Petition for Writ of Certiorari — City of Los Angeles v. Department of Transportation

99 500 SEP 161%

No. 99-___

apHiob Ub IME CLERK

In The

Supreme Court of the United States

°

AIRPORTS COUNCIL

INTERNATIONAL-NORTH AMERICA,

Petitioner,

VS.

UNITED STATES DEPARTMENT OF

TRANSPORTATION, et al.,

Respondents.

7

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The District Of Columbia Circuit

+

PETITION FOR A WRIT OF CERTIORARI

a

SHIRLEY M. HuFsTEDLER

Counsel of Record

ANTHONY L. Press

ARNOLD BARBA

Morrison & Foerster LLP

555 West Fifth Street, Suite 3500

Los Angeles, CA 90013-1024

Telephone: (213) 892-5200

Patricia A. HAHN

General Counsel

Airports Council

International—North America

1775 K Street, N.W.

Washington, D.C. 20008

Telephone: (202) 293-8500

Counsel for Petitioner

Airports Council

International—North America

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

aX

ET I Ree...

i

QUESTIONS PRESENTED

In 1997, the District of Columbia Circuit rejected the

Secretary of Transportation’s decision finding unreason-

able Los Angeles’ fair market value-based airfield land

rental charge. The court concluded that the Secretary had

fundamentally misunderstood the governing law in

requiring the use of historical cost valuation. Los Angeles

Dep't of Airports v. DOT, 103 F.3d 1027, 1032 (D.C. Cir.

1997). On remand the Secretary again determined the fee

to be unreasonable. Thereafter, in a decision that is irrec-

oncilable with the prior decision, a divided D.C. Circuit

upheld the Secretary’s determination. City of Los Angeles

v. DOT, 165 F.3d 972 (D.C. Cir.), reh’g denied en banc, 179

F.3d 937 (D.C. Cir. 1999).

1. In requiring State and local governments to

subsidize commercial airlines by interpret-

ing the federal airport grant statute retroac-

tively to impose unstated conditions, did the

Secretary violate the clear statement require-

ment of Pennhurst State Sch. & Hosp. v. Hald-

erman, 451 U.S. 1 (1981)?

2. By forbidding States and other govern-

mental owners of the Nation’s principal air-

ports from using any methodology other

than historical cost in valuing airfield land

provided for airlines’ use, did the Secretary

violate (1) the provisions of the Anti-Head

Tax Act (49 U.S.C. § 40116 et seq.), as inter-

preted by Northwest Airlines v. County of

Kent, 510 U.S. 355 (1994), (2) the Airport and

Airway Improvement Act (49 U.S.C.

§ 47107(a) et seq.), (3) the Federal Aviation

Administration Authorization Act (49 U.S.C.

§ 47129), (4) the Tenth Amendment to the

Federal Constitution, and (5) established

principles of federalism and comity?

li

PARTIES TO THE PROCEEDING

Petitioner Airports Council International—North

America (“ACI-NA”) represents the state and local gov-

ernmental bodies that own and operate the nation’s prin-

cipal airports. ACI-NA was an intervenor in each of the

prior D.C. Circuit appeals, and in the administrative pro-

ceedings below, because of the importance of the issues

presented.

The City of Los Angeles, the City of Los Angeles

Department of Airports and the Los Angeles Board of

Airport Commissioners, who own and operate Los

Angeles International Airport (“LAX”), have also filed a

Petition for a Writ of Certiorari in this matter.

The respondents are the Department of Transporta-

tion, Rodney E. Slater, Secretary of Transportation, and

Patrick V. Murphy, Deputy Assistant Secretary for Avia-

tion and International Affairs. The Air Transport Associa-

tion of America intervened in the underlying litigation

and filed a brief in support of respondents.

