DPWN Holdings (USA) Incorporated v. United Airlines, Inc. , 747 F.3d 145 ( 2014 )

12-4867-cv
DPWN Holdings (USA) Incorporated v. United Airlines, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2013
Heard: September 30, 2013 Decided: March 27, 2014
Docket No. 12-4867-cv
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DPWN HOLDINGS (USA), INCORPORATED,
Plaintiff-Counter-Defendant-Appellee,
v.
UNITED AIR LINES, INC., DBA UNITED AIRLINES,
UNITED CONTINENTAL HOLDINGS, INCORPORATED,
FKA UAL CORPORATION,
Defendants-Counter-Claimants-Appellants.
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Before: NEWMAN, POOLER, and LIVINGSTON, Circuit Judges.
Interlocutory appeal from the May 18, 2012, order of the
United States District Court for the Eastern District of New
York (John Gleeson, District Judge), denying a motion to
dismiss a complaint alleging an antitrust claim. Appellants
contend the claim was discharged in bankruptcy.
Remanded.
1
Charles A. Rothfeld, Mayer Brown,
LLP, Washington, DC (Richard J.
Favretto, John Roberti, Michael
B. Kimberly, Mayer Brown LLP,
Washington, DC, on the brief),
for Appellants.
J. Peter Coll, Jr., Orrick,
Herrington & Sutcliffe LLP, New
York, NY (Garret G. Rasmussen,
Robert M. Loeb, Rachel Wainer
Apter, Antony P. Kim, Ryan K.
Quillian, Orrick, Herrington &
Sutcliffe LLP, Washington, DC, on
the brief), for Appellee.
JON O. NEWMAN, Circuit Judge.
The issue on this interlocutory appeal from an order
denying a motion to dismiss an antitrust price-fixing claim is
whether the plaintiff had sufficient notice of the
availability of the claim against a Chapter 11 debtor to
satisfy due process requirements and render the claim
discharged. This issue arises on an appeal by Defendants-
Appellants United Air Lines, Inc., DBA United Airlines, and
United Continental Holdings, Inc., FKA UAL Corp. (collectively
“United”), from the May 18, 2012, order of the United States
District Court for the Eastern District of New York (John
Gleeson, District Judge), denying United’s motion to dismiss
an antitrust complaint brought against it by Plaintiff-
2
Appellee DPWN Holdings (“DHL”). See DPWN Holdings (USA), Inc.
v. United Air Lines, Inc. (“Dist. Ct. Op.”), 871 F. Supp. 2d
143 (E.D.N.Y. 2012).
We conclude that, in the circumstances of this case, the
District Court applied an incorrect standard in accepting as
true DHL’s allegation that it was not aware of, or with due
diligence could not have become aware of, sufficient facts to
plead an antitrust claim that would survive a motion to
dismiss in the context of a bankruptcy proceeding. We
therefore remand for further development of the facts
concerning (a) what DHL knew or reasonably should have known
in time to present an antitrust claim in the bankruptcy
proceeding, or to file a late proof of claim or move to amend
the reorganization plan and (b) what United knew or reasonably
should have known concerning DHL’s claim.
Background
Facts concerning the alleged price-fixing conspiracy.
Because this appeal is from the denial of a motion to dismiss,
the facts regarding United’s alleged involvement in the price-
fixing conspiracy are taken from DHL’s complaint and are
assumed to be true. See Bryant v. N.Y. State Education
Department, 692 F.3d 202, 210 (2d Cir. 2012). United was a
member of the International Air Transport Association (“IATA”)
3
at all times relevant to this appeal. IATA enjoyed limited
antitrust immunity in the European Union through a “block
exemption.” In 1993, the European Union’s Directorate General
for Competition (“DGC”) sent a letter to an official at IATA
specifying that the block exemption did not cover the
coordinated implementation of surcharges. This letter was
shared with IATA members. The United States Department of
Transportation (“DOT”) communicated a similar conclusion to
IATA. Nevertheless, in 1993 IATA adopted a surcharge “upon
the pretext of recouping increased costs.” As a result, the
DGC withdrew IATA’s block exemption and subsequently denied an
application for an individual exemption for the surcharge.
On August 9, 1996, United and two other airlines,
Lufthansa and Scandinavian Airlines (“SAS”) entered into an
agreement to provide “globally integrated air transportation
services in competition with other carriers and carrier
alliances while remaining independent companies.” On November
1, 1996, DOT issued an order permitting the alliance and
providing it limited antitrust immunity. However, the
agreement prohibited the airlines from “exchang[ing]
information, discuss[ing], agree[ing] upon, or coordinat[ing]
. . . on any subject or in any manner that would cause any
Party to contravene (i) any law . . . .”
