June 2007

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 feel free to contact me directly at aaron.broaddus@wolterskluwer.com.

Aviation News

New U.S.-China Pact Expands Cargo, Passenger Service
Civil aviation negotiators from the U.S. and China have reached agreement in principle to amend their bilateral air services agreement to allow significantly expanded air service between the two countries. Expected to receive swift final approval by the two governments, the new, phased agreement will:

• Add ten daily passenger flights that U.S. carriers may operate to the Chinese gateway cities of Beijing, Shanghai, and Guangzhou over 2008-2012, doubling the permissible number of such flights;
• Allow unlimited U.S. cargo flights to any point in China and allow an unlimited number of U.S. cargo carriers to serve the market as of 2011;
• Increase, from six to nine, the number of U.S. passenger airlines that may serve the Chinese market by 2011;
• Expand opportunities for U.S. carriers to code-share on other U.S. carriers' flights to China; and
• Commit the U.S. and China to launch Open Skies negotiations in 2010.

U.S. Secretary of Transportation Mary E. Peters and Chinese Aviation Minister Yang Yuanyuan agreed to the final structure of the agreement in a bilateral meeting held on May 21. Negotiators initialed the agreement in Washington on the eve of the second Ministerial meeting of the U.S.-China Strategic Economic Dialogue (SED). The Department of State and the Civil Aviation Administration of China co-chaired the four rounds of negotiations, which lasted more than a year.

Re-Examine Small Community Air Service, DOT Says
The U.S. government, states, and communities all need to reexamine the current approach to providing small communities with air service, according to Michael W. Reynolds, Deputy Assistant Secretary for Aviation and International Affairs at the Department of Transportation. “The way the federal government helps small communities has not kept pace with the changes in the industry and the way service is now provided in this country,” Reynolds testified at a hearing of the House Subcommittee on Aviation. The Administration is proposing changes to the Essential Air Service (EAS) program that aim to focus resources on the most isolated communities by capping EAS communities at those that currently receive subsidized air service and ranking all subsidized communities so that the most isolated would get service first, Reynolds said. The proposal also sets a maximum $50 million funding level for the EAS program. Before the terrorist attacks of September 11, 2001, DOT was paying subsidies for 107 communities. That number has risen to 145 communities. “EAS is often viewed as an absolute entitlement whether the communities invest any time and effort in supporting the service or not,” Reynolds added.

Oberstar Vows Oversight for U.S.-EU Air Service Pact
House Transportation and Infrastructure Committee Chairman James L. Oberstar (D-Minn.) said his committee will conduct thorough oversight of the new U.S.-EU transatlantic air services agreement to prevent any “backsliding” on the foreign control issue. Formally signed on April 30, the deal will permit U.S. and EU airlines to fly between every city in the EU and every city in the U.S. Both sides have committed to reaching a second-stage agreement as a matter of priority. Set to take effect on March 30, 2008, the agreement is expected to spur lower-priced and more accessible air travel for U.S. and European consumers, while also promoting greater access to U.S. and European markets, and increasing competition. Jacques Barrot, Vice President of the European Commission responsible for transport, said the accord will “shake up both the transatlantic market and the European airline industry itself.” Both sides “have more work to do in order to open our aviation markets wider, let capital flow more freely, and intensify our cooperation on issues like security and the environment,” Barrot added. According to Oberstar, the new agreement provides that policies on foreign control of U.S. airlines will be developed on a case-by-case basis, rather than by a general rule. “The critical question is whether this process will result in authorizing foreign control that would not have been authorized under prior policies. We will be carefully reviewing any post-open skies Department of Transportation decisions made in cases involving foreign control.”

Convention Limits Passenger's Baggage Theft Claims
The Montreal Convention limited an air carrier's liability for the alleged theft of certain items from a passenger's checked baggage during an international flight from the U.S. to Guyana, a federal court ruled. The passenger claimed that the Convention was inapplicable because the carrier's willful misconduct had served to remove her claims from its scope. The court disagreed. Although an allegation of willful misconduct may lift the Convention's limitation of air carrier liability, the court found no case law holding that willful misconduct creates an exception to the Convention's applicability. Applying the Convention, the court held that theft by an employee is outside the scope of employment and, thus, does not remove the limitation on a carrier's liability. Therefore, the carrier's liability was limited to 1,000 Special Drawing Rights. Booker v. BWIA West Indies Airways Ltd. (EDNY) 32 Avi. 15,134.

