Amicus Curiae Brief — Attorney General of California v. Trans World Airlines, Inc.

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Nos. 90-1604 and 90-1606

In the Supreme Court of the United Staten v< o-.

OCTOBER TERM, 1991

DAN MORALES, ATTORNEY GENERAL OF TEXAS,

PETITIONER

Vv.

TRANS WORLD AIRLINES, INC., ET AL.

ATTORNEY GENERAL OF CALIFORNIA, ET AL.,

PETITIONERS

Vv.

TRANS WORLD AIRLINES, INC., ET AL.

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

JOHN G. ROBERTS, JR.

Acting Solicitor General

STUART M. GERSON

Assistant Attorney General

PAUL J. LARKIN, JR.

Assistant to the Solicitor General

C. DEAN MCGRATH, JR. ROBERT V. ZENER

Acting General Counsel Attorney

Department of Department of Justice

Transportation Washington, D.C. 20530

Washington, D.C. 20590 (202) 514-2217

lc)

——w

QUESTIONS PRESENTED

1. Whether Section 105(a)(1) of the Airline Dereg-

ulation Act of 1978, 49 U.S.C. App. 1035(a) (1), which

preempts “any” state laws “relating to rates, routes, or

services of any air carrier,” preempts state regulation

of air fare advertising.

2. Whether a case or controversy exists between re-

spondents and States that have not brought or threat-

ened to bring an enforcement action against respondents

for their air fare advertising.

3. Whether States not named as parties in the com-

plaint waived their objection to personal jurisdiction by

opposing a temporary restraining order.

(1)

TABLE OF CONTENTS

Page

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Appendix A ............. (tna lp A SE la

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TABLE OF AUTHORITIES

Cases:

Air Transport Ass’n V. Public Utilities Comm’n,

833 F.2d 200 (9th Cir. 1987), cert. denied, 487

GL 14

Alaska v. DOT, 868 F.2d 441 (D. C. Cir. 1989) ........ 14

Babbitt v. United Farm Workers Nat’l Union, 442

U.S. 289 (1979) ......... “VN oS a 16

Bates v. State Bar, 433 U.S. 350 (1977) _............ ; 9

Bayou Steel Corp. v. M/V Amstelvoorn, 809 F.2d

Ts cuasnannussusenscnnenennes 21

Chilicky v. Schweiker, 796 F.2d 1131 (9th Cir.

1986), rev’d, 487 U.S. 412 (1988) —......00000...... 17

City of Santa Clara v. Kleppe, 428 F. Supp. 315

Ne ccscanansnanaccenanancvesseeuns 19

FTC v. Standard Oil Co., 449 U.S. 232 (1980)... 16

Federal Express Corp. V. California Public Utili-

ties Comm’n, 936 F.2d 1075 (9th Cir. 1991),

petition for cert. pending, No. 91-502 . odes 14

Gates Learjet Corp. Vv. Jensen, 743 F.2d 1325 (9th

Cir. 1984), cert. denied, 471 U.S. 1066 (1985)... 21

Gatz Vv. Southwest Bank of Omaha, 836 F.2d 1089

Nene een css cnuonnuas usenphanmuchivne 18

General Bldg. Contractors Ass’n V. Pennsylvania,

458 U.S. 375 (1982) Li a ee 16

Grammenos V. Lemos, 457 F.2d 1067 (2d Cir.

(TIT)

Cases—Continued : Page

Grand Jury Proceedings, Inre:

654 F.2d 268 (3d Cir. 1981) ................. ceuiubiiead 19

625 F.2d 1106 (3d Cir. 1980) ...................0000002.... 19

Guardian Title Co. v. Sulmeyer, 417 F.2d 1290

RRR EPG PA on erat eaRr sae uC 17

Illinois Corporate Travel, Inc. Vv. American Air-

lines, Inc., 889 F.2d 751 (7th Cir. 1989), cert.

denied, 110 S. Ct. 1948 (1990) 00000... 6, 8, 12-13

International Longshoremen’s & Warehousemen’s

Union V. Boyd, 347 U.S. 222 (1954) —....... 16

International Marine Towing, Inc. Vv. Southern

Leasing Partners, Ltd., 722 F.2d 126 (5th Cir.

PSSA es UAE SE Fors ARE RS ERE reer . 18

Marino V. Oritz, 484 U.S. 301 (1988) 2.000... 18

Martindell v. IT&T, 594 F.2d 291 (2d Cir. 1979). 18

Merchants Heat & Light v. J.B. Clow & Sons, 204

I eee ideas 19

Metropolitan Life Ins. Co. V. Massachusetts, 471

Dn ee icine ot ceaneneeil 8

Myers Vv. American Dental Ass’n, 695 F.2d 716 (3d

Cir. 1982), cert. denied, 462 U.S. 1106 (1983) 17

Nader v. Allegheny Airlines, Inc., 426 U.S. 290

EIEN eE RARER OT EN. CONNOR A ARUN RAN te EDAD eet OSC SEAESON 9,13

Neifeld v. Steinberg, 438 F.2d 423 (3d Cir. 1971). 21, 22

New England Legal Found. v. Massachusetts Port

Auth., 883 F.2d 157 (1st Cir. 1989) ee 9

Pardazi v. Cullman Medical Center, 896 F.2d 1313

fo ic 7 eee See aan ere 17

People v. Western Airlines, Inc., 155 Cal. App. 3d

597, 202 Cal. Rptr. 237, cert. denied, 469 U.S.

1182 (1984) ......... om 13

Public Service Comm'n V. Wycoff Co., 344 U. S. 237

i ae ccaniateaneunel 16

Rauch v. Day & Night Mfg. Corp., 576 F.2d 697

(6th Cir. 1978) . Sy A OO RAO LPN 17

Roach v. Churchman, 457 F.2d 1101 (8th Cir.

—RIREIPRSEEIR SSie re Pp sere pe eRe RET UO MON 18

Shaw v. Delta Airlines, ‘Inc., 463 U. S. 85 (1983) 8-9

Smartt v. Coca-Cola Bottling Corp., 337 F.2d 950

(6th Cir. 1964), cert. denied, 380 U.S. 934

Cases—Continued : Page

Spangler v. Pasadena City Bd. of Educ., 552 F.2d

SE MI TI icin ciaccanciantpncesncssennnpeeuaacaosons 18

Spring Constr. Co. Vv. Harris, 614 F.2d 374 (4th

Car. 3968) ......... PAE NR RR RK OST koE? OAL LE 18

TWA Vv. Mattor, 897 F.2d 773 (5th Cir.), cert.

denied, 111 S. Ct. 307 (1990)... 6,7

Union Camp Corp. v. Dyal, 460 F.2d 678 (5th Cir.

1972) ...... sg aleomilad lated dpetMiadieseekeote ieaaneasy keds chandesganonee , 17

United States v. Mendoza, 464 US. 154 (1984) 23

United States v. RMI Co., 599 F.2d 1183 (3d Cir.

NE tet eee ee oe 18

Varone V. Varone, 392 F. 2d 855 (7th Cir. 1968). 17

West v. Northwest Airlines, Inc., 923 F.2d 657

(9th Cir. 1990), petition for cert. pending, No.

Eanes a Mean: 13

Wyrough & Loser, Ine. V. Pelmor Lab., Inc., 376

f £. @ go Se . ; RAR eee Dae 17

Constitution, statutes, regulations, and rules:

U.S. Const. :

Art. I, § 8, Cl. 3 (Commerce Clause) 4

Art. I, § 19, Cl. 3 (Compact Clause) 4

MI: TE shave chasse cae Ue ee AOS 15, 16

Amend. I . pesbeaans 4

Airline Desegubation Act of 1978, 49 U. S, C. Ane.

1301 et seq.:

\ § 102(a) (4), 49 U.S.C. App. 1302 (a) (4) 11

§ 105, 49 U.S.C. App. 1305 8,9, 12

§ 105 (a) (1), 49 U.S.C. App. 1305(a) (1) 3, 6, 7, 8,

13, 14

§ 411,49 U.S.C. App. 1381 9, 12, 13, 14

§ 411(a),49 U.S.C. App. 1381 (a) 11

14 C.F.R. Pt. 250 13

Texas Deceptive Practices Consumer Protection

Act, Tex. Bus. & Comm. Code §§ 17.41 et seq.

(Vernon 1991) uM, 7, 30

Fed. R. Civ. P.:

Rule 12 18, 21, 22

Rule 12(b) _.. 21

Rule 12 (h) (1) iesseenisenbens 16, 17, 22

Rules—Continued : Page

ERR AR al CAS PL PE OP 6

| ES CAE Renee eretlae ees 18

Rule 24(c) .......... eee aths cern ee nearer rN 18

Rule 65(d) ............ MILER A eS

Miscellaneous:

Benham, The Effect of Advertising on the Price of

Eyeglasses, 15 J. Law & Econ. 337 (1972) ....... )

Cady, An Estimate of the Price Effects of Restric-

tions on Drug Price Advertising, 14 Econ. In-

quiry 493 (1976) 9

54 Fed. Reg. (1989) :

aR ll

p. $1,068 ............ 11

56 Fed. Reg. 24,254 (1991) 11

H.R. Rep. No. 1211, 95th Cong., 2d Sess. (1978) 8)

National Ass’n of Attorneys General, Task Force

on the Air. Travel Industry, Guidelines and

Commentary (Apr. 1988) .............. _...passim

S. Rep. No. 631, 95th Cong., 2d Sess. (1978) ; 9

5 C. Wright & A. Miller, Federal Practice and

Procedure (1990) .. 19, 21

7C C. Wright, A. Miller & M. Kane, Federal Prac-

tice and Procedure (1986) 18, 22

Iu thy Supreme Court of the United States

OCTOBER TERM, 1991

No. 90-1604

DAN MORALES, ATTORNEY GENERAL OF TEXAS,

PETITIONER

wv.

TRANS WORLD AIRLINES, INC., ET AL.

No. 90-1606

ATTORNEY GENERAL OF CALIFORNIA, ET AL,

PETITIONERS

TRANS WORLD AIRLINES, INC., ET AL.

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is filed in response to the Court’s order in-

viting the Solicitor General to express the views of the

United States in these cases.

(1)

STATEMENT

1. The National Association of Attorneys General

(NAAG) is a voluntary association, comprised of repre-

sentatives of the attorneys general of the 50 States, var-

ious territories, and the District of Columbia. In 1987,

a NAAG task force undertook a study of advertising and

marketing practices in the airline industry with an eye

to consumer concerns in the areas of airline advertising,

frequent flyer programs, and compensation for denied

boarding. Pet. App. 36a.' Following that study, in De-

cember 1987, NAAG adopted Air Travel Industry En-

forcement Guidelines. See National Ass’n of Attorneys

General, Task Force on the Air Travel Industry, Guide-

lines and Commentary (Apr. 1988) (NAAG Guidelines),

App. B, infra. The NAAG Guidelines, which are not law,

purport to explain in detail how state consumer protec-

tion laws apply to, inter alia, air fare advertising. /d.

introduction.

The NAAG Guidelines provide that any print or broad-

cast advertisement which “provides air fares or other

price information” must be in “clear and conspicuous”

language and be non-deceptive. NAAG Guidelines § 2.0.

Deception may result from omitting or obscuring a “ma-

terial restriction.” Jbid. The NAAG Guidelines specify

what is “clear and conspicuous.” § 1.5. In printed ad-

vertisements, disclosure must be of a certain type size,

depending on the size of the advertisement. § 1.5(a). In

radio and television commercials, disclosure must be

“made orally and [be] as clear and understandable in

pace and volume as the fare information.” §1.5(b). A

“({m]aterial restriction” is defined as any restriction, lim-

itation or requirement “which affects the use or refund-

ability of a ticket, and which is not generally applicable

to all classes of fares or tickets (such as standard condi-

tions of carriage.).” $1.8. The NAAG Guidelines set

“Pet. App.” refers to the appendix to the certiorari petition in

No. 90-1604.

forth a detailed list of restrictions that must appear in

print advertisements, § 2.1, and a separate list of dis-

closures that must be made in broadcast commercials,

§ 2.2. Additionally, the NAAG Guidelines require that

the “total advertised price’ must include any fuel, tax,

or other surcharge, § 2.5; that if the advertised one-way

price is available only as part of a round-trip purchase,

“this restriction, together with the full round-trip fare,

must be advertised in a clear and conspicuous manner, at

least as prominently as the one-way fare,” § 2.6; and

that certain restrictions must be observed on use of the

words “sale,” “discount,” “reduced,” or similar terms,

$2.7. Finally, the NAAG Guidelines contain detailed

requirements for frequent flyer programs, $5 3.0-3.9, as

well as offers of compensation to persons for voluntarily

denied boarding, § 4.0.

2. a. In February 1988, the attorneys general of

Texas, Colorado, Kansas, Massachusetts, Missouri, New

York, and Wisconsin jointly announced that they in-

tended to “bring airline advertisements into compliance

with standards in the |NAGG] Guidelines for fare ad-

vertising.” 2 R. Exh. H, Att. A. In November 1988,

the attorneys general of Texas, California, Massachusetts,

New York, and Washington notified respondents Trans

World Airlines, Inc. (TWA), Continental Airlines, Inc.

(Continental), and British Airways PLC (British Air)

in a letter that some of their advertisements violated the

NAAG Guidelines and the States’ false advertising and

deceptive practices laws by prominently advertising the

ticket price while ‘ess prominently disclosing taxes, sur-

charges, and fees. The letter threatened prosecution. Pet.

App. 15a.

b. On January 23, 1989, three respondents, TWA,

Continental, and British Air,* brought this action. Pet.

2 The remaining airlines-respondents intervened in this case at

a later point. Pet. App. 16a. For the sake of convenience, we will

refer to the original plaintiffs and the plaintiff-intervenors colle«

tively as respondents.

App. 37a. Respondents claimed that Section 105(a) (1)

of the Airline Deregulation Act of 1978, 49 U.S.C. App.

1305(a)(1), which prohibits a State from enacting or

enforcing any state law “relating to rates, routes, or

services,” preempted the Texas Deceptive Practices Con-

sumer Protection Act, Tex. Bus. & Comm. Code §§ 17.41

et seg. (Vernon 1991), and that enforcement of the

NAAG Guidelines through state law would violate the

Commerce Clause, Art. I, § 8, Cl. 3; the Compact Clause,

Art. I, $10, Cl. 3; and the First Amendment. Compl.

11-26 (filed Jan. 28, 1989); App. C, infra. The Texas

Attorney General was the only named defendant, id. at

43a, but respondents alleged that he was acting “in con-

cert with” and ‘on behalf of’ other attorneys general,

id, at 44a, and that Texas law and “any other states’

laws” were invalid when construed with the NAAG

Guidelines, Compl. paras. 33, 45, 49-50, 55-57; App. C,

infra, 55a, 59a, 60a, 61a-62a. Respondents sought a de-

claratory judgment that implementation or enforcement

of the NAAG Guidelines “through Tex. Bus. & Com.

Code § 14.71 et seq. or any other state law is unconstitu-

tional,’’ Compl. 25-26; App. C, infra, 62a-63a, and an in-

junction against the Texas attorney genera] “and all

other persons acting for or in active concert or participa-

tion with [{him]|”, id. at 63a-64a. Respondents also

sought a temporary restraining order. Pet. App. 37a.

Because of respondents’ theory that various state at-

torneys general were acting “in concert” with the Texas

attorney general and because of the phrasing of respond-

ents’ request for injunctive relief, other States became

concerned that the temporary restraining order sought

by respondents would reach beyond the State of Texas

and would apply to them. Accordingly, four days after

respondents filed their complaint, the attorneys general

of 33 States filed a motion in district court asking the

court to deny the TRO. Pet. App. 38a.* In the opening

3 Motion of Specially Appearing States to Deny Plaintiffs’ Motion

for Temporary Restraining Order or in the Alternative Motion to

line of their motion, the 33 States said that it was filed

“lwlithout admitting or submitting to the subject matter

jurisdiction of this Court and without admitting that

this Court has personal jurisdiction over them,” App. D,

infra, 65a. The 33 States argued that respondents’ mo-

tion for a TRO should be denied “because the injunctive

relief [respondents] are seeking could affect the sover-

eign rights of states which have neither been served nor

named as defendants in the instant action.” Jd. at 66a.

In the alternative, the 33 States asked for a reasonable

postponement of the TRO hearing to allow the States

time tq respond and “to decide whether to seek leave

from this Court to tile an Amicus Curiae Brief or to seek

leave to intervene.” Jd. at 68a.

Following a hearing, at which one representative of

the 33 States participated, the district court granted a

preliminary injunction, ruling that respondents were

likely to prevail on their preemption claim. Pet. App.

48a-50a. The injunction, however, enjoined not only the

Texas attorney general but also “all other persons acting

in concert or participation” with him under “Tex. Bus.

& Comm. Code § 17.41 et seq., or any other provision of

state law.” Jd. at 50a. The Kansas attorney general

thereafter filed a motion on his own hehalf seeking to

clarify that the preliminary injunction was limited to

Texas and Texas law. Shortly thereafter, the district

court granted this motion. Pet. App. 51a.

c. Respondents later moved to broaden the preliminary

injunction to cover the 33 States on the grounds that

they were acting “in concert” with Texas; that, by their

prior actions in the case, the 33 States had “de facto

intervened” in this suit; and that suits brought by some

attorneys general after the court granted the clarification

motion filed by the Kansas attorney general action threat-

Extend Date for Hearing on Temporary Order (filed Jan. 27, 1989)

(hereinafter Motion). Because of its importance to the case, we

have reprinted the motion as Appendix D to this brief.

ened to injure respondents. Pet. App. 58a. The court

granted respondents’ motion, ruling that the presence of

the 33 States was necessary to resolve the controversy

between respondents and all of the States. Jd. at 5&a-60a.

