George Lagen v. United Continental Holdings , 774 F.3d 1124 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-1375
GEORGE LAGEN, on behalf of himself
and all others similarly situated,
Plaintiff-Appellant,
v.
UNITED CONTINENTAL HOLDINGS, INC.,
and UNITED AIRLINES, INC.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 12 C 4056 — Harry D. Leinenweber, Judge.
____________________
ARGUED SEPTEMBER 8, 2014 — DECIDED DECEMBER 22, 2014
____________________
Before WOOD, Chief Judge, and POSNER and HAMILTON,
Circuit Judges.
WOOD, Chief Judge. A person could be forgiven for think-
ing that a “lifetime” benefit that can vanish in an instant is
an oxymoron. George Lagen spotted the problem when
United Airlines canceled some of the “lifetime” benefits he
had earned after he reached the exalted status of “Million-
2 No. 14-1375
Mile Flyer” on the airline. United took this step following its
merger with Continental Airlines. Lagen, a Million-Mile Fly-
er since 2006, responded with this lawsuit, in which he al-
leged that the reduction of benefits breached a contract gov-
erning Million-Mile Flyer rewards. The district court granted
summary judgment for United, finding that there was no
such contract between United and Lagen, apart from the
general agreement that governs United’s frequent flyer pro-
gram. The general agreement, Lagen concedes, gives United
the right to amend program benefits unilaterally whenever it
chooses. Lagen has appealed, but we find no error in the dis-
trict court’s analysis, and so we affirm.
I
MileagePlus, United’s frequent flyer program, allows
customers to collect rewards such as free flights and seat
upgrades in exchange for patronizing United. The Mile-
agePlus Program Rules (the Rules) govern the program. The
Rules have always allowed United to change the terms of the
MileagePlus program unilaterally and without notice. For
example, the 1993 version of the Rules states that “United
has the right to terminate the Program, or to change the Pro-
gram Rules, regulations, benefits, conditions of participation,
or mileage levels, in whole or in part, at any time with or
without notice … . United may, among other things, with-
draw, limit, modify, or cancel any award.” More recent ver-
sions of the Rules contain essentially the same language.
MileagePlus offers several Premier annual status levels, for
which customers qualify based on yearly mileage.
In 1997 United went one step beyond the various Premier
levels when it announced a new Million-Mile Flyer status in
No. 14-1375 3
its Friendly Skies Newsletter. This announcement reads in
its entirety:
New million-mile flyer reward. We are pleased
to announce an unprecedented reward for our
most loyal flyers: Lifetime Premier Executive
status. Mileage Plus members who have
earned a total of one million paid flight miles
on United will retain the benefits and privileg-
es of Premier Executive status for life, in
recognition of their loyalty to United.
Lifetime Premier Executive status was very attractive. In
1997, MileagePlus included three annual status levels. Cus-
tomers who had flown 50,000 miles in one year received so-
called Premier Executive status (the middle level) for the
next calendar year; as Premier Executives, they received
program credit representing the miles they actually flew
plus a 100% bonus on top of actual mileage. They also re-
ceived higher priority for upgrades. United later added two
annual regional upgrades and three one-time, system-wide
upgrades to the Million-Mile Flyer benefit package.
After United merged with Continental, it changed the
annual status levels: it added a fourth status and renamed
the tiers (Silver, Gold, Platinum, and 1K). This necessitated
the transition of the Million-Mile Flyers from the old Premier
Executive status to the new system. United decided that the
Premier Gold level was the proper equivalent, because it is
the level that requires 50,000 miles. It is not, however, quite
as good as the old Premier Executive: Gold is now the third-
highest status rather than the middle one, and Gold custom-
ers receive only a 50% bonus on miles flown, not 100%. In
addition, the new regime stripped away the regional and
4 No. 14-1375
system-wide upgrades that Million-Mile Flyers used to re-
ceive.
Lagen enrolled in MileagePlus in 1993 and became a Mil-
lion-Mile Flyer in 2006. He says that United’s Million-Mile
Flyer benefits, which were explained to him by United’s cus-
tomer-service personnel, mailers, and advertisements begin-
ning around 1997, induced him to switch his airline loyalty
from British Airways. The record supports this assertion:
Lagen had flown no more than 22,415 miles per year on
United flights prior to 1997, but he flew approximately
100,000 miles per year with United for the next decade.
