BEFORE THE FEDERAL AVIATION ADMINISTRATION

WASHINGTON, D.C.

------------------------------------------------------------------------ : UNITED AIRLINES, INC., : : Complainant, : v. : Docket No. FAA

- 16

- 14

- 13 : THE PORT AUTHORITY OF NEW YORK : AND NEW JERSEY, : : Respondent. : :

------------------------------------------------------------------------

ANSWER OF UNITED AIRLINES, INC. TO THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY’S

MOTION FOR SUMMARY JUDGMENT Communications with respect to this document should be addressed to: Marc L. Warren Keith J. Harrison Gerald F. Murphy Steven J. Seiden CROWELL & MORING LLP 1001 Pennsylvani a Avenue, NW Washington, DC 20004 (202) 624

- 2500 mwarren@crowell.com Robert S. Span Alan K. Steinbrecher Sophy Chen STEINBRECHER & SPAN LLP 1155 F Street, NW, Suite 1050 Washington, DC 20004 (202) 559

- 8680 rspan@steinbrecherspan.com

Counsel for United Airlines, Inc.i TABLE OF CONTENTS Page (s)
I. INTRODUCTION

................................ ................................ .............................. 1 II. STATEMENT OF FACTS

................................ ................................ ................ 3 A. There Was No Negotiation over the EWR Flight Fee.

................................ 3 B. The Port Authority’s Contention that United Never Sought to Change the EWR Flight Fee Formula Is Not True.

................................ ........................ 6 C. United’s Complaint Contains Numerous Material Facts that Have Not Been Disputed by the Port Authority.

................................ ....................... 12 III. ARGUMENT

................................ ................................ ................................ .... 14 A. The Legal Standards Governing the Complaint and This Motion

........... 14 1. United Has Met Its Burden to Plead Facts Sufficient to Warrant Investigation.

................................ ................................ ....................... 14 2. On a Motion for Summary Judgment, the Port Authority Has Failed to Meet Its Burden to Prove the Absence of Genuine Issues of Material Fact on All Claims.

................................ ............................... 15 B. The FAA Has Jurisdiction to Investigate the Violations of Federal Law Identified in United’s Complaint.

................................ .............................. 18 1. The FAA Has Jurisdiction to Investigate Whether Rates Set by Written Agreement Violate Federal Law, and It Has Done So.

........ 19

a. There Is No Statutory Basis for the Port Authority’s Argument. 19 b. The Rates and Charges Policy Explicitly Confirms FAA Jurisdiction Here.

................................ ................................ ........... 22

c. The Case Law Also Supports FAA Jurisdiction.

........................... 26 i. The DOT and the FAA Have Recognized the FAA’s Jurisdiction to Review Claims Concerning Rates Se t by Agreement.

................................ ................................ ............. 26 ii. The Cases Cited by the Port Authority Are Inapposite.

....... 31ii d. The Rationale for Barring Claims by Parties Who Agreed to a Disputed Lease Term Does Not Apply Here.

................................ 36

e. The Complaint Identifies Violations of Federal Law Apart from the EWR Flight Fee Formula.

................................ ....................... 40 C. The Port Authority Has Failed to Meet Its Burden to Show the Absence of Any Genuine Issues of Material Fact.

................................ ....................... 41 1. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Unreasonable and Transparent EWR Flight Fees.

.......... 41 2. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Revenue Diversion.

................................ ............................ 47 3. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Unlawful Discrimination Against EWR Users.

................ 50 4. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Its Monopoly Power.

................................ .......................... 55 IV. CONCLUSION

................................ ................................ ................................ 56iii TABLE OF AUTHORITIES Page(s) Cases 41 North 73 West Inc. v. Westchester County , FAA Docket No. 16

- 07

- 13, Director’s Determination (Jun. 12, 2008)

............. 33

- 34 Adventure Aviation v. City of Las Cruces , FAA Do cket No. 16

- 01

- 14, Final Decision and Order (Sept. 9, 2003)

....... 33

- 34 , 37 Adventure Aviation v. City of Las Cruces , FAA Docket No. 16

- 01

- 14, Director’s Determination ( Aug. 7, 2002), at 13

................................ ................................ ................................ ........................ 34 Aero Ways, Inc. v. Delaware River & Bay Authority , FAA Docket No. 16

- 09

- 12, Director’s Determination (Aug. 30, 2010), at 14

................................ ................................ ................................ ........................ 16 Aerodynamics of Reading, Inc. v. Reading Regional Airport Authority , FAA Docket No. 16

- 00

- 03, Final Decision and Order (Jul. 23, 2001 ), at 2

- 3, 16

................................ ................................ ................................ ................. 37 Alaska Airlines v. Los Angeles World Airports , DOT Order 2007

- 6

- 8, Docket DOT

- OST

- 2007

- 27331 (Jun. 15, 2007)

.................. 5 2 Brendan Airways, LLC et al. v. Port Authority of New York and New Jersey , Order Directing Responses to Motion, DOT Order 2005

- 3

- 8, Docket DOT

OST

- 2005

- 20407 (Mar. 4, 2005)

................................ ................................ ............. 21 Cinicola v. Scharffenberger , 248 F.3d 110 (3d Cir. 2001)

................................ ................................ .................... 39 Continental Micronesia, Inc. v. Commonwealth of the Northern Mariana Islands and Commonwealth Ports Authority , DOT Order 95

- 4

- 14, Docket No. 50191 (Apr. 10, 1995)

................................ ... 26

- 27 Delta Air Lines v. Lehigh

- Northampton Airport Authority , DOT Order 95

- 5

- 8 , Dockets DOT

- OST

- 1995

- 80 and 50264 (May 4, 1995), at 2

................................ ................................ ................................ .... 20 , 26

- 28 In re Lavigne , 114 F.3d 379 , 386 (2d Cir. 1997)

................................ ................................ ............ 39iv

Miami Int’l Airport Rates Proceeding , DOT Order 97

- 3

- 26, Docket DOT OST

- 1996

- 1965 (Mar. 19, 1997)

................................ ................................ .. 29

- 30, 4 1 NLRB v. Bildisco & Bildisco , 465 U.S. 513 , 521 (1984)

................................ ................................ ........................ 39 Northwest Airlines, Inc. v. Indianapolis Airport Authority , FAA Docket No. 16

- 07

- 04, Director’s Determination (Aug. 18, 2008) , at 44

......... 31 Northwest Airlines, Inc. v. Indianapolis Airport Authority , FAA Docket No. 16

- 07

- 04, Final Decision and Order (Oct. 27, 2009) , at 1

................................ ................................ ................................ ..................... 30

- 31 Ortiz v. Jordan , 562 U.S. 180 (2011)

................................ ................................ ................................ 16 Penobscot Air Services , Ltd. v. FAA , 164 F.3d 713 (1st Cir. 1999).

................................ ................................ ............ 32 , 37 Roadhouse Aviations, LLC v. City of Tulsa , FAA Docket No. 16

- 05

- 08, Final Decision and Order (Jun. 26, 2007) at 1, 18

- 19

................................ ................................ ................................ ......... 32 , 37 Trans World Airlines, Inc. v. City and County of Denver, Co lorado , DOT Order 95

- 7

- 27 , Dockets DOT

- OST

- 1995

- 221 and 50414 (Jul. 21, 1995)

................................ ................................ ................................ .................. 21 Union Flights, Inc. v. City and County of San Francisco , FAA D ocket No. 16

- 99

- 11, Director’s Determination (Feb. 15, 2000), at 18

................................ ................................ ................................ .................. 2 6 , 30 V alley Aviation Services, LLP v. City of Glendale , FAA Docket No. 16

- 09

- 06, Director’s Determination (May 24, 2011)

............ 33 , 35 Statutes 11 U.S.C. § 365(a)

................................ ................................ ................................ ........ 39 49 U.S.C. § 47101

................................ ................................ ................................ ......... 19 49 U.S.C. § 47107(a)(1)

................................ ................................ ................................ 50 49 U.S.C. § 47107(b)(2)

................................ ................................ ................................ 48 49 U.S.C. § 47129

................................ ................................ ................................ .. passim 49 U.S.C. §§ 46101 , 46105

................................ ................................ ........................... 30 N.J. Stat. Ann 32:1

- 35.1

................................ ................................ .............................. 53 N.Y. Unconsol. Law §§ 6631

- 6647

................................ ................................ ............... 53v

Other Authorities 140 CONG. REC. S4398 (daily ed. Apr. 19, 1994)

................................ ...................... 20 14 C.F.R. Part 13

................................ ................................ ................................ .. passim 14 C.F.R. § 16.1

................................ ................................ ................................ ............ 19 14 C.F.R. § 16.23

................................ ................................ ................................ .......... 14 14 C.F.R. § 16.29(a)

................................ ................................ ................................ 14 , 16 14 C.F.R. § 302.1

................................ ................................ ................................ .......... 19 59 Fed. Reg. 53380, 53386 (Oct. 24, 1994)

................................ ................................ .. 29 60 Fed. Reg. 6919, 6927 (Feb. 3, 1995)

................................ ................................ ....... 29 61 Fed. Reg. 31994, 31998 (Jun. 21, 1996)

................................ ................................ . 25 77 Fed. Reg. 13027, 13030 (Mar. 5, 2012)

................................ .............................. 16

- 17 78 Fed. Reg. 55330, 55331

- 32 (Sept. 10, 2013)

................................ ........................... 23 78 Fed. Reg. at 55334

................................ ................................ ................................ .. 46 78 Fed. Reg. at 55 335

................................ ................................ ....................... 41, 49

- 50 78 Fed. Reg. 56135, 56136 (Sept. 12, 2013)

................................ ................................ 15 78 Fed. Reg. at 56135

................................ ................................ ................................ .. 17 Fed. R. Civ. P. 56(a)

................................ ................................ ................................ ..... 161

I. INTRODUCTION In its Motion for Summary Judgment (“Motion”), the Port Authority of New York and New Jersey (“Port Authority”) does not deny the facts underlying United Airlines, Inc. ’s (“United”) claims of significant violations of federal law:



### • The Flight Fee at Newark Liberty International Airport (“EWR”) is by far the highest in the country, and even exceeds by 75 percent the Flight Fee at John F. Kennedy Internationa l Airport (“JFK”).



### • EWR regularly generates huge operating surpluses, which are then diverted by the Port Authority to non

- airport uses, including spending on facilities neither owned nor operated by the Port Authority.



### • The EWR rate structure requires Unite d to pay $80 million more annually than an airline operating the same schedule at JFK, a significant and discriminatory cost disparity among similar aeronautical users of the Port Authority airports.



### • The EWR Flight Fee contains a hidden mark

- up on costs.



### • T he 2014 EWR Flight Fee rate base includes excessive and unreasonable costs. Instead, the Port Authority argues that United’s Complaint should be dismissed in toto because United is a signatory carrier at EWR, thereby depriving the Federal Aviation Administ ration (“FAA”) of jurisdiction to investigate the claimed violations of federal law.2

The Port Authority’s Motion should be denied for the following reasons:



### • The existence of a written agreement does not affect the FAA’s jurisdiction. The Port Authority’s argument is based on a misreading of applicable law. The FAA has considered complaints from parties to an agreement in the past and should continue to do so. There is no statutory basis for the FAA to refuse to hear United’s Complaint.



