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Air Evac Ems, Inc. v. Cheatham

United States Court of Appeals, Fourth Circuit

December 7, 2018

AIR EVAC EMS, INC., Plaintiff-Appellee,
v.
TED CHEATHAM, in his capacity as Director of the Public Employees Insurance Agency; JOHN A. MYERS; RAYMOND S. WHITING; GEOFF S. CHRISTIAN; AMANDA D. MEADOWS; JARED ROBERTSON; LEE R. DINZNOFF; JASON MYERS; WILLIAM MILAM; MICHAEL T. SMITH, in their capacities as members of the Public Employees Insurance Agency's Finance Board; ALLAN L. MCVEY, in his capacity as West Virginia Insurance Commissioner; BILL J. CROUCH, in her capacity as the Secretary for the West Virginia Department of Health & Human Resources, Defendants-Appellants, AMERICA'S HEALTH INSURANCE PLANS, Amicus Supporting Appellant, TEXAS MUTUAL INSURANCE COMPANY, Amicus Supporting Appellant.

          Argued: October 31, 2018

          Appeal from the United States District Court for the Southern District of West Virginia, at Charleston. Thomas E. Johnston, Chief District Judge. (2:16-cv-05224)

         ARGUED:

          Lindsay Sara See, OFFICE OF THE ATTORNEY GENERAL OF WEST VIRGINIA, Charleston, West Virginia, for Appellants.

          Joshua Lee Fuchs, JONES DAY, Houston, Texas, for Appellee.

         ON BRIEF:

          Patrick Morrisey, Attorney General, Erica N. Peterson, Assistant Solicitor General, Katherine A. Schultz, Senior Deputy Attorney General, Sean M. Whelan, Assistant Attorney General, OFFICE OF THE ATTORNEY GENERAL OF WEST VIRGINIA, Charleston, West Virginia, for Appellants.

          Carte Goodwin, FROST BROWN TODD, LLC, Charleston, West Virginia; Charlotte H. Taylor, JONES DAY, Washington, D.C., for Appellee.

          Julie Simon Miller, Thomas M. Palumbo, AMERICA'S HEALTH INSURANCE PLANS, Washington, D.C.; Hyland Hunt, Ruthanne M. Deutsch, Anne J. Jang, DEUTSCH HUNT PLLC, Washington, D.C., for Amicus America's Health Insurance Plans.

          Karen Vladeck, WITTLIFF CUTTER AUSTIN PLLC, Austin, Texas; Mary Nichols, TEXAS MUTUAL INSRUANCE COMPANY, Austin, Texas; Matthew Baumgartner, GRAVES, DOUGHERTY, HEARON & MOODY, P.C., Austin, Texas; Paul Schlaud, REEVES & BRIGHTWELL LLP, Austin, Texas, for Amicus Texas Mutual Insurance Company.

          Before WILKINSON, FLOYD, and RICHARDSON, Circuit Judges.

          WILKINSON, Circuit Judge:

         The Airline Deregulation Act of 1978 (ADA) expressly preempts state efforts to regulate the prices, routes, and services of certain air carriers. Beginning in 2011, West Virginia enacted various laws to limit the reimbursement rates of air ambulance companies. Air Evac, an air ambulance company and registered air carrier, sued to enjoin the enforcement of these provisions, arguing that the state's laws were preempted by the ADA. The district court agreed with Air Evac and enjoined the challenged provisions. We now affirm.

         I.

         A.

         The market-driven system for commercial air travel, familiar to travelers today, arose from nearly a century of regulatory change. In 1938, the federal government developed a comprehensive scheme to support the growing use of the nation's skies for commercial aviation. Civil Aeronautics Act of 1938, Pub. L. No. 75-706, 52 Stat. 973. Since its inception, this regulatory regime has included both safety and economic regulations. Id. tit. IV, §§ 401-416 (economic regulations); Id. tit. VI, §§ 601-610 (civil aeronautics safety regulation). Twenty years later, federal authority over commercial aviation, which had previously been scattered among different agencies, was consolidated under the Federal Aviation Agency (FAA) and Civilian Aeronautics Board (CAB). Federal Aviation Act, Pub. L. No. 85-726, 72 Stat. 731 (1958); see also S. Rep. No. 85-1811, at 10 (1958) ("The proposed legislation abolishes the present unnatural division of responsibilities.").