Wrongful Death Claims Not Completely Preempted
The Federal Aviation Act of 1958, as amended by the Airline Deregulation Act of 1978, did not completely preempt certain state law claims for wrongful death and survivor benefits brought against Comair on behalf of the victims of the crash of Flight 5191 at Lexington, Kentucky, a federal court ruled. The carrier, which had removed the case, argued that the plaintiffs' state law claims were completely preempted because federal law provides the exclusive authority to set aviation safety standards. However, removal to federal court may not be based upon a defense of preemption, the court said, adding that a number of jurisdictions have held that FAA does not completely preempt state law causes of action. In addition, the carrier failed to show any clear congressional intent to transfer jurisdiction of the claims to federal court, the court noted. In re Air Crash at Lexington, Kentucky, August 27, 2006 (EDKy) 31 Avi. 18,720.

FAA Airport Runway Procedure Change Violated NEPA
A letter issued by the Federal Aviation Administration that allegedly changed the runway use procedures at a municipal airport violated the National Environmental Policy Act (NEPA), a federal appeals court concluded, ruling that the agency had adopted the new procedures without having engaged in the environmental review process required by NEPA and by federal transportation law. According to local officials and airport neighbors, the change resulted in increased noise, soot, and exhaust emissions over nearby residential neighborhoods. Under the environmental statute, FAA was required to prepare an environmental assessment to determine whether the new procedures would cause a significant impact on the environment, the court noted. By increasing the number of takeoffs and landings over noise-sensitive residential areas near the airport, the letter clearly constituted “major federal action” for which the assessment was required, the court said, adding that FAA's own internal review policies confirmed that the agency should have conducted the environmental assessment. City of Dania Beach, Florida v. FAA (DCCir) 32 Avi. 15,139.

No Reconsideration of Order Approving CBA Rejection
A federal district court denied a motion by a labor union representing a bankrupt air carrier's flight attendants for relief from a court order that granted the carrier's application to reject its collective bargaining agreement with the union, ruling that the union's motion had no basis in law. The union claimed that the carrier's financial condition had improved since the court's opinion was issued and that, if a new record was made, the court would have to weigh a different set of equities in connection with the determination of the motion under federal bankruptcy law. The court disagreed, finding no indication under the relevant provisions of the bankruptcy law that a rejection order can be subject to reconsideration nine months after the CBA was rejected and the parties had changed their positions as a consequence. Furthermore, a debtor's right to seek reasonable relief as a predicate to its ability to formulate a feasible plan would be undermined if either party could start the process over again when economic conditions changed, the court said. In re Northwest Airlines Corp. (SDNY) 31 Avi. 18,733.

TSA Not Liable in Passenger's Fall at Security Checkpoint
A federal appeals court affirmed a lower court ruling that the U.S. government was not liable for personal injuries suffered by an airline passenger who fell while attempting to remove her shoes at an airport security checkpoint operated by the Transportation Security Administration. Te passenger argued that TSA had a duty to provide a chair at the checkpoint and was negligent for failing to do so. However, while thousands of passengers had passed through the checkpoint, the court found no evidence that similar incidents had occurred, and no evidence had been presented of the likelihood of a fall while removing shoes other than the fact of the passenger's fall. Requiring TSA to provide a chair would impose a general burden that potentially far exceeds the benefit of providing a chair, since the mere possibility of a fall does not rise to a level of foreseeability suggesting negligence on the part of TSA, the court reasoned. Because the passenger failed to establish that her fall was foreseeable, and because TSA met its burden to act reasonably, the passenger could not establish that the lack of a chair violated any duty on the part of TSA to act with reasonable care, the court concluded. Barnes v. U.S. (6thCir) 32 Avi. 15,125.

