United Airlines v. Mesa Airlines

• Decision Date: 05 July 2000
• Docket Number: No. 00-1110,00-1110
• Citation: 219 F.3d 605
• Parties: (7th Cir. 2000) United Airlines, Inc., Plaintiff, Counterdefendant-Appellee, v. Mesa Airlines, Inc., and WestAir Commuter Airlines, Inc., Defendants, Counterplaintiffs-Appellants, v. SkyWest Airlines, Inc., Third-Party Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 605

219 F.3d 605 (7th Cir. 2000)

United Airlines, Inc., Plaintiff, Counterdefendant-Appellee, v. Mesa Airlines, Inc., and WestAir Commuter Airlines, Inc., Defendants, Counterplaintiffs-Appellants, v. SkyWest Airlines, Inc., Third-Party Defendant-Appellee.

No. 00-1110

In the United States Court of Appeals For the Seventh Circuit

Argued May 10, 2000

Decided July 5, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 C 4455--Elaine E. Bucklo, Judge.

Before Easterbrook, Ripple, and Rovner, Circuit Judges.

Easterbrook, Circuit Judge.

Like other major air carriers, United has entered into code-sharing agreements with regional airlines, which fly smaller planes for shorter distances to less- populated destinations. The major carrier permits the commuter carrier to use its service marks and logos for flights to and from its hub airports, and it lists the connecting flights in its computer reservation system under its name, carrier code, and flight numbers, such as "UA 2345" (hence the term "code-share," see 14 C.F.R. sec.257(c)). The commuter carrier also receives part of the revenue from through traffic that uses both carriers' facilities. In exchange, the commuter carrier is subject to substantial direction: it tailors its schedules so that they mesh with the major carrier's arrivals and departures at the hub, provides planes appropriate to the traffic generated by the major carrier, and agrees to accept revenue that the major carrier controls. (Contracts set the percentage of through rates that the commuter carrier receives, but the major carrier sets the total fares, and thus determines the commuter carriers' revenues.) Major carriers could use their discretion to make commuter carriers' operations unprofitable, but that would hurt the majors' business by drying up local service and driving passengers to other carriers that provide better connecting flights. Market forces thus constrain the exercise of contractual powers.

Mesa Airlines and WestAir Commuter Airlines, two regional airlines that had code-share arrangements with United, believe that courts as well as markets should constrain the major carriers' conduct. Mesa conducted regional operations to and from Denver, and WestAir to and from Los Angeles, San Francisco, Portland, and Seattle. Mesa acquired WestAir as a subsidiary in 1992. In 1995 United extended Mesa's contractual term for ten years and to additional cities; at the same time, Mesa purchased a number of planes from United. Mesa believes that by paying (in its view, overpaying) for these aircraft it acquired rights beyond those of other commuter carriers; it contends that United became its "partner" rather than simply the opposite party to an arms'-length contract. Relations soured in June 1997 when United replaced WestAir with SkyWest Airlines on eight routes out of Los Angeles. After WestAir protested, United filed this suit under the diversity jurisdiction seeking a declaratory judgment that the WestAir-United contract permitted United to make these changes. WestAir abandoned its remaining commuter routes in May 1998. Meanwhile Mesa and United reached impasse on financial arrangements at Denver. Mesa contended that United was keeping for itself too much of the revenues on through routes and charging excessively for space and baggage- handling services at Denver International Airport, which opened early in 1995. Mesa contends that it began to incur losses of $1 million per month, to which it responded by eliminating service to some local markets. United insisted that Mesa serve all regional markets to which it had exclusive rights under the extended agreement; after Mesa refused, United terminated the agreement in January 1998 and amended its suit by seeking a declaratory judgment that this step, too, was proper, and damages for Mesa's breach.

Mesa and WestAir filed counterclaims against United and added SkyWest as a third-party defendant. They seek damages on four theories. First, Mesa and WestAir contend that United broke its contracts; these claims are mirror images of United's. Second, Mesa and WestAir contend that SkyWest is liable for tortiously interfering with the contract between United and WestAir at Los Angeles. They contend that SkyWest inveigled United to switch regional carriers by offering two gates at Los Angeles International Airport-- gates that United coveted, an offer that WestAir could not match. Third, Mesa and WestAir allege that United violated the fiduciary duties that it owed them as their partner. Fourth, Mesa contends that United fraudulently induced it to purchase the airplanes and enter into the extension. Claims 2, 3, and 4 seek punitive as well as compensatory damages. United and SkyWest prevailed on the pleadings after the district court concluded that these three claims are preempted by sec.105(a)(1) of the Airline Deregulation Act of 1978. As recodified in 1994, this statute reads:

Except as provided in this subsection, 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.

