Northwest, Inc. v. Ginsberg ( 2014 )

(Slip Opinion) OCTOBER TERM, 2013 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
NORTHWEST, INC., ET AL. v. GINSBERG
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
No. 12–462. Argued December 3, 2013—Decided April 2, 2014
Petitioner Northwest, Inc., terminated respondent’s membership in its
frequent flyer program, apparently based on a provision in the fre-
quent flyer agreement that gave Northwest sole discretion to deter-
mine whether a participant had abused the program. Respondent
filed suit, asserting, as relevant here, that Northwest had breached
its contract by revoking his membership status without valid cause
and had violated the duty of good faith and fair dealing because it
terminated his membership in a way that contravened his reasonable
expectations. The District Court found that the Airline Deregulation
Act of 1978 (ADA) pre-empted the breach of the duty of good faith
and fair dealing claim and dismissed the breach of contract claim
without prejudice. Respondent appealed only the dismissal of his
breach of the duty of good faith and fair dealing claim. The Ninth
Circuit reversed, finding that claim “ ‘too tenuously connected to air-
line regulation to trigger’ ” ADA pre-emption.
Held:
1. The ADA pre-empts a state-law claim for breach of the implied
covenant of good faith and fair dealing if it seeks to enlarge the con-
tractual obligations that the parties voluntarily adopt. Pp. 4–10.
(a) Before the ADA was enacted, air carriers’ routes, rates, and
services were regulated under the Federal Aviation Act of 1958. And
because that Act contained a saving provision preserving pre-existing
statutory and common-law remedies, air carriers were also regulated
by the States. The ADA did not repeal that saving provision, but it
did include a pre-emption provision to prohibit States from “en-
act[ing] or enforc[ing] a law, regulation, or other provision having the
force and effect of law related to [an air carrier’s] price, route, or ser-
vice,” 49 U. S. C. §41713(b)(1), thus ensuring that “States would not
2 NORTHWEST, INC. v. GINSBERG
Syllabus
undo federal deregulation with regulation of their own,” Morales v.
Trans World Airlines, Inc., 504 U. S. 374, 378. In Morales, the Court
recognized that the key phrase “related to” expresses a “broad pre-
emptive purpose,” id., at 383, and held that the ADA pre-empted the
use of state consumer protection laws to regulate airline advertising,
concluding that “relat[es] to” means “ha[s] a connection with, or ref-
erence to, airline ‘rates, routes, or services,’ ” id., at 384. And in
American Airlines, Inc. v. Wolens, 513 U. S. 219, the Court found that
the ADA pre-empted the use of an Illinois consumer law to challenge
an airline’s devaluation of frequent flyer earned miles. But it did not
pre-empt breach of contract claims because “terms and conditions air-
lines offer and passengers accept are privately ordered obligations”
not “ ‘a State’s “enact[ment] or enforce[ment] [of] any law, rule, regu-
lation, standard, or other provision having the force and effect of law”
within the [pre-emption provision’s] meaning.’ ” Id., at 228–229.
Pp. 4–6.
(b) The phrase “other provision having the force and effect of
law” includes state common-law rules like the implied covenant at is-
sue. Common-law rules are routinely called “provisions,” see, e.g.,
Madsen v. Women’s Health Center, Inc., 512 U. S. 753, 765, n. 3, and
they clearly have “the force and effect of law.” The pre-emption pro-
vision’s original language confirms this understanding. As first en-
acted, the provision also applied to “rule[s]” and “standard[s],” a for-
mulation encompassing common-law rules. See CSX Transp., Inc. v.
Easterwood, 507 U. S. 658, 664. And Congress made clear that the
deletion of those terms as part of Title 49’s wholesale recodification
effected no “substantive change.” §1(a), 108 Stat. 745.
Respondent’s reliance on Sprietsma v. Mercury Marine, 537 U. S.
