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City of Dallas v. Delta Air Lines, Inc.

United States Court of Appeals, Fifth Circuit

February 2, 2017

CITY OF DALLAS, Plaintiff - Appellee

         Appeal from the United States District Court for the Northern District of Texas

          Before REAVLEY, DAVIS, and JONES, Circuit Judges.

          W. EUGENE DAVIS, Circuit Judge.

         This case concerns the operation of Love Field, an airport owned by Plaintiff-Appellee the City of Dallas (the "City"), and leased in part to Defendant-Appellant Southwest Airlines Company ("Southwest"). The City filed a declaratory judgment action seeking a determination of whether it must order Southwest to accommodate Defendant-Appellee Delta Air Lines, Incorporated ("Delta"), at Love Field under the Lease Agreement or otherwise.

         Delta, Southwest, and the City filed competing motions for preliminary injunctions. Delta argued that (a) the Lease Agreement requires the City to order Southwest to accommodate Delta, and (b) Delta may sue to enforce the obligations because it is a third party beneficiary under the Lease Agreement. The court granted Delta's motion in full. It found that the City was also entitled to a preliminary injunction, in the alternative, for the same relief requested by Delta because the district court interpreted the Lease Agreement to require the City to accommodate Delta. Because it interpreted the Lease Agreement to require accommodation, the court necessarily denied Southwest's motion.

         Southwest appealed, arguing that Delta is not a third party beneficiary and that the Lease Agreement does not require the accommodation Delta seeks. The City did not appeal, but in its appellee brief it argued that although Delta should be accommodated under the Lease Agreement, Delta is not entitled to sue as a third party creditor beneficiary. For the reasons set forth below, we affirm the district court's order granting the City's preliminary injunction, [1] granting Delta an accommodation until a final determination on the merits, and affirm the district court's denial of Southwest's preliminary injunction. Because Delta will effectively receive the relief it seeks under the City's preliminary injunction, we decline to address at this stage whether Delta is a third party creditor beneficiary.

         I. Legal Context and Procedural History

         Love Field is an airport owned by Plaintiff-Appellee the City of Dallas and is most closely associated with Southwest, which is by far its biggest user.[2]Love Field has always been subject to special legislation (beginning with the 1979 Wright Amendment) which historically permitted it to operate only in a very limited geographic region, in essence to protect the business of the Dallas-Ft. Worth International Airport ("DFW Airport"), which does not have those geographic restrictions.

         In 2006, Congress suggested that the Cities of Dallas and Fort Worth reach a long-term compromise removing the Love Field flight restrictions. The City of Dallas, the City of Fort Worth, the DFW Airport Board, and the two airlines then operating at Love Field, Southwest and Defendant American Airlines, entered into the so-called Five Party Agreement on July 11, 2006. The district court summarized the agreement as follows:

         Important terms of the Five Party Agreement include the following:

1. A reduction in the total number of gates at Love Field from 32 to 20.
2. A prohibition of the subdivision of a gate in any form, including the use of hardstands which permit an airline to "ground load/unload" their passengers.
3. The allocation of 16 "preferential use" gates to Southwest, two "preferential use" gates to American, and two "preferential use" gates to ExpressJet Airlines, Inc..
4.A limitation on flight operations to the hours of 6:00 a.m. to 11:00 p.m.
5. A prohibition of international flights originating from Love Field.

         In addition to these terms, the Five Party Agreement refers to the possibility of a new entrant airline seeking space to operate at Love Field under the new gate limitations:

To the extent a new entrant carrier seeks to enter Love Field, the City of Dallas will seek voluntary accommodation from its existing carriers to accommodate the new entrant service. If the existing carriers are not able or are not willing to accommodate the new entrant service, then the City of Dallas agrees to require the sharing of preferential lease gates, pursuant to Dallas' existing lease agreements.[3]

         Relevant to this dispute, Love Field allows a maximum of 10 flights per day per gate, for a maximum of 200 flights per day.

         The district court found that the Five Party Agreement does not define the term "preferential use, " but the individual Lease Agreements between the City and each airline (referred to in each Lease Agreement as a "Signatory Airline") defines "preferential use" to mean that the Signatory Airline is the "primary, but not the sole, user."[4]

After the Five Party Agreement was formalized, the parties presented their agreement to Congress as the collaborative local effort for reforming and/or repealing the Wright Amendment. Several, though not all, provisions of the Five Party Agreement were ultimately incorporated into the Wright Amendment Reform Act ("WARA"), which officially repealed the Wright Amendment when it was adopted on October 13, 2006; but maintained the longdistance flight restrictions from Love Field for eight more years until October 2014. Just as in the Five Party Agreement, WARA addressed new entrant airlines needing space to operate at the now gate restricted Love Field, specifically providing that, "[t]o accommodate new entrant air carriers, the city of Dallas shall honor the scarce resource provision of the existing Love Field leases." (Emphasis added.) The substantive provisions regulating flights in and out of Love Field were incorporated into WARA. The provisions of the Five Party Agreement which were not incorporated into and adopted by WARA are simply contractual obligations between the five parties that are independent of WARA, and do not include Delta.[5]

