Air Transport World

See you in Court! (airline litigation abroad)

In the U.S., litigation is a standard tool of business. Indeed, after airlines were deregulated, lawyers who once feared that their practices would die right along with the CAB, simply added litigation to their list of services. Moreover, the U.S. penchant for filing suit is traveling abroad. Worse still, non-U.S. companies are adopting the practice, too.

Ever since the airlines convinced the Department of Transportation in 1985 to eliminate legal fees as a separate item in their reporting requirements, ascertaining how much companies spend suing or threatening to sue has been more difficult. But, many agree, the figures are growing. So are the fees for lawyers who do not litigate but who lobby clients' cases in governmental buildings in Washington, in state and foreign capitals.

The perception is that American Airlines and Continental lead the pack in litigation. A large part of that is due to the lengthy CRS litigation emanating from the 1980s. More recently, American has sued its pilots, has been sued by and has sued Northwest, and sued in an attempt to stop the Air Wisconsin-United merger. According to American associate general counsel David Schwarte, its 1990 budget for in-house and external legal expenses was $20 million. That compares with a 1985 figure, provided by Avitas, of $8.4 million. During the same period, the company's traffic and aircraft almost doubled and the number of employees did double.

Anne McNamara, American senior VP-administration and general counsel, does not break out internal and external legal expenses but declares: "We're rarely a plaintiff [in ligitation]. I believe very strongly that litigation is a bad way to resolve disputes. We spend more than we would like but a vast majority of our external legal expense is for aircraft financing," she insists.

Whether rightly or not, people trace the industry's higher legal profile to Frank Lorenzo, former chairman of Continental and its parent, Texas Air Corp. Clark Onstad, once Lorenzo's head of government affairs, does nothing to dispel the notion. He recalls only half-jokingly: "We used to say we were a large law firm operating a small airline." Indeed, when a company spends $48 million in a year on legal fees, as TAC/Continental did in 1985 as a result of its 1983 bankruptcy filing, its legal profile, by definition, is high.

Onstad has no apologies. He says TAC's litigous ways paid off. One source reports that American and United handed TAC more than $200 million to settle a lawsuit over CRS competition. By contrast, Texas Air lost money helping travel agents defend themselves in cases involving CRS conversions and disputes over damage claims. But the fees in the looses were far less than the settlement. Alaska, Northwest and other carriers also sued United and American over CRS but have lost every round so far.

The latter helps to emphasize an important criticism of the U.S. legal system. McNamara complains: "We've won at every juncture where we could win or lose and we can't recover our fees" from the plaintiffs. The winners' inability to recover fees is considered an important contributor to excessive U. …

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