51, is misplaced. There, the Court held that the Federal Boat Safety
Act of 1971 did not pre-empt a common-law tort claim, but that Act’s
pre-emption provision is more narrowly worded than the ADA provi-
sion. The Boat Safety Act’s saving and pre-emption provisions were
also enacted at the same time, while the Federal Aviation Act’s gen-
eral remedies saving clause is “a relic of the pre-ADA/no pre-emption
regime,” Morales, 504 U. S., at 385, that “cannot be allowed to super-
sede the specific substantive pre-emption provision,” ibid.Exempting common-law claims would also disserve the ADA’s cen-
tral purpose, which was to eliminate federal regulation of rates,
routes, and services so they could be set by market forces. Finally, if
all state common-law rules fell outside the pre-emption provision’s
ambit, Wolens would not have singled out a subcategory, for common-
law claims based on the parties’ voluntary undertaking, as falling
outside that provision’s coverage. Pp. 6–9.
(c) Respondent’s claim “relates to” “rates, routes, or services.” It
Cite as: 572 U. S. ____ (2014) 3
Syllabus
clearly has “a connection with or reference to airline” prices, routes,
or services, Morales, 504 U. S., at 384. As in Wolens, Northwest’s
program connects to the airline’s “rates” by awarding mileage credits
redeemable for tickets and upgrades, thus eliminating or reducing
ticket prices. It also connects to “services,” i.e., access to flights and
higher service categories. Respondent’s counterarguments are un-
persuasive. His claim that he is contesting his termination, not ac-
cess to flights or upgrades, ignores his reason for seeking reinstate-
ment: to obtain reduced rates and enhanced services. Although
respondent and amici claim there have been fundamental changes in
the way that frequent flyer miles are earned since Wolens was decid-
ed, that does not matter here where respondent did not assert that he
earned miles from any activity but taking flights or that he attempt-
ed to redeem miles for anything but tickets and upgrades. Pp. 9–10.
2. Because respondent’s implied covenant claim seeks to enlarge
his contractual agreement with petitioners, it is pre-empted by
§41713(b)(1). Under Minnesota law, which controls here, the implied
covenant must be regarded as a state-imposed obligation. Minnesota
law does not permit parties to contract out of the covenant. And
when a State’s law does not authorize parties to free themselves from
the covenant, a breach of covenant claim is pre-empted under Wolens.
As an independent basis for this conclusion, if, as Minnesota law pro-
vides, the implied covenant applies to “every contract” except em-
ployment contracts for “policy reasons,” then the decision not to ex-
empt other types of contracts must likewise be based on a policy
determination, namely, that the policy reason for the employment
contract rule does not apply in other contexts.
Petitioners claim that the refusal to pre-empt all implied covenant
claims, regardless of state law, will lead to a patchwork of rules that
will frustrate the ADA’s deregulatory aim. But airlines can avoid
such a result if they contract out of covenants where permitted by
state law. Nor are participants in frequent flyer programs left with-
out protection. They can avoid an airline with a poor reputation and
possibly enroll in a more favorable rival program. Moreover, the De-
partment of Transportation has the authority to investigate com-
plaints about frequent flyer programs. Finally, respondent might
have been able to vindicate his claim of ill treatment by Northwest
had he appealed his breach of contract claim. Pp. 10–14.
695 F. 3d 873, reversed and remanded.
ALITO, J., delivered the opinion for a unanimous Court.
Cite as: 572 U. S. ____ (2014) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash­
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 12–462
_________________
NORTHWEST, INC., ET AL., PETITIONERS v. RABBI S.
BINYOMIN GINSBERG
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[April 2, 2014]
JUSTICE ALITO delivered the opinion of the Court.
We must decide in this case whether the Airline Deregu­
lation Act pre-empts a state-law claim for breach of the
implied covenant of good faith and fair dealing. Following
our interpretation of the Act in American Airlines, Inc. v.
Wolens, 513 U. S. 219 (1995), we hold that such a claim is
pre-empted if it seeks to enlarge the contractual obliga­
tions that the parties voluntarily adopt. And because the
doctrine is invoked in the present case in an attempt to
expand those obligations, we reverse the judgment of the
Court of Appeals.
I
A
Like many airlines, petitioner Northwest, Inc. (North­
west), established a frequent flyer program, its World-
Perks Airline Partners Program, to attract loyal cus­
tomers. Under this program, members are able to earn
“miles” by taking flights operated by Northwest and other
“partner” airlines. Members can then redeem these miles
for tickets and service upgrades with Northwest or its
airline partners.
