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From Antitrust Law Daily, January 17, 2014

Application of judicial estoppel doctrine inappropriate in airline merger challenge

By Linda O’Brien, J.D., LL.M.

In an antitrust action challenging the merger of United Airlines and Continental Airlines, the district court properly declined to apply the judicial estoppel doctrine in its rejection of the plaintiffs’ proposed national market theory, the U.S. Court of Appeals in San Francisco has decided (Malaney v. UAL Corporation, January 16, 2014, Per Curiam). Thus, the district court grant of the defendants’ motion to dismiss was affirmed.

A class action was filed by consumers and small businesses seeking to block the merger of UAL Corporation, parent company of United Airlines, and Continental Airlines, Inc. as a violation of Section 7 of the Clayton Act. The plaintiffs alleged that the merger would create a monopoly among airline passenger service carriers, increase the cost of air travel, and eliminate jobs. The appellate court previously affirmed the district court order, denying the plaintiffs’ motion for preliminary injunction. The district court subsequently granted the defendants’ motion to dismiss the complaint for failure to state a claim.

The district court did not err in declining to apply the doctrine of judicial estoppel. Judicial estoppel is appropriate when (1) a party’s later position is clearly inconsistent with its earlier position; (2) the first court accepted the party’s earlier position; and (3) the party would obtain an unfair advantage or impose an unfair detriment on the opposing party if not estopped.

The court found that the airlines’ change in position from their argument in earlier antitrust litigation—that a national market for air travel was appropriate for antitrust purposes—reflected the airline industry at the time of the litigation. The industry, then adapting from deregulation, was fundamentally different than it is today, and the courts must balance a party’s need to react to economic change against the fairness underlying the equitable doctrine of judicial estoppel, the court stated. Additionally, the plaintiffs failed to identify a specific unfair advantage the airlines gained or unfair detriment to the plaintiffs as a result of the airlines change in position from the earlier litigation.

The court also found no error in the district court’s rejection of the plaintiffs’ proposed market definition because they failed to show that any reasonable interchangeability of use or cross-elasticity of supply was relevant to an analysis of the airline industry. The plaintiffs’ unsupported allegations did not state a specific, plausible theory describing how supply cross-elasticity was relevant to the industry product definition, the court concluded.

The case is No. 3:10-cv-02858-RS, 12-15182.

Attorneys: Joseph M. Alioto (Alioto Law Firm) for Michael C. Malaney. James Donato (Shearman & Sterling LLP) for UAL Corporation, United Airlines Inc., and Continental Airlines, Inc.

Companies: UAL Corporation; United Airlines, Inc.; Continental Airlines, Inc.

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