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No Miles for You! SCOTUS Reverses 9th Cir. in Air Miles Case

By Gabriella Khorasanee, JD on April 25, 2014 11:08 AM

Rabbi S. Binyomin Ginsberg enrolled in Northwest Airlines' frequent flyer program and attained "Platinum Elite" status, the highest level, in 2005. Three years later, Northwest revoked his membership in the frequent flyer program because, according to the airline, he'd abused the program.

Ginsberg sued Northwest in federal court alleging breach of contract, breach of duty of good faith and fair dealing, negligent misrepresentation, and intentional misrepresentation. The district court held that all of the claims, except for breach of contract, were pre-empted by the Airline Deregulation Act ("ADA"), and dismissed the breach of contract claim, without prejudice, for failure to state a claim.

9th Circuit's Analysis

Ginsberg only appealed the dismissal of his claim for breach of the implied covenant of good faith and fair dealing. The Ninth Circuit disagreed with the district court and noted that the remaining claim was "too tenuously connected to airline regulation to trigger preemption under the ADA."

SCOTUS Reverses 9th (Yet Again)

On appeal, the Court had to determine three things:

  1. Whether state common law claims could be preempted under the ADA;
  2. Whether an implied covenant claim "relates" to an airline's "rates, route or services"; and
  3. Whether the implied covenant is a state-imposed obligation or voluntary undertaking between the parties.

First, the Court found that the ADA pre-empts state common law claims by its very language: Justice Alito noted that common law rules "clearly" have "force and effect of law" as the statute requires.

Next, the Court found that the implied covenant claim does relate to "rates, route, or services" because the purpose of membership in the miles club was "to obtain reduced rates and enhanced services."

Finally, the Court found that under Minnesota law (the applicable law in this case), the implied covenant of good faith and fair dealing was imposed by the state, and as such was pre-empted by the ADA.

Ripple Effect

There are some interesting takeaways from this case. First, the Court hinted that Ginsberg pursued the wrong claim on appeal. Rather than appeal the ruling on the implied covenant, the Court hints he would have had more success on the breach of contract claim, which under Supreme Court precedent is not pre-empted by the ADA.

Next, the Court gave advice to airlines on how to avoid a state-by-state determination of whether the implied covenant was state-imposed or not. Justice Alito noted that only the law of the state that covered the airlines' agreements was at issue, and if the implied covenant was not state-imposed, the airlines "can specify that the agreement does not incorporate the covenant."

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