AMERICAN AIRLINES, INc. v. Transportation Security Administration

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~nit£b j&tat£s QIourt of ~pp£als
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 11, 2011 Decided December 6, 2011
No. 10-1418
AMERICAN AIRLINES, INc.,
PETITIONER
v.
TRANSPORTATION SECURITY ADMINISTRATION AND JOHN S.
PISTOLE, IN HIS OFFICIAL CAPACITY AS ADMINISTRATOR OF
THE TRANSPORTATION SECURITY ADMINISTRATION,
RESPONDENTS
On Petition for Review of a Decision of
the Transportation Security Administration
Lawrence D. Rosenberg argued the cause for petitioner.
With him on the briefs were Andrew B. Steinberg and
Christopher S. Perry.
Lindsey Powell, Attorney, U.S. Department of Justice,
argued the cause for respondents. With her on the brief were
Tony West, Assistant Attorney General, Ronald C. Machen Jr.,
U.S. Attorney, and Douglas N. Letter, Attorney.

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Before: SENTELLE, ChiefJudge, GINSBURG} , Circuit Judge,
and WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Chief Judge SENTELLE.
SENTELLE, Chief Judge: 2 In 2002, American Airlines
("American") agreed, at the urging of the Transportation
Security Administration ("TSA"), to incorporate an "in-line"
baggage-screening system into its new terminal at John F.
Kennedy International Airport, instead of a cheaper system in
which luggage would be screened in the lobby of the airport.
According to American, the airline only undertook the more
expensive project at TSA's insistence and with the promise that
the agency would reimburse the airline once Congress gave TSA
the authority to grant such requests. After Congress granted that
authority and after American's expenditures on the screening
system totaled nearly $30 million, the airline requested
reimbursement from TSA. The agency denied that request,
citing limited funding and a need to prioritize ongoing security
risks ahead of completed projects. American petitions for
review of that denial, arguing that TSA failed to comply with
Congress's requirements for the agency's reimbursement
determinations. Because TSA either has failed to base its
reimbursement decision on the prioritization list mandated in 49
U.S.C. § 44923 or has failed to create a suitable prioritization
list in the first place, we grant the petition and remand to TSA
1As of the date the opinion was published Judge Ginsburg had
taken senior status.
2 NOTE: Portions of this opinion contain Sensitive Security
Information, which has been redacted. The redactions are indicated
bYI~ and 41 symbols.

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for further proceedings.
I. Background
After the September 11, 2001, attacks, Congress enacted
a series of laws to protect and enhance airline security. First
among these was the Aviation and Transportation Security Act
("AT SA"), Pub. L. No. 107-71, 115 Stat. 597, 614-15 (2001).
With the ATSA, Congress created the TSA and charged the
agency with ensuring that by the end of 2002 all passengers and
materials carried onboard passenger aircraft would be screened
for explosives. 49 U.S.C. § 44901(a), (d).
At the time of the enactment of the A TSA, construction
had begun on "Terminal 8" at New York's John F. Kennedy
International Airport. As sole tenant of the new terminal,
American took the lead in the project, which involved the Port
Authority of New York and New Jersey as the operator of the
airport and, eventually, TSA as well. After the attacks, the new
TSA urged that Terminal 8 be built to include an "in-line"
system for its explosive detection system ("EDS"). An in-line
system checks bags for explosives within the airport's baggage
conveyor system, thus avoiding the need for TSA baggage
screeners to physically transport bags to and from the EDS
machine. This makes screening cheaper-particularly for
TSA-yet it scans baggage at a higher rate than alternative
methods. American, on the other hand, preferred the simpler
"lobby screening solution," in which bags are screened in the
airport lobby at standalone EDS stations and then transported by
TSA employees to the baggage conveyor system. The lobby
system would be far cheaper and quicker to implement, and it
would not require alterations to the terminal building itself.
During TSA' s attempts to persuade American to use the more
expensive system, the only statute then in effect, the A TSA, did

