Executive Air Taxi v. City of Bismarck

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 06-3586
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Executive Air Taxi Corporation, a *
North Dakota Corporation, *
*
Plaintiff/Appellant, *
*
v. *
* Appeals from the United States
City of Bismarck, North Dakota, a * District Court for the
municipal corporation; Mark Fetch; * District of North Dakota.
Dr. Steven J. Scherr, OnStar *
Management, Inc.; Timothy J. Thorsen, *
Airport Operations Manager; Gregory B.*
Haug, Airport Manager; Robert H. *
Simmers, Simson Investment Company; *
Bryce Hill, City Commissioner with *
Airport Portfolio; William Sorenson, *
Former Mayor; Cook Leasing, Inc.; *
Michael Aarestad, Aircraft Management *
Services, dba Aircraft Maintenance *
Services; Alan Sauter; William Wocken, *
City Administrator, City of Bismarck, *
*
Defendants/Appellees. *
*
___________

No. 06-3600
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Executive Air Taxi Corporation, a *
North Dakota Corporation, *
*
 Plaintiff/Appellee, *
*
v. *
*
City of Bismarck, North Dakota, a *
municipal corporation, *
*
Defendant/Appellant, *
*
Mark Fetch; Dr. Steven J. Scherr, *
OnStar Management, Inc., *
*
Defendants, *
*
Timothy J. Thorsen, Airport Operations *
Manager; Gregory B. Haug, Airport *
Manager, *
*
Defendants/Appellants, *
*
Robert H. Simmers, Simson Investment *
Company, *
*
Defendant, *
*
Bryce Hill, City Commissioner with *
Airport Portfolio; William Sorenson, *
Former Mayor; *
*
Defendants/Appellants, *
*
Cook Leasing, Inc.; Michael Aarestad, *
Aircraft Management Services, dba *
Aircraft Maintenance Services; Alan *
Sauter, *
*
Defendants, *

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 *
William Wocken, City Administrator, *
City of Bismarck, *
*
Defendant/Appellant. *
*
___________

No. 06-3602
___________

Executive Air Taxi Corporation, *
a North Dakota Corporation, *
*
Plaintiff/Appellee, *
*
v. *
*
City of Bismarck, North Dakota, *
a municipal corporation; Mark *
Fetch; Dr. Steven J. Scherr, OnStar *
Management, Inc.; Timothy J. *
Thorsen, Airport Operations *
Manager; Gregory B. Haug, Airport *
Manager; Robert H. Simmers, *
Simson Investment Company; *
Bryce Hill, City Commissioner with *
Airport Portfolio; William Sorenson, *
Former Mayor, *
*
Defendants, *
*
Cook Leasing, Inc., *
*
Defendant/Appellant, *
*
Michael Aarestad, Aircraft Management *

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Services, dba Aircraft Maintenance *
Services; Alan Sauter; William Wocken, *
City Administrator, City of Bismarck, *
*
Defendants. *
___________

Submitted: September 24, 2007
Filed: March 4, 2008
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Before COLLOTON, BEAM, and GRUENDER, Circuit Judges.
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COLLOTON, Circuit Judge.

Executive Air Taxi Corporation (“EATC”) appeals an adverse grant of
summary judgment on its equal protection and substantive due process claims related
to its activities at the Bismarck Municipal Airport (“BMA”). It also appeals certain
discovery rulings. The City of Bismarck (“the City”) and Cook Leasing, Inc.,
(“Cook”) cross-appeal adverse summary judgment rulings on a contract claim and a
motion for sanctions under Federal Rule of Civil Procedure 11. We affirm the district
court1 in all respects.

I.

EATC is a North Dakota corporation that has provided commercial aeronautical
services at BMA since the mid-1970s. From then until the filing of this suit, EATC
was the only full-service fixed base operator (“FBO”) at BMA. A full-service FBO
is a business that provides a full range of aeronautical services, including aircraft

1
The Honorable Patrick A. Conmy, United States District Judge for the District
of North Dakota.

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fueling, aircraft maintenance, charter services, air ambulance services, and aircraft
and hanger rental.

