Opinion
02 Civ. 7434 (RWS).
October 29, 2004
GOODKIND LABATON RUDOFF SUCHAROW, IRA A. SCHOCHET, ESQ., CRAIG L. BRISKIN, ESQ., New York, NY.
PASKOWITZ ASSOCIATES LARRY PASKOWITZ, ESQ. New York, NY, Attorneys for Plaintiffs.
PROSKAUER ROSE, RICHARD M. GOLDSTEIN, ESQ., CARLA M. MILLER, ESQ., New York, NY, Attorneys for Defendant American Airlines.
MORRISON COHEN SINGER WEINSTEIN, DONALD CHASE, ESQ., New York, NY, Attorneys for Defendants Continental Airlines and Northwest Airlines.
DECHERT LLP BRENT A. HANNAFAN, ESQ. New York, NY, Attorneys for Defendant Delta Air Lines, Inc.
JENNIFER R. CLARKE Philadelphia, PA, Attorney for Defendant Delta Air Lines, Inc.
OPINION
Defendant Delta Air Lines, Inc. ("Delta") has moved pursuant to Rules 23(d)(4) and 56(b), Fed.R.Civ.P., for an order striking the class allegations from the complaint of plaintiff Power Travel International, Inc. ("Power Travel"), and defendants American Airlines, Inc. ("American"), Continental Airlines, Inc. ("Continental"), and Northwest Airlines Corp. ("Northwest") have joined in Delta's motion by virtue of two separately filed motions. For the reasons set forth below, the motions of Delta, American, Continental and Northwest (collectively, "Defendants") are denied.
This action is one of several in which travel agents have sought damages arising out of decisions by the defendant airlines to decrease and eliminate base commissions provided to travel agents in the United States. These motions raise difficult issues concerning the administration of class actions, claim preclusion and res judicata. As more fully described below, it is concluded that Defendants acquiesced in the prosecution of this action in such a fashion as to waive their res judicata defense.
Prior Proceedings In This Action
Power Travel filed this action in the Supreme Court of the State of New York, County of New York, on August 19, 2002, 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. Defendants filed a notice of removal to federal court on September 16, 2002, then filed two separate motions to dismiss the action for failure to state a claim on which relief could be granted.
United Airlines, Inc. has also been named as a defendant in this action.
Argument on the motions was heard on January 22, 2003, and the motions to dismiss were granted in an opinion and order issued on April 17, 2003. See Power Travel Int'l, Inc. v. Am. Airlines, Inc., 257 F. Supp. 2d 701 (S.D.N.Y. 2003) (the "April Opinion"). The April Opinion concluded that the complaint did not state a claim for breach of contract, or for breach of the covenant of good faith and fair dealing, but that Power Travel could state a claim for the breach of the covenant of good faith and fair dealing and unjust enrichment if it could articulate an applicable damages theory. See April Opinion, at 703-07. The April Opinion further concluded that the action would not be preempted by the Airline Deregulation Act. See id. at 707-08.
Power Travel filed an amended complaint on May 7, 2003, alleging that in March 2002 Defendants had reduced airline tickets commissions to zero in breach of the covenant of good faith and fair dealing, and that Defendants were unjustly enriched as a result of their actions. According to the amended complaint, the proper measure of damages is the reasonable average cost of each ticket sold, multiplied by the number of tickets sold by Power Travel and the class, which amounts were allegedly denied them as a result of Defendants' multiple breaches of contract.
Defendants each filed an answer to the complaint in July 2003, asserting a defense of res judicata. Power Travel filed a motion for class certification on July 29, 2003. A schedule for discovery and briefing of the class certification motion was set on August 7, 2003. Defendants served Power Travel with class certification discovery requests on or about August 21, 2003.
Before the parties had produced any documents, Defendants requested a temporary stay of this action while they prepared for trial on the merits in Hall v. United Air Lines, Inc., et al., No. 7:00-CV-123-BR (E.D.N.C.) (the "Hall case"), an antitrust class action based on the action taken by the defendants in eliminating base commissions. The Hall case is more fully described below and was, as of September 2003, scheduled for trial in February 2004.
