February 2009

From the editors of CCH's Transportation products, here are summaries of the important recent developments in the area for the past month.  Complete coverage of these issues, and many more, appear in our print and electronic products, including: Aviation Law Reporter, Commercial Aircraft Transactions, Issues in Aviation Law and Policy, Federal Carriers Reporter, Federal Motor Carrier Safety Administration Decisions, and Motor Carrier Liability.

If you have comments or suggestions concerning the information provided or the format used, please feel free to contact me directly at aaron.broaddus@wolterskluwer.com.

Hot Topic

Long-Term FAA Funding Bill Introduced
Legislation to reauthorize the Federal Aviation Administration for four years was introduced in the U.S. House of Representatives on February 9 by Transportation and Infrastructure Committee Chairman James L. Oberstar (D-Minn.) and Aviation Subcommittee Chairman Jerry F. Costello (D-Ill.). The Federal Aviation Administration Reauthorization Act of 2009 (H.R. 915) would deliver nearly $70 billion in FAA funding for Fiscal Years 2009 through 2012, and would provide historic funding levels for the agency’s capital programs—including $16.2 billion for the Airport Improvement Program, nearly $13.4 billion for FAA Facilities and Equipment, and $1.35 billion for Research, Engineering, and Development. Another $38.9 billion would be provided for FAA Operations over the next four years.

To aid in the effort to make the nation’s skies safer, the legislation would increase the number of aviation safety inspectors, require FAA to inspect all certificated foreign repair stations twice each year, as well as provide funding for runway incursion reduction programs and runway status light installation. H.R. 915 also calls for a study on pilot fatigue and would direct FAA to implement long-overdue occupational health standards to ensure crewmember safety. In addition, the bill would create an independent Aviation Safety Whistleblower Investigation Office within FAA that would be charged with receiving safety complaints and information submitted by FAA employees/employees of certificated entities, investigating them, and recommending appropriate corrective actions.

The measure would help FAA modernize its operations, encouraging close cooperation between the Joint Planning and Development Office (JPDO) and FAA to ensure that the agency’s existing modernization program meshes seamlessly with the JPDO’s longer-term mission. It also would facilitate the integration of NextGen—the new GPS-based air traffic control system—into FAA’s ongoing planning and acquisition activities.

H.R. 915 is nearly identical to legislation introduced in 2007 that stalled in the U.S. Senate and ultimately expired at the end of the 110th Congress. The previous long-term FAA reauthorization law expired at the end of September 2007, and the agency’s taxing and operating authority have been preserved since that time through a series of short-term extension measures. The current extension expires at the end of March. Despite the authorization’s failure to pass in the last Congress, Chairman Oberstar is optimistic about the new measure’s chances. “We have a new President and a new Congress. …This time we’ll get the job done,” he said. Aviation Law Reports, Report Letter No. 1397, February 12, 2009.

New Battery Transport Rules Kick In
Amendments to the federal Hazardous Materials Regulations implemented by the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) earlier this month in order to harmonize U.S. standards for the safe transportation of batteries and battery-powered devices with recent changes to the International Civil Aviation Organization’s Technical Instructions for the Safe Transport of Dangerous Goods by Air take effect on February 13, 2009. As previously reported, the increasing number of batteries and battery-powered portable and hand-held devices—such as such as laptop computers and cellular phones—carried by passengers into an aircraft cabin have contributed to a heightened concern for the future transport of these items aboard aircraft.

Among the initiatives included in the rule revisions to enhance safe transportation of these items and devices are mandatory reporting of incidents involving batteries and battery-powered devices (including those that result in a fire, violent rupture, explosion, or dangerous evolution of heat), with immediate notification required for incidents that occur during air transport, as well as clarified requirements for determining whether a battery is non-spillable and for transporting dry batteries (including a revision of the proper shipping name used to describe dry batteries). Certification on shipping documentation that batteries and battery-powered devices have met all conditions and requirements for transport also is mandatory under the revised standards. Aviation Law Reports, Report Letter No. 1397, February 12, 2009.

