Document ID: FAA-2012-1130-0001
Agency: faa
Document Type: Rule
Title: Waiver of Requirement to Enter into a Reciprocal Waiver of Claims Agreement with All Customers
Posted Date: 2012-10-16T04:00Z

[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Rules and Regulations]
[Pages 63221-63224]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25419]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 440

Waiver of Requirement To Enter Into a Reciprocal Waiver of Claims 
Agreement With All Customers

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of waiver.

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SUMMARY: This notice concerns a petition for waiver submitted to the 
FAA by Space Exploration Technologies Corp. (SpaceX) to waive in part 
the requirement that a launch operator enter into a reciprocal waiver 
of claims with each customer. The FAA grants the petition.

DATES: October 16, 2012.

FOR FURTHER INFORMATION CONTACT: For technical questions concerning 
this waiver, contact Charles P. Brinkman, Licensing Program Lead, 
Commercial Space Transportation--Licensing and Evaluation Division, 800 
Independence Avenue SW., Washington, DC 20591; telephone: (202) 267-
7715; email: Phil.Brinkman@faa.gov. For legal questions concerning this 
waiver, contact Laura Montgomery, Senior Attorney for Commercial Space 
Transportation, AGC-200, Office of the Chief Counsel, International, 
Legislation and Regulations Division, Federal Aviation Administration, 
800 Independence Avenue SW., Washington, DC 20591; telephone (202) 267-
3150; email: Laura.Montgomery@faa.gov.

SUPPLEMENTARY INFORMATION: 

Background

    On September 20, 2012, SpaceX submitted a petition to the Federal 
Aviation Administration's (FAA's) Office of Commercial Space 
Transportation (AST) requesting a waiver under its launch license, for 
flight of a Falcon 9 launch vehicle carrying a Dragon reentry vehicle, 
and the related reentry license, for reentry of the Dragon. SpaceX 
requested a partial waiver of 14 CFR 440.17, which requires a licensee 
to enter into a reciprocal waiver of claims (a ``cross-waiver'') with 
each of its customers.
    The FAA licenses the launch of a launch vehicle and reentry of a 
reentry vehicle under authority granted to the Secretary of 
Transportation by the Commercial Space Launch Act of 1984, as amended 
and re-codified by 51 U.S.C. Subtitle V, chapter 509 (Chapter 509), and 
delegated to the FAA Administrator and the Associate Administrator for 
Commercial Space Transportation, who exercises licensing authority 
under Chapter 509.
    The petition for waiver applies to SpaceX's October launch of a 
Falcon 9 launch vehicle and Dragon reentry vehicle to the International 
Space Station (ISS) and return of the Dragon from the ISS to Earth. The 
Dragon spacecraft will carry cargo for NASA to resupply the ISS and 
return with cargo from the ISS. The Falcon 9 will also carry a 
commercial satellite for ORBCOMM, Inc. as a secondary payload, and has 
signed cross-waivers covering that payload. The cross-waiver among 
SpaceX, ORBCOMM and the FAA is amended to provide that ORBCOMM waives 
claims against any other customer as defined by 14 CFR 440.3. The 
petition for partial waiver of the requirement that the licensee 
implement a cross-waiver with each customer applies to all launches and 
reentries under SpaceX's current licenses with respect only to the 
customers that are the subject of this waiver.
    In addition to the ISS supplies and ORBCOMM satellite, SpaceX will 
carry other payloads whose transport NASA has arranged. These consist 
of a NanoRacks, LLC, (NanoRacks) locker insert and student experiments 
created under NASA's Student Spaceflight Experiments Program (SSEP). 
NASA describes SSEP as a national science, technology, engineering and

