United Airlines, Inc., Counterdefendant-Appellee v. Mesa Airlines, Inc., and Westair Commuter Airlines, Inc., Counterplaintiffs-Appellants v. Skywest Airlines, Inc., Third-Party

219 F.3d 605, 2000 U.S. App. LEXIS 15522
Court of Appeals for the Third Circuit·Decided July 5, 2000·No. 00-1110·Published

Opinion

219 F.3d 605 (7th Cir. 2000)

United Airlines, Inc., Plaintiff, Counterdefendant-Appellee,
v.
Mesa Airlines, Inc., and WestAir Commuter Airlines, Inc., Defendants, Counterplaintiffs-Appellants,
v.
SkyWest Airlines, Inc., Third-Party Defendant-Appellee.

No. 00-1110

In the United States Court of Appeals For the Seventh Circuit

Argued May 10, 2000
Decided July 5, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 C 4455--Elaine E. Bucklo, Judge.

Before Easterbrook, Ripple, and Rovner, Circuit Judges.

Easterbrook, Circuit Judge.

Like other major air carriers, United has entered into code-sharing agreements with regional airlines, which fly smaller planes for shorter distances to less- populated destinations. The major carrier permits the commuter carrier to use its service marks and logos for flights to and from its hub airports, and it lists the connecting flights in its computer reservation system under its name, carrier code, and flight numbers, such as "UA 2345" (hence the term "code-share," see 14 C.F.R. sec.257(c)). The commuter carrier also receives part of the revenue from through traffic that uses both carriers' facilities. In exchange, the commuter carrier is subject to substantial direction: it tailors its schedules so that they mesh with the major carrier's arrivals and departures at the hub, provides planes appropriate to the traffic generated by the major carrier, and agrees to accept revenue that the major carrier controls. (Contracts set the percentage of through rates that the commuter carrier receives, but the major carrier sets the total fares, and thus determines the commuter carriers' revenues.) Major carriers could use their discretion to make commuter carriers' operations unprofitable, but that would hurt the majors' business by drying up local service and driving passengers to other carriers that provide better connecting flights. Market forces thus constrain the exercise of contractual powers.

Mesa Airlines and WestAir Commuter Airlines, two regional airlines that had code-share arrangements with United, believe that courts as well as markets should constrain the major carriers' conduct. Mesa conducted regional operations to and from Denver, and WestAir to and from Los Angeles, San Francisco, Portland, and Seattle. Mesa acquired WestAir as a subsidiary in 1992. In 1995 United extended Mesa's contractual term for ten years and to additional cities; at the same time, Mesa purchased a number of planes from United. Mesa believes that by paying (in its view, overpaying) for these aircraft it acquired rights beyond those of other commuter carriers; it contends that United became its "partner" rather than simply the opposite party to an arms'-length contract. Relations soured in June 1997 when United replaced WestAir with SkyWest Airlines on eight routes out of Los Angeles. After WestAir protested, United filed this suit under the diversity jurisdiction seeking a declaratory judgment that the WestAir-United contract permitted United to make these changes. WestAir abandoned its remaining commuter routes in May 1998. Meanwhile Mesa and United reached impasse on financial arrangements at Denver. Mesa contended that United was keeping for itself too much of the revenues on through routes and charging excessively for space and baggage- handling services at Denver International Airport, which opened early in 1995. Mesa contends that it began to incur losses of $1 million per month, to which it responded by eliminating service to some local markets. United insisted that Mesa serve all regional markets to which it had exclusive rights under the extended agreement; after Mesa refused, United terminated the agreement in January 1998 and amended its suit by seeking a declaratory judgment that this step, too, was proper, and damages for Mesa's breach.

Mesa and WestAir filed counterclaims against United and added SkyWest as a third-party defendant. They seek damages on four theories. First, Mesa and WestAir contend that United broke its contracts; these claims are mirror images of United's. Second, Mesa and WestAir contend that SkyWest is liable for tortiously interfering with the contract between United and WestAir at Los Angeles. They contend that SkyWest inveigled United to switch regional carriers by offering two gates at Los Angeles International Airport-- gates that United coveted, an offer that WestAir could not match. Third, Mesa and WestAir allege that United violated the fiduciary duties that it owed them as their partner. Fourth, Mesa contends that United fraudulently induced it to purchase the airplanes and enter into the extension. Claims 2, 3, and 4 seek punitive as well as compensatory damages. United and SkyWest prevailed on the pleadings after the district court concluded that these three claims are preempted by sec.105(a)(1) of the Airline Deregulation Act of 1978. As recodified in 1994, this statute reads:

Except as provided in this subsection, a State, political subdivision of a State, or political authority of at least 2 States 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.

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United Airlines, Inc., Counterdefendant-Appellee v. Mesa Airlines, Inc., and Westair Commuter Airlines, Inc., Counterplaintiffs-Appellants v. Skywest Airlines, Inc., Third-Party, 219 F.3d 605, 2000 U.S. App. LEXIS 15522 (3d Cir. 2000).

219 F.3d 605 (United Airlines, Inc., Counterdefendant-Appellee v. Mesa Airlines, Inc., and Westair Commuter Airlines, Inc., Counterplaintiffs-Appellants v. Skywest Airlines, Inc., Third-Party) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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