Antitrust Law Daily U.S. refutes ‘gamesmanship’ in its effort to vacate Sabre/Farelogix merger decision
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Monday, June 1, 2020

U.S. refutes ‘gamesmanship’ in its effort to vacate Sabre/Farelogix merger decision

By Jeffrey May, J.D.

Antitrust Division argues for vacating district court decision refusing to block Sabre’s now-abandoned purchase of Farelogix based on the government’s inability to appeal.

A district court decision refusing to enjoin airline booking service company Sabre Corp.’s proposed purchase of Farelogix Inc. should be vacated, according to the Department of Justice Antitrust Division, because the appeal of the decision is moot in light of the parties’ unilateral decision to terminate the merger. The government argued that no more was needed to grant its motion to vacate the decision over the objection of appellees Sabre and Farelogix. It pointed to a "settled practice of vacating the district court judgment" under the U.S. Supreme Court’s decision in U.S. v. Munsingwear (340 U.S. 36) when an appeal has become moot due to the unilateral action of the party who prevailed in the lower court. However, the government went on to refute the appellees’ "strident and factually inaccurate attempts to distract from settled principles of law" (U.S. v. Sabre Corp., Case No. 20-1767).

On April 7, the federal district court in Wilmington, Delaware, refused to enjoin the Sabre’s proposed $360 million purchase of Farelogix, concluding that the U.S. Department of Justice 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 Sabre-Farelogix 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."

On April 9, the United Kingdom Competition and Markets Authority (CMA), following its own investigation, decided to prohibit the proposed merger "in its entirety." 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.

Sabre’s arguments. In response to the Justice Department’s effort to vacate the Delaware federal district court’s decision, Sabre and Farelogix 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. Sabre and Farelogix argued 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: Shamoor Anis, U.S. Department of Justice, for the United States. Veronica B. Bartholomew (Skadden Arps Slate Meagher & Flom) for Sabre GLBL Inc., Sabre Corp. and Farelogix Inc. Kenneth A. Gallo (Paul Weiss Rifkind Wharton & Garrison) for Sandler Capital Partners V LP.

Companies: Sabre GLBL Inc.; Sabre Corp.; Farelogix Inc.

MainStory: TopStory Antitrust AcquisitionsMergers GCNNews AntitrustDivisionNews

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