         In the subsequent decades, the CAB and the FAA pursued both the economic and safety goals set by Congress. The CAB continued setting strict rates for interstate passenger air travel and controlled entry into the market through its rigorous approval process for new routes, while the FAA oversaw air travel safety. State governments, for their part, actively regulated intrastate air travel as well. The law at the time contemplated dual regulatory regimes and collaboration between the federal and state governments. See Federal Aviation Act of 1958, Pub. L. No. 85-726, § 302(k); H.R. Rep. No. 85-2360, at 14 (1958) ("The [Federal Aviation Act] gives the Administrator appropriate administrative powers relating to . . . cooperation with . . . state governments."). Many airlines operated both interstate flights and flights within a single state, such as those from Houston to El Paso. See H.R. Rep. No. 95-1211, at 2-3 (1978). Because the law permitted two layers of regulation, these airlines were "required to charge different fares for passengers traveling between cities, depending on whether these passengers were interstate passengers whose fares are regulated by the CAB, or intrastate passengers, whose fare is regulated by a State." Id. at 16. This administrative system, which included both independent state and federal regulation and strict control over prices and market entry, was "oriented toward the creation and governmental promotion of [an] air industry" that had not previously existed. S. Rep. No. 95-631, at 52 (1978). In the decades following the passage of the Federal Aviation Act, air travel continued to grow under the dual oversight of federal and state regulators. Id. at 1-5.

         By the 1970s, Congress found that the air industry had outgrown the old regime. Commercial air travel had become common and accessible. Air carriers had developed the resources and infrastructure to compete with one another on open terms in a free market. In Congress's view, the prior economic framework, characterized by two layers of regulation and rigid economic oversight, was ill-suited to the new competitive landscape. Congress responded by enacting the Airline Deregulation Act of 1978 (ADA), which applied the principles of the free market to the commercial aviation sector. See Pub. L. No. 95-504, 92 Stat. 1705. Congress's deregulatory goals were embodied in the statute itself, which directed federal regulators to "place[] maximum reliance on competitive market forces" in carrying out their responsibilities. Id. § 3.

         The ADA achieved its market-oriented ends by transforming the federal economic regulation of air carriers, removing entry barriers and allowing prices to respond to consumer demand. The ADA also ensured that these economic reforms would not be unwound by duplicative and inconsistent state regulation. Instead, air travel would be subject to only one layer of regulation. Economic regulation would be overseen by the Department of Transportation (replacing the CAB), while safety regulations would remain with the Federal Aviation Administration. See 49 U.S.C. §§ 40101(a), 40109(a)-(b), 41102, 44103 (2012). Whereas before the states were separate regulators, they now became partners in a unified regulatory framework, consulting with the federal government on local needs. See, e.g., Airline Deregulation Act, § 33, 92 Stat. 1732-34 (providing for consultation on air service determinations in small communities). In the years following passage of the ADA, Congress's deregulatory aims bore fruit as consumer prices fell, even as costs to the industry rose. See Gov't Accountability Office, GAO-06-630, Airline Deregulation 18-19 (June 2006); Stephen Breyer, Regulation and its Reform 197-98 (1982) ("Experience since the passage of the [ADA] suggests that [Congress'] diagnosis [was] correct, because prices in real terms have fallen despite rising fuel costs and the industry's profitability has not been significantly affected.").

         It is in this deregulatory context that the ADA's preemption clause was enacted. The text of the provision now reads:

[A] State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.

