Frequent Flyer Depot, Inc., George Pirkle, and Robert Pirkle v. American Airlines, Inc. ( 2009 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-08-386-CV
FREQUENT FLYER DEPOT, INC., APPELLANTS
GEORGE PIRKLE, AND ROBERT
PIRKLE
V.
AMERICAN AIRLINES, INC. APPELLEE
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FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY
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OPINION
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This is an accelerated interlocutory appeal from the imposition of a
temporary injunction prohibiting appellants Frequent Flyer Depot, Inc. and its
officers and owners, George and Robert Pirkle, from engaging in the brokering,
purchase, sale, bartering, and solicitation of American Airlines AAdvantage®
rewards points. Appellants challenge the injunction on seven grounds: the
underlying suit is pre-empted by federal law; the injunction does not preserve
the status quo; there is no enforceable contract between American and its
AAdvantage® members prohibiting members from selling their rewards points
to third parties; the hearing on the temporary injunction should have been
continued for appellants to obtain discovery on their antitrust-related
counterclaims; American failed to show an imminent injury; American has an
adequate remedy; and principles of equity bar the imposition of an injunction.
Because we conclude that there is no reversible error on any of these grounds,
we affirm.
Background
Frequent Flyer admittedly brokers the purchase and sale of airline frequent
flyer miles and awards, including AAdvantage® rewards points issued by
American to its AAdvantage® members. The Pirkles are officers and owners of
Frequent Flyer. American sued appellants and other similar brokers and their
principals, contending that the brokering, purchase, bartering, and sale of
AAdvantage® rewards is improper. Among its claims against appellants are
claims for tortious interference with contract, tortious interference with
prospective relations, misappropriation, and fraud. American also asserted a
breach of contract claim against Robert Pirkle. After filing suit, American
sought and obtained a temporary injunction prohibiting appellants from buying,
2
selling, bartering, or soliciting AAdvantage® rewards during pendency of the suit.
Standard of Review
To be entitled to a temporary injunction, the applicant must plead a cause
of action and further show both a probable right to recover on that cause of
action and a probable, imminent, and irreparable injury in the interim. Butnaru
v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002); Argyle ISD ex rel. Bd. of
Trustees v. Wolf, 234 S.W.3d 229, 236 (Tex. App.—Fort Worth 2007, no
pet.); Fox v. Tropical Warehouses, Inc., 121 S.W.3d 853, 857 (Tex. App.—Fort
Worth 2003, no pet.). A probable right of recovery is shown by alleging a
cause of action and presenting evidence tending to sustain it. Wolf, 234
S.W.3d at 236; Fox, 121 S.W.3d at 857. An injury is irreparable if damages
would not adequately compensate the injured party or if they cannot be
measured by any certain pecuniary standard. Butnaru, 84 S.W.3d at 204;
Wolf, 234 S.W.3d at 236; Fox, 121 S.W.3d at 857.
In an appeal from an order granting or denying a temporary injunction, the
scope of review is restricted to the validity of the order granting or denying
relief. Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993); Wolf, 234 S.W.3d
at 237; Fox, 121 S.W.3d at 857. Whether to grant or deny a request for a
temporary injunction is within the trial court’s discretion, and we will not
reverse its decision absent an abuse of discretion. Butnaru, 84 S.W.3d at 204;
3
Wolf, 234 S.W.3d at 237; Fox, 121 S.W.3d at 857. Accordingly, when
reviewing such a decision, we must view the evidence in the light most
favorable to the trial court’s order, indulging every reasonable inference in its
favor, and determine whether the order was so arbitrary that it exceeds the
bounds of reasonable discretion. Wolf, 234 S.W.3d at 237; Fox, 121 S.W.3d
at 857. A trial court does not abuse its discretion if it bases its decision on
conflicting evidence and at least some evidence in the record reasonably
supports the trial court’s decision. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.
1978); Wolf, 234 S.W.3d at 237; Fox, 121 S.W.3d at 857. When findings of
fact are not requested or separately filed, as in this case, we must uphold the
trial court’s order on any legal theory supported by the record. Mabrey v.
SandStream, Inc., 124 S.W.3d 302, 309 (Tex. App.—Fort Worth 2003, no
pet.).
