FAA: Atlanta in violation of duties in airport contract dispute

The first XpresSpa spa opened at Hartsfied-Jackson as part of a retail makeover. RICH ADDICKS / AJC

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The first XpresSpa spa opened at Hartsfied-Jackson as part of a retail makeover. RICH ADDICKS / AJC

The Federal Aviation Administration says the city of Atlanta is in violation of its federal obligations for airport grants because of its actions in a dispute between the airport's XpresSpa contractor and a minority partner.

Such violations can put the airport's eligibility for federal grant funding at risk — the latest example of Hartsfield-Jackson International Airport ending up in legal turmoil with the FAA.

Last week, the FAA launched a new investigation into the world's busiest airport, alleging it may have unlawfully diverted revenue to the city of Atlanta, and subpoenaed airport invoices.

At the XpresSpa locations at Hartsfield-Jackson, the world's busiest airport, travelers can get massages, facials and manicures. But a conflict between XpresSpa and a minority partner, Cordial Endeavor Concessions, has roiled since 2013, resulting in a civil rights complaint against the city and multiple lawsuits.

Cordial’s attorney Carl Gebo said the FAA decision issued this week “validated and vindicated Cordial.”

XpresSpa's partnership with Cordial helped XpresSpa fulfill federal requirements for minority participation to operate concessions at the airport. But the business partnership turned sour a couple of years later.

A dispute over a change in Cordial’s ownership led to uncertainty surrounding the company’s minority firm certification — although the FAA later said Cordial was and is certified.

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An XpresSpa employee does the nails of a traveler at Hartsfield-Jackson. RICH ADDICKS / AJC

An XpresSpa employee does the nails of a traveler at Hartsfield-Jackson. RICH ADDICKS / AJC

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An XpresSpa employee does the nails of a traveler at Hartsfield-Jackson. RICH ADDICKS / AJC

XpresSpa moved to find another partner, leading Cordial to file an informal complaint four years ago saying the federal program administered by the city is designed to prevent prime contractors from winning deals using a minority partnership, then dumping the minority partner without due cause.

The FAA investigated and in 2015 found the city, which runs the Atlanta airport, was not in compliance with federal regulations mandating it to monitor and enforce terms of the joint venture between XpresSpa and Cordial, and that the city allowed XpresSpa to terminate its contract with Cordial. The FAA required the city to take corrective actions.

Two years later, Cordial filed a formal complaint alleging the city still failed to comply with the regulations under the federal disadvantaged business program and that Cordial had been shut out of the business since 2014. The complaint was filed with the FAA under federal regulation Part 16, and alleged that the airport was not complying with obligations that come with accepting federal funding.

This week, the FAA issued a director’s determination saying the city was not in compliance with its grant assurances and federal requirements to oversee and monitor the XpresSpa and Cordial partnership.

The FAA then ordered the city to get into compliance.

“It is the airport’s responsibility to ensure that there is a level playing field for DBE (disadvantaged business enterprise) participants. The City failed Cordial in that regard,” the FAA said in its determination. “Rather, it appears to have consistently accused Cordial of having a bad attitude and causing problems.” Without adequate monitoring, the city “could not assure that Cordial was being treated fairly.”

The director’s determination is not a final decision by the agency, and the city can appeal.

Gebo, the attorney for Cordial, said the FAA put the city on notice that if it does not comply, it could lose future federal grants or have grant dollars recouped, which “represents just how serious the violations were.”

Atlanta Mayor Keisha Lance Bottoms’ office issued a statement saying it “disagrees with many of the factual findings in the initial decision and is currently evaluating all of its legal and administrative options.”

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The issue stems from issues with contractors during Mayor Kasim Reed's tenure.

This is not the only legal challenge involving the Atlanta airport XpresSpa contract.

XpresSpa, which contended that it properly terminated the deal with Cordial, was acquired by new owners in 2016 and filed a lawsuit in 2017 against Cordial alleging breach of contract.

Then, in 2018, Cordial filed a civil lawsuit alleging city officials colluded with XpresSpa to oust Cordial managing partner Shelia Edwards from the business, and that people close to former Atlanta Mayor Kasim Reed benefited. By that time, the city had spent close to $1 million on outside legal counsel.

Now, the FAA director’s determination orders the city to:

» audit the agreement between XpresSpa and Cordial;

» determine how much in management fees and profits may be due to Cordial;

» ensure payment to Cordial;

» engage an independent third party to conduct a hearing;

» investigate Cordial’s allegations of harassment and retaliation by XpresSpa;

» submit reports to the FAA on its actions.

Gebo estimated Edwards could be owed more than $1 million in management fees and profits.

Once a final decision is rendered and more than 180 days have passed, if violations remain, Atlanta’s airport grants may be suspended and the FAA said it may collect penalties or recover federal grants.