Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992)
Supreme Court of United States
Facts
At 379:
In 1987, the National Association of Attorneys General (NAAG), an organization whose membership includes the attorneys general of all 50 States, various Territories, and the District of Columbia, adopted Air Travel Industry Enforcement Guidelines (set forth in an Appendix to this opinion) containing detailed standards governing the content and format of airline advertising, the awarding of premiums to regular customers (so-called “frequent flyers”), and the payment of compensation to passengers who voluntarily yield their seats on overbooked flights. These guidelines do not purport to “create any new laws or regulations” applying to the airline industry; rather, they claim to “explain in detail how existing state laws apply to air fare advertising and frequent flyer programs.” NAAG Guidelines, Introduction (1988).
Despite objections to the guidelines by the DOT and the Federal Trade Commission (FTC) on pre-emption and policy grounds, the attorneys general of seven States, including petitioner’s predecessor as attorney general of Texas, sent a memorandum to the major airlines announcing that “it has come to our attention that although most airlines are making a concerted effort to bring their advertisements into compliance with the standards delineated in the … guidelines for fare advertising, many carriers are still [not disclosing all surcharges]” in violation of § 2.5 of the guidelines. The memorandum said it was the signatories’ “purpose … to clarify for the industry as a whole that [this practice] is a violation of our respective state laws on deceptive advertising and trade practices”; warned that this was an “advisory memorandum before [the] initiati[on of] any immediate enforcement actions”; and expressed the hope that “protracted [380] litigation over this issue will not be necessary and that airlines will discontinue the practice … immediately.” Memorandum from Attorneys General of Colorado, Kansas, Massachusetts, Missouri, New York, Texas, and Wisconsin, dated February 3, 1988 (Exhibit A to Exhibit H to Motion for Temporary Restraining Order), App. 123a, 125a. Several months later, petitioner’s office sent letters to several respondents serving “as formal notice[s] of intent to sue.” Letter from Assistant Attorney General of Texas, dated November 14,1988, App. 115a.
Those respondents then filed suit in Federal District Court claiming that state regulation of fare advertisements is preempted by § 1305(a)(1); seeking a declaratory judgment that, inter alia, § 2.5 of the guidelines is pre-empted; and requesting an injunction restraining Texas from taking any action under its law in conjunction with the guidelines that would regulate respondents’ rates, routes, or services, or their advertising and marketing of the same. The District Court entered a preliminary injunction to that effect, determining that respondents were likely to prevail on their pre-emption claim.
Issue(s)
Justice Scalia at 378:
The issue in this case is whether the Airline Deregulation Act of 1978, 49 U. S. C. App. § 1301 et seq., pre-empts the States from prohibiting allegedly deceptive airline fare advertisements through enforcement of their general consumer protection statutes.
Discussion
At [388] of the Opinion of the Court per Justice Scalia:
One cannot avoid the conclusion that these aspects of the guidelines “relate to” airline rates. In its terms, every one of the guidelines enumerated above bears a “reference to” airfares. Shaw, 463 U. S., at 97. And, collectively, the guidelines establish binding requirements as to how tickets may be marketed if they are to be sold at given prices. Under Texas law, many violations of these requirements would give consumers a cause of action (for at least actual damages, see Tex. Bus. & Com. Code Ann. § 17.50 (1987 and Supp. 1991-1992)) for an airline’s failure to provide a particular advertised fare-effectively creating an enforceable right to that fare when the advertisement fails to include the mandated explanations and disclaimers. This case therefore appears to us much like Pilot Life, in which we held that a common-law tort and contract action seeking damages for the failure of an employee benefit plan to pay benefits “relate[d] to” employee benefit plans and was pre-empted by ERISA. 481 U. S., at 43-44,47-48.
In any event, beyond the guidelines’ express reference to fares, it is clear as an economic matter that state restrictions on fare advertising have the forbidden significant effect upon fares. Advertising “serves to inform the public of the … prices of products and services, and thus performs an indispensable role in the allocation of resources.” Bates v. State Bar of Arizona, 433 U. S. 350, 364 (1977). Restrictions on advertising “serv[e] to increase the difficulty of discovering the lowest cost seller … and [reduce] the incentive to price competitively.” Id., at 377. Accordingly, “where consumers have the benefit of price advertising, retail prices often are dramatically lower than they would be without advertising.” [389] Ibid. As Judge Easterbrook succinctly put it, compelling or restricting “[p]rice advertising surely ‘relates to’ price.” Illinois Corporate Travel v. American Airlines, Inc., 889 F.2d 751, 754 (CA7 1989), cert. denied, 495 U. S. 919 (1990).
Although the State insists that it is not compelling or restricting advertising, but is instead merely preventing the market distortion caused by “false” advertising, in fact the dynamics of the air transportation industry cause the guidelines to curtail the airlines’ ability to communicate fares to their customers. The expenses involved in operating an airline flight are almost entirely fixed costs; they increase very little with each additional passenger. The market for these flights is divided between consumers whose volume of purchases is relatively insensitive to price (primarily business travelers) and consumers whose demand is very price sensitive indeed (primarily pleasure travelers). Accordingly, airlines try to sell as many seats per flight as possible at higher prices to the first group, and then to fill up the flight by selling seats at much lower prices to the second group (since almost all the costs are fixed, even a passenger paying far below average cost is preferable to an empty seat). In order for this marketing process to work, and for it ultimately to redound to the benefit of price-conscious travelers, the airlines must be able to place substantial restrictions on the availability of the lower priced seats (so as to sell as many seats as possible at the higher rate), and must be able to advertise the lower fares. The guidelines severely burden their ability to do both at the same time: The sections requiring “clear and conspicuous disclosure” of each restriction make it impossible to take out small or short ads, as does (to a lesser extent) the provision requiring itemization of both the one-way and round-trip fares. Since taxes and surcharges vary from State to State, the requirement that advertised fares include those charges forces the airlines to create different ads in each market. The section restricting [390] the use of “sale,” “discount,” or “reduced” effectively prevents the airlines from using those terms to call attention to the fares normally offered to price-conscious travelers. As the FTC observed, “[r]equiring too much information in advertisements can have the paradoxical effect of stifling the information that consumers receive.” Letter from FTC to Christopher Ames, Deputy Attorney General of California, dated Mar. 11, 1988, App. to Brief for Respondent Airlines 23a. Further, § 2.4, by allowing fares to be advertised only if sufficient seats are available to meet demand or if the extent of unavailability is disclosed, may make it impossible to use this marketing process at all. All in all, the obligations imposed by the guidelines would have a significant impact upon the airlines’ ability to market their product, and hence a significant impact upon the fares they charge.3
In concluding that the NAAG fare advertising guidelines are pre-empted, we do not, as Texas contends, set out on a road that leads to pre-emption of state laws against gambling and prostitution as applied to airlines. Nor need we address whether state regulation of the nonprice aspects of fare advertising (for example, state laws preventing obscene depictions) would similarly “relat[e] to” rates; the connection would obviously be far more tenuous. To adapt to this case our language in Shaw, “[s]ome state actions may affect [airline fares] in too tenuous, remote, or peripheral a manner” to have pre-emptive effect. 463 U. S., at 100, n. 21. In this case, as in Shaw, “[t]he present litigation plainly does not present a borderline question, and we express no views about where it would be appropriate to draw the line.” Ibid. Finally, we note that our decision does not give the airlines carte blanche to lie to and deceive consumers; the [391] DOT retains the power to prohibit advertisements which in its opinion do not further competitive pricing, see 49 U. S. C. App. § 1381.
Useful for
Airline Deregulation Act prevents enforcement of U.S. State consumer law