ili

TABLE OF CONTENTS

Page

CHUB EMIINS PIRMOMINEED oc cscs ccccccccccccccssccs i

PARTIES TO THE PROCEEDING ...............0.: ii

PORE SEE CORP REUUPIEEEEED 5.60 c ccccccvascacccozesces iv

PE ls cwbdd sed bes sdueecnnwkdscoeat 1

STATEMENT OF BASIS FOR JURISDICTION....... 2

CONSTITUTIONAL AND STATUTORY PROVI-

EE Sass taacdeb ss tedaedeadaacaene 2

UPUREETE GIN BOO GAT os ccc cccnccccccsesces 3

IMPORTANCE OF THE ISSUES PRESENTED....... 12

REASONS FOR GRANTING THE PETITION....... 13

I. The Opinion Below Retroactively Adds New

Conditions to the Federal Grant Statute Con-

trary to Pennhurst State School & Hospital v. Hald-

Se Me UE, CINE onic 6b bed Web ce ob wSKeb ee 14

II. No Deference is Due the Secretary’s Decision

Because it is Contrary to Congress’ Intention

that Airports Charge Reasonable Rental Rates

and Be as Self-Sustaining as Possible.......... 16

III. The Decision Below Violates the Tenth Amend-

ment to the United States Constitution, as well

as Established Principles of Comity and Federal-

DUCE R Ia rilias waas wae 6.4 bee Wkee 64 kena'es en's 21

iv

TABLE OF AUTHORITIES

Page

Cases

Afram Export Corp. v. Metallurgiki Halyps, S.A.,

eee’ Bi Br, Be rrr verrrirr rr riye 9

Air Transp. Ass'n of Am. v. DOT, 119 F.3d 38

Gain RU ROU occ accsavevaccetsaccadaucesbaass 6, 13

Alden v. Maine, 119 S. Ct. 2240, 144 L. Ed. 2d 636

CRUD hcisinksvks heed eukaene rhe s bade wea daes cadens 22

ALPO Petfoods, Inc., v. Ralston Purina Co., 97 F.2d

OEP rn Se Se abd s bass SPA a EE Casi, 9

Bennett v. New Jersey, 470 U.S. 632, 105 S. Ct. 1555,

oe Fr es | rd nr ere 15

City of Los Angeles v. DOT, 165 F.3d 972 (D.C. Cir.),

reh’g denied en banc, 179 F.3d 937 (D.C. Cir.

OPUS dncatenns Kigd ave d wededemeteeesesbae es passim

City of Los Angeles v. DOT, 179 F.3d 937

CE. Si. BN oe ewan seks siete na dediasdpeacess 1

Clinton v. City of New York, 524 U.S. 417 (1998)...... 22

Dickinson v. Petroleum Conversion Corp., 338 U.S.

We Gs 6 is dd bckak oh keg ced eat eabnokieseesatan 13

Los Angeles Dep't of Airports v. DOT, 103 F.3d 1027

Rec a er taco ka wks chakenla s dois wast passim

Maggie v. Zeitz, 333 US. 56 (ISEB) .. 2. ccc cee scence 13

New York v. United States, 505 U.S. 144, 112 S. Ct.

MBG, 120 1. BG: 2G EOD GP vinta sks Five wa cs: 22

Northwest Airlines v. County of Kent, 510 U.S. 355, 114

S. Ct. 855, 127 L. Ed. 2d 183 (1994) ........ 4, 5, 12, 20

Pennhurst State Sch. & Hosp. v. Halderman,

MA WD. TCD oie sew cvewis kK eehdede nen raes hed 14, 15

Vv

TABLE OF AUTHORITIES - Continued

Page

Printz v. United States, 521,U.S. 898, 117 S. Ct. 2365,

Ae Bn, Rs Ue Ue Scns kaki sebkeeas cede 22

Skinner v. Mid-America Pipeline Co., 490 U.S. 212

CRIM Cs 55a Newb d hie eg eNO Td a aS eke NeeeeL eee 21

Virginia Dep't of Ed. v. Riley, 106 F.3d 559 (4th Cir.

SOOO PM ins Gavendexasdexndebcd capita eek 15

CONSTITUTIONAL PROVISIONS

Tenth Amendment to the United States

CII 64-6 0650s eheeecccekecvi es ie 2, 21

STATUTES

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ae UDR Fe a io ee ee 2

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SF SF © Or rn 0a nck dco ecaakce'e cine suckin 14

SO WBE. B OPM le ia Wo inven cbdesecs baceeniw 17

£9 UGA... Hie a bois onbteskekades ei cieas 4

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SP UDA... & SFU 6 ks vice vnencccadexkiiaae. 17

SP UA | Gs 6k 6 kv bin ne Wd Kaden dnceews 5, 16

UD... BO Canes oh cd vivsdesscteiaeamace 5, 17

UDA. FP ies ERS 5

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vi

TABLE OF AUTHORITIES - Continued

Page

USC. App. § ISIDGD). 2. ccccccccccccccscssceess 4, 16

49 US.C. App. § 2210(aX{1) ... 0... cccccccccscccccsces 4

USC. App. & FAIA) oo ccccccsccscccccscccssses 4

REGULATIONS

84 Ce © SOD 6c cccctactnddnatececdasteuseeeee 11

60 Fed. Reg. 6906 (Feb. 3, 1995). .....cccccccccccsccce 5

61 Fed. Reg. 31994 (June 21, 1996) ................... 6

ea

| PETITION FOR A WRIT OF CERTIORARI

Petitioner Airports Council International-North

America respectfully requests that a writ of certiorari

issue to review the decision of the United States Court of

Appeals for the District of Columbia Circuit entered in

this case on February 5, 1999.

S

OPINIONS BELOW

The following are the opinions of the United States

Court of Appeals for the District of Columbia Circuit and

the final decision on remand issued by the Department of

Transportation (“DOT”):

| 1. City of Los Angeles v. DOT, 165 F.3d 972 (D.C.

Cir.) (“LAX II”), reh’g denied en banc, 179 F.3d

937 (D.C. Cir. 1999), reprinted in the Appen-

dix! at la.

2. Final Order on Remand, Los Angeles Int'l

Airport Rates Proceeding and Second Los

Angeles Int'l Airport Rates Proceeding, Dec. 23,

1997 (“Remand Decision”), App. 18a.

3. Los Angeles Dep't of Airports v. DOT, 103 F.3d

1027 (D.C. Cir. 1997) (“LAX I”). App. 79a.

4. City of Los Angeles v. DOT, 179 F.3d 937 (D.C

Cir. 1999) (denying rehearing of LAX II),

App. 109a.

! Citations to “App.” refer to the Appendices attached to

the accompanying Petition for a Writ of Certiorari filed by the

City of Los Angeles.

