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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_0465%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1982
- **Citation:** 459 U.S. 943

## Text

37

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
v.

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).

38
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

A.
*

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

40
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

42
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.

43
Appendiz 2
reasonable method of allocating space and to pay civil
penalties. While the Bureau believed that American also

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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

44
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

.

45
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

\

48
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.

re

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

50
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;

(c) the volmue of the applicant’s current
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.

51
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.

(C) American wii allocate for one year any remain-
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).

52
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

4

Amerroan Ami, Iwo.
New Yors-Saw Juan Cano Service

Enforcement Proceedings

sé
9

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.

54
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

55
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

56
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

57
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

58
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-

ae

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.

61
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-

a

62
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.

63
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,

64
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

65
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

ae
" 8

66
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.

(C) The findings required by subparagraph (A) (1) of
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)

67
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-

68
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.“

69
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 ;

(C) in excess of statutory jurisdiction, authority,
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.“

70

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

7

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

2

forwarder or freight forwarding competition between New
York and San Juan.

PETE
i
i

+
ff
i
ri
3

U

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

73
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

ee

74
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

75
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. |

76
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
2
eT ae ee eS ee Ap-
pendices “A” and B“ set forth in Aprenprx 2 of this petition.

77

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.

78
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

79
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

80
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-

81
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.

82
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)

2
2

er

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

4

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

84
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.

85
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

1

American Ams, Iwo.
New Yorx-San Juan Carco Service

Enforcement Proceeding

1

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-

87
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

88
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

”

89
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

90
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,

91
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

92
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

E
*

93
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

94
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).

95
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).

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_0465%3A2. Public record. Not legal advice.