During a pretrial conference in late September 2003 in this Court, the parties stated their differing views as to the effect of the Hall case and proceeded to prepare a stipulation to stay this action until the trial in the Hall case.
On or about October 2, 2003, counsel for defendants Northwest Airlines Corp. ("Northwest") and Continental Airlines, Inc. ("Continental") proposed a stipulation which included language indicating Defendants' position that a decision in Hall could preclude the class claims in this case. Before the parties completed negotiating the stipulation, the Honorable Earl Britt, Senior Judge, who was presiding over the Hall case, granted summary judgment on October 30, 2003, dismissing the complaint in that action. See Hall v. United Air Lines, Inc., 296 F. Supp. 2d 652 (E.D.N.C. 2003).
Delta filed the instant motion on November 26, 2003, in which the other Defendants joined by filing two separate motions endorsing Delta's arguments, and the motions were heard and marked submitted on March 24, 2004.
The Related Actions A. Hall v. United Air Lines, Inc., No. 7:00-CV-123 (E.D.N.C.)
Plaintiff Sarah Futch Hall ("Hall") and others claimed that certain defendants, including Defendants in this action, had conspired to "cut, cap and/or eliminate the base commissions they pay to travel agents for sales of domestic and international airline tickets," in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Hall, 296 F. Supp. 2d at 657-58. The case involves a series of commission cuts by the Hall defendants dating to 1995 and stretching until March 2002. See id. at 658. According to the third amended complaint filed on May 17, 2002, the Hall action was brought "on behalf of all travel agents in the United States, Puerto Rico, and the United States Virgin Islands, who, at any time from September 1, 1997 to the present issued tickets, miscellaneous charge orders (MCO) or prepaid ticket advices (PTA) for travel on any of the defendant airlines." (Affirmation of Brent A. Hannafan, dated Nov. 25, 2003 ("Hannafan Aff."), Exh. 2, at 6.)
The court denied one round of Rule 12(b)(6) motions to dismiss in February 2001 and, with one exception, denied a second round of Rule 12(b)(6) motions on August 19, 2002. See Hall, 296 F. Supp. 2d at 657. Plaintiffs' motion for class certification was granted on September 17, 2002. On January 27, 2003, the court directed that notice be given to all class members of the pendency of the Hall class action. Power Travel subsequently opted out of the Hall class.
On October 30, 2003, Judge Britt granted the Hall defendants' motions for summary judgment, concluding that the evidence presented did not support an inference of concerted action on the part of the defendants and directing entry of judgment pursuant to Rule 54(b), Fed.R.Civ.P. See Hall, 296 F. Supp. 2d at 681. B. Albany Travel Co. v. Orbitz, LLC, No. 2:02-CV-3459 (C.D. Cal.)
The Albany Travel plaintiffs filed their action on April 26, 2002, asserting an antitrust cause of action similar to that inHall. On October 15, 2002, the Albany Travel defendants filed a motion to stay the action based on related proceedings in theHall case, and the court, the Honorable Edward Rafeedie presiding, granted the motion on November 15, 2002. The action remained stayed for over a year, until after the summary judgment in Hall, whereupon the plaintiffs requested that the action be dismissed without prejudice. (See Hannafan Aff., Exh. 9, at 1-2 (noting, in a joint submission by the parties, that "the interests of those who elected to opt out of the certified class in Hall and pursue other litigation are addressed in several opt-out cases that have now been assigned by the Judicial Panel on Multidistrict Litigation to the Northern District of Ohio").)
