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You Can't Win an EAJA Award When the FAA Dismisses Its Case Before the Hearing

by Greg Reigel 1. September 2009 00:00
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By Gregory J. Reigel

© September, 2009 All rights reserved.

In a recent case, Administrator v. Turner and Coonan, the National Transportation Safety Board ("NTSB") held that an award of attorney fees and costs under the Equal Access to Justice Act ("EAJA") is not appropriate when the FAA dismisses its case prior to a hearing. As we will see, this ruling is yet another barrier to recovery of attorney fees and costs when the FAA improperly pursues a case against a certificate holder.

Equal Access to Justice Act

Before we talk about the case, a brief EAJA refresher is in order. The EAJA is found at 5 U.S.C. 504 and is implemented in 49 CFR 826. According to 49 CFR 826.1, "The Equal Access to Justice Act, 5 U.S.C. 504 (the Act), provides for the award of attorney fees and other expenses to eligible individuals and entities who are parties to certain administrative proceedings (adversary adjudications) before the National Transportation Safety Board (Board). An eligible party may receive an award when it prevails over the Federal Aviation Administration (FAA), unless the Government agency's position in the proceeding was substantially justified or special circumstances make an award unjust." In order to determine whether EAJA fees are available, the key inquiries for an "applicant" (a certificate holder or target of a civil penalty action who is applying for an award of fees) are: (1) Is the Applicant a "prevailing party"? (2) Was the Applicant involved in an "adversary adjudication"? (3) Was the FAA's position "substantially justified"? and (4) Were the fees actually "incurred" by the Applicant?

The Case

The case at hand arose from an FAA order alleging that the two airmen operated an aircraft in an unairworthy condition and, in so doing, violated FARs 91.7(a) (aircraft must in an airworthy condition to be operated), 91.207(a)(2) (aircraft must have approved ELT to be operated), 91.213(a) (requirements that must be met to operate an aircraft with inoperative equipment), and 91.13(a) (careless and reckless). The airmen appealed the FAA's order to the NTSB but, prior to the scheduled hearing on the merits of the case, the FAA withdrew its case and dismissed the charges. Based upon the dismissal, the airmen then applied for an award of attorney fees and costs under EAJA.

The administrative law judge ("ALJ") determined, among other issues, that the withdrawal of all of the FAA's charges against the airmen resulted in the airmen being the prevailing parties in the case. The ALJ granted the airmen's request and awarded them attorney fees and costs. However, the FAA then appealed the ALJ's decision to the full Board.

The issue on appeal was whether or not the airmen could be considered "prevailing parties" entitled to an EAJA award. The FAA argued that the airmen were not prevailing parties because a prevailing party is one who received an enforceable judgment on the merits of a case, or who obtained a court-ordered consent decree that resulted in a change in the legal relationship between the parties. Since the ALJ did not issue a decision on the merits of the case, and the legal relationship between the FAA and the airmen did not change, the FAA claimed the airmen were not prevailing parties. The airmen opposed the FAA's appeal arguing that the case law, legislative history and NTSB's own procedural rules supported the ALJ's decision that they were prevailing parties.

The Board initially observed that its case law concerning prevailing party status under EAJA "may need clarification." After briefly discussing recent NTSB decisions addressing the "prevailing party" issue, the Board then noted several policy considerations that would be impacted by its decision. On the one hand, if an airman is unable to seek fee recovery under EAJA when the FAA dismisses its case prior to hearing, the airman will suffer financial hardship in having to defend against a meritless case pursued by the FAA. Alternatively, if an airman is allowed to pursue fee recovery when the FAA has withdrawn its charges, the FAA might be disinclined to withdraw any case or charge where the matter would still need to be litigated at considerable time and expense as an EAJA case. Or, the FAA might be inclined to continue to pursue a case if withdrawal would increase its exposure to an EAJA award, because the ALJ could interpret the withdrawal as an indication the FAA was not substantially justified in pursuing the case.

However, the Board went on to state that it did not have to take a position on the policy considerations because the case could be decided as a matter of "purely legal interpretation." The Board then agreed with the FAA and held that the airmen did not satisfy the prevailing party standard because the airmen did not receive an enforceable judgment on the merits of their case, nor did they obtain a court-ordered consent decree that resulted in a change in the legal relationship between the airmen and the FAA.

