TM Sols. U.S. v. LATAM Airlines Grp. (In re LATAM Airlines Grp.)

1

In re: LATAM Airlines Group S.A., et al., Debtors.^[1]

TM Solutions USA LLC, Plaintiff v. LATAM Airlines Group S.A. Inc., Defendant.

No. 20-11254 (JLG)

Adv. Pro. No. 20-01207-JLG

United States Bankruptcy Court, S.D. New York

August 31, 2022

Chapter 11

Jointly Administered

AYALA LAW, P.A. Counsel for Plaintiff TM Solutions USA LLC Eduardo A. Maura, Esq. Luis F. Quesada, Esq.

CLEARY GOTTLIEB STEEN & HAMILTON LLP Counsel for the Debtors and Debtors in Possession One Liberty Plaza Luke A. Barefoot Esq. Lina Bensman, Esq. Jessica M. Roll, Esq.

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS THE COMPLAINT AND DENYING PLAINTIFF'S MOTION TO AMEND THE COMPLAINT

Honorable James L. Garrity, Jr. United States Bankruptcy Judge

INTRODUCTION

LATAM Airlines Group S.A. ("LATAM" or "Defendant") is a chapter 11 debtor herein and the defendant in this adversary proceeding.^[2] Before the Court are two motions filed in this adversary proceeding. In the first motion (the "Motion" or the "Motion to Dismiss"),^[3] LATAM seeks dismissal of the complaint (the "Complaint"),^[4] and each of the claims therein asserted by plaintiff TM Solutions USA LLC (the "Plaintiff" or "TM Solutions") for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)") (the "Federal Rules"), made applicable to this proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").^[5] The Plaintiff opposes the Motion (the "Opposition"),^[6] and LATAM has filed a reply to the Opposition (the "Reply").^[7] The Court heard oral argument on the Motion.^[8]

The second motion is TM Solutions' motion to amend and supplement the Complaint (the "Motion to Amend"),^[9] which seeks leave to amend TM Solutions' allegations and supplement the Complaint (the "Proposed AC") with allegations from an additional putative class representative, Jazmin Torres ("Torres"). LATAM opposes the Motion to Amend ("Opp. Am." or "Opposition to Amendment"),^[10] and the Plaintiff has filed a reply to the Opposition to Amendment ("Rep Am." or "Reply to Amendment").^[11] The Court did not hear argument on the Motion to Amend.

In support of the Motion to Dismiss, LATAM contends there are multiple grounds under which the Court should dismiss each count of the Complaint. As discussed below, in granting the Motion, the Court focuses primarily on LATAM's arguments that: (a) the Complaint is not properly brought as an adversary proceeding under Bankruptcy Rule 7001, see Motion at 14-24; and (b) the claims in the Complaint are preempted by the Airline Deregulation Act, 49 U.S.C. § 41713 (the "ADA"), see Motion at 6-8, 13. Accordingly, the Court need not (and does not) address LATAM's arguments that, inter alia: (a) Plaintiff is bound to arbitrate its claims, id. at 24-25; (b) the putative class action fails to satisfy Bankruptcy Rule 7023, see id. at 19-22; and (c) the adversary proceeding undermines the automatic stay under section 362 of the Bankruptcy Code, see id. at 23-24.

LATAM contends that the Court should deny the Motion to Amend because, as amended, the Proposed AC fails to state claims for relief against it. As discussed below, in denying the Motion to Amend, with prejudice, the Court finds that it would be futile to authorize the Plaintiff to file the Proposed AC because it fails to state claims for relief against LATAM.

JURISDICTION

The Court has jurisdiction over these matters pursuant to 28 U.S.C §§ 1334(a) and 157(a) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (O).

FACTS^[12]

Background

On May 26, 2020 (the "Initial Petition Date"), LATAM and certain of its affiliated debtors (together the "Initial Debtors") commenced voluntary petitions under chapter 11 of the Bankruptcy Code (the "Initial Chapter 11 Cases") before this Court. On July 7, 2020 and July 9, 2020 (together with the Initial Petition Date, as applicable to each Debtor, the "Petition Date"), nine additional LATAM affiliates (together with the Initial Debtors, the "Debtors") also filed voluntary petitions under chapter 11 of the Bankruptcy Code (together with the Initial Chapter 11 Cases, the "Chapter 11 Cases"). The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. The Chapter 11 Cases are jointly administered for procedural purposes only pursuant to Bankruptcy Rule 1015(b).^[13]

On June 18, 2022, the Court confirmed the Debtors' Plan^[14] over the objections of various creditors.^[15] Under the Plan, the Debtors maintain the right to make and file objections to claims, including the claim asserted by TM Solutions (see infra) up to sixty days after the effective date of the Plan. Plan § 9.1. The Debtors anticipate the Plan Effective Date will occur in late 2022.

