Aircraft Timesharing between a Company and its Dealers

The FAA spends many regulatory pages (and significant enforcement activity) differentiating between private, noncommercial operations under 14 C.F.R. Part 91 and commercial operations under Part 119 (operating certificates generally) and related regulations, including Parts 135 (charter and air taxi) and 121 (airlines). Part 91, Subpart F sets out special rules for the private, noncommercial operation of large and turbine multi-engine aircraft, and those in fractional programs. Subpart F permits these aircraft some of the operating privileges the FAA otherwise considers commercial. For example, Subpart F operators may carry business guests, for, among other things, the purpose of  selling them property, franchises and distributorships,  so long as the guests are not charged for the flight. 14 C.F.R. §501(b)(9).

Section 501(b)(6) also permits no-charge business-related transportations on airplanes operated under a time sharing, interchange, or joint ownership agreement.”  “Time sharing” under Subpart F is an arrangement in which an airplane is leased with a flight crew. This is an arrangement generally considered a “wet lease” prohibited to Part 91 operations; it usually requires a Part 135 commercial operating certificate. The authorization comes with limitations. The only charges permitted under the arrangement are a group of ten listed in §501(d). The list is fairly broad, with the limitations apparently designed to avoid  profiting from the arrangement. In addition to the charge limitations, the operation may not involve common carriage. “Common carriage” is a term at least as old as the stagecoach. It is differentiated from “private carriage” by a willingness to furnish transportation services to the public or a segment of the public, often referred to a “holding out” the availability of transportation services.

On July 3, 2017, the FAA Chief Counsel’s office responded to an attorney’s request on behalf of a client company to review the elements of a proposed timesharing arrangement between the company and its dealer network. The company planned to enter into timesharing agreements with “perhaps 3 – 5” of its dealers. The company would provide an aircraft and flight crew for dealer use in customer site visits. The only charges to the dealers would be those permitted by §91.501(d).

Lorelei Peter, writing for the FAA Chief Counsel’s office, agreed the arrangement, as stated, complied with Subpart F with respect to both the charges made to the dealers and the requirement that the operation be limited to private carriage. On the latter point, the interpretation cautions strongly against crossing the line from private to common carriage:

Please note, however, that the use of time sharing agreements with potential customers must be limited in scope so that the agreements do not effectively defeat the purpose of § 91.50l(b)(9). We consider your client’s proposed arrangement with three to five of the dealers to be sufficiently limited in number. The FAA cannot accept as appropriate the distinct scenario where a private operator enters into time sharing agreements with all or a substantial number of its potential customers as a means of circumventing the restriction on accepting payments from customers.

The July 2017 Hills Interpretation may be viewed at http://bit.ly/2tdorA3.

A few observations.

First, it should go without saying, these are a body of complex regulations. These types of arrangements must be both well documented and carried out in a way that makes clear it is “private carriage” and otherwise complies with the limitations for these types of operations. Professional advice is a must.

Second, while Subpart F applies to large airplanes (over 12,500 pounds maximum takeoff weight), multiengine turbojet airplanes, and fractional ownership program aircraft, the National Business Aircraft Association (NBAA) has obtained a exemption permitting its members Subpart F privileges (and limitations) in piston airplanes, small airplanes, helicopters. A discussion of the NBAA Small Aircraft Exemption and NBAA membership may be found on the NBAA website here. The most recent renewal of the NBAA exemption in March 2017, may be viewed here.

Posted in Aviation

NTSB: Falsification Cases Require Specific Findings

In FAA v. El Khoury and Abbassi (NTSB, 8/2/2016), the FAA revoked pilot and instructor certificates alleging falsification of a student’s logbook. To summarize briefly, the FAA claimed El Khoury, who was not a CFI, provided training to a student and then, along with Abbassi, who was a CFI but did not provide instruction, applied Abbassi’s signature stamp to the entries. The FAA’s case was largely based on the student and his father’s testimony. The two accused airmen denied giving any flight instruction and also denied having anything to do with stamping Abbassi’s signature in the student’s logbook.

