ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Wednesday, February 17, 2016

American Airlines v. Gogo: A Contract Litigation Object Lesson?

American_Airlines_Jets_630x420American Airlines wants out of its 2012 contract with Gogo to provide internet service for about 200 of American's planes.  The Fort Worth Star-Telegram reports on the airline's use of a declaratory judgment claim to construe the contract:

In the lawsuit, American says its contract with Gogo allows it to renegotiate or terminate its agreement if another company offers a better service. The airline is asking a judge to declare that it provided proper notice under its contract and that Gogo’s rejection is without basis.

“After carefully evaluating the new technology and services in the marketplace, American has decided to exercise its rights under the Agreement and recently notified Gogo that ViaSat offers an in-flight connectivity system that materially improves on Gogo’s air-to-ground system,” the suit says.

American says ViaSat offers a faster service that is currently installed on United Airlines, Jet Blue and Virgin America planes. American uses Gogo for its regional aircraft and on domestic flights, primarily Boeing 737s. The carrier uses Panasonic to provide satellite-based Internet services for international flights on its wide-body fleet, including Boeing Dreamliners and 777s.

The story is an interesting object lesson on several fronts. First, the use of an indeterminate term like "better service" or its ilk as the trigger for termination of the original agreement was probably a dispute waiting to happen at its inception. Still, could a 2012 transactional lawyer have really done any better?  The most forward-thinking contract lawyer for American Airlines in 2012 could not have known what the state of in-flight wireless technology would be in 2016 beyond what actually happened--something "better" might come along.

Gogo_logoA second lesson is that the litigation and attendant publicity may already have accomplished more for American Airlines than the legal system ultimately will. News of the litigation "sent shares of Chicago-based Gogo plummeting on Wall Street. Gogo stock [ticker: GOGO] declined 27 percent, or $3.81 to close at $10.08 on Tuesday." Gogo is now at the bargaining table in a way that apparently was not going to happen before the litigation. Contract law is important to the operation of commerce, but market forces are much more important.

Finally, the publicity also speaks to the wisdom of not including arbitration clauses and confidentiality provisions in certain commercial contracts--at least not without carefully weighing the costs and benefits. Would American be better off if it did not have the court system (Texas state courts, at the moment) available as a forum? The answer is obvious, but certainly not the same one Gogo would reach at the moment. Transactional lawyers have a great deal to consider when judging the mists of an uncertain future. (H/T to my colleague Wayne Barnes for the story).

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I once asked the deal-making attorneys why they had not better defined the term subject to litigation. I was old (in paraphrase: "Bill, we wanted to get the deal done and did not think there would be a problem. Out of such do litigators become rich--alas, I omly mage mortgage payments for a few months Why are settlements permitted?

Posted by: WILLIAM REYNOLDS | Feb 19, 2016 9:05:11 AM

William, one of my favorite jokes from my practice days is the observation that perfect law firm synergy exists when transactional lawyers screw up enough deals to keep the litigators occupied until the transactional lawyers can draft the settlement agreements. At least I THINK that was a joke...

Posted by: Mark Edwin Burge | Feb 19, 2016 8:05:44 PM

A reader on LinkedIn commented to me: "Even in 2012, surely AA had an attorney who knew 'Better' than to use an undefined comparative?" Good observation. I suspect that AA did. But we shouldn't necessarily assume that American WANTED a more identified comparative. Under the circumstances, that level of vagueness may well have been the best thing for AA in opening up their present options.

Posted by: Mark Edwin Burge | Feb 20, 2016 7:46:37 AM