March 2008
Bulletin 08-050
The Federal Transit Administration Releases
Its Final Rule on Charter Service
If you have questions or would
like additional information on the
material covered in this Bulletin,
please contact one of the authors:
Christopher L. Rissetto
(Washington, D.C.)
+1 202 414 9206
[email protected]
Marc A. Goldich
(Philadelphia)
+1 215 241 5476
[email protected]
Michael C. Falk
(Philadelphia)
+1 215 851 8222
[email protected]
… or the Reed Smith attorney
with whom you regularly work.
On January 14, 2008, the Federal Transit Administration (“FTA”) released a Final
Rule on Charter Service that will go into effect April 30, 2008.1 The general
purpose of the Charter Service Final Rule is to protect private charter operators from
unauthorized competition from recipients of federal financial assistance. As such,
the FTA has always placed limitations on public transit agencies providing bus
charter services. This has been an area of controversy for years in the FTA grants
program. The new Final Rule purports to clarify the existing requirements and
provides new procedural rules and an enhanced administrative adjudicatory process
to govern and regulate violations.
It is important for public and private charter service providers to be aware of and
seek guidance regarding the numerous changes to the FTA’s charter service
regulation, because these changes create new obligations and new charter service
opportunities.
This Bulletin covers three issues—the new provisions of the Final Rule and who is
covered by it; the effect of the Final Rule on both the private and public sector; and
the new and detailed complaint, hearing, and appeal procedures for alleged
violations of the Final Rule.
Highlights of the FTA’s New Final Rule on Charter Service
Private Charter Operators:
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Must register at FTA’s new Charter Registration Website (49 C.F.R. Part 604.13)
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Are entitled to notice of proposed charter trips by public transit agencies
(49 C.F.R. Part 604.14)
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May request an Advisory Opinion (49 C.F.R. Part 604.17)
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May request a Cease and Desist Order from FTA as part of an Advisory Opinion
(49 C.F.R. Part 604.22)
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May request that a Qualified Human Service Organization or
other Registered Charter Provider be removed from FTA Charter
Registration Website (49 C.F.R. Part 604.26)
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May file a Complaint against a public transit agency for
unauthorized charter service (49 C.F.R. Part 604.27)
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May review public transit agencies’ reports on charter services
(49 C.F.R. Part 604.12)
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May review a Qualified Human Service Organization’s
registration requesting free or reduced rate services (49 C.F.R.
Part 604.15)
This bulletin is presented for informational purposes and is not intended to constitute legal advice.
© Reed Smith LLP 2008. All Rights Reserved.
“Reed Smith” refers to Reed Smith LLP, a limited liability partnership formed in the state of Delaware.
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Client Bulletin 08-050
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May review which public transit agencies requested additional hours under the Government Officials
exception (49 C.F.R. Part 604.6)
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May review petitions requesting an exception for Events of Regional or National Significance, Hardship, or
Discretion (49 C.F.R. Part 604.11)
The New Final Rule’s Electronic Registration Requirement
Under Section 604.13 of the Final Rule, to become a registered charter provider, private charter operators must
register on the FTA Charter Registration Website at http://www.fta.dot.gov/laws/leg_reg_179.html and must provide
accurate and detailed information about the services they provide. By registering on the FTA Charter
Registration Website, private charter operators are afforded access to various types of information regarding
public transit agencies’ charter service activities. Registered charter providers also will receive notice of charter
service opportunities from public transit agencies.
Risks of Posting Incomplete or Inaccurate Information; Removal and Criminal Penalties – The FTA may refuse
to post a registrant on the Charter Registration Website if a registrant’s information is incomplete or inaccurate.
A charter provider may also be removed from the Charter Registration Website for providing FTA with
inaccurate information or for other nefarious conduct. Removal from the Charter Registration Website will have
serious repercussions for private charter operators as removal can last for a period of up to three years, during
which time deregistered private charter operators will not receive any notice of charter service opportunities
disseminated by public transit agencies.2 Removal may also eviscerate the right of the deregistered private
charter operator to avail itself of the FTA’s complaint process. Further, the penalty for providing inaccurate or
untrue information is not solely limited to removal from the Charter Registration Website; a violator may also
face criminal penalties under 18 U.S.C. § 1001.