Specifically the Board found that the airmen did not prevail on any portion of the merits of the case because the FAA withdrew the charges before the ALJ could hold a hearing. It further noted that the ALJ's order dismissing the case merely accepted the FAA's withdrawal of the charges against the airmen and was not the same as a court-supervised consent decree. Finally, the Board observed that the ALJ did not dismiss the case with prejudice or in any way alter the relationship between the FAA and the airmen. The Board then concluded that "[w]e believe ourselves compelled to find that the Administrator's withdrawal of the complaint does not confer prevailing party status on applicants under the EAJA."

Interestingly, Member Sumwalt did not concur in the decision and actually went so far as to issue a dissenting, and rather scathing, statement in connection with the Board's decision. He began by stating that "[i]n practical effect, however, the majority rejects the Congressional intent behind the EAJA, as well as the express language of the Board's own rules" and "[i]n so doing, the majority closes the door to relief not only on the applicants before it, but quite possibly on hundreds - if not thousands - of similarly-situated applicants to come."

In addition to reviewing pertinent legislative history, Member Sumwalt went on to observe that Section 826.24(c) of the Board's Rules Implementing EAJA "clearly and unmistakably" recites "that a 'voluntary dismissal' constitutes the 'final resolution of a proceeding' upon which a prevailing party may initiate an EAJA claim." He then observed that "[i]t is reasonable to argue that this language was intentional, and - given the nature of proceedings before the board - foresaw the need for EAJA claims arising out of voluntary dismissals by the FAA or other primary enforcement agency."

In addressing the policy considerations, Member Sumwalt stated that "it was concern for protection of the rights of the private citizen against unjustified government action - not concern for the convenience or expense of the federal government itself - from which the EAJA's enactment arose. Even upon a finding of prevailing party status, the interests of the Administrator are herein protected by proving a substantial justification for the action. In those cases in which the Administrator lacks such a justification, however, the Board should not provide an additional safe harbor from liability under the EAJA in the form of procedural sleight of hand."

Conclusion

Not surprisingly, I agree with Member Sumwalt's dissent. The Board's decision limits the protections EAJA was intended to provide by restricting the circumstances under which an applicant may seek EAJA relief. Unfortunately, after this decision, if an airman wants any shot at an EAJA award, he or she will have to have a hearing, obtain a decision and hope the FAA does not withdraw/dismiss its case before then. By placing procedure before substance, the Board has certainly made it more difficult to ensure that the FAA is justified in pursuing its cases. It is too bad that Member Sumwalt's voice of reason on the issue did not sway the remaining members of the Board.

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!

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Greg Reigel

Recession-Proofing Your Next Aircraft Purchase

by Jeremy Cox 1. September 2009 00:00
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rationale that might save you a lot of grief; some may even call it a "recession busting plan."

I have heard a lot of debate this summer as to whether the used aircraft market is still getting worse, with values in free-fall; or whether it has hit hit bottom, with the market now stagnant; or whether yet, there are signs of improvement, with increased activity and the best valued aircraft being snatched up.
Regardless of the particular camp you side with, there is absolutely no doubt of two things:

- We have been down this runway before. - We shall go down this runway again.

Rather than continuing this debate which can be heard around any water cooler or on any shop floor across the country, I felt it better to work outside of the normal sphere by exploring what might constitute a suitable defence against the next recession and its impact upon business jet ownership. Before you bolt because you think this article is not worth your time, please at least let me stress to you that now is absolutely the best time for you to change your current strategy. If you will allow me, I will provide you with 5 ways to protect your investment: 1.) Separating Facts from Myths, 2.) Maintenance Tracking and Service Plans, 3.) Record Keeping and Historical Paper Trails, 4.) Cosmetic Design Schemes, and 5.) Safety Standards.

