Excerpt from the RPA Lawsuit

It was a Strategy to align American with Other Low-Cost Carriers, not Save the Airline from Bankruptcy

In vivid detail this except from the RPA Lawsuit tells us exactly how AMR planed to gut the labor contracts using a strategy outlined in Gerard Arpey's 1982 Thesis.

This strategy, referred to as "Active Engagement" was the backdrop to the "Turn-Around Plan." The Turn-Around Plan was actually concocted prior to 9/11 and not implemented until late 2002 after AMR compiled it low-cost carrier labor comparisons.

"Active Engagement" was about actively engaging the employees via their union. The strategy was to get the unions to promote doom and gloom to the employees so that they'd buy into it.

The figures demanded from employees were plug-and-play figures taken from the labor comparison and had absolutely nothing to do with saving American from bankruptcy. It was all made up. AMR even sold our fuel hedge to Southwest and then complained that American couldn't compete against them because of labor costs.

5. Between 1998 and 2001, the defendant Union and Company engaged in Section 6 negotiations under the Railway Labor Act. In 2001, a negotiating team for the APFA and a team representing AA management reached a tentative agreement regarding the terms and conditions of employment that were to govern the class or craft of flight attendants for a six year period, retroactive to 1998. It took three years to negotiate that agreement (the "1998 Contract"), and that agreement was ratified on September 12, 2001 by an overwhelming margin. Citation: Boilini Dep. at 135; Nasca Dep. at 25.

6. The 1998 Contract was an industry-leading contract. Citation: King Dep. at 15; Boilini Dep. at 16, 135.

7. By its terms, the 1998 Contract was to "become effective [retroactively] as of November 1, 1998" and "continue in full force and effect" until at least November 30, 2004. Thereafter, the Agreement was to "renew itself, without change, until each succeeding November 1..., unless written notice of intended change [wa]s served in accordance with Section 6, Title I, of the Railway Labor Act, as amended, by either party hereto, at least sixty (60) days prior to the 30th day of November in any year, beginning with November 30, 2004." Citation: Excerpt from 1998 Contract, Art. 38 (Duration) at p. 367.

8. Early in 2001 - before the events of September 11 - the Company decided that it needed to develop a "turnaround plan" to make it competitive with low-cost carriers and, in particular, Southwest Airlines. Citation: Brundage Dep. at 338; Potok Dep. at 61-63, 66, 68-69 and Ex. 7; Herring Dep. at 46.

9. The Company began developing its turnaround plan a year later. Towards this end, the Company made separate comparisons of its labor costs with the labor costs the low-cost carriers incurred in connection with their pilot, mechanics and flight attendant groups. Citation: Campbell Dep. at 131-33; Potok Dep. at 68-69; Brundage Dep. at 94, 112-13; Herring Dep. at 38-46, 90- 91; Dodson Ex. 3 at Preamble to RPA (wherein the Company refers to its "cost reduction plan" and calls it "part of its strategic plan to ensure long-term viability").

10. Insofar as flight attendants were concerned, the Company determined that it would need to reduce its labor costs by approximately $340 million a year to put it on a par with the low-cost carriers. Citation: Herring Dep. at 53-54 and Ex. 4 at 198; AA Answer to ¶86.

11. At the same time it was determining how much it would seek to cut its labor costs, the Company acted to confer additional perks and benefits on high-ranking management. In or about November 2002, the Company used millions of dollars to fund its SERP, a retirement plan for 45 senior officers which would be protected from claims in bankruptcy. The money that was used to fund the SERP came out of the Company's cash balance. Citation: Brundage Dep. at 53-57.

12. On December 6, 2002, the Company requested that its three employee groups forego two 3% wage increases, one that was scheduled to go into effect in January of 2003 and a second that was scheduled to go into effect in July of 2003. APFA took the request under advisement. Citation: Brundage Dep. at 350-51 and Ex. 19; Boilini Dep. at 22; Nasca Dep. at 30-31; Ward Dep. Ex. 10; AA Answer at ¶84.

13. The Company changed course after it completed its cost comparison analysis in early 2003. In January or February 2003, it advised APFA that, far from simply seeking the deferral of one or two 3% wage increases, it was seeking permanent givebacks from the flight attendants of $340 million/year. These were the concessions AA was demanding of the flight attendants. It sought permanent givebacks of $620 million per year from the mechanics work group, and $660 million per year from the pilots. Citation: Herring Ex. 4 at 198; APFA Hotline message 2/4/03 at P0096; AA Answer ¶85.

14. Initially, the Company demanded that each employee group enter into separate discussions with it to provide for these midterm concessions. It told each employee group, at the time it demanded these talks, that the annual giveback figures (i.e., $340 million/year figure in the case of APFA's members) were non- negotiable. APFA took the request for negotiations under advisement. Citation: Brundage Dep. at 95-96, 124-129; AA Response to Request to Admit No. 19.

15. Between on or about March 7 and 15, 2003, the Company 3 advised APFA that the three workgroups would have to have tentative agreements in place by March 31, 2003 or it would file for bankruptcy under Chapter 11. Citation: Dodson Ex. 3 at p.1, ¶3; Ward Dep. at 142-43, 165 and Ex. 10 at p.4; Brundage Dep. at 47-48, 95, 97; Mase-Hecker Dep. at 26; Herring Dep. at 118; Nasca Dep. at 66; AA Response to Request to Admit No. 18; AA Answer at ¶95.

16. March 31, 2003 was the date by which the Company had to file its 10-K Statement with the SEC. Citation: Campbell Dep. at 88.

17. Ratification of these proposed concessionary agreements, including the Restructuring Participation Agreement (the "RPA"), was "critically important" to the Company. Citation: Carty Dep. at 48.

