Wednesday, April 2, 2014
The Supreme Court today delivered its opinion in Northwest v. Ginsberg, this term's case considering the pre-emptive effect of the Airline Deregulation Act of 1978 (ADA). The unanimous opinion, written by Justice Alito, provided few surprises, falling mostly in line with the predictions in our December blog post. The primary question arising from oral arguments was whether the Court would announce a new, more expansive rule regarding the pre-emption of all implied covenants or leave the matter open for state-by-state consideration of the particular workings of each state's various implied covenants. To the dismay of the airlines, the Court chose the latter approach. The opinion includes an acknowledgement of the airlines' concern that differing treatment of various state covenants would subject airlines to a patchwork of legal regimes in contravention of the purpose of federal pre-emption as follows:
But the airlines have means to avoid such a result. A State's implied covenant rules will escape pre-emption only if the law of the relevant State permits an airline to contract around those rules in its frequent flyer program agreement, and if an airline's agreement is governed by the law of such a State, the airline can specify that the agreement does not incorporate the covenant.
Essentially, the Court is reiterating its position in Wolens that pre-emption does not apply to state law rules necessary for the enforcement of "privately ordered obligations" but does apply to covenants that represent policies imposed by the state. The Court clarifies this distinction by declaring that when parties have the ability to contract out of the covenant the covenant is merely a device used for interpreting the wishes of contacting parties, but when parties are prohibited from waiving the implied covenant by contract, as was the case here, then the covenant represents a separate policy choice imposed by the state and one that is subject to the ADA's pre-emption provision. Thus, airlines only have to include waivers of implied covenants in their contracts, and can rely on pre-emption in states where such covenants are not waivable, to ensure that a standardized set of national rules govern their frequent flyer programs.
With regard to the other notable question to arise during oral arguments, whether the evolution of frequent flyer programs to represent material benefits distinct from airline prices and services removes them from the scope of the ADA pre-emption, the Court, as expected, declined to address the matter as it wasn't a part of Ginsberg's complaint.