Opposition Brief — Hughes Tool Co. v. Trans World Airlines, Inc.

BE:

/ LIBRARY .

U.S.

sags pie: FILED

INTHE "| JUL 2 1965

| Supreme Court of the Hn Cate

OCTOBER TERM—1965.

No. 155 es

HUGHES TOOL COMPANY,

against

TRANS WORLD AIRLINES, INC., ie)

Petitioner,

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED |

STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

- + BRIEF FOR RESPONDENT TRANS WORLD .

’ AIRLINES, INC. IN OPPOSITION.

Joun F. Scum

. 80 Pine Street,

New York, New York 10005,

Attorney for Respondent, —

' Trans World Airlines, Inc.

| Cart S. Rowe,

25 Broadway,

New ‘York, New York 10004

' “Attorney for Respondent,

Trams World Airlines, Inc.

“Of Counsel: Boe s

Duntey B. Tawwey,

Marsnatx H. Cox, IR.,

Asranam P. ORDOVER,

80 Pine Street, |

New York, New York 10005.

July 2, 1965.°

INDEX

erent PAGE »

QUESTION PRESENTED © a> 's,

' COUNTERSTATEMENT OF THE CASE 2

Prior Board Proceedings 3

TWA/’s Antitrust Case 6

_ Tooleo’s Reacquisition Motion PP pe na etnias 7

The Board’s Order .u.cccccccjcccsscccsssssnossesisssesssessseec ae

The Court of Appeals Decision ........ icici

Reasons Wuy THE Writ SHovutp Nor Br Granrep .... 14

A. Tooleo’s Purchase of the Series A Notes

Would be an —- of Control ............ 16

B. The. Board’s 5 Order Violated the Hearing

~ Requirements of Section 408(b) ........ 21

C. The Narrow Issue Tendered by the Peti-

-tion. Does Not Warrant Review by This

Court ...... poet plea Te 24

(1) The Board’s tiga Theory oa

(2). Toolco’s Arguments, : 28

(3) TWA’s Standing to Sue ae

Conciusion | L 3

— OF AUTHORITIES x

Cases:

_ Alleghany Corp. v. . Breswick é Co., 353 U. S..151

(1957) sane 8, 19 -

Burlington Truck Lines v. United States, 371 U. S.

156 (1962) cngunasaetangceaeiaaks 24

California v. ‘Federal Power Ccraminsinn, 369 U. S. |

482 (1962) .. 24n

- Morgan v. United States, 298 U. S. 468° (1936) ibid - 23n

= v. United States, 304 U. S..1 (1988)... 23n

| | . PAGE

North Atlantic Route Transfer Case, 11. C.AB. 676

(1950) ae

Pan American. Airways, Inc., hasnisition: of Aero- ° ,

' naves de Mexico, 4 C:A.B. 494 (1943) 17

Pan American Airways, Inc., Acquisition of cate, “baa

de Guatemala, 4 C.A.B. 403 (1943) ....... 17

Pan American—Panagra Agreement, ‘8 ©. A.B. 50

~ (1947) piieecieiadcamciioaduel 17

t Railroad Control of Northeast Airlines, 4 C.A.B. 379 ,

I Ssh tiie aha cage haan dsapampil eatin ieeasnsonlah 17

- Rochester Telephone en v. United States, 307 U.S. |

125 (1939) | : 17,19 .

Social. Security Board v. Nierotko, 327 U. S. 358

(1946) inte tinetinimstaincaieinibinsacinsansenanedeanneaniitinneetsneres tates 25

: Touleo-Mexithedst- Control Case, CAB Order No.

K-18470 (1962), aff’d sub nom., National Airlines, —

Inc. vy. Civil Aeronautics Board, 391 F. 2d 380 (D.C.

eee, +: tae |.) Rpeerananers 9, 10n, 11, 12, 12n

Transcontinental & Western Air, Inc., Control by

Hughes Tool Company, 6 CAB. 153 (1944) nicely a

Transcontmental & Western Air, Inc., Further. Con-

trol. by Hughes Tool Company Y, 9 C.A.B. 381

(1948) 4,17, 27

Transocean-Atlas Case, Control Gad Interlocking Qs

lationships, 29 C.A.B. 622 (1959) 220... ee teeeeeeneeeee 27n

Trans World Airlines, Inc. v.‘Hughes, et al., S.D.N.Y. . _

Dkt. No. 61 Civ. 2324, 32° F.R.D. 604 (1963), aff’d.,

332 F. 2d 602 (2d Cir. 1964), cert. dismissed, as

- improvidently granted, Hughes Tool Company,

et al. v. Trans World Airlines, Inc., No. 443, 380 .

U. S. 248 (1965), Hughes Tool Company v..Trans .

World Airlines, Inc., et al., No. 501, 380 U. S. 249

(1965) . i 2, 6, 7, 9;10n, 11, 26n, 29 .

Trans World Airlines, Inc. v. Hughes, et al., Civil

Action No. 1607, Ch. Ct. Del., Newcastle County ... 6n

lil

- PAGE

Trans World Airlines, ines ‘Purther’ Control by

Hughes Tool Company, 12 C.A. B. 192 (1950) ....4,8,9,17 |

Civil Aeronautics Board ‘Orders:

Order No. E- 16195, Dowtet 1182 cee 2,

960) 4,5, 5n, 8, 26

Order No. E- 18470, Docket: 11620 (June 19, 1962) 9

Order No. E-10360, Docket Nos. 8061, et al.. (June

8, 1956) ° wi 8n

Order No. E-12604, Docket Nos. 8061, e¢ al. (June

4, 1998) «Sn

a

Statutes and Rules:

Administrative Procedure Act of 1946: Ss!

§5, 60 Stat. 239, 5 US.C. §1004 (1946) 00: §=©610 -

§5(d), 60 Stat. 239, 5 U.S.C. $1004(d) (1946) +n

Federal Aviation Act of 1958: .

£408, 72 Stat. 767, as amended, 49 U.S.C.

$1378 (Supp. V, 1964) .. 2, 3, 3n, 4,10, 11, 12, 16,

'20, 26, 27n, 28, '28n, 31

§408(a), 72 Stat. 167, 49 US.C. §1378(a)

(1958) ..... 3, 15, 16, 16n, 17, 22

§408(b), 72 Sta. 767, as amended, 49 U.S.C.

§1378(b) (Supp. V, 1964) ........6n, 15, 21, 22, 22m.

‘§1006(a), 72 Stat. 795, 49 US.C. §1486(a)

(1958) * 31

§1006(d), 72 Stat. 795, as saptaited, 49US.C. ..

§1486(d) (Supp. vy, 1964) 15.

Rules of the United States. Court of Apperls For

The Second Circuit:

Rule 25(b) aerenenense WARE

iv

PAGE :

Miscellaneous Authorities:

Annual Report of the Civil Aaronantion Board to

the Congress of the United States (1963) -......... 9n

Attorney General’s Manual on the Administrative. ;

- Procedure Act (1947) silt sak —238n :

; Howe and Senate Reports:

H.R. Rep. No. 2171, 86th Cong. 2d Sess. (1960) .. —-22n

S. Rep. No. 1344, 86th Cong., 2d Sess. (1960) :.. 22n

¢

IN THE °

; Supreme. Court of the Anited States |

' OCTOBER TERM——-1966"

No. 155

nee ae

HuaHEs Toon Company,

agamst

5

Trans Wortp Armuinss, Inc.,

—

_ ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

aa STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF FOR RESPONDENT TRANS WORLD.

