Petition for Writ of Certiorari — Anolik v. Philippine Airlines, Inc., 124 S. Ct. 66 (2003) (No. 02-1653)

“ Supreme Court, U.S.

(1) FILED

No. Q2 16538 MAY 9- 2003

OFFICE OF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

ALEXANDER ANOLIK

and

ANTHONY J. PALIK,

Petitioners,

V.

PHILIPPINE AIRLINES INCORPORATED

and

PACIFIC AIR LEISURE SERVICES

On Petition For Writ of Certiorari

To The United States Court of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

ALEXANDER ANOLIK, Pro Se ANTHONY J. PALIK, Pro Se

ALEXANDER ANOLIK, P.C. ATTORNEY AT LAw

2107 VAN NESS AVE., STE. 200 1390-B BROADWAY, #143

SAN FRANCISCO, CA 94109 ~PLACERVILLE, CA 95667

(415) 673-3333 (916) 205-7112

FAX: (415) 673-3548 FAX: (916) 364-9393

+ acne Rss - sa -— ene een eS A

QUESTIONS PRESENTED FOR REVIEW

i

Did the appellate court so far depart from the accepted

and usual course of judicial proceedings, or sanction such

a departure by the trial court in this case, thereby

warranting an exercise of this Court's supervisory power

to correct significant and harmful procedural errors made

by the trial and appellate courts, where the appellate court

failed to state what standards were used by them to affirm

the trial court’s award of sanctions, and the trial court

failed state how she applied the rules stated by her in her

order granting sanctions?

II.

Did the appellate court so far depart from the accepted

and usual course of judicial proceedings, or sanction such

a departure by the trial court in this case, thereby

warranting an exercise of this Court’s supervisory power,

where the appellate court failed to correct a significant and

harmful procedural error committed by the trial court

when she used a subjective standard to determine the

existence of an improper purpose warranting sanctions

and impermissibly weighed and deterrnined the validity

of certain facts alleged in the complaint?

III.

Should this Court exercise their supervisory powers and

remand this case to the district court in order to correct a

significant and material error that may exist in the record?

IV. i

Were the Petitioners denied due process because the

district court failed to hold a separate hearing on the

defendants’ Motion for Sanctions?

PARTIES TO THE PROCEEDING

Pursuant to Supreme Court Ruie 14.1(b), the caption of the

case on this Petition states the names of all parties hereto.

il

TABLE OF CONTENTS

| Page

QUESTIONS PRESENTED FOR REVIEW oeeeeccccsccssssescossese i

PARTIES TO THE PROCEEDING ......-ssecssseesssseccssecsssecoseees ii

TABLE OF AUTHORITIES .........cc..ccoesssesscseessovessseesoseesooseso Vv

CITATIONS TO OPINIONS AND ORDERS ...ecceccccsecsseece 1

BASIS FOR JURISDICTION .........ssossccossscvssscncsssveessscososssossses 1

CONSTITUTIONAL PROVISIONS, TREATIES,

=e 1

STATEMENT OF THE CASE........ssssecsssescssessssssssseccsscccssecce 1

TSE Se ve aa 3

I. PETITIONERS REQUEST THAT THIS COURT EXERCISE

THEIR SUPERVISORY POWERS TO CORRECT SIGNIFICANT AND -~

HARMFUL PROCEDURAL ERRORS MADE BY THE TRIAL AND

APPELLATE COURTS, WHERE THE APPELLATE COURT FAILED

TO STATE WHAT STANDARDS WERE USED BY THEM TO AFFIRM

THE TRIAL COURT'S AWARD OF SANCTIONS, AND THE TRIAL

COURT FAILED STATE HOW SHE APPLIED THE RULES STATED BY

HER IN HER ORDER GRANTING SANCTIONS. WITHOUT THIS

INFORMATION, IT IS NOT POSSIBLE FOR THE PETITIONERS TO

DETERMINE THE CORRECTNESS OF THE TRIAL OR APPELLATE

COURTS’ DECISIONS OR HOW THEY MAY AVOID SANCTIONS IN

THE FUTURE. AS SUCH, THE PETITIONERS ARE WITHOUT

NOTICE OF THE REASONS FOR THEIR ALLEGED VIOLATION OF

id eA Nt Seicccecibsitsticancelsecsiehenicciddavessiiindossabicvin unin 3

II. PETITIONERS REQUEST THAT THIS COURT EXERCISE

THEIR SUPFPVISORY POWERS WHERE THE APPELLATE COURT

FAILED TO) CORRECT A_ SIGNIFICANT AND HARMFUL

PROCEDURAL ERROR COMMITTED BY THE TRIAL COURT WHEN

SHE USED A SUBJECTIVE STANDARD TO DETERMINE THE

EXISTENCE OF AN IMPROPER PURPOSE WARRANTING

SANCTIONS AND IMPERMISSIBLY WEIGHED AND DETERMINED

THE VALIDITY OF CERTAIN FACTS ALLEGED IN THE

ST isin calbihidentccswisneisicsnsssncsnssickeosovesntviennsheinsssieeencsosniveses 5

II. THIS COURT SHOULD EXERCISE THEIR SUPERVISORY

POWERS AND REMAND THIS CASE TO THE TRIAL COURT FOR

FURTHER PROCEEDINGS, WHERE SUCH PROCEEDINGS ARE

ill

NECESSARY TO CORRECT A POSSIBLE SIGNIFICANT AND

IV. THE PETITIONERS WERE DENIED DUE PROCESS BECAUSE

THE DISTRICT COURT FAILED TO HOLD A SEPARATE HEARING

ON THE DEFENDANTS’ MOTION FOR SANCTIONG................. 28

SANIT cilascbiccllcsiciitucsisccteodtas tcc Me tia Bh odds 1's 29

Ce iv iiticahebesiitches tnseiniahedae tae Ree a oe Tie ae A-1

iV

TABLE OF CITED AUTHORITIES

Page

CASES

Associated Indemnity Corp. v. Fairchild Industries Inc.,

DOE F208 SD, SE (20 Cie BOGDY sc ccsecesvinssssstnoccsvesseichaca.... 25

Bernheim v. Litt, 79 F.3d 318 (2d Cir. a Ce 6

Corporation, 485 U.S. 717, 108 S.Ct. 1515, 99 L. Ed. 2d

sdatath ass ne TD An Teed Te 10

2247, 2457, 110 L.Ed.2°4 359 (1990). .0.....cecccsseee. 4,19, 25, 27

Donaldson v. Clark, 819 F.2d 1551 (12 Cir. 1967)............. 29

Eastway Constr., 762 F.2°4 at 254.000...cccccsssesssssscscssscescosessees 25

a ae Mt NORTE INE See Ree 23, 24

Eisenberg v. University of New Mexico, 936 F.2d 1131 (10t%

nag eT a AE RENAE ORE TREND eS AN 29

Liberty Lincoln-Mercury v. Ford Motor Co., 134 F.3"4 557,

PP GOR Ae ME sisi cidacanteceedariccn ccs cua

Loyd v. Schlag, 884 F.2d 409, 413 (1989) 0... occccccsssccccsssseseoee 4

Markwell v. County of Bexar, 878 F.2d 899 (St Cir. 1989) 29

Montrose Chem. Corp. of Calif. v. American Motorists Ins.

Co., 117 F.3"4 1128, 1133 CF OI Piscicsstctemcnisssovngs 14,19

Motown Prods., Inc. v. Cacomm, Inc., 849 F.2nd 781, 785

(28 Cit 19GB) ..ncicLacscrccscovns suscincinnianicecninnisnedisbiianiniinitiiadanaaainatiian 25

Official Publications, Inc. v. Kable News Co., 884 F.2d 664,

iad aah = At , EEA NEN iincpaithanaianuaaieceies 18

Oliveri v. Thompson, 803 F.2"4 1265, 1275 (2"4 Cir.1986),

cert. denied, 480 U.S. 918 SEIT Botibisdibsieiteeiupn ete ae 25

Operating Engineers Pension Trust v. A-C Company, 859

Be EE, Te rm Care aetna setisnnsnnsdansecennserornenstanneonion 26

Pan-Pacific and Low Ball Cable Television Co. v. Pacific

Union Co., 987 F.2d 594 (9th Cir. 1993) ......ceccseecssescseessees 29

In re Philippine Airlines, 98-32705 TC ........... 20, 65, 144, 157

Sig Try [sic] Sig, Inc., et al. v. Philippine Airlines, Inc., et

al., 2003 WL 77213 (9% Cir. 2003, unpub.), 00... 1

Sig Tyr Sig, Inc., et al. v. Philippine Airlines, Inc., et al., No.

0, FEI GUY ssiscinscrennnnidihiveniebersiaseoeceinabbncsmiaieniiiinte passim

Teamster’s Local No. 579 v. B & M Transit, Inc., 882 F.2d

SFE (FOES, FI evicsntiniesrmnainsicnnpncivenianionseesilannatsnhipdiesiiytn 29

Townsend v. Holman Consulting Company, (9t* Cir. 1990)

FUG Fick 5 ee ee ikiiincnceinnibunniaidniiiiodiadetamAbaiasel passim

U.S. Ex Rel. Robinson Rancheria v. Borneo, Inc., 971 F.2n4

CO an Bap vsniccnnsssnninivinsieasanndvnciialiesehlahaaminiennibabinaidanein 15

United National Insurance Company v. R&D Latex

Corporation, 242 F.34 1102, 1115 (9t Cir. 2001) ............. 25

Zaldivar v. City of Los Angeles, 780 F.2d 823, 829 (9th

Ce BRIE) | «enveusicesaninpnsinientesenesnvhateinedasbaindneeianohinnaeiaaiiiiie 7,a0

RULES

Federal Rule of Civil Procedure, Rule 11(c)(3)...........sceseee 4

Senpetns Coch Ta BG anes recicassinsecicvnesicihagucmnesiouaiirentiaa 29

Sespopenenns © rotate TNE BGT ws scsecesinssosiseiniceeatvorstcincinmmnanaselictanain ii

Vi

CITATIONS TO OPINIONS AND ORDERS

Sag Try [sic] Sag, Inc., et al. v. Philippine Airlines, Inc.,

et al., 2003 WL 77213 (9 Cir. 2003, unpub.), affirming the

order of sanctions imposed on June 5, 2001, by the United

States District Court for the Northern District of California,

J. Claudia Wilken presiding, in the case of Sig Tyr Sig, Inc.,

et al. v. Philippine Airlines, Inc., et al., No. C 00-03683 CW.

BASIS FOR JURISDICTION

The Petitioners, Alexander Anolik, Esq., and Anthony

J. Palik, Esq., seek review by this Court of a judgment of

the United States Court of Appeals for the Ninth Circuit,

entered by them on January 9, 2003. Panel rehearing was

denied by the appellate court on February 11, 2003. This -

Petition is brought pursuant to Section 1254(1) of Title 28

of the United States Code.

CONSTITUTIONAL PROVISIONS, TREATIES, STATUTES, ETC.

Federal Rules of Civil Procedure, Rule 11 - See Appendix,

pp. A-166 through A-168. ,

Federal Rules of Civil Procedure, Rule 12 - See Appendix,

pp. A-169 through A-172.

STATEMENT OF THE CASE

For reasons unrelated to this case, Philippine Airlines

"was operating in receivership in the bankruptcy system in

the Republic of the Philippines since 1998. Ancillary to that

foreign bankruptcy, Philippine Airlines sought the

protection of the United States Bankruptcy Court for the

Northern District in 1998 under case no. 98-32705-TC.

While Philippine Airlines remained under the control of

the Bankruptcy Court, the Plaintiff in the underlying

lawsuit, Sig Tyr Sig, Inc., d.b.a. Sextant Travel Services, saw

the need for civil redress from Philippine Airlines. To that

end, Sextant Travel obtained an order from the bankruptcy

court allowing Sextant to sue Philippine Airlines in the

Northern District Court. This order, filed on October 5,

2000, permitted Sextant to sue Philippine Airlines within

I

certain limitations. (Appendix [“App.”] 7-16)

In accordance with the bankruptcy court order of

October 5, 2000, Sextant Travel filed a verified complaint

against Philippine Airlines and another travel agency on

October 5, 2000 in the Northern District under case CV-00-

03683-CW. This complaint was brought under the grant of

“federal question” jurisdiction provided by 28 U.S.C. §

1331, and alleged seven causes of action: Sherman Act,

Robinson-Patman Act, California’s Cartwright Act, California

unfair trade practices, RICO, intentional interference with

economic relations, interference with prospective

economic relations, and demanding injunctive and

declaratory relief. Any state-based causes of action were

brought where they formed part of the same “case or

controversy” under Article III of the United States

Constitution. (App. 17-30)

Philippine Airlines responded to the complaint with a

motion to dismiss under F.R.Civ.P. Rule 12 (b)(6). After a

hearing on the motion (App. 31-56), the District Court

granted Philippine Airlines’ Rule 12 motion by dismissing

the complaint with leave to amend in a written order on

February 2, 2001. (App. 57-70)

Sextant Travel responded by filing a first amended

verified complaint on February 12, 2001. This revised

complaint alleged six causes of action. The Plaintiff

eliminated the permanently dismissed Robinson-Patman

Act claim and added significant substantive revisions to

the original claims pursuant to the court's order of

dismissal with leave to amend. (App. 71-94) |

Philippine Airlines again responded with a motion to

dismiss under Rule 12 (b)(6). Considering arguments from

all parties (App. 95-135), the District Court again granted

the Rule 12 application by dismissing the first amended

complaint. This time, however, the Court refused to grant

leave to amend in its order of June 5, 2001. (App. 136-146)

In conjunction with its second Rule 12 application,

Philippine Airlines also applied for sanctions under Rule

11. In an order also dated June 5, 2001, the District Court

2

- granted the Rule 11 application. (App. 147-154)

In a Judgment of Dismissal (App. 159-163) and Order

Awarding Sanctions (App. 155-158), both filed on August

21, 2001, the District Court assessed sanctions totaling

$60,000 against the Plaintiff and its Counsel. The court

apportioned that amount with $40,000 going against the

Plaintiff, Sextant Travel. The court split the remaining

$20,0000 between the Attorney for the Plaintiff, Alexander

Anolik, and his assisting attorney, Anthony Palik.

From that Rule 11 award, Attorneys Anolik and Palik

appealed to the United States Court of Appeals for the

Ninth Circuit. They filed a timely Notice of Appeal on 18

September 2001, pursuant to 28 U.S.C. § 1291. (App. 164-

165)

On January 9, 2003, the appellate court affirmed the

District Court’s award of sanctions. (App. 3-5) On

February 11, 2003, the appellate court denied the

appellant’s Petition for Rehearing (App. 6), and _ this

Petition for Writ of Certiorari was filed therefrom.

ARGUMENT

I. PETITIONERS REQUEST THAT THIS COURT EXERCISE

THEIR SUPERVISORY POWERS TO CORRECT SIGNIFICANT

AND HARMFUL PROCEDURAL ERRORS MADE BY THE TRIAL

AND APPELLATE COURTS, WHERE THE APPELLATE COURT

FAILED TO STATE WHAT STANDARDS WERE USED BY THEM

TO AFFIRM THE TRIAL COURT’S AWARD OF SANCTIONS,

AND THE TRIAL COURT FAILED STATE HOW SHE APPLIED

THE RULES STATED BY HER IN HER ORDER GRANTING

SANCTIONS. WITHOUT THIS INFORMATION, IT IS NOT

POSSIBLE FOR THE PETITIONERS TO DETERMINE THE

CORRECTNESS OF THE TRIAL OR APPELLATE COURTS’

DECISIONS OR HOW THEY MAY AVOID SANCTIONS IN THE

FUTURE. AS SUCH, THE PETITIONERS ARE WITHOUT NOTICE

OF THE REASONS FOR THEIR ALLEGED VIOLATION OF RULE

11.

~ “When imposing sanctions, the court shall describe the

conduct determined to constitute a violation of this rule

and explain the basis for the sanction imposed.” F.R.Civ.P.

3

Rule 11 (c)(3) [underlining added]. Moreover, when

monetary sanctions are imposed, they must be

"quantifiable with some precision." Loyd v. Schlag, (1989)

884 F.2d 409, 413 [underlining added].

In reviewing Rule 11 sanctions, this Court has stated

they will review findings of historical fact under the

clearly erroneous standard, the determination that counsel

violated Rule 11 under a de novo standard, and the choice

of sanction under an abuse of discretion standard. Cooter

& Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2247,

2457, 110 L.Ed.2r4 359 (1990).

According to the aforementioned rules, an explanation

of the sanctions award which is more than conclusory is

required for meaningful appellate review. In addition,

because a Rule 11 sanctions award is reviewable for abuse

of discretion, the award must disclose how it was

computed. As noted by the Ninth Circuit, "we must know

to what we defer." Townsend v. Holman Consulting

Company, (9* Cir. 1990) 914 F.2d 1136, 1144. The

explanation must correspond to the amount, type and

effect of the sanction: "Like a sliding scale, the degree and

extent to which a specific explanation must be contained in

the record will vary accordingly with the particular

circumstances of the case, including the severity of the

violation, the significance of the sanctions, and the effect of

the award." Thomas v. Capital Security Service, Inc., 836

F.2d 866, 882 (5th Cir., 1998); In re Yagman, 79 F.2d 1165,

1184 (9% Cir., 1986).

In their memorandum opinion (App. 3-5), the appellate

court simply stated their conclusions as identical to those

arrived at by the trial court (App. 147-152), which were

wholly conclusory. In her orders of dismissal and

granting sanctions, the trial court may have stated the

rules on which she relied for each, but an order of

dismissal and an award of sanctions are not decided using

identical standards, and she does not adequately explain

her application of the sanction rules; she merely states her

conclusions as those are based on her reasoning in the

4

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AO ME RS AE DAVID i Te hl 6 Ae ei

dismissal order. Furthermore, in the appellate court

opinion, there was no statement as to the standard of

review applied to justify those conclusions.

Both the trial and appellate courts summarily based

their decisions on (1) the alleged violation of the order of

the bankruptcy court, and (2) the alleged frivolous nature

of the complaint. For reasons which are argued later in

this Petition, the Petitioners made every effort to comply

with both the bankruptcy court's order permitting them to

sue the defendants, as well as with the district court's first

order of dismissal with leave to amend their complaint.

Both the decisions of the trial court and the appellate court

are conclusory and do not provide the Petitioners with

notice of how they transgressed.

II. PETITIONERS REQUEST THAT THIS COURT EXERCISE

THEIR SUPERVISORY POWERS WHERE THE APPELLATE COURT

FAILED TO CORRECT A _ SIGNIFICANT AND HARMFUL

PROCEDURAL ERROR COMMITTED BY THE TRIAL COURT

WHEN SHE USED A SUBJECTIVE STANDARD TO DETERMINE

THE EXISTENCE OF AN IMPROPER PURPOSE WARRANTING

SANCTIONS AND _ IMPERMISSIBLY WEIGHED AND

DETERMINED THE VALIDITY OF CERTAIN FACTS ALLEGED IN

THE COMPLAINT.

In order for Rule 11 sanctions to be found, the

complaint must be filed for an improper purpose, such as

harassment, delay, or unnecessary expense; it must be filed

without any non-frivolous argument for the extension,

modification, or reversal of existing law or the

establishment of new law; or it must be filed without

evidentiary support. F.R.Civ.P. 11(b). Although the trial

court stated “reasons” for a finding of sanctions in her

order of June 5, 2001, those statements are merely

conclusions and do not explain the rationale by which the

rules on which she relied were applied. (App. 147-154)

Furthermore, when considering the “frivolousness” of

a cause of action, if the cause of action can be sustained, it

clearly could not be frivolous. Therefore, although

dismissal does not by itself warrant sanctions (an error

5

apparently made by the trial court), an application of the

standard for dismissal under F.R.Civ.P. Rule 12 (b)(6)

demonstrates that the causes of action stated by the

Plaintiff were sound, or at least not worthy of sanctions.

The rule for dismissal under Rule 12 (b)(6) has been

stated by many courts, and _ their holdings can be

summarized as follows: A complaint should not be

dismissed for failure to state a claim unless it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief

(Ledbetter_v. City of Topeka, 318 F.3d 1183 (10% Cir.,

2003)); recovery may appear remote and unlikely on the

face of a pleading, but that is not the test for dismissal for

failure to state a claim (Bernheim v. Litt, 79 F.3d 318 (2d

Cir., 1996)); all of the plaintiff's factual allegations are

deemed true and any ambiguities must be resolved in the

plaintiff's favor. Carter by Carter v. Cornwell, 983 F.2d 52

(6% Cir., 1993), rehearing denied.

A. The trial court does not adequately explain

how she arrived at her conclusion that the causes of

action alleged by the Petitioners were worthy of

sanctions.

A court may impose Rule 11 sanctions on the signer of

a paper "if either (a) the paper is filed for an improper

Purpose, or (b) the paper is '‘frivolous.'" Townsend v.

Holman Consulting Corp., 929 F.2nd 1358, 1362 (9th

Cir.1991) (en banc). A paper reaches "frivolous" status if it

is "both baseless and made without a reasonable and

competent inquiry." Id.; Buster v. Greisen, 104 F.3r4 1186,

1190 (9% Cir. 1997).

The baseless or frivolous moniker holds if a competent

attorney could not form a reasonable belief that a claim is

warranted by existing law or a good faith argument for

extension, modification or reversal of existing law. Rule 11

(b)(2); Golden Eagle Distributing Corp. v. Burroughs

Corp., 801 F.2"4 1531, 1538 (9t Cir. 1986). Courts look at

both the "baseless" and "reasonable inquiry"

determinations with an objective standard of

6

Psa aN aa Aton nit Sea ne TTR Ran a ant Fed

"reasonableness under the circumstances". See In re:

Keegan Mgmt. Co., Securities Litigation, 78 F.3"4 431, 434

(9% Cir.1995), confirming Townsend's “objective-objective”

approach.

