Zephyr Aviation LLC v. Dailey

REVISED, APRIL 24, 2001

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 00-20169

ZEPHYR AVIATION, L.L.C.; ET AL.,

Plaintiffs,

ZEPHYR AVIATION, L.L.C.,

Plaintiff-Appellant,

vs.

ROBERT ALAN DAILEY, also known as
Bob Dailey; KENNETH WAYNE CLARY,
also known as Ken Clary,

Defendants-Appellees.

___________________________________________

Appeal from the United States District Court
for the Southern District of Texas
___________________________________________
April 4, 2001
Before HILL*, JOLLY, and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

Zephyr Aviation, L.L.C. (Zephyr) appeals the dismissal of

its constitutional tort action against Robert Alan Dailey and

Kenneth Wayne Clary (the Defendants). Zephyr contends that the

FAA’s administrative remedies do not contemplate constitutional

tort actions against FAA inspectors in their individual capacity,

and, therefore, the district court erred in dismissing its claims

*
Circuit Judge of the Eleventh Circuit, sitting by
designation.
for lack of subject-matter jurisdiction after concluding that

Zephyr failed to exhaust its administrative remedies. Zephyr

also contends that the district court erred in dismissing its

claims under Rule 12(b)(6) before any discovery took place.

Though we agree with Zephyr that its suit should not have been

dismissed because of a failure to exhaust administrative

remedies, we ultimately conclude that Zephyr has failed to state

a claim for which relief can be granted. Therefore, we AFFIRM

the district court’s judgment of dismissal.

Factual and Procedural Background

In April 1997, Zephyr purchased a Lear 24B aircraft, serial

number 160, N190BP (the Jet) for $463,250. In December 1997, the

Houston district office of the Federal Aviation Administration

(FAA) received a hotline complaint alleging that the Jet was

being used for illegal charter flights. Specifically, the

complaint alleged that some flight hours accumulated by the Jet

were not being properly recorded in aircraft logs.1 Defendant

Dailey was an Aviation Safety Inspector working for the FAA’s

Houston office; Dailey, along with other inspectors, initially

investigated the hotline complaint.

On January 16, 1998, the FAA issued a letter of

investigation concerning alleged uncharted flights on the Jet.

On March 20, 1998, FAA officials, including Dailey, obtained

1
In the Fall of 1997, Zephyr had hired an investigation
firm to look into the conduct of a pilot suspected of flying the
Jet on several unauthorized charter trips. The hotline phone
call apparently concerned similar conduct by a pilot.

2
invoices and records related to the Jet indicating to them that

flight hours had not been properly recorded. The inspectors

discussed their findings with David Olson, a Zephyr principal,

and advised Olson of their intent to place a “condition notice”

on the aircraft. A condition notice advises an aircraft operator

that the subject aircraft is not airworthy because of a condition

related to the aircraft. See 14 C.F.R. §§ 39.1, 39.11 (2000).

Until the condition is corrected, the aircraft should not be

flown. See 14 C.F.R. § 39.3 (2000) (“No person may operate a

product to which an airworthiness directive applies except in

accordance with the requirements of that airworthiness

directive.”)

On April 5, 1998, the Jet was flown from Houston to a repair

facility at Addison Airport of Dallas. Dailey contacted Clary, a

Principal Maintenance Inspector with the FAA’s Dallas district

office, to confirm the Jet’s presence in Dallas. On April 15,

1998, Clary placed a condition notice on the Jet at Dailey’s

request. Clary also left a “Notice of Proposed Certificate

Action” specifying that no FAA Part 45 placard had been placed on

the Jet and that the Jet’s airworthiness certificate had been

“revoked.” On May 12, 1998 an amended aircraft condition notice

was issued and attached to the Jet which specified that the Jet’s

airworthiness certificate was “invalid” because of unrecorded

flight time and failure to comply with sections of 14 C.F.R. §

3
91.3.2 On May 15, Zephyr changed the Jet’s insurance status to

“ground coverage only.”

On June 25, Zephyr’s attorney spoke with FAA officials,

including Dailey. During that conversation, as later documented

in a June 26 letter by Zephyr’s attorney, FAA officials made it

clear that the Jet’s airworthiness certificate had never been

revoked, but that the Jet was “unairworthy” because of unrecorded

flight hours. The same letter recorded the steps to be taken to

update the Jet’s maintenance reports and thus remove any doubt as

to its airworthiness. On July 27, 1998, after reviewing the

steps taken to correct the maintenance reports, the FAA retracted

the condition notice in a letter to Zephyr.

