Wednesday, December 4, 2013
For those who don't want to click on the links, here is our earlier summary of the facts of the case:
Plaintiff, Rabbi, S. Binyomin Ginsberg had been a member of Northwest's frequent flyer program, WorldPerks, since 1999. By 2005, he was such a macher, Northwest granted him Platinum Elite Status (oy, what nachas!). In 2008, Northwest revoked his membership. Ginsberg claims that Northwest took this action because he was a kvetch. . . .
The official reason provided for the termination was that Northwest had discretion "in its sole judgment," to cancel a member's account due to abuse of the program. Apparently, such judgment includes the ability terminate a membership if complaints persist after the "Enough with the complaining already!" warning. Ginsberg sued, asserting four causes of action, but Northwest moved for dismissal, arguing that the Airline Deregulation Act (ADA) preempted all of Ginsberg's claims.
According to the The New York Times' synopsis of oral argument, Justices Ginsburg and Sotomayor expressed concern that the airline's frequent flyer program was either an illusory contract or subject to the airline's "whim and caprice." Justice Breyer, however, seemed inclined to think that claims sounding in breach of contract are preempted by the federal Airline Deregulation Act of 1978, which was supposed to allow airlines to compete based on, among other things, price. Since frequent flyer programs are price discounts, Breyer suggested that such programs are governed by the Deregulation Act and cannot be subject to claims based on state laws aimed at regulating the airlines. However, in 1995, the Court exempted contracts claims from federal preemption in American Airlines v. Wolens.
The distinction between regulating airlines through state law and regulating airlines through breach of contract claims is a subtle one. It seems to turn on whether Rabbi Ginsberg's claim is construed as a breach of contract claim or a claim that the airline breached a duty of good faith and fair dealing. Paul Clement, arguing for the airline (on page 13 of the transcript) claimed that to permit a claim based on the duty of good faith and fear dealing would "enlarge the bargain." Since the contract gave the airline discretion to terminate Rabbi Ginsberg's membership, Clement argued, invoking the implied duty of good faith and fair dealing takes his claim outside of the contract. The claim implicates state policies because in some states the implied duty is not merely a rule of construction but a means of imposing public policy standards of "fairness and decency" on private agreements.
The Solicitor General joined the case as amicus curiae on behalf of the airline and attempted to clarify the federal uniformity concerns implicated in the case. Counsel for the Solicitor General contended that state contracts law is fine to help adjudicate the intent of the parties, but where states impose public policy concerns in areas such as implied covenants and the unconscionability defense, there preemption is necessary.
This is very strange territory, and it was clear that Justices and counsel alike struggled to work out how to put such fine distinctions into place. It is odd for the Court to say in Wolens that contracts claims are not preempted by the Deregulation Act but for the Court to now say that certain types of contracts claims, like breach of the implied covenant of good faith and fair dealing or unconscionability defenses are still preempted.
And what about Federal Arbitration Act (FAA) preemption? One of the few ways that parties can get out of arbitration clauses is by arguing that such clauses are unconscionable, because the FAA does not preempt defenses sounding in common law contracts doctrine. But since unconscionability doctrine varies from state to state, parties seeking to enforce arbitration clauses could argue that the same uniformity concerns that govern preemption in the Deregulation Act context should also apply in the FAA context. If so, good-bye unconscionability challenges to arbitration clauses.
The Times provides this link to the transcript of oral argument.
Friday, November 15, 2013
On November 2, 2013, Judge Dearie of the U.S. District Court for the Eastern District of New York denied British Airways' motion to dismiss a putative class action suit in Dover v. British Airways, PLC. Plaintiffs, British Airways Executive Members, allege that British Airway was charging fuel charges on rewards flights that were not actually based on the cost of fuel. British Airways moved to dismiss based on federal preemption and based on the claim that plaintiffs could not show that the surcharge was not based on fuel costs.
The terms and conditions of the Executive Membership agreement provide as follows:
Members will be liable for all taxes and other charges associated with Reward travel on British Airways or a Service Partner airline, including without limitation, airport departure tax, customs fines, immigration fees, airport charges, customer user fees, fuel surcharges, agricultural inspection fees, security and insurance surcharge or other incidental fees or taxes charged by any person or relevant authority or body.
