Antitrust Law Daily Wrap Up, ANTITRUST NEWS: DHL alleges Air Canada participated in airfreight price fixing cartel, (Nov 21, 2013)

By Tobias J. Gillett, J.D., LL.M.

DWPN Holdings (USA), Inc., the parent company of logistics and freight-forwarding company DHL Express (USA), Inc. and other DHL operating companies, has filed a complaint in the federal district court in Brooklyn, alleging that Air Canada and other airlines conspired to fix the prices for air cargo shipments (DPWN Holdings (USA), Inc. v. Air Canada, November 19, 2013).

According to DWPN’s complaint, Air Canada and its subsidiary AC Cargo LP colluded with other airfreight carriers from at least February 1, 2000 through at least February 14, 2006 to fix base freight rates and fuel and security surcharges imposed on top of the base freight rates. DWPN alleges that it paid at least $5.1 million in surcharges and at least $2.2 million in base freight overcharges to Air Canada during the relevant period, and that Air Canada is jointly and severally liable with other members of the airfreight shipping cartel to DWPN for at least $2 billion. DWPN also alleges that it timely opted out of a settlement agreement between Air Canada and direct purchasers of airfreight shipping services under which Air Canada agreed to pay the class $7.5 million to settle its claims.

DWPN asserts that Air Canada is liable to it for overcharges for the entire cartel period, despite being in bankruptcy for part of that time, because Air Canada had concealed its involvement in the conspiracy from DWPN, and “the confirmation of a bankruptcy plan does not discharge claims that were unknown by the claim holder and actively concealed by the debtor.” Even if that were not the case, the complaint alleges, Air Canada would still be liable for overcharges incurred by DWPN after the bankruptcy plan was confirmed on September 30, 2004.

The complaint describes a conspiracy under which Air Canada and other airfreight carriers formed secret agreements to fix the base freight rates and the fuel and security surcharges, resulting in at least $655.5 million in overcharges to DHL alone. The carriers allegedly justified the fuel and security surcharges as a means of covering higher fuel and security costs, but the surcharges were not necessary to recover such costs because the carriers had already fixed supracompetitive base freight rates, and the surcharges exceeded any incremental increase in costs.

The International Air Transport Association (IATA) allegedly provided the mechanism for the fixing of the fuel surcharges through its Resolution 116ss, “which provided for fuel surcharges on all routes based on weight and regardless of distance shipped.” The U.S. Department of Transportation found the fuel surcharge mechanism in the resolution to be “fundamentally flawed and unfair to shippers and other users of cargo air transportation,” and refused to grant it antitrust immunity. After the DOT’s action, IATA ceased publishing its fuel price index by which carriers were to increase and decrease their fuel surcharges under the resolution, but the carriers allegedly secretly agreed to continue imposing fuel surcharges pursuant to a fuel price index published by Lufthansa Cargo, a slightly modified version of IATA’s index.

The security surcharges were also not tied to actual security-related costs, according to the complaint, but were instead calculated based on the weight of cargo, thus permitting easier implementation and monitoring by the members of the cartel. The cartel was allegedly coordinated by a core group of airfreight carriers that included Lufthansa, KLM, and Air France, but “[g]eographically-oriented groups of airfreight carriers, including Air Canada, helped coordinate and monitor the cartel on a local or regional basis.” Lufthansa allegedly generally followed Air Canada’s published fuel surcharge methodology for flights to and from Canada. Air Canada and the other carriers purportedly engaged in frequent communications to monitor and implement the cartel.

According to the complaint, in December 2005, Lufthansa entered the Department of Justice’s leniency program, and on February 14, 2006, competition authorities around the world raided the offices of some air carriers, not including Air Canada. Twenty airfreight carriers and six of their executives have pleaded guilty and paid a total of almost $1.75 billion in criminal fines in connection with the Department of Justice’s investigation.

The action asserts a claim for violation of Section 1 of the Sherman Act. DWPN alleges that Air Canada’s fraudulent concealment of its involvement in the conspiracy tolled any statute of limitations applicable to its claims.

The complaint seeks a judgment that the conspiracy violated Section 1 of the Sherman Act, a declaration that United States antitrust law governs the calculation of damages relating to shipments to and from the United States, damages and treble damages, a permanent injunction against continuing or renewing the conspiracy, costs of suits, attorneys’ fees, pre- and post-judgment interest, and any other just and proper relief.

The case is No. 1:13-cv-063999-SJ-VVP.

Attorneys: J. Peter Coll, Jr. (Orrick, Herrington & Sutcliffe LLP) for DPWN Holdings USA, Inc.

Companies: DPWN Holdings USA, Inc.; Air Canada; AC Cargo LP

Cases: Antitrust NewYorkNews