18. The Company made it clear to the unions that if it filed for bankruptcy, it would seek additional cuts beyond those that it had demanded in its proposals. In the case of APFA, it said that it would seek at least an additional $130 million or more a year in cuts over and above the concessions it was seeking "voluntarily." It also said it would lay off substantially more employees than contemplated by the "voluntary" plan. Citation: Ward Dep. at 213 and Ex. 10 and 26; Brundage Dep. at 147-48; AA Answer at ¶¶99-100; Dodson Ex. 3 at RPA Preamble, 2nd Whereas Clause; APFA Pre-Motion Letter, dated January 8, 2007 (Docket Number 154) at pages 2 and 3 (where APFA states that "American...made it clear that, if it filed for bankruptcy, it would seek reductions in wages and working conditions that dwarfed those that it was seeking outside of bankruptcy, ground many aircraft, and furlough several thousand more flight attendants than originally contemplated").

19. Although APFA agreed to talk, neither side served the other with a Section 6 notice nor purported to be proceeding under Section 6 of the Railway Labor Act. Citation: Nikides Dep. at 27-28, 61; Brundage Dep. at 118.

20. Both sides recognized that the changes to the collective bargaining agreement that the RPA sought were "very substantial changes," and involved, "significant changes to the existing agreement." Citation: Carty Dep. at 73; Brundage Dep. at 337.

21. APFA promised its members that it would insist that the Company justify any cuts or concessions and would seek a "snapback" provision returning rates of pay, benefits and working conditions to previous levels upon restoration. APFA promised that it would keep its members fully informed of the substance of any talks with the Company and pass along any information it was given regarding the Company's finances. It also promised that its members would have the "final say" on concessions. Citation: APFA Answer at ¶107; Ward Ex. 5 (P0100-103) at p.2; APFA Update to Membership (P0091-92); APFA Hotline messages (P0142-45).

22. While talks between AA and APFA began in March 2003, there were never any negotiations. For its part, the Company made it clear that its demand for $340 million/year in concessions for each of six years was a take-it-or-leave-it proposition. It not only refused to negotiate over the fact of concessions, but also over the extent, duration and value of any concessions. Citations: Boilini Dep. at 30-31; Dodson Dep. at 19-24; Nasca Dep. at 175; Ward Dep. at 261-62.

23. Instead of a give-and-take on these issues, AMR provided APFA with a memo, outlining the range of ways in which APFA could meet the stated giveback goal of $340 million/year. Each concessionary option carried an assigned value. APFA was permitted to choose from among the options, provided the sum of the assigned values of the options it chose totaled at least $340 million. In addition to dictating the overall amount APFA's members had to give back annually, AMR unilaterally prescribed the values assigned to each individual option. Citations: Boilini Dep. at 30, 33-37, 46-47 and Ex. 3.

24. For its part, while the Union reconvened the "Table Team" that had negotiated the earlier collective bargaining agreement, it now denied them the power to negotiate. The Union's Board directed the members of the Table Team to "reach" a tentative agreement with the Company, even if that meant acquiescing in the Company's demands. Citation: Boilini Dep. at 25-27 and Ex. 1.

25. There was never any voluntary meeting of the minds on the terms of a tentative agreement. It was the result of coercion. According to APFA's leadership, the only reason APFA agreed to the terms of the proposed RPA was because the Company had "a gun to our heads." Citation: Ward Dep. at 119-22, 171, 199-200, 250- 51, 447-48, 493 and Ex. 5 and Ex. 10; King Dep. at 122-125; J. Johnson Dep. at 126, 128 and Ex. 3.

26. Defendants understood throughout the period pertinent to the Complaint that any tentative agreement reached by their respective negotiating teams would have to be ratified by the flight attendants in accordance with the APFA Constitution. Citations: Brundage Dep. at 166; Dodson Ex. 3 at p.1 ¶5; Mase- Hecker Dep. at 67-71; Nasca Dep. at 56.

27. At a meeting on March 14, 2003, the Union reminded and/or advised the Company of the requirements of the APFA Constitution regarding ratification. The defendants understood that any vote that was not in conformity with the APFA Constitution would be invalid. Indeed, the Company went so far as to suggest to the Union how it could try to obtain approval of its members while also having them approve a reduction in the required notice period. Citation: APFA Const., Art. XI(1)(G) ("Upon ratification . . . a Collective Bargaining Agreement and/or letters of agreement shall be deemed binding"); Ward Dep. at 61, 144-45 and Ex. 10 at p.4; Brundage Dep. at 166-167; March 14, 2003 letter, AA Document AAMARC002306.

28. The Company obtained an extension until April 15 to file its 10-K Statement with the SEC. Citation: Campbell Dep. at 81-88.

29. When it became clear that the parties' representatives would not have a tentative agreement in place prior to March 31, 2003, the Company moved the deadline for ratification back to April 15, 2003. But that still would not be enough time to conduct a ratification vote in accordance with the APFA Constitution. Citation: AA Answer at ¶98; Dodson Ex. 3, RPA Attachments at pages 32, 33 and 36; Bott Dep. at 108-109, 113, 115; Ward Dep. at 244.

The APFA Constitution

30. The document filed as Exhibit 1 to Docket Entry 94 is a true and correct copy of the APFA Constitution, as it exists now and as it existed during the period pertinent to the case. (For ease of reference, this document shall hereinafter be referred to as the APFA "Constitution"). The APFA Constitution provided, throughout the period pertinent to the Complaint, for the rules and procedures specified in paragraphs 35 through 48 below. Citation: Docket No. 94, Ex. 1.

31. The APFA Constitution was drafted by the APFA Constitution Committee, with the assistance of labor lawyer Mady Gilson, between 1990 and 1991. The Constitution Committee had seven members: Tim Burns, Randy Edwards, Kip Fry, Patt A. Gibbs, Michael
Kelliher, Rebecca Kroll and Debra Murphy. Citation: Kelliher Dep. at 15-16, 36, 56; Kelliher Ex. 1.

32. The draft of the Constitution prepared by the Constitution Committee was submitted to the membership for approval in 1991. At the time, the leadership of the Union touted the draft Constitution as a model of clarity. Indeed, as part of the packet of materials the members received prior to the vote on whether or not to approve it, members were sent a copy of part of a letter from Ms. Gilson to the Committee's members. That letter said: "The Constitution has been drafted with such clarity that it is unlikely to generate legal disputes in which the courts could be in doubt as to what the Constitution is intended to mean." Citation: Keller Dep. at 100-120 and Ex. 6 at 5758.

