Court Opinion

ID: 2745987
Source: CourtListenerOpinion
Date Created: 2014-10-28 15:01:03.175556+00
Date Added: 2024-06-11T11:02:17.919859
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 23, 2014         Decided October 28, 2014

                       No. 13-1068

             SECURITYPOINT HOLDINGS, INC.,
                     PETITIONER

                             v.

       TRANSPORTATION SECURITY ADMINISTRATION,
                    RESPONDENT

           On Petition for Review of an Order of
         the Transportation Security Administration

    M. Roy Goldberg argued the cause for petitioner. With
him on the briefs were Don J. Pelto and Nathaniel Bruno.

    John S. Koppel, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Stuart F. Delery, Assistant Attorney General, Ronald C.
Machen, Jr., U.S. Attorney, and Mark B. Stern, Attorney.

   Before: HENDERSON and SRINIVASAN, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.

    Circuit Judge HENDERSON concurs in the judgment.
                               2

     WILLIAMS, Senior Circuit Judge:                   Petitioner
SecurityPoint Holdings, Inc. seeks review of changes made by
the Transportation Security Administration (“TSA”) to a
program involving advertisements at airport security
checkpoints. SecurityPoint claims that TSA made the changes
in violation of SecurityPoint’s First Amendment rights,
specifically in retaliation for SecurityPoint’s having sued TSA
for alleged infringement of a patent. It also argues that TSA’s
explanation for persisting in the change, in the face of
SecurityPoint’s arguments that the change was unnecessary
and self-defeating for TSA, failed to satisfy the minimum
requirements of reasoned decisionmaking. Because we agree
with the latter claim, we need not reach the First Amendment
issue; TSA’s response to our vacatur and remand may either
wholly or partially moot the First Amendment claim (by
acceding in whole or in part to SecurityPoint’s position), or
materially alter the context for the First Amendment claim by
clarifying the reasons for TSA’s decision.

                             * * *

     TSA administers the “screening of all . . . property . . .
that will be carried aboard a passenger aircraft.” 49 U.S.C.
§ 44901(a). To perform this function, it operates airport
security checkpoints where passengers place personal
belongings into bins that move by conveyor belt through an
X-ray machine. TSA offsets some of the operating expenses
for these checkpoints through a so-called “Bin Advertising
Program.” Under the program, private contractors assume the
costs of providing and maintaining certain checkpoint
equipment—bins, wheeled carts to transport the bins, and
tables—in exchange for the right to sell advertisements to be
displayed inside the bins. Participating airports execute a
Memorandum of Understanding (“MOU”) with TSA; they
then contract with private companies to obtain the equipment
subject to the MOU’s terms. Once TSA has adopted a new
                               3

MOU template, it requires all participating airports entering
into new contracts under the program to use that template.
Indeed, SecurityPoint contends that TSA has tried to muscle
airports into modifying existing MOUs under which they
previously entered into contracts with SecurityPoint. The
advertising revenues, though shared by the airport operators
and private companies, relieve TSA of the expense of
supplying the bin-related equipment.

     Petitioner SecurityPoint has contracted with airports as
part of the Bin Advertising Program since its inception in
2007. It holds a patent covering some of the equipment and
methods used in the program. In 2011, it sued TSA for
infringement of that patent at airports with which
SecurityPoint had no agreement. See First Am. Compl.,
SecurityPoint Holdings, LLC v. United States, 11-cv-268 (Ct.
Fed. Cl., filed Aug. 30, 2011); see also Advertising Trays for
Security Screening, U.S. Patent No. 6,888,460 (filed Jul. 2,
2003). That case remains pending before the Court of Federal
Claims, with a trial date set for June 2015. See SecurityPoint
Holdings, LLC v. United States, 11-cv-268 (Ct. Fed. Cl., Sept.
5, 2014) (Scheduling Order).

     In August 2012 TSA modified the Bin Advertising
Program, amending the MOU template to require participating
airports to indemnify TSA from all liability for intellectual
property claims related to the checkpoint equipment. TSA
also changed the template to provide that, on cancellation of
an agreement between an airport and a private company, TSA
would retain the right to use the checkpoint equipment as well
as a license to all intellectual property necessary for such use.

     SecurityPoint opposed these changes, writing to TSA’s
Chief Counsel, Francine Kerner, in December 2012, and again
in January 2013, requesting that TSA “cease and desist from
requiring airports to agree to the new MOU language.” It
                              4

argued that airports would not sign MOUs that subjected them
to an obligation to indemnify TSA for intellectual property
claims, so that TSA would be killing the goose that laid the
golden eggs of reduced costs for checkpoint screening. And
the indemnification was unnecessary, as SecurityPoint’s
contracts gave TSA an implicit license to use the relevant
intellectual property at the airports where such agreements
were in effect. Ms. Kerner denied the request in a letter dated
January 18, 2013. This petition for review followed.

                            * * *

    The government does not contest jurisdiction.
Nonetheless, as we have an independent obligation to be sure
of subject-matter jurisdiction, Arbaugh v. Y&H Corp., 546
U.S. 500, 514 (2006), and as it is not self-evident here, we
need to resolve it.

