Leonard v. Northwest Airlines, Inc.

• Decision Date: 08 February 2000
• Docket Number: No. C0-99-948.,C0-99-948.
• Citation: 605 N.W.2d 425
• Parties: Beth LEONARD, on behalf of herself and all others similarly situated, Appellant, v. NORTHWEST AIRLINES, INC., Respondent.
• Court: Minnesota Court of Appeals

605 N.W.2d 425

Beth LEONARD, on behalf of herself and all others similarly situated, Appellant, v. NORTHWEST AIRLINES, INC., Respondent.

No. C0-99-948.

Court of Appeals of Minnesota.

February 8, 2000.

Samuel D. Heins, Daniel E. Gustafson, Kristine M. Boylan, Heins Mills & Olson, P.L.C., Minneapolis, MN, Leonard B. Simon, Dennis Stewart, Joseph D. Daley, Milberg Weiss Bershad Hynes & Lerach LLP, San Diego, CA, Daniel A. Farber, Minneapolis, MN (of counsel), for appellant).

Thomas Tinkham, Michael J. Wahoske, Andre T.M. Hanson, Dorsey & Whitney LLP, Minneapolis, MN (for respondent).

Considered and decided by LANSING, Presiding Judge, WILLIS, Judge, and HALBROOKS, Judge.

OPINION

LANSING, Judge.

The district court dismissed an airline ticket purchaser's breach-of-contract and unjust-enrichment claims as preempted by the Airline Deregulation Act (ADA) and awarded the airline attorneys' fees under Minnesota Rule of Civil Procedure 11. We agree that the ADA preempts the claims. But the ticket purchaser's argument that the claims are outside the scope of the ADA's preemption clause has a legal basis, and we therefore reverse the attorneys' fees award and decline to impose attorneys' fees on appeal.

FACTS

Beth Leonard purchased a nonrefundable ticket from Northwest Airlines to fly from Minneapolis to Las Vegas on October 24 and from Las Vegas back to Minneapolis on October 28, 1998. Leonard did not travel as ticketed, but rebooked to travel with Northwest at a later date. Northwest charged Leonard a $75 fee for reissuing the ticket.

The contract governing the relations between Northwest and its passengers is known as a "contract of carriage." Under the contract, a ticket holder with Leonard's type of nonrefundable ticket who does not fly as ticketed may, within one year of the ticket's issuance, apply the unused ticket fare toward a new contract of carriage, but must then pay an additional $75 fee. A ticket holder who does not use the original ticket or have it reissued forfeits the entire fare.

Leonard, on behalf of herself and other similarly situated ticket purchasers, sued Northwest for breach of contract and unjust enrichment, seeking damages, costs, attorneys' fees, and declaratory and injunctive relief. Leonard alleged not that Northwest failed to abide by the terms of the contract, but that the reissue fee is an illegal penalty under Minnesota law because it bears no rational relationship to the actual cost of reissuing the ticket.

Northwest moved to dismiss Leonard's complaint on preemption grounds and requested attorneys' fees and costs under Minnesota Rule of Civil Procedure 11. The district court dismissed Leonard's complaint and awarded $500 attorneys' fees. Leonard appeals the dismissal of her action and the imposition of attorneys' fees. Northwest moves under Minnesota Rule of Civil Appellate Procedure 139.06 and Minnesota Statutes section 549.211 (1998) for attorneys' fees incurred on appeal.

ISSUES

I. Does the Airline Deregulation Act preempt breach-of-contract and unjust-enrichment claims based on a state law theory of illegal penalty?

II. Are the claims unwarranted under existing law so as to justify sanctions under Minnesota Rule of Civil Procedure 11, and is the appeal frivolous under Minnesota Statutes section 549.211 (1998)?

ANALYSIS

On appeal from the district court's dismissal of a complaint for failure to state a claim on which relief can be granted, we review de novo the claim's legal sufficiency. Barton v. Moore, 558 N.W.2d 746, 749 (Minn.1997); State ex rel. Graham v. Klumpp, 536 N.W.2d 613, 615 (Minn.1995). When federal preemption bars relief under any set of facts consistent with the pleadings, the complaint fails to state a claim and must be dismissed. See Lister v. Stark, 890 F.2d 941, 946 (7th Cir.1989) (citing Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984) (interpreting Fed. R.Civ.P. 12(b)(6), federal counterpart to Minn. R. Civ. P. 12.02(e))).

I

Whether a claim is preempted is a question of congressional intent that is "at bottom" a legal question of statutory construction. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383, 112 S.Ct. 2031, 2036, 119 L.Ed.2d 157 (1992). An analysis of congressional intent therefore "`begin[s] with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.'" Id. (citation omitted). If the text itself does not resolve the preemption question, the analysis moves to the structure and purpose of the Act containing the preemption language. New York State Conference of Blue Cross v. Travelers Ins. Co., 514 U.S. 645, 655-56, 115 S.Ct. 1671, 1677, 131 L.Ed.2d 695 (1995).

