[00:00:00] Speaker 02:
Our final case on calendar for argument today is Alaska Airlines versus TSA.

[00:00:42] Speaker 04:
Good morning, Your Honors. May I please record Adam Feinberg on behalf of Alaska Airlines and Allegiant Travel Company.

[00:00:47] Speaker 02:
I'm sorry. I didn't hear the last thing you said.

[00:00:51] Speaker 04:
I said on behalf of Alaska Airlines and Allegiant Travel Company, the two petitioners in this case. And I'd like to reserve four minutes for rebuttal.

[00:01:00] UNKNOWN:
All right.

[00:01:01] Speaker 04:
Your Honor, I'd like to start with some of the questions you all asked in the JetBlue case.

[00:01:07] Speaker 04:
And there are some very important points that were raised there. First of all, about the regulation, Judge Nelson, you asked about the passengers getting the funds back. But the regulation is very clear that you don't have to give funds back. That is, you do not have to give a refund to the passengers. The regulation in particular is 1510.5.

[00:01:31] Speaker 04:
9B. It speaks of that situation where there's a change in the itinerary as being subject to a refund. It doesn't say you have to give a refund. And TSA itself interprets that regulation as meaning you only have to give a refund if the customer asks.

[00:01:53] Speaker 03:
Well, that's the March 2020 guidance document.

[00:01:57] Speaker 04:
Is it before that? It is. If you look at ER35, the very last sentence, which is the 2002 guidance, it specifically says if the customer asks, then you have to give a refund.

[00:02:10] Speaker 03:
So that's an interesting question to me because, I mean, is your position – in a way that doesn't really address the question in this case because right now we're trying to decide who gets to hold on to these funds, TSA or – or the airlines, but you would take the position that unless a passenger asks, however we decide that issue, unless the passenger asks, the refund isn't required. I think that's quite clear. Well, you disagree with the 11th Circuit then.

[00:02:41] Speaker 04:
Well, obviously we disagree with the 11th Circuit, and I would like to spend a good amount of time explaining why, but I just wanted to raise that preliminarily, and let's just trace through the logic of what that means. So TSA didn't order the airlines, in this case, to give the money back to the customers. TSA said, we, TSA, get to keep the money. By the way, TSA does not issue refunds ever to customers.

[00:03:07] Speaker 02:
This question came up in our similar argument to... Well, but that's a different point because the intent of the statute and the regulation was for TSA to have the money. And that's my question, is where is there any... expressed intent for the airline to end up with this money. That's my difficulty with your position is that I can't discern any statutory or regulatory intent for the airlines to end up with this money ultimately.

[00:03:38] Speaker 04:
Well, respectfully, Judge Rawlinson, I think the question is slightly different.

[00:03:42] Speaker 02:
The question isn't... Well, that's my question. My question is, where is there any intent...

[00:03:50] Speaker 02:
in the statute or the regulation that this assessed fee is to ultimately end up in the coffers of the airlines?

[00:04:01] Speaker 04:
Well, I don't think the statute or the regulations directly address that.

[00:04:06] Speaker 02:
Right.

[00:04:07] Speaker 04:
But I think there are two points.

[00:04:08] Speaker 02:
First of all— But aren't we supposed to be looking at statutory intent?

[00:04:12] Speaker 04:
I agree with that, Your Honor. And I think that's an important point. But the statutory interpretation question here is very specific. It has nothing to do with airline. It is whether TSA in this situation has expressed statutory authority to keep this money. And remember, it's not giving it back to the customers. This is TSA saying, airlines, you write us a check for all of this money.

[00:04:39] Speaker 04:
And you pay it over to the government and they're going to keep it. And so the only question statutorily is, is there authorization for TSA to do that?

[00:04:47] Speaker 02:
As between TSA and the airlines, which do you think has a greater...

[00:04:54] Speaker 02:
Claim to the money.

[00:04:55] Speaker 04:
I think that's easy. That's the airlines.

[00:04:57] Speaker 00:
But how? Because... I mean, the regs say, this is CFR 1510.11b, security fees collected by the air carriers, quote, are held in trust by that direct carrier for the beneficial interest of the United States in paying the cost of providing civilization security services. Then it goes on to say...