The City, which owns and operates BMA, was a limited service provider during
the same time period, providing aircraft fueling, hangar storage, and towing services.
The private party defendants are, or at one time were, limited service providers at
BMA. Robert Simmers and Michael Aarestad own Simson Investment Company
(“Simson”), which owns buildings on land leased at BMA; Simmers and Aarestad also
own Aircraft Management Services, Inc., (“AMS”), which leases space from Simson,
and provides pilot services, flight instruction, and aircraft maintenance. Steven J.
Scherr owns OnStar Management, Inc., which rents aircraft. Cook Leasing, Inc.
(“Cook”) also rents an aircraft. Mark Fetch and Allen Sauter provided flight
instruction services based out of other airports, but occasionally picked students up
at BMA, and at various times worked for other defendants.

In 1976, EATC negotiated a twenty-year lease with the City for land at BMA
and renewed it for an additional ten years in 1995. The lease required EATC to
operate a flying school, charter service, and an aircraft repair station, and to build
facilities at BMA to provide these services. The agreement provided for low lease
rates of two cents per square foot of unimproved property and six cents per square
foot of improved property. By 2005, this rate had increased only to three cents per
square foot of unimproved property and remained unchanged at six cents per square
foot of improved property. No limited service provider had a comparable lease with
BMA.

In 1989, the City issued EATC a permit to sell aviation fuel. The City and
EATC are the only fuel providers at BMA. Revenue from fuel sales is a significant
portion of the city’s total revenue from the airport.

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 In May 2004, EATC brought suit under 42 U.S.C. § 1983, alleging that the City
violated the Equal Protection Clause and the Due Process Clause of the Fourteenth
Amendment by treating other businesses operating at BMA differently than EATC.
According to EATC, the private party defendants conspired with the City in this
discrimination, which caused EATC to lose revenue and to suffer a diminution in the
value of its business. The district court rejected these claims, holding that the City had
a rational basis for treating EATC differently, and that EATC was not deprived of any
property interest protected by the Due Process Clause. The district court also refused
to modify two discovery orders entered by a magistrate judge. The first order denied
EATC’s request to use a special software retrieval program to search for deleted
materials on a City employee’s laptop. The second order denied EATC’s discovery
request for financial information from private party defendants. The district court also
rejected the City’s counterclaim against EATC for breach of its fuel permit, holding
that the statute of limitations barred any breach occurring before June 22, 1999, and
that the entire alleged breach was waived. Finally, the district court denied Cook’s
Rule 11 motion against EATC, finding that EATC’s allegations were not so baseless
as to warrant sanctions.

II.

We review a district court’s grant of summary judgment de novo, considering
the evidence and all reasonable inferences in the light most favorable to the non-
moving party. Uhiren v. Bristol-Myers Squibb Co., 346 F.3d 824, 827 (8th Cir. 2003).

A.

EATC claims that the City violated its constitutional right to equal protection
of the laws by treating various limited service providers more favorably than EATC.
It alleges that the City refused to provide it with towing services, references, and other

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means of attracting business that the City provided to other businesses. EATC also
argues that the City selectively enforced Bismarck Code of Ordinances § 10-08-07,
allowing the private defendants to conduct commercial aeronautical services at BMA
without leases, written standards, or payments, while simultaneously requiring EATC
to have a written lease and strictly enforcing its terms.

“The Equal Protection Clause of the Fourteenth Amendment commands that no
State shall ‘deny to any person within its jurisdiction the equal protection of the laws,’
which is essentially a direction that all persons similarly situated should be treated
alike.” City of Cleburne, Tex. v. Cleburne Living Cntr., 473 U.S. 432, 439 (1985).
When a State treats persons differently based on a suspect classification, such as race,
the state action is subject to strict judicial scrutiny. Where no suspect classification
is involved, however, the State need only show that the differential treatment is
rationally related to a legitimate state interest. Vacco v. Quill, 521 U.S. 793, 799
(1997). States have “wide latitude” when acting in the economic sphere. City of
Cleburne, 473 U.S. at 440. EATC therefore must show that the City treated it
differently from other parties, and that there was no rational basis for the differential
treatment.

We are doubtful, as a threshold matter, that EATC – a full-service fixed base
operator – is similarly situated with the limited service providers at the airport. But
EATC argues that it is similarly situated with a “de facto” fixed base operator,
comprised of the City and the limited service providers acting in concert. From this
premise, EATC proceeds to argue that the City discriminated against EATC to boost
the City’s fuel sales.

Assuming that the parties are similarly situated, we believe that the City has
shown a rational basis for its actions. A city has a legitimate interest in generating
revenue from operating an airport and from selling fuel at the airport. See Jacobsen
v. City of Rapid City, S.D., 128 F.3d 660, 664 (8th Cir. 1997); Alamo Rent-A-Car v.