On April 1, 1999, Zephyr sold the Jet to XtraJet

International for $320,000.

On June 30, 1999 Zephyr and David Olson filed the present

civil complaint in Texas state court alleging constitutional tort

violations by Dailey and Clary. See Bivens v. Six Unknown Named

Agents of Federal Bureau of Narcotics, 403 U.S. 388, 91 S.Ct.

1999, 29 L.Ed.2d 619 (1971). Zephyr complains that Dailey and

Clary conspired to deprive the company of property – the

airworthiness certificate for the Jet - without due process of

law in violation of the Fifth Amendment of the United States

2
Section 91.3 requires that airplane owners maintain
maintenance logs that accurately depict the number of hours that
the airplane has been in flight. 14 C.F.R. § 91.3. The FAA
inspectors believed that the unauthorized use of the Jet had not
been reflected in the Jet’s maintenance logs. As a consequence,
it was impossible to know whether the Jet was being maintained in
accordance with FAA regulations.

4
Constitution and the Texas state constitution. Essentially,

Zephyr argues that when Dailey and Clary purported to “revoke”

the Jet’s airworthiness certificate in a condition notice that

was affixed to the Jet, the officers were acting ultra vires and

with malice. Zephyr maintains that the inspectors had no

authority to revoke an airworthiness certificate under 14 C.F.R.

13.19(b) (2000), and failed to provide notice of the revocation

as required by federal regulations. After the Jet’s

airworthiness certificate was “revoked,” Zephyr alleges that the

Jet’s market value depreciated substantially.3

The defendants removed the action to federal court. The

district court dismissed Olson as a plaintiff on December 1, 1999

for failing to state an “articulable claim.”4 On December 22,

1999, the Defendants moved for dismissal pursuant to Rule

12(b)(1) arguing that the district court did not have subject-

matter jurisdiction because Zephyr failed to exhaust

administrative remedies. Alternatively, the Defendants argued

that Zephyr’s complaint should be dismissed pursuant to Rule

12(b)(6). On January 21, 2000, the district court granted the

3
In its response to Defendants’ motion to dismiss, Zephyr
summarized its damage as follows: “The action of the two FAA
inspectors was tantamount to an illegal taking of property.
Their action on April 15, 1998, transformed [the Jet] worth
approximately $450,000, is [sic] into a multitude of salvageable
parts worth about $80,000.” Zephyr implies that this decrease in
value was caused by the uncertainty surrounding the Jet’s
airworthiness certificate, and the fear that the plane would be
more difficult to insure because of this uncertainty. Zephyr does
not seek damages for loss of use of the Jet during the period
that it was grounded because of the condition notices.
4
Neither Zephyr, nor Olson have appealed Olson’s dismissal
from the suit.

5
Defendant’s motion finding that it had no jurisdiction to hear

Zephyr’s suit, and, alternatively, that Zephyr failed to make out

Bivens claims against the Defendants as individuals.

Discussion

The district court granted the Defendants’ motion to dismiss

pursuant to Federal Rules of Civil Procedure 12(b)(1) and

12(b)(6). This Court reviews both rulings de novo. See Martinez

v. American Fed'n of Gov't Employees, 980 F.2d 1039, 1041 (5th

Cir. 1993) (reviewing question of district court’s subject matter

jurisdiction de novo); Lowrey v. Texas A & M Univ. Sys., 117 F.3d

242, 247 (5th Cir. 1997) (calling for de novo review of Rule

12(b)(6) dismissals). We begin by considering the district

court’s determination that it did not have subject matter

jurisdiction over Zephyr’s claims because Zephyr failed to

exhaust administrative remedies provided by the FAA.5

5
The defendants have not argued that the remedial scheme
outlined in the Aviation Act displaces Bivens actions against FAA
officials. See Carlson v. Green, 464 U.S. 14, 18-19
(1980)(recognizing that a Bivens remedy is not available (1)
where Congress has provided an equally effective alternative
remedy, and (2) where, even absent affirmative action by
Congress, special factors counsel hesitation). Interpreting
Carlson’s “special factors” holding, the Court later stated:
“When the design of a Government program suggests that Congress
has provided what it considers adequate remedial mechanisms for
constitutional violations that may occur in the course of its
administration, we have not created additional Bivens remedies.”
Schweiker v. Chilicky, 487 U.S. 412, 425 (1988); see also Bush v.
Lucas, 462 U.S. 367 (1983). Based on the pleadings, we consider
only whether the Aviation Act mandates exhaustion of
administrative remedies prior to the filing of a Bivens claim,
not whether it displaces Bivens claims all together.

