Prosterman et al v. Airline Tariff Publishing Company, et al, No. 3:2016cv02017 - Document 107 (N.D. Cal. 2016)

Court Description: ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS. Signed by Judge Maxine M. Chesney on December 8, 2016. (mmclc1, COURT STAFF) (Filed on 12/8/2016)
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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 CYNTHIA PROSTERMAN, ET AL., Plaintiffs, 8 AMERICAN AIRLINES, INC., et al., Re: Dkt. Nos. 93, 94 Defendants. 11 United States District Court Northern District of California ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS v. 9 10 Case No. 16-cv-02017-MMC 12 13 Before the Court are two motions: (1) "Motion to Dismiss Amended Complaint," 14 jointly filed September 2, 2016, by defendants American Airlines, Inc. ("American"), 15 United Airlines, Inc. ("United"), and Delta Air Lines, Inc. ("Delta") (collectively, "Airline 16 Defendants"); and (2) "Motion to Dismiss the First Amended Complaint," filed September 17 2, 2016, by defendant Airline Tariff Publishing Company ("ATPCO"). Plaintiffs have filed 18 a consolidated opposition to the motions, to which the Airline Defendants and ATPCO 19 have separately replied. Having read and considered the papers filed in support of and in 20 opposition to the motions, the Court rules as follows. 1 21 BACKGROUND 22 Plaintiffs are forty-one travel agents who assert two antitrust claims against 23 American, United and Delta, three commercial passenger airlines that "together control 24 over 51 percent of the market for domestic passenger air travel in the United States" (see 25 First Amended Complaint ("FAC") ¶ 1), and against ATPCO, a "not-for-profit corporation" 26 owned by a group of airlines that includes the Airline Defendants (see FAC ¶ 14) and 27 1 28 By order filed October 24, 2016, the Court took the matters under submission. 1 "engaged in the collection, processing and dissemination of air passenger transportation 2 fare data" and "publishing of airline rules" (see FAC ¶ 25). 3 In the First Cause of Action, titled "Price Fixing," plaintiffs allege "the Airline 4 Defendants and [ATPCO] conspired" to change the "Category 10 airfare rules" ("CAT 5 10"), specifically, "to change [the] CAT 10 rules on airline combinability in order to 6 prevent air travelers from being able to combine the least expensive, non-refundable, 7 one-way fares for multi-city destination flights" and "to require instead that the 8 passengers pay hundreds and even thousands of dollars more for the same multi-city 9 flights than had been charged before the CAT 10 rule was changed." (See FAC ¶ 62.) For example, prior to the rule changes, although United's fare for a flight from Los 11 United States District Court Northern District of California 10 Angeles to New Orleans was $363, a passenger could obtain a ticket for a flight between 12 those two cities at the lower cost of $189, by combining on one ticket the price for a one- 13 way ticket from Los Angeles to Houston ($102) and the price for a one-way ticket from 14 Houston to New Orleans ($87). (See FAC ¶ 66; Ex. C at 3.)2 15 In the Second Cause of Action, titled "Coordination Facilitating Device," plaintiffs 16 allege ATPCO is "a system that has been formulated and is operated in a manner that 17 unnecessarily facilitates coordinated action against the Airline Defendants" and which 18 system "each of the [d]efendants" agreed to use to set "rules for multi-city domestic air 19 passenger transportation services." (See FAC ¶¶ 93-94.) LEGAL STANDARD 20 21 Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure "can be 22 based on the lack of a cognizable legal theory or the absence of sufficient facts alleged 23 under a cognizable legal theory." See Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 24 2 25 26 27 28 Although the rule changes restrict combining on a "single" ticket "lower, nonrefundable, one-way fares on multi-city itineraries" (see FAC ¶¶ 62, 79(a)) passengers may "continue to purchase fares for each leg of a multi-city itinerary where each leg is booked separately," i.e., by purchasing a separate ticket for each leg (see FAC ¶ 79(d).) "Traveling on separate tickets," however, "increases the likelihood of travel impacts such as missed connections for checked baggage or cancelled tickets if travelers miss a connection." (See FAC Ex. B at 3.) 2 1 699 (9th Cir. 1990). Rule 8(a)(2), however, "requires only 'a short and plain statement of 2 the claim showing that the pleader is entitled to relief.'" See Bell Atlantic Corp. v. 3 Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). Consequently, "a 4 complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual 5 allegations." See id. Nonetheless, "a plaintiff's obligation to provide the grounds of his 6 entitlement to relief requires more than labels and conclusions, and a formulaic recitation 7 of the elements of a cause of action will not do." See id. (internal quotation, citation, and 8 alteration omitted). 