Petition — Shiffrin v. Bratton

Supreme Court brief1979

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MAR 5 1979 |

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Supreme Court of the Bniteb Btktes se. ccon

OCTOBER TERM, 1978

No. B8-1398

JOEL SHIFFRIN, ET AL.,

Petitioners,

vs.

EARL BRATTON, ETAL.,

Respondents.

FIRST NATIONAL BANK OF HIGHLAND PARK,

A NATIONAL BANKING ASSOCIATION,

Petitioner,

VS.

ROGER CHAPMAN anp JEANNE CHAPMAN, INDIVID-

UALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT COURT.

LLoyp S. KUPFERBERG,

DaviID N. MISSNER,

MARTIN W. SALZMAN,

33 North LaSalle Street,

Chicago, Illinois 60602,

Attorneys for Petitioners, First

National Bank of Highland

Park and Joel Shiffrin.

Of Counsel:

SCHWARTZ, COOPER, KOLB

& GAYNOR, CHARTERED,

33 North LaSalie Street,

Chicago, Illinois 60602.

Gunthorp-Warren Printing Company, Chicago e Financial 6-6565

INDEX.

SO Ce

Questions

Statement

ESS

Argument

a ene es hae eC eee Ce ee ee ee 8 80 e 8 @

The Majority Declined to Follow Supreme Court

Decision in Reaching Its Conclusion that Cort’s

ES eee

II. The Court Below Altered the Language of the

Third Cort Test to Reach Its Decision........

Ill. The Majority Incorrectly Applied the ‘Fourth

RE eas

IV. The Decision of the Court Below Is in Direct

Conflict with Opinions of Other Circuits and of

ee LS ive see cs td esees

i i te ee ee eee ge eC Cweweea ese eseeeesdeve

TABLE OF AUTHORITIES CITED.

Cases.

Cannon v. University of Chicago, 559 F.2d 1063 (7th

Cir., 1976), aff'd on rehearing (1977) cert. granted

eats ee PEWS Oa Soh 6s ces awe es 5, 8, 9, 13

Cort v. Ash, 422 U.S. 66 (1975)...... 5, 6,9, 10, 11, 12, 13

National Railroad Passenger Corp. v. National Association

of Railroad Passengers, 414 U.S. 453 (1974)..... >, 9, 13

Polansky v. Trans World Airlines, Inc., 523 F. 2d 332 (3d

Ge OE aa eka clap aeeuk sare base nese. 13

Rauch v. United Instruments. Inc., 548 F. 2d 452 (3d Cir.

1975) rev’g on other grounds 405 F. Supp. 435 (E. D.

PE cis a tN Oe ee owe bec ab kde CaP er ECA 13

Securities Investor Protection Corp. v. Barbour, 421 U. S.

TNE She Oh ioe Gin. bi 8's Sea EA WOK ce OAM A

Wolf v. Trans World Airlines, Inc., 544 F. 2d 134 (3d Cir.

1976) cert. denied 430 U.S. 915 (1977)........... 13

Statutes.

ER ree BOP UNI 0 GUA Ss a RS va Oh aed 4

SN OE eared eK Ss hides ch eee Obes kee 4

Deas ae Ba Ce OO 5. a 0 web aA Ba wb eee we hee 2,4

ee RE se nis wives dein bah weeks cave 2

Oe, We a eB PERO POD 50k 0 ENG nae Mec eon 4

We Si We tae BP OEPURD 0 fo ae eeek cep eeaene wes 2, 4, 5, 6

49 U.S.C. § 1487(a)

Federal Regulations.

Special Charter Regulations 14 C. F.R. § 378..........

Rule 19(1)(b) of the Supreme Court of the United States 5

IN THE

Supreme Court of the Anited States

OcTOBER TERM, 1978

JOEL SHIFFRIN, ET AL.,

Petitioners,

VS.

EARL BRATTON, ETAL.,

Respondents.

FIRST NATIONAL BANK OF HIGHLAND PARK,

A NATIONAL BANKING ASSOCIATION,

Petitioner,

ROGER CHAPMAN anp JEANNE CHAPMAN, INDIVID-

UALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,

Respondents.

| PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT COURT.

Petitioners, First National Bank of Highland Park and Joel

Shiffrin, pray that a writ of certiorari issue to review the de-

cision and judgment of the United States Court of Appeals for

the Seventh Circuit entered on September 18, 1978.

OPINIONS BELOW.

The decision and order of the District Court for the Northern

District of Illinois, resulting in a dismissal of the action against

First National Bank of Highland Park and Joel Shiffrin is re-

ported at 440 F. Supp. 1257 (N. D. Ill. 1977), Appendix A,

pp. Al-A15. The opinion of the Court of Appeals reversing

the District Court is reported at 585 F. 2d 223 (7th Cir.

1978), Appendix A, pp. A1l6-A34.

JURISDICTION.

The judgment of the Court of Appeals was entered on Sep-

tember 18, 1978. A timely petition for rehearing and suggestion

of en banc rehearing were denied by a majority of the active

judges on January 11, 1979 (Appendix A, pp. A35-A36).

Jurisdiction is conferred in this court by 28 U. S. C. Section

1254(1).

QUESTION PRESENTED.

Where Congress has created a limited express private right

of action for violations of one section of the Federal Aviation

Act (49 U. S. C. 1487(a)), and has created an agency to

enforce compliance with the Federal Aviation Act (49 U. S. C.

§ 1301 et seq.) (“Act”), can a private right of action for dam-

ages be implied against Petitioners under the Act arising out of

purported violations of special charter regulations promulgated

by the agency.

STATUTES INVOLVED

The pertinent sections of the Federal Aviation Act are 49

U. S. C. 1371 (a), 49 U. S. C. 1371(n)(2) and 49 U, S. C.

1487(a). They are set forth in Appendix B, pages A37-A38.

STATEMENT OF THE CASE.

Tour Travel Enterprises (“TTE”) was a tour operator, as

defined in 14 CFR § 378. A tour operator is any person who

is authorized by the Civil Aeronautics Board (“CAB”) pur-

suant to § 378 to engage in the formation of groups for trans-

portation on inclusive tours (14 CFR § 378.2(6)(d) (Ap-

pendix C, p. A40)). An inclusive tour is defined as a round

trip tour which combines air transportation, hotel accommoda-

tions and land services (14 CFR § 378.2(b) (Appendix C,

pp. A39-A42)). They are sometimes referred to as OTC and

ITC programs. Persons who are members of OTC or ITC

groups are known as tour participants.

In order to qualify as a tour operator, one must, among

other things, file with the CAB a depository agreement entered

into and executed by a federally insured bank (14 CFR

§§ 378.10, 378.13) (Appendix C, pp. A43-A45). In this

particular case, TTE entered into a depository agreement with

the Petitioner, First National Bank of Highland Park (“Bank”).

The depository agreement executed by the Bank and ap-

proved by the CAB creates a contractual relationship between

the Bank, Tour Operator and an air carrier (such as American

Airlines). In accordance with the provisions of the depository

agreement, the Bank agrees to establish a special account into

which tour participants or the Tour Operator. would make de-

posits of tour participants’ funds (Section 1.1); to account for

monies deposited by the Tour Operator and tour participants

(Section 1.3, 1.4, 4.1); and to disburse monies in accordance

with the provisions of said agreement.

On October 19, 1976, Tour Travel Enterprises, Inc. was

adjudicated a bankrupt, and, by operation of Rules 401 and

601 of the Bankruptcy Act, the Bank believed that it was

automatically restrained from taking any action against the

bankrupt or the property of, or in the possession of, the bank-

rupt, thus prohibiting the Bank from refunding money pursuant

to the terms of the depository agreement.

On or about November 19, 1976, Earl Bratton (“Bratton”)

filed the instant lawsuit purporting to represent himself as

well as other tour participants, groups and persons.

On or about December 2, 1976, the CAB brought an action

against the Tour Operator and Petitioners, alleging violations

of various CAB regulations and requesting as relief, in part,

full refunds for tour participants.

On or about January 26, 1977, Roger Chapman (“Chap-

man”) et al. filed their complaint alleging therein essentially

the same facts as contained in the Bratton complaint. The

action brought by Bratton and Chapman allege, inter alia, the

shortage of monies resulting from the Bank’s purported viola-

tions of CAB regulations, aiding and abetting, conspiracy, fraud,

breach of contract and breach of fiduciary relationship. As their

sole basis for subject matter jurisdiction over the Petitioners,

Bratton and Chapman relied upon 28 U. S. C. § 1331(a)

(1970) and 28 U. S. C. § 1337 (1970) asserting that their

claims arose under the Federal Aviation Act (“Act” or “FAA”)

of 1958, 49 U.S.C. §§ 1301-1542 (1970).

Neither Bratton nor Chapman alleged the specific section

of the Federal Aviation Act upon which he relied as the basis

for his action. Petitioners filed a motion to dismiss each action

alleging, inter alia, that there was neither an express nor an

implied private right of action arising from violations of regula-

tions promulgated by the CAB. The District Court, after con-

solidating the cases for the purpose of deciding Petitioners’

motion to dismiss, held that no private right of action existed

and entered judgment in favor of Petitioners.

In the Court of Appeals, the cases were consolidated for

argument, and Chapman and Bratton argued that the Federal

Aviation Aci granted an express private right of action and

an implied right of action, citing, as their authority, Sections

1371(n)(2) and 1371(e)(6). The Court of Appeals, Bauer J.

dissenting, rule that no express private right of action exists,

but held that an implied private right of action exists under

Section 1371(n) (2).

REASONS FOR GRANTING THE WRIT.

The issues of the case are of importance in determining

whether any barriers exist to the implication by courts of

private causes of action for violation of federal statutes and

regulations promulgated thereunder.

Basic to the issue here presented is whether the decision of

this Court in Cort v. Ash, 422 U.S. 66 (1975) is to be

followed as controlling precedent or whether that decision

may be avoided by the tortuous application thereof, and whether

courts can ignore the familiar maxim of expressio unius est

exclusio alterius, which has recently been applied by this

Court in National Railroad Passenger Corp. v. National As-

sociation of Railroad Passengers (Amtrak), 414 U. S. 453

(1974) and SIPC v. Barbour, 421 U. S. 412 (1975). The

Court, in failing to apply these decisions to this case, has de-

cided a federal question in a way in conflict with the applicable

decisions of this Court (Supreme Court Rule 19(1)(b)).

In addition, the opinion of the Court of Appeals for the

Seventh Circuit is in conflict with the cases decided by the

Third Circuit of the Court of Appeals (Supreme Court Rule

19(1)(b)) which have heretofore determined that the legisla-

tive scheme of the Federal Aviation Act dictates against the

implication of a private right of action, and is in direct conflict

with its own recent opinion in Cannon v. University of Chicago,

559 F. 2d 1063 (7th Cir. 1976), aff'd on rehearing, cert. granted

ae U.S. onc. (1978).

ARGUMENT.

In Cort, supra, at page 78, this Court set forth four factors

which are relevant in determining whether a private remedy is

implicit in a statute not expressly providing one. They are:

1. Is the plaintiff one of the class for whose especial

benefit the statute was enacted, that is, does the statute

create a federal right in favor of the plaintiff?

2. Is there any indication of legislative intent, explicit

or implicit, either to create such a remedy or to deny one?

3. Is it consistent with the underlying p»rposes of the

legislative scheme to imply such a remedy for the plaintiff?

4. Is the cause of action one traditionally relegated to

state law, in an area basically the concern of the States,

so that it would be inappropriate to infer a cause of action

based solely on federal law?

All four tests must be met in order to imply a private cause

of action. The trial court concluded that plaintiffs had failed

to meet the second, third and fourth tests of Cort with which

Judge Bauer of the Court of Appeals, in his dissent, agreed.

The majority of the Court of Appeals held that plaintiffs had

satisfied all the tests.

The Majority Declined to Follow Supreme Court Decisions in

Reaching Its Conclusion That Cort’s Second Test Was Met.

The decision below, by brushing aside the application of the

expressio unius doctrine to the second Cort test, creates an im-

portant legal issue for this Court to resolve.

In considering the application of the second factor in Cort,

the Court below acknowledges that neither Section 1371(n) (2)

of the Act, nor its legislative history reveals Congressional in-

tent. The Court then continued:

“On this basis, appellees argued below, and the district

court agreed, that since.section 1487(a) of the FAA ex-

plicitly provides for agency (CAB) enforcement of all

provisions of the FAA, and since it also provides for

limited private enforcement of one provision of the Act

(i.e., enforcement of § 1371(a) by ‘parties in interest’),

an inference arises that those expressly created remedies

exclude all others, especially since no clear contrary evi-

dence of legislative intent can be shown. This line of

reasoning reflects the familiar maxim of expressio unius

est exclusio alterius, which has recently been applied by

the Supreme Court in National Railroad Passenger Corp.

v. National Association of Railroad Passengers (Amtrak)

414 U.S. 453 (1974), and SIPC v. Barbour, 421 U.S.

412 (1975). Though the argument has some force in rela-

tion to this case, we do not believe it determinative.” (Em-

phasis supplied.) (Appendix A p. A25.)

The majority then held that the “application of expressio unius

in this context would serve only to frustrate the goal of as-

suring adequate security for travelers’ compensation” and that

the implication of a private remedy would be consistent with

the underlying purposes of the statute in dispute. (Appendix

A. p. A26).

The minority opinion answers the majority's efforts “to brush

aside the ‘expressio unius’ doctrine.” Judge Bauer stated:

“Similarly, in the case at hand, Congress has provided

a private remedy for violation of section 1371(a) of the

FAA, but has not done so for section 137](n). It seems

quite apparent, therefore, that, in this case, too, the prin-

ciple of expressio unius compels the conclusion that the

remedies created in § 1371(n) are the exclusive means

to enforce the duties and obligations imposed by the Act.”

