[Federal Register Volume 59, Number 182 (Wednesday, September 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23368]
[[Page Unknown]]
[Federal Register: September 21, 1994]
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DEPARTMENT OF TRANSPORTATION
Recordation: Treatment of Instruments With Proprietary
Information Intentionally Omitted; Legal Opinion
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of legal opinion.
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SUMMARY: This notice of legal opinion is issued by the FAA Chief
Counsel to advise interested parties of the treatment of instruments,
including leases, with certain proprietary information intentionally
omitted, when they are submitted to the Civil Aviation Registry for
recordation as conveyances.
ADDRESSES: Information concerning this opinion may be requested from
the Assistant Chief Counsel for the Aeronautical Center, P.O. Box
25082, Oklahoma City, OK 73125-4904.
FOR FURTHER INFORMATION CONTACT:
Joseph R. Standell, Assistant Chief Counsel for the Aeronautical
Center, address above, or by calling (405) 954-3296.
SUPPLEMENTARY INFORMATION: Section 503(a)(1) of the Federal Aviation
Act of 1958 (49 App. U.S.C. 1403(a)(1)) requires the Secretary of
Transportation to establish and maintain a system for the recording of
conveyances which affect title to, or any interest in, civil aircraft
of the United States.
Under section 101(20) of the Federal Aviation Act (49 App. U.S.C.
1301(20)), a ``conveyance'' means a bill of sale, contract of
conditional sale, mortgage, assignment of mortgage, or other instrument
affecting title to, or interest in, property. Consistent with that
definition, aircraft leases are treated as conveyances.
Leases and other conveyances are frequently submitted for
recordation to the Civil Aviation Registry (the Registry). Prior to
submitting documents to the Registry, law firms will often request the
opinion of the FAA Assistant Chief Counsel for the Aeronautical Center
with respect to questions concerning registration or recordation. In
the last several years, when submitting such documents, law firms have
typically asked the Assistant Chief Counsel a question similar to this:
We hereby request your opinion that the Lease Amendment, with
(i) Exhibit B (Table of Stipulated Loss Values), (ii) Exhibit C
(Table of Basic Rents) and (iii) Exhibit D (End of Term Buyout
Percentage) intentionally omitted from the FAA filing counterpart
thereof as containing confidential information, is eligible for
recordation under section 503(a) of the Act.
The Assistant Chief Counsel typically responds by permitting
recordation with such omissions. Airlines and other parties that record
conveyances involving large aircraft strongly favor continuation of
such permission.
Now, the editor of the ``Commercial Aviation Report'' and persons
who appraise the market value of large aircraft oppose continuation of
such recordations and request that the Registry record only complete
documents. Their position is set out in the Locke Parnell Rain Harrell
(hereinafter, Locke Parnell) law firm's letter of September 1, 1993.
Following receipt of the Locke Parnell letter, the views of
interested persons were solicited. This option addresses the concerns
of all interested parties and states the agency position with respect
to the recordability of conveyances with redactions and omissions.
Accordingly, consistent with 5 U.S.C. 552(a)(1)(D), the FAA
publishes its response to Locke Parnell in the Appendix to this
document.
Issued in Washington, D.C., September 16, 1994.
John H. Cassady,
Deputy Chief Counsel.
Appendix--Text of Locke Parnell Letter
Bruce K. Packard, Esquire, Locke Parnell Rain Harrell, 2200 Ross
Avenue, #2200, Dallas, TX 75201-6776.
Treatment of Instruments With Proprietary Information Intentionally
Omitted
Dear Mr. Packard: Thank you for your letter of September 1,
1993, in which, on behalf of your client, ``Commercial Aviation
Report,'' you object to the Federal Aviation Administration (FAA)
permitting air carriers and lessors to submit purchase, sale, and
lease documents to FAA for recordation with certain financial
information deleted.
You say that the omitted information includes lease rates,
maintenance reserves, amortization schedules and debt loans. You
argue that FAA's permitting the nondisclosure of such information is
contrary to the public interest because the deleted information is
essential in making fair and accurate assessments of a carrier's
financial status, its safety and maintenance reserves and meaningful
debt analysis.
You request FAA to immediately stop its policy of permitting
recordation of incomplete document, or, in the alternative, to
initiate formal rulemaking procedures allowing for public comment.
