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Airlines Argue Rule for Displaying Total Ticket Price Violates First Amendment

NOV. 21, 2012

Spirit Airlines Inc. et al. v. U.S. Dept. of Transportation et al.

DATED NOV. 21, 2012
DOCUMENT ATTRIBUTES
  • Case Name
    SPIRIT AIRLINES, INC.; ALLEGIANT AIR, LLC; AND SOUTHWEST AIRLINES CO., Petitioners, v. UNITED STATES DEPARTMENT OF TRANSPORTATION, Respondent.
  • Court
    United States Supreme Court
  • Docket
    No. 12-656
  • Authors
    Clement, Paul D.
    Harris, Jeffrey M.
    Kneisley, Robert W.
    Young, Joanne W.
    Kirstein, David M.
    Goldberg, M. Roy
  • Institutional Authors
    Bancroft PLLC
    Southwest Airlines Co.
    Kirstein & Young PLLC
    Sheppard Mullin Richard & Hampton
  • Cross-Reference
    Appealing Spirit Airlines Inc. v. U.S. Dept. of Transportation,

    No. 11-1219 (D.C. Cir. 2012) 2013 TNT 88-14: Court Opinions.
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2013-10981
  • Tax Analysts Electronic Citation
    2013 TNT 88-15

Spirit Airlines Inc. et al. v. U.S. Dept. of Transportation et al.

[Editor's Note: The Supreme Court declined to review this certiorari petition on April 1, 2013.]

 

IN THE SUPREME COURT OF THE UNITED STATES

 

 

On Petition for a Writ of Certiorari to the

 

United States Court of Appeals

 

for the District of Columbia Circuit

 

 

PETITION FOR WRIT OF CERTIORARI

 

 

Joanne W. Young

 

David M. Kirstein

 

Kirstein & Young, PLLC

 

1750 K Street, NW, Ste. 200

 

Washington, DC 20006

 

(202) 331-3348

 

Counsel for Spirit Airlines & Allegiant Air

 

 

Paul D. Clement

 

Counsel of Record

 

Jeffrey M. Harris

 

Bancroft PLLC

 

1919 M Street, NW, Ste. 470

 

Washington, DC 20036

 

pclement@bancroftpllc.com

 

(202) 234-0090

 

Counsel for Petitioners

 

 

M. Roy Goldberg

 

Sheppard Mullin

 

Richard & Hampton

 

1300 I Street, NW

 

11th Floor East

 

Washington, DC 20005

 

(202) 218-0007

 

 

Robert W. Kneisley

 

Associate General Counsel

 

Southwest Airlines, CO.

 

1901 L Street, NW, Ste. 640

 

Washington, DC 20036

 

(202) 263-6284

 

 

Counsel for Southwest Airlines

 

 

QUESTIONS PRESENTED

 

 

In 1978, Congress passed a major initiative to deregulate the airline industry and allow the marketplace, not regulators, to determine the fares, routes, and services offered in this critical industry. Until recently, carriers were free to advertise prices in that marketplace in the same manner as virtually every other industry -- on a pre-tax basis -- as long as additional taxes and fees were clearly disclosed. Petitioners were quite happy not just to disclose, but to emphasize the extent to which government fees and taxes outside their control contributed to the consumer's final cost. They also sought to emphasize that the pre-tax fares within their control were lower than their competitors. Importantly, the total price was always calculated for and clearly displayed to the customer before purchase.

The Department of Transportation ("DOT") nonetheless concluded that truthful speech about pre-tax fares and the extent of the government's tax burden is somehow "unfair" or "deceptive." DOT thus mandated that airline advertisements display the total price of the ticket, inclusive of all taxes and fees, and barred airlines from "prominently" identifying government-imposed taxes and fees, dictating that any such disclosures appear in "significantly smaller type." DOT also attempted to re-regulate the extent to which carriers can sell tickets on a non-refundable basis by mandating a 24-hour refund period on most tickets.

The questions presented are:

 

(1) Whether DOT violated the First Amendment by mandating "total cost" advertising and restricting airlines' truthful speech about the large (and ever-growing) share of each ticket that consists of government taxes and fees.

(2) Whether DOT exceeded its statutory mandate and acted arbitrarily and capriciously by re-regulating -- down to the size of typeface and the length of mandatory refunds -- an industry that Congress expressly chose to deregulate.

LIST OF PARTIES TO THE PROCEEDINGS

 

 

Petitioners Spirit Airlines, Inc., and Allegiant Air, LLC were Petitioners in the proceedings before the D.C. Circuit. Petitioner Southwest Airlines Co. intervened on behalf of Spirit and Allegiant in the D.C. Circuit.

Respondent U.S. Department of Transportation was the Respondent below. The American Society of Travel Agents, Inc. intervened on behalf of Respondent.

 

RULE 29.6 STATEMENT

 

 

Petitioner Spirit Airlines, Inc. has no parent corporation and no publicly held company has a 10% or greater ownership interest in it.

Petitioner Allegiant Air, LLC is a wholly owned subsidiary of Allegiant Travel Company. As of December 31, 2011, T. Rowe Price Associates, Inc. held beneficial ownership of 10.5% of the stock of Allegiant Travel Company.

Petitioner Southwest Airlines Co. has no parent company and no publicly held company has a 10% or greater ownership interest in it.

                           TABLE OF CONTENTS

 

 

 QUESTIONS PRESENTED

 

 

 LIST OF PARTIES TO THE PROCEEDINGS

 

 

 RULE 29.6 STATEMENT

 

 

 TABLE OF AUTHORITIES

 

 

 PETITION FOR CERTIORARI

 

 

 OPINIONS BELOW

 

 

 JURISDICTION

 

 

 CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED

 

 

 INTRODUCTION

 

 

 STATEMENT OF THE CASE

 

 

      A. Congress' Deregulation of the Airline Industry

 

 

      B. DOT's Longstanding Approach to Regulation of Pricing and

 

         Advertising

 

 

      C. DOT's Recent Efforts to Re-Regulate the Airline Industry

 

 

      D. The D.C. Circuit's Decision

 

 

 REASONS FOR GRANTING THE PETITION

 

 

 I.  THE COURT SHOULD GRANT CERTIORARI TO ADDRESS THE

 

     CONSTITUTIONALITY OF THE TOTAL PRICE RULE

 

 

      A. The Total Price Rule Restricts Airlines' Ability to Engage in

 

         Core Political Speech Informing Customers about Tax Burdens

 

 

      B. The Total Price Rule Cannot be Upheld Even as a Valid

 

         Regulation of Commercial Speech

 

 

      C. The D.C. Circuit's Holding Creates a Circuit Split and

 

         Implicates Critical Issues About the Government's Ability to

 

         Obscure Tax Burdens and Restrict Truthful, Non-Misleading

 

         Speech

 

 

 II. THE COURT SHOULD GRANT CERTIORARI TO ADDRESS WHETHER DOT MAY,

 

     BASED ON ANECDOTAL EVIDENCE, RE-REGULATE AN INDUSTRY THAT

 

     CONGRESS HAS EXPRESSLY CHOSEN TO DEREGULATE

 

 

 CONCLUSION

 

 

 APPENDIX

 

 

 TABLE OF APPENDICES

 

 

 Appendix A

 

 

      Opinion of the U.S. Court of Appeals for the D.C. Circuit, No.