Pre-emption Claim
Appellants first contend that American’s noncontract claims against them
are pre-empted by the Airline Deregulation Act of 1978 (ADA), which provides,
in part, that “[e]xcept as provided in this subsection, 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
4
transportation under this subpart.” 49 U.S.C.A. § 41713(b)(1) (West 2007).
The United States Supreme Court has held that threatened enforcement by
state attorneys general of “fare advertising guidelines” was pre-empted by the
ADA. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 391, 112 S. Ct.
2031, 2041 (1992). The Court has also held that claims brought by
AAdvantage® members against American in state court alleging violations of
Illinois’s Consumer Fraud Act were pre-empted by section 41713(b)(1). Am.
Airlines, Inc. v. Wolens, 513 U.S. 219, 226, 115 S. Ct. 817, 823–24 (1995).
Appellants allege that this suit likewise involves an attempt to regulate
prices, routes, or services that is pre-empted by the Act. American counters
that any suit brought against it attempting to apply standards to its
AAdvantage® program would be pre-empted as an attempt to place state
regulations upon prices, routes, or services but that any attempt by it to
enforce via state law its own standards as to prices, routes, or services,
including frequent flyer mile credits, is not pre-empted as impermissible state
regulation. We agree with American.
In Morales, the Court considered the effect the advertising restrictions
would have on airlines’ fares, holding that the restrictions would curtail the
airlines’ ability to communicate their fares to customers. Morales, 504 U.S. at
389, 112 S. Ct. at 2039–40. But it also held that “‘[s]ome state actions may
5
affect [airline fares] in too tenuous, remote, or peripheral a manner’ to have pre-
emptive effect.” Id. at 391, 112 S. Ct. at 2040.
The Court further distinguished contract actions in Wolens, holding that
the Act does not shelter airlines from suits “seeking recovery solely for the
airlines’ alleged breach of its own self-imposed undertakings.” Wolens, 513
U.S. at 228, 115 S. Ct. at 824. Although concluding that the Act pre-empted
AAdvantage® members’ Illinois Consumer Fraud Act claims because mileage
credits are akin to “rates,” the Court nevertheless held that as to contracts
affecting such mileage credits, “[m]arket efficiency requires effective means to
enforce private agreements.” Id. at 230, 115 S. Ct. at 824.
After Morales and Wolens, courts have held that certain personal injury
causes of actions against airlines are not pre-empted by the Act. See, e.g.,
Hodges v. Delta Airlines, Inc., 44 F.3d 334, 340 (5th Cir. 1995); Continental
Airlines v. Kiefer, 920 S.W.2d 274, 283 (Tex. 1996). In explaining its decision
in Kiefer, the Texas supreme court noted that, “as Wolens explains at some
length, claims are not [pre-empted] if they do not involve the enforcement of
policy-laden state law that too closely approaches a regulatory effect on
airlines.” Kiefer, 920 S.W.2d at 283.
Here, although American has brought mostly tort claims, those claims
attempt to protect the vitality of its self-imposed obligations: those arising from
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the AAdvantage® program. American’s invoking the benefits and protections
of state law to protect its own agreements does not have the same
impermissible regulatory effect upon prices, routes, or services that Congress
was concerned with in enacting section 41713(b)(1). The Act was intended
to pre-empt only those state actions having a regulatory effect upon the airlines
rather than to preclude airlines from seeking the benefits and protections of
state law to enforce their self-imposed standards, regulations, and contracts.
See id. (“[T]he purpose of ADA preemption is not to absolve airlines from all
liability under state law, but to prohibit state regulation of air carriers, direct or
indirect. Congress’ concern was ‘that the States would not undo federal
deregulation with regulation of their own.’”); see also Hodges, 44 F.3d at 337
(“Following deregulation, the CAB’s [the former Civil Aeronautics Board’s]
statements implementing the ADA strongly support the view that the ADA was
concerned solely with economic deregulation, not with displacing state tort
law.”). Indeed, denying American access to state courts for such purposes
would seem to have such an impermissible regulatory effect.
Appellants contend that it is unfair to allow the airlines unfettered access
to the state courts to enforce their own standards related to frequent flyer
programs while denying access to the state courts to the states themselves and
other parties attempting to impose standards on the airlines under state law.