The Administrative Law Judge (ALJ) upheld the revocations, finding in general terms the testimony of the student to be more credible than the “self-interested” testimony of the accused. On appeal to the full NTSB, the NTSB sent the case back to the ALJ for reasons that will be of interest to practitioners more for the applicable procedural and evidentiary rules than any substantive content.

Generally speaking, falsification violations under FAR 61.59 are subject to the 3-prong test announced in Hart v. McLucas, 535 F.2d 516, 519 (9th Cir. 1976). In order to sustain a falsification violation, the FAA must prove an airman: (1) made a false representation, (2) in reference to a material fact,  (3) with knowledge of the falsity of the fact.

The NTSB’s response to a second Court of Appeals case, Administrator v. Dillmon, 79 588 F.3d 1085 (D.C. Cir. 2009), on remand, NTSB Order No. EA-5528 (2010),  held that as an essential corollary to the third prong and often to the first prong, ALJs must:

“make clear credibility findings tied to specific findings of fact based upon the testimony and evidence presented at the hearing.” The NTSB will not “rely on implied credibility determinations which may only be gleaned from the law judge’s final ruling in a given case.” Administrator v. Langford, NTSB Order No. EA-5673 (2013):

The NTSB found the ALJ failed to make the “specific findings” and “clear credibility determinations” required by NTSB precedent. It accordingly remanded the case to the ALJ to expand the findings and declined to review the case until he did so.

The case may be read at http://bit.ly/2bOT1qc (link to pdf)

Posted in Aviation

“Inadvertent” in the ASRS/NASA Reporting Rules is just “Plain Vanilla” English

As most pilots know, the FAA and NASA have a joint program to enhance aviation safety. The Aviation Safety Reporting System asks pilots and other users of the air traffic system to voluntarily report safety issues. In exchange, the FAA gives the reporter a number of benefits, a major one of which is partial immunity from violations. If the FAA brings a successful enforcement action against a pilot for violating a federal aviation regulation (FAR), the penalty associated with the violation (typically pilot certificate suspension) is waived when certain conditions exist. One of those conditions is that the violation was “inadvertent.”

On August 4, 2016, the US Court of Appeals for the Fifth Circuit partially reversed an NTSB decision upholding certificate suspension in a case involving a pilot who flew in RVSM airspace without proper authorization. The court agreed there was a violation but reversed the NTSB’s refusal to waive the suspension for filing an ASRS report. Unlike the FAA and the NTSB, the court found the pilot’s actions to be inadvertent:

“Inadvertent” is neither a technical legal term nor a FAA term of art. Rather, it is a “plain vanilla” English adjective and must be interpreted here as such.

In defining the “plain vanilla” word, “inadvertent,” the court looked at English language dictionaries as well as some legal sources. “Unintentional,” “accidental,” “not duly attentive,” ““an accidental oversight; a result of carelessness” are the terms it found. Applying those definitions, the Boeta court found the pilot’s actions to be inadvertent and directed the NTSB to waive the pilot’s 60-day certificate suspension.

More Detail

The case, Boeta v. FAA (5th Cir. 2016), presents a somewhat intricate set of facts. It involves the complexities of so-called “dry lease” arrangements, in which “operational control” of an aircraft is transferred among businesses as a way of splitting the costs of ownership, usually among noncommercial operators, although this case also involves a commercial operator. It is helpful to have a basic understanding of the difference between noncommercial FAR “Part 91” operations and commercial “Part 135” operations. It requires some familiarity with the concept of “Reduced Vertical Separation Minimums” (RVSM), which permits Air Traffic Control to reduce the amount of space separating aircraft for specially-equipped aircraft with specially-trained crews. Important to understanding the case is that authority to fly RVSM is generally documented in one of two ways. For Part 91 noncommercial operators, it is an FAA “Letter of Authorization” (LOA).  For a Part 135 operator, the authorization is typically included in the company’s FAA-approved “Operations Specifications” (OpSpecs).

To liberally summarize, here are the main players. Capital Aerospace was a Part 91 (noncommercial) operator that provided flight services for a related company, Redi-Carpet. USAC Airways was a Part 135 commercial operator which dry-leased the airplane, a BeechJet 400, for commercial purposes.  The airplane was RVSM approved under USAC’s OpSpecs; Capital did not have a separate RVSM LOA. Boeta was a RVSM trained pilot who worked for all three companies. Under the arrangement with USAC, flights were conducted under USAC’s operating certificate, including its RVSM authorization. All was properly done.

