Dakota Territory Tours, A.C.C. and Solid Edge Aviation, LLC v. Yavapai County, Arizona and Sedona-Oak Creek Airport Authority - No. 16-17-18
FAA Docket No:
16-17-18
Author:
Shannetta R. Griffin, Associate Administrator for Airports
Complainant(s):
Dakota Territory Tours, A.C.C. and Solid Edge Aviation, LLCRespondent(s):
Yavapai County, Arizona; Sedona-Oak Creek Airport AuthorityAirport(s):
Sedona-Oak Creek Airport (KSEZ)
Holding:
Affirming Finding of Violation of Grant Obligations; Corrective Action Plan RequiredAbstract:
Complainant—two companies doing business at the airport, including as a Part 135 Sky Safari Charter operations—sued alleging that County and airport authority (Authority) violated Grant Assurance 22, Economic Nondiscrimination, and Grant Assurance 23, Exclusive Rights, when it: (1) failed to honor a state court settlement agreement; (2) implemented a $0.25 per gallon fuel flowage fee for self-fueling operators; (3) filed a breach of contract lawsuit in state court concerning an earlier audit of Complainant’s lease compliance; and (4) failed to offer the Complainant an on-site kiosk tour operator lease at the Airport. (Director’s Determination, p. 1.)
In response, Respondents denied all the claims against them, countering that this is “nothing more than the continuation of a disappointed bidder’s transparent attempt to (1) circumvent and undermine the Authority’s discretionary, competitive procurement process to achieve the best value for the airport; and (2) indefinitely extend [Complainant’s] sublease agreement.” (Director’s Determination, p. 1.)
The Director ruled against the County and Authority along a continuum of several issues.
RFP Process, Breach of Contract, and Grant Assurance 22
First, the Director noted that the FAA does not enforce contractual agreements between tenant and airport sponsors. (Director’s Determination, p. 9.) Consequently, to the extent that the Complainant’s claim was based solely on the breach of a settlement agreement and request for proposal (RFP) process, it did not support a claim for a violation of Grant Assurance 22. (Director’s Determination, p. 9.) Similarly, the Director disposed of the second issue (as without merit) insofar as airport audits of airport tenant businesses are common and acceptable business practices, and, what is more, the FAA lacks jurisdiction over matters of state contract law between airport tenants and sponsors under Part 16. (Director’s Determination, p. 9.)
Ejection from Mid-Field Helipad Operating Area
According to the Director, the County, through the Authority, failed to make the airport available for public use on reasonable terms and was not in compliance with Grant Assurance 22, Economic Nondiscrimination, because it had failed to provide space in the airport terminal for Complainant to conduct helicopter air tours as an on-airport operator. (Director’s Determination, p. 2.) Stated otherwise, the Complainant alleged that it was wrongfully ejected from the mid-field helicopter operating area after the Respondent declared the mid-field helicopter operating area unsafe. (Director’s Determination, p. 9.) Relatedly, Complainant asserted that the decision to deem the long-time, mid-field helicopter operating area “unsafe,” unjustly impeded the Complainant’s efforts to service its aircraft in violation of Grant Assurance 22(f), e.g., depriving it of access to its preferred self-fueling and self-servicing location, specifically the mid-field helipad operating area. (Director’s Determination, p. 9.) As a result, the Complainant claimed it stopped using the mid-field helicopter area, experienced increased staff demands, increased operational costs, decreased flight operations, and lost marketing opportunities. (Director’s Determination, p. 9.) (Though, Complainant did not allege that it could not self-fuel and self-service at the time it filed a complaint. (Director’s Determination, p. 9.))
The County responded that the Authority informed Complainant that it must cease using the mid-field helicopter operating area adjacent to its leasehold because the operation of helicopters from that area contributed to the inappropriate operation of rotary-wing aircraft and was “unsafe.” (Director’s Determination, p. 9.) What is more, the County asserted, the Authority informed Complainant that it intended to convert the mid-field helicopter operating area into transient fixed-wing aircraft parking spots, and it assigned Complainant new helicopter parking spots on the southwest ramp on the airport. (Director’s Determination, p. 9.)
The Director dismissed the allegations under Grant Assurance 22 in this context, noting that the FAA had made clear that no proposed tenant is entitled to a long-term lease at the location of its choosing and upon its preferred terms and conditions, and that airport sponsors are not required to develop any and all parcels of land in a manner consistent with the wishes of any one party, but rather may exercise its proprietary rights and powers to develop and administer the Airport’s land in a manner consistent with the public’s interest. (Director’s Determination, p. 10.)