Either the improper purpose or frivolous ground

suffices to sustain a sanction!. However, if a district court

cites both grounds, the reviewing court must consider both

on appeal because whether the subject paper is only

frivolous or both harassing and frivolous could affect the

nature of the sanction or the amount awarded as a result.

Townsend v. Holman, supra, 929 F.2"4 at 1362; Hudson v.

Moore Business Forms, 836 F.24 1156, 1163-4 (9t Cir.1987).

Furthermore, a determination of improper purpose

must be supported by a determination of frivolousness

when a complaint is at issue. Townsend, supra, at 1362.

Although the "improper purpose" and

"frivolousness" inquiries are separate and distinct, —

they will often overlap since evidence bearing on

frivolousness or non-frivolousness will often be

highly probative of purpose.

The standard governing both inquiries is

objective. [Zaldivar v. City of Los Angeles, 780 F.2d

823, 829 (9th Cir.1986)] With regard to complaints

which initiate actions, we have held that such

complaints are not filed for an improper purpose if they

are non-frivolous. Id. at 832. Since subjective

evidence of the signer's purpose is to be

disregarded, id. at 829, the "improper purpose"

inquiry subsumes the "frivolousness" inquiry in

this class of cases. The reason for the rule regarding

complaints is that the complaint is, of course, the

document which embodies the plaintiff's cause of

action and it is the vehicle through which he

enforces his substantive legal rights. Enforcement

of those rights benefits not only individual

plaintiffs but may benefit the public, since the

' Rule 11(b)(1) and (2), respectively.

/

bringing of meritorious lawsuits by private

individuals is one way that public policies are

advanced. As we recognized in Zaldivar, it would

be counterproductive to use Rule 11 to penalize the

assertion of non-frivolous substantive claims, even

when the motives for asserting those claims are not

entirely pure. Id. at 834. [Italics added.]

The absence of a rationale by the district court for

reaching her conclusions is highly significant because the

only time the district court inquires into the facts

surrounding the Motion for Sanctions at the hearing on

April 27, 2001, as opposed to those issues surrounding the

sufficiency of the Complaint, is when she asked who was

ultimately responsible for the case and about the identity

of the contract attorney, Mr. Palik (App. 114). Although

the Motion for Sanctions was mentioned in passing, no

further inquiry was made as to the facts that would

specifically relate to an application of Rule 11.

In addition to the lack of inquiry into the facts

surrounding the Motion for Sanctions at the hearing on the

defendants’ second Motion to Dismiss, the plaintiff's

counsel had assiduously amended the first complaint in

order to bring it into strict compliance with terms of the

district court's first order of dismissal on February 2, 2001.

Without a rationale to explain her conclusions, it is

impossible for the Petitioners to understand their error. In

this regard, the district court found subsection (2) of Rule

11 violated

[blecause Plaintiffs’ claims in the [amended

complaint] are dismissed under Rule 12 (b)(6) for

the same reasons they were dismissed in the

original complaint, ... . The order dismissing the

original complaint detailed the specific defects of

the original complaint. ... [T]he Court warned

Plaintiffs that if they filed an amended complaint

that was subject to the same infirmities as the

original complaint, the Court would consider

sanctions for unnecessarily and _ vexatiously

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continuing the proceedings. Despite this explicit

warning, Plaintiffs have done just that. ...”. (Id. at

pp-6-7)

Was the court fair in its assessment of the amended

complaint? The court invited the plaintiff to amend their

original complaint, with the implied promise that, by

adding sufficient factual allegations that could be honestly

pleaded according to her specifications, the trial court

would find the amended complaint facially sufficient, all

the while threatening the punishment of sanctions for a

failure to do so. To answer the question of the fairness of

the sanctions award under these circumstances, we must

look at the subject amended complaint in light of the

court's criticisms of the original complaint. Then we must

consider what the plaintiff offered the court at the hearing

on the motion to dismiss.

1. Complaint Comparison

In regard to the causes of action pleaded, the amended

complaint contained the same causes of action as the

original, except for the original complaint’s Robinson-

Patman Act claim. z

SHERMAN/CARTWRIGHT

Claims one and two of the amended complaint are for

alleged violations of the Sherman Antitrust Act and

California’s Cartwright Act, a state claim similar in intent

and operation to the federal Sherman Act. Because of their

similarities, the district court dismissed the two claims in

the original complaint for essentially the same reasons.

In her order dismissing the original complaint, the

district court found the original complaint did not allege

facts sufficient to show any anti-competitiveness or impact

on inter-brand competition. In so doing, she posited that

no restraint on trade was alleged because Philippine

Airlines did not compete with Sextant Travel. Since the

Plaintiff claimed at the hearing the ability to show that

Philippine Airlines acted as an agent of its co-defendant

and other “horizontal” competitors in squeezing the

plaintiff out of the market, the Court granted leave to

9

amend.

The amended complaint corrected the original’s

defects by stating in detail how Philippine Airlines

conspired with its co-defendant and other horizontal

competitors to eliminate Sextant from the market and fix

prices. The Plaintiff recited those facts in considerable

detail in the Sherman Act claim and incorporated them into

the Cartwright Act claim. It was the Petitioners’ ultimate

concern with this Court’s decision in Business Electronics

Corporation _v. Sharp Electronics Corporation, 485 U.S.

717, 108 S.Ct. 1515, 99 L. Ed. 2d 808 (1988) that caused

them to dismiss their antitrust causes of action, but only

out of an abundance of caution. Petitioners still believe

that, given the chance, they could have proved the facts

necessary to state those causes of action, and they were

prepared to later amend their complaint to restate those

causes of action when the necessary facts had been

discovered.

More specifically, in the Business Electronics case, this

Court held that a vertical restraint of trade is not per se

illegal under section one of the Sherman Act unless it

includes some agreement on minimum price levels, and

that, without such an agreement, a per se restraint on trade

would not occur when terminating a dealer because of

price cutting. However, in paragraph 14, subsection E. of

their First Amended Complaint, the plaintiffs did allege

that the defendants agreed, “sometime on or about May of

2000, that the [horizontal competitors] should be required

to increase the minimum price at which they sell

[Philippine Airline’s] tickets,” thereby satisfying the

requirements of the Business Electronics case.? ft was only

after amending the complaint that the Petitioners obtained

information that put proof of the price-fixing scheme into

? In particular, the plaintiff was arguing that the facts alleged were

sufficient to state a cause of action under the Sherman Act and that

vertical price restraints would reduce inter-brand competition by

facilitating the process of “cartelizing.”

10

Mi tai cts ora

some doubt, causing them to dismiss the antitrust causes

of action out of an abundance of caution. Despite this

concern (and the dismissal of the antitrust causes of

action), the complaint always alleged facts necessary to

find that it was objectively sufficient and reasonably

pleaded under the circumstances. There was never any

indication by the Petitioners, either in the complaint or at

the hearings, that they had not pleaded facts sufficient to

state a non-frivolous cause of action on the antitrust

claims. The trial court judge was never entitled to make a

determination using a subjective standard as to whether

she believed the facts alleged were true. The facts pleaded

were sufficient on their face. Certainly, this cause of action

should have survived both the motion to dismiss and the

motion for sanctions.

UNFAIR PRACTICES

The plaintiff's original complaint’s California law claim

for unfair trade practices met with the court's disapproval

because the court saw no competition between Philippine

Airlines and the plaintiff and no competitive injury. (ER6,

p.¥2) The court invited amendment if such a claim could

be made.

The Plaintiff amended the claim with significant

allegations of market division, price cutting, illegal rebates,

threats and conspiracy involving Philippine Airlines and

the other horizontal competitors sufficient to state a non-

frivolous cause of action. The trial court judge was never

entitled to make a determination as to whether she

believed the facts alleged were true. The facts pleaded

were sufficient on their face. Certainly, this cause of action

should have survived both the motion to dismiss and the

motion for sanctions.

RICO

The district court dismissed the original RICO claim.

noting that the plaintiff's allegation of extortion had no

showing of property loss as support. The court invited

amendment if the plaintiff could show a valid predicate

act. (App. 66-67) The amended version described how

11

Philippine Airlines illegally seized a $100,000 security

account belonging to the plaintiff. Because that security

was seized in consummation of a threat to retaliate against

the plaintiff's lawful exercise of their legal rights, and

because this threat was made as part of a pattern of

racketeering by the defendants (as alleged in the amended

complaint), the complaint stated facts sufficient and

reasonable under the circumstances to allege a cause of

action under RICO.

Furthermore, at the April 27, 2001 hearing, Mr. Anolik

described how the Airline used its distributors to insulate

it from any charges of issuing rebates in violation of the

tariff required by 49 U.S.C. §§ 41510 and 46309. The judge

agreed that, if Mr. Anolik’s explanation were true, it could

form the basis for a complaint against Philippine Airlines.

However, inexplicably, she stated, “it certainly has nothing

to do with the claim that’s before us at this moment”.

(App. 105-106) The trial court judge was never entitled to

make a determination as to whether she believed the facts

alleged were true. The facts pleaded were sufficient on

their face. Certainly, this cause of action should have

survived both the motion to dismiss and the motion for

sanctions.

CONTRACT INTERFERENCE

The plaintiff's common claim for interference with

contractual relations found disfavor because the court

purportedly saw no valid contracts underlying the claim,

even though such contracts were alleged in the complaint.

If a valid contract could be pleaded, the court invited an

amendment. (App. 67)

The Petitioners remedied that problem by pleading

“numerous agreements” and “numerous contracts” to

supply the plaintiff's subcontractors with their

requirements for airline tickets. The amended complaint

also described how Philippine Airlines and the co-

defendant were intertwined _ through personal

relationships so as to create an agency relationship.

Through these relationships, Philippine Airlines became a

12

SS

de facto competitor of the Plaintiff. The co-defendant’s

: anticompetitive actions and contractual interference were

therefore those of Philippine Airlines. Furthermore, at the

April 27 hearing, counsel presented affidavits from

witnesses attesting to the existence of oral contracts with

the Plaintiff. The trial court judge was never entitled to

make _a_ determination _as_to whether she _ believed _a

contract actually existed. The facts pleaded were sufficient

and reasonable on their face. Certainly, this cause of

action should have survived both the motion to dismiss

and the motion for sanctions.

INTERFERENCE WITH PROSPECTIVE RELATIONS

In her dismissal of the original complaint, the district

court found that the plaintiff did not show any unsavory

conduct by Philippine Airlines in its termination of the

plaintiff's distributorship. If there was wrong conduct to

show, the Court invited the plaintiff to amend. (App. 67-

68)

To fix the problem, the plaintiff alleged that, because of

Philippine Airlines’ actions, they could not service their

customer base or form new customer relations. The trial

court judge was never entitled to make a determination as

to whether she believed the facts alleged were true. The

facts pleaded were reasonable and sufficient on their face.

Certainly, this cause of action should have survived both

the motion to dismiss and the motion for sanctions.

Alleging these facts should have been sufficient to state a

non-frivolous cause of action.

We do not care to argue that the plaintiff pleaded a

bullet-proof set of claims in this case. Regardless of the

quality of the pleadings, the claims show an honest effort

at making a case. The term of art we employ here is

“frivolous”. That term embraces both subsections (2) and

(3) of Rule 11 (b).

2. Application of the Frivolousness Standard

A paper is "frivolous" if it is "both baseless and made

without a reasonable and competent inquiry." Townsend

v. Holman Consulting Corp., supra, 929 F.2-4 at 1362;

13

Buster v. Greisen, supra, 104 F.3"4 at 1190 (9t Cir. 1997). An

assertion is baseless where it completely lacks a factual

foundation. Montrose Chem. Corp. of Calif. v. American

Motorists _Ins. Co., 117 F.3*4 1128, 1133 (9 Cir.1997)

Baseless also means a competent attorney could not form a

reasonable belief that it is warranted by existing law or a

good faith argument for extension, modification or

reversal of existing law. Golden Eagle Distributing Corp.

v. Burroughs Corp., supra, 801 F.2"4 at 1538. Both the

"baseless" and "reasonable inquiry" determinations are

governed by an objective standard of "reasonableness

under the circumstances." See In re Keegan Mgmt. Co.,

Securities Litigation, supra, 78 F.3"4 at 434 (9th Cir. 1995).

In essence, according to the trial court, the original

complaint failed because it lacked enough facts to meet the

legal standards for the claims it invoked. The district court

granted leave to amend all but one of the causes of action.

As the above discussion illustrates, the plaintiff added

considerable material to the amended claims sufficient to

support the causes of action on their face.

The plaintiff's acceptance of the judge’s invitation to

amend induced an honest effort. Even if the first two

claims were eventually voluntarily abandoned, we see a

serious enhancement of facts in the reasonable attempt to

show an antitrust problem. We see the same with the

unfair trade claim. The RICO claim spells out a loss that

only initially failed due to a timing element. Consequently,

counsel brought to the district court fresh evidence of a

predicate act to shore up a potentially good charge.

Counsel tried to cure the want of specificity of contract by

generally referring to numerous oral contracts in the

amended complaint and then bringing specific evidence of

those contracts to the hearing.

In deciding to sanction the plaintiff and counsel, the

Judge landed on the idea that the amended complaint

floundered for the same reasons as the original. (App. 149)

But arguments do not become frivolous just because a

court has heard them before. While the trial court's

14

—e Mey a NI Te EN Sot mamma :

conclusions remained the same, the amended complaint

did allege new and additional facts. In her orders for

dismissal and sanctions, the trial court decided she did not

believe the facts as pleaded, which was an improper

application of a subjective standard under Rule 12 (b)(6).

In U.S. Ex Rel. Robinson Rancheria v. Borneo, Inc., 971

F.2d 244 (9th Cir.1992), a district court imposed sa.actions

for the bringing of a motion to reconsider a dismissal. The

court had found the case to be “absolutely outrageous

[and] meritless”. However, although the claims in the

present case met all the necessary legal requirements to

sustain a cause of action,-the claims in Robinson were

legally tenable but ultimately did not meet all the

requirements of the underlying statute. However, as

happened in this case, the district court allowed the

plaintiff to amend. Applying a de novo review to overturn

the sanctions, the Ninth Circuit found the district court's

view of the law (which does not require a showing of

abuse of discretion) erroneous.

|W]e cannot overlook the fact that the distxict court

invited Robinson to file a motion to reconsider

when it first dismissed the claims. Although the

motion to reconsider preserited no new arguments,

Robinson's arguments did not become frivolous

merely because the district court had heard them

before. Id. at 254.

Like Robinson, the Plaintiff here presented much of the

same argument in the amended complaint but, unlike

Robinson, fortified _it with new factual material, as

specifically requested by the trial court. If one were to read

the sanction decision without an independent look at the

complaints, one would think from the court’s language

that the plaintiff simply regurgitated the exact same

allegations in the amended complaint as in the original. A

cursory examination of the two documents demonstrates

this is just not true, a fact reflecting poorly on the district

judge’s exercise of discretion.

Even if the amended complaint and some of the

15

arguments in support of it are arguably flawed, nothing in

Rule 11 requires winning lawyering in order to avoid

sanction.

[N]either Rule 11 nor any other rule imposes a

requirement that the lawyer, in addition to

advocating the cause of his client, step first into the

shoes of opposing counsel to find all potentially

contrary authority, and finally into the robes of the

judge to decide whether the authority is indeed

contrary or whether it is distinguishable. It is not in

the nature of our adversary system to require

lawyers to demonstrate to the court that they have

exhausted every theory, both for and against their

client. Nor does that requirement further the

interests of the court. It blurs the role of judge and

advocate.

Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2"4

153, 1542 (9t Cir. 1986).

Before leaving the subject of amended complaints, the

case of Stern v. Leucadia National Corp., 844 F.2"4 997 (2nd

Cir.1988), cert. den. 488 U.S. 852 deserves a look. In Stern,

a district court dismissed the original complaint but

granted leave to amend. Like our district court, the court

in Stern said the plaintiff could amend “if such re-pleading

can allege sufficient facts upon which the allegations rest”.

Id. at 1005.

The case involved fraud allegations. The amendment

allocation required that the plaintiff amend within the

restrictions of FRCP 9b), requiring fraud claimants to

plead so that “the circumstances constituting fraud or

mistake shall be stated with particularity. ...”.

Unlike our case, Stern’s amended complaint set forth

very little in the way of additional facts. Displeased with

the Rule 9(b) shortfall, the district court dismissed the

amended complaint for good and imposed sanctions. The

appellate court saw fit to reverse. The comments of the

opinion’s author could have been written for our case.

Looking at the district court’s determination in light of

16

the amended complaint, the Stern court declared- that,

“despite our agreement with the district court that the new

material was insufficient to satisfy Rule 9(b), we are unable

to conclude that it was patently clear that there was

absolutely no chance that the new material could cure the

defect. ... Plaintiff and his counsel did not reach the point

of clear abuse at which sanctions are appropriate. Id. at

1006. The Stern opinion stressed that “any and all doubts

must be resolved in favor of the signer.” Id. at 1005.

The Second Circuit made much of a point important to

our consideration. In our case, as in Stern, the district court

invited amendment with an eye toward factual

enhancements. The Stern plaintiff offered little, while our

plaintiff presented a significantly elaborated amended

complaint. The Stern Court observed:

[S]ince leave to replead was granted for purpose of

adding factual matter in an effort to comply with

[defects in original complaint], sanctions should

not have been granted simply because the

amended complaint was “repetitious”. Where a

party’s complaint has been dismissed for failure

adequately to set forth an element of his claim, and

he has been given leave to replead in an effort to

cure the deficiency, it is to be expected that the

amended complaint will repeat the other

allegations found in the original complaint. Indeed,

without repetition of many of the original

allegations, the amended complaint would fail to

state a claim even if the original defect were cured.

Id. at 1005.

The essence of the Stern case smells and tastes like the

essence of this case. A plaintiff and his counsel should not

be punished for pursuing claims through an amended

complaint if the amendment makes an honest effort to

meet the criticisms leveled at the original. “Where a party

is given leave to replead, the court should focus on

whether new allegations meet the standards of Rule 11.”

Official Publications, Inc. v. Kable News Co., 884 F.2d 664,

17

670 (24 Cir. 1989), citing Stern. Moreover, answering a

court's invitation to replead should not subject one to

punishment lest it be construed as a sort of judicial snare.

At the hearing on the amended complaint, counsel

presented the district court with new factual foundations

for the RICO and the contract-based claims. Counsel

offered plausible explanations for why these fresh facts

were only now coming to light. Another basis for the

RICO claim was only confirmed that morning. Reluctant

witnesses only recently agreed to make affidavits

concerning oral contract obligations with Sextant Travel.

Speaking to the affidavits supporting real contract

obligations, the judge merely groused that the contents of

these affidavits were not recited in the amended

complaint. (App. 112-113)

Addressing counsel’s point that Philippine Airlines

was violating federal regulatory law in its pricing, the

judge agreed that, if this explanation had merit, it could

form the basis for a complaint against Philippine Airlines.

The judge agreed it might well support a RICO charge, but

not the one described in the complaint. In this light, the

judge’s contention that the RICO claim was frivolous is

simply not understandable (Id.)

In In re: Keegan Management Co., Securities Litigation,

supra, 78 F.3*4 431, the sanctioned lawyers argued that the

district court erred by failing to consider after-acquired

evidence that supported their complaint. The Ninth Circuit

agreed. Although decided in the context of summary

judgment, the district court in Keegan acted very much

like the district court in this case. The Keegan court

acknowledged that "if, prior to filing the complaint,

Plaintiffs had in their possession the same information that

they offered in opposition to summary judgment, it would

have been sufficient to justify filing this lawsuit." Id. at

434.

The district judge in this case agreed that evidence of

tariff violations by Philippine Airlines might well support

a cause of action. While she did not expressly say as much

18

about the newly present contract evidence, she did

bemoan the fact that it was not recited in the complaint,

implying that it would make a difference.

The Keegan court ruled that “[t]he district court itself

conceded that plaintiff's pretrial evidence was enough to

render their complaint non-frivolous. Under these

circumstances, Rule 11 sanctions could not be properly

imposed.” Id. at 435

3. Reasonable Inquiry

An attorney may not be sanctioned for a complaint that

is not well-founded so long as the attorney conducts a

reasonable inquiry. Neither can the lawyer be sanctioned

for a well-founded complaint that did not have a

reasonable inquiry. Id. at 434. We have a combination of

these concepts in this case.

The RICO and contract-based claims fall into the latter

category because of the late-discovered evidentiary

support. The balance of the complaint is based on well-

grounded facts, even if it allegedly falls short on making a

viable legal claim.

In short, the plaintiff, through counsel, presented an

objectively honest complaint. But for the district court's

impatience and misconception of the rules of pleading and

sanction, at least two viable claims die and two lawyers

endure reputation and financial damage.

As a result, the district court's holding that the

complaints were frivolous was based on an erroneous

view of the law. Thus, the district court necessarily abused

its discretion in imposing sanctions against the plaintiff

and counsel for filing frivolous actions. See Cooter & Gell

v. Hartmarx Corp., supra, 496 U.S. at 405; Montrose

Chemical Corporation v. American Motorists Insurance

Company, supra, 117 F.3"4 at 1134.

Another indicia of the trial court’s abuse of discretion

was that no inquiry was made as to how the sanctions

were to be measured or apportioned. Although,

subsequent to the hearing, the trial court asked the

defendants for a bill of particulars regarding the amount of

19

attorney's fees charged as a starting point for the

measurement of sanctions (App. 156), and although the

amount pleaded in the bill of particulars was later

substantially reduced by the judge (Id.), it is entirely

unclear as to why counsel for the Plaintiffs were charged

with such a large proportion (i.e., 1/3) of the sanctions

award, or why each attorney (Mr. Anolik and Mr. Palik)

was awarded the same amount of sanctions. Certainly, the

amount each attorney earned for working on the case

should have been some measure of the proportionality of

the sanctions awarded, but this inquiry was never made.

What if the sanctions awarded represented only 20% of the

fees earned by one attorney, but 100% of the income paid

to the other? Certainly such an arbitrary assessment of

each attorney’s liability is not justified in any of the trial

court's findings of fact.

