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HUGHES TOOL CO. V. TRANS WORLD AIRLINES, 409 U.S. 363
HUGHES TOOL CO. ET AL. V. TRANS WORLD AIRLINES, INC.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT
NO. 71-827. ARGUED OCTOBER 10, 1972-- DECIDED JANUARY 10,
1973. /1/
TRANS WORLD AIRLINES (TWA) BROUGHT THIS ANTITRUST ACTION AGAINST THE
HUGHES TOOL CO. (TOOLCO) AND OTHERS FOR TREBLE DAMAGES AS A RESULT OF
THE MANNER IN WHICH TOOLCO HAD EXERCISED ITS CONTROLLING INTEREST IN
TWA, WITH PARTICULAR REFERENCE TO TOOLCO'S ASSERTED ACTS TO CONTROL AND
DICTATE THE ACQUISITION AND FINANCING OF AIRCRAFT BY TWA. AS AN
ORGANIZATION ENGAGED IN PHASES OF AERONAUTICS, TOOLCO COULD NOT ACQUIRE
CONTROL OF AN AIR CARRIER SUCH AS TWA WITHOUT CONSENT OF THE CIVIL
AERONAUTICS BOARD (CAB). IN 1944 THE CAB APPROVED DE FACTO CONTROL OF
TWA BY TOOLCO AS COMPORTING WITH THE PROVISIONS OF SEC. 408 OF THE
FEDERAL AVIATION ACT. THAT PROVISION PERMITS ACQUISITIONS OF CONTROL
THAT THE CAB FINDS ARE NOT INCONSISTENT WITH THE PUBLIC INTEREST AND
THAT WILL NOT RESULT IN MONOPOLY. SECTION 414 IMMUNIZES FROM ANTITRUST
LIABILITY ANY CONDUCT APPROVED BY A CAB ORDER ISSUED UNDER SEC. 408.
THE APPROVAL NARROWLY LIMITED INTERCOMPANY SALES TRANSACTIONS WITHOUT
SPECIFIC CAB APPROVAL, AND REQUIRED ANNUAL REPORTING. A FEW YEARS
LATER, TOOLCO AND TWA MADE AN AGREEMENT PERMITTING TOOLCO TO OBTAIN
FULL LEGAL CONTROL OF TWA. THE CAB, AFTER FULL HEARINGS INTO THE
TOOLCO-TWA RELATIONSHIP, FOUND THAT TOOLCO'S FINANCIAL AND OTHER
SUPPORT WAS OF GREAT IMPORTANCE TO TWA AND CONCLUDED THAT "THE
CONTINUED INTEREST OF TOOLCO IN TWA APPEARS ESSENTIAL TO THE BEST
INTERESTS OF THE CARRIER AND THE PUBLIC." THE CAB'S APPROVAL WAS MADE
SUBJECT TO THE CONDITIONS OF THE 1944 ORDER. AS A RESULT, FROM 1944 TO
1960, EVERY ACQUISITION AND LEASE OF AIRCRAFT BY TWA FROM TOOLCO AND
EACH FINANCING BY TWA FROM TOOLCO RECEIVED CAB APPROVAL PURSUANT TO
SEC. 408. IN 1960, TOOLCO'S STOCK IN TWA WAS PLACED IN A VOTING TRUST
IN CONNECTION WITH A PROGRAM FOR FINANCING TWA'S ACQUISITION OF JET
EQUIPMENT. SHORTLY THEREAFTER, TWA BROUGHT THIS SUIT. AS A DEFENSE,
TOOLCO RELIED ON PAN AMERICAN WORLD AIRWAYS V. UNITED STATES, 371 U.S.
296. THE DISTRICT COURT ENTERED A DEFAULT JUDGMENT AGAINST TOOLCO.
THE COURT OF APPEALS AFFIRMED, CONCLUDING THAT PAN AMERICAN WAS
INAPPLICABLE BECAUSE, UNLIKE THE SITUATION IN THAT CASE, THE CONDUCT
CHALLENGED IN TWA'S COMPLAINT WAS "UNRELATED TO ANY SPECIFIC FUNCTION
OF THE CAB" AND NOT WITHIN THE CAB'S EXCLUSIVE COMPETENCE. HELD: THE
TRANSACTIONS THAT TWA CHALLENGED AS VIOLATIVE OF THE ANTITRUST LAWS
WERE UNDER THE CAB'S CONTROL AND SURVEILLANCE, AND, BY VIRTUE OF SECS.
408 AND 414 OF THE FEDERAL AVIATION ACT, HAD IMMUNITY UNDER THE
ANTITRUST LAWS. THE COURT OF APPEALS, THEREFORE, ERRED IN HOLDING THAT
PAN AMERICAN, SUPRA, IS NOT CONTROLLING ON THE FACTS INVOLVED HERE.
PP. 366-389.
449 F.2D 51, REVERSED.
DOUGLAS, J., DELIVERED THE OPINION OF THE COURT, IN WHICH BRENNAN,
STEWART, WHITE, POWELL, AND REHNQUIST, JJ., JOINED. BURGER, C. J.,
FILED A DISSENTING OPINION, IN WHICH BLACKMUN, J., JOINED, POST, P.
389. MARSHALL, J., TOOK NO PART IN THE CONSIDERATION OR DECISION OF
THE CASES.
MR. JUSTICE DOUGLAS DELIVERED THE OPINION OF THE COURT.
THE COMPLAINT IN THIS LITIGATION ALLEGED ANTITRUST VIOLATIONS AND
DAMAGES SUFFERED BY TRANS WORLD AIRLINES (TWA) WHILE UNDER CONTROL OF
HUGHES TOOL CO. (TOOLCO). A DEFAULT JUDGMENT WAS ENTERED FOR OVER $145
MILLION WITH INTEREST AT THE RATE OF 7 1/2%. THE DISTRICT COURT'S
OPINIONS CONFIRMING THE DAMAGES AWARD ARE REPORTED AT 308 F.SUPP. 679,
312 F.SUPP. 478. THE COURT OF APPEALS AFFIRMED, 449 F.2D 51. THE
CASES ARE HERE ON A PETITION FOR CERTIORARI /1A) AND ON A CROSS
PETITION. 405 U.S. 915.
THE CRUX OF TWA'S COMPLAINT WAS THE USE OF TOOLCO OF ITS CONTROL
OVER TWA TO CONTROL AND DICTATE THE MANNER AND METHOD BY WHICH TWA
ACQUIRED AIRCRAFT AND THE NECESSARY FINANCING THEREOF. /2/
WHETHER OR NOT THAT COMPLAINT STATES A CAUSE OF ACTION UNDER THE
ANTITRUST LAWS IS A QUESTION WE DO NOT REACH. ANOTHER DEFENSE OF
TOOLCO WAS THAT THOSE TRANSACTIONS WERE UNDER THE CONTROL AND
SURVEILLANCE OF THE CIVIL AERONAUTICS BOARD AND BY VIRTUE OF THE
FEDERAL AVIATION ACT OF 1958 THOSE TRANSACTIONS HAVE IMMUNITY FROM THE
ANTITRUST LAWS.
IT IS OUR VIEW THAT THE COURT OF APPEALS ERRONEOUSLY REJECTED THAT
DEFENSE. THIS RESULT, WE THINK, IS REQUIRED BY SECS. 408 AND 414 OF
THE FEDERAL AVIATION ACT AND BY OUR PRIOR DECISION IN PAN AMERICAN
WORLD AIRWAYS V. UNITED STATES, 371 U.S. 296 (1963).
CONSOLIDATIONS, AND OTHER TRANSACTIONS WITHOUT THE APPROVAL OF THE
CIVIL AERONAUTICS BOARD. /3/ SPECIFICALLY, SEC. 408(A)(5) REQUIRES
THE APPROVAL OF THE BOARD WHEN "ANY PERSON ENGAGED IN ANY OTHER PHASE
OF AERONAUTICS" SEEKS TO ACQUIRE CONTROL OF ANY AIR CARRIER IN ANY
MANNER WHATSOEVER. SECTION 408(B) AUTHORIZES AND DIRECTS THE BOARD TO
APPROVE SUCH TRANSACTIONS, INCLUDING ACQUISITIONS OF CONTROL, THAT ARE
IN THE "PUBLIC INTEREST" AND PROHIBITS APPROVAL OF ANY TRANSACTION
"WHICH WOULD RESULT IN CREATING A MONOPOLY OR MONOPOLIES AND THEREBY
RESTRAIN COMPETITION OR JEOPARDIZE ANOTHER AIR CARRIER" NOT A PARTY TO
THE TRANSACTION. SECTION 102 OF THE ACT REQUIRES THAT IN ASSESSING THE
PUBLIC INTEREST AND THE PUBLIC CONVENIENCE AND NECESSITY, THE BOARD
SHOULD CONSIDER, AMONG OTHER THINGS, "(COMPETITION TO THE EXTENT
NECESSARY TO ASSURE THE SOUND DEVELOPMENT OF AN AIR-TRANSPORTATION
SYSTEM PROPERLY ADAPTED TO THE NEEDS OF THE FOREIGN AND DOMESTIC
COMMERCE OF THE UNITED STATES . . . . " /4/ SECTION 408(E) EMPOWERS
THE BOARD, UPON COMPLAINT OR ITS OWN INITIATIVE, TO INVESTIGATE AND
DETERMINE WHETHER ANY PERSON IS VIOLATING ANY PROVISION OF SUBSECTION
(A) AND, IF SUCH VIOLATION IS FOUND, TO "REQUIRE SUCH PERSON TO TAKE
SUCH ACTION, CONSISTENT WITH THE PROVISIONS OF THIS CHAPTER, AS MAY BE
NECESSARY, IN THE OPINION OF THE BOARD, TO PREVENT FURTHER VIOLATION OF
SUCH PROVISION." UNDER SEC. 408(D), THE BOARD HAS BROAD CONTROL OVER
THE ACCOUNTS, RECORDS, AND REPORTS OF ANYONE CONTROLLING AN AIR
CARRIER, AND THEIR INSPECTION. THE BOARD IS FURTHER GRANTED POWER TO
CONTROL THE DESIGNATION OF ANY OFFICER OR DIRECTOR OF AN AIR CARRIER
WHO IS AN OFFICER, DIRECTOR, MEMBER, OR THE CONTROLLING STOCKHOLDER OF
ANY PERSON WHO IS ENGAGED "IN ANY PHASE OF AERONAUTICS." SEC. 409(A),
49 U.S.C. 1379(A). SECTION 414 RELIEVES FROM THE OPERATION OF THE
ANTITRUST LAWS ANY PERSON AFFECTED BY ANY ORDER UNDER SEC. 408 "INSOFAR
AS MAY BE NECESSARY TO ENABLE SUCH PERSON TO DO ANYTHING AUTHORIZED,
APPROVED, OR REQUIRED BY SUCH ORDER." /5/
IT WAS AGAINST THIS STATUTORY BACKDROP THAT THE CIVIL AERONAUTICS
BOARD ISSUED A SERIES OF DECISIONS AND ORDERS WITH RESPECT TO THE
CONTROL OF TWA BY TOOLCO, THE MAJOR DECISIONS BEING ISSUED IN 1944,
1948, 1950, AND 1960. THE FIRST DECISION, 6 C.A.B. 153 (1944),
AUTHORIZED CONTROL OF APPROXIMATELY 45.6% OF THE OUTSTANDING STOCK OF
TWA. FROM THE BOARD'S OPINION ISSUED AT THAT TIME, IT APPEARS THAT
HOWARD HUGHES FIRST BECAME INTERESTED IN TWA AT THE INVITATION OF HIS
FRIEND, JACK FRYE, THE PRESIDENT OF TWA. HUGHES BEGAN ACQUIRING TWA
STOCK THROUGH TOOLCO, WHICH HE SOLELY OWNED. BY 1942, TOOLCO HAD
ACQUIRED 42.1% OF TWA'S OUTSTANDING STOCK AND FOR ALL PRACTICAL
PURPOSES WAS IN POSITION TO CONTROL THE DAY-TO-DAY AFFAIRS OF THE
CARRIER. MEANWHILE, HUGHES AND FRYE HAD JOINTLY DESIGNED A FOUR-ENGINE
TRANSPORT, LATER KNOWN AS THE CONSTELLATION, WHICH LOCKHEED AGREED TO
MANUFACTURE UNDER CONTRACT WITH TOOLCO. THE CONTRACT WAS ASSIGNED BY
TOOLCO TO TWA IN 1942, TOOLCO RESERVING THE RIGHT TO PURCHASE A SIZABLE
NUMBER OF SUCH AIRCRAFT THROUGH TWA. IT WAS THIS ARRANGEMENT BY WHICH
TOOLCO MIGHT ACTUALLY ACQUIRE FOR RESALE A NUMBER OF COMMERCIAL
AIRCRAFT THAT, TOGETHER WITH ITS EXPERIMENTAL WORK IN AVIATION AND ITS
MANUFACTURE OF AIRCRAFT PARTS FOR THE MILITARY, CHARACTERIZED TOOLCO AS
AN ORGANIZATION ENGAGED IN ANY PHASE OF AERONAUTICS AND THEREFORE
FORBIDDEN TO ACQUIRE CONTROL OF AN AIR CARRIER SUCH AS TWA WITHOUT THE
CONSENT OF THE BOARD. TOOLCO'S CONTROL OF TWA, BY VIRTUE OF ITS STOCK
OWNERSHIP WHICH HAD BY 1944 INCREASED TO 45.6%, WAS APPROVED BY THE
BOARD AS BEING IN THE PUBLIC INTEREST AND CONSISTENT WITH THE
PROVISIONS OF SEC. 408, INCLUDING THE PROHIBITION AGAINST MONOPOLY. IN
ORDER TO INSURE THAT TOOLCO WOULD NOT ABUSE ITS POWER OVER TWA, "TO ITS
OWN PROFIT AND TO THE DETRIMENT OF THE PUBLIC INTEREST," 6 C.A.B.,AT
156, THE APPROVAL WAS TO CONTINUE ONLY SO LONG AS INTERCOMPANY
PURCHASES DID NOT EXCEED $200 PER ITEM AND DID NOT AMOUNT TO MORE THAN
$10,000 IN ANY ONE CALENDAR YEAR. ANNUAL REPORTS WERE REQUIRED IN THIS
RESPECT. /6/ 6 C.A.B.,AT 158.
THE 1948 AND 1950 DECISIONS OF THE BOARD ORIGINATED IN A LETTER
AGREEMENT PRESENTED BY TOOLCO TO TWA ON JANUARY 8, 1947, AND ACCEPTED
BY TWA THE FOLLOWING DAY. BY THIS AGREEMENT, TOOLCO AGREED TO LOAN $10
MILLION TO TWA IN RETURN FOR THE LATTER'S INTEREST-BEARING NOTES WHICH
WERE CONVERTIBLE INTO COMMON STOCK OF THE COMPANY. ON ITS OWN
INITIATIVE, THE BOARD OPENED AN INVESTIGATION INTO THE MATTER. AT THE
THRESHOLD WAS THE QUESTION OF BOARD JURISDICTION, WHICH WAS HOTLY
CONTESTED. THE BOARD'S JUNE 1948 OPINION SUSTAINED ITS JURISDICTION, 9
C.A.B. 381. THE OPINION TOOK A DUAL APPROACH TO THE JURISDICTIONAL
QUESTION. IT FIRST INQUIRED WHETHER "ANY CHANGE IN THE ACTIVITIES OF
TOOLCO IN THE FIELD OF AERONAUTICS SINCE OCTOBER 17, 1944, HAS AFFECTED
OR ALTERED THE CHARACTER OF THE CONTROL APPROVED IN DOCKET NO. 1182.
IT IS CLEAR THAT A SUBSTANTIAL CHANGE IN THE ACTIVITIES OF TOOLCO IN
THE FIELD OF AERONAUTICS WOULD RESULT IN A TRANSACTION SUBJECT TO THE
BOARD'S JURISDICTION UNDER SECTION 408 BY REASON OF THE FACT THAT THE
CHARACTER AND PROPRIETY OF CONTROL ORIGINALLY APPROVED MIGHT BE ALTERED
OR CHANGED AS A RESULT THEREOF." 9 C.A.B.,AT 382.
AFTER REVIEWING THE AERONAUTICAL ACTIVITIES OF TOOLCO, IT WAS
CONCLUDED THAT THE AIRCRAFT DIVISION OF THE COMPANY WAS CHIEFLY A LARGE
SCALE EXPERIMENTAL PLANT FOR THE MILITARY AND HAD NOT SUBSTANTIALLY
CHANGED ITS STATUS WITH RESPECT TO ITS PARTICIPATION IN ANY PHASE OF
AERONAUTICS.
THE BOARD'S SECOND APPROACH TO THE JURISDICTIONAL QUESTION WAS TO
INQUIRE WHETHER THE LETTER AGREEMENT, WHICH WOULD PERMIT TOOLCO TO
INCREASE ITS SHAREHOLDINGS UP TO 80% OF THE OUTSTANDING SHARES OF TWA,
REPRESENTED SUCH A CHANGE IN EXTENT OR EFFECTIVENESS OF CONTROL AS TO
GIVE THE BOARD JURISDICTION AND REQUIRE ITS CONSENT. ITS CONCLUSION
WAS THAT, ALTHOUGH TOOLCO'S 45.6% WAS OBVIOUSLY ENOUGH TO DOMINATE THE
BOARD AND CONTROL THE DAY-TO-DAY AFFAIRS OF THE COMPANY, THE 1947
LETTER AGREEMENT WOULD PERMIT TOOLCO TO TRANSLATE ITS DE FACTO CONTROL
INTO FULL LEGAL CONTROL OF THE COMPANY, WHICH WOULD "OBVIOUSLY IMPLY)
POWER TO DICTATE THE COMPLETE CORPORATE ACTIVITIES OF THE
CORPORATION." 9 C.A.B.,AT 387. THIS WAS SUFFICIENT TO REQUIRE AN
ORDER OF THE BOARD IN ADDITION TO THE 1944 ORDER.
WITH ITS JURISDICTION ESTABLISHED, THE BOARD PROCEEDED WITH HEARINGS
AND INQUIRY INTO WHETHER THE ADDITIONAL CONTROL WAS CONSISTENT WITH THE
PUBLIC INTEREST. THIS MATTER WAS ALSO CONTESTED. TOOLCO THOUGHT THAT
ONLY A NARROWLY FOCUSED INQUIRY WAS APPROPRIATE, BUT THE BOARD'S PUBLIC
COUNSEL NOT ONLY INSISTED THAT THE HEARINGS BE FAR-RANGING BUT URGED,
AS A POSSIBLE SOLUTION, THAT THE ADDITIONAL CONTROL BE DISAPPROVED AND
THAT THE ORIGINAL 1944 PROCEEDINGS, DOCKET NO. 1182, BE REOPENED TO
DETERMINE WHETHER ALL CONTROL OF TWA BY TOOLCO SHOULD BE TERMINATED.
THE BOARD /7/ OPTED FOR AN INVESTIGATION SUFFICIENTLY BROAD TO INQUIRE
"INTO THE ACTIONS AND POLICIES OF THE CONTROLLING COMPANY WITH RESPECT
TO TWA FOR THE PERIOD DURING WHICH THE PRIOR-APPROVED CONTROL EXISTED .
. . (FOR INEVITABLY THE CONTROLLING COMPANY, BY VIRTUE OF ITS
INVESTMENT IN THE ACQUIRED CARRIER, WILL ENDEAVOR TO MAKE ITSELF
ACCOUNTABLE-- AS INDEED THE ACQUIRER HERE UNDER SCRUTINY HAD-- FOR THE
MANAGERIAL EFFICIENCY, THE OPERATING ECONOMY, AND THE FINANCIAL
INTEGRITY OF THE CONTROLLED CARRIER." 12 C.A.B. 192, 196 (1950).
BEFORE APPROVING THE ADDITIONAL ACQUISITION, WHICH WOULD MAKE CERTAIN
"(COMPLETE ACTUAL AND LEGAL CONTROL," ID., AT 197, THE BOARD DETERMINED
NOT ONLY TO EXAMINE THE FUTURE PLANS OF TOOLCO BUT ALSO ITS PAST
CONDUCT WITH RESPECT TO TWA.