2 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
Respondent became a member of Northwest’s World-
Perks program in 1999, and as a result of extensive
travel on Northwest flights, he achieved “Platinum Elite”
status (the highest level available) in 2005.
In 2008, however, Northwest terminated respondent’s
membership, apparently in reliance on a provision of the
WorldPerks agreement that provided that “[a]buse of the . . .
program (including . . . improper conduct as determined
by [Northwest] in its sole judgment[ ) ] . . . may result in
cancellation of the member’s account.” App. 64–65. Ac­
cording to respondent, a Northwest representative tele­
phoned him in June 2008 and informed him that his
“Platinum Elite” status was being revoked because he had
“ ‘abused’ ” the program. Id., at 35. In a letter sent about
two weeks later, Northwest wrote:
“[Y]ou have contacted our office 24 times since De­
cember 3, 2007 regarding travel problems, including
9 incidents of your bag arriving late at the luggage
carousel. . . .
. . . . .
“ Since December 3, 2007, you have continually asked
for compensation over and above our guidelines. We
have awarded you $1,925.00 in travel credit vouchers,
78,500 WorldPerks bonus miles, a voucher extension
for your son, and $491.00 in cash reimbursements. . . .
“ Due to our past generosity, we must respectfully
advise that we will no longer be awarding you com­
pensation each time you contact us.” Id., at 58–59.
Respondent requested clarification of his status, but a
Northwest representative sent him an e-mail stating that
“[a]fter numerous conversations with not only the Legal
Department, but with members of the WorldPerks de­
partment, I believe your status with the program should
be very clear.” Id., at 60.
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Opinion of the Court
B
Alleging that Northwest had ended his membership as
a cost-cutting measure tied to Northwest’s merger with
Delta Air Lines, respondent filed a class action in the
United States District Court for the Southern District of
California on behalf of himself and all other similarly
situated WorldPerks members. Respondent’s complaint
asserted four separate claims.1 First, his complaint al­
leged that Northwest had breached its contract by re­
voking his “Platinum Elite” status without valid cause.
Second, the complaint claimed that Northwest violated the
duty 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 North­
west would exercise its discretion. Third, the complaint
asserted a claim for negligent misrepresentation, and
fourth, the complaint alleged intentional misrepresenta­
tion. Respondent sought damages in excess of $5 million,
as well as injunctive relief requiring Northwest to restore
the class members’ WorldPerks status and prohibiting
Northwest from future revocations of membership.
The District Court held that respondent’s claims for
breach of the covenant of good faith and fair dealing,
negligent misrepresentation, and intentional misrepresen­
tation were pre-empted by the Airline Deregulation Act of
1978 (ADA or Act) as amended, 49 U. S. C. §41713. These
claims, the court concluded, were “relate[d] to” North­
west’s rates and services and thus fell within the ADA’s
express pre-emption clause. App. to Pet. for Cert. 69.
Respondent’s remaining claim—for breach of contract—
——————
1 Applying California choice-of-law rules, the District Court held that
Minnesota law applies because respondent “was a resident of Minneap­
olis, appears to fly in and out of Minnesota, and Northwest’s principal
place of business is Minnesota.” App. to Pet. for Cert. 70. That deter­
mination was not challenged on appeal.
4 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
was dismissed without prejudice under Federal Rule of
Civil Procedure 12(b)(6). The court held that respondent
had failed to identify any material breach because the
frequent flyer agreement gave Northwest sole discretion to
determine whether a participant had abused the program.
Respondent appealed the dismissal of his breach of the
duty of good faith and fair dealing claim but not the other
claims that the court had dismissed.
The Ninth Circuit reversed. 695 F. 3d 873 (2012).
Relying on pre-Wolens Circuit precedent, the Ninth Cir­
cuit first held that a breach of implied covenant claim is
“ ‘too tenuously connected to airline regulation to trigger
preemption under the ADA.’ ” 695 F. 3d, at 879. Such
a claim, the Ninth Circuit wrote, “does not interfere with
the [Act’s] deregulatory mandate” and does not “ ‘force
the Airlines to adopt or change their prices, routes or
services—the prerequisite for . . . preemption.’ ” Id., at 880.
