AIR EXCURSIONS LLC v. YELLENAIR EXCURSIONS LLC v. YELLEN
MEMORANDUM OPINION
COVID-19 created challenges for many businesses. In response, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Act provided billions of dollars for various industries, including air carriers. Two further Congressional acts provided even more. Corvus Airlines was one of the beneficiaries. But before the Department of the Treasury could disburse the money to Corvus, the airline filed for bankruptcy. A new company, FLOAT Shuttle, bought some of Corvus‘s assets, including the right to its federal relief payments. FLOAT then began flying routes in Alaska formerly serviced by Corvus.
Plaintiff Air Excursions had planned to serve those routes, too, but it claims FLOAT impeded its entry into the market by charging below-market fares enabled by the federal subsidies. It sues to force the Treasury to claw back those payments as contrary to the
I.
Congress passed the CARES Act at the beginning of the pandemic. See First Am. Compl. (Compl.) ¶ 8, ECF No. 13. The Act provided $25 billion for air carriers to “exclusively be used for the continuation of payment of employee wages, salaries, and benefits.” Id. (quoting
Financial assistance provided to an air carrier or contractor . . . shall be in such form, on such terms and conditions (including requirements for audits and the clawback of any financial assistance provided upon failure by a passenger air carrier, cargo air carrier, or contractor to honor [the required assurances]), as the Secretary determines appropriate.
At the end of 2020, Congress passed another relief package. The Consolidated Appropriations Act of 2021 (CAA) authorized $15 billion in payroll support for passenger air carriers. See
Corvus was one of many air carriers to apply for PSP payments.1 See Compl. ¶¶ 12-14. Only two days after it applied for these payments, it filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Id. ¶ 15. While the bankruptcy proceedings were pending, the Treasury sent Corvus a PSP Agreement to execute. Id. ¶ 19. Corvus filed an emergency motion seeking permission to enter into the PSP Agreement. Id. ¶ 20. The bankruptcy court granted the motion. Id. ¶ 25.
The court then approved a Chapter 11 liquidation plan. Id. ¶ 27. Rather than reorganize to continue operations, Corvus opted to sell its assets and cease flying. Id. ¶ 28. FLOAT bought some of Corvus‘s assets. Id. ¶ 29. Along with buying several aircraft and all of Corvus‘s capital stock, FLOAT bought “all right, title, and interest of the Seller in and to any and all federal loans, grants, subsidies, or other forms of funding . . . including, without limitation, to monies or rights to monies pursuant to the [CARES Act].”2 Id. ¶ 32. In approving the Asset Purchase Agreement governing the sale, the bankruptcy court wrote that the “[b]uyer shall not be deemed or considered a successor to the Debtors or the Debtors’ estates by reason of any theory of law or equity.” Sale Order ¶ 32, ECF No. 13-1.
In the summer of 2020, the Treasury disbursed $10,297,313 to New Corvus, although
The Agreement defined “Recipient” as the “signatory entity” and its “successors” and “assigns.” Id. ¶ 22. The Recipient could not assign the PSP funds to another entity without the Treasury‘s express written permission. Id. ¶ 23. No written permission appears in the record. Id. ¶ 36. Thus, says Air Excursions, the funds had to go to Old Corvus or its successor. Because the bankruptcy court found that the buyer was not a “successor” to Old Corvus, FLOAT was not entitled to the funds as a successor. Id. ¶¶ 38–39. The only conclusion, Air Excursions maintains, is that FLOAT received the funds by mistake.
FLOAT purportedly compounded this error when it applied for PSP funds under the CAA and claimed it was the same entity that applied for PSP funds under the CARES Act. Id. ¶ 42. The Treasury gave FLOAT $10,478,223 under the CAA. Id. When Congress passed the ARP, FLOAT sought PSP funds under that program, too. Id. ¶ 43. The Treasury based FLOAT‘s eligibility for those funds on its eligibility for the CAA funds. Id. It gave FLOAT $9,773,038 under the ARP. Id.
FLOAT began operating in the Anchorage-Southwest Alaska passenger air transport market in the fall of 2020 and charged below-market fares. Id. ¶¶ 46–47. Air Excursions planned to operate in this same market and has been accepting reservations for several routes. Id. ¶ 52. It claims that FLOAT‘s below-market fares, made possible by the PSP payments, are anticompetitive and impede its ability to enter the market. Id.
It also claims that it approached FLOAT about subleasing terminals at Ted Stevens Anchorage International Airport (ANC). Id. ¶ 48. FLOAT had leased all the commuter aircraft gates at ANC, although Air Excursions alleges FLOAT was using only half of them. Id. Because FLOAT “refused to negotiate in good faith,” the parties did not reach a sublease agreement and Air Excursions lost a business opportunity. Id. ¶¶ 48–49.
