Opinion issued February 14, 2013.
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-10-01080-CV
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DHL EXPRESS (USA), INC., Appellant
V.
FALCON EXPRESS INTERNATIONAL, INC., Appellee
On Appeal from the 157th District Court
Harris County, Texas
Trial Court Case No. 2008-66394
DISSENTING OPINION
The majority errs in holding that the trial court erred in entering its judgment
in favor of appellee, Falcon Express International, Inc. (“Falcon”), after a jury
found that appellant, DHL Express (USA), Inc. (“DHL”), committed fraud against
Falcon by failing to disclose a material fact to Falcon prior to it entering into an
“Assignment and Assumption Agreement” with DHL. The majority’s error
follows from its erroneous conclusion that Falcon’s lawsuit, in which it seeks
rescission of the agreement and asks for punitive damages, is preempted by the
Airline Deregulation Act of 1978 (the “ADA”) 1 and the Federal Aviation
Administration Authorization Act (the “FAAAA”). 2 Accordingly, I respectfully
dissent.
Falcon alleged and presented evidence to the jury that DHL defrauded it of
$1,571,426.31 to enter a contract to become a reseller of DHL’s small package
delivery services in the United States with written assurances that DHL had ruled
out any possibility of withdrawing from the United States market and was “here to
stay.” Specifically, Falcon asserted that DHL failed to disclose material facts with
the intent to induce Falcon to pay DHL to assume a reseller agreement that Freight
Savers Express (“FSE”) had with DHL. After DHL, only four months later,
announced that it would discontinue all domestic shipping operations, effectively
destroying Falcon’s business, Falcon sued DHL to rescind the agreement, get its
money back, and punish DHL for its wrongdoing. The jury unanimously found
1
49 U.S.C. § 41713(b)(1) (2004).
2
49 U.S.C. § 14501(c)(1) (2004).
2
that DHL defrauded Falcon and awarded it $1,704,228.79 in actual damages and
$3,214,724.62 in exemplary damages.
In its first issue, DHL argues that the trial court erred in entering its
judgment against DHL, rescinding the agreement, and awarding Falcon actual and
exemplary damages because “federal law completely preempts Falcon’s fraud and
punitive damages claims.”
The Supremacy Clause of the United States Constitution provides that the
“Constitution, and the Laws of the United States which shall be made in Pursuance
thereof . . . shall be the supreme Law of the Land; . . . any Thing in the
Constitution or Laws of any State to the Contrary notwithstanding.” U.S. CONST.
art. VI, cl. 2; see also MCI Sales and Serv., Inc., v. Hinton, 329 S.W.3d 475, 481
(Tex. 2010), cert. denied, 131 S. Ct. 2903 (2011).
Preemption of state law may be either express or implied. MCI Sales, 239
S.W.3d at 482; Delta Air Lines, Inc. v. Black, 116 S.W.2d 745, 748 (Tex. 2003).
Ascertaining “[t]he purpose of Congress is the ultimate touchstone” in every
preemption case. Retail Clerks Int’l Ass’n. v. Schermerhorn, 375 U.S. 96, 103, 84
S. Ct. 219, 223 (1963); Delta Air Lines, 116 S.W.3d at 748. And congressional
intent is discerned primarily from a statute’s language and structure. Medtronic,
Inc. v. Lohr, 518 U.S. 470, 486, 116 S. Ct. 2240, 2250–51 (1996). Also relevant is
the purpose of the statute as a whole, which is revealed through “the reviewing
3
court’s reasoned understanding of the way in which Congress intended the statute
and its surrounding regulatory scheme to affect business, consumers, and the law.”
Id.
The ADA is designed to promote “maximum reliance on competitive market
forces” while at the same time “assigning and maintaining safety as the highest
priority in air commerce.” 49 U.S.C. § 40101(a) (2004); Am. Airlines, Inc. v.
Wolens, 513 U.S. 219, 230, 115 S. Ct. 817, 824 (1995); Miller v. Raytheon Aircraft
Co., 229 S.W.3d 358, 369 (Tex. App.—Houston [1st Dist.] 2007, no pet.). The
ADA’s preemption provision provides:
Except as provided in this subsection, a State, political subdivision of
a State, or political authority of at least 2 states may not enact or
enforce a law, regulation, or other provision having the force and
effect of law related to price, route, or service of an air carrier that
may provide air transportation under this subpart.
