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Alaska Airlines, Inc. v. United States Dep't of Transportation

August 7, 2009


On Petitions for Review of Orders of the Department of Transportation, National Transportation Safety Board.

The opinion of the court was delivered by: Ginsburg, Circuit Judge

Argued December 11, 2008

Before: GINSBURG, GARLAND, and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

Various airlines asked the Department of Transportation (DOT) to declare unlawful certain of the methods used by the City of Los Angeles to calculate the rental rates they pay for terminal space at Los Angeles International Airport (LAX). Both the City and the airlines petition for review of the DOT's Final Decision, Alaska Airlines v. Los Angeles World Airports, Docket No. OST-2007-27331, 2007 DOT Av. LEXIS 437 (Jun. 15, 2007) (Final Decision). We grant each petition in part, deny each petition in part, and remand the matter to the DOT for further proceedings.

I. Background

The airline petitioners (T1/T3 Airlines) rent space in Terminals 1 and 3 at LAX. The City charges the airlines a "base rent" for their terminal space plus a share of the airport's maintenance and operation (M&O) costs. Each airline's base rent and M&O charges are determined in part by multiplying a fee per square foot by the amount of terminal space the airline occupies; an airline's rent may change, therefore, if the City changes either the fee per square foot or the way in which it calculates the amount of terminal space occupied by the airline. When the leases of the T1/T3 Airlines expired and negotiations over new lease terms reached an impasse, the City, seeking increased rental payments to offset increased security costs and to pay for planned airport improvements, adopted a new methodology, increasing both the fee per square foot and the amount of terminal space attributed to each airline.

The new methodology introduced three changes here relevant. First, the City increased M&O charges for all airlines operating out of LAX, including not only the T1/T3 Airlines but also airlines with leases that had not expired. Second, the City changed the formula for calculating the T1/T3 Airlines' rent. Under the "useable space" formula previously employed, the City had multiplied the rental fee by the amount of space used exclusively by each airline. Under the new "rentable space" formula, the City allocated to each of the T1/T3 Airlines a share of the terminal's common areas, such as corridors and stairwells, thus increasing its square footage and hence its base rent. Finally, the City newly based the fee per square foot for the T1/T3 Airlines upon the "fair market value" (FMV) of the space, whereas under the expired contracts, the rental fee had been based upon the "historical cost" of the space.

Airlines in other terminals continue to pay rent based upon the historical cost of useable space; the City is unable to impose its new methodology upon these carriers because they have long-term leases, entered into in the 1980s and still in effect. The City nonetheless increased those airlines' M&O charges, but after the airlines filed suit, ultimately settled for a lesser increase.

The T1/T3 Airlines complained to the DOT that the new charges imposed by the City were unreasonable and, as compared with the charges paid by airlines using other terminals, unjustly discriminatory. The DOT assigned the matter to an Administrative Law Judge, who recommended the DOT rule in favor of the T1/T3 Airlines in most respects. Recommended Decision of U.S. Administrative Law Judge Richard C. Goodwin, Docket No. OST-2007-27331 at 77-78 (Dep't of Transp. May 15, 2007). The DOT rejected much of the ALJ's recommendation and held: (1) The increase in M&O charges was reasonable and non-discriminatory; (2) the rentable space methodology unjustly discriminated against the T1/T3 Airlines; and (3) the City may use fair market value rather than historical cost in setting terminal fees but the particular method it used was unreasonable as applied to the T3 Airlines; because the T1 Airlines did not file a separate written complaint with the Secretary of Transportation within the time required by statute, the DOT did not consider whether the fair market value method was unreasonable as applied to them. Final Decision, 2007 DOT Av. LEXIS 437, at *1.

