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W E D STAT€$ COURT OF A F F X S m-f3ICT OF ~ W l w f I .- - NT HAS NOT YET BEEN SCXFEDULED
SEP - 3 2868 ITED STATES COURT OF APPEALS
AFCEIVEDFOR m? I'HE DISTRICT OF COLUMBIA CIRCUIT
Nos. 07-1 209,07- 1223,07-1273,07-1276 (consolidated)
ALASKA AIRLINES, NC., et a/.,
Petitioners,
v.
. U.S. DEPARTMENT OF TXPANSPORTATION,
CITY OF LOS -ANGELES and AIRPORTS COUNCIL INTERNATIONAL - NORTH AMERICA,
Intervenors.
ON PETITIONS FOR REVIEW OF TEtF, DEPARTMENT OF TRANSPORTATION'S ORDER NOS. 2007-6-8 AND 2007-7-14 AND
FINAL DECISION IN DQClKET NO. 08T-2007-27331
JOINT BRIEF OF INTERVENORS THE CITY OF LOS ANGELES AND AIRPORTS COUNCIL INTERNATIONAL - NORTH
AMERICA IN SUPPORT OF SECTIONS II.A, I1.C AND 11.F AND FOOTNOTE 10 OF RESPONDENT'S BRIEF
Scatt P. Lewis ANDERSON & W~IGER LLP One Canal Park Suite 200 Cambridge, MA 02141 Phone: (617) 621-6560 Fax: (617) 621-6660
Counsel for Intervenor ACI-NA
Steven S. Rosenthsll Jeffery A. Tomasevich J.D. TaLiaferro UYE SCHOLER LLP 901 Fifteenth Street, NW Washington, DC 20005 Phone: (202) 682-3500 Fax: (202) 682-3580 Cuzsnsel for Intervenor the City of Los Angeles
September 3,2008
September 3, 2008
Monica Hargrove Kemp James I. Briggs, Jr. AIRPORTS COUNCIL INTERNATIONAL - NORTH AMERICA 1775 K Street, NW Washington, DC 20006 Phone: (202) 293-8500 Counsel for Intervenor ACI-NA
Rockard Delgadillo Los Angeles City Attorney Kelly Martin General Counsel Raymond S. Ilgunas Assistant General Counsel M. Lynn Mayo Deputy City Attorney OFFICE OF THE LOS ANGELES CITY ATTORNEY, AIRPORT DIVISION One World Way Los Angeles, CA 90045 Phone: (310) 646-3260 Counsel for Intervenor the City of Los Angeles
i
CERTIFICATE OF COUNSEL AS TO PARTIES, RULING AND RELATED CASES
As required by D.C. Circuit Rules 27(a)(4) and 28(a)(1), the City of Los
Angeles (“City”) and Airports Council International - North America (“ACI-NA”)
submit the following Certificate of Counsel:
1. Parties and Amici. The following is a list of all parties, intervenors, and
amici who, to counsel’s knowledge, have appeared before the Department of
Transportation (“DOT”), and all persons who are parties, intervenors or
amici in this Court:
a. The City of Los Angeles
b. The United States Department of Transportation
c. Mary E. Peters, Secretary Of Transportation
d. Andrew B. Steinberg, Assistant Secretary For Aviation and International Affairs
e. Alaska Airlines, Inc.
f. AirTran Airways, Inc.
g. ATA Airlines, Inc.
h. Frontier Airlines, Inc.
i. Midwest Airlines, Inc.
j. Southwest Airlines Co.
ii
k. US Airways Group, Inc.
l. Aer Lingus Group Plc*
m. Air Pacific*
n. Air Tahiti Nui*
o. All Nippon Airways Co., Ltd.*
p. Asiana Airlines, Inc.*
q. British Airways Plc*
r. Cathay Pacific Airways Limited*
s. China Airlines, Ltd.*
t. China Eastern Airlines*
u. China Southern Airlines Co. Ltd.*
v. Compañía Mexicana de Aviación, S.A. de C.V.*
w. Deutsche-Lufthansa AG*
x. El Al Israel Airlines Ltd.*
y. EVA Airways Corp.*
z. Japan Airlines Corporation*
aa. Korean Air Lines Co., Ltd.*
bb. LAN Airlines S.A.*
cc. Philippine Airlines, Inc.*
dd. QANTAS Airways Limited*
iii
ee. Singapore Airlines Limited*
ff. Swiss International Air Lines Ltd.*
gg. Thai Airways International Public Co., Ltd.*
hh. United Air Lines, Inc.
ii. American Airlines, Inc.
jj. Delta Air Lines, Inc.
kk. Continental Airlines, Inc.
ll. Northwest Airlines, Inc.
mm. Airports Council International - North America
nn. Air Transport Association of America, Inc.
* On June 17, 2008, the foreign air carriers listed above (which are marked with
an asterisk) moved to withdraw their petition for review, and on June 23, 2008, the
Court granted that motion and dismissed their case.
2. Rulings Under Review. The rulings at issue in this Court are the Final
Decision issued by DOT on June 15, 2007, Order No. 2007-6-8, and the Refund
Order issued by DOT on July 13, 2007, Order No. 2007-7-14, in Alaska Airlines,
Inc. et al., v. Los Angeles World Airports, et al., Docket No. OST-2007-27331.
Copies of both orders are attached to the City’s Petitions for Review in Case
Nos. 07-1223 and 07-1273.
iv
3. Related Cases: The City’s Petitions for Review of DOT Order 2007-6-8
and DOT Order 2007-7-14, titled City of Los Angeles v. Dep’t of Transp., et al.,
were docketed at No. 07-1223 and No. 07-1273, respectively, and consolidated by
this Court. Seven air carriers operating from Terminals 1 and 3 (“T1/T3
Complainants”) at Los Angeles International Airport (“LAX”) filed motions to
intervene in each of the City’s Petitions for Review, and this motion was granted
on November 2, 2007. In addition, ACI-NA filed a motion to intervene in Case
No. 07-1223, and this motion was granted on August 13, 2007.
The T1/T3 Complainants filed separate petitions for review of DOT Order
2007-6-8 and DOT Order 2007-7-14, both titled Alaska Airlines, Inc., et al., v.
