First American Bank of Virginia v. Dole

• Decision Date: 06 June 1985
• Docket Number: No. 84-1901,84-1901
• Citation: 763 F.2d 644
• Parties: FIRST AMERICAN BANK OF VIRGINIA, Petitioner, v. Elizabeth Hanford DOLE, Secretary of Transportation, Respondent. American Bankers Association and Virginia Bankers Association, Amici Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 644

763 F.2d 644

FIRST AMERICAN BANK OF VIRGINIA, Petitioner, v. Elizabeth Hanford DOLE, Secretary of Transportation, Respondent American Bankers Association and Virginia Bankers Association, Amici Curiae.

No. 84-1901.

United States Court of Appeals Fourth Circuit.

Argued Jan. 7, 1985.

Decided June 6, 1985.

Bryan Jay Yolles, Washington, D.C. (Robert A. Altman, Philip H. Hecht, Clifford & Warnke, Washington, D.C., Terrence Ney, James M. Lewis, Boothe, Prichard & Dudley, Fairfax, Va., Warren T. Braham, Senior Vice President, First American Bank of Va., on brief), for petitioner.

Thomas L. Ray, Asst. Gen. Counsel Litigation, Washington, D.C. (Richard B. Dyson, Acting Gen. Counsel, Barry L. Molar, Civil Aeronautics Bd., J. Paul McGrath, Asst. Atty. Gen., John J. Powers, III and Frederic Freilicher, Dept. of Justice, Washington, D.C., on brief), for respondent.

(John J. Gill, Michael F. Crotty, Washington, D.C., John W. Edmonds, III, Mays, Valentine, Davenport & Moore, Richmond, Va., on brief), for amici curiae.

Before HALL, ERVIN and SNEEDEN, Circuit Judges.

ERVIN, Circuit Judge:

The petitioner, First American Bank of Virginia ("First American"), seeks reversal of Civil Aeronautics Board ("CAB") Order 84-8-40 rendered on August 9, 1984. ¹ The Order reversed the CAB's Chief Administrative Law Judge's ("ALJ") finding in his Initial Decision that First American complied with all applicable CAB charter regulations as the depository bank for charter flights operated by Davis Agency, Inc. ("Davis") in 1982. In short, the Board found that by not adequately monitoring Davis' deposits of charter participants' funds, First American violated CAB charter regulations. Consequently, the Board assessed First American $30,000 in civil penalties.

On appeal, we are first presented with the argument of amici curiae ² that the CAB did not have jurisdiction to assess civil penalties against First American under the Federal Aviation Act, 49 U.S.C. Sec. 1471 (1982) ("FAA"). Second, First American contends that the Board's order reversing the ALJ's findings was based on an erroneous interpretation of the CAB's charter regulations. Because we conclude that the Board's order placed a higher standard of care on First American to safeguard charter fund deposits than is required under the CAB's own regulations and applicable state law, we reverse and direct the Board to adopt the ALJ's decision.

To protect the public from unscrupulous travel agencies, the CAB's charter regulations require a tour operator to file a prospectus with the Board before selling or advertising a charter flight. 14 C.F.R. Sec. 380.25 (1984). The CAB requires the charter prospectus to include: (1) a proposed charter flight schedule; (2) a statement that the tour operator has entered into a depository agreement with an air carrier and a depository bank; and (3) a statement indicating that the depository bank has received a copy of the tour operator's proposed charter flight schedule. Id. Sec. 380.28. More important, the CAB's charter regulations also require a tour operator to make various financial arrangements to ensure that charter participants' funds are adequately protected whenever a charter program is cancelled by a tour operator. One such financial arrangement is the CAB's requirement that a tour operator enter into a depository agreement with an airline and a depository bank. Id. Sec. 380.34(b)(2). These depository agreements specifically require a tour operator (such as Davis) to deposit charter participants' funds into a depository bank. Id. Once deposited, the depository bank is required to maintain a separate accounting for all funds deposited by each charter group. Id. Sec. 380.34(b)(2)(VII).

In 1977, the CAB proposed amending its charter regulations to impose more substantial, affirmative duties upon depository banks. See 42 Fed.Reg. 61,40 8, 61,411, 61,412, 61,415 (1977). Pertinent to this case, the Board proposed a requirement that depository banks report any knowledge they might have concerning violations of charter regulations by tour operators. Id. at 61,145. In addition, the CAB solicited comments on whether the Board should promulgate a rule to prohibit depository banks from accepting checks representing charter participants' payments that are not payable to the bank. Id. at 61,412.

