Antitrust Law Daily Wrap Up, ANTITRUST—E.D.N.Y.: JetBlue and American fail to dismiss class over previously enjoined Northeast Alliance, (Sep 9, 2024)

By Justin Marcus Smith, J.D.

Judge Sorokin’s dicta in the earlier Department of Justice matter made it especially difficult for the court to exclude applicability of per-se rule at such an early stage of the instant proceedings.

JetBlue and American Airlines (AA) (collectively, the airlines) presented unconvincing arguments for dismissal of a consumer antitrust class action seeking damages for supracompetitive pricing in connection with their previously enjoined Northeast Alliance (NEA), held the federal district court in Brooklyn, New York. The court could not find waiver of the instant class action at the pleading stage, based on incorporation of terms-of-carriage by reference, where the consumers’ complaint was not about breach of contract. The airlines would have to prove waiver, if at all, as an affirmative defense. The court also declined to find, at the pleading stage, that the per se rule was inapplicable to the instant litigation about a territorial restraint. Judge Sorokin’s earlier injunction of the NEA involved a great deal of dicta about the NEA as a classic per se violation of the Sherman Act. The court denied the airlines’ instant motion to dismiss accordingly (Berger v. Jetblue Airways Corp., No. 1:22-cv-07374-AMD-TAM (E.D.N.Y. Sept. 6, 2024)).

Background. The consumer plaintiffs in this consolidated class action complained that they paid “supracompetitive prices” for flights in and out of Boston and New York City while JetBlue and AA operated their NEA.

Previously, a United States Department of Justice action against JetBlue and AA ended with a permanent injunction that required termination of the NEA and forbade them from entering into any revenue sharing or route-coordination for ten years. American appealed Judge Sorokin’s decision to the United States Court of Appeals for the First Circuit. The First Circuit heard oral argument on June 3, 2024, but has not yet issued a decision.

In the instant matter, the consumer plaintiffs alleged that the defendants violated Section 1 of the Sherman Act. They requested declaratory, monetary, and injunctive relief on behalf of a single, nationwide putative class consisting of all direct purchasers of airline tickets going to or from the NEA airports from July 15, 2020, until the anticompetitive conduct ended. JetBlue and American Airlines moved to dismiss, or, in the alternative, to strike the class action allegations.

Class action waiver. The court declined to deem that the consumers waived the possibility of a class action by agreeing to one or the other of the airlines contracts of carriage (CoC) when they bought their tickets. The airlines asserted they gave the consumers a link to their respective CoCs, and the included class action waiver therein, in a way inextricably linked to the ticket purchases. However, the complaint did not mention any of this. The airlines relied only on undated screenshots and the purported CoCs, which they argued were enforceable as to waiver of class claims. Although JetBlue’s CoC had a New York choice-of-law provision, and American’s CoC had a Texas choice-of-law provision, the applicable laws were identical on the issue of contractual waiver as an affirmative defense. The court said the airlines bore a burden of proof on an affirmative defense like this, which courts ordinarily could not decide on a pre-answer motion to dismiss.

As to whether the complaint incorporated the CoCs by reference, the court reasoned that this case was distinguishable from the airlines’ cited case, Hahn v. JetBlue Airways Corp, No. 21-CV-6867 (E.D.N.Y. Aug. 25, 2022). Hahn had found the airline CoCs were obvious on the face of the complaint insofar as the CoCs were inextricably linked to ticket purchases. However, unlike the instant matter, Hahn was a breach of contract case. The instant consumers were not claiming breach of contract or breach of the CoCs. The instant consumers brought an antitrust action. That made the CoCs irrelevant, except as to the defendants’ affirmative defense, and they could not be incorporated by reference.

The court said, separately, that it also could not rely on undated screenshots of the defendants’ websites without a supporting affidavit attesting to their origin to determine whether the plaintiffs had notice of the CoCs or assented to the CoC terms when they bought their tickets. The court also specified it could not take judicial notice of the CoCs. The airlines’ class action waiver affirmative defense was not on the face of the complaint, so the court deferred consideration of it. The court declined to dismiss or strike the class action allegations at this stage of the litigation.

Per se liability. The court held it could not determine whether the per se rule was entirely inapplicable to the litigation. Here, the plaintiffs alleged the defendants violated the Sherman Act because the NEA was a per se unlawful agreement in violation of Section 1 of the Sherman Act, or, in the alternative, that the NEA violated Section 1 under a rule of reason analysis. The airlines asked the court to dismiss the per se theory from the action. The airlines urged that the NEA was in the nature of a joint venture, and courts usually apply the rule of reason to joint ventures. The airlines argued the court should not rely on mere “dicta” about the per se rule from Judge Sorokin’s opinion. The airlines also appeared to argue that the route allocation was only one feature of the NEA.

Although the DOJ brought its action under the rule of reason, and Judge Sorokin had analyzed the NEA that way, he did find that the NEA was a naked anticompetitive agreement between JetBlue and American to operate as a single carrier in the northeast. The instant court observed that the Sherman Act was meant to prevent exactly that sort of arrangement.

Judge Sorokin also found that at least one NEA core feature, i.e., the assignment of various routes to either airline as part of their ‘optimization’ of the combined NEA network, closely resembled a per se illegal restraint. American thereby exited more than a dozen routes, including the high-traffic Boston-to-LaGuardia route. Judge Sorokin also found evidence suggested that the airlines’ ultimate objective was to drive toward only one carrier per market, wherever possible, a “straightforward example of market allocation” and “classic example of a per se violation of the Sherman Act.”

The court concluded it could not rule-out per se analysis at the pleading stage. The court noted that the Supreme Court has repeatedly observed that per se analysis usually pertains to “territorial restraints.” The court said it found the airlines’ characterization of the territorial route allocations as merely an ancillary restraint unconvincing. The court said it was not convinced because the Supreme Court had also made it clear that the ancillary restraints doctrine would not apply to a challenged business practice involving a core activity of the joint venture itself, which was certainly the case here.

The Case is No. 1:22-cv-07374-AMD-TAM.

Judge: Donnelly, A.

Attorneys: Adam Michael Harris (Israel David LLC) for Katrina Berger, Toni Guerin and Dianne Buehler. Justin M. Tarshis (Zwerling Schachter & Zwerling, LLP) for Jill A. Kupferberg, Nancy Goodman and Sheftal Frankel. Richard F. Schwed Allen Overy Shearman Sterling US LLP) for JetBlue Airways Corp. Marguerite Sullivan (Latham & Watkins LLP) for American Airlines Group Inc.

Companies: JetBlue Airways Corp.; American Airlines Group Inc.

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