33. On September 11, 1991, the membership ratified the Constitution. Thereafter, the Constitution was amended October 24, 1994 and June 13, 1995. The amendments are relevance to this action. Citation: See Docket No. 94 Cover page of APFA Constitution.
twice, on of no Ex. 1,

34. A further attempt to amend the Constitution in 2004 was defeated in a secret-ballot vote of the membership. One of the provisions of the Constitution that the APFA Constitutional Review Committee had proposed amending was the provision concerning the ratification of collective bargaining agreements and letters of agreement. The Committee proposed amending the clause so as to give APFA's leadership the ability to vary ratification procedures in an emergency. Citation: Trautman Dep. at 73; Kelliher Dep. at 87-90 and Exhibits 3, 4 and 5.

35. By its own terms, APFA's Constitution is "supreme" among all "laws" APFA has passed to govern its administration and operation. Citation: APFA Const. (Docket No. 94 Ex. 1) at Art. III(1); Nikides Ex. 3.

36. The Constitution enumerates the powers of each of the officers of APFA and of APFA's governing bodies and committees, including its Board of Directors, Executive Committee, Negotiating Committee and National Balloting Committee. Citation: e.g. APFA Const. Art. III.

37. The powers of these officers and bodies are not fungible. For example, the Executive Committee does not have the power to negotiate collective bargaining agreements. Conversely, the Negotiating Committee cannot decide whether a tentative agreement should be submitted to the membership for ratification. Citation: APFA Const. Arts. III, X and IX. 7

38. As between the governing bodies and leadership of the Union, on the one hand, and its membership, on the other, the Constitution is unequivocal in vesting final control of the APFA in the membership. Citation: APFA Const. Art. III(2)(A).

39. In addition to broadly recognizing the membership as the ultimate repository of all powers, the Constitution enumerates certain rights that are expressly reserved to the membership. Chief among these rights is the right to ratify collective bargaining agreements and side letters or letters of agreement that the Executive Committee determines alter rates of pay, rules and/or working conditions to a degree that is substantial. Citation: APFA Const. Art. XI.

40. The Constitution provided that ratification votes were to be conducted by mail-in ballot. Citation: APFA Const. Article XI Section E.

41. The Constitution provided that members were to be afforded a balloting period of not less than thirty (30) days for a ratification vote. Citation: APFA Const. Article XI 1(E)(2).

42. The Constitution provided that any proposed changes to an earlier collective bargaining agreement had to be provided to APFA members prior to or at the start of the balloting period. Citation: APFA Const. Article XI(1)(C).

43. The Constitution provided that a tentative agreement would be ratified if a majority of those active members in good standing covered by it returned valid ballots with an affirmative vote for ratification. Only then would it become final and binding. Citation: APFA Const. Article XI(1)(D),(F) and (G).

44. The Constitution provided that ballots received after the Balloting Date would not be valid, but rather would be void. Citation: APFA Const. Article XI(D) and VI(5)(E).

45. The Constitution provided that neither the APFA Board of Directors nor the APFA Executive Committee had the power to ratify a collective bargaining agreement. They only had the power to accept a tentative agreement for submission to the membership for ratification. Citation: APFA Const. Article III(4)(K)(13) and (14); Art. III(3)(L)(10), Art. XI(1)(A)(2); Art. X(4)(B); Art. XI(1)(A), (D), (F) and (G).

46. The Constitution provided for the National Balloting Committee to certify the results of a ratification vote. Citation: Const. Art. IX(6)(A)(5).

47. The Constitution provided that the only way the APFA Constitution could be changed was by formal amendment approved by a two/thirds majority vote of the membership. It could not be changed, altered or varied by APFA officers, directors, committee members or Base Chairs, acting singly or in concert. Citation: Kelliher Dep. at 88, 99-100; APFA Const. Article III(1)(A) and (B).

48. Not only did the Constitution not permit the officers, directors, and members of Executive Committee and/or any other committee of the APFA to vary, alter or amend the Constitution, it affirmatively required them to act in accordance with its terms. Citation: see e.g. APFA Const. Art. III(2)(A) and (b); Art. II(2).

49. The RPA constituted a proposed collective bargaining agreement. Citation: Docket Number 150 at p. 2, where the Airline states as follows:

...the Company Defendants have consistently maintained that the Restructuring Participation Agreement ("RPA") is a collective bargaining agreement negotiated under the RLA. More precisely, the Company Defendants have maintained, consistent with the Plaintiffs' allegations, Amended Complaint ¶¶ 104, 165, that the tentative RPA was reached between American Airlines and APFA negotiators on March 31, 2003....

See also AA Answer at ¶1 (where Company defendants aver that the RPA is, currently, a "lawful and binding collective bargaining agreement under the Railway Labor Act, 45 U.S.C. §§ 151 et seq.").

50. The Constitution required that the RPA be ratified by the membership. Citation: AFPA Constitution (Docket No. 94 Ex. 1) at Art. XI.

BOD Resolution/APFA Arranges For A Vote

51. As soon as the Company told APFA that unless it had a ratified agreement in place by March 31, 2003 the Company would file for bankruptcy, the Union realized it had a dilemma: The Constitution called for a balloting period of "no less than thirty days," and the parties had not yet even begun "negotiations." The APFA had to make a choice between following the APFA Constitution or following the Company's dictates. Citation: Ward Dep. at 60-61, 148; Brundage Dep. at 95.

52. The Board of Directors of the APFA did several things. It asked the Company for sufficient time to conduct the ratification vote in accordance with the APFA Constitution. The Company refused the request. Citation: Brundage Dep. at 166-67; Ward Dep. at 60-61, 145.

53. The APFA Board called on the members of the Constitution Committee that had drafted the 1991 Constitution to consider the question of whether the APFA Executive Committee had the right under the Constitution to shorten the ratification period of thirty days prescribed by the APFA Constitution. The members of the old Constitution Committee met to consider this question and issued a memorandum dated March 17, 2003. Ward Dep. at 482-83 and Ex. 2.