Lagen, it is fair to say, was infuriated by the changes
United made after the merger to the Million-Mile Flyer pro-
gram. As we noted, he turned to the courts for help in this
diversity action for breach of contract. (He invokes the Class
Action Fairness Act, 28 U.S.C. § 1332(d)(2)(A), which re-
quires only minimal diversity.) He alleged that he and Unit-
ed had formed a contract through United’s unilateral offer to
give him lifetime benefits if he flew 1,000,000 miles on Unit-
ed flights and his acceptance of that offer by flying 1,000,000
miles. United breached this contract, Lagen charges, by ma-
terially reducing the lifetime benefits of Million-Mile Flyers.
After the parties filed cross motions for summary judgment,
the district court granted United’s motion, finding that no
rational trier of fact could conclude that United had a dis-
tinct Million-Mile Flyer program that was not part of Mile-
agePlus. Since the MileagePlus Program Rules plainly allow
United to reduce benefits on a whim, Lagen could not pre-
vail.
No. 14-1375 5
II
We review a district court’s grant of summary judgment
de novo, construing all facts and reasonable inferences in fa-
vor of the nonmoving party. See Huang v. Cont’l Cas. Co., 754
F.3d 447, 450 (7th Cir. 2014). The parties have assumed that
Illinois law governs this action, and so will we. In Illinois as
elsewhere, the first prerequisite to a successful breach of con-
tract claim is an obvious one: there must be a contract be-
tween the parties. See Zirp-Burnham, LLC v. E. Terrell Assocs.,
Inc., 826 N.E.2d 430, 439 (Ill. App. Ct. 2005). Lagen asserts
that he and United are parties to an independent contract for
Million-Mile Flyer benefits. United offered these lifetime
benefits to any member of the public who flew 1,000,000
miles with United. Acceptance for this unilateral offer, La-
gen reasons, occurs by performance. Lagen did just what
United asked: he racked up the required miles. United coun-
ters that no such contract arose. Instead, it argues, the Mil-
lion-Mile Flyer status is just another level of the MileagePlus
program and it is governed by that program’s rules.
Lagen points out that the MileagePlus Program Rules do
not expressly mention Million-Mile Flyers. This omission, he
asserts, demonstrates that Million-Mile Flyer benefits are not
part of MileagePlus. United draws the opposite inference; it
argues that the MileagePlus Program Rules do not mention
Million-Mile Flyers because Million-Mile Flyer benefits are
part and parcel of MileagePlus. Here is where Lagen begins
to encounter shaky ground. He agrees that the annual status
levels are part of MileagePlus, even though the versions of
the Rules placed into evidence do not expressly mention the
Premier program (in contrast to the current Rules). Thus, the
fact that the Rules do not mention Million-Mile Flyers (or
6 No. 14-1375
status levels) is inconclusive at best. All it shows is that the
Rules do not address every last detail of United’s loyalty
benefits.
Lagen’s position weakens further when we look at the
remainder of the evidence in the record. United advertise-
ments indicate that only MileagePlus members are eligible to
become Million-Mile Flyers. For example, the 1997 Friendly
Skies Newsletter states that the “[n]ew million-mile flyer
reward” is for “Mileage Plus members.” An email congratu-
lating new Million-Mile Flyers lists “United Mileage Plus” as
the sender and refers to MileagePlus terms and conditions.
United’s website places information about Million-Mile Fly-
er benefits under the umbrella of MileagePlus, and a cus-
tomer’s status as a Million-Mile Flyer is noted on her Mile-
agePlus member card.
Lagen has not submitted any evidence that would sup-
port a conclusion that Million-Mile Flyer benefits are sepa-
rate from MileagePlus. This leaves us with a record pointing
in only one direction: Million-Mile Flyer status is a benefit
that United introduced in 1997 as part of the existing Mile-
agePlus program. Because Lagen cannot show that United
made him an offer to enter into a contract separate from the
arrangement governing MileagePlus, Lagen cannot show a
breach of any such contract. Nor can he show a breach of the
MileagePlus Program Rules, because they have always al-
lowed United to tinker with all details of the program.
We close with a word about the common-sense argument
that Lagen presents and our dissenting colleague emphasiz-
es: that United must be accountable under some body of law
because its representation that it was bestowing “lifetime”
benefits on its Million-Mile flyers is irreconcilable with its
No. 14-1375 7
reserved right under the MileagePlus Program Rules to
modify and cancel those benefits at any time. This point does
not depend on the existence of a separate contract for Mil-
lion-Mile Flyer benefits. Instead, Lagen argues, it illustrates
United’s misleading—perhaps even fraudulent—advertising
practices. Unfortunately for Lagen, this argument runs
squarely into the Airline Deregulation Act of 1978 (ADA), 49
U.S.C. § 41713, which preempts any claim based on viola-
tions of state consumer protection law. See Am. Airlines, Inc.