C. In re Travel Agent Commission Antitrust Litigation, MDL 1561 (N.D. Ohio)
Several plaintiffs who opted out of the proposed class inHall in 2003 filed their own actions in the United States District Courts for the Northern District of California, the Northern District of Ohio, and the Eastern District of Texas;Tam Travel, Inc., et al. v. Delta Airlines, Inc., et al., No. 4:03-1502 (N.D. Cal.), Fausky, et al v. American Airlines, et al., No. 1:03-832 (N.D. Ohio), and Swope Travel Agency, et al. v. Orbitz, LLC, et al., No. 1:03-346 (E.D. Tex.) The defendants, including Defendants in this action, moved to transfer and consolidate the actions, pursuant to the multidistrict litigation statute, 28 U.S.C. § 1407. The Judicial Panel on Multidistrict Litigation ("MDL Panel") granted this motion on November 10, 2003. See In re Travel Agent Comm'n Antitrust Litig., 290 F. Supp. 2d 1381 (J.P.M.L. 2003). The consolidated action is currently pending before the Honorable Peter Economus in the Northern District of Ohio, styled In re Travel Agent Commission Antitrust Litigation, MDL 1561, 1:03-30000. A pretrial conference was scheduled in the action for January 15, 2004. The Travel Agent defendants did not move to transfer or coordinate this action with the MDL cases, nor do they appear to have notified the MDL Panel or the transferee court of this action as a related action. Discussion
The litigation consolidated by the MDL Panel as In re Travel Agent Commission Antitrust Litigation is distinct from the class actions previously consolidated by the MDL Panel under the title In re Travel Agency Commission Antitrust Litigation before the Honorable James M. Rosenbaum in the United States District Court for the District of Minnesota. See In re Travel Agency Comm'n Antitrust Litig., 898 F. Supp. 685, 687-88 (D. Minn. 1995) (denying the plaintiffs' motion for a preliminary injunction and the defendants' motions for summary judgment as to the claims of plaintiff travel agencies and travel agent organizations that the reduction of travel agent commissions in February 1995 "resulted from defendants' unlawful conspiracy to fix prices" in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2). On the day trial was set to commence in the action pending in the District of Minnesota, the plaintiff class and the remaining defendants reached a settlement, which settlement was approved on January 28, 1997. See In re Airline Ticket Comm'n Antitrust Litig., 953 F. Supp. 280, 281, 286 (D. Minn. 1997).
Defendants have moved to strike the class allegations of Power Travel's complaint pursuant to Rule 23(d)(4), Fed.R.Civ.P., which provides that, in cases to which Rule 23 applies, "the court may make appropriate orders . . . (4) requiring that the pleadings be amended to eliminate therefrom allegations as to representation of absent persons, and that the action proceed accordingly. . . ." Fed.R.Civ.P. 23(d)(4). Although in some cases the "proper analysis" of a motion to strike brought pursuant to Rule 23(d)(4) "must begin with Rule 23 of the Federal Rules of Civil Procedure" and a review of the prerequisites for class certification, Thomas v. Moore USA, Inc., 194 F.R.D. 595, 597 (S.D. Ohio 1999), the issues raised by Defendants' motion papers and Power Travel's opposition papers do not implicate these prerequisites. A. The Res Judicata Claim
Delta explains in its moving papers, to which the other Defendants have joined, that, "rather than seeking a complete dismissal of this case, Delta seeks relief pursuant to Rule 23(d)(4)" and only in the alternative seeks summary judgment as to the class allegations pursuant to Rule 56, Fed.R.Civ.P. (Delta Mem. at 2 n. 2.) No separate Rule 56 analysis has been offered by the parties nor is one required, as the conclusions reached here under Rule 23(d)(4) would be no different under the rubric of Rule 56.
"Under the doctrine of res judicata, or claim preclusion, `[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.'" St. Pierre v. Dyer, 208 F.3d 394, 399 (2d Cir. 2000) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)); see also Maharaj v. BankAmerica Corp., 128 F.3d 94, 97 (2d Cir. 1997) (noting that the application of the doctrine of res judicata is the same under both New York law and federal law). As Defendants note, the doctrine of res judicata is intended to "relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication." Allen v. McCurry, 449 U.S. 90, 94 (1980). The principle of res judicata applies to members of a class as it would to named plaintiffs. See, e.g., Dorsey v. Smith, 91 F.R.D. 261, 263 (D. Md. 1981) ("A judgment in a class action binds members of the class to the same extent as if they had been named parties.") (citing, inter alia, Hansberry v. Lee, 311 U.S. 32 (1940)); cf. In re Agent Orange Prod. Liab. Litig., 996 F.2d 1425, 1435 (2d Cir. 1993) ("It is axiomatic that a class action binds absent members only so long as they were adequately represented therein.").