OO Es ere

STATEMENT OF BASIS FOR JURISDICTION

The D.C. Circuit’s decision in L/ X II was entered on

February 5, 1999. App. la. ACI-NA and the City of Los

Angeles filed timely petitions for rehearing on March 22,

1999. The D.C. Circuit denied those petitions on June 18,

1999. The D.C. Circuit’s jurisdiction was based on 49

U.S.C. § 47129(c)(5), 49 U.S.C. § 46110(a) and 5 U.S.C.

§§ 701-06. This Court's jurisdiction is invoked under 28

U.S.C. § 1254(1).

+

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Tenth Amendment to the United States Constitu-

tion provides: “The powers not delegated to the United

States by the Constitution, nor prohibited by it to the

States, are reserved to the States respectively, or to the

people.”

The relevant portions of the following statutory pro-

visions involved are contained in Appendix B to the

accompanying petition filed by the City of Los Angeles:

49 U.S.C. § 40116

49 U.S.C. § 47107

49 U.S.C. § 47129

49 U.S.C. App. § 1513

49 U.S.C. App. § 2210

STATEMENT OF THE CASE

LAX’s Adoption of Its Compensatory Rates and

Charges Methodology. Operating agreements in effect

for over 25 years between Los Angeles and the airlines

using LAX expired in 1993. J.A. 29.2 Those agreements

required LAX to use a “residual” methodology for calcu-

lating landing fees, whereby the fees covered only the

amount by which LAX’s total expenses exceeded its reve-

nues from all sources other than landing fees. As a result,

the landing fees were subsidized by LAX’s concession

revenues and bore no relationship to the cost of services

and facilities provided to airlines. J.A. 26-27.

Before expiration of the old operating agreements,

Los Angeles retained a leading airport management

consulting firm to reexamine its rates. The firm recom-

mended a “compensatory” or “cost of service” methodol-

ogy by which airlines would be charged for the full cost

of the services and facilities they used. J.A. 30-31. Los

Angeles adopted the recommendation and included in

the landing fee a land rental charge for the use of LAX’s

locally-funded airfield land based on the land’s fair mar-

ket value.

By 1992, the airfield land’s value greatly exceeded its

historical cost. Most of the land had been acquired before

1955, at costs averaging $2,427 per acre. Land acquired

between 1955 and 1976 averaged $204,327 per acre. The

land was conservatively appraised at $150,000 per acre.

After adjustment to exclude land acquired with federal

2 “J.A.” citations to the record below refer to the Joint

Appendix in the D.C. Circuit LAX II appeal.

grants, the annual fair rental charge for the LAX airfield

land was set at $8,348 per acre. J.A. 35.

Statutes Affecting Reasonable Airport Rates and

Charges. Two federal statutes addressing airport charges

to airlines were in effect in 1993: (1) The Anti-Head Tax

Act (“AHTA”), 49 U.S.C. App. § 1513(b) (subsequently

recodified at 49 U.S.C. § 40116(e)(2)), which prevented

the imposition of head taxes on airline passengers and

specifically authorized State and local government pro-

prietors to charge “reasonable rental charges, landing fees,

and other service charges from aircraft operators for the use

of airport facilities” (emphasis added); and (2) The Airport

and Airway Improvement Act (“AAIA”), 49 U.S.C. App.

§ 2210(a) et seq. (subsequently recodified at 49 U.S.C.

§ 47107(a)(13)(A)), which contained a grant condition

requiring airports receiving grants to make airport facili-

ties available “on fair and reasonable terms.” The AAIA

also expressly provided that airports “must maintain a

fee and rental structure for the facilities and services

being provided the airport users which will make the

airport as self-sustaining as possible .... ” Id.

§ 2210(a)(9).

In Northwest Airlines v. County of Kent, 510 U.S. 355,

114 S. Ct. 855, 127 L. Ed. 2d 183 (1994), this Court upheld

Kent County’s use of a compensatory methodology in

setting rates and rejected the airlines’ attempt to require

“cross-crediting” of non-airline revenues to pay the cost

of aeronautical facilities. The Court held that an airport

charge is reasonable “if it (1) is based on some fair

approximation of use of the facilities, (2) is not excessive

in relation to the benefits conferred, and (3) does not

a

discriminate against interstate commerce.” 510 U.S. at

369.3

On August 23, 1994, Congress enacted the Federal

Aviation Administration Authorization Act (“FAAAA”)

providing an expedited procedure for resolving airport-

airlines rate disputes and directing the Secretary of Trans-

portation to establish guidelines for determining the rea-

sonableness of airport fees. 49 U.S.C. § 47129(b)(2).

Congress expressly affirmed that airports may use com-

pensatory methodologies. Id. § 47129(a)(2). The statute

also noted that the Secretary may only determine whether

the fee is reasonable and “shall not set the level of the

fee.” Id. § 47129(a)(3). Congress expressed no intention of

overruling Kent County.

The Rates & Charges Policy. The Secretary’s 1995

Policy Regarding Airport Rates & Charges provided that

“{alirport assets included in the rate base must be valued

according to their historic cost to the original airport

proprietor.” 60 Fed. Reg. 6906, 6917 (Feb. 3, 1995). It also

provided that for “facilities other than airfield facilities

and land, an airport proprietor may use valuation meth-

odologies other than historic cost valuation . . . so long as

total aeronautical revenues do not exceed the total costs

(based on historic costs) included in the aeronautical rate

base ....” Id. § 2.4.1(a).

