Petition for Writ of Certiorari — North Central Airlines, Inc. v. Civil Aeronautics Board

4

f En

mee oe bie os js

) | & PO BECANING. Sherk

“IN ‘The

—upren Court of the Anited States Ss

i January Term, 1959”

hy . t

ig ; 8g me) st

. No. me pi *+ :

' Norto CextraL Aimuines, Inc. Petitroner

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Civin- AERONAUTICS Bosnp. Re sponde ut

LAKE CENTRAL AikiINeEs, Ixc., litervenor

Lake Cextral Exprover Srockuotprn: Grove, litercenos

PETITION FOR A. WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT :

ce 1200 Sheraton Building

ce. Tae 11 14th Street. No W:

Vashington 5. Dn C.

PP of J Atlornesy. haw. Petitioner

v A. L. Witkki “Saree et

"" WILSON . Eres Printinc Co - RE 7-6002 . WASHINGTON 1. D. C.

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I TN eaistnsithnercicertccttccess. Ndi ica Sate seenennsenel

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INDEX

Questidgs Presented 00000008000 oc. scene .

Constitutional Provisiens-Statutes and, Regulations —

3

of the Civil Aeronauties Board Involved............

Statement of the Case ie a

_ Reasons’ for Granting the, Tt... Tee:

A.

( ‘ .

.

The Board Did Not Have the Power to. In-

vite and Permit the Intervention of Other

Prospective Purchasers of the Lake Cen.

tral Stock and to Thus Convert the Acqui-—

"sition Proceeding into a Campetitive Hear-

ho nee Megan » GNEPSa A

The Board’s Action in Holding Individual .

| Ex Parte Conferences with Members of the

Lake Central Employee Stockholder -Gro&

was an Improper Departure from the Us-

‘ual Course of Administrative Proepeding,

a Departure from this Court's Decisions.

and a Violation of North Central's Rights

to a Full‘and Fair Hearing............

The Civil Aeronautics Board's Action in

‘Permitting the Amendment of the Lake

Central Voting Trust Agreement without

Notive to North Central Deprived, North

. Central ef a Full and Fair Hearing under

Amendment Number Five to the Constitu-

tion of the United States by Departing

from the Prior Decisions of the Supreme

ORG cscstilsssrnseasgeatnnenistacsdaechastebasasgompenet iets

By

10

13

whe

.

i INDEX (Continued)

Page

D. The U.S. Court of inhale for,;the District

of Columbia Circuit Improperly Sanctioned

an Unexplained. Departure by th# Civil Ae-

-* * gonautics Board from its Prior. ‘Norms

‘Concerning Acquisition ‘and Merger Cases.. - Ws

Conclusions .. AES TN ee i geet piensa erate sac oe

-Appendix A .......... tle Linney sami rosea detanai poles Si

_ Appendix B aa accusam Ba ae pecrads csinaitieion, a

: Appendix SS csansanceenonsanncnnaiusdecernsine A AAS vitae Po) |

CITATIONS Sirsa es.

__-brizona-Monarch Merger Cast, 11. CAB 246 (1956). 9,19,

20, 23, 24 .

Ashbacker Radio Corp. v. FCC, 326 U.S. 327, 66

S.Ct. 148 (19459 2 RT Se RO 2.16. 17

Continental-Pioneer , Acquisition Case; “ Sowtiat No. 7“

6457, Order No. E-8803, ‘dated December (,

GS St Ra Ties AE Ree Hen eeRP Menem tr : 11.

~— Eastern-Colonial Acquisition o Assets, Docket No.

5666, Order No. F,-8446, dated June zy, 1954, ;

Appendia ‘i, p. 1 ........... eiahiledeineescbaicos sdlcaptaamiapninatonnes aay

Fluing -Tigers-Slick Merger. Pane, 18 CAB a

CORR Ae eee ke

Hall, et al. v. FCC, 99 U SS. hve. D.C. 36, 937 F.2d)...

a a es ee i

Hartman y. North Central Airlines. _Ine., 241 F. 2d_

— E> EE) SER Ren emeee aT non Ean 9 ne \5.8

Lynch ve US 299. US. 571 (1934) Nets taciilbeesickt ear iS

McKay ve W wre mmaier, IOUS. App. D. C. 313, 226

B. 2d 39 (1955) ........: ela cea iia iadeabitpe tact Fi

Mississippi Valley Case, 8 CAB 726, 752 (1947) ls 20

Monarch-Challenger Merger Case, 11 CAB 38 (1949)

Morgan et alive U.S. et al, 304 U.S. 1, = S.Ct. ;

res (YBR) Bo i ees ae 14

ts = a

‘ eae Se” kt ge ines

NLRB vy. Mall _ Con, is b-2d 700. (ith ¢

i) eR ET rere ERR A ORG ECON ADEN DO MORVOPIDEE ADEE ce

Qhia Be M Tele dean Co. v. Public Utilities Comsmis- a

| sion, 301 1.8. 292 (1937) . seteduetsied vavhdatlbsysagenetagnccdede ae

Reopened Indiana-Ohio Local Service Case, 16 AB are

OO Ce incest etecesc secon :...' 4,5, 6,8

Root Refining Co. v. Universal Oil Products Co., 169 | .

F. 2d 514 (3d. Cir. 1948) «.......2.: SOREN Raye * He.

‘Secretary of Agricidture v.17 'S8., etal. “SUS. a

SI aE, We CE nao aces ontecesis 18, 24

* Service to. Phoenix Case, Docket _ a 6247, Order:

No. E-11833 (1957.) .002...2.. eae. TCR eRe anne oe 2}

— Seven States Area leretignti, Docket ti. 7454. *

Order No. F-1: 3254, Nett Decembér 8, 1958...... 21

Texas-Oklahoma Case, 7 AB 481, 537 (1946)........ 20°

West Coast: Empire Case HC AB 971 (1952) 9,19, 20,

23, 24

Williston Basin bigs Case, 18 CAB 873. (1954). 2T

“WKAT vo FCC, 25 58. F. 2d 418 (D.C. Cir, 1958)... 15

WORZ, Inc. v. FCC, 79 S.Ct. 114) (1958)...................; oo ee

bs onstitution of the U pited States: ed

Aniendment _ Abe See Wie kee 2 212, 16,27

Statutes: *- % | :

Federal’ Administrative Proc ‘edure, Act:

ae. grt uaa Se My ane ee S mae EA ROM eh 27

2b . . DIES APES ee ieee ap a ReO es Lech he OM INT a ® 27, 28

DI Ss Ri rhcar alive cinikicsecagttorttaundioonatecndags cake ta

: I et iesedinatash Sener aphenciossehcsnbinieeraginan, 18, 20

Seivil Aeronautics Act of 1938 .

Oa taille css sic asetvidtbicite satin nia ooieasieniccie 29, 30

MN ie Stake eaa cena windleas Aden 11

i. Ye EE ANE RN hikitorievuinaee 10, 30, 31

eo) Le eee NN Gh oR S oa <8

$ 408 . i cdetiaptusalal iaanels icecusiualpchs ixevababasasas 2,4, 2D, ie 12

§ 408(b) trae 10, 31

‘ PE ede asics has aaa anit inicdeiccneien 5, 31 32, 33

INDEX (Continued) * aii :

SS

-

Board

~.

_ INDEX (Continued)

Economic Regulations. of the Civil Aeronautics

Page

, E | | : f . “s : . | /

In Tue

‘joe Court of the Anited States

January Term, 1959

-

Bs. sianimins o--

=)

Nort Centra Arriines, INc., Petitioner

Vv.

Crvit Agronavutics Boarp, Respondent

Lake CentraL: ArrLINEs, INc., [ntervenor

Lake CentraL Emproyee Stocknotper Grove, Interrenor ~

PETITION FOR A WRIT OF CERTIORARI TO THE

‘UNITED STATES COURT .OF APPEALS FOR THE

“*DISTRICT OF COLUMBIA CIRCUIT

To the Honorable Chief Justice, and .the Associate Jus-

tices of the Supreme Court of the United States.

Petitioner, the: appellant below, prays that a writ of-

certiorari issue to review the judgment of the United —

States Court of Appeals for the Distriet of Columbia

Circuit entered in the above cause on January 29, 1999.

OPINIONS BELOW.

The Civil. Aeronauties Board entered an opinion in

‘the case of North Central Airlines’ Acquisition of Lake <

Central Airlines, Docket No. 5770, Order MB. E-11548, on

July 9, 1957 (J.A. 480) and denied North Central's peti-

‘tion for reconsideration in. Docket No. 5770 by Order No.

:-11932, entered November T, 1957 (J.A. 558). The opin-

‘>

“~~ . . . . ihe : .

PE a. |

ion of the United, States Court of Appeals 1 for the Dis.”

trict of Columbia Circuit is set fee in Appendix B ‘to

this Brief. — a ess Sie ae Wises:

. JURISDICTION .

The “‘iedgment of the United States Court of “Appeals

for the District of Columbia’ Circuit, was entered on Janu-

ary 29, 1959. The jurisdictidn of this Court is. invoked

under 28 U.S.C. 1254. :

' QUESTIONS PRESENTED

1. Did the Civil Aeronautics Board have die: power

to convert an acquisition proceeding under ‘Section 405.

of. the Civil Aeronauties .Act ‘of 1938.into a competitive

‘hearing by inviting and permitting the -intervention of

‘prospective buyers of. the Lake Central stock other. than

- North Central, and by permitting the intervention of the -

Lake Central Employee Stockholder ‘Group, thereby dis-

torting and changing the statutory test of uw hether’ the

acquisttion was not consistent with the public inte rest 10

which of several alternatives for the operation of Lake

Cejtral was, in the discretion of the Givil Aeronautics

Board, preferable?

2. Did the Civil Aeronautics. Hone improperly. ‘eerie

Nortlr Central of its right to a ° full and. fair hearing unde’

the Fifth Ame.timent .of the ‘Constitution, , the “A minis-

trative. ProcedureAct, the Civil Aeronautics Act of 1938.

and the Rules and Regulations’ of the Board by holding ,

individual ex parte conferences with representaatives of

the Lake Central. Employee Stockholder Group concern-

ing. matters pertinent to the acquisition of the Lake Cen-

tral stock by North Central?