The Final Rule’s New Definition Of “Charter Service”
The FTA has stated that the new definition of “Charter Service” is intended to be shorter and simpler “while
maintaining flexibility in determining the intent of the charter service.” Section 604.3(c) generally defines
“Charter Service” as transportation that is provided by a recipient at the request of a third party for the exclusive
use of a bus or van for a negotiated price.3
Notably, the new FTA definition of “Charter Service” contains the notion of exclusivity and does not include
demand response service to individuals. The FTA also removed all of the examples included in the definition of
“Charter Service” and, instead, opted to provide key factors the FTA will consider in determining the intent of
the service.
The Final Rule’s General Exemptions
Under Section 604.2 of the new Final Rule, there are five types of services that are exemptions, i.e., not deemed
to be a “Charter Service.” There is no reporting requirement for services falling under these exemptions, and all
transit agencies that receive federal financial aid may perform these services. The exemptions are as follows:
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The Final Rule does NOT apply to recipients moving transit employees for transit oversight functions
and purposes.
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The Final Rule does NOT apply to recipients that use FTA funding for charter service meeting the
program purposes of Job Access and Reverse Commute (“JARC”), New Freedom, or Special Needs
Programs, as well as services funded by non-urbanized formula program grants that serve the needs of
human service agencies or targeted populations such as elderly, disabled, or low income individuals.
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Client Bulletin 08-050
A public transit agency that qualifies for this exemption can only provide charter services that support
the “program purposes.”
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The Final Rule does NOT apply to recipients performing emergency preparedness planning and
operations.
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The Final Rule does NOT apply to recipients responding to immediate emergencies.
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The Final Rule does NOT apply to recipients in non-urbanized areas transporting their employees for
training purposes.
Limited Exceptions For “Community-Based” Charter Services
Under Subpart B of the new Final Rule, public transit agencies may perform charter services under the following
limited exceptions. These exceptions are vitally important because they have historically been the focus and
largest area of contention between the public and private sector. The FTA has noted that, under the new
complaint process, the following six exceptions may also be raised as “affirmative defenses” to a complaint.
1.
Charters involving transportation of groups of government officials on official business, provided that
the service stays within the transit agency's geographic service area.
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Cannot generate revenue from this type of charter service unless it is required by law.
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Cannot exceed a total of 80 charter service hours annually.
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Must file quarterly reports with the FTA providing specified information details for each such charter.
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The transit agency, under certain limited exceptions and in situations of extenuating circumstances,
may petition the FTA for additional charter hours.
This is a new exception that broadens the charter services that a public transit agency can provide. In the
preamble to the new Final Rule, the FTA further clarified the applicability of this exception by noting
“[t]his exception is targeted at government field trips such as visiting a new stadium or wastewater
processing facility. It could also mean transporting City Council officials to a site or business officials,
accompanied by government officials, touring a city for economic development purposes.”
2.
Charter service to a qualified human service organization (“QHSO”) for the purposes of serving persons
with mobility limitations related to advanced age, disabilities, or low income.
The FTA noted that, under the new Final Rule, there is no requirement for a public transit agency to
independently verify the information submitted by a registered charter provider or QHSO because false
submissions would be subject to sanctions under 18 U.S.C. § 1001, which includes potential criminal
fines and imprisonment.
3.
Charters involving a lease of FTA-funded equipment and drivers to private charter operators registered
on the FTA charter registration website.
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Charter operator must own vehicles.
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Charter operator must have service request that exceeds its capacity.
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Charter operator must have exhausted available vehicles from all other private charter operators
registered through the FTA website (if fails to do this, the registered charter provider may be subject to a
complaint for removal from the FTA Charter Registration Website).
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Client Bulletin 08-050
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4.
5.
6.
