[00:00:00] Speaker 05:
Let's start with 25-9523, Frontier Airlines versus Department of Homeland Security.

[00:00:06] Speaker 05:
Mr. Feinberg.

[00:00:11] Speaker 02:
Good morning, Your Honors.

[00:00:13] Speaker 02:
Council, may it please the Court.

[00:00:14] Speaker 02:
Adam Feinberg on behalf of Petitioner of Frontier Airlines.

[00:00:19] Speaker 02:
The main issue in this case is whether a user fee standard authorizes TSA to obtain a fee when there is no user.

[00:00:28] Speaker 02:
It does not.

[00:00:29] Speaker 02:
The fee instructs TSA to impose a fee on passengers who take a trip in air transportation to pay for certain TSA costs of providing aviation security services, all of which are specific to airports and flights.

[00:00:46] Speaker 02:
In this case, the customers canceled their tickets before flying and thus never became passengers, never took a trip, never engaged in air transportation, and never received any security services from TSA.

[00:01:00] Speaker 02:
Based on an argument Mr. Sean and I had two weeks ago in the Fifth Circuit regarding essentially the same issue, I expect that he will tell you that TSA concedes that an individual who doesn't travel does not incur a fee.

[00:01:17] Speaker 02:
Instead, TSA tries to justify its position in this case based on two arguments.

[00:01:22] Speaker 02:
First, it says Frontier has no statutory authority to keep the funds at issue.

[00:01:27] Speaker 02:
But that's totally irrelevant.

[00:01:29] Speaker 02:
The question here has nothing to do with Frontier's statutory authority.

[00:01:34] Speaker 02:
It's whether TSA has statutory authority to keep the funds at issue.

[00:01:40] Speaker 02:
And it does not.

[00:01:41] Speaker 01:
Well, the statute says that Frontier is to remit collected fees at the end of each month.

[00:01:47] Speaker 01:
Why isn't that?

[00:01:48] Speaker 01:
Why doesn't that cover the procedure that they're advocating?

[00:01:52] Speaker 02:
Right, that's exactly TSA's second argument, but there's a whole host of reasons why that's not the case, and I'll sort of go through them.

[00:01:59] Speaker 02:
First, just starting with the text of the statute, that's not quite what the statute says.

[00:02:04] Speaker 02:
It says that a fee has to be remitted if there's an incurred fee.

[00:02:11] Speaker 02:
And I think TSA's argument is premised mainly on subsection E1, which speaks of fees imposed and amounts collected under this section.

[00:02:22] Speaker 02:
But I think the only way to read that phrase is that the amounts need to be both a fee imposed and an amount collected under this section in order for it to be triggered.

[00:02:35] Speaker 02:
Because otherwise it doesn't make any sense.

[00:02:37] Speaker 02:
That provision says that those things, fees imposed and amounts collected, must be given to the administrator of TSA while a fee incurred that is not collected

[00:02:50] Speaker 02:
doesn't go to TSA, at least not in the first instance.

[00:02:54] Speaker 02:
It goes from the passenger to the airline.

[00:02:57] Speaker 01:
So Frontier would collect the fee when it sells the ticket to its customer, right?

[00:03:05] Speaker 01:
Correct.

[00:03:05] Speaker 01:
And then you put it into your TSA account?

[00:03:09] Speaker 01:
Is that fee then transmitted to TSA at the end of the month, even if the passenger hasn't flown yet?

[00:03:20] Speaker 01:
If the passing that's question one and then just if that's correct then does Frontier get the claw back the fee when a passenger doesn't fly or gets a travel credit by just offsetting a future a future Deposit in its TSA account that how it works

[00:03:42] Speaker 02:
More or less, that's correct.

[00:03:45] Speaker 02:
The amount has to be paid to TSA at the end of the following month.

[00:03:49] Speaker 02:
And in this particular case, all but one of the fees were never given to TSA.

[00:03:54] Speaker 02:
So there probably will be some talk about the refund provision.

[00:03:57] Speaker 02:
But the refund provision is totally irrelevant, because these amounts were never given to TSA, because the passenger decided not to fly before the amounts were given to TSA.

[00:04:08] Speaker 04:
So at that point, even... Well, did Frontier collect

[00:04:12] Speaker 04:
The fund from the passenger who decided not to fly?

[00:04:17] Speaker 02:
Correct.

[00:04:18] Speaker 02:
Frontier initially collected that amount.

[00:04:21] Speaker 04:
But... And if they give it all back to the passenger, there's no problem, correct?