 

      11-1219 (June 13, 2012)

 

 

 Appendix B

 

 

      Relevant Excerpts of DOT Final Rules, 76 Fed. Reg. 23,110

 

 

                         TABLE OF AUTHORITIES

 

 

 Cases

 

 

 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996)

 

 

 American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995)

 

 

 BellSouth Telecomms., Inc. v. Farris, 542 F.3d 499

 

 (6th Cir. 2008)

 

 

 Central Hudson Gas v. Pub. Serv. Comm'n of New York,

 

 447 U.S. 557 (1980)

 

 

 Citizens United v. FEC, 130 S. Ct. 876 (2010)

 

 

 Edenfield v. Fane, 507 U.S. 761 (1993)

 

 

 FDA v. Brown & Williamson Tobacco, 529 U.S. 120 (2000)

 

 

 Ibanez v. Florida Dep't of Bus. & Prof. Regulation,

 

 512 U.S. 136 (1994)

 

 

 In re R.M.J., 455 U.S. 191 (1982)

 

 

 McConnell v. FEC, 540 U.S. 93 (2003)

 

 

 MCI v. AT&T, 512 U.S. 218 (1994)

 

 

 Milavetz, Gallop & Milavetz v. United States,

 

 130 S.Ct. 1324 (2010)

 

 

 Morales v. TWA, Inc., 504 U.S. 374 (1992)

 

 

 New York Times v. Sullivan, 376 U.S. 254 (1964)

 

 

 Nixon v. Shrink Missouri Gov't PAC, 528 U.S. 377 (2000)

 

 

 Pearson v. Shalala, 164 F.3d 650 (D.C. Cir. 1999)

 

 

 Rosenblatt v. Baer, 383 U.S. 75 (1966)

 

 

 Rubin v. Coors Brewing, 514 U.S. 476 (1995)

 

 

 Rust v. Sullivan, 500 U.S. 173 (1991)

 

 

 Schneider v. New Jersey, 308 U.S. 147 (1939)

 

 

 Sorrell v. IMS Health, 131 S. Ct. 2653 (2011)

 

 

 Spence v. Washington, 418 U.S. 405 (1974)

 

 

 Thompson v. Western States Medical Ctr., 535 U.S. 357 (2002)

 

 

 United States v. Alvarez, 132 S. Ct. 2537 (2012)

 

 

 Virginia State Bd. Of Pharm. v. Virginia Citizens Consumer Council,

 

 425 U.S. 748 (1976)

 

 

 Whitman v. American Trucking Ass'n, 531 U.S. 457 (2001)

 

 

 Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985)

 

 

 Statutes and Regulations

 

 

      21 C.F.R. § 202.1(e)(4)(i)(A)

 

 

      42 U.S.C. § 1396b(i)(10)

 

 

      42 U.S.C. § 1396r-8(k)

 

 

      49 U.S.C. § 399.85

 

 

      49 U.S.C. § 40101(a)(6)

 

 

      49 U.S.C. § 40101(a)(12)(B)

 

 

      49 U.S.C. § 41712(a)

 

 

      Federal Aviation Act of 1958, Pub. L. No. 85-726, §§ 403-04

 

 

 Other Authorities

 

 

      70 Fed. Reg. 73,960 (Dec. 14, 2005)

 

 

      71 Fed. Reg. 55,398 (Sep. 22, 2006)

 

 

      75 Fed. Reg. 32,318 (June 8, 2010)

 

 

      124 Cong. Rec. § 5860 (daily ed. Apr. 19, 1978)

 

 

      DOJ, Abbott Labs to Pay $1.5 Billion to Resolve Investigations

 

      of Off-label Promotion of Depakote (May 7, 2012)

 

 

      DOT Order 85-12-68 (Dec. 24, 1985)

 

 

      DOT Order 88-3-25 (Mar. 10, 1988)

 

 

      DOT Order 88-8-2 (Aug. 2, 1988)

 

 

      FTC Comments, Truth-in-Billing and Billing Format,

 

      FCC Dkt. No. 98-170 (Nov. 13, 1998)

 

 

      Government Accountability Office, Reregulating the Airline

 

      Industry Would Likely Reverse Consumer Benefits and Not Save

 

      Airline Pensions (GAO-06-630, June 2006)

 

 

      Lowestfare.com, Dkt. OST-2011-0003 (Sept. 16, 2011)

 

 

      Orbitz Worldwide, Dkt. OST-2011-0003 (Oct. 17, 2011)

 

 

      Petition of Donald Pevsner, Order 2011-10-13

 

      (DOT Oct. 19, 2011)

 

 

      Petition of Donald Pevsner, Order 2012-11-4

 

      (DOT Nov. 6, 2012)

 

 

      Petition of Joel Kaufman, Order 2003-3-11

 

      (DOT Mar. 18, 2003)

 

 

      Robert Crandall & Jerry Ellig, Economic Deregulation and

 

      Customer Choice (1997)

 

 

      The President's Plan for Economic Growth and Deficit Reduction

 

      (Sep. 19, 2011)

 

 

      US Airways, Inc., Order 2011-6-2, 2011 WL 2168867

 

      (June 2, 2011)

 

 

      Virgin Atlantic Airways, Dkt. OST-2011-0003

 

      (Sept. 26, 2011)

 

PETITION FOR CERTIORARI

 

 

Petitioners Southwest Airlines Co. ("Southwest"), Spirit Airlines, Inc. ("Spirit"), and Allegiant Air, LLC ("Allegiant") respectfully submit this petition for a writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit.

 

OPINIONS BELOW

 

 

The D.C. Circuit's opinion is reported at 687 F.3d 403 and reproduced at Pet.App.1-35. The challenged Department of Transportation regulations were issued on April 18th, 2011 in Docket DOT-OST-2010-0140. The final rules are reported at 76 Fed. Reg. 23,110 and reproduced in relevant part at Pet.App.36-83.

 

JURISDICTION

 

 

The D.C. Circuit issued its decision on July 24, 2012. On October 5, 2012, the Chief Justice extended the time for filing this petition to and including November 21, 2012. See No. 12A332. This Court has jurisdiction under 28 U.S.C. § 1254(1).

 

CONSTITUTIONAL AND STATUTORY

 

PROVISIONS INVOLVED

 

 

The First Amendment provides that "Congress shall make no law . . . abridging the freedom of speech. . . ." U.S. Const. amend. I.

The Airline Deregulation Act of 1978, as amended, provides in relevant part: "If the Secretary, after notice and an opportunity for hearing, finds that an air carrier, foreign air carrier, or ticket agent is engaged in an unfair or deceptive practice or unfair method of competition, the Secretary shall order the air carrier, foreign air carrier, or ticket agent to stop the practice or method." 49 U.S.C. § 41712(a).

 

INTRODUCTION

 

 

In 1978, Congress deregulated the airline industry, allowing carriers -- rather than federal regulators -- to choose their own fares, routes, schedules, and marketing practices. Since then, fares have fallen significantly, passenger miles have more than tripled, and new low-cost carriers have emerged. While the Department of Transportation ("DOT") retains a narrow authority to police deceptive practices and unfair competition, Congress made clear that market forces would replace the role of federal regulators. Nonetheless, DOT has recently promulgated a number of new rules, with more in the offing, that seek to micro-manage the business decisions of this highly competitive industry, including dictating how air carriers advertise their prices and communicate the extent to which government taxes contribute to the final price. Those rules violate the First Amendment and Congress' intent to deregulate the industry.

I. Although firms in nearly every industry in the country advertise and price their products on a pre-tax basis, DOT promulgated a regulation (the "Total Price Rule") that not only forces airlines to advertise fares inclusive of all government-imposed taxes and fees, but also specifically prohibits airlines from drawing conspicuous attention to those taxes. The rule mandates that any disclosure of taxes "not be displayed prominently and be presented in significantly smaller type than the listing of the total price." Pet.App.72. Such a government effort to micro-manage how speakers communicate the burdens of taxation would raise serious First Amendment concerns in any industry, but they are doubly problematic in an industry Congress specifically chose to deregulate.

This regulation is an unconstitutional limitation on speech critical of the government, as it restricts carriers' ability to convey truthful information about the significant tax burden on air travel. Petitioners primarily serve price-conscious travelers, and believe it is important for their customers to know which portion of their fare is within the airline's control and which portion is a product of government fiat. The Total Price Rule hamstrings Petitioners from clearly communicating this information to consumers at the very moment they are most receptive to Petitioners' message -- namely, just before that tax burden is imposed upon the consumer. This restriction on speech critical of the government at the precise point at which it would be most effective should be subject to (and would fail) strict scrutiny.

