Court Sides with Southwest Airlines, Allows Coupons to Expire

In California, it is against the law for gift certificates to have expiration dates. Furthermore, they cannot even lose value due to inactivity, as is stipulated in the fine print of many gift cards.

Enter Southwest Airlines, who recently decided to set an expiration date on all in-flight alcohol vouchers, including those that may be decades old with no expiration date on them. Southwest already started putting expiration dates on newly-issued drink coupons a couple of years ago, but thousands of older ones are floating around.

But hold that thought, because the court decision I’ll outline below is not about drink chits.

California resident Mitch Tanen purchased a $100 Southwest travel certificate (it was not specified, but this was probably one of the Southwest gift cards you see in grocery and drug stores) in 2005 and tried to redeem it 14 months later, two months past its stated expiration date. Southwest refused to honor the certificate and Tanen sued, claiming the decision violated California law.

A California trial court sided with Southwest and a California appellate court, in a decision released today, affirmed the lower court decision. The court held a California law limiting "gift certificate" expiration dates does not apply to Southwest because the federal Airline Deregulation Act pre-empts state laws that purport to regulate airline "prices, routes, or services."

If you want to read about the precise legal rationale that underpinned the court’s ruling, you can read the entire case, available (free registration required) by clicking on the link above. To summarize, though, the court held that federal law trumped state law in this case, so Southwest could enforce an expiration date on their gift cards. To reach this conclusion, the court determined that gift cards are included in "prices, routes, or service" and thereby fall under federal law, which allows for expiration dates.

Getting back to the drink chit controversy, today’s ruling may make it less likely that any potential litigants will find success in challenging WN’s decision to let drink chits expire, but not impossible. I’ll elaborate below.

While I would prefer to see Southwest (and all companies) refrain from setting an expiration date on their gift cards and drink chits, I understand why it makes business sense to set expiration dates. My concern with the older drink chits, though, is that no expiration date was ever set. It is one thing to allow a certificate to expire that has a clearly demarcated expiration date on it. It is quite another thing to unilaterally impose an expiration date on drink chits, many of which were purchased by customers who legitimately believed they would not expire.

This was a key aspect in today’s court ruling: that Tanen had notice that the gift card expired one year from the date of activation. Unless the Southwest drink chits stated in the terms in conditions (and I do not believe that they did) that the airline reserved the authority to modify terms of the coupons, even with Southwest’s victory today it would not surprise me if a plaintiff prevailed over Southwest in a class action lawsuit over drink chits.

Any lawsuit will have to wait until August 31, 2011, the date non-dated drink vouchers will expire on Southwest. Until a customer is denied the use of a voucher, this matter will not be ripe for adjudication.