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Tuesday, January 10, 2012

Judge Posner on Contracts Issues in ATA v. FedEx

PosnerAfter a jury trial, ATA Airlines (ATA) won a nearly $66 million verdict against Federal Express Corporation (FedEx).  FedEx appealed that ruling to the 7th Circuit, and ATA filed a cross-appeal on its promissory estoppel claim in the event that FedEx should succeed on its appeal.  The appeal was decided by Chief Judge Easterbrook, along with Judges Posner (picutured) and Wood.  Judge Posner's opinion for the court can be found here.  

The facts of the case are pretty complicated.  FedEx is a team leader in the Civil Reserve Air Fleet program.  That means that in the event of a national emergency, it and its junior team members, which icludes ATA, have agreed to make a certain number of aircraft for use by the Department of Defense.  In return to this pledge, team members are assigned points that permit them to bid to provide non-emergency services to the government.  It turns out, the little guys are more interested in these opportunities than are large carriers like FedEx, and they are willing to pay for the points, which are transferable within a team.  The FedEx team earned $600 million a year providing non-emergency services to the government.

The agreements that created the team are also complicated.  The contract at issue here was not really a contract at all but more of an agreement in principle about how the parties would divide up the non-emergency service contracts for the years 2007-2009.  Because the parties could not know in advance what the government’s non-emergency needs would be, it could not know which of the air carriers would have the ability to meet those needs. Nonetheless, the parties agreed in principle to a 50/50 division of the work between ATA and another small carrier, Omni.  But the following year, some of ATA’s work was siphoned off to Northwest Airlines, and then following Delta’s acquisition of Northwest, ATA was replaced on the team with Delta.  In 2008, upon receiving notice that it would be replaced by Delta in 2009, ATA withdrew from the team and filed for bankruptcy, lacking sufficient non-government business to keep itself aloft.

The district court treated this agreement as an enforceable contract, but the 7th Circuit disagreed.  Even if a court could somehow fill in terms relating to the various contingencies regarding the government’s needs and how those needs would be met, Judge Posner noted, the agreement had no price term relating to FedEx’s compensation for serving as team leader.  That price had varied from 4.5% to 7%, and there was no set of facts or trade usage available which could provide a basis for a court-supplied price term.

In the alternative, ATA argued that it relied on FedEx’s promise to give it 50% of the non-emergency business and was thus entitled to $28 million in reliance damages incurred in purchasing aircraft need to provide non-emergency services to the government.  The district court had found this claim to be preempted under the Airline Deregulation Act.  The 7th Circuit disagreed, but rejected ATA’s promissory estoppel claim on the merits, since it was not reasonable for ATA to rely on a conditional promise and FedEx could not have expected such reliance based on its non-promise.

“So,” Judge Posner, concludes on page 13 of the opinion, “ATA loses.”  There follows another 15 pages about expert testimony and regression analyses which, happily, are not our concern.  In sum though, Judge Posner was not impressed with ATA's expert.  His conclusion:

Morriss’s regression had as many bloody wounds as Julius Caesar when he was stabbed 23 times by the Roman Senators led by Brutus.

Ouch.

The district judge does not escape without a bloody wound or two:

We have gone on at such length about the deficiencies of the regression analysis in order to remind district judges that, painful as it may be, it is their responsibility to screen expert testimony, however technical; we have suggested aids to the discharge of that responsibility. The responsibility is especially great in a jury trial, since jurors on average have an even lower comfort level with technical evidence than judges. The examination and cross- examination of Morriss were perfunctory and must have struck most, maybe all, of the jurors as gibberish.

Beware the Feast Day of Trophimus of Arles

[JT]

 

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