B. The trial court does not adequately explain

how the complaint was filed for an improper purpose

due to a supposed violation of the bankruptcy court’s

order.

To find an improper purpose behind the amended

complaint, the district court referred to the 1998

bankruptcy case of Philippine Airlines. The case of In re

Philippine Airlines, 98-32705 TC, was an Ancillary

Proceeding under 11 U.S.C. § 304 to the bankruptcy of

Philippine Airlines filed in its home country. As part of the

ancillary proceeding, the Northern District Bankruptcy

Court issued an injunction under 11 U.S.C. § 304 (b).3

(App. 10-16)

To file suit against Philippine Airlines, the plaintiff had

to deal with the bankruptcy court’s injunction. The

’ 11 U.S.C. § 304 (b): Subject to the provisions of subsection (c) of this

section, if a party in interest does not timely controvert the petition, or

after trial, the court may -

(1) enjoin the commencement or continuation of -

(A) any action against -

(i) a debtor with respect to property involved in such

foreign proceeding; ... _

20

aT re ee ee 5

eee Tee eee »

plaintiff successfully approached the bankruptcy court and

obtained limited permission to sue Philippine Airlines.

In its sanction order, the district court recited and

relied upon her interpretation of the limitations the

bankruptcy court placed on the plaintiff's s :it against

Philippine Airlines. (App. 150-151) However, when the

district court’s interpretation of those restrictions is

considered, it is difficult to see how the plaintiff could

have filed any lawsuit at all against Philippine Airlines,

thus obviating the bankruptcy court's order permitting

them to sue and rendering it meaningless. The district

court quoted the bankruptcy court's order in its sanctions

order as follows:

No actions shall be brought ...

ii. for the enforcement of the [plaintiff's

distributorship] agreement with Philippine

Airlines, unless otherwise permitted by this court.

(App. 8)

The district court’s sanctions order noted that the

bankruptcy court limited the plaintiff to only injunctive or

declaratory relief, i.e., no money damages. (Id.)

In the Plaintiff's pursuit of injunctive relief, the district

court supposedly found sanctionable conduct in what that

court deemed the plaintiff's prohibited and transparent

pursuit of enforcement of the distributorship agreement.

(App. 148) If the complaint filed by the plaintiff actually

attempted to enforce that agreement by seeking injunctive

or declaratory relief from the violation of its non-

contractual legal rights, it is completely unclear to the

Petitioners how any lawsuit at all could have been brought

against Philippine Airlines, rendering the bankruptcy

court’s order meaningless.

In the sanctions order, the district court stated that the

plaintiff provided no support of its claimed entitlement to

the benefits of distributorship status. The court felt that its

criticism of the plaintiff's claim should have been made

clear to the plaintiff in light of the court’s identical denials

of the plaintiff's TRO application and original complaint.

21

Because the previous denials supposedly provided ample

notice to the plaintiff of the district court’s problems with

the case, the court felt that sanctions under Rule 11 (b)(1)

were appropriate. (Id.)

The operative part of the bankruptcy court’s order

stated that the plaintiff could not sue for the enforcement

of its distributorship agreement with Philippine Airlines.

Furthermore, the plaintiff could only seek injunctive or

declaratory relief. The district court saw a violation of the

bankruptcy court limitation in the language of the

plaintiff's injunction request. In this regard, the sanctions

order observed that both the original and amended

complaints sought injunctive relief by asking for:

(a) Enjoining [Philippine Airlines] from denying

Plaintiffs’ access to Philippine Airlines tickets on

the same terms and conditions as_ [other

distributors] generally; ;

(b) Enjoining [Philippine Airlines] from price

discrimination in the sale of its tickets to Plaintiffs,

including payment of any commissions, rebates, or

other incentives normally paid to GSA’s generally

... (App. 151)

Although the plaintiff never sought enforcement of the

distributorship agreement, and in fact sought to enjoin

others from enforcing that agreement in order to “level the

playing field,” the district court viewed that request as a

“back door” attempt to enforce the distributorship

agreement that had previously expired in 1999. The district

court expressly tied the injunction request with the

supposed lack of factual support of the plaintiff's claim “to

the rights and benefits of [distributorship] status, [finding

that] seeking such relief specifically defies the bankruptcy

court’s order”. (Id.) In this finding the district court

claimed to have found the “improper purpose,” although,

as we have explained, the district court's belief in this

regard was unfounded since nothing in the complaint

sought damages or enforcement of that agreement, or any

other remedy that would have been violative of the

22

bankruptcy court order. This action sought to end

unlawful conduct, not enforce a pre-existing agreement.

The standard governing an improper purpose finding

is objective. Townsend v. Holman, supra, 929 F.2"4 at 1362.

A complaint initiating a suit, such as we see here, cannot be

viewed for an improper purpose if the basis for the

complaint itself is non-frivolous or, in other words, not in

violation of the second part of Rule 11. Zaldivar v. City of

Los Angeles, 780 F.2°4 823, 82 (9 Cir.1986); Townsend,

supra, at 1362.

The preceding portion of this brief showed how the

complaint did not warrant the “frivolous” label. Because

“the ‘improper purpose’ inquiry subsumes the

‘frivolousness’ inquiry ‘a this class of cases”, ie,

complaints, a finding of non-frivolousness ends the

inquiry into the propriety of purpose‘. Id. The non-

frivolous nature of the suit under review here negates the

declaration of improper purpose.

Even if the improper purpose idea were not subsumed

into the frivolousness consideration and thus negated, we

cannot objectively find an improper purpose based on the

court's reasoning. So even if the improper purpose finding

stood alone, that finding could not withstand this review.

We see an interesting parallel in the matter of

Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2nd

535 (3'4 Cir.1985). In that case the district court allowed a ~

substandard complaint to be amended in accordance with

an exhibit submitted by the plaintiff. The order allowing

amendment required the plaintiff to strike three

paragraphs of the original complaint. The plaintiff

4 ‘The district court's own comments demonstrate how the

improper purpose concept remains inextricably intertwined with the

frivolousness concept. The court observed in its improper purpose

analysis that the plaintiff provided no factual support of its claimed

entitlement to the benefits of distributor status. In other words, the

improper purpose finding included a Rule 11 (b)(3) finding of a want of

factual inquiry.

23

submitted an amended complaint that still included the

three prohibited paragraphs in a mistaken belief that he

had complied with the order. The district court disagreed,

seeing no reasonable basis for the mistake. Sanctions

resulted. Id. at 542-3.

In Eavenson the court of appeals saw the district

court’s decision to sanction as based solely on the lower

court's perception that the appellant willfully and

deliberately violated its order. However, the court of

appeals concluded that the appellant could have misread

the order. The Third Circuit held that, if the appellant had

reasonable grounds to believe his amended complaint was

in compliance with the court order, no violation of Rule 11

occurred. Eavenson, Auchmuty & Greenwald _v.

Holtzman, 775 F.2"4 at 543-4; in accord, Liberty Lincoln-

Mercury _v. Ford Motor Co., 134 F.34 557, 569 (3rd

Cir.1998).

Here too the district court had to assume that the

plaintiff and counsel deliberately violated the bankruptcy

order in order to impose a sanction. That assumption

ignores the unique circumstance created by the

bankruptcy court order that counsel faced in trying to craft

a complaint.

Whether it had a viable claim under the law or not, the

plaintiff saw an enormous amount of his business

evaporate. Behind the collapse of the business, the plaintiff

saw the hand of Philippine Airlines. According to the

complaint, these transgressions occurred sometime in

early 2000.

Philippine Airlines went into a bankruptcy at home in

1998. The U.S. court became involved only in a proceeding

ancillary to the main bankruptcy filed by the Airline in its

home country.

The Ancillary Proceeding Injunction of the US.

bankruptcy court in the Philippine Airlines case issued

under 11 U.S.C. § 304 and enjoined any type of suit against

the Airline, for any activity, regardless of the time frame.

Had Philippine Airlines been domestically based and filed

24

in the United States under Chapter 11 of the Code, the acts

‘complained about by the plaintiff would have been post-

petition behavior and freely open to suit.

The bankruptcy court gave the plaintiff a very short

procedural leash. What could have been a procedurally

simply lawsuit under normal conditions became a walk

along a razor’s edge. Counsel made an honest effort to

protect the client’s interests while attempting to operate

within the confines of the bankruptcy court order. This

ordeal must be examined objectively in light of the

operational limitations.

A court looking at a case such as this, under these

difficult procedural conditions, “must consider all the

circumstances of a case” when judging reasonableness

~ under Rule 11. Cooter & Gell v. Hartmarx Corp., 496 US.

384, 40 (1990).

When divining "the point at which an argument

turns from merely ‘losing’ to losing and

sanctionable", Motown Prods., Inc. v. Cacomm, Inc.,

849 F.2n¢ 781, 785 (2-4 Cir.1988) (emphasis. in

original), we have instructed district courts to

"resolve all doubts in favor of the signer.'" Id.

(quoting Oliveri v. Thompson, 803 F.2°4 1265, 1275

(2-4 Cir.1986), cert. denied, 480 U.S. 918 (1987));

accord Stern, 844 F.2"4 at 1005; Eastway Constr., 762

F.2rd at 254. [Underlining added]

Associated Indemnity Corp. v. Fairchild Industries

Inc., 961 F.2"4 32, 34 (274 Cir.1992).

Both Rule 11 itself and its application recognize that

our system of litigation is an adversarial one. Presenting

law and fact as favorably and fairly as possible in favor of

the client is central to the lawyer’s task. “Judges therefore

should impose sanctions on lawyers for their mode of

advocacy only in the most egregious situations, lest

lawyers be deterred from vigorous representation of their

clients. [citation].” United National Insurance Company v.

R&D Latex Corporation, 242 F.3"4 1102, 1115 (9% Cir. 2001).

“Rule 11 is an extraordinary remedy, one to be exercised

25

with extreme caution.” Operating Engineers Pension Trust

v. A-C Company, 859 F.2n4 1336, 1345 (9th Cir.1988).

Indeed, an explanation other than a bad-faith defiance

of the bankruptcy court order exists for the crafting of the

remedial request by counsel under tight restrictions. The

district court expressed her concerns over the bankruptcy

court's order vis-a-vis the complaint at the hearing on the

second motion to dismiss.

... I'm talking about the second clause, seeking

enforcement of the [distributorship] contract. []] I

don’t care if you call it “breach of contract”, but if

you seek a remedy getting the benefits of that

contract, then I believe you’ve violated the

bankruptcy Judge’s order. And it seems to me you

did, in fact, seek as a remedy the benefits that you

were due under this contract. (App. 128)

At the hearing, counsel attempted to clarify the

plaintiff's position with an example of how the

defendants’ illegal conduct required injunctive relief:

We really aren’t seeking [distributorship] benefits.

We are saying that, because the tariff act is violated

through the illegal rebates, we are put in a

disadvantaged position unfairly. I mean this is

unfair competition. [{] We are in a position where

we cannot compete, even though the competitive

advantage given to the other distributors is due to

an illegal act. That is our -- we’re seeking injunctive

relief to prevent that activity, ... . (Id.)

This exchange between judge and counsel illustrates

two points. First, counsel offered the court the reasoning

behind the injunction request. He grounded it in an

allegation of illegal conduct by Philippine Airlines that the

court itself agreed might well support a cause of action if

proved. (App. 106-107) The court was obligated to

consider any new basis for the plaintiff's lawful action

under the bankruptcy court order before employing the

extreme measure of sanctioning the plaintiff and counsel

for filing a complaint for an improper purpose. Compare

26

the matter of In_re Keegan Mngmnt. Co., Securities

Litigation, 78 F.3"4 431 (9 Cir.1996) where the Ninth

Circuit found a district court in error for failing to consider

after-acquired factual evidence that would support the

complaint. Id. at 434.

Second, the district court’s own language indicates that

the judge herself fell into speculation over what the

bankruptcy court order really meant and whether or not

the complaint violated it. She said, “... I believe you've

violated the bankruptcy judge’s order. And it seemed to me

you did ...” This more than suggests the use of a subjective

standard by the district court in determining the

appropriateness of sanctions. That being the case, the

district court misapplied the objective test required in this

circumstance. Townsend, supra, at 1362.

Of course, the district court could not know the real

intent underlying the bankruptcy court’s order. She did

not write it. She had to guess at its meanings, and did just

that, as her remarks suggest. The district could not know

the precise intent of the bankruptcy judge and neither

could counsel. Mr. Anolik and company interpreted the

order in a reasonable manner and acted accordingly. The

district court interpreted the order in her own way arid

acted accordingly, but that judge acted based on her

subjective impression of the bankruptcy order and imposed

sanctions. She violated the rule of objectivity which rests

at the heart of Rule 11. These erroneous views of the law

of Rule 11 regarding consideration of after-acquired

evidence and misuse of a subjective standard amounts to

an abuse of discretion and must not be countenanced. See

Cooter & Gell v. Hartmarx Corp., supra, 496 U.S. at 405.

In addition to the district court's abuse of discretion for

failing to give the plaintiff and counsel every benefit of the

doubt as the law demands, we see, in the interpretation of

the bankruptcy court’s order, another legal miscue by the

district court. The ruling that the plaintiff filed the

complaint for an improper purpose cannot stand on its

own weight nor on the frivolity examination that has

ad

|

already been presented.

C. Even though the district court stated that Rule

11 _(b)(3) was a basis for her decision to sanction the

Petitioners, she never gives any reason in her Order, or at

the hearing, as to why that ground applies.

Even though the district court stated that Rule 11 (b)(3)

was a basis for her award of sanctions, she cannot logically

find evidentiary support is entirely lacking as required by

Rule 12(b)(6). There simply is no basis for an award of

sanctions under Rule 11(b)(3).

Ill. THIS COURT SHOULD EXERCISE THEIR

SUPERVISORY POWERS AND REMAND THIS CASE TO THE

TRIAL COURT FOR FURTHER PROCEEDINGS, WHERE SUCH

PROCEEDINGS ARE NECESSARY 1tO CORRECT A POSSIBLE

SIGNIFICANT AND MATERIAL ERROR IN THE RECORD.

At the conclusion of the April 27, 2001 hearing, both

Petitioners have the distinct and palpable memory that the

district court judge stated she would not sanction the

plaintiff or counsel in this case. Consequently, both

Petitioners were duly shocked when the district court

issued her order of sanctions of June 5, 2001. For reasons

that are not known to the Petitioners, the statement by the

district court regarding her decision to withhold sanctions

at the time of the hearing, which may have been her very

last statement, was omitted from the transcript of the

proceedings. Because such a statement by the district

court would have a material effect on the Petitioners’

argument in this case, the Petitioners argue that a remand

of this matter to the district court for further discovery on

that issue is necessary to satisfy the requirements of due

process. :

IV. THE PETITIONERS WERE DENIED DUE

PROCESS BECAUSE THE DISTRICT COURT FAILED TO HOLD A

SEPARATE HEARING ON THE DEFENDANTS’ MOTION FOR

SANCTIONS.

~ Even though every Circuit Court of Appeals that has

decided this question has held that a separate or additional

hearing is not required for a motion for sanctions (see Pan-

28

Pacific and Low Ball Cable Television Co. v. Pacific Union

Co., 987 F.2d 594 (9t Cir.-1993); Eisenberg v. University of

New Mexico, 936 F.2d 1131 (10% Cir. 1991); Markwell v.

County of Bexar, 878 F.2d 899 (5t Cir. 1989); Teamster’s

Local No. 579 v. B & M Transit, Inc., 882 F.2d 274 (7% Cir.

1989); Donaldson v. Clark, 819 F.2d 1551 (11% Cir. 1987),

the Petitioners argue that such a rule has deprived them of

due process. However, Supreme Court Rule 10 states that

this Court is inclined to consider “an important question of

federal law that has not been, but should be, settled by this

Court.”

Petitioners argue that the Circuit Courts are either

mistaken or that their rule should not be applied in this

case because holding the hearing on the motion for

sanctions simultaneously with the other motions heard on

April 27, 2001, seriously abbreviated and truncated the

proceedings so that the issues on the motion for sanctions

were not adequately heard that day. An argument for this

position has already been given in Section I of the

Argument portion of this Petition. Given the punitive

nature of a sanctions award, due process should require

separate hearings.

CONCLUSION

In Rule 10 of the Supreme Court Rules, this Court has

stated that a petition for certiorari will only be granted for

compelling reasons. Among the examples of compelling

reasons stated in that rule is the circumstance where a

United States court of appeals “has so far departed from

the accepted and usual course of judicial proceedings, or

sanctioned such a departure by a lower court, as to call for

an exercise of this Court’s supervisory power... .” Also

stated is the circumstance where “an important question of

federal law that has not been, but should be, settled by this

Court.”

In the proceedings underlying this Petition, the trial

court invited and induced amendment of the original

complaint, which the trial court believed to be

unsupported by sufficient facts. Accepting the trial court's

; 29 ‘

invitation and pursuant to the court’s instructions, Petitioner

substantially supplemented the factual allegations and filed

an amended complaint. Unfortunately, the trial court again

decided that the factual allegations of the amended

complaint fell short. Although Petitioner specifically

amended the complaint to comply with the trial court’s

order, the trial court not only dismissed Petitioner’s

amended complaint without leave to amend, but also issued

$60,000.00 in sanctions without offering -more than a

conclusory opinion or explanation as to why the Petitioners’

good faith efforts, although ultimately unsuccessful, were

sanctionable. The trial court’s failure to substantiate her

sanction order with more than conclusions permits only one

conclusion, and that is that the Petitioners were sanctioned

for failing to convince the judge, at the initial pleading stage,

that the case was a certain outcome. This justification is

improper, unusual and abusive. The trial court compounded

this mistake when she heard the motion for dismissal

simultaneously with the motion for sanctions, rather than

hearing the latter motion separately.

By issuing a memorandum opinion that merely parrots

the conclusions of the district court, the three-justice panel

who reviewed this case for the Ninth Circuit Court of Appeals _

has sanctioned a departure by the district court from the

accepted and usual course of judicial proceedings,

warranting an exercise of this Court’s supervisory powers.

For all these reasons, the Petitioners argue that the

decision of the appellate court should be reversed, or at least

vacated and remanded for further proceedin

RESPECTFULLY SUBMITTED

May 2, 2903, C' ;

By: CAB pars d By:

ALEXANDER ANOLIK,

Petitioner Petitioner,

APPENDIX

TABLE OF CONTENTS

Ninth Circuit Court of Appeals Slip Opinion................... A-3

Order Denying Panel Rehearing ............:.cessscesressreseeseees A-6

Order Modifying Injunction in Ancillary Proceeding..... A-7

Attachment 1 to Order Modifying Injunction in Ancillary

Proceeding ............cssssersssssrsrssescsrsssosesesscessesersrnsoes A-10

Attachment 2 to Order Modifying Injunction in Ancillary

Proceeding .........c...cecsccsssosessscesecsssesesensnsssessavscscssoees A-15

Verified Complaint.............ccccessssssseseneensassseseneseneseessenes A-17

Transcript, Motion to Dismiss, BAI ISS DD. csceveee Pen oreo oP A-31

Order Granting Philippine Airlines, Inc.'s Motion to

DASERES 0 .secrseressvoesees ssssseesnsssenneccsnnsccanecccnnescnnasennnsees A-57

Plaintiffs’ First Amended and Verified Complaint........ A-71

Transcript, Motions to Dismiss/Sanctions, 4/27/01..... A-95

Order Granting Philippine Airlines, Inc.’s Motion to

DIBSTIUOS ..20s00secressercsssersesseseecessonsossosesosesonsensvoressessees A-136

Order Granting Philippine Airlines, Inc.’s Motion for

SACU ONS 5.0.0r0nseccensorereesensevvoserserscsensscecossonvvevesesesnes A-147

Order Awarding Sanctions ..........ssssessesssesenseeeseseesnssees A-155

Jud gment............cscccssscsssscsssesscsessensssenseesssecssenssvensseensensseees A-159

Notice of Appeal...........scscsesssscscscecsensssnsesesssssssesessnssseres A-164

Federal Rule of Civil Procedure, Rule 11....................... A-166

Federal Rule of Civil Procedure, Rule 12....................... A-169

[This document has been prepared in accordance

with Supreme Court Rule 33]

Slip Copy

(Cite as: 2003 WL 77213 (9% Cir.(Cal.)))

Only the Westlaw citation is currently available.

This case was not selected for publication in the Federal

Reporter.

-_

Please use FIND to look at the applicable circuit court rule

before citing this opinion. (FIND CTA9 rule 36-3.)

United States Court of Appeals, Ninth Circuit.

SIG TRY [sic] SIG, INC.; Sextant Travel Services,

Plaintiffs,

v.

PHILIPPINE AIRLINES, INC.; Pacific Air Leisure Services;

Defendants-Appellees,

Alexander ANOLIK; Anthony Palik, Real Parties in

Interest -- Appellants.

No. 01-16856.

D.C. No. CV-00-03683-CW.

Argued and Submitted Nov. 7, 2002.

Decided Jan. 9, 2003.

Appeal from the United States District Court for the

Northern District of California, Claudia Wilken, District

Judge, Presiding.

Before B. FLETCHER, ARNOLD [FN**] and

RAWLINSON, Circuit Judges.

A-3

FN** The Honorable Richard S. Arnold, Senior United

States Circuit Judge for the Eighth Circuit Court of

appeals, sitting by designation.

MEMORANDUM [FN**]

FN* This disposition is not appropriate for publication

and may not be cited to or by the courts of this circuit

except as provided by Ninth Circuit rule 36-3.

*1 The district court did not abuse its discretion by

imposing sanctions on Plaintiffs and their attorneys.

Sanctions may properly be imposed if either (1) the

complaint is legally or factually baseless, or (2) the

complaint was filed for an improper purpose. See Saldivar

v. City of Los Angeles, 780 F.2d 823, 832 (9% Cir. 1986).