7
But the fairness of this application is not for us to decide; we must abide by
Congress’s intentions when determining whether a suit is pre-empted by the
Act. See Morales, 504 U.S. at 383, 112 S. Ct. at 2036 (noting that in
determining whether a suit is pre-empted under the Act, the question is one of
statutory intent, and we must “begin with the language employed by Congress
and the assumption that the ordinary meaning of that language accurately
expresses the legislative purpose”).
We conclude and hold that American’s suit against appellants is not pre-
empted by section 41713 of the Act. We overrule appellants’ first issue.
Status Quo
In their second issue, appellants contend that the injunction fails to
preserve the status quo. According to appellants, they have been operating
their business since 2002; they allege that American has known about their
activities since that time, or at least since the beginning of the lawsuit.
Appellants claim that because American knowingly allowed their activities to
continue for some time, the last peaceable uncontested status is to allow
appellants to continue their business.
The purpose of a temporary injunction is to preserve the status quo until
a trial on the merits. Butnaru, 84 S.W.3d at 204; Wolf, 234 S.W.3d at 237;
Fox, 121 S.W.3d at 857. “Status quo is defined as ‘the last, actual, peaceable,
8
noncontested status which preceded the pending controversy.’” Universal
Health Servs., Inc. v. Thompson, 24 S.W.3d 570, 577 (Tex. App.—Austin
2000, no pet.) (quoting Transp. Co. v. Robertson Transps., Inc., 152 Tex.
551, 261 S.W.2d 549, 553–54 (1953)); see Wolf, 234 S.W.3d at 237.
George Pirkle testified at the temporary injunction hearing that an attorney
for American called him “several times” in 2002 about domain names
connected to Frequent Flyer’s website, frequentflyerdepot.com. The attorney
told George that those domain names constituted trademark infringement and
that American wanted them back. George told the attorney that the domain
names were connected to frequentflyerdepot.com, and he agreed to give them
to American. Although George testified that the attorney did not tell him to
stop operating frequentflyerdepot.com, he also admitted that he could not recall
whether they had talked about Frequent Flyer’s brokerage business. He also
said that the lawyer never told him that American would permit Frequent Flyer
to sell AAdvantage® miles.
Since 2005, American has stopped travel on tickets sold by Frequent
Flyer by freezing the accounts of AAdvantage® members who American
discovers have improperly sold their rewards points to a third party. But George
Pirkle admitted that American successfully discovers and stops travel on
Frequent Flyer’s transactions only between about three and four to ten percent
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of the time. American’s representative testified that these “policing” efforts are
disruptive, causing operational difficulties for American and diverting resources
away from legitimate ticketing.
When American deposed George Pirkle as the designated representative
of Frequent Flyer, 1 he admitted that Frequent Flyer “brokers” AAdvantage®
rewards points; in other words, Frequent Flyer buys rewards points from
AAdvantage® members and sells those points to third parties. He agreed that
American had asked Frequent Flyer to stop doing so “earlier this year [2008],”
and he confirmed that Frequent Flyer had refused. American sought the
temporary injunction hearing shortly after taking appellants’ depositions.
If, as American claims, appellants’ activities are in violation of its
agreements with AAdvantage® members,2 the last peaceable, noncontested
status is for appellants to refrain from selling AAdvantage® rewards points.
There is no evidence that American knew of Frequent Flyer’s brokering
activities in 2002 when its attorney contacted George Pirkle about the domain
names; as George himself testified, he bought around 136 domain names when
he started. Likewise, there is no evidence that American knew in 2005 and
1
… American says in its brief that the depositions had been delayed due
to George Pirkle’s poor health; appellants do not dispute this.
2
… Appellants do not challenge on appeal whether American proved a
probable right to recover on its causes of action.
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later that the AAdvantage® accounts it was freezing for the improper sale of
rewards points were sold through Frequent Flyer in particular.3 Even so, it is
a reasonable inference that American could not have known the full extent of
Frequent Flyer’s activities, considering George’s testimony that Frequent Flyer
transactions were “caught” only between three to ten percent of the time.