ACCORDINGLY, THE TOOLCO-HUGHES-TWA RELATIONSHIP FROM 1939 TO THE
DATE OF THE DECISION WAS EXAMINED IN DETAIL, INCLUDING THE EVENTS
OCCURRING SINCE THE LETTER AGREEMENT OF JANUARY 1947. THE MAJOR FOCUS
OF THE INQUIRY WAS THE DIFFERENCES BETWEEN TWA MANAGEMENT AND TOOLCO
WITH RESPECT TO THE ACQUISITION OF NEW FLIGHT EQUIPMENT-- THE QUANTITY,
THE TYPE, THE TIMING, AND THE FINANCING THEREOF. UNQUESTIONABLY, TWA
HAD BEEN AND WAS IN NEED OF ADDITIONAL FINANCING TO MAKE POSSIBLE THE
PURCHASE OF NEW EQUIPMENT, PARTICULARLY THAT NEEDED TO OPERATE ITS
EXPANDED ROUTES. TWA PROPOSED AND PREFERRED EQUITY FINANCING IN LARGE
MEASURE, BUT TOOLCO MOST OFTEN INSISTED ON FINANCING NEW EQUIPMENT
THROUGH CREDIT ARRANGEMENTS. DISAGREEMENT CAUSED DELAY, AND THIS, IN
COMBINATION WITH OTHER FACTORS, BROUGHT TWA TO THE VERGE OF BANKRUPTCY
OR REORGANIZATION IN LATE 1946. IT WAS AT THIS JUNCTURE THAT THE
JANUARY 1947 LETTER AGREEMENT EVENTUATED. FINANCIAL FAILURE WAS
AVERTED; BUT URGENT NEEDS FOR NEW EQUIPMENT CONTINUED, AND SUBSTANTIAL
ADDITIONS WERE MADE IN THE YEARS FROM 1947 TO 1950, MOST OF IT WITH THE
AID OF TOOLCO AND SOME OF IT BY PURCHASE FROM TOOLCO ITSELF. /8/ BY
THE TIME THE HEARINGS CONCLUDED AND THE CASE WAS UNDER SUBMISSION,
TWA'S FINANCIAL CONDITION HAD CONSIDERABLY IMPROVED, MEASURABLY AIDED
BY BETTER OPERATING RESULTS, BETTER EXPENSE CONTROL, AND A STOCK
OFFERING TO STOCKHOLDERS WITH THE UNSUBSCRIBED AMOUNT BEING
UNDERWRITTEN BY INVESTMENT BANKERS. 12 C.A.B.,AT 208-209.
IN CONSIDERING WHETHER THE ADDITIONAL CONTROL BY TOOLCO WOULD BE IN
THE PUBLIC INTEREST, THE BOARD OBSERVED THAT THERE WAS NO CONFLICT OF
INTEREST BETWEEN TOOLCO'S PRESENT OR CONTEMPLATED AERONAUTICAL
ACTIVITIES AND ITS CONTROL OF AN AIR CARRIER AND THAT ENHANCED CONTROL
PRESENTED NO PROBLEMS UNDER THE ANTIMONOPOLY PROVISIONS OF SEC.
408(B). ID., AT 216. THE BOARD THEN NOTED THAT TOOLCO'S CONTRIBUTIONS
TO THE SCIENCE OF AERONAUTICS BY WAY OF AIRCRAFT DESIGN AND
INSTRUMENTAL AIDS TO AVIATION FOR BOTH THE ARMED SERVICES AND CIVIL
AVIATION HAVE BEEN SUBSTANTIAL AND FOUND THAT "OF SPECIFIC IMPORTANCE
TO TWA, HAVE BEEN THE CONTRIBUTIONS OF TOOLCO AND MR. HUGHES IN THE WAY
OF FINANCIAL SUPPORT TO THE CARRIER, IN THE SELECTION AND PURCHASE OF
ITS EQUIPMENT, AND THEIR ADVICE AND GUIDANCE TO THE ENGINEERING AND
OPERATIONS DEPARTMENTS OF THE CARRIER." IBID. /9/ MOST IMPORTANT,
HOWEVER, IN THE BOARD'S OPINION, WERE THE EFFORTS OF TOOLCO TO IMPROVE
THE FINANCIAL POSITION OF TWA DURING THE LAST FEW YEARS. ALTHOUGH
CRITICIZING TOOLCO, ALONG WITH OTHERS IN THE AIRCRAFT TRANSPORTATION
INDUSTRY, FOR RELYING TOO HEAVILY ON DEBT FINANCING WHICH, IN THE CASE
OF TWA HAD RESULTED IN A VERY DIFFICULT, LOPSIDED CAPITAL STRUCTURE,
THE BOARD CONCLUDED THAT THE RECORD WOULD NOT SUPPORT A FINDING THAT
THE ADDITIONAL CONTROL WOULD BE INCONSISTENT WITH THE PUBLIC INTEREST.
INDEED, THE BOARD CONCLUDED THAT "(THE CONTINUED INTEREST OF TOOLCO IN
TWA APPEARS ESSENTIAL TO THE BEST INTERESTS OF THE CARRIER AND THE
PUBLIC." ID., AT 224.
THE BOARD'S APPROVAL IN 1950 OF THE COMPLETE CONTROL OF TWA BY
TOOLCO WAS MADE "SUBJECT TO THE TERMS AND CONDITIONS" IMPOSED BY THE
1944 ORDER WITH RESPECT TO INTERCOMPANY PURCHASES AND ANNUAL
REPORTING. SEE SUPRA, AT 370. AS A RESULT, FROM 1944 THROUGH 1960,
EVERY ACQUISITION OR LEASE OF AIRCRAFT BY TWA FROM TOOLCO AND EACH
FINANCING OF TWA BY TOOLCO REQUIRED BOARD APPROVAL. APPLICATIONS BY
TOOLCO WERE MADE TO THE BOARD IN EACH INSTANCE, WITH THE TERMS AND
CONDITIONS OF THE TRANSACTIONS BEING DESCRIBED. /10/ EACH WAS
APPROVED BY THE BOARD AND EACH WAS REGARDED AS A MODIFICATION OR
INTERPRETATION OF ITS ANTECEDENT CONTROL ORDERS UNDER SEC. 408. EACH
OF THESE TRANSACTIONAL ORDERS RECITED A FINDING OF THE BOARD THAT THE
TRANSACTION WAS "JUST AND REASONABLE AND IN THE PUBLIC INTEREST."
THEN, IN DECEMBER 1960, THE BOARD ISSUED AN ORDER APPROVING A MAJOR
PROPOSAL BY TWA FOR THE ACQUISITION OF JET EQUIPMENT, WHICH AMONG OTHER
THINGS INVOLVED FUNDAMENTAL CHANGES IN RELATIONSHIP BETWEEN TWA AND
TOOLCO IN THAT THE STOCK OF THE FORMER, AT THE INSISTENCE OF THE
FINANCIAL INSTITUTIONS INVOLVED IN THE PROGRAM, WAS TO BE PLACED IN A
VOTING TRUST AND THE COMPANY'S BOARD OF DIRECTORS RECONSTITUTED. 32
C.A.B. 1363. THE DOMINANT POSITION OF TOOLCO THUS ENDED FOR THE PERIOD
OF THE TRUSTEESHIP. IN THE COURSE OF ITS OPINION ACCOMPANYING THE
ORDER, THE BOARD STATED THAT ALTHOUGH IT HAD NOT BEEN OFFICIALLY
INFORMED OF THE REASONS FOR THE BANKS' INSISTENCE ON THE VOTING TRUST,
IT WAS NOT "UNAWARE OF TWA'S PROBLEMS." ID., AT 1364. THE BOARD KNEW,
BECAUSE IT WAS A MATTER OF PUBLIC RECORD, THAT TWA HAD BEEN DELAYED IN
FINANCING ITS JET FLEET AND THE BOARD'S OPINION WAS THAT TWA HAD
PROBABLY SUFFERED BECAUSE MORE ATTRACTIVE FINANCING TERMS WERE NO
LONGER AVAILABLE AND BECAUSE THE UNAVAILABILITY OF EQUIPMENT MAY HAVE
CONTRIBUTED TO THE COMPANY'S FAILURE TO MAINTAIN ITS NORMAL SHARE OF
THE TRANSPORTATION MARKET. "UNDER THESE CIRCUMSTANCES" THE BOARD SAID,
"WE THINK IT CLEAR THAT BOARD ACTION TO FACILITATE TWA'S ACQUISITION OF
JET EQUIPMENT IS IN THE PUBLIC INTEREST. AT THE SAME TIME, HOWEVER, IT
IS EVIDENT THAT TOOLCO'S CONTROL OF TWA, AS EXERCISED THROUGH HUGHES,
HAS PRESENTED SUBSTANTIAL PROBLEMS REQUIRING THE BOARD'S ATTENTION."
ID., AT 1365. THE BOARD WENT ON TO MAKE CLEAR THAT ITS APPROVAL WOULD
BE REQUIRED BEFORE TOOLCO WOULD BE PERMITTED TO REASSUME CONTROL OVER
TWA AND THAT ANY SUCH APPROVAL WOULD BE FORTHCOMING ONLY AFTER A MOST
"SEARCHING INQUIRY" INTO THE PUBLIC INTEREST FACTORS INVOLVED. /11/
IBID.
IT WAS SIX MONTHS LATER THAT TWA, NOW NO LONGER UNDER CONTROL OF
TOOLCO, FILED SUIT AGAINST THE LATTER ALLEGING VIOLATIONS OF THE
ANTITRUST LAWS TO THE INJURY OF TWA'S BUSINESS. AS ANALYZED BY THE
COURT OF APPEALS IN ITS OPINIONS FILED IN THIS CASE, THE COMPLAINT
RESTED PRINCIPALLY ON TOOLCO'S CONDUCT AS CONTROLLING STOCKHOLDER
DURING THE YEARS 1955-1960. THE ASSERTIONS WERE THAT IN 1955 THE
COMMERCIAL AIR INDUSTRY WAS CONVERTING TO JET AIRCRAFT, AND THAT TWA'S
COMPETITORS BEGAN IN THAT YEAR "TO AID IN THE DEVELOPMENT OF AND TO
PURCHASE JET PLANES." 332 F.2D 602, 605. TOOLCO AND GENERAL DYNAMICS
CORP. (CONVAIR) HAD ENTERED INTO AN AIRRANGEMENT FOR THE JOINT
DEVELOPMENT OF A SUITABLE AIRCRAFT BUT THE PLAN PROVED ABORTIVE,
WHEREUPON TOOLCO CONSIDERED BUT ULTIMATELY ABANDONED A PLAN FOR ITSELF
TO ENTER AIRCRAFT PRODUCTION. MEANWHILE, TOOLCO HAD ARRANGED FOR THE
PURCHASE OF JET AIRCRAFT FROM CONVAIR AND BOEING, THE ARRANGEMENTS
PROVIDING THAT TOOLCO COULD ASSIGN ITS RIGHTS TO SUCH AIRCRAFT TO TWA.
AS RESPECTS ITS DEFENSE THAT CAB CONTROL AND SURVEILLANCE GAVE IT
IMMUNITY FROM THE ANTITRUST SUIT, TOOLCO RELIES ON PAN AMERICAN WORLD
AIRWAYS V. UNITED STATES, 371 U.S. 296. THE COURT OF APPEALS
DISTINGUISHED THAT CASE, SAYING THAT THERE THE UNLAWFUL DIVISION OF
TERRITORIES AND ALLOCATION OF ROUTES WERE DIRECTLY "WITHIN THE AMBIT OF
POWERS EXPLICITLY GRANTED THE BOARD BY THE CONGRESS," 332 F.2D, AT
608. THE COURT OF APPEALS SAID THAT THE PRESENT CASE WAS DIFFERENT
BECAUSE, IN ITS VIEW, THE CONTINUING SUPERVISION OF THE BOARD OVER THE
TOOLCO-TWA RELATIONSHIP WAS GENERAL AND NOT RELATED TO SPECIFIC CONDUCT
THAT GAVE RISE TO VIOLATIONS OF THE ANTITRUST LAWS.
THE TRANSACTIONS ON THE BASIS OF WHICH DAMAGES WERE AWARDED WERE
BASED PRIMARILY ON PROFITS LOST AS A RESULT OF FIVE TRANSACTIONS
RELATING TO ORDERS PLACED BY TOOLCO FOR A FLEET OF 63 JET AIRCRAFT
DESINTED FOR USE BY TWA. 449 F.2D, AT 65-66:
(1) THE DIVERSION OF SIX CONVAIRS BY TOOLCO TO NORTHEAST AIRLINES;
(2) THE TEMPORARY RETENTION BY TOOLCO OF FOUR OTHER CONVAIRS AND
THEIR ULTIMATE LEASE TO NORTHEAST AIRLINES;
(3) THE DIVERSION OF SIX BOEING JETS OUT OF 33 ORDERED TO PAN AMERICAN
AIRWAYS;
(4) THE LEASE, INSTEAD OF OUTRIGHT SALES, OF JETS IN 1959-1960; AND
(5) THE LATE DELIVERY OF 47 OF THE 63 JETS.
ONE DIFFICULTY WITH THE CONCLUSION OF THE COURT OF APPEALS THAT
THESE TRANSACTIONS, UNLIKE THOSE INVOLVED IN THE PAN AMERICAN CASE,
WERE TRANSACTIONS ON WHICH THE BOARD MIGHT TAKE ACTION BUT DID NOT DO
SO, IS THAT IT MISCONSTRUES THE RECORD. AS NOTED, FROM 1944 THROUGH
1960 EVERY ACQUISITION OR LEASE OF AIRCRAFT BY TWA FROM TOOLCO AND EACH
FINANCING OF TWA BY TOOLCO REQUIRED BOARD APPROVAL. EACH TRANSACTION
WAS APPROVED BY THE BOARD AND EACH APPROVAL WAS AN ORDER UNDER SEC.
408, FOR THE BOARD REGARDED ITS TRANSACTIONAL ORDERS AS MODIFICATIONS
OR INTERPRETATIONS OF ITS ANTECEDENT CONTROL ORDER. EACH OF THE
MODIFICATION ORDERS RECITED A FINDING OF THE BOARD THAT THE
TRANSACTIONS WERE "JUST AND REASONABLE AND IN THE PUBLIC INTEREST."
IT IS SAID, HOWEVER, THAT WHILE THE BOARD MODIFIED ITS ORIGINAL
"CONTROL" ORDER UNDER SEC. 408 SO AS TO PERMIT SALE OR LEASE OF THE
AIRCRAFT OUT OF WHICH THE ALLEGED ANTITRUST VIOLATIONS OCCURRED, THE
APPROVAL OF THE BOARD DID NOT SANCTION THE PRECISE WAY IN WHICH TOOLCO
ALLEGEDLY USED THE POWER TO THE DISADVANTAGE OF TWA. BUT THAT IS NOT
AN ANSWER TO THE PROBLEM OF EXEMPTION.
THE FEDERAL AVIATION ACT AS CONSTRUED AND APPLIED BY THIS COURT AND
THE CIVIL AERONAUTICS BOARD DICTATES A CONTRARY RESULT.
IN PAN AMERICAN WORLD AIRWAYS V. UNITED STATES, SUPRA, THE UNITED
STATES BROUGHT A CIVIL ANTITRUST ACTION UNDER SECS. 1, 2, AND 3 OF THE
SHERMAN ACT CHALLENGING THE JOINT CONTROL OF PANAGRA, AN AIR CARRIER,
BY PAN AMERICAN AIRWAYS AND W. R. GRACE & CO. THE ALLEGATIONS WERE THAT
PAN AMERICAN, GRACE, AND PANAGRA HAD DIVIDED TERRITORIES, THAT PAN
AMERICAN AND GRACE HAD CONSPIRED TO MONOPOLIZE AIR TRANSPORTATION ON
THE WEST COAST OF SOUTH AMERICA, AND THAT PAN AMERICAN HAD USED ITS
POWER TO PREVENT PANAGRA FROM EXTENDING ITS ROUTES FROM THE CANAL ZONE
TO THE UNITED STATES. THE DISTRICT COURT FOUND NO DIVISION OF
TERRITORIES AND NO CONSPIRACY BETWEEN GRACE AND PAN AMERICAN BUT
CONCLUDED THAT PAN AMERICAN HAD VIOLATED THE SHERMAN ACT IN INTERFERING
WITH PANAGRA'S POSSIBLE ROUTE EXTENSION. ON CROSS APPEALS BY PAN
AMERICAN AND THE UNITED STATES, THIS COURT HELD THAT THE COMPLAINT
SHOULD HAVE BEEN DISMISSED BECAUSE SEC. 411 OF THE ACT GAVE THE CAB
BROAD POWER TO INVESTIGATE AND BRING TO A HALF UNFAIR PRACTICES AND
UNFAIR METHODS OF COMPETITION, INCLUDING THOSE ALLEGED IN THE
COMPLAINT, AND BECAUSE IF THE COURTS WERE TO INTRUDE INDEPENDENTLY WITH
THEIR OWN CONSTRUCTION OF THE ANTITRUST LAWS THE TWO REGIMES MIGHT
COLLIDE. HENCE, RELIEF AGAINST THE ALLEGED DIVISION OF TERRITORIES,
ALLOCATION OF ROUTES, AND CONSPIRACY TO MONOPOLIZE WAS A MATTER
EXCLUSIVELY FOR THE BOARD. THE COURT ALSO POINTED OUT THAT UNDER SEC.
414 OF THE ACT, BOARD ORDERS CARRIED ANTITRUST IMMUNITY FOR ANY CONDUCT
AUTHORIZED, APPROVED, OR REQUIRED BY THE ORDER AND THAT IT WOULD BE ODD
TO HOLD THAT AN AFFILIATION BETWEEN AN AIR CARRIER AND OTHERS THAT
WOULD PASS MUSTER UNDER SEC. 408 COULD NEVERTHELESS RUN AFOUL OF THE
ANTITRUST LAWS: "WHETHER OR NOT TRANSACTIONS OF THAT CHARACTER MEET
THE STANDARDS OF COMPETITION AND MONOPOLY PROVIDED BY THE ACT IS
PECULIARLY A QUESTION FOR THE BOARD, SUBJECT OF COURSE TO JUDICIAL
REVIEW AS PROVIDED IN 49 U.S.C. 1486." 371 U.S.,AT 309.
AS PREVIOUSLY INDICATED, THE COURT OF APPEALS DID NOT CONSIDER PAN
AMERICAN TO BE RELEVANT OR CONTROLLING BECAUSE, DIFFERENT FROM THE
SITUATION THERE, THE CONDUCT CHALLENGED IN TWA'S COMPLAINT AGAINST
TOOLCO WAS "UNRELATED TO ANY SPECIFIC FUNCTION OF THE CAB" AND HENCE
WAS NOT WITHIN THE EXCLUSIVE COMPETENCE OF THAT BODY. 332 F.2D, AT
608. THIS VIEW IS DIFFICULT TO SQUARE WITH THE STATUTE AND THE SEVERAL
OPINIONS AND ORDERS ISSUED BY THE BOARD WITH RESPECT TO THE
RELATIONSHIP BETWEEN TOOLCO AND TWA.
THE ACT EXPRESSLY FORBADE TOOLCO TO ACQUIRE CONTROL OF TWA WITHOUT
APPROVAL OF THE BOARD. SECTION 408, HOWEVER, DIRECTED THE BOARD TO
APPROVE THE ACQUISITION IF CONSISTENT WITH THE PUBLIC INTEREST AND
EMPOWERED IT TO REMEDY ANY ACQUISITION OF CONTROL BY TOOLCO OBTAINED
OTHERWISE THAN IN ACCORDANCE WITH THE ACT. IT IS ALSO PERFECTLY CLEAR
THAT IN 1944 THE BOARD APPROVED THE ACQUISITION OF CONTROL OF TWA BY
TOOLCO BY VIRTUE OF A 45.6% STOCK OWNERSHIP AND THAT IN 1948 AND 1950
THE BOARD APPROVED A TRANSACTION THAT COULD HAVE INCREASED TOOLCO'S
HOLDINGS TO 80% AND TRANSFORMED ITS DE FACTO CONTROL INTO FULL LEGAL,
AS WELL AS PRACTICAL, CONTROL.
IN REACHING THIS CONCLUSION, THE BOARD INQUIRED BROADLY INTO ALL
PHASES OF THE EXERCISE OF TOOLCO'S CONTROL OVER TWA DURING THE YEARS
1944-1947. IT WAS NOT ONLY PROPER BUT NECESSARY IN DETERMINING WHETHER
FURTHER ACQUISITION OF CONTROL WAS CONSISTENT WITH THE PUBLIC INTEREST
TO EXAMINE "INTO THE ACTIONS AND POLICIES OF THE CONTROLLING COMPANY .
