Vedder Price

Vedder Thinking | Articles Federal Safe Harbor from Liability Expanded for Aircraft Lenders and Lessors

Newsletter/Bulletin

After many years of congressional stalemates, the long awaited five-year reauthorization for the Federal Aviation Administration (the FAA) became federal law when signed by President Trump on October 5, 2018 (the Reauthorization Act)1. Although the Reauthorization Act addresses a myriad of items of interest to the aviation industry, one such item should be of particular interest to aircraft lessors, lenders, and investors. Specifically, the Reauthorization Act modifies and expands the essential federal safe-harbor preempting these passive owners and interest holders from liability under the strict liability laws of most states.

“Dangerous Instrumentalities” Made in State Law

Liability is an inherent transactional risk to parties leasing, financing, or investing in aircraft. As background, some states, such as Florida, impose vicarious liability on parties merely because they own or have an interest in “dangerous instrumentalities.”2 This “strict” liability, if imposed, would make owners and other interest holders legally accountable for personal injury and property claims relating to an aircraft accident or incident, even if it neither possessed nor controlled the operation or other matters relating to that aircraft. The legislative justifications for holding passive parties responsible for injury and property claims is to assure that there is a creditworthy party to cover the claims of citizens of that state who suffer harms from this dangerous instrumentality, and perhaps to promote conduct by passive interest holders intended to avert these potential harms. As there is no federal aviation law imposing tort liability, the liability laws of the relevant state are applied unless preempted by a federal statute.

However, in certain circumstances, Congress has from time-to-time passed federal laws that preempt state laws as to matters involving a compelling national interest.3 When doing so, Congress makes a determination that the national interests are better served by overriding the state law to the extent it is inconsistent with the preemptive federal law. Congress created such a preemptive protection against the referenced state vicarious liability laws back in the 1940s when establishing the first comprehensive federal aviation laws.4 This statutory protection, often referred to as the “safe harbor statute,” was originally passed by Congress in 1948 as 49 U.S.C. § 1404 of the Federal Aviation Act and has been re-codified, most recently in 1994 as 49 U.S.C. § 44112.

Federal Preemption

Section 44112, in its original and recodified iterations, effectively provided that lessors, secured lenders and other interest holders are liable for injury and property claims relating to aircraft5 only if these interest holders are in control or possession of the aircraft. The Congressional intent for enacting this safe harbor, and including it in the later recodifications, was to facilitate the availability of aircraft financing for businesses in the United States. By removing this strict liability risk as an impediment to aircraft leasing or financing, it became especially helpful for smaller businesses without access to large amounts of capital. If applied as intended by Congress, the statute should preempt state tort laws imposing liability upon any lessor, financier, or investor for damages caused during operation of the aircraft, so long as such interest holder had neither possession of, nor control over, the aircraft operations at the time of the accident.

Unfortunately, some courts have struggled with the application of § 44112 by finding ambiguities in the current statute and its legislative history. State and federal courts have interpreted the scope of § 44112 differently, resulting in confusing and somewhat contradictory holdings among those courts when asked to consider its application to the facts and circumstances presented in that specific case.6

Efforts lead by the Equipment Leasing and Finance Association (ELFA), GE Corporate and Vedder Price7 resulted in amendments to the safe harbor statute intended to award future misapplication of the statute.

The Statute

Prior to the amendment, 49 U.S.C. § 44112(b), stated, in part:
 
A lessor, owner, or secured party is liable for personal injury, death, or property loss or damage on land or water only when a civil aircraft, aircraft engine, or propeller is in the actual possession or control of the lessor, owner, or secured party, and the personal injury, death, or property loss or damage occurs because of - (1) the aircraft, engine, or propeller; or (2) the flight of, or an object falling from, the aircraft, engine, or propeller. Section 44112 also defines those parties whose civil liability could be limited by this section as follows:
 
(1) “lessor” means a person leasing for at least 30 days a civil aircraft, aircraft engine, or propeller.
(2) “owner” means a person that owns a civil aircraft, aircraft engine, or propeller.
(3) “secured party” means a person having a security interest in, or security title to, a civil aircraft, aircraft engine, or propeller under a conditional sales contract, equipment trust contract, chattel or corporate mortgage, or similar instrument.8

