Insights From An FAA Illegal Charter Investigation

by Gregory J. Reigel
@October 2020. All rights reserved!
Published in Midwest Flyer – October/November 2020 issue

Recent FAA press releases have publicized the enforcement actions the agency is taking against those involved in illegal charter. However, what is not publicized is how the FAA is investigating these cases. A recent case in the U.S. District Court for the Southern District of Indiana provides an interesting glimpse into one such investigation.

The Case.

In Elwell v. Bade et al., the FAA received complaints regarding alleged illegal charter activity. In response, the FAA opened what has turned out to be a six-year investigation.

During its investigation, the FAA issued three sets of subpoenas over a three-year period. The last set asked for production of all documents related to agreements associated with use, ownership, and/or leasehold interest in certain aircraft under investigation for a specified period of time. The recipients of the subpoenas (the “Respondents”) objected and refused to produce any documents.

The FAA filed a petition with the U.S. District Court requesting enforcement of the subpoenas. The Respondents objected to the subpoena by filing a motion to quash the subpoenas. The Court refused to quash the FAA’s administrative subpoenas and ordered their enforcement.

The Court concluded that “(a) the matter under investigation is within the authority of the issuing agency, (b) the information sought is reasonably relevant to that inquiry, and (c) the requests are not too indefinite.” However, the Court’s analysis and rationale also provide insight into some of the things the FAA can do, and when it can do them, in an illegal charter investigation.

Here are some of the key takeaways:

The FAA Has Authority To Issue Subpoenas In Connection With An Investigation

Under 49 U.S.C. § 46101(a), the FAA may investigate violations as long as the agency has “reasonable grounds.”

Neither an enforcement action nor a lawsuit is necessary. When a court reviews an agency’s subpoena requests, the court must make sure the agency does not exceed its authority. And the threshold for the relevance of the documents/information requested by the administrative subpoenas is relatively low. The court must also confirm that the requests are not for an illegitimate purpose.

In illegal charter investigations such as the Bade case, the FAA typically asks for
·  aircraft flight logs
·  flight summaries
·  aircraft lease agreements
·  operating agreements
·  interchange agreements
·  pilot services agreements
·  pilot payrolls
·  operating invoices
·  receipts etc.

And, as in Bade, a court will likely hold that such requests are proper and do not exceed the FAA’s authority.

Stale Complaint Rules Do Not Bar Subpoenas During An Investigation

As you may know, stale complaint rules act to bar the FAA from acting in certain situations after a period of time. For example, in certificate actions heard before a National Transportation Safety Board Administrative Law Judge, 49 C.F.R. § 821.33 may prevent the FAA from acting if it does not initiate the case within six months of advising the respondent of the reasons for the proposed action. Similarly, in a civil penalty case, a case may be dismissed under 14 C.F.R Part 13.208(d) if the FAA does not initiate action within two years.

However, these stale complaint rules do not apply to ongoing investigations where no action has been initiated. According to the Bade court, the “FAA may conduct an investigation to assure itself that its regulations are being followed, regardless if it ultimately determines civil enforcement or formal charges are not warranted.”

Similarly, the FAA may investigate a target who is “engaged in a continuing violation of [FAA’s] safety regulations.” In Bade, the FAA argued it was not investigating stale claims. Rather, it believed the respondents were engaged in continuing violations where “the statute of limitations restarts every day.” And the Court agreed.

(Interestingly, the Court did not address whether this analysis, and its decision, would have changed if the aircraft involved had been sold and/or the flight operations had ceased. As a result, it is unclear whether the investigation would have been moot if applicable stale complaint rules prohibited enforcement action.)

The FAA Does Not Have To Tell The Target Of An Investigation About Subpoenas

Under 49 U.S.C. § 46104(c), an agency must only give notice to “the opposing party or the attorney of record of that party.” However, an investigation has no “record.” As a result, since the target of the investigation is not the one being deposed nor is counsel to those targets being deposed, the target does not have a statutory right to receive notice of third-party depositions.

The Bade court also noted that “’failing to receive notice of one or more depositions does not prove that the FAA’s investigation is a sham,’ and has ‘nothing to do with the enforceability of the Subpoenas or the motive of the FAA in conducting this investigation.’”

So, potential respondents do not get to participate at third-party depositions or receive copies of documents produced in response to subpoenas. This certainly makes defending against an illegal charter investigation a more difficult task.

The FAA’s Order 2150.3C Is Only “Guidance”

In Bade the Respondents argued that the FAA had not followed its own policies when conducting the investigation. Specifically, they argued the FAA failed to follow FAA Order 2150.3 – FAA’s Compliance and Enforcement Program. However, the Court rejected the argument. It observed that Order 2150.3 is not regulatory. Rather, Order 2150.3 merely provides guidelines to FAA personnel for performing their duties. Thus, the Court concluded that the FAA’s failure to strictly adhere to Order 2150.3’s “guidance” did not negate its authority to investigate. Nor did it mean the FAA was pursuing the investigation for an improper purpose.

Conclusion

Illegal charter is a high priority for the FAA at the moment and will be for the foreseeable future. As a result, the agency will continue to investigate complaints of illegal charter. It is important to understand how the FAA conducts these investigations and the extent of its authority.

And it is imperative for an aircraft owner or operator who is the target of an illegal charter investigation to know its rights. If you believe you are the target of an illegal charter investigation, contact us now so we can help you navigate the investigation and protect your rights.

EDITOR’S NOTE: Greg Reigel is an attorney with Shackelford, Melton, McKinley & Norton, LLP, and represents clients throughout the country in aviation and business law matters. For assistance, call 214-780-1482, email: greigel@shackelford.law, or Twitter @ReigelLaw (www.shackelford.law).

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