Indeed, as Judge Randolph concluded in his dissent, the Total Price Rule cannot survive even the lower level of First Amendment scrutiny that this Court has applied to "commercial speech." DOT has asserted that the Rule is necessary to prevent "deception" or "confusion." But it strains credulity to suggest that consumers are somehow deceived by advertisements of pre-tax prices, given that this is standard operating procedure in virtually every other U.S. industry. It is true that air travel is subject to many different types of taxes and fees that may be unfamiliar to consumers, but that only highlights the importance of speech informing customers of the extent to which the final price of an airline ticket reflects the government's cut.

Moreover, the Total Price Rule is far broader than necessary to address the government's purported interest in preventing confusion. A regulation that allows airlines to advertise pre-tax pricing but requires airlines to clearly disclose the additional taxes and fees on each ticket and calculate the all-in price before purchase -- which is the precise rule that has governed the industry for the last three decades -- is more than sufficient to eliminate any risk of actual deception or confusion.

II. This kind of government micro-management of truthful speech critical of the government would be troubling in any industry. The fact that it occurs in an industry Congress expressly chose to deregulate means that DOT's efforts exceed its statutory authority as well as First Amendment limits. Indeed, the Total Price Rule is just one example of the government's effort to re-regulate the industry through the back door by relying on its narrow consumer protection authority to prohibit deception as justification for broader rules regarding carriers' pricing practices.

Another regulatory overreach is DOT's new "24-Hour Refund Rule," which directly regulates prices by forcing carriers either to hold a reservation at a quoted fare without payment or allow customers to cancel a reservation without penalty, for 24 hours, if the ticket was booked a week or more before departure. While a regulator might favor this rule as part of a broader regime of price regulation, there was no evidence whatsoever that the rule was needed to prevent "deception" or "unfairness." For the last 30 years, air carriers have been allowed to sell nonrefundable tickets or assess change penalties as long as they clearly disclosed those conditions before the customer purchased a ticket. Indeed, before the adoption of the challenged rules, DOT repeatedly recognized that the availability of a variety of different fare options is pro-competitive, as it allows carriers to better manage their seat capacity and promotes the availability of lower fares.

The Total Price Rule and 24-Hour Refund Rule have nothing to do with deceptive or unfair practices, and are little more than an attempt to impose mandatory "best practices" on a highly competitive industry. But a core purpose of the Deregulation Act was to "leave largely to the airlines themselves . . . the selection and design of marketing mechanisms appropriate to the furnishing of air transportation services." American Airlines v. Wolens, 513 U.S. 219, 228 (1995). DOT has attempted to reclaim the authority to regulate not only the type of tickets airlines may offer, but how they communicate their prices to customers. Neither the First Amendment nor the Deregulation Act permits this micro-management. This Court should grant review to make clear that truthful speech critical of the government may not be so readily suppressed, and that an industry expressly de-regulated by Congress may not be so readily re-regulated.

 

STATEMENT OF THE CASE

 

 

A. Congress' Deregulation of the Airline Industry

1. The deregulation of the airline industry has been one of the most successful policy initiatives of the last three decades. Until 1978, the Civil Aeronautics Board exercised broad authority over airlines, including the authority to regulate "rates, fares, and charges for air transportation" as well as "all classifications, rules, regulations, practices, and services in connection with such air transportation." Federal Aviation Act of 1958, Pub. L. No. 85-726, §§ 403-04. Under that regime of command-and-control regulation, prices were high, routes and schedules were insensitive to consumer demand, and competition was virtually non-existent.1

By the late 1970s, it was apparent this system of pervasive regulation was in desperate need of reform. In 1978, Congress concluded that "maximum reliance on competitive market forces would best further efficiency, innovation, and low prices as well as variety and quality of air transportation services." Morales v. TWA, 504 U.S. 374, 378 (1992) (citations omitted). As Senator Edward Kennedy, a cosponsor of the legislation, explained:

 

[The Deregulation Act] will change the entire face of the domestic aviation regulatory process. We will have the chance to tell the American Public that we believe competition to be better than regulation, [and] that business men and women can make better decisions about the conduct of their businesses than bureaucrats . . .

 

124 Cong. Rec. § 5860 (Apr. 19, 1978).

Congressional faith in the power of competition has proven well justified. Between 1980 and 2006, passenger miles tripled, median fares fell by approximately 40%, and the average number of competitors on each route increased from 2.2 to 3.5.2 Petitioners Southwest, Spirit, and Allegiant are innovative, low-cost airlines that have been at the forefront of these pro-consumer developments under deregulation. Petitioners vigorously compete on the basis of price and aim to serve budget-conscious travelers. As a result, Petitioners have opened up many underserved markets to competition, and have made air travel accessible to millions of consumers who otherwise could not afford to fly.

One thing deregulation has not meant, however, is the elimination or reduction of federal taxes and fees on the industry. To the contrary, the federal government has steadily ratcheted up the tax burdens on airlines and their passengers. Taxes and fees already comprise approximately 20% of the average plane ticket, see Rec.1631 at 47, and the government is seeking to triple the passenger security fee from $2.50 to $7.50 per flight segment, which as a flat fee has a greater relative impact on low fares.3 The airline industry is vigorously opposing these proposed tax increases.

B. DOT's Longstanding Approach to Regulation of Pricing and Advertising

Following deregulation of the industry, Congress carefully limited DOT's residual authority to impose economic regulation on air carriers. DOT may "investigate and decide whether an air carrier . . . has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation," and may order carriers to cease practices that are deemed unfair or deceptive. 49 U.S.C. § 41712(a). Congress further provided that it is "in the public interest" for DOT to "plac[e] maximum reliance on competitive market forces and on actual and potential competition -- (A) to provide the needed air transportation system; and (B) to encourage efficient and well-managed air carriers to earn adequate profits and attract capital." 49 U.S.C. § 40101(a)(6).

Pursuant to these statutory mandates, DOT has long given carriers significant flexibility in pricing and advertising their services. For example, airlines have adopted a wide array of different policies regarding refundable tickets and reservation cancellation and change fees. Some carriers (such as Southwest) generally do not assess change fees, and advertise this as a competitive advantage; others (such as Spirit and Allegiant) believe that cancellation and change fees are an important tool for managing capacity and keeping base fares to a minimum. For the last 30 years, DOT has allowed each carrier to choose whether to impose such fees, as long as they "[give] consumers specific advance notice of any condition that would restrict refunds or impose any monetary penalties for cancellation."4

DOT's longstanding policy also gave airlines discretion whether to advertise their fares on a pre-tax or post-tax basis. In 1985, DOT issued an order providing that airline advertisements may list a $3 government-imposed departure tax separately from the total advertised price. See Order 85-12-68 (Dec. 24, 1985). DOT emphasized that separate listing of this tax "ha[d] long been a common practice in the industry," and was not deceptive or misleading as long as the advertisements "clearly state[d] the amount of tax elsewhere in the ad." Id. at 6-7.

A few years later, DOT formally extended that policy to nearly all government-imposed taxes and fees, including "custom fees, immigration fees, security fees, agriculture inspection fees, tourism and fuel surcharges, as well as any other surcharges . . . that may be imposed by . . . Federal, State, or local governments or foreign governments." Order 88-3-25, at 4 (Mar. 10, 1988). And carriers had discretion about how to disclose such fees. For example, they could choose to "includ[e] the additional costs in the generally-larger typeface stating the price of the trip," or could "us[e] an asterisk with a notation showing the total cost of the additional charges with the kind of charges itemized." Id.5

Later in 1988, DOT reaffirmed that "[s]eparate listing of these charges is not deceptive, because it informs consumers of the exact amount that will be collected and passed on to the government." Order 88-8-2 (Aug. 2, 1988) (emphasis added). Indeed, DOT found that "passengers benefit from knowing how much they are paying government entities apart from the fares they pay the carriers." Id.

