While nearly all the national focus on Wednesday morning was on the U.S. Supreme Court’s bitterly divided 5-4 decision on campaign fiance reform, McCutcheon v. Federal Election Commission, the Court also handed down a unanimous verdict affecting our old friend Binyomin Ginsberg, holding that the Airline Deregulation Act of 1978 (ADA) prevents him for suing Northwest Airlines over the termination of his frequent flyer account on bad faith grounds.
SCOTUS blog provides a precise summary of the case–
Northwest Airlines kicked the plaintiff Ginsberg out of its frequent-flyer program, claiming that he had “abused” the program. The contract says that Northwest can kick out anybody if Northwest, in its own discretion, decides that they have abused the program. Ginsberg filed suit, claiming Northwest was lying, and that the company in fact kicked him out to save money. The Supreme Court held that the federal rules which deregulated the airline industry prevent him from bringing that lawsuit. They say that, although Ginsberg can sue to make Northwest follow the terms of the program, because this suit seeks something more – to make it operate the program in good faith – he can’t bring this suit.
Ginsberg was a chronic complainer. In a seven month period between December 2007 and June 2008, he contacted Northwest Airlines customer service 24 times regarding travel problems, including nine incidents of late arriving baggage on the baggage carousel. During that time he was awarded $1,925.00 in travel credit vouchers, 78,500 WorldPerks bonus miles, a voucher extension to his son, and $491.00 in cash.
He was a Platinum Elite, meaning he flew over 75,000 miles, but certainly even Northwest was bad to merit 24 complaints. I know people like him who fly United–they call United to complain about waiting 20 minutes for bags. Northwest was right to cut him off from compensation. But did he abuse the program? What exactly is abuse?
None of that is resolved after the SCOTUS case. It was a procedural decision in essence saying that the the ADA precludes Ginsberg from using Minnesota State contract law, which implies a broad duty of fair dealings, including vague “community standards of decency, fairness, or reasonableness” to litigate against Northwest. The Court concluded that Congress did not intend airlines operating across state lines to have deal with nebulous claims of fairness in settling disputes over rates, routes, or services.
Justice Samuel Alito, witting on behalf of a unanimous Court, syllogistically concludes that the Northwest WorldPerks loyalty program in effect at the time concerned rates and services:
…the Northwest program is connected to the airline’s “rates” because the program awards mileage credits that can be redeemed for tickets and upgrades…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.
But as I titled this piece, the decision is actually near meaningless concerning future litigation on dissolving frequent flyer accounts. While Ginsberg’s counsel tried their best to argue that the Court did not properly understand that airline loyalty programs have moved far beyond just airlines and points (most miles come not from flying, but from credit card spending), in Ginsberg’s case, he did earn his points by flying and his lawsuit was about losing his flying benefits. Thus, we have yet to see a modern (for lack of a better word) test case. Justice Alito wrote:
Respondent and amici suggest that Wolens is not controlling because frequent flyer programs have fundamentally changed since the time of that decision. We are told that “most miles [are now] earned without consuming airline services” and are “spent without consuming airline services.”…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 the attempted to redeem miles for anything other than tickets and upgrades…
There it is. An open door to future litigation and a statement that makes this ruling a very narrow one.
One other note that attorney Eric M. Fraser pointed out on View From The Wing—
Alito’s opinion says the following:
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.
For the last sentence (which I highlighted), the opinion has a footnote to page 44 of this document
I don’t think the citation supports the assertion. Page 44 lists the number of complaints made by consumers. There’s a subcategory for frequent flyer complaints (254 in 2013 and 289 in 2012). The SCOTUS opinion says “the DOT regularly entertains AND ACTS ON such complaints,” but the cited document doesn’t show any action – just complaints.
And he’s right. The DOT does not currently regulate airline loyalty programs and has exercised limited power to aid consumers or even pressure airlines into aiding consumers. Think back to the United’s 4-mile first class error fare to Hong Kong. Many complained to the DOT and the DOT response was essentially that it would not get involved. There is no indication that the DOT is involved in any aspect of consumer complaints about an airlines’ loyalty program, such as over fuel surcharges or award chart devaluations. But that is by choice. Perhaps we do not want the DOT involved in regulating airline loyalty programs, but Congress has given the DOT power to get involved should it choose to exercise that prerogative.
And that leaves only one solution currently available, which Justice Alito also pointed out–
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.
I agree with this statement generally, but I also don’t like the implication that if an airline induces years of business through the promise of lifetime status or other perks and then pulls the rug under your feet after you have detrimentally relied on that promise, the only remedy is to dust yourself off and start over again on another carrier. I don’t think fine print absolving an airline from any liability should stand in a contractual dispute if an airline advertised one thing and its fine print said the opposite.
Frequent flyer programs of 2014 are not the frequent flyer programs of 2007. Thus, Northwest may have escaped liability for now (though Ginsberg is free to still litigate the case on breach of contract grounds), but airlines who sell millions of miles to credit card companies, hotels, and online shopping portals can no longer claim that a future dispute only concerns the rates, routes, or services of airlines.
And beyond the scope of the Court decision, the substance of this case still is of great interest to me. Is chronic complaining an “abuse” of a loyalty program? Should Ginsberg have merely been denied future compensation? Was he even given a warning that his actions would result in the forfeiture of his account? If Northwest just wanted to drop him because he was costing the carrier too much money, I would not call that abuse of the program.
All interesting questions, all which may be litigated in the future. For now, note that this week’s decision doesn’t change a whole lot–another case will inevitably arise and the changed nature of loyalty over the last several years will render this case just a fleeting footnote.