Airlines facing class action suits
By Kim Tong-hyung
Staff reporter
Korean airlines and gas companies are bracing for what could be an avalanche of compensation claims after the country's fair trade watchdog exposed them of price-fixing.
However, it bears further watching whether the class action lawsuits could gain legal legs as the law currently recognizes representative action only for breaches in stock market regulations.
At least two freight companies, including the Busan-based TCE, were confirmed as plaintiffs in a consolidated class action prepared against 21 airlines, including Korea's Korean Air and Asiana Airlines, which were fined by the country's Fair Trade Commission (FTC) for their role in price-fixing in the airline cargo business.
Lawyers are also readying class action on behalf of Korean drivers against gas companies, who were also penalized by the FTC for colluding on liquefied petroleum gas (LPG) prices.
The litigation against the gas companies has already secured the backing of 27 citizens, a mutual aid organization of taxi companies, and the influential civic group, People's Solidarity for Participatory Democracy.
The FTC seems supportive of the sprouting legal actions, saying it is considering its investigation material on both cases to the plaintiff lawyers.
``Freight companies sustained the most obvious damage in the price-fixing schemes of the airlines and we believe more companies will join. We are also considering pushing the class action jointly with companies under the Korea Shippers' Council (KCS),'' said Lee Dae-soon, a lawyer from the Chon & Lee Law Corporation, a law firm preparing for the class action suits against the airlines. The KCS, a sub-organization of the Korea International Trade Association (KITA), is a leading industry lobby of freight companies.
``Usually, the fines set by anti-trust regulators are equivalent to 2 to 3 percent of the illicit earnings cumulated by the companies. So naturally, it would be reasonable to claim for a level of compensation about 30 times larger than the fines,'' said Lee, suggesting that his law firm would be chasing a max 3.58 trillion won payday.
In May, the FTC hit a total of 19 airlines with a combined 120 billion won ($98.16 million) fine for what it claimed was the biggest cartel found to be operated by airlines ever.
Local carriers Korean Air and Asiana were hit with the heaviest penalties of 48.74 billion won and 20.66 billion, respectively, although Korean Air's fine was discounted to 22.19 billion won after it was granted leniency for providing crucial evidence to the investigation.
The FTC probe was an extension of investigations pushed by anti-trust regulators from the United States and the European Union. The case raised concerns that that international transport alliances and other industry partnerships are being abused by the airlines to carry out price-fixing schemes, as they colluded over fuel charges and other levies for cargo handling in recent years.
In hitting six refineries ― SK Energy, SK Gas, GS Caltex, S-Oil, Hyundai Oil Bank, and E1 ― with a combined 668.9 billion won fine in December, the FTC claimed that the companies have pocketed a massive amount of wealth since 2003 through price collusion. The LPG prices of the six companies differed by less than 1 won per kilogram during the six-year period, FTC officials said.
The first class action suit against the gas companies will be filed by the end of the month, according to Kim & Kims, the law firm that is preparing it.
The class action bids against airlines and gas companies garner particular action as they could possibly trigger legal changes of significant consequences.
The country had introduced class actions lawsuits in 2005 to protect investors from stock-price manipulation, accounting fraud, false statements and other financial irregularities related to the stock market. However, there are no existing regulations on class action lawsuits in other areas, so the courts granting compensation for anti-trust damages actions would be a massive statement.
Blurry legal grounds aren't the only source for plaintiff lawyers in advancing their claims. It's questionable whether the lawyers in the case against the airlines would manage to garner enough plaintiffs when freight companies have to be concerned about risking their business relationships with Korean Air and Asiana.
Gathering plaintiffs wouldn't be much of a problem for lawyers fighting the gas companies, but the calculation of damages could be a difficult challenge for them.
Although the FTC said the six gas companies combined gained 21 trillion won in LPG revenue through the six years they have been involved in price fixing, it admitted that it was difficult to pinpoint how much of that profit was unlawfully earned.