UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


CITY OF LOS ANGELES

v.

DOT


98-1071b

D.C. Cir. 1999


*	*	*


ORDER


The petitions for rehearing en banc of the City of Los  Angeles, et al.
and of the Airports Council International-- North America and the
response thereto have been circulated  to the full court. The taking
of a vote was requested.  Thereafter, a majority of the judges of the
court in regular  active service did not vote in favor of either
petition. Upon  consideration of the foregoing, it is


ORDERED that the petitions be denied.


Per Curiam  FOR THE COURT: 


Mark J. Langer, Clerk


Separate statement filed by Circuit Judge Silberman,  concurring in
the denial of rehearing en banc.


Separate statement filed by Circuit Judge Williams, with  whom Circuit
Judge Ginsburg joins, dissenting from the  denial of rehearing en
banc.


Chief Judge Edwards and Circuit Judges Wald and Tatel  did not
participate in this matter.


Silberman, Circuit Judge, concurring in the denial of re- hearing en
banc: The dissent seems to quarrel fundamentally  with the sentence in
the panel opinion that states, "In review- ing the Department's order,
we do not sit as a panel of  referees on a professional economics
journal, but as a panel of  generalist judges obliged to defer to a
reasonable judgment  by an agency acting pursuant to congressionally
delegated  authority." City of Los Angeles v. DOT, 165 F.3d 972, 977 
(1999). It is apparently the dissent's view that we are  authorized to
review de novo the DOT's application of the  concept of opportunity
cost (as if economics were incorporat- ed into, or somehow on an
independent par with the Constitu- tion). Cf. Lochner v. New York, 198
U.S. 45, 75 (1905)  (Holmes, J., dissenting) ("The Fourteenth
Amendment does  not enact Mr. Herbert Spencer's Social Statics."). And
if we  think the Department insufficiently appreciated the virtue of 
opportunity cost pricing as a signaling device generating a  more
optimal allocation of society's resources, we are justified  in
rejecting the Department's decision as "erroneous." By  contrast, the
panel, although recognizing that economists (or  we) might disagree
with the Department's rejection of oppor- tunity cost pricing in this
case, did not think that warranted  us, as a reviewing court under a
deferential standard of  review, to object to the Department's
decision. City of Los  Angeles, 165 F.3d at 177.


Even assuming the issue should be thought as purely an  economic
one--which of course it is not (the issue might  properly be described
as whether LAX, having taken taxpay- er money under the condition that
it would continue to use  LAX as an airport is legally entitled to
charge a significant  group of those taxpayers, airline passengers
flying in and out  of LAX, its opportunity cost based on a nonexistent
opportu- nity)--petitioners did not produce testimony (or writings) of
 any economist to the effect that the market price of the  airfield
land should be considered as its opportunity cost  under these
circumstances.1 Professor Arrow, who testified 




__________

n 1 The dissenters' wish to assume away LAX's legal obligation  reminds
me of the old joke: How does an economist escape from a  25 foot hole?
Answer: Assume a ladder.


in the original proceeding as to the general appropriateness  of
opportunity cost pricing, see Los Angeles Int'l Airport  Rates
Proceeding and Second Los Angeles Int'l Airport Rate  Proceeding
(Remand Decision), Order 97-12-31, at 11-12  (Dec. 23, 1997), never
appeared in this remand proceeding,  and, therefore, neither he nor
any "non-resident" economist  has expressed a view on the matter.
Indeed, we ourselves  had recognized that the scenario was more
complicated than  the typical opportunity cost setting in a prior
opinion--which  Judge Ginsburg joined (presumably pre-Econ
101)--concern- ing DOT's rulemaking proceeding for airport fees. See
Air  Transp. Ass'n of Am. v. DOT, 119 F.3d 38, 44 (D.C. Cir. 1997) 
("[S]ince airports are obliged to use their property as an  airport,
the concept of opportunity cost, and therefore fair  market value,


DOT alternatively assumed that if the grant condition were  disregarded
for purposes of opportunity cost analysis, the  City--rather than just
the airport--should be viewed as the  relevant economic actor. The
Department noted the enor- mous economic impact of LAX on the City:
state and local  tax revenues flowing from LAX were estimated at $1.7
billion  in a 1992 study. Pursuing another opportunity on the LAX 
land would require forgoing this revenue or else building a  new
airport or expanding an existing minor airport like  Burbank. Either
option would be tremendously costly, and  this cost should, in the
DOT's view, be subtracted, in calculat- ing the City's opportunity
cost, from the profits to be earned  in pursuing alternate uses of the
LAX land. Perhaps an  economist would treat the airport alone as the
relevant  economic actor. But again the City did not produce any 
economist's testimony in support of that proposition, so  DOT's
perspective was certainly reasonable. Judged from  that viewpoint, the
dissent's suggestion that if Los Angeles  sold all of its LAX airport
land to a real estate developer,  airlines could simply fly into
Burbank airport is about as  realistic as Marie Antoinette's
apocryphal advice to the hun- gry poor of Paris, "Let them eat


* * * *


Had this case turned on the quality of briefs and oral  advocacy (as
cases sometimes do), petitioners would have won  hands down. The
Department of Transportation was repre- sented, not by the excellent
appellate lawyers from the Civil  Division of the Justice Department,
but by the General  Counsel's office of DOT. Lawyers from the
Antitrust Divi- sion of the Justice Department appear on the brief as
of  counsel. Insofar as that suggests Justice Department law- yers
actually read and contributed to the briefs, I think the  FTC should
investigate for truth-in-labeling.


