Appendix — Western Air Lines, Inc. v. International Travel Arrangers, Inc.
Supreme Court brief1980
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8 0 = 6 6 8 | Supreme Court, U.S,
i FILED
No. 80- ‘1 OCT 21 1980
\
IN THE | LIMICHAEL RODAK, JR CLERK
Supreme Court of the United States
OcrosEer Terry, 1980
Western Air Lines, Ino,
Petitioner,
Vs.
INTERNATIONAL TraveL Arrancers, INc.,
Respondent.
ON PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
APPENDIX TO
PETITION FOR WRIT OF CERTIORARI
Parrick Lyncu
Barton H. Tuompson, Jr.
O’Me.iveny & Myers
611 West Sixth Street
Los Angeles, California 90017
(213) 620-1120
Of Counsel: Attorneys for Petitioner
Cray R. Moore Western Air Lines, Inc.
MackKati, Crounsrk & Moore
1000 First Nat’l Bank Bldg.
Minneapolis, Minnesota 55402
TABLE OF CONTENTS
Appendix A:
Opinion of the United States Court of Appeals
for the Highth Cireuit, International Travel
Arrangers, Inc. v. Western Air Lines, Inc.,
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Appendix B:
Judgment of the District Court, February 26, 1979
Appendix C:
Order for Judgment of the District Court, October
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Appendix D:
Report of the Special Master: Findings of Fact,
Conclusions of Law and Recommended Order
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Appendix E:
Memorandum of the Special Master, June 7, 1978...
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APPENDIX A
INTERNATIONAL TRAVEL ARRANGERS, INC.,
Appellee,
Vv.
WESTERN AIRLINES, INC., Appellant.
No. 79-1221.
United States Court of Appeals,
Highth Circuit.
Submitted Jan. 15, 1980.
Decided June 10, 1980.
Appeal from the United States District Court for the
District of Minnesota.
Before STEPHENSON and MeMILLIAN, Cireuit
Judges, and THOMAS,* District Judge.
STEPHENSON, Circuit Judge.
Plaintiff-appellee, International Travel Arrangers, Ine.
(ITA), a Minnesota corporation, organizes and arranges
travel charter flights. Defendant-appellant, Western Air-
lines, Inc., is a regularly-scheduled aircraft carrier with
routes including Minneapolis-St. Paul/other mainland
cities to Hawaii; Minneapolis-St. Paul to Las Vegas; and
various western states’ cities to Mexico.
The district court,** adopting the conclusions and recom-
mendations of the United States magistrate acting as a
* The Honorable Daniel H. Thomas, Senior Judge for the United
States District Court for the Southern District of Alabama, sitting
by designation.
** The Honorable Miles W. Lord, United States District Judge for
the District of Minnesota.
2a
Special Master,! found that Western violated sections 1
and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and entered
judgment of trebled damages of $361,596.00 ($120,537.00
x 3) against Western and attorneys’ fees and costs, of
$213,390.87 and $10,771.40, respectively, to ITA,
Western, on appeal, challenges as clearly erroneous the
findings of the Sherman Act violations, and challenges as
excessive the amount of attorneys’ fees. We affirm the
district court’s findings of Sherman Act violations and the -
damages resulting therefrom; we reduce the amount of
attorneys’ fees to $161,003.75.
Generally, ITA alleged at trial that Western, through a
combination with its advertising agency, Batten, Barton,
Durstine and Osborn,? (BBD&O) conducted a campaign
aimed at preventing ITA’s development of travel group
charters (TG@Cs) from becoming a competitive threat to
1. On July 8, 1977, the parties stipulated that the case would be tried
by a jury presided over by United States Magistrate Robert G.
Renner, and the district court ordered such. The trial proceeded on
this basis. The jury returned a verdict in favor of ITA in the sum
of $139,000. On February 22, 1978, a new trial was granted by the
district court on the basis that a jury trial presided over by a United
States magistrate was improper. The parties then stipulated to
a retrial by Magistrate Renner acting as a Special Master pursuant
to 28 U.S.C. § 636(b) (2) and Fed.R.Civ.P. 53. The stipulation
and order thereon provided that the evidentiary proceedings and
the jury trial would be deemed to be the proceedings before the
Special Master.
On April 24, 1978, the transcript and documentary evidence
of the jury trial, along with some additional testimony and ex-
hibits, were offered and received. On June 7, 1978, the Special
Master reported Findings of Fact, Conclusions of Law, and a
Recommended Order for Judgment. On October 17, 1978, the
district court adopted all but one finding of the Special Master
and ordered judgment to be entered against Western.
On November 6, 1978, a separate hearing was held before
the Special Master to determine attorneys’ fees and costs. Judg-
ment was entered by the district court on February 26, 1979,
against Western in regard to fees and costs.
2. The individual names in BBD&O have been spelled interchangeably
as Batton; Barston; Dirsten & Dursten; & Osborne. We have
spelled the names as they appear on a BBD&O letterhead.
3a
Western; that Western, by use of its monopoly power,
further attempted to prevent ITA’s program of T@Cs from
becoming a competitive threat; and that Western succeeded
in its activities, thereby causing damage to ITA.
Western challenges as clearly erroneous the Special
Master’s findings with respect to most of these factual
allegations, and further specifically argues that the finding
of a causal relationship between such alleged activities and
ITA’s alleged damages was clearly erroneous.
We shall review most of these claims in conjunction with
a thorough review of the facts of this case. Asa preliminary
matter, however, we shall address Western’s claim that the
dispute between Western and ITA should initially have
been referred to the Civil Aeronautics Board (CAB) under
the doctrine of primary jurisdiction.
I. Primary Jurisdiction
The CAB has both exclusive jurisdiction and primary
jurisdiction over a variety of disputes within the air trans-
portation system. The district court3 addressed the issue of
jurisdiction with respect to the instant case, International
Travel Arrangers v. Western Air Lines, Inc., 408 F.Supp.
431 (D.Minn.1975), and found that the federal district
court had jurisdiction of the dispute and denied Western’s
motions to dismiss or to refer the matter to the CAB.
On appeal, Western argues that the CAB had primary
jurisdiction over the case under (1) 49 U.S.C. §¢§ 1302, 1381
(§ 1302 amended 1978) and 14 C.F.R. § 399.80; (2) 49 U.S.C.
§ 1482 (amended 1977 and 1978) and 14 C.F.R. § 302, inas-
much as the dispute concerned allegedly unfair competitive
practices.
49 U.S.C. §1302 (amended 1978) defines the matters of
public interest which the CAB must consider in perform-
ance of its powers and duties. 49 U.S.C. § 1302(c) (amend-
ed 1978) specifically mentions that one of these considera-
tions shall be:
3. The Honorable Miles W. Lord, United States District Judge for
the District of Minnesota.
4a
{t]he promotion of adequate, economical, and efficient
service by air carriers at reasonable charges, without un-
_ just discriminations, undue preferences or advantages,
_ or unfair or destructive competitive practices[.]
Id. (emphasis added).
~ 49 U.S.C. § 1381 states that the CAB “may, upon its own
initiative or upon complaint by any air carrier * * * or
ticket agent” investigate and make determinations in regard
to any alleged “unfair or deceptive practices or unfair
methods of competition.” This same section gives the CAB
authority to issue cease and desist orders in connection with
such practices or methods of competition. 49 U.S.C. § 1482
(amended 1977 and 1978) and 14 C.F.R. § 3024 are the
statutory provisions and regulatory rules for the relevant
administrative proceedings.
14 C.F.R. § 399.80 enumerates those practices which the ©
CAB regards as unfair or deceptive or as an unfair method
of competition. For example, 14 C.F.R. § 399.80(n) desig-
nates as one of these practices: “[m]isrepresentation as to
the requirements that must be met by persons or organiza-
tions in order to qualify for charter or group fare flights.”
It is one of ITA’s arguments that through false and de-
ceptive advertising, Western misrepresented ITA’s TGC
requirements and operations.
49 U.S.C. § 1384 (amended 1978) is a specific immunity
clause of the federal aviation program, which provides in
regard to the antitrust laws, that “[a]ny person affected
by any order made under [49 U.S.C.] sections 4378, 1379,
or 1882 * * * shall be, and is hereby, relieved from the opera-
tions of the ‘antitrust laws.’” As is apparent by the de-
scription of the statutory and regulatory authority upon
which Western relies, Western does not allege that this
4. 14 C.F.R. § 302 has been amended in several sections since the
"occurrence of the activities involved in this lawsuit. For purposes
'’ of our discussion, however, citations to the current regulations will
suffice inasmuch as the fact that the administrative procedures were
somewhat different during the time frame of the activities ~of
- Western is immaterial to the question of primary jurisdiction.
5a
immunity grant covers the instant case. Thus our discus-
sion need not deal with exclusive jurisdiction with the
CAB, but rather only that of primary jurisdiction.
Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93
S.Ct. 573, 34 L.Ed.2d 525 (1973) provides us with the
primary considerations relevant to the doctrine of primary
jurisdiction. The regulatory agency involved in Ricci was
the Commodity Exchange Commission. The plaintiff alleged
that he was excluded from trading on the Chicago Mercan-
tile Exchange pursuant to an unlawful conspiracy in viola-
tion of section 1 of the Sherman Act, 15 U.S.C. $1. While
acknowledging that the Commission could not immunize
conduct from the antitrust laws, the Supreme Court deter-
mined that the Commission had primary jurisdiction be-
cause (1) a factual determination of whether or not the
action taken by the Commission was pursuant to a valid
rule would clarify what question was necessary for the
Court to decide — i, é., (a) if the action was pursuant to
a valid rule, the question would be whether the rule is in-
Sulated from the antitrust laws, see Board of Trade v.
United States, 246 U.S. 231, 238, 38 S.Ct. 242, 243, 62 L.Ed.
683 (1918) (reasonable restraint of trade) ; (b) if the action
in question was contrary to the rules, the antitrust action
would presumably “take its normal course,” Ricci v. Chi-
cago Mercantile Exchange, supra, 409 U.S. at 304, 93 S.Ct.
at 581; (2) that there was statutory authority for the
Commission to settle the dispute; and (3) the adjudication
of the dispute by the Commission would materially aid the
Court “in arriving at the essentia] accommodation between
the antitrust and the regulatory regimes.” Jd. at 307, 93
S.Ct. at 583. |
The purpose of these considerations is to provide focus
upon the controlling principle involved in the conflict of
regulatory and judicial activity, which is that the courts
“must refrain from imposing antitrust sanctions for activi-
ties of debatable legality * * * in order to avoid the possibil-
ity of conflict between the courts and [agencies].” Carna-
tion Co. v. Pacific Westbound Conference, 383 U.S. 213,
220, 86 S.Ct. 781, 786, 15 L.Ed. 709 (1966),
6a
While the CAB has statutory and regulatory authority
to determine unfair competition (the second consideration
listed), it is difficult to see how a determination by the CAB,
as to whether Western’s activities constituted, e. g., unfair
competition, would clarify any questions presented to this
court — the question would still be whether those activities
constituted an antitrust violation. For as we have pointed
out, there is no basis for antitrust immunity under action
taken pursuant to 49 U.S.C. §§ 1302, 1381 or 1482.
This differs from the factual situation in Ricci v. Chi-
cago Mercantile Exchange, supra, inasmuch as in Ricci,
as is apparent by the Court’s observation, the Commodity
Exchange Act “contemplates that the Exchange and its
members will ‘engage in restraints of trade which might
well be unreasonable absent sanction’ by the Act.” Id., 409
U.S. at 304, 93 S.Ct. at 581, quoting Silver v. New York
Exchange, 373 U.S. 341, 360, 83 S.Ct. 1246, 1258, 10 L.Ed.2d
389 (1963) (emphasis added). If the action in Ricci was
determined by the Commission to be within the Exchange
rules, there would be an affirmative sanction by the Ex-
change of the activities in question. In the instant case,
even if the CAB would determine that there was no viola-
tion by Western of the CAB prohibitions against unfair
competition, this would not be an affirmative sanction of the
activities by the CAB. Thus a finding of an antitrust viola-
tion by this court would not create a substantial conflict.
Carnation Co. v. Pacific Westbound Conference, supra.
A determination by the CAB, as to whether or not the
activities constituted unfair competition, would not neces-
sarily aid the court in arriving at an accommodation be-
tween the CAB regulations and the antitrust laws, for there
would not necessarily exist a conflict even if the CAB
decides one way and this court holds the opposite.
We hold that this court properly has jurisdiction of this
case.
II. Factual Findings by the District Court
A. General Overview
As defined by the Special Master in his findings of fact,
a travel group charter
7a
is a form of charter air travel in which the individual
traveler is a party to the charter contract incurring
liability for the prorata share of the charter cost and
running the risk that his cost may increase, depending
upon the load factor ultimately achieved. TGCs are
organized by independent charter organizers. * * In en-
acting the TGC concept, the CAB’s purpose was to pro-
vide charter competition to the regularly-scheduled air-
lines, and low air fares to the public at large.
ITA began operations of TGCs in the summer of 1973
with the Minnesota State Automobile Association (MSAA)
acting as a wholesaler and retailer for the TGCs organized
and arranged by ITA. The TGOs first operated were
flights from Minneapolis-St. Paul to London.
Initially planned for 1974 by ITA were eight Hawaii
flights, four Mexico flights and thirteen London flights.
Preparation and advertising for some of these began at
least as early as 1973. Later it was decided to only sched-
ule four Hawaii flights.
During the summer of 1973, two travel agencies began
advertising Hawaii TGCs for departure during January-
March 1974. Those travel agencies were Mainline Travel
and Travel World.6 These two travel agencies, along with
MSAA, comprised a major portion of the Minnesota travel
market; Mainline and MSAA were the two largest travel
agencies in Minnesota.
Also during the early part of 1973, TGCs were advertised
in west coast newspapers for TGCs from west coast cities
to Hawaii. Western Airlines, concerned by the competitive
threat of these west coast TGCs, sought the assistance of
BBD&O0, its advertising agency, in formulating and adver-
5. ITA was formed in June 1972 and initially packaged affinity group
charters. As defined by the Special Master, “[a]ffinity charters
involve groups having some community interest apart from trans-
portation, for example, membership in a club, who engage an
aircraft for transportation to be paid for on a pro-rata basis.”
After the CAB adopted, in September 1972, regulations concerning
TGCs, ITA entered this market.
6. Travel World is also referred to as Travel Center in the record.
8a
tising response. As a result, and with aggressive assist-
ance’? from BBD&O, Western caused an ad to appear in
several major west coast papers which had the effect of
reducing competition from west coast TGCs. This was one
of Western’s first acts in what has been referred to as an
anti-TGC campaign. This finding by the Special Master,
of effectiveness of the ad, is supported by the testimony of
Burt D. Lynn, Vice-President of Advertising and Sales
Promotion of Western Airlines, who testified that the feed-
back from the travel agents on the west coast was that the
ad was effective.8
On August 30, 1973, ITA and MSAA (who was to act as
wholesaler and handle reservations and bookings for the
TGCs) held a kick-off party for the Hawaii and Mexico
TGCs. ITA distributed information about the TGCs to the
travel agents in attendance. The first ITA/MSAA Minne-
sota ads for the Mexico and Hawaii TGCs appeared on
September 2, 1973.
Western caused to be published on Sunday, September
16, 1973, an ad in the Minneapolis paper, which, but for a
few changes, was identical to the ad Western caused to be
published in the west coast papers early in 1973. There was
also radio advertising (prepared by BBD&O) aired on a
St. Paul-Minneapolis station between September 13 and
September 16, 1973, which advised listeners to “[b]e sure
to see the Western Airlines ad in the travel section of your
7. Burt D. Lynn, Vice-President of Advertising and Sales Promotion
for Western Airlines, testified that he contacted BBD&O to begin
work on an advertising response to the west coast TGCs, and that
he was informed by John Doyle, of BBD&O, that BBD&O was
already working on an advertising response.
Lynn additionally testified that Jack Bernardy, BBD&O Ac-
counts Supervisor for Western Airlines, gave Lynn an initial draft
of the advertisement, that Lynn made a few changes, but that the
ad as published was substantially the same as the initial draft.
8. Additionally, Western chose not to rerun the ad inasmuch as TGCs
had ceased doing well on the west coast and chose to run a very
similar ad in the Minnesota papers. Both of these factors may have
been taken into consideration in regard to the findings by the
Special Master that the ad was effective.
9a
Sunday newspaper” and “[l]ook for the full-page Western
Airlines ad in the travel section of your Sunday news-
paper.” |
Finally, there was a letter on Western Airlines’ station-
ery addressed to “Dear Partner in Travel,” and dated Sep-
tember 13, 1973, signed by Lynn Zumbrunnen, Regional Di-
rector, Marketing/Sales for Western Airlines. The letter
was drafted by BBD&O and sent to Minnesota travel agents
along with a proof copy of the September 16 ad.9__
Additional acts by Western with respect to ITA’s TGCs
include a letter from Western addressed to Mainline Travel
which discouraged the participation of Mainline with TGCs.
The April 25, 1973 letter read as follows:
_ Dear Warren [President-Mainline Travel] :
By now you may feel that I have an obsession against
Travel Group Charters, and that may be so, but I am
more concerned with keeping one of our top producing
agents in a strong, healthy position.
I certainly don’t believe that involving yourself in TGCs
into the Pacific is the answer. At least not at this point
and time. I think the case in point is capsulized very
9. In relevant part, the letter read as follows:
There has been a good deal of talk and activity centered around
Travel Group Charters. Obviously, Western has a point of view
on TGCs. Frankly, we don’t think they are a good deal for the
public or for the travel industry. Let me tell you why.
*_* * * * &*
Most TGCs are filed for peak-season departures. We wonder if
the entire travel indu:try isn’t doing itself a good deal of harm to
take its prime vacation destinations and sell them at bargain base-
ment rates during a period when that product is at peak demand.
*e * * & ©
I have attached a proof of the first advertisement that is scheduled
to run in newspapers in your area on Sunday, September 16. I
believe you will find it a very effective tool in explaining to your
clients the problems inherent in TGCs.: When they decide to oor!
their Hawaiian vacation on a scheduled carrier, we hope you. will
make sure it is on Western Airlines, “The Only Way To Fly”.
