Mesa Air Group, Inc. v. Department of Transp.
| Decision Date | 02 July 1996 |
| Docket Number | 96-1154 and 96-1189,Nos. 96-1017,96-1131,s. 96-1017 |
| Citation | 87 F.3d 498 |
| Parties | , 40 Cont.Cas.Fed. (CCH) P 76,948 MESA AIR GROUP, INC., f/k/a Mesa Airlines, Inc. and WestAir Commuter Airlines, Inc., Petitioners, v. DEPARTMENT OF TRANSPORTATION and Federico F. Pena, Secretary of Transportation, Respondents. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Kirk K. Van Tine, Washington, DC, argued the cause for petitioners, with whom V. Michael Straus, was on the briefs.
Paul S. Smith, Senior Trial Attorney, United States Department of Transportation, Washington, DC, argued the cause for respondents, with whom Nancy E. McFadden, General Counsel, Paul M. Geier, Assistant General Counsel, Dale C. Andrews, Deputy Assistant General Counsel and Anne K. Bingaman, Assistant Attorney General, United States Department of Justice, and Robert B. Nicholson and David Seidman, Attorneys, were on the brief.
Before: WALD, BUCKLEY and SENTELLE, Circuit Judges.
Opinion for the court filed by Circuit Judge SENTELLE.
Petitioners seek review of orders of the Department of Transportation requiring them to continue to provide air service under certain subsidy agreements even though the Department has unilaterally reduced the subsidies payable under those agreements. Because we conclude that (1) the subsidy agreements are contracts subject to normal principles of contract interpretation, not regulations subject to interpretive deference to the Department, and (2) the petitioners' proffered interpretation of the termination clauses in those contracts is most consistent with the apparent intentions of the parties when they entered into the contracts, we set aside the orders on review and remand the case to the Department for further action consistent with this opinion.
In 49 U.S.C. §§ 41731-42, Congress established the Essential Air Services ("EAS") Program, a system whereby the federal government, acting through the Department of Transportation ("DOT"), subsidizes air transportation to and from airports in certain eligible communities. The justification for the subsidies is that they make it possible for the private air carrier recipients of the subsidies to provide service to certain communities that otherwise would have none because they are unable to generate a sufficient demand for the service to meet its cost. The EAS statute provides that the Secretary of Transportation "shall pay compensation ... at times and in the way the Secretary decides is appropriate," and gives the Secretary authority to end subsidy payments "when the Secretary decides the compensation is no longer necessary to maintain basic essential air service to the place." 49 U.S.C. § 41733(d). Section 41737(a) grants the Secretary the authority to "prescribe guidelines governing the rate of compensation payable" under the EAS program, and § 41737(d) allows the Secretary to "make agreements and incur obligations from the Airport and Airway Trust Fund ... to pay compensation under this subchapter." Section 41737(d) also provides that "[a]n agreement by the Secretary under this subsection is a contractual obligation of the Government to pay the Government's share of the compensation."
DOT issues orders detailing its compensation agreements with private air carriers. These orders describe the specific service to be provided and the dollar amount of the subsidies to be paid. Once an air carrier enters into a subsidy agreement, its ability to discontinue service as required by the agreement is governed by 49 U.S.C. § 41734. That section provides, among other things, that carriers must give ninety days' notice before ending or reducing any service provided under the agreement. If, at the end of ninety days, DOT has found no replacement carrier for the carrier giving notice, the Secretary "shall require the carrier" to continue providing service for thirty days. The statute provides for successive thirty-day extensions of the service requirement until DOT finds a replacement carrier. It also provides for a compensation formula for carriers providing service under such extensions. Should a carrier refuse to continue providing service, DOT can assess civil penalties under 49 U.S.C. § 46301.