9 In analyzing a motion to dismiss, a district court must accept as true all material allegations in the complaint, and construe them in the light most favorable to the 11 United States District Court Northern District of California 10 nonmoving party. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). "To 12 survive a motion to dismiss, a complaint must contain sufficient factual material, accepted 13 as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 14 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "Factual allegations must be 15 enough to raise a right to relief above the speculative level[.]" Twombly, 550 U.S. at 555. 16 Courts "are not bound to accept as true a legal conclusion couched as a factual 17 allegation." See Iqbal, 556 U.S. at 678 (internal quotation and citation omitted). 18 19 DISCUSSION Plaintiffs' antitrust claims are brought pursuant to § 1 of the Sherman Act, which 20 prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in 21 restraint of trade or commerce among the several States." See 15 U.S.C. § 1. To state a 22 cognizable claim under § 1, a plaintiff must allege the existence of an "agreement, as 23 distinct from identical, independent action" by the defendants. See Twombly, 550 U.S. at 24 548-49. "[M]ere allegations of parallel conduct — even consciously parallel conduct — 25 are insufficient to state a claim under § 1." In re Musical Instruments & Equip. Antitrust 26 Litig., 798 F.3d 1186, 1193 (9th Cir. 2015). Rather, "[p]laintiffs must plead 'something 27 more,' 'some further factual enhancement,' a 'further circumstance pointing toward a 28 meeting of the minds' of the alleged conspirators." Id. (quoting Twombly, 550 U.S. at 3 1 557, 560). In that regard, courts have "distinguished permissible parallel conduct from 2 impermissible conspiracy by looking for certain plus factors," id. at 1194 (internal 3 quotation and citation omitted), namely, "economic actions and outcomes that are largely 4 inconsistent with unilateral conduct but largely consistent with explicitly coordinated 5 action," id. Here, in moving for dismissal of plaintiffs' initial complaint, defendants argued 7 plaintiffs had failed to allege any plus factors, and, consequently, failed to allege the 8 existence of an agreement to change the fare rules in the manner challenged by 9 plaintiffs. The Court conducted a hearing on defendants' motions to dismiss, and, after 10 considering the parties' arguments, granted the motions. Plaintiffs, with leave of court, 11 United States District Court Northern District of California 6 thereafter filed the FAC. By the instant motions, defendants argue plaintiffs once again 12 have failed to plead sufficient facts to show an agreement existed. The Court next turns 13 to that issue. 14 Initially, the Court notes that the FAC includes greater specificity as to the timing of 15 the Airline Defendants' actions. In the FAC, plaintiffs now allege that each of the Airline 16 Defendants made the subject change in "mid-March 2016" (see FAC ¶ 63), which 17 allegation, assumed true at the pleading stage, suffices to allege parallel conduct. See In 18 re Medical Instruments, 798 F.3d at 1193 (holding "parallel conduct" includes 19 "competitors adopting similar policies around the same time in response to similar market 20 conditions"). As noted above, however, "parallel conduct," even "consciously parallel 21 conduct," is insufficient to state a § 1 claim in the absence of "plus factors." See id. at 22 1193-94. The issue thus before the Court is whether the FAC contains sufficient facts 23 from which an inference can be drawn that the alleged parallel conduct was the product 24 of an agreement. See Twombly, 550 U.S. at 557 (holding "allegation of parallel conduct 25 . . . gets the complaint close to stating a claim, but without some further factual 26 enhancement it stops short of the line between possibility and plausibility of entitlement to 27 relief" (internal quotation and citation omitted)). 28 In an effort to meet that additional requirement, plaintiffs have included in the FAC 4 1 factual allegations from their initial complaint and factual allegations that provide 2 additional detail regarding ATPCO as well as the airline industry in general. 