‘AIRLINES, INC. IN OPPOSITION

Question Presented

The case involves a. single question:

Was the Civil Aeronautics Board (the “Board’”’)

required to hold a hearing, as Trans World Airlines, Ine. -_

_ (“TWA”) requested, before permitting Hughes Tool Com- :

pany—a company the Board kiew to be then engaged

in the terminal stages of bitter litigaton with TWA—to

réacquire voting control of TWA by purchasing certain

TWA securities from their present holders?

Petitioner,

&

2 2 e

What thie ‘peilttotion fiscal below), Hughes Tool —

Company (“Tooleo”), asks this Court to review is a

.narrow determination by the United States Court of

Appeals for the Second Circuit that the respondent TWA .

is éntitled to a hearing before Tooleo. can acquire-control

of it, both (a) because Section 408 of the Federal Aviation

Act (the “Act’’) expressly requires a hearing when a per-

son engaged, as Toolco is, in another phase of aeronautics

acquires control of an airline, and (b) because in any event

—in the unique circumstances of this case—the Board’s

denial of the hearing which TWA beige amounted to

an abuse of discretion:

‘All the Court of Appeals held was that such a ‘cut

was required. It did not reach, and had no occasion to

reach, the substantive question of whether or not Toolco

should be allowed to control TWA. .

The Board itself has not petitioned for review.

in

B,

“Counterstatemen: of the Cass .

. This case is another’ ‘incident in the basic controversy

‘between TWA. and Tooleo> the central facts of which

were presented to this. Court ‘last. Term in Hughes

Tocl Compaiy, et al. v. Trans World Airlines, Inc., No.

443, and Hughes Tool Company v. Trans’ World Airlines,

Inc., et al., No. 501. Certiorari was dismissed .in each

* of those cases as improvidently granted, 380 U. S. 248

and 380 U. S. 249. The exhaustive briefing there and the

Court’s resultant knowledge of the record facts. in the

larger controversy permit a summary statement here.

_ The petition arises. out of a last gasp effort by Tooleo

_to assume control of TWA through summary, non-hearing -

proceedings before the Board and thereafter to substitute

G. 3. te

for a judicial determination of TWA’s antitrust claims

against it whatever other ‘resolution Toolco might see fit

to dictate. ° Yaa: - 7 |

The decision below blocked this attempt by setting

aside and remanding Board Order No. E-21057 entered

July 10, 1964 in The Matter of the Application of Hughes

Tool Company for Approval under Section 408 of the ‘

Federal Aviation Act of 1958, as amended, of the Acquisi-

- tion of Control of Trans World Airlines, Inc., CAB Docket

* No. 1182 [A-202*]. * a

Prior Board Proceedings =

Docket No. 1182 was instituted.in 1943. Acting pursuant

_ to Section 408 of the Act, the Board in 1944 approved. the, _

acquisition of control.of TWA by Toolco, which was th

and still is a person engaged in an “other phase of

aeronautics” within the meaning of the Act.** Trans- .

' *-References with the prefix “A-” are to pages of the Appendix

to Brief for TWA filed with the Court of Appeals, ten copies of

which have been filed with the Clerk of this Court; references with

the prefix “R.” are to pages of the record in the Court of Appeals —

as certified by the Clerk of that Court.

** Section 408 provides inpertinent part: *

“(a) It shall be unlawful unless‘ approved by order of the

‘ Board as provided in this section— ’

* * *” * - *

_ “(5) For any air carrier or person controlling an air

carrier, any other common carrier, or any person engaged in

any other phase of aeronautics, to acquire control of any air

carrier in any manner whatsoever; * * *.”

TWA is of coutse a major American-flag domestic and international -

air carrier operating under certificates of public convenience -and

s

necessity granted by the Board.. Toolco is a vast industrial ganiza-

tion which includes among its many interests the devdlintases and

.

manufacture of- aircraft and related activities including the sale and *

leasing of aircraft; Tool¢o also resently controls Northeast Airlines,

Inc. (“Northeast”), an air carrier, but it has announced an intention

to divest itself of that control and TWA has neither the right nor any

desire to object to such divestiture. The issue presented to the Court

of Appeals was whether, assuming such dwestiture, TWA was -

entitled to a hearing before Toolco could acquire control of it.

GQ.

e

4 .

continental & Western Air, Inc., Control. by Hughes Tool

‘Company, 6 C.A.B, 153 (1944) [A-88]. Toolco had begun

purchasing TWA’s stock in 1939 and at the time of the

. hearing owned 46% of it. ‘

In a later proceeding the Board found that Toolco’s

acquisition of more TWA stock (which increased its own-

ership to 73% of that outstanding) amounted to a further

_ acquisition of control requiring Board approval under

* Section 408. Transcontinental € Western Air, Inc., Fur-

ther Control by Hughes Tool Company, 9 C.A.B. 381

(1948) [A-99]. Such approval was granted after a hearing.

Trans World Airlines, Inc., Further Control by Hughes

Tool Company, 12 C.A.B. 192 (1950) [A-187]. Beginning

in 1947; Tooleco nominated all TWA directors and con-

‘trolled, dominated and determined in all respects the man-

agement of the airline. Toolcd’s ownership of TWA’s

stock eventually rose to 78% of that outstanding. The

balance is widely held, presently by an estimated 13,000

public stockholders.

In December 1960, as a condition to a series of trans-

actions comprising a comprehensive plan to finance TWA’s

jet equipment program, Toolco deposited all its TWA

stock in a Voting Trust with three trustees. As part of

the financing plan, two lending institutions (Metropolitan

Life Insurance Company and The Equitable Life Assur-

ance Society of the United States) purchased “Series A

Sinking Fund Notes” from TWA, in the principal’ amount

6 $92,800,000 (the “Series A Notes”), and they continue

to hold all such notes outstanding. Two of the three Vot-

ing Trustees are now appointed by these holders of the

Series A Notes and the third by Tooleo. As a result of

these transactions, which were considered by the Board

in Order No. E-16195, dated December 29, 1960 [A-191],

By)

. plenary power to control TWA as stockholders passed to

the VotingTrustees.* __ |

' Under the 1960 transaction Toolco’ was given an option

to purchase the Series A Notes from the. holders thereof,

on certain terms. Exercise of that option would give

Tooleo the power to name all three Voting Trustees or

to terminate the Voting Trust, as it chose. However, in

referring to the possibility of Tooleo’s regaining control

of TWA, the Board said in its December 1960 order:

“* * * the Board wishes to make clear the fact

that it would: anticipate the proper filing of an

application under °section 408 of the Act ‘and the

obtaining of the approval of the Board before

Tooleo would attempt tc reassume control over

“TWA. It is clear that such ‘approval would not

be forthcoming without a Searching inquiry into

*The Board in that order summarized the significance of the

change in control as follows:

“Upon the Board’s grant of the requested modification of the

limitations of Order 3210, and the consummation of the refi-

nancing: plan, a significant and fundamental change will have

been accomplished in the control of TWA by Toolco. Upon the

execution of the Voting Trust, the Toolco control of TWA will

change drastically in both form and substance. No longer will

the directors of Toolco be free to enforce their dictates or those

of Toolco’s controlling shareholder on TWA. Only one of the

three voting trustees will represent directly these interests. Two

of the voting trustees, selected by the financial institutions, will

_ be independent of Toolco and of Mr. Hughes.

“The voting trustees will not be restricted in their power to

approve further financing for TWA, nor in their ability to sell,

' lease, transfer, hypothecate or otherwise dispose of, or manage

TWA’s assets. -In short, their power to control TWA is as

plenary as that of. Toolco and its controlling shareholder”

[A-195-96]. 3

yee

a

nN

6 | os

‘the. public interest factors affecting this control.”.

