Two Recent Important D.C. Circuit Decisions Regarding Fees Imposed by Airlines Operating in the United States

Transcription

1 Two Recent Important D.C. Circuit Decisions Regarding Fees Imposed by Airlines Operating in the United States By Roy Goldberg Partner Sheppard Mullin Richter & Hampton LLP Washington, D.C. Sheppard, Mullin, Richter & Hampton LLP 2009

2 2009 WL (C.A.D.C.) United States Court of Appeals, District of Columbia Circuit. ALASKA AIRLINES, INC. et al., Petitioners v. UNITED STATES DEPARTMENT OF TRANSPORTATION, Respondent City of Los Angeles et al., Intervenors. Argued Dec. 11, Decided Aug. 7, 2009.

3 Expedited Airport Fee Challenges 49 U.S.C This important statute allows airlines to challenge significant airport fee increases within a very expedited time frame. LAX III complaint filed February 16, DOT final decision was June 15, DOT ruled that new terminal charges at LAX Terminals 1 and 3 were unjustly discriminatory and unreasonable. Ruling resulted in fee credits and savings of hundreds of millions of dollars for the T1/T3 Airlines. Although the 2007 Newark decision improperly restricted use of for foreign carriers, Congress is planning to cure in Reauthorization Act. Foreign carriers also may pursue relief under FAA Part 16 (but not expedited).

4 LAX III: In Brief Thirty Airlines sued LAX in 2007, alleging that hundreds of millions of dollars in new terminal rates and charges were unreasonable and unjustly discriminatory Terminal 1 and 3 Airlines (Southwest, Alaska, US Airways et al.) Tom Bradley International Terminal Airlines Dep t of Transportation (DOT) Administrative Law Judge ruled in 2007 that new terminal charges were unreasonable and unjustly discriminated against airlines. DOT affirmed much of ALJ decision as to T1/T3 Airlines August 2009: D.C. Circuit affirmed in part and reversed in part DOT decision. CASE REMANDED TO DOT.

5 D.C. Circuit Decision in LAX III Court ruled DOT improperly failed to consider whether LAX operator (LAWA) abused its monopoly power as the operator of LAX when it increased the terminal charges imposed on the T1/T3 Airlines in Court : LAWA s monopoly power at LAX was the elephant in the room. Airlines properly raised monopoly power issue by alleging that LAWA has monopoly power over access to LAX, and the airlines must have access to LAX on fair and reasonable terms in order to serve the Los Angeles region effectively. Court recognized that the monopoly power of LAWA/LAX may be outcome determinative in all facets of the T1/T3 Airlines' challenges to the 2007 fee increase.

6 Relevance of the Monopoly Power of the Airport Operator includes: LAX's monopoly power vel non is relevant both to whether the City could lawfully consider evidence of fair market value to set rental rates for terminal space and to whether the rentable space methodology unjustly discriminated against the T1/T3 Airlines. The extent to which market value may be considered 'fair' is surely affected by whether the market is competitive rather than dominated by a government with monopoly power. Whether it was unjust for the City to charge the T1/T3 Airlines, but not the other airlines, rent for a portion of terminal common areas might also be affected by the City's alleged monopoly position; a more competitive market might have led to rent based only upon area used exclusively by an airline.

7 Use of FMV/Opportunity Costs to Set Terminal Charges 1997: DOT ruled FMV/ opportunity costs not reasonable in calculating landing fees at LAX The Court agreed with the T1/T3 Airlines that the DOT improperly failed to justify its decision to allow airports to use so-called lost "opportunity costs" to set airline terminal charges, given that DOT prohibits the use of opportunity costs to set landing fees. The Court faulted DOT for failing to offer a reasoned basis for allowing an airport to use opportunity cost as a measure of FMV for one type of airport space [terminals] and not another [airfields]. Court also upheld the DOT decision that it was improper for LAWA to rely on an appraisal prepared by its own staff in determining the FMV of terminal space leased to airlines.