* The Court noted that the Secretary of Transportation may

adopt a more rigorous standard providing that such standard

represents “a permissible construction of the statute.” 510 U.S.

at 368 n.14.

After soliciting additional comments regarding the

Policy, the Secretary adopted his Final Policy Regarding

Airport Rates and Charges, 61 Fed. Reg. 31994 (June 21,

1996). Despite an outpouring of criticisms of the historical

cost requirement, the Final Policy retained the require-

ment for valuing airfield land assets. The Policy did,

however, allow airports to base other aeronautical fees on

methodologies other than historical cost, including fair

market value.

Subsequently, on appeal, in Air Transp. Ass’n of Am. v.

DOT, 119 F.3d 38 (D.C. Cir. 1997), the D.C. Circuit vacated

portions of the Final Policy, including the airfield histori-

cal cost requirement. The D.C. Circuit criticized DOT’s

justifications for the Final Policy’s requirement that air-

field assets be valued at historical costs and held that

DOT had not justified the use of two different standards

for valuing aeronautical assets — historical costs for air-

field assets and “any reasonable methodology” for non-

airfield assets. 119 F.3d at 44. The Secretary has not yet

adopted replacement provisions for the vacated portions.

The Airlines’ Challenge and Los Angeles’

Response. Immediately after issuance of the 1995 Policy,

a group of airlines operating at LAX filed an Amended

Complaint with DOT seeking to invalidate the 1993 fees.

The airlines alleged that the fair market value-based land

rental charge violated DOT’s Policy and that the histori-

cal cost requirement was required by existing law and

generally accepted accounting principles. J.A. 272. The

airlines did not challenge the appraisal on which the land

rental charge was based. App. 91a-92a.

Los Angeles responded that existing law fully sup-

ported the use of fair market value, that airlines had long

paid fair market value in leasing land used for aircraft

maintenance, cargo and terminal facilities at LAX, and

that sound economic considerations supported that meth-

odology. The City submitted declarations of Michael

Brown, an airport expert, and three renowned econo-

mists, Professors Ferdinand Levy and Kenneth Arrow (a

Nobel Laureate) and Dr. Frederick Warren-Boulton (a

regulatory economist), explaining why historical cost val-

uation, particularly without any rate of return, made no

sense. They pointed out:

¢ Land, unlike depreciable assets, generally

appreciates. As a result, over time, the land’s

historical cost becomes an increasingly

smaller fraction of its fair market value.

Requiring the use of historical cost to value

airfield land provides a subsidy to commer-

cial air carriers.

¢ The historical cost requirement ignores the

opportunity cost associated with providing

the airfield land for the airlines’ use, which

opportunity cost is measured as the value of

the land in its next best use. It also ignores

such basic economic realities as inflation. The

use of fair market value is a tool to achieve

an efficient allocation of resources.

¢ The goal of regulation is to mirror prices set

in a competitive market. Price in a competi-

tive market equals opportunity cost. Even in

regulated industries such as utilities (where

the regulatory agency has the power to set

the fee) the use of historical cost valuation is

always coupled with an allowed reasonable

rate of return (for which DOT’s Policy does

not provide).

e The use of historical cost without an allowed

rate of return could not possibly comply with

the Congressional requirement that airports

be as self-sustaining as possible. See J.A.

35-38, 77-93.

After a hearing before an Administrative Law Judge,

the Secretary determined that Los Angeles’ land charge

was unreasonable because it was not based on the histori-

cal cost of the land. Although the Secretary’s Final Deci-

sion referred to the Policy dozens of times, it concluded

that the use of historical costs was required by existing

law: “[W]e are construing an existing legal requirement,

not creating a new one.” J.A. 508. The Secretary did not

address the substantial economic arguments and evi-

dence against the historic cost requirement that Los

Angeles presented.

While the ALJ had concluded that Los Angeles could

charge a fee for the rental of the LAX land based on its

historical cost, the Secretary decided that, with the excep-

tion of a small amount of debt service remaining,* LAX

could not assess any land rental charge because LAX had

paid the debt service on the historical cost of the land

while operating under the residual agreements. J.A. 505,

510-11.°

4 At the time of the Secretary’s final decision a small

amount of debt service relating to the acquisition of the land

remained to be paid.

> The ALJ determined that the landing fees paid under the

residual agreements did not pay for the debt service on the land.

Ai,

The D.C. Circuit’s Conflicting LAX I and LAX II

Decisions. In Los Angeles Dep't of Airports v. DOT, 103

F.3d 1027 (D.C. Cir. 1997) (“LAX I”), the Circuit reversed

and remanded the Secretary’s Final Decision, concluding

that the Secretary had a “fundamental misunderstanding

of the governing law.” App. 90a. It observed that this

Court has never “held that historic cost represents the

only true measure of cost and the Secretary points to no

law, regulation, or agency decision to that effect.” App.

89a. The Circuit also explained that regulatory agencies

and economists have recognized opportunity costs.® It

concluded that nothing in existing law prescribed “an

accounting, rather than an economic conception of cost in

airport ratemaking,” and the existing law did not require

the use of any “single formula” in airport ratemaking.

