# Petition for Writ of Certiorari — Trans World Airlines, Inc. v. Civil Aeronautics Board > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1111%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1968 - **Citation:** 390 U.S. 944 ## Text Y) ¢ . waster tv cise sebiiatsllitds se crim sntitie widebaipeicnl aia eercvens Office-Supremee Court, U.S. a LIBRARY | ; alana * SUPREME COURT. U. & DEC 9 1967 eee | “JOHN F.DAVIS, CLERK ‘ . Bod | IN THE ae | Supreme Court of the Huited States | October ‘Term, a007 ‘No. 897 4 , | oe “TRANS WORLD AIRLINES, INC, = | | | Petitioner, Vv. ORE ae we ¢ Pi . hi CIVIL. AERONAUTICS BOARD, | Respondent. Oo | PETITION FOR A WRIT OF CERTIORARI TO THE ‘UNITED STATES COURT-OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT 4 PEA pen ee -—- _ sneer cecmithieneatineniatel Cuartes Pickett, Cart S. Rows, 25 Broadway, New York, N. Y. 10004, Counsel for Petitioner. | “INDEX Opinions Below - Jurisdiction Questions Presented - Statutes Involved Statement of the Case The Temporary Transatlantic Mail Rates emu The ‘‘Offset’’ Phase of the veer Proceedings Through’ the First Decision by the | Court of Appeals. | ™_ Later Proceedings | L The Accelerated Amortization Issue - walle “A: The ‘Asoelerated . Amortization Statute poems 3B. TWA’e Investment in Emergency Facili- ties and Taking of Acoplerated metienadl tion C. The Board’s o_o Deprived TWA of the Statutory Benefit of Accelerated Amortization D. 7m Decision Below II. “The 1946 Tax Refund Teme ; ; A. How the Issue Arose 3 e = The Board’s Inconsistent-Logic 7 e ila aia ait Aline tet ot a ne es ter A ati can he athena al sitaisin dhAimmeni Deaton ath ii “ <_' gyeee - ‘TH. The Reresination Indemnities”” TSSUe . sisccsrmneo A. The Legal Liability to Pay TORE ' Indemnities’” M B. The Board’s Decision IV: ‘The Illegal Navigators’ Strike Issue pomranteling A. The Union ’s No-Strike Covenant meapeymaee B. The-Illegal Strike O.-The Meetings in the First Few Days of the Strike D. - The Union ’s Rejection of Mediation . se -E. The Settlement of the Strike ... F. The Board’s Theory A The Non-Existent Demand for “Ue conditional Surrender”’ Ps : 2. The Speculation That TWA Would | Have Gotten the Same Results by Capitulating Earlier : 46 3. ‘The Reliance on Concessions Wrung ° by Unlawful Economic Pressure as Evidence of TWA’s ——— a G. The Board’s Decision . Reasons for Allowing the Writ. I. . The Accelerated AMOTtiZAtion TSSte cccecresssscesrsesssees A. The Board’s Frustration of the Policy Underlying the Accelerated Amortization -Statute PAGE 13 13. 14 15 15 16 iT 18 > 18 19 22 B. The Board Eroded the Policy Underiving the Railway Labor Act and ALNA’ s No- — Strike Covenant INDEX iii a | | : 3 PAGE. ’ B. The Board Departed From the Recognized Method of Accommodating the Policies of the Accelerated Amortization Statute and ; ee Rate Statutes . 23 ! 1. The Basic Test of ‘Need’? ccummmmmen — 23 2. The ‘Actual Tax’’ Policy 4. fare, 8, Accommodation of §168 and -Rate eae _ Statutes by Tax ‘“‘Normalization’’ ....._. 24 "4. The Board’s Approval of $168 ‘‘Nor- | 7 -. malization’’ in Non-Subsidy. Rate | | Cases ae 26 5. The Subsidy Argument . 26 II. ‘The 1946 Tax Refund Issue . 30 : | | _ A. The Controlling Principles 30 wr asl _ _B. The Unsound Appeal to Authority 31 2 Pca The “Public Fise” Argument 33 ‘III. The “Termination Indemnities” Issue seine 33 A. The Basic Statutory Provisions . sii we B. The Basic Facts ' , 35 C. The Basic Principles -inecmenunumunintann 36 D. The Subsidy Argument : 39 IV. The Illegal Navigators’ Strike Isste nnn A. The Basic Public Policy Violated by the Illegal Strike : 40 41 = iv — EN DEX | 7 The Improper. Reliance on Conces- _ , sions Obtained by Illegal Duress ......... 2. The Improper Holding That TWA ‘Impfudently Did Not Capitulate Sooner to thé Illegal Duress cece — ©. The Board improperly Determined. That . * TWA Was seeieseins and Vnesompunpnt - Cenacle Kalontix A: Statutes Appendix B: Opinions of the Board Appendix C: ‘Opinion of the Court Below jorane ae _ Appendix D: J ndgment 0 of the Court Below iene TABLE or AUTHORITIES CITED Cases oe Abie State Bank v. Bryan, 282 .U. S. 765 (1931) Ainsworth Mfg. Corp. v. Commissioner, 23 T. C. 372 (1954) : Alabama- Tennessee’ Natural Gas Co. v. ‘ Federal Power Comm., 359 F. 2d 318 (5 Cir. ae"), cert. den, 385 U. S. 847 (1966) ... American Airlines, Inc.—Mail Rate Proceeding, 3. C. A. B, 323 (1942) American National Co. v. United States, 274 U. 8. 99. (1927) American Overseas, see American. Overseas Air-. lines, Inc. v. Cort Aeronautics Board, infra. ? Appendis B is — bound. PAGE 42 10 37 ie “S INDEX. ne Vv . aes PAGE American Overseas Airlines, Inc.v. Civil Aeronau- ° tics Board, 103 U. S. SEP. D. @ 41, 254 F. 2d 744 "Arkansas:Ollahoma Gas Co. v. Commissioner of In- - ternal Revenue, 201 F, 2d 98 (8 Cir. 1953) nO | Armstrong Paint ¢& Varnish Works. v. Nu-Enamel Corp., 305 U. S. 315 (1938) _— . 8l . Atlantic Refining Co. v. Public Service Cone, 360 U. 8. 378 (1959) - 98 ' Avco Mfg. Corp. v. Commissioner, 25 TC. 975 : (1956) annem ? . ° 37, . Bebchick v. Public Utilities eines: 115: U. 8. App.. . D.C. 216, 318 F.2d 187 7 aeons ont: den. 373 U. S. 913 (1963) , seni 37 Board of Supervisors. of Arlington County v. Virginia | Electric, a Power Co., 196 Va. 1102, 87'S: E. 2d 189 (1955) | 7, 26 .. Boone County Rural Electric Membership jue v. Public Service Comm., 239 Ind. 525, 159: N. E. 2d_ 121 (1959) , swam 7, 25,26 — Brotherhood of Railroad Seeiniie v. one: River & Indiana Rd. Co., 353 U. 8. 