(Footnotes omitted.) [A-198]* 7

_\TWA’s Antitrust Case

Creation of the Voting Trust and the election by the

voting trustees of an independent board of directors gave

.. 'WA—for the first time since Tooleo began acquiring its

stock in 1939—a management wholly independent of

Tooleo. One of the early acts of this management was to

retain independent counsel to investigate whether TWA

had legally enforceable claims against any other persons . ~

or corporations. On June 30, 1961, upon the recommen-

dation of such counsel, TWA brought suit in the United

States District Court: for the Southern District of New

_ York against Toolco, Toolco’s 100% ‘stockholder and con-

trolling person Howard R. Hughes (“Hughes”), and a

Tooleo executive, Raymond M. Holliday. Trans (orld

. Airlines, Inc. v. Hughes, S.D.N.Y:, Docket No. 61 Civ.

2324 (the “antitrust. case”). -In that action TWA sought

damages and equitable relief, including divestiture of the

TWA stock owned by Toolco, for injuries it suffered as

a result of Toolco’s violations of the antitrust laws and

other wrongful conduct.**

*Toolco argues that the court below misconstrues this order in

stating that the Board anticipated a Section 408(b). application and’

hearing before Toolco would attempt to reassume control over TWA °

(Petition, p. 6n). The Board’s decision was not misconstrued.

Under Section 408(b) ‘of the Act, except when control is not af-

fected, a hearing is mandatory on any application filed under Section

408—and the Board expressly stated.that such an application should

be filed. Moreover, the Board’s statement that its approval’ would

-not be forthcoming. without “a: searching inquiry into the public in-

terest factors affecting this control”, leaves no doubt that the Board

contemplated a hearing which would be intensive as well as extensive.

**On April 18, 1962, TWA brought’ a second action’ against

Toolco and Hughes in the Chancery Court of the State of Delaware,

Newcastle. County (Civil Action No. 1607), seeking damages and

equitable relief for, inter alia, injuries suffered by TWA resulting

from the breach by the defendants of their fiduciary duties in the

exercise of control over TWA.. That action also is still pending.

7

t

. As this Court is aware from its consideration last. .

Term of the record in No. 443 .and No. 501, Toolco

defaulted in the antitrust case early in 1963, and an order

for a default judgment in TWA’s favor was entered by

the District Court on May 3, 1963; that decision is |

reported at 32 F.R.D. 604. In an interlocutory appeal,

the Court of Appeals for tlie Second Circuit on June 2, |

1964 affirmed the District Court’s decision that TWA’s

complaint stated a good cause of action over which the

-, District Court had jurisdiction and that prior orders of

-the Board were no defense thereto; in a companion

appeal decided in the same opinion, that court also

affirmed the District Court’s dismissal with prejudice of

certain counterclaims asserted by Tooleco. That cage is

reported at 332 F. 2d 602. This Court granted Toolco’s ©

petitions to review that decision of the Court of Appeals

(379 U. S. 912) but on March 8, 1965, after full briefing

and argument, dismissed the writs as improvidently.

granted. :

As ‘a result of these proceedings, all matters at issue

between TWA and Toolco in the antitrust ease now stand

concluded against’ Toolco and in favor. of TWA, except

determinations of how much Toolco is to pay to TWA in

damages and .f what equitable relief is to be granted.

The damages (alleged to exceed $45,000,000 before statu-

tory trebling) are to be determined after a hearing before

a Special Master, the Honorable J. Lee Rankin. Whether

-Tooleo should be divested of its.stock in TWA and what.

equitable relief TWA is entitled to are questions the

Distriet Court has reserved for decision.

Toolco’ s Reacquisition Motion

On April 29, 1964, while its interlocutory appeal in the —

antitrust case was sub judice before the Court of Appeals, —

ee

Toolco filed a motion [A3] before the. Board in Docket

No. 1182 in which (as elaborated by subsequent pleadings)

it stated its desire and intent to exercise its option to

acquire the Series A Notes and thereby invest in itself

complete control over TWA. Toolco asked the Board

either to disclaim jurisdiction over these transactions or

to grant such approvals and authorizations as were

required. , ;

Thereafter on May 7, 1964 TWA‘ filed its answer / the

Toolco motion [A-10]. Toolco filed a “Motion and Reply”

dated May 13, 1964 [A-47] and TWA filed a “Motion and

Reply” on May 22, 1964 [A-74].. National Airlines, Inc.

and Eastern Airlines, Inc. each filed a petition for leave ‘to

_ intervene [A-35, A-28], and an answer to Toolco’s motion

[A-40, A-31]. Tooleo opposed their intervention [A-44].

National also filed a reply [A-82].

At the time Toolco’s motion was put before the Board,

no adversary hearing inquiring into Toolco’s fitness to

control ‘TWA had been had since the conclusion of the

Further Control case in 1950.* The Board did not lack

notice, however, that charges of a most serious nature

had been made about Toolco’s relations with TWA, both

_ while it was in control of the airline and after the Voting

Trust went into effect. As early as Order No. E-16195

in December 1960 the Board itself had noted that “it is

evident that Tooleo’s control of TWA, as . exercised

_ through Hughes, has presented substantial problems re-

quiring the Board’s attention”. [A-197] and that it “would:

*Toolco’s motion filed May 10, 1956 seeking Board modification

of the original 1944 Control Order to permit it to sell up to 25 air-

craft of its own manufacture to TWA was abandoned after the Board

. issued an order instituting investigation into the matter ; consequently,

no investigation was ever held. CAB Order No. E-10360 ( Docket

Nos. 8061, et al., June 8, 1956) ; CAB Order No. E- 12604 (Docket

Nos. 8061, et al., June 4, 1958). | 4%

9

anticipate the proper filing of an application under section

408 of the Act and the obtaining of the approval of the

Board before Toolco would attempt to. reassume control

over TWA” [A-198]. Toolco’s relations with TWA while

in control of it were adverted to in the Toolco-Northeast

Control Case (to which TWA was: not a party), CAB

Order No. E-18470, June 19, 1962, aff’d sub nom., National

Airlines, Inc. v. Civil Aeronautics Board, 321 F. 2d 380

(D.C. Cir. 1963), although no evidence was received about

the charges nor were any findings made.

Finally, and most important, tkg Board knew of the.

charges set out by TWA in the antitrust case,* and that

Tooleo had made what its counsel called a “business deci-

sion” to default in that case rather than to defend against

- them when the cost of defending was to permit the truth

to come out in TWA’s discovery proceedings under the -

Federal Rules. — 4 | :

The Court is, of course, familiar with the charges in

TWA’s complaint [A-210 et seq.] in the antitrust case,

_ which were described in great detail in No. 443 last Term

(see, e.g., pages 15-18, 36-38, 123-143 of Brief for Respond-

ent in No. 443). Those charges primarily involve events:

subsequent to the Board’s last Further Control hearing in ~

1950 (12 C.A.B. 192 [A-187]) the most important of ©

which oceurred from 1955 on when the -conimercial air

carrier industry entered the era of jet transport. It

is clear, ‘moreover, that. the allegations of . the com-

plaint go immediately to the fitness of Tooleo to acquire. .