The court expressly declined to accept respondents’ claim

that the 33 States should “be deemed intervenors”; in-

stead, the court joined the States under Rule 19, Fed.

R. Civ. P. Pet. App. 60a.

3. The court of appeals affirmed. Pet. App. 13a-47a;

TWA Vv. Mattox, 897 F.2d 773 (5th Cir.), cert. denied,

111 S. Ct. 307 (1990). At the outset, the court upheld

the district court’s judgment that respondents were likely

to prevail on their preemption claim. The court reasoned

that, under Section 105(a)(1) of the Airline Deregula-

tion Act of 1978, Congress had expressly preempted all

state regulation of matters that “relate to” air fares,

and that air fare advertising relates to air fares. In that

regard, the court agreed with the Seventh Circuit that air

fare advertising relates to air fares under Section 105

(a) (1) because “[p]rice advertising surely ‘relates to’

price.” Illinois Corporate Travel v. American Airlines,

889 F.2d 751, 754 (1989), cert. denied, 110 S. Ct. 1948

(1990). Pet. App. 32a-33a.

The court of appeals also concluded that the 33 States

other than Texas were properly enjoined. Pet. App.

41a-43a. The court did not decide whether the district

court properly joined the 33 States under Fed. R. Civ.

P. 19; instead, the court of appeals held that, by their

actions, the 33 States had become “‘de facto” intervenors.

The court reasoned that respondents had filed suit and

sought relief against only the Texas attorney general

when he was acting under Texas law, but the 33 States

nonetheless “filed a motion asking the district court to

deny [respondents’] motion for a TRO against enforce-

ment of Texas laws,” which the court described as a re-

quest for “affirmative relief,” i.e., ‘an affirmative act

by the [district] court that would benefit their states.”

Pet. App. 42a. The court stated that while a party could

object to personal jurisdiction either in a pre-answer mo-

tion or in the answer itself, the 33 States were not par-

ties when they filed their motion. For that reason, the

court said that the 33 States “had no basis for objecting

to the court’s jurisdiction as they had not been named de-

fendants and no attempt had been made to bring them

before the court by process.” Jbid. At the same time,

the court said that the 33 States “became de facto inter-

venors when the Attorney General of Kansas filed the mo-

tion, sought relief and participated in the TRO hearing

on their behalf.” Jbid. By so doing, the court held, the

33 States “waived any objection to the jurisdiction of

the court over their persons as representatives of their

respective states.” Jd. at 48a.

Texas and the 33 States sought review in this Court,

but this Court denied certiorari. 111 S. Ct. 307, 308

(1990).

4. Thereafter, the district court entered a final in-

junction against all 34 States, ruling that Section 105

(a)(1) of the Airline Deregulation Act of 1978 pre-

empted the Texas Deceptive Trade Practices Act and

the similar laws of the other 33 States as applied to the

regulation of airline fare advertisements. Pet. App. 8a-

12a. The court of appeals affirmed on the basis of its

earlier opinion. /d. at la-7a.

DISCUSSION

The court of appeals was correct in holding that Sec-

tion 105(a) (1) of the Airline Deregulation Act of 1978

preempts the use by Texas of its consumer protection

laws to enforce the NAAG Guidelines against airline

fare advertisements. There is no federal appellate deci-

sion to the contrary. Moreover, if the injunction chal-

lenged in No. 90-1606 is reversed, as we believe it should

be, there will be even greater opportunity for other

courts to address the Section 105(a)(1) preemption is-

sue. Accordingly, the petition for a writ of certiorari

in No. 90-1604 should be denied.

At the same time, the Fifth Circuit clearly erred in

upholding the injunction insofar as it applied to the other

33 States. Although the 33 States were not named in or

served with respondents’ complaint, the complaint could

reasonably be read to have sought to have the 33 States

enjoined. Out of reasonable caution and prudence, the

33 States filed a motion in which—after expressly noting

their objection to personal jurisdiction—they asked only

that the TRO be denied or that the hearing be postponed

so that they could decide how best to respond. Such ac-

tions cannot remotely be deemed a waiver of the 33

States’ objection to personal jurisdiction, and the Fifth

Circuit’s holding to the contrary is clearly wrong. In

fact, the court of appeals’ error is so obvious that this

Court should grant the petition in No. 90-1606 limited

to Question 2 and summarily reverse the judgment below.

1. No. 90-1604. Section 105(a) (1) of the Airline De-

regulation Act of 1978, 49 U.S.C. App. 1305(a) (1), ex-

pressly preempts the enactment or enforcement of any

state law “relating to” airline rates. As the Seventh Cir-

cuit correctly noted, “[pl]rice advertising surely ‘relates

to’ price,” Illinois Corporate Travel v. American Airlines,

889 F.2d at 754. More specifically, the NAAG Guidelines

“relate to” airline rates in a sense that implicates the con-

gressional purpose behind Section 105, because the NAAG

Guidelines raise competitive issues that Congress in-

tended to be resolved on a uniform basis on the tederal

level. Accordingly, the court of appeals was correct in

concluding that state consumer protection laws “ ‘relate

to’ rates when applied to airline fare advertising.” Pet.

App. 32a-33a.

a. Congress did not limit preemption to state regula-

tion “of” airline rates. Section 105 of the Federal Avia-

tion Act of 1958 is far broader: It expressly preempts

all State laws “relating to” air carrier rates. State law

“relates to” a subject “if it has a connection with or ref-

erence to” it, Metropolitan Life Ins. Co. v. Massachusetts,

471 U.S. 724, 739 (1985); Shaw v. Delta Airlines, Inc.,

463 U.S. 85, 96-97 (1983) (interpreting that phrase in

ERISA), and here there is a direct, immediate, and

strong relationship between advertising and price. This

Court has recognized that advertising restrictions “serve| |

to increase the [consumers’] difficulty of discovering the

lowest cost seller of acceptable ability,” which leaves sel-

lers “isolated from competition” and reduces “the incen-

tive to price competitively,” Bates v. State Bar, 433 U.S.

350, 377 (1977). Studies in other fields have confirmed

that consumers pay higher prices when advertising is

restricted. See Benham, The Effect of Advertising on the

Price of Eyeglasses, 15 J. Law & Econ. 337 (1972);

Cady, An Estimate of the Price Effects of Restrictions

on Drug Price Advertising, 14 Econ. Inquiry 493 (1976).

The statutory language therefore does not support peti-

tioners’ claim that federal preemption extends only to

State laws that fix airline rates. See 90-1604 Pet. 9;

90-1606 Pet. 16.

b. The legislative history also does not support peti-

tioners’ theory. Prior to 1978, the Civil Aeronautics

Board (CAB) had consumer protection authority over

airlines under Section 411 of the Federal Aviation Act

of 1958, 49 U.S.C. App. 1381, but shared that authority

with the States, because there was no federal preemption

provision. See Nader v. Allegheny Airlines, Inc., 426

U.S. 290 (1976). Section 105 was adopted in 1978 as

part of the Airline Deregulation Act, with the purpose of

avoiding “a confusing system of dual regulation” and

granting “sole responsibility” for regulating interstate

carriers to the CAB. S. Rep. No. 631, 95th Cong., 2d

Sess. 98 (1978); see H.R. Rep. 1211, 95th Cong., 2d

Sess. 16 (1978). “In reducing federal economic regula-

tion of the field to allow the forces of free competition to

rule the marketplace, Congress obviously did not intend

to leave a vacuum to be filled by the Balkanizing forces

of state and local regulation.” New England Legal Found.

Vv. Massachusetts Port Auth., 883 F.2d 157, 173 (1st Cir.

1989).

Under the pre-1978 regulatory regime, price-based ad-

vertising was of little importance because the CAB did

not allow air carriers freely to adjust their fares and

price competition was absent. Under deregulation, price

became a principal means of competing, and price adver-

tising multiplied immensely. At the same time, a com-

plex fare structure emerged, owing to several factors:

A large part of air carriers’ costs is joint and common,

and is not directly attributable to any one service or

class or passenger; the marginal cost of providing ad-

ditional service is often low; most carriers operate with

substantial excess capacity overall, but face heavy de-

mand for some flights; and air travel is highly seasonal

and cyclical. Some persons (typically business travelers)

have a demand for air travel that is relatively inelastic,

but they need to be able to travel at particular times,

on short notice, and in the shortest span of time. Others

(frequently tourists) are sensitive to changes in the price

of air travel, but have less stringent demands in terms

of schedules and notice. Airlines seek to recover their

joint and common costs by charging higher fares to per-

sons with an inelastic demand for air travel and by fill-

ing otherwise empty seats with other customers who are

charged lower fares (that still exceed marginal cost).

To preserve this complex system, airlines impose re-

strictions on lower-priced tickets, making them a less

valuable commodity that would not be attractive or even

available to customers desiring to fly on short notice with

an unrestricted schedule. The convergence of increasing

price competition and increasing fare complexity raises

difficult issues from the standpoint of regulating price

advertising under the consumer protection provision of

the Federal Aviation Act of 1958. As price advertising

becomes an increasingly important element in the market-

place for air travel, it becomes increasingly difficult to

convey in any advertisement the full complexity of the

fare structure and ticket restrictions, while keeping the

advertisement sufficiently short and clear so that it can

serve as an affordable and effective price competition tool.

The DOT must exercise its consumer protection au-

thority “in the interest of the public,” 49 U.S.C. App.

1381(a), which the Airline Deregulation Act of 1978

defined to include “maximum reliance on competitive

market forces,” 49 U.S.C. App. 13802(a) (4). This duty

obliges the DOT to take competitive considerations into

account in its proceedings involving airline fare adver-

tisements, a responsibility that state attorneys general

may not share.

In this regard, the DOT has proposed to codify its

enforcement policy, which differs from the NAAG Guide-

lines in at least two significant respects. Specifically, the

DOT’s proposed rule would permit airlines (1) to adver-

tise fares net of certain government-imposed or govern-

ment-approved charges, provided the charges are “cleariy

and conspicuously” stated elsewhere in the advertisement,

and (2) to advertise one-way fares available only as

part of a roundtrip purchase, provided the roundtrip

condition is clearly stated in the advertisement. 54 Fed.

Reg. 31,052 (1989). In the notice of proposed rulemak-

ing, the DOT tentatively concluded that requiring each

airline to list a single fare that included all charges

would “tend to limit airline price competition” by making

certain types of advertisements “difficult or impossible.”

Id. at 31,053. “The specific charges that would be per-

mitted to be listed separately either are limited, or apply

only in certain markets or for certain flights, thus mak-

ing it difficult or impossible to publi[s]h advertisements

with one way and round-trip fares to multiple destina-

tions and include charges in single advertised rates.”

Tbid.'

4 An example may illustrate this point. Soon, U.S. airports will

begin imposing passenger facility charges (PFCs) of up to $3 per

passenger per airport, up to a total of $12 per trip per passenger,

to be collected by air carriers. 56 Fed. Reg. 24,254 (1991). Thus,

the total price of a ticket may vary by up to $12 depending on

the embarkation, disembarkation, and connecting airports to be

used by a traveller. If the additional charges had to be included in

Of course, preservation of competition does not mean

that advertisements spreading false or deceptive informa-

tion should be allowed. Deceptive advertisements not only

injure consumers and impair competition, they also vio-

late federal law. The DOT has the authority to proceed

against air carriers for “unfair or deceptive practices,”

49 U.S.C. App. 1381, and has exercised that authority

on numerous occasions. In proceedings concerning de-

ceptive airline advertisements, however, care must be

taken not to impose, in the name of “full disclosure,”

requirements that discourage price competition. The

DOT’s ability to regulate airline advertising in a compe-

tition-sensitive manner, however, would be undermined if

airline fare advertising must also comply with the per-

haps quite different regulatory policies of various state

attorneys general. The purpose of Section 105 was to

preserve the DOT’s ability to implement the federal pol-

icy in favor of price competition by preempting the en-

actment or enforcement of state laws “relating to” air-

line rates; that purpose is fully implicated when the

States attempt to regulate airline fare advertisements.

ce. There is no conflict among the circuits on the pre-

emption question presented in the petition. In fact, this

case is the only federal appellate decision addressing

whether federal iaw preempts state regulations of airline

fare advertising.®

the total advertised air fare, as the NAAG Guidelines require, as

many as 13 fares might have to be listed in an air fare advertise-

ment for just one city-pair market (e.g., Washington to Los An-

geles), since the total price might vary according to whether con-

necting flights are used involving airports charging the PFC and

what those airports are.

5In Illinois Corporate Travel, Inc. v. American Airlines, Inc.,

supra, the Seventh Circuit concluded that Section 105 preempts

state law requiring an air carrier to deal with a travel agent re-

fusing to respect a contract restricting advertising of discount

rates. The court did not decide, however, whether all state law

Nor does the decision below conflict with Nader v.

Allegheny Airlines, Inc., 426 U.S. 290 (1976). In Nader,

this Court held that the CAB’s authority under Section

411 of the Federal Aviation Act of 1958, 49 U.S.C. App.

1381, to issue cease-and-desist orders against deceptive

practices did not empower the Board to immunize air-

lines from state law tort suits for misrepresentation in

connection with overbooking. Nader was decided before

the Airline Deregulation Act of 1978, including Section

105(a) (1), was enacted, so this Court had no oppor-

tunity in Nader to consider the effect of that law.

The decision below does not conflict with the Ninth

Circuit decisions cited by petitioners. West v. Northwest

Airlines, Inc., 923 F.2d 657 (9th Cir. 1990), petition

for cert. pending, No. 91-505, concluded that Section

105(a) (1) does not preempt an airline passenger’s suit

against an airline under state contract law for overbook-

ing. That issue is different from the one presented here.°®

To be sure, the Ninth Circuit stated a broad rationale in

that case—viz., that Section 105 “preempts claims only

when the underlying statute or regulation itseif relates

to airline services,” 923 F.2d at 660—and that rationale

could be read to deny preemption in this case. At the

Same time, a subsequent recent Ninth Circuit decision is

inconsistent with such a broad reading of West, because

it held that Section 105(a) (1) preempts state regulation

regulation of deceptive advertising is preempted. 889 F.2d at 755.

In addition, only one intermediate state appellate court has addressed

this question. People Vv. Western Airlines, Inc., 155 Cal. App. 3d

597, 202 Cal. Rptr. 237, cert. denied, 469 U.S. 1132 (1984). That

case held that Section 105 does not preempt a state civil enforce-

ment action against allegedly misleading statements implying fare

savings in airline advertising. The disagreement between the Fifth

Circuit’s decision in this case and one state intermediate appellate

court decision, however, does not warrant resolution by this Court.

® The DOT’s overbooking rules recognize that passengers have

an action under state contract law against an airline if passengers

are adversely affected by the airline’s overbooking. See 14 C.F.R.

Pt. 250.

of trucking rates and service when applied to the truck-

ing operations of an aircargo carrier, on the ground

that the state regulations “bear on” or “affect” the price.

Federal Express Corp. Vv. California Public Utilities

Comm’n, 936 F.2d 1075 (1991), petition for cert. pend-

ing, No. 91-502.’ Accordingly, it is unclear what position

the Ninth Circuit would take in a case involving airline

fare advertising.*®

2. No. 90-1606. The court of appeals clearly erred in

ruling that the 33 States waived their objection to per-

sonal jurisdiction by filing a motion in district court op-

posing entry of a TRO. The States’ decision to oppose the

TRO was reasonable and prudent given the artful phras-

ing of respondents’ complaint. In any event, there is no

legal basis for ruling that the 33 States’ Motion waived

™The Ninth Circuit has also ruled that Section 105(a)(1) does

not preempt a state regulation barring third parties from moni-

toring telephone conversations, as applied to airline officials seeking

to monitor customer calls to ticket agents. Air Transport Ass'n V.

Public Utilities Comm’n, 833 F.2d 200 (1987), cert. denied, 487

U.S. 1236 (1988). The question presented in that case, however,

differs considerably from this one. What is more, the Ninth Cir-

cuit made clear in that case that “[t]his is not, however, an appro-

priate case for the definitive resolution of the scope of federal pre-

emption under the Deregulation Act,” because Section 105(a) (1)

does not create a private right of action. 833 F.2d at 207.