App. 89a-90a.7

J.A. 459. The airlines “could not say that landing fees paid the

airline costs associated with the airfield and apron... . In fact,

landing fees did not cover the airlines’ portion of the airport’s

operating and maintenance expenses.” J.A. 460 n.4.

6 Opportunity costs, such as the costs of foregoing

alternative uses of property, have been widely recognized by

courts, economists and regulatory agencies. See, e.g., LAX I, 103

F.3d at 1032; ALPO Petfoods, Inc. v. Ralston Purina Co., 997 F.2d

949, 954 (D.C. Cir. 1993); Afram Export Corp. v. Metallurgiki

Halyps, S.A., 772 F.2d 1358, 1369 (7th Cir. 1985) (“[C]ourts now

understand that an opportunity cost is a real cost.”)

7 Attempting “to avoid a useless round of litigation” the

Circuit rejected DOT’s other rationales for requiring the use of

historical cost, noting that other airports’ use of historical cost

did not demonstrate that historic cost “is uniquely indicated

under a compensatory regime.” It also rejected DOT’s

contention that it is easier to value land on the basis of its

historical cost than its fair market value. App. 91a-93a.

10

On remand, ACI-NA urged DOT not to strain to find

an alternative basis to require the use of historical cost to

the exclusion of all other methods of valuing airfield

land. DOT had repeatedly concluded, in both the LAX

litigation and in several versions of the Policy, that air-

field land must be valued at historical cost, even though

the law did not require its use, and there was no evidence

in the record that LAX’s fair market value based charge

was unreasonable. The Secretary nevertheless embraced

two arguments that the airlines had made unsuccessfully

in LAX I: (1) federal grant assurances requiring LAX to

operate as an airport meant that LAX had no opportunity

cost to use the land in any other use, and, therefore, LAX

was required to use historical cost valuation; and (2) the

benefits to Los Angeles from operating LAX as an airport

outweighed any opportunity cost. App. 38a, 5la-52a.

In City of Los Angeles v. DOT, 165 F.3d 972 (D.C. Cir.),

reh’g denied en banc, 179 F.3d 937 (D.C. Cir. 1999) (“LAX

II”), a different panel of the Circuit upheld the Secretary’s

historical cost requirement. Contrary to LAX I, the LAX II

panel accepted the airlines’ grant assurance and benefits

arguments. The panel concluded that limiting the airport

owner to recovery of historical cost was justified because,

as a result of its agreement to the grant condition that

LAX be available for public use as an airport, Los

Angeles has no opportunity to use its locally-funded land

for any purpose other than an airport. App. 10a-1la. LAX

II also upheld the Secretary’s conclusion that LAX’s fee is

unreasonable because it is “covered” by the “benefits”

Los Angeles receives from having an airport. App. 13a.

The Circuit’s Opinions on Rehearing. The opinions

on rehearing were sharply divided. The concurrence

11

upheld DOT’s decision, citing a deferential standard of

review, although it acknowledged that economists would

reach a different result. App. 110a-111a. The dissent made

clear that “the agency cannot reject opportunity cost - or

any other reasoned proposal offered by a party — without

some reason.” App. 113a.° The dissenters concluded that

DOT’s notion that opportunity costs are inapplicable if

the owner of a resource is contractually obligated to use it

for a specified purpose is a “non-sequitur,” and that the

determination that the grant assurances required the use

of historical cost made no sense. The dissent also found

incomprehensible the LAX II panel’s acceptance of DOT’s

conclusion that the fee was unreasonable because the

economic benefits of the airport to the City “covered” the

opportunity cost of the land. App. 114a-116a.?

¢

§ The concurring opinion erroneously stated that the

distinguished economists who had given declarations in the

original proceeding never appeared on remand. In fact, the

Secretary, with the parties’ concurrence, determined not to

receive new evidence on remand. J.A. 670-71. The declarations

of Prof. Levy and Dr. Warren-Boulton (who made the same

points Prof. Arrow had made) however, were part of the remand

record as well as the record on appeal. See J.A. 77-86, 87-93.

% The grant assurance and benefit arguments are not even

mentioned in the Secretary’s Final Decision following the

proceeding before the ALJ. See J.A. 578-637. It was only on

appeal that these arguments were made, in violation of DOT’s

rule that the airlines’ entire grounds and evidence for

challenging the fees were required to be set forth in their

complaint. 14 C.F.R. § 302.605.

12

IMPORTANCE OF THE ISSUES PRESENTED

State and local governments that own and operate

the Nation’s principal airports depend on rates and

charges imposed on airlines and other users of aeronauti-

cal facilities to fund operations, maintenance, improve-

ments and developments. Forbidding airport proprietors

from using fair market valuation of airfield land in calcu-

lating such rates and charges thwarts the will of Congress

expressed in the AHTA, AAIA and FAAAA, cannot be

reconciled with this Court’s decision in Northwest Airlines

v. County of Kent, 510 U.S. 355 (1994), and creates unnec-

essary collisions with the Constitution and established

principles of comity and federalism.

The issues presented are of vital importance to air-

ports, to the Nation’s air transportation system and to

interstate and international commerce.

As established by the record in this case, the decision

below gives the airlines the use of LAX’s extremely valu-

able airfield land for no charge — thereby subsidizing

commercial airlines at the expense of State and local

governments. The decision below severely threatens the

ability of those governments to meet the Nation’s airport

development needs in the 21st Century.

