Air Canada v. U.S. Dept. of Transp., 87-1300

Decision Date15 April 1988
Docket NumberNo. 87-1300,87-1300
PartiesAIR CANADA, Petitioner, v. U.S. DEPARTMENT OF TRANSPORTATION, Respondent, American Airlines, Inc., Eastern Air Lines, Inc., Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

Robert N. Kharasch for petitioner; Albert F. Grisard, Mark S. Kahan, Susan B. Jollie, and Andrew B. Sacks, Washington, D.C. were on the brief for petitioner.

Kenneth N. Weinstein, Deputy Asst. Gen. Counsel for Litigation, Dept. of Transp., with whom B. Wayne Vance, Gen. Counsel, Dept. of Transp., and John J. Powers, III, and Laura Heiser, Attys., Dept. of Justice, Washington, D.C. were on the brief, for respondent. Thomas L. Ray, Atty., Dept. of Transp., Washington, D.C., also entered an appearance for respondent.

Alfred V.J. Prather, J. William Doolittle, Carl B. Nelson, Jr., Ronald A. Stern, and

Robert N. Duggan, Washington, D.C., were on the brief for intervenors.

Before WALD, Chief Judge, and EDWARDS and BUCKLEY, Circuit Judges.

Opinion for the court filed by Circuit Judge BUCKLEY.

BUCKLEY, Circuit Judge:

Air Canada petitions for review of the United States Department of Transportation's denial of its request for a permanent increase in takeoff and landing rights, or "slots," at New York's LaGuardia Airport. Air Canada argues that the agency erroneously interpreted the Memorandum of Understanding between the United States and Canada that governs the allocation of slots at LaGuardia. We conclude that the Department of Transportation correctly interpreted the Memorandum and affirm.

I. BACKGROUND

This is the latest chapter in a long-running controversy between Canada and the United States over landing rights at LaGuardia Airport ("LGA"). The dispute began when the Federal Aviation Administration ("FAA"), a division of the Department of Transportation ("DOT" or "Department"), promulgated the High Density Rule, strictly regulating air traffic at certain airports. 14 C.F.R. pt. 93 subpt. K (1987). In 1984, Air Canada, a corporation wholly owned by the Canadian Government, sought to increase its flights between LGA and Canada. When the FAA advised Air Canada that the planned increase would violate the High Density Rule, the carrier challenged its application. A panel of this court held that Air Canada's petition for review was untimely. Air Canada v. FAA, No. 84-1521 (D.C.Cir.1985) (mem. op.). Pending a petition for rehearing, the case was dismissed from our docket pursuant to stipulation. Under that stipulation, Air Canada acknowledged the applicability of the High Density Rule, and was granted twenty-eight slots at LGA, four more than it had been using.

At the same time as the settlement between Air Canada and the FAA, the Governments of Canada and the United States entered into a Memorandum of Understanding ("MOU"). Joint Appendix ("J.A.") at 31-32. This case concerns the proper interpretation of two provisions of the MOU:

While the High Density Rule is in effect, no U.S. carrier may increase its non-stop operations between LaGuardia and Canada so that the total number of such operations by U.S. carriers is greater than the number scheduled on December 31, 1984, unless Canadian airlines have the opportunity to establish a comparable increase in LaGuardia-Canada operations over the number scheduled by Air Canada on that date.

... In no case shall an airline of one country be required to reduce operations should an airline of the other country voluntarily reduce operations.

The FAA subsequently promulgated 14 C.F.R. Sec. 93.217(a)(7) (1987), which provides:

If required by bilateral agreement, additional slots shall be allocated at LaGuardia Airport for international scheduled passenger operations within the hour requested.

The FAA may allocate such additional slots by withdrawing them from domestic service. 14 C.F.R. Sec. 93.223(a) (1987). The agency withdraws slots according to a reverse or recall lottery procedure. See id. at Sec. 93.223(b) and (c).

In December 1985, American Airlines ("AA" or "American") increased its flights from LGA to Canada by diverting two slots it had used previously for domestic service. No regulation prohibits a carrier from converting slots from domestic to foreign use, but the airline must notify the FAA under 14 C.F.R. Sec. 93.217(d) (1987). American gave such notice, and although it did not require approval for the rededication of slots, FAA officials gave AA "informal clearance." J.A. at 146.

