shl Doc 23 Filed 08/27/12 Entered 08/27/12 14:52:13 Main Document Pg 1 of 10

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1 Pg 1 of 10 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re Chapter 11 Case No. AMR CORPORATION, et al., (SHL) Debtors. (Jointly Administered) x AIR LINE PILOTS ASSOCIATION, INTERNATIONAL, Plaintiff Adv. Pro. No (SHL) v. AMERICAN EAGLE AIRLINES, INC., Defendant x DEFENDANT AMERICAN EAGLE AIRLINES, INC. S MEMORANDUM OF LAW IN LIMITED OPPOSITION TO PLAINTIFF S MOTION FOR SUMMARY JUDGMENT

2 Pg 2 of 10 PRELIMINARY STATEMENT Plaintiff Air Line Pilots Association, International s ( ALPA ) Motion for Summary Judgment seeks entry of an order enforcing the March 23, 2012 Arbitration Opinion & Award ( Arbitration Award or Award ) of the System Board of Adjustment (the Board ) requiring Defendant American Eagle Airlines, Inc. ( American Eagle ) to reinstate to employment, and provide back pay to discharged pilot, Nolan Jones ( Mr. Jones ). In response to ALPA s motion, American Eagle does not seek to reverse or vacate the Board s Award. Rather, American Eagle opposes ALPA s motion to the limited extent the relief requested seeks anything more than a prepetition general unsecured claim in American Eagle s chapter 11 case. American Eagle concedes that there are no genuine issues of material fact in dispute. Thus, it is undisputed that American Eagle s decision to terminate Mr. Jones s employment, effective November 5, 2010 the act giving rise to ALPA s instant action occurred prior to American Eagle s November 29, 2011 chapter 11 filing. Accordingly, the Board s Award of back-pay to Mr. Jones is strictly a prepetition, general unsecured monetary claim. Similarly, the Board s Award ordering reinstatement of Mr. Jones provides for an equitable remedy that can and should be treated as a prepetition, general unsecured claim for money damages and addressed in the context of American Eagle s chapter 11 case. Thus, American Eagle concedes that the Arbitration Award results in a prepetition, general unsecured claim by Mr. Jones for the amount of back pay to which he is entitled under the Award, and a prepetition general unsecured claim for the liquidated value of the Board s awarded remedy of reinstatement to employment. Accordingly, Mr. Jones may proceed through the ordinary claims process in American Eagle s chapter 11 case, and this Court should deny ALPA s motion for summary judgment to the extent it seeks any other relief. 1

3 Pg 3 of 10 STATEMENT OF FACTS ALPA is an unincorporated labor organization, and is the certified and exclusive representative of the pilots employed by American Eagle, which is in the business of providing air transport services. See Compl. 3, 5. Mr. Jones is a pilot formerly employed by American Eagle who sought to upgrade to an Embraer Captain position in See Award, pp As mandated by the Federal Aviation Administration ( FAA ), Mr. Jones s training consisted of classroom instruction, simulator training, and an Initial Operating Experience ( IOE ) that was to culminate with a line check and an observation by an FAA inspector. Id. at pp During his training, Mr. Jones was rated unsatisfactory on at least three separate attempts to complete IOE, and thus failed to successfully complete that phase of his training. See Compl., Ex. 2. Significant areas of Mr. Jones s unsatisfactory performance included excessive taxi speed, improper control of airspeed, lack of situational awareness, disorientation during taxi, lack of familiarity with major terminals, confusion with Flight Guidance systems, excessive aircraft maneuvering at low altitude on take-off, heads down in manuals during departure climb in heavy traffic, improper jump-seat briefing, failure to monitor flight instruments when acting as the flying pilot, and placing excessive workload on the monitoring pilot. Id. Due to Mr. Jones s failure to satisfactorily complete the IOE after receiving substantial additional assistance and extra attempt opportunities, American Eagle determined it had just cause to terminate Mr. Jones s employment, effective November 5, Id. Pursuant to the parties collective bargaining agreement, Mr. Jones filed a grievance, and the parties ultimately proceeded to arbitration before the Board on October 25-26, 2011 and November 7-8, 2011 at ALPA Headquarters in Euless, Texas. Compl., Ex. 3; Award, p. 1. 2

4 Pg 4 of 10 During four days of hearings before the Board, ALPA never refuted American Eagle s evidence that Mr. Jones had not safely and competently completed the IOE phase of his training, and that Mr. Jones had created numerous very serious safety risks while piloting. See Award. Rather, as set forth in the Award, ALPA argued only that Mr. Jones s unsatisfactory ratings were assessed because of bias an argument the Board rejected that Mr. Jones was given insufficient information regarding whether to continue his training after his second unsatisfactory rating, and that his past poor training record was irrelevant. See Award, pp Most significantly, however, in its Arbitration Award, the Board never questioned on the merits, the validity of American Eagle s safety bases for Mr. Jones s three unsatisfactory ratings during IOE, or American Eagle s underlying reasons that of concern for the safety of its passengers for terminating Mr. Jones s employment. See Award. Rather, the Board sustained Mr. Jones s grievance primarily on technical, due process grounds because, according to the Board, Mr. Jones allegedly received insufficient notice of his failings, was not given a reasonable opportunity to improve upon them, and lacked information to properly decide whether to return to his former position or to continue pursuing his upgrade training. Id. at pp Such purported procedural violations do not in any way invalidate American Eagle s unrefuted and substantive reasons for its decision to terminate Mr. Jones s employment based upon his failure to satisfactorily complete IOE, or American Eagle s resulting safety concerns for its passengers. 3

