Northwest, Inc. v. Ginsberg
Northwest, Inc. v. Ginsberg
Opinion
*276
We must decide in this case whether the Airline Deregulation Act pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing. Following our interpretation of the Act in
American Airlines, Inc. v. Wolens,
I
A
*277 Like many airlines, petitioner Northwest, Inc. (Northwest), established a frequent flyer program, its WorldPerks Airline Partners Program, to attract loyal customers. Under this program, members are able to earn " miles" by taking flights operated by Northwest and other "partner" airlines. Members can then redeem these miles for tickets and service upgrades with Northwest or its airline partners.
Respondent became a member of Northwest's WorldPerks program in 1999, and as a result of extensive travel on Northwest flights, he achieved "Platinum Elite" status (the highest level available) in 2005.
In 2008, however, Northwest terminated respondent's membership, apparently in reliance on a provision of the WorldPerks agreement that provided that "[a]buse of the ... program (including ... improper conduct as determined by [Northwest] in its sole judgment[ ) ] ... may result in cancellation of the member's account." App. 64-65. According to respondent, a Northwest representative telephoned him *1427 in June 2008 and informed him that his "Platinum Elite" status was being revoked because he had " 'abused' " the program. Id ., at 35. In a letter sent about two weeks later, Northwest wrote:
"[Y]ou have contacted our office 24 times since December 3, 2007 regarding travel problems, including 9 incidents of your bag arriving late at the luggage carousel....
. . . . .
"Since December 3, 2007, you have continually asked for compensation over and above our guidelines. We have awarded you $1,925.00 in travel credit vouchers, 78,500 WorldPerks bonus miles, a voucher extension for your son, and $491.00 in cash reimbursements....
*278 "Due to our past generosity, we must respectfully advise that we will no longer be awarding you compensation each time you contact us." Id., at 58-59.
Respondent requested clarification of his status, but a Northwest representative sent him an e-mail stating that "[a]fter numerous conversations with not only the Legal Department, but with members of the WorldPerks department, I believe your status with the program should be very clear." Id ., at 60.
B
Alleging that Northwest had ended his membership as a cost-cutting measure tied to Northwest's merger with Delta Air Lines, respondent filed a class action in the United States District Court for the Southern District of California on behalf of himself and all other similarly situated WorldPerks members. Respondent's complaint asserted four separate claims. 1 First, his complaint alleged that Northwest had breached its contract by revoking his "Platinum Elite" status without valid cause. Second, the complaint claimed that Northwest violated the duty of good faith and fair dealing because it terminated his membership in a way that contravened his reasonable expectations with respect to the manner in which Northwest would exercise its discretion. Third, the complaint asserted a claim for negligent misrepresentation, and fourth, the complaint alleged intentional misrepresentation. Respondent sought damages in excess of $5 million, as well as injunctive relief requiring Northwest to restore the class members' WorldPerks status and prohibiting Northwest from future revocations of membership.
*279
The District Court held that respondent's claims for breach of the covenant of good faith and fair dealing, negligent misrepresentation, and intentional misrepresentation were pre-empted by the Airline Deregulation Act of 1978 (ADA or Act) as amended,
*1428
The Ninth Circuit reversed.
We granted certiorari. 569 U.S. ----,
II
A
Before the enactment of the ADA, the Federal Aviation Act of 1958 empowered the Civil Aeronautics Board to regulate
*280
the interstate airline industry. Pursuant to this authority, the Board closely regulated air carriers, controlling, among other things, routes, rates, and services. See,
e.g.,
Western Air Lines, Inc. v. CAB,
In 1978, however, Congress enacted the ADA, which sought to promote "efficiency, innovation, and low prices" in the airline industry through "maximum reliance on competitive market forces and on actual and potential competition."
We have had two occasions to consider the ADA's pre-emptive reach. In
Morales
, we held that the ADA pre-empted the use of state consumer protection laws to regulate airline advertising. We recognized that the key phrase "related to" expresses a "broad pre-emptive purpose."
