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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 20, 2009 Decided December 11, 2009
No. 09-1062
ALASKA AIRLINES, 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 and filed the briefs for
petitioner.
Jeffrey Clair, Attorney, U.S. Department of Justice, argued
the cause for respondent. With him on the briefs was Scott R.
McIntosh, Attorney.
Before: SENTELLE, Chief Judge, and ROGERS and
KAVANAUGH, Circuit Judges.
Opinion for the Court by Circuit Judge ROGERS.
2
ROGERS, Circuit Judge: Pursuant to the Aviation and
Transportation Security Act, Pub. L. No. 107–71, 115 Stat. 597
(2001)(codified in 49 U.S.C. § 114 and scattered sections of 49
U.S.C.), the Transportation Security Administration (“TSA”) of
the Department of Homeland Security imposed a $2.50 per
passenger “enplanement” fee to pay for the costs of providing
civil aviation security services. 49 U.S.C. § 44940(a)(1)(2009);
49 C.F.R. § 1510.5. Air carriers collect and remit these fees,
and must allow the TSA access to their records to ensure that
security service fees are being properly collected and remitted.
49 U.S.C. § 44940(e); 49 C.F.R. § 1510.19. Based on an audit
of Alaska Airlines’ records for a four-year period, the TSA
determined that the air carrier owed $1,070,726.28 in additional
passenger security fees. Alaska Airlines challenges this decision
on two grounds: (1) The audit was not random and was skewed
by inclusion of two flights on dates during the start and
reinstitution of passenger fee collections; and (2) It is due a
credit of $738,816.00 for passenger fees it paid but did not
collect from passengers. Because Alaska Airlines has failed to
show that the TSA’s decision was arbitrary, capricious, an abuse
of discretion, or contrary to law, we deny the petition for review.
I.
Shortly after the terrorist attacks on September 11, 2001,
Congress enacted the Aviation and Transportation Security Act
establishing the TSA and vesting it with primary responsibility
for maintaining civil air security. 49 U.S.C. § 114. The Act
required the TSA to impose “a uniform fee” on “passengers of
air carriers” originating at airports in the United States to pay for
the costs of providing “civil aviation security services.”
§ 44940(a)(1). The fees are capped at $2.50 per “enplanement,”
defined as “a person boarding in the United States in scheduled
or nonscheduled service on aircraft,” 49 C.F.R. § 1510.3, and
may not exceed $5.00 per one-way trip. 49 U.S.C. § 44940(c).
3
The Act further provides that these fees “shall be collected by
the air carrier . . . that sells a ticket for transportation,” and then
remitted on a timely basis to the TSA. § 44940(e)(1)–(3). If a
passenger fee “is not collected from the passenger, the amount
of the fee shall be paid by the carrier.” § 44940(d)(2). The TSA
may require carriers to submit information that it determines is
necessary to verify that the proper amount of fees have been
timely collected and remitted. § 44940(e)(4).
Pursuant to the implementing regulations, the TSA in
December 2001 set the passenger fee at $2.50. 49 C.F.R.
§ 1510.5. The fee applied to most flight segments originating at
an airport in the United States, but passengers could not be
charged more than two “enplanements” per one-way trip or four
“enplanements” per round trip. Id. The regulations provided
that the air carrier is responsible for collecting the passenger
fees and remitting them to the TSA, and that the fees must be
based on the passenger’s air travel itinerary at the time the ticket
is purchased. § 1510.9, .13. The passenger may be liable for
additional fees or entitled to a refund based on a voluntary
change in itinerary. § 1510.9(b). However, if the passenger is
involuntarily re-routed, the air carrier is solely liable to the TSA
for any additional security service fees resulting from an
increase in the number of “enplanements.” Id.
In 2006, the TSA issued a clarification regarding certain
recurring issues relating to passenger fees. Letter from Michael
Gambone, Acting Dir., Office of Revenue, Transp. Sec. Admin.
(October 24, 2006) (“2006 clarification”). The TSA clarified
both the definition of a one-way trip and its enforcement policy
for additional fees when involuntary re-routes add
“enplanements” to a passenger’s itinerary. The TSA announced
that, although air carriers were “solely liable to TSA” for such
fees, it would not pursue unpaid involuntary re-route fees unless
the air carrier had already collected that fee from passengers.
4
Further, air carriers would no longer be liable for collecting and
remitting involuntary re-route fees after January 1, 2007. The
2006 clarification stated:
All Passenger Fees collected in accordance with this
clarification prior to January 1, 2007 must be remitted
to TSA. Funds so remitted and/or collected are not
subject to any refund, credit or offset against any other
amounts due. (emphasis added).
