Continental Airlines, Inc. v. United Air Lines

120 F.Supp.2d 556

CONTINENTAL AIRLINES, INC., and Continental Express, Inc., Plaintiffs, v. UNITED AIR LINES, INC., and Dulles Airport Airline Management Council, Defendants.

No. Civ.A. 00-684-A.

United States District Court, E.D. Virginia, Alexandria Division.

November 6, 2000.

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Vanessa Y. Chandler, Vinson & Elkins, Washington, D.C., for plaintiffs.

Andrew Abbott Nicely, Robert Lawrence Bronston, Mayer, Brown & Platt, Washington, D.C., for defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

This federal and state antitrust and state business tort action grows out of the collective decision of defendants United Air Lines ("United") and Dulles Airport Airline Management Council ("AMC") to employ carry-on baggage "templates" to restrict the size of carry-on bags allowed to pass through security checkpoints at Washington Dulles International Airport ("Dulles"). Plaintiffs, Continental Airlines, Inc., and its wholly owned subsidiary, Continental Express, Inc., filed a five-count complaint against defendants (i) for violation of the Sherman Act, 15 U.S.C. § 1, (Count I) and its Virginia counterpart, Va. Code § 59.1-9.5, (Count II); (ii) for intentional interference with contractual relations (Count III) and with prospective economic advantage (Count IV); and (iii) for violation of the Virginia Business Conspiracy Statute, Va.Code § 18.2-499, (Count V). At issue by virtue of defendants' threshold dismissal motion are: (i) whether plaintiffs have adequately pleaded a claim for either a per se illegal violation of Section 1 of the Sherman Act or a violation under the Rule of Reason; (ii) whether plaintiffs' state-law claims are preempted by the Airline Deregulation Act ("ADA"), 49 U.S.C. § 41713(b); and (iii) whether the doctrine of "primary jurisdiction" mandates referral of this matter to the Federal Aviation Administration ("FAA"). For the reasons that follow, defendants' motion to dismiss must be denied.

I.¹

Delays associated with checking luggage at airport ticket counters and with collecting luggage at destination airports are endemic and major irritants of air travel. Accordingly, many airline passengers — particularly business travelers — avoid checking luggage and prefer to travel with lightweight and mobile luggage that is easy to carry onto the aircraft. This consumer preference, plaintiffs allege, creates no safety issue provided the aircraft's overhead bins accommodate and secure such stowed luggage. In fact, no federal law or regulation mandates any specific or uniform limit on the size or number of allowable carry-on bags. Instead, the FAA allows each carrier to adopt a carry-on baggage policy that is tailored to its particular circumstances. Thus, limits on carry-on baggage are at the discretion of each airline and vary among air carriers.

Plaintiffs are air carriers that transport passengers, baggage, and cargo domestically and internationally to and from Dulles, among other airports. They claim that, in response to passenger preference for avoiding the need to check baggage, they have invested approximately $15 million in outfitting their aircraft with larger overhead bins to accommodate larger carry-on bags than can be carried in the overhead bins of their competitors' aircraft. Given this, plaintiffs have adopted a liberal "gate-checking" policy on commuter flights. Plaintiffs allege that airlines compete for passengers on a variety of fronts, including, inter alia, price, convenience of flight schedules, type of aircraft, seating comfort, frequent-flyer incentive programs, and carry-on baggage policies. Indeed, plaintiffs allege that their carry-on baggage policies are an important element of their aggressive nationwide competitive strategy of providing high-quality service to the flying public. In this regard, plaintiffs also point out in the complaint that the FAA recognizes that "[s]ome carriers have made carry-on baggage a selling point, thereby pressuring their competition to do the same," and thus allows carriers "to find ways to provide passengers with the services they want while meeting the safety requirement for proper stowage of all bags." (¶¶ 28-29 (quoting 52 Fed.Reg. 21,472, 21,474).)²

United, like plaintiffs, is an air carrier that transports passengers, baggage, and cargo domestically and internationally. Also like plaintiffs, United operates at Dulles and at air terminals elsewhere in the country.

The AMC is an association of domestic and international air carriers that provide passenger service to and from Dulles. Its membership includes, in addition to United and plaintiffs, Air Canada, Air Tran, All Nippon Airways, Atlantic Coast, British Airways, BWIA, Delta Airlines, Korean Air, Lufthansa, Sabena, Spanair, Swissair, TACA, and TWA, among other air carriers.

