Appendix — Century Air Freight, Inc. v. Civil Aeronautics Board

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APPENDIX 1

Memorandum Judgment Sought to Be Reviewed.

Nor ro se PustisHep—See Local. Rotz 8 (f)

UNITED STATES COURT OF APPEALS

For the District of Columbia Circuit

No. 81-2021

Century Am Faeicut, IX., Petitioner

Crvm Axrronavutics Boarp, Respondent

American Armies, Inc., Intervenor

[No Opinion]

September Term, 1981

CAB 81-7-138

United States Court of Appeals

for the District of Columbia Circuit

Fuzp Apr 21 1982

Georce A. FisHer

Clerk

Petition for Review of an Order of the Civil Aeronautics

Board.

Before Wricut, Tamm, and Grivssure, Circuit Judges.

JUDGMENT

This cause came on to be heard on a petition for review

of an order of the Civil Aeronautics Board approving

the terms of a settlement between intervenor American

Airlines and the Board’s Bureau of Compliance and Con-

sumer Protection. The issues have been briefed and

argued by counsel, and the court has accorded them full

consideration. They do not occasion a need for an opinion.

See Local Rule 13e).

Appendiæ 1

Petitioner has asserted that the Board made several

errors of law and abused its discretion in approving the

settlement at issue in this case. We find petitioner’s claims

meritless. The terms of the settlement do not authorize

American Airlines to operate an overnight, all-cargo flight

between New York and San Juan in violation of Section

404(b) of the Federal Aviation Act, 49 U.S.C. 4 1374(b)

(1976). Nor was there error in allowing American Air-

lines to refuse reasonable requests for sevice on such a

flight. 14 C. F. R. 5 291.31 (a) (2) (1980); see Nati Small

n CAB, 618 F. 2d 819, 831-

832 (D.C. Cir. 1980). Neither the Board nor the Bureau

was required to resolve petitioner's antitrust claims if,

given the terms of the settlement, further proceedings were

not in the public interest. We note that the order under

review expressly states that it is not intended to prejudice

petitioner’s pending suit against American, and the order

does not state or imply that American’s conduct between

1971 and 1981 did not violate the antitrust laws. in all

other respects as well, the Board’s order is free from

reversible legal error, and is supported by substantial evi-

dence in the record.

On consideration of the foregoing, it is Onperep and Ap-

supeep by this court that the petition for review is hereby

dismissed.

Per Curiam

For the Court

Georce A. FisHer

George A. Fisher

Clerk

APPENDIX 2

Order of Civil Aeronautics Board Affirming Consent

Order of Law Judge, July 29, 1981 ype

> Agreement, Appendices “A”

Order 81-7-138

UNITED STATES OF AMERICA

Crvm, Arzronavtics Boarp

Wasnmorox, D.C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D.C.,

on the 29th day of July, 1981

Servep Jul. 1981

Docket 37278

American Armies, Inc. New Yorn-San Juan

Carco SERVICE

Enforcement Proceeding

ORDER

This enforcement proceeding against American chal-

lenged the legality of American’s ** of allocating

reserved container space on its overnight New York-San

Juan all-cargo flight. In the complaint instituting this

case the Bureau of Compliance and Consumer Protection

(the Bureau) asserted that American’s longstanding

method of allocation violated Section 404(b) of the Fed-

eral Aviation Act, 49 U.S.C. 1374(b), which prohibits un-

just discrimination. Before a hearing was held the Bu-

reau and American agreed on a settlement of this case.

That settlement was approved by Administrative Law

Judge John M. Vittone in Order 81-4-116 (April 17, 1981).

One air freight forwarder in the New York-San Juan

Appendiz 2

market, Century Air Freight (Century), opposed the set-

tlement below and has now petitioned us to reverse the

law judge’s approval of it. For the reasons given below,

we have determined that his decision should be affirmed.

The flight at issue here, American flight number 841

from New York to San Juan, has twelve container posi-

tions on the main deck of the B-707 aircraft used for the

flight. This overnight flight is attractive to air freight

forwarders and other shippers because it provides them

next-morning delivery in San Juan. As a result, the num-

ber of container positions has long been inadequate to

meet the demand for such space. From 1971 to 1978

American allocated eight of the twelve positions to Profit

by Air, Inc., three to Shulman Air Freight, and one to

Emery Air Freight. When Shulman withdrew from the

market in 1978, seven forwarders, including Century,

asked for a reserved position. American gave one each

to Air Express International Corporation, Burlington

Northern Air Freight, Inc. and Bor-Air Freight. Earlier,

in 1977, American allocated the equivalent of a container

position ot Century, but Century has alleged that its ship-

ment have often broken out of their container, thus sub-

jecting Century to a higher frequency of loss and more

trouble in taking its cargo off the plane in San Juan.

While Century had requested a reserved container posi-

tion numerous times, it was never able to obtain one.

The administrative law judge approved the settlement

since he found that it provided a fair resolution of the

case, Order 81-4-116, p. 3:

[The agreed-upon allocation system] addresses what-

ever effects American’s practice might have had on

the route, guarantees a fair opportunity to all ship-

pers to compete for access to American’s service, and

is also tailored to meet American’s legitimate busi-

ness needs. The system limits all reservations to one

oe 4 hee me

4¹

Appendix 2

year and requires American to consider applications

each year P

Cai ones qeltatn saaallon at whether

they have previously held reservations on the flight.

All shippers who tender shipments aoe Se —

He found unwarrated Century’s concerns that the settle-

ment would give American unbridled discretion in allocat-

ing space or allow it to unlawfully discriminate against

Century

Century has petitioned for review of his approval of

the settlement, a petition opposed by American and

Emery Air Freight. Century charges that the settle-

ment allows American to continue ‘‘an illegal unbridled

exercise of customer selection and rejection’’ in violation

of Sections 404(b) and 411 of the Act. Century also

asserts that the settlement ‘‘would validate the prior ex-

clusionary and discriminatory practices of customer selec-

tion and rejection ’ causing the issuance of the Bureau’s

complaint, since ‘‘it requires no change whatsoever in the

anticompetitive practices of American * * * and the south-

bound allocation for northbound shippers makes no change

1 —̃—ꝛ— — — © °°." In

antitrust laws. American’s New York-San Juan fligixt is

an essential facility“ under the 1 of Hecht v.

Pro-Football Inc., 570 F.2d 982 (D.C. Cir., 1977), since

Appendiæ 2

access to reserved container space on that flight is vital

to any forwarder’s ability to compete in the New York-

San Juan market.“ As a result, the Sherman Act pro-

hibits any settlement which would allow American to

arbitrarily allocate space on that flight. Finally, Century

asserts that the settlement ‘‘would validate the prior ex-

elusionary and discriminatory practices of customer selec-

tion and rejection since it requires no change whatso-

ever in the anticompetitive practices of American

and the southbound allocation for northbound shippers

makes no change in the actual practices [previously]

prevailing * * *.’’

As a result, Century filed an antitrust suit in federal

district court against American in which Century sought

treble damages for, inter alia, American’s alleged unlaw-

ful refusal to give Century more space on the New York-

San Juan flight. Because of American’s intention to seek

dismissal of the suit on the ground that the Board had

jurisdiction, Century stipulated that the case should be

referred to the Board under the doctrine of primary juris-

diction. The district court then stayed further proceed-

ings while the Board investigated Century’s allegations.

Appendiz 2

reasonable method of allocating space and to pay civil

penalties. While the Bureau believed that American also

ef,

to those forwarders who provided freight for the return

flight from San Juan to New York, a flight for which there

pay $50,000 in civil penalties and to adopt a new method

of allocating space on the New York-San Juan flight. In

brief, American will grant all forwarders and shippers at

one reserved container position on the New York-

Juan flight if they regularly use one such position

Appendiæ 2

discretion in allocating container space in violation of

both the Act and the Sherman Act. In response, the

Bureau and American contended that the settlement would

not give American such. unbridled discretion.

In response, American asserts that the allocation

method specified by the settlement agreement satisfies the

requirements of Section 404(b). In addition, the ‘‘essen-

tial facility“ doctrine of antitrüst law is allegedly inap-

plicable to a service provided by a person who does not

compete with the persons using the facility, and in any

event the antitrust issues presented by American’s prac-

tice were not before the Board and should be heard by

the district court.

In our view, Century’s objections ”» not provide a basis

for disapproving the settlement between the Bureau and

American. Since there is more demand for reserved con-

tainer positions than there are positions, American ob-

viously must use some method of allocating the available

positions among the shippers ‘requesting them. The

method agreed upon by American and the Bureau appears

to us to satisfy the requirements of Section 404(b) and

therefore to be a fair means of settling this case. We

disagree with Century that the settlement gives American

unlimited discretion in allocating container space. Thus

each forwarder using a space on the northbound flight

receives a space on the southbound flight. American must

allocate the remaining space on the basis of such economic

eriteria as the weight and type of cargo likely to be ten-

dered by each applicant, the applicant’s ability to tender

cargo for the northbound flight, and other factors affect-

ing the revenues and costs of American’s New York-San

Juan service. In addition, American must repoen the al-

location annually and thus can not follow its earlier prac-

tice of maintaining position reservations for years with-

out change. We therefore agree with the law judge’s

Appendiz 2

conclusion that ‘‘[njothing in the allocation system au-

thorizes or makes it easier for American to select cus-

tomers unlawfuly or improperly, and substantial limita-

tens have been ploced upon American's discretion to on

sure against unjust discrimination,“ Order 81-4-116, p. 3.

