MORALES, ATTORNEY GENERAL OF TEXAS v. TRANS WORLD AIRLINES, INC.
Legal provision: 49 U.S.C. 1305
Argument of Stephen Gardner
Chief Justice Rehnquist: We'll hear argument next in No. 90-1604, Dan Morales, Attorney General of Texas, v. Trans World Airlines.
Mr. Gardner: Mr. Chief Justice, and may it please the Court:
Congress did not intend to strip the State of Texas of its right to use its traditional police powers to protect its citizens from deceptive airline advertising.
Congress never suggested that Texas is not free to sue individual airlines in its state courts for specific violations of its general state consumer protection act, yet that is precisely the result of the decision of a court below.
The district court entered and the court of appeals sustained a sweeping injunction against Texas that prohibited the State from any type of law enforcement action that would regulate or restrict any aspect of the individually named plaintiff airline's airfare advertising or their other operations involving their rates, routes, and services.
If I may take just a few moments to put this case into context for the Court.
This case arose when the State of Texas and several other state attorneys general wrote to a few airlines in November of 1988 advising them that their practices of segmenting out certain portions of their airfares from the advertised fare and putting it into the fine print of the footnotes of an advertisement, thereby reducing an ad from, say, $321 to $298, were violations of their state deceptive practices laws.
We wrote to only five of the airlines that are in this litigation.
We offered those airlines an opportunity to resolve this matter without litigation.
Rather than taking us up on that offer the airlines themselves brought suit in Federal district court against first, the State of Texas, and later expanded that lawsuit to include 33 other state attorneys general.
From that lawsuit the district court entered a preliminary injunction that was later converted to a permanent injunction that was as I have already set forth.
What this case is about is the right of the State of Texas to enforce its state consumer protection act to stop illegal, deceptive segmenting out of surcharges.
It's not about anything broader than that.
It is specifically not about the NAAG guidelines that the airlines make a bit about in their brief.
We're not here before the Court on enforcement of the NAAG guidelines because the states never attempted to do so.
Unknown Speaker: Well, Mr. Gardner, we have to decide, I guess, what it is that the language that Congress used means, and it chose to use language that preempts, federally preempts state laws relating to rates, routes, or services.
That's the language it chose, relating to.
Mr. Gardner: Yes, Your Honor.
At the same time it passed it the conference report referred to that language as preemption of anything regulating rates, routes, or services.
It is necessary to look at what Congress--
Unknown Speaker: Well, it would have been easy enough for Congress to have used the language of preempting state law determining rates or setting rates or something of that kind, but it didn't.
It said relating to.
And in the ERISA context this Court has interpreted that identical phrase in a fairly expansive manner, I guess.
Mr. Gardner: --Yes, Your Honor, we urge the Court not to apply the same interpretation precepts to the Federal Aviation Act as this Court has indeed applied in the ERISA context, for the very simple reason that ERISA was a very broadly preemptive law because its prime scope was in essence for the Federal Government to occupy the field of regulation of employee benefit plans.
That was not the case here.
We have to look at what, coming into 1978 when this relating to language was adopted, what was Congress setting about to change.
Prior to '78 the states and the Federal Government, as this Court recognized in the Nader decision in 1976, had enjoyed a dual enforcement relationship with respect to consumer protection type laws.
Nothing prior to '78 preempted the states or prevented the states from enforcing their own laws.
In 1978 what was Congress trying to do?
Was Congress trying to keep the states out of the area of consumer protection?
I think our answer is affirm nothing of the kind.
What Congress was doing in 1978 was deregulating the Federal Government's control that had existed since the thirties, I believe, of the rates, routes, and services, the direct--
Unknown Speaker: Well, can you say that advertisement of airline rates and fares does not relate to airline rates and fares?
Can you really say that?
Mr. Gardner: --That's not really the question.
I think the answer is no, I may not be able to say that, but that's not what Congress was preempting.
Congress was preempting only state laws that relate to rates, routes, and services, not state laws that relate to advertising which then relate to rates, routes, and services.
Unknown Speaker: Well, suppose in this case that the State of Texas or some other state had passed a statute containing all of the prohibitions and guidelines set forth in the guidelines that you issued here.
Would that statute be valid?
Mr. Gardner: As long as those guidelines did not regulate the rates, routes, and services, and I would say they would not, I would think that statute would be valid.
If the Court--
Unknown Speaker: Well, you have to take that position, don't you?
Mr. Gardner: --It is convenient.
But if the Court... rather, if the Court applied the broad scope of ERISA reading and brought all of the concepts that underlie the broad ERISA preemption and use that in interpreting what Congress intended, not when it said relating to, but when it enacted the 1978 act, then under that kind of interpretation perhaps you could say that regulation such as the NAAG guidelines would relate to it.
Unknown Speaker: But I'm troubled about what, the same thing Justice O'Connor asked you.
It's really quite difficult to say, it seems to me, that the guidelines issued here do not relate to airline rates.
Mr. Gardner: But the guidelines, Your Honor, I mean, it's essentially a false issue.
I'm happy to address it, but we're not here on that.
We're here on a very narrow effort by the states to address specific violations.
The guidelines and the--
Unknown Speaker: Well, in order to test that proposition I think we're entitled to inquire as to how far your principle leads, and it seems to me that you simply must take the position that a state could enact a statute which incorporated all of the guidelines that the Attorney Generals' Association issued here.
Mr. Gardner: --Oh, yes, Your Honor.
I'm not taking the position that it could not.
I'm taking the position that even if it did so, under the preemption of the Federal Aviation Act it would not be preempted.
Unknown Speaker: Your position goes even further than that, as I understand it.
You would also say, I assume, that the state could forbid the advertising of airline tickets.
Mr. Gardner: I would not assert--
Unknown Speaker: It relates to advertising.
