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July 28, 2011

Court Dismisses Fraud Claims Of Jet Membership Customer For Lack Of Reasonable Reliance

In a recent unpublished opinion issued by the Minnesota Court of Appeals, Provell v. Jet Choice I, LLC et al., the Court affirmed the district courtís grant of summary judgment dismissing a customer's claims of fraud and negligent misrepresentation for failure to establish reasonable reliance on the alleged misrepresentations of now-defunct jet membership and charter companies. The case arose out of the customer's investigation into, and ultimate purchase of a membership interest in a company that was selling charter flights provided by another company that held a FAR Part 135 on-demand charter certificate. A few months after the customer paid a lump sum of $1.25 million and financed the additional $1 million purchase price, both of the companies ceased operations and filed for bankruptcy.

The customer sued the companies and their officers for a variety of fraud claims alleging that the companies and their officers made numerous misrepresentations about the financial stability of the companies leading up to the customerís membership purchase. However, the district court dismissed the claims on summary judgment based upon the customer's failure to establish reasonable reliance on the alleged misrepresentations in light of the customer's sophistication and independent investigation of the finances of the companies before he purchase his membership.

On appeal, the Court initially observed that a fraud claim requires proof of: "(1) a false representation of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made without knowing whether it was true or false; (3) with the intention to induce the plaintiff to act in reliance thereon; (4) that the representation caused plaintiff to act in reliance thereon; and (5) that plaintiff suffered pecuniary damages as a result of the reliance." The plaintiff must also prove that he or she both actually and reasonably relied upon the misrepresentations.

The Court then observed that the information provided to the customer, together with information omitted or withheld, indicated that the companies were not financially stable and the due diligence revealed glaring problems that should have, and did, prompt concerns by the customer about the companies' ability to perform under the proposed contract. The Court determined that the customer's knowledge that the financial situation was less than sound, and his decision to purchase a membership anyway, did not raise a factual issue as to the reasonableness of any reliance upon the alleged misrepresentations by the companies and their officers. As a result, the Court affirmed the district court's finding that the customer did not provide sufficient proof that he reasonably relied upon the alleged misrepresentations.

This case is unusual in that the issue of reasonable reliance is usually a question for the jury to decide, rather than a court disposing of the issue on summary judgment. However, the facts probably support the courts' decisions. It doesn't seem reasonable that someone would agree to spend $2.25 million dollars based upon verbal statements, especially when the financial and other documentation available contradicted those verbal statements. Although it is unfortunate that the customer lost his money, given the facts, he probably knew, or at least should have known, the risks of the transaction. Another example of "buyer beware."

Posted by Greg

July 27, 2011

FAA Safety Team Recommends "Do's And Don'ts Of Maneuvering Flight"

The FAA Safety Team recently issued Notc2999 The Do's and Don'ts of Maneuvering Flight recommending the following do's and don'ts that can keep pilots safe:

  • Do remember that the majority of fatal stall/spin accidents occur at low altitudes, because the closer you are to the ground the less time you will have for a successful recovery.

  • Do practice stalls or approaches to stalls at a safe altitude. If youíre rusty take a CFI with you.

  • Do fly at a safe altitude so that you wonít be surprised by obstacles that may require abrupt maneuvers to avoid.

  • Do remember that turns and sudden climbs increase the wing loading which will increase the stall speed, sometimes dramatically.

  • Donít explore the flight envelope close to the ground.

  • Donít exceed 30 degrees of bank in the traffic pattern.

  • Donít buzz or otherwise show off with an aircraft. Not only are you putting yourself at risk, but your pilot certificate too. The FAA gets lots of complaints that include cell phone pictures and videos.

  • Donít attempt maneuvers for which you have not been trained. Get an Instructor on board the first time!

Good advice. Seems obvious to me though. But I guess even advice that is obvious, but also good, bears repeating every now and then.

Fly safe.

Posted by Greg

July 26, 2011

NTSB Reaffirms Standard Of Review In Resolving Credibility Issues

In a recent intentional falsification case, the NTSB went to great lengths to explain and reaffirm the standard of review it will use in evaluating an administrative law judge's ("ALJ") credibility determinations. In Administrator v. Porco, the FAA charged the airman with failing to disclose a DWI arrest and driver's license suspension on her application for medical certificate. The airman appealed the FAA's emergency revocation order and, after a hearing, the ALJ determined that the airman had violated FAR 67.403(c) (making an incorrect statement on a medical application) but not FAR 67.403(a)(1) (making a fraudulent or intentionally false statement on a medial application) as alleged by the FAA. As a result, the ALJ affirmed revocation of the airman's medical certificate, but not any of the airman's other certificates.

