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Airlines Did Not Illegally Conspire to Cut Travel Agent Commissions
by Jeffrey May, CCH Trade Regulation Reports

Allegations by a group of travel agents that many of the aviation industry's major passenger airlines engaged in a conspiracy to reduce, cap, and ultimately eliminate the payment of base commissions to travel agents in a concerted effort to drive them out of business failed to state a claim under Sec. 1 of the Sherman Act, a divided U.S. Court of Appeals in Cincinnati has ruled. The claims against one of the airlines --United --were properly discharged in bankruptcy, the complaint failed to aver facts sufficient to implicate four others in any conspiracy, and the charges against the remaining defendants lacked sufficient facts to plausibly suggest a prior illegal agreement, in the appellate court's view. Dismissal of the claims (2007-2 TRADE CASES ¶75,933) was affirmed.

In their complaint, the travel agents described a series of uniform base commission cuts adopted by the airlines beginning in 1995 and culminating with their outright elimination in March 2002. According to the travel agents, each defendant airline's decision to match its competitors' cuts was the product of a prior illegal agreement to end the practice of paying base commissions.

The district court made no error in ruling that the travel agents' claims against United Airlines had been discharged by a bankruptcy court, the appellate court held. The airline's potential liability qualified as discharged debt under 11 U.S.C. Sec. 101(12). The travel agents' claims accrued in 2002, prior to United's emergence from bankruptcy in 2006.

A contention that United was nonetheless liable under a continuing violation theory because the airline rejoined the alleged conspiracy after emerging from bankruptcy was rejected. United's decision to maintain the zero percent commission policy that it had established prior to bankruptcy was merely a reaffirmation of a previous act, not an overt act upon which a new Sec. 1 claim could arise, the court explained. If a continuing violation theory were to be adopted based on the facts in the record, the effect would be to make the applicable limitations period for a Sec. 1 claim infinite, the appellate court postulated. Such a standard would enable an antitrust plaintiff to salvage any otherwise untimely claim by asserting that it continued to lose revenue because of past alleged anticompetitive conduct.

The travel agents did not adequately assert that four other airlines --Alaska Airlines, Alaska Air Group, Horizon Air Industries, and America West Airlines --acted in parallel in violation of federal antitrust law. The complaint in force contained nothing more than bare assertions of conspiracy and parallel conduct as to Alaska Airlines and America West, and it did not even mention the other two. It did not offer any factual allegations to support any of the airlines' involvement in the alleged conspiracy beyond their parallel behavior, the court noted.

Finally, the travel agents' claims against American Airlines and Continental Airlines were insufficiently stated, the court decided. An assertion in the complaint that the airlines took parallel actions to reduce or limit commissions paid to travel agents on six occasions was not enough on its own to meet the pleading requirements enunciated in Bell Atlantic Corp. v. Twombly (2007-1 TRADE CASES ¶75,709). Joint use of a clearinghouse that provided information on ticket distribution, reporting and settlement services, and base commission rates paid to travel agents did not evidence a prior illegal agreement because the clearinghouse was not alleged to have been capable of providing the defendants with commission reduction information prior to their implementation of the rate reductions. Thus, access to the service did not suggest a viable means to collude on commission rates before such reductions occurred, the court reasoned.

Rejected was a contention that either airline's capping and eliminations of commissions constituted action contrary to that airline's self-interest because the airline leading the move would lose revenue to its competitor. It was simple and inexpensive for a leader airline to innovate and then wait and see, in the hope that its competitors would institute similar cuts, knowing that it could retract the cut if the industry did not follow.

Proof that the airlines had the opportunity to conspire through frequent meetings during that time span, through industry associations, at trade shows, through jointly formed business ventures, and while playing golf did not satisfy the agents' burden of proving a conspiracy, the court said. None of these opportunities suggested that there was an actual agreement to reduce commissions.
 
Dissent

A dissenting opinion contended that the majority erred in its application of the Twombly standard. According to the dissent, the majority misapplied the standard by "requiring not simple plausibility, but by requiring the plaintiff to present at the pleading stage a strong probability of winning the case and excluding any possibility that the defendants acted independently and not in unison." Reading the allegations as a whole, the dissent argued, the complaint clearly satisfied the Twombly standard.

In re: Travel Agent Commission Antitrust Litigation, CA-6, ¶76,759

(The above feature is selected from the newsletter published weekly along with full text documents and other materials provided to subscribers of the CCH Trade Regulation Reports.) 

    

      
   
 

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