. . (FOR INEVITABLY THE CONTROLLING COMPANY, BY VIRTUE OF ITS
INVESTMENT IN THE ACQUIRED CARRIER, WILL ENDEAVOR TO MAKE ITSELF
ACCOUNTABLE . . . FOR THE MANAGERIAL EFFICIENCY, THE OPERATING ECONOMY,
AND THE FINANCIAL INTEGRITY OF THE CONTROLLED CARRIER." 12 C.A.B.,AT
196. HENCE, OF MAJOR INTEREST TO THE BOARD WERE THE DECISIONS OF
TOOLCO WITH RESPECT TO THE TYPE, QUANTITY, TIMING, AND FINANCING OF NEW
EQUIPMENT ACQUISITIONS BY TWA. IT EXAMINED AND DEALT WITH IN GREAT
DETAIL THE ASSERTIONS THAT TOOLCO HAD IMPROPERLY DELAYED THE ARRIVAL OF
NEW EQUIPMENT, HAD INSISTED ON DEBT RATHER THAN EQUITY FINANCING, AND
ITSELF HAD SOLD OR LEASED AIRCRAFT TO TWA. ALL OF THESE MATTERS, THE
BOARD CONCLUDED, WERE CENTRAL TO PROPER DETERMINATION OF THE ISSUE OF
THE ADDITIONAL CONTROL AND, INDEED, TO THE ADDITIONAL QUESTION BEFORE
THE BOARD AS TO WHETHER THE EXISTING RELATIONSHIP SHOULD HAVE BEEN
COMPLETELY TERMINATED.
THE POINT IS THAT THE CONDUCT OF TOOLCO WITH WHICH THE BOARD SO
EXTENSIVELY DEALT IN 1950 IS THE SAME KIND OF CONDUCT CHARGED TO TOOLCO
IN THE 1950'S AND ALLEGED BY TWA IN ITS COMPLAINT TO VIOLATE THE
ANTITRUST LAWS. IT IS, THEREFORE, DIFFICULT TO UNDERSTAND HOW THE
COURT OF APPEALS COULD CONCLUDE THAT THE ACTS OF TOOLCO IN CONTROLLING,
ALLEGEDLY TO THE INJURY OF TWA, THE TIMING, THE FINANCING, AND THE FLOW
OF NEW EQUIPMENT TO TWA WERE UNRELATED TO ANY FUNCTION OF THE BOARD
UNDER THE ACT. CLEARLY, SUCH CONSIDERATIONS WERE IN THE MAINSTREAM OF
THE BOARD'S SEC. 408 RESPONSIBILITIES TO INSURE THAT ONLY THOSE
ACQUISITIONS OF CONTROL THAT ARE IN THE PUBLIC INTEREST ARE APPROVED.
NOR IS IT TENABLE TO ARGUE THAT, HOWEVER RELEVANT TOOLCO'S NEW
EQUIPMENT DECISIONS MIGHT HAVE BEEN TO THE PUBLIC-INTEREST STANDARD
MANDATED FOR BOARD APPROVAL OF THE ADDITIONAL CONTROL OBTAINED IN 1947,
THE BOARD'S AUTHORITY NEVERTHELESS TERMINATED WITH THAT APPROVAL AND
THAT THE BOARD, HAVING ISSUED ITS APPROVAL, WAS POWERLESS TO CONTROL OR
OVERSEE ITS EXERCISE IN THE YEARS TO COME. SECTION 408 PERMITS ONLY
THOSE ACQUISITIONS OF CONTROL THAT ARE NOT INCONSISTENT WITH THE PUBLIC
INTEREST AND THAT WILL NOT RESULT IN A MONOPOLY. IT ALSO AUTHORIZES
THE BOARD TO APPROVE ACQUISITIONS SUBJECT TO SUCH CONDITIONS AS IT MAY
DEEM DESIRABLE. SECTION 408(E) EMPOWERS THE BOARD TO INVESTIGATE AND
REMEDY VIOLATIONS OF SEC. 408(A). IF A CARRIER HAS ACQUIRED CONTROL
"IN ANY MANNER WHATSOEVER" OTHER THAN THAT APPROVED BY THE BOARD, THE
BOARD IS AUTHORIZED EITHER ON COMPLAINT OR ITS OWN INITIATIVE TO
INVESTIGATE AND IF A VIOLATION IS DISCOVERED IT IS ORDERED TO REMEDY
THAT SITUATION. SECTION 204(A), 49 U.S.C. 1324(A), AUTHORIZES THE
BOARD TO ISSUE AND AMEND SUCH ORDERS AS IT SHALL DEEM NECESSARY TO
CARRY OUT THE PROVISIONS OF AND TO EXERCISE AND PERFORM ITS POWERS AND
DUTIES UNDER THE STATUTE. /12/
IT SEEMS SUFFICIENTLY APPARENT, THEREFORE, THAT THE BOARD DID NOT
EXHAUST ITS POWERS WITH RESPECT TO TOOLCO'S CONTROL OF TWA WHEN IT
ISSUED ITS ORDER OF APPROVAL IN DOCKET NO. 1182 IN 1944. OBVIOUSLY,
THE BOARD REMAINED COMPETENT TO ENFORCE OR TO WAIVE THE CONDITIONS
ATTACHED TO THAT ORDER. IT DID SO MANY TIMES. SEE N. 10, SUPRA. IT
ALSO IS CLEAR FROM THE 1948 AND 1950 PROCEEDINGS, WHERE THE BOARD'S
JURISDICTION WAS CHALLENGED, THAT ITS JURISDICTION WAS TRIGGERED NOT
ONLY BY SUBSTANTIAL ADDITIONAL ACQUISITIONS OF STOCK BUT BY ANY CHANGE
IN THE EXTENT OR EFFECTIVENESS OF TOOLCO'S CONTROL OR IN TOOLCO'S
POSITION IN THE AERONAUTICS INDUSTRY. THE BOARD ALSO IMPLIED THAT HAD
TOOLCO'S EXERCISE OF CONTROL OVER TWA FROM 1942 TO 1947 BEEN
SUFFICIENTLY UNACCEPTABLE TO FORECLOSE THE ADDITIONAL ACQUISITION OF
CONTROL, REOPENING OF DOCKET NO. 1182 AND RE-EXAMINATION OF THE INITIAL
APPROVAL WOULD HAVE BEEN JUSTIFIED.
WE HAVE LITTLE DOUBT THAT THE AUTHORITY OF THE BOARD, EITHER ON
COMPLAINT OR OWN INITIATIVE, EXTENDED TO FORBIDDING ANY EXERCISE OF
CONTROL BY TOOLCO WHICH WAS NOT AUTHORIZED OR CONTEMPLATED BY THE
INITIAL OR SUBSEQUENT APPROVAL. THIS SEEMS THE CLEAR IMPORT OF THE ACT
AND OF THE BOARD'S 1948-1950 PROCEEDINGS.
ALSO INSTRUCTIVE IS THE BOARD'S RESPONSE WHEN ASKED IN 1956 TO
MODIFY ITS ORIGINAL ORDER SO AS TO PERMIT TWA'S PURCHASE OF UP TO 25
JET-POWERED AIRCRAFT FROM TOOLCO. RECITING THAT ITS PRIOR APPROVALS OF
TOOLCO'S CONTROL OF TWA HAD BEEN PREMISED UPON THE ASSUMPTION THAT
TOOLCO WAS NOT ENGAGED IN THE MANUFACTURE OR SALE OF AIRCRAFT FOR
COMMERCIAL USE, THE BOARD FORTHWITH OPENED AN INVESTIGATION TO
DETERMINE WHETHER TOOLCO'S POSITION IN THE AERONAUTICS INDUSTRY HAD SO
CHANGED AS TO RESULT IN A TRANSACTION SUBJECT TO THE BOARD'S
JURISDICTION UNDER SEC. 408. THE MOTION FOR WAIVER OF THE 1944
CONDITION WAS CONSOLIDATED WITH THIS NEW PROCEEDING. THE PROCEEDINGS
WAS LATER CANCELED WHEN THE MOTION TO WAIVE THE 1944 CONDITION WAS
WITHDRAWN, BUT CLEARLY THE BOARD THOUGHT, AND RIGHTLY SO, THAT IT HAD
CONTINUING POWER TO AUDIT THE ONGOING RELATIONSHIP BETWEEN TWA AND
TOOLCO.
IT IS ALSO DIFFICULT TO READ IN ANY OTHER MANNER THE RECITAL BY THE
CAB, IN THE COURSE OF APPROVAL OF THE 1960 VOTING TRUST ARRANGEMENT, OF
TOOLCO'S ALLEGED CONDUCT IN DELAYING THE DELIVERY OF NEW EQUIPMENT AND
DICTATING THE FINANCING OF SAME, ALL TO TWA'S ALLEGED INJURY, FOLLOWED
BY ITS ASSERTION THAT SUCH CONDUCT "PRESENTED SUBSTANTIAL PROBLEMS
REQUIRING THE BOARD'S ATTENTION." 32 C.A.B.,AT 1365. IT IS
THEREFORE NO ANSWER TO SAY THAT OUR PAN AMERICAN DECISION DOES NOT
COVER THE ALLEGED ANTITRUST VIOLATIONS INVOLVED IN THE TOOLCO-TWA
TRANSACTIONS FOR WHICH TREBLE DAMAGES WERE SOUGHT. AS NOTED, SEC.
408(B) STATES THAT THE BOARD SHALL NOT APPROVE ANY "ACQUISITION OF
CONTROL" WHICH WOULD RESULT "IN CREATING A MONOPOLY OR MONOPOLIES AND
THEREBY RESTRAIN COMPETITION OR JEOPARDIZE ANOTHER AIR CARRIER."
MOREOVER, THE BOARD IN GRANTING PERMISSION TO "CONTROL" AN AIR CARRIER
MUST CONSIDER THE STANDARDS OF THE PUBLIC INTEREST AS DEFINED IN SEC.
102 OF THE ACT. AMONG SUCH STANDARDS IS THAT SET FORTH IN SEC. 102(C),
WHICH, AS INDICATED, ANTE, AT 368 N. 4, PROVIDES:
"THE PROMOTION OF ADEQUATE, ECONOMICAL, AND EFFICIENT SERVICE
BY AIR CARRIERS AT REASONABLE CHARGES, WITHOUT UNJUST
DISCRIMINATIONS, UNDUE PREFERENCES OR ADVANTAGES, OR UNFAIR OR
DESTRUCTIVE COMPETITIVE PRACTICES."
COMPETITION AND MONOPOLY /13/ -- TWO INGREDIENTS OF THE ANTITRUST
LAWS-- ARE THUS STANDARDS GOVERNING THE CAB'S EXERCISE OF AUTHORITY IN
GRANTING, ALLOWING, OR EXPANDING OR CONTRACTING THE CONTROL WHICH
TOOLCO HAD OVER TWA BY REASON OF THE VARIOUS ORDERS ISSUED BY THE CAB
UNDER SEC. 408. IN THIS CONTEXT, THE AUTHORITY OF THE BOARD TO GRANT
THE POWER TO "CONTROL" AND TO INVESTIGATE AND ALTER THE MANNER IN WHICH
THAT "CONTROL" IS EXERCISED LEADS US TO CONCLUDE THAT THIS PHASE OF CAB
JURISDICTION. LIKE THE ONE IN THE PAN AMERICAN CASE, PRE-EMPTS THE
ANTITRUST FIELD. /14/ IT SHOULD BE NOTED IN THAT CONNECTION THAT IN
THE PAN AMERICAN CASE, PAN AMERICAN, WHICH OWNED 50% OF THE STOCK OF
THE AIR CARRIER PANAGRA, WAS CHARGED WITH USING ITS CONTROL TO PREVENT
PANAGRA FROM RECEIVING THE AUTHORITY OF THE CAB TO EXTEND ITS ROUTE
FROM THE CANAL ZONE TO THE UNITED STATES. THAT RESTRAINT WAS HELD
BEYOND THE REACH OF THE ANTITRUST LAWS EVEN THOUGH THE CAB HAD TAKEN NO
ACTION TO INVESTIGATE, LET ALONE ACT ON, THE ALLEGED MISFEASANCE AS THE
BOARD HAS DONE HERE FOR OVER 16 YEARS.
WE THINK THE COURT OF APPEALS ERRED ALSO IN CONSTRUING SEC. 414, WHICH
IMMUNIZES FROM ANTITRUST LIABILITY ANY CONDUCT APPROVED, AUTHORIZED, OR
REQUIRED BY ANY BOARD ORDER ISSUED UNDER SEC. 408. AS WE READ THIS
RECORD, THE BOARD NOT ONLY APPROVED TOOLCO'S OWNERSHIP OF TWA STOCK BUT
IT ALSO CONTEMPLATED ACTUAL AND LEGAL CONTROL OF TWA BY TOOLCO. THE
BOARD MADE IT AS PLAIN AS POSSIBLE THAT TOOLCO'S STOCK OWNERSHIP WOULD
INEVITABLY RESULT IN TOOLCO'S EXERCISING AUTHORITY OVER THE DAY-TO-DAY
AFFAIRS OF TWA, INCLUDING THE ACQUISITION AND FINANCING OF EQUIPMENT.
IT WAS PRECISELY THIS KIND OF CONTROL THE BOARD APPROVED. TOOLCO'S
POWER OF DECISION WITH RESPECT TO THESE MATTERS WAS CENTRAL TO THE
PUBLIC-INTEREST ISSUE. WHAT IS MORE, THE BOARD NOT ONLY CONCLUDED THAT
TOOLCO'S STEWARDSHIP, ALTHOUGH FAULTY IN SOME RESPECTS, HAD BEEN A
GREAT BENEFIT TO TWA AND TO THE PUBLIC IN YEARS GONE BY, BUT ALSO
DETERMINED THAT THE ADDITIONAL CONTROL SOUGHT BY TOOLCO AND
CONTINUATION OF TWA-TOOLCO RELATIONSHIPS WERE ESSENTIAL TO THE PUBLIC
INTEREST.
IT IS TOO CLEAR FOR ARGUMENT THAT IN ENTERING THE 1950 ORDER THE
BOARD FULLY REALIZED THAT TOOLCO HAD DETERMINED AND WOULD DETERMINE
WHEN AND HOW MUCH NEW EQUIPMENT WOULD BE PURCHASED, FROM WHOM IT WOULD
BE ACQUIRED, AND HOW IT WOULD BE FINANCED. IT WAS PRECISELY THIS TYPE
OF ASSOCIATION THAT IT CONTEMPLATED WHEN IT APPROVED THE ADDITIONAL
CONTROL OBTAINED BY TOOLCO IN 1947. AND IT WAS PRECISELY THIS SAME
CONCLUSION THAT THE BOARD WAS IMPLEMENTING EACH TIME DURING THE 1950'S
THAT IT APPROVED A SALE OR A LEASE OF AN AIRPLANE FROM TOOLCO TO TWA
WHICH, WITHOUT ITS APPROVAL, WOULD HAVE VIOLATED THE BOARD'S ONGOING
LIMITATION ON THE SIZE OF INTERCOMPANY TRANSACTIONS.
WE REPEAT, HOWEVER, WHAT WE SAID IN THE PAN AMERICAN CASE THAT THE
FEDERAL AVIATION ACT DOES NOT COMPLETELY DISPLACE THE ANTITRUST LAWS.
"WHILE THE BOARD IS EMPOWERED TO DEAL WITH NUMEROUS ASPECTS OF WHAT
ARE NORMALLY THOUGHT OF AS ANTITRUST PROBLEMS, THOSE EXPRESSLY
ENTRUSTED TO IT ENCOMPASS ONLY A FRACTION OF THE TOTAL." 371 U.S.,AT
305.
ONE OF THE MOST CONSPICUOUS EXCEPTIONS WOULD BE THE COMBINATION OR
AGREEMENT BETWEEN TWO AIR CARRIERS INVOLVING TRADE RESTRAINTS. SEE
TIMKEN CO. V. UNITED STATES, 341 U.S. 593, 598.
THERE MAY BE OTHER EXCEPTIONS. BUT WHERE, AS HERE, THE CAB
AUTHORIZES CONTROL OF AN AIR CARRIER TO BE ACQUIRED BY ANOTHER PERSON
OR CORPORATION, AND WHERE IT SPECIFICALLY AUTHORIZES AS IN THE PUBLIC
INTEREST SPECIFIC TRANSACTIONS BETWEEN THE PARENT AND THE SUBSIDIARY,
THE WAY IN WHICH THAT CONTROL IS EXERCISED IN THOSE PRECISE SITUATIONS
IS UNDER THE SURVEILLANCE OF THE CAB, NOT IN THE HANDS OF THOSE WHO CAN
INVOKE THE SANCTIONS OF THE ANTITRUST LAWS. AS NOTED, THE PARENT
COMPANY WHICH CONTROLS AN AIR CARRIER IS SUBJECT TO PERVASIVE CONTROL
BY THE CAB. THE CONTROL WHICH THE CAB IS AUTHORIZED TO GRANT OR TO
DENY UNDER SEC. 408 INVOLVES AN APPRAISAL OF THE IMPACT OF THAT CONTROL
IN TERMS OF MONOPOLY AND COMPETITION; AND THE ONGOING SUPERVISION
ENTRUSTED TO THE CAB BY SEC. 415 IS BROAD ENOUGH TO PUT ALL
TRANSACTIONS BETWEEN PARENT AND SUBSIDIARY-- AS ORIGINALLY CONCEIVED OR
SUBSEQUENTLY EXERCISED-- UNDER CAB SUPERVISION.
WE CANNOT BELIEVE THAT IF THE DAY AFTER THE BOARD'S ORDER OF 1950, A
MINORITY STOCKHOLDER HAD INSTITUTED A DERIVATIVE ANTITRUST SUIT AGAINST
TOOLCO, ALLEGING THAT TOOLCO HAD MONOPOLIZED THE TWA MARKET FROM 1944
TO 1950, DELAYED DELIVERIES OF AIRCRAFT, AND INSISTED ON IMPROVIDENT
FINANCING ARRANGEMENTS, SUCH A SUIT COULD HAVE SURVIVED A MOTION TO
DISMISS BASED ON SEC. 414. SUCH AN ACTION WOULD HAVE SOUGHT TO NEGATE
WHAT THE BOARD, AFTER FULL INVESTIGATION, HAD FOUND CONSISTENT WITH
SEC. 408'S ANTI-MONOPOLY PROVISION, CONSISTENT WITH SEC. 102'S
COMPETITION STANDARD, AND CONSISTENT WITH THE PUBLIC INTEREST.
TWA'S SUIT IN 1961 CARRIES NO BETTER CREDENTIALS, FOR IT SOUGHT TO
TERMINATE A RELATIONSHIP THE CONTINUATION OF WHICH THE BOARD HAD FOUND
ESSENTIAL TO BOTH TWA AND THE PUBLIC INTEREST AND TO PENALIZE THE TYPE
OF CONDUCT WHICH THE BOARD EXPRESSLY CONTEMPLATED AND PREFERRED WOULD
CONTINUE UNLESS AND UNTIL A DIFFERENT ORDER FROM THE BOARD WAS
FORTHCOMING.
IT ADDS NOTHING TO THE ANALYSIS TO CHARACTERIZE TOOLCO'S EXERCISE OF
POWER OVER TWA AS MONOPOLIZATION OF THE TWA MARKET, FOR IT WAS
PRECISELY SUCH CONTROL THAT THE BOARD OPTED FOR IN 1944 AND 1950.
MOREOVER, A CONDITION OF THE ORDER WAS THAT TOOLCO'S SALES TO TWA COULD
NOT ASSUME MORE THAN NEGLIGIBLE PROPORTIONS WITHOUT IN EVERY INSTANCE
THE BOARD'S APPROVING THE TRANSACTION AS BEING CONSISTENT WITH THE
PUBLIC INTEREST. NOR DOES IT ADD TO THE ARGUMENT TO DESCRIBE TOOLCO'S
CONDUCT AS FURTHERING A TYING OR EXCLUSIVE-DEALING ARRANGEMENT OR AS A
CONSPIRACY TO RESTRAIN TRADE IN THAT MARKET REPRESENTED BY TWA.
