Court Opinion

ID: 5134681
Source: CourtListenerOpinion
Date Created: 2021-12-14 16:01:25.322626+00
Date Added: 2024-06-11T08:23:45.292422
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 20, 2021          Decided December 14, 2021

                         No. 20-1222

                   UNITED AIRLINES, INC.,
                        PETITIONER

                              v.

       TRANSPORTATION SECURITY ADMINISTRATION,
                    RESPONDENT

             On Petition for Review of a Decision
        of the Transportation Security Administration

     Adam P. Feinberg argued the cause and filed the briefs for
petitioner.

    Leif E. Overvold, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Brian M. Boynton, Acting Assistant Attorney General, and
Scott R. McIntosh, Attorney.

   Before: HENDERSON and WALKER, Circuit Judges, and
EDWARDS, Senior Circuit Judge.

    Opinion for the Court filed by Circuit Judge HENDERSON.

    KAREN LECRAFT HENDERSON, Circuit Judge: Petitioner
United Airlines, Inc. (United) sought refunds, pursuant to 49
                                2
U.S.C. § 44940(g), from the United States Department of
Homeland Security’s Transportation Security Administration
(TSA) for payments it made to the TSA. The payments relate
to fees charged to airline passengers, and collected by airlines,
that fund aviation security measures and are to be remitted
monthly to the TSA. In its refund request, United contends that
it erroneously remitted the security fees in two circumstances:
(1) tickets associated with passengers who purchased their
tickets from other airlines but who were later involuntarily
transferred to United flights and (2) tickets for which, because
of currency exchange rate fluctuations, the recorded and
remitted fee amount deviated from the fee amount statutorily
required. The TSA denied United’s refund request for both sets
of tickets. Although we uphold the TSA’s decision regarding
the second set of tickets, we find the TSA’s denial of a refund
for the first set arbitrary and capricious. We therefore grant
United’s petition for review in part, deny it in part and remand
to the TSA.

                  I.   Statutory Framework

      The Aviation and Transportation Security Act, Pub. L. No.
107-71, 155 Stat. 597 (2001) (codified at 49 U.S.C. § 114 and
scattered sections of 49 U.S.C.), established the TSA and
charged the agency with primary responsibility for maintaining
civil aviation security. To defray the costs associated with
certain aviation security services, the Act requires the TSA to
impose “a uniform fee” on passengers of air carriers originating
at airports in the United States. 49 U.S.C. § 44940(a)(1); see
also 49 C.F.R. § 1510.5. For the years at issue, the security fees
were capped at $2.50 per enplanement and $5.00 per one-way
trip. 49 U.S.C. § 44940(c) (2012). The Act further provides that
the security fees “shall be collected by the air carrier . . . that
sells a ticket for transportation” and then remitted to the TSA
on a timely basis. 49 U.S.C. § 44940(e)(1)–(3). Air carriers
                                3
must remit all security fees imposed each calendar month by
the last calendar day of the month following the imposition. Id.
§ 44940(e)(3); see also 49 C.F.R. § 1510.13(a). If a security fee
“is not collected from the passenger, the amount of the fee shall
be paid by the carrier.” 49 U.S.C. § 44940(d)(2). The TSA’s
implementing regulations echo this allocation of liability:
“Whether or not the security service fee is collected as required
by this part, the direct air carrier . . . selling the air
transportation is solely liable to TSA for the fee and must remit
the fee.” 49 C.F.R. § 1510.9(c). Central to the case at hand, the
Act provides that the TSA “may refund any fee paid by mistake
or any amount paid in excess of that required.” 49 U.S.C.
§ 44940(g).

                   II. Procedural History

     On April 8, 2016, United submitted a refund request to the
TSA through its consultant, Ryan Excise Tax Services, LLC
(Ryan). United sought the return of security fees that it asserted
had been erroneously remitted during the period from January
1, 2010 through February 29, 2012. The asserted overpayments
can be separated into two categories. First, United claimed that
it had erroneously remitted to the TSA $1,059,743.06 in
security fees in connection with passengers who bought their
tickets from other airlines but were later involuntarily
transferred to United flights. For these Involuntary Transfer
(IT) tickets, United maintained that it remitted the security fees
despite having never collected the fees from the passengers and
that the transferring airline, not United, maintained
responsibility for their collection and remittance to the TSA.

