Second Ave. Sagas

On lawsuits, raises and rational economics

Written by

Benjamin Kabak

in

,

If you had a 10 percent chance to save $80 million, how much would you pay to do so? What if you had a 25 percent chance to save $300 million? In a traditional economic model, the right answers are $8 million and $75 million respectively. Why then are Pete Donohue and the Daily News so surprised by the MTA’s legal bills?

In his column today, Donohue slams the authority for “paying hired-gun lawyers more than $540 an hour to deny token booth clerks earning $18 an hour a modest raise.” The MTA, he notes, is trying once again to overturn the third year of raises awarded to the TWU by an arbitration panel in 2009. After an unsuccessful lawsuit and appeal to stop the first set of raises, the MTA racked up a legal bill of nearly $700,000 after claiming a victory would have saved them close to $300 million.

Riders, of course, are “baffled” by what one man called “a clear example of the MTA wasting hundreds of thousands of dollars of public money on something they agreed on anyway.” Yet, they shouldn’t be. The MTA, which can’t really afford to dole out more money in raises, can save $80 million, and if it feels its chances of winning — admittedly slim due to the precedence of courts upholding binding arbitration awards — are worth the expenditures, then it’s a cost that makes economic sense. Despite Donohue’s portrayal of the challenge as a class issue, it is simply one of economics through and through.

That said, the real issue here concerns the bigger picture. Later this year, the MTA and TWU will again sit down to negotiate a new contract, and while the MTA won’t accept an arbitration offer so quickly this time, they do plan to dig in for a long fight. It might make more sense to save those labor bullets for later in the year and avoid this uphill cost. The MTA may be doing its legal due diligence, but this is a battle it will likely lose in court while courting bad press as the larger labor war with more at stake looms on the horizon.

Comments

17 responses to “On lawsuits, raises and rational economics”

  1. JK

    It is about the bigger picture. Maybe the MTA thinks if they delay the arbitrated raise long enough, it will seem like a new raise in contract negotiations — or at least something to negotiate over. So, the MTA doesn’t have to win the case, they just need the delayed raise to save them more than the legal fees in a negotiation. Right or wrong, the MTA has probably concluded that the TWU will hate them regardless of when this raise arrives.

    Reply
    1. Donald

      “Maybe the MTA thinks if they delay the arbitrated raise long enough, it will seem like a new raise in contract negotiations”

      Do you think the TWU is that stupid?

      Reply
    2. Aaron

      Agree with Donald but also, is it delayed? I can’t imagine any sober federal judge that doesn’t like being overturned issuing an injunction in the MTA’s favor.

      Reply
    3. bob

      They don’t save anything, because they pay retroactively to the new contract date. Well, they could make a little money on interest, but at current rates that’s negligible.

      Reply
  2. Aaron

    Ben,

    They’re challenging the same award again? Assuming that this isn’t thrown out on account of claim preclusion (which it should be), “changed circumstances” were not one of the very few and very strict reasons for an arbit award to be thrown out as of 2006 (when I made myself intimately familiar with appeals of labor arbitrations during an internship with a federal judge). They’re nuts. They’d be better off buying $700,000 in lottery tickets, or perhaps buying boxes of fortune cookies in bulk in hopes that some of them have good fortunes. Worse yet, if they really are challenging the same award again, they could be forced to pay defendants’ legal bills.

    I totally agree that they were fiscally reasonable in trying to overturn it the first time – the costs of the award did, of course, greatly exceed the costs of challenging it. But then, the chances of success, though low, were at least measurable. This time they’ve got to be near zero. Haven’t these people heard of res judicata?

    The Supreme Court has made itself quite clear on this issue; for good or ill, labor arbitration is God, and you do not challenge God unless God’s Arbitrator was drunk or completely refused to hear one side’s case. Their rulings (which I don’t really agree with) view it as a matter of contract and apply the basic rule that “the parties are entitled to the benefits of their bargain,” e.g., the outcome of the arbitration. If this is the same award that was challenged the last time, the MTA has lost its mind.

    Reply
    1. Benjamin Kabak

      On the res judicata note, the last lawsuit did not preclude challenging the third year of raises. I’m with you on the inanity of the challenge though. It’s nearly impossible to win this case.