30 (1957) .... Brown-Forman: Distillers Corp. v. Comuilasicide. of Internal Revenue, 33 'T. . 87 (1959) um 30 Burlington Truck Lines, Inc. v. United States, 371 ° Ly ) ~ 21, 43 U. S. 156 (1962) .. Callanan Road Improvement de. v. United States, . 345 U. 8. 507 (1953) : | a 11,31 (1958) 5, 35, 39, 44 | hawlidilion of “Montaga-Dakoia Utilities Co., 103 : N. W. 2d 329 (N. Dak. 1960) .... ae > bh ae a ald al 21, 44 , MB satis ti i tts ari EB al whens 9 a o> vi’ | INDEX ‘ PAGE Calvert v. een Lighting ¢ & Power Co., 3698. W. 2d 502 (Tex. Civ. App: 158), writ of error re- . fused ' : 26 Re Capital Gains Proceeding, 27 C. A. B. 79 (1958) a Carnation Co. v. Pacific Westbound shes heianaaa 383 U.S. 213 (1966) - 22 ¥ Central Cuba Sugar Co. v. Commissioner of Internal - Revenue; 198 F. 2d 214 (2 Cir. 1952), cert. den. 344 U.S. 874 (1952) cnn 87, 38 | City of Detroit. v. Federal Power Comm., 97 U. S. App. D. C. 260, 230 F. 2d 810 (1955), cert. den. 352 U. S. 829 (1956) neuter by Doty BBs DD, LO Civil Aeronautics Board v. Delta Air. Lines, Inc., 367 U. S. 316 (1961) | 30 Commissioner of Internal Revenue v. Champion Spark Plug Co., 266 F. 2d 347 (6 Cir. 1959) nm 37. Contivental Tie. & Lasker Co. v. United States, 286 vor Uz 8. 290 (1932) poe Bly 38 | a Delta, see Delta ye Lines, Inc. v. Summerfield, infra. | m Delta Air Corp., Mail Rates, 4C. ‘A.B. 501 (A066) ae Delta Air Lines, Inc. v. Civil Aeronautics Board, 108 - U. S. App. D. C. 88, 280 F. 2d 636 (1960), cert. den. 364 U. S. 870 (1960) can. 35, 39, - Delta Air Lines, Inc. v. Summerfield, 347 U. 8S. 74 (1954) & 3, 4, 6, 11, 21, 26, 27, 30 Denver & Rio Grande ions Rd. Co. v. yunen - States, 387 U. S. 485 (1967) 22 . Domestic Service Mail Rate Investigation, Order H-25610 (Aug. 28, 1967) ..... _— 26, 28 é . ie € 77 F. 2d 324 (2 Cir. 1935) a 41 INDEX | ~ Vii ‘* PAGE. _ i Doric Co, v. f, er of Internal Revenue, 341 é ~ sF, 2d 967 (9 Cir. (1965) ..... 2 ' . 36 Drake Belories Inc. v. Local 50, American Bakery & Confectionery Workers International, faded CIO, . 370 U. S. 254 (1962) ” \ El. Paso Natural Gas Co..v. Federal Power Come; ae - 281 F. 2d 567 (5 Cir. 1960), cert. den. 366. U. S. 912 | (1961) . ' 3. 3 24 *Elgin, Joliet & Eastexn Rd. Co. v. Burley, 825 U. 8. 711 Ce) 7 41 a Machine Co. v. United ka 282 U. 8. oe (1931) - Federal paul Comm. v. United Gas Pipe Line Co. ie 386 U. S. 237 (1967) _ 7 oh. Frost & Frost Trucking Co. v. manent ‘Comm, 271 U. S. 583 (1926) 45 Frost Lumber Industries, Inc. v. Commissioner oF : Internal Revenue, 128 F. 2d 693 (5 Cir. 1068) mai 3r Garrity v. New Jersey, 385 U. S. 493 (1967 , eeneettanse 42, 45, “General Passenger-Fare Investigation, 32. C. A.B. : 291 (1960) : 22, 26 Glenshaw Glass Co., Inc®y. Convsnlasioner of Inter-. nal Revenue, 23 T. C: 1004. (1955) ' 30 ‘Hall .v. Federal Communications Comm., 99 U.-8. App. D. C. 86, 237 F. 2d 567 (1956) ; 31 Harrold v. Commissioner of Internal Revenue, 192 ; . 2d 1002 (4 Cir. 1951) 38 - Heloering v. Russian Finance: & Construction Corg. rs 38 =) a ie in viii on INDEX > Hornstein v. Paramount Pictures, Inc., 22 Mise. 2d 996, 37 N. Y. S. 2d 404 (N.Y. Cty. 1942), affd. 266 App. Div. 659, 41 N.Y.S. 2d 210 (1st Dept. 1943), affd. 292 N. Y. 468, 55 N. BE. 2d 740- (1944) aeseneen International dati of Machinists, AFL-CIO v. Cen- tral Airlines, Inc., 372 U. S. 682 (1963) nunmunansnn 3 Investigation of the Local Service Class Subsidy Rate, Order No. H-23850, June 23, 1966 reer Ken Rad Tube & Lamp Corp. v. Commissioner of Internal Revenue, 180 F. 2d 940 (6 Cir. 1950) nents Ker v. California, 374 U. S, 23 (1963) Kershaw M fg. Co., Inc. v. Commissioner of Internal © Revenue, 313 F. 2d 942 (5 Cir. 1963) _ Lanzit Corrugated Box Co. v. Commissioner, ‘99 * T. C. 330 (1957) "Local 174, Teamsters, Chauffeurs, Warehousemen & Helpers of America v. Lucas Flour Go., 369 U.S. 95 (1962) . Local Union No. 721, ete. v. Needham Packing Co., 376 U. S. 247 (1964) Matter of Treatment of Federal Income Taxes as Affected by Accelerated Amortization, 12 F. P. C. 369 (1953) 2 McLean Trucking Co. v. United States, 321 U. 8. 67 (1944) ” Morningstar v. Lafayette Hotel Co., 21t N. y. 465, 105 N. EK. 656 (1914) . o | . National Grinding Wheel Co. v. Commissioner of Internal Revenue, 8 T. C. 1278 (1947) ° PAGE 46 15 40 29 42 37 — 30 41 41 25 INDEX. - - _—~ : a se “PAGE National Labor Relations Board v. Allis-Chalmers Mfg. Co., 388 U. S. 175 SF Mnccdeciiein 31 . National Labor Relations Board v. Metropolitan: Life Ins. Co., 389 U. S. 438 (1965) | 43 Nishiwaka v. Dulles, 356 U. 8. 129 (1958) me 42 North Central Airlines, Inc. v. Civil Aeronautics me Board, 124 U. S. App..D. C. 251, 363 F. 2d 983 (1966) , ‘a 29 tae Ohmer Register Co. v. Commissioner of Internal Revenue, 131 F. 2d 682, 143 A. L. R. 1164 (6 Cir.’ 1942) _ me 37 Outland v. Civil, Aeronautics. Board, 109 U. S. App. D. C. 90, 284 F. 2a 224 (1960) 3 46 ’ Pacific Grape Products Co. v. Commissioner of In- ternal Revenue, 219 F. 2d 862 (9 Cir. 1955) —...