Despite British Airways' claim on its website that fuel surcharges "reflect the fluctuating price of worldwide oil," plaintiffs allege that the fuel surcharges are just an excuse for British Airways to increase revenue by charging passengers hundreds of dollars on free flights. For example, one plaintiff paid $854 for two "free" round-trip tickets between San Francisco and London. Another plaintiff paid nearly $3300 in fees, including fuel surcharges, for five tickets from Los Angeles to London. Plaintiffs put in evidence suggesting that the fuel surcharges are a hedging mechanism that bear little relationship to the actual cost of fuel. The District Court found these allegations sufficient to surive a motion to dismiss.
British Airways also argued that dismissal was warranted because plainiffs' claims are preempted by the Federal Airline Deregulation Act (ADA), which forbids states from "enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier[.]" 49 U.S.C. § 41713(b)(l). The District Court found this argument foreclosed by Am. Airlines, Inc. v. Wolens, 513 U.S. 219, 222 (1995), in which the U.S. Supreme Court ruled that "the ADA does not preempt contract claims, whether or not they relate to pricing or would otherwise be precluded if articulated under state consumer protection laws."
The District Court also rejected British Airways' argument that plaintiffs claims are preempted because enhanced or enlarged by state laws or policies external to the agreement. The District Court found that plaintiffs, like those in Wolens, were merely seeking to enforce the terms of their agreement with the airline. Finally, the District Court rejected an implied preemption based on the ADA's occuption of the field on the ground that the U.S. Supreme Court had declined to recognize any such preemption.
Thursday, July 18, 2013
We reported in May here about Northwest Inc. v. Ginsberg, a case on which the U.S. Supreme Court granted cert. so that it can decide "Whether the court of appeals erred in holding, in contrast with the decisions of other circuits, that respondent’s implied covenant of good faith and fair dealing was not preempted under the Airline Deregulation Act because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent-flyer program (the precise context of American Airlines, Inc. v. Wolens ) and manifestly enlarged the terms of the parties’ undertakings, which allowed termination in Northwest’s sole discretion."
Stephen Colbert reports on another tragic case of lost air miles, this time involving a frequent-flying cello. The report is provided below:
Monday, July 1, 2013
I was traveling this weekend and stayed at a hotel. As we were about to check in, I noticed this sign, which I would surely never have noticed if I did not teach contracts.
Look,much of this may be true whether or not the sign exists, but still I hope that I do not live in a world in which someone can plop down a sign on a parking lot and thereby bind me to whatever terms she chooses to impose. The troublesome word here, of course, is "irrefutable." Since this was an open parking lot that my hotel shared with a number of other hotels, there was no parking attendant. I could have written out a note certifying that my 2001 Camry is immaculate and handed to the people at reception. I expect that would have been flummoxed by such a note. Whether or not my note is accurate, I would regard it as a reasonable response to the sign. I would not want to run the risk of being on the wrong side of an irrefutable presumption, so better to state my claim as sweepingly as possible.
The wicked witch had it right. "What a world, what a world!"
Wednesday, May 22, 2013
blogged about this case before. Since that time, a panel of the Ninth Circuit issued a new opinion that is available here.
The Court agreed to decide whether airline passengers who are removed from a “frequent flyer” entitlement list have a right under state law to sue the airline for alleged violation of a promise that they could continue to enjoy the benefits. The case of Northwest, Inc., v. Ginsberg (12-462) tests whether such legal claims are preempted by federal law governing regulation of commercial air service.
SCOTUSblog also provides this statement of the issue in the case:
Issue: Whether the court of appeals erred in holding, in contrast with the decisions of other circuits, that respondent’s implied covenant of good faith and fair dealing was not preempted under the Airline Deregulation Act because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent-flyer program (the precise context of American Airlines, Inc. v. Wolens ) and manifestly enlarged the terms of the parties’ undertakings, which allowed termination in Northwest’s sole discretion.
We are looking forward to the Supreme Court's ruling (although the tea leaves seem pretty clear), and we hope that they cite to our earlier post as (some kind of) authoirty.
Friday, February 15, 2013
CNN's Erin Burnett did some intrepid reporting and "went to book a cruise . . . on Carnival so we could look at the contract..." The contract apparently says that, even after 5 days of being stuck on a disabled ship with no electricity or plumbing, "you're out of luck":
Shute v. Carnival Cruise Lines reprise?