Here, the Authority offered Complainant an alternative location for its operations at the airport. Part 16 establishes that “the burden of proof is on [Complainant] to show noncompliance with any Act or any regulation, order, agreement or document of conveyance issued under the authority of an Act (14 C.F.R. § 16.23(k)(1)). [It] has not presented any credible evidence in this record supporting its assertion that its inability to self-service its aircraft at the mid-field helicopter operating area is tantamount to a restriction on self-service in violation of Assurance 22(f).” (Director’s Determination, p. 10.)
Denial of Kiosk Space in Airport Terminal—Grant Assurance 22
Complainant also averred on appeal that it was seeking a lease in the airport terminal for an on-site kiosk, that sufficient space existed in the terminal or at the airport to provide such a lease, and that it was similarly situated to another commercial air tour operator at the airport. (Director’s Determination, p. 10.) In this context, Complainant asserted that the Authority was required to afford it the same opportunity as the other commercial air tour operator without paying a $75 landing fee required for a transient operator. (Director’s Determination, p. 10.)
In opposition, the County denied that the Authority must provide space inside the terminal for Complainant, and further countered that to the best of its knowledge. Complainant had not initiated any discussion of the issue with the Authority. (Director’s Determination, p. 11.) Further, the Authority asserted that Complainant was not authorized to conduct Part 135 operations at the Airport and therefore was not entitled to space in the terminal to conduct operations at the Airport. (Director’s Determination, p. 11.)
The Director found that Complainant, in fact, was lawfully certificated under the Federal Aviation Regulations (FARs), whether under Part 135 or another regulation, for the operation of air tours. (Director’s Determination, p. 11.) What is more, the Director reasoned that Complainant was proposing to undertake a commercial aeronautical activity at the airport and yet, “the Authority arbitrarily has only allowed Part 135 operators to enter into tenant leases to operate at the Airport. [Thus, it] appears that the Authority is not providing a similar opportunity for other classes of commercial aeronautical activities offering similar services to negotiate to become a tenant at the Airport.” (Director’s Determination, p. 12.)
The Authority argued that it had no obligation to provide such space, and no lease had been negotiated with Complainant because it was not a Part 135 operator. But, the Director wrote, “Grant Assurance 22 requires the sponsor to negotiate, in good faith and on reasonable terms, with prospective aeronautical service providers.” (Director’s Determination, p. 12.) The Director continued: “A Grant Assurance 22 violation occurs when a sponsor evicts a complainant from the airport terminal and did not attempt to reasonably accommodate the complainant’s skydiving operations on the Airport. Here, [Complainant] was plainly interested in being a commercial aeronautical activity tenant at the Airport, before and after the RFP. There is no evidence, however, that the Authority sought to negotiate with [Complainant] or provide [Complainant] any path to become a tenant somewhere at the Airport, after the RFP. On the contrary, the Authority began terminating [Complainant’s] lease immediately after announcing that [another] proposal was selected. Consequently, the Director finds the Authority is unreasonably restricting access at the Airport to prevent other classes of commercial air tour activities who otherwise meet regulatory requirements. [And, in] the absence of special circumstances, denying a commercial operator access to the airport, or applying a higher minimum standard, because of a concern about what an operator might do, is not a legitimate exercise of a sponsor’s authority. ... Therefore, the Director finds that the County is currently violating Grant Assurance 22, c, by allowing the Authority to deny space in the terminal or elsewhere on the Airport for Dakota to conduct air tours as a tenant operator.” (Director’s Determination, p. 12.)
Exclusive Rights
Complainant also argued that the Authority granted Guidance Air Services, LLC (Guidance) an exclusive right by leasing it more space than it could put to immediate use. (Director’s Determination, p. 13.) Additionally, Complainant asserted that the Authority leased all remaining on-site land dedicated to on-site leasehold helicopter air tour operators to Guidance. (Director’s Determination, p. 13.) As such, the Authority’s actions froze Complainant out of any possible on-site leasehold presence and resulted in a grant of an exclusive right to Guidance to operate at the Airport as the sole on-site leasehold helicopter air tour operator, and, in so doing, created an impermissible exclusive right for Guidance at the Airport and is not in compliance with Grant Assurance 23, Exclusive Rights. (Director’s Determination, p. 2.)
In response, the County argued that “there [was] no ‘exclusive right’ here because there is no cost-effective, safe, or practical way for the Authority to operate more than a single operator at the Airport.” (Director’s Determination, p. 13.) Also, the County claimed that Guidance’s business plan demonstrated Guidance’s intent to use and develop the space to both compensate the Authority in a way that improves the Airport’s economy and maximizes the use of space over the course of Guidance’s lease term. (Director’s Determination, p. 13.)