[00:04:29] Speaker 02:
Correct.

[00:04:31] Speaker 02:
TSA can say... Why should they keep?

[00:04:36] Speaker 04:
Why should Frontier be allowed to keep?

[00:04:38] Speaker 04:
the $5.60 if the ticket is just totally canceled and there's no refund.

[00:04:49] Speaker 02:
Well, first of all, we do argue that there is a valid refund, but that's a separate issue.

[00:04:54] Speaker 02:
The reason is because TSA has no statutory authority to ever receive a fee if the passenger doesn't travel.

[00:05:01] Speaker 02:
Frontier, on the other hand, is governed by its contract of carriage with its passengers, which explicitly says Frontier is entitled to those funds.

[00:05:09] Speaker 02:
So this would be a windfall to TSA because no one travels.

[00:05:14] Speaker 02:
TSA concedes that no fee has been incurred.

[00:05:17] Speaker 02:
Yet TSA wants to keep the fee even though no passenger has traveled.

[00:05:25] Speaker 05:
The language fees imposed and amounts collected is been troubling me.

[00:05:30] Speaker 05:
And it was not addressed in your brief.

[00:05:32] Speaker 05:
I thought you made a decent argument just now about what it means.

[00:05:36] Speaker 03:
But it seems to be more.

[00:05:39] Speaker 03:
Excuse me, Judge Harris.

[00:05:40] Speaker 03:
Can you please speak to the microphone?

[00:05:42] Speaker 05:
Yes, sir.

[00:05:44] Speaker 05:
He's been my senior for so many years in many different capacities.

[00:05:48] Speaker 05:
So I always do what Judge Kelly tells me to.

[00:05:52] Speaker 05:
I'll try to comply.

[00:05:53] Speaker 05:
Sorry.

[00:05:54] Speaker 05:
Thank you.

[00:05:58] Speaker 05:
But it seems that the fee is imposed and the amounts are collected when the ticket is sold.

[00:06:04] Speaker 05:
The fee is imposed at that point, amounts collected, and then those funds are payable to TSA, essentially.

[00:06:17] Speaker 05:
If the person doesn't travel, then

[00:06:24] Speaker 05:
Frontier, if it's before Frontier is remitting the amounts collected, then Frontier just doesn't send that on.

[00:06:33] Speaker 05:
But if it is sent that on, if it is sent on, then TSA ordinarily I would hope they have the authority to refund it.

[00:06:43] Speaker 05:
But as with many intermediaries, they're not going to refund it to the intermediary unless the intermediary is going to refund it to the passenger.

[00:06:54] Speaker 05:
Why isn't that a natural reading of that?

[00:06:58] Speaker 05:
of that section, E1.

[00:07:00] Speaker 02:
Well, I think there's several problems with that.

[00:07:02] Speaker 02:
First of all, the fee isn't actually owed at the time the ticket is sold.

[00:07:06] Speaker 05:
TSA says that... We're talking about fee imposed.

[00:07:10] Speaker 05:
It's definitely been imposed at the time that the ticket is paid for.

[00:07:16] Speaker 05:
Is it not?

[00:07:17] Speaker 02:
Well, I would argue no.

[00:07:18] Speaker 02:
It's not imposed until there's actually a passenger who engages in air transportation.

[00:07:22] Speaker 02:
It happens to be collected because TSA has told everybody, this is in their letter at AR3,

[00:07:27] Speaker 02:
that they want airlines to collect and remit based on when the ticket is sold.

[00:07:32] Speaker 02:
But that's not what the law says.

[00:07:34] Speaker 02:
We go over this a lot in our opening brief.

[00:07:38] Speaker 02:
There's no obligation to collect or remit until the passenger gets on the plane under the statutory scheme.

[00:07:45] Speaker 02:
But I think there's a bigger point, Judge Hartz, which is

[00:07:50] Speaker 02:
There are lots of other provisions, particularly in the tax code, that have very similar provisions that say you have to collect and remit.

[00:07:59] Speaker 02:
The Air Transportation Excise Tax that's at issue in a bunch of the cases the government cites says that.

[00:08:04] Speaker 02:
And if you look at the cocky decision from the Seventh Circuit, the very first paragraph talks about these are the provisions that are at issue in that excise tax.

[00:08:13] Speaker 02:
And it says the airline must collect and remit.

[00:08:16] Speaker 02:
But then there's a separate provision in 6415A that commands the result that TSA wants in this case.