In 2005, DOT issued a notice of proposed rulemaking that sought comment on several proposed changes to its pricing and advertising rules. One of the proposed rules would have allowed airlines to advertise only "the total fare the consumer would pay." 70 Fed. Reg. 73,960, 73, 962 (Dec. 14, 2005). After receiving more than 700 comments, the Department declined to adopt that change, noting that the rule would "create marketing difficulties for sellers without necessarily making prices more transparent to consumers." 71 Fed. Reg. 55,398, 55,402 (Sep. 22, 2006).

Thus, for essentially the entire post-deregulation era, airlines -- just like companies in nearly every other industry -- were free to advertise fares on a pre-tax basis, as long as they clearly disclosed the existence and amount of any additional taxes or fees. And the total price was always calculated and shown to the customer before purchase. As DOT explained, those disclosure rules were more than sufficient to "protect[ ] consumers, facilitate[ ] price comparison, foster[ ] fare competition, and afford[ ] sellers an appropriate degree of freedom to innovate." Id. at 55,401.6

C. DOT's Recent Efforts to Re-Regulate the Airline Industry

On June 8, 2010, DOT published a notice of proposed rulemaking seeking comment on a large number of proposed regulations involving tarmac delays, customer service, overbooking, advertising, and ancillary services such as baggage fees. See 75 Fed. Reg. 32,318 (June 8, 2010). DOT received more than 2,100 comments, the vast majority of which addressed proposals regarding the accommodation of travelers with peanut allergies. On April 25, 2011, DOT promulgated final rules regarding each of the issues raised in the NPRM, two of which are at issue here.

The Total Price Rule: In a stark departure from longstanding policy, the final rules provide that "advertised fare[s] . . . must include all government-imposed taxes and fees as well as mandatory carrier-imposed charges." Pet.App.70. DOT concluded that "consumers are deceived when presented with fares that do not include numerous required charges," and that "air travelers will be better able to make price comparisons when they can see the entire price of the air transportation." Id. That finding of "deception" was based entirely on a handful of consumer complaints and postings on DOT's "Regulation Room" website, in which individuals claimed to "feel[ ] deceived when they are not quoted the full price to be paid." Pet.App.69.

Even though companies in countless other industries routinely advertise pre-tax prices, DOT found that "[a]irfares are different from products in other industries for a variety of reasons, including the multitude of methods of advertising that sellers of air transportation employ and the various taxes and government fees that apply." Pet.App.70; see Pet.App.69 (noting that "some carriers have started to sell tickets through Facebook and some have Twitter feeds dedicated solely to advertising sale fares"). The substantial amount and variety of taxes and fees on air travel, as well as the lack of consumer familiarity with them, would seem to justify more speech directed specifically to those taxes and fees. But DOT reached a very different conclusion. Because "taxes and fees can increase and become a significant portion of the price to be paid by consumers," DOT concluded that "consumers need a full picture of the total price to be paid in order to compare fares and routings." Pet.App.69-70.

DOT did not stop at simply requiring carriers to advertise the total price inclusive of taxes and fees; it also prohibited airlines from drawing conspicuous attention to the magnitude of those government-imposed fees. The rule allows carriers to "advise the public in their fare solicitations about government taxes or fees" only if they are "displayed in a manner that otherwise does not deceive consumers." Pet.App.72. In elaborating on that last requirement concerning how truthful speech about government taxes could be communicated, DOT specified that "any such listing [of taxes and fees] not be displayed prominently and be presented in significantly smaller type than the listing of the total price to ensure that consumers are not confused about the total price they must pay." Id. (emphasis added).

The 24-Hour Refund Rule: DOT also adopted "minimum standards for the customer service plans of both U.S. and foreign carriers." Pet.App.57. One of those new standards requires "carriers to allow reservations to be held at the quoted fare without payment, or cancelled without penalty, for at least twenty-four hours after the reservation is made," if the ticket was booked one week or more before the scheduled departure. Pet.App.62. DOT concluded that this significant new restriction on carriers' ability to sell nonrefundable tickets "strikes the right balance between a consumer's desire to make travel plans and shop for a fare that meets his or her needs, and the carrier's need for adequate time to sell seats on its flights." Pet.App.63.

D. The D.C. Circuit's Decision

Petitioners sought review of these rules in the D.C. Circuit,7 arguing that they exceeded DOT's deregulatory mandate and were arbitrary and capricious, and that the Total Price Rule's restrictions on truthful disclosure of government-imposed taxes and fees violated the First Amendment.

By a two-to-one vote, the majority rejected Petitioners' challenge to the Total Price Rule. The court held that DOT reasonably relied on comments showing that customers were "confused" by advertised fares that did not include taxes and fees. Pet.App.8. The court characterized this rule as a "limited imposition" that merely "requires the total, final price to be the most prominently listed figure, relying on the reasonable theory that this prevents airlines from confusing consumers about the total cost of their travel." Pet.App.9.

For largely the same reasons, the majority rejected Petitioners' First Amendment challenge. The court held that the Total Price Rule only regulates commercial speech that proposes a transaction for a specific product. Pet.App.11-12. The court then applied the lowest level of scrutiny under the commercial speech doctrine, which is reserved for laws that mandate "clarifying disclosure[s]." Pet.App.13 (citing Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651-53 (1985)). According to the majority, the Total Price Rule "does not prohibit airlines from saying anything; it just requires them to disclose the total, final price and to make it the most prominent figure in their advertisements." Pet.App.15. Although this rule "limit[s] the manner in which airlines may advertise information," the court found that "this neither prohibits nor substantially burdens airlines' ability to provide that information." Id. In reaching that conclusion, the court relied on a screenshot from Spirit's website that was not in the record, as well as a concession from DOT counsel that this advertisement was "compliant" with the Total Price Rule. Pet.App.16.

The court further held that the 24-Hour Refund Rule "has nothing to do with airfares," and merely "regulates cancellation policies on the basis of a finding that existing practices were deceptive and unfair." Pet.App.19. The court relied primarily on DOT's "decades worth of recorded experience," and its "systematic effort aimed at preventing unfair and deceptive practices." Pet.App.20. The court deferred to DOT's finding that not allowing refunds within 24 hours of purchase was "unfair" because "consumers were led to expect" that such refunds were generally available. Id.

Judge Randolph dissented in part, concluding that the Total Price Rule violates the First Amendment because it "dictates how airlines . . . may convey information criticizing the taxes and fees extracted from their consumers," and "attempt[s] to restrict speech critical of the government." Pet.App.25. While the majority focused on the extent of the burden on protected speech, Judge Randolph found this to be a "red herring." Pet.App.26-27. He believed the dispositive facts were that DOT has: (1) "forbidden airlines from displaying taxes and fees 'prominently'"; (2) "made it illegal for airlines to put these government charges in the same or larger typeface than that of the total price"; and (3) "ordered airlines not to place government taxes and fees above the total price and not to show these items in bold or italics or with underlining." Pet.App.27.

Judge Randolph noted that there were good reasons to treat this rule as a restriction on core political speech. Indeed, the landmark case of New York Times v. Sullivan, 376 U.S. 254 (1964), involved "an advertisement placed in a newspaper to raise money," yet the Supreme Court found this to be fully protected political speech. Pet.App.28.

Judge Randolph nonetheless found it unnecessary to decide the applicable level of scrutiny because he concluded that the Total Price Rule could not satisfy even the less-demanding standard applicable to commercial speech. Pet.App.29. He found the government's purported interest in providing "accurate" information to consumers to be unavailing because "there is no evidence -- how could there be? -- that smaller typeface for taxes and fees. . . . leads to more accurate airline advertising." Pet.App.30. Judge Randolph also found DOT's interest in "preventing confusion" to be insufficient because DOT failed to "explain[ ] why disclosure of taxes in the same or larger font size as the total price, or at the top of the page rather than at the bottom, or in bold typeface rather than regular typeface, would confuse anyone." Pet.App.31.

In sum, Judge Randolph concluded that "[p]eople get bills all the time that breakout the components of the total amount due," and "one of the abiding principles of the commercial speech cases is that the government may not restrict speech on the basis that someone somewhere may misread a particular advertisement." Pet.App.34.