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not address funding for in-line security systems. American
claims, however, that TSA assured the airline that once
procedures for reimbursement were in place and Congress had
given authority to do so, Terminal 8 would receive favorable
and expedited consideration. American agreed to alter the
design for Terminal 8 to utilize an in-line screening system, as
TSA requested. The parties did not sign an agreement or
memorandum of understanding.
In 2003, Congress granted TSA the authority to make
grants for projects that "improve security at an airport or
improve the efficiency of the airport without lessening security,"
including projects related to the installation of in-line explosive
detection systems. Vision 100-Century of Aviation
Reauthorization Act, Pub. L. No. 108-176, 117 Stat. 2490,2566
(2003). Under that act, airport sponsors seeking funding apply
to TSA, and, if approved, receive a "letter of intent" which
commits TSA to use future budget authority to assist in funding
the project. In 2004, Congress enacted a statute which urged
TSA to move faster with the installation of in-line baggage
screening and to undertake a study to develop a "formula for
cost-sharing" among government and private entities for in-line
baggage screening projects. Intelligence Reform and Terrorism
Prevention Act of 2004, Pub. L. No. 108-458, 118 Stat. 3638,
3721-22.
Around that time, American began requesting
reimbursement from TSA for the in-line screening system in
Terminal 8. In 2004, American wrote to Admiral David Stone,
then-Acting TSA Administrator, noting that the airline had taken
on the additional expense of the in-line screening system with
the expectation of full reimbursement. Admiral Stone
responded, applauding American's leadership in deploying the
in-line system but declining to reimburse American at that time

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because "TSA' s work to achieve and maintain full electronic
screening at a number of airports [was] not yet complete."
Discussions continued between American, TSA, and Port
Authority officials, including a 2005 meeting with Congressman
Gregory W. Meeks of New York. The Congressman has stated
that TSA "made [it] very clear" that American would be
reimbursed for the Terminal 8 project.
In 2007, Congress amended the previous airport security
acts with the Implementing Recommendations of the 9/11
Commission Act of2007 ("2007 Act"), Pub. L. No. 110-53, 121
Stat. 266, 480. There, Congress amended the provisions that are
chiefly at issue in this case. The amended subsections read:
Grant authority.-Subject to the requirements of this
section, the Under Secretary for Border and Transportation
Security of the Department of Homeland Security shall make
grants to airport sponsors-
(1) for projects to replace baggage conveyer systems related
to aviation security;
(2) for projects to reconfigure terminal baggage areas as
needed to install explosive detection systems;
(3) for projects to enable the Under Secretary to deploy
explosive detection systems behind the ticket counter, in the
baggage sorting area, or in line with the baggage handling
system; and
(4) for other airport security capital improvement projects.
49 U.S.C. § 44923(a). Conspicuously, the amendments changed

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the words "may make" to "shall make." The 2007 Act also
amended the notes to that section to require TSA to create a
"prioritization schedule for airport security improvement
projects," which "shall include airports that have incurred
eligible costs associated with development of partial or
completed in-line baggage systems before the date of enactment
of this Act in reasonable anticipation of receiving a grant." Id.
§ 44923 note.
American continued to remind TSA of the airline's
up-front investment in the in-line screening project, stating in a
February 2008 letter that the airline "only proceeded with the
investment because [American] had the reasonable expectation
of federal reimbursement in the future." A few months later,
TSA issued a $400 million grant to the Port Authority so that it
could implement in-line baggage screening improvements at the
several airports it administers. That grant, TSA later
determined, could not by its terms be used to reimburse
American's expenses, notwithstanding the Port Authority's
willingness to do so.
In January 2010, American wrote to Janet Napolitano,
Secretary of Homeland Security, requesting reimbursement and
noting the Port Authority's willingness to use a portion of its
$400 million grant to do so. Acting TSA Administrator Gale
Rossides replied in March 2010, again noting TSA's view that
the statute's mandate of risk-based prioritization required it to
fund new projects before reimbursing old ones and again stating
that the $400 million grant to the Port Authority could not be
used to reimburse American.
Finally, on August 20, 2010, American and the Port
Authority wrote TSA directly to request a meeting with the new
TSA Administrator, John Pistole. Administrator Pistole

