NEW YORK -- A New York travel agency filed suit against five
airlines to recover commissions and other financial losses incurred
when the carriers abruptly went to a zero commission rate in March.
The agency, Power Travel International in Plainview, N.Y., said
it would seek certification of the case as a class action.
The complaint names American, Continental, Delta, Northwest and
United.
It charges that the airlines breached their contracts with Power
Travel and other ARC agencies by failing to give "good-faith
notice" about the move to zero commissions in order to avoid
disrupting the agents' businesses.
Power Travel also charged that the airlines breached an implied
covenant of good faith and fair dealing.
The complaint said the airlines' "improper unilateral actions
have driven some agencies out of business and have severely damaged
others, all of [which] were given no reasonable window of
opportunity to adjust to the new, commissionless environment."
Ira Schochet, an attorney for Power Travel, said the carriers
had 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 court papers also questioned the carriers' rights to drop
commissions to zero, saying that the ARC Agreement "expressly
contemplates" that agencies will receive commissions.
The court filing said that 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."
Schochet said it is reasonable to argue that the carriers had no
right to terminate commissions unilaterally, and because of that it
would be possible to gain a remedy in court.
However, he said, the immediate objective of the Power Travel
case is reimbursement for losses associated with the carriers'
failure to give adequate notice when they eliminated agency
commissions.
An earlier lawsuit, brought by Sarah Hall, owner of Travel
Specialists, Wilmington, N.C., also seeks damages in the wake of
carrier commission reductions, and it was recently certified as a
class action.
Hall's case is principally an antitrust action.
When asked why the New York agency would launch another class
action against U.S. carriers over commissions, Schochet said, "The
damages may be different in the two cases, and one case may succeed
and the other may not."
He also held out the possibility that the cases could be
combined at some point.
In its original filing, made in a New York state court, the
agency had named JetBlue as the sixth defendant, but soon after the
agency removed JetBlue from the case, saying the new entrant
airline had "inadvertently and erroneously" been named.
Meanwhile, the other defendants successfully moved the case into
U.S. District Court, Southern District of New York. The five
carrier defendants filed motions to dismiss in November.
Asked for a comment, Delta said, "This case has no merit, and we
are vigorously defending. There is nothing in the ARC Agent
Reporting Agreement that imposes any requirement of advance notice
when a carrier decides to change its published commission policy.
The agreement does not govern commissions at all."
American, Northwest and United declined to comment on the case,
and Continental did not respond.