Northwest, Inc. v. Ginsberg

Supreme Court of the United States
572 U. S. ____ (2014) (2014)

ELI5:

Rule of Law:

The Airline Deregulation Act pre-empts state-law claims for breach of the implied covenant of good faith and fair dealing if the claim seeks to enlarge the contractual obligations that the parties voluntarily adopted.

Facts:

Rabbi S. Binyomin Ginsberg became a member of Northwest, Inc.'s WorldPerks frequent flyer program in 1999.
By 2005, Ginsberg achieved "Platinum Elite" status, the highest level available in the program.
The WorldPerks membership agreement stated that abuse of the program, including improper conduct as determined by Northwest in its "sole judgment," could result in the cancellation of a member's account.
Between December 2007 and June 2008, Ginsberg contacted Northwest 24 times regarding travel problems and received $1,925 in travel vouchers, 78,500 bonus miles, and $491 in cash reimbursements.
In June 2008, Northwest informed Ginsberg by phone that his membership was being terminated because he had "abused" the program.
A subsequent letter from Northwest confirmed the termination, citing his continual requests for compensation over and above the airline's guidelines.

Procedural Posture:

Ginsberg filed a class-action lawsuit against Northwest, Inc. in the U.S. District Court for the Southern District of California, the court of first instance.
The District Court dismissed Ginsberg's claim for breach of the implied covenant of good faith and fair dealing, holding it was pre-empted by the Airline Deregulation Act.
The District Court also dismissed Ginsberg's separate breach of contract claim.
Ginsberg, as appellant, appealed the dismissal of only the good faith and fair dealing claim to the U.S. Court of Appeals for the Ninth Circuit, an intermediate appellate court.
The Ninth Circuit reversed the District Court, holding that the good faith and fair dealing claim was not pre-empted and could proceed.
Northwest, Inc., as petitioner, sought and was granted a writ of certiorari from the U.S. Supreme Court to review the Ninth Circuit's decision.

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Issue:

Does the Airline Deregulation Act pre-empt a state-law claim for breach of the implied covenant of good faith and fair dealing when that claim seeks to impose obligations on an air carrier beyond those in the parties' contract?

Opinions:

Majority - Justice Alito

Yes, the Airline Deregulation Act (ADA) pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing where that claim seeks to enlarge the parties' contractual obligations. The Court's reasoning, following its precedent in American Airlines, Inc. v. Wolens, distinguishes between claims that seek to enforce the parties' privately-ordered bargain and those that attempt to impose external, state-mandated obligations. The ADA's pre-emption clause broadly covers any state "law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier," which includes state common law. A claim is pre-empted if it is based on a state-imposed obligation rather than the parties' voluntary undertakings. Under the applicable Minnesota law, the implied covenant of good faith and fair dealing is a non-waivable, state-imposed duty that applies to nearly all contracts. Because Ginsberg's claim relies on this mandatory state doctrine to challenge Northwest's exercise of its contractually-granted "sole judgment," the claim seeks to enlarge the contract with state-imposed standards and is therefore pre-empted by the ADA.

Analysis:

This decision clarifies and narrows the scope of claims that can be brought against airlines regarding their frequent flyer programs. It reinforces the distinction from Wolens that routine breach of contract claims are not pre-empted, but state-law claims that impose obligations beyond the contract's explicit terms are. The ruling creates a state-specific inquiry for future implied covenant claims; if a state's law treats the covenant as a default rule that can be contracted around, a claim might survive, but if it is a mandatory, non-waivable duty, it is pre-empted. This may incentivize airlines to draft their agreements with even more explicit grants of sole discretion to avoid state-law challenges.

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