Malaney et al v. UAL Corporation et al

Filing 202

ORDER GRANTING MOTION TO DISMISS. Signed by Judge Richard Seeborg on 12/29/11. (cl, COURT STAFF) (Filed on 12/29/2011)

*E-Filed 12/29/11*

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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No. C 10-02858 RS

MICHAEL MALANEY, et al.,

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For the Northern District of California

United States District Court

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ORDER GRANTING MOTION TO
DISMISS

Plaintiffs,
v.
UAL CORPORATION, UNITED AIR
LINES, INC., and CONTINENTAL
AIRLINES, INC.,
Defendants.
____________________________________/

I. INTRODUCTION

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Defendants United Air Lines and Continental Airlines (“United”) move to dismiss plaintiffs’

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complaint under the Clayton Antitrust Act for failure to state a claim, on the grounds that plaintiffs’

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proposed market definition lacks legal and factual support. Plaintiffs maintain that their complaint

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satisfies Federal Rule of Civil Procedure 12(b)(6) and suggest that United is judicially estopped

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from objecting to their proffered market definition based on a position they took in a prior litigation.

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Upon consideration of the briefs, the arguments raised at the hearing, and for the reasons discussed

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below, the motion must be granted. The complaint is dismissed with prejudice.

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II. BACKGROUND

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Plaintiffs filed this lawsuit on June 29, 2010, seeking to enjoin an announced merger

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between United and Continental, under § 7 of the Clayton Antitrust Act, 15 U.S.C. § 18. The

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merger, which has since been consummated, created the largest domestic airline by several
NO. C 10-02858 RS
ORDER GRANTING MOTION TO DISMISS

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measures. The operative first amended complaint (FAC), like the original complaint, avers that “the

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relevant product and geographic markets for purposes of this action are the transportation of airline

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passengers in the United States, and the transportation of airline passengers to and from the United

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States on international flights.” FAC, ¶ 29.

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On August 9, 2010, the plaintiffs moved for a preliminary injunction. In preparation for the

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hearing, the parties conducted substantial fact and expert discovery, including depositions and

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document production, culminating in a two day evidentiary hearing. A key issue addressed in the

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briefing and at the hearing was plaintiffs’ proposed market definition. In addition to the national

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market set forth in their complaint, plaintiffs advanced two alternative theories: (1) a market limited
to network carriers competing for business travelers; and alternatively, (2) thirteen airport-pairs

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For the Northern District of California

United States District Court

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where the merger allegedly lessened competition. On September 27, 2010, after post-hearing

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briefing and argument, the Court denied plaintiffs’ motion for preliminary relief, finding, among

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other things, that the plaintiffs had not established a viable market, dooming their efforts to show

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that the impending merger would substantially lessen competition, and precluding a finding of

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plaintiffs’ likelihood of success on the merits. Specifically, the Court found that the network

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carrier-based market definition failed to account for substantial evidence of competition for business

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travelers from low cost carriers. As for airport-pairs, the Court found substantial evidence

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demonstrating that instead city-pairs provide the accepted framework for antitrust analysis. Finally,

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the Court rejected the national market because plaintiffs failed to show any reasonable

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interchangeability of use, or cross-elasticity of demand, between flights connecting distant cities. In

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other words, there was no evidentiary support for plaintiffs’ position that a New York-Los Angeles

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flight is a substitute for a Miami-Seattle flight. In rejecting the national market, the Court also noted

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that the concentration of the national airline industry falls far below the Herfindahl-Hirschman

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Index threshold specified by the Department of Justice’s Merger Guidelines.

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The merger was consummated on October 1, 2010. Plaintiffs immediately appealed this

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Court’s order denying them a preliminary injunction. In their appeal, plaintiffs focused on the

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national market, and raised many of the arguments that they now seek to advance in opposition to

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the instant motion to dismiss. On May 23, 2011, the Ninth Circuit Court of Appeals affirmed the
NO. C 10-02858 RS
ORDER GRANTING MOTION TO DISMISS

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decision denying plaintiffs a preliminary injunction, holding “[t]he city-pair market endorsed by the

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district court does satisfy the reasonable interchangeability standard,” but “[p]laintiffs have failed to

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demonstrate that the national market in air travel satisfies this standard.” As a result, the Court

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concluded, “[p]laintiffs failed to establish a relevant market for antitrust analysis, a necessary

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predicate for making a claim under § 7 of the Clayton Act.” After an unsuccessful petition for

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rehearing en banc, plaintiffs filed a petition for writ of certiorari challenging the Ninth Circuit’s

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decision, which was also denied.
Finally, on November 2, 2011, plaintiffs filed their FAC, for the dual purposes of adding a

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prayer for money damages, and a demand for a jury trial.1 As noted, the FAC does not alter the
proposed market definition, and United now moves to dismiss based on the lack of a viable market

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For the Northern District of California

United States District Court

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definition under Federal Rule of Civil Procedure 12(b)(6). Plaintiffs continue to insist in their

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opposition to the motion to dismiss that a national market is consistent with precedent and provides

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an adequate basis to proceed on their claim.
III. LEGAL STANDARD

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A complaint must contain “a short and plain statement of the claim showing that the pleader

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is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Pleadings are “so construed as to do substantial

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justice.” Fed. R. Civ. P. 8(f). While “detailed factual allegations are not required,” a complaint

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must have sufficient factual allegations to “state a claim to relief that is plausible on its face.”