Aviation News

Oberstar Seeks Scrutiny of Immunized Airline Alliances
Citing the erosion of airline competition on international routes, House Transportation and Infrastructure Chairman James L. Oberstar (D-Minn.) introduced a bill last week that would require the Government Accountability Office to study the effects that airline alliances and antitrust immunity have on consumers. In a statement accompanying the legislation (H.R. 831), Chairman Oberstar asserted that immunized alliances hold great market power and have the potential for exercising that power to the exclusion of non-immunized carriers, thereby reducing competition in the international marketplace and disrupting domestic competition. “If these immunized mega-alliances are allowed to proceed unchecked, the end result may be trading government control in the public interest for private monopoly control in the interests of the industry,” the Chairman contended.

Calling the measure an important step forward in determining whether the Department of Transportation’s antitrust policies are sound, Oberstar said that the bill would direct GAO to examine the legal requirements and policies followed by DOT in deciding whether to approve airline alliances/grant exemptions from antitrust laws, as well as whether there should be any changes to either those policies or the legislative authority under which DOT determines whether to grant and/or subsequently amend, modify, or revoke antitrust immunity.

The measure would sunset all immunity grants three years after the date of its enactment, after which U.S. and foreign carriers could reapply under any new policies adopted in light of GAO’s recommendations. Along those lines, the bill also would direct GAO to determine whether the different regulatory responsibilities for international alliances between DOT and the U.S. Department of Justice have created any significant conflicting agency recommendations and whether, from an antitrust standpoint, requests for antitrust immunity should be treated as mergers subject to a traditional merger analysis by DOJ. Aviation Law Reports, Report Letter No. 1397, February 12, 2009.

AA Not Liable for WTC Property Damage Caused by UAL Crash
A New York federal court has dismissed property damage claims against American Airlines and its security screening subcontractor by the operator of the World Trade Center arising from the September 11, 2001 destruction of Tower Two by the hijacked United Air Lines Flight 175. In so ruling, the court refused to recognize a duty owed by American—whose own hijacked Flight 11 had crashed into Tower One some 17 minutes before UAL Flight 175 crashed into Tower Two—to either the passengers or the victims of the UAL hijacking and subsequent crash.

According to U.S. District Judge Alvin K. Hellerstein, any duty by American to have alerted authorities to the threat of Flight 11’s hijacking did not create liability to those injured by the hijacking of UAL Flight 175—at least not without an additional showing of a relationship that could have created a duty to those who had been injured. Rejecting such a liability-triggering relationship, the court said that American neither had undertaken a ticketing responsibility for United, nor had checked bags intended for the United flight. And, although both of the ill-fated flights had departed from Boston’s Logan International Airport, neither American nor its security screening subcontractor had undertaken a screening responsibility for UAL Flight 175, the court added.

American Airlines could not reasonably have foreseen that any breach it may have committed that led to the crash of its own Flight 11 would have led to the crash of UAL Flight 175, Judge Hellerstein said. Moreover, the generalized duty of all airlines and all aviation personnel to report aviation threats to federal authorities did not establish, under the circumstances at issue, a duty of one air carrier to those injured by another carrier’s crash, he added. Therefore, even if American had been slow to notify the authorities of a hijacking pending confirmation of its concerns (the judge noted that he was unwilling to make such a finding on the facts presented), it could not be concluded that any such slowness could have affected the hijacking of UAL Flight 175 or its tragic consequences. In re September 11th Litig. (SDNY) 33 Avi. 17,389.

Security Service Fee Calculation Method Deemed Flawed
A federal appeals court in Washington, DC, has ruled that the Transportation Security Administration improperly subjected certain airlines (i.e., those that had reported below-average security screening costs for the year 2000 and had not provided an audit of their reported costs) to several million dollars per year in increased liability for Aviation and Security Infrastructure fees. At issue was TSA’s utilization of the industry average for 2000 screening costs in its calculation of the carriers’ overall limit on such fees. By having based its calculation on a Government Accountability Office estimate that had included the costs of screening non-passengers as well as passengers, TSA violated the plain meaning of the Aviation and Transportation Security Act’s “overall limit” on the security service fees, the court determined. ATSA imposes both overall and per-carrier limits on such fees, and specifies that fees in each year “may not exceed, in the aggregate, the amounts paid in calendar year 2000 by carriers ... for screening passengers and property.”

