Love Terminal Partners v. City of Dallas, Tex.

• Decision Date: 31 October 2007
• Docket Number: Civil Action No. 3:06-CV-1279-D.
• Citation: 527 F.Supp.2d 538
• Parties: LOVE TERMINAL PARTNERS, L.P., et al., Plaintiffs, v. The CITY OF DALLAS, TEXAS, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

527 F.Supp.2d 538

LOVE TERMINAL PARTNERS, L.P., et al., Plaintiffs, v. The CITY OF DALLAS, TEXAS, et al., Defendants.

Civil Action No. 3:06-CV-1279-D.

United States District Court, N.D. Texas, Dallas Division.

October 31, 2007

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William A. Brewer, III, Michael J. Collins, Bickel & Brewer, Dallas, TX, for Plaintiffs.

Robert C. Walters, Vinson & Elkins, Frank Brame, Vinson & Elkins LLP, Dallas, TX, Marshall M. Searcy, Kelly Hart & Hallman, Fort Worth, TX, Carolyn M. Gebhard, Michael V. Powell, Locke Liddell & Sapp, Michael P. Lynn, Jeremy Alan Fielding, Richard A. Smith, Lynn Tillotson & Pinker, Dallas, TX, Matthew Duncan, Paul Costa, Ria C. Momblanco, Roberta D. Liebenberg, Fine Kaplan & Black, Philadelphia, PA, Jerry L. Beane, Kay Lynn Brumbaugh, Mark A. Shoffner, Andrews Kurth, Dallas, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, District Judge.

The court must decide whether plaintiffs have stated a federal antitrust claim arising from defendants' conduct preceding enactment of the Wright Amendment Reform Act of 2006 ("Reform Act"), Pub.L. No. 109-352, 120 Stat. 2011 (2006), and from conduct to be taken pursuant to the Reform Act, including demolition of a private passenger terminal at Dallas Love Field Airport ("Love Field") in which plaintiffs hold a leasehold interest. Concluding that plaintiffs have failed to state a claim, the court grants defendants' Fed. R.Civ.P. 12(b)(6) motion to dismiss plaintiffs' federal-law claims with prejudice. The court in its discretion dismisses their state-law claims without prejudice.

I

A

Plaintiffs Love Terminal Partners, L.P. ("LTP") and Virginia Aerospace, LLC ("Virginia Aerospace") sue defendants City of Dallas, Texas ("Dallas"), City of Fort Worth, Texas ("Fort Worth"), American Airlines, Inc. ("American"), Southwest Airlines Co. ("Southwest"), and the Dallas Fort Worth International Airport Board ("DFW Board") under §§ 1 and 2 of the Sherman Antitrust Act ("Sherman Act"), 15 U.S.C. §§ 1 and 2, and Texas law, complaining of defendants' conduct preceding enactment of the Reform Act and of conduct to be taken pursuant to the Reform Act. LTP and Virginia Aerospace hold leasehold interests in land located at Love Field, on which a passenger terminal ("the LTP Terminal") is situated. They allege that defendants engaged in an illegal conspiracy to allocate markets between horizontal competitors—American and Southwest—ultimately resulting in a contractual commitment by Dallas to demolish the LTP Terminal, and enactment of the Reform Act.

According to plaintiffs' first amended complaint ("complaint"),¹ Dallas Fort Worth International Airport ("DFW Airport") was opened for commercial service in 1974. To promote air travel from DFW Airport, Dallas and Fort Worth agreed to control the number and availability of flights at their city-owned airports. Air service at Love Field—which is owned by Dallas—was curtailed.

Love Field, located near the Dallas downtown business district, has two terminals for commercial passenger operations. Dallas owns and operates the Main Terminal, which consists of 26 gates, 19 of which are operational. Currently, Southwest operates 14 of the 21 gates that it leases, American leases three, and ExpressJet Airlines, Inc. ("ExpressJet") operates and leases two. Southwest services approximately 95% of the passenger traffic at Love Field. The other terminal—the LTP Terminal—has six gates, but none is currently being used by an airline.

In 1978 Congress enacted the Airline Deregulation Act of 1978. In 1979 Southwest announced plans to initiate interstate service from Love Field to New Orleans. U.S. House of Representatives Speaker Jim Wright sponsored an amendment to the International Air Transportation and Competition Act of 1979 that would have banned all interstate flights from Love Field. To secure passage in the Senate, a compromise—the "Wright Amendment"— was reached. Under the Wright Amendment, interstate flights from Love Field were restricted to four contiguous states (Louisiana, Arkansas, Oklahoma, and New Mexico) for planes with a capacity of more than 56 passengers. Congress enacted the Wright Amendment to protect the development of DFW Airport, later amending it twice to permit direct flights to a total of nine neighboring states ("Wright Perimeter States").