There is some dispute as to when the relevant United States authorities were first notified of the Canadian position that, as a consequence of AA's diversion, Canadian carriers were automatically entitled to two additional slots for service between LGA and Canada. Air Canada points to a letter to the FAA dated August 18, 1986, in which the carrier requested allocation of additional permanent slots because of American Airlines' increased Canadian service. J.A. at 33. The DOT discounts this letter because the FAA and Air Canada agreed to ignore the request for additional slots made in the August letter, J.A. at 37, and because Air Canada notified the FAA, not the Office of the Secretary of Transportation ("OST") of the DOT, the unit directly responsible for negotiating, construing, and enforcing bilateral aviation agreements such as the MOU. Brief for Respondent at 18. The appropriate DOT authorities certainly knew of Air Canada's view by December 3, 1986, when Air Canada reapplied for two additional LGA slots on the ground that AA's actions constituted an increase in LGA-Canada operations under the MOU. J.A. at 126.

Following extended discussions between the FAA and American, the FAA requested that American either discontinue one round-trip between LGA and Canada per day or provide Air Canada with two slots at LGA. Under protest, American stopped its additional Canadian flights.

Having brought about this result, FAA staff took the position that the United States had satisfied its obligations under the MOU and refused to grant Air Canada's request for two additional permanent slots. Because Air Canada had already prepared to increase service, however, the FAA did grant the slots to Air Canada on a temporary basis from April 27 to June 14. The temporary allocation was later extended to July 26 to permit Air Canada's orderly termination of service. Those slots were granted on the express understanding that they did not establish any right to permanent slots under the MOU. J.A. at 151.

Air Canada petitioned the Secretary of Transportation for review of the staff's decision. This petition was denied by Order No. 87-6-58, the ruling under review in this case. J.A. at 114-25. The DOT concluded that under the plain language of the MOU, the unilateral increase in service by American did not entitle Air Canada to a permanent award of additional slots. Rather, the MOU restricts U.S. carriers from increasing service unless they have ascertained that Canadian carriers are assured similar access to additional slots. The DOT also rejected the argument that section 93.217(a)(7) of the High Density Rule, supra at 1485, required the agency to allocate additional slots. The regulation requires such allocation, the DOT believed, only if otherwise required by the MOU. As the MOU did not entitle Air Canada to an increased permanent slot allocation, neither did the regulation.

Following another dispute, not now before us, concerning the interpretation of the MOU, the United States notified Canada of its intention to terminate the agreement, effective March 22, 1989. Diplomatic Note from U.S. Department of State to Canadian Embassy (Mar. 22, 1988). The U.S. also requested consultations on service at LGA, to begin no later than May 21, 1988. Id. This recent development does not affect our decision.

II. DISCUSSION
A. Standard of Review

The agency's action may not be set aside unless it is arbitrary and capricious. 49 U.S.C.App. Sec. 1486 (1982); 5 U.S.C. Sec. 706(2)(A) (1982). The MOU is an international executive agreement, which we interpret according to the principles applicable to treaties. Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 180, 102 S.Ct. 2374, 2377, 72 L.Ed.2d 765 (1982), stated the general rule:

The clear import of treaty language controls unless "application of the words of the treaty according to their obvious meaning effects a result inconsistent with the intent or expectations of its signatories." Maximov v. United States, 373 U.S. 49, 54, 83 S.Ct. 1054, 1057, 10 L.Ed.2d 184 (1963).

When the operative terms have some play, however, the reviewing court owes substantial deference to the interpretation given by the administering agency to matters within its competence:

Although not conclusive, the meaning attributed to treaty provisions by the Government agencies charged with their negotiation and enforcement is entitled to great weight. Kolovrat v. Oregon, 366 U.S. 187, 194 [81 S.Ct. 922, 926, 6 L.Ed.2d 218] (1961).

Sumitomo, 457 U.S. at 184-85, 102 S.Ct. at 2379. We applied this standard to the interpretation by the Civil Aeronautics Board of various bilateral aviation agreements:

Our review of this question is informed by the acknowledged need to defer to the expertise of the Board--the agency responsible in part for negotiating the very executive agreements whose interpretation is now in dispute. See Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 184-85 [102 S.Ct. 2374, 2379, 72 L.Ed.2d 765] (1982); Collins v. Weinberger, 707 F.2d 1518, 1522 (D.C.Cir.1983).

Japan Air Lines Co. v. Dole, 801 F.2d 483, 488 (D.C.Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 1372, 94 L.Ed.2d 688 (1987). In Collins, which involved a regulation implementing multilateral agreements, we stated:

Interpretation, clarification and implementation are always necessary, and it is the executive branch, in agreement with the other party to the treaty, which bears primary...

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