Reinsurance & Arbitration Focus

The Ninth Circuit Court of Appeals recently reversed a district court’s decision to deny a motion to compel arbitration in a case involving a request to refund the cost of airline tickets after a cancellation.

Winifredo and Macaria Herrera purchased airline tickets on Cathay Pacific flights through a third-party booking website, ASAP Tickets. ASAP’s terms and conditions included an arbitration clause requiring binding arbitration through the American Arbitration Association. During their trip, Cathay Pacific canceled the Herreras’ return flight and told them to talk to ASAP about a refund. ASAP apparently denied the Herreras’ request for a refund. The Herreras filed suit against Cathay Pacific, which moved to compel arbitration pursuant to ASAP’s terms and conditions. The district court denied Cathay Pacific’s motion, reasoning that the Herreras’ gripe was with Cathay Pacific, not ASAP.

Cathay Pacific appealed, and the Ninth Circuit reversed and remanded. It first rejected the argument that federal regulations precluding arbitration provisions in “contracts of carriage” precluded arbitration in this case, explaining that the regulation in question did not prohibit “airline carriers from enforcing arbitration agreements between passengers and third parties if the applicable law permits them to do so.” The court then held that California contract law allowed Cathay Pacific to invoke ASAP’s arbitration clause because the Herreras’ breach of contract claim was “intimately founded in and intertwined with” ASAP’s terms and conditions. ASAP had effectively acted as a “middleman” for “refund-processing purposes.” The Ninth Circuit then rejected the Herreras’ arguments that it would be unfair to allow Cathay Pacific to invoke the arbitration clause because “the refund process was not clear."

Herrera v. Cathay Pacific Airways Ltd., No. 21-16083 (9th Cir. Mar. 11, 2024).