AZ DNR, LLC d/b/a ERC, LLC v. Luxury Travel Brokers, Inc. and Timothy W. Gibson (D. Kan. Oct. 24, 2014). Litigation between brokers has revealed some of the inner workings of the secondary wholesale market for frequent flyer program points and miles. In its complaint, ERC alleged that it is “in the business of purchasing and repurposing unwanted credit card reward points and frequent flyer miles” from consumers. ERC deposits the purchased points and miles in a “bank” it maintains and then resells them to travel agencies and other customers. Luxury Travel Brokers, which does business as “Flyer Miles” and “Flyer Smiles,” bought points and miles from ERC for resale to its own wholesale and retail customers.
Over time, ERC and Luxury Travel became so chummy that ERC permitted Luxury Travel to “self-serve” by accessing the bank directly and withdrawing points and miles as needed. However, according to ERC, Luxury Travel became too familiar with the bank, helping itself to points and miles but not paying for them, and even taking points and miles that were not available for purchase. When the parties’ negotiations over compensation for the excessive self-service failed, ERC filed suit. ERC sued not only Luxury Travel but Timothy Gibson, the owner of Flyer Miles and Flyer Smiles, as well. ERC’s complaint asserted claims for tortious interference with contracts and prospective contracts, violation of the federal Computer Fraud and Abuse Act, breach of contract and unjust enrichment.
The defendants filed a motion to dismiss. Their main argument was that ERC lacked standing to bring the lawsuit because ERC “has no legitimate property rights” in the points and miles in the bank because “[p]ursuant to the contracts between these customers and the airlines and financial institutions, these frequent flier miles and reward points are generally the property of the airlines and financial institutions, until redeemed by the customer.” The court denied the motion to dismiss, primarily because the motion raised various factual defenses that the court could not consider in deciding a motion to dismiss. For example, the court ruled that ERC had “sufficiently alleged” that it “purchased points and miles from others.”
The defendants then filed their answer to the complaint. Ironically, one of their affirmative defenses, entitled “public policy,” mirrored the primary claim that airlines typically assert in lawsuits against brokers; the defendants explained their “public policy” defense as follows: “Plaintiff’s recovery in this matter is barred for the reason that Plaintiff’s alleged sale of frequent flier miles and credit card reward points necessarily involves the breach of Plaintiff’s ‘customers’ [sic] third party contracts with airlines and financial institutions. Thus, Plaintiff cannot show that it has any lawful right that has been interfered with. Furthermore, it would be against public policy to allow an individual to sue for interference with property rights that are only ‘acquired,’ to the extent they are so acquired, if at all, via the necessary breach of an individual’s third party contract with another individual.”
However, the defendants will not have the opportunity to prove at trial that the brokerage of points and miles fundamentally violates public policy. Due to what the court described as the defendants’ “pattern of intransigence and violations of Court orders,” it entered a default judgment against them. The remainder of the case will be limited to litigation over the quantification of the damages to which ERC is entitled and whether ERC is entitled to injunctive relief. The damages phase of the lawsuit should provide an additional insight into this secondary wholesale market by showing the value that market participants place on points and miles.
Note: ERC operates the website earnrewardscash.com, which advertises that “We Buy CREDIT CARD POINTS and AIRLINE MILES! Safe. Simple. Discreet. Guaranteed.” Timothy Gibson was the founder of Alpha Media Group, LLC, which does business as Alpha Flight Guru and operates the website alphaflightguru.com.
Update: On May 21, 2015, the court entered a judgment in ERC’s favor for $502,543.46 against Luxury Travel Brokers and Timothy Gibson.