     Second, United claimed that it had erroneously remitted
$478,244.88 in connection with tickets for which United had
collected the security fee in a foreign currency but subsequent
fluctuations in the foreign exchange rate caused the collected
                                  4
fee to be slightly more or slightly less than the amount required
by statute—$2.50, or a multiple thereof—when it was
ultimately recorded by United. 1 If the converted amount was
less than the statutorily required amount, United adjusted
upward and remitted the amount required by statute. But if the
converted amount was more than the statutory amount, United
did not adjust downward, instead remitting the higher amount
to the TSA. For these Exchange-Rate-Difference (ERD)
tickets, United claimed its practice resulted in a net
overpayment to the TSA.

    On April 18, 2016, the TSA promptly denied United’s
refund request, concluding that the request was precluded by
United’s failure to express its concerns during an audit
conducted by the TSA in 2012. See United Airlines, Inc. v. TSA,
859 F.3d 67, 69–70 (D.C. Cir. 2017). This Court disagreed and
remanded for further administrative proceedings. Id. at 70–71.

     On remand, United renewed and supplemented its refund
request in a letter to the TSA that outlined Ryan’s
methodology. Ryan first identified the two sets of tickets at
issue here: one that included all tickets for which another
airline’s ticket stock had been involuntarily used as payment
for a United ticket—the IT tickets—and one that included all
tickets for which a security fee was deposited into United’s fee
account that was not evenly divisible by the then-applicable
statutory fee amount of $2.50—the ERD tickets. Ryan then
undertook a “programmatic review” by running a computer
formula programmed to determine whether the correct security
fee had been remitted for each ticket. For the IT tickets, Ryan
treated any payment of a security fee as an overpayment. For

     1
       For example, if a ticket sold in euros results in a security fee
of €1.80, the converted amount in U.S. dollars might be $2.45 one
day or $2.55 two days later, notwithstanding the intended fee amount
is $2.50.
                               5
the ERD tickets, Ryan treated amounts paid in excess of $2.50
(or a multiple where applicable) as overpayments and amounts
under that statutory amount as underpayments. Notably, Ryan
excluded any ERD tickets for which the security fee fell into
any of eight different ranges that were deemed insufficiently
close to a multiple of $2.50. 2 These tickets were excluded on
the theory that it would have been difficult to conduct the
programmatic review to determine whether an excluded ticket
represented an overpayment or underpayment. Neither
United’s nor Ryan’s letter to the TSA disclosed the exclusion
of these tickets. In total, Ryan identified 5,327,781 tickets—
304,531 IT tickets and 5,023,248 ERD tickets—for the period
at issue and the programmatic review calculated a net refund
amount of $1,537,987.94.

     Ryan then verified the programmatic review’s results
using a “stratified random sample,” whereby Ryan manually
reviewed a sample of 2,135 tickets, calculated the net refund
amount for that sample and then extrapolated that amount for
the entire ticket sample. Using the stratified random sample,
Ryan calculated a similar refund amount as that calculated by
the programmatic review. Ryan conducted a similar
verification process using the 600-ticket sample used by the
TSA during its 2012 audit, again extrapolating a similar refund
amount.

     During its review process, the TSA worked with the U.S.
Customs and Border Protection’s Office of Trade, Regulatory,
Audit and Agency Advisory Services (CBP) to examine and
verify the reliability of Ryan’s methodology and calculations.
The CBP, in turn, communicated with Ryan to clarify

    2
      The excluded ranges were security fee amounts between $0.01
and $1.48, $3.52 and $3.99, $6.01 and $6.49, $8.51 and $8.99,
$11.01 and $11.49, $13.51 and $13.99, $16.01 and $16.49, and
$18.51 and $18.99.
                                6
anomalies in its analysis and methodology. For example, Ryan
disclosed the exclusion of the eight ranges of ERD tickets only
after the CBP inquired into Ryan’s search parameters; the
actual ticket data for the excluded tickets was not provided to
the CBP or the TSA. After concluding its review, the CBP
submitted a memorandum summarizing its findings to the
TSA. The CBP explained that its team was unable to verify the
reliability of Ryan’s data and analysis, citing its inability to
replicate Ryan’s calculation to arrive at the same net refund
amount, its determination that Ryan’s programmatic review—
and, by extension, its stratified random sample—relied on an
incomplete universe of tickets and its observation of numerous
discrepancies in the accounting records provided by United.

