Antitrust Law Daily Wrap Up, ANTITRUST—Bankr. S.D.N.Y.: Complaining air travelers unable to add jury demand, treble damages claim in suit against US Airways/American Airlines merger, (Mar 18, 2014)

By Jeffrey May, J.D.

Private plaintiffs, including air travelers and travel agents, challenging the now-consummated merger between American Airlines and US Airways were not permitted to amend their complaint to add a new claim for treble money damages or to add a demand for a jury trial, a federal bankruptcy court in New York City has ruled (In re AMR Corp., March 14, 2014, Lane, S.). The court, however, granted the plaintiffs’ motion to the extent that it sought to add factual allegations to the complaint and to modify the language regarding the divestiture and associated declaratory relief sought under Section 16 of the Clayton Act, as these amendments were uncontested by the defendants.

In July 2013, before the merger was completed, the plaintiffs—direct purchasers of airline tickets from the defendants—filed suit in the federal district court in San Francisco, seeking injunctive relief against the merger, costs of suit, and attorney fees, and any other relief to which they might be entitled. As the merger agreement between US Airways and American Airlines served as “the centerpiece” of American’s bankruptcy reorganization, the plaintiffs objected to the bankruptcy’s court confirmation of the reorganization plan. The plaintiffs originally contended that their antitrust concerns should be addressed in an Article III court, but later indicated their intent to proceed with their Clayton Act claims in the adversary proceeding in bankruptcy court. The plan was confirmed, and the airlines merged. A proposed consent decree resolving a federal/state challenge to the merger remains pending.

Waiver. At the outset, the court rejected the defendants’ argument that the plaintiffs had waived their right to a jury trial. The defendants argued that the plaintiffs were obligated to make a jury demand when they brought their claim because the original complaint gave rise to a claim for damages.

When the plaintiffs filed suit, they sought injunctive relief to block the as-yet unconsummated merger. They did not seek damages, despite the inclusion of, what the defendants called, “catch-all language in the prayer for relief.”

The plaintiffs could not have brought a claim for damages under Section 4 of the Clayton Act prior to the merger, because a right to damages that had not yet accrued under the substantive antitrust law, the court suggested. “Where a group of plaintiffs seek an injunction arguing that a proposed merger will cause them harm, it strains logic to argue that they also must present a claim for damages sustained even before the merger has taken place,” the court explained.

Bad faith, prejudice. The court also rejected the airlines’ contention that the plaintiffs’ request for a jury trial was in bad faith and reflected a gamesmanship approach imposing prejudice upon them. The defendants did not show that amendment would unduly prejudice them by requiring significant resources spent on additional discovery or by significantly delaying resolution of the dispute. Absent a showing of bad faith or undue prejudice, mere delay did not provide a basis for a district court to deny the right to amend, the court ruled.

Futility. In any event, the proposed amended complaint failed to assert a sufficient basis for treble damages suffered by the individual plaintiffs, the court ruled. The amendments would be futile and were therefore denied.

The complaint provided scant information about the named plaintiffs. The plaintiffs did not even allege what types of flights were taken, which airports were utilized, or how often flights were taken, the court noted. In addition, the plaintiffs failed to make any specific allegations regarding any theory of recovery for damages under Clayton Act, Section 4. As the plaintiffs’ jury demand rested upon their proposed new treble damages claim, the request to add a jury demand had to be denied as well, the court decided.

Hold-separate injunction. The court also noted that, based on representations made by plaintiffs’ counsel, the plaintiffs abandoned their request to add a request for a preliminary injunction requiring the defendants to hold their assets separate during the pendency of the case. The court considered the request for a “hold separate” injunction to have been withdrawn.

This is Case No. 11-15463 (SHL) (Adv. Pro. No. 13-01392 (SHL).

Attorneys: Daniel M. Wall (Latham & Watkins LLP) for Defendants US Airways/American Airlines Group. Stephen Karotkin (Weil, Gotshal & Manges LLP) for Defendants and Reorganized Debtors AMR Corporation and American Airlines. Jay M. Goffman (Skadden, Arps, Slate, Meagher, & Flom LLP) for Intervenor the Official Committee of Unsecured Creditors. Joseph M. Alioto (Alioto Law Firm) and Gil D. Messina (Messina Law Firm, P.C.) for Clayton Plaintiffs.

Companies: AMR Corp.; American Airlines, Inc.; US Airways Group, Inc.

Cases: Antitrust NewYorkNews