While a number of courts have held that the federal safe harbor preempts state tort liability law,9 the courts in two landmark cases, Storie v. Southfield Leasing10 and Vreeland v. Ferrer,11 disagreed. In Storie, the Michigan Court of Appeals considered the preemption issue in connection with a wrongful death case brought by the estate of a passenger in an aircraft owned and leased by the defendant to the passengers’ employer. The appellate court, relying on a prior, but essentially similar version of the statute, held that the statute did not preempt a Michigan vicarious liability law.12 The court reasoned that the plaintiff’s injury did not occur on the surface of the earth, and, accordingly, per the plain language of the statute, was not covered by its scope.13

Similar to Storie, the Vreeland case rests on a strict reading of the “on land or on water” element of § 44112.14 In Vreeland, the surviving beneficiary of a passenger killed in an aircraft accident sued the aircraft lessor who had leased the aircraft to a third-party lessee, in control of and operating the aircraft at the time of the accident.15 The plaintiff argued that, “as owner of the aircraft, [lessor] was liable and responsible for the negligence of [the pilot] in the operation and inspection of the aircraft.”16

After the trial court denied the plaintiff’s vicarious liability claim by deeming it to be preempted by § 44112, the Florida Supreme Court considered, upon appeal by the plaintiff, whether the trial court had erred as to its application of the preemption.17 The Florida Supreme Court, relying on a strict construction analysis, reversed the district court of appeals’ decision, holding that § 44112 could only preempt liability under Florida’s dangerous instrumentality laws “[t]o the extent that the [laws] applie[d] to injuries, damages or deaths that occur[ed] on the surface of the earth.”18 However, “because the death of [the passenger] occurred while he was a passenger in a plane that crashed – not on the ground beneath the plane – the wrongful death action” was not preempted by § 44112.19 The Appellate Court also reasoned that because there existed a separate statute addressing injuries to aircraft crew and passengers who were in the aircraft at the time of the incident, Congress specifically intended the predecessor to § 44112 to preempt state law with regard only to “injuries that occurred on the surface of the earth.”20

Similar to the holding in Storie, and as expanded in the dissent in Vreeland, the majority’s opinion “defied reality.”21 Citing the lower court’s opinion, the dissent noted that the majority’s “reasoning [did] not ‘explain why an airplane crash does not cause an injury on the surface of the earth regardless of whether the injured person was in the airplane or standing on the ground.’”22 According to the majority, the passenger “was not ‘on land or water’ at the time of the crash”, even though the passenger “was in the aircraft when it hit land . . . [and] his death occurred ‘on land,’ not in the aircraft prior to contact with the land.”23

The impact of cases like Storie and Vreeland is that they encourage Plaintiff’s counsel in aircraft accident cases to forum shop, by selecting one of the jurisdictions with precedent most favorable to their clients’ cases. The vulnerability of § 44112 to those and other cases challenging the extent of the preemption was the motivation for the industry advocacy team to pursue the recent amendments. Members of our advocacy team met frequently, especially after Vreeland, with various members of Congress, pertinent committees and staffers seeking amendments to the statute in future legislation. Achieving effective legislation change is extremely challenging, but based on the advice of our advocacy professionals from ELFA and GE Corporate,24 the team’s strategy was to propose amendments that were simple, straight-forward, essential, and non-controversial to any constituency. After many dozens of these Hill meetings over the past seven years, and by sticking to our strategy, sponsors in the House and Senate agreed to include the amended safe harbor statute reflecting our changes in the Reauthorization Act in section 514, titled “Aircraft Leasing.” The statute now states, in part25 :

A lessor, owner, or secured party is liable for personal injury, death, or property loss or damage only when a civil aircraft, aircraft engine, or propeller is in the actual possession or operational control of the lessor, owner, or secured party, and the personal injury, death, or property loss or damage occurs because of –
(1) the aircraft, engine, or propeller; or
(2) the flight of, or an object falling from, the aircraft, engine, or propeller.
The amendments to the statue include striking “on land or water” and inserting “operational” before “control.” The deletion of “on land or water” was intended to nullify judicial decisions, such as Vreeland, where interpretation of those words allowed courts to justify their refusal to apply the preemption. Specifically, this amendment will make it difficult for a court to replicate the Vreeland opinion in which a victim must actually be underneath the aircraft, “defy[ing] reality,” as the dissent noted.26 Second, the insertion of “operational” before “control” aims to curb interpretations that may broaden the definition of “control.” The intention here is that a court would look to FAA regulations and interpretations and have a more precise scope of what constitutes “operational control.”27

 

Conclusion

The risk that federal preemption might not be applied by a court based on its narrow interpretation of § 44112 has had a chilling effect on prospective lessors and other aircraft investors and financiers. The amendments pursued and achieved by our industry advocacy team should reduce the likelihood that a court will refuse to apply § 44112 due to an evenly narrow interpretation, and in turn, give some comfort to lessors and other aircraft investors and financiers that their liability risk may have been somewhat diminished. Nonetheless, lessors and financing parties should still require the typical transactional protections. Among other things, the lease or loan documents should include indemnifications and legal compliance provisions and, most importantly, liability insurance coverage pursuant to policies from reliable credit-worthy insurers and with acceptable policy scope, coverage amounts, breach of warranty, and other lender/lessor endorsements, terms, and conditions.