Furthermore, other than charging that the settlement

gives American unlimited discretion, Century has not ex-

plained how the settlement’s allocation method will injure

it, nor has Century suggested any alternative means of

allocating container positions which would be both fair

and practicable.

We also disagree with Century’s contention that the

settlement validates American’s prior practice, for it re-

quires American to allocate space according to certain

specified criteria and to pay $50,000 in civil penalties.

American will no longer be able to follow its prior allo-

cation practices. In addition, this settlement does not

purport to determine whether or not Century should pre-

vail in its private suit against American.

Finally, Century’s contention that American has been

violating the Sherman Act does not require disapproval

of the settlement. As agreed to by Century’s counsel at

the beginning of this proceeding, this case concerns only

the allegation that American had violated Section 404(b)’s

prohibition against unjust discrimination. The antitrust

issues presented by Century’s district court suit, on the

other hand, were never encompassed within this proceed-

ing. Those issues were reserved for trial in the district

court suit. Accordingly, Century’s antitrust claims pro-

vide no basis for disapproving the settlement before us.

Accorpryety, the Board affirms the approval of the

settlement agreed to by American Airlines, Inc. and the

Bureau of Compliance and Consumer Protection.

By the Civil Aeronautics Board:

PIA T. Kwon

Secretary

(Sea)

All Members concurred.

American Ams, Inc.

New Yorx-San Juan Carco Service

Enforcement Proceeding

Docket 37278

MEMORANDUM OF AGREEMENT

The Bureau of Consumer Protection (Bureau) and

the respondent, American Airlines, Inc. (‘‘ American’’) by

their respective attorneys agree, solely for the purpose of

settling this proceeding without the need for further liti-

gation, as follows:

1. American and the Bureau consent to entry by the

Civil Aeronautics Board of a final order in the form of

the draft order attached to this memorandum.

2. American neither admits nor contests any of the

facts alleged in the Bureau’s complaint in this docket, and

it neither admits nor contests any of the findings of fact,

characterizations and inferences drawn from such facts,

or the conclusions of law stated in the draft Consent

Order.

3. It is the intention, understanding and agreement of

American and the Bureau that neither this memorandum,

the Consent Order, nor any facts, conclusions or infer-

ences contained therein shall have any collateral estoppel

or res judicata effect outside this Board proceeding. For

and

not include the private action now pending in the

rn District of New York against American by

Century Air ight, Inc. (‘‘Century’’), or any other

action except for an action by the Board for enforcement

of the Consent Order to be entered herein. Without

limiting the foregoing, American and the Bureau further

toppel or res judicata effect, or be used as evidence of

any violation of law, in that private action.

4. American agrees to pay $50,000 in full settlement of

all alleged violations by American described in the Bu-

reau’s complaint and the Consent Order.

5. American expressly acknowledges that the Consent

Order to be entered restrains it from engaging in certain

practices regarding allocation of reserved main deck A“

container space on its overnight New York to San Juan

all-cargo service and contains affirmative duties regarding

future such practices, and American consents to be bound

thereby.

6. American waives all right to notice, hearing and ap-

peal in connection with the entry of the Consent Order.

7. In the event the Board should seek to enter the

Consent Order in a future proceeding or court action to

enforce the Consent Order, American shall be precluded

from disputing the findings and the conclusions of law

contained in the Order, or the validity of the Order itself.

8. The Bureau shall submit this agreement and the

attached draft order to the Administrative Law Judge

assigned to this proceeding in accordance with Rule 215

Appendia 2

of the Board’s Rules of Practice, together with a motion

requesting approval and entry of the Order pursuant to

the authortiy delegated under 14 C.F.R. 385. American

waives its right under Rule 215(b) to submit further

written comments on the settlement except in response to

comments submitted by persons other than the Bureau.

9. The Bureau agrees that it will not initiate any ad-

ditional enforcement action against American based upon

the method of allocating reserved main deck A“ con-

tainer positions on Flight No. 841 at issue in this pro-

ceeding.

10. It is understood that American may, consistent with

the requirements of the allocation system contained in

Appendix B to the Consent Order, allocate reserved main

deck A' container positions on Flight No. 841 to Cen-

tury as part of any resolution of the private suit now

pending between American and Century.

11. This agreement is subject to approval by the Board,

and if such approval is withheld, the agreement shall be

terminated and have no further effect.

Bureau or Consumer Prorecrion

By: James D. Tossa

James D. Tussing, Esq.

Senior Trial Attorney

Date: 8/12/80

APPENDIX 2 (ANNEXES)

Settlement Agreement—Appendix B,

Allocation System

Apprenpix B

ALLocariox System

Until December 31, 1984, American Airlines, Inc.

(American) will follow the procedures outlined below for

allocating Confirmed Air Freight („CAF“)! A container

mand for CAF A container positions exceeds the number

of positions available:

(1) American will keep a record of all requests for

daily CAF A container space on Flight No. 841 from

freight forwarders and shippers.

(2) Each January American will contact each for-

warder and each shipper which has requested but not been

accorded such space in the preceding calendar year and

will determine whether and to what extent that forwarder

or shipper desires daily CAF A container space for the

entirety of the next 12-month period. American will not

be obligated to consider requests for A container space on

less than a daily, year-round, fully-rated (general com-

modity rate) basis.

rr to reservations, as

described more in 282 ,

positions on its New York to San Juan all-cargo Flight

No. 841, or any successor service“ concerning which de-

* Hereafter, the term ae Tee. cue Se Sites to the

flight which is currently so designated, and to any successor

Appendiz 2

(3) American will then evaluate each such request as

well as similar requests from any forwarder or shipper

which has been accorded CAF A container space on a re-

curring basis during the prior year and will allocate CAF

A container space on Flight No. 841 according to the fol-

lowing procedure:

(A) American will evaluate each request for CAF A

reference to the following factors:

(i) the applicant's financial stability and credit

worthiness, as determined by its payment record

with American (if any) and other factors nor-

mally used in making such an assessment;

(ii) the credibility of the applicant’s request

based on:

(a) if the applicant has previously been ac-

corded CAF space on Flight No. 841 or on other

American flights, the consistency and nature of

the applicant’s utilization of such space;

(b) the applicant’s prior utilization of space

on other New York-San Juan flights;

shipments of freight between New York and San

Juan; and

(d) any other relevant facts presented by

the applicant or known to American.

(B) To the extent permitted by CAF space on Flight

No. 841, American will allocate one standard CAF

A container position“ for one year to each shipper or

*A standard CAF A container position shall be capable of

transporting intact a shipper-tendered A container.

Appendiæ 2

forwarder which requests one or more such positions,

which offers to provide American northbound return-

flight freight on a daily, year-round full-rated (gen-

eral commodity rate) A container basis, and which

meets American’s criteria of credibility and credit

worthiness, as outlined in subparagraph (A) above.

ing CAF A container positions based upon the follow-

ing factors, as they affect revenues and costs:

(i) the anticipated average weight, density, rate

and type of shipments to be tendered by the

applicant ;

(ii) the applicant’s ability and willingness to sup-

ply American with northbound, return, flight

freight; and

(iii) such other factors pertaining to the appli-

cant’s shipments of freight between New York

and San Juan which affect American’s revenues

or costs on any of its flights between New York

and San Juan.

(4) American will also use the procedure established

herein to allocate any CAF A container space which be-

comes available during the year. Such allocations shall

run until the next annual reallocation takes place.

(5) In determining who will be allocated CAF A con-

tainer positions, American will not favor applicants which

have held or are holding such positions on Flight No. 841

over applicants who have not held such positions. How-

ever, American may consider such prior usage in assessing

an applicant’s credibility, creditworthiness and the poten-

tial yield of the applicant’s shipments, as set forth in sub-

paragraphs (3) (A) and (3)(C).

Appendia 2

(6) American will not be obligated under this alloca-

tion system to continue to operate Flight No. 841, to con-

tinue to operate Flight No. 841 on its current schedule, or

to make any alternative arrangements for shippers or for-

warders using Flight No. 841 in the event of termination

of the flight or a schedule alteration.

(7) In accordance with the standard operation of

American’s CAF procedures, a CAF allocation will not

constitute a commitment by American to carry any such

freight or a commitment by the shipper to tender any such

freight. If a shipper or forwarder accorded a position

does not tender freight in substantially the amount of its

allocation and in accordance with normal air freight busi-

ness practices, or otherwise fails to satisfy the criteria

established in the preceding paragraphs, American may

withdraw the allocation at any time.

Order 81-4-116

APPENDIX 3

Consent Order of Law Judge April 17, 1981

Unrrep Srarxs or AMERICA

Crvm Agronavtics Boarp

Wasurneron, D. C.

Issued Under Delegated Authority

April 17, 1981

Order 81-4-116

Docket 37278

Servep Apr 22 1981

Amerroan Ami, Iwo.

New Yors-Saw Juan Cano Service

Enforcement Proceedings

sé

Consent Ononn

The Bureau of Consumer Protection (“ Bureau“)

commenced this proceeding on December 14, 1979, alleg-

ing that American Airlines, Inc. (‘‘American’’) violated

section 404(b) of the Federal Aviation Act by unjustly

discriminating against various air freight forwarders in

allocating space in its New York-San Juan overnight

cargo flight, currently designated American’s Flight No.

