Opinion
05 CV 4751 (NG) (VVP).
March 27, 2008
OPINION AND ORDER
Plaintiffs are US Airways, Inc. ("US Airways" or "the mainline carrier") pilots who agreed to work for MidAtlantic Airways ("MidAtlantic" or "MDA") during their furlough from US Airways. Defendant Air Line Pilots Association International ("ALPA") is an unincorporated labor union that has served as plaintiffs' exclusive collective bargaining representative during all times relevant to this case. Defendant Duane E. Woerth is the President of ALPA and is named in his official capacity.
In addition to the defendants named herein, plaintiffs commenced this action on October 7, 2005 against US Airways, US Airways Group, Inc., America West Airlines, Inc. ("America West"), Republic Airways Holdings, Inc. ("Republic"), and Wexford Capital LLC ("Wexford"). These defendants were thereafter voluntarily dismissed, and on July 6, 2006, plaintiffs filed their First Amended Complaint against only the ALPA defendants.
In short, plaintiffs allege that defendants repeatedly misrepresented and concealed the fact that MidAtlantic was a division of US Airways, and not a wholly-owned subsidiary, in order to "secretly recall" them into US Airways' employ without affording them the employment rights provided for in their collective bargaining agreement with the mainline carrier. Plaintiffs accordingly challenge the terms of their MidAtlantic employment and claim that defendants' conduct breached their duty of fair representation ("DFR") under the Railway Labor Act, 45 U.S.C. §§ 151- 188, and violated the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961- 1968. Defendants move to dismiss the complaint in its entirety under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that all but one of the duty of fair representation claims are time-barred and that all of the claims fail to state a claim for relief. Plaintiffs move for leave to file a supplemental complaint.
Defendants filed their motion to dismiss on January 22, 2007, and plaintiffs filed their motion for leave to file a supplemental complaint on October 13, 2007.
FACTS
The following facts are alleged in the First Amended Complaint and are accepted as true for purposes of this motion:ALPA is an unincorporated labor union that represents pilots at approximately 48 different carriers within the United States and Canada. At each airline that it represents, ALPA acts through a Master Executive Council ("MEC") that is comprised of pilots from the represented airline and serves as the coordinating council for union membership at the airline. At all relevant times herein, ALPA served as the exclusive bargaining representative for plaintiffs and acted through the US Airways MEC. Both ALPA and the US Airways MEC were authorized in their representative capacities to act on behalf of their membership and participate in collective bargaining activities with airline management. On December 4, 1997, U.S. Airways and ALPA, on behalf of plaintiffs and other represented employees of the airline, signed the Collective Bargaining Agreement ("CBA") to govern the terms and conditions of plaintiffs' employment, including their rights related to compensation, seniority, furlough, and recall. The governing provisions included not only the content of the agreement at the time of its promulgation, but also any subsequent side letters, memoranda of understanding, and letters of agreement amending the original CBA.
US Airways, like many of the other large airlines at the time, experienced serious financial difficulties in the period surrounding the terrorist attacks of September 11, 2001. In 2001, the airline lost $17.35 per share and continued to lose share value into the first half of 2002. In or about August 2002, US Airways applied for bankruptcy protection, from which it exited on or about March 31, 2003. Less than 18 months after its first exit from bankruptcy, the airline applied for bankruptcy protection for a second time in or about September 2004. When it exited its second proceeding approximately one year later, US Airways merged with America West Airlines, Inc. ("America West"), and also entered into a transaction with Republic and Wexford under which it agreed to sell certain aircraft, equipment, gates, and slots to Republic in exchange for offers of employment to about 50% of the MidAtlantic pilots to fly these aircraft.
During the course of its financial difficulties, US Airways furloughed approximately 1,800 pilots and restructured its operations to incorporate more cost-effective regional jets to feed smaller passenger loads to and from the mainline carrier's hubs. US Airways and ALPA entered into the "2002 Restructuring Agreement" to amend the CBA to authorize US Airways Express operators to operate regional jets through affiliate carriers, wholly-owned carriers, and/or a carrier to be known as MidAtlantic. On August 8, 2002, following the Agreement's acceptance by the MEC, the US Airways pilots ratified the Agreement. Later that year, on December 13, 2002, ALPA and US Airways executed a Letter of Agreement ("2002 LOA"), amending various provisions of the earlier Restructuring Agreement. The 2002 LOA provided in pertinent part that US Airways "may operate MDA as a separate division within mainline" and that "[w]ages. benefits and work rules will match the AA Eagle Pilots' agreement." On June 11, 2004, US Airways and ALPA entered into another Letter of Agreement ("2004 LOA") to further amend the terms of the Restructuring Agreement. This amendment provided in pertinent part that its terms would apply to MidAtlantic "whether MDA is a division of US Airways, Inc. or under the Control . . . of US Airways Group, Inc."
Around the same time as the 2002 LOA, US Airways made public its plan to operate a new airline, to be known as MidAtlantic Airways, that would employ regional jets to feed its mainline operation. Specifically, US Airways announced that it intended to transfer the operating certificate for Potomac Air, a planned airline for which US Airways had already applied for the certificate, to MidAtlantic so that it would operate as an independent entity. US Airways purchased, leased, and acquired options to purchase several smaller aircraft and hired approximately 220 furloughed US Airways pilots and 100 pilots from other airlines to commence employment in or about October 2003. To subsidize costs associated with MidAtlantic's development, mainline pilots were pressured during collective bargaining to agree to an array of concessions to their employment terms. For reasons unknown to plaintiffs, however, the initial plan to transfer Potomac's certificate was never implemented, and US Airways decided to operate MidAtlantic as a division under its own operating certificate. Plaintiffs allege that neither US Airways nor ALPA informed them at any point that the airline had abandoned its initially announced plans, and they therefore believed throughout MidAtlantic's development that MidAtlantic would be a separate entity.