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Sarasota-Manatee Airport Auth., 825 F.2d 367, 373 (11th Cir. 1987). Particularly
given that the Federal Aviation Administration (“FAA”) requires grant-receiving
airports to be “as self-sustaining as possible,” 49 U.S.C. § 47107(a)(13), and
authorizes public airport authorities to provide “any or all of the aeronautical services
needed by the public,” including fuel services, see FAA Order 5190.6A, Airport
Compliance Handbook ¶ 3-9.d, we are comfortable that actions taken by the city to
generate revenue are rationally related to a legitimate state interest.

The City’s interest in preserving the revenue generated by its fuel sales
provided a rational basis for most of the actions disputed by EATC. It was rational
for the City to refuse to tow aircraft to EATC, because the opposite decision would
encourage aircraft owners to use EATC’s fueling services instead of the City’s.
Similarly, the City may rationally refer its customers seeking hangar space or aircraft
maintenance to Simson rather than EATC, because Simson does not compete with the
City for fuel sales.

EATC’s argument regarding differential enforcement of § 10-08-07 also fails.
At the time this lawsuit was commenced § 10-08-07 stated:

Commercial Activities. A person may not engage in any commercial
aeronautical activity on the airport without the written approval of, and
under the standards prescribed by, the airport manager. For the purpose
of this part, a commercial aeronautical activity includes any activity
which involves, makes possible, or is required for the operation of
aircraft, or which contributes to or is required for the safety of such
operations. All standards required for any commercial aeronautical
activity will be on file in the airport manager’s office.

Bismarck, N.D., Code of Ordinances § 10-08-07 (subsequently amended on Oct. 12,
2004) (reprinted at Appellant’s App. 154) (emphases added).

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 EATC argues that the City enforced the “written approval” and “standards”
provisions of this ordinance against EATC, but not against the limited service
providers. EATC argues that its detailed lease constituted written approval and
established the standards referenced in the ordinance, and that the limited service
providers at the airport were not required to have written approval or abide by the
terms contained in EATC’s lease.

The City had a rational basis for insisting that EATC receive written approval,
while not requiring it from each of the private defendants. EATC was the only FBO
at the airport; it was rational for the City to demand a formal lease arrangement from
a party engaged in more substantial “commercial aeronautical activity.” The limited
service provider that came closest to FBO status, Simson Investment Company, also
had a lease. It was rational for the City to insist that larger operations enter into
formal agreements while declining to insist on such documentation from smaller
private parties. Whether the City’s decision to permit certain parties to engage in
commercial activity without formal “written approval” conflicts with the local
ordinance is a separate question of state law that does not implicate the Constitution.
See Snowden v. Hughes, 321 U.S. 1, 11 (1944).

The ordinance also assumes the existence of “standards” for commercial
aeronautical activity, but does not actually require the City to create these standards.
The City did not actually adopt minimum standards until after this lawsuit
commenced. EATC’s argument seems to be that the requirements of its lease were
“standards” within the meaning of § 10-08-07, and that, as such, they should have
been applied to all commercial aeronautical activity on the airport. But it is only
natural that leases should vary depending on the size, location, and quality of the
property being leased, the length of the leasehold, the current needs and priorities of
the parties to the lease, and many other factors. In 1976, for example, when the City
first granted EATC a lease at BMA, the City desired certain amenities at BMA, such
as a flying school, and negotiated for EATC to provide them as an FBO. In exchange,

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EATC received a favorable rental rate, which barely rose over the following three
decades. It was rational for the City later to decide that other leaseholders or entities
doing business at the airport need not provide exactly the same amenities that EATC
provided, and to charge different (and higher) rental rates for some of these
businesses. We thus reject the argument that the City violated the Equal Protection
Clause by setting different lease terms for EATC than it did for the limited service
providers.