In addition, the Court held that the covenant of good faith
and fair dealing does not fall within the terms of the Act’s
pre-emption provision because it does not have a “direct
effect” on either “prices” or “services.” Id., at 877, 881.
We granted certiorari. 569 U. S. ___ (2013).
II
A
Before the enactment of the ADA, the Federal Aviation Act
of 1958 empowered the Civil Aeronautics Board to regulate
the interstate airline industry. Pursuant to this authority,
the Board closely regulated air carriers, controlling, among
other things, routes, rates, and services. See, e.g., Western
Air Lines, Inc. v. CAB, 347 U. S. 67 (1954); Federal Aviation
Act of 1958, 72 Stat. 731. And since the Federal Aviation Act
contained a saving provision preserving pre-existing statu­
tory and common-law remedies, §1106, id., at 798, air carriers
were also regulated by the States. See Morales v. Trans
World Airlines, Inc., 504 U. S. 374, 378 (1992).
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Opinion of the Court
In 1978, however, Congress enacted the ADA, which
sought to promote “efficiency, innovation, and low prices”
in the airline industry through “maximum reliance on
competitive market forces and on actual and potential
competition.” 49 U. S. C. §§40101(a)(6), (12)(A). While the
ADA did not repeal the predecessor law’s saving provision,
it included a pre-emption provision in order to “ensure
that the States would not undo federal deregulation with
regulation of their own.” Morales supra, at 378. In its
current form, this provision states that “a State, political
subdivision of a State, or political authority of at least 2
States may not enact or enforce a law, regulation, or other
provision having the force and effect of law related to a
price, route, or service of an air carrier that may provide
air transportation under this subpart.” §41713(b)(1).
We have had two occasions to consider the ADA’s pre­
emptive reach. In Morales, we held that the ADA
pre-empted the use of state consumer protection laws to
regulate airline advertising. We recognized that the key
phrase “related to” expresses a “broad pre-emptive pur­
pose.” 504 U. S., at 383. Noting our interpretation of
similar language in the pre-emption provision of the Em­
ployee Retirement and Income Security Act of 1974, 29
U. S. C. §1144(a), we held that a claim “relat[es] to rates,
routes, or services,” within the meaning of the ADA, if the
claim “ha[s] a connection with, or reference to, airline
‘rates, routes, or services.’ ” 504 U. S., at 384. The older
saving provision, we concluded, did not undermine this
conclusion. Id., at 384–385.
Subsequently, in American Airlines, Inc. v. Wolens, 513
U. S. 219 (1995), we considered the application of the ADA
pre-emption provision to two types of claims concerning an
airline’s frequent flyer program: first, claims under the
Illinois Consumer Fraud and Deceptive Business Practices
Act challenging an airline’s devaluation of earned miles
(chiefly as the result of the imposition of “blackout dates”
6 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
and limits on the number of seats available for customers
wishing to obtain tickets by using those miles) and, sec­
ond, breach of contract claims. We reaffirmed Morales’
broad interpretation of the ADA pre-emption provision
and held that this provision barred the claims based on
the Illinois statute but not the breach-of-contract claims.
“[T]erms and conditions airlines offer and passengers
accept,” we wrote, “are privately ordered obligations and
thus do not amount to a State’s ‘enact[ment] or en­
force[ment] [of] any law, rule, regulation, standard, or
other provision having the force and effect of law’ within
the meaning of [the ADA pre-emption provision].” 513
U. S., at 228–229.
With this background in mind, we turn to the question
whether the ADA pre-empts respondent’s claim for breach
of the implied covenant of good faith and fair dealing.
B
The first question we address is whether, as respondent
now maintains, the ADA’s pre-emption provision applies
only to legislation enacted by a state legislature and regu­
lations issued by a state administrative agency but not to
a common-law rule like the implied covenant of good faith
and fair dealing. We have little difficulty rejecting this
argument.
