FAA Docket No. 16-14-04

UNITED STATES DEPARTMENT OF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION

ASSOCIATE ADMINSTRATOR FOR AIRPORTS

NATIONAL BUSINESS AIRCRAFT ASSOCIATION, KRUEGER AVIATION, INC., HARRISON FORD, JUSTICE 

AVIATION, KIM DAVIDSON AVIATION, INC., AERO FILM, YOURI BUJKO, JAMES ROSS, PARAMOUNT 

CITRUS LLC, AND AIRCRAFT OWNERS AND PILOTS ASSOCIATION,

Complainants,

v.

CITY OF SANTA MONICA,

Respondent.

Appeal from the Director’s Determination

Issued by Director Byron K. Huffman, Dated December 4, 2015

BRIEF FOR RESPONDENT CITY OF SANTA MONICA ON APPEAL FROM THE 

DIRECTOR’S DETERMINATION

MARSHA JONES MOUTRIE

JOSEPH LAWRENCE

LANCE S. GAMS

IVAN CAMPBELL

SANTA MONICA CITY ATTORNEY’S 

OFFICE

1685 Main Street, Room 310

Santa Monica, CA 90401

Telephone: (310) 458-8336

G. BRIAN BUSEY

PAUL VARNADO*

JAMES SIGEL*

MORRISON & FOERSTER LLP

2000 Pennsylvania Avenue, NW

Washington, DC 20006

Telephone: (202) 887-1500

ZANE O. GRESHAM

MORRISON & FOERSTER LLP

425 Market Street

San Francisco, CA 94105

Telephone: (415) 268-7000

Counsel for Respondent City of Santa Monica
ii

TABLE OF CONTENTS

INTRODUCTORY STATEMENT ................................................................................................ 1

JURISDICTIONAL STATEMENT ............................................................................................... 3

PARTIES ........................................................................................................................................ 3

ISSUES RAISED ON APPEAL..................................................................................................... 4

FACTUAL AND PROCEDURAL BACKGROUND.................................................................... 4

A. Factual Background ................................................................................................ 4

B. Procedural Background........................................................................................... 8

ARGUMENT................................................................................................................................ 10

I. The Director’s Determination that the 2003 Grant Amendment Extended the 

City’s Grant Obligations to 2023 is Contrary to Law, Precedent, and Policy and is 

Arbitrary and Capricious and an Abuse of Discretion...................................................... 10

A. The Plain Language Of The Agreements Makes Clear That The City’s 

Grant Obligations Expired In 2014..................................................................... 100

B. In Rejecting The Plain Meaning Of This Contractual Language, The 

Director’s Determination Relied On An Erroneous Understanding Of The 

Consideration Requirement .................................................................................. 14

C. The Director’s Determination Further Relied On The Erroneous 

Conclusion That Contractual Ambiguity Need Not Be Resolved Against 

The Agency, But That The Agency Is Instead Free To Resolve Any 

Ambiguity In Its Favor.......................................................................................... 17

1. The contractual language must be construed against the FAA, 

which drafted the agreements ................................................................. 177

2. The Director erred in concluding that this maxim was inapplicable, 

and that the FAA should instead receive deference in interpreting 

these agreements....................................................................................... 19

3. The City’s understanding that Amendment No. 2 did not extend its 

grant assurance obligations was reasonable............................................ 211
iii

D. The Director’s Determination Was Premised On Its View That A Grant 

Modification May Be “Akin To A New Grant,” An Arbitrary 

Classification Wholly Unsupported By The Relevant Statutes And 

Regulatory Guidance ............................................................................................ 23

E. The Director’s Newfound Rule That Certain Amendments To Grant 

Offers Will Again Trigger The Grant Assurances Is Ambiguous And 

Procedurally Improper .......................................................................................... 26

II. The Director’s Determination That Any Claim Regarding The City’s Grant 

Obligations Was Properly Before It Was Contrary to Law, Precedent and Policy .......... 29

A. Complainants Have Not Been “Directly And Substantially Affected By 

Any Alleged Noncompliance” And Thus Lack Standing..................................... 29

B. Complainants Failed To State A Claim Under Part 16, And Thus Have 

Failed To Establish Any Basis For The Director’s Jurisdiction ........................... 31

C. Complainants Failed To Satisfy The Pre-Complaint Resolution 

Requirement.......................................................................................................... 32

CONCLUSION............................................................................................................................. 33
1

INTRODUCTORY STATEMENT

In 1994, the City of Santa Monica (“City”) entered into a Grant Agreement with the 

Federal Aviation Administration (“FAA”), accepting funds to improve the Santa Monica Airport. 

At that time, the City agreed to satisfy certain grant assurances. By the plain terms of the Grant 

Agreement, these assurances would expire no later than June 2014, twenty years after the City’s 

acceptance of the FAA’s grant offer.

Subsequently, in 2003, the City and the FAA executed an amendment to the 1994 Grant 

Agreement, reimbursing the City for certain unanticipated costs incurred in completing the 

project funded by the grant. This 2003 amendment expressly provided that, aside from the grant 

amount, “[a]ll other terms and conditions of the Grant Agreement remain in full force and 

effect.” The City therefore understood that the 2014 expiration of the grant obligations remained 

unchanged.

But in the underlying Director’s Determination, the Director rejected this straightforward 

interpretation of these plain and unambiguous contractual terms and agreements. The Director 

instead declared that, whatever its terms might suggest, the 2003 amendment was no mere 

modification of the 1994 Grant Agreement, but was “akin to a new grant.” The Director held 

that the Amendment silently (and, indeed, contrary to its express disclaimer) extended the date 

on which the City’s grant assurance obligations would expire from 2014 to 2023. This 

conclusion is contrary to law, and it produces absurd and arbitrary results.

Indeed, the Director’s interpretation of the 2003 amendment is premised on a number of 

legal errors. The Director incorrectly presumed that the City was required to provide some sort 

of additional and previously undisclosed consideration in exchange for the FAA’s increase in its 

grant obligation. The Director then failed to recognize that even if consideration were required, 

it was provided, and did not take the form of the City extending its grant assurances for an 
2

additional nine years. The Director also rejected the standard principle that ambiguous 

contractual provisions must be construed against the drafter, here the FAA, and instead 

erroneously declared that the agency’s own interpretation even of ordinary contractual terms is 

entitled to deference. In so doing, the Director ignored precedent establishing that a municipality 

or state must be clearly advised of the conditions imposed on federal funding so that it can give 

“informed consent” to such conditions—something that did not occur in this case. Furthermore, 

the Director contorted what was plainly an amendment to an existing grant into what it deemed 

something “akin to a new grant”—a concept that has no basis in law, let alone the FAA’s own 

regulations or written guidance as to what constitutes a new grant. And the Director announced

an arbitrary new rule that certain modifications to grant agreements will trigger the application of 

grant assurances even though no such abrupt change in policy had been adopted through the 

notice-and-comment procedure mandated by statute. Any one of these errors is alone sufficient 

to justify reversal; all together, they compel it.

And that is not all. The Director also erred in concluding that question of the scope of the 

City’s grant assurance obligations was properly before it in the first place. Even assuming that 

these grant assurances are still in effect, the City has taken no action that might violate them. 

The Complainants here seek an advisory opinion regarding what the City’s obligations might be. 

They have failed to identify any imminent harm they will suffer that might give them standing to 

request relief. Nor have they identified any violation of statute or grant assurance as required by 

the applicable Part 16 regulations—thus causing the Director to issue a purely advisory opinion. 

Moreover, the Complainants failed even to fulfill their obligation to seek informal resolution 

before bringing this complaint. For all of these reasons as well, the Director’s Determination 

must be reversed.
3

JURISDICTIONAL STATEMENT

This appeal arises from the Director’s Determination resolving the Part 16 complaint 

filed by the Complainants. Authority to entertain this appeal vests with the Associate 

Administrator for Airports pursuant to 14 C.F.R. §16.33(b). Pursuant to 14 C.F.R. § 16.31, 

16.109(a), (b), and 16.201(a), on December 23, 2015, the City filed a request for a hearing to 

address factual and legal issues raised by the Director’s Determination. The FAA has not yet 

acted on that request.