Res judicata applies to bar a plaintiff's claims where four conditions are met. First, the court in the prior case must have rendered a final judgment on the merits. Second, the judgment must have been rendered by a court of competent jurisdiction. Third, the prior suit must have involved the same parties or their privies. Fourth, the subsequent suit must involve the same cause of action as that raised in the first action. See, e.g., Corbett v. MacDonald Moving Servs., Inc., 124 F.3d 82, 87-88 (2d Cir. 1997); In re Teltronics Servs., Inc., 762 F.2d 185, 190 (2d Cir. 1985). "The burden is on the party seeking to invokeres judicata to prove that the doctrine bars the second action." Computer Assocs. Int'l, Inc. v. Altai, Inc., 126 F.3d 365, 369 (2d Cir. 1997).
"In determining whether a second suit is barred by this doctrine, the fact that the first and second suits involved the same parties, similar legal issues, similar facts, or essentially the same type of wrongful conduct is not dispositive." Maharaj, 128 F.3d at 97 (citing S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1463 (2d Cir. 1996)). "Rather, the first judgment will preclude a second suit only when it involves the same `transaction' or connected series of transactions as the earlier suit; that is to say, the second cause of action requires the same evidence to support it and is based on facts that were also present in the first." Id.; see also Heimbach v. Chu, 744 F.2d 11, 14 (2d Cir. 1984) (noting that "New York has adopted the transactional identity approach to res judicata, under which a claim that could have been asserted under a given set of facts in a concluded action is barred from being asserted under the same set of facts in a subsequent action").
The principle of res judicata thus "prevents a plaintiff from litigating claims that were or could have been raised in a prior action against the same defendant." Cieszkowska v. Gray Line New York, 295 F.3d 204, 205 (2d Cir. 2002). "`Even claims based upon different legal theories are barred provided they arise from the same transaction or occurrence.'" Id. (quotingL-Tec Elecs. Corp. v. Cougar Elec. Org., Inc., 198 F.3d 85, 88 (2d Cir. 1999) (per curiam)); accord Epperson v. Entm't Express, Inc., 242 F.3d 100, 108-09 (2d Cir. 2001) (Res judicata "`operates to bind the parties both as to issues actually litigated and determined in the first suit, and as to those grounds or issues which might have been, but were not, actually raised and decided in that action.'") (quoting Saylor v. Lindsley, 391 F.2d 965, 968 (2d Cir. 1968) (citations omitted)).
There is no question here that the first two requirements forres judicata have been met. The third requirement has also been met, as the class certified in Hall is broader than and encompassing of the class proposed by Power Travel in this action, which consists of "[a]ll travel agencies in the United States who were, as of March 1, 2002, accredited, dues-paying members of the Airline Reporting Corporation." (Pl. Notice of Motion for Class Certification, at 1.)
As for the fourth requirement, the amended complaint in this action asserts similar and sometimes identical facts to those set forth in the third amended complaint in the Hall case. For instance, Power Travel and the Hall plaintiffs both described air ticketing as a substantial part of business for travel agencies. (Compare Hannafan Aff., Exh. 2 ("Hall Compl."), at ¶ 34 ("Commissions paid by airlines constitute approximately 60 percent of the operating revenues of most travel agencies, and are an essential source of revenue. . . .") with id., Exh. 11 ("Power Travel Compl."), at ¶ 25 ("Air ticketing is a very substantial part of each travel agent's business.").) Power Travel, like the Hall plaintiffs, based its claims, at least in part, on the elimination in March 2002 of the commissions paid to travel agents. (Compare Hall Compl. at ¶ 47 ("Beginning on March 14, 2002, defendants Delta, American, Continental, United, Northwest and U.S. Air, combined and conspired to fix airline travel agent commissions by collectively eliminating altogether base commissions paid for sales of domestic and international tickets by travel agents. This completes the conspiracy begun by defendants in 1995. . . ."), with Power Travel Compl. at ¶ 39 ("In the period of a few days in March 2002, Defendants issued individual press releases, all of which state that the would terminate the payment of commissions effective immediately. Thus, commissions to be paid to the travel agents were cut to zero.").)