To begin, state common-law rules fall comfortably with­
in the language of the ADA pre-emption provision. As
noted above, the current version of this provision applies
to state “law[s], regulation[s], or other provision[s] having
the force and effect of law,” 49 U. S. C. §41713(b)(1). It is
routine to call common-law rules “provisions.” See, e.g.,
Madsen v. Women’s Health Center, Inc., 512 U. S. 753,
765, n. 3 (1994); United States v. Barnett, 376 U. S. 681,
689–700 (1964); Brown v. United Airlines, Inc., 720 F. 3d
60, 68 (CA1 2013) (“[W]hen read in context, the word
‘provision’ in the ADA preemption provision can most
Cite as: 572 U. S. ____ (2014) 7
Opinion of the Court
appropriately be construed to include common law”). And
a common-law rule clearly has “the force and effect of
law.” In Wolens, we noted that this phrase is most natu­
rally read to “ ‘refe[r] to binding standards of conduct that
operate irrespective of any private agreement,’ ” 513 U. S.,
at 229, n. 5, and we see no basis for holding that such
standards must be based on a statute or regulation as
opposed to the common law.
This understanding becomes even clearer when the
original wording of the pre-emption provision is taken into
account. When first enacted in 1978, this provision also
applied to “rule[s]” and “standard[s],” and there surely can
be no doubt that this formulation encompassed common­
law rules. Indeed, we held in CSX Transp., Inc. v. East-
erwood, 507 U. S. 658, 664 (1993), that virtually identical
language in the Federal Railroad Safety Act of 1970 in­
cludes “[l]egal duties imposed . . . by the common law.”
See also Riegel v. Medtronic, Inc., 552 U. S. 312, 324
(2008) (holding that a State’s “ ‘requirements’ ” “includ[e]
[the state’s] common-law duties”).
While “rule[s]” and “standard[s]” are not mentioned in
the current version of the statute, this omission is the
result of a recodification that was not meant to affect the
provision’s meaning. Those additional terms were deleted
as part of a wholesale recodification of Title 49 in 1994,
but Congress made it clear that this recodification did not
effect any “substantive change.” § 1(a), 108 Stat. 745.
In arguing that common-law rules fall outside the scope
of the ADA pre-emption provision, respondent relies on
our decision in Sprietsma v. Mercury Marine, 537 U. S. 51(2002), which held that the Federal Boat Safety Act of
1971 did not pre-empt a common-law tort claim, but there
are critical differences between the pre-emption provisions
in the Boat Safety Act and the ADA. The Boat Safety Act
provision applies only to “a law or regulation,” 46 U. S. C.
§4306, whereas the ADA provision, as just explained, is
8 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
much more broadly worded.
In addition, the relationship between the ADA’s pre­
emption provision and the saving provision carried over
from the prior law is also quite different. The Sprietsma
decision placed substantial weight on the Boat Safety Act’s
saving provision, which was enacted at the same time as
the pre-emption provision, but we have described the
Federal Aviation Act saving clause as “a relic of the pre­
ADA/no pre-emption regime.” Morales, 504 U. S., at 385.
That provision applies to the entire, sprawling Federal
Aviation Act, and not just to the ADA, and as we held in
Morales, this “general ‘remedies’ saving clause cannot be
allowed to supersede the specific substantive pre-emption
provision.” Ibid. See also Wolens, supra, at 245(O’Connor, J., concurring in judgment in part and dissent­
ing in part). For these reasons, respondent’s interpreta­
tion of the ADA pre-emption provision cannot be squared
with the provision’s terms.
Exempting common-law claims would also disserve the
central purpose of the ADA. The Act eliminated federal
regulation of rates, routes, and services in order to allow
those aspects of air transportation to be set by market
forces, and the pre-emption provision was included to pre­
vent the States from undoing what the Act was meant to
accomplish. Morales, supra, at 378. What is important,
therefore, is the effect of a state law, regulation, or provi­
sion, not its form, and the ADA’s deregulatory aim can be
undermined just as surely by a state common-law rule as it
can by a state statute or regulation. See Medtronic, Inc.,
supra, at 325 (recognizing that state tort law that imposes
certain requirements would “disrup[t] the federal scheme
no less than state regulatory law to the same effect”). As
the First Circuit has recognized, “[i]t defies logic to think
that Congress would disregard real-world consequences and
give dispositive effect to the form of a clear intrusion into a
federally regulated industry.” Brown, 720 F. 3d, at 66–67.