10a
well in the attached article that appeared in the April
18th issue of the Honolulu Advertiser. I believe you will
find it interesting reading.
Sincerely,
/s/ Bill
[W. E. Balfour, Vice President
Marketing/Passenger Sales,
Western Airlines]
One other specific piece of evidence (we have not at-
tempted to be all-inclusive in our restatement of the facts)
is a recommendation from Zumbrunnen (Western) to Bal-
four (Western) which suggested, inter alia, a rerun of the
west coast ad in the Minnesota papers. The recommenda-
tion read, in relevant part:
As we have discussed with you quite frequently during
the last few days regarding the pending TGC and ITC
programs scheduled to depart the Twin Cities during the
first quarter, the following recommendations and obser-
vations are for your consideration:
Today we held a staff meeting and quite extensively
kicked around the programs as to their validity from a
competitive evaluation. It was agreed by all that the
existing programs create a very serious competitive si-
tuation. Our feedback from the travel agents indicate
that they will support these programs —ITC programs
to a greater extent than TGC programs. This observa-
tion I heartily agree with and share in our staff’s obser-
vations.
It was nearly unanimous that a positive reaction to this
competitive situation be made by Western Airlines prior
to the middle of September. This successful reaction
would be a rerun of our TGC advertisement which ap-
peared in the Los Angeles area tailored to this situation.
In addition to the ad, a direct mail program regarding
the same would be sent to all travel agencies. If it is
possible to delay any fare increases until Spring, the ad
campaign might not be necessary with the exception of
lla
a direct mailer to the travel agents. This, of course, is
very serious business; and consequently, we would like
such a mailer to be reviewed by general office staff.
B. The Ad
Western first contends that the Special Master erred in
finding the September 16 newspaper ad to be false, mis-
leading and deceptive.!0 The Special Master found as
follows:
10. Western asserts, as a defense to ITA’s allegations, that ITA’s TGC
advertisements — appearing before Western initiated its anti-TGC
campaign — were deceptive, illegal and fraudulent, and thus Wes-
tern should not be held liable for its own challenged conduct. We
find the Special Master’s reliance on Perma Life M ufflers, Inc. v.
International Parts Corp., 392 U.S. 134, 138-40, 88 S.Ct. 1981,
1984-85, 20 L.Ed.2d 982 (1968) to be on point and controlling :
Although in pari delicto literally means “of equal fault,” the doc-
trine has been applied, correctly or incorrectly, in a wide variety
of situations in which a plaintiff seeking damages or equitable
relief is himself involved in some of the same sort of wrong-
doing. We have often indicated the inappropriateness of in-
voking broad common-law barriers to relief where a private suit
serves important public purposes. It was for this reason that
we held in Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S.
211, 71 S.Ct. 259, 95 L.Ed. 219 (1951), that a plaintiff in an
antitrust suit could not be barred from recovery by proof that he
had engaged in an unrelated conspiracy to commit some other
antitrust violation. Similarly, in Simpson v. Union Oil Co:, 377
U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964), we held that a
dealer whose consignment agreement was canceled for failure to
adhere to a fixed resale price could bring suit under the antitrust
laws even though by signing the agreement he had to that extent
become a participant in the illegal, competition-destroying
scheme. Both Simpson and Kiefer-Stewart were premised on
a recognition that the purposes of the antitrust laws are best
served by insuring that the private action will be an everpresent
threat to deter anyone contemplating business behavior in viola-
tion of the antitrust laws. The plaintiff who reaps the reward
of treble damages may be no less morally reprehensible than the
defendant, but the law encourages his suit to further the over-
riding public policy in favor of competition. A more fastidious
regard for the relative moral worth of the parties would only
result in seriously undermining the usefulness of the private
action as a bulwark of antitrust enforcement. And permitting
the plaintiff to recover a windfall gain does not encourage con-
12a
20, On September 16, 1973, in response to the substan-
tial competitive threat, Western caused the publication of
an ad similar to its west coast ad in the Twin Cities and
other larger cities in Minnesota (Ex. 21). The ad ap-
peared in the Travel Sections of the Minneapolis and St.
Paul Sunday papers (as well as those of Rochester, Du-
luth, and other Minnesota cities). As with the west coast
ads, it was substantially the work product of BBD&O.
21. It was false, misleading, or deceptive in the follow-
ing ways:
a, The statement:
“No travel group charter has ever taken off to Hawaii
from the Twin Cities. All those scheduled had to be
cancelled.”
was false and misleading in that if this language is inter-
preted as stating that all Twin Cities/Hawaii TGCs ever
scheduled had been cancelled, it was false since Mainline
Travel and MSAA/ITA were advertising Twin Cities/
Hawaii TGCs simultaneously with Western’s ad and the
TGCs had not been cancelled. If the language is inter-
preted as meaning that all Twin Cities/Hawaii TGCs
scheduled to depart prior to September 16th had been
cancelled, it was equally misleading since none had ever
been so scheduled, |
tinued violations by those in his position since they remain fully
subject to civil and criminal penalties for their own illegal con-
duct. Kiefer-Stewart, supra.
In light of these considerations, we cannot accept the Court
of Apppeals’ idea that courts have power to undermine the
antitrust acts by denying recovery to injured parties merely
because they have participated to the extent of utilizing illegal
arrangements formulated and carried out by others. * * * We
therefore hold that the doctrine of in pari delicto, with its com-
plex scope, contents, and effects, is not to be recognized as a de-
fense to an antitrust -action.
The only exception that Perma Life allows is when the illegal
conspiracy “would not have been formed but for the plaintiff's
- participation.” Javelin Corp. v. Uniroyal, Inc., 546 F.2d 276, 279
(9th Cir. 1976), cert. denied, 431 U.S. 938, 97 S.Ct. 2651, 53
L.Ed.2d 256 (1971). This exception is not applicable here.
13a
b. The statement:
“The upshot of it all being that you can plunk down a
couple of hundred dollars (or more) for airfare and
even more for ground arrangements. And end up going
absolutely nowhere.”
was misleading in that under the TGC regulations, it was
impossible for a prospective passenger to ever forfeit
money paid to the organizer for ground arrangements,
ce. The statement: “Find out your hotel (if you buy an
optional ground package). Nobody’s sure yet either.”
was false and misleading in that the statement was not
true as of the date of the ad for ITA’s TGCs. Mr. Russell
and Mr. Edberg of MSAA testified that on September 16,
a passenger’s hotel was known at the time of reservation.
d. The ad was false and misleading in stating that the
TGC organizer could charge a five percent transfer fee.
By contract ITA could not do so.
e. The ad was false and misleading in stating that the
TGC passenger was “virtually out of luck” within 45 days
before departure. The standby list could be utilized with-
in 45 days of departure and in fact was so used on IT'A’s
1973 TGCs to London. For this same reason, the state-
ment “If your boss switches your vacation, for example,
you’ve had it,” was misleading.
f. The statement that the travel agent “understands
all the pros and cons of Travel Group Charters” was mis-
leading since at the time of the ad travel agents did not
know much about the TGC concept. Also, Western was,
at the same time, discouraging travel agents from selling
TGCs.
g. The statement:
“Nationally, over 2,600 travel group charters have al-
ready been cancelled. That’s 9 out of 10 flights that
were scheduled.”
was misleading since this national experience was not
representative of the Twin Cities’ experience with TGCs.
In particular, all of the TGCs scheduled out of Minnea-
l4a
polis/St. Paul to London in 1973 and operated by ITA/
MSAA operated sucessfully. It was also misleading be-
cause it referred to flights listed in prospectuses filed
with the CAB and was not limited to cancellations occur-
ring because of inability to attract sufficient passengers
to allow operations under the Rules, the only circum-
stance which would be relevant to the alleged informa-
tional purpose of the ad.
Western argues, inter alia, that (1) the seven specific
statements were not found to be materially false or mis-
leading; (2) the ad was not considered in the context in
which it appeared (a “lengthy travel section of a bulky
Sunday newspaper along with a large number of other
travel ads,” quoting from Western’s brief) ; and (3) that in
any event, the statements in the ad are not false, misleading
or deceptive.
We think that implicit in the causation of damage finding,
discussed infra, materiality is shown. Secondly, the ad was
submitted in at least one exhibit in the context of the news-
paper travel section and the Special Master had the oppor-
tunity to consider the ad in that context.
As to the content of the ad itself, we find it unfruitful,
and additionally unnecessary, to examine individually the
seven allegedly false, deceptive or misleading statements.
The issue is first, whether the ad as a whole, contributed
to the “anti-TGC campaign,” and second, whether the cam-
paign constituted an unreasonable restraint of trade under
section 1 of the Sherman Act.
It will be relevant, however, in the analysis leading to a
determination of reasonableness of the anti-TGC campaign,
to consider the personality of the ad as a whole. For an
example of one of the stronger of the Special Master’s
seven findings insofar as ITA is concerned, Western admits
that the statement in Finding 21(a), “[a]ll those scheduled
had to be cancelled,” was incorrect ; on September 16, when
the ad appeared, ITA and MSAA, Mainline and Travel
World were actively promoting their Hawaii TGCs—ob-
viously they were not cancelled. The weakest finding of
fact insofar as ITA is concerned is Finding 21(f)—“[t]}he
statement that the travel agent ‘understands all the pros
l5da
and cons of Travel Group Charters’ was misleading.” What
is most important here is not that the travel agents did not
know all the pros and cons of TGCs, but that, as part of its
overall anti-TGC campaign, Western was (1) discouraging
travel agents from selling TGCs to their customers and,
additionally; (2) stating that Western hoped the travel
agents would book their customers on Western, and finally ;
(3) telling potential customers, through the September 16
ad, to see their travel agent for supposedly an objective
appraisal of TGCs.
Thus keeping in mind that the ultimate question is
whether the anti-TGC campaign was an unreasonable re-
straint of trade under section 1 of the Sherman Act, we hold
that there is sufficient evidence to support the Special Mas-
ter’s finding of facts that the ad is false, deceptive and mis-
leading. We further agree that the ad was part of the anti-
TGC campaign and must be considered in determining
whether or not an unreasonable restraint of trade occurred,
C. Travel Agent Letter
The second major act in the anti-TGC campaign was
mailing a copy of the ad, along with the letter drafted by
BBD&O, to travel agents in Minnesota.!1 The contents of
the ad have already been discussed. The letter, the Special
Master found, was designed to discourage the travel agents
from participating in TGCs and from selling TGCs to the
public. The letter speaks for itself, Part II A supra, and
we agree that it was part of the anti-TGC campaign and
must be considered when determining the reasonableness
of the campaign under Sherman § 1,
D. Radio Commercial
The final major segment of the alleged anti-TGC cam-
paign is the radio advertising. The radio commercial refers
to the September 16 ad; the contents of the ad have been
discussed. Other than that, it is only necessary at this point
to note that the radio advertising was also part of the anti-
TGC campaign and must be considered when determining
the reasonableness of the campaign.
11. See note 9 supra.
16a
E. Other Activities
Although they were not specifically directed at the Min-
nesota TGCs, also relevant to the factual background of our
analysis are Western and BBD&O’s activities on the west
coast in regard to TGCs. Western contacted BBD&O in
reference to a west coast advertisement to meet the competi-.
tive threat of TGCs against Western; the ad was run in
February 1973 in several major west coast papers; and the
ad was found to have effectively reduced competition from
TGCs on the west coust. All of the foregoing can be used
as a base for reference in connection with Western’s knowl-
edge of the impact of the ad and Western’s reason for using
the ad in Minnesota.
Additionally, credibility for IT A’s charge of an anti-TGC
campaign can be gleaned from (1) the April 25, 1973 letter
from Western to Mainline, pp. 11-12 supra, discouraging
the use of TGCs; (2) Zumbrunnen’s recommendation to Bal-
four that the west coast ad should be used in Minnesota,
pp. 12-13 supra; (3) the knowledge that TGCs were actively
opposed by Western on the west coast; (4) the fact that
by April 1973, Western’s Minneapolis personnel had been
instructed by Balfour to monitor, as closely as possible,
TGC activity in Minneapolis-St. Paul; and (5) the fact that
in August 1973, Balfour told the Travel Agent’s Advisory
Council that Western was opposed to TGCs on the west
coast.
Thus, we specifically hold that there is sufficient evidence
to support the Special Master’s conclusion that these activi-
ties were part of an anti-TGC campaign.
III. Contract, Combination or Conspiracy
Having determined the nature of the above activities and
having determined that they constituted an anti-TGC cam-
paign, we must now determine whether these activities
were an unreasonable restraint of trade under section 1 of
the Sherman. Act,
To find a violation of section 1, there must first be a find-
ing of a contract, combination or conspiracy. Western ar-
gues that the district court erred in finding that BBD&0O’s
17a
contribution to the activities was sufficient to establish that
a contract, combination or conspiracy existed between
Western and BBD&O. Primarily, Western contends that
BBD&O acted only as an agent providing technical services
to Western, and that this is not the type of combination that
the Sherman Act covers.
The Special Master found as follows:
9. Batten, Barton, Dirsten and Osborne (BBD&O) [12]
was at all relevant times engaged in the advertising busi-
ness. BBD&O and Western were at all relevant times
_ Separate and independent legal entities. Between 1970
and 1974, Western was the !argest of six accounts at the
Los Angeles office of BBD&O.
10. In January of 1973, Bert Lynn, Western’s vice
president for advertising and promotion, made the deci-
sion to seek the help of BBD&O in formulating a response
to meet the competitive threat of TGCs operating be-
tween west coast cities and Hawaii. Lynn and Willis Bal-
four, Western’s vice president for passenger sales, had
agreed that an advertisement would be the best way to
meet this competitive threat.
11. Upon contacting BBD&O’s John Doyle, Lynn was
told that BBD&O had already commenced work on an
advertisement discouraging use of TGCs. The person at
BBD&O in charge of the Western account was Jack
Bernardy.
12. Although Lynn gave Bernardy general guidelines
concerning the ad and reviewed BBD&O’s ad copy, the
ad as published was the result of BBD&O’s active partici-
pation and was substantially the work product of
BBD&O.,
22. Although the Twin Cities ad was initially scheduled
to run at least twice, BBD&O issued the order to cancel
it after its first run because of “copy problems.”
12. See note 2 supra.
18a
23. BBD&O also prepared radio advertising discour-
aging use of TGCs for broadcast on WCCO, the Twin
Cities station with the highest listening ratings. It
utilized live announcements by some of the station’s most
popular announcers (Ex. 106).
24. BBD&O actively and knowingly participated in the
Western anti-TGC campaign in Minneapolis and St. Paul
in September 1973.
25. BBD&O was at all times aware that the purpose
of the campaign was to prevent the TGC from becoming
a competitive threat to Western’s regularly scheduled
air service.
26. BBD&O actively, knowingly, and voluntarily en-
gaged in a course of conduct with Western designed to
prevent TGCs from becoming a competitive threat to
Western.
Western does not attempt to distinguish the instant case
from Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869,
19 L.Ed.2d 998 (1968). In Albrecht, the defendant had
hired Milne Circulations Sales, Inc. to call or personally
solicit newspaper customers to switch to direct delivery
of the newspaper instead of continuing delivery by the
plaintiff. The Supreme Court ruled that there was a combi-
nation within section 1 between the newspaper, Milne and
Kroner, the person hired to take over the route in the
meantime. The Court noted that the efforts of Milne and
Kroner had some effect on the customers, and while un-
doubtedly Milne was acting to earn a fee, it was aware of
the aim of the newspaper. The aim or goal of the paper
was to get the plaintiff to lower his prices.
We perceive no material distinction between the instant
case and Albrecht. The Special Master found, and there
is sufficient evidence to support the fact, that BBD&O was
aware that the purpose of the anti-TGC campaign was to
prevent TGCs from becoming a competitive threat to West-
ern’s regularly scheduled (monopoly) air service to Hawaii.
Thus, the fact that BBD&O participated in the anti-TGC
campaign and that BBD&O “materially aided the accom-
19a
plishment of Western’s plan”!3 with the knowledge of the
purpose of such campaign is sufficient to satisfy the Al-
brecht requirements. Tamaron. Distributing Corp. v.
Weiner, 418 F.2d 137, 139 (7th Cir. 1969), quoting Albrecht
v. Herald Co., supra, 390 U.S. at 150, 88 S.Ct. at 871. But
see Tamaron Distributing Corp. v. Weiner, supra, 418 F.2d
at 140 (Knoch, J., concurring). See generally Quality Mer-
cury, Inc. v. Ford Motor Co., 542 F.2d 466 (8th Cir. 1976),
cert. denied, 433 U.S. 914, 97 S.Ct. 2986, 53 L.Ed.2d 1100
(1977).
IV. Unreasonable Restraint of Trade — Sherman § 1
Having decided (1) that there were activities in which
BBD&O and Western engaged that constituted an anti-TGC
campaign and (2) that BBD&O’s participation was suffi-
cient to satisfy the contract, conspiracy or combination re-
quirement of section 1, we now must reach the ultimate
question of law — whether or not the anti-TGC campaign
constituted an unreasonable restraint of trade under sec-
tion 1 of the Sherman Act.
The relevant factual findings and conclusions of law, as
stated by the Special Master, are as follows:
FINDINGS OF FACT
58. Western’s purpose in embarking on its anti-TGC
campaign in the Twin Cities and other Minnesota cities
was to prevent the TGCs from becoming a competitive
threat in this area.
59. Its purpose was not to merely inform the public or
to speak out on a political issue. If such had been the
case, a substantially misleading or deceptive campaign
would have been unnecessary.
61. Western was aware that the natural and probable
consequences of its veiied threats to MSAA te reduce
13. See note 7 supra.
**
20a
preferred allocation of Group 60 space was to induce
MSAA to cancel the TGC plans it had with ITA.
62. Western’s anti-TGC campaign was knowingly, in-
tentionally, and purposefully designed to eliminate TGCs
as a competitive force to Western’s regularly scheduled
air service, and Western was aware that such elimination
of competition would be the natural and probable con-
sequence of its conduct.