(Emphasis supplied.) (Appendix A. p. A31.)

In his dissent, Judge Bauer also stated:

“Such an approach, however, misconceives the essential

nature of the inquiry in deciding whether or not the ex-

pressio unius doctrine applies; for, as the Supreme Court

has made clear,

“‘fan] express statutory provision for one form of

proceeding ordinarily implies that no other means

of enforcement was intended by the legislature. That

implication would yield, however, to ‘clear contrary

evidence of legislative intent,’ for which we [turn] to

the legislative history and the overall structure of the.

.. . Act.’” (Emphasis by the court.)

“Securities Investor Protection Corp v. Barbour, 421 U.S.

412, 419 (1974) (emphasis supplied) (citations omitted).

Thus, in determining the applicability of the expressio

unius doctrine, the central question is not whether a private

right of action is ‘consistent’ with the purposes or goals of

the statute, but rather, whether the overall structure of the

Act, or its legislative history, furnish ‘clear evidence’ of a

Congressional intent to create a private remedy. This dis-

tinction is crucial, for, as the majority itself apparently

concludes, ‘there is no indication’ of such an intent in

either the legislative history or the structure of the FAA.

It follows from the majority's own conclusion, therefore,

that expressio unius should apply and that the second of

the four Cort tests is not met in this case.” (Emphasis sup-

plied.) (Appendix A. p. A32.)

The opinion of the Court below, when reviewed in light of

the minority opinion and the opinion rendered in Cannon v.

University of Chicago, supra, results in an inconsistent applica-

tion of law.

In Cannon, supra, the Court below was required to determine

whether Title IX of the Education Amendments Act of 1972,

20 U. S. C. § 1631, et seq. provided for a private cause of

action based upon an alleged act of sex and age discrimination.

At page 1074, the Court below stated:

“The teaching of Amtrak, SIPC and Cort, supra, is that

a private cause of action should not be lightly implied

under a statute where Congress has not specifically pro-

vided one—especially where Congress has provided for

other means of enforcement.” (Footnote omitted.)

And, upon rehearing, the Court below specifically considered

the question of private suits to assist agency enforcement. At

page 1081, it stated:

“We are unpersuaded by the . . . argument that implica-

tion of a private right of action must be deemed consistent

with the legislative purposes of Title IX simply because

private party suits would provide a useful means of en-

forcing the statutory policy of prohibiting discrimination

on the basis of sex in federally funded educational pro-

grams, Such an argument goes too far, for implication of

a private right to enforce every federal statute would have

the same effect of assisting agency efforts to obtain com-

pliance with federal policies. Simply put, the argument

begs the question of whether implication of a private

judicial remedy is consistent with the purposes of a legisla-

tive scheme that gives responsibility for enforcing its statu-

tory policies to an administrative agency rather than to

‘private attorneys general.’ .. .”

Thus, the Court below recognized in Cannon, supra, that

the rulings in Amtrak and SIPC must be applied to cases which

would create private party suits to assist agency enforcement.

In Cannon, supra, the Court below placed a strong reliance on

Amtrak and SIPC, supra, while in the instant case, the Court

below, without explanation, indicated that these Supreme Court

opinions are only of “some force.” (Appendix A. p. A25.) It

is respectfully submitted that the issues in Cannon, supra, and

the instant case are identical and the cases referred to by the

Court below should have been consistently applied to the

issues.

This Court, on Ju’. 3, 1978, granted certiorari in Cannon Vv.

University of Chicago, supra, ............ U. S. ........... (1978), and

that cause is still pending. Included among the questions pre-

sented there is the same question as to the implication of

private causes of action.

This case affords an opportunity for the Court to consider

whether or not private causes of action should proliferate

when Congress has already created agencies to enforce com-

pliance with its laws.

II.

The Court Below Altered the Language of the Third Cort

Test to Reach Its Decision.

The Court below, in considering the third Cort test, stated:

“

. the extent of the agency’s enforcement powers

must be carefully considered before deciding whether ex-

pressio unius is to apply, and whether the implication of

a private remedy would be ‘consistent’ with the underlying

purposes of the statute in dispute, which is the third Cort

factor to be considered.” . . . (Emphasis supplied.) (Ap-

pendix A. p. A26.)

The third Cort test is not whether the implication of a private

remedy would be consistent with the purposes of the statute in

dispute, but, rather, whether the overall structure and legisla-

tive scheme of the entire FAA or its legislative history furnishes

“clear evidence” of a Congressional intent to create a private

remedy. It is respectfully submitted that the majority opinion’s

conclusion no longer requires a court to determine the legisla-

tive scheme and overall structure of an Act as required by Cort,

but allows a court merely to determine from a small phrase in

a statute that a private right of action may be implied. Follow-

ing the reasons set forth in the majority opinion, an implied

right of action will exist for every violation of a federal statute

and regulation, since every statute and each regulation promul-

gated by the various agencies of the United States serve to pro-

tect the public.

Paraphrasing the language of Cort, it can be here said:

“Every [regulation] is designed to protect some individual,

public, or social interest * * *. To find an implied civil

cause of action for the plaintiff in this case is to find an

implied civil right of action for every individual, social, or

public interest which might be invaded by violation of any

[regulation].” * * * 422 U. S. at page 79.

Judge Bauer’s dissent answers the majority’s conclusion that

the third Cort test was met:

“Moreover, I cannot agree that a private right of action

is even ‘consistent’ with the structure and goals of the FAA.

On this point, the majority appears to suggest that private

remedial measures are necessary to further the Con-

gressional purpose of protecting travelers from ‘losses due

to violations of the Charter Regulations.’ But even if a

major purpose of the Act is to protect travelers from such

losses (and even if the majority is correct in claiming that

the CAB may not be able to sue for a refund of tour de-

posits), it does not follow that a private remedy is con-

sistent with the statutory scheme.” (Emphasis by the

Court.) (Appendix A. p. A32.)

If the altered language of the third Cort test is allowed to

stand, the effect will be a flood of private actions in federal

courts, a result which Congress clearly never intended. In this

case alone, approximately 1,500 cases, each consisting of

claims in an amount less than $1,000.00, could be filed.

If.

The Majority Incorrectly Applied the Fourth Cort Test.

The majority stated that the issue is the Petitioners’ alleged

willful violation of fiduciary obligations specifically imposed

by voluntary agreement to adhere to federal regulations; that

it is necessary to construe the federal regulations to determine

the nature of the fiduciary obligations; and that there is a need

for uniformity in construing federal regulations.

It is urged that the opinion of the Court below fails to

make any determination regarding whether or not the allega-

tions contained in the Bratton and Chapman complaints are

matters traditionally relegated to state law. Instead, the Court

below decided the fourth Cort test solely upon the need for

uniformity in the application of federal regulations.

Judge Bauer speaks to the failure to satisfy the fourth require-

ment of Cort as follows:

“Finally, it seems to me that this cause of action is a

matter ‘traditionally relegated to state law,’ and thus fails

to satisfy the fourth requirement of Cort. The majority

reaches the opposite conclusion on the grounds, apparently,

that :here is a need for ‘uniformity’ in construing federal

regulations. What the opinion fails to make clear, how-

ever, is precisely why an adjudication of the plaintiffs’ com-

mon law claims of fraud, breach of contract, conversion,

and breach of fiduciary duty, would ‘necessarily have to

refer to the federal regulations subsumed in the agreements

between the principals.’ To say that federal regulations

required the bank to assume certain legal obligations to

the tour operator (and hence the tour participants) is one

thing. To say that the regulations defined those obligations

is quite another. And for my part, I can see no reason why

a determination of the plaintiffs’ non-federal claims would

require anything other than the application of familiar

principals of common law contracts and torts. I must con-

clude, therefore, that the fourth element of the Cort test,

like the second and third, furnishes no support for the

plaintiffs’ position.” (Appendix A. p. A33.)

The Court below effectively eliminated the fourth Cort test

when it reached the conclusion that such test is satisfied by

the need for uniformity in construing federal regulations. The

opinion not only fails to examine the complaints to determine

whether or not they are matters traditionally relegated to state

law, but it permits the fourth Cort test to be satisfied merely

with a statement that there is a need for uniformity in con-

struing federal regulations.

It is respectfully submitted that there is always a need for

uniform interpretation of law, but the application of such need

to the fourth Cort test begs the question and renders meaning-

less such test.

IV.

The Decision of the Court Below Is in Direct Conflict with

Opinions of Other Circuits and of the Same Circuit.

The opinion of the Court below also is in direct conflict with

the cases decided by the Third Circuit Court of Appeals which

has heretofore determined that the legislative scheme of the

Act dictates against the implication of a private right of action.

Rauch v. United Instruments, Inc., 548 F.2d 452 (3rd Cir.

1976), Polansky v. Trans World Airlines, Inc., 523 F. 2d 332

(3rd Cir. 1975), Wolf v. Trans World Airlines, Inc., 544 F. 2d

134 (3rd Cir. 1976), cert. denied, 430 U. S. 915 (1977). Al-

though each case arose out of a purported violation of different

sections of the Federal Aviation Act, the Court, in each case,

held that the statutory scheme of the Act does not contemplate

a private right of action for violations which result in economic

loss to the aggrieved party.

Additionally, the opinion of the Court below is in direct

conflict with its recent opinion rendered in Cannon, supra.

There, the Court below reviewed the case in light of the entire

legislative scheme rather than reviewing one specific statute. The

Court below in Cannon, supra, stated that to allow a private

right of action would be engaging in judicial legislation, which

would allow additional litigation in an already overburdened

court system.

The cases cited herein demonstrate the Court of Appeals’

error. If the decision were upheld, the court system would

be inundated with claims arising out of miscellaneous minor

passenger inconveniences, which the legislature clearly never

intended.

CONCLUSION.

In summary, the opinion of the Court below avoided

the clear and controlling holdings of this Court in Amtrak,

SIPC and Cort, supra, to reach its conclusions. By doing so,

it has erroneously created an unnecessary federal cause of

action which will potentially burden the federal court dockets

with hundreds of claims of less than $1,000.00 and has opened

the door for causes of action to be created for violations of

other federal regulations. As Judge Bauer has stated with

respect to the majority opinion, “. . . the opening of new vistas

in private causes of action ought to be approached rather fear-

fully and with more tender regard for the acts of Congress and

the limitation of the federal bench” (Appendix A. pp. A30-

A31), so that “{rlegulatory agencies, and the rules they func-

tion under should not, . . . be the launching pads for new

judicial journeys that add more ballast to an overburdened

federal system of dispensing justice.” (Appendix A. p. A33.)

For the reasons stated above, this Honorable Court should

grant the petition for certiorari brought herein.

Respectfully submitted,

LLoypD S. KUPFERBERG,

Davip N. MISSNER,

MARTIN W. SALZMAN,

33 North LaSalle Street,

Chicago, Illinois 60602,

Attorneys for Petitioners, First

National Bank of Highland

Park and Joel Shiffrin.

Of Counsel:

SCHWARTZ, COOPER, KOLB

& GAYNOR, CHARTERED,

33 North LaSalle Street,

Chicago, Illinois 60602.

APPENDIX A.

IN THE UNITED STATES DISTRICT COURT

For the Northern District of Illinois

Eastern Division

EARL BRATTON, ET AL., i

Plaintiffs,

mn + No. 76 C 4282

JOEL SHIFFRIN, ET AL.,

Defendants. )

HEMISPHERE TRAVEL, INC., ETAL., )

Plaintiffs,

VS.

> No. 76 C 4707

First NATIONAL BANK OF HIGHLAND

PARK, ET AL.,

Defendants. )

ROGER CHAPMAN, ET AL.,

Plaintiffs,

vs.

No. 77 C 284!

~—

First NATIONAL BANK OF

HIGHLAND PARK,

Defendant. )

1. Thus far four separate lawsuits have been filed as a result of

these incidents. The three actions brought by private plaintiffs are

consolidated here for the purpose of ruling on the motions to dismiss

(Footnote continued on next page.)

MEMORANDUM OPINION.

Plaintiffs are individual travelers and retail travel agencies

who made deposits to reserve places on numerous charter tours

to such places as Mexico, Hawaii, and Las Vegas. The tours

were organized and sold by the defendant travel companies.

Defendants include Tour Travel Enterprises, the wholesale tour

operator which organized the trips; Sunshine Travel Agency

and Sunshine Travel of Nevada, two retail travel agencies

dealing in tours organized by Tour Travel; Gerald Mann and

Richard Tauber, owners and officers of the three travel com-

panies; and the First National Bank of Highland Park and its

vice president, Joel Shiffrin. The Bank and Shiffrin held ac-

counts for the other defendants, including special escrow ac-

counts required by regulation for charter tour deposits.

The tours were scheduled to depart after October 15, 1976.

On that date or shortly thereafter, involuntary bankruptcy

proceedings were initiated against Tour Travel Enterprises,

Sunshine Travel and Sunshine Travel of Nevada.? The scheduled

tours never occurred and the deposits made by the plaintiff tour

participants have not been refunded. Some of these deposits

(Footnote continued from preceding page.)

by ee First National Bank and Joel Shiffrin. Fed. R. Civ.

; a).

