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:: American Airlines v. Wolens |
Public Citizen gave substantial assistance in American Airlines v. Wolens, a case involving the rights of more than
four million members of American Airlines' frequent flyer program, in which the Supreme Court ruled that the Airline
Deregulation Act did not preempt claims for breach of contract arising out of American's attempt to retroactively
change the terms and condition of
the Program.
American Airlines v. Wolens, 115 S. Ct. 817, 130 L. Ed. 2d 715 (1995).
Docket 93-1286 -- Decided January 18, 1995
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
AMERICAN AIRLINES, INC. v. WOLENS et al.
certiorari to the Supreme Court of Illinois
No. 93-1286.
Argued November 1, 1994
Decided January 18, 1995
In consolidated state-court class actions brought in Illinois, plaintiffs
(respondents here), as participants in American Airlines' frequent
flyer program, challenged American's retroactive changes in program
terms and conditions-particularly, American's imposition of capacity
controls (limits on seats available to passengers obtaining tickets
with frequent flyer credits) and blackout dates (restrictions on dates
such credits could be used). Plaintiffs alleged that application of
these changes to mileage credits they had previously accumulated
violated the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) and constituted a
breach of contract.
American answered that the Airline Deregulation Act of 1978
(ADA), 49 U. S. C. App. 1305(a)(1), preempted plaintiffs' claims.
The ADA prohibits States from "enact[ing] or enforc[ing] any law
. . . or other provision having the force and effect of law relating to
[air carrier] rates, routes, or services."
While the Illinois class-action litigation was sub judice, this Court
decided Morales v. Trans World Airlines, Inc., 504 U. S. ___.
Morales defined 1305(a)(1)'s "relating to" language to mean "having
a connection with or reference to airline `rates, routes, or services,'"
id., at ___, and held that National Association of Attorneys General
(NAAG) guidelines on airline fare advertising were preempted under
that definition. The Illinois Supreme Court, post-Morales, ruled
that plaintiffs' monetary claims survived for state-court adjudication.
Those claims related only "tangential[ly]" or "tenuous[ly]" to "rates,
routes, or services," the Illinois court reasoned, because frequent
flyer programs are "peripheral," not "essential," to an airline's
operation.
Held: The ADA's preemption prescription bars state-imposed regulation of air carriers, but allows room for court
enforcement of contract terms set by the parties themselves. Pp. 6-15.
(a) Morales does not countenance the Illinois Supreme Court's
separation of "essential" operations from unessential programs.
Plaintiffs' complaints, accordingly, state claims "relating to" air
carrier "rates" (i.e., American's charges, in the form of mileage
credits, for tickets and class-of-service upgrades) and "services" (i.e.,
access to flights and upgrades unlimited by retrospectively applied
capacity controls and blackout dates). P. 6.
(b) The full text of the ADA's preemption clause, and the congressional purpose to leave largely to the airlines
themselves, and
not at all to States, the selection and design of marketing mechanisms appropriate to the furnishing of air
transportation services,
impel the conclusion that 1305(a)(1) preempts plaintiffs' Consumer
Fraud Act claims. The Illinois Act is prescriptive, controlling the
primary conduct of those falling within its governance; the Act,
indeed, is paradigmatic of the state consumer protection laws that
underpin the NAAG guidelines. Those guidelines highlight the
potential for intrusive regulation of airline business practices inherent in state consumer protection legislation.
The guidelines illustrate that the Illinois Act does not simply give effect to bargains
offered by the airlines and accepted by customers, but serves as a
means to guide and police airline marketing practices. Pp. 6-8.
(c) The ADA, however, does not bar court adjudication of routine
breach of contract claims. The preemption clause leaves room for
suits alleging no violation of state-imposed obligations, but seeking
recovery solely for the airline's breach of its own, self-imposed
undertakings. As persuasively argued by the United States, terms
and conditions airlines offer and passengers accept are privately
ordered obligations and thus do not fit within the compass of state
enactments and directives targeted by 1305(a)(1). A remedy
confined to a contract's terms simply holds parties to their agreements-in this instance, to business judgments an
airline made
public about its rates and services. Court enforcement of private
agreements advances the market efficiency that the ADA was
designed to promote, and comports with provisions of the Federal
Aviation Act of 1958 (FAA) and related Department of Transportation (DOT) regulations that presuppose the vitality of
contracts
governing air carrier transportation. Such enforcement is responsive
to the reality that the DOT lacks the apparatus and resources
required to superintend a contract dispute resolution regime. Court
adjudication of routine breach of contract claims, furthermore,
accords due recognition to Congress' retention of the FAA's saving
clause, which preserves "the remedies now existing at common law
or by statute." Nor can it be maintained that plaintiffs' breach of
contract claims are identical to, and therefore should be preempted
to the same extent as, their Consumer Fraud Act claims. The basis
for a contract action is the parties' agreement; to succeed under the
state Act, one need not show an agreement, but must show an
unfair or deceptive practice. Pp. 8-13.
(d) American's argument that plaintiffs' claims must fail because
they depend on state policies independent of the parties' intent
assumes the answer to the very contract construction issue on which
plaintiffs' claims turn: Did American, by contract, reserve the right
to change the value of already accumulated mileage credits, or only
to change the rules for credits earned from and after the date of the
change? That pivotal question of contract interpretation has not yet
had a full airing and remains open for adjudication on remand.
