Supreme Court Clarifies Federal Pre-Emption of State Law Claims in Frequent Flyer Decision

On April 2, 2014 the Supreme Court issued its decision in Northwest, Inc., v. Ginsberg.  In a unanimous decision, the Court held that a passenger’s state law claims against an airline for terminating his participation in the airline’s frequent flyer program were pre-empted under the Airline Deregulation Act (ADA).

In addition to anyone who is a member of a frequent flyer program, the Court’s decision is of particular interest in its clarification of two issues involving the federal pre-emption of state law claims in several areas of transportation law.  First, the Court’s decision clarifies that state law common law causes of action are pre-empted under the ADA if they are related to “rates, routes, or services.”  Second, while contractual causes of action are treated by the Court as being private causes of action not pre-empted by the ADA, a cause of action based upon a breach of a contractual duty of good faith and fair dealing that is a state-imposed obligation is subject to pre-emption under the ADA.  The Court held that the frequent flyer’s cause of action in the Ginsberg case was pre-empted because it was based on a breach of the implied covenant of good faith and fair dealing that Minnesota law imposes as a mandatory condition of contracts that cannot be waived.

It should be noted that the Supreme Court held that not all contractual obligations involving the duty of good faith and fair dealing in the airline industry are pre-empted under its decision – only those clauses which are imposed by state law which cannot be waived.  The Court raised the possibility that the marketplace will punish air carriers that gain a reputation for mistreating their frequent flyer customers.  Implicit in its discussion is that airlines that are free to choose whether to include the duty of good faith and fair dealing in their contracts will consider this in deciding whether the benefits of such a provision are worth the potential costs.

 The Court’s decision has important ramifications for pre-emption issues in the airline industry.  It will most likely also have similar ramifications for pre-emption litigation under similar provisions of the Interstate Commerce Commission Termination Act (“ICCTA”), which frequently look to airline preemption cases for precedents.  This would include causes of actions involving state law claims against motor carrier property brokers, which is an area of the law in which federal pre-emption claims are frequently being raised and litigated.

Posted in All Advisories, Antitrust & Competition Law, Litigation & Alternative Dispute Resolution, Practice & Industries, Transportation

Comments are closed.