Seeking to halt FLOAT‘s allegedly anticompetitive conduct, Air Excursions sued. It seeks a declaratory judgment that the Treasury violated the APA by acting arbitrarily and capriciously when it disbursed funds to an ineligible recipient, FLOAT, in violation of the PSP statutes and the three PSP Agreements—one for each disbursement. Compl. at 16.4 It also seeks injunctive relief directing the Treasury to claw back the payments and refrain from any more disbursements to FLOAT. Id. The Treasury moves to dismiss, arguing that Air Excursions lacks standing and fails to state a claim. See Mot. to Dismiss, ECF No. 17. The motion is now ripe.5
II.
To survive a motion to dismiss under Rule 12(b)(6), “a complaint must
The Court need not, however, credit “a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (cleaned up). The Court considers “only the facts alleged in the complaint, any documents either attached to or incorporated in the complaint[,] and matters of which [it] may take judicial notice.” Hurd, 864 F.3d at 678 (cleaned up). Evaluating a motion to dismiss requires a “reviewing court to draw on its judicial experience and common sense.” Freedom Watch, Inc. v. Google, Inc., 368 F. Supp. 3d 30, 36 (D.D.C. 2019), aff‘d, 816 F. App‘x 497 (D.C. Cir. 2020).
Under the APA, a court must “hold unlawful and set aside agency action” that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
III.
A.
To establish standing, Air Excursions must allege: (1) that it has suffered an injury in fact that is both concrete and particularized and actual or imminent; (2) that the injury is fairly traceable to the challenged action of the Treasury; and (3) that a favorable decision is likely to redress the identified harm. See Sabre, Inc. v. DOT, 429 F.3d 1113, 1117 (D.C. Cir. 2005). Because Air Excursions alleges so-called competitor standing, it must show “that it is a direct and current competitor whose bottom line may be adversely affected by the challenged government action.” KERM, Inc. v. F.C.C., 353 F.3d 57, 60 (D.C. Cir. 2004) (cleaned up). Finally, Air Excursions must “demonstrate that the regulatory or statutory requirements it seeks to enforce were intended to protect it against such competitive injury.” Gull Airborne Instrus., Inc. v. Weinberger, 694 F.2d 838, 842 (D.C. Cir. 1982).
Start with injury. Under the competitor standing doctrine, “economic actors suffer an injury in fact when agencies lift regulatory restrictions on their competitors or otherwise allow increased competition against them.” Sherley v. Sebelius, 610 F.3d 69, 72 (D.C. Cir. 2010). Air Excursions alleges the Treasury allowed increased competition against it by improperly distributing funds to Corvus. See Compl. ¶¶ 37–44. These payments enabled Corvus to charge below-market fares starting in November 2020 and continuing to the present. Id. ¶¶ 46–47. More, the funds empowered Corvus to rebuff Air Excursion‘s attempt to sub-lease gate space at ANC. Id. ¶¶ 48–50. The lack of gate space was a “significant factor” in Air
The Treasury responds that even if the payments allowed Corvus to charge below-market fares, Air Excursions is still poised to enter the market. See Mot. to Dismiss at 20. So Air Excursions suffered no injury. See id. And Air Excursion‘s argument about lack of gate space fails to confer standing, says the Treasury, because by its own admission it had not engaged in more than “an initial in-person meeting” for the lost business opportunity. Id. at 19. The loss of that opportunity is thus “entirely conjectural.” Id. at 20. Even if that opportunity could confer standing, the Treasury argues it can only do so for the first PSP payment because the second and third PSP payments occurred after FLOAT refused to sub-lease gate space. Id.
The Treasury overstates Air Excursions’ burden. Although Air Excursions must be a “direct and current competitor whose bottom line may be adversely affected by the challenged government action,” PSSI Glob. Servs., L.L.C. v. Fed. Commc‘ns Comm‘n, 983 F.3d 1, 11 (D.C. Cir. 2020) (cleaned up), the Circuit interprets this standard generously. For example, in Mendoza v. Perez, 754 F.3d 1002 (D.C. Cir. 2014), a group of herders challenged a Department of Labor regulation governing their working conditions and wages. Id. at 1007. They argued Labor‘s regulation ensured a stream of foreign workers and that the availability of foreign workers encouraged employers to offer substandard conditions and wages. Id. Labor challenged the herders’ competitive standing because they had not worked in the herding industry for several years. Id. The district court held the herders lacked standing. Id. at 1012.
