Opinion ID: 222605
Heading Depth: 2
Heading Rank: 2

Heading: Supreme Court and Ninth Circuit Precedent

Text: The Supreme Court has encountered the ADA's preemption clause at least three times since 1990. In Morales, the Court considered whether the ADA preempted the States from prohibiting allegedly deceptive airline fare advertisements through enforcement of their general consumer protection statutes. 504 U.S. at 378, 112 S.Ct. 2031. The Court concluded that because advertising has such a direct link to pricing and rates, the ADA preempted restrictions against deceptive advertising. Id. at 388-89, 112 S.Ct. 2031. The Court therefore reasoned that the advertising restrictions at issue had the forbidden significant effect on rates, routes, or services. Id. at 388, 112 S.Ct. 2031. Because the regulations were inconsistent with the ADA's deregulatory purpose, they were preempted under former § 1305(a)(1). But in the next breath the Court cabined its holding to those laws that actually have a direct effect on rates, routes, or services. The Court went to great lengths to make clear that its holding was narrow, and that the ADA only preempts laws that have a direct effect on pricing: In concluding that the ... advertising guidelines are pre-empted, we do not... set out on a road that leads to pre-emption of state laws against gambling and prostitution as applied to airlines. Nor need we address whether state regulation of the nonprice aspects of fare advertising (for example, state laws preventing obscene depictions) would similarly relate to rates; the connection would obviously be far more tenuous.... [S]ome state actions may affect airline fares in too tenuous, remote, or peripheral a manner to have a preemptive effect. 504 U.S. at 390, 112 S.Ct. 2031 (internal citations omitted). We echoed this view in Air Transport Association of America v. City & County of San Francisco, where we concluded that Congress did not intend for the ADA to preempt state laws forbidding employment discrimination, even if these laws have an economic effect, because employment discrimination laws are not directly related to pricing, routes, or services. 266 F.3d 1064, 1072-73 (9th Cir.2001). The Court considered the ADA's preemption clause for a second time in American Airlines, Inc., v. Wolens, 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995). In a fact pattern similar to this case, the plaintiffs in Wolens were members of a frequent flyer program and brought suit against an airline. Id. at 224-25, 115 S.Ct. 817. The plaintiffs challenged certain program modifications that devalued credits the members had already earned, and claimed that the devaluation constituted a breach of contract and a violation of Illinois's Consumer Fraud and Deceptive Business Practices Act. Id. The court concluded that § 1305(a)(1) clearly preempted the consumer fraud claim because it was a state-imposed regulation that related to the price, routes, or services of air carriers. Id. at 222, 115 S.Ct. 817. But the Court allowed the breach of contract claim to go forward, making clear that the ADA allows room for court enforcement of contract terms set by the parties themselves. Id. In so doing, the Court held that Congress did not intend to preempt common law contract claims. Charas v. Trans World Airlines, Inc., 160 F.3d 1259, 1264 (9th Cir.1998) (en banc) (discussing the scope of § 1305(a)(1) after the Wolens decision). The Court in Wolens drew a clear distinction between the consumer fraud claim, which was based on a proscriptive law targeting primary conduct, and actions that simply give effect to bargains offered by the airlines and accepted by airline customers. Wolens, 513 U.S. at 228, 115 S.Ct. 817. Because this distinction  between state laws that regulate airlines and state enforcement of contract disputes  is crucial, we quote the Court at length: We do not read the ADA's preemption clause, however, to shelter airlines from suits alleging no violation of state-imposed obligations, but seeking recovery solely for the airline's alleged 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 amount to a State's `enact[ment] or enforce[ment] [of] any law, rule, regulation, standard, or other provision having the force and effect of law' within the meaning of [§] 1305(a)(1).  Brief for United States as Amicus Curiae 9. Cf. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 526, 112 S.Ct. 2608, 2612, 120 L.Ed.2d 407 (1992) (plurality opinion) ([A] common-law remedy for a contractual commitment voluntarily undertaken should not be regarded as a `requirement... imposed under State law ' within the meaning of [Federal Cigarette Labeling and Advertising Act] § 5(b).). The ADA, as we recognized in Morales ... was designed to promote maximum reliance on competitive market forces. ... Market efficiency requires effective means to enforce private agreements. See Farber, Contract Law and Modern Economic Theory, 78 Nw. U.L.Rev. 303, 315 (1983) (remedy for breach of contract is necessary in order to ensure economic efficiency).... As stated by the United States: The stability and efficiency of the market depend fundamentally on the enforcement of agreements freely made, based on the needs perceived by the contracting parties at the time. Brief for United States as Amicus Curiae 23. That reality is key to sensible construction of the ADA. Wolens, 513 U.S. at 228-30, 115 S.Ct. 817 (internal footnote omitted) (alterations in original) (emphasis added). In sum, the Court concluded that a state does not enact or enforce any law when it uses its contract laws to enforce private agreements. [2] After drawing this distinction, the Court then pointed out institutional limitations that demonstrate the ADA cannot preempt breach of contract claims, including those based on common law principles such as good faith and fair dealing. In particular, the Department of Transportation is not equipped to adjudicate these types of claims. First, the DOT's own regulations contemplate that ... contracts ordinarily would be enforceable under `the contract law of the States.' Wolens, 513 U.S. at 230, 115 S.Ct. 817 (citing 47 Fed.Reg. 52129 (1982)). Second, the DOT is not equipped with either the authority [or] the apparatus required to superintend a contract dispute resolution regime. Id. at 232, 115 S.Ct. 817. Although before 1978 the CAB adjudicated contract disputes, when Congress deregulated the airline industry it dismantled this apparatus and never replaced it. Therefore, if common law contract claims were preempted by the ADA, a plaintiff literally would have no recourse because state courts would have no jurisdiction to adjudicate the claim, and the DOT would have no ability to do so. Effectively, the airlines would be immunized from suit  a result that Congress never intended. This also means that the law-makers indicated no intention to establish, simultaneously, a new administrative process for DOT adjudication of private contract disputes. Id. Consequently, the Court flatly refused to foist on the DOT work Congress has neither instructed nor funded the Department to do. Id. at 234, 115 S.Ct. 817. We agree. The Supreme Court considered § 1305(a)(1) for a third time in Rowe v. New Hampshire Motor Transport Ass'n, 552 U.S. 364, 128 S.Ct. 989, 169 L.Ed.2d 933 (2008). In Rowe a group of transport carrier associations challenged a Maine statute that regulated the shipment of tobacco into the state. Id. at 369, 128 S.Ct. 989. The Court concluded that the ADA preempted Maine's statute because the latter produces the very effect that the federal law sought to avoid; namely, a State's direct substitution of its own governmental commands for `competitive market forces.' Id. at 372, 128 S.Ct. 989. Invoking Morales, the Court emphasized that state enforcement actions having a connection with, or reference to carrier `rates, routes, or service,' are pre-empted. Id. at 370, 128 S.Ct. 989 (quoting Morales, 504 U.S. at 384, 112 S.Ct. 2031 (alteration omitted)). Indeed, compared to either Wolens or Morales, the link in Rowe was more directly related to routes, rates, or services because it regulated primary activity that fell under the ADA, thereby frustrating Congress's manifest purpose to deregulate the industry. And finally, we addressed a similar question in West v. Northwest Airlines, Inc., 995 F.2d 148 (9th Cir.1993). There, the plaintiff brought suit against Northwest for breach of the covenant of good faith and fair dealing under Montana law. Id. at 149. The district court granted summary judgment to Northwest, stating that the claim was preempted by the ADA. On appeal we reversed, concluding that a claim for breach of the covenant of good faith and fair dealing was too tenuously connected to airline regulation to trigger preemption under the ADA. Id. at 151. Although this case was pre- Wolens, we conclude it is still good law. Indeed, in Charas, a post- Wolens decision, we emphasized that Congress's clear and