PARTIES

Respondent City of Santa Monica owns and operates the Santa Monica Airport, a general 

aviation public use airport located in a residential neighborhood within the City.

The Complainants consist of various airport tenants, individuals who use the airport, and 

organizations of such users. The National Business Aviation Association, Inc. is a District of 

Columbia corporation that represents companies operating aircraft. Krueger Aviation, Inc., is a 

California corporation and a tenant of the airport. Harrison Ford is an actor, businessman, and a 

tenant of the airport. Justice Aviation is a California corporation and a tenant of the airport. Kim 

Davidson Aviation is a California corporation and a tenant of the airport. Aero Film is a 

California limited liability company and a tenant of the airport. Youro Bujko is the owner and 

pilot of two aircraft and a tenant of the airport. James Ross is a recreational flyer and a tenant of 

the airport. Paramount Citrus LLC is a California limited liability corporation and uses the 

airport in its business operations. The Aircraft Owners and Pilots Association, Inc., is a New 

Jersey non-profit corporation that represents its pilot members. 
4

ISSUES RAISED ON APPEAL

1. Whether, by entering into a 2003 Amendment that increased the funds provided 

pursuant to a 1994 grant agreement, the City agreed to extend the expiration date of its grant 

assurance obligations from 2014 to 2023.

2. Whether the Complainants have demonstrated that they were “directly and 

substantially affected,” 14 C.F.R § 16.23(a), by the speculative possibility that the City might in 

the future violate its grant assurances.

3. Whether, given the Complaints’ failure to allege the violation of any specific 

statute or grant assurance as required by 14 C.F.R. § 16.23(b)(1), the Director issued an advisory 

opinion outside the jurisdiction conferred by Part 16. 

4. Whether the Complainants satisfied their duty to engage in good faith efforts to 

resolve their complaint.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

The City purchased the land on which the airport sits between 1926 and 1941. At that 

time, land surrounding the airport was largely rural. The airport went on to become the home 

and manufacturing center for Douglas Aircraft. During the ensuing decades, the adjacent land in 

the cities of Santa Monica and Los Angeles was transformed. What was once farm land became 

home to thousands of Douglas workers who lived in the nearby residential neighborhoods that 

developed during this period, which lie adjacent to the airport’s runway.

In 1941, the City leased the airport to the United States in order to aid in the war effort. 

Together with the City, the federal government expanded and reconfigured the airport. In 1948, 

with the war over, the federal government officially surrendered its leasehold interest to the City. 
5

The City has continued to operate the airport since that date. It has, however, been 

unable to do so without serious adverse consequences for residents of the densely populated 

surrounding neighborhood, who are subject to the airport’s noise, pollution and safety hazards. 

The City has undertaken a number of efforts to alleviate these effects, including imposing noise 

limits, curfews, and banning certain types of aircraft.

The City’s attempts to ameliorate the effects of airport operations on local residents have

generated substantial litigation. In 1984, the FAA and the City entered into a Settlement 

Agreement that resolved “all existing legal disputes among the parties.” [Part 16 Complaint 

Ex. 5 at 5-6]. Pursuant to the Agreement, the City was required to “operate and maintain the 

Airport as a viable functioning facility . . . until July 1, 2015.” [Part 16 Complaint Ex. 5 at 9]. 

The Agreement further provided that “any future grant agreements between the City and the 

FAA which are designed to implement the programs covered by this Agreement, defined as 

those agreements for the federal funding of programs or improvements intended to further this 

agreement executed prior to July 1, 1995, shall be consistent with this agreement and shall not 

extend or alter the obligation of the City to operate Airport under this Agreement, except as may 

be required by federal statute.” [Part 16 Complaint Ex. 5 at 8-9].

On June 29, 1994, the City accepted an FAA Airport Improvement Program grant to fund 

certain airport enhancements including construction of certain blast walls. This grant was for 

Project Number 3-06-0239-06, conferred by Contract Number DTFA08-94-C-20857. The Grant 

Agreement described the work to be conducted with the grant funds, and calculated the federal 

government’s maximum obligation to be $1,604,700. [Santa Monica Answer Ex. A at 2]. The 

Agreement provided, however, that the “[f]inal determination of the United States share [of the 

project] will be based upon the final audit of the total amount of the allowable project costs and 
6

settlement will be made for any upward or downward adjustments to the Federal share of costs.” 

[Santa Monica Answer Ex. A at 2]. The Agreement further “incorporated” the “Assurances” 

attached to the contract, making them “a part” of the agreement. [Santa Monica Answer Ex. A at 

15]. One such provision, Assurance (B)(1), set forth a 20-year limit on any City obligations. It 

provided:

The terms, conditions and assurances of the grant agreement shall 

remain in full force and effect throughout the useful life of the 

facilities developed or equipment acquired for an airport 

development or noise compatibility program project, or throughout 

the useful life of the project items installed within a facility under a 

noise compatibility program project, but in any event not to exceed 

(20) years from the date of the acceptance of a grant offer of 

Federal funds for the project.

[Santa Monica Answer Ex. A at 15 (emphasis added)]. 

When the City accepted this grant offer, it thus understood that any obligations entailed 

with its acceptance would expire in twenty years at most. This 2014 expiration date was critical 

to the City. So long as the grant obligations did not extend beyond that time, the City would not 

find itself forced to operate the airport beyond the July 1, 2015 date set forth in the 1984 

Settlement Agreement.

The City and the FAA amended the 1994 Grant Agreement on two separate occasions. 

First, in 1999, the City and the FAA executed “Amendment No. 1,” which modified the 

description of the “airport development” instituted under the 1994 Grant Agreement. [Santa 

Monica Answer Ex. B at 1]. This amendment used the same contract and project numbers (3-06-

0239-06 and DTFA08-94-C-20857, respectively) as the original grant. [Santa Monica Answer 

Ex. B at 1].

Subsequently, in 2003, the City and the FAA executed “Amendment No. 2” to the 1994 

Grant Agreement. This amendment increased the grant amount by $240,600. [Santa Monica 
7

Answer Ex. B at 3]. That sum reflected the FAA’s reimbursement to the City of certain cost 

overruns it had experienced in completing the project covered by the Grant Agreement. It was 

also just below 15% of the original grant amount—the cap that Congress has prescribed for 

amendments to existing grants. See 49 U.S.C. § 47108(b)(3)(A). No substantive changes were 

made to the grant or the projects it covered. Like Amendment No. 1, Amendment No. 2 used the 

same contract and project numbers as the original grant. Amendment No. 2 also recognized that 

the City had “accepted” the “Grant Agreement” on June 29, 1994. And Amendment No. 2 

specifically provided that “[a]ll other terms and conditions of the Grant Agreement remain in full 

force and effect.” [Santa Monica Answer Ex. B at 3]. As one of the “terms and conditions” of 

the 1994 Grant Agreement had been the 2014 expiration of any grant assurance obligations, the 

2003 Amendment thus expressly preserved this 2014 sunset provision. 

The City signed Amendment No. 2 with exactly that understanding, as the declaration of 

Susan McCarthy, the former Santa Monica City Manager, confirms. McCarthy, who executed 

Amendment No. 2, explains that it was the City’s policy “to take all precautions to preserve the 

City Council’s flexibility to make operational changes at the Airport once the 1984 Agreement 

expired.” [McCarthy Declaration ¶ 6]. She further states that she has no recollection “that the 

FAA ever communicated to City Staff its current position on the implications of the 2003 

Amendment,” and that she “did not understand that the grant assurances accepted in the 1994 

grant agreement were being extended nine years.” [McCarthy Declaration ¶¶ 6, 8].

In the years since, the airport has remained controversial. The City has not, however, 

made any definitive plans to close the airport. The City has conducted a “Visioning Process,” 

pursuant to which it issued a report identifying ways in which the airport’s impacts might be 

mitigated. It has also initiated a federal lawsuit against the FAA seeking to clarify its rights to 
8

control portions of the land on which the airport sits. In addition, the City Council directed staff 

to explore the possible closure of the airport, but it has publicly and expressly confirmed that it 

was not yet making any final decisions regarding closure. At this time, the City continues to 

evaluate its options for the future of the airport.

