TransWorld Airlines, Inc. v. American Coupon Exchange, Inc.

• Decision Date: 30 August 1990
• Docket Number: No. 88-5888,88-5888
• Citation: 913 F.2d 676
• Parties: , 1990-2 Trade Cases 69,170 TRANSWORLD AIRLINES, INC., Plaintiff-Counter-Defendant-Appellee, v. AMERICAN COUPON EXCHANGE, INC. and Neil Weisman, Defendants-Counter-Claimants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 676

913 F.2d 676

59 USLW 2169, 1990-2 Trade Cases 69,170

TRANSWORLD AIRLINES, INC., Plaintiff-Counter-Defendant-Appellee, v. AMERICAN COUPON EXCHANGE, INC. and Neil Weisman Defendants-Counter-Claimants-Appellants.

No. 88-5888.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 9, 1988.

Decided Aug. 30, 1990.

Marshall B. Grossman, Frank Kaplan, Linda Sutton, Craig A. Corman, Alschuler, Grossman & Pines, Los Angeles, Cal., for defendants-counter-claimants-appellants.

James M. Derr, Belcher, Henzie & Bieganzahn, Los Angeles, Cal., for plaintiff-counter-defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before REINHARDT and O'SCANNLAIN, Circuit Judges, and COYLE, ^* District Judge.

REINHARDT, Circuit Judge:

Appellants American Coupon Exchange ("ACE") and ACE's principal, Neil Weisman, ¹ appeal from a permanent injunction prohibiting them from brokering "frequent flyer" coupons awarded by TransWorld Airlines, Inc. ("TWA"). In connection with that appeal, ACE also asks us to reverse the district court's entry of summary judgment in favor of TWA on several other matters: first, the airline's claim for tortious interference with business relations and its request for a judicial declaration that the restrictions it imposes on the transferability of its frequent flyer coupons are not contrary to public policy, and second, ACE's counterclaims for similar relief. Although we agree with the district court's conclusion that the transfer restrictions do not violate the public policy relied upon by ACE, and therefore with its order granting TWA's request for declaratory relief, we nonetheless conclude that the district court erred in granting TWA's motion for summary judgment on the tort claim, and in entering a permanent injunction based on the commission of that tort and on the existence of attendant damages not susceptible to ready calculation. We therefore vacate the permanent injunction and the summary judgment for TWA on its tort claim. We also affirm the declaratory judgment for TWA, as well as the summary judgment in its favor on the counterclaims alleged by ACE and Weisman. Finally, we remand this case to the district court for further proceedings in accordance with this opinion.

I STATEMENT OF THE CASE

This case presents a number of difficult legal issues arising from the operation of "frequent flyer" programs, incentive systems devised by the airline industry to encourage potential passengers to book passage repeatedly on a particular airline instead of choosing a different airline for each flight. Under these programs, passengers generally receive credit of some sort for miles flown on the airline in question, and sometimes receive additional credit for bestowing their patronage upon allied airlines, hotels, and car rental agencies. By redeeming specified amounts of this "mileage" credit, passengers can receive coupons good for free or reduced-fare air travel or other services from the airline and its allies.

TWA, one of this country's largest airlines, instituted its Frequent Flyer Bonus Program in 1982. The rules and regulations specifying the manner in which passengers may earn frequent flyer awards are published and filed as tariffs with the Department of Transportation pursuant to 14 C.F.R. Sec. 221.3. Under these tariffs, a program member who has accumulated the requisite amount of mileage credit may receive his award by making a written request to TWA and advising it of the name of the person in whose name the award certificate is to be issued; the airline then issues the award in the designee's name.

At the inception of the program, TWA's tariffs allowed a member to designate any person of his choice to use an award earned by the member. However, the airline amended its tariffs in November and December of 1983, requiring that the travel awards be issued in the name of the member, prohibiting their transfer, and reserving the right to disqualify members who violated this or any other rule of the frequent flyer program. Finally, in February of 1986, TWA again amended its tariffs, this time easing the effect of its transfer prohibition by allowing a member to "designate a family member, legal dependant or relative to use the award in his place." ² The amended tariffs stated that any certificate issued to anyone other than a family member, legal dependent, or relative would be void, as would any certificate deemed by TWA to have been sold or bartered.