THE SHORT OF IT IS THAT IN OUR VIEW SECS. 408 AND 414 OF THE ACT, AS
CONSTRUED IN PAN AMERICAN, REQUIRE REVERSAL OF THE COURT OF APPEALS AND
DISMISSAL OF THIS ACTION. WHAT TWA CHARGED IN ITS COMPLAINT WAS NO
MORE THAN THE KIND OF CONDUCT THE CAB IN 1950 HAD APPROVED AND
AUTHORIZED FOR THE FUTURE; AND, IN ANY EVENT, SUCH CONDUCT WAS WITHIN
THE POWER OF THE BOARD TO CONTROL AND WAS CENTRAL TO THE MANDATE OF
SEC. 408 TO PERMIT CONTROL OF TWA BY TOOLCO ONLY IF CONSISTENT WITH THE
PUBLIC INTEREST.
WE BY NO MEANS HOLD THAT THE FEDERAL AVIATION ACT COMPLETELY
DISPLACES THE ANTITRUST LAWS. PAN AMERICAN, 371 U.S.,AT 305. BUT
WHERE, AS HERE, THE CAB AUTHORIZES CONTROL OF AN AIR CARRIER TO BE
ACQUIRED BY ANOTHER PERSON OR CORPORATION, AND WHERE THE CAB
SPECIFICALLY AUTHORIZES AS IN THE PUBLIC INTEREST SPECIFIC TRANSACTIONS
BETWEEN THE PARENT AND THE SUBSIDIARY, THE WAY IN WHICH THAT CONTROL IS
EXERCISED IN THOSE PRECISE SITUATIONS IS UNDER THE SURVEILLANCE OF THE
CAB, NOT IN THE HANDS OF THOSE WHO CAN INVOKE THE SANCTIONS OF THE
ANTITRUST LAWS. THE CONTROL WHICH THE CAB IS AUTHORIZED TO GRANT OR TO
DENY UNDER SEC. 408 INVOLVES AN APPRAISAL OF THE IMPACT OF THAT CONTROL
IN TERMS OF MONOPOLY AND COMPETITION; AND THE ONGOING SUPERVISION
ENTRUSTED TO THE CAB BY SEC. 415 IS BROAD ENOUGH TO PUT ALL
TRANSACTIONS BETWEEN PARENT AND SUBSIDIARY-- AS ORIGINALLY CONCEIVED OR
SUBSEQUENTLY EXERCISED-- UNDER CAB SUPERVISION.
THIS CONCLUSION NECESSITATES A DISMISSAL OF THE CROSS-PETITION, A
REVERSAL OF THE JUDGMENT BELOW, AND A REMAND WITH DIRECTIONS TO DISMISS
THE COMPLAINT, AS THE NUMEROUS OTHER POINTS BRIEFED AND ARGUED BECOME
IRRELEVANT IN THAT POSTURE OF THE LITIGATION.
REVERSED.
/1/ TOGETHER WITH NO. 71-830, TRANS WORLD AIRLINES, INC. V. HUGHES
TOOL CO. ET AL., ON CERTIORARI TO THE SAME COURT.
/1A/ THE DISTRICT COURT'S JUDGMENT ON ENTRY OF A DEFAULT AND
CERTIFYING A CONTROLLING QUESTION OF LAW IS REPORTED AT 32 F.R.D. 604.
THE COURT OF APPEALS AFFIRMED, 332 F.2D 602. WE GRANTED CERTIORARI,
379 U.S. 912, BUT AFTER ARGUMENT DISMISSED THE WRIT AS IMPROVIDENTLY
GRANTED. 380 U.S. 248. MOREOVER, OUR DISMISSAL AS IMPROVIDENTLY
GRANTED WAS IN 1965 AND INVOLVED THE 1964 JUDGMENT OF THE COURT OF
APPEALS. IN 1971 A DIFFERENT PANEL OF THE COURT OF APPEALS RULED THAT
ITS 1964 DECISION WAS NOT BINDING. IT NOTED THAT PRIOR TO ITS 1971
DECISION THERE HAD BEEN NO "FINAL JUDGMENT" WITH RESPECT TO THE MERITS
OF TWA'S CAUSE OF ACTION AGAINST TOOLCO AND THEREFORE RES JUDICATA DID
NOT APPLY. 449 F.2D 51, 58. IT WENT ON TO SAY THAT COLLATERAL
ESTOPPEL LIKEWISE DID NOT APPLY, SINCE THE ONLY RELEVANT ISSUE THAT WAS
ACTUALLY LITIGATED AND DETERMINED IN THE 1964 APPEAL WAS THAT THE
DISTRICT COURT "PROPERLY ENTERED THE DEFAULT ON TOOLCO'S
COUNTERCLAIMS." IBID. THAT ISSUE, IT SAID, WAS "A SHARPLY
DISTINGUISHABLE ISSUE FROM THE PROPRIETY OF A DIFFERENT DEFAULT
JUDGMENT IN FAVOR OF TOOLCO'S ADVERSARY." IBID.
NO PARTY HAS SUGGESTED THAT OUR PRIOR DISMISSAL FORECLOSES US FROM
REACHING THE ISSUE NOW PRESENTED.
THE PRIOR DISMISSAL DID NOT ESTABLISH THE LAW OF THE CASE OR AMOUNT
TO RES JUDICATA ON THE POINTS RAISED. INDIANAPOLIS V. CHASE NATIONAL
BANK, 314 U.S. 63 (1941), WAS A DIVERSITY ACTION IN WHICH THE DISTRICT
COURT, AFTER REALIGNING THE PARTIES, DISMISSED THE ACTION FOR WANT OF
JURISDICTION. THE COURT OF APPEALS REVERSED AND THIS COURT DENIED
CERTIORARI. TWO YEARS LATER, AFTER THE COURT OF APPEALS SUSTAINED
PLAINTIFF'S CLAINS ON THE MERITS, CERTIORARI WAS GRANTED AND THIS COURT
REVERSED, HOLDING THAT PROPER REALIGNMENT "PRECLUDES ASSUMPTION OF
JURISDICTION BASED UPON DIVERSITY OF CITIZENSHIP." 314 U.S.,AT 74.
SIMILARLY, IN MERCER V. THERIOT, 377 U.S. 152 (1964), A DIVERSITY
ACTION FOR WRONGFUL DEATH, CERTIORARI WAS INITIALLY DENIED AFTER THE
COURT OF APPEALS HAD SET ASIDE A JURY VERDICT ON THE GROUNDS OF VARIOUS
TRIAL ERRORS AND INSUFFICIENCY OF THE EVIDENCE. ON REMAND, THE
DISTRICT COURT DENIED A MOTION FOR A NEW TRIAL AND THE COURT OF APPEALS
AFFIRMED. WE THEN GRANTED CERTIORARI AND REVERSED BECAUSE THE TRIAL
ERRORS DID NOT AFFECT SUBSTANTIAL RIGHTS AND THE EVIDENCE AT THE TRIAL
WAS SUFFICIENT TO SUSTAIN A VERDICT IN PETITIONER'S FAVOR. SEE ALSO
HANOVER SHOE V. UNITED SHOE MACHINERY CORP., 392 U.S. 481, 488 N. 6
(1968).
FOR THE WELL-SETTLED VIEW THAT DENIAL OF CERTIORARI IMPARTS NO
IMPLICATION OR INFERENCE CONCERNING THE COURT'S VIEW OF THE MERITS, SEE
MARYLAND V. BALTIMORE RADIO SHOW, 338 U.S. 912, 919 (FRANKFURTER, J.).
/2/ SEE 449 F.2D, AT 71.
/3/ SECTION 408, 72 STAT. 767, AS AMENDED, 49 U.S.C. 1378, READS IN
PERTINENT PART AS FOLLOWS:
"(A) PROHIBITED ACTS.
"IT SHALL BE UNLAWFUL UNLESS APPROVED BY ORDER OF THE BOARD AS
PROVIDED IN THIS SECTION--
. . . .
"(2) FOR ANY AIR CARRIER, ANY PERSON CONTROLLING AN AIR CARRIER, ANY
OTHER COMMON CARRIER, OR ANY PERSON ENGAGED IN ANY OTHER PHASE OF
AERONAUTICS, TO PURCHASE, LEASE, OR CONTRACT TO OPERATE THE PROPERTIES,
OR ANY SUBSTANTIAL PART THEREOF, OF ANY AIR CARRIER;
. . . .
"(5) FOR ANY AIR CARRIER OR PERSON CONTROLLING AN AIR CARRIER, ANY
OTHER COMMON CARRIER, ANY PERSON ENGAGED IN ANY OTHER PHASE OF
AERONAUTICS, OR ANY OTHER PERSON TO ACQUIRE CONTROL OF ANY AIR CARRIER
IN ANY MANNER WHATSOEVER: PROVIDED, THAT THE BOARD MAY BY ORDER EXEMPT
ANY SUCH ACQUISITION OF A NONCERTIFICATED AIR CARRIER FROM THIS
REQUIREMENT TO THE EXTENT AND FOR SUCH PERIODS AS MAY BE IN THE PUBLIC
INTEREST;
. . . .
"(B) APPLICATION TO BOARD; HEARING; APPROVAL; DISPOSAL WITHOUT
HEARING.
"ANY PERSON SEEKING APPROVAL OF A CONSOLIDATION, MERGER, PURCHASE,
LEASE, OPERATING CONTRACT, OR ACQUISITION OF CONTROL, SPECIFIED IN
SUBSECTION (A) OF THIS SECTION, SHALL PRESENT AN APPLICATION TO THE
BOARD, AND THEREUPON THE BOARD SHALL NOTIFY THE PERSONS INVOLVED IN THE
CONSOLIDATION, MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR
ACQUISITION OF CONTROL, AND OTHER PERSONS KNOWN TO HAVE A SUBSTANTIAL
INTEREST IN THE PROCEEDING, OF THE TIME AND PLACE OF A PUBLIC HEARING.
UNLESS, AFTER SUCH HEARING, THE BOARD FINDS THAT THE CONSOLIDATION,
MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR ACQUISITION OF CONTROL
WILL NOT BE CONSISTENT WITH THE PUBLIC INTEREST OR THAT THE CONDITIONS
OF THIS SECTION WILL NOT BE FULFILLED, IT SHALL BY ORDER APPROVE SUCH
CONSOLIDATION, MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR
ACQUISITION OF CONTROL, UPON SUCH TERMS AND CONDITIONS AS IT SHALL FIND
TO BE JUST AND REASONABLE AND WITH SUCH MODIFICATIONS AS IT MAY
PRESCRIBE: PROVIDED, THAT THE BOARD SHALL NOT APPROVE ANY
CONSOLIDATION, MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR
ACQUISITION OF CONTROL WHICH WOULD RESULT IN CREATING A MONOPOLY OR
MONOPOLIES AND THEREBY RESTRAIN COMPETITION OR JEOPARDIZE ANOTHER AIR
CARRIER NOT A PARTY TO THE CONSOLIDATION, MERGER, PURCHASE, LEASE,
OPERATING CONTRACT, OR ACQUISITION OF CONTROL . . . . " IN 1969,
SEC. 408(A)(5) WAS AMENDED TO INCLUDE "ANY OTHER PERSON" ACQUIRING
CONTROL OF AN AIR CARRIER.
/4/ SECTION 102, 49 U.S.C. 1302, READS:
"IN THE EXERCISE AND PERFORMANCE OF ITS POWERS AND DUTIES UNDER THIS
CHAPTER, THE BOARD SHALL CONSIDER THE FOLLOWING, AMONG OTHER THINGS, AS
BEING IN THE PUBLIC INTEREST, AND IN ACCORDANCE WITH THE PUBLIC
CONVENIENCE AND NECESSITY:
"(A) THE ENCOURAGEMENT AND DEVELOPMENT OF AN AIR-TRANSPORTATION
SYSTEM PROPERLY ADAPTED TO THE PRESENT AND FUTURE NEEDS OF THE FOREIGN
AND DOMESTIC COMMERCE OF THE UNITED STATES, OF THE POSTAL SERVICE, AND
OF THE NATIONAL DEFENSE;
"(B) THE REGULATION OF AIR TRANSPORTATION IN SUCH MANNER AS TO
RECOGNIZE AND PRESERVE THE INHERENT ADVANTAGES OF, ASSURE THE HIGHEST
DEGREE OF SAFETY IN, AND FOSTER SOUND ECONOMIC CONDITIONS IN, SUCH
TRANSPORTATION, AND TO IMPROVE THE RELATIONS BETWEEN, AND COORDINATE
TRANSPORTATION BY, AIR CARRIERS;
"(C) THE PROMOTION OF ADEQUATE, ECONOMICAL, AND EFFICIENT SERVICE BY
AIR CARRIERS AT REASONABLE CHARGES, WITHOUT UNJUST DISCRIMINATIONS,
UNDUE PREFERENCES OR ADVANTAGES, OR UNFAIR OR DESTRUCTIVE COMPETITIVE
PRACTICES;
"(D) COMPETITION TO THE EXTENT NECESSARY TO ASSURE THE SOUND
DEVELOPMENT OF AN AIR-TRANSPORTATION SYSTEM PROPERLY ADAPTED TO THE
NEEDS OF THE FOREIGN AND DOMESTIC COMMERCE OF THE UNITED STATES, OF THE
POSTAL SERVICE, AND OF THE NATIONAL DEFENSE;
"(E) THE PROMOTION OF SAFETY IN AIR COMMERCE; AND
"(F) THE PROMOTION, ENCOURAGEMENT, AND DEVELOPMENT OF CIVIL
AERONAUTICS."
/5/ SECTION 414, 49 U.S.C. 1384, READS:
"ANY PERSON AFFECTED BY ANY ORDER MADE UNDER SECTIONS 1378, 1379, OR
1382 OF THIS TITLE SHALL BE, AND IS HEREBY, RELIEVED FROM THE
OPERATIONS OF THE 'ANTITRUST LAWS,' AS DESIGNATED IN SECTION 12 OF
TITLE 15, AND OF ALL OTHER RESTRAINTS OR PROHIBITIONS MADE BY, OR
IMPOSED UNDER, AUTHORITY OF LAW, INSOFAR AS MAY BE NECESSARY TO ENABLE
SUCH PERSON TO DO ANYTHING AUTHORIZED, APPROVED, OR REQUIRED BY SUCH
ORDER."
SEE ALSO SECS. 1002(B), (C), OF THE ACT, 49 U.S.C. 1482(B), (C).
/6/ THE BOARD'S PUBLIC COUNSEL HAD OPPOSED SUCH A CONDITION ON
APPROVAL AS "IMPOSING FAR TOO GREAT A BURDEN UPON THE BOARD TO ASK IT
TO PASS UPON THE WISDOM AND PROPRIETY, IN BOTH A TECHNICAL AND BUSINESS
WAY, OF EVERY BARGAIN MADE BY A CARRIER FOR THE PURCHASE OF EQUIPMENT
FROM A PARTICULAR MANUFACTURER." BRIEF FOR EXAMINER 25 (FILED APR. 22,
1944). PUBLIC COUNSEL'S ALTERNATIVE PROPOSED CONDITION REQUIRED TOOLCO
TO FORFEIT CONTROL IN THE EVENT TOOLCO SHOULD MANUFACTURE OR SELL
CERTAIN COMMERCIAL AIRCRAFT OR HUGHES "SHOULD ATTEMPT TO INFLUENCE TWA
WITH REGARD TO THE PURCHASE, ACCEPTANCE, OR USE BY IT OF ANY AIRCRAFT
OR AIRCRAFT PARTS IN THE DEVELOPMENT OR DESIGN OF WHICH HE HIMSELF MAY
HAVE PARTICIPATED TO A SUBSTANTIAL DEGREE." 6 C.A.B.,AT 157. THE
BOARD REJECTED THIS PROPOSAL, REASONING AS FOLLOWS:
"THE CONDITIONS PROPOSED BY PUBLIC COUNSEL ARE COMPLICATED AND SEEM
TO BE SOMEWHAT INDEFINITE AND DIFFICULT OF ENFORCEMENT. THE OBJECT OF
ANY CONDITION . . . SHOULD BE TO PROTECT THE PUBLIC INTEREST FROM ANY
IMPROPER COERCION OF THE AIR CARRIER BY A CONTROLLING COMPANY ON
ACCOUNT OF ANY INTEREST WHICH THAT CONTROLLING COMPANY MAY HAVE IN SOME
OTHER PHASE OF AERONAUTICS. THIS CAN BE ACCOMPLISHED BY A REASONABLE
LIMIT UPON COMMERCIAL TRANSACTIONS BETWEEN THE ACQUIRER AND THE
ACQUIRED WHICH MAY BE HAD WITHOUT FURTHER CONSIDERATION IN THIS
PROCEEDING BY THE BOARD." IBID.
/7/ REFERENCES TO THE BOARD'S 1950 OPINION ARE ACTUALLY TO THE
OPINION OF THE TRIAL EXAMINER. BUT THE BOARD ADOPTED AS ITS OWN "THE
FINDINGS, CONCLUSIONS, AND RECOMMENDED DECISION OF THE EXAMINER"
WITHOUT MODIFICATION. 12 C.A.B. 192, 193.
/8/ THE EXAMINER FOUND THAT IT WAS "NECESSARY" FOR TOOLCO TO
ACQUIRE AIRCRAFT INITIALLY AND THEN RESELL THEM TO TWA ON A CONDITIONAL
SALES BASIS BECAUSE TWA "COULD NOT HAVE PURCHASED (THE AIRCRAFT)
DIRECTLY WITHOUT THE SPECIFIC CONSENT OF ITS PRINCIPAL CREDITORS." 12
C.A.B.,AT 218.
/9/ FOR EXAMPLE, THE EXAMINER FOUND THAT:
"EVEN BEFORE TWA'S FINANCIAL CRISIS OF LATE 1946, THE FINANCIAL
RESOURCES OF TOOLCO WERE USED TO PROVIDE CREDIT FOR THE CARRIER. FOR
EXAMPLE, THE CREDIT ARRANGEMENTS PROVIDED BY TOOLCO MADE POSSIBLE THE
PLACING OF THE ORIGINAL ORDER FOR THE CONSTELLATION AIRPLANE WITH THE
OLOCKHEED AIRCRAFT CORPORATION. THERE IS LITTLE DOUBT THAT THE
CONSTELLATION WOULD NOT HAVE BEEN DEVELOPED AS EARLY AS IT HAD WITHOUT
THE AID OF MR. HUGHES AND HIS COMPANY. IN ADDITION TO THE TECHNICAL
ASSISTANCE FROM MR. HUGHES AND HIS ENGINEERS IN TOOLCO, THE FINANCIAL
COMMITMENT WHICH WAS NECESSARY TO UNDERTAKE AND CONTINUE THE PROJECT
COULD NEVER HAVE BEEN MADE AND MET BY TWA." 12 C.A.B.,AT 216.
/10/ FOR EXAMPLE: ON MAY 15, 1959, THE BOARD AUTHORIZED TOOLCO TO
LEAST 11 BOEING JETS AND 30 SPARE JET ENGINES TO TWA. THE BOARD
REQUIRED THAT A SEPARATE LEASE BE EXECUTED FOR EACH AIRCRAFT AND
MODIFIED THE PREVIOUS ORDER UNDER SEC. 408 TO PERMIT AIRCRAFT LEAST
TRANSACTIONS BETWEEN TWA AND TOOLCO AND TO AUTHORIZE AN AGREEMENT
COVERING $3 1/2 MILLION WORTH OF SPARE PARTS.
ON JULY 1, 1959, TOOLCO ASKED THAT 10 LEASES OF BOEING AIRCRAFT TO
TWA BE MODIFIED SO AS TO PERMIT THE EXTENSION OF THE 10 LEASES UNDER
THE SAME RENTAL UNTIL NO LATER THAN SEPTEMBER 30, 1959, AND TO PERMIT
THE LEASE UNDER IDENTICAL TERMS OF FOUR ADDITIONAL BOEING JETS AND TO
PERMIT THE PURCHASE FROM TOOLCO AT ACTUAL COST OF ADDITIONAL SPARE
PARTS NECESSARY FOR THE OPERATION OF THE LEASED JET AIRLINERS. THIS
ORDER OF THE BOARD ALSO CONSTITUTED A MODIFICATION OF THE ORIGINAL
ORDER OF CONTROL GRANTED UNDER SEC. 408.