4
In early 1997, members of IATA considered joint
strategies to manage increases in the price of aviation fuel,
including implementing fuel surcharges. At that time, members
of IATA considered the antitrust risks of coordinated
surcharging. Minutes from an IATA conference on the topic,
quoting Andrew Charlton, director of the IATA legal
department, stated:
Antitrust laws prohibit competitors reaching any
form of agreement, understanding or arrangement
which is likely to have an impact on price. . . .
[A] relevant exception is where immunity has been
granted by the relevant authority for rates reached
pursuant to a particular procedure and within the
strict confines of the terms of the approval itself.
. . .
Without any immunity, authorities regard with great
suspicion any situation where competitors charge the
same rate. In the event that there is any evidence
whatsoever that competitors have had an opportunity
to communicate in any way, and charge the same rate,
there is a very strong assumption that they do so
having colluded.
Until the particular approval is granted for any
rate agreed at this conference, that situation would
apply. In other words, in my opinion, any airline
which moves to charge the rate which is agreed at
this conference before government approval, and
therefore antitrust immunity, is obtained, would
face a very strong evidential presumption that the
rate being charged had been agreed between
competitors and without antitrust immunity.
On August 7, 1997, IATA approved Resolution 116ss, under
which member airlines would introduce a fuel surcharge tied to
changes in the spot price of aviation fuel as tracked by the
5
IATA Fuel Price Index (“FPI”). IATA officials were later
advised that DOT refused to give approval to the resolution,
which would confer antitrust immunity, “unless accompanied by
economic justification based on current prices,” which the
airlines were unable to provide. As a result, IATA’s Board of
Governors declined to make the resolution effective.
In late 1999 to early 2000, for the first time since
approval of Resolution 116ss, fuel spot prices increased
enough to trigger a fuel surcharge. On January 28, 2000, IATA
submitted Resolution 116ss for approval by DOT, hoping to
secure antitrust immunity and put the resolution into effect.
United informed its competitors that it planned to impose a
fuel surcharge effective February 1, 2000. Then, before
receiving a response from DOT, United and a number of other
airlines started charging DHL and other customers a fuel
surcharge “pursuant to the terms of Resolution 116ss.”
On March 14, 2000, DOT rejected the airlines’ application
for approval, stating, “The uniform, industry-wide index
mechanism proposed here appears fundamentally flawed and
unfair to shippers and other users of cargo air
transportation.” On March 21, 2000, IATA members circulated
a statement advising its airlines that implementing surcharges
pursuant to the resolution might be illegal price-fixing. The
statement advised:
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If [members] were to coordinate pricing by reference
to the Index, whether pursuant to this disapproved
Resolution or simply through de facto parallel
pricing actions, that could be regarded as an
illegal conspiracy in violation of applicable
Competition laws . . . . Because any further pricing
actions linked to the now tainted Index could expose
the carriers engaging in such pricing actions to
serious antitrust liability, we must advise that
carriers not engage in any pricing actions tied to
the Index.
IATA also announced that it would stop publishing the FPI,
because “The Index has now become tainted by the DoT order
finding Resolution 116ss, to which the Index was linked, to be
adverse to the public interest and in violation of law.”
DHL alleges that after the DOT’s rejection of Resolution
116ss, United and other airlines continued charging fuel
surcharges “as if Resolution 116ss had been approved.” For
example, DHL alleges that in late 2000, United “and other
cartel members – in a coordinated, largely parallel fashion –
increased the Fuel Surcharge to DHL . . . in accordance with
Resolution 116ss.”
Over the next few years, the airlines strayed from the
methodology set forth in Resolution 116ss. Despite these
deviations, United and the other airlines continued to fix
fuel charges in the same anticompetitive and illegal manner.
For example, in late 2001, the airlines recalibrated the fuel
surcharge formula in a coordinated manner. DHL’s complaint
alleges that the airlines did so “to preserve the
7
supracompetitive profits generated by the Fuel Surcharge”
despite lower fuel prices. Then, in July 2002, United began
using its own “Jet Fuel Index.” DHL’s complaint alleges that
this index was “a façade to help [United] maintain the
appearance of acting unilaterally.” DHL alleges many other
actions in furtherance of a conspiracy to fix fuel surcharges
until at least mid-October 2006.
