NEW YORK -- A federal judge here dismissed a New York agency's
class-action lawsuit against major commission-cutting airlines but,
in the same document, effectively said agents may have a case that
the carriers violated their good-faith obligations under the ARC
contract by eliminating base commissions.
Judge Robert Sweet of the U.S. District Court, Southern
District, said the existence of commissions "is an implied term" of
ARC's agency contract. Thus, he said, by paying zero commission
rather than some commission, however small, the defendant carriers
"are not in good-faith compliance" with the ARC contract.
As a result, this lawsuit isn't dead yet: The plaintiff agency,
Power Travel International of Plainview, N.Y., has the opportunity
to refile its complaint within 20 days, which works out to a
mid-May deadline.
The lawsuit was filed last summer against American, Continental,
Delta, United and Northwest. In its original filing, the agency
named JetBlue as the sixth defendant, but soon after, the agency
removed the carrier, saying JetBlue had "inadvertently and
erroneously" been named.
Power Travel, saying it would seek certification of its case as
a class action, alleged the defendant carriers breached their
contracts with it and all other ARC agencies and also breached an
implied covenant of good faith and fair dealing.
In its complaint, the agency said the carriers were obliged to
give "good-faith notice" for a reasonable amount of time before
implementing zero commissions in order to avoid disruption of
agents' businesses.
Ira Schochet, an attorney for Power Travel, said the carriers
have an implied obligation to give agencies reasonable notice,
especially given the investments that travel agents made in
complying with ARC rules "with the enticement of commissions."
The original complaint also questioned the carriers' right to
drop commissions to nothing, saying that the ARC agency agreement
"expressly contemplates" that agencies will receive
commissions.
And, the court filing said, while the ARC pact states that
remuneration shall be established by carriers or by agent-carrier
mutual agreement, "nowhere in the agent reporting agreement is
there any provision permitting the airlines to eliminate
remuneration."
The judge indicated that he agreed with that view, saying the
commission rate "cannot be set at $0."
Nevertheless, he granted the airlines' motion to dismiss the
case, apparently due to his conclusion that the trade could only
collect "nominal" damages.
The judge said that while carriers cannot eliminate commissions,
they have the right to lower them as much as they please. It is the
difference between a permissible minimal commission -- whatever
that is -- and zero that would produce "nominal" damages.
The agency's attorney Schochet said the judge wants the
plaintiffs to provide a "theory of damages." He said the plaintiff
and its attorneys will consider filing an amended complaint.
Despite the dismissal, there is language in the ruling that
suggests the judge was sympathetic to the trade's position.
Discussing precedents involving bad faith, for example, the
judge said a plaintiff must show that the defendant "acted in
furtherance of its own interest, with intentional disregard of the
financial interest of the plaintiff."
He continued, "This is the case here, where defendants
unilaterally and suddenly stopped Power Travel's commissions, 'with
intentional disregard' for any financial consequences for Power
Travel."
He also said that the Power Travel claim, which is about
contractual matters, is not pre-empted by the Airline Deregulation
Act.
Travel attorney Mark Pestronk called dismissal of the Power
Travel case an error. He said the plaintiff had stated the legal
basis for a case so it "doesn't make sense" to dismiss over the
possibility that the damage amount might be small.
"Nominal damages are allowable as we know from libel and slander
cases that end with damages of a dollar," he said.
Pestronk also called some of the judge's conclusions
"ground-breaking" because if there is an implied covenant of good
faith that is applicable to the airlines in their contractual
relationship with agencies, it also applies to ARC and its
"high-handed" dealings with travel agents, he said.