American Airlines 2007 Annual Report Download - page 24

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ITEM 3. LEGAL PROCEEDINGS
On July 26, 1999, a class action lawsuit was filed, and in November 1999 an amended complaint was filed,
against AMR, American, AMR Eagle, Airlines Reporting Corporation, and the Sabre Group Holdings, Inc. in the
United States District Court for the Central District of California, Western Division (Westways World Travel, Inc. v.
AMR Corp., et al.). The lawsuit alleges that requiring travel agencies to pay debit memos to American for
violations of American’s fare rules (by customers of the agencies): (1) breaches the Agent Reporting Agreement
between American and AMR Eagle and the plaintiffs; (2) constitutes unjust enrichment; and (3) violates the
Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). On July 9, 2003, the court certified a class
that included all travel agencies who have been or will be required to pay money to American for debit memos for
fare rules violations from July 26, 1995 to the present. The plaintiffs sought to enjoin American from enforcing the
pricing rules in question and to recover the amounts paid for debit memos, plus treble damages, attorneys’ fees,
and costs. On February 24, 2005, the court decertified the class. The claims against Airlines Reporting
Corporation have been dismissed, and in September 2005, the Court granted Summary Judgment in favor of the
Company and all other defendants. Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit.
On January 22, 2008, the Ninth Circuit affirmed the decertification of the class and summary judgment on the
RICO claims, but remanded the remaining claims to the trial court for factual determinations. The remaining
claims, even if determined in favor of the plaintiffs, would not have a material adverse impact on the Company.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by travel agents, some of whom opted out of a
prior class action (now dismissed) to pursue their claims individually against American, other airline defendants,
and in one case against certain airline defendants and Orbitz LLC. The cases, Tam Travel et. al., v. Delta Air
Lines et. al., in the United States District Court for the Northern District of California, San Francisco (51 individual
agencies), Paula Fausky d/b/a Timeless Travel v. American Airlines, et. al, in the United States District Court for
the Northern District of Ohio, Eastern Division (29 agencies) and Swope Travel et al. v. Orbitz et. al. in the United
States District Court for the Eastern District of Texas, Beaumont Division (71 agencies) were consolidated for pre-
trial purposes in the United States District Court for the Northern District of Ohio, Eastern Division. Collectively,
these lawsuits seek damages and injunctive relief alleging that the certain airline defendants and Orbitz LLC: (i)
conspired to prevent travel agents from acting as effective competitors in the distribution of airline tickets to
passengers in violation of Section 1 of the Sherman Act; (ii) conspired to monopolize the distribution of common
carrier air travel between airports in the United States in violation of Section 2 of the Sherman Act; and that (iii)
between 1995 and the present, the airline defendants conspired to reduce commissions paid to U.S.-based travel
agents in violation of Section 1 of the Sherman Act. On September 23, 2005, the Fausky plaintiffs dismissed their
claims with prejudice. On September 14, 2006, the court dismissed with prejudice 28 of the Swope plaintiffs. On
October 29, 2007, the court dismissed all of the Swope plaintiffs’ claims. The Swope plaintiffs have appealed the
court’s decision. American continues to vigorously defend these lawsuits. A final adverse court decision
awarding substantial money damages or placing material restrictions on the Company’s distribution practices
would have a material adverse impact on the Company.
On July 12, 2004, a consolidated class action complaint that was subsequently amended on November 30, 2004,
was filed against American and the Association of Professional Flight Attendants (APFA), the union which
represents American’s flight attendants (Ann M. Marcoux, et al., v. American Airlines Inc., et al. in the United
States District Court for the Eastern District of New York). While a class has not yet been certified, the lawsuit
seeks on behalf of all of American’s flight attendants or various subclasses to set aside, and to obtain damages
allegedly resulting from, the April 2003 Collective Bargaining Agreement referred to as the Restructuring
Participation Agreement (RPA). The RPA was one of three labor agreements American successfully reached with
its unions in order to avoid filing for bankruptcy in 2003. In a related case (Sherry Cooper, et al. v. TWA Airlines,
LLC, et al., also in the United States District Court for the Eastern District of New York), the court denied a
preliminary injunction against implementation of the RPA on June 30, 2003. The Marcoux suit alleges various
claims against the APFA and American relating to the RPA and the ratification vote on the RPA by individual
APFA members, including: violation of the Labor Management Reporting and Disclosure Act (LMRDA) and the
APFA’s Constitution and By-laws, violation by the APFA of its duty of fair representation to its members, violation
by American of provisions of the Railway Labor Act (RLA) through improper coercion of flight attendants into
voting or changing their vote for ratification, and violations of the Racketeer Influenced and Corrupt Organizations
Act of 1970 (RICO). On March 28, 2006, the district court dismissed all of various state law claims against
American, all but one of the LMRDA claims against the APFA, and the claimed violations of RICO. This leaves
the claimed violations of the RLA and the duty of fair representation against American and the APFA (as well as
one LMRDA claim and one claim against the APFA of a breach of its constitution). Although the Company
believes the case against it is without merit and both American and the APFA are vigorously defending the
lawsuit, a final adverse court decision invalidating the RPA and awarding substantial money damages would have
a material adverse impact on the Company.