Passenger price-fixing case dismissed on subject matter jurisdiction grounds

November 2, 2009

McLafferty v. Deutsche Lufthansa A.G. et al. (E.D. Pa. Oct. 16, 2009).  In her class action complaint, the plaintiff alleged that Lufthansa, Air France, KLM and Alitalia had engaged in price fixing in violation of the Sherman Act.  She alleged that, at a 2003 IATA meeting, the airlines agreed to impose surcharges on fares for passenger travel between Europe and Japan.

At the court’s direction, the parties briefed the issue of whether the Foreign Trade Antitrust Improvements Act of 1982, which amended the Sherman Act, excluded the case from the subject matter jurisdiction of the federal courts.

The FTAIA amended the Sherman Act by excluding certain conduct involving trade or commerce with foreign nations from federal courts’ subject matter jurisdiction.  In cases involving alleged restraints on commerce with foreign nations, the court first determines if the defendants’ conduct involved “trade or commerce (other than import trade or import commerce) with foreign nations.”  If so, the court does not have subject matter jurisdiction unless the defendants’ conduct involved a “direct, substantial, and reasonably foreseeable” anticompetitive effect on U.S. commerce that would result in a Sherman Act claim.

The court held that the defendants’ conduct involved “trade or commerce with foreign nations” because they had sold tickets to a U.S. purchaser for foreign travel, but that such purchases did not constitute “import trade or import commerce” because they did not “bring any goods or services to the United States.”  The court ruled that an airline ticket, even if it is delivered in the U.S., is not a “good” because it has no value apart from the service to which its bearer is entitled.

Thus, the plaintiff’s last chance to escape the FTAIA’s jurisdictional bar was to show that she had made sufficient allegations that defendants’ conduct had a direct, substantial and reasonably foreseeable anticompetitive effect on U.S. commerce.  The court held that the plaintiff’s pleadings did not even suggest that the defendants’ conduct had such an effect, that the plaintiff’s injury was in the Europe-Japan fare market and that such injury did not directly affect U.S. commerce.  Accordingly, the court dismissed the case on the grounds that the FTAIA had removed it from the court’s subject matter jurisdiction.

ATPCO not liable to Alitalia for fare coding mistake

September 9, 2008

Alitalia Linee Aeree Italiane, S.p.A. v. Airline Tariff Publishing Company (S.D.N.Y. Sept. 5, 2008).  ATPCO serves airlines by collecting and distributing their fare data.  Over 500 airlines throughout the world send fare data to ATPCO, which electronically distributes such data to global distribution systems (such as Sabre, Amadeus/System One, Worldspan and Galileo) and computer reservation systems.  ATPCO is owned by 24 domestic and foreign airlines and the company and its predecessor entities have been in existence since 1945.

In 1986, Alitalia and ATPCO entered into a written agreement that governed ATPCO’s provision of fare data services to the airline.  That agreement contained a clause in which ATPCO disclaimed liability for consequential damages resulting from any error made in incorporating or distributing Alitalia’s fare data.  The agreement also contained ATPCO’s agreement to act as Alitalia’s “agent” for purposes of incorporating and distributing the airline’s fare data.

Early in February 2004, Alitalia sent a fax to ATPCO setting forth instructions for reducing fares during the airline’s “low season” (February 21 through April 4).  In entering the fare information into ATPCO’s database, an ATPCO employee made a coding mistake (typing the number “41” rather than “40” into a certain field) that resulted in the reduced fares being entered without any date restriction.  ATPCO then distributed the erroneous fare data to the participating global distribution systems and computer reservation systems.  Three days later, the mistake was caught and corrected, but not before numerous happy customers had bought Alitalia tickets at heavily, and mistakenly, discounted fares.

Alitalia sued ATPCO, alleging causes of action for breach of contract, breach of fiduciary duty, negligence and gross negligence.  Alitalia alleged that ATPCO’s conduct had caused the airline to lose over $3.7 million in revenue.

The parties filed cross-motions for summary judgment on the issue of ATPCO’s liability.  Alitalia argued that ATPCO’s error constituted a breach of the parties’ agreement, a breach of ATPCO’s independent fiduciary duty to Alitalia and, because ATPCO allegedly had a history of similar fare coding mistakes yet had failed to take adequate steps to prevent more mistakes from occurring, gross negligence.  Understandably, ATPCO stood behind the limitation of liability clause, arguing that the court should make Alitalia “lie in the bed it made more than 20 years ago” when it, a sophisticated commercial entity, agreed to the limitation of liability clause as part of the agreement.

The court granted summary judgment in favor of ATPCO.  The court held that the limitation of liability clause applied to ATPCO’s error and precluded Alitalia from recovering its lost revenue consequential damages from ATPCO.  The court also held that even though ATPCO had been acting as Alitalia’s “agent,” Alitalia’s breach of fiduciary duty cause of action was also subject to the contract’s limitation of liability clause.  Finally, the court rejected Alitalia’s negligence and gross negligence causes of action because all of the parties’ duties to each were set forth in their agreement, and ATPCO had no data input duties to the airline that were separate from those set forth in the agreement.  Thus, the court held, all of Alitalia’s claims against ATPCO were contractual in nature, and Alitalia had contracted away its ability to recover consequential damages arising from any ATPCO mistake in incorporating or distributing the airline’s fare data.

Note:  This case did not progress far enough so that damages issues were litigated.  If it had, would Alitalia have been able to prove that, for each ticket sold at an incorrect fare, its damages consisted of the difference between the incorrect and correct fares?  ATPCO probably would have contended that, to recover such damages, Alitalia bore the burden of proving that the customers who bought tickets at the lower, incorrect fares would have purchased tickets at the substantially more costly correct fares or that passengers holding the incorrectly-fared tickets occupied seats that would otherwise have been occupied by passengers who paid the correct fare amounts.  Perhaps the answer to this question would have been found in the frequent flyer mileage brokering opinions of the early 1990’s, including the opinion in American Airlines v. Christensen in which the Tenth Circuit held that the airline was entitled to full fare damages against the mileage brokers.

Another issue, which ATPCO apparently anticipated via the mitigation of damages affirmative defense it asserted, is whether Alitalia had a duty to mitigate its damages by rescinding the incorrectly-fared tickets under the unilateral mistake doctrine described in Restatement (Second) of Contracts § 153.  Unless Alitalia appeals the court’s decision (which seems unlikely given that the airline recently filed for bankruptcy protection and that it has been losing $3 million a day), and wins on appeal (which is even more unlikely), we will never know the answers to these questions.