Dep’t of Transp., which were docketed at No. 07-1209 and No. 07-1276,
respectively. The City filed motions to intervene in each of these cases and ACI-
NA filed a motion to intervene in Case No. 07-1209; the Court granted the City’s
motion to intervene in No. 07-1209 on July 3, 2007 and ACI-NA’s motion to
intervene in No. 07-1209 on August 13, 2007. The Air Transport Association of
America also filed a motion to intervene in Case No. 07-1209, and its motion was
granted on July 3, 2007.
Twenty-one foreign air carriers (the “TBIT Foreign Complainants”)
operating out of the Tom Bradley International Terminal (“TBIT”) at LAX filed a
single petition for review of DOT Order 2007-6-8 and DOT Order 2007-7-14,
titled Aer Lingus Group, et al v. Dep 't of Transp. which was docketed at
No. 07- 13 18. On June 17,2008, the TBIT Foreign Complainants moved to
withdraw their petition for review, and on June 23,2008, the Court granted that
motion and dismissed their case.
A petition for review of the Instituting Order in the underlying agency
action, also titled Alaska Airlines, Inc., et al., v. Dep 't of T m s p . , was docketed at
No. 07-1 142. DOT filed a motion to dismiss Case No. 07-1 142, and the Court
granted that motion on September 26,2007.
A1 of the remaining cases have been consolidated. None of these cases on
review has previously been before this Court or any other court.
Steven S. Rosenthal Counsel for Intervenor the City of Lus Angeles
Counsel for Intervenor ACI-IVA
RULE 26.1 CORPORATE DISCLOSURE STATEMENTS
Because the City of Los Angeles is a governmental entity, FRAP 26.1 and
D.C. Circuit Rule 26.1 according to their terms do not apply to the City.
Airports Council International - North America is a non-profit "trade
association" within the meaning of Circuit Rule 26.1 which represents the state,
regional and local governmental bodies that own and operate the principal airports
served by scheduled airlines in the United States. ACI-NA has no parent company,
it is not publicly-traded, and no publicly-traded company owns 10 percent or more
of ACI-NA's stock.
Counsel for Intervenor A CI-NA
vii
TABLE OF CONTENTS Page
CERTIFICATE OF COUNSEL AS TO PARTIES, RULING AND RELATED CASES........................................................................................ i
RULE 26.1 CORPORATE DISCLOSURE STATEMENTS ............................. vi
TABLE OF CONTENTS ...................................................................................... vii
TABLE OF AUTHORITIES ............................................................................... viii
GLOSSARY............................................................................................................. xi
STATEMENT OF ISSUES PRESENTED FOR REVIEW................................. 1
STATUTES AND REGULATIONS ...................................................................... 2
STATEMENT OF THE CASE............................................................................... 3
STATEMENT OF FACTS...................................................................................... 3
SUMMARY OF ARGUMENT............................................................................... 4
ARGUMENT............................................................................................................ 5
I. DOT CORRECTLY UPHELD LAWA’S ABILITY TO CHARGE TERMINAL FEES BASED ON THE FMV OF TERMINAL SPACE. .......................................................................................................... 5
II. DOT CORRECTLY DID NOT RULE ON LAWA’S ABILITY TO CHARGE TERMINAL FEES FOR TERMINAL 1 BASED ON FMV BECAUSE DOT LACKED JURISDICTION TO DO SO................................................................................................................. 14
III. DOT CORRECTLY DID NOT CONSIDER THE POSSIBLE OUTCOME OF LITIGATION BETWEEN LAWA AND THE T2/4-8 CARRIERS CONCERNING M&O FEES CHARGED TO THOSE CARRIERS. ................................................................................. 15
IV. DOT CORRECTLY DID NOT CONSIDER THE SO-CALLED “MONOPOLY POWER” ISSUE IN ITS FINAL DECISION.............. 17
CONCLUSION ...................................................................................................... 18
viii
TABLE OF AUTHORITIES
Page(s)
FEDERAL CASES
ATA v. DOT, 119 F.3d 38 (D.C. Cir. 1997) .....................................................................9, 10
* City of Los Angeles v. DOT, 165 F.3d 972 (D.C. Cir. 1999) .....................................................................7, 8
* City of Los Angeles v. DOT, 103 F.3d 1027 (D.C. Cir. 1997) .............................................................5, 7, 13
Dunklebarger v. MSPB, 130 F.3d 1476 (Fed. Cir. 1997)......................................................................15
Kaiser Aetna v. United States, 444 U.S. 164 (1979) .......................................................................................13
Los Angeles Int’l Airport Rates Proceeding, Order 95-6-36, 1995 DOT Av. LEXIS 391 (June 30, 1995) (“LAX I”) ...................................7
* Los Angeles Int’l Airport Rates Proceeding; Second Los Angeles Int’l Airport Rates Proceeding, Order 97-12-31, 1997 DOT Av. LEXIS 673 (Dec. 23, 1997) (“LAX Remand”) .................7, 13
* Logan v. Zimmerman Brush Co., 455 U.S. 422 (1982) .......................................................................................17
* Plaquemines Port, Harbor & Terminal Dist. v. Federal Maritime Comm’n, 838 F.2d 536 (D.C. Cir. 1988)......................15
Second Los Angeles Int’l Airport Rates Proceeding, Order 95-12-33, 1995 DOT Av. LEXIS 841 (Dec. 22, 1995) (“LAX II”) ..................................7
United States v. Fla. E. Coast Ry. Co., 410 U.S. 224 (1973) .......................................................................................18
TABLE OF AUTHORITIES (Cont’d)
Page
ix
FEDERAL STATUTES AND REGULATIONS
49 U.S.C. § 40116......................................................................................................6
49 U.S.C. § 40117(g)(2) ..........................................................................................12
49 U.S.C. § 40117(g)(3) ..........................................................................................12
* 49 U.S.C. § 47107(a)(13)........................................................................................9
* 49 U.S.C. § 47129.........................................................................................4, 6, 14
49 U.S.C. § 47129(a) .................................................................................................6
49 U.S.C. § 47129(a)(2)...........................................................................................14
DOT Policy Statement ¶ 2.4 ....................................................................................10
DOT Policy Statement ¶ 2.4.1 .................................................................................10
DOT Policy Statement ¶ 2.4.1(a).............................................................................10
DOT Policy Statement ¶ 2.6 ....................................................................................10
DOT Policy Statement ¶ 2.6.1 .................................................................................10
DOT Policy Statement ¶ 2.6.2 .................................................................................10
DOT Policy Statement ¶ 2.7.2 .................................................................................12
DOT Policy Statement ¶ 2.7.2(a).............................................................................12
DOT Policy Statement, 61 Fed. Reg. 31994 (June 21, 1996) ..........................12, 17
* DOT Airport Revenue Policy, 64 Fed. Reg. 7696 (Feb. 16, 1999)....................8, 9
OTHER
Fed. R. App. Proc. 28(f)............................................................................................ 3
TABLE OF AUTHORITIES (Cont’d)
Page
x
D.C. Cir. R. 28(a)(5) ................................................................................................. 3
L. Tribe, American Constitutional Law 666 (2nd ed. 1988) .................................. 18
* Authorities on which we chiefly rely are marked with asterisks.
