Consumers’ State Antitrust Law Claims Against Korean Air Carriers Preempted

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Putative class action claims brought by consumers against Korean Airlines and Asiana Airlines for conspiring to fix prices in violation of the California Business and Professions Code and unfair competition laws, as well as similar laws of 19 other states and the District of Columbia, were preempted by the Airline Deregulation Act of 1978, the U.S. Court of Appeals in San Francisco has ruled. Thus, dismissal of the state law claims was upheld.

However, the appellate court vacated the lower court’s decision to deny the consumers leave to amend their complaint to assert federal antitrust claims.

Airline Deregulation Act Preemption Provision

Under the Airline Deregulation Act’s express preemption provision, a “[s]tate . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.”

The indirect purchaser plaintiffs unsuccessfully argued that the provision did not apply to foreign air carriers. They pointed to the provision’s use of the term “air carrier” as opposed to “foreign air carrier.” They contended that Congress intended the terms “air carrier” and “foreign air carrier” to refer to different entities and that it consistently employed those terms for distinct uses.

The appellate court held that Congress intended that the preemption provision apply to all air carriers and not only to domestic ones. Congress’s use of the term “air carrier” throughout the Act did not always correspond with that term’s statutory definition and that “air carrier” is sometimes used to refer generally to both domestic and foreign airlines, the court explained.

The legislative history behind the ADA also demonstrated that Congress intended to preserve its authority to regulate the airline industry by prohibiting states from regulating all air carriers, both domestic and foreign. Moreover, because the indirect purchaser plaintiffs alleged a price fixing conspiracy, their claims were plainly related to a price of an air carrier and consequently were preempted.

Sherman Act Claims

The complaining consumers in this appeal were not direct purchasers from the defending airlines. They bought their airline tickets from travel agents and consolidators. Separate claims were brought on behalf of the plaintiffs who purchased directly from Korean Air and Asiana.

Although the indirect purchasers sought to assert both federal and state antitrust law claims, the district court decided that the indirect purchaser plaintiffs could only represent those claims arising under state law. The court assigned responsibility for litigating federal antitrust claims to the direct purchaser plaintiffs in the multi-district litigation (MDL).

The appellate court concluded that the district court erred in denying the indirect purchaser plaintiffs leave to amend based on its determination that other counsel would pursue the federal antitrust claims. The lower court applied an incorrect legal standard in denying the indirect purchaser plaintiffs’ motion to amend their complaint.

“Although a district court overseeing MDL proceedings has the authority to decide which law firm should serve as lead counsel for the purposes of pretrial proceedings, MDL proceedings do not expand the grounds for disposing of individual cases,” according to the appellate court.

Details of April 18, 2011, decision in In re: Korean Air Lines Co., Ltd. Antitrust Litigation, No. 08-56385, will appear in CCH Trade Regulation Reporter.