Legal Analysis of the FAA’s Slot Auction Rule for JFK and Newark Part 2

Analysis of Legal Issues Regarding Slot Auctions, Part Two.

Having established previously that the FAA does not have specific authority to lease or otherwise dispose of slots, FAA turns to its general power to dispose of property in order to justify its auctioning of the slots.  Under 49 U.S.C. 106 FAA is authorized to:

acquire, construct, improve, repair, operate, and maintain . . . real and personal property . . . and to lease to others such real and personal property . . .” as well as to enter into “such contracts, leases, cooperative agreements, or other transactions as may be necessary to carry out the functions of FAA.

49 U.S.C. 106(l).  In addition 49 U.S.C. 40110 authorizes FAA “[to] dispose of an interest in property for adequate compensation . . .”  Thus, the FAA theorizes, if a slot is “property,” then by virtue of these three provisions it has all the authority it needs to dispose of the “property.”

Leaving aside the statutory construction arguments that the FAA’s property disposition authority does not extend to such evanescent and intangible property rights as “slots,” the real legal question comes down to this:  Are slots a property right owned by the FAA?

The controversy turns an interpretation of Cleveland v. United States, 531 U.S. 12 (2000), which was mentioned in the GAO Legal Opinion, IATA’s comments and ATA’s commentsCleveland stands for the proposition that the government’s regulatory powers to issue licenses to do something which otherwise would not be permitted does not create a property right for the government.  It only becomes a property right to the licensee after the issuance of the license.  In Cleveland, Louisiana claimed that licenses it issued to run video poker devices were its “property.”  The U.S. Supreme Court saw it a little differently:

Without doubt, Louisiana has a substantial economic stake in the video poker industry.  The State collects an upfront “processing fee” for each new license application . . ., a separate “processing fee” for each renewal application . . ., an “annual fee” from each device owner . . ., an additional “device operation” fee . . ., and, most importantly, a fixed percentage of net revenue from each video poker device . . . It is hardly evident, however, why these tolls should make video poker licenses “property” in the hands of the State.  The State receives the lion share of its expected revenue not while the licenses remain in its own hands, but only after they have been issued to licensees.  Licenses pre-issuance do not generate an ongoing stream of revenue.  At most, they entitle the State to collect a processing fee from applicants for new licenses.  Were an entitlement of this order sufficient to establish a state property right, one could scarcely avoid the conclusion that States have property rights in any license or permit requiring an up front fee, including drivers’ licenses, medical licenses, and fishing and hunting licenses.  Such licenses, as the Government itself concedes, are “purely regulatory.”

531 U.S. at 22. In other words, absent a statutory provision, so long as the “property” (the license in Cleveland) is the product of the Government’s regulatory power, or its police powers, it is not property while it is in the Government’s hands.  In this case, it would seem, based on Cleveland, that since the FAA derives its authority to assign slots from its regulatory authority over “navigable airspace,” slots are not property rights in the hands of the FAA.

FAA attempts to get around Cleveland by asserting that “Section 40110(a)(2) does not speak to whether the FAA actually owns property that is being disposed of.  It only speaks to the disposal of a property interest.  Only the FAA has authority to assign the use of navigable airspace under section 40103.”  73 Fed.Reg. at 60549.  The FAA concludes that even though the property right is created “at the time of transference” of the slot, it still falls within its property disposition power under 40110(a)(2) since it is “disposing of” a “property right.”  This however, ignores the fact that the FAA has no property interest to “dispose of,” and that in assigning slots it carrying out its regulatory duties with respect to the airspace.

Similar to the FAA, in Cleveland, Louisiana tried to compare its interest in video poker licenses to a patent holder’s interest in a patent that she has not yet licensed.  The court rejected that argument:

Louisiana does not conduct gaming operations itself, it does not hold video poker licenses to reserve that prerogative, and it does not “sell” video poker licenses in the ordinary commercial sense.  Furthermore, while a patent holder may sell her patent . . ., the State may not sell its licensing authority.  Instead of patent holder’s interest in an unlicensed patent, the better analogy is to the Federal Government’s interest in an unissued patent.  That interest, like the State’s interest in licensing video poker operations, surely implicates the Government’s role as sovereign, not as property holder.

531 U.S. at 23-24.  In other words, if it is not a property right until after it is sold or licensed, you do not have a “property right” to “dispose of.”  The FAA’s assigning use of navigable airspace “implicates the Government’s role as sovereign, not as property holder.”  Thus, it seems that since the Supreme Court has spoken on this issue, the FAA will be hard pressed to successfully argue that it can auction slots by virtue of its property disposition authority.

Next Post: Even if slots are FAA property, does the FAA violate the IOAA by accepting money for them?

About these ads
This entry was posted in Airport, FAA, Litigation and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s