The fourth action was commenced by the Civil Aeronautics Board

pursuant to its general enforcement powers under the Federal

Aviation Act. For a full understanding of this opinion, reference

should be made to the C. A. B. case as well. C. A. B. v. Tour Travel

Enterprises, Inc., ........ F. Supp. ........ No. 7

nT pp , No. 76 C 4693 (N.D. IIl.

2. Tour Travel Enterprises and Sunshine Travel Agency were

adjudicated bankrupt on October 19, 1976. Sunshine Travel of

Nevada and other affiliates followed on October 26, 1976. In re

Tour Travel Enterprises, Inc., No. 76 B 8014 (N.D. Ill. 1976);

In re Sunshine Travel Agency, Inc., No. 76 B 8015 (N.D. Il.

a ) - re Piper ogg of Nevada, Inc., No. 76 B 8075 (N. D

‘ ‘ related cases were consolidate

1976, into No. 76 B 8014. wits,

were made to the travel companies, others were deposited directly

with the Bank.

Plaintiffs have requested that the Bank refund their monies.

Apparently the funds on deposit in the special escrow accounts

are insufficient to reimburse all disappointed tour participants.

The Bank filed an interpleader action in bankruptcy court con-

cerning the deposits it holds. On March 17, 1977, the bank-

ruptcy judge dismissed the interpleader, ruling the court lacked

summary jurisdiction over the escrow funds. In re Tour Travel

Enterprises, Inc., No. 76 B 8014 (N. D. Ill. March 17, 1977).

Plaintiffs allege that defendants violated certain C. A. B.

regulations governing these charter tour deposits. In particular

they claim that defendants First National Bank of Highland

Park and Joel Shiffrin violated the regulations dealing with

special escrow accounts for tour deposits. Under 14 C. F. R.

§§ 378.16 and 378a.31 (1977), all deposits made by tour

participants to operators or retail travel agents must be de-

posited in a special escrow account with a federally insured bank

or savings and loan association. The bank is to maintain a

separate accounting for each tour, The depository bank, the

tour operators and the participating air carriers are to enter into

a depository agreement governing the deposits.’ Under the

regulations, disbursements may be made from the accounts only

under certain circumstances. The bank may pay the direct air

carrier, hotels, sightseeing and other surface accommodations

up to a fixed per cent of the total deposits received by the bank.

If a tour is cancelled, the bank is to make refunds directly to

the tour participants. Regulations 14 C. F. R, §§ 378.18 and

378a.32 (1977) forbid the bank or the tour operator from

making disbursements from tour-participant deposits except in

accordance with these regulations. In addition, the tour operator

must furnish a surety bond or other security arrangement to

3. Tour Travel Enterprises and First National Bank of Highland

Park were party to such an agreement. See Exhibit A of the First

Amended Complaint in Bratton v. Shiffrin, No. 76 C 4282 (N. D.

Ill., filed January 3, 1977).

insure the financial responsibility of the tour operator and the

performance of tour services in accordance with the contract

between the operator and the tour participants. In this case,

in lieu of a bond, Tour Travel entered into a surety trust

agreement with the First National Bank invring to the benefit

of the tour participants.‘ Plaintiffs further allege that the Bank

breached its duties and obligations under the escrow and surety

trust agreements.

Defendants First National Bank and Joel Shiffrin have moved

to dismiss the complaints for lack of subject matter jurisdiction,

failure to state a claim, and failure to join an indispensable

party (the trustee in bankruptcy).° We grant the motions to

dismiss for failure to state a claim.

Jurisdictional Allegations

Defendants First National Bank and Shiffrin challenge plain-

tiffs’ claim of jurisdiction based on the Federal Aviation Act

of 1958, 49 U.S. C. §§ 1301 et seq. (1970), and 28 U.S. C.

§§ 1331(a) and 1337 (1970). 28 U. S. C. § 1337 (1970)

gives this court jurisdiction over cases arising under statutes

enacted pursuant to Congress’ authority to regulate interstate

commerce, regardless of the amount in controversy. Clearly the

Federal Aviation Act of 1958 is an act regulating commerce.

Rauch v. United Instruments, Inc., 548 F. 2d 452, 455 (3d

Cir. 1976). Because plaintiffs assert that the provisions of the

Federal Aviation Act and the regulations promulgated there-

under provide for a private right of action on their behalf, we

have jurisdiction under Section 1337 to determine whether a

federal claim has been stated.* Bell v. Hood, 327 U. S. 678

4. See Exhibit B of the First Amended Complaint in Bratton v.

Shiffrin, No. 76 C 4282 (N.D. Ill, filed January 3, 1977).

5. Defendants also claim these actions must be stayed under

Rules 401 and 601, Fed. R. Bank. P. 401, 601.

6. Where a complaint claims invasion of a federal right, the

court has jurisdiction to determine whether a claim has been stated.

(Footnote continued on next page.)

(1946); Enders v. American Patent Search Co., 535 F. 2d

1085, 1087-88 (9th Cir. 1976), cert. denied, .......... Ui. ncn ;

(1977).

Explicit Provisions of 49 U. S. C. § 1487(a)

There are two possible routes to establishing a private remedy

under the Federal Aviation Act; the first is by reliance on the

explicit provisions of the Act, the second is by implying a

private right of action from those provisions. Section 1487 of

the Act gives the Civil Aeronautics Board the authority to

enforce the statute, rules and regulations. Further, under that

provision “any party in interest” may seek injunctive relief in

the district court for a violation of Section 1371(a). 49 U.S. C.

§ 1487(a) (1970). Thus, if a violation of Section 1371(a)

were involved, plaintiffs could rely on the explicit grant of

Section 1487(a). See generally Annot., 19 A. L. R. Fed. 951

(1974).

There are several reasons why this provision does not apply to

the Bank or its officer. Initially, one need only read the language

of Section 1371 (a):

No air carrier shall engage in any air transportation unless

there is in force a certificate issued by the Board authoriz-

ing such air carrier to engage in such transportation.

The definition of “air carrier” includes anyone who directly or

indirectly engages in air transportation. 49 U. S.C. § 1301(3).

The concept of an indirect air carrier is broad enough to include

a tour operator who arranges charter flights. C. A. B. v. Carefree

Travel, Inc., 513 F. 2d 375, 387 (2d Cir. 1975). However, we

do not feel justified in extending the definition to encompass the

Bank. While it is possible the Bank is an agent of an air carrier

(Footnote continued from preceding page.)

Thus a dismissal should be made on the merits under Rule 12(b) (6)

for failure to state a claim, and not for want of subject matter

jurisdiction. 1 J. MOORE, FEDERAL PRACTICE { 0.62[2.-2], at 664

(2d ed. 1977).

(at least for some purposes),’ this finding alone would not make

the agent liable for possible statutory violations by the principal.*

Plaintifis’ allegations do not support a claim of a breach of

Section 1371(a) by the Bank or Shiffrin.

Secondly, the loss of the tour deposits was not caused by the

failure of anyone to be certified as an air carrier, so Section

1371(a) is simply not involved in this case.

Finally, Section 1487(a) is a provision for injunctive relief.

Any additional relief must be ancillary to the equitable remedy

provided for in the statute. The private plaintiffs have not specifi-

cally requested injunctive relief; their prayer for relief seeks

money damages.’ Accordingly, the provisions of Section 1487(a)

do not provide them with an explicit statutory remedy of a

private nature.

Implied Private Right of Action

The next course of inquiry is to determine whether plaintiffs

have an implied private right of action under the statute and the

regulations. Plaintiffs allege violations of certain C. A. B. regu-

lations governing charter tour deposits, 14 C. F. R. §§ 378.16,

378.18, 378a.31, 378a.32 (1977). In order to decide whether

a private right of action exists under these regulations, we must

examine the statutory provisions under which they were promul-

gated. An administrative agency cannot create a federal private

right of action by enacting regulations; the right must be implied

from the underlying statutory authority.

7. The Bank as escrowee may be a “special” agent for both

parties, with the terms of the agency relationship defined by the

escrow agreement.

8. We do not mean to imply a finding of a violation of § 1371(a)

by any of the travel companies at this time.

9. The plaintiffs in Bratton v. Shiffrin requested “such other and

further relief as may be just and equitable.”

Plaintiffs have provided us little assistance, citing the entire

Federal Aviation Act of 1958 as their jurisdictional base."

After reviewing the statutory authority cited in 12 C. F.R. Part

378 (1977),!! we have concluded that the regulations establish-

ing security arrangements for charter tour deposits were promul-

gated pursuant to the authority of 49 U.S.C. § 1371(n) (2)

(1970). That provision reads:

In order to protect travelers and shippers by aircraft

operated by supplemental air carriers, the Board may

require any supplemental air carrier to file a performance

bond or equivalent security arrangement, in such amount

and upon such terms as the Board shall prescribe, to be

conditioned upon such suppiemental air carrier’s making

appropriate compensation to such travelers and shippers, as

prescribed by the Board, for failure on the part of such

carrier to perform air transportation services in accordance

with agreements therefor.

A supplemental air carrier is defined as a carrier engaged in

providing charter trips. 49 U. S.C. § 13014 (35) and (36). Tour

operators, such as Tour Travel Enterprises, who arrange charter

tours are properly within the mandate of this statutory provision.

Section 1324(a) grants the Board the general power to make

such regulations as it deems necessary to carry out the provisions

of the Federal Aviation Act. 49 U.S.C. § 1324(a) (1970). In

light of this broad statutory authority, we find that Regulations

378.16, 378.18, 378a.31, 378a.32 are valid promulgations

implementing 49 U.S. C. § 1371(n) (2) (1970). It appears this

is a case of first impression on implying a private right of action

10. The only specific allegation is that of a violation of 49

U.S.C. § 1485(e), which reads:

It shall be the duty of every person subject to this chapter, and

its agents and employees, to observe and comply with any order,

rule, regulation, or certificate issued by the Administrator or the

Board under this chapter affecting such person so long as the

same shail remain in effect.

11. 14 C.F.R. Part 378 states that the provisions of that part

are issued under the authority of 49 U.S.C. §§ 1301, 1324, 1371,

1372, 1379 and 1384.

under this provision, although the question has arisen regarding

other sections of the Act.!?

In determining whether a private right of action should lie

under the statutory provision and regulations, we are aware of

the directive that it is “the duty of the courts to be alert to

provide such remedies as are necessary to make effective the

congressional purpose.” J. 1. Case Co. v. Borak, 377 U.S. 426,

433 (1964). However, a private remedy is not to be implied for

every statutory violation. We must test this action according to

the guidelines established by the Supreme Court in Cort v. Ash,

422 U.S. 66, 78 (1975), for the judicial implication of private

remedies, The Court set out four relevant factors to be weighed

in determining whether a private remedy is implicit in a statute

not expressly providing one. “First, is the plaintiff ‘one of the

class for whose especial benefit the statute was enacted’. . .?

Second, is there any indication of legislative intent, explicit or

implicit, either to create such a remedy or to deny one? Third, is

it consistent with the underlying purposes of the legislative

scheme to imply such a remedy for the plaintiff? And finally, is

the cause of action one traditionally relegated to state law, in an

area basically the concern of the States, so that it would be

inappropriate to infer a cause of action based solely on federal

law?” 422 U.S. at 78 (citations omitted).

Applying these factors to the case at bar, we find that the

individual plaintiff tour participants are within the class for

whose benefit the statute was passed and the regulations promul-

gated. The explicit language of 49 U.S. C. § 1371(n) (2) (1970)

12. See, e.g., Rauch v. United Instruments, Inc., 548 F. 2d 452

(3d Cir. 1976) (Section 1421); Wolf v. Trans World Airlines, 544

F. 2d 134 (3d Cir. 1976) (Sections 1381, 1373(b)), cert. denied,

shat U.S. ........ (1977); Polansky v. Trans World Airlines, 523

F. 2d 332 (3d Cir. 1975) (Sections 1374(b) and 1381); Nader v.

Allegheny Airlines, Inc., 5i2 F.2d 527 (D.C. Cir. 1975) (Section

1374(b) ), rev’d on other grounds, 426 U.S. 290 (1976); Fitzgerald

v. Pan American Airway, 229 F.2d 499 (2d Cir. 1956) (Section

1374(b) ); and Gabel v. Hughes Air Corp., 350 F. Supp. 612 (C. D.

Cal. 1972).

reads “[iJn order to protect travelers,” the Board may require

supplemental air carriers to file a security arrangement to insure

compensation to travelers for failure to perform agzeed upon

services. The individual plaintiffs became tour participants once

their deposits were made; they are clearly within the class for

whose “especial” benefit this statutory provision was enacted.”*

The legislative history of the regulations further verifies the

individual plaintiffs’ status as members of the protected class.

The regulations were proposed “to insure the financial responsi-

bility of the tour operator to the traveling public.” Notice of

Proposed Rule Making, 30 Fed. Reg. 281, 282 (1965) (explana-

tory statement issued by the C. A. B.)’* However, it is equally

clear that the plaintiff travel agencies are not within the class for

whose “especial” benefit the statute and regulations were en-

acted. Travel agencies are not members of the traveling public.

Thus, the plaintiff agencies fail to meet the threshold require-

ment for implying a private right of action.

The mere fact the individual tour participants fall within the

protected class is insufficient in itself to warrant implying a

private right of action on their behalf. “[T]he inference of such a

private cause of action not otherwise authorized by the statute

must be consistent with the evident legislative intent and, of

course, with the effectuation of the purposes intended to be

served by the Act.” National Railroad Passenger Corp. V.

National Association of Railroad Passengers, 414 U. S. 453, 458

13. See H.R. Rep. No. 1950, 87th Cong., 2d Sess. (1962),

reprinted in 1962 U.S. Code Cong. and Admin. News 1844,

1866-67.

