Argument preview: Dusting off contracts treatises to resolve preemption dispute?
on Nov 27, 2013 at 12:23 pm
The second day of the December calendar presents a case that almost certainly will divide the Justices – Northwest, Inc. v. Ginsberg, in which the Court will consider whether the Airline Deregulation Act of 1978 (the “ADA”) preempts a rabbi’s claim that Northwest Air Lines breached its implied covenant of good faith and fair dealing when it terminated his membership in Northwest’s frequent-flier program.
The parties agree that the case involves a direct application of the Court’s 1995 decision in American Airlines, Inc. v. Wolens. The Wolens Court held that the ADA did preempt a claim about the American Airlines frequent-flier program under a state consumer-protection statute, but did not preempt a contract claim. The Court held that the ADA’s preemption of laws related to an airline’s rates and services did not extend to claims brought “solely for the airline’s alleged breach of its own, self-imposed undertakings.” The central issue in this case is whether an implied covenant is part of the “self-imposed” undertakings saved by Wolens.
Former Solicitor General Paul Clements provides a powerful brief for Northwest. His principal strategy is to drive a wedge between Ginsberg’s contract claim (dismissed by the district court and not thereafter appealed) and his implied covenant claim. First, he notes the distinction between the claim for breach of contract alone, and the separate claim for breach of a covenant of good faith and fair dealing. The contract claim was dismissed based on the literal language of the written agreement, which states that Northwest can terminate a frequent-flier account for abuse “as determined by Northwest in its sole judgment.” Because Northwest determined that it wished to terminate the account for abuse, the contract claim itself could not proceed.
The explicit language of the contract allows Clement to emphasize that any ruling in Ginsberg’s favor necessarily involves some derogation from the written terms of the contract, which he treats as the sole indicator of Northwest’s “own, self-imposed undertakings.” He closes with a spirited argument that the desire for uniform national regulation strongly supports preemption. He contends that the inherent vagueness of the covenant of good faith and fair dealing will be likely to result in “patchwork regulation,” and emphasizes the centrality of frequent-flier programs to pricing and competition in the industry.
For her part, Adina Rosenbaum of Public Citizen provides a masterful defense of the Ninth Circuit’s judgment. Her central point, familiar to scholars of contract law, is that the covenant of good faith and fair dealing, at its core, is not designed to contravene the intent of the parties. Rather, it is designed to hold parties to that intent in circumstances where a wooden application of the explicit terms of a contract would deprive one party of the benefit of the bargain that it made in fact. Thus, from her perspective, the relief Ginsberg seeks is nothing more or less than enforcement of the undertakings he secured from Northwest. To give just one example of the deft craftsmanship her brief displays, she interweaves lengthy quotes from a 1984 opinion of then-Judge Scalia on the D.C. Circuit, articulating an understanding of the implied covenant of good faith that is quite similar to her argument here. In the end, then, she argues vigorously that it is Northwest, not Ginsberg, that seeks to avoid the agreement in fact of the parties.
Rosenbaum also presents a powerful argument that the ADA leaves common-law claims (like this one) categorically excluded from preemption. She notes that the relevant provision refers only to “a law or regulation.” By contrast, for example, the ERISA preemption clause, which has been interpreted to preempt common-law claims, applies to “laws,” which are defined to include “decisions . . . or other state action having the effect of law.” As is so often the case when Public Citizen takes over at the Supreme Court stage, that argument was not emphasized in the lower courts, which leaves external observers uncertain as to the Court’s willingness to address it; the Genesis case last year is a good recent example. For my part, however, it seems so closely related to the question on which the Court granted review that I would be surprised if the Justices do not at least consider addressing the point.
The Solicitor General appears in support of reversal, but the position it takes (filing top-side, and thus unaware of Ginsberg’s posture in the Supreme Court) well might turn out to be closer to Ginsberg’s position than it is to Northwest’s. Thus, the Solicitor General argues that Wolens does not preempt all implied covenant claims, but instead only those that seek to import policy considerations external to the contract. The Solicitor General (like Northwest) notes that some courts view the implied covenant (as Ginsberg does) as simply enforcing the implicit agreement of the parties, but that others view the covenant more broadly. Because the Solicitor General views the claim here as falling in the broader category, the Solicitor General calls for reversal. The problem, however, is that Ginsberg explicitly disavows any broader claim, and indeed presents quite a coherent explanation for how the claim he does present seeks to do nothing but enforce the true agreement of the parties in fact.
One oddity of the case, which might present an opportunity for a compromise position, involves the pleading of Ginsberg’s complaints, which treated the contract claim and the implied covenant claim as separate causes of action. The United States suggests that the ADA preempts the implied covenant claim when it is a separate cause of action, but not when it is simply an element of argument on a pure contract claim. This seems to be slicing matters pretty thin – surely it is unsatisfying for preemption to turn on the niceties of pleading rather than the substance of the claim. Still, it might allow the Justices to coalesce around a compromise position.
The past experience of Clement and Rosenbaum suggest that both will be well-prepared for the argument next week. The quality of the briefs suggests that the Justices will be fully engaged. This should be an entertaining argument.