Power Travel has complained that the elimination of base commissions changed the historical level of commissions, which it claims were at ten percent. (See Power Travel Compl. at ¶ 26.) The Hall plaintiffs raised the same issue. (See Hall Compl. at ¶ 33.) Both Power Travel and the plaintiffs in Hall asserted that prior to the elimination of base commissions, airlines paid commissions of 5 percent, with a cap of $20 on roundtrip domestic tickets and $100 on international roundtrip tickets. (Compare Hall Compl. at ¶¶ 41, 45-46, with Power Travel Compl. at ¶ 26.) Again, both Power Travel and the Hall plaintiffs have alleged that the elimination of base commissions was part of a collective plan and scheme by defendants. (Compare Hall Compl. at ¶¶ 47-48, with Power Travel Compl. at ¶ 41.) Likewise, Power Travel and the plaintiffs in Hall have asserted that the elimination of base commissions completed a long-standing conspiracy among defendants. (Compare Hall Compl. at ¶ 47 ("[The elimination of commissions in March 2002] completes the conspiracy begun by defendants in 1995, in that travel agents now receive no base commissions on the sale of airline tickets."), with Power Travel Compl. at ¶ 3 ("These announcements [of the ending of all commissions in March 2002] were the latest wrongful acts by the airlines in their concerted effort to eliminate domestic ticket commissions, while expecting the travel agents to continue to provide essential services for them.").)
Finally, Power Travel has alleged that the class on behalf of which it has brought this action "is entitled to recover the commissions it would have earned had each carrier set a commission structure that was fair and reasonable." (Power Travel Compl. at ¶ 45.) Similarly, the Hall plaintiffs were alleged to have "sustained damage to their business and property in the form of lost revenues and lost profits equal to the difference between the commissions the Plaintiff class has actually received from Defendants and the commissions the Plaintiff class would have received from Defendants in the absence of the conspiracy." (Hall Compl. at ¶ 54(c).)
Based on this factual congruence, the fourth requirement forres judicata has been satisfied, as this action depends on the same transaction and certain of the same facts alleged in theHall class action.
B. Res Judicata Does Not Apply With Respect To The Class Allegations Of Power Travel's Amended Complaint
Power Travel has not challenged the res judicata principles enunciated by Defendants. Instead, it is Power Travel's position that by continuing to litigate this case since its filing in August 2002, Defendants have acquiesced to the prosecution of the action. In doing so, according to Power Travel, they have failed to carry their burden of proving claim preclusion. In the alternative, Power Travel argues that the notice of pendency in the Hall action was inadequate insofar as it failed to inform prospective class members that a breach-of-contract claim was not being pled in that action. As a result, Power Travel contends,res judicata may not be employed to bar prospective class members from proceeding in this action.
1. Defendants Have Acquiesced In The Prosecution Of This Action
Acquiescence of a defendant to the maintenance by a plaintiff of two separate actions derived from the same claim is a recognized exception to the res judicata rule. Thus,
Where the plaintiff is simultaneously maintaining separate actions based upon parts of the same claim, and in neither action does the defendant make the objection that another action is pending based on the same claim, judgment in one of the actions does not preclude the plaintiff from proceeding and obtaining judgment in the other action. The failure of the defendant to object to the splitting of the plaintiff's claim is effective as an acquiescence in the splitting of the claim.Kendall v. Avon Prods., Inc., 711 F. Supp. 1178, 1182 (S.D.N.Y. 1989) (quoting Restatement (Second) of Judgments § 26 Comment a (1982); citing Calderon Rosado v. Gen. Elec. Circuit Breakers, Inc., 805 F.2d 1085, 1087 (1st Cir. 1986); Brown v. Lockwood, 76 A.D.2d 721, 740-41, 432 N.Y.S.2d 186, 199-200 (N.Y.App.Div. 2d Dep't 1980)). As the Kendall court has observed,
The rationale behind such an exception is obvious. If the purpose of the res judicata doctrine is to provide finality in the resolution of disputes and to protect defendants from being vexed by multiple suits, "it stands to reason that acquiescence by the defendant will work a waiver."Id. (quoting Brown, 76 A.D.2d at 740, 432 N.Y.S.2d at 199). Thus, under certain circumstances, "[t]he conduct of a defendant faced with parallel litigation may fairly be interpreted as at least tacit consent to proceeding with separate actions, abandoning a possible claim preclusion defense in the action that proceeds after the first judgment." 18 Charles Alan Wright Arthur R. Miller, Federal Practice Procedure § 4404, at 52-53 (2d ed 2002 Supp. 2004).
