Northwest, Inc. v. Ginsberg
572 U.S. ___ (2014)

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Justia Opinion Summary
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.

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .

SUPREME COURT OF THE UNITED STATES

Syllabus

NORTHWEST, INC., et al. v. GINSBERG

certiorari to the united states court of appeals for the ninth circuit

No. 12–462. Argued December 3, 2013—Decided April 2, 2014

Petitioner Northwest, Inc., terminated respondent’s membership in its frequent flyer program, apparently based on a provision in the frequent flyer agreement that gave Northwest sole discretion to determine whether a participant had abused the program. Respondent filed suit, asserting, as relevant here, that Northwest had breached its contract by revoking his membership status without valid cause and had 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 found that the Airline Deregulation Act of 1978 (ADA) pre-empted the breach of the duty of good faith and fair dealing claim and dismissed the breach of contract claim without prejudice. Respondent appealed only the dismissal of his 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.

Held:

     1. The ADA pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing if it seeks to enlarge the contractual obligations that the parties voluntarily adopt. Pp. 4–10.

          (a) Before the ADA was enacted, air carriers’ routes, rates, and services were regulated under the Federal Aviation Act of 1958. And because that Act contained a saving provision preserving pre-existing statutory and common-law remedies, air carriers were also regulated by the States. The ADA did not repeal that saving provision, but it did include a pre-emption provision to prohibit 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), thus ensuring that “States would not undo federal deregulation with regulation of their own,” Morales v. Trans World Airlines, Inc., 504 U. S. 374 . In Morales, the Court recognized that the key phrase “related to” expresses a “broad pre-emptive purpose,” id., at 383, and held that the ADA pre-empted the use of state consumer protection laws to regulate airline advertising, concluding that “relat[es] to” means “ha[s] a connection with, or reference to, airline ‘rates, routes, or services,’ ” id., at 384. And in American Airlines, Inc. v. Wolens, 513 U. S. 219 , the Court found that the ADA pre-empted the use of an Illinois consumer law to challenge an airline’s devaluation of frequent flyer earned miles. But it did not pre-empt breach of contract claims because “terms and conditions airlines offer and passengers accept are privately ordered obligations” not “ ‘a State’s “enact[ment] or enforce[ment] [of] any law, rule, regulation, standard, or other provision having the force and effect of law” within the [pre-emption provision’s] meaning.’ ” Id., at 228–229. Pp. 4–6.

          (b) The phrase “other provision having the force and effect of law” includes state common-law rules like the implied covenant at issue. Common-law rules are routinely called “provisions,” see, e.g., Madsen v. Women’s Health Center, Inc., 512 U. S. 753 , n. 3, and they clearly have “the force and effect of law.” The pre-emption provision’s original language confirms this understanding. As first enacted, the provision also applied to “rule[s]” and “standard[s],” a formulation encompassing common-law rules. See CSX Transp., Inc. v. Easterwood, 507 U. S. 658 . And Congress made clear that the deletion of those terms as part of Title 49’s wholesale recodification effected no “substantive change.” §1(a), 108Stat. 745.

     Respondent’s reliance on Sprietsma v. Mercury Marine, 537 U. S. 51 , is misplaced. There, the Court held that the Federal Boat Safety Act of 1971 did not pre-empt a common-law tort claim, but that Act’s pre-emption provision is more narrowly worded than the ADA provision. The Boat Safety Act’s saving and pre-emption provisions were also enacted at the same time, while the Federal Aviation Act’s general remedies saving clause is “a relic of the pre-ADA/no pre-emption regime,” Morales, 504 U. S., at 385, that “cannot be allowed to supersede the specific substantive pre-emption provision,” ibid.

     Exempting common-law claims would also disserve the ADA’s central purpose, which was to eliminate federal regulation of rates, routes, and services so they could be set by market forces. Finally, if all state common-law rules fell outside the pre-emption provision’s ambit, Wolens would not have singled out a subcategory, for common-law claims based on the parties’ voluntary undertaking, as falling outside that provision’s coverage. Pp. 6–9.

          (c) Respondent’s claim “relates to” “rates, routes, or services.” It clearly has “a connection with or reference to airline” prices, routes, or services, Morales, 504 U. S., at 384. As in Wolens, Northwest’s program connects to the airline’s “rates” by awarding mileage 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. Respondent’s counterarguments are unpersuasive. His claim that he is contesting his termination, not access to flights or upgrades, ignores his reason for seeking reinstatement: to obtain reduced rates and enhanced services. Although respondent and amici claim there have been fundamental changes in the way that frequent flyer miles are earned since Wolens was decided, that does not matter here where respondent did not assert that he earned miles from any activity but taking flights or that he attempted to redeem miles for anything but tickets and upgrades. Pp. 9–10.

     2. Because respondent’s implied covenant claim seeks to enlarge his contractual agreement with petitioners, it is pre-empted by §41713(b)(1). Under Minnesota law, which controls here, the implied covenant must be regarded as a state-imposed obligation. Minnesota law does not permit parties to contract out of the covenant. And when a State’s law does not authorize parties to free themselves from the covenant, a breach of covenant claim is pre-empted under Wolens. As an independent basis for this conclusion, if, as Minnesota law provides, the implied covenant applies to “every contract” except employment contracts for “policy reasons,” then the decision not to exempt other types of contracts must likewise be based on a policy determination, namely, that the policy reason for the employment contract rule does not apply in other contexts.

     Petitioners claim that the refusal to pre-empt all implied covenant claims, regardless of state law, will lead to a patchwork of rules that will frustrate the ADA’s deregulatory aim. But airlines can avoid such a result if they contract out of covenants where permitted by state law. Nor are participants in frequent flyer programs left without protection. They can avoid an airline with a poor reputation and possibly enroll in a more favorable rival program. Moreover, the Department of Transportation has the authority to investigate complaints about frequent flyer programs. Finally, respondent might have been able to vindicate his claim of ill treatment by Northwest had he appealed his breach of contract claim. Pp. 10–14.

695 F. 3d 873, reversed and remanded.

     Alito, J., delivered the opinion for a unanimous Court.

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Primary Holding

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