CONCLUSIONS OF LAW
6. BBD&O did in fact combine and conspire with West-
ern in restraint of trade by knowingly and actively par-
ticipating in a course of anti-competitive conduct,
7. Western’s publication of the ad of September 16,
1973, was part of a course of conduct constituting an un-
reasonable restraint of trade. The ad was false, mislead-
ing, and deceptive. Publication of the ad was not pro-
tected by the First Amendment of the United States
Constitution.
8. Western’s distribution of the “Dear Partner in
Travel” letter to travel agents in Minnesota was part of
a course of conduct constituting an unreasonable restraint
of trade.
10. Western’s course of conduct was deliberately and
purposely designed to prevent the TGC, a lawfully en-
acted concept, from effectively competing with regularly
scheduled air service, in direct contravention of an ex-
press policy of the United States government.
11. Western’s course of conduct was in violation of
Section 1 of the Sherman Act and caused damage to ITA.
12. * * * Western possessed monopoly power in [the
Twin Cities/Hawaii travel] submarket,
21a
18. Western entered into the combination with BBD&O
with the specific intent to monopolize that portion of
interstate commerce consisting of individually ticketed
air transportation on the Twin Cities/Hawaii route.
What is preliminarily a matter for discussion is the
questions which are not presented to us. We are not called
upon to determine if the newspaper ad, the radio com-
mercial or the travel agent letter are unreasonable re-
restraints of trade in and of themselves.!4 To examine the
purpose or effect of each of these individually would not be
fruitful, nor would it be a controlling analysis. Each of
these occurrences is merely an act contributing to the anti-
TGC campaign.
Deciding as a matter of law whether or not the anti-
TGC campaign was an unreasonable restraint of trade is
a difficult question. It is not a conventional “restraint of
14. Western devotes much time and effort to a First Amendment de-
fense, arguing in connection with this defense that the Sherman
Act cannot be violated by the publication of an ad. We find no
merit in this argument. First, the First Amendment/Sherman Act
relationship is embodied in the Noerr-Pennington doctrine, United
Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14
L.Ed.2d 626 (1965) and Eastern Railroad Presidents Conference
v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d
464 (1961), and the basis of this doctrine is not an all-encom-
passing First Amendment protection. While consideration of the
First Amendment is an inherent part of the Noerr-Pennington
analysis, the basis is that activities done in furtherance of the right
to petition are not within the scope of the Sherman Act. State of
Missouri v. National Organization for Women, Inc., 620 F.2d
1301 (8th Cir. 1980).
Secondly, the ad is not the violation in this case; the violation
is the anti-TGC campaign.
Finally, Western admits that conduct otherwise illegal cannot
be immunized merely because it was carried out by means of
speech, Consequently, simply because part of the anti-TGC cam-
paign (which we hold to be an unreasonable restraint of trade)
was carried out by means of “speech,” does not create a basis for
immunization, | |
22a
trade,” i.e., a tie-in, price fixing or territorial division.15
It is, in fact, a form of competition and because competition
is the object sought to be preserved by the antitrust laws,
we must be careful in drawing a line between fair competi-
tion, unfair competition and competition that is so unfair
as to rise to the level of an unreasonable restraint of trade.
See Northwest Power Products, Inc. v. Omark Industries,
Inc., 576 F.2d 83, 88-90 (5th Cir. 1978), cert. denied, 439 U.S.
1116, 99 S.Ct. 1021, 59 L.Ed.2d 75 (1979).
The traditional analysis for examining a restraint of
trade under the rule of reason was struck in Chicago Board
of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242,
243, 62 L.Ed. 683 (1918). The courts must examine the pur-
pose, the market power and the anticompetitive effect of
the restraint, and thus arrive at a conclusion as to the
reasonableness of the restraint.
The market power is relevant as part of the overall
analysis inasmuch as it has been accepted in antitrust law
that “Davids can engage in many kinds of conduct in the
marketplace that are forbidden to Goliaths.” Purex Corp.
v. Proctor & Gamble Co., 596 F.2d 881, 885 (9th Cir. 1979).
In the instant case, Western does not dispute that it had
monopoly power over the Twin Cities-Hawaii travel route.
Thus, Western’s market power was great, and the limita-
tions upon Western’s activities in regard to “competition”
increased somewhat commensurately with its power. 16
(While Western’s monopoly power was over the Hawaii
travel route, the anti-TGC campaign was not limited to
Hawaii TGCs.) See pp. 1272-1273 infra.
15. But see Perryton Wholesale, Inc. v. Pioneer Distributin Co.,
353 F.2d 618, 621-22 (10th Cir. 1965), cert. denied, 383 U.S.
945, 89 S.Ct. 1202, 16 L.Ed.2d 208 (1966) (conspiracy to sup-
press competition through the elimination of competition by unfair
means is an unreasonable restraint of trade).
16. As discussed in Part V infra, Western also had a mon ly over
the Twin Cities-Las Vegas route, and operated a plan known as
the Group 60 Fare, the seats for which were very much in demand
by travel agencies, i
23a
The crux of the reasonableness of the restraint in this
case is the purpose of the anti-TGC campaign. For the
antitrust laws would not be served at all were we to pro-
hibit even a monopolist from competition.!7 See Union
Leader Corp. v. Newspapers of New England Inc., 284
F.2d 582, 584 (1st Cir. 1960), cert. denied, 365 U.S. 833, 81
S.Ct. 747, 5 L.Ed.2d 744 (1961). On the other hand, im-
proper competition, at some point and under some circum-
stances, can be a violation of Sherman section 1. Atlantic
Heel Co. v. Allied Heel Co., 284 F.2d 879 (1st Cir. 1960).
We hold that the anti-TGC campaign was an unreasonable
restraint of trade.
Important to our ruling is that the purpose and direction
of the anti-TGC campaign was not to compete with ITA’s
TGCs, but rather was to prevent TGCs from becoming a
competitive threat to Western’s regularly scheduled air
service. Further, the means by which Western sought to
achieve this end was not fair competition, but rather an
organized full frontal attack which (1) used false, mis-
leading and deceptive advertising and (2) was directed at
(a) consumers and (b) travel agents. While it might have
been reasonable for a monopolist such as Western to con-
duct an aggressive anti-TGC campaign against ITA’s TGCs,
see William Inglis € Sons Baking Co. v. ITT Continental
Baking Co., 461 F.Supp. 410, 425 (N.D.Cal.1978), it was not
reasonable for a monopolist such as Western to use the
means described above with the purpose of preventing any
effective competition from ITA’s TGCs. See, i. e., George R.
Whitten, Jr., Inc. v. Paddock Pool Builders, Inc. 508 F.2d
547, 562 (1st Cir. 1974), cert. denied, 421 U.S. 1004, 95 S.Ct.
17. Hard competition * * * is neither unfair nor a violation of the
antitrust laws * * * the antitrust laws were not designed to im-
munize competitors from the public-serving rigors of the market
place; rather they were supposed to advance the systenfof free
competition to the fullest extent practicable, all to the end that the
consuming public might receive better goods and services at
lower prices.
General Communications Engineering, Inc. v. Motorola Communi-
rem & Electronics, Inc., 421 F.Supp. 274, 290-91 (N.D.Cal.
1976).
#”*
=>
24a
2407, 44 L.Ed.2d 673 (1975) wherein the court notes that
distinctions exist (although in this case in regard to a per
se analysis) between “crippling the organization of a com-
petitor” and “beating it in the market place,” or between
“going to the jugular and going to one of the lesser ar-
teries.” This is the difference we perceive in this case.
Western did not choose to compete with ITA’s TGCs, but
rather chose to prevent TGCs from becoming competition
in the market place. Under the rule of reason, Western’s
anti-TGC campaign is an unreasonable restraint of trade.
The tremendous effect of Western’s compaign makes
clear the unreasonableness of the restraint of trade inherent
in the pervasive anti-TGC campaign. This is discussed in
Part VII A infra. :
V. Sherman $ 2 Findings of Fact.
During the relevant time period, Western operated a
promotional device known as the Group 60 Fare on its
Twin Cities/Las Vegas route in order to compete with
affinity charters, defined note 5 supra. Western had a mon-
opoly in this travel market as it was the only regularly
scheduled air carrier having direct and non-stop flight
service between the Twin Cities and Las Vegas.
Promotional group fares such as the Group 60 Fare, as
described by the Special Master, are designed to stimulate
traffic and provide full-plane economies characteristic of
charters. Western would allocate to one travel agent (serv-
ing as a wholesaler and retailer) usually 80 — occasionally
124 — seats on a round trip basis under the Group 60 Fare.
As of September 1973, Western consistently allocated to
MSAA and Mainline Travel the most preferred space to
Las Vegas.
Because these Group 60 Fare seats were in demand by
travel agents, Western received complaints that the most
preferred space was allocated to MSAA and Mainline. This
supply-demand inbalance gave Western market power lever-
age to impose its wishes on the travel agents.
25a
On September 25, 1973, Western and MSAA officials held
a meeting, at MSAA’s request, in connection with which the
Special Master made the following findings of fact:
49. Western and MSAA officials met in MSAA’s
Bloomington headquarters on September 25, 1973. West-
ern officials at the meeting were Lynn Zumbrunnen and
Jon Meyers; MSAA officials present were Robert Ross-
man, Arthur Tomlinson, and Duane Edberg.
50. MSAA officials tried to point out the more blatant
misstatements in the ad. Zumbrunnen, however, refused
to discuss them. Zumbrunnen stated he was instructed by
Balfour, his superior, not to discuss the ad with MSAA
officials.
51. Zumbrunnen’s statements and conduct forced
MSAA to recognize its dependence upon Western’s con-
tinued preferential treatment of MSAA on Group 60
tariffs to Las Vegas, Western being the only direct, non-
stop carrier to Las Vegas. MSAA became aware that its
continued promotion of TGCs would jeopardize its ability
to market the Group 60 tariff with Western.
52. By reason of the statements and conduct of West-
ern officers, MSAA officials felt it best to cooperate with
Western and not to proceed with MSAA’s planned TGC
operations with ITA.
53. Shortly after the meeting, and as a direct result
of it, MSAA announced that it was cancelling the Hawaii
and Mexico TGCs planned with ITA.
54. MSAA based its decision on the decrease in public
interest caused by Western’s anti-TGC campaign and on
the potential reduction of MSAA’s preferred Group 60
space.
55. Shortly after MSAA cancelled its Hawaii and
Mexico TGCs with ITA, MSAA cancelled its London
TGCs planned with ITA for the same reasons.
As is clear from the Special Master’s wording in Findings
of Fact number 51 and number 52, the Special Master did
not specifically find that Western told MSAA that unless
26a
MSAA cancelled its TGCs planned with ITA, that Western
would not allocate any Group 60 Fare seats to MSAA.
However, in the Special Master’s Memorandum of Law, he
states “veiled threats were issued to the effect that MSAA’s
preferential treatment on Western’s Group 60 flights would
be jeopardized if it continued to participate with ITA in the
operation of TGCs,” and “[t]he combination of this threat
and the fear of decreased public interest in TGCs caused
by Western’s ad prompted MSAA to cease its participation
in the joint ITA/MSAA TGC program.”
And in his Findings of Fact the Special Master did find
that Western, through Zumbrunnen’s statements and con-
duct at the meeting, caused MSAA to cooperate with West-
ern and to cancel the Hawaii, Mexico and London TGC.
An additional cause of the cancellation of the TGCs was
Western’s effective anti-TGC campaign.
We are satisfied that there is sufficient evidence to sup-
port the Special Master’s findings. The evidence includes
the fact that the power of leverage by Western was estab-
lished; that there was evidence presented from which the
Special Master may have concluded that such leverage had
been used in the past; that it was established that MSAA
had an “awareness” of the leverage and power that West-
ern possessed ; that Zumbrunnen’s testimony revealed that
the subjects of the Group 60 Fare seats and Western’s
Hawaii market were both discussed at the meeting; that
on October 5, 1973, the Hawaii TGCs were cancelled by
MSAA, the Mexico TGCs were rescheduled and then later
cancelled; and that the London TGCs were cancelled on
October 25, 1973.18
18. Western points out that the meeting was called by MSAA to discuss
the ad, and that the ad was cancelled following the meeting. West-
ern argues from this that it is inconsistent to conclude that MSAA
was threatened by Western in regard to MSAA’s participation in
TGCs. Apparently, it is Western’s contention that if MSAA suc-
ceeded in having Western cancel the ad, then MSAA had the
upper hand throughout the entire meeting. We perceive no incon-
sistency in both of these topics, cancelling the ad and cancelling
the TGCs, being discussed, and the finding of a threat by Western.
27a
It is not our function to try this case de nova, to pass
upon credibility of witnesses or to determine the weight to
be given to.any particular testimony. Stanley v. Henderson,
097 F.2d 651, 653 (8th Cir. 1979). We can only declare a
finding of fact clearly erroneous if there is not substantial
evidence to support it, if it evolves from an erroneous con-
ception of the applicable law, or if, upon considering the
entire record, we are left with a definite and firm conviction
that a mistake has been made. Bowers v. Kraft Foods
Corp., 606 F.2d 816, 818 (8th Cir. 1979) ; Southern Illinois
Stone Co. v. Universal Engineering Corp., 592 F.2d 446,
451 (8th Cir. 1979),
We affirm the Special Master’s Findings of Fact in con-
nection with the appearance, content and result of the Sep-
tember 25 meeting.
VI. Monopolization — Sherman §2
To show, as a matter of law, monopolization under section
2, Western must be shown to possess monopoly power, will-
ful acquisition or maintenance of that power, Purex Corp.
v. Procter & Gamble Co., supra, 596 F.2d at 890, and of
course, causal antitrust injury. Admiral Theatre Corp. v.
Douglas Theatre Co., 585 F.2d 877, 892 (8th Cir. 1978).
The Special Master found there to be monopoly power by
Western over the Hawaii and Las Vegas flights from the
Twin Cities and Western does not contest these findings.
As to the second element, willful maintenance of the
monopoly power in this case, all activities discussed in con-
nection with the section 1 claim (unreasonable restraint of
trade) are relevant to the section 2 claim in that they con-
tributed to the willful maintenance of Western’s monopoly
power over the Hawaii route by preventing TGCs, and con-
sequently the Hawaii TGCs, from becoming a competitive
threat to Western’s Hawaii monopoly route.
As to the September 25 meeting, Western’s use of the
Las. Vegas air route power it possessed to eliminate the
competition of ITA’s TGCs to Hawaii is clearly as a matter
of law, willful maintenance of the Hawaii air route mo-
28a
nopoly. Thus, the Special Master was correct in finding a
section 2 violation.
The effects of the section 2 violation are addressed with
the effects of the section 1 violation in Part VII, infra.
VII. Causation of Fact of Injury and Damages
In a private antitrust suit, the plaintiffs must show the
violation and additionally must show “to a reasonable cer-
tainty that there has been injury to them by reason of”
the violation. Admiral Theatre Corp. v. Douglas Theatre
Co., supra 585 F.2d at 893. Additionally, “the damages ac-
cruing from the injury must be capable of reasonable ascer-
tainment and. must not be speculative or conjectural.” Jd.
Yet, even with this caution in regard to ascertainment of
damages — “the jury may not render a verdict based on
speculation or guesswork,” Bigelow v. RKO Radio Pic-
tures, Inc., 327 U.S. 251, 264, 66 S. Ct. 574, 579-580, 90 L.Ed.
652 (1946) — the Supreme Court has also stated
in the absence of more precise proof, the jury could con-
clude as a matter of just and reasonable inference from
_ the proof of defendants’ wrongful acts and their tendency
to injury plaintiffs’ business, and from the evidence of the
decline in prices, profits and values, not shown to be at-
tributable to other causes, that defendants’ wrongful acts
had caused damage to the plaintiffs.
*** (T]he jury may make a just and reasonable esti-
mate of the damage based on relevant data, and render
its verdict accordingly. In such circumstances “juries are
allowed to act upon probable and inferential, as well as
direct and positive proof.”
Id., quoting Story Parchment Co. v. Paterson Parchment
Paper Co., 282 U.S. 555, 564, 51 S.Ct. 248, 251, 75 L.Hd. 544
(1931): See Continental Ore Co. v. Union Carbide & Carbon
Corp., 370 U.S. 690, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962).
- More recently, the Supreme Court has stated in regard
to the causai injury requirement:
[The plaintiffs] burden of proving the fact of damage
under § 4 of the Clayton Act is satisfied by its proof of
29a
some damage flowing from the unlawful conspiracy ; in-
quiry beyond this minimum point goes only to the amount
and not the fact of damage. It is enough that the illegal-
ity is shown to be a material cause of the injury ; a plain-
tiff need not exhaust all possible alternative sources of
injury in fulfilling his burden of proving compensable
injury under § 4,
Zenith Radio Corp. v. Hazeliine Research, Inc., 395 U.S.
100, 114 n.9, 89 S. Ct. 1562, 1571, 23 L.Ed.2d 129 ( 1969).19
A. Sherman Act § 1, Fact of Injury and Causation
We first examine the fact of injury and causation require-
ments with reference to the Sherman 1 claim. This divi-
sion between the section 1 claim and the section 2 claim is
analytically necessary because the effect under section 1
(of the violation) is relevant in determining the reasonable-
ness of the restraint of trade.
The Special Master found, with respect to the Sherman
§1 claim,
43. Travel Center, another locally based travel agency,
after September 16, experienced a sharp drop in the
quantity and rate of bookings and requests for promo-
tional literature on the Hawaii TGCs it had been ad-
vertising. As a result of the effects of the Western ad,
Travel Center had to promote group travel through com-
panies and organizations as it had done before TGCs
came into existence in order to fill the flights it had
booked, in effect, converting its TGC flights to split-
charter flights,
44, Customer sign-ups and inquiries on Mainline’s
Hawaii TGCs, first advertised on August 12, 1973, de-
clined after the publication of the ad.
