Opinion analysis: Justices hold “good faith and fair dealing” claim about frequent-flyer program preempted
on Apr 3, 2014 at 5:30 pm
Little noticed before the graceful display of collegial disagreement in the announcements of McCutcheon v. Federal Election Commission on Wednesday morning, the principal topic on this blog for the last two days, Justice Alito started the proceedings on Wednesday with his announcement of the peculiar oddity of a unanimous opinion in a preemption case — Northwest, Inc. v. Ginsberg.
Northwest arises out of the decision by Northwest Air Lines 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.
Justice Alito organized the Court’s opinion around three separate questions. The first was Ginsberg’s (remarkable) suggestion that the ADA preemption clause does not apply to common-law rulings, but only to state statutes and regulations. The most surprising thing about that argument is that there was no earlier Supreme Court case precisely on point to rebut the argument; it took the Court little time or effort to state the obvious – that ADA preemption would be largely nugatory if state judges were allowed to adopt rules about airline pricing even though legislatures could not.
The second point was whether a frequent-flier program is sufficiently related to airline rates and prices for ADA preemption to apply. Again, since the Supreme Court has already decided one ADA preemption case about frequent-flier programs (the 1995 decision in Wolens), this also seemed quite a stretch – but it was the basis for the Ninth Circuit’s decision. Again, the Court’s opinion on that point trod no new ground reaffirming what seemed implicit in, if not compelled by, Wolens – that ADA preemption reaches frequent-flier programs.
With the preliminaries swept aside, the Court could turn to the central question, preemption of a claim under an implied covenant of good faith and fair dealing. On that point, questioning at the argument (summarized here) had revealed an almost surreal similarity among the positions of the parties and the Solicitor General: all agreed that some uses of an implied covenant are permissible, and that some are preempted.
Given the analytical confluence, I suppose it should be no surprise that the Justices were able to agree unanimously to an opinion taking that line. Justice Alito’s analysis for the Court had three simple steps. First, it noted the baseline from Wolens – that state law is preempted if it adds to the parties’ agreement but not if it simply enforces the agreement. Second, the Court noted that in some cases the implied covenant simply holds parties to their agreement, but in others it goes farther, to implement “community standards of decency, fairness, or reasonableness.” Third, following from the first two points, the Court holds that the implied covenant is preempted whenever it implements broader community standards, but not when it simply holds parties to their agreement in fact. As applied to this case, the Court concluded that Minnesota law, at least potentially, falls into the latter category, and thus that Ginsberg’s claim is preempted.
Although Northwest has won this battle decisively, it is not nearly so clear that its victory will bring dismissal of Ginsberg’s suit. The Court emphasized that his underlying claim for breach of contract (which he did not appeal) to the Ninth Circuit, was not preempted, and it noted that the agreement did not necessarily bar an argument (like his) that the termination in fact rested on some ulterior motive, rather than abuse. If the Ninth Circuit’s solicitousness for Ginsberg extends to finding some way to permit those arguments to be resuscitated, then Ginsberg’s suit well might live on despite Northwest’s Supreme Court victory.
PLAIN LANGUAGE: Northwest Airlines kicked the plaintiff Ginsberg out of its frequent-flyer program, claiming that he had “abused” the program. The contract says that Northwest can kick out anybody if Northwest, in its own discretion, decides that they have abused the program. Ginsberg filed suit, claiming Northwest was lying, and that the company in fact kicked him out to save money. The Supreme Court held that the federal rules which deregulated the airline industry prevent him from bringing that lawsuit. They say that, although Ginsberg can sue to make Northwest follow the terms of the program, because this suit seeks something more – to make it operate the program in good faith – he can’t bring this suit.