[Meredith R. Miller]
Thursday, July 19, 2012
I've just returned from a semester in New Zealand, teaching an advanced contracts course at the beautiful Victoria University of Wellington. One of the best things about teaching at the law school was having David McLauchlan as a colleague. As many contracts profs know, David is an impressive and prolific contracts scholar and a highly respected expert on contract law. Some of his writings can be found here. During my visit, I had the privilege of hearing David present a paper with the intriguing title, “The Contract That Neither Party Intends.” In his paper, he tackles the issues of interpretation and responded to a recent New Zealand case which endorsed our very own Holmes' strict views regarding the objective approach to contract formation and interpretation. Professor McLauchlan offers several compelling reasons why that view should be rejected in favor of (also our very own) Corbin’s less stringent version of objectivity. The paper is a spirited discussion of interpretation issues ("promisee objectivity" v. "detached objectivity" aka "fly on the wall" theory) and discusses cases that are classics in American casebooks (such as the Peerless case) as well as New Zealand and Australian cases that may be unfamiliar to U.S. contracts profs. It goes to show that while contract law may be local, contract law issues are universal.
Tuesday, July 3, 2012
Moshe's post today got me thinking about a recent experience that I had not thought about in contracts terms. I was returning from a conference in Las Vegas (don't ask!) on my favorite airline, Southwest. Because it was Southwest, I know exactly why my flight was delayed.
There was a mechanical problem with a plane bound for San Franciscio. Because that flight had some connections that gave it priority over our flight to Chicago, Southwest decided to pull our plane and give it to the good folks heading off for San Francisco. At first, they told us there would be a two-hour delay while until they could find a replacement jet for us.
As two hours became three hours, passengers became upset. They voiced their anger at the gate attendants who were incredibly patient professional, courteous, and firm. They provided the limited information they had; they acknowledged that the information was incomplete and that the lack of complete information caused the passengers to be justifiably frustrated. They accommodated the needs of passengers, including someone who had checked her medication thinking that she would not need it on a three-hour flight that now was going to take (at least ) six hours. And then, as David Bromberg would put it, they did something so incredible that to this very day I indict my own susceptibilities and reject my own anachronisms.
They called passengers up in alphabetical order and gave us $100 vouchers. Some rejected the offer, saying they would never fly Southwest again. "Who you gonna fly?" I thought, but the Southwest employees, just confirmed that the passengers were rejecting the offer and apologized again for the inconvenience. The passengers responded by complaining that this was the worst travel experience they had ever had. "You don't fly much," I thought but the Southwest emplyoees just apologized again and assured the passengers that they would be departing soon.
Then we switched gates and eventually piled into a plane.
Which wouldn't start. Whatever machine was supposed to start it wasn't working, and then the cart holding the backup to the backup broke, and then the backup to the backup to the backup didn't have enough power. Word. It was 100 degrees outside of course, and without power in the aircraft, it was more than a little uncomfortable inside as well. But there would be no second $100 voucher.
So, Moshe, is $100 a reasonable offer? I mean, there wasn't a corpse next to me, and in fact I didn't expect to get even $100, because frankly getting a sincere apology from an airline is a coup these days. But if Southwest is going to compensate passengers for inconveniences caused by their own faulty equipment, why stop at a $100 voucher?
The remedy of price reduction derives from the action quanti minoris of Roman law. It allows the purchaser to reduce the contract price to what the parties supposedly would have agreed upon had the contract originally been for the purchase of the nonconforming goods. The remedy can be found in most European legal systems today; e.g., Section 1664 of the French Code Civil or Section 441 of the German B.G.B. The remedy is also mentioned in Section 50 of the Convention on the International Sale of Goods. Originally, price reduction was limited to sales contracts, but Section 9.401 of the Principles of European Contract Law proposed extending the remedy to any “tender of performance not conforming to the contract.”