19. See also Foremost International Tours, Inc. v. Qantas Airways,
Ltd., 478 F.Supp. 589, 595 (D.Hawaii 1979) (“The court assumes
that plaintiff, if it could demonstrate the violations alleged, would
sustain some form of cognizable antitrust injury as a result of
such violations, plaintiff being in direct competition with the de-
fendants in the relevant market.”’),
30a
45, Customer sign-ups and inquiries on the ITA/
MSAA-sponsored TGQCs, first advertised on September
2, 1973, increased after publication of the ad. [The
Special Master noted in his memorandum that “although
MSAA’s TGC requests increased slightly, this may be
attributable to a normal delay in response to ITA’s ad-
vertisements of its TGC program.” ]
56. Requests from travel agents for blocks of seats
on Mainline’s Hawaii TGCs decreased significantly im-
mediately following the mailing of the “Dear Partner in
Travel” letter and the publication of the ad.
There is sufficient evidence in the record to support all
these findings.
Additionally, the Special Master found that Western’s
anti-TGC campaign was the cause of the decrease in public
interest in TGCs. This is supported by testimony that im-
mediately after the September 16 ad appeared, there was
generally a drop in inquiries, bookings, requests, etc., con-
cerning TGCs. Similar testimony was given concerning
requests from travel agents after the letter, including a
copy of the ad, was mailed. Also, there was testimony that
there were questions by the general public concerning the
appearance of the ad and asking questions about the ad.
This general showing of a decrease in favorable inquiries
concerning the TGCs, combined with the showing of the
degree of success of TGCs in the past is sufficient to demon-
strate a significant fact of injury causally related to the
anti-TGC campaign. Further, the negative effects of the
anti-TGC campaign support our earlier finding of a section
1 unreasonable restraint of trade. In addition, of course,
these effects establish causation of injury sufficient to sat-
isfy a section 1 private cause of action claim.
B. Sherman Act § 2, Fact of Injury and Causation
As to the Sherman Act $2 claim, the above discussion
concerning the decrease in TGC requests is applicable, as
the section 1 claim is enveloped within the section 2 claim.
3la
MSAA’s cancellation as wholesaler for ITA’s TGCs clear-
ly, by itself, created injury. The Special Master found:
68 MSAA and ITA committed themselves to plans
to operate four TGCs to Hawaii in 1974. The four
MSAA/ITA TGCs to Hawaii had been advertised at the
time Western published its ad in the Twin Cities papers.
ITA could not market these TGCs without the assistance
of MSAA,
75. ITA and MSAA had also firmly committed them-
selves to running four TGCs to Mexico in the first quarter
of 1974, and, in fact, they had begun advertising them
prior to the time Western published its anti-TGC ad in
the Twin Cities. Because of Western’s conduct, MSAA
cancelled these TGCs. TTA could not market these TGCs
without MSAA’s assistance.
82. At the time Western published its anti-TGC ad in
the Twin Cities, MSAA planned to run 13 TGCs to Lon-
don in 1974 with ITA. These 13 TGQs constituted a pro-
gram distinct and independent from the TGCs to Europe
that ITA planned to run and actually did run on its own
in 1974.
83. Because of Western’s conduct, MSAA cancelled
these TGCs. Absent Western’s conduct, all 13 TGCs to
London would probably have operated successfully. ITA
suffered a loss of profits and its damages are not difficult
to ascertain.
The section 2 causation issue was implicitly discussed in
Part VI, supra; the willful maintenance of the monopoly
(the threat at the meeting) and the unreasonable restraint
of trade (the effects of the anti-TGO campaign) caused the
cancellation of the TGCs by MSAA.
C. Damages
As to the issue of damages, Western does not dispute the
method for calculating damages nor does Western dispute
the amount. The disputed issue is whether or not, but for
Me
32a
these activities, the TG@Cs would have succeeded. In other
words, by deciding that but for the antitrust viclations the
TGCs would have succeeded, did this result, i in a just and
reasonable estimate of the damages.
Western particularly argues that the London flights were
not firmed up and thus giving damages for these flights was
speculative. As the Special Master states in his Memoran-
dum of Law, “[w]hile plans for the London TGCs had not
been firmed up at the time MSAA cancelled, this was not
because of the parties’ lack of interest but rather because
of their preoccupation with Mexico and Hawaii TGCs. This
preoccupation is understandable in view of the fact that the
Mexico and Hawaii TGCs were scheduled for the winter of
1974, while the London TGCs were not to depart until the
following summer.”
As the Fifth Circuit stated in Heatransfer Corp. v.
Volkswagenwerk, A. G., 553 F.2d 964, 986-89 n.20 (5th Cir.
1977), cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d
792 (1978) and as quoted by our court in TV Signal Co. v.
AT&T, 617 F.2d 1302 (8th Cir. 1980) :
[T]he Court does not believe that a going concern, which
is the victim of an anti-competitive practice, must forego
damages for sales it would have made as the result of the
natural expansion of its business simply because it was
victimized early in its existence before its attempts to
expand could ripen into evidence of preparedness and
intent to increase its output. Thus, the question for the
Court’s determination is whether, under the facts of the
present case, the manufacture of units for each type of
Volkswagen vehicle in the relevant market can be con-
sidered the expansion of a present business into a new
market for purposes of standing, or simply one facet of
growth im an ongoing business for purposes of damages.
The line to be drawn between expansion into new areas
and growth in established ones is not easily defined and
one that must be determined from the facts of each case.
Id. at 1308.
Also, Western argues that it did nothing to interfere
with the proposed London TGCs — that Western did not
33a
serve London and did not care whether MSAA or anyone
else sponsored TGCs to London. The record clearly shows
that Western had engaged in an anti-TGC campaign and
that this had an effect on TGCs over all; and that the over-
all effect on TGCs was one of the reasons that led MSAA
to cancel its participation in the ITA TGC program, Fi-
nally, the Special Master found that the pressure applied at
oy September 25 meeting was in regard to all TGOs with
ITA. )
Based upon evidence of (1) past successes of TGCs; (2)
increasing demand for vacation travel to Hawaii, Mexico
and London ; and (3) success of subsequent, albeit not neces-
sarily the same type of charters, the Special Master con-
cluded that the flights would have been successful. Thus, in
accord with the Supreme Court’s language in Bigelow v.
RKO Radio Pictures, Inc., supra, 327 U.S. at 264, 66 S.Ct.
at 579:
[T]he jury [in this case, the Special Master] could con-
clude as a matter of just and reasonable inference from
the proof of defendants’ wrongful acts and their ten-
dency to injure plaintiff’s business, and from the evi-
dence of the decline in prices, profits and values, not
shown to be attributable to other causes, that defendants’
wrongful acts had caused damage to the plaintiffs.
Id. (emphasis added).
We hold that there is sufficient evidence to support the
Special Master’s findings in regard to damages.
VIII. Attorney’s Fees
Finally, Western contends the attorneys’ fees awarded
by the district court were excessive. ITA was awarded at-
torneys’ fees of $213,390.87. This represents an award for
the services of lead counsel Harold J. Tomin of $144,914.00;
and an award for the services of Doherty, Rumble & Butler
(Doherty), who acted as local counsel, of $68,476.87. This,
together with costs of $10,771.40 and trebled damages of
$361,596.00 resulted in a total award by the district court to
ITA of $585,758.27.
34a
Western’s contentions concerning the excessiveness of
attorneys’ fees can be summarized as follows: (1) the hours
and hourly rate awarded Tomin were excessive; (2) the
hours and hourly rate awarded Doherty were excessive, and
the use of a contingency multiplier was improper; and (3)
the contingency fee agreement between ITA and its counsel
resulted in such a large amount of fees actually being paid
to its attorneys by ITA, that this court should reduce that
amount by exercising its supervisory powers over the bar.
We begin by examining the Special Master’s award of
reasonable attorneys’ fees pursuant to 15 U.S.C. $15.20 In
Grunin v. International House of Pancakes, 513 F.2d 114
(8th Cir.), cert. denied, 423 U.S. 864, 96 S.Ct. 124, 46
L.Ed.2d 93 (1975), this court agreed that the proper ap-
proach in determining an award of attorney’s fees in anti-
trust cases is the approach. used in the Second and Third
Circuits. The factors to consider are:
a) the number of hours spent in various legal activi-
ties by the individual attorneys,
b) the reasonable hourly rate for the individual at-
torneys,
c) the contingent nature of success, and
d) the quality of the attorneys’ work.
Id. at 127. See Lindy Brothers Builders, Inc. v. American
Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.
1973) (Lindy I), appeal from decision on remand, 540 F.2d
102 (3d Cir. 1976) (Lindy II). See also City of Detroit v.
Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) (Grinnell 1),
appeal from decision on remand, 560 F.2d 1093 (2d Cir.
1977) (Grinnell II); Merola v. Atlantic Richfield Co., 493
F.2d 292 (3d Cir. 1974).21
20. The district court adopted all of the Special Master’s findings and
conclusions concerning the award of attorneys’ fees, except that it
corrected a mathematical error. International Travel Arrangers v.
a og Airlines, Inc., No. 4-74 Civil 256 (D.Minn. Feb. 26,
9).
21.Other factors which might be considered appear in Morning
Pioneer, Inc. v. Bismarck Tribune Co., 493 F.2d 383, 390 n.15 (8th
Cir. 1974). See also Locklin v. Day-Glo Color Corp., 378 F.Supp.
423, 426 (N.D.IIl. 1974).
35a
Although the above cases involved class actions in anti-
trust cases, we agree that “the principles of Lindy are ap-
plicable to an award of attorney’s fees pursuant to 15 U.S.C.
§ 15,” Pitchford v. Pepi, Inc., 531 F.2d 92, 110 (3d Cir.),
cert. denied, 426 U.S. 935, 96 S.Ct. 2649, 49 L.Ed.2d 387
(1976).
The starting point in determining attorney’s fees is to
arrive at a “lodestar” figure by multiplying an hourly rate
by the number of hours worked. It is only after this calcula-
tion is made that less objective factors may be applied.
Grunin v. International House of Pancakes, supra, 513 F.2d
at 127-28; Lindy II, supra, 540 F.2d at 116-17; Grinnell I,
supra, 495 F.2d at 470.
The purpose of the fees award under 15 U.S.C. § 15 is to
insure that a successful plaintiff in an antitrust action does
not have its treble damage recovery unduly diminished by
the payment of fees to its attorneys. Perkins v. Standard
Oil Co., 47 F.42d 549, 553 (9th Cir.), cert. denied, 412 U.S.
940, 93 S.Ct. 2778, 37 L.Ed.2d 400 (1973); Farmington
Dowel Products Co. v. Forster Manufacturing Co., 421
F.2d 61, 88 (1st Cir. 1970) ; Locklin v, Day-Glo Color Corp.,
378 F.Supp. 423 (N.D.II1.1974). Recovery of attorney’s fees
under 15 U.S.C. § 15 of course accrues to the plaintiff and
not its attorneys. First lowa Hydro Electric Coop. v. Iowa-
Illinois Gas & Electric Co., 245 F.2d 630-32 (8th Cir. 1957),
cert, denied, 355 U.S. 871, 78 S.Ct. 122, 2 L.Ed.2d 76 (1958).
The standard applied by this court in reviewing a 15
U.S.C. $15 attorney’s fees award is whether the district
court’s findings were clearly erroneous as to the factual
basis for the award, or whether it committed abuse as to the
diseretional margin involved in its allowance. Armco Steel
Corp. v. State of North Dakota, 376 F.2d 206, 212 (8th Cir.
1967). See Grunin v. International House of Pancakes,
supra, 513 F.2d at 126. Nevertheless, “it is the duty of ap-
pellate courts to protect against ‘vicarious generosity’ in
the matter of attorney fees [in antitrust cases].” Twentieth
Century-Fox Film Corp. v. Brookside Theatre Corp., 194
F.2d 846, 859 (8th Cir.), cert. denied, 343 U.S. 942, 72 S.Ct.
1035, 96 L.Ed. 1348 (1952). Cf. Locklin v. Day-Glo Color
Corp., supra, 378 F.Supp. at 426. (“Over-generosity, in
>
36a
particular, must be guarded against so as to maintain pub-
lic respect for and confidence in the organized bar.”).
In cases involving substantial actual damages, courts test
the reasonableness of the attorney’s fees award by examin-
ing the ratio of the attorney’s fees to the untrebled damage
award. Twentieth Century-Fox Film Corp. v. Brookside
Theatre Corp., supra, 194 F.2d at 859; Milwaukee Towne
Corp. v. Loew’s, Inc., 190 F.2d 561, 571 (7th Cir. 1951), cert.
dented, 342 U.S. 909, 72 S.Ct. 303, 96 L.Ed. 680 (1952). The
attorneys’ fees awarded by the district court are $213,390.87,
which is approximately 177% of the untrebled damage
award of $120,532.00. While we reject a per se rule applied
by some courts that the attorney’s fees award should be
limited to the amount of the untrebled damages,?2 the high
ratio is a factor to consider and requires a close examina-
tion of the fee award.23
A. Fees Awarded for Services of Harold Tomin
Harold Tomin has served as lead counsel for ITA in this
action. This is his first trial of an antitrust case as lead
counsel, although he has participated in the preparation,
22. This court has stated only that the fee must bear a reasonable re-
lationship to the amount of untrebled damages. Twentieth Cen-
tury-Fox Film Corp. v. Brookside Theatre Corp., 194 F.2d 846,
859 (8th Cir. 1952).
We note that at least one court has approved an award of
attorney’s fees which far exceeded the substantial untrebled dam-
age figure. Pitchford Scientific Inst. Corp. v. Pepi, Inc., 440
on 1175 (W.D.Pa. 1977), aff'd, 582 F.2d 1275 (3rd Cir.
1978).
23. In reviewing the award of attorneys’ fees, this court has expressed
the following caveat :
A party is not entitled needlessly to accumulate exorbitant legal
fees with the expectation that the losing party will be called
upon to pick up the entire tab. This court will exercise vigilance
and pare down needless and unconscionably high legal fees.
An award of attorney’s fees is compensatory, not punitive.
x * *
Planned Parenthood of Minnesota, Inc. v. Citizens for Community
Action, 558 F.2d 861, 871 (8th Cir. 1977) (award of attorney’s
fees pursuant to 42 U.S.C. § 1988).
37a
trial, and settlement of a number of antitrust cases. When
he began this case he had been practicing law for over
eight years, and had approximately twelve years of legal
experience at the time of trial. The Special Master found
“he demonstrated the ability of a competent and skillful
trial attorney.”
Tomin, from the Los Angeles area, stated his normal
billing charge during that period varied from $75.00 to
$90.00 per hour. The evidence indicated that in Minnea-
polis-St. Paul the rate would be lower for someone with his
experience. Western also argues that he should be paid at
the rate at the time he earned it, and notes the rates were
much lower in 1974. See Locklin v. Day-Glo Color Corp.,
supra, 378 F.Supp. at 427. However, it is our view that such
analysis or review would then require detailed examina-
tion of other factors (such as the inflationary shrinkage
since the time the work was performed) and that it was
therefore reasonable for the Special Master to conclude
$80.00 per hour was a reasonable “lodestar” fee for Tomin.
The Special Master then awarded a $10.00 per hour bonus
for the contingency nature of the case, and we cannot say
this was an abuse of discretion.
Tomin claimed 1699 hours were expended by him, and
the Special Master awarded ITA fees based on 1572.85
hours. We conclude the trial court was clearly erroneous
in finding Tomin contributed this many hours when time
records were kept for only 772.75 hours. While we do not
disallow all reconstructed hours, we believe the court in
Kane v. Martin Paint Stores, Inc., 439 F.Supp. 1054
(S.D.N.Y. 1977), aff'd, 578 F.2d 1368 (2d Cir. 1978) prop-
erly held that uncertainties should be resolved against the
plaintiff, if arising because of imprecise recordkeeping
without adequate justification. The record supports the
Special Master’s finding that for the period of February
1974 through May 1974 Tomin was associated with a firm
that dissolved and the records were unavailable. A similar
conclusion is reached for the period from August 1975
through January 1976. We cannot say the Special Mas-
ter’s findings as to the time allowed for these periods are
clearly erroneous. Additjonally, we will not reduce as ex-
38a
cessive the hours for which records were properly kept and
introduced at the hearing before the Special Master.
A similar conclusion cannot be made concerning other
periods, however. From April through June 1977, Tomin’s
records indicated he spent 77.5 hours on the case, but he
asked the court for 450 hours and was awarded 350 hours.
Because of his lack of records, and based on the affidavit
of defendant’s counsel concerning the time needed for pre-
trial activity (120.5 hours for defense counsel), we conclude
150 hours is all that could be found to be reasonable for
this period.
The Special Master awarded 250 hours for trial time.
We find it unreasonable to assume Tomin spent more than
200 hours, again based on affidavits of defendant’s counsel
(182 hours recorded trial time) and the fact the only evi-
dence of Tomin’s hours are records apparently reconstruct-
ed six months later.
Western also claims it should not be penalized for ITA
hiring counsel from Los Angeles, and seeks to have travel
time between Los Angeles and Minneapolis excluded. To-
min has charged travel time for at least ten round trip
flights billing twelve or more hours of tim: for each round
trip. We would not disallow all travel time (the magistrate
excluded two trips), but it is our view that defendant should
not be charged a premium for ITA’s choice of out of town
counsel, Kane v. Martin Paint Stores, Inc., supra, 439
F.Supp. at 1056. The award will be reduced by fifty hours
due to insufficient evidence the flight time involved work
on this case. See Locklin v. Day-Glo Color Corp., supra,
378 F.Supp. at 429-30.
We therefore conclude a reasonable award of fees for
Tomin’s services would require a reduction of 300 hours
from the Special Master’s findings. As a result ITA should
receive an award of $117,914.00 as reasonable attorney’s
fees for Tomin’s work, based on the trial court’s award of
$144,914.00 less $27,000.00 (300 hours < $90.00 per hour).
39a
B. Fees Awarded for Services by Doherty, Rumble & But-
ler
As local counsel for ITA, Doherty, Rumble & Butler
received fees of $68,476.86. This was based on hourly fees
multiplied by the hours worked for a total “lodestar”
amount of $43,089.75. The Special Master then multiplied
the lodestar amount by a factor of 1.5 based on. the con-
tingency nature of the work and its quality. Doherty kept
precise records, and we do not question the Special Mas-
ter’s award of hours, nor the hourly rate determinations.24
However, we think it was unreasonable to award Doherty
a 1.5 multiplier in this case.