In recent years Congress has funded the EAS program at levels below DOT's estimated requirements. For fiscal year 1989, for instance, Congress appropriated only $25 million when DOT estimated that well over $30 million would be necessary to meet the program's 1988 requirements. Still more funds would have been needed to implement certain upgrades in service ordered by Congress in 1987. A supplemental appropriation solved some of the funding difficulties, but that legislation also barred subsidies that amounted to more than $300 per passenger. DOT accordingly eliminated the subsidies with respect to six communities and released the air carriers from all obligations without any requirement of notice or continuing service. Order 89-9-37 (September 28, 1989). For fiscal year 1990, Congress again underfunded the EAS program and eliminated subsidies for certain distances from hubs and all subsidies amounting to more than $200 per passenger. DOT again had to cancel some subsidies altogether, this time to twenty communities, releasing the air carriers from all obligations. Orders 89-12-29 (December 19, 1989) and 89-12-52 (December 29, 1989).
Another round of underfunding and congressional elimination of subsidies on the basis of distance and cost per passenger for fiscal year 1994 led to DOT's elimination of subsidies for twelve more communities. Orders 93-10-48 (October 29, 1993); 93-11-44 (November 30, 1993); and 94-5-11 (May 9, 1994). Once again, DOT released the air carriers from all obligations under the subsidy orders without any requirements of notice or temporary continuation of service. A similar series of events occurred for fiscal year 1995. See Order 94-10-20 (October 17, 1994). For fiscal year 1996, Congress cut the EAS program appropriation by one-third and again tightened distance and cost-per-passenger requirements. But DOT contends that this time, Congress also determined that the funding cuts should be borne proportionally by all airlines receiving subsidies, so that no community would lose its essential air service. DOT supports this reading of congressional intent by quoting an explicit statement in the Conference Committee report:
The conferees fully intend that all essential air service communities that are participating in the program in fiscal year 1995 will continue to be eligible for participation in the essential air service program in fiscal year 1996, albeit at reduced levels. The conferees expect that the Department may be required to make pro-rata reductions in the subsidy or daily/weekly service levels to manage the funding reductions included in the conference report.
In the instant case, DOT has entered into subsidy agreements with Mesa Air Group, Inc. ("Mesa") (formerly known as Mesa Airlines, Inc.) and WestAir Commuter Airlines, Inc. ("WestAir"). Order No. 94-9-10, dated September 9, 1994, designates Mesa to provide essential air services from September 9, 1994, through August 31, 1996, for the following communities at the indicated annual subsidies:
---------------------------------------------------------
Community Subsidy
Alamogordo/Holloman Air Force Base, New Mexico $277,360
Clovis, New Mexico $310,860
Silver City/Hurley/Deming, New Mexico $408,814
Kingman and Prescott, Arizona $325,760
Worland, Wyoming $167,583
Cortez, Colorado $144,273
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Order No. 94-10-16, dated October 14, 1994, designates Mesa to provide essential air services from November 1, 1994, through October 31, 1996, for Dodge City, Kansas, Garden City, Kansas, Goodland, Kansas, Great Bend, Kansas, Hays, Kansas, Lamar, Colorado, and Liberal, Kansas/Guymon, Oklahoma. The subsidy for these services is set at$1,204,973. Order No. 95-5-25, dated May 22, 1995, designates WestAir to provide essential air services from May 1, 1995 (or whenever WestAir could implement the newly agreed-upon services, whichever date is later), through April 30, 1997, for Merced, California, and Visalia, California. The subsidy for these services is set at $700,463.
Upon Congress' action on the fiscal year 1996 EAS budget, DOT quickly responded by issuing Order 95-11-28 (November 17, 1995). That order implemented "on an emergency basis program-wide reductions in essential air service subsidy payments and service levels." Order 95-11-28 at 1. DOT cited the conference report's language anticipating that no communities would have their essential air service canceled and concluded that it must make across-the-board cuts in service levels and subsidy payments. Id. at 2. It accordingly adopted three service-cutting guidelines: subsidies would no longer be available for (1) more than one hub, (2) more than five days per week (compared to the previous six days per week), and (3) more than two round trips per service day (approximately fifty communities had received three or more subsidized round trips per day).
DOT also adjusted subsidy payments to reflect the diminution in service that the subsidized carriers would be expected to provide. In calculating the new amounts, the Department recognized that reduced service requirements would not reduce the air carriers' fixed costs of providing service, so it raised the per-flight subsidy "so as to...
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