B. Procedural Background

The Complainants initiated the instant proceeding by filing a Part 16 formal complaint 

alleging that, were the City to close the airport prior to 2023, it would violate its grant assurances 

and 49 U.S.C. § 47107(a). The City filed a motion to dismiss, observing that the complaint 

suffered from a number of procedural deficiencies: the Complainants could not possibly have 

been “directly and substantially affected by any alleged noncompliance” that had not, and might 

not ever, occur, and therefore they did not possess the standing required by 14 C.F.R. § 16.23(a); 

the Complainants had failed to identify a violation of any statute or grant assurance, as required 

by 14 C.F.R. § 16.23(b)(1); the complaint sought an advisory opinion as to possible future 

conduct, and was therefore outside the FAA’s Part 16 jurisdiction; and the complaint was filed 

without the good-faith efforts toward informal resolution required by 14 C.F.R. § 16.21. In its 

answer, the City reiterated these jurisdictional and procedural defects. It also noted that 

Complainants’ contentions failed on the merits, as the plain language of both the Grant 

Agreement and Amendment No. 2 precluded any argument that the City’s grant obligations 

extended beyond 2014.

The Director brushed aside all of these barriers to Complainants’ requested relief, 

declaring that the City “remains obligated by the grant assurances until August 27, 2023.” 

[Director’s Determination at 19]. Beginning with the jurisdictional and procedural issues, the 

Director first asserted that, although the “Complaint is not clear in terms of the specific Act 

violated,” and although the City continued to operate the airport in compliance with whatever 
9

obligations it might have, certain statements made by City officials might be understood as a 

repudiation of those obligations. [Director’s Determination at 8]. As for how the Complainants 

were “directly and substantially affected by any alleged noncompliance” resulting from the 

City’s so-called repudiation, the Director declared that they were harmed by the mere 

“uncertainty involving the grants.” [Director’s Determination at 10 (emphasis added)]. 

Defending its jurisdiction to issue such a wholly advisory opinion, the Director stated that “[a]ll 

potential grant assurance violations are within the scope of FAA [jurisdiction] to review and 

address”—even though, again, the City continues to operate the airport in accordance with 

whatever grant assurances might be applicable. [Director’s Determination at 10]. And, the 

Director concluded, because the City’s “position on the expiration date” of its grant obligations 

was “longstanding and fixed,” the Complainants’ obligation to engage in good faith efforts to 

resolve the dispute was satisfied notwithstanding their failure to send anything more than a 

perfunctory letter to the City prior to filing their complaint. [Director’s Determination at 11].

Turning to the merits of the complaint, the Director concluded that the City had extended 

its grant obligations by an additional 9 years simply by receiving a modest increase of $240,600 

in funding provided by Amendment No. 2 to the 1994 Grant Agreement. Apparently believing 

that principles of contract law required the City to provide separate and additional consideration 

to support this modification to the prior agreement, the Director reasoned that, absent the 

extension of the grant assurances, the City would have provided “no new consideration to 

support the additional funds provided.” [Director’s Determination at 16]. Rejecting the City’s 

assertion that there was “nothing to indicate that [Amendment No. 2] would have the effect of 

extending the expiration date of these assurances,” the Director declared that the amendment was 

“in essence the award of a new grant” that itself triggered application of the grant assurances.
10

[Director’s Determination at 16-17]. Significantly, the Director did not determine that the 

amendment was actually a new grant—only that it was “akin to a new grant.” [Director’s 

Determination at 16]. The Director cited nothing in the statutes governing federal airport grants, 

FAA regulations, or in the grant assurances themselves to support this “akin to a new grant” 

assertion. Nevertheless, the Director concluded that the City “knew or should have known that 

acceptance of these new funds would restart the date that these assurances would apply.” 

[Director’s Determination at 18]. The Director also rejected the City’s invocation of the ordinary 

rule of contractual interpretation that any ambiguity should be construed against the drafter—

here, the FAA. The Director reasoned that federal grants may be “partly a creature of statute,” 

and that therefore the FAA is “entitled to deference in interpreting the grant assurance 

obligations.” [Director’s Determination at 18]. The Director failed to acknowledge that none of 

the contractual language at issue here is, in fact, embodied in any statute.

ARGUMENT

Neither the Director’s conclusion that Amendment No. 2 imposed new grant assurances 

on the City, nor its conclusion that this question was properly before it in the first place, was

supported or supportable. The Determination is contrary to law, precedent, and policy, and will 

produce arbitrary results. It must be reversed. 

I. THE DIRECTOR’S DETERMINATION THAT THE 2003 GRANT 

AMENDMENT EXTENDED THE CITY’S GRANT OBLIGATIONS TO 2023 IS 

CONTRARY TO LAW, PRECEDENT, AND POLICY AND IS ARBITRARY AND 

CAPRICIOUS AND AN ABUSE OF DISCRETION

A. The Plain Language Of The Agreements Makes Clear That The City’s Grant 

Obligations Expired In 2014

This proceeding should begin and end with the plain language of the agreements the City 

signed with the FAA. Under “ordinary principles of contract law, . . . ‘[w]here the words of a 

contract in writing are clear and unambiguous, its meaning is to be ascertained in accordance 
11

with its plainly expressed intent.’” M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926, 933 

(2015) (quoting 11 R. Lord, Williston on Contracts § 30:6, p. 108 (4th ed. 2012)); see also

United States v. Seckinger, 397 U.S. 203, 209 (1970) (federal law governs interpretation of 

contract made by the United States pursuant to federal law). Here, the contractual language 

provides in no uncertain terms that any obligations the City incurred by executing the relevant 

grant agreements expired in 2014.

The 1994 Grant Agreement itself unambiguously sets forth a 2014 expiration date. The 

City accepted the FAA’s offer of funding for the project in question in June 1994. At that time, 

Assurance B(1), which was expressly incorporated into the agreement, provided that the City’s 

obligations under the grant would not “exceed (20) years from the date of the acceptance of a 

grant offer of Federal funds for the project.” [Santa Monica Answer Ex. A at 15]. Because the 

City accepted this grant offer in June 1994, its obligations under that agreement were therefore 

limited to the period prior to June 2014—as the Director’s Determination itself acknowledged. 

[Director’s Determination at 15].

In this respect, the 1994 Grant Agreement was consistent with the 1984 Settlement 

Agreement the FAA and the City had entered a decade previously. That Agreement specifically 

provided that “[t]he City will operate and maintain the Airport as a viable functioning facility . . .

until July 1, 2015.” [Part 16 Complaint Ex. 5 at 9]. It further specified that “any future grant 

agreements between the City and the FAA which are designed to implement programs covered 

by this Agreement, defined as those agreements for the federal funding of program 

improvements intended to further this Agreement, executed prior to July 1, 1995, shall be 

consistent with this Agreement and shall not extend or alter the obligation of the City to operate 
12

the Airport under this Agreement, except as may be required by federal law.” [Part 16 

Complaint Ex. 5 at 8-9] (emphasis added).

In accordance with this Settlement Agreement, the 1994 Grant Agreement did not 

“extend or alter the obligation of the City to operate the Airport.” Rather, by providing that any 

grant obligations incurred would expire in twenty years at most (i.e., in 2014), it continued to 

permit the City to discontinue or otherwise modify operation of the airport as of July 1, 2015 to 

serve the best interests of its residents.

Amendment No. 2, executed in 2003, did not change matters. To the contrary, it 

expressly left the expiration date in place. Amendment No. 2 modified the 1994 Grant 

Agreement in only one respect, providing that the “maximum obligation stated on page 2, 

condition 1 [of the 1994 Grant Agreement] is hereby increased by $240,600.00, from 

$1,604,700.00 to $1,845,300.00.” [Santa Monica Answer Ex. B at 3]. Such a modification had 

been contemplated in the 1994 Grant Agreement itself, which, in recognition of the possibility of 

cost overruns of the sort that in fact occurred, provided that “[f]inal determination of the United 

States share [of the project] will be based upon the final audit of the total amount of the 

allowable project costs and settlement will be made for any upward or downward adjustments to 

the Federal share of costs.” [Santa Monica Answer Ex. A at 2 ].