But the record showed the Authority submitted no evidence that it had any safety concerns relating to the operations of more than one tenant leasehold helicopter air tour operator at the Airport. (Director’s Determination, p. 13.) Likewise, the Authority also did not provide any evidence in its pleadings to support its claim that only one helicopter air tour operator was financially viable at the Airport.
In this context, the Director reasoned that, “[e]ven after the Authority selected an on-airport helicopter tour operator or through the RFP process, the Authority still has an obligation under Grant Assurance 23 to avoid granting an exclusive right. … However, the Authority only granted Guidance the right to operate as a Part 135 tenant at the Airport through the RFP.” (Director’s Determination, p. 13.) Then, the Authority terminated Complainant’s lease, and the Authority legally attempted to remove Complainant as an airport tenant, even though it wanted to be based at the Airport. (Director’s Determination, p. 13.) “Consequently, the Authority is allowing only one class of aeronautical users, Part 135 air charter operators, to be tenant operators without justification. At the same time, there is no evidence that the Authority is accommodating other classes of aeronautical users who also desire the same or similar space as a tenant at the Airport. The Director concluded that the County, through the Authority, was violating Grant Assurance 23, Exclusive Rights, by allowing Guidance to become the sole tenant helicopter air tour operator at the Airport.” (Director’s Determination, p. 13.)
Grant Assurance 23, Exclusive Rights
Next, Complainant argued that by denying it similar use of the airport terminal to conduct its air tour business, the County, through the Authority, created an impermissible exclusive right for another operator, Westwind, at the airport and thus was not in compliance with Grant Assurance 23, Exclusive Rights. (Director’s Determination, p. 2.)
The County claimed that Complainant had not made any effort to initiate or engage informally in any effort to discuss this issue with the Authority. (Director’s Determination, p. 14.) And, the County asserted that the Authority had no obligation to provide space for Complainant’s operations in the airport terminal once it vacated its current modular building. (Director’s Determination, p. 14.) The County also asserted that Complainant provided no reason or authority why it was entitled to continue operating at the airport or how its operation out of a kiosk would be practical. (Director’s Determination, p. 14.) The County further asserted that forcing it to offer space to Complainant would undermine both the competitive procurement process and the Authority’s discretion in operating the airport in a manner that meets its contractual and legal obligations. (Director’s Determination, p. 14.)
However, the Director determined that Complainant had carried its burden of showing that the Authority was in violation of Grant Assurance 23, Exclusive Rights, including by providing evidence that the Authority granted Westwind, a commercial aeronautical operator, the right to conduct its air tours as a tenant in the airport terminal although Complainant and Westwind both were commercial aeronautical operators. (Director’s Determination, p. 14.) There was no evidence to support the argument that the Authority used a public bid or RFP process to offer a lease to Westwind in the terminal building. Yet, the Authority denied Complainant a “Westwind-like” lease, citing, among other things, a requirement for prospective lessees to use the public bid process. The evidence also showed that the Authority terminated Complainant’s lease and was removing it as a tenant air tour operator from the airport. (Director’s Determination, p. 14.)
According to the Director, then, the record showed “that the Authority had placed a significant burden on the class of commercial aeronautical users like Complainant to use the Airport that has not been placed on another class of commercial aeronautical users, the Part 135 operators. Without justification, the Authority: (1) refused to provide reasonable access for other classes of aeronautical users like Complainant to negotiate and become a tenant operator at the Airport; (2) denied Complainant a lease for a kiosk or minimal space in the terminal or elsewhere on the Airport; (3) required Complainant to go through an RFP or public bid process to become a tenant while a Part 135 operator, Westwind, did not; and (4) required Complainant to operate as a transient operator and pay significant monthly landing fees. The Authority’s lack of consistency between different classes of commercial aeronautical users is contrary to the airport sponsor’s federal obligations under Grant Assurance 23, Exclusive Rights. Among the unjustified inconsistencies is the refusal to accommodate Complainant in the terminal or elsewhere on the Airport. The County currently is violating Grant Assurance 23, Exclusive Rights, by allowing the Authority to deny Complainant space in the Airport terminal or elsewhere on the Airport and Westwind to become the sole air charter operator tenant located in the terminal.” (Director’s Determination, p. 15.)
Fuel Flowage Fee for Self-Fueling and Grant Assurance 22, Economic Nondiscrimination
Complainant asserted that the Authority failed to employ a transparent methodology of establishing the $0.25 per gallon fuel flowage fee in violation of the Policy Regarding Airport Rates and Charges. (Director’s Determination, p. 15.) Consequently, Complainant averred, the fuel flowage fee was three to eight times higher than the fuel flowage fee at other airports that were comparable to the airport and that the Authority had thus established the fuel flowage fee without a sound economic basis. (Director’s Determination, p. 15.) As such, the fuel flowage fee unjustly impeded Complainant’s efforts in servicing its own aircraft in violation of Grant Assurance 22(f). (Director’s Determination, p. 15.)
