Jeffrey Lefever, President, Sunrise Aviation, Inc. v. City of Ormond Beach, Florida – No. 16-20-03

FAA Docket No:

16-20-03

Author:

Shannetta R. Griffin, Associate Administrator for Airports

Complainant(s):

Respondent(s):

Airport(s):

Ormond Beach Municipal Airport (OMN)

History:

Director’s Determination (08/30/2021)

Holding:

Abstract:

Complainant filed suit under Part 16 alleging that the City’s failure to accept its proposal for leasing three parcels of property and instead leasing them to another party (KOMN) violated Grant Assurance 22. (Director’s Determination, p. 1.) Complainant further argued that the City’s actions and/or inactions constituted a violation of Grant Assurance 23, and requested the FAA to: (1) find the City in violation of Grant Assurances 22 and 23; (2) order the City to rescind its lease agreement with KOMN; (3) consider and evaluate the proposals of both KOMN and Complainant and make a determination to award the lease to the party whose proposal is in the best interest of the City’s taxpayers and consistent with the Airport’s Master Plan Update; (4) place the City on the Airport Noncompliance List (ANL); and (5) consider precluding additional federal financial assistance to the City until the instances of violation are resolved. (Director’s Determination, p. 1.)

In response, the City argued that it gave Complainant an opportunity to lease the contested parcels in a manner consistent with Grant Assurances 22 and 23, but that Complainant failed to respond and act in a timely fashion. (Director’s Determination, p. 1.) The City added that Complainant “wants to expand [its] dominant position at the Airport by locking down the subject parcels and controlling 75% of the FBO [Fixed Base Operator] acreage.” (Director’s Determination, p. 1.) The City also took the position that it acted properly in leasing the Parcels to a qualified third party. (Director’s Determination, p. 1.)

Grant Assurance 22, Economic Nondiscrimination

The Director found that, contrary to Complainant’s assertion, a review of the record showed that the City considered Complainant’s proposals. (Director’s Determination, p. 10.) Complainant and the City had several communications regarding entering into a lease agreement for the Parcels 1, 2, and 3 and the City gave Complainant an opportunity to submit a proposal while the City also reviewed KOMN’s proposal. (Director’s Determination, p. 10.) The City also kept Complainant informed of the status of its dealings with KOMN, for example by providing Complainant with a lease agreement for Parcels 1, 2, and 3, almost two full weeks prior to providing KOMN with a similar lease for the same parcels. (Director’s Determination, p. 10.) Also, KOMN timely submitted a proposal and a signed lease while Complainant did not. (Director’s Determination, p. 10.) While Complainant argued that the City did not have minimum standards on how to lease airport property, and that this related to the alleged violation, a review of the record showed that the City had adopted minimum standards as part of a set of airport provisions in the City’s Ordinances, the Director ruled. (Director’s Determination, p. 10.) In any case, “the adequacy of minimum standards does not, by itself result in a violation of Grant Assurance 22.” (Director’s Determination, p. 10.)

Complainant also argued that KOMN’s proposal was inconsistent with the Master Plan Update. But, according to the Director, “[M]aster Plans are not binding.” Citing Boston Executive Helicopters v. Town of Norwood, Massachusetts etc., FAA Docket No. 16-15-05, the Director recalled that “the Master Plan is a planning document, and a sponsor is not obligated to complete every aspect of the Master Plan. Not adhering to a specific item on a Master Plan or making changes outside the Master Plan are not a violation of the federal obligations.” (Director’s Determination, p. 11.)

Complainant also argued that it was the best qualified for the development of the parcels and that its proposal would have yielded higher rents, was more in line with the Master Plan Update, and would have best served the interest of the airport and City. However, the Director disagreed, deciding what is best for the airport from both planning and financial perspectives are roles for the airport sponsor, not Complainant and “[t]he City can choose a development that may produce less revenues but enhance or diversify levels of service or enhance competition.” (Director’s Determination, p. 11.)

Finally, Complainant argued that the City’s lease with KOMN was somehow invalid because KOMN was not yet incorporated in the state of Florida at the time the lease was signed. (Director’s Determination, p. 11.) “Nothing in the federal obligations requires a specific type of ownership, prevents individuals from leasing property at the airport, or challenges changes in ownership and how and by whom the management of the entity is achieve[d], maintained, or altered,” the Director ruled. (Director’s Determination, p. 11.)

In all, the Director noted that the case involved variables, such as timing, timely response by the proponents, completeness of submissions, counteroffers, different parcels being offered or sought, but the facts did not support Complainant’s allegations that there was preferential treatment. “KOMN simply negotiated better than Sunrise, and the Part 16 process is not a substitute for negotiation or a means or process to reverse the outcome of lawful negotiations.” (Director’s Determination, p. 11.) Consequently, the City did not deny access, impose unreasonable terms and conditions, or unjustly discriminate against Complainant. (Director’s Determination, pp. 11-12.)