841. The Bureau alleged that American’s manner of al-

locating space on this flight caused public injury by pre-

venting development of a fully competitive freight for-

warding service between New York and San Juan. The

complaint requested that American bv ordered to cease

On December 15, 1980 the Bureau of Consumer Protection

became the Bureau of Compliance and Consumer Protection.

Appendia 3

and desist from allocating space on Flight No. 841 in an

unjustly discriminatory manner, to institute reasonable

allocation practices with respect to main deck A“ con-

tainer space on this flight, and to pay civil penalties.

American answered denying the substantive allegations of

the Bureau’s complaint and specifically denying any viola-

tions of the Act.

On August 12, 1980, prior to any adjudication of facts,

American and the Bureau entered into a memorandum of

agreement (Appendix A to this Order) to settle this

matter without the need for further litigation. American

has not admitted any of the allegations of the Bureau’s

complaint; but solely for the purposes of settlement,

American has agreed for this proceeding not to contest

the allegations stated in the Bureau’s complaint or the

findings and conclusions set forth in this Consent Order.

American has also agreed, for purposes of settlement, to

adopt the proposed allocation procedures set forth in

Appendix B to this Consent Order. The statement of

those procedures in Appendix B is controlling, but they

can be summarized as follows. American will: (1) grant

ali forwarders and shippers which will regularly utilize

at least one A“ container position on the less desirable

northbound return segment of the flight at least one re-

served container position on the southbound, New York-

San Juan segment; (2) allocate the remaining positions

on the southbound segment, if any, according to the cri-

teria set out in Appedix B; and (3) review and issue or

reissue such allocations once a year. American has also

agreed to pay $50,000 in full settlement of any civil pen-

alty liability.

The Bureau alleges the facts to be as follows. Since

1971, American has operated the only regularly scheduled,

overnight all-cargo service on week nights from New York

to San Juan (originally designated Fight No. 801, now

Flight No. 841). Access to this service is desirable for

Appendia 3

air freight forwarders competing, or seeking to compete,

on this route because the flight is scheduled so that ship-

pers in New York can have next morning delivery in an

Juan. However, since 1971, various forwarders have held

allocations of indefinite duration for all twelve of the main

deck A' type cargo container positions in the Boeing

707 aircraft American has used in this operation. From

late 1971 through mid-1978, all twelve such positions avail-

to take Shulman’s place, seeking a total of between nine

and eleven positions. The three Shulman positions were

The Bureau has further alleged that dur'ng the period

from 1971 to 1977, Century Air Freigi. Ine. (‘‘Cen-

tury’’), an air freight forwarder based in New York,

made numerous requests for positions on American’s

flight. Each Century request during that period for an

indefinite allocation of ‘‘A’’ container space was denied

on the ground that all available space was committed. In

May 1977, Century sued American in Federal District

Court in New York, claiming that American had engaged

space, and that American’s actions also violated the

Federal Aviation Act. In September 1977, American al-

located Century the equivalent of one ‘‘A’’ container posi-

tion on Flight No. 841. However, Century contends that

its freight has often been broken out of its container and

fitted into whatever space is available on the aircraft,

subjecting Century to greater recovery time and higher

Appendiæ 3

frequency of loss than if its freight were containerized.

This

American and Century stipulated that certain issues

should be referred to the Board under the doctrine of

primary jurisdiction. At the parties’ request, the Dis-

trict Court stayed further judicial proceedings pending

action by the Board on Century's complaint. Following

an investigation, the Bureau filed its complaint im this

proceeding

The complaint alleges specifically that since American

began its overnight all-cargo service from New York to

San Juan in 1971, American has allocated to a few for-

warders all the desirable positions on these flights—

namely the main deck A container positions—for an

indefinite period. When American allocates such a posi-

tion to a forwarder, that forwarder has a right to the

position as against any other forwarder, until such time

as American or the forwarder alters the arrangement.

Such alterations are rare, however. From late 1971 to

mid-1978, the same three forwarders held all twelve stand-

ard main deck ‘‘A’’ container positions on the flight. The

Bureau contends that this indefinite preference for some

forwarders for an extensive period of time, and indefi-

nite exclusion of others seeking the American service,

violates section 404(b).

American has denied any violation of section 404(b) and

has raised affirmative defenses to the Bureau’s complaint.

American does not admit the legal or factual contentions

of the Bureau. However, for the purposes of settling this

proceeding, and subject to the conditions and limitations

of the memorandum of agreement, American consents to

the entry of this Consent Order.

Therefore, on the basis of the Bureau’s factual and legal

contentions, and American’s agreeme-t not to contest

Appendiæ 3

them in this proceeding, we find that American violated

section 404(b) in its indefinite allocations of space on

Flight No. 841. Transcontinental Bus System, Inc. v.

CA. B., 383 F.2d 466 (5th Cir. 1967), cert. denied, 390

U.S. 920 (1968); Emery Air Freight and Air Midwest,

Inc., Order 73-48 (April 2, 1973). We also find that the

allocation system which American has agreed to imple-

ment in order to settle this proceeding will provide a fair

resolution of this particular case. It addresses whatever

effects American’s practice might have had on the route,

guarantees a fair opportunity to all shippers to compete

for access to American’s service, and is also tailored to

meet American’s legitimate business needs. The system

limits all reservations to one year and requires American

to consider applications each year from all forwarders

and shippers using basically the same criteria, regardless

of whether they have previously held reservations on the

flight. All shippers who tender shipments for the rela-

tively less sought after northbound segment will be guar-

anteed at least one reserved southbound position, and all

remaining positions will be allocated according to criteria

which take into account this and other factors affecting

American’s likely yield.

Century has objected to this settlement on the stated

grounds that the allocation system grants American “a

right of unbridled customer selection”, and would permit

American to discriminate against Century in violation of

the antitrust laws and common carrier obligations. We

find no basis for these objections. Nothing in the alloca-

tion system authorizes or makes it easier for American to

select customers unlawfully or improperly, and substantial

limitations have been placed upon American’s discretion

to ensure against unjust discretion.

Although the system now agreed to is to operate until

December 31, 1984, there is no requirement that American

Appendiæ 3

continue to operate overnight service; the system is ap-

plicable only if American chooses to continue to offer such

a service, and if demand for reserved positions on the

service exceeds supply. If, however, unexpected contin-

gencies arise, or American believes that it or its customers

have become unduly burdened by this allocation method,

our order expressly provides that American can apply to

the Board for appropriate modifications. Moreover, we

will look favorably upon such an application if American

can demonstrate that this method of allocating reserved

space is unduly hindering the profitability of its flight,

since our intention in issuing this order is not to intrude

upon the exercise of American’s business judgment within

the limits of the law.

ACOORDINGLY,

1. We approve the settlement agreed to by American

Airlines, Inc. and the Bureau of Compliance and Con-

sumer Protection.

2. American Airlines, Inc. is ordered to cease and de-

sist f ing to ony ——— inet

forwarders, within the meaning of section 404(b) of the

Act, in its allocation of reserved “A” container positions

on its overnight all-cargo service between New York and

San Juan.

3. American shall deliver to the Director, Bureau of

Compliance and Consumer Protection, a check or draft

made payable to the Treasurer of the United States in the

amount of $50,000 within 7 days of the date this order

becomes a final order of the Board.

4. American shall follow the procedures set out in Ap-

pendix B to this order until December 21, 1984 in allocat-

ing reserved A“ container positions on its overnight all-

to prevent unjust discrimination or the effects of any past

unjust discrimination; or (ii) that modification is war-

ranted by changes in applicable law or regulations.

5. This order is issued by authority delegated in 14

C. F. R. 385.11. Persons entitled to petition he Board for

review of this o under Board regulations, 14 C. F. R.

385.50, shall file their petitions within 10 days of the date

this order. This order shall be effective as

final action of the Civil Aeronautics Board after the 10

day period, unless a timely petition for review is filed or

the Board takes review on its own within that period.

—

The Settlement Agreement:

Appendix A — Memorandum of Agreement

Appendix B“ Allocation System

is annexed to Aprenprx 2 hereof (Board Order

No. 81-7-138) (July 29, 1981)

APPENDIX 4

Petitioner’s Appendix of Statutory Texts.

Crvm Aviation Act or 1958, As Amenpep, IncLusive oF

THe Amn Derecutation Acr or 1978

Section 102 (a) (7); 49 U.S-C. § 1302 (a) (7):

**§ 102. Consideration of matters in public interest

by Board

Factors for interstate, overseas, and foreign air

transportation

(a) In the exercise and performance of its powers and

duties under this chapter, the Board shall consider the

following, among other things, as being in the public in-

terest, and in accordance with the public convenience and

necessity :

eo „ eo 0

(7) The prevention of unfair, deceptive, predatory, or

anticompetive practices in air transportation, and the

avoidance of—

(A) unreasonable industry concentration, excessive

market domination, and monopoly power; and

(B) other conditions;

that would tend to allow one or more air carriers or for-

eign air carriers, unreasonably to increase prices, reduce

services, or exclude competition in air transpo 0

As amended Pub. L. 95-504, 5 (a), (b) Oct. 4, 1978, 92

Stat. 1705, 1707.