6
 In determining the role of the doctrine of exhaustion in the

Bivens context, the initial focus is on congressional intent.

McCarthy v. Madigan 503 U.S. 140, 144 (1992). “Where Congress

specifically mandates, exhaustion is required. But where

Congress has not clearly required exhaustion, sound judicial

discretion governs.” Id. (citations omitted). In McCarthy, the

Court instructed that when determining whether exhaustion should

be required as a matter of judicial discretion, “federal courts

must balance the interest of the individual in retaining prompt

access to a federal judicial forum against countervailing

institutional interests favoring exhaustion.” Id. at 145.

According to the Court, this balancing should be “intensely

practical” and consider “both the nature of the claim presented

and the character of the administrative procedure involved.” Id.

Congress has developed an administrative appeal structure

for reviewing “orders” of the FAA, thus our initial task is to

determine whether that structure mandates exhaustion with respect

to Bivens actions for monetary damages. Under the Aviation Act,

parties adversely affected by orders of the FAA Administrator to

suspend or revoke a certificate issued by the FAA may appeal to

the National Transportation Safety Board (NTSB). See 49 U.S.C. §

44709(d) (2000).6 The United States Courts of Appeals then have

6
The Administrator of the FAA may reinspect a civil
aircraft at any time, and, following such inspection may suspend
or revoke any part of a certificate issued by the FAA if in the
view of the Administrator safety so requires. See 49 U.S.C. §
44709(a). Case law clarifies that the appeal provisions apply to
orders issued under the authority of the FAA administrator, not
just the administrator herself. See Atorie Air, Inc. v. Federal
(continued...)

7
“exclusive jurisdiction to affirm, amend, modify or set aside”

orders of the NTSB or the FAA. 49 U.S.C. § 46110(c) (2000). The

FAA’s “exhaustion” requirement, promulgated pursuant to section

46110, mandates only that orders or decisions of the FAA be

“final” before they be reviewed by a federal court. See 14

C.F.R. § 13.16(k) (2000).

It is impossible to conclude that these Congressional and

agency requirements mandate exhaustion of administrative remedies

within the FAA prior to bringing any Bivens action in federal

district court. Indeed, the Aviation Act’s administrative review

structure provides an administrative forum in which parties can

contest adverse FAA orders. That appeal structure does not,

however, provide a forum for redressing constitutional violations

by individual FAA inspectors with monetary damages. See

McCarthy, 503 U.S. at 142 (recognizing that Congress had not

intended general inmate grievance procedures to impose exhaustion

requirement on Bivens actions when the procedures did not address

harms raised or remedies provided by Bivens action).7 Because

6
(...continued)
Aviation Administration, 942 F.2d 954, 959, n.1 (5th Cir. 1991)
(quoting Southern Cal. Aerial Advertisers Ass’n v. FAA, 881 F.2d
672, 675 (9th Cir. 1989)).
7
In the 1996 Prison Litigation Reform Act, Congress
broadened the relevant provisions to provide that "[n]o action
shall be brought with respect to prison conditions under section
1983 of this title, or any other Federal law, by a prisoner
confined in any jail, prison, or other correctional facility
until such administrative remedies as are available are
exhausted." 42 U.S.C.A. § 1997e(a) (Supp. 1997). Some courts
have held that because Congress has not made available
administrative remedies equivalent to that available through a
Bivens claim, exhaustion of administrative remedies is still not
(continued...)

8
Congress has not “meaningfully addressed the appropriateness of

requiring exhaustion in this context,” extension of the

exhaustion doctrine to cases like the one before us depends on

the exercise of sound judicial discretion.

This Circuit has never taken up the scope of the exhaustion

doctrine with respect to Bivens actions against officers of the

FAA.8 Other circuits have held that federal district courts have

subject matter jurisdiction over Bivens claims raising “broad

constitutional challenges to FAA practices,” but not over claims

that are “inescapably intertwined with a review of the procedures

and merits surrounding [an FAA] order.” See Foster v. Skinner,

70 F.3d 1084, 1089 (9th Cir. 1995)(citations omitted); Green v.

Brantley 981 F.2d 514, 521 (11th Cir. 1993); Gaunce v.