     On April 21, 2020, the TSA again denied United’s refund
request. With respect to the IT tickets, the TSA concluded that
United’s bare assertion that it had no statutory obligation to
remit a security fee did not address whether the transferring
airline had already remitted the associated fee or whether
United received anything less than all funds the passenger
originally paid to the transferring airline, including the fee. In
the TSA’s view, United’s submission created only the
possibility that United might be entitled to a refund for this
category of ticket but otherwise fell short of demonstrating that
a refund was warranted for all IT tickets as a categorical matter.
For the ERD tickets, the TSA determined that United’s
submission did not substantiate United’s underlying
conclusion that it had made a net overpayment of security fees.
The TSA cited the CBP’s concerns with Ryan’s methodology
and calculations, including the exclusion of specific ranges of
tickets from the programmatic review, the failure of the
stratified random sample to verify the result from an otherwise
incomplete universe, the CBP team’s inability to replicate
Ryan’s net refund calculation and the existence of accounting
discrepancies in tens of thousands of tickets. The TSA
                                7
concluded that these deficiencies, taken collectively,
manifested that United’s submission was not sufficiently
reliable to support a refund. On June 19, 2020, United
petitioned for review of the TSA’s denial. We have jurisdiction
of United’s petition pursuant to 49 U.S.C. § 46110(a).

                         III. Analysis

     United contends that the TSA’s rejection of its refund
request was arbitrary and capricious. United first maintains that
it was under no legal duty to remit the security fee associated
with the IT tickets, meaning that every remittance was
categorically an overpayment. In United’s view, the TSA’s
assumption that the transferring carrier might have either
transferred the security fee to United or not remitted the fee to
the TSA is therefore unsupported and irrelevant. With respect
to the ERD tickets, United argues that the perceived
computational and analytical errors in Ryan’s methodology
cannot provide a basis for the TSA to deny or materially reduce
its refund request. United finally argues that the TSA acted
arbitrarily and capriciously in denying any refund rather than
calculating an alternative refund amount using the data before
it.

     Our review “is limited to determining whether the TSA
acted arbitrarily or capriciously, abused its discretion, or acted
contrary to law.” Alaska Airlines, Inc. v. TSA, 588 F.3d 1116,
1120 (D.C. Cir. 2009); see also 5 U.S.C. § 706(2)(A). We
review only to ensure that the agency “examine[d] the relevant
data and articulate[d] a satisfactory explanation for its action”
and we will not “substitute [our] judgment for that of the
agency.” Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29, 43 (1983). An agency’s decision need
not be “a model of analytic precision to survive a challenge”
under this standard, Dickson v. Sec’y of Def., 68 F.3d 1396,
                                8
1404 (D.C. Cir. 1995), and we will “uphold a decision of less
than ideal clarity if the agency’s path may reasonably be
discerned,” id. (quoting Bowman Transp., Inc. v. Arkansas-
Best Motor Freight Sys., Inc., 419 U.S. 281, 286 (1974)). The
question therefore is whether the TSA exercised its
discretionary refund authority in a manner that was reasonable
and, just as importantly, reasonably explained. See Public
Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993) (“The
requirement that agency action not be arbitrary or capricious
includes a requirement that the agency adequately explain its
result.”). For the reasons set out below, we hold that the TSA’s
denial was arbitrary and capricious with respect to the IT
tickets but otherwise passes muster.

              A. Involuntary Transfer Tickets

      In the involuntary transfer context, the allocation of legal
liability for unremitted security fees is clear. The statute
provides that any security fee “shall be collected by the air
carrier . . . that sells a ticket for transportation.” 49 U.S.C.
§ 44940(e)(2). The statute further provides that security fees
collected during a given month must then be remitted “by the
carrier collecting the fee” by the last calendar day of the month
following imposition. See id. § 44940(e)(3); see also 49 C.F.R.
§ 1510.13(a). Because United played no part in selling the
ticket to a passenger involuntarily transferred to one of its
flights from another airline, it had no legal obligation to collect
and remit the associated security fee and therefore would not
be liable in the event that the fee went unremitted to the TSA. 3

    3
        The statute notwithstanding, the TSA contends that United
may have a legal obligation under the implementing regulations to
collect and remit security fees from passengers involuntarily
transferred to its flights. The agency relies chiefly on 49 C.F.R.
§ 1510.9(c), which closely tracks 49 U.S.C. § 44940(e) and provides
                                      9
     But this is only the starting point. This is not a case about
United’s failure to remit security fees that it was required to
collect. Rather, United is seeking a refund of security fees it
erroneously—and inexplicably—remitted to the TSA despite
having no statutory responsibility to do so. The TSA’s
authority to issue such refunds is discretionary: “The [TSA]
may refund any fee paid by mistake or any amount paid in
excess of that required.” 49 U.S.C. § 44940(g) (emphasis
added); see Dickson, 68 F.3d at 1401 (“When a statute uses a
permissive term such as ‘may’ rather than a mandatory term
such as ‘shall,’ this choice of language suggests that Congress
intends to confer some discretion on the agency.”). The TSA
has consistently argued that, in light of its discretion, it
reasonably placed the burden on United to establish that a net
overpayment in fact occurred, a position that is not without at
least some merit in the informal adjudication context. See