° |-37 oe Pan American Airways, Inc. v. Civil Aeronautics 1 Board, 84 U. 8. App. D. C. 96, 171 F. 24 139 (1948) 34 Pan American World Airways, Inc., Latin American % q Division, Mail Rates, 12 C. A. B. 250 (1950) ......... 35 2 “Panhandle Eastern Pipe Line Co. v. Federal Power | i . Comm., 115 U. S. App. D. ©. 8, 316 F. 24 659 _. (1963), cert. den. 375 U. 8. 881 (1963) eenreee 2d 25 : _ Perry v. Commerce Loan Co., 383 U. S. 392 (1966)... 31 .. Pierson v. Ray, 386 U. S. 547 (1967) , 45 Rath Packing Co. v. Bacon, 255 F. Supp. 809 (S. D. ; Iowa 1966) .... me ». Re Michigan Consolidated Gas Co., 5 PUR 3a 449 (Mich. Pub. Serv. Comm. 1954) , - 30 a ee HRaMUPS x — INDEX - ” Se Pe) Reopened Delta-CéS Mail Rate Case, 28 C. A, B. 820, affd. Delta Air Lines, Inc. v. Civil Aeronau- tics Board, 108 U. 8. App. D. C. 88, 280 F’. 2d 636, cert. den. 364 U. 8. 870 3 Reopened Transatlantic Final Mail Rate Case, Order No. E-22022, April 12, 1965, (Not yet reported) ..... Roth v. McAllister Bros., Inc., 316 F. 2d 143 (2 Cir. 1963) Schuessler v. Commissioner of Internal Heeems, 230 F. 2d 722 (5 Cir. 1956) Seaboard Air Line Rd. Co. v. United States, 382 . U.S. 154 (1965) Securities & Exchange Comm. v. Chiniiie oo 332 U. S. 194 (1947) | Seiberling Rubber Co. v. United mates, 156 Ct. Cl. 219, 297 F. 2d 842 (1962) Southern Steamship Co. v. National Labor ‘Helations ‘ PAGE 35 31 ~~ _ 37, 38 — 22 43 25 | ‘Board, 316 U. S. 31 (1942) . 43 © Southwest Exploration Co. v. Riddell, "362 F, 2d 833 aes (9 Cir. 1966) a 38 Southwestern Bell Telephone Co. v. Public Sefvicé Comm., 262 U. S. 276 (1923) 46 Southwestern Public Service Co., 33 F. P. Co 343 (1965) _ Stevens v. Marks, 383 U. S. 234 (1966) | 45 Summer field v. Civil Aeronautics Board, 92 U. S.. App. D. C. 248, 207 F. 2d..200 (1953), affd. sub nom. Western Air Lines, Inc. v. Civil Aeronautics Board, 347 U. S. 67 (1954) 3 25, 32, 34 Teatile Workers Union v. Lincoln Mills, 353 U. §. 448 (1957) 41 ——E INDEX ; xi PAGE _ Timken Roller Bearing Co. v. National om Rela-- tions Board, 161 F. 2d 949 (6 Cir. 1947) sia . 45 Transatlantic Finql. Mail-Rate Case, 19 C. A. B. 464 (1954) 2, Transatlantic Final Mail-Rate Case, Reopened, 23 C. A. B. 307 (1956) | 1,10 : Transcontinental & Western Air, Inc. v. Civil Aero- nautics Board, 336 U.S. 601 (1949) 21,23 . Transcontinental & Western Air, Inc., Mail Rates, 4 C. A. B. 139 (1943), 6 C. A. B.595 (1945) cemmmte 11 Trans World Airlines, Inc. v. Civil Aeronautics Board, 102 U. S. App. D. C. 391, 254 F. 2d ou (1958) 2 | a ‘ para Pacific Rd. Co. v. Public Service. Comm. “of ___ Missouri, 248 U: S. 67 (1918) . | 42 United-Capital Merger Case, 33 0. A. B. 307 (1961), affd. Northwest Airlines, Inc. v. Civil Aeronautics - Board, 112 U. S. App. D. C. 384, 303 F. 2d 395 © (1962)... 10 United Fuel Gas Co. v. Reliveaa ie of Ken- — tucky, 278 U. S. 300 (1929) , 31, United States v. Allen-Bradley Co., 352 U. S. 306 - (1957) 6, 29 © United States v. Anderson, 269'U. S. 422 (1926) ..... 36 United States v. Brown; 333 U. S. 18 (1948). numine 81 United States v. Bryan, 339 U. S. 323 (1950) comune - 31 _ United States v. Consolidated Edison Co., 366 U. S. 380 (1961) 36 United States v. Cook, 384 U, 8. 257 | a | United States v. Di Re, 332 U. S. 581 ra —— ‘ bi eT ee one ase wee ee — dare ian eins hehe : xii : INDEX«_ ‘ i | ne : PAGE i United Steelworkers of America v. American Mfg. 4 Co., 363 U. S. 564 (1960) ... rere 41 United Steelworkers of ‘dmavion v. Warrior é Gulf ne a Co., 568 U. 8. 574 (1960) ; 41 West Ohio Gas Co. v..Public Utilities Cai. sd Ohio , z (No. 1), 294 U. S. 63 (1935) val 31 Western Air Lines, Inc. v. Civil-Aeronautics Board, 3. 347 U. S. 67 (1954) . 21, 30, 34 ; | Western . ‘Air Lines, Ine., and Inland Air Lines, Inc. “oe r Mail Rates, 14 C. A. B. 201 (1950), mod. Summer- field v. Civil Aeronautics Board, 92 U.S. App. D. C: 248, 207 F. 2d 200 (1953), affd. sub. nom. Western Air Lines, Inc. v. Civil Aeronautics ‘Board, 347 U..S. 67 (1954) : 24, 31, 32 Statutes Civil Aeronautics Act of 1938 [52 Stat. 973]: ... 15, 27,28, ; : | | 33, 39 ; §2 [52 Stat. 980, 49 U. S. CO. §402] inne. 27, A2— = [52 Stat. 998,.49 U. S. C. §486] 0... 2,15, 21, 27, ! 28, A2 §406 (a) [52 Stat. 973, 00 49 U.S.C. $486] .. AQ §406(b) [52‘Stat. 973, = 49 U.S. C. $486] ... 2527, 33, 84, 35,40, 43, 46, AD $406(c) [52 Stat, 973, 998, 49 U. S. C. §486]-.... 34, A3- Federal Aviation Act of 1958 [72 Stat. 731, as -amended, 49 U. S. C. §§1301 ff.]: . 1, 27, 28, 33, 39 §102 [72 Stat. 740, 49 U.S. C. 61302] §406. [72 viet. 763, 49 U. S. C. $1376] wu: 8, 15, 21, 27, 28, A4 an a PAGE y §406(a) (72 Stat. 763, 49 U. 8. C. §1376(a)] -A4 - §406(b) [72 Stat. 763, 49 U.S. C. §1376(b)] . 27, 33, 34, 35, 40, 43, 46, A4 $406(e) [72 Stat. 764, 49 U. S. C. §1376(c)] .. 34, AS —§1006 [72 Stat. 795, 49 U. S. C. —— sniciininiiantan 2 ‘ie Revenue Code of 1939 - + a §122 [53 Stat. 867, as. amended, 56 Stat. 807, 844, .. 847, 848] , ) 3, 12, A10 - §124A. [64 Stt, 939] 6, 27, AG-A9 Internal Revenue Code of 1954 §11 [68A Stat. 11, 26 U. S._C. 611] ee §167 [68A Stat. 51, 26 U.S. C. CT on §168 [68A Stat. 52, 26°U.'S. C. §168] ... 