The Chapter 11 proceeding. On December 9, 2002, United
filed a petition for relief under Chapter 11 of the Bankruptcy
Code. As part of its claims notification procedures, United
identified DHL as a potential creditor holding more than
twenty disputed claims. An antitrust price-fixing claim was
not mentioned. DHL received actual notice of United’s
bankruptcy and all relevant deadlines.
On January 20, 2006, the bankruptcy court confirmed
United’s reorganization plan, which became effective on
February 1, 2006. Pursuant to 11 U.S.C. § 1141(d), the plan
provided for a blanket discharge of all claims and causes of
action, “known or unknown,” “of any nature whatsoever” against
United “that arose before the Confirmation Date.” Also on
February 1, distribution of shares of stock in the reorganized
United began and was 80 percent complete by March 21, 2006.
On December 8, 2009, a final decree was entered in
United’s bankruptcy. All holders of general, unsecured claims
8
received stock in the reorganized company that was valued at
between 4 and 8 cents on the dollar.
Post-confirmation developments. On February 14, 2006,
law enforcement officials raided the offices of several
airlines, other than United, allegedly involved in a fuel
surcharge price-fixing conspiracy. Three days later, on
February 17, a class action was filed against United and
others, asserting price-fixing claims like those asserted in
DHL’s pending lawsuit.1 See Dist. Ct. Op., 871 F. Supp. 2d at
149. In June 2006, the U.S. Department of Justice (“DOJ”)
served a subpoena on United “requesting information related to
certain passenger pricing practices and surcharges.” DOJ did
not indict United for a price-fixing conspiracy, although
United was named as a defendant in over ninety class actions
alleging such a conspiracy. United settled with the majority
of class action plaintiffs in return for agreements to
cooperate with the plaintiffs’ investigation.
On July 5, 2010, as a result of a settlement with one of
the airlines involved in the alleged price-fixing conspiracy,
DHL obtained access to documents disclosing United’s
participation in the scheme.
1
The class plaintiffs reached a non-monetary settlement
with United in late 2006, but did not seek judicial approval
of the settlement. United was dropped from the class action
in February 2007, when an amended complaint, not naming United
as a defendant, was filed. See Dist. Ct. Op., 871 F. Supp. 2d
at 149.
9
DHL’s antitrust suit. On February 4, 2011, DHL filed a
lawsuit in the District Court alleging that United was part of
a conspiracy to fix the price of air cargo shipments, in
violation of section one of the Sherman Act, 15 U.S.C. § 1.
The alleged scheme involved fixing the base freight rate and
various surcharges. Anticipating United’s defense that DHL’s
antitrust claim was discharged in the bankruptcy proceeding,
DHL alleged that it first learned of United’s involvement in
a price-fixing conspiracy “after July 5, 2010, when DHL
obtained access to confidential documents describing the scope
of the cartel and providing evidence of [United]’s
participation in the cartel. Complaint ¶ 18. DHL also alleged
that it “did not and could not have discovered the injuries it
sustained as a result of [United]’s illegal activity until
after July 5, 2010.” ¶ 161. United moved to dismiss DHL’s
antitrust suit on the ground that, among other things, DHL’s
cause of action was discharged by the confirmation of United’s
plan of reorganization.
On May 18, 2012, the District Court denied United’s
motion to dismiss. Dist. Ct. Op., 871 F. Supp. 2d at 164.
Accepting for purposes of United’s motion to dismiss DHL’s
allegation concerning its lack of knowledge, the Court stated,
“[I]t is undisputed for purposes of this motion that DHL could
not have discovered United’s alleged antitrust violations
10
until after confirmation of the plan.” Id. at 153. The Court
held that DHL’s claim was not barred by confirmation of
United’s reorganization plan because DHL was denied due
process for lack of notice of its potential claim. Id. at 153-
60. In view of the time and expense that a potentially
needless antitrust trial would take, the Court sensibly
certified its ruling for interlocutory appeal, and this Court
granted United’s petition for an interlocutory appeal. See 28
U.S.C. § 1292(b).
Discussion
The basic legal principles relevant to this appeal are
not in dispute. Under the Bankruptcy Code, confirmation of a
Chapter 11 reorganization plan “discharges the debtor from any
debt that arose before the date of [] confirmation.” 11
U.S.C. § 1141(d)(1)(A). In this context, a debt is defined to
mean liability on a claim, and the term “claim” means “right
to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” 11 U.S.C. § 101(5)(A). The discharge of pre-
confirmation claims “operates as an injunction against the
commencement or continuation of an action.” 11 U.S.C.
§ 524(a)(2). The discharge of such claims serves the
bankruptcy policy of providing debtors with a “fresh start” to
11
permit their continued operation free of pre-bankruptcy debts.