Specifically, US Airways purchased, leased, and acquired options to purchase several "regional jet" aircraft known as the Embraer 170 and Embraer 190. Both jets are physically smaller and accommodate fewer passengers than the various mainline aircraft typically flown by the airline.
The employment opportunities were offered in accordance with the "Jets for Jobs" program, whereby furloughed mainline pilots were provided employment rights to fly for regional wholly-owned subsidiaries in exchange for the rights of regional pilots to fly larger jets or to fly a greater number of small jets. According to plaintiffs, ALPA had championed the Jets for Jobs program for several years as an "ostensible methodology" by which furloughed pilots could remain employed until their recall. Am. Compl. ¶ 301.
In or about October 2003, the Federal Aviation Administration ("FAA") closed down MidAtlantic even before full operations began on the grounds that US Airways had been improperly operating MidAtlantic as if it were an independent airline when it was actually a division of the mainline carrier. US Airways, in response, redesigned the MidAtlantic operation and revamped the training manuals and portions of the flight operations manuals to conform exactly to US Airways' own procedures. By December 2003, the FAA permitted MidAtlantic training to recommence and pilots were instructed during training to avoid using the name "MidAtlantic" in the presence of FAA inspectors and instead to refer to MidAtlantic as "the MidAtlantic Division of US Airways." In October 2004, US Airways management personnel confirmed to the FAA in writing that the aircraft that was being flown under the name "MidAtlantic" was merely a fleet type at US Airways.
Plaintiffs allege that at the same time that US Airways was making these representations to the FAA, the airline "embarked on a renewed plan" to represent to plaintiffs, other pilots, flight attendants, and the general public that MidAtlantic was a separate, independent entity. Am. Compl. ¶ 306. Plaintiffs allege that US Airways took "no steps to disavow" its employees' mistaken belief. Id. ¶ 307. Instead, defendants went so far as to paint "US Airways Express" on MidAtlantic aircraft, even though the label referred specifically to the airline's wholly-owned subsidiaries, and to move its MidAtlantic fleet to the US Airways Express terminals between May 2004 and November 2006. US Airways and ALPA also announced at some point that the terms of MidAtlantic employment would be governed by a separate collective bargaining agreement.
In early February 2004, the US Airways MEC voted on and approved modifications to wages, benefits, and other employment terms for MidAtlantic pilots without submitting the agreement for ratification by ALPA membership, as required under an earlier resolution. On or about February 13, 2004, the US Airways MEC Chairman, William Pollack, was informed of the MEC's knowing failure to submit the agreement for ratification, though plaintiffs allege that he failed to adequately address the issue at the time. Those pilots who were identified as eligible for MidAtlantic employment received substantively amended offers of employment, and pilots who had already accepted employment were required to sign a document indicating that there would be modifications to pay, benefits, and work rules "as negotiated and agreed to on or about February 13, 2004." Id. ¶¶ 314-15. Barely a month before MidAtlantic operations were to commence, US Airways officials acknowledged that the February 2004 agreement did not resolve all issues pertaining to employee pay, but that ALPA and the carrier had agreed that captains would earn about $58,000 a year and first officers about $35,000 a year. The salary agreed to represented about half of the mainline carrier's standard pay.
Pursuant to a 2002 or 2003 US Airways MEC resolution, the ALPA Policy Manual required membership ratification for significant changes to wages and/or working conditions under the CBA.
By the early part of 2004, US Airways also announced that the MidAtlantic terms of employment would largely replicate the collective bargaining agreement negotiated on behalf of pilots employed by American Eagle, the commuter line for American Airlines. MidAtlantic pilots learned thereafter that their pay would change from an hourly pay rate based on their US Airways tenure to first-year pay on the American Eagle contract, which had already been successfully re-negotiated for substantially higher pay. These terms were nonetheless replicated and codified in a Letter of Agreement, which provided that "[w]ages, benefits and work rules will match" the American Eagle agreement. Id. ¶ 383.
American Eagle is a wholly-owned subsidiary of American Airlines and/or AMR Group, Inc., the parent corporation of American Airlines. Neither company has any affiliation with MidAtlantic or US Airways.
Plaintiffs do not specify which Letter of Agreement codified the American Eagle terms for MidAtlantic employees. The quoted provision appears as early as the 2002 LOA though plaintiffs allege that these events took place in the early part of 2004. It is unclear whether the Letter of Agreement referred to is the 2004 LOA or some other Letter of Agreement that has not been discussed or attached as an exhibit by defendants. For purposes of this motion, the court accepts as true plaintiffs' allegation that a Letter of Agreement in 2004 set forth these terms.
On or about February 20, 2004, the FAA certified MidAtlantic aircraft, and US Airways took delivery of the aircraft during the following month. MidAtlantic established several crew bases at US Airways hubs in various cities and planned to start up operations in the first half of April 2004. Plaintiffs allege that, throughout MidAtlantic's operation, "[i]n virtually every aspect of their professional lives, [they] were reminded, in a variety of ways, that they were employed by `MidAtlantic.'" Id. ¶ 337. Pilots who were eligible for MidAtlantic employment received pre-employment notification from Potomac Air, and not US Airways. Meanwhile, the aircraft they flew were emblazoned with the name "MidAtlantic, operated by U.S. Airways", paychecks indicated that payment was made by, or on behalf of, "MidAtlantic", and the actual pay and benefits were commensurate with what was offered by other regional carriers.