2, 3, 4, 6, 7, 22, ¢ 23, 24, 25, 26, 27, 28, 29, 30, A6-A9 ‘Natural Gas Act [Act of June 21, 1938, c. 556, 52 Stat. 821, as amended, 15 U. S.C. §717 ff.] ~ 23, 24, 25, 27 | 7 _ Norris-La Guardia Act [47 Stat. 70, 29 U. S. C. $101] 44 Railway ies Act [Act of. May 20, 1926, 44-Stat. 577, as amended, 48 Stat. 1185, 49 Stat. 1189, 45_—. U.S. C. §§151 ff.) nn. 2, 15, 17, 41, 42, 43, 44, 46, All §1 [44 Stat. 577, as amended, 48 Stat. 1185-1186, as amended, 45 U.S. C. §151] : 3, 16, All | §2 [44 Stat. 577, as amended, 48 Stat. 1186, 45 U. S. C. §§151a, 1527 8, Al4 §201 [49 Stat. 1189, 45 U. S. ©. §181] men 3, 15, ALS §202 [49 Stat. 1189, 45.0. S. O. §182] mene 3, ALG . ‘oo OM DI IRI GN PO EES NAS SAE NI SO . : Pad ans Bina aE NAN ARDSRE A AI a Ba xiv i vei INDEX. | ran tee . PAGE §208 [49 Stat. 1189, 45 U. S. C. §183] 3, A16. §204 [49 Stat. 1189, 45 U.S. C.-§184] cennnnnene 3, AIT. §205 [49 Stat. 1190, 45 U.S. C. $185] tim 8, £18 Second Revenue Act of 1940 se . = [54 Stat. 998, 999] : , a foe rs Other Authorities 2 Annual Report of the Civil Aeronautics ia 1952 8 Annual Report of the Civil Aeronautics Board, 1966 21- Annual Report to the President by the Air Coordi- - ‘mating Committee, 1952 cum . 8 if C. A. B: Economic Regulations, Part 241, Account 57, pi C. F. R. 241, Section 13, Account 57 (1967) as ' amended: by ER-483, January 23, 1967, 32 Fed. Re 2811 - 40 . js igi prc hence ance ti Ait In THB Supreme Court of the Ruiter States Octoser Trex, 1967 No. , Trans Wort Arne, Inc, | , : Petitioner, : e ‘ 7 ! WV . Crviz AERONAUTICS Boanp, : Respondent. —+> — _&§ PETITION FOR A WRIT OF CERTIORARI TO THE "UNITED STATES COURT OF APPEALS FOR "THE DISTRICT OF COLUMBIA CIRCUIT " Petitioner (““TWA’’) prays that a writ of tienes issue to the United States Court of Appeals for the District ' of Columbia Circuit to review a judgment of that court | affirming orders of respondent. (the ‘‘Board’’) requiring “TWA to refund $2,152,000 in subsidy mait pay and es TWA?’s claim for additional mail pay. o ‘Opinions Below ? ‘The Board’s opinions appear in Appendix B, printed separately. 2 The opinion of the Court of Appeals, which is , not yet reported, appears in Appendix C, attached hereto.. Jurisdiction The peene of the Court of Appeals was entered on September 12, 1967.. No rehearing or extension of time 1 The Board’s principal order, No. E-22022, dated April 12, 1965 (not yet reported), fixed final rates for TWA’s transatlantic mail opera- tions. It reflected earlier decisions made in-Orders 8833, dated Decem- ber 20, 1954 (19 C. A. B. 464) and E-10117, dated March 23, 1956 (23 C. A. B. 307, 312). 2 Citations of the Board’s reported. opinions are in note 1, supra. ct =) a4 my >; “2 a ; Niacin so SAREE SES | a8 eee OW a BE bl nes e ; . ‘ Sashes - of that strike? to petition for certiorari was sought. This court’s juris- diction is invoked under 28 U. S. €. §1254(1) and 49_ U.S. C. §1486(a) and (£). Questions Presented > . Did the Board, in determining TWA’s neéd for trans- atlantic mail pay under Section 406 of the, Aero- _ nautics Act (the ‘‘Act’’):. me 1. Frustrate improperly the national defense policy of §168-0f the Internal Revenue Code by awarding TWA : | millions less in mail pay than it would have received if it _ had not exercised its right under $168 to accelerate amor- tization of. emergency facilities? fide ‘ 2. By computing receipts and expenses onan inconsist- ént basis, improperly fail. to allocate a 1946 tax refund "received by TWA? 3. Disregard tied TWA? S eeuit- liability to pay employees “termination indemnities,?? imposed by foreign law during the réview period, and measured by the em- | 7 __Ployees’ services rendered in that period, as part of TWA’s cost of carrying the:mail during that period? . . 4, In disallowing two-thirds of TWA’s “‘losses’”’ as a result of a 1953 navigators’ strike violating the Railway Labor Act and the union’s no-strike covenant: (a) Erode improperly the policy of the Railway Labor Act and exceed the authority ay ae on the Board by §406(b) of the Act? P i * (b) Rely improperly on concessions or supposed admis- sions obtained from TWA by the unlawful economic Sirens | Statutes Involved . "4 ) | Pertinent statutes appear in Appendix A, attached. - The principal statute involved is §406 of. the Civil Aero- ‘nauties Act (Act of June 23, 1938, c. 601, 52 Stat. 973, 998,” 49 U. S. C. 486), row §406 of the Federal Aviation Act of 1958 (Act of August 23, 1958, 72 Stat. 731, 763, as amended, af 49 U. S. C. §1376). | Involved on particular questions are (1) §168 of ‘the : ‘Internal Revenue Code of 1954 (68 Stat. 52, 26 U. S. C. §168), relating to. accelerated: amortization of emergency ‘facilities ; (2) §122 of the Internal Revenue Code of 1939 (53 Stat. 867, 56 Stat. 807, 844, 847, 848), relating to loss _ earry-backs; and (3) -§41, 2 and 201-205 of the Railway - ‘ Labor Act (44 Stat. 577, as amended, 48 Stat. 1185, as” amended, 49 Stat. 1189-1190, 45 U. Ss. C. $§151, _, 152, 181- 185, respectively). i Statement of the Case The questions at issue here arose in fixing TWA’ S sub- . sidy rate for carrying: transatlantic air mail from Febru- : ary 1946 through December 1953. The Temporary | Transatlantic Mail Rates. - TWA has long been a domestic air carrier. In February 1946, TWA began to carry: transatlantic mail regularly [897].