[00:08:25] Speaker 02:
And so under the reading you just described, Judge Hartz, that provision, 6415A, would be either that would be superfluous or the collect and remit obligations would be superfluous because you'd have the same result without section 6415A.

[00:08:43] Speaker 02:
And the Supreme Court in the Jefferson Electric Manufacturing case makes the same exact point.

[00:08:47] Speaker 02:
It says there's a statute that specifically says you have to give the money back to the customer.

[00:08:53] Speaker 02:
But before that, the collector could get a refund even without that.

[00:08:59] Speaker 02:
And so the general rule that TSA is arguing for, that you can never keep the money as the collector, doesn't exist unless there's a specific statutory provision that says that, as there is in a handful of provisions in the Internal Revenue Code.

[00:09:14] Speaker 02:
But there isn't one here.

[00:09:15] Speaker 05:
Let me ask a more general question to put this in perspective.

[00:09:20] Speaker 05:
What is the rationale for frontier

[00:09:23] Speaker 05:
Not to you find the entire ticket price when the flight is canceled.

[00:09:27] Speaker 05:
I'm not just talking about this fee But why not refund all of it?

[00:09:33] Speaker 05:
Well, I think so I buy a ticket $200 ticket

[00:09:38] Speaker 05:
$5.60 tax here, whatever the amount is.

[00:09:42] Speaker 05:
You don't take the trip.

[00:09:44] Speaker 05:
Why doesn't Frontier, just as a matter of course, then refund the entire money?

[00:09:48] Speaker 05:
What's the rationale for not refunding the money?

[00:09:50] Speaker 02:
Well, it's just a business decision.

[00:09:52] Speaker 02:
They can strike whatever bargain they want with their customers, and they're able to offer a cheaper fare up front if they offer a ticket that has more limited refund rates.

[00:10:04] Speaker 05:
So there's no business reason?

[00:10:05] Speaker 05:
It's not because of the cost of

[00:10:08] Speaker 05:
processing this or something like that.

[00:10:10] Speaker 05:
They just decide, okay, we can, this is a way to get some extra money for frontier.

[00:10:17] Speaker 02:
Maybe I'm misunderstanding your question.

[00:10:18] Speaker 02:
Do you mean for this particular fee or for just in general?

[00:10:22] Speaker 05:
For any fee.

[00:10:23] Speaker 05:
For not refunding in full the price of the ticket when someone cancels.

[00:10:28] Speaker 05:
I assume it's because there are administrative expenses in doing this.

[00:10:31] Speaker 02:
Well, for sure there are.

[00:10:32] Speaker 02:
Maybe I misunderstood your question, Judge Hartz.

[00:10:35] Speaker 02:
And I think it's important to keep in mind, too, so you have a ticket that is going to be refunded just to airfare via this credit.

[00:10:44] Speaker 02:
And so everything else has to follow suit or it's chaos.

[00:10:48] Speaker 02:
So there's not just the TSA fee, but there's a federal excise tax, there are some other fees like passenger facilities charges.

[00:10:56] Speaker 02:
If everything didn't follow suit, you might have a situation where Frontier had to send refunds to different people in different forms, which is administrative chaos.

[00:11:05] Speaker 02:
Take this for example.

[00:11:07] Speaker 02:
So TSA in its letter in 2002 says the money has to be refunded to the ticket purchaser.

[00:11:15] Speaker 02:
But in 2020, their guidance says it has to be refunded to the passenger.

[00:11:20] Speaker 02:
Well, what if those aren't the same person, like I buy a ticket for my wife?

[00:11:24] Speaker 02:
It's totally unclear who TSA says the money should go to.

[00:11:27] Speaker 02:
Well, imagine then if the IRS

[00:11:29] Speaker 02:
Airport authorities who control the passenger facilities, charges, customs, which has their own user fee, all had different rules and said, well, you have to refund in this form or that form.

[00:11:40] Speaker 02:
It's totally unworkable from the airline's perspective.

[00:11:44] Speaker 05:
What about the provision that says no portion of the fee collected under this section may be retained by the air carrier, et cetera, for the cost of collecting, handling, and remitting the fee?

[00:11:58] Speaker 05:
except for the interest accrued.

[00:12:00] Speaker 02:
Yeah, I think that's addressing a very specific scenario of you cannot keep Frontier a portion of the 560.

[00:12:07] Speaker 02:
And there's a lot of context for that.

[00:12:09] Speaker 02:
The passenger facility charge, for example, says airlines get to keep $0.11 out of the $4.50 for that particular fee.