  1. FAA Reauthorization Act of 2018, Pub. L. No. 115-254, 132 Stat. 3186 (2018).
  2. See Southern Cotton Oil Co. v. Anderson, 86 So. 629 (Fla. 1920) (holding that an automobile is a dangerous instrumentality and its owner’s liability extends to the automobiles use by any one with the owner’s consent).
  3. See Abdullah v. Am. Airlines, Inc., 181 F.3d 363 (3d Cir. 1999) (holding that federal aviation regulations constituted implied field preemption of state law air safety regulations).
  4. 49 U.S.C. § 1404 (current version at 49 U.S.C. § 44112 (2006)).
  5. Note that the statute also affords the referenced liability safe harbor to lessors, lenders, and other passive parties having an interest in aircraft engines or propellers, and that you may assume that each reference in this article to “aircraft” may also be read as “aircraft, engine or propeller,” as appropriate.
  6. Among the issues that have been decided differently among these cases, are the extent to which the federal exculpation preempts state law imposing liability, the meaning of “possession or control” in the context of this statute, and whether it covers all types of aircraft interest holders.
  7. The advocacy team consisted primarily of representatives from ELFA (Andy Fishburn and his predecessor, Richard Shanahan), GE Corporate (Darby Becker), together with the co-authors of this article (Edward Gross and Jonathan Rauch).
  8. 49 U.S.C. § 44112 (2006) (emphasis added).
  9. Mangini v. Cessna Aircraft Co., 2005 Conn. Super. LEXIS 3387 (Conn. December 7, 2005) (holding that owners are entitled to the same limitation of liability that Section 1404 extended to security holders); In re Inlow Accident Litig. No. IP 99-0830-C H/G, 2001 U.S. Dist. LEXIS 2747 (D. Ind. February 7, 2001) (holding that § 44112 prevents the imposition of liability on lessors that are not engaged in some concrete fashion in the operation of the aircraft); Matei v. Cessna Aircraft Co., 35 F.3d 1142 (7th Cir. 1994) (holding that aircraft owner who leased aircraft to corporation, who had operational control when the aircraft crashed, was preempted from liability, in part, by § 1404); Rogers v. Ray Gardner Flying Serv., Inc., 435 F.2d 1389, 1394 (5th Cir. 1970) (holding that liability of aircraft owner preempted when aircraft leased to fixed-based operator and crashed in their control); Rosdail v. W. Aviation, Inc., 297 F. Supp. 681, 684-85 (D. Colo. 1967) (holding that no persons who merely have a security interest in aircraft or who are lessors of thirty days or more shall be liable for property or personal damages caused by an aircraft unless those persons be in actual possession or control at the time of such injury).
  10. Storie v. Southfield Leasing, Inc., 90 Mich. App. 612 (1979).
  11. Vreeland v. Ferrer, 71 So.3d 70 (Fl. 2011).
  12. Storie, at 615 (citing 49 U.S.C. § 1404 “No person . . . shall be liable . . . for any injury to or death of persons, or damage to or loss of property, on the surface of the earth (whether on land or water) caused by such aircraft”).
  13. Id.
  14. This point of impact element had been revised from “on the surface of the earth (whether on land or water)” in § 1404 to just “on land or water” in § 44112 as then codified.
  15. Id.
  16. Id. at 72.
  17. Vreeland v. Ferrer, 71 So.3d 70, 75 (Fl. 2011).
  18. Id. at 84.
  19. Id.
  20. Id. at 80.
  21. Id. at 85.
  22. Id.
  23. Id.
  24. See supra note 7.
  25. 49 U.S.C. § 4412 (2006).
  26. Vreeland v. Ferrer, 71 So.3d 70, 85 (Fl. 2011).
  27. 14 C.F.R. § 1.1 (“Operational control, with respect to a flight, means the exercise of authority over initiating, conducting or terminating a flight.”).

GTF Newsletter December 2018



Professionals



Edward K. Gross

Shareholder



Jonathan M. Rauch

Associate