June 2008

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

SAFETEA-LU Technical Corrections Act of 2008 Enacted
On June 6, 2008, President Bush signed into law the “SAFETEA-LU Technical Corrections Act of 2008'' (Pub. L. No. 110-244, 122 Stat. 1572). The Act resolves technical errors found in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The legislation is intended to correct oversights that have led to the delays of critical projects. Thus, as a result of the enactment of the legislation, vital highway projects will be able to move forward, relieving traffic congestion, improving highway safety, and creating much-needed jobs for America. Federal Carriers Reports, Report Letter No. 1536, June 20, 2008.

Amtrak Bill Clears House; Faces Veto Threat
By a vote of 311 to 104, the House of Representatives passed H.R. 6003—the Passenger Rail Investment and Improvement Act—which authorizes $14.9 billion for Amtrak and high speed rail over the next five years. The White House has threatened to veto the bill because it would authorize an appropriation in excess of $14 billion “without requiring any meaningful reforms in Amtrak's governance or operations and without allocating resources based on the demand for passenger rail service.''

House Transportation and Infrastructure Committee Chairman James L. Oberstar (D-Minn.) said the legislation will help Americans “whose mobility has been severely compromised by high gas prices or delayed airline flights.'' He added that “after a decade of starvation diet by the Bush Administration and inaction of the Republican-controlled Congress, we stand together to rebuild Amtrak and provide the necessary resources to construct a network of high-speed rail corridors across America.''

H.R. 6003 would increase Amtrak's capital and operating grants by authorizing $4.2 and 3.0 billion, respectively, over the next five years. The bill also would create a new grant program for intercity passenger rail services by authorizing $2.5 billion, and would provide $1.75 billion over five years for competitive grants to finance construction and equipment for 11 high-speed rail corridors.

Further, the bill would reduce Amtrak's debt by authorizing $345 million each year for debt service over the next five years. It also would establish a forum at the Surface Transportation Board to deal with stalled negotiations between commuter and freight rail operators. Federal Carriers Reports, Report Letter No. 1536, June 20, 2008.

Aviation Tax Extension Passes House, Moves to Senate
The U.S. House of Representatives voted on June 24 to further lengthen a four-month extension of federal aviation excise taxes and fees until the end of September 2008. If the current aviation fuel and airline ticket taxes are allowed to expire on June 30, FAA employees—including air traffic controllers—would lose their jobs, according to Ways and Means Rep. Kevin Brady (R-Tex.). Brady said he expected the Senate to act quickly on the House-passed Federal Aviation Administration Extension Act of 2008 (H.R. 6327). The last extension of the aviation excises taxes occurred on February 28, when President Bush signed the Airport and Airway Extension Act of 2008 (H.R. 5270). Aviation Law Reports, Report Letter No. 1382, June 26, 2008.

Aviation News

U.S. and Kenya Ink Open Skies Agreement
The United States and Kenya have negotiated an Open Skies air transport agreement, the first-ever air transport accord between the two countries. Reached on May 30 following two days of negotiations in Washington, the pact is the 20th Open Skies agreement between the U.S. and an African nation. Kenya is the 92nd U.S. Open Skies partner worldwide. Under the agreement, airlines from both countries will be allowed to select routes and destinations based on consumer demand, without limitations on the number of U.S. or Kenyan carriers that can fly between the two countries or the number of flights they can operate. The agreement contains no restrictions on capacity and pricing, and provides opportunities for cooperative marketing arrangements. After three years, the pact allows U.S. carriers to fly beyond Kenya to any other African country. Aviation Law Reports, Report Letter No. 1381, June 12, 2008.

FAA Clarifies ETOPS Service Check Requirements
In an effort to clarify the qualifications of individuals who certify Extended Operations (ETOPS) pre-departure service checks (PDSCs), the Federal Aviation Administration amended the regulations governing extended range operations of turbine-powered multiengine airplanes. According to FAA, the language of the ETOPS regulations as published did not codify existing agency guidance for scheduled airline operators. The regulations also did not accurately reflect the agency's intent to have a qualified mechanic perform the PDSC, even though the intent had been clearly stated in the rule's preamble, FAA added. Specifically, FAA said the final rule as adopted was overly burdensome because it required operators to have mechanics with an airframe and powerplant rating positioned at numerous maintenance facilities outside the U.S.—a near impossibility. This requirement neither was the agency's intent nor was contained in any previous FAA guidance, and it had not been included in the rule's notice of proposed rulemaking, the agency said. Because its intent had been clearly stated in the rule's preamble, FAA determined that a notice and public comment period was not necessary. Thus, the amendments took immediate effect when published on June 16. Aviation Law Reports, Report Letter No. 1382, June 26, 2008.

