American Airlines v. Christensen

• Citation: 967 F.2d 410
• Decision Date: 17 June 1992
• Docket Number: No. 91-4047,91-4047
• Parties: 1992-1 Trade Cases P 69,870 AMERICAN AIRLINES, Plaintiff/Counter-Defendant-Appellee, v. Randall CHRISTENSEN, Coupon Connection, Ernest W. Carlson, Bruce H. Briggs, Robert J. Baumann, Curtis R. Sweeten and Tonya K. Sweeten, Defendants-Appellants, Platinum World Travel and Texas Budget Flights, Inc., dba "Texas Traveler", Defendants / Counter-claimants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 410

967 F.2d 410

1992-1 Trade Cases P 69,870

AMERICAN AIRLINES, Plaintiff/Counter-Defendant-Appellee, v. Randall CHRISTENSEN, Coupon Connection, Ernest W. Carlson, Bruce H. Briggs, Robert J. Baumann, Curtis R.

Sweeten and Tonya K. Sweeten,

Defendants-Appellants,

Platinum World Travel and Texas Budget Flights, Inc., dba

"Texas Traveler", Defendants / Counter-claimants-Appellants.

No. 91-4047.

United States Court of Appeals, Tenth Circuit.

June 17, 1992.

Paul D. Newman of Ray, Quinney & Nebeker, Salt Lake City, Utah (Rick B. Hoggard of Ray, Quinney & Nebeker, Samuel Alba and M. David Eckersley of Prince, Yates & Geldzahler, Salt Lake City, Utah, and Scott Wangsgard of Conder & Wangsgard, West Valley City, Utah, with him on the brief), for defendants-appellants.

Richard A. Rothman of Weil, Gotshal & Manges, New York City (Bonnie Garone and Kenneth L. Metzner of Weil, Gotshal & Manges, New York City, and Stewart M. Hansen, Jr. and Paul M. Simmons of Suitter Axland Armstrong & Hanson, Salt Lake City, Utah, with him on the brief), for plaintiff-appellee.

Before TACHA, BALDOCK, and EBEL, Circuit Judges.

EBEL, Circuit Judge.

This appeal raises three issues. First, did the district court err by holding that the Plaintiff's "no-sale" rule was enforceable as a matter of law without undertaking an analysis of its "reasonableness"? Second, did the Plaintiff demonstrate an injury sufficient to warrant a partial summary judgment as to liability and the issuance of a permanent injunction? And third, was there sufficient proof to hold each of the individual Defendants liable? We answer the first question in the negative and the second and third questions in the affirmative. Accordingly, we affirm the district court's grant of partial summary judgment and injunctive relief for the Plaintiff, 769 F.Supp. 1203.

FACTS

The Plaintiff, American Airlines ("American"), operates a promotional frequent flyer program called the AAdvantage program. Under this program, members earn "miles" by flying on American or by doing business with American affiliates. A member can then trade in these "miles" for travel awards. The award application form requires the member to confirm that he or she will not sell, barter, or exchange the award for cash or other consideration. The application, as well as the award itself, clearly states that any award that has been sold, bartered, or exchanged for consideration is void. This rule is often referred to as the "no-sale" rule. Although members may not sell an award, they may give awards as gifts to anyone they choose.

The Defendants are in the business of brokering travel awards, including those from American's AAdvantage program. They buy awards from program members and sell them to travellers seeking discount fares. It is undisputed that the Defendants knew about American's "no-sale" rule and that they utilized several methods to evade the rule. These methods included altering airline tickets, manufacturing phony identification cards in the names of members from whom awards were purchased to "facilitate ticketing," instructing the buyers to lie to American agents by telling the agents that the tickets were a gift from the seller, and providing "cheat sheets" to help buyers avoid detection by appearing to be familiar with the seller to back up the "gift" story. Additionally, the Defendants "manufactured" mileage by paying people to fly under false names in which the Defendants held AAdvantage accounts. ¹

American sued the Defendants on several theories, including tortious interference with contract and unfair competition. ² American moved for and was granted summary judgment as to liability on these two claims. Based upon the summary judgment ruling, the district court granted American a permanent injunction prohibiting the Defendants from buying, selling, or brokering AAdvantage awards. The Defendants appeal from the injunction and the grant of summary judgment upon which the injunction is based under 28 U.S.C. § 1292(a)(1). ³

I. The Enforceability of the "No-Sale" Rule

It is undisputed that the "no-sale" rule is part of a contract between American and any member of its AAdvantage program who receives an award. American offers awards to members who meet certain conditions, including turning over to American a specified number of "miles" and promising to adhere to the "no-sale" rule. When a member satisfies the conditions, a contract is formed. Pursuant to that contract, American issues the award. American demonstrated that the Defendants knew of the existence of such contracts and their "no-sale" term and nevertheless induced AAdvantage members to breach that term. See Bunnell v. Bills, 13 Utah 2d 83, 368 P.2d 597, 602 (1962) ("one who persuades another ... to breach a contract is guilty of an actionable tort" with certain exceptions not applicable here). ⁴

