Notice: This opinion is subject to formal revision before publication in the
Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify the
Clerk of any formal errors in order that corrections may be made before the
bound volumes go to press.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 5, 2005 Decided January 20, 2006
No. 04-1436
FEDERAL EXPRESS CORPORATION,
PETITIONER
v.
DEPARTMENT OF TRANSPORTATION AND
NORMAN Y. MINETA, SECRETARY, UNITED STATES
DEPARTMENT OF TRANSPORTATION,
RESPONDENTS
On Petition for Review of an Order of the
United States Department of Transportation
Walter Dellinger argued the cause for petitioner. With him
on the briefs were Matthew D. Roberts and Cynthia J. Collins.
Matthew M. Collette, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Peter D. Keisler, Assistant Attorney General, Leonard
Schaitman, Attorney, Jeffrey A. Rosen, General Counsel, U.S.
Department of Transportation, Paul M. Geier, Assistant General
2
Counsel, Dale C. Andrews, Deputy Assistant General Counsel,
and Peter J. Plocki, Senior Litigation Counsel.
Before: HENDERSON, ROGERS and TATEL, Circuit Judges.
Opinion for the Court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: Eleven days after the terrorist
attacks of September 11, 2001, Congress enacted the Air
Transportation Safety and System Stabilization Act. The Act
directed the President to compensate air carriers up to five billion
dollars for “direct losses” caused by orders halting air traffic and
for “incremental losses” directly caused by the terrorist attacks
and incurred between September 11 and December 31, 2001.
Compensation was not to exceed those losses proved “to the
satisfaction of the President.” A cost savings rule promulgated
by the Secretary of the Department of Transportation established
a presumption that “[t]he Department generally does not accept
claims by air carriers that cost savings should be excluded from
the calculation of incurred losses.” The Federal Express
Corporation challenges the rule as being contrary to the Act and
the Secretary’s rejection of sworn affidavits in support of some
of its claims as arbitrary, capricious, and contrary to law under
the Administrative Procedure Act. We deny the petition for
review.
I.
At 9:25 on the morning of September 11, 2001, the Federal
Aviation Administration issued a ground stop order to bring all
aviation in the United States to an immediate halt. See NAT’L
COMM’N ON THE TERRORIST ATTACKS UPON THE U.S., THE 9/11
COMMISSION REPORT 25 (2004). In response to that order and
the decline in air traffic following September 11, Congress
passed the Air Transportation Safety and System Stabilization
3
Act, which the President signed on September 22, 2001. See
Pub. L. No. 107-42, 115 Stat. 230 (2001)(codified at 49 U.S.C.
§ 40101 note) (“Act”). Section 101(a)(2) of the Act provides
that the President shall
[c]ompensate air carriers in an aggregate amount equal
to [five billion dollars] for (A) direct losses incurred . .
. by air carriers as a result of any Federal ground stop
order . . . and (B) the incremental losses incurred
beginning September 11, 2001, and ending December
31, 2001, by air carriers as a direct result of such
attacks.
An “‘incremental loss’ does not include any loss that the
President determines would have been incurred if the terrorist
attacks . . . had not occurred.” Id. § 107(3). For any loss to be
compensable, it must be “demonstrate[d] to the satisfaction of
the President.” Id. § 103(a).
The Secretary of the Department of Transportation
promulgated a series of regulations to carry out the Act. See 66
Fed. Reg. 54,616 (Oct. 29, 2001); 67 Fed. Reg. 250 (Jan. 2,
2002); 67 Fed. Reg. 18,468 (Apr. 16, 2002); 67 Fed. Reg. 54,058
(Aug. 20, 2002); see also 66 Fed. Reg. 49,507 (Sept. 25, 2001).
“In order to fulfill Congress’ intent to expeditiously provide
compensation to eligible air carriers,” the Department would
make an initial payment of roughly fifty percent of a carrier’s
estimated losses, and two later installments to reach full
compensation. 66 Fed. Reg. at 54,616-17. As a starting point in
determining the amount of a carriers’s compensation, the
Department would compare “the difference between pre-
September 11 forecasts and the updated forecasts or actual
results.” 67 Fed. Reg. at 18,472. The resulting difference would
“provide[] an approximation of the incremental losses that are a
direct result of the attacks, and that approximation, without more,
4
[would] give[] effect to the language of the statute.” Id. This
methodology was based on two assumptions: (1) the differences
between a carrier’s forecast and its actual results are primarily
due to September 11; and (2) “it is extremely difficult if not
impossible to distinguish, on a line item by line item basis,
individual revenue and expense items that were affected directly
by the terrorist attacks from those that were affected indirectly,
or those that were partially affected, or not affected at all.” Id.