Restatement (Second) of Judgments § 26 states, in relevant part:
(1) When any of the following circumstances exists, the general rule of § 24 [regarding claim-splitting] does not apply to extinguish the claim, and part or all of the claim subsists as a possible basis for a second action by the plaintiff against the defendant:
(a) The parties have agreed in terms or in effect that the plaintiff may split his claim, or the defendant has acquiesced therein. . . .Restatement (Second) of Judgments § 26 (1982).
Power Travel does not dispute that Defendants asserted res judicata in their answers to the amended complaint in this action and have reiterated that position to Power Travel and to the Court. Nor does Power Travel dispute that when the decision in Hall was announced the parties had been in the process of formalizing a stipulation to stay this action in anticipation of a trial in the Hall case without either side conceding their stated positions with respect to the applicability of res judicata to any decision in the Hall case. Rather, Power Travel argues that where a defendant chooses to let an action proceed, that party's conduct may estop him or her from relying on any affirmative defense so pled. In opposition, Defendants emphasize the consistency of their invocation of res judicata in this action and argue that, despite Power Travel's intent to pursue the case, virtually no activity occurred between the filing of Defendants' answers and the filing of the instant motions.
Delta's answer to the amended complaint asserts as the fifth affirmative defense that "Plaintiff's claims are barred by the doctrines of collateral estoppel and res judicata to the extent the same claims and/or the same damages are or will be adjudicated in other cases." (Delta Answer at 11, ¶ 5.) Continental and Northwest similarly assert as their fourteenth affirmative defense that "Plaintiff's claims are barred by the doctrines of collateral estoppel and/or res judicata to the extent the same claims and/or same damages are or will have been adjudicated in other cases prior to the trial in this action. (Continental Northwest Answer at ¶ 87.) American offers a more detailed affirmative defense, asserting that "[e]ach of the claims alleged in the Complaint is barred by virtue of the prior action captioned Hall v. United Air Lines, Inc., Civil Action No. 7:00-CV-123-BR(1), pending in the United States District Court for the Eastern District of North Carolina, and any judgment in that action would be res judicata on the putative class." (American Answer at 9, ¶ 4.)
As Defendants note, Power Travel's reliance on cases concluding that a defendant had acquiesced where res judicata was never pled as an affirmative defense is misplaced. See, e.g., Rotec Indus. v. Mitsubishi Corp., 348 F.3d 1116, 1119 (9th Cir. 2003) (holding that defendants had waived any arguments based onres judicata when they had failed to assert the defense in their pleadings or otherwise object to the prosecution of dual proceedings in the court below), cert. denied, 124 S. Ct. 2392 (2004); Cowan v. Ernest Codelia, P.C., 149 F. Supp. 2d 67, 76-77 (S.D.N.Y. 2001) (concluding that "by failing to object to [the plaintiff's] splitting the defendants acquiesced in the splitting of her claims between federal and state court and the defendants are not now permitted to assert in this action the defense of res judicata based on the result in the State Court Action"). Likewise, In re Super Van, Inc., 92 F.3d 366 (5th Cir. 1996), is distinguishable, since the defendants there both failed to plead res judicata and specifically indicated to the court that they did not wish to have the two simultaneous actions consolidated. See Super Van, 92 F.3d at 371.
Nonetheless, the actions of Defendants with respect to this action differ significantly from their actions taken in Albany Travel and In re Travel Agents Commission Antitrust Litigation. In the Albany Travel action, the defendants moved for a stay some five months after the action was filed, arguing that a stay was necessary because of the Hall case:
[A]ny final judgment in Hall, regardless of the outcome, is likely to have a res judicata (claim preclusive) effect on a substantial portion of this case. . . . Therefore, the resolution of Hall will undoubtedly streamline this case considerably. The exact scope of the claim preclusive effect, however, cannot be determined until there is a final judgment in Hall. Therefore, the most efficient way to proceed is to stay this later-filed case until the entry of final judgment in Hall.