The Problem
Before jumping in with the solutions, first we need to understand the problem. I will assume that you currently own your aircraft and you have a mortgage on it. During the most recent conversation that you had with your lending bank, you may have gotten the distinct impression that they (your bank) were extremely nervous about your current holding, because the on-paper loan/value ratio on your aircraft has become quite ugly. I can assure you without any fear of contradiction, that unless you have purchased your current aircraft within the last six months, your current market value has plummeted between 40% and 60% since last summer.
Unfortunately, as far your lender is concerned, you may have now vacated the V.I.P. seats that they had figuratively placed you in when your loan was first underwritten and approved. Your bank is probably showing signs of buckling under the intense pressure that is being brought to bear upon them from their internal management groups, federal regulators and public opinion. If you provide them with any indication of not being able to send the monthly payment to their processing centre, you may well trigger a telephone call to you which may have an underlying but discernable edge of malice to it. This unfortunate type of call is now very common for many aircraft owners today.
Whatever you manage to work out with your bank is great. But don't play around with your agreed payment plan too much, because once your personal loan manager is replaced by a committee, your loan will be in grave danger of being placed into default, and the bank will force it to foreclosure. By saying this I am not targeting the people that loaned the money to you to buy your aircraft. I can honestly say that I've truly never met anyone in the aviation finance industry that would ever be considered to be spiteful or vindictive. The reality of the current situation is that they are dealing with a trickle down problem (actually more like a fire hose) that has impacted our industry based on the larger international financial crisis.
Now let's assume that you still have a firm grip on the title to your business jet instead of you living under the threat of it being snatched away. Unless you have absolutely no reason to move out of your present aircraft, now is the time for you to pay attention to the used and possibly even the new aircraft marketplace. There are deals out there today that probably will not be repeated for another 15 to 20 years, or more.
As much as we would all like to, even in this digital age, no one can stroll down to Macy's and buy themselves a time-machine or an oracle's hat to predict the future of the world's markets. The biggest challenge in digging out of the present value conundrum is the ability to successfully find the 'right' replacement aircraft to hold sufficient future equity performance for your bank to roll your existing loan over into a higher value aircraft today. What do I mean by higher value? Anything that is younger, has less total-time, is better equipped, and has a higher present-day book-value than what you currently have.
Once you have located the 'perfect' aircraft, probably with the expertise of a market-savvy broker, you will most likely have to provide an additional 15% to 20% of the trade aircraft's book/loan value on top of your existing loan. This will give your bank sufficient confidence to make a new loan with you against a better value aircraft today. No doubt that some negotiating will take place between you and your bank on how to handle the pre-payment penalty that is written into your current loan. Often this can be waived. Effectively everyone that has the foresight to follow this procedure, makes a step sideways and up, while the trade-ins move further down into the abyss. Some may actually go to the scrap yard.
Once you, your bank and the broker have closed the deal, celebration is in order. However don't rest on the laurels of this transaction and relax your grip, because you still need to keep a close scrutiny on how your aircraft is being operated and maintained if you want to recession-proof this aircraft purchase.

Separating Fact from Myth
FACT: Business Jet Aircraft values mirror the Dow-Jones Industrial Average trends. I can prove it to you, if you contact me at my office at JetBrokers.
MYTH: You will never make money on an aircraft purchase. I have several clients that would strongly disagree with this statement.
FACT: The secret to making money is simple - buy low, and sell high. This sounds silly I know, but how often is this rule broken?
MYTH: If it Flies or Floats, lease it! This motto cannot be generalized. Everyone's economic position and goals are different. From an hourly cost perspective, the following 'Fact' completely refutes it.
FACT: The hourly flight cost of trips aboard a business jet, in order of expense from 'high-to-low' is as follows: Fractional (most expensive per hour) - Charter - Leasing - Ownership (least expensive per hour).
MYTH: You will make money, or at least your own flying will cost you nothing, if you place your aircraft into a managed charter program. You might defray your overall expense, but just like perpetual motion, 'free' does not exist. Is the reduction in your annual expense worth the diminished value from the added wear-and-tear?
FACT: People (buyers) don't like old and high-time aircraft. There was a time when charter companies thrived on them, but the fractional and independent audit companies have put paid to that. Now the resale market for vintage (older than 25 years) business jets is growing daily, while the number of willing buyers is shrinking at a greater rate.
MYTH: The factory did not make a mistake when they built your aircraft 'by building it better' than all of the other aircraft that came off the same production line. This is just posturing and hyperbole that buyers immediately see through. It is how the aircraft is treated through its operational career that determines its true value-enhancing pedigree.
FACT: Paying for and having accomplished maintenance, service bulletins, and industry standard up-grades on your aircraft while it is in your custody will not add value or enhance the price of your aircraft. It will merely maintain its natural market value. Failure to have any of these items accomplished in accordance with the manufacturer's mandated schedule will actually cause a reduction in value.

Maintenance Tracking and Service Plans
It is extremely important to either start, or keep your aircraft enrolled onto a computerized maintenance tracking program. If you don't keep pace with the multitude of calendar and hourly inspection, servicing, overhaul and replacement items that are required on your aircraft, safety along with your aircraft value is severely compromised. The same applies to the applicable manufacturer's engine service plan on your engines, though it is exclusively an issue of value, not safety. When the time comes to sell, if your aircraft is not enrolled in an available service plan, many buyers will not give your aircraft a moment of consideration. At a minimum, you may have to discount your asking price by the plan's quoted enrolment cost. In a tough market, this strategy might prevent your aircraft from attracting sufficient interest from buyers to actually make it to a sales transaction.

