Opinion ID: 3170660
Heading Depth: 4
Heading Rank: 1

Heading: History of the FAAAA

Text: The Interstate Commerce Act of 1887, ch. 104, 24 Stat. 379, set into motion nearly a century of federal regulation of the transportation industry. The Interstate Commerce Com- 8 Nos. 15-1109 & 15-1110 mission first regulated the railroad industry, then in 1935 Congress added the trucking industry, Motor Carrier Act of 1935, ch. 498, 49 Stat. 543, and in 1938, the airline industry, Civil Aeronautics Act of 1938, ch. 601, 52 Stat. 973. But by the 1970s, a movement to deregulate the transportation industry was taking off. In 1978, Congress “determin[ed] that ‘maximum reliance on competitive market forces’” would better serve the air transportation industry, and so began the process of deregulation. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378 (1992). Congress enacted the Airline Deregulation Act of 1978, Pub. L. No. 95-504, 92 Stat. 1705, which dismantled federal regulation of the airline industry. In addition, the ADA sought to “ensure that the States would not undo federal deregulation with regulation of their own.” Morales, 504 U.S. at 378. To that end, Congress provided in the ADA that “no State … shall enact or enforce any law … relating to rates, routes, or services of any air carrier.” 92 Stat. at 1708. Trucking-industry deregulation was not far behind. In 1980, Congress passed the Motor Carrier Act of 1980, Pub. L. No. 96-296, 94 Stat. 793, which ended the federal government’s management of the trucking industry. Fourteen years later, to complete deregulation of the trucking industry, Congress enacted a preemption provision in the Federal Aviation Administration Authorization Act of 1994, Pub. L. No. 103-305, 108 Stat. 1569. The FAAAA borrowed the preemptive language of the ADA, providing that “a State … may not enact or enforce a law … related to a price, route, or service of any motor carrier … with respect to the transportation of property.” Id. at 1606. Nos. 15-1109 & 15-1110 9 b. The Supreme Court’s Interpretation of the FAAAA The Supreme Court has on several occasions interpreted the “related to” language contained in the FAAAA and the ADA. The Court has interpreted the shared language of the two statutes identically. See Rowe v. N.H. Motor Transp. Ass’n, 552 U.S. 364, 370 (2008). The preemptive scope of the FAAAA is broad. See Mo- rales, 504 U.S. at 383–84. A state law is preempted if it has a direct connection with or specifically references a carrier’s prices, routes, or services. Id. at 384. More expansively, a state law may be preempted even if the law’s effect on prices, routes, or services “is only indirect.” Id. at 386 (quotation marks omitted). This means “that pre-emption occurs at least where state laws have a ‘significant impact’ related to Congress’ deregulatory and pre-emption-related objectives.” Rowe, 552 U.S. at 371 (quoting Morales, 504 U.S. at 390). Preemption, however, is not unlimited. The FAAAA does not preempt state laws “that affect fares in only a ‘tenuous, remote, or peripheral … manner.’” Id. (quoting Morales, 504 U.S. at 390). In Morales, the Supreme Court explained that laws prohibiting gambling or prostitution, for example, were beyond the scope of FAAAA preemption. Morales, 504 U.S. at 390. The Supreme Court has on four occasions elaborated on the scope of the “related to” clause of the ADA and FAAAA beginning with Morales, 504 U.S. 374. In Morales, the National Association of Attorneys General promulgated “detailed standards governing the content and format of airline advertising, the awarding of premiums to regular customers …, and the payment of compensation to 10 Nos. 15-1109 & 15-1110 passengers who voluntarily yield their seats on overbooked flights.” 504 U.S. at 379. The attorneys general sought to enforce these “guidelines” through their states’ generally applicable consumer protection statutes. Id. at 383. The Court rejected the contention that a state law must actually direct the setting of rates, routes, or services or specifically target the airline industry to be preempted. Id. at 385–86. Instead, the Court concluded that enforcement of the guidelines through consumer-protection statutes was preempted because it “would give consumers a cause of action … for an airline’s failure to provide a particular advertised fare—effectively creating an enforceable right to that fare when the advertisement fails to include the mandated explanations and disclaimers.” Id. at 388 (citation omitted). American Airlines, Inc. v. Wolens was the Supreme Court’s second foray into interpreting the scope of ADA preemption. 