### • To fit its theor y, the Port Authority mischaracterizes United’s Complaint. United is not seeking resolution of a contract dispute. United seeks an investigation into significant violations of federal law governing airport rates and charges and use of airport revenue.



### • Th e facts demonstrate that United never “negotiated” the EWR Flight Fee formula or agreed to the Port Authority’s violations of federal law. To the contrary, the Port Authority rebuffed all requests by United to change the EWR Flight Fee methodology.



### • The C omplaint and the Motion demonstrate that there are numerous genuine issues of material fact. This is not a case for summary judgment. At every major airport in the country, the vast majority of airlines are signatories to some form of agreement setting rates and charges. Acceptance of the Port Authority’s argument that signatory carriers may not complain about any violations of federal law or the grant assurances would effectively immunize3

airports against any federal oversight. That would be bad polic y and is simply not the law. The summary judgment process was added to Part 16 in 2013 primarily to assist airports and the FAA to deal efficiently and quickly with frivolous complaints. United’s Complaint is anything but frivolous. It raises serious and significant questions about the Port Authority’s operation of EWR and compliance with federal law. The Motion should be denied.
II. STATEMENT OF FACTS A. There Was No Negotiation over the EWR Flight Fee. In its Motion, the Port Authority repeatedly refers to the admonition in the September 10, 2013 Policy Regarding Airport Rates and Charges (“Rates and Charges Policy”) that local negotiation and agreement are the preferred avenues to
rate

- setting. Port Au thority Memorandum In Support of Motion For Summary Judgment (“Mem.”) at 13

- 20. But the Port Authority submits no evidence to support its repeated assertion that the EWR Flight Fee is the result of a negotiation between the airlines and the Port Authority . In fact, all of the evidence points to a complete lack of negotiation. First, the Port Authority affirms that the EWR Flight Fee formula has remained unchanged (with one minor exception) since at least 1969, the date of Lease AN

- 535 with United. Mem. at 10. Second, the same formula is used for calculating the Flight Fee for all airlines operating at EWR. Garcia Decl. at 3, n. 4. Third, the formula was in Lease ANA

- 170, the lease that Continental Airlines, Inc.4

(“Continental”) assumed when it began operating at EWR in 1987. 1 Mem. at 9

- 10. Finally, as discussed in detail below, United’s attempts to negotiate changes to the formula to comply with federal law were repeatedly rebuffed by the Port Authority. See pp. 6

- 12, below. These facts admit to o nly two possible conclusions: (1) the original formula was so good that every airline operating at EWR since 1969 negotiated the exact same deal, or (2) there never were any negotiations and the EWR Flight Fee formula was a “take it or leave it” propositio n. Not surprisingly, the Port Authority offers no evidence to support the first conclusion , which is highly improbable for many reasons, not the least of which is that the formula results in the highest landing fee in the country by a large margin. For t he purposes of the pending Motion, however, it can safely be said that the issue of whether the EWR Flight Fee is the result of negotiations or voluntary agreement by United is in dispute and cannot be resolved on summary judgment. Contrary to the Port Aut hority’s argument, the fact that the term of the EWR F light Fee formula was extended does not change this result. Rather, it proves only that United wanted to continue to operate at EWR. More importantly, these term extensions all occurred in 1999 or earlier. As shown below, it was not until 2003, when new landing fees were be ing negotiated for JFK and LaGuardia Airport

1 The corporate merger that resulted in Continental Airlines, Inc. and United Air L ines, Inc. being owned by the then newly

- formed United Continental Holdings, Inc. took place on October 1, 2010. On Marc h 31, 2013 , the merger and inte gration process was completed with the formation of a single legal entity that is now known as United Airlines, Inc . References herein to “United” will include Continental Airlines, Inc.5

(“LGA”), that the unreasonable and discriminatory effect of the EWR formula began to become apparent. See pp. 7

- 12, below. 2 So, the fact that lease terms had been extended before 2000 does not indicate negotia tion of, or willing acquiescence to , the formula, much less prove the absence of a genuine issue of material fact. Additionally, first Continental and then United had no choice but to invest in the EWR hub. The New York metropolitan area is the most impor tant airline market in the country, generating in 2013 approximately 58 million “local” passengers ( i.e ., excluding passengers making connections at New York metropolitan area airports), 43% more than second place Los Angeles and far more than any other U. S. city. Rebuttal Report of Daniel M. Kasper (“Kasper Rebuttal Rep.”), ¶¶ 7

- 8 . Due to the area’s size and economic importance, all large (and most smaller) U.S. airlines provide service to one or more of its three airports, and all three U.S. large netwo rk carriers plus JetBlue operate hubs in the New York metropolitan area: United at EWR, American at JFK, Delta at both JFK and LGA, and JetBlue at JFK. Id . at ¶ 9. With respect to United, in 2013, 18.4% of its passenger revenues were generated by local passenger traffic. Id . at ¶ 8. With the inclusion of passengers making connections at its EWR hub, 27% of United’s passenger revenues were generated from the ser vicing of these three airports, and over 87% of United’s New York metropolitan area d epartur es were at EWR

. Id

. EWR is not an interchangeable commodity to United; due to slot constraints and

2 Indeed, it was in 2003 that C ontinental bega n to learn that the EWR formula might result in revenues in excess of costs ; notwithstanding that, despite repeated requests, the Port Authority repeatedly refused to provide information that would confirm the existence of a mark

- up until 2013. See pp. 7

- 12, below

.6

high demand, it would be impossible for United to relocate its EWR hub to JFK or LGA. Id

. at ¶ ¶ 15

- 16. In the context of these indisputable facts, the Por t Authority’s claim that United’s EWR investments somehow prove agreement to the EWR Flight Fee formula (Mem. at 4) makes no sense. First, the Port Authority does not and cannot present any evidence to support such a causal link. There is none. Second, there is nothing to suggest that the investments at EWR were made for any other reason than to keep United competitive with other airlines servicing this important, strategic area. Finally, if anything, the EWR investments show the opposite of what the Po rt Authority claims: that United was forced to accept the EWR Flight Fee formula on a take

- it

- or - leave

- it basis because its EWR hub was crucial to United’s operations. Again, for the purposes of the Port Authority’s Motion, there is a genuine issue of mat erial fact as to whether United voluntarily and knowingly agreed to or negotiated the Flight Fee methodology at EWR. B. The Port Authority’s Contention that United Never Sought to Change the EWR Flight Fee Formula Is Not True. The Port Authority devotes ma ny pages in its Motion to recounting the history of the leases at EWR, concluding that “Not once during the forty years of operating at EWR . . . did Continental or United ever seek to modify the flight fee formula . . .” Mem. at 11. That assertion is si mply wrong. In fact, the history of United’s communications with the Port Authority demonstrates conclusively that United attempted over and over again to engage in such dialogue and to reach agreement with the Port Authority. That same history also reve als that the Port7

Authority had no intention of engaging in such a collaborative effort, instead stonewalling (and ultimately ignoring) United’s questions about how the EWR Flight Fee was calculated. In 2003, negotiations were underway for new operating ag reements at JFK and LGA. The so

- called “Dewey Lease,” which had been in effect since 1953, was due to expire at the end of 2003. Thus, from 2003, and continuing until almost the end of 2004, a committee representing the airlines operating at JFK and LGA met with the Port Authority to negotiate what became known as the “Freedom Agreement” (in honor of those who lost their lives on September 11, 2001). Among other things, the Freedom Agreement established a new methodology for the flight fees at JFK and LG A. These times were also financially difficult for the airline industry, as the period following the tragic events of September 11 and the war in Iraq had depressed passenger demand for air travel. Declaration of Robert S. Span (“Span Decl.”) , ¶ 2. Aga inst this backdrop, in 2003, Continental expressed concern to the Port Authority about the EWR Flight Fee and asked that it be changed. Larry Kellner, Continental’s President and Chief Operating Officer, met with William DeCota, Director of Aviation at th e Port Authority in April 2003. Exhibit OO. A meeting was also held with the Chairman of the Port Authority Board of Commissioners. Exhibit PP. At these meetings, Continental presented specific proposals, including proposed changes to the EWR Flight Fe e formula. Id

.8

Throughout 2003 and into 2004, Continental continued to press the Port Authority for EWR rate relief. In March 2004, Nene Foxhall, then Vice President for State and Civic Affairs for Continental, wrote to Robert Lurie, Senior Policy Advisor to the Port Au thority’s Chairman, following up on yet another meeting. Ms. Foxhall expressed concern about the “substantial advantage” the New York carriers would enjoy as a result of the expected changes to the Dewey Lease and about an apparent “coverage” factor in th e EWR rate formula that allowed the Port Authority to generate 60% revenue in excess of costs. Exhibit QQ. She asked for further explanation as to this “ cover factor, ” 3 but no details were ever provided by the Port Authority and no opportunity to negotia te the EWR Flight Fee formula was ever offered. On October 11, 2005, Continental’s counsel wrote to the Port Authority to ask for detailed information about the EWR Flight Fee methodology. Exhibit RR. The letter referred to the fact that “on numerous occ asions in recent years,” Continental had expressed serious concerns that the EWR Flight Fee was not justified by its actual costs and was unfair and unreasonably high compared to fees at other U.S. airports, including JFK and LGA. Continental also request ed information regarding revenues and costs associated with the EWR airfield, net revenues from the airfield and from EWR as a whole, details of how airport revenues were spent, and whether a cover factor was applied to airfield costs, explaining that this

3 A “cover factor” is sometimes included in an airport charge to cover indirect costs or to comply with debt service coverage requirements.9

information was essential to evaluate whether the Port Authority was complying with federal law regarding rates and charges. Id

. The Port Authority responded by letter dated October 17, 2005, essentially stating that because Continental had an agreement setting the EWR Flight Fee methodology, Continental was not entitled to any information other than that necessary to determine that the EWR Flight Fee was being calculated in accordance with the agreement. Exhibit SS. By letter dated November 11, 2005, C ontinental wrote that, as a matter of both contract and federal law, it was entitled to the information it had repeatedly requested so it could determine whether actual costs were being used in the formula, whether there was a “cover factor” added, and whe ther an unreasonable revenue surplus was generated at EWR. Exhibit TT . A month later, having had no response from the Port Authority, Continental reminded the Port Authority of its request for information and inquired when it would be provided. Exhibit UU

. The Port Authority responded by letter dated December 23, 2005, this time denying that there was a 60 percent cover factor in the EWR Flight Fee calculation but again refusing to provide the requested information. Exhibit VV . Not surprisingly, it rep eated the basic themes that now pervade its pending Motion

– i.e ., that Continental had “negotiated” the EWR Flight Fee formula, that federal law did not apply to a fee set by agreement, and that Continental was stuck with the bargain it had made: “Therefo re, the Port Authority believes that under federal law (as well as state law), Continental is now bound by the agreement it struck with the10