A footnote in my forthcoming article, co-authored with David Elkins, (The Remedy of Price Reduction in Mixed Legal Systems, Stetson L. Rev., forthcoming 2012) recounts the following hypothetical case (derived from Common Frame of Reference and Existing EC Contract Law (Reiner Schulze ed., 2008) 322-323) to illustrate how price reduction might be used in a service contract:
A flies with a ticket for business class. Unfortunately, an economy class passenger dies during the flight. As the economy class is fully booked, the crew decide to transfer the corpse to business class and to tie it to the seat next to the one occupied by A. A may ask for a reduction of price which he or she paid for the flight, because having to sit next to a corpse in business does not conform with the passenger’s legitimate expectations, even if the air operator had no alternative option to solve the problem. In such a case it is difficult to determine a value of the reduction, since there is no market for flights with a corpse placed next to your seat. Possibly the price should at least be reduced to the level of the price for economy class…
Although the case appears to be one of those detached-from-reality hypotheticals that only a law professor could come up with, here’s an excerpt from a recent news story:
Lena Pettersson had just boarded her Tanzania-bound flight at Amsterdam Airport Schiphol when she noticed a man in his 30s looking unwell, the Expressen daily reported. Ms Pettersson, a journalist with Sveriges Radio, told the broadcaster that the man "was sweating and had cramps [seizures]." After the Kenya Airways plane took off, the man died, the Expressen reported. Cabin crew laid out the dead man across three seats and covered him with a blanket - but left his legs and feet sticking out, Ms Pettersson said. For the remainder of the overnight flight, Ms Pettersson was forced to sit near the dead man, with just an aisle separating her and the corpse. "Of course it was unpleasant, but I am not a person who makes a fuss," Ms Pettersson said. After her holiday in Tanzania, Ms Pettersson lodged a complaint with Kenya Airways, eventually receiving a 5000-kronor ($700) refund, half the price of her plane ticket.
Indeed, truth is stranger than (or at least as strange as) fiction.
[Posted on behalf of Moshe Gelbard by JT]
Monday, July 2, 2012
Because the enforceability of online contracts depends upon "reasonable notice," I often wonder whether we've stretched the term "reasonableness" to unreasonable extremes. Is it really reasonable to expect website visitors to click on hyperlinks? Hyperlinks within hyperlinked text? Because my research focuses on notice of contract terms, I am always interested in how to provide better, more effective notice.
Companies can provide notice with words, but they can also use images or video. Unfortunately, images, like text, can also be ignored. For example, how many times have you actually watched an airline safety video? What most airlines do is put attractive crew members on the screen who recite the basics and hope that people will pay attention. I recently took an Air New Zealand flight that took a very different approach - comedy! The safety video starred Richard Simmons of 80's spandex fame leading the crew through an aerobicized safety routine. One segment had crew members wearing body paint (you need to watch carefully - the paint is very skillfully applied). Several members of the super-popular rugby team, the All Blacks, made appearances - because they appeal to a broad cross section of the population (men, women, children), more passengers were likely to be engaged. The video was very funny and I watched the entire thing, both to and from my destination. I wasn't the only one. It seemed that everyone on the plane was paying attention. The video was just the right combination of humor, safety, and annoying-in-a-good-way (Richard Simmons excels at that). Was it effective? Well, I remembered where the exit rows and my life jacket were. Watch it yourself and just try to tear your eyes away from the screen.
Friday, June 29, 2012
I have returned from an enriching 5 weeks in Southeast Asia, mostly in frenetic Ho Chi Minh City, where I taught a class titled "Workplace Law in Global Context." I blogged about my travels at Saigoner, which would be of interest only to those readers with curiosity about what I ate (e.g., spider).
I'll be back in the contracts blogging saddle next week. In the meantime, I wanted to share some thoughts and pictures that might be of interest to ContractsProf readers.
We stayed in a government owned hotel in Ho Chi Minh City. I was amazed by its efficiency - in the U.S., a hotel run by the government would operate like the post office.
I've shared a few pictures of a floating market in Can Tho on the Mekong Delta. The floating markets are the main tourist attraction in Can Tho and they start up early in the morning. A guide took us to see the boats; from the boats, people were all selling fruit wholesale. To the masts of their boats, the sellers tie the fruit they have for sale. Pineapples, watermellons and bananas were the main offering that day. There was a little boat that went around like a convenience store for the sellers, in it a lady offered the sellers coffee and hot bowls of pho.