54. The drafters confirmed in their memorandum that "the explicit time frame in Art. XI.E(2) [of the Constitution] is 30 days," that they "never contemplated the potentially urgent need for ratification that can arise...in the context of concessionary bargaining," and that, had they contemplated that situation and "considered that issue, the Committee would have drafted and recommended an expedited ratification process." Citation: Ward Ex. 2.

55. They nonetheless went on to "strongly urge APFA to file a lawsuit in Texas state court in Tarrant County seeking a declaratory judgment that the Executive Committee has the constitutional authority to shorten the ratification period...in the current, unforeseen emergency situation." They stated, "we believe that most - if not all - judges would be extremely sympathetic with what APFA is trying to accomplish," and confirmed their commitment "to working with legal counsel to provide necessary affidavits, testimony or other assistance." Citation: Ward Ex. 2.

56. The former Constitution Committee members suggested that, if the Board did not obtain a declaratory judgment approving the Executive Committee's actions beforehand, they thought it likely that there would be "member challenges to a shortened ratification period." An alternative "option," they wrote, "would be to ask the Company to indemnify APFA for any legal costs and liability that arise if APFA members sue the Union about the ratification issue." Citation: Ward Ex. 2.

57. APFA neither brought suit for a declaratory judgment nor asked the Company for indemnification. Instead, it "interpreted" the Constitution, for the first time in its history, as giving it the authority to adopt a shorter ratification period and different voting methodology than prescribed by the Constitution's terms. Citation: Ward Dep. at 81-90, 482-83 and Ex. 2 and 9; Nasca Dep. at 59-60, 63.

58. On March 19, 2003, the APFA Board of Directors passed a formal Resolution providing for a ratification vote unlike any APFA had ever previously held. The Resolution provided (i) that there would be a minimum 15-day balloting period rather than the 30-day-or-more period prescribed by the APFA Constitution, and (ii) for telephonic balloting rather than mail-in balloting. Citation: Ward Ex. 9; Herod-Rivas Dep. at 14-15 and Ex. 2.

59. Consistent with this decision, the Board directed members of the Union to investigate alternative election technologies and asked its National Balloting Committee (the "NBC") to prepare to conduct a ratification vote between April 1 and April 15, 2003. Citation: Herod-Rivas Dep. at 25 and Ex. 1 and 2; Harding Berry Dep. at 60 and Ex. 1.

60. At that time, the most secure telephonic and/or on-line voting system was a double PIN system, in which voters have to use two numbers to record a vote. Under such system, a potential voter is given two randomly assigned numbers known only to the potential voter and to the body conducting the vote. Citation: Zaino Dep. at 107-9 and Ex. 4.

61. All three unions (the pilots, mechanics and flight attendants unions) arranged with the AAA to conduct their ratification votes which were all to conclude on the morning of April 15, 2003. Citation: Zaino Dep. at 44-45, 78, 100-1; Herod-Rivas Dep. at 35.

62. Although the NBC requested that its hands not be tied in determining the kind of vote that should be conducted and the company that should conduct it, the Board of Directors directed the NBC to retain the AAA. It did not insist on, and the AAA did not adopt or implement, a double-blind PIN system. Citation: Herod-Rivas Dep. at 36-37; Zaino Dep. at 79, 107-9 and Ex. 1.

63. APFA did not advise the AAA of the requirements of the APFA constitution relative to balloting. Citation: Zaino Dep. at 60- 61.

64. After the schedule was set, APFA arranged with the AAA to print up the ballots to be sent to the membership. Since APFA had rejected a proposal by the AAA that voters be given the option of voting either by telephone or on-line, the ballot only referred to "VOTING BY TELEPHONE" and gave instructions on "HOW TO VOTE BY TELEPHONE." Citation: Herod-Rivas Dep. at 64-65 and Ex. 4; Zaino Dep. at 136-201, 300-1 and Exhibits 7, 8 and 22.

65. The ballot set April 15 at 10:00 a.m. as the Balloting Date, stating that the "deadline for voting is Daylight Time, Tuesday, April 15, 2003." 64-65 and Ex. 4; Zaino Dep. at 300-1 and 10:00 a.m. Central Herod-Rivas Dep. at Ex. 22.

66. On March 29, 2003, the Company's negotiators gave APFA's Table Team the Section 1113 proposal it said it would make to a bankruptcy judge if either the APFA failed to submit the RPA for a ratification vote or the membership rejected the proposed contract. The proposal called for reductions in wages, benefits and working conditions of $470 million a year, i.e., $130 million a year more than provided for in the "Approach" memorandum. It also called for significantly more job loss than contemplated by the "Approach" memorandum. Ward Dep. at 213 and Ex. 26; Brundage Dep. at 148; Herring Dep. Ex. 10; AA Answer at ¶¶99, 100; AA Response to Request to Admit No. 28.

The Memorandum Of Understanding and Action by The Executive Committee

67. As they had been directed to do, the APFA Table Team reached a tentative agreement with the Company on March 31, 2003. Mase- Hecker Dep. at 75-76 and Ex. 2.

68. Since the negotiating teams had not yet agreed upon final language for the RPA, the Table Team presented the Executive Committee with a "summary" rather than with final contract language. Citation: Boilini Dep. at 53-4 and Ex. 4.

69. Based on the summary of the tentative agreement alone, the Executive Committee voted to submit the RPA to the membership for ratification. Citation: Ward Ex. 12; APFA Response to Request to Admit No. 29.

70. It took the parties until April 8, 2003, seven days after the ballots instructing the APFA members on how to vote had been sent, to work out the final language for the proposed contract. On that date, the text of the proposed agreement was printed out and mailed to the membership. Citation: Ward Dep. at 127; Boilini Dep. at 74-75, 87 and Ex. 6.

