Travel Agent Comm'n Antitrust Litigation v. Alaska Air Group, Inc.

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 09a0353p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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In re: TRAVEL AGENT COMMISSION

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ANTITRUST LITIGATION.

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No. 07-4464

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Plaintiffs-Appellants, -

TAM TRAVEL, INC., et al.,

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v.

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Defendants-Appellees. -

DELTA AIRLINES, INC., et al.,

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Appeal from the United States District Court for the

Northern District of Ohio at Cleveland.

No. 03-30000—Peter C. Economus, District Judge.

Argued: October 24, 2008

Decided and Filed: October 2, 2009

Before: MERRITT, BOGGS, and GRIFFIN, Circuit Judges.

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COUNSEL

ARGUED: Joseph M. Alioto, Jr., Thomas Paul Pier, ALIOTO LAW FIRM, San Francisco,

California, for Appellants. Peter K. Huston, LATHAM & WATKINS, San Francisco,

California, James A. Reeder, Jr., VINSON & ELKINS L.L.P., Houston, Texas, Lee H.

Simowitz, BAKER & HOSTETLER, Washington, D.C., for Appellees. ON BRIEF:

Joseph M. Alioto, Jr., Thomas Paul Pier, Joseph Alioto, Sr., ALIOTO LAW FIRM, San

Francisco, California, for Appellants. James A. Reeder, Jr., Lauren J. Harrison, Elizabeth

A. Pannill, VINSON & ELKINS L.L.P., Houston, Texas, for Appellees.

GRIFFIN, J., delivered the opinion of the court, in which BOGGS, J., joined.

MERRITT, J. (pp. 22-28), delivered a separate dissenting opinion.

1

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 2

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OPINION

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GRIFFIN, Circuit Judge. Plaintiff travel agencies appeal the district court’s

dismissal of their Amended Complaint for failure to state a claim under § 1 of the Sherman

Antitrust Act. Plaintiffs allege that defendants conspired to reduce, cap, and eventually

eliminate the payment of base commissions in a concerted effort to drive plaintiffs out of

business in violation of 15 U.S.C. § 1. We affirm. In doing so, we hold that plaintiffs’

claims against United Airlines were discharged in bankruptcy and that plaintiffs’ claims

against the remaining defendants failed to allege sufficient facts to plausibly suggest a prior

illegal agreement.

I.

A.

Plaintiffs are the owners of forty-nine travel agencies engaged in the business of

1

selling defendants’ airline services. When a plaintiff sold an airline ticket before 2002,

it received a sales commission from the servicing airline that equaled a percentage of the

purchased ticket price. This practice, commonly referred to as the payment of “base

commissions,” was industry-wide.

Plaintiffs allege a § 1 conspiracy based on a series of uniform base commission

cuts adopted by defendants over a seven-year period. According to plaintiffs, each

defendant’s decision to match its competitors’ base commission cut was the product of

defendants’ prior illegal agreement to eliminate the practice of paying all base

commissions – a result achieved in March 2002.

1

The following airlines were named as defendants in plaintiffs’ Amended Complaint: Air

Canada, Alaska Airlines, Inc. (“Alaska”), Alaska Air Group, Inc. (“AAG”), ATA Airlines, Inc., American

Airlines, Inc., America West Airlines, Inc., Continental Airlines Inc., Delta Air Lines, Inc., Hawaiian

Airlines, Inc., Horizon Air Industries, Inc., Frontier Airlines, Inc., KLM Royal Dutch Airlines, Northwest

Airlines, Inc., United Airlines, Inc., US Airways, Inc., and US Airways Group, Inc.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 3

Plaintiffs assert the conspiracy began in 1995, when Delta, American, Northwest,

United, and Continental each announced a $25 cap on base commissions for one-way

domestic tickets and a $50 cap for round-trip domestic tickets. Plaintiffs further contend

that United’s decision to cut its base commission rate on September 18, 1997, from 10%

of the purchased ticket price to 8% is further evidence of the alleged illegal agreement

because American, Delta, Northwest, US Airways, Continental, and America West each

matched United’s commission cut on or before September 29, 1997. On March 31,

1998, Frontier Airlines announced that it, too, would reduce its base commission rate

from 10% to 8%, as did Alaska Airlines on September 30, 1997.

Plaintiffs allege that defendants’ conspiracy continued into mid-November 1998,

when United imposed base commission caps of $50 and $100 for one-way and round-

trip international airfare, respectively. By December 2, 1998, American, Delta,

Continental, Northwest, and US Airways each adopted United’s $50 and $100 base

commission caps.

Almost one year later, on October 7, 1999, United instituted its third commission

cut, reducing its base commission rate from 8% to 5% on all domestic and international

flights. American, Delta, Northwest, Continental, and US Airways each adopted

United’s 5% commission cut by the following week. America West and Alaska each

matched United’s 5% commission cut on October 18, 1999, as did Frontier in November

1999.

On August 17, 2001, American implemented base commission caps of $10 for

one-way tickets and $20 for round-trip tickets, effective the following day. Within ten

days, United, Delta, Northwest, Continental, US Airways, and America West each

adopted American’s $10 and $20 caps. Frontier and Alaska followed suit on

September 4, 2001, and November 1, 2001, respectively.

Finally, on March 14, 2002, Delta announced that it would eliminate its practice

of paying base commissions to travel agencies for both domestic and international

airfare, effective immediately. Within ten days, American, United, Northwest,

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 4

Continental, US Airways, and America West likewise eliminated the payment of base

commissions. Frontier and Alaska followed suit in late May 2002.

Plaintiffs allege that each defendant’s decision to cut, cap, and eventually

eliminate its practice of paying travel agencies a base commission would not have

occurred without collusion because such action, if taken independently, was contrary to

the individual defendant’s economic self-interest. Plaintiffs point to United’s

unsuccessful attempt to cut base commission rates in 1981 and American’s similar failed

attempt in 1983 as evidence of collusion in the present case. In addition, plaintiffs’

Amended Complaint refers to the deposition of a former American Airlines executive,

Michael Gunn, who testified that “industry consensus” was necessary for industry-wide

commission cuts to hold. Gunn also testified that “he had to match commission cuts

exactly or he would undercut the movement.” Plaintiffs assert that Gunn’s statements

are persuasive evidence of defendants’ common motive to conspire.

As additional support for the alleged conspiracy, plaintiffs point to several

meetings where defendants had an opportunity to conspire, including committee

meetings of the International Air Transport Association in 1997 and 1998, as well as

industry meetings such as the “Conquistadores Del Cielo” (Conquerors of the Sky), the

Air Transport Association, the Japan Air Summit, the British Air Summit, the Paris Air

Show, the Alex Brown Transportation Conference, the International Aviation

Symposium, and the Merrill Lynch conference. Plaintiffs do not identify defendants’

attendees by name or title.

