Hongbo Han v. United Continental Holdings, Inc., et al.
Not available (2014)
Rule of Law:
When a contract expressly grants one party the sole discretion to interpret its terms, that party's interpretation will be upheld against a breach of contract claim unless it is unreasonable. The plaintiff cannot prevail merely by showing that the term is ambiguous or that their own interpretation is also plausible.
Facts:
- Hongbo Han enrolled in the MileagePlus frequent-flyer program operated by United Continental Holdings, Inc. ('United').
- To enroll, Han was required to accept the MileagePlus Program Rules, which governed his participation.
- The Program Rules stated that members earn 'mileage' for flights they 'actually flown.'
- The rules did not specify the method for calculating the amount of 'mileage' to be credited for a given flight.
- The Program Rules explicitly provided that 'United has the sole right to interpret and apply the Program Rules.'
- United consistently credited Han's account with mileage calculated based on the standard, direct distance between the departure and arrival airports.
- Han believed he was entitled to mileage based on the actual distance the airplane flew, which could be longer due to factors like weather diversions and air traffic control patterns.
Procedural Posture:
- Hongbo Han filed a putative class action lawsuit against United Continental Holdings, Inc. in federal district court, alleging breach of contract.
- The district court granted United's motion to dismiss the complaint with prejudice for failure to state a claim.
- Han, as the appellant, appealed the district court's dismissal to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does an airline breach its frequent flyer program contract by calculating mileage based on the direct distance between airports, rather than the actual distance flown, when the contract grants the airline the sole discretion to interpret and apply the program's rules?
Opinions:
Majority - Manion, J.
No. An airline does not breach its contract when its interpretation of an ambiguous term is reasonable and the contract explicitly grants the airline sole discretion to interpret its own terms. Although the term 'mileage' is ambiguous because the contract is silent on its calculation method, the contract also unambiguously grants United the 'sole right to interpret and apply the Program Rules.' Under Illinois law, when a contract gives a party such interpretive discretion, its interpretation must be upheld so long as it is reasonable. To state a claim, Han needed to plausibly allege that United's interpretation was unreasonable, not merely that his own interpretation was better or also plausible. United's interpretation—using the standard distance between airports—is reasonable because it is predictable, consistent, and easier to administer. Therefore, Han failed to state a valid claim for breach of contract.
Analysis:
This case significantly strengthens the enforceability of unilateral discretionary clauses often found in consumer contracts and terms of service. By shifting the legal inquiry from which party has the 'better' interpretation of an ambiguous term to whether the drafting party's interpretation is 'unreasonable,' the court raises the pleading standard for plaintiffs. This precedent provides a strong defense for companies that include such clauses, giving them considerable latitude in administering their programs. The decision underscores the importance of such clauses for contract drafters seeking to minimize litigation risk over ambiguous terms.
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