The County responded that the Authority’s $0.25 per gallon fuel flowage fee was generally applicable to those who self-fueled and did not discriminate in any way, and that the Authority’s fee was necessitated by the airport’s substantial capital investment and operating costs, and that it was well within its right to establish the rate. (Director’s Determination, p. 15.) The County also asserted that all operators were charged the same rate as those who self-fuel, including the U.S. Forest Service. (Director’s Determination, p. 15.)
The Director dismissed the Complainant’s specific allegations given that Part 16 places the burden of proof on the Complainant to show noncompliance with an act or any regulation, order, agreement or document of conveyance issued under the authority of an Act, 14 C.F.R. § 16.23(k)(1). (Director’s Determination, p. 15.) The Director ruled that the Complainant “had not provided … any substantive evidence to support its allegations that the methodology used to establish the fuel flowage fee was not transparent,” however. (Director’s Determination, p. 16.) Likewise, the Director wrote, Complainant also had not provided any detailed financial information or persuasive evidence to support its allegation that the $0.25 per gallon self-fuel flowage fee is unreasonable at this specific Airport. (Director’s Determination, p. 16.)
Grant Assurance 5, Preserving Rights and Powers
Finally, the Director has determined that the Authority, as operator of the airport, was violating Grant Assurance 22, Economic Nondiscrimination, and Grant Assurance 23, Exclusive Rights, and thus, because Yavapai County was the owner and sponsor of the Airport, the County was also in violation of Grant Assurance 5, Preserving Rights and Powers, for allowing the Authority to violate federal obligations at the airport. (Director’s Determination, p. 16.)
Appeal/Affirmance
On appeal, the County primarily contended Complainants should not be allowed to operate at the airport as an air tour operator because they did not possess a valid Part 135 certification. (Final Agency Decision, p. 10.) However, the Associate Administrator reviewed the record and found that Complainants could engage in air tour operations at the airport. (Final Agency Decision, p. 10.) Additionally, the Associate Director noted that the County had argued that the Director had not accurately interpreted FAA’s regulations and that the County’s interpretation should be adopted. (Final Agency Decision, p. 10.) The Associate Administrator swiftly rejected this argument, however, stating: “The FAA interprets its regulations, not the County, and in this case, the FAA FSDO found there were no violations or safety issues presented by Complainants’ operations. Further, the County lacks authority to decide whether an operator meets the applicable FARs affecting air tour operators or any other aeronautical operation.” (Final Agency Decision, p. 10.)
The Associate Administrator also rejected the County’s theories that no exclusive rights violation occurred because (1) there were other “legitimate” operators at the airport and (2) Complainants continued to operate at the airport using the “only developed and available helicopter positions on the airport.” (Final Agency Decision, p. 13.) “Here,” the Associate Administrator noted, “the County imposed a requirement upon Complainants which restricted their operations at the airport while other air tour operators are permitted to operate. The basis for restricting Complainants’ operations from operating is flawed and unjustified. Hence, an exclusive right has been created in favor of the other air tour operators.” (Final Agency Decision, pp. 13-14.)
The Associate Administrator thus rejected “the County’s argument that its actions are justified because there is an ‘exception from the exclusive rights prohibition’ related to a lack of space which can only be cured if ‘[Complainants vacate their] position on the airport.’” (Final Agency Decision, p. 14.) Stated the Associate Administrator: “Removing Complainants from whatever space was occupied does not diminish the County’s obligation to reasonably accommodate Complainants somewhere else at the airport. This is especially true, as is the case here, [when] the removal is based on flawed and unjustified arguments. The application of flawed and unjustified arguments or processes do not, and cannot, lead to a permissible exclusive right.” (Final Agency Decision, p. 14.)
Altogether then, the Associate Administrator reasoned that as long as Complainants’ operation was lawful under FAA regulations, as determined by the FAA, whether it was under Part 91, Part 135, affiliated (e.g., aircraft leases, agreement) or not, incorporated or not, the operation must be reasonably accommodated at the airport, without unjust discrimination, irrespective of the County’s interpretations of the FARs or whether the existing minimum standards cover the proposed activity. (Final Agency Decision, p. 14.)
Accordingly, the Associate Administrator found that the Director did not err in determining that County was in violation of Grant Assurance 23, Exclusive Rights or the similar provisions contained in the property conveyance, by denying Complainants access to the airport and facilities. (Final Agency Decision, p. 14.)