As your know, your letter was distributed as an attachment to
FAA's letter of September 27, 1993, which requested advice from
interested persons concerning the legal and policy issues. We
received responses from 17 concerned parties including attorneys,
airlines, appraisers, the Air Transport Association, and the editor
of ``Commercial Aviation Report.'' Twelve responses favored
continuation of the FAA policy of permitting omissions. Five
responses opposed it. Their positions will be discussed herein.
Based on review of the comments and our reconsideration of the
issues, we have decided to continue permitting the recordation of
documents with limited omissions or redactions.
As set out in your letter of September 1, 1993, and letters from
Rocklin D. Lyons and Associates; Jack B. Feir and Associates;
Aircraft Information Services, Inc.; Avitas Aviation; and
``Commercial Aviation Report,'' principal arguments in support of
FAA acceptance of only complete instruments are the following:
It is urged that obtaining capital to finance transactions
involving transport aircraft is highly competitive. In making
decisions, lenders rely heavily on information concerning financial
health of an airline, as well as the real market value of aircraft.
The market value is frequently determined by appraisals which are
based on recent comparable transactions. A principal source of
information about comparables is found in the Registry's aircraft
records. If financial and other information considered proprietary
is permitted to be deleted, market value appraisals become more
speculative. As a result, conservative investors are less likely to
back transactions where the real value of the collateral is not
reliable. It is urged that will hurt the aviation industry.,
Additionally, it is urged that the overall financial situation
of an airline is often discernible from a review of recorded
transactions. As an example, one commenter pointed out that although
a particular airline, as a public company, had filed all documents
required by the Security and Exchange Commission (SEC) and
Department of Transportation (DOT), it was only through a thorough
review of the Registry's aircraft record that the ``true extent of
its financial woes'' became known. The resulting publication of the
``carrier's precarious condition'' allegedly resulted in financial
institutions withdrawing from transactions with the airline.
The same commenter pointed out that SEC and DOT do not provide
current information and retain such information only for a limited
time.
With respect to legality, an attorney suggests that a document
with schedules deleted is not a ``conveyance'' because in defining a
contract, Black's Law Dictionary says: the writing * * * contains
the agreement of the parties with the terms and conditions* * *.
He argues that:
A written instrument that contains less than the total of the
terms cannot, by definition, be ``the'' conveyance.
He further points out that the filing system under the Uniform
Commercial Code as adopted in the various states, is totally
dissimilar from the filing system under section 503 of the Federal
Aviation Act.
He also says that the leading court cases which discuss the
purposes of the Federal aircraft recording system do not factually
involve the issue of whether proprietary information may be omitted.
The case for permitting documents to be recorded with deletions
is set out in letters from Pegasus Capital Corporation; Crowe and
Dunlevy; American Airlines; USAir; AINA Holdings, Inc.; British
Aerospace, Inc.; Milbank, Tweed, Hadley and McCloy; United Airlines;
Paul, Hastings, Janofsky, and Walker; Federal Express; Air Transport
Association; and McAfee and Taft.
In regard to policy issues, practically all persons supporting
FAA's recording documents with omissions or redactions have
mentioned the significant harm which would befall airlines if
confidential financial information were required to be released.
They assert that the harm comes not only as a result of the
advantage to other airlines in knowing proprietary information about
the competition, but also in the weakened negotiating position of
airlines if lenders are aware of financial concessions in previous
agreements. Moreover, it is urged that foreign airlines and
nonaviation businesses would have a distinct advantage in competing
for capital.
Several airlines point out that there is a significant amount of
information concerning airline fitness already available to the
public. In any event, they say that the Registry was never intended
as a database for financial information which even airlines'
stockholders can't obtain.
Several commenters suggest that full disclosure does not benefit
the public at large but only parochial interests.
With respect to legal issues, practically all pro-omission
commenters point out that there is no statutory or regulatory basis
to require disclosure of confidential financial information. By
reference to legislative history, case law, and ``plain meaning'' of
section 503 of the Federal Aviation Act, they point out that the
Registry was established as a clearing house solely to allow
interested persons to check on interests in aircraft.
An attorney in Oklahoma City argues that FAA's position with
respect to permitting omissions has not really changed since 1938.
He alleges that neither FAA nor its predecessor, Civil Aeronautics
Authority, ever required a promissory note with underlying financial
information be filed with a chattel mortgage. He also alleges that
the Registry has historically accepted security agreements which
contain blanks representing financial terms.