5 Pg 5 of 10 ARGUMENT I. MR. JONES IS ENTITLED ONLY TO A PREPETITION, GENERAL UNSECURED CLAIM SUBJECT TO THE CHAPTER 11 CLAIMS PROCESS ALPA cannot and does not dispute that American Eagle s termination of Mr. Jones s employment which gives rise to ALPA s instant action on Mr. Jones s behalf occurred before American Eagle filed its voluntary chapter 11 case on November 29, As such, the sole issue in controversy in this adversary proceeding is the purely legal question of whether the remedy due to Mr. Jones as a result of the Board s Arbitration Award should be limited to an allowed prepetition, general unsecured claim, subject to the chapter 11 process. A. ALPA s Claims on Behalf of Mr. Jones for Back Pay and Reinstatement are Claims that Arose Prior to American Eagle s Petition Date, and Should be Addressed in the Chapter 11 Claims Process Under section 101(5)(A) of title 11 of the United States Bankruptcy Code (the Bankruptcy Code ), the term claim is defined as the right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, mature, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 11 U.S.C. 101(5)(A). Because American Eagle terminated Mr. Jones prior to the commencement of American Eagle s chapter 11 case on November 29, 2011, ALPA s claim on behalf of Mr. Jones for back pay pursuant to the Arbitration Award is indisputably a prepetition, general unsecured claim for which the union or Mr. Jones may file a proof of claim with this Court. Additionally, under that same section, claim is also defined as the right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. 11 U.S.C. 101(5)(B); see also Air Line Pilots Ass n. v. Continental Airlines, 125 F.3d 120, 132 (3d Cir. 1997) ( Under 4

6 Pg 6 of 10 section 101(5), an equitable remedy can be deemed a claim if that remedy gives rise to a right of payment. ). In analyzing section 101(5) of the Bankruptcy Code, the United States Supreme Court has interpreted claim expansively to cover a broad scope of obligations. See Ohio v. Kovacs, 469 U.S. 274, 279 (1985) (noting that Congress desired a broad definition of a claim ); see also United States v. LTV Corp., 944 F.2d 997, (2d Cir. 1991) (noting that Congress unquestionably expected this definition [of claim] to have wide scope ). Courts have recognized in a number of instances that a monetary payment, or right to payment, is a viable, and even desirable, alternative to various equitable remedies sought in bankruptcy. See Rederford v. U.S. Airways, Inc., 589 F.3d 30, 36 (1st Cir. 2009) ( The inclusion of equitable remedies that may be reduced to payment... ensure that even the most uncertain and difficult to estimate claims can be adjudicated in the bankruptcy proceedings. This serves several obvious purposes that underlie the Bankruptcy Code and Chapter 11 reorganization. ). For example, in Continental Airlines, in deciding whether pilots claims for seniority integration would properly be treated as a claim in the context of the airline s bankruptcy case, the Third Circuit considered whether a monetary award in lieu of specific performance could satisfy the pilots claims. The Court found support for the proposition that monetary awards are a viable alternative to the equitable remedy of seniority integration in wrongful discharge cases where we have enforced awards of monetary damages in lieu of reinstatement. Continental, 125 F.3d at 135. More specifically, [m]uch like reinstatement, seniority integration is a make whole remedy, the purpose of which is to restore the employee to the economic status quo that would exist but for the employer s conduct. Id. Thus, according to the Continental Airlines Court, a monetary damage award can serve as a substitute for the performance of an equitable remedy that cannot or should not otherwise be enforced. Id. 5

7 Pg 7 of 10 Likewise, in Rederford, in the context of an Americans with Disabilities Act ( ADA ) claim, a former employee of U.S. Airways argued that, because she could allegedly seek relief in the form of reinstatement for her ADA claim, that equitable remedy removed her reinstatement claim from the definition of claim under the Bankruptcy Code. The First Circuit disagreed. Relying on Continental Airlines, the First Circuit concluded that money damages are an alternative remedy for reinstatement following wrongful termination... [and plaintiff] cannot preserve her right to reinstatement by limiting her recovery to equitable relief. Rederford, 589 F.3d at 37. Indeed, according to the Rederford Court, to preserve plaintiff s right to reinstatement would effectively grant her preference over other creditors who only had monetary claims, or who had agreed to accept liquidated damages for their equitable claims. Outside the employment context, the Second Circuit has analyzed injunctions imposed under the Comprehensive Environmental Response, Compensation and Liability Act ( CERCLA ), and considered whether the injunctions, alleged to give rise to dischargeable claims, impose a remedy for a performance breach that gives rise to a right of payment. LTV Corp, 944 F.2d at According to the LTV Court, [a]n injunction that does no more than impose an obligation entirely as an alternative to a payment right is dischargeable. Id. at As such, to the extent the Environmental Protection Agency issued mandatory CERCLA injunctions against the debtor to remove waste that was not currently causing pollution, such a claim could be liquidated and addressed as a claim under the Bankruptcy Code. Id. Having recognized that monetary awards can substitute for an equitable remedy, the Continental Airlines Court further acknowledged that monetary damages are a viable alternative specifically where, as here, reinstatement is impractical or not feasible. See Continental, 125 F.3d at ; see also Whittlesey v. Union Carbide Corp., 742 F.2d 724, 728 6

