Appeal from judgment imposing civil penalties after a jury trial finding violations of Federal Aviation Act safety regulations. Although operations were conducted in form of subleases purporting to transfer operational control to shipper, where owner-lessor supplied plane and, through alter ego, crews; and where lessee directed and made shipping arrangements and handled aircraft maintenance, the United States District Court for the Southern District of New York, Robert L. Carter, Judge, and a jury correctly found that owner and lessee both engaged in operation of aircraft for compensation or hire, and thus were subject to 14 C.F.R. Part 121 safety regulations.
Oakes, Van Graafeiland, and Meskill, Circuit Judges. Van Graafeiland, Circuit Judge, concurring in part and dissenting in part.
M. Marshall Landy and International Aircraft Leasing, Inc. (IAL) appeal from a judgment imposing civil penalties of $378,000 against Landy and $189,000 against IAL for violations of safety regulations promulgated under the authority of subchapter VI of the Federal Aviation Act, 49 U.S.C. §§ 1421-32 (1976 & Supp. IV 1980). The United States District Court for the Southern District of New York, Robert L. Carter, Judge, entered the judgment after a jury returned special verdicts finding by a preponderance of the evidence that Landy and IAL both operated a Boeing 707 for compensation or hire on forty-three separate flights from May 2, 1977 to August 2, 1977.*fn1 Each flight violated twenty-seven Federal Aviation Regulations (FARs); one flight violated twenty-eight FARs.*fn2 The factual and legal defense was that the plane's operations did not make Landy and IAL subject to these regulations, found in 14 C.F.R. Part 121, because Landy and IAL were not commercial operators of the Boeing 707, but rather subleased it to customers who operated it. On appeal, they challenge the sufficiency of the evidence on this point. Additionally, they challenge procedural and evidentiary rulings, the court's charge to the jury, and the scope of the sanctions.*fn3 We hold that the jury's findings of fact were neither clearly erroneous nor affected by an erroneous charge; that the trial judge neither erred as a matter of law nor abused his discretion in the rulings; and that the calculation of fines was correct, and we therefore affirm the judgment.
The Federal Aviation Administration (FAA) has authority to promote aircraft safety by regulation of civil aircraft in air commerce. 49 U.S.C. § 1421(a). Any operation that "directly affects, or which may endanger safety in, interstate, overseas, or foreign air commerce" is included in the definition of air commerce. 49 U.S.C. § 1301(4). Pursuant to general statutory authority, the Administrator of the FAA has issued extensive rules, regulations and minimum standards designed to enhance the safety of civil aeronautics. See generally 14 C.F.R. Parts 1-199.
Of particular relevance to this case are two portions of those regulations, Part 91 and Part 121. Part 91 sets forth "general operating and flight rules" for "the operation of aircraft . . . within the United States" and, with limited exceptions, for the operation of "civil aircraft of U.S. registry outside of the United States." 14 C.F.R. § 91.1(a)-(b). In addition to these rules of general applicability, the FAA has promulgated a far more extensive and stringent set of rules for certification and operation of aircraft for what is commonly considered commercial aviation.*fn4 Part 121 applies to two types of aviation: (i) air carriers, 14 C.F.R. § 121.1(a)(1)-(4), and (ii) commercial operators when they engage "in the carriage of persons or property in air commerce for compensation or hire." 14 C.F.R. § 121.1(a)(5). This case concerns the second of these two categories.
The statute provides that "any person who causes or authorizes the operation of the aircraft, whether with or without the right of legal control (in the capacity of owner, lessee, or otherwise) of the aircraft, shall be deemed to be engaged in the operation of aircraft" within the meaning of the Federal Aviation Act. 49 U.S.C. § 1301(31) (Supp. IV 1980). A "commercial operator" is defined by its ordinary meaning.*fn5 Operators for compensation or hire must obtain FAA approval.*fn6 Together with an operating certificate, 14 C.F.R. § 121.3(f), they must also obtain operations specifications, which determine such matters as the type of operations authorized, areas of operation, time limits for inspections and overhauls, airport authorizations and limitations, and weight and balance requirements for the aircraft. 14 C.F.R. § 121.45(b). To obtain a certificate and operations specifications, operators must demonstrate to the FAA their ability to comply not only with their terms, but also with the other regulations of Part 121 applicable to operations for compensation or hire. These regulations go to such varied matters as qualifications and training of maintenance and flight personnel, equipment required in the aircraft and on the ground, and preparation of detailed manuals governing inspection, maintenance and operation of the aircraft.
