Aircrane, Inc. v. Butterfield, Civ. A. No. 73-1964

• Decision Date: 03 January 1974
• Docket Number: Civ. A. No. 73-1964,73-2173.
• Citation: 369 F. Supp. 598
• Parties: AIRCRANE, INC. and Helicrane Construction Corporation v. Alexander P. BUTTERFIELD, Administrator, Federal Aviation Administration, et al. UNITED STATES of America v. SIKORSKY H-37 AIRCRAFT, Registration No. N7069, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

369 F. Supp. 598

AIRCRANE, INC. and Helicrane Construction Corporation v. Alexander P. BUTTERFIELD, Administrator, Federal Aviation Administration, et al.

UNITED STATES of America v. SIKORSKY H-37 AIRCRAFT, Registration No. N7069, et al.

Civ. A. Nos. 73-1964, 73-2173.

United States District Court, E. D. Pennsylvania.

January 3, 1974.

COPYRIGHT MATERIAL OMITTED

Clark, Ladner, Fortenbaugh & Young, Philadelphia, Pa., for Aircrane and Helicrane.

Walter S. Batty, Asst. U. S. Atty., Philadelphia, Pa., for United States.

Before VAN DUSEN, Circuit Judge, and LUONGO and BRODERICK, District Judges.

OPINION

LUONGO, District Judge.

On August 10, 1973, regional officials of the Federal Aviation Administration (hereinafter Agency or FAA) seized a Sikorsky H-37 rebuilt military surplus helicopter owned by Aircrane, Inc. and leased by Helicrane Construction Corporation (sometimes hereinafter referred to as Aircrane, Helicrane, or Owners). That seizure gave rise to two suits. The first suit was instituted by Aircrane and Helicrane against Butterfield, et al. (Civil Action No. 73-1964) in which Owners seek a declaration of unconstitutionality of those sections of the Federal Aviation Act and regulations promulgated pursuant thereto which prohibit use of their craft for "compensation or hire," and which authorize seizure of the craft for violations of regulations without prior notice or hearing. The second suit is United States v. Sikorsky H-37 Aircraft, et al. (Civil Action No. 73-2173) in which the government seeks to collect civil penalties provided in §§ 901 and 903 of the Act (49 U.S.C. §§ 1471, 1473), and to enjoin (49 U.S.C. § 1487(a)) related corporations and certain named individuals from further operations in violation of FAA's "compensation or hire" regulations. Although the moving parties in the two actions sought preliminary injunctive relief, all parties have agreed that the two suits be heard together and that the cases be disposed of as on final hearing for permanent, rather than preliminary, injunctive relief.

Since Owners have asked to have declared unconstitutional an Act of Congress, and since their claims are not plainly insubstantial¹ this three-judge court was convened.² Having been so convened, the three-judge court has determined, in the exercise of its discretion, to consider and decide related single-judge matters. Florida Lime and Avocado Growers v. Jacobsen, 362 U.S. 73, 80 S.Ct. 568, 4 L.Ed.2d 568 (1960); Haining v. Roberts, 453 F.2d 1223 (5th Cir. 1971); Hobson v. Hansen, 256 F. Supp. 18 (D.D.C.1966):

The basic facts of the case are largely uncontroverted, set forth mainly by stipulation. Aircrane is in the business of purchasing military surplus helicopters, rebuilding them for civilian use, getting them licensed by the FAA and then selling them or leasing them out on a long-term basis. Helicrane is a helicopter leasing company. It leased the helicopter in question from Aircrane for the purpose of sub-leasing it on a short-term basis to industrial users, mostly construction companies, who have use for a helicopter to perform external lift work in their own businesses.

The relationship between Aircrane and Helicrane, and the relationship of the two companies to a third, Keystone Helicopter, Inc., is significant to this litigation. Keystone is a helicopter operating company, certified under FAA regulations to carry passengers and property for hire. It furnishes helicopters complete with pilots, fuel and insurance on a contract basis, both long and short term. It also operates helicopters owned by others, supplying crews and maintenance for them. Peter Wright founded and is president of all three corporations. He owns substantially all of the outstanding stock of Keystone (85%)³ and Helicrane (90%), and although he personally owns no stock in Aircrane, he has substantial indirect control of that company through Keystone's ownership of 50% of Aircrane's stock.^3a Michael D'Aries, the general manager and chief operating officer of Helicrane, is vice president of all three companies. The three corporations keep separate records, but they share common facilities. Keystone leases a portion of a building in West Chester, Pennsylvania, from Mr. Wright, and sublets a portion of the space to Helicrane. In that facility, Keystone employs approximately 40 persons, including several secretaries. Aircrane and Helicrane have no secretaries. Whatever secretarial help they require is furnished by Keystone's employees.

