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SUPREME COURT OF THE UNITED STATES
_________________
No. 12–462
_________________
NORTHWEST, INC., et al., PETITIONERS v.
RABBI S.BINYOMIN GINSBERG
on writ of certiorari to the united states
court of appeals for the ninth circuit
[April 2, 2014]
Justice Alito
delivered the opinion of the Court.
We must decide in this
case whether the Airline Deregulation Act pre-empts a state-law
claim for breach of the implied covenant of good faith and fair
dealing. Following our interpretation of the Act in American
Airlines, Inc. v. Wolens, 513 U. S. 219 (1995) , we hold that
such a claim is pre-empted if it seeks to enlarge the contractual
obligations that the parties voluntarily adopt. And because the
doctrine is invoked in the present case in an attempt to expand
those obligations, we reverse the judgment of the Court of
Appeals.
I
A
Like many airlines,
petitioner Northwest, Inc. (Northwest), established a frequent
flyer program, its World-Perks Airline Partners Program, to attract
loyal cus-tomers. Under this program, members are able to earn
“miles” by taking flights operated by Northwest and
other “partner” airlines. Members can then redeem these
miles for tickets and service upgrades with Northwest or its
airline partners.
Respondent became a
member of Northwest’s World-Perks program in 1999, and as a
result of extensivetravel on Northwest flights, he achieved
“Platinum Elite” status (the highest level available)
in 2005.
In 2008, however,
Northwest terminated respondent’s membership, apparently in
reliance on a provision of the WorldPerks agreement that provided
that “[a]buse of the . . . program
(including . . . improper conduct as determined by
[Northwest] in its sole judgment[ ) ]
. . . may result in cancellation of the member’s
account.” App. 64–65. According to respondent, a
Northwest representative telephoned him in June 2008 and informed
him that his“Platinum Elite” status was being revoked
because he had “ ‘abused’ ” the
program. Id., at 35. In a letter sent about two weeks later,
Northwest wrote:
“[Y]ou have contacted our office 24
times since December 3, 2007 regarding travel problems, including9
incidents of your bag arriving late at the luggage
carousel. . . .
. . . . .
“ Since December
3, 2007, you have continually asked for compensation over and above
our guidelines. We have awarded you $1,925.00 in travel credit
vouchers, 78,500 WorldPerks bonus miles, a voucher extension for
your son, and $491.00 in cash
reimbursements. . . .
“ Due to our past
generosity, we must respectfully advise that we will no longer be
awarding you compensation each time you contact us.” Id., at
58–59.
Respondent requested clarification of his
status, but a Northwest representative sent him an e-mail stating
that “[a]fter numerous conversations with not only the Legal
Department, but with members of the WorldPerks department, I
believe your status with the program should be very clear.”
Id., at 60.
B
Alleging that
Northwest had ended his membership asa cost-cutting measure tied to
Northwest’s merger with Delta Air Lines, respondent filed a
class action in the United States District Court for the Southern
District of California on behalf of himself and all other similarly
situated WorldPerks members. Respondent’s complaint asserted
four separate claims.[
1] First,
his complaint alleged that Northwest had breached its contract by
re-voking his “Platinum Elite” status without valid
cause. Second, the complaint claimed that Northwest violated the
duty of good faith and fair dealing because it terminated his
membership in a way that contravened his reasonable expectations
with respect to the manner in which Northwest would exercise its
discretion. Third, the complaint asserted a claim for negligent
misrepresentation, and fourth, the complaint alleged intentional
misrepresentation. Respondent sought damages in excess of $5
million, as well as injunctive relief requiring Northwest to
restore the class members’ WorldPerks status and prohibiting
Northwest from future revocations of membership.
The District Court held
that respondent’s claims for breach of the covenant of good
faith and fair dealing, negligent misrepresentation, and
intentional misrepresentation were pre-empted by the Airline
Deregulation Act of 1978 (ADA or Act) as amended, 49
U. S. C. §41713. These claims, the court concluded,
were “relate[d] to” Northwest’s rates and
services and thus fell within the ADA’s express pre-emption
clause. App. to Pet. for Cert. 69. Respondent’s remaining
claim—for breach of contract—was dismissed without
prejudice under Federal Rule of Civil Procedure 12(b)(6). The court
held that respondent had failed to identify any material breach
because the frequent flyer agreement gave Northwest sole discretion
to determine whether a participant had abused the program.
Respondent appealed the dismissal of his breach of the duty of good
faith and fair dealing claim but not the other claims that the
court had dismissed.