*281
Subsequently, in
American Airlines, Inc. v. Wolens,
With this background in mind, we turn to the question whether the ADA pre-empts respondent's claim for breach of the implied covenant of good faith and fair dealing.
B
The first question we address is whether, as respondent now maintains, the ADA's pre-emption provision applies only to legislation enacted by a state legislature and regulations issued by a state administrative agency but not to a common-law rule like the implied covenant of good faith and fair dealing. We have little difficulty rejecting this argument.
To begin, state common-law rules fall comfortably within the language of the ADA pre-emption provision. As noted above, the current version of this provision applies to state "law[s], regulation[s], or other provision[s] having the force
*282
and effect of law,"
This understanding becomes even clearer when the original wording of the pre-emption provision is taken into account. When first enacted in 1978, this provision also applied to "rule[s]" and "standard[s]," and there surely can be no doubt that this formulation encompassed common-law rules. Indeed, we held in
CSX Transp., Inc. v. Easterwood,
While "rule[s]" and "standard[s]" are not mentioned in the current version of the statute, this omission is the result of a recodification that was not meant to affect the provision's meaning. Those additional terms were deleted as part of a wholesale recodification of Title 49 in 1994, but Congress made it clear that this recodification did not effect any "substantive change." § 1(a),
*1430
In arguing that common-law rules fall outside the scope of the ADA pre-emption provision, respondent relies on our decision in
*283
Sprietsma v. Mercury Marine,
In addition, the relationship between the ADA's pre-emption provision and the saving provision carried over from the prior law is also quite different. The
Sprietsma
decision placed substantial weight on the Boat Safety Act's saving provision, which was enacted at the same time as the pre-emption provision, but we have described the Federal Aviation Act saving clause as "a relic of the pre-ADA/no pre-emption regime."
Morales,
Exempting common-law claims would also disserve the central purpose of the ADA. The Act eliminated federal regulation of rates, routes, and services in order to allow those aspects of air transportation to be set by market forces, and the pre-emption provision was included to prevent the States from undoing what the Act was meant to accomplish.
Morales, supra, at 378,
Finally, if all state common-law rules fell outside the ambit of the ADA's pre-emption provision, we would have had no need in Wolens to single out a subcategory of common-law claims, i.e., those based on the parties' voluntary undertaking, as falling outside that provision's coverage.
Accordingly, we conclude that the phrase "other provision having the force and effect of law" includes common-law claims.
C
We must next determine whether respondent's breach of implied covenant claim "relates to" "rates, routes, or services." A claim satisfies this requirement if it has "a connection with, or reference to, airline" prices, routes, or services,
Morales,
Like the frequent flyer program in
Wolens,
the Northwest program is connected to the airline's "rates" because the program awards mileage credits that can be redeemed for tickets and upgrades. See
Respondent argues that his claim differs from the claims in Wolens because he "does not challenge access to flights and upgrades or the number of miles needed to obtain air *285 tickets" but instead contests "the termination of his WorldPerks elite membership," Brief for Respondent 12, but this argument ignores respondent's reason for seeking reinstatement of his membership, i.e., to obtain reduced rates and enhanced services. Respondent's proffered distinction has no substance.
Respondent and amici suggest that Wolens is not controlling because frequent flyer programs have fundamentally changed since the time of that decision. We are told that "most miles [are now] earned without consuming airline services" and are "spent without consuming airline services." Brief for State of California et al. 18 (emphasis deleted). But whether or not this alleged change might have some impact in a future case, it is not implicated here. In this case, respondent did not assert that he earned his miles from any activity other than taking flights or that he attempted to redeem miles for anything other than tickets and upgrades. See Tr. of Oral Arg. 47-48.
III
With these preliminary issues behind us, we turn to the central issue in this case, i.e., whether respondent's implied covenant claim is based on a state-imposed obligation or simply one that the parties voluntarily undertook. Petitioners urge us to hold that implied covenant claims are always pre-empted, and respondent suggests that such claims are generally not pre-empted, but the reasoning of Wolens neither dooms nor spares all such claims.
