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Gorrill v. Icelandair/Flugleidir and International Air Bahama

April 29, 1985


Appeal from a judgment of the United States District Court for the Southern District of New York, Robert L. Carter, Judge, awarding appellee airline pilots and flight engineers damages under New York law arising from terminations of appellees by subsidiary of appellant airline in violation of retirement provisions of subsidiary's operations manual. Judgment affirmed except as to damages for lost fringe benefits, as to which it is reversed and remanded.

Kaufman, Oakes, and Meskill, Circuit Judges.

Author: Oakes

OAKES, Circuit Judge :

Applying New York contract and corporate law, the United States District Court for the Southern District of New York, Robert L. Carter, Judge, found that International Air Bahama ("IAB"), a subsidiary of Icelandair/Flugleidir ("Icelandair"), had breached its contractual obligations in respect to appellee pilots and flight engineers, former IAB employees, by terminating them in contravention of provisions set forth in an IAB Operations Manual. The district court then pierced IAB's corporate veil, holding Icelandair responsible for the damages. On appeal, Icelandair claims that, because appellees were employees at will, their terminations do not create a cause of action, notwithstanding any breach of provisions set forth in the IAB Operations Manual; that there was no breach of the IAB Operations Manual in any event; that the corporate veils of IAB and its holding company should not have been pierced; that, in any event, the district court lacked subject matter jurisdiction under the Railway Labor Act; and, as a last resort, that damages and prejudgment interest were improperly calculated or imposed. We affirm, except as to damages for allegedly lost fringe benefits.


Icelandair, an Icelandic corporation, known in Iceland as Flugleidir, H.F., provides passenger and air cargo service between Iceland, the United States, and Luxembourg. IAB, a corporation under the laws of the Bahama Islands, provided passenger air service between Europe and the Bahamas, flying occasionally into New York. In 1969, Icelandair acquired IAB through a wholly owned Bahamian holding company, Hekla Holdings, Ltd.*fn1 As a result of the acquisition, Icelandair obtained four of the seven seats on IAB's board of directors, its chief executive officer also became chief executive officer for IAB, reporting directly to the Icelandair executive committee. In addition, Icelandair paid the salaries of IAB's director of operations and all other IAB officers and executives, Icelandair assumed all accounting, administrative, marketing and sales functions for IAB, and IAB crew members received identification cards describing them as Icelandair employees.

In 1968 and 1969, appellees became employees of IAB in connection with IAB's passenger routes; six of them served as pilots and five as flight engineers. Their service to IAB, however, was not limited to passenger service flights. In 1977, as part of a joint venture with Air India and Seaboard World Airways, Inc., Icelandair agreed to supply flight crews for Air India cargo flights from London to Bombay and other points in India, and from India to Tokyo. Thereafter, until March 1, 1983, Icelandair executed its part of the venture through IAB, which supplied Air India with flight crews whose members were IAB employees listed on the same seniority roster with IAB passenger flight crews.

On October 1, 1980, four of the appellee pilots were discharged without severance pay; on December 1, 1980, the other two appellee pilots and all of the appellee flight engineers were discharged although with severance pay. As of the date appellees were discharged, all of the retained pilots and flight engineers for both IAB's passenger operations and the Air India cargo flights had less seniority than the discharged appellees. IAB ended its passenger service on May 18, 1981, discontinued supplying crews for Air India cargo service on March 1, 1983, and, indeed, ceased doing business altogether during the pendency of this appeal and moved for dismissal as a party appellant, a motion which was granted.

Although the terms of employment of the appellees are in dispute, both parties agree that each appellee, when first hired, signed an employment agreement that covered a term of years and recited obligations to work full-time for IAB and to repay a proportionate amount of training expenses should the employee unilaterally terminate employment before the specified term. These employment agreements, however, did not set forth any of the other terms and conditions of employment. The district court found that, once on the job, appellees discussed their desire for a written employment contract with IAB's CEO and its director of operations, but on each occasion were advised that no agreement was needed, "since all the terms and conditions of employment were contained in the Operations Manual," which, they were assured, guaranteed their seniority, job security, and retirement rights. The court further found, in findings that are not seriously contested on appeal, that appellees' superiors at IAB, as well as the officials of Icelandair, conducted themselves as if the rules and regulations in the Operations Manual were binding on IAB in that changes in terms and conditions of employment obtained through negotiations were thereafter included in the Operations Manual. The Operations Manual, as revised and as in effect on the dates of appellees' discharges, provided expressly that

seniority shall be the sole factor for determining demotions, transfers or termination caused by job elimination or force reduction when the senior employee is qualified to perform the available work or can be adequately trained in a reasonable or practical period of time.

IAB Operations manual, at 1-3-21 (Jan. 1, 1979). While the Operations Manual directed that pilots be retired at age sixty, it also provided that pilots employed prior to January 1, 1977, be allowed to remain in the cockpit until age sixty-three, provided they passed first class physical examinations at four-month intervals. The retirement age for flight engineers was set at age sixty-five.*fn2

Prior to appellees' discharges, IAB adhered strictly to the seniority provisions set out in the Operations Manual. At some point in time, however, Icelandair directed IAB to give preference to Icelanders and Bahamians in filling job vacancies, causing some concern to appellees, who were subsequently assured by Tedd Hope, IAB's director of operations, that IAB would "follow the policies outlined in the Operations Manual" and that Sigurdur Helgason, the CEO of Icelandair and IAB, had given Hope assurances that the jobs of all present crew members were safe. Even at trial, Helgason agreed that "the operations manual guides the company's operations," a statement in accord with his personal assurance to appellee William E. McDonald, and with his statements in several memoranda to Hope.

Nevertheless, as the district court found, sometime in 1979, because IAB and Icelandair had an excess of crews, the union representing Icelandair employees mounted pressure on Icelandair to replace non-Icelandic employees at affiliated companies with Icelandic nationals. Helgason suggested to Hope that some of IAB's American pilots be terminated by imposing a rule requiring termination of pilots at age sixty. At trial, Icelandair attempted to justify such a rule on the basis of section of the Standards and Practices set forth by the International Civil Aviation Organization ("ICAO"),*fn3 which had been adopted by the Bahamas in 1977 and which provides that a contracting state, having issued a pilot's license, shall not permit the holder thereof to act as a pilot in command after his sixtieth birthday. Appellees' licenses, however, had been issued by Iceland or the United States, not by the Bahamian government. Moreover, Iceland itself had filed an exception to the ICAO Standards and Practices that would postpone retirement for pilots flying Iceland-registered aircraft until age sixty-three. Hope has known about the ICAO standards when the Operations Manual had been revised, and yet had told appellees on numerous occasions that they could fly until age sixty-three. Indeed, the Bahamian government had never issued regulations or instructions requiring IAB to adhere to the ICAO standards, and appellees Gorrill and Bacon piloted IAB passenger flights for over a ...

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