It doesn't relate to rates.
Mr. Gardner: --I do not believe that the state under the current law could do so.
I would have serious questions--
Unknown Speaker: Why is that, even though it only relates to advertising and does not relate to rates?
Mr. Gardner: --The state consumer protection law, Your Honor, prohibits any industry, not the airlines, and that's one important point.
It's a general applicable, generally applicable law.
It prohibits any person selling or leasing goods or services from engaging in false, misleading, or deceptive acts or practices.
Unknown Speaker: So you abandon your argument that the mere fact that it does not relate to rates is dispositive of this case?
Mr. Gardner: I beg your pardon, Your Honor?
Unknown Speaker: It seems to me if you're going to take that position you must abandon the argument that the mere fact that it relates to advertising demonstrates that it does not relate to rates.
Mr. Gardner: Well, as I said earlier--
Unknown Speaker: It can relate to advertising and relate to rates by reason of the fact that it relates to advertising.
Mr. Gardner: --It would require a two step bootstrapping argument, and--
Unknown Speaker: But you acknowledge that that two step bootstrapping argument is valid with respect to a law that prohibits the advertising of airfares.
Mr. Gardner: --No, Your Honor, I am--
Unknown Speaker: No you don't?
So they can pass such a law?
I mean, either they can or they can't.
If they can't, then you have to abandon your relates to rates argument.
Mr. Gardner: --My argument is focused on what the State did do here, Your Honor.
State legislatures do a myriad of things, not all of which I would want to stand before this Court and support.
All I am saying is that current law does not permit that sort of action, nor, in my belief, would the First Amendment permit the Court to take, the state to take that sort of action.
Unknown Speaker: Aside from the First Amendment, what is your position on a state law that says no airline rates shall be advertised?
Mr. Gardner: I would say that the state could do that, and Congress could then act to prohibit that action.
Unknown Speaker: Mr. Gardner, did the district court in its injunction refer in terms to the NAAG guidelines?
Mr. Gardner: --No, Your Honor, although the airlines advise the Court that they did.
I read the Court the precise language there.
We are enjoined from initiating any enforcement action or actions pursuant to any provision of state law which--
Unknown Speaker: Which would be general fraud statutes and that sort of thing.
Mr. Gardner: --The way we read it, Your Honor, it's any statute, whether it's a criminal statute, a licensing statute.
We believe that the language that is before this Court, the injunction of the district court, is broad enough that we cannot, in the State of Texas, take any type of enforcement action because the way this injunction is worded, the injunction that the airlines sought, we are broadly preempted from any form of regulation of airlines.
Unknown Speaker: Where is the injunction?
Where do we turn to it, do you know?
Mr. Gardner: I apologize for not having it handy.
Unknown Speaker: Is that 8(a) of the appendix to the petition for certiorari?
Mr. Gardner: I believe so, Your Honor.
Looking at what Congress set out to do in '78, it is clear that Congress did not intend to take the states out of the business, it did not intend to take the Federal Government out of the business of regulating deceptive practices.
Section 411 of the Federal Aviation Act had existed for some time.
Congress not only did not touch that aspect of Federal regulation, it in fact enjoined the Civil Aeronautics Board, now the Department of Transportation, even more broadly to prohibit anticompetitive and deceptive practices in the airline industry.
This indicates that Congress indeed intended and in fact achieved a split type of deregulation.
Congress did deregulate the utility-type rate making setting of the airlines rates, routes, and services.
It did not intend, nor did it achieve, anything that took the Federal Government out of the business of regulating and prohibiting deceptive practices by airlines.
We believe that this shows Congress' intent to deregulate only that one area, the utility-like setting of rates, routes, and services that the Federal agencies had engaged in broadly and that in fact a number of states had engaged in on a piecemeal basis in the past.
Unknown Speaker: Could states, after the act was passed, regulate intrastate carriage by airlines?
Mr. Gardner: No, Your Honor.
Unknown Speaker: But then the act goes beyond merely undoing what the CAB had been doing, because when the CAB was in effect the CAB regulated interstate fares and the states were entitled to regulate intrastate fares, right?
Mr. Gardner: Absolutely.
Unknown Speaker: And the new act says no regulation of intrastate fares.
Mr. Gardner: Because Congress intended no regulation of fares, period, regardless of--
Unknown Speaker: They want a competitive regime, which is consonant with the notion that they wanted competitive advertising too.
Mr. Gardner: --Competitive advertising can only exist if the advertising is truthful and is not deceptive.
If a competitor loses business to another airline because that other airline has advertised in a way that makes it appear as though they are cheaper when in fact they are not, they are going to lose business.
They are not a better competitor, they are just more creative, and from their standpoint, or from our standpoint, unfortunately deceptive advertising.
Unknown Speaker: So true is, as the Government points out, that if you're practically disempowered from advertising because you are compelled to include within your notice all of the exceptions that may exist on various routes, you as a practical matter can't have any advertising.
Mr. Gardner: Your Honor--
Unknown Speaker: And state law could do that, I suppose.
Is there any objection to state law saying you must put in any of your advertising all of the exceptions to the fares that you announce, you can't say some exceptions apply?
Mr. Gardner: --There is no prohibition there, Your Honor.
We do recognize that the states have rights to regulate the advertising that is directed at their citizens and that appears within their borders.
We may argue with the Department of Transportation as to whether or not that's the best way of doing things, but the simple fact is right now what we're before the Court to argue about is not that.
It is actions that are in fact illegal under currently adopted Federal regulation.
Federal regulation as it now exists, not as the Department has proposed to amend it but as it now exists, prohibits the very actions that the State of Texas would seek to prohibit.
We're trying to have the right to take these what are to the State fairly minor type cases, these are just another run of false advertising cases.
They're the types of cases that we would bring against a myriad of companies for false price advertising and have brought against department stores or groceries stores or car dealers or electronics retailers.