Port Authority and its recent protestations about the level of the formula do not change that fact.” Id

. Continenta l continued with its efforts to discover the truth regarding the
rate

- making at EWR . On January 11, 2006, it again repeated its request for information sufficient to determine whether the Port Authority was acting in conformity with its grant assurances a nd federal law and stated that “the flight fee formula and methodology at EWR was established long before Continental began service there. Continental did not negotiate this formula.” Exhibit WW . The Port Authority did not provide the requested informat ion. Instead, the Port Authority’s next strategy to stonewall was to refer Continental’s request to the Port Authority Freedom of Information (“FOI”) Administrator. Exhibit XX . Continental dutifully waited until March for the FOI responses, which turned out to be little more than standard information that had been supplied previously to the airlines at EWR. At that point, on April 21, 2006, Continental renewed its original requests to the Port Authority. Exhibit YY

. On May 3, 2006, the Port Authority s uggested a meeting at which the Port Authority would purportedly review and explain the EWR Flight Fee calculation. Exhibit ZZ . Continental responded, agreeing to a meeting, but also making clear that it still needed the information originally requested in October 2005. Exhibit AAA . On June 5, 2006, the Port Authority confirmed that the meeting would take place on June 8. Exhibit BBB . On June 8, 2006, nine months after counsel’s first letter to the Port Authority, a meeting was held between represent atives of11

Continental and the Port Authority. At that meeting, Continental again asked for details about the calculation of the EWR Flight Fee and the amount and sources of airfield and airport revenue surpluses. The Port Authority again reiterated its
p osition that the terms of a written lease agreement trump federal requirements and that Continental was not entitled to the requested information. The Port Authority also said, however, that it would consider the requests further and respond shortly. On J uly 10, 2006, having heard nothing from the Port Authority, counsel for Continental emailed his counterpart at the Port Authority, asking when Continental would hear back from the Port Authority. Exhibit CCC . The Port Authority responded that same day, saying “You should hear from us shortly.” Id

. More than two months later, on September 22, 2006, having heard nothing since the July 10 email, and almost one year after the original letter requesting information, counsel for Continental again wrote to his counterpart, asking, “Does the Port Authority intend to respond? If so, when?” Exhibit DDD. The Port Authority never responded to that letter. Span D ecl. , ¶ 21

. This history demonstrates several facts that are inconsistent with the Port Authority’s argument in the pending Motion. First, on numerous occasions, Continental attempted to penetrate and understand the opaque EWR Flight Fee formula. On each occasion, t he Port Authority either gave contradictory responses or no responses at all. Never did the Port Authority supply the information needed12

for Continental to confirm and understand the mark

- up embedded within the formula. Second, Continental clearly attempt ed on several occasions to change the EWR Flight Fee. The Port Authority’s assertion that “Not once during the forty years of operating at EWR . . . did Continental or United ever seek to modify the flight fee formula” (Mem. at 11) is just plain false. Third, the Port Authority’s implication that Continental could have renegotiated the EWR Flight Fee formula is belied by the position the Port Authority took in 2006, 2013, 2014, 4 and which it takes today: “Continental is now bound by the agreement it stru ck with the Port Authority and its recent protestations about the level of the formula do not change that fact.” C. United’s Complaint Contains Numerous Material Facts that Have Not Been Disputed by the Port Authority. The Complaint asserts many facts, the gr eat bulk of which are not addressed, much less refuted, by the Port Authority. These facts, and the additional facts contained in this Answer, are listed in United’s Statement of Material Facts , filed with this Answer. These facts establish that summary judgment is not appropriate. To highlight just a few:



### • The airfield fees at EWR are the highest in the nation and 75% higher than at JFK, which the Port Authority also operates. Complaint, ¶¶
21

- 22.

4 Exhibits LL and MM, submitted with United’s Complaint, reflect the Port Authority’s continued intransigence in 2013 and 2014.13



### • The EWR rate structure requires United to pay $80 million more annually than an airline operating the same schedule at JFK, a significant and discriminatory cost disparity among similar aeronautical users of the Port Authority airports. Complaint, ¶ 23.



### • EWR typically generates an annual surplus in excess of $160 million and in the five

- year period 2007

- 2011 gave the Port Authority $1.6 billion in operating cash flow. Complaint, ¶ 59.



### • In 2014, the Port Authority spent approximately $181 million to repair the Pulaski Skyway and $60 million on the Wittpen n Bridge , and currently plans to spend $1.8 billion over a ten

- year period to improve these and other roads and bridges it neither owns nor operates. Complaint, ¶ 30.



### • The Port Authority staffs its Aircraft Rescue and Fire Fighting (“ARFF”) force with airp ort police, trained as firefighters, each of whom will cost the Port Authority an average of $242,000 annually in compensation, overtime, and benefits; the revised ARFF force will increase United’s costs at EWR by more than $25 million annually and almost 510% more than in 2012. Complaint, ¶ 86.



### • The Port Authority’s excessive overtime costs, which are included in the EWR Flight Fee (and then marked up) add millions of dollars annually to the unreasonable fees paid by United. Complaint, ¶ 55.14



### • The Port Auth ority

- controlled airports account for over 96% of all air travel to and from the New York metropolitan area. Carriers wishing to serve the New York metropolitan area have no choice but to use a Port Authority airport. Complaint, ¶ 65.



### • United could not m ove its operations to JFK or LGA . Complaint, ¶ 71. These uncontested facts are illustrative, not exhaustive, but create multiple genuine issues of material fact regarding each of the statutory violations alleged in the Complaint. The Motion for Summary J udgment should be denied.
III. ARGUMENT A. T he Legal Standards Governing the Complaint and This Motion 1. United Has Met Its Burden to Plead Facts Sufficient to Warrant Investigation. With respect to the burden of proof at the pleading stage in a Part 16 proceeding, the FAA applies the standards set forth in 14 C.F.R. §§ 16.23 and 16.29. The burden of proof “is on the complainant to show noncompliance with an Act or any regulation, order, agreement or document of conveyance issued under the authority of an Act.” 14 C.F.R. § 16.23(k). Then, “if, based on the pleadings, there appears to be a reasonable basis for further investigation, the FAA will investigate the subject matter of the complaint.” 14 C.F.R. § 16.29(a). While the FAA has not specifically delineated what would constitute a “reasonable basis” to warrant investigation under § 16.29, the agency has said that it will docket complaints that have any basis for filing, and will investigate complaints that seem legitimate and do not contain frivolous or extra neous issues.15

In the preamble to the 2013 Final Rule that updated the Rules of Practice for Federally

- Assisted Airport Enforcement Proceedings, the FAA addressed concerns from Airports Council International

- North America (“ACI

- NA”) regarding the agency’s assessment of complaints at the docketing stage. Specifically, ACI

- NA urged the FAA to be “more vigilant” in assessing such complaints. 78 Fed. Reg. 56135, 56136 (Sept. 12, 2013). The FAA countered that it continues to “closely scrutinize” incoming Part 16 complaints to ensure they are in compliance with the rule and that the agency “routinely” returns such complaints prior to the official docketing when one or more requirements are not met. Id . at 56137. But the agency maintained that it will docket c omplaints “that have any basis for filing under the rule” and that if a respondent feels that a complaint contains frivolous or extraneous issues, it can avail itself of the motions described in § 16.26. Id

. There can be no serious dispute that United’s Complaint sufficiently states a reasonable basis for investigation by the FAA. 5

2. On a Motion for Summary Judgment, the Port Authority Has Failed to Meet Its Burden to Prove the Absence of Genuine Issues of Material Fact on All Claims. A motion for summa ry judgment is governed by Rule 16.26(c), which provides in pertinent part:

5 The Port A uthority makes much of the assertion that United did not include the lease documents as exhibits to the Complaint. This is a red herring. As demonstrated by the exhibits to the Motion, the lease documents are extremely voluminous, 99% of which are irrelevant to the issues in the Complaint. By no means did United hide from the lease; rather, the Complaint clearly alle ges the existence of the lease and describes the formula for calculating the EWR Flight Fee. Nothing else is necessary, either for United’s burden of proof, or for an accurate narrative of the facts relevant to the Complaint.16 A motion for summary judgment may be based upon the ground that there is no genuine issue of material fact for adjudication and that the complaint, when viewed in the light most fa vorable to the complainant, should be summarily adjudicated in favor of the respondent as a matter of law.

This rule was modeled after Rule 56 of the Federal Rules of Civil Procedure. See 77 Fed. Reg. 13027, 13030 (Mar. 5, 2012). It also tracks the lang uage of Rule
56. See Fed. R. Civ. P. 56(a) (“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”) In federal courts, “[s]ummary ju dgment must be denied when the court of first instance determines that a ‘genuine dispute as to [a] material fact’ precludes immediate entry of judgment as a matter of law.” Ortiz v. Jordan , 562 U.S. 180, 183 (2011). Although the complainant ultimately be ars the burden of proof to establish the non

- compliance of the respondent ( see 14 C.F.R. § 16.29(a)), the respondent bears the burden of proof on a motion for summary judgment. See Aero Ways, Inc. v. Delaware River & Bay Authority , FAA Docket No. 16

- 09

- 12 , Director’s Determination (Aug. 30, 2010), at 14 (noting that the “proponent of a motion, request, or order has the burden of proof.”) This means that in order for the instant Motion to be granted, the Port Authority must persuade the FAA that, even when all the evidence is “viewed in the light most favorable to” United, there are no facts17

that would support the claims that : (1) the EWR Flight Fee violates federal law; (2) the ARFF and other expenditures violate federal law; (3) the Port Authority’s nondisclosure of significant facts concerning rates and charges at EWR violates federal law; (4) the Port Authority’s practice o f charging substantially higher fees for users at EWR than at its other airports violates federal law; and (5) the Port Authority’s diversion of EWR revenue violates federal law. The summary judgment mechanism was incorporated into Part 16 in 2013 as part of a broad rulemaking effort to simplify and streamline the process for investigating and adjudicating Part 16 complaints, including reducing the paperwork burden on the agency and airport sponsors. A responsive motion such as one for summary judgment, t he Port Authority and other airport groups argued, could be used to dispose of “frivolous” complaints filed merely to harass, intimidate, or cause financial hardship to a respondent. 77 Fed. Reg. 13027, 13030 (Mar. 5, 2012). The FAA agreed, and decided t o institutionalize the summary judgment provisions in Part 16 to provide the agency and the parties an opportunity to narrow the issues and allow the FAA to “conserve resources by investigating only legitimate, non

- frivolous grant compliance issues.” Id

. ; see also 78 Fed. Reg. at
56135. Of course, United’s Complaint is far from frivolous or extraneous. It presents credible, substantiated evidence and arguments that merit a thorough examination of whether the Port Authority has violated federal laws and gr ant assurances.18

United has more than met its burden of proof and the Port Authority ’s Motion should be denied. B. The FAA Has Jurisdiction to Investigate the Violations of Federal Law Identified in United’s Complaint. The Port Authority ’s principal contention is that the FAA lacks jurisdiction to investigate whether the EWR Flight Fee is unreasonably high because the fee is set by a formula in the leases at EWR. Essentially, the Port Authority asserts that it can do whatever it wants because the air lines signed an agreement more than 40 years ago. That is not the law. As explained below, the FAA has not only the power, but the responsibility, to investigate whether a fee set by a written agreement is reasonable. The legislative history of Section 4 7129, the Rates and Charges Policy and the case law all make clear that the FAA can and should investigate whether an airport operator is in compliance with federal law regardless if there is a written agreement in place. And in any event, United’s Comp laint challenges more than the EWR Flight Fee formula. Specifically, United presents evidence establishing that : (1) the Port Authority’s dramatic increase s in ARFF expenditures and other security costs

– to which United did not agree

– are unjustified an d unreasonable; (2) the Port Authority’s refusal to provide significant information about the EWR Flight Fee calculation violates the requirement that fees imposed by the airport be “transparent”; (3) the Port Authority’s practice of charging higher fees f or air carriers at EWR than at its other airports constitutes unjust economic discrimination between the EWR air carriers on the one hand, and the JFK and19

LGA air carriers on the other hand; and (4) the Port Authority’s use of airport revenue to fund non

- a irport projects that are not owned or operated by the Port Authority amounts to illegal revenue diversion. The Port Authority offers no authority

— because none exists

— for the proposition that the existence of a written lease agreement precludes an FAA investigation into matters that are independent of the reasonableness of a fee set by a written agreement.

