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From Antitrust Law Daily, October 15, 2012

Indirect Purchasers’ State Law Antitrust Claims Against Foreign Air Carriers Preempted

By Jeffrey May, J.D.

The Federal Aviation Act expressly preempted price fixing claims brought under state antitrust laws by indirect purchasers of air freight shipping services against numerous foreign airlines, the U.S. Court of Appeals in New York City ruled (In re Air Cargo Shipping Services Antitrust Litigation, October 11, 2012, Jacobs, D.)

The indirect purchasers alleged that foreign air carriers conspired to fix prices by levying a number of surcharges, including a fuel surcharge, a war-risk-insurance surcharge, a security surcharge, and a U.S. customs surcharge. In fact, many of the foreign air carriers had pleaded guilty to federal criminal charges in the United States in connection with the alleged conspiracy.

The Federal Aviation Act preempts state-law claims “related to a price, route, or service of an air carrier.” The claims undoubtedly arose under state law and were related to price, the court noted. Thus, the issue was whether the term “air carrier” in this context applied to foreign air carriers or only to domestic air carriers.

Generally, where a statute includes explicit definitions, such as air carrier and foreign air carrier, the statutory definition controls. The Federal Aviation Act defined both terms. However, Congress’s use of the term “air carrier” in the preemption provision was ambiguous, according to the court.

The term was used generically to reference air carriers, both domestic and foreign. Since the Act used the statutory definition in some places, and in other places used the normal, everyday meaning, the statutory definitions did not have compulsory application.

As a result, the court considered the various amendments to the Federal Aviation Act and the legislative history and purpose of Act. The legislative history and purpose of the preemption provision confirmed that state-law antitrust suits against foreign, as well as domestic, air carriers were preempted. The court also reasoned that the indirect purchasers’ reading of the preemption provision, which would preempt only state regulation of domestic air carriers, would allow states to regulate the routes, prices, and services of foreign air carriers that operate all over the world.

Such a result would risk subjecting foreign air carriers and their customers to “a confusing patchwork” of state-by-state regulation, such as different rules for purchase of otherwise identical international flights if one ticket is from an American air carrier and the other is from a foreign carrier.

The case is No. 11-5464-cv.

Christopher Lovell (Lovell Stewart Helebian Jacobson LLP) for plaintiffs. Ian Simmons (O’Melveny & Meyers LLP) for defendants.

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