Eighth Circuit Revived Antitrust Challenge to Completed Airline Merger

Allegation of anti-competitive merger under Section 7 of the Clayton Act

In June 1997, Midwestern Machinery, Inc. and several individual plaintiffs filed suit against Northwest Airlines, Inc., challenging its 1986 merger with Republic Airlines. The plaintiffs alleged that the merger violated Section 7 of the Clayton Act, 15 U.S.C. § 18, by substantially lessening competition. At the time of the merger, Northwest and Republic were the eighth and ninth largest airlines in the United States and the two dominant carriers at Minneapolis-St. Paul International Airport.

The Department of Transportation approved the merger, and Republic ceased to exist as a separate entity once all its stock was turned in and extinguished. The plaintiffs, frequent flyers on Northwest, alleged that the merger allowed Northwest to increase fares, dominate the market, and create entry barriers, which constituted anti-competitive behavior.

District court dismissal and appellate review

Northwest moved to dismiss the complaint under Rule 12(b)(6), and the district court granted the motion. The district court held that a Section 7 claim could not survive after the merger was complete and Republic’s stock had been extinguished.

On appeal, the Eighth Circuit reviewed the statutory language of Section 7 and found that it applied to acquisitions of "the whole or any part" of a company's stock or assets, regardless of whether a merger had already been finalized. The court emphasized that Section 7 is designed to prevent not only completed anti-competitive acquisitions but also the post-acquisition holding or use of assets that may lessen competition.

Validity of post-merger Section 7 claims

The appellate court concluded that extinguishing a company's stock through a merger does not eliminate the possibility of a Section 7 violation. The court rejected the district court's reasoning that no viable claim could exist once Republic ceased to exist as a corporate entity. It noted that such an interpretation would allow companies to evade antitrust liability simply by finalizing mergers quickly.

The court cited precedent supporting the view that post-merger conduct and the continued use of acquired assets may violate antitrust law if they substantially lessen competition or tend to create a monopoly. It also emphasized that Section 7 does not require actual monopolistic conduct, only a potential threat.

Reversal and remand

The Eighth Circuit reversed the district court’s dismissal and remanded the case for further proceedings. It held that the plaintiffs' allegations, which included fare increases and market exclusion, were sufficient to state a claim under Section 7, even though the merger occurred over a decade prior.

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