Plaintiffs also specify three instances after MidAtlantic began its operation in which defendants allegedly misrepresented MidAtlantic's true corporate identity. First, on or about March 31, 2005, during a US Airways MEC's special meeting in Pittsburgh, Pennsylvania, the MEC unanimously passed a resolution that stated in part that, "MDA pilots have gone well beyond the call of duty to ensure that MDA became a viable entity and a valuable asset through their dedication and professionalism." Id. ¶ 423. Second, on or about June 21, 2005, a MEC member authored an e-mail that stated in part, "There is certainly a contract under which MidAtlantic is operating based on a combination of provisions from the American Eagle contract and the US Airways mainline contract. It is a source of frustration for the negotiating committee, the MEC and the MidAtlantic pilots that there is still final language yet to be worked out." Id. ¶ 424. Third, on or about the same date, a MEC member stated in response to a question posed by one or more MidAtlantic pilots that MidAtlantic was "a subsidiary" and that it was "NOT true" that MDA was merely an internal division of US Airways. Id. ¶¶ 428-29. When asked whether MDA was "a separate airline from U.S. Airways," the MEC member answered in the affirmative and stated that MidAtlantic pilots were "NOT active US Airways pilots" but "furloughed US Airways pilots" who are "dues paying members of the AAA Chapter of [ALPA]." Id. ¶¶ 425-30. The member further explained that MidAtlantic "has distinct management, and a separate and distinct administrative structure from that of U.S. Airways." Id. He continued to explain that "[a]ll personnel mentioned are under the employment of MidAtlantic, not US Airways" and that "[t]here are . . . hundreds of separate and distinct MidAtlantic Employees, including pilots and others who do NOT work for US Airways [but for] MidAtlantic Airways which is built around a separate and distinct corporate structure." Id.
The following facts are specifically alleged under plaintiffs' RICO Count (Count VII), but are fully incorporated in Count VIII as also stating a claim for a breach of the duty of fair representation.
Plaintiffs allege that none of the pilots, except those who served as ALPA representatives, were aware at any point that MidAtlantic was actually a division of US Airways and not an independent entity. Plaintiffs further allege that, because MidAtlantic was a "mere appellation" for a type of US Airways fleet, they were technically US Airways pilots who had been secretly recalled from furlough and entitled to various rights under the CBA. Id. ¶¶ 346-47. Despite defendants' full awareness of these facts, they did not take the position during negotiations that plaintiffs were so entitled or inform them of these facts. Plaintiffs allege that, once they finally began to learn the truth and organized to safeguard their rights as recalled US Airways pilots, defendants engaged in another attempt to conceal the truth by directing that the minutes from an ALPA Local Executive Council 41 meeting held in August 2005 be doctored to excise any discussions concerning ALPA and/or US Airways' efforts to camouflage MidAtlantic's status.
DISCUSSION
I. Standard of Review
Defendants bring this motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. In considering a motion to dismiss made pursuant to Rule 12(b)(6), the court must accept the factual allegations in the complaint as true and draw all reasonable inferences in favor of plaintiffs. See Grandon v. Merrill Lynch Co., 147 F.3d 184, 188 (2d Cir. 1998). The court's function is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1964 (2007) (internal quotation marks, citations, and alterations omitted). Indeed, a plaintiff must assert "enough facts to state a claim to relief that is plausible on its face." Id. at 1974. This "plausibility standard" is a flexible one, "oblig[ing] a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007).
II. Duty of Fair Representation
The duty of fair representation ("DFR"), although not an explicit statutory requirement, has been fashioned judicially as a corollary to "the exclusive agent's statutory authority to represent all members of a designated unit" and requires the union "to serve the interests of all members without hostility or discrimination toward any, to exercise its discretion with complete good faith and honesty, and to avoid arbitrary conduct." See Air Line Pilots Ass'n, Int'l v. O'Neill, 499 U.S. 65, 76-77 (1991); Vaca v. Sipes, 386 U.S. 171, 177 (1967). A union, as the exclusive bargaining representative of the employees it represents, owes the employees a duty to represent them fairly in collective bargaining with the employer and in enforcing the resulting collective bargaining agreement. See Vaca, 386 U.S. at 177; Steele v. Louisville N.R. Co., 323 U.S. 192, 201-02 (1944).
"A union breaches its duty of fair representation when its conduct toward a member of the bargaining unit is arbitrary, discriminatory, or in bad faith." Marquez v. Screen Actors Guild, 525 U.S. 33, 44 (1998). A union's actions are considered arbitrary if, "in light of the factual and legal landscape at the time of the union's actions, the union's behavior is so far outside a `wide range of reasonableness' . . . as to be irrational." O'Neill, 499 U.S. at 67 (quoting Ford Motor Co. v. Huffman, 345 U.S. 330, 338 (1953)). It is not enough that a union made a bad or less than optimal decision; its action must be "without a rational basis or explanation." Marquez, 525 U.S. at 46. To be discriminatory, the union's conduct must be "intentional, severe, and unrelated to legitimate union objectives", as in the case of invidious discrimination based on race or gender. Amalgamated Ass'n of St. Elec. Ry. Motor Coach Employees v. Lockridge, 403 U.S. 274, 301 (1971). A union acts in bad faith when it acts with "improper intent, purpose, or motive", Spellacy v. Airline Pilots Ass'n-Int'l, 156 F.3d 120, 126 (2d Cir. 1998), and is demonstrated by "substantial evidence of fraud, deceitful action or dishonest conduct", Amalgamated, 403 U.S. at 299 (quoting Humphrey v. Moore, 375 U.S. 335, 348 (1964)) (internal quotation marks omitted). Establishing that the union's actions were "arbitrary, discriminatory, or in bad faith" is "only the first step toward proving a fair representation claim", as the plaintiffs "must then demonstrate a causal connection between the union's wrongful conduct and their injuries." Spellacy, 156 F.3d at 126.
A. Statute of Limitations
The statute of limitations for a breach of the duty of fair representation claim is six months. See DelCostello v. Int'l Bhd. of Teamsters, 462 U.S. 151, 170-72 (1983); Eatz v. DME Unit of Local Union Np. 3 of the Int'l Bhd. of Elec. Workers, AFL-CIO, 794 F.2d 29, 33 (2d Cir. 1986). In cases where union members have sued their union for a breach of the duty of fair representation, the Second Circuit has long held that "the cause of action accrue[s] no later than the time when plaintiffs knew or reasonably should have known that . . . a breach ha[s] occurred." Santos v. District Council of New York City, 619 F.2d 963, 969 (2d Cir. 1980); Ramey v. District 141, Int'l Assoc. of Machinists Aerospace Workers, 378 F.3d 269, 278 (2d Cir. 2004). And, once the plaintiffs learn of the union's breach, the union's subsequent failure to fairly represent plaintiffs cannot be treated as a "continuing violation" that precludes the running of the limitations period. Buttry v. General Signal Corp., 68 F.3d 1488, 1492 (2d Cir. 1995) (internal quotation marks and citations omitted).
