SPA Rental, LLC d/b/a MSI Aviation v. Somerset-Pulaski County Airport – No. 16-13-02

FAA Docket No:

FAA Docket No. 16-13-02

Westlaw Cite:

884 F.3d 600 (6th Cir. 2018); 2015 WL 5308076 (F.A.A.) [Director’s Determination]

Author:

Eduardo A. Angeles, Associate Administrator for Airports

Complainant(s):

Respondent(s):

Airport(s):

Lake Cumberland Regional Airport, Somerset, Kentucky (SME)

History:

See also Director's Determination dated 9/1/15.

Holding:

Abstract:

Complainant alleged that Respondent was unfairly discriminating against it by demanding it to enter in a new proposed Limited Fixed-Base Operator (“LFBO”) lease with objectionable conditions. Complainant further alleged that the Respondent was demanding that it perform a minimum of ten third-party annual inspections per annum. Complainant also alleged that Respondent was forcing it to alter its fundamental business by engaging in a business in which it had not previously engaged. Finally, the Complainant alleged that the Respondent failed to credit the number of annual inspection it performed against the ten third-party minimum.

The Respondent, in denying the allegations in the Complaint, asserted that it solicited LFBO proposals from aircraft maintenance service providers. It awarded an agreement to Somerset Regional Aviation, LLC, which included incentives in the form of a waiver of certain rental fees and reimbursement of certain insurance costs—incentives available to all providers of meaningful maintenance at the airport. The Respondent claimed that it offered the arrangement to the Complainant but that the Complainant failed to accept the terms. Finally, the Respondent asserted that the Complainant and new aircraft repair and maintenance business were not similarly situated and that the airport maintained uniformly applicable minimum standards. The Respondent also emphasized that “[t]he minimum standards of which SPA complains apply on to LFBOs providing ‘aircraft engine and accessory maintenance services at the Airport'” and that the different section of the minimum standard applied to those businesses selling aircraft from the airport—SPA “has no maintenance customers and has not for many years.”

The Director found that “minimum standards can be modified to reflect the airport’s desire to learn from experience and to be watchful for improvements in the way it does business in order to protect the public interest. In the present case, the Respondent justified changes to the minimum standards, explaining that attracting, developing, and sustaining meaningful third-party maintenance services would facilitate growth at Lake Cumberland Regional Airport by attracting more users and allowing the Airport to generate additional revenue streams. This is consistent with the FAA’s objective in recommending the development of minimum standards as a means to maintain and enhance the availability of adequate services for all airport users, to promote the orderly development of airport land, and to ensure efficiency of operations.” (Director’s Determination, p. 21.)

Next, the Director concluded that the Complainant was neither a certificated aircraft repair station nor had the ability to conduct annual inspections. Thus, it could not hold itself out to the public to conduct annual inspections. It was reasonable to conclude, therefore, that the Complainant was not a traditional FBO, but an aircraft refurbisher and reseller. Moreover, “Grant Assurance 23, Exclusive Rights, does not preclude a sponsor from modifying minimum standards to reflect changing needs and to protect the public interest, though sponsors choosing to establish minimum standards should apply them objectively and uniformly to all similarly situated on-airport aeronautical service providers. (Director’s Determination, p. 24.)

Finally, the Director rejected the Complainant’s assertion that the Respondent violated Grant Assurance 24, Fee and Rental Structure, by offering a financial package to increase business at the airport, i.e., an insurance rebate incentive and a rent rebate incentive, both of which may be earned upon proof of collection of ten paid third-party annual inspections during a 12-month period. (Director’s Determination, p. 25.) The Director found no evidence to support the Complainant’s claim that the Respondent offered incentives to another LFBO that were dramatically disproportionate or different to those offered to the Complainant. Nor was the Complainant similarly situated to the other LFBO, according to the Director. (Director’s Determination, p. 27.)

On appeal, the Associate Administrator for Airports affirmed the Director’s findings. First, “[a]dopting minimum standards is a valid action on the part of the airport sponsor. A review of the minimum standards indicates that they cover many aeronautical activities and services including FBO services, aircraft maintenance, aircraft sales, aircraft rental, charter operations, and flight training. A review of the minimum standards concerning aircraft maintenance shows that, as written, they are not contrary to Respondent’s federal obligations.” (Final Agency Decision, p. 21-22.) Additionally, documented “economic issues” further supported the view that “Respondent’s actions relating establishing, updating, and enforcing minimum standards are not only justified, but necessary.” (Final Agency Decision, p. 22.)

Additionally, the Associate Administrator concluded that the “Director did not err in concluding that Minimum Standards of Operation comply with grant assurances and that the Minimum Standards were uniformly applied to all operators similarly situated.” (Final Agency Decision, p. 23.) The Associate Administrator also confirmed that the Respondent and other LFOB were not similarly situated.

Finally, the Associate Administrator was presented with new evidence by the Complainant that the LFBO had gone out of business purportedly because the airport board failed to apply its incentive programs to the LFBO. Complainant argued that this supported its argument that he Respondent’s application of Minimum Standards was discriminatory. (Final Agency Decision, p. 24.) The Associate Administrator allowed the evidence, but found that the speculative arguments the Complainant drew from the new evidence did not alter any findings in the Director’s Determination because they were based. (Final Agency Decision, p. 24.)

The Complainant appealed the Final Agency Decision, but the United States Court of Appeals for the Sixth Circuit affirmed the FAA’s determination and denied the Complainant’s petition for review. See SPA Rental, LLC v. Somerset-Pulaski County Airport, 884 F.3d 600 (6th Cir. 2018) (“Here, the terms ‘unjust discrimination‘ is not ambiguous, but in any event, we agree with the FAA’s interpretation of the term … the proper standard for unjust discrimination, as applied by the FAA, is whether similarly situated parties have been treated differently. SPA is not situated similarly to Somerset. So, the Board did not unjustly discriminate against SPA.”).

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