xi
GLOSSARY
ALJ Administrative Law Judge Richard C. Goodwin
Base Rent The rental payable by a tenant for use of the Demised
Premises, Airline Joint Use Areas, and International Joint Use Areas, or the fees paid by an airline subject to the Tariff for its use of equivalent areas
BOAC Los Angeles Board of Airport Commissioners
Common Space Space within the terminal (other than the Airline Exclusive Use Areas, the Airline Joint Use Areas, the International Joint Use Areas, the Retail and Concession Areas, the Landlord Proprietary Areas, and the Vertical Areas) that is used for lobbies, corridors, Travelers Aid offices, restrooms, custodial facilities, utility closets, and mechanical rooms, as shown in the Master Lease Exhibits
Demised Premises Space demised for the exclusive use of a tenant under a lease, or the equivalent space occupied by an airline subject to the Tariff
DOT United States Department of Transportation
DOT Br.
Brief for Respondent (filed August, 19, 2008).
DOT Policy Statement Policy Regarding Airport Rates and Charges, 61 Fed. Reg. 31994 (June 21, 1996)
DOT Airport Revenue Policy
Policy and Procedures Concerning the Use of Airport Revenue, 64 Fed. Reg. 7696, 7721 (Feb. 16, 1999)
FAA REPORT Capacity Needs in the National Airspace System, 2007-2025 (issued May 15, 2007), available at www.faa.gov/airports_airtraffic/airports/ resources/publications/reports/media/fact_2.pdf
GLOSSARY (Cont’d)
xii
FD Final Decision, OST-2007-27331-198 (June 15, 2007)
FMV Fair Market Value
IO Instituting Order, OST-2007-27331-58 (Mar. 16, 2007)
Joint Use Areas
Airline non-exclusive use areas, including gate areas, holdrooms, ticket counters, and baggage handling and claim areas
LAWA Los Angeles World Airports and LAWA, BOAC and the City of Los Angeles, collectively, unless the context requires otherwise
LAWA Br.
Opening Brief for Petitioner the City of Los Angeles and Intervenor Airports Council International - North America (filed June 30, 2008)
LAX-XX LAX Exhibit submitted into evidence in the proceeding before the ALJ
LAX Los Angeles International Airport
LAX-[#] An exhibit introduced by LAWA during the administrative hearing before the ALJ
LAX Landing Fee The landing fee LAWA charges airlines for their use of the airfield and aprons at LAX
LAX Landing Fee Methodology
The methodology LAWA uses to calculate the landing fee at LAX; the LAX Landing Fee Methodology was adopted in 1993 and challenged in 1995; it was modified as required by the Department’s decisions in LAX I and LAX II
GLOSSARY (Cont’d)
xiii
LAX I Los Angeles Int’l Airport Rates Proceeding, Order 95-6-36, 1995 DOT Av. LEXIS 391 (June 30, 1995) (Final Decision)
LAX II Second Los Angeles Int’l Airport Rates Proceeding, Order 95-12-33, 1995 DOT Av. LEXIS 841 (Dec. 22, 1995) (Final Decision)
LAX Remand Los Angeles Int’l Airport Rates Proceeding; Second Los Angeles Int’l Airport Rates Proceeding, Order 97-12-31, 1997 DOT Av. LEXIS 673 (Dec. 23, 1997) (Order on Remand)
Long-Term Carriers American Airlines, Continental Airlines, Delta Air Lines, LAXTWO Corp., and United Airlines operating from T2, T4, T5, T6, T7 & T8 (also known as the “T2/4-8 Carriers”)
M&O Maintenance and Operations (also known as “O&M”)
M&O Rent The portion of terminal rent imposed by LAWA to recover LAWA’s costs of maintaining the terminal and the portion of the costs of maintaining the airport shared by the terminal. In the New Lease and in the Tariff, M&O Rent is referred to as Terminal Regular Expenses
RD Recommended Decision, OST-2007-27331-184 (May 15, 2007)
Rentable Area The sum of an airline’s Demised Premises, Airline Joint Use Areas, and International Joint Use Areas and a proportionate share of Common Space - The basis for space measurements used in terminal leases entered into on or after February 1, 2007 or pursuant to the Tariff
GLOSSARY (Cont’d)
xiv
RO Refund Order, OST-2007-27331-204 (July 13, 2007)
T1 Terminal 1 at LAX
T3 Terminal 3 at LAX
T2/4-8 Carriers American Airlines, Continental Airlines, Delta Air Lines, LAXTWO Corp., and United Airlines operating from T2, T4, T5, T6, T7 & T8 (also known as the “Long-Term Carriers”)
Tariff
The “Passenger Terminal Tariff for Terminals One, Two, Three, Four, Five, Six, Seven, Eight, and Tom Bradley International Terminal Naming Rates, Charges and Regulations at Los Angeles International Airport for all Airlines Occupying Passenger Terminal Space at Los Angeles International Airport after January 31, 2007, Except Pursuant to a Lease,” adopted by BOAC on January 22, 2007, effective February 1, 2007
TCC Terminal Capital Charges
Terminal Capital Charges
The sum of debt service, debt service coverage and amortization for a given terminal
T1/T3 Br. Joint Opening Brief of Petitioners Terminal 1 and 3 Airlines and the Air Transport Association of America, Inc. (filed June, 30, 2008)
T1/T3 Complainants The seven air carriers that on February 16, 2007, filed with the Office of the Secretary of the United States Department of Transportation a “Joint Complaint in Opposition to New Terminal Charges at Los Angeles International Airport”: AirTran Airways, Alaska Airlines, ATA Airlines, Frontier Airlines, Midwest Airlines, Southwest Airlines, and US Airways
GLOSSARY (Cont’d)
xv
T1/T3 Complaint The “Joint Complaint in Opposition to New Terminal Charges at Los Angeles International Airport” filed by seven air carriers on February 16, 2007
T1/T3 Ex. [#] An exhibit introduced by the T1/T3 Complainants during the administrative hearing before the ALJ
Usable Area The sum of an airline’s Demised Premises, Airline Joint Use Areas, and International Joint Use Areas
15% Proxy The percentage of direct M&O expenses that LAWA in the past charged the airlines as a proxy for the unallocated terminal indirect M&O expenses
§ 47107 49 U.S.C. § 47107
§ 47129 49 U.S.C. § 47129
1
ORAL ARGUMENT HAS NOT YET BEEN SCHEDULED
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
Nos. 07-1209, 07-1223, 07-1273, 07-1276 (consolidated)
ALASKA AIRLINES, INC., et al.,
Petitioners, v.
