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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1992
- **Citation:** 504 U.S. 979

## Text

V4 EIL
Nos. 90-1604 and 90-1606

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

oo

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
LS a SSIES 2
a sansanhsbicuannhatoneeunchesssesese 7
es canshushsstaasennnnnsascuseuessie= 24
Appendix A ............. (tna lp A SE la
Neen a sinsnivubin<knecwatacenesnaraasens 5a
ccc cdadicdbunsanneds =a ti ORC 42a
EEE OFS Aa 66a
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)

IV

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

V
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

v.

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)

2

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.

A

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

5

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.

6

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

7

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.

8

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.,

9

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).

10

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.

11

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

12

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

13

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.

14

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.

15

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

16

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).

17

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-

© Chilicky Vv. Schweiker, 796 F.2d 1131, 1136 (9th Cir. 1986),
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).

18

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

19

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).

20

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-

21

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

Di

22

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

23

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.

24

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)

2a

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

i

3a

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

4a

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

5a
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,

6a

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:

7a

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.

8a

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

9a

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

i

ae

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.

(c) A statement on any billboard is considered
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.

P

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:
a

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

or

Restrictions. Advertised fares are only available
Tuesday, Wednesday, and Thursday afternoons.
Three-day advance purchases required. 50°
cancellation penalty «»plies.

a

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-

oo

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

0

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.

(c) The airline or program partner may credit
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 advertisemen

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1946%3A4. Public record. Not legal advice.