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Flaster/Greenberg P.C. v. Brendan Airways, LLC

2009 WL 1652156 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

CONSUMER FRAUD; AIRLINES — The federal Airline Regulation Act expressly preempts states from undertaking certain activities relating to airlines and, as a result, airlines are not subject to the Consumer Fraud Act, even for their marketing practices.

A New Jersey law firm, pursuant to a written agreement, hired an airline to transport some of its employees to and from a business retreat. The law firm paid an initial non-refundable deposit. The airline subsequently wrote that it had made a decision to withdraw airline service to the destination because of the rising cost of fuel and returned the “non-refundable” deposit. In response, the law firm demanded that the airline either perform or pay damages. The airline refused both options. The law firm then attempted to mitigate its damages by making alternative arrangements. Additional expenses were also incurred because many of the employees had to spend an extra day away from the office. The law firm sued the airline, alleging breach of contract, violation of the New Jersey Consumer Fraud Act (CFA), quantum meruit, fraud in the inducement, and a breach of the covenant of good faith and fair dealing. The airline filed a motion to dismiss.

The United States District Court granted the airline’s motion to dismiss the CFA claim, holding that Congress had passed the Airline Deregulation Act to expressly preempt states from undertaking certain activities relating to airlines. In the Court’s belief, the CFA claim impacted the airline’s ability to determine and set “rates, routes and services” and involved policing of marketing practices. Therefore, according to the Court, applying the CFA to an airline is expressly forbidden under the Airline Deregulation Act. On the other hand, it held that recovery was properly sought under a breach of contract theory. As to the claim seeking recovery under a quantum meruit theory, the Court rejected the airline’s contention that in the presence of a contract, quantum meruit damages are not available. Even though the remedy relates to an implied-in-law contract under a theory of unjust enrichment, and that is inconsistent with a breach of contract claim, the Court ruled that the Federal Rules permit alternative pleadings. Further, the Court indicated that since the airline had not yet indicated whether it intended to challenge the validity of the contract, the quantum meruit claim could go forward. The Court dismissed the fraud in the inducement claim because the law firm’s pleadings failed to specifically state the circumstances constituting fraud as required under the Federal Rules of Civil Procedure. It gave the law firm fifteen days to file an amended complaint to cure this pleading deficiency. Finally, the Court refused to dismiss the law firm’s claim that the airline had breached its duty of good faith and fair dealing in the performance of its contract with the law firm. According to the Court, even when the express terms of a contract are not violated, if a party acts with an improper purpose, it can be found liable for breaching an implied covenant if the breach interferes with the other party’s reasonable expectations under the agreement.

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