[00:05:20] Speaker 00:
The carrier holds neither legal nor equitable interest in the security services fees, except for the right to retain any accrued interest on the principal amounts collected. So it seems that the regulations at least are explicit that the airlines have absolutely no title right or interest in these funds other than the interest, and also that they cannot charge the government or the passengers any money for fraud.

[00:05:46] Speaker 04:
managing it for processing the funds so how does that mean that between TSA and the airlines that the airlines now have a right to this money well I would agree with everything you said if the passenger actually traveled but because the passenger didn't travel there is no fee and the TSA is not entitled to anything and then the disposition of the money is governed why is the airline entitled to it because that's what their contract with the customer says It explicitly says, in this exact situation, we will refund the money to you in the form of credit, and if you do not use it within a particular amount of time, we, the airline, get to keep it.

[00:06:24] Speaker 00:
You're arguing that by contractual provision, the airlines can defeat the regulations and the statute, which are very clear, the purpose for these funds, which is not a revenue stream for the airlines.

[00:06:40] Speaker 04:
No, Your Honor, that's not our contention. Our contention is that that regulation applies only to an actual fee that is imposed, which is not the case when a passenger doesn't travel. Even the 11th Circuit said if a passenger ends up not traveling, ultimately no fee is owed.

[00:07:02] Speaker 02:
Yeah, but if the fee's already been paid, what do you do with it? That's the rest of the story. Exactly. It's been paid already.

[00:07:10] Speaker 04:
Exactly.

[00:07:11] Speaker 03:
And the 11th Circuit said, in that scenario, it goes to TSA.

[00:07:16] Speaker 04:
Correct. You disagree with that? Yes, and let me explain why. There are sort of three critical errors that I think the 11th Circuit made. First of all, starting with the text of the statute, the linchpin for the 11th Circuit was subsection E1, which says... fees imposed and amounts collected under the section are payable to TSA.

[00:07:38] Speaker 03:
That actually seems pretty clear.

[00:07:40] Speaker 04:
Well, but the 11th Circuit read the word and as an or, so that either fees imposed or amounts collected under the section had to be remitted. But that's not the common understanding of the word and. More importantly- The context here makes very clear that both of those conditions have to be true. Because consider this. Consider something... Or it could be addition.

[00:08:07] Speaker 02:
Both of them trigger the requirement.

[00:08:11] Speaker 04:
Let's look at the rest of the text of the statute.

[00:08:15] Speaker 04:
And consider an amount or something that is a fee imposed but is not yet collected by the airline. Is that payable to TSA? Is that what Congress intended? I think the plain answer to that is no, because if a fee is imposed under subsection A, that's supposed to be remitted by the passenger to the airline under subsection E2.

[00:08:39] Speaker 02:
Only to be collected for the government, though.

[00:08:42] Speaker 04:
Correct, but it shows that subsection E1 has to refer to things that are both fees imposed and amounts collected. Being one or the other is not good enough.

[00:08:54] Speaker 03:
I don't understand how they get you anywhere. Because there's no debate that these fees were imposed and they were collected.

[00:09:01] Speaker 04:
Well, they were not imposed. Even the 11th Circuit says at the end of the day there's no fee if the passenger doesn't travel.

[00:09:07] Speaker 02:
They were imposed. Maybe the passenger didn't travel. But that doesn't negate the fact that the fees were imposed initially.

[00:09:17] Speaker 04:
It does because the statute speaks of a fee being imposed under A1, and that requires there to be a passenger, as even the 11th Circuit said.

[00:09:25] Speaker 00:
I mean, the fees are imposed because you buy the ticket. You're planning to travel, but you don't, and you cancel that. So now there's a refund mechanism. And it seems part of the problem I have with this case is that this whole problem was created by the airlines. by deciding that they would give a credit, a voucher that would expire, and including within that voucher money that is not theirs, right? And so instead of, at that point, remitting the $5.60 to the customers, they kept it and then said, here, we're giving it to you as part of a voucher, and if you travel by the way, that's now a revenue stream for us, which is clearly contrary to what Congress intended.

[00:10:05] Speaker 00:
So...

[00:10:07] Speaker 00:
Now you're playing word games to suggest that, well, the fee wasn't imposed, and so TSA doesn't receive the money. But even if we agreed with that and were to choose between, in this scenario, who gets the fees, why should it be the airlines when you cause this very problem?

