# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 21, 2010 Decided April 1, 2011

No. 09-1307

CSI A VIATION S ERVICES , I NC ., P ETITIONER

v.

U NITED S TATES D EPARTMENT OF T RANSPORTATION AND R AYMOND L. L A H OOD , S ECRETARY , RESPONDENTS

On Petition for Review of an Order of the Department of Transportation

David M. Hernandez

argued the cause and filed the briefs for petitioner.

Mary F. Withum , Senior Trial Attorney, U.S. Department of Transportation, argued the cause for respondents. With her on the brief were Robert B. Nicholson and Kristen C. Limarzi , Attorneys, U.S. Department of Justice, Paul M. Geier , Assistant General Counsel, U.S. Department of Transportation, and Peter J. Plocki , Deputy Assistant General Counsel.

Before: S ENTELLE , Chief Judge , T ATEL and G RIFFITH , Circuit Judges

. Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 12

Opinion for the Court filed by Circuit Judge G RIFFITH

.

G RIFFITH , Circuit Judge : The Department of Transportation ordered CSI Aviation Services, Inc., to cease and desist from acting as a broker of air-charter s ervices for the federal government. Because the agency failed t o justify its authority to issue the order, we grant CSI’s pe tition for review.

I

Since 2003, CSI has been under contract with the Ge neral Services Administration (GSA) to broker air-charter service for various federal agencies. On March 10, 2009, CS I won a competitive bid to renew its status as a GSA contra ctor through 2014. A few days prior, on March 6, the Dep artment of Transportation (DOT) sent CSI a letter requestin g information to determine whether the company was en gaging in “indirect air transportation” without the certif icate of authority required by the Federal Aviation Act, 49 U.S.C. § 41101(a).

After the company provided the requested informatio n, DOT sent another letter, stating that it had “revie w[ed] the information submitted by CSI” and “consult[ed] withGSA.” Letter from Samuel Podberesky, Assistant Gen. Counse l for Aviation Enforcement Proceedings, DOT, to David M. Hernandez, Counsel for CSI (Oct. 16, 2009) [hereina fter Oct. 2009 Letter to CSI]. The letter then declared:

Based on this information, CSI has been acting as an unauthorized indirect air carrier in violation of s ection 41101 with respect to business transacted via its G SA schedule listing. Violations of section 41101 also Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 23
constitute unfair and deceptive practices and unfair methods of competition in violation of 49 U.S.C. § 41712.

Violations of these provisions subject CSI and its principals to the assessment of civil penalties . . . o f up to $27,500 for each violation. Each day such violation continues is a separate violation.

. . . . . . . Accordingly, CSI is warned to cease and desist from any further activity that would result in it engagi ng in indirect air transportation. If CSI immediately cea ses from entering into new contracts pursuant to the GS A schedule, and ceases all its activities governed byexisting GSA contracts within 180 days from the date of this letter, we will refrain from taking enforcement act ion regarding its past violations as discussed above.

Id.

Six other companies received similar letters. All s ix complied by terminating their status as contractors for GSA. CSI alone chose to challenge DOT’s determination, a sking the agency to withdraw the cease-and-desist letter on the grounds that the Act requires a certificate of auth ority only for companies that operate “as a common carrier,” 49 U. S.C. § 40102(a)(25), and that CSI’s charter flights for the federal government are not common carriage. Letter from Dav id M. Hernandez, Counsel for CSI, to Samuel Podberesky, A ssistant Gen. Counsel for Enforcement Proceedings, DOT (Nov. 19, 2009).

On November 25, 2009, seeking another way to avoid shutting down its operations, CSI also submitted a petition to DOT for an emergency exemption from the certificati on Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 34
requirement. In support of CSI’s petition, GSA wrot e to DOT explaining at length why the Act’s certification re quirements for common carriage make no sense for government contracts. “Acquisition [of air service] by the Fed eral Government . . . is distinct in several ways from acqui sition in the private sector and does not present the consume r protection related concerns typically at issue in the private sector.” Letter from Kris E. Durmer, Gen. Counsel, GSA, to Robert S. Rivkin, Gen. Counsel, DOT (March 1, 2010). “There are a number of ways in which the Federal agen cies that purchase air charter broker services . . . are p rotected from unscrupulous contractors.” Id.