Plaintiffs commenced this action on October 7, 2005. Therefore, to be considered timely, their claims must have accrued no later than six months prior to this date, or by April 7, 2005.
1. Counts I, V, VI, VIII
Defendants seek to dismiss Counts I, V, VI, and VIII as time-barred under the 6-month statute of limitations for duty of fair representation claims. They argue that all of these Counts stem from the same allegation that "ALPA violated the duty of fair representation by failing to demand that US Airways pay pilots operating MDA aircraft the same wages and benefits as pilots flying US Airways mainline aircraft." Dfs. Mem. at 12. Because defendants repeatedly and openly took the position that MidAtlantic pilots would receive different wages and benefits from US Airways pilots, they argue that these claims accrued no later than June 2004, or when the most recent Letter of Agreement amending the terms of MidAtlantic employment was executed. Plaintiffs, on the other hand, argue that the claims accrued no earlier than June 21, 2005, the most recent instance of misrepresentation alleged in the Amended Complaint, because it would be "inconceivable" that the statute of limitations could be running while they were being "actively deceived" as to MidAtlantic's true corporate identity. Pfs. Opp. Mem. at 16-17.
In Count I, plaintiffs allege that defendants breached their duty of fair representation by failing to inform them of the "true state of affairs with regard to the formation of MidAtlantic" and by failing to "take the position that the `MidAtlantic' pilots were entitled to the wages, benefits, longevity, retirement, and working conditions called for in the [CBA]." (Am. Compl. ¶ 349.) In Count V, plaintiffs allege that defendants breached their duty to them by applying the terms of an irrelevant American Eagle contract and ultimately "failing to take steps to advocate that the `MidAtlantic' pilots be paid in accordance with the [CBA]." ( Id. ¶ 389.) In Count VI, plaintiffs seek a declaratory judgment "setting aside those portions of the American Eagle contract that governed pay rates and declaring that the [CBA] applied." ( Id. ¶ 397.) In Count VIII, plaintiffs allege a breach of the duty of fair representation based on the same set of facts setting forth defendants' alleged violation of RICO (Count VII).
Plaintiffs and defendants not only disagree about when the claims accrued, but also what conduct triggers the statute of limitations. According to defendants, because the relevant breach is their alleged failure to demand the terms of the US Airways CBA for MidAtlantic pilots, the claims accrued when plaintiffs learned that they would receive inferior wages and benefits as MidAtlantic employees. Plaintiffs, however, could have been aware of these terms without knowing that they were entitled to the terms under the CBA since it is their allegation that defendants' misrepresentations precluded them from learning this fact. Plaintiffs argue that, had they known MidAtlantic was merely a division of US Airways, they would have elected their recall rights and pushed for the compensation terms afforded them under the CBA rather than accept the MidAtlantic assignments as gratuitous employment opportunities. Thus, the relevant breach for purposes of determining accrual is when plaintiffs knew or reasonably should have known that defendants had misrepresented MidAtlantic's corporate form to them and bargained away their rights under the CBA.
Plaintiffs, however, cannot merely resort to the latest misrepresentation to start the statute of limitations unless that instance represents the date on which they first knew or reasonably should have known that defendants had breached their duty to them. If plaintiffs learned of the union's breach at an earlier time, as defendants argue, their "subsequent failure to actually represent the plaintiffs `cannot be treated as a continuing violation that preclude[s] the running of the limitations period.'" Buttry, 68 F.3d at 1492 (quoting Flanigan v. Int'l Brotherhood of Teamsters, 942 F.2d 824, 827 (2d Cir. 1991)). The Amended Complaint makes clear that plaintiffs knew or reasonably should have known as early as the execution of the 2002 LOA, and no later than the 2004 LOA, that defendants had misrepresented MidAtlantic's corporate form to them and bargained away their rights under the CBA. Plaintiffs repeatedly allege that neither US Airways nor defendants informed them that MidAtlantic would not be a separately incorporated entity. However, at the time of the 2002 LOA's execution, plaintiffs had actual notice that the terms of MidAtlantic employment had been negotiated irrespective of MidAtlantic's corporate form. See Palancia v. Roosevelt Raceway, Inc., 551 F. Supp. 549, 553 (E.D.N.Y. 1982), aff'd mem., 742 F.2d 1432 (2d Cir. 1983) ("[U]nion members are charged with knowledge of the contents of their collective bargaining agreement."). While plaintiffs did not know definitively whether MidAtlantic was in fact a division — as the agreement only provided that US Airways "may" operate MidAtlantic as such — they knew or reasonably should have known that defendants had rendered what plaintiffs claim was an important bargaining factor into an irrelevant one. Plaintiffs allege that MidAtlantic's corporate form was significant because, if MidAtlantic were a division of US Airways, they would have been considered recalled US Airways pilots who were entitled to the terms of the CBA. Plaintiffs were aware of the terms of the 2002 LOA and therefore knew by its execution date that defendants had breached its duty to them by inaccurately representing their interests at the bargaining table. See, e.g., Flanigan, 942 F.2d at 827 (finding that plaintiffs' claims based on alleged misinterpretations of the collective bargaining agreement accrued on the date the agreement became effective); Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1106 (2d Cir. 1991) (finding that plaintiffs' claims accrued, "at the latest, as of the date the [union] ratified the allegedly violative agreement").