[00:12:17] Speaker 02:
So all this is saying is if a fee is owed, you've got to give the whole 560.

[00:12:21] Speaker 02:
You can't keep a portion of it.

[00:12:23] Speaker 02:
But here, the fundamental problem for TSA is there was no fee incurred.

[00:12:29] Speaker 02:
And if there's no fee incurred, they are simply never entitled to obtain the funds.

[00:12:35] Speaker 02:
There's no statutory authority for that.

[00:12:38] Speaker 02:
And this is exactly what the court in a quarter of international trade held in the similar Southwest case, that these administrative provisions about collection and remittance simply cannot override the general authority provision in subsection A that says when TSA is entitled to a fee.

[00:12:55] Speaker 05:
You've raised a kind of subtle issue.

[00:12:57] Speaker 05:
You talked about the fee incurred.

[00:13:00] Speaker 05:
E1 talks about the fee imposed.

[00:13:04] Speaker 05:
Is it imposed at the time that the ticket is sold but it's not incurred until the passenger travels?

[00:13:13] Speaker 05:
Could that be how to read E1?

[00:13:17] Speaker 02:
I don't think so because you'd have the same problem that I mentioned before about E1.

[00:13:22] Speaker 02:
Because from the passenger's perspective, the passenger never owes anything to the TSA administrator.

[00:13:30] Speaker 02:
So I think you have to be talking about things that are both owed under the statute.

[00:13:35] Speaker 02:
And so subsection E2 talks about the collection obligation on the airline is for things that are incurred under the statute.

[00:13:42] Speaker 02:
That's the only thing that needs to be collected.

[00:13:47] Speaker 02:
I don't know if you have any follow-up, but I'd like to reserve the rest of my time.

[00:13:50] Speaker 05:
Any questions, Judge Kelly?

[00:13:55] Speaker 05:
Thank you.

[00:13:56] Speaker 05:
Thank you.

[00:14:05] Speaker 00:
Good morning and may it please the court, Whaley Shaw for TSA.

[00:14:08] Speaker 00:
I'd like to start with the statutory text and specifically the provisions in E1, E3, and G.

[00:14:15] Speaker 00:
I think the way that Mr. Feinberg would read E1 would completely make the amounts collected provision superfluous.

[00:14:25] Speaker 00:
But I think the more natural reading of that provision is it actually does mean all amounts collected, and that's consistent with the provision in G. And the reason is that it is

[00:14:36] Speaker 00:
As Congress recognized specifically in expressly in subsection G, it is possible for a fee to be properly collected and yet no longer owed at some later point in time.

[00:14:50] Speaker 00:
And so what E1 says is that even those amounts must be remitted to TSA.

[00:14:56] Speaker 00:
But then Congress also enacted subsection G to govern how those overcollected or overpaid amounts should be dealt with.

[00:15:06] Speaker 00:
And I would also specifically note that in contrast to Mr. Feinberg's argument,

[00:15:12] Speaker 00:
Subsection G actually refers to all amounts paid, fees paid in excess, which indicates that the trigger for Subsection G is not the remittance of the fee from the airline to TSA, but rather the payment of the fee by the passenger.

[00:15:32] Speaker 00:
So as soon as the passenger pays the fee, TSA has the authority to refund it.

[00:15:39] Speaker 00:
And that also makes sense because

[00:15:41] Speaker 00:
The statute and regulations make clear that the fees that the airline collects are held in trust for TSA, and the airline has no legal or equitable interest in those funds.

[00:15:54] Speaker 00:
So is TSA refunding the fee to non-travelers?

[00:15:58] Speaker 00:
TSA has designed a refund procedure that is designed to accomplish exactly that.

[00:16:03] Speaker 00:
which is that it directs airlines to refund the fee to non-traveling passengers, and then it reimburses the airlines for giving that refund.

[00:16:13] Speaker 00:
Now, the problem here is not that TSA does not want to refund those passengers.

[00:16:17] Speaker 00:
The problem is that Frontier was supposed to do that and collect the money back from TSA.

[00:16:22] Speaker 01:
Well, if that's the economic reality of it, why not let Frontier just hold onto the fee and let's see if the traveler, if the customer travels,

[00:16:32] Speaker 01:
If he doesn't travel, then TSA doesn't need to then refund money back to the airline.

[00:16:42] Speaker 01:
That seems like a completely wasteful step.

[00:16:46] Speaker 01:
And then TSA doesn't have to keep track of who's going through the turnstile at airport security.

