9th Circuit Decides Airline Deregulation Act Applies to Foreign Carriers

This week, a federal court of appeals—the Ninth Circuit in California—dismissed a class action antitrust lawsuit against Korean Air Lines and Asiana Airlines, and in doing so, addressed an issue never before decided by that court, namely whether the Airline Deregulation Act of 1978 overrides state consumer protection laws aimed at foreign airlines.   (See In re Korean Air Lines Co. Ltd. Antitrust Litigation, --- F.3d ---- (9th Cir. Apr. 18, 2011)).

The answer: Yep.

The lawsuit claimed that the airlines conspired to impose an illegal and excessive surcharge on ticket fares, in violation of both state and federal antitrust and consumer protection laws.

Says the court: The airlines cannot be sued under state law for claims related to price: "We hold, as a matter of first impression, that the Airline Deregulation Act of 1978 preempts state regulation of foreign air carriers, and we affirm the district court's dismissal of Plaintiffs' state law claims."

The Airline Deregulation Act of 1978 provides that a “[s]tate ... 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.”  Whether an "air carrier" in this sentence is a foreign airline was at issue in the case.

The passengers argued that Congress statutorily defined “air carrier” and “foreign air carrier” as different, mutually exclusive terms and, therefore, that Congress's use of the term “air carrier” in the preemption provision means that foreign air carriers are excluded from its reach. Indeed, in fifty-one separate provisions of law, Congress used both terms to make clear that a provision applies to both types of carriers.

The Court of Appeals agreed that Congress's occasional use of the term “air carrier” to include “foreign air carrier” strongly suggests that the meaning of “air carrier” is ambiguous in the Deregulation Act's statutory preemption provision.  However, "the context in which the term appears in the preemption provision indicates that Congress intended that it apply to all air carriers and not only to domestic carriers."  In fact, Congress extended deregulation to foreign air transportation through the International Air Transportation Competition Act of 1979 (“IATCA”).

This conclusion makes sense for pragmatic reasons, too: "If the preemption provision only sheltered domestic air carriers, it would be more difficult for foreign carriers to enter the U.S. market for international flights. This added burden would be to the detriment of U.S. consumers, who benefit from price competition between as many carriers as possible. Moreover, discriminating against foreign carriers would be contrary to our country's general preference for free trade ... [and, if] state regulation makes it harder for foreign air carriers to compete with domestic carriers, U.S.-based airlines might soon encounter additional, retaliatory barriers when they try to sell tickets abroad."

Interesting how this legal decision both helps and hinders airline consumers.  On the one hand, as stated, it may encourage price competition borne by foreign carriers.  On the other hand, it makes clear that state laws "relating to" airline price are and will be preempted by federal law and the Airline Deregulation Act.