Nw., Inc. v. Ginsberg

• Decision Date: 02 April 2014
• Docket Number: No. 12–462.,12–462.
• Parties: NORTHWEST, INC., et al., Petitioners v. Rabbi S. Binyomin GINSBERG.
• Court: U.S. Supreme Court

134 S.Ct. 1422
188 L.Ed.2d 538
82 USLW 4244

NORTHWEST, INC., et al., Petitioners
v.
Rabbi S. Binyomin GINSBERG.

No. 12–462.

Supreme Court of the United States

Argued Dec. 3, 2013.
Decided April 2, 2014.

[134 S.Ct. 1424]

Syllabus ^*

Petitioner Northwest, Inc., terminated respondent's membership in its frequent flyer program, apparently based on a provision in the frequent flyer agreement that gave Northwest sole discretion to determine whether a participant had abused the program. Respondent filed suit, asserting, as relevant here, that Northwest had breached its contract by revoking his membership status without valid cause and had violated the duty of good faith and fair dealing because it terminated his membership in a way that contravened his reasonable expectations. The District Court found that the Airline Deregulation Act of 1978(ADA) pre-empted the breach of the duty of good faith and fair dealing claim and dismissed the breach of contract claim without prejudice. Respondent appealed only the dismissal of his breach of the duty of good faith and fair dealing claim. The Ninth Circuit reversed, finding that claim “ ‘too tenuously connected to airline regulation to trigger’ ” ADA pre-emption.

Held:

1. The ADA pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing if it seeks to enlarge the contractual obligations that the parties voluntarily adopt. Pp. 1427 – 1431.

(a) Before the ADA was enacted, air carriers' routes, rates, and services were regulated under the Federal Aviation Act of 1958. And because that Act contained a saving provision preserving pre-existing statutory and common-law remedies, air carriers were also regulated by the States. The ADA did not repeal that saving provision, but it did include a pre-emption provision to prohibit States from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to [an air carrier's] price, route, or service,” 49 U.S.C. § 41713(b)(1), thus ensuring that “States would not 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. In Morales, the Court recognized that the key phrase “related to” expresses a “broad pre-emptive purpose,” id., at 383, 112 S.Ct. 2031, and held that the ADA pre-empted the use of state consumer protection laws to regulate airline advertising, concluding that “relat[es] to” means “ha [s] a connection with, or reference to, airline ‘rates, routes, or services,’ ” id., at 384, 112 S.Ct. 2031. And in American Airlines, Inc. v. Wolens, 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715, the Court found that the ADA pre-empted the use of an Illinois consumer law to challenge an airline's devaluation of frequent flyer earned miles. But it did not pre-empt breach of contract claims because “terms and conditions airlines offer and passengers accept are privately ordered obligations” not “ ‘a State's “enact [ment] or enforce[ment] [of] any law, rule, regulation, standard, or other provision having the force and effect of law” within the [pre-emption provision's] meaning.’ ” Id., at 228–229, 115 S.Ct. 817. Pp. 1427 – 1429.

(b) The phrase “other provision having the force and effect of law” includes state common-law rules like the implied covenant at issue. Common-law rules are routinely called “provisions,” see, e.g.,

[134 S.Ct. 1425]

Madsen v. Women's Health Center, Inc., 512 U.S. 753, 765, n. 3, 114 S.Ct. 2516, 129 L.Ed.2d 593, and they clearly have “the force and effect of law.” The pre-emption provision's original language confirms this understanding. As first enacted, the provision also applied to “rule[s]” and “standard[s],” a formulation encompassing common-law rules. See CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664, 113 S.Ct. 1732, 123 L.Ed.2d 387. And Congress made clear that the deletion of those terms as part of Title 49's wholesale recodification effected no “substantive change.” § 1(a), 108 Stat. 745.

Respondent's reliance on Sprietsma v. Mercury Marine, 537 U.S. 51, 123 S.Ct. 518, 154 L.Ed.2d 466, is misplaced. There, the Court held that the Federal Boat Safety Act of 1971 did not pre-empt a common-law tort claim, but that Act's pre-emption provision is more narrowly worded than the ADA provision. The Boat Safety Act's saving and pre-emption provisions were also enacted at the same time, while the Federal Aviation Act's general remedies saving clause is “a relic of the pre-ADA/no pre-emption regime,” Morales, 504 U.S., at 385, 112 S.Ct. 2031, that “cannot be allowed to supersede the specific substantive pre-emption provision,” ibid.