[00:10:22] Speaker 04:
Well, I think the answer to that is... because we have a contract with the customers that explicitly says that. The customers made that bargain. They got a cheaper ticket price upfront because of the limited refundability. And that's a deal that was made.

[00:10:39] Speaker 02:
I think every- But the customer can't contract away what Congress has said should go to the government.

[00:10:45] Speaker 04:
Well, Congress didn't say that it should go to the government.

[00:10:48] Speaker 02:
Well, the regulation does, and it's under the statute, right?

[00:10:52] Speaker 04:
I don't think the regulation says that either, if nobody has asked for the money back.

[00:10:56] Speaker 02:
Judge Bailey just read you the regulation that says that the security fees are collected...

[00:11:03] Speaker 02:
for the benefit of the government, and the airlines have no legal or equitable entitlement to them.

[00:11:09] Speaker 04:
Right, but these are not fees because no passenger traveled. So take this hypothetical. What if the airlines gave the money back in cash, and one second later the customer agreed to buy a voucher? Everybody would say that's okay, and all that happened here is that bargain was made on the front end. But I also want to point out this – Very troubling aspect of the 11th Circuit's decision, which is it says flat out on pages 8 and 9 that no fee is really incurred in a situation where no passenger travels.

[00:11:43] Speaker 04:
But it says the ability to get the money back is solely in the discretion of TSA. In other words, if TSA wants to keep the money under any circumstances, Even if the airline refunds the money to the customer, TSA is free to do that. And that just can't be right. The money doesn't belong to TSA.

[00:12:03] Speaker 00:
There's a provision that allows a credit, right? So the airlines collect the fees. They remit them to the TSA. The passenger cancels their travel plans. And then the airline can say, there was a cancellation. We get a credit for the money we remitted last month. And there you go. So that situation is resolved. But instead, you're going into another area where...

[00:12:30] Speaker 00:
the airlines have then decided we're not actually going to give the money back, but we're going to tell TSA that this is a refund when we give them a voucher with an expiration. And by the way, we then keep the money to which we have no legal or equitable interest and which we had held in trust for the beneficial interest of the United States. So it doesn't seem all that outrageous that between the airline and TSA, the TSA ends up with the funds. Right.

[00:12:56] Speaker 04:
Well, obviously, Your Honor, we disagree with that. The IRS, for example, takes the opposite view. They say this is a perfectly fine arrangement.

[00:13:04] Speaker 00:
Well, they say it's fine when you report it as income that they can tax you for it, but that's a little bit different matter than saying that it was okay for you to take it from the customers and from TSA in the first place.

[00:13:14] Speaker 04:
No, Your Honor, I'm talking about the federal excise tax on air transportation. The IRS has said if you give the money back to the customer in the form of credit, that is a refund, and therefore you can get the money back from the government.

[00:13:27] Speaker 03:
Well, that may be a different definition of refund, but if you look at the...

[00:13:33] Speaker 03:
There's a separate issue about how much we should rely on the guidelines, but the guidelines seem to be pretty clear that a refund does not...

[00:13:42] Speaker 03:
include credit to the customer. Certainly the 2020 does, and the 2002 arguably does, and the 11th Circuit said it did.

[00:13:49] Speaker 04:
Well, the 2020 is well after the fact. I understand that. I think there are a couple problems with the 2002 guidance. That doesn't talk about an actual refund. That just says the ticket doesn't expire, and it's unclear whether that means you have to use the same ticket and fly the same route as opposed to here where you get a credit and you can use it for anything you want. But more importantly, The 2002 guidance doesn't speak to the situation where the customer and the airline specifically agree that this is a valid type of refund.

[00:14:23] Speaker 03:
You're overreaching a bit to say that the customer agrees. The customer got what it got.

[00:14:29] Speaker 02:
That's an adhesion contract. They don't get to bargain. They don't get to bargain. But let me just ask you this question. If we agree with the 11th Circuit's reasoning, do you lose?

[00:14:41] Speaker 04:
Yes. Okay.

[00:14:43] Speaker 04:
Thank you, Your Honors.