8 The decision below also does not conflict with Alaska v. DOT,

868 F.2d 441 (D.C. Cir. 1989). The question there was whether

Alaska had standing to challenge on procedural grounds unpub-

lished DOT orders interpreting Section 411 of the Federal Aviation

Act of 1958 as permitting the separate statement of certain charges

in advertised fares. The DOT argued that the State lacked standing

because another DOT order, not challenged in that lawsuit, also

permitted that advertising practice and thus pre-empted the law

that Alaska sought to protect. The court of appeals disagreed with

the DOT’s interpretation of its prior order and found that Alaska

had standing because the challenged orders “provide the only possi-

ble basis for preemption.” 868 F.2d at 444. Alaska, however, did

not consider whether Section 105(a)(1) supplied an alternative

basis for preemption, and thus did not consider the question in

this case.

their objection to the personal jurisdiction of the district

court.

a. There is a threshold jurisdictional issue: 28 of the

33 States contend that there is no case or controversy be-

tween respondents and them. In its opinion upholding the

permanent injunction, the Fifth Circuit declined to ad-

dress this question on the ground that that court had

implicitly rejected the States’ claim in the course of up-

holding the preliminary injunction. Pet. App. 6a. To

our knowledge, however, nothing in the record shows

that 25 of the 33 States have brought or expressly threat-

ened to bring enforcement actions against respondents for

their air fare advertising.*® In addition, it is an open ques-

® Petitioners in No. 90-1606 claim (Pet. 23) that no case or con-

troversy exists concerning 28 of the 34 States subject to the district

court’s permanent injunction. That claim rests on the premise that

only six States (California, Kansas, Massachusetts, New York,

Texas, and Washington) “have threatened or initiated any legal

action under any of their respective consumer protection statutes

against any of the airline plaintiffs.” /bid. The record, however,

contains a February 3, 1988, memorandum addressed to “Airlines

and other interested parties’ and signed by, among others, the

attorneys general of three additional States, Colorado, Missouri, and

Wisconsin, which threatens an enforcement action against any air-

line violating § 2.5 of the NAAG Guidelines (relating to inclusion

of additional charges in air fares). That brings to 9 the number of

States that have threatened enforcement, leaving 25 States that

have not threatened to bring an enforcement action, but that are

subject to the district court’s permanent injunction. Of those 25

States, two, Arkansas and Maine, have not joined in the petitions

for certiorari in Nos. 90-1604 and 90-1606.

In their Brief in Opposition, respondents do not identify any

action taken or threatened by these 25 States that satisfies the re-

quirements of Article III. Instead, respondents rely on “the non-

Texas petitioners’ precipitate entry into the case” and “their de-

mand that they be left free to ‘enforce[| ... their state law in

their state court,’” Br. in Opp. 14, quoting Pet. App. 39a. As ex-

plained below, however, the States did not act precipitously by filing

their Motion. Moreover, respondents’ excerpt from the opinion below

is misleading. The full sentence, which is taken from the argument of

the Kansas Attorney General at the TRO hearing, appears as fol-

idisiciientieaiateaeaniaiene dee

tion whether a State’s participation in the NAAQ’s deci-

sion to adopt the NAAG Guidelines without more consti-

tutes the “credible threat of prosecution’ necessary to

establish a case or controversy in a pre-enforcement action

seeking to enjoin a State from enforcing one of its laws,

Babbitt v. United Farm Workers Nat’l Union, 442 U.S.

289, 298 (1979). Compare J/nternational Longshoremen’s

& Warehousemen’s Union Vv. Boyd, 347 U.S. 222 (1954) ;

Public Service Comm’n v. Wycoff Co., 344 U.S. 237

(1952). Cf. FTC v. Standard Oil Co., 449 U.S. 232

(1980).

There is no need, however, for the Court to resolve

that issue at this time. The Article III question affects

only 25 of the 33 States that filed the petition in No.

90-1606, because there is a case or controversy between

respondents and eight of the 33 States. It therefore is

unnecessary to resolve the jurisdictional question in order

to dispose of the remaining questions in No. 90-1606.

See General Bldg. Contractors Ass’n Vv. Pennsylvania, 458

U.S. 375, 402-403 n.22 (1982); Babbitt, 442 U.S. at 299

n.11. In addition, the Fifth Circuit clearly erred in

ruling that the 33 States had waived their objection to

personal jurisdiction, and the judgment below should be

summarily reversed on that point. Since this Court has

jurisdiction to reverse the judgment below on that point

and since doing so will dispose of that judgment with re-

spect to all 33 States, there is no present need to resolve

the subject matter jurisdiction question presented in No.

90-1606.

b. Rule 12(h) (1) of the Federal Rules of Civil Proce-

dure directly addresses the issue whether the claim of

lack of personal jurisdiction can be waived. It provides

that a defendant waives the defense of lack of personal

lows in the court of appeals’ opinion: “The bottom line . . . is that

individual states should not be precluded in advance as they con-

sider enforcement of their state law in their state court.”” Pet. App.

39a (emphasis added).

jurisdiction if he files certain motions before filing his an-

swer and fails to include that defense in the motion.'’

That Rule applies only to the parties to a lawsuit, how-

ever, and the 33 States were not parties to this action

when they filed their Motion. Pet. App. 42a. Accordingly,

the States did not waive their personal jurisdiction de-

fense by operation of Fed. R. Civ. P. 12(h) (1). Moreover,

the States expressly reserved their personal jurisdiction

objection; they argued that they should not be enjoined

because they had not been named in or served with the

complaint; and they maintained that each State inde-

pendently enforces its own laws. Those arguments were

sufficient to preserve the 33 States’ objection to personal

jurisdiction. Cf. Wyrough & Loser, Inc. v. Pelmor Lab.,

Inc., 376 F.2d 548, 547 (3d Cir. 1967) (rejecting claim

that opposing a preliminary injunction request by a

party that does not raise a personal jurisdiction objection

per se waives that defense; finding waiver only because

the defendant opposed request without noting in any way

a personal jurisdiction objection and without asking for

a continuance of the hearing to consider this issue).

The court of appeals acknowledged that the 33 States

were not parties to this action, but considered that fact

irrelevant because the States should be deemed “de facto

intervenors.”” Pet. App. 42a. Here as in many other

areas of the law, the Latin phrase “de facto” is perhaps

best translated as “not really.’”’ The so-called “de facto

intervention” doctrine represents a willingness by some

courts to overlook nonprejudicial defects in the interven-

rev'd on other grounds, 487 U.S. 412 (1988); Myers v. American

Dental Ass'n, 695 F.2d 716, 720-721 (3d Cir. 1982), cert. denied,

462 U.S. 1106 (1983); Rauch v. Day & Night Mfqg. Corp., 576 F.2d

697, 701-702 (6th Cir. 1978) (collecting cases); Union Camp Corp.

V. Dyal, 460 F.2d 678, 684 (5th Cir. 1972); Guardian Title Co. Vv.

Sulmeuver, 417 F.2d 1290, 1291-1292 (9th Cir. 1969); Varone v.

Varone, 392 F.2d 855, 857 (7th Cir. 1968). See also, e.a., Pardazi

Vv. Cullman Medical Center, 896 F.2d 1313, 1317-1318 (lith Cir.

1990).

tion requirements of Fed. R. Civ. P. 24(c). See 7C C.

Wright, A. Miller & M. Kane, Federal Practice and Pro-

cedure § 1914, at 413-416 (1986).'! That doctrine does

not apply here, because the 33 States’ Motion made ciear

that they had not yet decided whether or how to partici-

pate in this lawsuit—i.e., “whether to seek leave from

this Court to file an Amicus Curiae Brief or to seek leave

to intervene,” App. D, infra, 68a—and needed more than

two days’ notice to make that determination. The court

of appeals simply misread the States’ Motion.”

11 See, e.g., Gatz v. Southwest Bank of Omaha, 836 F.2d 1089,

1093 (8th Cir. 1988) ; International Marine Towing, Inc. Vv. Southern

Leasing Partners, Ltd., 722 F.2d 126, 129 (5th Cir. 1983); Spring

Constr. Co. Vv. Harris, 614 F.2d 374, 376-377 (4th Cir. 1980); United

States v. RMI Co., 599 F.2d 1183, 1186-1187 (3d Cir. 1979); Mar-

tindell v. IT&T, 594 F.2d 291, 294 (2d Cir. 1979) ; Roach yv. Church-

man, 457 F.2d 1101, 1104 (8th Cir. 1972); Smartt v. Coca-Cola

Bottling Corp., 337 F.2d 950 (6th Cir. 1964), cert. denied, 380 U.S.

934 (1965). Contra Spangler v. Pasadena City Bd. of Educ., 552

F.2d 1326 (9th Cir. 1977) (Kennedy, J.) (ruling that district court

erred by changing desegregation plan on motion of parents whose

children were affected by the plan but who did not become parties

under Fed. R. Civ. P. 24).

12 The so-called “de facto intervenor” doctrine has principally

been used as a basis for allowing persons who were technically

non-parties, but who participated in the trial court litigation and

who are affected by a trial court order, to take an appeal from

that ~rder despite the rule, see, e.g., Marino y. Ortiz, 484 U.S. 301,

304 (1988), that only the parties to a case may do so. See, e.g.,

Roach v. Churchman, 457 F.2d at 1104. That application of this

doctrine has no relevance here. In deeming the 33 States to be “de

facto intervenors,” the court of appeals did not excuse a nonpreju-

dicial defect in the Rule 24(c) process. On the contrary, the court

required the States to satisfy the strict pleading requirements

that Fed. R. Civ. P. 12 imposes on a person named in the complaint

as a defendant, even though the States had no notice that the Rule 12

requirements applied to them. In so doing, the court transformed

a principle designed to excuse “a procedural blunder of no real sig-

nificance,” 7C C. Wright, A. Miller & M. Kane, supra § 1914, at

415, into a trap for any unwary third party who is at risk of being

enjoined under Rule 65(d), but who is not given an opportunity

even to protest the entry of a TRO on the ground that the court

The Fifth Circuit also relied on the rule that an in-

tervenor may not object to the personal jurisdiction of a

court while simultaneously asking for “affirmative relief.”

Pet. App. 42a. The rationale for that rule is that “a

party who invoked the power of the court for his own

purposes should not be allowed the inconsistent objection

that the forum was personally inconvenient for him.” 5

C. Wright & A. Miller, supra, § 1897, at 787-788.%% But

that principle also does not apply here, because the States’

simply opposed the affirmative relief sought by respond-

ents.

lacks personal jurisdiction over that party. We are aware of no

precedent and no rationale justifying that result.

Respondents have cited only one decision, In re Grand Jury Pro-

ceedings, 654 F.2d 268 (3d Cir. 1981), in which a court relied on

this doctrine to penalize a non-party, and that case is no precedent

for this one. There, the defendant in a state criminal prosecution

filed a motion seeking the disclosure of exculpatory material held

by a federal grand jury. The district court ordered the U.S. At-

torney to assemble the relevant materials and to consult with the

state tria] judge. The state trial judge sought to appeal the order,

but his appeal was dismissed on the ground that he was not a party.

In re Grand Jury Proceedings, 625 F.2d 1106 (3d Cir. 1980). When

the defendant sought to enforce the order, the state trial judge

filed a reply opposing the defense effort. By filing such a reply,

the court of appeals held, the state judge waived his claim that

the district court lacked personal jurisdiction. 654 F.2d at 271.

Even if that decision is correct, it bears little resemblance to this

case: In this case, there was no prior court of appeals’ decision

holding that the 33 States were not parties to this lawsuit.

13 See also, e.g., Grammenos V. Lemos, 457 F.2d 1067, 1070 (2d

Cir. 1972) (collecting cases). Justice Holmes nenned the classic

formulation of this principle: “We assume that the defendant lost

no rights by pleading to the merits, as required, after saving its

rights. But by setting up its counterclaim the defendant became

a plaintiff in its turn, invoked the jurisdiction of the court in the

same action and by invoking submitted to it.” Merchants Heat &

Light v. J.B. & Sons, 204 U.S. 286, 289 (1907) (citations omitted).

See City of Santa Clara v. Kleppe, 428 F. Supp. 315 (N.D. Cal.

1976) (intervenor waives objection to personal jurisdiction by

asserting claim to payment from escrow fund).

Regardless of whether the States’ decision to file the

Motion and appear at the TRO hearing is viewed in hind-

sight as a reasonable litigation step,’* the Motion does

14 The Fifth Circuit believed that the 33 States had no reason to

fear they would be enjoined under the TRO. Pet. App. 42a. The

complaint proves the court wrong.

The complaint alleged that the named defendant, the Texas attor-

ney general, acted “in concert with numerous other states’ attorneys

general” in issuing the NAAG Guidelines, Compl. para. 6; App. C,

infra, 44a, and that “[ respondents] have been threatened with an

enforcement action by the Attorney General of Texas and by other

states’ attorneys general acting in concert with him?’ id. para. 46, at

59a. The complaint further alleged that the “concerted activities” of

the various States in connection with the NAAG Guidelines were

“an illegal agreement or compact among the states.” Jd. para. 49, at

60a. In that connection, the complaint asserted that respondents

“are entitled both to a declaration that the Guidelines are void and

unenforceable, and an injunction preventing any attempt by the

Attorney General of Texas, or any NAAG member in active con-

cert or participation with him, from enforcing the Guidelines

through their state laws.” Id. para. 50, at 60a. (emphasis added).

Given those allegations, respondents’ prayer for relief could readily

have troubled States that had participated in the adoption of the

NAAG Guidelines. The prayer sought declaratory relief and an

order enjoining the Texas attorney general “and all other persons

acting for or in active concert with [him], from taking any action

against plaintiffs pursuant to Texas Bus. & Comm. Code 8§§ 17.41

et seq. or any other state law in conjunction with the NAAG Guide-

lines” regarding airline rates, routes or services. App. C, infra, 63a-

64a (emphasis added). Moreover, respondents’ request for a TRO and

the memorandum respondents filed along with their TRO request

sought to have the States enjoined under Fed. R. Civ. P. 65(d), be-

cause the States were “in active concert or participation with” the

Texas attorney general. Plaintiffs’ Motion for a Temporary Restrain-

ing Order 1-2, 3-4 (Jan. 23, 1989) ; Memorandum in Support of Plain-

tiffs’ Motion for a Temporary Restraining Order 2 n.2 (Jan. 23,

1989). (Indeed, after the district court clarified that the preliminary

injunction applied only to Texas, respondents again sought to have

the other 33 States enjoined under Fed. R. Civ. P. 65(d) on the

ground that they were acting “in concert” with Texas. Plaintiffs’

Memorandum in Support Of Motion to Broaden Injunction [ete. |

21-25 (Mar. 18, 1989).) Respondents thus clearly believed that the

33 States were acting “in concert” with Texas and sought to have

the States enjoined for that reason. Since the allegations of con-

not support the court of appeals’ conclusion that the 33

States waived their objection to personal jurisdiction.

Not only does the Motion state that it is submitted “with-

out admitting that this Court has persona! jurisdiction

[over the 33 States],” it goes on to state that the TRO

should be denied because the TRO “could affect the sov-

ereign rights of states which have neither been served

nor named as defendants.”” App. D, infra, 65a, 66a. The

States did not become “plaintiffs” by opposing the TRO;

at most, they raised a defense. Treating their opposition

to the TRO request as a demand for “affirmative” relief

deprives that term of meaning. In any event, Rule 12(b),

Fed. R. Civ. P., states that “[n]o defense or objection is

waived by being joined with one or more other defenses

in a responsive pleading or motion.” Thus, even if the 33

States’ Motion could be said to have addressed both the

merits of respondents’ claims and personal jurisdiction,

Rule 12(b) specifically authorizes that procedure."

certed activity clearly involved States that were members of the

NAAG, the Motion filed by the 33 States and their appearance at

the hearing on the TRO were prudent steps to take to try to avoid

being enjoined before respondents sought to make them parties.

15 Some courts have held that the adoption of Rule 12 modified

the “affirmative relief” doctrine, so that a party defendant not only

may assert any defense without waiving an objection to personal

jurisdiction, but also may assert a compulsory counterclaim. See

Neifeld v. Steinberg, 438 F.2d 423, 430 n.13 (3d Cir. 1971) (col-

lecting cases); 5 C. Wright & A. Miller, swpra, § 1397, at 791-792

(endorsing this practice). Indeed, the Fifth Circuit, among other

courts, previously had ruled that a defendant may also assert a

permissive counterclaim without waiving his objection to personal

jurisdiction. Bayou Steel Corp. v. M/V Amsteldvoorn, 809 F.2d

1147, 1149 (5th Cir. 1987) (collecting cases); Gates Learjet Corp.

v. Jensen, 743 F.2d 1325, 1330 n.1 (9th Cir. 1984) (“If we were

to find a waiver when a defendant files a permissive counterclaim in

the same pleading in which he asserts jurisdictional defenses, the

purposes behind Rule 12(b)—to avoid the delay caused by succes-

sive motions and pleadings and to reverse the prior practice of

asserting jurisdictional defenses by ‘special appearances’—would be

thwarted.”), cert. denied, 471 U.S. 1066 (1985). (Earlier cases

The court of appeals readily acknowledged that “[a]

party may appear generally and yet object to personal

jurisdiction at any time before the answer is filed or in

the answer.”’ Pet. App. 42a. Nevertheless, the court held

that the States could not take advantage of that rule be-

cause they were not parties to this case when they op-

posed the TRO. Jbid. But there is no basis for applying

the Rule 12(h) (1) forfeiture rule more strictly to an in-

tervenor than to a party named in the complaint. 7C C.

