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National Power Corp. v. Federal Aviation Administration

United States Court of Appeals, Seventh Circuit

July 20, 2017

National Power Corporation, Petitioner,
Federal Aviation Administration, Respondent.

          Argued April 20, 2017

         Petition for Review of an Order of the Federal Aviation Administration No. FAA -2013-0620

          Before Manion and ROVNER, Circuit Judges, and Coleman, District Judge [*]

          Coleman, District Judge.

         National Power Corporation ("National Power") seeks review of a Federal Aviation Administration Administrator's (the "Administrator") decision finding that National Power knowingly violated multiple hazardous material regulations ("HMRs"), and assessing a $66, 000 civil penalty against it. Because the Administrator's conclusions are supported by substantial evidence and his findings were not arbitrary and capricious or an abuse of discretion, we deny National Power's petition for review.


         National Power designs and manufactures custom battery packs. At issue are two types of lithium battery packs that National Power manufactured-the SM-206 battery pack ("SM-206") and the 520-libat-2 battery pack (“520-libat-2") (collectively, the "Batteries"). Both of the Batteries were regulated as U.N. 3480, class IX hazardous materials.

         On May 17, 2010, Christopher Zawarus, an FAA special agent, conducted an inspection at National Power's facility in Chicago, Illinois. Mr. Zawarus discovered that between January 8 and March 25, 2010, National Power made 11 shipments, by air, of SM-206s and 520-libat-2s to customers in Santa Rosa, California and Burnaby, British Columbia, Canada (the "battery shipments"). Based on his inspection, Mr. Zawarus concluded that the battery shipments did not comply with multiple HMRs and the FAA filed a complaint, which was later amended, with the Department of Transportation. The FAA alleged violations of the following HMRs: 49 C.F.R. §§ 171.2(e), 171.22(b)l, 171.22(g)(2), 172.604(a)(1), 172.702(a), and 173.185(f).

         What follows is a summary of the evidence and testimony presented at the hearing before the administrative law judge. During his inspection, Mr. Zawarus asked for documentation that the Batteries had been properly tested in accordance with the United Nations Manual of Tests and Criteria ("UN Manual of Tests") or, if the Batteries had not been tested, documentation showing that the Pipeline and Hazardous Materials Safety Administration ("PHMSA") had authorized the battery shipments. National Power provided no such documentation to Mr. Zawarus, nor did it provide any at the hearing. According to Thomas Vrablik, the corporate vice president and the only witness to testify on National Power's behalf, the Batteries had not been tested at the time they were offered for shipment. Mr. Vrablik further testified that he believed, without supporting evidence, the Batteries were exempt from testing because they were similar to one of National Power's previously tested batteries.

         The shipping papers for each of the battery shipments indicated that the shipments conformed to the standards set forth in packaging instruction 965 of the International Civil Aviation Organization's Technical Instructions for the Safe Transport of Dangerous Goods ("ICAO Technical Instructions"). Maria Munoz, a National Power office manager, certified each shipping paper. Mr. Zawarus's review of company records, however, revealed that, at the time she certified the shipments, Ms. Munoz's hazardous materials training was Department of Transportation specific and did not include training on the ICAO Technical Instructions. The shipping papers also listed National Power's general office number as the emergency contact number. The general office number was only monitored from 6:00 AM until 6:00 PM. Mr. Vrablik characterized the listing of the general office number as a typographical error. He further explained that the number on the shipping papers should have been Chemtrac's, one of National Power's contractors and a 24-hour responder hotline.

         Mr. Zawarus testified that the battery shipments, which were offered with fiberboard box outer packaging, had been packaged according to the ICAO Technical Instructions packing group II performance standards. Because the Batteries were untested lithium batteries, however, they should have been packed according to the more stringent packing group I performance standards. The Batteries should have been shipped with metal, plastic, or plywood drums or boxes as the outer packaging.

         After reviewing the parties' post-hearing briefs, the ALJ found that the FAA satisfied its burden of proof and demonstrated that National Power knowingly violated the HMRs identified in the complaint, with the exception of 49 C.F.R. § 173.185(f), and therefore assessed a civil penalty of $12, 000. Both parties appealed the ALJ's decision to the Administrator. The FAA argued that the ALJ erred by applying the wrong version of section 173.185(f) and that the $12, 000 sanction was inconsistent with applicable law, precedent, and FAA policy. National Power argued that it did not knowingly violate the HMRs because its violations were not deliberate, and that the $12, 000 fine was excessive.

         On September 30, 2016, the Administrator issued the order that is the subject of this petition for review. The Administrator rejected National Power's argument that it could not have knowingly violated the HMRs because it did not deliberately violate them. He affirmed the ALJ's finding of liability on all of the HMR violations and reversed the finding of liability on 49 C.F.R. § 172.203(f).[1] He also found that the ALJ erred by applying the 2014 version of section 173.185(f), which regulated the shipment of damaged batteries, rather than the 2010 version, which regulated to the shipment of untested batteries. The Administrator found that National Power did not satisfy its burden of proof to show that the Batteries were exempt from testing, and reversed the ALJ's conclusion that National Power did not violate section 173.185(f) because National Power did not have special authorization from PHMSA to ship the untested batteries. Finally, the Administrator increased the sanctions against National Power from $12, 000 to $66, 000 based on his application of the statutory factors governing sanctions in 49 U.S.C. § 5123(c) and the FAA penalty criteria and guidance set forth in Appendix C of FAA Order 2150.3B ("Appendix C").

         National Power asks this Court to review the Administrator's conclusion that National Power knowingly violated the HMRs ...

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