Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 13

FACTS Prior to 1968, Dallas and Fort Worth operated independent and competing airports, one of which was Dallas's Love Field. The Department of Transportation's (DOT's) predecessor agency, the Civil Aeronautics Board (CAB), found that the competition between Dallas's and Fort Worth's airports was harmful and in 1964 ordered the cities to build a jointly operated airport that would serve as the region's primary airport. The cities responded by creating the Dallas-Fort Worth (DFW) Board and by jointly adopting the 1968 Regional Airport Concurrent Bond Ordinance (the ''Ordinance''). The Ordinance authorized the issuance of bonds to finance the DFW Airport and contained the cities' agreement to phase out operations at the old airports and to transfer these activities to the DFW Regional Airport. The eight CABcertified air carriers who were using the Dallas and Fort Worth airports first signed ''letter agreements'' and then later signed ''use agreements'' with the DFW Board, agreeing to move their air services to DFW as specified in the Ordinance. Southwest Airlines, which was solely running intrastate flights from Love Field and thus was exempt from CAB certification and pressure, refused to move to DFW and did not sign a use agreement. Litigation ensued over efforts to force Southwest from Love Field, terminating with a decision by the Fifth Circuit Court of Appeals that Southwest Airlines Co. has a federally declared right to the continued use of and access to Love Field, so long as Love Field remains open.
Shortly after Congress deregulated the airline industry in 1978, Southwest applied for permission to provide interstate service between Love Field and New Orleans. The CAB granted the application, concluding that it lacked power to deny it. Congress responded by enacting the Wright Amendment, which generally bans interstate service from Love Field. However, it and the 1997 Shelby Amendments provide certain exemptions from this ban, including the following: (1) the commuter airline exemption, which allows interstate ''air transportation provided by commuter airlines operating aircraft with a passenger capacity of 56 passengers or less''; and (2) the contiguous state exemption, which allows flights to and from Louisiana, Arkansas, Oklahoma, New Mexico, Kansas, Alabama, and Mississippi if the flights do not ''provide any through service or ticketing with another air carrier'' and do not ''offer for sale transportation to or from … any point which is outside any such State.''
The airlines began offering additional flights from and to Love Field. Lawsuits to block the proposed additional service from Love Field were brought in state and federal court. At the urging of several of the parties, and while both the federal and state actions were pending, DOT initiated an interpretative proceeding and ultimately issued a ''Declaratory Order'' ruling that included the following provisions: (1) services at Love Field authorized by federal law may not be restricted by the cities of Dallas and Fort Worth; (2) the Wright and Shelby Amendments preempt the ability of the City of Dallas to limit the type of airline service operated at Love Field; (3) the commuter airline exemption overrides any agreement between the Cities of Dallas and Fort Worth; and (4) the Dallas-Fort Worth International Airport Board may not enforce any contract provision that allegedly bars an airline from operating interstate airline service at another airport in the DFW metropolitan area. In an accompanying ''Procedural Order,'' DOT rejected various procedural objections raised by the parties. DOT subsequently reaffirmed its rulings on reconsideration. Several of the parties appealed challenging DOT's declaratory order on procedural grounds that DOT violated the Administrative Procedure Act (APA).
DECISION DOT's orders affirmed.
OPINION Garza, J. DOT issued its declaratory order after conducting an informal adjudication, pursuant to its authority under § 554(e) to ''issue a declaratory ruling to terminate a controversy or remove uncertainty.'' [Citations.] Several parties object to DOT's failure to adhere to the APA's notice requirements for formal adjudications. However, in the absence of a statute requiring an agency to conduct its adjudication ''on the record after opportunity for agency hearing,'' [citation], an agency can define its own procedures for conducting an informal adjudication. [Citation.]
While the APA does not expressly require notice in informal adjudications, courts have inferred a requirement that there be ''some sort of procedures for notice [and] comment *** as a necessary means of carrying out our responsibility for a thorough and searching review [of agency action].'' [Citation.] Here, DOT issued an order in which it specified the legal issues on which it would rule, allowed the parties to submit comments on these issues, and extended the comment period at the request of several parties. It then ruled on precisely the issues that it identified. We find that DOT's actions satisfied the minimum procedural notice requirements. [Citation.]
Fort Worth contends that DOT failed to comply with § 554(b) by neglecting to notify parties that DOT would also be considering a factual issue: the effect of increased service at Love Field on DFW Airport. This argument fails for two reasons. First, as noted, the formal notice requirement of § 554(b) does not apply to an informal adjudication. Second, the parties were effectively on notice of this issue since it was one that they could reasonably expect to arise given the issues of which DOT gave notice. [Citation.] The fact that Dallas, Continental Express, and Legend all submitted factual evidence to DOT should also have put Fort Worth on notice that it could submit its own factual evidence.
We also note the absence of anything in the record to indicate that Fort Worth possesses any information bearing on the impact of increased service at Love Field. Fort Worth has had three opportunities to present or identify such evidence-during the comment period, in its motion for reconsideration, and in its brief on appeal-but has not demonstrated that it possesses relevant factual information not considered by DOT. This continued failure to identify the evidence it would have submitted indicates that Fort Worth was not prejudiced by any inadequacy in DOT's notice. [Citations.]
We also reject the DFW Board's argument that DOT's order amounts to a substantive rule subject to the notice and comment provision of § 553. Agencies have discretion to choose between adjudication and rulemaking as a means of setting policy. [Citation.] In determining whether an agency action constituted adjudication or rulemaking, we look to the product of the agency action. We also accord significant deference to an agency's characterization of its own action. [Citation.] Since the APA defines ''adjudication'' as the ''agency process for formulating an order,'' 5 U.S.C. § 551(7), and DOT classifies its ruling as a declaratory order, we find that the agency engaged in adjudication rather than rulemaking. Furthermore, because DOT's order interpreted the rights of a small number of parties properly before it, DOT did not abuse its discretion by acting through an adjudicatory proceeding. [Citation.]
INTERPRETATION While the APA does not expressly require notice in informal adjudications, courts have inferred there must be some procedures for notice and comment.
CRITICAL THINKING QUESTION Why is it so important that administrative agencies provide prior notice of proposed rules and adjudications?