The Defendants do not deny knowing about the "no-sale" term or inducing AAdvantage members to breach that term. Rather, the Defendants argue that the "no-sale" rule is unenforceable as contrary to public policy. Specifically, the Defendants argue that the "no-sale" rule violates the public policy against "restraint of trade." Appellant Br. at 14 (citing Restatement (Second) of Contracts §§ 178 & 186 (1981)). ⁵ Thus, the Defendants argue, they did not interfere with a valid contractual term.

"A public policy against the enforcement of promises or other terms may be derived by the court from (a) legislation relevant to such a policy, or (b) the need to protect some aspect of the public welfare, as is the case for the judicial policies against, for example, (i) restraint of trade." Restatement (Second) of Contracts § 179. However, the Defendants have not cited, and we are unaware of, any legislative or decisional authority hostile to contractual provisions such as the "no-sale" rule that restrict alienation of contractual rights.

The Defendants cite 15 U.S.C. § 1 of the Sherman Act, 15 U.S.C. § 45(a)(1) of the Federal Trade Commission Act, Utah Code Ann. § 13-5-2.5(1) of the Utah Unfair Practices Act, id. § 76-10-914 of the Utah Antitrust Act, and the Utah Constitution's Property Clause, Utah Const. art. I, § 1, as embodiments of the public policy against restraining trade. However, none of these enactments apply to the "no-sale" rule.

"Section 1 of the Sherman Act requires that there be a 'contract, combination ... or conspiracy' ... in order to establish a violation.... Independent action is not proscribed." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775 (1984) (citation omitted); accord Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S.Ct. 2731, 2740, 81 L.Ed.2d 628 (1984). However, the Defendants have alleged no concerted action by American. No evidence in the record suggests that American did not independently set the terms under which it would offer its travel awards, and the mere fact that its members accepted those terms does not generate the kind of concerted action needed to violate Section 1. See Monsanto, 465 U.S. at 761, 104 S.Ct. at 1469.

The Federal Trade Commission Act specifically excludes air carriers from its purview. 15 U.S.C. § 45(a)(2). Additionally, as conceded by the Defendants below, there is no private right of action under this statute. Baum v. Great Western Cities, Inc., of New Mexico, 703 F.2d 1197, 1209 (10th Cir.1983). Similarly, the Utah Unfair Practices Act specifically excludes common carriers. Utah Code Ann. § 13-5-2.5(2).

It does not appear that the Defendants raised the Utah Antitrust Act as a source of public policy below. Moreover, the Utah Antitrust Act, which is essentially identical to the Sherman Act, instructs that its construction is to be "guided by interpretations given by the federal courts to comparable federal antitrust statutes...." Utah Code Ann. § 76-10-926. Thus, the Utah Antitrust Act does not apply for the same reason that the Sherman Act does not apply. With regard to the Property Clause of the Utah Constitution, we know of no authority holding that Clause applicable to the alienation of contract rights such as those at issue here.

In addition to the above asserted sources of public policy, the Defendants point to the Texas Deceptive Trade Practices and Consumer Protection Act, Tex.Bus. & Com.Code Ann. § 17.46, as an embodiment of the alleged public policy against restraint of trade. We are not persuaded that Texas law applies in this case. In any event, the statute cited, which prohibits "[f]alse, misleading, or deceptive acts or practices," does not reflect a public policy against American's "no-sale" rule.

Finally, the Defendants suggest that the Second Restatement of Contracts itself provides a prohibition against the enforcement of American's "no-sale" rule. The Restatement provides: "(1) A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of trade. (2) A promise is in restraint of trade if its performance would limit competition in any business...." Restatement (Second) of Contracts § 186. However, section 186 generally does not extend a cause of action beyond that provided by other federal and state laws such as those discussed above. See id. cmt. b. We conclude that section 186 does not provide an independent cause of action in this case.

Thus, none of the laws cited by the Defendants proscribe conduct such as American's promulgation or enforcement of its "no-sale" rule. To the extent that the Defendants suggest that the public policy that is manifested by these statutes is somehow more inclusive than the statutes themselves, we disagree. The limitations contained in a statute must be considered as much a part of the policy manifested by a statute as the statute's prohibitions. Further, we are mindful of Utah's practice of interpreting public policy very narrowly. Cf. Berube v. Fashion Centre, Ltd., 771 P.2d 1033, 1043 (Utah 1989) (noting, in context of...