On appeal, the full Board determined that the ALJ's decision lacked clarity and it remanded the case to the ALJ for him to clarify his findings of fact. After remand, the ALJ issued a written decision in which the ALJ concluded that the airman "was credible to the extent that she testified as to receiving such erroneous legal advice and relying thereon in providing her answer to that question, and has, accordingly, determined that said answer was neither fraudulent nor intentionally false." Although the ALJ did not include any factual findings to support this conclusion, it served as a basis for the ALJ to again revoke the airman's medical certificate.

Unhappy with the ALJ's decision on remand, both the airman and the FAA appealed to the full Board. After a detailed explanation of the evidence in the case, the Board determined that the case presented an "opportunity to discuss the historical development of our credibility doctrine and to clarify the Boardís standard of reviewing our law judgeís credibility findings to prevent future confusion by our law judges, the Administrator, future respondents, and future Boards." The Board concluded its lengthy discussion of the issue by reaffirming its "long-held standard, originating in the cases of Jones and Smith, of deferring to a law judgeís credibility findings absent a determination that such findings are arbitrary and capricious as the only standard of review in resolving credibility issues. We believe this standard properly provides the high level of deference which our law judgeís credibility findings should be given."

Using this standard, the Board held that the ALJ's finding on the issue of the advice the airman received from her attorney was arbitrary and capricious because the ALJ made no specific findings of fact as to why he believed the airman on that single issue when he did not believe the rest of the airman's testimony. Additionally, the Board noted that the ALJ's conclusion was contrary to extensive evidence that the airman otherwise understood the question and the fact that her answer was false. As a result, the Board reversed the ALJ's decision on remand regarding the airman's violation of FAR 67.403(a)(1) and revoked the airman's airline transport pilot, flight instructor, medical and all other airman certificates.

Factually, this case presents a familiar, and unfortunate, scenario. From a legal perspective, the case contains a fairly detailed examination and discussion of how the standard of review on credibility issues has evolved and morphed. But we now have a decisive case upon which to rely when analyzing an ALJ's credibility determinations. Although aviation attorneys will still have factual arguments to make, at least we know what standard the Board will use to review those arguments.

Posted by Greg

July 22, 2011

DOM Liability For Work Performed By Other Mechanics

Can a Director of Maintenance ("DOM") rely upon work performed by other mechanics when he or she signs an aircraft's logbook and returns it to service? Or, put another way, if a DOM returns an aircraft to service solely based upon representations by another mechanic that the work was, in fact, performed, is the DOM free from risk of enforcement action if the work wasn't actually performed? For an explanation of why the answer to these questions is "no", please read my article discussing the issue: A DOM's Reliance Upon Work Performed By Other Mechanics Results In Revocation Of His Certificate And Ratings.

Posted by Greg

July 21, 2011

NTSB Rejects Fatigue As A Defense For Violations Of Federal Aviation Regulations

In a recent FAA enforcement action, Administrator v. Kooistra, the FAA alleged the airman committed a number of operational errors in violation of FARs 91.9(a) (requiring compliance with an aircraft's operating limitations), 91.13(a) (careless and reckless), 91.117(a) (prohibiting operation of an aircraft below 10,000 feet mean sea level at an indicated airspeed of more than 250 knots), 91.123(b) (requiring compliance with ATC instructions), and 91.703(a)(3) (requiring a person operating an aircraft of U.S. registry outside the United States to comply with FAR Part 91 to the extent that it is not inconsistent with the applicable regulations of the foreign country where the aircraft is operated). The FAA issued an order suspending the airman's airline transport certificate for 60 days and the airman appealed to the NTSB.

At the hearing before the administrative law judge ("ALJ"), the airman did not deny the operational errors, but rather asserted a number of affirmative defenses including that his violations were justifiable based on the fact that he was suffering from fatigue. At the end of the hearing, the ALJ acknowledged the airman's fatigue defense, but stated "ď[t]he aspect of fatigue Ö cannot excuse an Airline Transport rated pilot who at all times must exercise the very highest standard of care, judgment and responsibility which the complete record shows that was not exercised by [the airman].Ē The ALJ affirmed the FAA's order and the airman then appealed to the full Board.