      Reply
    2. BrooklynBus

      As I said in another post, the MTA has one mission in mind, do what ever it takes to save money. Doesn’t matter if your chance of winning is practically zero. Nevermind the ill-will this will even bringing this lawsuit will create between management and labor, and cause people to care less about doing a good job. None of that matters.

      What’s infuriating is that they will waste $700,000 for this but won’t spent $25,000 to improve bus service and help the passenger. One suggestion I submitted was denied for that simple reason. They stated that they could not afford to spend that amount of money annually, when in fact it was a zero cost change anyway. No consideration was even given to added ridership that would result.

      Reply
      1. Benjamin Kabak

        Two questions:

        1. Do you get why the MTA is in save-money mode right now? They are legally obligated to balance their budget and can’t otherwise.

        2. If something is going to cost $25,000, how is it a zero cost change? That doesn’t strike me as a zero cost change.

        Reply
        1. BrooklynBus

          1. Yes I do. But they were still in money saving mode when they had a surplus.

          2. I made that suggestion around 2004 when I don’t believe they had a deficit. A $25,000 change is a zero cost change A) when it doesn’t cost $25,000 in the first place and B) when you automatically assume that making an improvement will result in not a single new added fare. (I computed that an average of two new fares per trip would have covered an additional $25,000 operating cost.) The $25,000 was based on an increase in route mileage of 1/4 mile. In actuality, the additional mileage was under 1,000 feet and would only add about two or three minutes to the route mileage and making the route accessible to several hundred additional families.

          Reply
  3. JK

    “Is the TWU stupid?” How about, the public has a severe short attention span problem. A corollary is the public, and press, have big problems with complexity. Delaying pay increases through litigation could make sense for the MTA if it: adds another element to the public negotiation with TWU that MTA can take credit for agreeing to; pressures TWU leadership by delaying when they can take credit for the pay increase;create uncertainty within TWU leadership about when future gains can be credited. If the MTA can show it can delay a future potential arbitration reward until after the next TWU election, that put’s pressure on TWU leadership.

    Reply
  4. Noah

    I know I’m harping on a single point, but what do token booth clerks do exactly? They don’t take plastic, they won’t sell a single ride, they oftentimes refuse to give directions, nor will they guess how long it’s been since the last train came late at night. Most could use a course in customer service and courtesy.

    Reply
    1. Bolwerk

      There’s a guy on usenet who insists they do splendidly useful work, and thinks every station should be staffed with them!

      Reply
  5. Alon Levy

    Ben, there are a couple of reasons why this is not as slam-dunk smart as you make it look:

    1. Employees who feel job-insecure don’t work as well – not in industries that are highly routinized, making an academic-style publish-or-perish system not viable.

    2. Due to optimism bias, the legal department is likely to overestimate the probability of winning, and therefore the expected amount of money recovered from the lawsuit.

    3. Lawsuits introduce an element of unpredictability into any planning. It may work for other businesses, but for long-term infrastructure, it’s terrible. In fact some agencies pay a premium to avoid litigation – for example, overcompensating property owners to entice them to sell without eminent domain.

    Reply
  6. Anon

    you do realize this is Dellaverson…right?

    Reply
    1. Benjamin Kabak

      Dellaverson hasn’t been with the MTA in years. He was behind the arbitration offer but not these appeals.

      Reply
  7. nycpat

    These delaying tactics make the union more united than it would otherwise be.

    Reply
  8. bob

    “if [MTA] feels its chances of winning — admittedly slim due to the precedence of courts upholding binding arbitration awards — are worth the expenditures, then it’s a cost that makes economic sense.”

    First, if you look at the history of the labor laws and court cases in NY, I’d say the MTA’s “chances of winning” are ABSOLUTE ZERO. (What part of “binding” does the highly paid Mr. Walder fail to comprehend?) The court decisions so far certainly support that hypothesis. So it doesn’t make economic sense.

    Second, the “traditional economic model” referred to at the opening only works over the course of multiple trials to produce an average result. But court cases are one time deals: either you lose and get zero, or win and get 100%. One thing we can be sure of is that you will never get 10%, or 25%. So if the odds of winning are “slim”, you have to look at it as a likely zero percent outcome. Really it’s a lottery ticket, not a “traditional economic model”. Lotteries are fun, but not a rational basis for a finance plan.

    Reply

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