Northwest, Inc. v. Ginsberg

Northwest terminated plaintiff’s membership in its frequent flyer program. A provision in the frequent flyer agreement gave Northwest sole discretion to determine whether a participant had abused the program. Plaintiff claimed that Northwest breached its contract by revoking his membership without valid cause and violated the duty of good faith and fair dealing because it terminated his membership in a way that contravened his reasonable expectations. The district court dismissed, holding that the Airline Deregulation Act of 1978 pre-empted the breach of the duty of good faith and fair dealing claim. The Ninth Circuit reversed, finding that claim “too tenuously connected to airline regulation to trigger” ADA pre-emption. A unanimous Supreme Court reversed. The Act pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing if it seeks to enlarge contractual obligations that the parties voluntarily adopted. The Act prohibits states from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to [an air carrier’s] price, route, or service,” 49 U.S.C. 41713(b)(1). The phrase “other provision having the force and effect of law” includes state common-law rules like the claimed implied covenant. Exempting common-law claims would disserve the Act’s central purpose: to eliminate federal regulation of rates, routes, and services so they could be set by market forces. Northwest’s program connects to “rates” by awarding credits redeemable for tickets and upgrades, thus eliminating or reducing ticket prices. It also connects to “services,” i.e., access to flights and higher service categories. Because the implied covenant claim sought to enlarge contractual agreement, it is pre-empted. Under controlling Minnesota law, parties may not contract out of the implied covenant; when state law does not authorize parties to free themselves from the covenant, a breach of covenant claim is pre-empted. Participants in frequent flyer programs can protect themselves by avoiding airlines with poor reputations and enrolling in more favorable rival programs; the Department of Transportation has authority to investigate complaints about frequent flyer programs. The Court also noted that the plaintiff did not appeal his breach of contract claim. View "Northwest, Inc. v. Ginsberg" on Justia Law