3. Did the Court below : ‘improperly sdfction a depar-

ture from the doctrine announced by this Court in Ash-

backer Radio a v. FCC, 326 iF UR 327, 66 S.Ct.

®

.

4

| nS

148:(1945) and deprive North Central of a full and fair

hearing :when it failed.to hold that the Civil Aeronautics.

Board had erréd in permitting without notice to North

Central the amendment. of the Lake Central Voting Trust

‘Agreement so as to allow the transfer of the voting trust

a to’ the Lake. Central Employee . Stockholder

Group, thereby placing North Central in the, position of

having to displace an éstablished liGensee instead ‘of |

merely having to take over the operation of the airline

from, an unfit management? — : : cs

4. Did the Court below improperly sanction -an un-

bs explained departure by the Civil Aeronautics Board from |

"its established precedents concerning acquisition and

merger cases?. 2 es .

- CONSTITUTIONAL -PROVISIONS, STATUTES AND...

REGULATIONS OF THE CIVIL AERONAUTICS _

is BOARD INVOLVED |.

The consideration of this. case involves Amendment _

Number V to the. Constitution of the United States, por- |

tions of the Administrative Procedure Act {5 U.S.C. 1001

et seq.], the. Civil Aeronautics Act of 1938 [49 U.S.C. ‘401

et seq.], and portions of the Economie Regulations of

‘the Civil’ Aeronautics Board...The pertinent sections of

_ are set forth fully in, Appendix A to this:

ition. Baqi ess ae

us @ 3 Pear’

STATEMENT OF THE CASE

Petitioner, North Central Airlines, Inc., is a Wisconsin

corporation engaged in’the business of scheduled inter-

state air transportation of persons, property and ‘mail

pursuant. to a certificate of public convenience and ne-

cessity issued by: the Civil Aeronautics Board; Lake.

‘,. Central Airlines, Inc. is a Delaware corporation also

engaged in the. scheduled interstate air transportation

of persons, property and mail under a certificate of pub-,

?

‘operators. On the other hand,

lie yaaa and necessity. Petitioner is one Of the.

ke Central Airlines is

_ largest, lowest cost and least” Ete a local ervive

a

and most subsidized

.

one of the smallést; high®st co

local service operators. “44

ee .

Petitioner initiated theudivcceedings beléw when it

‘ sought the approval-of the Civil Aeronautics Board. un-

der Section 408 of the Civil Aeronautics Att of 1938 of

a contract to purchase ‘approximately M5. percent of hie

Lake Central stock from John V. Weegper, Rose "OC Weis

_ ner, William W,, Weesner and various corporations con.

‘trolled by them (Reg, 43; 54, 60). The acquiSition con-

tract, of wick North, Centia] sought approval grew out

of: thy Reopened’ Indiana- Ohio. ‘Local. Service. Case, 16

CAB 880°(1953) Which the Board reopened ‘in order to

; investizate alleged improper, illegal and dishonest: prac-

* tices ir? thé field of air commerces by the Weesners and

their associates and theif effect upon the fitness, willing- |

ness and ability of Lake Centraf Airlines to.“engage jin

scheduled air transportation. ,:The hearing. examiner in

that case found that there had been serious violations .of :

‘the Civil Aeron@utiées Act by. John Weesner, Lloyd Hart-

man, the present executive vice ‘president of Lake Central;

and several other Weesher associates (Exam, I.D., €AB

--Docket No. 4034, pp. 20 and -43).' He: ‘Fecomumended that.

Weesner: divest. himself of the management and control

vf Lake Central. , Before. the Board had acted on the.

_

‘e 1 Similarly, the examiner in North, Centfal’s acquisition case.

‘found more recent dishonest andilegal practices by the Lake

4

against him by North. Central for breach of: fiduciary

"Central. management which involved this same Lloyd Hartman

(Rec. 450 and 451). He w: zed at their. alacrity in: (1)

\ rajging the salaries of. the etsployees to allow them to. pay for

their stock; (2) binding the airline to pay for the. Weesners’

legal fees; (3) indemnifying Dr. Robert Stewart, am of

the Lake Central board of directors, for loss arising out ote

tion

ship; - (4) defraying their ‘expenses incurred. in Opposing the ac-

quisicion with company funds; and (5) managing Lake Central

‘for their personal ends rather than for the public interest.

-% ce aa

’

/ . /

« 7}

.. | + 5 | ee

-examiner’s recomntendations, Weesner attempted to sell

his interest in Lake Central in order to salvage his: in-

vestment. See Hartman :v. North Central Airlines, Ine.,

941. F.2d 859 (7th Cir, 1957): On September 1Q. 1992,

North Central’ offeréd to purchase the stock from the’

‘Weesners and a written contract was entered ‘into on

September 17, 1952 (Ree. 46).2. Subsequently, on Octo-

, ber 17, 1952,, the Civil Aeronautics oatd upheld theif -

fy

trial exapymeger in the*Reopened Indidhna-Ohio Local Serv-

we Case,.supra, at. O44, and ‘found that the Weesners were

unfit to engage -in air transportation and: that they must

divest themselves, of control of Lake Central. Solely on

' - the ba®is- of North Central’s contract and. the. financial

fitness which North*Central. gave to Lake Central, she

Board granted Lake Central a 30-day ‘extension. DuNng -

this period, the Weesners were to’ promulgate -and pre- ©

sent to the oar a plan for divestment of their stock.

For this pfirpose, the, Weesners proposed .and the Civil

«

+ Board approved a Voting Trust Agreement.’

etilioner requested Board approval under Section 408

of the Civil ‘Aeronautics Act of its contract by applica-.

¥ ‘tions dated September 30 and November 1, ‘1952. (Docket

No. 5770)* and for approtal of interlocking relationships

‘ under Section 409 of the Civil Aeronautics: Act on March

"18, 1953 (Docket No. 6024). Ozark Airlines and Trans-

°

2 This contract was aménded by a;subseguent written contract

of October 17, 1952 (Rec. 54). sie . ;

‘3 Thereafter, in spite of their contract ‘with, North Central, the

"Weesners attempted to resell their interest in Lake Central, now -

in the form of voting trust certificates, to Ozark Airlines, Roscoe

\

’ . Turner: and others. Hartmavt v. North Central Airlines, Inc.,

supra. #n doing so, the Weesners were violating’ a provision in

their contract with North Central by which they agreed to fully

_ cooperate with North Central in the prosecution of; an application”

for approval of the acquisition (Rec. 49).

‘Rec. 43-46,°64. oa *

* Rec. 6-11... wae: sig

: a

4 J

os. |

port Air Group requested *éonsolidation into Doeket No

5770 of their applications to be considered as pojgntiat

transferees of Lake Central. At the preheaftng confer.

ence in Docket No, 5770, North Central objected to the

consolidation of applications of other potential purchas.

ers and requested that the issues in this case be restricted

to ‘the consideration of its acquisition agreement (Orig.

Tr. 230). North Central's objections were formalized in

_ its answers. to the motions of Ozark and Transport Air

‘Group for consolidation (Orig, Tr. 259). The. Board,

however, converted North Central's acquisition progeed-

ing into a‘cbmpetitive proceeding when it instituted an

investigation ‘*. . . to determine whether and upon what

terms the acquisition of tlie majority stockholding in-,

terest in.duake Central by North Central, Ozark and/or

Air Group, and whether and upon what. terms the acqui- .

sition of Lake Central’s Route No. 88, in whole or in

part, by North, Central, Ozark and/or Air Group is ‘con.

‘sistent with. the public interest . . .”’ and consolidated this

investigation with Docket No. 5770 (Orig. Tr. 301).*

Finally, on June 25, 1954,.the Weesners succeeded in

contracting to resell the same stock, now in the form of .

voting trgyt certificates, that they had previously con-

_ tracted .to sell North Central. They entered an_ option

contract to sell their voting trust certificates to Lloyd

r ebecw i naas Robert Clifford.” Hartman and Clifford

i

6

“ The Board further manifested its desire that the acquisition

proceeding be a competitive one when ‘it permitted the inter-

vention in 1954 of the Lake Central Employee Stockholder Group

(Orig. Tr. 484) over North Central's bitter protest.

* Lloyd Hartman was one of the associates of the Weesners who

had been censured in the Reopened India hio Local Sernic?

cae, supra. So far as Hartman and Cliff. were concerned, it

was a windfall as they took the Weesners’ certificates subject to

any North Central rights. If the value of the stock were to de-

preciate, they would not oppose the acquisition ‘by North Central ©

and permit North Central to bear the loss. If the value appre-

ciated, they would (a) claim that North Central had breached its

-~

.

2

later sold a part of the certificates ta some of the em-

ployees of Lake Central and: thereafter labeled their

p for conspicuous consumption purposes as the Lake

Central Employees Stockholder Group. . '

During the latter part of May or the first part ef June’

~ in 194, Hartman and-Clifford and other. representatives

of the Employee ‘Stockholder Group proceeded with a&

diabolical scheme to capture Lake Central for themselves:

and held informal er parte conferences with individual

Board members. The matters which were distussed were

whether thére would We any official objection to their go-

ing forward with the stock purchase program and wheth-_

_er Lake Central should be operated ax a separate entity

or merged or dismembered 4Orig. Tr. 1985, 364, Appendix

C). The result of these conferences was the consumma-

tion of the aption voting trust purchase contract between

the Weesners and Hartman arid. Clifford entered into on

‘ the 25th of June, 1954 (Ree. 202). :

Now that they had both feet in the door, the Employee

Stockholders openly and actively opposed the acqnisition.

They petitioned the Board for leave to intervene in

Dacket No, 5770 (Orig. Tr. 149)... The Board allowed the

intervention of the Employee Stockholder Group * (Orig.

