Attorneys say decision does little to clarify confusing jurisprudence
By Kimberly Atkins
The Daily Record Newswire
WASHINGTON, DC — A recent U.S. Supreme Court ruling that a common law claim was preempted by federal airline law was bad news for a disgruntled frequent flier who tried to sue Northwest Airlines for revoking his reward program privileges.
But the ruling in Northwest Inc. v. Ginsberg, No. 12-642, could lead to an uptick in litigation as lower courts try to figure out just how far the doctrine of federal preemption extends.
In its unanimous ruling, the court held that claims against airlines alleging breach of the implied covenant of good faith and fair dealing are preempted by the federal Airline Deregulation Act if they are based on a state law that “seeks to enlarge the contractual obligations that the parties voluntarily adopt.”
The decision will likely spur an immediate state-by-state and contract-by-contract flurry of litigation.
But some attorneys say that one key paragraph of the court’s opinion represents a possible expansion of the types of cases that fall outside the federal law’s preemptive reach, allowing some common-law claims to proceed despite the Act’s preemptive language.
While the court had previously ruled that breach of contract claims were not preempted, the rule was less clear with respect to common law claims. But “in Northwest, the Supreme Court appears to [identify] types of common-law claims that will not be preempted,” said Shannon Liss-Riordan, a partner in the Boston firm of Lichten & Liss-Riordan PC.
Still, attorneys say the ruling does little to clarify the court’s confusing jurisprudence on the issue of preemption. In recent years, the justices have come down on both sides of the issue, and distinctions between the holdings are not always crystal clear.
“It’s confusing trying to figure out the rationale sometimes as to how certain claims are preempted and others are not,” said John O’Neal, a solo practitioner in Greensboro, N.C., who represents plaintiffs in consumer protection and other areas of litigation.
When does claim ‘interfere’ with federal law?
The case was brought by S. Binyomin Ginsberg, a Minnesota rabbi who racked up so many frequent flier miles traveling to lectures across the globe that he quickly reached the top-tier status level of Northwest’s WorldPerks program.
A few years later, the airline revoked Ginsberg’s WorldPerks membership. Ginsberg claims he was told in phone conversations with airline officials that the revocation was based on his abuse of the program — specifically for booking reservations on full flights in hopes of getting “bumped” and receiving compensation, and for making repeated complaints to customer care. In an email to Ginsberg, the company referred to a contractual provision that allows the airline to revoke membership based on “abuse of the WorldPerks program,” but did not specify the alleged abusive behavior.
Ginsberg filed a putative class action asserting a number of claims, including breach of the implied covenant of good faith and fair dealing. A federal district court dismissed his claims, ruling that they were preempted by the Act “because they relate to airline prices and services,” which the federal statute governs.
The 9th U.S. Circuit Court of Appeals reversed, holding that claims of breach of the implied covenant of good faith and fair dealing do not “interfere with the deregulatory mandate [nor] force the airlines to adopt or change their prices, routes or services — the prerequisite for ADA preemption.”
But a unanimous Supreme Court came to a different conclusion.
First the court rejected the rabbi’s argument that common law claims like the one at issue fall outside the reach of the Act’s preemption power. The court instead found that a “common-law rule clearly has ‘the force and effect of law’” just as a state statute or regulation would.
Then, relying on its 1995 ruling in American Airlines Inc. v. Wolens, which held that the Act bars state-imposed regulation of air carriers but allows parties to bring breach of contract claims, the court found that the implied covenant of good faith and fair dealing claim at issue was based on Minnesota law — not the parties’ private contractual undertaking — and was therefore preempted.
Justice Samuel A. Alito Jr., writing for the court, noted that “under Minnesota law parties cannot contract out of the covenant [of good faith and fair dealing].”
“When the law of a State does not authorize parties to free themselves from the covenant, a breach of covenant claim is pre-empted under the reasoning of Wolens,” Alito wrote.
More litigation likely
The justices did carve out some middle ground on the issue, declining to fully adopt either the airline’s argument that implied covenant of good faith and fair dealing claims are always preempted or the rabbi’s position that such common law claims are generally not preempted.
David Falk, a partner in the Palo Alto, Calif., office of Mayer Brown LLP and a member of the firm’s Supreme Court & Appellate practice, said the court’s ruling against Ginsberg was “no surprise.” But the court’s decision to not simply side with the airline but instead to draw a careful line between the propositions set forth by Northwest and the rabbi was “less predictable,” he said.
Rather than creating a bright-line preemption ruling, the justices limited the Act’s preemptive reach to state laws that prevent parties from contracting around a covenant. Airlines should therefore take a close look at their frequent flier agreements, checking the applicable state laws that govern them and amending the agreements to minimize their liability risks.
“This ruling provides airlines with a clear path to preempt future bad faith claims by simply revising their frequent flyer agreements,” Falk said.
But in the meantime, there could be a short-term increase in litigation under existing contracts, particularly if plaintiffs try to apply the decision to other similarly-worded statutes, including ERISA and some consumer fraud statutes.
“There may be a boomlet of bad faith actions brought under the existing agreements and seeking to apply the law of a state where contracting out of the covenant is permitted,” Falk said.
Liss-Riordan said the decision could also have a longer-lasting positive effect for plaintiffs.
She pointed to a part of the opinion which explained why the court was rejecting the rabbi’s argument that all claims based on common law fell outside of the Act’s preemptive reach.
“[I]f all state common-law rules fell outside the ambit of the ADA’s pre-emption provision, we would have had no need in Wolens to single out a subcategory of common? law claims, i.e., those based on the parties’ voluntary undertaking, as falling outside that provision’s coverage,” Alito wrote.
That sentence gives plaintiffs some good news, Liss-Riordan said. “I believe they are expanding Wolens in this decision beyond simple breach of contract claims.”