deVicentis, 708 F.2d 1290, 1292-93 (7th Cir.), cert. denied, 464

U.S. 978 (1983). These holdings are based on the principle that

plaintiffs should not be able to circumvent administrative review

through suit in federal court. See, e.g., Mace v. Skinner, 34

7
(...continued)
required prior to seeking Bivens relief. See Garrett v. Hawk,
127 F.3d 1263, 1266 (10th Cir. 1997). Thus, even if Congress
imposes a more clear exhaustion requirement in the Aviation Act,
it might not be applicable to Bivens claims unless comparable
administrative remedies were available.
8
In Atorie Air, this Court held that a plaintiff suing
individual inspectors of the FAA under Bivens for violating
procedural due process rights could waive its right to pursue
those rights in federal court by choosing “to take no initiative
to mature [its] right to review” within the administrative review
framework established in the organization. See Atorie Air, 942
F.2d at 960. Waiver, however, is an affirmative defense that
must be raised by the defendant. FED.R.CIV.P. 8(c). The
Defendants in this case have never raised the defense of waiver.
Therefore, the Defendants’ reliance on Atorie Air is misplaced.

9
F.3d 854, 857-58 (9th Cir. 1994) (explaining that Aviation Act’s

judicial review provision divests district courts of subject

matter jurisdiction over “claims against FAA . . . officials

involving final orders that are otherwise subject to judicial

review under the Act.”)(emphasis added); Gaunce, 708 F.2d at

1292-93 (concluding that where merits of Bivens actions

essentially contest the propriety of agency action, plaintiffs

must comply with Aviation Act’s administrative appeal process);

see also Myers v. Bethlehem Shipbuilding Corp., 58 S.Ct. 459,

462-64 (1937)(explaining that a federal lawsuit may not be used

to pre-empt administrative action).

While we agree that parties may not avoid administrative

review simply by fashioning their attack on an FAA decision as a

constitutional tort claim against individual FAA officers, we

disagree with the Defendants that this case implicates that

concern. Zephyr’s claims do not relate to an FAA order currently

pending against it. Indeed, to the extent that Zephyr sought

review of the FAA’s attachment of a condition notice to the Jet,

its complaint would be moot since the FAA has removed the

condition notice. Instead, Zephyr seeks monetary relief for

alleged extra-procedural and unconstitutional actions by FAA

inspectors. The administrative appeal procedure outlined in the

Aviation Act can provide no such relief. In this sense, the “no

collateral attack” holdings have no application to cases like

this one that do not implicate an FAA order that is currently in

place and hence could not function as a collateral attack on an

FAA order or action.

10
 We are convinced that the same factors that counseled

against imposing a judicial exhaustion requirement in McCarthy

also counsel against judicial imposition of an exhaustion

requirement in the context of Bivens suits against FAA officials

like the one alleged in this case. The Supreme Court concluded

in McCarthy that an inmate claiming violations of his Eighth

Amendment rights did not need to exhaust internal prison

grievance proceedings because (1) the administrative procedures

could not authorize an award of money damages, and (2) requiring

exhaustion would severely burden the interests of the inmate.

Id. at 145-47. Initially, the Aviation Act’s appeal structure

grants neither the NTSB, nor the FAA the power to award monetary

relief against FAA officers - the only remedy Zephyr seeks in

this Bivens action. Like the Supreme Court in McCarthy, we

choose not to impose a judicial exhaustion requirement on this

Bivens claim when the agency that would be given initial

authority over the claim lacks authority to grant monetary

relief. See id. at 148 (noting that exhaustion requirement is

not appropriate where an agency is “competent to adjudicate the

issue presented, but still lack[s] authority to grant the type of

relief requested.”) Moreover, we believe that requiring

exhaustion on facts such as these would impose a significant

burden on plaintiffs in that it would require them to engage in

an administrative review process that cannot possibly provide the

relief that they seek. See id. at 153 (recognizing that where

administrative review cannot provide relief sought, but can lead

to dismissal of complaint for failing to meet statutory

11
deadlines, plaintiffs “have everything to lose and nothing to

gain.”) For these reasons, we decline to impose a judicial

exhaustion requirement on Bivens actions against FAA officials

when the Bivens suit does not implicate existing FAA enforcement

actions.

Because Congress has not imposed an exhaustion requirement

in this context and judicial imposition of such a requirement

would not be prudent, the district court erred in concluding that

it did not have subject matter jurisdiction over the Zephyr’s

Bivens action. Nevertheless, we are convinced that the facts

alleged by Zephyr do not make out tenable claims that the

company’s substantive or procedural due process rights have been

violated. For that reason, the district court’s dismissal of

those claims pursuant to Rule 12(b)(6) was appropriate.

