December 2006

From the editors of CCH's Transportation products, here are summaries of the important recent developments in the area for the past month.  Complete coverage of these issues, and many more, appear in our print and electronic products, including: Aviation Law Reporter, Commercial Aircraft Transactions, Issues in Aviation Law and Policy, Federal Carriers Reporter, Federal Motor Carrier Safety Administration Decisions, and Motor Carrier Liability.

If you have comments or suggestions concerning the information provided or the format used, please free to contact me directly at aaron.broaddus@wolterskluwer.com.

Aviation News

Runway Incursions Remain Ongoing Concern for NTSB
Runway incursions continue to occur with “alarming frequency,” and the timeliness of Federal Aviation Administration action to counter the problem has been unacceptable, the National Transportation Safety Board said in a review of its Most Wanted List of safety recommendations on November 14. There were 327 incursions during fiscal year 2005 and 330 during fiscal year 2006, the Board noted. The issue of runway incursions has been on the NTSB's Most Wanted List —a compilation that prioritizes the agency's safety initiatives —since the List's inception in 1990. According to the Board, an FAA system provides warnings to air traffic controllers, but not to flight crews, of an impending incursion. As a result, NTSB is recommending that FAA implement a system that will ensure the safe movement of airplanes on the ground, while providing direct warnings to the flight crews involved.

Peters Seeks New Approaches to ATC Financing

With Congress set to consider Federal Aviation Administration reauthorization legislation next year, Transportation Secretary Mary E. Peters said she would listen to all members of the aviation community as DOT grapples with how best to finance new air traffic controllers and equipment investments needed to keep pace with surging traffic in the system. Peters called on lawmakers, aviation industry leaders, and union officials to come together to develop a solution. “We must rethink the aviation financing system,” she added. Peters said the expected delivery of thousands of new, very light jets would lead to the largest increase in air traffic since the 1960s. New technology also is needed to ensure that incoming air traffic controllers can safely handle the increase in air traffic, Peters said, noting that FAA planned to install satellite-based tracking equipment that would allow for greater precision, but that “the best plans and the most ambitious schedules won't mean a thing without a way to pay for it.”
 

Transfer Statements Acceptable for FAA Recording
The Federal Aviation Administration has concluded that the transfer of a defaulting aircraft owner/lessor's interest in the aircraft's lease to the aircraft's new owner/lessor may be recorded in the agency's records by the use of a transfer statement that meets the requirements of the Uniform Commercial Code. Although existing federal aviation regulations provide for recording of consensual assignments of conveyances, such as security documents and leases, the regulations provide only for the recording of a Certificate of Repossession or its equivalent in default situations. As a result, when a repossessed aircraft is subject to a lease, there had been no apparent way for a repossessing party to record its interest in the lease. To address the problem, FAA issued a Notice stating that it would consider the utilization of a transfer statement as contemplated under U.C.C. Section 9-619 as a mechanism by which a foreclosing secured party can cause the record to reflect its rights in leases. Accordingly, transfer statements may be recorded under appropriate circumstances, although the validity of such instruments would be determined under the applicable state commercial law, the agency cautioned.

FAA Issues New Flight Simulator Rule
New Federal Aviation Administration standards governing the initial and continuing qualification and use of flight simulators took effect on October 30. Applicable to all certificate holders, the final rule creates a new Part 60 in Title 14, Code of Federal Regulations that consolidates and updates material that had been contained in advisory circulars and several different regulatory provisions. FAA first proposed the measure in 2002. In addition to setting requirements for both initial and continuing qualification of simulators, the new rule requires a quality management system (QMS) to ensure that users of flight simulation devices receive the best possible training in equipment that closely matches the performance and handling characteristics of the aircraft being simulated. The rule also establishes requirements for those who conduct flightcrew member training, evaluation, and flight experience under any of the federal aviation regulations.

Love Field Reform Takes Effect
The Wright Amendment Reform Act of 2006 (Pub. L. 109-352, 120 Stat. 2011), which eases the restrictions on airline flights at Dallas' Love Field airport, was signed into law by President Bush on October 13. As previously reported [see CCH Aviation Law Reports No. 1342, October 26, 2006], the new statute amends the International Air Transportation Competition Act of 1979 (the “Wright Amendment”) to authorize through service and ticketing for one-stop air transportation to or from Love Field and any U.S. or foreign destination.

