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Shrem v. Southwest Airlines Co.

United States District Court, N.D. California

April 25, 2017

JEAN SHREM, et al., Plaintiffs,


HAYWOOD S. GILLIAM, JR. United States District Judge.

         Pending before the Court are two motions brought by Defendant Southwest Airlines, Co.: (1) a motion to dismiss the first amended complaint (“FAC”) and (2) a motion to strike the FAC. Dkt. Nos. 52 (“Mot. to Strike”), 53 (“MTD”). For the reasons articulated below, the Court GRANTS the motion to dismiss and DENIES the motion to strike.

         I. BACKGROUND

         A. Factual Background

         In this contract dispute, Plaintiffs Jean Shrem and Marni Fischer allege that Defendant enters into a contract with each of its ticket-buying customers that permits a customer to cancel a nonrefundable ticket and still apply the ticket value to future travel purchases with Southwest for up to 12 months from the original purchase date. Dkt. No. 51 (“FAC”) ¶ 6. Plaintiffs assert that Defendant “systematically breaches” this contract by prematurely forfeiting these travel credits. Specifically, when customers purchase a ticket using multiple travel credits, Defendant applies the earliest travel credit expiration date to the entire ticket. Id. ¶ 8. If a customer then cancels the ticket and wants to use the travel credits again for further travel, they are all subject to the earliest expiration date. Consequently, Defendant may forfeit some travel credits before 12 months have elapsed from the original purchase date. Plaintiffs contend that Defendant erroneously forfeited over $700 of their travel credits after just seven months because Plaintiffs combined them with $16 in travel credits purchased at an earlier time. Id. at ¶ 9.

         B. Procedural Posture

         On August 8, 2016, the Court dismissed all of Plaintiffs' claims when it granted in part and denied in part Defendant's motion to dismiss Plaintiffs' original complaint. Dkt. No. 50 (“Dismissal Order”). The Court dismissed Plaintiffs' claims for negligence, fraud, and unjust enrichment with prejudice, finding that they were preempted by the Airline Deregulation Act, 49 U.S.C. §§ 41701, et seq. (“ADA”). Id. at 3-6. However, the Court grated Plaintiffs leave to amend their breach of contract claim if they could identify the breached provisions of the contract. Id. at 6.

         In response, Plaintiffs filed their FAC on August 29, 2016, asserting a single claim for breach of contract. See FAC at ¶¶ 40-45. Plaintiffs allege that statements from Defendant's website, e-tickets, and Contract of Carriage create a “Reusable Funds Agreement” in which Defendant promises that customers may cancel their tickets and use the funds to purchase future travel on Southwest for at least 12 months from the original date of payment. Id. ¶¶ 1-7.

         Plaintiffs acknowledge that the Contract of Carriage explicitly states that “[i]f a Ticket is purchased with multiple travel credits, the earliest expiration date will apply to the entire Ticket.” Id. at ¶ 10. Nevertheless, Plaintiffs argue that this term is unenforceable because Defendant did not provide its customers with conspicuous notice of this limitation on the tickets themselves, as required under federal law. Id. at ¶ 11. Plaintiff further argues that these federal notice requirements are incorporated into the “Reusable Funds Agreement” because the Contract of Carriage states that it “is subject to applicable laws, regulations and rules imposed by U.S. or foreign governmental agencies.” Id. at ¶ 20 (Dkt. No. 51-3 at 3, ¶ 1.a(1)).


         On September 12, 2016, Defendant filed both a motion to dismiss and a motion to strike Plaintiffs' FAC. The Court addresses each motion in turn.

         A. Motion to Dismiss

         Plaintiffs' breach of contract claim mirrors the arguments that the Court already rejected in its Dismissal Order finding that the non-contract claims were preempted by the ADA. See Dismissal Order at 3-6. In opposing this motion to dismiss, Plaintiffs contend that Defendant's Contract of Carriage “expressly incorporates” federal laws and regulations into each ticketing contract, including the notice requirements under 14 C.F.R. §§ 253.4, 253.5, and 253.7. Dkt. No. 54 at 6. Under these regulations:

A carrier may not impose any terms restricting refunds of the ticket price, imposing monetary penalties on passengers, or raising the ticket price . . . unless the passenger receives conspicuous written notice of the ...

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