ON SEPTEMBER 30, 1959, TOOLCO ASKED PERMISSION TO EXTEND THE LEASES
OF 10 BOEING JETS. THE EXTENSION WAS TO BE UNDER THE IDENTICAL TERMS
OF THE ORIGINAL LEASES, THE NEW LEASES TO BE TERMINATED BY EITHER PARTY
WITHIN 24 HOURS ON WRITTEN NOTICE. HERE AGAIN THE BOARD MODIFIED THE
ORIGINAL TRANSACTION UNDER SEC. 408.
ON JANUARY 29, 1959, TOOLCO ASKED PERMISSION TO LEASE TO TWA ON A
DAY-TO-DAY BASIS UP TO EIGHT BOEING AIRCRAFT AND UP TO EIGHT CONVAIRS,
AND FOR TWA TO PURCHASE FROM TOOLCO AT ACTUAL COST SUCH SPARE PARTS AS
WERE NECESSARY AND SUCH OTHER EQUIPMENT AS MIGHT BE REQUIRED. HERE
AGAIN THE BOARD ENTERED AN ORDER THAT QUALIFIED ITS ORIGINAL "CONTROL"
ORDER UNDER SEC. 408.
/11/ IN A FOOTNOTE, THE BOARD AMPLIFIED WHAT IT MEANT BY PUBLIC
INTEREST FACTORS THROUGH REFERENCE TO THE FOLLOWING EXCERPT FROM ITS
1950 DECISION (12 C.A.B.,AT 196):
"ASIDE FROM ANY UNDESIRABLE INFLUENCE ON AN AIR CARRIER WHICH MIGHT
ARISE BECAUSE OF THE ACQUIRER'S INTEREST IN A GIVEN PHASE OF
AERONAUTICS, AN ACQUIRER OF AN AIR CARRIER IS NOT WITHOUT
RESPONSIBILITY IN OTHER RESPECTS FOR AN AIR CARRIER'S GENERAL CAPACITY
TO PERFORM ITS PUBLIC RESPONSIBILITIES. FOR INEVITABLY THE CONTROLLING
COMPANY, BY VIRTUE OF ITS INVESTMENT IN THE ACQUIRED CARRIER, WILL
ENDEAVOR TO MAKE ITSELF ACCOUNTABLE . . . FOR THE MANAGERIAL
EFFICIENCY, THE OPERATING ECONOMY, AND THE FINANCIAL INTEGRITY OF THE
CONTROLLED CARRIER. ACCORDINGLY, IN DETERMINING WHETHER OR NOT A
PARTICULAR ACQUISITION SHOULD BE APPROVED, IT IS NECESSARY TO CONSIDER
THE OVER-ALL IMPACT OF THE ACQUIRER'S PLANS AND POLICIES WITH RESPECT
TO THE CONTROLLED CARRIER."
/12/ SEE ALSO SEC. 415 OF THE ACT, 49 U.S.C. 1385, WHICH PROVIDES
THAT:
"FOR THE PURPOSE OF EXERCISING AND PERFORMING ITS POWERS AND DUTIES
UNDER THIS CHAPTER, THE BOARD IS EMPOWERED TO INQUIRE INTO THE
MANAGEMENT OF THE BUSINESS OF ANY AIR CARRIER AND, TO THE EXTENT
REASONABLY NECESSARY FOR ANY SUCH INQUIRY, TO OBTAIN FROM SUCH CARRIER,
AND FROM ANY PERSON CONTROLLING . . . SUCH AIR CARRIER, FULL AND
COMPLETE REPORTS AND OTHER INFORMATION."
/13/ THE BOARD IN AN EARLY DECISION REFUSED TO APPROVE A JOINT
AGREEMENT AMONG CARRIERS BECAUSE OF ITS ANTITRUST ASPECTS:
"AGREEMENTS OF THIS NATURE, WHEREBY A CARRIER OPERATING IN A
PARTICULAR TERRITORY OBTAINS FROM A PROSPECTIVE COMPETITOR AN
UND:RTAKING, EXPRESS OR IMPLIED, NOT TO ATTEMPT COMPETITIVE OPERATIONS,
ARE LIKELY TO TEND TO IMPEDE THE DEVELOPMENT OF COMPETITION TO THE
EXTENT REQUIRED BY THE PRESENT AND FUTURE NEEDS OF THE NATION.
ACCORDINGLY, WE ARE OF THE OPINION THAT SUCH AGREEMENTS THWART THE
PURPOSES OF THE ACT, AND THAT THEIR FORMATION SHOULD IN GENERAL BE
DISCOURAGED." PAN AMERICAN AIRWAYS, 3 C.A.B. 540, 546-547.
/14/ THE PAN AMERICAN CASE IS CONSISTENT WITH THE VIEW EXPRESSED IN
SILVER V. NEW YORK STOCK EXCHANGE, 373 U.S. 341, 360-361, THAT A
STATUTORY SCHEME THAT DOES NOT CREATE A TOTAL EXCEPTION FROM ANTITRUST
LAWS MAY, NONETHELESS, IN PARTICULAR AND DISCRETE INSTANCES BY
IMPLICATION GRANT IMMUNITY FROM AN ANTITRUST CLAIM.
TO THE SAME EFFECT IS UNITED STATES V. BORDEN CO., 308 U.S. 188,
200, WHERE THE COURT SAID:
"THAT THE FIELD COVERED BY THE AGRICULTURAL ACT IS NOT COTERMINOUS
WITH THAT COVERED BY THE SHERMAN ACT IS MANIFEST FROM THE FACT THAT THE
FORMER IS THUS DELIMITED BY THE PRESCRIBED ACTION PARTICIPATED IN AND
DIRECTED BY AN OFFICER OF GOVERNMENT PROCEEDING UNDER THE AUTHORITY
SPECIFICALLY CONFERRED BY CONGRESS. AS TO AGREEMENTS AND ARRANGEMENTS
NOT THUS AGREED UPON OR DIRECTED BY THE SECRETARY, THE AGRICULTURAL ACT
IN NO WAY IMPINGES UPON THE PROHIBITIONS AND PENALTIES OF THE SHERMAN
ACT, AND ITS CONDEMNATION OF PRIVATE ACTION IN ENTERING INTO
COMBINATIONS AND CONSPIRACIES WHICH IMPOSE THE PROHIBITED RESTRAINT
UPON INTERSTATE COMMERCE REMAINS UNTOUCHED."
MR. JUSTICE MARSHALL TOOK NO PART IN THE CONSIDERATION OR DECISION
OF THESE CASES.
MR. CHIEF JUSTICE BURGER, WITH WHOM MR. JUSTICE BLACKMUN JOINS,
DISSENTING.
THE HISTORY OF THIS CAUSE IS SO REMARKABLE-- INDEED UNIQUE IN THE
ANNALS OF MODERN FEDERAL JURISPRUDENCE, SO FAR AS I AM AWARE-- THAT I
MUST PREFACE MY DISSENT ON THE MERITS WITH A RECITAL OF THE COURSE OF
THIS LITIGATION OVER NEARLY A DOZEN YEARS. THIS PROTRACTED LITIGATION,
CONDUCTED AT ENORMOUS COST, NOW COMES TO AN ABRUPT END ON AN ISSUE
DIRECTLY PRESENTED TO THIS COURT NEARLY EIGHT YEARS AGO BUT NOT
DECIDED. AS THE STRANGE HISTORY WILL DEMONSTRATE, RESOLUTION OF THE
ISSUE WHEN IT WAS FIRST BEFORE THE COURT, AS NOW DECIDED, WOULD HAVE
TERMINATED THIS LITIGATION WITHOUT HAVING THE PARTIES INVEST UNTOLD
EFFORTS AND VAST EXPENSE IN A NOW WHOLLY IRRELEVANT CONTEST OVER THE
PROPER MEASURE OF DAMAGES.
ON JUNE 30, 1961, TWA FILED A COMPLAINT AGAINST THE HUGHES TOOL CO.
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, CHARGING VIOLATIONS OF THE ANTITRUST LAWS. ON FEBRUARY 7, 1962,
THE DISTRICT COURT FILED A PRETRIAL ORDER, APPOINTING A SPECIAL MASTER
TO ACT IN DISCOVERY AND DEPOSITION PROCEEDINGS. AFTER DISCOVERY
PROCEEDED TO AN IMPASSE, ON FEBRUARY 1, 1963, THE DISTRICT COURT
ORDERED HOWARD HUGHES TO APPEAR FOR A DEPOSITION AND ORDERED THE
DEFENDANT TOOLCO TO PRODUCE CERTAIN DOCUMENTS THAT IT HAD PREVIOUSLY
REFUSED TO PRODUCE. SHORTLY THEREAFTER, ON FEBRUARY 7, 1963, THE
DISTRICT COURT ENTERED A MEMORANDUM OPINION AND ORDER DENYING A MOTION
TO DISMISS TWA'S COMPLAINT. /1/ IN RESPONSE TO THE ORDER TO PRODUCE
HUGHES FOR EXAMINATION ALONG WITH THE CONTESTED DOCUMENTS, TOOLCO FILED
A "NOTICE OF POSITION," ON FEBRUARY 8, 1963, ADVISING THE DISTRICT
COURT AND TWA THAT IT HAD CHOSEN TO REST ON THE MERITS OF ITS POSITIONS
IN ORDER TO "AVOID THE BURDENS AND EXPENSES INVOLVED IN FURTHER
PRETRIAL AND TRIAL PROCEEDINGS PRIOR TO THE TIME THAT AN APPELLATE
COURT HAS HAD THE OPPORTUNITY TO RULE UPON THE DECISIONS AND ORDERS
HERETOFORE MADE HEREIN."
THIS "NOTICE OF POSITION" CONSTITUTED A DEFAULT AND ACCORDINGLY
JUDGMENT WAS ENTERED AGAINST TOOLCO, ON MAY 3, 1963. THE DISTRICT
COURT THEN CERTIFIED TO THE UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT THE QUESTION OF THE SUFFICIENCY OF THE COMPLAINT ON
WHICH THE DEFAULT JUDGMENT WAS BASED. THE ISSUE OF DAMAGES WAS
REFERRED TO THE SPECIAL MASTER. ON JUNE 2, 1964, THE SECOND CIRCUIT
ISSUED AN OPINION IN WHICH IT DECIDED THAT THE DISTRICT COURT HAD
JURISDICTION OF THE ACTION AND THAT THE ORDERS OF THE CIVIL AERONAUTICS
BOARD AFFECTING THE RELATIONSHIP BETWEEN THE PARTIES DID NOT CONSTITUTE
A GOOD DEFENSE TO THE ANTITRUST CLAIMS OF TWA. /2/ ON NOVEMBER 16,
1964, THIS COURT GRANTED CERTIORARI TO REVIEW THE JUDGMENT OF THE COURT
OF APPEALS. /3/ AFTER FULL ARGUMENT AND BRIEFING, BUT WITHOUT
OPINION, THE WRIT WAS DISMISSED AS IMPROVIDENTLY GRANTED ON MARCH 8,
1965, /4/ AND THE CASE RETURNED TO THE DISTRICT COURT FOR FURTHER
PROCEEDINGS TO DETERMINE THE AMOUNT OF TWA'S DAMAGES.
FOR NEARLY THREE YEARS, PROCEEDINGS WERE HELD BEFORE THE SPECIAL
MASTER /5/ TO DETERMINE THE APPROPRIATE AMOUNT OF DAMAGES. ON
DECEMBER 23, 1969, THE DISTRICT COURT FILED A NEW OPINION CONFIRMING A
REPORT OF THE SPECIAL MASTER AWARDING DAMAGES AMOUNTING TO
$137,611,435.95. /6/ ON APRIL 14, 1970, THE DISTRICT COURT FILED A
SUPERSEDING ORDER IN WHICH IT ADDED TO THE TWA AWARD $7,500,000 AS A
REASONABLE ATTORNEY'S FEE (REPRESENTING SOME 56,000 HOURS OF WORK AT A
"MIXED RATE" OF $128 PER HOUR) AND $336,705.12 IN COSTS, FOR A TOTAL OF
$145,448,141.07, PLUS INTEREST. THE JUDGMENT WAS STAYED PENDING A
RENEWED APPEAL TO THE COURT OF APPEALS, WHICH, ON SEPTEMBER 1, 1971,
AFFIRMED THE JUDGMENT OF THE DISTRICT COURT, WITH ONLY SLIGHT
MODIFICATION. /7/
THIS COURT AGAIN GRANTED CERTIORARI ON FEBRUARY 22, 1972, /8/ AND
TODAY-- MORE THAN 11 YEARS AFTER IT ALL BEGAN AND MORE THAN SEVEN YEARS
AFTER THE NOW-DETERMINATIVE ISSUE WAS BRUSHED ASIDE BY THIS COURT-- THE
COURT DISCOVERS THAT THE ACTIONS ALLEGED IN TWA'S COMPLAINT WERE
IMMUNIZED FROM THE ANTITRUST LAWS BY THE CIVIL AERONAUTICS BOARD'S ROLE
IN THE TOOLCO-TWA RELATIONSHIP. THIS, OF COURSE, WAS THE PRECISE ISSUE
TENDERED TO THIS COURT FOR DECISION IN 1964 IN ORDER TO SECURE AN EARLY
DECISION THAT MIGHT END THE CONTEST BEFORE ENORMOUS ADDITIONAL SUMS
WERE EXPENDED IN PROVING DAMAGES RESULTING FROM THE ACTIONS ALLEGED IN
TWA'S COMPLAINT. /9/ THIS CAPSULE CHRONICLE OF THE PRESENT
LITIGATION BARELY SUGGESTS ITS FACTUAL COMPLEXITY. TO DESCRIBE THIS
LITIGATION AS A 20TH-CENTURY SEQUEL TO BLEAK HOUSE IS ONLY A SLIGHT
EXAGGERATION. DICKENS HIMSELF COULD SCARCELY HAVE IMAGINED THAT 56,000
HOURS OF LAWYERING AT A COST OF $7,500,000 WOULD REPRESENT THE VISIBLE
EXPENSES OF ONLY ONE PARTY TO A MODERN INTERCORPORATE CONFLICT, TO SAY
NOTHING OF THE TIME OF CORPORATE AND MANAGEMENT PERSONNEL DIVERTED FROM
THEIR DAILY TASKS. /10/ INDEED, TODAY'S "ENDING" IS QUITE A SURPRISE-
AS GREAT A SURPRISE FOR SOME OF US AS IT MUST BE FOR THE PARTIES. I
SUGGEST IT WILL EVEN SURPRISE THE VICTORS, FOR IN THE ORAL ARGUMENT TO
THIS COURT ONLY A FEW FLEETING COMMENTS WERE DEVOTED TO THE POINT THAT
NOW BECOMES THE DISPOSITIVE ISSUE IN THE CASE. OF COURSE, THIS WAS A
SOUND ALLOCATION BY COUNSEL OF THE LIMITED TIME ALLOWED FOR ARGUMENT
SINCE THE COURT HAD NOT CONSIDERED THE POINT WORTHY OF NOTICE IN 1964
WHEN THE CASE WAS FIRST HERE.
TO BE SURE, ALL THIS IS SECONDARY TO THE CORRECTNESS OF TODAY'S
DECISION. I AM UNABLE TO JOIN THE COURT'S DISPOSITION BECAUSE I
BELIEVE IT DEPARTS MARKEDLY FROM OUR PRIOR DECISIONS UNIFORMLY HOLDING
THAT REPEAL OF THE ANTITRUST LAWS TO ACCOMMODATE OTHER FEDERAL
REGULATORY STATUTES "IS TO BE REGARDED AS IMPLIED ONLY IF NECESSARY TO
MAKE THE (REGULATORY SCHEME) WORK, AND EVEN THEN ONLY TO THE MINIMUM
EXTENT NECESSARY." SILVER V. NEW YORK STOCK EXCHANGE, 373 U.S. 341,
357 (1963). IN PARTICULAR, THE COURT TODAY SUBSTANTIALLY ENLARGES THE
SCOPE OF PAN AMERICAN WORLD AIRWAYS V. UNITED STATES, 371 U.S. 296
(1963), A CASE WHICH THE COURT SAYS "REQUIRES" THE RESULT IT REACHES
TODAY-- NOTWITHSTANDING THAT PAN AMERICAN'S TEACHING WAS AVAILABLE IN
VOLUME 371 OF THE UNITED STATES REPORTS WHEN THE COURT DISMISSED THE
WRIT IN THIS CAUSE AS IMPROVIDENTLY GRANTED.
I
PASSING TO THE MERITS OF THE COURT'S HOLDING, I FIND IT NECESSARY AT
THE OUTSET TO SUPPLEMENT THE COURT'S DESCRIPTION OF THE STATUTORY
FRAMEWORK FROM WHICH THIS LITIGATION ARISES. SECTION 408 OF THE
FEDERAL AVIATION ACT OF 1958, 49 U.S.C. 1378, /11/ REQUIRES THE
APPROVAL OF THE CAB WHEN ANY PERSON /12/ SEEKS TO ACQUIRE A
CONTROLLING INTEREST IN ANY AIR CARRIER. THE BOARD MAY APPROVE SUCH
ACQUISITION ONLY IF IT FINDS THAT THE ACQUISITION WILL BE CONSISTENT
WITH THE PUBLIC INTEREST. SEC. 408(B), 49 U.S.C. 1378(B).
SPECIFICALLY, THE BOARD "SHALL NOT APPROVE ANY . . . ACQUISITION OF
CONTROL WHICH WOULD RESULT IN CREATING A MONOPOLY OR MONOPOLIES AND
THEREBY RESTRAIN COMPETITION OR JEOPARDIZE ANOTHER AIR CARRIER NOT A
PARTY TO THE . . . ACQUISITION OF CONTROL." IBID.
THE ACT FAILS TO ELABORATE ON THE SCOPE OF ITS COMMAND TO THE CAB
NOT TO APPROVE ANY ACQUISITION THAT WOULD CREATE A MONOPOLY AND THEREBY
RESTRAIN COMPETITION. IN OTHER WORDS, THE ACT FAILS TO SPECIFY THE
RELEVANT MARKET OR MARKETS TO WHICH THE BOARD MUST LOOK IN DETERMINING
WHETHER A PARTICULAR ACQUISITION OR EXERCISE OF CONTROL IS FORBIDDEN.
TO GUIDE THE BOARD, IS SIMILARLY AMBIGUOUS. IT INCLUDES AMONG THOSE
FACTORS TO BE WEIGHED IN EVALUATING THE "PUBLIC INTEREST" FACTOR UNDER
THE ACT "(COMPETITION TO THE EXTENT NECESSARY TO ASSURE THE SOUND
DEVELOPMENT OF AN AIR-TRANSPORTATION SYSTEM PROPERLY ADAPTED TO THE
NEEDS OF THE . . . COMMERCE OF THE UNITED STATES . . . . " AGAIN,
THOUGH, THE QUESTION IS: COMPETITION BY WHOM? IN WHICH MARKET OR
MARKETS?
THERE CAN BE NO DOUBT THE BOARD IS RESPONSIBLE FOR PROMOTING
COMPETITION IN SOME SENSE; OUR INQUIRY IS WHETHER THE BOARD IS CHARGED
WITH FOSTERING COMPETITION BOTH WITHIN THE AIR TRANSPORTATION MARKET
AND WITHOUT, IN OTHER MARKETS ESSENTIALLY UNRELEATED TO AIR
TRANSPORTATION AND ALIEN TO THE PURPOSES FOR WHICH THE BOARD WAS
CREATED. RESOLUTION OF THIS AMBIGUITY IS CRITICAL TO PROPER
INTERPRETATION OF SEC. 414 OF THE ACT, /14/ WHICH CONFERS ANTITRUST
IMMUNITY UPON "(ANY PERSON AFFECTED BY ANY ORDER MADE UNDER (SEC. 408,
INTER ALIA) . . . INSOFAR AS MAY BE NECESSARY TO ENABLE SUCH PERSON TO
DO ANYTHING AUTHORIZED, APPROVED, OR REQUIRED BY SUCH ORDER." WHAT IS
"AUTHORIZED, APPROVED, OR REQUIRED" BY THE CAB MUST SURELY BE
DETERMINED, AT LEAST TO A VERY LARGE EXTENT, BY THE SCOPE OF THE
BOARD'S MANDATE TO EVALUATE POTENTIALLY ANTICOMPETITIVE CONDUCT.