Tr. 430), thereby further manifesting itx intention that:

the North Central acquisition proceeding be a competi-

tive one. This permitted the Weesners’ assignees, the

‘Lake Central Employee Stockholder (iroup, whose ax<ign-

ment was specifically made subject to the right« of North

Central, which included the right to have the sellers” ce.

operation in obtaining approval.of the*acqnisition, to vie”

late the sellers’ contractual commitments and vigorously

oppose approval. —

‘The Employee Stockholders instigated as amendment

to the Voting Trust Agreement to allow them te pur-

contract and had no rights and (b) oppose the acquisition before

the Board and, if succeseful in either case, “steal” the benefits of

North Central's contract.

a

g

chase the voting trust certificates without terminating the

trust.". On January 11, 1955, the Employee Stockholders —

filed a formal application for approval of this amend.

ment_in—Docket No, 4034, the Reopened Tndtana-Ohio Lv

cal Service Case, supra. No notice was given to, North,

Central of this application by either the -Lake Central.

Employee Stockholder Grotip or the Civil Aeronautic’

Board. By chance North Central received word 6f this |

application and objected strenuously to the amendment

of the Voting Trust Agréement (Orig. Tr. 443, 453, 463).

‘The Board granted the Lake Central Employee Stock. |

holder's request over the objections of North Central in .

Docket No. 4034, Order No. E-8931, thereby making it

possible for the Employees to exercise their option’ and

purchase the voting trust certificates.”

In 1955, the Board severed from Dockets 5570 and

6024 upon request of both North Central and Lake Cen-.

tral. all applications of prospective purehasers other than

‘the Lake Central Employee Stockholders, and the case

proceeded to hearing in November 1955:- After hearing, _

the examiner found that the acquisition would not he

inconsistent with the public interest, and recommended

its approval (Ree. ,441-467). ~The ‘Board reversed its:

examiner, ‘however, and refused to approve North &

tral’s acquisition contract on the principal in pn

the North Central and Lake Central trade areas are not

“complementary ’’ and that the combined: systems would.

§ The original Voting Trust Agreement provided that a transfer

of more than 75 percent of the voting trust certificates would ter-

minate it. The Employee Stockholders sought amendment of the

' agreement so as to eliminate this provision. ~

. *Hartman and: Clifford did not confirie their efforts to pre-empt

the North Central contract to proceedings before the Board. They

filed a suit in the U. S. District Court for the Southern District of

Indiana to have the contract declared breached by North Centra!

all pursuant to the above-stated scheme. This attempt failed when

the U. S. Court of Appeals for the Seventh Circuit found that the —

contract had not been breached (Hartman v. North Central Air-

: lines, Inc., supra).

—

est. NorthsQZentral petitfoned for reconsideration of

& uv

ereate a local, service carrier of: “unprecedented size.”

The Board’s action in considering each of these findings

as ground for d t—eonrstrtute ad vitar de-

partures from the Board’s own prior decisions. -In the

Avizona-Monarch Merger Case, 11 CAB 246 (1950), the

Board specifically. held\that “. . . it -isy not essential that

the routes of the two ¢ mpanies be complementary .-. Hey

in an acquisition or mérger proceeding ;and-in v the Hest eg

_Coast-Empire Case, 15 CAB 971 (1952), it was pecessary

for the ‘Board to certificate a new. segment to close a

hiatus between ‘the route systems of the juérging carriers.

Furthermore, the Board departed from its findings in

other acquisition and ,inerger cases that size of the -

combined carriers is nat per sea consideration in ythe

getermination of inconsistency with the pyblic inkers-

Board’: order (Rec, 519). After denial of recons sidera-

tion, North Central petitioned for judicial review in the’

u. 8. Court ‘of Appeals for the District Cireuit.

‘Briefs were submitted to the. Court of. Appeals and

oral arguinent held. Subsequently, the Court requested:

supplemental briefs by .the parties on four questions in-

volving: procedural improprieties on the Board's part,

which would vitiate the administrative proceedings in

* this case (Ree. 568). On January 29, 1959, the Court of

Appeals issued its decision and opinion in this case af-

firming the decision of the Civil Acronautics Board (Ree.

561-566).. In its opinion, the Court dismissed the ques-

tions requested on supplemental briefs by me rely ~aying

(Ree, 565):

- “With the assistance of spplemental Memoranda

from counsel for the parties, the Court .has explored

several questions relating te the procedure before

the. Board, bat we find no reversible errorcin: these

_Tespects.”’ “

The Court also condoned the Board's unexplained de-

partures from its precedents —amd—atremyited, te Geass

ty

them by attributing them té a valid exercise of

istrative diséretion (Rec, 5 soning, with re.*

; is point Was Vague, inconsiotent and indecisive

Petitioners -respectfully request that a writ of: certiorar

issue to review the erroneous decision of the Court below

——

_REASONS-FOR GRANTING THE wait

10

— 9 .

A. The. Board Did Not Have the Power to. Invite and,

Permit. the Intervention of Other Prospective Pur-

chasers for the Lake Central Stock and te Thus

Convert the Acquisition Proceeding inte a Com-

petitive Hearing. :

The. very nature of a merger or acquisition proceeding

under Section 408(b) of the Civil, Agronautices Act i

non-competitive.” Such a proceeding differs from a Sev.

tion 401 route certification case in that it can only arise

out of an Age yen between séparate entities, aveiaee

routé cases are born of disagreement as to whieh or be

many carriers should operate, a-wiven route.‘ There is

no express statutory authority whatever, Sor converting

a 408 hearing into a competitive proceadiste./ To the Colle

trary, Section 408(b) refers repeatedly to “the” acyu

sition of control and seueh acquisition of control,

1© Section’ 408(b) of the Civil Aeronautics Act of 1988 define: _

the power of ‘the Board in acquisition cases as follaws:

“(b) Any persons seeking approval of . ... acquisition of. con-

trol specified in subsection (a): of this, section shall pre-

sent an application, to the Authority [Board] and the Te

upon the Authority [Board] shall notify the persone in-

volved in the... . acquisition of control and other per-

sons own to have a suostantial interest in the, pr:-

ceeding of the time and place of a public hearing. =U"

less after such hearing the Authority [Board] ‘finds tha‘

. . acquisition of control will. not’ be consistent with

the public interest or that the conditions of this section

will not fulfilled, it shall by order approve such

acquisitiof -of control upon such terms and conditions

as it shall find to be just and reasonable and with such

modifications as it, may prescribe. -

>

%

~

a *. , v 7 “*

viously meaning “the” acquisition contract entered -into

between the acquiring and the acquired airline, “The

Board’s power in acquisition eases under Section 408 is

sentient can act only if one of the carriers applies

fo

-

r approval of an acquisition agreement, Certainly the

oard cannot institute aequisition proceegivgs of its own

or force unwilling carriers inte a merger, and it ts obluged -

to respect contractual agreements unless they are not

consistent with the. public. interest. . Such aA power would

have the effect of forcing vither an unwilling buyer or

an unwilling seller te ‘consent tu the aeqaisition. Lew

wally, therefore, the Board is limited fo the consideration

af that agreement of which approval ix reene steed.

One of the things cimaide: read to be

under Section 20b) of the Civil Aero

fostering-6f sound economic conditions tain transporte —

tation. Mergers and a a ‘tions -are methods of, effect-

ing this consideration. "Undoubtedly, (t. Was the inten-

tion of Congress in passing Section 408 to favor strength.

ening of weak carriers through mergers and acquisi-

tions)? For thi reason, Congress made an. acquisition

inferentially ino the public interest by crequyrimg that the

Board - “approve the acquisition unless it finh- that it will

not be ‘consistent with the public interest. Tf the deci

sions of the Civil’ Aeronautics Board and the Court of

Appeals are allawed to stand, the Congressional intent

wi Wy bn thwarted. Carriers will be reluctant to enter inte

Lin publie interest -

ities Net is the

‘1! The Executive Branch of the Government and the Civil Aero-

nautics Board have given effect to this policy in favor of mer-

gets and acquisitions. See Statement of Policy respecting Eto-

nomic Program of 1949 issued Feb. 26. 1949: Annual Report of

the Civil Aeronautics Board. 1950, p. 2. Easternolorial Ac-

quisition of Agaets, et No. 5666. Order No, E-844*. dated

June 17. 1964, App x 1, p. 1: Flying Tigers-Slick Merger Care,

18 CAB 326 (1954): Centincste Plancer Acquisition Case, Docket

‘No. 6457, Order No: E-8803, dated Dec. 7, 1954. p. 3: President's

Air Coordinating Conese Report on Civil Air Policy. May

1954, p. 14.

- a

+

merger and acquisition agreements: and io institute the

expensive, involved, time-consuming procedures: necessary

‘to obtain Board. approval if they know in advance that

the Board will protong thesproceedings and make. thei

even more hazardous and expensive.by inviting to par-

ticipate their competitors, who have absolutely no in

terest in the original agreement. and no contractual ey.

posure, This is particularly true in view of the fact

“that in a eonipetitive hearing each party theoretivall:

‘has equal opportunity, whereas in an acquisition proceed

ing the. acquiring. airline has contracted for its position 7

and exposed itself to the economic rigk. The Civil Aero:

nauticg Board should not be permitted to transcend Nort)

Central's) constitutional: rights under the Fifth:’Amend-

ment by violating the sanctity of its ‘contract. Suen,.

a Violation results from both enlarging the limited con.

dition, which the statute places upon contracts of acqui-

sition, and from permitting the assignee ef the seller tw

formally and officially violate its contractual commitme: !

to cooperate in ohtaining approval by allowing such 2s

signee “to pose the most obstreperous opposition ts

approval. P

A spike ‘ration of: this question bw. this Court is «of

extreme importanee not only as a guide te the Civil Aer.

yautics Board’ in future proceedings before ‘it: but alsoe.

‘as a guide te Other administrative agencies. This +

the first time that the Civil Aeronautics Board has openly

ane flagrantly converted va -hasie Seetion 408 proceeding

into a competitive one. This Court‘now. has the opportu.

wity te Glarife for the Civil Aeronautics, Board and the

air industry the extent of the Board's authority in thy

field of mergers and acquisitions. “A decision on th

point will be a guide for, future acquiring and mergine.

earners in dete ‘rmining whether or not they should ente”

into. st th vsihitimeeaies A decision denving certiorari and

12 SeeeLynch V. ws . 292.U S. 571. 579 (1934).

i

P \ , - 13 e

thereby affrming the Court below and the Civil Aero-

nautics Board will suppress ‘the desire ot air Qarriers

fo enter agreements even though they thay be in the

public interest. . This is ‘particulardy important.in Our

maturing air. transportation system which iS constantly”

* attempting to increase efficiency through every means

possible, including acquisition and merger. The ultimate

_ effect would be the suppression of the developgrent of

the anost efficient type of national air transportatpon

system. ; 3

B. The Board's Action in Holding Individual Ex Parte

. Conferences with Members of ‘the Lake Central

Employee Stockholder Group was an Improper

. Departure from the Usual Course of Administrative .