14. See also Inclusive Tours by Supplemental Air Carriers,

Certain Foreign Air Carriers, and Tour Operators: Modification of

Surety Bond Requirements for Tour Operators, 36 Fed. Reg. 6586

(1971) (Preamble to regulations amending the surety bond require-

ments “to provide better protection to the public from defalcations

by tour operators or breach of the contract between the tour operator

and the tour participant.”)

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(1974) (“Amtrak”). Plaintiffs’ claim must be tested against the

additional criteria established in Cort v. Ash, supra.'®

The next inquiry is whether there is any indication of legis-

lative intent either to create or deny a private remedy. The

legislative history of the Federal Aviation Act provides little

guidance. Plaintiffs’ briefs are devoid of any reference to legis-

lative history which would support a private right of action, and

the court’s own review of the relevant documents has revealed

none.'* The statute itself provides for C. A. B. enforcement of

all statutory provisions and regulations and private enforcement

of violations of Section 1371(a). 49 U. S.C. § 1487(a) (1970).

This does not necessarily mean that these enforcement methods

preclude private actions under other provisions.'? However, this

case falls within the Supreme Court’s reasoning in Amtrak,

supra:

[W]hen legislation expressly provides a particular remedy

or remedies, courts should not expand the coverage of the

statute to subsume other remedies. . . . This principle of

statutory construction reflects an ancient maxim—expressio

15. Courts vary in their interpretation of whether all four factors

must be considered in a given case. Compare Rauch v. United Instru-

ments, Inc., 548 F.2d 452, 460 (3d Cir. 1976) with People’s

Housing Development Corp. v. City of Poughkeepsie, 425 F. Supp.

482, 490 (S.D.N. Y. 1976). The Supreme Court’s application of

Cort has likewise varied. Compare Piper v. Chris-Craft Industries,

UNG y' scniaias fee , 45 U.S. L. W. 4182, 4192-93 (1977) with

Santa Fe Industries, Inc. v. Green, ........ eh canes , 45 U.S. L, W.

4317, 4321 (1977). It is apparent that the criteria established in

Cort are flexible; the analysis of the factors is qualitative, not purely

quantitative.

16. See S. Rep. No. 688, 87th Cong., 2d Sess. (1962) and

H.R. Rep. No. 1950, 87th Cong., 2d Sess. (1962) (conference

report), 1962 U.S. Code Cong. & Admin. News 1844; S. Rep.

No. 1811, 85th Cong., 2d Sess. (1958), H. R. Rep. No. 2360, 85th

Cong., 2d Sess. (1958), H. R. Rep. No. 2556, 85th Cong., 2d Sess.

(1958) (conference report), 1958 U. S. Code Cong. & Admin. News

3741-72; S. Rep. No. 1661, 75th Cong., 3d Sess. (1938), H. R. Rep.

No. 2254, 75th Cong., 3d Sess. (1938), H. R. Rep. No. 2635, 75th

Cong., 3d Sess. (1938) (conference report).

17. See J. I. Case Co. v. Borak, 377 U.S. 426 (1964).

All

unius est exclusio alterius. Since the Act creates a public

cause of action for the enforcement of its provisions and a

private cause of action only under very limited circum-

stances, this maxim would clearly compel the conclusion

that the remedies created in § 307(a) are the exclusive

means to enforce the duties and obligations imposed by

the Act.

414 U. S. at 458. Congress provided a private remedy for viola-

tions of Section 1371(a), but not Section 1371(n), another

provision of the same statutory section.'® Section 1371(n) was

added in 1962, and Section 1487(a) was not amended to

provide for private enforcement of the new subsections of

Section 1371.

The Court in Amtrak notes that “even the most basic general

principles of statutory construction must yield to clear contrary

evidence of legislative intent.” 414 U.S. at 458. As we have

already stated, there is no evidence of legislative intent to

support implying a private cause of action under Section

1371(n)(2). Furthermore, where Congress has provided for an

elaborate system of agency enforcement of a statute, that is some

indication that a parallel system of private enforcement was not

intended. Securities Investor Protection Corp. v. Barbour, 421

U.S. 412, 423 (1975); National Railroad Passenger Corp. v.

National Association of Railroad Passengers, 414 U.S. 453

(1974).

We must next ascertain whether it is “consistent with the

underlying purposes of the legislative scheme to imply such a

remedy for the plaintiff?” Cort v. Ash, 422 U.S. at 78. The

18. In Cort v. Ash, 422 U.S. at 82-83 n. 14, the Supreme Court

refused to infer from the fact a private remedy was provided in one

title of the act in question an intention to deny a private remedy with

regard te a different title. The Court distinguished Amtrak on this

point, noting that in Amtrak an express private remedy was provided

in favor of certain plaintiffs concerning the particular provision at

issue. The statutory provisions involved in the instant case more

closely approximate those in Amtrak. Here we are concerned with

different subsections of the same statutory section, not two entirely

separate titles of the Act.

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Court refers us to three cases for guidance, Amtrak, supra;

Securities Investor Protection Corp. v. Barbour, 421 U.S. 412,

423 (1975); and Calhoon v. Harvey, 379 U. S. 134 (1964). In

all three cases, a private remedy was denied, with the Court

concluding such remedy would be inconsistent with a statutory

scheme which provided for agency enforcement. We agree with

the analysis of Judge Haight in interpreting this third factor:

“Where Congress vests enforcement responsibilities in the gov-

ernment agency with expertise in the particular area, the Court

is inclined to regard agency enforcement as exclusive.” People’s

Housing Development Corp. v. City of Poughkeepsie, 425 F.

Supp. 482, 492 (S. D. N. Y. 1976).

It is this factor which most forcefully militates against imply-

ing a private right of action in favor of private plaintiffs to en-

force Section 1371(n)(2) and the regulations promulgated

thereunder. The C. A. B. has explicit authority to enforce the

statute and regulations at issue, and to seek an injunction against

any further violations. 49 U. S. C. § 1487(a) (1970). In addi-

tion, as adjunct to equitable relief, the C. A. B. may obtain an

order for refunds of the plaintiffs’ tour deposits. C. A. B. v.

Scottish-American Ass'n, Inc., 411 F. Supp. 883 (E. D. N. Y.

1976).

Mindful of the obligation to provide remedies necessary to

effectuate the congressional purpose, J. 7. Case v. Borak, 377

U. S. at 433 (1964), we must also “be wary against interpolat-

ing our notions of policy in the interstices of legislative provi-

sions.” Piper v. Chris-Craft Industries, ......... | Age par ee , 45

U. S. L. W. 4182, 4188 (1977), citing Justice Frankfurter

in Scripps-Howard Radio v. F. C. C., 316 U. S. 4, 11 (1964).

Where a government agency can provide private parties with

the relief necessary to effectuate the congressional purposes,

where there is no express provision for a private remedy and

the legislative history is bereft of any indication that such a

remedy should be implied, courts should be hesitant to add

to the burden of the judicial system. Particularly in a case such

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as this where the C. A. B. has filed an action against the

defendants to enjoin further violations of the Act and recover

the deposits made by the private plaintiffs, it is unnecessary to

imply a private remedy to protect the interests of the plaintiff

class.'® Not only will judicial time be conserved, but the mem-

bers of the protected class will be saved the legal fees inherent

in prosecuting a private suit.

Under these circumstances, we find that unlike J. J. Case v.

Borak, judicially creating a private right of action under these

regulations is “unnecessary to ensure the fulfillment of Con-

gress’ purposes” in enacting the Federal Aviation Act. See

Piper v. Chris-Craft Industries, ............ = a , 45 U.S. L. W.

4182, 4193 (1977).* The C. A. B. has the authority to ade-

quately protect the interests of the plaintiff charter tour partici-

pants, and the agency has taken action to protect those interests

in this case. Accordingly, the third factor ioins the second in

weighing against implying a private right of action in this case.

The final factor for review is whether “the cause of action

[is] one traditionally relegated to state law, . . . so that it would

19.. The C. A. B. filed an affidavit with its Reply Memorandum

in C. A.B. v. Tour Travel Enterprises, ........ F. Supp. ........ , No.

76 C 4693 (N.D. Ill. 1977) noting the voluminous number of

filings received by the agency on charter flights. This fact has little

relevance in a case where the C. A. B. has taken action. Moreover,

the Supreme Court has stated that practical limitations on an agency

do not alone lead to the conclusion that any interested party should

have a cause of action. Piper v. Christ-Craft Industries, Inc., ........

RD, Bs econ , 45 U.S. L. W. 4182, 4193 (1977).

20. In deciding this question, our primary focus was on Congress’

purposes in enacting the particular statutory provision in question.

Section 1371(n) was passed in 1962 to provide for the increased

availability and regulation of supplemental air carriers (charters).

See 1962 U.S. Code Cong. and Admin. News 1844. Reference to

other sections of the Federal Aviation Act indicates a general purpose

to promote “adequate, economical, and efficient service by air

carriers at reasonable charges, without unjust discriminations, undue

preferences or advantages, or unfair or destructive competitive prac-

tices,” 49 U.S.C. § 1302(c) (1970), and to assure “the highest

degree of safety in, and foster sound economic conditions in” air

transportation. 49 U.S.C. § 1302(b) (1970).

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be inappropriate to infer a cause of action based solely on

federal law?” Cort v. Ash, 422 U. S. at 78. Where we have

found an adequate federal remedy in the agency charged with

enforcing the statute, it seems anomalous to inquire into the

availability of state remedies. Nonetheless we stop short of the

approach taken by those courts which find the fourth factor

to be inapplicable.*! There are state remedies available to the

plaintiffs. Indeed, their complaints include counts based on

breach of fiduciary duty under the escrow and surety agree-

ments, fraud, conversion and breach of contract.** Other courts

construing provisions of the Federal Aviation Act have found

the existence of such remedies sufficient to warrant denial of

a private right of action.“ Thus, the fourth factor, like the

second and third, fails to support plaintiffs’ claim for an implied

private right of action in this case.

Conclusion

The court concludes that plaintiffs do not have a private

remedy in federal court. Initially, plaintiffs have not brought

themselves within the explicit remedy provided private parties

in 49 U. S. C. § 1487(a) of the Federal Aviation Act of 1958.

Further, we hold that the C. A. B. Regulations upon which

plaintiffs rely for jurisdiction, 14 C. F. R. §§ 378.16, 378.18,

378a.31 and 378a.32, and the statutory provisions under which

these regulations were promulgated, in particular 49 U. S. C.

21. See, e.g., People’s Housing Development Corp. v. City of

Poughkeepsie, 425 F. Supp. 482, 490-91 (S. D. N. Y. 1976).

22. See Counts II and III in Bratton v. Shiffrin, No. 76 C 4282

(N. D. IIL, filed January 13, 1977); Count II in Hemisphere Travel,

Inc. Vv. First National Bank of Highland Park, No. 76 C 4707 (N. D.

Ill., filed December 23, 1976); Counts II-V in Chapman vy. First

National Bank of Highland Park, No. 77 C 284 (N.D. IIL, filed

January 26, 1977).

23. See, e.g., Rauch v. United Instruments, Inc., 548 F.2d 452

(3d Cir. 1976); Wolf v. Trans World Airlines, 544 F.2d 134 (3d

Cir. 1976), cert. denied, ........ te Wi sacdubes (1977); and Polansky v.

Trans World Airlines, 523 F.2d 332 (3d Cir. 1975).

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§ 1371(n) (2), do not confer an implied private right of action

upon these plaintiffs.

Even though the individual plaintiffs are within the class for

whose benefit the statute was enacted, they fail to meet the

additional requirements established in Cort v. Ash, supra, to

support the implication of a private right of action under

Section 1371(n)(2) and the regulations promulgated there-

under.

Accordingly, we hold that plaintiffs do not have an explicit

or implied private right of action under the regulations or statu-

tory provisions involved in these cases and we dismiss the cases

for failure to state a claim under Rule 12(b) (6). The plaintiffs

must rely on the C. A. B. to vindicate their interests in federal

court,** or they must resort to the remedies available to them

in state court.

Having dismissed the federal claims, we also dismiss plaintiffs’

pendent state claims for lack of subject matter jurisdiction.

United Mine Workers v. Gibbs, 383 U.S. 715 (1966).

Dated: August 11, 1977

Enter:

/s/ JOHN F. GRADY

United States District Judge

24. TheC. A. B.’s action in seeking relief for the private plaintiffs

in this case was a fact of great importance to the court’s decision.

Had the agency failed to act, or to seek to remedy the losses of these

private plaintiffs, the result may well have been different.

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IN THE UNITED STATES COURT OF APPEALS

For the Seventh Circuit

No. 77-2037 ~

EARL BRATTON, ET AL.,

Plaintiffs-A ppellants,

vs.

JOEL SHIFFRIN, ET AL.,

Defendants-A ppellees,

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 76 C-4282—John F. Grady, Judge.

No. 77-2023

ROGER CHAPMAN and JEANNE CHAPMAN, individually and on

behalf of all others similarly situated,

Plaintiffs-A ppellants,

vs.

First NATIONAL BANK OF HIGHLAND PARK, a National Banking

Association,

Defendant-A ppellee.

Appeal from the United States District Court for the —

Northern District of Illinois, Eastern Division.

-No. 77 C-284—John F. Grady, Judge.

ARGUED APRIL 19, 1978—DECIDED SEPTEMBER 18, 1978

Before SwyGERT, Circuit Judge, Moore, Senior Circuit

Judge,* and BAUER, Circuit Judge.

