Lyn-Lea Travel Corp. v. American Airlines, Inc.

• Citation: 283 F.3d 282
• Decision Date: 13 February 2002
• Docket Number: No. 00-11174.,00-11174.
• Parties: LYN-LEA TRAVEL CORP. d/b/a First Class International Travel Management, Plaintiff-Counter-Defendant-Appellant, v. AMERICAN AIRLINES, INC., Defendant-Counter-Claimant-Appellee, Sabre Group, Inc., Intervenor Defendant-Counter-Claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

283 F.3d 282

LYN-LEA TRAVEL CORP. d/b/a First Class International Travel Management, Plaintiff-Counter-Defendant-Appellant, v. AMERICAN AIRLINES, INC., Defendant-Counter-Claimant-Appellee, Sabre Group, Inc., Intervenor Defendant-Counter-Claimant-Appellee.

No. 00-11174.

United States Court of Appeals, Fifth Circuit.

February 13, 2002.

Rehearing Denied April 29, 2002.

COPYRIGHT MATERIAL OMITTED

Stephen Henry Gardner (argued), Law Office of Stephen Gardner, Dallas, TX, for Plaintiff-Appellant.

William James Albright, Jane M.N. Webre (argued), Cynthia Saiter Connolly, Scott, Douglass & McConnico, Austin, TX, for American Airlines, Inc. and Sabre Group Inc.

Appeal from the United States District Court for the Northern District of Texas.

Before JONES, SMITH and DeMOSS, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Lyn-Lea Travel, Inc. appeals an adverse judgment on its claims against American Airlines for reducing the profitability of a travel agent booking contract. The district court determined that the Airline Deregulation Act ("ADA"), 49 U.S.C. § 41713(b)(1), preempted all of Lyn-Lea's state-law claims as well as Lyn-Lea's fraudulent inducement defense to a breach of contract counterclaim. On this major issue, we conclude that affirmative state law claims against American are preempted, but that Lyn-Lea's defenses to its contract with American's subsidiary are not. A partial remand is required. The magistrate judge's rulings on procedural and sanctions issues are affirmed.

I. Background

A. Factual Background

Lyn-Lea is a travel agency formerly authorized to sell airline tickets for American pursuant to the terms of an Airline Reporting Commission Reporting Agreement (the "ARC Agreement"). The ARC Agreement required American to pay Lyn-Lea commissions for booking flights in accordance with American's published commission schedule. The ARC Agreement permitted American to modify its commission schedule at any time.

In 1994, Lyn-Lea purchased a competing travel agency, Air-O Travel. At the time of this purchase, Air-O Travel was contractually obliged to use American's computer reservation system (the "Sabre CRS"). In order to reduce the booking obligations assumed in the purchase of Air-O Travel, Lyn-Lea began negotiating a new CRS agreement with American, through American's Sabre Travel Information Network Division ("STIN"). On December 7, 1994, Lyn-Lea and American executed a new CRS lease agreement (the "Sabre Agreement"). The Sabre Agreement provided for Lyn-Lea's lease of four Sabre CRS terminals from STIN.¹ The Sabre Agreement also released Lyn-Lea from Air-O Travel's prior CRS obligations, but required Lyn-Lea to use the Sabre CRS terminals for at least 1200 transactions per month.

On February 10, 1995, American announced modifications to its domestic commission schedule that dramatically reduced the commissions paid to travel agencies. Lyn-Lea's main contention in this lawsuit is that American knew, at the time it negotiated the Sabre CRS Agreement, that it was about to reduce commissions and should have disclosed the impending changes. Lyn-Lea contends that the new commission schedule severely damaged Lyn-Lea's business and prevented its fulfillment of the Sabre Agreement. Had Lyn-Lea known of the impending reductions in commissions, it would not have entered into the Sabre CRS Agreement.

On March 1, 1996, American sent Lyn-Lea an invoice for amounts due under the terms of the Sabre CRS Agreement. Lyn-Lea refused to pay. American terminated the agreement with Lyn-Lea, demanded full payment, and disconnected the CRS terminals leased by Lyn-Lea. Lyn-Lea allegedly lost several clients because it could no longer book American flights.

B. Procedural Background

Lyn-Lea promptly filed suit against American seeking damages for tortious interference with business relationships, breach of contract, fraud, and violations of the Texas Deceptive Trade Practices Act. American counterclaimed for Lyn-Lea's alleged breach of the Sabre CRS Agreement. On March 21, 1997, Lyn-Lea and American consented to trial before Magistrate Judge Boyle pursuant to 28 U.S.C. § 636.

American and Sabre² filed a joint motion for summary judgment arguing, inter alia, that Lyn-Lea's claims were preempted by the ADA. Lyn-Lea objected to Appellees' preemption argument on the ground that neither American nor Sabre had pleaded preemption as an affirmative defense. In response, American requested, and the magistrate judge approved, an amendment to its answer that properly pled preemption.