Preceeding, a Departure from this Court’s Deci-

siens, and a Violation of North Central’s Rights to

a Fall and Fair Hearing. ,

- The record in this case shows that membets of the.

Lake Central Employee Stockholder Group held individ. .

ual er parte conferences’ with Board méinbers prior 10

entering: into ah option contract: to purchase the Lake

Central voting trust certificates (Orig. Ree. 364, 198),

Appendix (). The matters discussed af*these ‘confer-

ences were whether or not there was any official objection

to the Lake: Central Emplovee Stockholders going: for-

:’ ward with their option contract and whether such a pro-

gran might well be considered as an answer to the ques-

tion of. whether Lake Central should be operated as a

separate entity or merged or dismembered. “At the very

least, these conferences involved a discussion as to the

merits of the Lake Centrat Employee Stockholders’ con-

tention that. they had an interest in the acquisition: case

which would -allow them to intervene, North Central

should have been afforded an opportumty to appear and

oppose the Lake Central Employee Storkholders’ conten-

* fion of interest: No such oppdtunity was afforded North

\.

Pe. 2 aie E a -

*

>

oe

Central and therefore it was deprived of a full and fair - -

hearing: |

Er parte conferences in judicial tribunals are improper,

amounting to reversible error. E.g.,, Root Refining Co. v.

Universal Oil’ Products Co., 169 F.2dON, 534-535, 540.

honor and dignity ‘as, members of a judicial tribunal.

(4 (3d Cir., 1958). Members of admi istrative agen.

cies are expected to conduct themselves with. the same

Section 3@0.T of~the Board's Economic Regulations re.»

quires that the Board members and its ‘staff condug

themselves with the same fidelity to standards of pro.

priety that charactérize a court and its staff.-- Section

300.2. of these same Economic Regulations ‘specifically —

condemns the practice of holding er parfe conferences

between ‘Board members and other interested persons or

parties (Appendix A).

This Court has held that the practice of holding ¢,

parte conferences’ in administrative proceedings is) im-

“proper, Morgan, et al. v. U. S., et al., 304 US. 1, 5S.

S.Ct. 773 (1938). There; Mr. Chief Justice Hughes, speak-

ing for the majority, in a much-quoted opinion, said, 204

U.S. at 19: 7 . :

; - ore

“Congress, in requiring a ‘fuil hearing’ had regard

to judicial standards not in-any technical sense bu:

“with respect to those \fundanehtal requirements of

fairness which are of the essence of due process in ii

proceeding of & judicial nature. {f in an equjty caus:

the special master or the trial judge periphied the

piaintiff’s attorney to formulate the findi gs upon

the evidence, conferred er parie with the plaintiff’: °

attorney regarding them, and then \adopted his. pro-

‘ posals without affording an opportunity to his of

ponent to know their contents and present objections,

_ there would be’ no hesitation in setting aside the re-

”

port er decree as having beer made without a fair

hearing.

\

+The U. S. Court of Appeais for the District of Columbia.

in affirming the decision of the Civil Aeronautics Board.

»

°

15

sanctioned the improper es parte conferences of the

Board and therefore neglected its responsibility of strict-

“Wy enforcing the requirement of a full and fair adminis-

trative hearing. Such a requirement should be even more

strictly enforced against an: administrative agency than

against the Courts since the administrative tribunal has

such broad discretionary power. Ohio Bell Telephone

Company v.: Public Utilities Commission, 301 USS. 292,

304 (1987). Bs he

We ask that .the Supreme Court use its supervisory

- powers to remedy the basic impropriety und injustice

perpetrated by .the Civil Aerofiauties Board and sane-

tioned by the U. S. Court of Appeals in permitting these

er parte conferences. This ‘Is ‘the same typeof thing

which prompted this same lower Court to remand an-

other case, WKAT' v. FCC, 208 B24 418 (D.C. Cir. 1958).

to the Federal Scocpiaades tally Culione for a deter-

mination as to whether the parties were prejudiced by

sitnilar ex. parte’ conferences with a Commission member.

The Supreme Court recently granted certiorari in the

case of. WORZ, Inc. v. FCC, 79 S.Ct. 114 (1958), and,

remanded it to the. Court of Appeals for appropriate

action. The WORZ Case also involved ex parte confer-.

ences at the Cominission level. Petitioner submits that

cunless decisions containing this kind of practice are re-

versed and remanded, the administrative process Will be

continually eroded and ultimately destroyed. This Hon-

orable Court should review sui case= and clearly estab-

lish, the proposition that er pc earings” will vitiate

an administrative order to the extent that if presented

to this Court, it will review and reverse such cases. Suth —

a holding will have g salutory effect on the administra-:

tive process-and adniinistrative justice. This large and *

ever-growing field of law should be given the, guidance

and strength necessary to assure the continued public

confidence and support which is necessary for its ulti-

mate survival. . . |

aon 4

16

Cc. The Civil pevesanation Board's Action in. Permit-

ting the Amendment of the ‘Lake Central Voting

Trust Agreement without Notice to North Central

Deprived North Central of a Full and Fair Hear-

ing under the. Fifth Amendment to the Constitution :

by Departing from the Prior Decisions of the Su-

preme Court. .

In Ashbacker Radio. Corporation v. FCC, supra, the

Supreme Court held <that it is improper. for an admin:

_ istrative agency to- ‘jeopardize the substantial rights of

an interested party where there are mutually exclusive

applications -by placing that: party in the’ position of

-having to displace an established licensee. Mr. Justice

en in ‘that cise, stated (326 US. at 332):

‘As the Fetzer application has been granted, peti-

tioner, therefore, is presently in-the same position as:

a newcdmer who seeks to displace an established

broadcaster... By the grant of the Fetzer Applica.

tion petitioner has been placed under a greater bur-—

den than if its hearing had been-earlier: . Legal the-

ory is one thing hut/the \practionalities are, different

for we are told how difficult it is for a. newcomer -

to make a comparative | showing necessary to displace

an established lic ensee.

The Court went .on to Say (326 U Ss. at 334):

9 \

“While the statutory right of petitioner to -a hear-

_ ing on its: ap fication has in form -heen -preserved,

it- has, as a practical matter, been substantially null.

fied by: the rant of the Fetzer application.”

By allowing the Lake. Central Employee Stockholder

Group to acquiré the Weesners’ voting trust certificates.

the Board has, ax a practical matter, prejudged the Nort):

Céntral-Lake Central - ‘Acqhisition: Case. It placed con-

rol of the Lake Central stoek in the hands of a party

‘hich was acceptable to.it, whereas the Wessners had |

not been acceptable. The isgues of the acquisition ca-«

were, therefore, changed from whether the aeguredtton

was inconsistent with, e: public: interest to whether North*

Central control and operation would be, preferable,.1m ‘the.

discretion of the Civil Aeronautics Board, to control, and

‘operation by the Lake Central. Employee Stotkholders:

North Central was given the added -burden of displacing

an established management and ow nership which was far

‘superior to that of the Weesners. This was the .very

evil that the Supreme’ Court in the A shbacker Case. su-

pra, intended to remedy. ' :

‘The ‘hierarchy of aieaiiis in this case was revérsed.

Up. until this. time,. North Central had the primary and

dominant interest in Late, Central by virtue of its con-

tract with the Weesners.. The Lake €entral Employee.

Stockholders had only a “possibility of reverter” stand-

o

‘ing inthe shoes of ‘the W eesners Who shad contracted to ©

sell to North Central,. subject to Civil Aeronautics. Board i

“approval, and who had agreed to vooperate in obtaining

approval’ by the Board. The Board made it ‘possible for |

the Employee Stockholders to become firmly entrenched

as “employee owners.” \ North Central was relegated to

_ the secondary position, of having to wrench control from

the management and’ some of the emploters of Lak»

Central. This was a’much more serious and diffieu =

' burden. Moreover, North Central was presented with

the anomalous: situation where ‘the ‘Take Central. Em-

plovees Stockholders 1p en to, and actually did,

use the assets of Lake Central to’ prevent North Central

' from obtaining those assets (Ree. 144.°168, 180,°450). A

review of the Poard’s action An these (respects by the-

Supreme Court and of the action of the U.S. Court of.

Appeals in sanctioning such improger acti®hs is the only

‘way im whieh North. Central's constitutional right to a,

full and fair hearing-will be protected. It has now heen

14 vears shinee the 4 shhacker decision was’ rendered. The.

evil principle previously condemned is again presentedin

a slightly different’ posture. Further. guidance by this ©

Court ‘is required if justice is to be done.

? »

: ¢ ~ ’ a ‘ f

rs

e+ -

18 | “2 &

a ; ee | )

D. The U. S..Court of Appeals for the District of Co-

_., lumbia Circuit Improperly .Sanctioned an, Unex-

plained Departure by’ the Civil Aeronautics Bodrd

. frori its Prior. Norms Concerning Acquisition and

Merger Cases. |

"The requirements of justice and fair play .in adminis.

trative proceedings demand that an administrative agency —

act with q degree of consistency. An gency is acting

arbitrarily. when: it adopts: different gp for: sim-

‘ilar situations. NLRB ¢. Mall Tool ¢ - 119 F.2d TWH

(7th Cir: 1941). An unexplained departure from its prior

norms by the Civil Aeronautics Board-inakes its findings

insufficient and-thereby precludes the appellate court from

fulfilling its’ statutory obligation to “. «+ hold unlawful

and set aside ageney, actions, findings, and vonclusions

found to-he (1) arbitrary, capricious, an abuse of disere-

tion or otherwise not in accordance with law.” Admin-

istrative Procedure Act §10(e) [5 U.S.C, § 1009):° In the

case of Secretary of Agriculture y. U.S:, et al., 347 US.