49 U.S.C. § 41713(b)(1) (2004) (emphasis added). The FAAAA uses the same
preemption language, but it applies to motor carriers instead of air carriers. See 49
U.S.C. § 14501(c)(1) (2004).
The United States Supreme Court, relying on its ERISA line of cases and the
ordinary meaning of the statute’s words, has broadly construed the phrase “related
to” in the ADA to preempt “State enforcement actions having a connection with, or
reference to, airline ‘rates, routes, or services.’” Morales v. Trans World Airlines,
Inc., 504 U.S. 374, 384, 112 S. Ct. 2031, 2037 (1992); Delta Air Lines, 116 S.W.3d
4
at 749–50. However, the Court has emphasized that some state actions that may
affect airline rates, routes, or services do so “‘in too tenuous, remote, or peripheral
a manner’ to have preemptive effect.” Morales, 504 U.S. at 390, 112 S. Ct. at
2040 (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 n.21, 103 S. Ct.
2890, 2901 (1983)). The Texas Supreme Court has utilized a two-step inquiry to
determine whether claims are preempted by the ADA, asking whether: (1) a claim
“relate[s] to” airline rates, routes, or services and (2) the claim constitutes the
enactment or enforcement of a state law, rule, regulation, standard, or other
provision. Cont’l Airlines, Inc. v. Kiefer, 920 S.W.3d 274, 281 (Tex. 1996).
Here, Falcon alleged and presented evidence that DHL committed fraud by
nondisclosure in making false and misleading representations about whether DHL
“still considered a withdrawal from the United States domestic market an option,”
which DHL had a duty to disclose because it “created a false impression by
making partial disclosures”; “knew that Falcon was ignorant of the undisclosed
fact”; and “voluntarily disclosed some information to Falcon.” Falcon asserts that
DHL made “false and misleading disclosures intending to influence those doing
business with DHL” and “fraudulently induced Falcon to enter into a contractual
relationship as a reseller and pay off” FSE’s “debt to DHL.” 3
3
Falcon made essentially the same allegations under its claims for both “fraud in
the inducement” and fraud by nondisclosure. However, the jury answered, “No,”
in response to whether DHL had fraudulently induced Falcon to enter the contract.
5
Even assuming that Falcon’s common-law fraud claim has “a connection
with, or reference to,” DHL’s rates, routes, and services, such a connection is too
“tenuous, remote, or peripheral” to conclude that it is preempted by the ADA and
the FAAAA. The gist of Falcon’s fraud claim is that DHL failed to disclose a
material fact prior to Falcon entering into the Assignment and Assumption
Agreement. And, as the trial court properly instructed the jury, Falcon’s fraud
claim primarily concerns DHL’s “duty to disclose” material facts to Falcon and
DHL’s failure to disclose those material facts with the intent “to induce” Falcon
“to take some action by failing to disclose the fact[s].”
In short, Falcon complains that DHL had a duty to disclose the fact that it
was not going to continue small package delivery services in the United States and
failed to disclose this fact with the intent to get Falcon to assume FSE’s reseller
relationship by paying FSE’s debt to DHL. Simply put, Falcon complains that
DHL engaged in wrongdoing in this business transaction. This is clearly not the
type of conduct or activity that Congress meant to regulate in crafting the ADA or
the FAAAA. The fact that the subject matter of the underlying contract concerned
DHL’s delivery services is only remotely connected to Falcon’s claim. See
Egelhoff v. Egelhoff, 532 U.S. 141, 146, 121 S. Ct. 1322, 1327 (2001) (noting, in
ERISA context, that “the term ‘relate to’ cannot be taken ‘to extend to the furthest
It answered, “Yes,” in response to whether DHL had committed fraud by
nondisclosure.
6
stretch of its indeterminacy,’ or else ‘for all practical purposes pre-emption would
never run its course’”) (quoting N.Y. State Conference of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S. Ct. 1671, 1677 (1995)). If
Falcon’s fraud claim is “related to” DHL’s rates, routes, and services and is
preempted, as asserted by the majority, then virtually any claim regarding a
business contract with an air or motor carrier will be preempted. Congress simply
did not intend to so immunize air and motor carriers. And the fallacy of the
majority’s reasoning is made apparent in the result dictated by its holding: it
destroys Falcon’s remedy of contract rescission and remands the case to the trial
court for proceedings to enforce a contract that a jury has found is based upon
fraud.