[00:14:53] Speaker 01:
Thank you. Whaley Shaw for TSA. May it please the Court, I'd like to begin with Judge Nelson's questions from the first JetBlue case. And I think Judge Nelson asked what would happen to the passengers if the TSA prevails in this case. And I think the answer to that will also, I think, address the court's questions about Rule 19 and necessary parties. If this court rules for the TSA, that does not prevent the passenger from getting a refund. Now, what's happened in this case is that pursuant to express congressional authority and subsection G, TSA has designed a refund scheme whose very purpose is to get the refund to the customer.

[00:15:33] Speaker 01:
And the way it works is that the airline first refunds the passenger, and then they get a reimbursement from TSA. Now, the problem in this case is that the airline didn't properly refund the passenger. They ended up keeping the money, and yet they are still asking for reimbursement from TSA, and I think TSA reasonably said, no, we don't consider that to be a proper refund, so we want our reimbursement back. That does not mean that in the future passengers cannot get a refund of those same fees because, again, TSA is committing – to reimburse airlines when they properly refund their passengers.

[00:16:10] Speaker 01:
So if Alaska or Allegiant were tomorrow to give that money back to the customer in a proper form, then TSA would again reimburse Alaska and Allegiant. So there is no No sense in which ruling for TSA here would impair passengers' interest.

[00:16:27] Speaker 03:
That gets a little confusing with the water that's already under the bridge. Can a customer, because TSA is now saying UOS $2.8 million or whatever that amount was, once that is paid into TSA coffers, can plaintiffs come to the TSA and ask for that money?

[00:16:47] Speaker 01:
There's no mechanism I'm aware of where they can come to TSA.

[00:16:50] Speaker 03:
They would still have to go to Spirit Airlines or JetBlue. Well, JetBlue is in a different bucket apparently.

[00:16:57] Speaker 03:
Allegiant and say, I want my $11.20 back.

[00:17:04] Speaker 03:
And then what happens if they don't give that back?

[00:17:08] Speaker 01:
In that case, then the money would stay with TSA. But if the customer, if the passenger were to go to Alaska or Allegiant and say, I didn't fly, I canceled my ticket, I want that money back, and Alaska or Allegiant were to properly refund that customer, then again, TSA would give that money to Alaska and Allegiant to make them whole for having made the refund.

[00:17:27] Speaker 03:
So JetBlue claims, hey, we give the money to TSA, and therefore we don't have it.

[00:17:33] Speaker 03:
Theoretically, they could still lose in the case that we had before, and if the plaintiffs were able to recover all that money...

[00:17:43] Speaker 03:
you're saying TSA would reimburse that money to front that cost?

[00:17:47] Speaker 01:
Yeah, exactly. Because if JetBlue properly refunds the passenger, then TSA will refund the airline. And the reason is that this is a refund that is supposed to go from TSA to the passenger. And again, that's pursuant to a subsection G. And the airlines here are merely serving as a sort of conduit or pass-through for that money.

[00:18:09] Speaker 03:
The question is, who gets the breakage? And there's a lot of breakage, $2.8 million in one case. And TSA is like, we get the breakage. Right.

[00:18:20] Speaker 03:
And I'm not, I mean, that seems to be consistent with the statutory and regulatory scheme. But that's really what we're debating here.

[00:18:30] Speaker 01:
I think that's right. This case is about what happens when the airline does not perform its obligation under the refund scheme that TSA has established pursuant to subsection G, it doesn't actually give that money back to the passenger, then what happens to it? And I think the statute actually expressly addresses this situation. And I think actually the Chief Judge Pryor's analysis of the statute, I think, pretty clearly answers this question. I mean, I think E1 and E3 provide that the money always has to go to TSA, except in the cases where there has been a valid refund that's been made under subsection G. If the airline doesn't actually give the money back to the passenger, there is no such refund.

[00:19:13] Speaker 01:
And so the result is that the money stays, by statute, stays with TSA. And I think that's consistent with many of the other refund schemes that we discussed.

[00:19:23] Speaker 03:
Is there any portion of the 11th Circuit opinion you do not agree with?

[00:19:27] Speaker 01:
You know, I...

[00:19:28] Speaker 01:
I think these are sort of quibbles around the edges. I don't agree that the airlines are necessarily free to collect the fee at the time of flight as opposed to the time of purchase. I think the statute and the regulation suggest that it should be collected at the time of sale. I mean, I don't think that ultimately impacts the analysis. I don't think the court needs to necessarily decide one way or the other. The point is here, again, the money has actually been collected. The airline has it now. It hasn't refunded the passenger.