[00:16:57] Speaker 00:
So let me be clear.

[00:16:58] Speaker 00:
That does happen.

[00:16:59] Speaker 00:
And it can be the case.

[00:17:02] Speaker 00:
that the fee never actually reaches TSA's accounts, but is refunded directly from Frontier to the passenger.

[00:17:12] Speaker 00:
And that, again, is consistent with subsection G, because as I was saying,

[00:17:16] Speaker 00:
the TSA's authority to refund the fee starts upon payment of the fee by the passenger.

[00:17:23] Speaker 00:
So if Frontier has collected the fee but has not remitted it yet to, I'm sorry, if Frontier has collected the fee but has not remitted it to TSA, TSA can nonetheless authorize a refund pursuant to the refund procedure that is established, and that allows

[00:17:41] Speaker 00:
Frontier to refund that fee to the passenger and not pay it to TSA.

[00:17:46] Speaker 05:
How is that consistent with E3?

[00:17:49] Speaker 05:
It says a fee collected shall be remitted on the last day of each counter month by the carrier collecting the fee.

[00:17:57] Speaker 05:
Right.

[00:17:57] Speaker 05:
There's no exception there.

[00:17:59] Speaker 00:
Right.

[00:18:01] Speaker 00:
There is no statutory exception.

[00:18:03] Speaker 00:
I think that shows why Frontier's position is wrong.

[00:18:07] Speaker 05:
No, but what you're saying is that that position is

[00:18:11] Speaker 05:
What I'm getting at, I probably didn't phrase it well.

[00:18:14] Speaker 05:
E3 seems to not allow what you just described as the procedure used.

[00:18:20] Speaker 05:
If a passenger pays the fee, cancels the trip, and then the time for remittance arises, you're saying that Frontier doesn't have to pay that fee to TSA.

[00:18:34] Speaker 05:
But E3 seems to say it does require it to pay.

[00:18:38] Speaker 00:
I entirely agree with Your Honor that E1 and E3 contemplate a one-way flow of funds to TSA as soon as a fee is collected, but there is a single statutory exception to that one-way flow, which is subsection G. Again, as I was saying, subsection G says that

[00:18:55] Speaker 00:
that TSA may refund any fee paid by mistake or any amount paid in excess of that required.

[00:19:03] Speaker 00:
So as soon as the fee is paid, TSA's authority to refund that fee is triggered under subsection G. But there's no refund in the process that has been described as I understand it.

[00:19:14] Speaker 05:
Right.

[00:19:14] Speaker 05:
There's no refund because there's no payment made to TSA if the passenger cancels the trip before the remittance is required.

[00:19:24] Speaker 05:
So that's not a refund process.

[00:19:28] Speaker 05:
Frontier never pays the money, so there's no refund by TSA.

[00:19:32] Speaker 00:
TSA, I think that's clarifying by the regulations that TSA has enacted pursuant to the statute.

[00:19:40] Speaker 05:
Well, pursuant to or contrary to?

[00:19:42] Speaker 00:
Pursuant to, because subsection G expressly authorizes TSA to create a refund procedure and to enact regulations to implement the fee.

[00:19:52] Speaker 00:
And what those regulations specify is that

[00:19:55] Speaker 00:
that as soon as a fee is collected, that fee is held in trust for TSA.

[00:20:00] Speaker 00:
So it's TSA's money as soon as it's been collected, and that airlines have no equitable or legal interest in those fees.

[00:20:09] Speaker 00:
So that money belongs to TSA upon collection, and then TSA can authorize the refund of that fee pursuant to subsection G entirely consistent with the statute.

[00:20:20] Speaker 05:
But even if your Honor... I don't see why that's a refund.

[00:20:25] Speaker 05:
if the money is never paid to TSA?

[00:20:30] Speaker 00:
If your honor disagrees, then there could be a scheme in which airlines always have to pay the fee, that they don't have the option to return this fee in advance.

[00:20:44] Speaker 00:
And they'll always pay the fee and then refund it later and be reimbursed by

[00:20:49] Speaker 00:
I mean, the functional result of that scheme would be entirely the same.

[00:20:55] Speaker 00:
No matter what happens, it's always the case that if the passenger doesn't travel, the airline frontier should issue a refund to the passenger, and then at some point, you know, there's a question about, you know, does it have to also pay that fee in the next monthly payment, and then when can it offset that fee?

[00:21:13] Speaker 00:
And those are issues that we can argue about.

[00:21:14] Speaker 01:
This just seems like an accounting exercise, and, you know, I think Judge Hartz makes a good point.