More specifically, the Amended Complaint asserts that “in mid-1999 an

Executive Vice-President of Marketing & Distribution for Northwest Airlines, a Senior

Vice President of Planning for US Airways, and a Senior Vice President of Marketing

for American met for three hours in a Dallas hotel conference room.” Plaintiffs further

allege that “[i]n 2001, a Delta senior executive met for a weekend of golf and socializing

at the home of an American executive responsible for setting American’s commission

levels.”

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 5

By May 31, 2002, each defendant had eliminated its practice of paying travel

agencies a base commission. In addition, several defendants filed for and have emerged

from Chapter 11 bankruptcy, including Delta, Northwest, and United.2

B.

On April 9, 2003, plaintiff Tam Travel, Inc. and forty-eight other travel agencies

filed a complaint against defendants for illegally agreeing to cap, cut, and eliminate base

commissions in violation of § 1 of the Sherman Antitrust Act. 15 U.S.C. § 1.3 On

September 13, 2007, plaintiffs had dismissed defendants US Airways and US Airways

Group from the suit without prejudice. On September 14, 2007, the district court

determined that the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly, 550

U.S. 544 (2007), could impact the present case and allowed plaintiffs to file an Amended

Complaint. On September 28, 2007, several defendants filed a joint motion to dismiss

the Amended Complaint under FED. R. CIV. P. 12(b)(6).

On October 29, 2007, the district court granted defendants’ motion to dismiss,

ruling that: (1) plaintiffs failed to allege any conduct other than sporadic parallel

conduct regarding America West, Alaska, Frontier, and Horizon; (2) plaintiffs failed to

allege any parallel conduct as to KLM; (3) the emergence of Northwest, United, and

Delta from bankruptcy discharged plaintiffs’ claims; (4) with regard to Continental and

United, plaintiffs failed to aver sufficient facts to plausibly suggest an illegal agreement

under Twombly;4 and (5) with regard to AAG, a holding company that does not itself pay

commissions, plaintiffs failed to allege any facts.

2

For the purposes of this appeal, only United’s bankruptcy is relevant. United filed its Chapter

11 bankruptcy petition on December 9, 2002, and the bankruptcy court confirmed its reorganization plan

on January 20, 2006.

3

Plaintiffs opted out of the putative class in Hall v. United Air Lines, Inc., 296 F. Supp. 2d 652

(E.D.N.C. 2003).

4

The district court unintentionally omitted American from its identification of “remaining

Defendant airlines” for the purposes of this holding. It is clear from the substance of the opinion however,

that the district court did not intend to suggest that claims against American were any more meritorious

than against Continental and United.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 6

Plaintiffs filed a timely motion for reconsideration, which the district court

denied on March 13, 2008. This appeal followed.5

II.

Plaintiffs first contend that the district court erred when it ruled that their § 1

claims against United were discharged by the bankruptcy court. By operation of the

Bankruptcy Code, confirmation of a reorganization plan “discharges the debtor from any

debt that arose before the date of . . . confirmation.” 11 U.S.C. § 1141(d). Section

101(12) of the Bankruptcy Code defines a “debt” as “liability on a claim.” Pursuant to

11 U.S.C. § 101(5), a “claim” includes a “right to payment, whether or not such right is

reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, [or]

unmatured.”

The district court ruled that because United filed for bankruptcy in December

2002 and its reorganization plan was not confirmed until January 2006, United’s

emergence from bankruptcy discharged any liability on claims that arose before its

reorganization. Because plaintiffs alleged that United made its last commission cut in

March 2002, the district court dismissed plaintiffs’ claims against United as discharged

debt under 11 U.S.C. § 101(5).

As a preliminary matter, plaintiffs’ brief does not challenge the district court’s

decision to dismiss United under 11 U.S.C. § 101(5), other than to mention in a single

sentence that “[e]ach of these airlines emerged from bankruptcy before Travel Agents

filed their complaint.” Moreover, the record and the Amended Complaint refute this

assertion. Because plaintiffs present only a perfunctory argument regarding United’s

dismissal under 11 U.S.C. § 101(5), plaintiffs have waived this argument. See United

States v. Phinazee, 515 F.3d 511, 520 (6th Cir. 2008) (issues adverted to in a perfunctory

5

After the parties filed their appellate briefs, we were notified that Frontier and ATA filed for

Chapter 11 bankruptcy under 11 U.S.C. § 362(a)(1). The filing of a bankruptcy petition operates as an

automatic stay of the continuation of a judicial action against the debtor. Spirit Airlines, Inc. v. Northwest

Airlines, Inc., 431 F.3d 917, 921 n.1 (6th Cir. 2005) (automatic stay under § 362(a)(1) applies to appellate

proceedings). Following oral argument, we also accepted the stipulated dismissal of defendants Delta,

Northwest, and KLM.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 7

manner, unaccompanied by some effort at developed argumentation, are deemed

waived). In any event, we find no error in the district court’s ruling that United’s

potential liability qualified as discharged debt under 11 U.S.C. § 101(12).

Plaintiffs assert that United is nonetheless liable under a continuing violation

theory because United allegedly rejoined the conspiracy after emerging from bankruptcy

in 2006. Specifically, plaintiffs contend that United’s decision to “continue” the

“conspiracy commission rate” (which, at this point, was 0%) after its reorganization

created a new § 1 claim under the Sherman Act.

As a general rule, a successfully reorganized debtor under Chapter 11 of the

Bankruptcy Code is liable for any independent conduct that arises after the confirmation

of its bankruptcy plan. In re WorldCom, Inc., 546 F.3d 211, 221 (2d Cir. 2008);

O’Loghlin v. County of Orange, 229 F.3d 871, 875 (9th Cir. 2000). In short, the debtor

gets a fresh start, but that “does not [provide] a continuing license to violate the law.”

Id. In the present case, the district court concluded that United’s post-reorganization 0%

commission policy did not create a new § 1 claim because its decision was “merely a

reaffirmation of a previous act.”

Plaintiffs rely on Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997), to argue that

United’s conduct qualifies as a continuing violation. The Klehr case, however, did not

involve a formerly bankrupt corporation. Id. at 186. Klehr simply reiterates that the

antitrust laws recognize continuing violations and, more precisely, that a new § 1 claim

arises each time a company sells a price-fixed product. Id. at 188.

