Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-13-01068/USCOURTS-caDC-13-01068-0/pdf.json

Parties Involved:
SecurityPoint Holdings, Inc.
Petitioner
Transportation Security Administration
Respondent

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 23, 2014 Decided October 28, 2014

No. 13-1068

SECURITYPOINT HOLDINGS, INC.,

PETITIONER

v.

TRANSPORTATION SECURITY ADMINISTRATION,

RESPONDENT

On Petition for Review of an Order of 

the Transportation Security Administration

M. Roy Goldberg argued the cause for petitioner. With 

him on the briefs were Don J. Pelto and Nathaniel Bruno.

John S. Koppel, Attorney, U.S. Department of Justice, 

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

Stuart F. Delery, Assistant Attorney General, Ronald C. 

Machen, Jr., U.S. Attorney, and Mark B. Stern, Attorney.

Before: HENDERSON and SRINIVASAN, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS.

Circuit Judge HENDERSON concurs in the judgment.

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WILLIAMS, Senior Circuit Judge: Petitioner 

SecurityPoint Holdings, Inc. seeks review of changes made by 

the Transportation Security Administration (“TSA”) to a 

program involving advertisements at airport security 

checkpoints. SecurityPoint claims that TSA made the changes 

in violation of SecurityPoint’s First Amendment rights, 

specifically in retaliation for SecurityPoint’s having sued TSA 

for alleged infringement of a patent. It also argues that TSA’s 

explanation for persisting in the change, in the face of 

SecurityPoint’s arguments that the change was unnecessary 

and self-defeating for TSA, failed to satisfy the minimum 

requirements of reasoned decisionmaking. Because we agree 

with the latter claim, we need not reach the First Amendment 

issue; TSA’s response to our vacatur and remand may either 

wholly or partially moot the First Amendment claim (by 

acceding in whole or in part to SecurityPoint’s position), or 

materially alter the context for the First Amendment claim by 

clarifying the reasons for TSA’s decision. 

* * *

TSA administers the “screening of all . . . property . . .

that will be carried aboard a passenger aircraft.” 49 U.S.C. 

§ 44901(a). To perform this function, it operates airport 

security checkpoints where passengers place personal 

belongings into bins that move by conveyor belt through an

X-ray machine. TSA offsets some of the operating expenses

for these checkpoints through a so-called “Bin Advertising 

Program.” Under the program, private contractors assume the 

costs of providing and maintaining certain checkpoint 

equipment—bins, wheeled carts to transport the bins, and 

tables—in exchange for the right to sell advertisements to be

displayed inside the bins. Participating airports execute a 

Memorandum of Understanding (“MOU”) with TSA; they 

then contract with private companies to obtain the equipment

subject to the MOU’s terms. Once TSA has adopted a new 

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MOU template, it requires all participating airports entering 

into new contracts under the program to use that template. 

Indeed, SecurityPoint contends that TSA has tried to muscle 

airports into modifying existing MOUs under which they 

previously entered into contracts with SecurityPoint. The 

advertising revenues, though shared by the airport operators 

and private companies, relieve TSA of the expense of 

supplying the bin-related equipment. 

Petitioner SecurityPoint has contracted with airports as 

part of the Bin Advertising Program since its inception in 

2007. It holds a patent covering some of the equipment and 

methods used in the program. In 2011, it sued TSA for 

infringement of that patent at airports with which 

SecurityPoint had no agreement. See First Am. Compl., 

SecurityPoint Holdings, LLC v. United States, 11-cv-268 (Ct. 

Fed. Cl., filed Aug. 30, 2011); see also Advertising Trays for 

Security Screening, U.S. Patent No. 6,888,460 (filed Jul. 2, 

2003). That case remains pending before the Court of Federal 

Claims, with a trial date set for June 2015. See SecurityPoint 

Holdings, LLC v. United States, 11-cv-268 (Ct. Fed. Cl., Sept. 

5, 2014) (Scheduling Order).

