On October 22, 1990 Pan Am moved to withdraw its claims
against the State and to dismiss the counterclaims for lack of
subject matter jurisdiction. Alternatively, Pan Am sought
summary judgment on the counterclaims on the grounds of
collateral estoppel. The State cross-moved to amend its answer
to add two counterclaims, both of which it asserted were
originally pled as affirmative defenses to Pan Am's claims.
Oral argument on the motions was heard on December 14, 1990.
Due to ongoing developments in various related cases, the
parties submitted further material and the matter was
considered fully submitted as of February 7, 1991.
As set forth in the 1989 Opinion, this action concerns the
enforcement of New York statutes regulating deceptive
advertising to control advertising by airlines. 728 F. Supp. at
165-66. This suit actually constitutes but a small piece of a
wide-ranging battle, the result of a coordinated attack on
airline advertising involving more than thirty states and
their attorneys general. For the purposes of the present
motion, it is necessary to review some of the complex
chronology of this campaign.
In November, 1988, the Texas Attorney General's office wrote
on behalf of California, Massachusetts, New York, Texas and
Washington*fn1 to Trans World Airlines, Inc. ("TWA"),
Continental Airlines, Inc. ("Continental") and British Airways
PLC ("British Air"), suggesting that the states viewed the
airlines' advertising practices, particularly the failure to
include certain "surcharges" in advertised fares, as violative
of their consumer protection laws, and threatening legal
action if the practices continued.
In response to this letter, the three airlines sued the
Texas Attorney General in January 1989, seeking a preliminary
injunction preventing him from enforcing any state laws
regulating their advertising practices. Trans World Airlines,
Inc. v. Mattox, 712 F. Supp. 99 (W.D.Tex. 1989). The airlines
claimed that such regulation was preempted by federal law,
primarily § 411 of the Federal Aviation Act of 1958, Pub.L. No.
85-726, 72 Stat. 731 (the "FAA"), (codified as amended at 49
U.S.C. App. § 1381), with authorizes the Department of
Transportation ("DOT") to regulate "unfair or deceptive
practices or methods of competition in air transportation or
the sale thereof."
New York and thirty-two other states joined Texas in
opposing the preliminary injunction by filing a "Motion of
Specially Appearing States," in which they claimed that they
were appearing "specially," "without admitting or submitting
to the subject matter jurisdiction of this Court and without
admitting that this Court has personal jurisdiction over them.
. . ." See 1989 Opinion, 728 F. Supp. at 165.
By order of January 30, 1989, the Honorable Walter S. Smith,
Jr. granted the airlines' request for a preliminary
injunction, finding that "it is probable that: Plaintiffs will
prevail in establishing their claims that any state regulation
of advertising of the Plaintiffs' rates, routes, and services
has been preempted by the Federal Government." 712 F. Supp. 99,
101 (W.D.Tex. 1989) ("Mattox I"). Shortly after granting the
preliminary injunction, Judge Smith ruled that it applied only
to the Texas Attorney General. TWA v. Mattox, No. A-89-CA-067
(W.D.Tex. Feb. 27, 1989) (order clarifying scope of preliminary
Thereafter, several of the states which had participated in
the Texas action, including New York, began to pursue various
airlines in their own state courts under their states'
deceptive advertising laws. In response, the airlines moved in
March 1989 to broaden the scope of the Mattox I preliminary
injunction to bar litigation by any of the states which had
participated in Mattox. At the same time, Pan Am and several
other airlines sought to intervene in Mattox. While that motion
was pending, the State commenced suit against TWA in New
York State court to enforce its false advertising and consumer
fraud statutes. Pan Am then initiated this suit, seeking a
declaratory judgment that the State's statutes were
unconstitutional and were preempted by the FAA. The State
responded by filing a second state enforcement action against
Pan Am on April 20, 1989.
On April 26, 1989 Judge Smith granted the airlines' motions,
allowing Pan Am and the others to intervene and broadening the
scope of the preliminary injunction to prevent any of the
states which had participated in Mattox from commencing suits
against the plaintiffs. Judge Smith also directed the airlines
to amend their complaint to join as defendants the attorneys
general of the thirty-three states. Mattox I, 712 F. Supp. at
104-05. The New York enforcement action against TWA was one of
four actions specifically excluded by Judge Smith from the
broadened preliminary injunction. Id. at 106.
Subsequently, both Pan Am and TWA removed the New York State
court actions to this Court, and the State moved to remand
them and to dismiss Pan Am's federal action for failure to
state a claim upon which relief could be granted and for lack
of subject matter jurisdiction. TWA and Pan Am cross-moved for
an order staying both of the removed state enforcement actions
and this lawsuit pending the disposition of Mattox, or
alternatively transferring all three cases to the Western
District of Texas. In support of its motion to dismiss, the
State argued that this Court should abstain from deciding Pan
Am's federal claims until after the New York State court had a
chance to resolve the issues following remand. See 1989
Opinion, 728 F. Supp. at 173.
On November 13, 1989, the State's motion to remand the two
state court actions was granted, based upon a finding that the
state laws in question were not preempted by any federal laws.
