Lawsuit decided against Rabbi in frequent flyer account termination

Remember the Rabbi who sued Northwest Airlines for terminating his frequent flyer account? He lost his final appeal today as the US Supreme Court ruled that the Airline Deregulation Act (ADA) covers the T&Cs of the program and that state law cannot override that. Northwest claims that Rabbi Ginsburg made excessive demands for compensation, actions it deemed as “[a]buse of the . . . program (including . . . improper conduct as determined by [Northwest] in its sole judgment.”

In a letter explaining the revocation of the account, Northwest wrote:

[Y]ou have contacted our office 24 times since December 3, 2007 regarding travel problems, including 9 incidents of your bag arriving late at the luggage carousel. . . .
. . . . .

Since December 3, 2007, you have continually asked for compensation over and above our guidelines. We have awarded you $1,925.00 in travel credit vouchers, 78,500 WorldPerks bonus miles, a voucher extension for your son, and $491.00 in cash reimbursements. . . .

Due to our past generosity, we must respectfully advise that we will no longer be awarding you compensation each time you contact us.” Id., at 58–59.

The key clause in the ADA is this one:

“a State, political subdivision of a State, or political authority of at least 2 States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.” §41713(b)(1).

At issue is whether operation of the loyalty program sufficiently qualifies as being related to the “price, route or service of an air carrier.” There is precedent for such decisions. In 1995 American Airlines, Inc. v. Wolens was decided wherein American was given broad latitude to change their program (in that case implementing black-out dates for awards). In that case the Court held that the ADA preempted state law. In this case Ginsburg pressed to have the common-law claims exempted from the ADA such that they would be enforced at the State level. The Court didn’t like that idea at all:

Exempting common-law claims would also disserve the central purpose of the ADA. The Act eliminated federal regulation of rates, routes, and services in order to allow those aspects of air transportation to be set by market forces, and the pre-emption provision was included to prevent the States from undoing what the Act was meant to accomplish. Morales, supra, at 378. What is important, therefore, is the effect of a state law, regulation, or provision, not its form, and the ADA’s deregulatory aim can be undermined just as surely by a state common-law rule as it can by a state statute or regulation. See Medtronic, Inc., supra, at 325.

As to whether the ADA even applies to loyalty programs, the Court rules in favor of the airlines here as well.

We must next determine whether respondent’s breach of implied covenant claim “relates to” “rates, routes, or services.” A claim satisfies this requirement if it has “a connection with, or reference to, airline” prices, routes, or services, Morales, supra, at 384, and the claim at issue here clearly has such a connection. That claim seeks respondent’s reinstatement in Northwest’s frequent flyer program so that he can access the program’s “valuable . . . benefits,” including “flight upgrades, accumulated mileage, loyalty program status or benefits on other airlines, and other advantages.” App. 49–50.

Like the frequent flyer program in Wolens, the Northwest program is connected to the airline’s “rates” because the program awards mileage credits that can be redeemed for tickets and upgrades. See 513 U. S., at 226. When miles are used in this way, the rate that a customer pays, i.e., the price of a particular ticket, is either eliminated or reduced. The program is also connected to “services,” i.e., access to flights and to higher service categories. Ibid.

Clearly Ginsburg is losing the case based on this ruling. But all hope is not lost. The Court did leave a couple interesting bits in the ruling which leave openings for future reconsiderations of these rules. One aspect which may change things is that airline loyalty programs are no longer completely about flying. Yes, they’re ostensibly tied to airlines and flying is part of them, but with the growth in earning and redeeming via other avenues (credit cards, merchandise, etc.) the possibility exists that the rules could change. After all, if the loyalty program is no longer intrinsically tied to the airline then it could reasonably be argued that the ADA is no longer applicable. Certainly if an airline were to fully spin off the operation that would be an easier claim to make.

We are told that “most miles [are now] earned without consuming airline services” and are “spent without consuming airline services.” Brief for State of California et al. 18 (emphasis deleted). But whether or not this alleged change might have some impact in a future case, it is not implicated here. In this case, respondent did not assert that he earned his miles from any activity other than taking flights or that he attempted to redeem miles for anything other than tickets and upgrades. See Tr. of Oral Arg. 47–48.

And the Court also suggests that passengers have other paths of recourse. One is that the “free market” will force the airlines to compete, lest their reputations become tarnished. I’m not so sure how that’s supposed to work in reality versus what the Court sees, especially with the extended time typically associated with accumulating points and such, but that’s one thing they’re saying.

Our holding also does not leave participants in frequent flyer programs without protection. The ADA is based on the view that the best interests of airline passengers are most effectively promoted, in the main, by allowing the free market to operate. If an airline acquires a reputation for mistreating the participants in its frequent flyer program (who are generally the airline’s most loyal and valuable customers), customers can avoid that program and may be able to enroll in a more favorable rival program.

The other avenue of recourse identified by the Court is DoT enforcement. Of late I have not actually heard many reports of the DoT going to bat for passengers based on frequent flyer-related claims, but I suppose it is possible.

Federal law also provides protection for frequent flyer program participants. Congress has given the Department of Transportation (DOT) the general authority to prohibit and punish unfair and deceptive practices in air transportation and in the sale of air transportation, 49 U. S. C. §41712(a), and Congress has specifically authorized the DOT to investigate complaints relating to frequent flyer programs. See FAA Modernization and Reform Act of 2012, §408(6), 126 Stat. 87. Pursuant to these provisions, the DOT regularly entertains and acts on such complaints.

Given the precedent I’m not too surprised that this ruling came down the way it did. That is was a unanimous ruling suggests that it is unlikely we’ll see much change any time soon. That definitely is bad news for the United Million Miler lawsuit, among others.

And a thanks to reader SF for sharing the ruling with me this morning.

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