Until 1978, airlines were subject to federal regulation of fares, routes, and services under the Federal Aviation Act of 1958(FAA). American Airlines v. Wolens, 513 U.S. 219, 222, 115 S.Ct. 817, 821, 130 L.Ed.2d 715 (1995). The FAA did not have a preemption clause and in fact contained a saving clause providing 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.'

Id. (quoting FAA). In 1978, Congress enacted the Airline Deregulation Act. The enactment was motivated by congressional belief that "`maximum reliance on competitive market forces' would best further `efficiency, innovation, and low prices' as well as `variety [and] quality * * * of air transportation services.'" Morales, 504 U.S. at 378, 112 S.Ct. at 2034 (quoting ADA). To prevent states from undoing deregulation, Congress included a preemption clause:

[A] State * * * 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.

49 U.S.C. § 41713(b)(1) (1994). But Congress retained the FAA's saving clause, see 49 U.S.C. § 40120(c) (1994), thereby reinforcing the judicial presumption against preemption, particularly on matters commonly reserved to state regulation. See Wellons v. Northwest Airlines, Inc., 165 F.3d 493, 495 (6th Cir.1999) (ADA does not vitiate traditional presumption against preemption).

In two successive cases, the U.S. Supreme Court forged a two-part test for resolving whether a state claim is preempted by the ADA. Wolens, 513 U.S. at 226, 115 S.Ct. at 823; Morales, 504 U.S. at 384, 112 S.Ct. at 2037. To be preempted, the claim must (1) relate to prices, routes, or services, and (2) constitute an enactment or enforcement of state law. Wolens, 513 U.S. at 226, 115 S.Ct. at 823. Leonard asserts that her claims are not preempted because they neither relate to price or services nor attempt to enact or enforce state law. We address Leonard's arguments on each of the prongs of the preemption test in turn.

Relate to

In defining the first prong of the preemption test, the Court has applied a textual "plain-meaning" interpretation to the phrase "relating to."¹ Morales, 504 U.S. at 383, 112 S.Ct. at 2037. In Morales v. Trans World Airlines, the Court drew from its previous interpretation of the similarly worded Employment Retirement Income Security Act (ERISA) and adopted a standard that gave the "relating-to" phrase a broad preemptive purpose. Id. at 384, 112 S.Ct. at 2037. Under this standard, "[s]tate enforcement actions having a connection with or reference to airline `rates, routes, or services' are preempted." Id. (emphasis added) (citation omitted).

Applying the "connection with" or "reference to" standard, the Morales Court held that the ADA preempted state enforcement of advertising regulations. Id. at 391, 112 S.Ct. at 2041. The Court reasoned that the advertising provisions related to fares within the meaning of the ADA not only because they expressly referred to them, but also because they reduced the incentive to price competitively. Id. at 388, 112 S.Ct. at 2039 ("`[w]here consumers have the benefit of price advertising, retail prices often are dramatically lower than they would be without advertising.'").

Similarly, in American Airlines v. Wolens, the Court held that the ADA preempted a claim that American Airlines' retroactive modification of its frequent-flyer program violated the Illinois Consumer Fraud and Deceptive Business Practices Act. Wolens, 513 U.S. at 228, 115 S.Ct. at 823. The Court concluded with no difficulty that the "claims relate to `rates,' i.e., American's charges in the form of mileage credits for free tickets and upgrades, and to `services,' i.e., access to flights and class-of-service upgrades." Id. at 226, 115 S.Ct. at 823.

Since the 1992 Morales decision, however, the Court in its ERISA decisions has retreated from a purely textual interpretation of "relating to" and has shifted to an analysis of ERISA's structure or purpose to determine the scope of its preemption. In 1995, the Court noted that an "uncritical literalism" in applying the "connection to" language "is no more help than in trying to construe `relate to.'" Travelers, 514 U.S. at 656, 115 S.Ct. at 1677. Thus, the Court concluded that it must "go beyond the unhelpful text" and "look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive." Id. In 1997, relying on Travelers, the Court again defined ERISA's preemptive reach by looking to ERISA's objectives. California Div. of Labor Standards Enforcement v. Dillingham Construction, N.A., Inc., 519 U.S. 316, 325, 117 S.Ct. 832, 838, 136 L.Ed.2d 791 (1997) (analysis of "whether a state law has the forbidden connection" looks to objectives of ERISA and effect of state law on ERISA plan).

Some federal courts have adopted the Court's narrowed ERISA preemption analysis in resolving controversies arising under the ADA's preemption clause. The Ninth Circuit, for example, has concluded that Congress intended to preempt ...