Is Filing Enough? Application of the Filed Rate Doctrine to International Air Transportation

The Court of Appeals for the Ninth Circuit recently ruled on a case of first impression involving international air transportation and whether the filed rate doctrine bars certain antitrust claims involving air fares, fuel surcharges and discount fares. In Wortman v. All Nippon Airways,1 the appellate court upheld the lower court’s holding that the filed rate doctrine does not preclude plaintiffs’ putative class action for antitrust damages against All Nippon Airways, China Airlines and EVA Airways.

The filed rate doctrine is a judicially created doctrine prohibiting individuals from asserting civil antitrust challenges to an entity’s agency-approved rates. The doctrine initially grew out of common carriers’ filing of rates that then were directly approved by a federal agency. Over time the doctrine has been applied in a variety of contexts and industries, expanding to circumstances where rates are not literally filed and the regulating agency does not oversee the rates through a filing system but nevertheless engages in sufficient regulation to satisfy the purpose of the doctrine.

The instant case involves a putative passenger class action filed in the U.S. District Court for the Northern District of California, in which plaintiffs allege that foreign and domestic carriers engaged in a ten-year conspiracy to fix the prices of transpacific air passenger travel by colluding to set fares and fuel surcharges in violation of Section 1 of the Sherman Act. In moving for dismissal of plaintiffs’ claims, defendant carriers argued that such claims were barred by the filed rate doctrine based on the U.S. Department of Transportation’s (DOT) jurisdiction over unfiled, market-based fares and surcharges as well as its exclusive authority to take regulatory action regarding any particular tariff, including such market-based fares and surcharges.

Agreeing that the DOT had regulatory authority over filed airline fares, the lower court granted that portion of defendants’ motion directed at filed fares, but refused to dismiss those claims directed at unfiled fares, fuel surcharges and discount fares.  Defendants appealed the lower court’s partial denial, arguing that since there is no evidence that the DOT regulates filed and unfiled fares and surcharges differently and no evidence that the DOT has abdicated its authority over unfiled air fares or surcharges, application of the filed rate doctrine should be the same for both filed and unfiled fares or surcharges.

Prior to 2000, the DOT required all carriers to file passenger tariffs on flights departing from the United States to ensure that rates and fares were reasonable and non-discriminatory. The DOT was authorized to hold hearings to determine the lawfulness of those rates and, once a tariff went into effect, a carrier’s rates and fares were considered lawful for all purposes. Over time, the Congressional focus was on increasing competition and reducing governmental regulation in the airline industry which lead to the deregulation of the domestic airline market2 and to the DOT ceasing to accept tariff filings for domestic air carriers.3 However, Congress did not fully deregulate the international airline market and, although the DOT retained jurisdiction over international airline rates, it had greater discretion over filing requirements. It also continued to be responsible for providing a complaint process for consumers to challenge international airline rates as anticompetitive.4 In 1997 the DOT announced that rate filing no longer served a purpose because of the reliance on market forces rather than governmental oversight to set prices.5  As a result, in 1999, it established regulations which require airlines to file their base-fare rates to differing extents, depending on whether a carrier is headquartered in or flying to and from certain countries.6  This is governed by three categories: (1) carriers headquartered in or flying to and from a Category “A” country need not file any fares; (2) carriers headquartered in or flying to and from a Category “C” country must file all fares; and (3) carriers headquartered in or flying to and from a Category “B” country must file certain, but not all, of their fares. The fares not required to be filed are the “unfiled or market based fares” at issue in Wortman appeal.