Confused? Good. Then you can easily imagine Boeta’s predicament when no one bothered to tell him the relationship with USAC had ended and he was only flying for Capital! Which, you will recall, did not have any RVSM authorization.

So, one day after the end of the relationship with USAC,, Boeta is happily flying the BeechJet under RSVM and lands at Palm Beach, Florida He is met with an FAA ramp check (which may have been instigated by a complaint from an unhappy USAC). This, of course leads to the discovery that the flight was not RSVM-authorized and this enforcement action. Being a wise pilot, Mr. Boeta filed a timely ASRS report.

The FAA certificate action, upheld by the NTSB, charged Boeta with operating RSVM without authority (FAR 91.180(a) and Part 91, Appendix G, Section 4). His pilot certificate was suspended for 60 days. Waiver of the suspension under the ASRS rule was refused, the NTSB agreeing with the FAA that the violation was not “inadvertent” because Boeta didn’t check on the current status of the RSVM authorization himself immediately before the flight. The appeal to the Fifth Circuit Court of Appeals followed. The Court of Appeals agreed with the FAA that the violation took place – Boeta in fact flew RVSM without authorization. The court also rejected Boeta’s defense that he reasonably relied on the previously existing authorization. But when it came down to the applicability of the ASRS waiver, the court had a very different view.

With quotations and examples from another case, the Boeta court said:

an inadvertent act is one that is not the result of a purposeful choice.

***

[A] person who turns suddenly and spills a cup of coffee has acted inadvertently… [A] person who places a coffee cup precariously on the edge of a table has engaged in purposeful behavior… [T] he conduct is not inadvertent because it involves a purposeful choice between two acts—placing the cup on the edge of the table or balancing it so that it will not spill. Likewise, a pilot acts inadvertently when he flies at an incorrect altitude because he misreads his instruments. But his actions are not inadvertent if he engages in the same conduct because he chooses not to consult his instruments to verify his altitude.

Applying these principles, the court decided Boeta’s RSVM flight was inadvertent for purposes of the sanction under the ASRS rules. First, the Fifth Circuit found no regulation requiring a pilot to monitor and confirm the RVSM eligibility of an aircraft. Second, the Court, applying a general principle, found it was reasonable for Boeta to presume “an existing condition [RVSM approval] continues in existence, unless there is some indication there has been a change [no one told him]”. Ultimately, though, the Court applied a reality check:

But candidly, it defies common sense to conclude that Boeta was anything but inadvertent when he, as a pilot capable of flying in restricted airspace, flew an airplane capable of flying in restricted airspace, without checking the paperwork evidencing that the operator (not the pilot!) of that craft was still authorized to commission such flights (emphasis and exclamation in the original).

Takeaway

It is difficult to get a clear takeaway from the case. As the Boeta court itself points out, whether an act or omission (like failing to check on the RVSM status) “is ‘inadvertent’ depends on the exact nature of the act or omission in question and the discrete facts and details of the situation…” Like many other cases, this one is very fact-intensive.

But we do know that at least one federal circuit Court of Appeals takes the position the “inadvertent” is not a special regulatory term with an FAA definition but just plain old every day, or “plain vanilla,” English.

The decision of the Court of Appeals may be viewed at http://bit.ly/2aOdYRF. The NTSB decision it partially reversed is at http://bit.ly/2aCrhbh

 

Posted in Aviation

Landing on runway closed for construction is careless and reckless

The pilot in FAA v Lane landed at Louisiana Regional Airport (L38) despite a NOTAM the runway was closed for construction, big yellow X’s over the numbers and barricades on the runway. The FAA ordered a 60-day pilot certificate suspension for careless and reckless operation under FAR 91.13(a). The pilot appealed to the NTSB, which acts as a court to review FAA certificate orders.

The pilot (representing himself) argued the closure of a runway does not preclude landing and he did not violate the NOTAM: “I challenge the Administrator to show me … where … this NOTAM says no landing on this runway.” He also argued he was at least 1,100 feet from any worker so no one was really in danger.

