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Will Travel Agents’ Complaint Fly With Supreme Court?

Posted  April 7, 2010

Travel agents whose antitrust case against major airlines was grounded by a Court of Appeals’ application of the Supreme Court’s Twombly decision are hoping the Supreme Court will clear their complaint for takeoff.

On March 22, 2010, 49 travel agencies accusing several major airlines of conspiring to fix base commission rates petitioned the United States Supreme Court to reverse the Sixth Circuit’s decision affirming the Northern District of Ohio’s dismissal of their complaint, In re: Travel Agent Commission Antitrust Litigation, 583 F.3d 896 (6th Cir. 2009). 

The complaint, filed in 2003, alleges that the defendant airlines conspired to reduce, cap and eventually eliminate the agents’ base commission rates in an attempt to drive the agents out of business.  The base commissions, paid until 2002, were a percentage of purchased ticket prices.  Plaintiffs assert that the conspiracy began in 1995, when several airlines contemporaneously announced that they were placing the same cap on the commissions.  Plaintiffs allege a pattern stretching over seven years in which one airline would announce a cap or a reduction in the commission and then other airlines would follow.  In 2002, Delta Airlines announced it would stop paying base commissions altogether, and other carriers quickly did the same.

Plaintiffs allege that this game of “follow the leader” resulted not from airlines’ independent decisions but from an illegal agreement to eliminate the commissions.  Plaintiffs point to several industry-wide meetings at which the airlines had the opportunity to conspire, and to the testimony of a former airline executive that he had to match the commission cuts or else “undercut the movement.”

The airlines respond that reducing commission rates advanced each airline’s independent self-interest by yielding net revenue greater than any potential loss from disgruntled agents redirecting their business.  The airlines also contend that new methods of purchasing tickets, including through the Internet, provide an economic incentive to cut commissions and then wait and see if competitors emulate.

On October 2, 2009, in a 2-1 decision, the Sixth Circuit affirmed the Northern District of Ohio’s dismissal of plaintiffs’ complaint.  The Panel held that plaintiffs fell short of the pleading threshold set by Bell Atlantic v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).  In particular, it held that plaintiffs failed “to allege sufficient facts plausibly suggesting (not merely consistent with) an agreement in violation of § 1 of the Sherman Act because defendants’ conduct was not only compatible with, but instead more likely explained by, lawful, unchoreographed free-market behavior.”  583 F.3d at 908.

Judge Gilbert S. Merritt disagreed with the majority’s decision, however.  In a vigorous dissent, Judge Merritt opined that his colleagues “seriously misapplied” Twombly 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 . . . .”  Id.  Moreover, Judge Merritt found that plaintiffs’ factual allegations — including the specific times and locations of the airlines’ meetings and how the timing of those meetings tied to the industry-wide rate cuts – “create an overwhelming case . . . to get by a motion to dismiss on the pleading.”  Id. at 912 (emphasis added).

Now, plaintiffs ask the Supreme Court to adopt Judge Merritt’s position.  Specifically, they request that the highest Court agree with Judge Merritt that reversing the Sixth Circuit’s decision will “make it clear that Twombly may not be used . . . as a cover for repealing regulation of the marketplace through private antitrust enforcement.”  Id. at 916.  Whether the Supremes will agree remains to be seen.

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