v. Wolens, 513 U.S. 219, 228 (1995) (the ADA preempts claims
under the Illinois Consumer Fraud and Deceptive Business
Practices Act related to frequent flyer programs). See also
Northwest, Inc. v. Ginsberg, 134 S. Ct. 1422, 1432 (2014) (claim
for breach of state-imposed covenant of good faith and fair
dealing is preempted); Morales v. Trans World Airlines, Inc.,
504 U.S. 374, 378, 391 (1992) (the ADA “pre-empts the States
from prohibiting allegedly deceptive airline fare advertise-
ments through enforcement of their general consumer pro-
tection statutes”). Naturally, the ADA “does not give the air-
lines carte blanche to lie to and deceive consumers.” Morales,
504 U.S. at 390. What it does do, however, is channel griev-
ances of this type to the Department of Transportation,
which is authorized to regulate such activities. See id. at 391.
That may not be as satisfying as a private right of action for
the disappointed consumer, but that is the choice Congress
made.
Lagen was probably not the only customer to feel be-
trayed by United’s unilateral reduction of the benefits it
gives to Million-Mile flyers. But the question before us is
whether it is possible to address that betrayal through the
use of unilateral contract theory, and thereby avoid the
preemption rule of Wolens, Morales, and Ginsberg. In our
8 No. 14-1375
view, the answer is no. Courts could always re-characterize
advertisements and promotions as unilateral offers; there is
nothing in principle that separates United’s “lifetime bene-
fits” from other airlines’ ads relating to, say, increased leg
room or quicker boarding for loyal customers. If we were to
sanction the transformation of consumer fraud claims into
contract disputes in this way, we would fatally undermine
the statutory scheme, which dictates that consumer fraud
cases must be handled through the Department of Transpor-
tation. However bad United’s conduct may have been, it
must be addressed in the manner that Congress prescribed.
III
Lagen has not raised a genuine issue of material fact over
the question whether United made him an offer to form a
contract for a Million-Mile Flyer program that is separate
from MileagePlus. We therefore AFFIRM the judgment of the
district court.
No. 14-1375 9
HAMILTON, Circuit Judge, dissenting. United’s defense
here is that the airline’s very best customers—its Million Mile
Flyers—should have known better than to believe United’s
promise of “lifetime” benefits. This defense amounts to a
confession of consumer fraud. United could not—honestly
and legally—promise “lifetime” benefits while reserving the
right to cancel its promise at any time and for any reason.
While federal law protects airlines from state consumer
fraud laws, our court should not, as a matter of contract law,
endorse this deception. I respectfully dissent.
United ran its frequent flyer program, MileagePlus, sub-
ject to a reservation of rights. It could change or cancel the
benefits at any time for any reason. That reservation of rights
may be enforceable as applied to most benefits. But then in
1997, United invited its frequent flyers to aim higher, to seek
“lifetime” benefits as Million Mile Flyers: “Lifetime Premier
Executive status.”
Plaintiff Lagen flies a lot. He read the offer and started
flying primarily on United. By 2006, he reached one million
miles and qualified for United’s promised “lifetime” bene-
fits. United congratulated him warmly, and he enjoyed those
benefits for several years. But in 2010, in connection with its
merger with Continental Airlines, United changed its Mil-
lion Mile Flyer program in ways that Lagen contends have
diminished the rewards he had been promised.
We should reverse summary judgment for United. This
case presents a simple example of what the law calls either
an option contract (in the Restatement (Second) of Contracts)
or a unilateral contract (in the first Restatement of Con-
tracts). An offer of benefits was made. It was intended to in-
vite acceptance by conduct, and acceptance by conduct is
10 No. 14-1375
sufficient to form a binding contract. See, e.g., Restatement
(Second) of Contracts § 45 (1981) (“Where an offer invites an
offeree to accept by rendering a performance and does not
invite a promissory acceptance, an option contract is created
when the offeree tenders or begins the invited performance
or tenders a beginning of it.”); Restatement (First) of Con-
tracts § 45 (1932) (“If an offer for a unilateral contract is
made, and part of the consideration requested in the offer is
given or tendered by the offeree in response thereto, the of-
feror is bound by a contract … .”).
The facts here show the creation of such an option con-
tract. United offered “lifetime” benefits for customers who
bought enough tickets to add up to a million miles of travel.
Lagen saw the offer and switched from another airline to
United. His commitment to United, i.e., his performance that
United had invited with its offer, was substantial. It took him
nearly ten years and hundreds of thousands of dollars’
worth of United flights to accumulate the one million miles.