that “[w]hether or not the security service fee is collected as required
by this part, the direct air carrier or foreign air carrier selling the air
transportation is solely liable to TSA for the fee and must remit the
fee as required in § 1510.13.” The agency has defined “direct air
carrier” as “a selling carrier,” 49 C.F.R. § 1510.3, which, in turn, is
defined as “an air carrier . . . that provides or offers to provide air
transportation and has control over the operational functions
performed in providing that air transportation,” id. In the TSA’s
view, United, despite never having sold a ticket to an involuntarily
transferred passenger, maintains operational control over the flight,
meaning that it can be deemed a “selling carrier” under its
regulations. The TSA’s argument is unpersuasive. The statute clearly
allocates liability to the air carrier “that sells a ticket for
transportation,” with no mention of operational control. 49 U.S.C.
§ 44940(e)(2) (emphasis added). Even the regulation allocates
liability to the “direct air carrier . . . selling the air transportation.” 49
C.F.R. § 1510.9(c) (emphasis added). To the extent that the TSA’s
regulation, especially 49 C.F.R. § 1510.3, may conflict with the
statute, “the statute clearly controls.” Murphy v. IRS, 493 F.3d 170,
176 n.* (D.C. Cir. 2007).
                               10
Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 57–58 (2005)
(if a statute is silent on the burden of persuasion and “[a]bsent
some reason to believe that Congress intended otherwise,” the
burden “lies where it usually falls, upon the party seeking
relief”); cf. Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S.
633, 654–55 (1990) (noting that “courts are not free to impose
upon agencies specific procedural requirements that have no
basis in the APA” and that informal adjudications are governed
by “the minimal requirements . . . set forth in the APA, 5 U.S.C.
§ 555”). Accordingly, the TSA concluded that United failed to
demonstrate that it had not simply remitted security fees that
another airline had collected and then transferred to United
along with the rest of the funds associated with an involuntarily
transferred passenger. In this scenario, the TSA contends, no
overpayment of security fees occurred.

     Placing the burden on United, however, does not relieve
the TSA of its ordinary burden under the Administrative
Procedure Act—i.e., its duty to provide a reasoned explanation
for its decision. See, e.g., State Farm, 463 U.S. at 42–52. Even
when denying an interested party’s request via informal
adjudication, an agency cannot merely state a “conclusion” but
rather “must ‘articulate a satisfactory explanation’ for its
action.” Butte Cnty., Cal. v. Hogen, 613 F.3d 190, 194 (D.C.
Cir. 2010) (quoting Tourus Records, Inc. v. DEA, 259 F.3d 731,
737 (D.C. Cir. 2001)); see also 5 U.S.C. § 555(e) (providing
that an agency’s notice of denial “shall be accompanied by a
brief statement of the grounds for denial”). In other words, the
agency must always adequately explain “why it chose to do
what it did.” Tourus Records, 259 F.3d at 737 (quoting Henry
J. Friendly, Chenery Revisited: Reflections on Reversal and
Remand of Administrative Orders, 1969 DUKE L.J. 199, 222).
We conclude that the TSA failed to meet that burden here.
                                11
     In denying United’s request, the TSA concluded that
United had failed to demonstrate that any overpayment
occurred. More specifically, it determined that United failed to
show that the transferring airline had already remitted the
relevant security fee to the TSA or that United had not received
from the transferring airline anything less than all of the funds
the involuntarily transferred passenger had originally paid to
the transferring airline, including the fee amount. But the
problem with the TSA’s rationale is this: If the transferring
airline remains legally obligated to collect and remit the
security fees for the tickets it sells, even if the passenger is
involuntarily transferred to United, there is little reason to
suppose that the transferring airline would pass along the
security fee to United instead of remitting it to the TSA in
proper course. Why would the transferring airline entrust
United to satisfy the transferring airline’s legal responsibility,
thereby risking noncompliance if United failed to do so? The
TSA’s hypothetical about airlines transferring security fees
among themselves therefore appears logically incongruent
with the allocation of liability under the statute and the TSA
otherwise makes no effort to rely on industry practice or past
practice to validate its concern. See United Airlines, 859 F.3d
at 71 n.11 (“For those overpayments due to involuntary
transfers, there is no reason to suspect that the carrier that sold
the original ticket did not also pay TSA, i.e., it is equally likely
that TSA was paid double.”). The TSA’s reasoning therefore
strikes more as a largely unsupported hypothetical than a
“satisfactory explanation” rooted in logic or practice. See Butte
Cnty., 613 F.3d at 194 (quoting Tourus Records, 259 F.3d at
737).

