Plaintiffs Failed To Sufficiently Allege Airlines’ Parallel Actions To Establish Conspiracy Claim
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  • Plaintiffs Failed To Sufficiently Allege Airlines’ Parallel Actions To Establish Conspiracy Claim
    11/26/2019
    On November 12, 2019, Judge George J. Hazel of the United States District Court for the District of Maryland dismissed without prejudice plaintiffs’ putative class action against major airlines with routes between the United States and Mexico.  Plaintiffs had failed to allege violations of the Racketeering Influenced Corrupt Organizations Act (“RICO”), Section 1 of the Sherman Act, or state law.  Rojas v. Delta Airlines, Inc., Case No. GJH-19-665 (D. Md. Nov. 12, 2019).  The Court also denied defendants’ motion to change venue.

    Plaintiffs’ claims related to defendants’ collection of a Mexican tourism tax (“Tax”) on flights from the United States to Mexico.  Defendants collected the Tax on behalf of the Mexican government.  Mexican nationals, children under two years of age, and non-citizen residents of Mexico were exempt from the Tax.  The class, exempt individuals who had traveled to Mexico on one of defendant airlines since 1999, alleged that defendants had conspired to collect the Tax from them and to retain the unremitted proceeds.  Plaintiffs claimed that the reimbursement system established by defendants and their trade association Camera Nacional de Aerotransportes (“CANAERO”) was “illusory” and intentionally ineffective at returning funds to exempt customers.

    Defendants moved to transfer the case to the Southern District of Georgia, where a similar action had recently been dismissed in Almanza v. United Airlines, Inc., 162 F. Supp. 3d 1341 (S.D. Ga. 2016), aff’d 851 F.3d 1060, 1069-75 (11th Cir. 2017).  The Court denied this motion, finding that plaintiffs’ choice of venue should generally not be disturbed, that Maryland had sufficient relation to the case to serve as the venue, that neither Maryland nor Georgia was more convenient for the parties, and that the interests of justice did not support transfer. 

    After denying defendants’ motion to transfer, the Court found that plaintiffs had not alleged enough facts to support the claim of an illicit agreement among defendants.  Accordingly, the Court dismissed plaintiffs’ Sherman Act and RICO claims.

    Addressing plaintiffs’ RICO claim first, the Court found that plaintiffs had failed to sufficiently allege either a RICO “enterprise” or “pattern of racketeering activity.”   To establish a RICO enterprise, a plaintiff must allege the existence of collaboration or agreement between the members of the enterprise.  Based on antitrust precedent on the required factual allegations necessary to show an agreement, the Court found that plaintiffs’ enterprise allegations were insufficient, because they alleged only that defendants engaged in parallel conduct, without any facts that suggested that the conduct was the product of an agreement, as opposed to independent decision-making.  Plaintiffs’ allegation that defendants made a “collective decision” to improperly charge and keep the Tax, the Court reasoned, lacked “any specific allegations as to how, when, or where the illicit agreement actually occurred or who made what communications to bring the agreement about” and was therefore merely “conclusory” and could not support plaintiffs’ RICO claims.  Plaintiffs attempted to overcome their failure to provide specifics by pointing to defendants’ parallel behavior to collect the Tax and meetings at CANAERO about the Tax.  Though all defendants were members of CANAERO, the Court noted that trade associations may only be viewed a RICO enterprise where they act as a conduit for the alleged illicit scheme.  Plaintiffs did not allege this, nor was defendants’ collection of allegedly unwarranted taxes so economically unreasonable as to draw an inference that the competing defendants must have agreed to act in tandem.  On this point, the Court held that, in a concentrated market (such as the airline industry) where competitors “watch each other like hawks,” it is a common reaction to consciously make interdependent decisions with respect to pricing decisions.  Accordingly, the Court found that plaintiffs were unable to allege that defendants’ parallel conduct was the result of anything other than independent economic decisions or interdependence in a concentrated market. 

    The Court also found plaintiffs failed to allege a pattern of racketeering activity.  Under RICO, to allege a pattern of racketeering activity, a plaintiff must allege that at least two predicate acts of racketeering occurred.  Plaintiffs’ claimed predicate acts of mail and wire fraud alleging defendants defrauded class members when they included a line item for the Tax on the class members’ bills.  As an initial matter, the Court held that plaintiffs’ allegations did not satisfy the particularity requirement of Rule 9(b), because plaintiffs did not identify any specific misrepresentations or the role played by specific defendants in the alleged fraud.  The Court went on to say that the line items, which only averred that the tax was included within the charged total, was not incorrect.  The Court reasoned that even if the line item wrongly suggested that the class members owed the Tax, the line item was a misrepresentation of law, not of fact, and thus was not actionable.

    The Court then dismissed plaintiffs’ Sherman Act claim for failing to show the alleged parallel conduct was the result of an antitrust conspiracy.  The Court noted that the crucial question is whether the challenged conduct stems from independent decision or from an agreement.  Relying on its RICO enterprise analysis, the Court held that plaintiffs’ antitrust claim pled no facts showing that the alleged parallel conduct was not independent, as opposed to being coordinated among defendants.  Plaintiffs argued that defendants’ membership in a trade association coupled with alleged actions against defendants’ economic self-interest provided the necessary plus factors to plead an antitrust conspiracy.  The Court rejected these as insufficient to raise an inference of conspiracy as opposed to being consistent with independent action.

    Finally, the Court dismissed plaintiffs’ state-law fraud, fraudulent concealment and unjust enrichment claims, finding that these claims were preempted by the federal Airline Deregulation Act (“ADA”).  Since plaintiffs’ allegations related to the price the airlines charged for service between the United States and Mexico, the Court found the claims fell within the ADA’s scope, which covers the “price, route, or service of an air carrier.”  The Court reasoned that potentially applicable exceptions did not apply.

    The Rojas decision is the third decision since 2010 dismissing claims that airlines’ Mexican tourism tax collection practices violated United States federal law, including the antitrust laws.
    CATEGORIES: Section 1Sherman Act § 1

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