The public comments filed with the Board criticized the proposed regulations for effectively requiring depository banks to ensure that tour operators fully complied with the charter regulations. Consistent with this critical view, one bank commented:

The CAB's proposed regulations sought to place an affirmative duty of inquiry on the bank as to the fulfillment of the charterer's or direct air carrier's obligations, something well beyond the usual functions of an escrow holder. The bank has no control over the terms of the charter's and air carrier's arrangements and is not likely to have actual knowledge of how those terms are being carried out.

Comments of Barclays Bank of California, CAB Docket 31735 (June 27, 1978). Responding to this criticism, the Board deleted those sections of the proposed charter regulations that placed additional, affirmative duties on depository banks to oversee regulatory compliance by tour operators. See 44 Fed.Reg. 12, 971 (1979).

To assist tour operators in their attempts to comply with charter regulations, the CAB has published an information packet which describes the procedures for filing a charter program under the Board's regulations. That information packet contains a sample depository agreement intended to provide tour operators with an easy manner of compliance. The sample depository agreement forms also expressly provide that each agreement is governed by and construed under applicable state law. Each depository agreement entered into by First American and Davis for the 1982 charter season was based on the CAB's sample form agreement.

I. Factual Background

Davis is a travel agency that operates charter programs for flights between the United States and various destinations in Europe. To comply with the CAB's charter regulations, Davis established depository escrow accounts for charter participants' funds at First American and its predecessor bank, Clarendon Bank & Trust Company, between May, 1977 and January, 1982. During this period, these escrow accounts were apparently maintained by First American without any irregularities or violations of the charter regulations. Because of a change in management, however, Davis began to experience serious administrative and managerial difficulties in early 1982. Most prominent among the problems resulting from this managerial change was Davis' misdeposit of funds intended for various escrow accounts into its own general commercial account at First American.

On approximately April 12-15, 1982, First American received by mail a series of certificates from Pan American Airlines ("Pan Am") confirming that payments for various charter flights organized by Davis were due to Pan Am. At first, Pan Am's request for payment confused First American because (1) no depository agreement between Pan Am and First American had yet been signed at the time the certificates were received; (2) there were no funds in the Pan Am escrow account; and (3) First American had not received payment requests from any charter air carrier since at least 1979 in accordance with Davis' regular practice of paying air carriers directly from its own funds, rather than from charter participants' funds deposited into escrow accounts at First American. Due to Pan Am's unexpected payment request, First American immediately questioned Davis to determine why Pan Am had sent the certificates directly to First American. Davis informed First American that the certificates requesting payment had been inadvertently and mistakenly sent by Pan Am to First American. According to the ALJ, "Davis officials assured the Bank that there was no problem and that there simply had been a misunderstanding by Pan Am." (JA 71).

Somewhere around May 10-12, 1982, First American received another series of certificates from Pan Am requesting payment for the charter flights it was obligated to perform for Davis. As before, First American was again confused by Pan Am's additional requests for payment. As a consequence, First American officials met and determined that a meeting with Davis officials was necessary. First American promptly notified Davis that at their proposed meeting they intended to discuss the uncertain status of Davis' escrow accounts. Davis officials informed First American, however, that they could not meet to discuss the status of their escrow accounts until May 27, 1982. On this date, the meeting First American had sought since early May was finally held.

At this meeting, First American requested that Davis prepare a list for each charter group of the funds Davis had collected from charter participants. First American also demanded an accounting from Davis of all charter participants' funds collected for the 1982 season. Following the May 27th meeting, First American and Davis met on numerous occasions and had frequent telephone conversations in an ongoing effort to resolve questions regarding Davis' escrow accounts. At a meeting on June 16, 1982, First American told Davis that it would establish a special escrow holding account for all charter participants' funds. Immediately following that meeting, First American began to require Davis to deposit into escrow accounts all charter passengers' funds that should have been deposited initially in those accounts but had been instead diverted to Davis' operating accounts.

Even after the June 16th meeting, First American continued to utilize the general escrow holding account and others to remedy Davis' misdeposits. Further, First American assigned its personnel to monitor all of Davis' accounts. Despite these efforts by First American, Davis continued to...