1. The FAA Has Jurisdiction to Investigate Whether Rates Set by Written Agreement Violate Federal Law, and It Has Done So.

a. There Is No Statutory Basis f or the Port Authority’s Argument. The federal statutory scheme provides two fora for disputes between airport operators and airlines regarding airport fees. The FAA hears all claims involving an airport owner’s non

- compliance with federal grant assurances , including claims that the airport is charging an unreasonable flight fee. See 49 U.S.C. § 47101 (mandating that the FAA ensure compliance with all federal grant assurances); 14 C.F.R. § 16.1, et seq . (prescribing the procedures for all Part 16 cases). The DOT, in contrast, adjudicates a more narrow category of airport fee disputes on an expedited basis. See 49 U.S.C. § 47129 (establishing the expedited review mechanism); 14 C.F.R. §302.1, et seq . (prescribing the DOT’s procedures). This case falls und er the FAA’s general Part 16 jurisdiction. The legislative history of Section 47129

– the statute establishing the expedited fee dispute program

– explains this distinction. Congress enacted the expedited DOT review process in 1994. 49 U.S.C. § 47129, Pu b. L. 103

- 305, Title I,20

§ 113(a)(2). Prior to that, an airline could seek an investigation into the lawfulness of any airport fee under the enforcement procedures implemented by the FAA in 14 C.F.R. Part 13 (now Part 16); however, those procedures did not impose any deadline for the FAA to issue a final decision. See, e.g., Delta Air Lines v. Lehigh

Northampton Airport Authority , DOT Order 95

- 5

- 8, Dockets DOT

- OST

- 1995

- 80 and 50264 (May 4, 1995), at 2 (“ Lehigh

- Northampton ”). Section 47129 was introduced to address the increase in the number of airport fee disputes. 140 CONG. REC . S4398 (daily ed. Apr. 19, 1994). Congress was particularly alarmed at the “rapid increase in airport rates and charges” resulting from airports’ implementation of certain profit

- generating ratemaking methods without attempting to share the profits generated with the airlines or the traveling public. Id . Tensions between airports and airlines over airport fees reached a boiling point in 1993, when the City of Los Angeles threaten ed to lock out carriers from serving its airports. Id

. Such was the climate heading into the 1993 and 1994 FAA Authorization Act debates. Fearing that airport “lockouts” would cause major interference in the national air transportation system and dis rupt the free flow of commerce, the Chairman of the Senate Aviation Subcommittee, Wendell H. Ford, introduced legislation to facilitate expedited resolution of airport fee disputes. In doing so, he expressed concern that the FAA’s existing Part 13 procedu res were ill

- suited to offer speedy dispute resolution. Id . at S4399.21

Under the expedited procedures established by Section 47129, the DOT is required to determine the reasonableness of a challenged airport fee or fee increase within 120 days after a co mplaint is filed. 49 U.S.C. § 47129(b). Not all fee disputes are eligible for the streamlined adjudication, however. The DOT may consider only complaints that present a “significant dispute of sufficient magnitude and complexity.” Trans World Airlines, Inc. v. City and County of Denver, Colorado , DOT Order 95

- 7

- 27, Dockets DOT

- OST

- 1995

- 221 and 50414 (Jul. 21, 1995), at 18 (“ TWA ”) (interpreting Section 47129(b)(2)). Significantly, the DOT may not consider disputes regarding “a fee imposed pursuant to a written agreement” in a Part 302 proceeding. 49 U.S.C. §47129(e). 6 Thus, the legislative history of Section 47129 makes clear that Congress intended for Section 47129 to serve as an extraordinary measure to accelerate resolution of significant disputes th at threatened to disrupt air travel on a potentially national scale. Section 47129 was not, as the Port Authority suggests, a replacement for Part 16, or an attempt to usurp the FAA’s authority to enforce applicable federal law, including the grant assura nces.

6 Section 47129 also directe d the Secretary of Transportation to publish final regulations, policy statements or guidelines establishing the procedures and standards for the DOT to use when “determining under this section [referring to Section 47129] whether an airport fee is reasona ble.” 49 U.S.C. § 47129(b)(2) (emphasis added). This directive set the stage for Part 302, Subpart F, which established special procedural rules to enable the DOT to meet the expedited statutory deadlines provided for in the statute. See, e.g., DOT Orde r 2005

- 3

- 8 ( Brendan Airways, LLC et al. v. Port Authority of New York and New Jersey , Order Directing Responses to Motion, DOT Order 2005

- 3

- 8, Docket DOT

- OST

- 2005

- 20407 (Mar. 4, 2005 ) (“Because the statute requires expedited proceedings, we have adopted sp ecial procedural rules for complaints filed under 49 U.S.C. 47129

– 14 C.F.R. Part 302, subpart F

– to enable us to meet the statutory deadlines”).22

While Section 47129 specifically excludes use of the expedited procedure in the case of a fee set pursuant to a written agreement, there is no statute that prohibits the application of Part 16 to such disputes. The Port Authority’s argument is wit hout statutory basis and would prevent the FAA from exercising its jurisdiction to monitor and correct airport violations of federal law.

b. The Rates and Charges Policy Explicitly Confirms FAA Jurisdiction Here. Likewise, the Rates and Charges Policy expl ains that Section 47129 does not foreclose review of those fee disputes excluded from Part 302 review. In the Introduction section, under the heading “Applicability of § 113 of the FAA Authorization Act of 1994 ” ( i.e., Section 47129), the DOT provides the following guidance: The Department does not interpret § 47129 to repeal or narrow

the scope of the basic requirement that fees imposed on all aeronautical users be reasonable...

. Moreover, the Department does not interpret Sections 47129(e) [barring the DOT from deciding disputes regarding rates set by written agreement under Part 302] and (f) to preclude the Department from adopting policy guidance to carry out the Department’s statutory obligation to assure that aeronautical fees are being imposed at AIP

- fu nded airports in a manner that is consistent with the obligation to provide airport access on reasonable
terms.23 Therefore, the Department will apply the policy in all cases in which we are called upon to determine if an airport sponsor is carrying out its obligation to make the airport available on reasonable terms. However, a dispute that is not subject to processing under the expedited procedures mandated by § 47129, including a dispute over matters described by § 47129(e) [disputes regarding fees set b y written agreement] and (f), will be processed by FAA under procedures applicable to airport compliance matters in general [Part 16]. 78 Fed. Reg. 55330, 55331

- 32 (Sept. 10, 2013) (emphasis added). In other words, the Rates and Charges Policy clarifies t hat the subject matter limitations imposed by S ection 4 7 1 29 for Part 302 proceedings

– barring disputes arising out of rates set by written agreements

– do not apply to Part 16 proceedings. The Rates and Charges Policy then elaborates that in disputes rega rding fees set by written agreement, the FAA will inquire about whether the airport has met its grant obligations:

In considering such a dispute, FAA’s role is to determine whether the airport proprietor is in compliance with its grant obligations and stat utory obligations relating to airport fees. The FAA proceeding is not intended to provide a mechanism for adjudicating the respective rights of the parties to a fee dispute.24

Id . at 55332. The Port Authority seizes on the language that follows, “...the Department will not entertain a complaint about the reasonableness of a fee set by agreement filed by a party to the agreement setting the disputed fee,” and argues that it negates the preceding paragraphs. That makes no sense. The Port Authority has conf used the restrictions placed on the DOT with the jurisdiction of the FAA. Read in context with the rest of this section, this sentence affirms that the DOT “will not entertain a complaint about the reasonableness of a fee set by agreement filed by a party .” Throughout, the Rates and Charges Policy distinguishes between the roles of “the Department” ( i.e ., the DOT) and the FAA. The FAA will process “matters described by Section 47129(e)”

— disputes regarding fees set by a written agreement

— under Part 16 , but must only consider whether the airport has violated its grant obligations and not whether the airport has breached the subject agreement. Id. The Rates and Charges Policy also notes that the FAA will not ordinarily take action on a fee dispute unless there is “evidence of a progressive accumulation of surplus aeronautical revenues.” The DOT , by contrast, will not consider disputes regarding fees set by a written agreement at all, and for complai nts raised by airlines that are not a party to a written agreement, “ the Department ” may take into account the terms of any agreement that govern the fees paid by the signatory airlines. Id

.25

United’s view is further bolstered by Section 1.3 of the Rates and Charges Policy: An airport proprietor is encouraged to achieve consensus and

agreement with aeronautical users before implementing a practice that would represent a major departure from his guidance. However, the requirements of any law, including the requirements for the use of airport revenue, may not be waived, even by agreement with the aeronautical users. Id . at 55333 , §1.3. In other words, an airport operator may not violate federal law

– including the prohibition against unreasonable rates and charges

– even if a written agreement purports to allow the airport to do so. This interpretation of the current Rates and Charges Policy is also consistent with the policy’s rulemaking history. When the DOT published its 1996 policy statement, it stated succinctly that “[t]he Final Policy applies to fees set by agreement.” 61 Fed. Reg. 31994, 31998 (Jun. 21, 1996). The DOT reached this conclusion over the strenuous objection of airport industry commentators who argued during the rulemaking’s comment pe riod that the DOT was legally barred from applying the reasonableness policy to fees set by agreements with airlines, citing Sections 47129(e) and (f). In rejecting this argument, the DOT stressed, unequivocally, that “[w]e do not interpret section 47129 to preclude an investigation of fees set by agreement or the application of the policy in such an investigation.” Id

