This week, the Fifth Circuit Court of Appeals issued a stay of the Department of Transportation's (DOT) price transparency and "junk fee" rule (the Rule or the Final Rule). The ruling effectively blocks the DOT from enforcing the Rule pending the legal challenge.
The DOT issued the Final Rule, "Enhancing Transparency of Airline Ancillary Service Fees," in April 2024, and it took effect July 1, 2024. The Rule requires airline carriers and ticket agents to clearly disclose certain "ancillary service fees," such as baggage fees and cancellation fees, to consumers before purchase. The DOT described the purpose of the Rule as helping consumers "to avoid surprise fees that can add up quickly and add significant cost to what may, at first, look like a cheap ticket." The DOT rule was part of the Biden administration's whole-of-government attack on "junk fees."
Various airlines and business groups immediately challenged the Rule, arguing, among other things, that the DOT overstepped the authority granted to it by Congress. DOT relied on 49 U.S.C. § 41712, which authorizes the secretary of transportation to "investigate and decide whether an air carrier . . . has been or is engaged in an unfair or deceptive practice or an unfair method of competition in . . . the sale of air transportation." If the DOT determines an air carrier has violated the law, it can order the carrier to stop certain practices after notice and a hearing.
The Fifth Circuit determined that the Rule went far beyond what the statute allows. Instead of deciding whether an air carrier engaged in unfair and deceptive practices, the Final Rule specifies exactly how carriers must disclose certain fees. For example, disclosures are allowed via pop-ups but not through hyperlinks. Finding that the airlines would face irreparable harm if the Rule were allowed to be enforced, the court halted enforcement pending the end of litigation.
If this sounds familiar to you, you're not alone. This is yet another blow to federal agencies attempting to regulate swaths of the economy through rulemaking. Recently, another court put on hold the Federal Trade Commission's attempt to ban noncompete agreements through rulemaking. There, a similar tale unfolded: business groups challenged the Noncompete Rule as outside the FTC's authority, and a Texas federal court agreed, putting the rule on ice.
The proliferation of legal challenges to agency rulemaking has taken off since the Supreme Court's ruling in Loper Bright. As we previously discussed, the ruling held that courts are no longer required to defer to the agency interpretations of statutes. While Loper Bright focused on the FTC, this case makes clear that all federal agencies are susceptible to challenge.
Originally published by Venable LLP
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