Transit system must file quarterly reports with FTA providing specified details for each such charter
and must exhaust all available vehicles first.
When no registered charter provider responds to a notice sent by a recipient.
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Must be notice and no response from a registered private charter operator within specified timeframes.
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If registered private charter operator expresses interest, transit system cannot provide charter,
regardless of whether the private operator does so or not.
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Transit system must file quarterly reports with FTA providing specified details for each such charter.
By Agreement with all registered charter providers in the geographic service area.
ƒ
If a new charter provider registers in the geographic service area after the initial agreement, the public
transit agency may continue to provide the service for 90 days without an agreement with the new
charter provider.
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Any party may cancel the agreement after providing the public transit agency with 90 days’ notice.
Exceptions by Petition to the FTA
Under Section 604.11, public transit agencies may also petition the FTA Administrator to provide charter
services under one of the following exceptions:
ƒ
Events of regional or national significance
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Hardships (non-urbanized areas under a population of 50,000 or small urbanized areas with a
population under 200,000)
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Unique and time-sensitive events (i.e., funerals of significance) in the public’s interest
Petitions must include specific information regarding the type of service requested, anticipated number of
charter service hours needed, anticipated number of vehicles, and duration of the event. Further,
depending on the type of exception being requested, the Final Rule may require additional information to
be submitted in the petition regarding, among other things, the specific reasons the request is being made,
whether the request is in the public interest, whether registered charter transit agencies were consulted
prior to making the petition, and certification that the recipient has exhausted all of the registered charter
providers in its geographic area.
The Administrator is required to review the petition and issue a written decision denying or granting the
request in whole or in part. The Administrator’s decision will be posted and filed in the Administrator
docket, number FTA-2007-0022 at http://www.regulations.gov and sent to the recipient.
Reporting Requirements for All Exceptions
Under Section 604.12, a public transit agency that provides charter service under any of the above-mentioned
exceptions must keep a record of such service beginning July 30, 2008, and must post its required records on
the FTA Charter Registration website 30 days after the end of each calendar quarter.
The Final Rule’s New Process for Receiving Requests for Charter Service and Notification Procedures
Under Section 604.14, when a public transit agency receives a request for a “charter service” as defined above,
the public transit agency may: (1) decline to provide the service with or without referring them to the
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Client Bulletin 08-050
registration website; (2) provide the service under one of the above-mentioned exceptions; or )3) provide notice
to registered charter providers.
If the public agency is interested in providing the charter service, then the agency must send an email
notification to the registered charter operators in its geographic service area by close of business on the day the
request was received, unless the request was received after 2 p.m. If the request was received after 2 p.m., the
notification must be sent by close of business the next day.
The notification procedures in Section 604.14 of the new Final Rule only apply in the event that one of the
exceptions mentioned above does not apply. The FTA rejected the criticisms of some public agencies that
expressed concerns that the short time period provided under the new Final Rule does not give public agencies
enough time to evaluate whether they are interested in attempting to provide the charter service.
Under Section 604.9, if no registered charter provider responds to notice of a charter service opportunity from a
public agency, a public transit agency may provide the service on its own initiative or at the request of a third
party.4 However, a public transit agency may not provide the charter service if a registered charter provider does
indicate an interest in providing the service and the charter provider has informed the public transit agency of its
interest in providing the service.
Remedies
1.
Advisory Opinions and Cease and Desist Orders
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Overview of the Advisory Opinion and Cease and Desist Order Process – Under Subpart E of the new FTA
Charter Service Final Rule, both private charter operators and public transit agencies may request an
advisory opinion from the FTA Office of Chief Counsel on a matter regarding specific factual events.
An advisory opinion represents the “formal position of the FTA on a matter.” When faced with a
request for an advisory opinion, the Chief Counsel is commanded to make every effort to respond
within 10 days of the request.