645; 74 S.Ct. 826 ( 1954), Mr. Justice Frankfurter,g in

writing the’ majority opinion, said : . °

‘. .. While the Commission has adumbrated the rea.

sons that commended ‘these charges to its approval,

-thé Commission has not adequately explained its.

departure from prior‘norms . . .

“We do not know whether the ‘Commission has ree,

~ .

garded its own findings . . . or whether in order to

meet an unusual situation, the Commission has mod.

ified the normal doctrine . . Rai

If the Civil Aeropautics Board. has reached its decision

by applying an arlitrary double standard certainly it

should be reversed. Tf- it has not given sufficient rea-

sons for its departure from ae rules and prece

dents, ‘its findings are insufficient to*%allow the courts te

properly review them and the case should be remanded

for further findings. . :

In this case, the Civil Aeronanties Board gave two basic

reasons for its refusal to approve North entral’s acqui-

»

w~

%

19

a

sition contrift. “It held: (1) that the North Central

‘and Lake Central areas are “. .4 not coinplenientary

trade areas. . .” (Ree. ,481) and (2) that a merger. of

the North Central and Lake Central routes would “.

‘create a local service system of unprecedented size en-

gendering a tendency on the part of the carrier to con-

centrate unduly ‘on the long haul traffie ...’’ It can be

demonstrated that these. findings are not ‘only at odds

with established Civil Aeroniutices Board prec edents, hold-

ing that neither of them constitute reasons for denial of

approval of an acquisition contract, but that they are so

much at odds with each other as ty constitute an arbi-

trary and capricious determination, .

In the Arizona-Monarch Merger Case. supra, the Board

held that, “It is not essential that the routes of two

contpanies be complementary.” After specifically deny:

ing the importance of complementary routes in the Ari-

zona-Monarch, Casesupra, the Board went on td discuss

the aa élement in a merger gr acquisition case.

(It said: ; | .

*

“We are of the gg that the only real issue pre-

sented with respect to the question * of integration is

that which relates: to the ccoyomies which woud be

achieved through the joint use of facilitiess equip-

ment and personnel.” (emphasis supplied.)

The Arizona-Monarch Case, supra, was followed -by the

West Coast-Empire Case, supra, Where thé acquisition

was approved, In that case the two carri? PD? routes did not

touch’ and required certification of sev wh hundred miles

of new routes to obtain some possible future traffic inte-

gration. :

North Central devoted a great deal/of time and evi-

dence in this proceeding to showing that there would be

economic integration between thetwo carriers. The Board |

acknowledged such econotnie jntegtation and the sub-

stantial savings in government subsidies which would re-

d

&-

*

.

?

sult (Rec. 491), but then ignored this economic integra-

tion and decidéd the case on a question which it had —

determined ‘to be unimportant in the Arizona-Monarch

Case, that of whether the route systems or areas of the

two. carriers are complementary. ‘The Board does not

explain its inconsisteney. If there is a good reason for

this departure from the decision in the Artzona-Monarch

Case.and the West Coast-Empire.Case, the Board should

have set it forth in its’ opinion. If there is no gouid

reason, the decision is arbitrary and should be. reversed. -

Furthermore, the Board’s findings that. the size of the

combined North Central and Lake Central systems woul:

militate against the approval of the acquisition is op-

posed to its prior decisions in favor ‘of increased size

where it ¢esults in more economical and lower cost opera-

tions. “Mississippi Valley Casé, 8 CAB 726, 752 (1947):

Texas-Oklahoma Case, % CAB 481, 537 (1946). In the

Monareh-Challenger Merger Case, 1} CAB 33 (1949), the

Board said: ee 7

“We do not share the concern of these carriers that

the increage in size of a feeder carrier per se en-°*

dangers th

deavored to avoid establishing competition ketween

trynkline carriers and we see no reason for abandon-g@

ing that poliey. Hence we are not inypressed with

the argument. that, the increase in size of the feeder

. Company represents, a danger to the sd-called regional

trunkline*operators, 2 :

Despite these precedents, the Board in this case found

that the acquisition by North Central would he incen-

sistent avith the public, interest because it % > . “would

create a local service system of unprecedented size with

route mileage extending close’ to 5,000'miles . . "_ (Ree.

486). The Board has not previously let the unprecedented

size of merged airlines interfere with approval of such

inergers. In the’ Arizona-Monarch Case, supra, it cre-

ated a local -sérvice -carrier (Frontier Airlines) of un-

e —"

<>.

¥r

7

|

eir operation. We have constantly ey. °

© .

: 21

precedented size. Frontier became the largest local serv-

ice carrier in the céuhtry. Every time Frontier is granted

a new route is achieves unprecedented size, yet the Boaril

expresses no hesitancy in granting it, additional route-.

Service to Phoenix Case, Docket No. 6247, Order No.

E-11833 (1957); Williston Basin Area ‘Case, 18 CAB 873

(1954).

Recently, in the Seven States Area. Investigation,

Docket No. 7454, Order No. E-13254, dated December 5,

' 1958, the Board increased the route miles served by three

carriers, Frogtier, Ozark and North Central, bo that ‘they

now exceed 51000 route miles. Each of these three carrier@

“by virtue of the decision in the S@ven States Case, is now

, certificated to serve unduplicated route miles equal to

“more than the combined route mileage served by* North

Central and Lake Central at the time exhibits were first

submitted in this case in September of 1955 or at the

time of the decision in this case in July’ of 1957. Why

is the creation of local service carriers o unprecedented

gsizes in area cases and route certification cases in. the

public interest, whereas such creation is contrary to the

public interest in acquisition cases? Why is Frontier

allowed to maintain its status as the largest local serv-

ice carrier in terms of route miles while North Central

is denied. authority to acquire Lake Central because the

combined systems would comprise more route miles than

our largest local service carrier (Orig. Tr. 4275, 4276)¢

Since the Board has pot endeavored to answer these ques-

tions and explain-its inconsistencies, its findings are in-

sufficient. As already suggested, the reasons given by the

Board were not only inconsistent with its.prior deter-

minations, but are fundamentally inconsistent With each

_ other. The finding that North Central ‘and Lake Central

@ not,serve complementary trade areas makes ludicrous - -

the’ conclusion that there would he a tendeney, if the

acquisition Were approved, to coacentrate on the long-haul

traffic. Moreover; the Board has already imposed a mul-

2

,

‘

|

oe

titude of restrictions -in North Central’s and Lake Cen.

tral’s certificates to prevent just such situations and to

insure the protection of local service. wr

The U.S. Court of Appeals for the District of Colum.’

bia’ has itself condemned inconsistent, action by adminis-

trative tribunals. Hall, et al. v. FCC, 99 U.S.App.D.C.

“36, 237 F.2d 567 (1956) ; McKay v. Wahlenmaier, 96 U.S. |

. App.D.C.-313, 226 F.2d 35 (1955). Yet in this’ case. it

_ disregarded its own: precedents and sanctioned the

Board’s unexplained departure frgm_ prior norms with-.

out citing a single authority in support of its action. It

said (Rec. 566): .

“We think that the judgment. of the Board in-this

case was not arbitrary and was not a departure from

established norms which, would have bound it.”

“~

Basically, the Court is condoning. the improper activity

ofthe Board and_attributing it to administrative discre-

‘tion. But it was impossible for the Court to.determine

_ wifether the Board was exercising :valid administrative

| discretion because the Board did not explain its incon-

sistency. The Board’s findings were insufficient to allew

the Court to properly perform its task of judicial review. «

Furthermore, the Court’s ‘findings on: this point were

vague, indecisive and inconsistent. It-admits that. the

Board is bound by prior norms, but inconsistently holds

. that the agency’s discretionary powers,” or “judgment,’’

are so broad as to permit it to make unexplained de-

partures from these norms... Ith allows that the Courts ’

nust insure that agencies stay “within the bounds of

reason and outside the realm of eaprice,”’ vet it .does

not require that the Board state sufficient “reasons” for

its inconsistent action ‘here. It -is impossible for peti-

tioner to determine just what the Court is holding when

-. it seeks to bind the: Civil Aeronautics Board on. prior

precedents yet sustains an unexplained departure on: the

gxrounds of. discretion. ; eet

{

- ; _ = 93

«Obviously the lower Court feels. that there should be

some explanation for the -Board’s inconsistent action be-

- cause it attempts to supply lame reasons of its own. It

. says (Ree, 565) that the Board is entitled to depart from

its prior norms with regard to “size’? of the - merged

systems because “size” is a relatiye term and its im-

portance depends upon the cireunftances.” It is these

“circumstances” which petitioner. seeks to. discover. if

the Board explains these “circumstances” it has explained

its departure from prior norms. Ifthe circumstances are .

the same in both’cases then the‘ Board’s action is arbi- °

trar} should be reversed. on) gee

e Court goes on to say (Rec. 566) that North Cen-

tral has-not accurately assayed the holding-of the Board

in the Arizona-Monarch Merger Case, supra. It says that

the Atizoga-Monarch Case stands for the proposition

that “a merger ‘need not have the effect of increasing

the ‘ntra-system long hauls.” . Mergers deal with inter-

drea problems and certainly would have no effect what-

soever on “intra-system long hauls.’’ Furthermore,

“feeder’’ carriers are limited by the conditions of their

certificates to. the provision of short haul local service.

We submit that it is the Court and not petitioner who

has not “accurately assayed” the holding of the Arizona-

Monarch Case.’ Moreover, no attempt was made to ex-

* plain the findings of the Board i in the West Coast-Empire

Case, supra, which also support North Central's conten-

tion. :

The Court said the Board rested its decision in ‘the

Arizona-Monarch Case, supra, on other. circumstances

than the find\jng that the routes of the companies were

not complemeytary. However, as we assay the decision,

the Bourd sai

plementary iy/irrelevant. The Board has therefore based

its decision’ here on a’ consideration, previously jheld_ in

the Arizona-Monarch and West Coast-Empire Cases, su-

-

that whetlier or not the routes are com- .

pra, to be irrelevant. When the other ‘basic finding of

“unprecedented size” is found inconsistent with other

decisions set forth supra, it is evident that both primary

reasons for the Board’s decision are based on findings

previously decided to be irrelevant. :

Even if there were other circumstances sufficient to ‘in-

voke the proper use of discretion in the Arizona-Monarci _ .

and West Coast-Empire Cases, no such circumstances ex.

isted here. There was-no good reason giten which would

distingujsh the prior inconsistent Board actions. Bot)

primary findings supporting the Board’s decision had

been previously found irrelevant in considering consist.

ency With the public interest. « a

As a practical matter; the Court of Appeals affirmed the

decision of the Board when-it did not have sufficient find. |

ings before it to permit it to properly perform its task

of judicial review.