manifest purpose in enacting airline deregulation was to achieve just that  the economic deregulation of the airline industry. Charas, 160 F.3d at 1265. The only purpose of the preemption clause is to prevent state interference with the mandate of deregulation. Id. at 1261 (noting that when Congress enacted the ADA it intended to preempt only state laws and lawsuits that would adversely affect the economic deregulation of the airlines and the forces of competition within the airline industry.). Additionally, that Congress did not intend for § 1305(a)(1) to preempt state common law contract claims is evident from another provision: the savings clause, which preserves common law remedies. Because the ADA's preemption clause does not explicitly preempt common law breach of contract claims, we turn to the rest of the statute's language to `ascertain and give effect to the plain meaning of the language used,' but must be careful not to read the preemption clause's language in such a way as to render another provision superfluous. Charas, 160 F.3d at 1264 (quoting Hughes Air Corp. v. Public Utils. Comm'n, 644 F.2d 1334, 1337 (9th Cir.1981)). In Charas we concluded that, taken together, the savings clause and preemption clause evidence[] congressional intent to prohibit states from regulating the airlines while preserving state tort remedies that already existed at common law, providing that such remedies do not significantly impact federal deregulation. Id. at 1265. Similar logic would apply to state contract remedies that already existed at common law, such as the implied covenant of good faith and fair dealing. See Wolens, 513 U.S. at 232-33, 115 S.Ct. 817 (explaining that the preemption clause, read together with the ... savings clause, would permit state-law-based court adjudication of routine breach-of-contract claims). Moreover, we also may look to the pervasiveness of the regulations enacted pursuant to the relevant statute to find preemptive intent. Montalvo v. Spirit Airlines, 508 F.3d 464, 470 (9th Cir.2007). As the Supreme Court pointed out in Wolens, the DOT is not equipped to handle contract disputes, and its regulations suggest that Congress did not intend to occupy this particular field of law. This stands in contrast, for example, to airline safety, where agency regulations demonstrate an intent to occupy exclusively the entire field of aviation safety. Id. at 471. A claim for breach of the implied covenant of good faith and fair dealing does not interfere with the deregulatory mandate. Although Northwest argues that a common law breach of contract claim, like one based on the doctrine of good faith and fair dealing, would enlarge the contract's terms  savings clause, notwithstanding  the Supreme Court rejected this argument in Wolens. There, the Court explicitly allowed state-law-based claims to go forward because that was the purpose of retaining the savings clause. Wolens, 513 U.S. at 232, 115 S.Ct. 817. The Supreme Court reasoned that state-law-based contract claims would not frustrate the ADA's manifest purpose: [b]ecause contract law is not at its core `diverse, nonuniform, and confusing,' we see no large risk of nonuniform adjudication inherent in `state-court enforcement of the terms of a uniform agreement prepared by an airline and entered into with its passengers nationwide.' Id. at 233 n. 8, 115 S.Ct. 817 (internal citation and alteration omitted). As we pointed out in Air Transport Association of America v. City and County of San Francisco, [w]hat the Airlines are truly complaining about are free market forces and their own competitive decisions. 266 F.3d 1064, 1074 (9th Cir.2001). In upholding a local law forbidding employment discrimination, the Ninth Circuit reasoned that [i]n this deregulated environment, airlines can decide whether or not to make large economic investments at the San Francisco airport.... That economic decision may mean the Airlines will have to agree to abide by the [city's anti-discrimination] Ordinance[]. Id. Similarly, here, Northwest is free to invest in a frequent flier program; however, that economic decision means that the airline has to abide by its contractual obligations, within this deregulated context, pursuant to the covenant of good faith and fair dealing. Like the ordinance at issue in Air Transport Association, state enforcement of the covenant is not to force the Airlines to adopt or change their prices, routes or services  the prerequisite for ADA preemption. Id.