Appeal from a judgment of the United States District Court for the Southern District of New York, Carter, J., awarding judgment against appellants for violations of the Federal Aviation Act and regulations promulgated thereunder. Affirmative award in favor of the government reversed and the matter remanded for a new trial.
Before Van Graafeiland and Kearse, Circuit Judges, and Goettel, District Judge.*fn*
In this action brought by the Federal Aviation Administration under sections 901 and 903 of the Federal Aviation Act, 49 U.S.C. §§ 1471, 1473, the Government alleged that M. Marshall Landy, International Aircraft Leasing, Inc. (IAL) and Air-Trans Ltd. jointly and severally operated an aircraft for compensation or hire in air commerce and that J. D. Smith Inter-Ocean, Inc. (Smith) acted as agent for IAL, knowing that the aircraft was to be operated for compensation or hire.*fn1 The Government alleged further that these parties jointly and severally violated section 610 of the Federal Aviation Act, 49 U.S.C. § 1430, and Federal Aviation Regulation 121.3(f), 14 C.F.R. § 121.3(f).*fn2
Section 610(a)(4), (5) provides in substance that it shall be unlawful for any person to operate as an air carrier without an air carrier operating certificate or to operate an aircraft in air commerce in violation of any FAA rule, regulation or certificate. Regulation 121.3(f) provides, with certain inapplicable exceptions, that no person may engage in the carriage of persons or property for compensation or hire in air commerce without, or in violation of, a commercial operator operating certificate and appropriate operations specifications issued pursuant to the Regulations.
Section 901(a) provides in part that any person who violates the safety requirements of the Act or any rules or regulations issued thereunder shall be subject to a civil penalty of not to exceed $1,000 for each violation and that, if any violation is a continuing one, each day of violation shall constitute a separate offense. Section 903(b)(1) provides that proceedings for collection of the penalties shall conform as nearly as may be to civil suits in admiralty except that, if the value in controversy exceeds $20, either party may demand trial by jury of any issue of fact. Jury trial was demanded in this case.
Air-Trans, a Bahamian corporation, was not served with the Government's pleadings. The case went to trial against the remaining three defendants and resulted in a jury finding that each of the defendants operated the plane for compensation or hire. Additional factual findings were made in response to special interrogatories, and the court thereafter entered judgment assessing a penalty of $430,000 jointly and severally against Landy and IAL and a penalty of $20,000 against Smith. Smith has compromised its differences with the Government, and Landy and IAL have appealed. Because of fundamental errors in the proceedings below, the judgment against Landy and IAL must be reversed and a new trial granted.
Although the facts are complicated and much in dispute, the basic issues in the case may be simply stated. In 1976, Landy purchased a Boeing 707 airplane from Lufthansa Airlines and had it converted from a passenger to a cargo plane. He then leased the plane to IAL for one year. Between May and August of 1977, IAL subleased the plane on a number of occasions, principally for the transportation of livestock belonging to the sublessees. Many of these subleases were arranged by Smith, a freight forwarding company. Apparently the crews on all of the flights were furnished by Air-Trans, whose services were usually secured through the agency of Smith.
It is the Government's contention that the "subleases" were not in fact leases, in that IAL did not turn over possession and control of the plane to the "lessees". Instead, the crews were furnished by Air-Trans, allegedly an alter-ego of Landy, and fuel and maintenance were provided by IAL. The Government contends that, in actuality, IAL and Landy were operating or causing the plane to be operated for compensation or hire and therefore were subject to the rigorous requirements of Part 121 of the Federal Aviation Regulations, which applied to such commercial operations. See 14 C.F.R. § 121.1(a)(5).
The Government called IAL's president as its witness to establish the alleged violation of certain Part 121 regulations. It also introduced evidence of alleged additional violations through the testimony of two government employees who inspected the plane on August 2, 1977 and August 19, 1977. Appellants contend that the Part 121 regulations are inapplicable. They assert that they were not operating the plane during the subleases and that therefore the less onerous "General Operating Rules" of Part 91 of the Federal Aviation Regulations should control, rather than the more rigorous requirements of Part 121. In brief, then, the issues at trial were whether "subleasing" of the plane was a subterfuge intended to disguise what was actually a commercial operation and, if so, who was the commercial operator during each of the flights and what Part 121 regulations did he violate.