By virtue of its position as the largest carrier at Dulles, United operates the security checkpoints at Dulles, including the metal detectors through which passengers must pass and the x-ray equipment that screens all carry-on bags and personal belongings. Control of operations at these checkpoints is shared between United and the AMC. In April of this year, a majority of the members of the AMC, at the urging of United, agreed to install baggage "templates" at the front of x-ray screening units in order to restrict the size of bags that passengers may carry on to the aircraft.³ Passengers with bags that do not fit the template must return to the ticket counter and check the "oversized" bag.

Plaintiffs objected to the installation of these carry-on baggage templates out of concern that use of the templates to restrict the size of carry-on bags would erode the competitive advantage they enjoy owing to their policy of allowing travelers greater flexibility with respect to carry-on bags. According to plaintiffs, defendants' agreement is not grounded in any security concerns; indeed, plaintiffs point out that the FAA has instructed that airline carry-on baggage control should not be located at passenger security screening points.⁴ Plaintiffs also claim that defendants' agreement to restrict the size of carry-on bags was in reality an agreement to forestall competition among air carriers on the basis of baggage-handling policies and, consequently, to deprive plaintiffs of the fruits of their investment in adopting consumer-friendly carry-on baggage policies. This decision, plaintiffs argue, is a naked restriction on the ability of individual air carriers to engage in non-price competition. As a result of this restrictive agreement, plaintiffs allege, lines at security checkpoints and ticket counters at Dulles have grown markedly, causing substantial delays that frustrate and anger passengers. Plaintiffs further allege that because their customers have been unable to take advantage of plaintiffs' liberal carry-on baggage policies, they have lost any competitive advantage stemming from their carry-on baggage policy and the profits attributable to that policy. In addition, plaintiffs claim that defendants' agreement has reduced the competitive pressure on other airlines to change their aircraft and policies to accommodate customer preferences for larger carry-on bags.

Plaintiffs' motion to dismiss the five-count complaint presents the following questions, each of which is separately addressed:

1. Whether the complaint states a valid Sherman Act Section 1 claim under the rule of per se illegality.

2. Whether the complaint adequately alleges a relevant antitrust market under Section 1 of the Sherman Act.

3. Whether the complaint adequately alleges antitrust injury under Section 4 of the Clayton Act.

4. Whether plaintiffs' state-law claims (Counts II-V) are preempted by the ADA.

5. Whether the doctrine of primary jurisdiction requires referral of this matter to the FAA.

II.

At the outset, it is well to have in mind the settled principles that govern disposition of threshold dismissal motions. In considering a motion to dismiss a complaint for "fail[ing] to state a claim upon which relief can be granted," a court must construe the complaint in the light most favorable to the plaintiffs, read the complaint as a whole, and take the facts asserted therein as true. Fed.R.Civ.P. 12(b)(6); see Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Higgins v. Medical College, 849 F.Supp. 1113, 1117 (E.D.Va.1994). All reasonable inferences must be made in favor of the nonmoving party, and "a count should be dismissed only where it appears beyond a reasonable doubt that recovery would be impossible under any set of facts which could be proven." America Online, Inc. v. GreatDeals.Net, 49 F.Supp.2d 851, 854 (E.D.Va.1999) (citing Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992)); see Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). A motion to dismiss tests only "the sufficiency of the complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses," Republican Party, 980 F.2d at 952, and a motion to dismiss should not be granted unless the court "could not grant relief under any set of facts that the plaintiff could prove consistent with his allegations in the complaint." Carter Machinery, Co., Inc., v. Gonzalez, No. 97-0332-R, 1998 WL 1281295, *2, 1998 U.S.Dist. LEXIS 8106, at *5 (W.D.Va.1998) (citing Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)). And, importantly, "[i]n antitrust cases in particular," the Fourth Circuit has recognized that "`dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly,'" and that the standard for summary dismissal is accordingly "rigorous." Advanced Health-Care Servs., Inc. v. Radford Community Hosp., 910 F.2d 139, 144 (4th Cir.1990).

A. Plaintiffs' Antitrust Claims

An analysis of defendants' attack on the complaint's...