II
THE COURT TODAY NEGLECTS TO RESOLVE, OR INDEED EVEN MENTION, THIS
PROBLEM, AND WELL IT MIGHT, FOR THE LEGISLATIVE HISTORY OF THE ACT
DEMONSTRATES THAT THE COMPETITIVE CONCERNS THAT TROUBLED THE FRAMERS OF
THE AVIATION ACT RELATED EXCLUSIVELY TO COMPETITION BY AND AMONG AIR
CARRIERS. A MAJOR IMPETUS TO FEDERAL REGULATIONS OF AIR TRANSPORTATION
WAS THE FAILURE OF THE PRECEDING ERA OF FREELY COMPETITIVE PRICE AND
ROUTE WARFARE TO BRING STABILITY TO THE NATION'S AIR TRANSPORT
INDUSTRY. IN HIS STATEMENT ACCOMPANYING THE REPORT OF THE COMMITTEE ON
COMMERCE ON THE CIVIL AERONAUTICS ACT OF 1938, SENATOR COPELAND
STATED:
"COMPETITION AMONG AIR CARRIERS IS BEING CARRIED TO AN EXTREME,
WHICH TENDS TO JEOPARDIZE THE FINANCIAL STATUS OF THE AIR CARRIERS AND
TO JEOPARDIZE AND RENDER UNSAFE A TRANSPORTATION SERVICE APPROPRIATE TO
THE NEEDS OF COMMERCE AND REQUIRED IN THE PUBLIC INTEREST, IN THE
INTERESTS OF THE POSTAL SERVICE, AND OF THE NATIONAL DEFENSE. AVIATION
IN AMERICA TODAY, UNDER PRESENT LAWS, IS UNSATISFACTORY TO INVESTORS,
LABOR, AND THE AIR CARRIERS THEMSELVES . . . . THE COMMITTEE FEELS THAT
THIS BILL WILL NOT ONLY PROMOTE AN ORDERLY DEVELOPMENT OF OUR NATION'S
CIVIL AERONAUTICS, BUT BY ITS IMMEDIATE ENACTMENT PREVENT THE SPREAD OF
BAD PRACTICES AND OF DESTRUCTIVE AND WASTEFUL TACTICS RESULTING FROM
THE INTENSE COMPETITION NOW EXISTING WITHIN THE AIR-CARRIER INDUSTRY."
S. REP. NO. 1661, 75TH CONG., 3D SESS., 2 (1938). SIMILAR VIEWS WERE
VOICED BY THE CHAIRMAN OF THE HOUSE COMMITTEE ON INTERSTATE AND FOREIGN
COMMERCE, CONGRESSMAN CLARENCE LEA:
"UNDER EXISTING LAW THERE IS LITTLE ECONOMIC REGULATION OF AIR
CARRIERS. ROUTES ARE AWARDED NOT UPON THE BASIS OF THE ABILITY
OF THE PARTICULAR AIR CARRIER TO PERFORM THE SERVICE OR THE
REQUIREMENTS OF THE PUBLIC CONVENIENCE AND NECESSITY, BUT UPON
THE LETTING OF AIR-MAIL CONTRACTS TO THE LOWEST RESPONSIBLE
BIDDERS. THIS SYTEM HAS COMPLETELY BROKEN DOWN IN RECENT MONTHS,
BECAUSE THE AIR CARRIERS, IN THEIR DESIRE TO SECURE THE RIGHT TO
CARRY THE MAIL OVER A NEW ROUTE, HAVE MADE ABSURDLY LOW BIDS,
INDEED, HAVE VIRTUALLY EVINCED A WILLINGNESS TO PAY FOR THE
PRIVILEGE OF CARRYING THE MAIL OVER A PARTICULAR ROUTE. A ROUTE
ONCE SECURED, HOWEVER, UNDER THE EXISTING SYSTEM OF AIR-MAIL
CONTRACTS DOES NOT PROTECT THE AIR CARRIER OPERATING THAT ROUTE
FROM POSSIBLE CUTTHROAT COMPETITION, FOR AIR CARRIERS ARE NOT
REQUIRED TO SECURE A CERTIFICATE OR OTHER AUTHORIZATION FROM THE
GOVERNMENT BEFORE BEGINNING OPERATIONS, OTHER THAN ONE BASED UPON
SAFETY REQUIREMENTS. NOR, IS THERE ANY AUTHORITY IN THE FEDERAL
GOVERNMENT UNDER EXISTING LAW TO PREVENT COMPETING CARRIERS FROM
ENGAGING IN RATE WARS WHICH WOULD BE DISASTROUS TO ALL
CONCERNED.
"THE RESULT OF THIS CHAOTIC SITUATION OF THE AIR CARRIERS HAS
BEEN TO SHAKE THE FAITH OF THE INVESTING PUBLIC IN THEIR
FINANCIAL STABILITY AND TO PREVENT THE FLOW OF FUNDS INTO THE
INDUSTRY." H.R. REP. NO. 2254, 75TH CONG., 3D SESS., 2 (1938).
A KEY AIM OF THE NEW LEGISLATION, THEN, WAS TO ELIMINATE "CUTTHROAT
COMPETITION" AMONG AIR CARRIERS. FROM THE BEGINNING, THE AIR CARRIERS
PUSHED FOR A SCHEME OF REGULATION TO CONTROL ENTRY AND REGULATE PRICE
COMPETITION IN THE AIR TRANSPORTATION MARKET. YET EQUALLY SOON AFTER
SERIOUS CONSIDERATION OF AN AIR REGULATION BILL BEGAN, THE PROSPECT OF
REGULATION GAVE RISE TO CONCERN THAT THE NEW SYSTEM OF REGULATION MIGHT
BE USED TO FOSTER THE DEVELOPMENT OF AN "AIRLINE TRUST" OR SIMILAR
OVERCONCENTRATION IN THE AIR TRANSPORTATION MARKET. IN 1937,
COMMISSIONER EASTMAN OF THE INTERSTATE COMMERCE COMMISSION, WHO
SUPPORTED FULL FEDERAL REGULATION OF AIR TRANSPORTATION, REMINDED THE
MEMBERS OF THE SENATE COMMERCE COMMITTEE THAT THE PROPOSED LEGISLATION
WOULD GIVE THE COMMISSION UNLIMITED AUTHORITY TO CONSOLIDATE THE
NATION'S AIRLINES AND, POSSIBLY, TO DO AWAY WITH COMPETITION
ALTOGETHER. EASTMEN SUGGESTED THAT LANGUAGE BE DRAFTED TO PRECLUDE
UNDUE CONSOLIDATION AMONG CARRIERS. /15/ AS ONE COMMENTATOR HAS
STATED, "EASTMAN'S SUGGESTION APPEARS TO HAVE BEEN HEEDED, FOR WHEN THE
(1937) BILL WAS REPORTED, THE MERGER CLAUSE CONTAINED (THE LANGUAGE
WHICH BECAME THE ANTIMONOPOLY RESTRICTION OF SECTION 408)." COMMENT,
MERGER AND MONOPOLY IN DOMESTIC AVIATION, 62 COL.L.REV. 851, 856-857
(1962). FINAL CONSIDERATION OF THE AVIATION BILL WAS POSTPONED UNTIL
THE NEXT SESSION OF CONGRESS, BUT WHEN SENATOR MCCARRAN AND
REPRESENTATIVE LEA INTRODUCED LEGISLATION AT THE 1938 SESSION TO CREATE
AN INDEPENDENT AIR REGULATORY AGENCY, BOTH BILLS "CONTAINED A MONOPOLY
PROVISO VIRTUALLY IDENTICAL TO THE ONE THAT HAD BEEN ADDED TO THE 1937
BILLS, AS REPORTED." ID., AT 857.
TO IMPLEMENT SEC. 408'S SCHEME FOR BALANCING STABILITY WITH
COMPETITION IN THE AIR TRANSPORTATION MARKET, THE BILL PROVIDED
EXPLICIT ANTITRUST IMMUNITY IN SEC. 414. /16/ THE DEBATES OVER SEC.
414-- LIKE THE ORIGINS OF SEC. 408-- REFLECT CONGRESSIONAL CONCERN WITH
COMPETITION IN THE AIR TRANSPORTATION MARKET. SENATOR MCKELLAR ASKED
SENATOR TRUMAN, A MAJOR SUPPORTER OF THE AVIATION BILL, IF IT WERE TRUE
THAT THE PROPOSED LEGISLATION WOULD REPEAL THE ANTITRUST PROVISIONS OF
THE EXISTING AIRMAIL LAWS. WHEN SENATOR TRUMAN ANSWERED IN THE
AFFIRMATIVE, SENATOR MCKELLAR COMPLAINED THAT:
"(SUCH A PROVISION IS VERY INADVISABLE, AND VERY BAD LEGISLATION,
AND OUGHT NEVER TO BE AGREED TO. AS EVERYONE KNOWS, AT THE PRESENT
TIME THE AIR COMPANIES ARE COMPLAINING THAT THEY ARE NOT ALLOWED TO
CONSOLIDATE. SOME YEARS AGO WE ALLOWED THEM TO CONSOLIDATE, AND THE
RESULT WAS THE GREATEST ILL THAT EVER BEFELL THE AIR COMPANIES. THE
SAME ILL WILL BEFALL THEM AGAIN IF SUCH COMBINATIONS ARE PERMITTED.
. . . .
"I DESIRE TO STATE THAT I CANNOT VOTE FOR ANY BILL WHICH
PROPOSES THAT A COMMISSION SHALL GIVE AIR COMPANIES THE RIGHT TO
COMBINE AND CONFEDERATE INTO A HUGH MONOPOLY. I REGRET VERY MUCH
THAT I SHALL HAVE TO VOTE AGAINST THE BILL." 83
CONG.REC. 6728-6729.
SENATOR MCCARRAN DISAGREED. HE TOLD SENATOR MCKELLAR THAT THE BILL
"CONTAINED) EVERY PROTECTION AGAINST THE VERY THING WHICH THE SENATOR
FROM TENNESSEE FEARS." SENATOR TRUMAN REMINDED HIS COLLEAGUES OF THE
SEC. 408 PROVISO REQUIRING THAT THE BOARD APPROVE NO ACQUISITION OF
CONTROL THAT WOULD "RESULT IN CREATING A MONOPOLY OR MONOPOLIES AND
THEREBY UNDULY RESTRAIN COMPETITION OR UNREASONABLY JEOPARDIZE ANOTHER
AIR CARRIER NOT A PARTY TO THE CONSOLIDATION . . . . " SENATOR
MCCARRAN AGREED THAT "EVERY PRECAUTION HAS BEEN WRITTEN INTO THE BILL
SO THAT THE ANTITRUST LAWS AND ALL LAWS FOR THE PREVENTION OF
COMBINATIONS AND MONOPOLIES SHALL BE ENFORCED . . . . PROTECTION HAS
BEEN WRITTEN INTO THE BILL AGAINST COMBINATIONS AND MONOPOLIES IN
RESTRAINT OF TRADE, IN RESTRAINT OF COMMERCE, AND IN RESTRAINT OF
EVERYTHING WHICH WOULD CONSTITUTE A MONOPOLY." ID., AT 6729. SENATOR
COPELAND RECITED FIVE DIFFERENT PROVISIONS OF THE BILL "WHERE THE
QUESTION OF MONOPOLY IS DEALT WITH IN ONE WAY OR ANOTHER WITH THE VIEW
TO ITS CONTROL AND PREVENTION." WHEN THE DEBATE TURNED FROM THE
DISCUSSION OF GENERAL PRINCIPLES TO APPLICATION OF THOSE PRINCIPLES TO
A PARTICULAR FACT SITUATION, AGAIN THE SENATORS SPOKE OF CONSOLIDATION
AND COMPETITION BY AIR CARRIERS. /17/
THUS, THE DEBATES, AS WELL AS THE REMAINDER OF THE LEGISLATIVE
HISTORY OF THE 1938 ACT, REFLECT THAT THE CONGRESS THAT ENACTED THE
1938 LEGISLATION WAS CONCERNED ONLY WITH PROBLEMS OF COMPETITION AND
MONOPOLY IN THE AIR CARRIER MARKET. MOREOVER, THE DEBATES SHOW THAT
THERE WAS CONSIDERABLE CONCERN OVER EVEN THE LIMITED GRANT OF ANTITRUST
IMMUNITY DEEMED NECESSARY TO PROVIDE THE PROPOSED AUTHORITY WITH
SUFFICIENT FLEXIBILITY TO ADMINISTER THE AIR CARRIER MARKET IN THE
PUBLIC INTEREST. IT IS MOST UNLIKELY THAT THE CONCERNS EXPRESSED WOULD
HAVE BEEN PUT TO REST BY EXTENDING THE NEW AUTHORITY'S PRE-EMPTIVE
ANTITRUST RESPONSIBILITIES UNDER SEC. 408 BEYOND THE AIR TRANSPORTATION
MARKET INTO EVERY MARKET THAT MIGHT HAPPEN TO BE TOUCHED BY
TRANSACTIONS WITH AN AIR CARRIER.
III
OUR HOLDING IN PAN AMERICAN WORLD AIRWAYS V. UNITED STATES, 371 U.S.
296, BECOMES IMPORTANT IN THIS SETTING. THERE, THE GOVERNMENT FILED AN
ANTITRUST COMPLAINT ALLEGING, INTER ALIA, ANTICOMPETITIVE INTERFERENCE
BY PAN AMERICAN WITH THE ROUTE ACQUISITIONS OF PANAGRA, A JOINT VENTURE
OF PAN AMERICAN WORLD AIRWAYS AND W. R. GRACE & CO. THIS COURT HELD
THAT THE COMPLAINT SHOULD BE DISMISSED. THE COURT STOOD BEHIND THE
PRESUMPTION AGAINST IMPLIED ANTITRUST IMMUNITY, 371 U.S.,AT 304-305, N.
9; HOWEVER, FOR TWO INTERDEPENDENT REASONS, THE COURT HELD THAT THE
CONDUCT ALLEGED IN PANAGRA'S COMPLAINT WAS IMMUNIZED FROM THE ANTITRUST
LAWS. FIRST, THE CONDUCT SPECIFIED IN THE COMPLAINT FELL WITHIN THE
BOARD'S BASIC MISSION AND COMPETENCY-- THE REGULATION OF ENTRY INTO AND
COMPETITION WITHIN THE AIR TRANSPORTATION MARKET:
"LIMITATION OF ROUTES AND DIVISIONS OF TERRITORIES AND THE RELATION
OF COMMON CARRIERS TO AIR CARRIERS ARE BASIC IN THIS REGULATORY
SCHEME." ID., AT 305. SECOND, AND EQUALLY IMPORTANT, WE HELD THAT
SEC. 411 OF THE ACT GAVE THE BOARD A SPECIFIC SUBSTANTIVE MANDATE TO
INVESTIGATE AND REGULATE UNFAIR PRACTICES AND UNFAIR METHODS OF
COMPETITION AMONG AIR CARRIERS IN THE AIR TRANSPORTATION MARKET, ID.,
AT 302, 308.
IN PAN AMERICAN THE BOARD HAD NOT ONLY THE STATUTORY POWER TO
SUPERVISE THE RELEVANT TRANSACTIONS BUT ALSO THE STATUTORY
RESPONSIBILITY TO REMEDY THE ABUSIVE FEATURES OF THOSE TRANSACTIONS
SPECIFIED IN THE PANAGRA COMP COMPLAINT. CONSEQUENTLY, "IF THE COURTS
WERE TO INTRUDE INDEPENDENTLY WITH THEIR CONSTRUCTION OF THE ANTITRUST
LAWS, TWO REGIMES MIGHT COLLIDE." ID., AT 310. EVEN THIS NARROW
HOLDING PROVOKED THE DISSENT OF MR. JUSTICE BRENNAN, IN WHICH MR. CHIEF
JUSTICE WARREN JOINED.
THE PRESENT CASE IS DIFFERENT FROM PAN AMERICAN IN A CRITICAL
RESPECT. HERE, WE MAY ASSUME THE BOARD POSSESSES FULL AUTHORITY UNDER
THE ACT TO SUPERVISE SEC. 408 TRANSACTIONS BETWEEN A CONTROLLING PERSON
AND AN AIR CARRIER-- JUST AS IN PAN AMERICAN, THE ALLOCATION OF ROUTES
AND DIVISION OF TERRITORIES CONSTITUTED THE BASIC STUFF OF THE BOARD'S
DAY-TO-DAY BUSINESS. YET, UNLIKE THE ACTS SPECIFIED BY PANAGRA IN PAN
AMERICAN, THE ACTS CHARGED IN TWA'S COMPLAINT ARE COMPONENTS OF AN
ANTITRUST CONSPIRACY TO RESTRAIN TRADE IN THE AIRCRAFT SUPPLY AND
MANUFACTURING MARKET. SECTION 411 DOES NOT COMMAND BOARD
RESPONSIBILITY FOR PREVENTING SUCH A CONSPIRACY, SINEC SEC. 411 IS IN
TERMS RESTRICTED TO UNFAIR METHODS OF COMPETITION "IN AIR
TRANSPORTATION OR THE SALE THEREOF." THUS, TO SUSTAIN ITS RESULT IN
THIS CASE, THE COURT MUST FALL BACK ON ONE (OR BOTH) OF TWO
PROPOSITIONS: IT MUST EITHER FIND SOME SPECIFIC AUTHORITY IN THE
FEDERAL AVIATION ACT OTHER THAN SEC. 411 FOR ITS CONCLUSION THAT THE
BOARD'S MANDATE TO POLICE ANTICOMPETITIVE PRACTICES EXTENDS TO THE
SUBJECT MATTER OF TWA'S COMPLAINT; OR IT MUST CONSIDER SUCH STATUTORY
AUTHORITY IRRELEVANT TO A FINDING OF ANTITRUST IMMUNITY. NEITHER
APPROACH IS, IN MY VIEW, SOUND.
IV
A. IMPROBABLE AS IT SEEMS, THERE IS MUCH IN THE COURT'S OPINION TO
SUGGEST THAT ITS JUDGMENT RESTS UPON THE ASSUMPTION THAT ANTITRUST
IMMUNITY IS CONFERRED HERE SIMPLY BY VIRTUE OF A RATHER EXTENSIVE GRANT
OF PROCEDURAL AUTHORITY FOR THE BOARD TO INTERVENE IN THE CONTROL
PERSON-AIR-CARRIER RELATIONSHIP. THE COURT RECOUNTS IN DETAIL THE
HISTORY OF THE BOARD'S INVOLVEMENT IN THE TOOLCO-TWA RELATIONSHIP--
THOUGH THE COURT DOES NOT SUGGEST, AS IT CANNOT, THAT THE BOARD
SPECIFICALLY CONSIDERED THE ACTIONS BY TOOLCO ALLEGED IN TWA'S
COMPLAINT TO VIOLATE THE ANTITRUST LAWS. /18/ THE COURT TELLS US THAT
IN 1950, THE BOARD EMBARKED UPON A WIDE-RANGING EVALUATION OF THE
TREATMENT AFFORDED TWA BY TOOLCO AS THE CONTROLLING PERSON-- THOUGH THE
COURT DOES NOT SUGGEST, AS AGAIN IT CANNOT, THAT THE 1950 PROCEEDING OF
THE BOARD EVEN REMOTELY CONSIDERED TOOLCO'S ACTIONS AS COMPONENTS OF AN
ANTITRUST CONSPIRACY DIRECTED TOWARD THE AIRCRAFT SUPPLY AND
MANUFACTURING MARKET. FINALLY, THE COURT MAKES MUCH OF THE POWERS OF
THE INVESTIGATION AND CONTINUING SUPERVISION PROVIDED BY SEC. 415 OF
THE ACT-- THOUGH THE COURT DOES NOT ACKNOWLEDGE THAT THOSE POWERS ARE
EXPLICITLY LIMITED BY CONGRESS TO BOARD ACTIONS "(FOR THE PURPOSE OF
EXERCISING AND PERFORMING (THE BOARD'S) POWERS AND DUTIES UNDER THIS
ACT," AND ARE THEREFORE NO INDICATION OF THE SCOPE OF THE BOARD'S
SUBSTANTIVE RESPONSIBILITY.