The regulations left room, however, for adjustments to
address items of “significant relative financial impact” that were
“extraordinary or non-recurring” and unrelated to September 11.
Id. at 18,473. For instance, an adverse $1 million judgment that
occurred during the compensation period as a result of operative
facts before September 11 could not be included as a
compensable net loss. Id. The regulations also contemplated
that there would be situations in which carriers experienced “a
reduction in actual versus forecast expenses.” Id. To address
those situations, the cost savings rule provides:
The Department generally does not accept claims by air
carriers that cost savings should be excluded from the
calculation of incurred losses. Consequently, the
Department will generally not allow such claims to be
used in a way that has the effect of increasing the
compensation for which an air carrier is eligible.
14 C.F.R. § 330.39(b) (2005). The rule reflected a general
presumption against such adjustments because: (1) cost
reductions unrelated to September 11 would be expected to have
been included in pre-September 11 forecasts; (2) it is “highly
likely that expense reduction efforts undertaken after September
11 were attributable, implicitly if not explicitly, to changed
expectations regarding revenues after the attacks”; (3) cost
savings “in fact reduce an air carrier’s losses, and the
5
calculations required under [the] rules may not be manipulated
to exclude actual reductions in expenses, thereby generating a
basis for increased compensation”; and (4) Congress intended
that carriers not receive compensation for cost savings, “which
they have an independent obligation to their managements and
shareholders to achieve, and which it is reasonable to expect
them to undertake to mitigate the need for compensation under
the Act.” 67 Fed. Reg. at 18,473. Carriers were instructed to
submit their calculations of revenues and expenses on
Department “Form 330” along with sworn financial statements
reviewed by an independent public accountant. See 14 C.F.R. §§
330.27, 330.33; id. pt. 330, app. A.
FedEx sought compensation under the Act, and based on
FedEx’s initial loss estimates, the Department paid it just over
$100 million in the first round of payments. In subsequent
applications FedEx recalculated its projected losses. When
FedEx closed its books for the compensation period, however,
instead of comparing its pre-September 11 forecast with its
actual revenues and expenses during the compensation period on
Form 330, FedEx adjusted its actual results to account for cost
savings that it describes on appeal as “variances in its fixed
expenses [that] were not a result of the attacks, because those
expenses would not automatically decline with reduced
business.” Petitioner’s Br. at 8-9.
The Secretary, upon FedEx’s appeal, upheld, with some
modifications, the initial decision of the Assistant Secretary for
Aviation and International Affairs generally rejecting FedEx’s
attempt to obtain compensation for cost savings. Noting that the
Act provided compensation for “losses incurred,” the Secretary
understood FedEx as “essentially seeking additional
compensation in this appeal for expenses that were never
actually incurred.” Final Decision at 2. In the Secretary’s
opinion, FedEx would receive a “windfall” were its appeal
6
granted because it would end up with profits greater than those
it had forecasted before September 11. Id. Upon examining
FedEx’s claims for adjustments due to cost savings, however,
the Secretary granted some and denied others. Some he allowed
because FedEx had shown that the cost savings had originated
before September 11 and thus could not have been related to the
terrorist attacks; others he rejected because adjustment would
effectively be a double payment to FedEx for expenses that were
not incurred, and which are not properly compensable because
FedEx would not incur them until after the compensation period;
still others he rejected because FedEx had failed to show the cost
savings were unrelated to September 11. In all, the Secretary
determined that FedEx was entitled to receive just under $72
million in compensation for lost profits as a result of the
September 11 attacks. FedEx petitions for review.
II.
An earlier challenge to the cost savings rule was dismissed
by the court as unripe. See Federal Express Corp. v. Mineta, 373
F.3d 112, 118-19 (D.C. Cir. 2004) (“FedEx I”). Now that the
Secretary has issued a Final Decision on FedEx’s compensation
claims, the question whether Congress’s use of the term “losses
incurred” forecloses the Secretary’s adoption of a methodology
that generally denies adjustments when a carrier’s expenses are
lower than it forecasted prior to September 11 is properly before
the court. In FedEx I, the court concluded, upon applying the
first step of the familiar analysis of Chevron U.S.A. Inc. v.
