Asiana Seen Saving Millions With Tactic to Bar U.S. Suits

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By Erik Larson - Jul 9, 2013 10:32 AM ET

Asiana Airlines Inc. (020560) could avoid hundreds of millions of dollars in verdicts and settlements by employing a tactic under international law to bar Chinese and South Korean passengers from suing in victim-friendly U.S. courts over the crash of Flight 214.

With the possibility of hundreds of claims against the South Korean airline, litigators said the carrier will be looking for ways to minimize the expense of the July 6 disaster, which killed two 16-year-old Chinese girls and injured 181 other passengers when a 777 jet tried to land at San Francisco International Airport.

Asiana may argue under the Montreal Convention that most if not all of the Chinese and South Korean passengers’ ultimate destination was their home countries, since they probably held round-trip tickets, and that’s where they should file their claims. Win or lose on where claims are heard, it will probably be Asiana’s insurers that eventually pay the bill for claims, air-crash litigators said.

The flight from Seoul had 307 people on board, including 16 crew members. Some 141 passengers were from China, 77 from South Korea and 61 from the U.S. Lawsuits over international airline accidents are governed by the convention, a treaty signed by all three countries that states the place where cases may be handled is based on factors including a passenger’s final destination, said airline litigation attorney Mitch Baumeister.
‘Ultimate Liability’

“The airlines and their insurers will do everything they can to transfer the case to a jurisdiction where their ultimate liability is going to be small,” said Joel Faxon, a New Haven, Connecticut, trial lawyer who litigated cases tied to the 2009 Colgan Air crash in Buffalo, New York, and those of the Sept. 11, 2001, terrorist attacks. The U.S. has a “generous judicial system” and there are no caps on payouts for wrongful death and injury cases in California.

Chinese and South Korean court awards are significantly limited in comparison to U.S. courts, Baumeister said.

Such a litigation strategy “will impact tremendously on what the airline can pay out in damages,” said Baumeister, a trial lawyer for 30 years whose firm sued over aviation accidents including Delta Air Lines Inc. (DAL)’s Comair regional flight that crashed in 2006, and the November 2001 crash of American Airlines Flight 587 in New York. Challenging the jurisdiction of Flight 214 lawsuits will be “the biggest play by the defense and insurance companies.”
Save Millions

All of the lawyers interviewed agreed that Asiana could save hundreds of millions of dollars if such a strategy wins out in court. Shares of Asiana, South Korea’s second-largest airline, fell 5.8 percent to close at 4,825 won in Seoul on July 8, the first day of trading after the disaster.

The shares rose 1.1 percent today.

“It’s too early to discuss those issues,” Asiana spokeswoman Lee Hyo Min said by telephone in Seoul today. “We are putting all our efforts into finding out the cause of the accident.”

U.S. investigators are trying to determine why the Asiana pilots didn’t react to a critical loss of airspeed until seven seconds before the plane slammed into a sea wall short of the runway. South Korea is probing which of the two pilots was in control of the plane on approach. One was transitioning from flying the Boeing 737 and had 43 hours’ experience on the 777.


Asiana Seen Saving Millions With Tactic to Bar U.S. Suits
By Erik Larson - Jul 9, 2013 10:32 AM ET

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NTSB via Getty Images
NTSB investigators examine the wreckage of Asiana Airlines flight 214 the day after the crash on July 6, 2013 in San Francisco.