 

REASONS FOR GRANTING THE PETITION

 

 

I. THE COURT SHOULD GRANT CERTIORARI TO ADDRESS

 

THE CONSTITUTIONALITY OF THE TOTAL PRICE RULE

 

 

A. The Total Price Rule Restricts Airlines' Ability to Engage in Core Political Speech Informing Customers about Tax Burdens

"Criticism of government is at the very center of the constitutionally protected area of free discussion." Rosenblatt v. Baer, 383 U.S. 75, 85 (1966). The ability to criticize "the use of the public's money to take care of the public's business by a paid agent of the public" is "necessarily included in the guarantees of the First Amendment." Rosenblatt, 383 U.S. at 94 (Black, J., concurring and dissenting). And courts are rightly skeptical of speech restrictions that benefit the government actors that impose them. See, e.g., Nixon v. Shrink Missouri Gov't PAC, 528 U.S. 377, 402 (2000) (Breyer, J., joined by Ginsburg, J., concurring) (noting that "permitting incumbents to insulate themselves from effective electoral challenge" is a "constitutional evil[ ]" under the First Amendment).

Petitioners are low-cost carriers that vigorously compete on the basis of price and primarily serve price-conscious consumers. Because Petitioners' fares are lower than those of traditional "legacy" airlines, taxes make up a larger percentage of the total amount Petitioners' customers must ultimately pay.8 As a result, Petitioners' advertisements have prominently identified -- and, at times, criticized -- the large and ever-growing portion of each fare that is attributable to government-imposed taxes, fees, and airport facility charges. For example, Spirit's advertisements have prominently labeled taxes and fees "the government's cut." And Southwest has engaged in a political and public-relations campaign specifically opposing the high taxes on air travel. See Add. 9 to Southwest Airlines' Opening Br. (D.C. Cir. Feb. 9, 2012).

Petitioners have a powerful interest in engaging in truthful speech to make tax burdens as transparent as possible, to ensure that the government -- not Petitioners -- are held accountable for these costs. Indeed, when DOT issued the Total Price Rule, the airline industry "was already publicly protesting" the huge tax burden on airlines. Amicus Br. of Air Transport Ass'n ("ATA") (D.C. Cir. Feb. 27, 2012) at 15. The "prominent disclosure and separate listing of federal taxes and fees" was "part and parcel of a campaign . . . to persuade the public of the industry's position." Id. at 16. A government rule that seeks to prevent this truthful speech designed to hold the government accountable strikes at the heart of the First Amendment.

The Total Price Rule is just such a rule. Rather than emphasizing the portion of each fare that is actually within their control (and independently drawing attention to the applicable taxes and fees), Petitioners must now give pride of place to a "total price" that obscures the government's cut. Worse yet, Petitioners are forbidden from identifying those taxes and fees "prominently" in their advertisements. Pet.App.72. Any listing of such fees must be "presented in significantly smaller type than the listing of the total price." Id. (emphasis added). That is, not only must Petitioners present prices in tax-inclusive terms that hide the tax burden, but they are prohibited from drawing prominent attention to the amount of those taxes.9

Perhaps not surprisingly, the promulgation of the tax-obscuring Total Price Rule coincided with the Administration's push for new, higher taxes on airline passengers. Taxes and fees already account for approximately 20% of the average plane ticket, yet the Administration has pushed to raise those taxes further.10 So while taxes become an ever more prominent portion of the total fare, the regulators have attempted to prevent carriers from identifying the tax burden too "prominently" in their advertisements to consumers. The Framers anticipated the government's temptation to suppress truthful speech designed to lay bare tax burdens and other controversial policies, and included the First Amendment to prevent such efforts.

The D.C. Circuit majority disregarded all of these concerns, noting that Petitioners retained "the full panoply of protections" for their "direct comments on public issues." Pet.App.11 (citation omitted). But the fact that the Total Price Rule does not bar Petitioners from engaging in other forms of political advocacy regarding airline taxes does not immunize the rule from First Amendment scrutiny. This Court has "rejected summarily" the argument that an "inhibition" on the freedom of expression was justifiable because there were "other means available . . . for the dissemination" of the information. Spence v. Washington, 418 U.S. 405, 411 n.4 (1974); see Schneider v. New Jersey, 308 U.S. 147, 163 (1939) ("one is not to have the exercise of his liberty of expression in appropriate places abridged on the plea that it may be exercised in some other place").

Indeed, the Total Price Rule is a uniquely onerous speech burden because it restricts airlines from communicating to customers truthful information about tax burdens at the very moment when it matters most -- namely, when customers are shopping for a ticket and about to feel the impact of those taxes. Attempting to capture the general public's attention about the rising tide of taxes on air travel in the abstract is difficult, if not impossible. Getting a consumer's attention while they are considering alternative travel options and are about to click "pay now" is easy -- except for DOT's suppression of truthful speech about the cost of that travel. In this sense, the Total Price Rule is a particularly pernicious speech restriction because it applies only when the speech is most likely to be relevant to the recipient. See, e.g., Citizens United v. FEC, 130 S. Ct. 876, 895 (2010); McConnell v. FEC, 540 U.S. 93, 335 (2003) (Kennedy, J., dissenting) (speech restriction failed strict scrutiny where it applied only "during the crucial weeks before an election").11

 

* * *

 

 

If anything in this case is "unfair" or "deceptive," it is DOT's attempts to prohibit carriers from drawing clear and conspicuous attention to truthful information about the significant tax burden on airline tickets, at a time when the Administration is pushing to raise those taxes even higher. Truthful speech about the burdens of controversial government policies is at the very top of the First Amendment hierarchy, and DOT's attempts to muzzle it must accordingly satisfy strict scrutiny. DOT has never even attempted to defend the Total Price Rule under that exacting standard. This Court should grant review to reaffirm that such speech is fully protected and to condemn the government's effort to suppress speech that would lay bare the increasing tax burden on airlines and passengers.

B. The Total Price Rule Cannot be Upheld Even as a Valid Regulation of Commercial Speech

1. This Court has repeatedly held that truthful, non-deceptive advertising that proposes a business transaction is entitled to substantial First Amendment protection. See, e.g., Sorrell v. IMS Health, 131 S. Ct. 2653, 2667-68 (2011); Thompson v. Western States Medical Ctr., 535 U.S. 357, 373-74 (2002); Virginia State Bd. Of Pharm. v. Virginia Citizens Consumer Council, 425 U.S. 748, 765 (1976). Indeed, a number of Justices have expressed a willingness to reconsider the notion that commercial speech should be treated differently from other forms of fully protected speech. See Western States, 535 U.S. at 367-68 (collecting cases and noting that at least five Members of the Court have "expressed doubts about the [commercial speech] analysis").

This case demonstrates one of the primary difficulties with the commercial speech doctrine -- namely that providing truthful information about controversial government policies ought to receive the highest level of protection whether it appears in a paid commercial advertisement, on the news pages of a for-profit media outlet, or in the midst of proposing a commercial transaction. But it is also clear that, as Judge Randolph emphasized, DOT's suppression of truthful information about government taxes cannot survive the scrutiny this Court applies to commercial speech.

This Court has repeatedly held that it is a "matter of public interest" that consumers' decisions be "intelligent and well informed." Id. at 367. Thus, the government's "paternalistic assumption that the public will use truthful, nonmisleading commercial information unwisely cannot justify a decision to suppress it." 44 Liquormart v. Rhode Island, 517 U.S. 484, 497 (1996) (op. of Stevens, J., joined by Kennedy and Ginsburg, J.J.). That is particularly true when the information lays bare the burdens the government itself imposes on consumers.

Under this Court's precedents, "[c]ommercial speech that is not false, deceptive, or misleading can be restricted, but only if the [government] shows that the restriction directly and materially advances a substantial state interest in a manner no more extensive than necessary to serve that interest." Ibanez v. Florida Dep't of Bus. Regulation, 512 U.S.136, 142 (1994). The burden is on the government to justify such restrictions, and "[t]his burden is not satisfied by mere speculation or conjecture; rather, a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree." Edenfield v. Fane, 507 U.S. 761, 770-71 (1993). Even if the Total Price Rule is deemed to regulate mere "commercial" speech, it cannot satisfy the applicable standard for several independent reasons.