DOT granted CSI a temporary exemption that was scheduled to expire in April 2011. The exemption or der, signed by the Assistant Secretary for Aviation and International Affairs, indicated that DOT “remain[e d] of the view that . . . the provision of air services for U.S. Government agencies through the GSA contracting sys tem constitutes an engagement in air transportation, ne cessitating that brokers conducting such business hold economic authority from the Department to act as indirect ai r carriers.” Final Order, Docket No. OST-2009-0311, at 4 (Apr. 14, 2010) (DOT). 1 In the meantime, CSI has continued to provide air service for GSA. CSI timely filed this petition for review in December 2009.

The central issue in this case is whether DOT prope rly concluded that air charter brokers that operate und er GSA contract engage in indirect air transportation and so require

1 The agency has since issued a one-year extension o f the original exemption, which is now scheduled to expire on Apri l 14, 2012. See Final Order, Docket No. OST-2009-0311 (Mar. 3, 2011 ) (DOT). The extension order does not revise the agen cy’s position that GSA contractors require certification. Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 45
certification from DOT despite the statutory provis ion that requires certification only for those who provide a ir transportation “as a common carrier.” Before reachi ng this issue, however, we must first consider whether DOT has taken a final legal position that is fit for judici al review and whether DOT’s grant of an exemption for CSI has ren dered this case moot.

II

The Federal Aviation Act provides that “a person disclosing a substantial interest in an order issue d [under the Act] . . . may apply for review of the order by fil ing a petition for review” in this court. 49 U.S.C. § 46110(a). To avoid premature intervention in the administrative proces s, our review of agency action “has been judicially restri cted to review of final agency orders.” Puget Sound Traffic Ass’n v. Civil Aeronautics Bd. , 536 F.2d 437, 438-39 (D.C. Cir. 1976). The Supreme Court set the standard for finality in Bennett v. Spear , 520 U.S. 154, 178 (1997). An agency action is fin al when it marks “the ‘consummation’ of the agency’s decisionmaking process” and is not merely of a “tentative or interlocutory nature.” Id. at 178 (citations omitted). The action must be one in which “rights or obligations have been determined” or “from which legal consequences will flow.” Id.

Bennett

highlights the importance of avoiding disruption of the administrative decisionmaking process, but i t does not foreclose all pre-enforcement challenges. Our most instructive case on this point is Ciba-Geigy Corp. v. EPA , 801 F.2d 430 (D.C. Cir. 1986), which we have recently described as “complementary” to Bennett

. Reckitt Benckiser, Inc. v. E.P.A.

, 613 F.3d 1131, 1137 (D.C. Cir. 2010). In Ciba-Geigy , an EPA official sent letters to twenty private companies d irecting Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 56
them to modify their pesticide labels. The letters stated that if the companies refused, the EPA would consider the pesticides “misbranded,” leading to enforcement actions and pe nalties. Seventeen of the twenty companies complied but Ciba -Geigy resisted, claiming that the EPA was misreading its legal authority to allow it to bring a misbranding action before following the registration cancellation process required by statute. Facing the choice between costly complianc e and the risk of prosecution, Ciba-Geigy filed a pre-enforce ment lawsuit seeking injunctive and declaratory relief.

Noting that “an agency may not avoid judicial revie w merely by choosing the form of a letter to express its definitive position on a general question of statut ory interpretation,” Ciba-Geigy , 801 F.2d at 438 n.9, we held that the EPA’s assertion of its statutory authority was reviewable final agency action for three reasons. First, the a gency had taken a “definitive” legal position concerning its statutory authority. Id. at 436. Second, the case presented “a purely legal” question of “statutory interpretation.” Id. at 435. In the absence of disputed facts that would bear on the st atutory question, there was no benefit in waiting for the a gency to develop a record before granting judicial review. A nd third, the agency’s letter imposed an immediate and significant practical burden on Ciba-Geigy, ordering the company to “conform to the new labeling requirement on pain of civil and criminal penalties.” Id. at 437.