.26

Simply stated, the Rates and Charges Policy contemplates that the FAA will adjudicate disputes regarding fees set by a written agreemen t. Were it otherwise, there would have been no need for Section 47129 to explicitly exclude disputes set by written agreement from Part 302 proceedings.

c. The Case Law Also Supports FAA Jurisdiction. i. The DOT and the FAA Have Recognized the FAA’s Jurisdictio n to Review Claims Concerning Rates Set by Agreement. The administrative case law also affirms FAA jurisdiction over disputes related to rates set by written agreements. See, e.g., Union Flights, Inc. v. City and County of San Francisco , FAA Docket No. 16

- 99

- 11, Director’s Determination (Feb. 15, 2000), at 18 (“ Union Flights ”) (explaining that the FAA has plenary power to adjudicate disputes regarding rates and charges); Continental Micronesia, Inc. v. Commonwealth of the Northern Mariana Islands and Commo nwealth Ports Authority , DOT Order 95

- 4

- 14, Docket No. 50191 (Apr. 10, 1995) at 10 (“ Continental Micronesia ”) (noting that the airline could challenge at the FAA a fee imposed by written agreement); Lehigh

- Northampton at 16, 18 (noting that the dispute

con cerned a fee set by a written agreement and transferring the matter to the FAA for a Part 16 proceeding). For example, in Continental Micronesia , the airline Continental Micronesia, Inc. (“CMI”) brought a Part 302 challenge of airport fees imposed under a written agreement. Continental Micronesia at 1. The DOT dismissed the complaint, but noted that CMI could have brought its challenge under Part 16 (then Part 13). Id

. at 10. “CMI itself conceded that it could have challenged the fees under Part 13 of27

t he Federal Aviation Regulations, 14 CFR Part 13

... . There were alternative courses of action and opportunities to pursue legal remedies available to the airline at the time it initiated service at the Commonwealth.” Id

. The Port Authority claims in its Motio n that the DOT was merely remarking that the airline could have challenged “the fee in question prior to becoming a party to the agreement .” Mem. at 19 (emphasis in original). Not so. In listing the options available to the airline, the DOT observed tha t CMI could have “ signed the agreement and brought the matter before DOT/FAA in an administrative proceeding.” Continental Micronesia at 10 (emphasis added). Similarly, in Lehigh

- Northampton , the DOT found that the challenged airport fees were governed by a written agreement within the meaning of 49 U.S.C. § 47129(e)(1) and that it therefore lacked jurisdiction to adjudicate the dispute under Part 302. Lehigh

- Northampton at 13. Rather than simply dismissing the matter, however, the DOT transferred the ca se to the FAA for consideration: “[W]e consider the amended complaint to be a Part 13 challenge to the legality of the air carrier operating subsidies paid by the Authority and will refer this matter to the [FAA].” Id . at 2; see also id . at 18 (finding that the case was “appropriate for consideration in Part 13 proceedings at the FAA.”). The Port Authority again claims that the DOT did not hold that the FAA had jurisdiction over a dispute regarding a fee set by a written agreement, arguing that “the issu e referred to the FAA was a different one, namely, the legality of air carrier subsidies paid by the airport authority to airlines other than Delta.” Mem. at 20.28

But in Lehigh

- Northampton , the fee dispute and the issue of the air carrier subsidies were o ne and the same. See Lehigh

- Northampton at 9, 15

- 16. The Part 302 complaint alleged that the “subsidy arrangements contravene federal law,” including that “the inclusion of the subsidy costs in an airport rate base...results in the per se imposition of an unreasonable fee increase.” Id . at 9. In response, the airport argued that “the landing fees at issue were ‘imposed pursuant to a written agreement’” and should therefore be dismissed. Id . at 10. The DOT agreed with the airport, finding that the fees at issue in the complaint “were ‘imposed pursuant to a written agreement’ within the meaning of section 47129.” Id . at 13. The DOT then referred all of the matters “raised in this docket” to the FAA. Id . at 19. The DOT emphasized that the procedures in S ection 47129 are “extraordinary” insofar as they “require an accelerated procedure with very strict deadlines” and were reserved for “significant” disputes. Id . at 13 (citations omitted). In dismissing the complaint, the DOT insisted that “we in no
way e ndorse or condemn the subsidy at issue here. We simply conclude that the parties have failed to demonstrate that this issue is appropriate for expedited resolution under section 47129.” Id . at 19. Accordingly, even though the subsidies at issue were gov erned by the written memorandum of understanding, the DOT deemed the FAA to be the proper forum for this dispute. In TWA , the DOT dismissed the airline’s complaint because the “complaint does not present a significant dispute within the meaning of Section 47129.” TWA at 1. The DOT also noted, however, that when “the Department dismisses a29

complaint under 49 U.S.C. 47129, that ordinarily would not preclude the airline from filing a request for an FAA investigation under Part 13 of the FAA’s rules of practi ce and procedure.” Id . at 3. The DOT explained that the enactment of the expedited Part 302 procedures in no way diminished the rights of the airlines under federal law to challenge the reasonableness of flight fees:

Although the statute [the 1994 Authori zation Act] created new procedures for examining the reasonableness of new or increased airport fees, it did not change the substantive rights and duties of the airports and airlines. As we said in adopting the procedural regulations under this statute, “ The new procedures replace existing procedures under 14 CFR Part 13, and impose no new substantive requirements on either carriers or airports.” 60 Fed. Reg. 6919, 6927 (February 3, 1995). See also 59 Fed. Reg. 53380, 53386 (October 24, 1994). Id . at 2. The DOT repeated these principles in Miami International Airport Rates Proceeding : A lthough the 1994 Authorization Act created new procedures for

examining the reasonableness of new or increased airport fees, it did not change the airports’ obligation to charge only reasonable fees. The statute also did not eliminate our preexisting30 auth ority to investigate whether airport fees were unreasonable or otherwise unlawful under federal law. Miami Int’l Airport Rates Proceeding , DOT Order 97

- 3

- 26, Docket DOT OST

- 1996

- 1965 (Mar. 19, 1997) at 3 (“ Miami Airport ”). So, too, in Union Flights : As we explained in the preamble to the FAA Policy on Airport Rates and Charges policy...the expedited procedures under the DOT Procedural Rules and our review under the FAA Rules of Practice serve two distinct purposes. The purpose of the former is to resolve fee disputes between air carriers and airport owners on an expedited basis. The purpose of the latter is to protect the public interest by assuring that airports are operated in a manner consistent with the airport owner’s Federal obligations. Union Fli

ghts at 19

. 7 The FAA also explicitly held that it “clearly has authority, under 49 U.S.C. §§ 46101 and 46105, to investigate a complaint with respect to allegedly unreasonable airport rates and charges.” Id . at 18. In rejecting the Respondent’s argument that fee disputes between air carriers and airport proprietors must be adjudicated by the DOT under Part 302, the FAA explained that it “has the authority, and moreover, the responsibility to determine the reasonableness of the subject airport fee.” Id

.

7 Although the complainant was not a signatory to a written lease agreement, the FAA’s guidance is still in structive here.31 ii. The Cases Cited by the Port Authority Are Inapposite. The authority cited by the Port Authority does not aid its cause. In Northwest Airlines, Inc. v. Indianapolis Airport Authority , 8 the FAA did not, as the Port Authority argues, state that it would no t entertain disputes over fees set by a written agreement. To begin with, the complaint was dismissed on ripeness grounds. Northwest Airlines, Inc. v. Indianapolis Airport Authority , FAA Docket No. 16

- 07

- 04, Final Decision and Order (Oct. 27, 2009) at 1. In any event, the dispute revolved around whether the airport was permitted to provide rent credits to Federal Express under the terms of the controlling written agreement. As the FAA explained: “[T]he primary dispute underlying this Complaint is whethe r IAA was required under the Airport Use Agreement to obtain the approval of the other signatory airlines before...provid[ing] FedEx a landing fee rent credit.” Id . at 3. The inchoate dispute

– which would have become ripe if the airport had lifted its fre eze on the landing fees

– revolved around whether the airport’s granting of rent credits was a breach of the agreement. The language quoted by the Port Authority 9 from the Director’s Decision notes that the airlines “may have recourse in other
venues to a djudicate” issues of contractual interpretation. Northwest Airlines, Inc. v. Indianapolis Airport Authority , FAA Docket No. 16

- 07

- 04, Director’s Determination (Aug. 18, 2008), at 44.

8 The Port Authority cites the Director’s Decision. This order was superseded by the decision of the Associate Administrator, which is the opinion discussed by United herein. 9 See M em. a t 14.32

Here, by contrast, United is not asking the FAA to adjudicate a dispute arising out of the interpretation of the subject lease. Rather, United is asking the FAA to investigate, among other things, whether the EWR Flight Fee formula violates federal law. Roadhouse Aviations, LLC v. City of Tulsa is similarly inapposite. In th at case, a fixed

- base operator (“FBO”) complained that the airport had granted its competitor more favorable terms; specifically, the complainant objected that it was required to allow its competitor access through its facility to a taxi lane while the

com petitor maintained exclusive use of its facility. Roadhouse Aviations, LLC v. City of Tulsa , FAA Docket No. 16

- 05

- 08, Final Decision and Order (Jun. 26, 2007) at 1, 18

- 19. Again, that case boiled down to a simple contract dispute

— the Complainant argued that it interpreted the access provision in its lease to “mean access to the ramp, not access through it.” Id . at 20. As the FAA explained, “the Complainant’s alleged misunderstanding of the lease terms does not rise to the level of a grant assurance violation, but may as the Director advised, be a state contract law issue.” Id

. Again, this case does not invo lve a contract dispute. This challenge asserts that the EWR Flight Fee formula violates federal law. Penobscot Air Services, Ltd. v. FAA has no application to this case, either. The FBO in that case complained that the airport charged it higher rent than its competitor. Penobscot Air Services , Ltd. v. FAA , 164 F.3d 713 (1st Cir. 1999). The First Circuit affirmed the FAA’s finding that the disparate rates were justified by33

the different circumstances in which the respective leases were negotiated. Id . a t 726. The court also noted that the complainant had itself negotiated the lease “just ten months before it filed its formal complaint.” Id . As discussed more fully below, there is a world of difference between a complainant that negotiated a lease 10

m onths before filing a complaint and this case, where the lease provision in question was not negotiated and has been in existence for decades. Finally, although the FAA has indicated in dicta on several occasions that it was not going to entertain a comp laint regarding the reasonableness of a fee set by written agreement, even in those cases, the agency exercised its authority to investigate such complaints. See, e.g., Adventure Aviation v. City of Las Cruces , FAA Docket No. 16

- 01

- 14, Final Decision and Order (Sept. 9, 2003) (“ Adventure ”) ; 41 North 73 West Inc. v. Westchester County , FAA Docket No. 16

- 07

- 13, Director’s Determination (Jun. 12, 2008); Valley Aviation Services, LLP v. City of Glendale , FAA Docket No. 16

