Aviation and Space Law

August, 2003 No. 1 Aviation and Space Law In This Issue John H. Martin is a partner and head of the Trial Department at Thompson & Knight LLP. Mr. Martin gratefully acknowledges the assistance of Thompson & Knight summer associate Felicity Smullen, a student at the University of Texas School of Law, in the preparation of this article. The IADC The IADC dedicates itself to enhancing the development of skills, professionalism and camaraderie in the practice of law in order to serve and benefit the civil justice system, the legal profession, society and our members. Delta Air Lines, Inc. v. Black, 2003 WL 2146884 (Tex. 2003): The Texas Supreme Court s position on ADA Preemption of Contract and Tort Claims By John H. Martin The Airline Deregulation Act ( ADA ) provides that plaintiffs may not bring state statutory and common-law claims relating to a price, route or service of an air carrier. See 49 U.S.C. 41713(b) (1994) ( Except as provided by this subsection, a State, a political subdivision of a State, or a 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. ). In Delta Air Lines v. Black, 2003 WL 21468864 (Tex. 2003), the Texas Supreme Court held that the ADA preempts at least some state breach of contract and tort claims that promote state policies in conflict with Congress policy of deregulation. This article discusses the significance of the Black opinion, which broadened the preemptive scope of the ADA. Part I of this article provides a brief history of the ADA. Parts II and III review and analyze the United States Supreme Court and Texas Supreme Court decisions regarding the preemption of breach of contract and tort claims, with particular attention to the Black opinion. Finally, Part IV considers the implications of the Black holdings for plaintiffs and airline defendants. The History of the ADA The Federal Aviation Act (FAA) of 1958 authorized the Civil Aeronautics Board ( CAB ) to promulgate regulations for airlines. 49 U.S.C. 1301 (current version at 49 U.S.C. 40101). The CAB s regulatory powers were not exclusive. See Morales v. Trans World Airlines, 504 U.S. 374, 378 (1992). Congress intent to provide the states with concurrent legislative authority was evidenced by a International Association of Defense Counsel One North Franklin, Chicago, IL 60606 Phone: (312) 368-1494 Fax: (312) 368-1854 Email:cbalice@iadclaw.org www.iadclaw.org

provision stating that nothing in this chapter shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies (hereinafter the savings clause ). See Morales, 504 U.S. at 378 (quoting 49 U.S.C. App. 1506). In 1978, Congress amended the FAA by enacting the Airline Deregulation Act for the purpose of deregulating the airline industry. 49 U.S.C. App. 1301 et. seq. To ensure the states would not frustrate deregulation efforts, Congress included a preemption provision providing that a state may not enact or enforce any law, rule, regulation, standard, or other provision having the force and effect of a law relating to rates, routes, or services of an air carrier (hereinafter the preemption clause ). 49 U.S.C 1305(a)(1). Both the United States Supreme Court and the Texas Supreme Court have interpreted the preemptive scope of the ADA. See, e.g., Morales, 504 U.S. at 374; Continental Airlines, Inc. v. Kiefer, 920 S.W.2d 274 (Tex. 1996). What follows is a discussion of their opinions. ADA Preemption of Breach of Contract Claims Morales: The ADA s Broad Preemptive Scope Morales involved a challenge by various airlines to the National Association of Attorney Generals ( NAAG ) attempts to enforce airfare advertising guidelines. Morales, 504 U.S. at 378. Texas was among the states insisting on compliance with NAAG s standards. Id. The airlines claimed that the NAAG rules constituted state regulation relating to rates and services, and accordingly were preempted by the ADA. Id. Agreeing with the airlines, the United States Supreme Court broadly construed Congress preemptive intent. Id. at 383. The Court held that the words related to in the preemption clause should be given their ordinary meaning. Id. at 384. Therefore, Congress enacted the 2 preemption clause to prohibit state enforcement actions having a connection with, or reference to, airline rates, routes or services. Id. Under this expansive definition, the Court easily found that price advertising surely related to rates since advertising encourages competitive pricing. Id. at 388-89. Therefore, the NAAG guidelines constituted unenforceable state regulation. Id. at 391. Despite the sweeping breadth attributed to Congress preemptive intent, the Court suggested that a limit to the ADA s reach might exist. See Id. at 390. The Court noted that some state actions may affect airline fares in too tenuous, remote, or peripheral a manner such that they are not preempted by the ADA. Id. However, the Court refused to express an opinion as to where it would be appropriate to draw the line, and refused to provide any guidance as