U.S. DEPARTMENT OF TRANSPORTATION, Respondent.
CITY OF LOS ANGELES and
AIRPORTS COUNCIL INTERNATIONAL - NORTH AMERICA, Intervenors.
ON PETITIONS FOR REVIEW OF THE DEPARTMENT OF TRANSPORTATION’S ORDER NOS. 2007-6-8 AND 2007-7-14 AND
FINAL DECISION IN DOCKET NO. OST-2007-27331
JOINT BRIEF OF INTERVENORS THE CITY OF LOS ANGELES AND AIRPORTS COUNCIL INTERNATIONAL - NORTH
AMERICA IN SUPPORT OF SECTIONS II.A, II.C AND II.F AND FOOTNOTE 10 OF RESPONDENT’S BRIEF
STATEMENT OF ISSUES PRESENTED FOR REVIEW
1. Whether DOT correctly determined that airport operators can use a
“market value methodology” when establishing terminal fees by tariff.
2
2. Whether DOT correctly determined that the T1 Complainant’s
challenge to LAWA’s use of a market value methodology to determine terminal
fees for T1 was not within DOT’s jurisdiction.
3. Whether DOT, in properly concluding that LAWA’s Maintenance and
Operations (“M&O”) fees charged to the T1/T3 Complainants were not unjustly
discriminatory, correctly refused to consider the possible outcome of litigation
between LAWA and the T2/4-8 Carriers concerning M&O fees as applied to those
carriers.
4. Whether DOT correctly declined to address monopoly power claims
raised by the T1/T3 Complainants that were not set for hearing in the Instituting
Order or by the ALJ.
STATUTES AND REGULATIONS
The relevant statues and regulations were set forth in the Statutory
Addendum attached to LAWA and ACI’s Opening Brief filed on June 30, 2008.
LAWA and ACI object to the T1/T3 Complainants and the ATA
(hereinafter, collectively “T1/T3 Complainants,” unless the context requires
otherwise) including in their “Addendum” the settlement agreement between the
City and United Air Lines, Inc. See T1/T3 Br., Addendum at 45. The record in
this case is closed and the Federal Rules of Appellate Procedure and the rules of
this Court make clear that such an addendum cannot be used to introduce new
3
evidence into the record. See Fed. R. App. P. 28(f), Circuit Rule 28(a)(5). The
Court should disregard the settlement agreement reproduced in their Addendum
and all references to it in the T1/T3 Complainants’ brief.
STATEMENT OF THE CASE
LAWA and ACI submit this brief as intervenors in support of Sections II.A,
II.C and II.F and footnote 10 in DOT’s Brief. LAWA and ACI incorporate by
reference the Statement of the Case provided in their Opening Brief filed on June
30, 2008.
STATEMENT OF FACTS
LAWA and ACI incorporate by reference the Statement of Facts provided in
their Opening Brief filed on June 30, 2008. LAWA also notes the following:
1. Contrary to DOT’s assertion in its brief, prior to charging terminal
fees pursuant to the Tariff, LAWA did not charge terminal fees “under a residual
methodology,” DOT’s Brief at 3, but rather pursuant to the terms of written leases
between the T1/T3 Complainants and LAWA. Those leases did not use a “residual
methodology” to set terminal rents or fees.
2. LAWA and ACI object to the conjectured testimony by the T1/T3
Complainants concerning the effect of the “Settlement Agreement,” that they
improperly included in their Addendum. See T1/T3 Br. at 8 n.21. No witness
4
testified about the Settlement Agreement during the administrative hearing.
Accordingly, the Court should disregard this portion of the T1/T3 Brief.
SUMMARY OF ARGUMENT
DOT’s determination that airport operators can use a “market value
methodology” to establish terminal rental rates by tariff should be affirmed
because:
(a) opportunity cost is an actual cost that can properly be taken into account in airport ratemaking;
(b) no statute bars the use of FMV in airport ratemaking;
(c) no ruling by this Court requires DOT to apply the same rule to airfield and terminal ratemaking;
(d) the policy reasons that led DOT to bar the use of FMV in a rate base for airfield facilities do not apply to ratemaking for non-airfield facilities;
(e) there are good reasons to permit an airport owner to consider FMV when establishing rates for passenger terminals; and
(f) DOT has found that many airports use FMV in non-airfield ratemaking.
See infra Section I. DOT’s decision not to make a determination on the
reasonableness of the use of FMV in setting the rental rate for T1 must be upheld
because the T1 Complainants failed to properly invoke the Secretary’s jurisdiction
under § 47129 to consider that issue. See infra Section II. DOT correctly refused
to consider the possible outcome of litigation between LAWA and the T2/4-8
Carriers concerning M&O fees charged to those carriers, and this Court should not
consider the settlement agreement that the T1/T3 Complainants slipped into the
5
“Addendum” to their opening brief. See infra Section III. Finally, since neither
the Instituting Order nor the ALJ set for hearing the issue of so-called monopoly
power, DOT correctly decided not to consider that issue in its Final Decision. See
infra Section IV.
