The Federal District Court in Atlanta issued an order today denying a request by Delta Air Lines and AirTran Airways to dismiss a proposed class action lawsuit accusing the two airlines of conspiring to impose first checked baggage fees. The Court ruled that Plaintiffs’ allegations plausibly suggest a conspiracy between the airlines, and that the case should move forward.
Plaintiffs allege that Defendants colluded through communications with each other, for example, on quarterly earnings calls and in speeches and other communications at industry conferences. Beginning in April 2008, Defendants allegedly signaled to each other a willingness to collude in order to decrease capacity and increase prices to consumers without losing market share. Both airlines reduced capacity after April 2008, and in October 2008, AirTran allegedly invited Delta to collude to impose first checked bag fees.
Specifically, AirTran’s CEO stated on an investor conference call that AirTran had put the technological capability in place to implement the fee, that it was constrained from implementing the fee by competition with Delta, and that AirTran would likely follow suit if Delta enacted a first bag fee:
We have the programming in place to initiate a first bag fee. And at this point, we have elected not to do it, primarily because our largest competitor in Atlanta [i.e., Delta], where we have 60% of our flights, hasn't done it. . . . I think we prefer to be a follower in a situation rather than a leader right now.
Robert Fornaro, AirTran Investor Call (Oct. 23, 2008).
Delta, which monitors AirTran’s quarterly calls, announced just over a week later, on November 5, 2008, that it would begin charging passengers a $15 first bag fee, which Plaintiffs allege was an acceptance of AirTran’s invitation to collude. As promised in the conference call, AirTran followed Delta’s lead, and announced the following week that it would impose the same $15 fee, effective the same date as Delta’s fee.
Defendants sought to dismiss Plaintiffs’ complaint, arguing that Plaintiffs’ allegations were insufficient to plausibly demonstrate the existence of an agreement to restrain trade. Defendants argued that Plaintiffs were required to demonstrate the existence of an “actual, manifest agreement,” and argued that Plaintiffs were required to prove that “the defendants got together and exchanged assurances of common action or otherwise adopted a common plan.”
The Court rejected Defendants’ argument, pointing out that “it is only in rare cases that a plaintiff can establish the existence of a conspiracy by showing an explicit agreement; most conspiracies are inferred from the behavior of the alleged conspirators. . . . [C]ollusive communications can be based upon circumstantial evidence and can occur in speeches at industry conferences, announcements of future prices, statements on earnings calls, and in other public ways.” “Courts have also found that unlawful conspiracies may be inferred when collusive communications among competitors precede changed/responsive business practices, such as new pricing practices.”
The Court recognized that Plaintiffs Complaint “is not lacking in detail,” and alleges collusive communications, alignment of business practices following those communications, and implementation of business practices that would be contrary to independent self-interest after those communications. In light of the foregoing, the Court found that “it would be both improper and imprudent to dismiss a case of this magnitude, where the interests of consumers are at stake, on the mere hunch that [Delta and AirTran’s] defenses . . . may prove valid.”
In concluding that the case should proceed, the Court found that it was “noteworthy” that “Defendants’ conduct is currently being investigated by the Antitrust Division of the United States Department of Justice.”
In light of the Court’s ruling, Plaintiffs will proceed on their claims that Defendants conspired to restrain trade in violation of Section 1 of the Sherman Act, and will seek damages equal to three times the amount of first bag fees that have been charged by Delta and AirTran after they were first imposed in December 2008.
The Court granted dismissal, however, of Plaintiffs’ claim that each defendant attempted to monopolize a relevant market by inviting the other to collude in violation of Section 2 of the Sherman Act. According to the Court, Plaintiffs relied on “a rather novel theory” of liability under Section 2, which was insufficiently supported by applicable law. Plaintiffs sought only injunctive relief for violation of Section 2.
The law firm of Kotchen & Low LLP filed the original lawsuit against Delta and AirTran in May 2009, and the court appointed Kotchen & Low LLP as primary interim co-lead class counsel on January 5, 2010. Trial is expected to take place next year. Anyone with information regarding the alleged conspiracy is encouraged to contact Kotchen & Low LLP at firstname.lastname@example.org.
The case is captioned In re Delta/ AirTran Baggage Fee Antitrust Litigation, No. 1:09-md-2089-TCB (N.D. Ga.). The Court’s August 2, 2010 Order is available here, and a redacted copy of Plaintiffs’ brief opposing Defendants’ motion to dismiss is available here.