8 Pg 8 of 10 (2d Cir. 1984) ( Reinstatement... may not always be possible. ). As to seniority integration, the Court recognized that [s]imilar to the conditions that can result from the enforcement of reinstatement, disruption to the work environment, irreparable damage to work relationships, and hostility and animosity are all very probable conditions that can result from the enforcement of seniority integration. Id. The Court thus concluded that [c]onsidering the similarity in purpose between the two remedies... and the similarity in the impracticability of enforcing the remedies under particular circumstances... a money damage award is an appropriate alternative to seniority integration. Id. at 136; see also Rederford, 589 F.3d at 37 ( Because money damages are an alternative remedy for reinstatement following wrongful termination, [plaintiff s] claim was within the jurisdiction of the bankruptcy court and so disallowed and discharged. ). In this case, the equitable remedy of Mr. Jones s reinstatement can and indeed should be converted to an award of monetary damages because it would be impractical and not feasible for American Eagle to reinstate Mr. Jones in light of the serious safety risk he poses. Indeed, courts have recognized that reinstatement would be unavailable where the former employee would no longer enjoy the confidence or respect of current management. See Tennes v. Commonwealth of Mass. Dep t. of Revenue, 944 F.2d 372, 381 (7th Cir. 1991). American Eagle seriously questions with good reason Mr. Jones s ability to perform his piloting duties safely and competently. In light of the significant and very disconcerting deficiencies in Mr. Jones s performance during his numerous attempts to complete the IOE phase of his upgrade training, American Eagle reasonably lacks the necessary trust and confidence in Mr. Jones s abilities to perform even his former duties as a first officer at this time. Indeed, under the circumstances, reinstatement simply is not a responsible or viable alternative. See Equal Employment Opportunity Comm n. v. Kallir, 420 F. Supp. 919, (S.D.N.Y. 1976) (where 7

9 Pg 9 of 10 the job from which plaintiff was discharged required a close working relationship with top executives and frequent personal contact with defendants clients, and there had resulted a [l]ack of complete trust and confidence between plaintiff and defendant, the court recognized that reinstatement is not mandatory upon a finding that an employee has been discriminatorily discharged, but is an equitable remedy whose appropriateness depends upon the discretion of the court in the light of the facts of each individual case. ). Like Kallir, reinstatement of Mr. Jones in this case is quite unlike that presented when reinstatement is sought for an assembly line or clerical worker, or even an executive whose job is not as sensitive for his employer s interest as is plaintiff s job here. Id. As noted above, although the Board sustained Mr. Jones s grievance, it did so not because it disagreed with American Eagle s concerns over Mr. Jones s ability to safely undertake his duties as a pilot, but rather, because of a purported procedural flaw in the manner in which American Eagle conveyed its legitimate concerns to Mr. Jones. As such, American Eagle s evidence of Mr. Jones s performance deficiencies during his multiple attempts to complete his upgrade training has not been refuted or seriously contested. Thus, because reinstatement of Mr. Jones to his former position simply is not an acceptable remedy, ALPA s claim for reinstatement on Mr. Jones s behalf can and should be converted to a prepetition, general unsecured monetary claim. Finally, to otherwise compel reinstatement would be tantamount to improperly treating ALPA s claim as a postpetition claim which it indisputably is not and elevating it above other prepetition claims. See Rederford, 589 F.3d at 36 (A purpose of including equitable remedies that may be reduced to payment as claims is to avoid distinctions among creditors depending on whether the right to payment stems from an equitable source, a legal source or an equitable remedy that can be reduced to payment... the Code evenhandedly grants access to the 8

10 Pg 10 of 10 bankruptcy court for creditors to assert claims against a debtor based on both law and equity. ). Under the facts of this case, there is absolutely reason, and indeed, compelling safety reasons, to avoid this unnecessary result. CONCLUSION For the foregoing reasons, the Court should deny ALPA s motion for summary judgment, and grant American Eagle such other and further relief as is just. Dated New York, New York August 27, 2012 /s/ Stephen Karotkin Harvey R. Miller Stephen Karotkin Alfredo R. Pérez Lawrence J. Baer WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York Telephone (212) Facsimile (212) Attorneys for American Eagle Airlines, Inc. 9