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Thursday, April 3, 2014

Supreme Court Finds Breach of the Implied Duty of Good Faith and Fair Dealing Claim Barred by the Airline Deregulation Act

Coach seat
Coach Seat, Actual Size

We have been following this case, Northwest, Inc. v. Ginsberg, which departed from the Ninth Circuit and arrived in the Supreme Court, which heard oral argument in the case in December.  The facts are amusing and all-too-familiar.  

Mr. Ginsberg joined Northwest's frequent flyer program in 1999 and in 2005 he achieved "Platinum Elite" status.  In June 2008, Northwest Airlines (Northwest) sent Mr. Ginsberg a letter revoking his Platinum Elite membership with Northwest for "abuse."  This was done, Northwest alleged, in accordance with its contractual right to terminate membership for abuse, as determined in its sole discretion.  The letter noted that Mr. Ginsberg has contacted Northwest 24 times over a roughly six-month period to report, among other things, "9 incidents of your bag arriving late at the luggage carousel. . . ."  

At this point, we interrupt this blog post for a bit of a rant. . . .

Wait a minute!  Northwest compensated Mr. Ginsberg with travel vouchers, points and $491 in cash reimbursements, so one might think that Mr. Ginsberg's complaints were, at least in part, justified.  So, over the course of six months, his bags were delayed or lost nine times, and Northwest accuses him of abuse.  That, I think Mr. Ginsberg would agree, takes chutzpah!

We now return to our more sober summary of the case . . . .

The issue before the Supreme Court was whether Mr. Ginsberg's claim that Northwest had vioalted the implied covenant of good faith and fair dealing was preempted under the Airline Deregulation Act (the Act).  The Act includes a preemption provisions which provides that . . .

a State, political subdivision of a State, or political authority of at least 2  States may not enact or enforce a law, regulation, or other  provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.

The Act thus should preclude claims related to a price, route, or service.  The Court had twice previously struck down state statutory schemes that regulated practices in the arline industry, including practices related to frequent flyer programs. The central issue before the Supreme Court was whether Northwest had voluntarily taken on additional contratual duties pursuant to its frequent flyer program.  The Supreme Court, unanimously reversing the Ninth Circuit, held that it had not.  Because the implied duty of good faith and fair dealing is implied, the Court held, it was imposed upon Northwest by the state and thus constituted a form of state regulation preempted by the Act.

The Court suggested that Ginsberg, or at least other, similarly situated plaintiffs, are not without alternative remedies.  If Northwest really is abusing its discretion in administering its frequent flyer program, the Court suggests, airline passengers can choose to join some other airline's frequent flyer program (assuming there are significant differences and Mr. Ginsberg lives near an airport serviced by multiple airlines), and the Department of Transportation has authority to investigate and sanction the airline.  Finally, the Court noted that while Mr. Ginsberg's good faith and fair dealing claim was pre-empted, his abandoned breach of contract claim might not have been.

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