We have held that an “antitrust cause of action accrues . . . each time a defendant

commits an act that injures the plaintiff’s business.” DXS, Inc. v. Siemens Med. Sys.,

Inc., 100 F.3d 462, 467 (6th Cir. 1996) (citing Zenith Radio Corp. v. Hazeltine Research,

Inc., 401 U.S. 321, 338 (1971)). “[T]he focus is on the timing of the causes of injury,

i.e., the defendant’s overt acts, as opposed to the effects of the overt acts.” Peck v. Gen.

Motors Corp., 894 F.2d 844, 849 (6th Cir. 1990) (per curiam) (emphasis added). “[T]he

fact that [] injuries have a rippling effect into the future only establishes that [plaintiffs]

might have been entitled to future damages . . . .” Id.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 8

Here, we reject plaintiffs’ attempt to characterize United’s decision to maintain

its 0% commission policy as an overt act. “Since the Supreme Court decided Zenith,

federal courts have uniformly defined a continuing antitrust violation as one in which

the plaintiff’s interests are repeatedly invaded.” Peck, 894 F.2d at 849 (quoting Pace

Indus., Inc. v. Three Phoenix Co., 813 F.2d 234, 237 (9th Cir. 1987) (internal quotation

marks and alterations omitted)). Although United’s participation in the alleged

conspiracy would certainly create a rippling effect, plaintiffs assert that United’s final

act to effectuate that conspiracy occurred in 2002, long before United emerged from

bankruptcy. We also cannot ignore the consequence of concluding that an overt act

occurred under these facts. If we were to adopt plaintiffs’ continuing violation theory,

the applicable limitations period for a § 1 claim would be infinite – an antitrust plaintiff

could routinely salvage an otherwise untimely claim by asserting that it continues to lose

revenue because of past alleged anticompetitive conduct. We therefore hold that the

district court properly dismissed plaintiffs’ claims against United.

III.

We review de novo the district court’s dismissal of plaintiffs’ Amended

Complaint under FED. R. CIV. P. 12(b)(6). Johnson v. City of Detroit, 446 F.3d 614, 618

(6th Cir. 2006). In Twombly, the Supreme Court held that a complaint alleging

violations under § 1 of the Sherman Act cannot survive a motion to dismiss unless it

avers facts that raise a reasonable expectation that discovery will reveal evidence of an

illegal agreement. Twombly, 550 U.S. at 556. In the wake of Twombly, allegations of

parallel conduct and bare assertions of conspiracy no longer supply an adequate

foundation to support a plausible § 1 claim. Id.

Specifically, the complaint’s “[f]actual allegations must be enough to raise a right

to relief above the speculative level,” id. at 555, and “state a claim to relief that is

plausible on its face.” Id. at 570. Of course, we must still “construe the complaint in the

light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable

inferences in favor of the plaintiff.” Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th

Cir. 2008) (internal quotation and citation omitted). “Yet, to survive a motion to

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 9

dismiss, the complaint must contain either direct or inferential allegations respecting all

material elements to sustain a recovery under some viable legal theory.” Eidson v. State

of Tenn. Dep’t of Children’s Servs., 510 F.3d 631, 634 (6th Cir. 2007). “We need not

accept as true legal conclusions or unwarranted factual inferences,” Jones, 521 F.3d at

559 (alteration and internal citation omitted), and “[c]onclusory allegations or legal

conclusions masquerading as factual allegations will not suffice.” Eidson, 510 F.3d at

634 (internal citation omitted).

A.

Allegations of concerted action by competitors are frequently based on a pattern

of uniform business conduct, which courts often refer to as “conscious parallelism.”

Conscious parallelism, however, is not in itself prohibited under § 1 of the Sherman Act.

As the Supreme Court explained in Twombly:

Because § 1 of the Sherman Act “does not prohibit [all] unreasonable

restraints of trade . . . but only restraints effected by a contract,

combination, or conspiracy,” Copperweld Corp. v. Independence Tube

Corp., 467 U.S. 752, 775 (1984), “[t]he crucial question” is whether the

challenged anticompetitive conduct “stem[s] from independent decision

or from an agreement, tacit or express,” Theatre Enters. v. Paramount

Film Distrib. Corp., 346 U.S. [537, 540 (1954)]. While a showing of

parallel “business behavior is admissible circumstantial evidence from

which the fact finder may infer agreement,” it falls short of “conclusively

establish[ing] agreement or . . . itself constitut[ing] a Sherman Act

offense.” Id. at 540-41. Even “conscious parallelism,” a common

reaction of “firms in a concentrated market [that] recogniz[e] their shared

economic interests and their interdependence with respect to price and

output decisions” is “not itself unlawful.” Brooke Group Ltd. v. Brown

& Williamson Tobacco Corp., 509 U.S. 209, 227 (1993).

The inadequacy of showing parallel conduct or interdependence, without

more, mirrors the ambiguity of the behavior: consistent with conspiracy,

but just as much in line with a wide swath of rational and competitive

business strategy unilaterally prompted by common perceptions of the

market. Accordingly, we have previously hedged against false inferences

from identical behavior at a number of points in the trial sequence. An

antitrust-conspiracy plaintiff with evidence showing nothing beyond

parallel conduct is not entitled to a directed verdict, see Theatre Enters.,

supra; proof of a § 1 conspiracy must include evidence tending to

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 10

exclude the possibility of independent action, see Monsanto Co. v. Spray-

Rite Serv. Corp., 465 U.S. 752 (1984); and at the summary judgment

stage a § 1 plaintiff’s offer of conspiracy evidence must tend to rule out

the possibility that the defendants were acting independently, see

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).

Twombly, 550 U.S. at 554 (some internal citations omitted).

The Twombly decision provides an additional safeguard against the risk of “false

inferences from identical behavior” at an earlier stage of the trial sequence – the pleading

stage. A district court’s early assessment of the sufficiency of a § 1 claim under FED. R.

CIV. P. 12(b)(6) or FED. R. CIV. P. 12(c) addresses the dilemma of the extensive litigation

costs associated with prosecuting and defending antitrust lawsuits. As the Twombly

Court acknowledged, “the costs of modern federal antitrust litigation and the increasing

caseload of the federal courts counsel against sending the parties into discovery when

there is no reasonable likelihood that the plaintiffs can construct a claim from the events

related in the complaint.” Id. at 558 (internal citation and quotation marks omitted).

In Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), the Supreme Court explained

the Twombly decision as follows:

[In Twombly], we considered the sufficiency of a complaint alleging that

incumbent telecommunications providers had entered an agreement not

to compete and to forestall competitive entry, in violation of the Sherman

Act, 15 U.S.C. § 1. Recognizing that § 1 enjoins only anticompetitive

conduct “effected by a contract, combination, or conspiracy,”

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 775

(1984), the plaintiffs in Twombly flatly pleaded that the defendants “ha[d]

entered into a contract, combination or conspiracy to prevent competitive

entry . . . and ha[d] agreed not to compete with one another.” 550 U.S.,

at 551 (internal quotation marks omitted). The complaint also alleged

that the defendants’ “parallel course of conduct . . . to prevent

competition” and inflate prices was indicative of the unlawful agreement

alleged. Ibid. (internal quotation marks omitted).