Moore, Circuit Judge. This appeal presents the question

whether a private cause of action exists, either express or im-

* Senior Circuit Judge Leonard P. Moore of the United States

Court of Appeals for the Second Circuit is sitting by designation.

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plied, under the Federal Aviation Act (FAA), 49 U. S. C.

§ 1301 et seq., against a bank that allegedly violated regulations

of the Civil Aeronautics Board (CAB) governing charter tour

deposits, and the officer of the bank who was to personally

handle deposited funds. Contrary to the district court, 440 F.

Supp. 1257 (N. D. Ill. 1977) (Grady, J.), we conclude that

plaintiff travelers, who have allegedly lost their prepayments for

charter tours which, due to the insolvency of their organizer,

never occurred, impliedly have a remedy for damages under

section 1371(n) (2) of the FAA, 49 U. S.C. § 1371(n) (2).

The two actions now before us were commenced by a group

of persons! consisting of individual travelers (and, in Bratton,

some retail travel agencies) who made deposits and/or prepay-

ments to reserve places on numerous charter tours to foreign

and domestic locations. These tours were organized and marketed

by Tour Travel Enterprises, Inc. (TTE), a wholesale tour op-

erator, through, inter alia, its affiliated retail travel agencies,

Sunshine Travel Agency, Inc., and Sunshine Travel of Nevada,

Inc., all of whom are defendants. The other defendants are

Gerald Mann and Richard Tauber, owners and officers of the

three travel companies. The defendant-appellees are First Na-

tional Bank of Highland Park (FNB), a depository which,

pursuant to CAB regulations, had agreed with TTE to hold

travelers’ prepayments in special escrow accounts and to act as

1. Bratton v. Shiffrin (No. 77-2037) was commenced on Novem-

ber 18, 1976. On January 4, 1977, plaintiffs moved to have the

matter maintained as a class action. Chapman v. First National Bank

of Highland Park (No. 77-2023), commenced on January 26, 1977,

was originally brought as a class action. All decisions on class status

were deferred until decision of the present appellees’ motion to

dismiss.

A third lawsuit raising similar claims against the appellees herein

was decided below along with those before us. Hemisphere Travel,

Inc. et al. v. First National Bank of Highland Park et al., No.

76 C 4707 (N.D.Iil.). Apparently there has been no appeal in

that action.

Al8

surety for TTE tours, and Joel Shiffrin, vice-president of FNB,

who personally handled the tour funds.

Charter tour operators such as TTE have been the subject

of recent congressional concern. Since its enactment in 1958, the

FFA (sic) was twice amended by provisions designed to afford

greater protection against financially irresponsible charter or-

ganizers who too often had left travelers stranded and helpless.

In 1962, Congress added section 1371(n)(2), Pub. L. No. 87-

528, which, in order to effectuate its announced aim of “pro-

tect[ing] travelers”, directed the CAB to promulgate regulations

requiring supplemental air carriers engaged in charter tours to

make appropriate security arrangements for the purposes of

providing adequate compensation should the tours not proceed

as scheduled.” Pursuant to its statutory authority, the CAB did,

in fact, carry out its duties by prescribing an extensive regula-

tory scheme for the conduct of the charter tour industry. See

Special Charter Regulations, 14 C, F. R. Part 378 (1977). In

order to better elucidate our reasons for concluding that plain-

tiffs are properly before the federal courts to enforce these regu-

lations, we set forth a summary of the rules designed by the

CAB to implement Congress’ directive to assure proper finan-

cial management of charter tour monies, see House Committee

Report, H. R. 1639, 1968 U. S. Code Cong. & Admin. News

3594, 3597; 30 Fed. Reg. 281, 282 (1965), the interpretation

of which will be involved in the resolution of this dispute.

To qualify as a “tour operator” permitted to make charter

arrangements, the CAB has required the fulfillment of certain

filing prerequisites: One must file a prospectus, a surety bond,

and a depository agreement executed by a federally insured

bank. 14 C. F. R. §§ 378.10, 378.13 (1977). In this case,

TTE “qualified” by filing the required prospectus and depository

agreement between it and FNB as escrowee; TTE was per-

2. In 1968, section 1371(e)(6) was amended, Pub. L. No. 90-

514, to permit regularly scheduled carriers to engage in charters

provided they deal with wholesalers that meet CAB regulations.

Al9

mitted to file, and did file, a trust agreement, with FNB as

trustee, in the amount of $200,000, in lieu of the surety bond.

The regulations also require a prescribed contract between

the tour operator and the tour participants; this contract re-

quires prepayment into an escrow account for transportation

and ground accommodations, see 14 C. F. R. § 378.17. The

tour operator must give notice to the participants of how to

make checks payable to the depositary bank and how to

make claims against the surety should a tour be cancelled. See

14 C. F. R. §§ 378.16(b) (2) (iv), 378.17(b).

The depository agreement must conform with the regulations

governing their form and content. Under the agreement, which

creates a contractual relationship between the bank (here FNB),

the tour operator (here TTE), and an air carrier, the bank is to

establish and maintain separate accounts for each tour, see 14

C. F. R. §§ 378.16(b) (2) (vii), 378a.31(b) (2) (vii), into

which, presumably, the tour operator is to deposit prepayments.

(The depository agreement between TTE and FNB is appended

to Bratton’s First Amended Complaint as Exhibit A). Under

the same regulations, a tour participant who deals with the tour

operator is to make his payment directly to the bank’s escrow

account; on sales made by retail travel agents, the agent may

deduct his commission from the prepayment offered by the cus-

tomer, and then is to remit the balance to the designated de-

pository bank. Pursuant to 14 C. F. R. §§ 378.18 and 378a.32,

the bank is prohibited from “mak[ing] disbursements or pay-

ments from deposits except in accordance with the [other] pro-

visions of this part”. Thus, to greatly simplify matters, the bank

may only pay the direct air carrier, hotels, sightseeing operators,

and other surface accommodations up to a fixed percent of the

total deposits received by the bank for the particular tour, and

only at fixed times. See 14 C, F. R. §§ 378.16(b) (2), 378a.31

(b)(2). Furthermore, the rules provide that, if the bank is

notified of a tour cancellation, “the bank shall make applicable

A20

refunds directly to tour participants”. 14 C. F. R. §§ 378.16

(b) (2) (iv), 378a.31(b) (2) (iv).

In the case at bar, FNB assumed the duties not only as es-

crowee, but also as trustee. (The Trust Agreement between

FNB and TTE is appended to Bratton’s First Amended Com-

plaint as Exhibit B). The trust, according to the bonding regu-

lations, is to inure to the benefit of tour participants, and is to

“continue in effect until completion of the tour”. 14 C. F. R.

§§ 378.16(b) (1), 378.a31(b) (1).

Against the backdrop of this rather complex regulatory

scheme established “to protect travelers”, 49 U. S. C. § 1371(n)

(2), unfolds the story of the plaintiffs in this case. Although all

of the Chapman and Bratton plaintiffs allegedly prepaid for

TTE-organized charter tours scheduled io depart after October

15, 1976, none was successful in obtaining a refund after the

tours were cancelled. Shortly before the scheduled departure

dates, it became apparent to their creditors that TTE and its

affiliated retail travel agencies were hopelessly insolvent, and,

after an involuntary bankruptcy petition was filed, bankruptcy

adjudications followed.’ Plaintiffs allegedly requested that FNB

return the prepayments which, plaintiffs thought, would be

available from the escrow accounts. FNB failed to refund any of

the monies claimed by the plaintiffs; though over $740,000 was

claimed by plaintiffs, the total in the escrow accounts for TTE

tours is only about $391,000.*

These lawsuits ensued. In one cause of action, plaintiffs al-

leged that FNB and its officer, Shiffrin, violated the FAA and

3. TTE and Sunshine Travel Agency, Inc., were adjudicated

bankrupts on October 19, 1976. In re Tour Travel Enterprises, Inc.,

No. 76 B 8014 (N. D. Ill. 1976); In re Sunshine Travel Agency, Inc.,

No. 76 B 8015 (N. D. Ill. 1976). Sunshine Travel of Nevada, Inc.,

was adjudicated a bankrupt on October 26, 1976. In re Sunshine

Travel of Nevada, Inc., No. 76 B 8075 (N.D. Ill. 1976).

4. Soon after TTE’s bankruptcy, FNB filed an action in the

nature of an interpleader in an attempt to foreclose the rights to the

escrow account. The Bankruptcy Court ruled that the court lacked

summary jurisdiction over the escrow funds. In re Tour Travel

Enterprises, Inc., No. 76 B 8014 (N. D. Ul. March 17, 1977).

A21

the Special Charter Regulations thereunder by having mis-

managed the funds.° Specifically, plaintiffs allege that FNB

acted out of self-interest to help TTE avoid its impending bank-

ruptcy so that outstanding loans made by the bank to TTE

would be repaid and so that the surety obligations would not be

triggered. Further, plaintiffs aver that FNB made payments out

of the escrow accounts pursuant to TTE’s wrongful instructions,

while fully cognizant that the regulations permitted only desig-

nated payments. The complaints also allege that the bank qua

trustee violated its duties under the FAA. Finally, aside from

the federal claims, plaintiffs also interposed pendent claims of

fraud, breach of contract, and breach of fiduciary duty.

FNB and Shiffrin have denied, both on appeal and in their

memoranda in support of their motions below, that any checks

duly designated for the escrow accounts were diverted; further,

they have taken the position that plaintiffs have no cause of

action at all against them, asserting, in essence, that their duties

ran only to TTE, with whom they contracted, and that under

the agreement, plaintiffs who dealt only indirectly with them

may not recover directly. Since discovery was stayed pending

resolution of appellees’ motion to dismiss, the circumstances of

the disappearance of funds are not clear. It has not been deter-

mined which plaintiffs made checks payable to the bank, and

which paid travel agencies. What is clear is that the bank has

woefully insufficient funds in its accounts to refund monies to

the many individuals, travel agents, associations, and social

clubs who claim to have prepaid for cancelled TTE tours, and

that serious allegations of wrongdoing Have been made.

5. Jurisdiction was alleged under 28 U.S.C. § 1331(a) (federal

question), and 28 U.S.C. § 1337, which grants jurisdiction over

cases arising under statutes enacted pursuant to Congress’ authority

to regulate commerce, regardless of the amount in controversy. We

find jurisdiction proper under § 1337 since violations of the FAA

are at issue.

A22

Under the circumstances, and for the reasons that follow,

we reverse the order of the district court, and we hold that

plaintiffs have stated a claim for relief under the FAA.®

II.

Although we believe that plaintiffs are properly before the

court, we agree with the district court that no explicit cause of

action was provided by Congress to remedy violations of the

nature here alleged. Plaintiffs’ argument was that section

1007(a) of the FAA, 49 U.S. C. § 1487(a) (hereinafter “sec-

tion 1487(a)”), could be read to provide express authorization

for a remedy in their case. That section provides for injunctive

relief as follows:

“If any person violates any provision of this chapter,

or any rule, regulation, requirement, or order thereunder,

. .. the [CAB]... , or, in the case of a violation of

section 1371(a) of this title, any party in interest, may

apply to the district court . . . for the enforcement of such

provision . . .; and such court shall have jurisdiction to

enforce obedience thereto by a writ of injunction or other

process, mandatory or otherwise, restraining such person

. from further violation . . . and requiring their

obedience. .. .”

Although plaintiffs argue that they are “parties in interest”

and that their losses were caused by defendants’ conduct which,

allegedly, violates section 1371(a), we must disagree with their

unduly strained reading of section 1487(a). Although there

are many barriers to holding that an express cause of action

exists under this section, the most compelling is that private

persons are limited, under the section, to suits for violations of

6. Appellees’ motion to dismiss was also predicated on the

absence of an allegedly indispensable party (the trustee in bank-

ruptcy). Appellees also claimed that these federal actions must be

stayed under Fed. R. Bank. 401, 601. With the dismissal of the

federal claims, the pendent claims were dismissed for lack of subject

matter jurisdiction. Since we hold that the complaint should be

restored, so, too, should the pendent claims.

A23

section 1371(a), which provides, in essence, that no “air carrier”

may operate without CAB certification. Absent a violation of

certification requirements by an “air carrier”, no private en-

forcement is contemplated under this provision for injunctive

relief.

The definition of “air carrier’, it is true, includes one who

undertakes “indirectly” to engage in air transportation, 49

U. S. C. § 1301(3), and has been deemed broad enough to

encompass the activities of a tour. operator who arranges

charter flights. See CAB v. Carefree Travel, Inc., 513 F. 2d

375, 387-88 (2d Cir. 1975). However, we agree with the

district court that, in this matter of statutory construction,

even assuming that section 1487(a) could otherwise be deemed

satisfied, a depository bank cannot be included in the definition

of “air carrier”.

Nonetheless, we think that plaintiffs may enforce compliance

by implication under 49 U. S. C. § 1371(n)(2) [FAA

§ 401 (n)], which provides:

“In order to protect travelers and shippers by aircraft

operated by supplemental air carriers, the Board may re-

quire any supplemental air carrier to file a performance

bond or equivalent security arrangement, in such amount

and upon such terms as the Board shall prescribe, to be

conditioned upon such supplemental air carrier’s making

appropriate compensation to such travelers . . ., as pre-

scribed by the Board, for failure on the part of such car-

rier to perform air tran-portation services in accordance

with agreements therefor.”

In reaching our conclusion that this quoted section provides

a ground for private enforcement of the Special Charter Regu-

lations, we have considered the four factors enunciated in Cort

v. Ash, 422 U. S. 66 (1975), which we now discuss.

