United States: California Court Of Appeal Finds AG's Privacy Suit Over Fly Delta Mobile App Is Preempted

In a recent ruling, California's Court of Appeal unanimously affirmed the dismissal of California's complaint against Delta Air Lines, Inc. ("Delta"), which alleged that the company's Fly Delta mobile application violated California's privacy laws.1 The Court of Appeal held that the lawsuit was expressly preempted by the Airline Deregulation Act of 1978 (ADA). The holding is in line with other cases broadly applying the ADA's preemption provision and limits the extent to which airlines may be required to comply with state privacy laws.

California's Lawsuit

The California Attorney General (AG) brought the lawsuit against Delta to enforce California's Online Privacy Protection Act of 2003 (CalOPPA), Cal. Bus. & Prof. Code §§ 22575-22579. In pertinent part, CalOPPA requires an operator of a commercial website or online service to draft and post online a privacy policy informing consumers in California "of the Web site's or online service's information practices with regard to the consumers' personally identifiable information[.]" CalOPPA also places certain other requirements on operators of websites or online services.

The AG argued that Delta violated CalOPPA in connection with the Fly Delta mobile app, which can be downloaded from the Internet and used on smart phones and other mobile devices (and therefore arguably makes Delta "an operator of online services" subject to CalOPPA). Users can do a variety of things on the app, including checking in for flights, viewing reservations for air travel, pricing and buying tickets, paying for and tracking checked baggage, and accessing their frequent flyer accounts. The app also purportedly allows users to send and receive information over the Internet, and collects certain personally identifiable information (PII) about individuals residing in California.

The AG alleged that Delta did not conspicuously post a privacy policy as required by CalOPPA.  According to the complaint, app users allegedly were not informed that their PII was collected, how Delta used such information, or with whom that information was shared, disclosed, or sold. The AG first notified Delta that the app did not comply with CalOPPA in an October 2012 letter.  Less than two months later, the AG filed its complaint alleging that the app "does not have a privacy policy conspicuously posted, i.e., reasonably accessible to consumers within the [mobile application.]" The AG's complaint contained a single cause of action under California's Business and Professions Code section 17200 (the "unfair competition law" or UCL), claiming that Delta's CalOPPA violations were "unlawful, unfair, or fraudulent business acts and practices" under the UCL.

Delta responded with a demurrer in which it argued that the ADA expressly preempted the AG's lawsuit. The ADA is a 1978 federal law intended to remove government control over fares, routes, and new carriers entering the market in the commercial aviation field. The ADA contains an express preemption provision that prohibits the states from enacting or enforcing any law, regulation, or provision "related to a price, route, or service of an air carrier[.]" 49 U.S.C. § 41713(b)(1). The trial court agreed with Delta, sustaining the demurrer without leave to amend and dismissing the complaint with prejudice. The AG appealed.

The Court of Appeal's Opinion

The Court of Appeal affirmed, holding that the ADA preempted California's UCL claim against Delta. The court began by reiterating the "'two cornerstones' of federal preemption analysis": First, that congressional intent is the focus of the analysis, and second, that there is a presumption against preemption.

Supreme Court Precedent

Applying those cornerstone principles here, the court was guided by three cases in which the U.S. Supreme Court addressed the reach of the ADA's preemption provision: Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992), American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995), and Northwest, Inc. v. Ginsberg, 134 S.Ct. 1422 (2014).

In Morales, the Supreme Court held that the ADA preempted Travel Industry Enforcement Guidelines composed by the National Association of Attorneys General (NAAG). The NAAG guidelines purported to govern the content and format of airline fare advertising and were designed to stop allegedly deceptive airline advertisements. The Supreme Court interpreted the "relating to" language in the ADA preemption clause broadly, and held that the ADA preempted the NAAG guidelines because they were "related to" a price, route, or service of an air carrier.  Morales, 504 U.S. at 383-384.

