Thursday, December 5, 2013

Thoughts on Northwest v. Ginsberg

Having had a few days to review Tuesday's oral arguments in Northwest v. Ginsberg, I'm ready to share some initial thoughts. I should begin with a quick overview of the case for anyone who isn't familiar. In 2008 Northwest Airlines informed Ginsberg that he would be denied the privileges accompanying his platinum elite status in the airline's frequent flier program and would lose his accumulated miles because he had abused the program through repeated complaints and requests for upgrades and other compensation. Ginsberg's suit alleging that Northwest actions amounted to a breach of contract was dismissed by the district court, largely because the terms of the frequent flier agreement granted the airline sole discretion over whether a flier's actions warranted expulsion from the program. Ginsberg, had however, put forth an additional claim that Northwest violated the implied covenant of good faith and fair dealing recognized under Minnesota common law. This claim was dismissed by the district court which held that such claims were preempted by the Airline Deregulation Act (ADA). On appeal, the Ninth Circuit overruled the district court and ruled that the ADA did not preempt claims brought under the implied covenant of good faith and fair dealing. It is on this point alone that the Supreme Court heard arguments earlier this week, so there won't be any forthcoming decisions on whether Northwest actually breached its contract or violated an implied covenant. Rather the legal question at issue concerns defining the scope of the ADA's preemptive effect.

The ADA prohibits States from enacting or enforcing laws, regulations or other provisions related to price, routes or services. This issue was last addressed by the Supreme Court in American Airlines v. Wolens, which held that the ADA did not preempt common law contract claims in which a plaintiff is "seeking recovery solely for the airline's alleged breach of it's own self-imposed undertakings."

The first, and easiest conclusion to draw from the oral arguments is that the Supreme Court is likely to issue a reversal of the Ninth Circuit opinion. The Ninth Circuit court attempted to analyze the intent of the ADA, concluding that the law was only intended to preempt the types of direct regulation of prices, routes and services that had been common at the State level prior to the ADA's passage. This conclusion whatever it's merits, is difficult to square with the existing Supreme Court precedent set in Wolens, which ruled the ADA preempted the application of a consumer fraud statute to frequent flier programs because of the resulting effect on airline prices. At oral argument the Supreme Court justices gave no consideration to the Ninth Circuit's narrower interpretation of the ADA's preemptive intent. Instead the justices seemed most concerned with applying the Wolens standard to this case and perhaps articulating a new standard which would arguably broaden the ADA's preemptive effect.

It is that latter question, that is most difficult to predict. What will be the standard for determining ADA preemption going forward? My guess is that it won't be significantly altered from Wolens. Most of the justices, as well as the parties, appeared to agree that implied covenants of good faith and fair dealing would not be preempted if used as merely a tool of contract interpretation within a routine breach of contract claim, but would be preempted in cases where they introduced public policy concerns separate from the terms of the contracting parties' voluntary agreement. Justices Roberts and Breyer sounded the most interested in a new standard with broader preemptive effect. Roberts expressed repeated concern that allowing preemption to be determined on a state-by-state basis depending on whether implied covenants were used as interpretive tools or public policy instruments would undermine the uniformity intended by the ADA. Breyer, who helped create the ADA during his time as counsel for the Senate Judiciary Committee, worried about States' ability to regulate airline prices under the guise of contract law, suggesting that even that area of State law claims left available under Wolens might be too broad.

Finally, despite Wolens and now Ginsberg, there remains a real possibility that this won't be the last time the Supreme Court addresses the ADA's preemptive effect on lawsuits involving frequent flier programs. Multiple justices seemed perplexed by the implications of frequent flier programs' expansion into cross-industry consumer benefits operations, where members can earn and redeem points by using credit cards and hotels unconnected to their use of airline services. The justices sounded inclined to reserve the question as to how far the ADA should be read to preempt claims brought against these programs if they are found to promise contractual benefits more expansive than mere airline price discounts, because the argument was not advanced in Ginsberg's complaint. With a different set of facts, we could be back here again in another ten years.

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