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Mon, Feb 12, 2007

FAA Says No Misuse Of Barnstable Airport Funds

May Have Implications In Rectrix Suit

They might not have understood how to complete the necessary forms..., but an FAA review of the annual reporting forms completed by Barnstable Municipal Airport (KHYA) officials, has determined the use of funds to be in order, reports the Barnstable Patriot.

This, in response to a suit against the airport filed by Rectrix Aerodrome Centers, an FBO operator that claimed the airport was siphoning funds to the town of Barnstable through an "illegal monopoly" in jet fuel sales.

As reported by ANN in October, the airport looked to the FAA for assistance against the Rectrix suit.

Rectrix claimed a violation of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act, as the city-owned FBO is the only source of Jet-A at the airport -- requiring Rectrix, which caters to the business aviation crowd, to purchase fuel from them and truck it over to its facility.

In essence, while there was confusion on how to complete several required FAA forms to account for grant revenues and expenses, FAA Airport Compliance Division Manager Charles Erhard wrote last month, that there did not appear to be any misuse of funds.

"We concluded the resulting inaccuracies on the FAA forms did not constitute a misuse of Airport revenue, but a misunderstanding by the Airport in completing the two forms," Erhard said. "This was easily corrected with the re-filing of the forms."

For Barnstable Finance Director Mark Milne, this was good news. The letter is verification that the town's enterprise system is well accounted for, he said.

"This is a perfect example of why we needed that."

Airport Commission Chairman Arthur Kimber was "very pleased because of the thoroughness and completeness of their examination," and  pleased "that their summary and conclusions indicate the airport and the town are following FAA regulations and guidelines and that there are no irregularities" in the filings.

According to the Barnstable Patriot, the airport's reporting on FAA forms 126 (Financial Government Payment Record) and 127 (Operational and Financial Summary) for the period reviewed are key to Rectrix' federal civil against the airport, including claims under the RICO and Sherman Anti-Trust acts.

"We conclude that the amounts reported on the FAA Forms 126 and 127 (resubmitted) are an accurate presentation of the amounts in the accounting system and as reported in the [Comprehensive Annual Financial Report]. We found no significant differences," Erhard's letter concludes.

In the complaint, however, the reporting of these forms to the FAA is also alleged to constitute mail and wire fraud for transmitting "by means of wire communications in interstate communications that either contained false representations or were made in furtherance of defendants' scheme to defraud..."

Attorneys for the airport had earlier argued that if the "predicate acts" for the RICO claims, including filing false reports and wire and mail fraud, are found to be erroneous, those claims should be dismissed.

Airport attorneys wrote in an October filing, "If the FAA finds no violations, as the BMAC expects it will, there will be no foundation for the allegations of unlawful predicate acts upon which all of the RICO claims rest."

The January 30 letter from the FAA does not address the airport's assertion that its monopoly on the sale of jet fuel is legal and authorized, except to note that the airport "claims a propriety exclusive on its sale…"

The case, now before a US District Court, remains in the preliminary stages. At the request of the judge, attorneys for the airport submitted a set of suggested questions regarding allegations contained in the suit. The airport sought a "motion to stay" court proceedings until the FAA had an opportunity to provide guidance on claims that the airport violated the agency's regulations -- which it has now done.

Rectrix is due to file its response to the town's filing and the court request by February 14.

While Rectrix' attorney Marc Kasowitz did acknowledge prior to the FAA's opinion that the opinion could prove helpful to the court, he said it shouldn't sway what is, essentially, a matter between the city and Rectrix.

"While the [defendants'] motion contains a lengthy recitation of federal aviation law and certain prior proceedings before the FAA, defendants do not, because they cannot, provide any authority or valid basis for staying this action in favor of FAA proceedings, because no such authority or basis exists," the response reads.

"To the contrary, Rectrix's claims arise from defendants' racketeering, fraudulent and monopolistic practices, as well as the common law tortuous conduct."

Kasowitz had also filed a cross-motion for a default judgment... asking the court to rule in Rectrix's favor, as the town's response (calling on the FAA) is not allowed in this type of lawsuit.

The Rectrix suit also alleges contract interference, preferential treatment for other airport lessees, unfair business practices, and intimidation by individual members of the airport commission.

The five-page letter from the FAA notes the FAA's review was not an audit. The review was "to determine if the Airport and Town complied with the Federal requirements that pertain to the use of Airport revenue," the letter reads. "It should be understood, the FAA did not perform a financial audit."

With regard to the financial charge for town services provided to the airport, the FAA wrote, "The Airport's percentage of allocation was shown along with the percentage for the other Town departments. The methodology appeared reasonable."

FMI: www.town.barnstable.ma.us/Airport2/airport.asp, www.rectrixaviation.com

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