The relief request by Plaintiffs in their original complaint

and in their first amended complaint (“FAC”) directly

violated an order issued by the Bankruptcy Court of the

Northern District of California, which prohibited Plaintiffs

from bringing suit against Philippine Airlines (“PA”) in

order to enforce a General Sales Agency (“GSA”)

Agreement that Plaintiffs had entered into with PA several

years earlier. The coniplaints were therefore filed for an

improper purpose.

In addition, the ciaims asserted by Plaintiffs in their

original complaint were legally and factually baseless. The

changes made by plaintiffs in their original complaint

were legally and factually baseless. The changes made by

Plaintiffs in the FAC did not adequately strengthen their

claims or address the concerns of the district court

regarding the viability of those claims. The frivolousness

of Plaintiffs’ claims provides another justification for the

district court’s imposition of Rule 11 sanctions.

The district court did not abuse its discretion in

apportioning part of the monetary sanctions against Mr.

Palik. See Pavelic & LeFlore v. Marvel Ent. Group, 493 U.S.

120, 123, 127 (1989) (holding that an attorney who signs a

paper filed with the court is liable for sanctions if the court

later determines that the paper was submitted in violation

of Rule 11). Mr. Palik’s participation in the representation

of Plaintiffs consisted of signing Plaintiffs’ brief in

opposition to PA’s motion to dismiss the FAC, orally

arguing the motion to dismiss the original complaint, and

appearing with Mr. Anolik at oral argument on the motion

to dismiss the FAC. The district court acted within its

discretion when sanctioning Mr. Palik for his involvement

in presenting and defending Plaintiffs’ frivolous and

improper claims.

AFFIRMED.

2003 WL 77213 (9% Cir. (Cal.))

END OF DOCUMENT

A-5

[This document has been prepared in accordance with

Supreme Court Rule 33]

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SIG TYR SIG, INC., et al No. 01-16856

Plaintiffs, D.C. No. CV-00-03683-CW

Northern District of

Vv. California, Oakland

PHILIPPINE AIRLINES,

INCORPORATED, et al.,

Defendants - Appellees, ORDER

eR ANOLIK, et FILED

Real Parties in Interest- : = I, op CLERK

Appellants. U.S. COURT OF APPEALS

Before: B. FLETCHER, ARNOLD* and RAWLINSON,

Circuit Judges.

The panel has voted to deny the petition for panel

rehearing.

The petition for panel rehearing filed on January

30, 2003, is DENIED. i

* The Honorable Richard S. Arnold, Senior United

States Circuit Court Judge for the Eighth Circuit Court of

appeals, sitting by designation.

[This document has been prepared in accordance with

Supreme Court Rule 33]

Alexander Anolik, Esq. SBN: 024685 FILED

Jordan Lavinsky, Esq., SBN: 192215 OCT 05 2000

2107 Van Ness Avenue, Suite 200

San Francisco, CA 94109 - Keenan G. Casady, Clerk

Telephone: (415) 673-3333 United States Bankruptcy

Fax: (415) 673-3548 Court, San Francisco, CA

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In reply to: Case No. 98-32705-TC

Ancillary Petition regarding

PHILIPPINE AIRLINES, INC., Case Ancillary to

a Philippine corporation, Foreign Proceeding

Debtor.

J. MANUEL (“LITO”) DIAZ,

doing business as SEXTANT ORDER MODIFYING

TRAVEL SERVICES, INJUNCTION IN

Movant. ANCILLARY

v. ~ PROCEEDING

PHILIPPINE AIRLINES, INC., | [PROPOSED]

Debtor and Respondent

Vv.

ANTONIO V. OCAMPO,

HENRY SO UY, JAMIE J.

BAUTISTA, MARIO M.

AGUAS, and RENATO Z.

FRANCISCO, as Interim

Rehabilitation Receiver of

PHILIPPINE AIRLINES, INC.

Receiver and

Respondent.

ENTERED IN BANKRUPTCY DOCKET OCT 05 2000

A-7

A motion by J. MANUEL (“LITO”) DIAZ and

SEXTANT TRAVEL SERVICES (hereinafter collectively

referred to as the “Movant”), parties subject to the

Injunction of this Court in the above-entitled ancillary

proceeding, was filed by them with this Court on

shortened time, in application for an Order requesting

certain relief from or modification of the Injunction, and

this Court having heard the motion by telephonic

conference call among the parties on September 28, 2000,

and good cause appearing therefore,

IT IS HEREBY ORDERED:

That the injunction of this court, filed by it in this

case on January 20, 1999, pursuant to 11 U.S.C. § 304, shall

be modified as follows:

1. The Movant is permitted to file any actions it

may have against the Debtor in this case, PHILIPPINE

AIRLINES, INC., subject to the following restrictions:

A. No actions shall be brought

i. for the enforcement

of any claims or other duties, whether arising from

contract or tort, where said cause of action accrued prior to

the effective date of the Debtor’s plan of reorganization

approved by the Philippine Securities and Exchange

Commission (“PSEC”), June 7, 1999, and/or

ii. for the enforcement

of the Movant’s SSA agreement with Philippine Airlines,

unless otherwise permitted by this Court;

B. The remedies or relief requested by the

Movant in any actions brought pursuant to this Order

shall be limited to injunctive or, declaratory relief, and shall

not be brought seeking damages without the subsequent

permission of this Court; and

C. Any actions brought by the Movant

pursuant to this order shall be filed only in the United

States District Court for the Northern District of California,

San Francisco Division.

2. The Movant’s motion to recuse opposing

counsel is denied without prejudice, and eny further

A-8

hearing by this Court on that matter shall be made by

noticed motion on twenty either (28) days notice to

opposing parties, pursuant to Rule 9014-1(c)(1) of the Local

Bankruptcy rules.

3. This Order may be amended as circumstances

warrant.

SO ORDERED.

Dated: October 5, 2000

UNITED STATES BANKRUPTCY COURT

By: /s/Th.E. Carlson

Hon. Thomas E. Carlson

Judge of the United States Bankruptcy Court

APPROVED AS TO FORM:

/s/ Roderick A. McLeod

BROBECK PHLEGER & HARRISON

Attorneys for Debtor and Permanent Receiver

A-9

[This document has been prepared in accordance with

Supreme Court Rule 33. The following is Attachment 1 to

foregoing “Order Modifying Injunction in Ancillary

Proceeding” ]

FREDERICK D. HOLDEN JR. (Calif. Bar No 61526)

TIMOTHY A. MELTZER (Calif. Bar No. 92255)

JEFFREY GARFINKLE (Calif. Bar No. 153496)

BROBECK, PHLEGER & Harrison LLP

One Market FILED

Spear Street Tower JAN 20 1999

San Francisco, CA 94105 Keenan G. Casady, Clerk

Telephone: (415) 442-0900 United States Bankruptcy

Court, San Francisco, CA

Attorneys for Petitioners Antonio V. Ocampo,

Henry So Uy, Jamie J. Bautista, Mario M. Aguas and

Renato Z. Francisco, as Interim Rehabilitation Receiver of

PHILIPPINE AIRLINES, INC.

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re Case No. 98-32705-TC

Ancillary Petition regarding

PHILIPPINE AIRLINES, INC., ANCILLARY

a Philippine corporation, PROCEEDING

Debtor.

INJUNCTION

On September 9 and 10, 1998, this court conducted

a trial regarding the objections of Aviation Sales Leasing

Company (“AVSL”), General Electric Company (Aircraft

Engines Division) (“GE”) and The Boeing Company

(“Boeing”) to the ancillary proceeding petition of Antonio

V. Ocampo, Henry So Uy, Jaime J. Bautista, Mario M.

Aguas and Renato z. Francisco, as Interim Receiver (the

“Receiver”) of Philippine Airlines, Inc. (“PAL”). Frederick

J. Holden, Jr. Timothy a. Meltzer, and Jeffrey K. Garfinkle

A-10

of Brobeck, Phleger & Harrison LLP appeared for the

Receiver. Steven M. Hedberg and Steven G. Polard of

Perkins Coie LLP, and Jay L. Westbrook appeared for

Boeing. D. Farrington Yates and Carrie Beth Lesser of

Haight, Gardner, Holland & Knight appeared for AVSL.

David B. Haber of Haber, Lewis & Pathman LLP and

Richard A. Rogan of Jeffer, Mangels, Butler & Marmaro,

LLP appeared for GE.

The court has issued its Memorandum Decision,

filed herein on October 30, 1998. [Interlinear: The court's

findings of fact and conclusions of law are attached in that]

Memorandum Decision and [in the hearing regarding the]

Preliminary Injunction and Order Transferring Venue of

Part of Proceeding, filed herein on July 2, 1998.1

_ In accordance with the Memorandum Decision, the

court orders that all persons anywhere in the United

States, with actual or constructive notice of this Injunction,

are enjoined and restrained, for the duration of the —

proceedings_concerning PAL, now pending before the

Securities and Exchange Commission of the Republic of

the Philippines (the .“PSEC”) and any successor

proceeding (the “Philippine Proceedings”), from:

(i) the commencement or continuation of any

action or proceeding (including the issuance or

employment of process) against PAL or the Receiver:

(ii) the taking of any act against the property of

PAL or the Receiver, including any action, proceeding or

act (a) to seize or otherwise obtain possession of or exercise

control over such property, or to terminate any interest of

PAL or the Receiver therein, (b) to create, perfect or

enforce any lien, judgment, attachment, restraint,

assessment or order, or (c) to collect, assess or recover any

claim against such property.

(iii) failing or refusing to turn over to the

Receiver, for administration in the Philippine Proceedings,

of any property of PAL or the Receiver in the United States

as is subsequently identified by the Receiver as property of

A-11

the estate of PAL or the Receiver, or the proceeds of such

property.

This Injunction is subject to the following

exceptions which shall control to the extent, but only to the

extent, inconsistent with the above.

1. The Export-Import Bank of the United

States, First Security Bank, N.A. PAL and the Receiver

shall have those rights and obligations described in that

Stipulation to Extend Temporary Restraining Order and to

Continue Hearing on Motion for Preliminary Injunction,

approved herein by the court’s order dated August 19,

1998; and all governmental units shall have the rights set

forth in paragraph 3 of said stipulation.

2. Nothing herein shall impair or affect any

rights or remedies under any collective bargaining

agreement between PAL and the International Association

of Machinists and Aerospace Workers or related law.

3. Nothing herein shall obligate any party

who claims a lien or security interest that is dependent

upon possession to relinquish possession of PAL’s or the

Receiver’s property encumbered by such lien or security

interest, until either (a) the obligation secured by such lien

or security interest is fully satisfied or (b) further order of

this court after due notice to the claimant.

4. Nothing herein shall enjoin an act to

perfect, continue or maintain perfection of a lien or

security interest for repairs, services, labor, materials, parts

or equipment, utilized in the replacement, maintenance or

servicing of aircraft engines or parts.

5. Nothing herein shall enjoin a creditor with a

claim for repairs, services, labor, materials, parts or

equipment, utilized in the replacement, maintenance or

servicing of aircraft engines or parts, from instituting suit

or exercising any rights as against parties other than PAL

and the Receiver.

6. GE, and its subsidiaries and divisions, and

PAL and the Receiver shall have those rights and

obligations as are set forth in the Stipulation to Order

A-12

Authorizing Repair work to Aircraft Engines, approved by

the court’s order dated July 28, 1998.

Be Nothing herein shall obligate Nora Leasing,

Inc. to relinquish possession of any property now in its

possession until further order of this court.

8. Nothing herein shall eliminate or modify

any creditor's right of setoff or recoupment,

notwithstanding the injunction of the exercise of such

rights.

2. this order shall restrain Boeing from filing

or prosecuting any action against PAL or the Receiver

outside of the within proceeding, the Philippine

Proceedings or any ancillary proceeding in-any—foreign

country, from exercising rights of setoff or recoupment

against PAL or the Receiver, and from taking any act to

terminate any rights of PAL or the Receiver, but shall not

require turnover of property by Boeing and,

notwithstanding anything to the contrary above, shall

specifically not restrain Boeing from exercising any rights

under applicable non-bankruptcy law: (a) to sell Boeing

7i47-4F6 aircraft (Boeing Reference RM-081, RM-083, and

RM-084) (the “ Aircraft”) to a party other than PAL, and (b)

to complete the Aircraft in whatever manner Boeing sees

fit.

10. Airlines Clearing House, Inc., and _ its

members and associate members, and the Receiver shall

have the rights and obligations set forth in the Stipulation

Regarding Settlements conducted through International

air Transport Association clearing House and Airlines

Clearing House, Inc., approved by the court’s order dated

august 19, 1998. wedets

11. — This Injunction may be modified or lifted, in

whole or in part, for cause shown a any time by a creditor

of PAL.

12. This Injunction is subject to review by this

court, at the request of a creditor of PAL, upon the earlier

of (a) approval by the PSEC of a rehabilitation for PAL or

A-13

(b) conversion of the Philippine Proceedings into a

liquidation.

13. If relief is granted to any creditor in the

Philippine Proceedings, then the same relief is granted

automatically to that creditor with regard to this

Injunction, without further order of the court.

Dated: JAN 201999 S/THOMAS E. CARLSON

United States Bankruptcy Court

Approved as to form only:

PERKINS COIE LLP

By:

Steven M. Hedberg |

Attorneys for The Boeing Company

HAIGHT, GARDNER, HOLLAND & KNIGHT

By: (unsigned)

D. Farrington Yates

Attorneys for Aviation Sales Leasing Company

1 The Preliminary injunction and Order Transferring Venue of

Part of Proceeding provided, in part, for the transfer of venue of the

Receiver’s request for interim relief under 11 U.S.C. § 304(b) to the

Honorable Michael B. Mukasey. Nothing contained in this Injunction

shall affect that transfer of venue.

[This document has been prepared in accordance with

Supreme Court Rule 33. The following is Attachment 2 to

foregoing “Order Modifying Injunction in Ancillary

Proceeding” ]

FREDERICK D. HOLDEN JR. (Calif. Bar No 61526)

TIMOTHY A. MELTZER (Calif. Bar No. 92255)

JEFFREY GARFINKLE (Calif. Bar No. 153496)

BROBECK, PHLEGER & Harrison LLP

One Market FILED

Spear Street Tower JAN 20 1999

San Francisco, CA 94105 Keenan G. Casady, Clerk

Telephone: (415) 442-0900 United States Bankruptcy

Court, San Francisco, CA

Attorneys for Petitioners Antonio V. Ocampo,

Henry So Uy, Jamie J. Bautista, Mario M. Aguas and

Renato Z. Francisco, as Interim Rehabilitation Receiver of

PHILIPPINE AIRLINES, INC.

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re ANCILLARY

Ancillary Petition regarding PROCEEDING

PHILIPPINE AIRLINES, INC.,

a Philippine corporation, Case No. 98-32705-TC

Debtor.

ORDER GRANTING

EMERGENCY EX

PARTE MOTION TO

CORRECT

INADVERTENT

INTERLINEATION IN

INJUNCTION

Date: [No Hearing

Required]

Time:

Judge: Carlson

The Court has considered the Emergency Ex Parte

Motion to Correct Possibly Inadvertent Interlineation in

Form of Injunction (the “Motion); and good cause

appearing:

IT IS HEREBY ORDERED THAT:

1. the Motion is hereby GRANTED; and

2. the Court hereby orders that all persons

anywhere in the United States, with actual or constructive

notice of the Injunction (which was entered by this Court

on January 20, 1990) are enjoined and restrained, for the

duration of the proceedings concerning Philippine airlines,

Inc. (“PAL”), now pending before the Securities and

Exchange Commission of the Republic of the Philippines,

and any successor proceeding, from exercising any right of

setoff or recoupment.

Dated: JAN 261999 /s THOMAS E. CARLSON

United States Bankruptcy Judge

[This document has been prepared in accordance with

Supreme Court Rule 33]

Alexander Anolik, Esq. SBN: 024685 ORIGINAL FILED

Jordan Lavinsky, Esq., SBN: 192215 OCT 05 2000

2107 Van Ness Avenue, Suite 200

San Francisco, CA 94109 Richard Wieking, Clerk

Telephone: (415) 673-3333 U.S. District Court

Fax: (415) 673-3548 Northern District of CA

Attorneys for Plaintiffs Sig Tyr Sig, Inc.,

and Sextant Travel Services

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SIG TYR SIG, INC., a Case No. [C 00 3683 CW]

California corporation, VERIFIED COMPLAINT FOR:

and SEXTANT TRAVEL 1. SHERMAN ACT

SERVICES, VIOLATIONS

Plaintiffs, 2. DISCRIMINATION IN

v. PRIC®, SERVICES, OR

PHILIPPINE AIRLINES, FACILITIES IN VIOLATION OF

INC., a Philippine THE ROBINSON-PATMAN

corporation, PACIFIC ACT

AIR LEISURE 3. CARTWRIGHT ACT

SERVICES, a California VIOLATIONS

corporation,and DOES 4. VIOLATION OF

1 through 99, inclusive, © CALIFORNIA UNFAIR TRADE

Defendants. PRACTICES STATUTES.

5. RICO ACT VIOLATIONS

6. INTENTIONAL

INTERFERENCE WITH

ECONOMIC RELATIONS

7. INTERFERENCE WITH

PROSPECTIVE ECONOMIC

RELATIONS

8. INJUNCTION

9. DECLARATORY RELIEF

A-17

Plaintiff hereby alleges as follows:

ALLEGATIONS COMMON TO ALL

CAUSES OF ACTION

1. Plaintiff SIG TYR SIG, INC. (“PLAINTIFF

STS”) is a closely-held corporation organized and existing

under the laws of the State of California.

ya Plaintiff SEXTANT TRAVEL SERVICES

(“PLAINTIFF SEXTANT”) is a wholly owned subsidiary

of STS.

3. Defendant Philippine Airlines, Inc.

(“DEFENDANT PA”) is a corporation organized and

existing under the laws of the Republic of the Philippines.

4. DEFENDANT PA is registered to conduct

business in the State of California.

5 Defendant Pacific Air Leisure Services

(“DEFENDANT PALS”) is a Corporation organized and

existing under the laws of the State of California.

6. Venue is proper in this Judicial District

because both defendants conduct business within the State

of California, in the City and County of San Francisco and

much of-the-conduct of issue occurred within the state of

California, in the City and County of San Francisco.

Furthermore, both defendants’ business offices are located

‘within the State of California, in the City and County of

San Francisco.

: This Court has jurisdiction over the subject

matter of the instant action in that the causes of action

contained herein arise under the Constitution, laws, or

treaties of he United States, or they form part of the same

case or controversy under Article III of the United States

Constitution.

8. The State of California as the forum state

has personal jurisdiction over both defendants because

defendants reside and conduct business in the State of

California and avail themselves of the benefits and

protections of the laws of the State of California. Also,

DEFENDANT PA contractually consented to giving

personal jurisdiction to the City of San Francisco within

A-18

the State of California.

9. PLAINTIFF SEXTANT is a small travel

agency located in the State of California.

10. PLAINTIFFS, and each of them, are

ignorant of the true names or capacities of the Defendants

sued herein under the fictitious names Does 1 through 99,

inclusive and PLAINTIFFS will seek leave of court to

amend this Complaint to allege such names and capacities

as soon as they are ascertained. PLAINTIFFS, and each of

them, are informed and believe, and based on that

information and belief allege, that each of the Defendants

designated as a Doe is legally responsible for the events

and happenings referred to in this Complaint and

unlawfully caused the injuries and damages to

PLAINTIFFS alleged in this Complaint.

11. PLAINTIFF is informed and believes and

thereon alleges that at all relevant times herein,

Defendants were the agents and employees of their co-

Defendants in doing the things alleged in this Complaint

were acting within the course and scope if that agency and

employment.

FIRST CAUSE OF ACTION

(SHERMAN ACT VIOLATIONS)

12. PLAINTIFF hereby incorporates by

reference the allegations in the above paragraphs 1

through 11 as if fully set forth herein.

13. DEFENDANT PA’s and DEFENDANT.

PALS’ actions as alleged herein constitute unlawful, unfair

or fraudulent business practices in violation of Section 1 of

the Sherman Act (15 U.S.C. § 1(1982)).

14. DEFENDANT PA and DEFENDANT PALS

conspired to unreasonably restrain trade, affecting

interstate and/or foreign commerce, as set forth below:

A. DEFENDANT PA and DEFENDANT

PALS agreed that the GSAs should be required to increase

the minimum price at which they sell DEFENDANT PA’s

airline tickets.

B. This agreement between two separate

A-19

or affiliated corporations was unlawful in that this

conspiracy or agreement was intended to cause a Breach of

the GSA Agreement by terminating a GSA’s right to a

Competitive advantage over non-GSAs.

C. Furthermore, DEFENDANT PA’s

airline affects interstate or foreign commerce in that

DEFENDANT PA’s aircraft travel to and from the United

States.

15. As a direct, foreseeable, and proximate

result of defendants’ Sherman Act violations, PLAINTIFFS

have suffered damages, and continue to suffer damages, as

set forth below.

16. (PLAINTIFFS are entitled to recovery of

attorney’s fees\for DEFENDANTS’ violation of these laws

pursuant to 15 U.S.C. § 15.

SECOND CAUSE OF ACTION

(ROBINSON-PATMAN ACT VIOLATIONS)

17. PLAINTIFFS hereby incorporate by

reference the allegations in the above paragraphs 1

through 16 as if fully set forth herein.

18. DEFENDANT PA’s and DEFENDANT

PALS’ actions as) alleged herein constitute unlawful

discrimination in price, services, or facilities, in violation of

Sections 1 and 3 of the Robinson-Patman Act (15 U.S.C. §§

13, 13a (1982)). |

19. DEFENDANT PA and DEFENDANT PALS,

while engaged in interstate commerce, in the course of

such commerce, either directly or indirectly discriminated

in price between different purchasers of Philippine

Airlines’ tickets of like grade and quality, where either or

any of the purchases involved in such discrimination are

in commercé, and where these tickets were sold for use,

consumption, or resale within the united States, and where

the effect of such discrimination was to lessen competition

or tend to create a monopoly in the commerce of airline

tickets, or to injure, destroy, or prevent competition with

any person who either grants or knowingly receives the

benefit discrimination, or with customers of either of them.