We merely want the right to take a fixed question, not a speculation as to what the NAAG guidelines might do, but rather a fixed question as to whether this advertisement that has letters 3 inches high saying $298, while there is an additional $23 or even more in surcharges, whether that's deceptive under Texas law.
We want to take that to a Texas court and present that to a Texas jury.
If it isn't deceptive, then we lose.
Even if it is deceptive--
Unknown Speaker: That's up to the state.
If it's state law, the state can determine what's deceptive.
If the state wants to say you're always deceptive in an ad unless you list all of the exceptions to the price that you state, if the state wants to say that's deceptive it can, I presume.
Mr. Gardner: --Yes, Your Honor--
Unknown Speaker: I'm just trying to see where your principle leads.
It may well be that in the particular instance it's a very reasonable thing you're saying, and something that the Department of Transportation will agree to, but doesn't it lead you all the way to the point where you can, if you wish and if we accept your argument here, you can say effectively there will be no airline advertising, by simply saying you must list every exception to any fare that you advertise?
Mr. Gardner: --Your Honor, all we are seeking here today is a declaration that the Texas Deceptive Trade Practices Act as written and as enforced, or attempted to be enforced in this case, is not preempted because as written and as enforced it does not regulate and therefore does not relate to the rates, routes, and services.
I will absolutely grant that if a state statute does regulate, whether directly or indirectly, and has a direct and substantial effect on the decisions as to setting rates, routes, or services by the airline people who are setting those rates, routes, and services, there is going to be preemption under the law as written.
Unknown Speaker: That's a point that the airline could raise in the state case that was brought against it, I suppose?
Mr. Gardner: Yes, Your Honor.
There is nothing to stop the states, the airlines from litigating every aspect of preemption in the state courts.
As I was about to say to, in response to Justice Scalia, if the airlines lose to a jury and cannot convince a jury that they acted non-deceptively, or if we actually bear our burden, as any other litigant, of convincing the jury that they have in fact acted deceptively, they can still convince the judge that it doesn't matter if Texas law has been violated because Texas law goes too far.
Unknown Speaker: Well, you don't get to the jury until you have a valid state enforcement proceeding, and it seems to me that your position must be that California can require one size of type on airline advertisings, that Texas can require another size of type, and that Arizona can require a third type of type with an added disclosure, and that every one of those state statutes would be valid as a state enforcement of its laws against deceptive practices.
Mr. Gardner: Yes, Your Honor.
Unknown Speaker: That has to be your position.
Mr. Gardner: Absolutely.
I'm not saying that's the way it ought to be, and I am saying that is not the way it is.
The states are not in fact regulating in a different manner.
Unknown Speaker: If the state laws contain the provisions that I have hypothesized were enacted, would they or would they not be preempted under the existing Federal statutes?
Mr. Gardner: I would say, Your Honor, that they would not, but I would also say in that instance in my own opinion that that is when it's appropriate for the Department of Transportation to step in and preempt us.
The Department has its authority to preempt the states if what the states are doing--
Unknown Speaker: All right.
And if they, they would not be preempted then you would have to say that that is not a law affecting airline rates and routes.
Mr. Gardner: --Your Honor, the airlines... this case came to the Court on virtually no factual evidence at all.
This, we had a... the lawsuit was filed, 3 days later we had a temporary restraining order hearing, there was no testimony, and that's all we have for a record.
But there is nothing in the record to indicate that, exactly that, much less merely telling an airline that it should put in the big print what the actual cost of flying is has any effect whatsoever on rates, routes, or services.
The airlines speculate that.
They raise a number of fears that this might have, and therefore the Federal court should get involved and stop the State from a conjectured enforcement of its law.
But that is simply not what has happened and there is no evidence in the record to show that.
In fact the very limited evidence in the record is that some airlines were in fact including this previous surcharge in their full fare during 1988 and there is no evidence that there was any damage to those airlines, that they stopped advertising or that they raised rates, or that anything happened that had any effect, direct, indirect, or insubstantial.
Unknown Speaker: May I ask you a question that was raised by your response to Justice Kennedy?
You said if you had these conflicting regulations in different states that created a problem of uniformity that the Department of Transportation could step in and preempt that?
Mr. Gardner: Yes, Your Honor.
Unknown Speaker: Pursuant to what authority?
Mr. Gardner: We believe that the Department has intrinsic authority under, as the interpreter of the Federal Aviation Act, to say that this--
Unknown Speaker: To go out and preempt a lot of state laws?
That's a novel concept.
They have the authority to issue cease and desist orders at the airlines, but I don't know if they have any, I'm not aware... I was just interested in the source of that suggestion.
You're saying it's some sort of inherent authority?
Mr. Gardner: --I am speculating that they could do that.
I would also speculate the states would probably fight them and we'd be back here on that.
But there is, there are instances--
Unknown Speaker: What if you had, say, not an airline industry, say in the automobile industry that all the automobile companies wanted, were subjected to a lot of conflicting regulations on advertising, the same kind of thing Justice Kennedy suggested.
Is there some Federal agency that can go out and say you can't, everything would be preempted?
Mr. Gardner: --I believe the Federal Trade Commission would assert to this Court that it did have that intrinsic authority.
Unknown Speaker: To preempt?
Mr. Gardner: Yes, Your Honor.
Unknown Speaker: By a rule making process?
Mr. Gardner: Yes, Your Honor.
By full flown rule making.
By rule making that is published, opportunity for comment, and fully considered.
There are instances that we could conjecture where the Department of Transportation could properly preempt the state, but again, that is just not the situation that we have here today.
All we have here today is this limited action of the State.
It's a minor attempt to... you know, all of our cases are not minor.
I shouldn't say that.
