# Brief for Respondent — Hughes Tool Co. v. Trans World Airlines, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_0598%3A20 ## Record - **Collection:** Supreme Court brief - **Document type:** Brief for Respondent - **Published:** January 1, 1965 - **Citation:** 380 U.S. 248 ## Text Othce-Supreme Court, U.S. ‘ FILED | |e FEB 18 1965 . IN THE JOMN & DAVIS, CLERK Supreme Court of the nite OCTOBER TERM, 1964 No. 443 "HUGHES TOOL COMPANY and ; RAYMOND M. HOLLIDAY, _ Petitioners, . , agomet TRANS WORLD AIRLINES} NC., Respondent. = ON WRIT OF CERTIORARI TQ THE UNITED STATES COURT | OF APPEALS FOR THE SECOND CIRCUIT BRIEF FOR RESPONDENT a —— ' Joux F. Sonyett, 80 Pine Street, New York, New York 10005, Atto¥ney for Respondent, Trans World Airlines, Inc. Of Counsel: _ Duprey B. Texney, Raymonp L. Fats, Jr., e MarsHaty H. Cox, Jr., ABRAHAM P. OrDovER, Cant, Gorpox, Rersper & Ont, 80 Pine Street, New York, New York 10005. February 18, 1965. — 7 ae. ' INDEX QuESTIONS PRESENTED 1 CounTER-STATEMEST OF Re icipiimntinan *& The Trade and Commerce Involved _ : 7 -Toolco’s Acqtisition of Control of TWA ssinnpansens 8 Defendants’ Unlawful Conspiraey— *The Beginning to December. 1960 15 The Evidentiary Record 18 Civil Aeronautics Board Action 1944-1960 Pn ~ 30 The Creation of the Voting Trust .... an ae The Conduct of the nae since 1960 .. 36 we: 53 58 60 The History of This’ Litigation * The Northeast -Control Case Recent Developments °....... The Rulings Below + SUMMaRY OF unas \raarvinnivenanngann ......... 137n Bales v. Kansas City Star Co., 336 F. 2d 439 (8th - Cir, 1964) . (1385n Bell v. Hood, 327 U. S. 678 (1946) 3 Carter L. Burgess and Amerié¢an Airlined” Inc., CAB - Docket 11052, Order No. E-14827 (1960) ............ .-.. 109n Carter L. Burgess and Trans World Airlines, Inc., CAB Docket 8674, Order No. E-11375 (1957) ...... 109n California v. Federal Power Commiaston, 369 U. S. 482 (1962) , 65, 93, 93n, 95 Campbell v. Gates, 236 N. Y. 457 (1993) Smnbeeineinitnat 142 Civil Acronautics Board vy. Delia Air Lines, Inc., 367. U. S. 316 (1961) .. OS ad ‘iv . PAGE - Collins v. New York Central System, 327 F. 2d 880 (D.C. Cir. 1963) | 3 Continental Ore Co. v. Union Carbide & Carbon. Corp., 370 U. S. 690 (1962) ..... iakeodianapentinagaainal 111, 124 Far East Conference v. United States, 342 U. S: 570 : (1952) , %. 97 . Fashion Originators’ Guild re Trade Com- mission, 312°U. S. 457 (1941) seal cacsiodiceanaaeiitindlahaliedin -133 Georgia v. Penns ylvania R.R., 324 U. ve 439 (1945).. 93, 95 Hamilton Watch Co. v. Benrus Watch Co., 114 ‘FF, Supp. 307 (D. Conn.), aff'd, 206 F. 2d 738 (2d GRR EIR: sncesseninsnenisaicanianesbinuticualastien totals 141n Hammond : Packing Co. v. Arkansas, 212 U. S. 322 CRIT \sctissishitaiainltpeniennsiaiecsiniipanigpuaiionieda | Hazel Bishop, Inc. v. Perfemme, Inc., 314 F. 2d 399 (2d Cir. 1963) ......, 143 grr ewitt- -Robins, Inc. v. Eastern Freight- War ys, Inc.,. 371 U.S. 84 (1962) 97, 102, 103, “ ‘104, 104n Hornstein v. Podwitz, 254 N. ¥. 443 (1930) 200... 142 _ Hurn v. Oursler, 289 U. S. 238 (1983) ....--.oeseccooeeeceonee- 143 -Internat*onal Bagxing -— v. United States, 358 U.S. . 2 (: 89) ... vicnihideleilcanpiinlciibapeieantcistanbaniaanti .. 199 -Keeble vy, Hickeringill, 11- East 574n. (KB. 1706) + me Keogh v. “Chicago & N. W. Ry., 260 U. S. 156: (1922) 66, 97, 98 Kiefer-Stewart ¥. Joseph E. ‘Beagrie & Sons, Inc., ; 340 U. S. 211 (1951) 127 Klor’s, Inc. v. Broadway- aang Stores, 359 U. § 207 (1959)... 7 oe Lake Central Airlines, Inc. and E “k McC. ‘Blair, | CAB Docket 10149, Order No. E-L3897 (1959) ...... 109n » Barry T. Leithead and Trans World Airlines, Inc., . CAB Docket 12070, Order No. E-16310 (1961) seni .. 108n ‘wale . se ; m ‘Malcolm A. Maclntyre and Eastern Air Lines. Inc., _ Mandeville Island-Farms v. American vihew * Sugar PAGE CAB Docket’11102, Order No. E-14943 (1960) ...... 109n ° Co., 334 U. S. 219 (1948) 5 -135n Missaibinetic Universalist Convention v. Hildreth & Rogers Co., 183 F. 2d 497 (1st Cir. 1950) debinnsiuiuni, National:-Supply Co, v. rem, 57 F. Supp. 4 (W.D. Pa. 1944) ey Nelson Radio & ial Co. v.’ Mot rola, Inc., 200 F. 2d grt (dth Cir. estas cert. dened, 345 U. S. 925 ; (1953 126n, 128 © Northern Pacific Railw ay v. 0 nited States, 356 U. 8. 1 (1958) scoiceateiequaldlinnatoncamnasiiisieabippandinas . 1386 Osborn v. Sinclair Bitaing Co., 286 F. 2d 939 (4th Cir. 1960), rehearing denied, 286 F. 2d 840 (1961), © cert. denied, 366 U. S,,963 bia ..132, 136 Pacific Northern Airlines, Inc., Paul Porzelt and Rudolph Deetjen, CAB Docket 9020, Order No.. - K-12009 (1957) ...: 109n - Pan American World Airways, Inc. v. United States, 371 U. Sd 296 —. :' eee , 6G, 67, 80, 94, 95, r * , ° 98,101,102,103 Pennsi yluqnia Sugar Refining Co. v. American Sugar Refining Co., 166 Fed. 254 (2d Cir. 1908) -............. 135n Poller v, Columbia Broadcasting System, 368 U. S. 464 (1962) .«.............. Hicacaialisieseahecoabncinenihsiaetacesentanicaadait 123, 126 ~ Putnam vy. Air Franspert Association of - America, : - 112 F. Supp. 885 (S.D.N. A TOE. siintisictuclabneaitulaibnnanies 120 Radiant Burners, Inc. v. Peoples Gas Inght & Coke . ~ (o., 364'U. S. 656 IED Rikatnapanniens . . 133 Radowth x. National: Football Le ague, 352 U.S. 445 P “(194T) coseeecle SES Re eR NO, 123, 125n Richfield Oil Corp. v. United States, 99 F. Supp: 280 (S.D. Cal. 1951), aff'd per curiam, 343 U. "8. 922 ; ERE ERaPERT NO, ARDS WN en A a 132, 136 Ring v: Spina, 148 F. 2d 647 (2d Cir. 1945) —........ ae a PAGE River Plate & Brazil Conference v. Pressed Steel Car Co., 227. F. 2d 60 (2d Cir. 1955) 120 Rumbaugh v. Winifrede Railroad on ae 331 F. 2d 530 (4th Cir.), cert. denied, 379 U. S. 929 (1964) (143 Silver v. New York Stock Exchange, 373 U. S. 341 (1963) : 69, 93, 110 Simpson v. Union Oy Co., 377 U.S. 13. (1964) -......... 72, 135 Snow Crest Beverages Inc. v. Recipe Foods, Inc., 147 F. Supp. 907 (D. Mass. 1956) - 127 S. 8. W., Inc.'v. Air Transport. Association, 191 F. 2d 658 (D.C. Cir. 1951), cert. denied, 343 U. S. 955 (1952) : 121, 122 | Standard Oil Co. of California v. United States, 337 U. S. 293 (1949) .... : 73, 132, 136 ‘Sunkist Growers v. Winkiler & Smith Citrus Proa- _ ucts Co., 370 U. S. 19 (1962) ... 127 Taussig v. Wellington Fund, Inc., 313 F. 2d°472 (3rd Cir.), cert. denied,*374 U. S. 806 (1963) -....2......... 143 Texas & Pacific Ry. v. Abilene Cotton Oil Co., 204 U. S. 426 (4907) --------66, 97, 98 Timken. Roller Bearing Co. v. United States, 341 U.S. 593 (1951) "197 . Loolco-Northeast Control Casé, CAB Order ‘No. E-18470, CCH C.A.B. Cases (1960-1964), 21,292 . (1962), ‘aff'd sub nom., Natwonal Airlines, Inc. v. - Civil Aeronautics Board, sal F. 2d 880 ¢D.C. Cir. 1963) 53, 54n, 57, . a 59, 105, 116 Trnisitiantie Route Renewal. ‘Case, CAB - Docket No. taal Recommended packaian of Examiner (1964) . 7 :_.35, 36n Transcontinental & Western Air, Inc., Control by Hughes Tool Company, 6 C.A.B. 153 (1944) -.......... 9, 3in, - 8ln, 119n — Transcontinental & Western: Air, Inc., Further Con . trol by Hughes Tool Co., 9 C. A.B. 381 (1948) ........ ae - Trans World Airlines, due. v. Civil’ Aeronautics Board, 339 F. 2d 56.(2d Cir. 1964) ...:........ :..60, 81 4 . ; PAGE Trans -World -Airlines, Inc.,* Further’ Control by Hughes Tool Company, 12 C.A.B. 192 (1950)..13, 107, 118 United Air Lines, Inc. and William A. Patterson, K - * CAB Docket 7796, Order No. B-10644 (1956) -....... 108n United Air Lines, Inc. and William A. Patterson, CAB Docket 7796, Order No. E-10732 (1956) ........ 109n United Airlines Transport. Corp. and Western Air ‘Express Corp., Interchange of Equipment, 1 ‘C.A.A. 723 (1940) ...... ah Tae ewer 100n United. States.v. Borden Co., 308 U. S. 188 ged ..94, 95 United States v. Columbia Steel Co., 334 U. 3. 495 _ (1948) : 129 United States v: Consolidated Laundries Corp., 291 | F. 2d 563, (2d Cir. 1961) 140 United States v. E. I. duPont deNemours & Co.,.351 ~ U.S. 377 (1956) .... 139 United States v. E. I. duPont deNemours é Co., 353 . U. S. 586 (1957) 131 - United States v. Griffith, 334 U. S. 100 (1988) ciated > 139° United States v. Klearflax Linen Looms, 63 F. Supp. 32 (D. Minn. 1945) 139 United States v. Loew’s, Inc., 371 U. S. 38 (1962) .... 136 United States v. New York Great: Atlantic & - Pacific Tea Co., 173 F. 2d 79. (7th Cir. 1949) .......... 133 United States..v. Philadelphia National Bank, 374 . .U. S. 321 (19638) . 65, 93 United States v. Procter & Gamble Co., 356 U. 8. 677 (1958) «......: Ln, 52n United States v. Pullman Co., 50 F. Supp. 123 (E.D. | Pa. 1943) 99 . United States v. Railway Express Agency, ‘Tue., 89 F., ’ Supp. 981 (D. Del. 1950) 120 United States v. Radio Corporation of America, 358 U.S. 334 (1959) a 65, 94, 94n, 95, 101n, 114n, 115n United States v. United Mine Workers of America, 330 U. S. 258 (1947) . 3 PAGE United States v. Yellow Cab Co., 332 U. S. 218 DI «auch sede Naan gihkahasiagianiansecions 72, 127, 127n, 129, 130, 134, 139° United States Navigation Co. v. Cunard S. S. a 284 U. S. 474° aie siceeiashbabitesamabsichianiidainnenindltiaiiinn 97: Statutes and Rules 2 Air Mail Act of 1934 §7, 48 Stat. 936 (1934) .... 83 Civil Aeronautics Act of 1938 ie §1107(£), 52 Stat. 1028 (1938) ——— §1107(g), 52 Stat. 1028 (1938)' cue. 100n Clayton Act §3, 38 Stat. 731 (1914), Ib USC. sd (1958) .. 72, i32, ° 137, 141n "7, 38 Stat, 731 (1914), as amended, 15 U.S.C. eRe er nO 72, 73, 93y. 131, 140, 141n §1l(a), 38 Stat. 734 (1914), as amended, 15 | U.S.C. §21(a) (1958) .. 100n Federal Aviation. Act of 1958 | i | §102. 72 Stat. 740, 49 U.S.C. $1302 (1958) ............ 62, 76 $407(c), 72 Stat. 766, 49 U.S.C.- $1377(ce) A SESER tae nome .76n, 80 $408, 72 Stat. 767, as amended, 49 U.S.C. §1378 (Supp. V, 1964) snieitiaeibiniiiadatisasinijenabansainanaai passim §408(a), 72 Stat. 767, 49 U.S.C. §1378(a) (1958) 68 §408(a) (2), 72 Stat. 767, 49 U.S.C. §1378(a) (2) ae §408(a)(5), 72 Stat. 167, 49 U.S.C. §1378 (a) (5) TTI“ satesdcseubeacspicibiaba A ctpeinidlnaiabictteneinieinapcialithaeticaniiiecitinnannind 9, 109: _ §$408(b), 72 Stat. 767, as amended, 49 U.S.C. | $1: 378(b) (Supp. V, 1964) 20020... 59, 60, 63, 78, 100n §408(d), 72 Stat..767, 49 U.S.C. §1378(d) (1958)....63, 78 ° .§408(e), 72 Stat. 767, 49 U.S.C. §1878(e) (1958)....68, 78 " 3 . jo PAGE §409, 72 Stat. 768. 49 U.S.C. §1379 (1958) .........-76, 76n, | 77, 108n, 118-_ $411, 72 Stat. 769, 49 U.S.C. $1381 (1958) ....... 63, 67, 79, 80, 81, 82, 99, 104 - $419, 72 Stat. 770, 49 U.S.C. §1382 (1958) PR 77, 109, - 118,121 | y414, 72 Stat. 770, 49 USC. §1384 (1958) ........ 4, 63, 68, ' 77°78, 79, 92, 117, 118, 122 $1106, 72 Stat. 798, 49 US. C. $1506 (1958) ........ 92n Federal Rules of Civil Procedure Rule 16 paalemnnahanst : . 48, 49 ERS eee ers : 40, 41 Rule 37(b)(2) (iii) = . 1,4 Rule 37(d) ......... sei . — 1,4 Federal Trade Comniission Act §5(a)(6), 38 Stat. 719 (1914), as cmended, 15 U.S.C. $45(a) (6) (Supp. . arene *100n. Natura: Gas Act 7, 52 Stat. 824 (1988), a as amended, 15 USC. | 717({f) (Supp. V, 1964) Aanepanmmnnsnl 93n Sherman Act : §1, 26 Stat. 209 (1890), as amended, 15 U.S.C. §1 (1958) tenetnn : 72, 126, 129,130, 136, ‘137, 141n §2, 26 Stat. 209 (1890), as amended, 15 U.S.C. . $2 (1958), . . 72, 138, 1m 141n shipping Act $15, 39. Stat.. 733. (1916), as amended, 46 U.S.C. nN 121 §22, 39 Stat. 736 (1916), as amended, 46 U.S.C. i _s ReA ee oe sail invideloh 121 Se a" ; PAGE Miscellaneous hittin 83 Cong. Ree. 6729-6732, 75th siti 3rd Sess. (1938)... , 84-92, 100n Kramer, Does Concerted Action Solely Between a Corporation and its Officers Acting on its Behalf ‘an Unreasonable Restraint of Interstate Commerce Violate Section 1 of the Sherman Act?, XI Federal - Bar Journal 130 (1950) ; 127n - Report of the Attorner y General’s National -Commrit- tee to Study the Antitrust Laws (1955) .......... 126n, 128n Report of the Federal Aviation Commission, S. Doc. No. 15, 74th Cong, | Ist Sess. (1935) . st ab ite: or . 3 w THE | ems Court of the Anited States OCTOBER TERM, 1964. No. 443 0 a HvucuHes Toot Company and | . Raymonp M. Hotumay, ~ Petitioners, against Trans -Wortp AIRLINES, Inc., . - Respondent. ON WRIT OF CERTIORARI TO THE UNITED STATES, COURT OF APPEALS FOR THE SECOND CIRCUIT BRIEF FOR RESPONDENT The “Questions Presented” and the “Statement” of the case set out in petitioners’ brief are neither acceptable as accurate statements of the facts and issues involved in this controversy nor permissible as representations of the state of the record of this litigation to date. Questions Presented In defining the questions presented by this interlocutory ° ‘Sappeal, it is important to bear in mind the limited scope of the present review. The limitations are the result of — (a) the riature of the o.der appealed from, that is, an order. directing the entry .of a default judgment pur- . suant to Rules 37(b)(2)(ili) and 37(d) ,of the Federal Rules of Civil Procedure; (b) the opinion of the District 9 | " _ Court, which, in making the jurisdictionally necessary statement that the order involved a controlling question . of law as to which there was a substantial ground for difference of opinion, identified that controlling question of law as the question raised below in light of Pan Amer- ican World Airways, Inc. v. United States, 371 U. S. 296 _ (1963), (“Panagra”); and (c) the order of the Court of "Appeals limiting its jurisdictionally necessary permission to appeal to “the issues of (1) Whether the U, S. District | Court for the Southern Distriet of New ‘York had juris- diction of the action, and (2) Whether the exercise of its regulatory power by the Civil Aeronautics Board in the . premises by. issuance of orders permitting defendants to act as defendants acted constitutes a: good defense to the antitrust claim of [TWA]”, and ‘continuing with the words “in all other respects the application is denied”. The posture of the ease following Judge Metzner’s denial of petitioners’ motion to dismiss the complaint was that the case was not to be disposed of on the pleadings and plaintiff was to have the right to inquire into the facts. No final determination in plaintiff’s favor or against defendants on the issues had yet been made. — ‘ on ‘their reputations and their fortunes in Toolco’s cotinterclaims and ’ elsewhere) because they felt that the continued survival of TW A was _a matter of national importance. * Rather than similarly divide TWA’s presentation between two _ briefs, we ha¥e thought it more convenient for the Court to consoli- 7 date in this brief a full statement of the facts and legal principles » «which we consider controlling in both cases as they affect TWA. _ oy 6 sions by the Board, and their frustration of plaintiff’s effort to compile proof in the normal manner provided for by the Federal Rules of Civil Procedure as a failure of proof by the plaintiff. . : The: crucial fact is that this case has come before this Court at the pleading stage. Not only has there been no trial in which the plaintiff was able to put in its available evidence, but, when it, became apparent that even a motion for summary judginent ran the risk of allowing the plain- ° tiff to present evidence which would make defendants’ con- _~ tentions untenable, the defendants promptly withdrew that ~~ motion (A-121, fol. 2711). *-The decision below, at its broadest, was on a motion for judgment on the pleadings ‘incorporating-a motion to dismiss for failure to state a claim and a motiog to dismiss for lack of jurisdiction over the subject matter. Judge Metzner’s determination in _ plaintiff’s favor on.this motion established that plaintiff - had the normal right to proceed with pre-trial discovery of the kind which defendants had already conducted in extenso. Since discovery was what defendants were deter- to prevent at all costs, they thereupon defaulted. Petitioners’ statement fails to give anything like a true picture of the essentigl basis of TWA’s claims or the * Record references i in this brief are designated as ‘follows: thos¢ prefixed ““A” refer to vols. I and II in No.443; those prefixed “AA” refer to vol. I in No. 501; those prefixed “T” refer to vol. II in No. 501 ; those prefixed “B” Tefer to vol. III in No. 501; those prefixed = - hy gm rate oo val IV, V and VI in No. 443 and No. 501 which have - been aa | printed ‘for the use of this Court ; references to “fol.” are to unprin portions of the original Yecord. This No. 443, and the companion case, No. 501, arise out of a gingl civil action and are before this Court on a single original record, certified as such by the United States Court of Appeals for the Second Circuit. Both cases were heard below on that single record in the Court or Appeals. All appendices printed for the use of the court below, im ‘both cases, have been designated to be printed for the. use of this Court in both No. 443 and in No, 501. While the cover pages ot ‘vols. I and II in No, 443 and of vols, I, H and IIT in Na, 501 do not so indicate, each such vosame is part of the printed secerd in both cases. 