Ginsburg sued. His complaint was dismissed in federal district court on the basis that state law can’t be used to address airline price, route or service issues since those are pre-empted by the federal Airline Deregulation Act. A 9th Circuit Court of Appeals ruling disagreed, and now the Supreme Court will hear the issue.
Reader and attorney Eric M. Fraser updates us on the case, as it prepares to go to oral argument in front of the Supreme Court on Tuesday.
- Eric M. Fraser is an appellate and antirust attorney with Osborn Maledon. He is an active flyer and reads View from the Wing to help keep his preferred status in the US Airways Dividend Miles program.
On December 3, the Supreme Court will hear oral arguments in Northwest, Inc. v. Ginsberg. This case has the potential to have a big impact on the frequent flyer community.
Gary already posted my summary of the case when the Court decided to take the case. Now that the airline and the flyer have filed full briefs with the Court, we know a bit more about their positions and about how the oral arguments will proceed.
Briefly, Rabbi Ginsberg was a platinum member of Northwest’s WorldPerks program. (There’s the first clue about the glacial pace of litigation. This is really about Delta now.) WorldPerks kicked him out of the program, cancelling all the miles in his account and preventing him from enjoying the perks of having top-tier status. Rabbi Ginsberg claims Northwest told him that he complained to the airline too much and that Northwest thought he strategically booked flights to voluntarily get bumped. None of these assertions have been proved so far in the case.
How to Handle a One-Sided Contract
The WorldPerks Terms and Conditions stated that any member’s account may be cancelled for abuse or improper conduct and gave Northwest “sole judgment” to make that decision. Under the express words of the Terms and Conditions, Northwest has broad discretion to decide whether and when to kick someone out of the program. But that does not necessarily end Rabbi Ginsberg’s case. Here’s why.
How to handle a contract that allows one party to choose not to honor the rest of the contract has long been a difficult question in the law. Imagine a contract to paint a house. The contract says that the painter will paint the house and the homeowner will pay $2,000 but may refuse to pay in his sole judgment. The painter paints the house and the homeowner refuses to pay, possibly claiming the painter did a bad job, or maybe for no reason at all. Courts and lawyers have many ways to address the situation. The various ways go by different names and fill many chapters of law books.
The doctrine at issue in this case is called the covenant of good faith and fair dealing. It essentially means that one party to a contract cannot unfairly (or in bad faith) deprive the other party of the benefits of the contract. In the painter example, the painter would say that the homeowner must have a good reason not to pay, even though the contract doesn’t say so. In the Northwest case, Rabbi Ginsberg says that he followed the rules and the airline cannot kick him out without a good reason.
Airline Deregulation Act
If that were the only question, the Supreme Court would not have taken the case. In fact, it won’t even end up deciding whether Northwest was justified in kicking him out. Instead, the Supreme Court will resolve the question of whether Rabbi Ginsberg is even allowed to make that argument in court in light of the Airline Deregulation Act.
The Airline Deregulation Act ended direct federal control over the prices and routes of airlines. It also barred any state from enacting laws “related to a price, route, or service” of an airline. But not all types of claims involving airlines are “preempted,” or barred. For example, a company hired by Delta to paint an airplane could bring an ordinary breach of contract claim for non-payment, but California could not pass a law setting a specific price for LAX-SFO flights.
Northwest claims that the covenant of good faith and fair dealing is preempted by the Airline Deregulation Act. It essentially claims that the doctrine of “good faith” in contracts is a state law that goes beyond ordinary contract law and which is related to a price or service of Northwest.
Rabbi Ginsberg claims that his suit simply seeks to enforce the contract, that the contract claim is not a state law or regulation as described by the Airline Deregulation Act, and that his claim does not relate to an airline’s prices or services.
Both sides have some support in prior Supreme Court cases. In a 1995 case called American Airlines v. Wolens, the Supreme Court addressed whether flyers could sue American Airlines for major changes the airline made to the AAdvantage program. The Court stated, without much discussion, that the claims about the frequent flyer program (capacity controls on awards and upgrades, for example) related to the airline’s price or service and therefore fell within at least that portion of the Airline Dregulation Act. The question is whether that holding applies to all claims involving frequent flyer programs or just some. In addition, the Court held in that American Airlines case that a passenger may bring a routine contract claim, but cannot seek to expand the scope of the contract. The question in this case is whether enforcing the obligation to behave in good faith is part of enforcing the contract or whether it is a duty created by state law external to the contract. Because the Supreme Court generally tries not to overrule its past cases, both sides try to paint the case as a simple application of that 1995 case.
Practical Effects for Frequent Flyers
If Northwest prevails, then Rabbi Ginsberg’s claim must be dismissed and cannot proceed. That result would make it very difficult to challenge many airline actions because many frequent flyer agreements give the airline broad discretion to close accounts or take other action.
If Rabbi Ginsberg prevails at the Supreme Court, then his case can proceed. It does not mean that ultimately he will win. His case will be sent back to the lower courts, which will then decide whether Northwest actually behaved in bad faith, among other disputed legal issues. But a victory at the Supreme Court would clear the way for future lawsuits challenging an airline’s behavior through its frequent flyer program.
The Supreme Court will hear arguments for about one hour on December 3. The Justices will have already read and analyzed the briefs submitted by the parties and will spend the hour asking the lawyers questions about the nuances of the arguments and the consequences of each side’s positions. After arguments, the Justices will vote on the case and write an opinion explaining the Court’s decision. That Opinion will come out by June 2014.
Oral arguments are open to the public and are a good way to see that branch of the government in action, particularly if you are interested in the specific case and already happen to be in Washington, DC. Plan to arrive by 7:00 AM, and search the web for details about attending oral argument before you go. The other case being argued the same morning is called Lexmark International, Inc. v. Static Control Components, Inc. That case addresses who can bring a false advertising claim and will probably make for another interesting argument.