Hall v. United Air Lines, Inc.

• Decision Date: 30 October 2003
• Docket Number: No. 7:00-CV-123-BR.,7:00-CV-123-BR.
• Citation: 296 F.Supp.2d 652
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Sarah F. HALL d/b/a Travel Specialist, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. UNITED AIR LINES, INC., et al., Defendants.

296 F.Supp.2d 652

Sarah F. HALL d/b/a Travel Specialist, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. UNITED AIR LINES, INC., et al., Defendants.

No. 7:00-CV-123-BR.

United States District Court, E.D. North Carolina, Southern Division.

October 30, 2003.

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A.L. Butler Daniel, Anderson, Daniel & Coxe, Bradley Coxe, Wrightsville Beach, NC, for Plaintiffs.

Douglas W. Kenyon, Laurie J. Bremer, Hunton & Williams, Mark A. Ash, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, F. Hill Allen, IV, Tharrington Smith, Wendy I. Sexton, Smith Moore, Pressly M. Millen, Womble, Carlyle, Sandridge & Rice, Catharine B. Arrowood, Melanie Lynn Black Dubis, Parker, Poe, Adams & Bernstein, Gregg E. McDougal, Kilpatrick Stockton LLP, Melody Carroll Ray-Wellborn, Womble, Carlyle, Sandridge & Rice, Paul C. Ridgeway, Everett, Gaskins, Hancock & Stevens, Richard W. Ellis, Ellis & Winters, Raleigh, NC, Gary J. Rickner, Ward & Smith, New Bern, NC, Benjamin F. Davis, Jr., Clinton R. Pinyan, Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, NC, Julia F. Youngman, Matthew W. Sawchak, Ellis & Winters, LLP, Cary, NC, Auley McRae Crouch, III, Thomas C. Goolsby, The Fleming House, Joel R. Rhine, Christopher A. Chleborowicz, Lea, Clyburn & Rhine, Wilmington, NC, J. Robert Elster, Richard S. Gottlieb, Kilpatrick Stockton, L.L.P., Winston-Salem, NC, for Defendants.

ORDER

BRITT, Senior District Judge.

This matter is before the court on the following motions:

A. two motions in limine by various defendants to exclude the reports and testimony of plaintiffs' expert Dr. William S. Comanor ("Comanor") (D.E. # s 607, 637, and 700);

B. two motions in limine by various defendants to exclude the reports and testimony of plaintiffs' expert Dr. J.C. Poindexter (D.E. # s 601, 702);

C. a motion in limine to exclude the testimony of Bruce Bishins (D.E.# 764);

D. a motion by various defendants to strike claims, exclude evidence, and preclude relief barred by prior litigation (D.E.# 599) E. a motion by defendant Airtran Holdings, Inc. ("Airtran") for summary judgment (D.E.# 597);

F. a motion by defendants Alaska Airlines, Inc., Alaska Air Group, Inc., and Horizon Air Industries, Inc. (collectively, "Alaska") for summary judgment (D.E.# 603);

G. a motion by defendant Frontier Airlines, Inc. ("Frontier") for summary judgment (D.E.# 605);

H. a motion by defendant America West Airlines, Inc. ("America West") for summary judgment (D.E.# 613);

I. a motion by defendant Midwest Express Airlines, Inc. ("Midwest") for summary judgment (D.E.# 628);

J. a motion for summary judgment (the "joint motion") by defendants Northwest Airlines, Inc. ("Northwest"), American Airlines, Inc. ("American"), Continental Airlines, Inc. ("Continental"), Delta Air Lines, Inc. ("Delta"), and KLM Royal Dutch Airlines ("KLM") (collectively the "joint defendants") (D.E.# 625), and separate motions for summary judgment by American (D.E.# 598) and Delta (D.E.# 612)

K. a motion for summary judgment by defendant Air France (D.E.# 720);

L. a motion by plaintiffs for partial summary judgment on the issue of antitrust immunity with regard to Northwest and KLM (D.E.# 621); and

M. a motion by Continental, Northwest, Delta, and American to strike Comanor's 16 July 2003 report (D.E.# 843).

The motions have been fully briefed and are ripe for disposition.

I. BACKGROUND

A. Procedural History

Plaintiff Sarah Futch Hall ("Hall") owns and operates a travel agency and directly receives travel agent commissions from the defendant airlines for the purchase of airline tickets. See Third Am. Cplt. ¶ 2. On 21 June 2000, Hall filed a class-action complaint on behalf of herself and all other similarly situated travel agents alleging that the airlines had conspired to reduce base commissions in a concerted effort to force travel agents out of business in violation of the Sherman Antitrust Act ("Sherman Act"), 15 U.S.C. § 1 et seq. Hall has twice been permitted to amend her complaint, adding new defendants, additional class representatives, and new allegations against the defendants. The Third Amended Complaint, which is the operative complaint in this litigation, was filed on 17 May 2002.

