In re Air Cargo Shipping Servs. Antitrust Litig. MDL No. 1775
| Decision Date | 15 October 2014 |
| Docket Number | Master File No. 06-MD-1175 (JG)(VVP) |
| Parties | IN RE AIR CARGO SHIPPING SERVICES ANTITRUST LITIGATION MDL No. 1775 |
| Court | U.S. District Court — Eastern District of New York |
Pohorelsky, M.J.
Introduction 3
Appendix 113
This case, brought as a class action, concerns allegations of price-fixing within the air freight industry. The defendants are domestic and foreign airlines that provide airfreight-shipping services to and from the United States.2 The representative plaintiffs are six freight forwarders that purchased air freight services from one or more of the defendants during the proposed class period of January 1, 2000 to September 30, 2006.3
The plaintiffs allege that during this period, the defendants conspired to develop and implement an industry-wide index for calculating fuel and security surcharges that were applied to thousands of routes flown worldwide by the defendants, including flights to and from the United States. By partially eliminating the threat of competition through fixed surcharges, the plaintiffs contend, the defendants were able to charge their customers supra-competitive rates and to collusively adjust these rates in lockstep 28 times during the class period. Such activity, the plaintiffs argue, violates Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Pl. Mem. 2.
On this basis, the plaintiffs now seek to certify as a class "[a]ll persons or entities. . . who purchased airfreight shipping services for shipments to or from the United States directly from any of the Defendants . . . at any time during the period January 1, 2000 up to and including September 30, 2006." Id. As the briefing concerning their class certification motion included opinionsrendered by various experts, the plaintiffs have also moved to preclude, on Daubert grounds, portions of the expert opinions offered by the defendants in opposition to the motion.
For the reasons to be discussed, the court respectfully recommends that the plaintiffs' motion for class certification be granted, that the plaintiffs' interim co-lead counsel be appointed class counsel, and that the plaintiffs' Daubert motions be granted in part and denied in part, in accordance with the specific recommendations contained in this Report.
The following facts are drawn from the plaintiffs' class certification motion and are largely undisputed by the defendants, at least for the purposes of the motion. The court identifies where facts are disputed by noting that they are "alleged," and addresses those disputes where appropriate in the court's discussion section, infra.
Stated broadly, the plaintiffs allege that between January 1, 2000 and September 30, 2006, the defendants participated in a global conspiracy to fix fuel and security surcharges on their services at supra-competitive rates. They offer proof of the following facts to support that allegation.
In 1997, nearly all of the defendants were members of the International Air Transport Association ("IATA"), a trade group for airline companies. Landau Decl., Ex. 22. At an IATA meeting in Geneva, Switzerland in January 1997, members adopted a proposal designed to help cargo transporters recoup rising overhead fuel costs. Pl. Mem. 7. Known as Resolution 116ss, the proposal established an index by which IATA members could calculate their fuel surcharge rate based on that week's fuel prices. Id. By adhering to this single index, carriers throughout the industry would be able to implement and adjust this surcharge in unison, without being undercut by lower surcharges from competitors. Carriers following Resolution 116ss would continue to compete freely on base rates, of course, but not on fuel surcharge rates.
Resolution 116ss calculated fuel surcharge prices as follows. Aviation fuel prices in five spot markets were used to determine the average weekly price of aviation fuel. The IATA then assigned an index value of 100 to the average fuel price in June 1996, which was $0.535/gallon. When the index value reached 130 (30 percent higher than the June 1996 price), participants were advised to implement a $0.10/kg fuel surcharge. If the index then fell below 110 for two consecutive weeks, the surcharge would be suspended. If it rose above 150 for two consecutive weeks, the airlines would meet again to review the fuel surcharge amount. Id. at 7-8.
Fuel prices remained stable for most of 1999, so a surcharge was not immediately imposed. In December, however, prices rose to the "magic limit" contemplated by Resolution 116ss. Pl. Mem. 8 (quoting Landau Decl., Ex. 25). At that point, many of the defendants corresponded through email and at an in-person "coffee meeting" to exchange mutual assurances that they would impose the uniform fuel surcharge, as well as to stress the importance of ensuring industry-wide adherence to the initiative. Id. at 8-9.
Air France was first to implement the fuel surcharge, followed shortly by Lufthansa, Cargolux, Korean Air, Air Canada, and eventually all of the defendants. Id. at 9. In announcing their implementation of the fuel surcharge, some explicitly referenced Resolution 116ss as the basis for surcharge, while others cited the problem of rising fuel costs directly. Id.
Shortly thereafter, Lufthansa sought the IATA's permission to publish the index on Lufthansa's website. When the IATA refused to give permission, Lufthansa instead published an identical index but referred to it as its own independent index, rather than as the IATA's. In an internal memorandum, Lufthansa instructed its employees to "avoid in your external communication any link between our [fuel surcharge] and the IATA Reso 116." Id. at 10 (quoting Landau Decl., Ex. 37) (emphasis in original). From then on, according to the plaintiffs, Lufthansa's index became the basis by which the defendants coordinated their fuel surcharge rates. Id. at 12-13.
The defendants continued to communicate after their fuel surcharges were implemented, exchanging feedback and encouraging non-participants "to take [the] same measure immediately" since "not taking the same measure will jeopardize the success of this industrywide action." Id. at 10 (quoting Landau Decl., Ex. 39). Some defendants used their membership in the Cargo Subcommittees of regional associations known as Boards of Airline Representatives ("BAR-CSC's"), as well as other trade organizations, to shore up support for and coordinate the fuel surcharge conspiracy. Id. at 10, 15, 17, 22-23.
Despite this seemingly brazen conduct, participants were aware of the potential exposure their conspiracy created. For example, an executive at Singapore Air cautioned his colleague, "pls do not reference LH [Lufthansa] in your email as we do not want hard evidence of us coordinating with LH to be out in the market." Landau Decl., Ex. 86. Additionally, the IATA's attorneys had consistently counseled its members to obtain regulatory approval before implementing the Resolution, lest they face allegations of price-fixing. Pl. Mem. 7 (citing Landau Decl., Ex. 23). Nonetheless, an application for approval from the United States Department of Transportation ("DOT") was not sought until three years later, on January 28, 2000. Id. at 11 (citing Landau Decl., Ex. 47). Once it was submitted, the DOT quickly denied the defendants' application, noting that "[t]he uniform, industry-wide index mechanism proposed here appears fundamentally flawed and unfair to shippers and other users of cargo...
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