Several commenters analogize the FAA recording system to that
established in each of the states based on the Uniform Commercial
Code's model. One airline suggests that the FAA recording system
would pass legal muster even if it were only a ``notice system.'' A
law firm says a ``bare-bones conveyance'' is recordable with
``superfluous information in an unrecorded document.''
Four commenters have pointed out that since 5 U.S.C. 552(b)(4)
exempts release of commercial or financial information under the
Freedom of Information Act, the Registry should not disclose such
information. An airline says that under section 1104 of the Federal
Aviation Act of 1958 (49 App. U.S.C. 1505), disclosure of
information obtained by FAA is not permitted if such disclosure
would ``adversely affect the competitive position of any carrier in
foreign air transportation.''
Two law firms say that FAA should not be in the business of
determining the validity of instruments since that is reserved to
the states under section 506 of the Act.
An Oklahoma City attorney says that Congress' intent in creating
the FAA recording system can be gleaned from section 503(g) of the
Act (49 App. U.S.C. 1503(g)) which authorizes FAA to issue
regulations providing for endorsements upon certificates of
registrations ``as may be necessary to facilitate the determination
of the rights of parties dealing with civil aircraft * * *.''
The same attorney suggests that a recordable ``conveyance'' is
simply whatever the Registry will accept under Sec. 49.33(a) of the
Federal Aviation Regulations (14 CFR 49.33(a)).
In answer to Locke Parnell's assertion that permitting documents
to be recorded with omissions requires rulemaking action by FAA, a
commenter says that the ``policy'' or ``rule'' which permits
omissions is exempted from rulemaking by the Administrative
Procedure Act, 5 U.S.C. 553(b)(A) because it is an interpretative
rule.
All comments have been reviewed. We now begin discussion by
considering the statutory language.
In pertinent part, section 503(a)(1) of the Act (49 App. U.S.C.
2403(a)(1)) provides:
The Secretary of Transportation shall establish and maintain a
system for the recording of * * * any conveyance which affects the
title to, or any interest in, any civil aircraft of the United
States.
Under section 101(20) of the Act (49 App. U.S.C. 1301(20)), a
``conveyance'' means:
A bill of sale, contract of conditional sale, mortgage,
assignment of mortgage, or other instrument affecting title to, or
interest in, property.
(The Registry has historically treated aircraft leases as
instruments affecting an interest in property.)
There is nothing in the language of section 503 of the Act, or
by way of legislative history to the Act of 1958 and predecessor
Civil Aeronautics Act of 1938, to suggest that section 503 of the
Act mandates disclosure of confidential financial information. The
purpose of section 503 of the Act is ``* * * to create a central
clearing house for recordation of title so that a person, wherever
he may be, will know where he can find ready access to the claims
against, or liens, or other legal interests in an aircraft.''
Aircraft Trading And Services v. Braniff, Inc. 819 F.2d 1227 at 1231
(2nd Cir. 1987), quoting language in Philko Aviation, Inc. v.
Shacket, 462 U.S. 406 at 411 (1983), which language comes from house
hearings leading to passage of the Civil Aeronautics Act of 1938.
To our knowledge, there is no case law that indicates that
section 503 of the Act either requires disclosure of financial
information or that a legislative purpose of section 503 of the Act
was to provide information concerning financial fitness or safety of
airlines.
In the FAA Assistant Chief Counsel's letter of September 27,
1993, he posed the question whether a document with schedules
omitted is a ``conveyance.'' That question is relevant because under
section 503 of the Act, FAA records only ``conveyances'' as defined
in section 101(20) of the Act.
Only a few commenters responded to the question. As previously
noted, one attorney argued that a document which is anything less
than the complete agreement of the parties is not a conveyance.
However, other commenters say that such a document may be a
conveyance:
1. * * * so long as the provisions relating to the conveyance of
title or interest are not redacted * * *.
2. Because a conveyance is similar to an enforceable sale of
goods under UCC 2-201 which requires only a writing sufficient to
show a contract of sale.
3. Because a ``bare-bones conveyance'' is sufficient.
4. Because such a conveyance is considered ``acceptable by the
Administrator.''
We believe that such a document with certain, limited omissions
or redactions is a conveyance. It would be difficult to explain why
a 30-page, original lease signed by the parties is not a conveyance
simply because a schedule showing stipulated loss values has been
intentionally omitted. The fact that the parties to such a lease may
also have reached agreement as to stipulated loss value (which they
are unwilling to disclose) does not, in our judgment, make the lease
submitted for recordation any less a conveyance.