Record Keeping and Historical Paper Trails
Keep all maintenance records, logbooks, warranties, airworthiness tags, work order packages, invoices, etc., in a secure, fire and waterproof safe. Consider access to them on the same level as you would if you owned an original copy of the Declaration of Independence. If anyone other than you, your pilots or your Director of Maintenance wants to handle your documents, make that person justify why they need your records before you let them out of your safe keeping. Never ship your records either. The best way for your records to travel, when it is necessary for them to do so, is to be carried on-board the aircraft or, at the very least, 'hand-delivered' by someone that you trust. It is also vital that you take an active role in how, and what, entries are made in the logs as routine maintenance and inspections are accomplished and recorded. The erroneous stroke of a pen could cost you thousands later on. Content and form of entries are extremely important. So often a simple miscalculation of total-time in a log book entry can span thousands of hours before it is caught by a diligent inspector. If this happens, the pedigree of your aircraft is severely reduced. Lastly, don't limit your accumulated historical paper trail to only airworthiness records. Invoices, receipts and work order copies all add to the pedigree of your aircraft, thus ensuring a higher resale value.

Cosmetic Design Schemes
When you are ready to refurbish both the interior and the exterior of the replacement aircraft, don't allow your wife or girlfriend to make their mark as an amateur designer. Remember that beauty is always in the eye of the beholder, but your eye is unlikely to be in the same taste of the next buyer of your aircraft. Wild, gaudy, lavishly over-the-top styling and flamboyance will only reap you a lower selling price later on. Many of the aircraft that are selling today are what I like to refer to as 'ghosts', i.e. they are painted all white with absolutely no design stripes to turn a buyer off. A clean canvas, so to speak. I'm not suggesting that you ride around in a 'ghost' yourself, but at least try and keep your appreciation of Jackson Pollock's work in your home and not on your aircraft exterior.

Safety Standards
If you decide to upgrade your aircraft to a higher safety standard than what is currently mandated by the FAA, it is my professional opinion that the best blueprint that you can use is the specified requirements presented within the European JAR-OPS-1 document. Over the years we have seen a gradual shift of safety philosophy from Washington, DC over to mainland Europe. There are a lot of changes afoot in European regulatory circles now that the European Aviation Safety Agency (EASA) has been established. It is highly likely that JAR-OPS-1 will be superseded by a new document in the not-too-distant future. I suggest that you keep on the look-out for this change. In the meantime, I want to stress that when it comes to guaranteeing yourself the highest possible resale value, 'less is most definitely not more' when you are specifying planned equipment and safety upgrades.

Looking Forward
How long will you have to hold on to this replacement aircraft before cashing in? Remember my earlier statement about Macy's? Without an oracle hat myself, I am willing to make a prediction based upon my experience. I believe that your new loan should run for at least the next 60 months before it is allowed to come due, because you probably have longer to wait before we reach the stratospheric pricing that we saw in 2007. Also remember that during this holding period, it is best to try and keep your flight-hours under control and within reason, because 10% or more of the subsequent sales price realized will depend upon the total-time on your aircraft. The average rate that a business jet is flown here in the United States is 450 hours per year which equates to 8.65 hours per week.
I sincerely wish you the very best of luck with successfully beating the next recession by using this, or a similar rationale to recession-proof your next aircraft purchase. I am always available for consultation at JetBrokers, if you need any help or advice on this topic.
See you next month.

As The Market Turns

by Darryl Abbey 1. September 2009 00:00
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The aviation insurance market appears to have finally decided that prices are low enough. Sparked into action by the recent volume of airline losses (including Air France which is rumored to be reserved in excess of $600mm), helicopter losses and the effect of the overall economy on cost of capital, aviation insurance carriers have decided that it is time to at least stabilize premium levels and, depending on the market sector, started levying price increases on renewals starting this summer.

This transition toward higher rates is analogous to turning the Titanic or, more appropriately, a C5 aircraft: It takes a while and is not necessarily smooth. No doubt the market will target certain types of operations which the carriers consider high risk such as HEMS, off-shore service and other rotorcraft operations. Airlines will certainly pay increased premiums (to the extent they can afford them) and other areas of the aviation market which have experienced some losses in the past twelve months such as charter aircraft operators can expect higher insurance costs as well. Even the big aircraft, engine and component manufacturers are unlikely to see any premium reductions as the insurance carriers spread the anticipated cost of losses incurred so far in 2009 across the entire aviation insurance market.

