United States District Court, N.D. California
ORDER GRANTING MOTION TO DISMISS Re: Dkt. No. 104
VINCE CHHABRIA, District Judge.
This dispute arises out of the American Airlines bankruptcy. During the bankruptcy proceedings, American and the Transport Workers Union of America ("TWU") negotiated new collective bargaining agreements. As part of those agreements, American promised TWU an equity stake in the new entity that would come out of the bankruptcy. TWU had discretion over how to allocate the equity among the workers it represented.
After the union received the equity but before the union made any allocation decisions, many senior workers left their jobs at American in exchange for an early separation package. Later, when the union decided how to distribute the equity, it chose not to include the people who had taken early separation.
The plaintiffs are all workers who took early separation. They have filed a proposed class action against TWU on behalf of themselves and all other similarly situated TWU members. They contend the union violated its duty of fair representation by declining to distribute some of the equity to workers who took early separation. Because the plaintiffs' allegations do not create a plausible inference that TWU's actions were arbitrary, discriminatory, or in bad faith, TWU's motion to dismiss is granted. Dismissal is with prejudice because the plaintiffs have identified no means of curing the defects in the complaint, nor can the Court conceive of any.
The following allegations are taken from the second amended complaint ("SAC") and the many documents it incorporates.
American Airlines filed for Chapter 11 bankruptcy on November 29, 2011. On February 1, 2012, pursuant to Section 1113 of the Bankruptcy Code, American rejected its collective bargaining agreements with TWU, which represented seven classes (or "crafts") of American employees. Over the next several months American and TWU engaged in extensive negotiations over new CBAs, which were ultimately ratified by five TWU crafts in May 2012 and the remaining two crafts in August 2012.
Under the new CBAs, TWU agreed to a number of concessions which resulted in significant labor cost savings for American. As consideration for these concessions, American agreed to give TWU an equity stake in the company that would emerge from the bankruptcy proceedings. The equity percentage was initially to be 3.1% of the equity granted unsecured creditors, but it was later increased to 4.8% based on an agreement between American and TWU that required American to treat TWU workers comparably to workers represented by other unions when negotiating labor cost concessions. The parties refer to this as the "Me Too" agreement.
The plaintiffs and TWU disagree about precisely which labor concessions were given in exchange for the equity. Both sides agree that 1.7% of the equity was given pursuant to the "Me Too" agreement, as mentioned above. And they agree that two other significant changes were: (1) American's decision to freeze the pension benefits of TWU workers and replace the pension program with a less valuable 401(k) plan for workers who continued with the company; and (2) significant "scope of work" concessions, which changed work rules and allowed American to outsource more work. In a motion for approval of the new CBAs in the bankruptcy proceedings, American stated the equity "represents appropriate compensation for, inter alia, very significant scope and pensions concessions, " and "the savings resulting from the ability of the Debtors to implement scope changes and freeze the pension plan are important to their long-term viability." SAC, Ex. 3 at 16-17.
But American also cancelled retiree health benefits for its workers. Under the pre-bankruptcy CBAs, TWU members could participate in a pre-funding program for retiree medical insurance. Employees could contribute a portion of their paycheck each week to a trust, which American would match, with the employee- and employer-funded portions of the trust kept separate. Employees who participated in this program would receive comprehensive retiree health coverage up to age 65, and retirees who were over 65 and enrolled in Medicare received supplemental coverage. In the 2012 CBAs American eliminated these benefits, agreeing to return the employee-funded portion of the employee's trust account back to the employee. According to the SAC, "Refunds of Class Members' employee-funded accounts varied from approximately $5, 000-$40, 000." SAC ¶ 57. The plaintiffs allege that the cancellation of retiree health benefits was a major labor cost savings for American, and that it was one of the concessions for which equity was granted. For purposes of this motion, the Court accepts the plaintiffs' allegation as true.
Around the time American and TWU were negotiating the new CBAs, TWU also negotiated an early separation program for eligible American employees. Under this program, any TWU-represented employee of American who was at least 45 years old and had 15 years of seniority could voluntarily leave the company in exchange for regular severance pay, compensation for unused vacation time, two weeks' additional pay, and a one-time payment of $10, 000 for full-time employees or $5, 000 for part-time employees. Further, some employees who had special job protections could receive an additional $12, 500 payment. Those who took early separation received payments of somewhere between $27, 000 and $48, 000, depending on their situation. See RJN, Ex. 1. The deadline to enroll in early separation ranged from September to October 2012. Those who enrolled in early separation created cost savings for the company and helped avoid involuntary furloughs of more junior employees. Participation in the program was voluntary.
In late August 2012, after the ratification of the new CBAs but before the early separation deadline, TWU and American entered into a letter agreement which gave TWU the promised 4.8% equity. The letter agreement included a list of outstanding TWU claims and grievances that were released in exchange for the equity, but it did not allocate portions of the equity to any particular claim, nor did it contemplate that TWU would allocate the equity in a certain way. TWU had sole discretion over how to allocate the equity to its members.
On March 27, 2013, TWU President James Little established an "Equity Distribution Committee" to determine how to allocate the equity among TWU members. The committee met multiple times, hired an economist to advise on the creation of a distribution methodology, and determined that the distribution plan "should reflect the origins of the various components of the 4.8%." SAC, Ex. 12 at 3. On May 23-24, 2013, the committee produced a draft equity distribution plan. The plan specified that to be eligible to receive equity an employee must, subject to a few exceptions, have been employed by American at the date of the bankruptcy filing (November 29, 2011), and must also have been employed at a cutoff date selected by TWU (July 26, 2013). This meant early separation participants were deemed ineligible to receive a share of the equity, because their employment status had changed before July 26, 2013.
The committee presented the draft plan to the TWU membership through various communications and in a series of "roadshow" meetings. At these meetings many TWU members spoke against the plan and argued it was unfair to exclude early separation participants from a share of the equity. On July 26, 2013, the committee voted 5-4 to approve the plan. Following that vote, the TWU AA Presidents Council, a group consisting of the presidents of TWU local unions, voted to give final approval.
The plaintiffs, all of whom were TWU-represented employees who took early separation, have now brought this lawsuit, alleging that TWU ...