But the Circuit reversed because the district court had taken “too narrow a view of what qualifies as participating in the herding labor market.” Id. The Circuit found it sufficient that the herders “monitored the labor market for acceptable positions” and that an employer had offered at least one of the herders a job that he had declined because of the wages and conditions. Id. at 1013–14. This “informal involvement” in the labor market was adequate because the herders “retained ties to the industry” and it was “reasonable for them to conclude that formally applying for jobs would be futile when they would not accept a job offering the prevailing wage and working conditions.” Id. at 1014.
Air Excursions’ involvement in the Alaska air-transportation market exceeds the herders’ involvement in the herding market. Air Excursions announced in the summer of 2020 it intended to service routes Old Corvus had served. See Compl. ¶ 45. In March 2021, Air Excursions tried to obtain gate space at ANC. Id. ¶ 48. It has been accepting charter reservations and intends to begin service this year. See Pl.‘s Opp‘n to Mot. to Dismiss at 14 (Pl.‘s Opp‘n), ECF No. 20.
True, Air Excursions is moving ahead with its plans to enter the market despite FLOAT receiving the PSP payments. But Air Excursions could reasonably seek to enter the market even if FLOAT is charging below-market fares. Perhaps Air Excursions hopes to build brand awareness. Or perhaps the routes are still profitable but not as profitable as they would be if FLOAT were not charging below-market fares. Either way, the Treasury‘s payments injured it.6
Excursions alleged FLOAT offers fares at subsidized prices because of the Treasury‘s payments. Removing those subsidies would force FLOAT to charge non-subsidized rates.8
Finally, Air Excursions must show that “the regulatory or statutory requirements it seeks to enforce were intended to protect it against such competitive injury.” Gull Airborne Instrus., 694 F.2d at 842. The Treasury argues that Congress intended the PSP payments to minimize airline industry layoffs because of the pandemic, not regulate competition among air carriers. See Mot. to Dismiss at 22. Thus, it contends that Air Excursions cannot maintain competitor standing under the three statutes at issue.
But a layoff is a layoff no matter if it occurs because of reduced flying during a pandemic or because the Treasury improperly subsidizes a competitor. If Congress‘s goal in passing the CARES Act, the CAA, and the ARP was to prevent layoffs, it could have hardly desired these very statutes to cause layoffs. And yet that is the very risk Air Excursions faces if FLOAT continues to offer subsidized, below-market fares. Thus, Air Excursions seeks to enforce a statutory requirement intended to protect against the type of injury it faces.
None of this is to suggest the Treasury‘s standing arguments are frivolous.
The Court now proceeds to the merits.
B.
The Treasury argues that the Court should dismiss the Complaint because Congress committed the terms of the PSP payments to its discretion and they are therefore unreviewable under the APA.9 See Mot. to Dismiss at 28–34. In the alternative, it argues that Air Excursions fails to state a claim. See id. at 34–37. The Court considers each argument in turn.
1.
The Treasury argues that Congress committed the terms of the payments to its discretion and thus they are not reviewable under the APA. See id. at 28–34. Unreviewable actions committed to agency discretion fall into two categories. The first category includes discretionary administrative actions such as “a decision not to institute enforcement proceedings.” Dep‘t of Com. v. New York, 139 S. Ct. 2551, 2568 (2019). The second category contains actions arising from a statute that “is drawn so that a court would have no meaningful standard against which to judge the agency‘s exercise of discretion.” Heckler v. Chaney, 470 U.S. 821, 830 (1985). The Treasury says both categories require dismissal of Air Excursions’ claims.
Start with the second category—no meaningful standards for review. Recall that the CARES Act says that “[f]inancial assistance provided to an air carrier or contractor under this part shall be in such form, on such terms and conditions (including requirements for audits and the clawback of any financial assistance provided upon failure by a passenger air carrier, cargo air carrier, or contractor to honor the [required assurances]), as the Secretary determines appropriate.”
Air Excursions rebuts the Treasury‘s argument in two ways. First, it relies on Confederated Tribes of Chehalis Reservation v. Mnuchin, 456 F. Supp. 3d 152 (D.D.C. 2020), to argue that although “the Secretary‘s decisions as to how much to disburse [from CARES Act funds] might not be reviewable, his decisions concerning to whom to disburse those funds most certainly is.” Id. at 161; see Pl.‘s Opp‘n at 27. Thus, reasons Air Excursions, the Court can decide whether FLOAT is properly a successor or assignee to Old or New Corvus.