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responded on October 25, 2010, declining the meeting and
stating that he had come to the "difficult decision" that
"reimbursement for previous work outside a formal agreement
comes at the cost of advancing current or future security
measures." American requested reconsideration in a letter dated
December 9, 2010, and noted in that letter that the airline would
seek judicial review if it did not receive appropriate relief by
December 22, 2010. Having received no response by that date,
American filed this petition. On the same day, Administrator
Pistole sent a letter to American denying reconsideration.
II. Finality and Timeliness
American characterizes the October 25, 2010, letter as
the final agency decision and the airline's December 9, 2010,
letter to the TSA as a request for reconsideration. TSA
disagrees, contending that the October 2010 letter was no
different than the many rejections the agency had sent to
American prior to that date and that the March 2010 letter to
American is better understood as the final agency action.
Therefore, TSA asserts, American's petition for review is
untimely because the petition was not filed with this Court
within sixty days of that action, as required by 49 U.S.C.
§ 46110(a). We disagree. The October 25, 2010, letter is the
only agency communication bearing sufficient indicia of finality
to make clear to American that a final decision had in fact been
made, and this petition was filed within sixty days of the
October 2010 letter.
A final agency action is one that "mark[s] the
consummation of the agency's decisionmaking process," and is
one "by which rights or obligations have been determined, or
from which legal consequences will flow." Bennett v. Spear,
520 U.S. 154, 177-78 (1997) (internal citations and quotation

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marks omitted). The agency action must state an "unequivocal
position," Ciba-Geigy Corp. v. EPA, 801 F.2d 430, 436 (D.C.
Cir. 1986), rather than one which is contingent on future agency
actions, see AT&T Co. v. EEOC, 270 F.3d 973, 975 (D.C. Cir.
2001). Ifwe considered agency statements lacking clear indicia
of finality to nonetheless be final agency action, subjects of
agency regulation would be forced to file repeated precautionary
petitions for review. Such petitions would waste the time and
resources of the Court and of the parties, and would promote
unfairness by allowing an agency to retroactively determine
whether a particular statement was final or not. Considerations
such as these have long been an integral part of finality
determinations. See, e.g., Abbott Labs. v. Gardner, 387 U.S.
136, 149 (1967) ("The cases dealing with judicial review of
administrative actions have interpreted the 'finality' element in
a pragmatic way."); see also 15A Charles Alan Wright, Arthur
R. Miller, & Edward H. Cooper, Federal Practice and
Procedure § 3913 (2d ed.) ("[W]ell-established rules of
appealability ... have nonetheless the great virtue offorestalling
the delay, harassment, expense, and duplication that could result
from multiple or ill-timed appeals.").
Applying this reasoning, we compare the two letters in
question, looking for statements attesting to an unequivocal
decision made by the agency that is not contingent on future
agency actions. Comparison of the March 2010 communication
from Acting TSA Administrator Rossides with the October 20 10
letter from TSA Administrator Pistole reveals that the October
2010 letter is the only TSA communication bearing sufficient
indicia of finality to constitute final agency action. The October
2010 letter states that the Administrator had "concluded" and
had made a "decision" denying American's reimbursement
request. The March 2010 letter, on the other hand, uses no such
clear language and instead merely describes the general

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risk-assessment policy. That letter even notes TSA's desire to
"foster a close working relationship . . . on this and other
homeland security issues" (emphasis added). Furthermore, in
the October 2010 letter, Administrator Pistole notes, without
mentioning the March 2010 letter, that he "personally reviewed
the documentation" related to the project-a review that would
be redundant if a final decision had been reached in March 2010.
The March 2010 letter was general and tentative. The October
2010 letter was specific and unequivocal in denying the
reimbursement.
Indeed, TSA's December 22, 2010, letter denying
reconsideration belies TSA' s timeliness argument. That letter
expressly thanks American for "requesting reconsideration of
the October 29, 2010[,] decision denying reimbursement"
(emphasis added). It seems that only during this litigation did
TSA decide that it had actually reached a final decision in
March 2010. An agency's post-hoc and self-serving
determination that an earlier statement was final cannot override
textual evidence to the contrary. Cf Burlington Truck Lines,
Inc. v. United States, 371 U.S. 156, 168-69 (1962) ("The courts
may not accept appellate counsel's post hoc rationalizations for
agency action .... "). We find that the final agency action in this
controversy is the October 25, 2010, letter from TSA denying
American's request for reimbursement. American's filing of
this petition on December 22, 2010, was therefore timely. 3
TSA alludes in its brief to the possibility that some
communication prior to March 2010 may, in fact, have been the final
agency action, but that we need not look beyond the March 2010 letter
to judge the timeliness of the petition. Because the agency does not
specifically identify and explain the earlier communication or
communications it purports to be final, we need only address TSA's