American moved for a temporary injunction when it learned the full extent
of Frequent Flyer’s activities and Frequent Flyer refused to discontinue those
activities even in the face of American’s suit. American should not be denied
its ability to obtain injunctive relief to which it is otherwise entitled simply
because it took some time for it to discover Frequent Flyer’s admittedly
concealed activity. See Sharma v. Vinmar Int’l, Ltd., 231 S.W.3d 405, 428–29
(Tex. App.—Houston [14th Dist.] 2007, no pet.) (holding that complete
preservation of status quo in case involving improper use of trade secrets to
operate competing chemical sales company was that new company would not
be able to sell any of the disputed chemicals). We hold that the trial court’s
injunction properly preserves the status quo pending resolution of the suit.
Accordingly, we overrule appellants’ second issue.
3
… George and Robert both testified that Frequent Flyer instructs
customers who purchase rewards points from it to tell American that the points
are a gift and that such representations are lies.
11
Enforceability of Agreement Between American and AAdvantage® Members
Appellants contend in their third issue that there is no evidence that
American has a binding contract with its AAdvantage® members such that
appellants’ actions in buying and selling, and inducing AAdvantage® members
to buy and sell, AAdvantage® rewards points are improper as alleged by
American in its tort claims.
To become an AAdvantage® member, a person must agree to American’s
online User Agreement, which contains the following provision: “At no time
may AAdvantage® mileage credit or award tickets be purchased, sold or
bartered. Any such mileage or tickets are void if transferred for cash or other
consideration.” The User Agreement also contains other provisions allowing
American to change the terms of the AAdvantage® program, upon which
appellants base their claim that the User Agreement lacks mutuality and is,
therefore, unenforceable. Specifically, the User Agreement states that
American may,
in its discretion, change the AAdvantage® program rules,
regulations, travel awards, and special offers at any time with or
without notice. . . . American Airlines may make one or more of
[certain enumerated] changes at any time even though such
changes may affect your ability to use the mileage credit or awards
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that you have already accumulated. American Airlines reserves the
right to end the AAdvantage® program with six months notice.4
According to appellants, this clause shows a fatal lack of mutuality, rendering
the entire agreement unenforceable.
A bilateral contract is one in which there are mutual promises between
two parties to the contract, each being both a promisor and a promisee.
Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943); The
Colony, Tex. v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 725 (Tex.
App.—Fort Worth, no pet. h.). A bilateral contract must be based upon a valid
consideration, in other words, mutuality of obligation. Fed. Sign v. Tex. S.
Univ., 951 S.W.2d 401, 409 (Tex. 1997); The Colony, 272 S.W.3d at 725.
Consideration may consist of either benefits or detriments to the contracting
parties; it may consist of some right, interest, profit, or benefit that accrues to
one party, or alternatively, of some forbearance, loss, or responsibility that is
undertaken or incurred by the other party. The Colony, 272 S.W.3d at 725; In
re C & H News Co., 133 S.W.3d 642, 647 (Tex. App.—Corpus Christi 2003,
orig. proceeding). The existence of a written contract presumes consideration
4
… The agreement also states that American “may amend its rules of the
Program at any time without notice.”
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for its execution. The Colony, 272 S.W.3d at 725; Doncaster v. Hernaiz, 161
S.W.3d 594, 603 (Tex. App.—San Antonio 2005, no pet.).
A contract that lacks mutuality of obligation is illusory and void and thus
unenforceable. The Colony, 272 S.W.3d at 725; Tex. S. Univ. v. State St.
Bank & Trust Co., 212 S.W.3d 893, 914 (Tex. App.—Houston [1st Dist.]
2007, pet. denied). A promise is illusory when it fails to bind the promisor who
retains the option of discontinuing performance without notice. Light v. Centel
Cellular Co. of Tex., 883 S.W.2d 642, 645 (Tex. 1994); The Colony, 272
S.W.3d at 725; Rogers v. Alexander, 244 S.W.3d 370, 382 (Tex. App.—Dallas
2007, no pet. h.). But mutuality in each clause of a contract is not required
when consideration is given for the contract as a whole. Howell v. Murray
Mortgage Co., 890 S.W.2d 78, 87 (Tex. App.—Amarillo 1994, writ denied).