As a threshold matter, the court examined the statute’s jurisdiction-stripping provision, which, as originally enacted, had provided that determinations setting limitations on Aviation and Security Infrastructure fees assessed against airlines are not subject to judicial review. That restriction did not apply to challenges to fees collected prior to October 1, 2007, the court held, citing the fact that the jurisdiction-stripping provision had been relaxed under a subsequent law creating an exception which provides that review is limited only to additional amounts collected before October 1, 2007. The jurisdiction-stripping provision also is inapplicable to collections made after 2007 as well, the court advanced, reasoning that judicial review is inappropriate only where the proper determination has been made under the statute. As TSA had not made the proper determination in the case at bar, judicial review was appropriate, the court explained.

TSA’s use of the industry average per-passenger screening costs for the year 2000 as a proxy for airlines’ actual costs in calculating the per-carrier limit on security service fees clearly was permissible under ATSA, however, the court found, asserting that the Act gives the agency broad discretion to choose a suitable method for making the required determination in that regard.

Although airlines may prefer that TSA rely upon their information, the agency certainly was entitled to conclude that, in the absence of an audit, the carrier data were not reliable enough, the court remarked, declaring that TSA also was free to select a reasonable alternative, such as the industry’s average cost. That average cost—multiplied by a logically chosen carrier-specific variable, i.e., the number of passengers screened by the carrier in 2000—constituted a measurement of a specific carrier’s screening costs, the court said. But, because TSA’s industry average had included the costs of screening non-passengers as well as passengers, that calculation was not a “determination ... under” the statute as required by law and had to be corrected on remand, the court opined.

Although several airlines had challenged the additional fees, the court found that one in particular—Spirit Airlines—was entitled to have its assessment set aside. In fact, Spirit had provided an audit of its per-passenger screening cost data for the year 2000 as required under TSA regulations, the court held, concluding that TSA should not have subjected the carrier to additional liability for security service fees. However, as the agency’s action plainly had been a “determination ... under” ATSA, the statute’s jurisdiction-stripping provisions applied to collections from Spirit after October 1, 2007, the court concluded. Southwest Airlines Co. v. Transp. Security Admin. (DCCir) 33 Avi. 17,423.

FAA Doesn’t Preempt State-Law Products Liability Suit
State-law defective product claims against an aircraft manufacturer arising from alleged injuries sustained when a passenger fell from a plane’s single-handrail airstairs were not preempted by the Federal Aviation Act of 1958, a federal appellate panel ruled, reversing a trial court’s contrary determination. Because the Act has no express preemption, field preemption is implied in areas where pervasive Federal Aviation Administration regulations are applicable, the appellate panel instructed, advising that the state standard of care remains applicable in areas without pervasive regulations or other grounds for preemption. Consequently, as airstairs are not pervasively regulated, state-law claims that the stairs at issue were defective were not preempted, the panel concluded. Martin v. Midwest Express Holdings, Inc. (9thCir) 33 Avi. 17,431.

Challenge to FAA Environmental Conformity List Fails
A group of public entities, associations, and individuals lacked standing to challenge a list promulgated by the Federal Aviation Administration that specifies 15 categories of agency actions presumed to conform to state implementation plans (SIPs) of national air quality standards in a particular local area, a federal appeals court ruled. FAA had implemented two airspace alterations in reliance upon one of the enumerated items on the list (i.e., changes in air traffic control activities at airports designed to enhance operational efficiency, increase fuel efficiency, or reduce community noise impacts by means of engine thrust reductions), after which the group challenged the validity of the list rather than the substantive merits of either alteration or of the FAA’s findings and conclusions underpinning the implementation of those projects.