Appendia 4

Section 404 (a) and (b); 49 U.S.C. § 1374 (a) and (b):

**§ 404. Rates for carriage of persons and property;

duty to provide service, rates, and divi-

sions; foreign air transportation rates;

liscriminati

(a) (1) It shall be the duty of every air carrier to pro-

vide and furnish interstate overeas air transportation, as

authorized by its certificate, upon reasonable request there-

for and to provide reasonable through service in such air

transportation in connection with other air carriers; to

provide safe and adequate service, equipment, and facili-

ties in connection with such transportation; to establish,

observe and enforce just and reasonable individual and

joint rates, fares and charges, and just and reasonable

classifications, rules, regulations and practices relating to

such air transportation; and, in case of joint rates, fares

charges, to establish just, reasonable, and equitable divi-

sions thereof as between air carriers participating therein

which shall not unduly prefer or prejudice any of such

participating air carriers.

(2) It shall be the duty of every air carrier and foreign

air carrier to establish, observe, and enforce just and rea-

sonable individual and joint rates, fares, and charges, and

just and reasonable classifications, rules, regulations, and

practices relating to foreign air transportation; and, in

case of such joint rates, fares, and charges, to establish

just, reasonable, and equitable divisions thereof as be-

tween air carriers and foreign air carriers participating

therein which shall not unduly prefer or prejudice any of

such participating air carriers or foreign air carriers.

(b) No air carrier or foreign air carrier shall make,

give, or cause any undue or reasonable preference or ad-

vantage to any particular person, port, locality, or descrip-

Appendix 4

tion of traffic in air transportation in any respect whatso-

ever or subject any particular person, port, locality, or

description of traffic in air transportation to any unjust

discrimination or any undue or unreasonable prejudice or

disadvantage in any respect whatsoever.”’

Pub. L. 85-726, Title IV, § 404, Aug. 23, 1957, 72 Stat. 760;

Pub.L. 92-259, § 1. Mar. 22, 1972, 86 Stat. 95.

1978 amendment of § 404 (a) (1) of the Act

“$404. Rates for carriage of persons and property;

duty to provide service, rates, and divi-

sions; foreign air transportation rates;

discriminati

(a) (1) It shall be the duty of every air carrier to pro-

vide and furnish interstate and overseas air transporta-

tion, as authorized by its certificate upon reasonable re-

quest therefor and to provide reasonable through service

in such air transportation in connection with other air

carriers authorized to engage in schedule air transporta-

tion by certificate or by exeption under section 416 (b) (3)

of this title; to provide safe and adequate service, equip-

ment, and facilities in connection with such transporta-

tion; to establish, observe, and enforce just and reason-

able individual and joint rates, fares, and charges, and

just and reasonable classifications, rules, regulations, and

practices relating to such air transportation, and, in case

of such joint rates, fares and charges, to establish just,

reasonable and equitable divisions thereof as between air

carriers participating therein which shall not unduly pre-

fer or prejudice any such participating air carriers.’’

As amended Pub.L. 95-504, § 23, Oct. 24, 1978, 92 Stat.

1724.

Appendia 4

Section 411; 49 U.S.C. § 1381:

“$411 Methods of competition

The Board may, upon its own initiative or upon com-

plaint by any air carrier, foreign air carrier, or ticket

agent, if it considers that such action by it would be in

the interest of the public, investigate and determine

whether any air carrier, foreign air carrier, or ticket agent

has been or is engaged in unfair or deceptive practices

or unfair methods of competition in air transportation or

the sale thereof. If the Board shall find, after notice and

hearing, that such air carrier, foreign air carrier, or ticket

agent is engaged in such unfair or deceptive practices or

unfair methods or competition, it shall order such air

carrier, foreign air carrier, or ticket agent to cease and

desist from such practices or methods of competition.“

Pub.L. 85-726, Title IV, § 411, Aug. 23, 1958, 72 Stat. 769

Section 412: 49 U.S.C. § 1382

(Old text superseded Oct. 24, 1978)

**$412. Pooling and other agreements; filing; approved

by Board

(a) Every air carrier shall file with the Board a true

copy, or, if oral, a true and complete memorandum, of

every contract or agreement (whether enforceable by pro-

visions for liquidated damages, penalities, bonds or other-

wise) affecting air transportation and in force on the ef-

fective date of this section or hereafter entered into, or

any modification or cancellation thereof, between such air

carrier and any other air carrier, foreign air carrier, or

other carrier for pooling or apportioning earnings, losses,

traffic, service, or equipment, or relating to the establish-

ment of transportation rates, fares, charges, or classifica-

tions, or for preserving and improving safety, economy,

Appendia 4

and efficiency of operation, or for controlling, regulating,

preventing, or otherwise eliminating destructive, oppres-

sive or wasteful competition, or for regulating stops,

schedules, and character of service, or for othér coopera-

tive working arrangements.

(b) The Board shall by order disapprove any such

contract or agreement, whether or not previously approved

by it, that it finds to be adverse to the public interest,

or in violation of this chapter, and shall by order approve

any such contract or agreement, or any modification or

cancellation thereof, that it does not find to be adverse to

the public interest, or in violation of this chapter; except

that the Board may not approve any contract or agree-

ment between an air carrier not directly engaged in the

operation of aircraft and a common carrier subject to the

Interstate Commerce Act, as amended, governing the com-

pensation to be received by such common carrier for trans-

portation services performed by it.’’

Pub. L. 85-726, Title IV, § 412, Aug. 23, 1958, 72 Stat. 770.

(New text, enacted October 24 1978)

“$412. Pooling and other agreements; filing and approv-

al of agreements

(a) (1) Any air carrier or foreign air carrier may file

W the Board a true copy, or, if oral, a true and complete

memorandum, of any contract or agreement (whether en-

forceable by provisions for liquidated damages, penalties,

bonds, or otherwise), or a request for authortiy to discuss

possible cooperative working arrangements in force on

October 24, 1978, or thereafter entered into, or any modi-

fication or cancellation thereof, between such air carrier

or foreign air carrier and any other air carrier, foreign

air carrier, or other carrier.

(2) (A) The Board shall by order disapprove any con-

tract, agreement, or request filed pursuant to para-

Mltcccln'zd

* Ant

Appendia 4

graph (1) of this subsection, whether or not previously

approved by it, that it finds to be adverse to the public

interest or in violation of this chapter, and shall by order

approve any contract, agreement, or request, or any modi-

fication or cancellation theerof that it does not find to be

adverse to the public interest, or in violation of this chap-

ter, except that—

(i) The Board may not approve or, after periodic re-

view, continue its approval of any such contract, agree-

ment, or request, or any modification or cancellation

thereof, which substantially reduces or eliminates com-

petition, unless it finds that the contract, agreement, or

request is necessarry to meet a serious transportation

need or to secure important public benefits, including in-

ternational comity or foreign policy considerations, and it

does not find that such need can be met or such benefits

can be secured by reasonably available alternative means

having materially less anticompetitive effects ;

(ii) the Board may not approve any contract or agree-

ment between an air carrier not directly engaged in the

operation of aircraft in air transportation and a common

carrier subject to the Interstate Commerce Act, as

amended, governing the compensation to be received by

such common carrier for transportation services per-

formed by it; and

(iii) the Board may not approve any such contract or

agreement, affecting interstate or overseas transportation,

or any modification or cancellation in markets in which

they compete, that fixes rates, fares or charges between

or among air carriers (Except for joint rates, fares or

charges).

(B) In any proceeding before the Board involving the

ion of the standards set forth in subparagraph

(A)(1) of this paragraph the party opposing the proposed

contract, agreement, or request shall have the burden of

" 8

Appendia 4

aproving the reduction or elimination of ocmpetition, and

the availability of alternative means having less anticom-

petitive effects, and the party defending the proposed con-

tract, agreement, or request shall have the burden of

proving transportation need or public benefits.

this paragraph shall be included in any order of the

Board approving or disapproving any contract or agree-

ment or any memorandum of any contract or agreement,

or any modification or cancellation thereof, or any request.

Proceedings upon filing

(b) Upon the filing of any contract or agreement, or

any modifiiation or cancellation thereof, or any request

for authority to discuss possible cooperaative working

arrangements, pursuant to subsection (a) of this section,

the Board, in accordance with res lations which it pre-

scribes, shall provide to the Attorney General the See-

retary of State, and the Secretary of Transportation

written notice of, and an opportunity to submit written

comments on, the filed document. The Board may, upon

its own initiative or if requested by the Attorney General

or either Secretary hold a hearing, in accordance with

regulations prescribed by the Board, to determine if a

contact or agreement, or request for discussion authority,

whether or not previously approved is consistent with the

provisions of this chapter.

Mutual aid agreements”

[This sequence of subsections deals with mutual aid

for strikebound airlines and is omitted]

As amended Pub.L. 95-504, secs. 28(a)(2), (b), (e), 29 (a),

Act. 24, 1978, 92 Stat. 1729, 1730; Pub. L. 96-192, sec. 11,

Feb. 6, 1980, 94 Stat. 39.

