UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION

Washington, D.C.

SPA RENTAL , LLC, D/B /A MSI AVIATION ,

Complainant,
v. Docket No.: AGC-16-13-02

S OMERSET

- PULASKI C OUNTY A IRPORT B OARD ,

Respondent.

M OTION TO D ISMISS AND A NSWER A. Background and Brief History. The complaint filed by SPA Rental, LLC d/b/a MSI Aviation (“SPA”) stems from its ongoing efforts to obtain preferential treatment from the Somerset-Pulaski County Airport Board (the “Airport Board”). As described in more detail below, the Airport Board previously entered into two hangar leases and one limited fixed base operator agreement with SPA, granting SPA the right to occupy two hangars and to provide certain aircraft maintenance services at the Lake Cumberland Regional Airport (the “Airport”). Despite this, to the best of the Airport Board’s knowledge, SPA has not provided maintenance services to the public for many years. In light of SPA’s failure to satisfy the need for aircraft maintenance services at the Airport, the Airport Board solicited proposals from aircraft maintenance service providers during early 2012. It eventually awarded an agreement to Somerset Regional Aviation, LLC. The agreement included incentives in the form of a waiver of certain rental fees and reimbursement of certain insurance costs. SPA demanded to receive the same incentives and voiced its complaint to the Federal Aviation Administration. In correspondence with the FAA, Airport Board representatives- 2-

explained the Airport Board’s desire to ensure the availability of, and its reasons for incentivizing, the provision of aircraft maintenance services to the public at the Airport—a need that SPA had failed to meet. They also noted that the cost of the incentives would be supported by non-airport revenues paid to the Airport Board by Pulaski County from a county-wide occupational license fee. The Airport Board explained that the incentives would be available to all providers of meaningful maintenance services on the Airport. In the course of working with the FAA, the Airport Board modified the incentives program by establishing a minimum threshold of what could be considered as providing meaningful aircraft maintenance services. Specifically, the Airport Board conditioned the receipt of incentives on the provision of at least ten paid annual inspections of third-party aircraft per year at the Airport. Somerset Regional Aviation promptly agreed to this arrangement. The Airport Board offered the arrangement to SPA, which led to protracted negotiations. Recognizing that the Airport Board could not offer SPA an arrangement unlike that of Somerset Regional Aviation, the Airport Board eventually imposed a deadline by which SPA needed to accept the terms. SPA failed to accept the terms and responded by filing this complaint with the FAA. SPA alleges that the Airport Board’s conduct violates Airport Sponsor Grant Assurance 24, which provides as follows: Fee and Rental Structure. [The Airport Board] will maintain a fee and rental structure for facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and the economy of collection. No part of the Federal share of any airport development, airport planning or noise compatibility project for which a grant is made under Title 49, United States Code, the Airport and Airway Improvement Act of 1982, the Federal Airport Act or the Airport and Airway Development Act of 1970 shall be included in the rate basis in establishing the fees, rates and charges.- 3-

The FAA’s Memphis Airports District Office, by letter dated August 21, 2012 (Answer Exh. A), concluded that the Airport Board’s incentives arrangement does not violate either GrantAssurance 24 or 25, provided that the Airport Board continues to fund the incentives with nonairport revenue and offers the incentives to all providers of meaningful aircraft maintenance service. As the Airport Board assured the FAA by its letter of July 23, 2012 (Answer Exh. B), the Airport Board funds the incentives with non-airport revenues consisting of Pulaski County Occupational License Fees.

B. Motion to Dismiss. The Airport Board moves that the complaint be dismissed for the reasons set forth in the attached Supporting Memorandum of Points and Authorities.

C. Answers to SPA Allegations. The Airport Board, by counsel, for its answer to the complaint filed by SPA, states:
1. The Airport Board denies that SPA “at all times material hereto” has been a limited fixed base operator (“LFBO”) at the Airport. The FAA’s Airport Compliance Manual defines an FBO as “a commercial entity providing aeronautical services such as fueling, maintenance, storage, ground and flight instruction, etc., to the public.” FAA Order 5190.6B, p. 9-3 (emphasis added). SPA never alleges that it provides aeronautical services to the public. In paragraphs 4, 5, and 6, of the complaint, SPA alleges only that it stores aircraft “personally” owned by SPA’s owner (Walter Iverson) or his wife and that SPA has maintained aircraft owned by Mr. Iverson, his spouse, or SPA. In fact, SPA admits that “[a]t no time has SPA offered or conducted airworthiness inspections of aircraft . . . to the general public.” The Airport Board- 4-

lacks sufficient knowledge to admit or deny the remainder of the allegations in paragraph 1 of the complaint.

