ATPCO not liable to Alitalia for fare coding mistake

September 9, 2008

Alitalia Linee Aeree Italiane, S.p.A. v. Airline Tariff Publishing Company (S.D.N.Y. Sept. 5, 2008).  ATPCO serves airlines by collecting and distributing their fare data.  Over 500 airlines throughout the world send fare data to ATPCO, which electronically distributes such data to global distribution systems (such as Sabre, Amadeus/System One, Worldspan and Galileo) and computer reservation systems.  ATPCO is owned by 24 domestic and foreign airlines and the company and its predecessor entities have been in existence since 1945.

In 1986, Alitalia and ATPCO entered into a written agreement that governed ATPCO’s provision of fare data services to the airline.  That agreement contained a clause in which ATPCO disclaimed liability for consequential damages resulting from any error made in incorporating or distributing Alitalia’s fare data.  The agreement also contained ATPCO’s agreement to act as Alitalia’s “agent” for purposes of incorporating and distributing the airline’s fare data.

Early in February 2004, Alitalia sent a fax to ATPCO setting forth instructions for reducing fares during the airline’s “low season” (February 21 through April 4).  In entering the fare information into ATPCO’s database, an ATPCO employee made a coding mistake (typing the number “41” rather than “40” into a certain field) that resulted in the reduced fares being entered without any date restriction.  ATPCO then distributed the erroneous fare data to the participating global distribution systems and computer reservation systems.  Three days later, the mistake was caught and corrected, but not before numerous happy customers had bought Alitalia tickets at heavily, and mistakenly, discounted fares.

Alitalia sued ATPCO, alleging causes of action for breach of contract, breach of fiduciary duty, negligence and gross negligence.  Alitalia alleged that ATPCO’s conduct had caused the airline to lose over $3.7 million in revenue.

The parties filed cross-motions for summary judgment on the issue of ATPCO’s liability.  Alitalia argued that ATPCO’s error constituted a breach of the parties’ agreement, a breach of ATPCO’s independent fiduciary duty to Alitalia and, because ATPCO allegedly had a history of similar fare coding mistakes yet had failed to take adequate steps to prevent more mistakes from occurring, gross negligence.  Understandably, ATPCO stood behind the limitation of liability clause, arguing that the court should make Alitalia “lie in the bed it made more than 20 years ago” when it, a sophisticated commercial entity, agreed to the limitation of liability clause as part of the agreement.

The court granted summary judgment in favor of ATPCO.  The court held that the limitation of liability clause applied to ATPCO’s error and precluded Alitalia from recovering its lost revenue consequential damages from ATPCO.  The court also held that even though ATPCO had been acting as Alitalia’s “agent,” Alitalia’s breach of fiduciary duty cause of action was also subject to the contract’s limitation of liability clause.  Finally, the court rejected Alitalia’s negligence and gross negligence causes of action because all of the parties’ duties to each were set forth in their agreement, and ATPCO had no data input duties to the airline that were separate from those set forth in the agreement.  Thus, the court held, all of Alitalia’s claims against ATPCO were contractual in nature, and Alitalia had contracted away its ability to recover consequential damages arising from any ATPCO mistake in incorporating or distributing the airline’s fare data.

Note:  This case did not progress far enough so that damages issues were litigated.  If it had, would Alitalia have been able to prove that, for each ticket sold at an incorrect fare, its damages consisted of the difference between the incorrect and correct fares?  ATPCO probably would have contended that, to recover such damages, Alitalia bore the burden of proving that the customers who bought tickets at the lower, incorrect fares would have purchased tickets at the substantially more costly correct fares or that passengers holding the incorrectly-fared tickets occupied seats that would otherwise have been occupied by passengers who paid the correct fare amounts.  Perhaps the answer to this question would have been found in the frequent flyer mileage brokering opinions of the early 1990’s, including the opinion in American Airlines v. Christensen in which the Tenth Circuit held that the airline was entitled to full fare damages against the mileage brokers.

Another issue, which ATPCO apparently anticipated via the mitigation of damages affirmative defense it asserted, is whether Alitalia had a duty to mitigate its damages by rescinding the incorrectly-fared tickets under the unilateral mistake doctrine described in Restatement (Second) of Contracts § 153.  Unless Alitalia appeals the court’s decision (which seems unlikely given that the airline recently filed for bankruptcy protection and that it has been losing $3 million a day), and wins on appeal (which is even more unlikely), we will never know the answers to these questions.