8 Practical Impact of LAX III Decision Regarding Airport Monopoly Power Court has recognized what should have been obvious: Airport operators such as LAWA (LAX) are monopolists and should not be permitted to act like a normal commercial landlord when setting rates for airline tenants. Airports and regulatory agencies cannot pretend away that the airports lack monopoly power. Fee increases at airports should be considered from the perspective of whether the airport operator is abusing its monopoly power in imposing the increase.

9 LAX III RULINGS ON CLAIMS FOR UNJUST DISCRIMINATION Increased M&O Fees: LAX increased M&O fees on all LAX airlines to reflect (1) security expenses, (2) roadway access costs, and (3) administrative costs. Court ruled T1/T3 airlines challenge not ripe because the long-term lease tenants breach-of-contract claim was not yet resolved. T1/T3 Airlines had alternative option of pursuing relief under FAA Part 16.

10 554 F.3d 1065, 384 U.S.App.D.C. 325 United States Court of Appeals, District of Columbia Circuit. SOUTHWEST AIRLINES CO., Petitioner v. TRANSPORTATION SECURITY ADMINISTRATION, Respondent. Argued Nov. 6, Decided Feb. 3, As Amended on Denial of Rehearing April 10, 2009.

11 ASIF Fee Dispute Background Pre September 11 Airlines in U.S. hired airport screeners, and nonpassengers could access secure airport areas (e.g., meeters and greeters, sight-seers). After September 11, Congress passed Aviation and Transportation Security Act (ATSA), which resulted in TSA hiring screeners. ATSA requires (1) passengers to pay security fees, and (2) airlines to pay the ASIF. ASIF was to be based on actual screening costs incurred by airlines in CY ASIF subject to two limits: (1) overall limit, and (2) per-carrier limit. Overall Limit: Aggregate amount paid by carriers in CY Per-Carrier Limit: Actual amount paid by a carrier in CY January 2006: TSA imposed $104 million in fee increases on carriers which paid less than 82 cents per passenger, or failed to submit an unqualified audit opinion for its cost figures.

12 Southwest Airlines Co. et al. v. TSA The Litigation Twenty two airlines challenged hundreds of millions of dollars in increased passenger screening fees Aviation Security Infrastructure Fees imposed by TSA in the wake of 9/11. In February 2009 the D.C. Circuit ruled that the TSA s methodology for increasing the fees violated the applicable statute - TSA improperly included the cost of screening non-passengers as well as passengers. The base year used by TSA 2000 was a period in which meetersand-greeters, sight-seers and other non passengers were allowed into gate areas and other secure airport locations.

13 Southwest Airlines Co. et al. v. TSA The Litigation (Cont d) Because the cost of screening non-passengers was part of the cost pool used by TSA to increase the fees on the litigating carriers, the TSA acted improperly. The Court said that TSA could charge for the cost of screening the property of non-passengers; but not for screening the non-passengers themselves. The case is on remand before the TSA to determine how much of a reduction in fees should be made to reflect the Court ruling.

14 Possible Ramifications of Court Ruling The Court s reasoning applies to all carriers paying TSA passenger screening fees not just litigating carriers. The current fees violate both the overall limit and the per-carrier limit in the Aviation and Transportation Security Act of 2001 (ATSA), 49 U.S.C (a)(2)(B)(i), (ii), by improperly including in the fees the costs incurred in calendar year 2000 by airlines operating within the United States for screening non-passengers, such as meters-and-greeters and sightseers. Experts have estimated that airlines in the United States spent $142.8 million to screen non-passenger individuals in Calendar Year 2000, exclusive of the cost to screen their property. In addition, the fees should not reflect the cost of screening the property of non-passengers because TSA s own regulations make it clear that the term property in ATSA does not include property of non-passengers. See 49 C.F.R and (b).

15 Important Procedural Issues for Possible Claims Against the TSA Protest letters timely filed with TSA for ongoing ASIF payments. Suit must be filed within 60 days of protest denial Important to raise all arguments with TSA before TSA rules on claim Question as to how far back refunds can be sought for time periods prior to protests being lodged with the TSA Will the litigating carriers and the TSA reach a settlement for a refund amount? Will the TSA remand determination regarding costs to screen non-passengers be subject to fresh litigation in the D.C. Circuit? Will the TSA ever revise the fees based on market share or some other standard?