ARGUMENT
I. DOT CORRECTLY UPHELD LAWA’S ABILITY TO CHARGE TERMINAL FEES BASED ON THE FMV OF TERMINAL SPACE.
The T1/T3 Complainants raise essentially two arguments to support their
position that, as a matter of law, an airport operator such as LAWA can never use
FMV (the “market value methodology,” as DOT has phrased it) to set terminal fees
by tariff. As DOT has shown, see DOT Br. at 14-19, 40-41, neither of these
arguments has merit.1 There is no per se rule barring the use of FMV in airport
ratemaking.
First, the T1/T3 Complainants argue that terminal fees can never be based
on the FMV of terminal space because, they say, federal law only allows for the
recovery of “actual costs” and FMV does not reflect an “airport proprietor’s costs
of providing terminal space and services.” T1/T3 Br. at 22; see also id. at 15, 19-
24. This misconception was squarely rejected by this Court in City of Los Angeles
v. DOT, 103 F.3d 1027, 1032 (D.C. Cir. 1997) (holding that applicable federal 1 The T1/T3 Complainants also argue that DOT failed properly to consider their claim that LAWA exercised monopoly power in imposing terminal fees. See T1/T3 Br. at 16, 28-31. This issue is addressed in Section IV, infra.
6
statutes do not prohibit the use of FMV in calculating the fees airports charge
airlines for the use of airport facilities).
As the Court observed, “[h]istoric cost is, to be sure, one permissible
measure of costs in cost-of-service rate-making”; but the “view of historic cost as
the apodictically indicated measure of ‘actual cost,’ is not, however, supported by
applicable law.” Id. The Court elaborated that nothing in the “reasonableness”
requirements found in the Anti-Head Tax Act (49 U.S.C. § 40116) or in § 47129(a)
“prescribes an accounting rather than an economic conception of cost in airport
ratemaking.” Id. For these reasons, the Court rejected the argument that “an
opportunity cost is not an ‘actual cost,’ in law or in economics, because it does not
appear as a cash expenditure in the account books of the airport,” and held that the
applicable statutes do not per se bar the use of FMV in airport ratemaking. Id.
Those statutes remain the same, and therefore this Court should swiftly reject the
T1/T3 Complainants’ first argument.
Second, the T1/T3 Complainants argue that because DOT has ruled that
landing fees (which reimburse LAWA for the cost of letting airlines use its airfield
land) cannot be based on the FMV of airfield land that must mean that terminal
fees (which reimburse LAWA for the cost of letting airlines use its terminal
buildings) cannot be based on the FMV of terminal space. See T1/T3 Br. at 16,
7
25-28. No statute or ruling of this Court, however, mandates that DOT apply the
same rule to both airfield and terminal ratemaking.
When DOT first considered in LAX I and LAX II whether an airport operator
could base its landing fees on the FMV of airfield land, DOT took the position that
the existing statutory framework prohibited the use of FMV in setting rates for the
use of airfield land as a matter of law. This Court reversed, holding that there is no
per se rule barring use of FMV in airport ratemaking. City of Los Angeles v. DOT,
103 F.3d at 1032. On remand, DOT found on the basis of “policy grounds” — not
on the basis of any mistaken per se rule — that LAWA could not use FMV to
calculate landing fees at LAX, 2 and this Court subsequently affirmed DOT’s
decision on that basis. City of Los Angeles v. DOT, 165 F.3d 972, 975 (D.C. Cir.
1999).
2 In rejecting the airlines’ claim that FMV cannot ever be used to set any airport fees, DOT stated:
We cannot agree with the airlines’ position that the fair market value charge is clearly barred by the terms of the statutes governing airport fees. The [D.C. Circuit] has already held that the applicable federal statutes do not prohibit the use of opportunity costs in calculating airport fees. Given the [D.C. Circuit’s] ruling, we could not adopt the airline complainants’ position in this case even if we agreed with it.
LAX Remand at *20-21.
8
This Court accepted DOT’s reasoning that (a) an airport sponsor does not
incur opportunity costs by dedicating its land for use as airfield because once it has
done so, the land cannot be converted to non-airport use without violating the
sponsor’s AIP grant assurances; and (b) even if there were opportunity costs, they
were “covered” by the benefits derived by the City from operating the airport —
benefits that would be lost if the airport were devoted to non-airport use. 165 F.3d
at 977-79. These determinations led the Court to affirm DOT’s decision that the
City could not recover the FMV of airfield land through the landing fee at LAX.
LAWA’s use of FMV to set terminal fees for use of terminal space does not,
however, implicate either of the two policy arguments adopted by DOT with
respect to setting landing fees for use of airfield land.
First, LAWA plainly incurs opportunity costs in leasing terminal space to its
airline tenants. The statutory AIP grant assurances do not forbid airport operators,
such as LAWA, from leasing terminal space to nonaeronautical concessionaires,3
and LAWA in fact leases some LAX terminal space to nonaeronautical
concessionaires such as restaurants, newsstands and other retail establishments.
Thus, when LAWA rents terminal space to its airline tenants, and thereby gives up
3 See also DOT Airport Revenue Policy, ¶ VII.C, 64 Fed. Reg. at 7721 (recognizing that airport operators will rent terminal space to provide “nonaeronautical facilities and services”).
9
its option to lease that same space to concessionaires, LAWA undeniably incurs
opportunity costs.4
Second, there is no trade-off between leasing space in the terminals at LAX
to airport concessionaires and garnering the local benefits of operating an airport;
both can (and do) occur simultaneously.5 Accordingly, it would make no sense to
say that the opportunity costs incurred by LAWA when it devotes space in its
terminals to nonaeronautical use are somehow “covered” by the benefits the City
derives from operating LAX as an airport.
The T1/T3 Complainants assert on the basis of this Court’s ruling in ATA v.