Southwest persuades court to shut down boarding pass company’s operations

September 17, 2007

Southwest Airlines Co. v. BoardFirst, L.L.C. (N.D. Tex. Sept. 12, 2007).  BoardFirst went into business in 2005 to assist Southwest passengers in obtaining the coveted “A” group boarding passes.  “A” boarding passes are obtained by the first 45 passengers to check in, and “A” passengers are the first to board the aircraft.  A BoardFirst customer authorizes the company to act as the customer’s agent.  When the customer’s boarding pass becomes available, a BoardFirst employee uses the customer’s personal information to log onto southwest.com and attempt to obtain an “A” boarding pass for the customer.  BoardFirst notifies its customer if it was successful; if so, BoardFirst collects a $5 fee from the customer, who prints the boarding pass via southwest.com or at an airport kiosk.

Southwest sent BoardFirst cease and desist letters, but BoardFirst continued to operate.  So Southwest sued BoardFirst, alleging causes of action for breach of contract, violation of the federal Computer Fraud and Abuse Act and for violation of a Texas statute prohibiting harmful access to a computer.  Southwest sought damages as well as a permanent injunction against BoardFirst’s operations.  Southwest moved for partial summary judgment on its causes of action and on BoardFirst’s counterclaims for tortious interference with contractual relations.

The court granted Southwest’s motion as to its breach of contract cause of action, holding that BoardFirst had breached the parties’ “browsewrap” agreement.  A browsewrap agreement is entered into between a web site owner and a user of the site when the user accesses the site after having received actual or constructive knowledge that such access constitutes acceptance of the site’s terms and conditions.

Southwest.com’s home page displayed a notice stating that use of the site constitutes acceptance of Southwest’s terms and conditions, one of which was that site use was only permitted for “personal, non-commercial purposes.”  The court held that BoardFirst had actual knowledge of the prohibition against commercial use of the site since at least the time it received Southwest’s first cease and desist letter.  BoardFirst argued that it did not breach the contract because its use of the site was authorized by its customers.  The court rejected this argument, holding that BoardFirst’s authorization to act for its customers “does not make its conduct any less of a violation of the Terms.”

The court then considered whether Southwest had suffered damages due to BoardFirst’s conduct.  Southwest argued that it had incurred damages because BoardFirst’s activities had decreased traffic on its site, thereby depriving Southwest of selling and advertising opportunities, and because BoardFirst’s activities had interfered with Southwest’s effort to build an “egalitarian” image by creating a “de facto first class” for its flights.

The court held that Southwest was entitled to damages but that its damages were impossible to quantify, thus making the remedy of a permanent injunction “particularly suitable.”  The court permanently enjoined BoardFirst “from using southwest.com in a way that breaches the Terms posted on the site.”  The court denied Southwest’s motion as to its federal and state computer-related causes of action and as to BoardFirst’s tortious interference counterclaims.

Note:  This opinion is significant because many web site owners, such as Ticketmaster in its lawsuit against Tickets.com, have failed to persuade courts to enforce their sites’ terms and conditions.  The opinion provides an effective road map for airlines that wish to make sure that users of their sites comply with the sites’ rules.


Canadian company files lawsuit against 1st-Air.Net

May 17, 2007

On May 9, 2007, Ticketmaster Canada Ltd. filed a lawsuit against 1st-Air.Net, Inc. and another defendant in the Supreme Court of British Columbia seeking damages of US$91,315.54.  According to its Statement of Claim, Ticketmaster had entered into an agreement allowing the defendants to use Ticketmaster’s system to process credit card transactions and defendants breached such agreement by failing to pay for credit card chargebacks totaling the amount of damages sought.  Ticketmaster alleges that both 1st-Air.Net and the other defendant, MAR-RAY Associates, Inc., do business in Canada under the name “Livingston Travel” and that 1st-Air.Net’s principal office in the U.S. is located in Rochester, New York.