control of an air. carrier, since they allege that hereto-

*The Board summarized the complaint in its Annual Report to

‘Congress for 1963, at pages 59-60, as alleging that “* *- * the

defendants, while in control of an air carrier, had illegally exercised

such control to their own benefit and advantage in the area of the |

financing, purchasing, and the obtaining of equipment -by the -air

carrier.” sct7

>

oe

fore Tooleo has abused such control to advance its own

interests in the other phases of aeronautics in which

it engages—including the sale, leasing and production of

aircraft.* 3

Throughout the proceedings before the Board TWA

emphasized that the Board’s duty ‘to uphold the public

interest alone would require a hearing itito the facts of

Tooleo’s misconduct as they affect Toolco’s fitness before

_ permitting it to reacquire control of TWA, even if Con-

gress. had not—uas it has—expressly commanded such a

hearing in Section 408 of the Act and in Section 5 of the

Administrative Procedure Act [A-18-20.and “A-76-80].**

- * Apart from the allegations of the complaint which stand undenied -

‘ by reason of Toolco’s default, information relating to other abuses of

control by Toolco has been developed in the antitrust case. See, ¢.g.,

the description of tax manipulations by Hughes and Toolco in con-

nection with aircraft leasing by Toolco to: TWA which benefited

Toolco and injured TWA as described in Joint Brief for Additional

Defendants-Respondents, No. 501 last Term, dated February 18,

- 1965, pp. 18-21. . . ;

** The petition (p. 24) quotes language from the Board’s petition

for rehearing to the Court of Appeals referring to a staff inquiry into.

TWA’s antitrust claims in connection with the Toolco-Northeast

Control Case, supra. TWA’s answer to this petition for rehearing,

which has been filed with this Court as part of the present record

[R-479 et seq.], corrected the erroneous implication in this language

and placed the Northeast Control proceeding in its true context. As

was there pointed out (pp. 11-22 and Annexes A and B): (1)

_ TWA was not a party to the Northeast Control proceeding and had

‘no occasion to present evidence of Toolco’s misconduct, (2) the

limited inquiry which occurred was expressly stated by -the staff

to have developed evidence of wrongdoing by Toolco which the

staff wished to pursue, but such evidence was for cogent reasons

excluded by the examiner and the Board as irrelevant to the urgent

+ question of the.'survival of Northeast, then before the Board, and

finally (3) TWA was expressly advised in writing by the staff ©

almost immediately after this limited inquiry had begun that it

would not be pursued solely because of these exclusionary rulings,

and that, accordingly, no further evidence would be needed. :

The Board’s comments in its amicus curiae brief, filed last Term

in Nos. 443 and 501 (pp. 17-18), do not’ support Toolco’s implication

that a full inquiry had been made, and it is obviously significant that

no petition for certiorari has been filed on behalf of the Board in the

instant case.

11

In‘ opposing Toolco’s a TWA also called - ‘the

Board’s attention to the Board’s own prior statements

_ that. Tooleo had ceased to control TWA at the end of | .

~ 1960 and that any resumption of control would require an

application under Section 408 of the Act which would be

approved only after a searching inquiry [A-16-18], to the

Board’s reliance in the Toolco-Northeast Control Case on

the absence of any control by Tooleo over TWA [A-17],

and to Toolco’s repeated statements to the Board and to

the courts that it had no control over TWA [A-16-17].

Finally, TWA emphasized that Toolco’s reason’ for

attempting ‘to purchase the Series A Notes for: ver 100

million dollars and thereby. acquire control over TWA,

was. clearly to place itself in a position where it

could effectively bar TWA from prosecuting its pending

antitrust case against Tooleo to a final adjudication

[A-10-15, A-75-76]. The damageé~issues alone present a

-eonflict of interest between TWA and Tooleo of the most

obvious kind, and of monumental dimensions.

On June 2, 1964 and before the Board had taken any

action on Toolco’s motion, the Court of Appeals filed its

" . unanimous decision in the antitrust case, 332 F. 2d 602,

making it perfectly clear that the claims asserted there

against Tooleco were within the jurisdiction of the federal

courts and would be judicially determined.

The Board’s Order

On July 10, 1964, however, with no reference at all to

the decision by the Court of Appeals, without further

pleadings, without either briefs or oral argument, with-

out any hearing at all into Toolco’s fitness, and without any

notice in the Federal Register that it intended to dispose.

of Toolco’s application without a hearing, the Board

entered an order determining, inter alia, that:

(a) Its prior approval of ‘Tooleo’s original acqui-

sitions of control in 1944 and 1950 extended to the

12

proposed resumption of control by Tooléo even after

all power to control had in fact ceased for a period.

of years, Accordingly, no. approval by the Board

Was required except as to the limited question of the

- manner in whieh Tooleo proposed to divest itself.

of simultaneous control over Northenst | A-207-08 |,

(b) No heating on the subject of Tooleo's fitness

to control TWA was now required tebe held under

the “Act, and, sinee such issues had been considered

in the original hearing, no further hearing should

be held to avoid harassmient of 'Pooleo | A-208],

“(e) A hearing to ag Toolco’s. fitness to.

control TWA, at which its misconduct and_anti-

trust violations could be considered, together with

their grievous effect on TWA, would not “vindicate |

any statutory objectives” [A 208}.

(ad) The Board’s own statement in Order” No.

E-16195 that resumption of control over TWA by

Tooleo would: not be permitted without the filing

of an application under Section 408, and then only

after a searching inquiry, was'a dictum not: bind-

ing upon it which it would therefore disregard .

[A-208n]. |

- (e)_The Board’s cident in the Toolco-North-

‘east Control case, including its representations. to

the Court.of Appeals for the District of Columbia

which resulted in the affirmance by that court of

* the Board’s order,* that Toolco was not in control

of TWA, did not require it to assert jurisdiction

. except insofar as possible common control over

both TWA and Northeast was involved, and were

not inconsistent with its determination that control

over TWA had never been so relinquished by Tooleo

as to require further approval by the Board before

it could be reacquired [A-205-07].”

* National Airlines v. Civil Aeronautics Board, 321 F. 2d 380

@. C. Gr. 1963).

“Sah

1:3

The Court of Appeals Decision ’ ne |

Ten days later ‘'WA petitioned the Court of Appeals

to vacate and set aside: the Board’s order [R. 246]. On

August 4, 1964 that court entered an order granting

Toolco’s motion to participate in the proceedings as an

intervenor. The case was briefed on an expedited basis,

‘and oral argument was heard on September 25, 1964; on

_ December 7, 1964 the Court of Appeals unanimously ruled

that Paragraph. 2 of the Board’s order “is set aside and —

the case is remanded to the Board for action not incon-

sistent with this deeision”-[R. 358] (339 F29d at 64). The

court’s twin grounds were succinctly stated: |

“On the principal issue we hold that the Board

should have held a hearing before issuing its order

permitting Toolco to resume control of TWA and

that the declaratory ruling was an abuse of the

Board’s discretionary power” [R. 355] (339 Fy 24

at 62). rapier ; .

; Describing ‘the proceeding . under review as an “acquisi-

tion -of control” proceeding [R. 357] (339 F. 2d at 63),

and the Order as “an authoritative pronouncement” [R.

3096] (339 F. 2d at 63), “permitting Tooleo to resume con- _

trol of TWA” [R. 355] (339 F. 24 at 62), the court |

pointed out: Sica cass .

e

“Section 408(b) requires a hearing to determine <

whether the acquisition of control of ‘an airline is

in the public interest.” (Emphasis supplied.) [R.

355] (339 F. 2d at 62) | z

Since-“in view of the default in the antitrust action the

charges against Tooleo. stand undenied” and since these

charges “present a picture which is entirely ineonsistent

with the requirements of the public interest” [R. 355]

(339 F. 2d at 62), the court further ruled that, in exercis-

. cor

14°

ing any discretion it might have, the Board “could not |

properly rely on its 1950 order in granting permission to.