         In addition, Article I.12 of the Five Party Agreement requires the parties to amend the underlying Lease Agreements and "take such actions, as necessary or appropriate, to implement" the Five Party Agreement. Article II.11 (titled "NO THIRD PARTY BENEFICIARIES") states that the Five Party Agreement is intended only for the benefit of the parties thereto and is not intended to create any third party beneficiary relationship with anyone.

         Thus, the Five Party Agreement facially requires the City and Southwest to accommodate a "new entrant air carrier, " but it expressly disavows the creation of any third party beneficiary status and leaves the implementation of those obligations to the amendment of the Lease Agreement between Southwest and the City. That Lease Agreement, as amended, sits at the core of this dispute. The district court summarized the relevant terms as follows:

The terms of each Lease Agreement for gates between the City and the respective Signatory Airline are essentially identical, according to the City. The Signatory Airline has either exclusive use or preferential use of its leased space at Love Field, as described in the Lease Agreements. "Exclusive use" pertains to that leased space that the Signatory Airline has the sole right to use. "Preferential use", on the other hand, applies to those leased spaces where the Signatory Airline is considered the primary, but not sole, user. Under each Lease Agreement, no Signatory Airline has exclusive use of any gate, only preferential use. There is exclusive use leased space at Love Field; but, there are no exclusive use gates at Love Field.
Just as both the Five Party Agreement and WARA recognized the limitations created by the gate restrictions, each Lease Agreement addresses the possibility of Love Field facilities becoming a "scarce resource". The Lease Agreement anticipates a new entrant air carrier ("Requesting Airline") may seek to provide service at Love Field with the new gate restrictions. Recognizing the need for "open access and uniform treatment", the Lease Agreement goes further and provides a procedure in Section 4.06F when accommodation is sought by a Requesting Airline. This procedure requires the Requesting Airline first exhaust all reasonable efforts to secure a voluntary arrangement for accommodations from each Signatory Airline. If the Requesting Airline's attempt for voluntary accommodation fails, then the City's Director of Aviation ("Director") will notify each Signatory Airline that if a voluntary accommodation is not made within the 30-day time frame under each Lease Agreement, the Director will select one of the Signatory Airlines to fulfill the accommodation request. Notice will then be sent to the selected Signatory Airline which will have 10 days to comment on or dispute the Director's choice. The Signatory Airline must accommodate the Requesting Airline unless the Director rescinds his selection. The accommodation procedure does not specify options or remedies the Requesting Airline might have if the Director rescinds his selection.[6]

         Finally, Section 14.33 of the Lease Agreement contains an "entire agreement" clause, providing that the Lease Agreement itself "constitutes the entire agreement" which may not be changed without a written instrument.

         As the district court noted, some post-WARA developments at Love Field resulted in Southwest having a lease for preferential use of 16 gates, Defendant United Airlines, Inc. having a lease (as successor to ExpressJet Airlines, Inc.) for preferential use of two gates, and Defendant Virgin America, Inc. having a preferential use of two gates as a result of the merger of American with U.S. Airways. The Department of Justice previously held that Virgin's gates cannot go to either Southwest or Delta.

         We now turn to the actual dispute: Delta was not a Signatory Airline because it did not have a Lease Agreement with the City.[7] It entered into a month-to-month sublease with American beginning in July 2009, but that lease was set to end on October 12, 2014. As contemplated by the Lease Agreement, Delta, as a Requesting Airline, sought to remain at Love Field through a voluntary accommodation, which it requested from the Signatory Airlines on June 13, 2014.

         Delta was unable to obtain a voluntary accommodation, so it requested a mandatory accommodation from the City in a letter dated July 16, 2014. The City selected United to accommodate Delta because United was only using seven flights daily out of its two leased gates, which left 13 flights per day still available under Love Field's 10 flights per gate policy. In the meantime, Southwest first acquired use of United's gates through a gate usage agreement with United and later bought the gates for $120 million in late 2014, leaving Southwest with 18 gates and Virgin with two. Based on Southwest's purchase of United's gates, the City rescinded its accommodation decision and notified Delta on September 29, 2014 that it could no longer be accommodated.