The Adversary Proceeding

On August 18, 2020, the Plaintiff commenced this adversary proceeding. Plaintiff is a limited liability company formed under the laws of Florida and does business in Miami Florida. Complaint ¶ 1. In February 2020, Pedro Egusquiza ("Egusquiza"), as the owner and managing member of Plaintiff, had to travel from Lima, Peru to Miami, Florida for business meetings. Id. ¶ 9. Andres Guerrero ("Guerrero"), a food industry professional working for an affiliate of the Plaintiff in Lima, was to accompany Egusquiza on this trip. Id. ¶ 10. On February 14, 2020, Egusquiza's assistant (the "Assistant") purchased round-trip passenger air tickets through BudgetAir.com ("BudgetAir"), an online retailer LATAM uses to sell flights, for Egusquiza and Guerrero on this route-i.e., round trip from Lima to Miami ("LIM-MIA-LIM"). Id. ¶¶ 10-11. The Assistant was supposed to purchase flights departing from Lima in the early hours of February 19, 2020 and returning from Miami in the early hours of February 21, 2020. However, after Plaintiff paid $2,280 for Egusquiza's and Guerrero's roundtrip tickets, the Assistant realized that she inadvertently and mistakenly purchased the Miami-bound flights for February 18, 2020 at 12:15 a.m. Id. ¶¶ 11-12.

Thereafter in an effort to correct the mistake, the Assistant contacted the customer service center of BudgetAir. Id. ¶ 13. Plaintiff says that BudgetAir advised the Assistant that replacement tickets for the incorrect Lima to Miami flight cost approximately $1,800, and that she should contact LATAM directly to solve the problem. Id. However, when the Assistant contacted LATAM, it advised her to resolve the issue through BudgetAir. Id. ¶ 14. The Assistant found substitute Lima to Miami flights for Egusquiza and Guerrero on American Airlines for $420 each on the correct travel date-February 19, 2020-and purchased those tickets. Id. ¶ 16.

Plaintiff contends that the Assistant advised both BudgetAir's and LATAM's customer service agents that she had located replacement tickets in the open market for Egusquiza's and Guerrero's flights at a lower price for the Lima to Miami leg of their trip, and that Egusquiza and Guerrero would not board the purchased LATAM Lima to Miami flight. The Assistant maintains that neither LATAM nor BudgetAir told her that such arrangement would have an impact on the existing LATAM reservation (i.e., Equsquiza's and Guerrero's return flights). See id. ¶¶ 17-19.

On February 20, 2020, upon trying to check-in for their return flight from Miami, Egusquiza and Guerrero were unable to locate their LATAM reservation. Id. ¶ 20. When the Assistant contacted BudgetAir and LATAM, they told her that pursuant to LATAM's so-called "No-Show" policy (defined below), once a passenger fails to board the first leg of a trip, the entire reservation (i.e., all flights under the reservation) is cancelled. Id. ¶ 21.

On February 21, 2020, Egusquiza and Guerrero procured replacement Miami to Lima flights through Avianca Airlines at a total cost of $1,526. See id. ¶¶ 22-23. According to the Plaintiff, LATAM did not seek or obtain consent from Plaintiff or any of its agents (i.e., the Assistant, Egusquiza, or Guerrero), to cancel the purchased Miami to Lima flights, or advise Plaintiff or any of its agents that it could resell those tickets. Id. ¶¶ 24-25.

LATAM's policy is to cancel a passenger's entire itinerary if he or she fails to fly any segment in the itinerary (the "No-Show Policy"). Complaint ¶ 21. The LATAM Airlines Transport Agreement (the "Transport Agreement") sets forth the airline's obligations to its customers.^[16] The No-Show Policy is set forth in section 2.9 of the agreement. It states:

The passenger must fly the flights or segments that make up the itinerary in consecutive order. Based on the terms and conditions established in the applicable legislation, the Carrier may deny boarding to a passenger who does not follow the order of the previously mentioned itinerary or if the passenger has not flown any of the segments indicated in the itinerary. The passenger understands that by not flying any segments indicated in the itinerary, the entire Ticket will be canceled without any warning and the passenger will not have any right whatsoever to a refund unless the fare conditions of the Ticket allow it. As an example, and without this condition being limited to this specific case, if the passenger does not fly on the first segment that is specified in the itinerary (understood as the outbound flight), this passenger may not travel on any other segment (understood as the stopover flight or the inbound flight).

Transport Agreement § 2.9 (emphasis added). The...