Tooleo to. resume control of TWA” since it had notice of

“changes in the situation during the period since 1950”

[R. 356] (339 F. 2d at 63).. .

Petitions for rehearing were filed both by the Board

and by Tooleo, and, after TWA had filed an answer,

_ both petitions were: denied. Since Toolco had: also sug-

gested that its petition for rehearing be heard in bane,

it was thereupon circulated to all of the active judges of

the court in accordance with Rule 25(b) of the Second

Circuit’s rules. .“No active circuit judge having requested :

that the case be reheard in banc, Judge Friendly not

participating in the consideration of . the petition, the .

- petition [was] denied” [R. 523].

‘Only the petition of the intervenor Toolco is before this :

Court since “no petition for a writ of certiorari has been

-filed on. behalf of the Board, and the time within which

such a petition could have been filed has now expired.

Reasons Why the Writ Should Not Be Granted —

, The operative ro of Order No. E- 21057 reads ° as

follows:

<a te oo declared that Tookeo may

exercise .its option to acquire the TWA Notes

described -herein at such time as it submits a. plan

satisfactory to the Board which would effectively

divest. Tooleo of the power to simultaneously con-

trol both TWA and Northeast; * * *” [A- 209].

~The Court of Appeals set aside that paragraph of: the

. Order. on the principal ground that, as a matter of law,

TWA was entitled to the hearing it had asked for before

the Board. could make’ the determination contained therein. .

_Contrary to what, Tooleo appears to urge, that court

+

.

15

neither substituted its judgment for that of the Board nor

‘assumed any duties or responsibilities entrusted to the

Board; it simply ruled that the Board had erred pro-

_-eedurally and remanded the case to the Board for that

- error to be corrected. In so ruling the Court\ of Appeals

. did nothing more than exercise the “exclusive jurisdiction

to affirm, modify, or set aside.the order complained of, in

whole or in part, and if need be, to order further proceed-

ings by the Board** * *” which Congress had granted to

it in Section 1006(d) of the Federal Aviation Act.

Its decision dealt with the unique but undisputed facts

. of this specific case; it ruled only that a hearing must be

,held when these peculiar facts are present. Review of

that decision by this Court is wholly’ unnecessary.

A. The decision below is plainly correct since

Tooleo’s proposed purchase of the Series A Notes

is.an acquisition of control of an air carrier by one

otherwise engaged in aeronautics within the reach

of Section -_ of the Act, and a hearing must be

held.

B. The decision is ales correct on its alternative _

ground that the Board’s refusal to grant the hear-

ing TWA, requested was, under the facts present,

and, in the light of the careful limitations’ imposed

by Section 408(b) of the Act, an abuse of such dis-~

cretion to deny hearings on disputed matters coming.

before it as the mone has been aesotded by

Congress.

C. In any event, this Court should deny review

since the impact of the decision below upon the

_ Board’s proeedures and air transportation generally

~ is, at most, minimal. (1) The Board’s order involved ©

only a narrow legal interpretation of unique facts,

unlikely to recur. (2) The arguments sought to be

16

made by Toolco are wholly remote f rom the facts of

' this (or any other) case. (3) Tooleo’s attack upon ‘

TWA’s standing to seek review is frivolous.

A. Toolco’s Purchase of the Series A Notes Would

. _ be an Acquisition of Control

TWA must of course be accorded the hearing it has

demanded if Toolco’s exercise of its option to acquire the

Series A~Notes is an acquisition of control within the

meaning of Section 408 of the Act.

From the-plain words of the statute* and prior inter-

pretations of those and similar words by the Board, other

administrative agencies and the courts, it is clear that

_ Tooleo’s contemplated purchase of the Series A Notes

brings it within the reach of Section 408. '

The Board’s order issued on the premises that Toolco

has not been in actual control of TWA since December

1960. [A-207-08] and that it will resume full managerial

control of TWA if it is permitted to exercise its option to

’ aequire the Series A Notes and terminate the voting

trust [A-208]. In short, and: as a practical matter, if

Tooleo purchases the Series A Notes, it will “acquire

control” of TWA in any usual sense of.the word.

Early in its existence the Board considered the meaning

of the word “control” in Section 408(a). In a series of

eases it reviewed the relevant authorities in other fields of

*The ‘inguage of Section 408(a) of the Act applicable to the

instant transaction provigles :

“(a) It, shall be unlawful unless approved oy order of the

Board as provided i in this s section—-

*

- “(5) For any air carrier.or person controlling an air car-

rier, other common carrier, or any person engaged in any

other yr te of aeronautics, to acquire control of any air carrier

in any manner. whatsoever; * * *.” (Emphasis supplied.)

17

the law, etitiodneks the law affecting publi¢ utilities,

and concluded that the eontrol to which the statute re- -

ferred was not a technical matter but was the actual prac-.

‘ tical power to influence another entity inthe conduct of ~

its affairs. See especially Pan American Airways, Inc.,

Acquisition of Aeronaves.de Mexico, 4. C.A.B. 494, 496

(1943); Pan American Airways, Inc., Acquisition of Aero-

vias. de Guatemala, 4 C.A.B. 403, 404-05 (1943). The

Board could have come to no other conclusion in the light

of the decision of this Court in Rochester Telephone Corp.

v. United States, 307 U. S. 125, 145 (1939).

‘Since the statute refers to practical control, and whether

that exists is a question of fact to be determined -after

considering all the evidence, the Board also decided in

these early cases that any substantial. increase “in the

extent or effectiveness of! control” constituted a separate

acquisition requiring the Board’s separate approval under

Section ,408(a). See ‘Railroad Control of Northeast Air-

lines, 4 C.A.B. 379, 381 (1943). This interpretation oi

“acquisitions” to include increases in the extent or effec-

tiveness of control has been consistently followed by the

Board in later decisions. See, for example, Pan. American- |

Panagra Agreement, 8 C. A.B. 50, 56 (1947) ; North Atlantic

Route Transfer Case, 11 C.A.B. 676, -682..(1950) ;. Trans-

continental & Western Air, Inc., Further Control by

Hughes Tool Co., 9 C.A.B. 381 (1948) ; Trans World Air-

lines, Inc., Further Control by nae Tool on y, 12

C.A.B. 192 €1950). -

That the Board’s approach in these seiie cases was

clearly correct is seen from this Court’s holding under ~

the somewhat similar provision of the. Interstate Com- .

merce Act. that a rearrangement of control through the |

merger of one subsidiary of aeons Corporation into -

18 °

another was “an acquisition of control” under that Act.

Alleghany Corp. v. Breswick, é Co., 303 U. S. 151 a

There the Court said:

“Not labels but the nature of the changed. sible

‘is erucial in determining whether a rearrangement

within a railroad system constitutes an ‘acquisition

of control’ under §5(2). ” 353 U. S. at 166.

The Court’s formula for determining whether a proposed

transaction was an acquisition of control was stated as

follows:

“Does the transaction. accomplish a_ significant

increase in the power of one over the other, for

example, an increased voice in management” or.

operation, or the ability to accomplish financial

transactions or operational changes with greater

" legal ease? This is the i issue, tere fe

169.

' As the Court said, since the sduiiiaks im be icant :

‘would not thereafter exist, it could not reasonably be

said that there had been no increase in the power of

Alleghany over such subsidiary: ,

_ “While it is not always profitable to isda ‘facet’

to ‘fiction,’ LaFontaine’s fable of the crow, the

cheese, and the fox demonstrates that, there is. a’

substantial difference between holding a piece of

cheese in the beak. and’ putting it in the stomach.”

