United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Filed June 18, 1999
No. 98-1071
City of Los Angeles, et al.,
Petitioners
v.
United States Department of Transportation, et al.,
Respondents
Airports Council International--North America, et al.,
Intervenors
On Petitioners' and Intervenors' Petitions
for Rehearing En Banc
---------
Before: Edwards, Chief Judge, Wald, Silberman, Williams,
Ginsburg, Sentelle, Henderson, Randolph, Rogers, Tatel, and
Garland, Circuit Judges.
ORDER
The petitions for rehearing en banc of the City of Los
Angeles, et al. and of the Airports Council International--
North America and the response thereto have been circulated
to the full court. The taking of a vote was requested.
Thereafter, a majority of the judges of the court in regular
active service did not vote in favor of either petition. Upon
consideration of the foregoing, it is
ORDERED that the petitions be denied.
Per Curiam
FOR THE COURT:
Mark J. Langer, Clerk
Separate statement filed by Circuit Judge Silberman,
concurring in the denial of rehearing en banc.
Separate statement filed by Circuit Judge Williams, with
whom Circuit Judge Ginsburg joins, dissenting from the
denial of rehearing en banc.
Chief Judge Edwards and Circuit Judges Wald and Tatel
did not participate in this matter.
Silberman, Circuit Judge, concurring in the denial of re-
hearing en banc: The dissent seems to quarrel fundamentally
with the sentence in the panel opinion that states, "In review-
ing the Department's order, we do not sit as a panel of
referees on a professional economics journal, but as a panel of
generalist judges obliged to defer to a reasonable judgment
by an agency acting pursuant to congressionally delegated
authority." City of Los Angeles v. DOT, 165 F.3d 972, 977
(1999). It is apparently the dissent's view that we are
authorized to review de novo the DOT's application of the
concept of opportunity cost (as if economics were incorporat-
ed into, or somehow on an independent par with the Constitu-
tion). Cf. Lochner v. New York, 198 U.S. 45, 75 (1905)
(Holmes, J., dissenting) ("The Fourteenth Amendment does
not enact Mr. Herbert Spencer's Social Statics."). And if we
think the Department insufficiently appreciated the virtue of
opportunity cost pricing as a signaling device generating a
more optimal allocation of society's resources, we are justified
in rejecting the Department's decision as "erroneous." By
contrast, the panel, although recognizing that economists (or
we) might disagree with the Department's rejection of oppor-
tunity cost pricing in this case, did not think that warranted
us, as a reviewing court under a deferential standard of
review, to object to the Department's decision. City of Los
Angeles, 165 F.3d at 177.
Even assuming the issue should be thought as purely an
economic one--which of course it is not (the issue might
properly be described as whether LAX, having taken taxpay-
er money under the condition that it would continue to use
LAX as an airport is legally entitled to charge a significant
group of those taxpayers, airline passengers flying in and out
of LAX, its opportunity cost based on a nonexistent opportu-
nity)--petitioners did not produce testimony (or writings) of
any economist to the effect that the market price of the
airfield land should be considered as its opportunity cost
under these circumstances.1 Professor Arrow, who testified
__________
1 The dissenters' wish to assume away LAX's legal obligation
reminds me of the old joke: How does an economist escape from a
25 foot hole? Answer: Assume a ladder.
in the original proceeding as to the general appropriateness
of opportunity cost pricing, see Los Angeles Int'l Airport
Rates Proceeding and Second Los Angeles Int'l Airport Rate
Proceeding (Remand Decision), Order 97-12-31, at 11-12
(Dec. 23, 1997), never appeared in this remand proceeding,
and, therefore, neither he nor any "non-resident" economist
has expressed a view on the matter. Indeed, we ourselves
had recognized that the scenario was more complicated than
the typical opportunity cost setting in a prior opinion--which
Judge Ginsburg joined (presumably pre-Econ 101)--concern-
ing DOT's rulemaking proceeding for airport fees. See Air
Transp. Ass'n of Am. v. DOT, 119 F.3d 38, 44 (D.C. Cir. 1997)
("[S]ince airports are obliged to use their property as an
airport, the concept of opportunity cost, and therefore fair
market value, does not quite fit.").
DOT alternatively assumed that if the grant condition were
disregarded for purposes of opportunity cost analysis, the
City--rather than just the airport--should be viewed as the
relevant economic actor. The Department noted the enor-
mous economic impact of LAX on the City: state and local
tax revenues flowing from LAX were estimated at $1.7 billion
in a 1992 study. Pursuing another opportunity on the LAX
land would require forgoing this revenue or else building a
new airport or expanding an existing minor airport like
Burbank. Either option would be tremendously costly, and
this cost should, in the DOT's view, be subtracted, in calculat-
ing the City's opportunity cost, from the profits to be earned
in pursuing alternate uses of the LAX land. Perhaps an
economist would treat the airport alone as the relevant
economic actor. But again the City did not produce any
economist's testimony in support of that proposition, so
DOT's perspective was certainly reasonable. Judged from
that viewpoint, the dissent's suggestion that if Los Angeles
sold all of its LAX airport land to a real estate developer,
airlines could simply fly into Burbank airport is about as
realistic as Marie Antoinette's apocryphal advice to the hun-
gry poor of Paris, "Let them eat cake."
* * * *
Had this case turned on the quality of briefs and oral
advocacy (as cases sometimes do), petitioners would have won
hands down. The Department of Transportation was repre-
sented, not by the excellent appellate lawyers from the Civil
Division of the Justice Department, but by the General
Counsel's office of DOT. Lawyers from the Antitrust Divi-
sion of the Justice Department appear on the brief as of
counsel. Insofar as that suggests Justice Department law-
yers actually read and contributed to the briefs, I think the
FTC should investigate for truth-in-labeling.
