Wednesday, September 15, 2010

California Preemption Decison with Unclaimed Property Implications

A recent opinion of the California Court of Appeal relating to the preemption of a California consumer protection statute has implications for state unclaimed property laws.  In Tanen v. Southwest Airlines, the court ruled that state-law claims relating to the redemption of Southwest "travel certificates" were preempted by the federal Airline Deregulation Act ("ADA").  Although the Tanen case did not specifically deal with the California Unclaimed Property Act, the court's preemption rationale is likewise applicable to the unclaimed property laws of those states who seek to take possession of unused airline tickets.  A brief summary of Tanen is as follows:

According to the complaint, Tanen purchased a $100 travel certificate from Southwest in February of 2005.  Southwest's travel certificates are redeemable toward the purchase of an airline ticket, food and drinks on flights, and Southwest vacation packages.  The travel certificate order form indicated that "[a]ll gift certificates expire one year from the date of issue and will not be extended unless prohibited by law."  Tanen's travel certificate expired in February of 2006, and he brought suit against Southwest in May of 2006.  Tanen alleged, among other things, that the one year expiration date violated Section 1749.5 of the California Civil Code, which generally prohibits the imposition of expiration dates on gift certificates and related items.

In opposition to the suit, Southwest argued that Tanen's claims were preempted by the Airline Deregulation Act, which preempts state laws relating to the "price[s], route[s] or service[s] of an air carrier."  The lower court ruled that because the travel certificates could be redeemed for tickets, the were "at the heart of what the ADA sought to preempt," and dismissed the complaint.  On appeal, the Second District Court of Appeal affirmed.  The court concluded that Section 1749.5 related to airline "services," and was thus preempted, because enforcement of the prohibition against expiration dates would have the effect of requiring airlines "to offer travel certificates that are redeemable at any time, rather than permit them to offer travel certificates with varying expiration dates."  The court also noted that its decision was consistent with other cases in which courts concluded that state consumer protection laws could not prevent airlines from offering nonrefundable tickets.  Accordingly, the court affirmed the dismissal of the complaint, and awarded Southwest appeal costs.

Though the Tanen case did not address California's unclaimed property laws, the court's logic is no less applicable to state attempts to bring unused airline tickets within the scope of their unclaimed property laws.  Although unused airline tickets are expressly exempt in some states (such as Alaska), there are numerous states whose unclaimed property acts expressly apply to such items (e.g., Mississippi, Oklahoma, Utah, Colorado, and Oregon).  Much the same as enforcement of the California consumer protection law was preempted because its enforcement would have the effect of requiring airlines to offer a product that they did not (non-expiring gift certificates), the application of state unclaimed property laws would likewise require airlines to offer airline tickets that are valid in perpetuity.  As a practical matter, I don't know if any airline actually escheats unused airline tickets, or whether the states with such laws seek to enforce the requirement.  If so, it will be interesting to see if airlines seek to use the Tanen decision to avoid escheating these items in the future.

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