Under the Federal Aviation Act, noncompliance may result in revocation of certification, 49 U.S.C. § 1429, civil fines, id. § 1471, or criminal penalties, id. § 1472. Failure to comply with any of the applicable regulations subjects a person to civil penalties "not to exceed $1000 for each such violation;" each day of continuing violations is a separate offense. 49 U.S.C. § 1471(a)(1). See 49 U.S.C. § 1430(a)(5) (prohibiting operation of aircraft in air commerce in violation of FAA rules, regulations, or certification). Collection of such penalties is ordinarily by civil suit against the violator, 49 U.S.C. § 1473(b)(1), and either party may demand a trial by jury "of any issue of fact" that has not previously been determined in an administrative hearing. Id.*fn7
II. Operation of the Aircraft
Landy bought a Boeing 707 from a German airline in 1976. The plane was converted to carry cargo. Landy and IAL executed a one year lease agreement on April 28, 1977. Between May 2 and August 2, 1977, IAL entered into a series of subleases. Most of these subleases, operating out of Newburgh, New York, involved transportation of livestock to foreign airports. On occasion, the plane was ferried by an American crew to a foreign airport, and these crews flew seven trips between foreign airports. A typical sublease contract stated that the shipper-lessee would have
full and exclusive possession, use and control of the Aircraft, shall have the sole responsibility for operation, use and control, for pilot assignment and direction, and for all other aspects of utilization of the Aircraft. Lessee shall obtain from a reputable aircraft service company or employ directly properly certified crew members . . . [who] shall be under the complete supervision, direction and control of Lessee and not in any way under the supervision, direction or control of or in any way responsible to Lessor.
Thus, at all times, Landy and IAL operated in form as if the plane were leased to the cargo shipper who controlled its operation, bringing the flights under the General Operating Rules, 14 C.F.R. Part 91. The jury, however, found that Landy and IAL retained control of the flights, which were operated for compensation, and should therefore have complied with the stricter certification, inspection and maintenance requirements of 14 C.F.R. Part 121.
A. Landy. The link between Landy and operational control of the plane is Henry Warton, president of Air-Trans Ltd., an entity the jury apparently concluded was a shell company for Landy.*fn8 Warton told Landy in the summer of 1976 that Lufthansa was interested in selling the aircraft. Warton brought the Lufthansa representative to Landy to negotiate the sale, went to Germany to complete the paperwork, accompanied the plane back to Miami where he supervised its refitting from passenger to cargo configuration, and supervised the preparation of an inspection program and application for airworthiness certification by the FAA. Warton then found a party willing to lease the plane. He negotiated the IAL lease under which the plane operated during the three-month period at issue here, and delivered the plane to IAL at Stewart Airport in New York State. Warton notified IAL in August 1977 that Landy was terminating the lease, repossessed the plane for Landy several weeks later, and then supervised the operation of various of Landy's aircraft both directly for Landy and under lease to other parties. Indeed, because Warton was to receive twenty-five percent of Landy's profits from operation of the aircraft for his services as broker on the original sale, the jury could have concluded that Landy and Warton were joint venturers.
Warton's company, Air-Trans Ltd., supplied all the crews for all the subleased flights. Air-Trans appeared as transferee on the bill of sale when Landy purchased the aircraft from Lufthansa and authorized the work order for inspection of the aircraft in Florida. Moreover, Air-Trans had no office of its own. Warton conducted Air-Trans' business from Landy's office, including the payment of crew members for the aircraft and, frequently, supervision of the crews when they conducted overseas flights. Landy's secretary signed all the Air-Trans checks paying crew members for their services.
B. IAL. The link between IAL and operational control of the plane is J.D. Smith Inter-Ocean, Inc. (J. D. Smith), the company serving as IAL's exclusive sales agent.*fn9 IAL relied on the terms of the sublease agreements to prove that IAL was not responsible for operation of the aircraft. The evidence, however, indicated that IAL and J. D. Smith performed virtually all of the functions necessary to operate the aircraft, and the shippers were almost entirely excluded from any responsibility for the aircraft or its operation. A shipper would ask the air export manager of J. D. Smith to arrange for shipment of cargo. The manager would then send a sublease agreement prepared by IAL. At the same time, the manager obtained from IAL the cost charged by IAL for the flight, and from Air-Trans the cost of the crew, and would inform the shipper of the total cost. The shipper was responsible only for delivering the cargo to the airport when IAL specified that the plane would be ready. IAL provided maintenance, fuel and all auxiliary services for the plane, either directly or through airport personnel, who billed IAL or J. D. Smith, not the shipper. J. D. Smith supplied animal storage equipment, refitted the plane for each cattle-carrying flight, and disbursed the shipper's lump sum payment to Air-Trans (for the crew) and to IAL (for the other costs of operation).
The language of the subleases notwithstanding, the jury could conclude that IAL, by handling the shipping arrangement and payments directly and through J. D. Smith, as well as Landy, by supplying the aircraft and, through Warton and Air-Trans, the crews, had control of the plane. The facts support the jury's finding that IAL and Landy both operated the plane for compensation or hire, and therefore that IAL as well as Landy should have complied with Part 121 of the Federal Aviation Regulations governing commercial operators.*fn10 Courts evaluating relationships similar to those here have looked beyond the form of contractual agreements to the substance of actual aircraft operations, sanctioning those who effectively operate an aircraft for compensation or hire in violation of FAA safety regulations. See e.g., Aircrane, Inc. v. Butterfield, 369 F. Supp. 598, 601-03, 611-13; (E.D. Pa. 1974) (three judge court); United States v. Bradley, 252 F. Supp. 804, 805 (S.D. Tex. 1966). The evidence at trial was clearly sufficient to support the jury's finding that Landy and IAL operated the aircraft for compensation or hire and were therefore subject to Part 121 safety regulations. See United States v. ...