Because the most frequent of flyers may accumulate enough mileage credit for many, many awards, it is perhaps unsurprising that a secondary market for frequent flyer coupons has emerged in recent years. ACE, a California corporation of which Weisman is both President and sole shareholder, acts as a broker in this market. ³ Since June of 1983 ACE has offered, primarily through advertisements in travel magazines, to buy frequent flyer coupons issued by many major airlines, including TWA. ACE then sells these coupons to other travellers at a price estimated to be from thirty to seventy percent of the cost of a full-fare ticket. The travellers who buy these coupons may then present them to airlines or travel agents for the issuance of a ticket. ACE instructs each person to whom it sells a TWA Frequent Flyer Bonus Program award to refrain from telling the airline where he bought his ticket, and to pretend to be a relative of the program member from whom the award was purchased.

TWA has been aware of this secondary market since 1983. The parties hotly dispute the airline's stance toward coupon brokers since then. ACE alleges that although TWA did not publicly condone or support coupon brokering, TWA accepted it as "a fact of life" and frequently "looked the other way" with its most valued customers by allowing them to sell their certificates or by willingly issuing certificates to spurious "relatives" of these favored patrons. According to ACE, TWA even sought to profit from the secondary market by raising certain handling charges applicable primarily to brokers. TWA claims that it undertook a "measured response" to coupon brokering, attempting to discourage the practice "informally." However one characterizes TWA's response during the first three or four years of ACE's operation, there is no doubt that TWA eventually escalated its antibrokering efforts, by refusing to honor tickets purchased with brokered award coupons and ceasing to deal with ticket agents who accepted brokered coupons.

Apparently unsatisfied with the results of its earlier efforts, TWA ultimately decided to file a complaint against ACE and Weisman in the district court, invoking diversity jurisdiction, 28 U.S.C. Sec. 1332. TWA's complaint alleged the intentional torts of fraud and interference with business relations, and requested declaratory and injunctive relief as well as damages. ACE's answer asserted a number of affirmative defenses, including waiver, estoppel, laches, unclean hands, and privilege. ACE also asserted that the injunction requested by TWA would further an illegal scheme in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 & 2. Most of ACE's other defenses generally aver, in a remarkable variety of ways, that TWA's tariffs are unenforceable because they are unreasonable restrictions upon the transfer of "travel rights" and are therefore contrary to the public policy against restraints on alienation of property. ACE also counterclaimed against TWA, alleging interference with business relations and violation of sections 1 and 2 of the Sherman Act. ACE sought declaratory and injunctive relief as well as damages, and demanded a jury trial.

Prior to the motion that led to this appeal, the district court denied TWA's motion for a preliminary injunction and denied a motion for summary judgment filed by ACE. TWA then moved for summary judgment on both the complaint and the counterclaims, and the district court granted the motion in a written opinion. TransWorld Airlines, Inc. v. American Coupon Exchange, Inc., 682 F.Supp. 1476 (C.D.Cal.1988). The court entered a permanent injunction against ACE and Weisman as requested by TWA, 682 F.Supp. at 1484, but stayed all injunctive relief pending appeal, 682 F.Supp. at 1489. The court retained jurisdiction over the case so that the amount of damages could be litigated, 682 F.Supp. at 1483, ⁴ but certified the controlling issues for interlocutory appeal pursuant to 28 U.S.C. Sec. 1292(b), 682 F.Supp. at 1489.

ACE petitioned this court for permission to appeal the district court's interlocutory order under section 1292(b), and also filed a notice of appeal. ACE's petition for permissive interlocutory appeal was denied. We now consider the issues raised by the notice of appeal.

II JURISDICTION

We determine questions relating to our jurisdiction at the outset. Because the district court retained jurisdiction to determine damages in this case (as well as because it retained jurisdiction over the fraud claim), its decision is not a "final decision" within the meaning of 28 U.S.C. Sec. 1291, even though a permanent injunction was entered. Marathon Oil Co. v. United States, 807 F.2d 759, 763-64 (9th Cir.1986), cert. denied, 480 U.S. 940, 107 S.Ct. 1593, 94 L.Ed.2d 782 (1987). Nor do we have jurisdiction under section 1292(b) over the matters certified by the district court, since ACE's petition for a permissive interlocutory appeal under this section was denied. Our jurisdiction over this appeal derives rather from section 1292(a)(1), providing for the appeal of interlocutory orders granting or refusing to grant injunctions. Because our jurisdiction under section 1292(a)(1) extends to all matters "inextricably bound up" with the order from which appeal is taken, including the merits of the case, Marathon Oil, 807 F.2d at 764, we must determine the relevance of the district court's various rulings to the injunctive relief requested...