     That said, the TSA’s concern is nevertheless
understandable. If United simply passed along a security fee
received from the transferring airline, there was no
overpayment, meaning that a refund would leave the TSA
                                   12
shortchanged for that passenger. 4 For its part, United appears
to have made no effort to verify that it did not receive a
passenger’s security fee as part of the funds it received from
the transferring airline or to cite to industry practice
highlighting why such verification would be unnecessary.
Instead, United chose to repeat its assertion that it had no legal
responsibility to collect and remit the security fee. It was not
until briefing and oral argument that United finally asserted
that it never transfers security fees when it is the transferring
carrier and that its practice reflects the industry practice. But its
assertion, unlike the TSA’s, finds support elsewhere. See
Internal Revenue Service, Excise Tax – Air Transportation
Audit Techniques Guide, at 8-3 (Apr. 2008) (“The liability for
air transportation tax is normally recorded by each individual
carrier’s accounting system. Carriers remit the transportation
tax on the basis of their ticket stock sales. If a ticket is used on

     4
         In its brief, United suggested that it would have no legal
obligation to remit a security fee received from a transferring airline
even if United had reason to believe the transferred amount was a
security fee. United argues that this would “at most . . . give rise to a
debt owed by United to the other carrier.” Reply Br. of Pet’r 8. But
we have our doubts. See 49 U.S.C. § 44940(e)(1) (“All fees imposed
and amounts collected under this section are payable to the
Administrator of the Transportation Security Administration.”); id.
§ 44940(e)(6) (“No portion of the fee collected under this section
may be retained by the air carrier or foreign air carrier for the costs
of collecting, handling, or remitting the fee except for interest
accruing to the carrier after collection and before remittance.”). Even
if the statute does not explicitly require United to remit a fee amount
it has reason to believe constitutes a security fee, we would be hard-
pressed to conclude that United could, like Billy Joe and Bobbie Sue
before it, simply take the money and run. See Steve Miller Band,
Take the Money and Run, on Fly Like an Eagle (Capitol Records
1976).
                                13
another airline, that airline bills the selling airline for only the
fare, not the air transportation tax.”).

     We are therefore confronted with a factual dispute with
important implications for United’s refund. On the one hand,
United claims that it never transfers security fees—a practice
that appears correct in view of the allocation of liability under
49 U.S.C. § 44940—but failed to raise or support this assertion
until oral argument. On the other hand, the TSA maintains that
airlines might transfer security fees but does little to support
this assertion in its denial letter, at least beyond bare
conclusions and unsupported hypotheticals. In light of United’s
assertion regarding its practice—and assuming that it can
support this assertion upon remand—we vacate the TSA’s
decision with respect to the IT tickets and remand to the TSA
to allow it to reconsider its denial.

           B. Exchange-Rate-Difference Tickets

     We turn next to the ERD tickets. The TSA, relying on the
CBP’s analysis of United’s submission, determined that
“material limitations in Ryan’s overarching methodology”
rendered the submission insufficiently reliable to warrant a
refund. J.A. 8. In particular, the TSA focused on deficiencies
in the programmatic review and the stratified random sample
as well as discrepancies inherent in United’s accounting data
for the security fees. We find the TSA’s conclusions regarding
these deficiencies, viewed collectively, provide a reasonable
basis for the TSA’s denial and find United’s attempts to
minimize these flaws unavailing.

     Programmatic review: With respect to the programmatic
review, the TSA’s denial relied chiefly on two key limitations.
First, the TSA noted that United elected to exclude from its
submission—without informing the TSA or the CBP at the
outset—those tickets it deemed insufficiently close to statutory
                                  14
fee amounts to be accurately classified as overpayments or
underpayments by the programmatic review. According to the
TSA, “Ryan was necessarily excluding from its search query
tickets for which [United] may have made an over- or under-
payment, meaning the universe of tickets that Ryan identified
for its refund calculations was necessarily incomplete.” J.A. 9.
For example, United excluded tickets for which United
remitted a net security fee amount of $0.01 to $1.48, tickets the
TSA noted “would appear to be comprised solely of tickets for
which [United] under-remitted the Fee (as every ticket in that
group falls below the minimum Fee amount of $2.50).” J.A. 9. 5
The TSA therefore reasonably concluded that because Ryan’s
search parameters “were more likely to identify tickets that
reflected an over-remittance of the Fee while failing to
identify” under-remittances, “it is unsurprising that Ryan’s
calculations would appear to suggest a systematic aggregate
overpayment of the Fee by [United].” J.A. 9–10.

