“In twenty minutes of cross examination, we established that the expert had never been able to find any evidence of collusion, even though he desperately tried.”
Anyone who has ever listened to a quarterly earnings call knows the drill: Executives read a prepared statement, rehash the company’s financial results, and answer often softball questions from Wall Street analysts.
But for AirTran Airways, a seemingly run-of-the-mill earnings call would trigger a ten-year long antitrust class action battle with billions of dollars in damages at stake.
It all began in 2008, when within days of each other AirTran and its archrival Delta Air Lines both adopted the policy of charging passengers $15 “first-bag” fees, following the lead of most other major airlines. A few months later, plaintiffs filed an antitrust lawsuit alleging that AirTran — acquired in 2011 by Southwest Airlines — and Delta conspired to fix prices, a violation of the Sherman Act.
A central allegation: AirTran’s then-CEO Robert Fornaro had “signaled” the airline’s first-bag fee plans to Delta during a quarterly earnings call when in response to an analyst’s question, he said AirTran would strongly consider following the lead of its “largest competitor.”
“The central issue in the case was whether the two had signaled to one another through public statements like the earnings call,” said V&E antitrust partner Alden L. Atkins, who led the V&E team representing Southwest in the case. “In other words, had they colluded when AirTran spoke publicly and Delta adopted a first-bag fee, even though the two companies never communicated at all about bag fees?”
The court said no. In 2017 United States District Judge Timothy C. Batten concluded that “the evidence in this case simply does not permit a reasonable factfinder to infer the existence of a conspiracy” and granted AirTran and Delta summary judgment, dismissing the suit. In 2018, the United States Court of Appeals for the Eleventh Circuit summarily affirmed that decision and on January 7, 2019, the Supreme Court denied certiorari, bringing the lengthy case to a close.
Southwest’s victory owes much to the work of Atkins, V&E appellate counsel Joshua S. Johnson, and V&E antitrust counsel David C. Smith who kept the case squarely focused on the absence of any evidence of collusion between AirTran and Delta.
“The plaintiffs tried to find all kinds of ways to prove there were communications,” Atkins said. “We stayed focused on the fact that there were none.”
Serious threats: Billions in potential damages and the public’s disdain for bag fees
Southwest knew the stakes were high when in 2011 the airline asked V&E to take over AirTran’s defense.
The financial toll could have been significant. The plaintiffs were seeking all first-bag fees paid by passengers from 2009 to 2014, the year AirTran ceased operations and thus stopped charging first bag fees. Under antitrust law, plaintiffs are entitled to treble damages, which would have translated into billions of dollars in potential liability for the airlines.
Securing summary judgment and avoiding a jury trial was all the more critical because travelers tend to hate bag fees. Had the case ended up in front of a jury, the defendants ran the risk of facing jurors who felt the same way.
“We were dealing with a factual situation that might not garner a lot of sympathy,” Johnson said.
The outcome of the case would have implications not only for AirTran and Delta but also for public companies and investors at large. If the plaintiffs prevailed, CEOs would likely have to think twice before publicly discussing pertinent issues, out of fear of being sued.
“If the court had said there was enough evidence for a jury to decide whether there was an antitrust violation, then it would mean publicly traded companies would be at risk of an antitrust violation every time they answered a question during an earnings call,” Atkins said.
It’s the facts
The facts were in AirTran’s favor. The plaintiffs had failed to uncover documents, emails, text messages — any type of evidence that showed collusion. Meanwhile, there was abundant evidence that in 2008 skyrocketing fuel costs and massive losses were prompting other airlines to charge first-bag fees, and that AirTran and Delta came to their decisions independently.
To win, the V&E team knew they had to drum away at those facts — and they did so even during the most unexpected circumstances. One of those opportunities came up in the middle of a hearing that seemingly had little to do with AirTran.
The plaintiffs raised enough serious questions as to whether Delta had engaged in discovery errors that the court, in 2014, appointed a special master.
During a hearing before the special master, an e-discovery expert hired by the plaintiffs testified as to why he believed Delta should be sanctioned. Even though AirTran was not the focus of the hearing, Atkins took the opportunity to cross-examine the expert.
“In twenty minutes of cross examination, we established that the expert had never been able to find any evidence of collusion, even though he desperately tried,” Atkins said. “So when the special master wrote his report he concluded that the expert had found no evidence of collusion. And when the judge confirmed the special master’s decision, he wrote that the expert had uncovered no evidence of collusion.”
“We understood that getting the legal standard right, and getting the judges focused on the relevant legal standard was very important in this case,” added Johnson who together with Atkins and Smith wrote the appellate brief.
A victory and swift affirmation from the Court of Appeals
The strategy worked. For the plaintiffs to prevail, they would have had to show that the airlines were engaged in a pattern of activity that went beyond “conscious parallelism,” a legal practice in which competitors in concentrated markets independently monitor each other’s pricing and adjust accordingly.
The plaintiffs “must simply present some evidence that tends to exclude the possibility of conscious parallelism or that tends to establish a price-fixing conspiracy,” Judge Batten wrote in his 2017 decision. They failed to do so, he concluded.
It didn’t take long for the Court of Appeals to come to the same conclusion. Moving with unusual speed, the Court of Appeals affirmed the District Court’s decision just two days after Atkins argued the appeal.
A tactical and economical decision on behalf of the client
The V&E team was so confident in the merits of their case that when the plaintiffs filed a petition for writ of certiorari, the V&E lawyers decided to waive their right to file a brief with the Supreme Court. The decision was both economical and tactical. Southwest avoided additional legal fees and kept attention to the matter to a minimum.
“If you file a brief in opposition, you can unintentionally signal that the case is a big deal and that the Court should be interested in the case,” said Johnson who before joining V&E had clerked for Supreme Court Justice Ruth Bader Ginsburg.
If push came to shove and the Supreme Court was seriously considering granting certiorari, the team knew they would likely have an opportunity to file a brief later on. “I don’t think it’s widely known that it’s almost certain that the Supreme Court will not grant review in a case without calling for a response to a certiorari petition,” Johnson added.
In the end that would not be necessary. Just as the V&E lawyers predicted, in January the Supreme Court declined to review the case.
For V&E, however, the case goes on. Antitrust defendants almost never recover a penny from the plaintiffs for all of the costs incurred in the litigation. But with this victory, the V&E team is seeking several hundreds of thousands of dollars in statutory costs for Southwest.