Respondents Brief — American Airlines, Inc. v. Wolens

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T Supreme Court, U.S. e

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No. 93-1286 JUL 20 1994

OFFICE OF THE CLERK

In The

Supreme Court of the United States

October Term, 1994

/ «

AMERICAN AIRLINES, INC.,

Petitioner,

MYRON WOLENS, ALBERT J. GALE,

R. CRAIG ZAFIS, BRET MAXWELL, ROBERT NELSON

and P.S. TUCKER,

Respondents.

On Writ of Certiorari

to the Supreme Court of Illinois

BRIEF OF RESPONDENTS

Gitpert W. Gordon* NicHoras E. CHIMICLES

Rosert Marks IRA Nem RICHARDS

Wituiam V. SaRAcco Steven A. SCHWARTZ

Marks, Marks AND CHIMICLES, JACOBSEN &

KAPLAN, Lrv. TIKELLIS

120 North LaSalle Street One Haverford Centre

Suite 3200 Haverford, PA 19041-0100

Chicago, IL 60602-2401 (215) 642-8500

(312) 332-5200

MicHaet J. Freep Marvin MILLER

MicHae. B. HyMAN Mi.ter FAuCHER CHERTOW

EpitH F. CANTER CAFFERTY AND WEXLER

MucuH SHewist Freep 30 North LaSalle Street

DeENENBERG & Ament, P.C. Suite 3200

200 North LaSalle Street Chicago, IL 60602

Suite 2100 (312) 782-4880

Chicago, IL 60601-1095

(312) 346-3100 *Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-283)

BEST AVAILABLE COPY?”

QUESTIONS PRESENTED

1. Does the Airline Deregulation Act of 1978, which

contains no federal enforcement mechanism for breach of

contract, preclude members of a frequent flyer program

from bringing a common law breach of contract claim for

money damages against an airline?

2. Does the Airline Deregulation Act of 1978 pre-

clude members of a frequent flyer program from bringing

a claim under a state consumer fraud statute against an

airline when the airline’s breach of contract constitutes a

deceptive practice?

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED .....:esecssnetevs eure i

TABLE OF CONTENTS......... , ob 0 6 bag a il

FABLE OF AUITIOCIRITOES «0. cccccnccnsseueeeueunee Vv

OPINIONS BELOW. .....ccccsstecuvacsuceneneanee |

CONSTITUTIONAL AND STATUTORY PROVI-

SIONS INVOLVED... ocscseenctedsseup eee 2

STATEMENT OF THE CASE......sccscssseseuseunt 2

A. The AAdvantage Program.................. 3

B. The Deeach OF Contract... ...5cccccusveseenen 4

C. The Claiens At Geeue. .... .0vssccvsvesveueeeeee 5

D. Judicial ProcesGings .......0.0ssssseuncneaeeen 7

1. The District Court Remand .............. 7

2. The Illinois Supreme Court’s Initial Deci-

MrT UU 7

3. The Illinois Supreme Court’s Decision on

RemRAIE . . oo s.cévccvseeseces Coen 5

SUMMARY OF ARGUMENT......................-. 10

ABGUDEENT ... ce cccccccesttn00uceuen eee 13

I. SECTION 1305(a)(1) DOES NOT PRE-EMPT

STATE LAW CLAIMS FOR BREACH OF CON-

TRACT . 6 00 cce's cece see 065 enue 13

A. The Statutory Language Of The ADA Mani-

fests Congress’ Intent That Plaintiffs’

Breach Of Contract Claim Is Not Pre-Emp-

Stitt o.!!hmt— 13

TABLE OF CONTENTS — Continued

Page

1 In Determining The Meaning Of A Pre-

Emption Provision, The Court Looks To

A Number Of Sources............... 5

2. The Text Shows Congress’ Intent To Pre-

serve Breach of Contract Actions... . 16

3. The ADA’s Legislative History Demon-

strates That Congress Intended To Pre-

Empt Only State Actions Imposing Pol-

icy Standards On Airline Rates, Routes

EEE PO Oe 19

4. The DOT And The Solicitor General

Support Plaintiffs’ Right To Pursue

Their Breach Of Contract Claim....... 20

Plaintiffs’ Claim Does Not Implicate “Rates,

Routes Or Services” And Is The Type Of

Contract Claim Congress Intended To Pre-

DTU ECEREG Owe Geeeceoevecsecceseccces 24

Under Morales, Plaintiffs’ Darnage Claims

Ave. Not Pre-Empted..................06.. 28

1. Morales Recognizes Limits To The Scope

Of Pre-Emption Under Sectién 1305... 28

2. Following the Morales Analysis, The Illi-

nois Supreme Court Correctly Found

That Plaintiffs’ Breach of Contract

Claim Was Not Pre-Empted........... 30

There Is A Strong Presumption Against Pre-

Emption Of Plaintiffs’ Breach of Contract

EES CEE ae eadeccetesseedcocss: 31

Allowing Compensatory Damages Claims

To Go Forward Is Not Inconsistent With

Pre-Emption of Injunctive Relief .......... 33

TABLE OF CONTENTS ~— Continued

Page

ll ERISA PRE-EMPTION SHOULD BE DISTIN

GUISHED FROM ADA PRE-EMPTION 37

Ill. SECTION 1305(a)(1) DOES NOT PRE-EMPT

PLAINTIFFS’ CONSUMER FRAUD ACT

Gs éecccudes : wend oD

CONCLUSION ..... vela's | 43

TABLE OF AUTHORITIES

Page

( ASS

Alessi v Rayhestos Manhattan, Inc, 451 US S04

(19R1) ; 32,

American Airlines, Inc. vo American Coupon Exch,

Inc., 721 F Supp. 61 (SDNY. 1989)... 20

Belknap, Inc. vo Hale, 46% US. 491 (1983). 4,

Bethlehem Steel Co. vu. New York State Labor Relations

Bd., 330 US. 767 (1947)... a me 32

Bio-Medical Lab., Inc. v. Trainor, 68 IN. 2d 540, 370

PE BD Es wacdecssnn: Sensedeeneueas ae

Brown v. Hotel & Rest. Emp. & Bart., Local 54, 468

i Ff aRrrrerrrrry > :evenubedeeknacd fas M“

Califorma v. ARC America Corp., 490 U.S. 93 (1989)... 31, 32

Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608

SUPE bb pcvcterredwe cscs everedeclacesedéetenss passim

CSX Trans. Inc. v. Easterwood, 1135. Ct. 1732 (1993) .... 32

Doricent v. American Airlines Inc., No. 91-12084Y,

1993 U.S. Dist. LEXIS 15143 (D. Mass. Oct. 19,

Sst culbdvéikedkonet sadvedediedeteevedetewsrrs 29

English v. General Elec. Co., 496 U.S. 72 (1990)....... 34

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101

a ee ee eee eee wie 38

Florida Lime & Avocado Growers, Inc. v. Paul, 373

U.S. 132, reh'g denied, 374 U.S. 858 (1963)......... 32

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) 15, 37

TABLE OF AUTHORITIES ~- Continued

Page

Hawaiian Airlines, Inc. v. Norris, 62 U.S.L.W. 4537

(U.S. June 20, 1994) ...... 666 cece cece e neers 15, 24

Hodges v. Delta Airlines, Inc., 4 F.3d 350 (Sth Cir.

DR coin a esdecectundveeseneeeeasene genes 17, 27, 29

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

ED co kuccopeansnssvdepadavencsussdnend 18, 38, 39

International Ass'n of Machinists v. Wisconsin Emp.

Rel. Comm'n, 427 U.S. 132 (1976)... .....- 00s e eee 34

International Paper Co. v. Ouellette, 479 U.S. 481

|) ee 34, 35, 36

Kelly v.. Robinson, 479 U.S. 36 (1986)... 2... cc ceccceces 15

Lorillard, Div. of Loew's Theatres, Inc. v. Pons, 434

U.S. 575 (1978)... cece reece eee eee eedeceenens 23

Mackey v. Lanier Collection Agency & Serv., Inc., 486

U.S. 825 (1988) .. 0.2... cece cece eee e eee eee eeeee 18, 37

Massachusetts v. Morash, 490 U.S. 107 (1989).......-. 15

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.

Kk, 06...) Se oo 38

Metropolitan Life Ins. Co. v. Massachusetts, 471 USS.

yy a6...) Se 31

Miree v. DeKalb County, 433 U.S. 25 (1977)....--.-++- 17

Morales v. Trans World Airlines, Inc., 112 S. Ct. 2031 |

7) ee passim

Munizza v. City of Chicago, 222 Ill. App. 3d 50, 583

N.E.2d 561 (1st Dist. 1991). ........---0eee eee eens 3

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

- sEUSeUSheRed dueanesuneysebedsocenysess 22, 23, 34, 41

vil

TABLE OF AUTHORITIES ~ Continued

Page

Northwest Airlines Inc. v. County of Kent, 1145. Ct.