[[Page 63222]]

mathematics education initiative.\1\ According to its Space Act 
Agreement with NASA,\2\ NanoRacks arranges to carry the student 
experiments on a locker insert to put into an experimental locker on 
board the ISS. The Space Act Agreement provides that NASA will provide 
on-orbit resources and limited launch opportunities to NanoRacks for 
the launch of its insert and the experiments the insert carries. SpaceX 
advises by amendment dated October 3, 2012, to its petition for waiver 
that, to the best of its knowledge, no NanoRacks employees will be 
present at the launch site during flight.
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    \1\ Space Station--Here we Come! NASA Press Release: http://www.nasa.gov/audience/foreducators/station-here-we-come.html (last 
visited September 25, 2012).
    \2\ Nonreimbursable Space Act Agreement Between NANORACKS, LLC 
and NASA for Operation of the NANORACKS System Aboard the 
International Space Station National Laboratory, (Sept. 4 and 9 
2009) (NanoRacks Agreement), 387938main--SAA--SOMD--6355--
Nanoracks--ISS--National--Lab.pdf.
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    NanoRacks and each student who places a payload on board the 
NanoRacks insert qualify as customers under the FAA's definitions. 
Section 440.3 defines a customer, in relevant part, as any person with 
rights in the payload or any part of the payload, or any person who has 
placed property on board the payload for launch, reentry, or payload 
services. A person is an individual or an entity organized or existing 
under the laws of a State or country. 51 U.S.C. 50901(12), 14 CFR 
401.5. The subjects of this waiver are persons because the students are 
individuals and NanoRacks is an entity, a limited liability 
corporation. Accordingly, because NanoRacks and the students are 
persons who have rights in their respective payloads, the locker insert 
and the experiments, due to their ownership of those objects, and 
because they have placed property on board, they are customers. Section 
440.17 requires their signatures as customers.
    In this instance, however, NanoRacks and the students are also 
subject to a NASA reciprocal waivers of claims, a cross-waiver, which 
is governed by NASA's regulations at 14 CFR part 1266. Article 8 of the 
Space Act Agreement between NASA and NanoRacks governs liability and 
risk of loss and establishes a cross-waiver of liability.

Waiver Criteria

    Chapter 509 allows the FAA to waive a license requirement if the 
waiver (1) will not jeopardize public health and safety, safety of 
property; (2) will not jeopardize national security and foreign policy 
interests of the United States; and (3) will be in the public interest. 
51 U.S.C. 50905(b)(3) (2011); 14 CFR 404.5(b)(2012).

Waiver of FAA Requirement for Each Customer To Sign a Reciprocal 
Waivers of Claims

