Herrera v. Cathay Pacific Airways Ltd.

Background

Winifredo and Macaria Herrera brought a proposed class action against Cathay Pacific Airways Ltd. for breach of contract. They alleged that Cathay Pacific canceled their flight because of the COVID-19 public health emergency but did not provide the cash refund they claimed the airline’s contract required. Instead, they alleged, Cathay Pacific offered flight vouchers that expired in July 2020 and that they could not use.

In an earlier order, the court had found that the original complaint relied on the wrong contract and did not adequately allege that the Herreras had satisfied or been excused from conditions required to obtain a refund. The Herreras then filed a first amended complaint relying on Cathay Pacific’s General Conditions of Carriage and adding allegations about their refund efforts.

The Herreras alleged that they spoke with a Cathay Pacific agent at the airport, were told that rerouting was unavailable, and were assured they would be refunded for the unused portion of their tickets. Cathay Pacific later emailed that a full refund was available and instructed passengers who had booked through a travel agent to contact that agent. The Herreras contacted ASAP Tickets, the third-party website through which they bought their tickets, and alleged that ASAP told them Cathay Pacific would offer only an expiring travel voucher. They also alleged that they had surrendered their tickets because the scheduled flight date had passed.

Arbitration request

Cathay Pacific argued that the Herreras were bound by an arbitration provision in ASAP’s terms and conditions. The Federal Arbitration Act governs arbitration agreements involving interstate commerce. Under California law, a nonsignatory to an arbitration agreement may sometimes enforce it through equitable estoppel, a doctrine that can apply when a claim depends on the agreement or when the plaintiff alleges closely connected misconduct by the signatory and nonsignatory.

The court rejected Cathay Pacific’s arbitration argument. It reasoned that the Herreras based their claim on obligations in Cathay Pacific’s own General Conditions of Carriage, not on obligations in ASAP’s terms and conditions. The Herreras did not allege that ASAP breached its agreement or engaged in misconduct. The terms also stated that airlines, not ASAP’s operator, determined fare restrictions and had authority over refunds. The court therefore concluded that fairness did not require the Herreras to arbitrate their claim against Cathay Pacific under the ASAP agreement.

Motion to dismiss

Cathay Pacific also moved to dismiss under Rule 12(b)(6), which allows dismissal when a complaint does not adequately state a claim for relief. It argued that the Herreras had not alleged that they requested a refund from Cathay Pacific, that Cathay Pacific denied such a request, or that they surrendered their tickets. It also argued that any failure to perform those conditions was not excused.

The court disagreed. It held that the allegations plausibly showed that the Herreras requested a refund. Their conversation with the Cathay Pacific agent could reasonably be understood as seeking the only remaining option after rerouting was unavailable. In addition, the Herreras alleged that they followed Cathay Pacific’s instruction to contact their travel agent. Because the General Conditions of Carriage did not specify how a refund request had to be made, the court found those allegations sufficient at the pleading stage.

The court also declined to find that the Herreras had inadequately alleged surrender of their tickets. The relevant contract provision required surrender of the ticket and unused flight coupons, but Cathay Pacific did not explain how a ticket existing only in electronic form could be surrendered. The court found the meaning of that requirement unclear and stated that further factual development was needed to determine what surrendering an electronic ticket meant under these circumstances and whether the requirement was satisfied or excused.

The court separately rejected Cathay Pacific’s argument that the tickets necessarily remained valid under a contract provision extending ticket validity when a passenger unsuccessfully tries to obtain a reservation during the original validity period. The court noted that the complaint did not allege that the Herreras made such an unsuccessful reservation attempt.

Disposition

The court denied Cathay Pacific’s motion to dismiss or, alternatively, to compel arbitration. The opinion did not state that the motion was denied with or without prejudice.