3 First, with respect to the manner in which ATPCO operates, plaintiffs again allege 4 that the Airline Defendants "transmit fare information, including fare amounts and 5 restrictions, to [ATPCO]" (see FAC ¶ 25; Compl. ¶ 25), that the Airline Defendants submit 6 to ATPCO changes "at least once each weekday" (see FAC ¶ 36; Compl. ¶ 30) and that 7 ATPCO, upon receipt of such fare information, "processes the changes and disseminates 8 [the] information . . . to the Airline Defendants" and to "computer reservation systems" 9 (see FAC ¶ 36; Compl. ¶ 31), after which the Airline Defendants receive from ATPCO "reports" that "allow the Airline Defendants to monitor and analyze immediately each 11 United States District Court Northern District of California 10 other's fare rules, restrictions and price changes" (see FAC ¶ 38; Compl. ¶ 33). In the 12 FAC, plaintiffs have supplemented those facts with allegations that the referenced 13 "computer reservation systems" are "GDSs" (see FAC ¶ 47), i.e., reservation systems 14 used by travel agents such as plaintiffs,3 and that the reports ATPCO provides to the 15 participating airlines are a "tool" called "Market View" that allows those airlines to view 16 "competitors' public fares and rules data," as well as a "program" called "Fare Manager" 17 that allows those airlines to "create, modify, match, or cancel airfares" in "seconds" (see 18 FAC ¶¶ 48-49). 19 Additionally, plaintiffs now include allegations as to conditions pertaining in the 20 airline industry, specifically, that the "domestic airline passenger industry is a tight 21 oligopoly" in that four carriers "control approximately 80 percent of the market" (see FAC 22 ¶ 30),4 that the Airline Defendants price "certain legs" at "lower amounts" due to 23 competition from "Ultra Low-Cost Carriers" (see FAC at 3:4-5), that the Airline 24 3 25 26 27 28 A GDS is a "computerized system used to distribute airline fare, flight, and availability information to travel agencies . . . , and to enable those agencies to make reservations and issue tickets." See In re Global Distribution Systems (GDS) Antitrust Litig., 816 F. Supp. 2d 1378, 1378 n.1 (JPML 2011). 4 According to plaintiffs, three of those four carriers are the Airline Defendants; the fourth is non-party Southwest Airlines, which is a "participant" in ATPCO. (See id.) 5 1 Defendants "watch each other like hawks" using the information available through 2 ATPCO (see FAC ¶ 34), and that, at the time the Airline Defendants imposed the 3 combinability restrictions challenged in the FAC, their "greatest cost component — jet fuel 4 — had steeply fallen in price and was at record low levels" (see FAC ¶ 70). 5 Although plaintiffs' factual allegations have been expanded, the Court finds the 6 new allegations, considered together with those that have been realleged, are not 7 sufficient to plead "a plausible suggestion of conspiracy." See Twombly, 550 U.S. at 566. As plaintiffs acknowledge, the commercial passenger airline industry is an 9 "oligopoly" (see FAC ¶ 30), i.e., "a market in which a few relatively large sellers account 10 for the bulk of the output." See In re Chocolate Confectionary Antitrust Litig., 801 F.3d 11 United States District Court Northern District of California 8 383, 397 n.10 (3rd Cir. 2015) (internal quotation and citation omitted). In such markets, 12 "a single firm's change in output or price will have a noticeable impact on the market and 13 on its rivals," and, consequently, any "rational decision by an oligopolist must take into 14 account the anticipated reaction of the other firms," the "upshot" being that "oligopolists 15 may maintain supracompetitive prices through rational, interdependent decision-making, 16 as opposed to unlawful concerted action, if the oligopolists independently conclude that 17 the industry as a whole would be better off by raising prices." See id. at 397 (internal 18 quotation, alteration and citation omitted); see also Rebel Oil v. Atlantic Richfield Co., 51 19 F.3d 1421, 1443 (9th Cir. 1995) (holding "[b]y definition, oligopolists are interdependent"). 20 Put another way, "one firm can risk being the first to raise prices, confident that if its price 21 is followed, all firms will benefit." See In re Musical Instruments, 798 F.3d at 1195. "By 22 that process ('follow the leader'), supracompetitive prices and other anticompetitive 23 practices, once initiated, can spread through a market without any prior agreement." Id. 24 Here, plaintiffs' factual allegations do no more than support a finding that the 25 Airline Defendants have engaged in conscious parallelism. The allegations essentially 26 establish that the Airline Defendants use information obtained through ATPCO to match 27 or otherwise quickly react to a competitor that has made a fare or rule change. (See, 28 e.g., FAC ¶ 34 (alleging Airline Defendants "watch each other like hawks" and "assess 6 1 changes competitors are making").) Reacting to a competitor's change by choosing to 2 adopt the same or substantially similar change, however, does not support a § 1 claim. 