Williams, Circuit Judge, with whom Circuit Judge Gins- burg joins,
dissenting from the denial of rehearing en banc.  The Department of
Transportation ("DoT") regulates landing  fees charged at Los Angeles
International Airport ("LAX").  Here the panel decision upholds as
reasonable DoT's insis- tence that the charge for the airport's land
be calculated on  the basis of historical accounting cost. 165 F.3d
972 (D.C.  Cir. 1999). Though there may be a good reason for the 
Department's conclusion, the two offered by the Department  and
approved by the panel appear erroneous.


As our earlier opinion made clear, the agency cannot reject 
opportunity cost--or any other reasoned proposal offered by  a
party--without some reason. See 103 F.3d 1027, 1031-34  (D.C. Cir.
1997) (rejecting DoT's previous rejection of oppor- tunity cost). The
proposed use of opportunity cost is rea- soned: it has the effect of
giving the customers the correct  signal as to the cost imposed on
society by their use of the  resource. See id. at 1034 (citing City's
contention that oppor- tunity cost pricing would "ensure that the
actual costs of the  airfield are borne by those receiving the
benefit"). In this  case, giving that signal would be valuable because
it would  cause airlines to use correct figures in comparing LAX with 
alternatives available to them (e.g., Burbank). As the City  argued
here, pricing at less than opportunity cost can be  expected to bring
about excessive use of the airport. See  Final Decision on Remand at


The current panel opinion first embraces DoT's argument  that the City
obliged itself, in exchange for the statutory  subsidy, not to divert
the property from its use as an airport.  Ergo, say DoT and the panel,
there is no opportunity cost.  This seems to rest on the idea that if
some exogenous  circumstance blocks application of a resource to other
uses, it  follows that use of opportunity cost is inappropriate. That
is  surely a non sequitur; the signalling referred to above is just 
as valuable as it would have been without the block. By  contrast, of
course, an inherent deficiency in the land (not  alleged here) would
properly cut down opportunity cost.


Suppose a person owns property in fee simple determin- able, to hold
"so long as the land is used as an airport."  There plainly would be
neither legal compulsion for him to  price the airport's services at
historic cost, nor would charges  based on opportunity cost in any way
logically contradict the  terms of ownership. Thus the conclusion that
use of histori- cal cost was "a consequence of an unambiguously
imposed  condition," 165 F.3d at 978, appears to me a non sequitur.


The panel also accepts DoT's alternative idea that the  economic
benefits generated for the City by the airport  "cover[ ]" the
opportunity costs of the land. Id. at 976, 978- 79. Of course the
airport generates spillover benefits for the  City.1 But the panel
never explains, and I cannot under- stand, why the existence of those
benefits undercuts the  reasons for using opportunity cost. They in no
way reduce  the utility of sending users accurate price signals.


Perhaps the point of this second theory is that re-allocation  of LAX
to any other use would drive the City into depression,  so that the
apparent opportunity is a phantom. But that  would be so only if we
assumed that the airport would not be  replaced, an absurd assumption.
Further, even if the costs of  replacing the airport would be higher
than the opportunity  cost of LAX, and so high that on net replacement
elsewhere  would be unwise, that would not logically undermine the 
proposition that the opportunity cost of this land is what its  best
alternative use would be. Even the foolish building of an 
extravagantly priced substitute airport would in fact release  this
land for alternative uses. Therefore, its value in those  uses is its


In reliance on these two theories, DoT concluded that  "LAX incurs no
opportunity cost." Final Decision on Re- mand at 16. Because of that
belief, it refrained from resolv- ing other possible theories
supporting its rejection of opportu-




__________

n 1 It also generates spillover costs, such as noise pollution. And, 
as Intervenor Airports Council International--North America  points
out, many of the spillover benefits run to the airlines, for  which
the City creates a market; as the Intervenor observes,  "Passengers do
not choose air travel because they like the cuisine."


nity cost. See id. (It mentioned the historic practice of  airports to
base charges on historic cost, see id. at 22-26, and  various
complications in computing opportunity cost, see id.  at 26-29, but
the decision does not suggest that these issues  were decisive, and
they played no role in the panel's affir- mance.) As DoT has evidently
rejected opportunity cost with  no logically sound basis for doing so,
another remand to DoT  seems to me in order.


* * *


The engaging charm of Judge Silberman's rhetoric, ante,  somewhat
obscures his resolute refusal to engage the City's  claim. That claim
is simply that opportunity cost pricing  tends to generate a more
optimal allocation of business  between suppliers of a good or
service: here the service of  enabling planes to land and take off, to
receive and deliver  passengers and freight, in the LA metropolitan
area. The  Department does not contest this proposition. It therefore 
does not require economists, resident or non-resident, Nobel 
laureates or fugitives from Econ 101, to assess its general  truth.
That is a given. Rather, the Department claims that  the precept is
inapplicable where (1) the owner of one source  of supply has
contractually obligated himself to use his assets  for the specified
purpose, or (2) the owner of the resource  benefits in some collateral
way from the business involved.  As shown above, both those claims are


As for the fantasy of LAX being closed and entirely  replaced by
Burbank, that is a fantasy entirely of Judge  Silberman's rich
imagination--as any glance at the above text  will show. It is not
implicated by the simple thought that  correct pricing of LAX's
services would generate a better  allocation of trade as between LAX,
Burbank and any other  (existing or as yet undeveloped) suppliers of




__________

n 2 Notwithstanding the Concurring Statement at 2, they are not  made
any the less non sequiturs because a prior panel cited DoT's 
contention that LA's promise rendered the concept of opportunity  cost
inapplicable, a contention that the panel specifically cast doubt 
upon. See 119 F.3d 38, 44 (D.C. Cir. 1997).