Skadden Fends Off Southwest Airlines Merger Challenge

, The Litigation Daily

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An appeals court brought a likely end Tuesday to an antitrust class action seeking to undo Southwest Airlines Co.'s 2011 acquisition of AirTran Airways Inc. The ruling is a win for Southwest's lawyers at Skadden, Arps, Slate, Meagher & Flom, who previously won sanctions against the prominent San Francisco plaintiffs lawyer who filed the case, Joseph Alioto.

In an eight-page order, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of Alioto's claims that the merger should be unraveled because it's anticompetitive. The panel wrote that Alioto failed to point to the sort of consumer injury that would justify such an stern remedy. The court also faulted Alioto for waiting until the merger had closed to challenge it, writing that the delay made his bid to undo the deal especially disruptive.

Southwest announced the AirTran deal in September 2010. It closed on May 2, 2011, shortly after gaining regulatory approval. The next day, Alioto brought suit on behalf of a purported class of direct purchasers.

Now-retired U.S. District Judge James Ware in San Francisco refused to halt the deal. Skadden moved for sanctions, arguing that Alioto's "modus operandi in these cases is to sue companies that are attempting to complete high-profile mergers at the most time-sensitive stage of the transaction in hopes of extracting a cash settlement."

The Ninth Circuit agreed, ruling in March 2013 that Alioto's law firm had engaged in "vexatious" litigation and should cover $67,495 of Southwest's attorney fees. As Reuters explained here, Skadden had sought $82,000 to cover work by six attorneys, including partners Steven Sunshine and Gary MacDonald, who billed at $986 and $927 per hour, respectively.

Tuesday's ruling doesn't affect the sanctions ruling. It simply affirms Ware's 2011 decision to dismiss the case.

In an interview, Alioto said that there was nothing improper about his work. "The Supreme Court has said that divesture is a proper remedy, so we are fully supported by the law," he said.

Alioto also said that he will seek en banc review. There is indisputable evidence that the merger has greatly raised prices, he said, and regulators shouldn't have approved it in the first place. "You can't find a better illustration of the government abdicating its responsibility," he said.

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