As the Third Circuit has explained,
Any increase or decrease in fees to adjust for the quality
of work is designed to take account of an unusual degree
of skill, be it unusually poor or unusually good. * * *
[T]he increase or decrease reflects exceptional services
only; it may be considered in the nature of a bonus or
penalty. The heavy burden of proving entitlement to
such an adjustment is on the moving party.
Lindy II, supra, 540 F.2d at 118. See also Grinnell II, su-
pra, 560 F.2d at 1100. The Special Master’s conclusory
language about quality of work and the risk involved does
not satisfy this requirement. Grinnell II, supra, 560 F.2d
at 1100. The majority of the risk in this case was with
Tomin, and the Special Master reasonably applied to his
hourly rate a $10.00 per hour bonus factor, which is about a
12.5% increase in the hourly rate. Pursuant to a normal
fee arrangement, ITA had paid Doherty approximately
$3,800.00 in attorney fees and $3,000.00 in disbursements
up to July 12, 1977, the time of the trial. At that time ITA
and Doherty agreed future attorney fees for trial work
were contingent on success, and would be the amount
awarded by the court pursuant to 15 U.S.C. $15. In any
24. The Special Master made the following rate determination for
members of Doherty: The principal participating attorney, Boyd
Ratchie, $75.00 per hour; senior partners, $90.00 per hour; as-
= $35.00-$55.00 per hour ; and assistants, $16.00-$29.00 per
our.
40a
event, the firm was to be reimbursed for necessary expenses
it incurred.
The 1.5 multiplier as a bonus to the hourly rate would
result in some of the Doherty attorneys receiving in effect,
$135.00 for their services ($90.00 x 1.5). Additionally,
Boyd Ratchie, who served as second chair in the case and
was inexperienced in antitrust litigation, would have been
compensated in effect at a rate of $112.50 per hour ($75.00
x 1.5). ITA has not met the heavy burden of proving
entitlement to such an adjustment. Lindy II, supra, 540 F.2d
at 118. We therefore find it excessive and reduce the award
to the straight-time figure of $43,089.75,25
C. Contingency Fee Agreement Between ITA and Its
Counsel
The private contingency fee agreement between ITA and
its counsel requires separate consideration. The court has
the power and the responsibility to monitor contingency
fee agreements for reasonableness. ABA Canons of Profes-
sional Ethics No. 13; Dunn v. H. K. Porter Co., 602 F.2d
1105, 1108-09 (3d Cir. 1979); Farmington Dowel Products
25. Western asks that we disallow time spent on the jury trial before
the magistrate, and make further reductions for duplications of
effort because two firms were involved in the work. With regard to
this latter point, this court will not interfere with the decision of
ITA and its two counsel to divide the burdens of a complex trial
between the counsel. See Computer Statistics, Inc. v. Blair, 418
F.Supp. 1339, 1351 (S.D.Tex. 1976). Concerning the jury. trial
which was later ruled invalid by the district court, we note both
parties stipulated to the jury trial. While we disagree with the
contention of ITA that the jury trial did not require more attorney
time than would a bench trial, we do agree ITA should not be
denied this time simply because a higher court ruled the jury
trial invalid. As stated in Pitchford Scientific Inst. Corp. v. Pepi,
Inc., supra, 440 F.Supp. at 1178 (footnote omitted)
[we reject] defendants’ contention that because the case was
tried twice counsel is not entitled to compensation for work done
at the second trial, on the theory that such work was “duplica-
tion.” It seems clear that it is reasonably necessary to retry a
case when an appellate court directs a retrial; Counsel-are not
to be penalized by being required to work for nothing as punish-
ment for. failure to know at the first trial what the Court of
Appeals was going to do.
4la
Co. v. Forster Manufacturing Co., supra, 421 F.2d 61 (1st
Cir. 1970) (Farmington Dowel I), appeal of decision on
mo 436 F.2d 699 (1st Cir. 1970) (Farmington Dowel
We feel that under the circumstances of this case we
must examine the reasonableness of the fee agreement.
Tomin testified at the hearing before the magistrate with
regard to his fee arrangement with ITA, and at oral argu-
ment before this court explained the manner in which. his
fee was determined. We have inserted the figures awarded
under 15 U.S.C. § 15 into this formula, and have made the
following approximations: From the total award (treble
damages plus costs and attorneys’ fees), which adjusted by
our reductions in attorneys’ fees is $533,371.15, is deducted
the fees for Doherty, Rumble & Butler ($43,089.75) and
costs and expenditures in the case made by ITA (estimated
by Tomin to be $30,000.00). Tomin is to receive 45% of this
remaining figure, $460,281.40, or approximately $207,126.63.
Doherty, Rumble & Butler agreed to receive only what the
court awards ITA for the services of the firm, which is
$43,089.75.
These computations indicate that the attorneys altogether
will take home approximately $250,000.00 of the total award
of $533,371.15. This is 47% of the total award going to the
attorneys.
The role of the court in awarding a reasonable fee under
15 U.S.C. § 15, and in exercising its supervisory power over
the bar by examining contingency agreements between at-
torney and client, differs greatly.
The first requires the court to arrive at a figure it con-
siders reasonable; the second requires it to arrive at a
figure which it considers the outer limit of reasonableness.
The first determination is made without reference to any
prior agreement between the parties; the second must
take account of the fact that an agreement, if freely made,
is not lightly set aside.
Farmington Dowel I, supra, 421 F.2d at 90. Our inquiry
here is therefore limited to whether the fee agreement yields
a fee which is “[beyond the] outer limit[s] of reasonable-
ness.” Id.
42a
There are several factors to consider in determining
reasonableness for the purposes of the Canons of Ethics,
many of which have little applicability for purposes of an
award pursuant to 15 U.S.C. §15. We examine, inter alia,
the reasonableness of the fee arrangement according to the
circumstances in which it was made, the fact it is contingent
on success, the status of sophistication of the plaintiffs, and
whether the plaintiff remains willing to abide by the con-
tract.26 One factor not conclusive is that the contingency
fee agreement — formulated to satisfy needs other than
those contemplated by 15 U.S.C. § 15 — exceeds the section
15 award. Dunn v. H. K. Porter Co., supra, 602 F.2d at
1112.
In examining all the relevant factors, we note that Do-
herty, Rumble & Butler is receiving only its reasonable fees
under 15 U.S.C. $15 ($43,089.75) and the court finds no
reason to intrude in its fee arrangement with ITA. In fact,
we agree with the Third Circuit “that the courts should be
loathe to intrude into a contractual relationship between
an attorney and client.” Jd.27
We are also reluctant to intrude in the agreement entered
into between Tomin and ITA. Tomin’s fee arrangement re-
sults in his being paid approximately 39% of the total
award ($207,000.00 of $533,371.15) which he contends is in
line with normal contingency rates. There is no question,
however, that his award must be considered in light of the
fact other attorneys’ fees were also being paid by ITA to
Doherty for its involvement in the case. The fact that 47%
26. See, e.g., Dunn v. H. K. Porter Co., 602 F.2d 1105, 1110 (3d
Cir. 1979) ; Farmington Dowel I, supra, 421 F.2d at 89-90. See
also ABA Canons of Professional Ethics No. 12; ABA Code of
Professional Responsibility DR 2-106(B).
27. The First Circuit has reaffirmed its belief that “ ‘court intervention
in fee dispositions is bound to be confined to exceptional circum-
stances.’ In [Farmington Dowel II] we set a high standard for a
showing of reasons for ‘the court’s decision to declare less than the
amount resulting from the fee agreement as the maximum which
could ethically be received.’” Sargeant v. Sharp, 579 F.2d 645,
648 n.4 (Ist Cir. 1978) (quoting Farmington Dowell II, supra,
436 F.2d at 701).
43a
of the substantial total award will be paid to attorneys is
disturbing. We reiterate that the major purpose for the
statutory award for attorney’s fees was to prevent sub-
stantial diminution of the plaintiff’s trebled damage re-
covery. Farmington Dowel I, supra, 421 F.2d at 88 n.60.
That the client freely entered into the contract and is ap-
parently willing to abide by it is relevant but not controlling.
Id. at 89 n.61.
We conclude the fee agreement between ITA and Tomin
results in a fee which exceeds the outer limits of reasonable-
ness. Without rejecting the formula used by Tomin in all
cases, considering the fees awarded other counsel and the
substantial damage award,28 our supervisory power re-
quires us to reduce the fee which ITA must pay Tomin pur-
suant to its contingency fee agreement.
Our examination of the circumstances of this case leads
us to conclude that the outer bounds of reasonableness re-
quire that the fee paid by ITA to Tomin under their con-
tingency fee agreement be limited to 45% of the treble dam-
age award of $361,596.00. This is approximately $162,718.20,
as compared with the $207,126.63 fee we computed supra
to be his fee according to the agreement.29
In view of the issues raised on appeal, and our disposition
of these issues, ITA will be awarded $5,000.00 pursuant to
15 U.S.C. §15 as a reasonable sum for attorneys’ fees in
defending its verdict on appeal. Sanitary Milk Producers
v. Bergjans Farm Dairy, Inc., 368 F.2d 679, 692 (Sth Cir.
1966) (Blackmun, J.). See also Carpa, Inc. v. Ward Foods,
28. It has been noted that
[a] fair and equitable contingent fee agreement generally pro-
vides for a sliding scale in which fees based on a percentage of the
total recovery decrease as the amount of the recovery increases.
See Pollard v. United States, 69 F.R.D. 646, 649 (M.D.Ala.
1976) ; Milstein v. Werner, 58 F.R.D. 544, 551-52 (S.D.N.Y.
1972); State “| Illinois v. Harper & Row Publishers, Inc., 55
F.R.D. 221, 223 (N.D.IIl. 1972).
Dunn v. H. K. Porter Co., supra, 602 F.2d at 1113 n.12.
29. Of course the attorney's fees awarded ITA by the court for the
services of Tomin under 15 U.S.C. § 15 ($117,914.00) can be used
to satisfy the contingent fee.
44a
Inc., 536 F.2d 39, 55-56 (5th Cir. 1976) ; Farmington Dowel
I, supra, 421 F.2d at 91-92. In addition court costs on ap-
peal are awarded to ITA and against Western. —
We affirm the district court’s conclusion that Western
violated the Sherman Act $§ 1 and 2; we affirm the damages
awarded to ITA. We reduce the attorneys’ fees for the
reasons discussed above.
APPENDIX B
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
INTERNATIONAL TRAVEL
ARRANGERS
Plaintiff No. 4-74 Civil 256
vs.
WESTERN AIRLINES, INO. SUDDEN T
Defendant
This matter comes before the Court upon the findings
of fact and conclusions of law, and recommendations of
United States Magistrate Robert G. Renner acting as
Special Master pursuant to 28 U.S.C. § 636(b)(2), and the
Stipulation for Entry of Judgment of the parties filed on
February 23, 1979.
It is ordered and adjudged that plaintiff International’
Travel Arrangers, Inc. recover against defendant Western
Airlines, Inc., $585,758.27 inclusive of treble damages in
the amount of $361,596.00, reasonable attorney’s fees of
$213,390.87, and costs of suit of $10,771.40 with interest
thereon at the rate of 6% as provided by law.
DATED: February 26, 1979
MILES W. LORD
Miles W. Lord
United States District
Judge
le
APPENDIX C
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
INTERNATIONAL TRAVEL
ARRANGERS, a corporation, Civil 4-74-256
Plaintiff,
si ORDER FOR
WesterRN Arr.ines, INc., JUDGMENT
Defendant.
Doherty, Rumble & Butler, by Boyd Ratchye and Stephen
Halper, E-1500 First National Bank Building, St. Paul,
MN 55101; Harold Tomin, 6th Floor,.1888 Century Park
Kast, Los Angeles, CA 90067.
Mackall, Crounse & Moore, by Clay Moore, 1000 First
National Bank Building, Minneapolis, MN 55402.
This matter comes before the Court upon the findings of
fact, conclusions of law, and recommendation of United
States Magistrate Robert G. Renner, acting as a Special
Master pursuant to 28 U.S.C. § 636(b) (2).
The court, having received objections of defendant and
plaintiff thereto, considering them fully, and determining
them to be without merit, adopts the findings of the Magis-
trate with the exception that Finding No. 60 is stricken.
The Court accepts the Recommendation of Magistrate
Renner.
2c
Pursuant thereto, IT IS ORDERED That:
1. The Clerk enter judgment for plaintiff International
Travel Arrangers and against defendant Western Air-
lines, Inc., in the total amount of $361,596, together with
interest from the date hereof; and
2. Plaintiff be awarded attorney fees in an amount to
be determined by the Magistrate following a hearing for
that purpose to be held within 60 days.
“< LET JUDGMENT BE ENTERED ACCORDINGLY.
DATED: October 17, 1978
MILES W. LORD
Miles W. Lord
U.S. District Judge
1d
APPENDIX D
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
REPORT OF
INTERNATIONAL TRAVEL THE SPECIAL
ARRANGERS, a corporation, MASTER:
ie fF FINDINGS
Plaintiff, OF FACT,
CONCLUSIONS
vs. OF LAW AND
RECOMMENDED
Western Am Linas, Ino., Pe sy
Defendant.
Civil 4-74-256
The above-entitled action came on for a new trial before
the undersigned United States Magistrate on April 24,
1978, By stipulation of the parties and by Order entered
thereon, the undersigned acted herein as Special Master
pursuant to 28 U.S.C. Section 636(b)(2). The parties
waived a jury trial.
Plaintiff was represented by Harold J. Tomin, and by
Boyd Ratchye and Stephen Halper of the firm Doherty,
Rumble & Butler. The defendant was represented by Clay
R. Moore of the firm Mackall, Crounse & Moore.
This action was previously tried from July 13 to August
4, 1977, to a jury before the undersigned, and a verdict
returned in the plaintiff’s favor. No judgment thereon was
entered, On February 22, 1978, defendant’s motion for a
new trial was granted by United States District Court
Judge Miles W. Lord on the grounds that the reference to
the undersigned for purposes of the jury trial was uniaw-
ful. The procedure to be followed on this new trial was
2d
stipulated in writing, said stipulation being part of the
record,
Based on the evidence of record and, having heard
and considered the arguments of counsel, the undersigned
hereby renders his report as Special Master and makes
the following Findings of Fact, Conclusions of Law, and
Recommended Order for Judgment.
FINDINGS OF FACT
1. Definitions:
a. Travel Group Charter. Ordered effective by the Civil
Aeronautics Board (CAB) in September 1972, the Travel
Group Charter (TGC) is a form of charter air travel in
which the individual traveler is a party to the charter con-
tract incurring liability for the pro rata share of the
charter costs and running the risk that his cost may in-
crease, depending upon the load factor ultimately achieved.
TGCs are organized by independent charter organizers.
The TGC rules were amended many times between initial
enactment and the time of trial. During the time period
involved in this lawsuit, the rules contained provisions re-
lating to time of sign-up, penalty-free cancellation, and
related matters. In enacting the TGC concept, the CAB’s
purpose was to provide charter competition to the regu-
larly-scheduled airlines, and low air fares to the public at
large.
b. Single-Entity Charter. A single-entity charter in-
volves the engagement of an aircraft by one person for the
transportation of others who pay nothing.
ce. Affinity Charter. Affinity charters involve groups hav-
ing some community interest apart from transportation,
for example, membership in a club, who engage an aircraft
for transportation to be paid for on a pro-rata basis.
d. Inclusive Tour Charter. Inclusive tour charters in-
volve the charter of an aircraft by an entrepreneur who
offers space to the public as part of an all-expense paid
tour. Inclusive tour charters are subject to restrictions
promulgated by the CAB such as seven-day minimum be-
3d
tween departure and return, a minimum of three stops, and
a requirement that the tour package price be no less than
110 percent of the lowest available fare charged by sched-
uled air carriers for comparable individually ticketed
travel.
2. The Parties.
a. International Travel Arrangers. International Travel
Arrangers (ITA) is a Minnesota corporation engaged in
the business of organizing and arranging charters. ITA
was formed in June of 1972 by Steven Russell and Jerry
Hazzard who, to this date, remain its operating officers and
majority shareholders.
Although ITA’s initial business was limited to packaging
of affinity group charters, ITA entered the market of organ-
izing and arranging TGCs upon promulgation by the CAB
of regulations governing TGCs,
b. Western Air Lines. Western Air Lines, Inc. (West-
ern) is a Delaware corporation and is a CAB certificated,
regularly-scheduled airline whose routes insofar as rele-
vant here include Minneapolis-St. Paul and other mainland
cities/Hawaii, Minneapolis-St. Paul/Las Vegas and various
western states cities/Mexico.
3. At all relevant times, both Western and ITA were
engaged in interstate commerce. Western’s conduct affected
interstate commerce by affecting the movement of persons
by air from Minnesota and surrounding states to Hawaii,
Mexico, and Europe.
4. On January 7, 1972, the CAB published a Notice of
Proposed Rule Making submitting for public comment reg-
ulations which provided for a new type of charter in air
transportation, TGC. The proposed TGC regulations were
novel in that they stressed reliance on travel factors rather
than non-travel affinity to distinguish the charters from
scheduled individually-ticketed air travel. On September
27, 1972, the CAB adopted the proposed regulations with
minor modifications.
5. In response to the regulations issued by the CAB,
ITA filed the necessary documents to organize and arrange
—
4d
TGCs. ITA’s filing was the first received by the CAB,
TG 72-1. The program operated in the summer of 1973
from Minneapolis-St. Paul to Londum. The Minnesota State
Automobile Association (MSAA) acted both as a whole-
saler and retailer of the TGCs organized and arranged by
ITA.
6. Although only three flights were originally scheduled,
the London program was so successful that additional pro-
spectuses were filed with the CAB and seven flights were
operated that season.
7. ITA, as early as January 1973, began discussions with
MSAA for a greatly expanded 1974 TGC program. Final
plans were for ITA to organize TGCs for the 1973-1974
winter to Hawaii and Mexico, and for summer, 1974, to
Kurope with MSAA acting as wholesaler, retailer, and
administrative functionary (i.e., reservations and booking).