Wright, A. Miller, & M. Kane, supra, § 1920, at 488 &

n.7 (“Unless conditions have been imposed, the inter-

venor is treated as if he were an original party and has

equal standing with the original parties.”). Thus if, as

the court of appeals determined, the 33 States became

“de facto intervenors” by filing the Motion opposing the

TRO, then they were entitled to the same treatment as

parties, who under Rule 12 may combine defenses to the

merits and objections to jurisdiction in one pleading. If,

on the other hand, the States did not become parties by

filing the Motion, then they cannot be subjected to the

district court’s injunction. In either case, there is no

basis for the Fifth Circuit’s ruling that the 33 States

waived their objection to personal jurisdiction simply by

filing the Motion. The judgment below is therefore in

error on this point.

ce. We recognize that the ruling below turns on the

facts of this case and that the factual situation in this

ease is unusual, which ordinarily would mean that the

Fifth Cireuit’s error would not warrant correction by

this Court. On the other hand, the consequences of that

error are severe: The court of appeals has allowed a sin-

gle federal district court judge to enjoin 33 States from

finding a waiver in the case of permissive but not compulsory coun-

terclaims are collected in Neifeld, 438 F.2d at 430 n.13.) If a de-

fendant may assert a compulsory or permissive counterclaim without

waiving his objection to personal jurisdiction, it follows that the

purely defensive presentation made by the 33 States here cannot

constitute a waiver.

einai

enforcing their laws without first having considered the

States’ objection to the district court’s personal jurisdic-

tion, simply because those States sought to avoid having

a TRO entered against them in an action where they

were not named in or served with the complaint. The

upshot is that 33 States have been denied the oppor-

tunity to litigate the merits of the preemption issue in

their respective circuits or state courts in the context of

their own laws, and this Court has been denied the per-

spective that such litigation could afford. Cf. United

States v. Mendoza, 464 U.S. 154, 160 (1984). Correcting

the court of appeals’ error will undo these injuries and

will allow this Court to obtain the benefit of the views of

the other courts on the preemption issue before this Court

considers whether it needs to resolve that question.'®

16 Tf the Court were instead to decide to give plenary review to

the judgment below, the Court should grant the petition in No. 90-

1604 (the Texas petition) and hold the petition in No. 90-1606

(the 33 States’ petition). The petition in No. 90-1604 presents the

preemption question that is also presented in No, 90-1606, but the

petition in No. 90-1604 does not present the jurisdiction and waiver

that are raised by the 33 States’ petition. A decision by this Court

on the preemption issue could render moot the other issues pre-

sented in No. 90-1606.

CONCLUSION

The petition for a writ of certiorari in No. 90-1604

should be denied. The petition for a writ of certiorari in

No. 90-1606 should be granted limited to Question 2, and

the judgment below should be summarily reversed. In

all other respects the petition in No. 90-1606 should be

denied.

Respectfully submitted.

JOHN G. ROBERTS, JR.

Acting Solicitor General *

STUART M. GERSON

Assistant Attorney General

PAUL J. LARKIN, JR.

Assistant to the Solicitor General

ROBERT V. ZENER

Attorney

C. DEAN MCGRATH, JR.

Acting General Counsel

Department of

Transportation

OCTOBER 1991

* The Solicitor General is disqualified in these cases.

APPENDIX A

STATUTORY PROVISIONS

AND RULE INVOLVED

1. Section 105(a)(1) of the Airline Deregulation

Act of 1978, 49 U.S.C. App. 1805(a) (1), provides as

follows:

(a) Preemption

(1) Except as provided in paragraph (2) of

this subsection, no State or political subdivision

thereof and no interstate agency or other polit-

ical agency of two or more States shall enact or

enforce any law, rule, regulation, standard, or

other provision having the force and effect of law

relating to rates, routes, or services of any air

carrier having authority under subchapter IV of

this chapter to provide interstate air transporta-

tion.

2. Rule 12 of the Federal Rules of Civil Procedure

provides in part as follows:

Defenses and Objections—When and How Pre-

sented—By Pleading or Motion for Judgment on

the Pleadings

(a) When Presented. A defendant shall serve

an answer within 30 days after the service of

the summons and compiaint upon that defendant,

except when service is made under Rule 4(e)

and a different time is prescribed in the order of

court under the statute of the United States or in

the statute or rule of court of the state. A party

served with a pleading stating a cross-claim

against that party shall serve an answer thereto

(la)

within 20 days after the service upon that party.

The plaintiff shall serve a reply to a counterclaim

in the answer within 20 days after service of the

answer, or, if a reply is ordered by the court,

within 20 days after service of the order, unless

the order otherwise directs. The United States

or an Officer or agency thereof shall serve an

answer to the complaint or to a cross-claim, or a

reply to a counterclaim, within 60 days after the

service upon the United States attorney of the

pleading in which the claim is asserted. The serv-

ice of a motion permitted under this rule alters

these periods of time as follows, unless a differ-

ent time is fixed by order of the court: (1) if

the court denies the motion or postpones its dis-

position until the trial on the merits, the respon-

sive pleading shall be served within 10 days after

notice of the court’s action; (2) if the court

grants a motion for a more definite statement the

responsive pleading shall be served within 20

days after the service of the more definite state-

ment.

(b) How Presented. Every defense, in law or

fact, to a claim for relief in any pleading,

whether a claim, counterclaim, cross-claim, or

third-party claim, shall be asserted in the re-

sponsive pleading thereto if one is required, ex-

cept that the following defenses may at the

option of the pleader be made by motion: (1)

lack of jurisdiction over the subject matter,

(2) lack of jurisdiction over the person, (3) im-

proper venue, (4) insufficiency of process, (5)

insufficiency of service of process, (6) failure to

state a claim upon which relief can be granted,

(7) failure to join a party under Rule 19. A

motion making any of these defenses shall be

made before pleading if a further pleading is

permitted. No defense or objection is waived by

being joined with one or more other defenses or

objections in a responsive pleading or motion. If

a pleading sets forth a claim for relief to which

the adverse party is not required to serve a re-

sponsive pleading, the adverse party may assert

at the trial any defense in law or fact to that

claim for relief. If, on a motion asserting the

defense numbered (6) to dismiss for failure of

the pleading to state a claim upon which relief

can be granted, matters outside the pleading are

presented to and not excluded by the court, the

motion shall be treated as one for summary

judgment and disposed of as provided in Rule 56,

and all parties shall be given reasonable oppor-

tunity to present all material made pertinent to

such a motion by Rule 56.

* * * *

(h) Waiver or Preservation of Certain De-

fenses.

(1) A defense of lack of jurisdiction over the

person, improper venue, insufficiency of process,

or insufficiency of service of process is waived

(A) if omitted from a motion in the circum-

stances described in subdivision (g), or (B) if

it is neither made by motion under this rule nor

included in a responsive pleading or an amend-

ment thereof permitted by Rule 15(a) to be

made as a matter of course.

(2) A defense of failure to state a claim upon

which relief can be granted, a defense of failure

to join a party indispensable under Rule 19, and

an objection of failure to state a legal defense to

a claim may be made in any pleading permitted

or ordered under Rule 7(a), or by motion for

judgment on the pleadings, or at the trial on the

merits.

(3) Whenever it appears by suggestion of the

parties or otherwise that the court lacks jurisdic-

tion of the subject matter, the court shall dismiss

the action.

° et

APPENDIX B

Submitted by: Consumer Protection Committee

NATIONAL ASSOCIATION OF ATTORNEYS

GENERAL

Adopted

Winter Meeting 1987

Modified

Spring Meeting

March 13-15, 1988

Washington, D.C.

III

RESOLUTION

ADOPTING THE AIR TRAVEL

INDUSTRY ENFORCEMENT GUIDELINES

WHEREAS, the Attorneys General, as the chief

law officers of their states, are the primary enforcers

of the states’ consumer protection laws; and

WHEREAS, pursuant to their authority under

state and common law, the state Attorneys General

have jurisdiction to enforce the consumer protection

laws as to unfair or deceptive practices by members

of the air travel industry, and have done so; and

WHEREAS, all advertisements by airlines, includ-

ing fare advertisements, are subject to the same

standards as any other provider of goods or services

and must be nondeceptive and in plain language; and

WHEREAS, in response to an increase in con-

sumer complaints involving the air travel industry,

the National Association of Attorneys General, in

June 1987, directed the Consumer Protection Com-

mittee to designate a task force of states to study the

air travel industry and determine the extent and

nature of practices that were allegedly unfair or de-

ceptive and further directed the task force to present

its findings along with any recommended course of

action to the Attorneys General at the NAAG 1987

winter meeting; and

WHEREAS, the task force undertook an in-depth

inquiry into prevalent practices in the air travel in-

dustry to determine the nature of such practices and

to determine whether they constituted unfair or de-

ceptive practices; and

WHEREAS, the inquiry by the task force resulted

in the determination that a number of practices prev-

alent in the air travel industry were potentially un-

fair or deceptive; and

WHEREAS, a number of states are presently in-

vestigating misleading advertising in the air travel

industry and have therefore withheld the filing of

actions until guidelines have been adopted; and

WHEREAS, the task force has recommended that

the best means of correcting such practices that con-

stitute unfair or deceptive practices in the air travel

industry is through the adherence by the air travel

industry to uniform guidelines dealing with fare ad-

vertising, frequent flier programs and the disclosure

of policies on compensation for voluntary denied

boarding;

NOW, THEREFORE, BE IT RESOLVED THAT

THE NATIONAL ASSOCIATION OF ATTOR-

NEYS GENERAL:

1) Adopt the Air Travel Industry Enforcement

Guidelines as a statement of the general enforcement

policy of the Attorneys General with respect to unfair

or deceptive acts or practices in the airline industry,

subject to the exercise of their individual prosecu-

torial discretion, and variations or supplementations

to allow for variations in precedents among the fed-

eral circuits and differences in individual state or

common law, and determines that in order to have an

orderly process of implementation the guidelines take

effect January 15, 1988, except and provided that this

does not require that airlines make any required

changes in frequent flyer program brochures prior to

April 15, 1988; and

2) The task force on the air travel industry is in-

structed to receive and examine any comments from

the industry, consumer groups, federal agencies, and

other interested parties, evaluate any such comments,

and report to NAAG at its spring 1988 meeting on

the advisability of any modifications of the guide-

lines; and

3) That the Executive Director and General Coun-

sel is authorized to make the Air Travel Enforcement

Guidelines available to appropriate members of the

Administration, Congress, and other interested in-

dividuals and associations.

The following Attorneys General dissent:

David Wilkinson, Utah: Ha! Stratton, New Mexico

Action: March 15, 1988

1. The Staff Comments of March 8, 1988, devel-

oped in accordance with Section 2 of this Reso-

lution, are adopted and are to be incorporated

into the Guidelines and Commentary.

2. Chair of the Consumer Protection Committee,

Attorney General William L. Webster, is au-

thorized to appoint a task force of four Attor-

neys General to continue to evaluate the effec-

tiveness of the Guidelines and to continue dis-

cussions with members of the industry and

other interested parties.

Abstensions :

Attorney General David L. Wilkinson, Utah

NATIONAL ASSOCIATION OF

ATTORNEY GENERAL

TASK FORCE

ON THE

AIR TRAVEL INDUSTRY

GUIDELINES

AND

COMMENTARY

APRIL 1988

10a

National Association of Attorneys General

Task Force on the Air Travel Industry

Revised Guidelines

INTRODUCTION

In June, 1987, the National Association of Attor-

neys General (““NAAG’’) directed the appointment of

a Task Force of states to study the advertising and

marketing practices of the airline industry in the

United States. In addition to the study, the Task

Force was directed to determine the nature and ex-

tent of existing unfair and deceptive airline advertis-

ing practices and to report a recommended course of

action to NAAG at its meeting in December 1987.

The Task Force Report and Recommendations were

adopted by NAAG at its winter meeting on December

12, 1987, with a continuing direction to the Task

Force (1) to receive and examine any comments from

industry, consumer groups, federal agencies, and

other interested parties; (2) to evaluate these com-

ments; and (3) to report to NAAG at its Spring 1988

meeting on the advisability of any modifications of

the Guidelines.

The Task Force received written comments from

the Air Transport Association, the American Asso-

ciation of Advertising Agencies, American Airlines,

the Association of National Advertisers, the Council

of Better Business Bureaus, the Federal Trade Com-

mission, the National Association of Broadcasters,

Southwest Airlines, United Airlines, USAir, and the

U.S. Department of Transportation. Assistant attor-

neys general of the Task Force states evaluated these

comments, and reported their recommendations to

NAAG.

lla

On March 15, 1988, NAACG adopted the recom-

mended changes to the frequent flyer Guidelines and

directed that the comments to both the fare advertis-

ing and frequent flyer Guidelines be changed to re-

spond to valid concerns raised by those filing com-

ments. The Guidelines and comments herein reflect

the changes directed by NAAG.

NAAG also directed the chair of NAAG’s Con-

sumer Protection Committee to appoint four attorneys

general to serve on a continuing task force to evaluate

the effectiveness of the Guidelines and to continue dis-

cussions with members of the industry and other in-

terested parties. These attorneys general are: John

Van de Kamp (California), Neil F. Hartigan (Illi-

nois), Jim Mattox (Texas), and Kenneth O. Ejiken-

berry (Washington).

It is important to note that these Guidelines do not

create any new laws or regulations regarding the ad-

vertising practices or other business practices of the

airline industry. They merely explain in detail how

existing state laws apply to air fare advertising and

frequent flyer programs. Each Guideline is followed

by a comment which summarizes:

* NAAQ’s intent with respect to that Guideline.

* Any relevant comments received by the Task

Force.

* Any significant changes that were made to the

Guidelines.

Section 1—Definitions

1.0 Advertisement means any oral, written,

graphic or pictorial statement made in the course of

solicitation of business. Advertisement includes, with-

out limitation, any statement or representation made

12a

in a newspaper, magazine or other public publication,

or contained in any notice, sign, billboard, poster, dis-

play, circular, pamphlet, or letter (collectively called

“print advertisements”), or on radio or television

(“broadcast commercials”).

Comment: This definition encompasses those mate-

rials and media covered by most states’ false adver-

tising statutes. “Print advertisements” and “broad-

cast commercial” are separated into different cate-

gories because they are afforded slightly different

treatment under these Guidelines. This represents a

change from an earlier draft of the Guidelines and is

an attempt to address some of the airlines’ concerns

regarding the difficulties of lengthy disclosures in

broadcast commercials.

1.1 Award means any coupon, certificate, voucher,

benefit or tangible thing which is promised, given,

sold or otherwise transferred by an airline or pro-

gram partner to a program member in exchange for

mileage, credits, bonuses, segments or other units of

value credited to a consumer as an incentive to fly on

any airline or to do business with any program

partner.

Comment: This definition, as well as definitions 1.2,

1.3, 1.4, 1.6, 1.9, and 1.10, is self-explanatory.

1.2 Award level means a specified amount of mile-

age or number of credits, bonuses, segments or other

units which a program member must accumulate in

order to receive an award.

1.3. Blackout date means any date on which travel

or use of other program benefits is not permitted for

program members seeking to redeem their award

levels. This is a form of capacity control.

13a

1.4 Capacity control means the practice by which

an airline or program partner restricts or otherwise

limits the opportunity of program members to redeem

their award levels for travel or other benefits offered

in the program.

1.5 Clear and conspicuous means that the state-

ment, representation or term (“statement’’) being

disclosed is of such size, color contrast, and audibility

and is so presented as to be readily noticed and under-

stood by the person to whom it is being disclosed. All

language and terms should be used in accordance with

their common or ordinary usage and meaning. For

example, “companion” should be used only when it

means any companion (7.e., any person traveling with

the program member), not solely family members.

Without limiting the requirements of the preceding

sentences:

(a) A statement in a print advertisement is con-

sidered clear and conspicuous if a type size

is used which is at least one-third the size of

the largest type size used in the advertising.

However, it need not be larger than:

* 10-point type in advertisements that are

200 square inches or smaller, and

* 12-point type in advertisements that are

larger than 200 square inches.

If the statement is in the body copy of the

advertisement, it may be in the same size

type as the largest type used in the body

copy, and does not have to meet these type-

size requirements.

(b) A statement in a broadcast commercial is

considered clear and conspicuous if it is

lite

14a

made orally and is as clear and understand-

able in pace and volume as the fare informa-

tion.

clear and conspicuous if a type is used which

is at least one-third the size of the largest

one size used on the billboard.

(d) A statement required by Section 3, relating

to frequent flyer programs, is considered

clear and conspicuous if it is prominently lo-

cated directly adjacent to the materials to

which it applies. Type size should be no

smaller than the most commonly-used print

size in the document, but in no event smaller

than 10-point type. Any reservation of any

right to make future changes in the program

or award levels should be located prominently

at the beginning of printed materials.

Comment: One of the most deceptive aspects of

current air fare advertisements is the completely in-

adequate manner in which those advertisements dis-

close the restrictions and limitations which apply to

the advertised fares. The restrictions disclosed in

print advertisements are rarely located near the fare

advertised and often appear only in extremely small

type at the bottom of the advertisement. In broadcast

commercials, such disclosures are generally absent

from radio advertisements, and if included at all in

television commercials appear as written disclosures

flashed on the screen much too quickly for the average

person to read. On billboards any mention of restric-

tions on advertised fares is unusual.

Given this background, NAAG believes that it is

necessary to define clearly for the airlines what con-

15a

| me nae HS

stitutes clear and adequate disclosure in all advertising

media. The type-size minima for print advertisements

are aimed at making the disclosures both easy to read

and noticeable. Consequently, a slightly larger size

print is suggested in larger size advertisements. These

type-size minima are not absolute. That is, print dis-

closures do not in every instance have to be in at least

10-point type, as long as they are clear and conspicu-

ous regardless of the size of the type. The type size

suggestions are merely examples of advertising prac-

tices which give an airline a reasonable expectation

that it will not be sued if it follows the Guidelines. In

the Task Force’s meetings with the airlines last sum-

mer, one common note expressed was that the airlines

could abide by disclosure guidelines, as long as they

were clear and enforced uniformly. If an airline does

not choose this safe harbor and instead ventures into

untested waters, it may run aground and it may not.

But it is free to do so.