According to the court, in order to establish standing, a party has to demonstrate that it has suffered a concrete and particularized injury that is: (1) actual and imminent; (2) caused by or fairly traceable to the act being challenged in the litigation; and (3) redressable by the court. Here, the group failed to establish that their injury had been caused by FAA’s promulgation of, and reliance upon, the list in having implemented the two airspace alterations at issue, the court asserted, citing the record, which showed that FAA had relied upon other, independent analyses to support its decision to implement the two redesigns without having conducted an additional and more encompassing conformity analysis.

Furthermore, the petitioners also failed to establish that any injury that might have been caused by the agency’s promulgation of the list was redressable by the court, the court said, maintaining that overturning the list would not redress the alleged harm. Even if the list were overturned, FAA still would not be required to conduct additional analyses, the court added, dismissing the petition for review. County of Delaware, Pennsylvania v. Dep’t of Transp. (DCCir) 33 Avi. 17,438.

Surface Transportation News

Interim Rule Implements Clean Railroads Act of 2008
The Surface Transportation Board is seeking comments on an interim final rule implementing the mandates of the Clean Railroads Act of 2008 (Pub. L. No. 110-432). Enacted in October 2008, the Clean Railroads Act adds new provisions to Title 49 of the U.S. Code that limit the STB's authority related to solid waste rail transfer facilities to the issuance of land-use-exemption permits, thus transferring primary regulatory responsibility to the states.

In furtherance of the Act's purpose, STB has issued an interim final rule establishing temporary procedures for requesting land-use-exemption permits. In addition, the interim rule addresses such topics as what existing and proposed solid waste rail transfer facilities must do to comply with the Clean Railroads Act; the STB's role under the Clean Railroads Act; and the effects of the Act and STB-issued land-use-exemption permits. The interim final rules took effect January 27, 2008. Federal Carriers Reporter, Report Letter No. 1551, February 6, 2009.

Graves Amendment Bars Claim Against Leasing Company
A motor vehicle leasing company that owned a vehicle involved in an accident resulting in injuries was exempt from liability under the Graves Amendment, according to a federal district court. The accident occurred when the driver of the leased tractor trailer failed to reduce speed to avoid a collision and rear-ended a passenger vehicle resulting in injuries to the plaintiffs. The plaintiffs filed various negligence claims against the driver, the lessee, and the owner/lessor of the tractor.

The owner/lessor of the tractor trailer filed a motion to dismiss, asserting that, under the Graves Amendment, it was exempt from liability. The plaintiffs countered, arguing that their claim was saved from preemption because the owner had been negligent in leasing the tractor to the lessee. The court rejected the plaintiffs' argument based on the absence of legal authority requiring the owner to look into the driving record or business operations of a potential lessee before entrusting a vehicle to the lessee. Since the owner had no duty to undertake such an investigation, it could not be deemed negligent for having failed to do so. Here, the evidence established that the owner of the vehicle was in the business of leasing motor vehicles and had not been found to have engaged in any negligence or criminal wrongdoing. Under the facts presented, the claim against the lessor/owner of the tractor trailer was barred by the Amendment. Dubose v. Transp. Enter. Leasing, LLC (MDFla) Federal Carriers Reporter ¶84,574.

Coverage Denial Under “In the Business” Exclusion Affirmed
A driver of a leased commercial motor vehicle was operating “in the business” of a lessee when he was en-route from a final delivery destination to a place where he could rest while awaiting his next anticipated delivery order, a federal appellate court opined. A number of tractor-trailer rigs had been leased to Everhart Trucking by R&T Trucking. The lease agreement required the lessee to maintain a blanket policy of insurance covering the vehicles while engaged in the business of the lessee/carrier, while the lessor agreed to maintain all other insurance coverage. During the course of the lease, one of the vehicles was involved in a fatal accident. The accident occurred after the driver had completed his last delivery and was en-route to find a place to rest so that he would not be in violation of federal hours-of-service regulations. Following the accident, the victim's estate filed suit against the driver, the lessor, and the lessee.

