Swiftair, LLC v. Sw. Airlines Co.

• Decision Date: 11 March 2022
• Docket Number: B303314
• Citation: 77 Cal.App.5th 46,291 Cal.Rptr.3d 895
• Parties: SWIFTAIR, LLC, Plaintiff and Appellant, v. SOUTHWEST AIRLINES CO., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

77 Cal.App.5th 46

291 Cal.Rptr.3d 895

SWIFTAIR, LLC, Plaintiff and Appellant,

v.SOUTHWEST AIRLINES CO., Defendant and Respondent.

B303314

Court of Appeal, Second District, Division 7, California.

Filed March 11, 2022

As Modified April 5, 2022

Holmgren Johnson: Mitchell Madden and Dennis M. Holmgren ; Shamoun & Norman and Stephen R. Tittle, Jr. for Plaintiff and Appellant.

Baker & Hostetler and Teresa C. Chow, Los Angeles; Hawxhurst Harris, David S. Harris, Mill Valley, Gerald E. Hawxhurst, and Patrick B. Nichols, Los Angeles; Douglas D. D'Arche for Defendant and Respondent.

SEGAL, J.

INTRODUCTION

SwiftAir, LLC and Southwest Airlines Co. agreed that SwiftAir would develop a software platform offering certain inflight deals to Southwest passengers and that Southwest would test the software to determine whether to license it. After Southwest ultimately decided not to license the software, SwiftAir filed this action against Southwest for breach of contract, fraud, and other causes of action. The trial court granted Southwest's motion for summary adjudication on SwiftAir's non-contract causes of action on the ground they were preempted by the federal Airline Deregulation Act ( 49 U.S.C. § 41713(b)(1) ) (ADA). A jury then determined Southwest was not liable for breach of contract, finding SwiftAir failed to prove it was harmed by Southwest's failure to comply with the parties’ agreement.

On appeal SwiftAir contends the trial court erred in granting Southwest's motion for summary adjudication because the ADA did not preempt any of its causes of action. SwiftAir also contends the court erred in denying motions for judgment notwithstanding the verdict and for a new trial in which SwiftAir argued the jury was required to award reliance damages on SwiftAir's breach of contract cause of action. Agreeing with the vast majority of federal cases that have addressed the preemption issue, and with Texas law that (like California law) requires causation to recover reliance damages, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. SwiftAir Develops a Software Platform That Southwest Decides Not To License

In 2010 SwiftAir was beginning to develop a software platform that would allow airplane passengers to purchase, while in flight, coupons and vouchers the passengers could use at restaurants and other local merchants in their destination cities. Later that year Southwest expressed an interest in evaluating the software platform for use on its flights.

In August 2011 SwiftAir and Southwest entered into a "Beta Test Agreement" in which Southwest agreed to evaluate the software platform by testing it for eight weeks on some of Southwest's WiFi-enabled aircraft, to report to SwiftAir during the testing period on the software's performance, and to notify SwiftAir within 30 days after the testing period whether Southwest intended to use the software "on an extended basis." The agreement also provided that, in the event Southwest "elect[ed] to continue use" of the software platform, Southwest and SwiftAir would "enter into good faith discussions prior to the termination of the Initial Term [of testing] to negotiate a full license agreement." The parties later amended the Beta Test Agreement to extend the period of testing to 24 weeks, from September 15, 2011 through March 28, 2012. Installing the software platform on Southwest's planes also required SwiftAir to enter into an agreement with the company that operated Southwest's inflight WiFi service, Row 44, Inc.

At the end of the testing period, Southwest had not decided whether to license SwiftAir's software platform, but for a time Southwest continued "to work toward some arrangement whereby the SwiftAir product would be refined and deployed ultimately to Southwest planes." In the end, however, Southwest decided not to license SwiftAir's software platform.

B. SwiftAir Files This Action

In August 2014 SwiftAir filed this action against Southwest and Row 44.¹ In the operative first amended complaint SwiftAir asserted causes of action against Southwest for: (1) breach of contract and the covenant of good faith and fair dealing, (2) quantum meruit, (3) quantum valebant,² (4) restitution/unjust enrichment, (5) unfair competition, (6) misappropriation of trade secrets, (7) interference with prospective economic advantage, (8) breach of fiduciary duty, (9) fraudulent concealment, (10) promissory fraud, (11) intentional interference with contractual relations, and (12) conspiracy.

Southwest filed a motion for summary judgment or, in the alternative, summary adjudication, arguing, among other things, that "almost all of" SwiftAir's causes of action were preempted by the ADA. The trial court agreed the ADA preempted all of SwiftAir's causes of action except for the first—for breach of contract (which included a claim for breach of the covenant of good faith and fair dealing)—and the court granted Southwest's motion for summary adjudication on all causes of action but that one. On a motion by Southwest for reconsideration, the court granted summary adjudication on the portion of the first cause of action that alleged breach of the covenant of good faith and fair dealing.