2. The Airport Board admits that it is an airport board established and operating under KRS Chapter 183 and that it owns and operates the Airport.

3. The Airport Board denies that it uses limited fixed base operator agreements to lease facilities at the Airport. The Airport Board leases facilities pursuant to leases, and it grants the right to conduct maintenance services pursuant to separate limited fixed base operator agreements. The Airport Board admits that it entered into the Limited Fixed Base Operator Agreement with SPA attached as Exhibit A to the complaint.

4. The Airport Board admits that SPA built two hangars (which share one common wall) at the Airport. Upon the expiration of the ground leases in effect when SPA built those hangars, each of the hangars became property of the Airport Board. SPA effectively acknowledged this fact by entering into the leases effective January 1, 2009, pursuant to which the Airport Board leased the ground and the hangars to SPA. (See Answer Exhs. C and D). The Airport Board admits that it did not pay the cost of construction of the hangars. The Airport Board lacks sufficient knowledge to admit or deny the remainder of the allegations in paragraph 4 of the complaint.

5. To the extent that paragraph 5 of the complaint acknowledges that SPA has failed to provide aircraft maintenance services to the public, the Airport Board admits the allegations. The Airport Board lacks sufficient knowledge to admit or deny the remainder of the allegations in paragraph 5 of the complaint.- 5-

6. To the extent that paragraph 6 of the complaint acknowledges that SPA has failed to provide aircraft maintenance services to the public, the Airport Board admits the allegations. The Airport Board lacks sufficient knowledge to admit or deny the remainder of the allegations in paragraph 6 of the complaint.

7. The Airport Board admits that it entered into the agreement attached as Exhibit A to the complaint and states that the agreement speaks for itself. The Airport Board denies that such agreement was terminated at the end of 2011. The agreement eventually expired by its own terms after the Airport Board declined to renew it. (See Compl. Exh. A; Answer Exhs. C, D and E). The Airport Board denies that SPA has continued to operate at the Airport since the beginning of 2012. Although SPA continued to occupy during 2012 (and still occupies) Hangars B-3 and B-4 at the Airport, to the best of the Airport Board’s knowledge, SPA has not provided aircraft maintenance services to the public during that period. To the best of the Airport Board’s knowledge, the maintenance work in which SPA has engaged during that period has been limited to aircraft owned by it, its owner (Mr. Iverson), or its owner’s spouse.

8. The Airport Board denies that, during the period leading up to March 2012, SPA was the sole LFBO performing maintenance work at the Airport. To the best of the Airport Board’s knowledge, SPA had not provided meaningful aircraft maintenance services to the public for years. In fact, as is noted above, SPA admits that it has not provided such services to the public. As of March, 2012, no party was providing aircraft maintenance services to the public at the Airport. The Airport Board admits that, during March, 2012, it entered into a lease and a limited fixed base operator agreement, granting to Somerset Regional Aviation the right to provide aircraft maintenance services to the public from a hangar Somerset Regional Aviation leased from the Airport Board at the Airport.- 6-

9. The Airport Board admits that SPA submitted to the FAA the April 19, 2012, letter attached as Exhibit E to the complaint, states that the letter speaks for itself, and denies all other allegations of paragraph 9. The Airport Board has not provided “discriminatory” incentives to Somerset Regional Aviation. The Airport Board has offered the same incentives to SPA and will offer the same incentives to all other providers of maintenance services to the public at the Airport. A copy of the LFBO agreement and hangar lease between the Airport Board and Somerset Regional Aviation are attached as Answer Exhibit F. The LFBO agreement’s terms are identical to those offered to SPA, as shown on complaint Exhibit C. In fact, the terms of the incentives would have the Airport Board “advance” the incentive payments, with a reconciliation at the end of the year. SPA has not received incentives because it has not provided, and its refusal indicates that it does not intend to provide, meaningful aircraft maintenance services to the public.

