Appeals court upholds temporary injunction against frequent flyer mileage brokers

Frequent Flyer Depot, Inc., George Pirkle and Robert Pirkle v. American Airlines, Inc. (Tex. Ct. App. Feb. 26, 2009).  American’s AAdvantage frequent flyer program prohibits the purchase or sale of the program’s mileage credit or award tickets and makes such mileage or tickets void if transferred for cash or other consideration.  American sued Frequent Flyer Depot, and its owners, George and Robert Pirkle, for brokering AAdvantage mileage credit and award tickets.  In its petition, American stated causes of action for tortious interference with contract, tortious interference with prospective relations, fraud and misappropriation.

In September 2008, the trial court granted the airline’s request for a temporary injunction and issued an order enjoining the brokers from purchasing, brokering, bartering, selling, offering for sale or soliciting AAdvantage mileage credit or award tickets through the completion of the trial.  The brokers appealed the temporary injunction order, disputing its imposition for seven separate reasons:  “the underlying suit is pre-empted by federal law; the injunction does not preserve the status quo; there is no enforceable contract between American and its AAdvantage® members prohibiting members from selling their rewards points to third parties; the hearing on the temporary injunction should have been continued for appellants to obtain discovery on their antitrust-related counterclaims; American failed to show an imminent injury; American has an adequate remedy; and principles of equity bar the imposition of an injunction.”

The appeals court rejected all of the brokers’ arguments.  Most notably, the court held that American’s contract with its AAdvantage members is based on mutuality of obligation and thus is enforceable.  The brokers contended that the contract lacks mutuality of obligation, and thus is unenforceable, because it allows American to unilaterally change the terms of the program with or without notice and to terminate the program with six months notice.  The brokers argued that if the contract is not enforceable, then the airline cannot state a cause of action for interfering with that contract.  The court disagreed, noting that the contract does impose sufficient obligations on American to support a finding of mutuality, including the obligations to provide customers with mileage credit when certain conditions are met and to issue award tickets in exchange for such credit.

The court’s other noteworthy ruling is that American was able to prove irreparable injury by showing that the brokers’ conduct disrupted the airline’s business by forcing it to divert personnel resources to deal with void brokered tickets and that the airline was not required to provide evidence that use of award tickets brokered by the defendants actually resulted in the displacement of fare-paying passengers from specific flights.

Note:  In May 2008, the federal district court in Alaska Airlines v. Carey, which is pending in the state of Washington, rejected a similar mutuality of obligation argument that had been made by the frequent flyer mileage brokers in that case.

Update:  On December 30, 2009, Frequent Flyer Depot and the Pirkles filed a petition for a writ of certiorari with the U.S. Supreme Court, which denied the petition on March 29, 2010.

Leave a Reply