In August 2012 TSA modified the Bin Advertising 

Program, amending the MOU template to require participating 

airports to indemnify TSA from all liability for intellectual 

property claims related to the checkpoint equipment. TSA

also changed the template to provide that, on cancellation of 

an agreement between an airport and a private company, TSA 

would retain the right to use the checkpoint equipment as well 

as a license to all intellectual property necessary for such use. 

SecurityPoint opposed these changes, writing to TSA’s 

Chief Counsel, Francine Kerner, in December 2012, and again 

in January 2013, requesting that TSA “cease and desist from 

requiring airports to agree to the new MOU language.” It 

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argued that airports would not sign MOUs that subjected them 

to an obligation to indemnify TSA for intellectual property 

claims, so that TSA would be killing the goose that laid the 

golden eggs of reduced costs for checkpoint screening. And 

the indemnification was unnecessary, as SecurityPoint’s 

contracts gave TSA an implicit license to use the relevant 

intellectual property at the airports where such agreements 

were in effect. Ms. Kerner denied the request in a letter dated 

January 18, 2013. This petition for review followed.

* * *

The government does not contest jurisdiction.

Nonetheless, as we have an independent obligation to be sure 

of subject-matter jurisdiction, Arbaugh v. Y&H Corp., 546 

U.S. 500, 514 (2006), and as it is not self-evident here, we 

need to resolve it.

Under 49 U.S.C. § 46110(a), this court has jurisdiction to

review TSA “order[s]” issued “in whole or in part under” 

Subtitle VII, Part A of Title 49, which encompasses passenger 

screening and similar security measures under 49 U.S.C. 

§§ 44901 et seq. We have understood “order” in § 49110(a) 

to mean an order as defined in the Administrative Procedure 

Act, 5 U.S.C. § 551(6), namely, “the whole or a part of a final 

disposition . . . of an agency in a matter other than 

rulemaking” and “final” in the ordinary sense that it “mark[s]

the consummation of the agency’s decisionmaking process, 

and determine[s] rights or obligations or give[s] rise to legal 

consequences.” Safe Extensions, Inc. v. FAA, 509 F.3d 593, 

598 (D.C. Cir. 2007) (internal quotation marks omitted); see 

also City of Dania Beach, Fla. v. FAA, 485 F.3d 1181, 1187-

88 (D.C. Cir. 2007); Vill. of Bensenville v. FAA, 457 F.3d 52, 

68 (D.C. Cir. 2006). 

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We hold that Ms. Kerner’s letter rejecting SecurityPoint’s 

request is a reviewable “order.” It is evidently the 

“consummation” of TSA’s decisionmaking process regarding 

SecurityPoint’s contention that it should abandon the 

challenged alterations of the MOU language. The letter

“give[s] rise to legal consequences” by confirming that 

participating airports will be subject to TSA’s new mandatory 

MOU language and thereby affects SecurityPoint’s ability to 

contract with those airports. See Safe Extensions, 509 F.3d at

598 (holding that an FAA “advisory circular” was reviewable 

under 49 U.S.C. § 46110(a) where it “effectively . . . bar[red] 

manufacturers like [petitioner] from selling their products to 

airports”). Accordingly, this court has jurisdiction under 49 

U.S.C. § 46110(a).

* * *

We review Ms. Kerner’s letter under the APA’s familiar 

arbitrary and capricious standard. An agency’s action is

arbitrary and capricious if it has “entirely failed to consider an 

important aspect of the problem” it faces. Motor Vehicle 

Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 

463 U.S. 29, 43 (1983). Relatedly, when an agency denies a 

request, it must (subject to exceptions inapplicable here) 

provide “a brief statement of the grounds for denial.” 

5 U.S.C. § 555(e). The agency’s statement “must be one of 

‘reasoning’; it must not be just a ‘conclusion’; it must 

‘articulate a satisfactory explanation’ for its action.” Butte 

Cnty., Cal. v. Hogen, 613 F.3d 190, 194 (D.C. Cir. 2010) 

(quoting Tourus Records, Inc. v. DEA, 259 F.3d 731, 737 

(D.C. Cir. 2001)). Ms. Kerner’s letter fails to satisfy these 

basic requirements. 

