California Federal Court Dismisses COVID-19 Refund Class Action Against Air Carrier

As a result of the ongoing COVID-19 pandemic and ensuing government-mandated travel restrictions, air carriers worldwide have been forced to cancel flights over the past six months.  As a result of these cancellations, foreign and domestic air carriers alike have been faced with overwhelming backlogs of refunds to process, as well as an onslaught of putative class action lawsuits filed throughout the U.S. by passengers challenging the delays in the processing of these refunds.

The first decision to arise from this recent wave of litigation was handed down by a federal court in the Central District of California (Los Angeles), which on September 17, 2020 dismissed breach of contract claims brought on behalf of a nationwide class of customers who purchased tickets from Norwegian Air Shuttle ASA (“Norwegian”) for flights that were eventually cancelled due to the pandemic.1

In its motion to dismiss, Norwegian argued that (i) although the named plaintiff’s flight was cancelled, she in fact received a refund in April 2020, and (ii) the plaintiff failed to adequately allege a breach of contract claim because, while Norwegian’s General Conditions of Carriage (“GCC”) did entitle her to a refund for her cancelled flight, the GCC did not specify the time frame by which such refund must be issued.

In response to the motion to dismiss, the named plaintiff argued that the GCC incorporated comments from the U.S. Department of Transportation (“DOT”) regarding timeliness of refunds (specifically guidance issued by the DOT in April 2020 stating that airlines should issue refunds for cancelled flights within 7 days of a cancellation) by way of a general provision stating that Norwegian “[complies] with all applicable laws . . . and regulations.”

In his Order granting dismissal, Judge Jesus G. Bernal rejected plaintiff’s argument and noted that “[m]ultiple federal courts,” including courts in the First and Fifth Circuits, “have addressed whether . . . language in airfare contracts incorporates federal regulations,” and “nearly all have answered the question in the negative.” Thus, the Court “agree[d] with the vast majority of its sister courts” in holding that “boilerplate contractual language guaranteeing compliance with international or domestic aviation laws does not incorporate extraneous law into the terms of an airfare contract.”

Notably, Judge Bernal reasoned that airlines were unlikely to have intended to grant all customers a private right of action to enforce “all applicable laws . . . and regulations,” and given that “it is difficult to fathom why airlines . . . would intend to casually expose themselves to potentially crippling liability[,] the most rational explanation countenances that they lacked any such intent at all.”

The plaintiff also advanced the theory that Norwegian breached its statutory duty to issue refunds within a “reasonable” period of time. The Court determined that, although California law does require contractual duties (such as the duty to issue a refund) to be performed within “a reasonable time,” the plaintiff could not rely on California law to hold Norwegian liable, due to the preemptive effect of the Airline Deregulation Act (“ADA”).

The ADA prohibits states from imposing rules regarding the fares, routes, or services of airlines, and as the Court recognized, it is well-settled that “to plausibly allege a breach of contract claim relating to an airline fare, the alleged contract must not be enlarged or enhanced based on state laws or policies external to the agreement.” Since requiring Norwegian to issue a refund within the time frame mandated under California law would “clearly . . . enlarge or enhance” the airline’s contract of carriage (which did not require Norwegian to process refunds within any particular period of time), plaintiff’s statutory argument was necessarily rejected.2

In light of the many similar putative class actions brought by airline customers seeking refunds for COVID-19-related cancellations, numerous airlines have filed motions to dismiss on grounds similar to those asserted by Norwegian.3 In particular, incorporation of DOT regulations into airline contracts and the preemptive effect of the ADA have been extensively briefed in related cases pending in various U.S. federal district courts. As such, Judge Bernal’s decision applying well-established principles of contract interpretation and federal preemption in the context of air carrier liability provides meaningful guidance to parties currently engaged in such litigation.

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1 Daversa-Evdyriadis v. Norwegian Air Shuttle ASA, No. 5:20 Civ. 00767 (C.D. Cal. Sept. 17, 2020).

2 Though the plaintiff requested leave to amend her complaint in order to add a claim seeking rescission of her contract with Norwegian, Judge Bernal rejected this request, simply stating that such claim for rescission would also be preempted by the ADA. Plaintiffs in other refund class action cases pending in the U.S. have similarly asserted rescission claims, among other claims.

3 See, e.g., Bombin, et al. v. Southwest Airlines, No. 5:20 Civ. 01883 (E. D. Pa. Aug. 3, 2020); Castanares et al. v. Deutsche Lufthansa AG, No. 2:20 Civ. 04261 (C.D. Cal. July 31, 2020); Ide et al. v. British Airways, No. 1:20 Civ. 03542 (S.D.N.Y. July 24, 2020).