Both the T1/T3 Airlines and the City petition for review of the Final Decision. The T1/T3 Airlines argue (1) the increase in M&O fees is unjustly discriminatory; (2) it was unreasonable for the City to use fair market value but, if the City was permitted to use fair market value, then the DOT should have decided whether its use was unreasonable as applied to the T1 as well as the T3 Airlines; and (3) the DOT erred by declining to consider whether LAX has monopoly power. For its part, the City argues (1) the DOT should not have considered whether the M&O fee increase was unreasonable; (2) the method it used to determine fair market value was reasonable; and (3) the rentable space methodology does not unjustly discriminate against the T1/T3 Airlines because they are not entitled to the benefits for which the airlines with long-term leases bargained.

II. Analysis

This case arises under 49 U.S.C. § 47129(a)(1), which provides that, upon written request, the DOT "shall issue a determination as to whether a fee imposed upon one or more air carriers ... is reasonable." To approve of a fee increase, the DOT must have "receive[d] written assurances ... that ... air carriers making similar use of the airport will be subject to substantially comparable charges." 49 U.S.C. § 47107(a)(2). The DOT's "findings of fact are conclusive if supported by substantial evidence; and we will affirm [its] decision unless it is arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law." City of Los Angeles Dep't of Airports v. DOT (LAX I), 103 F.3d 1027, 1031 (D.C. Cir. 1997) (internal citations omitted).

We begin by considering the challenges to the M&O fee increase. Next, we turn to the DOT's assessment of the City's use of FMV. We then determine whether the DOT erred in holding the City's rentable space methodology was discriminatory. Finally, having analyzed the DOT's treatment of particular aspects of the City's new methodology for calculating rent, we consider the airlines' overarching objection to the DOT's analysis, namely that the agency should have considered whether LAX has monopoly power in a relevant geographic market.

A. M&O Charges

Although the DOT held the M&O fee increase was reasonable, the City petitions for review on the ground that, because the increase was imposed "pursuant to a written agreement with air carriers using the facilities of an airport," 49 U.S.C. § 47129(e)(1), the DOT did not have the authority to determine whether it was reasonable. The agreements to which the City refers are the T1/T3 Airlines' leases, which had expired, and pursuant to which the T1/T3 Airlines were occupying terminal space as holdover tenants upon a month-to-month basis. According to the City, the continuing application of the expired leases and the City's reliance upon the clauses in each allowing for "adjustment" of the M&O rent deprives the DOT of authority to review the reasonableness of the increase. The DOT, however, held the "written agreement" exception did not apply because "[a] standard or boilerplate 'holdover' agreement, creating a tenancy at will on a month to month basis, subsequent to lease expiration, does not constitute the type of written agreement that forecloses a § 47129 proceeding." Final Decision, 2007 DOT Av. LEXIS 437, at *104.

The T1/T3 Airlines challenge neither the DOT's authority nor the reasonableness of the increased M&O charge but rather argue the result of the increase was unjustly discriminatory vis-à-vis other airlines at LAX, in violation of 49 U.S.C. § 47107(a)(2). The City nonetheless disputes the DOT's decision that the "written agreement" exception did not apply "because," it says, it fears "the future effects of [the] incorrect ruling." Because the airlines do not challenge the decision under 49 U.S.C. § 47129, there is no case or controversy as to whether the "written agreement" exception applies; even if we held the DOT lacked authority to consider the reasonableness of the increase in M&O charges, that holding would not have any effect on the charges. Because "no justiciable 'controversy' exists when parties ... ask for an advisory opinion," Mass. v. EPA, 549 U.S. 497, 516 (2007) (citing Hayburn's Case, 2 U.S. (2 Dall.) 409 (1792)), we cannot decide the question presented by the City.

We reject the T1/T3 Airlines' argument that the increase in M&O fees was unjustly discriminatory. As of the date of the Final Decision, all airlines operating out of LAX were paying the increased M&O fees. At some time between that date and the filing of the T1/T3 Airlines' petition for review, the City and the airlines operating out of the other terminals agreed, in settlement of their dispute, to a lesser increase in the M&O fee. Although the DOT could not have foreseen the outcome of that litigation, the T1/T3 Airlines argue the Department should ...

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