SN NS cv ocnbdevessvebebeschivebehbesennensesi 22

Northwest Central Pipeline Corp. v. State Corp.

Cree. Gas GE, Gee GROO c oc tcc ccncsebvoceccces 27

O'Melveny & Myers v. FDIC, 62 U.S.L.W. 4487 (U.S.

2: @ BRAPOPITITITITIT TTT 17

Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991) ..... 6

Pan Am. World Airways, Inc, v. United States, 371

‘C® FT. Weeeeerrrriirrrirr crit ee 42

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)

(ebcdenweeeshedd nbessevdsacausduacse 15, 17, 18, 38, 40

San Diego Bldg. Trades Council v. Garmon, 359 U.S.

BD Gc 6 oc bccscccuscavencuseornucnaevenss .34, 36

Sears, Roebuck & Co. v. Dist. Council of Carpenters,

496 US. 1800 (1976)... ccc cccccncccccccescccecsens 34

Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984)

LeaCUSSCELELSECRUSECRAR GSR ESDESSOS LANES 24, 32, 33, 36

Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S.

BD Gs widen c ccncsabeds cess seosciscenven cesses 23

Watt v. Alaska, 451 U.S. 259 (1981) ....... 6.6.05 eee. 15

William E. Arnold Co. v. Carpenters Dist. Council,

GF GI, FE GRRE oc ce vedecccccceecscnsevsesses 34, 36

STATUTES AND REGULATIONS

29 U.S.C. § 1001..... Coeeheadesheaaakesesépunt 4ueaed 38

BD UBL. © BGT. ccc ccvccwccsccccccveseccenccesscess 38

49 U.S.C. App. § 1305(a)(1) ... 6-6 eee eee ee ee ees passim

vill

TABLE OF AUTHORITIES - Continued

Page

49 U.S.C. App. § 1371(q)(2).. 6.6.66 ee 16, 17, 33, 39

49 U.S.C. App. § 1374(a).... 6.66 e eee ee eens 26

DUBE, Bie. OOO 0: occvccs cvesccescesss: 16, 33, 39

49 U.S.C. App. § 1506 ....... 6.6 cece eee eee 2, 14, 18

84 CBR. BEDGIMA) none ccrccccccccvercccesecvvcees 23

“To 2 |. SPeerrrrrrrrTrrretrrtT

44 Fed. Reg. 9948 (1979) .... 6.6... e cece eee eee e ees 25

47 Fed. Reg. 52,129 (1982) .........-eeeeee ee eeeeeees 23

Civil Aeronautics Board Sunset Act of 1984, Pub.

L. No. 98-443, 98 Stat. 1703..........6 0 eee eeeeees 41

Federal Aviation Act of 1958, Pub. L. No. 85-726,

ae) US. Pere 14, 18

Illinois Consumer Fraud and Deceptive Business

Practices Act, 815 I.L.C.S. § 505/1 et. seq....... 40, 42

MISCELLANEOUS

American Airlines, Inc. v. Platinum World Travel

(complaint in U.S. District Court for the District

Oy TA censusccececdseedsdtesegendacscncneoccess 20

Black’s Law Dictionary 269 (4th Ed. 1951)........... 16

Complaint and Rulemaking Petition of Association of

Discount Travel Brokers, Docket Nos. 46280,

47539 (DOT Order, May 29, 1992).........5550005: 20

123 Cong. Rec. 30595 (1977) .....- 6... ece reer eee e ees 19

E. Allen Farnsworth, Contracts § 12.1, at 840 (2d

OO, DID occ ccvacdccccscceccecessecsvedensenesesss ow

TABLE OF AUTHORITIES — Continued

Oliver Wendeli Holmes, Jr., The Common Law

DL cadens pales uisal ssadnbeud’aedeuktetkseuets 27

H. R. Rep. No. 1211, 95th Cong., 2d Sess. (1978) .... 19

United States Dep’. of Transportation, Secretary's

Task Force on Competition in the U.S. Domestic

Airline Industry, Airline Marketing Practices

i Mi. . chs scant ee hese wlabnns ens Gaetan eeess 25

United States Dep’t of Transportation, Plane Talk:

Facts For Air Travelers From The Consumer Affairs

Ge Oe GPEEN 6-05 56 be eSe sp enceesdsasdeceneees see: 20

Webster's Ninth New Collegiate Dictionary at 976

8 PPT eT Tier ee eT eTTY TTP CTT TT Tree 26

No. 93-1286

- +

In The

Supreme Court of the United States

October Term, 1994

AMERICAN AIRLINES, INC.,

Petitioner,

Vv.

MYRON WOLENS, ALBERT J. GALE,

R. CRAIG ZAFIS, BRET MAXWELL, ROBERT NELSON

and P.S. TUCKER,

Respondents.

On Writ of Certiorari

to the Supreme Court of Illinois.

BRIEF OF RESPONDENTS

OPINIONS BELOW

In addition to the opinions and judgments listed in

the Brief for Petitioner (“Pet. Brief”) at 1, the following

relevant opinions and judgments have been delivered in

this case: Wolens v. American Altrlines, Inc., 207 Ill. App. 3d

35, 565 N.E.2d 258 (1st Dist. 1990) (Pet. App. at 3la);!

' References to the Appendix to the Petition for Writ of

Certiorari are cited as “Pet. App. at __.” References to the

Appendix to Brief of Respondents in Opposition to Petition for

Writ of Certiorari are cited as “Opp. App. at ___.” References to

the Joint Appendix are cited as “App. at

Wolens v. American Airlines, Inc., No. 88 CH 7554, slip op.

(Ill. Cir. Ct. March 20, 1989) (Pet. App. at 41a); and Wolens

v. American Airlines, Inc., No. 88 C 8158, 1988 U.S. Dist.

LEXIS 12026 (N.D. Ill. October 25, 1988) (decision to

remand state court action) (Opp. App. at la).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

In addition to the express pre-emption provision of

the Airline Deregulation Act of 1978 (“ADA”), 49 U.S.C.

App. § 1305(a)(1) (“Section 1305”) (Pet. Brief at 2), the

statutory section which saves existing remedies provides:

Nothing contained in this chapter shall in any

way abridge or alter the remedies now existing

at common law or by statute, but the provisions

of this chapter are in addition to such remedies.

49 U.S.C. App. § 1506 (“Section 1506”).

STATEMENT OF THE CASE

Plaintiffs allege that Petitioner American Airlines

unilaterally and retroactively breached its contract with

Plaintiffs, members of American's “frequent flyer” club

known as the AAdvantage Program. American's breach

devalued credits already earned by Plaintiffs. The claims

at issue seek money damages only.”

* While Plaintiffs initially sought injunctive relief, they

have not appealed the holding of the lower court that the claim

for an injunction is pre-empted.

This case is before the Court on a Motion to Dismiss

Plaintiffs’ complaints. Under Illinois procedural law, all

well-pleaded facts in the complaints must be taken as

true by the reviewing court and the allegations must be

interpreted in the light most favorable to plaintiffs.

Munizza v. City of Chicago, 222 Ill. App. 3d 50, 583 N.E.2d

561 (1st Dist. 1991), citing, Bio-Medical Lab., Inc. v. Trainor,

68 Ill. 2d 540, 370 N.E.2d 223 (1977) (motion to dismiss

admits well-pleaded facts).* The compiaints allege the

following facts:

A. The AAdvantage Program.

American initiated the AAdvantage Program contract

in 1981 as a marketing venture. To enhance the Program,

American obtained the participation of non-airline busi-

nesses including hotels, bank credit cards, a long distance

telephone network, car rental agencies, money market

tunds, sellers of merchandise and other airlines (“Pro-

gram Participants” Cet. App. at 48a-49a, 7 1.

The relationship between American and AAdvantage

Club members is contractual, with the terms contained in

the terms and conditions of the AAdvantage Program.

Pet. App. at 49a, 9 2. See AAdvantage Program Brochure

* Because this case involves the sufficiency of the com-

plaints, Plaintiffs have not been able to create a record to refute

the many untested (and largely irrelevant) factual assertions in

American's briet. See, e.g., Pet. Brief, passim (arguing that dam-

age awards would inhibit competition, disrupt operations, and

possibly lead to termination of frequent flyer programs); Pet.

Brief at 6, 35 (arguing airline’s administration of Program has

benefited consumers); Pet. Brief at 14 (regarding how comply-

ing with contract would have impacted American).

(“Program Brochure”) lodged with the Court by Ameri-

can on June 2, 1994.4 Under the contract, persons who

belong to the AAdvantage club earn credits by doing

business with American or Program Participants. AAd-

vantage club members can earn credits and obtain bene-

fits without ever flying.° See, e.g., Program Brochure;

AAdvantage Mastercard/Visa Brochure, lodged with

Court by American on June 2, 1994. Club members

redeem the credits for various benetits offered by Ameri-

can and the Program Participants.

