Consumer Class Action Claims Relating to Expiration of Airline Gift Cards Held Preempted by Airline Deregulation Act
Two appellate courts, one in Ohio and the other in California, recently enforced the expiration dates for airline gift cards, holding that state law claims challenging their validity are preempted by the Airline Deregulation Act (ADA). The courts concluded that airline gift cards are governed by their contractually-defined expiration dates and are not protected by state consumer protection laws that mandate more generous periods of time or no expiration dates.
In Restivo v. Continental Airlines, Inc.,1 the plaintiffs brought a class action lawsuit against Continental Airlines alleging that the one-year expiration date on its gift cards violated the Ohio Gift Card Statute and Ohio Consumer Sales Practices Act. The action also asserted a claim for unjust enrichment. The lower court granted Continental's motion to dismiss, finding that the ADA preempted the plaintiffs' state law claims.2 The Ohio Court of Appeals affirmed on the basis that a gift card is related to the provision of an airline "service" because "its purpose and use is for the purchase of 'air travel or services' from the airline." Although the plaintiffs argued that the gift cards are the equivalent of money and represent a financial transaction, the court determined that the eventual purchase of an airline ticket with a gift card does not alter the fact that the transaction is related to the provision of air transportation. Indeed, no argument was made that the gift cards could be used for anything but air travel.3
Competition Is Impacted
The Ohio appeals court also determined that state law regulation in this area would have an impact on competition among airlines and was not peripheral to the ADA's goal of economic deregulation in the industry. It found persuasive the 2010 California Court of Appeals decision, Tanen v. Southwest Airlines Co.,4 which held that allowing state law claims, including alleged violations of state consumer protection and gift card laws, would result in substituting state government laws for "competitive market forces" in determining the kinds of travel certificates provided to customers. For example, to hold an airline subject to the California statutes would require it to offer "services"5 it did not want to provide – that is, a travel certificate with no expiration date. Such state law control over an airline's gift certificate program would lead to a "patchwork of state service-determining law, rules and regulations," which is inconsistent with Congress' legislative efforts to leave these decisions to the competitive marketplace.6
The Tanen court also drew an analogy to cases where passengers purchased non-refundable tickets but were unable to travel as planned. In those cases, the courts enforced the contract's terms, finding that the state law claims attempted to enlarge or enhance the consumer's agreement with the airlines based on laws or policies external to the agreements.7 In Tanen, the contract between the plaintiffs and Southwest likewise contained unambiguous language limiting travel to one year from the date of purchase. Accordingly, the court enforced the contractually-imposed terms and held preempted any claims that attempted to expand the airline's obligations under the contract.8
1 __ N.E.2d __, 2011 WL 287019 (Ohio App. Jan. 20, 2011).
3 The court noted that the federal Credit Card Act of 2009, which inter alia prohibits expiration dates of less than five years for certain gift cards (and arguably applies to the type of airline gift card in this case), did not control here because the card at issue pre-dated the effective date of the subject legislation (i.e., August 22, 2010). Additionally, the court affirmed dismissal of the plaintiffs' unjust enrichment claim because a valid contract existed and there was no showing of fraud, bad faith or illegality.
5 Compare Charas v. Trans World Airlines, 160 F.3d 1259, 1264 (9th Cir. 1998) ("service" refers to the prices, schedules, origins and destinations of the point-to-point transportation of passengers, cargo or mail); Taj Majal Travel, Inc. v. Delta Airlines, Inc., 164 F.3d 186, 194 (3d Cir. 1998) (agreeing with Charas) with Hodges v. Delta Airlines, Inc., 44 F.3d 334, 336 (5th Cir. 1995) (air carrier services include ticketing, boarding procedures, provision of food and drink, baggage handling and the transportation itself); Travel All Over the World v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1433 (7th Cir. 1996) (same) with Air Transport Ass'n of Am., Inc. v. Cuomo, 520 F.3d 218, 223 (2d Cir. 2008) (rejecting Charas and holding that provision of food, water, electricity and restrooms to passengers during lengthy ground delays relates to the service of an air carrier). Notwithstanding the differences among these approaches, the California appeals court concluded that "nearly all have grounded their analyses in the effects on competition of the particular state laws at issue, deeming preempted those claims that substitute state regulation for competitive market forces."