THE WEAKNESS INHERENT IN THE COURT'S RECITATION OF "PROCEDURAL
UNDERBRUSH" IS THAT IT LEAPS FROM THE PREMISE OF THE BOARD'S
ACKNOWLEDGED PROCEDURAL POWER TO INTERVENE IN SEC. 408 "CONTROL"
TRANSACTIONS TO THE CONCLUSION THAT THE BOARD'S SUBSTANTIVE STATUTORY
DUTY TO CONSIDER THE ANTICOMPETITIVE IMPACT OF SUCH TRANSACTIONS IS OR,
FOR SOME REASON OF POLICY, OUGHT TO BE EQUALLY UNLIMITED. YET,
INESCAPABLY, IT IS THE BOARD'S SUBSTANTIVE MANDATE UPON WHICH ANTITRUST
IMMUNITY PROPERLY TURNS; AS OUR PRIOR DECISIONS TEACH, THE POTENTIAL OF
COLLIDING SUBSTANTIVE JUDGMENTS FORCES THE CARVING OUT OF ANTITRUST
IMMUNITY, NOT SIMPLY THE OVERLAPPING OF JURISDICTION TO INTERVENE IN A
PARTICULAR TYPE OF TRANSACTION. WE HAVE UNIFORMLY INSISTED UPON A
SUBSTANTIVE MANDATE TO THE REGULATORY AGENCY TO CONSIDER FULLY AND
REMEDY THE RELEVANT ANTICOMPETITIVE CONDUCT. SEE, IN ADDITION TO PAN
AMERICAN, SUPRA, UNITED STATES V. BORDEN CO., 308 U.S. 188, 206 (1939)
(RELEVANT PROVISION OF CAPPER-VOLSTEAD ACT "DOES NOT COVER THE ENTIRE
FIELD OF THE SHERMAN ACT"); GEORGIE V. PENNSYLVANIA R. CO., 324 U.S.
439, 458 (1945) ("NO WARRANT IN THE INTERSTATE COMMERCE ACT AND THE
SHERMAN ACT FOR SAYING THAT THE AUTHORITY TO FIX JOINT THROUGH RATES
CLOTHES WITH LEGALITY A CONSPIRACY TO DISCRIMINATE AGAINST A STATE OR A
REGION, TO USE COERCION IN THE FIXING OF RATES, OR TO PUT IN THE HANDS
OF A COMBINATION OF CARRIERS A VETO POWER OVER RATES PROPOSED BY A
SINGLE CARRIER"); MILK PRODUCERS ASSN. V. UNITED STATES, 362 U.S. 458,
469 (1960) (SEC. 7 OF CLAYTON ACT IMMUNIZED "TRANSACTIONS DULY
CONSUMMATED PURSUANT TO AUTHORITY GIVEN BY . . . THE SECRETARY OF
AGRICULTURE" UNDER STATUTORY AUTHORITY, BUT THIS INCLUDED ONLY
MARKETING AGREEMENTS AND NOT AGREEMENTS OR RESTRAINTS OF WIDER SCOPE
TYPICALLY COVERED BY THE ANTITRUST LAWS); CALIFORNIA V. FEDERAL POWER
COMM'N, 369 U.S. 482, 485 (1962) ("HERE . . . WHILE 'ANTITRUST
CONSIDERATIONS' ARE RELEVANT TO THE ISSUE OF 'PUBLIC INTEREST,
CONVENIENCE, AND NECESSITY' . . . THERE IS NO 'PERVASIVE REGULATORY
SCHEME' . . . INCLUDING THE ANTITRUST LAWS THAT HAS BEEN ENTRUSTED TO
THE COMMISSION"); UNITED STATES V. PHILADELPHIA NATIONAL BANK, 374 U.S.
321, 351-352 (1963) (THOUGH COMPTROLLER OF CURRENCY WAS REQUIRED TO
CONSIDER EFFECT ON COMPETITION IN PASSING ON BANK MERGER, NOT REQUIRED
TO GIVE THE FACTOR ANY PARTICULAR WEIGHT, TO HOLD A HEARING, OR TO
SUBJECT HIS DETERMINATION TO JUDICIAL REVIEW).
B. THE MAJOR PREMISE OF THE COURT'S DECISION MUST, THEN, BE THAT THE
FEDERAL AVIATION ACT IMPOSES ON THE BOARD FULL RESPONSIBILITY FOR
EVALUATING AND PREVENTING ANTICOMPETITIVE IMPACT, OF WHATEVER VARIETY,
FLOWING FROM A CONTROL TRANSACTION TOUCHING AN AIR CARRIER. AS THE
COURT PUTS IT, "COMPETITION AND MONOPOLY-- TWO INGREDIENTS OF THE
ANTITRUST LAWS-- ARE THUS STANDARDS GOVERNING THE CAB'S EXERCISE OF
AUTHORITY IN GRANTING, ALLOWING, OR EXPANDING OR CONTRACTING THE
CONTROL WHICH TOOLCO HAD OVER TWA BY REASON OF THE VARIOUS ORDERS
ISSUED BY THE CAB UNDER SEC. 408."
I CANNOT AGREE WITH THE COURT'S READING OF THE PROVISIONS OF THE ACT
THAT REQUIRE THE BOARD TO MAINTAIN COMPETITION. THE COURT OFFERS NO
SUPPORT FOR ITS READING OF THOSE PROVISIONS; AND, AS I HAVE ALREADY
INDICATED, THE LEGISLATIVE HISTORY SURELY PROVIDES NONE. MOREOVER, THE
BOARD ITSELF HAS CONSISTENTLY INTERPRETED THE ACT NOT TO IMPOSE ON IT
THE EXPANSIVE ROLE THE COURT NOW PERCEIVES FOR THE FIRST TIME. IN A
BRIEF AMICUS CURIAE FILED IN 1964 AND AGAIN IN 1972, THE BOARD
DISCLAIMED THE MANDATE OR THE COMPETENCY TO POLICE THE AIRCRAFT SUPPLY
MARKET OR ANY NON-AIR CARRIER MARKET WHICH MAY BE THREATENED BY
ANTICOMPETITIVE ACTS INVOLVING CONTROL OF AN AIR CARRIER. WE HAVE ONLY
RECENTLY REAFFIRMED THE WELL-ESTABLISHED DOCTRINE THAT THE CONSISTENT
ADMINISTRATIVE CONSTRUCTION OF FEDERAL LEGISLATION "IS ENTITLED TO
GREAT WEIGHT." TRAFFICANTE V. METROPOLITAN LIFE INSURANCE CO., ANTE,
AT 210; UDALL V. TALLMAN, 380 U.S. 1, 16 (1965); GRIGGS V. DUKE POWER
CO., 401 U.S. 424, 433-435 (1971). AS FOR THE BOARD'S COMPETENCE TO DO
THE JOB ASSIGNED IT BY THE COURT, WE ARE NOT TIED TO THE BOARD'S SELF
APPRAISAL, BUT "IT IS ENTITLED TO SOME WEIGHT," PARTICULARLY WHEN THE
LEGAL ISSUES SURROUNDING TOOLCO'S ALLEGED BEHAVIOR IN THE AIRCRAFT
SUPPLY MARKET "ARE TYPICAL ANTITRUST PROBLEMS AND NOT AT ALL TYPICAL
AIRLINE LAW PROBLEMS." "THE SEARCH FOR A PRACTICAL ACCOMMODATION OF
COURT AND AGENCY . . . IS NOT ADVANCED BY OUR IGNORING THE AGENCY'S
CONSIDERED SENSE OF SELF-LIMITATION." PAN AMERICAN WORLD AIRWAYS,
SUPRA, AT 328, 330 (BRENNAN, R., DISSENTING).
IF THE BOARD'S BASIC FUNCTION, THE ACT'S LEGISLATIVE HISTORY, AND THE
BOARD'S VIEW OF ITS OWN MANDATE AND COMPETENCE WERE NOT ENOUGH TO
CONVINCE ME THAT THE COURT'S READING OF THE ACT IS ERRONEOUS, THESE
FACTORS ARE AT LEAST ENOUGH TO RAISE SUBSTANTIAL DOUBTS. SUCH DOUBTS,
AS OUR PRIOR CASES TEACH, ARE ENOUGH TO SECURE THE CONTINUING
AVAILABILITY OF ANTITRUST OR OTHER JUDICIAL REMEDIES AS ADDITIONAL
SAFEGUARDS FOR PROTECTION OF THE PUBLIC INTEREST. "REPEALS OF THE
ANTITRUST LAWS BY IMPLICATION FROM A REGULATORY STATUTE ARE STRONGLY
DISFAVORED." UNITED STATES V. PHILADELPHIA NATIONAL BANK, SUPRA, AT
350, UNITED STATES V. BORDEN CO., 308 U.S.,AT 198 ("A CARDINAL
PRINCIPLE OF CONSTRUCTION THAT REPEALS BY IMPLICATION ARE NOT
FAVORED"). SEE UNITED STATES V. SOCONY-VACUUM OIL CO., 310 U.S. 150,
226-228 (1940); GEORGIA V. PENNSYLVANIA R. CO., 324 U.S.,AT 456-457;
CALIFORNIA V. FEDERAL POWER COMM'N, 369 U.S.,AT 485, AND 14 ADDITIONAL
CASES CITED IN MR. JUSTICE BRENNAN'S OPINION FOR THE COURT IN UNITED
STATES V. PHILADELPHIA NATIONAL BANK, SUPRA, AT 350 N. 28. THE
TRADITIONAL AVERSION TO IMPLIED REPEAL OF THE ANTITRUST LAWS SHOULD
HAVE PARTICULAR FORCE IN THE CONTEXT OF THE FEDERAL AVIATION ACT, WHICH
EXPLICITLY STATES THAT "(NOTHING CONTAINED IN THIS CHAPTER SHALL IN ANY
WAY ABRIDGE OR ALTER THE REMEDIES NOW EXISTING AT COMMON LAW OR BY
STATUTE, BUT THE PROVISIONS OF THIS CHAPTER ARE IN ADDITION TO SUCH
REMEDIES." 49 U.S.C. 1506; AND SEE PAN AMERICAN WORLD AIRWAYS, SUPRA,
AT 321 (BRENNAN, J., DISSENTING).
NOR DOES THE COURT'S RESULT SEEM JUSTIFIABLE FOR PRACTICAL REASONS
OF REGULATORY ACCOMMODATION. INDEED, I FIND THE COURT'S EXPANSIVE
READING OF THE BOARD'S ANTITRUST RESPONSIBILITIES INCONSISTENT WITH OUR
DUTY "TO MAKE THE (REGULATORY SCHEME) WORK." SILVER V. NEW YORK STOCK
EXCHANGE, 373 U.S.,AT 357. SECTION 408 OF THE ACT HAS NOW BEEN AMENDED
TO REQUIRE BOARD APPROVAL WHEN ANY PERSON, WHETHER OR NOT ENGAGED IN
ANY ASPECT OF AERONAUTICS, ACQUIRES A CONTROLLING INTEREST IN AN AIR
CARRIER. IN THIS AGE OF CONGLOMERATE MERGERS, THE TIME MAY SOON ARRIVE
WHEN ANOTHER INDUSTRIAL CORPORATION SEEKS TO ACQUIRE CONTROL OF AN AIR
CARRIER. IT MAY WELL BE THAT SOME SIMILAR FUTURE ACQUISITION MAY BE IN
THE BEST INTERESTS OF AMERICAN AIR TRANSPORTATION. IT MAY LIKEWISE
POSE SERIOUS ANTICOMPETITIVE DANGERS. THE COURT'S DECISION TODAY WILL,
I THINK, PROVIDE A SERIOUS OBSTACLE TO PROPER CONSIDERATION OF ANY SUCH
TRANSACTION THAT MAY BE PROPOSED IN FUTURE YEARS, SINCE THE BOARD WILL
BE FACED WITH A DIFFICULT DILEMMA. IF IT APPROVES THE CONTROL
ACQUISITION, UNDER THE TERMS OF THE COURT'S DECISION THE BOARD ENGAGES
ITSELF TO EXERCISE CONTINUING SUPERVISION OVER ALL ASPECTS OF THE
CONTROL RELATIONSHIP, INCLUDING THE ANTICOMPETITIVE IMPACT OF THE
RELATIONSHIP IN THE COMPUTER MARKET, THE HOTEL MARKET, THE INSURANCE
MARKET, THE CREDIT MARKET, OR WHATEVER MARKET HAPPENS TO BE AFFECTED BY
THE CONTROL TRANSACTION. QUITE UNDERSTANDABLY, THE BOARD'S RESPONSE
MAY BE TO PLAY IT SAFE, IN KEEPING WITH ITS OWN ADVICE TO THIS COURT
THAT IT CANNOT EFFECTIVELY FUNCTION AS THE OMBUDSMAN OF THE AMERICAN
ECONOMY WHENEVER THAT ECONOMY TOUCHES AIR TRANSPORTATION IN ANY WAY.
ON THE OTHER HAND, THE BOARD MAY FEEL OBLIGED TO HEED THE COURT'S
YAWNING INTERPRETATION OF SEC. 408. THIS COURSE OF ACTION POSES THE
THREAT THAT THE BOARD WILL HAVE EXTENDED ITSELF SO FAR BEYOND ITS
COMPETENCE AND MANPOWER THAT IT IS DIVERTED FROM THOSE CENTRAL TASKS OF
REGULATION IMPOSED ON IT BY SEC. 408 OF THE ACT. IN EITHER EVENT, I
CANNOT IMAGINE THAT THE COURT'S NEW READING OF SEC. 408 WILL CONTRIBUTE
TO THE EFFECTIVE ENFORCEMENT OF THE CONGRESSIONAL SCHEME FOR PROMOTING
A SOUND NATIONAL SYSTEM OF AIR TRANSPORTATION.
RETURNING TO THE 1964 EFFORTS OF TOOLCO TO HAVE THE COURT RESOLVE
THE ISSUE OF THE BOARD'S AUTHORITY WITH RESPECT TO THE ANTITRUST ISSUE,
IT IS ELEMENTARY, OF COURSE, THAT A DENIAL OF A PETITION FOR CERTIORARI
DECIDES NOTHING. IT IS ALSO TRUE THAT DISMISSAL OF A PETITION AS
IMPROVIDENTLY GRANTED, AFTER FULL ORAL ARGUMENT AND BRIEFING, IS NOT A
JUDGMENT ON THE MERITS IN ANY SENSE. BUT WHEN PARTIES TO LITIGATION
REACH THAT STAGE AND THE COURT FAILS TO RESPOND WITH A DECISION ON THE
MERITS, LAWYERS READ THAT AS A SIGNAL THAT THE CASE SHOULD PROCEED.
THESE PARTIES DID SO-- FOR NINE YEARS AND MORE THAN 15 MILLION DOLLARS
IN LEGAL EXPENSE-- ONLY TO BE TOLD BY THE COURT NOW THAT ON THE FACTS
THERE IS NO LEGAL LIABILITY-- THE VERY ISSUE THAT COULD AS WELL HAVE
BEEN DECIDED IN 1964 AS TODAY. ALL OF THE LITIGATION SINCE 1964 HAS
BEEN CONFINED TO THE MASSIVE TASK OF DETERMINING DAMAGES AND IT WILL
NOT DO TO SAY THAT THE COURT COULD NOT RESOLVE THE LEGAL ISSUES UNTIL
DAMAGES WERE ASCERTAINED. PRECISELY THE CONTRARY IS TRUE.
FOR THSES REASONS, I RESPECTFULLY DISSENT FROM THE COURT'S
JUDGMENT. I WOULD HOLD THAT ACTIONS PERMITTED BY THE BOARD UNDER SEC.
408 OF THE FEDERAL AVIATION ACT ARE "AUTHORIZED, APPROVED, OR REQUIRED"
BY THE BOARD'S ACTION (AND THEREBY IMMUNIZED BY SEC. 414 FROM ANTITRUST
LIABILITY) ONLY TO THE EXTENT THAT THE ANTITRUST CLAIM FALLS WITHIN THE
CORE OF THE BOARD'S STATUTORY RESPONSIBILITY TO REGULATE AIR
TRANSPORTATION WHILE MAINTAINING, IN THAT MARKET, THE MAXIMUM DEGREE OF
COMPETITION CONSISTENT WITH THE PUBLIC INTEREST. IN VIEW OF THE
COURT'S DISPOSITION, IT WOULD NOT BE FRUITFUL FOR ME TO EXPRESS AT
LENGTH MY VIEWS ON THE OTHER ISSUES PRESENTED TO THE COURT, OTHER THAN
TO NOTE THAT, WITH MODIFICATIONS NOT RELEVANT TO THE OVERRIDING ISSUE,
I WOULD AFFIRM THE JUDGMENT OF THE COURT OF APPEALS. AT THE VERY
LEAST, I WOULD SET THE CASES FOR REARGUMENT SO THE DISPOSITIVE ISSUE
MIGHT BE FULLY EXPLORED BY THE COURT. /1/ 32 F.R.D. 604.
/2/ 332 F.2D 602.
/3/ 379 U.S. 912.
/4/ 380 U.S. 248.
/5/ HERBERT BROWNELL REPLACED J. LEE RANKIN AS SPECIAL MASTER WHEN
RANKIN RESIGNED IN DECEMBER 1965 TO BECOME CORPORATION COUNSEL FOR NEW
YORK CITY.
/6/ 308 F.SUPP. 679.
/7/ 449 F.2D 51. /8/ 405 U.S. 915.
/9/ TOOLCO'S 1964 PETITION FOR CERTIORARI POSED THREE QUESTIONS,
THE FIRST BEING AS FOLLOWS:
"1. WHERE THE CIVIL AERONAUTICS BOARD HAS APPROVED THE ACQUISITION
OF A CONTROLLING STOCK INTEREST IN AN AIR CARRIER BY A PERSON ENGAGED
IN A PHASE OF AERONAUTICS AND HAS FURTHER APPROVED OR HAS JURISDICTION
TO APPROVE ALL RELEVANT TRANSACTIONS BETWEEN THEM UNDER AN ACT WHICH
IMMUNIZES THE APPROVED TRANSACTIONS FROM THE ANTITRUST LAWS, DOES THE
DISTRICT COURT HAVE JURISDICTION TO ENTERTAIN A COMPLAINT BY SUCH AIR
CARRIER ALLEGING THAT THE TRANSACTIONS BETWEEN THE SUBSIDIARY AIR
CARRIER AND ITS PARENT VIOLATED THE ANTITRUST LAWS IN THAT THEY
CONSTITUTED A CONSPIRACY, AN ATTEMPT TO MONOPOLIZE AND AN ACQUISITION
IN VIOLATION OF THE ANTITRUST LAWS?"
TOOLCO'S PETITION IN THE PRESENT CASE POSED SEVEN QUESTIONS, THE
FOURTH OF WHICH WAS AS FOLLOWS:
"4. WHEN THE CIVIL AERONAUTICS BOARD HAS APPROVED AN ACQUISITION OF
CONTROL OVER AN AIR CARRIER BY A PERSON ENGAGED IN A PHASE OF
AERONAUTICS AND HAS FURTHER APPROVED ALL RELEVANT TRANSACTIONS BETWEEN
THEM, IS THE EXERCISE OF THAT CONTROL TO DETERMINE HOW THE AIR CARRIER
ACQUIRES AIRCRAFT AND THE NECESSARY FINANCING THEREFOR IMMUNIZED FROM
THE OPERATION OF THE ANTITRUST LAWS UNDER SECTION 414 OF THE FEDERAL
AVIATION ACT?"
/10/ IT IS NOT UNREASONABLE TO ASSUME THAT THE BATTALIONS OF
LAWYERS FOR THESE ADVERSARIES DEVOTED SUBSTANTIALLY THE SAME EFFORT AND
TIME, THUS BRINGING COUNSEL FEES IN THE AGGREGATE TO THE SUM OF $15
MILLION.
/11/ SECTION 408, 49 U.S.C. 1378, READS IN PERTINENT PART AS
FOLLOWS:
"(A) PROHIBITED ACTS.
"IT SHALL BE UNLAWFUL UNLESS APPROVED BY ORDER OF THE BOARD AS
PROVIDED IN THIS SECTION--
. . . .
"(2) FOR ANY AIR CARRIER, ANY PERSON CONTROLLING AN AIR CARRIER, ANY
OTHER COMMON CARRIER, OR ANY PERSON ENGAGED IN ANY OTHER PHASE OF
AERONAUTICS, TO PURCHASE, LEASE, OR CONTRACT TO OPERATE THE PROPERTIES,
OR ANY SUBSTANTIAL PART THEREOF, OF ANY AIR CARRIER;
. . . .