[00:21:19] Speaker 01:
But we're seeking the economic reality is that TSA should only get fees for Travelers right and What what's offended TSA here is that Frontier and Southwest and maybe other airlines are are getting a bit of a windfall for canceled trips, right?

[00:21:41] Speaker 01:
Is that what driving this?

[00:21:42] Speaker 00:
Yes, because it's clear that under the statutory and regulatory scheme, the only two places that the fee can end up are with TSA or with the passenger.

[00:21:52] Speaker 00:
Airlines serve only as a collection agent and conduit of funds both in collecting the fee and in refunding it.

[00:21:59] Speaker 00:
So what's happening here is that airlines are sort of taking advantage of their role in that process

[00:22:05] Speaker 00:
to keep that fee for themselves and that's entirely inconsistent with the scheme.

[00:22:09] Speaker 01:
What happens with other airlines like United or American that don't have enforcement actions?

[00:22:15] Speaker 00:
I don't know specifically about any individual airline but what I do understand from TSA is that there are many airlines that do in fact comply with all of their obligations under the refund scheme

[00:22:28] Speaker 00:
and against, you know, against which TSA has not sought recoveries.

[00:22:34] Speaker 01:
Well, is there anything in the record or in the public domain that we could look and see what TSA thinks the optimal procedure is?

[00:22:44] Speaker 00:
Well, in terms of what the optimal procedure is, that's laid out in the 2002 and the 2020 guidance.

[00:22:51] Speaker 00:
And for an indication of what the airlines do, we obviously don't have extensive evidence in the record about other airlines' practices.

[00:22:57] Speaker 00:
But TSA does expressly note in a footnote that we cite in our brief that other airlines do comply with their obligations in this respect.

[00:23:06] Speaker 00:
And that is also what I understand from my discussions with TSA.

[00:23:10] Speaker 00:
And ultimately, the point of this scheme

[00:23:13] Speaker 00:
this refund scheme is to ensure that the passenger who actually pays the fee gets the refund.

[00:23:21] Speaker 00:
And that only works if the airline is not allowed to keep the fee, because that gives them an incentive to refund the fee to the passenger in their goodwill.

[00:23:32] Speaker 01:
The airlines are refunding the fee, except in particular circumstances that they contracted with the passenger to keep the fee in certain circumstances.

[00:23:43] Speaker 01:
The passenger wants the credit and the contract with the customer allows that.

[00:23:51] Speaker 01:
Why would TSA care about that private transaction?

[00:23:56] Speaker 00:
Because Congress authorized TSA to establish a procedure for refunding the fee in subsection G of the statute.

[00:24:04] Speaker 00:
TSA has in fact created such a procedure

[00:24:07] Speaker 00:
And so it's not a matter for private contract for Frontier to require passengers to agree to some other method of refunding the one than the one.

[00:24:16] Speaker 01:
The statute prohibits private contracting.

[00:24:19] Speaker 00:
It doesn't prohibit private contracting, but it does.

[00:24:22] Speaker 00:
On the fee it does, under your argument.

[00:24:25] Speaker 00:
It does not allow parties to establish their own contractual refund procedure that's different from the one that Congress authorized TSA to establish under subsection four.

[00:24:36] Speaker 00:
And I would just point out the extreme consequences of that position, because under Frontier's theory, for example, every airline could just require in its contract of carriage that passengers give up their right to their security fee refund in advance.

[00:24:58] Speaker 00:
And so no passenger would ever get a security refund.

[00:25:02] Speaker 00:
And according to Frontier, that would be

[00:25:04] Speaker 00:
entirely consistent with the statute.

[00:25:06] Speaker 00:
That cannot be right.

[00:25:07] Speaker 00:
That would be a complete end run around the refund scheme and if the same theory were followed in other contexts.

[00:25:16] Speaker 05:
Why would it be an end run?

[00:25:17] Speaker 05:
There would still be instances where there are errors that require a refund, right?

[00:25:23] Speaker 00:
Right, and so as I understand it,

[00:25:25] Speaker 00:
What Frontier is saying is that they can require passengers through their contract of courage to agree up front to give up any security fee refund that they are entitled to from TSA.

[00:25:39] Speaker 00:
And so there could very well be no refund to any passenger, because every contract of carriage would just say, well, the airline gets to keep the refund.

[00:25:49] Speaker 00:
We don't give it to the passenger.

[00:25:51] Speaker 00:
Or there could be other variations on it, obviously.