The test for mutuality is applied and determined when enforcement is
sought, not when the promises are made. Hutchings, 174 S.W.2d at 489;
Cherokee Commc’ns, Inc. v. Skinny’s, Inc., 893 S.W.2d 313, 316 (Tex.
App.—Eastland 1994, writ denied). Accordingly, even if an illusory promise
renders a contract unilateral, consideration can still be established by part
performance by the promisee. Hutchings, 174 S.W.2d at 489; Cherokee
Commc’ns, 893 S.W.2d at 316; cf. Alex Sheshunoff Mgmt. Servs., L.P. v.
Johnson, 209 S.W.3d 644, 650–51 (Tex. 2006) (distinguishing general rule as
14
to covenants not to compete, which, by statute, must be enforceable when
entered into).
Here, the clause pointed to by appellants allows American to terminate
the program upon notice and allows American to change the terms of the
program with or without notice. However, that does not mean American is
without obligation to its members under the User Agreements. In consideration
for AAdvantage® members’ purchasing paid travel on American and its partner
airlines, and purchasing other services from specified providers, American
agrees to provide rewards points to those customers. It is nonsensical for
appellants to argue that no enforceable agreement exists when their entire
business depends on the enforceability of that agreement. In other words, if
American has no obligation to issue a ticket in exchange for rewards points
when an AAdvantage® member fully complies with the User Agreement,
appellants are ill-positioned to complain about the trial court’s enjoining their
activities, which depend on American’s complying with its obligation even when
a ticket is obtained in violation of the applicable User Agreement. Appellants
cannot have it both ways.
Additionally, as appellants point out in their brief, American’s
misappropriation claim “as alleged requires a showing that [appellants]
‘wrongfully[]obtained award tickets.’” The key word here is “obtained,” in the
15
past tense. It is undisputed that American has issued tickets in exchange for
rewards points purchased through Frequent Flyer. With regard to those tickets,
then, American has performed under the applicable User Agreements. Thus,
even if American’s consideration was illusory when it entered into the
applicable User Agreements, its subsequent performance under those
agreements established consideration, rendering those agreements enforceable.
See Hutchings, 174 S.W.2d at 489; Cherokee Commc’ns, 893 S.W.2d at 316.
The same holds true for tickets that American will issue in exchange for
rewards points in the future. If American does not issue any such tickets, then
the question of whether American can enforce the no-sale rule is moot. But if
American does issue tickets in exchange for rewards points acquired through
purchase or barter—then it will again have partially performed under the User
Agreements at issue, thus establishing the necessary consideration to render
those agreements enforceable. See Hutchings, 174 S.W.2d at 489; Cherokee
Commc’ns, 893 S.W.2d at 316.5
5
… Moreover, we note that, as a practical matter, American is effectively
conceding the enforceability of the User Agreements. Appellants criticize
American for relying on cases construing similar airline passenger incentive
agreements because in those cases the passengers themselves—who were
seeking to enforce the agreements—conceded the existence of enforceable
agreements. See Mozingo v. Alaska Air Group, Inc., 112 P.3d 655, 661–62
(Alaska 2005); Grossman v. USAir, Inc., 33 Phila. Co. Rptr. 427, 431–32 (C.P.
1997). But the key factor that makes this case similar to those is that the party
16
For these reasons, we conclude and hold that American’s AAdvantage®
User Agreements do not fail for lack of mutuality, and we overrule appellants’
third issue.
Continuance
In their fourth issue, appellants claim that the trial court abused its
discretion by refusing to continue the temporary injunction hearing.
Appellants moved for a continuance both before and after the temporary
injunction hearing on the ground that American had refused to produce
documents in response to appellants’ Third Request for Production. Appellants
requested these documents in conjunction with their counterclaims against
American for interference with contractual and business relations, tortious
interference with prospective relations, a declaratory judgment that appellants’
actions in purchasing and selling AAdvantage® rewards points are not improper,
violations of the Texas Free Enterprise Act, violations of the DTPA, and
injunctive relief. In particular, appellants claimed they needed additional
discovery on their antitrust claims, their equitable defenses, and whether
American had an adequate remedy at law. The gist of appellants’
seeking enforcement—here, American—effectively concedes enforceability of
the agreements by attempting to enforce them.
