Alaska Airlines, Inc. v. Johnson, Nos. 93-1028

• Decision Date: 26 October 1993
• Docket Number: Nos. 93-1028,93-1125 and 93-1161,93-1117
• Citation: 8 F.3d 791
• Parties: 39 Cont.Cas.Fed. (CCH) P 76,588 ALASKA AIRLINES, INC., American Airlines, Inc., Continental Airlines Corporation, Delta Air Lines, Inc., Eastern Airlines, Inc., Northwest Airlines, Inc., Pan American World Airways, Inc., Trans World Airlines, Inc., United Airlines, USAir, Inc., Plaintiffs/Cross-Appellants, v. Roger W. JOHNSON, Administrator, General Services Administration, General Services Administration and United States of America, Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

Page 791

8 F.3d 791

39 Cont.Cas.Fed. (CCH) P 76,588

ALASKA AIRLINES, INC., American Airlines, Inc., Continental Airlines Corporation, Delta Air Lines, Inc., Eastern Airlines, Inc., Northwest Airlines, Inc., Pan American World Airways, Inc., Trans World Airlines, Inc., United Airlines USAir, Inc., Plaintiffs/Cross-Appellants, v. Roger W. JOHNSON, Administrator, General Services Administration, General Services Administration and United States of America Defendants-Appellants.

Nos. 93-1028, 93-1117, 93-1125 and 93-1161.

United States Court of Appeals Federal Circuit.

Oct. 26, 1993.

L. Dale Owens, Booth, Wade & Campbell, Atlanta, GA, argued, for plaintiffs/cross-appellants. With him on the brief, were Dean Booth and Scott A. Wharton.

Robert M. Loeb, Atty., Dept. of Justice, of Wash., DC, argued, for defendants-appellants. With him on the brief, were Stuart E. Schiffer, Acting Asst. Atty. Gen., J. Ramey Johnson, U.S. Atty. and William Kanter, Atty.

Before MAYER, MICHEL and LOURIE, Circuit Judges.

MAYER, Circuit Judge.

The Administrator of the General Services Administration and the United States bring this consolidated appeal of the judgment of the United States District Court for the District of Columbia in favor of the party airlines, holding that the government's post-payment audits of airline transportation bills are not authorized by law and ordering the return of all money held by the government because of the improper audits. 801 F.Supp. 760 (D.D.C.1992). We affirm in-part, reverse in-part, and remand.

Background

The dispute in this case focuses on one of the two ways by which the government arranges and pays for its employees' air travel. The government may enter into a contract with an airline to provide air travel at a fixed rate between two points, an arrangement called a "city-pair" contract. These are not pertinent to this appeal. It also arranges for air travel on routes not covered by city-pair contracts on an individual basis through employee purchase of tickets subject to what are termed "controlled-capacity" fares. These tickets are central to the case.

Before deregulation of air travel, airlines like other common carriers were required to publish tariffs setting the rates at which transportation services would be provided and were legally bound to abide by those tariffs. See 49 U.S.C.App. § 1373(b)(1) (1982); Aloha Airlines, Inc. v. Civil Aeronautics Board, 598 F.2d 250, 259 (D.C.Cir.1979). They had to charge the same fare for "like and contemporaneous services under substantially similar circumstances and conditions." Id. at 263 (citations omitted). As a result of deregulation, airlines now can readily adjust the prices for their services to meet changing market conditions. See First Pennsylvania Bank, N.A. v. Eastern Airlines, Inc., 731 F.2d 1113, 1119-21 (3rd Cir.1984). Under the present system, they are free to charge a number of different fares for the same service. Although they are not required to, the airlines publish a list of these applicable fares ¹ in what are inaccurately referred to as "tariff schedules". ² Which of the applicable fares is charged on a particular ticket may be determined by the airlines in accordance with market forces; to respond to a changing market the airlines may limit the number of tickets available at a particular applicable fare. The airline designates a number of "available seats" to be sold at each applicable fare for a given service and this number fluctuates on an hour-by-hour, or sometimes a minute-by-minute, basis. In short, a customer's opportunity to secure a particular fare is governed by the number of seats at each applicable fare available when the ticket is purchased.