(Old text, superseded October 24, 1978)

Appendia 4

Section 414; 49 U.S.C. § 1384

„414. Legal restraints

Any person affected by any order made under sec-

tions 408, 409, or 412 of this title shall be, and is hereby,

relieved from the operations of the ‘antitrust laws’, as

designated in section 12 of Title 15, and of all other re-

straints or prohibitions made by, or imposed under, au-

thority of law, insofar as may be necessary to enable such

person to do anything authorized, approved, or required

by such order.“

Pub. L. 85-726, Title IV, 5 414 Aug. 23, 1958, 72 Stat. 770

(New text, enacted October 24 1978)

$414. Antitrust exemption

In any order made under section 408, 409, or 412 of

this title, the Board may, us part of such order, exempt

any person effected by such order from the operations of

the ‘antitrust laws’ set forth in subsection (a) of section 12

of Title 15 to the extent necessary to enable such person

to proceed with the transaction specifically approved by

the Board in such order and those transactions neces-

sarily contemplated by such order, except that the Board

may not exempt such person unless it determines that such

exemption is required in the public interest. Notwith-

standing the preceding sentence, on the basis of the find-

ings required in subsection (a)(2)(A)(i) of section 412

of this title, the Board shall, as part of any order under

such section which approves any contract, agreement or

request or any modification or cancellation thereof, ex-

empt any person affected by such order from the opera-

tions of the ‘anti-trust laws’ set forth in subsection (a) of

section 12 of title 15 to the extent necessary to enable such

person to proceed with the transaction specifically ap-

Appendia 4

proved by the Board in such order and with those trans-

actions necessarily contemplated by such order.

As amended Pub.L. 95-504, § 30(a), Oct. 24, 1978, 92 Stat.

1731; Pub. L. 96-192, § 27, Feb. 15, 1980, 94 Stat. 47.

Sherman Antitrust Act of 1890, as amended

Section 1; 15 U.S.C. 5 1

‘$1. Trusts, etc., in restraint of trade illegal; pen-

alty

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign nations,

is declared to be illegal. Every person who shall make

any contact or engage in any combination or conspiracy

hereby declared to be illegal shall be deemed guiilty of a

felony, and, on conviction thereof, shall be punished by

fine not exceeding one million dollars if a corporation, or,

if any other person, one hundred thousand dollars or by

imprisonment not exceeding three years, or by both said

punishments, in the discretion of the court.’’

As amended Dec. 21, 1974, Pub. L. 93-528, § 3, 88 Stat. 1708;

Dec. 12, 1975, Pub.L. 94-145, 4 2, 89 Stat. 801.

Section 2; 15 U.S.C. 52

. Monopolizing trade a felony; penalty

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the

trade or commerce among the several States, or with

and, on conviction thereof, shall be punished by fine

or by imprisonment not exceeding three years, or by

both said punishments, in the disretion of the court.“

Appendia 4

As amended Dec. 21, 1974, Pub. 1 93-528, $3, 88 Stat. 1708.

1708.

Administrative Procedures Act, 5 U.S.C. § 706

„ 706. Scope of review

To the extent necessary to decision and when presented,

the reviewing court shall decide all relevant questions of

law, interpret constitutional and statutory provisions, and

determine the meaning or applicability of the terms of an

agency action. The reviewing court shall—

(1) compel agency action unlawfully withheld or

unreasonably delayed; and

(2) hold unlawful and set aside agency action, find-

ings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law;

(B) contrary to constitutional right, power, privi-

lege, or immunity ;

or limitations, or short of statutory right;

(D) without observance of procedure required by

law ;

(E) unsupported by substantial evidence in a case

subject to section 556 and 557 of this title or other-

wise reviewed on the record of an agency hearing

provided by statute; or

(F) unwarranted by the facts to the extent that

the facts are subject to trial de novo by the review-

ing court.

In making the foregoing determinations, the court shall

25 the whole record or those parts of it cited by a

and due account shall be taken of the rule of preju-

error.“

APPENDIX 5

Motion to Law Judge for Approval of Settlement.

BerorE THE

Cry. Agronautics Boaap

Wasnineron, D.C.

Docket 37278

Aug. 12, 1980

sé

American Armuivezs, Iwe.

New Youx-San Juan CarGo Service

Enforcement Proceeding

Morton To Approve SetrLeEMENT

The Bureau of Consumer Protection (‘‘Burean’’) and

American Airlines, Inc. (‘‘American’’) have reached an

agreement for settling this proceeding. The Bureau here-

by asks the Administrative Law Judge, under the au-

thority delegated in 14 C.F.R. 385.11, to approve the

settlement bv issuing the attached Consent Order.

) and other air freight forwarders in

allo-

eating space on its New York-San Juan prime time cargo

flight since late in 1971, shortly after the flight began.

404(b). 0 man-

ner of allocating space on this fight caused public injury

by preventing development of a fully competitive freight

forwarding service in this market.

In response to the Bureau’s contentions (which are set

out more fully in the Consent Order), American argues

that its practice in allocating reserved ‘‘A’’ container po-

sitions on Flight No. 841—which American calls Con-

firmed Air Freight’’—are necessary to permit shippers to

engage in efficient planning and to permit American to in-

sure maximum utilization of its fight. American describes

its Confirmed Air Freight as an understanding between

ipper and carrier that an agreed-upon volume of

freight will be tendered on a regular basis and that nor-

space will be held on the fight for the carriage of

forwarder or freight forwarding competition between New

York and San Juan.

PETE

to operate the flight economically. American alleges that

if Profit By Air were offered less space than it now holds

on the souhbound flight, it would charter its own aircraft

or find other alternative lift. Thus, American contends

For the purpose of reaching a settlement and final

disposition of the issues involved here and to avoid fur-

ther litigation, American has entered into the attached

Memorandum of Agreement, in which it agrees not to con-

test the facts alleged in the Bureau's complaint, and the

facts, inferences and legal conclusions stated in the Con-

sent Order. American also agrees to entry of the Con-

sent Order itself; expressly acknowledges and agrees to

be bound by the provisions of the Order, which both

restrain it from engaging in certain practices regarding

Appendia 5

allocation of reserved ‘‘A’’ container space on its New

York-San Juan overnight all-cargo service, and require

it to undertake affirmative duties regarding such practices ;

and agrees to pay $50,000 in civil penalties, in full settle-

ment of all violations described in the Bureau’s complaint

and the Order. American has also waived its right to

submit further comments on the settlement except to re-

spond to comments submitted by others.

In the Bureau’s judgment, the settlement is in the pub-

lic interest, brings to a satisfactory conclusion a complex

and lengthy enforcement proceeding, and should be ap-

proved. The cease and desist portion of the Consent

Order enjoins American from engaging in unjust dis-

crimination against forwarders in its allocation of reserved

„A““ container positions on its overnight all-cargo service

between New York and San Juan. The Order also re-

quires American to implement an allocation system—

originally proposed by American—which we believer will

remedy the effects of American’s discriminatory practice

on the market, guarantee a fair opportunity to all shippers

to compete for access to American’s service, and also meet

American’s legitimate business needs.

Under the method of allocation required by the Order,

American will: (1) grant all forwarders and shippers

which will regularly utilize at least one container position

on the less sought after northbound return leg of the flight

at least one reserved container position on the southbound,

New York-San Juan segment; (2) allocate the remaining

positions on the southbound segment according to criteria

which take into account American’s need for northbound

shipments and other factors affecting American’s revenue

yield between New York and San Juan; and (3) review

and issue or reissue such allocations once a year. Al-

though the Order requires American to follow this method

of allocation until December 31, 1984, it does not require

Appendix 5

American to continue to operate overnight service between

New York and San Juan; the allocation system is required

only if American chooses to offer such a service, and if

demand for reserved positions on the service continues

to exceed supply.

This settlement agreement is consistent with the initial

referral of this matter to the Board, which occurred after

Century filed a private action against American in Fed-

eral District Court in New York, alleging that American

violated the Sherman Act and the Federal Aviation Act

in excluding it from this flight. American and Century

stipulated to a referral of the dispute to the Board and

requested a stay of the judicial proceeding pending the

Board’s review. The Court approved the stipulation and

granted the stay, without itself formally ordering referral

to the Board or issuing any instructions to it. Even if

the Court had formally referred this matter to the Board,

however, the Board would retain its normal discretion to

determine whether to institute an enforcement action, or

to proceed in some other manner. See Alaska Airlines,

Inc. v. Western Airlines, Inc. and Northwest Airlines, Inc.,

Order 77-9-122, p. 4.

In its review of this matter, the Bureau considered pos-

sible violations by American of Section 403, 404 and 411

of the Act, as well as possible violations of the Sherman

Act. The Bureau concluded that the public interest would

be fully protected by pursuing a remedy under Section

404 only, and this settlement secures relief—including a

modification of the allocation system initially challenged

in the court action—in settlement of these Section 404

claims. By resolving the matter in this fashion, the Board

Century has declined to enter into this settlement and

has objected to the allocation system required by the

Consent Order on the ground that it permits American too

Appendiæ 3

much discretion in choosing customers. We believe that

this objection is baseless. The allocation system repre-

sents a balance between the need to ensure that all for-

warders and shippers—whether currently on the flight or

not—have a fair and equal opportunity to compete, on the

basis of economic considerations, for access to the Ameri-

ean service, and the policy, under deregulation, of mini-

mizing government interference with a carrier’s exercise

of its business discretion. American’s discretion will be

restricted, but in a manner acceptable to it and consistent

with the economic realities of this market.

