DHL Express (USA), Inc. v. Falcon Express International, Inc.

• Court: Court of Appeals of Texas
• Decided: February 14, 2013
• Docket: 01-10-01080-CV
• Status: Published

Opinion

Opinion issued February 14, 2013.

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-10-01080-CV ——————————— 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.