On appeal, the Board rejected the airman's fatigue defense. It acknowledged "the tremendous effects fatigue may have on virtually all major aspects of a pilotís behavior in the cockpit" and observed that "pilot fatigue has consequently been a noteworthy aviation safety issue in the past year." And although the airman relied upon a FAA Notice of Proposed Rulemaking, Flightcrew Member Duty and Rest Requirements, that describes how fatigue can adversely affect several aspects of a pilotís conduct, the Board observed that the Notice, which is a proposed rule and not yet in effect, "does not state that the FAAís policy is to allow fatigue to serve as an affirmative defense, whereby it excuses regulatory violations." As a result, the Board concluded that the airman had provided "no authority for his proposition that fatigue should serve as an affirmative defense to excuse a pilot of violating operational regulations."

Interesting defense. Unfortunately, the airman didn't have any law to back it up. Certainly fatigue is currently a hot button for the FAA and the industry. But, for now, the onus of regulatory compliance will remain with the airman, regardless of whether he or she is suffering from fatigue. Thus, the airman will need to determine whether he or she is too fatigued to comply with the regulations BEFORE the airman operates an aircraft.

Posted by Greg

July 15, 2011

May-Issued Aircraft Certificate Re-Registration Deadline Approaches

If you own an aircraft that was registered in the month of May of any year, your aircraft must be re-registered by September 30, 2011. You should submit your re-registration application as soon as possible since you won't be able to operate your aircraft legally after September 30 until you receive your new registration certificate. Online re-registrations will be accepted until July 31, 2011. After that, you will need to submit your re-registration application to the FAA via mail.

For June-issued certificates, aircraft owners may submit re-registration applications starting August 1, 2011 through October 31, 2011. After October 31, those aircraft may not be operated legally until the owner receives the new registration certificate. Online re-registration applications may be submitted here by entering the aircraft's N-number and re-registration code to begin the process, or you may submit a written re-registration application to the FAA via mail.

For a discussion of the FAA's re-registration requirements, please read my article Understanding The FAA's New Aircraft Re-Registration And Renewal Requirements.

Posted by Greg

July 07, 2011

Making Sure The Case Is Settled Before An ALJ Dismisses An Enforcement Action

In a recent enforcement action, the NTSB vacated an administrative law judge's ("ALJ") order dismissing an airman's appeal of an FAA emergency order revoking the airmanís private pilot and second-class airman medical certificates. In Administrator v. Schmidt the FAA issued its emergency order and the airman then filed a notice of appeal of the emergency order with the NTSB. The airman also waived his right to the expedited emergency proceedings under NTSB Rules of Practice Part 821, Subpart I.

A short time later, the FAA attorney handling the case filed a notice of withdrawal with the ALJ based upon a belief that the FAA and the airman had settled the case. Two days later the ALJ issued an order terminating the proceeding. However, the airman filed a notice of appeal with the full Board appealing the ALJ's dismissal. Both the airman and the FAA then agreed that no settlement existed and, as a result, they jointly asked the Board to vacate the ALJís order and remand the case for a hearing.

The Board determined that no formal settlement existed. It also noted that only the FAA's attorney signed the notice of withdrawal filed with the ALJ. The Board remanded the case back to the ALJ for a hearing, but also stated that "[w]e would caution future litigants to avoid this practice to prevent confusion as occurred in this case."

This case is slightly confusing. Typically, when an airman and the FAA reach a settlement, it is the airman's aviation attorney who files a withdrawal of the airman's appeal in exchange for the FAA issuing an amended order that contains the terms upon which the parties have agreed. If the FAA simply withdraws its order, then the airman's original appeal is moot and the case is over, which would appear to be what happened in this case. But, since the airman appealed the ALJ's dismissal, something else must have occurred that the Board did not address in its decision.

As is often the case, the Board's decisions do not always convey the entire story. However, it appears the Board is suggesting that, in the future, both the airman and the FAA jointly sign a withdrawal. I'm not so sure this is necessary or that it is very practical. Only time will tell whether this is a significant issue for the Board. My guess is that only the unique circumstances of this case, all of which we do not know, resulted in the Board's observation. But, we will see.

Posted by Greg

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