One key economic consideration in this market is direc-

tional imbalance; substantially more freight is shipped

by air southbound than northbound, and therefore obtain-

ing the relatively scarce northbound shipments is impor-

tant to operating a profitable round-trip flight. The allo-

cation system accommodates this economic factor, and

guarantees fair access to the American service, by pro-

viding that anyone who can regularly provide American

at least one daily northbound container will be granted

a southbound position. Competition for space on the flight

is further facilitated by limiting all allocations of reserved

positions to one year, and providing that American will

review all applications for space and issue or reissue all

allocations on a yearly basis. Beyond the initial guaran-

tee that anyone providing northbound shipments will be

given one reserved southbound allocation, the allocation

system permits American to select customers based upon

factors directly related to profitability, including solicita-

tion of northbound shipments and density and type of

goods to be tendered.

Nothing in this system authorizes or makes it easier

for American to engage in unlawful discrimination or

improper selection of customers. American has made a

substantial concession to facilitating competition among

forwarders in this market by agreeing to restrict alloca-

ty. |

Appendia 5

tions of reserved space to one year and to grant all

forwarders who can provide northbound shipments at least

one southbound position on its flight. Furthermore, since

it is not anticipated that the initial grant of one south-

bound position too each shipper providing northbound

shipments will fill the southbound flight, American is re-

quired to select additional customers based upon factors

which reflect the economic features of this market. Addi-

tional restriction on American’s discretion, we believe,

would be both unnecessary and unwarranted.

Wuererore, the Bureau requests that the settlement

be approved under delegated authority by issuance of the

attached Consent Order, the terms of which have been

negotiated and agreed to by American and the Bureau,

and that this proceeding be terminated.*

Respectfully submitted,

Revusen B. Rosertson

Reuben B. Robertson

Director

Bureau of Consumer Protection

James D. Tusstne

James D. Tussing

Senior Trial Attorney

Bureau of Consumer Protection

Dayton Lenman, JR.

Dayton Lehman, Jr.

Trial Attorney

Bureau of Consumer Protection

August 12, 1980

ne ESSE ans Daan sears he penekees 2

n a a 28, 1979.

settlement agreement motion papers

eT ae ee eS ee Ap-

pendices “A” and B“ set forth in Aprenprx 2 of this petition.

APPENDIX 5 (ANNEX)

Proposed Consent Order Annexed to Motion

UNITED STATES OF AMERICA

Crvm Agronavutics Boarp

Wasurneron, D. C.

Issued under Delegated Authority

Docket 37278

American Arauoves, Inc.

New Yorx-San Juan Cano Service

Enforcement Proceeding

Consent ORDER

The Bureau of Consumer Protection (‘‘Bureau’’) com-

menced this proceeding on December 14, 1979, alleging

that American Airlines, Inc. (‘‘American’’) violated sec-

tion 404(b) of the Federal Aviation Act by unjustly dis-

eriminating against various air freight forwarders in allo-

cating space on its New York-San Juan overnight cargo

flight, currently designated American’s Flight No. 841.

The Bureau alleged that American’s manner of allocating

space on this flight caused public injury by preventing

development of a fully competitive freight forwarding

service between New York and San Juan. The complaint

requested that American be ordered to cease and desist

from allocating space on Flight No. 841 in an unjustly

discriminatory manner, to institute reasonable allocation

practices with respect to main deck A' container space

on this flight, and to pay civil penalties. American an-

swered denying the substantive allegations of the Bu-

reau’s complaint and specifically denying any violations

of the Act.

Appendix 5

On August 12, 1980, prior to any adjudication of facts,

American and the Bureau e::‘ered into a memorandum of

agreement (Appendix A to this Order) to settle this mat-

ter without the need for further litigation. American has

not admitted any of the allegations of the Bureau’s com-

plaint; but solely for the purposes of settlement, Ameri-

can has agreed for this proceeding not to contest the alle-

gations stated in the Bureau's complaint or the findings

and conclusions set forth in this Consent Order. Ameri-

can has also agreed, for purposes of settlement, to adopt

the proposed allocation procedures set forth in Appendix B

to this Consent Order. The statement of those procedures

in Appendix B is controlling, but they can be summarized

as follows. American will: (1) grant all forwarders and

shippers which will regularly utilize at least one A“

container position on the less desirable northbound return

segment of the flight at least one reserved container posi-

tion on the northbound, New York-San Juan segment;

(2) allocate the remaining positions on the southbound

segment, if any, according to the criteria set out in Appen-

dix B; and (3) review and issue or reissue such alloca-

tions once a year. American has also agreed to pay

$50,000 in full settlement of any civil penalty liability.

The Bureau alleges the facts to be as follows. Since

1971, American has operated the only regularly sched-

uled, overnight all-cargo service on week nights from

New York to San Juan (originally designated Flight No.

801, now Flight No. 841. Access to this service is de-

sirable for air freight forwarders competing, or seeking to

compete, on this route because the flight is scheduled so

that shippers in New York can have next morning delivery

in San Juan. However, since 1971, various forwarders

have held allocations of indefinite duration for all twelve

of the main deck A'“ type cargo container positions in

the Boeing 707 aircraft American has used in this opera-

— ͤ — N r

Appendia 5

tion. From late 1971 through mid-1978, all twelve such

positions available were allocated to three forwarders—

eight to Profit By Air, Inc., three to Shulman Air Freight,

and one to Emery Air Freight. In August 1978, when

Shulman withdrew from this route, seven forwarders

asked American to take Shulman’s place, seeking a total

of between nine and eleven positions. The three Shulman

positions were subsequently divided among Air Express

International Corporation, Burlington Northern Air

Freight, Inc., and Bor-Air Freight.

The Bureau has further alleged that during the period

from 1971 to 1977, Century Air Freight, Inc. (‘‘Century’’),

an air freight forwarder based in New York, made numer-

ous requests for positions on American’s flight. Each

Century request during that period for an indefinite allo-

cation of A container space was denied on the ground

that all available space was committed. In May 1977,

“entury sued American in Federal District Court in New

York, claiming that American had engaged in an unlaw-

ful restraint of trade in violation of the Sherman Act by

agreeing with Profit By Air to deny Century space, and

that American’s actions also violated the Federal Avia-

tion Act. In September 1977, American allocated Century

the equivalent of one ‘‘A’’ container position on Flight

No. 841. However, Century contends that its freight has

often been broken out of its container and fitted into

whatever space is available on the aircraft, subjecting

Century to greater recovery time and higher frequency

of loss than if its freight were containerized. In August

1978, Century sought unsuccessfullly at least one of the

three Shulman positions then available.

This matter came to the Bureau's attention when Ameri-

can and Century stipulated that certain issues should be

referred to the Board under the doctrine of primary juris-

diction. At the parties’ request, the District Court stayed

Appendia 5

further judicial proceedings pending action by the Board

on Century’s complaint. Following an investigation, the

Bureau filed its complaint in this proceeding.

The complaint alleges specifically that since American

began its overnight all-cargo service from New York to

San Juan in 1971, American has allocated to a few for-

warders all the desirable positions on these flights—namely

the main deck ‘‘A’’ container positions—for an indefinite

period. When American allocates such a position to a

forwarder, that forwarder has a right to the position as

against any other forwarder, until such time as American

or the forwarder alters the arrangement. Such altera-

tions are rare, however, From late 1971 to mid-1978, the

same three forwarders held all twelve standard main deck

„A““ container positions on the flight. The Bureau con-

tends that this indefinite preference for some forwarders

for an extensive period of time, and indefinite exclusion

of others seeking the American service, violates section

404(b).

American has denied any violation of section 404(b) and

has raised affirmative defenses to the Bureau’s complaint.

American does not admit the legal or factul contentions of

the Bureau. However, for the purposes of settling this

proceeding, and subject to the conditions and limitations

of the memorandum of agreement, American consents to

the entry of this Consent Order.

Therefore, on the basis of the Bureau’s factual and

legal contentions, and American’s agreement not to con-

test them in this proceeding, we find that American vio-

lated section 404(b) in its indefinite allocations of space

on Flight No. 841. Transcontinental Bus System, Inc. v.

C.A.B., 383 F.2d 466 (5th Cir. 1967), cert. denied, 390 U.S.

920 (1968); Emery Air Freight and Air Midwest, Inc.,

Order 73-4-8 (April 2, 1973). We also find that the allo-

cation system which American has agreed to implement

in order to settle this proceeding will provide a fair reso-

Appendiz 5

lution of this particular case. It addresses whatever

effects American’s practice might have had on the route,

gurantees a fair opportunity to all shippers to compete

for access to American’s service, and is also tailored to

meet American’s legitimate business needs. The system

limits all reservations to one year and requires American

to consider applications each year from all forwarders and

shippers using basically the same criteria, regardless of

whether they have previously held reservations on the

flight. All shippers who tender shipments for the rela-

tively less sought after northbound segment will be guar-

anteed at least one reserved southbound position, and all

remaining positions will be allocated according to criteria

which take into account this and other factors affecting

American’s likely yield.

Although the system now agreed to is to operate until

December 31, 1984, there is no requirement that American

continue to operate overnight service; the system is ap-

plicable only if American chooses to continue to offer such

a service, and if demand for reserved positions on the

service exceeds supply. If, however, unexpected con-

tingencies arise, or American believes that it or its cus-

tomers have become unduly burdened by this allocation

method, our order expressly provides that American can

apply to the Board for appropriate modifications. More-

over, we will look favorably upon such an application if

American can demonstrate that this method of allocating

reserved space is unduly hindering the profitability of its

flight, since our intention im issuing this order is not to

intrude upon the exercise of American’s business judgment

within the limits of the law.

