# Opposition Brief — Hughes Tool Co. v. Trans World Airlines, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385602_0787%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1965 - **Citation:** 382 U.S. 842 ## Text 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 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.. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385602_0787%3A2. Public record. Not legal advice.