The Ninth Circuit
reversed. 695 F. 3d 873 (2012). Relying on pre-Wolens Circuit
precedent, the Ninth Circuit first held that a breach of implied
covenant claim is “ ‘too tenuously connected to
airline regulation to trigger preemption under the
ADA.’ ” 695 F. 3d, at 879. Sucha claim, the
Ninth Circuit wrote, “does not interfere with the
[Act’s] deregulatory mandate” and does not
“ ‘forcethe Airlines to adopt or change their
prices, routes or services—the prerequisite for
. . . preemption.’ ” Id., at 880. In
addition, the Court held that the covenant of good faith and fair
dealing does not fall within the terms of the Act’s
pre-emption provision because it does not have a “direct
effect” on either “prices” or
“services.” Id., at 877, 881.
We granted certiorari.
569 U. S. ___ (2013).
II
A
Before the enactment
of the ADA, the Federal Aviation Act of 1958 empowered the Civil
Aeronautics Board to regulate the interstate airline industry.
Pursuant to this authority, the Board closely regulated air
carriers, controlling, among other things, routes, rates, and
services. See, e.g., Western Air Lines, Inc. v. CAB, 347 U. S.
67 (1954) ; Federal Aviation Act of 1958, 72Stat. 731. And since
the Federal Aviation Act contained a saving provision preserving
pre-existing statu-tory and common-law remedies, §1106, id.,
at 798, air carriers were also regulated by the States. See Morales
v. Trans World Airlines, Inc., 504 U. S. 374, 378 (1992) .
In 1978, however,
Congress enacted the ADA, which sought to promote
“efficiency, innovation, and low prices” in the airline
industry through “maximum reliance on competitive market
forces and on actual and potential competition.” 49
U. S. C. §§40101(a)(6), (12)(A). While the ADA
did not repeal the predecessor law’s saving provision, it
included a pre-emption provision in order to “ensure that the
States would not undo federal deregulation with regulation of their
own.” Morales supra, at 378. In its current form, this
provision states that “a State, political subdivision of a
State, or political authority of at least 2 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 under this
subpart.” §41713(b)(1).
We have had two
occasions to consider the ADA’s pre-emptive reach. In
Morales, we held that the ADApre-empted the use of state consumer
protection laws to regulate airline advertising. We recognized that
the key phrase “related to” expresses a “broad
pre-emptive purpose.” 504 U. S., at 383. Noting our
interpretation of similar language in the pre-emption provision of
the Employee Retirement and Income Security Act of 1974, 29
U. S. C. §1144(a), we held that a claim
“relat[es] to rates, routes, or services,” within the
meaning of the ADA, if the claim “ha[s] a connection with, or
reference to, airline ‘rates, routes, or
services.’ ” 504 U. S., at 384. The older
saving provision, we concluded, did not undermine this conclusion.
Id., at 384–385.
Subsequently, in
American Airlines, Inc. v. Wolens, 513 U. S. 219 (1995) , we
considered the application of the ADA pre-emption provision to two
types of claims concerning an airline’s frequent flyer
program: first, claims under the Illinois Consumer Fraud and
Deceptive Business Practices Act challenging an airline’s
devaluation of earned miles (chiefly as the result of the
imposition of “blackout dates” and limits on the number
of seats available for customers wishing to obtain tickets by using
those miles) and, second, breach of contract claims. We reaffirmed
Morales’ broad interpretation of the ADA pre-emption
provision and held that this provision barred the claims based on
the Illinois statute but not the breach-of-contract claims.
“[T]erms and conditions airlines offer and passengers
accept,” we wrote, “are privately ordered obligations
and thus do not amount to 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
meaning of [the ADA pre-emption provision].” 513 U. S.,
at 228–229.
With this background in
mind, we turn to the question whether the ADA pre-empts
respondent’s claim for breach of the implied covenant of good
faith and fair dealing.
B
The first question we
address is whether, as respondent now maintains, the ADA’s
pre-emption provision applies only to legislation enacted by a
state legislature and regulations issued by a state administrative
agency but not to a common-law rule like the implied covenant of
good faith and fair dealing. We have little difficulty rejecting
this argument.
To begin, state
common-law rules fall comfortably within the language of the ADA
pre-emption provision. As noted above, the current version of this
provision applies to state “law[s], regulation[s], or other
provision[s] having the force and effect of law,” 49
U. S. C. §41713(b)(1). It is routine to call
common-law rules “provisions.” See, e.g., Madsen v.