All three factors from Ciba-Geigyare present here. First, DOT has issued a “definitive” statement of the agen cy’s legal position. Its initial warning letter clearly took the position that air charter brokers under GSA contract require agen cy certification. The letter declared in no uncertain terms that “CSI has been acting as an unauthorized indirect ai r carrier in violation of section 41101.” Oct. 2009 Letter to CS I. After Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 67
CSI protested and explained why it believed DOT to be misreading its statutory authority, the agency refu sed to change its legal position. Instead it issued an ord er granting CSI a temporary exemption from the certification requirement. The exemption order reiterated DOT’s p osition that “the provision of air services for U.S. Government agencies through the GSA contracting system constitutes an engagement in air transportation, necessitating that brokers conducting such business hold economic authority fr om the Department to act as indirect air carriers.” Final Order, Docket No. OST-2009-0311, at 4 (Apr. 14, 2010) (DOT ). The warning letter and the exemption order taken togeth er amount to a definitive statement of DOT’s legal position. “Not only did the statement of position admit of no ambiguity , but it gave no indication that it was subject to further a gency consideration or possible modification.” Ciba-Geigy , 801 F.2d at 436-37.

Second, this case presents a “purely legal” questio n of statutory interpretation—whether an air charter bro ker operating as a GSA contractor is engaged in the pro vision of air transportation “as a common carrier” and theref ore requires a certificate of authority. 49 U.S.C. § 40 102(a)(25). In the absence of any disputed facts that would bear on this question, our review of the agency’s legal positionwould not “benefit from a more concrete setting.” Ciba-Geigy , 801 F.2d at 435. The legal question we review concerns the m eaning of the Federal Aviation Act, which is antecedent to an d distinct from whether CSI itself has violated the law.

And third, DOT has imposed an immediate and significant burden on CSI. The agency effectively d eclared the company’s operations unlawful and warned the co mpany “to cease and desist from any further activity that would result in it engaging in indirect air transportation.” Oct . 2009 Letter Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 78
to CSI. At the very least, this cast a cloud of unc ertainty over the viability of CSI’s ongoing business. It also put the company to the painful choice between costly compli ance and the risk of prosecution at an uncertain point in th e future—a conundrum that we described in Ciba-Geigyas “the very dilemma [the Supreme Court has found] sufficient to warrant judicial review.” 801 F.2d at 439. DOT’s legal pronouncement was sufficiently burdensome to make s ix other GSA contractors terminate their air charter o perations for fear of prosecution. Having thus flexed its reg ulatory muscle, DOT cannot now evade judicial review.

The government relies on FTC v. Standard Oil Co. of California , 449 U.S. 232 (1980), to argue that final agency action in a case like this one requires the complet ion of a full enforcement action. In light of Ciba-Geigy , however, this argument is mistaken. In Standard Oil , the FTC initiated an enforcement action upon finding “reason to believe” that Standard Oil’s quasi-monopoly violated the Federal Trade Commission Act. Id. at 234. In the midst of the FTC’s enforcement action, with key facts still in dispute , Standard Oil of California (Socal) filed a lawsuit arguing that the FTC lacked the requisite “reason to believe” the company had violated the law. The Court dismissed the case for lack of finality. Id. at 238.

Standard Oil

differs from the present case in three key respects. First, unlike in this case, the FTC in Standard Oil did not definitively state its legal position. The FTC’s stated finding of a “reason to believe” that Socal had vio lated the law was only a “threshold determination that furthe r inquiry [was] warranted and that a complaint should initiate proceedings.” Id. at 241. This contrasts sharply with DOT’s definitive statement that “the provision of air services for U.S. Government agencies through the GSA contracting sys tem Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 89
constitutes an engagement in air transportation,” F inal Order, Docket No. OST-2009-0311, at 4 (Apr. 14, 2010) (DOT ), and that “CSI has been acting as an unauthorized indire ct air carrier in violation of section 41101 with respect to business transacted via its GSA schedule listing,” Oct. 2009 Letter to CSI.

Second, the petition in Standard Oil did not raise a purely legal question that was amenable to immediate judic ial review. Whether Socal had violated the law—and whether there was a “reason to believe” it had—depended on a large body of unresolved facts, best sorted out by the FT C with its expertise and fact-finding capability. In the prese nce of disputed facts, the case did not present a fully cr ystallized “legal issue . . . fit for judicial resolution.” Standard Oil , 449 U.S. at 239 (quoting Abbott Labs. v. Gardner , 387 U.S. 136, 153 (1967)). Granting Socal’s petition for review w ould have been premature: it would have caused “interference with the proper functioning of the agency and [imposed] a burden [on] the courts.” Id. at 242. Here, by contrast, we face a clean question of statutory interpretation with no disput ed facts. There is no need to withhold review pending further factual development that might clarify the issue.