Exempting common-law claims would also disserve the ADA's central purpose, which was to eliminate federal regulation of rates, routes, and services so they could be set by market forces. Finally, if all state common-law rules fell outside the pre-emption provision's ambit, Wolens would not have singled out a subcategory, for common-law claims based on the parties' voluntary undertaking, as falling outside that provision's coverage. Pp. 1429 – 1431.

(c) Respondent's claim “relates to” “rates, routes, or services.” It clearly has “a connection with or reference to airline” prices, routes, or services, Morales, 504 U.S., at 384, 112 S.Ct. 2031. As in Wolens, Northwest's program connects to the airline's “rates” by awarding mileage credits redeemable for tickets and upgrades, thus eliminating or reducing ticket prices. It also connects to “services,” i.e., access to flights and higher service categories. Respondent's counterarguments are unpersuasive. His claim that he is contesting his termination, not access to flights or upgrades, ignores his reason for seeking reinstatement: to obtain reduced rates and enhanced services. Although respondent and amici claim there have been fundamental changes in the way that frequent flyer miles are earned since Wolens was decided, that does not matter here where respondent did not assert that he earned miles from any activity but taking flights or that he attempted to redeem miles for anything but tickets and upgrades. Pp. 1425 – 1431.

2. Because respondent's implied covenant claim seeks to enlarge his contractual agreement with petitioners, it is pre-empted by § 41713(b)(1). Under Minnesota law, which controls here, the implied covenant must be regarded as a state-imposed obligation. Minnesota law does not permit parties to contract out of the covenant. And when a State's law does not authorize parties to free themselves from the covenant, a breach of covenant claim is pre-empted under Wolens. As an independent basis for this conclusion, if, as Minnesota law provides, the implied covenant applies to “every contract” except employment contracts for “policy reasons,” then the decision not to exempt other types of contracts must likewise be based on a policy determination, namely, that the policy reason for the employment contract rule does not apply in other contexts.

Petitioners claim that the refusal to pre-empt all implied covenant claims, regardless

[134 S.Ct. 1426]

of state law, will lead to a patchwork of rules that will frustrate the ADA's deregulatory aim. But airlines can avoid such a result if they contract out of covenants where permitted by state law. Nor are participants in frequent flyer programs left without protection. They can avoid an airline with a poor reputation and possibly enroll in a more favorable rival program. Moreover, the Department of Transportation has the authority to investigate complaints about frequent flyer programs. Finally, respondent might have been able to vindicate his claim of ill treatment by Northwest had he appealed his breach of contract claim. Pp. 1431 – 1433.

695 F.3d 873, reversed and remanded.

ALITO, J., delivered the opinion for a unanimous Court.

Paul D. Clement, Washington, DC, for Petitioners.

Lewis S. Yelin, Washington, DC, for the United States as amicus curiae, by special leave of the Court, supporting the Petitioners.

Adina H. Rosenbaum, Washington, DC, for Respondent.

Paul D. Clement, Counsel of Record, George W. Hicks, Jr., Bancroft PLLC, Washington, DC, for Petitioners.

Adina H. Rosenbaum, Counsel of Record, Michael T. Kirkpatrick, Public Citizen Litigation Group, Washington, DC, for Respondent.

Justice ALITO delivered the opinion of the Court.

We must decide in this case whether the Airline Deregulation Act pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing. Following our interpretation of the Act in American Airlines, Inc. v. Wolens, 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995), we hold that such a claim is pre-empted if it seeks to enlarge the contractual obligations that the parties voluntarily adopt. And because the doctrine is invoked in the present case in an attempt to expand those obligations, we reverse the judgment of the Court of Appeals.

I A

Like many airlines, petitioner Northwest, Inc. (Northwest), established a frequent flyer program, its WorldPerks Airline Partners Program, to attract loyal customers. Under this program, members are able to earn “miles” by taking flights operated by Northwest and other “partner” airlines. Members can then redeem these miles for tickets and service upgrades with Northwest or its airline partners.

Respondent became a member of Northwest's WorldPerks program in 1999, and as a result of extensive travel on Northwest flights, he achieved “Platinum Elite” status (the highest level available) in 2005.

In 2008, however, Northwest terminated respondent's membership, apparently in reliance on a provision of the WorldPerks agreement that provided that “[a]buse of the ... program (including ... improper conduct as determined by [Northwest] in its sole judgment[ ) ] ... may result in cancellation of the member's account.” App. 64–65. According to respondent, a Northwest representative telephoned him

[134 S.Ct. 1427]

in June 2008 and informed him that...