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Bishop v. Air Line Pilots Association

United States Court of Appeals, Seventh Circuit

August 13, 2018

David Bishop and Eric Lish, Plaintiffs-Appellants,
v.
Air Line Pilots Association, International, Defendant-Appellee.

          Argued September 27, 2017

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:13-cv-06243 - Gary Feinerman, Judge.

          Before Ripple, Sykes, and Hamilton, Circuit Judges.

          Ripple, Circuit Judge.

         United Airlines pilot instructors David Bishop and Eric Lish brought this action against their union, the Air Line Pilots Association ("ALPA"). They alleged that ALPA had breached its duty of fair representation in its allocation of a retroactive pay settlement among different groups of pilots. ALPA moved for judgment on the pleadings; it contended that the plaintiffs had not alleged adequately that ALPA acted arbitrarily, discriminatorily, or in bad faith. The district court granted the motion and dismissed the case. Mr. Bishop and Mr. Lish timely appealed and seek reversal of the district court's dismissal of their claims. We hold that the district court prematurely dismissed the plaintiffs' well-pleaded allegations. We therefore reverse the judgment of the district court and remand the case for further proceedings consistent with this opinion.

         I

         BACKGROUND

         A.

         In 2003, when United Airlines was in the throes of bankruptcy, United and ALPA negotiated a concessionary collective bargaining agreement ("CBA") that resulted in wage and benefit cuts.[1] This 2003 CBA became amendable on January 1, 2010, and, as required under the Railway Labor Act, 45 U.S.C. § 151 et seq., the pilots continued to work under the 2003 CBA until ALPA and United could negotiate a new one. See id. § 156; see also Detroit & Toledo Shore Line R.R. v. United Transp. Union, 396 U.S. 142, 148-49 (1969).

         It took nearly three years for ALPA and United to settle on a new CBA (the "2012 United Pilot Agreement" or the "2012 UPA"). Throughout this extended negotiation process, United pilots and ALPA assumed that the new CBA would include retroactive compensation for the years that the pilots had worked under the amendable CBA. United had merged with Continental Airlines while the 2003 CBA still was in effect. The parties therefore covered both legacy United and legacy Continental pilots in the 2012 UPA.

         The vast majority of United's pilots are "line pilots."[2]Their "work consists exclusively of flying customers from one location to another-referred to as 'flying the line.'"[3] Mr. Bishop and Mr. Lish are in a second classification. They are pilot instructors. The present dispute centers on how ALPA chose to allocate the negotiated retroactive pay settlement between line pilots and pilot instructors.[4]

         Line pilot pay is determined by two factors: (1) the pilot's "fleet, seat, and longevity" combination, and (2) an hourly rate multiplied by the number of hours worked. A pilot's fleet, seat, and longevity combination is determined by the type of aircraft a pilot flies ("fleet"); the rank the pilot occupies in that aircraft ("seat"); and the length of time since the pilot was hired ("longevity"). The CBA then sets an hourly rate for each possible fleet, seat, and longevity combination. Line pilots are paid per number of hours actually worked based on this rate.

         Pilot instructors, by contrast, are salaried pilots. To arrive at the appropriate salary, the CBA adopts a fleet, seat, and longevity combination that applies equally to all pilot instructors.[5] Then, United takes the hourly rate that would be assigned to a line pilot with that same fleet, seat, and longevity combination and multiplies it by a predetermined number of hours. This number of hours has no relation to the number of hours actually worked by each pilot instructor. Under the 2003 concessionary CBA, all pilot instructors were capped at a fleet, seat, and longevity combination of "a 767/757 First Officer with six (6) years longevity."[6] They were given a salary equivalent to what a line pilot with that combination would earn for eighty-nine flight hours in a month.

         The line pilots gained wage increases in the 2012 UPA through increased hourly rates and some redefinition of how the fleet, seat, and longevity combination is calculated. The pilot instructors' pay was affected by a change in their predetermined fleet, seat, and longevity cap, as well as the number of credit hours per month they were given. Under the 2012 UPA, pilot instructors' fleet, seat, and longevity combination was increased to "a First Officer with nine (9) years longevity at the second highest-rated aircraft rate (i.e., A350, 747, 777, 787 rates)."[7] They were compensated at an amount equivalent to ninety hours worked each month for a pilot with that fleet, seat, and longevity combination. Under this 2012 UPA, pilot instructors received the largest pay increase.