Noncompliance With Arbitration Procedures Is a “Minor Dispute”
An air carrier's alleged noncompliance with grievance arbitration procedures contained in the collective bargaining agreement with its pilots constituted a “minor dispute” that was subject to mandatory arbitration under the Railway Labor Act, a federal court ruled. The union claimed that the dispute was not minor —giving the court jurisdiction to hear the action —because the carrier's refusal to schedule hearing dates and select neutral arbitrators for a number of grievances was a violation of its duty to arbitrate under the RLA and the parties' CBA. It was undisputed that the underlying grievances were minor disputes and subject to mandatory arbitration. As such, a court lacks jurisdiction to order expedited arbitration of such grievances, and the manner of scheduling an arbitration is, itself, an issue subject to arbitration, the court said, adding that the speed of the arbitration, whether the carrier was complying with arbitration procedures, and whether the carrier should face sanctions for its arbitration were within the exclusive jurisdiction of the arbitrator. Because the carrier had participated in the arbitrations, albeit at a rate much slower than that desired by the union, the court ruled that it lacked jurisdiction over the action. Air Line Pilots Ass'n, Int'l v. Champion Air, Inc. (DMinn) 32 Avi. 15,121.

Surface Transportation News

Court Will Not Review MCS-90 Endorsement's Effect
The U.S. Supreme Court has declined to consider whether an MCS-90 endorsement on a motor carrier's excess insurance policy required the insurer to pay dollar-one coverage when underlying coverage was unavailable. The Court's decision lets stand a federal appeals court ruling [see McGirt v. Gulf Ins. Co., CCH Federal Carriers Reporter ¶84,473] that reversed a district court decision, finding that a MCS-90 endorsement attached to an excess insurance policy required the insurer to pay the first $1 million of any judgment when underlying coverage was not available. The appellate court held that the attachment of the MCS-90 endorsement did not alter the insurance company's liability, but merely prohibited the insurer from utilizing policy conditions to disclaim coverage. Thus, the point at which the excess insurer's liability attached was unaffected by the presence of the MCS-90 endorsement. (USSCt Dkt. No. 06-1165, April 30, 2007)

Insurer's Liability Unaffected by MCS-90 Endorsement
A federal court of appeals reversed a lower court's decision holding that a MCS-90 endorsement attached to an insurance policy issued to a motor carrier required the insurance company to pay more than the policy required. A motor carrier that was self-insured for $1 million had entered into excess insurance contract with four insurance companies. The insurance company that issued the second excess policy covering claims between $3.782 million and $16.782 million allegedly attached an MCS-90 endorsement to that policy, even though the endorsement was not required since the carrier was self-insured. A vehicle owned by the carrier was involved in an accident that resulted in injuries to another motorist. Because both the carrier and its first excess insurer had filed for bankruptcy, the injured motorist filed suit against the excess insurer that had attached the MCS-90 endorsement. The motorist asserted that the MCS-90 endorsement required the insurer to drop down and pay first dollar coverage for the motorist's injuries even though, under the applicable insurance policies, its liability would not have attached until the damage award exceeded $3.782 million.

A federal district court concurred, finding that the excess carrier that had attached the MCS-90 endorsement to its policy was required to pay dollar one of any judgment in favor of the injured motorist. The insurer appealed, arguing that it only should be required to pay if the judgment was within its policy limits, because the MCS-90 endorsement did not change the point at which its liability attached. The appellate court agreed with the insurer, finding that the MCS-90 endorsement did not require the excess carrier to satisfy a judgment below its liability floor simply because it was the first solvent insurer. Wells v. Gulf Ins. Co. (5thCir) ¶84,489

Company Offering Rail Vacations Subject to STB Jurisdiction
Petitions for review of an order issued by the Surface Transportation Board (STB) and a decision by the Railroad Retirement Board (RRB), finding that a company engaged in the marketing and selling of vacations aboard vintage railcars was a rail carrier subject to the jurisdiction of the STB were denied by a federal court of appeals. The STB had issued a declaratory order, holding that the vacation company was subject to STB jurisdiction after it determined that it was a rail carrier. The RRB then issued a decision agreeing with STB.