ACCORDINGLY,

1. We approve the settlement agreed to by American

Airlines, Inc. and the Bureau of Consumer Protection.

Appendia 5

2. American Airlines, Inc. is ordered to cease and desist

from engaging in any unjust discrimination against for-

warders, within the meaning of section 404(b) of the Act,

in its allocation of reserved A“ container positions on its

overnight all-cargo service between New York and San

Juan.

3. American shall deliver to the Director, Bureau of

Consumer Protection, a check or draft made payable to the

Treasurer of the United States in the amount of $50,000

within 7 days of the date this order becomes a final order

of the Board.

4. American shall follow the procedures set out in Ap-

pendix B to this order until December 31, 1984 in allocat-

ing reserved “A’’ container positions on its overnight all-

cargo service from New York to San Juan. American may

apply to the Board at any time for modification of this

procedure, and such modification shall be granted upon a

showing (i) that the procedure is unduly hindering the

profitability of American’s service and is unnecessary to

prevent unjust discrimination or the effects of any past

unjust discrimination; or (ii) that modification is war-

ranted by charges in applicable law or regulations.

5. This order is issued by authority delegated in 14

C.F.R. 385.11. Persons entitled to petition the Board for

review of this order under Board regulations, 14 C.F.R.

385.50, shall file their petitions within 10 days of the date

of service of this order. This order shall be effective as

fal action of the Civil Aeronautics Board after the 10

day period, unless a timely petition for review is filed or

the Board takes review on its own within that period.

6. This proceeding is terminated.

By Henry M. Switkay

Administrative Law Judge

Pays T. Kron

(Sxal)

Century’s Petition to CAB, May 1, 1981, for Review

of Law Judge’s Order, Annexing “Comments” in

Opposition to Motion to Approve Settlement.

BEerore THE

Crvm Agronautios Boarp

Wassrneton, D.C.

Docket 37278

American Arnuives, Ine.

New Yorx-San Juan Carco Service

Enforcement Proceeding

Century Am Fuxtonr, Ixc., a party herein, hereby peti-

tions the Civil Aeronautics Board, pursuant to 14 C. F. R.

385.50, for review of the Consent Order herein of Hon.

John M. Vittone, Administrative Law Judge.

1. The ground for this petition is that the Consent

Order embodies a premise that is, in a fundamental way,

contrary to law and involves a substantial and important

question of policy, in that

A. Contrary to and violative of the common carrier

status fastened on all-cargo air carriers by section

1002(k) of the Act and the concomitant obligation of

American Airlines, Inc. to carry, at uniform rates for

the same classes and quantities, such goods offered

for shipment by the shipping public as are within the

Appendiz 6

unbridled exercise of customer selection and rejection

on the part of American, save for American’s obliga-

tion to furnish one southbound container allocation to

each steady northbound shipper of one or more con-

tainers, all in violation of § 404 (b) of the Act, and of

§ 411 of the Act.

B. In violation of sections 1 and 2 of the Sherman

Antitrust Act, the ‘‘essential facility’’ doctrine

enunciated in Hecht v. Pro-Football, Inc., 570 F. 2d

982 (D.C. Cir. 1977), certiorari denied, 436 U.S. 956

(1978) and, consequently, §411 of the Act, the fore-

going grant by the Consent Order to American of a

practical right of customer selection, gives American

the absolute right, save for the one container south-

bound allocation for qualifying northbound shippers,

to exclude any member of the shipping public from its

essential facility.

C. The Consent Order would validate the prior ex-

elusionary and discriminatory practices of customer

selection and rejection upon which this Civil Aero-

nautics Board complaint was issued, in that it requires

no change whatsoever in the anticompetitive practices

of American which had prompted the issuance of the

complaint herein; and the southbound allocation for

Freight, Inc. in Opposition to Motion to Approve Settle-

ment are incorporated into this petition and made a part

hereof. The comments also show that the matter ad-

duced in this petition is not new, but was brought to the

attention of Board personnel at the staff action level.

Appendiæ 5

Wuenrerore we respectfully request that the Civil Aero-

nauties Board grant review of the Consent Order herein.

Dated: New York, New ‘ork

May ist, 1981

Miztow Horowrrz

Milton Horowitz,

Counsel for Century Air Freight

Ine., Charging Party

15 Park Row

New York, N.Y. 10038

(212) COrtlandt 7-0606

Micuaz. E. Veuve

Michael E. Veve, Of Counsel

O’Connor & Hannan, Suite 800

1919 Pennsylvania Avenue, N.W.

Washington, D.C. 20006 (202) 887-1400

a PX

APPENDIX 6 (ANNEX)

“Comments” of Century in Opposition to Motion

Berore THE

Crvm Agronavutics Boa

Wasuiveron, D.C.

Docket 37278

American Ams, Iwo.

New Yorx-San Juan Carco Service

Enforcement Proceeding

Comments or Century Am Freicut, Iwo. W Opposrrron TO

Morton to Approve SeTrLeEMENT

Century Air Freight, Inc. is opposed to this motion to

approve the proposed settlement between the Bureau of

Consumer Protection (BCP) and American Airlines, Inc.

(American) because we think the proposal is funda-

mentally and irretrievably illegal; an out and out program

of a right of unbridled customer selection by American as

a direct air carrier im head-on conflict with both the strong

carriers by Congress in its 1977 enactment for the regime

of deregulation, 49 U.S.C. 6 1482 (k); 5 1002 (k) of the

Act, and the antitrust interdiction, under §§ 1 and 2 of the

Sherman Act, found in the essential facility“ doctrine

perhaps best enunciated in Hecht v. Pro-Football, Inc.,

(D.C. Cir. 1977) 570 F. 2d 982, certiorari denied, 436 U.S.

956 (1978) which we feel, especially in the case of a statu-

tory common carrier, is unimmunizable under § 414 of the

Act. In this latter connection of a relevant market of con-

firmed air freight traveling from New York City to San

Juan on regularly scheduled cargo service, it is patent that

American’s Flight 841 service constitutes a facility es-

Appendiæ 6

sential to successful operations in this market. Since, as a

practical matter, air freight forwarders simply cannot

duplicate these services, the available space must be al-

located on fair terms reflecting proportionate shares of the

recurring and steady demand therefor if a settlement here

were to be compliant with the antitrust requirements of

Hecht. It seems to us that a noncompliant arrangement

such as the instant settlement proposes, would necessarily

be violative of section 411 of the Federal Aviation Act.

Since our quarrel is fundamentally with the proposed

settlement itself, seeking CAB sanction for future conduct

which, it seems to us, is necessarily violative of Congres-

sional mandate, we do not seek to raise any factual issues

here. Nevertheless, to avoid the confusion of seeming

agreement in important background matters where Ameri-

can and Century are at issue we point out the following:

a) Century denies the statement attributed to

American on page 2 of the Motion,

%% that it [American] offered Confirmed Air

Freight space on its overnight freighter on a first-

come, first-served basis, that Century was offered

space in 1971 on such a basis and rejected it, and

that Century’s subsequent requests for recurring

reservations of space could not be satisfied by

American because the flight had been filled

and states that never did American offer space to

Century on a first-come, first-serve basis—and in

August 1978 when Shulman’s demise opened three

„A““ container positions on Flight 841, the priority

of Century’s long-standing requests availed it nothing

against three newcomers.

b) It is distortion by omission to say as page 2 of

the Consent Order says, that the matter came to the

CAB’s attention by stipulation. The record fact is

Appendiz 6

that American as district court defendant moved dis-

missal of Century’s court complaint on the ground that

the CAB had exclusive jurisdiction of the matter, and

that Century, instead of opposing, stipulated for the

CAB to give the matter whatever attention it elected,

if any, and the CAB advised the Court it had decided

to accept primary jurisdiction referral and would in-

vestigate the matter, whereupon the Court stayed the

action pending completion of CAB proceedings. But

the plain fact remains that, but for American’s pri-

mary jurisdiction motion, this matter would have pro-

ceeded in the district court without interruption and

without referral to this agency.

e) Completely accurate is the Consent Order state-

ment on page 2:

% In August 1978, Century sought unsuccess-

fully at least one of the three Shulman positions

then available.“

And it is the setting of that unsuccess, in August 1978

when the lawsuit had been commenced more than a year

before with Century gaining a one-position allocation,

before referral to the Board, aboard the much coveted

Flight 841 and with the matter then eight months under

investigation by the Board, that gave American the con-

fident belief that it could, with legal safety, cut Century,

now the second largest volume air freight forwarder in the

New York-San Juan trade, and stop any further access to

Flight 841 on its part.

The source of American’s confidence was the coming

suspension, to be effective November 9, 1978, of the decades

old provision, under section 404 (a) of the Act, spelling out

the essence of common carrierhood—the duty to carry on

reasonable request. The Board’s draft Memorandum of

July 24, 1978 gave every indication that henceforth the

”

Appendiæ 6

operator of aircraft would be free of this duty and there-

fore at liberty to pick and choose his customers—and ex-

elude the unwanted.