"(5) FOR ANY AIR CARRIER OR PERSON CONTROLLING AN AIR CARRIER, ANY
OTHER COMMON CARRIER, ANY PERSON ENGAGED IN ANY OTHER PHASE OF
AERONAUTICS, OR ANY OTHER PERSON TO ACQUIRE CONTROL OF ANY AIR CARRIER
IN ANY MANNER WHATSOEVER: PROVIDED, THAT THE BOARD MAY BY ORDER EXEMPT
ANY SUCH ACQUISITION OF A NONCERTIFICATED AIR CARRIER FROM THIS
REQUIREMENT TO THE EXTENT AND FOR SUCH PERIODS AS MAY BE IN THE PUBLIC
INTEREST;
. . . .
"(B) APPLICATION TO BOARD; HEARING; APPROVAL; DISPOSAL WITHOUT
HEARING.
"ANY PERSON SEEKING APPROVAL OF A CONSOLIDATION, MERGER, PURCHASE,
LEASE, OPERATING CONTRACT, OR ACQUISITION OF CONTROL, SPECIFIED IN
SUBSECTION (A) OF THIS SECTION, SHALL PRESENT AN APPLICATION TO THE
BOARD, AND THEREUPON THE BOARD SHALL NOTIFY THE PERSONS INVOLVED IN THE
CONSOLIDATION, MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR
ACQUISITION OF CONTROL, AND OTHER PERSONS KNOWN TO HAVE A SUBSTANTIAL
INTEREST IN THE PROCEEDING, OF THE TIME AND PLACE OF A PUBLIC HEARING.
UNLESS, AFTER SUCH HEARING, THE BOARD FINDS THAT THE CONSOLIDATION,
MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR ACQUISITION OF CONTROL
WILL NOT BE CONSISTENT WITH THE PUBLIC INTEREST OR THAT THE CONDITIONS
OF THIS SECTION WILL NOT BE FULFILLED, IT SHALL BY ORDER APPROVE SUCH
CONSOLIDATION, MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR
ACQUISITION OF CONTROL, UPON SUCH TERMS AND CONDITIONS AS IT SHALL FIND
TO BE JUST AND REASONABLE AND WITH SUCH MODIFICATIONS AS IT MAY
PRESCRIBE: PROVIDED, THAT THE BOARD SHALL NOT APPROVE ANY
CONSOLIDATION, MERGER, PURCHASE, LEASE, OPERATING CONTRACT, OR
ACQUISITION OF CONTROL WHICH WOULD RESULT IN CREATING A MONOPOLY OR
MONOPOLIES AND THEREBY RESTRAIN COMPETITION OR JEOPARDIZE ANOTHER AIR
CARRIER NOT A PARTY TO THE CONSOLIDATION, MERGER, PURCHASE, LEASE,
OPERATING CONTRACT, OR ACQUISITION OF CONTROL . . . . "
/12/ SECTION 408(A)(5) WAS AMENDED IN 1969 TO REQUIRE BOARD
APPROVAL OF AN ACQUISITION OF CONTROL OF AN AIR CARRIER BY "ANY OTHER
PERSON." 83 STAT. 103, 49 U.S.C. 1378(A)(5). PRIOR TO 1969, THE ACT
REQUIRED BOARD APPROVAL ONLY FOR ACQUISITION OF CONTROL OF AN AIR
CARRIER BY ANOTHER AIR CARRIER, BY PERSONS HAVING OTHER SPECIFIED
TRANSPORTATION INTERESTS, OR BY A "PERSON ENGAGED IN ANY OTHER PHASE OF
AERONAUTICS."
/13/ SECTION 102, 49 U.S.C. 1302, READS:
"IN THE EXERCISE AND PERFORMANCE OF ITS POWERS AND DUTIES UNDER THIS
CHAPTER, THE BOARD SHALL CONSIDER THE FOLLOWING, AMONG OTHER THINGS, AS
BEING IN THE PUBLIC INTEREST, AND IN ACCORDANCE WITH THE PUBLIC
CONVENIENCE AND NECESSITY:
"(A) THE ENCOURAGEMENT AND DEVELOPMENT OF AN AIR-TRANSPORTATION
SYSTEM PROPERLY ADAPTED TO THE PRESENT AND FUTURE NEEDS OF THE FOREIGN
AND DOMESTIC COMMERCE OF THE UNITED STATES, OF THE POSTAL SERVICE, AND
OF THE NATIONAL DEFENSE;
"(B) THE REGULATION OF AIR TRANSPORTATION IN SUCH MANNER AS TO
RECOGNIZE AND PRESERVE THE INHERENT ADVANTAGES OF, ASSURE THE HIGHEST
DEGREE OF SAFETY IN, AND FOSTER SOUND ECONOMIC CONDITIONS IN, SUCH
TRANSPORTATION, AND TO IMPROVE THE RELATIONS BETWEEN, AND COORDINATE
TRANSPORTATION BY, AIR CARRIERS;
"(C) THE PROMOTION OF ADEQUATE, ECONOMICAL, AND EFFICIENT SERVICE BY
AIR CARRIERS AT REASONABLE CHARGES, WITHOUT UNJUST DISCRIMINATIONS,
UNDUE PREFERENCES OR ADVANTAGES, OR UNFAIR OR DESTRUCTIVE COMPETITIVE
PRACTICES;
"(D) COMPETITION TO THE EXTENT NECESSARY TO ASSURE THE SOUND
DEVELOPMENT OF AN AIR-TRANSPORTATION SYSTEM PROPERLY ADAPTED TO THE
NEEDS OF THE FOREIGN AND DOMESTIC COMMERCE OF THE UNITED STATES, OF THE
POSTAL SERVICE, AND OF THE NATIONAL DEFENSE;
"(E) THE PROMOTION OF SAFETY IN AIR COMMERCE; AND
"(F) THE PROMOTION, ENCOURAGEMENT, AND DEVELOPMENT OF CIVIL
AERONAUTICS."
/14/ SECTION 414, 49 U.S.C. 1384, READS:
"ANY PERSON AFFECTED BY ANY ORDER MADE UNDER SECTIONS 1378, 1379, OR
1382 OF THIS TITLE SHALL BE, AND IS HEREBY, RELIEVED FROM THE
OPERATIONS OF THE 'ANTITRUST LAWS,' AS DESIGNATED IN SECTION 12 OF
TITLE 15, AND OF ALL OTHER RESTRAINTS OR PROHIBITIONS MADE BY, OR
IMPOSED UNDER, AUTHORITY OF LAW, INSOFAR AS MAY BE NECESSARY TO ENABLE
SUCH PERSON TO DO ANYTHING AUTHORIZED, APPROVED, OR REQUIRED BY SUCH
ORDER."
/15/ TESTIMONY OF JOSEPH B. EASTMAN, MEMBER, INTERSTATE COMMERCE
COMMISSION, ON S.2 AND S.1760 BEFORE A SUBCOMMITTEE OF THE SENATE
COMMITTEE ON INTERSTATE COMMERCE, 75TH CONG., 1ST SESS., 334-335
(1937).
/16/ AT THE HOUSE HEARINGS, COLONEL EDGAR GORRELL, PRESIDENT OF THE
AIR TRANSPORT ASSN. OF AMERICA, TESTIFIED THAT A MAJOR ELEMENT OF
UNCERTAINTY THAT KEPT MONEY FROM FLOWING INTO COMMERCIAL AVIATION WAS
"CUTTHROAT COMPETITION, . . . WHERE ONE COMPANY WENT OUT TO MAKE
WARFARE AGAINST ANOTHER AND WOUND UP BY DESTROYING THE CAPITAL OF BOTH
. . . . THAT IS A FACT. IT HAS HAPPENED, AND THE ONLY AGENCY OR AGENT
IN AMERICA TODAY THAT CAN STOP IT IS MYSELF; AND THE MOMENT I STICK MY
NECK OUT TO STOP IT, IF I DID, I WOULD FACE A JAIL SENTENCE AND A FINE
FOR VIOLATING THE ANTITRUST LAWS. OUR COMPANIES TODAY CANNOT LAWFULLY
AGREE ON PRICES." HEARINGS ON H.R. 9738 BEFORE THE HOUSE COMMITTEE ON
INTERSTATE AND FOREIGN COMMERCE, 75TH CONG., 3D SESS., 309.
SEE SILVER V. NEW YORK STOCK EXCHANGE, 373 U.S. 341, 347 (1963),
WHERE WE NOTED THAT THE RELEVANT "COLLECTIVE ACTION . . . WOULD, HAD IT
OCCURRED IN A CONTEXT FREE FROM OTHER FEDERAL REGULATION, CONSTITUTE A
PER SE VIOLATION OF SEC. 1 OF THE SHERMAN ACT."
/17/ 83 CONG.REC. 6730-6731.
/18/ BETWEEN 1956 AND 1960, THE BOARD ENTERED VARIOUS MODIFICATION
ORDERS PERMITTING TOOLCO AND TWA TO ENTER INTO SHORT-TERM LEASES OF
JETS AND PERMITTING VARIOUS LIMITED EXTENSIONS OF THOSE LEASES.
SPECIFICALLY, THE RECORD SHOWS THAT THE BOARD APPROVED 12 TRANSACTIONS
BETWEEN TOOLCO AND TWA FROM 1956 TO 1960:
-- ON MAY 17, 1956, THE BOARD APPROVED SALE OF 33 LOCKHEED AIRCRAFT,
AND SPARE PARTS, BY TOOLCO TO TWA;
-- ON DEC. 18, 1956, THE BOARD APPROVED A PROPOSAL FOR TWA TO BORROW
SOME $10 MILLION IN OPERATING CAPITAL FROM TOOLCO;
-- ON JUNE 11, 1957, THE BOARD APPROVED A PROPOSAL WHEREBY TOOLCO
WOULD REFINANCE TWA'S MAY 17, 1956, PURCHASE OF LOCKHEED AIRCRAFT;
-- ON DEC. 30, 1958, THE BOARD AGAIN APPROVED A TRANSACTION RELATING
TO THE NONJET LOCKHEED AIRCRAFT;
-- ON FEB. 26, 1959, THE BOARD APPROVED A PROPOSAL WHEREBY TWA WOULD
LEASE ONE BOEING 707-131 AIRCRAFT FROM TOOLCO, PLUS SPARE PARTS, FOR
THE PURPOSE OF TRAINING ITS CREWS TO FLY JET AIRCRAFT;
-- ON MAY 15, 1959, THE BOARD APPROVED THE LEAST BY TOOLCO TO TWA OF
11 BOEING 707-131 JET AIRCRAFT, WITH PROVISION FOR OBTAINING SPARE
PARTS FROM TOOLCO AND LEASING SPARE JET ENGINES;
-- ON JULY 1, 1959, THE BOARD APPROVED THE LEASE OF FOUR ADDITIONAL
AIRCRAFT BY TOOLCO TO TWA, AND THE EXTENSION OF THE LEASES ON THE
PREVIOUS JET AIRCRAFT. THE LEASES WERE PROLONGED PENDING THE WORKING
OUT OF "DEFINITIVE FINANCING ARRANGEMENTS" WHICH, PRESUMABLY, WOULD
ENABLE TWA TO ACQUIRE OWNERSHIP OF THE AIRCRAFT;
-- ON SEPT. 30, 1959, THE BOARD AGAIN APPROVED EXTENSION OF THE JET
LEASES UPON THE REPRESENTATION OF TOOLCO AND TWA THAT FINANCING
ARRANGEMENTS HAD NOT YET BEEN COMPLETED;
-- ON JAN. 29, 1960, THE BOARD APPROVED THE LEASE BY TOOLCO TO TWA
OF EIGHT 707-131'S AND EIGHT CONVAIR 880'S (ALL JET AIRCRAFT), ON A DAY
TO-DAY BASIS, AND AGAIN WITH PROVISION FOR SPARE PARTS. THIS APPROVAL
WAS AGAIN PREMISED ON COMPLETION IN THE NEAR FUTURE OF "DEFINITIVE
FINANCING ARRANGEMENTS PERMITTING (TWA) TO OPERATE THESE AIRCRAFT ON A
PERMANENT BASIS";
-- ON JUNE 23, 1960, THE BOARD APPROVED ACQUISITION-- I.E., PURCHASE
- BY TWA OF 25 BOEING 707 AND 20 CONVAIR 880 JET AIRCRAFT, WITH $260
MILLION TO BE RAISED BY AN OFFERING OF BONDS AND JUNIOR SECURITIES.
TOOLCO WAS TO GUARANTEE THE SUBSCRIPTION AND WOULD LEND $50 MILLION TO
TWA TO ENABLE IT TO MAKE THE OFFERING;
-- ON JULY 21, 1960, THE BOARD APPROVED ACQUISITION OF TITLE TO TWO
ADDITIONAL JET AIRCRAFT BY TWA FROM TOOLCO; AND
-- FINALLY, ON DECEMBER 29, 1960, THE BOARD APPROVED CREATION OF A
VOTING TRUST FOR THE PLACEMENT OF TOOLCO'S HOLDINGS IN TWA.
AS THE COURT'S OPINION OBSERVES, DAMAGES WERE AWARDED FOR THOSE
ALLEGATIONS OF THE TWA COMPLAINT THAT CHARGED THAT TWA HAD BEEN DAMAGED
BY THE DIVERSION OF SIX CONVAIRS BY TOOLCO TO NORTHEAST AIRLINES; BY
THE TEMPORARY RETENTION BY TOOLCO OF FOUR CONVAIRS AND THE ULTIMATE
LEASE OF THESE AIRCRAFT TO NORTHEAST; BY THE DIVERSION OF SIX BOEING
JET AIRCRAFT, OF 33 ORDERED, TO PAN AMERICAN AIRWAYS, TWA'S PRINCIPAL
TRANS-ATLANTIC COMPETITOR; BY THE LEASE OF PLANES TO TWA, IN LIEU OF
SALES THAT WOULD HAVE BEEN MORE TO TWA'S FINANCIAL INTEREST; AND BY THE
LATE DELIVERY OF 47 OF THE 63 JETS PROCURED FOR TWA BY TOOLCO.
WITH THE EXCEPTION OF THE DECISION TO LEASE PLANES TO TWA RATHER
THAN SELL THEM, THE ACTIONS ALLEGED TO HAVE DAMAGES TWA RELATED, NOT TO
THE DOCUMENTED STRUCTURE OF TOOLCO'S TRANSACTIONS WITH TWA, AS
PRESENTED TO AND APPROVED IN FACT BY THE BOARD, BUT RATHER TO THE
MANNER IN WHICH TOOLCO EXECUTED THE PAPER TRANSACTIONS, WITHOUT BOARD
APPROVAL OR KNOWLEDGE. THE LEASES WERE NEVER CONSIDERED IN RELATION TO
OTHER MEANS OF AIRCRAFT ACQUISITION, AS THE COMPLAINT REQUIRED THEY BE
VIEWED. THE COURT DISMISSES THESE DISCREPANCIES BY OBSERVING THAT THE
RESTRAINT ALLEGED IN PAN AMERICAN WAS HELD TO BE IMMUNE "EVEN THOUGH
THE CAB HAD TAKEN NO ACTION TO INVESTIGATE, LET ALONE ACT ON, THE
ALLEGED MISFEASANCE AS THE BOARD HAS DONE HERE FOR OVER 16 YEARS." IN
OTHER WORDS, IF THE BOARD WERE RESPONSIBLE FOR COMPLETE SUPERVISION OF
THE TOOLCO-TWA TRANSACTIONS, IMMUNITY WOULD NOT BE UNDERMINED BY THE
BOARD'S FAILURE TO UNDERTAKE SUCH SUPERVISION IN FACT.
AT BEST, THOUGH, THE COURT'S HISTORICAL RECITATION IS IRRELEVANT
SINCE IT IN NO WAY EXPLAINS WHY IT WAS THE BOARD'S STATUTORY
RESPONSIBILITY TO CONSIDER THE TRANSACTIONS BETWEEN TOOLCO AND TWA AS
COMPONENTS OF AN ANTITRUST CONSPIRACY ALLEGEDLY POINTED TOWARD THE
AIRCRAFT SUPPLY AND MANUFACTURING MARKET.
/19/ THE BOARD'S 1950 PROCEEDING UNDERTOOK "TO CONSIDER THE OVER-ALL
IMPACT OF THE ACQUIRER'S PLANS AND POLICIES WITH RESPECT TO THE
CONTROLLED CARRIED." 12 C.A.B. 192, 196. THE BOARD REVIEWED THE PAST
TRANSACTIONS INVOLVING THE FINANCING OF AIRCRAFT. IN PARTICULAR, THE
BOARD CONSIDERED WHETHER TOOLCO HAD PROPERLY RESOLVED, IN FAVOR OF DEBT
FINANCING, A LONGSTANDING DISPUTE BETWEEN THE TOOLCO AND TWA
MANAGEMENTS OVER THE RELATIVE MERITS OF DEBT OR EQUITY FINANCING OF NEW
AIRCRAFT. THE BOARD CONCLUDED THAT TOOLCO'S FINANCIAL AND TECHNICAL
CONTRIBUTIONS TO TWA HAD BEEN OF CONSIDERABLE BENEFIT TO THE CARRIER.
ON THE OTHER HAND, THE BOARD VIEWED TWA'S CAPITALIZATION AS "NEITHER
REASONABLE NOR SOUND" SINCE "(ITS PROPORTION OF DEBT TO TOTAL
CAPITALIZATION IS FAR TOO LARGE." ID., AT 218. YET "THE EXTENT TO
WHICH TOOLCO AND ITS PRINCIPAL OFFICERS CAN BE HELD DIRECTLY OR
PRINCIPALLY RESPONSIBLE FOR TWA'S PRESENT CAPITAL STRUCTURE POSES A
MOST DIFFICULT PROBLEM," SINCE "(NUMEROUS FACTORS . . . OPERATE TO
COMPLICATE AND OFTEN DELAY AGREEMENT ON A FINANCIAL PLAN." ID., AT
221. ON BALANCE, THE BOARD CONCLUDED THAT TOOLCO CONTROL OF TWA HAD
BEEN IN THE PUBLIC INTEREST, AND IT APPROVED THE ADDITIONAL ACQUISITION
BY TOOLCO OF TWA STOCK. WHILE IT IS TRUE THAT THE BOARD'S
EVALUATION OF TOOLCO'S "STEWARDSHIP" OVER TWA INVOLVED DECISIONS
REGARDING THE ACQUISITION OF AIRCRAFT, INCLUDING THE METHOD OF
FINANCING AND THE TIMING OF PURCHASE AND LEASE DECISIONS, THERE IS
NOTHING IN THE BOARD'S DECISION TO INDICATE THAT THE BOARD'S 1950
PROCEEDING UNDERTOOK TO ANALYZE TOOLCO'S CONTROL OF TWA FROM THE
PERSPECTIVE OF TOOLCO'S OWN MARKET POSITION. CONSEQUENTLY, THE 1950
PROCEEDING IN NO WAY SUGGESTS THAT THE BOARD HAS DEVIATED FROM ITS
CONSISTENT POSITION THAT CONGRESS DID NOT ENTRUST IT WITH THE EXCLUSIVE
RESPONSIBILITY FOR POLICING ANTICOMPETITIVE EFFECTS OF SEC. 408
TRANSACTIONS.
CHARLES ALAN WRIGHT ARGUED THE CAUSE FOR PETITIONERS IN NO. 71-827
AND RESPONDENTS IN NO. 71-830. WITH HIM ON THE BRIEFS WERE CLARK M.
CLIFFORD, THOMAS D. FINNEY, JR., E. BARRETT PRETTYMAN, JR., CHESTER C.
DAVIS, AND MAXWELL E. COX.
DUDLEY B. TENNEY ARGUED THE CAUSE FOR RESPONDENT IN NO. 71-827 AND
PETITIONER IN NO. 71-830. WITH HIM ON THE BRIEFS WERE JAMES WM. MOORE,
PAUL W. WILLIAMS, MARSHALL H. COX, JR., RAYMOND L. FALLS, JR., AND
WILLIAM T. LIFLAND.
SOLICITOR GENERAL GRISWOLD, ASSISTANT ATTORNEY GENERAL KAUPER,
GEORGE EDELSTEIN, O. D. OZMENT, WARREN L. SHARFMAN, AND ROBERT L.
TOOMEY FILED A MEMORANDUM FOR THE CIVIL AERONAUTICS BOARD AS AMICUS
CURIAE.