353 U. S. at 170.

There is a similar “substantial difference” between

Tooleo’s ownership of voting trust certificates for TWA-

stock and.“full managerial control” of TWA which Toolco,

would acquire by purchasing the Series A Notes.

_.19

Toolco misreads the Alleghany case when it states that

‘thig Court there held that any agency determination as to

what constitutes an acquisition of control must be upheld

if a rational basis exists for the determination (Petition,

p. 14). What the Court in fact said was “* * * the finding

of the Commission that a given transaction does or does

not constitute a significant increase in the power of one

company over another is not to be,overruled so long as

“there is warrant in the record for the judgment of the

expert body * * *’” 353 U. S. at 169. In the instant case.

_the Board did not even purport to be making a finding as

to the consequent change in Toolco’s power over TWA, .

but viewed any such change as irrelevant to whether or

not exercise of the option was subject to the provisions of

the statute as to acquisitions of control |[A-207-08]. —

Tooleo similarly misreads Rochester Telephone Corp. v.

United States, supra. There the Court affirmed the finding . .

of the Federal Communications Commission, made only

after a full hearing, that a control relationship existed—

an issue not presented here—but was careful to point out

‘that the range of issues-open to review on appeal from.an

order of an administrative agency included questions

affecting not only the “basic prerequisites of proof”

but also “statutory authority”. 307 U.S. at 139-40. The

issue before the Court in the present. case was whether

the Board had statutory authority to act without a hear-

ing, at which proof would haye been adduced. None of the

other cases cited by Tooleo at page 14 of its Petition has

any relationship to the issues here presented and none of

them held that a court should not consider whether an

agency had. statutory authority to act: without a hearing.

While in effect disclaiming jurisdiction over Tooleo’s

reassumption of control of TWA, the Board recognized

Y

g

20

the practical change in control which must result from

- Tooleo’s acquisition of the Series A Notes and deter-

. mined that the transaction would have legal consequences

which éan result only from an acquisition of control within

the meaning of Section 408’of the Act. If it had not so_

decided, at least sub silentio, the Board (on its own reason-

ing) would have had no occasion to deny Tooleo’s request.

that it disclaim all jurisdiction ovér the matter raised.

Instead it held that Tooleq “could not lawfully resume

+eontrol of TWA” while in control of Northeast without

“prior. Board approval under Section 408 after hearing”

[A-206]. Such a ruling can be explained only on the

basis that a “person” (Toolco) “controlling an air carrier”.

(Northeast) would otherwise “acquire control of [another]

air carrier” (TWA) without Board approval: —

The Board had not previously passed upon the public

interest issues involved in simultaneous control of TWA

and Northeast by Toolco for the. obvious reason that it had

not thought, and had had no reason to think, that Toolco

- was in-control of TWA when it acquired control of North-

_ east after 1960. _ By ruling that it must pass on the

question of common.control (and hold a hearing) unless

Tooleo divests itself of all control of Northeast before

acquiring the Series A Notes, the Board can only have

concluded that acquisition of the Notes would, be an acqut-.

sition by Toolco of control of TWA. Identical reasoning

compels the Board to pass on the acquisition of control

alone (and to hold a hearing thereon), since Toolco, even

without Northeast, is otherwise engaged in a phase of

aeronautics. |

21

B. The Board’s Order Violated the Hearing Require-

ments of Section 408 (b) ‘

To the extent here pertinent, Section 408(b) of. the *

Act reads: ! | | ;

“Any person seeking approval of a [transaction]

_* * *) specified in subsection (a) of this section,

shall present an application to the Board, and

thereupon the Board shall notify the persons in-

volved in the. [tvansaction] * * *, and other persons

known to have a substantial interest in the pro-

- eeeding, of the time and place of a public hearing.

Unless, after such hearing, the Board finds that the ~ |

[transaction] * * * will not be consistent with the

_ public interest or that the conditions of this section

will not. be fulfilled, it shall by order approve. such

[transaction] * * *, upon such tefms and conditions

as it shall find to be just and reasonable and with

such modifications as it may prescribe: Provided,

That the Board shall not approve any [such trans-

action] * * <* which would result in creating a

monopoly or monopolies and thereby restrain com-. _

petition or jeopardize another air carrier not a

party to the [transaction] * * *: Provided, further, — |

That, in any case in which the Board determines

that. the transaction which is the subject of the

application does not affect the control of am air. ©

carrier directly engaged .in the operation of air-.

eraft in air transportation, does not result in ~

creating a monopoly, and does not tend to restrain

competition, and determines that no person dis-

closing a substantial interest then currently 1s -

requesting a hearing, the Board, after publication |

in the Federal ‘Register of notice of the Board’s

intention to dispose of such application without a

_ hearing (a copy of which notice shall-be furnished

by the Board to the Attorney General. not later

than the day following the date of such publica-

29

tion), may determine that the public interest does

mot require a hearing and by order approve or -

disapprove such transaction.” (Kmphasis supplied.)

There was no dispute that TWA had opposed the entry

of the Board’s order, requested a hearing and had none.

What the Board in effect did by its order was to

determine that Section 408(b) of the Act does not require —

a hearing in any case where the Board decides, as a

preliminary matter, that: the proposed transaction does °

not. come within Section 408(a). The effect of the ©

Board’s conclusion was to .claim for itself. the broadest

kind of discretion to deny hearings, under the very

section. in which Congress has been most careful to grant.

only a narrow discretion so to act, explicitly limited even

in the very special circumstances defined in the final

_ proviso of Section 408(b).to situations in which no inter-

ested party had requested one.* — | ,

It is pertinent to observe that, without exception, of the

eases cited above on page 17 of this brief dealing with

the interpretation of “control” under the Act, all were

decided only after a full evideritiary hearing on the facts. -

-* It is surely significant that both the House and Senate Reports

recommending to Congress thé adoption in 1960 of the final proviso

' to Section 408(b) explain the new proviso as intended to create in

the Board a strictly limited discretion to act in the absence of a hear-

ing, whereas under the statute as it existed before the amendment a

hearing was mandatory in all Section 408 transactions. ‘This new

discretion, however, was to ‘be available only in situations which

could not possibly affect control of an air carrier. See H.R. Rep.

No. 2171, 86th Cong., 2d Sess. (1960); S. Rep. No. 1344, 86th

Cong., 2d Sess. (1960). The Board made no attempt to comply

with the limitations on its discretion set forth in this proviso. For ~

it to.act in a matter of this magnitude without-a hearing was so plainly

.. contrary to the desire of Congress’as to be a clear abuse of discretion,

as the Court of Appeals ruled, y xt

“ e

aS

' . 23

This is as true in those cases in which the Board found

that no control existed, so that no Board approval was

necessary, as in those cases in which the Board found

that control did, exist and that it therefore had jurisdic-

tion.: _ re rte ey A

The reason for this practice is obvious. When approval

is asked of a transaction possibly involving an acquisition ;

of control, entry of an order ‘disclaiming jurisdiction is

just as effective to permit consummation of the transaction

as the entry of an order approving it. Consequently, for

the Bodrd to grant such a disclaimer of jurisdiction with-

out a hearing in any case where, as here, one ‘having a

substantial interest Has objected runs directly contrary to

the manifest intent of Congress that all questions involv- —

ing control or possible control should be fully investi-

gated.*

* Even if the Act itself did not specifically require a hearing, the

_ provisions of the Administrative Procedure Act would still have

required one to be held.. The Board’s order was clearly declaratory

in nature, and Section 5(d) of the Administrative Procedure’ Act,

5 U.S.C. § 1004(d), authorizes an administrative agency to issue a

declaratory order only in cases of “adjudication required by statute

"to be determined on the record after opportunity for an agency hear-

ing.”- See Attorney General’s Manual on the Administrative Prom

- cedure Act, p. 59 (1947). ‘Since the Board’s only authority td issu

a declaratory order must be found /|in the Administrative Procedur

Act—Congress having granted it none in the Federal Aviation Act

or other ‘applicable statute—the décision of the Court of Appeals

setting aside the Board’s order for failure to hold a hearing can be

sustained on Administrative Procedure Act grounds as well.