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Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009), citing Bell Atlantic Corp. v. Twombly, 550 U.S.

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544, 570 (2007). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for

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more than a sheer possibility that a defendant has acted unlawfully.” Moss. v. United States Secret

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Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Iqbal, 129 S. Ct at 1951). A claim may be

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dismissed under Federal Rule of Civil Procedure 12(b)(6) based on the “lack of a cognizable legal

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theory” or on “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v.

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Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). When evaluating such a motion, the court

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must accept all material allegations in the complaint as true, even if doubtful, and construe them in

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Several days later, plaintiffs supplemented that pleading with additional factual averments directed
to harm.
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ORDER GRANTING MOTION TO DISMISS

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the light most favorable to the non-moving party. Twombly, 550 U.S. at 570. “[C]onclusory

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allegations of law and unwarranted inferences,” however, “are insufficient to defeat a motion to

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dismiss for failure to state a claim.” Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.

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1996). When dismissing a complaint, leave to amend must be granted unless it is clear that the

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complaint’s deficiencies cannot be cured by amendment. Lucas v. Dep’t of Corrections, 66 F.3d

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245, 248 (9th Cir. 1995).
IV. DISCUSSION

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1. Judicial estoppel

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As a threshold matter, plaintiffs contend that the United’s attacks on the national market
definition may not be countenanced because they are inconsistent with a position adopted by United

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For the Northern District of California

United States District Court

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in a previous case. Judicial estoppel “is an equitable doctrine invoked by a court at its discretion.”

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Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990). It generally precludes a party from adopting a

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position that is clearly inconsistent with a position successfully asserted in earlier proceedings,

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particularly where permitting them to do so would prejudice the opposing party. New Hampshire v.

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Maine, 532 U.S. 742, 749 (2001). The purpose of the doctrine is “to protect the integrity of the

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judicial process.” Id. (citing Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 598 (6th Cir. 1982)).

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Although, as an equitable doctrine, judicial estoppel cannot be reduced to a universal principle or

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rigid formula, the Supreme Court has identified several discretionary factors which guide its

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application by the courts. First, the later position should be “clearly inconsistent” with the earlier-

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adopted position. Id. at 750. Second, the estopped party should have successfully asserted the

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earlier position, such that acceptance of the later, inconsistent argument would lead to “the

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perception that either the first or the second court was misled.” Id. (citing Edwards, 690 F.2d at

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599). Finally, the doctrine has particular relevance where the party seeking to adopt an inconsistent

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position gains “unfair advantage” or imposes an “unfair detriment” on the opposing party. Id. at

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751.

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Here, plaintiffs argue that United and American Airlines successfully obtained summary

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judgment in In re Air Passenger Computer Reservation Sys., 694 F. Supp. 1443 (C.D. Cal. 1988)

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(hereinafter CRS) as defendants, by asserting the existence of a national market for air
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ORDER GRANTING MOTION TO DISMISS

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transportation. Plaintiffs’ argument, however, does not accurately reflect the position of the parties

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in CRS, or the court’s ultimate holding. In CRS, plaintiffs, including Continental and other airlines,

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alleged that an electronic ticket reservation system developed by United and American Airlines

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constituted an “essential facility.” Among other things, the complaint apparently asserted that

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United and American leveraged the reservation system to monopolize, or attempt to monopolize the

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downstream “national air transportation market” as well as “various local air transportation

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markets.” Id. at 1466, 1471. Plaintiffs here assert that United argued in favor of adopting the

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national market as the relevant market for antitrust purposes.

contention that the only relevant air transportation market is the national market.” Id. at 1472. It

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For the Northern District of California

In fact, the opinion states only that “[t]he evidence submitted supports defendant’s

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United States District Court

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appears that United took this position because there was no evidence to establish local air

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transportation markets as a viable alternative to the national market, and as for the national market,

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“[p]laintiffs have provided no competent evidence supporting a claim that United monopolized the

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national air transportation market.” Id. at 1466. CRS contains no other substantive discussion

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about the viability of the local or the national market, and it is not even clear from the opinion that

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United affirmatively argued that a national air transportation market provides a viable basis for

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antitrust analysis. Rather, it appears equally likely from the face of the opinion that the airline

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merely accepted the national market for argument’s sake given the lack of any competent evidence.

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As a result, plaintiffs here have failed to establish that United took a clearly inconsistent position.