The first Cort “test” is whether plaintiffs belong to the class

for whose “especial benefit” the statute in question was enacted.

In our view, there is little doubt as to this factor. The statute

A24 °°

itself was enacted “to protect travelers”. Further, it was designed

to protect against a specific wrong—the inability to obtain

compensation when tour plans collapse. To meet the stated ob-

jective, Congress saw fit to empower the CAB to require sup-

plemental air carriers (and “indirect” supplemental carriers) to

provide adequate security arrangements so that travelers would

receive their just compensation should a financially irresponsible

carrier fail tc perform agreed upon services. We think it safe

to say that the plaintiffs are clearly within the protected class

that section 1371(n) (2) was specifically designed to deal with.’

Insofar as the plaintiff travel agencies are not, as the district

court stated, “members of the traveling public”, their status as

proper plaintiffs derives from their having made good their

customers’ losses. Hence, those agencies which have done so

should be permitted to take over the claims of their customers

as subrogees.

Despite Congress’ clear intention to provide protection to

plaintiffs in this case, appellees argue that, regardless of whether

or not plaintiffs are members of a protected class under the

statute, the provision only relates to “supplemental air carriers”,

and sincegnone of the appellees has such status (even if other

defendants fit the definition), this suit is improper. We are not

dealing here, however, with a question of construction of ex-

7. The Special Charter regulations of the CAB make clear the

extent to which plaintiffs are members of this new federally protected

class. Those regulations were proposed “to insure the financial

responsibility of the tour operator to the traveling public”, Notice of

Proposed Rule Making, 30 Fed. Reg. 281, 282 (1965), and “to

provide better protection to the public from defalcations by tour

operators or breach of the contract between the tour operator and

the tour participant”. Modification of Surety Bond Requirements for

Tour Operators, 36 Fed. Reg. 6586 (1971).

Given the regulatory: scheme, under which supposedly responsible

institutions such as FNB were invited to agree to safeguard any funds

that may be owing upon a tour operator’s ‘inability to perform, it

becomes clear that plaintiffs’ travails with the bank are exactly those

as to which the federal scheme was to afford protection. See also

H.R. Rep. No. 1950, 87th Cong., 2d Sess. (1962), reprinted in

1962 U.S. Code Cong. & Admin. News 1844, 1866-67.

ote.

A25

pressly granted remedial provisions, as above, but are rather

attempting to discern the parties bound by the statutorily author-

ized regulations at issue. It is clear from a reading of both the

statute and the Special Charter Regulations that the use of a

depository bank, such as FNB, was a contemplated and neces-

sary element in effectuating the stated purpose of providing for

proper security under strict controls. If implication of a cause

of action is otherwise appropriate, FNB cannot escape its fed-

erally enforceable duties on the ground that it was not specially

mentioned in the statute which enabled the CAB to regulate

as it did, Because Congress envisioned that plaintiffs were to

be protected from air travel abuses by means of the bank’s ad-

herence to federal requirements, we think that Cort’s first test is

met.

The second factor in Cort is whether there is any indication

of legislative intent, explicit or implicit, either to create a private

remedy or to deny one. Not surprisingly, neither section

1371(n)(2) nor its legislative history reveals congressional

intent. On this basis, appellees argued below, and the district

court agreed, that since section 1487(a) of the FAA explicitly

provides for agency (CAB) enforcement of all provisions of the

FAA, and since it also provides for limited private enforcement

of one provision of the Act (i.e., enforcement of § 1371(a) by

“parties in interest”), an inference arises that those expressly

created remedies exclude all others, especially since no clear

contrary evidence of legislative intent can be shown. This line

of reasoning reflects the familiar maxim of expressio unius est

exclusio alterius, which has recently been applied by the Supreme

Court in National Railroad Passenger Corp. v. National As-

sociation of Railroad Passengers (Amtrak), 414 U. S. 453

(1974), and SIPC v. Barbour, 421 U. S. 412 (1975). Though

the argument has some force in relation to this case, we do not

believe it determinative. While we are aware that the doctrine

was applied by the Supreme Court to deny the implication of

a remedy in the cases it decided, we are mindful, too, of the

A26

Court’s admonition that “it is the duty of the courts to be alert

to provide such remedies as are necessary to make effective the

congressional purpose”. J. 1, Case Co. v. Borak, 377 U. S. 426,

433 (1964). We do not believe that the intervening cases since

Borak in any way detract from the validity of that admonition;

indeed, as recently as Cort, 422 U. S. at 84, we were reminded

that effectuation of the congressional purpose is paramount.

In this case, we think that Congress’ recent concern with the

plight of uncompensated travelers, which resulted in two en-

actments that postdated the enactment of section 1487(a), the

general remedial provision, indicates that if Congress did not

expressly consider the issue of private enforcement of the Char-

ter Regulations, nor did it intend to deny a remedy. The ap-

plication of expressio unius in this context would serve only

to frustrate the goal of assuring adequate security for travelers’

compensation.

In any case such as this, where there is no indication of con-

gressional intent to create or deny a private remedy, and where

there is, under the statute in question, provision for agency

enforcement, the extent of the agency’s enforcement powers

must be carefully considered before deciding whether expressio

unius is to apply, and whether the implication of a private

remedy would be “consistent” with the underlying purposes of

the statute in dispute, which is the third Cort factor to be con-

sidered. The two “tests”—the second and third Cort factors—

interrelate in a case such as this. We think that the district

judge relied unduly on the theoretical availability of CAB en-

forcement powers when he determined that the availability of

such powers militated against plaintiffs’ position. We are dealing

here with the enforcement of only one small part of the FAA

which, though small, has spawned a vast regulatory scheme,

the single goal of which is to assure relief to a traveler whose

travel plans are thwarted.

Although the CAB may enforce the regulations by suing to

enjoin violations, the agency has admitted that it cannot single-

A27

handedly police the administration of the Special Charter Regu-

lations to prevent violations from occurring.’ We recognize, as

did the district court, that practical limitations on agency capa-

bilities do not alone lead to the conclusion that any interested

party should have a private remedy to enforce those matters

within the agency’s purview. See Piper v. Chris-Craft Industries,

Inc., 430 U. S. 1, 41 (1977). However, in a case such as this,

where practical limitations are combined with a clear possibility

that agency action may never be adequate to remedy the precise

wrong which Congress sought to prevent, we think that a

federal court must be willing to permit private remedial measures

to better effectuate compliance with federal goals. The district

court realized, in the case at bar, that CAB action would

undoubtedly come too late to prevent travelers from sustaining

losses due to violation of the Charter Regulations; however,

Judge Grady relied on the supposed fact that, even if loss may

not be prevented, once it is suffered, the CAB, though lacking

the power to itself order refunds, may sue to obtain an order

for the refund of tour deposits by means of the appointment of

a trustee. The one case cited for this proposition was the dis-

trict court decision in CAB v. Scottish-American Association,

Inc., 411 F. Supp. 883, 888 (E. D. N. Y. 1976). With all

due respect, we think that some question may still exist as to the

8. The CAB commenced its own action under section 1487(a)

of the FAA in November 1976, against Mann, Tauber, FNB, and

Shiffrin. CAB v. TTE, 440 F. Supp. 1265 (N.D. Ill. 1977) (No.

76 C 4693). The CAB alleged that these defendants violated the

regulations, and the complaint asked that they be restrained. The

court was also asked to appoint a trustee to act on behalf of the

tour participants to prosecute claims and to collect and distribute any

monies due to TTE’s prospective travelers.

In a Memorandum of Law addressed to the court, the CAB con-

fessed that the finding and proving of violations of its regulations on

the basis of the voluminous charter filings it received would require

full-scale investigation and numerous field audits—an operation it

was ill-equipped to handle. Even if it were to discover violations,

“fi]t is axiomatic that such efforts are frequently, as here, too late

for a simple injunction to foreclose harm; they [investigations and

audits] are expensive; and they are also necessarily selective”.

Bratton and Chapman Joint Appendix at 50, Memorandum of CAB.

A28

CAB’s authority under section 1487(a) to obtain refunds for

travelers. Though the Scottish-American decision, resting on

equitable principles, has force, there is authority, perhaps over-

looked below, to the contrary. See Fitzgerald v. Pan American

World Airways, 229 F. 2d 499, 502 (2d Cir. 1956); Wills

v. Trans World Airlines, Inc., 200 F. Supp. 360, 364 (S. D.

Cal. 1961). We believe that an issue may still exist as to the

scope of the CAB’s enforcement powers under the FAA in a

context such as this. We do not, of course, decide the issue, but

point it out merely to indicate our concern that private en-

forcement of the right to a refund is certainly consistent with the

goal of the legislation—to protect travelers—and is, indeed,

critical in a case where agency enforcement may be inadequate,

if not tardy.

This is not a case where agency expertise is needed for the

resolution of the dispute. Nor is this a case, like Cort itself,

where the plaintiffs sought to enforce but a secondary “goal” of

the statute in question, if a goal at all. (There, the primary

goal was to insure against election abuse by curbing the undue

influence that could be exerted by large corporate expenditures;

plaintiffs sought a remedy to make the corporation “whole”,

which, as the Court noted, would not aid in the enforcement

of the primary goal of the criminal statute there in issue). Here,

plaintiffs seek a remedy for the very wrong the statute was de-

signed to prevent, by the very means contemplated to protect

them.

Although this factor is not controlling, we would note that

other courts have not hesitated to imply private remedies under

the FAA when deemed necessary to effectuate its purpose.°

9. Private rights of action have been implied under the FAA in a

variety of contexts. See, e.g., Nader v. Allegheny Airlines, Inc., 512

F. 2d 527 (D.C. Cir. 1975), rev'd on other grounds, 426 U. S. 290

(1976) (“bumping” of passenger; action available under FAA

§ 404(b), 49 U.S.C. § 1374(b)); Fitzgerald v. Pan American

World Airways, 229 F. 2d 499 (2d Cir. 1956) (refusal to transport

because of race); Aircraft Owners & Pilots Ass’n v. Port Authority

(Footnote continued on next page.)

A29

Under the circumstances at bar, we believe a private remedy is

also necessary. Defendant-appellees in this case have, in es-

sence, denied all liability to many of the plaintiffs (i.e., those

who did not directly make checks payable to the bank, but who

dealt through travel agencies). They have set up “defenses”, by

way of appellate argument, which suggest that some conflict in

the regulations will have to be reconciled, and the bank’s duties

to the travelers explicated. The very fact that the regulations

will require interpretation is a factor which militates in favor of

upholding plaintiffs’ right to sue in federal court—and is the

fourth Cort factor to be considered.

This final factor requires a determination of whether the

matter before the court is one traditionally relegated to state

law so that it would constitute inappropriate interference to im-

ply federal power in the area. The district court was satisfied that

plaintiffs had available to them state remedies since they had

interposed claims sounding in fraud, breach of contract, con-

version, and breach of fiduciary duty. We do not agree, however,

that the availability of these state causes of action should, or

can, preclude a federal remedy under the circumstnces.

At issue here is the bank’s alleged willful violation of fiduciary

obligations specifically imposed by its voluntary agreement to

(Footnote continued from preceding page.)

of New York, 305 F. Supp. 93, 103-04 (E. D. N. Y. 1969) (section

308(a), 49 U.S.C. § 1349(a), provides action insofar as it assures

equal access to airports); Mortimer v. Delta Airlines, 308 F. Supp.

276 (N. D. Ill. 1969) (“bumping”); Town of East Haven v. Eastern

Airlines, Inc., 282 F. Supp. 507 (D. Conn. 1968) (action available

to enforce operating and landing regulations to prevent undue noise

pollution).

We are aware, of course, that private rights of action have been

denied under other sections of the FAA, in other contexts. However,

we do not believe, as appellees suggest, that implied actions must be

limited to two areas of supposed “compelling national interest”, i.e.,

discrimination or “bumping” cases, and cases involving safety regu-

lations. Rather, it is the court’s function to imply a remedy under any

Act of Congress when one is necessary to effectuate the purposes of

the Act in question. Each case must be decided on its own merits.

We think that a remedy is entirely appropriate in. this case.

A30

adhere to federal regulations. State courts attempting to define

the duties arising in this case will necessarily have to refer to

the federal regulations subsumed in the agreements between the

principals. It would be highly undesirable and inappropriate for

the federal court to permit inconsistent intrepretations of the

provisions by relegating plaintiffs to the courts of the various

states, the rules of which, perhaps, could even be applied to de-

feat congressional goals. We believe that uniformity is required

in this area which, as can be seen from the brief description of

the regulatory scheme given above, is quite complex. If the duty

of the depository bank is governed—indeed, created—by federal

law, then the interpretation of the law creating the duty should

surely be undertaken by the federal courts. FNB’s “defenses”,

which perhaps would be availing absent the federal regulations

by which it agreed to be bound, must be determined in accord-

ance with those regulations, not state law. Thus, this factor in

the Cort test also militates in favor of providing a federal forum.

In sum, we believe that plaintiffs have satisfied Cort’s “tests”

for determining whether a federally implied remedy is appro-

priate. Though, as the district court noted, Cort’s tests were ap-

plied in that case to deny a private remedy, the factors to be

considered require a qualitative analysis. Here, plaintiffs are un-

questionably members of a class sought to be protected by con-

gressional enactment, and the wrong which they suffered was

the specific concern of the statute and the regulations there-

under, Where, as here, the federal right is so clearly defined,

and where resolution of the dispute will depend on interpreta-

tion of the regulations in question, we will not deny a remedy.