So far, this provision has had broad support from private charter operators, particularly since it allows
private charter operators the option of requesting a cease and desist order. While there was some
criticism of this provision from public transit agencies during the comment period,5 the FTA has
already received at least one request for an advisory opinion from a public transit agency in advance of
the effective date of the Final Rule (April 30, 2008). If this request is any indication, public transit
agencies might seek to utilize the advisory opinion process to elicit the FTA’s opinion on whether the
anticipated service falls within the new definition of “charter service,” or whether it fits within one of
the Final Rule’s exemptions or exceptions.
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The Formalities of Advisory Opinion and Cease and Desist Order Requests Are Important – To make a
proper request for an advisory opinion, an interested party must set forth a full statement of facts and
legal points relevant to the request. The request may be denied if it contains insufficient information
to issue an informed advisory opinion. Further, the party requesting an advisory opinion should
anticipate, and be prepared to respond to, requests from the Chief Counsel for additional information
necessary for an advisory opinion.
Similarly, cease and desist order requests require the submission of detailed information to the Chief
Counsel. To make a proper request for a cease and desist order, an interested private charter operator
must include in its request, among other information, (1) a description of the need for such an order;
(2) a detailed description of the lost business opportunity likely suffered if the recipient performs the
charter service in question; (3) a description of how the public interest will be served by avoiding the
lost business opportunity; and (4) a detailed description of the efforts made to notify the recipient of
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Client Bulletin 08-050
the potential violation of the charter service regulations. A request for a cease and desist order, like a
request for an advisory opinion, may be denied if the request contains incomplete information.
2.
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Recipient Responsibilities Under the Cease and Desist Order Process – A request for a cease and desist order
places significant pressure on a recipient of federal funds who is the subject of that request. First, the
recipient has only three business days to respond by submitting a point-by-point rebuttal to the
information included in the request. Second, if a cease and desist order is issued, the issuance of that
order will be considered an aggravating factor in determining the remedy to be imposed in future
findings of noncompliance by the recipient. This was viewed as important to some private charter
operators since the FTA cannot recoup lost revenues when recipients are found in violation of the
Charter Service Final Rule.
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FTA Advisory Opinion and Cease and Desist Order Docket Created – In order to keep track of all advisory
opinions and cease and desist orders granted or denied, the FTA has created an “Advisory Opinion/
Cease and Desist Order docket” at http://www.regulations.gov.
The New and Enhanced Complaint Process
The new FTA Charter Service Final Rule establishes more detailed complaint, hearing, and appeal procedures.
The complaint process outlined in the new Final Rule contemplates two general types of complaints: (1) a
complaint filed by a private charter operator alleging unauthorized charter service by a recipient of federal funds,
and (2) a complaint filed by a public transit agency or a private charter operator seeking the removal of a private
charter operator or a QHSO from the FTA’s registration website.
Complaints Alleging Unauthorized Charter Service
The process for complaints alleging unauthorized charter service by a recipient places a heavier burden on
registered charter providers than on recipients. Registered charter providers must provide specific factual
allegations regarding an alleged charter violation. Further, complaints must now be filed within 90 days of the
alleged unauthorized charter service.
Before a complaint can move forward, the FTA will look at it to ensure that all the regulatory requirements are
met. If they are not met, the complaint may be dismissed. Further, under the new Final Rule, a complaint must
be legally sufficient before a transit agency will have to respond. Conversely, under the old charter service
regulations, the only standard for filing a complaint was that “it was not without obvious merit.”
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The Investigation After a Complaint is Filed – If a complaint survives the FTA’s initial review, the FTA
will notify the recipient of federal funds that the complaint has been docketed, and the recipient will
have 30 days from service of the notification to file an answer. Follow-up reply and rebuttal filings are
permitted.
If, based on the pleadings, there appears to be a reasonable basis for investigation, the FTA shall
investigate the subject matter of the complaint. The FTA can also initiate its own investigation without
having received a complaint. The parties should file documents considered to be sufficient to present
all relevant facts and argument necessary for FTA to determine whether the recipient is in compliance.