(Hannafan Aff., Exh. 7, at 4.). The Albany Travel defendants further argued that the stay in the Albany Travel action would cause no hardship to the plaintiffs therein, would promote judicial efficiency, and that the defendants would be prejudiced if the stay were not granted. Although the parties in this action discussed stipulating to a stay in September 2003, no motion for a stay was made by Defendants between the time this action was commenced in August 2002 and the issuance of the Hall decision in October 2003.
More significantly, the record in In re Travel Agent Commission Antitrust Litigation does not appear to indicate that the defendants notified the MDL Panel, or the transferee court, that a related action was pending in this court. Rule 7.5(d) of the Rules of Procedure of the Judicial Panel on Multidistrict Litigation states,
A civil action apparently involving common questions of fact with actions under consideration by the Panel for transfer under Section 1407, which was either not included in a motion under Rule 7.2 of these Rules, or was included in such a motion that was filed too late to be included in the initial hearing session, will ordinarily be treated by the Panel as a potential "tag-along action."
Rules of Procedure of the Judicial Panel on Multidistrict Litigation, 199 F.R.D. 425, 436 (J.P.M.L. 2001). Subsection (e) of that same Rule provides,
Any party or counsel in actions previously transferred under Section 1407 or under consideration by the Panel for transfer under Section 1407 shall promptly notify the Clerk of the Panel of any potential "tag-along actions" in which that party is also named or in which that counsel appears.Id. (emphasis supplied). This failure on the part of the defendants in In re Travel Agent Commission Antitrust Litigation, including Defendants in this action, to notify the MDL Panel of the pendency of the Power Travel action indicates that Defendants sought to treat this action as a separate matter and distinguish Defendants' actions from those of the defendants in Diversified Foods, Inc. v. First Nat'l Bank of Boston, 985 F.2d 27 (1st Cir. 1993), cited by Defendants.
Although Defendants undoubtedly gave Power Travel warning of their intent to invoke res judicata by asserting the defense in their answers and reiterating their position in this regard during proceedings in this Court, their tactical decisions in this and the other actions just described demonstrate that it is inappropriate to invoke a res judicata defense at this juncture. Resolving doubts as to the propriety of imposing ares judicata bar against the parties seeking that bar, and in light of the foregoing discussion, the class allegations shall not be stricken from Power Travel's amended complaint. 2. The Notice of Pendency in Hall Does Not Preclude Invocation of the Principle of Res Judicata in this Action
Even if Defendants were not deemed to have acquiesced to the prosecution of this action, as Power Travel notes in its opposition papers, this action could proceed as a class of some or all of the opt-outs from the Hall litigation, and it would be premature at this time to strike the class allegations of the amended complaint when, by Defendants' own estimate, nearly 300 travel agents excluded themselves from the Hall class.
Power Travel has also maintained that the members of the class in the Hall case were not adequately notified of the pending action in Power Travel, and thus were not given a meaningful opportunity to opt out of that action. According to Power Travel, the notice did not informing prospective class members that thePower Travel action was a breach-of-contract action, and thereby founded on a different legal theory than that raised inHall. Power Travel argues that prospective class members were thus denied notice that the plaintiffs had elected not to plead a breach-of-contract action in the Hall case, and that this denial precludes application of res judicata here.
The applicable notice provision to the Hall class reads as follows:
If you elect to remain a member of this Class, you may be precluded from participating in any other litigation based upon the same set of transactions or operative facts. Therefore, for example, if you elect to be a class member in this case and a final judgment is entered either in favor of the Class or the defendants, that judgment will be binding on you, and may preclude you from participating in Albany Travel Co. et al. v. Orbitz, LLC, et al., Case No. CV-02-3459 ER (AJWx), which is a proposed class action that is pending in federal court in the Central District of California. Similarly, your participation in this case may preclude you from participating in Power Travel Int'l, Inc. et al. v. American Airlines, Inc., et al., Case No. 1:02-CV-7434, which is a proposed class action that is pending in federal court in the Southern District of New York. The determination as to whether other current or future litigation is based upon the same set of transactions or operative facts as this litigation may only be made by the court(s) where other litigation is pending or may be brought.
(Hannafan Aff., Exh. 10, at 5-6.)
