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

- - - - - - - - - - - - - - - - - - - - - -
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.
- - - - - - - - - - - - - - - - - - - - - -

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:

                                        6
    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.




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