The lessor's insurer denied coverage due to the fact that the driver and the vehicle had been engaged “in the business” of the lessee/carrier when the accident occurred. The lessee's insurer tendered a defense and settled the suit for $1 million, then proceeded to file suit against the lessor's insurer, alleging that it should have provided the defense because its policy covered the truck at the time of the accident. A federal district court ruled in favor of the lessor's insurer on the coverage issue, concluding that the truck was being used “in the business” of the lessee at the time of the accident. On appeal, it was found that the “in the business” exclusion was applicable at the time of the accident because the driver was headed in the general direction of his anticipated next dispatch by the carrier and had been looking for a place to rest so that he could get the off-duty time required by federal statute. Additionally, the court reasoned that the comprehensive nature of the other policy exclusions suggested that the catchall exclusion for other “in the business” activities of the trucker applied here. Auto-Owners Ins. Co. v. Redland Ins. Co. (6thCir) Federal Carriers Reporter ¶84,575.

Carrier's Limitation of Liability Effective Against Insurer
A federal court of appeals affirmed a lower court's decision holding that a cargo owner and its subrogees were bound by a limitation of liability provision in a Broker Transportation Agreement (BTA) entered into by an intermediary and a carrier. The carrier had been hired by the intermediary to transport a shipment of cell phones from Florida to Texas pursuant to the terms of the BTA. While in transit, the cargo was stolen. The cargo owner recovered its losses from its insurer which, in turn, filed suit against the carrier seeking to recover the full value of the cargo under the Carmack Amendment. While the carrier admitted liability, it asserted that any recover was limited to $200,000. A federal district court agreed with the carrier and entered judgment in the amount of $200,000.

The insurer appealed, arguing initially that it was not bound by the limitation-of-liability provision because it was not a party to the transportation agreement. Alternatively, the insurer asserted that, even if it was subject to the limitation provision, the carrier had failed to satisfy the statutory requirements necessary to effectively limit its liability. The appellate court rejected the insurer's claim, citing a U.S. Supreme Court maritime-related decision establishing that “when an intermediary contracts with a carrier to transport goods, the cargo owner's recovery against the carrier is limited by the liability limitation to which the intermediary and the carrier agreed.” The insurer challenged the applicability of the case precedent, arguing that the transportation in this case had not involved maritime law. Furthermore, the insurer claimed that the limitation was not effective because none of the upstream contracts in the transportation chain had contained liability limitations. Upon review, the appellate court rejected the insurer's arguments, finding that the cited precedent was not limited to maritime actions. Moreover, the enforceability of the liability limitations provisions was unaffected by the absence of such provisions in the upstream contracts. Thus, the insurer was bound by the terms of the transportation agreement, including the limitation-of-liability provisions.

Next, the insurer unsuccessfully alleged that the carrier had not effectively limited its liability because it had failed to provide the shipper or its intermediaries with a reasonable opportunity to have chosen between two or more levels of liability. Based on the evidence submitted, the appellate court determined that the carrier had satisfied the statutory requirements necessary to limit its liability. The transportation contract governing the movement had incorporated the carrier's tariff, which expressly limited the carrier's liability to $200,000 unless the shipper or its intermediary declared a higher value pursuant to precise instructions provided in the tariff. Since no higher value had been declared, the carrier's liability was found to have been limited to $200,000. Accordingly, the lower court's decision in favor of the carrier was affirmed. Werner Enterprises, Inc. v. Westwind Maritime Int'l, Inc. (11thCir) Federal Carriers Reporter ¶84,572.

Broker/Shipper Not Liable for Driver's Injuries Under FMCSRs
A transportation broker and a shipper were not liable for a driver's injuries under the Federal Motor Carrier Safety Regulations (FMCSRs), a federal appellate court ruled. A federal district court had rejected the truck driver's negligence claims against a transportation broker and a shipper arising from injuries resulting from the movement of goods that were not properly loaded and secured. The driver asserted that, under the Illinois Vehicle Code, which adopted by reference the FMCSRs, the broker and the shipper were liable for negligence based on two provisions of the federal safety regulation.

