The American AAdvantage program recently updated its terms and conditions. They added this sentence:
To the full extent allowed by law, these Terms and Conditions disclaim any duty of good faith and fair dealing as well as any implied contractual terms or obligations.
That’s pretty striking language — they have no “duty of good faith and fair dealing” — and my conclusion is that this means either nothing at all or at most only one thing: American doesn’t have very good lawyers.
All this change does is accurately describe the current law with respect to claims against frequent flyer programs. The language added to American’s terms and conditions is completely unnecessary because the law already says precisely what the terms have added as something that members presumably are agreeing to. The Supreme Court ruled as such in Northwest vs. Ginsberg last year.
Good lawyers balance their legalese with a firm’s business objectives, and here the legalese doesn’t appear to add substantive protections for the program — yet serves to remind us of the precarious position we’re in as program members, not just with AAdvantage but with all programs.
Members Have No State Contracts Claims Against Frequent Flyer Programs
I asked American about the changes to AAdvantage terms and conditions, and Barb DeLollis said “We added the language in the interest of full communication and transparency. We don’t think it changes members’ rights or creates any material changes.”
And that’s 100% true. Members aren’t hurt by American saying they don’t have an obligation of good faith or fair dealing with their members, because the Supreme Court in Northwest vs. Ginsberg ruled precisely that they don’t. Or rather, the Court ruled that you can sue a frequent flyer program for direct breach of contract but that you can not base your claim on a state rule of implied covenant of good faith or fair dealing.
That’s because a state law contract obligation is essentially the state regulating an airline, something that is pre-empted by the Airline Deregulation Act.
I think the Court’s conclusion completely misses the way that frequent flyer programs have developed beyond just rebates for travel (Justice Breyer took it as ‘given’ that this is all frequent flyer programs are) and how they’ve become all-purpose marketing currencies that are standalone billion dollar businesses in their own right. This issue hadn’t really been developed in the record as the case proceeded. We were dealing with someone who earned their miles by flying and for whom the program benefits were predominantly related to their flying (eg upgrades).
How the Supreme Court Got Us Here
At oral argument before the Supreme Court in Northwest v. Ginsberg, Delta’s lawyer said they have no obligations whatsoever with respect to their miles — that people pay for travel, they get travel, and the miles aren’t really promises beyond that.
JUSTICE GINSBURG: Mr. Clement, the argument was made that if — if the airline has an unreviewable right to terminate this agreement for any reason or for no reason, if that is so, then it’s an illusory contract. What — what is your answer to that, if one party can get out willy-nilly, why — what kind of bargain is it?
MR. CLEMENT: …You could also conceive of it as basically being a premium that’s offered by the company to reward your loyalty, but you’ve already gotten full performance
Delta’s lawyer in the case suggested that if an airline doesn’t honor its contracts, then your remedy is to go fly another airline. Or you can complain to the Department of Transportation, though in practice the Department of Transportation doesn’t regulate frequent flyer programs at all. He even went so far as to suggest that if you earned points through a program partner (like a bank) then you should go sue the bank and not the frequent flyer program.
Where the court ultimately left us is that you can’t sue your frequent flyer program for anything other than failing to do what they say they’re going to do. And since program terms say they don’t really promise you anything, you can’t even really do that. Your only recourse is to the Department of Transportation, which doesn’t regulate frequent flyer programs anyway.
So American’s statement in their terms is 100% accurate – the AAdvantage program does not have any state contracts “duty of good faith and fair dealing.” They don’t need their terms and conditions to say so, though, because the Supreme Court already did.