Helicrane was formed by Wright in 1968 to meet the demand of business enterprises requiring occasional helicopter service, but not enough to justify the large investment involved in purchasing a helicopter or leasing one on a long-term basis. Wright's plan was to furnish helicopter service on a lease arrangement for less than $1,000 per hour. Central to Wright's plan to furnish such low-cost service was his belief that military surplus helicopters could be certificated in what the FAA calls the "restricted category," FAR § 21.25, 14 C. F.R. § 21.25, as opposed to the "normal category," FAR § 21.21, 14 C.F.R. § 21.21. The operational and mechanical standards that a craft seeking "restricted" certification must meet are far less stringent than those required for "normal" certification and require far less expensive testing procedures. A "restricted" craft is subject to significant operating limitations which do not constrain aircraft certified as normal. One significant limitation, the regulation involved in this case, prohibits a restricted aircraft from "carrying persons or property for compensation or hire." FAR § 91.39(b). When Wright initially made plans to seek "restricted certification," he was even uncertain that the FAA would view carriage of external loads, the basic pre-requisite for the business he envisioned, as a "special purpose operation" under FAR § 21.25⁴ and a permissible use for a restricted aircraft. Initially FAA's New York Regional Office rejected carriage of external loads as an acceptable use of a "restricted" category helicopter, but eventually FAA made use of the discretion afforded by the broad language of FAR § 21.25(b)(7) and granted Aircrane the certificate requested on March 8, 1972.

After certification was obtained, Aircrane entered into a long-term lease of the craft to Helicrane. In the first eleven months of its lease, Helicrane entered into approximately 20 sublease agreements with industrial users, varying in length from one or two days to not more than two weeks. In its advertising and in its lease contracts, Helicrane made a point of the fact that it was not an operating company, that it did not rent the helicopter with a crew and emphasized that the lessee was obligated to furnish its own pilot and crew and to pay their salaries. Helicrane reserved the right to approve or disapprove the pilot in order to assure itself and its insurance carrier that the craft was being operated by a qualified person. In reality, however, every contractor who leased the helicopter hired as its pilot John E. Roatch, former head pilot of Keystone. Although Roatch was duly placed on the payroll of Helicrane's lessees, it is rather obvious that he, in essence, "came with the plane."⁵ Frederick Carson served as Roatch's co-pilot on all the lease assignments; he was not an employee of Keystone. On every job, however, Roatch brought with him two or three mechanics who were employees of Keystone. Ground crews were furnished by the contractors who leased the aircraft.

On February 20, 1973, Wright, troubled by reports that one of his competitors had filed a complaint against him, wrote to the FAA asking for a copy of the complaint and an interoffice memo written by the FAA staff analyzing whether the complaint had merit. In the next few months, through an exchange of correspondence between Wright and FAA, it became evident that the essence of the complaint was that Helicrane's operation constituted use of a restricted aircraft for "compensation or hire," and that the FAA was in substantial agreement with the position set forth in the complaint. In responses dated June 19, June 26 and July 5, Wright, on behalf of Helicrane set forth a detailed explanation of the company's business and his analysis showing that this method of operation conformed to the regulations. The FAA did not agree. In a letter dated June 7 and in a telegram received by Helicrane on July 2, the Agency stated its belief that Helicrane's operations were illegal and asked that it cease further operations.

On July 17, the FAA sent Helicrane another letter which summarized the previous warnings and indicated that investigation had revealed that subsequent to the warnings Helicrane had entered into several more identical leases involving the carriage of external loads. The FAA noted that those facts, if confirmed, would constitute a violation of the FAA regulations and offered Helicrane the opportunity to submit "discussion or written statements" to be considered in the Agency's investigation. Representatives of FAA and Helicrane arranged to meet on July 30 to discuss the problem. The meeting was postponed at Helicrane's request and was rescheduled for August 9, but prior to the rescheduled date, it was cancelled by the FAA. On August 9, Acting Director Leo J. Cardinali, in accordance with the statutory scheme spelled out in §§ 901 and 903 of the Act, issued an order to seize the helicopter as security for the $1,000 civil penalty which the FAA believed to be owing for the alleged violations.^* Thereafter the above mentioned suits were initiated by the Owners and by the government respectively.

I.

We deal first with the constitutionality of the challenged sections of the FAA Act which authorize the seizure of an aircraft for penalties for violations of FAA regulations. Preliminarily, we wish to state clearly what is in issue. As one of several alternative grounds for relief stated in their complaint,...