71. Even after April 8, 2003 - indeed, as late as the evening of April 14, 2003, the last day of the scheduled balloting - substantive changes continued to be made to the terms of the proposed agreement on which the APFA members were voting. Citation: Ward Dep. at 325-27 and Ex. 1; Boilini Dep. at 87-89.

The Employer's Demands

72. The level of concession the Company demanded of its flight attendants was the full complement of concessions it had determined would put it on par with its low-cost competitors. Citation: Brundage Dep. at 94; Herring Dep. at 38-46.

73. The Company made no provision - either in its Approach memorandum or the parties' tentative agreement - for a "snap-back provision" that would return pay and benefit levels to the levels in effect under the 1998 Agreement upon the achievement of certain goals or a certain level of recovery. Citation: Boilini Dep. at 67-68; Mase-Hecker Dep. at 89.

74. The reason the Company did not provide for a snap-back provision or possibility of reversion is because (i) the level of concessions was determined by long-term competitive considerations, and not by the need to meet short-term contingencies (i.e., to meet an existing obligation or compensate for a temporary cash shortfall), and (ii) because the Company intended the concessions to be permanent, regardless of its financial condition. Citation: Brundage Dep. at 93-94, 342-343.

75. At no point during the period pertinent to this case was the Company ever in a position where its liabilities exceeded its assets and it could not meet its obligations. Citation: Brundage Dep. at 106.

76. At no point during this period did any creditor ever force or threaten to force the Company into bankruptcy. Citation: Brundage Dep. at 97, 100.

77. At no time during this period did the Company's Board of Directors ever authorize the filing of a Chapter 11 petition. Citation: Campbell Dep. at 112.

78. At the beginning of 2003, the Company had current assets worth $4.9 billion and cash of $2.7 billion. Of the cash, over $2 billion was unrestricted. Citations: King Dep. at 71-72; Herring Dep. at 17, 25-26, 94-95 and Ex. 1 at p.2; Campbell Dep. at 29.

79. In February, the Company received a cash infusion of $572 million in the form of a tax refund from the United States Government. Citation: Campbell Dep. at 40-42; Potok Dep. at 55- 56 and Ex. 5.

80. Approximately 90 days later, in May, it received an additional $358 million from the federal government under the Emergency Wartime Appropriations Bill, bringing the total of new cash from the federal government in the first five months of 2003 to $930 million. Citation: Campbell Dep. at 44-48.

81. After declining in the first quarter of 2003, the Company's cash balance remained fairly steady through June 30, 2003, near the $1 billion mark. After that, it improved. Citation: Campbell Dep. at 109; Herring Dep. at 72.

82. Although the Company gave APFA its "ratify-or-face- bankruptcy" ultimatum in March 2003, the Company's projections were for an improvement later in 2003 tied to "a rebounding demand in the second and third quarters." Citation: King Dep. at 76; Herring Dep. at 18-19.

83. The projections were accurate. The Company rebounded beginning with the second and third quarters of 2003. The Company set records for passenger traffic in the summer of 2003. The revenue environment improved for the Company and it began to command higher unit revenues. The Company followed the second and third quarters of 2003 with a profitable fourth quarter. Citation: Brundage Dep. at 263-268; Campbell Dep. at 112-13.

84. From $1.6 billion in the spring of 2003, the Company's cash balance more than doubled to $3.3 billion in the fall of 2003. Citation: Brundage at 260, 266 and Ex. 5.

85. Following the Company's short-term cash problem in early 2003, which was mitigated by the nearly $1 billion cash infusion from the federal government, the Company's finances only continued to improve through 2004 and 2005, with a return to yearly profitability in 2006. Citation: Company's 2006 Form 10K at p.40 (Consolidated Statement of Operations).

86. Notwithstanding its improved circumstances, the Company never reverted to the terms of the 1998 Agreement, otherwise stopped or rolled back the clock, or advised the APFA membership that it would snap-back pay and benefit levels to pre-May 2003 levels.
The Ratification Vote

87. Just as the voting was about to begin, APFA's President and CEO Carty spoke four or five times to various employee groups around the country warning them that a no vote would put the company into bankruptcy and cost 1000 pilot jobs and 2500 flight attendant jobs. His speech was intended to influence the voting on ratification and he was hopeful that it would have that effect. Citation: Carty Dep. at 86-89, 90 and Ex. 7.

88. While ballots were mailed on March 31, no one who accessed AAA voting system could vote until April 3, when the system activated. In fact, between 1,000 and 1,500 people who attempted to vote heard the following message: "Thank you for calling the APFA Telephonic Voting System. The proposed changes to the APFA/AA Collective Bargaining Agreement have been mailed to each member and are currently available on the Website. Please read the proposed contractual changes before you vote, as you will not be able to change your vote once it has been cast. This Telephonic Voting System will not be activated until 10:00 A.M. CDT on April 3, 2003, in order to allow all members enough time to review the APFA/AA Restructuring Participation Agreement before voting. Please call back anytime after 10:00 A.M. CDT on April 3, 2003, to cast your vote". Citation: Zaino Dep. at 98- 99, 122-24, 207 and Ex. 8, 9, 11 and 19; Ohmann Dep. at 66-67 and Ex. 8, 9 at 21; Herod-Rivas Dep. at 53-54.

89. On or about April 10, 2003, the APFA Board held a meeting by telephone conference during which it considered the question of whether to change its longstanding practice of not permitting members to change their votes. Citation: Herod-Rivas Dep. at 152; Nasca Dep. at 73-75; APFA Answer ¶117.

90. Based upon information they had been given, some Board members expressed concern that changing the system so as to enable votes to be changed would compromise the integrity of the balloting process. Citation: Nasca Dep. at 79-81.

91. There was little support for changing the practice and the question was not then even put to a formal vote. Citation: Nasca Dep. at 74, 77-78.

92. As scheduled, the ratification vote closed at 10:00 a.m. CST on the morning of April 15, 2003. As of the official close of the vote, the votes stood at 9,842 "No" and 9,309 "Yes." members of APFA had rejected ratification. Citation: J. Johnson Ex. 6.