to which regulations qualify as tenuous, remote or peripheral. Id. The Court s subsequent opinion in Am. Airlines, Inc. v. Wolens, 513 U.S. 219 (1995), revealed that this vague exception to preemption had little substance. Wolens: An exception to the Morales rule Only two years after Morales, the Court confronted a challenge to state law based on the ADA s preemptive scope a second time. See Id. The plaintiffs in Wolens sued American Airlines for devaluing the credits they had earned as frequent flyer program participants. Id. at 224-25. The Court rejected the lower court s finding that regulations dealing with matters that are unessential to airline operations are too tenuously and only peripherally related to rates and services placing them beyond the reach of the ADA s preemption clause. Id. at 226 (stating Morales does not countenance the Illinois Supreme Court s separation of matters essential from matters unessential to airline operations. ). Instead, the Court broadly interpreted related to to preempt the plaintiffs complaint under the Illinois Consumer Fraud Act. Id. at 823-24. Likening the Illinois Consumer Protection provisions to the NAAG guidelines in Morales,

the Court held that the Illinois legislation offended the ADA s purpose to leave largely to the airlines themselves, and not at all to States, the selection and design of marketing mechanisms. Id. Interestingly, the Court then ruled that the plaintiff s breach of contract claim was not preempted. Id. at 221. The Court reasoned that while state-imposed obligations are preempted, self-imposed obligations are excluded from preemption. Id. at 228-29. Since the terms of the frequent flyer program were voluntarily undertaken by the airline, no state-imposed obligations were involved that could violate the ADA s prohibition against State[s] enacting or enforcing any law relating to rates, routes, or services of any air carrier. Id. (emphasis added). The Court gave four reasons in support of its finding that the ADA did not preempt breach of contract claims. First, the Court justified permitting breach of contract claims on the ground that the enforcement of private agreements is necessary to the efficient and effective operation of the market. Id. at 230. The advertising restrictions in Morales were unenforceable because they reduced competitive pricing in contravention of the ADA s purpose of promoting maximum reliance on competitive market forces. Morales, 504 U.S. at 388-89. In contrast, enforcing the terms of the frequent flyer program would promote market forces because parties negotiate based on their perceived needs and the enforcement of contracts enhances market stability. Wolens, 513 U.S. at 230. A second justification was found in the DOT regulations themselves. Id. The Court concluded that the regulations presupposed the enforceability of transportation contracts under state contract law by authorizing airlines to incorporate DOT regulations by reference in any ticket, including the regulations limiting the time within which a purchaser may bring suit. Id. 3 Third, the Court relied on Congress preservation of the 1958 Federal Aviation Act savings clause in the ADA. Id. at 233. The savings clause preserves the statutory and common law remedies that were available before the ADA was enacted. Id. When read together with the preemption clause, the savings clause evidences that the states are not prohibited from providing relief for the failure to honor a condition stipulated by the airline itself since that remedy predates the ADA s enactment. Id. Fourth, there is no evidence of Congressional intent to empower federal courts to adjudicate contract claims relating to rates and services pursuant to federal common law. Id. at 223. Therefore, Congress must have anticipated that state courts would continue to adjudicate contract matters under state contract principles. Id. Based on those four reasons, the Court concluded that breach of contract claims could be adjudicated, but only those involving voluntary undertakings such that there was no enlargement or enhancement based on state laws or policies external to the agreement. Id. at 233. After Wolens, it appeared that claims based on conduct dictated by the state were preempted, but the same conduct, if voluntarily undertaken by the airlines, was actionable. Id. Kiefer: Texas Interprets Wolens One year later, the Texas Supreme Court applied and refined the Wolens rule in Continental Airlines, Inc. v. Kiefer, 920 S.W.2d 274 (Tex. 1996). Kiefer sued Continental Airlines for an injury she sustained when a flight attendant opened an overhead storage bin and a briefcase fell and hit her head. Id. Kiefer s case was consolidated with another negligence suit. Id. Shupe s parents had paid the airline a fee to have an agent meet their mentally ill son and assist him in transferring to a connecting flight. Id. When the agent did not arrive Shupe wandered in the terminal and got into an altercation with the police. Id.