Replacement Part Did Not Roll System's GARA Repose Period
In a products liability action on behalf of passengers killed in the crash of a small aircraft, a federal district court ruled that evidence of defects in the design of the aircraft's exhaust or fuel systems was barred by the 18-year statute of repose contained in the General Aviation Revitalization Act of 1994. While it was undisputed that an allegedly defective component of the exhaust system had been replaced within 18 years of the crash, the court ruled that replacement of the component did not restart the 18-year repose period for the entire exhaust system, which contained parts that were more than 18 years old. The court also ruled that evidence of alleged design defects in the aircraft's exhaust and fuel systems was not relevant to establish liability because: (1) GARA prevented holding the manufacturer liable for these alleged defects; and (2) evidence of such defects was not relevant to whether the actionable component was defective. (Sheesley v. Cessna Aircraft Co. (DSD), 31 Avi. 18,266)

Insurer Barred from Enforcing Policy Exclusion
An aircraft accident liability insurer could not enforce a pilot warranty exclusion clause in an action brought against it on behalf of passengers who were killed in the crash of a small plane during a business trip. According to a Florida appellate panel, a federal aviation regulation clearly provides that such exclusions shall not remove required liability insurance coverage absent specific approval by the Department of Transportation. Because DOT had never approved the exclusion, the insurer was precluded from raising it, the court held. (XL Specialty Ins. Co. v. Skystream, Inc. (FlaDistCtApp), 31 Avi. 18,277)

Warsaw Defense Did Not Invoke Federal Question Jurisdiction
A federal district court lacked subject matter jurisdiction over an action brought under state law by a shipper's subrogee which alleged that the operator of an air cargo warehouse on airport grounds was liable for the theft of an international air shipment. The insurer claimed that the warehouse operator had allowed the shipment, consisting of laptop computers, to be released to an individual who was not the proper consignee of the goods. The warehouse operator had removed the case from state court, claiming that the court had federal question jurisdiction based upon the Warsaw Convention. The court disagreed, finding that the subrogee's claims sounded in state law and had not been based upon the Convention. In addition, while the Convention may be available as a defense to state law claims, it does not completely preempt the field such that the action must be considered a federal question claim, the court concluded. (Nipponkoa Ins. Co. v. GlobeGround Servs., Inc. (NDIll), 31 Avi. 18,221)

FAA May Bar Creditors from Attaching Airport Land
The Federal Aviation Administration was within its authority under the Spending Clause of the U.S. Constitution to bar state law judgment creditors from attaching land that had been purchased by a local government agency with federal grant funds issued under the Airport and Airway Improvement Act of 1982, a federal district court ruled. Although the creditors argued that the Tenth Amendment reserves to the states the power to regulate the sale of property following attachment by a judgment creditor, property purchased with AAIA grant funds is treated as federal property, and FAA's broad authority under the Spending Clause allows the agency to enforce grant provisions against third party judgment creditors in order to protect federal property, the court said. (Mineta v. Board of County Comm'rs (NDOkla), 31 Avi. 18,205)

Failure to Arbitrate Precludes Court's Jurisdiction
A federal district court lacked subject matter jurisdiction over a claim that a labor union representing an air carrier's flight attendants had breached its duty of fair representation by failing to fund the arbitration of a member's grievance against the carrier. The union had informed the flight attendant that, while it would not fund the arbitration, he had the right to pursue his grievance to arbitration. According to the court, by declining to pursue the grievance to arbitration, the flight attendant failed to exhaust the contractual grievance procedures available to him under the parties' collective bargaining agreement. While a lawsuit against a labor union for breach of its duty of fair representation does not require exhaustion of administrative remedies, the failure to exhaust mandatory contractual remedies available under the CBA triggered preemption of the claim by the Railway Labor Act, the court concluded. (Meaux v. Northwest Airlines, Inc. (NDCal), 31 Avi. 18,228)

Surface Transportation News

Insurer's Liability Unaffected by MCS-90 Endorsement
A federal court of appeals affirmed a lower court's decision holding that a MCS-90 endorsement erroneously attached to an insurance policy issued to a motor carrier did not require the insurance company to pay more than what was required under its policy. A motor carrier was involved in an accident that resulted in the death of another motorist. The estate of the deceased sued the carrier and obtained a judgment in the amount of $3.2 million. The carrier self-insured up to the federally-required minimum of $1 million, purchased an excess insurance policy to cover claims over $1 million up to $3 million, and carried an umbrella policy for claims over $3 million. The insurance company that issued the umbrella policy allegedly attached an MCS-90 endorsement to that policy. Under the applicable insurance policies, the carrier was liable for the first $2 million owed under the settlement, the excess insurance carrier was responsible for $1 million, and the issuer of the umbrella policy was liable for $200,000.