* The Board did not*reopen TWA’s domestic service mail rate and fix an overall rate for the system. Instead it instituted in July 1946 proceedings to fix transatlantic mail rates for all certificated carriers, including TWA and | American Overseas Airlines, Inc. (‘‘AOA’’). They were eventually consolidated ‘into the ‘Transatlantic Mail Rate Cas an [16-19]. Temporary transatlantic mail rates were established, subject to retroactive adjustment when final rates were fixed. | | The “Offset” Phase of the Case | Hearings in the Transatlantic Final Mail Rate Case. were completed when this court ruled in Delta Air Lines, " ; °° 8 Nunibers in brackets not otherwise: identified refer to p the Joint Appendix’in the Court of Appeals. Italics are add 7. otherwise noted. ; tw . . © ee a 4 re) Inc. v. Summerfield, 347 U. S. 74 (1954), that a carrier’s ‘‘need’’ for a subsidy on one division had to be determined ~ in light of all its revenue. Any excess. revenue of its other ‘ . divisions had to be offset against the ‘‘need’’ of the sub- Ky sidized division. af - Accordingly, the Beara instituted an ‘‘offset?? ‘proceed- ing to determine if TWA’s domestic operations had any ‘‘excess’’ revenue [51]. | Proceedings ban the First Decision by ; Court of Appeals % The Send’ first resolved, ,,the issues relating to TWA’s transatlantic operations 175, 459]. One of them: _ became the subject of. later proceedings. meh Without hearing evidence, the Board originally took _ Official notice of a July 1953 navigators’ strike - affecting TWA’s transatlantic operations. For policy reasons stated in a. companion decisin on an AOA strike, the Board deducted from TWA’s subsidy need the $1,003,000 addi- ° tional revenue TWA would have received if no strike had occurred [112, 464]. TWA. moved for reconsideration, proffering evidence that the navigators’ strike was illegal {396]. The Board denied recbnsideration, saying that the ‘‘proffered evidence . . . would not affect our, conclusion ‘on-the issue’’ [464]. R 2. Then the Board decided the offset ilies di _ to, TWA’s domestic operations. . One concérned TWA’s accrual of $2,990,123 reserves for deferred taxes resulting from taking statutory ‘‘accelerated amortization’’ for emergency facilities certified ‘‘as necessary in the interest — of, national defense’’ during the Korean hostilities (68A Stat. 52, 26-U. S.C. §168). By a3 to 2-vote—the deciding’ vote being cast by the Board’s then Chairman, who had “a a ~~? be 5 ' & Es € <& previously acted as counsel for a TWA adversary herein [443]—the Board ruled against TWA on that issue. 3. Both TWA and AOA petitioned for review. Without deciding the merits, the entire TWA case was — remanded for further proceedings becausé* the® Board’s Chairman should not have participated in the decision. Trans World Airlines, Inc. v. Civil Aeronautics Board, 102 | U.S.App.D.C. 391, 254 F.2d 90 (1958). | Concurrently the A@A case ‘was rentanded because the » Board had err oneously disallowed strike ‘‘losses’’ without finding tha#®the strike would not have ocetirred under honest, efficient and economical managemerit. American Overseas Airlines, Inc. v. Civil Aeronautics Board, 103 U.S.App.D.C. 41, 254 F.2d 744 (1958): 7 The Later Proceedings | ‘ Further hearings were then held on certain issues. - . ? On the ‘‘accelerat ited amortization”’ issue, the Examiner held for TWA, The Board reversed by a 3 to 2 vote [776, 795]. The Examiner thought TWA should be. allowed only a third of its losses during the illegal 1953 navigators’ strike -. [828, 835]. By a divided vote, the Board. agreed: [753]. 2... The ‘Board’s final decision had the following éffect. (a) Considering. only the transatlantic operations,- TWA was entitled to. $1,740,000 more mail pay than it had received under the temporary rate for. the review period of almost eight years [850]. iat fi amount is ‘ too low.) a : (b) But the Board thought TWA had ade domestic earnings of $2, 859,000 ‘to offset during the same period [850]. (TWA contends it had no ‘‘excess’? domestic 7 earnings.) . + Si bal a and i cp 6 (c) Hence the Board concluded Pws had ie over- , paid $1,119,000 [850].* (d) Since the Board figured | ‘that TWA would save income ‘taxes equalling 48% of whatever it had to repay the Government, it ordered TWA to repay $2,152,000 so it would be out of pocket $1,119,000 [850].° 3. TWA. petitioned again for review. Over a year and a half after meneing argument the Court of Appeals affirmed.. : .. ‘ With this brief resume of the- background, we turn to ‘the specific*issues raised here.® I. The Accelerated Amortization Issue This issue involves the failure properly to accommodate the policies of the accelerated amortization tax statute and §406(b) of the Act, thereby frustrating Congress’ defense © policy in the tax statute. It also involves a misconstruc- tion of Delta Air Lines, Ine. v. Summerfield, 347 U. 8. 74 (1954). o& A. The Accelerated Amortization Statute ew the Korean hostilities, Congress enacted a ‘statute (formerly §124A of the Internal Revenue Code of 1939; now 26 U. S. C. §168) ‘‘to encourage the expansion of defense facilities with private rather than public funds’’ [1204¢].” 4 The $1, 119,000 is the difference between the $2,859,000 and the $1,740,000. All figures given thus far were computed without regard to tax credits. = > ' 5Mhe $2, 152,000 is the sum of $1, 119, 000 and $1,033,000, which is 48% of $2, 152, 000. 