17
counterclaims is that American is a competitor and is unlawfully attempting to
restrict their ability to maintain a competing business.
Appellants’ complaint fails initially because they failed to support their
written motion for continuance with an affidavit as required by rule 251. Tex.
R. Civ. P. 251. Generally, when a movant fails to comply with rule 251, we
presume the trial court did not abuse its discretion by denying a motion for
continuance. Villegas v. Carter, 711 S.W.2d 624, 626 (Tex. 1986); Sw.
Country Enters., Inc. v. Lucky Lady Oil Co., 991 S.W.2d 490, 493 (Tex.
App.—Fort Worth 1999, pet. denied); see also Tri-Steel Structures, Inc. v.
Baptist Found. of Tex., 166 S.W.3d 443, 448–49 (Tex. App.—Fort Worth
2005, pet. denied) (holding that trial court did not abuse its discretion by
denying motion for continuance when not in proper “affidavit form”).
Appellants did not comply with rule 251; thus, we conclude and hold that
the trial court did not abuse its discretion by denying their motion for
continuance. Moreover, if necessary to protect a proven legal right, a
temporary injunction may issue even if it has the effect of restraining
competition, so long as it is narrowly tailored to preserve the status quo.
Sharma, 231 S.W.3d at 428–29 (“While ordinarily a temporary injunction
should operate as a corrective rather than a punitive measure, when a choice
must be made between a failure to provide adequate protection of a recognized
18
legal right and the punitive operation of the writ, the latter course must be
taken. ”). We overrule appellants’ fourth issue.
Proof of Injury
Appellants’ fifth issue complains that American failed to meet its burden
to prove that it was injured.
American alleged that it is injured by Frequent Flyer’s actions because
customers who purchase void rewards points from appellants (because those
purchases violate the no-sale rule) would likely have purchased tickets from
American had they not obtained the void tickets; thus, those customers likely
displaced other AAdvantage® members or other paying American customers
who would have purchased tickets had the seats not been occupied by travelers
using the void tickets. American also alleged that it lost goodwill with
AAdvantage® members in that those members were prevented from using their
AAdvantage® rewards points because seats were occupied by persons using the
void tickets. Appellants contend that American “offered no evidence of any
identified passenger, actual or potential, who suffered any aspect of
[American’s] litany of claimed injuries.”
A party proves irreparable injury for injunction purposes by proving that
damages would not adequately compensate the party or cannot be measured
by any certain pecuniary standard. Butnaru, 84 S.W.3d at 204; Fox, 121
19
S.W.3d at 857. An injunction is not proper when the claimed injury is merely
speculative, however; fear and apprehension of injury are not sufficient to
support a temporary injunction. Jordan v. Landry’s Seafood Rest., Inc., 89
S.W.3d 737, 742 (Tex. App.—Houston [1st Dist.] 2002, pet. denied) (op. on
reh’g).
American offered the testimony of Jim Balsom, Manager of AAdvantage®
systems and partner support. He testified without objection that American is
reluctant to challenge the veracity of AAdvantage® members’ representations
when booking travel because “that would not engender goodwill[;] in fact, [it
would] probably cost [American] significant goodwill if we were to do that.”
Additionally, he testified that such an inquiry “[w]ould take [a] significant
amount of time and add significantly to [American’s] costs.”
Balsom further testified that brokering operations such as Frequent Flyer’s
“cause[] customers to question [American’s] ability to manage and maintain the
program and deliver the benefits that we’ve promised to customers.” He said
that when American discovers a void transaction due to Frequent Flyer’s
activities, its business is disrupted and it must divert resources away from
legitimate customers to deal with the void transactions. He also testified that
freezing the AAdvantage® accounts at issue causes ill will for the member.
20
Balsom further stated that dealing with these types of transactions causes
“operational difficulties or issues.”
Regarding displacement, Balsom testified that when Frequent Flyer sells
an AAdvantage® member’s rewards points to a third party, that third party
displaces a customer “who would either pay cash for that ticket or . . . who
would redeem AAdvantage® miles for the seat.” He said it also “does use
resources through [American’s] reservations office [and] potentially AA.com for
other business purposes” instead of valid ticket sales.