Otherwise, Amendment No. 2 did not make, and actually disclaimed making, any 

substantive change to the 1994 Grant Agreement. In particular, Amendment No. 2 did not again 

invoke and incorporate the FAA’s general grant assurances. Unlike the original Grant 

Agreement, it did not provide that the grant assurances were “incorporated hereto,” and “made a

part hereof.” Instead, Amendment No. 2 stated: “All other terms and conditions of the Grant 

Agreement remain in full force and effect.” [Santa Monica Answer Ex. B at 3 (emphasis 
13

added)]. Given the June 30, 2015 termination date of the 1984 Agreement, the City considered 

one of the 1994 Grant Agreement’s most important “terms and conditions” to be that any 

obligation imposed by the Agreement would expire in 2014. Amendment No. 2 made clear that 

this 2014 expiration date remained “in full force and effect.”

These limitations on the scope of Amendment No. 2 reflected its status as an amendment

to a preexisting grant agreement, and not a new grant agreement. It was, after all, entitled 

“Amendment No. 2 to Grant Agreement for Project No. No. [sic] 3-06-0239-06”—a name given 

to it by the FAA. [Santa Monica Answer Ex. B at 3 (emphasis added)]. It reiterated that the 

“Grant Agreement” was “accepted” on June 29, 1994, and it did not set forth any new or 

different date of “acceptance” of a grant offer. And not only did it employ the same project 

number as the 1994 Grant Agreement, it also used the same contract number (DTFA08-94-C20857). [Santa Monica Answer Ex. B at 3]. As this title, grant acceptance date, and numbering 

all confirm, Amendment No. 2 was intended to modify only the limited portion of the 1994 

Grant Agreement it claimed to modify: the provision “on page 2, condition 1” setting the 

amount the United States might pay to complete the project. [Santa Monica Answer Ex. B at 3]. 

Even the amount of this modification made clear that Amendment No. 2 would in fact be an 

amendment, and not a new grant: the $240,600 figure was 14.99 % of the original grant amount, 

just below the 15% threshold that Congress has established for amendments to existing grants. 

See 49 U.S.C. § 47108(b)(3)(A). By accepting this amendment to the existing agreement, the 

City did not also thereby agree—sub silentio, and indeed contrary to the plain terms of 

Amendment No. 2’s express disclaimer of additional substantive changes—to modify any other 

key terms of the agreement.
14

B. In Rejecting The Plain Meaning Of This Contractual Language, The 

Director’s Determination Relied On An Erroneous Understanding Of The 

Consideration Requirement

The Director’s contrary interpretation of Amendment No. 2 was based on the entirely 

unbriefed premise that the City was required to provide something extra in exchange for the 

additional funds the FAA provided, and that “[t]he only consideration for the amendment 

provided by the City . . . would be the continued applicability of the grant assurances using the 

date of the signed second amendment as the starting date.” [Director’s Determination at 16].

But the Director’s understanding and application of the consideration requirement involved at 

least two fundamental errors.

First, and most important, the Director erred in presuming that in 2003 consideration was 

necessary or even relevant. Even assuming that the general requirement of consideration applies

to this type of modification to an existing contract,

1 the absence of consideration would mean

only that the FAA’s promise was not enforceable, not that its promise could never be made or 

carried out. That is, an exchange of promises might be necessary to make the FAA’s 

contemplated payment enforceable in a court. If, for example, the FAA promised to grant the 

City a million dollars as a gift, the City could not (absent reliance or some other substitute for 

consideration) sue to force the FAA to fulfill that promise. See, e.g., Dougherty v. Salt, 227 N.Y. 

200, 202 (1919) (a simple donative promise is “unenforceable”). But not all grants need be 

 1 This is a questionable assumption in its own right. “The modern trend appears to recognize the 

necessity that courts should enforce agreements modifying contracts when unexpected or 

unanticipated difficulties arise during the course of the performance of a contract, even though 

there is no consideration for the modification, as long as the parties agree voluntarily.” Angel v. 

Murray, 113 R.I. 482, 492 (1974). Thus, the Uniform Commercial Code, for example, provides 

that “[a]n agreement modifying a contract within this Article needs no consideration to be 

binding.” U.C.C. § 2-209(1). In essence, the consideration promised in the initial exchange can 

be said to support future modifications in performance—especially where, as here, the original 

agreement contemplates future amendments. The Director failed to consider the possibility that, 

under general principles of contract law, a modification to a preexisting contract of this sort may 

be affected without consideration.
15

enforceable in this fashion, and nothing precludes the FAA from making such an unenforceable

grant.

The question here is what conditions, if any, the FAA attached to Amendment No. 2. 

That question must be answered by examining the terms of that agreement—which, again, 

actually refute the possibility that the 1994 agreement’s grant assurances would be extended until 

2023. The question cannot be answered simply by presuming, as the Director did, that any 

increase in grant funding necessarily exacts a corresponding promise for additional performance. 

There is no reason to assume that the City need have been able to sue to enforce Amendment 

No. 2 against the FAA. Indeed, the City is not seeking to compel the FAA to pay out the funds 

that it said it would pay; the FAA has already made the relevant payments. See Angel v. Murray, 

113 R.I. 482, 489 (1974) (“Since consideration is only a test of the enforceability of executory 

promises, the presence or absence of consideration for the first payment is unimportant because 

the city council’s agreement to make the first payment was fully executed at the time of the 

commencement of this action.”).

In reaching a contrary conclusion, the Director cited two Supreme Court decisions: 

Jackson v. Birmingham Board of Education, 544 U.S. 167 (2005), and Pennhurst State School 

and Hospital v. Halderman, 451 U.S. 1 (1981). [Director’s Determination at 16]. These 

decisions do not, however, stand for the proposition that each and every payment of federal 

funds must be supported by consideration. Far from it. They instead describe the limits of the 

federal government’s power to impose conditions on the recipients of federal funds. They hold 

that the federal government may utilize the power derived from the Spending Clause to

effectively legislate or dictate the actions of fund recipients only if the government makes the

conditions of its funding exceedingly clear. See Pennhurst, 451 U.S. at 17 (while “Congress 
16

may fix the terms on which it shall disburse” funds, “if Congress intends to impose a condition 

on the grant of federal moneys, it must do so unambiguously”) (emphasis added); accord 

Jackson, 544 U.S. at 183; cf. also National Federation of Independent Businesses v. Sebelius, 

132 S. Ct. 2566, 2604 (2012) (controlling opinion of Roberts, C.J.) (while the federal 

government can use “financial inducement” to offer “relatively mild encouragement,” it cannot 

wield this power as a “gun to the head”). Nothing in Jackson, Pennhurst, or any other similar 

decision would compel the FAA, when amending grant funds within the limits set by Congress, 

to extract new return promises from the recipient. Certainly, none of these decisions would 

preclude the FAA, or any other agency, from providing additional funding to cover cost overruns 

incurred in a previously contracted-for project. That, as its plain terms reveal, is all that 

Amendment No. 2 accomplished.

Second, and in any event, even if the City were required to provide consideration in 

exchange for the FAA’s increase in funding, the Director erred in concluding that this 

consideration must have been the City’s acceptance of an additional nine years of grant 

assurance obligations. In fact, the parties’ course of dealing suggests a far more plausible

candidate: the City’s commitment to use the granted funds (or the local funds thereby freed up)

for airport maintenance. The City’s request for additional funds to cover the 1994 Grant 

Agreement’s cost overruns (which the Director introduced and cited as Exhibit 11) made this 

benefit plain. The City expressly noted that the “requested reimbursement funds represent a 

substantial amount of revenue that could be utilized for much-needed and differed airfield 

maintenance projects.” The City’s promise to, as the same letter put it, use the reimbursement 

funds to “enhance and maintain the Santa Monica Airport” was itself beneficial to the FAA. 