7 course of the proceedings to date, If this case is viewed against an accurate statement of TWA’s claims and a fair estimate of the evidence which the proceedings to date suggest would have heen developed in support of them if ~ discovery had continued, and if it is considered i in the con- ’ text of the delaying and obfuscatory. tactics employed by petitioners since this litigation began, it becomes apparent that the positions taken by petitioners are withott merit and are, indeed, merely tools in a continued effort to disrupt and frustrate any orderly consideration of TWA’s claims, an effort destructive of the integrity of judicial proceedings in, the federal courts." The Trade and Commidree Involved Contrary to the suggestion of petitioners’ brief that the _ trade and commerce involved in this case concern only ‘“the acquisition or financing of aircraft for TWA” and that the markets involved are defined in the complaint solely “in terms of TWA’s requirements for aircraft” (Petitioners’ Brief, p. 4), the trade and commerce in- volved are described in considerable detail in the com- _ plaint and consist of the furnishing of aircraft to TWA “and. other air carriers” for use in air transportation in interstate and foreign commerce (Complaint, paragraph 7(a), A-3), the furnishing of jet-powered aircraft to TWA “and other air carriers” (Complaint. paragraph 7(b), ihid.).. the furnishing of aireraft to TWA (Complaint, paragraph 7(¢c), thid.), the furnishing of aircraft used by scheduled United States flag air carriers hetween certain pairs of cities in the United States between which TWA provides more than 60% of the scheduled air transporta- * The basic facts which will be set out hereafter ‘are derived from matters of public record, from the allegations of the complaint which, ‘in the present posture of the case, mutt he accepted as true, and from evidencé unearthed by TWA im the [itited documentary discovery permitted to it prior to defendants’ default and refusal to comply with orders of the District Court directing further discovery. s 7 oe ot tion provided By all United States flag air carriers (Com- . plaint, paragraph 7(d), ibid.), the furnishing of aircraft used by scheduled Unitéd States flag carriers between ~ _ certain pairs of cities between which: TWA provides the _ only, scheduled air transportation provided by’ ‘United | States flag air carriers (Complaint, paragraph 7(e), A- 3-4), and the financing of the acquisition of aircraft for use by TWA in air transportation in interstate and foreign com- merce (Complaint, paragraph 7(f), A-4). Thus, the actions of defendants which are the subject “of this litigation were in the area of the development and supply of ‘commercia. aircraft for.air. carriers generally, and also involved the financing of such aircraft for use by TW; a dominant position in this broad field of trade and’ commerce was thie objective, at which the conspirators © aimed. In doing'so, of course, they began by establishing -control over TWA’s: segment of that market, -and it is their. dominance and manipulation of the TWA market for their larger private purposes wmen has so gravely injured TWA. S Toolco’ s Acquisition of Control of TWA The conspiracy described in the complaint began 5 years after TW.A’s organization in 1934,* when defendant Tooleo began to buy up the‘common stock of TWA pursuant to. an understanding with Howard: R. Hughes (the principal— and indeed dominant—conspirator and a named defendant . ° herein,“ who, however, was never found: for :service in this action). Although the. Civil Aeronautics Board _. (the “Board”) later, noted that “for all practical pur- poses” Tooleo had achieved control of TWA for: Hughes . by. the end of 1940 (6°C.A.B. at 154), an application requesting approval. of thi¢ acquisition of control was not submitted to the Board until November 19, 1943 * TWA was incorporated as Transcontinental & Western Air, Inc.; its name was changed to Trans World Airlines, Inc. in 1950. F ea =e oe (R. 183), and the Board did not enter its order approv- ing the. acquisition until October 17, 1944. Transcon- tinental & Western Air, Inc., Control by Hughes Tool Company, & C.A.B. 153, 154. Toolco then held approxi- > mately 45% of the TWA common stock and Jack Frye, president of TWA; was employed in an “advisory capacity” by Tooleo (6 C.A.B. at 155).* As will be seen, it was not until after 1960 that TWA was able to speak with its own voice to the Board, or to any other tribunal. The question principally considered by the-Board in ruling on TWA-Tooleo’s application for approval of this ° acquisition of control was whether‘ Tooleo was, in fact,° a person engaged in a phase of aeronautics within the meaning of Section 408(a)(5) of the Civil Aero- ‘nauties Act, subsequently the Federal Aviation Act (the “Act”). The Board noted that among the requisites for its exercise of any jurisdiction in the matter was a finding that there was “an acquisition of control” and that the acquiring person was “engaged in a phase of acro- nautics” (6 C.A.B. at 155-156). The Board concluded that *,Tooleo might, under existing contracts, become a dealer Jin aircraft, if it had not become one already.** Since it ~ was conceded that there had been an acquisition of control, . the Board found its jurisdiction to have been established (6 C.A.B. at 156). Finding that the likelihood of TWA’s tiie forced, throu e control exercised by Tooleo, to purchase more | ifcraft than_its. economic operations required was remote / in view of the “paternalistic attitude” which Tooleo hed » . This isan n early example of what ‘proved to be a fairly usual practice for ‘Foolco of employing TWA employees or execijtives in an “advisory” “capacity. to Toolco or of using Toolco employ ees as ‘essentially full-time TWA executives. See. ¢.g., the testimony on deposition of Rummel (fol. 12724 et seq.) and Leslie (fol. 12322) and the affidavit of ‘Bew (T-104). + Obviously, Toolco was already a dealer in aircraft, and it has never ceased to be such, as other carriers besides TWA have good reason to know. (See pp. 23 et seq.. infra. ) 10 “exhibited up to that time,” the Board concluded that the continuation of the relationship between Tooleo and TWA “would not be inconsistent with the public interest” (6 C.A.B..at 156). . Public counsel urged that restrictive conditions be im- posed on-the Board’s approval of the acquisition of con- trol, and Tooleo suggested that the order provide that if Tooleo should commence manufacturing aircraft or air- eraft parts, and if TWA should desire to acquire such aircraft or aircraft parts, then TWA and Toolco should be required to “return to the Board for further hearing upon continuation of the relations between TWA and Hughes Tool” (6 C.A.B. at 157) (emphasis added)" The Board instead imposed a condition providing that its approval would “be effective” so long as commercial transactions between TWA and Toolco were limited to — transactions involving complete items of property, the price of which did not exceed $200 each, with a further limitation that the total annual expenditure involved in any such transactions should not exceed $10,000 (6 C.A.B: at 158). In point of fact, the’ average annual expenditure by. TWA for aircraft, equipment and supplies bought from ‘or through Tooleo during the next sixteen years exceeded $17,000,000. ; At the beginning of 1947, TWA and Tooleo entered into a Letter Agreement: (dated January 8) which had the- effect of increasing the extent of Toolco’s control over TWA and which resulted in an order of the Board insti- * It is obvious that neither the Board nor its staff had the slightest ' thought that the order issued in this proceeding, might possibly extend to activities by Toolco in its capacity ast general dealer in aircraft seeking to obtain a dominant competitive position in that field. Toolco’s counsel in that proceeding, in a letter written to the Hearing Examiner at the time, specifically stated : 1383).. The Board observed that there was nothing in the record to indicate. that:a sueressful flotation of equity securities could not . -have been accomplished during 1945 and 1946, as TWA’s’ management desired (9 C.A.B. at 383-84). It pointed out, however, that the differences of opinion delaved action on any definite program and that, as a result, nothing was 12° done .until an unfavorable turn in the securities market about September 1946 made any large-scale equity financ- ing difficult. ‘The Board also observed that by the end of 1946 TWA’s financial condition had become critical and that in the closing months of that year the carrier was “facing bankruptcy.” According to the Board, Toolco . was willing to be of financial assistance but was. unwilling to furnish additional money without having further con- trol over its spending. The Letter Agreement of 1947 was presented as a solution to - this = (9 C.A.B. at 384). j 7. Referring to its 1944 order, thé Board noted that it had been “clearly couched in terms of factors then pres- ent” and related solely to the degree of control existing at that time (9 C.A.B. at 388). The Board thought it clear that “we did not intend to, and did not, grant a blanket, unlimited -in futuro approval of ‘the relation- ship between Tooleo and TWA”, and that an approval of anything other than the acquisition of the degree of control submitted in the first control proceeding “would have been ‘made in clear, unmistakable language” (9 C.A.B. at 389). It would be unreasonable to assume that the approval granted in 1944 would “forever consti- tute an unlimited ratification of any and all future acquisi- tions of ownership interest in the carrier” (ibid.). The Board specifically rejected the argument that its approval of “the acquisition of control, by the purchase of common stock” could be held to be “words of art, importing a> blanket, technical meaning and covering in umbrella-like fashion all subsequent transactions under which the’ acquirer may have obtained an additional substantive interest in the carrier” (9 C. A.B. at 389-90). The Board -went on to say: “It bears repeating that there is no support in _. either the record or the opinion for ‘the ‘contention that the words in question were intended, as an ™\. 13 expression af blanket approval of the relationship under consideration.” (9 C.A.B. at 390) (Footnets eantiaa.) Finding that ‘the ‘Letter Agreement amounted to a fur- ther acquisition of. control, the Board ordered that an in- vestigation be conducted to determine whether Toolco’s ‘ acquisition of control’ was consistent with the public interest and met the conditions of Section 408. | That fprther investigation’ culminated in an order of... ‘the Board issued on October 6, 1950, reported as Trans World Airlines, Inc., Further Control by Hughes Tool Company, 12 C.A.B. 192. The Board’s opinion and order, only two pages long,-did not discuss in detail the reasons for its approval. The Board did note the position taken by public counsel that the control of TWA theretofore exercised by Toolco had been “detrimental to the interest © of the carrier and the public interest”, but that disap- proval of the additional stock acquisition would not ade- quately “remedy or mitigate the existing situation”, and ‘that since the Board did not have adequate power to deal with the situation, it was left with “no alternative than ~ to approve, such additional ‘stock acquisition” (12 C.A.B. at 192, 193). After setting out the position of ‘public . counsel, the Board concluded merely that: : “The ‘record in this proceeding does not permit us to reach any other conclusion than that reached by the examiner, viz., that the further acquisition of control should be approved as being consistent with the public interest and the requirements of the Act.” . (iz) C.A.B. at 193) | The Board. pecordingty agreed with and ee the find. ings, conclusions, and recommended decision of the Ex- aminer. In his 31-page report, the Examiner considered not at. all any effect the acquisition of control might have on 14 competition either in-the aircraft industry or in air trans- portation. He directed shimself almost exclusively to TWA’s financial history. In recounting this history, the Examiner noted that from February 1944 until the close of 1946 the management of TWA had made repeated Fequests of Tooleo for approval of plans. to finance the earrier’s expansion (12 C.A.B. at 201), that the principal officers of the carrier were convinced that the sale of equity securities was preferable to large borrowings (ibid.), that neither Hughes nor the other Toolco repre- sentative involved disagreed with the position that addi- tional financing would be necessary (12 C.A.B. at 202), that Tooleo and Hughes repeatedly refused to agree to equity financing (12 C.A.B. at 202-04), that TW4A’s finan. cial condition deteriorated rapidly during 1946 (12 C.A.B. at 205), and. that in the closing months of 1946 TWA could not attract any eapital and was facing bankruptcy (12 C.A.B. at 206). ‘Summing up, the Examiner said: «“e * * whatever were TWA’s problems in pro- moting equity financing to meet its postwar capital needs, the insistence of Mr. Hughes and Mr. Dietrich [then Toolco’s chief financial officer and Hughes’ principal lieutenant] on debt as a matter of delib- erate policy to meet. TWA’s capital requirements Tight after the war ended must be condemned.” (12 C.A.B. at 222) rs z The Examiner concluded, however, that the additional acquisition of control should nevertheless be approved, citing principally “the manner in which Mr. Hughes and his company rallied to the support of the carrier during — the financial crisis of late 1946 and early 1947” (12 C.A.B..