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June 3, 1982

BENJAMIN FRANK CAIN, et al., Plaintiffs, against TRANS WORLD AIRLINES, INC., Defendant.

The opinion of the court was delivered by: SAND


The 57 individual plaintiffs in this action were at one time employed by the defendant, Trans World Airlines, Inc. ("TWA"), in Saudi Arabia. TWA utilized their services in connection with a management agreement it had with the Saudi Arabian Airlines Corporation ("Saudia").In 1976, the defendant advised the plaintiffs that they would be terminated from TWA employment, but that they would have the option of becoming direct employees of Saudia. Thirty-three of the plaintiffs chose to become Saudia employees and 24 plaintiffs sought other employment. All 57 plaintiffs claim that TWA's conduct constituted a breach of their employment contracts and negligent misrepresentation. *fn1" After 41 days of trial, the jury found damages on the breach of contract claim only, in an amount totalling approximately $1,748,300.

 TWA has moved for judgment notwithstanding the verdict pursuant to Rule 50(b) of the Federal Rules of Civil Procedure, based primarily on the alleged inadequacy of plaintiffs' proof of a claimed element of damages usually referred to at trial as "Domestic Firm Preference" (hereinafter "DFP"). The plaintiffs have cross-moved for a determination by the Court as to pre-judgment interest, and for a new trial on damages pursuant to Rule 59 of the Federal Rules of Civil Procedure, on the ground of the inadequacy of damages.

 DFP Re 33 Plaintiffs Who Remained in Saudi Arabia

 A. History of the DFP Issue

 In addressing TWA's motion for judgment notwithstanding the verdict, we must first briefly sketch the history of DFP in this case. When the issue first came before the Court, this element of damages was described as the premium attached by Americans to employment by an American Company, as it is determined by the market. At that time, the Court included within DFP the following four elements:

 "1. American Social Security benefits.

 2. Physical security and availability of evacuation plans.

 3. Possible reassignment to the States whether as a matter of contractual obligation or simply a possible opportunity which was enhanced by employment by an American company.

 4. Greater job security in the event of political or social upheavals in a volatile part of the world, etc."

 (Tr. 862).

 The Court ruled that the jury would be permitted to decide whether DFP exists, and if so, to evaluate it. (Tr. 863). However, the Court noted that the problems of proof with respect to the premium were "formidable." (Tr. 863). The Court then suggested how the plaintiffs might best prove the element of damages:

 "The clearest, most objective evidence would be a statistical presentation demonstrating that the pay scales of American employees of American companies in Saudi Arabia were lower than those for Americans doing comparable work for the Saudi employers in Saudi Arabia -- thus evidencing that the marketplace recognizes and reflects the existence of the premium for an American employer.

 Expert testimony by a personnel recruiter for Saudi Arabian employment in 1976 might also be helpful and competent on this subject."

 (Tr. 863-64).

 This latter suggestion was repeated frequently during the trial.

 During the plaintiffs' case, a number of the individual plaintiffs testified that if they had been given a choice between staying with TWA or becoming Saudia employees at a 15 percent higher salary, they would have remained TWA employees.These plaintiffs listed various reasons for this hypothetical decision, including perceived benefits in travel allowances, payment in American currency, retirement provisions, TWA reassignment rights, and physical security.

 The sole witness to testify during the damage phase of the case in support of the existence and value of DFP was the plaintiffs' expert, Dr. Stephan Michelson. Michelson first testified outside the presence of the jury on January 6, 1982, on voir dire. Michelson described his methodology in assessing DFP as follows:

 "I am assuming, I was told I could assume or should assume, that each of these plaintiffs rejected an offer 15 percent above their TWA salary, rejected in the sense they would not voluntarily have gone from TWA to Saudia for 15 percent increase.

 That, of course, is the concept we're aiming at: What percentage increase in pay would have enticed them to go from TWA to Saudia while both were possibilities?That is what this concept is about and 15 percent is, I am told, now, a floor. That's not enough.

 If I have observed as an economist that they [the plaintiffs] have rejected a 15 percent offer to voluntarily move from TWA to Saudia, now my problem is to state a number that would be enough to get these people to move, and, of course, all I can try to do is find a low number.

 The proper number could be 100 percent. I would not know that. We have to deal with what I do know and that is that 15 percent is too low so there are two principles I follow.

 One principle I follow is how do negotiations occur if one rejects an offer of 15 percent? What's the next offer?

 The answer to that is almost unvariably 20 percent.

 I'm not claiming that no one would have taken the 20 percent offer. I don't know that. But I now ask, given a rejected 15 percent offer and the next offer would be 20 percent, I ask how is human behavior distributed?

 If we had 57 people and were in a one-on-one negotiating situation, what would happen? Would ...

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