After all, the agency is charged with ensuring that “the airport and facilities on or connected with 
17

the airport will be operated and maintained suitably.” 49 U.S.C. § 47107(a)(7). The benefits 

associated with airport improvements were what Amendment No. 2 referred to in mentioning the 

“benefits to accrue to the parties.” [Santa Monica Answer Ex. B at 3]. Given the FAA’s receipt 

of these benefits, the Director’s conclusion that Amendment No. 2 did not mean what it said in 

providing that “all other terms and conditions of the [1994] Grant Agreement remain in full force 

and effect” cannot be supported even under the erroneous assumption that some sort of 

consideration was required.

C. The Director’s Determination Further Relied On The Erroneous Conclusion 

That Contractual Ambiguity Need Not Be Resolved Against The Agency, But 

That The Agency Is Instead Free To Resolve Any Ambiguity In Its Favor

The Director’s Determination was also premised on a separate misapplication of basic 

contractual principles. As noted above, the relevant contractual language is not ambiguous;

instead, the 1994 Grant Agreement and Amendment No. 2 to that agreement together make plain 

that City’s grant obligations expired in 2014. But even if the terms of these documents left some 

room for doubt, general principles of contract law and the law governing federal grants require 

that this doubt be resolved in the City’s favor. The Director, however, applied the opposite

presumption, and instead twisted the contractual language to favor the FAA’s interpretation. But 

contrary to the Director’s assertion, the City did not agree to the terms fashioned by the Director. 

The City certainly was not put on fair and reasonable notice that such reinterpretations of the 

Grant Agreement and Amendment No. 2 were possible.

1. The contractual language must be construed against the FAA, which 

drafted the agreements

Pursuant to what is sometimes known as the rule of contra proferentem, when there are 

multiple “reasonable meanings of a promise or agreement or a term thereof, that meaning is 

generally preferred which operates against the party who supplies the words or from whom a 
18

writing otherwise proceeds.” Restatement (Second) of Contracts § 206 (1981). The federal 

government, like any other contracting party, is subject to this “general maxim” of contract law. 

Seckinger, 397 U.S. at 210; see id. (“a contract should be construed most strongly against the 

drafter, which in this case was the United States”). Here, the FAA drafted both the 1994 Grant 

Agreement and Amendment No. 2. Thus, to the extent that these agreements create ambiguity as 

to the duration of the City’s grant obligations, the City’s reasonable interpretation must prevail 

over that of the FAA.

Indeed, this principle of contract construction carries particular force where, as here, the 

agreement in question imposes conditions on a governmental recipient of federal grant money

and compels the performance of duties. That is because such grant conditions reflect the 

exercise of federal power under the Spending Clause. And, as the Supreme Court has held,

“[j]ust as a valid contract requires offer and acceptance of its terms, the legitimacy of Congress’ 

power to legislate under the spending power . . . rests on whether the [recipient] voluntarily and 

knowingly accepts the terms of the ‘contract.’” Barnes v. Gorman, 536 U.S. 181, 186 (2002) 

(some internal quotation marks omitted, alterations in original). Accordingly, when the federal 

government “intends to impose a condition on the grant of federal moneys, it must do so 

unambiguously.” Id. This clear-statement requirement “enable[s] [recipients] to exercise their 

choice knowingly, cognizant of the consequences of their participation.” Pennhurst, 451 U.S. at 

17; see also id. at 25 (“The crucial inquiry, however, is not whether a [recipient] would 

knowingly undertake that obligation, but whether Congress spoke so clearly that we can fairly 

say that the [recipient] could make an informed choice.”). It also ensures that the federal 

government is not simply directing state and local officials to do as it commands, in violation of 
19

the Constitution’s anti-commandeering mandate. See National Federation of Independent 

Businesses, 132 S. Ct. at 2602; Printz v. United States, 521 U.S. 898, 933 (1997).

Airport Improvement Program grants are no exception to this rule. In fact, the principle 

that grant recipients must be given clear notice of any grant conditions is embodied in 49 U.S.C. 

§ 47107(h), which requires the FAA to provide notice and an opportunity for comment on any 

proposed modification of grant assurances—particularly, an abrupt and substantial change in 

their duration. As the agency has previously concluded, this provision confirms that obligations 

not previously made clear to grant recipients cannot be retroactively imposed. Air Trans. Ass’n. 

of America v. City of Los Angeles, FAA Final Decision and Order, Docket No.13-95-05, at *91

(2009) (“In light of FAA’s obligations under section 47107(h), the Director properly concluded 

that the agency itself was ‘bound’ by the terms of its orders, in the sense that the agency could 

not compel the City to comply with new policy expanding its grant obligations adopted after it 

requested advice.”).

2. The Director erred in concluding that this maxim was inapplicable, and 

that the FAA should instead receive deference in interpreting these 

agreements

In rejecting the application of contra proferentem and refusing to construe the relevant 

agreements in the City’s favor, the Director relied upon inapposite precedent governing the 

interpretation of statutory, rather than contractual, provisions. Citing Bennett v. Kentucky 

Department of Education, 470 U.S. 656 (1985), the Director declared that because “grants 

originate in and are governed by Federal statutes, the rules governing statutory interpretation 

apply,” and thus the “FAA is entitled to deference in interpreting the grant assurance 

obligations.” [Director’s Determination at 18].

Bennett, however, addresses a different issue. It reflects the general principle that grant 

agreements incorporating statutory directives may be subject to the ordinary rules of statutory 
20

interpretation, and that the implementing agency may therefore receive some measure of 

deference. See id. at 669-70; see also City and County of San Francisco v. FAA, 942 F.2d 1391, 

1396 (9th Cir. 1991) (according deference to FAA in its interpretation of the “statutory condition

imposed by [49 U.S.C. §] 2110(a)(1) and incorporated in the grant contract”). In Bennett, the 

Court confronted a grant agreement dispute involving the implementation of a statutory mandate: 

Congress itself had provided that the federal funds received could not “supplant such funds from 

non-Federal sources.” Bennett, 470 U.S. at 660 (quoting 20 U.S.C. § 241e(a)(3)(B) (1970 ed.)). 

Enforcing this provision required the agency, as in other cases of statutory interpretation, to 

resolve certain ambiguities contained in the statute. Id. at 669. The Court therefore concluded 

that the agency’s implementation of that directive “cannot be viewed in the same manner as a 

bilateral contract governing a discrete transaction.” Id. at 657.

2

The circumstances are entirely different where, as here, no statutory grant condition is at 

issue. None of the relevant terms in either the 1994 Grant Agreement or Amendment No. 2 

directly incorporate or implement any statutory provision. Assurance (B)(1), invoked by the 

1994 agreement, imposes a 20-year limit on grant assurances that is found nowhere in the 

governing statute. Likewise, and even more important, Amendment No. 2’s provision that “[a]ll 

other terms and conditions of the Grant Agreement remain in full force and effect” is a 

straightforward, commonly used and understood contractual term that derives from no statute. 

This dispute thus centers on the interpretation of the terms of what is, in essence, “a bilateral 

contract governing a discrete transaction.” Bennett, 470 U.S. at 669. The FAA has no particular 

 2 Even in such a case of statutory interpretation, the Court was unwilling to go so far as to hold—

as the Director apparently would—that the grant recipients in that case “guaranteed that their 

performance under the grant agreements would satisfy whatever interpretation of the terms might 

later be adopted by the Secretary, so long as that interpretation is not ‘arbitrary, capricious, or 

manifestly contrary to [the statute].’” Bennett, 470 U.S. at 670 (quoting Chevron U.S.A. Inc. v. 

Natural Resources Defense Council, 467 U.S. 837, 844 (1984)).
21

expertise in interpreting contractual language of this sort, or any specially delegated authority to 

do so. In such a case, no deference to the agency is warranted. See Clay Tower Apartments v. 

Kemp, 978 F.2d 478, 480 (9th Cir. 1992) (“[T]he parties executed a contract, and our inquiry 

focuses on the contractual requirements. This focus does not demand deference to HUD’s 

statutory interpretation.”).