S

13

REASONS FOR GRANTING THE PETITION

LAX I and Air Transp. Ass'n of Am. v. DOT, 119 F.3d 38

(D.C. Cir. 1997) are in conflict with LAX II. In the former

two cases, Circuit panels twice rejected the Secretary's

determination that airfield land rental charges must be

based solely on the historical cost of the land. LAX II

reaches the opposite decision without any reasoned

explanation for doing so. It upholds an interpretation of

the applicable statutes in a manner that is contrary to

Congress’ expressed intent by relying on deference to the

Secretary's arbitrary decision.

The intracircuit conflict in the District of Columbia

Circuit should be of as much concern to this Court as

intercircuit conflict is in other cases interpreting and

applying federal law because of the pivotal role that the

D.C. Circuit plays in reviewing Secretarial decisions and

those of federal administrative agencies.'°

LAX II does not explain why LAX land must be

valued at historical cost. Nor does it explain why State

and local governmental entities are required to provide

such valuable locally-funded facilities for the use of

profit-making air carriers without any charge, or why any

deference should be accorded a decision of the Secretary

that impermissibly adds new conditions to federal grant

assurances. Freezing land values based on inapplicable

grant provisions is every bit as unlawful and arbitrary as

10 Cf. Dickinson v. Petroleum Conversion Corp., 338 U.S. 507,

508 (1950) (in which the Court granted certiorari to resolve

intracircuit conflict); Maggie v. Zeitz, 333 U.S. 56, 59-60 (1948)

(same).

14

were the arguments to support historical costs previously

advanced and rejected.

I. The Opinion Below Retroactively Adds New Condi-

tions to the Federal Grant Statute Contrary to Penn-

hurst State School & Hospital v. Halderman, 451 U.S.

1 (1981).

The two provisions of the AAIA grant conditions on

which the Secretary relies'' cannot be construed to

prohibit the use of fair market valuation. They in no way

suggest that grant recipients will be prohibited from

charging fair market value-based rental charges for the

use of locally-funded facilities, much less that they will

be required to provide such facilities for the airlines’ use

without charge.!?

Pennhurst held that new conditions cannot be added

retroactively to grant assurances. The Court explained

that federal funding legislation is “much in the nature of

a contract: in return for federal funds, the States agree to

1 Section 47107(a)(1) states that the airport will be made

available for public use on reasonable conditions; section

47107(a)(16) states that the Secretary must approve

modifications to the airport layout plan.

12 Absent a clear expression of congressiona! intent, the

interpretation of the word “reasonable” in the AAIA cannot be

different from the interpretation of that word in the AHTA. The

legislative history of the AAIA contains no suggestion that

Congress intended the word to have different meanings in the

two acts. The LAX |! panel expressly decided that the word

“reasonable” in the AHTA does not preclude the use of fair

market value or any other methodology. LAX II holds that

“reasonable” in the AAIA precludes the use of fair market

value.

5 A

15

comply with federally imposed conditions.” 451 U.S. at

17. The Court said:

There can, of course, be no knowing acceptance

if a State is unaware of the conditions or is

unable to ascertain what is expected of it.

Accordingly, if Congress intends to impose a

condition of the grant of federal moneys, it must

do so unambiguously. [Citations omitted.] By

insisting that Congress speak with a clear voice,

we enable the States to exercise their choice

knowingly, cognizant of the consequences of

their participation.

Id.; see also Bennett v. New Jersey, 470 U.S. 632, 640-41, 105

S. Ct. 1555, 84 L. Ed. 2d 572 (1985).

The decision below is in conflict with the Fourth

Circuit’s decision in Virginia Dep't of Ed. v. Riley, 106 F.3d

559 (4th Cir. 1997). In its en banc decision, the Fourth

Circuit properly recognized Pennhurst’s requirement that,

in placing conditions upon States’ receipt of federal

funds, Congress must have affirmatively imposed the

condition in “clear and unmistakable statutory terms.”

106 F.3d at 562-63.

Contrary to the decision below, local governments

never agreed retrospectively to give up their rights to

recover fair market value-based charges for using locally-

funded airfield land. Heretofore, no court or agency deci-

sion has ever interpreted the grant conditions — in effect

for over seventeen years — to’ have any such effect.

If Congress had intended that States and local gov-

ernments contribute their funds to airport assets, such as

land, without being able to recover anything more than

16

the assets’ historical costs, Congress would have clearly

said so. It did not.

The panel below rejected the arguments advanced by

the petitioners, stating that “we do not view the Depart-

ment’s reasoning as adding new conditions to the grant.

Rather, the Department focused on a consequence of an

unambiguously imposed condition — that the airport

would be kept open for public use — that was present

from the outset.” App. 13a. The panel did not and cannot

explain how forbidding the use of fair market valuation is

relevant to keeping airports open or maintaining layout

plans. Under no stretch of the imagination can it be said

that States agreeing to accept Federal grants would have

been cognizant of such a consequence of their participa-

tion.

II. No Deference is Due the Secretary’s Decision

Because it is Contrary to Congress’ Intention that

Airports Charge Reasonable Rental Rates and Be as

Self-Sustaining as Possible.

