You Can Still Sue Your Favorite Hotel Program!

The Supreme Court Has Made it Very Difficult to Sue an Airline Frequent Flyer Program

The Airline Deregulation Act reserves exclusive jurisdiction over the airlines to the federal government, and pre-empts states from imposing any regulations of their own.

When the federal government deregulated the airlines they didn’t want states stepping into their wake. And in fairness, 50 different regulatory schemes in 50 states would be a significant burden on the industry (although in fairness one could point out that airlines generally comply with myriad laws in the countries to which they fly).

States can’t regulate airlines, and it turns out that as a result they cannot regulate airline frequent flyer programs (which provide flight benefits, travel discounts, or rebates for purchase of travel). But that creates a vacuum because the federal government through the Department of Transportation, doesn’t regulate frequent flyer programs either.

The Supreme Court ruled last month that you cannot make a state court contracts claim against an airline — that state law-imposed covenants of good faith and fair dealing simply do not apply to cases against the airlines, as that would read a new regulation imposed at the state level on the airline industry.

Basically you can only sue a frequent flyer program for violating its own terms and conditions, but cannot void those conditions with a state contracts claim that any of those rules are unfair or invalid.

And since terms and conditions generally say that the program may do whatever you wish, Delta’s position at oral argument became that you pretty much can’t sue them for anything. In fact, their counsel actually said that “if you want to sue the credit card partner, the ADA has nothing to do with that. But I would say that if you’re suing an airline, the Airline Deregulation Act” effectively pre-empts it. So go sue American Express instead!

I think there’s real room to revise this precedent, where someone has earned miles through non-flight activity and redeemed their miles for non-flight activity, they should be able to successfully argue that they are not seeking a state-level remedy against a program providing them with discounts and perks for air travel. but for now this remains the controlling precedent.

These Constraints Do Not Apply to Hotel Programs

The Airline Deregulation Act prohibits the states from regulating airlines, and the Court has interpreted that to mean even state-level canons of construction cannot be adding on as an interpretive lens against frequent flyer program contracts.

That’s a very unique position for a business to be in, and it does not at all apply to lawsuits brought against a hotel loyalty program.

Hotel Programs May Impose Draconian Conditions, But How Much Does That Really Mean?

Yesterday IHG Rewards Club substantially modified their terms and conditions, and those terms now go farther than before in saying that they can do whatever they wish with their program (including ending redemptions without notice) and that they can take away points and punish members however they wish.

In practice these changes shouldn’t matter much, they shouldn’t alter much, but it occurs to me that

  • They made these changes unilaterally.
  • They didn’t seek member consent to the changes. There isn’t any sort of opt in, even as a condition of continued participation in the program or continued access to the member account.
  • They didn’t even notify members of the changes.

We have an adhesion contract for which there’s no semblance of even a ritual of acceptance (“check this box and click here to agree”), and one which members at large don’t even know about.

It’s one thing for the airlines to do that under recent precedent. There’s little recourse to a covenant of good faith and fair dealing embedded in a given state’s contracts law.

But it’s a different thing entirely for a hotel program.

State Courts Should Be More Receptive to Member Claims Against Hotels

If you’re in a state, California say, that reads contracts as presuming a certain modicum of fairness then a hotel program is going to be open to suit if it acts unilaterally and capriciously.

Hotels need to deal with their customers in a more fair way than airlines do, because states can regulate and state courts can regulate their behavior.

Of course, hotels are also in the business of hospitality in a way that most (US, at least) airlines are not. And so they should be expected to deal with members in a forthright manner, while we tend to expect the worst from airlines.

But it’s worth remembering that there remain claims against hotels that the Supreme Court has told us we cannot make against the airlines.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. Fortunately US airline program operators — airlines in the main — can still be subject to foreign lawsuits for contract law violations, as President Jimmy Carter’s airline deregulation act doesn’t protect US airlines from litigation outside of the US in the way the act protects them in the US.

  2. Gary,

    Excellent overview… however just one minor point, and it is mostly semantic. While the federal government indeed is the exclusive body permitted to impose regulation on interstate air travel, *jurisdiction* may properly lie in the state courts. The catch is that the federal body of law (or non-preempted state law) must be applied. Thus, an airline can be sued in a state court, but the court may not impose a state-based standard of care on the carrier as it relates -generally- to rates, routes, services, safety or access for disabled passengers.

  3. Well, the SCOTUS opinion addressing frequent flyer programs left a bit of room for a future determination that FF programs might one day be little more than S & H Greenstamps and notmeaningfully related to the price or terms of carriage of air travel.

    With that said, you note “[a]nd in fairness, 50 different regulatory schemes in 50 states would be a significant burden on the industry.” A well drafted choice of law clause and a choice of venue or mandatory arbitration clause should be able to close that loop.

Leave a Reply

Your email address will not be published. Required fields are marked *