The Court held the plaintiffs’ complaint deficient under Rule 8. In doing

so[,] it first noted that the plaintiffs’ assertion of an unlawful agreement

was a “‘legal conclusion’” and, as such, was not entitled to the

assumption of truth. Id., at 555. Had the Court simply credited the

allegation of a conspiracy, the plaintiffs would have stated a claim for

relief and been entitled to proceed perforce. The Court next addressed

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 11

the “nub” of the plaintiffs’ complaint – the well-pleaded, nonconclusory

factual allegation of parallel behavior – to determine whether it gave rise

to a “plausible suggestion of conspiracy.” Id., at 565-566.

Acknowledging that parallel conduct was consistent with an unlawful

agreement, the Court nevertheless concluded that it did not plausibly

suggest an illicit accord because it was not only compatible with, but

indeed was more likely explained by, lawful, unchoreographed

free-market behavior. Id. at 567. Because the well-pleaded fact of

parallel conduct, accepted as true, did not plausibly suggest an unlawful

agreement, the Court held the plaintiffs’ complaint must be dismissed.

Id., at 570.

Id. (emphasis added).

B.

Plaintiffs first argue that Twombly is distinguishable because their Amended

Complaint “makes independent allegations of actual agreement.” Plaintiffs contend that

¶¶ 90, 91, and 121 independently allege an illegal agreement. In ¶ 121, plaintiffs use the

word “agreement,” asserting that “the conduct of Defendants described hereinabove, and

. . . the agreement between and among Defendants to reduce, cap and eliminate

commissions paid to plaintiffs” violates the Sherman Act. (Emphasis added.) This

averment is nothing more than a legal conclusion “masquerading” as a factual allegation.

See Eidson, 510 F.3d at 634. The Supreme Court rejected a similar argument in

Twombly, holding that “a few stray statements speak[ing] directly of agreement . . . are

merely legal conclusions resting on [] prior allegations.” Twombly, 550 U.S. at 564.

Paragraphs 90 and 91 of the Amended Complaint assert that defendants’

executives, who were “responsible for [] setting [] commission levels . . . met frequently

during the period of cuts and caps,” which “afforded these persons the opportunity to . . .

conspire” and “communicate[] with one another for the purpose of . . . implementing . . .

their common plan . . . .” These allegations, however, aver only an opportunity to

conspire, which does not necessarily support an inference of illegal agreement. In fact,

¶¶ 90 and 91 are located in a section of the Amended Complaint entitled “Opportunities

for Defendants to Combine and Conspire.” We conclude that plaintiffs’ attempt to

distinguish Twombly on the basis that plaintiffs allege “actual agreement” fails.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 12

C.

Next, plaintiffs argue that the district court erred when it dismissed their § 1

claim against Alaska, AAG, Horizon, and America West because the Amended

Complaint contained more than bare assertions of conspiracy and parallel conduct. We

disagree.

In each of the four references to Alaska in the Amended Complaint, plaintiffs

allege only that Alaska adopted uniform commission cuts in 1997, 1999, 2000, and 2001.

The Amended Complaint does not contain any factual allegations to support Alaska’s

involvement in the conspiracy, beyond its parallel behavior. America West is also

referred to four times but, like Alaska, plaintiffs allege parallel conduct alone and fail

to aver facts sufficient to implicate America West in any conspiracy.

AAG and Horizon are also named defendants and parties to this appeal, but

neither is mentioned in the body of the Amended Complaint, nor do plaintiffs specify

how these defendants are involved in the alleged conspiracy. Consequently, if these

“defendant[s] [sought] to respond to plaintiffs’ [] allegations in the § 1 context, [they]

would have little idea where to begin.” Twombly, 550 U.S. at 564 n.10.

Plaintiffs attempt to implicate these defendants in the purported conspiracy by

relying on several vague allegations contained in the Amended Complaint that refer to

“defendants” or “defendants’ executives.” However, plaintiffs’ reliance on these

indeterminate assertions is misplaced because they represent precisely the type of naked

conspiratorial allegations rejected by the Supreme Court in Twombly. See Twombly, 550

U.S. at 565 n.10 (stating that where “complaint [] furnishes no clue” as to which

defendants supposedly agreed or when and where the illicit agreement took place, the

complaint fails to give adequate notice as required by Fed. R. Civ. P. 8). “A statement

of parallel conduct, even conduct consciously undertaken, needs some setting suggesting

the agreement necessary to make out a § 1 claim; without that further circumstance

pointing toward a meeting of the minds, an account of a defendant’s commercial efforts

stays in neutral territory.” Id. at 557. For these reasons, we hold that the district court

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 13

properly dismissed plaintiffs’ § 1 claim against Alaska, AAG, Horizon, and America

West. Thus, only defendants Continental and American remain.

D.

Finally, plaintiffs argue that factual allegations in their Amended Complaint raise

a reasonable expectation that discovery will reveal circumstantial evidence sufficient to

suggest an antitrust conspiracy similar to that present in Interstate Circuit v. United

States, 306 U.S. 208 (1939). In this regard, plaintiffs’ Amended Complaint alleges that:

Each Defendant knew that concerted action to reduce and cap

commissions was contemplated and invited. Each Defendant adhered to

the common scheme to reduce and cap commissions and participated in

it. Each Defendant was advised that every other Defendant was invited

to participate. Each Defendant knew that cooperation was essential to

successful operation of the plan.

In Interstate Circuit, the Supreme Court held that a pattern of uniform admission

ticket prices at subsequent-run theaters was sufficient to permit a fact-finder to infer the

existence of an illegal agreement.6 Plaintiffs focus on the following language of

Interstate Circuit:

Each was aware that all were in active competition and that without

substantially unanimous action with respect to the restrictions for any

given territory there was risk of a substantial loss of the business and

good will of the subsequent-run and independent exhibitors, but that with

it there was the prospect of increased profits.

