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Parties Involved:
Federal Express Corporation
Petitioner
Norman Y. Mineta
Respondent
United States Department of Transportation
Respondent

Document Text:

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify the

Clerk of any formal errors in order that corrections may be made before the

bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 5, 2005 Decided January 20, 2006

No. 04-1436

FEDERAL EXPRESS CORPORATION,

PETITIONER

v.

DEPARTMENT OF TRANSPORTATION AND

NORMAN Y. MINETA, SECRETARY, UNITED STATES

DEPARTMENT OF TRANSPORTATION,

RESPONDENTS

On Petition for Review of an Order of the

United States Department of Transportation

Walter Dellinger argued the cause for petitioner. With him

on the briefs were Matthew D. Roberts and Cynthia J. Collins.

Matthew M. Collette, Attorney, U.S. Department of Justice,

argued the cause for respondent. With him on the brief were

Peter D. Keisler, Assistant Attorney General, Leonard

Schaitman, Attorney, Jeffrey A. Rosen, General Counsel, U.S.

Department of Transportation, Paul M. Geier, Assistant General

USCA Case #04-1436 Document #944015 Filed: 01/20/2006 Page 1 of 12
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Counsel, Dale C. Andrews, Deputy Assistant General Counsel,

and Peter J. Plocki, Senior Litigation Counsel.

Before: HENDERSON, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Eleven days after the terrorist

attacks of September 11, 2001, Congress enacted the Air

Transportation Safety and System Stabilization Act. The Act

directed the President to compensate air carriers up to five billion

dollars for “direct losses” caused by orders halting air traffic and

for “incremental losses” directly caused by the terrorist attacks

and incurred between September 11 and December 31, 2001.

Compensation was not to exceed those losses proved “to the

satisfaction of the President.” A cost savings rule promulgated

by the Secretary of the Department of Transportation established

a presumption that “[t]he Department generally does not accept

claims by air carriers that cost savings should be excluded from

the calculation of incurred losses.” The Federal Express

Corporation challenges the rule as being contrary to the Act and

the Secretary’s rejection of sworn affidavits in support of some

of its claims as arbitrary, capricious, and contrary to law under

the Administrative Procedure Act. We deny the petition for

review.

I.

At 9:25 on the morning of September 11, 2001, the Federal

Aviation Administration issued a ground stop order to bring all

aviation in the United States to an immediate halt. See NAT’L

COMM’N ON THE TERRORIST ATTACKS UPON THE U.S.,THE 9/11

COMMISSION REPORT 25 (2004). In response to that order and

the decline in air traffic following September 11, Congress

passed the Air Transportation Safety and System Stabilization

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Act, which the President signed on September 22, 2001. See

Pub. L. No. 107-42, 115 Stat. 230 (2001)(codified at 49 U.S.C.

§ 40101 note) (“Act”). Section 101(a)(2) of the Act provides

that the President shall

[c]ompensate air carriers in an aggregate amount equal

to [five billion dollars] for (A) direct losses incurred . .

. by air carriers as a result of any Federal ground stop

order . . . and (B) the incremental losses incurred

beginning September 11, 2001, and ending December

31, 2001, by air carriers as a direct result of such

attacks.

An “‘incremental loss’ does not include any loss that the

President determines would have been incurred if the terrorist

attacks . . . had not occurred.” Id. § 107(3). For any loss to be

compensable, it must be “demonstrate[d] to the satisfaction of

the President.” Id. § 103(a). 

The Secretary of the Department of Transportation

promulgated a series of regulations to carry out the Act. See 66

Fed. Reg. 54,616 (Oct. 29, 2001); 67 Fed. Reg. 250 (Jan. 2,

2002); 67 Fed. Reg. 18,468 (Apr. 16, 2002); 67 Fed. Reg. 54,058

(Aug. 20, 2002); see also 66 Fed. Reg. 49,507 (Sept. 25, 2001).

“In order to fulfill Congress’ intent to expeditiously provide

compensation to eligible air carriers,” the Department would

make an initial payment of roughly fifty percent of a carrier’s

estimated losses, and two later installments to reach full

compensation. 66 Fed. Reg. at 54,616-17. As a starting point in

determining the amount of a carriers’s compensation, the

Department would compare “the difference between preSeptember 11 forecasts and the updated forecasts or actual

results.” 67 Fed. Reg. at 18,472. The resulting difference would

“provide[] an approximation of the incremental losses that are a

direct result of the attacks, and that approximation, without more,

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[would] give[] effect to the language of the statute.” Id. This

methodology was based on two assumptions: (1) the differences

between a carrier’s forecast and its actual results are primarily

due to September 11; and (2) “it is extremely difficult if not

impossible to distinguish, on a line item by line item basis,

individual revenue and expense items that were affected directly

by the terrorist attacks from those that were affected indirectly,

or those that were partially affected, or not affected at all.” Id.

