On April 2, 2014, the U.S. Supreme Court issued a ruling which clarified the nature of claims that are preempted by the Airline Deregulation Act (“ADA”).1 In Northwest v. Ginsberg, a unanimous Supreme Court held that a plaintiff’s claims arising from an air carrier’s revoking of a passenger’s membership in the carrier’s frequent flyer program were preempted by the ADA, which prohibits states from enacting or enforcing a law, regulation or other provision that relates to a “price, route or service of an air carrier.”2 The decision is important because it reinforces the preemptive reach of the ADA with respect to claims arising from state-imposed obligations that affect an airline’s rates, routes and services.
Plaintiff had been a member of an air carrier’s frequent flyer program that enabled members to earn “miles” by traveling on flights with the carrier and its partners and redeem those miles for tickets and service upgrades on future transportation. The carrier terminated plaintiff’s membership in the program for his purported abuse of the program. Plaintiff filed a putative class action against the carrier for breach of contract and for breach of the implied covenant of good faith and fair dealing. The District Court held that plaintiff’s claim for breach of the implied covenant was “related to” the carrier’s rates and services and, therefore, preempted by the ADA.3 The Ninth Circuit Court of Appeals reversed, holding that a claim for breach of the implied covenant is “too tenuously connected to airline regulation to trigger preemption under the ADA.”4
The Supreme Court reversed the decision of the Ninth Circuit, holding that plaintiff’s claim was preempted by the ADA. First, the Court held that ADA preemption applies not only to codified legislation and regulations, but also to common law, because the ADA applies to state “provisions having the force and effect of law.” Because rules that are based in common law have such a force and effect, they are encompassed by the ADA. The Court further reasoned that permitting common law claims that are within the scope of the ADA would undermine the central purpose of the ADA, which is to preempt state laws that affect rates, routes or services in air transportation. That the state law takes the form of an unwritten common law does not render it any less intrusive on a federally regulated industry.
The plaintiff had also argued that his claim related only to membership in a frequent flyer program, and thus was not related to a carrier’s rates, routes or services. The Court disagreed, reasoning that membership in the program was inextricably linked with the benefits of the program, including receipt of mileage credits that could be redeemed for tickets and upgrades, which affects the amount the plaintiff pays for air transportation and the services that are provided during air transportation.
Finally, the Court addressed the issue of whether plaintiff’s claim was based upon a state-imposed obligation or a voluntary undertaking by the parties. As discussed above, state-imposed obligations trigger ADA preemption; however, the ADA does not preempt breach of contract claims because “‘terms and conditions airlines offer and passengers accept are privately ordered obligations,’ not ‘a State’s enactment or enforcement of any law, rule, regulation, standard or other provision having the force and effect of law within the preemption provision’s meaning.’”5
The plaintiff had argued that these claims are contractual in nature and, thus, are not preempted, while the carrier encouraged the Court to hold that claims for breach of the implied covenant are always preempted by the ADA. The Court concluded that the answer depends on whether the governing state law permits parties to do what is known as “contracting out of the covenant.” Some states permit parties to a contract to waive their obligations of good faith and fair dealing, while other states do not. Where states do not permit parties to contract out of the covenant, the obligation to act in accordance with good faith and fair dealing is “state-imposed,” thereby triggering ADA preemption.
In this case, Minnesota law applied to plaintiff’s claims, and Minnesota law prohibits parties from waiving the covenant of good faith and fair dealing. Accordingly, the implied covenant of good faith and fair dealing is a state-imposed obligation and, therefore, was preempted by the ADA.
In holding that plaintiff’s common law claim was preempted by the ADA, this decision by the Supreme Court advances and strengthens the goals of the ADA. It reaffirms that states cannot “undo federal deregulation with regulation of their own.”
1 Northwest, Inc. v. Ginsberg, 572 U.S. ___ (2014) (April 2, 2014).
2 49 U.S.C. § 41713(b)(1) (1978).
3 Ginsberg v. Northwest, Inc., No. 09-CV-28, 2009 WL 9523877 (S.D. Cal. 2009).
4 Ginsberg v. Northwest, Inc., 695 F.3d 873 (9th Cir. 2012).
5 572 U.S. ___ (2014) (quoting American Airlines, Inc. v. Wolens, 513 U.S. 219, 228-229 (1995))