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III. TSA's Denial of Reimbursement
As amended by the 2007 Act, the statute states that TSA
"shall make grants to airport sponsors" for qualifying airport
security projects. 49 U.S.C. § 44923(a). The statute also
requires that TSA "shall establish a prioritization schedule for
airport security improvement projects" and must base that
prioritization schedule on "risk and other relevant factors." 49
U.S.C. § 44923 note. That prioritization list "shall include
airports that have incurred eligible costs associated with
development of partial or completed in-line baggage systems
before the date of enactment" of the statute, "in reasonable
anticipation of receiving a grant." Id. At issue is whether TSA
has properly exercised discretion under the statute in denying
American's reimbursement request and whether TSA has
properly created and followed the prioritization list required by
the 2007 Act.
A.
American contends, above all, that TSA' s denial of
reimbursement stands in direct conflict with the command in the
2007 Act that TSA "shall make grants" to airport sponsors of
qualifying projects, including those who have already completed
their projects. See 49 U.S.C. § 44923 (a). Because TSA's
actions are contrary to the plain meaning of the 2007 Act,
American urges, TSA' s decision is not entitled to deference.
claim regarding the finality of the March 2010 letter. At any rate, we
note, as does Petitioner, that TSA' s casual statement that the decision
could actually have become final at some unspecified point in the past
only highlights the absence of clear, firm statements prior to the
October 2010 letter.

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The statute's language, American suggests, contains repeated
mandates that TSA must provide reimbursement for qualified
projects, and American's project, completed with reasonable
expectation of reimbursement, qualifies.
Next, American argues that even if TSA has discretion
in awarding funding to qualified projects, it has abused that
discretion. First, American argues that the 2007 Act requires
TSA to prioritize reimbursement requests for completed in-line
projects, such as Terminal 8, and TSA failed in its
communications to "examine the relevant data and articulate a
satisfactory explanation" for departing from that statutory
command. Motor Vehicle Mfrs. Ass 'n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29,43 (1983). Further, American argues that
the agency's limited-funding rationale is both
inaccurate and Ie
TSA responds to these arguments by noting that the
"prioritization" requirement in the 2007 Act logically must be
understood to mean that some projects would be reimbursed
while others would not-otherwise, there would be no need to
prioritize at all. Congress, knowing that, intended that TSA
would have the discretion to make funding determinations based
on "risk and other relevant factors," as specified in the 2007 Act.
49 U.S.C. § 44923 note. TSA asserts in its brief that the agency
included the Terminal 8 project on the prioritization list it
submitted to Congress and that its decision to prioritize funding
for unresolved security risks over resolved risks like that at
Terminal 8 is both rational and consistent with the agency's