Defendants admit in their reply brief that negotiations for MidAtlantic employment were conducted without regard to the regional carrier's corporate structure because negotiations depended on "the cost of the company's competition." See Dfs. Reply Mem. at 6-8. Defendants contest plaintiffs' assertion that they would have been deemed recalled and entitled to the mainline rates of pay under the CBA. Whether MidAtlantic's corporate form should have affected negotiations is an issue of fact that cannot be resolved on a motion to dismiss. Plaintiffs' factual allegation that it was a dispositive factor is accepted as true.
Even if plaintiffs could somehow disclaim knowledge of the 2002 LOA or argue that the provision was too equivocal to give notice that defendants' breach had actually harmed them, the Amended Complaint makes clear that any uncertainty would have been resolved at the latest by June 11, 2004, when the 2004 LOA was executed. The 2004 LOA further amended the terms of MidAtlantic employment and provided in pertinent part that its "terms shall apply to MDA whether MDA is a division of US Airways, Inc. or under the Control . . . of US Airways Group, Inc." Plaintiffs and all MidAtlantic pilots were therefore provided actual notice that the terms of MidAtlantic employment were negotiated without regard to its actual corporate form and that defendants had acted against their interests when it executed this agreement for inferior wages and benefits. Ramey, 378 F.3d at 278 (finding that plaintiffs' claim accrued on the date on which the union advocated a position on the contested seniority issue to the airline, and not on the date of a memo from defendants that expressed an intent to breach their duty in the future). Whether plaintiffs' claims accrued as early as December 13, 2002 or as late as June 11, 2004, neither date falls within the 6-month limitations period. Counts I, V, VI, and VIII and therefore dismissed.
2. Counts III and IV
Defendants argue that Counts III and IV are time-barred on their face because both claims allege a breach based on defendants' failure to submit a February 2004 agreement modifying plaintiffs' pay rates for ratification by its members. Plaintiffs offer no specific response to defendants' argument as to these Counts.
In Count III, plaintiffs allege that defendants breached its duty of fair representation to them when they unilaterally approved changes to plaintiffs' terms of employment without submitting the issue for ratification. In Count IV, plaintiffs seek a declaratory judgment "that the modifications to the pay rates and an injunction restoring the status quo and awarding backpay and benefits." Am. Compl. ¶ 378.
The agreement itself provided notice to plaintiffs that there were modifications to the terms of MidAtlantic employment that they had not ratified. The Amended Complaint also indicates that in or about February 2004, "US Airways provided substantively amended offers of employment to [eligible] pilots" while "those already so employed were required to sign a document indicating that there would be modifications to pay, benefits, and work rules as `negotiated' and agreed to on or about February 13, 2004." Am. Compl. ¶¶ 314-15. Plaintiffs allege that the MEC Chairman, William Pollack, was informed of the union's breach on or about February 13, 2004. Even if plaintiffs are afforded the favorable inference that they were not the ones to inform Mr. Pollack of the breach — since the Amended Complaint does not specify who informed the Chairman — plaintiffs nonetheless knew or reasonably should have known when they received these offers or documents that certain employment terms were being modified despite their failure to ratify such changes. Counts III and IV are therefore dismissed as time-barred.
B. Failure to State a Claim
Defendants seek to dismiss all of the duty of fair representation claims for failure to state a claim. Because Counts I, III, IV, V, VI, and VIII have been dismissed as time-barred, only Count II remains to be addressed. In Count II, plaintiffs allege that defendants breached their duty when "an ALPA National official" directed that minutes of an August 2005 local union meeting be doctored to delete references to "an array of activities by ALPA and/or US Airways to camouflage the fact that `MidAtlantic' did not truly exist and that otherwise dealt with protections for the so-called `MidAtlantic' pilots." Id. ¶ 355.
Defendants argue for dismissal on the grounds that, because MidAtlantic's corporate structure was irrelevant for purposes of determining the terms and conditions of plaintiffs' employment, they cannot establish that their harm was caused by their alleged misconduct. Defendants also claim that plaintiffs in any event were aware that MidAtlantic could be operated as a division of US Airways, as clearly set forth in the Letters of Agreements entered into between US Airways and ALPA. Plaintiffs do not specifically respond to defendants' arguments and plead no facts regarding the alleged conduct other than those contained in the paragraph above.
Whether or not plaintiffs have alleged sufficient facts to demonstrate that defendants' conduct constitutes behavior that is arbitrary, discriminatory, or in bad faith, plaintiffs have not pled any facts demonstrating a causal connection between the alleged misconduct and their injuries, as required in stating a claim for a breach of the duty of fair representation. See Spellacy, 156 F.3d at 126; Sim v. New York Mailer's Union No. 6, 166 F.3d 465, 472 (2d Cir. 2001). It is not, as defendants argue, the irrelevancy of MidAtlantic's corporate form that precludes plaintiffs from demonstrating injury, as that issue is one of fact. Rather, it is that plaintiffs had actual notice by the 2002 LOA and no later than by the 2004 LOA, that the MidAtlantic terms of employment were inferior to those offered at US Airways and had been negotiated without regard to MidAtlantic's actual corporate form. Any injuries resulting from defendants' alleged breach were incurred when the terms of MidAtlantic employment were codified and plaintiffs accepted these offers given those conditions. By the time of the August 2005 local union meeting, plaintiffs already knew or should have known the truth regarding MidAtlantic and any subsequent efforts on the part of defendants to conceal the truth about MidAtlantic could not have caused their injuries. Count II is therefore dismissed for failure to state a claim.