     Under 49 U.S.C. § 46110(a), this court has jurisdiction to
review TSA “order[s]” issued “in whole or in part under”
Subtitle VII, Part A of Title 49, which encompasses passenger
screening and similar security measures under 49 U.S.C.
§§ 44901 et seq. We have understood “order” in § 49110(a)
to mean an order as defined in the Administrative Procedure
Act, 5 U.S.C. § 551(6), namely, “the whole or a part of a final
disposition . . . of an agency in a matter other than
rulemaking” and “final” in the ordinary sense that it “mark[s]
the consummation of the agency’s decisionmaking process,
and determine[s] rights or obligations or give[s] rise to legal
consequences.” Safe Extensions, Inc. v. FAA, 509 F.3d 593,
598 (D.C. Cir. 2007) (internal quotation marks omitted); see
also City of Dania Beach, Fla. v. FAA, 485 F.3d 1181, 1187-
88 (D.C. Cir. 2007); Vill. of Bensenville v. FAA, 457 F.3d 52,
68 (D.C. Cir. 2006).
                                5

     We hold that Ms. Kerner’s letter rejecting SecurityPoint’s
request is a reviewable “order.”           It is evidently the
“consummation” of TSA’s decisionmaking process regarding
SecurityPoint’s contention that it should abandon the
challenged alterations of the MOU language. The letter
“give[s] rise to legal consequences” by confirming that
participating airports will be subject to TSA’s new mandatory
MOU language and thereby affects SecurityPoint’s ability to
contract with those airports. See Safe Extensions, 509 F.3d at
598 (holding that an FAA “advisory circular” was reviewable
under 49 U.S.C. § 46110(a) where it “effectively . . . bar[red]
manufacturers like [petitioner] from selling their products to
airports”). Accordingly, this court has jurisdiction under 49
U.S.C. § 46110(a).

                             * * *

     We review Ms. Kerner’s letter under the APA’s familiar
arbitrary and capricious standard. An agency’s action is
arbitrary and capricious if it has “entirely failed to consider an
important aspect of the problem” it faces. Motor Vehicle
Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983). Relatedly, when an agency denies a
request, it must (subject to exceptions inapplicable here)
provide “a brief statement of the grounds for denial.”
5 U.S.C. § 555(e). The agency’s statement “must be one of
‘reasoning’; it must not be just a ‘conclusion’; it 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)). Ms. Kerner’s letter fails to satisfy these
basic requirements.

     SecurityPoint’s letters contended, among other things,
that the new indemnification provision would undermine the
cost-saving Bin Advertising Program by making it difficult or
                               6

impossible for airports to participate.           SecurityPoint
characterized the indemnity provision as “a classic ‘poison
pill’ because airports will not, and indeed cannot, agree to it.”
In support of that proposition it claimed (“on information and
belief”) that the staff at Lambert-St. Louis International
Airport had said that they didn’t believe the airport “could
possibly comply with the new MOU language.” It recounted
that Boston Logan International Airport had told
SecurityPoint that the new language “was not something they
can agree to,” and had then ceased negotiating. SecurityPoint
asserted essentially the same story for Hartsfield-Jackson
Atlanta International Airport. It argued, indeed, that TSA
knew perfectly well that airport operators were not going to
agree “to such blanket indemnifications,” effectively disabling
SecurityPoint from securing additional commitments.

     And SecurityPoint explicitly noted the adverse effects on
TSA itself, saying that the new requirement would curtail a
program that “avoids TSA having to fund the purchase of
checkpoint furnishings.” It suggested, moreover, that these
self-inflicted wounds were unnecessary, as “TSA [has] had
the benefit of an implied license to practice the invention
covered by the . . . patent” at any airport covered by an
agreement between SecurityPoint and the airport operator.

     Ms. Kerner’s response does not address these
contentions. It offers no indication that she or anyone at TSA
even considered the potential harms to the Bin Advertising
Program, and thus to TSA, from insistence on the new
provisions, such as the additional equipment costs that would
shift back to the agency as a result.

    Ms. Kerner’s letter does note that fourteen airports have
“entered into MOUs with TSA to participate in the Bin
Advertising Program where SecurityPoint is the advertising
broker” since SecurityPoint filed its lawsuit in 2011. But the
                               7

point is not at all responsive. To evaluate the effect of the
new MOU terms on the Bin Advertising Program, one would
obviously have to examine behavior after those terms were
rolled out (August 2012), not after SecurityPoint started its
infringement suit. It is uncontested that, since the relevant
date, SecurityPoint “has not entered into a single contract with
a new airport operator.”

    Instead of addressing SecurityPoint’s contentions, Ms.
Kerner’s letter asserts that TSA modified the MOU in order to
“protect itself from legal liability.” Yet Ms. Kerner never
even mentions SecurityPoint’s observation that TSA had “the
benefit of an implied license” at the airports where
SecurityPoint had an agreement in effect, much less suggests
some reason why such a license either would not be in effect
or would not meet TSA’s concerns.

     Because Ms. Kerner’s letter fails to provide any “basis
upon which we could conclude that it was the product of
reasoned decisionmaking” on this point, the agency has not
fulfilled its statutory duty to provide a “brief statement of the
grounds for denial” under 5 U.S.C. § 555(e). See Tourus
Records, 259 F.3d at 737.

     Nor is there anything in the record beyond Ms. Kerner’s
letter that would support TSA’s decision. The agency now
points to a single airport—Durango/La Plata County—which
has executed an MOU including the new language. But, as
SecurityPoint notes, the airport in question is “very small” and
may not have appreciated the “impact” of the new MOU
language. Without disparaging Durango, de minimis non
curat lex.

     Because TSA “failed to consider an important aspect of
the problem” before it, its decision must be set aside as
arbitrary and capricious. See State Farm, 463 U.S. at 43.
                              8

Accordingly, the court will vacate Ms. Kerner’s letter and
remand the case to the agency.

                           * * *

    Finally, both parties have also moved to supplement the
record. In light of the disposition above, these motions are
dismissed as moot.

                           * * *

    The petition for review is granted and TSA’s order is

                                      Vacated and remanded.