8. Early in 1973, ads appeared in west coast newspapers
advertising TGCs to Hawaii. Western viewed these TGCs
as a competitive threat to its regularly scheduled air serv-
ice between the west coast and Hawaii. Western had de-
cided not to provide aircraft for TGCs, in part, because of
its general shortage of aircraft.
9. Batten, Barton, Dirsten and Osborne (BBD&O) was
at all relevant times engaged in the advertising business.
BBD&O and Western were at all relevant times separate
and independent legal entities. Between 1970 and 1974,
.Western was the largest of six accounts at the Los Angeles
office of BBD&O.
10. In January of 1973, Bert Lynn, Western’s vice presi-
dent for advertising and promotion, made the decision to
seek the help of BBD&O in formulating a response to meet
the competitive threat of TGCs operating between west
coast cities and Hawaii. Lynn and Willis Balfour, West-
ern’s vice president for passenger sales, had agreed that an
advertisement would be the best way to meet this competi-
tive threat.
11. Upon contacting BBD&O’s John Doyle, Lynn was
told that BBD&O had already commenced work on an ad-
vertisement discouraging use of TGCs. The person at
od
BBD&O in charge of the Western account was Jack Ber-
nardy.
12. Although Lynn gave Bernardy general guidelines
concerning the ad and reviewed BBD&O’s ad copy, the ad
as published was the result of BBD&O’s active participa-
tion and was substantially the work product of BBD&O.
13. Western caused the ad to be published in February
1973 in newspapers in major west coast cities, including
Los Angeles, Long Beach, San Francisco, San Jose, Oak-
land, and Sacramento (Ex. 53).1
14, The ad effectively reduced competition from TGCs
on the west coast.
15. By April 1973, Western’s Minneapolis personnel had
been instructed by Balfour to monitor TGC activity in the
Twin Cities as closely as possible.
16. On April 25, 1972, Balfour wrote Warren Phillips
of Mainline Travel, a Minneapolis based travel agency, for
the purpose of persuading Phillips not to participate in
TGCs (Ex. 44).
17. Ina letter to Balfour dated August 14, 1973 (Ex. 47),
Lynn Zumbrunnen, Western’s regional director in Minnea.
polis, stated that TGC programs scheduled to depart the
Twin Cities during the Grst quarter of 1974 created a “very
serious competitive situation” which should be met by a
“positive reaction” by Western prior to the middle of Sep-
tember. The letter stated that:
This successful reaction would be a rerun of our TGC
advertisement which appeared in the Los Angeles area
tailored to the situation. In addition to the ad, a direct
mail program regarding the same would be sent to all
travel agencies.
18. On August 23, 1973, at a meeting of the Travel Agent
Advisory Committee in the Twin Cities, Balfour stated
that Western was opposed to TGCs. Balfour felt that
1. Plaintiff's exhibits are marked numerically ; defendant’s exhibits
are marked alphabetically. They are referred to throughout by
letter or number only.
6d
Hawaii TGCs from the Twin Cities would be more success-
ful than the west coast TGCs and thus more harmful to
Western. His reasons for so feeling were substantial, the
most important being the likely participation of MSAA and
Mainline whose retail travel agency operations were the
two largest in Minnesota. Whereas these two “partners,”
as Western liked to think of travel agents, had previously
been substantial contributors to Western’s regularly sched-
uled service to Hawaii, they would now be offering a com-
petitive service and thus could be expected to promote that
service to the detriment of Western’s scheduled service.
19. During summer 1973, upon realizing that TGCs to
Hawaii constituted a competitive threat to Western’s reg-
ularly-scheduled service between the Twin Cities and Ha-
wali, Western contacted BBD&O and instructed them to
revise the west coast ad and conform it to facts relating to
the Twin Cities.
20. On September 16, 1973, in response to the substan-
tial competitive threat, Western caused the publication of
an ad similar to its west coast ad in the Twin Cities and
other larger cities in Minnesota (Ex. 21). The ad appeared
in the Travel Sections of the Minneapolis and St. Paul
Sunday papers (as well as those of Rochester, Duluth, and
other Minnesota cities). As with the west coast ads, it was
substantially the work product of BBD&O.
21. It was false, misleading, or deceptive in the follow-
ing ways:
a. The statement:
“No travel group charter has even taken off to Ha-
wali from the Twin Cities. All those scheduled had
to be cancelled.”
was false and misleading in that if this language is in-
terpreted as stating that all Twin Cities/Hawaii TGCs
ever scheduled had heen cancelled, it was false since
Mainline Travel and MSAA/ITA were advertising Twin
Cities/Hawaii TGCs simultaneously with Western’s ad
and the TGCs had not been cancelled. If the language is
interpreted as meaning that all Twin Cities/Hawaii
7d
TGCs scheduled to depart prior to September 16th had
been cancelled, it was equally misleading since none had
ever been so scheduled.
b. The statement:
“The upshot of it all being that you can plunk down
a couple of hundred dollars (or more) for airfare
and even more for ground arrangements. And end
up going absolutely nowhere.”
was misleading in that under the TGC regulations, it was
impossible for a prospective passenger to ever forfeit
money paid to the organizer for ground arrangements.
c. The statement: “Find out your hotel (if you buy an
optional ground package). Nobody’s sure yet either.”
was false and misleading in that the statement was not
true as of the date of the ad for ITA’s TGCs. Mr. Russell
and Mr. Edberg of MSAA testified that on September
16, a passenger’s hotel was known at the time of reserva-
tion,
d. The ad was false and misleading in stating that the
TGC organizer could charge a five percent transfer fee. sous Me
By contract ITA could not do so.
e. The ad was false and misleading in stating that the
TGC passenger was “virtually out of luck” within 45 days
before departure. The standby list could be utilized
within 45 days of departure and in fact was so used on
ITA’s 1973 TGCs to London. For this same reason, the
statement “If your boss switches your vacation, for ex-
ample, you’ve had it,” was misleading.
f. The statement that the travel agent “understands
all the pros and cons of Travel Group Charters” was mis-
leading since at the time of the ad travel agents did not
know much about the TGC concept. Also, Western was, at
the same time, discouraging travel agents from selling
TGCs.
8d
g. The statement:
“Nationally, over 2,600 travel group charters have
already been cancelled. That’s 9 out of 10 flights
that were scheduled.”
was misleading since this national experience was not
representative of the Twin Cities’ experience with TGCs.
In particular, all of the TG@Cs scheduled out of Minne-
apolis/St. Paul to London in 1973 and operated by ITA/
MSAA operated successfully. It was also misleading be-
cause it referred to flights listed in prospectuses filed with’
the CAB and was not limited to cancellations occurring
because of inability to attract sufficient passengers to
allow operations under the Rules, the only circumstance
which would be relevant to the alleged informational pur-
pose of the ad.
22. Although the Twin Cities ad was initially scheduled
to run at least twice, BBD&O issued the order to cancel it
after its first run because of “copy problems.”
23. BBD&O also prepared radio advertising discourag-
ing use of TGCs for broadcast on WCCO, the Twin Cities
station with the highest listener ratings. It utilized live
announcements by some of the station’s most popular an-
nouncers. (Ex. 106).
24. BBD&O actively and knowingly participated in the
Western anti-TGC campaign in Minneapolis and St. Paul
in September 1973.
25. BBD&O was at all times aware that the purpose of
the campaign was to prevent the TGC from becoming a
competitive threat to Western’s regularly scheduled air
service.
26. BBD&O actively, knowingly, and voluntarily engaged
in a course of conduct with Western designed to prevent
TGCs from becoming a competitive threat to Western.
27. On September 13, 1973, Western sent to most, if not
all, travel agents in Minnesota a letter addressed “Dear
Partner in Travel” and signed by Lynn Zumbrunnen, then
the regional director at Western’s Minneapolis office (Ex.
25).
9d
Enclosed with the letter was a glossy reproduction of the
ad to be published in Minnesota newspapers on September
16, 1973. Included in the letter was the following statement:
““, .» We wonder if the entire travel industry isn’t doing
itself a good deal of harm. to take its prime vacation des-
tination and sell them at bargain basement rates during
the period when that product is at peak demand.”
28. Western is, and at all relevant times was, the only
air carrier with regularly scheduled direct and nonstop
service between the Twin Cities and Las Vegas.
29. To compete with Affinity Charters, Western estab-
lished the Group 60 Fare as a promotional device on its
Twin Cities/Las Vegas route.
30. Promotional group fares are designed to stimulate
traffic and bring to regularly scheduled service, at least in
part, full-plane economies characteristic of charters.
31. Under the Group 60 Fare, Western would allocate to
one travel agent, serving as wholesaler and retailer, usually
82 but occasionally 124 seats on a round-trip basis to Las
Vegas.
32. Certain days of the week and certain times on those
days, were most preferred by Group 60 passengers, and
Western knew this. As of September of 1973, Western con-
sistently allocated to MSAA and Mainline the most pre-
ferred space to Las Vegas.
33. Travel agent demands for Group 60 seats far ex-
ceeded Western’s ability to supply them. Western had re-
ceived complaints from Twin Cities travel agents that the
most preferred space on Group 60 flights was unavailable
to them since it was consistently allocated to MSAA and
Mainline.
34. As of September 1973, MSAA’s ability to earn profits
on the popular Group 60 Fare to Las Vegas depended upon
Western’s allocation to MSAA of preferred space on the
Group 60 Fare.
35. There was also an economic incentive on the part of
travel agents who received Group 60 Fare commitments
10d
from Western to sell them directly to the public rather than
wholesaling them through another travel agent. Since
Western paid the travel agent a commission (seven percent
if air only, 11 percent of the airfare, if ground package
included), a travel agent with a Group 60 commitment who
sold directly to the public could either pocket the commis-
sion or increase demand by lowering the price of his air-
ground package.
36. In 1974, Mainline Travel followed the economic in-
centive and commenced retailing the Group 60 seats West-
ern had committed to it, lowering the package prices. It
entirely ceased wholesaling the seats through other travel
agents.
37. Western considered travel agents their “partners in
travel” since over 50 percent of their gross revenue in 1973
was generated by travel agents.
38, Upon learning of the decision of Mainline to go en-
tirely retail, Western reduced Mainline’s preferred alloca-
tion of Group 60 seats, thus demonstrating its market power.
39. When Mainline agreed to resume wholesaling, its
allocations from Western were increased.
40. The supply imbalance gave Western the market
power leverage to impose its wishes on those travel agents
already favored or looking to become favored.
41. Western had informed MSAA, at least as early
as August 23, 1973, that Western opposed TGCs. MSAA
feared that participation in a TGC program would be met
with an adverse reaction by Western even before Western
commenced its anti-TGC campaign, and as early as the
initial 1973 discussions between MSAA and ITA officials
concerning a joint TGC program for 1974.
42. After Western began its Minnesota anti-TGC cam-
paign, MSAA feared that its promotion.of T@Cs which
competed with Western might induce Western to respond
by reducing preferred allocation on Group 60 space to Las
Vegas.
1ld
43. Travel Center, another locally based travel agency,
after September 16, experienced a sharp drop in the quan-
tity of and rate of bookings and requests for promotional
literature on the Hawaii TGCs it had been advertising. As
a result of the effects of the Western ad, Travel Center had
to promote group travel through companies and organiza-
tions as it had done before TGQs came into existence in
order to fill the flights it had booked, in effect, converting
its TGC flights to split-charter flights.
44. Customer sign-ups and inquiries on Mainline’s
Hawaii TGCs, first advertised on August 12, 1973, declined
after the publication of the ad.
45. Customer sign-ups and inquiries on the ITA/MSAA-
sponsored TGCs, first advertised on September 2, 1973,
increased after publication of the ad.
46. Requests from travel agents for blocks of seats on
Mainline’s Hawaii TGCs decreased significantly immedi-
ately following the mailing of the “Dear Partner in Travel”
letter and the publication of the ad.
47. Western’s anti-TGC campaign was the cause of the
decrease in public interest in TGCs.
48. MSAA officials feared that the anti-TGC campaign
of Western would have a negative effect on public interest
in TGCs in 1974.
49. Western and MSAA officials met in MSAA’s Bloom-
ington headquarters on September 25, 1973. Western offi-
cials at the meeting were Lynn Zumbrunnen and Jon
Meyers; MSAA officials present were Robert Rossman,
Arthur Tomlinson, and Duane Edberg.
50. MSAA officials tried to point out the more blatant
misstatements in the ad. Zumbrunnen, however, refused to
discuss them. Zumbrunnen stated he was instructed by
Balfour, his superior, not to discuss the ad with MSAA
officials.
51. Zumbrunnen’s statements and conduct forced MSAA
to recognize its dependence on Western’s continued pref-
erential treatment of MSAA on Group 60 tariffs to Las
12d
Vegas, Western being the only direct, non-stop carrier to
Las Vegas. MSAA became aware that its continued pro-
motion of TGCs would jeopardize its ability to market the
Group 60 tariff with Western.
52. By reason of the statements and conduct of Western
officers, MSAA officials felt it best to cooperate with West-
ern and not to proceed with MSAA’s planned TGC opera-
tions with ITA.
53. Shortly after the meeting, and as a direct result of
it, MSAA announced that it was cancelling the Hawaii
and Mexico TGCs planned with ITA.
54. MSAA based its decision on the decrease in public
interest caused by Western’s anti-TGC campaign and on
the potential reduction of MSAA’s preferred Group 60
space.
55. Shortly after MSAA cancelled its Hawaii and Mex-
ico TGCs with ITA, MSAA cancelled its London TGCs
planned with ITA for the same reasons.
56. Western’s express purpose in publishing the west
coast anti-TGC ads was to prevent TGCs from becoming
a competitive threat to Western’s regularly scheduled air
service between west coast cities and Hawaii.
57. Although steps were taken by Western and BBD&O
to republish the anti-TGC ad, plans to do so were ter-
minated. Western felt that the campaign had been at least
partly responsible for the indifferent success of Hawaii
TGCs from west coast cities.
58. Western’s purpose in embarking on its anti-TGC
campaign in the Twin Cities and other Minnesota cities
was to prevent the TGCs from becoming a competitive
threat in this area.
59. Its purpose was not to merely inform the public or
to speak out on a political issue. If such had been the case,
a substantially misleading or deceptive campaign would
have been unnecessary.
13d
60. Western abandoned plans for revising and again
publishing the Twin Cities ad after being informed that
MSAA had cancelled its TGC plans with ITA.
61. Western was aware that the natural and probable
consequence of its veiled threats to MSAA to reduce pre-
ferred allocation of Group 60 Space was to induce MSAA
to cancel the TGC plans it had with ITA.
62. Western’s anti-TGC campaign was knowingly, in-
tentionally, and purposefully designed to eliminate TGCs
as a competitive force to Western’s regularly scheduled air
service, and Western was aware that such elimination of
competition would be the natural and probable consequence
of its conduct.
63. In the air transportation industry, a market consists
of service between a pair of points. The Twin Cities/Ha-
wali air route fits that definition and is, therefore, a
separate and identifiable market.
64. Western’s market share of regularly scheduled sin-
gle ticketed air service between the Twin Cities and Hawaii
rose from 56.8 percent in 1970 to 68.6 percent in 1973.
65. The TGC, unlike the single entity charter, the affinity
charter, or any other charter, could be advertised and sold
to the general public. Unlike the inclusive tour charter and
other charters marketed to individuals, the TGC did not
require the individual to purchase a ground package, hotel,
or anything other than air transportation. The TGQ was
sold through retail travel agents as was regularly scheduled
service.
66. The only charter concept which constituted efficient
competition to regularly scheduled air service between the
Twin Cities and Hawaii was the TGCs. They did not com-
pete until the first quarter of 1974,
67. Because Western was the only regularly scheduled
air carrier having direct and non-stop flight service between
the Twin Cities and Las Vegas, Western had a monopoly,
albeit a regulated one, in that market.
68. MSAA and ITA committed themselves to plans to
operate four TGCs to Hawaii in 1974, The four MSAA/
14d
ITA TGCs to Hawaii had been advertised at the time
Western published its ad in the Twin Cities papers. ITA
could not market these TGCs without the assistance of
MSAA.
69. Because of Western’s conduct, MSAA cancelled
these TGCs. Absent Western’s conduct, these TGCs to
Hawaii would likely have operated successfully.
70. Western’s conduct caused ITA to lose profits on the
four TGCs to Hawaii it had planned to run with MSAA,
and its damages are not difficult to ascertain.
71. ITA’s proposed agreement with MSAA (Ex. 31)
establishes the terms pursuant to which ITA and MSAA
would have divided profits on the Hawaii TGCs. Four
DC-10s would have been flown to Hawaii with 345 pas-
sengers each, for a total of 1,380 passengers. Each pas-
senger would have been charged a $43.42 service charge.
Twenty percent of the total service charge would go to
ITA. Thus, ITA’s loss of profit on airfare amounted to
$11,984 computed as follows:
1,380 passengers x $43.42 x 20 percent = $11,934.
72. ITA also lost profits on ground arrangements exclu-
sive of optional tours. A fair estimate of the number of
persons who would have bought ground arrangements on
the 1974 TGCs may reasonably be based on the percentage
of passengers purchasing ground arrangements on ITA’s
1977 Hawaii TGCs. In 1977, 87 percent of the passengers
ITA flew to Hawaii on its TGCs purchased ground arrange-
ments. The same percentage applied to 1974 TGCs shows
that 1,200 passengers would have purchased ground ar-
rangements.