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Of course, even if United did accept the national market as the relevant market for antitrust

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purposes, because of the absence of any competent evidence directed to either the local or the

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national market, nothing turned on its position. Plaintiffs in this case have therefore also failed to

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show that United maintained its purported prior position with success. It follows that CRS does not

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provide any basis for the application of estoppel against defendants in this case. Even assuming,

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however, for argument’s sake, that estoppel did bar defendants from attacking the sufficiency of

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plaintiffs’ pleadings, plaintiffs simply could not proceed on a legally deficient complaint, for the

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reasons articulated below.

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2. Sufficiency of the pleadings
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United contends that plaintiffs’ complaint is deficient because they have failed to plead a

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viable market for antitrust purposes. As the order denying a preliminary injunction, and the Ninth

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Circuit opinion affirming that order, discussed at length, to state a claim under the Clayton Act,

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plaintiffs must plead a viable relevant market in which the defendant has market power. Malaney v.

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UAL Corp., No. 10–17208, 2011 WL 1979870, at *1 (9th Cir. May 23, 2011) (citing Brown Shoe

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Co. v. United States, 370 U.S. 294, 324 (1962)). Failure to do so renders the complaint

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unsustainable and appropriate for dismissal. United States v. E.I. du Pont de Nemours & Co., 353

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U.S. 586, 593 (1957) (“[d]etermination of the relevant market is a necessary predicate to a finding

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of a violation of the Clayton Act because the threatened monopoly must be one which will
substantially lessen competition within the area of effective competition” (internal quotation marks

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For the Northern District of California

United States District Court

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omitted)). Accord Golden Gate Pharmacy Servs., Inc. v. Pfizer, Inc., No. 10-15978, 2011 WL

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1898150, at *1 (9th Cir. May 19, 2011) (“In order to state an antitrust claim, a plaintiff must identify

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a relevant market within which the defendant has market power.”). To define the relevant market,

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the court must consider “the reasonable interchangeability of use or the cross-elasticity of demand

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between the product itself and substitutes for it.” Brown Shoe, 370 U.S. at 325. To meet this

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standard, products need not be perfect substitutes, “but must be sufficiently interchangeable that a

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potential price increase in one product would be defeated by the threat of a sufficient number of

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customers switching to the alternate product.” Malaney, 2011 WL 1979870, at *1.

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Here, plaintiffs have already enjoyed ample opportunity to develop a substantial record on

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this question, yet both this Court and the Ninth Circuit have held that their pleadings, at least in their

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current form, fail to state a viable market. As both courts have explained, the national market for air

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transportation does meet Brown Shoe’s standard because flights between distant cities are simply

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not reasonably interchangeable. A passenger would never choose a flight from San Francisco to

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Newark as an alternative to a flight from Seattle to Miami, regardless of price. Plaintiffs have

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expressly refused to amend their pleadings to cure this defect since denial of the preliminary

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injunction. Instead, they now seek to re-litigate the viability of the national market, insisting that

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both this Court and the Ninth Circuit incorrectly rejected their previous position. Although the

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Ninth Circuit’s articulation of the relevant market standard was handed down in response to
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ORDER GRANTING MOTION TO DISMISS

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plaintiffs’ request for a preliminary injunction, it is now the binding law of this case. Ranchers

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Cattlemen Action Fund United Stockgrowers of Am. v. U.S. Dep’t of Agric., 499 F.3d 1108, 1114

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(9th Cir. 2007) (appellate ruling on pure point of law related to party’s application for a preliminary

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injunction is binding for remainder of trial proceedings). Because plaintiffs’ arguments on this issue

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have already been considered, discussed at length, and rejected, they need not be addressed again

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here.

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Plaintiffs other attempts to avoid pleading a legally adequate market are equally unavailing.

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It would be improper to allow plaintiffs to present the issue to the jury because their market theory

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has already been deemed legally deficient and unsupported by “substantial evidence.” Syufy Enter.
v. American Multicinema, 793 F.2d 990, 994 (9th Cir. 1986). Likewise, their new averments

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For the Northern District of California

United States District Court

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concerning the harm that will allegedly befall plaintiffs are irrelevant in light of their failure to

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establish, first, a relevant market within which these harmful effects may be analyzed. California v.

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Sutter Health Sys., 130 F. Supp. 2d 1109, 1118 (N.D. Cal. 2001) (“plaintiff must first define the

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relevant market, and then establish that the proposed merger will create an appreciable danger of

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anticompetitive consequences”). Furthermore, given that plaintiffs have already been granted an

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opportunity to amend, and yet have expressly refused to alter their averment that the relevant

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antitrust market is national in scope, their complaint must be dismissed with prejudice. Lucas, 66

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F.3d at 248.
V. CONCLUSION

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For all of the foregoing reasons, the motion to dismiss must be granted. The complaint is
dismissed with prejudice.
IT IS SO ORDERED.

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Dated: 12/29/11
RICHARD SEEBORG
UNITED STATES DISTRICT JUDGE

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ORDER GRANTING MOTION TO DISMISS

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