Along the banks of the Mekong, people live in clapboard houses made of whatever they can find – mostly pieces of shipping containers and plastic tarps. The houses are on log stilts. One of the houses was partly constructed with a plastic advertisement for Kaplan University.
processing factory were wooden and dusty and it seemed improbable that they still functioned the way they did. We were told that Vietnam is second to Thailand as the world's largest rice producer.
The Vietnamese have a refreshing lack of anxiety about heavy machinery. In the U.S., we would not have been able to get that close to those rickety rice machines, and certainly not without a helmet and a waiver form. Same goes for firing automatic weapons (I fired an AK-47 and an M-16 at the Cu Chi tunnels) and renting or hitching a ride on a moto-bike.
Another eye-opening field trip was a garment factory
tour I arranged for my class. After a presentation on the company, we were toured around the factory. It had over 1000 workers in the Ho Chi Minh outpost. You really cannot picture a room of 600 people making jackets for Columbia and Izod in assembly lines until you see it. After the tour, we asked a million questions through an interpreter. Most of the factory's buyers are U.S. and European companies. I found it interesting that (at least thelast time I checked), Vietnam is not a signatory to the CISG. This is especially so given that their garment exports apparrently rose 14% in the first 4 months of 2012 (and their claim as the world's second largest rice producer).
Finally, I thought readers would appreciate this picture from outside the Ho Chi Minh Stock Exchange (oh, the irony). Their statue (as compared to this) is arguably a more honest depiction of markets.
Monday, May 28, 2012
I've realized that I don't have much more time in beautiful New Zealand and that I've not come close to fulfilling my promise to share my observations about how N.Z. contracts (and contracting styles) differ from those in the U.S.( I also realized I haven't come close to fulfilling my twice-a-week posting promise to our blogmeister, JT, so guilt is building, especially now that Meredith has taken unpaid leave).
As I've previously mentioned, I've been struck by how infrequently I've been forced - er, asked - to sign a form contract while here in NZ. The primary reason is probably that there is much less need to worry about tort liability (since it's already quite limited). One thing I have noticed, however, is that the merchants here check my signature when I use my credit card. As Alex Kuczynski notes in this amusing essay, merchants in the U.S. tend not to check that your signature matches the one on the back of the card. In New Zealand, however, it happens all the time. When it first happened, I was admittedly a little offended. Was it my shabby clothing? My scuffed up shoes? It turns out there was no need to be so sensitive - it apparently happens to everyone.
Another contracting practice that differs is that the few times I have had to sign a consumer contract, it was emailed to me in pdf form. Unlike receiving a hyperlink to terms which you don't read, receiving a pdf somehow made me read the contract. It made me feel as though the company (in this case, a camper van rental company) really did want me to read the terms. After making a reservation online, I got a confirmation letter with a pdf containing the contract terms. Since I made the reservation 2 weeks in advance, I had that much time to read the contract. When I picked up the camper van, they handed me the same contract and I signed it (I could have also printed it out, signed it, and brought it with me if I had been better organized). Yes, it was still a contract of adhesion, but at least I knew what I was getting myself into.
I've always suspected that the contracting of everything tends to make consumers disregard contracts - how could we function if we actually read all the legal terms that are thrust our way (online terms included)? Maybe if companies cut back on some of the legalese, consumers might start to take contracts a little more seriously. Here's hoping...
Wednesday, March 14, 2012
In my first post about my observations of contracting culture in New Zealand, I mentioned the unusual lack of contracts that consumers are forced to sign compared to in the States. Why wasn't I forced to sign a scary, multi-page, fine print form before my family was carried away on (very) rocky waters to swim with sea creatures in the open ocean? (Where was the laundry list of potential hazards that the company was not liable for, e.g. jumping in before the propeller blades were shut off, drowning, shock from the freezing water, hypothermia, being suffocated by too tight wetsuit and rubbery head cover, getting kicked in the face by flippers worn by German tourist....) Why didn't our visit to a traditional Maorian village include a standard form releasing the village from all liability if we fell into a steam vent or ate one of the very alluring, perfectly round and unusually blue berries that were tradiitonally used for dye - and which are very poisonous?
And then I found out about New Zealand's tort reform law. Back in the early seventies (the heyday of consumer regulatory reform everywhere, it seems), New Zealand adopted the Accident Compensation Act which basically abolished the ability to sue for personal injuries (providing a comprehensive no-fault benefits and rehabilitation scheme instead). I found this article by Peter Schuck which does a great job of outlining the kiwi approach to tort reform (which is, incidentally, called "Tort Reform, Kiwi-Style).