III. RICO
In Count VII, plaintiffs assert that defendants' conduct, as alleged in its duty of fair representation claims and as set forth below, amounts to criminal racketeering in violation of RICO, 18 U.S.C. §§ 1961 et seq. 18 U.S.C. § 1962(c) provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
To state a claim under RICO, the plaintiff must allege that the defendant engaged in the "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity," Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985), and that the alleged RICO violation was the proximate cause of plaintiff's injury, Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 267-68 (1992). RICO defines "enterprise" as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." See 18 U.S.C. § 1961(4). Plaintiffs must allege a "pattern" of racketeering activity consisting of at least two predicate acts that are related and "amount to or pose a threat of continued criminal activity." First Capital Asset Management, Inc. v. Satinwood, Inc., 385 F.3d 159, 178 (2d Cir. 2004) (internal quotation marks omitted). "Racketeering activity" is defined to include "any act which is indictable under" 18 U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire fraud), 18 U.S.C. § 1951 (the Hobbs Act), 18 U.S.C. § 1952 (the Travel Act), and 29 U.S.C. § 186 (restrictions on payments and loans to labor organizations." See 18 U.S.C. § 1961(1)(B). Under the mail and wire fraud statutes, "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises," which involves use of the mails or wire is indictable. See 18 U.S.C. §§ 1341, 1343.
Defendants argue for dismissal of Count VII on the grounds that plaintiffs have not adequately pled any of the elements of a RICO violation.
A. Facts
Plaintiffs incorporate all of the facts alleged in their duty of fair representation Counts and additionally allege that, at some point no later than January 2003, defendants, US Airways, and US Airways Group, Inc. formed "an association-in-fact and enterprise" with the express purpose of: (1) "devising and carrying out a scheme to trick and defraud some 400 pilots as well as other employee groups" out of their rights to fair wages and benefits; (2) assuring that MidAtlantic pilots would leave US Airways and transfer to Republic Airways, regardless of the security of their employment and absent a right to return to US Airways; and (3) preventing a legitimate grievance from going forward during a time period during which the arbitration award would still be meaningful. Am. Compl. ¶¶ 399-400, 408. Plaintiffs allege that each defendant "played a "significant and substantive role in directing the affairs of the enterprise" and "controlled and participated in the management of the enterprise." Id. ¶¶ 402, 404.
Plaintiffs further allege that defendants were motivated by "financial and monetary advantages that would accrue to one another and/or by the desire to avoid creating unrest among its members." Id. ¶ 410. In furtherance of their goal, defendants "devised and/or directed" at least one of the following implementing schemes:
1. Falsely disseminating by mail and by wire (on ALPA and U.S. Airways, Inc. websites) the idea that "MidAtlantic" was and is an entity separate from U.S. Airways, so as to seek to justify the much lower wage and benefit package offered to the plaintiffs (and other [MidAtlantic] pilots employed by U.S. Airways);
2. Wrongfully hiding from those pilots who became employed in U.S. Airways' "MidAtlantic" operation the fact that such pilots had recall rights and an array of protections and advantages of the [CBA];
3. Making sure that the "MidAtlantic" pilots were covered not by the [CBA], but by an unrelated collective bargaining agreement negotiated between American Eagle . . . and its pilots at a much lower pay and with severely diminished benefits;
4. Denying the pilots the opportunity to ratify changes to their collective bargaining agreement, despite the fact that the pilots had an unfettered right of balloting in this regard;
5. Wrongfully withholding from the "MidAtlantic" pilots certain flow-back rights that would permit them, even after transferring to Republic Airways, Inc., the right to return to the US Airways seniority list;
6. Delaying in a myriad of ways the commencement of arbitration to determine the rights of pilots who might choose to transfer to Republic Airways, Inc., such that crucial career decisions would have to be made by the pilots prior to the time at which they would know their full panoply of rights;
7. Seeking to make certain that, even if the "MidAtlantic" pilots won the pending grievance, their rights would be compromised by virtue of the fact that they would then be employed by Republic Airways, Inc., and represented by the International Brotherhood of Teamsters as their bargaining agent, neither of which was a party to LOA 91 and neither of which would be definitely bound by any subsequent arbitration award;
8. Pressuring the "MidAtlantic" pilots to transfer to Republic Airways, Inc.Id. ¶¶ 403, 420. Plaintiffs allege that defendants not only knew of and participated in their own strategies and activities, but they also knew of and participated in those strategies and activities engaged in by the other constituent members.
As a result of defendants' activities, plaintiffs allege that they were injured "in that [they] were deprived of their rightful wages and benefits as furloughees recalled to US Airways; were denied the right to ratify crucial changes to their employment contract; were denied the right to return to US Airways even if they transfer to Republic; were denied the opportunity, if they chose to transfer to Republic, to know what the terms of employment would be at Republic and, in fact, whether there would be any employment at all for them; and were denied the right to timely, promptly, and meaningfully arbitrate a legitimate grievance." Id. ¶ 451.
B. Enterprise
The Supreme Court has held that a RICO "enterprise" is "a group of persons associated together for a common purpose of engaging in a course of conduct", the existence of which is proven by "evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583 (1981). Defendants argue that plaintiffs have asserted only that US Airways and ALPA formed an association-in-fact enterprise without pleading any of the elements necessary to prove the existence of such an enterprise. Plaintiffs offer no response.
At most, the Amended Complaint contains conclusory allegations as to the existence of a RICO enterprise. In two separate paragraphs, plaintiffs offer the same statement that defendants and other constituents "formed an association-in-fact and enterprise" for the purpose of devising and carrying out a scheme to defraud US Airways pilots. However, for RICO purposes, conclusory allegations that the entities shared common fraudulent purposes and plans are insufficient. See, e.g., First Nationwide Bank v. Gelt Funding, Corp., 820 F. Supp. 89, 98 (S.D.N.Y. 1993); Moll v. U.S. Life Title Ins. Co., 654 F. Supp. 1012, 1031 (S.D.N.Y. 1987). Plaintiffs do not allege any facts regarding the "hierarchy, organization, and activities" of the alleged enterprise, United States v. Coonan, 938 F.3d 1553, 1560-61 (2d Cir. 1991), or any facts specifying "how these members joined together as a group to achieve these purposes," Moll, 654 F. Supp. at 1031. At most, plaintiffs have alleged independent, albeit similar, failures by the various entities in defrauding plaintiffs about MidAtlantic's true corporate status. The Amended Complaint is devoid of any facts that detail "any course of fraudulent or illegal conduct separate and distinct from the alleged predicate racketeering acts themselves." First Capital Asset Management, 385 F.3d at 174. Simply, there are no facts from which the court could reasonably conclude that the constituent members functioned as a unit or that they were "associated together for a common purpose of engaging in a course of conduct." Id. at 174-75. As defendants argue, the Amended Complaint does not suggest that the relationship between US Airways and ALPA is anything more than that of an employer and its employees' collective bargaining representative.