- at 223)—the same crisis which had been created by Hughes” refusal to agree to equity financing in the first place.* * The Examiner. noted that public counsel had posed three alterna- tives as possible answers, to the question posed in the proceeding (12 C.A.B. at 215-16). The first alternative was that a limitation be i 15 The order issued . the Board in 1950 provided only that ee additional wenitititon of control of Trans ‘World Airlines, Inc. (TWA) by the ‘Hughes Tool Company (Te@oleo), found to exist ‘by the Board’s opinion and order of June 30, 1948 (9 C.A.B. 381) be and it hereby is approved as consistent with the public interest and the requirements of the Act; _ provided, that such additional control shall be exer- cised in accordance with the terms and conditions of the Board’s opinion ‘and order, 6 C.A.B. 153, as amended, approving the original acquisition of con- trol of ‘TWA by Toolco.” (12 C.A.B. at 193) The reference back to the earlier order and the similarity in language indicate that this order, like the 1944 order, did not grant a “blanket, im futuro approval of the relationship between Tooleo and TWA” and was not ‘intended “as an expression of blanket approval of the relationship under consideration.” Defendants’ Unlawful a The Beginning to December 1960 The: complaint alleges that since approximately 1939 the defendants Tooleo, Howard Hughes and Rayniond M. Holliday, the co-conspirator Atlas Corporation (“Atlas”) * imposed on the exercise by Toolco of the rights. flowing from its ’ additional stock -acquisition, presumably by establishing a voting trust for the stock. Public counsel, however, had dismissed this alternative as impracticable. The second alternative was to reject approval of the additional acquisition and reopen the question whether all control -of TWA by Toolco should be terminated, but public counsel apparently entertained serious, doubt as to the Board's, power to terminate a con- irol the acquisition of which had been previously approved. The third alternative suggested by public counsel was that the history of Toolco’s relationship with TWA be used as a case history for demon- strating to Congress the need for public coxtrol of security issues by air carriers. * Hughes had for some time held the beneficial ownership of voting trust certificates with respect to 11% of the common stock of Atlas. ¢ af 5 16 and other persons acting for each of ‘them (Complaint, paragraph 9, A-8) have engaged in-a course of conduct which had as its intent and purpose that Tooleo would . become a dominant source of supply of aircraft to air. carriers, that defendants would seize control over TWA and its business to use for their own purposes in advanc- ing this objective, that -Tooleo would become the sole supplier of aireraft to TWA, that TWA. would thereafter be used as-a captive market for aircraft to be supplied by Tooleo, that the requirements of TWA for aircraft, . including jet-powered aircraft, would be enlarged for the — benefit of defendants and Atlas b various means, that suppliers of aircraft other than the defendants would be boycotted and foreclosed from furnishing. aircraft to “TWA and other air carriers, that defendants would sup- ply TWA with aircraft only on the condition that TWA . accept such financing arrangements as defendants dic-, tated, that defendants would allow TWA to procure financ- ing essential for the acquisition of aircraft only on condi- tion that it also accept such aircraft as the defendants - dictated, and that as a result defendants and Atlas would obtain substantial profits for themselves at the expense. ° of TWA and other air carriers and as a result of the restrictions upon: competition héretofore described (Com plaint, paragraph 10, A-9-10). Among the acts alleged to have been committed by the defendants prior to December 1960 pursuant to this con- — spiracy were ; - —an arrangement to develop with the Convair Division of General Dynamies Corporation (“Convair”) a jet- powered aircraft to be manufactured by, Convair and to be supplied by the defendants to air carriers, including “TWA, with the intention that TWA would be a captive market for such aircraft (which development program was subsequently abandoned as not in the self-interests . 17 of the defendants and Convair) (Contplaint, paragraph 14, A-11); ' —the development of a plan, also‘later abandoned after being actively pursued by.defendants, under which Toolco _ would itself commence the manufacture of jet-powered | - aircraft to be furnished to TWA and other carriers (Com- plaint, paragraph 15, A-12) ; —the taking of action to prevent TWA from meking -any arrangements for the acquisition of jet-powered air- craft from Boeing Company (“Boeing”) and Douglas Air- craft Company, Inc. .(“Douglas”) at a time when’ other competing carriers were placing orders for such aircraft (Complaint, paragraphs 15, 16, 17, A-12) ; . _—the placing of orders by Toolco \for its purchase of 33 Boeing jet-powered ajreraft and .30 Convair jet-pow- ered. aircraft and the refusal of defendants to assign the rights to aequire any of such aircraft to TWA (Complaint, paragraphs 17, 18, A-12-13) ; —the continued frustration of all efforts of TWA to acquire jet aircraft itself until the period 1959 to 1960 _when defendants arranged for Toolco to lease certain jet- powered aircraft to TWA on a -day-to-day basis, but subject tq the condition and understanding. that TWA ‘would not purchase or lease aircraft from any other ~~ potential supplier (Complaint, paragraph 20, A-13) ; —the diversion to TWA’s principal transatlantic com- petitor of six Boeing jet-powered aircraft on order by Tooleo (Complaint, paragraph 18, A-12-13) ; —and the foreclosure by these means of all other poten- tial suppliers of jet-powered aircraft from the TWA market (Complaint, paragraph 49, A-22). It'is further alleged that the defendants, together with ° Atlas, which owned 56% of the stock of Northeast Air-: lines, Ine. (“Northeast”), sought to compel TWA to enter into a disadvantageous merger with Northeast for the pur- pose of enlarging TWA’s requirements for new. aircraft 18 and therehy enlarging the market from which suppliers other than the, defendants would be foreclosed, and for the ‘additional purpose of enabling Atlas and its stockholders, _ ineluding Hughes, to obtain, stock of TWA on advan- tageous terms (Complaint, paragraph 21, A-13-14). More- over, in November 1960, while this proposal for merger was pending, defendants arranged for the lease by Con- vair to Northeast of six aircraft ordered by Tooleo from Convair, including three aircraft which had previously - heen assigned ‘to TWA (Complaint, paragraph 22, A-14). _ It is further alleged that, once having acquired control: ' -of TWA, Tooleo and the other defendants continuously refused to allow equity financing by TWA except on terms which would i increase Tooleo’s equity position in TWA and instead caused TWA to obtain funds chiefly by means of | debt financing (Complaint;>paragraph 23, A-14), that the © purpose and effect of this: policy were to niaintain control by the defendants of the financing of ‘the purchase of air- craft by TWA and to strengthen defendants’ control ‘over the acquisition of aircraft by TWA (Complaint, para- eraphs 23, 24, A-14-15), and that by reason of this policy TWA was prevented from obtaining the financjng neces- sary for jts acqujsition of jet-powered aircraft until December 1960 when the prevailing interest rate for debt tinancing was approximately 6-614,%, rather than the 4% to 434% interest rate secured by other air carriers in 1955 and 1956 (Complaint, paragraphs 26, 27, A-15). The Evidentiary Record Defendants’ studied and continued resistance to Mo. covery and their ultimate decision to default: rather than permit discovery by plaintiff to proceed has succeeded ir preventing TWA from obtaining significant documentary information. In addition, as a result of defendants’ deci: - -sion to terminate discovery proceedings, not:a single word — of testimony could be obtained from any of. the defend + ‘ & es _ 19. ants, and owe from Hiighes, ' the amen archi- tect of defendants’ conduct and policies.° ‘It must be borne in mind, therefore, that the “record” of this proceeding has bee contrived by petitioners, . défendants below, so that it will seem as barren as pos- sible of information in support of TWA’s complaint. TWA was severely limited in introducing even the avail- able documentary evidence into the record by the fact that it never itself had the opportunity to conduct deposi- tion proceedings, during which, in the normal course, such © evidence would have Been identified and introduced as . exhibits. » The small fraction of the do uments obtained by TWA which is in fact in the record at this time is the result of deferidants’ attempt, at one stage of the pro- - ceedings, to join its motion to,dismiss with one for sum- .mary judgment. The ambiguity of defendants’ position - as to whether factual material dehors the pleadings would - be relied on resulted in the submission of an affidavit by “TWA’s counsel, John F: Sonnett, annexing a small selec- tion of the-available material’ on which TWA ‘would rely if a motion for summary judgment or some similar mo- tion addressed to the merits was to be entertained (fol. 2929-33, T-1-112).°* - Defendants at that point hastily ‘withdrew the summary judgment | branch of their motion (A-121). * Defendants’ activities in resisting discovery .are described at pages 38-53, infra., Tt should be here noted that defendants’ self- described “busines? decision” to default was attributed by them to their low estimate of recoverable damages (A-130). No suggestion was made that for any teason Hughes was unable to testiiv or that defendants were unable to produce the obviously important “attornev- client” documents and tax information in accordance with the District Court's orders. ** A series of documents which were annexed as Exhibit A to the Sonnett affidavit appear in the record at T-1 to T-84.. They give.a fasginating glimpse behind the scenes of a few transactions. Con- sisting as they do primarily of fragmentary verbatim transcripts of telephone conversations and informal personal memoranda, they make Even the evidence in this severely limited record suc- ceeds in documenting many of the allegations of TWA’s complaint and in demonstrating the baselessness of peti- tioners’ claim that TWA’s complaint is not really an antitrust complaint but only ore with “antitrust jargon”. For example, during Toolco’s examination of TWA by R. W. Rummel, TWA’s chief technical and aircraft procurement officer,* this revealing colloquy occurred: Y « “Q. Were you ever.told, was it ever suggested to you by anyone, that you should not approach anyone to explore the possibilities of their haying ~ _@ useful producf? . | - “A, Well, Yes, I have been-* * °.” (T-113) ‘a (Emphasis supplied.) When Toolco’s counsel conducting the proceedings made . ‘no attempt to determine who it was who had given these ‘instructions (T-113-31), the Special. Master specifically in- structed Rummel:to state who‘had given him such instrue- tions and in ‘what instances (T-131).. | Thus, when “Bouglas Aircraft Company. officials stated to Rummel that they would like to deal directly: with TWA (T-136), Hughes personally instructed Rummel that . «* © © Douglas would have to come to him before _we did any more with them,,and we did not work with: Douglas” (T-137). | | ‘an extensive use of first names, abbreviations and similar shorthand. While TWA has not had the opportunity to have them explained ’ under ‘oath, it is believed that, for the most part, the subject matter is sufficiently plain to establish from these documents alont that the — which TWA has made in its complaint are based upon solid act. : * In addition to being TWA’s chief technical ancbaircraft procure- ment officer, Rummel was simultaneously employed by Toolco in a similar capacity and was closely associated with Hughes from the early 1950's until December 1960. a ~w te 21 Rummel also testified about Hughes’ personal order to him to have nothing to do with the Convair 990 aircraft: “The instructions were that I should not partici- pate or allow the participation in either contract . or specification development activities, that we _.« should not inspect any 990 parts or components at “~~ the Convair facility, and that we should not dis- | cuss the 990 with Convair” (T-132). *- These instructions were issued (and followed to the letter) with respect to aircraft ordered by Toolco but to be built _to the specifications of American Airlines (T-66-70, T-111-. 12, T-132, T-159, T-163-77), and which Tooleo was later to attempt to force upon TWA te aman paragraphs 37-39, 45, A-18, A-20, T-58). ; TWA’s chief technical officer was similarly directed to have nothing to do with development of the Lockheed Electra (T-133, T-145-47), although Hughes and Toolco were engaged in serious, secret riegotiations involving the acquisition of 40 such aircraft. (A-852, fol. 13916-17, T-57, T-146-47), jast as he had earlier been barred from certain Tooleo negotiations with Loekheed about the Lock- heed 1049 aircraft which Tooleo subsequently acquired and sold to TWA (T-145-47, R..1330). Indeed, Rummel was even ordered at times to cease call contact with the Boeing Company respecting the 707-131 and 707-331 jet- powered aircraft (T-134, T-147-56. T-161), and even though these directions: placed the critically important — ‘ Boeing program in jeopardy “we felt obliged to literally follow the instructions * * *” (T- 150). aes ‘ Another enlightening illustration of how TWA’s air- eraft were if fact chosen during the Hughes years can be seen in the procurement: of the Lockheed 1449A. In De- cember 1954, after FWA exécutives nominally responsible for aircraft procurement, including its then president, had concluded that TWA should purchase Douglas DC7C piston aircraft to meet its equipment needs until jet air- ne . AG 8 Us ol craft -becaime ayailable (T-72-77, T-210-12), Tooleo over- _ ruled this decision and directed instead that a contract be ' signed ‘at. once for the purchase of Lockheed. 