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Michael Malaney, et al v. Ual Corporation

December 29, 2011

MICHAEL MALANEY, ET AL.,
PLAINTIFFS,
v.
UAL CORPORATION, UNITED AIR LINES, INC., AND CONTINENTAL
AIRLINES, INC.,
DEFENDANTS.



The opinion of the court was delivered by: Richard Seeborg United States District Judge

*E-Filed 12/29/11*

United States District Court For the Northern District of California

ORDER GRANTING MOTION TO DISMISS

I. INTRODUCTION

Defendants United Air Lines and Continental Airlines ("United") move to dismiss plaintiffs' 19 complaint under the Clayton Antitrust Act for failure to state a claim, on the grounds that plaintiffs' 20 proposed market definition lacks legal and factual support. Plaintiffs maintain that their complaint 21 satisfies Federal Rule of Civil Procedure 12(b)(6) and suggest that United is judicially estopped 22 from objecting to their proffered market definition based on a position they took in a prior litigation. 23

Upon consideration of the briefs, the arguments raised at the hearing, and for the reasons discussed 24 below, the motion must be granted. The complaint is dismissed with prejudice. 25

II. BACKGROUND

Plaintiffs filed this lawsuit on June 29, 2010, seeking to enjoin an announced merger 27 between United and Continental, under § 7 of the Clayton Antitrust Act, 15 U.S.C. § 18. The 28 merger, which has since been consummated, created the largest domestic airline by several measures. The operative first amended complaint (FAC), like the original complaint, avers that "the 2 relevant product and geographic markets for purposes of this action are the transportation of airline 3 passengers in the United States, and the transportation of airline passengers to and from the United 4 States on international flights." FAC, ¶ 29. 5

On August 9, 2010, the plaintiffs moved for a preliminary injunction. In preparation for the 6 hearing, the parties conducted substantial fact and expert discovery, including depositions and 7 document production, culminating in a two day evidentiary hearing. A key issue addressed in the 8 briefing and at the hearing was plaintiffs' proposed market definition. In addition to the national 9 market set forth in their complaint, plaintiffs advanced two alternative theories: (1) a market limited 10 to network carriers competing for business travelers; and alternatively, (2) thirteen airport-pairs where the merger allegedly lessened competition. On September 27, 2010, after post-hearing briefing and argument, the Court denied plaintiffs' motion for preliminary relief, finding, among other things, that the plaintiffs had not established a viable market, dooming their efforts to show that the impending merger would substantially lessen competition, and precluding a finding of 15 plaintiffs' likelihood of success on the merits. Specifically, the Court found that the network carrier-based market definition failed to account for substantial evidence of competition for business travelers from low cost carriers. As for airport-pairs, the Court found substantial evidence 18 demonstrating that instead city-pairs provide the accepted framework for antitrust analysis. Finally, 19 the Court rejected the national market because plaintiffs failed to show any reasonable 20 interchangeability of use, or cross-elasticity of demand, between flights connecting distant cities. In 21 other words, there was no evidentiary support for plaintiffs' position that a New York-Los Angeles 22 flight is a substitute for a Miami-Seattle flight. In rejecting the national market, the Court also noted 23 that the concentration of the national airline industry falls far below the Herfindahl-Hirschman 24

Index threshold specified by the Department of Justice's Merger Guidelines. 25

The merger was consummated on October 1, 2010. Plaintiffs immediately appealed this Court's order denying them a preliminary injunction. In their appeal, plaintiffs focused on the 27 national market, and raised many of the arguments that they now seek to advance in opposition to 28 the instant motion to dismiss. On May 23, 2011, the Ninth Circuit Court of Appeals affirmed the decision denying plaintiffs a preliminary injunction, holding "[t]he city-pair market endorsed by the 2 district court does satisfy the reasonable interchangeability standard," but "[p]laintiffs have failed to 3 demonstrate that the national market in air travel satisfies this standard." As a result, the Court 4 concluded, "[p]laintiffs failed to establish a relevant market for antitrust analysis, a necessary 5 predicate for making a claim under § 7 of the Clayton Act." After an unsuccessful petition for 6 rehearing en banc, plaintiffs filed a petition for writ of certiorari challenging the Ninth Circuit's 7 decision, which was also denied. 8

Finally, on November 2, 2011, plaintiffs filed their FAC, for the dual purposes of adding a 9 prayer for money damages, and a demand for a jury trial.*fn1 As noted, the FAC does not alter the 10 proposed market definition, and United now moves to dismiss based on the lack of a viable market definition under Federal Rule of Civil Procedure 12(b)(6). Plaintiffs continue to insist in their opposition to the motion to dismiss that a national market is consistent with precedent and provides an adequate basis to proceed on their claim.

III. LEGAL STANDARD

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Pleadings are "so construed as to do substantial justice." Fed. R. Civ. P. 8(f). While "detailed factual allegations are not required," a complaint 18 must have sufficient ...


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