First, the speech that the Total Price Rule seeks to restrict is not "misleading" or "deceptive" at all. This Court has refused to simply defer to the government's efforts to label certain truthful speech as "misleading" or "deceptive." To the contrary, it has held that commercial speech is "misleading" only if it is "inherently likely to deceive or where the record indicates that a particular form or method of advertising has in fact been deceptive." In re R.M.J., 455 U.S. 191, 202-03 (1982). Advertising pre-tax prices, while prominently drawing attention to the amount of any taxes, is not even slightly misleading. Indeed, advertising pre-tax prices is standard operating procedure in U.S. commerce. A clothing store does not "deceive" its customers when it does not include sales tax on the price tag of a pair of pants. Nor does a hotel mislead its customers when advertised room rates do not include taxes, whether general sales taxes or special hospitality taxes.12

Second, even accepting the validity of DOT's interest in preventing deception or confusion, the Total Price Rule will not "materially advance" that interest. DOT suggested that a special rule was needed for the airline industry because airlines advertise through a "multitude of methods," including social media sites such as Facebook and Twitter, and the government imposes "various taxes and government fees." Pet.App.70. Neither point assists the government. Nearly all companies now use social media to advertise and promote their products. Macy's can tweet "Dockers pants on sale for $29.99," without deceiving customers by "prominently" featuring the pre-tax price. Customers will be no more deceived by a comparable tweet for a "Baltimore to Houston flight, $99 each way, plus taxes." Indeed, if anything, consumers are less likely to be confused by Petitioners, who have a decided interest in simultaneously highlighting the substantial tax burdens and emphasizing their relatively low pre-tax prices.

What is unique about social media advertisements is not the potential for customer confusion, but the negative impact of DOT's Total Price Rule. As Judge Randolph explained, both Facebook and Twitter allow postings only in one, uniform font size. Pet.App. 31-32 n.6. Thus, in order to avoid violating the Total Price Rule and its typeface-regulations, an airline advertising on Facebook or Twitter would have to either omit all information about taxes -- to avoid giving that information undue "prominence" -- or decline to advertise prices altogether.

DOT does no better -- indeed, considerably worse -- by emphasizing the multitude and variety of "taxes and government fees" imposed on air travel. It may be true that consumers are less familiar with the multitude of taxes and fees imposed on the airline industry than more ubiquitous sales taxes. But that is a reason for more speech, not less. Nothing in the long history of the First Amendment suggests the government ought to have a freer hand when it comes to controversial government policies of which the public is relatively unaware. Thus, DOT's requirement that efforts to bring independent attention to the magnitude of the government's cut be "presented in significantly smaller type" runs afoul of the basic First Amendment prescription that "more speech, not less, is the governing rule." Citizens United, 130 S. Ct. at 911.

Third, the Total Price Rule is far "more extensive than necessary" to further DOT's confusion-preventing rationale, and there are many "more limited restrictions" that could advance that interest equally well. Central Hudson Gas v. PSC of New York, 447 U.S. 557, 569-70 (1980). Most obviously, DOT could have eliminated any risk of confusion by requiring airlines that advertise fares on a pre-tax basis to prominently disclose that the fares do not include taxes and fees.13 Indeed, that is exactly what DOT has allowed for almost 30 years, see supra at 8-11, and is exactly how products are priced in virtually every other U.S. industry.

Moreover, DOT's primary justification for the Total Price Rule was that airlines' increasing use of social media advertising somehow increased the risk of confusion or deception. Even if that were true, it would only justify applying the Total Price Rule to social media advertisements. But the Rule extends to all advertisements, regardless of medium. DOT has not even attempted to explain why it would be unfair or deceptive for airlines to advertise pre-tax prices through television and print ads, as they have done for decades, or through the Internet. Nor did the D.C. Circuit majority.

2. Relying on the Zauderer decision, the panel majority concluded that the Total Price Rule is a mere "disclosure" requirement that is subject to the lowest form of First Amendment scrutiny. Pet.App.13-17. According to the majority, the Total Price Rule "imposes no burden on speech" other than a disclosure requirement. Pet.App.19.

That conclusion reflects a serious misunderstanding of both Zauderer and the Total Price Rule. In Zauderer, this Court upheld an Ohio law requiring lawyers who worked on contingency to make an additional disclosure if "the client may have to bear certain expenses even if he loses." 471 U.S. at 650. The Court held that a law requiring businesses to include "purely factual and uncontroversial information" in their advertisements "easily passes muster" under the First Amendment. Id. at 651-52.

The Total Price Rule does not compel truthful disclosures; rather, it restricts airlines from disclosing truthful information about taxes "prominently." A rule allowing airlines to advertise pre-tax fares if they disclose the nature and amount of applicable taxes and fees would be covered by Zauderer. But that describes DOT's traditional rule that has applied for the last three decades, not the Total Price Rule. The distinction is critical. Indeed, Zauderer expressly distinguished a disclosure rule from a law that "attempt[s] to prevent [businesses] from conveying information to the public." 471 U.S. at 650; see Milavetz, Gallop & Milavetz v. United States, 130 S.Ct. 1324, 1340-41 (2010) (upholding disclosure requirement that did not prevent the company from "conveying any additional information").

Petitioners do not dispute that DOT can require them to make truthful disclosures to consumers about all taxes and fees applicable to each ticket. Indeed, they welcome the opportunity to do so "prominently" rather than in "significantly smaller type." But that is the precise rule that has been in force for the last three decades -- and is a far-less-restrictive alternative to the significant burdens on speech imposed by the Total Price Rule.

C. The D.C. Circuit's Holding Creates a Circuit Split and Implicates Critical Issues About the Government's Ability to Obscure Tax Burdens and Restrict Truthful, Non-Misleading Speech

Even though this case involves a facial challenge to agency regulations -- which will rarely give rise to a square circuit split -- the Sixth Circuit has reached the opposite conclusion in a very similar case. In BellSouth Telecomms. v. Farris, 542 F.3d 499 (6th Cir. 2008), Kentucky imposed a new 1.3% tax on telecommunications carriers and simultaneously barred those carriers from "separately stat[ing] the tax on the bill to the purchaser." Id. at 501. The Sixth Circuit would not allow it. In an opinion written by Judge Sutton, the court held that this restriction on disclosure of accurate information about taxes violated the First Amendment.14

The court emphasized that "truthfully telling customers why a company has raised prices simply by listing a new tax on a bill . . . is not the kind of false, inherently misleading speech that the First Amendment does not protect." Id. at 506. As the court explained, "[t]he Commonwealth offers no reason why telecommunications customers are any more likely to be confused by tax line items on bills than are consumers of, say, natural gas, and we cannot think of a good reason on our own." Id. at 507-08. Finally, the court found that there was not a "reasonable fit" between the Kentucky law and the purported state interests because there were "numerous and obvious less-burdensome alternatives to the restriction on commercial speech." Id. at 508-09.

There is no serious question that this case would have been decided differently had it arisen in the Sixth Circuit. Like the Kentucky statute at issue in BellSouth, the Total Price Rule restricts the ability of companies in a single industry to provide truthful information about taxes to consumers who are used to dealing with pre-tax prices and information about taxes. The Sixth Circuit recognized that while consumers are not easily deceived by truthful information about taxes, governments are easily tempted to obscure the fact that they are responsible for a price increase.