     Second, the TSA noted that not all of the fee amounts
within this universe of tickets could be attributed to exchange
rate fluctuations, which Ryan’s programmatic review
necessarily assumed. A more detailed review by the CBP
revealed accounting discrepancies suggesting that a ticket may
have a fee that deviates from that required by statute for reasons
entirely unrelated to exchange rate fluctuations. As one
example, in response to a CBP inquiry into two tickets, Ryan

     5
        United counters that the tickets in the $0.01 to $1.48 interval
were more likely overpayments, relying on the possibility of flights
being canceled and refunded after a higher-than-required security fee
had already been converted and remitted to the TSA. But this
quibble, which did not arise until appeal, serves only to highlight
how United’s decision to exclude tickets without sufficiently
explaining its rationale or the potential implications on the net refund
amount cuts against its assertion that Ryan’s methodology was
sufficiently reliable to support a refund for the requested amount.
                                 15
explained that United had initially (and correctly) collected
$5.00 for each but unexplained refunds had been issued in the
amounts of $3.06 and $0.83, bringing the remittance amounts
to $1.94 and $4.17 and causing the programmatic review to
erroneously flag the tickets as ERD tickets. Although Ryan
chalked up the identified discrepancies to “operator errors” and
“field refunds” made at airports, it did not otherwise elaborate
on their frequency or aggregate impact on the calculated net
refund amount. In short, the TSA reasonably concluded that
Ryan’s methodology “necessarily depends on the assumption
that the Fee attributable to a ticket was always a multiple of
$2.50 or within $1.00 thereof,” but “[t]he vagaries of [United]’s
accounting practices . . . reveals that tickets may easily have
unusual Fee amounts assigned to them in [United]’s ledger,”
which would not necessarily warrant a refund. J.A. 9–10 n.15.

     We find United’s arguments to the contrary unpersuasive.
United maintains that the number of excluded tickets was
“insignificant” but it never substantiated this claim to the TSA
or CBP by providing, for example, the relevant ticket-level
data, the number of excluded tickets or the effect of those
tickets on the net refund calculation. 6 United’s failure to
provide this information is particularly glaring given that the
CBP asked specifically about the excluded tickets and Ryan’s

     6
        On appeal, United has attempted to substantiate its claim that
the number of excluded tickets was insignificant by providing extra-
record evidence quantifying the number of tickets and their effect on
the net refund amount and stating that the airline would have
provided this data to the TSA had it been requested. United concedes
that this information was not before the TSA when it issued its denial
letter. See Reply in Supp. of Pet’r’s Extra-Record Evid. Mot. 9–11
(Jan. 21, 2021). This Court routinely rejects extra-record
submissions. See, e.g., CTS Corp. v. EPA, 759 F.3d 52, 65 (D.C. Cir.
2014); IMS, P.C. v. Alvarez, 129 F.3d 618, 624 (D.C. Cir. 1997). We
therefore decline to give weight to this extra-record evidence.
                               16
search parameters. United had every incentive to substantiate
its assertion that the excluded tickets were in fact
“insignificant” in the net refund calculation. United ultimately
faults the TSA for speculating about the existence of
underpayments but the fact remains that United did not provide
the TSA with the information necessary to do anything but
reasonably hypothesize about a known but undefined pool of
potential underpayments within the ERD ticket universe. We
cannot fault the TSA for declining to take United’s word that
the excluded tickets were “insignificant,” much less find that
its decision was arbitrary and capricious.

     United further argues that the TSA, not United, had the
burden to establish the existence of underpayments that would
offset the total net refund amount, characterizing this burden as
an affirmative defense. We are again unpersuaded. We find it
unlikely that the broad grant of discretionary authority under
49 U.S.C. § 44940(g) would also include an implicit
requirement that the TSA prove offsetting underpayments. The
cases that United cites in support of its theory—which involve
mandatory awards under different statutory schemes, not
discretionary awards requested by the regulated parties
themselves—are similarly unavailing. See American Airlines,
Inc. v. United States, 551 F.3d 1294, 1303–07 (Fed. Cir. 2008)
(declining to allow the government to undertake discovery to
uncover unrelated and previously overlooked underpayments
to offset an amount owed to an airline under an illegal exaction
claim without first providing a “concrete and positive”
evidentiary basis for doing so); Conway v. United States, 145
Fed. Cl. 514, 521, 524–29 (2019) (finding that governing state
law did not permit the Department of Health and Human
Services to use debts owed to it by an insurer to offset money
the agency was required to distribute to that insurer under the
Affordable Care Act). Further, United’s claim assumes that
Ryan’s methodology was sufficiently reliable to support a
                               17
refund and that any excluded underpayments would serve only
to reduce the calculated net refund amount. But it was the
reliability of Ryan’s methodology—namely the completeness
of the universe of tickets used to calculate the proposed refund
amount—that the TSA faulted.