The Court similarly found that the ADA preempted the plaintiffs' claims in Wolens. In Wolens, the plaintiffs alleged American Airlines' retroactive modification of its frequent flyer program violated Illinois' Consumer Fraud and Deceptive Business Practices Act. The Supreme Court held that the claims related to American Airlines' "'[prices],' i.e. American's charges in the form of mileage credits for free tickets and upgrades, and . . . 'services,' i.e. access to flights and class‑of-service upgrades unlimited by retrospectively applied capacity controls and blackout dates." Wolens, 513 U.S. at 226.  Because they related to prices and services, the claims were preempted by the ADA.

In Ginsberg, the Supreme Court reaffirmed its broad interpretation of the ADA's preemption provision. The Court concluded that the ADA preempted the plaintiffs' claims for breach of the implied covenant of good faith and fair dealing stemming from allegations that the airline terminated their memberships to its frequent flyer program. The Court found that airline's frequent flyer program was "related to" the airline's prices and services, and thus that the claims were preempted by the ADA.

ADA Preemption, CalOPPA, and the Fly Delta App

Turning to California's claim here, the court began by addressing a few issues that had been resolved by Morales and Wolens.

First, the court noted that, in assessing whether the ADA preempts the AG's UCL action, the court would examine the underlying state law predicate—i.e., CalOPPA.

Second, the court explained that, in analyzing the preemption issue, it was not required to apply the presumption against preemption because the field governed by the ADA—air transportation—has long been regulated at the federal level.

Third, the court rejected the AG's argument that the complaint did not "relate to" Delta's service. The app was designed to facilitate access to the airline's services, and the AG was trying to compel Delta to maintain the app in compliance with CalOPPA.  Thus, the lawsuit "related to" Delta's services. Notably, the court did not decide whether the app itself was a "service" within the meaning of the ADA.

The court then concluded that the ADA preempts California's UCL/CalOPPA claim as applied to Fly Delta. The court explained that CalOPPA is not a mere "disclosure regimen" within which operators of online services may act with broad discretion. Rather, CalOPPA is similar to the consumer protection legislation at issue in Morales and Wolens, and has the potential to intrusively regulate airlines.  Moreover, as in Morales, the obligations imposed by CalOPPA would significantly affect the airline's ability to market its product through the app, and would therefore have a meaningful impact on the fares Delta charges. As the court explained, quoting Morales: "If each AG were to require Delta to comply with its own version of CalOPPA, it would force Delta to design different mobile applications to meet the requirements of each state. And, indeed, enforcement of the CalOPPA's privacy policy requirements might well make it impossible for an airline to use a mobile application as a marketing mechanism at all."

Finally, the court rejected the AG's argument that CalOPPA would have only "a peripheral effect on ticket prices, routes, or airline services." CalOPPA would instead "require Delta to meet state standards regarding privacy policy requirements in place of the market forces currently dictating Delta's selection and design of" Fly Delta.

Because the ADA preempted California's UCL claim for violation of CalOPPA, the court upheld the dismissal of the complaint. And it did so without leave to amend, finding that there was no reasonable possibility that the AG could amend to avoid ADA preemption.

What This Means

Delta reinforces the broad scope of the ADA's preemption provision. As the case makes clear, airlines have a strong argument that state laws like CalOPPA, which apply across industries and seem to have only a remote effect on the airline's prices, routes, or services, simply cannot be applied to them. But this does not mean that the airlines may operate unchecked in areas governed by CalOPPA and other preempted laws. As the Delta court noted, quoting Wolens, Morales, and Ginsberg: "[T]he DOT retains authority to investigate unfair and deceptive practices and unfair methods of competition by airlines, and may order an airline to cease and desist from such practices or methods of competition." The court further stated that DOT appears to have "taken action" related to the collection of PII by air carriers, and privacy policies for the sharing and storage of that PII. To date, however, the DOT has issued no regulations governing the form and placement of privacy policies related to an airline's mobile app. And until the DOT does, state privacy laws cannot fill the gap.

Footnotes

1 People ex rel. Harris v. Delta Air Lines, Inc., Case No. A139238, 2016 LEXIS 419 (Cal. Ct. App. May 25, 2016).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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