But in Confederated Tribes, the court reviewed a different part of the CARES Act dealing with distributions to “tribal governments.” See Confed. Tribes, 569 F. Supp. 3d at 161. The question was whether for-profit “Alaska Native regional and village corporations” qualified as “tribal governments.” Id. at 155. Congress‘s directive that the Treasury disburse funds only to “tribal governments” gave the court a judicial standard to use in determining whether for-profit corporations were proper recipients. See id. at 160–161. There is no similar standard here—at least, not one that is at issue. The CARES Act does limit the funds at issue to “air carrier[s],” but neither party here contends that FLOAT is not an air carrier.
Second, Air Excursions argues that even if the statute itself fails to provide a standard of review, the Court can use the PSP Agreements to review FLOAT‘s eligibility. See Pl.‘s Opp‘n at 28. It maintains that a government contract can provide “judicially manageable standards’ for reviewing an agency‘s conduct under the APA.” Id. (quoting Vara v. DeVos, No 19-12175, 2020 WL 3489679, at *25 (D. Mass. June 25, 2020)). The PSP Agreements define “Recipient” to include “the Signatory Entity” and its “successors, and assigns.” Id. Thus, the Court may determine whether FLOAT constituted a “Recipient” as defined in the agreement. And because the bankruptcy court stated FLOAT is not a successor, it is not a proper recipient under the Agreement.
But Air Excursions cites no authority for the proposition that a contract alone presents a judicially manageable standard of review for the APA—especially when a non-party to the contract seeks its enforcement. The unpublished, district court case it relies on for this proposition concluded that “contractual language drafted by and binding the agency” together with “statutory and regulatory text, the agency‘s published interpretations . . . [and] its settled course of adjudication” gave the court law to apply. See Vara, 2020 WL 3489679, at *25.
To be sure, courts in this circuit occasionally rely on agency manuals, directives, regulations, and policy guidelines. See, e.g., Aracely v. Nielsen, 319 F. Supp. 3d 110,
That leaves the statute as the only potential judicially manageable standard of review. But the statute grants the Treasury total discretion. Congress charged the Treasury with providing financial assistance on the terms that the Secretary “deems appropriate.”
Now consider the second category of unreviewable actions. This category includes “a decision not to institute enforcement proceedings.” Dep‘t of Com., 139 S. Ct. at 2568. Recall that the CARES Act says that “clawback of any financial assistance” must be on such terms “as the Secretary determines appropriate.”
In sum, neither the statute nor the PSP Agreements provide a judicially manageable standard of review. Even if they did, the statute unambiguously assigns decisions about clawback proceedings to the Treasury. Air Excursions thus fails to state a claim.
2.
Air Excursions fails to state a claim for a second and independent reason. Even granting its arguments that the statutes or the PSP Agreements provide the Court with a standard of review, Air Excursions misconstrues the bankruptcy court‘s Sale Order.
The Treasury makes several arguments on this point. First, it suggests that Air
Reading the Sale Order together with the Asset Purchase Agreement it approved, however, shows that the Treasury has the better interpretation. The Agreement states that the buyer has the rights to the PSP funds. See In re Ravn Air Grp., Inc., No 20-10755 (Bankr. Del.), Asset Purchase Agreement § 7.2(e), ECF No. 492-1.11 Air Excursions acknowledges this. See Compl. ¶ 32. Thus, to read the “successor” language in the Order to mean the buyer does not have the rights to the PSP funds directly contradicts the Agreement that the Order approved.
Air Excursions’ only rejoinder is to focus on New Corvus. Pl.‘s Opp‘n at 31; Compl. ¶ 39. Putting aside the language of the Order, if FLOAT was the true successor to Old Corvus,
Air Excursions says, then New Corvus would not exist. But as Air Excursions acknowledges, FLOAT bought all the capital stock of Old Corvus. See Compl. ¶ 32. New Corvus thus exists as a corporate entity, but with no assets or rights to the PSP payments. It is therefore no surprise that the “actual recipient of the funds was FLOAT.” Id. ¶ 38. That the payments to Old and New Corvus ultimately benefitted FLOAT is exactly what one would expect given the Asset Purchase Agreement.
Second, the Treasury contends that Air Excursions focuses too closely on the word “successors” in the PSP Agreements. See Mot. to Dismiss at 35. The term “Recipient” includes not only “successors” but also “assigns.” Leibenluft Decl. Ex. 2 at 19. So even if FLOAT is not the successor to Old Corvus, it can qualify as an assignee and thus be a proper “Recipient” of the PSP funds. The Treasury notes that the Asset Purchase Agreement anticipates this because it states that the seller and buyer “shall use commercially reasonable efforts to . . . obtain Treasury approval of the assignment to Buyer of the PSP Agreement and disbursement of the PSP funds to Corvus.” Mot. to Dismiss at 35; see also Asset Purchase Agreement § 5.6(e). A separate section of the Agreement makes the approval by the Treasury of the ”assignment to Buyer of the PSP Agreement” a condition precedent of the sale. Id. § 7.2(e) (emphasis added).