Grant Assurance 23, Exclusive Rights

Complainant next argued that the City’s actions and/or inactions, individually or cumulatively, resulted in the City granting an exclusive right to KOMN to conduct an aeronautical activity at the Airport in violation of 49 U.S.C. § 47107(a)(4) and related Grant Assurance 23, Exclusive Rights, especially because “the City [excluded] Sunrise from even submitting a competing proposal.” (Director’s Determination, p. 12.)

The City denied it violated Grant Assurance 23 and asserted that it did not exclude Complainant from competing for the leases in question. (Director’s Determination, p. 12.) In fact, the City noted that it gave Complainant an opportunity to lease the Parcels before it offered the same parcels to KOMN, but that Complainant failed to act. (Director’s Determination, p. 12.) The City also took the position that despite Complainant controlling 59% of the acreage leased to FBOs at the airport through its various affiliations and joint leases, the City still gave Complainant an opportunity. (Director’s Determination, p. 12.) The City also noted that the Complainant had other options available to construct hangars and already had undeveloped areas in his leaseholds. (Director’s Determination, p. 12.) Additionally, the City noted that it was planning to open the Southwest Quadrant for development and that this would provide ample opportunity for Complainant to lease a site and build hangars. (Director’s Determination, p. 12.)

The Director agreed with the City’s position and found no violation of Grant Assurance 23. In support, the Director noted that Complainant was already “a well-established, dominant service provider with significant leased property and [was] one of many service providers at the Airport.” (Director’s Determination, pp. 12-13.) “The City did not exclude Sunrise from participating in an on-airport aeronautical activity. A review of the record does not provide evidence supporting a claim that the City has granted KOMN an exclusive right over hangar development space at the Airport. Absent such evidence, the Director cannot find a violation of Grant Assurance 23.” (Director’s Determination, p. 13.) “Sunrise is already established at OMN and has been given, and continues to be given, opportunities to expand. An exclusive right does not exist in violation of Grant Assurance 23 since Sunrise still has an opportunity to lease other available airport property.” (Director’s Determination, p. 13.)

Appeal—Affirmed

The Associate Administrator for Airports considered two issues on appeal: (1) whether the Director erred in concluding that the City did not deny access or unjustly discriminate in violation of Grant Assurance 22, Economic Nondiscrimination; and (2) whether the Director erred in finding that the City did not grant an exclusive right to KOMN in violation of Grant Assurance 23, Exclusive Rights.

As to the first issue, the Associate Administrator opined: “Sunrise’s appeal rests on the (unsupported) premise that KOMN’s failure to incorporate under Florida State law before or during the period between the City’s lease solicitation; KOMN’s lease negotiation with the City; and KOMN’s lease execution on June 3, 2020, should result in a finding of non-compliance with Grant Assurance 22.” (Final Agency Decision, p. 10.) However, in this regard the Associate Administrator concluded that “Sunrise presents no Federal law, precedent, or policy to substantiate its argument that the Director erred in his application of the sponsor’s Federal obligations (14 C.F.R. § 16.33).”

(Notwithstanding the foregoing, the Associate Administrator elaborated that it was reasonable for an airport sponsor to perform due diligence in determining the eligibility and viability of a tenant prior to entering into a contractual relationship. (Final Agency Decision, p. 11.) In addition, she reasoned that “the Director properly concluded that even with no written first come, first served lease policy or applicable minimum standards in place, ample opportunity – including knowledge of the lease solicitation and requirements – was provided to both KOMN and Sunrise to respond.” (Final Agency Decision, p. 11.))

As to the second issue, the Associate Administrator also rejected the Complainant’s position, concluding that “the Director found that the City did not grant an exclusive right to KOMN. The Director explained, ‘Sunrise is already a well-established, dominant service provider with significant leased property and is one of many service providers at the airport. The City did not exclude Sunrise from participating in an on-airport aeronautical activity,’ and Sunrise ‘has been given, and continues to be given, opportunities to expand.’ … Sunrise cannot substantiate that KOMN has been granted preferential treatment since Sunrise has been given the opportunity to lease other available airport property.” (Final Agency Decision, pp. 12-13).

Thus, the Associate Administrator confirmed, “Sunrise cannot credibly argue that the City granted an exclusive right to KOMN. The record provides no evidence to support Sunrise’s allegation that it has been unreasonably excluded from the airport, or that KOMN has been provided preferential treatment to Sunrise’s detriment. The Associate Administrator finds that after a review of the record that the conclusions in the Director’s Determination were made in accordance with law, precedent, and policy. The Director did not err in finding that the City did not grant an exclusive right to KOMN in violation of Grant Assurance 23, Exclusive Rights. The Associate Administrator affirms the Director’s finding that the City is not currently in violation of Grant Assurance 23, Exclusive Rights.” (Final Agency Decision, p. 13.)

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