49 U.S.C. sec.41713(b)(1). State common law counts as an "other provision having the force and effect of law" for purposes of this statute. See American Airlines, Inc. v. Wolens, 513 U.S. 219, 233 n.8 (1995); Morales v. Trans World Airlines, Inc., 504 U.S. 374, 388 (1992). See also Medtronic, Inc. v. Lohr, 518 U.S. 470, 502- 03 (1996) (plurality opinion), id. at 503-05, 116 S.Ct. 2240 (Breyer, J., concurring), id., at 509-12, 116 S.Ct. 2240 (O'Connor, J., concurring in part and dissenting in part) (characterizing tort remedies as regulatory provisions for purposes of preemption clauses in another statute). A broad clause saving common-law remedies might overcome the understanding that judgments in tort suits should be treated like state laws and regulations to the extent they have the same practical effect as laws and regulations, see Geier v. American Honda Motor Co., 120 S. Ct. 1913, 1918 (2000); cf. Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 249- 56 (1984); but the savings clause in the Airline Deregulation Act says only that "[a] remedy under this part is in addition to any other remedies provided by law." 49 U.S.C. sec.40120(c). This does not carve any domain from the scope of sec.105(a)(1). The district court concluded that all three tort claims relate to an air carrier's routes--they concern which carriers fly to which destinations from which airports, and which carriers provide service (and at what rates) on through or joint routes--and therefore are preempted. See Travel All Over the World, Inc. v. Saudi Arabia, 73 F.3d 1423, 1430-35 (7th Cir. 1996). The district judge certified the order for interlocutory appeal under 28 U.S.C. sec.1292(b). We agreed to hear the appeal; proceedings on both sides' contract claims (which under Wolens are not preempted) have stalled pending its resolution.

One line of argument might have been that although the claims at issue may be "related to a . . . route . . . of an air carrier" in interstate commerce, Mesa and WestAir do not rely on any "law, regulation, or other provision having the force and effect of law related to a . . . route . . . of an air carrier" (emphasis added). Section 105(a)(1) might have been read to limit preemption to a law, regulation, or common- law doctrine directed to the air transportation industry, as in Morales, which held that sec.105(a)(1) precludes efforts by state attorneys general to promulgate a special code of conduct for advertisements by air carriers. On this understanding, laws of general applicability would not be preempted just because the subject of a particular case was air transportation. Tort law is not industry-specific; Mesa and WestAir want to use the same principles that apply to disputes about computer software, see J.D. Edwards & Co. v. Podany, 168 F.3d 1020 (7th Cir. 1999) (Illinois law), and employment, see Farr v. Gruber, 950 F.2d 399 (7th Cir. 1991) (Wisconsin law). Wolens read sec.105(a)(1) more broadly, however. Participants in a carrier's frequent flyer program filed suit when the carrier changed the program's rules. One claim arose under a state's consumer fraud act, a statute of general applicability. Nonetheless, the Court held, sec.105(a)(1) preempts application of that law to frequent flyer programs, which affect rates because they are discounts. 513 U.S. at 226-28.

Because Wolens held general consumer-fraud law preempted, Mesa and WestAir have a big problem. One solution, as they see it, lies in recent decisions under ERISA, which preempts state laws that "relate to" its subject. Both Morales and Wolens relied on doctrine developed under ERISA, and at the time the Court's opinions tended to read the ERISA language broadly. E.g., Morales, 504 U.S. at 383-84, relying on Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983). Times have changed for pension and welfare plans. More recent decisions hold that state laws of general applicability are not preempted just because they have economic effects on pension or welfare plans. See, e.g., New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645 (1995); California Division of Labor Standards Enforcement v. Dillingham Construction, N.A., Inc., 519 U.S. 316 (1997); De Buono v. NYSA-ILA Medical and Clinical Services Fund, 520 U.S. 806 (1997). Mesa and WestAir ask us to follow this approach and curtail the preemptive effect of sec.105(a)(1) accordingly. But if developments in pension law have undercut holdings in air-transportation law, it is for the Supreme Court itself to make the adjustment. Our marching orders are clear: follow decisions until the Supreme Court overrules them....