State Court Must Decide if Airport Is a Public Forum
Whether Los Angeles International Airport is a public forum under the liberty of speech clause of the California constitution is a question for the California Supreme Court to answer, a federal appeals court ruled. The appellate panel certified the question to the state high court in order to resolve an action by a religious group alleging that a municipal ordinance setting out the airport's free speech permit policy violated the state's constitution. The group also claimed that the ordinance violated their rights under the First Amendment of the U.S. Constitution. The U.S. Supreme Court has ruled that an airport terminal is not a public forum under the First Amendment. However, California courts have tended to take a more expansive approach in deciding whether a particular location qualifies as a public forum under the state's constitution, the appeals court noted, concluding that the state constitutional claim must first be addressed in order to avoid unnecessary consideration of the federal constitutional claim. The state supreme court has not addressed whether an airport's terminals, sidewalks, or parking lots are public fora. The potential conflict between the First Amendment and the state constitution regarding freedom of speech at the state's airports is one that the state supreme court should have the opportunity to address and resolve, the federal panel reasoned, adding that the answer to the certified question would be determinative of the group's appeal. Int'l Soc'y for Krishna Consciousness of Cal. v. City of Los Angeles (9thCir) 32 Avi. 16,399.

Court Applied Wrong Treaty to Cargo Damage Claim
A U.S. district court erred in ruling that an action arising from damage to a portion of an air cargo shipment between the U.S. and Hong Kong in 2001 was governed by the Warsaw Convention, according to a federal appeals court. Under binding circuit precedent, The Hague Protocol governs claims arising from shipments between the U.S. and Hong Kong on or after March 4, 1999, when the U.S. Senate's ratification of Montreal Protocol No. 4 became effective, the panel noted in an unpublished opinion. Thus, the trial court would need to determine whether the plaintiff was entitled to recovery under The Hague Protocol, and, if so, the amount of the recovery. The appeals court also ruled that the trial court had erred in ruling that federal common law, rather than state law, applied in deciding whether to award attorneys' fees. The panel found that the Warsaw Convention as amended by The Hague Protocol allows a court to award “expenses of the litigation” in accordance with its own law. These expenses have been interpreted to include attorneys' fees, the court noted. Nissan Fire and Marine Ins. Co. v. Bax Global Inc. (9thCir) 32 Avi. 16,426.

Montreal Convention Bars Claims for Punitive Damages
A federal court in Kentucky has ruled that the Montreal Convention does not allow punitive damages claims against servants or agents of an air carrier, even when the damage results from willful misconduct within the meaning of the Convention. Representatives of certain victims of the crash of a commercial airliner had sought punitive damages in connection with their actions against one of the aircraft's pilots. According to the court, a provision of the Convention removes an air carrier's limitation on compensatory damages for death or injury of passengers unless it can demonstrate the absence of negligence or other wrongful act or omission of the carrier or its servants or agents, or that the injury was caused by a third party. Although the plaintiffs argued that the provision also served to lift a separate provision of the Convention barring punitive damages, the court disagreed. The Convention's plain language, case law, and the U.S. Senate's analysis of the applicable provisions of the treaty clearly demonstrate that punitive damages are not recoverable because they would destroy the treaty's goal of uniformity of rules governing claims arising from international air transportation, the court reasoned. In re Air Crash at Lexington, Ky., Aug. 27, 2006 (EDKy) 32 Avi. 16,396.

No Federal Jurisdiction over State Law Dram Shop Claims
A federal district court lacked subject matter jurisdiction to adjudicate an action against an air carrier by representatives of individuals who had been killed in an automobile accident caused by an intoxicated motorist who allegedly had been served alcoholic beverages aboard one of the carrier's flights in violation of state liquor control and dram shop statutes. The carrier argued that the court had jurisdiction to hear the claims because they raised substantial, disputed issues of federal law relating to the regulation of the national airline industry, which required resolution as a predicate for the plaintiffs to obtain the relief they sought. However, adopting the reasoning of an earlier decision in a related action [see Gonzales v. Ever-Ready Oil, Inc., previously reported at 32 Avi. 16,343], the court ruled that the types of state law claims that the plaintiffs had sought to assert against the carrier were not legally sufficient to invoke federal jurisdiction. Accordingly, the court granted the plaintiffs' motion to remand the action. Collins v. Am. W. Airlines, Inc. (DNM) 32 Avi. 16,368.