The NTSB disagreed: “operating on a closed runway is careless or reckless, regardless of whether the landing harmed individuals or property.” The potential for harm is all that is required. In addition, ATC standard “procedures used to inform a pilot that landing on a closed runway is at the pilot’s own risk are instructions on how to deal with an insistent pilot, and not any form of de facto clearance.”

The pilot’s also argued that ATC procedures advising pilots that landing on a closed runway “is at your own risk” meant he was permitted to land. Not so, said the NTSB: “ATC procedures

The case may be read in full at http://bit.ly/29UYBq5

Posted in Aviation

FAA: Digitally-Signed Aircraft Registration Documents

The FAA today announced a new policy on accepting digitally-signed aircraft registration documents. The notice, appearing in the 4/20/2016 Federal Register (http://1.usa.gov/1WdQXsx) states, effective May 1, 2016 the FAA Civil Aircraft Registry “will accept printed duplicates of electronic documents that display legible, digital signatures that are filed in compliance with Parts 47 and 49 of the FAA Regulations.”

The policy encompasses all common aircraft registration documents and security instruments. It includes the aircraft registration form itself, which has until now been a multi-part carbonless form. The form will be available as a PFD, although the policy statement notably does not say the PDF version will be accepted with pen-and-ink signatures. Hopefully the PDF version instructions will clarify that.

While “will accept printed” indicates the absence of a full-blown online document filing system, it is a beginning and the description of acceptable “digital signatures” appears broad enough to encompass most commercially-recognized digital signature vendors such as DocuSign, Adobe EchoSign, Vasco eSign Live and others.

Posted in Aviation, Banking

FAA Issues New Guidance on Enforcement

Many pilots and lawyers representing pilots have been concerned with what they see as an over-emphasis on punishment as opposed to correction by the FAA. A number of us practicing in the field have begun to notice a relaxation of this focus in the past year or so.  On June 26, 2015, the FAA published Order 8000.373, an order setting out the Federal Aviation Administration Compliance Philosophy, described as “the overarching guidance for implementing the FAA’s strategic safety oversight approach to meet the challenges of today’s rapidly changing aerospace system.”

Perhaps the heart of the 2-page guidance is a recognition that, while some pilot deviations are intentional, many are unintentional and would be more effectively corrected by actions short of formal enforcement.

The FAA recognizes that some deviations arise from factors such as flawed procedures, simple mistakes, lack of understanding, or diminished skills. The Agency believes that deviations of this nature can most effectively be corrected through root cause analysis and training, education or other appropriate improvements to procedures or training programs for regulated entities, which are documented and verified to ensure effectiveness. However, reluctance or failure in adopting these methods to remediate deviations or instances of repeated deviations might result in enforcement.

It remains to be seen what effect this will have on the overall enforcement culture of FSDOs (Flight Standards District Offices) and FAA Inspectors. But, from the little I’ve seen in the past year, this publication is, at least in part, an announcement of a change that is already in the works.

Posted in Aviation

DC Circuit Reverses NTSB on Application of Stale Complaint Rule.

In a factually interesting case involving lack of credentials and falsification of logbook entries, on June 30, 2015, the DC Circuit Court of Appeals reversed an NTSB order dismissing the FAA’s emergency revocation of a pilot certificate on “stale complaint” grounds. The Court of Appeals held, among other things, that the stale complaint rule is inapplicable in cases where the FAA’s complaint alleges a lack of pilot qualification and that the NTSB’s own decisional history shows logbook falsification is an offense that “implicates a lack of qualification warranting revocation.” The case, Huerta (FAA) v. Ducote, may be viewed here http://tinyurl.com/p8hrn3q

In Ducote, the pilot was not rated to act as a co-pilot on an international flight to the Bahamas. He did so and logged the flight in his personal logbook. When asked to produce his logbook by the FAA, Jody Ducote deleted the flight and replaced it with a domestic flight on a different day that did not actually take place. The emergency order revoking Ducto’s certificate, alleging lack of pilot qualification due to logbook falsification, was issued two years after the event.

