United Airlines, Inc. v. Transp. Sec. Admin.

Decision Date14 December 2021
Docket NumberNo. 20-1222,20-1222
Citation20 F.4th 57
Parties UNITED AIRLINES, INC., Petitioner v. TRANSPORTATION SECURITY ADMINISTRATION, Respondent
CourtU.S. Court of Appeals — District of Columbia Circuit

Adam P. Feinberg argued the cause and filed the briefs for petitioner.

Leif E. Overvold, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were Brian M. Boynton, Acting Assistant Attorney General, and Scott R. McIntosh, Attorney.

Before: Henderson and Walker, Circuit Judges, and Edwards, Senior Circuit Judge.

Karen LeCraft Henderson, Circuit Judge:

Petitioner United Airlines, Inc. (United) sought refunds, pursuant to 49 U.S.C. § 44940(g), from the United States Department of Homeland Security's Transportation Security Administration (TSA) for payments it made to the TSA. The payments relate to fees charged to airline passengers, and collected by airlines, that fund aviation security measures and are to be remitted monthly to the TSA. In its refund request, United contends that it erroneously remitted the security fees in two circumstances: (1) tickets associated with passengers who purchased their tickets from other airlines but who were later involuntarily transferred to United flights and (2) tickets for which, because of currency exchange rate fluctuations, the recorded and remitted fee amount deviated from the fee amount statutorily required. The TSA denied United's refund request for both sets of tickets. Although we uphold the TSA's decision regarding the second set of tickets, we find the TSA's denial of a refund for the first set arbitrary and capricious. We therefore grant United's petition for review in part, deny it in part and remand to the TSA.

I. Statutory Framework

The Aviation and Transportation Security Act, Pub. L. No. 107-71, 155 Stat. 597 (2001) (codified at 49 U.S.C. § 114 and scattered sections of 49 U.S.C.), established the TSA and charged the agency with primary responsibility for maintaining civil aviation security. To defray the costs associated with certain aviation security services, the Act requires the TSA to impose "a uniform fee" on passengers of air carriers originating at airports in the United States. 49 U.S.C. § 44940(a)(1) ; see also 49 C.F.R. § 1510.5. For the years at issue, the security fees were capped at $2.50 per enplanement and $5.00 per one-way trip. 49 U.S.C. § 44940(c) (2012). The Act further provides that the security fees "shall be collected by the air carrier ... that sells a ticket for transportation" and then remitted to the TSA on a timely basis. 49 U.S.C. § 44940(e)(1)(3). Air carriers must remit all security fees imposed each calendar month by the last calendar day of the month following the imposition. Id. § 44940(e)(3) ; see also 49 C.F.R. § 1510.13(a). If a security fee "is not collected from the passenger, the amount of the fee shall be paid by the carrier." 49 U.S.C. § 44940(d)(2). The TSA's implementing regulations echo this allocation of liability: "Whether or not the security service fee is collected as required by this part, the direct air carrier ... selling the air transportation is solely liable to TSA for the fee and must remit the fee." 49 C.F.R. § 1510.9(c). Central to the case at hand, the Act provides that the TSA "may refund any fee paid by mistake or any amount paid in excess of that required." 49 U.S.C. § 44940(g).

II. Procedural History

On April 8, 2016, United submitted a refund request to the TSA through its consultant, Ryan Excise Tax Services, LLC (Ryan). United sought the return of security fees that it asserted had been erroneously remitted during the period from January 1, 2010 through February 29, 2012. The asserted overpayments can be separated into two categories. First, United claimed that it had erroneously remitted to the TSA $1,059,743.06 in security fees in connection with passengers who bought their tickets from other airlines but were later involuntarily transferred to United flights. For these Involuntary Transfer (IT) tickets, United maintained that it remitted the security fees despite having never collected the fees from the passengers and that the transferring airline, not United, maintained responsibility for their collection and remittance to the TSA.

Second, United claimed that it had erroneously remitted $478,244.88 in connection with tickets for which United had collected the security fee in a foreign currency but subsequent fluctuations in the foreign exchange rate caused the collected fee to be slightly more or slightly less than the amount required by statute—$2.50, or a multiple thereof—when it was ultimately recorded by United.1 If the converted amount was less than the statutorily required amount, United adjusted upward and remitted the amount required by statute. But if the converted amount was more than the statutory amount, United did not adjust downward, instead remitting the higher amount to the TSA. For these Exchange-Rate-Difference (ERD) tickets, United claimed its practice resulted in a net overpayment to the TSA.