‘The question of how much effect sdguld be given to

‘prior administrative decisions and ‘actions is an ill-define«

ohe. This case represents an excellent ‘opportunity for

the Supreme Court to add substange to: its pronounce-

“ments in the Secretary of Agriculture Case, supra, that

unexplained departures from prior norms constitute in-

Sufficient findings... Such a decision by the Court would

be ‘invaluable as a guide for all administrative agenciv

- and for the litigants ‘that appear before them.

CONCLUSION

WHEREFORE, petitioner prays that a wit of cer

tiorari may issue under the seal of this Honorable Court

in this cause directed to the United States Court of Ap-

peals for the District. of Columbia Circuit, and upon such -

review the judgment .f said Court of Appeals for the

District of Columbia Cireuit he vacated, reversed and set

aside, and that thix case be remanded to said Court with

a ¢ P .

P-3)

instructions te praved further in accordance with the

views of this Court.

©

° yb! A. L. Wrerren

: _ 1200 Sheraton Building

711 14th Street, N.-W.

o Washington 5, DC.-

Atlornes lor Petitrones

a ‘on @ as : é

Dated: April 28, 19597

PROOF OF SERVICE

I, Asher Louis Wheeler, the attorney for North Cen

tral Aielines, Inc., the petitioner herein, and a member

of the Bar of the Supremé Court of ‘the Lonited States,

hereby certify that on the 29th day of April, 199% |

served eopies) of the foregeing Petition for Certiorar

to the Supret th Court of the Pnited States on the sev

eral parties thereto as follows:

¥ On the. U ‘nited States, by leaving a cep) the ‘reel at

the office of O. D. Ozment, Eis). = pay Gieneral Coun.

sel, Litigation and Research, for the Civil Aeronautic.

Board, at Room 906 of the Universal Building, Wash

ington, D.C. and by mailing ajeopy on a duly addressed

envelope, with first class postage prepaid, te the Soaleitor

General, Department of Justice, Washington a D.C. *

2. On the Civil Aeronautics Board, by mailing’ a copy.

in a duly addressed envelope, with first class postave

prepaid, to Franklin M. Stene, Esq., its General Counsel,

at the offices of the Board, Washington, D. C..°

3. On the Lake Central Airlines Employee Stockholder

Group, and Lake Centra? Airlines, Inc.. intervening’ re-

‘

o

spondents, by mailing copies in duly addressed envelopes, .

with first class postage prepaid, to their respective at-

-torneys of record as follows:

Albert F. Grisard, Esq. °

412 Metropolitan Baak Building <>

~ Washington 5, De. 7 pM :

Attorney for the’ Lake Central Employees Stock-

holder Group _ .

James L. Highsaw, Jr. Esq. _

Mulholland, Robie & Hickey |

~ Tower Buildin aoe ‘ sae

Washington, D. (. ; ;

. Attorney for Lake Central Airfines, Ine.

4

‘ /3/ Asher Louis Wheeler

ASHER Lovis. WHEELER.

1200 Sheraton Building |

Washington 5D. C. ee

: Altoney for North Central

Airlines, Inc. =

April 28, 1959

i Q

¢

\\

a,

, 27

APPENDIX er

CONSTITUTION OF THE UN NITED STATES,

AMENDMENT {V.]

No .person shall pe held ‘to answer for a capital,

otherwise infamous rime, unléss on a presentinent or

indictment of a Grand Jury, except in cases arising in

the land or naval forces, or'in the Militia, when in actual

service in time of War or public danger; nor shall any

person be subject for thé same offense to be twice put

“in jeopardy of: life or- limb; nor shall be compelled in

any criminal case " be a witness against himself, nor

be deprived of life, Cliberty, or property, without due

‘process of law; nor shall-private property be taken for

public use, without just compensation. . oe

FEDERAL ‘ADMINISTRATIVE PROCEDURE ACT

SEC. 5. [5 US:C..§ 1004]. In every case of adjudi-

cation required by statute to be determined on the record

after oqportunity for an agency hearing,

. o * s P

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(b) Procedure.--The agency shalt afford all intérested

‘parties opportunity for (1) the submission and consid-

eration of facts, arguments, offers of settlement, or pro-

posals of ‘adjustment where time, the nature of the pro-

ceeding, and the public interest permit, and (2) to the.

extent that the’ parties are unable so to determine any.

controversy by consent, hearing, and decision upon notice

and in conformity with, sections 7 and 8.

° - @ e *

SEC. 7. [5 U.S.C. § 1006]. °° *

(¢) Evidence-—Except as statutes oihewicine provide,

the ° proponent. of a rule or order shall have the burden

of proof. Any oral or ‘documentary ,evidence may .be

received, but every agency shall as a matter of policy

°° P = _, ’

> ‘

y \

provide for tlie exclusion of irrevelant, immateri l, or

unduly repetitious evidence anid no sanction cone a im.

posed or rule or order be ‘issued except upon donsid-

eration of the whole: reegrd or such portions thereof, as

may be cited by any party and as supported by and in -

&ccordance with the reliable, probative, and substantial — |,

‘evidence. Every party shall have the right to’ present

his case or defense by oral or documentary evidence, ‘to

submit rebuttal evidence, and to conduct such cross-ex-

amination as may be required for a full and true disclo-

sure of facts. - ) ae

® @ @ ‘@.

SEC. 8.. (5 U.S.C. § 1007]. In cases in ‘which a hear. .

ing is required to be conducted in conformity with sec. |

tion 7— — |

pap ° « ° .

(b) Submittals and decisions.—Prior ‘to each recom-

‘mended, initial, or tentative decision, or decision upon

“agency review of the decision of subordinate officers the

. parties shalf* be afforded a reasonable opportunity. to

_ submit for the consideration of the officers participating

in such decisions (1) proposed findings and cenelusions,

or (2) exceptions to the decisions or recommended deci-

sions of subordinate officers or to tentative agency deci-

sions, and (3) supporting reasons for such exceptions or -

proposed findings or conclusions. The record shall show

the’ ruling upon each such finding, conclusion, or ex-

ception presented. All decisions (including initial, ree- —

“ommended, or tentative decisions) shall become a part

of the record and include a statement of (1) findings

— and conclusions, as well as, the reasons or«basis therefor.

upon ali the material issues of fact, law, or discretion «

presented on the record: and (2) the appropriate rule,

‘order, sanction, relief, or denial thereof. |

¢

od

4 toe

i)

SEC. 10. [5 U.S.C. § 1009]. **°*

(e) Scope of review.—So far as nécessary to decision |

and where presented the. reviewing court shall decide all

relevant questions of law, interpret constitutional and

statutory provisions, and determine the meaning or ap-

°. - plieability of the terms of any agency action. It. Shall

(A) compel agency action unlawfully withheld or un- -

reasonably delayed; and (B) hold unlawful and set ‘aside 4

agency action, findings, ‘and conclusions found to be (1) ;

_ arbitrary, capricious, an abuse of discretion, or otherwise

not iti accordance with law; (2) comtrary to constitutional

right, power, privilege; or immunity; (3) in exéess of

statutory jurisdiction, authority, or limitations, or short

of statutory right; (4) without observance of. procedure

-required by .law; (5) unsupported by substantial evidence

‘in any case subject to the requirements of sections 7

d 8 or otherwise reviewed on the record of any agency

- hearing provided by statute; or (6). unwarranted by the

faéts to the extent that up facts are subject to trial

de nove by the reviewing court. In making the forego- :

ing determinations the ‘court shall review the whole rec- _

ord or such portions thereof as may be\cited by .any oe

party, and due account shall be taken of ‘the rule of

_ prejudicial . error. Be ON

bad e e- e. < é \¥ -

CIVIL AERONAUTICS ACT OF 1938

SEC. 2. [25 Stat. 980, 49 U.S.C.-402]° In the éxer-—

cise and performance of its powers and duties under this -

-Act, the Authority shal! consider the following, among.

‘Other things, as being in the public interest, and’in ac- \

cordance with the public convenience and necessity—

_ (a) The, encouragement and development of an air- me

transportation system: properly adapted to the present’ ©

and future needs of the foreign and domestic,commerce I

of the Uaited States, of the Postal ae and of the °

national defense; i. ;

Ria | 2 &. is ae

+

>

> : - , = : .

(b} The regulation of air transportation in sich man-

-¢ mer 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 betweén,. and coordinate trans.

portation ‘by, air carriers; 2 teen

(¢) The promotion of adequate, economical, and ct-

ficient service by air carriers at reasonable charges, with.

out unjust discriminations, undue preferences or advan. |

tages,’or unfair or destructive competitive practices: Net

, (4d) Coinpetition to the extent necessary to assure tle

sound develépment .of ‘an air-transportation system prop-

erly adapted to the needs of the foreign and domestic .

commerce of the United States, of the Postal Service, |

and of the national defense; ©» "

i . “*. . i es : >

(e) The regulation: of air commerce in-such manner as

to best promote its development and safety; and

(f) The encouragement and development of civil aero- -°

nautics. - Nye eee at a

’ 6 e Sd © .

SEC. 401. [52 Stat. 987, as amended by 56 Stat. 265,

«G1 Stat. 449, 49 U.S.C. 481) | ee

ee G $ e re :

_(d)(1) The Authority [Board] ‘shall issue’ a certificate.

authorizing the whole of any part of the transportation

covered by the application, if it finds that. the applican:

ix fit, Willing, and able to. perform such transportation

properly, ‘and: to conform .to_ the provisions: of this ‘Act

and the rules, refulations, and requirements of the Auth-

_ My [Boaed] hereunder, and that such transportation j-

‘required by the public convenience and necessity; other-

wise’ such application shail be denied. °° 7. .