Asiana Airlines Inc. (020560) could avoid hundreds of millions of dollars in verdicts and settlements by employing a tactic under international law to bar Chinese and South Korean passengers from suing in victim-friendly U.S. courts over the crash of Flight 214.
NTSB's Deborah Hersman News Conf. on Asiana Crash
43:25

July 8 (Bloomberg) -- Deborah Hersman, chairman of the National Transportation Safety Board, speaks at a news conference about the latest developments in the investigation into the crash landing of an Asiana Airlines Inc. Boeing Co. 777 in San Francisco on July 6. (Source: Bloomberg)
Asiana Airlines Crash: First Responders News Conf.
1:14:47

July 8 (Bloomberg) -- San Francisco Fire Chief Joanne Hayes-White and Police Chief Greg Suhr talk about the response to the July 6 crash landing of Asiana Airlines Inc. Flight 214 at San Francisco International Airport. Two of 307 people on board the Boeing 777 died in the accident. Other San Francisco-area fire and emergency workers also speak. (Source: Bloomberg)

With the possibility of hundreds of claims against the South Korean airline, litigators said the carrier will be looking for ways to minimize the expense of the July 6 disaster, which killed two 16-year-old Chinese girls and injured 181 other passengers when a 777 jet tried to land at San Francisco International Airport.

Asiana may argue under the Montreal Convention that most if not all of the Chinese and South Korean passengers’ ultimate destination was their home countries, since they probably held round-trip tickets, and that’s where they should file their claims. Win or lose on where claims are heard, it will probably be Asiana’s insurers that eventually pay the bill for claims, air-crash litigators said.

The flight from Seoul had 307 people on board, including 16 crew members. Some 141 passengers were from China, 77 from South Korea and 61 from the U.S. Lawsuits over international airline accidents are governed by the convention, a treaty signed by all three countries that states the place where cases may be handled is based on factors including a passenger’s final destination, said airline litigation attorney Mitch Baumeister.
‘Ultimate Liability’

“The airlines and their insurers will do everything they can to transfer the case to a jurisdiction where their ultimate liability is going to be small,” said Joel Faxon, a New Haven, Connecticut, trial lawyer who litigated cases tied to the 2009 Colgan Air crash in Buffalo, New York, and those of the Sept. 11, 2001, terrorist attacks. The U.S. has a “generous judicial system” and there are no caps on payouts for wrongful death and injury cases in California.

Chinese and South Korean court awards are significantly limited in comparison to U.S. courts, Baumeister said.

Such a litigation strategy “will impact tremendously on what the airline can pay out in damages,” said Baumeister, a trial lawyer for 30 years whose firm sued over aviation accidents including Delta Air Lines Inc. (DAL)’s Comair regional flight that crashed in 2006, and the November 2001 crash of American Airlines Flight 587 in New York. Challenging the jurisdiction of Flight 214 lawsuits will be “the biggest play by the defense and insurance companies.”
Save Millions

All of the lawyers interviewed agreed that Asiana could save hundreds of millions of dollars if such a strategy wins out in court. Shares of Asiana, South Korea’s second-largest airline, fell 5.8 percent to close at 4,825 won in Seoul on July 8, the first day of trading after the disaster.

The shares rose 1.1 percent today.

“It’s too early to discuss those issues,” Asiana spokeswoman Lee Hyo Min said by telephone in Seoul today. “We are putting all our efforts into finding out the cause of the accident.”

U.S. investigators are trying to determine why the Asiana pilots didn’t react to a critical loss of airspeed until seven seconds before the plane slammed into a sea wall short of the runway. South Korea is probing which of the two pilots was in control of the plane on approach. One was transitioning from flying the Boeing 737 and had 43 hours’ experience on the 777.

In the most recent U.S. airline disaster before Flight 214, the crash of Colgan Flight 3407, 50 passengers and crew and one person on the ground were killed. Families of the victims sued for more than $900 million.
Lawsuits Delayed

Lawsuits were delayed by the airline’s bankruptcy filing, and most of the families settled for undisclosed amounts, according to court records. Several remaining cases are set for trial in federal court in Buffalo in March.

If the Flight 214 investigation shows pilot error was the cause of the disaster, passenger lawsuits will focus on Asiana and the Montreal Convention will apply, Faxon said in a telephone interview. If the probes show manufacturers such as Boeing Co., maker of the doomed aircraft, or engine-maker United Technologies Corp., were at fault, the lawsuits will be product-liability cases and passengers may automatically sue in the U.S.

