Alaska Airlines v. Transportation Sec. Admin., 09-1062.

• Citation: 588 F.3d 1116
• Decision Date: 11 December 2009
• Docket Number: No. 09-1062.,09-1062.
• Parties: ALASKA AIRLINES, INC., Petitioner v. TRANSPORTATION SECURITY ADMINISTRATION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

588 F.3d 1116

ALASKA AIRLINES, INC., Petitioner v. TRANSPORTATION SECURITY ADMINISTRATION, Respondent.

No. 09-1062.

United States Court of Appeals, District of Columbia Circuit.

Argued October 20, 2009.

Decided December 11, 2009.

On Petition for Review of an Order of the Transportation Security Administration.

M. Roy Goldberg argued the cause and filed the briefs for petitioner.

Jeffrey Clair, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the briefs was Scott R. McIntosh, Attorney.

Before: SENTELLE, Chief Judge, and ROGERS and KAVANAUGH, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Pursuant to the Aviation and Transportation Security Act, Pub.L. No. 107-71, 115 Stat. 597 (2001)(codified in 49 U.S.C. § 114 and scattered sections of 49 U.S.C.), the Transportation Security Administration ("TSA") of the Department of Homeland Security imposed a $2.50 per passenger "enplanement" fee to pay for the costs of providing civil aviation security services. 49 U.S.C. § 44940(a)(1)(2009); 49 C.F.R. § 1510.5. Air carriers collect and remit these fees, and must allow the TSA access to their records to ensure that security service fees are being properly collected and remitted. 49 U.S.C. § 44940(e); 49 C.F.R. § 1510.19. Based on an audit of Alaska Airlines' records for a four-year period, the TSA determined that the air carrier owed $1,070,726.28 in additional passenger security fees. Alaska Airlines challenges this decision on two grounds: (1) The audit was not random and was skewed by inclusion of two flights on dates during the start and reinstitution of passenger fee collections; and (2) It is due a credit of $738,816.00 for passenger fees it paid but did not collect from passengers. Because Alaska Airlines has failed to show that the TSA's decision was arbitrary, capricious, an abuse of discretion, or contrary to law, we deny the petition for review.

I.

Shortly after the terrorist attacks on September 11, 2001, Congress enacted the Aviation and Transportation Security Act establishing the TSA and vesting it with primary responsibility for maintaining civil air security. 49 U.S.C. § 114. The Act required the TSA to impose "a uniform fee" on "passengers of air carriers" originating at airports in the United States to pay for the costs of providing "civil aviation security services." § 44940(a)(1). The fees are capped at $2.50 per "enplanement," defined as "a person boarding in the United States in scheduled or nonscheduled service on aircraft," 49 C.F.R. § 1510.3, and may not exceed $5.00 per one-way trip. 49 U.S.C. § 44940(c). The Act further provides that these fees "shall be collected by the air carrier ... that sells a ticket for transportation," and then remitted on a timely basis to the TSA. § 44940(e)(1)-(3). If a passenger fee "is not collected from the passenger, the amount of the fee shall be paid by the carrier." § 44940(d)(2). The TSA may require carriers to submit information that it determines is necessary to verify that the proper amount of fees have been timely collected and remitted. § 44940(e)(4).

Pursuant to the implementing regulations, the TSA in December 2001 set the passenger fee at $2.50. 49 C.F.R. § 1510.5. The fee applied to most flight segments originating at an airport in the United States, but passengers could not be charged more than two "enplanements" per one-way trip or four "enplanements" per round trip. Id. The regulations provided that the air carrier is responsible for collecting the passenger fees and remitting them to the TSA, and that the fees must be based on the passenger's air travel itinerary at the time the ticket is purchased. § 1510.9.13. The passenger may be liable for additional fees or entitled to a refund based on a voluntary change in itinerary. § 1510.9(b). However, if the passenger is involuntarily re-routed, the air carrier is solely liable to the TSA for any additional security service fees resulting from an increase in the number of "enplanements." Id.

In 2006, the TSA issued a clarification regarding certain recurring issues relating to passenger fees. Letter from Michael Gambone, Acting Dir., Office of Revenue, Transp. Sec. Admin. (October 24, 2006) ("2006 clarification"). The TSA clarified both the definition of a one-way trip and its enforcement policy for additional fees when involuntary re-routes add "enplanements" to a passenger's itinerary. The TSA announced that, although air carriers were "solely liable to TSA" for such fees, it would not pursue unpaid involuntary re-route fees unless the air carrier had already collected that fee from passengers. Further, air carriers would no longer be liable for collecting and remitting involuntary re-route fees after January 1, 2007. The 2006 clarification stated:

All Passenger Fees collected in accordance with this clarification prior to January 1, 2007 must be remitted to TSA. Funds so remitted and/or collected are not subject to any refund, credit or offset against any other amounts due. (emphasis added).