The comments to this Guideline were critical

largely because NAAG singled out airline advertise-

ments for this treatment. However, on the whole,

the airlines indicated they could meet the type size

standard relatively easily in print advertisements.

NAAG elected to encourage oral disclosures in

broadcast media, because written disclosures are dif-

ficult if not impossible to read and because many

people listen to, rather than watch television com-

mercials. We continue to believe that oral disclosure

is the best method of conveying information in a

television commercial. However, the converse of this

Guideline is not true—a disclosure in a television

commercial is not necessarily deceptive if it is instead

made in a video super or crawl, as long as it is still

clear and conspicuous.

16a

For safety reasons, very large type is provided for

billboards.

1.6 Frequent flyer program means any program

offered by an airline or program partner in which

awards are offered to program members.

1.7 Limited-time availability means that the fare

is only available for a specific period of time or that

the fare is not available during certain blackout

periods.

Comment: This definition applies to air fares that

are only available certain times of the year (e.g.,

available December 15 through April 15), are not

available at certain times at all (not available De-

cember 23 through January 5), or are only available

until a date cetrain (available only until January

15). It does not apply to fares that are unavailable

only on certain days of the week or times of the day.

1.8 Material restriction means a restriction, limi-

tation, or other requirement which affects the use or

refundability of a ticket, and which is not generally

applicable to all classes of fares or tickets (such as

standard conditions of carriage).

Comment: Due to the numerous standard condi-

tions applicable to most airline tickets, NAAG has

confined the definition of ‘“material-restrictions’’ to

those restrictions and limitations that are specific

and unique to certain fare categories (i.e., those that

are different from the restrictions and limitations

that apply to a standard coach ticket ).

1.9 Program member means any consumer who

has applied and been accepted for membership in

an airline’s frequent flyer program, regardless of

whether he or she has accrued mileage, credits,

17a

bonuses, segments or other units of value on an

airline or with any program partner.

1.10 Program partner means any business entity

which provides awards as part of an airline’s fre-

quent flyer program.

1.11 Vested member means a member of a fre-

quent filyer program who is enrolled in an existing

program and has provided consideration to the air-

line or its partners, and who has not received ade-

quate notice of program changes such as set forth

in Sections 3.2 and 3.9. For example, consideration

includes purchasing tickets on an airline, renting a

car or using a specific credit card.

Comment: This definition separates out those con-

sumers who joined a frequent flyer program without

receiving adequate notice of how that program could

change prospectively. The Guidelines afford some

special protections to vested members and vested

miles. There is sound reason for this.

After reviewing the travel reward promotional

materials for most of the major airlines, NAAG

concluded that currently vested members have not

received adequate disclosure of the potential for sig-

nificant increases in award levels or imposition of

other restrictions which may result in the airlines’

unilateral devaluation of awards. Therefore, the

Guidelines treat vested members and the miles which

members accrued before receiving adequate notice of

prospective changes differently.

1.12 Vested mile means program mileage (or

other credits) accumulated by a vested member be-

fore that person receives adequate notice of program

changes, as set forth in Sections 3.2 and 3.9.

Comment: This definition identifies any mileage

or credit accrued by a vested member before he or

aaa ie

18a

she received adequate notice regarding the possibility

of future detrimental changes in the program. See

the comments to the definition of vested member.

Section 2—Fare Advertisements

2.0 General guideline

Any advertisement which provides air fares or

other price information must be in plain language,

clear and conspicuous, and non-deceptive. Deception

may result not only from a direct statement in the

advertisement and from reasonable inferences there-

from, but also from omitting or obscuring a material

restriction.

Comment: This Guideline and the following

Guidelines restate individual states’ false advertising

and deceptive practices statutes as they apply to air

fare and price advertising.

2.1 Disclosure in print advertisements

Print advertisements for fares must make clear

and conspicuous disclosure of restrictions such as:

Limited-time availability.

* Limitations on right to refund or exchange of

ticket.

Time of day or day of week restrictions.

Length of stay requirements.

Advance purchase requirements.

Round trip purchase requirements.

Variations in fares to or from two or more

airports serving the same metropolitan area.

19a

* Limitations on, or extra charges for, breaks

or changes in itinerary, such as failure to

travel on every leg as scheduled.

* The statement, if any, required by Guideline

2.4.

* Any other material restriction on the fare.

This Guideline would be met by disclosing mate-

rial restrictions either:

in the body copy of the advertisement,

adjacent to the fare price, or

in a box with a heading such as ‘“Restric-

tions.”

Examples (in 10-point type) of disclosures of ma-

terial restrictions if they apply to fares being adver-

tised are:

In the body copy:

RESTRICTIONS. ‘Weekend traveler” fares are

generally available all day Saturday and Sunday

until 6 p.m. However, these fares are not avail-

able on some flights on some days.

In the box:

Restrictions These restrictions apply to one or

more of these fares:

* 30 day advance purchases required

* Not available November 20-December 1

* New York fares only to Newark Airport

Restrictions. Advertised fares are only available

Tuesday, Wednesday, and Thursday afternoons.

Three-day advance purchases required. 50°

cancellation penalty «»plies.

20a

Comment: The advantage to consumers of print

advertisements over television or radio advertise-

ments is that they give consumers something tangible

to use as a reference when shopping for low cost air

fares. Because consumers can take their time and

carefully read a print advertisement it is especially

important that this type of advertisement contain the

most accurate and complete information possible re-

garding any advertised air fares. The restrictions

singled out by NAAG in this Guideline for disclosure

are those NAAG believes are the most significant to

a consumer contemplating purchasing a ticket. An

advertisement that complies with this Guideline will

give a consumer three crucial pieces of information:

1. Eligibility—consumers will know if they are

eligible for the fare (i.e., can @ consumer meet ad-

vance purchase requirements or other restrictions af-

fecting time or date of travel?) ;

2. Availability—consumers can accurately gauge

the likelihood that they will be able to obtain a ticket

at the advertised price; and

3. Risk—consumers will know the risks associated

with purchasing a ticket at the advertised price (i.e.,

is the ticket non-refundable or do other penalties ap-

ply upon cancellation or changes in itinerary?).

This particular Guideline received a great deal of

negative comment because the airlines and gqover-

ment agencies misunderstood it to mean that it re-

quired full disclosure of all of the restrictions that

apply to each specific fight. This is not correct. The

Guideline only requires that if any of the restrictions

listed in the Guideline apply to any of the air fares

2la

advertised then the advertisement must disclose the

existence of that restriction and the fact that the re-

striction applies to one or more of the air fares ad-

vertised. To clear up this misunderstanding, NAAG

included specific examples of the disclosures required

by the revised Guidelines. There was also some mis-

understanding that disclosure in a box was required.

As the Guideline states, this is just one option.

The comments made to the December Guidelines

evidenced another misconception about the wording

of the disclosures on fare restrictions. This Guideline

provides suggested wording, again to assist the air-

lines in determining how to meet the disclosures, but

the language is by no means sacrosanct. The best

creative minds in the advertising business cre avail-

able to the airlines through their advertising agencies.

The airlines are free to avail themselves of these

talents, who are certainly adept at phrasing a message

the advertiser wants to get across to the consumer.

The essence of the Guidelines is that consumers must

be advised of the limits which the airlines has chosen

to impose on consumers’ ability to buy tickets at the

advertised price.

2.2 Disclosure in broadcast commercials

Broadeast commercials for fares must make clear

and conspicuous disclosure of:

* Limited-time availability.

* Limitations on right to refund or exchange of

ticket.

* The statement, if any, required by Guideline

») 4

22a

In addition, if the following seven disclosures are not

made in a clear and conspicuous manner in the com-

mercial, any that are applicable must be disclosed

orally to the passenger before reservations are actually

made:

* Time of day or day of week restrictions.

Length of stay requirements.

* Advance purchase requirements.

Round trip purchase requirements.

Variations in fares to or from two or more air-

ports serving the same metropolitan area.

Limitations on, or extra charges for, breaks or

changes in itinerary, such as failure to travel

on every leg as scheduled.

Any other materia! restriction in the fare.

As to these seven types of disclosure, the airline

may include any or all in the commercial or may

choose to defer disclosure until the trme reservations

are actually made.

If any of these seven disclosures applies to the fare

advertised and the airline chooses to defer disclosure

until the time the reservations are actually made, the

commercial must give clear and conspicuous disclosure

that “Other substantial restrictions apply,” or similar

language. The statement “Restrictions apply” is not

sufficient.

Comment: In an earlier draft, the Guidelines re-

quired that radio and television advertisements in-

clude all the same disclosures required in print ad-

vertisements. The airline industry unanimously re-

sponded that such detailed disclosures would be im-

possible to include in the 15 and 30 second advertising

ilies.

23a

spots generally purchased for radio and television ads,

and argued that, even if time allowed this much oral

disclosure, the resulting commercial would provide too

much information for a consumer to absorb usefully.

They concluded that such a requirement would elimi-

nate airline price advertising on television and radio.

The provision of fare information, without stating

the most significant restrictions that apply to the fare

advertised, is deceptive and ultimately harmful to con-

sumers and the airline industry alike.

The Guideline as revised provides a compromise.

It suggests disclosure of the three most serious restric-

tions that can apply to an airline ticket—limited time

availability, nonrefundability or exchangeability and

limitations on fare availability. Disclosure of all of

these restrictions can be accomplished by something

as simple as the following statement: “Tickets are

nonrefundable, are not available on all flights, and

must be purchased by December 15. Other significant

restrictions apply.” These 20 words can easily be read

in a 30 second commercial. In addition, some or all

of this information may be clearly and conspicuously

disclosed in a video super or crawl in television com-

mercials. Of course, this option is not available for

radio commercials. However, commenting airlines

confirmed that the typical radio spot is 60 seconds,

making the concern about time less crucial.

Airlines then have the option of disclosing any addi-

tional material restrictions in the advertisement itself

or deferring such disclosure until a consumer makes

a reservation. Of course, if an airline does not choose

to restrict its fare severely, fewer words (and thus,

less air time) is needed.

This compromise position also recognizes that print

advertising lends itself more readily to detailed infor-

24a

mation in a form which the consumer can retain and

refer to at his own pace. For this reason, NAAG has

chosen to require less disclosure in broadcast, allow-

ing print to be the medium for full disclosure.

2.3 Disclosure on billboards

Any billboard which provides air fare or other price

information on a fare to which any material restric-

tions apply must have clear and conspicuous language

such as “Substantial restrictions apply.” The state-

ment “Restriction apply” is not sufficient.

Comment: For safety reasons, NAAG concluded

that lengthy written disclosures on billboards are in-

appropriate and potentially hazardous to drivers. We

disagree with the DOT that this special treatment of

price advertising on billboards will result in a prolif-

eration of billboards on our nation’s highways.

2.4 Fare availability

Any advertised fare must be available in sufficient

quantity so as to meet reasonably foreseeable demand

on every flight each day for the market in which the

advertisement appears, beginning on the day on which

the advertisement appears and continuing for at least

three days after the advertisement terminates.

However, if the advertised fare is not thus avail-

able, the advertisement must contain a clear and con-

spicuous statement of the extent of umavailability of

the advertised fare.

Statements such as “Sears limited” and “Restric-

tions apply” do not meet this Guideline. These ex-

amples do meet this Guideline: ;

* This fare may not be available when you cal*®

* This fare is not available on all flights.

25a.

* This fare is only available on some Saturday

and Sunday flights.

Comment: This Guideline elicited the greatest

amount of negative comments from the airline in-

dustry, the ATA, FTC and the DOT. They argue

that this Guideline is impossible to implements be-

cause, due to the complexity of airline pricing sys-

tems, the number of seats available at a particular

low fare on a particular flight is not a fixed number.

It is continuously modified up to the point of de-

parture. They suggest that it is acceptable for the

airlines to communicate a general invitation to the

public to buy low fare seats, but then reduce the num-

ber of seats available to zero or close to zero for the

most popular flights, because the possibility that a

consumer can purchase a seat at the advertised price

exists at the time the advertisement is placed.

The complexity of the airlines’ system cannot jus-

tify thé-unfairness of such an approach. No other

retailer would be allowed to justify a failure to stock

an advertised item on the grounds that, at the last

minute the retailer decided it was less costly not to

stock the item it had just advertised. The availability

of an item advertised, at the price advertised, goes

to the very heart of truthful advertising. If an air-

line advertises an air fare that is not available on

each and every flight to the destination advertised,

and this fact is not disclosed, then the advertisement

is deceptive on its face.

While NAAG appreciates the difficulty of disclosing

the specific number of seats available on each flight

advertised, a disclosure that “This fare is not avail-

able on all flights” or “This fare may not be available

when you call” is not particularly onerous. Absent

such disclosure, airlines, as all other retailers, should

26a

be required to have sufficient stock available to meet

reasonable demand for any fare advertised.

2.5 Surcharges

Any fuel, tax, or other surcharge to a fare must

be included in the total advertised price of the fare.

Comment: Recently, several airlines considered

the possibility of passing along an increase in the

cost of fuel to consumers by imposing a “fuel sure

charge” rather than simply raising air fares to re-

flect their increased costs. The air fare advertised

was to remain the same, but a footnote would be

added to the advertisement in the ‘“‘mice type” dis-

closing that, for instance, a $16 fuel surcharge would

be tacked on to the advertised fare. The potential

for abuse, if this type of price advertising is per-

mitted, is obvious. It would only be a matter of time

before $19 air fares from New York to California

could be advertised with $300 meal, fuel, labor, and

baggage surcharges added in a footnote. The total

advertised price of the fare must include all such

charges in order to avoid these potential abuses. How-

ever, this Guideline should not be construed to require

an airline to do the impossible. We do not believe

that such minimal tour-related charges fall within

the meaning of “fare” and therefore do not believe

that unknown charges must be disclosed as a sur-

charge (if the amounts is not in fact known). This

of course does not mean that charges which are known

—either as an exact amount or as a percentage—do

not have to be disclosed in advertisements.

2.6 Round trip fare advertising

If an airline elects to advertise the one-way portion

of a fare that is only available as a round-trip pur-

27a

chase, this restriction, together with the full round-

trip fare, must be advertised in a clear and conspic-

uous manner, at least as prominently as the one-way

fare.

Comment: Airlines routinely advertise one-half of

the price (i.e., the alleged “one-way” price) for tick-

ets that are only available if a consumer makes a

round-trip purchase. Under this Guideline, if an air-

line elects to continue this advertising practice, it

must also disclose that the fare is only available if a

consumer purchases a round trip ticket and the actual

price of the full round trip ticket. The disclosure

must be made ina type size and location as prominent

as the fare advertised.

The airlines have, for the most part, stated a will-

ingness to advertise the full round trip air fare if

all of the airlines do the same. This Guideline is in-

tended to encourage all airlines to adopt this practice.

2.7 Deceptive use of “sale,” “discount,” “reduced,”

or similar terms

A fare may be advertised by use of the words

“sale,” “discount,” “reduced,” or other such words

that suggest that the fare advertised is a temporarily

reduced fare and is not a regularly-available fare

only if that fare is:

* available only for a specified, limited period

of time, and

* substantially below the usual price for the

same fare with the same restrictions.

Comment: The majority of airline tickets sold

each year sell at prices significantly lower than the

full “Y” or standard regular coach fare. These lower

fares are offered year round and airlines in theory

28a

allocate a certain amount of seats to each fare

“bucket.” As a result, the regular coach fare has

ceased to have any meaning as a starting point for

determining whether or not a ticket is being offered

for a “sale” price as consumers have come to under-

stand that term.

In this Guideline NAAG has attempted to prevent

consumer confusion by limiting the use of such words

as “sale,” “discount,” or “reduced,” to describe only

those fares that represent a true savings over regu-

larly available air fares—those that are available only

for short periods of time and are substantially below

any regularly offered fare for a ticket carrying iden-

tical restrictions.

SECTION 3—Frequent Flyer Programs

General Comments to Section 3

Frequent flyer programs have been widely acknowl-

edged as the most successful marketing programs in

airline industry history. The bargain struck between

customers and the airlines has proven to be very

costly to many of the airlines. Customers who have

accrued the necessary mileage are expecting to collect

the awards which led them to join and fly in the pro-

grams in the first place. Some airlines are now dis-

turbed by the cost of keeping their side of the bargain

and the real possibility that they may lose revenue

because passengers flying on frequent flyer awards

may begin displacing paying customers. The solution

contemplated by some carriers has been to raise

award thresholds and implement restrictions to de-

crease the cost to them of the award program. The

effect of these actual and/or potential changes is to

significantly devalue vested members’ accrued mile-

age or other credits in the program. Although vari-

29a

ous frequent flyer program awards materials have

contained some obscure mention of the possibility of

future program changes, these disclosures have been

wholly inadequate to inform program members of the

potentially major negative changes which are con-

templated by many airlines.

These Guidelines cover frequent flyer programs

including any partner airlines or other providers of

goods or services such as rental cars and hotel rooms.

They are intended to protect those consumers who

have participated in these programs in good faith,

without adequate notice that the programs could

change, and to advise the airlines of how they can

reserve this right in the future by adequately pro-

viding this information to all members in a non-

deceptive manner consistent with state law.

3.0 Capacity controls

1. If an airline or its program partners employ

capacity controls, the airline must clearly and con-

spicuously disclose in its frequent flyer program so-

licitations, newsletters, rules and other bulletins the

specific techniques used by the airline or program

partner to control capacity in any solicitation which

states a specific award. This includes blackout dates,

limits on percentage of seats (for example, “the num-

ber of seats on any flight allocated to award recipi-

ents is limited’), maximum number of seats or rooms

allocated or any other mechanism whereby the. airline

or program partner limits the opportunities of pro-

gram members redeeming frequent flyer award levels.

