WorldPerks case sent back to District Court as possible new accountability for US airlines


In a decision that will likely end up in the US Supreme Court, the 9th US Circuit Court of Appeals overturned a lower state court decision, allowing a passenger’s suit against Northwest Airlines, regarding the revocation of his status as a WorldPerks Platinum Member, to proceed. The validity of the customer claim is yet to be established, but the preliminary decisions have cleared the way for this and other suits, previously thought to be immune from litigation.

The airline alleged that the plaintiff, S. Binyomin Ginsberg was suspended from the program due to frequent complaints regarding the WorldPerks services. It invoked a quote from “Paragraph 7 of the General Terms and Conditions of the WorldPerks Program, which provides that Northwest may determine “in its sole judgment” whether a passenger has abused the program, and that abuse, “may result in cancellation of the member’s account and future disqualification from program participation, forfeiture of all mileage accrued and cancellation of previously issued but unused awards.”

Northwest further contended that under protections granted by the Airline Deregulation Act (ADA) of 1978, state courts had no jurisdiction in such matters. The California district court, where the case was first heard, dismissed the suit under the impression that states indeed had no powers to interfere under the Federal ADA as argued by Northwest.

The ADA did in fact contain provisions prohibiting states from some actions regarding airline practices, believing that if individual states could reverse the deregulation directive, the entire plan would become unworkable.

Determined a breach of contract by Northwest

However, the US District Court disagreed and instead viewed the case as essentially a breach of contract—a protection that was not intended by the ADA’s authors. The crux of the decision is revealed by the following excerpt from the Appeals Court’s opinion, as written by Judge Robert R. Beezer.

“When Congress passed the ADA, it dismantled a federal regulatory structure that had existed since 1958. By including a preemption clause, Congress intended to ensure that the States would not undo the deregulation with regulation of their own. Congress’s “manifest purpose” was to make the airline industry more efficient by unleashing the market forces of competition — it was not to immunise the airline industry from liability for common law contract claims. Congress did not intend to convert airlines into quasi-government agencies, complete with sovereign immunity.”

In essence, the Appeals Court said that the airline was claiming ADA protections never envisioned when the ADA was passed and that the ADA certainly did not protect airlines from ordinary breaches of “a contract claim based on the doctrine of good faith and fair dealing.”

Airline Deregulation Act litigation has been complex, due to legislative overlap

The case law pertaining to the ADA and airline regulation is complex and has come before the US Supreme Court in the past. Under the Federal Aviation Act of 1958, the FAA was given complete control of interstate travel but left intrastate regulation to the states. Hence the likes of California’s PSA and Southwest’s origins (as a Texas intrastate carrier) were exempt from FAA oversight.

By 1978, this complex mix of regulation and control was seen by Congress to be problematic and it wanted to move towards complete deregulation. But legislators first had to ensure that states’ powers to interfere with a national initiative were curtailed. As such the Congress passed a preemption clause that said “States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation.”

But the ruling noted that, “Congress retained the ‘savings clause,’ thereby preserving common law and statutory remedies. Since 1978, the scope of this preemption clause has been hotly debated, but never fully resolved.

Previous rulings were opaque

In 1992 the Supreme Court ruled on an accusation of deceptive airline advertising and supported, with qualifications, that in this case the ADA could be applied in favor of the plaintiff because they “reasoned that the advertising restrictions at issue had the ‘forbidden significant effect’ on rates, routes, or services. “ However, since the case involved advertising, a much broader topic, the ruling was very specific, to avoid adverse effect in other industries.

However, in another case, the Court refused to allow the use of the ADA to override a state law on employment discrimination, concluding that while there was an economic consequence, it did not manifest itself in the areas of pricing, routes or service.

And in 1995, another plaintiff sued over changes and a ‘devaluing’ of benefits. In that case, not unlike the present one, the Court made a distinction between state law that was deemed to affect the rates, routes and services aspect and the separate concept of breach of promise.

But again, blanket immunity was denied

The recent ruling cited all of that legal precedent (available by reading the full 9th Circuit’s decision) and they concluded that, “nothing in the ADA’s language, history, or subsequent regulatory scaffolding suggests that Congress had a “clear and manifest purpose” to displace State common law contract claims that do not affect deregulation in more than a “peripheral . . . manner.” Morales, 504 U.S. at 390. We conclude that a claim for breach of the implied covenant of good faith and fair dealing is not preempted by the ADA....Accordingly, we REVERSE and REMAND to the district court to reconsider the merits of plaintiff’s claim.”

Passenger rights probably extended, whatever the outcome of the District Court reconsideration

So, Mr Ginsberg’s suit, its merits, ruling and possible ramification, may proceed. His lawyer, Thatcher Stone, said that it was good news for "anybody who does business with the airlines," claiming that "airlines in this country have acted as if they were independent governments with sovereign immunity" from litigation.

As with any complex legal matter, the end result is probably years away and it remains unclear as to which side may ultimately prevail. But, the ruling does establish two concepts:

  • The ADA is not a blanket authorisation for airlines’ actions, and some kind of more definitive interpretation will be defined by the final outcome.
  • Airlines have been forewarned that actions which impinge on “a contract claim based on the doctrine of good faith and fair dealing” may be fair game for consumer action and run afoul of airlines’ perceived legal rights.

The long-term consequences for both airlines and their customers are still vague, but the door to greater redress for airline actions has been opened a bit further.

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