     Stratified random sample: The TSA correctly concluded
that Ryan’s use of a stratified random sample to verify its
programmatic review could not make up for the excluded
tickets because a sample “drawn from an incomplete universe
will, of necessity, tend only to confirm the results drawn from
the incomplete universe itself.” United does not contest the
TSA’s conclusion and we see no reason to disturb it.

     The TSA further noted that the stratified random sample
contained 32 tickets—within a total sample of 2,135 tickets—
that were absent from the programmatic review. The TSA
concluded that “[t]he inclusion of exemplars in the stratified
random sample that do not appear in the universe is a
fundamental flaw in the reliability of the random sampling
effort itself.” J.A. 11. United points out that Ryan
acknowledged this discrepancy during the CBP’s review and
explained that it had removed the 32 tickets from the
programmatic review because the tickets were determined to
be neither overpayments nor underpayments, meaning that they
would have no effect on the net refund calculated by the
programmatic review. Ryan further explained that it did not
remove the 32 tickets from the stratified random sample
because it did not believe they would change the outcome of
the new programmatic results.

    But this explanation misses the point. If the 32 tickets were
in fact neither underpayments nor overpayments, United is
correct that their exclusion from the programmatic review
would have no effect on the calculated net refund. The TSA,
                              18
however, was focused on the stratified random sample, not the
programmatic review, and whether it was reflective of the
universe of tickets from which it was ostensibly drawn—i.e.,
the universe of tickets comprising the programmatic review.
The reliability of random sampling, namely its randomness,
decreases if the random sample is not drawn from the universe
it purportedly samples. See RICHARD L. SCHEAFFER ET AL.,
ELEMENTARY SURVEY SAMPLING 8–9 (7th ed. 2012). Given
that neither Ryan nor United attempted to answer the CBP’s
concerns over the inclusion of the 32 tickets in the stratified
random sample, it was reasonable for the TSA to conclude that
the validity of the stratified random sample was diminished as
a result.

     Accounting and calculation discrepancies: The TSA
noted that the CBP identified more than 39,000 tickets with
variances in the total sum of debits, credits and United-
proposed adjustments, reasoning that these “unexplained
flaws” cast doubt on the programmatic review’s capacity to
accurately calculate the proper refund amount. United’s only
counter to this finding is that the TSA acted arbitrarily by not
quantifying the monetary impact of those tickets and deducting
that amount from the total requested refund or simply removing
those tickets from the refund request. Granted, the TSA
assuredly could have elected to deduct the monetary amount of
these tickets but it was not compelled to do so under 49 U.S.C.
§ 44940(g), especially in light of the TSA’s and CBP’s
compounding concerns with Ryan’s methodology and United’s
accounting practices. The “unexplained flaws” for these
thousands of tickets—combined with the “vagaries” in
United’s accounting practices highlighted by the CBP—bolster
the TSA’s conclusion that Ryan’s methodology was
insufficiently reliable to support United’s requested refund
amount. We see no reason to disturb its reliance on this subset
of tickets in denying United’s refund request.
                               19
     The TSA also cited the CBP’s inability to replicate Ryan’s
calculations to reach the requested refund amount, prompting
the CBP to conclude that Ryan utilized a dataset other than the
one provided to the TSA. The TSA characterized the differing
calculations as “inexplicabl[e].” J.A. 11. But, as United points
out, the record does provide an explanation. When CBP voiced
concern over the discrepancy, Ryan explained that it stemmed
from duplicated data and confirmed that the CBP’s calculation
was correct. Thus, we find that it was unreasonable for the TSA
to rely on this later-reconciled error, at least absent any reason
or findings to the contrary. Nevertheless, even if this single
basis for denying United’s refund request may not be
reasonable, we cannot demand perfection nor vacate the TSA’s
decision on this basis alone. See Dickson, 68 F.3d at 1404
(noting that an agency’s decision need not be “a model of
analytic precision to survive a challenge”).

    In short, because the TSA’s decision to deny United’s
request for a refund for the ERD tickets was reasonable, we
deny United’s petition regarding the ERD tickets.

