City of Los Angeles v. United States Department of Transportation

The City of Los Angeles (city) (plaintiff) charged landing fees to airlines at its airport, the Los Angeles International Airport (airport), in order to raise funds for the airport’s operations. For many years, the city calculated the landing fee using a formula designed to have the fees cover any expenses for running the airport’s aeronautical operations that were not covered by the profits the airport typically received from its nonaeronautical operations (e.g., restaurants and parking). In 1992, in accordance with this formula, the landing fee was 51 cents per 1,000 pounds of landed weight. However, in 1993, the city changed its landing-fee formula to eliminate the offset for the profits generated by other airport activities. In addition, the city added lost-opportunity costs to its calculation of the airport’s aeronautical expenses. Specifically, the city determined that if the airport was converted to rental property, the city could bring in approximately $14.9 million in rental revenue instead of breaking even with its airport operations. Thus, the city added $14.9 million in lost-opportunity costs to the airport’s annual aeronautical expenses. Using this revised formula, the city set the landing fee at $1.56 per 1,000 pounds. The airlines filed a challenge with the Department of Transportation (department) (defendant), arguing that the landing fee was unreasonable. The department determined that airports were never allowed to consider lost-opportunity costs when setting fees. The city appealed, and the court of appeals determined that airports could sometimes consider lost-opportunity costs and remanded the matter to the department for further consideration. In the meantime, the city had raised its landing fee to $2.06. The airlines challenged the new fee, and the department consolidated its review of both fees. The department found that the city had not lost either opportunities or money. According to the department, the city had not lost opportunities because the airport was not currently legally allowed to use the airport land for anything other than a public airport. Next, the department determined that the city had not lost money because even if the city could use the land for rental income, closing or moving the airport would cost the city billions of dollars annually, which was significantly more than the $14.9 million of anticipated annual rental income. Accordingly, the department determined that the city’s landing-fee amount was unreasonable and, therefore, invalid. The city appealed the department’s ruling.