In ¶ 399, plaintiffs state: "Between sometime no later than January 2003 and the date hereof, ALPA, Duane E. Woerth, as President of ALPA, US Airways, Inc., and US Airways Group, Inc. formed an association-in-fact and enterprise. . . ." In only slightly different words, plaintiffs state in ¶ 408: "In or about a period of time commencing no later than January 2003 (and quite possibly significantly earlier than that), [ALPA], US Airways, Group, Inc., US Airways Inc., formed an association-in-fact. . . ."
Plaintiffs cannot rely merely on their argument that particularized requirements for RICO claims are substantially relaxed at the pleading stage. Although plaintiffs do not need "detailed factual allegations", they are nonetheless obligated to provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct. at 1964.
Plaintiffs request, in the event the court finds the Amended Complaint deficient in setting forth its RICO claim, that they be granted leave to amend. Federal Rule of Civil Procedure 15(a) provides that "leave shall be freely given", but particularly in cases of pleading a claim under a statute such as RICO, which sets forth exacting pleading requirements, leave to replead can be denied where granting it would be futile. See, e.g., In re American Express Co. Shareholders Litig., 39 F.3d 395, 402 (2d Cir. 1994). Such is the case here. There is no reason to conclude that plaintiffs could add allegations that could overcome the multiple deficiencies in the existing pleading. Indeed, plaintiffs' counsel admitted at oral argument that, short of discovery, they have no additional facts they could add to the existing Amended Complaint. See Oral Arg. Tr. (Mar. 7, 2008) at 36-37. "[D]iscovery is authorized for parties to develop the facts in a lawsuit in which a plaintiff has stated a legally cognizable claim, not in order to permit a plaintiff to find out whether he has such a claim." Podany v. Robertson Stephens, Inc., 350 F. Supp. 2d 375, 378 (S.D.N.Y. 2004).
Because the Amended Complaint is entirely deficient in pleading the element of "enterprise" and the RICO claim can be dismissed on this ground, the court does not reach the other grounds for dismissal. For the reasons stated above, Count VII is therefore dismissed, and plaintiffs' request for leave to amend is denied.
IV. Motion for Leave to File a Supplemental Complaint
Upon motion of a party the court may, upon reasonable notice and upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented. Permission may be granted even though the original pleading is defective in its statement of a claim for relief or defense. Fed.R.Civ.P. 15(d). Leave to file is normally granted so long as the supplemental facts connect it to the original pleading and the opposing party is not prejudiced by the supplemental pleading. Id.; Bornholdt v. Brady, 869 F.2d 57, 68 (2d Cir. 1989). Absent undue delay, bad faith, dilatory tactics, undue prejudice to the party to be served with the proposed pleading, or futility, the motion should be freely granted. Quarantino v. Tiffany Co., 71 F.3d 58, 66 (2d Cir. 1995).
Plaintiffs seek to add a Supplemental Count to their First Amended Complaint, alleging another violation by defendants of their duty of fair representation. Defendants oppose the motion on grounds of futility.
A. Facts
The following facts are alleged in plaintiffs' Proposed Supplemental Complaint and are taken as true for purposes of plaintiffs' motion:
In September 2005, shortly after exiting its second bankruptcy proceeding, US Airways merged with America West Airlines, Inc. ("America West"). As part of the merger, the two airlines were required to integrate their pilot seniority lists in accordance with the goals and pursuant to the methodologies of accomplishing seniority integration provided for under ALPA's "Merger and Fragmentation Policy" ("Merger Policy"). The integration of the lists was an important aspect of the merger because seniority affected virtually every aspect of the pilots' careers, including determining who goes on furlough and who has rights to bid for flying awards.
US Airways and America West, both represented by ALPA, in their efforts to integrate the two airlines' seniority lists, negotiated for several months without success. They then proceeded to mediation for several days but were again unable to reach agreement. The "merger representatives" agreed to an arbitration proceeding and chose an experienced arbitrator, George Nicolau, to preside over the hearing. As provided for under the Merger Policy, each pilot group also chose a pilot neutral from a list maintained by ALPA to be a non-voting member of the Arbitration Board. US Airways was not a party to the arbitration but agreed to abide by the terms of the award. The arbitration, which commenced in or about December 2006 and continued intermittently through February 2007, involved "too numerous to count exhibits" and "exhaustive briefs" that comprised the "detailed testimony and exhibits" in support of each position. Prop. Supp. Compl. ¶¶ 20-26. After the hearings and after receiving the post-hearing submissions, the three-member Arbitration Board met in executive sessions on several occasions before the arbitrator issued an award.
On May 1, 2007, the arbitrator issued an "Opinion and Award" that ultimately resolved the impasse between US Airways and America West pilots as to the status of former MidAtlantic pilots in determining their relative seniority. In the Award, the arbitrator found as an unconverted fact that, at the time of the merger, 1,691 of the 5,098 pilots on the US Airways seniority list were on furlough and that this group of furloughed pilots included "105 so-called CEL (Combined Eligibility list) pilots who never flew on the mainline, . . . and 212 other Mid-Atlantic Division (MDA pilots)." Id. ¶¶ 30-32. The arbitrator also found that "[t]hough listed as active in a US Airways summary sheet, they are carried as furloughed on the US Airways Certified 5/1/05 List." Id. ¶ 33. Based on these factual findings, the arbitrator treated US Airways pilots who had previously flown MidAtlantic aircraft as though they were still on furlough and did not credit MidAtlantic flying time as US Airways flying time. Ultimately, the Award placed these pilots below all active America West pilots on the integrated list such that the most junior America West pilot, hired in or about April 2005, was afforded greater seniority rights than any of the US Airways pilots who flew MidAtlantic aircraft, some of whom were hired 20 years ago.
