American Airlines, Inc. v. Austin

BRYSON, Circuit Judge,

dissenting.

I respectfully dissent.

By purchasing airline tickets, the government entered into contracts with the airlines, the terms of which were reflected in the airlines’ tariffs and on the face of the tickets. The terms were simple: the government paid for the tickets in advance and obtained the right to travel at the designated time. If the government did not use the tickets, it could obtain a refund by complying with the contract terms governing refund applications.

The airlines performed their part of the bargain. The government, however, wants to renege. Its position is that it was not bound to comply with the refund provisions of its contracts with the airlines because the pertinent statutes and regulations render those provisions unenforceable. I find that argument unconvincing.

It is true that the pertinent statutes and regulations are deemed to be part of the contracts between the government and the airlines, and that in the event of any conflict between the ticket provisions and the applicable statutes and regulations, the statutes and regulations prevail. As I read the statutes and regulations at issue in this ease, however, they do not conflict with the terms of the parties’ agreements regarding refunds for unused tickets. I would therefore hold those terms fully enforceable against the government and would therefore reverse the order of the district court granting partial summary judgment for the government.

A

The statute on which the government principally relies is 31 U.S.C. § 3726(f). That statute authorizes agencies to pay for transportation services in advance and states that payments for “transportation ordered but not provided may be recovered by deduction or other means.” The government argues that the statutory authorization to use the administrative offset mechanism to collect amounts due for transportation “ordered but not provided” overrides contractual provisions requiring ticketholders to seek refunds for unused tickets within a designated period of time. But a statutory provision permitting the government to use a particular mechanism to collect its debts does not foreclose contracting parties from defining the terms under which those debts will arise. I therefore cannot subscribe to the necessary implication of the government’s argument that section 3726(f) wipes out all restrictions, of whatever character, governing refunds for unused tickets.

To be sure, the government does not press its argument that far, but as a result its argument is internally inconsistent. The government concedes that when it purchases “no-refund” tickets and does not use them, it may not recover a refund for the unused transportation services. But if a trip not taken constitutes “transportation ordered but not provided,” as the government contends in the context of this ease, I cannot fathom why the same analysis would not equally apply to permit the government to recover a full refund on “no-refund” tickets. The government’s unwillingness to carry its statutory argument to its logical conclusion reveals the flaw in the government’s analysis of the statutory issue.

B

The court expands upon the government’s statutory argument with the following analysis: (1) prior to the enactment of section 3726(f), the government was barred by the predecessor to 31 U.S.C. § 3324(a) from paying for services it had not received; (2) section 3726(f) was enacted to allow the government to prepay transportation charges, but it was not intended to give transportation contractors greater rights than they enjoyed under the prior, no-prepayment regime; (3) an unused ticket represents services paid for but not received; therefore, (4) section 3726(f) bars the airlines from denying the government’s refund claims for unused tickets, even if the claims are made outside the agreed-upon refund periods.

This analysis, however, suffers from the same flaw that afflicts the government’s argument: It requires the court to conclude that section 3324(a) prohibits the government from ever paying for airline tickets that are not used. Thus, for example, if a no-refund *1544ticket that is not used represents a transportation service that is not “received,” the government may not pay for such a ticket. The court’s interpretation of section 3324(a) would also appear to prohibit a contractor from enforcing any contractual limitations on the government’s right to collect a refund for an unused ticket, no matter how reasonable those limitations might be and no matter what concessions the contractor may have made to obtain them.

Indeed, the rationale of the court’s statutory analysis would appear to conflict with the government’s own regulations. For example, the regulations require that the government present the unused ticket to the carrier to obtain a refund. 41 C.F.R. § 101-41.210-3. If section 3726(f) prohibited the government from ever paying for unused transportation services, then presumably the government could not assent to, and the airlines could not insist on, that form of proof that a particular ticket was purchased and not used. I am confident that the court does not mean to go that far, but that would appear to be the logical consequence of its rationale.

The better view of both section 3324(a) and section 3726(f) is that when the government purchases an airline ticket, it receives value in the form of the right to travel to a designated place at a designated time and the right to obtain a refund if the government does not use the ticket but satisfies the refund provision of the contract. See United States v. American Trading Co., 138 F.Supp. 536 (N.D.Cal.1956) (section 529, a predecessor to section 3324(a), does not specify the meaning of “value,” and does not prohibit the government from making full payment for a transportation service that the government contracted for but decided not to use). Thus, it is permissible for the government to pay, either beforehand or afterwards, for a ticket that is not used and is not redeemed within the contractual period. Section 3726(f) was intended to permit the government to recoup “improper or erroneous payments,” see S.Rep. No. 1026, 92d Cong., 2d Sess. 4 (1972); it should not be read to compel a contractor to surrender its rights under a contract to which the government assented.