A determination of these issues would require at the outset factual findings as to what flights were made and the circumstances surrounding each. No such findings were made. The district judge elicited factual findings by way of written interrogatories which, for convenience of reference, are set forth in full in an appendix to this opinion.*fn3 The first three interrogatories ask simply whether the defendants operated the aircraft for compensation or hire, without any reference to the time, the place, or the flight in which the operation took place. Under the court's instructions, the jury's affirmative answer to the first three interrogatories required it to find that, if one of the three defendants failed to meet any of the requirements made the subject of the remaining thirty-five interrogatories, the other two defendants would be guilty of the same violations. Like the first three interrogatories, the remaining thirty-five pinpointed neither time, place, nor flight. Moreover, the jury was not instructed to consider whether Air-Trans, the company whose employees actually flew the plane, had complied with any of the requirements in question.
To make matters worse, the questions were paraphrasings of Federal Aviation Regulations that were neither read nor explained to the jury. As a result, there was no way in which the jury could make intelligent responses. For example, Interrogatory No. 4 inquired whether any of the defendants "failed to convey operation specification information to their employees." This was the district court's paraphrase of 14 C.F.R. § 121.75(a), which provides that "(e) ach certificate holder shall keep each of its employees informed of the provisions of its operations specifications that apply to the employee's duties and responsibilities." Operations specifications have to do with such things as the types of aircraft authorized for use, en route authorizations, areas of operation, inspection requirements, procedures for control of aircraft weight and balance, etc. 14 C.F.R. § 121.45(b). None of this was explained to the jury. Yet the jury was permitted to find that all three defendants violated the regulation's requirement, including Landy who apparently had only one employee, his secretary.
Interrogatory No. 10 inquired whether the defendants "(f)ailed to get approval to use aircraft for commercial operations...." This interrogatory had reference to 14 C.F.R. § 121.163 which provides that a commercial operator may not operate an aircraft not previously proven for use in commercial operations "unless an aircraft of that type has had, in addition to the aircraft certification tests, at least 100 hours of proving tests," at least 10 hours of which must be flown at night. The jury was instructed to make a factual finding on this point without the slightest knowledge as to what the pertinent regulation required.
A similar lack of definition is found throughout the interrogatories. One wonders, for example, how the jury, to whom not a single Aviation Regulation was read, could be expected to know the "airworthiness requirements of Chapter I of Title 14, Code of Federal Regulations" (Interrogatory No. 9), which "instruments (were) required by the Federal Aviation Regulations" (Interrogatory No. 14), the "requirements of Federal Regulations (Subsection (a), (b)(1) through (9) and (c) of Section 121.369)" (Interrogatory No. 22), or what "aircraft repair (is) proscribed (sic ) by Federal Regulations" (Interrogatory No. 30).
The jury was required to find in several instances whether some condition or state of affairs was "proper" or "acceptable." See Interrogatories 6, 8, 17, 29, 31, and 35. In the context of the litigation, these terms obviously were intended to be synonymous with "legal" or "in compliance with government regulations", see City of Mt. Vernon v. Mount Vernon Trust Co., 270 N.Y. 400, 407-08, 1 N.E.2d 825 (1936), and propriety must be determined by the content of the regulations. See United States v. Frontier Airlines, Inc., 563 F.2d 1008, 1011-12 (10th Cir. 1977). Without judicial guidance as to the regulations' contents, the jury could not make an intelligent response to any of these inquiries.
A number of the interrogatories paraphrased regulations that were not applicable to the facts. Interrogatory No. 6 is based upon 14 C.F.R. § 121.123, and Interrogatory No. 7 is derived from 14 C.F.R. § 121.125. These two sections refer only to the showing that a commercial operator must make who seeks route and area approval. See 14 C.F.R. § 121.111. This case does not involve an application for route or area approval. Moreover, section 121.123 does not require an applicant for approval to show that it maintains proper service and maintenance facilities; it need only show that competent personnel and adequate facilities for service and maintenance are available. Interrogatory No. 12 which deals with "emergency evacuation procedures" is based upon 14 C.F.R. § 121.291. This section is applicable to passenger planes with a seating capacity of more than forty-four passengers, not to cargo planes constructed to carry cows and horses. Id. § 121.291(a).
There is no need to belabor the obvious. The factual findings necessary to support the severe penalty imposed below could not be made without reference to the applicable Aviation Regulations, and the jury was not instructed as to what those regulations were. Rule 49(a) of Fed.R.Civ.P., which deals with special verdicts and interrogatories, provides that the court shall give the jury such explanation and instruction as is necessary to enable the jury to make its findings. If, as in this case, an interrogatory is a mixed question of fact and law, the jury must be instructed as to the legal standards they are to apply. Kissell v. Westinghouse Electric Corp., 367 F.2d 375, 376 (1st Cir. 1966); Scott v. Isbrandtsen Co., 327 F.2d 113, 119 (4th Cir. 1964); Great American Insurance Co. v. Horab, 309 F.2d 262, 266 (8th Cir. 1962); Jackson v. King, 223 F.2d 714, 718 (5th Cir. 1955). Because the jury below was left completely at sea concerning the applicable legal standards, its findings did not constitute a proper and adequate factual basis for the fine imposed.
