Real Estate & Property Law

Federal Circuit: No Property in Contract for Airport Screening Service

By Robert Thomas

In Hunteigh USA Corp. v. United States, No 2007-5118 (May 15, 2008), the US Court of Appeals for the Federal Circuit held that a company which provides passenger and baggage screening services at airports did not have a protectable Fifth Amendment property interest in contracts to provide those services to airlines.  Huntleigh sought just compensation for a taking after the federal government assumed security screening in the wake of the 2001 terror attacks, and rendered its existing screening service contracts worthless.

In 1974, Congress required the airlines to screen passengers and luggage, and most airlines hired private contractors to perform the screenings.  In 2001, Huntleigh had contracts with 75 airlines, and was responsible for screening at 35 airports nationwide.  After the 2001 terrorist attacks, Congress created the Transportation Security Administration and determined that the new agency could provide better security.  Congress enacted the Air Transportation Security Act which provides that the TSA could accomplish the screening itself, or could "assume the rights and responsibilities" of the airlines by assuming private security contracts.  If TSA chose the latter option, ATSA required it to provide "adequate compensation to parties to the contract."

The law effectively terminated Huntleigh's security contracts, and it filed suit in the Court of Federal Claims seeking just compensation for a taking of its property, and compensation under ATSA.  The CFC held that Congress had merely frustrated Huntleigh's business expectations, and that TSA had not actually assumed any of its contracts but had instead taken over its screening duties.

The Federal Circuit affirmed, holding that the contracts were not property.  Huntleigh argued that the government did not merely frustrate its business expectations, but had, in effect, made its contracts illegal.  Relying upon Omnia Commercial Co. v. United States, 261 U.S. 502 (1923), the court disagreed.

In this case, the purpose of ATSA was not to take action with respect to any security screening contract to which Huntleigh was a party. Rather, its purpose was to transfer security screening responsibilities from the airlines to the federal government. This action, directed at the airlines, frustrated Huntleigh?s business interests.

Slip op. at 17.  The court also affirmed the CFC's determination that ATSA compensation was not required because TSA did not actually assume Huntleigh's contracts, but took over its duties.  A fine distinction, but one that was enough for the Federal Circuit.  Slip op. at 22.

Full post as published by inversecondemnation on May 21, 2008 (boomark / email).