    The FAA waives the 14 CFR 440.17, which requires a licensee to 
enter into a reciprocal waiver of claims with each of its customers, 
with respect to NanoRacks and the SSEP participants.
    In 1988, as part of a comprehensive financial responsibility and 
risk sharing regime that protects launch participants and the U.S. 
Government from the risks of catastrophic loss and litigation, Congress 
required that all launch participants agree to waive claims against 
each other for their own property damage or loss, and to cover losses 
experienced by their own employees. 51 U.S.C. 50915(b). This part of 
the regime was intended to relieve launch participants of the burden of 
obtaining property insurance by having each party be responsible for 
the loss of its own property and to limit the universe of claims that 
might arise as a result of a launch. Commercial Space Launch Act 
Amendments of 1988, H.R. 4399, H. Rep. 639, 11-12, 100th Cong., 2d 
Sess. (May 19, 1988); Commercial Space Launch Act Amendments of 1988, 
H.R. 4399, S. Rep. 593, 14, 100th Cong., 2d Sess. (Oct. 6, 1988); 
Financial Responsibility Requirements for Licensed Launch Activities, 
Notice of Proposed Rulemaking, 61 FR 38992, 39011 (Jul. 25, 1996). The 
FAA's implementing regulations may be found at 14 CFR part 440.
    In its request for a waiver, SpaceX maintains that the NASA 
requirements imposed on NanoRacks and the SSEP participants are 
equivalent to the requirements imposed on each customer under the FAA's 
requirements of 14 CFR part 440. A comparison of the two regimes shows 
that in this particular situation the two sets of cross-waivers are 
sufficiently similar that the statutory goals of 51 U.S.C. 50914(b) 
will be met by the FAA agreeing to accept the NASA cross-waivers in 
this instance.
    The FAA cross-waivers require the launch participants, including 
the U.S. Government and each customer, and their respective contractors 
and subcontractors, to waive and release claims against all the other 
parties to the waiver and agree to assume financial responsibility for 
property damage sustained by that party and for bodily injury or 
property damage sustained by the party's own employees, and to hold 
harmless and indemnify each other from bodily injury or property damage 
sustained by their respective employees resulting from the licensed 
activity, regardless of fault. 14 CFR 440.17(b) and (c). Each party \3\ 
to the cross-waiver must indemnify the other parties from claims by the 
indemnifying party's contractors and subcontractors if the indemnifying 
party fails to properly extend the requirements of the cross-waivers to 
its contractors and subcontractors. 14 CFR 440.17(d). A comparison of 
each element shows that, although there are some differences, because 
the NASA cross-waiver signed by NanoRacks is consistent with 
Congressional intent and the FAA's regulations, and because relevant 
employees will not be present at the launch site, NanoRacks and the 
SSEP participants need not sign a cross-waiver under 14 CFR part 440.
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    \3\ Indemnification by the U.S. Government is conditioned upon 
the passage of legislation. 51 U.S.C. 50915; 14 CFR 440.17(d).
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    Both the FAA's cross-waivers and NASA's agreement with NanoRacks 
apply to damages resulting from an FAA licensed activity, regardless of 
fault. 14 CFR 440.17(b); NanoRacks Agreement, Art. 8, par. 3(a) and 
2(e). An FAA license applies, in relevant part, to launch and reentry. 
51 USC 50904(a)(1); 14 CFR 440.3. The FAA's definition of launch also 
includes pre- and post-flight ground operations at a launch site in the 
United States. 51 U.S.C. 50902; 14 CFR 401.5. The NanoRacks Agreement 
applies under Article 8, paragraph 3(a) to damages arising out of 
``protected space operations,'' which paragraph 2(e) defines to include 
all launch or transfer vehicle \4\ activities on Earth, in outer space 
or in transit between Earth and outer space. Because protected space 
operations encompass development, test, manufacture, assembly, 
integration, operation and use of launch and transfer vehicles the 
meaning of protected space operations is broad enough to encompass 
launch, reentry, and pre- and post-flight ground operations.
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    \4\ The definition of a transfer vehicle encompasses SpaceX's 
Dragon reentry vehicle. NanoRacks Agreement, Art. 8, par. 2(g) (a 
vehicle that operates in space and transfers payloads or persons 
between a space object and the surface of a celestial body).
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    Under the FAA cross-waivers and the NanoRacks Agreement, covered 
claims include those for property damage or bodily injury sustained by 
any party. The NanoRacks Agreement defines damage to mean both damage 
to, loss, or loss of the use of any property; and bodily injury to, 
including the impairment of health of, or death of, any person. 
NanoRacks Agreement Art. 8, par. 2a. The FAA defines ``property 
damage'' to mean partial or total destruction, impairment, or loss of 
tangible property, real or personal. 14

[[Page 63223]]