Appellants were also prejudiced by the district court's failure to have the jury determine as a question of fact which violations, if any, occurred during which flights. It was improper for the court, six months after the jury had concluded its deliberations, to "direct a verdict" as to the number of flights and find that the violations alleged had occurred on each flight. The fact that a government inspector found no life vests in the plane in August did not establish that there were no life vests aboard when a flight was made in May. When a court is permitted to impose a fine of up to $1,000 for each violation, proof of the violation should not be a matter of inference or conjecture. The Government must establish the violation by a preponderance of the evidence. Aircrane, Inc. v. Butterfield, 369 F. Supp. 598, 611 (E.D.Pa.1974) (three-judge court). Instead of "throwing the book" at appellants, the Government should limit its claims on retrial to those it is prepared to prove.
Closely allied to the foregoing, and equally erroneous, was the court's response to the jury's question concerning derivative liability. During its deliberations, the jury inquired of the court that "if they find against more than one defendant on Questions 1, 2 and 3, then if one is guilty in any question, 4 to 39, (sic) are all guilty ...?"*fn4 Although the court's response was not a model of clarity, its ultimate instruction was "Yes". This meant in substance that if any of the three defendants failed to obtain air route authority, maintain proper service facilities, maintain a flight following system, or comply with any of the numerous other regulations in issue, the other defendants would be liable for this failure despite the fact that they or Air-Trans, the actual physical operator of the plane, may have been in compliance with the regulation in question.
This cannot be the law. If appellants are to be treated as joint operators of Landy's plane, they should be entitled to the advantages that accrue to a joint venture, not charged only with the disadvantages. See, e.g., Haas v. 653 Leasing Co., 425 F. Supp. 1305, 1315-17 (E.D.Pa.1977). Where as here we are concerned primarily with alleged errors of omission, if the joint venture as such complied with a regulatory requirement, its members should not each be held derivatively liable because one of them, separately and individually, failed to comply. We see no reason, for example, why each defendant should be required to separately maintain a flight following system nor any reason why all three defendants should be held liable for the failure of one to do so.
Appellants' remaining contentions require little comment. There is no merit in the argument that the Government's claims should have been dismissed on the ground that the Federal Aviation Administration was illegally invading the exclusive regulatory province of the Civil Aeronautics Board. The Administrator of the Federal Aviation Administration is empowered by section 601 to promulgate rules, regulations, and standards to promote flight safety in air commerce, Somlo v. CAB, 367 F.2d 791, 792 n.1 (7th Cir. 1966); and a proper method of enforcement is by suit under section 903(b)(1). Aircrane, Inc. v. Butterfield, supra, 369 F. Supp. at 610-13. There is no unconstitutional ambiguity in the definition of "commercial operator" in 14 C.F.R. § 1.1. See 369 F. Supp. at 612.
Landy's claim that the Government's seizure of his plane violated due process was substantially abandoned in the trial court. Landy's counsel proposed the realignment of parties that put the Government in the position of plaintiff and informed the court that "(w)e are not here to try the issue of seizure...." He did not oppose the Government's motion to dismiss at the close of the case. The notice of appeal to this Court was taken by "additional defendant" Landy from the judgment "in favor of the United States of America against additional defendants, including M. Marshall Landy." There is no reference in the notice of appeal to that portion of the judgment dismissing the complaint of the plaintiff M. Marshall Landy. A retrial on the issue of illegal seizure will not be directed.
Evidentiary and procedural rulings that may not recur on retrial need not now be reviewed.
The judgment appealed from, excepting those portions which award judgment against J. D. Smith Inter-Ocean, Inc. and dismiss the complaint of the plaintiff M. Marshall Landy, is reversed, and the case is remanded to the district court for retrial.
1. Do you find by a preponderance of the evidence that defendant M. Marshall Landy operated the aircraft for compensation for hire?
2. Do you find by a preponderance of the evidence that defendant International Aircraft Leasing, Inc. operated the aircraft for compensation or hire?
3. Do you find by a preponderance of the evidence that defendant J.D. Smith Inter-Ocean, Inc. operated the aircraft for compensation or hire?
(If your answer is "No" for each defendant, then your job is finished. Do not go on. If your answer is "Yes" for any or all of the defendants, then you are to answer the remainder of the questions with respect to each defendant for which you answered "Yes" above.)
Do you find by a preponderance of the evidence that, while operating the aircraft, any of the defendants:
4. Failed to conveyed operation specification information to their ...