The trial court’s judgment on Falcon’s fraud claim simply does not amount
to a prohibited enforcement of a state law, rule, regulation, standard, or other
provision. Falcon’s fraud claim arises from general, commonly accepted tort and
contract principles. See Lyn-Lea Travel Corp. v. Am. Airlines, Inc., 283 F.3d 282,
289–90 (5th Cir. 2002) (noting that fraudulent inducement is a “core concept” of
contract law and observing that because “contract law is, at its ‘core,’ uniform and
non-diverse, there is little risk of inconsistent state adjudications of contractual
obligations”); see also Martin ex rel. Heckman v. Midwest Express Holdings, Inc.,
555 F.3d 806, 809 (9th Cir. 2009) (stating that airline regulatory acts intend “to
7
prohibit states from regulating the airlines while preserving state tort remedies that
already existed at common law”) (quoting Charas v. Trans World Airlines, Inc.,
160 F.3d 1259, 1265 (9th Cir. 1998)).
Like the negligence action at issue in Kiefer, Falcon’s fraud claim, which is
centered on DHL’s “duty to disclose” material facts and its failure to disclose those
material facts with the intent “to induce” Falcon “to take some action by failing to
disclose the fact[s],” is not intrusive on the regulation of airline business practices.
See 920 S.W.2d at 282. Falcon does not seek to require DHL to perform any
services or impose any limits on its rates or routes. It merely seeks to rescind a
contract entered into based on fraud by nondisclosure. And nothing in the record
establishes that Falcon’s lawsuit to rescind the Assumption and Assignment
Agreement will impact DHL’s rates, routes, or services. Simply put, Falcon’s
claim for fraud by nondisclosure in no way impedes Congress’s goal in enacting
the ADA to promote “maximum reliance on competitive market forces” while at
the same time “assigning and maintaining safety as the highest priority in air
commerce.” See 49 U.S.C. § 40101(a).
Likewise, the trial court’s award of punitive damages to Falcon does not
impact DHL’s rates, routes, or services or impede the purpose of the ADA or the
FAAAA. It is true that the Texas Supreme Court has, in dicta, cautioned that tort
claims, including a claim for punitive damages, might “undo federal deregulation
8
with regulation of their own.” Kiefer, 920 S.W.2d at 282–83 (quoting Morales,
504 U.S. at 387, 112 S. Ct. at 2034). However, because Falcon’s claim for fraud
has only, at best, a tenuous connection to DHL’s rates, routes, or services, the trial
court’s award of punitive damages, a customary remedy for a fraud claim, is not
preempted by the ADA or the FAAAA. See Taj Mahal Travel, Inc. v. Delta
Airlines, Inc., 164 F.3d 186, 195 (3rd Cir. 1998) (holding that punitive damages
award on defamation claim was not preempted because “defamation is so foreign
to regulations on prices, routes, and services that it is unlikely that an award of
traditional damages would offend Congressional intent”); see also Pac. Mut. Life
Ins. Co. v. Haislip, 499 U.S. 1, 15, 111 S. Ct. 1032, 1041 (1991) (“Punitive
damages have long been a part of traditional state tort law.”) (quoting Silkwood v.
Kerr-McGee Corp., 464 U.S. 238, 255, 104 S. Ct. 615, 625 (1984)).
Accordingly, I would hold that Falcon’s lawsuit, in which it seeks rescission
of the Assumption and Assignment Agreement and actual and punitive damages, is
not preempted by the ADA or the FAAAA. The majority’s conclusion to the
contrary constitutes an error of such importance to the state’s jurisprudence that it
should be corrected. See TEX. GOV’T CODE ANN. § 22.001(a)(6) (Vernon 2004).
Thus, I would further hold that the trial court did not err in entering judgment
against DHL, rescinding the Assumption and Assignment Agreement, and
awarding Falcon actual and exemplary damages on the ground that “federal law
9
completely preempts” Falcon’s lawsuit, and I would address the remaining issues
in this appeal.
Terry Jennings
Justice
Panel consists of Justices Jennings, Massengale, and Huddle.
Justice Jennings, dissenting.
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DHL Express (USA), Inc. v. Falcon Express International, Inc.
Combined Opinion