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City of Chicago v. Federal Emergencymanagementagencyand R. Davidpaulison

October 17, 2011


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:08-cv-04234-Charles R. Norgle, Judge.

The opinion of the court was delivered by: Posner, Circuit Judge.



Before CUDAHY, POSNER, and WILLIAMS, Circuit Judges.

Six airlines appeal from the denial of their motion to intervene in a suit between the City of Chicago and the Federal Emergency Management Agency (the other defendant, FEMA's director, is a superfluous party). The airlines sought intervention under Fed. R. Civ. P. 24(a) (intervention as a matter of right) and alternatively under Rule 24(b) (permissive intervention).

The airlines are users of the O'Hare and Midway Air-ports, which are owned by the City of Chicago. Their rights as users are defined by contracts with the City that are called "Use Agreements." In both 1999 and 2000 the airports were crippled for a time by severe snowstorms. As the airports' owner the City was responsible for keeping the runways clear. At the beginning of each fiscal year the City estimates its annual operation and maintenance expenses, which include costs of normal snow removal from airport runways (the City does not attempt to estimate the removal expense it would bear as a result of a snowstorm of unpredictable severity), and the airlines provide the City with their estimate of aircraft traffic for the year. On the basis of these estimates the City calculates a maintenance charge per landing, which the airlines pay monthly. At the end of the year the City compares its incurred maintenance expenses (less payments from non-airline sources) to the amounts the airlines have paid in landing charges, and either charges or reimburses the airlines for the difference between estimated and actual costs.

The City thought it had an outside source of reimbursement for the snow removal costs caused by the 1999 and 2000 snowstorms-FEMA, which obliged to the tune of almost $6 million. (As provided by FEMA-State Agreement § 4 (Sept. 25, 1999), this was 75 percent of the City's costs. See 42 U.S.C. § 5172(b)(1).) FEMA made the pay- ment on the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121 et seq., which authorizes federal financial assistance "to a . . . local government for the . . . restoration . . . of a public facility [including an airport, § 5122(9)(A)] . . . damaged . . . by a major disaster." § 5172(a)(1)(A). One form that such damage can take is "snow . . . conditions" so severe that they trigger a declaration of an emergency or a major disaster. 44 C.F.R. § 206.227.

Years later FEMA ordered the City to return the money. The order was based on a provision of the Stafford Act called (in a triumph of bureaucratic obfuscation) "deobligation." It provides that "a person receiving Federal assistance for a major disaster or emergency shall be liable to the United States to the extent that such assistance duplicates benefits available to the person for the same purpose from another source." 42 U.S.C. § 5155(c). FEMA asserted that the Use Agreements entitled the City to reimbursement of the cost of the snow removal from the airlines, and that this authorization meant that FEMA's assistance, which had financed the City's removal of the snow, had "duplicate[d] benefits available to the [recipient of FEMA's money-the City] for the same purpose from any other source [the airlines]." Memorandum from Tonda L. Hadley, Field Office Director, Office of Inspector General, Department of Homeland Security, to Edward G. Buikema, FEMA Region V Director, regarding City of Chicago, IL, FEMA Disaster Numbers 3134-EMIL and 3161-EM-IL (Sept. 26, 2003); Letter from Carlos J. Castillo, FEMA Disaster Assistance Directorate, to David L. Smith, IEMA Chief of Disaster Assistance and Preparedness (May 1, 2008).

After exhausting administrative remedies the City brought the present suit under the Administrative Procedure Act to challenge FEMA's ruling, arguing that "duplicates benefits available . . . from another source" means "duplicates benefits available to the recipient of federal financial assistance (the City in this case) under an insurance policy." So a recipient of federal assistance to remedy flood damage who has a private flood insurance policy has to make a claim under the policy and reimburse FEMA if the claim is successful; it can't stick FEMA with the cost just because it wants to keep its insurance premiums from being raised by not making a claim against its insurer. Hawaii v. FEMA, 294 F.3d 1152, 1161 (9th Cir. 2002); FEMA, "Duplication of Benefits-Non-Government Funds," Disaster Assistance Policy 9525.3 §§ VII(C), (D), grant/p a/9525_3.shtm (visited Sept. 26, 2011); FEMA, "Insurance Considerations for Applicants: Disaster Assistance Fact Sheet Number: 9580.3," government/grant/pa/9580_3.shtm (visited Sept. 26, 2011); Kiln Underwriting Ltd. v. Jesuit High School of New Orleans, No. 06-4350, 2008 WL 4724390, at *4-5 (E.D. La. Oct. 24, 2008).

But the City is unwilling to put all its eggs in that basket, because another Ninth Circuit case has interpreted section 5155(c) (the "duplicates benefits" provision) to require that the recipient of FEMA assistance have sought reimbursement from a co-owner of property repaired with FEMA funds, Public Utility District No. 1 v. FEMA, 371 F.3d 701, 711-12 (9th Cir. 2004), even though the co-owner is not an insurer. So as a backup the City has stipulated with FEMA that the snow removal expenses that the City incurred are covered by a provision of the Use Agreements that makes the airlines responsible for "net operating and maintenance expenses" at the airports. FEMA was willing-indeed happy-to so stipulate because the airlines are the only arguable source of duplicate benefits to the City; without such a source, FEMA is not entitled to reimbursement.

The airlines, naturally, read the provision we quoted from the Use Agreements differently: as limited to the ordinary expenses of an airline's use of an airport, there-fore excluding expenses incurred to prevent or overcome a disaster. They add that they're victims of the snowstorms and that FEMA is supposed to pay for disaster relief, not make the victims of the disaster pay. See 42 U.S.C. § 5121(b)(6); Hawaii v. FEMA, supra, 294 F.3d at 1160; Graham v. FEMA, 149 F.3d 997, 1000, 1004-05 (9th Cir. 1998). They do not claim they're entitled to direct reimbursement by FEMA for costs they might incur under the Use Agreements, even though those would be disaster costs; were they entitled, this lawsuit would be academic. Section 5172, the provision that enabled the City to obtain financial assistance from FEMA, limits recipients to a state or local government or the private owner or operator of a public facility, such as an airport; the airlines do not operate the City's airports. We imagine that if any other provision would entitle the airlines to financial assistance from FEMA they would have invoked it; as far as we know they have not.

Instead they argue that victims of disaster, unlike insurers, shouldn't be stuck with disaster costs by being deemed sources of reimbursement for the recipient of disaster assistance (in this case the City). The City agrees; it is at loggerheads with the airlines over a different issue, the meaning of "net operating and maintenance expenses" in the Use Agreements; that's the disagreement that triggered the motion to intervene. The airlines hope the City prevails in its argument about the narrow scope of the "duplicates benefits" provision of the Stafford Act; in this respect they are at one with the City and the City adequately represents the airlines' interest. But if FEMA's interpretation of the Stafford Act as making the airlines a duplicate source of benefits prevails (and so FEMA wins this case), the airlines will face a suit by the City to enforce the City's understanding of the Use Agreements. FEMA can prevail in such a suit only if the court rules, in accordance with its stipulation with the City, that the Use Agreements entitle the City to reimbursement from the airlines-for remember that otherwise there would be no alternative source of benefits to trigger the "duplicates benefits" provision.

Whether the likely effect of that stipulation in this litigation entitles the airlines to intervene as a matter of right depends on whether they are claiming "an interest relating to the property or transaction that is the subject of the action" and are "so situated that disposing of the action may as a practical matter impair or impede [their] ability to ...

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