These are significant cases, but they are not different than an attempt to stop a department store or a grocery store or any other retailer of services or goods from misrepresenting what it costs to buy those services or goods.
What the airlines want and are asking this Court to say Congress meant to do was to give them carte blanche to violate the laws of the State of Texas with impunity, and they alone would be able to do that.
I can think of no other industry that enjoys the right to engage in deceptive practices without any fear of state regulation.
The airlines are arguing that they engage in interstate commerce.
In these days, Your Honor, virtually every industry or company of any size engages in interstate commerce.
They may find themselves having to comply with the laws of different states.
To them that is an inconvenience.
To the State of Texas and to the other states that is a matter of our sovereign authority within our federalist system, our right to set rules for companies that choose to do business within our borders that may be different from the rules set by other states.
We're not seeking to create chaos, and I affirm again that the states have not taken action that has in any way created the type of conflicts that the Court has posited, and I will affirm to the Court that I think it is extremely unlikely that that is going to happen, and just urge the Court--
Unknown Speaker: Well, you've just waved a stick.
I mean, even if you're correct that these rules adopted by the Association of State Attorneys General, or whatever the organization is that adopted them, haven't been applied in this case, they were certainly brandished against the airlines.
I mean, I think it's one thing to say they're not involved in this case and it's another thing to say that the airlines haven't been affected by any such activity.
Mr. Gardner: --The NAAG guidelines, Your Honor, were not intended to do anything except let the airlines know what was expected of them under our respective state laws in an attempt to achieve uniformity.
The idea was to prevent multiple minor state litigation.
That may have been achieved.
On the other hand what we also achieved, what NAAG achieved through doing the guidelines, they're not rules, they're just guidelines, the guidelines process was to make a Federal case out of what we believe are the day-to-day enforcement type actions that the states always engage in.
I should also--
Unknown Speaker: So the state attorney generals felt there was a need for uniformity?
Mr. Gardner: --The state attorneys general acknowledged the very fear that this Court has expressed, that we did not want to set one standard in Texas and another standard in California.
It is possible that we could have interpreted our different laws in different ways.
We felt that the fairest way to the airlines was to come about, bring about an announcement of the safe harbors, what we would expect, what we would tolerate, so that airlines could have the knowledge that they could do business, if they complied within that guidelines, without having to fear prosecution by the states.
We also made the point that they could also, as it were, violate the NAAG guidelines, they could ignore the NAAG guidelines, as long as they were not otherwise deceptive.
This was not a standard.
It was not a be all and end all.
All those guidelines were were minima to help the airlines along.
But what we look at, and if you see the November '88 notice, what we relied on was not the NAAG guidelines but state law was violated.
We mention state law six times in those, in that letter.
We didn't refer to the guidelines because we weren't going to be suing under the guidelines.
You can look at the lawsuit that Texas in fact filed in state court against Pan Am, no mention of the NAAG guidelines because our judges and our juries don't really care what NAAG had to say.
And I guess what we're urging the Court is to say the same thing, to not care what NAAG had to say, to look at what the State set out to do.
You know, I think that, in closing, all arguments in this case reduce to one point, whether or not sound public policy as announced by Congress favors preemption of state authority to enforce their own laws.
The arguments can go either way, and you will hear arguments the other way.
Texas urges that, and asks this Court that the best action to take in this instance is to take the action that does the least damage to federalism and permit Texas to enforce this law that does not regulate rates, routes, or services.
If there are no other questions I would ask to reserve the remainder of my time.
Unknown Speaker: I'd like to ask you one question, counsel.
You say you're not enforcing the NAAG guidelines?
Mr. Gardner: No, Your Honor.
Unknown Speaker: If you take the Joint Appendix to page 137a, the second paragraph of the letter to the General Counsel of the Department of Transportation, it says in short we continue to support and intend to enforce the NAAG guidelines which we adopted last December.
That seems to undermine what you just said.
Mr. Gardner: I would merely say that we misspoke, Your Honor.
If you look to what we did do, what we wrote the airlines... the letter that serves as their case in controversy to bring this lawsuit, we didn't mention the NAAG guidelines, we didn't say we were setting out to enforce them.
Unknown Speaker: I understand that, but that's also part of the record in the motion for a temporary restraining order.
Mr. Gardner: Yes, Your Honor.
In all honesty I had not noticed it.
If we were to write it over we would never have said that.
We weren't out to do that.
Unknown Speaker: Very well, Mr. Gardner.
Mr. Jones, we'll hear from you.
Argument of Keith A. Jones
Mr. Jones: Mr. Chief Justice, and may it please the Court:
I hope to develop three points.
First, to show that this case involves state implementation of the substantive requirements of the NAAG guidelines and not, as the states argue, their enforcement of consumer protection laws generally.
Second, to establish that section 105 of the Deregulation Act should be given the same broad, common sense meaning as the similarly worded ERISA preemption statute.
And third, to demonstrate that the rules articulated by the NAAG guidelines fall well within the preemptive scope of section 105 as so construed.
Unknown Speaker: Mr. Jones, do I gather from your first point that you feel it's necessary to your case to show that the State here was intending to implement the NAAG guidelines and not just general fraud statutes or deceptive advertising statutes?
Mr. Jones: I don't think that's integral to our argument, but I think that it's important to inform the Court what the case is really about, because the State takes the position that it has been enjoined from enforcing its consumer protection laws generally, and we brought this case specifically targeted at those eight postscriptions that are articulated in the NAAG guidelines.
Unknown Speaker: Do you support the breadth of the injunction issued by the district court here?
Mr. Jones: The states are concerned about the breadth of the ordering paragraph in the injunction--
Unknown Speaker: Yes.
Do you support that?