1449 -air- craft (T-72-77, T-211-14). Specifications for these aircraft - had not even been completed, but Hughes directed, despite -'TWA’s efforts to dissuade. him, that Tooleo sign a -pur- chase contract with Lockheed, with which Hughes’ had been. in personal negotiations, before the end of the year and that TWA drop its negotiations with Douglas since: it would in due course be required to purchase from - Tooleo the Lockheed 1449s. A contract was duly executed ‘on’ December 23, 1954*, with Rummel participating as a technical consultant’ on TWA’s special requirements. TWA never was permitted to buy Douglas aircraft. Read as a whole, the Rummel testimony’ clearly. indi- - cates, in spite of Toolco’s protestations otherwise, that in . ‘almost..every instance where serious consideration was _ . given to procurement of aircraft, Hughes and Tooleo madg | the decisions and gave the orders so as to preémpt for. themselves the supply of aircraft to TWA, and that nego- | tiation between TWA and other suppliers of aircraft was constantly thwarted. Indeed, in most instances ‘TWA’s management (except Rummel). was -hot informed about what was going on, and Rummel was ordered by Hughes” _ to keep even them in ignorance (T- 138-41, T-163, T-207). . With respect to financing it is noteworthy that, in spite of extensive examination of TWA’s former chief financial officer, A! V. Leslie’ (also a long-time Tooleo officer), defendants, failed to inquire into the facts behind and the reasons for Leslie’s handwritten commentary, “TWA, - The placing of that order in that. manner appears to have been hut another of defendants’ maneuvers to strengthen Toolco's domi- “nance in aircraft supply while simultaneously easing the ever present tax problems arising out of the accumulation of énormous surpluses in Toolco (T-71). °4 4 23 . | > ; i « An Appreciation” (T- 85-103)... In that commentary, Leslie notes: , 7 ae “Tt was , stated by ‘Hughes at the time the orders were placed ([to] among. others the writer) that | TWA. was not to concern itself with thé financing of this equipment as he through Tooleo, would find - ‘imitially the required funds.” (4-S5) (Emphasis ~ in original.) | After thus precluding Tw A from arranging haneeian. for itself, defendants’ consistent. approach was to refuse to consider any financing proposal except through Tooleco, at whatever sacrifice to the interest of TWA. Wien finally, in desperation, TWA’s directors attempted to conclude an arrangement which would meet TWA’s needs and avoid bankruptey, and which ‘would have . involved some loans from financial institutions directly to: TWA, Hughes’ attitude is revealed in the ‘following verbatim transcript of a me&Ssage from Hughes to Wm. A. Forrester, Jr., on October 28, 1960. a copy of which was fortunately preserved in Hughes’ telephone rooms. Hughes said. — ; | | “T have never liked this plan [the financing plan ultimately adopted by TWA when the voting trust came into being]: T have never been in favor of this plan: I have fought it from the very beginning and’ > I am still fighting it and | assure yon that if it is emploved it will'be over my dead body *** *. T-have fought it hammer and tong from the very first day that I ever heard of it.” (T-S2-85) From time to time Todleo has sought to suggest that it is not in‘fact a supplier of aircraft. For example, in ‘footnote 12 at page 13 of petitioners’ brief the statement is made that: “It has never been suggested that Tooleo was a general ‘dealer’ in aircraft ‘suitable for airline | requirements. The ‘positions’ taken by Tooleo with = 24 respect to aircraft were solely with a view toward making the aircraft available to TWA—in other words, toward facilitating TW4A’s. acquisitions of aircraft.” This position of Toolco’s is conclusively refuted by the present reeord, ' ‘For instance, after defendants caused Tooleo to pur- chase no less than 15 Boeing 707-131 jet aircraft, 18 Boeing ° 707-331 jet aircraft and 30 Convair 880 jet aircraft in its own name, they consistently refused to assign any of their planes to TWA. Late in 1957, in answer to a letter from ’ TWA’s. then president, Toolco explained: “For various -reasons.Hughes Tool Company can- not yet commit itself to TWA with respect to these aircraft, either as to type or number; but, on a basis to be determined later, it is expected that ‘some jet aircraft will be made available to TWA.” (2) About a year later Tooleo representatives “pointed out that Hughes Tool has not yet agreed to furnish jet planes to/ TWA” (T-52) and that: “* * * Hughes Tool Co. had NO intention of sell- ing or leasing their stuff (jet planes implied) .to TWA * * *.”°(T-52) (Emphasis in original.) Indeed, what defendants sought to do, as the list of trans- actions and contemplated transactions noted below clearly indicates, was to retain a “good trading position” for themselves as suppliers of aircraft (T-27) not only to TWA but fo air carriers generally. Thus:. (1) Defendants supplied Northeast Airlines with 10 Vickers Viscount aircraft in 1958, long before Tooleo had any financial interest in Wortheast, but at a time when Hughes had an interest in Northeast’s then parent, Atlas ‘Corporation (T-1-6) ; 25 (2) Tooleo attempted to sell certain of its Convair 880s to Capital Airlines (T-7); : (3) Toaleo negotiated ‘with Northeast Airlines begin- ning early in 1959 for the disposal of certain of its Con- vair 880s, and Northeast finally received six Toolco 880s (T-8-19, T-28), three of which had been tsieiioned assigned. to TWA (T-110); (4) Aside from the six diverted to Northeast, Tooleo attempted to sell an additional 14 of its Convair S80s— seven to National Airlines and seven more to the United States Government (T-28-31) ; | (5) Tooleo also attempted to sell certain of its Convair 880s to Northwest Airlines (T-27); (6) Tooleo diverted to Pan American six of the 18 Boeing 707-331 jet aircraft — needed by TWA (T-7, © T-209); | (7) Hughes ae Tooleo planned to sell all 15 Boeing : 707-131 jet aircraft to American, Airlines (T-62 -63); ' (8) Tooleo contracted for seven Convair 880M aircraft built to the specifications of Capital Airlines (T-21; T- 27, T-81, T-112, T-169, T-172, T-174) ; (9) ‘Toolco’ contracted for 13 Convair 390 aircraft built to the specifications of American Airlines (T-58-70, T-111- 12, T-164-76) ; | (10) Tooleo and Hughes planned to build Caravelle jet _ aircraft in the United States for sale to TWA and other air carriers (T- 139-40) ; ny Hughes and Toolco planned to build jet aircraft with AVRO of Canada for sale to TWA and other air - earriers (T-35-36, T-137-38). : Indeed, if Toolco was not a supplier of aircraft to air carriers generally, it is hard to understand its purchase of 26 | O -some 300 Pratt & Whitney jet engines’ at a time when engines were in short supply (T-37-49). By this purchase alone Toolco acquired rights to enough engines for orig- inal installation in 75 jet transports. The purchase, which | -was far beyond any conceivable need of TWA for spare engines (T-37), effectively gave Tooleo a corner on the jet engine market (T-37-49), which Tooleo later exploited. in a sale of most of the engines to Boeing at a substantial profit (T-39-48). | , Toolco’s suggestion that the “positions” it took in air- craft were solely with a view “toward facilitating “TWA’s acquisition of aircraft” is conclusively answered by .the shocking story of how the defendants delayed deliveries to TWA of urgently needed Convair 880 jet aircraft for more , ‘than a year, apparently. to enable Tooleo itself to obtain financing so that it could purchase such aircraft and then lease them to TWA. That account of what the defend- ants did is set out in an affidavit by J. William Bew, the - principal liafson agent between Toolco and Convair in connection with the purchase, manufacture and delivery of Convair 880s, and the one man who was on the scene throughout the period in qu stion (T-104-12).. His recol- lections. set forth in the affidavit are confirmed by the testimony of Rummel (T-145, T-157-62, T-179-80). As- described by Bew and Rummel, Todlco’s tactics included: —arranging for the bailment ‘from. Convair to Tooleo of the first four aircraft scheduled to be delivered ‘to TWA; removing these aircraft from . the production line and. placing them in an open field next to the Convair plant under armed ies hired by Toolco; —directing. TWA sean to refrain from dis- cussing delivery terms with Convair; —demanding that Convair refrain from running various necessary tests on the aircraft being manv- . factured ; 27 : ae, —ordering TWA not to fly eoonpinnes flights or make final inspections on ‘aircraft tendered for delivery by Convair; : —requiring TWA to refuse to accept aircraft tendered for delivery; —prohibiting Convair ‘from flying demonstration flights, even though such flights for other potential purchasers would have increased the likelihood of Convair’s selling more S880 aireraft and, under the terms of Tooleo’s contract with Convair, would have © led to a price reduction on the aircraft ordered by Tooleo and aeny purchased from it by TWA (S 106-08). Delta Air Lines, which had been scheduled to receive Con- vair 880 aircraft on a schedule interspersing deliveries to it with those to TWA, in fact had received all ten of its . direraft before TWA had delivery of its second (T-104-12). Thus, despite defendants’ efforts to obscure their past misconduct by suggesting that no factual basis exists to support plaintiff’; allegedly “technical” antitrust com- _ plaint, ‘even the Tooleo-made record proves otherwise. In addition to information such as is detailed above, had defendants not chosen to default, TWA would have had — discovery from Hughes and Tooleo with regard .to de- fendants’ actual intentions and entire course of conduct in the fields of aircraft development, acquisition atyl sup- ply. Thus, the truth would have been disclosed | about man activities adumbrated in the present record, ‘a few examples of which are:: (a) Hughes’ personal interest in the development and sale of the Boeing 307 ae in 1939 (fol. 13791, fol. 13795) ; (b) Hughes’ joint venture agreements. with Loekheed in 1939 and 1940 which led to the development of the Excali- bur A (Constellation) aireraft and why 40 such aircraft . 28 were ordered for Hughes’ personal account (fol. 13796, fol. 13803-04, fol. 13847) ; (c) The numerous purchases and leases: by TWA from Tooleo of various Lockheed Constellation’ aircraft pur- chased by Tooleo from Lockheed, Air France, Cal Eastern _ Aviation, Air Italia,” Delta Air Lines, Resort Airlines and others and what happened to such aircraft not sold _ or leased by Tooleo to TWA (R. 1330, fol. 14116, fol. 14123, fol. 14136, fol. 18802 et seq., fol. 13847, A-183, A-800, A-839, A-847) ; | (d) Tooleo’s purchase of eight Lockheed 1049G_air- _ craft in 1955 despite Hughes’ demand that TWA not deal with Lockheed in regard to these planes and the - subsequent purchase of these aircraft by TWA from Tooleo (T-145-47, fol. 13985," R. 1330) ; (e) Tooleo’s purchase’ of 58 CJ805 jet engines" from General Electric (fol. 13567) ; (f) Defendants’ negotiations with Crown, a major stock- holder of General Dynamics, in which Hughes was offering to purchas¢ “all his future planes” from General Dy- namics’ Convair division in return for financial assistance from Crown (T-31r-34, T-37) ; (g) Tooleo’s various proposed financing plans during the jet period which would have set up a Tooleo subsidiary to léase jet aircraft to TWA and others and the actual- leasing arrangements which were made with TWA and eventually Northeast as well (T-85 et seq., B- 237 et seq., A-19Y et seq., AA-246-47). Answers to these questions and the riumerous others of a similar nature, which are only partially disclosed by the _ present record, would fill out and complete the pattern of. ‘conspiratorial and -unlawfu! conduct alleged in the com- plaint. In point of fact, Howard Hughes i is one of the wealth- - iest and most powerful men in the world. He has very 29 extensive influence in various industries, including great . influence in numerous powerful financial institutions. The ‘keystone of Hughes’ interests is his 100% ownership of Tooleo, one of the great industrial corporations in the — United States, whose principal business (among many) is the manufacture of drilling bits for the oil industry. Since Tooleo has no public security: holders, however, ‘little public information exists about its operations and influence and it has been able to preserve a most extraor- dinary secrecy about ‘its activities. s is indicated by some of the facts summarized above, as Hughes’ principal interests covering the period of the past thirty or more years has been aircraft develop- nient, production and distribution. While manufacture of commercial air transports under his exclusive control ‘(though seriously contemplated on various occasions) has never ultimately eventuated, it is believed that a full investigation would reveal that specialized joint ventures with aircraft manufacturers. on terms giving to Hughes or to Taoleo a major interest in production and sales and substantial control over both design and deliveries were common during the twenty-odd years in which TWA was part of the Hughes empire. . Early in the maturation of Hughes’ plan to acquire a _ dominant position in the field of aircraft development and sales to air carriers::he foresaw the great advantage which could be derived from establishing control over a major air carrier and using that control for his own benefit. This assured and completely manipulable market would make it possible for. him to establish, as he did, himself and Tooleo as a leading source of supply to other air carriers, and as both an important customer and a _ competitor of the leading manufacturers of aircraft and related equipment. * Civil Aeronautics Board Action 1944-1960 . Throughout ‘the period’ that began with the Board’s approval of Toolco’s acquisition of control of TWA in 1944 and ended with creation of the voting trust in December 1960—the period during which the .events set out above took place—Tooleo or TWA, dutifully respon-’ sive to Tooléo’s direction, filed a number of applications with the Board to request modification of the initial control order, which otherwise would have* prohibited various transactions between Tooleo and TWA. In each instance, the application described a discrete transaction involving either the sale or leasing of aircraft or equip- “ment by Tooleo to TWA or some financing: arrangement with respect to TWA. In only one of these instances does the record show any action by the Board with respect to the applieation other, than the order granting it. That one exception relates to TWA’s application on May 10, 1956 for a modification to permit TWA'‘s purchase from Tooleo of certain jet aircraft to be manufactured by Tooleo. On June 8, 1956 the Board ordered an investigation to determine whether the entry of Tooled into the busin@&s of manu- facturing jet aircraft would affect the control relation- ship so significantly as to require a new proceeding under Section’ 40S (Order E-10360. A-189). After. the Board ordered. this investigation, Tooleo abandoned its proposed manufacttring project, and the investigation was ultimately terminated (Order F-12604. A-195). In every other instance, as the tabular summary ih Annex A shows. Tooleo or ‘TWA. acting under the : control of Todleo, submitted, its application. and the application was granted. ' The applications themselves were brief and provided only a superficial description of the contemplated transactions. For example, the applica-. tion for a modification to permit TWA to lease one Boeing 707 from Tooleo on a day-to-day basis and to acquire cer- { 31 tain spare parts from Tooleo, referred fo at page 29 of * petitioners’ brief, was but two pages long, with two short exhibits - attached: the Lease Agreement and a Letter Agreement with respect to the purchase of spare parts (R. 369-77). The application was filed January 30, 1959, ani the Board’s order granting it issued on February 26, 1959. | : | ‘This application is typical of the submissions made to the Board which were the bases of the. Board’s successive orders modifying the original. control order in the case of each of these separate transactions. Each — of the ordérs was issued in ‘a non-adversary administra- tive proceeding. Except for Order No. E-11432_(June 11, 1957) (A-192) (involving a purchase of substantial addi- tional TWA stock) and Order No, E-13334 ( ber 30, 1958) (.A-196) (involving- guarantees of loans apparently considered to potentially increase the control of Toolco), none ‘purported to approve anything.