6 The Court of Appeals’ opinion discussed eight specific i issues. Four of them are raised here. ~ TIt was patterned on a World War II statute (54 Stat. 998, 999) United States v. Allen-Bradley Co., 352 U.S. 306, 310 (1957). _ “Ne ee . eh ae eg aly Nose at oe 7 New facilities could be ‘‘certified as necessary in the . interest of national defense during the emergency period.’’ 68A Stat. 52, 26 U. S. C. $168. The holder of a necessity certiticate was given the Tight to amortize the certified © facilities, for income tax purposes, over five years instead of their normal life. By taking accelerated amortization, a , taxpayer acquiring ¥ emergency defense facilities would pay less than normal : income taxes for five years. During those years, he used ef up the tax depreciation allowance for the facilities, so his -. tax payments thereafter were greater than if he had taken normal depreciation. Over the facilities’ life, his total income taxes would ordinarily remain the same. Accord- | ‘ingly, the accelerated. amortization statute did not con- template a forgiveness of taxes but only their, deferment.’ Taking accelerated amortization, however, gave the taxpayer one real advantage. During the first five years, he could use the amount of the deferred taxes in his - — business instead of paying the money to the Government. | ‘For that’ period, therefore, he got the practical equivalent : of an | interest- free as of the deferred taxes el 8 The “allowance for ‘iin will eaten up, so to sk _- during five years” and thereafter “tixable income will be higher.” Boone County Rural Electric Membership Corp. v. Public Service.Comm., 239 «Ind. 525, 536, 159 N. E. 2d 121, 126 (1959). “After the facilities . have been fully depreciated under the accelerated amortization plan, in- come taxes will normally be ‘greater, since no further deductions for depreciation will be possible.” City of Detroit v. Federal Power Comm., 97 U. S. App. D. C. 260, 271, 230 F. 2d 810, (821 (1955), cert. den. 352 U. S. 829 (1956). ' ® “Congress intended hy section 124A only to defer tax liability.” City of Detroit v. Federal Power Comm., 97 U.S. App. D. C. 260, 271, 230 F., 2d 810, 821 (1955) cert. den. 352 U. S. 829 (1956) ; “over the years there is no tax savings nor tax forgiveness; but merely a de- ferment in taxes.” Board of Supervisors of Arlington County v. Vir- ginia Electric & Power Co., 196 Va. 1102, 1123, 87 S. E. 2d 139, 151, ~ (3955). ; gs the Board has. noted (infra, p. 22). That was the prime incentive held out by Congress to invest in emergency facilities. : | B. TWA’s Investment in Emergency F acilitie? and Taking of Accelerated Amortization The benefit of the accelerated amortization statute was ~ extended to all taxpayers, whetherglligible for subsidy or not. Air-carriers, subsidized or “not, were’ within the coverage of this broad defense program. The Govern- ment agenties responsible for civil air policy—ineluding the Board—encouraged the airlines to participate in. this program ‘designed to provide additional airlift by means of a tax incentive for the acquisition of new equipment by the civil air carriers.” Annual Report to the Presi- dent by the Air Coordinating Committee, 1952- [1197]; see also, Annual Report of the Civil Aeronautics Board, 1952, p.30. oer ' ze From 1950 to 1953, TWA acquired, for its domestic division, aircraft and other ‘facilities for which certificates of necessity were duly issued [1308]. The Beard assisted — in the issuance of the certificates [1197-1198]. Only normal depreciation was taken on those facilities for book purposes [1310]. When paying income taxes, TWA exercised its statutory right to take accelerated amortization on the facilities. It thereby deferred $2,- _ 990,123 in 1951-1953 income taxes [402]. S Since payment of those taxes was only deferred, TWA accrued to a reserve and charged to expense an amount equal to the deferred taxes [1309-1312]. Indisputably _ this was sound accounting practice [869-880, 1310]. p « 10 The reserve was actually somewhat smaller. because based on an anticipated 50%-tax rate. The 52% rate then in effect, however, did not - drop to 50% for several years [998; see also, 26 U. S.C. §11]. 9 C. The Board’s wn Deprived TWA of the Statutory Benefit of Accelerated Amortization. The Board’s majority treated the $2,990,123 accrued to meet TWA’s deferred tax obligations as ‘“‘excess”’ domes- tic earnings available to offset the transatlantic mail pay . which .would -otherwise be due. It admitted that TWA would ‘not fully realize the benefits of rapid .amortiza- tion” under its ruling [781]. Actually the Board’s. deci- sion deprived TWA ‘completely of the statutory benefit. and left TWA far worse off thaw if it had never exercised its statutory right to take accelerated amortization. 1. ‘The Board first’ determined how much money TWA needed as transatlantic mail pay [199]. We shall call the difference between that amount, and what TWA had al- . ” ready been paid, X. os ee was subject to ‘offset?’ by any ‘‘excess’’ earnings ‘of TWA’s domestic division [51]. 3. Eventually the Board held that TWA had $2,859,000 _ “fexcess’’ domestic earnings available to offset or reduce X [850]. 