While most States recognize some form of the good faith and fair dealing doctrine, it does not appear that there is any uniform understanding of the doctrine's precise meaning. "[T]he concept of good faith in the performance of contracts 'is a phrase without general meaning (or meanings) of its own.' "
Tymshare, Inc. v. Covell,
Whatever may be the case under the law of other jurisdictions, it seems clear that under Minnesota law, which is controlling here, see n. 1, supra, the implied covenant must be regarded as a state-imposed obligation.
2
Respondent concedes
*287
that under Minnesota law parties cannot contract out of the covenant. See Tr. of Oral Arg. 33-34; see also
In re Hennepin Cty. 1986 Recycling Bond Litigation,
Another feature of Minnesota law provides an additional, independent basis for our conclusion. Minnesota law holds that the implied covenant applies to "every contract,"
In re Hennepin Cty.,
*288 that support the rule for employment contracts do not apply (at least with the same force) in other contexts. When the application of the implied covenant depends on state policy, a breach of implied covenant claim cannot be viewed as simply an attempt to vindicate the parties' implicit understanding of the contract.
*1433 For these reasons, the breach of implied covenant claim in this case cannot stand, but petitioners exhort us to go further and hold that all such claims, no matter the content of the law of the relevant jurisdiction, are pre-empted. If pre-emption depends on state law, petitioners warn, airlines will be faced with a baffling patchwork of rules, and the deregulatory aim of the ADA will be frustrated. 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. While the inclusion of such a provision may impose transaction costs and presumably would not enhance the attractiveness of the program, an airline can decide whether the benefits of such a provision are worth the potential costs.
Our holding also does not leave participants in frequent flyer programs without protection. The ADA is based on the view that the best interests of airline passengers are most effectively promoted, in the main, by allowing the free market to operate. If an airline acquires a reputation for mistreating the participants in its frequent flyer program (who are generally the airline's most loyal and valuable customers), customers can avoid that program and may be able to enroll in a more favorable rival program.
Federal law also provides protection for frequent flyer program participants. Congress has given the Department of Transportation (DOT) the general authority to prohibit and
*289
punish unfair and deceptive practices in air transportation and in the sale of air transportation,
We note, finally, that respondent's claim of ill treatment by Northwest might have been vindicated if he had pursued his breach-of-contract claim after its dismissal by the District Court. Respondent argues that, contrary to the holding of the District Court, the frequent flyer agreement did not actually give Northwest unfettered discretion to terminate his membership in the program, see Brief for Respondent 20-21, and the United States makes a related argument, namely, that even if the agreement gave Northwest complete discretion with respect to a determination regarding abuse of the program, the agreement did not necessarily bar a claim asserting that membership was ended for an ulterior reason, such as an effort to cut costs. If respondent had appealed the dismissal of his breach-of-contract claim, he could have presented these arguments to the Court of Appeals, but he chose not to press that claim. He voluntarily dismissed the breach-of-contract claim and instead appealed only the breach of implied covenant claim, which we hold to be pre-empted.
* * *
Because respondent's implied covenant of good faith and fair dealing claim seeks to enlarge his contractual agreement with petitioners, we hold that
It is so ordered.
Applying California choice-of-law rules, the District Court held that Minnesota law applies because respondent "was a resident of Minneapolis, appears to fly in and out of Minnesota, and Northwest's principal place of business is Minnesota." App. to Pet. for Cert. 70. That determination was not challenged on appeal.
Like Minnesota, some other States preclude a party from waiving the obligations of good faith and fair dealing.
Hunter v. Wilshire Credit Corp.,
But other States permit a party to contract out of the duties imposed by the implied covenant.
Steiner v. Thexton,
See DOT, Air Travel Consumer Report 44 (Feb. 2014), online at http://www.dot.gov/sites/dot.dev/files/docs/2014_February_ATCR.pdf (as visited Mar. 31, 2014, and available in Clerk of Court's case file).
Reference
- Full Case Name
- NORTHWEST, INC., Et Al., Petitioners v. Rabbi S. Binyomin GINSBERG.
- Cited By
- 209 cases
- Status
- Published