Women’s Health Center, Inc., 512 U. S. 753, 765, n. 3
(1994) ; United States v. Barnett, 376 U. S. 681 –700
(1964); Brown v. United Airlines, Inc., 720 F. 3d 60, 68 (CA1
2013) (“[W]hen read in context, the word
‘provision’ in the ADA preemption provision can most
appropriately be construed to include common law”). And a
common-law rule clearly has “the force and effect of
law.” In Wolens, we noted that this phrase is most naturally
read to “ ‘refe[r] to binding standards of conduct
that operate irrespective of any private
agreement,’ ” 513 U. S., at 229, n. 5, and we
see no basis for holding that such standards must be based on a
statute or regulation as opposed to the common law.
This understanding
becomes even clearer when the original wording of the pre-emption
provision is taken into account. When first enacted in 1978, this
provision also applied to “rule[s]” and
“standard[s],” and there surely can be no doubt that
this formulation encompassed common-law rules. Indeed, we held in
CSX Transp., Inc. v. Easterwood, 507 U. S. 658, 664 (1993) ,
that virtually identical language in the Federal Railroad Safety
Act of 1970 includes “[l]egal duties imposed . . .
by the common law.” See also Riegel v. Medtronic, Inc., 552
U. S. 312, 324 (2008) (holding that a State’s
“ ‘requirements’ ”
“includ[e] [the state’s] common-law duties”).
While
“rule[s]” and “standard[s]” are not
mentioned in the current version of the statute, this omission is
the result of a recodification that was not meant to affect the
provision’s meaning. Those additional terms were deleted as
part of a wholesale recodification of Title 49 in 1994, but
Congress made it clear that this recodification did not effect any
“substantive change.” § 1(a), 108Stat.
745.
In arguing that
common-law rules fall outside the scope of the ADA pre-emption
provision, respondent relies on our decision in Sprietsma v.
Mercury Marine, 537 U. S. 51 (2002) , which held that the
Federal Boat Safety Act of 1971 did not pre-empt a common-law tort
claim, but there are critical differences between the pre-emption
provisions in the Boat Safety Act and the ADA. The Boat Safety Act
provision applies only to “a law or regulation,” 46
U. S. C. §4306, whereas the ADA provision, as just
explained, is much more broadly worded.
In addition, the
relationship between the ADA’s pre-emption provision and the
saving provision carried over from the prior law is also quite
different. The Sprietsma decision placed substantial weight on the
Boat Safety Act’s saving provision, which was enacted at the
same time as the pre-emption provision, but we have described the
Federal Aviation Act saving clause as “a relic of the
pre-ADA/no pre-emption regime.” Morales, 504 U. S., at
385. That provision applies to the entire, sprawling Federal
Aviation Act, and not just to the ADA, and as we held in Morales,
this “general ‘remedies’ saving clause cannot be
allowed to supersede the specific substantive pre-emption
provision.” Ibid. See also Wolens, supra, at 245
(O’Connor, J., concurring in judgment in part and
dissenting in part). For these reasons, respondent’s
interpretation of the ADA pre-emption provision cannot be squared
with the provision’s terms.
Exempting common-law
claims would also disserve the central purpose of the ADA. The Act
eliminated federal regulation of rates, routes, and services in
order to allow those aspects of air transportation to be set by
market forces, and the pre-emption provision was included to
prevent the States from undoing what the Act was meant to
accomplish. Morales, supra, at 378. What is important, therefore,
is the effect of a state law, regulation, or provision, not its
form, and the ADA’s deregulatory aim can be undermined just
as surely by a state common-law rule as it can by a state statute
or regulation. See Medtronic, Inc., supra, at 325 (recognizing that
state tort law that imposes certain requirements would
“disrup[t] the federal scheme no less than state regulatory
law to the same effect”). As the First Circuit has
recognized, “[i]t defies logic to think that Congress would
disregard real-world consequences and give dispositive effect to
the form of a clear intrusion into a federally regulated
industry.” Brown, 720 F. 3d, at 66–67.
Finally, if all state
common-law rules fell outside the ambit of the ADA’s
pre-emption provision, we would have had no need in Wolens to
single out a subcategory of common-law claims, i.e., those based on
the parties’ voluntary undertaking, as falling outside that
provision’s coverage.
Accordingly, we
conclude that the phrase “other provision having the force
and effect of law” includes common-law claims.