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20. DEFENDANT PA, while engaged in

interstate commerce, discriminated in favor of

DEFENDANT PALS against other GSAs or like purchasers

of Philippine airline tickets, a commodity bought by them

for resale, with or without processing, by contracting to

furnish PALS, or by contributing to the furnishing of,

services or facilities connected with the processing,

handling, sale, or offering for sale of such commodity so

purchased upon terms not accorded to all purchasers on

proportionately equal terms.

21. DEFENDANT PA and DEFENDANT PALS,

while engaged in interstate commerce, in the course of

such commerce, was each a party to, or assisted in, the

transaction of sale, or contract to sell, which discriminated

to each of their knowledge against competitors of the

purchaser, in that, any discount, rebate, allowance, or

advertising service charge was granted to the purchaser

over and above any discount, allowance of advertising

charge available at the time of such transaction to aid

competitors in respect to the sale of Philippine Airlines

tickets of like grade, quality, d quantity.

y DEFENDANT .-PA and DEFENDANT PALS,

while engaged in interstate commerce, in the course of

such commerce, was each a party to, or assisted in, the

sale, or contract to sell, Philippine Airlines tickets in any

part of the United States at prices lower than those exacted

by the Defendants elsewhere in the United States for the

purpose of destroying competition or eliminating the

Plaintiffs or other competitors in such part of the United

States.

23. | DEFENDANT PA and DEFENDANT PALS,

while engaged in interstate Commerce, in the course of

such Commerce, were each parties to, or assisted in, the

sale, or contract to sell, Philippine Airlines tickets at

unreasonably low prices for the purpose of destroying

competition or eliminating the Plaintiffs or other

competitors.

24. As a direct, foreseeable and proximate

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result of defendants’ Robinson-Patman Act violations,

PLAINTIFF has suffered damages, and continues to suffer

damages.

25. PLAINTIFFS are entitled to recovery of

attorney's fees for DEFENDANTS’ violation of these laws,

pursuant to 15 U.S.C. § 15.

THIRD CAUSE OF ACTION

(CARTWRIGHT ACT VIOLATIONS)

26. PLAINTIFFS hereby incorporate by

reference the allegations in the above paragraphs 1

through 25 as if fully set forth herein.

27. DEFENDANT PA’s and Defendant PALS

actions as alleged herein constitute an unlawful trust in

violation of §§ 16700, et seq. of the California Business and

Professions Code (the “Cartwright Act”).

28. DEFENDANT PA and DEFENDANT PALS

created an unlawful trust, or conspired to create an

unlawful trust, by combining their capital, skill or acts for

any and all of the following purposes:

A. To create or carry out restrictions in

trade or commerce;

B. To prevent competition in

manufacturing, making, transportation, sale or purchase of

merchandise, produce or any commodity, including

Philippine Airlines tickets;

Cc. To fix at any standard or figure,

whereby its price to the public or consumer shall be in any

manner controlled or established, Philippine Airlines

tickets intended for sale, barter, use or consumption in

California;

D. To make, or enter into or execute or

carry out any contracts, obligations or agreements of any

kind or description, by which they could do all or any

combination of the following:

a, Agree in any manner to keep the price

of Philippine Airlines tickets at a fixed price or graduated

figure;

b. Establish or settle the price of

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Philippine Airlines tickets between themselves and others,

so as directly or indirectly to preclude a free and

unrestricted competition among themselves, or any

purchasers or consumers in the Philippines airlines in the

sale or transportation of Philippine Airlines tickets; and or

c. Agree to pool, combine, or directly or

indirectly unite any interests that they may have connected

with the sale or transportation of any Philippine Airlines

tickets, that its price might in any manner be affected.

29. As a direct, foreseeable, and proximate

result of defendants’ Cartwright act violations, PLAINTIFF

has suffered damages, and continues to suffer damages.

30. PLAINTIFFS are entitled to recovery of

attorney’s fees for DEFENDANTS’ violation of these laws,

pursuant to Cal. Bus. & Prof. § 16750. |

FOURTH CAUSE OF ACTION

(VIOLATION OF CALIFORNIA UNFAIR

PRACTICES ACT)

$1. PLAINTIFFS hereby’ incorporate by

reference the allegations in the above paragraphs 1

through 30 as if fully set forth herein.

32. DEFENDANT PA’s and DEFENDANT

PALS’ violated California Unfair Practices Act (Business

and Professions Code §§ 17000, et seq.), when they

engaged in the following acts and/or conspiracies to act:

A. The creation of locality discrimination in

the sale of Philippine Airlines tickets with the intent to

destroy the competition of Plaintiffs and any other regular

established dealer in Philippine Airlines tickets;

B. The selling of Philippine Airlines tickets

at less than cost, or the giving away of Philippine Airlines’

tickets for the purpose of injuring competitors or

destroying competition;

C. The secret payment or allowance of

rebates, refunds, commissions, or unearned discounts,

whether in the form of money or otherwise, or secretly

extending to certain purchasers special services or

privileges not extended to all purchasers purchasing upon

A-23

like terms and conditions, to the injury of a competitor and

where such payment or allowance tends to destroy

competition;

D. The use of threats, intimidation, or

boycott, to effectuate a violation of California Unfair Trade

Practices laws;

E. The solicitation of the violation of

California Unfair Trade Practices laws; and/or;

F. Collusion with others for violating

California Unfair Trade Practices laws.

33. As a direct, foreseeable, and proximate

result of defendants’ Unfair Trade violations, PLAINTIFFS

have suffered damages, and continues to suffer damages.

34. PLAINTIFFS are entitled to recovery of

attorney’s fees for DEFENDANTS’ violation of these laws,

pursuant to Cal. Bus. & Prof. § 17070.

FIFTH CAUSE OF ACTION

(VIOLATION OF RICO ACT)

35. PLAINTIFFS hereby incorporate by

reference the allegations in the above paragraphs 1

through 34 as if fully set forth herein.

36 DEFENDANT PA’s and DEFENDANT PALS’

actions as alleged herein constitute a violation of 18 U.S.C.

§§ 1961-1964 (the “Racketeer Influenced Corrupt

Organizations Act”).

37. By use of threats intended to extort the

PLAINTIFFS’ compliance with the DEFENDANTS’

demands, and while engaged in or affecting interstate

commerce, DEFENDANT PA and DEFENDANT PALS

received income derived, directly or directly, from a

pattern of racketeering activity, where the DEFENDANTS

participated as principals within the meaning of 18 U.S.C.

§2, to use or invest, directly or indirectly, any part of such

income, or the proceeds of such income.

38. As a direct, foreseeable and proximate

result of defendants’ RICO Act violations, PLAINTIFFS

have suffered damages, and continue to suffer damages.

39. PLAINTIFFS are entitled to recovery of

A-24

attorney’s fees for DEFENDANTS’ violation of these laws,

pursuant to 18 U.S.C. § 1964.

SIXTH CAUSE OF ACTION

(INTENTIONAL INTERFERENCE With

CONTRACTUAL RELATIONS)

40. PLAINTIFF hereby incorporates by

reference the allegations in the above paragraphs 1

through 39 as if fully set forth herein.

41. From 1997 to present, PLAINTIFFS have

entered into numerous agreements with their clients

pursuant to which its clients agreed to use PLAINTIFFS’

travel services and PLAINTIFFS agreed to provide such

services.

42. DEFENDANT PA knew of the above

described contractual relationships between PLAINTIFFS

and PLAINTIFFS’ clients in that PLAINTIFFS had booked

travel for these clients on DEFENDANT PA’s airline since

1997.

43. PLAINTIFFS and DEFENDANT PA, via

Defendant Pacific Air Leisure services (“DEFENDANT

PALS”), compete in the travel industry. DEFENDANT PA

is intertwined with and has a vested interest in

DEFENDANT PALS. DEFENDANT PALS is a GSA,

similar to PLAINTIFFS. DEFENDANT PALS and

PLAINTIFFS compete in the same market for clients,

selling DEFENDANT PA’s passenger air transportation

services in exchange for incentive commission on those

sales.

44, DEFENDANT PA has a vested interest in

protecting DEFENDANT PALS from competition against

other GSAs, such as PLAINTIFFS, for the following

reasons:

a) DEFENDANT PA’s controlling

shareholder, Lucio Tan, used to own DEFENDANT PALS.

b) As a result of an anti-trust lawsuit,

Mr. Tan (the controlling shareholder of DEFENDANT PA)

transferred ownership of DEFENDANT PALS to Kim Tia,

the former nanny of Mr. Tan’s children.

A-25

~

c) DEFENDANT PA created an 8

member committee charged with advising DEFENDANT

PA on its United States operations. DEFENDANT PALS

sits on this committee.

d) DEFENDANT PA gave

DEFENDANT PALS a preferred sublease in its building

floor. DEFENDANT PA never notified nor asked for bids

on the sublease from other GSAs. Instead, DEFENDANT

PA automatically chose DEFENDANT PALS as the

recipient of the sublease because of the close relationship

between DEFENDANT PA And DEFENDANT PALS.

45. Therefore, DEFENDANT PA, via

DEFENDANT PALS, and PLAINTIFFS compete with each

other in the market for tickets for air travel on

DEFENDANT PA’s airline. Thus, even though

DEFENDANT PA has promised to transact business in

good faith with PLAINTIFFS pursuant to the terms of the

GSA Agreement, DEFENDANT PA has a vested interest in

terminating PLAINTIFFS’ ability to ticket air

transportation on DEFENDANT PA’s airline so that

PLAINTIFFS’ clients will go to DEFENDANT PALS,

benefiting both defendants. Specifically, DEFENDANT PA

has denied repienishing PLAINTIFFS’ ticket supply upon

PLAINTIFFS’ repeated written requests. Also,

DEFENDANT PA has failed to pay the TIP owed to

PLAINTIFFS. Lastly, DEFENDANT PA has terminated

PLAINTIFF SEXTANT’S GSA status.

46. DEFENDANT PA has ‘interfered with

PLAINTIFFS’ agreement with PLAINTIFFS’ clients and

others by terminating PLAINTIFF SEXTANT’S ability, as a

GSA, or otherwise, to ticket air transportation on

DEFENDANT PA’s airline.

47. When DEFENDANT PPA _ terminated

PLAINTIFFS’ GSA status, PLAINTIFFS could no ionger

supply 70% of PLAINTIFFS’ clients’ requests for air travel

tickets on DEFENDANT PA’s airline. Therefore, Plaintiffs

could not fulfill their promises to.it clients to provide them

with travel on DEFENDANT PA’s airline.

A-26

48. As an actual and proximate result of

DEFENDANT PA’s intentional interference, PLAINTIFFS

have suffered damages as set forth below.

49 DEFENDANT PA’s acts of malicious,

despicable, and in conscious disregard of PLAINTIFFS’

rights, in that DEFENDANT PA’s acts are intended to

wrongfully hold sums of money owed to PLAINTIFFS

and/or terminate PLAINTIFFS’ ability to conduct

business.

SEVENTH CAUSE OF ACTION

(INTENTIONAL INTERFERENCE WITH

PROSPECTIVE ECONOMIC RELATIONS)

50. PLAINTIFF hereby incorporates by

reference the allegations in the above paragraphs 1

through 49 as if fully set forth herein.

51. DEFENDANT PA’s conduct intentionally

interferes with PLAINTIFFS’ prospective economic

relations in that PLAINTIFFS’ ability to ticket travel on

DEFENDANT PA’s airline has been drastically restricted.

DEFENDANT PA’s actions make it impossible for

PLAINTIFFS to meet the requirements of its current clients

because DEFENDANT PA refuse to issue sufficient tickets

to PLAINTIFFS, contrary to DEFENDANT PA’s past

action. As result, PLAINTIFFS are unable to form relations

with new clients because PLAINTIFFS’ ability to ticket air

travel on DEFENDANT PA’s airline has been so severely

restricted.

52. DEFENDANT PA’s conduct was the direct,

actual and proximate cause PLAINTIFFS losing their

ability to ticket air transportation on DEFENDANT PA’s

airline, therefore the direct, actual and proximate cause of

PLAINTIFFS having to notify PLAINTIFFS’ clients of

PLAINTIFFS’ inability to perform the terms of

PLAINTIFFS’ agreements with PLAINTIFFS’ clients.

53. DEFENDANT PA’s acts are willful,

malicious, reckless, despicable and in conscious disregard

of PLAINTIFFS’ rights, in that DEFENDANT PA’s acts are

intended to wrongfully extort unsubstantiated: sums of

A-27

money from PLAINTIFFS and/or terminate PLAINTIFFS’

ability to conduct business.

54. Because of DEFENDANT PA’s willful and

malicious or reckless conduct PLAINTIFFS aze entitled to

an award of attorneys fees.

EIGHTH CAUSE OF ACTION

(INJUNCTIVE RELIEF)

55. PLAINTIFFS hereby incorporate by

reference the allegations in the above paragraphs 1

through 54 as if fully set forth herein.

56. PLAINTIFFS are informed and believe and

based thereon allege that DEFENDANT PA continues, and

intends to continue in the future, to engage in the conduct

alleged herein.

37. The actions of DEFENDANT PA as herein

alleged, have interfered with PLAINTIFFS’ ability to

conduct business as a consolidator. In fact, at least two of

PLAINTIFFS’ customers have refused to continue working

with PLAINTIFFS based on DEFENDANT PA’s penalizing

actions against PLAINTIFFS. PLAINTIFFS have suffered

and continued to suffer irreparable harm as a result of said

actions.

58. For the foregoing reasons, and each of them,

PLAINTIFFS are entitled to preliminary and _ final

injunctive relief against DEFENDANT PA as follows:

a) Enjoining DEFENDANT PA from

denying PLAINTIFFS’ access to Philippine Airlines tickets

on the same terms and conditions as GSA’s generally;

b) Enjoining DEFENDANT PA from

price discrimination in the sale of its tickets to

PLAINTIFFS, including payment of any commissions,

rebates, or other incentive normally paid « GSA’s

generally;

c) Divesting DEFENDANT PA and

DEFENDANT PALS from any and al management and/or

ownership of each other’s enterprises or other businesses,

d) Ordering DEFENDANT PALS to

vacate the premises it shares with DEFENDANT PA at

A-28

DEFENDANT PA’s~ San_ Francisco, California,

headquarters, until such time the same may be made

available to the bids of other GSA’s on an equal basis.

NINTH CAUSE OF ACTION

(DECLARATORY RELIEF)

59. PLAINTIFFS hereby incorporate by

reference the allegations in the above paragraphs 1

through 58 as if fully set forth herein. :

60. PLAINTIFFS ask the court for a

determination of whether any of their rights were isolated

under applicable federal and state laws and the extent of

the harm that occurred as consequence of those violations.

PRAYER FOR RELIEF

WHEREFORE, PLAINTIFFS PRAY FOR RELIEF AS

TO ALL CAUSES OF ACTION AS FOLLOWS:

1. Temporary, preliminary, and permanent

injunctive relief as prayed herein;

2. For attorneys’ fees and costs of suit incurred

herein; and,

3 For such other and further relief as the

Court deems just and proper.

Dated: October 4,2000

ALEXANDER ANOLIK,

A Professional Law Corporation

s/ By: Jordan A. Lavinsky

Jordan A. Lavinsky, Esq.

Attorneys for Plaintiff

Sextant Travel Services, Inc.

4

ie

A-29

VERIFICATION

I, J. Manuel Diaz, declare that:

I am the Plaintiff in this action. I have read

“Plaintiff's Verified Complaint” and I am familiar with the

contents thereof. The allegations therein are true and

accurate.

I declare under penalty of perjury under the laws of

the State of California that the foregoing responses are true

and correct.

Executed this 4% Day of October 2000, in San

Francisco, California.

/s |. Manuel Diaz

J. Manuel Diaz on behalf of Sig Tyr Sig, Inc.

and Sextant Travel Services

A-30

~

[This document has been prepared in accordance with

Supreme Court Rule 33]

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA-

OAKLAND DIVISION

SIG TYR SIG, ACALIFORNIA = Case No. C 00-3683 CW

CORPORATION, AND

SEXTANT TRAVEL SERVICES PAGES 1-30

PLAINTIFFS,

VS.

PHILIPPINE AIRLINES, INC.,

A PHILIPPINE

CORPORATION, PACIFIC AIR

LEISURE SERVICES, A MOTION TO DISMISS

CALIFORNIA

CORPORATION, ETC.,

DEFENDANTS.

OAKLAND, CALIFORNIA

[FRIDAY, DECEMBER 15, 2000]

TRANSCRIPT OF PROCEEDINGS

BEFORE THE HONORABLE CLAUDIA WILKEN

UNITED STATES DISTRICT COURT JUDGE

APPEARANCES:

FOR PLAINTIFFS: ANTHONY J. PALIK, ESQ.

ATTORNEY AT LAW

801 ALHAMBRA BOULEVARD

SUITE 3

SACRAMENTO, CA 95816

A-31

FOR DEFENDANT PHILIPPINE AIRLINES, INC-.:

BROBECK, PHLEGER &

HARRISON

ONE MARKET PLAZA

SPEAR STREET TOWER

SAN FRANCISCO, CA 94105

BY RODERICK A. McLEOD,

ESQ.

THOMAS R. GREEN, ESQ.

FOR DEFENDANT PACIFIC AIR LEISURE

SERVICES:

FERNANDO LAW OFFICES

255 N. MARKET STREET

SUITE 265

SAN JOSE, CA 95110

BY: RENE C. FERNANDO, ESO.

REPORTED BY: CANDACE L. YOUNT, CSR, RMR,

CRR, OFFICIAL REPORTER, USDC

FRIDAY, DECEMBER 15, 2000 10:17 A.M.

THE CLERK: CALLING THE MATTER OF

SIG TYR SIG VERSUS PHILIPPINE AIRLINES, CIVIL

ACTION NUMBER C 00-3683. COUNSEL PLEASE

COME FORWARD; STATE YOUR APPEARANCES FOR

THE RECORD.

MR. MCLEOD: YOUR HONOR. ROD MC

LEOD, BROBECK, FOR PHILIPPINE AIRLINES.

MR. PALIK: GOOD MORNING, YOUR

HONOR. ANTHONY PALIK SPECIALLY APPEARING

FOR ALEXANDER ANOLIK REPRESENTING SIG TYR

SIG, INC., AND SEXTANT TRAVEL SERVICES.

THE COURT: GOOD MORNING. YOU CAN

JUST STAY UP AT THE PODIA.

MR. PALIK: OH, OKAY. WE’VE GOT TWO

A-32

HERE.

THE COURT: THERE’S NO SENSE SITTING

DOWN.

MR. PALIK: ALL RIGHT.

MR. MC LEOD: IF I COULD INTRODUCE

TWO OTHER GENTLEMEN, YOUR HONOR.

THE COURT: OKAY

MR. MC LEOD: MR. GREEN, WHO HELPED

ON THE BRIEFS TREMENDOUSLY, AND ... .

MR. FERNANDO: RENE FERNANDO ON

BEHALF OF DEFENDANT PACIFIC AIR LEISURE

SERVICES, YOUR HONOR.

THE COURT: OH. WELL, YOU HAVEN'T

MOVED.

MR. FERNANDO: THAT’S CORRECT.

(PAUSE IN PROCEEDINGS)

THE COURT: WELL, IT JUST DOESN’T SEEM

TO ME THAT YOU HAVE AN ANTITRUST CLAIM

HERE AT ALL NOR THAT YOU COULD EVER MAKE

ONE. THE ONE THAT YOU TALK ABOUT MAKING

IN YOUR OPPOSITION ABOUT THE AIRLINE TRYING

TO MONOPOLIZE THE AIRLINE MARKET ISN'T A

CLAIM THAT YOU WOULD HAVE STANDING TO

BRING. AND THEN ON THIS. . . INTENTIONAL

INTERFERENCE WITH CONTRACT, YOU S_ ELL

TICKETS TO PEOPLE. INTERFERENCE WITH

CONTRACT HAS TO BE AN EXISTING CONTRACT,

NOT A DESIRED FUTURE CONTRACT. SO ONLY IF

YOU HAVE SOME EXISTING YET UNFULFILLED

CONTRACT WITH A CUSTOMER TO GIVE THEM A

REDUCED RATE TICKET AND THEN THEY

INTENTIONALLY INTERFERED WITH THAT - BUT MY

IMPRESSION OF AIRLINE AGENTS - TRAVEL

AGENTS’ TICKET SALES ISN’T THAT THEY ENTER

INTO BINDING CONTRACTS WITH THEIR

CUSTOMERS TO SELL THEM A TICKET IN THE

FUTURE. THEY EITHER SELL THEM A TICKET ON

THE SPOT OR THEY DON’T SELL THEM A TICKET.

A-33

~

AND THEN THE - THE INTENTIONAL

INTERFERENCE WITH FUTURE ECONOMIC BENEFIT,

OR WHATEVER IT IS. YOU HAVE TO HAVE A

WRONGFUL ACT THERE SO - AND THERE ISN’T ONE,

EXCEPT THE ALLEGED ANTITRUST WHICH, ASI SAY,

I JUST DON’T SEE HOW YOU CAN MAKE OUT. ITS’

BASICALLY AN EXCLUSIVE DEALERSHIP KIND OF

SITUATION AND THEN SOMEONE DOESN’T WHAT

TO HAVE THAT DEALER ANYMORE AND THAT’S

JUST NOT AN ANTITRUST CLAIM.

MR. PALIK: YOUR HONOR, MAY I

RESPOND?

THE COURT: YES.

