Price-fix deal serves lawyers and airlines, critics say

January 01, 1993|By Knight-Ridder News Service

The federal judge who is hearing the airline price-fixing case in Atlanta said the case, the biggest such consumer lawsuit ever, had so little merit that he would have thrown it out before trial -- if the parties had not rushed to settle it first.

Yet, the parties did settle. Now, critics are questioning what motivated seven airlines -- American, Continental, Delta, Northwest, TWA, United and USAir -- to agree to a settlement of nearly half a billion dollars when the case might have cost them nothing.

These critics are raising questions about just who is benefiting most from the lawsuit. And, they say, it's not the 58 million air travelers who, as a class, had accused the airlines of gouging them.

Getting far more out of the deal, say critics of the proposed accord, are the two supposedly adversarial parties: the lawyers who filed the case, and the airlines themselves.

The lawyers will receive $24 million in legal fees and at least $1.3 million in costs from the airlines if U.S. District Judge Marvin Shoob approves the settlement this month. An additional $25 million will go to administer the accord.

On average, the lawyers will be paid more than $500 an hour. Some will pocket up to $1,400 per hour. Dianne M. Nast, of Kohn, Nast & Graf in Philadelphia, one of four lawyers managing the case for 47 law firms, said her firm's fees fall in "the middle range."

As for the airlines, some critics say the carriers will actually makmoney off the suit.

The settlement provides the airlines with a built-in marketing program designed to promote air travel at little cost by issuing discount travel coupons good only in off-peak travel periods, these critics say.

Indeed, the settlement seemed like such a good deal that Alaska Airlines filed papers asking to be let in on it. The airline backed out only after being told that it did not have to be part of the suit to accept the program's discount travel coupons.

The settlement is primarily "a promotional scheme to induce travelers to fly," one of the objectors, Lewis Saul, a lawyer, said in court.

What will go to passengers who, the lawsuit says, paid inflated ticket prices from 1988 to mid-1992?

They would get discount travel coupons worth, at most, $100 per traveler. The coupons could be used for no more than 10 percent of a ticket's price, thus requiring fliers to buy up to $1,000 worth of airline tickets to use up the coupons. Because the coupons have a face value of $408 million, they would generate more than $4 billion for the airlines if every coupon was used.

A California public-interest lawyer, who has been a leader in filing consumer class-action suits but is not participating in the airline price-fixing case, said that Judge Shoob should be highly skeptical of the settlement.

"The judge should be asking: 'Is the class significantly better off? Or is it the defendants that are better off?' " said the lawyer, Robert Gnaizda.

"The point is, this $408 million in coupons is really just an advertising mechanism," Mr. Gnaizda said.

"It is, in many cases, a defendant's dream to be sued by class-action attorneys, so they can secure a settlement which they can use to promote their product," he said.

Questions about the proposed settlement in the airline price-fixing case were raised at a hearing in Atlanta Oct. 19, when critics were given a chance to object.

Early in the proceeding, Judge Shoob began expressing doubts about the suit's merits.

"I have been in this case for several years," Judge Shoob said, "and I would assess the chances of plaintiffs recovering as not good."

In other words, if the case went to trial, Judge Shoob thought the airlines would win. In that case, the lawyers who filed the suit -- in exchange for a percentage of any settlement -- would get nothing.

In his harshest assessment, Judge Shoob went on to say, "I think the case would have a hard time surviving a motion for summary judgment" -- a motion to dismiss the suit as groundless.

So what kept the airlines from acting on the judge's remarks and seeking to break their settlement deal? None of the airline attorneys would comment, although spokesmen for some airlines did. They said the airlines had made a deal and felt obligated to stick by it.

Delta Air Lines regards the case as "legal extortion," but agreed to settle because of the costs of fighting it, said a spokesman, Buddy Harper.

"Settling was simply an economic decision," he said. "We figured $13 million cash [Delta's share of the $50 million cash payment] was a pretty good deal, considering what it would cost to litigate. And the coupons might even increase traffic a little."

"If the airlines moved [to dismiss the case], we'd sue them for breach of contract," said Bill Hoese, an attorney who is working with Ms. Nast.

Ms. Nast noted that the airlines had faced damages of up to $6 billion if the case went to a jury trial. She said the risk of losing

such a large sum encouraged them to settle.

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