DFW Airport is now the third largest airport in the world in terms of operations and the second largest measured by land mass. American services approximately 85% of the traffic at DFW Airport. The need for Wright Amendment protection of DFW Airport has weakened over time, and states and consumers expressed interest in facilitating more convenient, less expensive travel to and from Love Field. The Wright Amendment was challenged by various interests. In an era of airline deregulation, the law effectively restricted competition among airlines who desired to compete in the lucrative North Texas market.

The market for commercial airline services in North Texas is a series of sub-markets. Because the Wright Amendment restricts long-haul flights, American is the dominant carrier at DFW Airport and is able to charge above-market premiums for flights to and from DFW Airport. Southwest controls the majority of gates at Love Field and is able to charge premiums for short-haul flights to and from Love Field. Consequently, two separate monopolists have forced consumers to pay artificially inflated prices for commercial air travel to and from North Texas.

In 1997 Legend Airlines ("Legend") expressed interest in providing air service from Love Field. Congress had enacted the Shelby Amendment, which relaxed the Wright Amendment to allow unrestricted flights to and from Love Field via certain smaller commercial aircraft. In 1999 LTP constructed the LTP Terminal and licensed its use to Legend.

Fort Worth and American sought to enjoin enforcement of the Shelby Amendment, and they engaged in a multifaceted litigation strategy that delayed Legend from providing service from Love Field until 1999. Legend was thus deprived of needed capital, and it filed for bankruptcy in 2000. LTP and Virginia Aerospace resumed control of the LTP Terminal.

In 2006 LTP and Virginia Aerospace entered into negotiations with Pinnacle Airlines, Inc ("Pinnacle") to assign their leasehold interests in the LTP Terminal. The assignment would have introduced a new competitive airline to the Love Field market, increased competition by using a terminal that was not subject to control by Dallas, and introduced competition into markets monopolized by Southwest and Dallas. LTP, Virginia Aerospace, and Pinnacle were close to completing the transfer of plaintiffs' interests in the leases on the land and the LTP Terminal.

In 2005 bills were introduced in Congress seeking outright repeal or further modification of the Wright Amendment. Southwest organized a campaign in support of the repeal. In response, American lobbied for an outright prohibition on commercial air service from Love Field or, at a minimum, continuation of the Wright Amendment restrictions.

In early 2006, some members of Congress suggested that Dallas and Fort Worth jointly propose a solution to the Wright Amendment. In March 2006 Dallas and Fort Worth passed resolutions requesting that Congress not act concerning the Wright Amendment until later that summer. Defendants had already begun conspiring, however, to divide the North Texas markets for commercial air passenger service. In August 2005 Southwest and Dallas secretly discussed destroying the LTP Terminal. The conspiracy proceeded in secret throughout 2005 and into February 2006. By early February 2006, defendants had agreed that the LTP Terminal should be destroyed to ensure the success of the scheme to divide the North Texas markets and to insulate Southwest from increased competition. After the March 2006 resolutions were adopted, defendants continued their negotiations through a series of closed-door discussions in which they finalized their plan to carve up the market for commercial air passenger service to and from North Texas.

After several months of secret negotiations, Dallas, Fort Worth, DEW Board, Southwest, and American issued in June 2006 a "Joint Statement among the City of Dallas, the City of Fort Worth, Southwest Airlines, American Airlines, and DFW International Airport to Resolve the `Wright Amendment' Issues" ("Joint Statement"). A few weeks later, the Dallas City Council and the Fort Worth City Council authorized execution of a "Contract and Agreement Regarding the Wright Amendment" that was consistent with the terms of the Joint Statement. On July 11, 2006 defendants executed a "Contract Among the City of Dallas, the City of Fort Worth, Southwest Airlines Co., American Airlines, Inc., and DFW International Airport Board Incorporating the Substance of the Terms of the June 15, 2006 Joint Statement Between the Parties to Resolve the `Wright Amendment' Issues" ("Contract"). Under the Contract, defendants bound themselves to the terms of the Joint Statement, with certain modifications.

The arrangement is anticompetitive in limiting air carrier operations and consumer choices for air travelers in North Texas. It violates the federal antitrust laws by significantly reducing competition for airline services and eliminating competition by commercial terminal operators. Essentially, the anticompetitive deal was put together to eliminate competition and protect American and Southwest from competition against each other and other carriers, allowing them to preserve their dominant market shares and fare premiums.

The conspiracy explicitly divides the markets for flights to and from North Texas between American and Southwest, who are horizontal competitors. Southwest has agreed that it will not compete with American in providing domestic, nonstop, long-haul flights for another eight years,...