Natural Resources Defense Council, 467 U.S. 837, 842-43
(1984), that the meaning of “incurred” in section 101(a)(2) is
ambiguous, with “the only metric” in the Act being “‘the
satisfaction of the President.’” FedEx I, 373 F.3d at 116. Use of
that metric, the court observed, “vests the Executive ‘with broad
discretion to determine appropriate criteria’ for the award of
compensation to an air carrier with better-than-expected results
7
for the period September 11-December 31, 2001.” Id. (quoting
Natural Res. Def. Council, Inc. v. EPA, 22 F.3d 1125, 1148-49
(D.C. Cir. 1994)). Given the grant of broad discretion to resolve
this ambiguity, the court concluded that the definitions of “loss”
as “something that is gone and cannot be recovered” and
“incurred” as “liable or subject to, as in to incur debt,” as
implemented, were unquestionably permissible. See FedEx I,
373 F.3d at 117-18. Hence, the only question is whether the cost
savings rule is among the permissible constructions of section
101(a)(2) of the Act.
FedEx contends that the statutory mandate to compensate
carriers requires the Secretary to compensate air carriers for their
direct and incremental losses from the September 11 attacks in
order to put the carriers in the financial positions they would
have been in if the attacks had not occurred. Thus, it argues, the
Secretary could not adopt a rule that denied compensation based
on financial need and had to allow adjustments whenever actual
expenses or revenues deviated from a carrier’s pre-September 11
forecast and were unrelated to September 11. FedEx maintains
that the critical assumption underlying the Secretary’s estimates,
derived from a methodology comparing a carrier’s pre-
September 11 forecast with its actual revenues and expenses
during the compensation period, is that all variances from the
forecast were due to September 11. Although in applying the
rule the Secretary generally made adjustments where costs were
higher than forecasted, FedEx claims the Secretary applied a
different rule where costs were lower than forecasted with the
result that FedEx was worse off than if the September 11 attacks
had never occurred. By using the term “cost savings,” FedEx
maintains, the Secretary “incorrectly implies that a carrier’s
management took affirmative action to reduce relevant expenses
in response to [September 11].” Petitioner’s Br. at 26-27.
Rather than creating a rebuttable presumption, FedEx concludes,
the cost savings rule denies adjustment for cost savings that did
8
not result from September 11, at least for carriers viewed by the
Secretary to have insufficient financial need. From FedEx’s
perspective, then, the cost savings rule impermissibly
discourages the exclusion of variances in which expenses are
lower than the forecast by adopting a general presumption
against such adjustments.
In FedEx I, the court observed that “it is simply implausible
that the Congress intended to compensate cargo carriers for the
direct losses they incurred as a result of the September 11-14
ground stop order even if they enjoyed better financial results
overall for the period September 11-December 31, 2001,” 373
F.3d at 117, because “the undisputed purpose of the Act was to
‘stabilize an industry that [was] desperately in need of urgent
relief,’” id. (quoting 147 CONG. REC. H5884 (daily ed. Sept. 21,
2001) (statement of Rep. Reynolds)). Congress “surely intended
also that the [Secretary] ‘pay out no more in subsidy than is
currently needed to accomplish the purposes of the [Act].’”
FedEx I, 373 F.3d at 117 (quoting Trans World Airlines, Inc. v.
Civil Aeronautics Bd., 385 F.2d 648, 667 (D.C. Cir. 1967)). We
will assume that some cost savings during the compensation
period were not necessarily related to September 11, that such
cost savings were not necessarily the result of carrier
management decisions, and that the rule could have
distinguished between fixed and variable costs. Nonetheless,
FedEx fails to acknowledge that determining carrier
compensation under the Act is inherently inaccurate because of
the impossibility of determining how a carrier would have
performed had September 11 never occurred. The Secretary
contemplated circumstances in which projections would vary
from actual experience and concluded that it remains “extremely
difficult if not impossible to distinguish” individual expenses
that were or were not affected by the attacks. 67 Fed. Reg. at
18,472.
9
Given the situation after September 11, it was reasonable for
the Secretary to adopt a general presumption in order to
accomplish the statutory objectives with satisfactory speed. See
id. at 18,472-73. The presumption is rational for the reasons
stated in the rulemaking. See id. at 18,473. The Secretary could
reasonably assume that significant cost reduction plans unrelated
to September 11 would have been included in a carrier’s pre-
September 11 forecasts. In view of the enormous impact of
September 11 on air carriers, the Secretary also could reasonably
assume that, following the ground stop order and the terrorist
attacks, carriers’ conscious efforts to reduce costs “were
attributable, implicitly if not explicitly, to changed expectations
regarding revenues after the attacks.” Id. Upon proof
satisfactory to the Secretary, however, a carrier could rebut the
general presumption as to a particular cost savings item.
Although FedEx maintains the cost savings rule is not a
mere factual presumption, but a strict rule that barred FedEx,
because it was profitable during the compensation period, from
receiving adjustments for cost savings even if FedEx proved
those savings were not due to September 11, its own experience
demonstrates that the cost savings rule, as applied, was not a
strict rule in which all claimed adjustments would be denied.