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New Procedures for the Hearing Process – Once a complaint is received and an investigation is
conducted, the Chief Counsel may (1) issue a decision; (2) appoint a presiding officer (“PO”) to review
the matter; or (3) dismiss the complaint. The FTA has noted in the preamble to the Charter Service
Final Rule that a PO will not review initial complaints and will only be appointed to a case when a
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Client Bulletin 08-050
complaint warrants a hearing. The new hearing procedures are a substantial addition to the FTA’s Final
Rule, as hearing procedures were virtually nonexistent under the prior rule.
If a hearing is held, the Chief Counsel will send out a hearing order that sets forth, among other
things, the issues to be decided by the PO and the date by which the PO is directed to issue a
recommended decision. The hearing will be open to the public, subject to limited exceptions. The PO
may, among other things, hold hearing conferences and hearings, issue notices of deposition requested
by the parties, rule on offers of proof, examine witnesses, and rule on procedural motions and
requests. Discovery is permitted, with the forms of discovery determined within the discretion of the
PO. Parties may appear and be heard at the hearing and may be represented by an attorney.
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Decisions by Presiding Officers – After the hearing, the PO will issue a recommended decision or rule in
a party’s favor if the decision or ruling is supported by a preponderance of the evidence. The burden
of proof of noncompliance is on the registered charter provider. If the registered charter provider
meets its burden, then the burden shifts to the recipients to demonstrate, by a preponderance of the
evidence, that the service provided was authorized under the charter service regulations.
After the parties have had an opportunity to be heard, the PO must issue a recommended decision
based on the record developed during the proceeding. The PO’s recommended decision will be sent
to the Chief Counsel for ratification or modification.
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Modified Remedies for Violation of the Charter Service Final Rule – Remedies for a violation of the Charter
Service Final Rule have changed as a result of the amendments to the Federal Transit Act and
promulgation of the new Final Rule. Previously, punishment for a violation was discretionary and
came in an all-or-nothing form. The FTA had discretion to determine whether to withhold federal
financial assistance for a pattern of violations. Now, FTA views the Federal Transit Act, as revised by
the SAFETEA-LU amendments, as direction from Congress that federal financial assistance must be
withheld if a pattern of violations is found. However, the amount to be withheld is no longer all or
nothing. The amount to be withheld is to be determined by the Secretary of the FTA.
Further, under the new Final Rule, the FTA has the authority to pursue alternative or additional
remedies if the Secretary finds a pattern of violations, including the suspension and/or debarment of a
recipient, its employees and contractors. In determining whether there has been a pattern of
violations, the examination period for determining compliance is six years.
The FTA also believes that it may now withhold funds for a single violation. There is an undercurrent
of criticism regarding whether the FTA has this authority and, in the event the FTA withholds funds
for a single violation, both public transit agencies and registered private operators alike should
anticipate challenges to the FTA’s authority in this regard.
Once a violation or pattern of violations is established, the FTA will decide what remedy to apply on a
case-by-case basis. In selecting an appropriate remedy, the FTA must consider several factors,
including:
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The nature and circumstances of the violation
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The extent and gravity of the violation (“extent of deviation from regulatory requirements”)
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The revenue earned (“economic benefit”) by providing the charter service
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The operating budget of the recipient
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Such other matters as justice may require
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Client Bulletin 08-050
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Whether a recipient provided service described in a cease and desist order after issuance of
such order by the Chief Counsel
While each case is fact specific, Appendix D has been added to the Charter Service regulation and
provides a matrix of potential remedies for guidance to recipients as to what the FTA may withhold.
The potential remedies listed in Appendix D range from $100 for minor violations to $25,000 for
major violations.
Complaints Seeking Removal of a Private Charter Operator or a QHSO from the FTA Charter Registration
Website
A recipient of federal funds or a registered private charter operator may file a complaint challenging the listing of
a registered charter provider or qualified human service organization on FTA’s charter registration. The FTA will
then make a determination of whether a party is removed from the FTA’s registration website.
Like with complaints alleging unauthorized charter service, complaints challenging registration status must meet
several basic threshold requirements, including the provision of a concise but complete statement of facts relied
upon to substantiate the reason why the private charter operator should not be listed on the FTA charter
registration website. Charter operators are permitted to file a response to a complaint within 15 days.