See Central Virginia Community College v. Katz, 546 U.S. 356,
364-65 (2006). However, a claim cannot be discharged if the
claimant is denied due process because of lack of adequate
notice. See Wright v. Owens Corning, 679 F.3d 101, 107-08 (3d
Cir. 2012). And whether notice comports with due process
requirements turns on the reasonableness of the notice, see
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314
(1950), a flexible standard that often turns on what the
debtor or the claimant knew about the claim or, with
reasonable diligence, should have known, see Chemetron Corp.
v. Jones, 72 F.3d 341, 345-46 (3d Cir. 1995).
In ordinary cases in which a claim for money is asserted,
it will often be entirely reasonable to expect that the debtor
knows to whom it owes money, although many claimants will also
know, or with reasonable diligence could ascertain, that they
are owed money. However, in the context of a claim for
damages based on the debtor’s alleged violation of law, two
competing policies will be in tension. On the one hand is the
policy sought to be vindicated by the statute alleged to be
violated, here the Sherman Antitrust Act. That policy –
promoting competition – is enhanced by limiting the
circumstances in which the claim is discharged. On the other
12
hand is the policy sought to be vindicated by the Bankruptcy
Code. That policy – providing a debtor emerging from
bankruptcy with a “fresh start” – is enhanced by expanding the
circumstances in which a claim is discharged.2 Moreover, a
debtor will normally be less likely to be charged with
knowledge that it has violated the law than that it owes money
unrelated to a law violation.
We recognized the tension between these policies in In re
Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991), which pitted
the policy of environmental protection under the Comprehensive
Environmental Response, Compensation and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et. seq. (1988), against the
“fresh start” policy of the Bankruptcy Code. “The Code aims
to provide reorganized debtors with a fresh start, an
2
The few decisions we have located considering whether
an antitrust claim was discharged in bankruptcy are
distinguishable from the pending case. See In re Travel Agent
Commission Antitrust Litigation, 583 F.3d 896, 901 (6th Cir.
2009) (discharge argument waived); In re Texas Extrusion
Corp., 844 F.2d 1142, 1158 (5th Cir. 1988) (claim filed too
late); In re Penn Central Transportation Co., 771 F.2d 762,
767 n.7 (3d Cir. 1985) (trustee unaware of alleged claim); In
re Lear Corp., No. 12 Civ. 2626, 2012 WL 5438929, at *2
(S.D.N.Y. Nov. 05, 2012) (discharge of claim based on conduct
prior to plan confirmation undisputed); In re Envirodyne
Industries, Inc., 206 B.R. 468, 474 (Bankr. N.D. Ill. 1997)
(two antitrust claimants were not customers of debtor and no
evidence that debtor knew or should have known of claim by
one-time purchaser).
13
objective made more feasible by maximizing the scope of a
discharge. CERCLA aims to clean up environmental damage, an
objective that the enforcement agencies in this litigation
contend will be better served if their entitlement to be
reimbursed for CERCLA response costs based on pre-petition
pollution is not considered to be a ‘claim’ and instead may be
asserted at full value against the reorganized corporation.”
Id. at 1002. We also recognized that it will sometimes be
appropriate to permit the “fresh start” policy to override the
policy of the statute alleged to be violated. “Here, we
encounter a bankruptcy statute that is intended to override
many provisions of law that would apply in the absence of
bankruptcy - especially laws otherwise providing creditors
suing promptly with full payment of their claims.” Id.
In the pending case, the District Court accepted, for
purposes of United’s motion to dismiss, DHL’s allegation that
it “could not have discovered United’s alleged antitrust
violations until after confirmation of the plan.” Dist. Ct.
Op., 871 F. Supp. 2d at 153.3 Although factual allegations of
3
The Court stated that for purposes of the motion to
dismiss DHL’s inability to have discovered the antitrust claim
was “undisputed.” Dist. Ct. Op., 871 F. Supp. 2d at 153. It
is not clear why DHL’s assertion of inability to discover its
claim was said to be undisputed; United appears to have
14
a complaint are normally accepted as true on a motion to
dismiss, see, e.g., Goldstein v. Pataki, 516 F.3d 50, 56 (2d
Cir. 2008), that principle does not apply to general
allegations that are contradicted “by more specific
allegations in the Complaint.” See, e.g., Hirsch v. Arthur
Andersen & Co., 72 F.3d 1085, 1095 (2d Cir. 1995); Barberan v.