306 U.S. at 222.

However, plaintiffs fail to acknowledge the salient evidence of unlawful

collusion presented in Interstate Circuit. Specifically, in Interstate Circuit, a Texas

movie theater chain sent an identical letter to eight major movie distributors threatening

6

We recognize that Interstate Circuit was decided at a more advanced stage of the legal process,

and we do not suggest that the same standards ought to be applied on a motion to dismiss, even under

Twombly. However, plaintiffs argue that they have alleged enough factual matter “to raise a reasonable

expectation that discovery will reveal” circumstantial “evidence of illegal agreement,” Twombly, 550 U.S.

at 556, analogous to the circumstantial evidence discovered in Interstate Circuit. Thus, we examine

plaintiffs’ complaint with an eye to any factual allegations that would make it “reasonable” to “expect []”

that similar circumstantial evidence would surface during discovery. Id.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 14

to discontinue showing their films if the distributors did not require all subsequent-run

theaters to charge a minimum admission price of twenty-five cents. Id. at 216-17. The

admission price customarily charged in independently operated subsequent-run theaters

in Texas at that time was less than twenty-five cents. Id. at 217. Soon thereafter, each

distributor required all subsequent-run theaters showing their films to charge a minimum

of twenty-five cents.

The Supreme Court concluded that Interstate Circuit’s letter, which listed all

eight distributors as addressees, provided uncontested evidence that each distributor

knew about the involvement of the others and constituted persuasive evidence of a

conspiracy, particularly because the defendants could offer no alternative reason for their

parallel pricing demands. Id.

Plaintiffs point to the Airline Reporting Corporation (“ARC”), which is an

information clearinghouse for airlines. The ARC provides information on ticket

distribution, reporting and settlement services, and base commission rates paid to travel

agents. However, there is no allegation in the Amended Complaint that ARC could

provide defendants with commission reduction information before defendants

implemented their rate reductions. According to the Amended Complaint, every leader

airline (the first to announce and implement a commission cut) publicly announced its

cut and implemented the change almost immediately. Thus, defendants’ access to ARC

does not suggest a viable means to collude on commission rates before such reductions

occurred.

In Monsanto Co. v. Spray-Right Service Corp., 465 U.S. 752, 768 (1984)

(emphasis added), the Supreme Court established the modern standard to evaluate

evidence bearing on concerted action:

The correct standard is that there must be evidence that tends to exclude

the possibility of independent action . . . . That is, there must be direct

or circumstantial evidence that reasonably tends to prove that the

[defendant] and others had a conscious commitment to a common

scheme designed to achieve an unlawful objective.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 15

We applied this standard in Re/Max Int’l, Inc. v. Realty One, Inc., 173 F.3d 995

(6th Cir. 1999), wherein the plaintiff, a national real estate brokerage franchiser, sued

two local real estate firms, alleging a violation of § 1 of the Sherman Act.7 Under the

local firms’ adverse-splits policy, whenever Re/Max agents were involved in a

transaction, defendants paid them only 25 or 30 percent of the commission, rather than

the industry norm of a 50/50 split. Re/Max alleged that the adverse-splits policy, the

means by which defendants controlled the market for hiring real estate agents, violated

§ 1. 173 F.3d at 1010. Re/Max claimed that the adverse-splits policy lowered its sales

revenue and prevented it from recruiting knowledgeable and experienced sales agents

because both defendants adopted a policy that paid its agents less than the industry norm.

Id.

We reversed the district court’s grant of summary judgment in favor of the

defendants, holding that the plaintiff provided sufficient circumstantial evidence tending

to exclude the possibility of independent conduct. Id. at 1025. We concluded the

following “plus factors” were important when evaluating circumstantial evidence of

concerted action:

(1) whether the defendants’ actions, if taken independently, would be

contrary to their economic self-interest; (2) whether defendants have

been uniform in their actions; (3) whether defendants have exchanged or

have had the opportunity to exchange information relative to the alleged

conspiracy; and (4) whether defendants have a common motive to

conspire. Ordinarily, an affirmative answer to the first of these factors

will consistently tend to exclude the likelihood of independent conduct.

Id. at 1009 (internal citation omitted).

Key to our decision in Re/Max was evidence that use of the adverse-splits policy

would not be in either defendant’s independent economic interest. If only one defendant

adopted the policy, Re/Max agents would simply deal with the other defendant, and thus

7

We note that Re/Max Int’l, Inc. was an appeal from a grant of summary judgment. Here, our

review is constrained by Fed. R. Civ. P. 12(b)(6). Nonetheless, plaintiffs argue they have put forth factual

allegations that would make it reasonable to expect that discovery will reveal evidence of the Re/Max “plus

factors.” This analysis is instructive insofar as it illuminates the plausibility of defendants’ lawful,

unchoreographed free-market behavior.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 16

sales and revenue would shift away from one defendant to the other. Id. at 1010-11.

Moreover, even if one defendant adopted the “adverse splits policy on its own (a ‘highly

unlikely’ event in the first place),” the other local real estate firm had a strong incentive

not to do likewise. Id. Thus, we concluded that the local firms’ decision to adopt the

adverse-splits policy, despite a natural inclination not to do so, was persuasive evidence

of prior agreement. Id.

Citing Re/Max, plaintiffs assert that no rational airline would attempt to cut

commission rates without entering into a prior agreement because the leader airline

would lose revenue to its competitors. In support of this position, plaintiffs point to

American’s unsuccessful attempt to cut base commission rates from 10% to 7% in 1983

and United’s similar attempt to reduce base commission rates in 1981. Plaintiffs assert

that both airlines quickly retracted their base commission cuts because the travel

agencies retaliated by booking their customers on airlines that maintained the status quo

commission rate. Plaintiffs contend that when one of defendants’ competitors

announced a base commission cut, each defendant had a strong incentive not to adopt

that cut because its natural economic inclination would be to absorb any revenue shifted

away from its competitor.

First, Michael Gunn, former Executive Vice President of Marketing and Planning

at American, testified that an independent reduction in commission rates would advance

each defendant’s economic self-interest. Each defendant could have calculated

reasonably that a successful commission cut would yield greater net revenue than the

likely net loss due to business diverted by plaintiffs to their competitors. This decision

is especially plausible in a marketplace that has changed fundamentally since 1983 due

to technological advances in airline ticket purchasing. Defendants contend that new,

alternate methods for airfare purchase – including direct purchases by customers on the

internet – provided a greater economic incentive to cut commission rates on a trial-and-

error basis. Defendants also assert that it was simple and inexpensive for a leader airline

to innovate and then wait and see, with the hope and expectation that its competitors

would institute similar cuts. If the industry did not follow, the leader airline could

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 17

simply retract the cut. Thus, defendants have offered a reasonable, alternative

explanation for their parallel pricing behavior. In addition, if we follow plaintiffs’

argument to its logical end, it is difficult to imagine a scenario where a commission cut

could ever occur without collusion. Based on these facts, we conclude that each

defendant had a reasonable, independent economic interest in adopting a competitor’s

commission cut rather than to maintain the status quo.