The magistrate judge granted summary judgment on all of Lyn-Lea's claims, finding insufficient evidence to support Lyn-Lea's breach of contract claim and preemption of its remaining claims by the ADA. In a later order, Lyn-Lea's fraudulent inducement defense to Sabre's counterclaim was also dismissed on the basis of ADA preemption. The only claim left for trial was Sabre's breach of contract counterclaim.

As the case went on, the court sanctioned Lyn-Lea and its counsel, Stephen Gardner, for violating protective orders relating to confidential documents produced during discovery. The court further penalized Gardner pursuant to 28 U.S.C. § 1927 for "unreasonably and vexatiously" multiplying court proceedings. Not surprisingly, Lyn-Lea moved to rescind its consent to proceeding before the magistrate judge. Just as predictably, she refused relief.

The parties then settled Sabre's counterclaim. On September 28, 2000, the court entered an agreed Final Judgment subject to the court's resolution of Sabre's motion for attorney's fees. Sabre requested more than $280,000 in attorneys' fees for prosecution of its breach of contract claim and its defense against the related claims raised by Lyn-Lea. The magistrate judge awarded Sabre $123,933.69 in attorneys' fees plus $30,000 contingent upon Lyn-Lea's unsuccessful appeal.

Lyn-Lea now challenges the orders dismissing its claims and affirmative defense, the contempt and sanctions orders, the attorneys' fees award, and the orders granting leave to amend and denying Lyn-Lea's request to vacate its consent to trial before a magistrate.

II. Discussion

A. ADA Preemption

Lyn-Lea challenges the finding of ADA preemption on procedural and substantive grounds.

1. Leave to Amend

"Whether leave to amend should be granted is entrusted to the sound discretion of the district court...." Quintanilla v. Texas Television, Inc., 139 F.3d 494, 499 (5th Cir.1998). Federal Rule of Civil Procedure 15(a) requires the trial court to grant leave to amend "freely," and the language of this rule "evinces a bias in favor of granting leave to amend." Chitimacha Tribe of La. v. Harry L. Laws Co., Inc., 690 F.2d 1157, 1162 (5th Cir.1982). The district court must have a "substantial reason" to deny a request for leave to amend. Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th Cir.1985). Notwithstanding these authorities, Lyn-Lea contends that the trial court erred by granting the defendants leave to amend their pleadings because they did not "establish[] good cause or any justification for filing amended pleadings long after the deadline for [pleading amendments] had expired." Lyn-Lea's argument is unpersuasive. Preemption is an issue of law whose relevant facts were undisputed in this case. Lyn-Lea was not deprived of discovery. Consequently, the trial court did not abuse its discretion in granting leave to amend. Quintanilla, 139 F.3d at 499.

2. ADA Preemption³

The ADA is an economic deregulation statute intended to encourage maximum reliance on competitive market forces in the airline industry by freeing airlines from restrictive state regulation. Hodges, 44 F.3d at 335-36. The statute broadly prevents states from interfering with this goal:

Except as provided in this subsection, 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 that may provide air transportation under this subpart.

49 U.S.C. § 41713(b)(1).⁴

The Supreme Court has twice addressed ADA preemption. See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992); American Airlines, Inc. v. Wolens, 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995). In Morales, the Court explained that the scope of ADA preemption is a question of statutory intent. 504 U.S. at 383, 112 S.Ct. at 2036. Relying on its prior interpretation of similar preemptive language in the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1144(a),⁵ the Court held that the phrase "relating to rates, routes, or services" in the ADA was "deliberately expansive" and preempted any "[s]tate enforcement action having a connection with or reference to airline `rates, routes, or services.'" Morales, 504 U.S. at 384, 112 S.Ct. at 2037 (citations omitted). The Court observed that "some state actions may affect airline fares in too tenuous, remote, or peripheral a manner to have preemptive effect." Id. at 390, 112 S.Ct. at 2040. However, the ADA preempts any state action having a "forbidden significant effect upon [airline] fares." Id. at 388, 112 S.Ct. at 2039-40.

In Wolens, the Court expanded upon ADA preemption as a device to protect the deregulation of the airline industry by preventing "application of restrictive state laws." 513 U.S. at 228, 115 S.Ct. at 824. Nevertheless, "the ADA's preemption clause [does not] shelter airlines from suits alleging no violation of state-imposed obligations, but seeking recovery solely for the airline's alleged breach of its own, self-imposed undertakings." Id. The ADA does not preempt "state-law-based court adjudication of routine breach-of-contract claims" so long as there is "no enlargement or enhancement [of the contract] based on state laws or policies external to the agreement." Id. at 232-33, 115 S.Ct. at 826.

This court has also addressed the scope of ADA preemption, holding that the ADA does not...