Analysis

DOT Airline Route, Refund Mandates Stir Legal Turmoil

By Linda Chiem
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Law360 (April 9, 2020, 9:56 PM EDT) -- The U.S. Department of Transportation's recent orders governing airlines' service routes and consumer practices during the coronavirus pandemic will fuel litigation, but airlines struggling with cash flow are expected to continue pressing the government for more flexible mandates, experts say.

U.S. airlines won't have free rein to eliminate unprofitable routes or withhold customer refunds for canceled flights even as government travel advisories and stay-at-home mandates aimed at combating the COVID-19 outbreak obliterate their passenger volumes and revenues.

The DOT issued a final order Tuesday revising minimum service obligations for air carriers that accept grants, loans or other relief funds from the third COVID-19 economic relief package, the Coronavirus Aid, Relief and Economic Security Act.

Days earlier, the DOT issued an enforcement notice warning airlines that they're still required to refund passengers for flights that are canceled or significantly delayed, even as they contend with the unprecedented global health crisis.

Experts say the directives, at least for the next six months, may swell the number of administrative complaints and legal challenges from consumer advocates and plaintiffs attorneys seeking to block airlines from using the pandemic as an excuse to deny proper refunds to customers.

But as airlines grapple with how to bring themselves into compliance amid plummeting demand for travel, they'll aggressively lobby for more flexible regulations to cushion themselves from the legal blows, experts added.

Many U.S. airlines have already applied for grant funding under the CARES Act to cover payroll through September, with the understanding that the government handout comes with plenty of conditions. Among them, they'll have to commit to maintaining various routes and flight schedules even if they keep losing money on them. The DOT's final order on Tuesday spelled out what those minimum air service obligations would be for the airlines.

Mark Dombroff, a partner with Fox Rothschild LLP and a former U.S. Department of Justice and Federal Aviation Administration attorney, told Law360 that the airline industry "is too important to fail" so regulatory flexibility will be crucial to helping the industry — and the broader economy — adapt to what emerges as the new normal.

"I don't think that any requirement that may be put out by the DOT is going to be cast in concrete," Dombroff said. "With respect to the levels of service, the levels of seasonal service or the airports being served, I think you're going to see something of a moving target [and] requirements that adapt to the reality of the circumstances."

The DOT's order on Tuesday included a tentative list breaking down the number of routes and cities or regions that airlines will have to commit to. However, the regulator acknowledged that it may not be practical for all airlines — some of which have had to slash capacity by as much as 90% — to keep flying a specific route or serve a certain city, so they'll be allowed to apply for exemptions and waivers.

New York-based JetBlue and Florida-based low-cost carrier Spirit Airlines were among the first airlines to apply for DOT exemptions.

Spirit, which says it's in "survival mode," asked to cut 26 cities from its network, saying none of the cities on its list are small or remote, and each will have continuous access to air transportation either directly or through a neighboring hub, according to its DOT exemption request.

JetBlue applied for a DOT exemption to temporarily suspend service to nearly a dozen airports — including Dallas/Fort Worth International Airport, Minneapolis−Saint Paul International Airport and Portland International Airport — from April 15 through June 10.

Those are in addition to JetBlue's previously announced plans to consolidate or bundle flights to five major markets — Boston, Los Angeles, New York, San Francisco and Washington, D.C. — that have access to several airports.

"Every airline has different demands being placed on it ... but we're going to see that one size doesn't fit all," Dombroff said. "And I have every reason to believe the DOT will be flexible on these rules."

Meanwhile, an April 3 DOT notice related to airlines' refund policies has amplified tension in the industry, creating an opening for consumer advocates and plaintiffs attorneys to pursue legal challenges they say protect passengers' rights.

Dombroff described the trend toward class action litigation as "unfortunate."

"For it to become sort of that one man's crisis is another man's opportunity — unless there's a solid basis for the lawsuits — I just think it's a sad comment upon the direction we're going and how this is being dealt with," he said.

Within days of the DOT's notice, Chicago-based United Airlines was hit with at least three proposed class actions over its alleged refusal to refund passengers for canceled flights, instead offering travel vouchers to be redeemed on future flights.

