Ginsberg v. Nw. Inc.

• Decision Date: 05 August 2011
• Docket Number: No. 09–56986.,09–56986.
• Parties: S. Binyomin GINSBERG, Rabbi, an individual and on behalf of all others similarly situated, Plaintiff–Appellant,v.NORTHWEST, INC., a Minnesota corporation and a wholly-owned subsidiary of Delta Air Lines, Inc.; Delta Air Lines, Inc., a Delaware corporation, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

653 F.3d 1033

11 Cal. Daily Op. Serv. 9894

2011 Daily Journal D.A.R. 11,855

S. Binyomin GINSBERG, Rabbi, an individual and on behalf of all others similarly situated, Plaintiff–Appellant,

v.NORTHWEST, INC., a Minnesota corporation and a wholly-owned subsidiary of Delta Air Lines, Inc.; Delta Air Lines, Inc., a Delaware corporation, Defendants–Appellees.

No. 09–56986.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2011.Filed Aug. 5, 2011.

Thatcher A. Stone, New York, NY, Harold M. Hewell, Hewell Law Firm, San Diego, CA, for the plaintiff-appellant.Richard T. Williams, Holland & Knight LLP, Los Angeles, CA, Christopher G. Kelly, and Judith R. Nemsick, Holland & Knight LLP, New York, NY, for the defendants-appellees.Appeal from the United States District Court for the Southern District of California, Janis L. Sammartino, District Judge, Presiding. D.C. No. 3:09-cv-00028-JLS-NLS.Before: ROBERT R. BEEZER, STEPHEN S. TROTT, and PAMELA ANN RYMER, Circuit Judges.Opinion by Judge BEEZER; Concurrence by Judge RYMER.

OPINION

BEEZER, Circuit Judge:

Plaintiff brought suit against an airline alleging a common law breach of contract under the implied covenant of good faith and fair dealing. The district court held that Plaintiff's claim was preempted by the Airline Deregulation Act (“ADA”), 49 U.S.C. § 41713(b)(1), and dismissed the claim pursuant to Fed.R.Civ.P. 12(b)(6). We conclude that the ADA does not preempt this common law contract claim, and reverse the district court.

When Congress passed the ADA, it dismantled a federal regulatory structure that had existed since 1958. By including a preemption clause, Congress intended to ensure that the States would not undo the deregulation with regulation of their own. Congress's “manifest purpose” was to make the airline industry more efficient by unleashing the market forces of competition—it was not to immunize the airline industry from liability for common law contract claims. Congress did not intend to convert airlines into quasi-government agencies, complete with sovereign immunity.

The purpose, history, and language of the ADA, along with Supreme Court and Ninth Circuit precedent, lead us to conclude that the ADA does not preempt a contract claim based on the doctrine of good faith and fair dealing.

Background

Plaintiff S. Binyomin Ginsberg was an active member of “WorldPerks,” a frequent flier program offered by Defendant Northwest Airlines, Inc. (“Northwest”). Ginsberg began his WorldPerks membership in 1999, and by 2005 he had obtained Platinum Elite Status. Northwest revoked Ginsberg's WorldPerks membership on June 27, 2008. Ginsberg attempted several times to clarify the reasons behind Northwest's decision to revoke his membership. Ginsberg alleges that Northwest revoked his membership arbitrarily because he complained too frequently about the services. Northwest sent Ginsberg an email on November 20, 2008, detailing the basis for Northwest's decision to revoke Ginsberg's membership. In that email the Northwest representative quotes from Paragraph 7 of the General Terms and Conditions of the WorldPerks Program, which provides that Northwest may determine “in its sole judgment” whether a passenger has abused the program, and that abuse “may result in cancellation of the member's account and future disqualification from program participation, forfeiture of all mileage accrued and cancellation of previously issued but unused awards.”

Ginsberg initially filed suit on January 8, 2009, asserting four causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) negligent misrepresentation; and (4) intentional misrepresentation. Northwest moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6), arguing that the ADA preempted the claims. The district court dismissed, with prejudice, Ginsberg's claims for breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and intentional misrepresentation, concluding that the ADA preempted them “ ‘because they relate to airline prices and services.’ ” The district court also dismissed the general breach of contract claim without prejudice, finding that the claim was not preempted, but that Ginsberg had failed to allege facts sufficient to show a material breach.

