* By Kenneth Nankin of The NV Flyer

A Federal Court case under way in the US could have lasting ramifications for frequent flyer programs...

The terms and conditions of Alaska Airlines’ frequent flyer program, known as the Mileage Plan, prohibit its members from selling, purchasing or bartering miles or award tickets, and they state that miles and award tickets “are void if transferred for cash or other consideration.”

In 2007, Alaska Airlines filed a lawsuit against Bradley and Celeste Carey and their company, Carey Travel, Inc., seeking damages arising from, and injunctive relief against, the defendants’ brokering of plan miles and award tickets. (Alaska Airlines, Inc. v. Carey (W.D. Wash.

Apr. 15, 2008). ) According to the airline, the defendants have operated a scheme in which they buy miles from plan members (which renders the miles void), redeem the miles for award tickets and then sell those tickets to their customers, who use them to travel on the airline’s flights. In essence, according to the airline, the defendants have tortiously induced plan members to violate the plan and have fraudulently caused the airline to issue tickets and provide transportation based on void miles and award tickets.

In response, the defendants made a novel argument. They moved to dismiss most of the counts of the complaint on the grounds that the contract between the airline and plan members, which consists of the

plan’s terms and conditions, is “both illusory AND unconscionable.”

The defendants argued that contract is illusory because it is “unilaterally modifiable” by the airline, and that it is unconscionable because it is one-sided (particularly because it gives the airline the right to terminate the plan) and because plan members have no opportunity to bargain over the terms and conditions. The defendants contended that because the contract does not exist or is unenforceable, the airline’s causes of action that are premised on the existence of such contract, such as its cause of action for tortious interference with contract, fail to state a claim for relief.

The court denied the motion to dismiss, holding that defendants had raised this issue too early in the case and indicating that the defendants could proceed with discovery and then file a motion for summary judgment on this issue. Undaunted, the defendants moved that the court reconsider its order, boldly suggesting that perhaps the court had not “looked at, reviewed, or carefully studied” the plan’s terms and conditions.

The court denied the motion for reconsideration. Exercising considerable restraint, the court indicated that it had in fact carefully reviewed the terms and conditions and, as proof, pointed out

that it had cited certain terms and conditions in its prior order.

The court then noted that contract provisions allowing a party to terminate a contract do not render the contract illusory where the termination can only be exercised upon the occurrence of specified conditions. The court held that because the contract requires that the airline give 180 days advance notice before terminating the plan, the termination provision did not render the contract illusory. The court also noted that if the airline decided to eliminate the advance notice provision and terminate the plan immediately, a plan member might have a good argument that the contract, as interpreted by the airline, was illusory, but “that is not this case.”

Note: In March, after the court issued its order denying the motion to dismiss, the defendants filed a 41-page class action counterclaim and third party complaint alleging, among other things, that Alaska Airlines, “its favored frequent flyer mile broker, Points.com” and Delta Airlines, American Airlines, Northwest Airlines and Continental Airlines (as “unnamed co-conspirators”), have violated federal antitrust statutes by conspiring to eliminate all frequent flyer mileage brokers and monopolise the mileage market and that an in-house attorney and a senior manager of Alaska Airlines are also liable for these antitrust violations.

* This article was republished with permission from http://nvflyer.wordpress.com/