* * The language used by the Board in modifying or amending the original 1944+ Control Ordér took different forms. In the earlier orders—No. 4437 (A-174). .No. E-922 (A-175), No. °“E-2404 (A-177), No. E-4160 (A-179), No. E-5324 (A-180), No. E-8214 (A-183) and No. E-10300 (A-185)}—the thodification or amend- ment was achieved by ordering the addition to the 1944 Control Order ot a paragraph reading substantially : ' “That the terms ‘of this order shall not restrict or affect the right [of Toolco or TWA f carry out the transactions described in.the motion requesting modification ].” In subsequent orders—No, E-10871 (A-190), No. E-11432 (.A-192), No. F-13334 (A-196), No. E-13542 (A-199), No. E-13873 (.A-2013, No. E-14169 (A-204), No. E-14504 (¢A-207) and No. E-14877° (A-209 )—the Board's language. with slight immaterial variation. was “That order 3210, issued October 17, 1944, as amended by sudsequent orders, be and it hereby is further amended to permit {the transactions betwéen TWA and Toolco set forth ‘in the motion for modification].” In Orders No. F-13430 (4-211), No. *E:18561 (4-218. and No. E-16195 (A-218 the modifying language read: | “That the restrictions imposed on transactions between Toolco and TWA by order 3210,as modified, are further moditied & _ permit TW.\ to consummate the transactions destribed * * *.” ? . . 32 Except for Order No. E-922 (October 29, 1947) (A-175) which modified the 1944 control order in respect of TWA’s purchase of certain Tooleo-manufactured radar units at cost, each order itivolving any acquisition of. aircraft or other flight equipment by TWA from. Toolco cqntains a specific provision (although variously worded) that it “shall not be deemed a determination for rate- making purposes of ‘the reasonableness of any of the’ transactions specified therein”, language which is hardly ‘consistent with Toolco’s contention that the terms and conditions of each transaction received full Board ap- proval. | The Creation of the Voting Trust In December 1960 the defendants finally agreed to out- _ side financing for TWA in the amount of $165,000,000, on. _ When gp. oe the issue of a possible further acquisition of, control of TWA by Toolco, the Board adopted a quite different approach: Thus, in Order No, E-11432 the Board ordered that: “Any additional acquisition of control of TWA by Toolco as may result from, the agreement presented herein, be and is hereby approved, provided that such additional centrol, if any, _shall be exercised in accordance with the terms and conditions of [the original Control Order].” (A-194) The slight ‘variation in. Order Ng. E-13334 (“That any additional control of TWA by Hughes as may result from the transactions *.* *") does not seem to have intended any different effect .(A-198). The one remaining significant variation is found in Orders No. E-15430, No. E-15561, and No. E-16195 wherein the Board speci- fically ordered: Sa. : “That TWA be and it hereby is exempted pursuant to Sec- tion 416 from the requirement|s| of section 408 to the extent mecessary . — eS [to purchase the instant — and uipment from Toolco, a person engaged in a phase of aero- eohes’ (No. E-15430), en sanahiah ture additienal jet aircraft and five engines from Toolco, a person engaged in a phase of aeronautics’ (No. E-15561), and ‘to consummate the jet aircraft - jequipment purchases described and set forth in the motion | herein’ (No; E-16195)].” (A-214, A+217, A-226) - Such explicit exemptions pursuant to Section 416 were given to TWA, not of course to Toolco. Zs 33 ae ' ; . ‘ terms which, by that time, were far less favorable than those which TWA could have obtained in earlier years. Asa part of the 1960 arrangements Toolco’s common stock in TWA was placed, on the insistence of the financial . : institutions providing the money, in a. voting trust. In its order approving these arrangements the Board de- scribed the.voting trust as providing “measures of assur- ance regarding the management policies of TWA during .the period the securities are outstanding” (A-221). _ The Board went on to indicate its understanding of the reasons why the banks and ‘insurance companies had found it necessary to seek this protection or assurance . _ with respect to the management policies of TWA: “We have not been told officially ofthe reasons which motivated the decision of the insurance com- _ panies and banks to seck this protection. However, we have not been unaware of TWA’s problems. “Fot example, it is a matter of public record that TWA’s major competitors arranged the financing for their jet fleets. at a significantly éarlier, date than did TWA. The impact of this fact may be indeed far-reaching. This may havé meant : that those carriers obtained their financing at a time when funds could be raised on relatively more at- tractive terms. In any event, it is clear that TWA Will pay substantially higher interest rates for its -funds than its major competitors. The fact that this, disp: rity in debt burden can play a significant - part-in tue competitive picture is certainly clear. - _ “Moreover, it is probable that the delay in av. ranging financing has also prevented TWA from securing delivery of a substantially large portion of ~ the jet fleet which was ordered on its behalf. Thus, TWA was unable to take delivery of the twenty Convair 880's, most of whi 1 have been available . ‘for the past several menths. It appears that the failure to receive this equipment as planned may have played a substantial part in TWA’s recent inability to maintain its traffic position relative to % 6 wy 34 ¢ its principal competitors. Thus, we note, for exaniple, that the carrier’s preliminary traffic reports for the ° month of November 1960 show that TWA’s share of the Big Four domestic passenger market has -". . declined from 23.0 to. 20.2 per cent.. By way of con- trast, United, which “was behind. TWA, has caught and passed it, increasing its share from 21.3 per ~ eent to 29.0 per cent., It appears to be significant. that ‘'WA’s major competitors have already taken ‘delivery of neuch larger jet fleets than TWA is ' operating and haye firm orders for ey of more, _ “Under these cireumstances, we think it clear that. * Board action to facilitate TW A’s acquisition of jet: . qement is in. ‘the public interest. At the same \ however, it is evident that Toolco’s control of TWA, as“exercised through Hughes,- has presented ,, substantial problems requiring the Board’s atten- * tion.” (A-223-24) (Footnotes omitted.) y ‘The Board also recognized that the creation of the Vot- ing ‘trust effected an important alteration in the relation: -ship between. Tooleo and TWA. Thus, the Board. poimied - out that with the consummation of this plan “* * "* a. significant and fundamental change will ‘have been accomplished in the control of TWA by Tooleo. Upon'the execution ef the voting trust, the Toole control of TWA will change drastically in both form and substahee. -No longer will the direc- tors of Tooleo be free to enforce their dictates or tlrose of Tooleo’s controlling shareholder on TW A” (A-222) Pn The Board went on:* «“* * * the Board wishes to-make clear the fact that - it would anticipate the proper filing of an- applica- tion under section 408 of the Act and the obtaining of the approval of the Board before Toolco would attempt.to reassume ‘control over TWA. It is clear that suclr approval ‘would not be forthcoming with- ~~. . . co et —_ a) out a searching inquiry into the public interest factors affecting this control.Z (A-224- 5) aaaatcaet sis supplied; footnotes omitted.) Wid the consunimation of these new’ arrangements, TWA came, for the first time since before 1940, under the control of directorsiand management interested ‘ex- .’ clusively in the well-being of TWA. The first step. to be taken by this new management 4vas to reverse the policies F of the past: which -had seriously affected TWA’s \traftic position, as the Board noted in its 1960 order, and which had prevented TWA from keeping pace with the rapid development. of jet service in the domestic and interna-° tional air transportation industry. . ; The enormity of the task ‘the new thanagement faced in 1961 and the effectiveness with which it met that chal- tenge is understored by findings contained in the Recom- mended Decision of Examiner in the Transatlantic Route Renewal Case; CAB Docket No. 13577, July 9, 1964, pp. 86-87 : _ te “Under the control of Howard Hughes, TWA suffered from, a lack of continuity in its manage- ment from January 1956 to April 1961. During this period, there were only thtee - “years, viz., . * January 1957-January 1958 and ‘July 1958-July 1960, in which the carrier had the benefit: of being | directed by. a duly elected. president. That office - “was either’ vacant or occupied by an acting presi- dent, half of the time. ‘TWA was unable to obtain adequate financing and its ability to acquire needed . jet-powered aircraft. was greatly impaired. — Only after the Civil Aeronautics Board approved a vot- ing trust arrangement of the Hughes stock of TWA in 1960..did the Gaaneul and. equipment = improve. - “Although TWA introduced jets in its” — system in fhe early part of 1959, i¢-was not until the end of the year that three stich aircraft were placed. in transatlantic. service. Pan: American, on ihe other hand, had six jets in-transatlantic service in Y ail “ ” Py 36 December 1958, a year earlier, and 13 in operation by December 1959. In June 1960 TWA had nine . jets in transatlantic service as compared with 22 * for Pan American; and a year later TWA was still ‘operating nine jets in transatlantic service, . while Pan American had a fleet of 25 jets. ' “Tt seems clear, therefore, that TW.A’s relatively: ° greater decline in transatlantic participation can- © - not be attributed to any deficiency in the route pat- - tern, and this condition should have no bearing on the question of whether the staff’s area concept should be substituted for the present route. pattern. Since TWA’s present management took over in April 196T, free from the handicaps’ which impeded — -previous managements, the carrier’s participation . _in the market has increased from 12.6 percent in 1961 to 17.2 poem in [963.”* . The Conduct of the Defendants Since 1960 As the complaint makes clear, the defendants sought to . continue their pattern of unlawful conduct and to achieve their unlawful objectives even after the creation of the voting trust in 1960. Thus, during May and June 1961 defendants sought to. stop TWA from purchasing jet air-_ craft from Boeing even though TWA’s Board of Direc- - tors had already determined, as’ the defendants knew, that such ‘Boeing aircraft would best meet TW.A’s press- _ing need for more jets; instead the defendants sought-to compe! TWA to purchase 13. Convair Model 990 aircraft * In anticipation of Toolco’s attempt to suggest here (as it pre-. viously did in the Court of Appeals) that these cohclusions of the Examiner resulted from self-serving contentions made by TWA -in a proceeding to which’ Toolco was not a party, it is clear from the _7Examiner's opinion (and can be established by an inspection of the record of that proceeding): that his conclusion was. based on material _ submitted by either the Board’s staff or Pan American World Air- ways, Inc., whose interest was adverse to TW A's in the Tr ansatlantic Route Renewal Case. The Examiner’s. conclusion on the route issues —as the quoted analysis indicates—rejected TWA’s contention there that its historical competitive weakness entitled it to preferred treat- ment on route allocations. one ~ 37 ‘ from Tooleo (Complaint, paragraphs 37, 38, 39, A-18). In efforts to attain. their objectives, defendants made .threats against TWA, its directors, the voting trustees, - and the financial institutions lending money to it, includ-— ing a threat to institute suit; they sought to interfere in, impair and disrupt the contractual] relationship between TWA and Boeing by asserting to Boeing. that its contract -with TWA, which had not been consented to by Tooleo, | was not binding upon ‘TWA (Complaint, paragraphs 38, 39; A-18). ° .*° During the same period defendants also by additional means sought to impede TWA’ S purchase and financing of |. the jet aircraft selected by ii. They maliciously com- municated to the Securities and Exchangé Commissiof. oe unwarranted objections concerning a Registration State- ment which TWA had to file to complete its financing arrangements, and they publicly announced, while a pub- lic offering of securities by TWA was in progress} that Tooleo proposed to sell 85% of similar TWA securities it. _was obligated to acquire, with the result that the prices at _which the securities offered by. TWA could be sold and “ere sold to the public were decreased substantially ( Complaint, paragraphs 40-45, A-19-20). (These securities were in fact sold by. Tooleo, but more than two veats later.) As part of the same unlawful effort, defendants. algo warned the banks- and. insurance companies from . which TWA’ was then attempting to borrow $30,000,000: of short-term funds and $147,000,000 of secured funds to purchase the Boeing: aircraft, that the voting trust was invalid and that ‘any financing entered into. without Toolec’s consent would be invalid (C Complaint, — / 46; A-20). 