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Waul v. American Airlines, Inc.

Court of Appeals of California, First Appellate District, Division Three.
Nov 17, 2003
No. A101212 (Cal. Ct. App. Nov. 17, 2003)

Opinion

A101212.

11-17-2003

MICHAEL A. WAUL, Plaintiff and Appellant, v. AMERICAN AIRLINES, INC., Defendant and Respondent.


Plaintiff Michael Waul appeals from a judgment entered after the trial court sustained the demurrer of defendant American Airlines, Inc. (AA) to his second amended complaint. Under the Unfair Competition Law (UCL), Business and Professions Code section 17200, plaintiff challenges defendants failure to award frequent flyer miles to members of its AAdvantage frequent flyer program who purchased, but did not use, nonrefundable airline tickets. The trial court concluded that the amended complaint failed to allege a breach of contract cause of action against the airlines that was not preempted by the Airline Deregulation Act of 1978 (ADA), 49 United States Code section 41713(b)(1). We agree and affirm the judgment.

Factual and Procedural Background

Plaintiffs second amended complaint (complaint) for restitution and injunctive relief alleges three causes of action under the UCL. We accept the following material factual allegations of the complaint as true (see Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967): Numerous California consumers contracted with defendant by joining its AAdvantage frequent flyer program. A number of these California consumers "utilized the services of Defendant AAs airline by purchasing and paying for non-refundable airline tickets for flights on Defendant AAs airline. When said California consumers purchased and paid for flights on AAs airline, they also purchased and paid for frequent flyer miles from Defendants." These consumers "reasonably believed and expected that they would receive the frequent flyer miles when they purchased said non-refundable airline tickets and frequent flyer miles," but defendant "routinely and systematically breached [its] contracts with [these] California consumers by not crediting frequent flyer miles from Defendant AA, if said California consumers were unable to complete their flight itineraries as purchased. Defendant[] did not credit such purchasers with frequent flyer miles even though Defendant[] did not refund the purchase price of the unused airline tickets."

Plaintiffs complaint alleges that by failing to credit frequent flyer miles to California consumers who bought but did not use nonrefundable airline tickets, defendant breached its contracts with those consumers, and that in doing so, defendant also breached the implied covenant of good faith and fair dealing. Each cause of action alleges that these systematic breaches of contract constituted an unfair, illegal or deceptive business practice in violation of the UCL. The complaint does not allege an independent cause of action for breach of contract.

Defendant demurred to the complaint on the ground that plaintiffs claims were expressly preempted by the ADA and, alternatively, that plaintiff had failed properly to allege a breach of contract. At the hearing on the demurrer, the trial court indicated that the demurrer would be sustained without leave to amend unless plaintiff demonstrated that he could plead a breach of contract claim that fell outside the scope of ADA preemption as set forth in American Airlines, Inc. v. Wolens (1995) 513 U.S. 219 (Wolens). Thereafter, the court issued its order sustaining defendants demurrer without leave to amend. Plaintiff filed a timely notice of appeal.

Discussion

The ruling sustaining the demurrer is reviewed de novo. This court must examine the complaint to determine whether it alleges facts sufficient to state a cause of action under any legal theory. (Ross v. Creel Printing & Publishing Co. (2002) 100 Cal.App.4th 736, 742.) The denial of leave to amend, however, is reviewed for an abuse of discretion. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)

Scope of ADA Preemption

Section 41713, subdivision (b)(1) of the ADA prohibits a state from "enact[ing] or enforc[ing] a law . . . related to a price, route, or service of an air carrier . . . ." The "related to" language in the ADA preemption clause has been defined as meaning "having a connection with, or reference to, airline `rates, routes, or services. " (Morales v. Trans World Airlines, Inc. (1992) 504 U.S. 374, 384 (Morales).) In Morales, the United States Supreme Court concluded that state restrictions on deceptive advertising were the type of economic regulation that Congress intended to preempt in deregulating the airline industry. "Restrictions on advertising `serv[e] to increase the difficulty of discovering the lowest cost seller . . . and [reduce] the incentive to price competitively. [Citation.] . . . `[P]rice advertising surely "relates to" price. [Citation.]" (Id. at pp. 388-389.) Accordingly, the court held that state actions challenging deceptive or fraudulent advertising practices had the "forbidden significant effect" on rates, routes, or service, and thus were preempted. (Id. at p. 388.)

