U.S. v. American Airlines, Inc.

• Decision Date: 15 October 1984
• Docket Number: No. 83-1831,83-1831
• Parties: , 1984-2 Trade Cases 66,232 UNITED STATES of America, Plaintiff-Appellant, v. AMERICAN AIRLINES, INC. and Robert L. Crandall, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1114

743 F.2d 1114

53 USLW 2209, 1984-2 Trade Cases 66,232

UNITED STATES of America, Plaintiff-Appellant, v. AMERICAN AIRLINES, INC. and Robert L. Crandall, Defendants-Appellees.

No. 83-1831.

United States Court of Appeals, Fifth Circuit.

Oct. 15, 1984.

Kevin R. Sullivan, Michael H. Simon, Anne E. Blair, Elliott M. Seiden, Antitrust Div., U.S. Dept. of Justice, Robert B. Nicholson, Edward T. Hand, J. Paul McGrath, Appellate Sect., Antitrust Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff-appellant.

Cantey, Hanger, Gooch, Munn & Collins, Cecil E. Munn, Robert S. Travis, Fort Worth, Tex., Akin, Gump, Strauss, Hauer & Feld, John L. Hauer, Dallas, Tex., Schnader, Harrison, Segal & Lewis, Joseph Tate, Philadelphia, Pa., Gibson, Dunn & Crutcher, John J. Hanson, Robert E. Cooper, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before JOHNSON, HIGGINBOTHAM and DAVIS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

The question presented in this antitrust case is whether the government's complaint states a claim of attempted monopolization under section 2 of the Sherman Act against the defendants, American Airlines, and its president Robert L. Crandall, for Crandall's proposal to the president of Braniff Airlines that the two airlines control the market and set prices. The district court dismissed the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) on the grounds that the failure to allege an agreement to monopolize was a fatal defect in the complaint and that more than an allegation of solicitation to monopolize was required to state a claim for attempted monopolization. We disagree and reverse.

I.

In February 1982, American Airlines (American) and Braniff Airlines (Braniff) each had a major passenger airline complex, or "hub" at the Dallas-Fort Worth International Airport (DFW). ¹ These hubs enabled American and Braniff to gather passengers from many cities, concentrate them at DFW, and then arrange connections for them on American and Braniff flights to other cities. The hub systems gave American and Braniff a marked competitive advantage over other airlines that served or might wish to serve DFW. In addition, the limitations on arrivals imposed by the Federal Aviation Administration (FAA) after the 1981 air traffic controllers' strike impeded any significant expansion or new entry by airlines into service at DFW. These limitations helped enable American and Braniff to maintain their high market shares in relation to other competitors.

In February 1982, American and Braniff together enjoyed a market share of more than ninety percent of the passengers on non-stop flights between DFW and eight For some time before February 1982, American and Braniff were competing fiercely for passengers flying to, from and through DFW, by offering lower fares and better service. During a telephone conversation between Robert Crandall, American's president, and Howard Putnam, Braniff's president, the following exchange occurred:

major cities, and more than sixty percent of the passengers on flights between DFW and seven other cities. The two airlines had more than ninety percent of the passengers on many flights connecting at DFW, when no non-stop service was available between the cities in question. Overall, American and Braniff accounted for seventy-six percent of monthly enplanements at DFW.

Crandall: I think it's dumb as hell for Christ's sake, all right, to sit here and pound the * * * * out of each other and neither one of us making a * * * * * * * dime.

Putnam: Well--

Crandall: I mean, you know, goddamn, what the * * * * is the point of it?

Putnam: Nobody asked American to serve Harlingen. Nobody asked American to serve Kansas City, and there were low fares in there, you know, before. So--

Crandall: You better believe it, Howard. But, you, you, you know, the complex is here--ain't gonna change a goddamn thing, all right. We can, we can both live here and there ain't no room for Delta. But there's, ah, no reason that I can see, all right, to put both companies out of business.

Putnam: But if you're going to overlay every route of American's on top of over, on top of every route that Braniff has--I can't just sit here and allow you to bury us without giving our best effort.

Crandall: Oh sure, but Eastern and Delta do the same thing in Atlanta and have for years.

Putnam: Do you have a suggestion for me?

Crandall: Yes. I have a suggestion for you. Raise your goddamn fares twenty percent. I'll raise mine the next morning.