Plaintiffs joined the Program and accumulated

credits from American and Program Participants, even if

doing so was more costly and less convenient than doing

business with others. Pet. App. at 49a-50a, {] 3-4; Pet.

App. at 62a-63a, ¥ 5.

B. The Breach Of Contract

In late spring of 1988, after American had received

the benefit of its bargain with club members, American

retroactively imposed restrictions on members’ use of

their previously earned credits, unilaterally altering the

4+ American’s assertion that Plaintiffs allege an “implied

contract” is incorrect. Pet. Brief at 3. The writings explaining the

AAdvantage Program and setting forth its terms constitute an

express contract. =

*-While non-airline travel benefits are involved in the AAd-

vantage Program, American claims that such benefits “were not

challenged.” Pet. Brief at 5. This is misleading. By breaching its

contract with AAdvantage club members, American diminished

the value of the credits which club members earned from the

Program Participants as well as from American.

terms of its contract with the members.® Pet. App. at 52a,

{ 14; Pet. App. at 65a, 7 14. These restrictions substan-

tially reduced the value of credits members previously

earned. Pet. App. at 49a-50a, J 4; Pet. App. at 63a, J 6.7

Although American had reserved the right to restrict,

suspend, or otherwise alter aspects of the Program pro-

spectively,* it never reserved the right to retroactively

diminish the value of the credits previously earned by

members.

C. The Claims At Issue.

Plaintiffs, residents of Illinois, California, Connecti-

cut and Texas, filed suit on behalf of themselves and all

other club members. Plaintiffs allege that American’s

restrictions constituted a breach of contract and were a

° Members no longer were entitled to an airplane ticket for

any available seat on any flight at any time, but instead to only a

limited number of seats designated on each flight (capacity

controls). In addition, travel during popular holiday periods,

previously available, was precluded (blackout dates).

* American misstates the Tucker complaint, asserting that

Plaintiffs allege that American “raised the rate” for airline

tickets obtained with AAdvantage credits. Pet. Brief at 8. Plain-

tiffs actually alleged that “American breached its contract” by,

among other things, “reducing the number of available seats

pursuant to which earned mileage credits can be used for bene-

fits, thereby reducing the value of mileage credits... . ” Pet.

App. at 66a, ¥ 20.

* Thus, Plaintiffs do not request the state court to void any

express limitations contained in American’s AAdvantage Pro-

gram contract. Plaintiffs only seek damages for breach of the

express terms of that contract.

deceptive business practice violating the IHlinots con

umer fraud statute. Plaintiffs ask only tor money dam

ages resulting from American's wrongdoing

\merican justifies its retroactive unilateral changes to

the AAdvantage Program by arguing that it did not antici

pate the success of the Program. Vet. Brief at 6 However

whether American anticipated large accumulations of credits

is outside the record and immaterial to whether Plaintitts

have the right to pursue their claim tor damages, based on a

private agreement. American created the Program, set the

terms, and voluntarily contracted with club members. Mor

over, American encouraged accumulation of large numbers

of credits by making credits more easily obtainable through

the use of credit cards, rental cars, hotels, long distance

telephones, and other non-airline sources, as well as through

promotions such as “triple mileage” where members

obtained three times the normal credits. Pet. App. at 56a

Y 14. That American in hindsight believes it agreed to terms

too generous is irrelevant."

\merican’s references to its desire to adjust the Pro

gram contract to achieve certain competitive goals are

The complaints also pray for an award of punitive dam

ages. Plaintiffs concede that punitive damages traditionally

have not been recoverable tor a simple breach of contract. Se

fio Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 62 (1991) (O'Con

nor, |., dissenting). Consequently, the prayer for punitive dam

ages in Count Il should be stricken

While American suggests that its modifications to the

\Advantage Program have been beneficial (see Pet. Briet at 6)

that assertion is not supported by any facts in the Record

Moreover, it is irrelevant to the predicate question ot whether

Plaintitts can assert their claims

iso immaterial. See Pet. Brief at 15. 18-20. 27.90 > ae Bay

claims do not seek to prevent \Ymerican trom hay ying

the \ \dly mtagye Progr munanv way Plaintiffs

Te erty

Hed to pursue ther claim for lamaye s hacs 1 of the

rebromc troy impact of the hanye

1) Judicial Proceedings

! The District Court Remand

Betore filing its Motion to Dismiss \Ymer

removed the cases to the Linited Statec Dhictrict ¢

the Northern District of Hlinois Th. listrict court

remanded, holding that American pre-emption defense

did not transtornm§ the state laims unt t

Opp. App. at daa

’

Ihe Illinois Supreme Court's Initial Deci

sion

\fter the trial court denied American's Motion. to

Dismiss (Pet. App. at 41a) and an intervenir y appellat

court affirmed (Pet. App. at 3la), the Illinois Supreme

Court held that Section 1305 did not pre empt Plaintifts

breach of contract and consumer fraud claims for mone

damages ber ause those . laims h vd miy ) faniuont

relationship to (American's) rates and servi

‘tl While this ha IS for tive

proved to be onsistent with the later 7 tructiol

in Morales lrans World Aur ') +e Fo He iG '

Illinois Supreme Court did err by holding that ect

1305(a)(1) pre-empts laims only when the underlying sta

The court also held that Section 1305 pre-empted Plain-

tiffs’ claims for injunctive relief since such relief would

effectively result in the regulation of American's services

by a state court. Pet. App. at 23a.

3. The Illinois Supreme Court's Decision on

Remand.

After Morales, the Court granted American's petition tor

certiorari and remanded to the Illinois Supreme Court tor

reconsideration in light of the Court’s construction of Section

1305.

On remand, the Illinois Supreme Court reaffirmed that

Plaintiffs’ claims for money damages were not pre-empted:

Accordingly, we conclude that our previous

holding, that Plaintiffs’ claims for money dam-

ages was not pre-empted because it bears only a

tangential relation to airline rates, routes and

services, comports with the Morales decision. As

defined, the word “tangential” is described as:

“touching lightly or in the most fenuous way:

Incidental.” (Emphasis added.) (Webster's Third

New International Dictionary 2337 (1986).)

_.. The claims are excluded [from pre-emption]

by the exception carved out in Morales tor

actions only tenuously connected to the airlines’

rates, routes and services.

Pet. App. at 6a-7a (emphasis added).

regulation itself relates to airline services, regardless of whether

the claim arises from the factual setting involving airline ser-

vices.” Pet. App. at 23a.

The Illinois Supreme Court closely followed Morales’

analytical framework. Pet. App. at 3a-5a. The court first

considered the nature of the contract that American

breached and the wrongdoing complained of. Pet. App. at

5a-6a. The court described the claims, recounting Plain-

tiffs’ contention that American retroactively changed the

AAdvantage Program so as to diminish the value of

AAdvantage club members’ previously-earned credits. Id.

The court also noted that the AAdvantage Program was

developed and utilized as a marketing device, and that

Plaintiffs did not seek any prospective relief. Id. Next, the

court considered whether the damages claims were ten-

uous, remote, or peripheral to airline rates, routes and

services. Pet. App. at 6a. The court found that the dam-

ages claims did not seek to establish the rates that airlines

must charge, to determine the routes that airlines must

tly, or to dictate the services that airlines must provide.

ld. The court concluded that the “claims for money dam-

ages bear only a tangential, or tenuous, relation to Ameri-

can’s rates, routes, and services.” Pet. App. at 7a.

Despite American's contention to the contrary (Pet.

Br. at 23), the Illinois Supreme Court did not create a new

legal standard based on whether the state law claims

relate to “essential” airline operations. While the court

noted that the AAdyantage Program was not “essential”

to airline operations, the court discussed that fact as one

of many facts it considered in evaluating whether the

Plaintiffs’ claims fit into the “tenuous”, “remote,” or

peripheral” exceptions carved out in Morales.

SUMMARY OF ARGUMENT

American's AAdvantage Program is entirely volun-

tary (a consumer must fill out an application to join) and

contractual, its terms being based on the rules. regula-

tions and restrictions chosen solely by American.

Under the contract, members (Plaintiffs) received

valuable credits exchangeable for various goods and ser-

vices by agreeing to do business with American and the

Program Participants. Members performed their end of

the bargain by choosing American and the Program Par-

ticipants over competitors even when the competitors:

services or products were less expensive or more conve-

ment.

In 1988, American breached its contract by uni-

laterally imposing capacity control and blackout date

restrictions, decreasing the value of the credits which

members had already earned. These restrictions violate

the members’ contracts only because they were imposed

retroactively on credits previously earned by Plaintiffs

American reserved for itself the right to prospectively

make changes in the contract terms to which the parties

voluntarily agreed.