We therefore hold that plaintiffs have 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 indeed was more

likely explained by, lawful, unchoreographed free-market behavior.” Ashcroft v. Iqbal,

129 S. Ct. at 1950.8 Pursuant to Twombly, district courts must assess the plausibility of

an alleged illegal agreement before parties are forced to engage in protracted litigation

and bear excessive discovery costs. Twombly, 550 U.S. 558-59. In this regard, we note

that the plausibility of plaintiffs’ conspiracy claim is inversely correlated to the

magnitude of defendants’ economic self-interest in making the cuts.9 See Matsushita,

475 U.S. at 57 (defining ambiguous evidence as that which is as consistent with

permissible competition as with illegal conspiracy). We are not persuaded by plaintiffs’

argument that defendants would not seek to reduce base commissions independently,

especially during the late 1990s and into 2002, where changes in the marketplace

provided consumers with alternate ticket-purchasing options. As the Court stated in

8

We note that plaintiffs opted-out of a class action that alleged an identical § 1 claim against these

defendants. Hall v. United Air Lines, Inc., 296 F. Supp. 2d 652 (E.D.N.C. 2003), aff’d sub nom. Hall v.

Am. Airlines, Inc., 118 F. App’x 680 (4th Cir. 2004). In Hall, the district court granted summary judgment

in favor of defendants, finding “overwhelmingly compelling evidence that the commission cuts and caps

. . . were just as likely the result of competitive conduct and natural changes in the market as of the illegal

conspiracy alleged by plaintiffs.” Id. at 671. Although a district court decision affirmed by the Fourth

Circuit is not authoritative in the Sixth Circuit, we think that the result in Hall is something we should at

least consider (when analyzing plausibility), “both for its persuasive power, and because it involves the

same facts.” Premier Elec. Constr. Co. v. Nat’l Elec. Contractors Ass’n, Inc., 814 F.2d 358, 367 (7th Cir.

1987) (citation omitted) (considering Fourth Circuit decision in antitrust action involving defendants whose

activities spanned more than one court of appeals). We also acknowledge the Seventh Circuit’s statement

in Premier, which warned, “[o]nly the gravest reasons should lead [a] court in [an] opt-out suit to come

to a conclusion that departs from that in the class suit.” Id. at 367-68.

9

Defendants assert that “each percentage point reduction in travel agent commissions was worth

approximately $56 million, and that by 2002, the combined value of the commission cuts was more than

a billion dollars.”

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 18

Twombly, “there is no reason to infer that [these defendants] had agreed among

themselves to do what was only natural anyway.” 550 U.S. at 566.

Next, plaintiffs rely upon ¶ 87 of their Amended Complaint, which includes an

excerpt from the deposition of Michael Gunn. Gunn testified that “industry consensus”

on new commission levels was necessary for the commission cuts and caps to hold.

Gunn also testified that “he had to match commission cuts exactly or he would undercut

the movement.” Plaintiffs argue that Gunn’s testimony provides strong evidence of an

antecedent agreement. We disagree.

The district court reviewed Gunn’s deposition testimony in its entirety and

carefully considered all of the factual allegations which, taken as true, could plausibly

imply that defendants entered into a preceding agreement. After doing so, the district

court ruled that there were insufficient facts to raise a reasonable expectation that

discovery would reveal evidence of an illegal agreement. In reaching its conclusion, the

district court noted the importance of the following portion of Gunn’s testimony:

Q. [Mr. Alioto (counsel for plaintiff)]: It was, in fact, represented to you

by another person at American that in order for these reductions of

commissions to work that you had to get common agreement of the

industry; that was the most important thing?

A. [Mr. Gunn]: I would respond again that my belief is you have to be

matched if the cut is to be [successful]. But I don’t know I don’t care if

there’s a common agreement or other. All I care about is how people

behave if I do something or how I believe if they do something. To me

that’s not consensus. That’s taking a common action after the fact which

is to me a lot different than consensus. Consensus speaks to prior

agreement. There certainly wasn’t any prior agreement in these cases.

Based on the facts alleged by plaintiffs, it is just as likely that American’s 2001

commission cap was an effort to reduce its internal commission costs, with the ancillary

hope that its competitors would follow its lead. As stated by a respected antitrust

authority:

When one oligopolist raises its price, each of its rivals must decide

whether to follow. Continuing the previous price would allow each of

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 19

the others to increase its sales if the leader persists in charging a higher

price. But each knows that the leader is likely to retract an increase that

is not followed. Accordingly, each rival asks itself whether it is better

off at the lower price when it is charged by all or at the higher price when

charged by all. If the latter, as will often be the case, the leader’s price

increase is likely to be followed.

* * *

The price leader may assume that others have made a similar calculation

about which price will maximize profits. Or the leader may simply

proceed by trial and error: raise the price and see what happens,

especially where reversing an unfollowed price rise is not very costly.

6 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1410b (2d ed. 2003).

In addition, the matching of American’s 2001 commission cap by the other

defendants is not necessarily indicative of prior agreement. On this issue, the Seventh

Circuit has observed that:

[a] firm in a concentrated industry typically has reason to decide

(individually) to copy an industry leader. After all, a

higher-than-leader’s price might lead a customer to buy elsewhere, while

a lower-than-leader’s price might simply lead competitors to match the

lower price, reducing profits for all. One does not need an agreement to

bring about this kind of follow-the-leader effect in a concentrated

industry.

Reserve Supply Corp. v. Owens-Corning Fiberglas Corp., 971 F.2d 37, 53 (7th Cir.

1992). Thus, each defendant’s decision to match a new commission cut was arguably

a reasoned, prudent business decision. Moreover, if each defendant asked “itself”

whether it was “better off” paying base commissions (paid by all) or not paying base

commissions (eliminated by all), each defendant would plausibly elect the latter (from

a purely economic standpoint).

Plaintiffs also argue that their factual allegations regarding defendants’

opportunities to conspire are enough to nudge their § 1 claim across the line from

conceivable to plausible. Twombly, 550 U.S. at 570. Specifically, plaintiffs rely upon

¶ 100, which alleges that “an Executive Vice-President of Marketing & Distribution for

Northwest Airlines, a Senior Vice President of Planning for US Air, and a Senior Vice

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 20

President of Marketing for American met for three hours in a Dallas hotel conference

room”; and upon ¶ 102 as well, which avers that “in 2001, a Delta senior executive met

for a weekend of golf and socializing at the home of an American executive responsible

for setting American’s commission levels. Four months later, American led an

industry-wide reduction on commission caps from $20 to $10 . . . .”