Mr. Jones: --I don't think that the ordering paragraph as such was correctly written, but I think that if you read that paragraph, not in isolation but in the context of what the district court said earlier in the text of the same order and also read it in light of the complaint which narrowly focuses on the NAAG guidelines, you will agree with us that the proper construction of the injunction is that it just bars the State--
Unknown Speaker: Rule 65 is quite precise that the injunction was set out not in the light of something else, but very precisely, exactly what is enjoined.
I don't know that Rule 65 leaves any latitude to go back to the complaint and say well, let's see if we can't get another reading out of the actual order.
Mr. Jones: --This order was very broadly phrased.
I think that it's fair to say that the subsequent history of the litigation in the district court confirmed that all of the parties understood that the injunction only ran against the NAAG guidelines and not against consumer protection law generally.
Unknown Speaker: Even though the order did not mention the NAAG guidelines?
Mr. Jones: Well, actually the order does mention the NAAG guidelines twice in its first paragraphs, but what counsel for the State has focused your attention on is the particular ordering language of the injunction.
But the order itself begins with the discussion of the NAAG guidelines and that is the context within which the ordering paragraph should be read.
Unknown Speaker: Yes, but Mr. Jones, isn't it your position that the consumer protection laws are generally preempted insofar as they apply to airline advertising of rates?
Mr. Jones: It may be that in a future case this Court will so hold.
Unknown Speaker: But isn't that your position in this case?
Isn't that what you argue the scope of the preemption is?
Mr. Jones: Our argument is that the particular restrictions placed upon airfare advertising by these guidelines themselves are plainly barred, whatever application state consumer protection law may have in other contexts.
Unknown Speaker: I don't understand why you just don't argue that insofar as the consumer protection laws are enforced against, are attempted to be enforced against airline advertising it's just preempted.
What's wrong with that argument?
Is there something... if that isn't the argument, then I would suppose you would have answered the Chief Justice that the guidelines argument is, is integral to your argument.
Mr. Jones: We think the consumer protection laws as they apply to airfare advertising are preempted, but the analysis that we set forth is an attempt to show why these guidelines in particular interfere with the pro-competitive policy of the statute.
Unknown Speaker: What about consumer protection laws as they apply to the sale of tickets, never mind advertising?
I mean, that's as closely connected to rates, I suppose, as the advertising of them.
Fraud in the sale of tickets can't be prosecuted under state law?
Mr. Jones: On the face of it you would think that they were as closely related.
What Congress intended to do in the Deregulation Act was to establish a freely competitive marketplace with a strong bias in favor of free competition.
And after, with the advent of deregulation the airlines, under, continuing to be under the regulation, regulatory authority of the Department of Transportation, developed a new pricing policy, a pro-competitive pricing policy called yield management.
And yield management is designed to maximize revenues while at the same time filling as many seats as possible.
And it has two salient features.
This is a long-winded answer, but I think I will get there ultimately.
One of the features of yield management is a multi-tiered pricing structure under which different prices are charged for different tickets that have different restrictions relating to refundability, advance purchase, length of stay, time of day or day of week, and so forth.
And the other salient feature is that the mix of fares on every flight is under continuous review and revision as the flight date approaches.
The NAAG guidelines are contrary, actually they make it virtually impossible to conduct yield management programs.
DOT has recognized this.
It has pointed out that yield management is an essential feature of competition in a deregulated air transport market.
The guidelines require every restriction, each and every restriction, to be stated in each and every ad with respect to every advertised fare, and they also require that these restrictions be etched in stone for a fixed period of time.
These requirements simply cannot be squared with the pro-competitive yield management program that Congress, I mean that DOT approves and the airlines have developed under deregulation.
Unknown Speaker: Mr. Jones, I think we've had a little difficulty this afternoon in getting either you or Mr. Gardner to articulate for us the guiding principle to be used by us in resolving this case.
Each of you wants to focus only on the specific regulation at issue here without regard for the many other issues that are going to arise in the future.
Preemption is serious business, and if this statute is to be given a broad reading then I assume this Court would be faced with a whole range of cases in the future in which it is alleged that certain state and local laws and regulations are preempted.
For example, I suppose it can be argued that the Texas income tax law might affect the airfares charged by an airline.
Are Texas income taxes preempted?
Maybe Texas liquor laws affect what alcohol can be served in one of these airline clubs.
Are those preempted?
What about the zoning laws that tell us where and how airline terminals can be built?
Where does, where do we draw the line?
Mr. Jones: I was trying to get to where you draw the line with respect to the NAAG guidelines, and then let me discuss the broader question that you have raised, Justice O'Connor.
Just one last note with respect to advertising and the guidelines.
The problem therefore with the guidelines that may or may not pertain to other consumer protection laws is that they directly interfere with the efficiency innovation and low prices that Congress explicitly asked DOT to help further in its administration of the statute.
Now, more generally, Justice O'Connor, as you pointed out in the preceding argument given by Mr. Gardner, section 105 does employ the same preemptive formula as the ERISA statute.
Just as ERISA preempts all state laws that relate to employee benefit plans, so section 105 preempts all state laws relating to rates, routes, and services of any air carrier.
And in construing ERISA this Court has said that the phrase relating to means having a connection with or reference to the statutory subject.
I understand that that's not, that's just the beginning of analysis.
That's not by any means the end of analysis.
But we submit that that first step is one that needs to be taken, that section 105, like the similarly worded ERISA statute, should be construed as preempting all state laws that have a connection with or reference to airfares.
Unknown Speaker: Well, does that include state income tax laws?
Mr. Jones: I don't think that it does.
Unknown Speaker: Does Texas have an income tax law?
Mr. Jones: Texas does not have an income tax law, to my knowledge.
Unknown Speaker: But other states do, of course.
Mr. Jones: That's right.
The phrase relating to could encompass a very broad spectrum, and--
Unknown Speaker: Zoning laws?