In any event, even assuming that the FAA were entitled to deference, that would not 

render the principle of contra proferentem inapplicable. Instead, that rule continues to govern 

the FAA’s interpretation of the relevant agreements even if the agency’s reading might warrant 

some deference. Cf. INS v. St. Cyr, 533 U.S. 289, 320 n.45 (2001) (“Because a statute that is 

ambiguous with respect to a retroactive application is construed under our precedent to be 

unambiguously prospective, there is, for Chevron purposes, no ambiguity in such a statute for an 

agency to resolve.”) (internal citation omitted). That the FAA may be entitled to deference does 

not mean, as the Director apparently believed, that it is free to adopt whatever interpretation of a 

contract it believes to be most favorable to it. Consistent with general principles of contract law 

and the law governing federal grants, the terms of the City’s agreements with the FAA, even 

when construed by the FAA, must still be construed against the FAA. See Barnes, 536 U.S. at 

186; Seckinger, 397 U.S. at 210.

3. The City’s understanding that Amendment No. 2 did not extend its grant 

assurance obligations was reasonable and therefore must prevail

Under a proper application of the principle that contractual ambiguity is construed in the 

City’s favor, the City’s understanding of Amendment No. 2 must prevail. That interpretation, as 

discussed above, reflects a straightforward reading of Amendment No. 2’s terms: by preserving 

“[a]ll other terms and conditions of the Grant Agreement” in “full force and effect,” the 

amendment necessarily retained the 2014 expiration date set forth in the 1994 Grant Agreement. 
22

That interpretation is “reasonable,” and thus should be accepted here. Restatement (Second) of 

Contracts § 206 (1981).

The Director pointed to nothing that would render this interpretation unreasonable. The 

Director observed only that under Assurance B(1) “the not-to-exceed date is linked to ‘a offer’ 

and not limited to the original offer.” [Director’s Determination at 18]. But the Director’s 

ungrammatical paraphrasing of Assurance B(1) omits its key language: the not-to-exceed date 

begins “the date of the acceptance of a grant offer of Federal funds.” [Santa Monica Answer 

Ex. A at 15 (emphasis added)]. Amendment No. 2 may have increased the original grant

amount, but it was not itself a new “grant offer.” It was, instead, an amendment to a prior grant 

offer. That was why it was styled an “Amendment,” why it used the same contract and project 

number as the 1994 Grant Agreement, why it stated that the grant was accepted on June 29, 

1994, why it did not attempt to specify a new grant acceptance date, and why it failed to 

specifically incorporate the grant assurances as the Grant Agreement itself had. That is also why 

Amendment No. 2 expressly retained all other “terms and conditions” of the 1994 grant offer 

itself—language that the Director’s Determination did not even attempt to reconcile with its 

strained reading of Assurance B(1). For all these reasons, Amendment No. 2 did not trigger 

application of Assurance B(1).

At the very least, nothing in Assurance B(1) or Amendment No. 2 provided the City with 

the requisite clear notice that acceptance of these additional funds would subject it to the grant 

assurances for an additional nine years. See Pennhurst, 451 U.S. at 17 (“There can, of course, be 

no knowing acceptance if a [recipient] is unaware of the conditions or is unable to ascertain what 

is expected of it.”). Consistent with the terms of the 1984 Settlement Agreement and the City’s

long-expressed policy to seek closure of the airport, the City had taken care to ensure that all 
23

grant obligations would expire prior to the July 1, 2015 date on which the Settlement Agreement 

would no longer compel the City to operate the airport. The City did not, and never would have, 

accepted the small amount of additional funds the FAA offered in 2003 had it understood that it 

thereby committed itself to operating the airport into 2023.

Indeed, as the declaration of former City Manager Susan McCarthy makes clear, the City 

was never put on notice of the FAA’s newly advanced interpretation of Amendment No. 2. 

McCarthy, who in fact signed Amendment No. 2 as the City’s designated official representative, 

has no memory of the FAA ever communicating “to City Staff its current position on the 

implications of the 2003 Amendment.” [McCarthy Declaration ¶ 8]. She thus had no 

understanding that “the grant assurances accepted in the 1994 grant agreement were being 

extended nine years.” [McCarthy Declaration ¶ 6].

D. The Director’s Determination Was Premised On Its View That A Grant 

Modification May Be “Akin To A New Grant,” An Arbitrary Classification 

Wholly Unsupported By The Relevant Statutes And Regulatory Guidance

The Director’s conclusion that Amendment No. 2 reset the grant assurances’ expiration 

date was also premised on his determination that Amendment No. 2 was “akin to a new grant,” 

rather than a mere modification of the existing grant agreement. [Director’s Determination at 

16]. But an examination of the panoply of laws, policies, practices, precedent, and guidance 

regarding FAA grant assurances reveals no category of modification “akin to a new grant.” 

Nothing in the grant assurances themselves, or in any agency guidance materials, refer to such a 

concept. See, e.g., FAA, Airport Compliance Manual, Order 5190.6B (2009) at Sec. 4.3 

(advising airport operators on the duration of federal grant obligations and releases from federal 

obligations, but making no mention of their duration being extended by grant amendments that 

are “akin to a new grant”).
24

Instead, the relevant guidance materials demonstrate that the agency has recognized a 

sharp distinction between new grants and modifications to existing grants. They also make clear 

that Amendment No. 2 falls on the “modification” side of this line.

Had Amendment No. 2 in fact been a “new grant,” it would have been subjected to a very 

different process than the simple grant amendment the FAA and the City entered into in 2003. 

The FAA’s AIP Handbook effective in 2003 detailed the specific procedures for the offer and

acceptance of a new airport grant. See FAA, Airport Improvement Handbook, Order 5100.38B 

(2002) at §§ 11:1 & 11:4. Similarly, the current version of the Handbook continues to provide 

detailed requirements for such new grants. See FAA, Airport Improvement Handbook, Order 

5100.38D (2014) at § 5:4 (“Grant Application, Offer and Acceptance”). The FAA did not 

require the City to submit a new grant application or anything “akin to” a new application before 

approving Amendment No. 2 in 2003.

Instead, the FAA followed its routine procedure for increasing the funding under an 

existing grant. That process was described in a separate section of the FAA’s AIP Handbook. 

See FAA, Airport Improvement Handbook, Order 5100.38B (2002) at § 11:5 (“Grant 

Amendments”). This section of the Handbook specifically recognizes that a grant agreement 

may be modified by increasing the grant amount. Id. Nowhere does it indicate that, by simply 

increasing funding for an existing grant, such an amendment may in fact be “akin to a new 

grant.” 

That even the FAA understood Amendment No. 2 to be an amendment, and not a new 

grant, is demonstrated by its report to Congress submitted that year. In this report, the FAA 

stated that it had disbursed $123 million for “increases in existing grant agreements,” a category 

it reported separately from “new grant agreements.” FAA, Report to Congress: Twentieth 
25

Annual Report of Accomplishments (May 2004) at 11, available at: 

http://www.faa.gov/airports/aip/grant_histories/media/annual-report-2001-03.pdf (emphasis 

added) (“2003 Report to Congress”). Notably, the FAA did not report the City in its separate list 

of recipients of new “AIP Grants Awarded in FY 2003.” Id. at Figure C-9. Likewise, the FAA 

failed to include the City in its Grant Histories database for 2003. See FAA, Fiscal Year 2003 

Approved Grants, available at: http://www.faa.gov/airports/aip/grant_histories/media/grants2003.pdf. These omissions confirm that the agency did not consider the City to have been 

awarded a new grant or anything “akin to” a new grant in 2003, when the parties executed 

Amendment No. 2.

The FAA’s distinction between new grants and amendments to existing grants reflects the 

line that Congress itself has drawn. Congress has expressly recognized that an existing grant for 

an airport project may be augmented to provide for additional funding, specifying that the 

maximum federal grant obligation “for an airport development project” may be increased by “not 

more than 15 percent.” 49 U.S.C. § 47108(b)(3)(A). Moreover, in the context of authorizing the 

FAA to take corrective action for violations of grant assurances, Congress has separately listed

“new grant application[s]” and “proposed modification[s] to an existing grant that would 

increase the amount of funds made available.” 49 U.S.C. § 47111(e). These provisions 

demonstrate that Congress views new grants to be distinct from modifications to existing grants. 

