When the Supreme Court took up the case of the Rabbi whose frequent flyer account was closed by Northwest Airlines because he complained too much, I asked reader, attorney, and Supreme Court watcher Eric M. Fraser to offer his perspective on the case.

He joined us again as the case went to oral argument.

And I’ve asked for his contribution now that the Supreme Court has ruled unanimously against the consumer in his quest to sue Northwest (now Delta) under state law interpretive rules of contract.

Eric M. Fraser is an appellate and antitrust attorney with Osborn Maledon. He is an active flyer and closely follows View from the Wing.

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The Supreme Court of the United States released its decision and opinion in Northwest, Inc. v. Ginsberg.  The Supreme Court held in favor of the airline, effectively ending a former Northwest frequent flyer’s case against the airline.

Background

We covered the background of the case here, here, here, and here.

Ginsberg, the plaintiff in the case, had top-tier status in Northwest’s WorldPerks program (now rolled into Delta’s SkyMiles).  According to Ginsberg, Northwest kicked him out of the program for abusing it.  The Supreme Court’s opinion reveals a bit about Ginsberg’s experience with Northwest.  According to the opinion, within the span of about a year, he contacted Northwest 24 times about travel issues, resulting in almost $2,000 in vouchers, 78,500 bonus miles, and a few hundred dollars in cash.  Then Northwest kicked him out of the program entirely.  Like many contracts, the WorldPerks agreement gave the company “sole discretion” to cancel the account.

Ginsberg sued in federal court in California.  The central claim the Supreme Court addressed involved a claim called a breach of the covenant of good faith and fair dealing, which comes from state law.  In essence, Ginsberg claimed that Northwest acted in bad faith by kicking him out of the program without justification.  In particular, he claimed that Northwest kicked him out to save costs when it merged with Delta.

Delta fought that claim of bad faith by arguing that the Airline Deregulation Act preempts, or prohibits, bad faith claims.  The Airline Deregulation Act is a federal law designed to partially deregulate the industry, which was regulated by the Civil Aeronautics Board when Congress enacted the Airline Deregulation Act in 1978.  The Airline Deregulation Act prohibits any state from enforcing a law “related to a price, route, or service” of an airline, in an effort to try to prevent states from passing state laws to regulate airlines that could undo the federal deregulation effort.

The lower court dismissed Ginsberg’s claims (effectively kicking his case out of court).  It agreed with Delta that Ginsberg’s bad faith claim was related to the price, route, or service of an airline, and therefore the Airline Deregulation Act preempts it.  Ginsberg appealed to the U.S. Court of Appeals for the Ninth Circuit, which reversed.  The Ninth Circuit explained that the link between the bad faith claim and airline regulation was too tenuous, so the case could proceed.  Had the appeals ended there, Ginsberg could have fought Northwest and potentially could have won.

Instead, Northwest appealed to the Supreme Court, which agreed to hear the case (one of fewer than 100 cases it will hear this year).

The Supreme Court’s Decision

The Supreme Court ruled for the airline.  It reversed the Ninth Circuit and held that the Airline Deregulation Act prevents Ginsberg from suing Northwest on a bad faith theory.  The decision was unanimous, meaning all nine Justices agreed on the outcome.  Justice Alito wrote the opinion for the Court.

He explained that a frequent flyer program is related to an airline’s rates because the earned miles can be use for tickets and upgrades.  This idea echoed a concept explored at oral argument about whether the frequent flyer programs effectively function as price discounts.  The Court also explained that the a frequent flyer program is related to an airline’s services because it offers “higher service categories.”  This vague phrase probably includes the benefits we frequent travelers value so much, such as priority boarding, priority baggage handling, special telephone numbers, lounge access, and priority during irregular operations.  The Court relied in part on its 1995 decision called American Airlines v. Wolens.  Although Wolens also held that an ordinary contract claim against an airline survives the Airline Deregulation Act and remains a viable claim, the bad faith claim Gisnsberg asserted depended on state policies and was not part of the contract.

As a result, Ginsberg cannot bring a bad faith claim against the airline.

Not All Bad for Flyers

Justice Alito went out of his way to explain what the ruling does and does not cover, and in particular what types of claims may remain viable after this decision.

For example, the opinion points out something regular readers of View from the Wing know: airline miles earned by flying are now in the minority, and that most miles come from non-flying activities.  This is a big change from 1995, the last time the Supreme Court addressed a similar issue.  Although this development in the industry could bear on whether a frequent flyer program is related to the price or service of an airline, the Supreme Court reserved that issue for “a future case.”  In this case Ginsberg did not allege that he earned or redeemed his miles for anything other than flights or upgrades.  It might be a different case if someone earns all miles through credit card bonuses and redeems miles only for magazines (the horror!), or if it involved a program such as Aeroplan, which was spun off from Air Canada.

In addition, the Court reaffirmed the holding of Wolens that an ordinary contract claim remains viable.  Although Ginsberg initially claimed in his lawsuit that kicking him out of WorldPerks breached the terms of the agreement, he abandoned that claim before the case got to the Supreme Court.

Moreover, flyers have other protections.  The DOT can investigate complaints about frequent flyer programs.  And the market may discipline airlines that give elites poor treatment.  Justice Alito’s opinion explains, “If an airline acquires a reputation for mistreating the participants in its frequent flyer program (who are generally the airline’s most loyal and valuable customers), customers can avoid that program and may be able to enroll in a more favorable rival program.”  These reputation effects are probably stronger now than they were in 1995 thanks to blogs like View from the Wing and forums like MilePoint, which can quickly spread news about how an airline treats members of its frequent flyer program.

Finally, in a portion of the opinion likely to interest only those of us who care deeply about the law, the Supreme Court explained that bad faith claims from some states may still be viable.  Different states treat bad faith claims differently.  Some states use the doctrine to enforce the intentions of the parties and permit contracts to waive the protections, whereas in other states parties may not avoid the doctrine.  As a result, claims arising from some states may not be preempted by the Airline Deregulation Act, notwithstanding this new opinion from the Court.  Northwest called this outcome “a baffling patchwork of rules,” but such is the reality in a country composed of states with different court systems.

Takeaways

The Supreme Court insulated airlines from a specific type of lawsuit known as a bad faith claim, leaving aggrieved flyers either to seek help from the DOT or to try to enforce the actual terms of frequent flyer contracts.  But the Court left open a few windows.  Most notably, the Supreme Court has yet to address the changing landscape of modern frequent flyer programs and how they can be disconnected from the flying activities of airlines and customers.

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