Four ground packages were available, yielding profit to
ITA and MSAA of $27, $26, $35, and $30. The fairest
estimate is that 96 passengers would have purchased the
ground arrangements yielding a profit of $27; 444 passen-
gers would have purchased the package yielding $26; 324
passengers would have purchased the package yielding $35;
and 336 passengers would have purchased the package
yielding $30. These figures are also reasonably based on
15d
percentages actually experienced by ITA on its 1977 Ha-
waii TGCs. Pursuant to its agreement with MSAA, ITA
was to receive 20 percent of the total profit on ground
arrangements,
ITA’s profit loss on ground arrangements, therefore,
totals $7,111 computed as follows:
96 passengers X $27 profit = ¢ 2,592
444 passengers < $26 profit = $11,544
324 passengers X $35 profit = $11,340
336 passengers < $30 profit = $10,080
$35,556
ITA Loss — $35,556 « 20 percent = $ 7,111
73. ITA lost further profits in lost optional tours. ITA’s
actual experience on its 1977 Hawaii TGCs provides the
best available measure of the average purchase per passen-
ger of optional tours. Based on the 1977 experience, the
average per passenger purchase of optional tours is $58.76,
ITA’s commission was to be 15 percent of the average pur-
chase per passenger on optional tours. The best estimate is
that 1,200 passengers would have purchased optional tours,
ITA would receive an average of $3.81 per passenger.
Any inflation factor tending to cause a difference between
the 1974 purchase per passenger and the 1977 purchase
per passenger is offset by the fact that more passengers
were likely to purchase optional tours in 1974 than in 1977,
11’A was to take all of its commissions on the optional
tours, and none of it was to be allocated to MSAA, ITA’s
loss on optional tours, therefore, is $10,572 computed as
follows:
1,200 passengers < $3.81 = $10,572.
74. Western’s conduct caused ITA to lose a total of
$29,667 in profit on the four Hawaii TGs it had negotiated
to operate with MSAA.
~-75. ITA and MSAA had also firmly committed them-
selves to running four TGCs to Mexico in the first quarter
16d
of 1974, and, in fact, they had begun advertising them prior
to the time Western published its anti-TGC ad in the Twin
Cities. Because of Western’s conduct, MSAA cancelled
these TGCs. ITA could not market these TGCs without
MSAA’s assistance.
76. Air travel of United States citizens to Mexico, at
the time, was a rapidly expanding market. Due to the
relatively low price of the TGCs as opposed to regularly
scheduled service, and due to the expanding market, the
ITA/MSAA Mexico TGCs were a highly saleable product.
Had MSAA not cancelled, all four TGCs to Mexico would
likely have operated successfully.
77. Western’s conduct caused ITA to lose profits on the
four Mexico TGCs it had planned to operate with MSAA,
and ITA’s damages are not difficult to ascertain.
78. Four flights carrying 223 passengers each would have
been run, for a total of 892 passengers. Service charge per
passenger was $54.85. Pursuant to the agreement with
MSAA, ITA was to take 20 percent of the total service
charges. ITA’s loss on airfare is, therefore, $9,785 com-
puted as follows:
892 passengers X $54.85 charge X 20 percent = $9,785.
79. Two ground packages exclusive of optional tours
were also available, one yielding a total profit of $31 per
passenger and the other yielding $44 per passenger. Due
to the many similarities between Hawaii and Mexico as
vacation spots, the 87 percent figure attributable to the
Hawaii TGCs is equally applicable to the Mexico TGCs.
The best estimate is, therefore, that 776 passengers, or 87
percent of the total passengers, would have purchased
ground arrangements; that 388 passengers would have
purchased the ground package yielding a profit of $31; and
that 388 would have purchased the package yielding $44.
ITA was to take 20 percent of the total profits on ground
arrangements.
17d
ITA’s loss on ground arrangements, therefore, is $5,820
computed as follows:
388 passengers < $31 X 20 percent = $2,405
388 passengers X $44 X 20 percent == 3,414
Total loss $5,820
80. Due to similarities in Hawaii and Mexico as vacation
spots, it is reasonable to assume that 87 percent of the total
passengers to Mexico would have purchased optional tours
as they had done in Hawaii. This amounts to 776 pas-
sengers. It is equally reasonable to assume a commission
of $8.81 per passenger. ITA was entitled to all of the
profits earned on optional tours. Thus, ITA’s loss on
optional tours is $6,837 computed as follows:
776 passengers X $8.81 = $6,837.
81. Western’s conduct caused ITA to lose a total of
$22,442 in profit on the four Mexico TGQs it planned to
operate with MSAA,
82. At the time Western published its anti-TGC ad in
the Twin Cities, MSAA planned to run 13 TGCs to London
in 1974 with ITA. These 13 TGQs constituted a program
distinct and independent from the TGCs to Europe that
ITA planned to run and actually did run on its own in
1974.
83. Because of Western’s conduct, MSAA cancelled these
TGCs. Absent Western’s conduct, all 13 TGCs to London
would probably have operated successfully. ITA suffered
a loss of profits and its damages are not difficult to ascertain.
84. Thirteen DC-10s, carrying 345 passengers each,
would have flown to London, for a total of 4,485 passengers.
A service charge of $64 would have been assessed per pas-
senger. ITA would have taken 20 percent of the total
service charges. Thus, ITA’s lost airfare profits total
$57,408 computed as follows:
4,485 passengers X $64 < 20 percent = $57,408
18d
85. ITA lost profits on the London TGC ground arrange-
ments as well. The best measure for determining the
average gross profit per passenger on ground arrangements
is ITA’s actual experience on its 1974 European TGCs. On
its 1974 European TGCs, the average gross profit per pas-
senger on ground arrangements amounted to $12.28. This
figure must be multiplied by the total passenger number
of 4,485 to obtain total gross profits, since the number
4,485 was used in computing average profit to begin with.
ITA would be entitled to 20 percent of the total profits
derived from ground arrangements. ITA’s loss on ground
arrangements, therefore, is $11,015 computed as follows:
4,485 passengers X $12.28 < 20 percent = $11,015.
86. Western’s conduct caused ITA to lose a total of
$68,423 in profits on the London TGCs it planned to run
with MSAA.
87. By agreement of the parties, the court has deferred
the taking of testimony with regard to the matter of the
award of attorney fees to a later date.
CONCLUSIONS OF LAW
1. The District Court has jurisdiction over this claim
pursuant to Sections 1 and 2 of the Sherman Act, 15 U.S.C.
§$§ 1 and 2.
2. At all relevant times, both ITA and Western were
engaged in interstate commerce.
3. Western’s conduct more particularly described in the
Findings of Fact, affected interstate commerce because it
affected the movement of persons by air from Minnesota
and surrounding states to Hawaii, Mexico, and Europe.
4, The reference to the Magistrate as a Special Master
is pursuant to 28 United States Code, Section 636, Rule 54,
Federal Rules of Civil Procedure, and the Orders and
Stipulations on file herein.
5. BBD&O was at all times a separate legal entity
capable of combining and conspiring with Western in viola-
tion of the Sherman Act.
19d
6. BBD&O did in fact combine and conspire with
Western in restraint of trade by knowingly and actively
participating in a course of anticompetitive conduct.
7. Western’s publication of the ad of September 16,
1973, was part of a course of conduct constituting an un-
reasonable restraint of trade. The ad was false, misleading,
and deceptive. Publication of the ad was not protected by
the First Amendment of the United States Constitution.
8. Western’s distribution of the “Dear Partner in
Travel” letter to travel agents in Minnesota was part of
a course of conduct constituting an unreasonable restraint
of trade.
9. Western’s use of its market leverage over Group 60
seats on flights between the Twin Cities and Las Vegas to
intimidate MSAA was part of a course of conduct con-
stituting an unreasonable restraint of trade.
10. Western’s course of conduct was deliberately ana
purposely designed to prevent the TGC, a lawfully enacted
concept, from effectively competing with regularly sched-
uled air service, in direct contravention of an express policy
of the United States government.
11. Western’s course of conduct was in violation of See-
tion 1 of the Sherman Act and caused damage to ITA.
12. That portion of interstate commerce consisting of
individually-ticketed air transportation on the Twin Cities /
Hawaii route is a distinct and identifiable submarket, the
monopolization of which constitutes a violation of 15 U.S.C.
Section 2. Western possessed monopoly power in this sub-
market.
13. Western also possessed monopoly power over a sub-
market of interstate commerce consisting of direct and
non-stop air transportation between Las Vegas and the
Twin Cities, and, specifically, the Group 60 Fare on the
Twin Cities/Las Vegas route.
14, Western intentionally sought to maintain its monop-
oly power in the relevant market by publishing a false
and misleading advertisement in the Minneapolis and St.
20d
Paul newspapers on September 16, 1973, and by distributing
to travel agents in Minnesota the “Dear Partner in Travel”
letter, discouraging such travel agents from participating
in TGCs and from selling TGCs to the public.
15, Western intentionally sought to maintain its monop-
oly power in the relevant market by improperly using its
market position in the Twin Cities/Las Vegas route as
leverage to intimidate MSAA.
16. Western deliberately, purposely and wrongfully
maintained its monopoly power in the Twin Cities/Hawaii
submarket by perpetrating a course of conduct designed
to eliminate the competition of TGOs.
17. Western violated Section 2 of the Sherman Act by
monopolizing that portion of interstate commerce consist-
ing of individually ticketed air transportation on the Twin
Cities/Hawaii route.
18. Western entered into the combination with BBD&O
with the specific intent to monopolize that portion of inter-
state commerce consisting of individually ticketed air trans-
portation on the Twin Cities/Hawaii route.
19. The acts specified in the Findings of Fact were done
in furtherance of the combination to monopolize.
20. The aforementioned conduct would reasonably re-
sult in the monopolization of the relevant market sooner
or later,
21. Western violated 15 U.S.C. Section 2 by attempting
to monopolize, by means heretofore enumerated, that por-
tion of interstate commerce consisting of individually
ticketed air transportation on the Twin Cities/Fawaii
route.
22. Western’s course of conduct was in violation of Sec-
tion 2 of the Sherman Act and caused damage to ITA.
23. Alleged advertising by ITA and alleged deception
of the CAB by ITA are not issues in this case and cannot
preclude ITA’s recovery against Western for violations of
the Sherman Act,
21d
24. Western’s violations were the proximate cause of
ITA’s loss of profits on TGQs it planned to operate with
MSAA to Hawaii, Mexico, and London.
25. Violations of 15 U.S.C. Section 1 and 15 U.S.C. See-
tion 2 by Western proximately caused damage to ITA in
the amount of $120,532.
26. Pursuant to 15 U.S.C. Section 15, Plaintiff is entitled
to recover treble damages in the amount of $361,596.
27. Pursuant to 15 U.S.C. Section 15, Plaintiff is entitled
to recover its reasonable attorneys’ fees in an amount to
be determined after an evidentiary hearing is held,
RECOMMENDED ORDER FOR JUDGMENT
Based upon the foregoing findings of fact and conclu-
sions of law, IT IS HEREBY RECOMMENDED that the
District Court enter an order that:
1, Judgment be granted for Plaintiff ITA and against
Defendant Western in the total amount of $361,596, to-
gether with interest from the date hereof; and
2. Plaintiff be awarded attorney fees in an amount to
be determined by the undersigned following a hearing
for that purpose to be held within 60 days following
entry of judgment.
Dated: June 7, 1978.
ROBERT G. RENNER
United States Magistrate
All objections must be filed with the Clerk of Court, Min-
neapolis, MN, within 10 days of the filing of the Report of
the Special Master.
le
APPENDIX E
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
INTERNATIONAL TRAVEL
ARRANGERS, a corporation,
Plaintif, | \EMORANDUM
_ Civil 4-74.256
Western Arriinzs, Inc.,
Defendant.
Plaintiff, International Travel Arrangers (ITA), com-
menced this treble-damage action under Sections 1 and 2
of the Sherman Act, 15 U.S.C. §§ 1 and 2, for injuries sus-
tained as a result of the defendant’s, Western Air Lines
(Western), anticompetitive course of conduct. Plaintiff
alleges that in 1973, defendant combined with the advertis-
ing firm of Batten, Barton, Dirsten and Osborne (BBD&O)
for the rarpose of publishing deceptive advertising aimed
at destroying travel group charter (TGC) competition from
plaintiff and others, and creating and maintaining a monop-
oly for itself. Plaintiff also alleges that the defendant
engaged in other overt actions, including threats, which,
because of Western’s monopoly power, had the intended
effect of maintaining Western’s monopoly power.
The defendant, aside from denying that its advertising
was deceptive and that its conduct and intent were anti-
competitive, asserts three defenses: (1) that its advertise-
ment constitutes protected speech under the First Amend-
ment of the United States Constitution, (2) that plaintiff's
conduct was in pari delicto to that of the defendant, and
(3) that plaintiff has failed to prove any resultant damages
either in fact or in amount.
i
2e
The Court’s conclusion that the defendant’s advertise-
ment was deceptive and that its course of conduct had the
intended anticompetitive effect is thoroughly elucidated in
the Findings of Fact. Further discussion of this conclusion
is, therefore, unnecessary. The Court instead will focus
on the three defenses raised.
A. First Amendment Protection
The defendant first claims that the Noerr/Pennington
doctrine, Eastern Railroad Conference vs. Noerr Motor
Freight, 365 U.S. 127, 81 S.Ct. 523 (1961); United Mine
Workers vs. Pennington, 381 U.S. 657, 95 S.Ct. 1585 (1965),
combined with the line of First Amendment decisions from
New York Times vs. Sullivan, 376 U.S. 254, 84 S.Ct. 710
(1964) ; to Bigelow vs. Virginia, 421 U.S. 809, 95 S.Ct. 2222
(1975) ; Virginia Pharmacy Board vs. Virginia Consumer
Council, 425 U.S. 748, 96 S.Ct. 817 (1976); and Bates vs.
State Bar of Arizona, ...... US. ....... 97 S.Ct. 2691 (1977),
immunizes advertising per se from Sherman Act liability
and that, in any event, the Sherman Act was not intended
to reach advertising activity. This argument is not relevant
to the facts in this case.
The Noerr/Pennington doctrine protects certain types of
communications under the First Amendment right to peti-
tion from prosecution under the antitrust laws. As the
Supreme Court stated in Noerr:
‘In a representative democracy such as this, these
branches of government act on behalf of the people and,
to a very large extent, the whole concept of representa-
tion depends upon the ability of the people to make their
wishes known to their representatives. To hold that the
government retains the power to act in the representative
capacity and yet hold, at the same time, that the people
cannot freely inform the government of their wishes
would impute to the Sherman Act a purpose to regulate,
not business activity, but political activity, a purpose
which would have no basis whatever in the legislative
history of the act. Secondly, and of at least equal signifi-
cance, such a construction of the Sherman Act would
raise important constitutional questions. The right of
8e
petition is one of the freedoms protected by the Bill of
Rights, and we cannot, of course, lightly impute to Con-
gress an intent to invade these freedoms. Indeed, such
an imputation would be particularly unjustified in this
case in view of all the countervailing considerations
enumerated above. For these reasons, we think it clear
that the Sherman Act does not apply to the activities of
the railroads at least insofar as those activities com-
prised mere solicitation of governmental action with re-
spect to the passage and enforcement of laws.” 365 US.,
at 137-138,
The defendant urges the Court to apply this rationale
to immunize its advertisement in the instant case. How-
ever, there is no evidence that the defendant ever had any
political purpose, within the meaning of Noerr, which could
justify such an application. As the Court has found, the
defendant’s purpose in publishing the ad was to destroy
competition from TGCs in whatever way possible, but pri-
marily by trying to dissuade the public and the travel
agencies from using them. All of the evidence indicates that
this was defendant’s sole reason for publishing the ad.
Moreover, it used other means as well as the advertisement
to attain that goal. Clearly, the alleged political purpose
was but an afterthought.
Thus, the situation here is readily distinguishable from
that in Noerr. As the Court there pointed out:
“There are no specific findings that the railroads at-
tempted directly to persuade anyone not to deal with the
truckers. Moreover, all of the evidence in the record,
both oral and documentary, deals with the railroags’
efforts to influence the passage and enforcement of laws.
Circulars, speeches, newspaper articles, editorials, maga-
zine articles, memoranda and all other documents discuss
in one way or another the railroads’ charges that heavy
trucks injure the roads, violate laws and create traffic
hazards and urge that truckers should be forced to pay
a fair share of the costs of rebuilding the roads, that
they should be compelled to obey the laws, and that limits
should be placed upon the weight of the loads they are
4e
permitted to carry. In the light of this, the findings of the
District Court that the railroads’ campaign was intended
to and did in fact injure the truckers in their relation-
ships with the public and with their customers can mean
no more than that the truckers sustained some direct
injury as an incidental effect of the railroads’ campaign
to influence governmental action and that the railroads
were hopeful that this might happen.” 365 U.S., at 142.
Conversely, in light of this Court’s finding that the de-
fendant had no political purpose in publishing the adver-
tisement, it is plain that the Noerr/Pennington doctrine has
no applicability here.
It, therefore, becomes unnecessary to discuss the “sham
exception” to the doctrine. Nevertheless, it is instructive to
recapitulate the language used by the Supreme Court in
developing the rationale for the exception. In California
Motor Transport Co. vs. Trucking Unlimited, 404 U.S. 508,
92 S.Ct. 609 (1972), the sham exception was first utilized
in upholding Sherman Act liability where the defendant’s
exercise of its right to petition was used to harass and
effectively deny the plaintiffs their own right to put before
the administrative agency an application which, if granted,
would have put the plaintiffs in competition with the de-
fendants. In rejecting the defendant’s First Amendment
plea, the Court stated:
“Misrepresentations, condoned in the political arena,
are not immunized when used in the adjudicatory process
- ++. Insofar as the administrative or judicial processes
are involved, actions of that kind cannot acquire im-
munity by seeking refuge under the umbrella of ‘political
expression.’
“Petitioners, of course, have the right of access to the
agencies and courts to be heard on applications sought
by competitive highway carriers. That right, as indi-
cated, is part of the right of petition protected by the
First Amendment. Yet that does not necessarily give
them immunity from the anti-trust laws.
“It is well settled that First Amendment rights are not
immunized from regulation when they are used as an
5e
integral part of conduct which violates a valid statute.