CFR 440.3. The FAA defines ``bodily injury'' to mean physical injury, 
sickness, disease, disability, shock, mental anguish, or mental injury 
sustained by any person, including death. 14 CFR 440.3. To the extent 
that the NanoRacks Agreement does not, at first look, appear to address 
mental injuries, the FAA notes that, generally, the courts have tied 
mental anguish to physical injuries. An injury to the mind, acquired as 
a form of bodily injury should be barred by the cross-waivers.
    The persons to whom both cross-waivers apply are the same for the 
FAA's purposes.\5\ The FAA requires its licensee, each customer of the 
licensee, and each of their respective contractors and subcontractors 
to waive claims, and to agree to be responsible for their own property 
damage and for the bodily injury or property damage sustained by their 
own employees. 14 CFR 440.17(a).\6\ The parties agree to waive claims 
against, among others, the other party, each ``related entity'' of the 
other party, and the respective employees of each of them. NanoRacks 
Agreement Art. 8, par. 3(a)(i)-(iv). Under paragraph 2(f) of the 
NanoRacks Agreement, a ``related entity'' means a contractor or 
subcontractor of another party to the waiver at any tier or a user or 
customer of a party at any tier. The terms ``contractor'' and 
``subcontractor'' include suppliers of any kind. Because a related 
entity includes a customer or user at any tier, NanoRacks, as a 
customer of NASA and each SSEP participant with an experiment on 
NanoRack's manifest is a related entity.
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    \5\ The NanoRacks Agreement applies to more persons than the FAA 
requires. That difference poses no issues.
    \6\ Although the NanoRacks Agreement does not address assumption 
of responsibility for harm to employees like the FAA cross-waiver 
does, that issue is discussed below.
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    Both the FAA cross-waivers and the NanoRacks Agreement require the 
parties to extend the requirements of the cross-waivers to certain 
related entities, which extension is frequently referred to as a 
``flow-down'' of the cross-waiver requirements. Under the FAA's 
requirements, each customer must extend the cross-waiver requirements 
to its contractors and subcontractors by requiring them to waive and 
release all claims they may have against the licensee, each other 
customer, and the United States, and against the respective contractors 
and subcontractors of each. Waiver of Claims and Assumption of 
Responsibility for Licensed Launch, including Suborbital Launch, With 
More than One Customer, 14 CFR part 440, appendix B, part 1, subpart B 
(FAA Cross-Waiver), par. 4(b). Likewise, NanoRacks must extend the 
requirements of the cross-waiver it has signed with NASA to its related 
entities, including its users or customers, the SSEP students. This 
means that, just as with the FAA cross-waivers, NanoRacks and the 
owners of the experiments on its locker insert, have waived the 
requisite claims.
    Although the two schemes appear to diverge with regards to 
indemnification for any failure by a party to extend the cross-waiver 
requirements to its contractors and subcontractors, the legal effect of 
the different cross-waivers remains the same. The FAA cross-waiver 
expressly requires indemnification \7\ for the consequences of a 
party's failure to ``flow-down'' the requirements. FAA Cross-Waiver at 
par. 5(b) (customer indemnification for claims brought by its 
contractors and subcontractors). SpaceX notes that, because of the 
obligations each party accepts under the different cross-waivers, a 
failure to extend the requirements to related entities still results in 
a duty to indemnify the other parties for the failure, even where the 
duty is not express. State courts have long recognized that where a 
special relationship between parties exists, even where there is no 
express promise to indemnify, a duty to indemnify may arise. This has 
been true for indemnification of claims brought by employees. See, 
e.g., Howard Univ. v. Good Food Svcs., Inc., 608 A.2d 116, 1124 (DC 
1992) (special relationship may be found where there is an on-going 
contractual relationship); Rucker Co. v. M&P Drilling Co., 653 P2.2d 
1239, 1242 (Okl. 1982) (where intention of parties to a contract is 
clear that one party shall not be liable for damages, labeling the 
relationship as exculpatory or indemnitory is irrelevant and the 
results are the same). See also 100 ALR 3d 350.
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    \7\ To be precise, section 5 of the FAA cross-waiver requires 
parties to hold harmless and indemnify each other. The phrase is a 
unitary phrase that means nothing more than ``indemnify'' alone. 
Indemnify generally means ``[t]o reimburse (another) for a loss 
suffered because of a third party's or one's own act or default.'' 
Black's Law Dictionary (9th ed. 2009). ``The terms 'hold-harmless 
clause' and 'indemnity clause' often refer to the same thing-an 
agreement under which 'one party agrees to answer for any * * * 
liability or harm that the other party might incur.' Black's Law 
Dictionary 784 (8th ed. 2004) (defining ``indemnity clause,'' noting 
that the clause is ``[a]lso termed hold-harmless clause; save-
harmless clause '' (emphasis in original)).'' Long Beach Area Peace 
Network v. City of Long Beach, 574 F.3d 1011, 1039 (Cal. 2009). Hold 
harmless is defined as ``[t]o absolve (another party) from any 
responsibility for damage or other liability arising from the 
transaction; indemnify.'' Black's Law Dictionary (9th ed. 2009); see 
also Kevin Gros Marine, Inc. v. Quality Diesel Service, Inc., No. 
11-2340, slip op. at 5 (E.D.La. May 30, 2012).
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    Analogous cases may apply to indemnification for claims brought by 
a contractor or subcontractor of someone who failed to extend the 
cross-waiver requirements. See, e.g., Jinwoong, Inc. v. Jinwoong, Inc., 
310 F.3d 962, 965 (7th Cir. 2002) (even where parties fail to include 
an indemnity provision by contract, one may be implied unless 
disclaimed). Jinwoong's discussion of the issue is illuminating. The 
Seventh Circuit noted that contract completion is a standard function 
of common law courts, and gives the parties what, if they were 
omniscient, they would have provided regarding all contingencies that 
might arise under a contract. 310 F.3d at 965. Thus, when the NanoRacks 
Agreement requires all parties to extend the waivers of claims to each 
of their related entities, the FAA may reasonably rely on the implicit 
presence of an agreement to indemnify. The FAA's reliance is further 
bolstered by Article 8, paragraph (3)(d)(v), of the NanoRack Agreement, 
which states that the cross-waiver does not apply to claims for damage 
arising out of a party's failure to extend the cross-waiver to its 
related entities. The cross-waiver itself contemplates recourse. 
Additionally, for those situations where courts find necessary the 
existence of a special relationship before finding a duty to indemnify, 
a special relation exists here by virtue of the agreement between 
NanoRacks and NASA.
    The FAA notes that its cross-waivers, in addition to requiring 
waivers of claims and indemnification, also require the parties to 
assume responsibility for their own losses. The intent of the NASA 
cross-waivers suggests this is unnecessary. NASA itself has noted its 
own long and consistent responsibility of requiring the parties to its 
cross-waiver to waive claims for loss or damage and, thus, in NASA's 
own words, ``assume responsibility for the risks inherent in space 
exploration.'' Cross-Waiver of Liability, Notice of Proposed 
Rulemaking, 71 FR 62061 (Oct. 23, 2006). In the context of a customer 
assuming responsibility for its own property loss, the NASA explanation 
may suffice. However, in its implementing regulations, the FAA made it 
clear that it considers a party's assumption of responsibility a 
separate element of the cross-waiver. Financial Responsibility 
Requirements for Licensed Launch Activities, Final Rule, 63 FR 45592, 
45601-06 (Aug. 26, 1998).
    For this waiver, the FAA analyzed the significance of the 
assumption of responsibility in two parts. The FAA determined that it 
may rely on the

