's pleasure pass policy. Ehringer noted that in the four years then immediately past he had proposed a 75 percent reduced rate, space available agreement with the carriers, but that it had not been approved.

Appellants' first Suggestion was in March 1971, after the foregoing activity by Ehringer. In December 1970, United Airlines merged with Western International Hotels Corporation and both became subsidiaries of UAL, Inc. At that time, Ed Carlson, former chief executive of Western International Hotels, became President of both UAL, Inc. and United. As a result of that management change, Mr. Ehringer was told in February 1971 that he should concentrate on revenue from full fare passengers and delay work on reduced fares.

Though Ehringer's priorities changed, he still was involved in the area of reduced fares. As part of his job he drafted responses for Mr. Carlson to letters sent on the subject. One letter, sent May 14, 1971, was from Ray North, an employee at Dulles Airport, relaying incidents where employees of other airlines were criticizing United for not giving passes and were suggesting that they try to avoid booking seats for United. Ehringer's response (signed by Carlson) mentioned a review three years earlier and also stated: "Our interline department has been researching this matter recently, and another review will be taken on this subject soon." A similar response was sent September 21, 1971 to Oscar Otto, a Pan Am employee asking about United's lack of pass privileges for trunk airlines.

In a report written September 30, 1971, discussing a London meeting of interline sales managers, Ehringer wrote that it was his intention to "submit a complete plan to revamp (United's) pleasure pass reduced rate policy before the end of the year." At an interline meeting in Australia in October 1971, Ehringer was approached by representatives of several airlines who asked about pass policies. He told them he was working on the question and would take action when he got back. When he returned he met with his superior, Mr. Hartigan, who gave him the go-ahead to finalize a reduced travel study for his review. A few days later Hartigan told Ehringer the front office was interested in the project.

On November 4, 1971, around the time of this conversation between Hartigan and Ehringer, Carlson received a letter from a hotel business friend from Galveston, Texas, Eugene Lucas. In the letter, Lucas told Carlson of two incidents where he had discovered that employees of other airlines were not booking for...