Opinion for the Court filed by Circuit Judge ROBB.
ROBB, Circuit Judge:
This is an appeal by Allegheny Airlines from a judgment of the District Court awarding the plaintiff Ralph Nader compensatory and punitive damages for fraudulent misrepresentation in the sale of an airline ticket.
The facts giving rise to Nader's claim are not disputed. He was scheduled to address a rally in Hartford, Connecticut at noon on April 28, 1972. On April 25, 1972 he reserved a seat on Allegheny flight 864, scheduled to depart from Washington, D. C. for Hartford at 10:15 A.M. on April 28. His reservation was a "confirmed reservation". He arrived at the boarding and check-in area approximately five minutes before the scheduled departure time but was told by Allegheny's agent that he could not be accommodated on flight 864 because all the seats were occupied. He was offered an alternative air taxi flight by way of Philadelphia but he decided not to accept it because of uncertainty as to whether he would arrive in Hartford in time for the
The Allegheny agent at the Washington check-in area tendered to Nader the Denied Boarding Form required by CAB regulations (14 C.F.R. § 250.9). This form notifies holders of tickets on flights that are "oversold" that they are entitled to compensation from an airline if they are "bumped", that is, denied transportation. Nader told the agent that he did not need the form because he already had one. In fact, he had received such a form when he was bumped from an American Airlines flight on April 23, 1972, two days before he made his reservation on Allegheny. Six months before that he and five other people had been bumped by Eastern Airlines. On both occasions he held a confirmed reservation.
Pursuant to CAB regulations Allegheny mailed to Nader a check in the amount of $32.41 as denied boarding compensation. Nader's attorney returned the check to Allegheny, together with a letter characterizing the denied boarding compensation as a "wholly inadequate offer of settlement".
On July 7, 1972 Nader filed suit in the District Court, asserting Allegheny's liability on two theories: (1) a common law action based on fraudulent misrepresentation in that Allegheny failed to inform Nader of its "booking practices" and (2) a statutory action under section 404(b) of the Federal Aviation Act, 49 U.S.C. § 1374(b), arising from Allegheny's alleged failure to afford Nader the boarding priority specified in its rules, filed with the Civil Aeronautics Board pursuant to 14 C.F.R. § 250.3.
The District Court, sitting without a jury, entered a judgment for Nader on both claims, and awarded him a total of $10.00 in compensatory damages and $25,000 in punitive damages. Nader v. Allegheny Airlines, Inc., 365 F.Supp. 128 (D.D.C.1973). On appeal this court reversed. Nader v. Allegheny Airlines, Inc., 167 U.S.App.D.C. 350, 512 F.2d 527 (1975). The judgment based on Allegheny's alleged violation of section 404(b) was reversed and the District Court was instructed to make new findings of fact and conclusions of law. The award of punitive damages on the common law claim was reversed. We pointed out that "[s]ince punitive damages require a finding of malice or reckless disregard for the rights of others, the defendants' motivations are crucial"; but "the trial judge never considered whether Allegheny reasonably believed that its policies were completely lawful and in fact carried the approval of the Board." Id. at 374, 512 F.2d at 551. We directed the District Court to award punitive damages "only on the terms set forth in this opinion." Id. at 375, 512 F.2d at 552. The award of punitive damages on the statutory claim was reversed on the ground that Allegheny's conduct in applying its boarding priority rule contained no elements of intentional wrongdoing or conscious disregard for Nader's rights. Finally, we held that under the doctrine of primary jurisdiction the CAB must be allowed to determine in the first instance whether failure to disclose the practice of overbooking was deceptive within the meaning of section 411 of the Federal Aviation Act, 49 U.S.C. § 1381. The District Court was instructed to stay further action on this issue pending reference to the CAB.