DOT, however, that, even if the policy considerations are different, DOT is legally
bound to reach the same result concerning the use of FMV to set fees for both
airfield and non-airfield facilities. Although the Court found, when reviewing the
4 The proper measure of those opportunity costs must be FMV because airport operators are required by their AIP grant assurances to charge FMV to non-aeronautical tenants, such as concessionaires, to meet their obligation to be as financially self-sustaining as possible. See 49 U.S.C. § 47107(a)(13); DOT Airport Revenue Policy, ¶ VII.C, 64 Fed. Reg. at 7721 (“FAA interprets the self-sustaining assurance to require that the airport receive fair market value for the provision of nonaeronautical facilities and services”). The T1/T3 Complainants’ argument that “because LAX must have terminals to accommodate airlines and their passengers it incurs no opportunity cost” when it leases terminal space to the airlines, T1/T3 Br. at 23, does not attempt to deal with this reality. 5 While LAWA would lose the benefits of having LAX as an airport if it devoted all of its airfield land to non-airport uses (if it converted runways and taxiways into shopping malls, for example), LAWA certainly does not lose the benefits of having LAX as an airport by devoting some terminal space to nonaeronautical concessionaires, as it currently does.
10
Final Policy, that DOT’s distinction between airfield and non-airfield ratemaking
was “arbitrary and capricious,” 119 F.3d at 41, the Court did not rule that FMV
cannot ever be used in airport ratemaking or that the rules governing airfield and
non-airfield ratemaking must always be the same. The Court simply found that the
Secretary had not yet adequately explained why there should be two separate sets
of rules. Id. at 41, 44. The Court’s decision did not require the DOT to make the
same policy judgments about non-airfield ratemaking that it made when it
determined that FMV could not be used in establishing landing fees.6
There are good reasons to allow airport operators to base terminal rental
rates on FMV. If, at an airport such as LAX, an airport operator were limited to
6 DOT correctly found that ¶ 2.6.1 of the DOT Policy Statement permits the use of FMV in airport ratemaking. DOT Br. at 15. Paragraph 2.6.1 provides that “[r]easonable methodologies may include, but are not limited to, historic cost valuation, direct negotiation with aeronautical users, or objective determinations of fair market value.” The T1/T3 Complainants claim, incorrectly, that this Court vacated ¶ 2.6.1 of the DOT Policy Statement in ATA v. DOT. T1/T3 Br. at 27-28. They suggest that because this Court vacated ¶ 2.6, the Court also must have vacated ¶ 2.6.1, presumably because ¶ 2.6.1 as a subparagraph of ¶ 2.6. This point can be easily rejected. This Court’s order in ATA v. DOT listed each specific paragraph it vacated. 119 F.3d at 45. For example, the Court specifically listing paragraphs “2.4, 2.4.1, 2.4.1(a).” Thus, the Court’s intent to vacate those three provisions of ¶ 2.4 and not the remaining subparagraphs of ¶ 2.4 is clear. Using this same logic, having listed only ¶ 2.6, but not ¶ 2.6.1 (or ¶ 2.6.2), it is likewise apparent that the Court did not intend to vacate ¶ 2.6.1 (or ¶ 2.6.2). Second, the T1/T3 Complainants argue that when the Court vacated provisions of the DOT Policy Statement “necessarily implicated” by its ruling, the Court had provisions such as ¶ 2.6.1 in mind. T1/T3 Br. at 27-28 (citation omitted). The T1/T3 Complainants have not shown, however, why the Court’s ruling in ATA would necessarily implicate ¶ 2.6.1 and DOT correctly found that it did not.
11
the recovery of historic costs, there would be a powerful economic incentive to
skew its allocation of existing terminal space to airport concessionaires rather than
to airline tenants.
For example, for Terminal 3, LAWA objectively determined a fair market
rental rate of $17.50 per square foot, by reference to the fair market values of other
comparable terminal space at LAX. See LAWA Br. at 41. The historic cost of that
space, however, is only $2.41 per square foot.7 Assuming that concessionaires will
agree to pay a FMV-based rent of $17.50 per square foot (or more), LAWA, as
rational economic actor, will naturally prefer to rent more terminal space to
concessionaires than to airlines. Further, for the same reason, there would also be
an incentive to build new terminal space for concession use rather than airline use
in the future. Finally, airlines that do not have to pay FMV for their use of
terminal space — and are able to pay vastly lower rental rates based upon the
recovery of historic costs — have powerful incentives either to warehouse unused
terminal space (preventing competitive access)8 or to sublease their space to other
7 See OST-2007-27331-203 at Exhibit 5 (Revised). 8 See LAX-195 (Tubert Decl.) ¶ 34; Tr. 2228:15-25 (Langhart) (noting that ATA Airlines was using terminal space at LAX for maintenance on flights that did not originate or terminate at LAX); Tr. 3309:9-25 (Tubert).
12
airlines who are willing to pay FMV (thereby capturing — in place of the airport
— the true economic value of the terminal space).9
The T1/T3 Complainants are apparently of the view that once LAWA (or
any other airport owner) has recovered the historic costs of constructing its
passenger terminals, the airlines have a right to occupy the terminals (and
potentially other non-airfield facilities) for free, reimbursing the airport only for its
current out-of-pocket M&O expenses. In allowing the use of FMV in terminal
ratemaking, DOT recognized that there is no legal or policy justification for
compelling airport owners to allow air carriers free use of airport property.10 In
9 This is an important reason why DOT has consistently maintained that FMV can be used in terminal ratemaking even if it is disallowed when establishing landing fees. See DOT Policy Statement, 61 Fed. Reg. at 32008 (a rule prohibiting the use of FMV in terminal ratemaking “would have allowed airlines through their subleasing to enjoy the additional revenue, but would have effectively precluded airport proprietors from earning that additional revenue”). These same concerns do not apply to airfield land, as airlines have no opportunity to sublease that common-use property. 10 Indeed, such a ruling could produce undesirable anti-competitive conditions between airlines using different terminals, as Congress recognized when it authorized passenger facility charges (“PFCs”). Federal law bars an airport owner from including in a passenger terminal rate base any capital costs of the facility that were paid for by PFCs. See 49 U.S.C. § 40117(g)(2); DOT Policy Statement, ¶ 2.7.2. To prevent airlines that use a PFC-funded terminal from gaining an unfair competitive advantage as a result, federal law mandates that airport owners charge at least as much for the use of such a terminal as they collect for the use of non-PFC funded terminals — even though there is no “cost justification” for such charges. See 49 U.S.C. § 40117(g)(3) (the price payable by a carrier for exclusive or preferential use of a PFC-funded passenger terminal “must at least equal the price paid by [airlines] using a similar facility at the airport that was not financed with passenger facility revenue”); DOT Policy Statement ¶ 2.7.2(a).