1989 Opinion, 728 F. Supp. at 184. While this conclusion was
contrary to the Mattox I finding that the airlines were likely
to prevail on the preemption question, because that case had
involved only a preliminary injunction rather than a final
adjudication there was no question of whether New York was
collaterally estopped from raising the issue in this case. The
1989 Opinion also noted that Mattox I was at that time on
appeal to the Fifth Circuit. Id. at 166. In addition to
remanding the enforcement actions, the 1989 Opinion dismissed
Pan Am's claim for preemption, but preserved its claims under
the Commerce Clause and the First Amendment. Id. at 175-85.
On April 3, 1990, the Fifth Circuit affirmed Mattox I. TWA v.
Mattox, 897 F.2d 773 (5th Cir. 1990), cert. denied, ___ U.S.
___, 111 S.Ct. 307, 112 L.Ed.2d 261 (1990) ("Mattox II"). The
Court of Appeals discussed this Court's prior ruling along with
rulings by the Southern District of California, California v.
TWA, 720 F. Supp. 826 (S.D.Cal. 1989), and the District of
Kansas, Kansas v. TWA, 730 F. Supp. 366 (D.Kan. 1990), all of
which had rejected the airlines' preemption arguments, but
Unlike the district courts in New York, California
and Kansas, we believe the history of federal
legislation regulating airlines demonstrates the
intent of Congress to expressly preempt state
regulation of airline fare advertising, leaving no
right of action that arises under state law only.
Mattox II, 897 F.2d at 782. The court apparently saw no issue
of collateral estoppel in the prior district court rulings,
although New York directly participated in the appeal in Mattox
In affirming the broadening of the preliminary injunction to
all of the state attorneys general and the direction to join
of them as defendants, the Mattox II court found that they had
waived all objections to personal jurisdiction by appearing and
seeking "an affirmative act by the court which would benefit
their states." Id. at 786.
On May 1, 1990, in the New York enforcement action against
TWA, the Honorable Harold Tompkins denied the State's motion
for an injunction against TWA's advertising practices and
granted TWA's motion to stay the state court proceedings
pending the outcome of the Mattox case. People v. TWA,
147 Misc.2d 697, 556 N.Y.S.2d 803 (Sup.Ct.N.Y.Co. 1990). Justice
Tompkins performed his own preemption analysis and concluded
that the state statutes at issue were preempted. Id. The
decision referred to this Court's 1989 Opinion but made no
mention of its contrary determination on the preemption
question. Instead, Justice Tompkins's analysis followed more
closely that of the Fifth Circuit in Mattox II. Id.*fn2
The Mattox litigation also proceeded. In June, Judge Smith
entered final judgment permanently enjoining all thirty-four
state attorneys general from instituting any action to enforce
their state advertising laws against any of the plaintiff
airlines. TWA v. Mattox, No. A-89-CA-067 (W.D.Tex. June 1,
1990) ("Mattox III"). As in his grant of the preliminary
injunction, Judge Smith explicitly exempted from this order
those cases which had been filed prior to his April 1989 order
broadening the preliminary injunction. The cases thus exempted
were those remanded to the California and Kansas state courts
in California v. TWA, supra, 720 F. Supp. 826 and Kansas v. TWA,
supra, 730 F. Supp. 366, and all three cases which were
addressed in this Court's 1989 Opinion. Mattox III, judgment at
3-4. After the present motion had been argued, the final
judgment in Mattox was affirmed in an unpublished opinion. TWA
v. Mattox, 924 F.2d 1055 (5th Cir. 1991).
Although the final judgment in Mattox by its terms had no
direct effect on the ongoing state court actions in California
and Kansas, both of those states' courts have accorded it
preclusive effect under the principles of res judicata and
collateral estoppel. People v. TWA, No. 609941, slip op. at 2
(Cal.Super.Ct. Aug. 24, 1990) ("The State of California is
barred from relitigating the preemption issues in this case by
the final judgment rendered in the Western District action
because of the doctrines of res judicata and collateral
estoppel"); State v. TWA, No. 89-CV-567, slip op. at 5
(Kan.Dist.Ct. Aug. 11, 1990) ("plaintiff's claims in the
instant action are barred by the doctrine of collateral
estoppel or res judicata"). The only two remaining
opportunities for the states to litigate the preemption issue
— other than on appeal — are in this case and in the State's
state enforcement action against Pan Am.
In light of the procedural developments described above, the
parties have reversed their original jurisdictional positions.
Pan Am has concluded that its initial pursuit of this action
was unnecessary and that the dispute should be resolved by the
state court, and the State just as naturally has abandoned its
earlier position and acquired confidence in this Court's
exercise of its jurisdiction.
The present motions raise the following questions:
(1) Is it possible to dismiss Pan Am's claims but
retain jurisdiction over the State's
(2) Should the State be allowed to amend its
answer to add counterclaims which duplicate
claims raised in the state enforcement action
against Pan Am?
(3) If it is possible to retain jurisdiction over
the counterclaims, is it also appropriate?
1. Dismissal of Pan Am's Claims Is Warranted Under Rule 41(a).
The first part of Pan Am's motion seeks a dismissal of its
claims under Fed.R.Civ.P. 41(a). While the State consents to
the discontinuance of Pan Am's claims, it strenuously objects
to any dismissal of its counterclaims. Therefore, the motion
is governed by Rule 41(a)(2):