We reverse the order dismissing the complaint. Since the

federal claims are restored, the district court should also con-

sider the pendent claims as well.

Reversed and remanded for further proceedings.

BAUER, Circuit Judge, dissenting. I must respectfully dissent.

It seems to me that the opening of new vistas in private causes

of action ought to be approached rather fearfully and with a

A31

more tender regard for the acts of Congress and the limitations

of the federal bench. The four-factor test of Cort v. Ash has

been rather “adjusted” to reach the conclusions the majority

pronounces. The trial court concluded that the plantiffs have

failed to meet the second, third and fourth tests of Cort—and

with that opinion I agree.

To begin with, on the question of Congressional intent, I am

not at all persuaded by the majority’s efforts to brush aside the

“expressio unius” doctrine that has figured so prominently in

the Supreme Court’s most recent efforts to determine whether

an implied right of action exists under federal statutes. In

National Railroad Passenger Corp. v. National Association of

Railroad Passengers, the Court declared that

“when legislation expressly provides a particular remedy

or remedies, courts should not expand the coverage of the

statute to subsume other remedies. . . . This principle of

statutory construction reflects an ancient maxim—expressio

unius est exclusio alterius. Since the Act creates a public

cause of action for the enforcement of its provisions and a

private cause of action only under very limited circum-

stances, this maxim would clearly compel the conclusion

that the remedies created in § 307(a) are the exclusive

means to enforce the duties and obligations imposed by the

Act.”

414 U. S. 453, 458 (1974). Similarly, in the case at hand, Con-

gress has provided a private remedy for violation of section

1371(a) of the FAA, but has not done so for section 1371(n).

It seems quite apparent, therefore, that in this case, too, the

principle of expressio unius “compels the conclusion that the

remedies created in [§ 1371(n)] are the exclusive means to en-

force the duties and obligations imposed by the Act.”

While finding the argument to be of “some force,” the ma-

jority nevertheless insists that expressio unius does not apply,

apparently because a private right of action is “consistent” with

the underlying purposes of the statute. In this manner, the

majority incorporates elements of the third Cort “test” into the

A32

second, reasoning that “the two ‘tests’. . . interrelate in a case

such as this.” Such an approach, however, misconceives the

essential nature of the inquiry in deciding whether or not the

expressio unius doctrine applies; for, as the Supreme Court has

made clear,

“[an] express statutory provision for one form of proceeding

ordinarily implies that no other means of enforcement was

intended by the legislature. That implication would yield,

however, to ‘clear contrary evidence of legislative intent,’

for which we [turn] to the legislative history and the over-

all structure of the. . . Act.”

Securities Investor Protection Corp. v. Barbour, 421 U.S. 412,

419 (1974) (emphasis supplied) (citations omitted). Thus, in

determining the applicability of the expressio unius doctrine,

the central question is not whether a private right of action is

“consistent” with the purposes or goals of the statute, but

rather, whether the overall structure of the Act, or its legislative

history, furnish “clear evidence” of a Congressional intent to

create a private remedy. This distinction is crucial, for, as the

majority itself apparently concludes, “there is no indication”

of such an intent in either the legislative history or the structure

of the FAA, It follows from the majority’s own conclusion,

therefore, that expressio unius should apply and that the second

of the four Cort tests is not met in this case.

Moreover,. I cannot agree that a private right of action is

even “consistent” with the structure and goals of the FAA. On

this point, the majority appears to suggest that private remedial

measures are necessary to further the Congressional purpose of

protecting travelers from “losses due to violations of the Charter

Regulations.” But even if a major purpose of the Act is to

protect travelers from such losses (and even if the majority is

correct in claiming the the CAB may not be able to sue for a

refund of tour deposits), it does not follow that a private remedy

is consistent with the statutory scheme. In Securities Investor

Protection, supra, the Court noted that

A33

“Congress’ primary purpose in enacting the SIPA and

creating the SIPC was, of course, the protection of in-

vestors. It does not follow, however, that an implied right

of action by investors who deem themselves to be in need

of the Act’s protection, is either necessary to or indeed

capable of furthering that purpose.”

421 U. S. at 421. In this case, Congress has explicitly granted

to the CAB the authority to enforce the statute and regulations

at issue, and to seek an injunction against any further violations.

49 U. S. C. § 1487(a). Moreover, as was noted above, there

is no extrinsic evidence that Congress contemplated the agency

enforcement to be anything other than exclusive. I therefore

find no basis for the majority’s conclusion that a private right

of action is “consistent” with the statutory scheme.

Finally, it seems to me that this cause of action is a matter

“traditionally relegated to state law,” and thus fails to satisfy

the fourth requirement of Cort. The majority reaches the op-

posite conclusion on the grounds, apparently, that there is a

need for “uniformity” in construing federal regulations, What

the opinion fails to make clear, however, is precisely why an

adjudication of the plaintiffs’ common law claims of fraud,

breach of contract, conversion, and breach of fiduciary duty,

would “necessarily have to refer to the federal regulations sub-

sumed in the agreements between the principals.” To say that

federal regulations required the bank to assume certain legal

obligations to the tour operator (and hence the tour participants)

is one thing. To say that the regulations defined those obligations

is quite another. And for my part, 1 can see no reason why

a determination of the plaintiffs’ non-federal claims would re-

quire anything other than the application of familar principles

of common law contracts and torts. I must conclude, therefore,

that the forth element of the Cort test, like the second and third,

furnishes no support for the plaintiffs’ position.

Reguiatory agencies, and the rules they function under should

not, it seems to me, be the launching pads for new judicial

A34

journeys that add more ballast to an already overburdened

federal system of dispensing justice.

I would affirm the trial court’s decision that found no private

cause of action exists under the regulations in question.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

A35

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

January 11, 1979

Before

Hon. THoMas E., FAIRCHILD, Chief Jud?

Hon. LEONARD P. Moore, Sr. Circuit Judge*

Hon. LUTHER M. SwyGERT, Circuit Judge

Hon. WALTER J. CUMMINGS, Circuit Judge

Hon. WILBUR F. PELL, JR., Circuit Judge

Hon. ROBERT A. SPRECHER, Circuit Judge

Hon. PHiILip W. TONE, Circuit Judge

Hon. WILLIAM J. BAUER, Circuit Judge

Hon. HARLINGTON Woop, JR., Circuit Judge

ROGER CHAPMAN and JEANNE CHAP- )

MAN, individually and on behalf of

all others similarly situated,

Plaintiffs-Appellants, | , ppeals from the

No. 77-2023 vs. United States Dis-

trict Court for the

First NATIONAL BANK OF HIGHLAND Northern District of

PARK, \ Illinois, Eastern Di-

Defendant-A ppellee.

Vision.

Nos. 77-C-284 and

EARL BRATTON, ET AL., 16-C-4282

Plaintiffs-A ppellants,

John F. Grady, Judge.

No. 77-2037 VS.

JOEL SHIFFRIN, ET AL.,

Defendants-A ppellees. )

On consideration of the petition for rehearing and suggestion

for rehearing in banc filed in the above-entitled causes by

A36

counsel for the appellees, a vote of the active members of the

court was requested, and a majority of the active members of the

court have voted to deny a rehearing in banc.** A majority of

the judges on the original panel have voted to deny the petition

for rehearing. Acordingly,

IT Is ORDERED that the aforesaid petition for rehearing be,

and the same is hereby, DENIED.

* Hon. Leonard P. Moore, Sr. Circuit Judge for the U. S. Court of

Appeals for the Second Circuit, is sitting by designation.

** Hon. Philip W. Tone and Hon. William J. Bauer, Circuit

Judges voted to grant the petition for rehearing and suggestion for

rehearing in banc.

A37

APPENDIX B.

Statutory Appendix

FEDERAL AVIATION ACT OF 1958

49 U.S.C. 1371 (a)

No air carrier shall engage in any air transportation unless

there is in force a certificate issued by the Board authorizing

such air carrier to engage in such transportation.

49 U.S. C. 1371 (n) (2)

In order to protect travelers and shippers by aircraft operated

by supplemental air carriers, the Board may require any supple-

mental air carrier to file a performance bond or equivalent

security arrangement, in such amount and upon such terms as

the Board shall prescribe, to be conditioned upon such supple-

mental air carrier’s making appropriate compensation to such

travelers and shippers, as prescribed by the Board, for failure

on the part of such carrier to perform air transportation services

in accordance with agreements therefor.

49 U.S. C. 1487(a)

If any person violates any provision of this chapter, or any

rule, regulation, requirement, or order thereunder, or any term,

condition, or limitation of any certificate or permit issued under

this chapter, the Board or Administrator, as the case may be,

their duly authorized agents, or, in the case of a violation of

section 1514 of this title, the Attorney General, or, in the case

of a violation of section 1371(a) of this title, any party in -

interest, may apply to the district court of the United States,

for any district wherein such person carries on his business or

wherein the violation occurred, for the enforcement of such pro-

vision of this chapter, or of such rule, regulation, requirement,

A38

order, term, condition, or limitation; and such court shall have

jurisdiction to enforce obedience thereto by a writ of injunction

or other process, mandatory or otherwise, restraining such per-

son, his officers, agents, employees, and .representatives, from

further violation of such provision of this chapter or of such

rule, regulation, requirement, order, term, condition, or limita-

tion, and requiring their obedience thereto.

ee eee

A39

APPENDIX C.

CiviL AERONAUTICS BOARD REGULATIONS

14 C. F.R. § 378.2 Definitions.

As used in this part unless the context otherwise requires:

(a) “Inclusive tour charter” means the charter of the entire

capacity of an aircraft or of less than the entire capacity of an

aircraft (provided that the remaining capacity of the aircraft is

under charter by a person or persons authorized to charter

aircraft under §§ 207.11(c), 208.6(c), or 212.8(b). respec-

tively, of this chapter) by a tour operator or, with respect to

tours which originate in a foreign country, by a foreign tour

operator for the carriage by a direct air carrier of persons travel-

ing in air transportation on inclusive tours.

(b) “Inclusive tour” means a roundtrip tour which combines

air transportation pursuant to an inclusive tour charter and land

services, and which meets all of the following requirements:

(1) A minimum of seven (7) days must elapse between de-

parture and return;

(2) The land portion of the tour must provide overnight

hotel accommodations at a minimum of three places other than

the point of origin, such places to be no less than 50 air miles

from each other: Provided, That, in the case of an “air/sea

tour,” overnight accommodations provided aboard a ship, while

in port or at sea, may be regarded as “hotel” accommodations;

And provided further, That, for any night on which accommo-

dations are provided aboard a ship at sea, either the first port at

which the ship stops following such night, or the last port at

which the ship stops preceding such night, may be regarded as

the “place” at which the overnight accommodations were pro-

vided.

A40

(3) The tour price shall include, at a minimum, all hotel

accommodations and necessary air or surface transportation

between all places on the itinerary, including transportation to

and from air and surface carrier terminals utilized at such places

other than the point of origin;

(4) The charge to the passengers for the tour, as set forth

in the tour prospectus, shall be not less than 110 percent of any

available fare or fares, embodied in a tariff on file with the

Board, charged by a route carrier, or combination of such car-

riers (including charge for stopovers) for individually ticketed

service on the circle route beginning at the point of origin, to

the various points where stopovers are made, and return to the

point of origin: Provided, That the tour shall be subject to the

terms and conditions which are applicable to such fare or fares,

as set forth in the tariff of the route carrier or carriers. For

purposes of this provision, (i) the term “route carrier” shall

mean a certificated route air carrier or foreign route air carrier

authorized under section 401 or 402 of the Federal Aviation

Act of 1958, as amended, respectively, to transport persons;

and (ii) the term “available fare” includes promotional or dis-

count fares, such as family fares, children’s fares, excursion fares,

fares applicable to special classes of persons, group fares, etc.

Where similar promotional or discount fares are offered on both

jet and propeller aircraft, the available fare shall be that charged

for jet services. Where no regularly scheduled service is pro-

vided between the points involved, the available fare shall be

based on the fares to the nearest point served by a route carrier:

and

(5) An aircraft under charter to one tour operator or for-

eign tour operator may carry any number of tour groups:

Provided, That, if more than one group is carried, the charter

contract for each of the groups shall be for 40 or more seats.

(6) The tour shall be arranged and sold by a tour operator

acting solely as an independent principal with respect to the air

ner Eo a

A4l

transportation included in the inclusive tour charter and not as

an agent for direct air carriers.

who are assembled by a tour operator or a foreign tour operator

for the purpose of participation as a single unit in an inclusive

tour: Provided, however, That nothing contained herein shall

preclude a tour operator or a foreign tour operator from utilizing

any unused space on an aircraft chartered by it for an inclusive

tour, for the transportation, on a free or reduced-rate basis, of

such tour operator’s or foreign tour operator’s employees, di-

rectors, and officers, and the parents and immediate families of

such persons, subject to the provisions of Part 223 of this

chapter.

(d) “Tour operator” means any citizen of the United States

(other than a direct U. S. air carrier), authorized hereunder to

engage in the formation of groups for transportation on inclusive

tours.

(d-1) “Foreign tour operator” means any person who is not a

U. S. citizen (other than a direct foreign air carrier):

(i) Who is engaged in the formation of groups for trans-

portation on inclusive tours which originate in a foreign country

and over whom the board by § 378.3a has declined to exercise its

jurisdiction; and/or |

(ii) Who is engaged in the formation of groups for trans-

portation on inclusive tours which originate in the United States

and who holds a permit issued pursuant to section 402 of the

Act authorizing such transportation. “Foreign tour operator” as

used in §§ 378.7, 378.10-378.14, 378.16, 378.16a, 378.17,

378.18, and 378.20 is confined to the meaning set forth in this

subparagraph.