C
We must next
determine whether respondent’s breach of implied covenant
claim “relates to” “rates, routes, or
services.” A claim satisfies this requirement if it has
“a connection with, or reference to, airline” prices,
routes, or services, Morales, supra, at 384, and the claim at issue
here clearly has such a connection. That claim seeks
respondent’s reinstatement in Northwest’s frequent
flyer program so that he can access the program’s
“valuable . . . benefits,” including “flight
upgrades, accumulated mileage, loyalty program status or benefits
on other airlines, and other advantages.” App.
49–50.
Like the frequent flyer
program in Wolens, the Northwest program is connected to the
airline’s “rates” because the program awards
mileage credits that can be redeemed for tickets and upgrades. See
513 U. S., at 226. When miles are used in this way, the rate
that a customer pays, i.e., the price of a particular ticket, is
either eliminated or reduced. The program is also connected to
“services,” i.e., access to flights and to higher
service categories. Ibid.
Respondent argues that
his claim differs from the claims in Wolens because he “does
not challenge access to flights and upgrades or the number of miles
needed to obtain air tickets” but instead contests “the
termination of his WorldPerks elite membership,” Brief for
Respondent 12, but this argument ignores respondent’s reason
for seeking reinstatement of his membership, i.e., to obtain
reduced rates and enhanced services. Respondent’s proffered
distinction has no substance.
Respondent and amici
suggest that Wolens is not controlling because frequent flyer
programs have fundamentally changed since the time of that
decision. We are told that “most miles [are now] earned
without consuming airline services” and are “spent
without consuming airline services.” Brief for State of
California et al. 18 (emphasis deleted). But whether or not
this alleged change might have some impact in a future case, it is
not implicated here. In this case, respondent did not assert that
he earned his miles from any activity other than taking flights or
that he attempted to redeem miles for anything other than tickets
and upgrades. See Tr. of Oral Arg. 47–48.
III
With these
preliminary issues behind us, we turn to the central issue in this
case, i.e., whether respondent’s implied covenant claim is
based on a state-imposed obligation or simply one that the parties
voluntarily undertook. Petitioners urge us to hold that implied
covenant claims are always pre-empted, and respondent suggests that
such claims are generally not pre-empted, but the reasoning of
Wolens neither dooms nor spares all such claims.
While most States
recognize some form of the good faith and fair dealing doctrine, it
does not appear that there is any uniform understanding of the
doctrine’s precise meaning. “[T]he concept of good
faith in the performance of contracts ‘is a phrase without
general meaning (or meanings) of its own.’ ”
Tymshare, Inc. v. Covell, 727 F. 2d 1145, 1152 (CADC 1984)
(Scalia, J.) (quoting Summers, “Good Faith” in General
Contract Law and the Sales Provisions of the Uniform Commercial
Code, 54 Va. L. Rev. 195, 201 (1968)); see also Burton, Breach of
Contract and the Common Law Duty to Perform in Good Faith, 94 Harv.
L. Rev. 369, 371 (1980). Of particular importance here, while some
States are said to use the doctrine “to effectuate the
intentions of parties or to protect their rea-sonable
expectations,” ibid., other States clearly em-ploy the
doctrine to ensure that a party does not
“ ‘violate community standards of decency,
fairness, or reasonableness.’ ” Universal Drilling
Co., LLC v. R & R Rig Service, LLC, 2012 WY 31, 37, 271 P. 3d
987, 999; DDP Roofing Services, Inc. v. Indian River School Dist.,
2010 WL 4657161, *3 (Del. Super. Ct., Nov. 16, 2010); Allworth v.
Howard Univ., 890 A. 2d 194, 201–202 (D. C. 2006); Brunswick
Hills Racquet Club, Inc. v. Route 18 Shopping Center Assocs., 182
N. J. 210, 224, 864 A. 2d 387, 395396 (2005); Harper v.
Healthsource New Hampshire, 140 N. H. 770, 776, 674 A. 2d 962,
965–966 (1996); Borys v. Josada Builders, Inc., 110 Ill. App.
3d 29, 32–33, 441 N. E. 2d 1263, 1265–1266 (1982);
Restatement (Second) of Contracts §205, Comment a (1979). See
also Summers, The General Duty of Good Faith—Its Recognition
and Conceptualization, 67 Cornell L. Rev. 810, 812 (1982).