In the AHTA, Congress expressed its intention that

State and local governmental proprietors of airports may

charge reasonable rental charges and landing fees from

aircraft operators. 49 U.S.C. at § 1513(b). After this Court

upheld the use of the compensatory methodology for

landing fees, Congress reaffirmed that fees “may be cal-

culated pursuant to either a compensatory or residual fee

methodology or any combination thereof.” 49 U.S.C.

§ 47129(a)(2). The compensatory methodology allows

proprietors to recover the full costs of the facilities pro-

vided for the airlines’ use. LAX I rejected the airlines’

17

argument for historical accounting costs rather than eco-

nomic costs, observing that nothing in the existing law

prescribed “an accounting rather than an economic con-

ception of cost in airport ratemaking.” App. 90a.

The decision below forecloses LAX from charging

airlines anything for its most valuable asset - its airfield

land. However, Congress was explicit that State and local

governments are not to provide airlines free use of air-

port facilities, and it expressly forbade the Secretary from

setting the level of the fees. 49 U.S.C. § 47129(a)(3). The

panel’s decision below disregards Congress’ specific

direction that airports must charge fees “that will make

the airport as self-sustaining as possible under the

circumstances existing at the airport.” 49 U.S.C.

§ 47107(a)(13). The panel’s conclusion also disregards the

grant assurance requirement thai if grant-acquired land is

no longer needed for an airport, the owner “will dispose of

the land at fair market value or make available to the

Secretary an amount equal to the Government's propor-

tional share of the fair market value. . .. ” Id.

§ 47107(c)(2)(B)(i) (emphasis added).!5 The Secretary had

no discretion to add any new condition to the grants, and

no deference to his decision should have been given by

the panel below.

The Secretary was not at liberty to foreclose fair

market valuation of land used for airports and to man-

date the use of historical costs because the result is an

13 Nothing in the grant assurances suggests that Congress

intended to require Jocally-funded land to be valued at historical

cost while requiring federally-funded land to be valued at fair

market value.

18

absurdity that Congress never intended. Valuable facili-

ties the historical cost of which has already been paid, but

which have significant remaining life, would thereby

have to be provided to the airlines without charge. Air-

ports must rely on fair market value-based charges for

the use of such facilities to sustain the financial integrity

of airports — as Congress has required. By mandating the

use of historical costs without providing an accompany-

ing rate of return, the opinion below has thereby insured

that prices will be below competitive market prices. No

rational basis exists for requiring such a result.

The LAX I panel properly recognized that regulation

is based on economic concepts, including the principle of

opportunity costs. An opportunity cost is incurred when

an alternative is foregone. That Los Angeles agreed to

operate LAX as an airport for a period of years (and thus

to forego alternative uses of the land) simply demon-

strates that it has in fact incurred an opportunity cost.

The LAX II panel plainly misapprehended not only the

principle of opportunity cost, but also the goal of regula-

tion, which is to mirror prices set in equilibrium in a

competitive market. See J.A. 79, 91-93.

The LAX II panel’s benefit theory is as untenable as

would be a decision that owners of airport hotels must

rent rooms to airline personnel at rates based solely on

the land acquisition costs at the time the hotel was

erected because the hotel owners benefit from airlines.

Yet, without even waiting for the ink to dry on the

decision below, the airlines have now argued to the Secre-

tary that the fees for other non-airfield aeronautical facili-

ties (terminals, hangars, cargo facilities, etc.) - which

airports have long valued at fair market value without

19

complaint by airline users - are unreasonable because

they are outweighed by the benefits that the City derives

from the airport. The derived benefits rationale does not

even consider the benefits that cities and airports provide

to airlines, nor does it consider the cost of airline opera-

tions borne by the surrounding communities (such as

environmental and noise costs, traffic and roadway

expenses, etc.).!4

A similar derived benefits rationale was rejected by

this Court in the Kent County case, in which the Court

declined to require “cross-crediting.” The airlines argued

in that case that fees received by an airport from its

concessionaires should be used to reduce airline charges

because concessionaires benefit from airline operations.

Passengers choose air travel because they wish to go

some place. The airlines are the primary recipient of the

derived benefit because it is the cities with their specific

attributes that attract air commerce. Under the derived

benefit logic, if all economic players were required to

share profits based on the benefits they confer on each

other, the airlines would have to share their profits with

cities because the cities are the significant factor in creat-

ing a market for the airlines.

Under the panel’s rationale, any cost of an airport

could be said to be “covered” by the benefits derived

from having an airport. That theory would apply equally

14 In an interdependent economy, all entities benefit in one

manner or another from the activities of other entities. The gas

station on the corner near Camden Yards benefits from baseball,

but it is not required to pay for that benefit. The airlines benefit

from Disneyworld, but do not pay Disney for it.

ag

20

to historical costs. For example, the airlines could con-

tend that the costs of repairing potholes in the runways is

more than offset by the benefit the city receives from the

airport and, thereby, the airlines would receive yet

another subsidy from airport proprietors.

Taken to its logical conclusion, the benefits argument

could prevent airports from charging landing fees at all,

depending on a hypothesized benefit provided to the

residents and businesses of sponsor cities.1° The LAX II

panel notes that DOT has not entirely prevented airports

from charging landing fees. 165 F.3d at 979 n.4. The panel

has not addressed the logical flaw exposed by the point,

however. It is not rational to base a determination of

reasonableness of a fee on whether it is “covered” by

some other benefit.16 Moreover, DOT has decided that

LAX cannot charge anything for the use of the LAX

airfield land.

i OE AAT Isa Sie te

15 Congress plainly did not intend such a result when it

expressly authorized airports to charge air carriers “reasonable

rental charges” ‘or the use of airport facilities. If Congress had

intended the derived benefits to offset reasonable rental

charges, Congress would have added the proviso “unless the

charge is outweighed by the benefits airport sponsors receive

from the airport” at the end of the authorization language.