EATC relies heavily on an unpublished decision of the Fourth Circuit,
Jetstream Aero Services, Inc. v. New Hanover County, No. 88-1748, 1989 WL 100644
(4th Cir. Aug. 15, 1989) (unpublished table decision), which discusses the
circumstances under which the unlawful administration of a state statute results in a
violation of the Equal Protection Clause. Applying Snowden, 321 U.S. at 8-9, and
LeClair v. Saunders, 627 F.2d 606, 608-10 (2d Cir. 1980), the Fourth Circuit
explained that unequal application of a state statute may violate the constitutional
guarantee of equal protection when (1) the plaintiff, compared with others similarly
situated, is selectively treated, and (2) such selective treatment is based on
impermissible considerations such as race, religion, intent to inhibit or punish the
exercise of constitutional rights, or malicious or bad faith intent to injure a person.
Jetstream, 1989 WL 100644, at *1. In reviewing a grant of summary judgment in
Jetstream, the court found sufficient evidence that the county intended to enforce
certain state and local rules selectively against a fixed base operator at a county
airport, and that this was done with a malicious or bad faith intent to harm. Id. at 3-5.
EATC’s theory here is that the City’s failure to enforce the “written approval”
requirement and prescribed “standards” against other parties at the airport amounted
to selective treatment comparable to that deemed actionable by the Fourth Circuit.

We disagree with the analogy to Jetstream. EATC has not presented evidence
that the City’s differential treatment of commercial actors in this case was motivated
by malice. The record is devoid of evidence comparable to that in Jetstream, where

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an FAA official averred that the airport authority began harassing Jetstream “in a spirit
of anger and hostility” after it filed a complaint against the airport authority, and
Jetstream’s president testified that the airport authority threatened to send inspectors
after his company for the purpose of harassment if he appealed adverse building code
decisions. Id. at 3. EATC, moreover, suffered no prejudice from the City’s failure
to enforce a “written approval” requirement with respect to other commercial actors.
It is undisputed that approval was granted, and EATC has not shown that the absence
of contemporaneous written documentation is anything more than a bookkeeping
matter. As we have explained, any difference in “standards” applied to the various
entities was rationally grounded in the City’s legitimate interest in setting different
terms for parties that served different functions at different times, or in protecting the
City’s sources of airport revenue.

EATC’s substantive due process claim fails for the same reasons that defeat its
equal protection claim. EATC has not alleged that it was deprived of a “fundamental
right” for purposes of substantive due process analysis, so the City’s action is
constitutional if it rationally furthers a legitimate state interest. Reno v. Flores, 507
U.S. 292, 305 (1993); Doe v. Miller, 405 F.3d 700, 714 (8th Cir. 2005). A rational
basis that survives equal protection scrutiny also satisfies substantive due process
analysis. Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 470 n.12 (1981);
Independent Charities of America, Inc. v. Minnesota, 82 F.3d 791, 798 (8th Cir.
1996). And because the district court correctly dismissed EATC’s claims asserting
that the City’s actions violated EATC’s constitutional rights, the court was also correct
to dismiss EATC’s claim that the City and private parties conspired to deprive EATC
of its constitutional rights by taking those same actions. See Dixon v. City of Lawton,
898 F.2d 1443, 1449 (10th Cir. 1990).

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 B.

EATC also appeals two discovery orders. These decisions denied EATC’s
request for forensic computer discovery of a City-owned laptop, and prevented EATC
from discovering certain financial records from the private party defendants. We
review a district court’s orders for an abuse of discretion, allowing it “great latitude”
in discovery matters. Schoffstall v. Henderson, 223 F.3d 818, 822-23 (8th Cir. 2000)
(internal quotation omitted).

EATC argues that it should be permitted to have a third-party expert conduct
a forensic investigation of a City-owned computer to search for relevant e-mails that
might not have been produced in the discovery process. The district court found that
the City had provided all relevant e-mails to EATC in hard copy, and that forensic
discovery could expose confidential or privileged materials. We conclude that the
district court’s findings of fact were not clearly erroneous, and in light of that factual
premise, there was no abuse of discretion in declining to order a forensic analysis of
the computer.

The financial records sought by EATC relate only to information that EATC
asserts would be helpful in determining its damages from revenue lost to other private
commercial actors at the airport. Because we conclude that the district court properly
dismissed EATC’s claims asserting liability, the discovery dispute concerning
damages is moot. See Murray v. Chicago Transit Auth., 252 F.3d 880, 890 (7th Cir.
2001).

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 III.

A.

The City cross-appeals the district court’s order dismissing the City’s
counterclaim for breach of contract regarding the fuel flowage fee. The 1989 retail-
fueling permit obtained by EATC from the City stated that EATC would pay the City
a flowage fee of three cents per gallon of fuel dispensed to “certificated scheduled
airlines,” and five cents per gallon for all other fueling services EATC provided. The
City argues that “certificated scheduled airlines” means passenger airlines only, and
that it learned during discovery that EATC was remitting only a three-cent per gallon
fee for other customers. EATC maintains that “certificated scheduled airlines”
encompasses certificated freight airlines as well as passenger airlines, and has charged
the special three-cent fee to the Department of Defense, FedEx, and UPS. The City
admits that it was aware in 1990 that EATC was charging the lower fee to carriers
other than passenger airlines, but argues that it reasonably believed EATC had
amended its charging practice. The district court held that the City’s counterclaim was
barred by the statute of limitations or waived.