However, plaintiffs’ Amended Complaint does not cite any specific meetings that

involved both Continental and American, the only two remaining defendants. The fact

that American and Continental gathered at industry trade association meetings during

the seven-year period when defendants reduced commission rates should not weigh

heavily in favor of suspecting collusion. The Supreme Court rejected a similar argument

in Twombly:

From the allegation that [defendants] belong to various trade

associations, . . . the dissent playfully suggests that they conspired to

restrain trade, an inference said to be buttressed by the common sense of

Adam Smith. If Adam Smith is peering down today, he may be surprised

to learn that his tongue-in-cheek remark would be authority to force his

famous pinmaker to devote financial and human capital to hire lawyers,

prepare for depositions, and otherwise fend off allegations of conspiracy;

all this just because he belonged to the same trade guild as one of his

competitors when their pins carried the same price tag.

Twombly, 550 U.S. at 567 n.12 (internal citation omitted). Moreover, a mere opportunity

to conspire does not, standing alone, plausibly suggest an illegal agreement because

American’s and Continental’s presence at such trade meetings is more likely explained

by their lawful, free-market behavior. Iqbal, 129 S. Ct. at 1950.

Finally, plaintiffs argue that we should rely upon a statement made in 1983 by

a former American Airlines executive who “approved commission cuts that are the

subject of this action.” Plaintiffs allege that this unnamed American executive

encouraged an executive of a competitor airline (also unnamed) to increase its fares by

20% to “make more money.”

Plaintiffs presumably refer to a statement made by Robert Crandall, former

President of American, to Howard Putnam, former President of the now-defunct Braniff

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 21

airlines. See United States v. Am. Airlines, 743 F.2d 1114, 1116 (5th Cir. 1984). First,

we note that Crandall made this statement more than twenty-five years ago. Second, the

Amended Complaint avers only that Crandall “approved commission cuts” and fails to

allege that he was actually involved in the conspiracy at issue here. In addition, we note

that Crandall retired from American in 1998, placing his departure as CEO at the very

beginning of plaintiffs’ conspiratorial time line.

We conclude that Crandall’s prior statement is too remote in time to support a

plausible inference of agreement. We also do not view his statement as tending to raise

a reasonable expectation that discovery will reveal evidence of an illegal agreement

between Continental and American. See Twombly, 550 U.S. at 555-56.

IV.

For these reasons, we affirm the judgment of the district court.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 22

__________________

DISSENT

__________________

MERRITT, Circuit Judge, dissenting. In the recent Twombly and Iqbal cases,

quoted and discussed at length by my colleagues in their majority opinion, the Supreme

Court has started to modify somewhat, but not drastically, the notice pleading rules that

have reigned under Conley v. Gibson, 355 U.S. 41, 45 (1957) (“a complaint should not

be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff

can prove no set of facts in support of his claim which would entitle him to relief”).

These two cases now require more than simple notice and conclusory statements of

ultimate facts about the case. Instead plaintiffs must plead “sufficient factual matter” to

state a legal claim or cause of action that is not only “conceivable” but also “plausible,”

independently of the notice given and the legal conclusions stated — in short, a set of

“well-pleaded factual allegations” that make the cause of action “plausible.” Iqbal, 129

S. Ct. at 1949-51 (2009). The Supreme Court majority has made clear that it is not

making a major change in the law of pleading with Twombly and its progeny.1

As with any other new, general legal standard, the nature and meaning of the

newly modified standard can be understood and followed only by analyzing how the

standard is applied in actual cases like this case. Here my colleagues have seriously

misapplied the new 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. My

colleagues are requiring the plaintiff to offer detailed facts that if true would create a

clear and convincing case of antitrust liability at trial without allowing the plaintiff the

normal right to conduct discovery and have the jury draw reasonable inferences of

liability from strong direct and circumstantial evidence.

1

The Court has been careful to point out that Twombly should not be read to impose a “probability

requirement,” or a “‘heightened’ pleading standard.” Twombly, 550 U.S. at 556, 595 n. 14. The Court

commented that an otherwise “well-pleaded complaint may proceed even if it strikes a savvy judge that

actual proof of those facts is improbable, and that recovery is very remote and unlikely.” Id. at 556

(internal quotations omitted).

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 23

I.

Twombly itself was a telephone antitrust case in which the only non-conclusory

factual allegations in the complaint of a “contract, combination or conspiracy in restraint

of trade” was that the former Baby Bell telephone companies continued to do business

in their former home territories and did not “attack” and try to take market share away

from the other operating Baby Bell companies in their home region. This was the full

extent of the Twombly factual allegations of anti-competitive behavior. There was no

allegation of action, as opposed to nonaction, misfeasance as opposed to nonfeasance.

The Supreme Court sensibly pointed out that there could be many explanations for this

similar economic nonaction other than the kind of agreement not to compete required for

liability under § 1 of the Sherman Act. Thus the Supreme Court held that this one

specific factual allegation of similar conduct was insufficient alone to state a “plausible”

claim, though the Court seems to say that this kind of factual statement alone makes the

pleading issue “close.” Twombly, 550 U.S. at 557 (“allegation of parallel conduct . . .

gets the complaint close to stating a claim”).

If the Twombly pleading issue was “close,” but insufficient, based only on

similar, stand-pat nonfeasance toward each other’s historical territory, the allegations

concerning the in unison, affirmative behavior of the airlines in this case are obviously

sufficient. The factual allegations in this case create an overwhelming case for the

plaintiff to get by a motion to dismiss on the pleading.

Five times the airlines acted affirmatively, aggressively and publicly in unison

to cut, fix and hold the price the airlines would pay the travel agents. Although at

present there is no written contract to that effect, the facts alleged present so plain a case

that they might as well have put the plan in writing.

1. The complaint alleges that United and American tried in 1981 and 1983,

respectively, to fix the price lower to the travel agents but the other airlines would not

go along. The allegations recite the statements of an American Airlines executive that

the airlines learned not to try again until everyone was on board. The complaint alleges

inside information tantamount to a partial confession.

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 24

2. Then when they tried again in 1995 the plan went like clock-work. Everyone

followed the leader five straight times until the price reached zero. The allegations of

fact, based on testimony of insiders, was that the plan could not work without agreement

but could work if the airlines acted in unison. Since the plan worked like a charm, the

allegations raise a strong inference of agreement. Not as strong as allegations raising an

inference that “the sun will rise in the morning” based on history, but strong enough to

be more than “plausible.”

3. The airline executives in charge must not only have had hundreds of telephone

conversations with each other and through intermediaries, but the specific, time-and-

place factual allegations are that they met frequently over the period the airlines were

acting in unison and according to plan. To suggest that they did not ever in all the

meetings and personal contacts discuss their union of interests and how the cuts were

working defies belief. The father of laissez faire economic theory, the liberal Scottish

moral philosopher, Adam Smith, made the same basic point even more forcefully in The

Wealth of Nations (1776), 230 years ago: “People of the same trade seldom meet

together, even for merriment and diversion, but the conversation ends in a conspiracy

against the public.” Book 1, Chap. 10, part 1, 148 (New York: Modern Library, 2000).