Third, the FTC’s enforcement action against Socal d id not impose the same magnitude of hardship that DOT has imposed on CSI. As the Supreme Court explained, the FTC’s tentative determination that Socal might be violati ng the antitrust laws had no significant “effect upon [Soc al’s] daily business.” Id

. at 243. Here, however, DOT’s legal position cast a shadow over CSI’s customer relationships, ta inted almost every aspect of its long-term planning, and impaired the company’s ability to fend off competitors. Inde ed, the very purpose of DOT’s legal pronouncements, accompl ished with six other companies, was to prompt CSI to shut down its Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 910
operations. Thus, whereas Socal had “the burden of responding to the charges made against it” in a formal hearing, id

. at 242, CSI faced the more troubling question of whether it was willing to risk serious penalties inorder to obtain such a hearing at all.

It is clear from Standard Oil that courts should take care not to inject themselves into fact-bound agency pro ceedings that have yet to produce any definitive legal concl usions. But this is not such a case. DOT took a definitive lega l position denying the right of GSA contractors to continue operating without certification from the agency. This order imposed a substantial burden on CSI, and the disputed statuto ry authority underlying the order is fully fit for jud icial review without further factual development. 2

III

2 Of course, whether an agency letter threatening en forcement action is subject to judicial review varies based o n the circumstances. In Reliable Automatic Sprinkler Co. v. Consumer Product Safety Commission , 324 F.3d 726 (D.C. Cir. 2003), we found a lack of finality where the Commission sent a letter informing a sprinkler company that it “intended to make a preliminary determination that the [company’s] spri nkler heads present[ed] a ‘substantial product hazard.’” Id. at 729. That case is inapposite here because it lacked two key factors f or reviewability. The letter was not definitive because the Commissio n had “yet to determine conclusively its jurisdiction to regulate ; [] yet to determine whether the sprinkler heads present[ed] a‘substantial product hazard’; and [] yet to issue any compliance orders.” Id

. And, equally important, the question at issue there , whether sprinkler heads qualified as “consumer products” un der the Consumer Product Safety Act, “clearly involve[d] th e resolution of factual issues and the creation of a record,” as we ll as the exercise of “agency expertise” prior to court involvement. Id. at 734. Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 1011
DOT argues that this case is moot for two reasons. First, the agency “plans to hold a rulemaking on this subj ect [that] will most likely change the legal landscape that gav e rise to the warning letter.” Resp’t’s Br. 11-12. And second , the agency granted CSI a temporary exemption from the s tatutory certification requirement. In DOT’s view, this exem ption “superseded the Department’s warning letter and com pletely resolved the controversy” before us. Id. at 10.

We reject DOT’s mootness arguments. The agency’s promised rulemaking has yet to occur, and CSI’s exe mption is merely temporary. Thus, DOT’s assurances provide nothing more than the mere possibility that the agency migh t allow CSI to continue operating. If the agency does not se e fit to change its legal position or extend CSI’s exemption, the exemption will expire and the company will face the full forc e of the adverse legal determination that DOT has ann ounced. This not only raises the specter of future harm to CSI, but actually harms the company now. CSI is in the busin ess of bidding for air-travel contracts and arranging air- charter logistics, both of which require a substantial amount of advance planning. The daily difficulties of running such a business are amplified by the looming threat of a l egal kibosh.

IV

We turn at last to the merits of CSI’s petition. Th e fundamental question in reviewing an agency action is whether the agency has acted reasonably and within its statutory authority. The agency must not only adopt a permissible reading of the authorizing statute, but must also avoid acting arbitrarily or capriciously in impleme nting its interpretation. See 5 U.S.C. § 706(2). Among other things, this requires the agency to “take whatever steps it needs to provide an explanation that will enable the court t o evaluate Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 1112
the agency’s rationale at the time of decision.” Pension Benefit Guar. Corp. v. LTV Corp. , 496 U.S. 633, 654 (1990).

In this case, DOT failed to explain why the Federal Aviation Act requires a certificate of authority fo r air charter brokers operating under GSA contract. The Act state s that “an air carrier may provide air transportation only if the air carrier holds a certificate issued under this chapter.” 49 U.S.C. § 41101(a). The term “air carrier” means “a citizen of the United States undertaking by any means, directly or indirectly, to provide air transportation.” Id. § 40102(a)(2). DOT appears to have assumed that, as a broker of ch arter flights for the federal government, CSI was engaged in the indirect provision of “air transportation.” But thi s reading failed to engage with the special statutory definit ion of that term. Under the relevant part of the statute, “air transportation” is defined to include “interstate a ir transportation,” id. § 40102(a)(5), which in turn means the interstate “transportation of passengers or property by aircraft as a common carrier for compensation ,” id. § 40102(a)(25) (emphasis added).