Never has Congress suggested that, notwithstanding this distinction, grant amendments may be 

deemed “akin to new grants” for the purposes of extending grant assurances.

In seeking to find support for its novel interpretation that a modification of an existing 

grant agreement may be “akin to a new grant,” the Director’s Determination cited only to a pair 

of decades-old Comptroller General opinions. [Director’s Determination at 17]. Tellingly, the 
26

FAA has never before cited these Comptroller General opinions. And they provide no support 

for the Director’s conclusion here. These decisions stand for a far more limited proposition: 

under appropriations law, an increased grant award is chargeable to appropriations in the current 

fiscal year when the change is made. See 41 Comp. Gen. 134 (1961); 39 Comp. Gen. 296, 298 

(1959); U.S. Gen. Accounting Office, Principles of Federal Appropriations Law, 2d ed., at 10-

71. No one disputes that the Amendment No. 2’s increase in the grant amounts should be 

charged to the fiscal year in which it was made. Indeed, the FAA does just that whenever it 

increases a grant award. See 2003 Report to Congress at 11. That such modifications might, for 

accounting purposes, be charged to the year in which they were made has nothing to do with 

whether they represent a “new grant” that triggers renewed application of the grant assurances

and extension of their duration.

Accordingly, there is no support for the Director’s view that a subsequent increase and 

funding may be “akin to a new grant.” Absent any basis in the extensive legal and agency policy 

framework for the FAA’s grant assurance program, it was arbitrary and capricious for the 

Director to declare as much.

E. The Director’s Newfound Rule That Certain Amendments To Grant Offers 

Will Again Trigger The Grant Assurances Is Ambiguous And Procedurally 

Improper

The Director’s conclusion that the City remains bound by the 1994 grant assurances 

through 2023 is all the more problematic given the uncertain scope of the rule adopted. The 

Director’s Determination states that Amendment No. 2, at least, is “akin to a new grant,” and 

purports to restart the running of the 20-year clock for grant assurances. Otherwise, the 

Determination fails to clearly delineate why, exactly, Amendment No. 2 is such a “new grant,” 

or how this conclusion will be confined in future cases. But any understanding of the Director’s

interpretation of grant modifications would have a broad possible scope. This newly declared
27

rule thus represents a far-reaching change in the FAA’s policy guidance regarding grant 

assurances—one that may be adopted only pursuant to the notice-and-comment procedure 

mandated by 49 U.S.C. § 47107(h), allowing grant recipients to be put on fair and clear notice of 

the ramifications of any grant assurance.

The ambiguity inherent in the Director Determination’s attempt to shoehorn Amendment 

No. 2 into the category of “new grants” is illustrated by its differing treatment of Amendment 

No. 1. Pursuant to that amendment, the City and the FAA in 1999 modified the description of 

the project covered by the 1994 Grant Agreement. In the Determination, the Director suggested 

that Amendment No. 1, unlike Amendment No. 2, would not have restarted the Assurance B(1)’s 

20-year clock. [Director’s Determination 16]; see also SMAA v. City of Santa Monica, Docket 

No. 16-99-21, Director’s Determination at 23 (Nov. 22, 2000) (concluding, after the execution of 

Amendment No. 1, that the City’s grant assurances expire in 2014). But it cited two separate and 

not necessarily congruent rationales for this distinction: (1) Amendment No. 1 continued to 

provide that there would be “additional work performed”; and (2) Amendment No. 1 “add[ed] no 

funds.” [Director’s Determination at 16]. 

The first rationale appears to be a reference to the “consideration” requirement that the 

Director deemed to be lacking under the City’s interpretation of Amendment No. 2. See supra, 

at pp. 14-17. But such a ground of distinction raises a host of questions. Would Amendment 

No. 1 have triggered Assurance B(1) if it, like Amendment No. 2, had been adopted after the 

work was completed, or at least after the FAA had paid its designated share? What if 

Amendment No. 1 had narrowed the description of the work the City had performed without 

correspondingly reducing the FAA’s grant obligation? What if Amendment No. 2 had been 

executed in 1999? In this respect, unless it is reversed, the Director’s Determination will sow 
28

substantial uncertainty regarding grantees’ obligations that may take years of litigation to 

resolve.

The Director’s second proffered rationale suggests a more categorical rule: modifications 

that increase the FAA’s grant obligation in any amount will restart Assurance B(1)’s 20-year 

clock; modifications that do not, will not. That the Determination adopted such a categorical 

rule is suggested by its later reasoning that Assurance B(1)’s “not-to-exceed date is linked to ‘a

offer’ and not limited to the original offer.” [Director’s Determination at 18]. But as discussed 

above, the Director is actually mischaracterizing the terms of Assurance B(1), which applies to 

“the acceptance of a grant offer” and not just to “a offer.” See supra, at p. 22. And the Director 

identified no other support for the proposition that Assurance B(1) is triggered any time 

additional funds are extended under a preexisting grant agreement. Such a conclusion, which 

would apply to all of innumerable grants subject to the language of Assurance B(1), would be 

arbitrary and unsupported. 

Amounts in original grants are normally estimates, regularly subject to potential 

adjustment for cost overruns and variations. In fact, the additional $240,600 paid out pursuant to 

Amendment No. 2 was only a very small fraction of the $123 million in grant disbursement 

increases that the FAA approved in 2003. 2003 Report to Congress at 11. But nonetheless, the 

FAA has never before held that the grant of such additional funds will result in a new set of grant 

obligations or extension of the duration of existing grant assurances. And for good reason: such 

a conclusion would make superfluous 49 U.S.C. § 47108(b)(3)(A)’s provision allowing for 

amendments to grant amounts, as it would render all amendments that increase funds 

substantively equivalent to “new grants.”
29

Whatever the precise limits of the holding of the Director’s Determination, one thing is 

clear: the Determination announced an abrupt and arbitrary change in the FAA’s treatment of 

grant obligations. The FAA had never previously suggested that mere modifications to grant 

agreements—amendments permitted by the terms of the grant and by federal law—may 

themselves later be deemed to be “new” grants triggering extension of the duration of the grant 

assurances previously accepted with the original grant. In order to give grantees proper notice of 

this sort of new and far-reaching requirement, 49 U.S.C. § 47107(h) prohibits such a change in 

policy from being accomplished in a Part 16 proceeding. As the FAA has previously recognized, 

§ 47107(h) instead requires the “agency to provide notice and comment before making an abrupt 

change in grant assurance obligations and grant compliance policy.” Air Trans. Ass’n of 

America, FAA Final Decision and Order, Docket No.13-95-05, at *112 (2009). The agency’s 

failure previously to adopt the Director’s newly declared rule via the statutorily-mandated

procedure is yet another, independent reason that the Determination must be reversed.

II. THE DIRECTOR’S DETERMINATION THAT ANY CLAIM REGARDING THE 

CITY’S GRANT OBLIGATIONS WAS PROPERLY BEFORE IT WAS 

CONTRARY TO LAW, PRECEDENT AND POLICY

A. Complainants Have Not Been “Directly And Substantially Affected By Any 

Alleged Noncompliance” And Thus Lack Standing 

In order for the complaint to be properly before the Director, the Complainants were 

required to establish that they are “directly and substantially affected by any alleged 

noncompliance” on the part of the City. 14 C.F.R § 16.23(a). But because the City has not 

engaged in any “noncompliance” at all—alleged or otherwise—the Complainants cannot satisfy 

this standing requirement.

Indeed, the Complainants have failed to allege any concrete harm whatsoever. Instead, 

they have offered vague and conclusory allegations that their “business and operations already 
30

have been, currently are, and will continue to be adversely affected by the City’s repeated public 

announcements” concerning the airport’s future. The closest Complainants came to identifying 

any concrete harm was to complain of the City’s planned decision to offer three-year extensions

on leases that were set to expire in 2015. But the FAA has already rejected any argument that 

the City is required to extend long-term leases to airport tenants. See SMAA v. City of Santa 

Monica, Docket No. 16-99-21, Director’s Determination at 22-23 (Nov. 22, 2000) (“It would 

likely be unreasonable for the Airport to be required to enter into a lease agreement with an FBO 

or any aeronautical user that would provide for the Airport to be operated as an airport beyond 

July 1, 2015.”), affirmed by SMAA v. City of Santa Monica, Docket No. 16-99-21, Final 

Decision and Order at 19 (Feb. 4, 2003) (holding that no tenant at Santa Monica Airport is 

“‘entitled’ to a long term lease at the location of its choosing.”).