         When it settled on the 2012 UPA with ALPA, United agreed to give ALPA a $400 million lump-sum settlement to compensate pilots for the nearly three-year delay in reaching a new CBA. An intra-union arbitration designated $225 million for legacy United pilots and $175 million for legacy Continental pilots. The $225 million allocated for legacy United pilots was not enough to compensate the United pilots fully for the pay they should have been receiving while the 2012 UPA was being negotiated. United left ALPA to allocate the settlement among its various groups of members.

         ALPA generated a formula to calculate each pilot's share of retroactive pay relative to the $225 million designated for legacy United pilots. In crafting this formula, ALPA employed a Delta Airlines CBA as a comparator to ascertain what each pilot should have been earning during the three years of negotiation. ALPA reasoned that because Delta was a peer competitor, its pay rates during that time period would be similar to what the United pilots should have been earning during the same period.

         To calculate the line pilots' retroactive pay, ALPA applied Delta's hourly rate to each line pilot's actual fleet, seat, and longevity combination during the negotiation period and then considered the number of hours the United line pilot actually worked during the negotiation period. ALPA then took the difference between this fictional wage and the line pilot's actual wages for that time period to calculate what it called a "Delta differential" for each line pilot.[8] Finally, ALPA used the Delta differential to calculate each pilot's pro rata share of the $225 million settlement payment.

         ALPA employed a different approach for pilot instructors. Instead of basing the United pilot instructors' retroactive pay on what Delta pilot instructors were paid under the comparator Delta CBA, ALPA applied its line pilot formula equally to pilot instructors. It calculated what a Delta line pilot would have earned for the pilot instructors' predetermined fleet, seat, and longevity combination and predetermined number of hours under the 2003 CBA and based each pilot instructor's "Delta differential" on that calculation.[9]

         Because the $225 million was not enough to compensate each pilot fully for the delay, no pilot received 100 percent of his retroactive pay, but line pilots received 38 percent of their retroactive pay under ALPA's formula. This stands in contrast to the pilot instructors, who received only 15 percent of theirs. Although ALPA applied the same formula equally to both groups of pilots, the same formula resulted in artificially deflated retroactive pay calculations for pilot instructors because of the significant differences in how their pay is calculated. Furthermore, because there was a fixed amount of money in the lump-sum settlement, any advantage the line pilots gained in the application of this formula came at the expense of the pilot instructors.

         The difference comes from how line pilots were compensated for the three-year delay in negotiations. Under the Delta CBA, the hourly rate for each fleet, seat, and longevity combination automatically increased each year for which ALPA used the Delta CBA to calculate retroactive pay.[10] The 2003 United CBA similarly provided for automatic increases in the hourly rate for each fleet, seat, and longevity combination for each year contemplated by the 2003 CBA, [11] but during the negotiations period, the pilots were locked in at the 2009 rates, the last year for which the 2003 United CBA set rates.[12] By using the Delta CBA rates as a comparator, ALPA gave the line pilots the advantage of a built-in increase in the most significant part of their pay formula-the hourly rate- for each year that ALPA was in negotiations with United. However, the most significant variable in the calculation of pilot instructors' pay is the predetermined fleet, seat, and longevity combination and number of monthly hours. Because ALPA did not take into account the increased fleet, seat, and longevity cap in calculating the pilot instructors' retroactive pay, the pilot instructors were locked in at their previous combination (set by the 2003 concessionary CBA) for the entire time that the 2012 UPA was being negotiated. Put another way, even though ALPA did not use the terms of the 2012 CBA in calculating any pilot's retroactive pay, using the Delta CBA as a comparator had the effect of giving the line pilots a competitive hourly rate for each year that ALPA was in negotiations with United. ALPA also considered each line pilot's actual fleet, seat, and longevity combination for the negotiation period. The pilot instructors also got the benefit of Delta's hourly rates but not the benefit of the increase to their fleet, seat, and longevity cap. Under this formula, pilot instructors were hurt more by the three-year delay than the line pilots were.

         In sum, although pilot instructors also received increased hourly rates based on the Delta CBA, they did not receive any increases in the most significant factor for their pay calculation-their fleet, seat, and longevity combination. Rather, their fleet, seat, and longevity combinations, as well as their set number of monthly hours, remained locked in at the 2009 amounts set by the 2003 CBA.

