Q: Last month, a state judge in Illinois denied Travelport's request for a preliminary injunction to restrain American Airlines from withdrawing its fares from Orbitz. I could not find a single press account explaining why American won and Travelport lost. Did the judge give any reason? Why didn't Orbitz, which is a separate, publicly traded company, sue in its own name?
A: I couldn't find any report about the reason for the judge's decision, either, so I obtained a copy of the decision from the court. I found it fascinating because of the court's glaring error of reasoning, which clearly resulted in a wrong decision.
Travelport had claimed that by lifting its plate from Orbitz, American would breach a contract with Travelport called the "Full Content Agreement," under which American must 1) "make Preferred Channel Extras (e.g., the ability to sell upgrades and other highly valued additional products and services) available to Orbitz to the same extent that it makes such extras available to other online travel agencies"; and 2) "offer bulk/wholesale fares to Galileo OTA Affiliates, which includes Orbitz, on terms no less favorable than the terms AA offers to either of the two largest OTA competitors in the United States." So, "by withdrawing ticketing authority from Orbitz, AA would be in breach of the Full Content Agreement."
In other words, Travelport claimed that clauses in its own agreements with American prohibited the carrier from lifting its plate from Orbitz. On the other hand, American claimed that it had unfettered discretion to terminate Orbitz unilaterally, just as it does in the case of every other travel agency, under the ARC Agreement and the standard AA Addendum thereto.
The opposing legal arguments of Travelport and American clearly required judicial resolution. However, instead of addressing those issues, the court went off on a tangent that skewed the outcome.
The judge stated that since Travelport owned only 48% of Orbitz's stock, it was just a shareholder, and under the law, a mere shareholder does not have the right to sue for damages to the corporation caused by a third party. Thus, the court concluded, "Travelport does not have standing to sue on behalf of Orbitz."
Although Travelport explained that it was suing on its own behalf, under its own contract with American, for damages that American would cause to Travelport itself, the court did not approach the case this way, probably because Travelport did not clearly explain how it would be affected directly. Although Travelport claimed its "brand equity, goodwill, business relationships and financial interests" and its "existing and prospective business relationships" would be damaged, it did not provide specifics.
So, given that the court held that the case was really about Orbitz's rights, why didn't Orbitz sue? The answer apparently is that it had no legal right to stop American from lifting its plate, so it had to resort to getting Travelport to step in as a pinch hitter.
However, since the court merely denied a preliminary injunction, the case will continue, unless American files a motion for summary judgment to get the case thrown out, which will probably succeed, given the court's reasoning so far.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Pestronk at [email protected].