The regulations left room, however, for adjustments to

address items of “significant relative financial impact” that were

“extraordinary or non-recurring” and unrelated to September 11.

Id. at 18,473. For instance, an adverse $1 million judgment that

occurred during the compensation period as a result of operative

facts before September 11 could not be included as a

compensable net loss. Id. The regulations also contemplated

that there would be situations in which carriers experienced “a

reduction in actual versus forecast expenses.” Id. To address

those situations, the cost savings rule provides: 

The Department generally does not accept claims by air

carriers that cost savings should be excluded from the

calculation of incurred losses. Consequently, the

Department will generally not allow such claims to be

used in a way that has the effect of increasing the

compensation for which an air carrier is eligible. 

14 C.F.R. § 330.39(b) (2005). The rule reflected a general

presumption against such adjustments because: (1) cost

reductions unrelated to September 11 would be expected to have

been included in pre-September 11 forecasts; (2) it is “highly

likely that expense reduction efforts undertaken after September

11 were attributable, implicitly if not explicitly, to changed

expectations regarding revenues after the attacks”; (3) cost

savings “in fact reduce an air carrier’s losses, and the

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calculations required under [the] rules may not be manipulated

to exclude actual reductions in expenses, thereby generating a

basis for increased compensation”; and (4) Congress intended

that carriers not receive compensation for cost savings, “which

they have an independent obligation to their managements and

shareholders to achieve, and which it is reasonable to expect

them to undertake to mitigate the need for compensation under

the Act.” 67 Fed. Reg. at 18,473. Carriers were instructed to

submit their calculations of revenues and expenses on

Department “Form 330” along with sworn financial statements

reviewed by an independent public accountant. See 14 C.F.R. §§

330.27, 330.33; id. pt. 330, app. A. 

FedEx sought compensation under the Act, and based on

FedEx’s initial loss estimates, the Department paid it just over

$100 million in the first round of payments. In subsequent

applications FedEx recalculated its projected losses. When

FedEx closed its books for the compensation period, however,

instead of comparing its pre-September 11 forecast with its

actual revenues and expenses during the compensation period on

Form 330, FedEx adjusted its actual results to account for cost

savings that it describes on appeal as “variances in its fixed

expenses [that] were not a result of the attacks, because those

expenses would not automatically decline with reduced

business.” Petitioner’s Br. at 8-9. 

 

The Secretary, upon FedEx’s appeal, upheld, with some

modifications, the initial decision of the Assistant Secretary for

Aviation and International Affairs generally rejecting FedEx’s

attempt to obtain compensation for cost savings. Noting that the

Act provided compensation for “losses incurred,” the Secretary

understood FedEx as “essentially seeking additional

compensation in this appeal for expenses that were never

actually incurred.” Final Decision at 2. In the Secretary’s

opinion, FedEx would receive a “windfall” were its appeal

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granted because it would end up with profits greater than those

it had forecasted before September 11. Id. Upon examining

FedEx’s claims for adjustments due to cost savings, however,

the Secretary granted some and denied others. Some he allowed

because FedEx had shown that the cost savings had originated

before September 11 and thus could not have been related to the

terrorist attacks; others he rejected because adjustment would

effectively be a double payment to FedEx for expenses that were

not incurred, and which are not properly compensable because

FedEx would not incur them until after the compensation period;

still others he rejected because FedEx had failed to show the cost

savings were unrelated to September 11. In all, the Secretary

determined that FedEx was entitled to receive just under $72

million in compensation for lost profits as a result of the

September 11 attacks. FedEx petitions for review. 

II.

An earlier challenge to the cost savings rule was dismissed

by the court as unripe. See Federal Express Corp. v. Mineta, 373

F.3d 112, 118-19 (D.C. Cir. 2004) (“FedEx I”). Now that the

Secretary has issued a Final Decision on FedEx’s compensation

claims, the question whether Congress’s use of the term “losses

incurred” forecloses the Secretary’s adoption of a methodology

that generally denies adjustments when a carrier’s expenses are

lower than it forecasted prior to September 11 is properly before

the court. In FedEx I, the court concluded, upon applying the

first step of the familiar analysis of Chevron U.S.A. Inc. v.