Mr. Jones: --I think that our position is that the formulation relating to naturally encompasses all state laws whose enforcement would be likely, likely to affect the actual level of rates or the routes or services in a manner that was contrary to the underlying pro-competitive policy of the Deregulation Act.
Therefore I don't think we can give any clear cut answer to broad hypotheticals of this kind, although they do seem to be far removed from the immediate rate setting process with which we are concerned here.
Unknown Speaker: That's the problem that I see in your argument, Mr. Jones, that your theory does not accord with the statutory text that you're using to implement it.
What you're objecting to is interference, or any state law that interferes effectively with competition, which was the goal of the statute, competition in rates and the other matters.
But the text does not suit that kind of a reasoning.
The text seems to carve out categories of state law without looking at their particularized effect.
It's any relating to this matter, not that has a significant enough effect upon this matter.
Mr. Jones: We're suggesting that the statute has to be applied in the same way as the ERISA statute, and in those ERISA cases the Court has looked at the operation of state law, has analyzed the operation of state law in relation to the objectives of the Federal statute.
And that is a process that does require case-by-case adjudication, but it is a process that gives effect to the relational concept underlying the statute and also effectuates the underlying statutory purposes that can be constructed from not only the preemption statute but the other provisions of the statute as well.
Unknown Speaker: Your opponent, Mr. Jones, suggests that Congress, in enacting the ERISA statute, intended to, quote, occupy the field, whereas here congressional intent was not the same, and that therefore the phrases, though identical language, should not be read the same in the two acts.
What is your response to that?
Mr. Jones: Our response is that in this context the difference between regulation and deregulation is, the distinction is one without a difference.
In ERISA the Court was, the Congress was identifying an area in which it wanted to keep the states out and it was an exclusively Federal regulatory domain.
Here Congress has created an area in which the states also are supposed to be kept out because it is left to the marketplace and to the continuing pro-competitive regulation by the Department of Transportation.
Unknown Speaker: How about section 1506 of Title 49 that says nothing contained in this chapter shall in any way abridge or alter the remedies now existing at common law or by statute, but this provision of this or in addition--
Mr. Jones: That's something of an anomaly.
Section 1106 was enacted in 1938 and when the Deregulation Act was enacted in 1978 section 1106 was continued without any discussion.
I don't think that the undiscussed continuation of an ancient savings clause should undermine the--
Unknown Speaker: --Are you suggesting it was repealed by implication?
Mr. Jones: --Well, to some extent any later enacted preemption clause will be incompatible with the full breadth of an earlier savings clause.
I don't know whether you would call it repealed by implication, but there is an obvious incompatibility between a preemption clause and a savings clause.
Unknown Speaker: Perhaps only if you read the preemption clause the way you do.
Mr. Jones: No, I don't think so.
I think however you read the preemption clause it will bar some state remedies, it will eliminate some state remedies that could previously have been in existence.
Unknown Speaker: Mr. Jones, can I ask you a question to be sure I understand your theory?
Justice Scalia asked you about fraud in the sale of tickets, and I understood your answer to be that's probably not preempted because it doesn't have a sufficient direct impact on the rate making process.
Maybe I misunderstood.
Mr. Jones: That's essentially correct, Mr. Justice Stevens.
Unknown Speaker: And I take it you would also say that, say regulation, state regulations prohibited obscene advertising or advertising of liquor in conjunction with airline travel in the terminal would not be preempted if it didn't have any significant burden?
You're not claiming all regulation by the states of advertising that mentions rates is preempted?
Mr. Jones: We're not claiming that here, no.
Unknown Speaker: It's got to be sufficiently burdensome to affect the rate making process?
Mr. Jones: I'm not sure if burdensome is the word that I would choose.
It has to be sufficiently, it has to sufficiently implicate the pro-competitive concerns of the statute, that is it has to interfere with the rate setting process in the freely competitive market.
Let me go back to the fraud--
Unknown Speaker: I'm not sure there's a big difference between what you said and what I said.
Mr. Jones: --Perhaps there isn't.
Let me go back to the fraud hypothetical.
It's conceivable that a fraud claim could rest upon a claim that there was a deceptive ad, and perhaps such a fraud claim would indeed be preempted if the argument about deception was the same kind of argument that the states make here with respect to the guidelines, or that underlie the guidelines.
Other fraud claims, however, might have nothing to do with deceptive advertising as such and they would fall well outside the line that we're trying to draw.
Unknown Speaker: If you emphasize burden rather than the content of the ads, you seem to admit that a lot of ads could be regulated that mention rates in the airline terminal and the like.
And if you emphasize burden, then I don't know how you get around Justice O'Connor's question about suppose they have rent control or they impose some heavy costs on the operation of airline terminals or something like that, the way they handle their dealings with their car rental agencies or something of that kind.
Mr. Jones: Well, Congress did specifically provide that the states could continue to impose certain kinds of taxes and it also provided that their proprietary control over airports and their regulations issued in connection with that were not preempted.
Congress foresaw that the preemption statute might other wise sweep in these provisions and for that reason it explicitly exempted them from the preemption statute.
Unknown Speaker: What exemption are you talking about now?
What statutory provision?
Mr. Jones: With respect to the proprietary operations, that's in the preemption statute itself.
I think it's subsection B.
With respect to the taxes, I cannot now remember the name, the number of the section, but it was the subject of this Court's opinion in the Wardair Canada case.
Unknown Speaker: Thank you.
Mr. Jones: Let me address if I might the State's argument that the statute should be construed only to bar the states from engaging in what they called utility type regulation.
That argument is self-defeating.
These guidelines are a perfect example of utility type regulation.
They represent precisely the kind of controlled supervision over rate advertising in which state public utility commissions commonly engage.
Thus if section 105 is to be given the reading that the states themselves say they prefer, this case at least is at an end.
And I think it would be sufficient for purposes of this case only if the Court were to decide whatever other further preemptive scope section 105 may have.