The parties tried SwiftAir's remaining cause of action to a jury. As relevant to this appeal, that cause of action rested on SwiftAir's allegation Southwest breached the Beta Test Agreement by not entering into good-faith discussions to negotiate a full licensing agreement and by not timely removing SwiftAir's software platform from Southwest's planes after the testing period. The jury found that Southwest failed to comply with the Beta Test Agreement (in an unspecified manner), but that Southwest's failure to do so did not harm SwiftAir. Consequently, the jury did not award SwiftAir any damages.

SwiftAir filed motions for judgment notwithstanding the verdict and for a new trial, contending the jury, having found Southwest breached the Beta Test Agreement, should have awarded SwiftAir "at least $878,000 in damages for the monies SwiftAir spen[t] developing" the software platform. The trial court denied the motions. SwiftAir timely appealed from the judgment. (See Cal. Rules of Court, rule 8.108(b).)

DISCUSSION

A. The Trial Court Did Not Err in Granting Southwest's Motion for Summary Adjudication Based on ADA Preemption

SwiftAir contends the trial court erred in granting Southwest's motion for summary adjudication on SwiftAir's non-contract causes of action. SwiftAir argues that, in ruling the ADA preempted those causes of action, the court misinterpreted the ADA's preemption provision.

"We review a ruling on a motion for summary adjudication de novo [citations] and ‘decide independently whether the facts not subject to triable dispute warrant judgment for the moving party as a matter of law.’ " ( Doe v. Lawndale Elementary School Dist. (2021) 72 Cal.App.5th 113, 124, 287 Cal.Rptr.3d 154.) We also review questions of law, including statutory interpretation, de novo. ( Lozano v. City of Los Angeles (2022) 73 Cal.App.5th 711, 723, 288 Cal.Rptr.3d 674.)

1. ADA Preemption

In 1978 "Congress enacted the ADA, which sought to promote ‘efficiency, innovation, and low prices’ in the airline industry through ‘maximum reliance on competitive market forces and on actual and potential competition.’ " ( Northwest, Inc. v. Ginsberg (2014) 572 U.S. 273, 280, 134 S.Ct. 1422, 188 L.Ed.2d 538 ( Ginsberg ); see 49 U.S.C. § 40101(a)(6), (12)(A).) The ADA "included a pre-emption provision in order to ‘ensure that the States would not undo federal deregulation with regulation of their own.’ [Citation.] In its current form, this provision states that ‘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.’ " ( Ginsberg , at p. 280, 134 S.Ct. 1422 ; see 49 U.S.C. § 41713(b)(1).)

Interpreting the ADA's preemption provision in Morales v. Trans World Airlines, Inc. (1992) 504 U.S. 374, 112 S.Ct. 2031, 119 L.Ed.2d 157 ( Morales ),³ the United States Supreme Court held preemption applied to any state enforcement action "having a connection with, or reference to, airline ‘rates, routes, or services.’ " ( Id. at p. 384, 112 S.Ct. 2031 ; see id. at pp. 383, 391, 112 S.Ct. 2031 [ADA precludes states from using their consumer protection laws to enforce guidelines on fare advertising]; see also Ginsberg , supra , 572 U.S. at p. 284, 134 S.Ct. 1422 [under Morales a claim "relates to" an air carrier's prices, routes, or services "if it has ‘a connection with, or reference to’ " them].) The Supreme Court observed that the phrase "relating to" in the ADA preemption provision expressed "a broad pre-emptive purpose." ( Morales , at p. 383, 112 S.Ct. 2031.) The Supreme Court acknowledged, however, that some state actions, such as "state laws against gambling and prostitution as applied to airlines," " ‘may affect [airline fares] in too tenuous, remote, or peripheral a manner’ to have pre-emptive effect." ( Id. at p. 390, 112 S.Ct. 2031.)

The Supreme Court further interpreted the scope of ADA preemption in American Airlines, Inc. v. Wolens (1995) 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715 ( Wolens ). There, the plaintiffs alleged in an Illinois state court action that changes to an airline's frequent flyer program violated state consumer protection laws and constituted breach of contract. ( Id. at pp. 224-225, 115 S.Ct. 817.) The Illinois Supreme Court concluded that the ADA did not preempt the state laws because the frequent flyer program was "not ‘essential,’ [citation] but merely ‘peripheral to the operation of an airline,’ " and that therefore the plaintiffs’ claims related to the airline's rates, routes, or services "only ‘tangentially’ or ‘tenuously.’ " ( Wolens , at p. 226, 115 S.Ct. 817.) The United States Supreme Court, observing that Morales ,...