In nevertheless concluding that the Complainants had adequately established their 

standing, the Director reasoned that the City had “repudiated” the Grant Agreement, thus causing 

“uncertainty” that harmed the Complainants. [Director’s Determination 8, 10]. But whatever the 

City might have previously said regarding the expiration of its airport obligations, it cannot have 

repudiated those obligations unless it also specifically indicated its intent to commit an act 

breaching them. See Restatement (Second) of Contracts § 250 (1981) (“[A] repudiation a) is a 

statement by the obligor to the obligee indicating that the obligor will commit a breach that 

would be a material breach or b) a voluntary affirmative act rendering the obligor unable or 

apparently unable to perform without such a breach.”). That the City has not done.

In any event, even if the City had somehow repudiated the Grant Agreement, the 

Complainants are not themselves parties to that contract, and may complain of such a breach 

only if it somehow injures them. Declaring, as the Director did, that they had satisfied this 
31

requirement by pointing to mere “uncertainty” vitiates 14 C.F.R § 16.23(a)’s standing 

requirement. Uncertainty is nearly always present; any airport might at any time violate its grant 

obligations. Unless and until the City indicates that it plans to breach these obligations in a 

manner that would cause Complainants imminent harm, they cannot establish that they are 

“directly and substantially affected by any alleged noncompliance.” 14 C.F.R § 16.23(a).

B. Complainants Failed To State A Claim Under Part 16, And Thus Have 

Failed To Establish Any Basis For The Director’s Jurisdiction

For similar reasons, the Complainants have failed to fulfill their obligation to identify 

“the specific provisions of each Act that the[y] believe[] were violated,” as required by 14 C.F.R. 

§ 16.23(b)(1). As the FAA has held, this requirement ensures that the agency can “make a 

determination as to whether an airport sponsor is currently in compliance with the applicable 

federal regulations.” Larry L. Davis v. Jackson Municipal Airport Authority, Docket No. 16-10-

01, Director’s Determination at 16-17 (Jan. 18, 2011) (emphasis in original).

Here, however, it is undisputed that the City is currently in compliance with all federal 

regulations. It has taken no actions that would violate its grant assurances, nor has it indicated 

any immediate intent to do as much. Thus, as even the Director acknowledged, the “[c]omplaint 

is not clear in terms of the specific Act violated.” [Director’s Determination at 8]. 

In nevertheless disregarding the Complainants’ failure to state a claim, the Director again 

(incorrectly) relied on the theory that, even if the City had not violated its grant assurance 

obligations or indicated any intent to do so, it had somehow “repudiated” these obligations. 

[Director’s Determination 8; see supra, at p. 30]. The Director further reasoned that issuing a

determination in this proceeding would “assure[] both current and future compliance.” 

[Director’s Determination at 9].
32

But the defects in the complaint cannot be so easily overlooked. Because the 

Complainants identified no current violation, they were, in effect, asking the Director to render 

an advisory opinion. The Complainants were not seeking to have the Director resolve a live 

dispute; rather, they were requesting the Director to opine on the legal consequences of the 

purely hypothetical situation in which the City departed from its grant assurances at some point 

prior to 2023. Indeed, the wholly advisory nature of the Director’s Determination is revealed by 

the fact that, even in ruling for the Complainants, it failed to order the City to take any particular 

corrective action to comply with any specific Acts or grant assurances.

That the Director entertained this request, and in fact resolved that hypothetical 

controversy, was directly contrary to FAA precedent. As prior agency determinations have made 

clear, “Part 16 is not the proper venue to adjudicate contract disputes when no action has yet to 

be taken to implement the contract terms that are in a manner contrary to the grant assurances,” 

because the “Director will not speculate regarding the future” actions parties may take. 

Northwest Airlines Inc., et al. v. Indianapolis Airport Authority, et al., Docket No. 16-07-04, 

Director’s Determination at 29, 44 (Aug. 19, 2008); see also SMAA v. City of Santa Monica, 

Docket No. 16-99-21, Final Decision and Order at 22 (Feb. 4, 2003) (reminding complainants 

that “the purpose of a Part 16 investigation process is to determine whether or not an airport 

sponsor is in compliance with its Federal obligations in the current factual situation.”). By 

disregarding this precedent, the Director issued an advisory opinion, one that was outside the 

jurisdiction conferred in Part 16.

C. Complainants Failed To Satisfy The Pre-Complaint Resolution Requirement

The Director also erroneously overlooked a third procedural defect: the Complainants’ 

failure to satisfy their obligation to “engage in good faith efforts to resolve the disputed matter” 

prior to filing their complaint. 14 C.F.R. § 16.21(a). As the Director acknowledged, the 
33

Complainants filed their complaint following only one exchange of letters with the City, and 

never responded to the City’s invitation that they contact the City Attorney’s office should they 

wish to engage in further discussions. [Director’s Determination at 11]. But the Director 

deemed these minimal efforts sufficient, declaring that the “Complainants are not required to

conduct continued informal resolution efforts when it appears clear that the City’s position on the 

expiration date is longstanding and fixed.” [Director’s Determination at 11].

The cursory letters the Complainants sent the City cannot have constituted the requisite 

“substantial and reasonable effort” to achieve resolution. 14 C.F.R. §16.21(b)(1). The 

Complainants gave the City no opportunity to provide Complainants with assurances that might 

have obviated the need for these proceedings. This is true however “fixed” the City’s “position 

on the expiration date” might have been. Again, that position does not, on its own, harm 

Complainants. What the Complainants are actually concerned about are future actions the City 

might take, not its current views regarding obligations it has not violated even if they remain 

applicable. The Complainants engaged in no real efforts to negotiate with the City regarding its 

plans for the airport. Their complaint therefore should have been dismissed.

CONCLUSION

For the foregoing reasons, the Director’s determination must be reversed.

Dated: January 8, 2016 Respectfully submitted,
34

MARSHA JONES MOUTRIE

JOSEPH LAWRENCE

LANCE S. GAMS

IVAN CAMPBELL

SANTA MONICA CITY ATTORNEY’S 

OFFICE

1685 Main Street, Room 310

Santa Monica, CA 90401

Telephone: (310) 458-8336

ZANE O. GRESHAM

MORRISON & FOERSTER LLP

425 Market Street

San Francisco, CA 94105

Telephone: (415) 268-7000

/s/ G. Brian Busey

G. BRIAN BUSEY

PAUL VARNADO*

JAMES SIGEL*

MORRISON & FOERSTER LLP

2000 Pennsylvania Avenue, NW

Washington, DC 20006

Telephone: (202) 887-1500

* Application to the District of Columbia Bar 

pending. Practice supervised by principals of 

firm admitted to District of Columbia Bar.

Counsel for Respondent City of Santa Monica
35

CERTIFICATE OF SERVICE

I, G. Brian Busey, counsel for the City of Santa Monica, herby certify that pursuant to 14 

C.F.R. § 16.33 I have this day served the foregoing Brief on Appeal from the Director’s 

Determination on the following persons by first class mail, postage prepaid:

Richard K. Simon, Esq.

1700 Decker School Lane

Malibu, CA 90265

rsimon3@verizon.net

Office of the Chief Counsel

Attention: FAA Part 16 Docket Clerk

AGC-600

Federal Aviation Administration

800 Independence Avenue SW

Washington, DC 20591

9-AWA-AGC-Part-l6@faa.gov

Byron K. Huffman, Acting Director

Office of Airport Compliance and Management Analysis

Federal Aviation Administration

800 Independence Avenue SW

Washington, DC 20591

Dated: January 8, 2016 /s/ G. Brian Busey