10. The Airport Board admits that a copy of the FAA’s May 9, 2012, letter is attached as complaint Exhibit D and states that such letter speaks for itself.
The Airport Board denies that the matter was resolved by the May 9, 2012, letter from the FAA. In response to questions of the FAA, the Airport Board submitted an initial response dated April 23, 2012 (questions and initial response attached as Answer Exh. G). In response to the FAA’s May 9, 2012, letter, the Airport Board submitted a letter dated May 18, 2012, for follow up information (attached as Answer Exh. H), a letter dated July 23, 2012, regarding proposed modifications to the incentive plan (attached as Answer Exh. B), and a letter dated August 7, 2012, regarding the details of and reasoning behind the modified incentive plan (attached as Answer Exh. I).- 7-

As explained in detail by this correspondence, the Airport Board established the incentive program to promote the provision of needed aircraft maintenance services at the Airport and, accordingly, increase Airport usage and revenue. Under the modified incentive plan, the Airport Board defers rent and reimburses up to $8,000 in insurance costs for FBOs providing a “meaningful volume of maintenance work,” which is defined as at least ten annual inspections of third-party aircraft (i.e., not self-maintenance) per year. The incentives are entirely funded by revenue generated by an occupational license fee imposed and collected by Pulaski County—not airport revenue. See Pulaski County Ordinance Nos. 220.28 & 220.30 attached as Answer Exh. J. The Airport Board offers the incentives to all providers of aircraft maintenance services at the Airport.
The FAA concurred with the use of this incentive plan, as modified, by letter dated August 21, 2012 (attached as Answer Exh. A), stating: “We concur in the concept of providing incentives to promote additional commercial activities leading to additional revenue at the airport.” Further, the FAA specifically noted that it “does not object to the [Airport Board’s] use of outside revenue, as stated in [the Airport Board’s proposal], to fund these incentives.”

11. The Airport Board admits that it provided the FAA with proposed modifications to the incentive plan and admits that the FAA concurred with the Airport Board’s use of the incentive plan as described in paragraph 10 of this answer. To the extent inconsistent with this paragraph and paragraph 10, the Airport Board denies the allegations of paragraph 11 of the complaint.

12. The Airport Board does not know to what “Board representation” SPA refers in paragraph 12 and, therefore, neither admits nor denies that it made the alleged representation.- 8-

The Airport Board denies the remaining allegations of paragraph 12 of the complaint. In an open meeting on September 10, 2012, which meeting both SPA owner Mr. Iverson and SPA counsel Winter Huff attended, the Airport Board adopted Findings, Determinations, and Resolutions implementing the modified plan to which the FAA had concurred (attached as Answer Exh. K). Also, the Airport Board has provided SPA (Mr. Iverson) with a copy of the Somerset Regional Aviation LFBO agreement. Mr. Iverson requested the agreement in a February 7, 2013, letter, and the Airport Board responded on February 13, 2013, granting SPA’s request (request and response attached as Answer Exh. L). Finally, representatives of the Airport Board exchanged with counsel for SPA drafts of agreements implementing the incentive plan for SPA. (Answer Exh. M).

13. The Airport Board denies the allegations of paragraph 13 of the complaint. As shown in the attached letter dated October 2, 2012 (attached as Answer Exh. M), the Airport Board has offered SPA the opportunity to enter into an LFBO agreement on terms and conditions identical to those of Somerset Regional Aviation for the use of Hangar B-3 and to enter into a hangar lease agreement for the use of Hangar B-4. ( See Compl. Exhs. C and D). SPA indicated that it would enter into the lease for Hangar B-3 and the LFBO Agreement, provided that the Airport Board allow it to assign the lease for Hangar B-4 to its owner, Mr. Iverson, and his spouse. The Airport Board declined, offering SPA several choices: (a) sign the Hangar B-3 and B-4 leases, as well as the limited fixed base operator agreement, the Airport Board had offered, (b) sign only the Hangar B-4 lease and the limited fixed base operator agreement and vacate Hangar B-3, allowing Mr. & Mrs. Iverson to request that the Airport Board lease Hangar B-3 to them in the ordinary course of business, or (c) vacate Hangars B-3 and B-4 and continue- 9-

discussions. ( See Answer Exh. N). SPA declined all of these alternatives and currently continues to occupy Hangars B-3 and B-4 month-to-month on a holdover basis.