Under North Dakota law, the applicable statute of limitations for a contract
claim is six years. N.D. Cent. Code § 28-04-16(1). This statute of limitations may be
modified by the discovery rule, which “postpones a claim’s accrual until the plaintiff
knew, or with the exercise of reasonable diligence should have known, of the
wrongful act and its resulting injury.” Wells v. First Am. Bank West, 598 N.W.2d 834,
838 (N.D. 1999). In this case, the City had actual knowledge in 1990 of the alleged
breach of contract. In a letter dated January 16, 1990, the airport manager wrote to
EATC stating that EATC was collecting a three-cent fuel flowage fee from certain
parties, even though the airport “was not aware that Executive Air Taxi was fueling
any of the certificated scheduled airlines.” The letter then asked EATC to “[p]lease
advise.” EATC never replied to the letter, and the City took no action to investigate

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further. Because the City had knowledge of the alleged breach in 1990, the statute of
limitations has run for all claims which accrued prior to June 22, 1999 – six years
from the date on which the City sought leave to assert a counterclaim in June 2005.

With respect to any claims within the statute of limitations, we conclude that
the City has waived its alleged contractual right to the additional two cents per gallon
for certificated freight airlines. The Supreme Court of North Dakota has explained
that waiver may be found from “an unexplained delay in enforcing contractual rights
or accepting performance different than called for by the contract,” and that the
existence of waiver is a question of law “if circumstances of an alleged waiver are
admitted or clearly established and reasonable persons can draw only one conclusion
from those circumstances.” Pfeifle v. Tanabe, 620 N.W.2d 167, 172 (N.D. 2000).

Since receiving its permit in 1990, EATC has provided the City with monthly
reports regarding the flowage fee and flowage fee payments. These reports show that
EATC continued to collect a three-cent fee from certain customers. The City claims
that it is impossible to tell from these monthly reports whether any particular customer
was charged the three-cent or the five-cent rate, and that it thus did not realize that
EATC was using the lower rate for entities that the City does not consider to be
“certificated scheduled airlines.” But the City admits that it learned of the same
alleged breach from just such a report in 1990. And EATC’s permit gave the City the
right to require EATC to provide more detailed records, including “invoices, delivery
tickets and other records.” Yet the City made no effort to investigate EATC’s
charging practices or to use the terms of the permit to require compliance with its
interpretation of the agreement. The City’s continued acceptance of EATC’s reports
and fees thus demonstrated acquiescence in EATC’s definition of “certificated
scheduled airlines.” We conclude that the record here admits of but one reasonable
inference: By not following up on its 1990 letter to EATC or making any further
investigation of the fee disparity, the City waived its right to object to fifteen years of
uninterrupted behavior by EATC under the contract.

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 B.

Finally, Cook appeals the denial of its motion for sanctions against EATC under
Rule 11 of the Federal Rules of Civil Procedure. Cook argues that EATC failed to
make a reasonable inquiry into the facts and law supporting its allegation that Cook
engaged in a conspiracy against it. We review a district court’s denial of Rule 11
sanctions for an abuse of discretion. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
405 (1990). Because Rule 11 determinations often involve “fact-intensive, close
calls,” id. at 404, we give deference to the determination of the trial court, which is
best acquainted with the local bar’s litigation practices and thus best situated to
determine when a sanction is warranted. Clark v. United Parcel Service, Inc., 460
F.3d 1004, 1010 (8th Cir. 2006), cert. denied sub nom Buchanan v. United Parcel
Service, Inc., 127 S. Ct. 2043 (2007). In this case, the district court previously had
denied the motion to dismiss EATC’s complaint for failure to state a claim upon
which relief could be granted, and observed, in denying the motion for sanctions, that
the claim certainly had legal, if not evidentiary, support. While the factual basis for
EATC’s claim against Cook was “thin,” and ultimately failed to withstand summary
judgment, the court felt that it was not “so baseless as to warrant Rule 11 sanctions.”
Given the wide discretion afforded the district court in matters of sanctions, we
conclude that this decision was not an abuse of discretion.

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For the foregoing reasons, the judgment of the district court is affirmed.
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