3 These warnings and the other threats and ‘side an- nouncements by. defendants were made for the express purpose of impairing TWA’s éfforts to obtain financing from sources other than defendants, so as to enable de- . . 38 : fendants to continue to condition the furnishing of financ- - ing to TWA upon TWA’s acquiring jet-powered ‘aireraft: only from defendant Toolco.* The History of This Litigation On: June 30 , 1961 TWA commenced this ait. ' There followed nearly-two years of proceedings before the District Court, which culminated in the entfy of the default judgment. During this period defendants con- ducted what may be accurately characterized as a complex, persistent, and ingenious campaign, the aim and result of which- was to foreclose plaintiff from discovery of evi- dence on the vital subjects of Hughes’ and ‘Toolco’s’ activities in the areas of financing and aircraft acquisition —the gravamen of TWA’s complaint. It is the last step © in this campaign, the refusal to produce obviously sig- nificant documents and the refusal of Howard Hughes to appear for the taking of: his déposition, that petitione ‘now describe as an “election -to rest-on its positions”. (Petitioners’ Brief, p. 10). Aware of the obvious inade- quacy of this theory of “electidn” to explain, their be-_ havior in the District Court, petitioners take the further ° | position that in the course of proceedings vigorously con- tésted for nearly two years (a) nothing worthy of atten- tion occurred anyway and:(b) the contest was in the wrong arena. The history of the " oceedings reveals this ne to be pure sham. : > In the initial phase of the litigation Toolco filed various notices of deposition (fol. 76-91) and obtained the priority: of discovery normally accorded to a defendant under the * A> verbatim transcript. of a telephone conversation .between Hughes and Holliday-a few months previously appears in the record at T-58. In it Hughes directed Holliday to tell Convair that, he would see to it that TWA bought Convair 990s—how he would do it, he said, was his business, although he quite plainly assumed that he could attend to this upon-regaining control of TWA. W hifé never illuminated by further inquiry, as it stands it quite adequately explains .the purpose of these obstructive maneuvers. - then prevailing practice in the Southern District of New - York (A-85, fol. 586-87). . It then‘used that priority for the purpose of enmeshing the proceedings in an endless. _ exploration into irrelevancy, the effect of which was to make it appear that the record, which defendants them- selves were solely responsible for creating, was barren of information in support of plaintiff’s complaint. As an early step in Toolco’s discovery, a subpoena duces tecum was served upon TWA (fol. 586-87)—requiring the pfo- _ _ duction: of an enormous volume of documentary mate-. rial (copies of almost all of which ‘were later found to be already in Toolco’s files). On August 8, 1961, just prior to the service of that subpoena, Tooleo moved to ~ dismiss TWA’s: complaint (fol. 276-402). The various priority ‘and other motions filed by the parties during the period immediately following service of TWA’s complaint required the attention of no fewer than, six District. Judges. The submitted papers alone included hundreds of pages of material. Due to the complexity of the case and the burden on the Court, on August 31, 1961 Hon. Charles M. Metzner was appointed Judge for .all purposes to supervise the conduct of the . proceedings (fol. 581). oAll matters then pending became the subject of a lengthy pre-trial conference before Judge _ Metzner on September-6, 1961 (fol: 616-69). This was the first of 19 formal pre-trial hearings that were held before Judge Metzner. There were, in addition, other confer- z ences in chambers of: which no record was. kept. The Court, in a hearing that took up some 52 pages of transcript, was asked to consider Toolco’s motion to " dismiss the complaint, in support of which Toolco had filed 126 pages of papers {thus cenverting it into a motion for ‘summary judgment) (fol. 276-402), most of which were formally withdrawn a year and half later in an attempt to preclude TWA from bringing in matérial re- . lating to the merits (fol. 2711). In addition, argument schedule for the taking of depositions. Coynsel for Tooleo also noted that it planned to counterclaim inst TWA and others and would not wish to press further @ts motion as to the complaint until after it had answered and pressed its counterclaims. In the same breath Toolco’s counsel virtually withdrew the motion until after Toolco had com: ' pleted its discovery proceedings (fol. 648-49).—On_Sep- tember 7, 1961 tha Court ruled that Toolco’s motion “be held in abeyance” until defendant shall notify the © Court when it desires the: motions to be heard (fol. ' *§86-87). While TWA began the massive job of searching its files . and producing documents in response to Toolco’s sub- - poena (a procedure Which.required documents to be re- _ viewed in cities across the nation and occupied counsel - for several months), a second pre-trial conference was called for October 2, 1961 before Judge Metzner. That conference dealt with TWA’s motion under Rule 34 for documentary discovery from Tooleo (fol. 670-704). TWA demanded discovery of certain tax documents as _ part of the overall production of documents it sought from Tooleo. The necessity of establishing an early deposition date for Hughes, in light of his ebmplete dominance over defendants’ Activities and over those of TWA in the field of aircraft “acquisition and finance, was also urged “hy TWA. Tooleo vigorously o osed TWA’s motion on the “ground that it should be allowed to complete its entire discovery proceedings before TWA could begin. . Thas -Toolco’s intransigent resistance to- Hughes—or anyoné else—being deposed by plaintiff and to the making of any discovery of its most significant documentary ree-'. ords had solidified as early as these first pre- trial con- _ ferences. As will be seen below, when. that position was at- ’ tacked by order of either the ‘Spetial Master, the District © ~ a i - os x Court“ or even the Court of Appeals, Toolco’s attitude was ' either to ignore the orders or.to defy them. During the fail $s 1961 TWA produced the documents called for by“Tooleo’s subpoena, and on Décember 5, 1961 the Court ruled that Tooleo must submit to documentary discovery in accordance with TWA’s motion pursuant ‘to . Rule 34. Specifically, the Court ruled that the financial and -———tax-informiation sought by TWA was relevant and should be produced (R. 1-2). On December 18, 1961 the Court ordered production by Tooleo to begin on March 15,. 1962. -and set January 5, 1962 as the date depositions noticed by ; Tooleo were to commence TR. 1377-78). « The deposition proceedings conducted by Tooleo began, . as scheduled, on January 5, 1962 with the taking of TWA’s . deposition by its president, Charles C.—Titinghast, :. _., — (fol: 5428) On February 7, 1962, the Court, concerned | ' with having the depositions proceed expeditiously, ap- pointed former Solicitor General J. Lee Rankin as Special Master. In the same order the Court set out the deposi- tion schedule it anticipated would be followed. Thus, the proeeedings were to continue with the Tillinghast deposi- tion on February 13, followed by depositions of other - TWA officers and then by a host of other Tooleo-noticed . depositions which included 10 corporations and 20. indi- viduals. All of these were to be completed by April 23, ~~___ 1962, a time schedule in accordance with Toolco’s notices, at \which time TWA was to begin depositions of Hughes and others (A-139-48). : ‘In February 1962 Tooleo filed tts anewer and so-called: counterclaims, the nub 6f which admitted that TWA had been. grievously injured by the delays in its aircraft acquisition program and the financing therefor, but sought ° to shift the blame for TWA’s injuries to the additional defendants (A-31-84). This opened the second phase of the proceedings. The additional defendants, already. in attendance at the depositions after notice of their pend- \ \° 42 a ency from. the Special Master, were also required to pro- duce masses of documents for Toolce’s inspection. The enlargement of the proceedings required another extensive pre-trial conference with the Court on February 23, 1962 . to straighten out questions arising out of the additional defendants’ presence in the action (R. 2-36).. TWA charged that Tooleo was using its depositions to delay proceedings and to discover information. relating to its counterclaims. TWA pointed out that the Tilling- hast deposition was. still in progress, even though Till- inghast had been employed by TWA only a few months prior to the filing of TWA’s complaint and had no personal - - knowledge. of the events.of the preceding years. TWA . requested that this deposition be terminaged. The Court, on March 5, 1962, ordered. Tooleo to limit its examination to the scope of the complaint (A-86-87) but refused, at that time, to terminate the Tillinghast deposition. Shortly after filing its complaint, TWA undertook a vast. international search in an unsuccessful effort to locate Howard Hughes. After all efforts in this direction had failed, TWA ‘applied to the Special Master for per- mission: to serve limited interrogatories on Toolco as to the location of Hughes, its 100% eueenanes: and acanitted managing agent. . ’ Tooleo vigorously opposed .TWA’s right to serve the interrogatories, but after submission-of briefs and ex- tended oral argument thé Special Master; on April 17, | granted TWA’s application, directed. that any appeal .by Tooleo be takerf. within 10 days wy specified that the interrogatories be served on May 2, 1962 (R. 60). No appeal was taken by Toolco, and ‘on May 2 TWA served its limited interrogatories on Toolco requesting answers thereto by May 17 (R. 37-44). Tooleo then objected both to _— form of the interrogatories and to TWA’s right to e them at all. The Special Master took further briefs: and heard additione! oral argument but on Jane 4 ordered a . ase c 483 / Toolco to arfiwer no later than June 20, 1962 (R. “ 1047- 48). Three days later Toolco appealed the - vorder to : Judge Metzner, but placed no return date on its papers . (fol. 27680-83). Then, on June 11, ‘it. attempted to. ~ reargue.the point before the Special Mastér. On June 14, Toolto’s attempt to reargue «was rejected (R: 59-62). .Al- though not relieved by either the Special Master or the Court from compliance with the June 20 deadline, Tooleo - _neither answered the interrogatories nor took any other “action. on them. * fe. . Meanwhile on March 15 262 Tooleo had commenced . production . of documents in accordance. with the court , _ order of. December 18, 1961. Production was to be made in Houston,. Los Angeles and elsewhere. However, TWA counsel were initially refused admission to the key Los ‘Angeles site (the Hughes message center), and only after “strong admonitions from the Special Master did: produc- .tion in Los “Angeles belatedly begin. “TWA was aware that it was regular practice for defend- ants toy Ase attorneys as business agents and negotiators for all important matters. Noting from an initial exam- ination of documents produced by Tooled that no docu- ments relating to the important areas in which these agents functioned had beey produced, TWA and the addi- tional defendants sought to obtain such documents. They asserted that defendants had, waived any attorney-client privilege as to ‘these doetfments on the ground that defendants had: used affidavits qf these attorneys as to questions of fact both in the litigation and in an ‘unrelated matter concerning Northeast Airlines pending before the CAB. In addition, defendants had pleaded advice of counsel as a defense in the action, and the scope of the ~ activities of these attorneys as business representatives of Hughes and Tooleo further militated for a finding of waiver. If Tooleo were allowed to withhold these docu- . ments, the most ‘significant documentary evidence of 4“ defendants’ aircraft and financing activities would be unavailable. . After very extensive briefs and arguments the special Master, on April 17, 1962, ruled that Tooleo must produce the documents (AA-95-115). Tooleo then appealed the ’ ruling to the Court. Substantial briefs were submitted on the appeal, and on May li, extended oral argument was ‘heard by the Gourt (Pol. 24570-612). On July 24 the Court ruled that Tooleé@ had waived its privilege. Toolco completely ignored the Court’s decision (AA-116). Meanwhile on June 25, 1962 TWA: again moved to terminate the Tillinghast deposition, which was still in . progress with no end yet in, sight (fol, 26694-700). On July 12 another lengthy hearing was held before Judge Metzner to determine whéther the Tillinghast deposition should be terminated, whether depositions should be alter- nated so that TWA could ‘commence its discovery without waiting for Tooleo to exhaust all possibilities of delay, and whether Tooleo had to answer the interrogatories asking the whereabouts of Hughes which it had previously been directed to answer no later than June 20, 1962. The Court ordered that the Tillinghast deposition be termi- nated no later than July 25. Judge Metzner also modified and affirmed the Special Master’s ruling as to the inter- rogatories seeking the location of Hughes, directing that they be answered by July 26; he rejected the proposal of alternating depositions, with leave to renew the applica- tion in September (AA-88-89). * On July 18, 1962 Tooleo moved the Court to clarify and limit its order with respect to.the interrogatories as ‘to Hughes’ location (fol. 1438-40). “This motion was denied on July 23. (fol. 1440). On July 26 (the return ” date), however, Tooleo applied to the Court for additional _ time to answer the interrogatories and was giv en watil . —— 27, 1962 — 1453-76, R. 59-66). : “ 4~ On July 27 Toolco_ taferentt TWA that it had received . authority to accept service of a a subpoena on behalf of Hughes, a position it confirmed by. letter of August 1, 1962. .Tooleo, however, refused to show its purported “authorization” to TWA, but mailed a ‘copy to Judge Metzner (R. 65). At the same time Tooleo sought to reargue its position vis-a-vis the assertedly privileged documents—none. of which had yet been produced, _ although Toolco had eeeey been directed by the en to produce them.’ _ TWA, which had been shown no “authorization” to ac- cept’ service for Hughes, continued to seek him. On August 17, 1962 attempted service in California was again unsuccessful, and TWA’ Cotinsel left its subpoena with the Office of the United States Marshal, in Los Angeles. TWA decided to await Toolco’s answers to interrogatories which had ‘been most recently ordered bed be filed by August 27, 1962. ; On August 21 the Court returned the “authorization” to Toolco’s counsel noting that it was: “returning what ‘you sat is a written authorization from Mr. Hughes” and ~ Stating that it expected Tooleo to obey.the Court's order “of July ‘26 concerning ‘answers to the a ; Thereafter, Tooleo sent a copy of the “authorization” - TWA. TWA replied that it awaited, Tooleo’s: answers to the interrogatories. On August 27, Toolco informed TWA that it had no intention of answering the interroga- tories (R. 45-58).°. TWA, on August 28,-moved the Court, a for appropriate relief (fol. 1491-93) The final phase of the proceedings in the-Dis striet Court began with a pre-trial conference before Judge Metzner on September 6, 1962, held te consider TWaA’s motion with respect to the ‘interrogatories (R. 1379-88). That morn- ing, at about 7:30 (eviderttly prior to the normal hour of opening the office), Toolco’s counsel had appeared at the * Tooleo never answer&i them. U.S. Marshal’s Office in Los Angeles, presented a copy of the. “authorization”, and “accepted” the subpdena for ‘ Hughes.” A return of service was made by the Deputy . Marshal reciting these events (fol. 1604-09). Concerned that a-question might later be raised as to the effective- ness of the “authorization” to bind Hughes or Toolco, however, - TWA had submitted the “authorization” to ‘analysis by a handwriting expert (Charles Appell, for - years relied on by the United States Government in sim- ilar matters). At the hearing before Judge Metzner in New York, TWA informed the Court of this and: that’ the signature of “Howard R. Hughes” thereto was a forgery (B-34-43, R. 68-70). “Tooleo subsequently denied the charge of forgery and submitted an affidavit executed by a Notary Public in California to the effect that Hughes — / had appeared before the Notary, confirmed the authoriza- tion and given authority for it; no actual signature of Hughes was ever submitted, however (fel. 1574-739). The Court reserved decision on these extraordinary happen- ings pending further developments, . ¢ ‘TWA then moved before the Special Master to con- firm September 24, 1962 (the return date of the subpoena which Toolco’s counsel had purported to accept) as the date for Hughes’ examination (fol. 26930-31). . ‘On September 15, 1962 the Special Master denied TWA’s application to take Hughes’ deposition — Septem- ber 24, but said: “T feel that there is such a close connection be- tween Mr. Hughes, as evidenced by some of the . documents that I a seen, and the fact that he is the sole owner of the Hughes ‘Tool Company, that the Hughes Tool Company is responsible for Mr. aoe with ane to this subpoena” wu Se o _* ‘e «“e © * T am piercing the corporate veil as te the . Hughes a Company, and I am bringing what Papen ear py oe assertedly privileged documents, the Special Master on - September 15, 1962 again ordered Tooleo to.produce them. . (The next previous order for their production had been _ that by the District Court on July 24, never modified or set aside, but ignored by Tooleo. Toolco again appealed to the Court. On September 21, 1962, after another hearing,~ the ‘Court modified the ruling of the Special Master and set the date of the Hughes deposition for October 29, 1962. . The Court stated: “The Special Master stated for reasbns set forth in the record that unless Howard R. Hughes com- municated with him by today,. Friday, oo Qist, 1962 he would consider that Mr. Hughes has acquiesced in this interpretation and that if Mr. Hughes subsequently either attacked the validity of the subpoena or failed to appear pursuant to that subpoena on September 24th, 1962, or at any future time that the court might direct for the taking of the deposition of Mr. Hughes pursuant ~ to that subpoena, he, the Special Master, would consider the imposition of sanctions. upon the Tool .Company, and that he would entertain a motion to strike the answer of the Tool Company and enter judgment against it. “Without passing upon the power of ,the Special Master to grant the entry of such judgment, the court adopts the interpretation and conditions * On Pebrenty 8, 1963, counsel for Toolco® stated ‘with respect * to this decision of the Special Master- “* * * the Tool Company di not seek a- review of those rulings-of the special master ‘by the Court and accepted i in effect the — placed upon it by that ruling.” (AA-167) ~ expressed. by the Special ster. Any eben _tion by the Special Master Fears, be Fev fora “default judgment woukhd, Fors, be reviewable upon appeal to the court.’ ' Toolco’s deposition proceedings, cm went ahead . slowly, and two additional TWA officers and one former officer were partially examined (A-471, A-570, A-579). ‘By - the time discovery proceedings were halted, Toolco had ‘ spent an entire year inthe process and 13,000 pages of - testimony ‘had been compiled. The result of all this was one deposition completed, one. ordered halted after months of delay and, forays into irrelevancies, and two uncom- pleted. ; After the Court’s ruling on September 21, Tooleo em- barked upon yet,another series of obfuscating tactics, the ‘ aim of which Was to frustrate the taking of Hughes’ ‘deposition by TWA and the additional defendants. Thus. on Septenther 25, 1962: ‘Tooleo moved for a pre- trial conférence under Fed. R. Civ. P. 16 to define and nar- ’ row the issues—at a time when TWA had not been able to take a single deposition and still lacked important docu- mentary information which Tooleo continned to refuse to. _ produce (fol. 1914-22). . Then on Oétober 11, Tooleo servéd on TWA the first set of its massive interrogatories which, when added te tke second set served on November 13, ineluded thousands of ae (fol. 2214-324, fol. 27491- 566). - On October 22, 1962 Tooleo again moved to adjourn the Hughes ‘deposition then scheduled for October 29 (fol. 27082-83):+on October 25 the Special Master set Febru- ary 11, 1963 as the definitive date for Hughes’ examina- tion. In setting that date, the Special Master expressly noted that he was giving Toolco. time to: present what- ever motions it wished to the Court. (B-460). Although Tooleo was expressly cautioned that any appeal from: the ruling should be taken within 10 days, Toolco did not — appeal. r As 7 49 o. ‘Then on December 4, 1962 Toolco moved to depose addi , tional defendants Dillon Réad and Sessel and Irving prior Ne to any deposition of Hughes (B- 503).. The-Special Master, undoubtedly mindful ef the tiaue Tooleo could consume and had ‘consumed in deposition proceedings, denied the mation on December 28 (B-466). In this decision the Special Master noted that he considered the ‘February 11, 1963 date for Hughes’ deposition a firm one and .wished “that there may be no valid basis for ‘misunderstanding - it” (B-464). Tooleo, appealed that decision to the District - Court. me _On January 10, 1963 the District Court —‘denied Toolco’s motion to depose Dillon Read, Sessel and Irving prior to Hughes’ dgposition -(A-90) ; —denied Tooleo’s Rule 16 motion with leave to renew — after the deposition of Hughes (A-92) + —directed that TWA need not answer Tooleo’s inter- rogatories until $0 days after completion by TWA of & ' deposition of Hughes (A- 93- 94); and . —affirmed once more the ruling of the Special ‘Master | as to the. assertedly privileged docunients and ordered Tooleo to produte such documents by noon, January 14, 1963 (A-92). ¢ " As to the Hughes deposition the Court stated: “The deposition of Howafd R.: Hughes by .the- plaintiff and the additional defendants should now go forward. This deposition was: originally sched- uled for September 24th, 1962 and then adjourned to’ October 29th, 1962. It has now been adjourned to Februart 11th, 1963 and this date will be adhered” to in the absence of extraordinary circumstances. ee (A-91). | None of this quelched Toolco’s efforts to escape discov- ers. ‘The documents were not produced. Tooleo, however, made application to the Court of Appeals for leave to file a writ-of mandamus seeking review of all the orders of s 50 _ the District Court and for a stay of proceedings. On ~ January 23, 1963, after a hearing and the submission of papers on the motion, that Court denied Toolco’s applica- tion {fol. 3851). Meanwhile, on January 14, 1963, Tooleo: moved “in the ' alternative” to hold Hughes’ deposition on ‘written inter- rogatories or finally to bring on-its motion (pending since August 8, 1961) to dismiss the complaint’ or for summary judgment (fol. 2496-515). On. January 19, the Court denied the motion to depose Hughes on written interrog- —e but agreed to hear Toolco’ s 1961 motion (AA-120- 29). .A briefing schedule was set for the motion designed . to afford Toolco the maximum possible time for prepar- ing its papers without jeopardizing the February 11 date _ for the commencement of TWA’s -discovery.. The Court also instructed Tooleo-to advise TWA aud the additional defendants by January 22, 1963 if it wished them to ton- duct the Hughes deposition at a location other than the | Federal Court House in. Los Angeles as specified in TWAY’s notice (AA-121-22). No such advice was given and _ TWA undertook extensive “and costly preparations for the examination of Hughes, including the dispatch of numer- ous attorneys and large quantities of documents to Los Angeles and the leasing of office. space (R. 1390-92). As part of the preparation for Hughes’ deposition TWA _and the additional defendants again sought discovery of * ‘further tax returns, revenue agents’ reports, accountants’ ‘work sheets and related memoranda which had never been produced despite the Court order of: December “18, 1961 requiring their production. “* The fact that the requests that Hughes be deposed by written . interrogatories and to bring on the motion to dismiss were presented . “in the alternative” provides an interesting insight into fendants’ strategy. It is obvious that the motion to dismiss was thought of as ‘merely another tool which might be used to prevent the oral deposi - tion of Howard Hughes. If the deposition could be taken on written interrogatories, then’ the motion to dismiss w ould be unnecessary. © 51 The Special Master, after extensive ar gument, ruled on ” J anuary 22, 1963 that the documents were relevant to the case cand. that they should be produced. He ordered production to commence on January 30, 1963 so that counsel could prepare for Hughes’ examination (B-237- 47). On February 1, 1963 the Court affirmed the Special ’ Master and ordered’ production to start immediately (AA-..- x 143-44). Tooleo refused to produce the tax .documents, as well as those over which privilege had been asserted, notwithstanding the various orders, that they be «made available, and notwithstanding the intervening refusal by the Court of Appeals to review those ‘orders on an | extraordinary writ. _ On February 1, 1963 Toolco served its papers on its motion. to dismiss (withdrawi ing its summary judgment motion). On February 2, 1963, TWA served its answering papers. On February 6: oral argument was had, and Toolco’s motion was denied, with a formal opinion issuing ‘on February 7, the next to last business day before Febru- ary 11 (A-118-29). In order to give Tooleo a further op- portunity to seek interim relief by application to the Court of Appeals, Judge Metzner stayed all discovery proceed- ings until 5 P.M. on February 8, 1943 (A-129). Toolco made no such application. - nae On Friday, February 8, 1963, the last business day ‘before the ‘scheduled examination of Hughes, Toolco informed Judge-Metzner in open-court, shortly after 5:00 P.M., that it had made a “business dtcision” not to pro- eeed further. Counsel -indicated that Tooleo was fully aware of the sanctions available te -TWA for such a - deliberate refusal to comply with the several orders of the Court (A- 150-51, AA-190-99) .* oF Petitioners suggest that Toolco’s election to “rest on its positions in erder-to obtain appellate review of decisions it deemed erroneous” is akin to the position taken by the United States in United States v. Procter & Gamble Co., 356 U. S. 677, 680-81 (1958), ( Petitioners’ Brief, p. 10, note 8). The crucial difference, however, is that in the ’ . me 52 The end of the road was finally reached in May 1963. it had. taken almost ‘two years, consumed thousands of pages of deposition testimony, with hundreds of thousands of documents produced by_all parties,.19 formal pre-trial conferences before Judge Metzner encompassing some 800 pages of transcript, not to mention the six judges who functioned prior to Judge Metzner’s appointment, scores of hearings before the Special Master, a hearing before the Court of Appeals -and an-incredible intermational, hunt — for Hughes which invoked the time of the District Courts in California, New York and Florida as well as attorneys threughout the United States, Mexico and elsewhere. The result of. all this was a deliberate refusal to pro- duce the most needed documents and the only witness with full knowledge of all the facts. In sum, what Toolco denied to. TWA was the information which’ bore on the very heart of the complaint—Hughes’ and Toolco’ s activi- _ ties concerning: financing and aircraft acquisition. Following appropriate motions by TWA and the addi- tional defendants, the Court on May 3, 1963 filed opinions and orders granting a default judgment to TWA on the complaint and dismissal -of Tooleo’s counterclaims with prejudice: After. summarizing the record upon which Procter & Gambke case, the Department of Justice refused ‘to comply with the discovery order and allowed the complaint ‘to be dismissed because it regarded the discovery order itself, requiring production of grand jury minutes, as being improper. There is no possible room for argument here as to the propriety of Judge Metzner’s orders directing that a deposition be taken and dir cting that documents be produced. Petitioners refused to comply w th that order, allegedly, as a device to secure a review of questions isposed of by,an earlier order which was not subject to review. In p pint of fact, a familiarity with ‘all of the petitioners’ strategems before the Special. Master and the District.Court reveals that the real mot vation for the refusal to comply with the discovery orders was a fe« of what that discovery - would disclose. 53 TWA’s motion for entry of a default judgment rested _ (A-132-35), Ge Court said: “Tt is clear” that the deposition of —— 7 is essential for the proper presentation of TWA’s case. .. It is also clear that the failure of Hughes. to appear on February .11th for his deposition was the result of a clear and studied determination by Toolco after all efforts to _postpone—the—appearance of Hughes -had failed. The default was deliberate and - willful * * *.” (A- 135-36) The Court of Appeals commented that.