At least it does preempt utility type regulation of the kind involved in this case.
Unknown Speaker: Thank you, Mr. Jones.
Argument of Stephen L. Nightingale
Mr. Nightingale: Thank you, Mr. Chief Justice, and may it please the Court:
I'd like, if I could, to take the narrow and then the broad that have concerned the Court this afternoon, first of all narrowly.
The Deregulation Act prohibits states from enacting or enforcing any law that relates to rates, routes, or services.
State laws that restrict the form and content of advertising of airfares relate directly to airfares.
Advertising is an important channel of communication between sellers and potential buyers of air transportation.
Unknown Speaker: Well now, does that go so far as to say they can't regulate obscene advertising in the airport?
Mr. Nightingale: Obscene advertising would not relate to rates in our opinion.
Unknown Speaker: I'm talking ads with the rates put on them, or maybe not obscene but the character of the advertising, having people serving liquor, say, at the time some states are concerned about that.
Could they prohibit the showing of drinking liquor on an airline in a picture in connection with the rates for the flight?
Mr. Nightingale: Your Honor, I think that the liquor example is a special case because it involves, the states have special authority in that situation.
I would think that liquor would be subject to state regulation.
Unknown Speaker: Could they just ban all advertising in the waiting room of the airport--
Mr. Nightingale: No, Your Honor, they could not ban advertising in the waiting room of the airport.
Unknown Speaker: --thinking it's not aesthetically suited to the, you know, to the terminal or something like that?
They couldn't do that?
Mr. Nightingale: There are, there is an exemption in the act for the rights exercised by proprietors of airports, state proprietors, and on reflection I think that the sorts of regulations that have to do with the maintenance of the environment in the airport, like the anti noise regulation, would be within that exemption.
Unknown Speaker: But I'm talking about advertising by, not by the proprietor, by the airline.
Mr. Nightingale: Well, the proprietor I believe has proprietary rights to maintain the airport.
I understood that your airfare advertising ban in airports was one imposed by the airport owner as a way of maintaining the atmosphere.
Unknown Speaker: No, no, no.
The state could decide that we don't, we want, just like they don't want people soliciting for, you know... for one reason or another they just don't want to have the appearance cluttered up with rate advertising in front of the terminals or anything like that.
Mr. Nightingale: No, Your Honor.
I think if the state tried to do it in the capacity other than as proprietor of the airport it would be preempted.
Airfare advertising assures in particular that discount fares, the sorts of fares that the Deregulation Act was designed to encourage, come to the attention of consumers.
Unless sellers of air transportation can make the availability of those fares known to potential purchasers in a cost effective way they will have a greatly reduced incentive to offer them.
Unknown Speaker: What if one of those ads is seriously misleading, not in one of the ways set forth in the guidelines, but it just lies.
It says the fare will be 300 dollars and it's actually, or 100 dollars and it's actually 300 dollars?
Is there no remedy under state law?
Mr. Nightingale: Your Honor, the line that the Department draws with respect to that is if the misrepresentation is a situation in which the airline fails to produce on a contractual promise, in other words if I walk up to the ticket counter and I am told that if I give you 100 dollars you'll deposit me in San Francisco, and in fact you drop me off in Chicago, that I have an action under state law to enforce my contract to be, to have the terms of the contract enforced.
However, if the nature of the deception is one that relates to the description of the service in a way that doesn't give rise to an enforceable promise, it falls within the area in which the Department balances pro-competitive policies and protection of the individual.
Unknown Speaker: So the problem with the guidelines is that they use tort law instead of contract law?
They should simply have said anyone who does not list all of the exceptions to the fare shall be deemed to have no exception to it, and anyone who accepts such an offer shall be deemed to have a contract with no exception?
Mr. Nightingale: --Your Honor, no, because Federal law specifies the nature of the contract of carriage between an individual and an air carrier, so that there would not be a way around this for the states simply to recast law regulating deceptive advertising in the form of contract law.
Unknown Speaker: What if the airline advertises Dallas to Washington, D.C., 100 dollars, and I show up for a ticket and they say well, no, it's 200 dollars, we just didn't mean what we said in that ad.
Can the state enforce deceptive advertising law in that case?
Mr. Nightingale: Your Honor, no.
That law is preempted because what the situation is... remember that in the air carriage industry what you have is a finite airplane.
Everyone understands that when you are booking seats what you are talking about is getting there while there are seats still available.
Unknown Speaker: But the answer given isn't that there are no seats.
It's simply that although we said we'd charge you $100, we're going to charge you $200, and there are lots of seats on this plane.
Mr. Nightingale: Again, that would be preempted is our position, preempted because the regulation of what is said about fares, deceptive practices is a, that is an area that is committed to the Department of Transportation.
It... maybe if I could get, in connection with your question, to the general framework here that we think decides these difficult cases, cases incidentally that are far more difficult than the one before the Court today.
It is the State's position that the Deregulation Act involved essentially the passive withdrawal of direct controls on rates, routes, and services.
In fact the act did more than that.
It set forth in addition new regulatory criteria to guide the Department of Transportation in exercising the authority that remained to it.
Among the authority that remained to the Department of Transportation was the authority to protect consumers against deceptive practices.
In exercising that authority it seeks to balance pro-competitive objectives with protection of the consumer, recognizing first of all that there is not necessarily a cut and dried right answer to that balance, although there certainly would be, Mr. Chief Justice, in the situation that you have put forward.
I can't imagine that the Department of Transportation would not conclude that that is deceptive and therefore act--
Unknown Speaker: Do you support the affirmance of the injunction as written and issued by the court below?
Mr. Nightingale: --Your Honor, again, we agree with the airline that it, that read as a whole it can be read more narrowly than the ordering paragraph.
