Nader v. Allegheny Airlines, Inc.

• Decision Date: 23 June 1975
• Docket Number: No. 73-2243,73-2243
• Citation: 512 F.2d 527
• Parties: Ralph NADER et al. v. ALLEGHENY AIRLINES, INC., Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 527

512 F.2d 527

167 U.S.App.D.C. 350

Ralph NADER et al. v. ALLEGHENY AIRLINES, INC., Appellant.

No. 73-2243.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 10, 1974.

Decided May 2, 1975.

Rehearing and Rehearing En Banc Denied June 23, 1975.

Frank F. Roberson, Washington, D.C., with whom William A. Bradford, Jr., Washington, D.C., was on the brief, for appellant.

Reuben B. Robertson, Washington, D.C., with whom Alan B. Morrison, Washington, D.C., was on the brief, for appellees.

James E. Landry and Donald C. Comlish, Washington, D.C., filed a brief on behalf of certain members of the Air Transport Association of America as amici curiae urging reversal.

Richard Littell, Gen. Counsel, C.A.B., O. D. Ozment, Deputy Gen. Counsel, Glen M. Bendixsen, Associate Gen. Counsel, Litigation and Research, Barbara Thorson, Atty., C.A.B., and Warren L. Sharfman, Sp. Counsel, C.A.B., filed a brief on behalf of Civil Aeronautics Board as amicus curiae urging reversal.

Before FAHY, Senior Circuit Judge, and McGOWAN and TAMM, Circuit Judges.

Opinion for the Court filed by Circuit Judge TAMM.

Opinion filed by Senior Circuit Judge FAHY, concurring in part and dissenting in part.

TAMM, Circuit Judge:

Plaintiffs-appellees Ralph Nader and the Connecticut Citizen Action Group (CCAG) brought this suit in district court against defendant-appellant Allegheny Airlines, Inc. (Allegheny) after Allegheny dishonored Nader's reservation for one of its flights. Appellees alleged that as a consequence of Allegheny's actions, Nader was unable to appear at a fund-raising rally in behalf of CCAG, thereby causing the loss of $100,000 in contributions. Appellees claimed that the incident gave rise to a private damage remedy for unjust discrimination under section 404(b) of the Federal Aviation Act of 1958, 49 U.S.C. § 1374(b) (1970) and that Allegheny's failure to disclose the risk of being denied a seat constituted fraudulent misrepresentation. They sought compensatory damages for lost contributions, and for various out-of-pocket expenses, and punitive damages of $150,000. After a non-jury trial, the district judge entered judgments for Nader on the section 404(b) claim and for both appellees on the claim of fraudulent misrepresentation. He assessed compensatory damages at $10 for Nader and $51 for CCAG and also awarded $25,000 punitive damages to each appellee. Nader v. Allegheny Airlines, Inc., 365 F.Supp. 128 (D.D.C.1973). Allegheny appeals the decision of the district court both with respect to liability and damages. The Air Transport Association of America, on behalf of certain of its members, and the Civil Aeronautics Board (the Board) have submitted briefs as amicus curiae.

Parts I and II of this opinion discuss the facts that led to the suit and the pertinent regulatory background. In part III, we first conclude that the trial judge's holding that Nader can recover under section 404(b) of the Act must be reversed and remanded because his findings of fact appear tainted by erroneous legal conclusions. We next hold that the finding that Allegheny committed fraudulent misrepresentation must be reversed and the case stayed until the Board determines whether the airlines' reservation practices are deceptive. Lastly, we conclude even assuming arguendo that Allegheny committed fraudulent misrepresentation, CCAG is not within the class that can recover. In part IV, we hold that punitive damages may not be awarded for a section 404(b) violation based on the record in this case. We also hold that while punitive damages ultimately may be assessed against Allegheny for fraudulent misrepresentation, the trial judge must consider whether Allegheny was relying upon the belief that its actions carried the approval of the Board, and therefore was acting in good faith. as amicus curiae.