MR. PALIK: WITH REGARD TO THE

ANTITRUST CLAIM, WE WERE REMISS IN MAKING A

VERY, VERY IMPORTANT ARGUMENT IN OUR - IN

OUR OPPOSITION AND WE APOLOGIZE TO THE

COURT FOR THAT. ;

~ THE DEFENDANT HAS ATTEMPTED TO

DISTRACT THE COURT, WE BELIEVE, AND HAS

ALMOST SUCCEEDED IN DISTRACTING US WITH

THIS ISSUE OF INTERBRAND COMPETITION.

ALTHOUGH THE SEXTANT - ALTHOUGH THE

PLAINTIFF WILL CONTINUE TO ALLEGE THAT

TERMINATION OF ITS DISTRIBUTORSHIP WAS IN

FURTHERANCE OF A PLAN TO LIMIT INTERBRAND

COMPETITION IN THE RELEVANT MARKET - AND I

KNOW THAT’S THE ISSUE YOU’RE TALKING ABOUT

NOW, IF I’M NOT MISTAKEN - THAT THAT'S -

THAT’S THE PROBLEM YOU'RE SAYING.

THE COURT: THAT'S YOUR SORT OF

NEFARIOUS CONSPIRACY THAT IT REALLY IS

BEYOND THIS. DISPUTE BETWEEN YOURSELF AND

PHILIPPINE AIR BUT, RATHER, IS A HUGE DISPUTE -

A HUGE CONSPIRACY WITH PHILIPPINE AIR AND

THE PHILIPPINE GOVERNMENT TO -

MR. PALIK: WELL -

THE COURT: - MONOPOLIZE THE

A-34

AIRLINES, WHICH MAY OR MAY NOT BE TRUE, BUT I

DON’T THINK IT’S ANYTHING THAT YOU’D HAVE

STANDING TO SUE ABOUT.

MR. PALIK: RIGHT. AND ACTUALLY IF IT

WERE JUST THAT, I'D AGREE, YOUR HONOR. WE’D

BE WITHOUT A CASE. BUT THERE IS SOMETHING

VERY IMPORTANT THAT I DID LEAVE OUT AND I'LL

GET TOIT.

THE PROBLEM HERE IS THAT THE PLAN BY -

BY PACIFIC - BY PHILIPPINE AIRLINES DECREED A

VERTICAL RESTRAINT ON INTRABRAND -

COMPETITION WHICH IS IN FURTHERANCE OF AN

ANTICOMPETITIVE ARRANGEMENT BETWEEN PAL’S

OTHER WHOLESALERS WHO MAY WISH TO ENGAGE

IN PRICE-FIXING IN THE FUTURE AND CERTAINLY

DESIRE TO ENGAGE IN TERRITORIAL DIVISION BY

WAY OF A DEALER CARTEL IS REALLY WHAT WE

SHOULD BE ARGUING HERE IN THIS CASE.

AND WE BELIEVE THAT - THAT THE

PLEADING ITSELF, THE COMPLAINT ITSELF, STATES

AN ANTITRUST CLAIM. AND WE UNDERSTAND THE

COURT’S CONCERN. YOU KNOW, DO WE HAVE A

CASE? DO WE HAVE A THEORY? WE DON’T WANT

TO WASTE ANYONE'S TIME HERE. WE DON’T WANT

TO WASTE THE DEFENDANT’S TIME. WE DON’T

WANT TO WASTE YOUR TIME. AND SO IT’S - IT’S

IMPERATIVE THAT WE MAKE CLEAR PRECISELY

WHAT KIND OF HARM IT IS WE’RE ALLEGING. AND

THAT I THINK WAS - WAS MADE ESPECIALLY

CLEAR BY THE DEFENDANT IN ITS REPLY BRIEF AND

THAT’S WHY I - I THANK THE COURT FOR HEARING

US TODAY.

_ WE CAN ALLEGE THAT DURING THE

WEEKEND OF SEPTEMBER 15TH THROUGH THE 1717,

A DELEGATION OF SEVEN PAL DISTRIBUTORS

TRAVELED TO THE PHILIPPINES TO MEET WITH TOP

PAL MANAGEMENT AND DISCUSS HOW TO DIVIDE

THE EXTREMELY LUCRATIVE RESALE MARKET

A-35

AMONG THEMSELVES THAT WAS CURRENTLY

SERVICED BY SEXTANT, THEIR LEADING

DISTRIBUTOR.

FURTHERMORE, IN A SERIES OF MEETINGS .

WITH ITS DISTRIBUTORS IN LATE APRIL OR EARLY

MAY OF 2000, PAL ATTEMPTED TO SET A MINIMUM

RESALE PRICE FOR ITS TICKET AMONG - TICKETS

AMONG ITS CALIFORNIA DISTRIBUTORS WHO

CONTROL AT LEAST 80 PERCENT OF THE

CALIFORNIA RESALE MARKET AMONG THE ETHNIC

PHILIPPINE POPULATION HERE IN CALIFORNIA.

NOW, THE - NOW, EVEN THOUGH THE

DISTRIBUTORS REJECTED THAT ATTEMPT, WE

BELIEVE THAT'S PART OF OUR. .. HOW WOULD YOU

SAY? PART OF THE MATRIX OR PART OF - OF THE

CIRCUMSTANCES THAT WOULD HELP US PROVE

OUR CASE.

OF COURSE, IN AN ANTITRUST CASE, THERE'S

~ THERE’S THE PER SE STANDARD AND THERE'S THE

~ THE REASONABLENESS STANDARD. WE DO

BELIEVE THAT THIS IS A PER SE VIOLATION OF THE

ANTITRUST RULES - LAWS BECAUSE IT IS A

DEALERSHIP CARTEL THAT HAS ASKED PHILIPPINE

AIRLINES OR THAT PHILIPPINE AIRLINES HAS

ENCOURAGED IN THIS REGARD TO TERMINATE

THEIR NUMBER ONE COMPETITOR IN TERMS OF THE

WHOLESALE MARKET. THAT IS THE HARM THAT

WE ARE ALLEGING.

AND I - I KNOW THAT WE DIDN'T MAKE

THAT CLEAR IN OUR OPPOSITION. I WISH WE HAD,

BECAUSE I HAVE A TERRIBLY -

THE COURT: WELL, I STILL DON’T GET IT.

SO THERE’S EIGHT DEALERS -

MR. PALIK: TEN ACTUALLY.

THE COURT: - AND - OKAY. TEN

DEALERS. AND THEY WISH THERE WERE ONLY NINE

AND... THAT’S - I DON’T GET IT.

SO THE TEN DEALERS - NINE OF THE

A-36

DEALERS WISH THEY DIDN’T HAVE TO COMPETE

WITH THE TENTH. BUT SIMULTANEOUSLY

PHILIPPINE AIRLINES DECIDES THAT THIS TENTH

DEALER IS NOT ACTING RIGHT AND TERMINATES IT

FOR NOT ACTING RIGHT.

WHERE - I STILL DON’T -

MR. PALIK: THE ESSENTIAL ELEMENT,

YOUR HONOR -

THE COURT: —- SEE THE ANTITRUST

VIOLATION.

MR. PALIK: OH, I'M SORRY. I DIDN'T

MEAN TO INTERRUPT YOU.

THE ESSENTIAL ELEMENT, HOUR HONOR, IS

THE AGREEMENT BETWEEN THE CARTER - THE

GROUP - THE ORGANIZED GROUP OF DISTRIBUTORS

AND THE SUPPLIER. IT’S THAT RELATIONSHIP

WHICH CREATES THE PROBLEM

IN FACT, IF - EVEN WITHOUT THE SUPPLIER

WE COULD ARGUE, ALTHOUGH THE FACTS IN THIS

CASE DON’T -

THE COURT: WELL, LET'S SAY A

MANUFACTURER HAS AUTHORIZED

DISTRIBUTORSHIPS, AND IT HAS TEN OF THEM, AND

NATURALLY EACH ONE OF THE - OF THEM WISHES

THEY COULD HAVE THE BUSINESS OF THE OTHER.

MR. PALIK: MN-HMM.

THE COURT; AND THE MANUFACTURER

HAS ITS OWN REASONS FOR TERMINATING ONE OF

THEM.

MR. PALIK: MN-HMM.

THE COURT: THAT DOES REDOUND TO

THE BENEFIT OF THE REMAINING ONES

NATURALLY.

MR. PALIK: MN-HMM.

THE COURT: BUT . . . UNLESS, I SUPPOSE,

THERE WAS SOME AGREEMENT TO DO SO FOR SOME

ANTICOMPETITIVE PURPOSE BUT . . . WHY DON’T

YOU TRY AGAIN. IJUST -

A-37

MR. PALIK: SURE. SURE. NO. PLEASE.

THANK YOU VERY MUCH FOR YOUR QUESTIONS.

IF - IF THE DEALERS WERE COMPETING

AMONGST THEMSELVES IN A FREE AND OPEN

MARKET IN THE SENSE THAT WHOEVER HAD THE

BEST ADVERTISING, WHOEVER HAD THE BEST

METHOD OF MARKETING THEIR SALES TO THEIR -

THEIR DOWNLINE RETAILERS, IF THAT ELIMINATED

OUR CLAIM, WELL, SO BE IT. THAT’S THE MARKET.

AND THAT’S THE WAY THE WORLD WORKS AND

THERE’S NOTHING WE CAN DO ABOUT THAT

EXCEPT BE A BETTER COMPETITOR. |

~ BUT IN THIS CASE, WHAT WE'RE ALLEGING IS

THAT THE NINE OTHER - OR MIGHT BE 11 OTHER - I

CAN’T REMEMBER IF IT’S TEN OR 12 DISTRIBUTORS.

BUT THE OTHER DISTRIBUTORS ORGANIZE

THEMSELVES AND USE THE POWER OF THE

SUPPLIER TO FURTHER THEIR ENDS IN

ELIMINATING THE OUR CLIENT AS ONE OF THEIR

COMPETITORS. THAT, WE ALLEGE, IS UNFAIR

COMPETITION AND IS ANTITRUST.

THE COURT: WELL, HOW COULD THEY

USE THE POWER - HOW COULD THE TRAVEL

AGENTS USE THE POWER OF THE AIRLINE?

MR. PALIK: BY GUARANTEEING THE

AIRLINE A BETTER - A BETTER... A BETTER DEAL

BASICALLY AT THE EXPENSE OF THE CONSUMING

PUBLIC. INOTHER WORDS, THAT’S WHERE -

THE COURT: WELL, WE HAVE TO PROVE

IT, YOUR HONOR. I MEAN WE NEED TO DO

DISCOVERY AND WE NEED TO FIND THE FACTS.

AND WHAT WE’RE ASKING THE COURT TO

DO IS TO ALLOW US TO PROCEED WITH THAT FACT-

FINDING AND - OR -

THE COURT: SO -

MR. PALIK: -- AMEND OUR COMPLAINT.

THE COURT: - THEY SAY, “IF YOU GET

RID OF THIS TENTH GUY, WE’LL SELL MORE OF

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MR. PALIK: NOT EXACTLY. ACTUALLY

THEY MAY AGREE TO _= A __ PRICE-FIXING

ARRANGEMENT. THEY MAY AGREE -

THE COURT; THEY MAY AGREE TO A

PRICE-FIXING?

MR. PALIK: WELL, WE DO_- HAVE

EVIDENCE OF THE FACT THAT THERE WERE

MEETINGS IN THAT REGARD EARLIER THIS YEAR,

MEETINGS HELD AT THE INSTANCE OF PHILIPPINE

AIRLINES TO ASK THE DISTRIBUTORS TO SET A

MINIMUM PRICE. OUR PM’S ARE A PER SE

VIOLATION OF THE SHERMAN ACT AND THAT'S -

EVEN THAT PARTICULAR REPORT WAS REJECTED BY

THE DISTRIBUTORS, WE THINK IT - IT IS PART OF

THIS PLAN. IT’S PART OF THIS -_ THIS

ARRANGEMENT.

IT’S A COLLUSIVE SITUATION TO THE

EXCLUSION - IT’S OUR ARGUMENT THAT THE

ANTITRUST LAWS - IF YOU’RE WONDERING ABOUT

WHAT THE INJURY IS AND WHERE THE HARM LIES,

IT’S OUR ARGUMENT_THAT THE ANTITRUST LAWS

ARE TO PERMIT THE ENTRY OR TO PREVENT THE

EXTERMINATION OF A DISTRIBUTOR, WHERE THIS

BECOMES A_ BARRIER TO ENTRY TO THE

MARKETPLACE, BASICALLY. THAT'S THE HARM

HERE IS THAT THE DISTRIBUTORS ARE NOT ABLE TO

ENTER THE MARKET WITHOUT - WITHOUT THE

GOOD GRACES OF MR. TAN AND PHILIPPINE

AIRLINES. NOW -

THE COURT: THAT’S THE SAME WITH ANY

EXCLUSIVE DISTRIBUTORSHIP. YOU’VE GOT TO

HAVE SOMETHING THAT DISTINGUISHES YOUR

SITUATION FROM THE UNQUESTIONABLE RIGHT OF

A MANUFACTURER TO HAVE EXCLUSIVE

DISTRIBUTORS.

MR. PALIK: WE CONCEDE THAT. WE

CONCEDE THAT - THAT A MANUFACTURER CAN

A-39

ESTABLISH AN EXCLUSIVE DISTRIBUTORSHIP. THE

PROBLEM HERE IS THE DEALERSHIP CARTEL.

WHAT HAPPENS IS BECAUSE OF THE

CARTEL’S EXISTENCE AND ITS COOPERATION WITH

THE SUPPLIER, WHAT YOU HAVE BASICALLY IS

COMPLETE MARKET DOMINANCE IN AN AREA

WHERE PERSONS MIGHT NOT BE ABLE TO USE

OTHER AIRLINES IN THE FUTURE.

NOW, THAT’S - THAT’S, ALBEIT AN

ANCILLARY EFFECT, WE UNDERSTAND THAT

THAT'S -

THE COURT. WHY WOULD !T HAVE ANY

EFFECT ON PEOPLE'S ABILITY TO USE OTHER

AIRLINES?

MR. PALIK: © WELL, BECAUSE OF MR.

TAN’S POLITICAL CONNECTIONS WITH THE

PHILIPPINES, YOUR HONOR. WE KNOW THAT

THAT’S - THAT’S THE PART OF OUR OPPOSITION, I

THINK, THAT PROBABLY CAUSED YOU THE

GREATEST CONCERN IN TERMS OF HOW WE WOULD

CONNECT IT TO THE INDIVIDUALIZED HARM OF

OUR PARTICULAR CLIENT AND WHY THERE IS A

STANDING ISSUE. ‘

WHAT WE ARE ASKING THE COURT FOR IS

AN OPPORTUNITY TO PROVE OUR CASE IN THAT

REGARD, THAT THERE IS A CONNECTION, THAT

OUR CLIENT WAS THE NUMBER ONE DISTRIBUTOR -

OR MAYBE NUMBER TWO DISTRIBUTOR OF

PHILIPPINE AIRLINE TICKETS IN CALIFORNIA AND

IN THE UNITED STATES, FOR THAT MATTER, AND

THAT THIS WAS AN EFFORT BY COMPETING

DEALERS TO ELIMINATE HIM THROUGH AN

UNTOWARD USE OF MONOPOLY POWER BY THE

SUPPLIER.

THE COURT: I FORGOT TO MENTION

ANOTHER PROBLEM I HAVE WITH YOU CASE,

WHICH IS THE ROBINSON-PATMAN ACT CLAIM

AND THE PROBLEM THAT AN AIRLINE TICKET ISN'T

A-40

A COMMODITY.

MR. PALIK: WE AGREE, YOUR HONOR. I

INFORMED OPPOSING COUNSEL BEFORE WE CAME

IN THAT WE WOULD DISMISS THAT CAUSE OF

ACTION.

WE - I - I RESEARCHED THE SEVENTH

CIRCUIT CASE JUST AS I WAS WRITING THE

OPPOSITION, DISCOVERED THAT THE NINTH

CIRCUIT’S FOLLOWED IT TWICE, AND - AND

ALTHOUGH I DID MAKE AN EFFORT TO ARGUE AN

ALTERNATIVE THEORY, I DON’T THINK IT’S GOING

TO HOLD MUSTER AND SO -

THE COURT: ONCE, YOU THOUGHT YOU

COULD DEAL WITH IT, BUT IF THEY DID IT TWICE,

YOU'RE GOING TO GIVE UP?

MR.PALIK: YES.

(LAUGHTER.)

THE COURT: DID YOU WANT TO

RESPOND? .

MR. PALIK: OH.

MR. MCLEOD: YES, YOUR HONOR. THREE

MAIN POINTS.

THE COURT; WHAT? DID YOU HAVE

SOMETHING ELSE YOU WANTED TO SAY?

MR. PALIK; WELL, YOUR HONOR, THERE

WERE SOME OTHER ISSUES. I'M SORRY TO

INTERRUPT OPPOSING COUNSEL. THERE WERE

SOME OTHER ISSUES YOU'D RAISED, THOUGH WITH

REGARD TO THE OTHER CAUSES OF ACTION. DID

YOU WANT ME TO ADDRESS THOSE?

THE COURT: I GUESS SO.

MR. PALIK: OKAY. FIRST OF ALL, WITH

REGARD TO THE UNFAIR BUSINESS PRACTICES

SITUATION - OR OPPOSITION, THE DEFENDANT

WANTS TO ARGUE THAT NO CAUSE OF ACTION

EXISTS WHERE PAL AND SEXTANT DOESN'T’

COMPETE. ONE IS A PRODUCER; THE OTHER IS THE

DISTRIBUTOR.

A-41

THIS CHARACTERIZATION, HOWEVER,

OVERLOOKS THE FACT THAT SEXTANT CAN

ALLEGE THAT PAL IS IN AN ANTICOMPETITIVE

CONSPIRACY - THIS IS THE SAME ONE I’VE BEEN

TALKING ABOUT IN THE ANTITRUST PORTION OF

THIS ARGUMENT - IN VIOLATION OF SECTION 17200

OF THE CALIFORNIA BUSINESS AND PROFESSIONS

CODE TO - TO CAUSE THE ACTS COMPLAINED OF IN

THE COMPLAINT IN VIOLATION OF THOSE

STATUTES.

AND SO WE DO ACKNOWLEDGE THAT PAL

AND SEXTANT AREN’T IN THEMSELVES

COMPETITORS, BUT WHAT WE ARGUE IS THAT PAL

IS - OR - IS THAT - EXCUSE ME - PACIFIC AIR

LEISURE SERVICES, THE ONE OTHER DEFENDANT

NAMED IN THIS ACTION, IS ACTING THROUGH PAL

AND THAT THERE’S AN AGENCY RELATIONSHIP

THERE. AND SO IN THAT REGARD, PAL - THE

AGENT FOR ITS DISTRIBUTORS.

THE COURT: WELL, I'M SORRY. THE

PROBLEM WITH THAT CLAFM IS THAT .. . IT’S NOT

AN INJURY TO A COMPETITOR, THAT PAL AND PA -

AND SEXTANT ARE NOT COMPETITORS.

MR. PALIK: BUT PACIFIC AIR LEISURE

SERVICES AND SEXTANT ARE COMPETITORS, AND

PAL IS A NECESSARY PART OF -

THE COURT: THIS IS PAL’S MOTION TO

DISMISS. I DON’T KNOW WHY PALS DIDN’T BRING

ONE BUT -

MR. PALIK: RIGHT WELL -

THE COURT: -- IT SEEMS THEY DIDN'T.

MR. PALIK: WE DON’T KNOW, EITHER.

BUT - BUT PACIFIC AIR LEISURE SERVICES IS USING

PAL AS ITS AGENT AND SO THEREIN LIES THE - THE

RUB. THAT - THAT'S THE BASIS FOR OUR

ANTICOMPETITION COMPLAINT.

WE CAN SHOW THAT THIS RELATIONSHIP

DOES EXIST. WE CAN SHOW THAT ONE IS REALLY

A-42

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THE ALTER EGO OF THE OTHER AND THAT - AND

THAT PALS AND SEXTANT ARE COMPETING IN THE

WHOLESALE MARKET AND THAT - OR PACIFIC AIR

LEISURE SERVICES - IS THAT WHAT I SAID? -- AND

SEXTANT ARE COMPETING IN THE WHOLESALE

MARKET.

THE COURT: SO YOU’RE SUING THE

AIRLINE FOR ASSISTING ANOTHER TRAVEL AGENCY

IN DOING WHAT TO YOUR CLIENT?

MR. PALIK: EXCLUDING OUR CLIENT

FROM THE MARKET UNREASONABLY. AND - AND

POTENTIALLY - OR ARGUABLY AS A PER SE

VIOLATION OF THE ANTITRUST LAWS, AND IN

VIOLATION OF A NUMBER OF THE DIFFERENT

SECTIONS OF THE CALIFORNIA BUSINESS AND

PROFESSIONS CODE.

(PAUSE IN PROCEEDINGS)

THE COURT: OKAY.

MR. PALIK: IF YOU’D LIKE ME TO

PROCEED -

THE COURT: WELL, THEN WE HAVE YOUR

RICO CLAIMS -

MR. PALIK: YES.

THE COURT: -~ WHICH YOU’RE ALLEGING

EXTORTION -

MR. PALIK: YES.

THE COURT; -- WHICH IS REQUIRING AN

ALLEGATION OF THE USE OF FORCE OR FEAR.

MR. PAIK: YES. THAT ACTUALLY WAS -

THE COURT: I GUESS MORE THAN FEAR

OF LOSING MONEY.

MR. PALIK: UM-HMM.

THE COURT: DO YOU HAVE ANYTHING

YOU WANT TO SAY ABOUT THAT?

MR. PALIK: ABSOLUTELY, YOUR HONOR.

THE OTHER SIDE HAS CORRECTLY ARGUED

THAT WE MUST SHOW THAT PROPERTY WAS

OBTAINED IN VIOLATION OF THIS PROHIBITION

A-43

AGAINST THE USE OF THREAT OR THE USE OF FEAR

TO OBTAIN IT.