Shortly before the 2006 clarification, Alaska Airlines
received a letter confirming arrangements for two auditors from
U.S. Customs and Border Protection to conduct a compliance
audit on behalf of the TSA. Letter from Anthony Saranchak,
Assistant Field Dir., Regulatory Audit Div., U.S. Customs and
Border Prot., Dep’t of Homeland Sec., to Brett Weiler, Tax
Manager, Alaska Airlines, Inc. (August 10, 2006). The letter
stated the audit would cover the period between February 1,
2002 and April 30, 2006. The methodology of the audit was
straightforward: The auditors first picked twelve flights that in
their judgment would best represent the entire audit period.
They examined the tickets and records for those flights to
determine if Alaska Airlines had in any instances failed to
impose, collect, or remit the passenger security fee to the TSA.
They found that out of 1,413 instances in which the fee should
have been remitted to the TSA, called “qualifying flight
segments,” in twelve instances Alaska Airlines erroneously
failed to either impose or remit the fee. The auditors then
divided the number of errors (12) by the number of qualifying
flight segments (1,413) to arrive at an error rate of 0.85%, and
extrapolated that error rate to the total amount of fees paid
during the audit period.
Based on the audit findings, the TSA assessed Alaska
Airlines an additional $1,070,726.28 in passenger fees. Letter
5
from Pamela Pak, Revenue Compliance Manager, Transp. Sec.
Admin., to Kevin Thiel, Dir. of Revenue Accounting, Alaska
Airlines, Inc. (June 5, 2007). The assessment reflected a
reduction of approximately half a million dollars to account for
any errors caused by the air carrier’s confusion about how to
define a multiple one-way trip prior to issuance of the 2006
clarification. Id. The TSA found a recalculated sample error
rate of 0.57%.
Alaska Airlines pursued administrative review on the
grounds that the audit sample was not randomly drawn and so
could not serve as a basis for conclusions about the entire audit
period. It argued that the sample had been structured to include
flights in the months immediately following initial
implementation and post-suspension reimplementation of the
fee,1 and asserted that errors were more likely to occur at those
times. It also claimed that it was entitled to a refund or credit of
fees it had paid for passengers who were involuntarily re-routed
onto additional “enplanements.” Because the TSA had elected
in the 2006 clarification not to enforce this liability against air
carriers who had failed to remit involuntary rerouting fees, it
argued the TSA was obligated to relieve it of this liability.
The TSA affirmed the additional assessment and the denial
of a refund or credit. Letter from David Nicholson, Assistant
Adm’r, Fin. and Admin./Chief Fin. Officer, Transp. Sec.
Admin., to Brett R. Weiler, Alaska Airlines, Inc. (Oct. 19, 2008)
(“Final Decision”). The TSA explained that while the flights
were not randomly drawn, as the audit report had stated, the use
of the auditor’s professional judgment to select a representative
1
See Emergency Wartime Supplemental Appropriations Act,
Pub. L. 108–11, Title IV, 117 Stat. 604, 605 (2003); Temporary
Suspension of the September 11th Security Fee and the Aviation
Security Infrastructure Fee, 68 Fed. Reg. 27,747 (May 21, 2003).
6
sample of flights was an appropriate audit tool: “Judgmental
sampling was used to ensure the data better represented the
entire audit period for the air carrier.” Final Decision at 2. The
TSA rejected the suggestion that the sample was skewed,
observing that Alaska Airlines had “offered no evidence to
support its contention that the actual results were skewed in any
significant way.” Id. The TSA noted Alaska Airlines’ request
for administrative review did not “specifically describe the
manner and extent of the purported skewed results” but “merely
speculated that the auditors’ choice of samples was against its
interests.” Id. Therefore, “[l]acking any real evidence of the
alleged skewed results, we see no reason to make any
adjustments to the methodology.” Id. Regarding the refund or
credit, the TSA explained the 2006 clarification had “clearly
indicated” that “no refund, credit or offset . . . would be
provided where an air carrier had correctly collected and
remitted” such fees and that it had authority to retain such fees
remitted before it suspended enforcement of the regulatory
requirement in 2006. Id. at 2–3. Alaska Airlines petitions for
review.
II.
Alaska Airlines contends that the auditors’ non-random
selection of the flights to audit was based on the higher potential
for passenger fee collection errors in certain time periods and
thus caused the error rate to be overstated. Specifically, it
maintains that out of only twelve flights examined, two were
selected because the auditors assumed there would be a higher
than normal incidence of error when the air carrier was
instituting or reinstituting its collection and remittance
proceedings. It maintains that the sampling methodology thus
improperly extrapolated this allegedly higher error rate over the
entire fifty-one months under review.