Early in April, 1972, Ralph Nader, a well-known consumer advocate, agreed to make several appearances on behalf of CCAG, a Connecticut public interest corporation. ¹ Nader's two principal appearances, designed to attract contributions and other support for CCAG, were scheduled for April 28, 1972-the first, a noontime rally in downtown Hartford, and the second at the Storrs campus of the University of Connecticut. ²

On April 25, Nader reserved a seat for April 28 on Allegheny Airlines flight April 28 on Allegheny Airlines flight 864, which was scheduled to leave Washington at 10:15 a.m. and to arrive in Hartford at 11:15 a.m. On the morning of April 28, Nader's ticket was purchased from a travel agency and he departed for National Airport. Arriving at 10:05 a.m., Nader immediately proceeded to gate 17, the boarding and check-in area. Although Nader arrived at gate 17 approximately five minutes before the scheduled departure of flight 864, Allegheny's agent informed him that the flight was full and he could not be accommodated. ³ Nader told the agent of his imminent speech in Hartford and of the importance of his getting on the plane. The agent replied that the plane was full and that he (the agent) could not do anything about it. Nader then asked the agent to see if any stand-by passengers had been boarded or if anybody already on board was willing to give up his seat. The agent again replied that he was sorry but the plane was full and he could not do anything about it. ⁴

Two other persons who had arrived ahead of Nader but after the plane was fully loaded were also denied boarding. ⁵ As was Allegheny's practice, the agent checked to determine the availability of suitable alternative transportation. He suggested the possibility of taking an Allegheny-sponsored air taxi to Philadelphia, where connections with an Allegheny flight scheduled to arrive in Hartford at 12:15 p.m. could be obtained. ⁶ While this alternative was acceptable to the two other passengers who had been denied boarding on flight 864, Nader rejected it. The connection was difficult to make as the air taxi was scheduled to arrive only ten minutes before departure of the Philadelphia-Hartford flight. If the connection were missed, Nader would not make his Storrs appearance as well as the one in Hartford. Moreover, Nader believed that in any event the 12:15 p.m. arrival might have been too late to salvage the Hartford rally. Therefore, he elected to fly to Boston, where he was met by a CCAG staff-member and driven to Storrs, arriving there at 2:30 p.m., approximately thirty minutes later than planned. ⁷

As a consequence of Nader's failure to obtain a seat on flight 864, Nader and CCAG filed this suit, claiming compensatory damages for extra travel expenses and phone calls, lost contributions caused by Nader's failure to speak at the Hartford rally, and substantial punitive damages. The trial judge awarded Nader and CCAG compensatory damages for their incidental expenses, ⁸ denied CCAG's claim for lost contributions as too speculative, ⁹ and awarded each appellee $25,000 in punitive damages. Nader v. Allegheny Airlines, Inc., supra. Allegheny has vigorously objected to the trial judge's findings as to liability and damages.

II. BACKGROUND

It is uncontroverted that Allegheny dishonored Nader's confirmed reservation because it had accepted more reservations for flight 864 than it had seats. This practice, in industry parlance, is known as overbooking. While sometimes inadvertent, the overwhelming majority of air carriers deliberately overbook certain flights. ¹⁰

Deliberate overbooking is a response to several problems that have plagued the industry. The present reservation system offers maximum flexibility to the public: Reservations may be cancelled and changed with impunity and passengers are not generally penalized for missing a flight even though the seat cannot be filled. ¹¹ As might be expected, this system results in a substantial reservation turnover before the flight departs. ¹² Moreover, the industry must absorb the lost revenues caused by the 'no-show' problem; some members of the air traveling public abuse the system by making single or multiple reservations that they never use and fail to cancel. ¹³ Other passengers who fully intend to use their reservations or intend to cancel are unable to do so through no fault of their own. ¹⁴ Lastly, empty seats may be carrier generated through computer or human error. ¹⁵ By studying a flight's history, air carriers are often able to predict with accuracy the reservation turnover and the number of no-shows. Through controlled overbooking based on statistical analysis of these historical studies, air carriers can reduce the chance that a fully-booked aircraft will depart with empty seats. Thus, the flexible reservation system functions with reasonable efficiency, passengers who would not otherwise be accommodated on the flight of their choice can make confirmed reservations, and carriers increase their load factor. ¹⁶

Nevertheless, the practice of deliberate overbooking is far from perfect. Inevitably, there are instances in which more persons holding confirmed reservations appear for a fight than are predicted, and somebody must be denied boarding, or more commonly 'bumped'. The airline industry refers to this as an oversale situation. Although in statistical terms the number of oversales is small-5.4 oversales per 10,000 enplanements in 1972, and only 4.6 in 1973, ¹⁷ absolute terms the number is substantial. Nearly 83,000 persons were bumped in 1972, and approximately 76,000 in 1973. ¹⁸ Obviously, inconvenience and hardship can and do occur when persons who expect to board a flight cannot do so.

The Civil Aeronautics Board has been cognizant of the no-show problem and of the benefits and detriments occasioned by the practice. Twice in the last twenty years, the Board has approved experiments that included penalties, service charges, ticketing time limits, and reconfirmation requirements. Although these policies reduced the incidence of noshows, they caused customer resentment and ill-will. Parts of the...