Plaintiffs seek to recover money damages for the

diminution in value of their credits arising out of Ameri-

can’s breach. Plaintiffs also seek damages pursuant to the

Illinois Consumer Fraud and Deceptive Practices Act, for

their accumulation of large numbers of credits through

American's promotion of a triple miles program, when

American knew it would shortly thereafter devalue the

credits by imposing the restrictions.

American, attempting to avoid the consequences of

its breach, claims that Section 1305(a)(1) of the Airline

Deregulation Act of 1978 (“ADA”) pre-empts Plaintiffs’

ceuses of action because the contract relates to airline

rates or services. This argument, which has failed at each

previous judicial level, runs contrary to the language and

purpose of the ADA, as well as this Court's ruling in

Morales v. Trans World Airlines, 112 S. Ct. 203] (1992). In

enacting the ADA, Congress assumed the continued exis-

tence of private contracts and the continued existence of

state law remedies for breach of contracts. Section

1305(a)(1) assures that the states will not “undo” the

ADA’s deregulatory purpose by imposing their own nor-

mative standards on airlines’ rates, routes and services

See Morales, 112 S. Ct. at 2033.

The Program is a separate business run by American

tor itself and its Program Participants. Members need

never tly to accumulate credits. The Program contract

does not relate to the rates, routes or services of Ameri-

can’s business of transporting persons and cargo in more

than a remote. peripheral or tenuous manner, if at all

Section 1305 shows no “clear and manifest” intent to

prevent persons doing business with airlines from seek-

ing compensatory damages to enforce the terms of volun-

tary contracts. Further, the ADA does not provide tor any

tederal remedies or administrative procedures. Theretore,

the ADA has not expressly supplanted common law

claims

Morales is similar to the case at bar only in that the

issue there was the scope of Section 1305. In stark con-

trast with the proposed fare advertising regulations in

Moral Plaintiffs’ garden-variety breach of contract ARGUMENT

claims will not “undo federal deregulation.” Plaintift

l. SECTION 1305(a)11) DOES NOT PRE-EMPT STATI

seek only damages tor American's past breach of the LAW CLAIMS FOR BREACH OF CONTRAC T.

\Advantage contract, unrelated to the air transportatior

In \f ri ie? ( ) mr , 1 th 1< 7) } +

rates, routes or services that Congress deregulated. Plain , | tr ourt confronted the issue of whether

Phy, enrorcem mt hy stat a fort ‘ ’ ' rol cyt « . ’

tiffs do not seek to create any rules, regulations or star e attorne yene! t comprehen

, ‘ ’ rial firyry ry rt mina try th Tek LIne ) irlin

dards tor American's future behavior. the ty pe CEUATIO! PCrIAIMIN SS TO The advertising Of airline

' , ’ ' — tal * trey oye ry) ; 7 mitor SS , 1 234)5 }

normative standards which Congress intended to pr es Was subj O pre-e} a Eva ection | J

empt rt found thy, ty .-t s AA ; mre ont 7, extreme

; ' ’ thy, pore erry ’ ' linrys ; ty 7) iT , ry

\Ymerican seek mmunity trom its ow? rong

Ip? ty? +, } } ‘ ; + + ‘ ; ‘ t;

conduct. That was not the intent which moti ted ( ,

; ; ; ‘ ‘a +, ‘ ‘ i

‘ress to enact Section 1305 \dopting \merican

ment that the ADA pre-empts all claims touching eve ’ , : , —

indirectly on American's decisions as to its rate ri te ' '

or services would mean pre-empting virtua

1% ; iy, 9

one could conceivably have against an airline. Not

would members of the AAdvantage Program hav:

remedy tor American's breach of contract. but ni ne ¢

ontracting with American would bs ble to entorce the

iyreements or receive monetary Gamavys tor Amet

ivr Tar t is 1Ti¢ ) ‘ 1\ iby] that ria’? ~\ ry? are |

reach. It onceivaDdle that Congr reoNnaded \ [he Statutory Language Of The ADA Manifests

; ’ } " ] " 7. ‘4 , . try " , , ’

y the airline industry, to give th Congress Intent That Plaintiffs’ Breach Of

mmunit trom its nar based n ti mT te Contract Claim Is Not Pre tEmpted

yreement CSpre ally whet those ivreement I ‘

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Congress enacted Section 1305 to assure that states

did not regulate airlines’ rates, routes and services in an

anti-competitive manner, with the effeci of nullifying the

dividends of deregulation. At the same time, Congress

decided against repealing or limiting Section 1506 of the

Federal Aviation Act of 1958 (“FAA”), Pub. L. No. 85-726,

72 Stat. 721, which expressly saves from pre-emption “the

remedies now existing at common law or by statute.”

Whether Congress intended to insulate airlines from

the breach of their own voluntary agreements is the criti-

cal question in this case. See Cipollone v. Liggett Group,

Inc., 112 S. Ct. 2608, 2617 (1992) (congressional intent is

the touchstone of the pre-emption inquiry). The Illinois

Supreme Court’s ruling that the Plaintiffs’ suit for dam-

ages was not pre-empted by the ADA is fully consistent

_ with congressional intent ascertained through the appli-

cation of the facts of this case to pre-emption principles,

the ruling in Morales, and the language and purposes of

the ADA.

American argues, in substance, that Section 1305 pre-

empts a cause of action that relates, in any way, to airline

rates, routes and services. But that concept sweeps so

expansively as to eliminate virtually any claim against an

airline. Almost everything an airline does has at least a

tenuous connection to its rates, routes or services. The

ADA’s language and policy demonstrate that such broad

pre-emption was not Congress’ intent.

1. In Determining The Meaning Of A Pre-

Emption Provision, The Court Looks To A

Number Of Sources.

While the Court considers the plain meaning of the

words, it does not consider them in isolation, referring as

well to “the purposes of the pre-emption provision, and

the regulatory focus of [the statute] as a whole.” Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1, 19 (1987). The

Court “must not be guided by a single sentence or mem-

ber of a sentence, but look to the provisions of the whole

law, and to its object and policy.” Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 51 (1987), citing Kelly v. Robinson, 479

U.S. 36, 43 (1986). See also Watt v. Alaska, 451 U.S. 259, 267

(1981) (statutes must be construed to give effect to all

provisions if possible). The Court also considers congres-

sional and regulatory interpretations of the statute. See,

e.g., Massachusetts v. Morash, 490 U.S. 107, 116-17 (1989)

(deferring to agency’s interpretation of ERISA pre-emp-

tion language); Cipollone, 112 S. Ct. at 2620 (considering

legislative history and purpose of Act).

If the Court finds that the pre-emption provision is

“susceptible of more than one interpretation,” it should

conclude that the provision does not “demonstrate a clear

and manifest congressional purpose” to pre-empt. Hawai-

ian Airlines, inc. v. Norris, 62 U.S.L.W. 4537, 4540 (U.S.

June 20, 1994) (Court considered statute’s “comprehen-

sive framework,” which pre-empted many claims, in light

of rest of statutory language as well as statute’s purpose

and legislative history; concluded Congress's intent to

pre-empt particular claim at issue was not “clear and

manifest”, therefore state law claim was not pre-empted).

In this case, these sources establish that Plaintiffs’

breach of contract claim is not pre-empted.

2. The Text Shows Congress’ Intent To Pre-

serve Breach of Contract Actions.

The ADA’s text confirms the continued vitality of

airline contracts.'? As the Solicitor General argues, Con-

gress contemplated that the airlines’ services would be

identified in its contractual agreements which would

form the basis for calculating civil damages in the event

the airline breached its voluntary contractual duties. Brief

for the United States as Amicus Curiae (“Sol. Gen. Br.”) at

Private contracts are meaningless, however, unless

there is a mechanism to enforce them or obtain damages

12 Section 1381 (Section 411 of the FAA), for example, pro-

vides that “[a]ny carrier may incorporate by reference in any

ticket or other written instrument any of the terms of the con-

tract of carriage.” 49 U.S.C. App. § 1381(b) (emphasis added).

Section 1371(q)(2), which provides for the filing of performance

bonds, conditions such bonds upon “making appropriate com-

pensation to such travelers . . . for failure on the part of such

carrier to perform air transportation services in accordance with

agreements therefore.” 49 U.S.C. App. § 1371(q)(2) (emphasis

added). Further, a “contract of carriage” is a contract for the

“conveyance of property [or] persons . . . from one place to

another.” Black’s Law Dictionary 269 (4th Ed. 1951). Any “con-

tract of carriage” would “relate to” airline services by defini-

tion, under American's interpretation of Section 1305. Since

such a reading is contrary to the statutory language, the pre-

emption phrase of “relating to” must be limited by the type of

state action pre-empted.

for their breach.'* Indeed, the ADA assumes the binding

character of airline contracts.'4

At the same time Congress recognized the vitality of

private contracts in the ADA, it did not create any federal

remedies for breach of contract nor any administrative

apparatus for the DOT to adjudicate a private contract

dispute between an airline and a member of its frequent

flyer club.'° As the Solicitor General notes “to do so

would be contrary to the ADA’s basic deregulatory

thrust.” Sol. Gen. Br. at 22.'© By recognizing the vitality of

'’ American concedes that a “contract has no legal force

apart from the law that acknowledges its binding character.”

