Turicentro, S.A. v. American Airlines Inc.

Decision Date09 September 2002
Docket NumberNo. 01-3135.,01-3135.
Citation303 F.3d 293
PartiesTURICENTRO, S.A.; Centro America Travel Agencie, Ltd; Negocios Globo, S.A.; Fronteras Del Aire, S.A., on Behalf of Themselves and All Those Similarly Situated, Appellants v. AMERICAN AIRLINES INC.; Continental Airlines Inc.; Delta Airlines Inc.; International Air Transport Association; United Airlines Inc.
CourtU.S. Court of Appeals — Third Circuit

Robert J. LaRocca (Argued), Kohn, Swift & Graf, Philadelphia, PA, for Appellants.

George G. Gordon (Argued), Jennifer R. Clarke, Dechert, Price & Rhoads, Philadelphia, PA, for Appellee, American Airlines, Inc.

Ann T. Field, Cozen & O'Connor, The Atrium, Philadelphia, PA, for Appellee, Continental Airlines, Inc. Francis P. Newell, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA, for Appellee, Delta Airlines, Inc.

Bert W. Rein (Argued), John B. Wyss, Wiley, Rein & Fielding, Washington, DC, Bruce P. Merenstein, Schnader, Harrison, Segal & Lewis, Philadelphia, PA, for Appellee, International Air Transport Association.

Richard J. Favretto, Mayer, Brown, Rowe & Maw, Washington, DC, for Appellee, United Airlines, Inc.

Before: SCIRICA and COWEN, Circuit Judges, and RESTANI, Judge, United States Court of International Trade.*

OPINION OF THE COURT

SCIRICA, Circuit Judge.

At issue in this proposed class action is the extraterritorial scope of the Sherman Antitrust Act and its application in this case. The putative plaintiff class comprises certain foreign travel agents located outside the United States who allege major United States air carriers and their trade association illegally conspired to lower their sales commissions. The District Court held the Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a, deprived it of subject matter jurisdiction, barring plaintiffs' claim. We will affirm.

I.

The major United States air carriers have delegated the licensing of travel agents to their trade association, the International Air Transport Association (IATA).1 All travel agents must have an IATA license to access reservation systems of United States-based airlines. In order to make a customer reservation, a travel agent can only enter the airline's electronic system with an IATA number. The travel agent's commission is automatically computed from a database in the airline's electronic system.

The Passenger Tariff Coordinating Conference is an IATA committee of airline company representatives who determine and fix the commission rates for travel agents. At the July 1999 Passenger Tariff Coordinating Conference meeting in Montreal, Canada, the Conference reduced commissions paid to IATA-accredited agents in Central America and Panama to a flat seven-percent rate. Previous commission rates had varied from country to country and ranged as high as eleven percent.

On December 27, 1999, Grupo Taca, an alliance of the principal Central American airlines (and not a party to this suit), announced it would pay Central American travel agents only six-percent commissions. The next day, American Airlines announced it would pay six-percent commissions on tickets sold in Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Soon thereafter, Continental Airlines, United Airlines, and Delta Airlines followed suit.

Defendants American Airlines, Delta Airlines, and United Airlines are members of the Passenger Tariff Coordinating Conference. Defendant Continental Airlines is not. None of the airline defendants' representatives attended the 1999 Passenger Tariff Coordinating Conference meeting in Montreal. The minutes of the meeting reflect that "U.S.-based TC [Tariff Commission] Members were prohibited by their authorities from participating in such discussions and ... were therefore not present for this part of the Agenda." The complaint alleges that during the Montreal meeting, an unidentified Passenger Tariff Coordinating Conference member proposed the reduction in commissions because new technology had streamlined the travel agents' traditional ticket-selling functions.

The named plaintiffs are two San Jose, Costa Rica travel agencies and two Managua, Nicaragua travel agencies, who filed suit on behalf of a class of similarly situated travel agencies. The complaint alleged that four major United States air carriers — American Airlines, Continental Airlines, Delta Airlines, and United Airlines — and IATA violated the Sherman Antitrust Act by conspiring to lower travel agents' commissions, a form of horizontal price fixing constituting a per se violation of the antitrust laws. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223-26, 60 S.Ct. 811, 84 L.Ed. 1129 (1940). All four airline defendants are based in the United States, providing air passenger service between United States cities and locations within Latin America and the Caribbean (and elsewhere).