To answer the question of whether personal-injury negligence actions are preempted by the ADA, the court considered Wolens and contrasted the impact of state contract law and tort law on the policies underlying the ADA. The court stated, the critical determination in applying [the Wolens] distinction is not whether the state dictates, but what it dictates. Id. at 282. The problem with considering whether the state dictates is that even though state law dictates compliance with contractual agreements, breach of contract claims are not preempted. Id. In other words, once parties voluntarily enter into a contract, the state generally ensures that one party does not subsequently renege on his promise, even if the agreement does not reference any state law. Id. Focusing on what the state regulated, the Kiefer court determined that enforcing voluntary contracts under state law effectuates few, if any, state policies. Id. at 282. Put slightly differently, affording relief in breach of contract actions will not interfere with Congress preemptive policies and purpose. Id. The Kiefer decision shifted the focus in Texas away from a standard of voluntariness toward an examination of the effect the state policies underlying the state law at issue would have on airline deregulation if the state law were enforced. Black: The Texas Supreme Court s current position on preemption of contract claims In 2003, the Texas Supreme Court once again faced an ADA preemption defense to a breach of contract claim. See Delta Air Lines v. Black, No. 02-0255, 2003 WL 21468864 (Tex. June 26, 2003). Mr. Black had booked two firstclass tickets for himself and his wife through a travel agent. Id. at *1. He had an assigned seat for the outgoing flight, but his wife did not. Id. Upon arriving at the airport, he asked for two adjacent seats in first-class. Id. A Delta supervisor told Black that his wife did not have a confirmed first-class seat, so she was placed on a waiting list that would enable her to sit in firstclass if a first-class passenger gave up his seat. 4 Id. Delta offered the Blacks travel vouchers along with each of the following options: (1) the Blacks could sit together in coach; (2) one could sit in first-class and the other in coach; (3) they could both fly first-class on a later flight which had a stopover connection; or (4) they could both fly first-class on a direct flight later that day. Id. Black rejected all four options and instead chartered a private jet for two days at a cost of $13,150. Id. He brought suit complaining that Delta had breached its contract by failing to honor his first-class reservation. Id. at *2. Delta answered that Black s claims were preempted by the ADA. Id. The Texas Supreme Court broadly interpreted the scope of the related to language in the ADA preemption clause and found that seating procedures have a definite connection with airline services. Id. at *6-7. Then, the Texas court held that Black s breach of contract claim was preempted, despite the fact that the United States Supreme Court permitted the plaintiffs in Wolens to proceed with their contract suit. Id. at *9. The court found that unlike enforcement of the frequent flyer program in Wolens, enforcing the terms of Black s ticket would offend the federal interests in deregulating the airline industry. Id. at *7. Black and Delta had formed a binding contract that incorporated Department of Transportation (DOT) regulations authorized by the ADA. Id. The DOT regulations provide that a passenger may recover damages if he is denied boarding. Id. at *8 (citing 14 C.F.R. 250.9). The court held that Black had not been denied boarding within the meaning of the DOT provisions because Delta had offered him accommodations. Id. Since he had not been denied boarding, the court held that the DOT regulations precluded Black from suing Delta for damages. Id. According to the court, to hold otherwise would be to allow Black to enlarge or enhance his bargain by using state law to sue in court rather than pursue the remedies provided in the contract. Id. Because Black s claims [could] only be adjudicated by reference to laws and

policies external to the contract, his breach of contract claim was preempted. Id. at *9. Interestingly, the court stated that even if the contract had not incorporated the DOT regulations, Black s breach of contract claim would nevertheless have been preempted because his complaint related to airline prices and services and implicated state policies that frustrate preemption. Id. The court believed that the DOT regulations were designed to provide a uniform system of compensation for overbooking, and that system should not be circumvented by subjecting airlines to suit in fifty different states. Id. To fully appreciate the significance of the Black decision, one must examine why the court preempted Black s contract claim despite its suggestion in Kiefer that contract claims were not preempted. According to the Kiefer court s interpretation of Wolens, the issue in deciding whether a state claim is preempted is whether the state legislation, regardless of subject matter, interferes with the federal policies supporting airline deregulation. Kiefer, 920 S.W.2d at 281-82. As the court stated in Kiefer, the question is not whether the state has dictated, but rather what the state has dictated. Id. Applying that analysis, the Kiefer court determined that state breach of contract claims do not offend the policies of the ADA. Id. After considering the uniformity of contract law among the fifty states and the Supreme Court s statement in Wolens that market efficiency requires effective means to enforce private agreements, the court concluded that contract law does not effectuate purposes that could have a prohibited regulatory effect on airlines [because] contract enforcement involves so little state policy that it cannot be considered regulation of airlines preempted by the ADA. Id. Applying the same analysis in Black, the court found Black s breach of contract claim did offend the policies of the