American Airlines v. Gogo: A Contract Litigation Object Lesson?

American Airlines wants out of its 2012 contract with Gogo to provide internet service for about 200 of American’s planes.  The Fort Worth Star-Telegram reports on the airline’s use of a declaratory judgment claim to construe the contract:

In the lawsuit, American says its contract with Gogo allows it to renegotiate or terminate its agreement if another company offers a better service. The airline is asking a judge to declare that it provided proper notice under its contract and that Gogo’s rejection is without basis.

“After carefully evaluating the new technology and services in the marketplace, American has decided to exercise its rights under the Agreement and recently notified Gogo that ViaSat offers an in-flight connectivity system that materially improves on Gogo’s air-to-ground system,” the suit says.

American says ViaSat offers a faster service that is currently installed on United Airlines, Jet Blue and Virgin America planes. American uses Gogo for its regional aircraft and on domestic flights, primarily Boeing 737s. The carrier uses Panasonic to provide satellite-based Internet services for international flights on its wide-body fleet, including Boeing Dreamliners and 777s.

The story is an interesting object lesson on several fronts. First, the use of an indeterminate term like “better service” or its ilk as the trigger for termination of the original agreement was probably a dispute waiting to happen at its inception. Still, could a 2012 transactional lawyer have really done any better?  The most forward-thinking contract lawyer for American Airlines in 2012 could not have known what the state of in-flight wireless technology would be in 2016 beyond what actually happened–something “better” might come along.

A second lesson is that the litigation and attendant publicity may already have accomplished more for American Airlines than the legal system ultimately will. News of the litigation “sent shares of Chicago-based Gogo plummeting on Wall Street. Gogo stock [ticker: GOGO] declined 27 percent, or $3.81 to close at $10.08 on Tuesday.” Gogo is now at the bargaining table in a way that apparently was not going to happen before the litigation. Contract law is important to the operation of commerce, but market forces are much more important.

Finally, the publicity also speaks to the wisdom of not including arbitration clauses and confidentiality provisions in certain commercial contracts–at least not without carefully weighing the costs and benefits. Would American be better off if it did not have the court system (Texas state courts, at the moment) available as a forum? The answer is obvious, but certainly not the same one Gogo would reach at the moment. Transactional lawyers have a great deal to consider when judging the mists of an uncertain future. (H/T to my colleague Wayne Barnes for the story).