513 U.S. 219 (1995). In Wolens, the plaintiffs filed suit against American Airlines under Illinois’s Consumer Fraud Act and for breach of contract because of the airline’s retroactive changes in the terms and conditions of its frequent flyer program. Id. at 224–25. The Court held that claims under the Consumer Fraud Act were preempted because they “serve[] as a means to guide and police the marketing practices of the airlines.” Id. at 228–29. The breach-of-contract claims, however, were not preempted because they are “privately ordered obligations” that “simply hold[] parties to their agreements” and “thus do not amount to a State’s enact[ment] or enforce[ment] [of] any law” for purposes of ADA preemption. Id. (quotation marks omitted). The scope of the preemption clause in the FAAAA itself first appeared before the Supreme Court in Rowe, 552 U.S. Nos. 15-1109 & 15-1110 11 364. In Rowe, Maine enacted a statute that required Mainelicensed tobacco retailers to use a delivery service that verified the recipient’s identity, legal age, signature, and government-issued photo identification. Id. at 368–69. The Court held that the Maine law was preempted because it “will require carriers to offer a system of services that the market does not now provide (and which the carriers would prefer not to offer).” Id. at 372. A state law that requires carriers to offer particular services to its customers was precisely the result that the FAAAA was designed to prevent. Id. Finally, the Supreme Court revisited FAAAA preemption in Northwest, Inc. v. Ginsberg, 134 S. Ct. 1422 (2014). In Northwest, the plaintiff brought a state-law claim for breach of the implied covenant of good faith and fair dealing after Northwest terminated his “Platinum Elite” frequent-flier status. Id. at 1426. The Court held that the state common-law claim was preempted because “it seeks to enlarge the contractual obligations that the parties voluntarily adopt[ed].” Id. If, however, the state’s common law “permits an airline to contract around those rules,” then the state law is not preempted. Id. at 1433. c. Lower Courts’ Interpretations of the FAAAA The various courts of appeal have also grappled with resolving which laws are “related to” a price, route, or service and which laws are too “tenuous, remote, or peripheral” to fall within the ambit of FAAAA preemption. We gave that question extensive treatment in S.C. Johnson & Son, Inc. v. Transport Corporation of America, Inc., 697 F.3d 544 (7th Cir. 2012). In that case, S.C. Johnson learned that its transportation director, Milton Morris, was receiving cash, 12 Nos. 15-1109 & 15-1110 goods, travel, and services from certain motor carriers. Id. at 546. In exchange, Morris was giving the carriers business they otherwise would not have received or having S.C. Johnson pay above-market rates for the transportation services. Id. S.C. Johnson brought five state-law claims against the motor carriers involved in Morris’s scheme for: “(1) fraudulent misrepresentation by omission; (2) civil conspiracy to violate the Wisconsin bribery statute; (3) civil conspiracy to commit fraud; (4) violation of the Wisconsin Organized Crime Control Act (WOCCA); and (5) aiding and abetting a breach of fiduciary duty.” Id. (citations omitted). We held that S.C. Johnson’s claims for fraudulent misrepresentation and conspiracy to commit fraud were preempted. Id. at 557. S.C. Johnson’s claims of bribery and racketeering, however, we held were not preempted.2 Id. at 560. The fraud claims we described as “well-meaning but widely varying paternalistic provisions designed to protect consumers from the rigors of the market.” Id. at 557 (emphasis added). Enforcing these laws, therefore, amounts to a state substituting its own policy for the agreement the airline and its customers reached. Id. In contrast, we described the bribery and racketeering claims as “state laws of general application that provide the backdrop for private ordering.” Id. at 558. We acknowledged that virtually any state law, at some level, has an effect on the market price. Id. We used state labor laws as an example, 2 We did not address the breach-of-fiduciary-duty claim because S.C. Johnson had not appealed the district court’s dismissal of the claim as time-barred. S.C. Johnson & Son, Inc. v. Transp. Corp. of Am., 697 F.3d 544, 557 (7th Cir. 2012). Nos. 15-1109 & 15-1110 13 noting that changes to “minimum wage laws, worker-safety laws, anti-discrimination laws, and pension regulations” affect the cost of labor, and in turn, the price at which a motor carrier offers a service. Id. Yet, we concluded: [N]o one thinks that the ADA or the FAAAA preempts these and the many comparable state laws because their effect on price is too “remote.” Instead, laws that regulate these inputs operate one or more steps away from the moment at which the firm offers its customer a service for a particular price. Id. (citations omitted and emphasis added). We also turn to our sister circuits’ treatment of employment laws for additional guidance. Most relevant is the First Circuit’s recent opinion in Massachusetts Delivery Association v. Coakley (“MDA I”), 769 F.3d 11 (1st Cir. 2014). In MDA I, the First Circuit addressed a Massachusetts law that