Air Transport Ass'n of America v. Department of Transp.

• Citation: 119 F.3d 38
• Decision Date: 01 August 1997
• Docket Number: Nos. 96-1253,96-1269,s. 96-1253
• Parties: AIR TRANSPORT ASSOCIATION OF AMERICA, Petitioner, v. DEPARTMENT OF TRANSPORTATION, et al., Respondents, City of Los Angeles, Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 38

119 F.3d 38

326 U.S.App.D.C. 239

AIR TRANSPORT ASSOCIATION OF AMERICA, Petitioner, v. DEPARTMENT OF TRANSPORTATION, et al., Respondents City of Los Angeles, Intervenor.

Nos. 96-1253, 96-1269.

United States Court of Appeals District of Columbia Circuit.

Argued May 15, 1997.

Decided Aug. 1, 1997.

Walter A. Smith, Jr., Washington, DC, argued the cause for petitioner Air Transport Association of America, with whom Allen R. Snyder, Jonathan L. Abram,, Washington, DC, and Jonathan S. Franklin, Washington, DC, were on the briefs.

Steven S. Rosenthal argued the cause for petitioner City of Los Angeles, with whom Ronald N. Wilson, Stanley A. Zamel, Ardis M. Conant, Leilani F. Battiste, and Breton K. Lobner, Los Angeles, CA, were on the briefs. G. Brian Busey, Washington, DC, entered an appearance.

Thomas L. Ray, Attorney, United States Department of Transportation, Washington, DC, argued the cause for respondents, with whom Nancy E. McFadden, General Counsel, Washington, DC, and Paul M. Geier, Assistant General Counsel, Washington, DC, were on the brief. Marion L. Jetton and Robert B. Nicholson, Attorneys, United States Department of Justice,, Washington, DC, entered appearances.

Steven S. Rosenthal, Ronald N. Wilson, Stanley A. Zamel, Ardis M. Conant, Leilani

F. Battiste, and Breton K. Lobner, Attorneys, City of Los Angeles Department of Airports, Los Angeles, CA, filed the brief for intervenor City of Los Angeles. G. Brian Busey, Washington, DC, entered an appearance.

Allen R. Snyder, Walter A. Smith, Jr., Jonathan L. Abram,, Washington, DC, and Jonathan S. Franklin, Washington, DC, filed the brief for intervenor Air Transport Association of America.

Scott P. Lewis and Kenneth W. Salinger, Boston, MA, filed the brief for amici curiae Airports Council International-North America and American Association of Airport Executives. Patricia A. Hahn entered an appearance.

Before: SILBERMAN, GINSBURG, and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

Petitioners City of Los Angeles and the Air Transport Association of America, an airline trade association, each challenge the Department of Transportation's Final Policy Regarding Airport Rates and Charges. We grant the petitions for review and remand.

I.

Airports are required by statute to charge aeronautical users reasonable fees. ¹ Section 511 of the Airports and Airways Improvements Act, codified at 49 U.S.C. § 47107 (1994), requires an airport that accepts federal grant money (or land) to assure that the airport will be available for public use on reasonable conditions and without unjust discrimination; this assurance has been interpreted to include a requirement that the airport's fees be reasonable. See New England Legal Found. v. Massachusetts Port Auth., 883 F.2d 157, 169-70 (1st Cir.1989). Similarly, the Anti-Head Tax Act allows a publicly owned airport to collect only reasonable landing fees and charges from aeronautical users. See 49 U.S.C. § 40116(e)(2) (1994); Northwest Airlines v. County of Kent, 510 U.S. 355, 366, 114 S.Ct. 855, 862-63, 127 L.Ed.2d 183 (1994). Although the Department of Transportation (DOT) has adjudicated disputes over the reasonableness of airport fees under these statutes, see, e.g., New England Legal Found., 883 F.2d at 163-66, until recently it never promulgated regulations defining what it thought to be reasonable airport fees. Airlines and airports did, however, take these issues to court. See, e.g., Northwest Airlines, 510 U.S. 355, 114 S.Ct. 855; New England Legal Found., 883 F.2d 157; Indianapolis Airport Auth. v. American Airlines, 733 F.2d 1262 (7th Cir.1984), disapproved by Northwest Airlines.