Air Excursions counters that the PSP Agreements provide that Corvus “has no right to, and shall not . . . assign this
But the purpose of the anti-assignment provision was to protect the Treasury. And the beneficiary of a condition in a contract may waive a condition in a contract that protects it. See Gatoil (U.S.A.), Inc. v. Wash. Metro. Area Transit Auth., 801 F.2d 451, 455 (D.C. Cir. 1986) (“It is true that . . . the beneficiary of the condition precedent[] had the power to excuse its failure.“); see also 13 Williston on Contracts § 39:24 (4th ed.) (“[I]t is well settled that a contracting party may unilaterally waive a provision of the contract, including, as a general rule, any condition precedent which has been placed in the contract for that party‘s benefit.“). Thus, because the writing requirement existed to protect the Treasury, it could waive that requirement. More, the PSP Agreements themselves stated the Treasury retained the authority to make alterations to the Agreements “in its sole discretion.”12 Leibenluft Decl. Ex. 2 at 30 (first Agreement); id. Ex. 4 at 56 (second Agreement); id. Ex. 6 at 85 (third Agreement).
Air Excursions responds that “[a] court should not infer waiver from ambiguous factors.” Pl.‘s Opp‘n at 34 (quoting Landover Corp. v. Bellevue Masters LLC, 252 F. App‘x 800, 803 (9th Cir. 2007)). But the factors here are not ambiguous. The Treasury knew that Old Corvus had entered bankruptcy proceedings because, before the first disbursement, it executed a Bankruptcy Addendum to Payroll Support Program Agreement setting out new terms for how the PSP
Agreement would operate in bankruptcy. See Leibenluft Decl. Ex. 3. The Bankruptcy Addendum provides the Treasury the sole discretion to withhold payments to Old Corvus if it determines that Old Corvus had not complied with the PSP Agreement or the Addendum. Id. ¶ 6. The Addendum also states that the Treasury could withhold payments if the bankruptcy proceedings failed. Id. ¶ 7(a). So the Treasury expected that Old Corvus would go through with the bankruptcy proceedings and, despite the knowledge that Old Corvus was in bankruptcy, it did not place any additional limitations on its ability to assign the PSP Agreement. More, even knowing now that FLOAT was the beneficiary of the PSP Agreement, it has made no determination that Old Corvus violated any of the PSP Agreements. See Leibenluft Decl. ¶ 13.
Third, one of the Asset Purchase Agreement‘s conditions precedent is that the parties to the Agreement obtain the approval of the Treasury to disburse the PSP funds to the buyer:
Seller and Buyer shall use commercially reasonable efforts to cooperate, assist, and consult with each other through Closing in connection with Buyer‘s efforts to obtain Treasury approval of the assignment to Buyer of the PSP Agreement and disbursement of the PSP Funds to Corvus.
Asset Pur. Ag. § 5.6(e).
Air Excursions acknowledges the sale closed. Compl. ¶ 34. It contends that, after the sale, the Treasury disbursed the funds on the “mistaken belief” that Old Corvus “was purchased at auction due to bankruptcy.” Id. ¶ 35. But it alleges no facts to suggest the Treasury was fooled. Nor does it explain why it makes any difference whether the Treasury believed FLOAT bought Old Corvus as a whole versus FLOAT purchasing its capital stock and right to the PSP payments. Either way, FLOAT would be a successor to Old and New Corvus. Although the Court must draw all reasonable inferences in favor of Air Excursions, there is no reasonable inference consistent with Air Excursions’ version of events that explains the close of the sale. C.f. Raven v. Sajet, 334 F. Supp. 3d 22 (D.D.C. 2018), aff‘d sub nom. Raven v. United States,
No. 18-5346, 2019 WL 2562945 (D.C. Cir. May 17, 2019) (noting that courts must employ judicial experience and common sense when considering whether a complaint fails to state a claim). The more reasonable inference is that the parties obtained the Treasury‘s consent and it chose to waive the writing requirement.
Thus, FLOAT is either the successor or assignee of Old and New Corvus and rightfully benefitted from the PSP payments.
IV.
For all these reasons, the Court will grant the Treasury‘s motion to dismiss. A separate Order will issue.13
Dated: April 12, 2022
TREVOR N. McFADDEN, U.S.D.J.