And that temptation underscores the importance of the issues here and of this Court's review. In an era of massive government deficits and rising taxes, it is not difficult to imagine similar policies at the federal, state, and local level that are designed to hide the true cost of such taxes. For example, a high-tax jurisdiction could attempt to force retailers to display only the "total" price of their products, inclusive of all sales taxes. Similarly, the federal government could rely on "customer confusion" as the basis for imposing similar pricing policies on regulated firms in the energy and telecommunications industries (e.g., by requiring advertisements of cell-phone or cable plans to be inclusive of taxes and fees). The decision below gives a green light to such policies even though they obscure the reality that much of the consumer's "total price" reflects government exactions, not factors within the private sector's control. Worse still, the decision below authorizes the micro-management of efforts to convey information about taxes by upholding a regulation prohibiting the "prominent" display of such information and dictating the relative type sizes.

The issues here are also important because of the broader efforts of the federal government to regulate truthful, non-misleading speech. While this Court has emphasized that even some non-truthful speech is entitled to significant First Amendment protection, see United States v. Alvarez, 132 S Ct. 2537 (2012), the federal government continues to regulate and impose massive penalties for truthful, non-misleading speech. To pick only the most prominent, and lucrative, example, the federal government has collected billions of dollars in prosecutions based on off-label promotion of FDA-approved pharmaceuticals and devices.15 Although those fines also reflected misconduct unrelated to speech, prosecutors routinely point to truthful speech about off-label uses as evidence of impermissible "promotion," even though the FDA permits such off-label uses. Compare 42 U.S.C. §§ 1396b(i)(10), 1396r-8(k) (allowing reimbursement for "medically accepted" off-label prescriptions") with 21 C.F.R. § 202.1(e)(4)(i)(A) (imposing per se ban on "advertisement[s]" for off-label use of prescription drugs).

Thus, this particular challenge is hardly the only context in which the government has attempted to regulate truthful, non-misleading speech about the government's own policies. The need for further clarity about the extent to which the First Amendment permits the government to regulate such speech clearly merits this Court's review.

 

II. THE COURT SHOULD GRANT CERTIORARI TO ADDRESS WHETHER

 

DOT MAY, BASED ON ANECDOTAL EVIDENCE, RE-REGULATE AN INDUSTRY

 

THAT CONGRESS HAS EXPRESSLY CHOSEN TO DEREGULATE

 

 

The degree to which DOT is seeking to micro-manage truthful, non-misleading speech about government taxes and fees -- down to the type-face -- would be troubling in any industry. The First Amendment generally prefers to leave such matters to the marketplace of ideas. That it occurs in an industry Congress decided should be guided by market forces underscores that DOT's efforts at re-regulation run afoul of statutory as well as constitutional limits.

The Deregulation Act significantly curbed the government's power to regulate airline rates and other business decisions, mandating that market forces should "decide on the variety and quality of, and determine prices for, air transportation services." 49 U.S.C. § 40101(a)(12)(B). Nonetheless, in its final rules, DOT bootstraps its narrow authority to address "unfair" and "deceptive" practices under 49 U.S.C. § 41712 into a more general authority to re-regulate and homogenize airline prices and marketing practices. The Court should reject that gambit.

DOT itself has long recognized that under the Act it has "extremely limited powers with respect to domestic airfares and related conditions." Petition of Kaufman at 2. Because of Congress' deregulatory mandate, DOT must "allow[ ] the marketplace to govern carrier decisions regarding fares and their associated conditions" absent "compelling evidence of consumer deception or unfair methods of competition." Id. (emphasis added).16

1. The 24-Hour Refund Rule directly regulates pricing practices. That rule forces carriers either to hold a reservation at a quoted fare without payment or to allow customers to cancel a reservation without penalty, for 24 hours, if the ticket was booked a week or more before departure. Pet.App.62-63.

DOT did not even attempt to argue that a carrier's failure to offer such refunds is "deceptive." For the last 30 years, airlines have been free to sell nonrefundable tickets or impose change penalties, as long as the airline "[gave] consumers specific advance notice of any condition that would restrict refunds or impose any monetary penalties for cancellation." Petition of Kaufman at 2.

Nor is the 24-Hour Refund Rule needed to prevent "unfairness." As DOT has explained, "[t]here are usually several fares available on any given flight, and the prices vary depending on the extent of the conditions with which the passenger is willing to comply, including the ability to cancel a ticket and receive a full refund." Id. Some customers might choose to pay more for a refundable ticket, while others might opt for a cheaper nonrefundable ticket. The "lower price for nonrefundable tickets is a trade-off for passengers agreeing to a restriction that allows a carrier to manage its inventory and cash flow." Id. Whether to purchase such a ticket is a fully informed decision that involves no "unfairness" whatsoever.

Indeed, "in a deregulated environment," the availability of a variety of different fare options "provide[s] carriers with flexibility in pricing and inventory control that is generally beneficial to the industry and the public." Id. For example, it has been estimated that providing refunds mandated by this rule will cost low-cost carriers, like Petitioners, an average of $30 per transaction, a cost that must be recouped though higher fares for all passengers, whether or not they take advantage of the regulation. Jenkins Decl. Appx. B at 50.

DOT's brief discussion of the 24-Hour Refund Rule simply notes that the new policy "strikes the right balance between a consumer's desire to make travel plans and shop for a fare that meets his or her needs, and the carrier's need for adequate time to sell seats on its flights." Pet.App.63. But DOT does not have a roving mandate to establish "best practices" or to "strike balances" concerning consumer preferences and carrier needs. Congress left it to the market -- not the regulators -- to strike the right balance. In a competitive industry, the seller of a product has no obligation to facilitate a customer's ability to buy a competitor's product.

In light of DOT's "lack of authority to regulate domestic fares" and related conditions,17 and the absence of any evidence at all -- much less compelling evidence -- of unfairness or deception, the 24-Hour Refund Rule's effort at re-regulation exceeds DOT's limited statutory authority and must be vacated.

2. As to the Total Price Rule, DOT premised that regulation on nothing more than a handful of comments and anonymous web postings from consumers who claimed to "feel" deceived by advertisements of pre-tax fares. Pet.App.69. Many of those comments consisted of little more than invective and ad hominem attacks on the airline industry. See Msolo Comment 6/4/2010 ("NO, no wiggle room: all fare prices should be as stated and final! All this [ sic ] caveats are just indended [ sic ] to provide sellers with means to mislead customers into thinking the fare is smaller than it is!"). Indeed, DOT conceded that it had no evidence of actual deception resulting from pre-tax pricing. When DOT examined carriers' websites for the accuracy of their disclosures "[a]ll eight carrier websites displayed the additional fees and taxes at the flight booking stage." Final Regulatory Impact Analysis at 54.

A core purpose of the Deregulation Act was to "leave largely to the airlines themselves . . . the selection and design of marketing mechanisms appropriate to the furnishing of air transportation services." Wolens, 513 U.S. at 228. Anecdotal evidence that a handful of consumers "feel" deceived by pre-tax pricing cannot justify DOT's sweeping new regulations of airline marketing practices.

That is doubly true in the context of the Total Price Rule given Congressional intent to deregulate and the serious First Amendment issues addressed above. See Rubin v. Coors Brewing, 514 U.S. 476, 490 (1995) (rejecting reliance on "anecdotal evidence and educated guesses" to justify restriction of commercial speech). When regulations raise "grave and doubtful constitutional questions," courts may "assume Congress did not intend to authorize their issuance." Rust v. Sullivan, 500 U.S. 173, 190-91 (1991). It is simply not plausible that in the Deregulation Act Congress would have delegated to DOT the power to re-regulate airline advertisements and marketing practices -- both protected speech and the precise marketplace activity that Congress intended would determine prices -- based on nothing more than a limited number of (mostly anonymous) customer complaints.

3. DOT's evasion of Congress' intent to deregulate merits this Court's review. DOT's disregard of statutory limits on its ability to re-regulate an industry Congress has deregulated is arbitrary and capricious, but it is much more than that. The Deregulation Act was a major congressional policy initiative and a watershed event in the history of both the airline industry and regulatory policy. DOT's effort to re-regulate the industry through the Total Price Rule and 24-Hour Refund Rule is not some administrative law foot fault, but an assault on a major congressional initiative.