14. The Airport Board admits that it has offered SPA the opportunity to enter into an agreement on terms and conditions offered to all potential providers of aircraft maintenance services to the public, including the opportunity to participate in the incentive program.

15. The Airport Board denies the allegations of paragraph 15 of the complaint. The Airport Board has not unfairly discriminated against SPA. In fact, the essence of SPA’s demand is that it wants the Airport Board to unfairly discriminate in its favor by providing incentives to it without requiring that it provide meaningful aircraft maintenance services to the public, as Somerset Regional Aviation has agreed to do.
(A) The Airport Board admits that Somerset Regional Aviation leased from it, and now occupies, a hangar (the “SRA Hangar”). The Airport Board admits that Somerset Regional Aviation did not incur the cost of constructing the SRA Hangar and, therefore, is not required to amortize that construction cost. The Airport Board admits that SPA constructed, on land then leased to it by the Airport Board, Hangars B-3 and B-4 at the Airport. The Airport Board does not know whether SPA amortized the construction cost of Hangars B-3 and B-4, but it admits that the Airport Board has owned Hangars B-3 and B-4 since at least January 1, 2009, when SPA’s original leases covering only the real property expired. Prior to January 1, 2009, SPA did not pay the Airport Board for the lease of the hangars. The Airport Board admits that SPA’s leases for Hangars B-3 and B-4 have expired, that SPA has declined the Airport Board’s offer to renew those leases, and that the Airport Board has demanded that SPA vacate both hangars.- 10-

(B) The Airport Board denies that it has demanded that SPA perform ten (10) thirdparty annual inspections per year. Rather, the Airport Board advised SPA that the availability of incentives and the ability to enter into a LFBO agreement with the Airport Board, like for allaircraft maintenance service providers, is conditioned upon performing at least ten paid, thirdparty annual inspections per year.

(1) The Airport Board admits that SPA does not engage in the business of offering aircraft maintenance services to third parties (i.e., anyone other than Mr. Iverson and his spouse) and that the Airport Board conditions the availability of the incentives upon providing meaningful aircraft maintenance services to the public. The Airport Board denies that it requires SPA to “engag[e] in business which it has not heretofore engaged.”

(2) The Airport Board admits that SPA does not engage in the business of offering aircraft maintenance services to third parties (i.e., anyone other than Mr. Iverson and his spouse) and that the Airport Board conditions the availability of the incentives upon providing meaningful aircraft maintenance services to the public. The Airport Board lacks sufficient knowledge to admit or deny the consistency of its action with SPA’s “traditional business model.” To the extent that SPA’s business model consists of purchasing, then reconditioning and reselling aircraft, these activities would appear to constitute self-maintenance, not requiring a limited fixed base operator agreement from the Airport Board. These activities do not provide aircraft maintenance services to the public and, therefore, the Airport Board declined to offer incentives to subsidize them.

(3) The Airport Board denies that it has required SPA to perform any annual inspections and admits that, consistent with the FAA’s concurrence to the incentive arrangement,- 11-

SPA would be required to meet the same eligibility requirements as met by Somerset Regional Aviation. Accordingly, the Airport Board has offered SPA an LFBO agreement on terms identical to those offered to Somerset Regional Aviation. ( Compare Answer Exh. F and Complaint Exh. C). The Airport Board admits that the hangar occupied by Somerset Regional Aviation is modestly larger than either of those occupied by SPA but notes that SPA never sought to rent the hangar occupied by Somerset Regional Aviation and that, for more than two decades, SPA has found its existing accommodations adequate for the conduct of such business as it may conduct.