To meet this Guideline, all blackout dates must be

specifically disclosed.

2. As to awards for vested miles, the airline or

program partner must provide the award to the

tdi

30a

vested member without capacity controls or provide

the award with capacity controls within a reasonable

period of time. A reasonable period would be within

15 days before or after the date originally requested.

If all seats within this 31-day period were sold at the

time the vested member requested a reservation, so

that the member could not be accommodated without

displacing a passenger to whom a seat has been sold,

then a reasonable period would be the period to the

first available date on which every seat was not sold

to the requested destination at the time the program

member requests a reservation.

Comment: All of the airlines that met with the

Task Force stated that they intended to retain the

right to impose capacity controls, in the future, to

limit the number of seats available to consumers pur-

chasing tickets with frequent flyer award certificates.

The imposition of capacity controls, including black-

out dates, has the potential for unreasonably restrict-

ing the supply of seats or other benefits in such a way

as to significantly devalue the awards due vested

program members. NAAG found that this potential

limitation has not been adequately disclosed to pro-

gram members in the frequent flyer promotional ma-

terials we reviewed. This Guideline puts the airlines

on notice as to what information they should provide

to consumers if they want to impose capacity controls

on the use of frequent flyer awards at some future

date.

In earlier drafts of the Guidelines the Task Force

took the position that capacity controls could not be

applied to awards based on any mileage or credits

accrued by vested members before they received ade-

quate notice that capacity controls could be imposed.

However, as a compromise, and to permit the airlines

3la

reasonable flexibility around holiday or other peak

travel times, the revised Guideline provides for a

reasonable time to accommodate passengers with

award tickets: a 31-day “time window”—15 days

before and 15 days after the date requested for ticket-

ing. This “time window” allows the airlines to allo-

cate capacity to meet demand over a reasonable, yet

defined period of time. In the event all flights to a

certain destination are sold out during the entire 31-

day time window, ticketing on the next available seat

would be reasonable. This approach has the addi-

tional benefit of being simple and straightforward to

implement with less possibility of customer confusion

and frustration.

3.1 Program changes affecting vested members

1. Any airline or program partner that has not

reserved the right to make future changes in the

manner required by Sections 3.2 and 3.9 of these

Guidelines and that changes any aspect of its pro-

gram (for example, imposition of capacity controls,

increases in award levels, or any other mechanism

whereby a vested member’s ability to redeem any

award will be adversely affected) must protect

vested program members. Examples which meet this

Guideline are:

(a) All vested members may not be adversely

affected by that change for a reasonable pe-

riod would be one year following mailing of

notice of that change.

(b) The airline or program partner may allow

vested members to lock in any award level

which is in effect immediately preceding any

change in the program. That award level

32a

would be guaranteed for a period of one year

after mailing notice of any increase in award

levels. A vested member would also be per-

mitted to change his or her selection to lock in

a different award in existence at any time

prior to an increase in award levels.

vested program members with miles or other

unts sufficient to ssume that, at the time of

any change in the program, the member will

be able to claim the same awards he or she

could have claimed under the old program.

Comment: This Guideline institutes corrective

measures to protect vested members and the mileage

they accrued before receiving adequate notice that a

program could change to their detriment at some

point in the future. The Grideline sets forth three

acceptable alternative approaches to allow airlines to

change existing programs without unreasonably al-

tering the rights and expectations of vested members.

For example, an airline may wish to create a new

program with higher award levels for persons who

join in the future. Guideline 3.1.1(a) grandfathers

in vested members for a one-year period after notice.

Guideline 3.1.1(b) grandfathers only a_ specified

locked-in award for a one-year period after the ef-

fective date of the change and thereby gives the

member an additional year to accrue mileage or units

toward a specific award. Guideline 3.1.1(c) allows

the program to avoid the administrative problems of

distinguishing between old and new members and old

and new award levels by equitably adjusting the

award levels of the vested members.

These examples are not the only ways in which air-

lines can reasonably protect vested members when

33a

changing existing programs. They are intended to

delineate minimum acceptable standards.

3.2 Notice of Changes

1. Adequate notice of changes in current frequent

flyer program award levels must be provided to vested

program members by the airline or program partner

to allow a reasonable time for the vested member to

obtain and use an award. For example, a notice no

less than one year prior to the effective date of such

change would be reasonable. Reduction in award

levels would not require such notice.

2. Any airline which has a policy of deleting pro-

gram members from its mailing list for notices and

statements must clearly and conspicuously disclose

that policy in plain language in its rules and regula-

tions.

3. To reserve the right to make future changes in

the award levels and program conditions or restric-

tions in a manner providing reasonable notice con-

sistent with state law, which notice is less than the

notice set forth in Guideline 3.2.1, an airline must

first clearly and conspicuously disclose that reserva-

tion and the nature of such future changes, in plain

language. This disclosure should include examples

which make clear the outer limits within which pro-

gram awards may be changed. For example, the fol-

lowing is not adequate disclosure:

“Program rules, regulations and mileage levels

are subject to change without notice.”

This example is adequate disclosure:

“(Airline) reserves the right to terminate the

program with six months notice. This means

that regardless of the amount you participate in

Ee a

34a

this program, your right to accumulate mileage

and claim awards can be terminated six months

after we give you notice.”

Or:

(Airline) reserves the right to change the pro-

gram rules, regulations, and mileage level. This

means that (Airline) may raise mileage levels,

add an unlimited number of blackout days, or

limit the number of seats available to any or all

destinations with notice. Program members

may not be able to use awards to certain desti-

nations, or may not be able to obtain certain

types of awards such as cruises.”

Qr, if the airline so intends, the disclosure might

also say:

“In any case, (Airline) will make award travel

available within — days of a program member’s

requested date, except for blackout dates listed

here.”’

The airline’s right to make future changes, in a

manner other than that provided in Guideline 3.1,

shall apply only to mileage accrued after members

receive the notice required by this Guideline.

Comment: In the past, airlines have attempted to

reserve the right to make radical future changes in

their programs by using such vague and uncertain

blanket language as “Subject to additions, deletions,

or revisions at any time.” The consumer outrage that

ensued when several of the major airlines attempted

unilaterally to change their programs in the winter

of 1986-87 makes it clear that consumers were not

adequately told, when they joined and participated

in frequent flyer programs, that they were taking a

85a

gamble that the award they were striving for would

still be available, at the mileage level originally ad-

vertised by the time they accrued the necessary miles.

To avoid a recurrence of this same problem in the

future, this Guideline provides that the potential for

such extensive program changes must be clearly and

conspicuously disclosed to the public by specific ex-

ample. It also puts the airlines on notice that (1)

their previous attempts to disclose this critical in-

formation have been inadequate, (2) if they intend

to reserve the right to make such changes in the fu-

ture, they must give members new and different no-

tice, and (3) as to vested members, airlines cannot

implement any adverse changes until one year after

notice is given. One year is deemed reasonable be-

cause many consumers can only travel during par-

ticular periods of the year due to work or family

constraints, and therefore notice of less than a year

may impact unduly harshly on a particular class of

program members.

If an airline wants to reserve the rights to change

the terms of its program without giving its members

one year’s notice (1) it can do so only after clear

and adequate notice has been given to the program

members and (2) this reduced standard can apply

only to mileage accrued after clear and adequate

notice has been given.

NAAG discovered that many airlines delete pro-

gram members from their mailing lists if they are

| determined to be “inactive.” Inactive is defined dif-

| ferently by each airline, but generally includes some

| formula requiring active participation in the pro-

gram within a six to ten month period prior to any

given mailing. Because crucial information regard-

ing changes is included i» program mailings, the

Po aT

36a

Guidelines require that any airline with a policy of

deleting program members from its mailing list

clearly and conspicuously disclose that policy in the

rules and regulations distributed to all program

members when they join.

3.3 Fare or passenger class limitations

Any limitation upon the type or class of fare with

which an upgrade certificate, discount flight coupon,

or free companion coupon may be used must be

clearly and conspicuously disclosed before the pro-

gram member claims the award. Disclosure of the

fare by airline terminology (for example, ‘““Y Class’’)

is not deemed sufficient.

Comment: Many airlines are encouraging consym-

ers to use their accrued mileage or credits to obtain

upgrade certificates or free campaign coupons, rather

than free tickets because this is more cost effective

for the airlines. Many of these coupons and certifi-

cates can be used only in conjunction with a regular

coach fare ticket. Because of the high cost of a full

coach ticket (often disclosed only as “Y Class’) many

of these coupons and certificates represent no real

savings and therefore are useless to consumers. This

Guideline requires that any such restriction be clearly

disclosed to consumers before the award is claimed.

3.4 Certificates issued for vested miles

Certificates, coupons, vouchers, or tickets issued by

an airline for awards redeemed for vested miles must

be valid for a reasonable period of time. One year

is deemed to be reasonable. Any restrictions on use,

redeposit, extension, or re-issuance of certificates

must be clearly and conspicuously disclosed on the

37a

certificate and in any rules, regulations, newsletter

or other program materials.

Comment: Again, because many consumers may

only travel during certain periods of the year, fair-

ness requires that awards be valid for at least a full

twelve month cycle.

3.5 Fees

Any airline which charges a fee for enrollment in

its frequent flyer program must fully disclose at air-

line ticket counters and in all advertisements, solici-

tations or other materials distributed to prospective

members prior to enrollment all terms and conditions

of the frequent flyer program. Such disclosure must

be made prior to accepting payment for enrollment

in the airline’s program.

Comment: Some airlines have required that con-

sumers fill out a membership application and pay a

membership fee before obtaining a copy of the pro-

gram rules and regulations. Because of the serious

restrictions that can apply to a travel reward pro-

gram, it is essential that all consumers have an op-

portunity to review all of the program rules and

regulations before paying an enrollment fee.

3.6 Redemption time

All airlines must disclose clearly and conspicuously

the actual time necessary for processing award re-

demption requests where such requests are not nor-

mally processed promptly. An example of prompt

processing would be within 14 days of processing the

request. An example of a disclosure would be “proc-

essing of awards may take up to 30 days.”

Comment: The airlines indicated that full disclo-

sure of redemption time w'li not be a problem.

38a

3.7 Termination of program affecting vested mem-

bers

In the event a frequent flyer program is termi-

nated, adequate notice of termination must be sent

to all vested members so that vested members have

a reasonable time to obtain awards and use them.

Adequate notice would be notice at least one year

prior to the termination of the program. Award

levels in existence prior to such notice should remain

in effect for one year. Program members should then

have one year to use certificates, coupons, vouchers

or tickets. Any applicable capacity controls should be

modified as necessary to meet the demand for all

award benefits due program members.

Comment: The airlines uniformly take the posi-

tion that because participation in travel reward pro-

grams is “free,” an airline should be able to termi-

nate a travel reward program at any time without

notice. NAAG strenuously disagrees. Consumers pay

significant consideration for the airlines’ promise to

award them “free tickets” and other awards. Pro-

gram members fly on a particular airline to accrue

mileage in a travel reward program often foregoing

a more convenient departure time, a more direct

flight, and even a less expensive ticket. Those con-

sumers who kept their part of the bargain have a

right to expect the airlines to keep theirs, regardless

of the cost. This Guideline affords consumers reason-

able protection against unilateral changes. It gives

consumers one year to accrue the mileage to reach a

desired award level and one year to use the award.

This Guideline is intended to apply to programs

that are terminated due to mergers or for any other

reason. It would be unconscionable to permit airlines,

which have reaped the rewards of these travel in-

39a

centive programs, to walk away from their obliga-

tions to consumers under any circumstances.

3.8 Restrictions

All material restrictions on frequent flyer programs

must be clearly and conspicuously disclosed to cur-

rent program members and to prospective members

at the time of enrollment.

Comment: This Guideline is intended as a correc-

tive measure. Any airline that has not clearly and

conspicuously disclosed material program restrictions

to vested members should do so now. New members

are entitled to full disclosure at the time of enroll-

ment.

3.9 Method of disclosure

Disclosures referred to in these Guidelines should

be made in frequent flyer program solicitations, news-

letters, rules, and other bulletins in a clear and con-

spicious manner so as to assure that all program

members receive adequate notice. As used in these

Guidelines, disclosure also refers to information on

program partners.

Comment: The brochures containing the rules and

regulations for airlines’ frequent flyer programs have

been as long as 52 pages. Extremely important re-

strictions are often buried under inappropriate topic

headings or hidden on the back of the last inside

pages of the brochure. This Guideline requires that

restrictions be disclosed in reasonable print size in

a location that will be most helpful and informative

to consumers.

Any reservation of the right to make future changes

in a program is so significant to consumers that (t

should be disclosed prominently to insure that the

40a

maximum number of people see and read this re-

striction. The Guideline permits the airlines flexi-

bility to determine when and how often a disclosure

must be made so long as the airline discloses the in-

formation in a manner which gives meaningful no-

tice to all affected members.

One airline complained that Guideline 3.9 is un-

reasonable because it proposes that all the restric-

tions be disclosed at the beginning of the program

brochure. In fact, the only disclosure the Guidelines

suggested listing at the beginning of a brochure is

the reservation of the right to change the program

prospectively. The significance of such a restriction

—that the terms and conditions of the program can

change at any moment—is so critical that potential

members should be made aware of it immediately.

All other disclosures can be made in the text of the

brochure.

Section 4—Compensation for Voluntary

Denied Boarding

4.0 Disclosure of policies

If an airline chooses to offer ticketed passengers

incentives to surrender their tickets on overbooked

flights, the airline must clearly and conspicuously dis-

close all terms and conditions of the proposal—in--

cluding any restrictions on offers of future air travel

—to the person to whom the offer is made, and in the

same manner in which the offer is made, before the

person accepts the offer.

Comment: Federal regulations offer specific pro-

tections and certain rights to individuals who are

involuntarily bumped from a flight. Airlines, how-

ever, are free to offer whatever compensation they

4la

want to people who voluntarily give up their seat

on an airplane because of overbooking. For economic

reasons, airlines prefer to offer vouchers good for free

tickets on future flights, instead of cash compensa-

tion to these passengers.

While these vouchers may seem very attractive to

a consumer who has the flexibility to wait for a later

flight, many carry serious restrictions on their use

or are subject to lengthy black out periods when they

cannot be used.

This Guideline requires that airlines fully disclose

any and all restrictions on offers for future air

travel, before a consumer agrees to give up his or

her seat. It does not, as several airlines and govern-

ment agencies argued in their responsive comments,

set any standards for the type of compensation that

airlines must offer to these passengers.

CONCLUSION

Consumer dissatisfaction with the airline industry

has reached crisis proportions. Federal agencies have

focused their attention on airilne scheduling prob-

lems, on-time performance, safety, and other related

issues, but have not addressed airline advertising and

frequent flyer programs. Unchecked, the airlines have

engaged in practices in these areas that are unfair

and deceptive under state law. The individual states

through NAAG ean play an important role in elimi-

nating such practices through these Guidelines.

42a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

C.A. No. A 89 CA 0067

TRANS WORLD AIRLINES, INC.,

CONTINENTAL AIRLINES, INC. AND

BRITISH AIRWAYS PLC, PLAINTIFFS

Vv.

JiM MATTOX, Attorney General of the

State of Texas, DEFENDANT

[Filed Jan. 25, 1989]

COMPLAINT

Plaintiffs Trans World Airlines, Inc. (“TWA”),

Continental Airlines, Inc. (‘Continental’) and Brit-

ish Airways Ple (“British Airways’), by their at-

torneys, allege for their complaint on knowledge as

to themselves and their own acts and on information

and belief as to all other matters, as follows:

THE PARTIES

1. Plaintiff TWA is a corporation organized and

existing under the laws of Delaware with its princi-

pal place of business at Mount Kisco, New York. As

a certificated air carrier, TWA is subject to ex-

43a

tensive regulation concerning routes, fares and serv-

ices by the United States Department of Transporta-

tion (“DOT”). TWA advertises its routes, rates

and services in newspapers, on radio or television,

and in other media available to the public.

2. Plaintiff Continental is a corporation organ-

ized and existing under the laws of Delaware with

its principal place of business at Houston, Texas. As

a certificated air carrier, Continental is subject to

extensive regulation concerning rates, routes, and

services by the DOT. Continental advertises its

rates, routes, and services in newspapers, on radio

or television, and in other media available to the

public.

3. Plaintiff British Airways is a corporation or-

ganized and existing under the laws of England and

Wales with its principal place of business at Heath-

row Airport in Hounslow, Middlesex, England. As

a holder of a foreign air carrier permit, British Air-

ways is subject to extensive regulation concerning

rates, routes, and services by the DOT. British Air-

ways advertises its rates, routes, and services in

newspapers, on radio or television, and in other media

available to the public.

4. Defendant Jim Mattox is the Attorney General

of the State of Texas and is sued in his official ca-

pacity. The Attorney General is responsible for en-

forcing the various provisions of Texas law at issue

herein.