Pet. Brief at 22 n.30.

'* For example, the implication of Section 1371(q)(2)'s bond

requirement and statements about compensation is that an air-

line's “failure” to comply with agreements would be subject to

adjudication and that damages would be available for a breach.

The bond requirement is similar to Section 1371(q)(1)’s require-

ment for insurance to ensure payment for negligence actions.

See Hodges v. Delta Airlines, Inc., 4 F.3d 350, 355 (Sth Cir. 1993).

Both sections assume the existence of common law actions

'S Federal common law would not be a source of recovery

here. See Miree v. DeKalb County, 433 U.S. 25, 28-33 (1977) (hold-

ing that federal common law did not apply to contract dispute

between county and Federal Aviation Administration);

O'Melveny & Myers v. FDIC, 62 U.S.L.W. 4487, 4488 (U.S. June 13,

1994) (refusing to create federal common law on the question of

the imputation of corporate officers’ knowledge to a corpora-

tion). Thus, American would remove the only protection avail-

able to Plaintiffs, who have no other legal remedy for

American's breach of contract.

'e In this respect, the ADA differs radically from ERISA

which provides for a federal cause of action, details available

remedies and creates a comprehensive civil enforcement

scheme. Thus, American's reliance on Pilot Life Ins. Co. v

individual contracts without creating a federal enforce-

ment mechanism, Congress demonstrated its intent to

preserve the state's traditional role in enforcing contracts

entered into by airlines. Cf. Mackey v. Lanier Collection

Agency & Serv., Inc., 486 U.S. 825, 837-38 (1988) (by recog-

nizing that ERISA welfare plan benefits could be attached

or garnished under state statute, Congress’ decision to

remain silent concerning an attachment or garnishment

acknowledged or accepted the practice rather than pro-

hibiting it).

That Congress intended airlines to be exposed to

liability for breach of private contracts is further evi-

denced by Section 1506, first enacted in 1938 and then

again in 1958. See FAA, Pub. L. No. 85-726, § 1106, 72 Stat.

798. Congress also chose not to repeal Section 1506 in

enacting the ADA. Section 1506, which expressly pre-

serves “the remedies now existing at common law or by

statute” must be read in conjunction with Section 1305.

Congress intended to preserve some common law and

statutory actions despite Section 1305's pre-emption lan-

guage. Given the purpose of the ADA to undo regulation

over airlines’ rates, routes and services, as the Solicitor

General suggests, Section 1305 does not preclude the

customary remedies to a party claiming that an airline

breached a voluntary private contract with a customer,

Dedeaux, 481 U.S. 41, 54 (1987) and Ingersoll-Rand Co. v. McClen

don, 498 U.S. 133 (1990), is misplaced. Both cases are premised

upon “(t]he policy choices reflected in the inclusion of certain

remedies and the exclusion of others under the federal {ERISA}

scheme.” Pilot Life, 481 U.S. at 54.

a ” — . >. 7 ai i

. *

although it may bar a state from enforcing its own norma-

tive standards with respect to rates, routes, or services.

Sol. Gen. Br. at 16-17. Section 1506 preserves “the custom-

ary remedies.”

3. The ADA’s Legislative History Demon-

strates That Congress Intended To Pre-Empt

Only State Actions Imposing Policy Stan-

dards On Airline Rates, Routes Or Services.

A section-by-section analysis of a precursor to the

ADA (which included the provision ultimately codified

as Section 1305) provides commentary on the purpose of

the pre-emption provision:

With the passage of legislation . . . loosening

Federal regulation of airline services and fares,

it is possible that some states will enact their

own regulatory legislation, imposing restrictive

utility-type regulation on interstate airline ser-

vice and fares. The Air Service Improvement Act

includes a specific statutory provision preclud-

ing state interference with interstate service and

fares.

123 Cong. Rec. 30595 (1977) (comments of representative

Glen Anderson). The House Report contains similar lan-

guage:

H.R. 12611 will prevent conflicts and inconsis-

tent regulations by providing that when a car-

rier operates under authority granted pursuant

to title IV of the Federal Aviation Act, no state

may regulate that carrier's reutes, rates or services.

H. R. Rep. No. 1211, 95th Cong., 2d Sess. (1978) at 16

(emphasis added). The conflicting regulations which the

pre-emption provision was intended to cure included

carriers being required by states to charge different fares

for interstate versus intrastate passengers. Id. at 16

4. The DOT And The Solicitor General Sup-

port Plaintiffs’ Right To Pursue Their

Breach Of Contract Claim.

The DOT has consistently and without reservation

stated that frequent flyer program contract disputes are

private matters to be resolved in civil courts '7 Indeed,

\merican has repeatedly availed itself of state courts for

common law claims relating to breaches of frequent tlyer

program contracts

DOT's ruling in Complaint and Rulemaking Petition of

Association of Discount. Travel Brokers, Docket Nos. 46280,

$7539 (DOT Order, May 29, 1992) (Pet. App. at 85a), and

the airlines’ arguments in that matter, support Plaintiffs

The Association of Discount Travel Brokers, whose mem

bers purchase and sell frequent flver awards, sought to

" Sol. Gen. Br. at 26, n. 21, citing DOT Order Denying

Rulemaking of May 29, 1992 (Pet. App. at 96a & n. 17) and DOT

Order 89-9-25 of Sept. 13, 1989. See also United States Dep't ot

[Transportation Plane Talk: Facts For Aur Travelers From The "

umer Affairs Office 2 (1992)

See, e.g., American Airlines, Inc. v. American Coupon Ex

in 721 F Supp. 61, 63 (S.D.N_Y. 1989) (finding that American

omplaint contained “sufficient allegations of the existence of a

ntractual relationship between plaintiffs and trequent flyers

who sold their travel rights '); American Airlines, in

itinum World Travel (complaint filed in U.S. District Court tor

the District of Utah, alleging tortious interference and traud

require DOT to establish nationwide standards for fre

quent flyer programs. Pet. App. at 90a-9la. In opposing

the proposed rulemaking, American argued, among other

things, that DOT lacked jurisdiction to regulate frequent

flyer programs since those programs extend beyond air

lines. Pet App. at 92a-93a

Further, the airlines stressed that their agreements

with members of their frequent flyer programs, which

prohibit the purchase and sale of frequent flyer awards

were “valid and enforceable contractual restrictions on

assignment “ Pet. App. at Yla. The airlines described

their frequent flyer programs as “legitimate contract[s]

governed “solely by contract law.” Pet. App. at 89a. The

DOT agreed

Continental correctly describes the relationship

between frequent flyer programs and thei

members as a contract in which the carrier offers

to provide benefits subject to the program's

terms and conditions and the participant accepts

the offer by joining the program and flying on

the carrier

Pet. App. at Y6a (emphasis added)

Contrary to American's argument (Pet. Brief at

33-34), the DOT did not consider the claims at issue here,

nor did it conclude that an air carrier can breach its

contractual obligations without being held liable for

money damages under state law. DOT's statement, that

certain methods of controlling the cost of frequent flyer

programs are not per se illegitimate, is not conclusive

here. The DOT did not address the question in this cas«

whether American can be held liable for damages under

state law if its institution of cost controls breaches a

contract. Indeed, the DOT order supports the conclusion

La)

that state common law of contracts, rather than govern

ment regulation, should resolve that question.'”

American suggests that Congress intended that the

DOT would ensure appropriate compensation for breach

of contract. Pet. Br. at 15. But neither Section 1371(q)(2),

Section 411, nor any other provision of the ADA, antici

pates or arranges for the DOT to adjudicate garden

variety contract disputes involving airlines.2? In Nader v

Allegheny Atrlines, Inc., 426 U.S. 290, 301-2 (1976), this

Court tlatly reyected American's construction of Section

411, holding that the Civil Aeronautics Board (DOT's

predecessor) “may not employ its powers to vindicate

private rights” and that “individual consumers are not

even entitled to mitiate proceedings under & 411.7?! By

American suggests that only federal regulation through

DOT can assure a “competitive and tinancially sound” airline

industry. Pet. Briet at 32-33. But the ADA deregulated the airline

industry, as the DOT clearly recognizes, leaving airlines to com

pete in a free market, subject to common law breach of contract

actions

* American relies on a quote, taken out of context, from

Northwest Airlines Inc. v. County of Kent, 1145. Ct. 855, 863 (1994)

for the proposition that DOT, rather than courts, should regu

late the claims here. But Northwest dealt specifically with the

agency's ability to oversee the setting of airport rates and fees

not the adjudication of breach of contract claims. Moreover

Northwest merely commented that it would have given deter

ence to the agency had it ruled on the rate-setting issue; it did

not pre-empt the private claim, and did not address the ADA’s

pre-emption provision

“' Moreover, to the extent Section 411 gives the DOT

authority” to protect consumers, exercise of that authority ts

entirely discretionary and the provision creates no private right

of action for an aggneved party

enacting the ADA without altering Section 411, Congress

is presumed to have adopted Nader's interpretation of

Section 411. See Lorillard, Div. of Loew's Theatres, Inc. v

Pons, 434 US. 575, S80 (1978)

The DOT itself rejects American's interpretation. See

Sol Gen. Br at 19-20. DOT regulations recognize state

causes of action against airlines for breach of contract.