The action has survived two rounds of motions to dismiss the complaint for failure to state a claim pursuant to Fed. R.Civ.P. 12(b)(6). Only one defendant, Alitalia S.p.A., was dismissed on that ground, by order filed 19 August 2002. The action has been stayed as to defendants Trans World Airlines, Inc. ("TWA"), United Airlines, Inc. ("United"), U.S. Airways, Inc. ("US Airways"), and Air Canada based upon Notices of Bankruptcy filed by those defendants. Defendant Midway Airlines Corporation, Inc. was dismissed without prejudice on 22 May 2001. Defendant Delta Airlines Global Services, Inc. was dismissed with prejudice on 20 July 2001. Defendant Deutsche Lufthansa AG ("Lufthansa") was dismissed with prejudice by order filed 24 September 2003 pursuant to a settlement agreement reached between Lufthansa and the class.

In their third amended complaint, plaintiffs allege that defendants have violated Section 1 of the Sherman Act by conspiring to cut, cap and/or eliminate the base commissions they pay to travel agents for sales of domestic and international airline tickets. Plaintiffs specifically allege that defendants have conspired to take the following actions:

1. In 1995, defendants Delta, American, Northwest, United, Continental, and TWA imposed a cap of $25 for commissions on one-way domestic tickets and a cap of $50 for commissions on round-trip domestic tickets, see Third Am. Cplt. ¶ 39;

2. Beginning in mid to late September of 1997, defendants American, United, Delta, Northwest, Continental, U.S. Airways, and other named defendants reduced commissions payable on air travel tickets sold by travel agents from 10 percent to 8 percent, see id. ¶ 40;

3. Beginning in October of 1998, defendants American, United, Delta, Northwest, Continental, U.S. Airways, and other named defendants imposed a cap of $50 for commissions on one-way international tickets and a cap of $100 for commissions on round-trip international tickets, see id. ¶ 41;

4. Prior to October of 1999, defendants United, Delta, Northwest, Continental, and American established the website Orbitz and used it to further divert commissions from travel agents, see id. ¶¶ 42-44;

5. Beginning on 7 October 1999, approximately fourteen of the defendants reduced commissions payable on air travel tickets sold by travel agents from 8 percent to 5 percent, see id. ¶ 45;

6. Beginning in August of 2001, defendants American, United, Continental, Delta, Northwest, U.S. Airways, America West, Air Canada, and Frontier lowered the commission cap to $10 for sales of one-way domestic tickets and to $20 for sales of round-trip domestic tickets, see id. ¶ 46; and

7. Beginning on 14 March 2002, defendants Delta, American, Continental, United, Northwest, and U.S. Airways eliminated base commissions paid for sales of domestic and international tickets by travel agents, see id. ¶ 47.

B. Background History

The airline industry in the United States was heavily regulated by the federal government through the Civil Aeronautics Board and subsequently through the Department of Transportation (the "DOT") until 1978. Dep. of Michael W. Gunn (American) ("Gunn Dep.") at 23. This regulation extended to base commissions¹ paid to travel agents, which the government set at 7 percent. Id.; see also Joint Defs.' Exh., App. III, Report of Defs.' Expert Dennis W. Carlton ("Carlton Report") at ¶ 12. The industry began to deregulate in 1978, and, after deregulating in 1980, base commissions rose over the next three years to "[a]t least 10 [percent] with ... incentives above and beyond that on an individually negotiated basis ...." Gunn Dep. at 23; Carlton Report at ¶ 13 (citing July 1999 report of the General Accounting Office entitled Domestic Aviation: Effects of Changes in How Airline Tickets are Sold). See also Pls.' Br. Opp. Joint Mot. at 4.

United "announced a commission change involving flat fee commissions in 1980 or 1981, and ... announced a withdrawal several days or several weeks thereafter[,]" United's Ans. Pls.' Third Am. Cplt. ¶ 38, when that commission action was not followed by other airlines, Third Am. Cplt. ¶ 38.² In 1983, American attempted to initiate a cut in base commissions to which the travel agent community voiced "violent[] oppos[ition]." Gunn Dep. at 25-26. Again, other airlines did not match the proposed cut, and American rescinded it out of concern that it "would lose a lot of revenue to [its] competitors by being noncompetitive on the [base] commission front ...." Id. at 26-31.

Since these failed attempts to cut base commissions in the early 1980s, "[t]he world has changed materially .... [A] lot of [airline tickets are] distributed outside of the travel agent chain today ...." Gunn Dep. at 35. The market has evolved "in terms of consumer behavior, online technologies, the advent of [the website] Priceline and different things, as well as the majority of [airline] customers actually paying travel agents themselves and just receiving the commission as a [rebate on the ticket price]." Dep. of Lee Macenczak (Delta) ("Macenczak Dep.") at 265. Significant advances in automation, including electronic ticketing, have reduced costs of distribution both for airlines and travel agents. Fox Dep. at 84; Carlton Report at ¶¶ 8-9 (noting that e-tickets were introduced in 1995 and "accounted for 30 to 60 percent of all domestic airline tickets sold" by 1999). See also Joint Defs.' Exh., App. IV, Tab 1 (DOT, Office of Aviation & Int'l Affairs, Report to Congress—Efforts to Monitor Orbitz (June 27, 2002)).³ Finally, many airlines now focus on individual relationships and negotiated incentive contracts with specific travel agents rather than dealing...