3 See In re Chocolate Confectionary, 801 F.3d at 397 (holding, although "this practice of 4 parallel pricing, known as 'conscious parallelism,' produces anticompetitive outcomes, it 5 is lawful under the Sherman Act"); see also Rebel Oil, 51 F.3d at 1443 (noting "gap" in 6 Sherman Act). 7 Plaintiffs argue they nonetheless have sufficiently alleged "plus" factors, relying 8 primarily on the Seventh Circuit's decision in In re Text Messaging Antitrust Litig., 630 9 F.3d 622 (7th Cir. 2010) ("Text Messaging I"). Text Messaging I, however, is distinguishable. The plaintiffs therein had alleged the defendants attended trade 11 United States District Court Northern District of California 10 association meetings where they informed each other of proposed price changes, see id. 12 at 628; see also In re Text Messaging Antitrust Litig., 2010 WL 1782006, at *3 (N.D. Ill. 13 April 30, 2010), and agreed "to raise prices by a certain amount within a certain time 14 frame," see id. Further, the plaintiffs in Text Messaging I alleged the defendants 15 "changed their pricing structures, which were heterogeneous and complex, to a uniform 16 pricing structure," see Text Messaging I, 630 F.3d at 628, specifically, that "all four 17 defendant companies, in a series of steps (10 steps in all for the four companies), raised 18 each of their [prices] to 20 cents [per text message]," see In re Text Messaging Antitrust 19 Litig., 782 F.3d 867, 875 (7th Cir. 2015) ("Text Messaging II"). 20 Here, by contrast, plaintiffs fail to allege facts to support a finding that defendants 21 were aware of each other's rule changes prior to those changes having been published,5 22 5 23 24 25 26 27 28 Although plaintiffs allege the Airline Defendants "know about changes being proposed" (see FAC ¶ 34), i.e., before such changes are adopted, such assertion lacks factual support. In particular, plaintiffs' reliance on a declaration by an American manager, initially offered by American in response to plaintiffs' motion for a preliminary injunction, is unavailing. The statement, that "American knew about similar changes made by rival airlines because it monitors the [ATPCO] 'rules queue' to assess any changes that competitors are making in the marketplace" (see FAC ¶ 43), does no more that confirm plaintiffs' own factual allegations, namely, that the Airline Defendants have "access" to competitors' changes that have been made and "published" by APTCO (see FAC ¶ 45; see also FAC ¶¶ 25, 46, 48-49), i.e., at the same time as travel agents like plaintiffs (see FAC ¶¶ 36, 47). 7 1 nor do plaintiffs allege the Airline Defendants set identical or even substantially similar 2 fares for any given route. Although plaintiffs place particular emphasis on their allegation 3 that changes to the combinability rules have resulted in higher prices at a time when the 4 Airline Defendants' fuel costs have decreased (see, e.g., FAC ¶ 70), such "apparent 5 anomaly . . . may be not because [competitors have] agreed not to compete but because 6 all of them have determined independently that they may be better off with a higher 7 price," see Text Messaging II, 782 F.3d at 871, i.e., a decision that in no way can be 8 characterized as "extreme action against self-interest" that "may suggest prior 9 agreement," see In re Musical Instruments, 798 F.3d at 1195. In sum, plaintiffs have failed to "plead[ ] sufficient facts to provide a plausible basis 10 United States District Court Northern District of California 11 from which [a court] can infer the alleged agreements' existence." See id. at 1193. 12 Plaintiffs at best have pleaded factual allegations that, assumed true, establish "conduct 13 as consistent with permissible competition as with illegal conspiracy." See Matsushita 14 Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986). Establishing 15 conduct "merely consistent with" a conspiracy, however, is, as a matter of law, insufficient 16 to state a claim under § 1. See id.; see also In re Musical Instruments, 798 F.3d at 1189 17 (affirming dismissal of § 1 claim based on theory manufacturers entered into agreement 18 to raise prices, where plaintiffs' allegations were "no more consistent with an illegal 19 agreement than with rational and competitive business strategies, independently adopted 20 by firms acting within an interdependent market").6 21 // 22 // 23 // 24 // 25 // 26 27 28 6 In light of the above ruling, the Court has not addressed herein defendants' additional arguments offered in support of dismissal. 8 CONCLUSION 1 2 3 4 For the reasons stated above, the motions to dismiss are hereby GRANTED, and the First Amended Complaint is hereby DISMISSED. IT IS SO ORDERED. 5 6 Dated: December 8, 2016 MAXINE M. CHESNEY United States District Judge 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9