[00:20:00] Speaker 01:
Is TSA required to recognize what the airline did as a valid refund to the passenger such that TSA should then reimburse the airline under the terms of the refund scheme? And I think the answer is pretty clearly no, TSA should not and does not need to recognize that as a valid refund.

[00:20:21] Speaker 01:
If I If I could, I just want to answer the other question that was raised by the court, which related to standing.

[00:20:29] Speaker 01:
I think, first of all, I agree that Alaska and Allegiant have no legal interest in these funds for the reasons that have already been identified by the court. Airlines serve only as a conduit or pass-through when collecting and refunding the fees, so they're never allowed to obtain a legal interest in the funds. But I think the airlines nonetheless still have standing because one part of their claim on the merits is that they do have an interest in these funds. I think then Judge Barrett put it best for the Seventh Circuit in Protect Our Parks versus Chicago Park District.

[00:21:06] Speaker 01:
This is at 971 F3rd 722, where she said, it is not unusual for the distinction between standing and the merits to cause conceptual trouble when a plaintiff alleges the deprivation of a dubious property or liberty interest, but when the existence of a protected property interest is an element of the claim, deciding whether the interest exists virtually always goes to the merits rather than standing. Otherwise, every losing suit would be dismissed for lack of jurisdiction. So I think the airlines here do have standing, but they should lose on the merits because, again, they have no legal interest or entitlement to these funds.

[00:21:44] Speaker 00:
So I realize this is not your case, but you heard the argument in the JetBlue case, and they represented that they have remitted these funds to the TSA, and now they're being sued in a putative class action for the refund.

[00:22:01] Speaker 00:
If we were to uphold the district court and conclude that those claims are preempted, did the passengers have any remedy?

[00:22:09] Speaker 01:
If they do not have a contractual remedy, it's possible they still have remedies, for example, through DOT, I think, as maybe came up during the argument, or under some sort of other consumer protection law.

[00:22:23] Speaker 01:
So, you know, again, I don't want to take a firm position on what those remedies are. It's possible that they exist, but I'm not sure on that question.

[00:22:32] Speaker 01:
With regard to TSA, I think this case concerns an audit of the airlines, and the only sort of enforcement mechanism TSA was able to exercise in the form of this decision, at least was to demand the return of monies that are held on to by the airlines that they are entitled to. So it was not part of the scope of this audit, you know, for TSA to say, you know, issue an order directing the airline to refund the passengers that just was not an available remedy, at least in the context of the agency decision that's at issue here.

[00:23:13] Speaker 01:
If the court has no further questions, we ask that the petitions for review be denied.

[00:23:18] Speaker 02:
It appears not. Thank you, counsel.

[00:23:21] Speaker 01:
Thank you.

[00:23:22] Speaker 02:
Rebuttal.

[00:23:28] Speaker 04:
Thank you. Just a couple of brief points. First of all, looking at the statute, it doesn't speak at all to refunds that an airline has to give to passengers. It's just completely silent and it doesn't speak at all of canceled fees. So the fundamental question is, is there authority for TSA to obtain a fee when no passenger travels? And under subsection A, the heart of the statute, the answer is no. The Court of International Trade in the Southwest case dealt with a very analogous situation and said that there's no right.

[00:24:03] Speaker 04:
This is a user fee statute. TSA is getting paid for a service. TSA, in this case, the CBP in the Southwest case, don't provide their service. They have no statutory right to the funds and the same exact thing is true here and take the jet blue situation that we obviously we've all thought about as a result of what's happened in that case TSA could end up with the money jet blue did what TSA wants it to do which is either refund the money to the passenger or.

[00:24:39] Speaker 04:
Give it to TSA. That's what the guidance says. But at the end of the day, TSA gets the money. No tax regime works like that. If there's an overpayment, as the 11th Circuit said there has been here, there has to be a right to get the money back. And here, that right belongs to the airline because that's what their contract says. Thank you, Your Honor.

[00:24:58] Speaker 02:
Thank you, Counsel. Thank you to both counsel for your helpful arguments. The case is argued and submitted for decision by the court. That completes our calendar for today. We are adjourned.