P. 14.
157 Ill. 2d 466, 626 N. E. 2d 205, affirmed in part, reversed in part,
and remanded. Ginsburg, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Kennedy, Souter, and
Breyer, JJ., joined, and in
which Stevens, J., joined as to Parts I (except for the last paragraph)
and II-B. Stevens, J., filed an opinion concurring in part and
dissenting in part. O'Connor, J., filed an opinion concurring in the
judgment in part and dissenting in part, in which Thomas, J., joined
except for Part I-B.
Scalia, J., took no part in the consideration or
decision of the case.
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The Layman's Version of American Airlines v. Wolens
While much of the publicity of this case surrounded the celebrity status of frequent flyer miles in the Supreme Court
of the United States, it really wasn't about frequent flyer miles. The issue had more to do with passengers rights in
all matters in State Court vs. the Federal Premption that airlines has always hid behind. There have been other cases
involving "bumped" passengers with Northwest, etc. But the topic of frequent flyer miles certainly made this a
bellweather case. The results were not really a victory for frequent flyer rights, simply that passengers had rights
that could be addressed in State Court and back went to case to the State of Illinois.
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Present Status of American Airlines v. Wolens
Well, the case has finally been settled. And, at the risk of insulting the efforts of those who steered the case along all these years, we're disappointed to say that it all boiled down to egos and money -- both of which ended up belonging to the attorneys.
One of the lead attorneys in the case, Michael B. Hyman, of Much Shelist Freed Denenberg Ament and Rubenstein, put out a press release following the settlement of the case stating that, "These hard-fought, far-reaching lawsuits show that airline passengers can fight back, and that consumers have a collective commanding voice when diligent and dedicated counsel lead the charge." We suspect that he was referring to himself and the fact that he convinced the court that $25,000,000 (that's not a typo, that is 25 MILLION dollars!) in attorney's fees was fair and reasonable. We are not experts in this matter, but the manner in which this was announced leaves us a little disappointed. More on that later.
First, let's review the case and what it means. Essentially this was a settlement of two cases -- Wolens v. American Airlines and Gutterman v. American Airlines -- although the names aren't that important, since they are both class-action suits. The Wolens case involved changes AAdvantage made to their program back in 1988 when they introduced PlanAAhead and AAnytime awards. The argument was that a grandfather clause should be instituted for those miles that were earned prior to the changes, and that members with these grandfathered miles in their accounts should have the old award schedule, without capacity controls, made available to them for the redemption of said miles. The same general argument was made in the Gutterman case in 1995 when AAdvantage changed their award schedule from 20,000 to 25,000 miles for a PlanAAhead award.
Now, some 12,000 billable hours and 13 years of litigation later, including time spent both in the Illinois and U.S. Supreme court, we finally arrive at a settlement. If you're one of the participants in this suit and are reading this and wondering how to collect your part of the settlement, all we can tell you is sorry, you're too late. In fact, of the nearly 4 million AAdvantage members who were eligible for claims in this case, only 37.5% of them returned their claim forms. Remember this statistic the next time you hear that members are so passionate about these these programs.
If every participant in the suit had filed a claim, American Airlines would have paid damages in the range of $305.9 million to $445 million. Now this value will be discounted to reflect actual claims filed, effectively reducing the figures to approximately $114.7 million to $141.6 million. So, even though the settlement numbers look big on paper, the actual damage to American Airlines is quite minimal due to the low number of participants who filed a claim. Add to that the fact that nearly 20% of the awards that are handed out by American Airlines are expected to go unredeemed, and the "real" settlement figures are reduced even further, to about $95.6 million to $113.3 million.
But please, don't short your American Airlines stock thinking that this is going to hurt them financially. These are funny money numbers and have absolutely no impact on the real world of frequent flyer programs. For instance, depending on the class you are entered in, you will receive either a 5,000-mile certificate (which can be used with 35,000 old miles to claim a single domestic coach award without capacity controls) or a 30,000-mile certificate (allowing you to claim two capacity control free tickets for 50,000 miles, instead of 80,000 miles). Others will have a choice of the same 5,000-mile discount against a capacity free award or $25 off a fare of $249.99 or less, $50 off a fare of $250 to $499.99, and $75 off a fare of $500 or more. Those eligible for the Gutterman settlement have similar offers of cash or miles but the numbers vary.
Now, which of you wise guys and gals will purposely use your claim certificate to claim an award at 40,000 miles (only costing you 35,000 miles with the certificate you will receive) when chances are you have never had to claim a capacity control free award ever? Most of us have had great luck with the 25,000-mile award and would be foolish to spend the additional 10,000 miles just to take advantage of the certificate. And, do you think those discounts will be honored at Orbitz, Expedia or Travelocity? Sorry Charlie.
Though we are not impressed with the settlement details, we are pleased with the message that was sent -- do not mess with our rights as frequent flyers. Unfortunately, in the final settlement papers, more pages were devoted to justifying the lawyers fees than were spent explaining the settlement terms. Of course, when you charge $25,000,000 for 12,000 billable hours of work (that's over $2,000 per hour), you're going to have some explaining to do. Makes those cigarette cases look like a deal.
And what of the frequent flyers that started all this? The Court did approve an incentive award of 50,000 AAdvantage program "new" miles each to Myron Wolens, Albert Gale, R. Craig Zafis, Bret Maxwell, Arthur Gutterman, Steven Gutterman, Sharon Keld, Donald Karchmer, Jack Rosenblum, and William Oshinski.
As for Michael B. Hyman -- he must be one hell of a lawyer. Just ask him.
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