FTCA Barred Negligent Weather Forecasting Claim
An action against the United States alleging that government weather forecasters had negligently failed to warn an aircraft crew of clear air turbulence (CAT) was barred under the discretionary function exception of the Federal Tort Claims Act, a federal district court ruled. The plaintiffs, who alleged that the negligence had resulted in the fatal crash of the aircraft following its encounter with CAT conditions, claimed that the discretionary function exception did not apply because the actual occurrence of sufficient CAT to warrant the issuance of certain warnings to airmen had deprived the forecasters of their discretion to fail to issue the warnings. Furthermore, National Weather Service (NWS) instructions state that such warnings “will be issued” when moderate-to-severe CAT is occurring. Nevertheless, the court found that the determination of whether moderate-to-severe CAT is occurring requires discretion, adding that the mandatory language of the NWS instructions merely mandates a response after a discretionary decision already has been made. Thus, because the government never decided that significant CAT was occurring, the NWS instruction never required a response, the court concluded. U.S. Aviation Underwriters Inc. v. U.S. (MDGa) 32 Avi. 16,394.

Surface Transportation News

New Disclosure Rules for Rail Interchange Commitments Adopted
The Surface Transportation Board (STB) has amended its disclosure and discovery rules for certain rail transactions. The revised regulations require parties seeking exemptions for, or to invoke class exemptions covering, transactions involving the sale or lease of railroad lines, to identify provisions in their agreements that will restrict the ability of the purchaser or tenant railroad to interchange traffic with rail carriers other than the seller or landlord railroad. Additionally, the revised rules establish procedures whereby shippers or other affected parties can obtain access to such interchange commitment provisions. The rulemaking is intended to facilitate case-specific review of the reasonableness of interchange commitments and to assist STB's monitoring of their usage. The revised regulations take effect June 29, 2008. Federal Carriers Reports, Report Letter No. 1535, June 5, 2008.

Carrier's Liability Limited Under Transportation Agreement
In a memorandum opinion intended to resolve the issue of whether the Carmack Amendment governed a shipper's claims for damages resulting from the interstate transportation of its household goods, a federal district court concluded that the claims were subject to the Carmack Amendment and held that the limitation of liability clause contained in the transportation agreement was an effective limitation. The carrier had been hired by the shippers to transport their household goods from California to Montana. The goods were damaged in a fire while in the carrier's possession. The carrier had paid some compensation for the damages, but the shippers claimed that they were entitled to recover additional damages. The shippers filed suit against the carrier in state court, alleging liability based on common law negligence and breach of contract. The carrier removed the action to federal court and the shippers acknowledged that their exclusive cause of action against the carrier for the loss and damage to their property was under the Carmack Amendment.

As for the limitation of liability, the carrier asserted that it had satisfied the regulatory requirements by: (1) maintaining a valid tariff; (2) providing the shipper with a reasonable opportunity to choose between two or more levels of liability; (3) obtaining the shipper's agreement as to the choice of liability; and (4) issuing a receipt or bill of lading prior to moving the shipment referencing the liability agreement. The shippers argued that the carrier had not satisfied all of the requirements, alleging that it had not issued an adequate bill of lading reflecting the shippers' agreement to limit liability. The court rejected this argument, finding that the ``Interstate Order for Service'' issued by the carrier had constituted a receipt/bill of lading establishing the shippers' agreement to limit the carrier's maximum liability to $60,000, the value they had placed on their goods. Accordingly, it was concluded that the carrier had effectively limited its liability to $60,000. However, the effect of the limitation of liability on the amount of damages the shippers would be entitled to recover will be addressed in a subsequent decision. Pepe v. Bekins Van Lines, LLC (DMont) Federal Carriers Reporter ¶84,544.

State Road Weight Restriction Preempted by STAA
A federal court of appeals ruled that a weight restriction imposed by a township on a roadway adjacent to a propane loading facility was preempted by the Surface Transportation Assistance Act (STAA) because it denied commercial motor vehicles (CMVs) reasonable access to a terminal facility. The weight restriction prohibited trucks weighing more than 14 tons from operating on a road that was used to exit a propane loading facility. This restriction essentially prohibited all propane trucks from using the road, since even unloaded propane trucks weighed more than 14 tons. Furthermore, it virtually denied all propane trucks access to the terminal when evaluated in conjunction with other valid restrictions in place on other roads adjacent to the terminal. The owners of the propane facility challenged the weight restriction, arguing that it was preempted by the STAA because it denied CMVs reasonable access between the national interstate highway system and a terminal, and was not based on safety considerations.

