Argument analysis: Justices mull theories of contracts to resolve airline preemption dispute
on Dec 5, 2013 at 11:05 am
With Northwest, Inc. v. Ginsberg on Tuesday of this week and Air Wisconsin Airlines (previewed here) next Wednesday, this is a big sitting for air travel at the Court. Unfortunately for the parties, the argument in Northwest shed precious little light on what the Justices will say in this case.
The casearises out of the decision by Northwest Airlines to terminate the frequent-flier membership of Rabbi Binyomin Ginsberg shortly before its merger with Delta. Northwest said it terminated his membership for “abuse,” but Ginsberg claimed that Northwest acted because of the merger. When the Ninth Circuit held that Ginsberg’s complaint was not preempted by the Airline Deregulation Act of 1978 (the “ADA”), the Court granted review.
The specific problem that the parties debated in the argument was the extent of preemption under the ADA. It is common ground (from the Court’s 1995 decision in American Airlines, Inc. v. Wolens) that the ADA does not preempt a claim for breach of contract. The disagreement among the parties involves the extent to which the ADA preempts a claim that involves an implied covenant of good faith and fair dealing.
The most remarkable thing about the argument was the almost surreal similarity of the positions of the attorneys arguing for Northwest (former Solicitor General Paul Clement), the government (Assistant to the Solicitor General Lewis Yelin), and Ginsberg (Adina Rosenbaum of Public Citizen). All three agreed that some uses of an implied covenant are permissible, and not preempted. Thus, Clement readily conceded that when it is “just a rule of construction” that is “merely constructing the express terms of the contract,” the implied covenant should not be preempted.
Yelin said he was “okay” with Justice Sotomayor’s framing of the problem as turning on whether “the implied covenant extend[s] to actions beyond the scope of the underlying contract, or can it override the express terms of an agreement. If the answer is no, it’s not preempted.” The principal difference between the government’s position and Northwest’s is that the government apparently would apply the test on a state-by-state basis, with the implied covenant preempted in states where the applicable law is too intrusive, but not preempted in states where the doctrine requires close adherence to the agreement.
During her turn at the lectern, Rosenbaum repeatedly emphasized that all she was asking for was “the benefit of the bargain” Northwest made with her client, a position she described as “very similar to the one the United States” advocated. The main difference between Ginsberg’s position and the government’s seems to be that Ginsberg would apply the test on a case-by-case basis, with the preemption operating to prevent any use of the implied covenant that derogates from the agreement of the parties.
So what did the Justices think of all this? For the most part, they seemed to be trying out their own formulations of a permissible rule, as the remarks quoted by Justice Sotomayor’s above suggest. And Justice Scalia proposed that if the implied covenant “goes beyond the words of the contract, and you’re reading into it something it doesn’t say, it’s a matter of State policy [and thus is preempted].”
About the only thing that is clear is that the Justices seem to have no interest at all in Rosenbaum’s argument that the program at issue here is so unrelated to air fares that it isn’t even subject to ADA scrutiny. Justice Breyer, for example, candidly characterized it as “given” that frequent-flier programs are price discounts (and thus protected from state regulation by ADA preemption).
My guess is that a large majority of the Justices will be able to agree that the Ninth Circuit’s reasoning is too facile, at least in part because of its failure to engage specifically with exactly what the law of Minnesota (the relevant state) has to say about the implied covenant. So my best prediction of the outcome is a reversal, coupled with an articulation of some form of words sufficiently vague to produce agreement among most of the Justices, producing a remand to the Ninth Circuit with instructions to reconsider the case under the new standard. What that standard will be is anybody’s guess, but it probably will have to be pretty vague to get a majority of the Court to buy into it. A reversal might sound like a defeat for Ginsberg, but if the standard does turn out to be vague, it well might leave plenty of flexibility for the Ninth Circuit to conclude that the claim is not preempted.