The surplus of capacity which has built up over the past several years remains strong. There are currently no less than twelve carriers willing to underwrite aviation insurance in the US alone with additional capacity in London and other EU countries for large placements and non-US based risks. As mentioned in previous market updates, traditional supply and demand economics do not seem to have applied to the aviation insurance market for several years. Until very recently, prices have continued to drop due to excessive supply (read competition for market share) despite lower demand and higher loss ratios. But now, it seems that insurers are strengthening their resolve to increase their prices even though supply remains high.

Don’t get me wrong. I don’t think corporate operators (those that are still up and running) will need to worry much. The twenty year premium lows that they are experiencing will not increase much if at all because of their good loss record. Likewise, many Pleasure & Business aircraft operators will continue to enjoy low cost and, in some cases, higher limits than have been available for some time. This may continue until aircraft the aircraft sales market turns around. Once aircraft buyers jump back into the market and need insurance for their newly acquired aircraft (increasing demand), the market will likely respond with higher P&B rates. For most commercial aviation businesses, however, higher insurance costs are here now, or will be in the near future, at a time when most companies can ill afford it.

Is there a way to avoid premium increases? The best way to fight against higher cost is to educate your underwriter as to why you deserve his/her best treatment. This should include sharing information on your safety and training programs and everything you do to prevent losses from happening. Get to know your underwriter and help convince them that they want to give you the lowest cost. Your broker will also play a big role in helping educate the market so choose your representative wisely and make sure they have the ability to get the job done.

Remember, the aviation insurance market may harden significantly in the next year so be prepared, start your renewal process early and teach the insurance carriers why you deserve their best treatment.

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!

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Plan Ahead for 2010

by David Wyndham 1. September 2009 00:00
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We are two-thirds through 2009 and generally appear to be bottoming out of our recession. There is little to support a speedy recovery. But, we are seeing a little more acquisition activity. If you are looking to upgrade your current aircraft or acquire a new one in the next 6 to 12 months, you may want to look at doing it sooner versus later.

Caveat Emptor: This next two paragraphs are not tax advice, but merely for information purposes. Consult an aviation tax expert before taking any tax-related action.

The American Recovery and Reinvestment Act of 2009 (ARRA) continues bonus depreciation into 2009. This has business tax planning implications for 2009 and 2010. If applicable, the 50% bonus depreciation allows an immediate deduction of 50% of the cost, followed by accelerated depreciation on a five-year tax depreciation schedule. Many folks take think it only applies to a new aircraft acquisition. This also applies to capital improvements to your current business aircraft.

If you are looking at re-engining your aircraft, doing a major avionics upgrade or otherwise "improving" the aircraft substantially, and if the improvement qualifies as a depreciable capital expense, you may wish to do this in 2009. Then you may be able to take advantage of the bonus tax depreciation. So if the upgrade is $500,000, and it meets the requirements of the ARRA, you may get a $250,000 write-off for 2009's taxes. If you'd like more information on this, I recommend contacting my partner, Ms Nel Stubbs - she can set you straight on the ins and outs of this act.

Are you doing any major maintenance or refurbishment soon? In addition to getting it scheduled, look at other aircraft-related items that you may want to have done at the same time. Get the aircraft inspection done prior to any interior work - even if it means doing the inspection early. No sense messing up the new interior work. If you have flexibility in scheduling the major work, use that as a bargaining tool in negotiating a better price. Many shops are not as busy as they want (and need) to be. Schedule well in advance, and if you can wait a bit longer than "ASAP," the shop may provide a discount as they can avoid overtime in their labor force. And while the aircraft is down for maintenance, that is a good time to get in some refresher training.

If you are acquiring any aircraft this year, don't forget to do your other pre-delivery planning as well. Planning ahead for the delivery can save headaches and money. Tax-deferred exchanges force you to plan ahead, but even a "simple" transaction requires some advance consideration. What paperwork is required? Is there a sale-for-resale exemption in the state? Have you considered all your tax exposure: Federal, State and Local? Scheduled the pre-buy (see last month's article)? Is the money in the bank ready for the transfer? After the acquisition occurs, you have no recourse left. Planning in advance means weeks in advance, and for complicated transactions, a month or more.

© 2009 David Wyndham

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!



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