- 09

- 06, Director’s Determination (May 2 4, 2011). In Adventure , an FBO alleged that the City, as sponsor of Las Cruces International Airport, violated federal law by allowing disparate lease rates and other arrangements. The FAA noted that “as a general policy, [it] need not consider a compla int about the reasonableness of a fee set by agreement when filed by a party to the agreement.” Adventure at 24. Nevertheless, the Associate Administrator held that the Director had correctly “examined all information in the record, including that submit ted in the complaint, answer, response and rebuttal to determine the relevant facts in this case.” Id

.34

While the FAA ultimately found no unjust discrimination in Adventure , the Director indicated that had the complainant furnished “evidence to demonstra te that [it] objected to the terms of the lease or was denied access to pertinent information during negotiations,” a finding of unjust discrimination could have been established. Adventure Aviation v. City of Las Cruces , FAA Docket No. 16

- 01

- 14, Director ’s Determination (Aug. 7, 2002), at 13. Likewise, in 41 North 73 West Inc. v. Westchester County , a case brought by an FBO that alleged the airport unjustly discriminated against it by providing a certain class of FBOs with preferential financial treatme nt, the FAA reiterated its discretion to not entertain a complaint about the reasonableness of a fee set by agreement. Yet, in doing so, the Director suggested that a finding of unjust discrimination could have been made had the complainant presented “evi dence to demonstrate that the Complainant objected to the terms of the lease or was denied access to pertinent information during negotiations.” 41 North 73 West Inc. v. Westchester County , FAA Docket No. 16

- 07

- 13, Director’s Determination (Jun. 12, 2008) , at 25. In particular, the FAA noted that the complainant “does not provide any evidence or argument regarding active deception by the County to induce [complainant] to agree to the terms of the [lease]” and “the record shows that [complainant] had inve stigated purchasing one of the [LGA FBOs], presumably exercising due diligence in determining the LGA FBO’s lease terms.” Id . at 27. Again, notwithstanding the “will not entertain” rhetoric, the FAA examined the35

record to determine whether a grant assura nce violation occurred. Moreover, the FAA confirmed that in determining whether a respondent violated its grant assurance obligations, the agency may probe the circumstances under which the underlying agreement was reached, including evidence that the com plainant had objected to the lease terms or was denied access to certain information. In Valley Aviation Services, LLP v. City of Glendale , the complainant alleged that the City violated various grant assurances by engaging in a long

- term attempt to disc riminate against the complainant so that it would abandon its leasehold and return the property to the City. Valley Aviation Services, LLP v. City of Glendale , FAA Docket No. 16

- 09

- 06, Director’s Determination (May 24, 2011). 10 The complainant alleged, in part, that the City violated Grant Assurance 22 (Economic Nondiscrimination) by imposing a rental rate on the complainant that was required to be charged to the complainant’s subtenants or customers. The Director agreed, finding that the respondent viola ted Grant Assurance 22 by requiring the complainant to reduce its rental rates based on a flawed appraisal and without considering other tenant rental rates on the airport. Id . at 56. In so concluding, the Director drew a distinction between the alleged “contractual breaches” of the lease terms, on the one hand

– which “are not within the purview of FAA’s Part 16 proceedings”

– and the “process followed by the Respondent in arriving at the

10 The decision notes that an informal complaint brought years earlier by the former leaseholder for complainant’s hangar was found to be without merit, partly on the basis that the “FAA will not entertain a complaint about the reasonableness of a fee set b y agreement when filed by a party to the agreement.” Valley Aviation Services, at 10.36

recommended rate structure and to the applicability of the grant a ssurances,” on the other hand, which the FAA indicated was within its jurisdiction and, in fact, formed the basis of its finding of unjust discrimination. Id . at 56 & n. 53. The case law demonstrates that the Rates and Charges Policy means what it says: “ [A] dispute that is not subject to processing under the expedited procedures mandated by § 47129, including a dispute over matters described by § 47129(e) [disputes regarding fees set by written agreement]...will be processed by FAA under procedures applicab le to airport compliance matters in general.” 78 Fed. Reg. at
55331. d. The Rationale for Barring Claims by Parties Who Agreed to a Disputed Lease Term Does Not Apply Here. The FAA should exercise its jurisdiction to investigate whether the EWR Flight Fee is reasonable. The Port Authority argues that the FAA should refrain from exercising its authority where the disputed rate is set by a written agreement because it is bad policy for a regulator to intervene when two sophisticated parties have negotiated and reached an agreement. That logic does not apply to this case for several

reasons. First, there is no evidence that United, or indeed, any airline actually negotiated the EWR Flight Fee formula. See Section II.A., above. In fact, as the chronology s et forth above clearly shows, United tried on multiple occasions to get the Port Authority to agree to change the methodology, but the Port Authority refused. See Section II.B., above.37

Nor is this a case in which the complainant is attempting to use a P art 16 proceeding to re

- negotiate the terms of an airport lease to which the complainant had recently agreed. Compare Penobscot Air Services, Ltd ., 164 F.3d at 726 (dismissing the claim that rent charged to an FBO violated federal aviation law and noting that complainant had negotiated the lease 10 months before filing the complaint); Roadhouse Aviations, LLC at 3

- 5 (complainant had negotiated disputed terms of lease three years earlier). 11 Second, the EWR leases do not actually disclose the true nature o f how the EWR Flight Fee is calculated and the Port Authority has refused to do so. The EWR Flight Fee is set through a complex and non

- transparent formula, the real result of which is that the Port Authority marks up every dollar of costs included in the EWR Flight Fee rate base. As shown above, Continental and United repeatedly asked the Port Authority for detailed information relating to the EWR Flight Fee calculation to be able to determine whether such mark

- up is built into the EWR Flight Fee calcul ation. Despite the requirements of federal law that rate setting be transparent and that airports provide sufficient documentation to airlines, time after time the Port

11 Compare also Adventure at 24 (dismissing the complaint where the FBO tenant had agreed to all of the terms only four years earlier and noting that “the FAA compliance process should not be used by a commercial aeronautical tenant to circumvent negotiation or commercial litigation available under applicable state and local laws to resolve a dispute with its landlord.”); Aerodynamics of Reading, Inc. v. Reading Regional Airport Authority , FAA Docket No. 16

- 00

- 03, Final Decision and Order (Jul. 23, 2001), at 2

- 3, 16 (dismissing the complaint and finding that “the Complainant’s lease was negotiated at arm’s length, and its terms and conditions were substantially similar to those the Complainant sought from the outset of the negotiations).38

Authority steadfastly refused to provide any meaningful data, or to acknowledge the

ma rk

- up. It was not until 2013 that a document created by the Port Authority showing the increased ARFF costs plainly disclosed, for the first time, that the mark

- up exists. The document revealed that the ARFF charges at EWR would be “recoverable at 130 pe rcent” from the airlines. 12 This fact was hidden from United and is not disclosed in the EWR leases or any amendments. Third, the Port Authority’s contention that Continental could have opted out of the EWR lease ignores reality. The New York metropolitan area is the largest market in the United States, both for domestic and international travel. Continental could not simply abandon its operations at EWR. Nor could Continental have moved its operations from EWR to JFK or LGA. See pp. 5

- 6, above. Final ly, the Port Authority’s reliance on the assumption of unexpired leases in Continental’s and United’s bankruptcy cases (filed 22 and 10 years ago, respectively), is misplaced. The Port Authority argues that : ( 1 ) Continental’s assumption (in 1993) of Lease ANA

- 170, which included modification as to “the lease term among other items” but not to the EWR Flight Fee formula, and (2 ) United’s assumption (in 2005) of Lease ANA

- 535, which included modification for “a surrender of space and changes to fees and rent als” but not to the EWR Flight Fee formula, thereafter precluded Continental and United from ever challenging the EWR Flight Fee formula, even where the Port Authority is charging illegal fees.

12 See Complaint, Exhibit B. As noted, the actual recovery is 138% of costs.39

Such an argument misconstrues the lease assumption process un der the Bankruptcy Code and must be rejected. Section 365 of the Bankruptcy Code governs the treatment of an executory contract or unexpired lease to which the bankrupt debtor is a party. 13 In this regard, a debtor has broad discretion to decide whether to assume or reject an unexpired lease. Section 365(a) provides, in relevant part, that a debtor

- in

possession (such as Continental and United in their respective bankruptcy cases) “subject to the court’s approval, may assume or reject any ... unexpired lease of the debtor.” 11 U.S.C. § 365(a); see also NLRB v. Bildisco & Bildisco , 465 U.S. 513, 521 (1984); In re Lavigne , 114 F.3d 379, 386 (2d Cir. 1997). The standard rule is that, without the other party’s consent, a debtor can assume an unexpired lease only in its entirety

– in other words, a debtor cannot unilaterally assume an unexpired lease in part or with rewritten terms. See Bildisco , 465 U.S. at 531 (stating that the debtor must assume the executory contract “ cum onere ”); Cinicola v. Scharffenberger , 248 F.3d 110, 119 (3d Cir. 2001) (“If the trustee meets the assumption requirements under § 365, it must assume the executory contract entirely.”). However, in this matter, the parties negotiated a few new or modified terms in the leases based on their k nowledge of the facts at that

13 The Port Authority’s statement pursuant to 14 C.F.R. § 16.26(c)(2) and the Longernecker Declaration wrongly state that Continental’s Lease ANA

- 170 was assumed under Section 362 of the Bankruptcy Code. See Statement of Material Facts , ¶ 35; Longernecker Decl. , ¶¶ 34, 35. Rather, the assumption of an unexpired lease could only have been approved by the bankruptc y court under Section 365.40

time , which allowed the bankruptcy court to approve the assumption of Continental’s Lease ANA

- 170 and United’s Lease ANA

- 535, as modified. Section 365 does not provide that if a debtor moves to assume an unexpired lease with n ew or modified terms negotiated between the parties, thereafter neither party can challenge an original term left unmodified as part of the lease assumption process. A lease assumption under Section 365, particularly where the lessor consents to the assum ption, as in this case, is simply a part of the debtor’s reorganization

– a lease assumption is not an adversarial proceeding in which the court rules on the merits of a dispute. Consequently, there is no estoppel or preclusive effect with respect to a co nsensual assumption of an unexpired lease.

e. The Complaint Identifies Violations of Federal Law Apart from the EWR Flight Fee Formula. There should be no question that the FAA can and should investigate United’s claims of significant violations of federal law. In addition to United’s challenge to the EWR Flight Fee formula and its hidden, built

- in mark

- up, the Complaint presents evidence of other violations of federal law: (1) unilaterally imposed and unreasonable ARFF and security costs; (2) the lack of t ransparency in the Port Authority’s methodology for calculating the EWR Flight Fee; (3) the unjust discrimination against EWR users in favor of JFK and LGA users; and (4) the Port Authority’s illegal diversion of airport revenue. United never agreed

