Tick Tock: Statutes of Limitation for Airline Refunds

The pandemic that struck the world in 2020 led to the cancellation of thousands of flights by airlines and hundreds of thousands of reservations by consumers. In many cases, the airlines either failed to refund the money paid for affected bookings or provided vouchers good for future travel.

The Department of Transportation (DOT) has made clear its position that airlines must provide a cash refund if a passenger requests it. Two years into the pandemic, however, there is only one public evidence of DOT enforcement of its position while millions in refunds remain unresolved.

On Nov. 23, 2021, DOT published an Order Approving Settlement Agreement with Air Canada. The settlement arose from a DOT enforcement complaint filed on June 15, 2021, relating to refund practices that began in mid-March 2020. After extended exchanges of sharply conflicting views over the carrier’s duty to make cash refunds, the Order reflects that each side agreed to settle without conceding its legal position. Air Canada agreed to the “payment or credit of $4,500,000 in compromise of potential civil penalties otherwise allegedly due.” The Order details Air Canada’s views regarding both its legal obligations and what it in fact did to accommodate demands for refunds from U.S. customers.

These delays raised the question of whether it was possible that the states’ statutes of limitation might bar recovery in the future if the airlines continue their recalcitrant stand on cash refunds. While there is likely little danger of such an outcome in the short term, DOT’s inaction is concerning, and there are other lurking obstacles that could come into play.

Background
The law provides that when an airline cancels a flight, the consumer is entitled to a prompt refund of the purchase price (referring here to payments in a form of currency, not frequent flyer miles that have their own special rules) even if the fare was “non-refundable.” I do not believe there is a well-founded basis for disputing that proposition. In any case, the pandemic refund practices of the airlines led to an unprecedented number of complaints to the Department of Transportation (more than 89,500 complaints, an 83 percent increase over 2019).

DOT has had relatively little to say about this, but what it did say was quite clear. On April 3, 2020, an Enforcement Notice was issued to the airlines.

Carriers have a longstanding obligation to provide a prompt refund to a ticketed passenger when the carrier cancels the passenger’s flight or makes a significant change in the flight schedule and the passenger chooses not to accept the alternative offered by the carrier. The longstanding obligation of carriers to provide refunds for flights that carriers cancel or significantly delay does not cease when the flight disruptions are outside of the carrier’s control (e.g., a result of government restrictions). The focus is not on whether the flight disruptions are within or outside the carrier’s control, but rather on the fact that the cancellation is through no fault of the passenger. 

Accordingly, the Department continues to view any contract of carriage provision or airline policy that purports to deny refunds to passengers when the carrier cancels a flight, makes a significant schedule change, or significantly delays a flight to be a violation of the carriers’ obligation that could subject the carrier to enforcement action.

Nevertheless, DOT said it would defer enforcement action if carriers fulfilled three conditions: (1) timely contact to passengers provided vouchers to explain their rights to a cash refund; 2) updates to refund policies and contract of carriage provisions to make refund obligations clear; and (3) reviews with all relevant personnel the circumstances under which refunds should be made. Again, these conditions were clear.

On May 12, 2020, faced with an onslaught of consumer complaints, DOT issued a Frequently Asked Questions document regarding pandemic-driven refund issues. With one exception, it contributed little new information of substance to the conflicts over refunds: “The Aviation Enforcement Office would consider the denial of refunds in contravention of the policies that were in effect at the time of the ticket purchase to be an unfair and deceptive practice.” That statement made clear that retroactive changes in refund policies were unacceptable, a position later confirmed in Order 2021-1-6, January 19, 2021. The FAQ reiterated DOT’s enforcement policy:

Given the unprecedented impact of the COVID-19 public health emergency on the aviation industry, the Aviation Enforcement Office intends to exercise its enforcement discretion and first provide carriers and ticket agents an opportunity to become compliant. The Aviation Enforcement Office will continue to monitor airline policies and practices and take enforcement action as necessary and appropriate.

That was just shy of eleven months ago.

Statute of Limitations Issue
Civil claims for damages are generally subject to “rules of repose,” meaning that after a period of time with no action by the party claiming a debt owed, the right of legal action simply ends. To toll the statute (stop the limitations period from running out), it is generally necessary to file a lawsuit. In some jurisdictions, the claiming party must also serve the suit papers on the defendant within a certain period or at least make good faith efforts to do so.

It’s a “use it or lose it” situation. The time clock starts either when the claim accrues (for example, the day the debt was due and unpaid) or in some cases, an “equitable rule” applies, and the claim period begins when the claimant discovered or should have discovered the claim. It’s all quite complicated but in the case of airline refunds, it seems likely that the time for applying the statute of limitations would begin when the flight was canceled.

In air travel, the situation is even more complicated. An airline ticket purchase is the purchase of a contract obligation, the terms of which are set out in the Contract of Carriage and in the specific fare rules applicable to the booking. For example, the Contracts of Carriage for three of the majors specify that suits must be brought in Texas (American and Southwest) or Georgia (Delta). Prohibitions on bringing class actions also may be found in some of these Contracts.

There is also the issue of whether a consumer’s suit for a refund is subject to the federal preemption clause of the Federal Aviation Act. That clause prevents enforcement of state law claims that are “related to a price, route, or service” of an air carrier. This is a very complicated subject, the details of which I will omit here for the sake of brevity. Suffice to say that any attempt to bring a civil suit against an airline for violation of refund rules will likely face the gauntlet of preemption.

As time continues to pass without definitive enforcement action by DOT, the threat of claim denial under the various statutes of limitations grows on top of the other obstacles to legal self-help that affected consumers face. As suggested above, that threat is not imminent (the Georgia statute of limitations on “simple contracts in writing” is six years and even in Texas the general rule is four years) but if the carriers continue to hold consumer monies, these rules will eventually become relevant.

Reality Check
The key question remains: why is the Department of Transportation not acting more aggressively to secure refunds for air travelers whose plans were defeated by the pandemic? The airlines received billions in federal aid to help them through the cash crunch they faced when thousands of flights were canceled. Despite the DOT investigation of 20 carriers on this issue, almost all remain open. 

Reports indicate that the airlines’ trade association, Airlines for America, has stated that “its members comply with all federal laws and regulations.” That suggests the airlines are going to continue stonewalling on the cash refund issue. While DOT has promised a new rulemaking persistent pressure from Consumer Reports, the U.S. Public Interest Research Group, Business Travel Coalition, and other consumer advocacy groups has not led to aggressive action by DOT on behalf of consumers. The Air Canada settlement Order states that:

The Department intends to issue, in the near future, a rulemaking to codify OACP’s interpretation that Section 41712 requires airlines to provide prompt refunds when a carrier cancels or makes a significant change, including when the ticket purchased is non-refundable. That rulemaking would also address additional protections for consumers who are unable to travel due to government restrictions.

Such a rule, once adopted (such proceedings can easily consume one or more years), will not be retroactive. The announcement thus suggests that DOT may be abandoning the position it took in the Air Canada case regarding the obligations of carriers to refund in cash. Time, a lot of time apparently, will tell how this turns out. Meanwhile, consumers and their representatives will want to keep an eye on the clock.

Travel advisors should tell inquiring clients that while it’s possible they will receive a cash refund at any time, it may also be many months or years before that happens. They may be encouraged to write DOT about this. The procedures and forms can be found here.