Airlines for Am. v. City & Cnty. of S.F.

598 F.Supp.3d 748

AIRLINES FOR AMERICA, Plaintiff,

v.CITY AND COUNTY OF SAN FRANCISCO, Defendant.

Case No. 21-cv-02341-EMC

United States District Court, N.D. California.

Signed April 5, 2022

Jason David Russell, Peter Bradley Morrison, Zachary Marc Faigen, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, CA, Parker Rider-Longmaid, Pro Hac Vice, Shay Dvoretzky, Pro Hac Vice, Skadden Arps Slate Meagher and Flom LLP, Washington, DC, for Plaintiff.

Melissa C. Allison, Pro Hac Vice, Austin P. Anderson, Pro Hac Vice, Scott P. Lewis, Pro Hac Vice, Anderson Kreiger LLP, Boston, MA, Wayne Kessler Snodgrass, Office of the City Attorney, San Francisco, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, AND DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Docket Nos. 41-42

EDWARD M. CHEN, United States District Judge

Plaintiff Airlines for America ("A4A") filed this action against Defendant City and County of San Francisco (the "City") alleging that San Francisco's Healthy Airport Ordinance ("HAO") is preempted by multiple federal statutes. Docket No. 1 ("Complaint" or "Compl."). The HAO requires certain airline employers to, among other things, provide adequate healthcare access for its employees. The parties agree that the Court must resolve the following threshold question before it can reach A4A's preemption arguments: Whether the City acted as a market participant in enacting the HAO. The City asserts that its market participant defense precludes A4A's preemption claims A4A contends that the City's market participant defense fails.

Pending before the Court are the City's motion for summary judgment and A4A's motion for partial summary judgment to resolve the market-participant defense. Docket Nos. 41 ("MSJ"); 42 ("MPSJ"). For the following reasons, the Court GRANTS the City's motion for summary judgment and DENIES A4A's motion for partial summary judgment.

I. BACKGROUND

A. Factual History

The City owns and operates San Francisco International Airport ("SFO" or the "Airport"). In 1970, San Francisco created the San Francisco Airport Commission ("Commission") to operate and oversee SFO. Compl. ¶ 45; Docket No. 24 ("Answer") ¶ 45. The Commission is in "charge of the construction, management, supervision, maintenance, extension, operation, use and control of all property, as well as the real, personal and financial assets which are under the Commission's jurisdiction." S.F. Charter § 4.115. The City manages SFO as a self-sustaining enterprise fund department and the City's taxpayers do not fund the airport. Docket No. 41-4 ("Kone Decl.") ¶ 9.¹ SFO competes with Oakland International Airport and San Jose International Airport for domestic service in the Bay Area. Docket No. 41-3 ("Bumen Decl.") ¶ 5.

In 1999, the City introduced the Quality Standards Program ("QSP") at SFO, which establishes contractual requirements for employers at the Airport, including minimum hiring and compensation standards for certain covered employees providing services to the Airport. Docket No. 41-5 ("Ogletree Decl.") ¶ 3 & Ex. 1. Under the QSP, "Covered Employees" are defined as employees who: (1) "require the issuance of an Airport badge with Airfield Operations Area ("AOA") access and work in and around the AOA in the performance of their duties"; or (2) "are directly involved in passenger and facility security and/or safety, including but not limited to checkpoint screening, passenger check-in, skycap and baggage check-in and handling services, custodial services, and AOA perimeter control." Id. , Ex. 5 at 82. Since 1999, the QSP has expanded to cover various airline employees and its requirements have also expanded to include specified standards for safety, health, hiring, training, equipment, compensation, and benefits for Covered Employees. See id. , Exs. 2, 4, & 5. In 2009, the City amended the QSP to incorporate the City's Health Care Accountability Ordinance ("HCAO"), set forth in San Francisco administrative Code Chapter 12Q, which requires employers to offer to their Covered Employees certain minimum medical insurance coverage. Id. , Ex. 3 at 54.

In 2010, the City, through the Commission, entered into two-dozen Lease and Use Agreements ("LUAs") for ten-year terms starting in 2011 ("2011 LUAs") with different airlines, including all of the members of A4A. Answer ¶ 47. These LUAs obligate each signatory airline to pay substantial amounts to SFO for their use of terminal and airfield facilities and in turn it obligates the City to manage and operate the Airport to use "commercially reasonable efforts" to maximize non-airline revenues. Kone Decl. ¶¶ 5, 6. When each of the member airlines entered into their new LUAs effective July 1, 2011, they agreed to comply with SFO's Rules and Regulations, which included the QSP and the HCAO. Bumen Decl. ¶ 13 & Ex. 1 § 1001. Importantly, the member airlines agreed to "comply fully with and be bound by all of the provisions" of the HCAO, "as set forth in San Francisco Administrative Code Chapter 12Q, including the remedies provided, and implementing regulations, as the same may be amended from time to time." Id. , Ex. 1 § 1813A. Neither A4A nor any of its member airlines have ever challenged the QSP or HCAO until A4A commenced this action. Id. ¶ 13.