On April 18, 2016, the TSA promptly denied United's refund request, concluding that the request was precluded by United's failure to express its concerns during an audit conducted by the TSA in 2012. See United Airlines, Inc. v. TSA , 859 F.3d 67, 69–70 (D.C. Cir. 2017). This Court disagreed and remanded for further administrative proceedings. Id. at 70–71.

On remand, United renewed and supplemented its refund request in a letter to the TSA that outlined Ryan's methodology. Ryan first identified the two sets of tickets at issue here: one that included all tickets for which another airline's ticket stock had been involuntarily used as payment for a United ticket—the IT tickets—and one that included all tickets for which a security fee was deposited into United's fee account that was not evenly divisible by the then-applicable statutory fee amount of $2.50—the ERD tickets. Ryan then undertook a "programmatic review" by running a computer formula programmed to determine whether the correct security fee had been remitted for each ticket. For the IT tickets, Ryan treated any payment of a security fee as an overpayment. For the ERD tickets, Ryan treated amounts paid in excess of $2.50 (or a multiple where applicable) as overpayments and amounts under that statutory amount as underpayments. Notably, Ryan excluded any ERD tickets for which the security fee fell into any of eight different ranges that were deemed insufficiently close to a multiple of $2.50.2 These tickets were excluded on the theory that it would have been difficult to conduct the programmatic review to determine whether an excluded ticket represented an overpayment or underpayment. Neither United's nor Ryan's letter to the TSA disclosed the exclusion of these tickets. In total, Ryan identified 5,327,781 tickets—304,531 IT tickets and 5,023,248 ERD tickets—for the period at issue and the programmatic review calculated a net refund amount of $1,537,987.94.

Ryan then verified the programmatic review's results using a "stratified random sample," whereby Ryan manually reviewed a sample of 2,135 tickets, calculated the net refund amount for that sample and then extrapolated that amount for the entire ticket sample. Using the stratified random sample, Ryan calculated a similar refund amount as that calculated by the programmatic review. Ryan conducted a similar verification process using the 600-ticket sample used by the TSA during its 2012 audit, again extrapolating a similar refund amount.

During its review process, the TSA worked with the U.S. Customs and Border Protection's Office of Trade, Regulatory, Audit and Agency Advisory Services (CBP) to examine and verify the reliability of Ryan's methodology and calculations. The CBP, in turn, communicated with Ryan to clarify anomalies in its analysis and methodology. For example, Ryan disclosed the exclusion of the eight ranges of ERD tickets only after the CBP inquired into Ryan's search parameters; the actual ticket data for the excluded tickets was not provided to the CBP or the TSA. After concluding its review, the CBP submitted a memorandum summarizing its findings to the TSA. The CBP explained that its team was unable to verify the reliability of Ryan's data and analysis, citing its inability to replicate Ryan's calculation to arrive at the same net refund amount, its determination that Ryan's programmatic review—and, by extension, its stratified random sample—relied on an incomplete universe of tickets and its observation of numerous discrepancies in the accounting records provided by United.

On April 21, 2020, the TSA again denied United's refund request. With respect to the IT tickets, the TSA concluded that United's bare assertion that it had no statutory obligation to remit a security fee did not address whether the transferring airline had already remitted the associated fee or whether United received anything less than all funds the passenger originally paid to the transferring airline, including the fee. In the TSA's view, United's submission created only the possibility that United might be entitled to a refund for this category of ticket but otherwise fell short of demonstrating that a refund was warranted for all IT tickets as a categorical matter. For the ERD tickets, the TSA determined that United's submission did not substantiate United's underlying conclusion that it had made a net overpayment of security fees. The TSA cited the CBP's concerns with Ryan's methodology and calculations, including the exclusion of specific ranges of tickets from the programmatic review, the failure of the stratified random sample to verify the result from an otherwise incomplete universe, the CBP team's inability to replicate Ryan's net refund calculation and the existence of accounting discrepancies in tens of thousands of tickets. The TSA concluded that these deficiencies, taken collectively, manifested that United's...

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