“* *-* Hughes and © Tooleo seemed to look upon the entire discovery proceed-. ings as some sort ‘of a game, rather than as a means of | securing the-just and expeditious settlement of the impor- tant matters in dispute” (R. 1434). ; The Northeast Control Case In the’meantime, the Civil Aeronautics Board was again’ concerned with Tooleo and Hughes—in the so-called Tooico-Northeast Control Case (CAB Dkt. 11620). ‘Upon . a complaint by National Airlines that Tooleo and Hughes were: violating Section 408 of the Federal Aviation Act by ‘their activities in connection with Northeast Airlines, the Board entered.Order No., F-15532 on July 12, 1960, initiating an investigation into whether Tooleo and Hughes had unlawfully acquired ,control of Northeast.** Subse- _quently, on January 8, 1962, Northeas:, Tooleo and Atlas filed a. joint application with the Board for approval of the acquisition by Tooleo of Atlas’ controlling .56% inter- * The Court: had earlier noted that the refusal to obey its orders to produce documents was “embraced wale the refusal to an, with the deposition of Hughes” (A- 135). ** TWA, while still under Hughes’ control in 1960, was originally included, in the Northeast investigation pursuant to Order F-15532. ‘However, the Board, by Order E-17675, November 8, 1961, p. 5 n. 6, dismissed the investigation as to TWA. TWA was not a party” -and except a$ noted herein played no part in the proceeding. Teolco, -« 54 est in Northeast. On February 7, 1962 a number of issues for the Northeast proceeding were outlined in advance of _ the hearings (Appendix-1 to Report of Pre-Hearing Con- ference, February 7, 1962) (R.-773). One such issue con- _—eerned possible violations: by Tooleo of the Federal Avia- tion Act or of the Board’s 1944 control order regarding TWA> Another issue concerned the effect that Toolco control might“ have on the “‘Ronest, economical and effi- _ cient management’ of Northeast” (R. 774). ; On March 28, 1962 the Board’s staff served sebpeenne -- ‘on TWA and some of its officers=in the Northeast control proceedings, seeking information on the prior relationship between Tooleo and TWA. ~* This was atthe time when documentary discovery by Tooleo to TWA. had’ just begun in the instant litigation (see p. 43, supra), and the Board’s staff thereafter requested TWA to furnish rele- vant documents to it as they became available. On April 16, 1962, hqwever, the Board’s staff informed TWA that its cooperation would no longer -be required. In a letter to TWA’s counsel (appended hereto as Annex B) the staff explained that: . | «® © © the Hearing Examiner,ruled out any inves- tigation into the economy or efficiency of Toolco’s - management and control of TWA. With this issue out, and°with the antitrust litigation in its present posture, we did not deem ‘ft necessary to press forward on other issues * ° *.” Previously, on April 9, 1962, the Board’s staff had by . letter described to the Examiner the general areas of, - inquiry it wished to pursue. The letter (available. in the public record of CAB Docket 116 ) first made clear however, has since attempted to use the N ortheast case to obtain ex parte from the Board a ruling: that would. permit it to reassert control over TWA (“facilitating™, in the Board's euphemistic phrase, the “termination” of the TWA “Toolco controversy, Order E-21057 ) without any hearing ever being held before any tribunal at which it might be possible for TWA to establish its right to redress. eal 2 that the staff had‘ no intention of litigating the issues in “the TWA-Tooleo antitrust suit: “The Bureau does not intend to sities to prove, or disprove, either the allegations of the complaint or those of the counterclaim. To do so is not ‘essential to a .diSposition of this proceeding. . In addition, it would inevitably result in a long, drawn- - out hearing which might have ‘extremely adverse consequences for Northeast.” After concluding that the antitrust Senees should be left “for other times and other forums”, the staff indicated — it would .concentrate- its attention on the mismanagement aspects of the Tooleo-TWA situation and especially on self-dealing and conflicts of interest. As the letter pointed out: a “Obviously, potential conflicts \of interest were inherent in the relationship betw etn TWA, an air- - line 78 per cent owned by Toolco}\ and Hughes/ Tooleo, who apparently were dealers iy commercial : aircraft.” ay Areas of inquiry which the staff felt necessary were listed : “Most fundamentally, however, we intend \to in- -quire into whether Mr. Hughes, by reason of his ‘widespread interests, insistence upon direct exer- cise and control of decision-making power, and inability, for, whatever reasons,.to make decisions with the required firmness and speed, ran TWA in a manner inconsistent with economic and efficient management (and therefore “inconsistent with sec- tion 102 of the Act), and whether he could be ~ expected to operate Northeast in the same fashion. — We believe that the evidence will tend to show that, for many years, Mr. Hughes insisted upon retain- ing control of equipment, design, manufacture, acquisition, disposal and financing; that he at times: - injected himself into areas of the day-to-day opera- tions cf the airline, notably its advertising; that, . _ because of his widespread other business interests, 56 . ‘ »- or for othér = * re was unable or unwilling to make decisions on these matters at opportune times; that he consistently failed to delegate this — decision-making power to the officers or directors of TWA, who would, under normal management- ‘ stockholder relations, have exercised these’ func- tions; that ‘in so doing, he abused the. legal rights of TWA and its minority stockholders;. that, for these and other reasons arising ‘out of the man- agement-stockholder relationship, TWA was unable to retain chief ‘executive officers; and that, as a primary result of the conduct of Hughes/ToolJco, the economy and efficiency of TWA were seriously More specifically, we believe the evi- — dence will tend to show, among other things, that Hughes/Tooleo prevented TWA from taking advantage of favorable market conditions to secure additional equity financing; that TWA’s . financing was eventually arranged at a cost significantly higher than that of its major competitors; and that TWA: was put at a serious competitive disad- vantage because of its inability to. secure jet air- craft at the same times and in comparable quantities as its competitors.” Thé staff was, however, overruled in its desire to in- quire into the areas it thought critical. ‘The Examiner took the position that the key qtestion in the Northeast -_ ease—indeed, the only question—was whether Northeast would survive, absent financial support from Tooleo. Since the answer seemed clearly negative, he excluded evidence of ‘Tooleo’s past mismanagement of TWA. The Examiner ruled that evidence of illegality might be admitted, “but narrowed the area of this inquiry by agreeing with the staff that -possible violations of the antitrust laws by Toolco were not a proper subject of inquiry. The position taken by the staff and the reasons why ‘they concluded that the Examiner’s ruling effectively precluded them from inquiring into even the limited area he had desig- . nated: as open to inquiry are fully set. out in the brief ty ‘57 thereafter filed by the staff with the Board, excerpts from which are annexed hereto as Annex C. In affirming the Examiner’s decisiog permitting Toolco ~ tg acquire control of Northeast, the Board noted that he had excluded evidence of Toolco’s previous uneconomic and inefficient management of TWA as being “a waste of — time and effort” and ruled that “the condition of Northeast and the necessity for immediate help made the basic i issue not whether Toolco would. provide an efficient management, but whether Northeast would have any management at #ll.” Toolco-Northeast Control Case, CAB Order No. E-t8470, . GCH C.A.B. Cases’ (1960-1964) - 721,292, p. 14,852 (1962) (R. 833-46), aff'd sub nom., National Airlines, Inc. v. Civil Aeronautics Board, 321 F.2d 380 (D.C. Cir. 1963). The Board also made it plain that it: was hot passing upon the . propriety of Tooleo’s past management of TWA, but that _ such an inquiry would be pertinent in connection with any “resumption of control of TWA” by Toolco: “Should the question. of resumption of control of TWA come at some future date before the Board and an inquiry be sought into the efficiency and economy of Toolco’s past management of TWA, the materiality of such evidence in that, case will be * determined at that time. — . ; , - ** « ° i s “Our findings here ‘are limited to the control re- lationship presented by the Purchase Agreement that is before.us. We have not considered nor do @e pass upon either the route issues in the New York-Florida Renewal Case, or any public interest issues that may arise in connection with any future resumption of -Toolco control of TWA.” (Id. at p. 14,853) (R. 843) (Emphasis supplied.) In affirming the Board’s decision, the Court of pions for the District of Columbia Circuit also noted that the Board and Examiner had*not pursuéd the question of efficiency and economy of Toolco’s management of TWA, 58 that it was not possible to determine from the record — * whether a fuller inquiry might establish violations of law by Tooleo with respect to TWA, and held that the Board was justified in concluding that in that case the “real issue” - before it was whether the public interest would be better served by the acquisition of Northeast by Toolco than by - the bankruptcy of Northeast (321 F.2d at 385). a , a Recent Developments . - - — ae ‘ After Judge Metzner had entered his order directing. that a default be entered against Tooleo and a réference be held to. determine the amount of damages to be paid to TWA and liis order dismissing Toolco’s eounterclaims with prejudice, and after these. orders had been affirmed by: the Court of Appeals for the Second Circuit in. the decision now on review here, Tooleo sought’ to circumvent the results obtained in-this litigation by reacquiring con- trol of TWA through the purchase of certain TWA secu- rities froni their present holders, for approximately $108,000,000. In pursuit of this objective, Tooleo applied to the Board either to disclaim jurisdiction or *to grant such authorizations or approvals as might be required - under Section 408 of the’ Act to permet it to acquire the . outstanding notes wees the effec which” acquisition will be to permit Tooleo to name: the voting trustees of the presently existing voting trust with respect to the stock of TWA of which Toolco is the beneficial . owner (the ‘Voting Trust’). or to terminate thé Voting Trust’ if it so desires.” TWA. of course, opposed Toolco’s motion, and National Airlines and Eastern Aiflines each filed a petition for leave to intérvene. | Despite the fact that in its 1960 opinion snpinsee the voting trust it had indicated that it would anticipate the proper filing of an application under Section 408 59 before Tooleo would attempt to reassume control over * TWA. and that such approval would not be forthcoming - Without a searching inquiry into the public interest factors affecting this control, and despite the fact ‘that, even more recently, in its opinion in the Toolco-Northeast ¢ Control Case it had referred to the. possible “resumption of Toolco control of TWA” and the public interest factors to be considered at such time, the Board granted the application on July 10, 1964 to the extent of declaring that Tooleo might exercise its option to acquire the TWA. notes at such time as it submitted a- plan satisfactory to the Boat which’ would effectively divest Toolco of the power to contro! TWA and Northeast simultaneously. | Despite its prior ¢tatements to the contrary, the Board concluded that, even if it assumed that “Tooleo temporar- ily lost all power to control TWA during the period of - the voting trust, this fact would not have effected a ter- mination of the Board’s prior approval of the Toolco ‘control of TWA under the unique ‘circumstances prcoent here.” Th® Board took this action without any briefs or oral argument, without any hearing whatsoever, and without ~ even any notice in the Federal Register that it intended to dispose of Toolco’s application without a hearing, all of - this in the face of the express language of Section = ; * .of the Federal Aviation Act. that: SO eee - “Any peuieks secking approval of a- transection)’ * * *, specified in subsection (a) of this section, - shall present an application to the. Board, and* thereupon the Board shall notify the persons in- volved in the [transaction], * * * and other persons known to -have a substantial interest in the pro- ceeding, of the time - place of a eos hearing.” TWA immediately inna review ‘of’ this order in the United States Court of Appeals for th\ Second Cireuit, A x 60 and that Court, in a unanimous opinion by Judge Hays, held: ; “* «e* © that the Board should have held a hearing before issuing its order permitting Tooleo to re- sume control of TWA arid that the declaratory ruling was an abuse of the Board’s discretionary power.” Trans World Airlines, Ine. y. Civil Aero- nautics Board, $39 F.2d 56, 62 (December 7, 1964). The Court held that a hearing was required by Section 408(b).: Petitions for rehearing with respect’ to that. deci- sion were denied February 11, 1965. The Rulings Below Two rulings By Judge Metzner are pentinteite relevant on this review. First, of course, is the ruling appearing at A-:132-36 which was the basis of the appeal to the Second Circuit. In-that ruling Judge Metzner reviewed in detail the proceedings leading up to Toolco’s'refusal to - proceed, and. concluded that the.entry of a default judg- ment against the defendants was appropriate. ° _ Also relevant is Judge Metzner’s earlier opinion deny- ing tlfe defendants’ motion to- dismiss the complaint (A-118-29). Defendants’ contentions in support of that motion were. substantially the same as they are here: They argued to Judge Metzner that the Civil Aeronautics - Board had primary. jurisdietion over the conduct alleged in the complaintS@at the conduct had -been exempted from the ntitrust laws by previous Board orders, and that, in any event, the tomplaint failed to state a claim. ~ In disposing of the exemption, argument Jutge Metzner ruled that: . “These orders’ did. not give Tooleo a license to engage in other acts that may normally be forbid- . den by the antitrust laws. What has been approved and exempted is the fact of ‘acquisition o [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_0598%3A20. Public record. Not legal advice.