The vacation company challenged the decisions, arguing that it was not a rail carrier because it did not own any railroad tracks. Furthermore, the company argued that it was not a common carrier because it did not provide a service meeting a specific and provable public need, nor were it services available to everyone. Notwithstanding the company's assertions, the appellate court ruled that the STB's conclusion that it had jurisdiction over the vacation company was reasonable, as was the RRB's decision agreeing with the STB. Thus, the petitions for review were denied. Am. Orient Express Ry. Co. v. STB (DCCir) ¶84,490

PHMSA Adopts Changes to HazMat Registration Program
The Pipeline and Hazardous Materials Safety Administration (PHMSA) has issued a final rule amending the procedures governing the hazardous materials registration and fee program. Under the adopted changes, the agency is eliminating the telephone registration option. A steady decrease in the number of registrations submitted via telephone since the Internet registration option was introduced has led the agency to conclude that this registration option no longer is necessary. Additionally, the rulemaking establishes an explicit exception from the registration requirements for Indian Tribes. The revisions take effect June 30, 2007. For further information, contact: Deborah Boothe, telephone: (202) 366-8553; or David Donaldson, telephone: (202) 366-4844.

PHMSA Amends Rules for the Use of International Standards
The Pipeline and Hazardous Materials Safety Administration (PHMSA) has adopted changes to the requirements of the Hazardous Materials Regulations applicable to the use of international standards. The international standards affected by this rulemaking include the International Civil Aviation Organization's Technical Instructions for the Safe Transport of Dangerous Goods by Air (ICAO Technical Instructions), the International Maritime Dangerous Goods Code (IMDG Code), the Canadian Transport of Dangerous Goods Regulations (TDG Regulations), and the International Atomic Energy Agency Safety Standards Series: Regulations for the Safe Transport of Radioactive Materials (IAEA regulations).

The adopted modifications include: (1) changes to the provisions authorizing the use of the international standards and regulations; (2) a complete reorganization of Title 49, Code of Federal Regulations, part 171, which deals with general information, regulations, and definitions; and (3) revisions to the current conditions and limitations for use of the international standards and regulations. The revisions and reformatting are intended to provide a user-friendly format to increase the understanding of the conditions and limitations on the use of international standards and regulations. The revised regulations take effect October 1, 2007. For further information, contact: Duane Pfund, telephone: (202) 366-0656; or Joan McIntyre, telephone: (202) 366-8553.

Lautenberg: All Trucks Needs Electronic On-Board Recorders
Electronic on-board recorders need to be installed in every truck on the road in order to combat the problem of drivers regularly exceeding the maximum hours they are permitted to drive under the law, and the increased risk of fatigue-related crashes, Sen. Frank Lautenberg (D-N.J.) said May 1.

Lautenberg, Chairman of the Senate Surface Transportation and Merchant Marine Infrastructure, Safety and Security Subcommittee, said surveys show that as many as one in five truck drivers regularly exceed the maximum allowable hours they may drive. However, the use of electronic on-board recorders could help prevent accidents by giving trucking companies and law enforcement officials a way to enforce hours-of-service regulations, he said.

Lautenberg added that he was ``perplexed'' as to why the Federal Motor Carrier Safety Administration (FMCSA) proposed in January to only require recorders for as few as 465 of the more than 700,000 U.S. trucking companies. ``That makes no sense,'' he said, noting that under the proposal, only 1.5 percent of the industry would be inspected each year for compliance with truck safety laws.

FMCSA Administrator John H. Hill responded by noting that, under the proposed rule, only those motor carriers with a history of serious hours-of-service violations would be required to install electronic on-board recorders in all of their commercial motor vehicles. Within the first two years of the rule's enforcement, FMCSA estimates that 930 carriers, with 17,500 drivers, would fall under the requirement, Hill said. ``We proposed a risk-based approach to target this technology where it is likely to have the most benefits for the driving public,'' Hill added. (Sarah Borchersen-Keto, CCH Washington, DC Correspondent)