Although the Administrative Law Judge hearing the case upheld the FAA, the NTSB reversed him. It said the FAA must specifically show and present evidence that air safety was compromised in order to overcome the stale complaint objection. The Court of Appeals reversed, holding that the stale complaint rule and the NTSB’s own prior decisions did not warrant that result in two primary respects.

First, the stale complaint rule says:

In those cases where the complaint alleges lack of qualification of the respondent, the law judge shall first determine whether an issue of lack of qualification would be presented if all of the allegations, stale and timely, are assumed to be true. If so, the law judge shall deny the respondent’s motion.

In short, although other bases for overcoming a stale complaint objection require some evidentiary showing, the qualification basis only requires the complaint show it.

Second, the prior decisions of the NTSB show:

One offense that “the Board has repeatedly held implicates a lack of qualification warranting revocation * * * [is] falsifying a logbook.”

The Court also noted that its decision was based on the current text of the stale complaint rule:

To be clear, the question in this case is not whether the Board could demand a heightened pleading or evidentiary showing from the Administrator to avoid the stale-complaint bar. All we decide is that the Board may not impose such a heightened showing in this case given the regulation’s plain text, past Board precedent, and the detailed content of the underlying complaint.

[An additional issues dealing with the Court of Appeals’ jurisdiction to hear the case, is not discussed in this note]

Posted in Aviation

August 13, 2014 FAA Opinion: No Go on Website Matching Private Pilots with Passengers

In 2011, the FAA Chief Counsel’s office issued the Haberkorn opinion letter, generally expanding a private pilot’s ability to share expenses with passengers without running afoul of the rules against engaging in commercial activities. For decades, the exception for shared expenses has required there be a “joint venture with a common purpose for the flight.”  In the Haberkorn Letter, the FAA expanded the notion of “common purpose” to only require a common destination. In other words, if Mr. Haberkorn was going to a wedding and a friend was going to the same area to attend a baseball game, that was a sufficient common purpose to allow Haberkorn to take his friends and share the out-of-pocket cost of the flight with them.

Haberkorn went a bit further though; he asked whether he could post his planned wedding flight on FaceBook. The Chief Counsel’s response to that was was a  bit less clear:

While you offer no additional details about the nature of the post or how large your Facebook audience is, the FAA cautions that this type of advertising may be construed as holding out. … [E]ven if you limit the transportation services to a class or segment of the general public (such as Facebook users), it may still be considered holding out if it expresses a willingness to provide transportation for all within this class or segment to the extent of its capacity. *** Finally, the FAA cannot determine or approve in advance what type of advertising or soliciting are considered a holding out of air transportation service without all available facts concerning a specific situation.

In other words, “maybe.”

Perhaps the next step was to be expected. How far one could go in terms of letting people know you were available without it being considered a “holding out of transportation services” was bound to be tested. The Chief Counsel’s August 13, 2014 letter to Attorney Rebecca MacPherson (a former FAA Assistant Chief Counsel and the author of many FAA opinion letters including the Haberkorn Letter) answers much of the question.

The question in the MacPherson Letter involved a proposed business model (AirPooler.com) in which pilots planning a trip somewhere would post; others planning a trip to the same location would be able to match their plans with the pilot. The questioner viewed it simply allowing a private pilot to take advantage of permissible sharing of expenses with someone having the same destination. The FAA Chief Counsel’s office, however, did not view it that way, holding that the manner in which flights were posted amounted to the equivalent of advertising charter flights by holding out availability for common carriage:

Accordingly, we conclude that, with regard to pilots using the AirPooler website, all four elements of common carriage are present. [“(1) a holding out of a willingness to (2) transport persons or property (3) from place to place (4) for compensation or hire”] By posting specific flights to the AirPooler website, a pilot participating in the AirPooler service would be holding out to transport persons or property from place to place for compensation or hire. Although the pilots participating in the AirPooler website have chosen the destination, they are holding out to the public to transport passengers for compensation in the form of a reduction of the operating expenses they would have paid for the flight.

The new MacPherson Letter may be viewed here. The earlier Haberkorn Letter here.

Postscript: The FAA Chief Counsel issued a second opinion on the same subject the next day: the 2014 Winton Opinion, available here.