In reviewing the district court’s 12(b)(6) ruling, we take

all facts pleaded by Zephyr as true and liberally construe the

complaint in favor of Zephyr. Campbell v. Wells Fargo Bank, 781

F.2d 440, 442 (5th Cir. 1986). All parties agree that on April

15 Clary posted on the Jet a condition notice, which stated in

part “the airworthiness certificate has been revoked.”

Similarly, neither Clary nor Dailey contends that he had

authority to revoke the Jet’s airworthiness certificate without

notice to Zephyr and additional proceedings. To complete

Zephyr’s allegations, we must assume that the defendants used the

word “revoke” maliciously and intentionally, and that the use of

“revoke” in this manner deprived Zephyr of a property interest.

Though this Circuit views motions to dismiss under Rule 12(b)(6)

12
“with disfavor,” see Kaiser Aluminum & Chem. Sales v. Avondale

Shipyards, 677 F.2d 1045, 1050 (5th Cir.1982), we believe it

“beyond doubt” that the facts alleged by Zephyr, even if proven,

would not entitle the company to relief. Conley v. Gibson, 355

U.S. 41, 45-46 (1957).

Zephyr alleges violations of its constitutional right to due

process guaranteed by the Fifth Amendment, though it is unclear

whether it raises procedural or substantive due process claims.

We consider both alternatives.

The defendants allegedly malicious act of placing a

condition notice on the Jet that purported to “revoke” the Jet’s

airworthiness certificate does not rise to the level of egregious

conduct that might constitute a substantive due process

violation. See County of Sacramento v. Lewis, 523 U.S. 833, 846

(1998); Brown v. Nationsbank Corp., 188 F.3d 579, 591 (5th Cir.

1999); Williamson v. United States Dept. of Agriculture, 815 F.2d

368, 381 (5th Cir. 1987); Bass v. United States Dept. of

Agriculture, 737 F.2d F.2d 1408, 1415 (5th Cir.), reh’g denied,

742 F.2d 1453 (1984). Even assuming that the Defendants initial

use of “revoke” was intentional, Zephyr does not allege that the

Defendants had no basis for being concerned about the

airworthiness of the Jet. Zephyr does not dispute that the

Jet’s flight hours were not properly recorded and that this

recording problem rendered the Jet unairworthy. Nor does Zephyr

allege that the defendants insisted on enforcing the condition

notice as if it were a revocation order. Indeed, Zephyr concedes

that Dailey worked with the company to resolve the problems with

13
the Jet’s flight records and maintenance status. Thus, at most,

the Defendant’s allegedly malicious act of revocation mis-

characterized a legitimate and undisputed problem with the Jet.

Moreover, any question regarding the Defendant’s mis-

characterization of the FAA action had been resolved by the

middle of May, long before the undisputed underlying problems had

been corrected. Thus, because the Jet’s legitimate and

undisputed records problem rendered it unairworthy, the allegedly

intentional mis-characterization of the FAA action caused Zephyr

no additional harm. In sum, such conduct simply does not rise to

the level of a substantive due process violation.

We also reject Zephyr’s complaint in so far as it alleges

that the posting of the condition notice itself deprived it of

property in violation of the procedural due process protections.

The Supreme Court has consistently held that government officials

do not violate procedural due process when they deprive an

individual of property, so long as a meaningful post-deprivation

remedy was available. See Hudson v. Palmer, 468 U.S. 517, 533

(1984) (holding that due process was not violated when government

official intentionally deprived individual of property, provided

meaningful post-deprivation remedy was available); Parratt v.

Taylor, 451 U.S. 527, 542 (1981) (holding that due process was

not violated when government official negligently deprived

individual of property, provided meaningful post-deprivation

remedy was available). Even assuming the placement of a

condition notice on the Jet purporting to revoke the Jet’s

airworthiness certificate constituted a deprivation of property,

14
the availability of the FAA’s appeal structure to remedy that

deprivation after the fact provided sufficient process to protect

Zephyr’s procedural due process rights. Indeed, after the

placement of the notice, an informal meeting with FAA officials

led to the removal of the condition notice. Because Zephyr has

not alleged conduct that could possibly support a violation of

its substantive or procedural due process rights, the district

court properly dismissed Zephyr’s complaint.

Conclusion

Though we conclude that Congress has not imposed an

exhaustion requirement with which Zephyr has failed to comply,

and that judicial imposition of such a requirement is not

warranted, we ultimately agree that the allegations raised by

Zephyr fail to state a constitutional claim. Therefore, we

AFFIRM the district court’s judgment of dismissal.

15