The Secretary allowed some adjustments that increased the
amount of FedEx’s compensation and denied some fixed-
expense adjustments that would have decreased the amount of
FedEx’s compensation. FedEx characterizes the rule as a “one-
way ratchet” in that it favors cost savings adjustments that serve
to reduce a carrier’s compensation award. See Petitioner’s Br. at
32 (citing 14 C.F.R. § 330.39(b)). But the Secretary, as we have
explained, offered persuasive reasons for treating self-interested
claims for greater compensation differently from adjustments
that reduce a carrier’s compensation award.
10
FedEx contends, however, that two of the Secretary’s
explanations for the cost savings rule are inconsistent with the
Act. First, in FedEx’s view, the Secretary’s position that the cost
savings losses were “never actually incurred” because these
“‘expenses’ . . . were never actually paid” is illogical. FedEx
points out that this reasoning confuses “losses incurred” with
“expenses incurred.” Under that reasoning, FedEx maintains, it
would be irrelevant whether a reduction in expenses had
anything to do with September 11 because all expense reductions
involve expenses “not actually incurred.” Even if scattered
statements swept more broadly than the Secretary could have
intended, we fail to see how that detracts from the validity of the
Secretary’s amply supported decision generally to disallow cost
savings adjustments while at the same time giving carriers a fair
opportunity to claim those adjustments when appropriate. Cf.
FedEx I, 373 F.3d at 118 (citing Fisher v. Bowen, 869 F.2d 1055,
1057 (7th Cir. 1989)).
Second, FedEx challenges the Secretary’s reliance on
FedEx’s overall profitability as a justification for denying it
additional compensation for cost savings. Allowing higher
compensation would not be a “windfall,” in the sense of
compensating carriers that benefitted as a result of the September
11 attacks, see FedEx I, 373 F.3d at 117, FedEx maintains,
because FedEx would only be placed in the position it would
have been in had the September 11 attacks not occurred. But
FedEx fails to recognize that the Secretary could reasonably
view a windfall to occur when a carrier receives greater profits
than it had forecasted before September 11. More importantly,
FedEx fails to identify any instance in which the Secretary
rejected a claimed cost savings on the ground that FedEx was
profitable. Instead, the Secretary evaluated FedEx’s evidentiary
submissions and found them inadequate for reasons unrelated to
profitability. In context, the Secretary’s statements about
FedEx’s finances reflect only an understandable disbelief that a
11
profitable company, which had already received more than $70
million in government funds, would insist that it was owed more
money. The Secretary’s references to FedEx’s profitability
therefore afford no basis to conclude that the cost savings rule
was an impermissible interpretation of the Act.
FedEx’s challenge under the Administrative Procedure Act,
5 U.S.C. § 706(2)(A), need not detain us long. Sworn financial
statements are the primary method by which a carrier is to prove
its claim under the Stabilization Act. See Act § 103(a). FedEx
contends in seeking additional compensation that the Secretary’s
rejection of its sworn statements and affidavits as insufficient to
rebut the regulatory presumption was arbitrary and capricious
because it was based on mere conjecture. The Secretary was not
obliged to accept FedEx’s assertions at face value. As the
records are under seal, it suffices to say that our review indicates
that some of the affidavits, although quite detailed, were couched
in conclusory terms unsatisfactory to the Secretary for reasons
that were explained, while others acknowledged that expense
reductions were subject to short-term management control. Still
others related to types of expenses that the Secretary reasonably
could conclude were subject to management control given the
incentive to reduce expenses in response to the September 11
attacks. And still others gave the Secretary obvious reason to
doubt FedEx’s credibility. Overall, the statements and affidavits
left significant gaps in relevant information or contained
significant inconsistencies and weaknesses that gave the
Secretary reasonable grounds to deny further compensation to
FedEx under the Act.
FedEx also contends that because the Act explicitly
contemplates that the Secretary “may audit such [sworn
financial] statements,” Act § 103(a), the Secretary may only
reject an affidavit that he first audits. Nowhere does the Act
require the President — or his delegate — to accept uncritically
12
conclusory explanations as to why particular claims constitute
losses. He is required to be “satisfied.” See id. “Indeed,” as we
explained in FedEx I, “the only metric the Act provides to
determine whether an air carrier has incurred a loss . . . is ‘the
satisfaction of the President.’” FedEx I, 373 F.3d at 116
(emphasis added). The Secretary’s reasonable position is that,
in accordance with the Act, he will review affidavits to satisfy
himself under section 103(a) that they make legitimate claims of
“losses” related to September 11. The Secretary’s separate audit
authority does nothing to cast this position into doubt.
Accordingly, we deny the petition for review.