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From Antitrust Law Daily, March 27, 2014

Action asserting air cargo price-fixing conspiracy remanded

By Linda O’Brien, J.D., LL.M.

A class action alleging an air cargo transportation price-fixing conspiracy was remanded by the U.S. Court of Appeals in New York to the federal district court in New York City to determine (1) whether the plaintiff freight company knew or should have known prior to confirmation of the defendant airline’s bankruptcy reorganization plan of its antitrust claim, and (2) whether due process required the airline to notify the plaintiff of the potential antitrust claim (DPWN Holdings (USA), Incorporated v. United Air Lines, Inc., March 27, 2014, Per Curiam).

United Airlines was a member of the International Air Transport Association (IATA), which enjoyed limited antitrust immunity in the European Union. Although the exemption did not cover the coordinated implementation of surcharges, IATA adopted a surcharge to recoup increasing costs. In 1997, IATA approved a resolution under which member airlines would introduce a fuel surcharge tied to changes in aviation fuel prices as tracked by the IATA Fuel Price Index (FPI). IATA submitted the resolution for the approval to the DOT and, before receiving a response, United and other airlines began charging customers a fuel surcharge. Subsequently, the DOT rejected the resolution, stating the FPI appeared fundamentally flawed and unfair to shippers and other users of cargo air transportation. United and other airlines continued to impose the fuel surcharges.

In 2002, United filed for a Chapter 11 bankruptcy petition and identified DHL Express, a freight-forwarding company, as a potential creditor. DHL received actual notice of United’s bankruptcy and all relevant deadlines. The bankruptcy court confirmed United’s reorganization plan and provided a blanket discharge of all claims. Subsequently, a class action was filed against United and other airlines alleging that the airlines conspired to fix the prices for air cargo shipments. United ultimately settled with a majority of the class action plaintiffs. As a result of the settlement, DHL obtained access to documents disclosing United’s participation in the scheme.

DHL, through its parent, DPWH Holdings (USA), Incorporated, filed suit against United, alleging that United and other airlines conspired to fix freight charges and fuel surcharges imposed on freight charges for air cargo shipments, in violation of Section 1 of the Sherman Act. United moved to dismiss on the grounds that the antitrust suit was discharged in bankruptcy. The motion was denied by the district court and United appealed.

The district court applied an incorrect standard in accepting as true DHL’s allegation that it was unaware of, or with due diligence could not become aware of, sufficient facts to plead an antitrust claims, according to the appellate court. Under the Bankruptcy Code, confirmation of a Chapter 11 reorganization plan discharges the debtor from any debt that arose before the date of confirmation. DHL’s claim of lack of knowledge was contradicted by allegations in its complaint. Specifically, DHL’s allegations that IATA members, including United, adopted the resolution setting fuel surcharges, implemented the resolution, and raised fuel surcharges in parallel in conformity with the resolution. While parallel conduct alone is generally insufficient to show an antitrust violation, the facts of United’s conduct appear to have been known to DHL prior to confirmation of the bankruptcy plan and could have supplied the “plus” factors to assert an antitrust claim, the court noted.

Additionally, the antitrust class action filed against United after the plan confirmation bears on the issue whether DHL could have filed a late proof of claim or moved to amend the reorganization plan. Although skeptical of DHL’s contention that it was not aware of, or with reasonable diligence could not have become aware of its antitrust claim in time to assert it in the bankruptcy proceeding, the court noted that the contention and the issue of whether due process required United to give DHL notice of an antitrust claim should not be decided at the appellate level before consideration under the proper standards. Because the district court erred in accepting as true DHL’s allegation of lack of knowledge to file an antitrust claim in bankruptcy, the matter was remanded for reconsideration.

The case is No. 12-4867-cv.

Attorneys: J. Peter Coll, Jr. and Garret G. Rasmussen (Orrick, Herrington & Sutcliffe LLP) for DPWH Holdings USA, Incorporated. Charles A. Rothfeld and Michael B. Kimberly (Mayer Brown LLP) for United Air Lines, Inc. and United Continental Holdings, Incorporated.

Companies: DPWH Holdings USA, Incorporated; United Air Lines, Inc.; United Continental Holdings, Incorporated

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