The DOT says, for example, that airlines are “subject to the

contract law of the states in issuing ticket contracts.” 47

Fed. Reg. 52,129, 52,130 (1982) (emphasis added). DOT

regulations require carriers to give passengers notice of

“Irjights of the carrier to change terms of the contract”

and require carriers to notify passengers of the time

period to “bring an action against the carrier for its acts.”

14 C FR. 253.5(b)(3); 14 CFR. 253.5(b)(2) (emphasis

added)

Moreover, notning in the ADA suggests that Con-

gress intended that the DOT be the sole arbitrator of the

potentially thousands of contract disputes between air-

lines and passengers or anyone else {such as a frequent

flyer club member) who contracts with an airline. The

practicalities make it obvious that Congress could not

have intended that result. As pointed out by the Solicitor

General, the DOT does not have a comprehensive admin-

istrative apparatus for adjudicating disputes arising

under contracts between airlines and their passengers

Rather, Congress intended to rely - as the DOT has relied

- on the availability of state courts for the resolution of

such disputes. See Sol. Gen. Br at 3, 19, 25-27. It is

inconceivable that Congress would create a burdensome

regulatory scheme under the ADA without expressly pro-

viding for it. See Texas Indus., Inc. v. Radcliff Materials, Inc

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which an airline engages is connected, at least tenuously,

to the rates the airline charges, the routes it flies, or the

services it provides. If the “relating to” language is con-

strued as American proposes, airlines would be free to

breach contracts, act negligently or defraud people, with-

out consequences.

C. Under Morales, Plaintiffs’ Damage Claims Are

Not Pre-Empted.

1. Morales Recognizes Limits To The Scope Of

Pre-Emption Under Section 1305.

While American argues that this case is “indis-

tinguishable” from Morales, Pet. Brief at 14, there is little

similarity, and a multitude of significant distinguishing

features. Morales involved the broad regulation of the

advertising of rates by state attorneys-general who sought

to impose state policy on the airlines as set out in a written

standard of prosecutorial guidelines. The Court found

that the prosecutorial guidelines “obviously” related to

rates since they “establish binding requirements as to

how tickets may be marketed if they are to be sold at a

given price.” 112 S. Ct. at 2039. The Morales Court

stressed that the guidelines would not simply prevent

“market distortion caused by ‘false’ advertising,” but

would restrict air carriers’ “ability to communicate fares

to their customers.” Id. at 2040. Thus, Morales found the

“[s|tate enforcement actions” to be pre-empted. Id. at

2037.

In contrast, Plaintiffs —- private parties rather than the

state — seek money damages, not regulation, resulting

from a breach of a private contract implicating no state

policy. Their damage claim, unlike the claim in Morales,

involves no “state enforcement action”, no “restrictions”

and no “binding requirements” on airlines’ rates.

The Court explicitly recognized limits to pre-emption

under Section 1305: “ ‘some state actions may affect [airline

rates, routes, or services] in too tenuous, remote,,or periph-

eral manner’ to have pre-emptive effect.” Id. at 2040, quoting

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 n.21 (1983). The

Court declined to establish a bright-line rule for distinguish-

ing pre-empted claims from non-pre-empted claims. Id. at

2040. Perhaps the appropriate inquiry to draw such a line is

found in Morales’ assertion that Section 1305 was included in

the ADA to “ensure that the states would not undo federal

regulation with regulation of their own.” Id. at 2034. State

law claims which do not threaten to “undo federal regula-

tion” should not be found to sufficiently relate to rates,

routes and services.?°

The Court made clear that it did not intend to “set

out on a road that leads to pre-emption” of all state law

claims touching on airline rates, routes and services. Id. at

2040. By declining to establish a bright-line rule, the

26 The Morales Court also analyzed whether the attorney

general’s claims had a “significant impact” or a “forbidden

significant effect” on rates, routes and services. Id. at 2039, 2040.

Several courts have followed Morales’s “significant impact”

inquiry. See, e.g., Hodges v. Delta Airlines Inc., 4 F.3d 350, 355 (Sth

Cir. 1993) (tort remedies for personal injury did not have signifi-

cant impact on services); Doricent v. American Airlines Inc., No.

91-12084Y, 1993 U.S. Dist. LEXIS 15143, *16-*20 (D. Mass. Oct.

19, 1993) (claims for intentional infliction of emotional distress

and violations of civil rights statute based on airline’s treatment

of passenger did not significantly impact rates, routes and ser-

vices).

Court left to lower courts the evaluation of whether spec-

ific claims are pre-empted. That evaluation - whether the

claims are tenuous, remote or peripheral to rates, routes

and services or threaten to undo federal regulation -

necessarily requires the lower court to evaluate the speci-

fic facts in each case. Thus, the Morales Court established

a workable analytical framework.

2. Following the Morales Analysis, The Illi-

nois Supreme Court Correctly Found That

Plaintiffs’ Breach of Contract Claim Was

Not Pre-Empted.

Applying Morales’ analytical framework, the Illinois

Supreme Court held that Plaintiffs’ ordinary claim for

breach of the AAdvantage contract had only a “tangen-

tial” relation to American's rates, routes and services. Pet.

App. at 7a. The Illinois Supreme Court evaluated the

claim based on the facts alleged in the complaints, con-

sidering: (i) the mutual promises between American, its

Program Participants and club members; (ii) American's

retroactive change affecting earned credits; (iii) the Pro-

gram’s marketing purpose; (iv) the relief requested, lim-

ited to monetary damages; and (v) the fact that the

AAdvantage Program was not essential to the airline’s

rates, routes or services. The court, following Morales,

concluded that the claim was only tangentially connected

to rates, routes and services and therefore was not pre-

empted.

American ignores the enunciated basis for the Illinois

Supreme Court's ruling, and suggests that Illinois created

a requirement that Section 1305 pre-empts only those

state law claims relating to “essential” airline operations.

~ i

ee a ee Te ee ee ee

ee ee ee Be re

While the court correctly characterized the AAdvantage

program as not being “essential” to airline operations, its

opinion makes clear that this characterization was merely

one fact considered in the court's analysis, and not a new

legal standard.

Unlike the proposed fare advertising regulations in

Morales, Plaintiffs’ straightforward breach of contract

claim will neither “undo federal deregulation,” Morales,

112 S. Ct. at 2034, nor impose restrictions on American's

air transportation operations. American will continue to

be free to advertise, set rates and offer routes and services

in any way it pleases, subject only to its own voluntarily

negotiated contracts.?7

D. There Is A Strong Presumption Against Pre-

Emption Of Plaintiffs’ Breach of Contract

Claim.

The Court starts by “presum|[ing] that Congress did

not intend to pre-empt areas of traditional state regula-

tion”. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 740 (1985). See California v. ARC America Corp., 490

U.S. 93, 101 (1989) (strong presumption against pre-emp-

tion of claims traditionally governed by state law). This

presumption derives from the judiciary’s “respect for the

separate spheres of governmental authority preserved in

27 American's arguments about the dangers of airlines

being compelled to displace revenue-generating customers is

irrelevant to Plaintiffs’ claim, which seeks no more than money

damages for the diminution in value of their previously earned

AAdvantage credits.

our federalist system.” Alessi v. Raybestos-Manhattan, Inc.,

451 U.S. 504, 522 (1981).

The presumption against pre-emption is applicable to

the garden-variety breach of contract and consumer fraud

claims asserted by Plaintiffs. See, e.g., Cipollone v. Liggett

Group, Inc., 112 S. Ct. 2608, 2620 (1992) (common law

remedy for breach of contract not pre-empted; only clear

and express statement pre-empts traditional state claim);

ARC America, 490 U.S. at 101 (state common law and

statutory remedies against unfair business practices not

pre-empted as “area traditionally regulated by the

States”); Florida Lime & Avocado Growers, Inc. v. Paul, 373

U.S. 132, 146, reh’g denied, 374 U.S. 858 (1963) (state regu-

lation preventing the deception of consumers not pre-

empted).