The first of the lawsuits, filed by Minnesota police officer Jacob Rudolph, claimed that United changed its refund policy four times in a one-week span in March, "misrepresenting to passengers on United canceled flights that such passengers were limited to rebookings or travel vouchers."

United had an existing policy stating that passengers would receive a full refund for flights that are canceled by the airline. DOT rules also state that a passenger is entitled to a refund if the airline canceled a flight, regardless of the reason, and the passenger chooses not to be rebooked on a new flight on that airline.

"Such changes to the refund policies strengthen plaintiff's claims for consumer fraud and deceptive business practices, as well as for fraudulent misrepresentation against United Airlines," said Kelly Williams, founder and managing partner of San Diego-based Slate Law Group.

And now that the DOT's April 3 enforcement notice clearly requires that refunds be issued, "United Airlines' defenses against their refusal to pay refunds might be weak at best," Williams said.

A United Airlines spokesperson declined to comment on ongoing litigation. However, the airline defended policies it has implemented to give its customers flexibility since the start of the COVID-19 crisis, including allowing them to change their travel plans without a fee.

"Eligible travelers on domestic flights — and customers with international tickets — can request a refund on united.com or may call our contact centers if their flights have been severely adjusted or service to their destination suspended either due to government mandates or United schedule reductions related to COVID-19," United said in a statement to Law360 on Thursday. "We are proud of the role our company and our employees play during this crisis and continue to operate to nearly every domestic destination as well as six international markets across the globe including our partner hubs."

Experts say United and other airlines facing similar claims may dig in their heels and wield their contracts of carriage with ticketed passengers — which many consumers hardly bother to read — to deflect challenges to their refund policies. The arguments may come down to whether the airline initiated the cancellation or the consumer chose to cancel to comply with public health directives and official advisories against non-essential travel, they explained.

"As a matter of strict contract law, despite all of our general negative feelings toward the airlines, they're in the business of making money and this was the deal you negotiated ... and so that's the tension," said Andrew Pollis, a professor with Case Western Reserve University School of Law and former litigator with Cleveland-based Hahn Loeser & Parks LLP.

But there are strong public policy arguments to justify consumers' reluctance to travel that can be weighed against airlines' insistence on enforcing contracts due to the financial pressure that's preventing them from coughing up refunds.

"Consumer anxiety is already at its zenith and so when you can't get your money back from an airline, it can be very stressful and it's certainly not a very good PR move long-term for the airlines to tell people, 'No, we're not going to give you your money back. You have the choice of flying and it's up to you to decide not to,'" Pollis said.

The International Air Transport Association, the industry group for air carriers worldwide, has said it was "deeply disappointed" by the DOT's hard-line stance on travel vouchers. IATA CEO Alexandre de Juniac acknowledged in an April 3 blog post that passengers have the right to get their money back because they paid for a service that cannot be delivered. But given the "profound crisis," he urged regulators to relent on ordering airlines to provide immediate refunds.

"We propose vouchers that could be used for future travel or refunded once we are out of this crisis period," de Juniac said in the post. "This would buy the industry vital time to breathe — surviving the crisis so that they are ready to fly when better days arrive."

However, not everyone is sympathetic to the airlines' plight given the total $50 billion in cash grants and loans they've received from taxpayers in the CARES Act.

John Breyault, the National Consumers League's vice president of public policy, telecommunications and fraud, told Law360 that the airlines have long played games with customer refunds, so consumers are entirely within their rights to seek redress through the courts.

"For any airline — United or anybody else — to suggest that because of the financial situation they find themselves in, they're unable to offer refunds and basically follow the law, that strikes me as a fairly weak argument," Breyault said. "We're talking about the worst economic downturn since the Great Depression and consumers are trying to pay the rent and keep the lights on. So for an airline to keep money that is owed to consumers and then sort of point fingers when they try to be made whole through the courts, that just seems to me to be the height of chutzpah."

--Editing by Kelly Duncan and Emily Kokoll.

For a reprint of this article, please contact reprints@law360.com.

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