Appellants challenge American’s displacement evidence, pointing to
Securities and Exchange Commission reports filed by AMR, American’s parent
company, showing that, generally, between 2003 and 2007, twenty to thirty
percent of seats on American’s flights were empty. It also points to statements
in those reports to the effect that, with respect to the AAdvantage® program,
AMR “believes displacement of revenue passengers is minimal given the
Company’s load factors, its ability to manage frequent flyer inventory, and the
relatively low ratio of free award usage to total passengers boarded.”
According to appellants, absent evidence from specific flights on which
displacement occurred, American cannot overcome this evidence of empty
seats on its flights.
21
The SEC filings do not give information for specific flights; indeed, the
vacancies in paying seats may be higher due to higher numbers of business
travelers paying a lower price for rewards points tickets through Frequent Flyer
than paying for typical full-fare seats. 6 And the isolated statement that
displacement is minimal is clearly in relation to the function of the program
according to its guidelines; in other words, passenger displacement is minimal
when the program is operating without outside influences.
American points to additional evidence as supporting the proof of injury
requirement, such as the fact that it is virtually impossible to police appellants’
6
… As the United State Supreme Court noted in Morales,
The expenses involved in operating an airline flight are almost
entirely fixed costs; they increase very little with each additional
passenger. The market for these flights is divided between
consumers whose volume of purchases is relatively insensitive to
price (primarily business travelers) and consumers whose demand
is very price sensitive indeed (primarily pleasure travelers).
Accordingly, airlines try to sell as many seats per flight as possible
at higher prices to the first group, and then to fill up the flight by
selling seats at much lower prices to the second group (since
almost all the costs are fixed, even a passenger paying far below
average cost is preferable to an empty seat). In order for this
marketing process to work, and for it ultimately to redound to the
benefit of price-conscious travelers, the airlines must be able to
place substantial restrictions on the availability of the lower priced
seats (so as to sell as many seats as possible at the higher rate),
and must be able to advertise the lower fares.
504 U.S. at 389, 112 S. Ct. at 2040.
22
actions (when American discovers a void ticket, Frequent Flyer simply buys
more miles and issues a new one), that American has to devote resources to
investigating and policing appellants’ actions that disrupt its operation and
divert its resources from legitimate customers, and the unobjected-to evidence
that American’s inability to police activities such as Frequent Flyer’s causes
AAdvantage® members to question its ability to effectively run the program.
Disruption to a business can be irreparable harm. Lavigne v. Holder, 186
S.W.3d 625, 629 (Tex. App.—Fort Worth 2006, no pet.); David v. Bache
Halsey Stuart Shields, Inc., 630 S.W.2d 754, 757 (Tex. App.—Houston [1st
Dist.] 1982, no writ) (“This harm would not only disrupt the organized business
dealings of Bache but would also threaten customer confidence in Bache’s
handling of their private affairs, and probably cause Bache to lose not only
customers but profits as well.”). Moreover, assigning a dollar amount to such
intangibles as a company’s loss of clientele, goodwill, marketing techniques,
and office stability, among others, is not easy. Martin v. Linen Sys. for Hosps.,
Inc., 671 S.W.2d 706, 710 (Tex. App.—Houston [1st Dist.] 1984, no writ).
American offered specific, undisputed evidence of intangible harm to its
business, including the AAdvantage® program, resulting from appellants’
actions. Balsom’s testimony was not speculative and is supported by the
Pirkles’ own testimony about Frequent Flyer’s operations, specifically, its
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instructions to AAdvantage® members intended to conceal its activities from
American.
We conclude and hold that American presented evidence of an irreparable
injury. Thus, we overrule appellants’ fifth issue.
Adequate Remedy
In their sixth issue, appellants claim that if American presented sufficient
evidence to meet its burden of proof as to injury, that same evidence shows
that American has an adequate remedy in damages. Specifically, appellants
claim that damages can be calculated easily from AMR’s SEC filings if American
can provide the identity of specific displaced passengers. They also contend
that American cannot show lost profits because it has not made any profit since
at least 2002.
American counters that even if damages can be assigned to displaced
passengers, appellants “do not refute the evidence . . . that their conduct
disrupts American’s business . . . in many ways and affects the reputation and
loyalty it has developed over years with its customers.”
