On Friday, May 20, 2011, the First Circuit overturned a jury verdict against American Airlines and held that the Airline Deregulation Act of 1978 (ADA) preempts claims brought under the Massachusetts Tip Statute.

In 2005, American, along with many other airlines, began charging passengers who checked their luggage at curbside stations using skycaps a $2 per-bag fee. The plaintiffs in DiFiore v. American Airlines were skycaps who challenged American’s retention of the curbside fee, alleging that the $2 fee was a “service charge” under the Tips Statute – and thus had to be distributed to the skycaps – because customers “reasonably expect[ed]” it to be given to the skycaps.

Early in the litigation, American moved to dismiss the complaint, principally on the ground that the claims were barred by the ADA, which vests exclusive jurisdiction in the federal government to regulate most aspects of air travel and expressly preempts any state law that “relate[s] to a price, route, or service of an air carrier.”  American argued that the Tip Statute impacted both its prices and services.  The District Court denied American’s motion, and after an eleven-day trial, a jury returned a verdict of more than $325,000 in favor of the skycaps.

Relying on a trio of U.S. Supreme Court cases that interpreted broadly the phrase “related to a price, route, or service,” the First Circuit found that the Tip Statute “has a direct connection to air carrier prices and services and can fairly be said to regulate both” because arranging for transportation of luggage from the curbside into the airline terminal is a part of the “service” referred to in the ADA, and an airline’s “price” includes charges for ancillary services as well as for the flight itself.  In reaching this conclusion, the First Circuit found that “price” must be read broadly to include more than simply the ticket price and “service” to include actions “that occur before and after the airplane is actually taxiing or in flight.”

The First Circuit rejected plaintiffs’ argument that the Tip Statute’s effect on prices and services was tenuous because the airline could have complied with the state law without great expense by adopting various measures, including using larger fonts on the signs describing the fee or allowing credit card payments, because regardless of the cost, such regulation by the states of advertising and service arrangements is exactly what Congress sought to avoid in enacting the ADA.  The Court also rejected plaintiffs’ argument that there is a strong presumption against preemption in areas of “traditional state regulation” such as employment law, finding that none of the Supreme Court cases on point support placing such limitations on the ADA’s preemptive powers. 

As noted by the First Circuit, by the time American filed its appeal, three additional decisions had been issued by two other judges in the District of Massachusetts on this issue, and those decisions conflicted with one another and with Judge Young’s decision in DiFiore.  This decision resolves the split in the lower courts and affirms that the ADA must be read broadly to preempt any claims brought under a state law that has a direct impact on an airline’s prices and services, even if the state law does not expressly purport to have such an effect.