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Opinion of the Court
Finally, if all state common-law rules fell outside the
ambit of the ADA’s pre-emption provision, we would have
had no need in Wolens to single out a subcategory of common­
law claims, i.e., those based on the parties’ voluntary under­
taking, as falling outside that provision’s coverage.
Accordingly, we conclude that the phrase “other provi­
sion having the force and effect of law” includes common­
law claims.
C
We must next determine whether respondent’s breach of
implied covenant claim “relates to” “rates, routes, or ser­
vices.” A claim satisfies this requirement if it has “a con­
nection with, or reference to, airline” prices, routes, or
services, Morales, supra, at 384, and the claim at issue
here clearly has such a connection. That claim seeks
respondent’s reinstatement in Northwest’s frequent flyer
program so that he can access the program’s “valuable . . .
benefits,” including “flight upgrades, accumulated mile­
age, loyalty program status or benefits on other airlines,
and other advantages.” App. 49–50.
Like the frequent flyer program in Wolens, the North­
west program is connected to the airline’s “rates” because
the program awards mileage credits that can be redeemed
for tickets and upgrades. See 513 U. S., at 226. When
miles are used in this way, the rate that a customer pays,
i.e., the price of a particular ticket, is either eliminated or
reduced. The program is also connected to “services,” i.e.,
access to flights and to higher service categories. Ibid.Respondent argues that his claim differs from the
claims in Wolens because he “does not challenge access to
flights and upgrades or the number of miles needed to
obtain air tickets” but instead contests “the termination of
his WorldPerks elite membership,” Brief for Respondent
12, but this argument ignores respondent’s reason for
seeking reinstatement of his membership, i.e., to obtain
10 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
reduced rates and enhanced services. Respondent’s prof­
fered distinction has no substance.
Respondent and amici suggest that Wolens is not control­
ling because frequent flyer programs have fundamentally
changed since the time of that decision. We are told that
“most miles [are now] earned without consuming airline
services” and are “spent without consuming airline ser­
vices.” Brief for State of California et al. 18 (emphasis
deleted). But whether or not this alleged change might
have some impact in a future case, it is not implicated here.
In this case, respondent did not assert that he earned his
miles from any activity other than taking flights or that he
attempted to redeem miles for anything other than tickets
and upgrades. See Tr. of Oral Arg. 47–48.
III
With these preliminary issues behind us, we turn to the
central issue in this case, i.e., whether respondent’s im­
plied covenant claim is based on a state-imposed obliga­
tion or simply one that the parties voluntarily undertook.
Petitioners urge us to hold that implied covenant claims
are always pre-empted, and respondent suggests that such
claims are generally not pre-empted, but the reasoning of
Wolens neither dooms nor spares all such claims.
While most States recognize some form of the good faith
and fair dealing doctrine, it does not appear that there is
any uniform understanding of the doctrine’s precise mean­
ing. “[T]he concept of good faith in the performance of
contracts ‘is a phrase without general meaning (or mean­
ings) of its own.’ ” Tymshare, Inc. v. Covell, 727 F. 2d
1145, 1152 (CADC 1984) (Scalia, J.) (quoting Summers,
“Good Faith” in General Contract Law and the Sales
Provisions of the Uniform Commercial Code, 54 Va. L.
Rev. 195, 201 (1968)); see also Burton, Breach of Contract
and the Common Law Duty to Perform in Good Faith, 94
Harv. L. Rev. 369, 371 (1980). Of particular importance
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Opinion of the Court
here, while some States are said to use the doctrine “to
effectuate the intentions of parties or to protect their rea­
sonable expectations,” ibid., other States clearly em-
ploy the doctrine to ensure that a party does not “ ‘violate
community standards of decency, fairness, or reasonable­
ness.’ ” Universal Drilling Co., LLC v. R & R Rig Service,
LLC, 2012 WY 31, 37, 271 P. 3d 987, 999; DDP Roofing
Services, Inc. v. Indian River School Dist., 2010 WL
4657161, *3 (Del. Super. Ct., Nov. 16, 2010); Allworth v.