In August 1994, Congress enacted § 113 of the Federal Aviation Administration Authorization Act, codified at 49 U.S.C. § 47129 (1994), which required the Secretary of Transportation to publish "final regulations, policy statements, or guidelines establishing--... the standards or guidelines that shall be used by the Secretary in determining under this section whether an airport fee is reasonable." Id. § 47129(b)(2). That section also created an expedited administrative procedure in which an airline may challenge before the Secretary the reasonableness of an airport fee. See City of Los Angeles Dep't of Airports v. Department of Transp., 103 F.3d 1027, 1030 (D.C.Cir.1997) (LAX I). In such proceedings, only the reasonableness of the challenged fee is open to question; the Secretary "shall not set the level of the fee." 49 U.S.C. § 47129(a)(3). ²

The Secretary adopted an "Interim Policy" in February 1995 which required that aeronautical fees be capped by the cost to airports of providing aeronautical facilities and services. The interim policy also required that airfield assets be valued at their historic cost in determining the total costs that could be recovered from fees. Airports complained that the Interim Policy would force them to change their operating methods and would damage their ability to finance improvements, since they had commonly based fees for certain aeronautical facilities (such as terminals) on something other than historic cost.

In June 1996, after receiving comments on a "Supplemental Proposed Policy," the Secretary published a regulation entitled the "Final Policy Regarding Airport Rates and Charges." The Final Policy, unlike the Interim Policy, distinguishes between airfield and non-airfield fees. For airfield fees--aeronautical fees charged for the use of the runways, taxiways, ramps, aprons, and roadway land--the Final Policy maintains the Interim Policy's requirements that aeronautical fees be capped at actual cost to the airport, and that airfield assets be valued according to their historic cost. For non-airfield fees--aeronautical fees charged for the use of all other aeronautical facilities and services, including terminals, hangars, cargo space, and maintenance--the Final Policy instead permits airports to use "any reasonable methodology."

According to the Secretary, requiring that assets be valued at historic cost in setting airfield fees is consistent with current practice, permits airports to recover their out-of-pocket costs, and, since historic cost is easily determined from accounting records, will help avoid controversies and be easier to administer. The Secretary rejected fair market valuation as a methodology for valuing assets in determining airfield fees because the Secretary thought that airports do not have "opportunity costs" in airfield assets since they are committed to continued operations. The Secretary also thought that the Final Policy's treatment of non-airfield fees is consistent with past practice (which had not resulted in disputes), and would permit pricing to reflect the differences among non-airfield facilities. The Secretary believed it unlikely that airports can or will exercise market power in setting non-airfield fees.

The Final Policy also permits airports to include in airfield fees a charge for imputed interest on those aeronautical funds reinvested in the airfield, unless the invested funds derive from airfield fees. A charge for imputed interest, according to the Secretary, lets airports recover their opportunity costs in the airfield (if any) and compensates for inflation. But imputed interest cannot be charged for airfield revenues reinvested in the airfield because the Secretary believes airfield users might then be financing airfield investment twice: once in the form of otherwise reasonable airfield fees that turned out to generate excess revenue, and once on the imputed interest charge on the investments made with that revenue.

Petitioners attack the Final Policy from both sides. The Air Transport Association of America (ATA), on behalf of its members, challenges what it sees as the Final Policy's complete deregulation of non-airfield fees. The City of Los Angeles challenges the Final Policy's requirement of historic cost for airfield fees.

II.

Anterior analytically to the main dispute between the two petitioners and the Secretary--whether the regulation's ³ disparate treatment of airfield and non-airfield fees is arbitrary and capricious under the Administrative Procedure Act (APA)--is the nature of the Secretary's authority and obligation to issue regulations (guidelines) which set forth a particular methodology for determining the reasonableness of fees. Los Angeles contends the Secretary has no such power, whereas ATA claims that not only does he have that authority, he must use it in a meaningful manner for both airfield and non-airfield fees.

Los Angeles argues that the statute obliges the Secretary to take a relatively passive role: he "may only determine whether [a] fee is reasonable or unreasonable and shall not set the level of the fee." 49 U.S.C. § 47129(a)(3). Emphasizing the differences that exist among airports regarding airfield and non-airfield facilities and financial structures, it contends that Congress, understanding those differences, intended that the Secretary's role be limited to determining whether a particular airport's fees meet an overall (bottom line) reasonableness standard. Cf. Federal Power Comm'n v. Natural Gas Pipeline Co., 315 U.S. 575, 586, 62 S.Ct. 736, 743, 86 L.Ed. 1037 (1942). Each airport is therefore entitled to use any reasonable methodology, and the Secretary lacked authority to require airports to use historic cost as a basis for airfield fees.

We think Los Angeles' position on this issue is not very persuasive. Section 113, it will be recalled, obliges the Secretary to publish "final regulations, policy statements, or guidelines establishing--... the standards or guidelines that shall be used by the Secretary in determining under this section whether an airport fee is reasonable." 49 U.S.C. § 47129(b)(2). That provision certainly implies that Congress intended the Secretary to fashion a quasi-legislative uniform approach...