Natural Resources Defense Council, 467 U.S. 837, 842-43

(1984), that the meaning of “incurred” in section 101(a)(2) is

ambiguous, with “the only metric” in the Act being “‘the

satisfaction of the President.’” FedEx I, 373 F.3d at 116. Use of

that metric, the court observed, “vests the Executive ‘with broad

discretion to determine appropriate criteria’ for the award of

compensation to an air carrier with better-than-expected results

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for the period September 11-December 31, 2001.” Id. (quoting

Natural Res. Def. Council, Inc. v. EPA, 22 F.3d 1125, 1148-49

(D.C. Cir. 1994)). Given the grant of broad discretion to resolve

this ambiguity, the court concluded that the definitions of “loss”

as “something that is gone and cannot be recovered” and

“incurred” as “liable or subject to, as in to incur debt,” as

implemented, were unquestionably permissible. See FedEx I,

373 F.3d at 117-18. Hence, the only question is whether the cost

savings rule is among the permissible constructions of section

101(a)(2) of the Act. 

FedEx contends that the statutory mandate to compensate

carriers requires the Secretary to compensate air carriers for their

direct and incremental losses from the September 11 attacks in

order to put the carriers in the financial positions they would

have been in if the attacks had not occurred. Thus, it argues, the

Secretary could not adopt a rule that denied compensation based

on financial need and had to allow adjustments whenever actual

expenses or revenues deviated from a carrier’s pre-September 11

forecast and were unrelated to September 11. FedEx maintains

that the critical assumption underlying the Secretary’s estimates,

derived from a methodology comparing a carrier’s preSeptember 11 forecast with its actual revenues and expenses

during the compensation period, is that all variances from the

forecast were due to September 11. Although in applying the

rule the Secretary generally made adjustments where costs were

higher than forecasted, FedEx claims the Secretary applied a

different rule where costs were lower than forecasted with the

result that FedEx was worse off than if the September 11 attacks

had never occurred. By using the term “cost savings,” FedEx

maintains, the Secretary “incorrectly implies that a carrier’s

management took affirmative action to reduce relevant expenses

in response to [September 11].” Petitioner’s Br. at 26-27.

Rather than creating a rebuttable presumption, FedEx concludes,

the cost savings rule denies adjustment for cost savings that did

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not result from September 11, at least for carriers viewed by the

Secretary to have insufficient financial need. From FedEx’s

perspective, then, the cost savings rule impermissibly

discourages the exclusion of variances in which expenses are

lower than the forecast by adopting a general presumption

against such adjustments. 

 

In FedEx I, the court observed that “it is simply implausible

that the Congress intended to compensate cargo carriers for the

direct losses they incurred as a result of the September 11-14

ground stop order even if they enjoyed better financial results

overall for the period September 11-December 31, 2001,” 373

F.3d at 117, because “the undisputed purpose of the Act was to

‘stabilize an industry that [was] desperately in need of urgent

relief,’” id. (quoting 147 CONG.REC. H5884 (daily ed. Sept. 21,

2001) (statement of Rep. Reynolds)). Congress “surely intended

also that the [Secretary] ‘pay out no more in subsidy than is

currently needed to accomplish the purposes of the [Act].’”

FedEx I, 373 F.3d at 117 (quoting Trans World Airlines, Inc. v.

Civil Aeronautics Bd., 385 F.2d 648, 667 (D.C. Cir. 1967)). We

will assume that some cost savings during the compensation

period were not necessarily related to September 11, that such

cost savings were not necessarily the result of carrier

management decisions, and that the rule could have

distinguished between fixed and variable costs. Nonetheless,

FedEx fails to acknowledge that determining carrier

compensation under the Act is inherently inaccurate because of

the impossibility of determining how a carrier would have

performed had September 11 never occurred. The Secretary

contemplated circumstances in which projections would vary

from actual experience and concluded that it remains “extremely

difficult if not impossible to distinguish” individual expenses

that were or were not affected by the attacks. 67 Fed. Reg. at

18,472. 

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Given the situation after September 11, it was reasonable for

the Secretary to adopt a general presumption in order to

accomplish the statutory objectives with satisfactory speed. See

id. at 18,472-73. The presumption is rational for the reasons

stated in the rulemaking. See id. at 18,473. The Secretary could

reasonably assume that significant cost reduction plans unrelated

to September 11 would have been included in a carrier’s preSeptember 11 forecasts. In view of the enormous impact of

September 11 on air carriers, the Secretary also could reasonably

assume that, following the ground stop order and the terrorist

attacks, carriers’ conscious efforts to reduce costs “were

attributable, implicitly if not explicitly, to changed expectations

regarding revenues after the attacks.” Id. Upon proof

satisfactory to the Secretary, however, a carrier could rebut the

general presumption as to a particular cost savings item. 

Although FedEx maintains the cost savings rule is not a

mere factual presumption, but a strict rule that barred FedEx,

because it was profitable during the compensation period, from

receiving adjustments for cost savings even if FedEx proved

those savings were not due to September 11, its own experience

demonstrates that the cost savings rule, as applied, was not a

strict rule in which all claimed adjustments would be denied.