(2) In the. ease of an application for a certificate to

‘engage in temporary’ air _transportation, the Authority

[Board} may issue a certificate authorizing the whole or

— 3 “te

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.

@. - ‘

. “ 4

: ‘

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.

. : 7

ext : ° : +S : : oF

any part thereof for such limited periods as may be

required by the public convenience and necessity, if it

finds that the applicant is. fit, willing, and able properly / -

to perform -such_ transportation | And to conform to the

‘ provisions of thiX Act and. the rules, régulations, and

requirements of the Authority- [Board] hereunder.

' fe is ‘approved by. the Authority [ ae ‘as ie con-

sistent -= - public interest. °

ine 408. [52 Stat. 1001, 49 U.S.C. 488]

(b) Any person seeking approval of a consolidation, -

merger, purchase, lease, operating contract, ‘or acquisi-

tion of control, specified ‘in subsection (a) of this sec-

tion,. shall present an application to the Authority

[Board], and thereupon the -Authority {Board] shall —

notify the persons involyed in: ‘the consolidation, merger,

"= purchase,. lease, ——. contract; or. aang ieee of con-

ity

chase, lease, . operating contract, or acquisition of «ontrol

will not be consistent with, the public interest or that

the conditions of this section will not be fulfilled, it shall

by order, lapprove | 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 pre-

‘

~\

_ seribe : pee, ? aoe ie

e e £ . e' 3 oe

SEC. 409 [52 Stat. 1002, 49 U.S.C. 489] > r Agger

. one hundred and éighty dase after the effective date of

‘this section,’ it shall be unlawful, unless such relation- °

32 ~ | oF

ship shall have been approved by order of the Author.

‘ity [Board] upon due showing, fn the form and manner

préscribed by the Authority [Board], that. the public

interest will not be adversely affected thereby—

(1) For any air carrier to have and retain an officer

\ or director who is an officer, director, or member, or who

‘\. as a’ stockholder holds a controlling interest, in any other

“person who is, a: common carrier or is engaged in any

sees of aeronautics: of

(2)FKor any air. carrier, knowingly and’ willfully, 10

have and™“xetain an officer or director who has a repre-

sentative or faminee who represents suck officer or dirc-

tor as.an officer, director, or member, or as a stockholder

holding a controlling™interest; in any other person who Re

is a common carrier or i3¥ vaged in any phase of aero-

nautics.?% ero 6 bsp Oe PP tet

(3) For any person who, is an offiger-or, director of an

air ‘carrier: to. hold the position of officér, director, or

member, or to be a_ stockholder holding a controlling ©

Interest, or to Have ‘a representative or rominee who rep,

resents such person as an officer, diréetor, or member, or

as a stockholder holding a controlling interest, in any

other persen who is a common carrier or is engaged. in y,

any phase of aeronaitics.

_ (4) ‘For any air carric, have and retain © ¥ officer

or director who is an “offi, director, or member, or

‘who asa stockholder holds a- controlling interest, in*any

‘person whose principal business, in* purpose or in fact,

_js the holding of. stock in,:or control of, any other per-

son engaged in any phase of aeronautics;

(5) For any air carrier, knowingly and willfullt, to ’

q@liave and retain an officer or‘director who has a repre-

_-Seniative or nominee who represents such officer or di- .

tector as an officer, director, or. member or as a stock-. |

holder: holding ‘a controlling interest, in any person whose

*

.33 ,

. principal business, in purpose or in fact, is the holding

of stock in, or control of, any other, pergon engaged -in

any ‘phase of’ aeronaunes. , ;

6) For ant person who is an ‘dle ag director®f an

air carrier to hold the position of officer, director, ¢@r

member, or to be a stockholder holding a controlling -in-

terest, or to have a representative or nominee whe repre: > |

sents ‘such person as an offiver, director, or member, or

as a stockholder holding a controlling interest, in any:

person whose princi pat business, in purpose or in. fact,

is the holding of stock in,.or control of, angoother person -

engaged in any phase of aeronautics, .

, se . ° ’ ’

~ © PROCEDURAL REGULATIONS

7 Principhes or PRacTICcr OF rite Civ,

. ArRoNAUTICS Boakp

§ 300.0 Applicability of part. The principles of prac-

gies set out-herein to the extent applicable shall govern

‘the felationghip between the Board, its staff, and all other

persons,

§ 300.1 Judicial standards .of practice. ‘In any re

spects the @unctions of the Board are similar to those +

of a court and parties to cas® befyreét and those whe

represent such ‘partie? are expected to. conduct: them-

selves with honor and dignity. By the same token, the

members of the Board, and those of its employees who

participate with the.Board Members. in ‘the determina:

“tion of cases upon a reeord, are expected ‘to conduet «'

themselves with ‘the same fidelity to. standards of pro-

priety that characterize a-court and its staff. The stand-

ing and effectiveness.of the Board are in direct relation .

to its observance, that of, its staff, and the parties and

attoarfeys appearing before ft, of the highest standard-

‘of judicial and protensienet ethics.» .

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--

.

$300.2 Hearing cases; improper influence. It is os.

‘sential in eases to be detérmined after notice and hear.

ing and upon'® record that the Board's judicial charac.

ter be recognized and protected. In-sffch cases: f

(a). It. is improper that there be any private eommu-

nication on the metits of tle case to a member. of the

Board or. its staff or examiner in the case by an)

person, either in private oF public. life, unless provided

for by law. .

(b) It is: likewise improper that.there be any private

communication on the merits of the case to a member ‘if

the Board or to .the examiner in the wase by any meni.

bers of the Board’s staff who participate in the hearing

as witnesses or as counsel. i Rae Ce

Tes, Bh .

Ae) st is improper that there be any effort by any per.

son interested in. the case to sway the judgment of th

‘ Board by attempting to bring pressure or influence ti.

bear upon the members of the Bogrd or its staff, or tha:

such person or any member of the Board’s staff, di.

rectly 6r indirectly, give statements to the press or rad «,

by paid advertisements or otherwise, designed to: influ-

“ence the Board’s judgment in the case.

; ee e..°*% e

UNITED STATES COURT OF APPBALS

POR THE DISTRICT OF COLUMBIA cCIMCL YT

; | No. 14261

Nortu Centra Amunes, LXc., PETITIONER

. . v. '

Civu. Arroxautics Boary RESPONDENT

Lake Centra Arnuyes Emptoyven, Stockuo iver Grove

and Lake Cenrear Aruines, [Nc UN TRRVENORS

On Petition for Review of an Order of the

‘ Civil Aeronauties Board. )

-_ * ‘ ,

“ Decided January 29,1959 *

Mr. A.-L. Wheeler gnd Mr, Maruin Klitsner of the bar

of the Supreme Court of Appeals of Wisewmsin, pro haé

_vice, by special leavot Court, for petitioner. Mr. Emory

N. Ellis, Jr., alsoventered an appearance for petitioner.

Mr. Robert L.‘ Toomey, Attorney, Civil Aeronautics

Board, with whom Mr. Franklin. M. Stone, General Coun-

el, Civil Aeronautics Board, Mr. John H. Wanner, Asso-

ciate Gerieral Counsel, Civil Aeronautics Board, Mr. O. D.

Ccment, Axsistant General Counsel, Litigation and Re-

-earch, Civii Aeronautics Board, Mr, Ulrich V. Hoffmann,

Attorney, Civil Aeronauti¢s ‘Board, and- Mr. Daniel M.

Friedman, Attorney, Department of Justice, were on the

brief, for respondent. Mr. Morris © hertkor, Attorney,

Civil Aeronanti¢s Board, also entered an appearance for

respondent:

36 ts

Mr. James L. Highsaw, Jr., with whom Messrs. Clar.

ence M. Mulholland and Edward J. Hickey, Jr., were on

the brief, for ‘intervenor ‘Lake Central Airlines, Inc.

Mr. Albert F. Grisard was on the brief for intervenor

Lake Central Airlines Employee Stockholder Group.

' Before PRETTY#Ax, Chiéf Judge, and Wieve K. Mu.

Ler and Wasuineton, Circuit Judges.

Pretryman, Chief Judge: This is an airline acquisition

case, here on a, petition to review an order Of. the

Civil Aeronautics Board.'’ North Centtal Airlines, Inc.

(which for brevity and clarity we shall call merely

“North”) sought to acquire a majority of the stock of

Lake Central Airlines, Inc. (which we shall call “Lake”).

The dispute has been going on for a long time, at Jeast

six years, and has many complications and ramifications.

We think we need not here go into that background. In. .

September, 1952,-North and the Stockholders of Lake

. executed a contract whereby North was to acquire 96 per

cent of the stock of Lake. ~The contract had to be ap-

proved by the Civil Aeronautics Soard: The, Board re.

fused to approve it, and év. the case is here. - .

- The key concept in this controversy. is “local service’

qr “feeder service”. This is a type of airline operation

. Certificated by the Board upon the ‘basic principle: of

fashioning 8 local service route system on the needs of

a given trade area for short-haul and feeder service"

The purpose is to provide short-haul services “geared to

Jocal needs and maximum development: of local traffic”

and concentrating the carriers’ efforts “ori operations in

reasonably compact and homogeneous marketing areas.”

This is 4 clear and reasonable concept. It is in contradis

tinction \to: trunkline sé@ryice, which operates to carry

_ over long ‘distamees witha minimum of stops.