         B.

         Mr. Bishop and Mr. Lish believed that ALPA favored the line pilots over pilot instructors for political reasons because the line pilots make up such a large percentage of ALPA's membership and, therefore, violated its duty of fair representation. They allege that the pilot instructors received the largest pay increase under the 2012 UPA but the smallest percentage of their retroactive pay for the negotiations period.

         The pilot instructors first raised their complaint through the dispute resolution mechanism set forth in Letter of Agreement 24, where ALPA formalized its allocation methodology. That document provided for the resolution of all disputes about the retroactive pay allocation through an expedited arbitration before the ALPA Executive Council. The pilot instructors invoked their right to arbitration and also challenged the arbitration procedures themselves. They requested that "(1) the parties jointly select the arbitrator; (2) the arbitrator be instructed to make an independent decision without giving deference to either side; (3) the parties be allowed to take some discovery; and (4) the arbitration proceed on behalf of a class of affected individuals."[13] ALPA rejected these proposals and conducted the arbitration according to the established procedures.

         During arbitration, an ALPA representative testified that Mark Arellano, the pilot instructors' representative on the council that set the allocation methodology, was the individual who proposed the retroactive pay formula about which the pilot instructors now complain. Specifically, the representative testified that the committee "relied heavily on [Arellano's] advice," that "[Arellano] was an integral part of the committee," and that Arellano had recommended the formula because it "treat[ed] [the pilot instructors] just like they get treated by everybody else."[14]

         The record contains, however, material that tells a different story. According to those documents, Arellano had told the pilot instructors that he did not agree with the retroactive pay formula as it applied to them because he knew that it did not accurately reflect the retroactive pay to which they were entitled.[15] Further, Arellano had expressed this opinion "on numerous occasions" to the committee charged with setting the formula.[16] When the pilot instructors inquired further, Arellano told them that the committee wanted "something as simple as possible" and that the decision to treat pilot instructors with the same formula was "just politics."[17]Arellano also warned the pilot instructors that if they challenged the allocation, there would be "repercussions" and that the committee would try to take away other benefits from the pilot instructors.[18]

         C.

         The arbitrator confirmed ALPA's allocation methodology in May 2013. The pilot instructors filed the operative complaint on November 5, 2013, in the Northern District of Illinois. They were joined as plaintiffs with another group of pilots, management pilots, who alleged that they were harmed by the retroactive pay allocation in different ways that are not relevant to the merits of this appeal. The pilot instructors alleged that ALPA breached its duty of fair representation under the Railway Labor Act, 45 U.S.C. § 151 et seq. ALPA first moved for summary judgment as to both groups of pilots on the basis of the arbitration. The district court denied ALPA's motion for summary judgment and held that the plaintiffs were entitled to discovery on the integrity of the arbitration.[19] ALPA then moved for judgment on the pleadings against both groups of plaintiffs under Federal Rule of Civil Procedure 12(c), urging that regardless of the integrity of the arbitration, the complaint did not allege adequately that it had breached its duty of fair representation.

         The district court found that, as to the pilot instructors, ALPA had not breached its duty of fair representation because the limited pool of funds required ALPA to compromise, and it was not irrational or arbitrary for ALPA to apply the same pay formula to all of the pilots. Further, the district court concluded, the pilot instructors had received the largest pay increase under the 2012 UPA, and it was rational for ALPA to conclude that they should not also receive "a larger share of the $225 million pie."[20] Finally, although the pilot instructors alleged that ALPA had acted in bad faith to benefit the line pilots and harm the pilot instructors (a minority segment of ALPA's membership), the district court concluded that ALPA's motive was "irrelevant" because the pay allocation decision was rational and not arbitrary.[21]

         The district court therefore granted ALPA's Rule 12(c) motion as it pertained to the pilot instructors, although it allowed the management pilots' claims to proceed for unrelated reasons. Because the management pilots remained in the litigation as plaintiffs after Mr. Bishop and Mr. Lish were dismissed, the district court did not enter a final judgment against the pilot instructors until February 9, 2017, after the management pilots settled with ALPA just before trial.

         II

         The pilot instructors now challenge the district court's dismissal of their claims on ALPA's Rule 12(c) motion. For the reasons stated below, we reverse the ...


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