Thus the Memorandum of July 24, 1978, pp. 14, 15:

“The proposed exemption from section 404(a) of the

Act would * * * relieve the carriers from the

requirement to carry ‘upon reasonable request. (p.

14)

and at page 15 of the draft:

Our proposed exemption from the duty to carry on

reasonable request is not based on our own inability

to enforce the duty, but rather our tentative view that

his ‘duty’, too, should be a matter of normal com-

mercial decision-making rather than a thing deter-

mined under the law. The marketplace appears to

function quite well in determining such matters as

what kinds of foods are stocked by supermarkets * * *

and we see no reason why a free-entry system will not

work as well with domestic air freight.

„The exemption from most of subsection 404(a) of

the Act that we are here proposing does not, of course,

extend to subsection 404(b), and we propose to con-

tinue our present authority to correct rates that are

discriminatory, preferential, or prejudicial. * * *’’

The draft Memorandum of July 24, 1978 preceded and

undoubtedly formed the ‘‘legal’’ basis for American’s

anticipations of an administrative permissiveness towards

its August 1978 denial of any space in the vacated Shulman

block to Century. But a draft is only a draft.

The Board scheduled public hearings and argument on

the proposed regulations for October 19, 1978, and Cen-

tury’s counsel addressed the Board (page 111 of the steno-

graphic transcript)

Jam here to express concern, in the name of

deregulation [over] the removal of the competitive

Appendiz 6

protection of common carrier status from 418, and I

will say, in quotes, [de] regulated’ all-cargo carriers.

At the same time, as has been pointed out,

Congress has been very specific from the preamble on

down through the modification of 102 in saying, no

unjust discrimination, no undue preferences, no

predatory practices, no discriminatory pricing, and I

think that this Board owes it to the industry and to

the public to go slow on a complete turnabout of what

is a fundamental concept in keeping the competitive

channels free and open.“

Five days after the hearings of October 19, 1978, the

1978 deregulation enactments were signed into law.

The new Rules, Regulation ER-1080, issued on November

9th, 1978, while exempting cargo carriers from the duty to

carry on reasonable request, not only explained a rather

limited scope to that exemption, but gratifying and

strongly preserved the common carrier status and obliga-

tions of scheduled all-freight air carriers. Thus at pages

11 and 12 of the new Regulations:

Porr to Carry

„The Board is also exempting carriers in domestic

cargo transportation from the duty under Section

404(a) of the Act to carry on reasonable request, for

the reasons stated in EDR-359 (pp. 1415). Many

respondents opposed this exemption, claiming that the

carriers would take advantage of their freedom from

a legal duty to carry by refusing to transport out-

sized, perishable, and other kinds of cargo, such es

live animals.

This ecemption, however, does not relieve the car-

riers of their service obligations as common carriers,

Appendiæ 6

and does not appiy to a carrier’s duty to refrain from

providing preferential treatment to particular com-

panies or persons. Carriers holding certificates under

section 401 or 418 of the Act remain, by definition, com-

mon carriers. The statutory duty to provide service

upon reasonable request is broader than the service

obligations of a common carrier at common law. At

common law, a carrier is permitted to hold itself out

as a carrier of only a particular kind of freight, and it

is not obligated to carry other types of cargo. This

exemption, therefore, only ends the Board’s role in

regulating the extent of the carrier’s service offer-

ing, (emphasis supplied)

It was Congress’ venement insistence upon fastening the

obligation of a common carrier upon operators of com-

mercial scheduled cargo carrying aircraft into the scheme

of deregulation that prompted the Board, in its actual

Regulation, to indicate how limited was the sweep of the

suspension of 404 (a)’s ‘‘duty to carry on reasonable re-

quest. The text of subsection k, added to section 1002

of the Act in 1977 is annexed to these comments, and it is

noteworthy that the phrase common carrier“ is used no

less than 12 times in the subsection.

Section 102 of the Act, as amended and added to by

Congress in 1977 and 1978, shows a clear and strong Con-

gressional purpose in its deregulation scheme not to cast

the industry adrift in a dog eat dog domain without brake

on the ability of the strong to despoil the weak—ironically

the most anticompetitive measure imaginable—but rather

to give the Board a powerful and central role in keeping

the channels of true competition free and open. Again

and again, section 102, both for general and explicitly for

all-cargo service, directs the Board to act against dis-

crimination, preferences, and unfair or deceptive practices.

~~ oe

Appendiz 6

The 1978 addition of subsection (7) to section 102 (a) of

the Act could not be more explicit in describing a Board

duty to preserve to the greatest extent possible freedom

from restraint of access of the shipping public to carriage:

**102 (a) (7). The preventation of unfair, deceptive,

predatory, or anti-competitive practices in air trans-

portation, and the avoidance of —

(A) unreasonable industry concentration, exces-

sive market domination, and monopoly power; and

(B) other conditions;

that would tend to allow one or more air carriers un-

reasonably to increase prices, reduce services, or ex-

clude competition in air transportation

and yet the Board is being asked to approve a settlement

that, save for an inconsequential duty to match one Flight

841 A container allocation to those undertaking the

steady use of one or more container positions on the north-

bound turnaround flight, reserves to American a complete

and unlimited control in the selection of its customers—

with a concomitant right of exclusion of those shippers

whom American chooses, for any reason whatsoever, not

to accommodate. The proposed settlement requires noth-

ing of American that it has not been doing since September

1977 when it yielded the equivalent of one container posi-

tion aboard Flight 841 to Century before the matter was

referred to the Board. So much the Motion for Approval

acknowledges :

Beyond the initial guarantee that anyone

providing northbound shipments will be given one re-

served southbound allocation, the allocation system

permits American to select customers based upon

factors directly related to profitability, including

solicitation of northbound shipments and density and

type of goods to be tendered.’’

But, should Century desire additional container space

Appendiæ 6

aboard Flight 841, paragraph 10 of the Memorandum of

Agreement between American and BCP provides, whatever

the euphemisms of expression, for a recognition of the

possibility that Century may trade off its district court

suit for additional space:

**10. It is understood that American may, consistent

with the requirements of the allocation system con-

tained in Appendix B to the Consent Order, allocate

reserved main deck ‘A’ container positions on Flight

No. 841 to Century as part of any resolution of the

private suit now pending between American and

Century.“

Many cynical people would read the foregoing in a

practical way to mean that for Century—and for Century

alone—more space aboard Flight 841 beyond one A' con-

tainer can be gotten only by trading off the suit.

We think that the notion underlying the proposed settle-

ment is that maintaining the economic health—profitability

—of an important actor in the industry, is the most im-

portant objective of deregulation. That may be so, but it

is also a more paramount truism that a beneficial objective

does not save that which is accomplished by an illegal

means.

Whatever the areas of Board discretion, and in this

agency they have been broad indeed, the outer limits are

measured by the legislative grant. When Congress men-

tioned ‘‘common carrier’’ no less than 12 times im section

1002 (k), its new regulation for all-cargo carriers in the

era of deregulation, it was not voicing some merely preca-

tory desire on the part of a lay legislative body that could

readily yield to the better advised expertise of an agency

set up to handle the sort of problems that arise in this

age of specialization. Rather it seems plain that Congress,

by enacting section 1002 (k) and section 102 (a) (7) was

Appendiæ 6

mandating to the Boaz d the duty to preserve common car-

rier principles alive among the all-cargo carriers, i. e., to

accommodate all shippers tendering the kinds of cargo

American would carry, and where such demand exceeded

the space, accommodating as equitably as possible, pro-

portionately within the practicalities of a rule of reason,

the allocations of available space. To these principles, the

proposed settlement requires no change at all in Ameri-

can’s existing practice other than to give wholly discre-

tionary ‘‘consideration’’ to applications. The northbound

container utilization requires giving no southbound shipper

any more space allocations southbound than he already

hes. As before Profit By Air, the largest forwarder in

the trade, has 8 main deck container positions, two-thirds

of the allocable space, while Century, the second largest

forwarder, has 1 container position, but it can get more if

it gives American quid pro quo on the district court law-

suit. Of the three who succeeded Shulman, Air Express

International, Burlington Northern and Bor-Air, Bor-Air

has dropped out of the picture since its custom went over

to Century. Still Bor-Air’s position has not gone over to

Century, and presumably the Bor-Air position is hanging

in American’s shop window waiting for a trade.

Thus it is apparent to us that the untrammeled right

of customer selection reserved to American in the proposed

settlement cannot be reconciled with permissible allocation

procedures consistent with the statutory status of Ameri-

can, as operator of Flight 841, as a common carrier.

To approve it would, we feel, be violative of the Avia-

tion Act and the Sherman Act. And the one thing an

administrative agency cannot do is violate its own Act,

Federal Maritime Board v. Isbrandtsen, 356 US. 481

(1958). And see Seatrain Lines, Inc. v. Federal Maritime

Commission, 460 F. 2d 932, 935 (D.C. Cir. 1972).

Appendiæ 6

We urge that the proposed agreement be disapproved,

and that the parties thereafter be given an opportunity to

work out a valid settlement.

Respectfully submitted,

Murox Horowrrz

Milton Horowitz,

Counsel for Century Air Freight,

Inc., Charging Party

15 Park Row

New York, N.Y. 10038

(212) COrtlandt 7-0606

Dated: August 28, 1980

Annexed to the Comments was a marked copy of section

1002 (k) of the Act; 49 U.S.C. § 1482 (k).

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.