Before payment could be made, the carrier filed for bankruptcy and has not paid its portion of the settlement. Based on the existence of the MCS-90 endorsement, the plaintiff has attempted to recover an additional $1 million from the issuer of the umbrella policy. The plaintiff alleged that the attachment of the MCS-90 endorsement to the policy required the insurer to pay $1 million instead of the $200,000 owed under the policy. The insurer challenged this assertion, arguing that it had not attached the endorsement to the policy. Based on the purpose of the endorsement, which guarantees that an injured individual will received at least the minimum amount required by law, it was concluded that the insurer did not have to pay anymore than the amount provided for under its umbrella policy because the plaintiff had recovered an amount in excess of the minimum requirement. Thus, the MCS-90 endorsement did not alter the insurer's liability. Kline v. Gulf Ins. Co. (6thCir) ¶84,468

Carmack Governs Shipment of Umbilical Cord Blood
A shipment of umbilical cord blood that was destroyed en route to a facility for cryogenic freezing was subject to Carmack liability, according to a federal district court. A motor carrier had entered into an agreement to provide transportation services to a company that collected, tested, processed, and preserved umbilical cord blood. During one such movement, the shipment of cord blood was destroyed. The family of the newborn whose cord blood was lost filed suit against the carrier alleging various state law claims.

The carrier responded by filing a motion to dismiss, alleging that the state law claims were preempted by the Carmack Amendment. The plaintiffs challenged the motion for dismissal, arguing that: (1) Carmack was not applicable because they were not the shipper; and (2) if they were the shipper, Carmack still may not have been applicable because a question existed as to whether or not cord blood was ``property.'' The court rejected the plaintiff's arguments, finding that they had acted as a shipper when they tendered the cord blood to the carrier and signed the bill of lading. Furthermore, the cord blood was deemed to be property under the Carmack Amendment because it was a tangible item transported under a bill of lading or receipt in interstate commerce. Consequently, the court ruled that the state law claims, which were directly related to the damage to the cord blood, were preempted by Carmack. Thus, the carrier's motion to dismiss the state law claims was granted. Polesuk v. CBR Sys., Inc. et al. (SDNY) ¶84,469

Revised Procedures for Large Rail Rate Dispute Cases Adopted
The Surface Transportation Board (STB) has completed a major rulemaking proceeding geared towards improving the procedures for deciding large railroad rate dispute cases. The revised procedures are intended to ensure that the standards both for deciding whether a rate is too high and for setting the floor for rate relief­ the lowest level to which rates can be ordered reduced­ are applied fairly and in conformity with the agency's statutory responsibilities.

Through this action, the agency is updating guidelines that were adopted 20 years ago to govern large railroad rate disputes. In recent years and in numerous cases, it has became apparent that the STB's rate dispute resolution process had evolved into an overly expensive and time consuming process, with cases typically requiring three years or longer to resolve at an estimated cost of over $3 million for each side. These new rules reform STB processes, making its rate docket more manageable­ both for the agency and the parties­ by placing reasonable restraints on the evidence and arguments it will allow parties to submit in a particular case. As a result, the expense and delay in resolving rate disputes should diminish appreciably, and the results of the rate reasonableness inquiry should become more accurate.
Following a notice and comment period, STB decided to: (1) replace the percent reduction approach with a ``maximum markup methodology'' to calculate maximum lawful rates; (2) adopt an ``average total cost'' approach to allocate revenue from cross-over traffic; (3) shorten the analysis period to 10 years; (4) change its method of forecasting operating expenses to account for future productivity; (5) use its unadjusted uniform rail costing system to determine if rail rate levels are below the jurisdictional floor; and (6) adopt the proposed new standards to govern when to reopen rate cases.

Through these changes, the STB accomplishes two important objectives: (1) improving the soundness of its stand-alone cost (SAC) decisions; and (2) reducing the complexity and expense of these rate proceedings. (STB Press Release and Fact Sheet, October 30, 2006)

Extended Notice Requirements for Exempt Transactions Adopted
The Surface Transportation Board (STB) has issued a final rulemaking modifying the notice requirements governing transactions that qualify for the seven- and 21-day class exemptions. The new notice requirements extend the current timeframes contained in the rules for providing notice of transactions invoking class exemptions. The changes are intended to ensure that the public is given notice of a proposed transaction before the exemption takes effect.