Thereafter, in Wolens, supra, 513 U.S. at page 222, the Supreme Court again addressed the scope of the preemption clause. The court held that the ADA preempted a cause of action based on the Illinois Consumer Fraud and Deceptive Business Practices Act (815 Ill. Comp. Stat. § 505 (1992)), the terms of which are similar to the UCL, because the Illinois act "serves as a means to guide and police the marketing practices of the airlines." (Id. at p. 228.) Nonetheless, the court did "not read the ADAs preemption clause . . . to shelter airlines from suits alleging no violation of state-imposed obligations, but seeking recovery solely for the airlines alleged breach of its own, self-imposed undertakings." (Ibid.) The "terms and conditions airlines offer and passengers accept are privately ordered obligations `and thus do not amount to a States "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 the [ADA]. " (Id. at pp. 228-229.) "The ADAs preemption clause, [citation], read together with the [Federal Aviation Administrations (FAAs)] saving clause, stops States from imposing their own substantive standards with respect to rates, routes, or services, but not from affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated. This distinction between what the State dictates and what the airline itself undertakes confines courts, in breach-of-contract actions, to the parties bargain, with no enlargement or enhancement based on state laws or policies external to the agreement." (Id. at pp. 232-233.) "A remedy confined to a contracts terms simply holds parties to their agreements." (Id. at p. 229.) The state does not enact or enforce a law simply by enforcing privately ordered obligations. Accordingly, the Court held that plaintiffs claims for breach of contract stemming from the airlines unilateral decision to devalue plaintiffs frequent flyer miles were not preempted because the state court was only required to interpret specific language contained within the parties agreement. (Id. at pp. 233-234.)

The FAAs savings clause provides, "A remedy under this part is in addition to any other remedies provided by law." (49 U.S.C. § 40120.)

Courts addressing breach of contract claims after Wolens consistently have held claims to be preempted if predicated on obligations imposed by state law external to the agreement of the parties. (See, e.g., Breitling U.S.A. v. Federal Exp. Corp. D. Conn. (1999) 45 F.Supp.2d 179, 184 [breach of contract claim preempted because it was based on doctrines of estoppel and waiver to invalidate an express term in the contract; "because Breitling seeks to impose common law principles and policies on the agreement between the two parties, Breitlings claims are preempted by the ADA"]; Travel All Over the World v. Saudi Arabia (7th Cir. 1996) 73 F.3d 1423 [claim for failure to honor reservations not preempted because it was based on defendants self-imposed commitments to the plaintiffs, but claim for punitive damages preempted because it impermissibly enlarged the scope of the proceedings beyond the parties agreement.]; Osband v. United Airlines, Inc. (Colo.App. 1998) 981 P.2d 616, 621-622 [claim based on promissory estoppel preempted because it would require the court to enforce an equitable remedy created by state law to prevent injustice].) Indeed, a breach of contract claim based on an airlines refusal to permit a passenger to board was preempted even though it was based on the terms of the agreement, where the defenses asserted were based on questions of federal law outside the terms of the contract. (Smith v. Comair, Inc. (4th Cir. 1998) 134 F.3d 254, 258 ["Because Comair invokes defenses provided by federal law, Smiths contract claim can only be adjudicated by reference to law and policies external to the parties bargain and, therefore, is preempted under the ADA"].)

Here, plaintiffs claim indisputably relates to the rates and services provided by the defendant, so that the only question is whether the claim is predicated on legal obligations drawn from sources external to the parties agreement. (Wolens, supra , 513 U.S. at p. 226; Morales, supra, 504 U.S. at p. 384.) Has plaintiff alleged a breach of a self-imposed contractual obligation, the enforcement of which will not require the court to impose additional obligations on the defendants frequent flyer program?

Plaintiffs Claim for Breach of Contract

Plaintiffs complaint does not allege the breach of an express term found in the frequent flyer membership agreement or in the terms of the ticket itself. Nor does the complaint seek to enforce a term implied in fact in the agreement based upon the parties reasonable expectations. (See Blacks Law Dict. (7th ed. 1999) p. 322, col. 2 [defining an implied-in-fact contract as a "contract that the parties presumably intended, either by tacit understanding or by the assumption that it existed"].) Although the complaint alleges that consumers "reasonably believed and expected that they would receive the frequent flyer miles when they purchased said non-refundable airline tickets and frequent flyer miles," there is no allegation that the agreement addresses whether a customers mileage account will be credited if the customer is unable to complete the purchased itinerary, nor does the complaint allege any specific contract terms that might be so interpreted. Rather, plaintiffs brief in this court asserts that the obligation to provide frequent flyer credit in this circumstance should be imposed "as a matter of law." The complaint alleges merely that when consumers purchase tickets, they also are purchasing frequent flyer miles.