The America West pilots had taken the position that these MidAtlantic pilots did not belong on the list while the US Airways pilots had argued that, despite "some question of their status early on," these pilots "belong[ed] on the list where they are." Id. ¶¶ 36-37.
Defendants stated during oral argument that "they" refers to all 1,691 pilots on furlough at the time of the merger. Oral Arg. Tr. (Mar. 7, 2008) at 10-11. However, plaintiffs suggest in their Proposed Supplemental Complaint that "they" refers to "the former MidAtlantic pilots", which includes the 105 CEL pilots and the 212 other MidAtlantic pilots. See Prop. Supp. Compl. ¶¶ 30-33.
After the Award was issued, plaintiffs realized that the arbitrator had relied on an erroneous US Airways seniority list in making his final determination. Plaintiffs allege that the list incorrectly described pilots who had flown MidAtlantic equipment as currently furloughed and that these designations had previously been corrected by US Airways. The erroneous list, however, somehow found its way as an exhibit during the arbitration proceedings. Plaintiffs allege that defendants knew these errors existed on the list but did not insist that it be replaced with the corrected list and stipulated to the introduction of the erroneous list as an exhibit to the arbitration.
Plaintiffs also allege that the arbitrator made "a series of findings that cannot be squared with one another" in his Award. For instance, plaintiffs allege that the arbitrator's finding that MidAtlantic was flown "on the mainline's operating certificate" is inconsistent with his finding that MidAtlantic was a "regional carrier." Plaintiffs also allege that the arbitrator found that none of the MidAtlantic pilots "had flown for the mainline" when they were in fact US Airways employees. Id. ¶ 34.
B. Futility
Defendants argue that plaintiffs' motion for leave should be denied on the ground of futility. An amendment is "futile" if it cannot withstand a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Ricciuti v. New York City Transit Authority, 941 F.2d 119, 123 (2d Cir. 1991). Defendants assert that, under the Supreme Court's recent Twombly decision, plaintiffs cannot offer merely "labels and conclusions", and they must do more than satisfy the lenient "no set of facts" standard of Conley v. Gibson, 355 U.S. 41 (1957), to survive a motion to dismiss.
As discussed above, to state a claim for a breach of the duty of fair representation, plaintiffs must allege not only that the union's conduct is "arbitrary, discriminatory, or in bad faith" but also that it caused their injuries. Marquez, 525 U.S. at 44; Spellacy, 156 F.3d at 126. Defendants argue that plaintiffs' claim that "ALPA breached its [duty of fair representation] to them by identifying them as furloughed, rather than active, on the seniority list submitted to the arbitrator" is futile because the process by which the seniority list was integrated was fair and the actual designation of the pilots was accurate. Dfs. Opp. Mem. at 7. In support, defendants cite to various cases in which courts have previously upheld ALPA's process for merging seniority lists, and they go on to explain that plaintiffs were correctly identified as furloughed under the terms of the CBA. Defendants also argue that, whether plaintiffs were designated as furloughed or active was irrelevant for purposes of seniority integration because the Merger Policy prohibited the airlines from changing the relative positions of pilots within their own seniority list.
As plaintiffs point out, defendants misunderstand the gravamen of the Proposed Supplemental Complaint. The alleged breach is not about the process or terms of the arbitration award — though plaintiffs do spend a significant amount of time briefing this issue — but that the union knew of, and stipulated to, the introduction of an erroneous, previously-corrected seniority list during the arbitration proceedings. To this allegation, defendants have not offered any reason to deny plaintiffs leave. Whether the pilots were correctly designated as furloughed under the terms of the CBA, or whether that designation actually affected the US Airways' seniority list are issues of fact that cannot be determined on a motion to dismiss.
It is also difficult to understand defendants' causation argument that, even if plaintiffs had been designated as active on the seniority list submitted to the arbitrator, their positions on the integrated list would not have been affected. In the Award, the arbitrator made clear that the integrated list merged active US Airways pilots with active America West pilots, but that "merging active pilots with furloughees, despite the length of service of some of the latter, is not at all fair or equitable under any of the stated criteria." The Award further provided that "[n]o pilot on furlough on the effective date of the Integrated Seniority List may bump/displace an active pilot as a result, in and of itself, of the implementation of the Integrated Seniority List." Thus, pilots who were designated as "furloughed" at the time of the Award were placed below either airlines' set of "active" pilots. Plaintiffs allege that, at the time of the Award, they had already been recalled by US Airways and were therefore incorrectly designated as being currently furloughed. Accepting these allegations as true, and reading the Proposed Supplemental Complaint in the manner most favorable to plaintiffs, plaintiffs have adequately alleged that their injuries were caused by the defendants' knowing stipulation to introduce an erroneous seniority list that they knew would adversely affect the careers and employment rights of their represented members. Plaintiffs' motion for leave to file a supplemental complaint is therefore granted.
The Proposed Supplemental Complaint is unclear as to whether plaintiffs are alleging that they were actually recalled by US Airways or that they should have been deemed recalled under their theory of the case. Defendants appear to have interpreted their claims as only alleging the latter. Plaintiffs, however, clarified in their briefs and on the record that they were listed as active US Airways employees at the time of the Award, and not only according to their theory that division employees are deemed recalled and entitled to mainline terms of employment. Under either theory, fact issues remain.
CONCLUSION
For the reasons discussed above, defendants' motion to dismiss is granted in its entirety as to all of the Counts in plaintiffs' First Amended Complaint. Plaintiffs' motion for leave to file a Supplemental Complaint is granted.
Plaintiffs are directed to promptly serve and file their Supplemental Complaint, and defendants are directed to answer in accordance with the time limits of the Federal Rules of Civil Procedure. The parties are also directed to promptly proceed with discovery under the supervision of Magistrate Judge Pohorelsky.
SO ORDERED.