Williams, Circuit Judge, with whom Circuit Judge Gins-
burg joins, dissenting from the denial of rehearing en banc.
The Department of Transportation ("DoT") regulates landing
fees charged at Los Angeles International Airport ("LAX").
Here the panel decision upholds as reasonable DoT's insis-
tence that the charge for the airport's land be calculated on
the basis of historical accounting cost. 165 F.3d 972 (D.C.
Cir. 1999). Though there may be a good reason for the
Department's conclusion, the two offered by the Department
and approved by the panel appear erroneous.
As our earlier opinion made clear, the agency cannot reject
opportunity cost--or any other reasoned proposal offered by
a party--without some reason. See 103 F.3d 1027, 1031-34
(D.C. Cir. 1997) (rejecting DoT's previous rejection of oppor-
tunity cost). The proposed use of opportunity cost is rea-
soned: it has the effect of giving the customers the correct
signal as to the cost imposed on society by their use of the
resource. See id. at 1034 (citing City's contention that oppor-
tunity cost pricing would "ensure that the actual costs of the
airfield are borne by those receiving the benefit"). In this
case, giving that signal would be valuable because it would
cause airlines to use correct figures in comparing LAX with
alternatives available to them (e.g., Burbank). As the City
argued here, pricing at less than opportunity cost can be
expected to bring about excessive use of the airport. See
Final Decision on Remand at 20.
The current panel opinion first embraces DoT's argument
that the City obliged itself, in exchange for the statutory
subsidy, not to divert the property from its use as an airport.
Ergo, say DoT and the panel, there is no opportunity cost.
This seems to rest on the idea that if some exogenous
circumstance blocks application of a resource to other uses, it
follows that use of opportunity cost is inappropriate. That is
surely a non sequitur; the signalling referred to above is just
as valuable as it would have been without the block. By
contrast, of course, an inherent deficiency in the land (not
alleged here) would properly cut down opportunity cost.
Suppose a person owns property in fee simple determin-
able, to hold "so long as the land is used as an airport."
There plainly would be neither legal compulsion for him to
price the airport's services at historic cost, nor would charges
based on opportunity cost in any way logically contradict the
terms of ownership. Thus the conclusion that use of histori-
cal cost was "a consequence of an unambiguously imposed
condition," 165 F.3d at 978, appears to me a non sequitur.
The panel also accepts DoT's alternative idea that the
economic benefits generated for the City by the airport
"cover[ ]" the opportunity costs of the land. Id. at 976, 978-
79. Of course the airport generates spillover benefits for the
City.1 But the panel never explains, and I cannot under-
stand, why the existence of those benefits undercuts the
reasons for using opportunity cost. They in no way reduce
the utility of sending users accurate price signals.
Perhaps the point of this second theory is that re-allocation
of LAX to any other use would drive the City into depression,
so that the apparent opportunity is a phantom. But that
would be so only if we assumed that the airport would not be
replaced, an absurd assumption. Further, even if the costs of
replacing the airport would be higher than the opportunity
cost of LAX, and so high that on net replacement elsewhere
would be unwise, that would not logically undermine the
proposition that the opportunity cost of this land is what its
best alternative use would be. Even the foolish building of an
extravagantly priced substitute airport would in fact release
this land for alternative uses. Therefore, its value in those
uses is its opportunity cost.
In reliance on these two theories, DoT concluded that
"LAX incurs no opportunity cost." Final Decision on Re-
mand at 16. Because of that belief, it refrained from resolv-
ing other possible theories supporting its rejection of opportu-
__________
1 It also generates spillover costs, such as noise pollution. And,
as Intervenor Airports Council International--North America
points out, many of the spillover benefits run to the airlines, for
which the City creates a market; as the Intervenor observes,
"Passengers do not choose air travel because they like the cuisine."
nity cost. See id. (It mentioned the historic practice of
airports to base charges on historic cost, see id. at 22-26, and
various complications in computing opportunity cost, see id.
at 26-29, but the decision does not suggest that these issues
were decisive, and they played no role in the panel's affir-
mance.) As DoT has evidently rejected opportunity cost with
no logically sound basis for doing so, another remand to DoT
seems to me in order.
* * *
The engaging charm of Judge Silberman's rhetoric, ante,
somewhat obscures his resolute refusal to engage the City's
claim. That claim is simply that opportunity cost pricing
tends to generate a more optimal allocation of business
between suppliers of a good or service: here the service of
enabling planes to land and take off, to receive and deliver
passengers and freight, in the LA metropolitan area. The
Department does not contest this proposition. It therefore
does not require economists, resident or non-resident, Nobel
laureates or fugitives from Econ 101, to assess its general
truth. That is a given. Rather, the Department claims that
the precept is inapplicable where (1) the owner of one source
of supply has contractually obligated himself to use his assets
for the specified purpose, or (2) the owner of the resource
benefits in some collateral way from the business involved.
As shown above, both those claims are simply non sequiturs.2
As for the fantasy of LAX being closed and entirely
replaced by Burbank, that is a fantasy entirely of Judge
Silberman's rich imagination--as any glance at the above text
will show. It is not implicated by the simple thought that
correct pricing of LAX's services would generate a better
allocation of trade as between LAX, Burbank and any other
(existing or as yet undeveloped) suppliers of the same service.
__________
2 Notwithstanding the Concurring Statement at 2, they are not
made any the less non sequiturs because a prior panel cited DoT's
contention that LA's promise rendered the concept of opportunity
cost inapplicable, a contention that the panel specifically cast doubt
upon. See 119 F.3d 38, 44 (D.C. Cir. 1997).