Nationpoint, 706 F. Supp. 2d 408, 424 (S.D.N.Y. 2010); In re
Livent, Inc. Noteholders Securities Litigation, 151 F. Supp.
2d 371, 405 (S.D.N.Y. 2001). In Ashcroft v. Iqbal, 556 U.S.
662 (2009), the Supreme Court deemed “conclusory” and “not
entitled to be assumed true” on a motion to dismiss an
allegation that a defendant “‘knew of’ . . . harsh conditions
of confinement.” Id. at 680, 681 (quoting complaint). It is
not clear, and has not since been clarified, whether the
Court’s unwillingness to accept this allegation of knowledge
was intended to apply generally to allegations of mental
states or was a more limited pronouncement influenced by the
fact that the defendants were senior officials of the
vigorously disputed DHL’s contention. At oral argument on
United’s motion to dismiss, the Court stated that it was
“taking the allegations as true” without adding that DHL’s
claim of inability to become aware of its claim was
undisputed. See Transcript of hearing on motion to dismiss at
26 (Dec. 22, 2011).
15
Government, less likely to have knowledge of the alleged
conditions of harsh confinement than lower ranking officials,
like the defendant prison warden, with more immediate
responsibilities for the alleged conditions.
Whatever the scope of the Supreme Court’s statement in
Iqbal, DHL’s claim of lack of knowledge in this case is
contradicted by several allegations in its complaint. For
example, paragraph 40 alleges that members of IATA, including
United, adopted Resolution 116ss to set fuel surcharges,
paragraph 44 alleges that the carriers, including United,
implemented the resolution, paragraphs 54 and 58 allege that
the airlines raised fuel surcharges in parallel in conformity
with the Resolution, paragraph 20 alleges that the surcharges
increased at a greater rate than the increase in prices of
aviation fuel, and paragraphs 70 and 74 allege that many of
the increases occurred in a coordinated fashion.
We recognize that parallel conduct alone is generally
insufficient to show an antitrust violation, see Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 553-57 (2007), but the facts
of United’s conduct that appear to have been known or
reasonably knowable by DHL prior to confirmation of the plan
may well supply the “plus” factors, see In re Text Messaging
16
Antitrust Litigation, 630 F.3d 622, 624 (7th Cir. 2010), that
would have permitted assertion of an antitrust claim. At a
minimum, these facts contradict and may well undermine DHL’s
claim of lack of sufficient knowledge of an antitrust
violation. The issue here is not whether the known facts
would have permitted pleading a sufficient antitrust claim
outside of bankruptcy, but only whether such a claim could
have been filed within a bankruptcy proceeding where the
“fresh start” principle operates to channel all “claims,”
broadly defined by the Bankruptcy Code, into a forum well
suited to determine whether such claims deserve exploration
and adjudication. And these facts bear importantly on the
ultimate issue whether DHL was denied due process by lack of
specific notice from United of an antitrust claim.
Furthermore, the fact that a class antitrust action was
filed against United on February 17, 2006, after plan
confirmation, bears importantly on the issue whether DHL could
have filed a late claim or moved to amend the reorganization
plan. DHL was a member of the putative class and has relied
on the pendency of the class complaint to toll the statute of
limitations in this litigation.
17
We are skeptical of DHL’s contention that it was not
aware of, or with reasonable diligence could not have become
aware of, its antitrust claim in time to assert it in the
bankruptcy proceeding. But whether that contention is
supportable and the related issue of whether due process
required United to give DHL explicit notice of an antitrust
claim should not be decided at the appellate level before the
District Court has considered these matters under proper
standards. Because the District Court erred in accepting as
true DHL’s allegation of lack of sufficient knowledge to file
an antitrust claim in bankruptcy, the matter must be remanded
for reconsideration.
On such reconsideration the District Court must determine
what aspects of United’s alleged price-fixing conduct were
known by DHL, or reasonably ascertainable, prior to plan
confirmation, whether the allegations of the class action
complaint were sufficient to alert DHL to its antitrust claim,
and whether a post-confirmation claim would have been
entertained. If DHL lacked such knowledge, the inquiry will
then shift to whether United knew or should have known of its
potential antitrust liability such that due process required
it to notify DHL of the potential claim. At least these
18
matters must be considered before a determination can be made
whether DHL would be denied due process if its potential
antitrust claim was discharged.
Accordingly, we remand for further consideration, either
on the face of the pleadings, or after discovery, of United’s
contention that DHL’s antitrust claim was discharged. Any
subsequent appeal will be referred to this panel. See United
States v. Jacobson, 15 F.3d 19, 22 (2d Cir. 1994).
Remanded.
19