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intended discretion under the 2007 Act.
B.
We review TSA's decision under familiar standards.
When Congress delegates to an agency the authority to interpret
and apply a statute, appellate courts review the agency's actions
under the two-step process from Chevron, U.S.A., Inc. v. Natural
Res. De! Council, Inc., 467 U.S. 837 (1984). If "the intent of
Congress is clear, that is the end of the matter," and the Court
will apply the statute accordingly. Id. at 842. But if a statute is
unclear on the point in question, the Court will defer to the
agency's reasonable interpretation. Id. at 843-44. Nonetheless,
"a regulation contrary to a statute is void." Orion Reserves Ltd.
P'ship v. Salazar, 553 F.3d 697, 703 (D.C. Cir. 2009) (citing
Manhattan Gen. Equip. Co. v. Comm 'r ofInternal Revenue, 297
U.S. 129, 134 (1936)). The 2007 Act gives TSA both the
authority and the mandate to create a prioritization list. 49
U.S.C. § 44923 note. That said, we will not set aside the
agency's policy determinations in doing so unless they are
"arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law." 5 U.S.C. § 706(2)(A).
Despite the deference owed to TSA' s policy
determinations, the agency decision before us cannot survive
judicial scrutiny because the agency either has not made a
prioritization schedule as required by 49 U.S.C. § 44923 note,
or, if the schedule TSA has provided to the Court is the schedule
mandated by statute, the agency has acted arbitrarily and
capriciously in deviating from that schedule by denying
American's reimbursement request without providing a
sufficient rationale on the record for doing so. Regardless of
which is the case, we vacate the decision to deny reimbursement
to American and remand to the agency to conduct further

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proceedings.
Congress's explicit mandate that TSA develop a
prioritization list for reimbursing airport security proj ects carries
with it the implication that the agency will actually follow that
prioritization list in making its reimbursement decisions.
Otherwise, the mandate of the 2007 Act that TSA create such a
prioritization list becomes a meaningless exercise. See
Inhabitants of the Twp. ofMontclairv. Ramsdell, 107 U.S. 147,
152 (1883) ("It is the duty of the court to give effect, ifpossible,
to every clause and word of a statute .... "); see also United
States v. Seals, 130 F.3d 451, 462 (D.C. Cir. 1997). At the
same time, we agree with TSA that Congress's intent in
requiring the agency to prioritize projects logically compels the
understanding that some projects will be currently funded while
others will not. Otherwise, there would be little need to
prioritize funding at all. With that in mind, we must reject any
suggestion that the 2007 Act must be read-or could even
reasonably be read-to absolutely require reimbursement for
any and all qualified projects.
TSA's discretion under the 2007 Act is not, however,
unlimited. By the plain terms of the statute, TSA must create a
prioritization list and must base the prioritization on "risk and
other relevant factors." 49 U.S.C. § 44923 note. The list must
include completed projects undertaken with reasonable
expectation of reimbursement. Id. And while there could be
cases in which the agency finds that it must deviate from its
general prioritization, the agency must "adequately define the
circumstances that 'trigger' the case-by-case analysis," and the
agency must promulgate an "identifiable standard" to guide
those determinations. Oceana, Inc. v. Locke, No. 10-5299,2011
WL 2802989, at *3 (D.C. Cir. July 19,2011). TSA has not done
so. Rather, TSA has stated the prioritization list it created is

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merely a "top-down" "initial guide," and it has expressly
reserved the discretion to depart from the list on a case-by-case
basis using a different, "bottom-up" methodology when making
actual funding decisions. Like the provision at issue in Oceana,
Inc., TSA cannot make an exception to the prioritization list so
vague or large "as to make the rule meaningless," id., nor can
TSA promulgate a prioritization list and then act contrary to it
based on previously unannounced factors. Ultimately, TSA's
decision here must be vacated either because the agency
improperly deviated from its provided prioritization list or
because the agency has failed to make a prioritization list that
would comport with the mandates of the 2007 Act.

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purports to con.slal~r
a point for making funding determinations based on
other criteria, it has failed to sufficiently establish and follow
criteria for departing from its general rule, thus rendering its
prioritization list inadequate. See Oceana, Lll!!lnc. 2011 WL
2802989, at *3. If instead we consider the I I
prioritization list provided to the Court to be t e bona fi e,
complete prioritization list already accounting for "risk and
other relevant factors" mandated by the 2007 Act, 49 U.S.C.
§ 44923 note, then TSA simply failed to abide by it in making
this decision and thus is acting contrary to the statute. See 5
U.S.C. § 706(2)(A). In either case, the agency's actions here
must be vacated, and the issues remanded to the agency for
further action or explanation.
IV. Conclusion
For the reasons set forth above, we vacate TSA' s
decision to deny reimbursement to American for the Terminal
8 project and remand to TSA for further proceedings consistent
with this opinion.
So ordered.

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