Today, the U.S. Supreme Court issued its Opinion in Northwest Airlines, Inc. v. Ginsberg – A breach of contract case involving a frequent flyer member who was unilaterally removed from Northwest’s program at its sole discretion and the potential application of the Airline Deregulation Act (ADA) to preempt such claims. [Prior travelblawg post here.]
I predicted the 9th Circuit would be reversed, as the District Court got it right in granting Northwest’s Motion to Dismiss as preempted by the ADA. I was correct, as even the term “patchwork” is included in the Opinion…
If pre-emption depends on state law, petitioners warn, airlines will be faced with a baffling patchwork of rules, and the deregulatory aim of the ADA will be frustrated. p. 13.
The full, 15-page Opinion is here.
In summary, the unanimous Opinion’s Syllabus includes:
Petitioners claim that the refusal to pre-empt all implied covenant claims, regardless of state law, will lead to a patchwork of rules that will frustrate the ADA’s deregulatory aim. But airlines can avoid such a result if they contract out of covenants where permitted bystate law. Nor are participants in frequent flyer programs left without protection. They can avoid an airline with a poor reputation andpossibly enroll in a more favorable rival program. Moreover, the Department of Transportation has the authority to investigate complaints about frequent flyer programs. Finally, respondent might have been able to vindicate his claim of ill treatment by Northwesthad he appealed his breach of contract claim. Pp. 10–14.
695 F. 3d 873, reversed and remanded.
ALITO, J., delivered the opinion for a unanimous Court.
Here were my previous talking points for the Ginsberg case, being solely my opinion:
Northwest Airlines, Inc. v. Ginsberg
- Federal law gives the federal government the power to regulate most disputes over airline routes and services, i.e. in legal speak, the Airline Deregulation Act (ADA) preempts state and local law.
- In 1995, the Supreme Court confirmed this position when it ruled that consumers could not sue American Airlines for retroactively changing its frequent-flier program. American Airlines, Inc. v. Wolens.
- While the Wolens decision held the ADA did preempt a claim about the AA frequent-flier program under a state consumer-protection statute, it found “routine breach-of-contract claims” were not preempted. Ginsberg’s focus is on the implied covenant of good faith in contracts, regardless of NWA’s authority to control his membership at its “sole judgment”.
- PRO Northwest:
- Focus on how the District Court got it right in dismissing the lawsuit, especially by narrowing the issue down to only the implied covenant claim, as the “pure” breach of contract claim must be dismissed as its express language allowed Northwest to terminate a frequent-flier account for abuse “as determined by Northwest in its sole judgment.” This is strict application of the contract, regardless of it being an adhesion contract.
- A uniform national regulation platform, as found in the ADA, strongly supports preemption. To allow the “doors to be opened” for state law application to a clearly federal maintained industry of aviation, especially including pricing and benefits, would result in a self-imposed “patchwork regulation” scheme that is impractical, confusing, and costly the industry and, in the end, the consumers themselves.
- PRO Ginsberg:
- Focus on how the 9th Circuit got it right in overruling the District Court’s dismissal, especially by turning the very agreement that Northwest relies on, the contract, against Northwestern with the long recognized legal maxim that the implied covenant of good faith and fair dealing is inherent to the contract, the parties’ intentions, and the benefits both parties gain from it.
- Continuing with the clever verbal judo move, it would be Northwest, not Ginsberg, that seeks to avoid the contract at issue.
- While the ADA may preempt other “laws or regulations”, even as the Wolens court has found, common-law claims (such as Ginsberg’s) founded in an implied covenant are excluded from preemption.
- As such, he and others similarly situated like him (and other frequent fliers in the future!!!) should be allowed to proceed on his claim to the merits of his case in returning to the trial court level.
- Nevertheless, the United States asserts its position that the ADA includes a preemption of the implied covenant claim when brought as a separate cause of action (i.e. a separate count in Ginsberg’s complaint), but not when it is used as an element of the general contract claim itself. I certainly hope the justices won’t use a pleading nuance as a scapegoat to driving home a position on the meat of the case.