(e) “Tour participant” means a member of the inclusive tour

group.

(f) [Reserved]

A42

(g) “Tour price” means the total amount of money paid by

the tour participant to the tour operator for the inclusive tour.

(h) “Direct air carrier” means (1) a route air carrier holding

a certificate of public convenience and necessity issued under

section 401(d)(1) of the Act; (2) a supplemental air carrier

holding a certificate of public convenience and necessity issued

under section 401(d)(3) of the Act to perform inclusive tour

charters; (3) a foreign route air carrier holding a permit issued

under section 402 of the Act authorizing it to engage in foreign

air transportation on an individually ticketed or individually

waybilled basis; and (4) a foreign air carrier which holds a

permit issued under section 402 of the Act authorizing it to

perform inclusive tour charters, but only to the extent that such

tours are to be performed subject to the provisions of this regu-

lation.

(i) “Itinerary” means all the components of a tour package,

as described in the tour prospectus, including not only the points

named therein but also all hotels, and other ground accommo-

dations and services described therein.

(j) “Citizen of the United States” means (1) an individual

who is a citizen of the United States or of one of its possessions

or (2) a partnership of which each member is such an indi-

vidual, or (3) a corporation or association created or organized

under the laws of the United States or of any State, Territory, or

possession of the United States, of which the president and two-

thirds or more of the board of directors and other managing

officers thereof are such individuals and in which at least 75

per centum of the voting interest is owned or controlled by

persons who are citizens of the United States or of one of its

possessions.

(Secs. 101(3), 101(33), 204(a), 401, 402, 407, and 416(a),

Federal Aviation Act of 1958, as amended. 72 Stat. 737 (as

amended by 75 Stat. 467, 76 Stat. 143, 82 Stat. 867, 84 Stat.

921), 743, 754, 757, 766, 771; 49 U.S.C. 1301, 1324, 1371,

1372, 1377, 1386)

A43

[SPR-40, 35 F. R. 14613, Sept. 18, 1970, as amended by SPR-

42, 36 F. R. 2505, Feb. 5, 1971; SPR-47, 36 F. R. 8726, May

12, 1971; SPR-62, 37 F. R. 22853, Oct. 26, 1972; SPR-67, 38

F. R. 7219, Mar. 19, 1973; SPR-70, 378 F. R. 19680, July 23,

1973; SPR-100, 41 FR 7744, Feb. 20, 1976; SPR-103, 41 FR

20161, May 17, 1976; SPR-108, 41 FR 35160, Aug. 20, 1976]

14 C. F. R. § 378.10 Procedure.

(a) No inclusive tour or series of tours shall be operated,

nor shall any tour operator or foreign tour operator sell, or

offer to sell, or solicit persons to participate in, or otherwise

advertise such tour or tours, or receive any money from any

prospective participant in connection therewith, until at least 15

days after he and the direct air carrier have jointly filed with

the Board (Supplementary Services Division, Bureau of Operat-

ing Rights), in duplicate, a Tour Prospectus satisfying the re-

quirements of § 378.13: Provided, however, That if during the

15-day period following filing hereunder the tour operator or

foreign tour operator has been notified that the Board has re-

jected such statement for noncompliance with this part, then

he shall not sell, or offer to sell, solicit, or advertise such tour or

tours until he has subsequently been notified by the Board that

such filing has been accepted. If a series of tours is to be per-

formed for one tour operator or foreign tour operator pursuant

to one charter contract, the Prospectus may cover the entire

series, provided the elapsed time between the commencement of

the first tour and the departure of the last tour shall not exceed

one year.

(b) Except as specified in paragraph (c) of this section, no

change in the facts reflected in a filed Prospectus shall become

effective until at least 15 days after the tour operator or foreign

tour operator and the direct air carrier have jointly filed with the

Board (Supplementary Services Division, Bureau of Operating

Rights), in duplicate, an amended Prospectus reflecting such

change, unless he has beer notified by the Board that such

A44

change may become effective sooner: Provided, however, That

if during the 15-day period following filing of an. amended

Prospectus hereunder, the tour operator or foreign tour opera-

tor has been notified that the Board has rejected such amended

Prospectus for noncompliance with this part, then such change

shall not become effective until he has subsequently been notified

by the Board that such filing has been accepted: And provided

further, That the direct air carrier need not join in the filing of

an amended Prospectus which reflects only such change or

changes as do not involve air transportation or services in con-

nection therewith which are to be provided by such direct air

carrier. Deviations from the Prospectus may not be made except

where they are beyond the control of the carrier or the operator,

and there is insufficient time to file an amended Prospectus.

this section shall not apply to tour price increases, changes in

hotel accommodations, sightseeing arrangements, meal plans,

and the order in which cities are visited, but such changes shall

be filed no later than five (5) days following such changes.

[SPR-76, 39 FR 21125, June 19, 1974, as amended by SPR-114,

41 FR 42941, Sept. 29, 1976]

14 C.F.R. § 378.13, Tour prospectus.

The prospectus shall be filed in duplicate and shall include

two copies of the following: The charter contract, the contract

between the tour operator or foreign tour operator and tour

participants, the tour operator’s or foreign tour operator’s surety

bond (an original bond and a copy thereof), and, where appli-

cable, two copies of the depository agreement with a bank as

provided in § 378.16(b) (2). It shall also contain the following

information:

(a) Name and address of the tour operator or the foreign

tour operator; . .

(b) The proposed date and time of each flight;

A45

ber of each type of aircraft and capacity;

(d) The tour itinerary, including hotels (name and

length of stay at each), and sightSeeing or other arrange-

ments, if any;

(e) The tour price per passenger;

(f) The number of persons expected to participate in

the tour;

(g) Charter price of the aircraft;

(h) The individually ticketed air fare, computed as pro-

vided in § 378.2(b) (4), specifically identifying each fare

used in the computation and each tariff citation.

(i) Samples of solicitation material proposed by the

tour operator or foreign tour operator (all sales advertising

and solicitation materials employed by the tour operator

or foreign tour operator shall state the name of the direct

air carrier to be utilized).

[SPR-47, 36 F. R. 8726, May 12, 1971, as amended by SPR-62,

37 F. R. 22853, Oct. 26, 1972; SPR-70, 38 F. R. 19680, July

23, 1973]

14 C. F.R. § 378.16 Surety bond.

(a) Except as provided in paragraph (b) of this section, the

tour operator or foreign tour operator shall furnish a surety bond

in one of the following amounts dependent upon the length of

the tour or series of tours: (1) For a tour or series of tours of

2 weeks or less, a bond in an amount of not less than the charter

price for the air transportation to be furnished in connection

with such tour or series of tours; (2) for a tour or series of tours

of more than 2 weeks but less than 4 weeks, a bond in an

amount of not less than twice the charter price; and (3) for a

tour or series of tours of 4 weeks or more, and a bond in an

amount of not less than three times the charter price: Provided,

A46

however, That the liability of the surety to any tour participant

shall not exceed the tour price.

(b) The direct air carrier and the prospective tour operator

or foreign tour operator may elect, in lieu of furnishing a surety

bond as provided under paragraph (a) of this section, to comply

with the requirements of paragraphs (b) (1) and (2) of this

section as follows:

(1) The tour operator or foreign tour operator shall

furnish a surety bond in a minimum amount of $10,000

per flight up to a maximum amount of $200,000 for a

series of 20 or more flights, for the protection of the tour

participants, the bond to continue in effect until completion

of the tour of series of tours: Provided, however, That the

liability of the surety to any tour participant shall not

exceed the tour price.

(2) The direct air carrier and tour operator or foreign

tour operator shall enter into an agreement with a desig-

nated bank, the terms of which shall provide that all

deposits by tour participants paid to tour operators or

foreign tour operators and their retail travel agents shall be

deposited with and maintained by the bank subject to the

following conditions:

(i) On sales made to tour participants by tour

operators or foreign tour operators the participant

shall pay by check or money order payable to the

bank; on sales made to tour participants by retail

travel agents, the retail travel agent may deduct his

commission and remit the balance to the designated

bank by check or money order: Provided, That, the

travel agent agrees in writing with the tour operator or

foreign tour operator that if the tour is canceled, the

travel agent shall remit to the bank the full amount of

commission previously deducted or received within 10

days after receipt of notification of cancellation of

the tour;

A47

(ii) The bank shall pay the direct air carrier the

charter price for the transportation not earlier than

60 days (including day of departure) prior to the

scheduled day of departure of the originating or re-

turning flight, upon certification of the departure date

by the air carrier: Provided, That, in the case of a

round-trip charter contract to be performed by one

carrier, the total round-trip charter price shall be paid

to the carrier not earlier than 60 days prior to the

scheduled day of departure of the originating flight;

(iii) The bank shall reimburse the tour operator or

foreign tour operator for refunds made by the latter to

the tour participant upon written notification from the

tour operator or foreign tour operator;

(iv) If the tour operator, foreign tour operator or

the direct air carrier notifies the bank that a tour has

been canceled, the bank shall make applicable refunds

directly to the tour participants;

(v) After the charter price has been paid in full to

the direct air carrier, the bank shall pay funds from

the account directly to the hotels, sightseeing enter-

prises, or other persons or companies furnishing sur-

face accommodations or services in connection with

the tour or series of tours upon presentation to the

bank of vendors’ bills and upon certification by the

tour operator or foreign tour operator of the amounts

payable for such surface accommodations or services

and the persons or companies to whom payment is to

be made: Provided, however, That the total amounts

paid by the bank pursuant-to paragraphs (b) (2) (ii)

and (v) of this section shall not exceed 80 percent of

the total deposits received by the bank less any refunds

made to tour participants pursuant to paragraphs

(b) (2) (iii) and (iv) of this section:

A48

(vi) As used in this section, the term “bank”

includes a bank, savings and loan association, or other

financial institution insured by the Federal Deposit

Insurance Corporation or the Federal Savings and

Loan Insurance Corporation;

(vii) The bank shall maintain a separate account-

ing for each tour;

(viii) Notwithstanding any provisions above, the

amount of total cash deposits required to be main-

tained in the depository account of the bank may be

reduced by one or both of the following: The amount

of surety bond in the form prescribed herein in excess

of the minimum bond required by paragraph (b) (1)

of this section; an escrow with the designated bank of

Federal, State, or municipal bonds or other securities,

consisting of certificates of deposit issued by banks

having a stated policy of redeeming such certificates

before maturity at the request of the holder (subject

only to such interest penalties or other conditions as

may be required by law), or negotiable securities

which are publicly traded on a securities exchange, all

such securities to be made payable to the escrow

account: Provided, That such other securities shall be

substituted in an amount no greater than 80 percent of

the total market value of the escrow account at the

time of such substitution: And provided, further, That

should the market value of such other securities sub-

sequently decrease, from time to time, then additional

cash or securities qualified for investment hereunder

shall promptly be added to the escrow account, in an

amount equal to the amount of such decreased value;

(ix) Except as provided in paragraph (b)(2) (ii),

(iii). (iv), (v), and (viii) of this section, the bank

shall not pay out any funds from the account prior to

two banking days after completion of each tour, when

“ —

A49

the balance in the account shall be paid to the tour

operator or foreign tour operator, upon certification of

the completion date by the direct air carrier.

section shall insure the financial responsibility of the tour

operator or foreign tour operator and the supplying of the

transportation and all other accommodations, services, and

facilities in accordance with the contract between the tour

operator or foreign tour operator and the tour participants, and

shall be in the form set forth as Appendix A following § 378.31.*

Such bon: shall be issued by a bonding or surety company

(1) whose surety bonds are accepted by the Interstate Com-

merce Commission under 49 CFR 1084.6; or (2) which is

listed in Best’s Insurance Reports (Fire and Casualty) with a

general policyholders’ rating of “A” or better. The bonding or

surety company shall be one legally authorized to issue bonds of

that type in the State in which the tour originates. For purposes

of this section, the term “State” includes any territory or posses-

sion of the United States, or the District of Columbia. The bond

shall be specifically identified by the issuing surety with a com-

pany bond numbering system so that the Board may identify the

bond with the specific tour or tours to which it relates: Provided,

however, That these data may be set forth in an addendum

attached to the bond which addendum must be signed by the

tour operator and the surety company. It shall be effective on or

before the date the Tour Prospectus is filed with the Board. If

the bond does not comply with the requirements of this section,

or for any reason fails to provide satisfactory or adequate pro-

tection for the public, the Board will notify the direct air carrier

and the tour operator or foreign tour operator, by registered or

certified mail, stating the deficiencies of the bond. Unless such

deficiencies are corrected within the time set forth in such

notification, the subject tour or tours shall in no event be

operated.

2. Filed as part of reissued document (SPR-40).

‘ASO

(d) The bond required by this section shall provide that

unless the tour participant files a claim with the tour operator or

foreign tour operator, or, if he is unavailable, with the surety,

within sixty (60) days after termination of the tour, the surety

shall be released from all liability under the bond to such tour

participant. The contract between the tour operator or foreign

tour operator and the tour participant shall contain notice of

this provision.

[SPR-47, 36 F. R. 8726, May 12, 1971, as amended by SPR-58,

37 F. R. 16172, Aug. 11, 1972; SPR-62, 37 F. R. 22853, Oct.

26, 1972; SPR-70, 38 F.R. 19680, July 23, 1973; SPR-97,

40 F.R. 52355, Nov. 10, 1975]

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.