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Ata Airlines, Inc v. Federal Express Corporation

December 27, 2011


Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:08-cv-00785-RLY-DML--Richard L. Young, Chief Judge.

The opinion of the court was delivered by: Posner, Circuit Judge.


Before EASTERBROOK, Chief Judge, and POSNER and WOOD, Circuit Judges.

ATA filed this diversity suit for breach of contract against Federal Express (which the parties call "FedEx," as shall we, even though it's actually a subsidiary of FedEx Corporation), and obtained a jury verdict in the exact amount it had asked for: $65,998,411. FedEx has appealed. ATA has filed a cross-appeal that is conditional on our reversing the judgment; the cross- appeal challenges the district court's refusal to let ATA

2 Nos. 11-1382, 11-1492

present evidence that it incurred $27,842,748 in unrecov- erable costs in reliance on a promise by FedEx in the alleged contract, and that it is entitled to recover these costs as reliance damages, either as an alternative to the expectation damages awarded by the jury or pursuant to the doctrine of promissory estoppel. The parties agree that the substantive issues are governed by the law of Tennessee, FedEx's principal place of business, except that FedEx defends the district court's ruling that ATA's promissory estoppel claim is preempted by the federal Airline Deregulation Act. See American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995); Morales v. Trans World

Airlines, Inc., 504 U.S. 374 (1992).

We begin there, and can be brief: the ruling was incor- rect. Although the Act forbids a state to "enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier," 49 U.S.C. § 41713(b)(1), it does not "afford[] relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated. This distinction between what the State dictates and what the airline itself undertakes confines courts, in breach-of- contract actions, to the parties' bargain, with no enlargement or enhancement based on state laws or policies external to the agreement." American Airlines, Inc. v. Wolens, supra, 513 U.S. at 232-33.

Promissory estoppel, as the word "promissory" implies, furnishes a ground for enforcing a promise made by a private party, rather than for implementing a state's regulatory policies. A garden-variety claim of promissory estoppel--one that differs from a conventional breach of contract claim only in basing the enforceability of the defendant's promise on reliance rather than on consider- ation, In re Fort Wayne Telsat, Inc., No. 11-2112, 2011 WL 5924446, at *2 (7th Cir. Nov. 23, 2011); Garwood Packaging, Inc. v. Allen & Co., 378 F.3d 698, 701-02 (7th Cir. 2004)--is therefore not preempted. "We do not read the [Act's] preemption clause . . . to shelter airlines from suits alleging no violation of state-imposed obligations, but seeking recovery solely for the airline's alleged breach of its own, self-imposed undertakings . . . . A remedy confined to a contract's terms" is not preempted. American Airlines, Inc. v. Wolens, supra, 513 U.S. at 228-29. Not so tort claims that override contract claims, see United Airlines, Inc. v. Mesa Airlines, Inc., 219 F.3d 605 (7th Cir. 2000), rather than just seeking a remedy "confined to a contract's terms." But ATA is not alleging a tort; it is trying to hold FedEx to a promise that it contends FedEx made to it. We'll see later that ATA's promissory claim fails, but not because of preemption.

We turn to the conventional contract issues, on which ATA prevailed in the district court.

In the event of a national emergency, the Department of Defense can use commercial aircraft drawn from what's called the "Civil Reserve Air Fleet" to augment the Department's own airlift capabilities. See Air Mobility Command, "Factsheets: Civil Reserve Air Fleet," www. (visited Dec. 21, 2011). Composed of aircraft owned by commercial air carriers but committed voluntarily to the Department for use during emergencies, the Fleet is divided into separate "teams" of airlines, each with a "team leader."

The teams pledge portions of their fleets for use by the Department during an emergency; the leader assembles the team and submits the team's bid to participate in the Civil Reserve Air Fleet.

The team members are not compensated directly for their commitment, but are compensated indirectly because in exchange for a team member's commitment the Department awards the member "mobilization value points" in proportion to the scale of the commitment. The more points a member has, the more non-emergency air transportation for the Department the member can bid on. The points are transferable within teams. Smaller carriers value providing non-emergency service to the Department (for which of course they are compensated) more than the bigger ones (such as FedEx) do. So they want the larger carriers' points and are willing to pay for them, and as a result end up doing most of the non- emergency flying. The team leader--invariably a large carrier that therefore has a large number of mobilization value points because of its commitment to provide copious emergency service if needed--transfers points to the members of its team in exchange for a com- mission on their non-emergency military flights. The commission rate is the price term in the contractual arrangements between the team leader and each of the team's smaller carriers. (This case concerns the con- tractual relations among the members of one team rather than the contracts between the teams and the Department.)

FedEx is the leader of one of the teams, which before the alleged breach of contract included ATA and Omni Air International--small passenger and charter airlines that split between them the team's allotment of non-emergency military passenger service (as distinct from cargo service). The FedEx team's annual revenues from the provision of non-emergency services to the Department amount to about $600 million.

Relations among members of FedEx's team are defined in three separate contracts, each with a one-year term. One contract fixes both the allocation of military business among the team members and the commission rate for the team leader. This contract is negotiated sepa- rately between the leader and each team member (so actually it's more than one contract, but we can ignore that detail). A second contract identifies the team members and the aircraft they will commit to the military if the team's bid is accepted. A third defines the liability and insurance obligations of the team mem- bers. There are additional provisions in these contracts, but we can disregard them. We'll call the three con- tracts as a group the "tripartite contract."

The tripartite contract has as we said only a one-year term. (The year is the federal fiscal year, which runs from October 1 of the previous calendar year to Septem- ber 30, so that the 2002 fiscal year, for example, began in October 2001. All our year references are to fiscal years.) But it was the team's practice to enter into a sepa- rate three-year agreement concerning the distribution of business among the team's members. Implementation of the agreement depended on the Defense Depart- ment's accepting the team's bid; otherwise there would be no business to divide among the team's members. And if the Department decided it wanted more or less service from the team than had been bid, this might affect the division of business, since a particular team member might have insufficient capacity to provide its allotted share of service if the service requirement increased, or alternatively might be badly hurt by a reduction in that requirement if its share were unchanged--there might for example be limited demand for or profit in a par- ticipant's nonmilitary business. The agreement also assumed that the parties would all end up on the FedEX team, though there was no contractual stipulation to that effect.

With so many contingencies, especially ones dependent on decisions entirely within the power and rights of each party, the agreement was a planning document rather than an enforceable contract. We have pointed out that "if any sign of agreement on any issue exposed the parties to a risk that a judge would deem the first-resolved items to be stand-alone contracts, the process of negotia- tion would be more cumbersome (the parties would have to hedge every sentence with cautionary legalese), and these extra negotiating expenses would raise the effective price." PFT Roberson, Inc. v. Volvo Trucks North America, Inc., 420 F.3d 728, 731 (7th Cir. 2005). Contract law "permits parties to conserve these costs by reaching agreement in stages without taking the risk that courts will enforce a partial bargain that one side or the other would have rejected as incomplete." Id.; see EnGenius Entertainment, Inc. v. Herenton, 971 S.W.2d 12, 17-18 (Tenn. App. 1997); Restatement (Second) of Contracts § 27, comments b, c (1981).

ATA's suit is based on one of these three-year "con- tracts," signed in 2006, in which ATA and (maybe) Omni agreed with FedEx that during the following three years (2007 through 2009) the team's passenger business would be divided equally between those two carriers. The "contract" is in the form of a letter from FedEx to them that reads as follows:

The letter will serve as the agreement for the distribu- tion between ATA and Omni of both fixed and expan- sion for both wide and narrow body passenger busi- ness in the AMC ...

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