The Supreme Court of the United States reversed the order of this court granting a stay to give the CAB an opportunity to act. Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 96 S.Ct. 1978, 48 L.Ed.2d 643 (1976). The Court concluded that the common law action could be heard by the trial court without prior reference to the CAB. Accordingly, we entered an amended judgment and the case was remanded to the District Court.
On remand the District Court found that Allegheny violated section 404(b) of the Act, 49 U.S.C. § 1374(b), by its failure to board Nader in accordance with its own priority boarding rules. For this the court awarded him $10.00 in compensatory damages. The court also found that Allegheny's failure to notify Nader of the chance that he would not be seated constituted fraudulent misrepresentation, and that "defendant Allegheny wantonly implemented its policy of nondisclosure and misrepresentation in conscious, deliberate, and callous
On this appeal Allegheny challenges only the award of compensatory and punitive damages on the claim based upon fraudulent misrepresentation.
Nader's reservation was not honored because Allegheny had accepted more reservations for flight 864 than it could accommodate. In other words, the flight had been "overbooked". In its opinion in Nader v. Allegheny Airlines, supra, the Supreme Court discussed the practice of overbooking:
426 U.S. at 293-94, 96 S.Ct. at 1982.
The issues presented in this case must be considered in context with the extended consideration which the Civil Aeronautics Board has given to the practice of overbooking.
In 1967, after notice and comment in a rulemaking proceeding, the Board rejected a proposal to include in its rules provisions requiring notice to passengers of an overbooked condition on flights for which they hold tickets. Instead of such a provision the Board promulgated part 250 of its regulations, 14 C.F.R. § 250, which permitted overbooking practices to continue on condition that "carriers file tariffs providing prompt, effective and adequate compensation to the denied boarding passengers". In an explanatory statement the Board made its views on overbooking clear to the airlines and to the public. In short, the Board concluded that the practice was in the public interest:
This case presents two questions: (1) was Allegheny liable to Nader in tort for fraudulent misrepresentations? and (2) assuming such liability was the award of punitive damages proper? We first address the second question and conclude that assuming liability the award of punitive damages was clearly erroneous.
The Civil Aeronautics Board in 1967 had publicly and formally expressed its approval of the practice of overbooking and had declined to issue a rule requiring notice to holders of tickets for an overbooked flight. As we observed in the first Nader case, 167 U.S.App.D.C. at 358, 512 F.2d at 535, the Board's determination to permit the carriers to continue the practice of nondisclosure was based on the recognition that disclosure "would create anxiety and confusion in the public, would cause the public to make a great number of duplicative and protective reservations, would produce a rapid turnover in reservations within the twenty-four hours before the departure of a flight and would increase the no-show problem." The Board concluded that "any rigid controls over overbooking, as now practiced, would inevitably lead to restrictions on privileges which contribute greatly to the convenience of air transportation, and have come to be relied upon by the traveling public. In addition, such controls would reduce load factors and the additional cost would ultimately have to be borne by the traveling public." 32 Fed.Reg. at 461 (1967). In summary the Board stated that the reservation systems of the carriers "in general benefit the traveling public." Id. The Board had not modified or retreated from this position when Nader made his reservation in 1972. Allegheny's policies and practices as applied to Nader therefore carried the approval of the Board; and Allegheny must have believed that they were approved. Under these circumstances it was clearly erroneous to find as did the District Court that Allegheny's "policy of nondisclosure" was "willful and wanton" and showed a "conscious, deliberate and callous disregard" for its passengers. An airline may not be condemned as a wanton wrongdoer for conforming to the standards set and the practices approved by the agency charged with the duty of regulating it— standards and practices that the agency has found to be in the public interest. The award of punitive damages must be set aside.
A representation may be false and fraudulent in a technical sense, although it is not so gross and wanton that it justifies an award of punitive damages. We therefore turn to the question whether Allegheny was guilty of fraudulent misrepresentation in failing to disclose to Nader that his "confirmed reservation" was subject to the contingency that he might be denied boarding if his flight was overbooked.