Howard Univ., 890 A. 2d 194, 201–202 (D. C. 2006);
Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping
Center Assocs., 182 N. J. 210, 224, 864 A. 2d 387, 395-396
(2005); Harper v. Healthsource New Hampshire, 140 N. H.
770, 776, 674 A. 2d 962, 965–966 (1996); Borys v. Josada
Builders, Inc., 110 Ill. App. 3d 29, 32–33, 441 N. E. 2d
1263, 1265–1266 (1982); Restatement (Second) of Con­
tracts §205, Comment a (1979). See also Summers, The
General Duty of Good Faith—Its Recognition and Concep­
tualization, 67 Cornell L. Rev. 810, 812 (1982).
Whatever may be the case under the law of other juris­
dictions, it seems clear that under Minnesota law, which is
controlling here, see n. 1, supra, the implied covenant
must be regarded as a state-imposed obligation.2 Re­
——————
2 Like Minnesota, some other States preclude a party from waiving
the obligations of good faith and fair dealing. Hunter v. Wilshire Credit
Corp., 927 So. 2d 810, 813, n. 5 (Ala. 2005); Smith v. Anchorage School
Dist., 240 P. 3d 834, 844 (Alaska 2010); Wells Fargo Bank v. Arizona
Laborers, Teamsters & Cement Masons Local No. 395, 201 Ariz. 474,
491, 38 P. 3d 12, 29 (2002); Habetz v. Condon, 224 Conn. 231, 238, 618
A. 2d 501, 505 (1992); Dunlap v. State Farm Fire & Cas. Co., 878 A. 2d
434, 442 (Del. 2005); Hill v. Medlantic Health Care Group, 933 A. 2d
314, 333 (D. C. 2007); Chase Manhattan Bank, N. A. v. Keystone Dis-
tributers, Inc., 873 F. Supp. 808, 815 (SDNY 1994); Magruder Quarry &
Co., LLC v. Briscoe, 83 S. W. 3d 647, 652 (Mo. App. 2002) (“When terms
are present that directly nullify the implied covenants of good faith and
reasonable efforts, . . . the contract is void for lack of mutuality”);
Gillette v. Hladky Constr., Inc., 2008 WY 134, ¶31, 196 P. 3d 184, 196.
12 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
spondent concedes that under Minnesota law parties
cannot contract out of the covenant. See Tr. of Oral Arg.
33–34; see also In re Hennepin Cty. 1986 Recycling Bond
Litigation, 540 N. W. 2d 292, 502 (Minn. 1995); Sterling
Capital Advisors, Inc. v. Herzog, 575 N. W. 2d 121, 125
(Minn. App. 1998); Minnwest Bank Central v. Flagship
Properties LLC, 689 N. W. 2d 295, 303 (Minn. App. 2004).
And as a leading commentator has explained, a State’s
“unwillingness to allow people to disclaim the obligation of
good faith . . . shows that the obligation cannot be implied,
but is law imposed.” 3A A. Corbin, Corbin on Contracts
§654A, p. 88 (L. Cunningham & A. Jacobsen eds. Supp.
1994). When the law of a State does not authorize parties
to free themselves from the covenant, a breach of covenant
claim is pre-empted under the reasoning of Wolens.
Another feature of Minnesota law provides an addition­
al, independent basis for our conclusion. Minnesota law
holds that the implied covenant applies to “every con­
tract,” In re Hennepin Cty., supra, at 502, with the notable
exception of employment contracts. Hunt v. IBM Mid
America Employees Fed. Credit Union, 384 N. W. 2d 853,
857–858 (Minn. 1986). The exception for employment
contracts is based, in significant part, on “policy reasons,”
id., at 858, and therefore the decision not to exempt other
types of contracts must be based on a policy determina­
tion, namely, that the “policy reasons” that support the
rule for employment contracts do not apply (at least with
——————
But other States permit a party to contract out of the duties imposed
by the implied covenant. Steiner v. Thexton, 48 Cal. 4th 411, 419–420,
226 P. 3d 359, 365 (2010) (“ ‘ “The general rule [regarding the covenant
of good faith] is plainly subject to the exception that the parties may, by
express provisions of the contract grant the right to engage in the very
acts and conduct which would otherwise have been forbidden by an
implied covenant of good faith and fair dealing” ’ ”); Shawver v. Huckle-
berry Estates, LLC, 140 Idaho 354, 362, 93 P. 3d 685, 693 (2004); Farm
Credit Servs. of Am. v. Dougan, 2005 SD 94, ¶10, 704 N. W. 2d 24, 28.