Putnam: Robert, we--

Crandall: You'll make more money and I will too.

Putnam: We can't talk about pricing.

Crandall: Oh bull * * * *, Howard. We can talk about any goddamn thing we want to talk about.

Putnam did not raise Braniff's fares in response to Crandall's proposal; instead he presented the government with a tape recording of the conversation.

The United States subsequently sought an injunction under section 4 of the Sherman Act ² against American Airlines and Crandall based on an alleged violation of section 2 of the act which forbids an attempted monopolization. On a motion by the defendants, the district court dismissed the government's complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). ³

The government asserts that the district court erred in holding that (1) an agreement is required for the offense of attempted monopolization; and (2) an attempt must amount to more than a solicitation to commit a crime.

II.

The language of the Sherman Act, its legislative history, the general criminal law relating to attempt and the jurisprudence Section 2 of the Sherman Act, 15 U.S.C. Sec. 2, provides, in pertinent part:

relating to attempt specifically under the Sherman Act, lead us to the same conclusion: the government need not allege or prove an agreement to monopolize in order to establish an attempted joint monopolization under section 2 of the Sherman Act. ⁴

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony....

The Sherman Act "is designed to sweep away all appreciable obstructions so that the statutory policy of free trade might be effectively achieved." United States v. Yellow Cab Co., 332 U.S. 218, 226, 67 S.Ct. 1560, 1564, 91 L.Ed. 2010, 2017 (1947). ⁵ The role of section 2 is:

[t]o make the prohibitions of the act all the more complete and perfect by embracing all attempts to reach the end prohibited by [Section 1], that is, restraints of trade, by any attempt to monopolize ... even although the acts by which such results are attempted to be brought about ... be not embraced within the general enumeration of [Section 1].

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 61, 31 S.Ct. 502, 516, 55 L.Ed. 619, 645 (1911). ⁶ In creating the Sherman Act, Congress deliberately chose not to define all of the activities which might contravene the Act, in order to avoid creating loopholes. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359-60, 53 S.Ct. 471, 474, 77 L.Ed. 825, 829 (1933). Instead it gave the Sherman Act "a generality and adaptability comparable to that found to be desirable in constitutional provisions." Id.

Our first step in the analysis of the requisites of attempted monopolization is a consideration of the elements of the completed offense of monopolization.

To establish illegal monopolization two elements must be shown: (1) the possession of monopoly power in the relevant market, and (2) "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778, 786 (1966). ⁷ Monopoly power is "the power to control price or exclude competition." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1004, 100 L.Ed. 1264, 1278 (1956). Accord, United States v. Grinnell Corp., 384 U.S. at 571, 86 S.Ct. at 1704, 16 L.Ed.2d at 786. If these two elements are shown, the offense of actual monopolization is complete; it is well established that there is no additional requirement that the power actually be exercised. United States v. Griffith, 334 U.S. 100, 107, 68 S.Ct. 941, 945, 92 L.Ed. 1236, 1243 (1948); American Tobacco Co. v. United States, 328 U.S. 781, 810-13, 66 S.Ct. 1125, 1139-41, 90 L.Ed. 1575, 1594 [I]t is undoubtedly true ... that trade and commerce are "monopolized" within the meaning of the federal statute, when, as a result of efforts to that end, such power is obtained that a few persons acting together can control the prices of a commodity moving in interstate commerce. It is not necessary that the power thus obtained should be exercised. Its existence is sufficient.

(1946); United States v. Aluminum Co. of America, 148 F.2d 416, 427 (2d Cir.1945). In American Tobacco, the Court explained:

328 U.S. at 811, 66 S.Ct. at 1140, 90 L.Ed. at 1595.

Applying these principles to the case at hand, we conclude that if Putnam had accepted Crandall's offer, the two airlines, at the moment of acceptance, would have acquired monopoly power. At that same moment, the offense of joint monopolization would have been complete.

Since the Act does not list or define the activities which may constitute the offense of attempted monopolization, we must examine the facts of each case, mindful that the determination of what constitutes an attempt, as Justice Holmes explained, "is a question of proximity and degree." Swift & Company v. United States, 196 U.S. 375, 402, 25 S.Ct. 276, 281, 49 L.Ed. 518, 527 (1904). ⁸ In Swift, the Court stated further that "when that intent and the...