(4) The Airport Board admits that it will not credit the number of annual inspections performed by Mr. Iverson on aircraft owned by him, his spouse, or SPA toward meeting the ten annual inspections required to obtain incentives. The purpose of the incentive program is to promote the availability of aircraft maintenance services to the public and, in turn, increase airport usage and revenue. The terms of the incentive program require that the inspections be performed on “third party” aircraft—not aircraft owned by the FBO itself or its principals (i.e., not self-maintenance). While self-maintenance is permitted, the Airport Board has no interest in subsidizing self-maintenance.

16. The Airport Board admits that Mr. Iverson spoke at a number of Airport Board meetings. The Airport Board denies that the objective of Mr. Iverson’s attendance at Airport Board meetings was to “determine what preferential/discriminatory incentives were being offered to Somerset Regional Aviation and to procure equal/nondiscriminatory renewal of SPA’s lease.” The Airport Board has provided no “preferential/discriminatory” incentives and has offered SPA the opportunity to participate in the incentive program on the same terms and conditions as Somerset Regional Aviation.- 12-

The Airport Board denies that it declined to “renew SPA’s lease on equal/nondiscriminatory terms.” The Airport Board offered nondiscriminatory terms and SPA declined them. The Airport Board admits that SPA retained Winter Huff, Esq., who exchanged correspondence with and participated in telephone conferences with Airport Board representatives, filed an informal complaint with the FAA, and assisted Mr. Iverson with requests for Airport Board records under the Kentucky Open Records Act. The Airport Board does not know whether, and therefore neither admits nor denies that, Ms. Huff participated in teleconferences with James Williams of the FAA. The Airport Board denies that the efforts were made to obtain “reasonable and nondiscriminatory terms for the operation of SPA as an FBO.” The Airport Board offered such terms, and SPA declined to enter into an LFBO agreement on the same terms and conditions as provided to Somerset Regional Aviation.

17. The Airport Board denies the allegations of paragraph 17 of the complaint. Essentially, the Airport Board offers incentives for the provision of aircraft maintenance services to the public, and SPA demands the incentives without providing the required services.
The Airport Board did not terminate SPA’s leases. (Compl. Exh. E, p. 11). SPA’s leases expired and the Airport Board indicated that SPA may not continue to occupy Airport property without a lease in place. (Answer Exhs. C and D). Moreover, the Airport Board has not yet filed a forcible detainer action to remove SPA from Hangars B-3 and B-4, which SPA continues to
occupy.

18. The Airport Board lacks sufficient knowledge to admit or deny the allegations of paragraph 18 of the complaint. The Airport Board has offered SPA the opportunity to enter into nondiscriminatory agreements. SPA’s prior counsel, Ms. Huff, indicated that SPA’s refusal to- 13-

enter into those agreements arises from issues other than the incentives arrangement. (Answer Exh. N).

F IRST A FFIRMATIVE D EFENSE The complaint does not include a certification that “substantial and reasonable good faith efforts” to resolve the matter informally were made prior to filing the complaint as required by 14 C.F.R. §16.21.
S ECOND A FFIRMATIVE D EFENSE SPA lacks standing for the complaint because it is not “directly and substantially affected” by the incentive program, as required by 14 C.F.R. § 16.23.

T HIRD A FFIRMATIVE D EFENSE The complaint fails to state a claim that warrants investigation or further action by the FAA as required by 14 C.F.R. § 16.25.
WHEREFORE, the Airport Board demands as follows: (1) dismissal of the complaint in its entirety with prejudice; and (2) any and all other relief to which it may be entitled.

By: /s/ Bethany A. Breetz Bethany A. Breetz bbreetz@stites.com Rachel L. Owsley rowsley@stites.com S TITES & HARBISON , PLLC 400 West Market Street, Suite 1800 Louisville, KY 40202-3352 Telephone: (502) 587-3400 Attorneys for Respondent, Somerset - Pulaski County Airport Board- 14- CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing was sent by electronic mail this 30th day of May, 2013 to: Konrad Kuczak 130 West Second Street Suite 1010 Dayton, OH 45402 your_lawyer@sbcglobal.net FAA Docket Clerk 9-AWA-AGC-PART-16@faa.gov

/s/ Bethany A. Breetz Bethany A. Breetz- 15-

929564:5:LOUISVILLE