When the Court construes a pre-emption statute “any

indulgence in construction should be in favor of the

States, because Congress can speak with drastic clarity

whenever it chooses to assure full federal authority.”

Bethlehem Steel Co. v. New York State Labor Relations Bd.,

330 U.S. 767, 780 (1947). The party asserting pre-emption

has the burden of proving Congress’ “clear and manifest”

intent to pre-empt. Silkwood v. Kerr-McGee Corp., 464 U.S.

238, 255 (1984). Traditional state common-law actions

continue to exist unless Congress “expressly supplant|s]”

them. /d.28

28 Contrary to amicus United Air Lines’ argument, the pre-

sumption against pre-empting claims traditionally governed by

State law applies to express pre-emption provisions. See Cip-

ollone, 112 S. Ct. at 2618 (construing provision in light of pre-

sumption against pre-emption); CSX Trans. Inc. v. Easterwood,

ne ee ee —_

—"

Len

E. Allowing Compensatory Damages Claims To

Go Forward Is Not Inconsistent With Pre-Emp-

tion of Injunctive Relief.

American argues that the damage claims cannot pro-

ceed because Congress intended to pre-empt Plaintiffs’

claims for injunctive relief. See Pet. Brief at 24. Whether or

not injunctive relief is pre-empted, ample evidence estab-

lishes that Congress intended the survival of common

law state actions providing compensatory relief. As

already noted, Sections 1381(b) and 1371(q)(2) expressly

foresee private contracts. With no federal remedy, the

ADA must have preserved state common law breach of

contract actions. Congress, therefore, at a minimum,

intended to “split” the remedies available. from a state

common law breach of contract action. Silkwood, 464 U.S.

at 255.

Congress’ principal concern in enacting Section 1305

was to ensure that states did not “undo” the statute by

imposing regulations in the very areas that Congress had

decided should not be subject to government interfer-

ence. Morales, 112 S. Ct. at 2034. An injunction ordering

an airline to seat certain passengers on particular flights

could constitute impermissible government regulation.

But requiring an airline to pay damages for a breach of

contract would not impose any kind of restriction on the

airline’s rates, routes or services. Thus, it is reasonable to

consider an injunctive claim separate from a damage

claim for pre-emption analysis under Section 1305. See,

113 S. Ct. 1732, 1737 (1993) (Court should be “reluctant” to find

pre-emption of state law claims; construing express pre-emp-

tion provision).

e.g., Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 301-02

(1976) (Court distinguished between causes of action

based on relief, holding that common law compensatory

damages were appropriate for state determination while

injunctive relief was reserved for federal administrative

action under Section 411).

American relies on San Diego Bldg. Trades Council v.

Garmon, 359 U.S. 236 (1959),29 International Paper Co. v.

Ouellette, 479 U.S. 481 (1987) and Cipollone v. Liggett

*? This Court has previously explained that Garmon

involves a special “presumption of Federal pre-emption” relat-

ing to the primary jurisdiction of the National Labor Relations

Board. Because Garmon and its progeny have interpreted the

NLRA as intending to fully occupy the labor field, these cases

are not applicable here. In Garmon cases, the comprehensive

reach of the NLRA creates conflicts with state laws and, hence,

the need for pre-emption. Brown v. Hotel & Rest. Emp. & Bart.,

Local 54, 468 U.S. 491, 502 (1984); English v. General Elec. Co., 496

U.S. 72, 86-87, n.8 (1990). Further, this Court has repeatedly held

Garmon pre-emption analysis inapplicable in cases involving the

“local interest exception.” International Ass'n of Machinists v.

Wisconsin Emp. Rel. Comm'n, 427 U.S. 132, 138 (1976); Sears,

Roebuck & Co. v. Dist. Council of Carpenters, 436 U.S. 180, 189

(1978) (state common law trespass action not pre-empted). Even

in the labor area, the Court has refused to extend Garmon to pre-

empt specific performance where “the parties have contrac-

tually committed themselves to mutually agreeable procedures

for resolving their disputes. . . . ” William E. Arnold Co. v.

Carpenters Dist. Council, 417 U.S. 12, 16-19 (1974).

* Ouellette is distinguishable. There, Vermont landowners

brought a nuisance suit seeking injunctive relief and damages

against a paper mill in New York. The Clean Water Act (“CWA”)

specifically grants authority to the Federal Government and the

source State. This Court held that any action brought in Vermont

would frustrate the CWA but expressly noted that “[a]n action

brought against IPC under New York nuisance law would not

Group, Inc., 112 S. Ct. 2608 (1992), as support for its

argument that “this Court’s pre-emption jurisprudence

generally abjures distinctions based on the form of

relief.” Pet. Brief p. 24. These cases do not support Ameri-

can’s position. In each case, the Court found that certain

specific damage claims were an obstacle to federal laws

or that federal law fully occupied the field. That is not the

case here.

Under Cipollone, only state action which in fact imple-

ments state policy is pre-empted.*! Compensatory dam-

ages for the breach of contract at bar does not involve the

implementation of state policy, but instead makes avail-

able the traditional remedies for a breach of contract

claim.*? Cipollone supports the concept that common law

frustrate the goals of the CWA.” 479 U.S. at 498. The CWA,

therefore, foresaw a forum for adjudication. The ADA, however,

does not contain the explicit statutory language indicating a

preference for a specific forum. No provision of the ADA

expressly provides for federal adjudication of common law con-

tract actions.

*! In Cipollone, this Court held pre-empted those causes of

action which relied on a breach of a duty imposed by state

statute. This Court held that causes of action which relied upon

a breach of a common law duty were not pre-empted.

% “([Ojur system of contract remedies is not directed at

compulsion of promisors to prevent breach; it is aimed, instead, at

relief to promisees to redress breach.” E. Allen Farnsworth, Con-

tracts § 12.1, at 840 (2d ed. 1990) (emphasis in original). Unlike

other areas of law, contract law relates to “the nature and extent

of the rights.and duties that the parties themselves have cre-

ated.” Id. § 7.1, at 463. Even in the labor field, the Garmon pre-

emption analysis has been held inapplicable to the enforcement

of contracts voluntarily entered into. Belknap, Inc. v. Hale, 463

U.S. 491, 512 (1983).

contract actions survive pre-emption.* As Justice Stevens

noted, “a contractual requirement, although only enforce-

able under state law, is not ‘imposed’ by the state, but

rather is ‘imposed’ by the contracting party upon itself.”

Cipollone, 112 S. Ct. at 2622 n. 24.

Unlike Garmon and Ouellette, which involved perva-

sive federal regulatory schemes, this case involves dereg-

ulation and a statute that presumes continued state

remedies. Cf. Silkwood, 464 U.S. at 256-58 (even with

extensive federal regulations, damage claim could pro-

ceed). No evidence supports American's illogical conten-

tion that Congress intended to pre-empt compensatory

damages for a breach of contract any more than it

intended to pre-empt personal injury claims.

American further argues that compensatory damages

have as regulatory an effect as injunctive relief and there-

fore should be pre-empted. However, none of the cases

relied on by American supports the proposition that dam-

age claims are pre-empted merely because they may pos-

sibly have regulatory effect. In each case the court found

that the damage claims were either expressly pre-empted

or impliedly pre-empted because they were an obstacle to

federal law or federal law had fully occupied the field.

Moreover, while Garmon held that regulation “can” be

exerted through a damage award as well as an injunction,

*% Arguably, Cipollone supports the proposition that all

state remedies for a breach of contract are permissible. Accord

Belknap, 463 U.S. at 512 (implying specific performance avail-

able remedy); William E. Arnold Co., 417 U.S. at 16-19 (1974)

(holding Garmon did not pre-empt specific performance of con-

tract). ?

it did not hold that all damage awards necessarily have

such effect.

Il. ERISA PRE-EMPTION SHOULD BE DISTIN-

GUISHED FROM ADA PRE-EMPTION.

American suggests that in interpreting the ADA’s pre-

emption provision, the Court should adopt in its entirety

its previous interpretations of ERISA’s pre-emption provi-

sion. See Pet. Brief at 16, 18, 21, 24. While Morales com-

pared the “relating to” language in the ADA to the

“relating to” language in ERISA, the pre-emption analysis

should not stop there. To determine whether Congress

intended the ADA’s pre-emption provision to have the

same meaning as ERISA’s pre-emption provision, the

Court should compare not only two words in the pre-

emption clauses, but also the rest of those provisions,

other language in the statutes, and the purpose, civil!

enforcement schemes, and legislative history of the stat-

utes. An analysis of these factors demonstrates that

while most breach of contract/enforcement actions are

pre-empted under ERISA, Plaintiffs’ claims are not pre-

empted under the ADA.