16 The Court’s definition of reasonableness in Kent County

considered the fee in relation to the benefits conferred on the

user for the use of the facility (i.e., whether the landing fee is

reasonable in relation to the benefits the airlines receive from

their use of the airfield) not the benefits that other airport users

or the city derives from the airport. 510 U.S. at 367-39.

21

Ill. The Decision Below Violates the Tenth Amend-

ment to the United States Constitution, as well as

Established Principles of Comity and Federalism.

By requiring that State and local governments pro-

vide commercial air carriers use of airport facilities at

rates and charges substantially below fair market value

(or, in circumstances such as those at LAX where the

historical costs of airport facilities supposedly have been

recovered, at no charge at all), the decision below violates

the Tenth Amendment.

Through the mandated subsidy, the DOT is effec-

tively taxing those governments in the amount of the

congressionally-authorized reasonable fees that they are

expressly entitled to charge. Although congressional

taxing powers may be delegated to the Executive Branch

under some circumstances (see Skinner v. Mid-America

Pipeline Co., 490 U.S. 212, 218-223 (1989)), Congress has

never authorized the Secretary to require State and local

governments to subsidize commercial air carriers. The

airlines were unable to persuade Congress to require

federal subsidization; no basis exists upon which DOT

may require State and local government subsidization of

airlines.

DOT’s unlawful use of Congressional power violates

fundamental principles of federalism — the counterpart to

separation of powers that serves as a safeguard for politi-

cal accountability and the protection of liberty. Clinton v.

City of New York, 524 U.S. 417, 141 L. Ed. 2d 393, 421-23,

118 S. Ct. 2091, 2109-10 (1998). DOT is seeking to impose

its requirement that State and local government airport

proprietors subsidize commercial air carriers, without

22

any control by the citizens’ congressional representatives.

As this Court explained in Clinton, separation of powers

not only operates on a horizontal axis to secure a proper

balance of legislative, executive and judicial authority,

but “operates on a vertical axis as well, between each

branch and the citizens in whose interest powers must be

exercised.” Id. 141 L. Ed. 2d at 422-23, 118 S. Ct. at 2110.

The States of the Union are sovereign entities that

must have a continuing “active participation in the fun-

damental processes of governance.” See Alden v. Maine,

144 L. Ed. 2d 636, 653, 119 S. Ct. 2240, 2247 (1999).

Consistent with those fundamental principles of federal-

ism, this Court held in New York v. United States, 505 U.S.

144, 120 L. Ed. 2d 120, 112 S. Ct. 2408 (1992), that Con-

gress may not “commandeer{ ] the legislative processes of

the States by directly compelling them to enact and

enforce a federal regulatory program.” 505 U.S. at 176; see

also Printz v. United States, 521 U.S. 898, 935, 117 S. Ct.

2365, 138 L. Ed. 2d 914 (1997) (“Federal Government may

neither issue directives requiring the States to address

particular problems, nor command the States’ officers, or

those of their political subdivisions, to administer or

enforce a federal regulatory program . . . [as] such com-

mands are fundamentally incompatible with our constitu-

tional system of dual sovereignty.”).

Neither the Environmental Protection Agency in New

York v. United States, nor the Department of Justice in

Printz v. United States, could enforce federal legislation

found to be unconstitutional because it constituted fed-

eral “commandeering” of the legislative process of the

States. DOT cannot do so either.

ss i

23

The Secretary’s decision has intruded impermissibly

on the sovereign powers of State and local governments

by requiring them to use their legislative and executive

powers to subsidize airlines. DOT has attempted to jus-

tify this intrusion on remand by embracing arguments

not even mentioned in the Secretary’s decision below

prior to the LAX I appeal, and by retroactively adding

new conditions to federal grant statutes — conditions to

which the State and local governments accepting federal

grants plainly did not agree. DOT has also attempted to

circumvent clear statutory expressions of Congressional

intent, all in an effort to justify a historical cost require-

ment for which the LAX I panel concluded there was no

basis in existing law. DOT is forbidden to commandeer

State and local governments to achieve DOT's policy,

especially where DOT is acting in defiance of the

expressed will of Congress.

%

24

CONCLUSION

For all the foregoing reasons, Petitioner ACI-NA, on

behalf of the State and local government proprietors of

the Nation’s principal airports, urges that this Court

grant this petition to decide the issues of great national

importance presented by this case.

Dated: September 14, 1999

Respectfully submitted,

SHIRLEY M. HursTeDLeR

Counsel of Record

ANTHONY L. PRess

ARNOLD BARBA

Morrison & Foerster LLP

555 West Fifth Street, Suite 3500

Los Angeles, CA 90013-1024

(213) 892-5200

Patricia A. HAHN

General Counsel

Airports Council

International—North America

1775 K Street, N.W.

Washington, D.C. 20008

(202) 293-8500

Attorneys for Petitioner

Airports Council

International—North America