[00:25:53] Speaker 00:
They could place it in a travel credit for 90 days, for 60 days, for 30 days, for one day, and then upon expiration, collect it.

[00:26:00] Speaker 00:
Or they can say they're applying it to some other fee.

[00:26:02] Speaker 00:
But ultimately, there are many contractual ways that they could set this up, where the ultimate result is

[00:26:08] Speaker 00:
the airline gets to keep the fee and not the passenger.

[00:26:12] Speaker 00:
And that is the problem.

[00:26:13] Speaker 00:
We know in this case that no refund was ultimately effectuated under subsection G because the money in this case, the money that was collected for the fee that was expressly labeled as a line item, the 9-11 security fee, ultimately ended up

[00:26:31] Speaker 00:
in Frontier's books as revenue and not in the pockets of its passengers.

[00:26:35] Speaker 00:
And so given that, there is no reason why TSA should recognize Frontier as having made a valid refund and therefore provide Frontier the refund that it seeks.

[00:26:49] Speaker 05:
Frontier... Don't you think the 90-day, the right to use the money within 90 days has some economic value?

[00:26:57] Speaker 00:
The way I would understand it is that when

[00:27:00] Speaker 00:
Frontier provides a travel credit.

[00:27:02] Speaker 00:
It doesn't actually give the passenger the money.

[00:27:04] Speaker 00:
It holds onto the money in its own accounts, but it gives the passenger some beneficial interest in that money, in the sense that the passenger can use that credit amount to purchase future travel.

[00:27:17] Speaker 00:
But after 90 days, Frontier wipes out that beneficial interest.

[00:27:22] Speaker 00:
It takes the money out of the travel.

[00:27:23] Speaker 05:
But when it creates that beneficial interest,

[00:27:25] Speaker 05:
Says you can use this for 90 days that has some value does it not it might have some value that doesn't make it a valid refund so for example if it's a partial refund then that maybe it's not worth as much as having the five dollars and 15 cents in cash so it's worth something and That should not be so that value should not be reimbursed to the airline no because the frontier ultimately

[00:27:55] Speaker 00:
got 100% of the money back.

[00:27:57] Speaker 00:
It took away that beneficial interest in it, recognized 100% of the fee amount.

[00:28:01] Speaker 00:
You don't believe in the time value of money.

[00:28:08] Speaker 00:
I'm not sure that that bears on this question.

[00:28:10] Speaker 00:
I mean, it would be like if Frontier sent a check to someone as a refund.

[00:28:16] Speaker 00:
And then before the person could cash the check, that Frontier told its bank to stop payment on the check.

[00:28:24] Speaker 05:
Ultimately, the passenger was never at a frontier sends a check and after 90 days, it can't be negotiated or after a year.

[00:28:32] Speaker 05:
It can't be negotiated.

[00:28:33] Speaker 05:
You've seen those restrictions on checks, right?

[00:28:36] Speaker 05:
Would that mean that frontier?

[00:28:39] Speaker 00:
I think the force of that hypothetical is because in most cases, people treat sending a check as basically the equivalent of cash.

[00:28:47] Speaker 00:
The expiring travel credits here are not anything like that.

[00:28:49] Speaker 00:
They can only be used within 90 days for one very limited purpose.

[00:28:53] Speaker 00:
So if that would be a refund, for example, I assume that Frontier would not agree to accept, if they prevail in this case, to accept payment from the government in the form of credits good for admission to national parks for 90 days.

[00:29:09] Speaker 00:
I see that my time is up.

[00:29:10] Speaker 01:
Maybe I could just... I had another question.

[00:29:12] Speaker 01:
I was just wondering if, let's say Frontier sold the ticket, but there was a stipulation that we're going to have a surcharge of $5.60 when we sell you this ticket, but that it's only going to be triggered when you get your ticket scanned at the gate at the airport, which means you've gone through

[00:29:38] Speaker 01:
airport security.

[00:29:39] Speaker 01:
Could they do something like that?

[00:29:43] Speaker 01:
Because the effective collection is really at the gate, and there's

[00:29:47] Speaker 01:
there would never be a possibility for a refund.

[00:29:49] Speaker 00:
I think that is potentially inconsistent with the statute which contemplates that the fee will be collected by the carrier selling the ticket and also with the regulations which expressly provide that the fee shall be based on the itinerary at the time that the ticket is sold.

[00:30:09] Speaker 00:
So I think, at least based on the current regulatory regime, that would not be possible.

