U.S. Supreme Court Unanimously Reverses Ninth Circuit In Northwest, Inc. v. Ginsberg

Judith Nemsick is a Partner in our New York office

HIGHLIGHTS:

The U.S. Supreme Court unanimously holds that the Airline Deregulation Act (ADA) preempts a state-law claim for breach of the implied covenant of good faith and fair dealing where it seeks to enlarge the parties' voluntary contractual obligations. Where a state's law does not permit parties to contract out of the implied covenant, the implied covenant must be regarded as a state-imposed obligation (not a voluntary one) and, therefore, will be preempted. In Northwest, Inc. v. Ginsberg,1 a 9-0 decision issued on April 2, 2014, the U.S. Supreme Court held that the Airline Deregulation Act of 1978 (ADA)2 preempts a frequent flyer member's implied covenant of good faith and fair dealing claim when such a claim is state-imposed and "seek[s] to enlarge the contractual obligations that the parties voluntarily adopt." The decision, authored by Justice Alito, follows the sound reasoning in American Airlines, Inc. v. Wolens3 and reaffirms the broad reach of the ADA's preemption clause.

Background of Northwest, Inc. v. Ginsberg

Rabbi S. Binyomin Ginsberg, a Northwest Airlines frequent flyer member, sued the airline for negligent and intentional misrepresentation, breach of contract, and breach of the implied covenant of good faith and fair dealing arising from his removal from the frequent flyer program. By its express terms, the program permitted Northwest to terminate membership in its "sole judgment." The District Court dismissed the breach of contract claim for failure to state a claim and the misrepresentation and implied covenant claims as preempted by the ADA.

On Ginsberg's appeal of the implied covenant claim (the only issue appealed), the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the claim was part of the contract laws of the states, and one that does not interfere with the deregulatory purpose of the ADA. The Ninth Circuit rejected the airline's arguments that this implied common law claim impermissibly enlarges the contract's terms in contravention of the holding in Wolens, which expressly limits contract claims to those arising from the parties' "self-imposed undertakings." The court further held that the claim does not relate to the airline's "prices" and "services" and that the District Court used an "overly broad" definition that would effectively subsume all breach of contract claims.

On May 20, 2013, the Supreme Court granted certiorari on the issue...