Lagen thus accepted the offer by his conduct.
He contends United then breached the contract that was
created. His theory of contract creation is correct, so this
lawsuit should focus on whether and to what extent the
changes in United’s “lifetime” benefits for Million Mile Fly-
ers have harmed Lagen and others in the class he seeks to
represent.
To avoid these basics of contract law, United relies on the
reservation of rights clause in its broader MileagePlus pro-
gram documents. It argues that Lagen’s status as a Million
Mile Flyer is merely one “status” under the broader Mile-
agePlus program. By its reasoning, the airline invokes its
right to change those “lifetime” benefits at any time and for
No. 14-1375 11
any reason, including cancelling them altogether. United
admitted as much in oral argument.
This is legal sophistry in defense of consumer fraud. Con-
tract law, however, provides a simple rebuttal. United’s
promise of lifetime benefits was obviously inconsistent with
its earlier reservation of rights. The later promise, which was
intended to and did induce reliance and acceptance by con-
duct, should trump the earlier reservation of rights by modi-
fying the contract. See generally Orth v. Wisconsin State Em-
ployees Union Council 24, 546 F.3d 868, 872 (7th Cir. 2008)
(contract can be modified by subsequent dealings giving rise
to inference of agreement to modify it); In re UAL Corp., 468
F.3d 456, 459 (7th Cir. 2006) (United was free to agree with
union to modify contract); Operating Engineers Local 139
Health Benefit Fund v. Gustafson Construction Corp., 258 F.3d
645, 649 (7th Cir. 2001) (under general common law princi-
ples, contract modification requires only consideration and
acceptance manifested with sufficient clarity). Lagen provid-
ed consideration for the modification by spending so much
money and flying so many miles on United, just as United
hoped he would. At the very least, a jury could find that a rea-
sonable customer would understand United to have meant
lifetime when it said “lifetime” and thus to have modified
the terms of its MileagePlus program accordingly.
It’s possible, of course, that United simply made an illu-
sory promise, as it argues in court, and that its customers
should have understood it was making only a false promise.
But that argument depends on a factual premise that sup-
ports conflicting inferences, so United is not entitled to
summary judgment.
12 No. 14-1375
Two elementary legal principles frame the factual dis-
pute. The first supports plaintiff Lagen. It’s the “elementary
principle that where a party publishes an offer to the world
and before it is withdrawn another acts upon it, the party
making the offer is bound to perform his promise.” Weather-
Gard Indus., Inc. v. Fairfield Sav. & Loan Ass'n, 248 N.E.2d 794,
798 (Ill. App. 1969), citing Restatement (First) of Contracts
§ 45. The second, urged by United, is that representations
made “without intent to create legal relations” do not consti-
tute an offer. McCarty v. Verson Allsteel Press Co., 411 N.E.2d
936, 943 (Ill. App. 1980), quoting Corbin on Contracts § 11
(1950).
Which principle controls here does not depend on Unit-
ed’s subjective intent. Contract law depends not on private
and unexpressed intentions but on objective expressions of
intent and agreement. E.g., Empro Mfg. Co. v. Ball-Co Mfg.,
Inc., 870 F.2d 423, 425 (7th Cir. 1989). The factual question
here is whether, under all the circumstances, a reasonable
person in Lagen’s position would have understood that
United intended to offer lifetime benefits or instead had re-
served the right to change its mind and was offering noth-
ing. Kolodziej v. Mason, — F.3d —, —, No. 14-10644, slip op.
at 9–11 (11th Cir. Dec. 18, 2014) (applying totality of circum-
stances test to decide whether defendant made serious offer
for option or unilateral contract).
A real promise of benefits, an offer, is “an act that leads
the offeree,” in this case Lagen, “reasonably to believe that a
power to create a contract is conferred upon him.” McCarty,
411 N.E.2d at 943, quoting Corbin on Contracts § 11. United’s
view is that no one in Lagen’s position could have reasona-
bly believed that the Million Mile Flyer promise was really
No. 14-1375 13
an offer to create a contract because any reasonable person
should have realized that the Million Mile Flyer promise was
subject to the reservation of rights in the MileagePlus pro-
gram. The majority endorses this view, seeing the factual
record as “pointing in only one direction.” But the evidence
the majority cites is not overwhelming. Ample evidence
supports a different inference.
The best facts for United are these: Only MileagePlus
members can qualify as Million Mile Flyers. A congratulato-
ry email to new Million Mile Flyers is sent from a “United
Mileage Plus” email address. Information about the Million
Mile Flyer program is found under the MileagePlus umbrel-
la on the United website. Lagen’s Million Mile Flyer status
was noted on his MileagePlus member card.
