A Northern District of Georgia Federal District Court recently held that allegations that two airline executives had reached an agreement to raise prices through a series of statements made to stock analysts at public press conferences was sufficient to state a claim under Section 1 of the Sherman Act. The decision (In re Delta/AirTran Baggage Fee Antitrust Litigation) is a reminder that the facts necessary to plead a potential antitrust conspiracy often can be found in unexpected places. And, despite the more rigorous pleading standards created by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), one should be cautious when speaking about future business plans with third parties.
Plaintiffs’ Allegations in In re Delta
In In re Delta/Airtran Baggage Fee Antitrust Litigation, the plaintiffs alleged that defendants, Delta and Air Tran Airlines, had entered into an unlawful agreement to impose new baggage fees on passengers departing from Atlanta’s Hartsfield-Jackson Airport. In support of their claims, the plaintiffs pointed to (1) the significant market shares of those two airlines at the airport, (2) public statements made by the airlines’ representatives concerning their interest in imposing new baggage fees, and (3) the airlines’ subsequent announcement of first-checked bag fees at the airport.
The central allegation in plaintiffs’ complaint involved what plaintiffs claimed were a series of “wink and nod” statements made by defendants during quarterly earnings calls with stock analysts. Specifically, plaintiffs alleged that an AirTran representative announced to analysts that it was prepared to initiate a first-bag fee, but that it preferred “to be a follower . . . rather than a leader” on the issue. Shortly thereafter, even though Delta previously had announced that it was merely “studying the issue” and that it had no intention of imposing such a fee at the time, it announced the imposition of a new $15 first-bag fee. Delta’s new baggage fee was quickly copied by AirTran, which, as alleged by plaintiffs, permitted both airlines to increase revenue without losing market share.
The Defendants’ Motion and the Courts’ Ruling
Delta and AirTran moved to dismiss the complaint, arguing that the plaintiffs’ conspiracy allegations were insufficient as a matter of law to satisfy the requirements of Twombly. Under the Supreme Court’s Twombly standard, a plaintiff ’s complaint must contain enough factual detail to nudge a claim of conspiracy “across the line from conceivable to plausible.” In addition, the Supreme Court reaffirmed in Twombly that allegations of parallel pricing conduct, standing alone, are insufficient to plead an antitrust conspiracy. According to the defendants, the plaintiffs’ allegations - which all parties acknowledged centered on defendants’ statements to the analysts - failed to satisfy this standard.
Specifically, Delta and AirTran argued that their public pronouncements merely described how “the industry” might react to market conditions and were not statements designed to evoke a market response. As such, in defendants’ view, the allegations were insufficient, as a matter of law, to satisfy the requirements of Twombly. The court, however, rejected this argument, noting that the two airlines are fierce rivals in the Atlanta market (with the two highest market shares), that they closely monitored each other’s earnings calls, and that they frequently attended (and made speeches in the presence of each other’s representatives at) the same industry conferences. Accordingly, the Court concluded that the inference the plaintiffs sought to draw - that the defendants intended to communicate to each other through their respective analyst conferences - was a reasonable and plausible one and, thus, sufficient to satisfy the Twombly standard.
Moreover, the Court pointed out that the plaintiffs had alleged more than mere price announcements; they alleged that each defendant signaled its willingness to cut capacity and increase prices if the other defendant acted in concert. The Court further noted that the plaintiffs’ allegations provided a detailed account of how and when the alleged conspiracy was reached, who was involved in the alleged collusive communications, the content of the communications, the changed business practices that followed the collusive communications, and the pretextual reasons for the changed business practices.
Finally, the Court also put to rest any suggestion that circumstantial evidence is insufficient to plead the existence of an antitrust conspiracy. The Court noted that “‘it is only in rare cases that a plaintiff can establish the existence of a conspiracy by showing an explicit agreement; most conspiracies are inferred from the behavior of the alleged conspirators.’” (quoting Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1573-74 (11th Cir. 1991)); see also Standard Iron Works v. ArcelorMittal, 639 F. Supp. 2d 877 (N.D. Ill. 2009) (statements made during industry conferences attended by competing executives that preceded changed business practices provided sufficient evidence of an alleged conspiracy).
An Unusual Result or an Emerging Trend?
While it might be tempting to dismiss the Court’s ruling as an unusual and isolated occurrence, the use of an “invitation to collude” theory to support an antitrust conspiracy is neither unusual nor novel. In fact, the theory dates back to the 1980s when the Department of Justice famously prosecuted American Airlines for statements made by its then CEO, Robert Crandall. That case, like the Delta case, involved two airlines struggling to maintain market share while attempting to remain profitable. Rather than trying to compete with its competitors’ “Super Saver Fares,” American Airlines opted to try to convince its competitor to raise its fares. See United States v. American Airlines, Inc., 743 F.2d 1114 (5th Cir. 1984). This led to Crandall’s infamous “Raise your god**** fares twenty percent [and] I’ll raise mine the next morning” statement.
More recently, the FTC brought an action against Valassis (a marketing company and leading producer of freestanding newspaper inserts) based on statements made by its CEO during a conference call with securities analysts. During the call, the CEO made statements suggesting that competing firms should coordinate newspaper insert pricing, and that it and its primary competitor should cease competing for the other’s customers and return to earlier (and higher) price points. See In re Valassis Communications, Inc., FTC File No. 051-0008 (Apr. 19, 2006). Because these statements strongly signaled Valassis’s intent to split the market with a competitor, allocate customers, and coordinate pricing, the FTC brought an administrative action, which Valassis and federal antitrust enforcers settled through a consent order (albeit under Section 5 of the FTC Act, not the Sherman Act), which Valassis and federal antitrust enforcers settled through a Consent Judgment.
Alerting businesses of its intent to continue monitoring public statements and to bring further enforcement actions if necessary, the FTC stated in Valassis, “It is clear that anticompetitive coordination can also be arranged through public signals and public communications, including speeches, press releases, trade association meetings and the like.” In fact, the agency said that an “invitation to collude, made in the context of a conference call with analysts,” may be viewed as being “more credible than a private communication.”
The Delta decision provides an excellent reminder that public statements can, at times, prove dangerous under the antitrust laws. While Twombly has clearly “raised the bar” for pleading an antitrust conspiracy, statements made during earnings calls or at industry conferences - particularly when coupled with parallel actions by competitors shortly after such statements - can provide the “plus factors” necessary to nudge a plaintiffs’ conspiracy claim across the plausibility threshold required by Twombly. Company representatives would be well advised to keep this clearly in mind whenever speaking about a company’s future plans, with analysts or anyone else.