Wednesday, 7 May 2014

US Supreme Court rules on airlines and consumer protection

One of my pet peeves has long been that the U.S. Federal government forbids states from enforcing most of their general consumer protection laws against airlines but fails to exercise its own Federal consumer protection authority against airlines.

The real source of the problem, I think, is the extremist laissez-faire attitude of the US Department of Transportation toward even the most egregious and fundamental forms of airline fraud, such as “codeshare” labeling that is designed to deceive passengers (and often succeeds in deceiving them) about which airlines will actually be operating the flights for which they are buying tickets.

The best solution would be for the President and/or the Secretary of Transportation to put people in charge of the DOT’s Aviation Consumer Protection Division who are serious about enforcing even those Federal consumer protection laws that airlines have grown accustomed to ignoring.

But state Attorneys General and state and local consumer protection agencies could pick up some of the slack left by Federal failure to police airline fraud, if states weren’t “preempted” from doing so by Federal law.

As long as the DOT does nothing at the Federal level, the limits of what rip-offs airlines can get away with are set by the limits of Federal preemption of state consumer protection law.

What are those limits? That was the question addressed last month by the Supreme Court in Northwest v. Ginsberg.

This was only the third Supreme Court decision since the enactment of the irline Deregulation Act of 1978 to consider the extent of Federal preemption of state regulation of airlines’ prices, routes, and services. The previous Supreme Court cases on this issue were Morales v. TWA, in which the Supreme Court struck down an effort by the Attorney General of Texas to enforce state truth-in-advertising laws against airlines, and American Airlines v. Wolens, in which the court found that while state consumer protection laws could not be applied to airlines, airlines could be sued in state courts for some breaches of contractual promises they made to consumers.

The exact basis for the Supreme Court’s decision last month in Northwest v. Ginsberg is a bit arcane, but there are some important lessons in the Court’s unanimous conclusions.

Northwest Airlines (now part of Delta Airlines) revoked Rabbi Binyomin Ginsberg’s elite status and membership in its frequent flyer program because he complained too much: “[Y]ou have contacted our office 24 times [in the last 6 months] regarding travel problems, including 9 incidents of your bag arriving late at the luggage carousel….”

Like all airlines, Northwest reserves the right to alter, abolish, or expel individuals from its frequent flyer program at any time, at its sole discretion, for any reason or no reason. That’s an important lesson to keep in mind: Frequent flyer mileage credits or elite status and associated privileges are not rights or “money in the bank”.

Rabbi Ginsberg sued, however, claiming that (a) Northwest had broken its contractual promises because Northwest’s frequent-flyer program rules didn’t give the airline unlimited discretion, and (b) “Northwest violated the duty [imposed by the applicable state law] of good faith and fair dealing because it terminated his membership in a way that contravened his reasonable expectations with respect to the manner in which Northwest would exercise its discretion.”

Rabbi Ginsberg took his case to the Supreme Court, and lost on all counts. But the Supreme Court gave other airline passengers two paths to redress of their grievances, although each requires the DOT to do more than it currently is doing to enforce existing Federal laws:

  1. With respect to breach of contract, the lower court found that Northwest hadn’t broken any contractual promises to Rabbi Ginsberg. The terms for its frequent-flyer program allowed it to terminate anyone’s membership at its discretion. But the Supreme Court reiterated that breach-of-contract claims against airlines can be pursued in state courts. That means you can sue an airline in small claims court, without a lawyer — if you can prove they didn’t keep their promises. That should be easy, since Federal law allows the sale of an airline ticket only if (a) the price is in accordance with a publicly-disclosed tariff specifying all the rules applicable to the fare, and (b) the airline provides the customer with a ticket (which typically specifies which portions of the tariff apply by means of a “fare basis” code which serves as a pointer to the tariff). If the airline sells tickets at off-tariff prices, or doesn’t make its tariff public, or doesn’t provide tickets that show which tariff provisions apply, the airline can make up the “rules” after the fact. This is one of the reasons it’s critical for the DOT to reject the airlines’ application for permission to replace published tariffs with personalized prices, and start enforcing the requirements for airlines to provide passengers with copies of their complete e-tickets (not just confirmation summaries) and access to complete tariffs.
  1. With respect to unfair and deceptive practices, there is no private right of action for consumers against airlines in Federal courts. But the Supreme Court reminded us all that, “Congress has given the Department of Transportation (DOT) the general authority to prohibit and punish unfair and deceptive practices in air transportation and in the sale of air transportation, 49 U. S. C. ยง41712(a), and Congress has specifically authorized the DOT to investigate complaints relating to frequent flyer programs.” The problem is that the DOT has generally turned a blind eye to the most serious and routine of such practices. Typically, DOT takes action on these issues (if at all) only when individuals force DOT’s hand by filing formal complaints (which DOT discourages and evades by categorizing letters intended as complaints as mere “general correspondence” with DOT). Preemption of state policing should serve to place responsibility for policing airlines squarely on the DOT. Neither deregulation nor preemption of state action shouldn’t be a “free pass” for airlines to engage in practices that would be illegal for any other business under state or Federal law, or both.

The person who’s been in charge of the DOT’s Aviation Consumer Protection Division since the Reagan Administration has recently retired. We’ll be watching closely to see if the new leadership of that office sets a new course toward fulfilling the responsibilities that it’s been neglecting throughout the decades since passage of the Airline Deregulation Act.

Link | Posted by Edward on Wednesday, 7 May 2014, 21:06 ( 9:06 PM)
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