49 U.S.C. § 41713(b)(1).

         After the U.S. Code was reorganized in 1994, the clause now appears in Subpart II of the amended Federal Aviation Act, which includes "economic regulations" and is administered by the Department of Transportation. Pub. L. No. 103-272 (1994) (amending Title 49 of the U.S. Code "without substantive change"). As the plain language of the preemption clause demonstrates, Congress sought to prevent states from imposing a wide variety of regulations on the aviation industry. The provision accordingly expressed a "broad pre-emptive purpose" that is consistent with the deregulatory aims of the statute. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383 (1992).

         B.

         It is now forty years since the passage of the ADA, and commercial aviation has continued to grow with and adapt to market forces. One area of active innovation has been healthcare aviation, where air ambulances are now a familiar part of emergency healthcare response. All over the country, but particularly in rural areas, air ambulances can play a vital and life-saving role in responding to medical emergencies. At the federal level, these companies are regulated as air carriers. Like all other regulated air carriers, air ambulances operate under both safety and economic regulation. The FAA, as the agency responsible for administering federal safety regulations generally, provides air ambulance safety authorizations. See 49 U.S.C. § 44702; 14 C.F.R. pt. 135 (2014).

         The economic authorization for air ambulances is more complex. Because these companies are considered "air taxi operators," they are subject to less extensive regulations than larger carriers, like major commercial airlines or cargo transportation. Whereas the larger air carriers must obtain a "certificate of public convenience and necessity," see 49 U.S.C. § 41102(a), the Secretary of Transportation has waived this requirement for air ambulances. See 14 C.F.R. § 298.11. The Secretary's authority to waive the certification is discretionary. See 49 U.S.C. § 40109(f) ("[T]he Secretary may exempt an air carrier from another provision of subpart II . . ." (emphasis added)). As it stands now, air ambulance companies are exempt from some, but not all, of the economic regulations contained in subpart II and are registered with the Secretary of Transportation. See 14 C.F.R. § 298.1.

         Air ambulance services unfortunately do not come cheap. A single flight can cost tens of thousands of dollars. J.A. 120, 211; see also EagleMed LLC v. Cox, 868 F.3d 893, 903 (10th Cir. 2017). In response, some insurance companies have refused to pay the full reimbursement costs. The air ambulance companies have in turn sought payment directly from the patients, a practice known as "balance-billing." To prevent covered patients from receiving these bills, some insurers have agreed to pay more to the air ambulance company. For those insurers that did not agree, covered patients were regrettably often stuck with the bill for the remainder. The costs of these services have not gone unnoticed. The Government Accountability Office provided Congress with a report on air ambulance pricing in July of 2017, specifically noting consumer concerns related to balance-billing. See Gov't Accountability Office, GAO-17-637, Air Ambulance: Data Collection and Transparency Needed to Enhance DOT Oversight (July 2017). Just a few months ago, Congress took action on the issue. The FAA Reauthorization Act of 2018, which became law during this appeal, addresses air ambulances directly. Pub. L. No. 115-254 (2018). First, it empowers the Secretary of Transportation to collect more data on air ambulance pricing and provide additional information to consumers. Id. § 314. Second, it invites stakeholders, including states, into the policymaking process by forming a committee to advise the Secretary of Transportation on air ambulance billing practices. Id. § 418(a)-(b). Third, the law gives the Secretary authority to regulate air ambulance companies directly, both to ensure transparency around costs and "to provide other consumer protections for customers of air ambulance operators." Id. § 418(f)(3).

         Many states have also responded, attempting to both lower their own costs and prevent the balance-billing of their citizens. In recent years, states have tried to lower prices either by regulating the amount that air ambulance companies can charge private parties, see, e.g., Air Evac EMS, Inc. v. Sullivan, ___ F.Supp.3d ___, 2018 WL 3677002, at *2 (W.D. Tex. August 2, 2018), or by requiring air ambulance companies to accept lower reimbursement rates, see, e.g., Valley Med Flight, Inc. v. Dwelle, 171 F.Supp.3d ...


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