APFA Monitors The Vote

93. Early during the balloting period, AAA notified APFA that it could monitor the vote and get access to running tallies. Citation: Ward Dep. at 66; Herod-Rivas Dep. at 102-4.

94. All APFA had to do was go to a website set up for this purpose and enter a single universally-applicable password that had been given to them by the AAA, "admin." Citation: Zaino Dep. at 161, 203; Harding-Berry Dep. at 135-37; Zaino April 3, 2003 e-mail APFA Document U-1132.

95. Anyone in possession of that password could access running tallies, including with a breakdown by base. Citation: Herod- Rivas Dep. at 104–5; Ohmann Dep. at 42.

96. APFA utilized the password and kept current with respect to the vote. Citation: Herod-Rivas Dep. at 107-9, 112; Harding- Berry Dep. at 138-40; Ward Dep. at 67; J. Johnson Dep. at 69-73.

97. AAA could not keep track of who accessed APFA's tallies since everyone used the same password. It also did not keep track of how many times those tallies were accessed, or when. Citation: Herod-Rivas Dep. at 127.

98. The vote tally could be reviewed on a day by day basis, or even more frequently, and APFA knew where the vote tally stood on April 14, 2003. Citation: Zaino Dep. at 161, 211-12, 214.

The Extension

99. At about 8 a.m. on the morning of April 15, 2003, AMR's then-CEO Donald Carty summoned APFA's four officers to a meeting at his office. Citation: Ward Dep. at 75.

100. At the time he did so, Carty was aware of the reports that the APFA vote was close and that it would be against ratification of the RPA. Citation: Carty Dep. at 39, 42.

101. Despite it previous stance, the Company called the April 15 morning meeting for the purpose of proposing that the APFA deadline be extended by one day and urging that, during this extension, APFA members be permitted to change their votes. Citation: Carty Dep. at 55, 114, 129; Brundage Dep. at 228, 243.

102. Once APFA's leadership expressed a willingness to permit votes to be changed, the Company announced that it was prepared to permit APFA to extend the balloting to 5 p.m. CST the following day if the vote as of 10:00 a.m. was close. Citation: Brundage Dep. at 243; J. Johnson Ex. 3 at 3; Ward Dep. at 384-85.

103. The Company made this offer because it believed that, provided votes could be changed, the vote could be turned around in 24 hours. Citation: Carty Dep. at 53-55, 129.

104. The offer AA made was unprecedented. APFA had never before extended balloting beyond a scheduled Ballot Date or reopened a vote after it was closed. By the same token, AA had never before proposed, argued for or consented to the extension of a ratification vote. For its part, AAA had never extended a ratification election after the initial tally was publically disclosed. Citation: Zaino Dep. at 67-69; Ohmann Dep. at 23; Harding-Berry Dep. at 86-88; APFA Response to Request to Admit No. 44.

105. Some of APFA's officers felt that the Company's offer was too little, too late and that, from the members' vantage point, a one-day extension would be meaningless. Nonetheless, they said that they would take the offer under advisement and present it to their Board. Citation: Ward Dep. at 178; Trautman Dep. at 42- 43; Nasca Dep. at 128.

106. Notwithstanding the fact that it was now considering extending the balloting, APFA took absolutely no steps either to prevent the balloting from officially "closing" at 10:00 A.M. or, at least, to prevent the results of the balloting from becoming publicly known. Citation: Ward Dep. at 271-72.

107. On the morning of April 15, 2003, all three ratification votes - among the pilots, mechanics and flight attendants unions - closed, and the results of each ratification vote was tabulated and announced. As already noted, the flight attendants had defeated ratification by a margin of 9,842 to 9,309. The pilots and mechanics had both approved the ratification of their respective agreements. Citation: AA Answer ¶144; APFA Answer ¶144; Carty Dep. at 52 and Ex. 2.

108. Several hours later APFA's Board began its 11:00 AM meeting to consider whether or not to accept the Company's offer to extend the vote by a day. While they were meeting, the BOD members heard the results of the APFA ratification vote that had been publicly broadcast. Citation: Ward Dep. at 187; Herod- Rivas Dep. at 165; Nasca Dep. at 106-8.

109. The APFA Board voted to reopen and extend the balloting and to allow the Union's members to change their votes. When they did so, they already knew that the membership had voted the RPA down. They also knew that, before members would have the opportunity to vote in any extension, they would in all likelihood know the results of the three votes. Citation: Ward Dep. at 271-72 and Ex. 15; Harding-Berry Dep. at 71, 76-77; Nasca Dep. at 68, 118; APFA Response to Request to Admit No. 44.

110. The membership was in all likelihood aware of the results of the three ratification votes before they cast votes during the extension period. Citation: Carty Dep. at 51 and Ex. 2; APFA April 15, 2003 Hotline message (Document P0151); AA April 15, 2003 Press Release (Document P0331).

Employer Activity During The Extension

111. The Company went to extraordinary lengths during the one- day extension to exert pressure on its employee-flight attendants to vote "yes," or if they had already voted "no," to change their votes. Citation: Ward Dep. at 357-62 and Ex. 20; McTiernan Dep. at 357-62 and Ex. 2; Boilini Dep. at 81 and Ex. 8; LaMattina Dep. at 173.

112. While the Company had already communicated its message to the APFA leadership and the general public, the Company now took its message directly to its flight attendant-employees: If you vote "No," you are voting for bankruptcy and the loss of up to 10,000 jobs." Citation: Carty Dep. at 52-54; Brundage Dep. at 285-86, 289-91; Galazin Dep. at 17.

113. No territory was considered off-limits. The Company approached flight attendants about to board aircraft with this message. The Company approached flights attendants deplaning from aircraft with this message. The Company cornered flight attendants on board aircraft with this message. And, the Company tracked flight attendants down in their homes and hotel rooms with this message. Citation: Galazin Dep. at 26, 46-47; Boilini Dep. at 96; LaMattina Dep. at 55-59; Brundage Ex. 10 and Ex. 11; Documents P0985-89.