The FTA determines whether to remove a registrant based on a preponderance of the evidence of one or more of
the following: (1) bad faith; (2) fraud; (3) lapse of insurance; (4) lapse of other documentation; or (5) the filing
of more than one complaint, which on its face, does not state a claim that warrants an investigation or further
action by the FTA. This last ground is intended to protect public transit agencies from “vindictive” private
charter operators.
3.
The Appeals Process and Judicial Review
Any party adversely affected by the Chief Counsel’s office decision may file an appeal with the Administrator
within 21 days of the date the Chief Counsel issued his or her decision. If an appeal is filed, the Administrator
must review the entire record and issue a final agency decision based on the record that either accepts, rejects, or
modifies the Chief Counsel’s decision within 30 days of the due date of the reply to the appeal. Even if no
appeal is filed, the Administrator may take review of the case on his or her own motion.
If the Administrator finds that the respondent is not in compliance, the final agency order shall include a
statement of corrective action, if appropriate, and identify remedies. If no appeal is filed, and the Administrator
does not take review of the decision on the Administrator’s own motion, the Chief Counsel’s decision shall take
effect as the final agency decision. The FTA deems a failure to file an appeal as a waiver of any rights to seek
judicial review.
According to the new FTA Charter Service Final Rule, a respondent may seek judicial review of the
Administrator’s final agency decision, if no waiver has occurred, by filing a petition for review with an
appropriate United States District Court. The Administrator’s decision has been recognized as subject to the
Administrative Procedure Act’s arbitrary and capricious standard of review. See, e.g., Blue Bird Coach Lines, Inc. v.
Thompson, CIV.A. No. 04-7168, 2005 U.S. Dist. LEXIS 26694, at *6 (S.D.N.Y. Nov. 2, 2005); Blue Bird Coach
Lines, Inc. v. Linton, 48 F. Supp. 2d 47, 50 (D.D.C. 1999).6
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1
The Final Rule developed through negotiated rulemaking that followed enactment of the Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users (“SAFETEA-LU”) of 2005, which amended the Federal Transit Act (“FT Act”), 49 U.S.C. §5301 et seq.,
including the charter service provision of the FT Act, § 5323(d).
2
The FTA highlighted the enhanced benefits of notice and registration as well as the risks inherent in violating the new Final Rule by pointing
out that being removed from the Charter Registration Website “is no small consequence and, therefore, it will protect public transit agencies
from ‘vindictive’ private charter operators” who act in bad faith by responding to a recipient’s notice for charter service when it can’t, in
actuality, provide the service.
3
To understand how the definition of “Charter Service” applies to public transit agencies and private charter operators, an understanding of the
definition of “recipient” is required. Under the Final Rule, “recipient” is defined as “an agency or entity that receives Federal financial
assistance, either directly or indirectly, including subrecipients, under the Federal Transit Laws.” The FTA explicitly notes that the definition
of “recipient” does not include third-party contractors who use non-FTA funded vehicles. However, the FTA has explained that it is not just
purchasing a vehicle with Federal dollars that triggers the application of the Final Rule. Housing the vehicle in FTA-funded facilities or using
FTA-funded equipment to maintain the vehicle will also trigger application of the Final Rule. The FTA has further stated that a complete
segregation is necessary to avoid these requirements.
4
After providing the service, the public transit agency must keep a record of the service.
5
Among the criticisms was that it will result in advice being given on a regional basis, which will lead to inconsistencies. The FTA rejected this
criticism and concluded that the “inclusion of an advisory opinion provision allows for a more consistent, organized, and transparent process
than the one that currently exists.”
6
While the Linton court permitted judicial review under the APA, that court found that there was no private right of action under the Federal
Transit Act. Linton, 48 F. Supp. 2d at 49. The SAFETEA-LU is scheduled for re-authorization in 2010, at which time transit issues may be
revisited and included in the new legislation.
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