Moreover, denial of a hearing under the circumstances here offends

not only the Act but the principles of ae ag due process outlined

in the Morgan cases. organ v. United States, 298 U. S. 468

(1936) ; Morgan -v. United States, 304 U. S-1 (1938).

24

C. The Narrow Issue Tendered by the Petition Does |’

' Not Warrant Review by This Court

The basic poverty of the petition’s arggments is illus--

trated by Tool@’s recurring compulsion to characterize

proper court review of agency action as interference in:

the administrative process.* The Court of Appeals, for.

example, is at one point accused of attempting to sub-

stitute “predetermined legal principles” for “policies enun-

ciated by the [Board]” (Petition, p. 16):

Stripped of semantic obscurity, Toolco’s argument is a

bald contention that no ‘court can ever review: agency

action lest administrative expertise should somehow be

derogated; the answer is to be found in this Court’s

decision in Burlington Truck Lines v. , United ‘States, 371

U.S. 156, 167 (1962):

“Kixpert dise retion is the lifeblood of the adminis-

trative process, but ‘unless ‘we thnake the require-- —

. ments for administrative aetion strict and demand-

ing, expertise, the strength of modern government,

- ean become a monster which rules with no practical

_ limits on its diseretion.’” New York v. United States, —

842 U. S. 882,\884 cee opinion ).” (Footnote ,

omitted.) y

* A-truer perspective of the real issues would result in’ emphasiz- .

ing a quite different, but equally basic, principle. When, as here,

an agency decision might impair prosecution of a pending antitrust -

‘suit, the proper appellate function of a court is, as this Court has

stated :

“* * * to see that the ‘policy entriated to the courts is not frus-

. ‘trated by an administrative agency. Where the primary juris-

diction is in the agency, courts withhold action until the agency

has acted. Texas & Pac. R. Co. v. Abilene Oil Co., 204 U. S.,’

426. The coriverse should‘also be true,-lést the antitrust policy

whose enforcement Congress in this situation has entrusted to

the courts is in practical effect taken over by the [administrative

agency].” California v. Federal Power Commission, 369 U. S.

482, 490 (1962). - .

.

> 14 Ya

25 % s)

' And even though the expert’ determinations’ of administra-

tive agencies are entitled to great weight, the courts still

retain their critically important function of judicial review.

As this Court said in rejecting an administrative interpre-.

tation of controlling statutory language in Social Security”

_ Board v..Nierotko, 327 U. S. 358, 368-69 (1946) : -

“The very fact that judicial ‘review has been

accorded, however, makes evident that such deci- .

. sions are only conclusive as to properly supported

findings of fact. Both [Labor Board v. Hearst Pub-

lications, 322 U.S. 111, 131, and Gray v. Powell,

314 U. S. 402, 411], advert to the limitations of

administrative. interpretations. Administrative de-—

terminations must have a basis in law and must be i

within the granted authority. Administration, when .

it interprets a statute so as to make it ‘apply to

particular circumstances, acts as a delegate to the

legislative power. * * * An agency may not finally

decide the limits of its statutory power. - That is a-

judicial function.” (Footnote omitted.)

The only question involved in this case is , an TWA

-—on the- facts present—was entitled to a hearing as a

matter of law; review of that narrow issue by this Court is.

not necessary since (1) the decision below determined

’ merely that the Board’s legal theory is incorrect as applied,

' to such facts; (2) Toolco’s petition ignore his sole issue

— to. concentrate instead on a host of irrelevancies, uncon-

nected with this case; and (3) TWA’s st ing to object

to the treatment accorded it by the Board is plain. —

(1) The Board’s Legat Theory. The Court of Appeals

in this instance did not review any exercise of expertise

‘ by the Board; it simply réviewed a Board ruling as to the

legal effect’ of certain prior Board orders on TWA’s right

a ae” oe

to a hearing, concluded that thé Board had decided that

legal issue wrongly, and_rethanded to the Board in order

that the Board might thereafter_consider the public inter-

' est questions raiséd.by Toolco’s application which it had

- not considered before. az

‘The Board had asked and answered the wrong neat

when it sought to determine whether its December 1960

order (No. E-16195) operated to terminate ‘or vacate its

1944 and 1950 orders approving previous. acquisitions of

eontrol by Tool¢o and coricluded , that the order did not

have that effect., It does not-matter whether Board orders

approving prior acquisitions have ri or will ever-

terminate, either by their own terms offby formal Board

action, since in any event those approvals could extend

only to the — acquisitions of control to which

they related. :

Section 408 is addressed not to the continuing state of

_being in control, but to specific trans ‘ions constituting

acquisitions of control.* -When a persen not actually in

control of an air carrier purchases securities which —

carry with them the legal right to exercise voting control

over that carrier, that transaction has a specific, separable,

readily identifiable effect, which, in the plain language

of the statute, can only be described as an acquisition of

control. Heretofore, the Board has expressly rejected the

contention that its approval of a specific acquisition of

control confers some kind of perpetual carte blanche on

the acquirer ; in 1948, reférring to a similar Tooleo conten-

* As the Board itself stated in its amicus curiae brief in Nos. 443

and 501, last Term: - "y

“Section 408 requires the Board to a e only an ‘acquisition

- of control’; it does not give the Board continuing responsibility

aa ee eee

. Carrier. (p. a

. os oa Oe gee

Soha eet ona ” : d

, tion as to the effect of its 6riginal 1944 order in this case,

the Board said:.— am ath Ee

|. “[ndeed, it would be unreasonable to assume that

our approval then of Toolco’s 45-percent stock inter-

est in TWA would forever. constitute an unlimited

ratification of any and all future acquisitions of —

» ownership interest in the carrier.” 9 C.A.B. at 389

[A-115}. ae , |

- The Board’s failure to understand the true situation |

before it: is indicated’ by its choice of the phrase “tempo-- _

rary hiatus in control” which suggests that it ‘regarded -

- Tooleo’s proposal as involving a pre-existing control which .

was to spring up again, after a temporary somnolence,

'. wpon the happening of certain extraordinary events not

‘themselves subject to the Board’s approval. But Toolco

- would not be the passive recipient of voting eontrol auto-

matically devolving upon it, for. what it proposes is a. .

major financial transaction initiated by itself, which will

cost it more than $100,000,000 and involves the purchase

of securities never before owned by it and which it has

no obligation to purchase. The admitted purpose and *-

- intent of the proposed transaction is to acquire the power

to vote 78% of TWA’s stock, a power which it could not |

otherwise acquire before 1970 when the voting trust will

expire.® | Seal eae aaa ae ae

' * Nor: is it material that the voting trust through which Toolco’s

~ surrender of control was effected had a life expectancy of ten years..