[00:30:13] Speaker 00:
And if I could just finish my thought,

[00:30:16] Speaker 00:
And, you know, it would be odd if I assume Frontier would not accept a refund in the form of a credit good for admission to national parks within one year because, you know, that's very difficult to use.

[00:30:28] Speaker 00:
And if that's not a refund, then I don't think that the refunds that Frontier offered here are refunds either.

[00:30:36] Speaker 00:
Thank you.

[00:30:37] Speaker 00:
Any other?

[00:30:38] Speaker 05:
Judge Kelly, any questions?

[00:30:40] Speaker 05:
Judge Kelly?

[00:30:43] Speaker 05:
Okay.

[00:30:43] Speaker 05:
Thank you.

[00:30:46] Speaker 05:
Let's make it two minutes since Epley went over a little bit.

[00:30:52] Speaker 02:
Thank you, Your Honors.

[00:30:53] Speaker 02:
I just want to make three quick points.

[00:30:54] Speaker 02:
First of all, on the point you guys were just discussing about refunds, travel credits are plainly refunds in our view.

[00:31:02] Speaker 02:
The parties contracted that they would be valid refunds.

[00:31:06] Speaker 02:
That's explicit in the contract of carriage.

[00:31:08] Speaker 02:
The 11th Circuit decision in Cavers, as you look at the party's contract in terms of what's sufficient for a refund,

[00:31:14] Speaker 02:
The Department of Transportation regulations say travel credits are refunds, and the IRS treats credits as refunds in exactly this air transportation context.

[00:31:22] Speaker 02:
So we win just on our secondary argument that a valid refund has been given.

[00:31:28] Speaker 02:
Moving back to the first argument, the statutory authority argument in

[00:31:32] Speaker 02:
There are two points I want to make about that.

[00:31:34] Speaker 02:
First, just a general point, that any doubts should be resolved against the government.

[00:31:39] Speaker 02:
This is a long-standing principle that is applied for as long as our tax code has existed.

[00:31:46] Speaker 02:
And I would cite, for example, U.S.

[00:31:48] Speaker 02:
v. Merriam, 263 U.S.

[00:31:50] Speaker 02:
at 188.

[00:31:51] Speaker 02:
And so to the extent there's any doubt about how you read the sections in E or G,

[00:31:59] Speaker 02:
The doubt should go in Frontier's favor, not in the government's favor.

[00:32:03] Speaker 01:
Should we treat the expiring travel shells differently than the other refunds?

[00:32:10] Speaker 02:
You mean the three instances where there was a cancel fee that ate up the whole credit?

[00:32:14] Speaker 02:
Yeah.

[00:32:14] Speaker 02:
No, because I think that's a valid refund as well.

[00:32:17] Speaker 02:
That's exactly what happened in the United Airlines case, and that's exactly what the contract of carriage says.

[00:32:22] Speaker 02:
It says we can offset, and that counts as a refund.

[00:32:26] Speaker 02:
It explicitly says you can get your refund in the form of a satisfied cancellation fee.

[00:32:33] Speaker 02:
And then I wanted to go back to a point, Judge Hartz, that you were making about this fundamental inconsistency in the government's position.

[00:32:41] Speaker 02:
They say sometimes a collected fee doesn't have to be paid.

[00:32:46] Speaker 02:
And then they put some conditions on it if you gave it back to the passenger.

[00:32:50] Speaker 02:
And then they try to justify that by saying, well, we give it back under this procedure under subsection G. Well, as Mr. Shah said, subsection G says nay.

[00:33:00] Speaker 02:
So under their theory, they do but don't have to give the money back if the passenger doesn't travel and there has been a refund.

[00:33:13] Speaker 02:
So there's this huge, hugely troubling situation here where if TSA wanted to change its mind, it could say,

[00:33:24] Speaker 02:
We're withdrawing this letter.

[00:33:27] Speaker 02:
We get to keep the fee even if the passenger doesn't travel and even if Frontier, you gave the money back to the passenger.

[00:33:36] Speaker 02:
But very quickly, your time is expired.

[00:33:38] Speaker 02:
If you can finish your thought briefly.

[00:33:40] Speaker 02:
I was just going to say the same thing applies for the utilized travel credits.

[00:33:44] Speaker 02:
Somebody gets a travel credit and then uses it later.

[00:33:48] Speaker 02:
TSA would get two fees if they wanted.

[00:33:53] Speaker 02:
Thank you, counsel.

[00:33:56] Speaker 05:
Case is submitted, counsel excused.