The case of the missing SFC. Mystery solved!
Friday, March 2, 2012
I am spending a semester in beautiful Wellington, New Zealand where I will be teaching a course in advanced contracts at Victoria University. During my time here, I plan to occasionally post observations about the contracting culture and make sweeping (i.e. lacking in empirical evidence, see earlier post about Zev Eigen's article) generalizations about what that might mean.
One thing that I have noticed is that I haven't had to sign any form contracts since I arrived. I am thinking hard about this, but I honestly can't think of any except maybe at hotels and even then, those forms don't seem to contain the frightening litany of all the things the hotel won't be responsible for that you too often find in US standard forms (you know, "You agree not to indemnify and hold us harmless from any loss of limb, maiming, mayhem, other horrific catastrophic incident arising from your participation in this activity even if it was entirely our fault....") True, I haven't gone bungee jumping or white water rafting (yet), but I did dive into the freezing cold open ocean to swim with dolphins with my two children. (The fun ended when a family of orca appeared). Guess what? The dolphin company didn't ask me to sign a form. Could this have something to do with the fact that New Zealand is a much less litigious country than the U.S.? Is it less litigious because it's smaller, everyone feels like they are "in it together"? Or is it something else? Fewer lawyers? (I don't know if there are fewer lawyers per capita actually but I warned you that my posts would be highly unscientific).
While there seem to be fewer form contracts thrust in people's faces, there are a great many more notices. I rather like these notices as they are eye-catching, amusing and sometimes mysterious. I particularly like the road signs that don't pussy foot around: "TEXT AND DRIVE, SOMEONE DIES," "SLOW DOWN, STAY IN MANTROL". Notices, of course, are not contracts but they can serve some of the same functions. I've blogged about this in the past, and will blog more about this in the future as it is something I have been working on for a while. For now, I'll leave you with this image.
Friday, January 20, 2012
When I was a teenager, I used to read Mad Magazine (when I wasn't reading Dostoevsky, Kafka or Sartre, of course). I retain very few memories of my childhood, but one Mad feature stuck with me, although only vaguely. The idea was to take a story and present it as it would be presented in magazines with very different perspectives on the world. The story that Mad worked with was a football game, so of course one version was just to report on the game. Another version was a medical journal featuring an image of some bone that had been broken during the game. Another version that I remember distinctly featured a photograph of a football taken at very close range. The image was supposed to represent how the football game would be featured in a photography magazine. It described all of the particulars of the way the photograph was taken -- film speed, lens type, etc., and then mentioned that the photograph was of the ball as it soared through the uprights for the winning field goal, just before it smashed the photographer's camera. A nice touch, in the estimation of my 13-year-old mind.
I've often thought that this blog plays out Mad Magazine's idea, as do many other blogs and even the lamestream media. And so, we pick over the carcass of a human and environmental catastrophe for a tidbit of contracts doctrine. But we are not alone. As the New York Times reported yesterday, it will be very difficult for any victims of the Costa Concordia wreck to go after the ship's corporate parent, Carnival Cruise Lines, for reasons that will strike a chord with fans of the civil procedure chestnut, Carninval Cruise Lines, Inc. v. Shute.
According to the Times, at least 70 passengers of the ill-fated cruise ship have signed on to a class-action lawsuit, but their ability to get at the corporate defendant will be greatly hindered by the Convention on Limitation of Liability for Maritime Claims, characterized on the International Maritime Organization Website as “a virtually unbreakable system of limiting liability," and by the terms contained in the 6,400-word contracts attached to their cruise tickets.
The contract could provide great fodder for a few sessions on contractual remedies.
Tuesday, January 10, 2012
After a jury trial, ATA Airlines (ATA) won a nearly $66 million verdict against Federal Express Corporation (FedEx). FedEx appealed that ruling to the 7th Circuit, and ATA filed a cross-appeal on its promissory estoppel claim in the event that FedEx should succeed on its appeal. The appeal was decided by Chief Judge Easterbrook, along with Judges Posner (picutured) and Wood. Judge Posner's opinion for the court can be found here.