* This Court has limited the scope of ERISA pre-emption

based on these factors. See, e.g., Mackey v. Lanier Collection

Agency & Service, Inc., 486 U.S. 825, 841 (1988) (ERISA did not

pre-empt state’s general garnishment statute even though it was

applied to collect judgment against plan participants); Fort Hal-

ifax Packing Co. v. Coyne, 482 U.S. 1, 19 (1987) (state law requiring

payment of severance benefits, which would normally fall

within purview of ERISA, not pre-empted because only state

laws that relate to benefit “plans” are pre-empted and because

state law did not require establishment or maintenance of ongo-

ing plan).

The explicit purpose of ERISA is “to protect contrac-

tually defined benefits.” See Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101, 113 (1989) (emphasis added), citing

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148

(1985) and 29 U.S.C. § 1001. See also Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504, 510 & n.5 (1981) (Congress

wanted to ensure in ERISA that workers received contrac-

tual or promised benefits), citing Nachman Corp. v. Pension

Benefit Guaranty Corp., 446 U.S. 359, 375 (1980). This pur-

pose, along with a detailed federal scheme to enforce

contracts, supports the Court’s conclusion that Congress

intended to pre-empt state law breach of contract actions

in areas covered by ERISA.

In contrast, the express purpose of the ADA is wholly

unrelated to the enforcement of contractual obligations at

the federal level. Rather, the ADA’s purpose ts to promote

“maximum reliance on competitive market forces,” and to

further “efficiency, innovation, and low prices” as well as

the “variety [and] quality . . . of air transportation ser-

vices.” See Morales, 112 S. Ct. at 2034, quoting, 49 U.S.C.

App. §§ 1302(a)(4), 1302(a)(9). This purpose is served — not

impeded — by state law breach of contract claims that seek

only to enforce terms voluntarily agreed to by an airline.

The ADA and ERISA also differ markedly with

respect to the enforcement schemes to remedy breaches of

contract. Under ERISA, Congress crafted a “detailed,”

“comprehensive,” and “carefully integrated” civil claims

and enforcement procedure. See Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 54 (1987); 29 U.S.C. § 1132. See also

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137 (1990)

(enforcement scheme is “essential tool” to accomplish

ERISA’s purpose). The existence of this comprehensive

—_

civil enforcement scheme has been a critical factor in

finding that ERISA’s pre-emption clause sweeps widely.

See Ingersoll-Rand, 498 U.S. at 143-45 (finding ERISA’s

comprehensive and detailed civil enforcement mecha-

nism to be a “special feature” supporting pre-emption of

common law wrongful discharge action).

The ADA contains no such “detailed, “comprehen-

sive,” and “carefully integrated” civil enforcement

scheme to enforce contractual rights. At the same time,

the ADA assumes the continued existence of contracts.

See supra at 16-17. The lack of enforcement scheme dem-

onstrates that Congress expected that state law breach of

contract actions would provide the mechanism to deal

with breach of contract claims, so long as the claims did

not conflict with the ADA’s deregulatory purpose.

American contends that Section 411 (49 U.S.C. App.

Section 1381) and Section 1371(q)(2) provide “ample

authority for the DOT to protect consumers should the

DOT determine such protection is needed”. Pet. Brief at

31. But those sections are discretionary to the DOT, and

contains no reference to complaints from passengers, let

alone members of frequent flyer clubs. As described supra

at 16-17, 22-23, those sections provide no mechanism for

consumers to pursue their rights.*> The DOT itself has

rejected American's contention. See supra at 23.%

35 In contrast, ERISA provides for both administrative

enforcement, to address cases with broad policy implications,

and private enforcement lawsuits, to address run-of-the-mill

contract disputes.

their differences on pre-emption. ERISA’s legislative history

lll. SECTION 1305(a)(1) DOES NOT PRE-EMPT

PLAINTIFFS’ CONSUMER FRAUD ACT CLAIM.

American and the Solicitor General both misperceive

the nature and scope of Plaintiffs’ claim under the Illinois

Consumer Fraud and Deceptive Business Practices Act.

815 L.L.C.S. § 505/1 et seq. Like the claim for common law

breach of contract, this claim does not relate to an air-

line’s rates, routes or services except in a manner which is

tenuous, remote and peripheral. See supre at 24-27, 30-31.

Plaintiffs allege that American's conduct, which constitu-

ted a breach of the contract between members and the

AAdvantage Program, included a deceptive practice sub-

ject to money damages under the Consumer Fraud Act.*”

Unlike the regulation at issue in Morales, the Con-

sumer Fraud Act claim does not require, nor purport to

demonstrates that Congress intended to create a federal scheme

to replace state law claims relating to breach of employee bene-

fit contracts. See Pilot Life, 481 U.S. at 46 (citing Congressional

Record statements). In contrast, the ADA’s legislative history

contains no evidence that Congress intended Section 1305 to

pre-empt state law claims relating to private contracts. It indi-

cates only a legislative intent to prevent states from enforcing

normative utility-type regulations on airlines’ rates, routes and

services. See supra at 19.

%” The Solicitor General incorrectly argues that the Con-

sumer Fraud Act claim challenges the adequacy of American's

prior notice. Sol. Gen. Br. at 10. However, the claim is based on

the fact that offering a triple miles bonus, when American

already had plans to institute capacity control restrictions and

blackout dates, was a deceptive practice.

regulate, either American's ability to determine the

terms of the AAdvantage Program or the content of its

communications concerning the Program. American’s

deceptive treatment of the AAdvantage contracts has

nothing whatsoever to do with any legitimate industry-

wide practice of airlines. Imposing liability for Ameri-

can’s deceptive conduct under Illinois law would not

“significantly impact” American's ability to administer its

services or set rates.

Plaintiffs’ claim would, however, require American to

conduct itself with respect to the AAdvantage contracts

without unfair deceptive business practices. Congress

intended exactly that impact when it enacted Section 411

in 1938. Under Section 411, states share with the federal

government regulatory authority over unfair and decep-

tive business practices. When Congress passed the FAA

in 1958, it reenacted Section 411 with the shared authority

intact. Congress again left the section unchanged when it

adopted ADA in 1978. Then, in the Civil Aeronautics

Board Sunset Act of 1984, Pub. L. No. 98-443, 98 Stat.

1703, Congress transferred administrative responsibility

over Section 411 from the CAB to the DOT, again without

altering its substance.

Thus, from its initial enactment through today, Sec-

tion 411 has served to supplement, not displace, statutory

causes of action challenging unfair and deceptive prac-

tices in the airline industry. Nader v. Allegheny Airlines,

* Not all state regulation of airline advertising, let alone

regulation of unfair and deceptive business practices, is pre-

empted under Section 1305, especially if it fails the “significant

impact” inquiry of Morales. 112 S. Ct. at 2040.

Inc., 426 U.S. 290, 303 (1976) (Section 411 “does not repre-

sent the only, or best, response to all challenged carrier

actions that result in private wrongs”). This result is con-

sistent with the interpretation of Section 411’s model -

Section 5 of the Federal Trade Commission Act — which

coexists with state laws against deceptive trade practices.

See Pan Am. World Airways, Inc. v. United States, 371 U.S.

296 (1963).

Plaintiffs’ Consumer Fraud Act claim for damages

does not threaten the federal goals of deregulation.

Rather, concurrent federal and state jurisdiction to chal-

lenge unfair or deceptive practices, like the practice here,

has been the norm since Congress first enacted Section

411. Since the Consumer Fraud Act claim, like the con-

tract claim, is at most only tenuously connected to rates,

routes or services, it is not pre-empted under Section 1305

or under Morales.

ae ee ee ae ee ee ANA. “et eee Naa) ll ah -_—_ <a

}

CONCLUSION

The judgment of the Supreme Court of Illinois should

be affirmed.

Gitpert W. Gorvon*

Ropert Marks

Wituiam V. SarRacco

Marks, MARKS AND

Kaptan, Ltp.

120 North LaSalle Street

Suite 3200

Chicago, IL 60602-2401

(312) 332-5200

MicuHaet J. Freep

Micnaet B. HyMAN

EpvitH F. CANTER

Much SHE.Ist Freep

DENENBERG & AMENT, P.C.

200 North LaSalle Street

Suite 2100

Chicago, IL 60601-1095

(312) 346-3100

Respectfully submitted,

NicHo.as E. CHIMIcLes

IRA New RicHARDs

STevEN A. SCHWARTZ

CHIMICLES, JACOBSEN &

TIKELLIS

One Haverford Centre

Haverford, PA 19041-0100

(215) 642-8500

Marvin MILLER

Micvter FAuCHER CHERTOW

CAFFERTY AND WEXLER

30 North LaSalle Street

Suite 3200

Chicago, IL 60602

(312) 782-4880

Counsel for Plaintiffs

*Counsel of Record

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.