Plaintiff relies on Delta Air Lines, Inc. v. Sasser (11th Cir. 1997) 127 F.3d 1296, 1297, in which the court held that appellate court justices assigned to hear a case against an airline need not recuse themselves because they participate in the airlines frequent flyer program. The court stated, "The frequent flyer account which is accumulated in the name of any airline passenger is part and parcel of the services which the passenger buys when he or she buys an airline ticket. The price of the ticket pays for any addition to a frequent flyer account just as it pays for the air transportation and other services purchased. We readily conclude that such a frequent flyer account does not represent a gift." (Ibid.) Based upon this reasoning, plaintiff argues that "[a]s a matter of law, California consumers who participate in [defendants] frequent flyer programs pay for frequent flyer miles when they purchase airline tickets from the [defendant]."

Plaintiff attempts to recharacterize his argument somewhat in his reply brief when he states that he "seeks an interpretation of [defendants] frequent flyer program." Plaintiff does not point to any particular provision of the agreements that he wishes the court to interpret. Rather, he continues to rely on the argument that the frequent flyer miles were included in the purchase price of the ticket as a matter of law, and that the failure to award miles to consumers who purchase their tickets but do not use them results in an unjustified forfeiture. Although worded slightly differently, plaintiffs argument still seeks to impose an obligation on defendant as a matter of law rather than by mutual assent.

Wolens makes clear, however, that the court may enforce only the parties bargain, "with no enlargement or enhancement based on state laws or policies external to the agreement." (Id. at pp. 232-233.) A contract implied in law is "[a]n obligation imposed by law because of the conduct of the parties, or some special relationship between them, or because one of them would otherwise be unjustly enriched. An implied-in-law contract is not actually a contract, but instead a remedy that allows the plaintiff to recover a benefit conferred on the defendant." (Blacks Law Dict. (7th ed. 1999) p. 322, col. 2; Arcade County Water Dist. v. Arcade Fire Dist. (1970) 6 Cal.App.3d 232, 236 ["An `implied-in-law contract is actually not a contract at all, but merely an obligation imposed by the law to bring about justice"].) A contract implied in law thus is based on equitable policies external to the parties actual agreement. Plaintiff has alleged no facts suggesting that the basis for the obligation he seeks to enforce is to be found within the terms of the contract. An action to enforce such a claim is preempted by the ADA. (Osband v. United Airlines, Inc., supra, 981 P.2d at p. 621.)

Plaintiff does not succeed in transforming his claim into one based on the agreement of the parties by alleging that the refusal to extend frequent flyer credit when the customer fails to use a purchased ticket breaches the covenant of good faith and fair dealing in the contract. This covenant is implied in every contractas a matter of law. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36; Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 55.) The obligation to extend frequent flyer credit under these circumstances is no more a self-assumed obligation because it breaches this implied covenant than it would be if the obligation were implied directly into the contract as a matter of law. However the breach may be characterized, the source of the asserted obligation is not a commitment that AA has made to its frequent flyer customers but plaintiffs conception of what fairness requires and what the law should insist upon. Thus, this claim is also preempted. Accordingly, the trial court properly sustained defendants demurrer to plaintiffs UCL causes of action that were premised on these alleged breaches.

Neither in the trial court nor before this court has plaintiff offered a possible amendment to the complaint that might cure this fundamental defect and circumvent ADA preemption. Thus, the trial court did not abuse its discretion in denying plaintiff leave to amend.

Disposition

The judgment is affirmed. Defendant shall recover its costs on appeal.

We concur: McGuiness, P. J., Parrilli, J.


Summaries of

Waul v. American Airlines, Inc.

Court of Appeals of California, First Appellate District, Division Three.
Nov 17, 2003
No. A101212 (Cal. Ct. App. Nov. 17, 2003)
Case details for

Waul v. American Airlines, Inc.

Case Details

Full title:MICHAEL A. WAUL, Plaintiff and Appellant, v. AMERICAN AIRLINES, INC.…

Court:Court of Appeals of California, First Appellate District, Division Three.

Date published: Nov 17, 2003

Citations

No. A101212 (Cal. Ct. App. Nov. 17, 2003)