WE WOULD ARGUE THAT THE PROPERTY

THAT WAS OBTAINED IN VIOLATION OF - OF BOTH

THE FEDERAL AND THE STATE EXTORTION

STATUTES WAS A BANK ACCOUNT CONTAINING A

HUNDRED THOUSAND DOLLARS THAT SECURED A

LETTER OF CREDIT GIVEN TO PAL BY SEXTANT.

WHEN SEXTANT COMPLAINED LAST AUGUST

THAT CERTAIN MONIES OWED IT WERE BEING

WITHHELD BY THE DEFENDANT, THE DEFENDANT

RETALIATED BY CONCOCTING THE SEAT HANGING

EXCUSE.

NOW, WE KNOW FROM YOUR HONOR’S

ORDER WITH REGARD TO THE MOTION FOR

TEMPORARY RESTRAINING ORDER THAT YOU ARE

INCREDULOUS OF THE SEAT HANGING EXCUSE.

BUT, YOUR HONOR, WE NEED AN OPPORTUNITY TO

ROVE THAT THIS IS A SMOKE SCREEN.

THE - THE DIFFERENCE - THE DISTINCTION

BETWEEN SEAT HANGING AND BOOKING A

RESERVATION IS A HIGHLY TECHNICAL

DISTINCTION THAT MIGHT REQUIRE THE EXPERT

WITNESS - OR HE TESTIMONY OF AN EXPERT

WITNESS TO SHOW OR TO PROVE TO THE COURT.

BUT IT IS A REAL DIFFERENCE.

SEAT HANGING —

THE COURT: WELL, BUT WHERE’S THE

FORCE OR FEAR?

MR. PALIK: WELL, THE - THE FEAR -

OKAY. ACTUALLY, I WAS GETTING TO THAT. I GOT

A LITTLE DISTRACTED.

NOT ONLY CAN SEXTANT PROVE THAT SEAT

HANGING IS A CRISIS OF THE DEFENDANTS’ OWN

MAKING BUT THAT SEXTANT’S EXERCISE OF ITS

RIGHT TO ASK FOR AN ACCOUNTING OF MONIES

OWED WAS THE MOTIVATION FOR PAL'S

RETALIATION.

A-44

NOW, WHAT HAPPENED WAS THAT PAL’S

THREAT OF REPUDIATION OF THE BUSINESS

RELATIONSHIP IT SHARED WITH SEXTANT WAS A

PRETEXT USED TO JUSTIFY ITS SEIZURE OF THE

AFOREMENTIONED BANK ACCOUNT, THEREBY

MAKING GOOD ON ITS THREAT. IN OTHER WORDS,

OUR CLIENT WAS ALWAYS IN FEAR OF LOSING

THAT MONEY.

AND WHAT - WHAT HAPPENED WAS, THE

DEFENDANT SAID, LOOK, IF YOU MAKE NOISE THAT

WE DON’T WANT TO HEAR, IF YOU TELL US

SOMETHING WE DON’T WANT O HEAR, EVEN IF

YOU HAVE A RIGHT TO ASK US FOR THAT, EVEN IF

IT’S PART OF OUR - OUR RELATIONSHIP, WHETHER

BY EXPLICIT CONTRACT OR BY __ IMPLICIT

CONTRACT, OR COURSE OF DEALINGS OR

WHATEVER, WE WILL TERMINATE OUR

RELATIONSHIP WITH YOU AND WE WILL TAKE

THAT - THAT MONEY THAT’S HELD ON DEPOSIT

FOR US AND YOU'LL LOSE.

AND THAT’S AN AWFULLY BIG STICK TO

HANG OVER OUR - HOLD OVER OUR CLIENT.

WHETHER OR OT THE SEIZURE OF THE BANK

ACCOUNT WAS ACTIVITY ACTUALLY THREATENED

AT THE TIME OR WHETHER SEXTANT CONSENTED

TO THE SEIZE BY DISPUTING PAL’S SEAT HANGING

CLAIM IS IMMATERIAL. WE WOULD ARGUE THAT

SEIZURE OF THE BANK ACCOUNT WAS THE

FORESEEABLE RESULT OF PAL’S TERMINATION OF

ITS BUSINESS RELATIONSHIP WITH SEXTANT BY

ALLEGING THAT SEXTANT’S SUPPOSED BREACH OF

THE GSA AGREEMENT - >

I'M SORRY. AM 1 GOING TOO FAST?

THE REPORTER: (SHAKING HEAD.)

MR. PALIK: OH, GOOD. OKAY.

~- AND THE SEIZURE OF THIS PROPERTY

CONSUMMATED PAL’S THREATENED ACTION. SO

THAT’S THE SOURCE OF OUR EXTORTION AND

os

A-45

THAT'S THE BASIS FOR OUR RICO CLAIM. AND -

THE COURT: WELL -

MR. PALIK: - THERE IS ONE MORE

THING WITH REGARD TO PERSPECTIVE [sic]

ECONOMIC ADVANTAGE. I DON’T KNOW IF YOU

WANTED ME...

THE COURT: OKAY

MR. PALIK: TO MAKE THAT POINT AS

WELL.

THE COURT: ALL RIGHT.

MR. PALIK: IT’S UP TO YOUR HONOR.

THE COURT: WELL, SINCE I'M SERIOUSLY

CONSIDERING DISMISSING YOUR CASE, I GUESS I’D

BETTER LET YOU SAY WHATEVER YOU LIKE.

MR. PALIK: SURE. WITH REGARD TO THE

INTERFERENCE WITH ECONOMIC ADVANTAGE,

DEFENDANTS’ ARGUMENT THERE SIMPLY THAT -

THAT AN ACTUAL CONTRACT MUST BE BREACHED,

WE BELIEVE, IS NOT SUPPORTED BY PRECEDENT,

AND WE COULD BRIEF THE COURT ON THOSE

CASES.

THE COURT: NO. THERE’S TWO

DIFFERENT CLAIMS. ONE JIS_ INTENTIONAL

INTERFERENCE WITH CONTRACT; ONE JIS

INTENTIONAL INTERFERENCE WITH PROSPECTIVE

ECONOMIC ADVANTAGE.

MR. PALIK: RIGHT.

THE COURT: CONTRACT REQUIRES A

CONTRACT. PROSPECTIVE ECONOMIC ADVANTAGE

REQUIRES A WRONGFUL ACT.

MR. PALIK: WELL -

THE COURT: THERE’S TWO PROBLEMS,

ONE WITH EACH.

MR. PALIK: RIGHT. OKAY. WELL, WITH

REGARD TO THE WRONGFUL ACT, I MEAN, I THINK

THAT THAT’S BORNE OUT IF WE ARE TO PROVE THE

OTHER CAUSES OF ACTION.

THE COURT: RIGHT.

A-46

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MR. MCLEOD: WELL, YOUR HONOR, THERE-

THE COURT: IT’S OBVIOUS THAT ALL

THESE CLAIMS HAVE TO BE DISMISSED. THE

QUESTION IS WHETHER I CAN DISMISS THEM WITH

PREJUDICE OR WHETHER I HAVE TO GRANT LEAVE

TO AMEND SOME OR ALL OF THEM.

MR. MCLEOD: WELL, WE BELIEVE WITH

RESPECT TO THE ANTITRUST CLAIMS AND ANY

CLAIMS THAT ARE BASED ON

ANTITRUST/ANTICOMPETITIVE CONDUCT, YOU

HAVE THE ABSOLUTE RIGHT TO DISMISS THEM

WITH PREJUDICE NOW. THEY HAVE NOT BEEN

ABLE TO PROVE ANY ANTICOMPETITIVE EFFECT ON

THE MARKET. THEY HAVEN’T DONE ANYTHING -

THE COURT: WELL, WE’RE NOT TALKING

ABOUT PROOF HERE. WE’RE JUST TALKING -

MR. MCLEOD: NO, NO,I UNDERSTAND.

THE COURT: — ABOUT ALLEGATIONS.

MR. MCLEOD: BUT THEY CAN’T EVEN

ALLEGE IT, YOUR HONOR.

VERTICAL RESTRAINTS ARE FINE. I MEAN,

THEY’VE BEEN FIGHTING FOR THEIR CLIENT, AND

THIS TRAVEL AGENT CERTAINLY FEELS BADLY

ABOUT HAVING LOST OUT ON _ THIS

DISTRIBUTORSHIP, THIS GSA AGREEMENT. BUT

THAT'S LIFE, YOUR HONOR, AND THEY CAN’T BE

MAKING ANTITRUST CLAIMS THAT CAN’T BE

SUPPORTED IN ANY WAY.

THERE’S NO HARM WHATSOEVER, AND THEY

CAN’T EVEN MAKE A CLAIM THAT THERE’S HAREM

TO INTERBRAND COMPETITION. AND THAT’S WHAT

THEY HAVE TO ALLEGE.

THEIR OWN BOOK - ALEXANDER ANOLIK’S

TRAVEL INDUSTRY BOOK - WE QUOTED IT - EVEN

SAYS THAT TRAVEL AGENTS CAN’T BRING CLAIMS.

THEY HAVE NO STANDING TO BRING CLAIMS

UNDER A VERTICAL RESTRAINT THEORY BECAUSE

THEY’RE AGENTS.

A-47

THE COURT: NOW HE’S TALKING ABOUT

THE INTERBRANDS BEING THE BRANDS OF TRAVEL

AGENTS. i

MR.MCLEOD: THE PROBLEM IS_ THAT

PHILIPPINE AIRLINES DOESN’T COMPETE WITH

TRAVEL AGENTS. IT DOESN’T’ COMPETE WITH ITS

GSA’S. IF HE WANTS TO GO AHEAD AND SUE ALL 12

OTHER GSA’S LET HIM. BUT THAT ISN’T WHAT HE'S

SUED - THAT ISN’T WHAT HE'S DONE.

THE COURT: HE’S SAYING -

MR. MCLEOD: TWO TIMES -

THE COURT: - THE AIRLINE IS IN SOME

SORT OF CONSPIRACY WITH THE OTHER TRAVEL

AGENTS TO ELIMINATE THIS TRAVEL AGENCY.

MR. MCLEOD: WHERE'S THE EFFECT OF - IT

GOES BACK TO SOME BASE QUESTIONS IN

ANTICOMPETITIVE LAW, YOUR HONOR. WHERE'S

THE HARM TO COMPETITION?

I THINK THE GALLO CASE AND THE SIRPA

(PHONETIC) ALL SAY THAT ESSENTIALLY YOU CAN

- A MANUFACTURER CAN, HAVE AS MANY

DISTRIBUTORS AS HE OR SHE WANTS AND HE CAN -

HE OR SHE CAN ELIMINATE ALL OF THEM IF HE

WANTS. IN FACT, HE CAN GIVE SPECIAL

ARRANGEMENTS TO THEM AS LONG AS THERE’S NO

EFFECT ON COMPETITION.

THEY JUST DON’T HAVE STANDING. I DON’T

SEE HOW THEY CAN RESUSCITATE THE STANDING

IN ANY WAY, YOUR HONOR.

THE COURT: AND THE ROBINSON-

PATMAN ACT IS CONCEDED. THE CARTWRIGHT

ACT IS THE SAME AS THE SHERMAN ACT. ti

MR. MCLEOD: YES, MA'AM

THE COURT: AND THEN -

MR. MCLEOD: UNFAIR PRACTICES ACT IS

THE SAME. RICO’S THE SAME. I THINK THE

INTENTIONAL INTERFERENCE AND - BOTH

INTENTIONAL INTERFERENCE CLAIMS ARE THE

A-48

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SAME. WHERE’S THE WRONGFUL ACT? THAT’S—

PRECISELY - THAT WAS PRECISELY OUR POINT.

THE COURT: WELL, THE INTENTIONAL

INTERFERENCE WITH CONTRACT DOESN’T REQUIRE

A WRONGFUL ACT. IT JUST -

MR. MCLEOD: CORRECT, YOUR HONOR,

BUT THE INTENTIONAL -

THE COURT: -- REQUIRES THE EXISTING

CONTRACT WHICH -

MR. MCLEOD: WHICH IS REALLY AN ISSUE

HERE.

THE COURT: WELL, I GUESS THAT’S THE

THING YOU DIDN’T ADDRESS.

MR. PALIK: ACTUALLY, I - THAT WAS

BECAUSE I WAS ADDRESSING THE WRONG CAUSE

OF ACTION WHEN I DID SO. WE’D ARGUE THAT -

THAT AN ACTUAL CONTRACT ISN’T NECESSARY

BUT THAT THERE BE AN ECONOMIC RELATIONSHIP

OF BENEFIT BETWEEN THE PLAINTIFF AND A THIRD

PARTY. AND THAT WE DO HAVE AUTHORITY FOR

AND, IF YOU’D LIKE, WE COULD AMEND OUR

OPPOSITION TO CITE IF FOR YOU.

MR. MCLEOD: ONE RESPONSE TO THAT,

YOUR HONOR. EVEN IF THEY CLAIM - IF - IF THEY

COME BACK TO YOU AND SAY, LOOK, WE CAN

ALLEGE -

THE COURT: EXCUSE ME. SO YOU AGREE

YOU DON’T HAVE ANY EXISTING CONTRACTS THAT

WERE INTENTIONALLY INTERFERED WITH.

MR. PALIK: WELL ACTUALLY, YOUR

HONOR, I THINK WE DO. WE HAVE CONTRACTS

BETWEEN OUR CLIENT AND ITS DOWNLINE

RETAILERS WHO WERE INTERFERED WITH.

THE COURT: CONTRACTS?

MR. PALIK: YES, YOUR HONOR. WELL,

THE - THE DOWNTIME - DOWNLINE RETAILERS

RELY ON OUR CLIENT’S ABILITY TO PROVIDE THE

TICKETS QUICKLY AND AT A COMPETITIVE PRICE.

A-49

THE COURT: YEAH. BUT IS THERE A

CONTRACT? “I AGREE TO GIVE YOU X NUMBER OF

TICKETS ON Y DATE FOR Z PRICE.”

MR. PALIK: YES, I DO BELIEVE THERE

ARE IN SOME INSTANCES. THE - OUR CLIENT IS A

WHOLESALER AND WHATEVER RELATIONSHIPS IT

DEVELOPS WITH ITS RETAILERS DEPENDS ON THE

PARTICULAR CIRCUMSTANCES OF THAT

RETAILER'S PARTICIPATION IN THE MARKET.

I COULD ALLEGE MORE _ SPECIFICALLY

MAYBE IN OUR COMPLAINT WHICH CONTRACTS.

THOSE WERE THAT WERE VIOLATED, BUT WE ALSO

ARGUE THAT EVEN IF WE’RE UNABLE TO DO THAT,

WE CAN ARGUE THAT ECONOMIC RELATIONSHIPS

TANTAMOUNT TO CONTRACT EXISTED WHERE THE

RETAILERS DID EXPECT A CERTAIN THING TO BE

PROVIDED IN THE FUTURE WHICH MAKES IT A

CONTRACT RATHER THAN A PRESENT SALE.

THE COURT: HMM.

MR. PALIK: THAT THERE’S SOME

EXECUTORY. %

MR. MCLEOD: THERE ARE NO CONTRACTS

THAT WE KNOW OF BETWEEN SEXTANT AND ITS

_ DOWNSTREAM RETAILERS. I WOULD CAUTION

COUNSEL THAT - THAT HE NEEDS TO BE REALLY

CLEAR ABOUT THAT BECAUSE THESE ARE JUST -

THESE ARE DOWNSTREAM RETAIL AGENTS THAT

SIMPLY PLACE OTHER ORDERS. YOUR HONOR.

BUT—BUT HERE'S THE REAL KEY TO THIS CAUSE OF

ACTION. EVEN IF HE CLAIMED THAT THERE WAS

THIS EXISTING CONTRACT AND SO FORTH, WE

COULD STILL TERMINATE IT AT ANY TIME.

THECOURT: TERMINATE YOUR OWN

CONTRACT.

MR. MCLEOD: TERMINATE OUR CONTRACT.

THE COURT: RIGHT. BUT HE’S TALKING

ABOUT YOU INTENTIONALLY INTERFERING WITH

SOME CONTRACT HE HAD WITH SOMEONE ELSE.

A-50

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MR. MCLEOD: RIGHT. BUT IF WE CAN - IF

WE CAN - IF WE CAN TERMINATE OUR CONTRACT

_ AT ANY TIME WITH GOOD CAUSE - AND HE HAS TO

BE ABLE TO SAY THAT IT WAS UNJUSTIFIED, ET

CETERA - THEN HOW CAN HE CLAIM THAT WE

INTERFERED BEYOND THE LAW WITH HIS

CONTRACT - WITH HIS DOWNSTREAM CONTRACTS?

THAT’S THE POINT.

THE COURT: OKAY. DID YOU HAVE

ANYTHING ELSE ON THE ANTITRUST CLAIMS?

MR. MCLEOD: YOUR HONOR, ONLY THAT...

(PAUSE IN PROCEEDINGS.)

MR. MCLEOD: PHILIPPINE AIRLINES

REALLY DOESN’T HAVE ANY INCENTIVE AT ALL TO

CONSPIRE WITH ITS TRAVEL AGENTS. I MEAN, THAT

IS A - THAT’S A VERY IMAGINATIVE CLAIM, YOUR

HONOR. AND WE WANT - WE WANT TO SELL

TICKETS. WHETHER IT’S THROUGH EIGHT

DISTRIBUTORS OR WHETHER THROUGH - WHETHER

IT’S THROUGH 50, WE DON’T CARE. WE JUST WANT

TO SELL TICKETS. SO THEY REALLY HAVE AN

INSURMOUNTABLE TASK TO TRY AND GET OVER

THE ANTICOMPETITIVE EFFECT ISSUE. I REST THERE,

YOUR HONOR.

MR. PALIK: YOUR HONOR, IN RESPONSE

DIRECTLY TO THAT POINT. PHILIPPINE AIRLINES

DEPENDS VERY LARGELY ON THE VAST MAJORITY

OF ITS TICKETS BEING SOLD TO THE PHILIPPINE -

ETHNIC PHILIPPINE PERSONS. IN THIS REGARD,

THE GREATER CONTROL PHILIPPINE AIRLINES CAN

HAVE OF THAT MARKET, THE BETTER CONTROL IT

HAS OVER THE MARKET IN GENERAL BECAUSE IT

CAN THEN RESTRICT ACCESS THE PHILIPPINES,

TRAVEL TO THE PHILIPPINES, IN SUCH A WAY THAT

ITS OTHER COMPETING AIRLINES ARE BASICALLY

ELIMINATED FROM SERVICING THE PHILIPPINES.

THAT, WE - WE UNDERSTAND IS A HYPOTHETICAL

WAITING TO BE PROVED BY US. AND WE

A-51

UNDERSTAND THAT THE COURT HAS CONCERNS

WITH REGARD TO THE STANDING OF OUR CLIENT.

BUT WE BELIEVE THAT OUR - OUR CLIENT DOES

HAVE STANDING WITH REGARD TO THE CARTEL

AND ITS - ITS COLLUSION WITH THE SUPPLIER IN

VIOLATION OF THE ANTITRUST LAWS, THAT THE

ARRANGEMENTS THROUGH WHICH FIRMS REFUSE

TO DEAL WITH OR ISOLATE ANOTHER FIRM CAN BE

ANTICOMPETITIVE AND THAT COLLECTIVE

AGREEMENTS MAY BE DESIGNED TO ELIMINATE

CONTRIBUTION EITHER BY CREATING ENTRY

BARRIERS OR FACILITATING MARKET EXITS FOR

DIFFERENT COMPETITORS WITHIN THAT LEVEL -

WITHIN THAT LEVEL OF THE MARKET, THAT THE

VERTICAL RESTRAINT CREATES A HORIZONTALLY

RESTRAINT IN FURTHERANCE OF A PLAN BY THE

AIRLINE TO ELIMINATE ITS OTHER COMPETING

AIRLINES. .

-- AND I - THE PROBLEM WITH ANTITRUST,

YOUR HONOR, IS, IT’S SO COMPLICATED, IT’S SO

FACT DEPENDENT BECAUSE OF THE -RULE—THE

RULE OF REASONABLENESS AND FOR OTHER

REASONS, IT DEPENDS ON SOME VERY ESOTERIC

AND COUNTERVAILING TENSIONS WHICH, IF WE

WERE TO [BE] DISMISSED WITH PREJUDICE TODAY,

WE’D NEVER HAVE AN OPPORTUNITY TO SHOW

THE COURT HOW THIS CAN ALL FIT TOGETHER. IT’S

LIKE CONNECTING THE DOTS ON A VERY LARGE

CONNECT-THE-DOTS PICTURE. UNTIL YOU

CONNECT THOSE DOTS, YOU CAN’T REALLY SEE

THE PICTURE CLEARLY. SO WE WOULD WANT AN

OPPORTUNITY TO DO THAT FOR THE COURT, TO

CONNECT THE DOTS.

MR. MCLEOD: WELL, YOUR HONOR, JUST

ONE LAST POINT. PLAINTIFFS HAVE HAD A LOT OF

TIME TO CONNECT THE DOTS. IF THE COURT WILL

RECALL, THEY BROUGHT THIS ISSUE BEFORE THE

COURT ON A TRO. I MEAN, THEY’VE HAD SINCE

A-52

OCTOBER -

THE COURT: WELL, OKAY. I THINK THAT I

HAVE TO GIVE THEM LEAVE TO AMEND. I THINK IT

WOULD BE ...

MR. MCLEOD: EVEN ON THE STANDING

ISSUE, YOUR HONOR?

THE COURT: WELL, THERE’S THE RICO,

AND I JUST - THEY HAVEN’T HAD A CHANCE TO

AMEND YET. I THINK IT WOULD BE DIFFICULT TO

DISMISS WITHOUT LEAVE TO AMEND. I’M GOING TO

TELL YOU, THOUGH, I HAVE EXTREME SKEPTICISM

TOWARDS THIS CLAIM. AND IF YOU FILE AN

AMENDED COMPLAINT THAT’S SUBJECT TO THE

EXACT SAME - es

MR. PALIK: UM-HMM.