As it approached the San Francisco airport, a pilot on Flight 214 is heard on the cockpit voice recorder calling for more speed seven seconds before hitting the ground, U.S. National Transportation Safety Board Chairman Deborah Hersman said at a July 7 press conference. The airplane slowed so much that a cockpit warning of an impending stall sounded three seconds later, and the pilots finally tried to abort the landing with just 1 1/2 seconds left before the crash.
Plane Slowed

Crash investigators said they don’t yet know why the plane slowed to almost 40 miles an hour below its target speed or why the pilots took no evasive action until seven seconds before impact.

There was “no discussion” by the pilots of any aircraft anomalies before the crash, Hersman said.

One way in which lawyers representing non-U.S. passengers may seek to get around the airline’s potential defense to U.S. suits is to argue that San Francisco was their clients’ final destination because the return tickets are separate transactions, said Robert Clifford, a trial lawyer in Chicago.

“Nothing would surprise me about the insurers here trying to take a position that totally eviscerates the rights of these foreign citizens,” said Clifford, who claims to have been part of litigation tied to every large commercial aviation disaster case in the U.S. in the last 30 years. “This is the battleground in personal injury cases.”
Years to Resolve

Litigation from the San Francisco crash that is allowed to proceed in the U.S. will probably be consolidated in San Francisco federal court and take three to five years to be resolved, the lawyers said.

But plaintiffs’ lawyers said that most passengers will probably settle before the cases go to trial.

If lawsuits over the two deaths go forward in the U.S., Asiana will still probably pay less in any adverse verdict or settlement than it would have if the fatalities had been older or supporting families, said Jim Brauchle, an aviation litigator at Motley Rice LLC in Charleston, South Carolina. The girls’ families will still get millions of dollars each, he said.

“Under U.S. damages law, when you’re talking about a teenager who doesn’t have a job or substantial income loss, they look at it from a purely economic standard,” Brauchle said today in a telephone interview. “The deaths would be worth millions of dollars more if they’d been a physician or a CEO with small children.”

Individual aircraft are usually insured for about $1.75 billion to cover accident-related payouts, Clifford said. The 1999 Montreal Convention, which replaced the system of liability derived from the Warsaw Convention, covers aviation rights and compensation for international flights. The accord, signed by members of the United Nations’ International Civil Aviation Organization, sets standards ranging from payouts for lost luggage to setting jurisdiction for lawsuits over accidents.
Montreal Convention

Under the convention, airlines are required to pay damages at a “special drawing rights” rate defined by the International Monetary Fund that currently comes out to more than $100,000 for passengers with proven injuries, Baumeister said. If passengers seek more than that, a carrier can only avoid a larger payout by proving it took all necessary measures to avoid the crash.

John Dern, a spokesman for Chicago-based Boeing, declined to comment on possible legal strategies. Sara Banda, a spokeswoman for Hartford, Connecticut-based UTC’s Pratt & Whitney unit, said the company was cooperating with the probe and declined further comment.

“No one can predict at this stage how much each case is worth in money terms, as there are too many variables,” and each case will be examined individually, said Los Angeles attorney Ronald Goldman, who sued over the 2003 Air Midwest Flight 5481 crash in Charlotte, North Carolina. “Having said that, most claims will be very substantial and likely in seven figures for U.S. residents and citizens and others who can sustain venue in the U.S.”

Clifford said that crash investigations often unfold slowly and take unexpected turns, affecting the course of subsequent court cases.

“Many of these cases appear to be one thing and then as time goes on with the investigation and more information becomes known the complexity changes, and I think that’s what you’re going to see here,” the attorney said. “Here, the obvious concern and finger pointing tends to be pilot error.”

To contact the reporter on this story: Erik Larson in New York at [email protected]

To contact the editor responsible for this story: John Pickering at [email protected]

Asiana Seen Saving Millions With Tactic to Bar U.S. Suits