The first regulation prohibits a motor carrier from requiring a driver to operate a CMV if the cargo was not properly distributed and secured. The broker asserted that it could not have violated this regulation since it was not a motor carrier. The driver contended that the regulation was applicable because the broker held a motor carrier license and had been acting as a motor carrier by dictating the routes the driver was to take and by deciding how the cargo was to be loaded on the truck. Upon review, the appellate court concluded that the broker was not subject to the regulation simply because it held a motor carrier license. The vital inquiry focused upon the capacity in which the broker had been acting during the transaction. Based on this analysis, the court ruled that the actions taken by the broker did not rise to the level of providing services related to the movement of the goods; therefore, the broker had not been acting as a “motor carrier” for the shipment at issue. Thus, the broker had not violated the safety regulation, the court held.

The second regulation upon which the driver had attempted to base its negligence claims prohibited any person from aiding, abetting, encouraging, or requiring a motor carrier or its employees to violate the FMCSRs. While the regulation was applicable to both the shipper and the broker, the driver was precluded from recovery under Illinois law, which bars a plaintiff from recovering from a defendant for the defendant's aiding and abetting of the plaintiff's own tortious conduct. Accordingly, the lower court's decision denying recovery was affirmed. Camp v. TNT Logistics Corp. (7thCir) Federal Carriers Reporter ¶84,573.

Drivers Operating Mixed Fleet Not Eligible for Overtime Pay
A federal district court determined that the motor carrier exemption to the overtime provisions of the Fair Labor Standards Act (FLSA) was applicable to drivers, messengers, and automated teller machine technicians employed by an armored vehicle transport company that operated a mixed fleet of vehicles both before and after August 10, 2005. The employees, all of whom had been involved in the safe operation of the armored vehicles, filed suit against their employer, alleging that it had failed to pay overtime wages. The employer argued that it was exempt from the overtime requirements of the FLSA under a provision of the Motor Carrier Act (MCA) because it was a motor carrier that transported goods in interstate commerce and the employees' job-related duties directly affected the safe operation of motor vehicles in the transport of property in interstate commerce.

Prior to the enactment of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) on August 10, 2005, the MCA exemption applied if a driver was employed by a motor carrier whose transportation of passengers or property by motor vehicle was subject to the jurisdiction of the Secretary of Transportation and the employees engaged in activities directly affecting the safety of operation of a motor vehicle in interstate transportation. Under this interpretation, the drivers, messengers, and ATM technicians were exempt from the overtime provisions of the FLSA because their employer provided motor vehicle transportation for compensation in interstate commerce and their duties directly affected the safe operation of motor vehicles. As such, they were not entitled to overtime pay for their pre-August 10, 2005 claims.

However, SAFETEA-LU amended the MCA's definition of “motor carrier” to include the word “commercial” before motor vehicle. Accordingly, after August 10, 2005, the MCA exemption only applied if the property was transported by a commercial motor vehicle. The employees argued that, under the post-SAFETEA-LU requirements, they were not subject to the motor carrier exemption because not all of the vehicles operated by the carrier met the weight requirement necessary to conform to the statutory definition of “commercial motor vehicle.” While the employees would have prevailed if they could have established that they only operated non-commercial motor vehicles, in cases where an employee is required to operate both commercial and non-commercial motor vehicles, the court held that it is generally accepted that, as long as the employee's duties affect the safety of operations of vehicles covered by the MCA, the employee is covered by the motor carrier exemption. Thus, the employees were not entitled to overtime wages after August 10, 2005.

The court went on to note that on June 6, 2008, the SAFETEA-LU Technical Corrections Act of 2008 reinstated the definition of “motor carrier” that had been in effect prior to the enactment of SAFETEA-LU, effectively removing the distinction between commercial and non-commercial vehicle for the purposes of MCA applicability. Hernandez v. Brink's Corp. (SDFla) Federal Carriers Reporter ¶84,576.