– in w riting or otherwise

– to the ARFF and security charges. It is well settled that a charge imposed unilaterally by an airport, but which is calculated under a formula that exists in a master lease, is not a “charge41

imposed by written agreement.” Miami Airp ort at 15 (noting that “...we are reluctant to hold that an airline’s acceptance of a standard agreement requiring the payment of fees set by the airport must be deemed to constitute the kind of agreement barring an airline from obtaining relief under 49 U.S .C. § 47129 ...”). Further, the Port Authority’s defense that United agreed to the EWR Flight Fee formula (which should be rejected for the reasons described above) has no application to the other violations identified in the complaint. The EWR leases do

no t provide the Port Authority with blanket immunity to violate its airport sponsor federal grant assurances. The Port Authority’s position would deprive the FAA of jurisdiction over the vast majority of airport violations of federal law. At almost every ma jor airport, rates and charges are governed by an agreement, and most airlines are signatories. Part 16 requires that a complainant be directly and substantially affected by an alleged violation. If signatory carriers

– those most likely to be affected b y rates and charges or revenue diversion violations

– could not complain under Part 16, then such violations would go unchallenged. This is not, and cannot be, the law. C. The Port Authority Has Failed to Meet Its Burden to Show the Absence of Any Genuine Is sues of Material Fact. 1. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Unreasonable and Transparent EWR Flight Fees. As the Port Authority concedes, the accumulation of surplus revenues alone may warrant an investigation into the r easonableness of rates and expenditures. Mem. at 26; Rates and Charges Policy, 78 Fed. Reg. at 55335, § 4.2.1 (“[T]he42

progressive accumulation of substantial amounts of surplus aeronautical revenue may warrant an FAA inquiry into whether aeronautical fees are consistent with the airport proprietor’s obligations to make the airport available on fair and reasonable terms”). The Complaint alleges in detail that the enormous EWR surpluses derive, in part, from a 38% mark

- up on costs included in the EWR Flight Fee rate base. Complaint, ¶¶ 36, 59, 123, 132. The Port Authority claims that it does not know how United calculated the 38% mark

- up. Mem. at 25. The calculation is based on the Port Authority’s own documents, and can be done using the numbers contain ed in the 2014 EWR Flight Fee calculation (Ex. 2 to the Declaration of Joseph Garcia, submitted in support of the Motion). The PAF Factor charge was $4.59. Multiplying that charge by the total maximum take

- off weight yields a sum of $147,418,549. That a mount is the total revenue received by the Port Authority from the airlines for this portion of the EWR Flight Fee. Total airfield costs included in the PAF factor were $106,776,578. Revenues were thus $40,641,971, or 38% greater, than costs. The same c alculation can be applied to the components of the 2013 PAF Factor (Ex. 1 to Garcia Decl.) with the same result

– a 38% mark

- up. Span Decl. , ¶¶ 22

- 23. Mr. Garcia admits he calculated a 28.14% mark

- up (although he avoids the term “mark

- up,” referring instead to a “ratio,” and does not show his calculation). But he arrives at that figure after including a credit for aircraft parking revenues. That credit is unrelated and irrelevant to the mark

- up on airfield costs. Remove that credit from the calculation and the 38% mark

- up is revealed

.43

The Port Authority also asserts that the mark

- up is not profit because there are other costs that are not included in t he formula. Mem. at 25

- 26. The Port Authority offers no numbers to support this assertion or to enable the FAA or United to calculate the amount of any profit. Such information, of course, is precisely what Continental asked for in 2004, 2005, and 2006. See pp. 8

- 12, above. The Port Authority’s response at that time was that Continental was not entitled to the information. Id . In any event, the Port Authority cannot now argue that there is no issue of material fact when it has raised the apparent defe nse of whether there is a profit on the airfield. Next, the Port Authority argues that United cannot challenge any costs

– such as the ARFF or security costs

– that are included in the computation of the EWR Flight Fee because such costs are not subject to “any caps or other limits.” Mem. at 27. In other words, at the same time the Port Authority argues that the EWR Flight Fee is immune to regulatory examination because of the leases, it also argues that the leases entitle it to charge whatever it wants t hrough limitless spending on costs that are incorporated into the EWR Flight Fee. Such a circular argument, in addition to making no sense, does not demonstrate the absence of a genuine issue of material fact. To the contrary, the Port Authority’s circula r theory only highlights the numerous material issues of fact regarding the unreasonableness of the components that comprise the EWR Flight Fee. For example, as alleged in the Complaint, there are several ways in which the new ARFF program includes unreas onable costs,44

even before the 38% mark

- up is applied. Instead of hiring new employees at lower compensation rates, the Port Authority is training Port Authority Police Department (“ PAPD ”) officers to perform the ARFF functions. Consequently, the
compensa tion and benefits package for the Port Authority’s ARFF cadre is far above market. The ARFF staffers are paid significantly more than New York metropolitan area firefighters. They are paid 40% more than FDNY firefighters and up to 70% more than other New York metro politan area firefighters. Complaint, Exhibit GG (Expert Report of Professor David Lewin), ¶¶ 19

- 22. Total ARFF costs to the Port Authority average $242,000 per firefighter. Complaint, Exhibit L (Chart Showing Impact of Increased ARFF Costs). Incredibly, after re

- assigning the very highly

- compensated PAPD officers to fill the ranks of the new 280

- officer ARFF cadre, the Port Authority plans to maintain the same number of police officers who were providing both police and firefighting service s. That means there are 280 more Port Authority police officers and firefighters on the payroll than there were before the 2013 settlement agreement with the FAA regarding ARFF (the “FAA Settlement”). Moreover, despite the FAA’s clear intent to separate the two forces, the Port Authority will continue to cross

- train officers for both firefighting and police duties, paying mandatory overtime for this additional training, regardless of the duty to which the officer is assigned, resulting in additional train ing and overtime costs. Finally, the Port Authority allocates the increased ARFF costs among its airports in a fashion that disproportionately burdens the airlines operating at EWR.45

Specifically, EWR is saddled with 41% of the new ARFF cost, compared to 33% at JFK, even though EWR had the fewest claimed instances of training violations, and JFK the most, among the Port Authority airports. There are similar issues of material fact concerning non

- ARFF security costs that United is similarly forced to pay

. Since 2010, this cost item has increased by more than 40%, from approximately $27 million to approximately $38 million. Further, due to the hidden mark

- up contained in the EWR Flight Fee formula, these police costs generated an additional $3.8 million in revenue for the Port Authority at EWR in 2013. Complaint, ¶ 94. Port Authority police officers and supervisors earned more than $200,000 in wages, often doubling their base salaries through overtime and other compensation. Id . at 95. Including ove rtime, mean annual total compensation for Port Authority officers in 2013 was $124,000 vs. $83,000 for NYPD

– 49% higher. Exhibit GG to C omplaint, ¶ 18. Because of this overtime, Port Authority police are also paid significantly more than police in the N ew York metropolitan area (including northern New Jersey). Id . In 2013, Port Authority officers received 65% more pay, while sergeants were paid 76% more. Id

. While United respects and appreciates the work of the Port Authority police, United should no t bear the brunt of unreasonable overtime and compensation policies of the Port Authority. The Port Authority’s Motion does not refute any of these facts. Instead, the Port Authority offers two arguments (on a single page) defending the 272% increase in ARFF costs. Mem. at 27. Each lacks merit.46

First, the Port Authority claims that the FAA has no authority to examine whether the ARFF and security charges are reasonable because the EWR leases include “emergency services” among the categories of costs tha t can be included in the EWR Flight Fee. Id . The Port Authority argues that any cost that may be included in the formula cannot be challenged by a signatory airline. Applying this logic, the Port Authority could charge any amount it wishes for the ARFF cadre, or any other category of cost identified in the EWR Flight Fee formula, and the EWR users would be powerless to challenge the airport’s practices. That is clearly incorrect under the law. The Rates and Charges Policy does not allow limitless spend ing: “Airport proprietors are encouraged to establish fees with due regard for economy and efficiency.” 78 Fed. Reg. at 55334, § 2.4.3. In other words, the guidelines prohibit the practice of “gold plating”

– an airport cannot make extravagant and unnece ssary expenditures and then pass the costs on to the users. The evidence here shows that the challenged ARFF and security expenditures are gold plating and unreasonable. At the very least, there is a dispute about the reasonableness of the expenditures th at cannot be resolved on summary judgment. The Port Authority also refers to the FAA Settlement but does not (and cannot) assert that it requires the excessive and unreasonable expenditures for the new ARFF cadre. Mem. at 27. Because there are genuine issues of material fact going to the reasonableness of the EWR Flight Fee, the Motion for Summary Judgment should be denied.47 2. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Revenue Diversion. Unlawful revenue diversion is another d istinct violation of federal aviation law independent of the other statutory violations alleged against the Port Authority. The Complaint alleges in detail the Port Authority’s diversion of airport revenue to subsidize facilities in New Jersey that it nei ther owns nor operates. See Complaint, ¶¶ 29

- 32; 170

- 178. The Port Authority spends hundreds of millions of dollars on New Jersey projects it neither owns nor operates, in plain violation of the words of Section 47107(b)(2). Complaint, ¶¶ 175

- 76. Its 2014 budget allocates $181 million for improvements to the Pulaski Skyway and $60 million for repairs to the Wittpenn Bridge, neither of which is owned or operated by the Port Authority. See Exhibit A to Complaint [2014 Budget] at p. 74. It has similarly expended tens of millions of dollars in recent years on the New Brunswick Civic Center, the Stevens Institute of Technology (a private college in Hoboken), the Jersey City Medical Center and Independence Park, a Newark space run by Essex County, New Jerse y. See Exhibit K to Complaint. United also alleges, without refutation, that these expenditures are made while the Port Authority accumulates enormous amounts of surplus revenues at EWR. The Port Authority concedes that “the issue of accumulated surplu ses is one, which the FAA and DOT will examine in the context of reviewing complaints concerning revenue diversion.” Mem. at 26.48

Because such diversion is a prima facie violation of 49 U.S.C. § 47107(b)(2) (the “grandfather clause”), investigation into its scope and impact on airport fees is warranted. Complaint, ¶¶ 29

- 32; 170

- 178. In its Motion, the Port Authority concedes, as it must, that Section 47107(b)(2) governs the uses for which it can and cannot divert airport revenues. But the Port Auth ority also argues that the language of the grandfather clause, which requires that revenues be used “to support . . . other facilities of the owner or operator,” actually allows expenditures on non

- owned facilities that “support” or are “related to” its ow ned facilities. Mem. at 34

- 36. In other words, despite the plain language of the grandfather clause requiring that airport revenues be spent on facilities “of the owner or operator,” the Port Authority seeks to stretch that language beyond all limits by arguing that it includes money spent on facilities owned by others that “support” the Port Authority facilities. The examples given in support of the Port Authority’s novel theory only confirm that it cannot stand. The Port Authority claims that the use o f airport revenues to fund the Jersey City Medical Center is lawful because that center “serves Port Authority facilities in the region.” Mem. at 35