Cite as: 572 U. S. ____ (2014) 13
Opinion of the Court
the same force) in other contexts. When the application of
the implied covenant depends on state policy, a breach
of implied covenant claim cannot be viewed as simply an
attempt to vindicate the parties’ implicit understanding of
the contract.
For these reasons, the breach of implied covenant claim
in this case cannot stand, but petitioners exhort us to go
further and hold that all such claims, no matter the con­
tent of the law of the relevant jurisdiction, are pre-empted.
If pre-emption depends on state law, petitioners warn,
airlines will be faced with a baffling patchwork of rules,
and the deregulatory aim of the ADA will be frustrated.
But the airlines have means to avoid such a result. A
State’s implied covenant rules will escape pre-emption
only if the law of the relevant State permits an airline to
contract around those rules in its frequent flyer program
agreement, and if an airline’s agreement is governed by
the law of such a State, the airline can specify that the
agreement does not incorporate the covenant. While the
inclusion of such a provision may impose transaction costs
and presumably would not enhance the attractiveness of
the program, an airline can decide whether the benefits of
such a provision are worth the potential costs.
Our holding also does not leave participants in frequent
flyer programs without protection. The ADA is based on
the view that the best interests of airline passengers are
most effectively promoted, in the main, by allowing the
free market to operate. If an airline acquires a reputation
for mistreating the participants in its frequent flyer pro­
gram (who are generally the airline’s most loyal and valu­
able customers), customers can avoid that program and
may be able to enroll in a more favorable rival program.
Federal law also provides protection for frequent flyer
program participants. Congress has given the Depart­
ment of Transportation (DOT) the general authority to
prohibit and punish unfair and deceptive practices in air
14 NORTHWEST, INC. v. GINSBERG
Opinion of the Court
transportation and in the sale of air transportation, 49
U. S. C. §41712(a), and Congress has specifically author­
ized the DOT to investigate complaints relating to fre­
quent flyer programs. See FAA Modernization and
Reform Act of 2012, §408(6), 126 Stat. 87. Pursuant to
these provisions, the DOT regularly entertains and acts on
such complaints.3
We note, finally, that respondent’s claim of ill treatment
by Northwest might have been vindicated if he had pur­
sued his breach-of-contract claim after its dismissal by the
District Court. Respondent argues that, contrary to the
holding of the District Court, the frequent flyer agreement
did not actually give Northwest unfettered discretion to
terminate his membership in the program, see Brief for
Respondent 20–21, and the United States makes a related
argument, namely, that even if the agreement gave
Northwest complete discretion with respect to a determi­
nation regarding abuse of the program, the agreement did
not necessarily bar a claim asserting that membership
was ended for an ulterior reason, such as an effort to cut
costs. If respondent had appealed the dismissal of his
breach-of-contract claim, he could have presented these
arguments to the Court of Appeals, but he chose not to
press that claim. He voluntarily dismissed the breach-of­
contract claim and instead appealed only the breach of
implied covenant claim, which we hold to be pre-empted.
* * *
Because respondent’s implied covenant of good faith
and fair dealing claim seeks to enlarge his contractual
agreement with petitioners, we hold that 49 U. S. C.
§41713(b)(1) pre-empts the claim. The judgment of the
Court of Appeals for the Ninth Circuit is reversed, and the
——————
3 See DOT, Air Travel Consumer Report 44 (Feb. 2014), online at
http://www.dot.gov/sites/dot.dev/files/docs/2014_February_ATCR.pdf (as
visited Mar. 31, 2014, and available in Clerk of Court’s case file).
Cite as: 572 U. S. ____ (2014) 15
Opinion of the Court
case is remanded for further proceedings consistent with
this opinion.
It is so ordered.