THE COURT: -- INFIRMITIES AS THIS ONE

THAT ALLEGES A LOT OF WILD SCHEMES THAT YOU

DON’T HAVE ANY PROOF FOR OR CONTRACTS

THAT DON’T EXIST - I'M TALKING ABOUT WILD

SCHEMES OF THE PRESIDENT OF THE PHILIPPINES

AND ALL THAT SORT OF THING. IF YOU DO THAT -

MR. PALIK: UM-HMM.

THE COURT: - AND THE RESPONSE IS

WELL-TAKEN, THEN I WILL CONSIDER SANCTIONS

FOR UNNECESSARILY AND VEXATIOUSLY

CONTINUING PROCEEDINGS THAT YOU DON’T

HAVE A REASONABLE BASIS TO PURSUE. SO YOU

GO THROUGH YOUR COMPLAINT AND THINK

ABOUT EACH AND EVERY CAUSE OF ACTION AND

THINK ABOUT ALL THESES RESPONSES AND THINK

ABOUT THE FACTS YOU’RE ALLEGING AND MAKE

SURE YOU’VE GOT FACTS -

MR. PALIK: UM-HMM.

THE COURT: — AND NOT SCHEMES AND

UNKNOWN CONSPIRACIES AND RESULTS OF

MEETINGS THAT YOU WEREN’T AT. AND IF YOU

HAVE SOMETHING LIKE THAT, YOU CAN FILE IT -

MR. PALIK: YOUR HONOR - I

A-53

|

THE COURT: - IN 30 DAYS. NOW IF YOU

DON’T HAVE ANY FEDERAL CLAIMS AND ALL -

MR. PALIK: UM-HMM.

THE COURT; - YOU HAVE IS A STATE

CLAIMS, THEN THOSE SHOULD BE FILED IN STATE

COURT.

MR. PALIK: WELL, WE HAVE A PROBLEM

THERE, YOUR HONOR, WITH THE BANKRUPTCY

COURT. IN ORDER TO FILE THIS CLAIM, WE HAD TO

GET PERMISSION FROM THE BANKRUPTCY COURT

TO DO IT BECAUSE PHILIPPINE AIRLINES IS IN -

THE COURT: IKNOW.

MR. PALIK: -- A RECEIVERSHIP.

THECOURT; IKNOW.

MR. PALIK: SO THE BANKRUPTCY COURT

REQUIRED US TO BRING ALL OUR CLAIMS HERE. WE

WANTED TO GO TO STATE COURT. WE ACTUALLY

DIDN’T WANT TO GO TO FEDERAL COURT. WE

WOULD HAVE -BROUGHT THEM ALL IN STATE

COURT. SO I DON’T KNOW HOW THAT PROBLEM

WOULD BE RESOLVED. I THINK WE’D HAVE TO GO

BACK TO THE BANKRUPTCY COURT -

THE COURT: WELL, MAYBE YOU SHOULD

DO THAT.

MR. PALIK: ~ UNLESS YOUR HONOR

COULD TAKE - TAKE THE CASE OVER. I DON’T

KNOW HOW EXACTLY THAT WOULD WORK

REALLY. ?

(LAUGHTER,) -

THE COURT: THANKS.

MR. PALIK: NOT THAT YOU'D WANT TO.

BUT, YOUR HONOR, I HAVE ANOTHER QUESTION

FOR YOU SINCE YOU’VE MENTIONED THE

POSSIBILITY OF SANCTIONS. WE’D LIK¥ 7 ASK A

QUESTION ABOUT THAT BECAUSE I KEALLY LIKE TO

AVOID THOSE. I MEAN, IT’S NOT SOM):THING WE’RE

INTERESTED IN INCURRING. SINCE - SINCE A

COMPLAINT - SINCE MY UNDERSTANDING IS THAT-

A-54

Dn a a Be

THE COURT: YOU HAVE TO HAVE A

REASONABLE FACTUAL BASIS FOR FACTS YOUR

ALLEGE IN YOUR COMPLAINT, AND YOU CAN’T

ALLEGE LEGAL CLAIMS THAT HAVE ALREADY BEEN

ALLEGED AND SUBJECT TO LEGITIMATE LEGAL

ARGUMENTS AND THEN RAISED AGAIN WITHOUT

ANY CHANGE IN THE FACTS.

MR. PALIK: WELL, I UNDERSTAND, YOU

HONOR, BUT - BUT - BUT ALL WE HAVE TO DO IS

ALLEGE THE FACTS, ISN’T THAT CORRECT? I MEAN,

WE DON’T HAVE - ACTUALLY HAVE TO PROVE OUR -

CLAIMS.

THE COURT; NO. BUT YOU HAVE TO HAVE

A GOOD-FAITH BASIS FOR THE BELIEF IN THE FACTS

THAT YOU ALLEGE.

MR. PALIK: WE DO HAVE AN ARTICLE

FROM THE ECONOMIST, WHICH HIS A HIGHLY

RESPECTED JOURNAL, HIGHLY RESPECTED, IT’S

SCHOLARLY, WHICH IS - IS - HAS REPORTED THAT

MR. TAN HAS ACTUALLY TRIED TO MAKE

ARRANGEMENTS WITH THE PHILIPPINE

GOVERNMENT TO REQUIRE BY LAW PERSONS IN

THE UNITED STATES WHO ARE PHILIPPINE

RESIDENTS - CITIZENS RESIDING HERE TO USE

PHILIPPINE AIRLINES IN ORDER TO GAIN ENTRY

BACK INTO THEIR OWN COUNTRY. I MEAN - I

MEAN, THAT’S REPORT IN THE ECONOMIST. THAT'S

A VERY REPUTABLE SOURCE. IT’S NOT THE WORLD

DAILY NEWS, YOU KNOW. I MEAN, WE DO HAVE

SOME EVIDENCE OF THIS. WE ALSO KNOW THAT

THERE IS A LETTER -

THE COURT: OKAY. I NEED TO -

MR. PALIK: OKAY.

THE COURT: ~- MOVE ON HERE.

MR. PALIK: ALL RIGHT.

THE COURT: YOU’LL JUST HAVE TO

CONSULT WITH YOUR’ BEST PROFESSIONAL

EXPERTISE-—

A-55

MR. MCLEOD: THANK YOU, YOUR HONOR,

-FOR BRING UP THE REFERENCE TO RULE 11,

THOUGH, BECAUSE IT THINK IT - IT IS A SERIOUS

THING.

THE COURT: ALL RIGHT.

MR. PALIK: THANK YOU, YOUR HONOR.

(PROCEEDINGS CONCLUDED AT 10:49 A.M)

CERTIFICATE OF REPORTER

I, CANDACE L. YOUNT, OFFICIAL REPORTER FOR

THE UNITED STATES DISTRICT COURT, NORTHERN

DISTRICT OF CALIFORNIA, 1301 CLAY STREET,

SOUTH TOWER, ROOM = 495-S, OAKLAND,

CALIFORNIA 94612-5212, DO HEREBY CERTIFY THAT

THE FOREGOING TRANSCRIPT, PAGES NUMBERED 1

THROUGH 30, INCLUSIVE, CONSTITUTES A TRUE,

FULL AND CORRECT TRANSCRIPT OF MY

SHORTHAND NOTES TAKEN AS SUCH OFFICIAL

REPORTER OF TH’. PROCEEDINGS HEREINBEFORE

ENTITLED, AND REDUCED TO TYPEWRITING BY

COMPUTER TO 7 HE BEST OF MY ABILITY.

S/ Candace L. Young February 15, 2001

CANDACE L. YOUNG, CSR, RMR, CRR

bia Deny A-56

[This document has been prepared in accordance with

Supreme Court Rule 33]

FILED

FEB 02 2001

Richard Wieking, Clerk

U.S. District Court

Northern District of CA

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SIG TYR SIG, ACALIFORNIA = Case No. C 00-3683 CW

CORPORATION, AND

SEXTANT TRAVEL SERVICES

Plaintiffs, ORDER GRANTING

V PHILIPPINE AIRLINES,

PHILIPPINE AIRLINES, INC., INC.’S MOTION TO

and PACIFIC AIRLEISURE DISMISS

SERVICES,

Defendants.

Defendant Philippine. Airlines (PAL) moves under

Rule 12 (b) (6) of the Federal Rules of Civil Procedure to

dismiss Plaintiffs’ complaint. Plaintiffs oppose the motion.

The matter was heard on December 15, 2000. Having

considered all of the papers filed by the parties and oral

argument on the motion, the Court GRANTS the motion

with leave to amend.

BACKGROUND

Plaintiffs have filed this complaint against

Defendants PAL and travel agency Pacific Air Leisure

Services (PALS) seeking injunctive and declaratory relief

and alleging anti-trust violations and unfair business

competition claims under both State and federal law.

Plaintiff Sig Tyr Sig (STS) is a California corporation and

owner of Plaintiff Sextant Travel Services, (Sextant) a

travel agency.

In 1996 Sextant and PAL entered into a “general

service agreement” (GSA), which entitled Sextant to

A-57

volume commissions on the sale of airline tickets in

exchange for offering those tickets at greatly discounted

rates. Sextant was under contract with PAL until 1999

when the GSA expired. The parties continued to do

business together until August of this year. PAL alleges

that at that time it discovered that Sextant was “blocking”

seats-reserving seats on flights before actually selling

them--thereby preventing their sale to other customers.

PAL alleges that in late August, it informed Sextant that it

could no longer reserve -tickets at the GSA rate. PAL

asserts it discovered in September that Sextant was still

reserving tickets at the GSA rate and therefore terminated

its relationship with Sextant on September 30, 2000.

Defendant PALS is also a GSA. Plaintiffs claim they

have been and continue to be unfairly barred from

competing for the ethnic Philippine travel market by

PAL’s termination of Sextant’s GSA status and that PAL is

involved in a conspiracy with PALS to monopolize the

ethnic Philippine travel market.

PAL filed for bankruptcy in 1998. Because of this,

Plaintiffs had to seek special permission from the

bankruptcy court to file this complaint. The bankruptcy

court granted Plaintiffs permission, with the restriction

that:

No actions shall be brought

i. for the enforcement of any claims or other

duties whether arising from contract or tort, where said

cause of action accrued prior to the effective date of the

Debtor's plan of reorganization approved by the

Philippine securities and Exchange Commission (“PSEC”)

June 7, 1999, and/or

ii. for the enforcement of the Movant's GSA

agreement with Philippine Airlines, unless otherwise

permitted by this court. ;

In re Philippine Airlines, 98-32705 TC, Order Modifying

Injunction in Ancillary I Proceeding, filed October 5, 2000.

Plaintiffs are further limited to seeking only injunctive or

declaratory relief and to filing only in the United States

A-58

District Court for the Northern District of California.

Plaintiffs filed this complaint on October 4, 2000,

and sought a temporary restraining order (TRO). This

Court denied Plaintiffs’ motion for a TRO on October 19,

2000, finding that issuance of the TRO Plaintiffs sought

would have violated the bankruptcy court's order and that

Plaintiffs had failed to satisfy the requirements for

injunctive relief.

DISCUSSION

PAL now seeks dismissal, without leave to amend,

of Plaintiffs’ complaint under Fed. R. Civ. Proc. 12(b) (6)

for failure to state a claim. PAL seeks to dismiss all of

Plaintiffs’ claims:

(1) under Section 1 of the Sherman Anti-Trust Act, 15

U.S.C. § 1; (2) under the Robinson-Patman Act, 15 U.S.C. §

13, 13a; (3) under the Cartwright Act, California Business

and Professions Code, § 16700, et seg; (4) under

California’s Unfair Practices Act, Bus. & Prof. Code §

17000, et seq.; (5) under the Racketeer Influenced Corrupt

Originations Act (RICO), 18 U.S.C. § 1961, et seq.; (6) for

intentional interference with contractual relations;

(7) for intentional interference with prospective economic

relations; (8) for injunctive relief; and (9) for declaratory

relief. {

A. Legal Standard under Rule 12 (b)(6)

A motion to dismiss for failure to state a claim will

be denied unless it appears that the plaintiff can prove no

set of facts which would entitle it to relief. See Conley v.

Gibson, 355 U.S. 41, 45-46 (1957); Fidelity Fin. Corp. v.

Federal Home Loan Bank of San Francisco, 792 F.2d 1432,

1435 (9th Cir. 1986), cert. denied 479 U.S. 1064 (1987). All

material allegations in the complaint will be taken as true

and construed in the light most favorable to the plaintiff.

See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.

1986). Although the court is generally confined to

consideration of the allegations in the pleadings, when the

complaint is accompanied by attached documents, such

documents are deemed part of the complaint and may be

A-59

considered in evaluating the merits of a Rule 12 (b)(6)

motion. See Durning v. First Boston Corp., 815 F.2d 1265,

1267 (9th Cir. 1987), cert. denied, 484 U.S. 944 (1987).

Dismissal of a complaint can be based on either the

lack of a cognizable legal theory or the lack of sufficient

facts alleged under a cognizable legal theory. See Balistreri

vy. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990).

A complaint must contain a “short and plain

statement of the claim showing that the pleader is entitled

to relief.” Fed. R. Civ. Proc. 8(a). “Each averment of a

pleading shall be simple and direct. No technical forms of

pleading or motions are required.” Fed. R. Civ. Proc. 8(e).

These rules “do not require a claimant to set out in detail

the facts upon which he bases his claim. To the contrary,

all the Rules require is ‘a short and plain statement of the

claim’ that will give the defendant fair notice of what the

plaintiffs claim is and the grounds on which it rests.”

Conley, 355 US. at 47. However, “conclusory allegations

without more are insufficient to defeat a motion to

dismiss.” McGlinchy v. Shell Chemical Co., 845 F.2d 801,

810 (9th Cir. 1988); See also Smilecare Dental Group V.

Delta Dental Plan, 88 F.3d 780, 785 n.6 (9th Cir.), cert.

denied, 519 U.S. 1028, (1996); Rutman Wine Co. V. E. & J.

Gallo Winery, 829 W.2d 729, 735-36 (9th Cir. 1987).

When granting a motion to dismiss, a court is

generally required to grant a plaintiff leave to amend, even

if no request to amend the pleading was made, unless

amendment would be futile. See Cook, Perkiss and Liehe,

Inc. v. Northern Cal. Collection Serv. Inc, 911 F.2d 242,

246-47 (9th Cir. 1990). In determining whether

amendment would be futile, a court examines whether the

complaint could be amended to cure the defect requiring

dismissal “without contradicting any of the allegations of

[the] original complaint.” Reddy v. Litton Indus., Inc., 912

F.2d 291, 296 (9th Cir. 1990). Leave to amend should be

liberally granted, but an amended complaint cannot allege

facts inconsistent with the challenged pleading. See id. at

296-97.

—

A-60

B. Section of the Sherman Act

Plaintiffs’ first claim for violations of the Sherman

Act, 15 U.S.C. § 1, fails. Plaintiffs allege that PAL and

PALS conspired to restrain trade unreasonably by

agreeing to increase the price of airline tickets, thereby

terminating the GSA advantage. However, terminating a

GSA agency’s, specifically Sextant’s, advantage over other

travel agencies does not lead to a violation of the Sherman

Act.

PAL’s refusal to do business with Sextant, even if

the result of an agreement between PAL and PALS, does

not constitute an anti-trust violation. “[A] complaint

which simply alleges that a manufacturer substituted one

distributor for another fails to state a violation of the rule

of reason, unless it also alleges anti-competitive effect at

the interbrand level.” Crane & Shovel Sales Corp. v.

Bucyrus-Erie Co., 854 F.2d 802, 806 (6th Cir. 1988). In

Crane the Sixth Circuit followed the Supreme Court's

ruling in Continental T.V., Inc. v. GTE Sylvania, Inc., 433

US. 36 (1917) in holding that vertical restraints on trade

like the one alleged here are to be tested under “the rule of

reason,” rather than the “per se rule.” Crane, 854 F.2d at

805. A vertical restraint is a restraint on trade that runs

between a manufacturer and distributor or, as here,

between an airline and its ticketing agent. A horizontal

restraint, which is per se violative of anti-trust law, is a

restraint that runs between two competitors, for example

between two airlines or between two travel agencies.

Plaintiffs have alleged no impact on interbrand

competition. It is hard to see how they could. Plaintiffs

complain that PAL’s termination of Sextant’s GSA status is

anti-competitive. Yet, even if PAL eliminated all GSAs,

that does not affect competition between PAL or other

airlines or between travel agencies booking flights PAL

and other airlines. For example, in an analogous case the

Ninth Circuit affirmed the dismissal of a Sherman Act

claim brought against a newspaper when the newspaper

eliminated independent distributors and replaced them

A-61

with salaried employees. See Naify v. McClatchy

Newspapers, 599 F.2d 335, 336 (1979). The elimination of

the GSAs here would only eliminate the volume price

discounts, not the availability of tickets from travel

agencies or flights to the Philippines.

In its opposition to this motion to dismiss, Plaintiffs

do not appear to contend that their complaint is sufficient

as made. Rather, they argue that they can amend the

complaint to allege anti-trust violations. Plaintiffs assert

they can amend their complaint “to allege that PAL

intends to use its political connections with the Philippine

government to require all ex-patriot Philippine citizens to

be required to utilize PAL for travel to and from the

Philippines.” Plaintiff's Resp. at 5. Plaintiffs assert that

this anti-competitive behavior will constrain PAL’s

Philippine citizen customers and other airlines in violation

of the anti-trust laws. If this is indeed the case, Plaintiffs

are not the ones to bring this suit. Plaintiffs have no

standing to allege injury to customers OF competitors of

PAL. See Associated General Contractors of California,

Inc. v. California State Counsel of Carpenters, 459 U.S. 519,

538-543 (1983) (a union does not have standing to assert

violations of the Sherman Act against an employer

association because it is “neither a consumer or a

competitor in the market in which trade was restrained”);

See also Exhibitors’ Service, Inc. v. American Multi-

Cinema, Inc. 788 F.2d 574, 578-79 (9th Cir. 1986) (licensing

agent for movie exhibitors did not have standing under

antitrust laws because it was not a consumer or a

competitor). Furthermore, the relief PAL seeks, return of

its GSA status, would in no way remedy harm to PAL’s

customers and competitors.

At the hearing on this motion, Plaintiffs asserted

they could also amend their complaint to allege that PAL

acted as the agent of PALS and other GSA agencies in

terminating Sextant’s GSA status. Plaintiffs asserted that

they could allege that the GSA agencies, including PALS,

were the ones engaged in anti-competitive behavior and

A-62

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were employing PAL as an agent in their scheme. This

argument was not made in Plaintiffs’ papers. If Plaintiffs

file a new complaint alleging this theory, the Court will

address it on Defendants’ motion to dismiss.

Accordingly, Plaintiffs’ first claim for anti-trust

_ violations under the Sherman Act is dismissed with leave

to amend, provided that Plaintiffs can state a claim that

they have standing to bring.

G. Robinson-Patman Act, 15 U.S.C. § 13, 13a.

Plaintiffs’ second cause of action, brought under

the Robinson-Patman Act, 15 U.S.C. § 13, et_seq., alleges

that Defendants engaged in unlawful price, services and

facilities discrimination. This claim appears to allege that

I AL and PALS conspired to sell tickets at a lower price

than that available elsewhere, which damaged Plaintiffs.

For the reasons discussed below, the Court dismisses this

claim, with leave to amend.

PAL moves for dismissal of this claim because it

argues that Plaintiffs and the GSA agents do not purchase

tickets from PAL, but rather are merely PAL’s agents in

the sale, and therefore Plaintiffs cannot state a claim under

the Robinson-Patman Act because they are not purchasers.

See Metro Comm. Co. v. Ameritech Mobile Comm. Inc.,

984 F.2d 739, 745-46 (6th Cir. 1993) (resellers of cellular

telephone service cannot state a-claim under the Robinson-

Patman Act because “the Act does not apply to

transactions that are not sales”). Furthermore, PAL argues

that even if it did sell its tickets to Sextant, the tickets are

not a commodity under the act, but rather “a

memorandum of an agreement creating a revocable

license.” Kennedy Theater Ticket Service v. Ticketron, Inc.,

342 F. Supp. 922, 926 (ED. Penn. 1972); See also Fleetway,

Inc. v. Public Service Interstate Transp. Co., 72 F.2d 761,

763-4 (3rd Cir. 19344) (bus travel sales services are not

“commodities” ); Supp. 1005-1008 (C.D. Cal. 1986)

(granting motion to dismiss Robinson-Patman Act claim

based on alleged discrimination in the sale of railway

transportation service, citing Fleetway, and holding that

A-63

“transportation is not a commodity.”).

At the hearing on this motion, Plaintiffs indicated

they would not pursue this claim because airline tickets

are not “commodities” under the Robinson-Patman Act.

Accordingly, Plaintiffs’ claim under the Robinson-Patman

Act is dismissed without leave to amend.

D. Cartwright Act

Plaintiffs’ third cause of action, brought under

California’s Cartwright Act, Cal. Bus. & Prof. Code 516700,

et seq., is dismissed for many of the same reasons as is

Plaintiffs’ claim under the Sherman Act, upon which the

Cartwright Act is patterned. See Bert __G. Gianelli

distributing co. v. Beck & Co., 172 Cal. App. 3d 1020, 1042

(1985) (cases interpreting the Sherman Act are applicable

to the Cartwright Act).

Under the Cartwright Act, Plaintiffs must plead

their claim of anti-competitive behavior with “a high

degree of particularity Consequently, generalized

allegations of civil antitrust violations are usually

insufficient and the unlawful combination or conspiracy

must be alleged with specificity.” G.H.LI. v. MTS, Inc., 147

Cal.App. 3d 256, 265 (1983) (citations omitted). Plaintiffs’

claim under the Cartwright Act only alleges that PAL and

PALS entered into an agreement to prevent competition in

PAL tickets. Putting aside whether this would constitute a

violation of the Cartwright Act, the cl

This text is long and has been trimmed here. Open the source document for the complete record.