ADA because his claim concerned a specific federal regulation promulgated under the ADA. Black, 2003 WL 5 21468864, at *9. No federal regulations governed the frequent flyer program at issue in Wolens, nor did a federal law govern the negligent conduct that caused plaintiffs physical injuries in Kiefer. But DOT regulations directly governed Delta s act of overselling. The DOT regulations told airlines they did not have to honor their tickets so long as they offered accommodations. On the other hand, state contract law told airlines to honor their tickets or pay damages. The two laws provided conflicting instructions at to what airlines were required to do when selling tickets and so awarding Black damages under state law would frustrate the DOT regulations precluding his recovery. ADA Preemption of Tort Claims Some courts have also held that tort claims may also be preempted. Tort plaintiffs seek compensation for intangible and individualized damages, so they cannot be restored to their pre-injury status as easily as the victims of a breach of contract. Despite the differences between contract and tort law, in particular the nature of the injuries they address and the types of compensation they provide, both the United States Supreme Court and the Texas Supreme Court have held that the ADA preempts some state-based tort claims. See, e.g., Wolens, 513 U.S. at 226; Black, 2003 WL 21468864, at *9-10. In Wolens, the United States Supreme Court applied the preemption test it had developed for breach of contracts claims in the tort context. Wolens, 513 U.S. at 823 (analyzing the plaintiff s tort claim by considering whether the policies of the ADA would be frustrated by permitting plaintiff to recover for fraud). Finding that the Illinois Consumer Protection Act guided and policed marketing practices, the Court held that the plaintiff s claim did not simply involve a voluntary, self-imposed undertaking by the airlines. Id. at 823-24. Since the consumer protection claim was not premised on privately elected obligations, it was preempted by the ADA. Id. Because tort rules are typically

mandatory, that is one cannot generally opt-out of compliance, some have argued that Wolens marked the end of tort claims against airlines. Despite Wolens, the Texas Supreme Court ruled that a negligence claim was not preempted. Kiefer, 920 S.W.2d at 284. The plaintiffs in Kiefer sued the airline for injuries they sustained during flight. Id. at 276. After determining that the plaintiffs negligence claims were related to services, the court held that the complaint was not preempted because fundamentally, the purpose of ADA preemption is not to absolve airlines from all liability. Id. at 282. In reaching that conclusion, the court interpreted Wolens in the torts context just as it had for contracts, and found that only those laws that promote state policies in conflict with the ADA are preempted. Id. Plaintiffs action was permitted despite [the] greater risk that state policies will be too much involved [in tort law] than with contract law [because] negligence law is not as uniform as contract law. Id. Notably, the court s holding was expressly limited to the Kiefer plaintiffs, and the opinion states that some tort actions may be preempted if they threaten to undo federal deregulation with regulation of their own. Id. The Kiefer court s prediction that some tort actions could be preempted came true in Black. Black sued for misrepresentation and fraud when he could not use the first class ticket he had purchased for his scheduled flight. Black, 2003 WL 21468864, at *2. As expected, the court found that Black s claims dealt with Delta s ticketing and boarding procedures, and so were directly related to Delta s services. Id. at *9. Then, in one paragraph, the court explained that Black s claims were preempted by the ADA. Id. at *10. Quoting Kiefer, the court suggested that Black s claims were indistinguishable from claims based on state consumer protection statutes, which impose state policies in contravention of Congress intent to deregulate airlines. Id. 6 Perhaps the court s discussion of the negligence issue was so cursory because it was preceded by a detailed analysis of how allowing Black to recover on his breach of contract claim would interfere with the DOT regulations. Such a perfunctory approach is problematic because the reasons for preempting Black s breach of contract claims do not apply to his tort claims. The DOT regulation governing overselling provides passengers with compensation typical of breach of contract damages; the passenger is given the monetary benefit of his bargain through vouchers and alternate flight arrangements. The DOT compensation scheme does not account for tort injuries that may result from overbooking. Thus, it is difficult to see how allowing Black to recover on his tort claim would interfere with the ADA s preemption and the DOT s overselling regulations. Unfortunately for Black, he was not a sympathetic plaintiff. Instead of accepting any of the four accommodations he was offered, Black charted a private plane for $13,150. Id. at *10. It is possible that the court did not believe he had suffered any meaningful injury that would entitle him to damages even if he could recover for his claim. Maybe the court was uncomfortable with awarding money to plaintiffs when airlines have taken all reasonable steps to compensate them already. Whatever the court s rationale, one thing was clear: Black could not recover from airlines for fraud and misrepresentation. The Future of ADA Preemption The initial preemption cases, both in Texas and the United States Supreme Court, reserved a narrow arena in which state law could affect airlines despite Congress broad preemptive intent. The permissible field of state regulation has morphed from legislation that is tenuously and remotely related to airline services to legislation that enforces an obligation voluntarily undertaken by airlines and finally to legislation that does not promote policies that interfere with deregulation.