“Common carrier” is a well-known term that comes t o us from the common law. See Try Scheidler v. Nat. Org. for Women, Inc. , 537 U.S. 393, 402 (2003) (noting presumption in favor of following common law usage where Congre ss has employed a term with a well-settled common law mean ing). The term refers to a commercial transportation ente rprise that “holds itself out to the public” and is willing to take all comers who are willing to pay the fare, “without re fusal.” B LACK ’ S L AW D ICTIONARY226 (8th ed. 2004). Some courts have allowed that holding out on an all-comers basi s to a limited segment of the public might be enough to qu alify as a common carrier. See Woolsey v. Nat’l Transp. Safety Bd. , 993 F.2d 516 (5th Cir. 1993) (concluding that an air carrier had Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 1213
acted “as a common carrier” in offering services pursuant to negotiated contracts to members of the music industry because it had “held itself out to the public or to a definable segment of the public as being willing to transport for hir e, indiscriminately”). But whatever the particular tes t, some type of holding out to the public is the sine qua non of the act of “provid[ing]” “transportation of passengers or property by aircraft as a common carrier.” 49 U.S.C. § 40102(a)( 25), 41101.

In the present case, it appears that CSI has performed under its contract with the GSA as a dedicated service provider, not as a common carrier. Under the GSA co ntract, CSI provides charter service to government agencies only, not to all comers. Thus, within the scope of the contra ct, CSI does not appear to provide “transportation of passengers or property by aircraft as a common carrier.” Id. § 40102(a)(25). If CSI is not a common carrier under its GSA contra ct, then it does not engage in “air transportation” and its services for GSA do not fall within the certification requirement of the Federal Aviation Act.

Perhaps one could argue that if a company is a comm on carrier in any aspect of its business, it necessari ly acts “as a common carrier” in all aspects of its business. The more obvious reading of the statute, however, is that a company can segregate its operations, acting sometimes “as a co mmon carrier” and sometimes not. Indeed, DOT itself has taken this approach in the past. In Advisory Circular No. 120- 12A, “Private Carriage Versus Common Carriage of Persons or Property” (Apr. 24, 1986), the agency provided “gui delines for determining whether current or proposed transpo rtation operations by air constitute private or common carr iage,” noting that “this distinction determines whether or not the operator needs economic authority as an ‘air carrie r’ from Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 1314
[DOT],” id

. ¶ 1. The circular acknowledges that “[p]ersons operating as common carriers in a certain field” may be providers of “transportation for hire which they pe rform in other fields,” as long as they can “show that the p rivate carriage is clearly distinguishable from its commoncarriage business and outside the scope of its holding out.” Id . at ¶ 4.h.

DOT failed to address this critical issue both in i ts ceaseand-desist order and in its brief to this court. Th is failure is all the more baffling because CSI twice informed DOT that it does not believe it is covered by the “air transport ation” portion of the Federal Aviation Act—once in CSI’s l etter to DOT dated November 19, 2009, and again in CSI’s brie f before this court. Yet DOT’s brief inexplicably cla ims, “It is undisputed that CSI’s service is indirect air trans portation.” Resp’t’s Br. at 13-14. Not only is this a disputed p oint, it is at the very heart of the present controversy.

Given DOT’s complete failure to explain its reading of the statute, we find it impossible to conclude that the agency’s cease-and-desist order was anything other than arbitrary and capricious, and hence unlawful. Where we “cannot evaluate the challenged agency action on the basis of the re cord before [us], the proper course . . . is to remand to the agenc y for additional investigation or explanation.” Fla. Power & Light Co. v. Lorion , 470 U.S. 729, 744 (1985). It appears to us that the law cannot support DOT’s interpretation, but we leave open the possibility that the government may reasonably conclude otherwise in the future, after demonstrati ng a more adequate understanding of the statute.

V For the foregoing reasons, the petition for review is

Granted. Case: 09-1307 Document: 1301152 Filed: 04/01/2011 Page: 14