Antitrust Law Daily High Court passes on airline baggage fee price fixing, franchisee advertising cases
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Monday, January 7, 2019

High Court passes on airline baggage fee price fixing, franchisee advertising cases

By Peter Reap, J.D., LL.M.

Today the U.S. Supreme Court declined to review petitions for certiorari asking the High Court to determine whether there is a Sherman Act exception for publicly reached collusion, and whether franchisee advertising can subject an out-of-state franchisor, in this case gasoline station franchisor Exxon Mobil, to specific jurisdiction in Massachusetts.

Sherman Act exception. In the airline baggage fee case, plaintiffs alleging that AirTran Airways had engaging in a horizontal price-fixing conspiracy by publicly inviting its competitor Delta Air Lines to collude on checked bag fees during a public investor earnings asked the Supreme Court to determine whether there is an exception to liability under the Sherman Act for price fixing agreements reached publicly, rather than privately, through invitations to collude on investor earnings calls.

The plaintiffs presented evidence that AirTran Airways made clear in a public earnings call that if AirTran's principal competitor, Delta Air Lines, imposed a fee for first checked bags, AirTran would also impose the fee. The federal district court in Atlanta conceded that this could be viewed as an invitation to collude, a "plus factor," but found an exception for invitations to collude publicly extended in an earnings call, rather than privately, under the theory that the investing public has a legitimate interest in knowing whether a company would follow the price lead of a competitor. The district court held that Delta Air Lines and AirTran Airways, two competitors at the Atlanta airport, were entitled to summary judgment the class action against them alleging that they colluded to impose s $15 first-bag fee. The court determined that the evidence could not lead a jury to conclude that the two airlines engaged in a conspiracy to fix prices. Rather, the court said, the evidence demonstrated that the two airlines were involved in what is known as "conscious parallelism," a perfectly legal practice common in highly competitive markets dominated by a small number of sellers.

The plaintiffs maintained in their petition that horizontal price-fixing conspiracies must be evaluated under the per se rule, under which possible pro-competitive effects should not be considered. They further argued that in affirming the district court, the Eleventh Circuit had created a conflict with other courts, who have consistently found that the form of communication or means of coordination used in reaching a price-fixing conspiracy does not determine its legality. Plaintiffs further maintained that the decision also conflicted with the position of the Department of Justice and other antitrust enforcement agencies, that have initiated investigations or enforcement actions based on invitations to collude made on public earnings calls (Siegel v. Delta Air Lines, Inc.Dkt. 18-603).

Franchisee advertising. The U.S. Supreme Court was asked by Exxon Mobil to rule on whether franchisee advertising created sufficient forum contacts to confer specific jurisdiction over a non-resident corporation in a state investigation into that corporation's knowledge of the relationship between its products and climate change. The Massachusetts Supreme Judicial Court ruled that Exxon Mobil's network of 300 franchisees, for which it had the right to control advertising, was sufficient contact with Massachusetts to support personal jurisdiction over the company in a state consumer protection action.

The Massachusetts Attorney General had brought consumer protection law claims against Exxon, after learning that the company may have misled the public regarding what Exxon knew about fossil fuels and climate change versus what it released to the public. The Massachusetts court found that Exxon deliberately targeted the Massachusetts economy with its network for franchisees and Massachusetts-specific advertising. Because the documents sought by the Attorney General concerned what Exxon told the public, and Exxon’s franchise agreements gave it the right of control over all franchisee advertising, the contacts in Massachusetts related to the controversy at hand, that court held.

Exxon's petition to the U.S. Supreme Court challenged Massachusetts' specific jurisdiction over it in pursuing its investigation into Exxon's knowledge of the relationship between its products and climate change. Exxon alleged that basing jurisdiction on its franchisees' advertisements, which did not speak to the subject matter of the investigation, was a violation of its due process rights. Exxon alleged that the approach to jurisdiction used by the Massachusetts Supreme Judicial Court in evaluating whether a proceeding arose out of or related to the defendant's contacts with the state, asking only whether those contacts were a but-for cause of the investigation, was a "lax standard" that based jurisdiction on contacts that lacked a substantial relationship to the underlying proceedings.

Exxon urged the Supreme Court to grant its petition to address the open question of the constitutional limitations on courts' exercise of personal jurisdiction; specifically, what type of relationship is required between a plaintiff's claims and a defendant's forum contacts in order to satisfy the constitutional requirement that the claims "arise out of or relate to" the contacts (Exxon Mobil Corp. v. HealeyDkt. No. 18-311).

Tennessee liquor retailer residency requirement. In a franchising-related case in which the Supreme Court has agreed to review Tennessee’s residency requirement for liquor retailers, the High Court on January 4 granted a motion by Illinois to participate in oral argument as amici curiae and for divided argument. The case involves the petition by the Tennessee Wine and Spirits Retailers Association challenging a decision of the U.S. Court of Appeals in Cincinnati holding that Tennessee’s two-year residency requirement for liquor retailers is unconstitutional as facially discriminatory and that there was no evidence that the state could not achieve its goals through nondiscriminatory measures.

In its motion, Illinois argued that "the amici States are uniquely well positioned to articulate the state interests and Twenty-first Amendment prerogatives that underlie regulation of retail liquor sales in the manner chosen by Tennessee and to explain the enforcement challenges States face and the local harms that arise when liquor retailers are not residents of the communities they serve."

chart lists granted petitions, pending petitions, and denied petitions, along with a summary of the questions presented and the current status of each case for antitrust and trade regulation issues before the October 2018 Term of the U.S. Supreme Court.

Attorneys: Shay Dvoretzky (Jones Day) for Tennessee Wine and Spirits Retailers Association; Exxon Mobil Corp.; Daniel Lee Low (Kotchen & Low LLP) for Martin Siegel. Randall L. Allen (Alston & Bird LLP) for Delta Air Lines, Inc. Alden Lewis Atkins (Vinson & Elkins L.L.P) for AirTran Airways, Inc. and AirTran Holdings, Inc. Michael Grossman (Baker & Hostetler LLP) for Illinois, 34 States, and the District of Columbia.

Companies: Tennessee Wine and Spirits Retailers Assn.; Exxon Mobil Corp.; Delta Air Lines, Inc.; AirTranAirways, Inc.; AirTran Holdings, Inc.

MainStory: TopStory Advertising Antitrust FranchisingDistribution

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