An adequate remedy is one that is as complete, practical, and efficient to
the prompt administration of justice as is equitable relief. Mabrey, 124 S.W.3d
at 317. Damages are an inadequate remedy if they are difficult to calculate.
Id. at 318–19.
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According to American, while the evidence appellants point to may show
that some of its damages are calculable, it does not show a way to calculate
damages for American’s claims of loss of goodwill and other intangibles. We
agree. As we have already stated, the intangible types of injuries testified to
by Balsom are the types of injuries to which a dollar value may not easily be
assigned. Martin, 671 S.W.2d at 710. A remedy is not adequate simply
because some of the proven damages are calculable. See Tex. Indus. Gas v.
Phoenix Metallurgical Corp., 828 S.W.2d 529, 532 (Tex. App.—Houston [1st
Dist.] 1992, no writ) (“For a legal remedy to be adequate, it must give the
applicant complete, final, and equal relief.”); see also Towers v. Grogan, No.
01-97-00946-CV, 1998 WL 191760, at *4 (Tex. App.—Houston [1st Dist.]
Apr. 23, 1998, no pet.) (not designated for publication) (holding that although
some breach of contract damages were calculable, specific damages for which
Grogan sought injunctive relief were intangibles, incapable of being measured
by damages).
We conclude and hold that American proved that damages are not
adequate to fully compensate it for its injuries. Accordingly, we overrule
appellants’ sixth issue.
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Equitable Concerns
Appellants’ seventh issue raises equitable claims, including laches and
unclean hands.
Appellants first contend that American’s temporary injunction claim is
barred by laches because American has failed to take action against appellants
despite knowing since 2002 the type of business Frequent Flyer was engaged
in. Appellants claim Frequent Flyer has been prejudiced by American’s inaction
because the Pirkles never would have expanded the business since 2002 had
they known American objected to Frequent Flyer’s conduct.
A party asserting the defense of laches must show both an unreasonable
delay by the other party in asserting its rights and harm resulting to it because
of the delay. Rogers v. Ricane Enters. Inc., 772 S.W.2d 76, 80 (Tex. 1989);
In re Roxsane R., 249 S.W.3d 764, 771 (Tex. App.—Fort Worth 2008, orig.
proceeding). Here, we have already discussed the lack of evidence that
American knew or should have known of appellants’ activities when its lawyer
contacted George Pirkle in 2002 about the domain names. In addition, we have
also pointed to the evidence that Frequent Flyer purposefully concealed its
dealings from American and instructed AAdvantage® members to do the same.
Accordingly, we do not believe that the evidence shows that American
deliberately slumbered on its rights with regard to appellants’ conduct.
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Moreover, there was evidence from which the trial court could have
concluded that appellants failed to show prejudice; the trial court elicited
testimony from George that Frequent Flyer’s expansion also had to do with
increased trade in other airlines’ frequent flyer miles. George also testified that
he had been aware of American’s no-sale provision since at least 2005 because
American had stopped travel on tickets bought with rewards points sold by
Frequent Flyer before that time. Accordingly, we conclude and hold that the
trial court did not abuse its discretion by rejecting appellants’ claim of laches.
Appellants contend that American has unclean hands because “the
evidence shows that [American] is part of an illegal conspiracy with regard to
the antitrust laws of the United States and the State of Texas.” According to
appellants, the temporary injunction prevents (and American’s suit seeks to
prevent) them from competing with American. Appellants also claim that
American must do equity to obtain equity and that American has failed to do
so by authorizing Points.com and its airline partners to trade with members for
AAdvantage® rewards points. This argument appears to incorporate appellants’
antitrust and anticompetition claims. But as we have already held, an otherwise
proper injunction will not be rendered improper by claims that such an injunction
would have a preclusive effect on competition. See Sharma, 231 S.W.3d at
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429. Thus, we conclude and hold that the trial court did not abuse its
discretion by rejecting appellants’ equitable defenses.
We overrule appellants’ seventh issue.
Conclusion
Having overruled all of appellants’ issues, we affirm the trial court’s order
granting the temporary injunction.
TERRIE LIVINGSTON
JUSTICE
PANEL: LIVINGSTON, DAUPHINOT, and MCCOY, JJ.
DELIVERED: February 26, 2009
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