The court stated that preemption occurs when a state law conflicts with a federal law and frustrates its congressional objective. The parties were strongly divided on the issue of the Congressional objective for the STAA. The owners of the propane facility claimed that the goal was the establishment of uniform regulations governing the size, weight, and arrangements of trucks used in interstate commerce. The township argued that the STAA was intended to ensure CMVs access to the Interstate highway system, while allowing states to determine the circumstances under which such access would be available. The court disagreed with the township's interpretation, finding that the township's weight restriction conflicted with and frustrated Congress' goal of establishing uniform standards for commercial motor vehicles utilizing the Interstate and other federal highways by failing to provide reasonable access to the propane facility. Accordingly, the weight restriction was found to have been preempted by the STAA and was deemed unenforceable. Aux Sable Liquid Prods. v. Murphy (7thCir) Federal Carriers Reporter ¶84,546.

Absence of Actual Damages Blocks Private Right of Action
A federal court of appeals affirmed a decision dismissing a shipper's private cause of action against a motor carrier for an alleged violation of the Motor Carrier Act and denying the carrier's request for attorneys' fees. The shipper claimed that the carrier had violated an MCA provision that exempts from antitrust laws certain collective rate-setting activities. Specifically, the shipper contended that the carrier charged rates based upon collectively established classifications without having been a participant in the publication of those classifications, and was unjustly enriched as a result.

A federal district court acknowledged that the shipper would have been able to initiate a private cause of action based on the carrier's alleged failure to participate if its injury had been of the type the antitrust laws are intended to prevent. However, because the shipper's alleged injuries did not flow from an anticompetitive aspect of the carrier's behavior, the claim was dismissed. Upon review, the appellate court agreed with the end result, but differed on the rationale, finding that, while a private right of action existed, the shipper had failed to state a claim because it had not alleged any actual damages. As such, the lower court's decision to dismiss the action was affirmed.

In addition, the court concluded that the carrier was not entitled to recover attorneys' fees under the Interstate Commerce Act (ICA). The carrier filed a motion for attorneys' fees as the prevailing party after the shipper's claim was dismissed. The shipper challenged the request, arguing that the attorneys' fees provision was not applicable to the carrier as a defendant. While the ICA provides for the awarding of attorneys' fees, it does not expressly specify who may recover such fees. In order to determine the intent of the fee-shifting provision, the Supreme Court has consistently counseled that the goals and objectives of the underlying legislation must be explored. As such, based on the plain language of the statute and its legislative history, the court determined that the attorneys' fee provision was available only to a successful plaintiff. Therefore, the denial of the carrier's motion for attorneys' fees was affirmed. Fulfillment Servs., Inc. v. UPS (9thCir) Federal Carriers Reporter ¶84,548.

Rail Rates for Movements of Coal Found to be Unreasonable
The rates charged by a railroad for the transportation of coal from the Powder River Basin in Wyoming to a shipper's generating station in Montana were deemed to be unreasonable by the Surface Transportation Board, while an unreasonable practice claim based on an annual volume cap on a rate option was denied. The reasonableness of rail rates is determined based on a stand-alone cost analysis, which requires a finding that a carrier has market dominance over the traffic involved and the revenue produced by the rate is more than 180 percent of the variable cost of providing the service. Here, the parties agreed that there was no effective competition from other carriers or modes of transportation, and that the challenged rates exceeded the stand-alone cost constraint, but disputed whether the revenues produced by the challenged rates exceeded 180 percent of the variable cost of providing the transportation.

Both parties had argued that certain movement-specific adjustments to the variable cost calculations were required. However, STB recently had streamlined the process for calculating the revenue-to-variable-cost ratio (R/VC ratio) by precluding movement-specific adjustments. As such, the requested adjustments were denied. Thus, STB relied solely on the unadjusted variable cost figures generated by the Uniform Rail Costing System (URCS), using the nine movement-specific factors included in Phase III of the URCS to determine if the carrier's rates exceeded 180 percent of the variable cost of providing service. Based on these figures, the agency concluded that the charged rates all exceeded the 180 percent threshold. Consequently, the rates were found to be unreasonable and the carrier was ordered to reduce its rates and pay the shipper reparations.

Along with the rate claim, the shipper initiated an unreasonable practice claim based on the carrier's imposition of an annual volume cap on the amount of coal the shipper could tender under the Option 2 rate. The carrier disputed the shipper's claim, asserting that it was not obligated to provide unlimited service at a particular price for all coal movements. STB agreed with the carrier, finding that the annual volume cap on the Option 2 rate did not constitute an unreasonable practice. K.C. Power & Light Co. v. Union Pac. R.R. Co. (STB) Federal Carriers Reporter ¶37,279.