Whatever may be the
case under the law of other jurisdictions, it seems clear that
under Minnesota law, which is controlling here, see n. 1,
supra, the implied covenant must be regarded as a state-imposed
obligation.[
2] Re-spondent
concedes that under Minnesota law parties cannot contract out of
the covenant. See Tr. of Oral Arg. 33–34; see also In re
Hennepin Cty. 1986 Recycling Bond Litigation, 540 N. W. 2d
292, 502 (Minn. 1995); Sterling Capital Advisors, Inc. v. Herzog,
575 N. W. 2d 121, 125 (Minn. App. 1998); Minnwest Bank Central
v. Flagship Properties LLC, 689 N. W. 2d 295, 303 (Minn. App.
2004). And as a leading commentator has explained, a State’s
“unwillingness to allow people to disclaim the obligation of
good faith . . . shows that the obligation cannot be
implied, but is law imposed.” 3A A. Corbin, Corbin on
Contracts §654A, p. 88 (L. Cunningham & A. Jacobsen eds.
Supp. 1994). When the law of a State does not authorize parties to
free themselves from the covenant, a breach of covenant claim is
pre-empted under the reasoning of Wolens.
Another feature of
Minnesota law provides an additional, independent basis for our
conclusion. Minnesota law holds that the implied covenant applies
to “every contract,” In re Hennepin Cty., supra, at
502, with the notable exception of employment contracts. Hunt v.
IBM Mid America Employees Fed. Credit Union, 384 N. W. 2d 853,
857–858 (Minn. 1986). The exception for employment contracts
is based, in significant part, on “policy reasons,”
id., at 858, and therefore the decision not to exempt other types
of contracts must be based on a policy determination, namely, that
the “policy reasons” that support the rule for
employment contracts do not apply (at least with the same force) in
other contexts. When the application of the implied covenant
depends on state policy, a breachof implied covenant claim cannot
be viewed as simply an attempt to vindicate the parties’
implicit understanding of the contract.
For these reasons, the
breach of implied covenant claim in this case cannot stand, but
petitioners exhort us to go further and hold that all such claims,
no matter the content of the law of the relevant jurisdiction, are
pre-empted. If pre-emption depends on state law, petitioners warn,
airlines will be faced with a baffling patchwork of rules, and the
deregulatory aim of the ADA will be frustrated. But the airlines
have means to avoid such a result. A State’s implied covenant
rules will escape pre-emption only if the law of the relevant State
permits an airline to contract around those rules in its frequent
flyer program agreement, and if an airline’s agreement is
governed by the law of such a State, the airline can specify that
the agreement does not incorporate the covenant. While the
inclusion of such a provision may impose transaction costs and
presumably would not enhance the attractiveness of the program, an
airline can decide whether the benefits of such a provision are
worth the potential costs.
Our holding also does
not leave participants in frequent flyer programs without
protection. The ADA is based on the view that the best interests of
airline passengers are most effectively promoted, in the main, by
allowing the free market to operate. 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.
Federal law also
provides protection for frequent flyer program participants.
Congress has given the Department of Transportation (DOT) the
general authority to prohibit and punish unfair and deceptive
practices in air transportation and in the sale of air
transportation, 49 U. S. C. §41712(a), and Congress
has specifically authorized the DOT to investigate complaints
relating to frequent flyer programs. See FAA Modernization
andReform Act of 2012, §408(6), 126Stat. 87. Pursuant to these
provisions, the DOT regularly entertains and acts on such
complaints.[
3]
We note, finally, that
respondent’s claim of ill treatment by Northwest might have
been vindicated if he had pursued his breach-of-contract claim
after its dismissal by the District Court. Respondent argues that,
contrary to the holding of the District Court, the frequent flyer
agreement did not actually give Northwest unfettered discretion to
terminate his membership in the program, see Brief for Respondent
20–21, and the United States makes a related argument,
namely, that even if the agreement gave Northwest complete
discretion with respect to a determination regarding abuse of the
program, the agreement did not necessarily bar a claim asserting
that membership was ended for an ulterior reason, such as an effort
to cut costs. If respondent had appealed the dismissal of his
breach-of-contract claim, he could have presented these arguments
to the Court of Appeals, but he chose not to press that claim. He
voluntarily dismissed the breach-of-contract claim and instead
appealed only the breach of implied covenant claim, which we hold
to be pre-empted.
* * *
Because
respondent’s implied covenant of good faithand fair dealing
claim seeks to enlarge his contractual agreement with petitioners,
we hold that 49 U. S. C. §41713(b)(1) pre-empts the
claim. The judgment of the Court of Appeals for the Ninth Circuit
is reversed, and the case is remanded for further proceedings
consistent with this opinion.
It is so ordered.
