June 10, 2014 Articles

EU 261 Class-Action Lawsuits in Illinois

By Deborah A. Elsasser

Over three years ago, several airline passengers filed putative class-action lawsuits in the U.S. District Court for the Northern District of Illinois against British Airways, Delta, United/Continental, Iberia, Alitalia, and Lufthansa for breach of contract and failure to pay damages for air-transportation delay under Regulation No. 261/2004 of the European Parliament and European Council. The regulation, commonly known as EU 261, applies to all European Union (EU) airlines for flights operating anywhere and to non-EU airlines for flights operating from EU airports. The regulation requires airlines to award passengers fixed compensation under EU 261 for flight cancellations or delays of three or more hours, except where the delay was caused by extraordinary circumstances that could not be avoided. These particular cases were brought by passengers who experienced a flight cancellation or delay on flights from the European Union to the United States but were not provided with EU 261 compensation. The cases generated much interest in the aviation legal community because of the potential for class-action lawsuits to be brought against airlines in the United States on the basis of the alleged violation of a purely foreign regulation governing compensation for flight delays and cancellations.

After more than three years of litigation in seven unconsolidated actions pending before four district judges, all of the cases have been dismissed. While appeals have been filed from the dismissals, it appears at last that a clear set of rulings, mostly in favor of the airlines, has emerged from the ragtag procedural history of these unconsolidated lawsuits.

Northern District of Illinois Courts Address Breach-of-Contract Claims
The plaintiffs originally asserted breach-of-contract claims against the airlines alleging that the airlines incorporated EU 261 into their respective conditions of carriage and breached those conditions by failing to compensate the passengers in accordance with EU 261. The courts dismissed the breach-of-contract claims as to those airlines that did not explicitly incorporate EU 261 into their conditions of carriage (Delta, British Airways, and Continental) on the ground that the breach-of-contract claims relate to the airlines’ services and thus are preempted by the Airline Deregulation Act of 1978 (ADA). See, e.g., Volodarskiy v. Delta Air Lines, Inc., No. 11 C 00782 (N.D. Ill. Oct. 29, 2012).

As to those air carriers that expressly incorporated EU 261 into their conditions of carriage (Alitalia, Iberia, and Lufthansa), preemption does not apply because the contractual obligation is a “self-imposed undertaking” by the airline that falls within the exception to preemption espoused in American Airlines v. Wolens, 513 U.S. 219 (1995). See Polinovsky v. Deutsche Lufthansa,No. 11 C 780 (N.D. Ill. Mar. 30, 2012); Giannopoulos v. Iberia Líneas Aéreas de España, S.A., No. 11 C 775 (N.D. Ill. July 27, 2011); Gurevich v. Compagnia Aereas Italiana SPA, No. 11 C 1890 (N.D. Ill. Jan. 17, 2012). In Wolens, the U.S. Supreme Court held that the ADA does not preempt state-law breach-of-contract claims arising from contractual obligations voluntarily undertaken by an airline.

Of these three airlines, Alitalia raised a “tariff defense,” arguing that its passengers cannot bring a breach-of-contract claim because Alitalia’s official tariff filed with the U.S. Department of Transportation (DOT) states that Alitalia’s conditions of carriage do not apply to transportation between the United States and the European Union. The plaintiffs challenged the validity of Alitalia’s tariff, and the court dismissed the claim without prejudice on primary-jurisdiction grounds, giving the plaintiffs the opportunity to challenge the validity of the tariff before the DOT. The DOT subsequently upheld the validity of Alitalia’s tariff, and the plaintiffs were unable to pursue their breach-of-contract claims against Alitalia.

The remaining two carriers, Iberia and Lufthansa, did not raise the tariff defense and instead moved to dismiss the breach-of-contract claims on the ground that the claims are preempted under the ADA and/or the Montreal Convention, a treaty applicable to international air transportation. Because Iberia voluntarily agreed to abide by EU 261 by incorporating the regulation into its conditions of carriage, the court held that the ADA does not preempt the plaintiff’s claims. Likewise, the court rejected Iberia’s Montreal Convention preemption argument on the ground that under Seventh Circuit precedent, state-law claims are not preempted by the Montreal Convention if the claim is not inconsistent with the terms and conditions of the convention. The court rejected the airline’s argument that the plaintiffs’ claim for EU 261 damages runs afoul of the Montreal Convention’s prohibition of awards of “punitive, exemplary or non-compensatory damages” under Article 29 and found that EU 261 damages serve not only as an incentive to airlines to avoid cancellations and delays but also to compensate passengers. Accordingly, Article 29 does not prohibit recovery for EU 261 damages. See Giannopoulos v. Iberia Líneas Aéreas de España, S.A., 2012 WL 5383271 (N.D. Ill. Nov. 1, 2012). After conducting extended class discovery, the court dismissed the breach-of-contract claim, and the plaintiffs accepted Iberia's Rule 68 offer of judgment.

In response to Lufthansa’s motion to dismiss the breach-of-contract claims, the judge rejected Lufthansa’s preemption arguments under the same reasoning as the judge presiding over the Iberia action. The court subsequently denied Lufthansa’s summary-judgment motion based on its additional defenses that the delay was caused by “extraordinary circumstances” and contesting the existence of a contractual relationship with the particular plaintiffs. The court held that issues of fact exist precluding summary judgment on these grounds. See Polinovsky v. Deutsche Lufthansa, No. 11 C 780 (N.D. Ill. Mar. 14, 2014). After conducting discovery, the plaintiffs accepted Lufthansa's offer of judgment.

Northern District of Illinois Courts Address the Private-Right-of-Action Claim
After the courts addressed and dismissed (with the two exceptions noted above) the breach-of-contract claims, the plaintiffs amended their complaints to add direct claims for violation of EU 261. All of the airlines moved in their respective lawsuits to dismiss the claim on the ground that EU 261 is not enforceable outside the legal systems of EU member states. The plaintiffs argued that EU 261 clearly created a private right of action to file court claims in the EU against airlines, and the language of EU 261 expressed the intent that plaintiffs could sue in any court of any nation. Specifically, the plaintiffs relied on the language of the preamble to EU 261, which refers to the rights of passengers to seek “legal redress from courts under procedures of national law.”

The airlines argued that the text of EU 261 does not explicitly authorize foreign-court enforcement actions and that all references in the regulation are to EU “Member States” when discussing the various rights and duties created by the regulation as well as enforcement provisions thereof. Additionally, the European Court of Justice has expressed concern about the consistency and unity of the EU legal system, which would be jeopardized by allowing passengers to bring class-action claims in the United States seeking compensation under EU 261.

The courts considering the arguments in the unconsolidated cases all sided with the airlines and held that the EU did not clearly intend to authorize a private right of action to enforce EU 261 in courts outside the European Union. See, e.g., Volodarskiy v. Delta Air Lines, Inc., No. 11 C 00782 (N.D. Ill. Oct. 16, 2013).

The plaintiffs have filed an appeal to the Seventh Circuit Court of Appeals. The first appeal (in the case against Delta) was argued on April 17, 2014. Briefing in the other appeals has been stayed pending a decision in the case against Delta.

Keywords: litigation, mass torts, breach of contract, Department of Transportation, conditions of carriage, Airline Deregulation Act

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