In the first Nader case we reversed as clearly erroneous the District Court's finding that Allegheny affirmatively represented to Nader that he had a reservation guaranteeing him a seat. Id. at 365, 512 F.2d at 542. We held that Allegheny's fault, if any, was its failure to disclose that its policy of deliberate overbooking qualified the meaning of a "confirmed reservation". The District Court found that Allegheny had a duty of disclosure to Nader, that its failure to disclose amounted to a false representation, and that by a preponderance of the evidence Nader had proved the other elements of the tort of fraudulent misrepresentation.
The record discloses that in the seventeen months preceding the Nader incident Allegheny had experienced only two oversales on flight 864, and statistical analyses had shown that in 1972 there was only slightly more than one chance in two thousand that a ticket holder would be denied boarding because of an oversale. Stated another way the chance that a holder of a confirmed reservation would be boarded was approximately 99.95 out of 100. Allegheny argues that because the chance that Nader would be denied boarding was thus "so negligible as to be practically insignificant" the possibility that bumping might occur was not a material fact and the airline cannot be charged with misrepresentation in failing to disclose it. The theory of the airline is that a confirmed reservation is not a guarantee but is only a "reasonable assurance" of being flown, because any flight may be cancelled as the result of weather conditions, mechanical problems, or the like. The airline says that Nader had that reasonable assurance of being flown; the chance of being bumped because of overbooking was too remote to affect the assurance, and silence about such a chance therefore did not amount to a false representation in reference to a material fact. As the District Court found, however, confirmation of a reservation connotes a guarantee of flight subject only to contingencies beyond the control of the airline. The possibility of being bumped because of overbooking is a factor within the airlines' control. That the possibility may be slight does not make it immaterial; it is still a factor in the equation, and as Nader's experience demonstrates it may be an important factor. No one who has suffered the disruption of travel plans by denial of boarding would believe otherwise.
Six years after the Nader incident the Civil Aeronautics Board confirmed our opinion that the practice of overbooking is a material fact which should be brought to the attention of those purchasing tickets. This the Board did by promulgating 14 C.F.R. § 250.11, 43 Fed.Reg. 24,284 (1978). This regulation requires carriers to post in their ticket offices and include with each ticket sold a notice that "Airline flights may be overbooked, and there is a slight chance that a seat will not be available on a flight for which a person has a confirmed reservation."
Nader could not recover on his tort claim unless the evidence established that Allegheny intended to deceive him when it failed to notify him of its overbooking practice. The District Court found in summary fashion that Allegheny had such an intent to deceive. The court's entire discussion of this issue was:
445 F.Supp. at 175. We think this finding is unsupported by the evidence and clearly erroneous.
As we have seen the matter of overbooking had been thoroughly explored by the
Moreover, in order to recover for the tort of fraudulent misrepresentation:
W. Prosser, Law of Torts § 108 at 714 (4th ed. 1971). The plaintiff Nader was an extraordinarily knowledgeable passenger, an able lawyer and a famous and distinguished advocate of consumer rights, including the rights of airline passengers. On April 23, 1972, only two days before he made his reservation on Allegheny flight 864, Nader was bumped from an American Airlines flight. Six months earlier he had been bumped by Eastern Airlines. On both occasions he held a confirmed reservation. In addition, upon being told that he could not be accommodated on flight 864 because all the seats were occupied, and being tendered the Denied Boarding Form required by CAB regulations, Nader informed the Allegheny ticket agent that he was familiar with the form. On deposition Nader explained that he told the agent he did not need the form because "I already knew what it said". In fact he had received such a form when he was bumped from the American Airlines flight. The form stated:
Therefore, the evidence demonstrates that Nader "knew the facts" that a confirmed reservation did not exclude the possibility that he might not be boarded. "[O]ne who has special knowledge, experience and competence may not be permitted to rely on
The judgment for both compensatory and punitive damages is