If the ordering paragraph alone is the focus of the Court's attention, we think that the only part of it which is problematic is the part that follows fair advertising.
There is talk about other operations involving rates, routes, or services.
We don't believe that that, that the issue is so broad as the ordering paragraph indicates.
But certainly state laws that restrict the content and form of airfare advertising are preempted, and we understand the ordering paragraph to be entirely consistent with that.
Unknown Speaker: So you think a remand is necessary?
Mr. Nightingale: Again it's our position that read as a whole the order captures the more limited meaning.
We would not oppose a remand, but we believe that the order is adequate read as a whole.
Unknown Speaker: Mr. Nightingale, before you sit down I would like to just have some description of the principle by which we should decide these cases.
Mr. Nightingale: Right, Your Honor.
Unknown Speaker: And I haven't heard it.
I haven't heard it from Mr. Gardner, I didn't hear it from Mr. Jones.
I'm curious if I'm going to hear one from you.
Mr. Nightingale: Let me suggest that we take ERISA as a starting point.
In ERISA the Court has said reference to or connection with equals relates to.
Now, the Court has also recognized that every conceivable relationship is not sufficient.
In a footnote in the Shaw v. Delta Airlines case the Court said that there may not be preemption when a law affects benefit plans in a way that is, quote, too tenuous, remote, or peripheral to justify preemption.
So that the application of a state law that says the bad faith denial of benefits is preempted, even though that is just an application of a general state law that says bad faith breeches of contract are actionable, it is preempted when applied to an ERISA benefit plan.
Whereas the application of a garnishment statute is not preempted because that is just too peripheral, too unrelated to the purposes of the act, in this case the fostering of a pro-competitive environment, opening up a market and preserving space for the pro-competitive policies of the Department of Transportation.
Unknown Speaker: Thank you, Mr. Nightingale.
Mr. Gardner, you have 2 minutes remaining.
Rebuttal of Stephen Gardner
Mr. Gardner: To address Justice O'Connor's request for a principle, I apologize for not laying it out and I will observe that it seems to me strikingly similar to the one the airlines announced.
We are asking the Court to determine that the Federal Aviation Act does not preempt a law of general applicability that does not have a direct and substantial effect on the rates, routes, and services of an airline.
But the unfortunate result there is that that does require a remand because we have not had a record developed here, as we have pointed out.
We do not believe the airlines will succeed in developing such a record because we do not believe that regulation of false advertising does indeed have that direct and substantial effect, nor, to use the ERISA test, does this state law have any connection with rates, routes, or services, or any reference to.
Even if you use the ERISA test our enforcement of our state consumer protection law fails.
Unknown Speaker: What about just the guidelines?
If we assume that only the guidelines are at issue do you say that there's not enough record with respect to that as well?
Mr. Gardner: There is no record of any effect of any of the, whether the guidelines or the actual enforcement of the state law.
The airlines say oh, mercy, this is what's going to happen to me, but they do not show that this is what will.
The record is full of conjecture, speculation.
The lawsuit was fundamentally, although there is case in controversy, fundamentally premature.
That's why we urge the Court to let us try these cases in state court where the facts can be fully developed.
Chief Justice Rehnquist: Thank you, Mr. Gardner.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 90-1604, Morales against Trans World Airlines will be announced by Justice Scalia.
Argument of Justice Scalia
Mr. Scalia: This case is here on writ of certiorari to the Court of Appeals for the Fifth Circuit.
When Congress regulated the airline industry in the late 1970s it added a preemption provision to prevent the state from simply replacing the old federal regulation with a regulation of their own.
That provision prohibits the states from enforcing any law "relating to air carrier's rates, routes, or services".
The issue here is the meaning of this phrase.
The National Association of Attorneys General have adapted guidelines containing detailed standards governing the content and format of airline advertising, frequent flier programs, and other airline industry practices.
When the Attorney General of Texas sent a letter to several airlines threatening to enforce the fare advertising provisions of these guidelines, the airlines filed this suit claiming that the fare advertising portions are preempted and requesting an injunction against Texas enforcement of them.
The District Court agreed that those portions of the guidelines are preempted and it enjoined Texas not only form enforcing the fare advertising guidelines but also from taking "any enforcement action" which would regulate or restrict "any aspect of the airline's operations relating to rates, routes, or services".
And the Court of Appeals affirmed that judgment.
As an initial matter, the injunction has to be vacated in so far as it restrains the operation of Texas' laws with respect to matters other than the fare advertising portions of the guidelines.
Basic principles of equity dictate that an injunction cannot issue unless the moving party is actually threatened with the irreparable injury and has no adequate remedy at law.
Texas has never threatened to interfere with the airline's operations except with respect to those portions of that guidelines dealing with fare advertising.
But as to those portions, we do agree that they relate to rates and are preempted and that Texas' threatened enforcement of them should be enjoined.
The key in our view is that Congress preempted state laws "relating to rates", and as we have repeatedly recognized in our cases interpreting the similarly worded provision of ERISA, the Employees Retirement Insurance Security Act, that phrase relates to expresses a far broader preemptive purpose.
Transposing into this case, our construction of that same phrase in the ERISA cases state laws having a connection with or reference to airline rates are preempted even if they do not formally prescribe the rates airlines may charge.
It is clear that the fare advertising guidelines have a reference to airline rates, each one of them specifically mentions them.
It is also clear that they have a connection with airline fares in the sense of affecting them.
Collectively, they establish binding requirements as to how tickets may be marketed if they are to be sold at given prices.
As an economic matter, their compelled disclosures and restrictions would have a significant impact on the airline's ability to market their product and hence, on what fares the airlines would be able to charge.
Accordingly, we affirm the judgment of the Court of Appeals in so far as it pertains to the guidelines restricting fare advertising.
Justice Stevens has filed a dissent in which the Chief Justice and Justice Blackmun have joined.