The Ninth Circuit noted that the parties do not dispute the DOT’s authority to regulate unfiled rates, only whether the DOT actually exercised such authority. It then went on to agree with the lower court that since there are genuine issues of fact as whether the DOT had effectively abdicated the exercise of its authority to regulate unfiled fares, application of the filed rate doctrine to bar plaintiffs’ claims was not appropriate. Although the record included DOT statements that they continued to exercise some oversight of unfiled fares, the court found this to be mere “lip-service” because the DOT’s actions regarding unfiled fares have been minimal at best.7

The court then turned to the fuel surcharges. Again, there was no dispute that the DOT had authority to regulate fuel surcharges, but only whether it had actually done so. Fuel surcharges are additional per-ticket fees based on the carrier’s fuel costs. Prior to 2004, the DOT did not permit carriers to impose fuel surcharges separately from their base fares. In 2004 the DOT lifted this prohibition and allowed carriers to include separate fuel surcharges in their filings and on passenger tickets. In arguing the application of the filed rate doctrine, defendants pointed to a DOT rule in 1999 (5 years before the prohibition was lifted) that “all surcharges are to be filed,” contending this was evidence that the DOT intended that all surcharges, including fuel surcharges, be filed. They also pointed to evidence of filing of fuel surcharges by some carriers. In response, the appellate court pointed out that, while the DOT may have intended to exercise some regulatory authority insofar as it required surcharges to be filed, there was a genuine issue of material fact whether the DOT retained practical ability to do so, particularly “in light of the DOT’s express statement that it lacks the ability to ‘effectively monitor’ fuel surcharges.”8 The court also noted that the DOT’s intentions were unclear because of its lack of participation in the instant action. As a result, it agreed with the lower court and declined to apply the filed rate doctrine to plaintiffs’ claims regarding fuel surcharges.

In his partial dissent, Judge Wallace reached a different conclusion from the majority, stating that “[t]he existence of the rates that were actually filed, combined with the existence of the DOT’s consumer complaint process, negates any issue of material fact as to whether the DOT effectively abdicated its authority to regulate actually-filed fuel surcharges.”9 He went on to conclude that the majority’s requirement, determining if an agency has effectively abdicated its authority when deciding the applicability of the filed rate doctrine, actually expands the exception to the doctrine and creates an unprecedented barrier to its application. Pointing out that U.S. Supreme Court precedent dictates that the literal filing of rates means that the filed rate doctrine applies, Judge Wallace concludes that this rule “is more workable than the nebulous standard constructed by the majority.”10

Finally, the Ninth Circuit addressed certain discount fares where the carrier filed the respective fare with the DOT and then authorized certain travel agents to sell tickets with more restrictive terms to consumers for some discounted amount less than the filed rate. As a result, the discount fares differed in both price and terms from the filed fares. The court declined to apply the filed rate doctrine to these fares because of uncertainty whether the discounted fare constituted the same product as the fares actually filed. Finding that the “entire system of discount fares is premised on varied pricing between consumers” and differing terms, it concluded that it is “disingenuous to label the filed rates as ‘approved rates’ for a corresponding discount fare since the service being purchased differs materially from that described in the filed tariff.11

The appellate court did leave open the possibility for reassessment of the application of the filed rate doctrine in the context of unfiled fares, fuel surcharges or discount fares should there be additional evidence indicating a greater degree of regulation by the DOT than reflected in the current record. It went on to specifically “urge the parties to solicit the DOT’s views regarding its regulatory authority on the various rates at issue here.” Such action by the DOT would be welcome to the industry and could resolve the issue whether the filing of fares or surcharges is sufficient for application of the filed rate doctrine to international air transportation.

1 854 F.3d 606 (9th Cir. 2017).

2 The Airline Deregulation Act of 1978 (ADA), 49 U.S.C. §1301.

See 14 C.F.R. § 399.40; Tariffs for Post-1982 Domestic Travel (April 7, 1982), 47 FR 14892-01.

4 See 14 C.F.R. §§ 302.501-507, 14 C.F.R. §§ 302.401-420.

5 62 Fed. Reg. 10758, 10760.

6 64 Fed. Reg. 40654; 14 C.F.R.§ 293.10.

7 Wortman, 854 F.3d at 614.

8 Id. at 616.

9 Id. at 619.

10 Id.

11 Id. at 617.