- 36. It similarly justifies the funding of the New Brunswick Civic Center, Stevens Institute of Technology , the Jersey City Medical Center and Independence Park with airport revenue because these expenditures were made “at the request of the respective Governors consistent with existing legislation.” Id . It insists that the use of airport revenues to fund Ro utes 1 & 9, Pulaski Skyway and the Wittpenn Bridge is appropriate49

because “of the ongoing needs of the Port Authority’s facilities for efficient transportation and egress of goods and supplies.” Id . In short, according to the Port Authority, spending air port revenues on anything to do with transporting goods or servicing people anywhere in New Jersey is permissible because its employees or operations are among those that benefit, making such expenditures “related to” Port Authority “operations.” Alternat ively, the Port Authority’s novel theory suggests that expenditures at the request of “Governors” somehow shield it from FAA jurisdiction. Nothing could be further from the truth. Thus, according to the Port Authority, it may spend airport revenue on : (1)

a ny hospital it does not own or operate because the hospital may treat Port Authority employees; (2) any State

- owned roads and bridges that carry traffic that eventually uses Port Authority tunnels; (3) any local parks, because Port Authority employee s may use them for recreation; and (4) any colleges, because they may educate future Port Authority employees. Such a tortured construction of the grandfather clause would create exceptions that would swallow the clause. An argument could be made that a ny spending, no matter how far afield, somehow benefits or supports some Port Authority facility. This argument is neither credible nor supported by the law, and should be rejected out of hand. Even as to revenues diverted by the Port Authority that arg uably are within the scope of the grandfather clause, the FAA should investigate the reasonableness of the fees that generate the surplus allowing for such diversion. As United has shown, EWR generates hundreds of millions of dollars for the Port Authorit y every50

year. The grandfather clause is not a license to charge unreasonable fees. As the Rat es and Charges Policy states:

The Department assumes that the limitation on the use of airport revenue and effective market discipline for aeronautical services and facilities other than the airfield will be effective in holding aeronautical revenues, over time, to the airport proprietor's costs of providing aeronautical services and facilities, including reasonable capital costs. However, the progressive accumul ation of substantial amounts of surplus aeronautical revenue may warrant an FAA inquiry into whether aeronautical fees are consistent with the airport proprietor's obligations to make the airport availabl e on fair and reasonable
terms. 78 Fed. Reg. at 55 335, § 4.2.1

. Because the Port Authority has failed to show the absence of a genuine issue on the revenue diversion claim, the Motion for Summary Judgment should be denied.
3. The Port Authority Has Not Shown the Absence of

Genuine Issues Regarding Unlawful Discrimination Against EWR Users. Federal law provides that “[a]eronautical fees may not unjustly discriminate against aeronautical users or user groups.” 78 Fed. Reg. at 55335, § 3; see also id

. at § 3.1 (“[t]he airport proprie tor must apply a consistent methodology in establishing fees for comparable aeronautical users of the airport”); 49 U.S.C. §51

47107(a)(1) (airports must “be available for public use on reasonable conditions and without unjust discrimination.”). United has submitted evidence, undisputed by the Port Authority, that establishes a discriminatory fee structure at EWR:



### • The air carriers operating out of EWR, JFK and LGA are all similarly situated, “making the same or similar use” of the airports. Complaint, ¶ 1 68.



### • The EWR Flight Fee is 75% higher than the JFK Flight Fee and 27% higher than the LGA Flight Fee, notwithstanding that all three airports are operated by the Port Authority. Complaint, ¶ 22.



### • The cost per enplanement is actually higher at JFK than at EWR. Complaint, ¶ 168. There, is, therefore, no economic justification for the disparity in Flight Fees. Without any evidence to refute these facts, the Port Authority instead argues once again that United cannot be heard to complain about

– and the FAA cannot investigate

– the EWR Flight Fee because that rate is set by a written lease agreement. As discussed at length above, the EWR leases do not absolve the Port Authority’s violations of federal law in setting rates, including the Grant Assurance prohibit ing un

just economic discrimination. The Port Authority also argues that the disparate rates are permissible as a matter of law because the leases at EWR, on the one hand, and the leases at JFK and LGA, on the other hand, were negotiated at differen t times. The Port Authority again misstates the law.52

Alaska Airlines v. Los Angeles World Airports , DOT Order 2007

- 6

- 8, Docket DOT

- OST

- 2007

- 27331 (Jun. 15, 2007) (“ LAX III ”) is instructive. In LAX III , the airlines operating out of certain terminals at L AX (the “T1/3 Airlines”) initiated an action against the airport, asserting a claim (among others) for unjust discrimination because LAX had imposed a new rental rate that was significantly higher than the rent rate applied to the airlines operating from o ther terminals. LAX III at 13. The administrative law judge (“ALJ”) found that LAX’s imposition of
a new rent al rate on the T1/3 Airlines was unjustly discriminatory because these airlines paid significantly more than the airlines at other terminals that were comparable facilities in all material respects. “The fact that the T2/T4

- 8 earners have long term leases and the T1/T3 carriers have expired or short

- term leases is, in the view of the ALJ, an artificial classification and a ‘distinction without a di fference.’” Id . at 59. The DOT upheld the ALJ’s decision on the unjust discrimination issue. The DOT found that with respect to similarly situated aeronautical users, although “charges need not be identical...[they] must be substantially comparable.” Id

. at 63 (internal quotation marks omitted). In rejecting the airport’s contention that it is permissible to distinguish between short

- term lessors whose lease agreements expired in 2007 and long

- term lessors who signed agreements in the mid

- 1980’s, the DOT concluded that the airport “has not shown that rentable space methodology is reasonably related to the carriers operating under a Tariff or short

- term lease and53

therefore has not shown how it is justified in treating the T1/T3 Carriers differently than tho se in T2/T4

- 8.” Id

. The DOT also distinguished the FAA FBO decisions that held that airports may charge different rates to different FBOs, depending on when and under what circumstances the leases are negotiated. The DOT held that in those cases the differences between the r ents was relatively small, that the complainant FBOs had actually negotiated and agreed to the challenged rents, and that there were differences in the premises at issue in those cases. Id . The DOT concluded: “An airport may lawfully impose reasonable cl assifications on air carriers and negotiate different terms of use and charges for such use with them....However, an airport may not impose a more burdensome fee structure on a new classification of airline user without demonstrating at least a reasonable co rrelation between the new fees and the airline classification.” Id . at 57. While the D.C. Circuit reversed that decision, it did so only because it found that the DOT had incorrectly imposed the burden of proof on the airport. LAX III , 575 F.3d 750, 760 (D.C. Cir. 2009). The court held that because the airport had established prima facie evidence that there was a reasonable basis for the different rent rates, the burden of persuasion had shifted to the airlines. Id

. Here, the Port Authority has no r easonable basis to charge a higher Flight Fee at EWR than at JFK and LGA . Specifically, EWR’s fee is 75% higher than the Flight Fee at JFK and 27% higher than at LGA, even though all three airports are located in the New York metropolitan area and JFK has substantially similar54

operations to EWR. The Port Authority has proffered no evidence to support the substantial disparity of fees between EWR, on the one hand, and JFK or LGA on the other. Finally, the Port Authority contends that United has not establi shed that the “tenants at the New York airports and at Newark are similarly situated.” Mem. at 33. That is simply not so. First, it is self

- evident that the air carriers at EWR, JFK and LGA are all providing commercial air services. See Complaint, ¶ 16 8. Second, the Expert Report of Daniel M. Kasper (“Kasper Report”), Exhibit EE to United’s Complaint, describes in detail how the EWR Flight Fee puts United at a competitive disadvantage vi s - à

- vis the airlines serving JFK and LGA. Mr. Kasper further notes that the Port Authority itself has acknowledged that “air service at one of the Port Authority airports competes with the air service of one or more other airports.” Kasper Report at 22. Mr. Kas per also concludes that “from an airline perspective United’s EWR services compete with other airlines whose services operate from JFK and/or LGA.” Id . at 22

- 23. The Port Authority is required by the interstate compact from which it was created, and oth er related state laws, to operate the three major airports in the New York metropolitan area as a unified system. See N.Y. Unconsol. Law §§ 6631

- 6647; N.J. Stat. Ann 32:1

- 35.1. The Port Authority should therefore be held accountable when it creates a rat e structure that discriminates against one group of airport

users.55

For these reasons, United believes the evidence militates in favor of a finding of unjust economic discrimination. Bu t at a minimum, there exists a genuine issue of material fact with re spect to this alleged violation of the grant a ssurances .

4. The Port Authority Has Not Shown the Absence of Genuine Issues Regarding Its Monopoly Power. The Complaint alleges that the Port Authority, as the operator of the three major New York metropolitan ar ea airports, enjoys monopoly power over United, and uses this power to extract unreasonably high fees. See, e.g ., Complaint, ¶¶ 61

- 78. Those allegations are supported by facts set forth in the Complaint, as well as the Kasper Report. In the Motion, the Port Authority does not refute any of the facts proffered by United. Instead, the Port Authority offers a n opposing expert report by Matthew H. Lee, who argues that airports are no longer “natural monopolies.” 14 The attached Rebuttal Report of Daniel M. K asper demonstrates that:



### • Mr. Lee fails to challenge United’s central point that, regardless of whether the source is natural or unnatural, the Port Authority clearly has monopoly power over airline access to the New York metropolitan

area.

14 In an apparent diversionary tactic, the Port Authority and Mr. Lee also refer to United’s market share at EWR and its use of slots. M em. at 8. That argument is irrelevant to the issue of the Port Authority’s monopoly power, and to the other issues raised in the Complaint. Accordingly, without conceding anything about the validity of the argument or the factual assertions the Port Authority purports to make in support of that argument, United will not address it here , other t han to note that Mr. Lee’s speculation about United’s ability to affect EWR rates and charges is belied by the history set forth at pp. 6

- 12, above.56



### • Airlines that wa nt access to the large volume of passengers traveling to and from the New York metropolitan area

– the nation’s largest source of passenger traffic

– have no realistic alternative but to use airports controlled by the Port Authority.



### • Mr. Lee does not conte st the fact that the need to protect airport users from the potential abuse of monopoly power by airports has been widely recognized.



### • United could not move its operations to JFK or LGA

. Once again, the Port Authority’s Motion does not demonstrate the abse nce of genuine issues of material fact regarding its monopoly power and the effect of that power on users of EWR. The Motion should be denied.
IV. CONCLUSION United has more than met its burden of proof to demonstrate facts warranting an FAA investigation u nder Part 16. Many of those facts are not denied by the Port Authority. Others are disputed by the Port Authority, demonstrating a priori that summary judgment is not appropriate in this case. Part 16 was conceived as a means to empower and enable the FA A to investigate complaints against airport sponsors; the mere existence of a written agreement between the complainant and airport sponsor cannot effectively afford the airport sponsor immunity from investigation. That result would be perverse and agains t public policy, particularly in cases such as this where the effect of the written agreement was not transparent, access to pertinent information about the57

agreement was denied by the airport sponsor, and the agreement was effectively a “contract of adhes ion” concerning which many significant aspects were never subject to negotiation between the parties. Far from appropriate for dismissal by summary judgment, United’s Complaint reports serious and significant violations of federal law that the FAA is
compe lled to investigate. The Port Authority’s Motion should be denied.