13
fact, one would look in vain for any other example in American jurisprudence
where the law compelled a property owner to allow a private party to occupy its
real property for free. See, e.g., Kaiser Aetna v. United States, 444 U.S. 164, 180
(1979) (the owners of a private pond that was converted into a marina could not be
compelled to give the public free access to it). Neither the fact that LAX is owned
by a municipal government (which created LAX to serve the public good) nor that
LAX’s rates and charges are subject to regulation by DOT can justify requiring
that LAWA allow the airlines to use its terminals without paying FMV.
There is one final consideration. When assessing LAWA’s use of FMV in
setting landing fees, both DOT and this Court observed that LAWA appeared to be
the only airport that had sought to recover the FMV of its airfield through landing
fees. LAX Remand at *54; City of Los Angeles v. DOT, 103 F.3d at 1033. When it
comes to terminal rates, however, the situation is starkly different. As DOT
acknowledged when it cast LAWA’s landing fee as an outlier some years ago,
“many airports use fair market value for setting non-airfield rates.” LAX Remand
at *57 (emphasis added). DOT was careful not to upset existing arrangements and
industry-wide expectations that FMV can be used in setting terminal rental rates.
There is no reason for the Court to do otherwise.
In sum, the T1/T3 Complainants’ contention that, as a matter of law,
terminal fees cannot ever be based on FMV is untenable and should be rejected.
14
The Court should affirm DOT on this issue and make plain that the applicable
federal statutes do not create a per se rule barring the widespread use by airport
sponsors of FMV in setting rates for the use of passenger terminals and other non-
airfield facilities.
II. DOT CORRECTLY DID NOT RULE ON LAWA’S ABILITY TO CHARGE TERMINAL FEES FOR TERMINAL 1 BASED ON FMV BECAUSE DOT LACKED JURISDICTION TO DO SO.
The requirements of § 47129 are clear and unequivocal: to invoke DOT’s
jurisdiction to consider “whether a fee imposed upon one or more air carriers … is
reasonable,” an air carrier must file a written complaint “within 60 days after such
carrier receives written notice of the establishment or increase of such a fee.”
§ 47129(a)(1). At the time the T1/T3 Complainants filed their original complaint
challenging the use of FMV to set terminal fees at Terminal 3, LAWA had not yet
used FMV to set the terminal fees for Terminal 1. LAWA later did so, but the
T1/T3 Complainants never filed a subsequent complaint challenging the use of
FMV to set terminal fees at Terminal 1. As a result, DOT properly concluded that
it had no jurisdiction to “issue a determination as to whether [the terminal] fee
[based on FMV] imposed upon [the Terminal 1 Carriers] … is reasonable.” Id.
The T1/T3 Complainants’ reliance on Fed. R. Civ. P. 15(b)(2), T1/T3 Br. at
34, is misplaced. It is axiomatic that “[a]gency jurisdiction, like subject matter in
the federal courts, cannot be achieved by consent of the parties.” E.g.,
15
Plaquemines Port, Harbor & Terminal Dist. v. Federal Maritime Comm’n, 838
F.2d 536, 542 n.3 (D.C. Cir. 1988); see also Dunklebarger v. MSPB, 130 F.3d
1476, 1480 (Fed. Cir. 1997) (“an agency cannot by acquiescence confer
jurisdiction on the Merit Systems Protection Board to hear an appeal that Congress
has not authorized the Board to entertain”). Thus, the T1/T3 Complainants’
assertion that “neither LAWA nor DOT objected to the ALJ considering the use of
FMV at T1 as part of the case,” T1/T3 Br. at 33, is of no consequence. Having
failed to file a timely written complaint challenging the use of FMV to set terminal
fees at T1, the T1/T3 Complainants had no basis to seek a ruling by DOT on this
issue as DOT never had jurisdiction to issue such a determination.
III. DOT CORRECTLY DID NOT CONSIDER THE POSSIBLE OUTCOME OF LITIGATION BETWEEN LAWA AND THE T2/4-8 CARRIERS CONCERNING M&O FEES CHARGED TO THOSE CARRIERS.
As DOT asserts, having found it unjustly discriminatory for LAWA to use a
“Rentable Area” methodology to calculate terminal charges at T1 and T3 and
having found that the M&O fees imposed on the T1/T3 Complainants to be
reasonable, DOT could not conclude that imposition of M&O fees based on a
“Usable Area” methodology would be unjustly discriminatory. See DOT Br. at 26
n.10. As such, the outcome of litigation between LAWA and the T2/4-8 Carriers
16
over the M&O fees was irrelevant to making a determination that it was not
unjustly discriminatory to impose the M&O fees on the T1/T3 Complainants.11
In any event, the terms of the settlement agreement that later resolved the
litigation between LAWA and the T2/4-8 Carriers were never presented to DOT;
have been improperly slipped into the record on appeal through an addendum to
the T1/T3 Complainants’ brief; and cannot possibly warrant the relief they seek.
As with any settlement agreement, the parties compromised on a host of issues,
and each side obtained certain benefits and agreed to certain burdens that might not
have been obtained through a judicial resolution. Accordingly, the claim by the
T1/T3 Complainants that the “T2/4-8 Airlines in early 2008 reached a favorable
settlement agreement with LAWA,” T1/T3 Br. at 38, can easily be rejected as it
ignores any additional burdens agreed to by the T2/T4-8 Carriers. Simply put, the
T1/T3 Complainants and the T2/4-8 Carriers continue to be “not similarly
situated,” and the T1/T3 Complainants’ attempt to cherry pick beneficial terms
11 The T1/T3 Complainants cite to the ALJ’s “finding” that the “M&O fees imposed on the T1/T3 Airlines were ‘unjustly discriminatory when measured against the M&O charges incurred by the [T2/4-8 Airlines] (whether the long-term carriers win or lose their federal district court lawsuit.)’” T1/T3 Br. at 38 (citing RD at 72) (emphasis added). Thus, according to the ALJ, it would be unjustly discriminatory as to the T1/T3 Complainants for LAWA to impose the same M&O fees on them as on the T2/4-8 Airlines (the situation that would have resulted if the T2/4-8 Airlines had lost their district court litigation). It is hardly surprisingly that DOT refused to adopt the illogical conclusion that imposing the same M&O fees on two different groups of airlines is unjustly discriminatory as to one.
