By Peter Reap, J.D., LL.M.
Sabre’s termination of its acquisition of Farelogix mooted its dispute with the Justice Department over the merger.
The U.S. Court of Appeals in Philadelphia vacated a district court’s decision and order granting judgment to Sabre Corp. and Farelogix on claims brought by the U.S. Department of Justice that the deal violated Section 7 of the Clayton Act because Sabre mooted the parties’ dispute by terminating its acquisition of Farelogix. By granting vacatur, as urged by the Department of Justice Antitrust Division, the appellate court expressly did not hold that the government’s direct or indirect action can never cause mootness in merger-abandonment cases. It also refused to express an opinion on the merits of the parties’ dispute before the district court (U.S. v. Sabre Corp., July 20, 2020, Porter, J.).
Rapid sequence of developments. In April of this year, Sabre’s proposed $360 million purchase of its airline booking service rival Farelogix developed rapidly over the course of three consecutive days. On April 7, the federal district court in Wilmington, Delaware, refused to enjoin the proposed deal, concluding that the Antitrust Division failed to meet its burden of proof that the deal violated Section 7 of the Clayton Act. The court found that, even though the government failed to properly define the market in which to analyze the transaction, the acquisition would neither increase prices nor deter innovation. Still, the court did note that the proposed deal might reduce one source of airlines’ leverage in negotiating with the three global distribution sources or GDSs, including Sabre.
On April 8, the Justice Department filed a notice of appeal to the U.S. Court of Appeals in Philadelphia to "protect its appellate rights, and to give the Solicitor General time to review the decision and determine whether to authorize the appeal, and whether to seek interim equitable relief." The following day, April 9, the United Kingdom Competition and Markets Authority (CMA), following its own investigation, decided to prohibit the proposed merger "in its entirety."
Finally, just a few weeks later, in response to the CMA action, Sabre announced on May 1 that it terminated its merger agreement with Farelogix. Sabre said that the CMA acted outside its jurisdiction in blocking the deal.
Appellate arguments. In their arguments to the Third Circuit, the parties disputed the issue of vacatur, even though Sabre had by that time decided to abandon the proposed acquisition. Sabre and Farelogix (the appellees) asked the appellate court to deny the government’s motion to vacate the decision and dismiss the appeal. Sabre argued that "Munsingwear should not be applied blindly."
According to the appellees, the district court’s opinion should be left intact and vacatur would be an inappropriate remedy given the Justice Department’s conduct. Sabre and Farelogix argued that the government knew that its Section 7 claim was deficient based on its mischaracterization that the product market was based on booking services that Sabre did not sell as well as a "nonsensical geographic market." They also took issue with the government’s argument that the decision would have "outsized effect, contending that the district court opinion did not bind any other court and would only serve as persuasive authority. Further, the appellees pointed to the level of involvement the U.S. Justice Department had with the U.K. CMA investigation of the merger. In working with the CMA, they argued, they were able to achieve what they failed to do in the United States. The appellees contended that the Justice Department hurried its notice of appeal because they knew the CMA would block the merger. The equitable power of vacatur is intended to prevent manipulation of the system, which makes the remedy inappropriate in the instant case, they contended.
U.S. response. In its May 29 reply on its vacatur motion, the Justice Department continued to argue that Munsingwear was controlling. However, the government added that the appellate court should reject the appellees' "novel argument" that vacatur would "reward the DOJ’s poor decision to challenge this merger." According to the government, Munsingwear vacaturs are based on a party’s inability to appeal an adverse decision, not on any assessment of the appeal’s underlying merits.
The Justice Department also rejected the appellees’ "false claim" that the government "bears at least some level of responsibility" for the mootness in light of its alleged "gamesmanship" in coordinating with the CMA during its investigation of the merger. The Justice Department noted that the CMA reached an independent decision based on its own investigation of the facts and its analysis under U.K. law and that the appellees had expressly authorized the Justice Department’s exchange of information with the CMA.
The Justice Department suggested that Sabre and Farelogix were playing games. "If there is any 'gamesmanship' here, it is Appellees’ efforts both to overturn the CMA decision on appeal and to shield the judgment below from vacatur—which, if successful, would allow Appellees to agree to merge again while arguing the judgment below should be given res judicata effect," the government argued. "Munsingwear vacaturs exist precisely to prevent this sort of scenario."
The case is No. 20-1767.
Attorneys: Nickolai G. Levin, U. S. Department of Justice, for the United States. Veronica B. Bartholomew (Skadden Arps Slate Meagher & Flom LLP) for Sabre Corp.
Companies: Sabre Corp.; Sabre GLBL Inc.; Farelogix Inc.
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