 C. The TSA’s Duty to Calculate an Alternative Refund
                      Amount

     Finally, United contends that the TSA’s decision to deny
its entire refund request rather than calculate a revised refund
amount in light of the omissions and errors detected by the TSA
and CBP was arbitrary and capricious. Rather than rely on
administrative law principles to support its assertion, United
relies primarily on Cohan v. Commissioner, 39 F.2d 540 (2d
Cir. 1930), a federal tax case. In Cohan, the Second Circuit
concluded that the U.S. Board of Tax Appeals—the
predecessor of the modern U.S. Tax Court—could not deny a
business-expense deduction altogether when it was clear the
taxpayer “had spent much and that the sums were allowable
                                20
expenses.” Id. at 543. Although the court noted that “[a]bsolute
certainty in such matters is usually impossible and is not
necessary,” it reasoned that the Board “should make as close
an approximation as it can, bearing heavily if it chooses upon
the taxpayer whose inexactitude is of his own making.” Id. at
543–44; see also United States v. Marabelles, 724 F.2d 1374,
1383 (9th Cir. 1984) (citing Cohan and stating that “if it is clear
that the taxpayer is entitled to some deduction, but he cannot
establish the full amount claimed, it is improper to deny the
deduction in its entirety”).

     At the outset, United makes no effort to anchor the Cohan
principle to 49 U.S.C. § 44940(g), specifically, or the TSA’s
statutory scheme, more generally. We therefore cannot
conclude that Cohan supports the proposition that the TSA
must reflexively remedy a requesting airline’s failure to carry
its burden on a particular point with the TSA’s own
approximation, especially if the agency has reasonable
concerns about the underlying calculations and accounting data
it would need to use to make any approximation. Indeed,
Cohan itself has been diluted by the Congress’s enactment of a
more stringent substantiation requirement for business expense
deductions, whereby a taxpayer must be able to
“substantiate[ ]” any claimed deduction with “adequate records
or by sufficient evidence corroborating the taxpayer’s own
statement” regarding the amount, date and purpose of the
business expense. See 26 U.S.C. § 274(d); see also Berkley
Mach. Works & Foundry Co. v. Comm’r, 623 F.2d 898, 902
(4th Cir. 1980) (documenting the relationship between Cohan
and the enactment of 26 U.S.C. § 274(d) as part of the Revenue
Act of 1962).

    To the extent that Cohan may operate as a background
principle of fairness, we have found the Cohan principle
inapplicable if “‘there are no reliable figures from which to
                                  21
calculate or extrapolate a reasonable estimate’ of taxpayers’
entitlements.” Green Gas Del. Statutory Tr. v. Comm’r, 903
F.3d 138, 144 (D.C. Cir. 2018) (quoting Plisco v. United States,
306 F.2d 784, 787 (D.C. Cir. 1962)); see also Coloman v.
Comm’r, 540 F.2d 427, 431–32 (9th Cir. 1976) (cautioning that
undue application of the Cohan principle “would . . . in essence
. . . condone the use of that doctrine as a substitute for burden
of proof”). In Green Gas, this Court declined to require a
“Cohan estimate” of deductible landfill gas production because
the Tax Court reasonably concluded that the estimation
methods proffered by landfill owners were insufficiently
reliable. 903 F.3d at 144. For example, the Tax Court
determined that the owners’ site logs were too infrequent and
data contained in them was “statistically improbable,” and that
software used by the owners to monitor landfill gas emissions
was not designed to provide an accurate measurement of
landfill gas production. Id. at 143. Green Gas supports the
conclusion that a Cohan estimate is unwarranted when the
reviewing body—whether the Tax Court or an agency—has
valid concerns about the reliability of the proffered
methodology or data. We therefore decline to find that the TSA
acted arbitrarily or capriciously when it elected to deny
United’s submission rather than approximate a refund amount
based on data and methodology it questioned. 7

     7
        United contends that if the TSA declined to issue a refund
based on Ryan’s programmatic review or stratified random sample,
it could have calculated a refund amount using the 600-ticket data
from the TSA’s 2012 audit of the airline. Notwithstanding United
noted in its submission that it extrapolated the audit data in order to
validate Ryan’s calculations, it in no way suggested that the
extrapolation could serve as an alternative refund amount in the event
the agency disputed all of its other calculations. Because it did not
make this argument to the TSA during the pendency of its
submission, and offers no excuse for not doing so, we decline to
                                 22
                         IV. Conclusion

     For the foregoing reasons, we grant United’s petition in
part, vacate the TSA’s decision with respect to the Involuntary
Transfer tickets and otherwise deny the petition. The case is
remanded for proceedings consistent with this opinion.

    So ordered.

consider it. See 49 U.S.C. § 46110(d); see also Alaska Airlines, Inc.
v. TSA, 588 F.3d 1116, 1122 (D.C. Cir. 2009).