17
obtained by the T2/4-8 Carriers pursuant to their settlement agreement without
undertaking comparable burdens should be squarely rejected.
IV. DOT CORRECTLY DID NOT CONSIDER THE SO-CALLED “MONOPOLY POWER” ISSUE IN ITS FINAL DECISION.
DOT properly refused to consider whether, as the ALJ had found, “LAX
effectively has a locational monopoly . . . with respect to air service in the Los
Angeles area.” RD at 64-65. There was no evidence before the ALJ (or DOT) that
LAWA exercised any purported monopoly power unlawfully to constrain capacity
or raise prices at LAX. Indeed, in the DOT Policy Statement, DOT observed that
“[t]he carriers’ claims that airport proprietors exercise monopoly power in pricing
essential aeronautical facilities are not supported by the Department’s experience.”
DOT Policy Statement, 61 Fed. Reg. at 32007.
Moreover, the Instituting Order did not direct the ALJ to consider the
monopoly issue, and the ALJ never informed LAWA that he was going to make
findings on this issue. Because this issue was not set for hearing and because the
ALJ failed to inform LAWA that he was going to make findings on this issue, it
would have violated LAWA’s fundamental due process rights had DOT addressed
this issue in its Final Decision. Logan v. Zimmerman Brush Co., 455 U.S. 422,
433 (1982) (“the Due Process Clause grants the aggrieved party the opportunity to
present his case”). LAWA had a constitutionally protected right to a hearing with
“a reasonable opportunity to know the claims of the opposing party and to meet
them. The right to submit argument implies that opportunity; otherwise the right
may be but a barren one. " United States v. Flu. E. Coast Ry. Co . , 4 1 0 U. S . 224,
242-43 (1 973). See ~ I s o L. Tribe, American Constitutional Law 666 (2nd ed.
1988) (our judicial system is based on the deeply felt principle that each side must
have the opportunity to be fully and fairly heard). Accordingly, DOT properly
refused to adopt the AW's findng on LAWA's monopoly power.
CONCLUSION
For all of the foregoing reasons, LAWA and ACI respectfully request that
the TIIT3 Complainants' Petition for Review be denied in all respects.
Dated: September 3,2008 Respectfully Submitted,
ANDERSON & KRHGER LLP One Canal Park Suite 200 Cambridge, MA 02 1 4 1 Phone: (6 17) 62 1-6560 Fax: (617) 621-6660
Monica Hargrove Kemp James I. Briggs, Jr. AIRPORTS COUNCIL INT'L -
NORTH AMERICA 1775 K Street, N W Washington, DC 20006 Phone: (202) 293-8500
Jeffery A. Tomasevich J.D. Taliaferro KAYE SCI-IOLER LLP 90 1 Fifteenth Street, NW Washington, DC 20005 Phone: (202) 682-3500 Fax: (202) 682-3580
Rockard Delgadillo Los Angeles City Attorney
Kelly Martin General Counsel
Raymond S. Ilgunas Assistant General Counsel
Lynn Mayo Deputy City Attorney
19
Counsel for Intervenor ACI-NA 13128080.DOC
OFFICE OF THE LOS ANGELES CITY ATTORNEY, AIRPORT DIVISION One World Way Los Angeles, CA 90045 Phone: (310) 646-3260 Counsel for Intervenor the City of Los Angeles
Certificate of Compliance with Rule 32(a)
I. This brief complies with the type-volume limitations specified in this Court's May 16,2008 Order because this brief contains fewer than 4,375 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii) and Circuit R. 32(a)(2).
2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced typeface using Microsoft Word in 14 point Times New Roman.
- Steven S. Rosenthal Counsel for Intervenor the City ofLos Angeles
&&d Scott P. Lewis
Counsel for Intervenor A CI-NA
CERTIFICATE OF SERVICE
I hereby certify that on this 3rd day of September, 2008, I caused to be
served by overnight delivery service, a true and correct copy of the foregoing
JOINT BRIEF FOR INTERVENORS THE CITY OF LOS ANGELES AND
AIRPORTS COUNCIL INTERNATIONAL - NORTH AMERICA IN
SUPPORT OF SECTIONS II.A, II.C AND II.F AND FOOTNOTE 10 OF
RESPONDENT’S BRIEF on the following:
Paul M. Geier, Esq. Dale C. Andrews, Esq. Mary F. Withum, Esq. U.S. DEPARTMENT OF
TRANSPORTATION Office of the General Counsel 400 Seventh Street, SW Washington, DC 20590 [email protected] [email protected] [email protected] Counsel for Respondent Robert B. Nicholson, Esq. Steven J. Mintz, Esq. U.S. DEPARTMENT OF JUSTICE Appellate Section - Antitrust Division 950 Pennsylvania Ave., NW Room 3224 Washington, DC 20530 [email protected] [email protected] Counsel for Respondent
M. Roy Goldberg, Esq. SHEPPARD MULLIN RICHTER & HAMPTON LLP 1300 I Street, NW Suite 100 East Washington, DC 20005-3314 [email protected] Counsel for:
Alaska Airlines, Inc. AirTran Airways, Inc. ATA Airlines, Inc. Frontier Airlines, Inc. Midwest Airlines, Inc. Southwest Airlines Co. US Airways Group, Inc.
Howard E. Kass, Esq. US AIRWAYS GROUP, INC. 1401 H Street, NW Suite 1075 Washington, DC 20005 [email protected]
Counsel for US Airways Group, Inc.
Robert W. Kneisley, Esq. SOUTHWEST AIRL,NES CO. 1901 L Street, NW Suite 640 Washington, DC 20036 [email protected] Counsel for South west Airlines Co.
David A. Berg, Esq. Katherine Andrus, Esq. AIR TRANSPORT ASSOCIATION OF AMERICA
1 30 1 Pennsylvania Ave., NW Washington, DC 20004 dbergaairlines . org [email protected]
Robert P. Silverberg, Esq. Claire L. Shapiro, Esq. SILVERBERG, GOLDMAN &
BIKOFF, LLP 1 10 1 30th Street, NW, Suite 120 Washington, DC 20007 rsilverbera~s~bdc.com cshapiro@sgbdc. corn ~ h n s e l for ATA