7
Our review is limited to determining whether the TSA acted
arbitrarily or capriciously, abused its discretion, or acted
contrary to law. Boca Airport, Inc. v. FAA, 389 F.3d 185, 189
(D.C. Cir. 2004); 5 U.S.C. § 706(2)(A); 49 U.S.C. § 46110; see
also Southwest Airlines v. Transp. Sec. Admin., 554 F.3d 1065,
1069, 1073 (D.C. Cir. 2009). Because agency determinations
receive “an extreme degree of deference [when] they involve
complex judgments about sampling methodology and data
analysis that are within the agency’s technical expertise,”
Kennecott Greens Creek Min. Co. v. Mine Safety & Health
Admin., 476 F.3d 946, 956 (D.C. Cir. 2007)(internal quotation
marks omitted), Alaska Airlines must demonstrate that the audit
methodology accepted by the TSA was so flawed that the audit
findings on which the TSA relied bore “no rational relationship
to the characteristics of the data to which it is applied,”
Appalachian Power Co. v. EPA, 249 F.3d 1032, 1052 (D.C. Cir.
2001). This it fails to do.
Alaska Airlines’ technical objection to the use of non-
random judgmental sampling is unfounded. The use of such
sampling is an accepted tool among auditors and a recognized
means of drawing an appropriately representative sample of the
population under study. See American Institute of Certified
Public Accountants, AICPA PROFESSIONAL STANDARDS, AU
§ 350.03–.04, .39 (1995). As the TSA noted, Alaska Airlines
presented no expert evidence challenging the use of judgmental
audits.
Alaska Airlines’ assertion that the audit sample was skewed
toward flights likely to have a high error rate is also unsupported
by record evidence. The auditors’ methodology drew a broad
and varied sample, examining more than 1,400 passenger flight
segments serving airports throughout Alaska Airlines’ route
system and drawn from dates throughout the audit period. This
is consistent with the requirement that “[w]henever sampling is
8
used in an audit . . . sample items [must] be selected in such a
way that they can be expected to be representative of the
population from which they are drawn. . . . If each item in a
population or subpopulation has a chance (not necessarily an
equal chance) of being selected, the resulting sample is
potentially representative of the characteristics contained in the
population or subpopulation.” VINCENT M. O’REILLY ET. AL,
MONTGOMERY’S AUDITING 315 (11th ed. 1990) (hereinafter
“MONTGOMERY’S AUDITING”). Alaska Airlines presented to the
TSA no contrary expert opinion or auditing standard.
The unstated assumption underlying Alaska Airlines’
challenge is that random selection is the only feasible means of
obtaining a sample that fairly represents the audited population
and that any other methodology is invalid for purposes of
deriving conclusions about the population as a whole. However,
the record shows that the TSA engaged auditors with expertise
in the appropriate design of audit investigations and the
evaluation of audit data. The TSA responded to Alaska
Airlines’ challenges by explaining that the sampling was an
“appropriate audit tool” that provided an adequate basis for the
auditors’ conclusions. Final Decision at 2.
The only basis offered by Alaska Airlines for suggesting
that the expert judgment of the auditors was flawed is the
assertion of its Tax Manager, Brett T. Weiler, that during
discussion of the audit “[he] was told that a flight conducted
during the initial implementation of the fee and at the restart of
the fee would be included in the sample because that is where
collection errors would most likely occur.” Letter from Brett T.
Weiler, Tax Manager, Alaska Airlines, Inc., to Patrick
McCracken, U.S. Dep’t of Homeland Sec. (Dec. 14, 2006). The
TSA considered this assertion and concluded, in light of its
requirement that auditors conform to professional standards of
independence and impartiality, that the Tax Manager must have
9
misunderstood the auditor. Final Decision at 2; see also
American Institute of Certified Public Accountants, AICPA
PROFESSIONAL STANDARDS, AU § 220 (1995). The TSA
explained: “[T]he auditor did not say particular flights were
selected to potentially identify an increased number of errors.
The auditor simply discussed that the goal in applying the
methodology was to select a representative sample and to review
sample items for compliance with the specific laws and
regulations.” Final Decision at 2. Viewed as a matter of
credibility, the court will generally defer to the factfinder’s
evaluation. E.g., King Elec., Inc. v. NLRB, 440 F.3d 471, 475
(D.C. Cir. 2006). But there is a further problem for Alaska
Airlines: It offered neither expert opinion nor empirical
evidence to support its assertion that the audit was
impermissibly skewed.
Three types of errors were found by the auditors: (1)
incorrect categorization of a collected fee as a domestic tax and
resulting failure to remit that fee; (2) failure to identify multiple
one-way trips; and (3) failure to impose the fee on all qualifying
flight segments of a round trip itinerary. Without pointing to
record evidence, Alaska Airlines assumes that more errors
occurred during the months immediately following the
institution and reinstitution of the passenger fees than during
other months. Although it had access to its own records, it
presented no evidence to the TSA that the error rate for those
two particular flights in the sample was higher than for flights at
other times. Its attempt on appeal to make up for the absence of
record evidence by relying on precedent involving the
sentencing of criminal defendants misses the mark, for that
precedent supports the auditor’s approach of ensuring that the
sample was fairly representative of the activity during the audit
10
period.2 Likewise its citation to MONTGOMERY’S AUDITING in
its reply brief not only comes too late but fails to demonstrate
that the audit methodology resulted in findings that bore “no
rational relationship to the characteristics of the [flight] data.”