Shortly before the 2006 clarification, Alaska Airlines received a letter confirming arrangements for two auditors from U.S. Customs and Border Protection to conduct a compliance audit on behalf of the TSA. Letter from Anthony Saranchak, Assistant Field Dir., Regulatory Audit Div., U.S. Customs and Border Prot., Dep't of Homeland Sec., to Brett Weiler, Tax Manager, Alaska Airlines, Inc. (August 10, 2006). The letter stated the audit would cover the period between February 1, 2002 and April 30, 2006. The methodology of the audit was straightforward: The auditors first picked twelve flights that in their judgment would best represent the entire audit period. They examined the tickets and records for those flights to determine if Alaska Airlines had in any instances failed to impose, collect, or remit the passenger security fee to the TSA. They found that out of 1,413 instances in which the fee should have been remitted to the TSA, called "qualifying flight segments," in twelve instances Alaska Airlines erroneously failed to either impose or remit the fee. The auditors then divided the number of errors (12) by the number of qualifying flight segments (1,413) to arrive at an error rate of 0.85%, and extrapolated that error rate to the total amount of fees paid during the audit period.

Based on the audit findings, the TSA assessed Alaska Airlines an additional $1,070,726.28 in passenger fees. Letter from Pamela Pak, Revenue Compliance Manager, Transp. Sec. Admin., to Kevin Thiel, Dir. of Revenue Accounting, Alaska Airlines, Inc. (June 5, 2007). The assessment reflected a reduction of approximately half a million dollars to account for any errors caused by the air carrier's confusion about how to define a multiple one-way trip prior to issuance of the 2006 clarification. Id. The TSA found a recalculated sample error rate of 0.57%.

Alaska Airlines pursued administrative review on the grounds that the audit sample was not randomly drawn and so could not serve as a basis for conclusions about the entire audit period. It argued that the sample had been structured to include flights in the months immediately following initial implementation and post-suspension reimplementation of the fee,¹ and asserted that errors were more likely to occur at those times. It also claimed that it was entitled to a refund or credit of fees it had paid for passengers who were involuntarily re-routed onto additional "enplanements." Because the TSA had elected in the 2006 clarification not to enforce this liability against air carriers who had failed to remit involuntary rerouting fees, it argued the TSA was obligated to relieve it of this liability.

The TSA affirmed the additional assessment and the denial of a refund or credit. Letter from David Nicholson, Assistant Adm'r, Fin. and Admin./Chief Fin. Officer, Transp. Sec. Admin., to Brett R. Weiler, Alaska Airlines, Inc. (Oct. 19, 2008) ("Final Decision"). The TSA explained that while the flights were not randomly drawn, as the audit report had stated, the use of the auditor's professional judgment to select a representative sample of flights was an appropriate audit tool: "Judgmental sampling was used to ensure the data better represented the entire audit period for the air carrier." Final Decision at 2. The TSA rejected the suggestion that the sample was skewed, observing that Alaska Airlines had "offered no evidence to support its contention that the actual results were skewed in any significant way." Id. The TSA noted Alaska Airlines' request for administrative review did not "specifically describe the manner and extent of the purported skewed results" but "merely speculated that the auditors' choice of samples was against its interests." Id. Therefore, "[l]acking any real evidence of the alleged skewed results, we see no reason to make any adjustments to the methodology." Id. Regarding the refund or credit, the TSA explained the 2006 clarification had "clearly indicated" that "no refund, credit or offset ... would be provided where an air carrier had correctly collected and remitted" such fees and that it had authority to retain such fees remitted before it suspended enforcement of the regulatory requirement in 2006. Id. at 2-3. Alaska Airlines petitions for review.

II.

Alaska Airlines contends that the auditors' non-random selection of the flights to audit was based on the higher potential for passenger fee collection errors in certain time periods and thus caused the error rate to be overstated. Specifically, it maintains that out of only twelve flights examined, two were selected because the auditors assumed there would be a higher than normal incidence of error when the air carrier was instituting or reinstituting its collection and remittance proceedings. It maintains that the sampling methodology thus improperly extrapolated this allegedly higher error rate over the entire fifty-one months...