In November 2020, the City's legislative branch, the Board of Supervisors (the "Board") enacted the Healthy Airport Ordinance ("HAO" or the "Ordinance"), which amends the HCAO, Chapter 12Q of the Administrative Code, to create additional standards for minimum medical insurance coverage to be offered to Covered Employees under the QSP. Docket No. 41-6 ("Powell Decl.") at 4–18 ("HAO"). Specifically, the HAO requires certain SFO employers to (1) offer at least one "platinum" healthcare plan, meaning a plan that provides a level of coverage designed to provide benefits that are actuarially equivalent to at least 90% of the full actuarial value of the benefits provided, HAO § 1(a); (2) cover all services described in the California Essential Health Benefit Benchmark Plan, HAO § 3 (amending S.F. Admin. Code § 12Q.3(d)(1)(A)); (3) offer these plans to all Covered Employees as well as each employee's spouse and dependents, HAO § 3 (amending S.F. Admin. Code § 12Q.3(d)(1)); and (4) absorb 100% of the plans’ costs, with no cost-sharing between employer and employee, HAO § 3 (amending S.F. Admin. Code § 12Q.3(d)(1)(A)).

The City amended the HAO in 2021 and it went into effect on March 21, 2021. Powell Decl. at 20–25 ("Amended HAO") § 1(c). The Amended HAO permits employers to offer additional, specified healthcare plans. Id. § 2 (amending S.F. Admin. Code § 12Q.3(d)). Section 5 of the Amended HAO also states that "[i]n undertaking the adoption and enforcement of this ordinance, the City is undertaking only to promote the general welfare." Id. § 5.

The HAO's findings acknowledge that an "average of nearly 58 million people normally travel through the Airport each year." HAO § 2(a). It also states that the implementation of the QSP successfully assisted in the recruitment of high-quality employees and the reduction of employee turnover" by 34% thereby improving the safety and security at the Airport. Id. § 2(c). The HAO explains that the "individual health benefits provided to QSP-covered employees are critical to the health, well-being, and financial security of those employees," and that "health benefits not only enhance QSP employee recruitment and retention and reduce employee absences; employee access to health care also reduces the spread of infectious disease."

Id. § 2(e). The HAO notes that "some QSP-covered employees do not receive health benefits because their CBA [collective bargaining agreement] waives the health benefit requirement" and "escalating health care costs are undermining the effectiveness of these health benefits for QSP-covered employees." Id. § 2(g). Because the Airport employees are an essential workforce during the COVID-19 pandemic, the HAO states that employees "working at the Airport who perform services that directly impact safety and/or security at the Airport are at considerable risk of contracting and spreading COVID-19 due to the nature of their work duties." Id. § 2(h). The findings also acknowledge that "[m]any Airport workers are people of color, who may be especially vulnerable to contracting COVID-19 and to suffering greater health consequences from the virus." Id. § 2(j).

As a result, the findings conclude, "[a]ccess to affordable family health benefits is central to achieving the goals of the QSP" because "[p]rotecting the health of employees and their families is important to the City's proprietary interests as owner and operator of the Airport, including its interest in attracting and retaining high-quality employees whose work impacts safety and security, protecting the community and the traveling public from the spread of COVID-19, and restoring public confidence in the safety of air travel." Id. § 2(k).

There are two options to comply with the HAO. Employers can either offer health plan benefits meeting certain enhanced requirements to each Covered Employee and their dependents, or make monetary contributions for the Covered Employee to a City fund (the "City Option" program). HAO § 3 (amending S.F. Admin. Code § 12Q.3(d)). The City Option requires employers who do not offer the requisite health plan to pay $9.50 per employee per hour into a Health Access Program ("HAP") account established under Section 14.2 of the San Francisco Administrative Code. HAO § 3 (amending S.F. Admin. Code § 12Q.3(d)(2)). Covered Employees can access the money contributed to the City Option program through Medical Reimbursement Accounts ("MRAs"). Docket No. 41-7 ("Cao Decl.") ¶¶ 4–6.

If any employer fails to comply with its obligations under the HAO for Covered Employees, the City can enforce the HAO by: (1) charging a violator for any amounts that should have been paid into a HAP account along with a simple annual...