# Petition — Shiffrin v. Bratton

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1979
- **Citation:** 443 U.S. 903

## Text

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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

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Questions

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Statement

ESS

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Argument
I.

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 i te ee ee eee ge eC Cweweea ese eseeeesdeve

10

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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.

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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

a

JOEL SHIFFRIN, ET AL.,
Petitioners,
VS.

EARL BRATTON, ETAL.,
Respondents.

FIRST NATIONAL BANK OF HIGHLAND PARK,
A NATIONAL BANKING ASSOCIATION,
Petitioner,

Ay

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-

4

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.

3

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:

6

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.

I.

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’),

7

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

8

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

9

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.

10

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.

11

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.

12

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.

13

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,

14

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.

Al

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.)

A2

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,

A3

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).

A4

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.)

AS

(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).

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(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.”

A7

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.

A8

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).

A9

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.”)

Al0

(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

Al13

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).

Al4

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).

Al5

§ 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.

Al6

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.

Al7

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).

I.

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.

(c) An “inclusive tour group” means an aggregate of persons
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

ne

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.

(c) The 15-day waiting period specified in paragraph (b) of
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

(c) Equipment to be used, including the aggregate num-
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;

a

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.

(c) The bond required under paragraphs (a) and (b) of this
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

[Text truncated at 120,000 characters. The full text is on the page linked above.]

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2605%3A1. Public record. Not legal advice.