Plaintiffs contend defendants implemented the conspiracy in December 1999, when they began paying the lower six-percent commissions. The reduced commissions allegedly affected United States commerce because reservations on the four defendant airlines account for a substantial portion of the business of Latin American and Caribbean travel agents. The complaint alleges the Passenger Tariff Coordinating Conference meeting in Montreal disguised a pre-arranged agreement by United States air carriers to create the illusion of non-involvement in the reduction of commission rates, in an attempt to avoid antitrust liability under United States laws. Plaintiffs contend defendants assisted in planning this agenda, were aware the vote would be taken and endorsed the reduced rates. Plaintiffs claim the loss of substantial commissions, causing one member of the proposed class to close its business. They request treble damages.

The District Court dismissed the action under Fed.R.Civ.P. 12(b)(1), holding, "[P]laintiffs aver nothing from which this Court could find that Defendants' purported conspiracy caused any injury which was felt in the U.S. or which affected the American economy in any way." Turicentro, S.A. v. Am. Airlines, Inc., 152 F.Supp.2d 829, 834 (E.D.Pa.2001). The District Court did not address defendants' other arguments in support of dismissal. We must determine whether the District Court erred in finding the Foreign Trade Antitrust Improvements Act deprived it of subject matter jurisdiction.

II.

We have jurisdiction under 28 U.S.C. § 1291.

III.

Federal jurisdiction obtains for "any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies." 28 U.S.C. § 1337(a). The Sherman Antitrust Act regulates "restraints and monopolies." Sections 1 and 2 of the Act provide:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.... 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....

15 U.S.C. §§ 1, 2.2

Federal courts have often disagreed about the extraterritorial scope of the Sherman Act. Various judicial constructions of the Act were developed over the last century. See Den Norske Stats Oljeselskap As v. HeereMac Vof et al., 241 F.3d 420, 423-24 (5th Cir.2001) ("Statoil") ("The history of this body of case law is confusing and unsettled."). Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed. 826 (1909) (Holmes, J.), was the first time the Supreme Court considered the extraterritorial application of the Sherman Act, holding it did not apply to conduct occurring outside United States borders. Id. at 357-58, 29 S.Ct. 511. Over time, the Supreme Court altered its approach, holding plaintiffs could bring Sherman Act claims against foreign defendants, provided some of defendants' conduct occurred within the United States. See, e.g., United States v. Sisal Sales Corp., 274 U.S. 268, 275-76, 47 S.Ct. 592, 71 L.Ed. 1042 (1927).

In 1945, the Court of Appeals for the Second Circuit established an "effects test" to determine whether there was antitrust jurisdiction over foreign conduct. See United States v. Aluminum Co. of Am., 148 F.2d 416, 443-44 (2d Cir.1945) (Hand, J.). Aluminum Co. held that a federal court had jurisdiction over the conduct of a foreign corporation where the conduct was intended to, and did in fact, affect United States commerce. Id. at 443 ("We should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequences within the United States." (citation omitted)). Over the next half-century, the "effects test," despite its apparent simplicity, proved difficult to apply in many Sherman Act cases. Considerations of international comity, not expressly considered in Aluminum Co., occasionally entered the analysis of later courts. See, e.g., Am. Rice, Inc. v. Ark. Rice Growers Co-op. Ass'n, 701 F.2d 408, 413-16 (5th Cir.1983); Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 613-15 (9th Cir.1976).

Legislating on this background, Congress in 1982 enacted Title IV of the Export Trading Company Act — known as the Foreign Trade Antitrust Improvements Act — to facilitate domestic exports and to clarify the application of United States antitrust laws to foreign conduct. The Foreign Trade Antitrust Improvements Act encourages United States exports by facilitating the formation of export trading companies and by exempting certain export transactions from the antitrust laws. 15 U.S.C. § 4001(b); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 n. 23, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993) ("The FTAIA was intended to exempt from the Sherman Act export transactions that did not injure...

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