By Joyce Hanson

Law360 (December 14, 2020, 9:43 PM EST ) American Airlines and the lead plaintiff in a proposed class action in Texas federal court have agreed to end litigation against the U.S. airline over its refusal to refund customers for flights that were canceled amid the COVID-19 pandemic.

Lead plaintiff Lee Ward and American Airlines Inc. filed a single-paragraph notice on Friday saying the joint stipulation of voluntary dismissal calls for dismissal of the action without prejudice. The parties have each agreed to bear their own fees and costs.

Representatives for the parties did not immediately respond to a request for comment Monday.

The joint agreement followed U.S. District Judge Reed O'Connor's mixed ruling on Nov. 2, which found that American Airlines must face the proposed breach-of-contract class action over its refusal to refund customers for canceled flights, but ordered arbitration for two individual customers who bought their tickets through online travel agencies.

While Judge O'Connor denied American's August motion to dismiss Ward's claims, he granted the airline's motion to compel arbitration of claims from two other plaintiffs, James Saunders and William Holloway, whose ticket purchases through Hotwire and Expedia, respectively, were subject to an enforceable arbitration agreement.

Although American is not a party to the Hotwire or Expedia terms of use, American is a third-party beneficiary that's entitled to enforce the arbitration clauses with signatories Saunders and Holloway, the judge said.

Meanwhile, the judge said, Ward's claims could go forward. He plausibly alleged that American breached its conditions of carriage by refusing to refund customers for flights canceled due to the COVID-19 outbreak and only offering customers vouchers or travel credits for future travel, according to the decision.

Judge O'Connor was unpersuaded by American's argument that Ward's claim was preempted by the Airline Deregulation Act of 1978, the sweeping federal law that preempts state-law claims having a connection with or reference to airline prices, routes or services.

The U.S. Supreme Court established in 1995's American Airlines v. Wolens decision that "the ADA permits state-law-based court adjudication of routine breach-of-contract claims." And while the ADA "stops states from imposing their own substantive standards with respect to rates, routes or services," it doesn't bar "affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated."

American set the terms of its conditions of carriage and Ward is just trying to enforce a voluntary agreement entered into by American, Judge O'Connor said. American tells customers in its conditions of carriage that, irrespective of ticket types, "if you decide not to fly because your flight was delayed or canceled, we'll refund the remaining ticket value and any optional fees," according to the decision.

Judge O'Connor also rejected American's request to pause Ward's claims from moving forward in court until the completion of arbitration proceedings for the claims asserted by Saunders and Holloway.

Ward, who on Oct. 29 asked the court for class certification, first kicked off the suit in April accusing Fort Worth, Texas-based American of staving off its revenue losses by hanging on to money that should have been paid back to customers for canceled flights when global travel ground to a near halt in the early months of the COVID-19 outbreak. Instead of full refunds, American offered its customers vouchers or credits for future travel.

Earlier this year, Ward booked two separate trips to travel from Las Vegas to Lima, Peru, on American Airlines flights, with the first trip scheduled for March 12-31 and the second trip scheduled for May 30 to Aug. 3, according to the complaint. Ward paid more than $3,200 for his tickets.

Ward traveled to Lima as planned on March 12. But while still abroad, he was notified that his upcoming flights to return to the U.S. on American Airlines and Latam Airlines for March 31 had been canceled and the next possible return flight it had available wouldn't be until May 7, according to his suit. Ward had to pay out-of-pocket to book a return flight on different airlines, and once he returned stateside, American still refused to refund Ward for its portion of his canceled flight back to Las Vegas, his suit said.

Ward and the proposed class are represented by Steve W. Berman, Daniel J. Kurowski and Whitney K. Siehl of Hagens Berman Sobol Shapiro LLP, E. Adam Webb and G. Franklin Lemond Jr. of Webb Klase & Lemond LLC and Allen R. Vaught of Vaught Law Firm LLC.

American Airlines is represented by James E. Brandt, Michael E. Bern and Tyce R. Walters of Latham & Watkins LLP and Dee J. Kelly Jr. and Lars L. Berg of Kelly Hart & Hallman LLP.

The case is Lee Ward et al. v. American Airlines Inc., case number 4:20-cv-00371, in the U.S. District Court for the Northern District of Texas.

--Additional reporting by Linda Chiem. Editing by Jay Jackson Jr.

For a reprint of this article, please contact reprints@law360.com.