The Secretary allowed some adjustments that increased the

amount of FedEx’s compensation and denied some fixedexpense adjustments that would have decreased the amount of

FedEx’s compensation. FedEx characterizes the rule as a “oneway ratchet” in that it favors cost savings adjustments that serve

to reduce a carrier’s compensation award. See Petitioner’s Br. at

32 (citing 14 C.F.R. § 330.39(b)). But the Secretary, as we have

explained, offered persuasive reasons for treating self-interested

claims for greater compensation differently from adjustments

that reduce a carrier’s compensation award.

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FedEx contends, however, that two of the Secretary’s

explanations for the cost savings rule are inconsistent with the

Act. First, in FedEx’s view, the Secretary’s position that the cost

savings losses were “never actually incurred” because these

“‘expenses’ . . . were never actually paid” is illogical. FedEx

points out that this reasoning confuses “losses incurred” with

“expenses incurred.” Under that reasoning, FedEx maintains, it

would be irrelevant whether a reduction in expenses had

anything to do with September 11 because all expense reductions

involve expenses “not actually incurred.” Even if scattered

statements swept more broadly than the Secretary could have

intended, we fail to see how that detracts from the validity of the

Secretary’s amply supported decision generally to disallow cost

savings adjustments while at the same time giving carriers a fair

opportunity to claim those adjustments when appropriate. Cf.

FedEx I, 373 F.3d at 118 (citing Fisher v. Bowen, 869 F.2d 1055,

1057 (7th Cir. 1989)).

Second, FedEx challenges the Secretary’s reliance on

FedEx’s overall profitability as a justification for denying it

additional compensation for cost savings. Allowing higher

compensation would not be a “windfall,” in the sense of

compensating carriers that benefitted as a result of the September

11 attacks, see FedEx I, 373 F.3d at 117, FedEx maintains,

because FedEx would only be placed in the position it would

have been in had the September 11 attacks not occurred. But

FedEx fails to recognize that the Secretary could reasonably

view a windfall to occur when a carrier receives greater profits

than it had forecasted before September 11. More importantly,

FedEx fails to identify any instance in which the Secretary

rejected a claimed cost savings on the ground that FedEx was

profitable. Instead, the Secretary evaluated FedEx’s evidentiary

submissions and found them inadequate for reasons unrelated to

profitability. In context, the Secretary’s statements about

FedEx’s finances reflect only an understandable disbelief that a

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profitable company, which had already received more than $70

million in government funds, would insist that it was owed more

money. The Secretary’s references to FedEx’s profitability

therefore afford no basis to conclude that the cost savings rule

was an impermissible interpretation of the Act.

FedEx’s challenge under the Administrative Procedure Act,

5 U.S.C. § 706(2)(A), need not detain us long. Sworn financial

statements are the primary method by which a carrier is to prove

its claim under the Stabilization Act. See Act § 103(a). FedEx

contends in seeking additional compensation that the Secretary’s

rejection of its sworn statements and affidavits as insufficient to

rebut the regulatory presumption was arbitrary and capricious

because it was based on mere conjecture. The Secretary was not

obliged to accept FedEx’s assertions at face value. As the

records are under seal, it suffices to say that our review indicates

that some of the affidavits, although quite detailed, were couched

in conclusory terms unsatisfactory to the Secretary for reasons

that were explained, while others acknowledged that expense

reductions were subject to short-term management control. Still

others related to types of expenses that the Secretary reasonably

could conclude were subject to management control given the

incentive to reduce expenses in response to the September 11

attacks. And still others gave the Secretary obvious reason to

doubt FedEx’s credibility. Overall, the statements and affidavits

left significant gaps in relevant information or contained

significant inconsistencies and weaknesses that gave the

Secretary reasonable grounds to deny further compensation to

FedEx under the Act.

FedEx also contends that because the Act explicitly

contemplates that the Secretary “may audit such [sworn

financial] statements,” Act § 103(a), the Secretary may only

reject an affidavit that he first audits. Nowhere does the Act

require the President — or his delegate — to accept uncritically

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conclusory explanations as to why particular claims constitute

losses. He is required to be “satisfied.” See id. “Indeed,” as we

explained in FedEx I, “the only metric the Act provides to

determine whether an air carrier has incurred a loss . . . is ‘the

satisfaction of the President.’” FedEx I, 373 F.3d at 116

(emphasis added). The Secretary’s reasonable position is that,

in accordance with the Act, he will review affidavits to satisfy

himself under section 103(a) that they make legitimate claims of

“losses” related to September 11. The Secretary’s separate audit

authority does nothing to cast this position into doubt.

Accordingly, we deny the petition for review.

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