114. Crew scheduling and operations divisions knew the cities flight attendants were staying in. When it didn't find them in their hotel rooms, it had leaflets bearing that message left on their pillows. Some flight attendants were assailed by the Airlines gate agents and other Company personnel or other members of management several times during the course of the one-day extension. One flight attendant was assailed eight times. Citation: Galazin Dep. at 25-49, 80 and Ex. 1; LaMattina Dep. at 55-59, 67-68; Boilini Dep. at 81; Brundage Dep. at 297-298 and Brundage Ex. 8 and Ex. 11.

115. In addition to tracking flight attendants down in person, the Company communicated with flight attendants via their home computers and through internal company communications systems and on all the bulletin boards. Flight attendants were met with pop- up messages when they logged in to the flight service web site or phoned into its phone system. Citation: Brundage at 283-287 and Ex. 7; Galazin Dep. at 61-67 and Ex. 3; Boilini Dep. at 81, 123 and Ex. 9 at p.10; AA Answer at ¶130 (where the Company defendants admit having sent electronic messages to all flight attendants on April 15 regarding the extended balloting).

116. The Company's activities were so pervasive that APFA President John Ward was moved to send the Company a letter saying, "BACK OFF AND STAY OUT OF OUR VOTING PROCESS." Citation: Boilini Ex. 8; Ward Dep. at 368.

117. Notwithstanding the letter, the Company's activities did not abate. Citation: Ward Dep. at 375.

118. In addition to providing the incentive to vote, the Company also in many instances provided the means: it gave flight attendants money to use in foreign locations to call in their
votes. Citation: Ward Dep. at 370 and Ex. 10 at p.8.

Defects In The Voting System

Accessing the System

119. Although APFA had only opted for a telephonic voting system, rather than a system that would permit voting by phone or Internet, AAA had set the system up so that it would accept votes cast by either means. As a consequence, anyone with a computer and a modem or Internet connection could therefore call up the APFA ballot on his or her screen and 26 persons in fact initially cast their ballots by computer. Citation: Affidavit of Diane Haupt; Ohmann Dep. at 54-56, 58; Herod-Rivas Dep. at 168-69; L. Johnson Dep. at 36-37.

Recording Votes

120. However a potential voter accessed the system, to cast a vote, he had to enter two numbers: his employee ID number and his "PIN" number. Citation: Zaino Dep. at 108-11; Lindsay Ex. 1.

121. Neither of these numbers was private or secret. The Union was in possession of everyone's employee ID numbers. The Company had every APFA member's ID number and other identifying data as well. Citation: Boilini Dep. at 31. APFA and AA Responses to Requests to Admit No. 73-74; Zaino Dep. at 220-21; Brundage Dep. at 24-25; Ohmann Dep. at 19; Harding-Berry Dep. at 111-14.

122. In addition, each flight attendant wore a badge on duty with his or her employee ID number on it. They wore these badges while on duty. Citation: Brundage Dep. at 26, 134. Each flight attendant's PIN numbers was also easily ascertainable.

123. The PIN numbers had been assigned sequentially, by base, in straight alphabetical order. Accordingly, any flight attendant with access to a list of attendants flying out of his base, and knowledge of his own PIN number, could easily ascertain the PIN Number of every other potential APFA voter. Citation: A6732.

124. PIN numbers could also be, and were, ascertained by yet a second method. The AAA issued PIN numbers over the telephone to persons calling up and saying that they had lost their PIN number. This was especially true during the one-day extension. Citation: L. Johnson Dep. at 24-25; Zaino Dep. at 143 and Ex. 14.

125. Although the Union asked AAA to verify callers' social security numbers, AAA had no way to do so because the Union never provided it with the numbers. Citation: L. Johnson Dep. at 23, 42; Herod-Rivas Dep. at 47.

126. With no way to verify caller's identities, AAA posted the following memorandum in the work area where employees were fielding requests for PIN Numbers: "Please remember to ask for the following: Hire date, SS number, telephone number. Wait a couple of minutes then come back to phone and give PIN over phone." Citation: L. Johnson Dep. at 45-47 and Ex. 2; Zaino Dep. at 175 and Ex. 13.

127. There is no way to know precisely how many PIN Numbers were handed out in this fashion because, after one year, AAA destroyed the logs it had prepared that documented the issuance of those numbers. APFA did not request that AAA preserve those logs or, indeed, any other information. Citation: L. Johnson Dep. at 56, 61-62; Herod-Rivas Dep. at 319-20.

128. The AAA employee in charge of overseeing the preparation of these logs and the issuance of PINs over the telephone testified that there were approximately 500 pages of log sheets. Each log sheet contained the names of between 1 and 5 individuals to whom a duplicate APFA PIN number had been issued. Ms. Johnson of AAA cannot say whether there were more or less than 1,000 such numbers issued in total. All she can say is that the folder containing these log sheets was approximately eight inches to a foot in width. Citation: L. Johnson Dep. at 28, 50-52, 70-71 and Ex. 1.

Built-In Bias

129. If someone had not yet voted, they were given the option of voting 'Yes' or 'No' – i.e., of voting for or against ratification. Persons calling up to vote who had already voted heard the following message during the extension: "If you would like to change our vote, please press 'one'." If someone had already voted, the only option they were given was to change their vote. They were not given the option of confirming their earlier vote. Citation: Ohmann Dep. at 69-70 and Ex. 9 at 23. See also Mercuri Expert Report.

130. Those who wanted to confirm an earlier vote had no alternative at that point in the menu but to simply hang up the phone. It is not clear to this day whether those votes were nullified or erased. Citation: Mercuri Expert Report.


131. AAA tabulated the votes a second time after 5:00 p.m. on April 16, 2003. It arrived at a tally of 10,761 "Yes" votes, and 9,652 "No" votes. Citation: Zaino Ex. 9 and 16; see also U- 1048, U-1131; J. Johnson Ex. 6.

132. In arriving at this tally, AAA counted at least 2,896 votes that were void. Citation: U-1158.

133. At the same time, AAA failed to count at least 1570 votes that were valid. Citation: U-1158; J. Johnson Ex. 6.

134. Although required to do so by the APFA Constitution, the NBC never certified the results of the ratification vote. Citation: Herod-Rivas Dep. at 197.