Under the final rule, the notice procedures for the ten types of exempt transactions are as follows: (1) Notice of the proposed transaction must be published in the Federal Register within 16 days of filing; (2) petitions for stays are due at least seven days prior to the effective date of the exemption; and (3) the exemption, if not stayed, takes effect 30 days after the notice is filed.

For transactions involving the creation of Class I or Class II carriers, the following changes to the notice requirements have been adopted: (1) Notice of a covered transaction must be published in the Federal Register within 16 days of filing; (2) petitions for stays are due no later than 14 days prior to the effective date of the exemption; and (3) the exemption will take effect 45 days after filing. The revised regulations took effect November 23, 2006.

New Rule Aimed at Reducing Noise Exposure for Train Crews
Preventing hearing loss in train crews is the goal of a final rule published by the Federal Railroad Administration (FRA). The agency intends to promote this objective by reducing unnecessary noise exposure for railroad employees who work in locomotive cabs.

The newly adopted regulations require manufacturers to design and build locomotives with quieter cabs, and for railroads to maintain them to the new standards. Some noise reduction features already are being incorporated into newer locomotives, including better insulation and relocation of air brake exhaust piping. The new rules support these and other methods to reduce interior cab noise to the levels mandated by this rulemaking.

In addition to the changes geared towards reducing noise levels, the final rule requires train crews to use hearing protection devices, and requires railroads to provide training in hearing loss prevention, implement hearing conservation programs, and conduct regular hearing monitoring. The agency believes that the changes will lower the incidence of noise-induced hearing loss. The final rule is effective February 26, 2007.

Department of Transportation's Inspector General Named
Calvin L. Scovel III was sworn in as the Department of Transportation's Inspector General on October 27, 2006, by Secretary of Transportation Mary E. Peters. Mr. Scovel retired from the Marine Corps as a Brigadier General after 29 years service. Most recently, he served as a Senior Judge of the United States Navy-Marine Corps Court of Criminal Appeals. The court conducts appellate review of Navy and Marine Corps courts-martial as required by the Uniform Code of Military Justice. In his prior position, Scovel often handled criminal and administrative cases that arose from military Inspector General investigations.

As a legal advisor for senior military commanders and the Secretary of the Navy, he reviewed Inspector General reports and assisted in implementing their recommendations. He also served as the first counsel to the Inspector General of the Marine Corps, and as Chief Defense Counsel of the Marine Corps.

Scovel is the sixth Inspector General in the Department's history. The Office of Inspector General (OIG) was established by law in 1978 to provide the Secretary and Congress with objective and independent reviews of the efficiency and effectiveness of Department of Transportation operations and activities. The OIG carries out its mission by issuing audit reports, evaluations, and management advisories with findings and recommendations to improve program delivery and performance. By statute, the Inspector General also conducts investigations into whether Federal laws and regulations were followed and must report suspected civil and criminal violations to the Attorney General.

Mr. Scovel received his bachelor's degree from the University of North Carolina and JD from Duke University. He also holds a master's degree from the Naval War College. (DOT Press Release No. DOT 102-06, October 27, 2006)

Flaws in Medical Certification Process for CMV Drivers Found
The National Transportation Safety Board (NTSB) said investigations of accidents involving drivers with serious medical conditions have revealed that ``disturbing flaws'' exist in the medical certification process of commercial vehicle drivers. In a November 14 review of its ``Most Wanted List'' of safety recommendations, NTSB said these flaws can lead to increased highway fatalities and injuries for commercial vehicle drivers, their passengers, and the motoring public. As a result, NTSB is recommending that the Federal Motor Carrier Safety Administration (FMCSA) continue its efforts to develop medical certification procedures that ensure unfit drivers are not allowed behind the wheel of a commercial vehicle. Action to date on this issue by the agency has been unacceptable, according to the Board.
In the rail arena, NTSB said the Department of Transportation was progressing slowly in its implementation of a system known as ``positive train control'' that compensates for human error and that incorporates collision avoidance to prevent accidents. NTSB noted its long history of investigating accidents in which crewmembers had failed to operate their trains effectively and in accordance with operating rules for a variety of reasons, such as fatigue, sleeping disorders, use of medications, and operator distraction. (Sarah Borchersen-Keto, CCH Washington, DC Correspondent)