Northwest terminated Rabbi S. Binyomin Ginsberg’s membership in its frequent flyer program, apparently based on a provision in the frequent flyer agreement that gave Northwest sole discretion to determine whether a participant had abused the program. Rabbi Ginsberg filed a suit, asserting, 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 U.S. Supreme Court held that the Airline Deregulation Act (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 contractual obligations that the parties voluntarily adopt.The Court’s decision had three bases:First, the Court noted that carving out exceptions to pre-emption for common-law rules such as the implied covenant claim would undermine the ADA’s deregulatory purpose. Second, the Court found that the claim related to “rates, routes, or services” governed by the ADA because Rabbi Ginsberg sought restoration of benefits that would allow him to purchase cheaper tickets and upgrade to higher levels of service.Finally, the Court considered whether the covenant of good faith and fair dealing between the parties here was a “state-imposed obligation or simply one that the parties voluntarily undertook.” A prior Supreme Court case (American Airlines, Inc. v. Wolens) had held that passengers could pursue claims based on “privately ordered obligations” that were not imposed by the state. But here the Court held that the implied covenant was a state-imposed obligation in Minnesota and not a voluntary undertaking, so the claim was pre-empted by the ADA.Full Supreme Court Judgement in case Northwest, Inc. et al v. Ginsberg available here>>.