The facts of the case are pretty complicated. FedEx is a team leader in the Civil Reserve Air Fleet program. That means that in the event of a national emergency, it and its junior team members, which icludes ATA, have agreed to make a certain number of aircraft for use by the Department of Defense. In return to this pledge, team members are assigned points that permit them to bid to provide non-emergency services to the government. It turns out, the little guys are more interested in these opportunities than are large carriers like FedEx, and they are willing to pay for the points, which are transferable within a team. The FedEx team earned $600 million a year providing non-emergency services to the government.
The agreements that created the team are also complicated. The contract at issue here was not really a contract at all but more of an agreement in principle about how the parties would divide up the non-emergency service contracts for the years 2007-2009. Because the parties could not know in advance what the government’s non-emergency needs would be, it could not know which of the air carriers would have the ability to meet those needs. Nonetheless, the parties agreed in principle to a 50/50 division of the work between ATA and another small carrier, Omni. But the following year, some of ATA’s work was siphoned off to Northwest Airlines, and then following Delta’s acquisition of Northwest, ATA was replaced on the team with Delta. In 2008, upon receiving notice that it would be replaced by Delta in 2009, ATA withdrew from the team and filed for bankruptcy, lacking sufficient non-government business to keep itself aloft.
The district court treated this agreement as an enforceable contract, but the 7th Circuit disagreed. Even if a court could somehow fill in terms relating to the various contingencies regarding the government’s needs and how those needs would be met, Judge Posner noted, the agreement had no price term relating to FedEx’s compensation for serving as team leader. That price had varied from 4.5% to 7%, and there was no set of facts or trade usage available which could provide a basis for a court-supplied price term.
In the alternative, ATA argued that it relied on FedEx’s promise to give it 50% of the non-emergency business and was thus entitled to $28 million in reliance damages incurred in purchasing aircraft need to provide non-emergency services to the government. The district court had found this claim to be preempted under the Airline Deregulation Act. The 7th Circuit disagreed, but rejected ATA’s promissory estoppel claim on the merits, since it was not reasonable for ATA to rely on a conditional promise and FedEx could not have expected such reliance based on its non-promise.
“So,” Judge Posner, concludes on page 13 of the opinion, “ATA loses.” There follows another 15 pages about expert testimony and regression analyses which, happily, are not our concern. In sum though, Judge Posner was not impressed with ATA's expert. His conclusion:
Morriss’s regression had as many bloody wounds as Julius Caesar when he was stabbed 23 times by the Roman Senators led by Brutus.
The district judge does not escape without a bloody wound or two:
We have gone on at such length about the deficiencies of the regression analysis in order to remind district judges that, painful as it may be, it is their responsibility to screen expert testimony, however technical; we have suggested aids to the discharge of that responsibility. The responsibility is especially great in a jury trial, since jurors on average have an even lower comfort level with technical evidence than judges. The examination and cross- examination of Morriss were perfunctory and must have struck most, maybe all, of the jurors as gibberish.
Beware the Feast Day of Trophimus of Arles
Tuesday, December 13, 2011
Greetings from Netanya Academic College, where I will enjoy this symposium tomorrow: Law of Contract or Laws of Contracts (here's the program: Download Symposium). Come join us if you are in Israel!
[Meredith R. Miller]
Monday, August 29, 2011
On August 5th, the Ninth Circuit issued its opinion, reinstating plaintiff's claim for breach of the covenant of good faith and fair dealing in Ginsberg v. Northwest, Inc.
Plaintiff, Rabbi, S. Binyomin Ginsberg had been a member of Northwest's frequent flyer program, WorldPerks, since 1999. By 2005, he was such a macher, Northwest granted him Platinum Elite Status (oy, what nachas!). In 2008, Northwest revoked his membership. Ginsberg claims that Northwest took this action because he was a kvetch. We weren't there, of course, but we can imagine that Ginsberg was vocal about the inadequacies of modern air travel. Northwest's customer service department no doubt took the usual approach of such departments, wondering why anyone would complain about the quality of service provided by U.S. domestic airlines. When Ginsberg persisted, the corporation threw up its hands, said "Hock mir nisht kein chainek," or words to that effect, and terminated his membership.