Ginsberg only appeals the district court's conclusion that the ADA preempts a claim for breach of the implied covenant of good faith and fair dealing.

Standard of Review

“Dismissals under Fed.R.Civ.P. 12(b)(6) for failure to state a claim are reviewed de novo.” Kahle v. Gonzales, 487 F.3d 697, 699 (9th Cir.2007).

Analysis

Based on our case law, Supreme Court precedent, and the ADA's legislative history and statutory text, we conclude that the ADA does not preempt state-based common law contract claims, such as the implied covenant of good faith and fair dealing. Although Ginsberg's claim may still fail on the merits, the district court erred when it dismissed the claim under the preemption doctrine. Doing so was a misapplication of the law because the ADA was never designed to preempt these types of disputes.

A. Preemption Doctrine

The key to understanding the scope of the ADA's preemption clause is to determine what Congress intended to achieve when it enacted the ADA. “Preemption may be either express or implied, and is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose.” FMC Corp. v. Holliday, 498 U.S. 52, 56–57, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990) (internal quotation marks omitted). This inquiry “begin[s] with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.” Id. at 57, 111 S.Ct. 403 (internal quotation marks omitted).

In Medtronic, Inc. v. Lohr, the Supreme Court advised that preemption provisions ought to be narrowly construed for two reasons:

First, because the States are independent sovereigns in our federal system, we have long presumed that Congress does not cavalierly pre-empt state-law causes of action.... Second, our analysis of the scope of the statute's pre-emption is guided by our oft-repeated comment ... that the purpose of Congress is the ultimate touchstone in every pre-emption case.

518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) (internal quotation marks omitted).

Indeed, preemption analysis “must be guided by respect for the separate spheres of governmental authority preserved in our federalist system.” Alessi v. Raybestos–Manhattan, Inc., 451 U.S. 504, 522, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). When the question of preemption implicates “a field which the States have traditionally occupied, we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Medtronic, 518 U.S. at 485, 116 S.Ct. 2240 (internal citation and quotations omitted).

To determine what Congress's “manifest purpose” was, we must first consider the ADA's unique history. Under the Federal Aviation Act of 1958, the Civil Aeronautics Board (“CAB”) had regulatory authority over interstate air transportation. Pub.L. No. 85–726. But the Board's power in this field was not exclusive, for the statute also contained a “savings clause,” clarifying that “[n]othing ... in this chapter shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies.” 49 U.S.C. § 1506 (1964), amended and renumbered as 49 U.S.C. § 40120(c) by Pub.L. 103–272, 108 Stat. 745, 1118 (1994). Because the 1958 Act did not expressly preempt state law, this clause allowed states to regulate airlines, leading to economic distortions. See, e.g., California v. CAB, 581 F.2d 954, 956 (D.C.Cir.1978) (concluding that states may regulate intrastate airfares, even if such regulations interfere with interstate prices).

By 1978 Congress had concluded that state-by-state regulation was inefficient and that deregulation, along with market forces, could better promote efficiency, variety, and quality in the airline industry. See H.R.Rep. No. 95–1779, at 53, 1978 U.S.C.C.A.N. 3773 (1978) (Conf.Rep). But seeing that states could just as easily “undo federal deregulation with regulation of their own,” Morales v. Trans World Airlines Inc., 504 U.S. 374, 378, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992), Congress included a preemption clause in former section 1305(a)(1), which now reads as follows: ¹

[A] State, political subdivision of a State, or political authority of at least 2 States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.

At the same time, Congress retained the “savings clause,” thereby preserving common law and statutory remedies. Since 1978, the scope of this preemption clause has been hotly debated, but never fully resolved.

B. Supreme Court and Ninth Circuit Precedent

The Supreme Court has encountered the ADA's preemption clause at least three times since 1990. In Morales, the Court considered whether the ADA preempted the States “from prohibiting allegedly deceptive airline fare advertisements through enforcement of their general consumer protection statutes.” 504 U.S. at 378, 112 S.Ct. 2031. The Court concluded that because advertising has such a direct link to pricing and rates, the ADA preempted restrictions against deceptive advertising. Id. at 388–89, 112 S.Ct. 2031. The Court therefore reasoned that the advertising restrictions at issue had the “forbidden significant effect” on rates, routes, or services. Id. at 388, 112 S.Ct. 2031. Because the regulations were inconsistent with the ADA's deregulatory purpose, they were preempted...