If the factual allegations of meetings are true — a matter not yet determined by an

impartial fact finder — the case of liability is certainly strong enough to go to the jury.

4. The airlines, and specifically American Airlines’ CEO Robert Crandall,

attempted this type of coordinated scheme in the past. In 1984, Crandall was implicated

in a price-fixing conspiracy because of comments he made to a competing airline

president. In a recorded telephone conversation, the president of the competing airline

asked Crandall how both airlines could continue to enjoy a monopoly over service to

Dallas-Fort Worth International Airport, and Crandall instructed his competitor to raise

its price and American would follow suit the very next day with a price increase of its

own. U.S. v. American Airlines, Inc., 743 F.2d 1114, 1116 (5th Cir. 1984). Having

proposed to fall in line behind one another before strongly suggests that the airlines

would do it again. In fact, when Delta announced a cap on travel agent commission in

1995, Crandall was responsible for setting American Airline’s travel agent

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 25

commissions. Appellants’ Reply Brief at 18. Unsurprisingly, American followed Delta’s

lead the very next day. Id.

To summarize, the complaint alleges that price cuts could not be made absent

unilateral, follow-the-leader action by all of the defendants. It provides specific times

and locations of numerous meetings attended by the defendants. Finally, and most

importantly, the complaint ties the dates of those meetings with industry-wide

simultaneous rate cuts that followed immediately thereafter. Reading these allegations

as a whole, the complaint clearly satisfies the Twombly standard. In fact, the Supreme

Court in Twombly noted that multiple competitors making “complex and historically

unprecedented changes in pricing structure . . . for no other discernible reason” would

properly state a claim under § 1 of the Sherman Act. 550 U.S. at 557 n. 4. That appears

to be exactly the situation here.

II.

The antitrust cases decided in both courts of appeals and district courts since

Twombly and Iqbal are few, and most of the cases decided by district courts have yet

to reach the courts of appeals. But see St. Clair v. Citizens Fin. Group, No. 08-4870,

2009 WL 2186515 (3rd Cir. Jul. 23, 2009). That said, district court judges across the

country have dismissed a large majority of Sherman Act claims on the pleadings

misinterpreting the standards from Twombly and Iqbal, thereby slowly eviscerating

antitrust enforcement under the Sherman Act. See, e.g., In re Hawaiian & Guamanian

Cabotage Antitrust Litig., No. 08-md-1972 TSZ, 2009 WL 2581510 (W.D. Wash. Aug.

18, 2009); Bailey Lumber & Supply Co. v. Ga.-Pac. Corp., No. 1:08CV1394LG-JMR,

2009 WL 2872307 (S.D. Miss. Aug. 10, 2009); Burtch v. Milberg Factors, Inc., No. 07-

556-JJF-LPS, 2009 WL 1529861 (D. Del. May 31, 2009).

The uniformity needed for the rule of law and equal justice to prevail is lacking.

This irregularity may be attributed to the desire of some courts, like my colleagues here,

to use the pleading rules to keep the market unregulated, while others refuse to use the

pleading rules as a cover for knocking out antitrust claims. Compare In re California

Title Ins. Antitrust Litig, 2009 WL 1458025 (N.D. Cal. May 21, 2009) (dismissing price-

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 26

fixing complaint against major title insurance agencies who jointly set rates in states

where they belonged to statutorily authorized rate setting organizations and employed

similar rates in other states) with Standard Iron Works v. Arcelormittal, No. 08-C-5214,

2009 WL 1657449 (N.D. Ill. 2009) (finding plausibility despite lack of direct evidence

of collective action by looking at a series of industry meetings attended by steel

executives that were followed by industry-wide production cuts).

III.

The Sherman Act was enacted in 1890 at the height and in the heat of

controversy during a former Gilded Age. It was enacted to deter price fixing, market

allocation among producers, and monopolization at a time of extreme disparities in

economic power and wealth brought on by an extreme version of laissez faire economic

theory.2 After a long, slow climb toward a more equal distribution of economic power

over the past century, in part because of the enforcement of the Sherman Act, we have

recently returned to the great disparities that formerly existed. The failure to regulate

2

See 21 Cong. Rec. 2460 (1889) (This inequality “has grown within a single generation out of

the concentration of capital into vast combinations to control production and trade and to break down

competition.”).

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 27

the marketplace through antitrust enforcement is probably related to the mind-set that

has dramatically reversed the earlier trend toward equality.3

There are many, including my colleagues, whose preference for an unregulated

laissez faire market place is so strong that they would eliminate market regulation

through private antitrust enforcement. Using the new Twombly pleading rule, it is

3

A picture of the recent reversal of the long trend toward equality is as follows:

Forty years ago the average CEO made twenty times what the average worker did; now it is nearly 400

times. Thomas Piketty & Emmanuel Saez, Income Inequality in the United States: 1913-1998, 118 Q.J.

Econ. 1 (2003), data updated through 2007 available at http://elsa.berkeley.edu/~saez/.

From the time of Herodotus in 500 B.C. to the present, historians and political philosophers have

believed that a high level of inequality of economic and political power undermines the basis of

constitutional democracy and stable government generally: “So the Athenians had increased in strength,

which demonstrates that an equal voice in government has beneficial impact not merely in one way, but

in every way.” THE LANDMARK HERODOTUS: THE HISTORIES 400 (Robert B. Strassler ed. 2007). “The

constitutional essential here is rather that below a certain level of material and social well-being, and of

training and education, people simply cannot take part in society as citizens, much less equal citizens...it

is what is required to give due weight to the idea of society as a fair system of cooperation between free

and equal citizens....” JOHN RAWLS, POLITICAL LIBERALISM 166 (1993).

No. 07-4464 Tam Travel, et al. v. Delta Airlines, et al. Page 28

possible to do away with price fixing cases based on reasonable inferences from strong

circumstantial evidence. As in this case, the proponents of this strategy propose to

require either an express written agreement among competitors or a transcribed oral

agreement to fix prices. Nothing less will do. Insider testimony, a strong motivation to

collude, and aggressive, lock-step unanimity by competitors in pricing become

insufficient to state a case. Over time, the antitrust laws fall further into desuetude as the

legal system and the market place are manipulated to benefit economic power, cartels,

and oligopolies capable of setting prices. This case is just one small step in that

direction. But this direction is unlikely to be changed unless the Supreme Court steps

in to make it clear that Twombly may not be used, as my colleagues propose, as a cover

for repealing regulation of the marketplace through private antitrust enforcement.