SecurityPoint’s letters contended, among other things,

that the new indemnification provision would undermine the 

cost-saving Bin Advertising Program by making it difficult or 

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impossible for airports to participate. SecurityPoint

characterized the indemnity provision as “a classic ‘poison 

pill’ because airports will not, and indeed cannot, agree to it.” 

In support of that proposition it claimed (“on information and 

belief”) that the staff at Lambert-St. Louis International 

Airport had said that they didn’t believe the airport “could 

possibly comply with the new MOU language.” It recounted 

that Boston Logan International Airport had told 

SecurityPoint that the new language “was not something they 

can agree to,” and had then ceased negotiating. SecurityPoint 

asserted essentially the same story for Hartsfield-Jackson 

Atlanta International Airport. It argued, indeed, that TSA 

knew perfectly well that airport operators were not going to 

agree “to such blanket indemnifications,” effectively disabling 

SecurityPoint from securing additional commitments. 

And SecurityPoint explicitly noted the adverse effects on 

TSA itself, saying that the new requirement would curtail a 

program that “avoids TSA having to fund the purchase of 

checkpoint furnishings.” It suggested, moreover, that these 

self-inflicted wounds were unnecessary, as “TSA [has] had 

the benefit of an implied license to practice the invention 

covered by the . . . patent” at any airport covered by an 

agreement between SecurityPoint and the airport operator. 

Ms. Kerner’s response does not address these

contentions. It offers no indication that she or anyone at TSA 

even considered the potential harms to the Bin Advertising 

Program, and thus to TSA, from insistence on the new 

provisions, such as the additional equipment costs that would 

shift back to the agency as a result. 

Ms. Kerner’s letter does note that fourteen airports have

“entered into MOUs with TSA to participate in the Bin 

Advertising Program where SecurityPoint is the advertising 

broker” since SecurityPoint filed its lawsuit in 2011. But the 

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point is not at all responsive. To evaluate the effect of the 

new MOU terms on the Bin Advertising Program, one would 

obviously have to examine behavior after those terms were 

rolled out (August 2012), not after SecurityPoint started its

infringement suit. It is uncontested that, since the relevant 

date, SecurityPoint “has not entered into a single contract with 

a new airport operator.”

Instead of addressing SecurityPoint’s contentions, Ms. 

Kerner’s letter asserts that TSA modified the MOU in order to

“protect itself from legal liability.” Yet Ms. Kerner never 

even mentions SecurityPoint’s observation that TSA had “the 

benefit of an implied license” at the airports where 

SecurityPoint had an agreement in effect, much less suggests

some reason why such a license either would not be in effect 

or would not meet TSA’s concerns.

Because Ms. Kerner’s letter fails to provide any “basis 

upon which we could conclude that it was the product of 

reasoned decisionmaking” on this point, the agency has not 

fulfilled its statutory duty to provide a “brief statement of the 

grounds for denial” under 5 U.S.C. § 555(e). See Tourus 

Records, 259 F.3d at 737.

Nor is there anything in the record beyond Ms. Kerner’s

letter that would support TSA’s decision. The agency now 

points to a single airport—Durango/La Plata County—which 

has executed an MOU including the new language. But, as 

SecurityPoint notes, the airport in question is “very small” and 

may not have appreciated the “impact” of the new MOU 

language. Without disparaging Durango, de minimis non 

curat lex. 

Because TSA “failed to consider an important aspect of 

the problem” before it, its decision must be set aside as 

arbitrary and capricious. See State Farm, 463 U.S. at 43. 

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Accordingly, the court will vacate Ms. Kerner’s letter and 

remand the case to the agency.

* * *

Finally, both parties have also moved to supplement the 

record. In light of the disposition above, these motions are 

dismissed as moot. 

* * *

The petition for review is granted and TSA’s order is

Vacated and remanded.

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