Update:  On February 29, 2008, the court granted Ticketmaster’s request to add Robert Laney and Jacqueline DiBella as defendants in the case.  On July 24, 2008, the court entered a default judgment against Robert Laney for US$91,315.54 plus interest and costs.


Court continues to trim airline lawsuit against Internet service vendor

February 18, 2007

Deutsche Lufthansa AG v. The Boeing Company (S.D.N.Y. Feb. 2, 2007).  In 2003, Lufthansa and Boeing entered into a contract in which Boeing agreed to provide high-speed Internet service for passengers on long-haul Lufthansa flights.  In 2006, after Lufthansa had spent substantial sums in developing the service, Boeing notified Lufthansa that it had decided to discontinue its Internet service business, in its entirety, at the end of the year.

In response to Boeing’s notice, Lufthansa filed a lawsuit seeking specific performance and damages.  As reported earlier, in October 2006 the court dismissed the portion of Lufthansa’s complaint seeking specific performance because the parties had agreed in their contract to limit their remedies against each other to damages.

Boeing had also moved to dismiss the portion of Lufthansa’s complaint seeking damages in excess of the $1,000,000 damages limit in the parties’ contract, but the court did not rule on that issue in its October decision.  Earlier this month, the court upheld the damages limit.  The court reasoned that “the conduct alleged by Lufthansa falls well below the levels required by the New York courts to invalidate a mutually agreed upon limitation of liability” because Boeing had acted rationally, and without malice toward Lufthansa, in discontinung its Internet service business.


Court sorts out liability in aircraft ground incident case

January 9, 2007

North American Airlines, Inc. v. Virgin Atlantic Airways, Ltd. (E.D.N.Y. Dec. 22, 2006).  During towing by a tug driver from a hardstand to a terminal departure gate, a wing tip of a Virgin A340 aircraft collided with the tail of a parked North American Airlines aircraft.

NAA sued Virgin, which filed third-party complaints against ASI, which had provided the tug driver and the “wing walker,” and Mach II, which had provided the cockpit-based “brake rider.”  ASI and Mach II filed cross-claims against each other.  NAA moved for summary judgment against Virgin, Virgin moved for summary judgment against ASI, and Mach II moved for summary judgment against ASI.

The court held that Virgin is not liable to NAA under New York Business Law sec. 251 because the phrase “use or operation” in that statute (which was intended to make aircraft owners liable to crash victims) does not cover situations involving aircraft being towed.  The court ruled that Virgin is not liable to NAA under the principle of vicarious liability because a jury could conclude that ASI and Mach II were Virgin’s independent contractors, not its agents.  The court held that ASI is liable to Virgin for the actual damages to its aircraft because “ASI’s employee clearly operated the tug in a negligent manner.”  Finally, the court declined to grant Mach II’s summary judgment motion against ASI because questions of fact exist as to whether Mach II was partially responsible for the collision.


Vendor permitted to discontinue Internet service to airline

November 9, 2006

Deutsche Lufthansa AG v. The Boeing Company (S.D.N.Y. Oct. 30, 2006).  In 2003, Lufthansa and Boeing entered into a 70-page contract in which Boeing agreed to provide high-speed Internet service for passengers on long-haul Lufthansa flights.  In August 2006, Boeing notified Lufthansa that it had decided to discontinue its Internet service business, in its entirety, at the end of the year.  In response, Lufthansa filed a lawsuit against Boeing.

According to the court, Lufthansa’s lawsuit sought “to have the Court order Boeing to maintain in operation a service which Boeing has chosen to shut down completely.”  Lufthansa claimed that it had spent over $120 million developing and marketing the Internet service, that 90,000 booked customers would be “adversely affected” by the termination of the service and that the parties’ contract permitted it to use the remedy of specific performance to force Boeing to continue providing the service.

Boeing moved to dismiss the portion of Lufthansa’s complaint seeking specific performance.  In its decision granting the motion, the court held that the parties had agreed in their contract to limit their remedies against each other to money damages, thus rendering specific performance unavailable as a remedy for Lufthansa.  The court also noted the impracticality of what Lufthansa was essentially seeking — “an order compelling Boeing to indefinitely keep in operation a service employing over 300 people for the benefit of one customer under the supervision of the Court.”

Note:  In February 2007, the court issued a related opinion in this case.


Follow

Get every new post delivered to your Inbox.