Giboney vs. Empire Storage Co., 336 U.S. 400. In that
case Missouri enacted a statute banning secondary boy-
cotts and we sustained an injunction against picketing to
enforce the boycott, saying:
‘It is true that the agreements and course of con-
duct here were as in most instances brought about
through speaking and writing. But it has never been
deemed an abridgement of freedom of speech or press
to make a course of conduct illegal merely because the
conduct was in part initiated, evidenced, or carried out
by means of language, either spoken, written or printed
. . . . Such an expansive interpretation of the con-
stitutional guaranties of speech and press would make
it practically impossible ever to enforce laws against
agreements in restraint of trade as well as many
other agreements and conspiracies deemed injurious to
society.’ 336 U.S., at 502”
404 U.S., at 513-514.
This language, in combination with the recent First
Amendment cases relied upon by the defendant lead to a
conclusion not that defendant’s advertising is immune from
Sherman Act liability, but, rather that it is well within the
scope of the type of activity made actionable thereunder.
We must begin with the dual proposition that speech
is protected even in the form of paid advertisement and
that if commercial speech is to be distinguished, it must be
distinguished by its content. Bates vs. State Bar o f Arizona,
supra, 97 8.Ct., at 2698-2699; citing Virgiwea Pharmacy
Board vs. Virginia Consumer Council, supra; Buckley vs.
Valeo, 424 U.S. 1, 96 S.Ct. 710 (1976). It cannot be distin-
guished by the fact that the speaker is a corporation as
opposed to an individual. First National Bank of Boston
vs. Bellotti, ...... if ioe a idaho 8.06, ...... , 36 U.S.L.W. 4371
(April 26, 1978).
However, the protection is not absolute. Even a public
official may recover damages for publication of a defama-
tory falsehood upon a showing of “actual malice.” New
6e
York Times Co. vs. Sullivan, supra. Advertisement of a
commercial activity which itself is illegal may be prohibited.
Pittsburgh Press Co. vs. Pittsburgh Commission on Human
Relations, 413 U.S. 376, 93 S.Ct. 2553 (1973). Indeed, the
lower courts have consistently held that there is no con-
stitutional right to disseminate false or misleading adver-
tisements. See, for example, Federal Trade Commission
vs. Simeon Management Corp., 532 F.2d 708 (9th Cir.
1976); Federal Trade Commission vs. National Commis-
ston on Egg Nutrition, 517 F.2d 485 (7th Cir. 1975); L. G.
Balfour Co. vs. Federal Trade Commission, 442 F.2d 1
(7th Cir. 1971); Murray Space Shoe Corp. vs. Federal
Trade Commission, 304 F.2d 270 (2nd Cir. 1963); E. F.
Drews & Co. vs. Federal Trade Commission, 235 F.2d 735
(2nd Cir. 1956), cert. denied, 352 U.S. 969, 77 S.Ct. 360
(1957).
The recent First Amendment decisions of the Supreme
Court concerning commercial speech do not contradict
these holdings; rather, they are consistent with them. For
example, in Virginia Pharmacy Board vs. Virginia Con-
sumer Council, supra, in which a statutory ban on prescrip-
tion drug price advertising was held unconstitutional, the
Court was careful to distinguish commercial speech gen-
erally from deveptive advertising :
“Nor is there any claim that prescription drug price
advertisements are forbidden because they are false or
misleading in any way. Untruthful speech, commercial
or otherwise, has never been protected for its own sake.
Gertz vs. Robert Welch, Inc., 418 U.S. 323, 340 (1974) ;
Konigsberg vs. State Bar, 366 U.S. 36, 49, and n. 10
(1961). Obviously, much commercial speech is not prov-
ably false, or even wholly false, but only deceptive or
misleading. We foresee no obstacle to a State’s dealing
effectively with this problem.” .425 U.S., at 771.
In Bates vs. State Bar of Arizona, supra, the Court fur-
ther clarified the distinction:
“Advertising that is false, deceptive, or misleading of
course ts subject to restraint. See Virginia Pharmacy
Board vs. Virginia Citizens Council, 425 U.S., at 771-772,
Te
and n. 24, 96 S.Ct., at 1830-1831. Since the advertiser
knows his product and has a commercial interest in its
dissemination, we have little worry that regulation to
assure truthfulness will discourage protected speech. /d.,
at n. 24, 96 S.Ct., at 1830. And any concern that strict
requirements for truthfulness will undesirably inhibit
spontaneity seems inapplicabis because commercial
speech generally is calculated. Indeed, the public and
private benefits from commercial speech derive from
confidence in its accuracy and reliability. Thus, the lee-
way for untruthful or misleading expression that has
been allowed in other contexts has little force in the com-
mercial arena. Compare Getrz vs. Robert Welch, Inc.,
418 U.S, 323, 339-341, 94 S.Ct. 2997, 3006-3007, 41 L.Ed.
2d 789 (1974); and Cantwell vs. Connecticut, 310 U.S.
296, 310, 60 S.Ct. 900, 906, 84 L.Ed. 1213 (1940), with
NLEB vs. Gissel Packing Co., 395 U.S., at 618, 89 S.Ct.,
at 1942.°* *
“As with other varieties of speech, it follows as well that
there may be reasonable restrictions on the time, place
and manner of advertising.” 97 S.Ct., at 2708-2709. (Em-
phasis added. )
The defendant suggests that the Bates Court’s approval
of commercial speech restraints encompasses only speech
concerning one’s own product. Such a narrow interpreta-
tion of the Court’s language is unwarranted. That Court
specifically addressed the question in the terms it did be-
cause the case concerned only advertisement of services by
lawyers. It did not condone disparagement of another
product, nor did it condone false advertising with anti-
competitive purpose. It simply did not specifically discuss
them at all. This Court is unwilling to conclude, absent
other facts, that there is a constitutionally significant dis-
tinction between advertisements of one’s own product and
those concerning products of another. In the absence of
First Amendment protection, it cannot otherwise be found
that false advertising may not form part of the basis of
Sherman Act liability.
_ Insofar as the defendant argues that the Sherman Act
does not prohibit false advertising, it misses the point.
8e
The recent Supreme Court decision in National Society of
Professional Engineers vs. United States, ...... ake ak oe
| ee » 46 U.S.L.W. 4356 (April 25, 1978), is instructive
in this regard. In that case, the Court held that the trial
court had properly enjoined the Society’s publication of
standards which stated or implied that competitive bidding
was unethical.
The defendant here argues that the standards in the
Society case were but evidence of an underlying agree-
ment, whereas here the ad itself is the alleged cause of
liability. This is not the case, however; for just as the
Society’s ethical standards were but evidence underlying
an anticompetitive agreement, so too is the ad at issue here
merely evidence of an agreement in restraint of trade. In
fact, the publication of the ad is but one of several overt
acts committed by the defendant in furtherance of its anti-
competitive scheme. In other words, the defendant here
is not being held liable simply because it published a de-
ceptive ad, but rather because it published the ad as part
of its overall plan to destroy competition and to attempt
to maintain and further develop its monopoly position.
The Sherman Act does not delineate the specific types of
combinations that are illegal. Rather, it makes “every con-
tract, combination ... or conspiracy in restraint of trade”
illegal, and it makes “every person” who monopolizes, at-
tempts to monopolize, conspires to monopolize liable. 15
U.S.C. §§1 and 2. The defendant here entered into agree-
ment to restrain trade and monopolize. That agreement
called for the publication of the advertisement as a means
of effecting its goal.
It is clear that the defendant’s agreement with BBD&O
to publish the deceptive advertisement is a combination
properly giving rise to Sherman Act liability.
B. Western’s In Pari Delicto Defense
The defendant next asserts that it should not be held
liable for Sherman Act violations based upon the publica-
tion of its deceptive advertisement because plaintiff’s own
previous TGC advertisements were deceptive, illegal and
9e
fraudulent in nature, and were closely related to the chal-
lenged conduct of Western.! This contention cannot sur-
vive scrutiny.
The United States Supreme Court’s most recent pro-
nouncement concerning the vitality of the in pari delicto
type defenses is an apparent across-the-board preclusion
of their application. Perma Life Mufflers, Inc. vs. Inter-
national Parts Corp., 392 U.S. 134, 88 S.Ct. 1981 (1968).
Justice Black explained the reasons therefor as follows:
“Although in pari delicto literally means ‘of equal fault,’
the doctrine has been applied, correctly or incorrectly,
in a wide variety of situations in which a plaintiff seek-
ing damages or equitable relief is himself involved in
some of the same sort of wrongdoing. We have
often indicated the inappropriateness of invoking broad
common-law barriers to relief where a private suit serves
important public purposes. It was for this reason that
we held in Kiefer-Stewart Co. vs. Seagram & Sons, 340
U.S, 211 (1951), that a plaintiff in an antitrust suit could
not be barred from recovery by proof that he had en-
gaged in an unrelated conspiracy to commit some other
antitrust violation. Similarly, in Simpson vs. Union Oil
Co., 377 U.S. 13 (1964), we held that a dealer whose
consignment agreement was cancelled for failure to ad-
here to a fixed resale price could bring suit under the
antitrust laws even though by signing the agreement he
had to that extent become a participant in the ille-
gal, competition-destroying scheme. Both Simpson and
Kiefer-Stewart were premised on a recognition that the
purposes of the antitrust laws are best served by insur-
ing that the private action will be an ever-present threat
to deter anyone contemplating business behavior in viola-
tion of the antitrust laws. The plaintiff who reaps the
1. The defense has been dubbed an in pari delicto defense, although
it may be more akin to an “unclean hands” or contributory illegality
defense. The distinction is noted here not because of its signifi-
cance, but rather because it has been noted by other courts in dis-
cussions of the applicability of these similar defenses to antitrust
actions. See, for example, Memorex Corp. v. International Busi-
ness Machines Corp., 555 F.2d 1379, 1382 (9th Cir. 1977).
10e
reward of treble damages may be no less morally repre-
hensible than the defendant, but the law encourages his
suit to further the overriding public policy in favor of
competition. A more fastidious regard for the relative
moral worth of the parties would only result in seriously
undermining the usefulness of the private action as a
bulwark of antitrust enforcement. And permitting the
plaintiff to recover a windfall gain does not encourage
continued violations by those in his position since they
remain fully subject to civil and criminal penalties for
their own illegal conduct. Kiefer-Stewart, supra.
“In light of these considerations, we cannot accept the
Court of Appeals’ idea that courts have power to under-
mine the antitrust acts by denying recovery to injured
parties merely because they have participated to the
extent of utilizing illegal arrangements formulated and
carried out by others .... We therefore hold that the
doctrine of im pari delicto, with its complex scope, con-
tents, and effects, is not to be recognized as a defense to
an antitrust action.” 392 U.S., at 138-140.
With one exception, the Perma Life holding has been
consistently followed by the Circuit Courts of Appeals.
See Lamp Liquors, Inc. vs. Adolph Coors Co., 563 F.2d
425, 431 (10th Cir. 1977); Adolph Coors Co. vs. A & 8
Wholesalers, Inc., 561 F.2d 807, 815-816 (10th Cir. 1977) ;
Calnetics Corp. vs. Volkswagen of America, Inc., 532 F.2d
674, 638-639 (9th Cir.), cert. denied, 429 U.S. 940, 97 S.Ct.
355 (1976); Green vs. General Foods, 517 F.2d 635 (5th
Cir. 1975) ; Semke vs. Enid Auto Dealers Association, 456
F.2d 1361, 1370-1371 (10th Cir. 1972).
The exception arises out of the Perma Life Court’s re-
fusal to decide whether “truly complete involvement and
participation in a monopolistic scheme could ever be the
basis, wholly apart from the idea of in pari delicto, for
barring a plaintiff’s [antitrust] cause of action.” 392
U.S., at 140.
The exception has been fashioned by the Courts of
Appeals with caution and has been narrowly drawn. In
Javelin Corp. vs. Uniroyal, Inc., 546 F.2d 276 (9th Cir.
lle
1976), cert. denied, 431 U.S. 938, 97 S.Ct. 2651 (1977), for
example, the Ninth Circuit considered at length the attempts
of other courts to resolve the status of the defense. It
concluded :
“Such decisions seem to temper Perma Life’s apparent
abolition of the in par delicto defense. See ABA Anti-
trust Developments 298 (2d ed. 1975). We agree that
under certain circamstances a plaintiff may be barred
from recovery, but believe that the mandate of Perma
Life and the policy behind it demand that such circum-
stances be rare, and limited to where a plaintiff partic-
ipated in the formation of the conspiracy.
“... A plaintiff is barred from recovery only when
the illegal conspiracy would not have been formed but
for the plaintiff’s participation. To satisfy this test, the
jury must necessarily find that the degree of participation
of the plaintiff must be equal to that of any defendant
and a substantial factor in the formation of the con-
spiracy.” 546 F.2d, at 276.
See also Dreibus vs. Wilson, 529 F.2d 170 (9th Cir. 1975) ;
Green vs. General Foods, supra; South-East Coal Co. vs.
Consolidation Coal Co., 434 F.2d 767 (6th Cir. 1970), cert.
denied, 402 U.S. 983, 91 S.Ct. 1682 (1971); Premier Elec-
trical Construction Co. vs. Miller-Davis Co., 422 F.2d 1132
(7th Cir. 1970),
More recently, the same court, in Memorex Corp. vs.
International Business Machines Corp., 555 F.2d 1379 (9th
Cir, 1977), rejected an in pari delicto type defense which
was manifested by a claim, not unlike that asserted here,
that the market position which suffered injury was obtained
through illegal means. The asserted defense was based
upon the alleged theft by Memorex of International Busi-
ness Machines’ (IBM) trade secrets. The court held that
the plaintiff’s illegal conduct was not a defense to the
antitrust action and that IBM’s proper course would have
been to assert a counterclaim against Memorex for the
alleged misappropriation. It further reminded, ‘““We con-
tinue to side with the goal of vigorous enforcement of
our antitrust laws.” 555 F.2d, at 1383.
12e
The fact that the Perma Life holding was but a plurality
decision is not of help to the defendant here, for each of
the concurring opinions was in large part but an elabora-
tion of the point which the plurality refused to decide.
Significantly, however, none of the concurring justices in-
dicated any intention of going further in allowing the
defense than did the Ninth Circuit Court of Appeals in
Javelin.
ITA was not an instigator or even a participant in
Western’s antitrust conspiracy. The defendant does not
contend otherwise. Indeed, Western’s strongest assertion
is that ITA provoked the conspiracy by engaging in con-
duct equally as reprehensible as the conduct of Western
itself. This is not enough to constitute a valid defense to
an antitrust action. Western’s proper course of conduct
would appear to have been the instigation of a separate
lawsuit, the assertion of a counterclaim, the filing of a com-
plaint with the Civil Aeronautics Board, or simply the
publication of a truthful counter advertisement.
In any event, it is clear that the conduct of the plaintiff
here does not fit within the narrow scope of the Perma Life
exception. The im pari delicto defense, therefore, is un-
available to Western.
C. Causation and Damages
The defendant’s final contention is that the plaintiff has
failed to prove that it suffered any injury as a result of
the alleged antitrust violations. The evidence shows, how-
ever, and this court has found, that Western’s unlawful
conduct did, indeed, cause significant ascertainable dam-
ages to ITA.
The defendant’s unlawful course of conduct was mani-
fested primarily by two actions: (1) the publication in
conjunction with BBD&O of false, misleading, and decep-
tive advertisements concerning TGCs and (2) the issuance
of veiled threats to the Minnesota State Automobile Asso-
ciation (MSAA) for the purpose of keeping MSAA from
participating in the operation of TGCs with ITA. Under-
lying the effectiveness of Western’s course of conduct was
13e
its position of monopoly power in both the Twin Cities/Las
Vegas and the Twin Cities/Hawaii air travel market.
The facts reveal that Western viewed the advent of
TGCs with trepidation, for TGCs posed a significant com-
petitive threat not only to its established monopoly posi-
tions, but also to its competitive positions in other markets.
When a similar threat had presented itself in the form of
TGCs from the west coast to Hawaii, it successfully exe-
cuted an advertising campaign similar to the one in Min-
nesota in several cities in California.
As early as January of 1973, ITA commenced discus-
sions with MSAA concerning the implementation of a
greatly expanded TGC program in the Twin Cities. By
April, Western’s Minneapolis personnel had been instruct-
ed to closely monitor TGC activity in the Twin Cities. On
April 25, 1973, Western’s vice president for passenger
sales wrote to Mainline Travel, a Minneapolis travel agen-
cy, to dissuade it from participating in TGCs. On August
14, Western’s regional director for this area recommended
that advertisements such as the west coast ad be published
and that letters discouraging TGC participation be sent to
travel agents as a response to the “serious competitive
situation.”
On September 16, 1973, the deceptive advertisement pre-
pared by BBD&O was published by Western in various
Minnesota newspapers. A copy of the ad was sent to
various travel agents three days beforehand accompanied
by a letter discouraging participation in TGCs.
Following the appearance of the ad, TGC requests fell
off significantly for both Mainline Travel and Travel Cen-
ter, two Twin Cities agencies perticipating in TGC pro-
grams. Although MSAA’s TGC requests increased slightly,
this may be attributable to a normal delay in response to
ITA’s advertisements of its TGC program. The overall
effect of the ad and the letter, however, is clear: Travel
Center was forced to promote group travel through com-
panies and organizations as it had done before TGCs came
into existence in order to fill the flights it had booked, in
effect, converting its TGC flights to split-charter flights ;
14e
Mainline Travel experienced a significant decrease in re-
quests from travel agents for blocks of seats on its TGCs;
and MSAA officials feared that Western’s anti-TGC cam-
paign would have a negative impact on public interest in
its TGCs.
To express their concern, MSAA officials called a meet-
ing with Western representatives. The meeting took place
on September 25, 1974. Pursuant to instructions of their
superiors, however, Western’s representatives refused to
discuss the ad with MSAA officials. Instead, veiled threats
were issued to the effect that MSAA’s preferential treat-
ment on Western’s Group 60 flights would be jeopardized
if it continued to participate with ITA in the operation of
TGCs.
The combination of this threat and the fear of decreased
public interest in TGCs caused by Western’s ad prompted
MSAA to cease its participation in the joint ITA/MSAA
TGC program. ITA was unable to market TGCs without
the assistance of MSAA; therefore, plans for their joint
1974 TGC program had to be cancelled.
For convenience of discussion, the TGC program may
be divided into four categories: (1) the four charters to
Mexico; (2) the agreed-upon four charters to Hawaii; (3)
the
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