Airlines For America v. City and County of San Francisco

Background

Airlines For America (A4A) sued the City and County of San Francisco over the Healthy Airport Ordinance (HAO). The HAO amended San Francisco’s airport-related health-benefits requirements and requires certain employers at San Francisco International Airport (SFO) to offer covered employees and their spouses and dependents enhanced medical coverage, including at least one plan with coverage designed to equal at least 90% of the plan’s actuarial value, or to make payments of $9.50 per employee per hour into a city health program.

A4A alleged that the HAO was preempted—that is, displaced or overridden—by several federal statutes. The parties agreed that the court first had to decide whether San Francisco acted as a “market participant” when it adopted the HAO. Under that doctrine, a government may be treated like a private business when it manages its own commercial property or purchases goods and services. If the doctrine applied, A4A’s preemption claims would be precluded.

The airlines had entered into lease and use agreements with the City for airport facilities. Those agreements required them to comply with the City’s Health Care Accountability Ordinance, including future amendments. Before the HAO took effect, the City and the airlines modified the agreements to extend them for two years and reserved the parties’ rights to challenge the HAO.

The City’s enforcement mechanisms

A4A argued that the City acted as a regulator because the HAO imposed civil and criminal penalties. The court rejected the criminal-penalty argument. It held that neither the HAO nor a related ordinance provided for criminal enforcement. The court also interpreted California law as making a local ordinance a misdemeanor or infraction only when the ordinance expressly says so.

The court likewise concluded that the HAO did not use a government-only coercive mechanism. It treated the HAO’s remedies—such as recovering unpaid amounts with interest, canceling a contract, refusing future contracts, bringing a civil action, and awarding liquidated damages—as ordinary contractual remedies that a private party could use. The court also held that the City Option payment was an alternative way to perform the health-benefit obligation, not a civil penalty, because employees could receive medical reimbursements from the related accounts.

Market-participant test

The court applied the two-part test from Cardinal Towing. First, it asked whether the City acted to obtain needed goods or services efficiently, as a private business might. Second, it asked whether the HAO was narrowly focused on a specific proprietary problem rather than designed to promote a general public policy.

For the first part, the court found that the airlines had a choice similar to the choice they would face when dealing with a private airport operator: they could decline to extend their agreements and seek business elsewhere. Because the airlines extended their agreements after the HAO had been enacted and agreed to comply with the HAO and future amendments, the court held that the HAO operated through the parties’ agreements rather than as a binding standard operating independently of any private agreement.

The court also found that the HAO addressed the City’s proprietary interests as the owner and operator of SFO. The ordinance’s stated purposes included improving airport safety and efficiency, reducing employee turnover, retaining high-quality employees, and restoring public confidence in air travel. The court concluded that these purposes related to the operation of a self-sustaining commercial airport.

For the second part, the court found the HAO sufficiently narrow. It applies to employers providing services at SFO and only to employees covered by the airport’s Quality Standards Program, which the opinion describes as approximately 35% to 40% of private employees providing services at the airport. The court held that this focus showed the HAO was aimed at a specific airport-related problem rather than establishing a broad policy throughout San Francisco.

Disposition

The court concluded that San Francisco satisfied both parts of the market-participant test. It therefore granted the City’s motion for summary judgment and denied A4A’s motion for partial summary judgment. The court instructed the clerk to enter judgment and close the case. The order resolved the market-participant issue and did not decide A4A’s specific federal preemption arguments.