When faced with arranging air travel between points not covered by a city-pair contract, government employees must purchase controlled-capacity tickets. Their authority to make such purchases is limited, however, by the Federal Travel Regulations. See 41 C.F.R. Part 301 (1992). Initially, employees have some discretion in determining travel requirements. See id. § 301-3.4(b). For example, they may decide the date and time to fly, how far in advance a ticket should be purchased, and the likelihood that they might have to modify travel plans after reservation and ticketing. Once the service has been chosen the employees' discretion ends. The regulations require the purchase of the lowest cost ticket that satisfies the desired travel conditions. ³

So that employees might travel without undue delay, the law permits the government to pay for air travel through employee ticket purchases, but to audit these contracts later to insure compliance with the travel regulations. See 31 U.S.C. § 3726 (1988). If, after audit, the government believes it paid too much for particular services, it may declare an overcharge and deduct the amount from a subsequent bill from the airline. ⁴

In auditing payments for controlled-capacity fares, the General Services Administration (GSA) initially assumes that the government is entitled to pay the lowest applicable fare for any particular service. It then examines the travel request forms and determines the service for which the employee traveler qualified. After isolating the service provided, GSA then examines the published fare information to determine the range of applicable fares charged by the airline used. ⁵ At that point, the lowest applicable fare is determined and it is assumed that at the time of purchase there was a seat available at that fare. Finally, GSA compares the fare actually paid as shown on the ticket and if it is higher than the lowest applicable fare, an overcharge is declared. It then falls to the airline to challenge the overcharge and to prove its entitlement to the higher fare.

Pursuant to this audit procedure, GSA has withheld from these airlines as declared overcharges an aggregate amount in excess of $100 million. Because the airlines objected to the assumptions GSA applies in its audits and the resulting burden on the airlines to prove these assumptions incorrect, they asked the Comptroller General to review GSA's audit procedures.

The Comptroller General addressed GSA's authority to declare overcharges under 31 U.S.C. § 3726, and determined that GSA's initial assumption that the government was entitled to the lowest applicable fare was unfounded. There was no authority that per se entitled the government to receive the lowest applicable fare. Section 3726(b) only provides for "recovery of payments 'greater than the rate allowed' under an applicable tariff or equivalent arrangement; it does not state that this must be the lowest rate...." In re Alaska Airlines, Inc., No. B-231659, slip op. at 12 (Comp.Gen. Sept. 10, 1990). The Comptroller General also rejected GSA's argument that the limitations on an employee's authority by the Federal Travel Regulations require the airline to sell a government employee a ticket at the lowest applicable fare.

While [the regulations] give direction to the government traveler and travel office and seek to have travel arranged at the lowest cost to the government consistent with the circumstances of the travel being performed, they do not constitute a basis in GSA's audit to reduce otherwise proper carrier billings to the lowest rate that could have applied.

In re Alaska Airlines, Inc., No. B-231659.4, slip op. at 10-11 (Comp.Gen. Sept. 23, 1991).

GSA argued that United States v. New York, New Haven & Hartford R.R. Co., 355 U.S. 253, 78 S.Ct. 212, 2 L.Ed.2d 247 (1957), squarely placed the burden on the carrier to prove the correctness of its transportation bills. The agency asserted that it may declare an overcharge based on a ticket written at a higher applicable fare unless the airline could certify that there were no available seats at any lower applicable fare. The Comptroller General explained, however, that in New York, New Haven the government had made a specific request for rail cars of a certain dimension, which would have entitled the government, pursuant to a special wartime measure, to pay a lower rate if they were available. Id. at 256 n. 5, 78 S.Ct. at 214 n. 5. But modern air travel, which is no longer subject to mandatory tariffs and a one-service, one-price structure, is fundamentally different from the situations of the railroads in New York, New Haven and the provision there implicated.

The airlines then brought suit in the district court, seeking review of GSA's audit procedures under the Administrative Procedure Act, 5 U.S.C. § 702 (1988), and requesting an injunction to compel GSA to comply with the Comptroller General's decisions. In the alternative, the airlines brought multiple claims based on the contracts inherent in the individual tickets pursuant to the Little Tucker Act, 28 U.S.C. § 1346(a)(2) (1988). The district court agreed with the Comptroller General that GSA's audit procedure was impermissible. The court reiterated that GSA's assumption that there were available seats for all listed applicable fares was inconsistent with the reality of competitive airline pricing and agreed with the Comptroller General that the government was not entitled to the lowest applicable fare independent of seat availability.

The court pointed out that the New York, New Haven case was based largely on the rule that where evidence required to prove a fact is particularly within the knowledge and competence of one of the parties, fairness requires that that party bear the burden of coming forward. In the different situation presented by this case, where it was uncontested that the airlines do not maintain records showing what seats were available at the time a passenger purchased a ticket, ⁶ the rule of New York, New Haven does not apply.

The court did recognize, on the other hand, that the government has a legitimate interest in not paying more than necessary, but this did not entitle it to the lowest applicable fare. The government is capable of meeting...