Perhaps those sparse facts might have led a legally so-
phisticated or hyper-vigilant customer to think that United
was not serious when it promised “lifetime” benefits. But the
legal test is how a reasonable customer would have inter-
preted the Million Mile Flyer promise in light of all the cir-
cumstances.
The most basic and powerful fact is the plain meaning of
the word United chose to attract plaintiff’s business: “life-
time.” That’s hard to reconcile with “until we change our
minds.” Another key fact is that none of the Million Mile
Flyer offers seem to have included even any warning aster-
isk and fine print telling readers that the airline did not actu-
ally mean “lifetime.” (This fact distinguishes this case from a
classic illustration of an illusory promise cited in the Re-
statement (Second). In Spooner v. Reserve Life Ins. Co., 287 P.2d
735, 738 (Wash. 1955), a bulletin announcing a yearly bonus
system for employees could not be construed as an offer for
14 No. 14-1375
an option contract when that same bulletin also told the em-
ployees “in plain English that the company could withhold
or decrease the bonus, with or without notice.”)
Also critical to the understanding of United’s offer are the
importance of an airline’s loyalty program, the importance of
its best customers, and the fact that one could earn Million
Mile Flyer status only by spending many years and a great
deal of money flying on United. This was an offer designed
to attract the best potential customers to shift a high volume
of their purchases to United. All of these facts make this case
easy to distinguish from the majority’s concerns about a
slippery slope leading to lawsuits about vague advertising
promises of more legroom or priority boarding.
And it’s not as if United’s promise was like that of a fly-
by-night carnival barker offering eternal happiness to any-
one who can knock over the bottles. United is a large and
seemingly respectable business with a legal staff that pre-
sumably reviews such marketing promises. It could be ex-
pected to level with its customers, or least to refrain from de-
liberately misleading them with a false promise of “lifetime”
benefits.
The majority and I agree that some extravagant promises
are not meant seriously as contract offers. A recent decision
by the Eleventh Circuit provides an example that makes for
a useful comparison. In Kolodziej v. Mason, — F.3d —, No. 14-
10644 (11th Cir. Dec. 18, 2014), a lawyer in a high-profile
murder case made an off-the-cuff statement in a television
interview: if someone could disprove his client’s alibi, “I’ll
pay them a million dollars.” A law student took up the chal-
lenge, claimed to have satisfied it, and demanded his million
dollars. The lawyer refused to pay. The Eleventh Circuit af-
No. 14-1375 15
firmed summary judgment for the lawyer, applying the
same standard of objective reasonableness discussed here.
The court found that “I’ll pay them a million dollars” was
just off-the-cuff and colloquial hyperbole, a figure of speech
to attack the prosecution’s theory rather than a serious offer
of a contract. — F.3d at —.
The facts here are of course quite different. United’s offer
of lifetime benefits was not at all off-the-cuff or a figure of
speech. Nor is a lifetime benefit exaggerated or unreasonable
for a customer who has flown a million miles on one airline.
Based on the facts here, a jury could find that a customer—
even one conscious of the reservation of rights in the more
general MileagePlus program—could reasonably conclude
that United’s offer of lifetime benefits to its best and most
loyal customers was actually intended to provide them with
lifetime benefits.
In most businesses, consumers victimized by the shabby
tactics United has embraced can turn to their states’ consum-
er protection statutes. Airlines are different. The Airline De-
regulation Act of 1978 preempts claims under state consum-
er protection laws. Morales v. Trans World Airlines, Inc., 504
U.S. 374 (1992). Part of the balance struck by that Act,
though, is that it allows customers to sue airlines for breach
of contracts, to enforce commitments that airlines have un-
dertaken voluntarily. American Airlines, Inc. v. Wolens, 513
U.S. 219, 230–33 (1995). That’s what we should do here. But if
courts are not willing to hold airlines to the commitments
they make, then loyal customers like Lagen must either
make enough noise to get the attention of United’s manage-
ment (perhaps CEO Jeff Smisek or General Counsel Brett
16 No. 14-1375
Hart) or turn to the United States Department of Transporta-
tion for relief.
United could have defended this lawsuit honorably. It
could have tried to show that it has in fact fulfilled its prom-
ise to plaintiff and other Million Mile Flyers. For now, how-
ever, we should reject the defense that the promise was
meaningless. We should reverse summary judgment in favor
of United and allow plaintiff to pursue his claims in the dis-
trict court.