used an ABC test for employment that is substantially similar to the IWPCA’s. The district court found that the second prong of the ABC test was not preempted because the fact “[t]hat a regulation on wages has the potential to impact costs and therefore prices is insufficient to implicate preemption.” Id at 21 (alteration in original and quotation marks omitted). But the First Circuit reversed and remanded for further consideration. Id. at 23. The First Circuit declined to adopt a categorical rule exempting all generally applicable employment laws from preemption. Id. at 20. Instead, the court highlighted an error in the district court’s analysis: when evaluating FAAAA preemption, a court should examine the potential impact of the law to determine if the effect of the law could be significant. Id. at 21. In addition, the district 14 Nos. 15-1109 & 15-1110 court only considered the impact of the law on the carriers’ prices, not their routes and services. Id. at 21–22. After remand, the district court held that the FAAAA did preempt the second prong of the Massachusetts statute’s ABC test for employment. Mass. Delivery Ass’n v. Healey (“MDA II”), No. 10-cv-11521, 2015 WL 4111413, at  (D. Mass. July 8, 2015). The court found that the carrier would now have to alter its routes to begin at couriers’ homes, pay stem miles, provide meal and rest breaks, maintain a fleet of delivery vehicles, and eliminate on-demand delivery services or pay employees to be “on call.” Id. at –6. All of these changes, the district concluded, would have a significant impact related to the company’s prices, routes, and services, and therefore, the statute was preempted. Id. at . No other circuits have addressed the precise question of where to draw the preemption line when state law mandates classification of couriers as employees for particular purposes. What our sister circuits do show is that the effect of a labor law, which regulates the motor carrier as an employer, is often too “remote” to warrant FAAAA preemption. The First Circuit underscored this distinction in DiFiore v. American Airlines, Inc., in which the court held that a Massachusetts law prohibiting an employer from keeping a payment advertised as a “service charge” was preempted. 646 F.3d 81, 88 (1st Cir. 2011). This was so because the law “directly regulates how an airline service is performed and how its price is displayed to customers—not merely how the airline behaves as an employer or proprietor.” Id. The effects of generally applicable meal and rest break laws, the Ninth Circuit concluded, are also too remote to Nos. 15-1109 & 15-1110 15 warrant preemption. Dilts v. Penske Logistics, Inc., 769 F.3d 637, 650 (9th Cir. 2014). The court explained: [G]enerally applicable background regulations that are several steps removed from prices, routes, or services, such as prevailing wage laws or safety regulations, are not preempted, even if employers must factor those provisions into their decisions about the prices that they set, the routes that they use, or the services that they provide. Id. at 646. Several circuits have held that claims of employment discrimination or retaliatory discharge are not preempted by the FAAAA. For example, in Branche v. Airtan Airways, Inc., the Eleventh Circuit noted that “[i]t is true that an airline’s employment decisions may have an incidental effect on its ‘services,’” but the court held that the incidental effect of employment-retaliation claims was too remote to warrant preemption. 342 F.3d 1248, 1259–60 (11th Cir. 2003); see also Wellons v. Nw. Airlines, Inc., 165 F.3d 493, 495 (6th Cir. 1999) (holding that race-discrimination claim was not preempted); Anderson v. Am. Airlines, Inc., 2 F.3d 590, 597–98 (5th Cir. 1993) (holding that retaliatory-discharge claim was not preempted because its effect on airline services was too remote). Our opinion in S.C. Johnson and the decisions of our sister circuits confirm that there is a relevant distinction for purposes of FAAAA preemption between generally applicable state laws that affect the carrier’s relationship with its customers and those that affect the carrier’s relationship with its workforce. Laws that affect the way a carrier interacts with its customers fall squarely within the scope of FAAAA 16 Nos. 15-1109 & 15-1110 preemption. Laws that merely govern a carrier’s relationship with its workforce, however, are often too tenuously connected to the carrier’s relationship with its consumers to warrant preemption. The Supreme Court’s preemption decisions do not counsel a different conclusion. See e.g., Morales, 504 U.S. at 388 (preempting state-law claim because “it would give consumers a cause of action … for an airline’s failure to provide a particular advertised prices” (emphasis added and citation omitted)); Rowe, 552 U.S. at 372 (preempting a state law that determined “the services that motor carriers will provide” to their customers).