[[Page 63224]]

indemnification implicit in the NanoRacks cross-waiver, as discussed 
above, for claims for property damage, because the parties expressly 
waive claims for property damage. It is a different matter with respect 
to employees. The parties may not waive claims on behalf of their 
employees. Additionally, here, the NanoRacks cross-waiver does not 
address employee claims in the first instance. This does not interfere 
with the FAA's ability to grant SpaceX's request for a waiver with 
respect to the student customers because they presumably do not have 
employees. However, NanoRacks itself does have employees. If any of 
them were to be at risk at the launch site, the FAA might not have been 
able to grant SpaceX's request for a waiver with respect to NanoRacks 
itself. SpaceX recently advised the FAA, however, that it was its 
understanding that no NanoRacks employees would be present at the 
launch site during the flight.
    The final issue the FAA must consider is that NASA's regulations 
provide that the NASA cross-waiver is not applicable when 51 U.S.C. 
Subtitle V, Chapter 509 is applicable.\8\ 14 CFR 1266.102(c)(6). At 
first glance, this might create the impression that the NanoRacks 
cross-waiver does not apply when a launch or reentry is conducted under 
FAA license. However, by waiving the requirement that all customers 
sign, the FAA is not applying the specific requirements of Chapter 509 
to NanoRacks and each SSEP participant. Accordingly, the NanoRacks 
agreement should retain legal effect.
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    \8\ The provision was not incorporated into the NanoRacks 
Agreement.
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    This waiver implicates no safety, national security or foreign 
policy issues. The waiver is consistent with the public interest goals 
of Chapter 509. Under 51 U.S.C. 50914, Congress determined that it was 
necessary to reduce the costs associated with insurance and litigation 
by requiring launch participants, including customers, to waive claims 
against each other. Because the NanoRacks Agreement under 14 CFR part 
1266 accomplishes these goals by the same or similar means, the FAA 
finds this request in the public interest, and grants the waiver with 
respect to NanoRacks and the SSEP participants in reliance on the 
representations SpaceX made in its petition and subsequent 
communications.

    Issued in Washington, DC, on October 5, 2012.
Kenneth Wong,
Manager, Licensing and Evaluation Division, Office of Commercial Space 
Transportation, Federal Aviation Administration.
[FR Doc. 2012-25419 Filed 10-15-12; 8:45 am]
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