Nor are these two rules isolated instances of DOT re-regulation. DOT has made clear that these rules are just the leading edge of its efforts to exert regulatory control over perceived excesses of marketplace competition. But if there is to be a return to the days in which regulation, rather than competition, strikes the balance in the marketplace, that initiative must come from Congress, not agencies proceeding under the Deregulation Act. As in other contexts in which Congress has made major policy determinations, authorizations for agencies to undo Congress' initiatives are not lightly to be presumed to be lurking in the statutory details. See FDA v. Brown & Williamson, 529 U.S. 120, 159-160 (2000); MCI v. AT&T, 512 U.S. 218, 231 (1994). Congress does not "hide elephants in mouse holes," Whitman v. American Trucking Ass'n, 531 U.S. 457, 468 (2001), and did not authorize DOT to re-regulate the airline industry based on the narrow residual authority maintained by the Deregulation Act.

 

CONCLUSION

 

 

This Court's review is warranted to vindicate both the First Amendment and Congress' manifest intent to deregulate -- not re-regulate -- the airline industry. The Court should grant the petition.
Respectfully submitted,

 

 

Joanne W. Young

 

David M. Kirstein

 

Kirstein & Young, PLLC

 

1750 K Street, NW, Ste. 200

 

Washington, DC 20006

 

(202) 331-3348

 

Counsel for Spirit Airlines and

 

Allegiant Air

 

 

Paul D. Clement

 

Counsel of Record

 

Jeffrey M. Harris

 

Bancroft PLLC

 

1919 M Street NW, Ste. 470

 

Washington, DC 20036

 

pclement@bancroftpllc.com

 

(202) 234-0090

 

Counsel for Petitioners

 

 

M. Roy Goldberg

 

Sheppard Mullin

 

Richter & Hampton

 

1300 I Street, NW

 

11th Floor East

 

Washington, DC 20005

 

(202) 218-0007

 

 

Robert W. Kneisley

 

Associate General Counsel

 

Southwest Airlines CO.

 

1901 L Street, NW, Ste. 640

 

Washington, DC 20036

 

(202) 263-6284

 

 

Counsel for Southwest Airlines

 

November 21, 2012

 

FOOTNOTES

 

 

1See generally Robert Crandall & Jerry Ellig, Economic Deregulation and Customer Choice 34 (1997) (noting that "entry and fare regulations combined to create a government-enforced cartel that kept average fares above competitive levels"), at http://mercatus.org/sites/default/files/publication/MC_RSP_RP_Dregulation_970101.pdf.

2See GAO, Reregulating the Airline Industry Would Likely Reverse Consumer Benefits and Not Save Airline Pensions at 10-11, 18-19, 26-27 (GAO-06-630, June 2006), at http://www.gao.gov/new.items/d06630.pdf

3 The President's Plan for Economic Growth and Deficit Reduction at 22 (Sep. 19, 2011), available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf.

4Petition of Joel Kaufman, Order 2003-3-11, at 2 (DOT Mar. 18, 2003), at http://www.airlineinfo.com/Sites/DailyAirline/web-content/ostpdf41/747.pdf ("Petition of Kaufman").

5 For internet advertisements, taxes and fees could "be disclosed through a prominent link placed adjacent to the stated fare that notes that taxes and fees are extra," where the linked page "prominently and immediately" displays "the nature and amount of taxes and fees." US Airways, Order 2011-6-2, 2011 WL 2168867 (June 2, 2011).

6 In the handful of instances in which carriers or ticket agents did not comply with these disclosure rules, DOT quickly issued penalties. See Orbitz Worldwide, OST-2011-0003 (Oct. 17, 2011); Virgin Atlantic Airways, OST-2011-0003 (Sept. 26, 2011); Lowestfare.com, OST-2011-0003 (Sept. 16, 2011).

7 DOT's efforts to re-regulate the airline industry were not limited to these two rules. DOT also promulgated a rule that would have forbidden airlines from raising the price of any non-included fees, such as beverage charges, after the purchase of a ticket. Pet.App.81. The only fees exempted were the government's own taxes and fees. Id. After Petitioners challenged this rule in the D.C. Circuit, DOT announced that it would initiate a new rulemaking to reconsider its policy, and no direct challenge to that rule is included in this Petition.

8 Several of the government fees on air travel are flat amounts. For example, the proposed $7.50 per-segment security fee comprises 7.5% of a $100 ticket, but less than 1% of a $1,000 ticket.

9 The Total Price Rule is uniquely self-serving for the government because it disguises the separate impact of taxes, while leaving airline-imposed optional charges -- such as baggage fees, priority boarding fees, or premium seating fees -- outside of the "total price." Indeed, other provisions of DOT's rules require prominent disclosures of airline-imposed baggage fees. See 49 U.S.C. § 399.85.

10See The President's Plan for Economic Growth and Deficit Reduction at 22 (Sep. 19, 2011), http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf.

11 The Total Price Rule is not the only provision of DOT's final rules that protects the government's ability to raise taxes. Another new rule barred airlines from increasing the prices of certain services (such as baggage fees) after a ticket had been purchased. Pet.App.81. But the rule expressly exempted any "government-imposed tax or fee." Id. Thus, DOT's purported concerns about "unfairness" or "deception" were clearly not strong enough for the government to limit its own ability to raise taxes after a ticket had already been purchased.

12 DOT's contrary view is apparently not shared by the federal agency expressly tasked with preventing unfair or deceptive trade practices. The Federal Trade Commission ("FTC") has endorsed a flexible approach that allows base prices to be advertised with conspicuous separate disclosures of additional taxes. For example, the FTC has concluded that telecommunications carriers can provide "full and non-misleading information" about government-imposed universal service fees by either "listing the universal service or access fees separately" or "including them in the advertised price." FTC Comments at 18 & n.32, Truth-in-Billing and Billing Format, FCC Dkt. No. 98-170 (Nov. 13, 1998), http://apps.fcc.gov/ecfs/document/view?id=6005543580.

13See Pearson v. Shalala, 164 F.3d 650, 658 (D.C. Cir. 1999) (finding "prominent disclaimers" to be a less-restrictive alternative to broader rules regulating health claims).

14 The Sixth Circuit did not decide whether the Kentucky law burdened political speech or commercial speech because the court would have found the law unconstitutional under either standard. 542 F.3d at 505.

15See, e.g., DOJ, Abbott Labs to Pay $1.5 Billion to Resolve Investigations of Off-label Promotion (May 7, 2012), at http://www.justice.gov/opa/pr/2012/May/12-civ-585.html.

16See also Order 2012-11-4, at 4 (DOT Nov. 6, 2012) (denying request to regulate change fees), http://www.dot.gov/sites/dot.dev/files/docs/eo_2012-11-4.pdf.

17 Order 2011-10-13, at 4 (DOT Oct. 19, 2011), at http://airconsumer.ost.dot.gov/EO/eo_2011-10-13.pdf; see id. at 4 n.3 (DOT authority over "fares charged in interstate air transportation" "does not exist").

 

END OF FOOTNOTES
DOCUMENT ATTRIBUTES
  • Case Name
    SPIRIT AIRLINES, INC.; ALLEGIANT AIR, LLC; AND SOUTHWEST AIRLINES CO., Petitioners, v. UNITED STATES DEPARTMENT OF TRANSPORTATION, Respondent.
  • Court
    United States Supreme Court
  • Docket
    No. 12-656
  • Authors
    Clement, Paul D.
    Harris, Jeffrey M.
    Kneisley, Robert W.
    Young, Joanne W.
    Kirstein, David M.
    Goldberg, M. Roy
  • Institutional Authors
    Bancroft PLLC
    Southwest Airlines Co.
    Kirstein & Young PLLC
    Sheppard Mullin Richard & Hampton
  • Cross-Reference
    Appealing Spirit Airlines Inc. v. U.S. Dept. of Transportation,

    No. 11-1219 (D.C. Cir. 2012) 2013 TNT 88-14: Court Opinions.
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2013-10981
  • Tax Analysts Electronic Citation
    2013 TNT 88-15
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