         The Lease Agreement provides no remedy for a Requesting Airline in the event the City rescinds its accommodation selection, but Delta again requested accommodation. The City initiated a second accommodation request on December 1, 2014, and sent a letter to Virgin, United, and Southwest, stating that Delta's request had triggered the accommodation process set out in Section 4.06F of the Lease Agreement and that the City would choose an airline to accommodate Delta if they could not choose among themselves. The airlines failed to voluntarily accommodate Delta, and the City never made a mandatory accommodation decision.

         The City twice asked the Department of Transportation ("DOT") for advice on how to handle the situation. The DOT opined that the City had a legal obligation to accommodate Delta, but the DOT's opinions do not appear to constitute a final agency action. The City never made a decision on its own, and none of the airlines agreed to voluntarily accommodate Delta.[8]

         Delta continued to operate five flights per day out of Love Field under its temporary gate usage agreement with United which was set to expire after 180 days, on July 6, 2015. When Southwest acquired United's gates, it offered to honor United's temporary agreement with Delta for five daily flights until July 6. Southwest refused to extend that date.

Continuing to press the accommodation request with the City, Delta told the City it would refuse to cease operations at Love Field on July 7, 2015, because it had a right to accommodation. In an attempt to avoid what it says would be potential chaos at Love Field beginning July 7, 2015, the City filed this lawsuit on June 17, 2015, seeking declaratory relief related to, among other things, its legal obligations and rights with respect to the Five Party Agreement, WARA, the Lease Agreements and federal regulations and laws affecting Love Field; essentially the City is asking this Court to "Please tell us what to do."[9]

         The district court convinced the parties to enter into a temporary agreement preserving the status quo at Love Field until it could address the dispute. Under this temporary agreement, Southwest continued allowing Delta to operate five daily flights out of Love Field.[10]

         The parties then filed competing motions for preliminary injunctions. Delta sought injunctive relief against Southwest to preserve the status quo (i.e., five daily flights) pending final resolution of the declaratory judgment action. Southwest sought injunctive relief against Delta prohibiting Delta from trespassing on Southwest's gates at Love Field once the temporary gate usage agreement terminated, on the ground that Southwest is not required to accommodate Delta under the Lease Agreement. The City requested, in the alternative, that the district court grant the relief requested by either Delta, the relief requested by Southwest, or any other appropriate relief.

         The district court correctly set out the framework for determining whether to grant a preliminary injunction as follows:

The purpose of a preliminary injunction is to preserve the status quo and thus prevent irreparable harm until the respective rights of the parties can be ascertained during a trial on the merits. To be entitled to a preliminary injunction, the movant must satisfy each of the following equitable factors: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury; (3) the threatened injury to the movant outweighs the threatened harm to the party sought to be enjoined; and (4) granting the injunctive relief will not disserve the public interest. Because a preliminary injunction is an extraordinary remedy, it should not be granted unless the movant has clearly carried the burden of persuasion' on all four requirements. Failure to sufficiently establish any one of the four factors requires this Court to deny the movant's request for a preliminary injunction. Any factual findings and/or conclusions of law the Court makes herein are not binding at a trial on the merits.[11]

         The district court granted a preliminary injunction in favor of Delta and against Southwest because it found that, in addition to demonstrating the other three requirements for a preliminary injunction, Delta had also shown a substantial likelihood of success on the merits regarding (a) its ability to sue as a third party creditor beneficiary under the Lease Agreement and (b) its claim that the Lease Agreement required Delta to be accommodated. The district court also found that the City, as a party to the Lease Agreement, was independently entitled to its alternative request for injunctive relief requiring Delta to be accommodated under the court's interpretation of the contract. Based on its interpretation of the Lease Agreement, the court necessarily concluded that Southwest failed to show a substantial likelihood of success on the merits.

         Accordingly, the district court denied Southwest's motion and entered a preliminary injunction in favor of Delta essentially permitting Delta to continue operating five flights daily until a final decision on the merits. Southwest timely appealed.

         II. Jurisdiction and Standard of Review

         The district court had subject matter jurisdiction under 28 U.S.C. § 1331, 1332, and 1367. We have jurisdiction over this timely appeal of the district court's denial of a preliminary injunction pursuant to 28 U.S.C. § 1292(a)(1).

         We review the district court's ultimate decision to grant or deny a preliminary injunction for abuse of discretion, but we review "a decision grounded in erroneous legal principles" de novo.[12]

         III. Analysis

         On appeal, Southwest argues that it is entitled to a preliminary injunction because the Lease Agreement does not require accommodation. It also argues that, at any rate, Delta may not sue because it is not a third party beneficiary under the Lease Agreement. Delta defends the district court's opinion in full. The City argues that the district court's interpretation of the Lease Agreement requiring accommodation is ...

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