The official reason provided for the termination was that Northwest had discretion "in its sole judgment," to cancel a member's account due to abuse of the program. Apparently, such judgment includes the ability terminate a membership if complaints persist after the "Enough with the complaining already!" warning. Ginsberg sued, asserting four causes of action, but Northwest moved for dismissal, arguing that the Airline Deregulation Act (ADA) preempted all of Ginsberg's claims. The nichtgutkeit District Court dismissed all of Ginsberg's claims, which was a real shonda. The only issue on appeal was whether the ADA preempted Ginsberg's claim for breach of the implied covenant of good faith and fair dealing.
The Ninth Circuit reviewed the purposes behind the ADA's preemption clause and determined that prior precedents had given that clause a narrow reading. Claims for breach of contract do not seem to be preempted. More specifically, the Ninth Circuit found that Ginsberg's "claim for breach of the implied covenant of good faith and fair dealing does not interfere with the [ADA's] deregulatory mandate." Moreover, the Ninth Circuit rejected the Distrct Court's finding that Ginsberg's claim related to prices and services. The Ninth Circuit found the link to prices too tenuous and found that the preemption clause was only intended to prevent states from dirctly "regulating rates, routes or services." Ginsberg claim was not within the narrow scope of the preemption clause and thus was reinstated. Such a mechaya!
Fuhr gesunderheit, Rabbi Ginsberg!
Wednesday, July 13, 2011
As frequent readers of the blog may have noticed, I have been in Cambridge since late June. This weekend, I am taking my students to the Hague, so that we can visit the ICC, the ICJ and meet with one of Radovan Karadzic's attorneys. We are flying Easyjet, which only permits passengers to take along a deck of cards, unless they are willing to pay to check bags. As a result, I will be without my computer and out of commission for the rest of the week.
There might not be a whole lot going on in this space for the next few days, but you can look at these pictures and contemplate the wonders of . . . contracts.
Friday, February 4, 2011
As NPR reports here, the Transportation Security Administration does not want to hire private screeners to work at any more airports, although the private contractors will continue their work at the 16 airports at which they currently operate. Florida Republican Representative John Mica (pictured right) protests, claiming that TSA is bloated and we would be better off with private screeners, given that "[n]early every positive security innovation since the beginning of TSA has come from the contractor screening program."
What innovations could Representative Mica be thinking of? I wonder what the result would be if you asked airline travelers to name their favorite innovations in airport security in the past ten years. Daniel Solove has been tracking these developments over at Concurring Opinions at some time. Here is his post about standard TSA procedures. How have things improved in the past few years? Well, here is Solove's more recent post on the subject. Is this the sort of innovation about which the good Congressman is crowing?
Not for nothing, NPR notes that Congressman Mica has received campaign donations from some of the private companies that are trying to win contracts to provide airport screeners. A spokesman denies that such donations have played any role in the Congressman's position on this issue.
The Kansas City Star now reports that Senator Roy Blunt (pictured left) is also sponsoring legislation that would encourage the use of private screeners. The legislation is said to be a response to the TSA's denial of a request by the Springfield-Branson airport to switch to private screeners. The request reportedly came after two reports of federal employees being neglectful of passengers at the airport, causing delays that resulted in people missing their flights.
According to the TSA's website, the standards for screening are identical, whether the screeners are private or federal: "TSA sets the security protocols and standards for all commercial airports nationwide, to include airports participating in [the private screeners programs]." That would suggest that one's experience of private screeners should not be significantly different from one's experience of federal screeners. But perhaps the private screeners are cheaper? No, according to TSA:
ATSA mandates private screening companies to provide compensation and other benefits to their screeners that are not less than the level of compensation and other benefits provided to comparable Federal Government personnel. TSA conducted an extensive review of the private contractors and found overall the private screening companies are providing pay and benefits that equal or exceed the pay and benefits provided by the Federal Government.
But since the TSA has to monitor the private screeners, and because there are transactions costs involved in negotiating the terms under which the private contractors serve, it seems likely that private screeners actually add costs, even if they are not better paid. And then what of legal wrangling if there are allegations of misconduct by a private screener?
So, the argument for private screeners must run something like this. Private companies are preferable because competition leads to better efficiency and better customer service. In addition, private companies might have more rigorous hiring practices that ensure a higher quality of personnel. Is there any empirical basis to support such reasoning or are there other justifications for preferring private screeners?