Contrary to Power Travel's stated view, this notice was more than adequate to inform travel agents of the choices they faced in deciding whether or not to stay in the class. In addition to specifically inform the prospective class members of the pendency of the Power Travel case, the notice informed these class members where the case was pending, what the docket number was, that it was a proposed class action, and that participation inHall might bar participation in Power Travel. Nearly 300 travel agents, including Power Travel, made the choice to exclude themselves from the Hall case.
Notice procedures ordered by a court in accordance with Rule 23 are presumptively valid, see, e.g., Langford v. Devitt, 127 F.R.D. 41, 44 (S.D.N.Y. 1989), and the notice of class pendency need only "`contain information that a reasonable person would consider to be material in making an informed, intelligent decision of whether to opt out or remain a member of the class.'"In re PaineWebber Ltd. P'ship Litig., No. 94 Civ. 8547 (SHS), 1996 WL 51189, at *1 (S.D.N.Y. Feb. 7, 1996) (quoting In re Nissan Motor Corp. Antitrust Litig., 552 F.2d 1088, 1105 (5th Cir. 1977)); cf. Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1317 (3d Cir. 1993) (holding that a notice of settlement need not describe parallel state court litigation and explaining that "`the notice was so worded as to make reasonably clear to the minimally sophisticated layman that approval of the settlement would bar claims beyond those asserted in the Texas action,'" further observing that the notice "`is not required to eliminate all occasion for diligence on the part of the stockholders'") (quoting Maher v. Zapata Corp., 714 F.2d 436, 450 (5th Cir. 1983)) (internal quotation marks and citation omitted).
Neither of the authorities cited by Power Travel suggests that the notice issued in Hall was in any way deficient. The Fifth Circuit's opinion in Bogard v. Cook, 586 F.2d 399 (5th Cir. 1978), is distinguishable, as that case presented a unique and extreme factual situation with a result explicitly based on public policy grounds. See Bogard v. Cook, 586 F.2d 399, 408-09 (5th Cir. 1978) (concluding that a notice of class pendency was inadequate insofar as it failed to inform prospective class members that they were required to seek monetary relief in that action or opt out and that it would be "a harsh and inappropriate application of res judicata" to hold that the notice of pendency of a class action concerning prison conditions precluded an inmate rendered a paraplegic while in custody from pursuing a claim); see also Morgan v. Ward, 699 F. Supp. 1025, 1035 (N.D.N.Y. 1988) (collecting cases demonstrating the specialized application of res judicata principles to individual actions brought by inmates who are otherwise parties to a final judgment in a class action). Twigg v. Sears, Roebuck Co., 153 F.3d 1222, 1227 (11th Cir. 1998) is a case based on facts that are completely different from those at issue here. In Twigg, the plaintiff filed suit against Sears, Roebuck Co. ("Sears") alleging that he had been charged for an "AccuBalance" service on new tires when, he alleged, Sears actually never performed that service. Sears moved to dismiss the action on res judicata grounds because it had previously settled a class action based on Sears' service practices. The notice describing the settlement stated that the claims being settled were that Sears had performed "unnecessary and/or improper repairs." Twigg, 153 F.3d at 1228. The Eleventh Circuit reversed the district court's dismissal of the case because it held that the plaintiff did not receive notice that his claim was being litigated and settled, as the notice referred only to unnecessary or improper service while the plaintiff alleged that he had not received any service at all. See id.
Here, the travel agents that Power Travel purports to represent are the very same travel agents that were represented by the counsel in Hall who participated in the drafting of the notice in that action. The class action procedure and notice in theHall case were adequate, and the notice contained the information that was reasonably necessary. Accordingly, there is no basis to conclude that the class members in Hall were not adequately informed about the existence of the Power Travel action or that they were denied notice that the Hall plaintiffs had elected not to plead a breach-of-contract claim such as might preclude the application of res judicata here.
Conclusion
For the reasons set forth above, Defendants' motions are denied. The parties are directed to submit a proposed briefing schedule to the Court on Power Travel's motion for class certification, filed on July 29, 2003, within ten (10) days of entry of this opinion and order or such other period as agreed upon by counsel or as ordered by the Court.
It is so ordered.