JURISDICTION AND VENUE

5. This action arises under the Supremacy Clause,

Commerce Clause, Compact Clause and the First

Amendment of the Constitution of the United States,

the Federal Aviation Act of 1958, as amended, 49

U.S.C. $$ 1301 et seg. (the “Federal Aviation Act’),

44a

and the regulations and orders promulgated there-

under by the DOT, and is therefore within the ju-

risdiction of this Court pursuant to 28 U.S.C. $$ 1331

6. Venue is properly laid before this Court pur-

suant to 28 U.S.C. § 1391 because Attorney General

Mattox is a resident of and maintains his office in

this district and because Plaintiffs’ claims for relief

arose in this district. Attorney General Mattox, in

concert with numerous other states’ attorneys gen-

eral, has acted through the National Association of

Attorneys General (NAAG) to develop and _ issue

NAAQG’s Air Travel Industry Enforcement Guide-

lines (“Guidelines”). The threatened enforcement

of these Guidelines by Attorney General Mattox, on

behalf of himself and other attorneys general in con-

cert, gives rise to this Complaint.

NATURE AND BACKGROUND

OF THIS ACTION

7. This is an action for: (i) a declaratory judg-

ment, pursuant to 28 U.S.C. § 2201, declaring that

any threatened implementation or enforcement of the

Guidelines through Texas Bus. & Com. Code §§ 17.41

et seq., against plaintiffs is unconstitutional insofar

as applied to plaintiffs’ conduct relating to rates,

routes or services, including their advertising and

marketing practices relating thereto, with specific

reference to the advertisement of fuel, tax and other

surcharges; and (ii) preliminary and permanent in-

junctive relief, pursuant to 28 U.S.C. § 2202 and this

Court’s inherent equitable powers, enjoining and re-

straining the implementation of the Guidelines by or

on behalf of or in concert with the Attorney General

of Texas through enforcement of Texas Bus. & Com.

Code §§ 17.41 et seg., with respect to Plaintiffs’

45a

conduct relating to rates, routes or services, includ-

ing their advertising and marketing practices relat-

ing thereto, with specific reference to the advertise-

ment of fuel, tax and other surcharges.

8. Pursuant to the Federal Aviation Act, the DOT

and its predecessor, the Civil Aeronautics Board

(“CAB”), promulgated extensive rules and regula-

tions governing activities related to air transporta-

tion by air carriers and foreign air carriers. These

extensive federal rules and regulations relate, inter

alia, to unfair and deceptive practices in the airline

industry, including standards governing price ad-

vertising.

9. Congress expressly granted the CAB the au-

thority to promote the public interest through the

“prevention of unfair, deceptive, predatory, or anti-

competitive practices in air transportation ... .”

49 U.S.C. § 13802(a)(7). Not only did Congress spe-

cifically prohibit such practices, it further author-

ized the CAB in Section 411 of the Federal Aviation

Act to determine whether any air carrier or foreign

air carrier “has been or is engaged in unfair or de-

ceptive practices or unfair methods of competition

in air transportation or the sale thereof.” 49 U.S.C.

§ 1381. In the event that the CAB finds that a car-

rier “is engaged in such unfair or deceptive practices

or unfair methods of competition, it shall order such

air carrier to cease and desist... .” Id.

10. Also, in amending the Federal Aviation Act

by the Airline Deregulation Act of 1978, Pub. L.

95-504, 92 Stat. 1705, Congress provided in Section

105, 49 U.S.C. $ 1305, that “no State... shall enact

or enforce any law, rule, regulation, standard, or

other provision having the force and effect of law re-

lating to rates, routes or services of any [interstate]

air carrier.” 49 U.S.C. § 1305(a) (1).

46a

11. Acting pursuant to Congressional authoriza-

tion, the CAB promulgated regulations governing un-

fair, deceptive, predatory or anti-competitive prac-

tices, 14 C.F.R. Part 399, and particularly pertain-

ing to price advertising, 14 U.S.C. $ 399.84. Because

the Airline Deregulation Act of 1978, supra, would

otherwise have limited substantially CAB and DOT

authority over unfair or deceptive practices related

to air transportation beginning in 1985, Congress

acted affirmatively in the CAB Sunset Act of 1984,

P.L. No. 98-443, 98 Stat. 1703, to reserve all federal

authority over these practices. In the CAB Sunset

Act, 49 U.S.C. $1551, Congress transferred ‘the

CAB’s authority under Section 411 of the [Federal

Aviation] Act, to prevent unfair or deceptive prac-

tices’ to the DOT. H.R. Rep. Conf. No. 98-1025,

98th Cong., 2d Sess. 15, reprinted in 1984 U.S. Code

& Admin. News 2857, 2876. Congress’ explicit rea-

son for deciding that “there should continue to be

authority in the Federal government to protect con-

sumers against unfair and deceptive practices” was,

inter alia, that such Federal Aviation Act authority:

insures a uniform system of regulation and pre-

empts regulation by the states. If there was no

Federal regulation, the states might begin to

regulate these areas, and the regulations could

vary from state to state. This would be con-

fusing and burdensome to airline passengers, us

well as to the airlines.

H.R. Rep. No. 98-798, 98th Cong., 2d Sess. 4, re-

printed in 1984 U.S. Code Cong. & Admin. News

2857, 2860.

12. On information and belief, NAAG is a volun-

tary association comprised of representatives of the

47a

attorneys general of the fifty states, the District of

Columbia, and of various territories. In June 1987,

defendant Attorney General Jim Mattox co-sponsored

a resolution directing the appointment of a NAAG

task force to study the advertising and marketing

practices of the airline industry in the United States.

The task force was directed to recommend a course of

action to NAAG members with respect to alleged

consumer concerns in the areas of airline advertising

practices, frequent flyer programs, and compensation

for denied boarding.

13. The NAAF task force subsequently developed

the Guidelines, which purportedly address advertis-

ing and marketing practices in the airline industry.

(A copy of the NAAG Guidelines is attached as Ex-

hibit “1” in the separately bound Appendix (herein-

after “Appendix”) that accompanies this Complaint

and Plaintiffs’ Memorandum in Support of Plaintiff's

Motion for Temporary Restaining Order). Accord-

ing to NAAG, the Guidelines did not establish new

laws but were intended to serve as “prosecution

guidelines to be used by the states in interpreting

their own laws.”

14. In September 1987, NAAG circulated a draft

of its proposed Guidelines to major airlines, the DOT,

and the United States Federal Trade Commission

(“FTC”). The comments received from these en-

tities recommended against adoption of the Guide-

lines. For example, the FTC stated that the task

force should refrain from recommending the draft

Guidelines and reminded NAAG that the “Federa!

Aviation Act specifically preempts state regulation

of airline rates, routes, or services.”” Appendix, Ex-

hibit “2” at 2. Similarly, the DOT, in a letter from

its General Counsel dated October 19, 1987, stated

that “a number of the recommendations appear to be

48a

preempted by the Federal Aviation Act (49 U.S.C.

$1301 et seg.) or Department of Transportation

(DOT) rules or would unduly burden interstate

commerce.” Appendix, Exhibit “8” at 1.

15. Notwithstanding these objections, on or about

December 12, 1987, NAAG adopted final enforce-

ment Guidelines, stating that they would “serve to

advise the airline industry which conduct is _per-

mitted and what is prohibited.”

16. The Guidelines cover three principal areas.

First, they require all advertisements of fares to dis-

close in a prominent fashion all material conditions

connected with the purchase of tickets, specify the

manner in which such disclosures should be made,

and require that airlines make available a sufficient

number of seats on each flight to meet reasonably

anticipated demand for any advertised fares. Second,

the Guidelines purport to regulate certain terms and

condiitons of frequent flyer programs. Finally, the

Guidelines direct airlines to disclose all terms and

conditions of incentives offered to induce passengers

to give up their seats on overbooked flights.

17. Although the Guidelines themselves do not

have the force of law, NAAG considers them to be

interpretations of already existing state laws dealing

with unfair and deceptive practices. Indeed, NAAG

has asserted that the Guidelines represent “minimally

necessary” regulatory requirements. Subsequently,

various state attorneys general acting in concert have

taken the position that the Guidelines are proper in-

terpretations of their existing state laws and that

they will implement or enforce the Guidelines against

air carriers through their various state laws.

18. Following actions by a number of state at-

torneys general seeking to enforce compliance with

49a

the full price advertising and roundtrip pricing sec-

tions of the Guidelines, the DOT, acting through its

general counsel, sent a letter dated March 2, 1988,

to Attorney General Jim Mattox indicating that

“[b]oth of these matters are clearly preempted by

Federal law.” Appendix, Exhibit “9” at 1. The DOT

noted that, applying Setcions 204 and 411 of the

Federal Aviation Act, 49 U.S.C. $$ 1824, 1381, the

CAB adopted a rule that requires full prive advertis-

ing for all components of the advertised air trans-

portation. Since assuming jurisdiction from the CAB

for this rule, the DOT has specifically permitted the

type of advertising to which the Guidelines object.

19. One state attorney general who has indicated

his intent to take enforcement action implementing

the Guidelines’ fare advertising provisions is defend-

ant Jim Mattox, the Attorney General of the State of

Texas. Acting in his official capacity and in concert

with other state attorneys general, Attorney General

Mattox, through authorized agents of the Office of the

Attorney General of Texas, has threatened to insti-

tute enforcement proceedings against plaintiffs if

their advertising practices do not conform to the

Guidelines. Specifically, on November 14, 1988,

Stephen Gardner, Assistant Attorney General of the

State of Texas, acting on behalf of the States of

Texas, California, Massachusetts, New York, and

Washington, wrote a letter to various airlines, includ-

ing plaintiffs, to reaffirm the position of such states

that “any fuel, tax, or other surcharge to a fare

must be included in the total advertised price of the

fare.” (Copies of Mr. Gardner’s substantially identi-

cal letters to plaintiffs TWA, Continental, and British

Airways are attached to the Affidavits of Tracy

Britton, John Power, and John Williams, which are

50a

Exhibits B, E and G, respectively, to Plaintiffs’ Mo-

tion for Temporary Restraining Order, which ac-

companies this Complaint.) Although Mr. Gardner’s

letter does not expressly refer to the Guidelines, the

letter duplicates section 2.5 of the Guidelines, which

states that “[a]ny fuel, tax, or other surcharge to a

fare must be included in the total advertised price of

the fare.” (/d.) Thus, it is clear that Attorney Gen-

eral Mattox seeks to implement or enforce section

2.5 of the Guidelines through state law.

20. Mr. Gardner’s letter indicated that, absent

alteration of the advertising, the states would initi-

ate enforcement actions under their respective state

laws. It also stated that to allow time to bring the

challenged advertising into compliance, no action

would be taken until after November 30, 1988, and

that any advertisement which appears prior to De-

cember 1, 1988, would not be the subject of legal ac-

tion unless a so-called “deceptive” advertisement ap-

pears on or after December 1. Mr. Gardner described

his letter as a “formal! notice of intent to sue” and as

“the final opoprtunity to cure your [alleged] viola-

tion of the state laws.” (/d.)

FIRST CLAIM FOR RELIEF

(Preemption by the Federal Aviation Act,

as amended )

21. Plaintiffs repeat and reallege paragraphs 1-20

as if fully set forth herein.

22. Section 105(a) of the Federal Aviation Act,

49 U.S.C. § 1305(a) (1), as amended by the Airline

Deregulation Act of 1978, supra, expressly preempts

any state law, rule or regulation relating to airline

5la

rates, routes or services. It provides in pertinent

part:

[N]o state ... shall enact or enforce any law,

rule, regulation, standard, or other provision

having the force and effect of law relating to

rates, routes, or services of any air carrier hav-

ing authority under subchapter IV of this Act

to provide interstate air transportation.

23. Congress’ purpose in enacting Section 105 was

to prevent conflicts and inconsistent state regulations

from being imposed on air carriers and to preclude

the states from impeding Congress’ decision to de-

regulate the airline industry. Congress’ express in-

tent was to encourage, develop and attain a uniform

air transportation system which relies on competitive

market forces to determine the quality, variety and

price of airline services. To promote uniformity, the

DOT was given the sole responsibility for regulating

air carriers in any matters relating to routes, rates

or services. Because of the DOT’s expertise in air

transportation matters, Congress vested it with ex-

clusive authority to administer all consumer-related

functions in these enumerated areas.

24. Additionally, Section 411 of the Federal Avia-

tion Act prohibits deceptive or unfair practices. and

specifically authorizes the DOT, as the CAB’s suc-

cessor, to:

investigate and determine whether any air car-

rier, foreign air carrier, or ticket agent has been

or is engaged in unfair or deceptive practices or

unfair methods of competition in air transporta-

tion or the sale thereof. If the Board shall find,

after notice and hearing, that such air carrier,

foreign air carrier, or ticket agent is engaged in

52a

such unfair or deceptive practices or unfair

methods of competition, it shall order such air

carrier, foreign air carrier, or ticket agent to

cease and desist from such practices or methods

of competition.

49 U.S.C. § 1381(a) (Section 411).

25. In the CAB Sunset Act of 1984, Congress

transferred the CAB’s existing authority under Sec-

tion 411 to the DOT. 49 U.S.C. 1551(b). Congress

confirmed that such authority was intended to “in-

sure[] a uniform system of regulation and preempts

regulation by the states.” H.R. Rep. 98-793, 98th

Cong., 2d Sess. 4, reprinted in 1984 U.S. Code Cong.

& Admin. News 2857, 2860.

26. The DOT has enforced Congress’ preemption

in Section 105 by regulating all economic factors that

go into the provision of a quid pro quo for passengers’

fares, such as flight frequency and timing, liability

lim'ts, reservation and boarding practices, insurance,

smoking rules, meal service, entertainment, bonding

and corporate financing. The DOT also has expressly

indicated that it intends to occupy this field com-

pletely pursuant to Congress’ direction in Section 105.

27. The DOT has also consistently exercised its

enforcement authority under Section 411. Likewise,

the DOT, through its General Counsel, has inter-

preted Section 411 and its implementing regulations,

14 C.F.R. Part 399 and DOT Orders 85-12-68, 88-3-

25, and 88-8-2, as preempting regulation by the states

of allegedly deceptive or unfair price advertising

practices covered by the Guidelines. (Certified copies

of the referenced DOT orders appear in the Appendix

as Exhibits “5”, “6”, and “7” respectively. )

28. The NAAG Guidelines directly conflict with

Congressional action and intent by seeking to regu-

53a

late an airline’s allegedly deceptive advertising of its

rates, routes and services. See 14 C.F.R. § 399.84

DOT Orders 85-12-68, 88-3-25 and 88-8-2. (Appendix

Exhiibts “5”, “6”, and “7.”) Therefore, the Guide-

lines and any threatened enforcement actions are

expressly preempted by federal law.

29. The three broad areas which are covered by

the Guidelines—fare advertising, frequent flyer pro-

grams, and denied boarding compensation—and which

Attorney General Jim Mattox is threatening to en-

force through Texas Bus. & Com. Code §§ 17.41 et

seq. are all directly related to price advertising, 14

C.F.R. § 399.84, and are integrally “related to rates,

routes and services.’”’ Indeed, NAAG has expressly

acknowledged that one likely effect of the Guidelines

will be to cause airlines to eliminate substantive con-

ditions associated with discount fares because of the

onerous and unlawful disclosure requirements which

the Guidelines impose. Furthermore, given the Guide-

lines’ complicated disclosure requirements, it is likely

that airlines will place less broadcast advertising of

their air fares than is now the case. The consequen-

tial loss of the ability to effectively publicize fare re-

ductions will remove airlines’ incentive to cut fares.

Thus, Sections 105 and 411 mandate the preemption

of the Guidelines as they are enforced through state

law, including Texas Bus. & Com. Code §§ 17.41

et seq.

30. Even absent Sections 105 and 411, the Guide-

lines construed in conjunction with Texas and other

state law are preempted due to the uniform federal

regulatory scheme that governs airline advertising,

particularly of international rates, routes and serv-

ices. The scheme of federal] regulation leaves no room

for supplementary state regulation of allegedly de-

54a

ceptive advertising of an airline’s rates, routes and

services.

31. The Federal Aviation Act, as amended, and the

DOT’s implementing regulations, interpretations and

practices, comprehensively deal with fare advertising,

frequent flyer programs and denied boarding com-

pensation. State enforcement activity in the areas

that attempt to dictate acceptable modes of business

activity by the plaintiffs cannot co-exist with federal

law on the same subjects, because it stands as an

obstacle to implementing Congress’ express decision to

deregulate the domestic industry as a matter of na-

tional policy.

32. Certain provisions of the Guidelines as con-

strued in conjunction with Texas state law are pre-

empted for the additional reason that they conflict

in words or in effect with existing federal law. Spe-

cifically, pursuant to the requirements of interna-

tional agreements between the United States and

other sovereign nations, and of Section 403 of the

Federal Aviation Act, 49 U.S.C. §$ 1373, plaintiffs

must file tariffs for their foreign flight schedules:

Every air carrier and every foreign air carrier

shall file with the Board, and print, and keep

open to public inspection, tariffs showing all

rates, fares, and charges for air transportation

between points served by it... . Tariffs shall

be filed, posted, and published in such form and

manner, and shall contain such information, as

the Board shall by regulation prescribe... .

49 U.S.C. § 13873. Thus, tariffs are expressly required

by federal law and permitted to be advertised by

Section 403. However, because the tariffs list sep-

arately the component parts of the air fares, the

55a

Guidelines would prohibit their advertisement con-

trary to express requirements of federal law. Also,

subsections 2.5 and 2.6 of the Guidelines require sur-

chargeg to be included in the total price advertised

and prohibit the advertisement of one-way fares based

on a roundtrip purchase only. Those subsections are

in direct conflict with 14 C.F.R. § 399.84 and DOT

interpretations thereunder such as Orders 85-12-68,

88-3-25 and 88-8-2 (Appendix, Exhibits “5”, “6”,

and ‘‘7”), which expressly permit such advertising

practices. Indeed, the entire effect of Section 2 of the

Guidelines is to decrease or eliminate price competi-

tion by airlines, competition which is essential to the

success, and indeed is the paramount goal, of the de-

regulated air transportation market mandated by the

Federal Aviation Act, as amended.