135. Since April 16, 2003, a number of different tallies have been reported by the Union. The number of votes cast prior to April 15 has never varied, only the number of votes cast or changed during the extension. The Union has no explanation for these variations. Citation: Ward at 331-334 and Exhibits 10 and 18; Herod-Rivas Dep. at 338-40 and Ex. 7 and 11.

The Events of April 16 to April 25, 2003

136. On April 15, 2003, the Company belatedly filed its Form 10K. The Company then publically reported for the first time that, in October of 2002, it had granted 45 of its officers special supplemental retirement benefits that would be protected from the reach of creditors in the event of an AMR bankruptcy. Citation: Brundage Dep. at 54-72.

137. The membership and leadership of the APFA became aware of the funding of the SERP from the Form 10K. While some may have become aware on April 16, most of the leadership and the members became aware on April 17. Citation: Ward Dep. at 380; Boilini Dep. at 119-20; Nikides Dep. at 100; Mallon Dep. at 51; J. Johnson Dep. at 108.

138. On April 18, 2003, APFA President John Ward wrote to advise the Company's CEO Carty of the Union's intention to conduct a new ratification vote and reballot the membership. The reasons Ward gave for needing a revote included the Company's improper actions on the 15th and 16th, and its failure to disclose the SERP program during negotiations. Citation: Ward Dep. at 382-89; Carty Ex. 3.

139. On April 22, 2003, APFA's Board of Directors met and set the results of the April 16 ratification vote aside as "tainted." It did so on the grounds Ward had cited in his April 18 letter: the employer's interference in the vote on April 15 and 16 by "inundat[ing] and pressur[ing] APFA members into casting votes and/or changing their votes", and on the basis of the employer's having withheld information it was duty-bound to disclose during the negotiations. Citation: J. Johnson Ex. 3; Herod-Rivas Ex. 9; Nasca Dep. at 146-47, 149, 152.

140. The BOD directed the NBC to prepare to conduct a new ratification vote "in accordance with the APFA Constitution" so as to restore the laboratory conditions for ratification balloting. The NBC interpreted this direction to mean that it should prepare to conduct a vote by mail-in ballot, with a balloting period of thirty days. Citation: Herod-Rivas Dep. at 215-16, 222 and Ex. 9; Ward Dep. at 393-396.

141. After advising the Company that APFA had set the April 16 results aside as tainted, John Ward expressed his willingness to meet with the Company. The Company called for meetings and the meetings the Company called for took place on April 23 and 24. Representatives of the Pilots and Mechanics, as well as the four APFA officers - APFA's President (Ward), Vice-President (Bott), Secretary (Lanning) and Treasurer (Juan Johnson) - participated in the meetings, as did congressional representatives. Citation: Ward Dep. at 405-6; J. Johnson Dep. at 120, 23.

142. The four APFA officers advised the Company throughout these meetings that they had no authority to enter into or conclude any agreement with the Company. Anything they tentatively agreed to, they said, would need to be ratified by the membership.
Citation: Ward Dep. at 416-17; Lanning Dep. at 147-8; J. Johnson Dep. at 123.

143. According to the parties, the principal subject of discussion at these meetings were the parties' "disputes" regarding the negotiation, ratification, and final effectiveness of the Restructuring Agreement. The Company claimed that there was a valid ratification; the APFA claimed there wasn't and that the membership would have to be reballotted in accordance with the APFA Constitution. Citation: Brundage Dep. at 316.

144. The Company threatened that if APFA proceeded with a new ratification vote, it would immediately file for bankruptcy. Citation: Bott Dep. at 275, 278; Lanning Dep. at 142-43, 150; J. Johnson Ex. 4.

145. By Letter of Agreement, dated April 25, 2003, the parties purported to resolve these disputes by substituting approval by the Union's Board of Directors for ratification by the membership. Towards this end, the so-called Letter of Agreement recited:
Whereas, American and APFA (the "Parties") have each agreed that it is in their mutual interest to permit the Restructuring Agreement to become binding and effective.
Now therefore, it is this 25th day of April, 2003, hereby agreed that ...

A. Duration of the Agreement. Contingent on approval of this Letter of Agreement by the Boards of Directors of the Parties, and without further ratification or approvals, the Restructuring Agreement will be effective beginning May 1, 2003, and shall remain in effect for a period of five (5) years and become amendable April 30, 2008.


E. Authority and Effective Date. Execution of this Letter of Agreement shall constitute a representation by each party that the terms of this Letter of Agreement and of the Restructuring Agreement have been approved by their respective Boards of Directors.
Citation: Lanning Ex. 7 at Preamble and ¶¶A and E.

146. In exchange for the promise to ratification give up their members' rights, APFA's officers claim to have gotten four things: (i) first and foremost, the resignation of the Company's CEO, Donald Carty, (ii) the right to "swap-out" a concession that was particularly unpopular with the members of one base (Miami International); (iii) a nominal shortening of the duration of the restructuring agreement; and (iv) an improved employee incentive program. Citation: Ward Dep. at 438-439; Trautman Dep. at 51.

147. The Letter of Agreement was never submitted to the membership for ratification. On the morning of April 25, 2003, the APFA's Board met and passed a resolution: (i) withdrawing the direction to the balloting committee to proceed with a ratification vote, and (ii) purporting to authorize President Ward to sign the April 25, 2003 Letter of Agreement. Citation: Ward Dep. at 433, 468; J. Johnson Ex. 4.

148. By its terms, execution of the Letter of Agreement purported to constitute "a representation by each party that the terms of this Letter of Agreement . . . ha[d] been approved by their respective Boards of Directors." Citation: Lanning Ex. 7 at ¶E.

149. The parties implemented the RPA, effective May 1, 2003. It has been in effect ever since. Plaintiffs and the putative Class have suffered injuries in the amount of approximately $340 million per year, the value of the "concessions" obtained pursuant to the RPA, since its implementation.

Dated: New York, New York March 27, 2007