The regulations which implement section 503 of the Act are set
out in part 49 of the Federal Aviation Regulations (14 CFR part 49);
Sec. 49.1 is a restatement of section 503 of the Act. Section 49.31
is a restatement of the definition of ``conveyance'' in section
101(20) of the Act and includes release, cancellation, and
discharges as authorized in section 503(b) of the Act.
Section 49.33 states the eligibility requirements of recording
conveyances. As pertinent to this discussion, Sec. 49.33(a) provides
that a conveyance must be ``in a form prescribed by, or acceptable
to, the Administrator for that kind of conveyance.''
Determinations of what are ``* * *acceptable to, the
Administrator.'' can be found in the Registry's Examination
Guidelines, and in opinions of the Assistant Chief Counsel for the
Aeronautical Center. There are no FAA guidelines which presently
speak to the issue of recordability with omissions and redactions.
During the last 5 years law firms have routinely sought
favorable opinions concerning the redaction of schedules containing
confidential financial information. The Assistant Chief Counsel
frequently finds such redactions acceptable.
Therefore, it appears, as one of the commenters has suggested,
that certain redacted conveyances when submitted for recordation are
in a form which has been found and continues to be found acceptable.
Section 49.33(c) provides that a conveyance must be an original
or duplicate original document. As discussed earlier, there is no
indication that a Congressional purpose would be defeated by
allowing the withholding of certain financial information. Nor for
that matter, does Sec. 49.33(c) require that an original document or
duplicate original document contain such information when no
Congressional purpose would be served. Therefore, we regard an
allowably redacted conveyance with ink signatures to meet the
requirement for an ``original or duplicate original document.''
Based on the foregoing discussion, we believe that the recording
of documents with limited redactions or omissions is not contrary to
statute, regulation, or other directive.
We next turn to Locke Parnell's claim that rulemaking action is
necessary in order to continue the practice of recording documents
with omissions or redactions. Such action would include general
notice of proposed rulemaking and the public's opportunity to
participate in accordance with the Administrative Procedure Act, 5
U.S.C. 553 (b) and (c).
The Air Transport Association (ATA) has commented that: FAA has
informally construed the Part 49 regulations to allow conveyance
transactions to be recorded without certain sensitive information *
* *.
ATA suggests that what FAA is doing is in the nature of
interpreting section 503(a) of the Act and that ``interpretative
rules'' are exempt under 5 U.S.C. 553(b)(A) from formal rulemaking
requirements. (``General statements of policy'' are also exempt
under 5 U.S.C. 553(b)(A).)
Federal courts have applied various tests, singly or in
combination, to attempt to distinguish between interpretative and
legislative rules (e.g., ``substantial impact;'' ``deference to
agency label;'' ``legal effect;'' ``binding norm''). See
Administrative Conference of the United States, A Guide To Federal
Agency Rulemaking, 55-68 (2d ed. 1991), pages 55 through 68. More
recently, in determining whether rules are either legislative or
interpretative, courts have focused on the legal effect of the
rules. See e.g., American Min. Congress v. MSHA, 995 F.2d 1106 (D.C.
Cir. 1993). ``A statute or legislative rule that actually
establishes a duty or right is likely to be relatively specific (and
the agency's refinement will be interpretative), whereas an agency's
authority to create rights and duties will typically be relatively
broad (and the agency's actual establishment of rights and duties
will become an amendment merely because it supplies crisper and more
detailed lines than the authority being interpreted). If that were
so, no rule could pass as an interpretation of a legislative rule
unless it were confined to parroting the rule or replacing the
original vagueness with another.'' Id. at 1112. Consequently, the
FAA's delineation of section 503(a) as permitting the continued
recordation of conveyances with omissions or redactions of financial
data is interpretative and not legislative in nature.
Finally, we note that a commenter suggests that the FAA should
adopt a UCC-like approach and only require that a filed document
indicate that a party has conveyed title to or has an interest in a
civil aircraft. By this opinion, we intend only to affirm the
continuation of permitting schedules containing confidential,
proprietary information to be redacted or omitted from otherwise
recordable documents. With respect to particular documents, the
advice of the Assistant Chief Counsel for the Aeronautical Center
should be sought.
Sincerely,
John H. Cassady,
Deputy Chief Counsel.
[FR Doc. 94-23368 Filed 9-20-94; 8:45 am]
BILLING CODE 4910-13-M