C

The transportation regulations, on which the government places heavy reliance, lend no support to the government’s position. Instead, the regulations are consistent with the ticket provisions governing refunds for unused tickets. The regulations require air carriers promptly to process government applications for unused ticket refunds. 41 C.F.R. § 101-41.210-3a. The regulations do not, however, provide that such refunds must be paid regardless of whether the government has complied with the contractual terms governing those refund applications. In fact, the regulations suggest the contrary, as they provide that a carrier that declines to make a refund must supply an explanation for its action, see id.; one perfectly satisfactory explanation for the carrier’s refusal to pay a refund is that the government’s right to a refund under the terms of the transportation contract (as evinced by the carrier’s tariff and the face of the ticket) has expired.

There is likewise no force to the government’s contention that the transportation regulations give it at least ten years to file a refund claim, regardless of the terms of the airlines’ tickets and tariffs. The government relies on the regulation that provides that when the government presses a claim against a carrier, it has a ten-year period during which it may use an administrative offset to recover an ordinary debt. 41 C.F.R. § 101-41.504(b). That regulation, the government argues, overrides the contractual provisions in the airlines’ tickets and tariffs that govern the filing of refund claims. But the government’s argument overlooks the general principle that contract terms limiting the time for bringing a claim under the contract bind the parties regardless of the more generous provisions of a general statute of limitations. See Missouri, Kansas & Texas Ry. Co. v. Harriman Bros., 227 U.S. 657, 672, 33 S.Ct. 397, 401, 57 L.Ed. 690 (1913); United States v. Republic Ins. Co., 775 F.2d 156, 158-59 (6th Cir.1985); United States v. Chicago, R.I. & P.R. Co., 200 F.2d 263, 264 (5th Cir.1952); United States v. Seaboard Air Line Ry. Co., 22 F.2d 113, 115 (4th Cir.1927). See also Do-Well Machine Shop, Inc. v. United States, 870 F.2d 637, 640-41 (Fed.Cir.1989) *1545(contractual one-year limitation on submitting claims is enforceable even though the Contract Disputes Act contained no limitations period governing the submission of claims).

The ten-year period set forth in the regulations at 41 C.F.R. § 101-41.504(b) (and in the cognate statute, 31 U.S.C. § 3716), is merely the period in which the government is permitted to assert, via the offset procedure, what it believes is a valid debt. After the expiration of the contractual period for refund applications, however, there is no valid debt to collect, since the airline no longer has an obligation to pay a refund, just as it has no obligation to pay a refund if the government does not satisfy any other contractual terms governing refund applications that do not conflict with any statute or transportation regulation.

It is important to keep in mind that there is no principle of law that requires an airline company to permit any traveler to obtain a refund for a ticket that is not used. The airlines could treat travelers just like purchasers of football tickets — persons who have a right to attend a particular event but have no right to a refund if, for some reason, they do not attend. In most cases, the airlines have adopted a more generous approach by permitting refunds under particular circumstances. But the fact that the airlines have created qualified refund rights as part of their transportation contracts with the public does not mean that there is a presumptive right to a refund and that the airlines’ restrictions on the refund claim process must be viewed with a jaundiced eye.

There are good reasons for the airlines to impose controls on their liability for unused ticket refunds, and the traveling public, including the government, presumably benefits from those restrictions in the form of lower fares than would be charged if the airlines offered refunds on an open-ended, unqualified basis. Moreover, the periods within which the refunds at issue in this case could be sought were quite reasonable — even generous. The seven plaintiff airlines with time limitations on refund applications required the claims to be filed within one to five years, with most of them permitting claims to be filed three years or more after the date of the ticketed travel. That much time should be ample for any individual or organization with even a semblance of an orderly accounting system to prepare and file refund claims. The government, however, has now effectively forced the airlines to provide it special treatment with regard to refunds, and to do so for free. Any restriction on freedom of contract should be viewed with skepticism; this one is particularly distasteful, as it has the effect of allowing the government, cost free, to force the airlines to bear the burden of the government’s inefficiency. Absent far more compelling support in statute or regulation for this instance of governmental special pleading, I cannot endorse such a result.