North is certified as a feeder or local service ‘carrier

1 Sec.” 408, Civil. Aeronautics Act, 52 StTaT. 1001 (1988). as

_ aménded, 49 U.S.C.A. § 488. 3

Ny)

37

_in the area northwest of Chicago-Detroit. It extends

north to the Canadian border. and west to Grand Forks-

‘Fargo-Omaha. It has stops at the big cities in the area’

-—such as Milwaukee and Minneapolis-St. Paul—but also

at La (Crosse, Winona, Clintonville, Ironwood, Thief +

River Falls, Manitowoc, - and many others of like size

and character. ee m

~~! . Lake: is certified ax a feeder or local service carrier

_ in the area southeast of Chicago-Detroit. It thus adjoins

North on the Chicago-Detroit Jine.. It has stops in the big

cities in the area—such as Cleveland, Buffalo and Cincin-

nati~but also- at Erie, Youngstown, -Mansfield, ‘Lima,

Logansport, Zanesville, Kokomo, Terre. Haute, and —

of like size and character. :

The problem; from the -Board’s point of view, was

whether the combination of these two local feeder services

into one operation was inconsistent with the public inter-

est. The Board has long been of the view that the .two

_ areas on either side of. the Chicago-Detroit line are Sepa-

“rate marketing areas and the local traffic requirements

are dissimilar. It so decided.in 1950 in a case known

as the. Parks Investigation Case.* - Traffic tends to flow

toward and. into the big cities—especially Chieago—on

.. feeder services, but not beyond such places on these serv.

ices, The record in the present case discloses, the Board

held, that “the trade centers of Chicago and Detroit serve-

| as a dividing line between the two areas’ served by North

Central and Lake Central, respectively, and that few local

| travelers proceed beyond these terminals via the local

service routes: involved.” The thrust of the Board's

_ Opinion was .that the combination of these two areas into

ome Operation, which would then extend from Buffalo-

is Pittshurg to Grand Forks-Duluth, would violate the whole

a vrinciple of local or feeder service and would clearly im-

pinge upon trunkline cértificates.

211 C.A:B. 779.

38

. . ¢ ;

The Board found, as we have indicated, that there is:

' jittle \nter-area traffic between the two local feeder route

services. It found that the combined area would be too big

for the sort of concentrated local homogeny deséred f@ |»

cal feeder certificates. In the Board's opinion feeder sery.

ice should be centered in the area to be serwed and should

be ‘soundly integrated for that purpose. In terms of

- route mileage, nurnber of cities served, density of popu

lation, and geographical area covered, the combined car.

riers would take.on characteristics akin to a trunkline

carrier and pose a threat to existing trunklines,

‘The Roard said it wanted loca) feeder carriers *to con

centrate on local needs and local traffic problems, and \'

feared that the temptation to woo through traffic over

the long distances and between the big cities whieh would

be within the service area of «a combined North-Lake

operation, would be too insistent to be resisted. The

Board found that each of these carriers, North and Lak.

is in sizable proportions ax a feeder seryicve and each has.

sufficient room for development in its own drea. Thr

Board disagreed emphatically with the éxaminer in li-

view that the combination was necessary to preserve

<ake, and the Board ex plained its view in — by i

ported by the developing traffic figures. ee ee

The Board found that subsidy savings would be effec vl

by the acquisition, if permitted, but-that this saving War

outweighed by the adverse effects’ oti the overall public

‘interest.

Counsel for North argues that the conelusion of tl.

Board does not follo¥ rationally from the ultimate find.

ings; that the ultimate findings- do not flow reasonall)

from the basic findings; and that the latter are not sup.

ported by the evidence as a whole. This is the skillful

way of attacking agency orders, being a method of prob

ing each link along the line of agency action. Tt would.

unduly -prolong this opinion to diseuss each of these a--

serted failures, but we have examined them and _ think

none of them reveals a fatal defect.

The reasoning of the Board seems amply clear. We

think the conclusion flows rationally from the ultimate

findings, and these in turn rest upon ample basic findings.

The latter seem to be supported by ample evidence. Of

course there are disputes as to the inferences to he drawn’)

from raw factual data, but it is not our function to draw .

inferences. Our function is to ascertain whether the infer-

ences drawn by the ‘administrative ageney are within the

reasonable boundaries prescribed by the facts. We think

they are in this case. :

With the assistance of supplemental memoranda from

counsel, for. the parties, the, court has explored several

questions relating to the procedure before the Board, but

we find no reversible error in these respects.

North urges.that the language of Section 40&(b) of the

statute raises a presumption in faver of wergers of alr

carriers. He that as it may, any such presumption could

hardly survive the considered judgment of the Board, as

expressed in a case such asx the present one, that a par-

ticnlar proposal ix not consistent with the public interest.

_» North says the Bord was arbitrary and failed to make

sufficient findings when it departed from established

norms, For example, North says the proposition that the

size of a proposed merged system is immaterial to ap-

_ proval of the merger ix an established rule. It refers to

a Dumber of cases, But “size” ix a relative term, and its

. importance, depends upon” circumstances. Recause the -

Board found the.size ef a merged system immaterial in

one case cannot make it.an +piiiategal rg and in all cases

and under all circumstances. And Nertl save the Board

established im the Arizona-Monarch- Merger Case* that

feeder routes need not be contplementary in order to be -

merged. It suite that in.the present case the Board, in

consistently, held the trade areas of the two airlines must

be complementary. ‘But we think North does not aceu-

rately assay either holding. In Arizona-Monarch the

711 C.A.B. 246 (1966). «:

—

oa Sake ‘ '

\ ¢’) "Board said that: two feeder systems need not be geo-

' graphically complementary ; that is, a merger need not

have the effect of increasing the intra-system long hauls.

In-the present case the Board. pointed out, as one feature

of the proposed merged system, the lack of inter-akea

local traffic. But in Arizona-Monarch the Board stress\d

other circumstances. In the instant case the. lack of- this

traffic was one of several critical factors. We find nb

inconsist@ncy. These problems cannot be solved by

mathematica! computation. Judgment necessarily enters

into each one, and the Congress has given the. agen:

. power to exercise that judgment. Ax was properly

| ee ee pointed out in the Southwest-West._ Coast Merger Cases

the Board: is concerned principally with the national air

route pattern. Thix Court can and should insure that th

agency stays within the bounds of reason and outside the

realm of caprice, but the court cannot substitute its on n.

. judgment as to what would or would not be inconsiste nt

with the’ public interest in a proposed merger. We think

the judgment: of the Board in this case was not arbitrary

and was not a departure from ‘established ‘norms which:

would ai boand, it. - ?

Affirmed.

\

‘14°C.A.B. 356, 358 (1961).

ee

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a

- APPENDIX C

COPY | aa

Law Offices.

»ALBERT F. GRISARD

l2 Metropolitan Bank Building

Washington 5, D. C. is

| July 29, 1954 —

Honorable Chan Gurney

Chairman . oe

Civil Aeronauties-Qoard oe

Washington 25,‘D. C.. a ae

. Re : Doc ‘ket No. 6234

Dear Senator Gurney:

. Reference is made to the several. eonterealiinna Messrs.

Gwin Hicks, Lloyd W. Hartman, Robert W. Clifford and

the undersigned have had with you and the Members of

the Board. regarding. the acquisition by an employee

group of the Weesner stock interest in Lake Central Air-

ployee group and the Weesner family signed a Memoran-

dum of Understanding and Intent, which was subsequently

filed with you, setting forth the agreement of the Wees-

ners to grant an option to the employee group for the

purchase of the majority stock interest in Lake Central.

As yqu know, the Weesners. through’ thei counsel,

Charles 8. Murphy, thereafter approac hed the Board for

permission to discuss a sale of the Weesner stock inter

est to Capitol Airways, Inc, of Nashville, Tennessee.

When these negotiations terminated the Weesners then -

~ resumed negotiations -with the employee group withthe

result that an option contract was executed on “June 25;

1954. Copies of the option contract have been’ furnished

‘each Member of: the Board.

Under such contract, the employee representatives were

givene30 days, or until July 25, 1954, to obtain firm eom-

lines, Inc. On May--21, 1954, representatives of the em-. -

ee

‘42

sip, a a

mitments from the officers and employees df Lake. Central

and such other persons as they might designate for: the

purchase of the entire Weesner stock interest, amounting:

to 80,954 shares out of 83,039 shares outstanding. These

commitments were obtained - on July, 23, 1954, and writ. -

ten notice thereof given to Mr. Charles S. Murphy op

July 26, 1954.

It has been generally understood by the employee rep-

resentatives that they should make a showing to the

- Board on or before August 1, 1954, of the existence’ of -

(1) the above-mentioned employee stock purchase com-

mitments and (2) commitments from. dutside sources for

the’ purchase of new securities which would yield the

corporation at least $250,000, in order to prevent‘ a dis.

Missal of the show-cause proceeding (Docket No. 6234)

for a one-year extension of Lake Central’s certificate for

Route No. 88. The employee group has made very sub-

stantial progress toward obtaining the latter commit.

ments, but has been handicapped in completing the re-

financing program by August 1, 1954, because (1) of

.the time lost while the Weesners explored the proposal

of Capitol Aitways, Inc., and (2) of the fact that ‘the

delay attending the exploration. of the Capitol Airways

proposal resulted in the. employees’ refinancing efforts

being carried on in. a period when many of their invest-

ment. contacts. were vacationing. Under the provisions of

the option contract, the employee group has until: August

25, 1954, to obtain”this necessary additional financing.

Despite these handicaps of short available time and

’ the vacation season, preliminary commitments have al-

ready been obtained from businessmen and industries of

Mansfigld, Lima, Columbus, Toledo and Dayton, Qhio, and

active negotiations are now being conducted with similar

persons jin Indianapolis, Cleveland, Cincinnati, Chicago,

Bloomington; Indiana, and’ Jackson, Michigan. The re-'

sponse’ has been heartening and the present indications *

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are that the goal of the refinancing program will be at:

tained within the time allowed by the option contract.

Because of this substantial progress made by the em-

ployee group, we respectfully request that the Board

defer any further action on Pocket No. 6234 or Docket

No, 5770 until the refinancing program is completed

which, under the terms of the option contract, cannot

be later than August 25, 1954. In order that the Mém-

bers may have a personal, direct knowledge of the prog:

ress already made in the brief period since June 25, 1954,

We suggest.and would welcome the opportunity of an

informal meeting’ next Thursday or Friday (August 5th

or 6th) between the Board and representatives of the

management and employees’ of Lake Central. If the

Board’s schedule does not permit of this joint meeting,

it is hoped that Lake Central's representatives may meet

with the Members individually on either of such days, at

times convenient to the Members.

I shall very much appreciate feceiving word from you

regarding the foregoing suggestion.

Sincerely =. if

/s/ Albert F. Grisard’

Albert F. Grisard /

Counsel for Lake Centra! Airlines, Ine.

Copy: Vice Chairman Harmar D. Denny

| Member Oswald Ryan

Member Josh Lee

Member Joseph P. Adams