33. Under the Supremacy Clause of the United

States Constitution, the Guidelines construed in con-

junction with Texas Bus. & Com. Code §$ 17.41 et

seq. or with any other states’ laws, are unconstitu-

tional and may not be enforced against plaintiffs.

34. Plaintiffs are incurring unascertainable but

real costs and competitive disadvantages by~comply-

ing with the Guidelines under duress. To the extent

the Guidelines restrict advertisements that are ex-

pressly required or permitted by Federal statute and

regulation, they constitute an impermissible infringe-

ment of constitutional rights protected by the Su-

premacy Clause. Plaintiffs have no adequate remedy

at law and have been and will continue to be directly

and irreparably harmed if an injunction is not issued.

56a

SECOND CLAIM OF RELIEF

(Violation of Commerce Clause)

35. Plaintiffs repeat and reallege paragraphs 1-34

as if fully set forth herein.

36. Plaintiffs are involved in interstate commerce

and also engage in foreign commerce. They engage

in the advertising of their services in the various

states and have customers who purchase their serv-

ices in the various states and internationally.

37. Implementation or enforcement of the Guide-

lines through various state laws, including Texas

Bus. & Com. Code §§ 17.41 et seq., and as appiied to

plaintiffs’ interstate and international activities, im-

poses direct and excessive burdens on foreign and in-

terstate commerce.

38. Unless the Court acts to restrain the threat-

ened enforcement against plaintiffs of Texas Bus.

& Com. Code §§ 17.41 et seq., as construed in accord-

ance with the Guidelines, plaintiffs will be faced with

undue and impermissible burdens on their ability to

engage in interstate and foreign commerce as a re-

sult of the potential for contradictory regulatory ob-

ligations imposed by states whose standards differ,

or may differ, from those of Texas.

39. Plaintiffs now will be subject to multi-tiered

regulations, with conflicting demands imposed by the

DOT, the State of Texas and a possible multitude of

conflicting state regulations caused by the differing

interpretation of the Guidelines by other NAAG

members. For example, the Attorney General of New

York has a different interpretation from Attorney

General Mattox, and another NAAG member, the

Attorney General of New Mexico, objects to the

Guidelines. Such varying enforcement positions by

the NAAG members run counter to Congress’ inten-

57a

tion of avoiding confusion and inconsistent regula-

tion of the airline industry by providing the DOT

with pre-emptive authority in this area.

40. Moreover, to the extent that plaintiffs can run

advertisements in compliance with al! the different

laws of the various states, the exacting detail the

Guidelines require to be disclosed will cause the num-

ber of such advertisements to decline. This, in turn,

will decrease price competition in the industry, a re-

sult directly contrary to Congress’ stated national

polciy, as embodied in the Airline Deregulation Act

of 1978.

41. Wholly apart from the issue of the potential

for conflicting or differing interpretations of the

Guidelines, threatened enforcement action by a single

large state, such as Texas, will inevitably have in-

terstate effects. Because it is impossible as a prac-

tical matter for plaintiffs to tailor advertisements

disseminated through interstate media to meet in-

dividual state requirements, a single state will in-

evitably coerce plaintiffs into conforming their na-

tional advertising and marketing practices to those

requirements; ultimately, such conformance will be

to the requirements imposed my the most restrictive

jurisdiction.

42. In addition to the adverse effects on inter-

state commerce which are posed by the threatened

actions of Attorney General Mattox under the NAAG

Guidelines, there is also the threat of a serious dis-

ruption of foreign commerce. By attempting to regu-

late the manner in which both foreign and domestic

airlines provide and market their air transportation

services, Attorney General Mattox is intruding into

matters involving the foreign commerce and foreign

relations of the United States.

58a

43. The regulatory scheme for international avia-

tion involves a complex combination of federal stat-

utes and international agreements, including over

eighty treaties and executive agreements between the

United States and other sovereign nations. Because

international aviation is governed by treaty and ex-

ecutive agreements, there is always the possibility

of a conflict between these international agreements

and U.S. domestic law, and of friction between the

United States and foreign governments should do-

mestic laws be applied inconsistently with the re-

quirements of the United States’ international ob-

ligations. Congress has recognized this possibility

and addressed the problem by directing that U.S.

laws and regulations be applied consistently with in-

ternational agreements. See 49 U.S.C. § 1502(a).

Furthermore, Congress has reserved for the Presi-

dent the exclusive right to disapprove actions by the

regulatory authorities, such as rejection of interna-

tional tariffs, that might disrupt the foreign relations

of the United States. See 49 U.S.C. § 1461(b).

44, In the area of international relations and the

regulation of foreign trade and commerce, the fed-

eral government of the United States must speak

with a single voice and act through a single govern-

ment. Under Article I of the United States Consti-

tution, Congress has the exclusive and plenary power

to regulate commerce with foreign nations. Through

the Federal Aviation Act of 1958, as amended, Con-

gress has delegated this authority in the area of air

transportation to the President and the DOT. They

alone may speak for the nation. Consequently, the

actions of Attorney General Mattox in threatening

to implement and enforce the Guidelines under the

Texas law have been taken in derogation of the Con-

59a

stitutional allocation of power to the central govern-

ment to regulate foreign commerce.

45. Under the Commerce Clause and the Suprem-

acy Clause of the United States Constitution, Texas

Bus. & Com. Code §§ 17.41 et seg., and any other

states’ laws construed in conjunction with the Guide-

lines, are unconstitutional as applied to plaintiffs and

may not be enforced. The pertinent Texas statutes

(and any other state laws) construed in accordance

with the Guidelines impose an unreasonable and im-

permissible burden on the flow of interstate and for-

eign commerce and unreasonably and impermissibly

regulate and affect plaintiffs’ conduct in such states.

46. Plaintiffs have been threatened with an en-

forcement action by the Attorney General of Texas

and by other states’ attorneys general acting in con-

cert with him, unless plaintiffs comply with the

Guidelines. To the extent that plaintiffs are com-

plying with this unconstitutional assertion of power,

they are doing so under duress and have been and

will continue to be immediately and irreparably

harmed for so long as this threat continues. Plain-

tiffs have no adequate remedy at law.

THIRD CLAIM FOR RELIEF

(Violation of Interstate Compact Clause)

47. Plaintiffs repeat and reallege paragraphs 1-46

as if fully set forth herein.

48. The Compact Clause of the U.S. Constitution

states in pertinent part as follows:

No State shall, without the Consent of Congress,

.. enter into any Agreement or Compact with

another State...

U.S. Const. art. I, § 10, cl. 3.

60a

49. The actions of the Attorney General of the

State of Texas and the other members of NAAG in

their concerted activities in developing, issuing, and

agreeing to enforce the Guidelines through their own

states’ laws constitute the formation of an illegal

agreement or compact among the states. The com-

pact is illegal because it has the effects of both in-

creasing the political power of the states and en-

croaching substantially on national and international

interests that are the exclusive domain of the fed-

eral government. Enforcement of the Guidelines

clearly encroaches on federal authority “to protect

consumers against unfair and deceptive practices”

in the air travel industry, as set forth in the legis-

lative history accompanying the CAB Sunset Act of

1984, Pub. L. No. 98-443. H.R. Rep. No. 98-793,

98th Cong., 2d Sess. 4, reprinted in 1984 U.S. Code

Cong. & Admin. News 2857, 2860. Congress has not

consented to these concerted actions of the states,

acting through their respective attorneys general.

Because the Guidelines seek to enhance the states’

authority quoad the federal government, they violate

the Compact Clause.

50. Plaintiffs are being irreparably injured as a

result of defendant’s illegal and unconstitutional in-

terstate compact. Plaintiffs have no adequate remedy

at law. Consequently, plaintiffs are entitled both to

a declaration that the Guidelines are void and unen-

forceable, and an injunction preventing any attempt

by the Attorney General of Texas, or any NAAG

member in active concert or participation with him,

from enforcing the Guidelines through their state

laws.

6la

FOURTH CLAIM FOR RELIEF

(Violation of First Amendment)

51. Plaintiffs repeat and reallege paragraphs 1-50

as if fully set forth herein.

52. Commercial speech is protected against gov-

ernmental suppression or undue regulation by the

First Amendment of the United States Constitution.

53. If commercial speech concerns a lawful ac-

tivity and is not inherently misleading or fraudulent,

the government may not restrict the manner, form

and content of commercial speech unless the govern-

ment’s interest in doing so is substantial, the restric-

tions directly advance the government’s asserted in-

terests, and the restrictions are no more extensive

than necessary to serve that interest.

54. Plaintiffs’ fare advertisements and other pro-

motional and informational material are commercial

speech. That information concerns a lawful activity

—the provision of airline services—and is not in-

herently misleading or fraudulent since it is in con-

formity with the Orders of the DOT, the federal

agency vested with exclusive jurisdiction over con-

sumer protection issues in the airline industry.

55. Neither the state of Texas, nor any other state

whose attorney general is actively in concert with

Attorney General Mattox, has any cognizable interest

in restricting and dictating the manner, form and

content of plaintiffs’ commercial speech through the

application of its respective state laws, including

Texas Bus. & Com. Code $$ 17.41 et seq., as con-

strued in accordance with the Guidelines. To the ex-

tent that there are substantial government interests

in regulating, plaintiffs commercial speech, Congress

has delegated the sole responsibility for such regula-

tion to the DOT. In any event, the means of regula-

62a

tion which Texas and its companion states have

chosen do not directly advance Texas’ or any other

states’ purported interest.

56. Most importantly, the restrictions and dictates

that Texas and other states are trying to force plain-

tiffs to adhere to under threat of enforcement pro-

ceedings are overbroad and far more extensive than

are necessary to serve any legitimate Texas state in-

terest. The threatened application of Texas’ and

other states’ laws to plaintiffs in this regard consti-

tutes an unlawful prior restraint and is therefore

violative of the First Amendment.

57. The per se rules set forth in the Guidelines

bear no necessary relationship to whether an adver-

tisement is, in fact, false and deceptive. The Texas

Deceptive Trade Practices Act, Texas Bus. & Com.

Code $$ 17.41 et seg., as construed by Attorney Gen-

eral Mattox in conjunction with the Guidelines, is

overbroad and fails to adhere to the constitut’onal

requirement that it be no more extensive than neces-

sary to serve the government’s interest in regulating

commercial speech; in this case, a non-existent interest.

58. Plaintiffs’ constitutionally protected rights to

engage in commercial speech have been and are being

illegally chilled and restricted. To the extent that

plaintiffs are complying with this unconstitutional

assertion of power, they are doing so under duress

and have been and will continue to be immediately

and irreparably harmed for so long as this continues

unchecked. Plaintiffs have no adequate remedy at

law.

WHEREFORE, plaintiffs demand that judgment

be entered:

(a) declaring that implementation or enforcement

of section 2.5 of the Guidelines through Texas Bus. &

63a

Com. Code §§ 17.41 et seq. or any other state law is

unconstitutional as applied to plaintiffs under the

Supremacy Clause of the United States Constitution,

Article VI, cl. 2;

(b) declaring that implementation or enforcement

of section 2.5 of the Guidelines through Texas Bus.

& Com. Code §§ 17.41 et sea. or any other state law is

unconstitutional as applied to plaintiffs under the

Commerce Clause of the United States Constitution,

Article I, $8, cl. 3, because those laws impose an

impermissible burden on interstate and foreign com-

merce;

of section 2.5 of the Guidelines through Texas Bus.

& Com. Code §§ 17.41 et seq. or any other state law is

unconstitutional as applied to plaintiffs under the

Compact Clause of the United States Constitution,

Article I, § 10, cl. 3, because such implementation

or enforcement would be the result of an illegal in-

terstate compact that has not been approved by

Congress;

(d) declaring that implementation or enforcement

of section 2.5 of the Guidelines through Texas Bus.

& Com. Code $$ 17.41 ef seq. or any other state law is

unconstitutional as applied to plaintiffs under the

First Amendment of the United States Constitution,

because these laws impermissibly restrict constitu-

tionally protected commercial speech;

(e) preliminarily and permanently enjoining the

Attorney General of the State of Texas, Jim Mattox,

and all other persons acting for or in active concert

or participation with the Attorney General or the

State of Texas, from taking any action against plain-

tiffs pursuant to Texas Bus. & Com. Code §§ 17.41

et seq. or any other state law in conjunction with the

64a

NAAG Guidelines as they purport to regulate plain-

tiffs” rates, routes or services, or plaintiffs’ market-

ing or plaintiffs’ advertising of their rates, routes and

services;

(f) granting plaintiffs the costs and disbursements

of this action, including attorney’s fees; and

(g) granting such other and further relief as the

Court deems just and proper.

OF COUNSEL:

FULBRIGHT & JAWORSKI

David Wilks Corban

Irene Kosturakis

1301 McKinney Street

Houston, Texas 77010

(713) 651-5151

TRANS WORLD AIRLINES, INC.

Mary McGuire Voog

100 South Bedford Road

Mount Kisco, New York 10549

(914) 242-3433

CONTINENTAL AIRLINES, INC.

John Williams

2929 Allen Parkway

Houston, Texas 77019

(713) 630-5152

BRITISH AIRWAYS PLC

Karen K. Crider

75-20 Astoria Boulevard

Jackson Heights,

New York 11370

(718) 297-4250

Respectfully submitted,

By /s/ Ronald D. Secrest

RONALD D. SECREST

1301 McKinney Street

Houston, Texas 77002

(713) 651-5151

FULBRIGHT JAWORSKI &

REAVIS MCGRATH

By /s/ Andrew C. Freedman

ANDREW C, FREEDMAN

345 Park Avenue

New York, New York 10154

(212) 486-9500

Attorneys for Plaintiffs

Trans World Airlines, Inc.,

Continental Airlines, Inc.,

and British Airways Ple

SULLIVAN & CROMWELL

Mark McCall

s/ by Ronald D. Secrest

JOHN W. DICKEY

MARK MCCALL

DAVID FEHER

125 Broad Street

New York, New York 10004

(212) 558-3434

Attorney for British Airways

Ple

By /s/

65a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

C.A. No. A 89 CA0067

TRANS WORLD AIRLINES, INC.,

CONTINENTAL AIRLINES, INC., AND

BRITISH AIRWAYS PLC, PLAINTIFFS

JIM MATTOX, Attorney General of the

STATE OF TEXAS, DEFENDANT

[Filed Jan. 27, 1989]

MOTION OF SPECIALLY APPEARING STATES

TO DENY PLAINTIFFS’ MOTION FOR

TEMPORARY RESTRAINING ORDER

OR IN THE ALTERNATIVE

MOTION TO EXTEND DATE FOR

HEARING ON TEMPORARY ORDER

Without admitting or submitting to the subject

matter jurisdiction of this Court and without admit-

ting that this Court has personal jurisdiction over

them, the states of Kansas, Alaska, Arizona, Arkan-

sas, California, Colorado, Connecticut, Florida, I-

linois, Iowa, Maine, Maryland, Massachusetts, Michi-

gan, Minnesota, Missouri, Nebraska, Nevada, New

York, North Carolina, North Dakota, Ohio, Okla-

66a

-homa, Oregon, Rhode Island, South Dakota, Tenne-

see, Vermont, Washington, West Virginia, Wiscon-

sin and Wyoming specially appear before this Court

to move for an order denying the plaintiffs’ motion

for a temporary restraining order or in the alterna-

tive to ask this Court to set a future date upon which

to hear plaintiffs’ motion as a noticed motion for

temporary restraining order.

THIS COURT SHOULD DENY PLAINTIFFS’

MOTION FOR A TEMPORARY

RESTRAINING ORDER

Plaintiffs’ motion for a temporary restraining or-

der should be denied because the injunctive relief

plaintiffs are seeking could affect the sovereign rights

of states which have neither been served nor named

as defendants in the instant action. On Tuesday,

January 24, 1989, four of the above named specially

appearing states (California, Washington, Massa-

chusetts and New York) received notice from the

Texas Attorney General’s office that Jim Mattox,

Attorney General of Texas, had been sued by the

plaintiffs herein and that part of the relief being

sought by plaintiffs was an injunction which would

“(a) preliminarily and permanently enjoin . . . the

Attorney General of the State of Texas, Jim Mattox,

and all other persons acting for or in active concert

or participation with the Attorney General of the

State of Texas, from taking any action against plain-

tiffs pursuant to... any other state law in conjunc-

tion with the NAAG Guidelines as they purport to

regulate plaintiffs’ rates, routes, or services, or plain-

tiffs’ marketing or plaintiffs’ advertising of their

rates, routes and services (Complaint at 26).

67a

California, Massachusetts, New York and Wash-

ington were further informed that plaintiffs in their

action claimed that all the states whose attorneys

general belong to the National Association of Attor-

neys General (NAAG), were acting “in concert” and

“narticipating” with the State of Texas and that

plaintiffs’ prayer could have the effect of prohibiting

such states from enforcing their own laws even

though they were not named as defendants nor served

by plaintiffs with a copy of the action currently be-

fore this Court.

Most of the other 29 states which have specifically

appeared to join in this motion did not

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