federal preemption for airlines doesn't extend to Delta's "carbon neutral" ads

Berrin v. Delta Air Lines, Inc., 2024 WL 3304815, No. 2:23-cv-04150-MEMF-MRW (D.C. Cal. Mar. 28, 2024)

The court declined to find Berrin’s consumer protection claims against Delta based on its “carbon neutral” advertising preempted by the Airline Deregulation Act (ADA, confusingly enough), though that wasn’t the end of the inquiry.

Since March 2020, Delta has repeatedly touted itself as “the world’s first carbon-neutral airline.” This claim was based on carbon offsetting via participation in the voluntary carbon offset market. Berrin alleged that “foundational issues with the voluntary carbon offset market make it impossible to make a company carbon-neutral with the purchase of offsets.” Scientists and government regulators allegedly identified Delta “as one of many companies who have grossly misstated the actual carbon reduction produced by their carbon offset portfolio.” Berrin alleged she paid a price premium based on the deception, asserting the usual California statutory claims.

The purpose of ADA preemption is to prohibit states from regulating anything “relating to [air carriers’] rates, routes, or services.” However, “ ‘some state actions may affect [airline fares] in too tenuous, remote, or peripheral a manner’ to have pre-emptive effect.” While the Supreme Court has found state regulation dictating what sort of disclosures airlines must make when advertising certain prices to be preempted by the ADA, the Court explicitly stated that it was not addressing “state regulation of the nonprice aspects of fare advertising ...” and that “the connection [there] would obviously be far more tenuous.” (Likewise, the DOT’s regulation of airline advertising is limited to matters under the scope of rates, routes, and services, and thus didn’t have preemptive relevance beyond the ADA in this case.)

American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995), involved claims against an airline’s retrotactive changes in terms and conditions to its frequent flyer program. The Court found that although both Illinois Consumer Fraud Act and contract claims had the same underlying facts—which were clearly related to rates and services—the plaintiffs’ claim was preempted but the contract claim could proceed. The ADA’s preemption clause does not “shelter airlines from suits … seeking recovery solely for the airline’s alleged breach of its own, self-imposed undertakings.” But, Wolens highlighted “the potential for intrusive regulation of airline business practices inherent in state consumer protection legislation” (emphasis added). The court here read this as “implying that there are instances in which such legislation may not be intrusive,” and found “no binding authority that holds that any attempt to regulate airline advertising or any application of consumer protection laws on airlines would be summarily preempted.”

The Ninth Circuit has held that preemption could occur even if a state law’s effect is only indirect, but that “whether direct or indirect, ‘the state laws whose effect is forbidden under federal law are those with a significant impact on [ ] rates, routes, or services.’ ” Thus, state wage and hour laws were not preempted. Concerns for a state “patchwork” of regulations are only relevant to laws “that are significantly ‘related to’ prices, routes and services.” Where “a law does not refer directly to rates, routes, or services,” “the proper inquiry is whether the provision, directly or indirectly, binds the carrier to a particular price, route, or service and thereby interferes with the competitive market forces within the industry.” Meal and rest break laws, for example, “do not set prices, mandate or prohibit certain routes, or tell [ ] carriers what services they may or may not provide, either directly or indirectly.” This is true even if the state law has “some impact on costs or market share,” including laws that “shift[ ] incentives and make[ ] it more costly for [ ] carriers to choose some routes or services relative to others, leading the carriers to reallocate resources or make different business decisions.”

The court here wasn’t holding that false or deceptive advertising regulation in general, or California consumer protection statutes generally, were preempted. Rather, it focused on “carbon neutral” claims, which did not directly refer to rates, routes, or services. Delta would not be “bound to particular rates, routes, or services” if its representations on carbon-neutrality were regulated by state law. The fact that Berrin’s injury was measured by the extra she alleged she paid didn’t mean that her claim was about Delta’s rates (though the court suggested that this injury might be unique to her). More broadly: “Berrin’s claims, if enforced, would not require that Delta should have to set its rates at any particular amount, or that it has to make any claims about carbon neutrality with regards to how it would like to market its flights.” Instead, enforcing the law meant only that “should Delta want to make a claim that it is carbon-neutral, it must actually be carbon-neutral. That damages may be ultimately be calculated in the form of a price premium does not change that the thrust of the claim itself is not an allegation of a price premium.”

Maybe requiring Delta not to advertise falsely about environmental impact could impact the prices it could charge, or increase its costs to meet the standards it claims to follow. But this was insufficient to find the necessary relation to rates for preemption. “Delta has not identified how, if at all, regulation on its carbon-neutrality representations would significantly and necessarily impact the prices they could set.” The court noted that “it is conceivable that Delta could gain market share if it advertised ‘gambling and prostitution’ to consumers. But, the precedent set by the Supreme Court clearly leaves room for states to regulate such advertisement, and suggests it would not be preempted.”

For similar reasons, Berrin’s claims didn’t sufficiently relate to Delta’s services for preemption.

 “[R]egulation on carbon-neutrality would not bind Delta to any particular service.” The complaint was clear that “carbon-neutrality is not achieved through any difference on Delta’s actual flights, which presumably exude the same amount of carbon regardless of how carbon-neutral Delta represents itself to be. … While airlines surely may compete by choosing to offer different services that would affect the travel experience, the Court finds that carbon-neutrality does not qualify as such a ‘service.’” Even if a service were involved, the regulation at issue wouldn’t bind Delta to providing carbon neutral flights, only to make accurate representations about its carbon neutrality.

Nonetheless, the FAL and UCL claims were insufficiently pleaded for lack of standing for equitable relief; the court granted leave to amend. The CLRA claim for damages was adequately alleged.