Appalachian Power Co., 249 F.3d at 1052. Rather, the section
of MONTGOMERY’S AUDITING on which Alaska Airlines now
relies states only that sample items should be selected from the
whole population in order to be representative. MONTGOMERY’S
AUDITING at 279, 315–17.
The record evidence shows that the auditors’ sampling
methodology drew broadly from flights in every year during the
audited period and that the sampling was designed to select a
fairly representative sample of the audited population. The
TSA’s rejection of Alaska Airlines’ assertion of deliberate bias
in the sample selection is supported by substantial evidence, and
Alaska Airlines has not supported its assertion with expert or
empirical evidence that the errors found by the auditors were
peculiar to flights during the start-up or reinstitution periods.
To the extent Alaska Airlines now suggests the sample of flights
was too small, it did not raise this issue before the TSA and
offers no excuse for not doing so; that argument is forfeited. 49
U.S.C. § 46110(d); see also ExxonMobil Oil Corp. v. FERC, 487
F.3d 945 (D.C. Cir. 2007). Consequently, having failed to
support its challenge to the audit methodology based on the non-
random selection of the twelve flights by either expert opinion
2
See, e.g., United States v. Culps, 300 F.3d 1069 (9th Cir.
2002)(holding that a district court must base estimates on
demonstrably representative instances); United States v. Rivera-
Maldonado, 194 F.3d 224 (1st Cir. 1999)(remanding for resentencing
where district court’s estimates were clearly miscalculated and not
representative); United States v. Johnson, 185 F.3d 765 (7th Cir.
1999)(holding that district court’s estimate must be based on rigorous
analysis and representative evidence rather than guesswork).
11
or empirical evidence, Alaska Airlines has failed to show the
TSA’s decision to adhere to the audit methodology was arbitrary
or capricious, an abuse of discretion, or contrary to law.
III.
Alaska Airlines challenges the denial of its request for a
credit on the ground that the TSA failed to consider that Alaska
did not collect the fees from passengers.3 In the Final Decision
the TSA stated: “[The] TSA clearly indicated in the October 24,
2006 clarification . . . that no refund, credit or offset against any
other amounts due would be provided where an air carrier had
correctly collected and remitted liabilities arising from
involuntary re-routes.” Final Decision at 2–3. Alaska Airlines
points out that it did not collect involuntary re-route fees from
its passengers but paid them itself.
The 2006 clarification interpreted 49 C.F.R. § 1510.9,
which provides that the air carrier is “solely liable to TSA for
additional security service fees imposed because of involuntary
enplanement changes to the itinerary” (emphasis added).
Inclusion of the “and/or” phrase in the 2006 clarification
indicates that the policy change was narrower than Alaska
Airlines suggests. Because the TSA incorporated the 2006
clarification, its Final Decision rejecting the requested credit is
fairly read in keeping with the text of the clarification. The
explanation of the reasons for the policy change demonstrates
the TSA understood that involuntary re-route fees were
frequently paid out of the air carrier’s own funds. See 2006
3
Alaska Airlines no longer claims entitlement to a credit
based on a challenge to the enforcement policy set forth in the 2006
clarification. See Pet’r’s Reply Br. 25; Oral Argument Tape of Oct.
20, 2009 at 28.50–28.56. We therefore treat as abandoned those
portions of its brief.
12
Clarification at 3. As some air carriers had collected involuntary
re-route fees from passengers, the TSA decided that those fees
must be remitted to the TSA notwithstanding the prospective
change in its enforcement policy. Id. The TSA’s decision to
pursue only fees collected from passengers did not modify its
policy that the TSA would not credit or return corporate funds
that had already been remitted for involuntary re-routes.
Alaska Airlines’ objection that the denial of a credit is
inconsistent with the TSA’s refund policy also fails. That
refund policy authorized refunds to the air carrier where it was
obligated to refund the fee to a passenger who never used the
purchased ticket and thus did not ultimately incur a fee liability.
Letter from Randall Fiertz, Acting Dir. of Revenue, Transp. Sec.
Admin., to James A. Hultquist, Managing Dir., Taxes, Air
Trans. Ass’n (Nov. 21, 2002). The TSA could reasonably
distinguish between circumstances in which security service fees
were previously due and those in which no fees had ever been
incurred.
Accordingly, we deny the petition for review.