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POWER TRAVEL INTERNATIONAL, INC. v. AMERICAN AIRLINES

April 17, 2003

POWER TRAVEL INTERNATIONAL, INC., ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
AMERICAN AIRLINES, INC., CONTINENTAL AIRLINES, INC., DELTA AIRLINES, INC., JETBLUE AIRWAYS CORP., UNITED AIRLINES, INC. AND NORTHWEST AIRLINES CORP., DEFENDANTS.



The opinion of the court was delivered by: Robert W. Sweet, United States District Judge

OPINION

The defendants American Airlines, Inc. ("American"), Continental Airlines, Inc. ("Continental"), Delta Airlines, Inc. ("Delta"), United Airlines, Inc. ("United"), and Northwest Airlines Corp. ("Northwest") (collectively the "Defendants") have moved under Rule 12(b)(6), Fed.R.Civ.P., to dismiss the complaint of Power Travel International, Inc. ("Power Travel") on behalf of itself and all others similarly situated (collectively the "Class" or "Agents"). For the reasons set forth below, the motion is granted.

Prior Proceedings

This action was commenced in the Supreme Court of the State of New York, County of New York on August 19, 2002, and removed to this Court on September 16, 2002. The complaint followed notices from the Defendants in March 2002 discontinuing commissions on airline tickets issued by Agents on behalf of the Defendants.

The motion was heard and marked fully submitted on January 22, 2003.

The Complaint

The complaint is brought as a class action on behalf of thousands of travel agents throughout the United States who sold airline tickets through membership in the Airlines Reporting Corporation ("ARC") which organizes travel services for the airlines with sales of $83 billion. (Compl. ¶ 1) It alleges that in March 2002, the Defendants, acting in concert, announced that they were ceasing the commission payments immediately to the Agents, although the Agents had long acted as distributors of their products and issued 75% of all airline tickets (Compl. ¶ 26), had incurred special expenses at their behest in order to service the special needs of the airline consortium, and the Defendants expected the Agents to continue to adhere to the obligations of the Agent Reporting Agreement ("ARA"). (Compl. Ex. A) It alleged that the Defendants' failure to give reasonable notice before the termination of commissions has driven some Class members out of business and has severely damaged others, despite their continued compliance with all terms and requirements of the ARA. (Compl. ¶¶ 30-37; Exhibits A-G; Pls.' Opp. Mem. at 5).

It is further alleged that the ARA details the structure for coordinating the sale of airline tickets, sold by Power Travel and the Class, in exchange for commissions that Defendants included in the price of each ticket. (Compl. ¶¶ 34, 38) The Industry Agents Handbook, promulgated by ARC, (the "Handbook"), provides that commissions would be included in the ticket price and that the price would be set in a commissions sub-agreement supplementing the ARA. (ARA § XXII (Remuneration of Agents)). Furthermore, under its terms, Defendants established the Direct Reference System ("DRS"), a separate computer system for the purpose of posting commissions paid, which allowed Agents to structure their profit expectations, (Compl. ¶ 39), and that the payment of commissions was part of the course of dealing between carriers and agents for decades. (Compl. ¶ 27)

Compliance with the ARA and its sub-agreements requires Power Travel and the Class to provide extensive consideration to Defendants, including, inter alia, the posting of a surety bond ranging from $10,000 to $70,000 or equivalent letter of credit, structuring the business to meet personnel requirements, payment of administrative costs, substantial application fees and penalties, annual membership fees (akin to franchise fees), adherence to detailed accounting and file-keeping requirements, and the submission of weekly sales reports to Defendants. (ARA §§ IV (Qualifications for Retention of the Agency List), VII (Agent's Authority, General Rights and Obligations), VIII (Reports and Settlements, Defaults and Other Financial Irregularities Under ASP), IX (Additional Operating Requirements), XIV (Inspection and Retention of Agent Records), XV (Reviews of Qualification of and Breaches by Agent), XVI (Administrative and Application Fees).)

Two causes of action are alleged: Count I (Breach of Contract) for ceasing the payment of commissions without reasonable notice, and Count II (Breach of Implied Covenant of Good Faith and Fair Dealing) for terminating commissions without reasonable notice.

The Rule 12(b)(6) Standard

In considering a motion to dismiss pursuant to Rule 12(b)(6), the court should construe the complaint liberally, "accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor." Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (citing Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001)). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235-236 (1974)). Dismissal is only appropriate when "it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief." Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir. 2000).

Breach of Contract Standard

Federal Rule of Civil Procedure 8 requires only a "short and plain statement of the case," when pleading a breach of contract claim. The complaint "must, at a minimum, allege the terms of the contract, each element of the alleged breach and the resultant damages in a plain and simple fashion." ...


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