Withholding Hazard Pay Will Cost Airline Dearly

(CN) - A Nevada-based airline owes $5.2 million for failing to pay pilots and crewmembers working in Iraq and Afghanistan more than four times that amount in government-subsidized hazard pay, the 9th Circuit ruled Wednesday.

The workers can also seek punitive damages, the court found.

In a 2009 class action, Vision Airlines pilot Gerald Hester said that the company had kept more than $21 million in congressionally mandated hazard pay meant for workers in Baghdad and Kabul.

Vision Airlines had a federal subcontract with Capital Aviation in the summer of 2005 to fly supplies and people between Baghdad and Kabul. The government paid Capital Aviation about $27,000 for each round-trip flight through the war zones, and the contractor passed those funds on so that Vision Airlines could compensate pilots and crew under government guidelines for hazard pay.

Just two months into the contract, however, Vision allegedly stopped passing on the hazard pay and eventually fired everybody who remembered it, replacing them with employees who knew no better.

Vision resisted discovery in the case, refusing to hand over documents and steadfastly maintaining that there was no hazard-pay program, according to the court.

After warning the airline's Las Vegas-based attorney, Harold Gewerter, several times, Senior U.S. District Judge Roger Hunt struck Vision's answer to the lawsuit and entered a default judgment in favor of the class.

A jury later set damages $5.2 million, but the court said evidence would not permit punitive damages.

Both parties appealed to the federal appeals court in San Francisco.

On Wednesday, a three-judge panel affirmed the judgment against Vision Airlines and recommended reporting Gewerter to the Nevada State Bar for possible sanctions, including disbarment.

"Based on the record before us, Harold Gewerter appears to have committed numerous ethical violations," Judge Alfred Goodwin wrote for the panel.

Gewerter denied the allegations in an email to Courthouse News.

"I respectfully disagree and obviously the trial court did not come to the same conclusion," he said.

Vision's appeal took issue only with the trial court's decision to impose default judgment as a sanction.

The 9th Circuit noted, however, that it is not dispositive if "a court does not implement a lesser sanction before striking an answer."

"It is just one factor," Goodwin wrote.

The panel piled on by calling for punitive damages.

Nevada law allows punitive damages in cases where the "plaintiff has offered sufficient evidence of oppression, fraud, or malice," according to the ruling.

Hester's "complaint alleges facts that could allow a jury to conclude that Vision engaged in oppression, fraud, or malice when it refused to pay its employees the hazard pay they were due, when it fired those employees to whom it had already paid hazard pay, or when it continued to accept hazard pay monies from upstream contractors for years with no intention of distributing that money," Goodwin wrote. "Accordingly, we reverse the order dismissing the claim for punitive damages, and we remand for a jury trial to determine whether, by clear and convincing evidence, Vision was 'guilty of oppression, fraud or malice,' when it withheld the hazard pay from its employees."

Neither Vision Airlines nor its attorney, Edward Wasmuth, of Smith, Gambrell & Russell in Atlanta, Ga., responded to a request for comment.

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