Posted in Aviation

Loan Officer Error in Describing Lien Position Not Breach of Fiduciary Duty

In a June 12, 2014 decision, the North Carolina Supreme Court held a loan officer’s erroneous statements about the priority of another lien (1) did not give rise to a breach of fiduciary duty claim, and (2) did not give rise to a negligent misrepresentation claim unless the borrowers shows they made a reasonable inquiry into the statements.

In doing so, the Supreme Court rejected borrower arguments that

the traditional  arm’s  length  view  of  borrower-lender  relationships  does  not  comport  with  the  modern loan origination  and  securitization  process  in which  lenders exercise total  control over the process and borrowers put complete trust in the lenders. *** this  “new  reality”  requires  a  corresponding  evolution  in  the  law  whereby  lenders  should  be  considered  fiduciaries.

 The borrowers in Dallaire v. Bank of America (link to PDF), had filed Chapter 7 bankruptcy. They had 1st and 2nd mortgages on their residence held by BoA and a substantial 3rd  held by BB&T. Although the Dallaires were discharged from personal liability on the loans, the mortgages remained liens on their residence.

In a post-discharge refinance transaction, the loan officer, himself relying on erroneous information and believing the BB&T 3rd was extinguished by the bankruptcy, told the Dallaires the BB&T loan would not be a problem for a new 1st mortgage loan by BoA. The loan closed, paying off only the existing BoA liens, without the error being corrected.

The error was discovered three years later when a friend asked about purchasing the Dallaires’ home. A routine title search showed the BB&T mortgage, now in 1st priority position. In a suit brought by the Dallaires due to diminution in the marketability of their residence by the existence of the BB&T 1st priority lien, the trial court granted BoA summary judgment. The judgment was reversed by the Court of Appeals.

In reversing the Court of Appeals and reinstating the summary judgment order, the Supreme Court rejected the “new reality” argument and reaffirmed existing doctrine that “the home  loan  process  is  regarded  as  an  arm’s  length  transaction  between  parties  of  equal bargaining power  and,  absent exceptional circumstances, will not give rise to a  fiduciary  duty.” In addition, a claim for negligent misrepresentation requires “reasonable inquiry into the validity of those statements” or at least a showing an inability to make such an inquiry. According to the NC Supreme Court, no facts were presented by the borrowers in opposing the summary judgment motion.

Posted in Banking, Bankruptcy

Sophisticated Guarantor May Waive Lender’s Good Faith Foreclosure Bid Obligations

Colorado’s C.R.S. §38-38-106(6) requires a bank to bid at least its good faith estimate of the property’s fair market value at foreclosure (if not bidding the full amount due). The purpose is to protect borrowers and guarantors from excessive deficiency claims. Although failure to bid the good faith FMV does not invalidate the foreclosure, it does provide at least a partial defense to a deficiency action; the borrower or guarantor may, if successful, at least limit the bank’s deficiency recovery.

On June 5, 2014, in Armed Forces Bank, N.A. v. Hicks, No. 13CA0875, the Colorado Court of Appeals held that a bank’s good faith foreclosure bid obligation may be waived by a guarantor as part of a guaranty agreement. Furthermore, typical guaranty boilerplate such as waivers of “anti-deficiency law” defenses and waivers of “any defenses given to guarantors at law or in equity other than actual payment and performance” are sufficient to accomplish the task.

In so holding, the Court of Appeals rejected arguments by the guarantors that such a waiver would be against public policy, at least where elements of overreaching or unfair bargaining position do not exist:

Public policy may override contract provisions when one party is in an unfairly superior bargaining position or overreaches in bargaining for a fees provision, such that its enforcement would be unconscionable. The [guarantors] have not suggested an absence of equal bargaining power or overreaching by the lender rendering the agreement unconscionable at the time it was made

Although the holding specifically deals with guarantors, there appears to be no reason why it would not also apply to borrowers. However, the holding may not be as broad as it seems. In rejecting the public policy argument based on a lack of traditional unconscionability factors and the experience and sophistication of the guarantors, Armed Forces Bank probably does not apply to consumer transactions and appears to leave a fairly wide door open for a borrower or guarantor to develop a viable defense. It does, however, provide lenders, most of which make their bids in good faith based on recent independent appraisals, a extra hurdle for obligors to overcome.

Posted in Banking