The Board has held that an acquisition of control limited to a short

period of time is within Section 408. Transocean-Atlas Case, Con-

trol and Interlocking Relationships, 29 C.A.B. 622, 624 (1959):

“* * *- a control relationship exists as long as either the power

to dominate or actual domination is present.” Even were Toolco’s

- right to reacquire control of TWA when the term of the voting trust

° expires in all respects indefeasible (contrary -to the Board’s 1960

_ ruling), the proposed reacquisition of conttol before the ‘scheduled

termination of the voting trust in 1970 is a separate acquisition of |

control for the period prior to 1970, and Board approval after hearing

is still necessary. 8

8 9°

‘Finally, and apartg from whether it rested upon a

tenable legal theory, the Board’s ruling was. concededly

narrow in scope; it was madeé “in view of the importance |

of * * * removing uncertainty as to the application of

section 408 to the ‘peculiar facts involved * * *” [A-

207] and purported. to deal with nothing beyond “the.

unique circumstances present here” [A-208]. Nothing in

the order indicates that the Board had any thought at .

-. the time that it was laying down standards to govern any

“ease broader than that before it.* In view of the narrow-

ness of the Board’s order, Toolco’s apparent contention ,

that the Court of Appeals was required not only to pass.

_ upon the.case before it but also lay down guidelines for

' other and different cases +(Petition, p. 18) is nonsense.

To have done so would have been the very sort of inter-

ference in Board affairs at which Toolco has elsewhere ;

in its petition inveighed. :

That no petition has been filed on behalf of the Board

hardly supports Tgleo’s s alleged concern that the decision

: _below_ will seriously handicap the Board in the future

exercise of its administrative and supervisory functions.

(2) Toolco’s Arguments. Most of the arguments urged

in the petition relate only tangentially, if at all, either to

* The congeries of horrors which Toolco contends will result from

the court’s decision are premised either upon misconstruction of what |

the court in fact did or upon unsupportable generalizations to other

entirely different cases. To take a single example, the financing of

_air carriers.can hardly be widely-inhibited by a decision that a one-~

-_'time controlling person subject to-Section 408 of the Act, who has

completely surrendered control of an air carrier and against whom

most serious charges of malfeasance toward that carrier stand un-

denied, should be subjected to a hearing into fitness before being

permitted to reacquire control of the air carrier—especially where the »

air carrier’ is then demanding such a hearing. Yet this is ail the ©

Court of Appeals held.

. iy. * | “

. 29 (

‘the decision. of the Board or to that of. the Court of

Appeals ‘reversing it. Tooleo apparently refuses to rec- |

ognize that the court’s sole determination was that, 1 in this : \

case, the Board should have held a hearing.

For example, the Court of Appeals never decided when’

vand under what circumstances a given relationship should *

be permitted between a: person’ engaged ‘in a phase of —

aeronautics and an air carrier” (Petition, p. (16), and in- - ;

deed could not have so decided since the Board had not —

considered Toolco’s fitness to ‘control TWA at all but—

. quite the contrary—had determined that Tooleo had’ the

legal right in any event to reacquire control under the cir-

cumstances present. Toolco’s talk of the “regulatory scheme ,

of the Act”, though reminiscent of its arguments in Nos.”

443 and 501, last Term, is meaningless. . ° Re,

- Nor did the court ever decide “when and aden what —

-» circumstances” Board orders approving.an acquisition of ©

control might be terminated (Petition, p. 19) since the only

question before-the court was whether the-orders in ques- -

tion had the legal effect upon shi deli aotinial ei eel cers

which the Board had ascribed to them.

* Toolco’s: statement that the court, by remanding for a.

hearing into: Toolco’s fitness to ‘acquire control of TWA,

“imposed upon the CAB its view that it is more con-

sistent Aca? the public interest for the lending institutions

to conti in control of TWA, even if that control i is in ©

violation of the Act, than for Toolco to assume exercise

of the control. which the CAB approved”. (Petition, p. 20)

is a plain absurdity. It is, however, an absurdity which |

~ exemplifies Toolco’s habitual reliance ‘upon various “non-

facts” without any record basis. Regardless. of what

‘ merit there may be to Toolco’s charges against the lend-

ing institutions (and Toolco’s choice to default in pros-

.

_@

‘ ;

TR Oe erode

2

ecutintg its charges reveals. its true opinion of their merit), 7

certainly the Board’s order did not reflect its judgment

that Téoleo; in preference to TWA’s present eee

should direct TWA.

The same references to “non-facts” underlie Toolco’s

curious argument that TWA’s minority stockholders would.

be better off in some undefined way if Toolco could but

regain control of TWA before the damage hearings (in

which TWA seeks some $150, 008, 000 from Toolco) ‘can

be held; for Tooleo to refer to “conflicts of interest”: in

this context, as it does ‘(Petition, p. 22), is ineredible.

‘More Alice in Wonderland reasoning can ‘be seen in

its claim that the Court of Appeals, by remanding to the

Board for a hearing, has deprived it of its “contractual |

right to exercise control over TWA” without affording it

“any hearing whatsoever” (Petition, p..21)—as if itewere

Tooleo which had demanded a hearing-and been refused-it. |

i Similarly, it. asserts | that the charges i in! TWA’s antitrust -

-merits” (Petition, p. 24) even though it was Tooleo’s own

decision to. default rather than let the truth come out which

has foreclosed it from any further hearing except as to ‘fhe .

amount of damages it must pay TWA...

As for Tooleo’s contention that TWA had available to

it other forms of. administrative relief against Toolco,

that would be wholly b beside the point-even-if true. TWA

"was entitled to the hearing it demanded and the Act-pro--

vides before Toolco should acquire control over it. ‘The

court held, as TWA had urged, that exercise by Toolco

of its option to acquire the Series A Notes amounted to

an acquisition of control as a matter of law, and a hear-

ing into Toolco’s fitness was thus required by Section.

t

Ba. |

anne

— >

at

408; alternatively, the court concluded. that the Board had -

abused its discretion when, over TWA’s objection and.

with knowledge of the serious charges in the antitrust .

.case, it ignored the clear intent of. Congress set out in |

Section 408 that no proceeding. under that Section affecting —

control should be determined without a hearing when a

person disclosing a substantial interest | is then demanding

one. - ,

(3) TWA’s tinder’ ‘to Sue. Tooleo? s final cousin

—that TWA is not a person “disclosing a substantial ,

‘interest” in the Board’s order—is frivolous. pig

What Toolco: overlooks is that the proceeding | from

which the relevant order résulted was a proceeding under

Section 408. The Board was" not’ interpreting contract

rights. Even on its own theory the Board was concerned

with orders issted in an.earlier Section 408 proceeding

__as to which TWA would hhave had clear standing simply

as a party to the proceeding in the course of —

those orders. were~ formulated..

In any case, as ‘the. Court of fewiols ack the |

standing requirement of Section a is liberal, and, |

_ clearly, ;

sustain TWA as the-‘vietim’ in this “‘sequisition of

—eontrol’ proceeding * * * possesses standing under

Beotion 1006(a)” [R. 357] (339 F. 2d at 63). -

3 Constesion

= The petition should be denied.-

- Respectfully, submitted,

- Joun F. Sowwerr, —

80 Pine ‘Street, .

— Be New York, New York 10005,

ee ee ane | Attorney for Respondent,

r 7 ee Trans World Airlines, Inc.

os - Carn S. Rows,

| ae es 25 Broadway, .

ee 8 + New York, New York 10004. ;

ve Le NW _. Attorney for Respondent,

ses e Trans World Airlines, Inc. :.

_ Of Counsel: >... eae :

Duvtey B. TENNEY,

MarsHat. H. Cox, JR.,

Apranam P. OER,

80 Pine Street, ~

- New York, New: York. 10005. .

« July 2, 1965..