4. If TWA had not exercised its ithe right to take’ accelerated amortization, it would have had no ‘*‘excess’’ domestic earnings available to reduce X. (a) Taking normal depreciation, TWA would have paid ‘—as the Board admitted [775]—$2,990 :123 more in 1951- 1953 Federal i income taxes than .it actually paid. Unques- ‘tionably those additional taxes would have been a recog- nized expense of ‘its domestic operations [782]. (b) Additional domestic expense of $2, 990, 123. would. have wiped out TWA’ S supposed domestic. ‘‘excess’’ of $2, 859 ,000. ‘ _e é eat ee ae that statute.” 10 | ae 5. Under the Board’s decision, therefore, TWA lost . " $2,859,000 in mail pay by exercising its statutory right to take accelerated amortization." -6. By lopping $2,859,000 off TWA’s mail pay, the Board. effectively eliminated the statutory benefit which Congress extended to induce TWA to acquire emergency defense facilities—the interest-free use of the amount of the de- ferred taxes, which is much less than $2,859,000. The Board’s decision wholly deprived TWA of _ the benefit of the accelerated amortization statute. As defense authorities have noted, it runs contrary to the policy of D. The Decision Below . The Court of Appeals talked as if TWA sought ‘‘a cumu-- lation of benefits’’,(App. C, p. ©36). That is not the fact. TWA objects to a Board decision, which left it millions © of dollars worse off than if it had never exercised its statu- tory right to take accelerated amortization.’ That result . 1! Moreover, it must pay the deferred taxes. At the time of the Board’s decision, TWA had not paid out the full $2,990,123. It paid $2,657,000 in 1954, 1955, 1959 and 1960 [1314]. Because of 1961 losses, some but not all of-that amount’ was temporarily recovered by tax loss carrybacks [1314]. The record was closed in 1962 and hence does not show the full situation since then, but the whole amount of the in- creased taxes will have to be paid [1314]. Moreover, were any part not paid, a stipulation would prevent any possible windfall to TWA [409-411]. : te é Cee 12 The Director of the Office of Defense Management pointed out the “danger to the defense mobilization’program which could result from the Board’s adoption” of the conclusion that it ultimately reached [605]. ' The Assistant Secretary of Defense echoed his views [607-608]. _ 13 If the Court of Appeals ‘supposed “a cumulation of benefits” would result because the Board awards subsidy to enable air carriers to ac- - quire capital equipment it was also in error. Repeatedly the Board has held—as it did in this very proceeding [645]—that “the Board has no warrant from Congress under section 406 to supply these carriers with capital funds from subsidy.” Transatlantic Final Mail-Rate Case, Re- opened, 23 C. A. B. 307, 328 (1956); seé also, ¢.g., American Airlines, Inc.—Mail Rate Proceeding, 3 C. A. B. 323, 333 (1942); Delta Air Corp., Mail Rates, 4 C. A. B. 501, 502-503 (1943); Capital Gains Pro- ceeding, 27 C. A. B. 79, 82-86 (1958); United-Capital Merger Case, 22 & R 32N7 311 n. ‘25 (1961). . . .—:. ; ‘ vitiates the defense policy of the tax statute (infra, pp. 22-" 23, 27-28). , 7 In addition, the Court of Appeals said: ‘““TWA’s plight ' was in no way induced by any commitment of the Board, and the Board-does not have the option to decline to carry” ‘out the implications of the Delta decision.’’* But Delta had nothing whatever to do with accelerated amortization and its ‘‘implications’’ in no wise dictated the plight which the -Board’s decision created (infra, pp. 26-27). This mis- reading of Delta should be corrected by this court. II. The 1946 Tax Refund Issue The Board decided this issue by violating the settled principle that in administrative proceedings, as in litiga- tion-generally, a person ‘‘cannot blow hot and cold... .”? ° ' . Callanan Road Improvement Co. v. United States;345 U.S. 907, 513 (1953). ante: A. How the Issue Arose To see if TWA had ‘‘excess’’ domestic income, the Board determined its 1946 domestic loss.: The reported 1946 loss was over $11,000,000. After various accounting adjustments, the Board disallowed certain 1946 expendi- tures on policy grounds, and then others on the theory that the 1946 loss would have been lower under honest, © efficient and economical Inanagement [595]. Ultimately. it disallowed $1,193,000 of TWA’s 1946 domestic expendi- tures, reducing the reported loss by that amount [594]. A complication arose at this point. In 1944 and 1945, TWA had made profits and paid Federal income taxes." 14 Delta Air Lines, Inc. v. Summerfield, 347 U. S. 74 (1954). 16 The taxes were not paid out of subsidy. In 1944 and 1945, TWA conducted only: domestic operations, which were on‘a service rate. Trans- continental & Western Air, Inc., Mail Rates, 4 C. A. B. 139 (1943), 6 C. A. B. 595 (1945). RB netics , . tte ae hitet bal DS Sh Ve ait iinet apt nase tte meine whale ein Mnlgtant os.0i 12. Its reported loss of over $11,000,000 in 1946, however, resulted in a substantial ‘‘net operating loss carry-back for each of the two -preceding taxable years’? under §122(b)(1) of the Internal Revenue Code of 1939 (63 Stat. - 867, as amended, 56 Stat. 807, 844, 847-848). Consequently TWA received in 1946 a-$3,016,000 of taxes pre- | viously paid. . . Of the 1946 velend, ‘rovghly $450,000: was received aly : because the tax’ authorities recognized, for tax purposes, the $1,193,000 actual expenditures which the Board dis- allowed for rate purposes.’ The disallowed items in- ’ ’ ereased the 1946 tax loss, and thus the loss carry-back, and thus the tax refund. aN B. The Board’s Inconsistent Logic _ The Board first decided that the refund in 1946 of taxes . paid previously could be used to reduce TWA’s 1946 net , loss. (That phase of its decision is not in issue here.) It then went much further. In practical effect,» it reduced TWA/’s reported 1946 domestic loss (and hence increased its domestic ‘‘excess’’? for the review period) by the entire 1946 tax refund [629-630]. _ | Accepting the Board’s hypothesis that an efficient, eco- nomical] management would not have incurred the - $1,193,000 disallowed expenditures, it is easy to compute TWA’s net’1946 loss. TWA would have spent $1,193,000 less in 1946 and hence its,1946 tax lo’s would have been $1,193,000 .lower.. Its loss carry-back would have been lower and its tax refund would have been $450,000 smaller. Under the assumed management, therefore, TWA’s net . 1946 domestic loss would have been $743,000 ($1, 193, 00U. - minus $450,000) lower than reported. 16 The $450,000 figure is disputed. — The. Board thinks the figure is $129,000. . Spee) Cee a ee 13 Consequently. the Board should have reduced the re- ported 1946 loss, by reason of the disallowed expenditures, $743,000 net.’7 Instead it reduced that loss by $1, 193,000 net.: It ended with a fantastic airline that hypothetically made no such expenditures yet marvelously received a tax refund because they actually were made. Admitting that ‘“TWA’s contention is not without force” - (App. C, p. C38), the court thought the Board’s conclusion - somehow. followed from an earlier ‘‘actual tax’’ case which is clearly distinguishable (ifra, pp. 81-33)..The inequi- table result reached below. stenily distorts the Act’s scheme. oe III: The “Termination Indemnities” Issue As the Court of Appeals said, this issue is ‘large in significance, for its proper disposition requires attentive | consideration to fundamentals’’ (App. C, p. C17). But the Board completely negated the Act’s subsidy policy by. holding that a carrier’s recognized expenses are less in subsidy’ than non-subsidy cases. A. The Legal Liability to Pay “Termination Indemnities” Employers in this country make social security and ‘un- employment compensation contributions to the Govern- ment, which pays benefits to’ employees. Another system is followed in Italy and other countries where TWA employs foreign nationals [1086]. There the employer pays benefits directly to the employees when they retire or leave its service [1089-1090]. . The benefits, called ‘‘ter- mination indemnities, > are based on length of service | [1086]. Every foreign national nn TWA’s emypey, 17 This could have been done ‘several wns... The simplest method © would *be to allocate $450,000 of, the tax refund to the disallowed ex- ame ge é eNam 3 wT ot sie TS 14 after a given minimum period, is legally entitled to such benefits, with very rare’ exceptions.'® . * Realistically, the total compensation “ik TWA must pay each foreign employee for his services in any year con- sists of (a) the wages currently paid in that year, plus (b) the indemnity paid thereafter based.on the service ren- dered in that year [1087-1088]. . - Faced with an unquestioned legal liability to pay these indemnities, TWA started a reserve for them [921]. The reserve reflects ‘‘accruals actually due for the past period” — [922], adjusted annually to eliminate accruals for the excep- tional cases ‘of persons forfeiting benefits [1089]. Sound accounting practice required this reserve.[923, 1093-1094]. of ‘B. The Board’s Decision To decide what TWA should be paid for carrying the ‘mail, the Board had to determine ‘the expenses TWA had incurred in performing that service. The Examiner concluded that TWA’s accruals to the reserve for termination indemnities were ‘‘similar ta a retirement or unemployment contribution by the employer. To>avoid distortion of current costs these must be spread over the period of employment rather than entered in a lump sum at the time paid out’’ [35]. He held -the accruals ‘‘properly chargeable to expense, both in principle - and in amount, for mail rate purposes’? [35]. Mistakenly analogizing the aecruals to reserves for merely contingent liabilities, the Board disallowed them [109-110].1* The effect was to understate TWA’s expenses . during the review period by over $350,000. or a The only exceptions, are persons discharged fe ctnbesl acts and . hourly: employees who quit [35, 1086]. 19 TWA’s obligation to make termination payments is not contin- ae gent, but. definitely and ponaty fixed by the foreign statutes [1087- - 1090, 1092-1093]. Pre \ wp hE me ced win in utr eeton neato on uti atte wall an eter Sie naeneeennenen emmemee 15 - IV. The Illegal Navigators’ Strike Issue‘ . 4 The Board’s. decision on this ‘issue raises major legal\ questions on both the accommodation of the labor policy \ of the Railway Labor Act to the Act’s subsidy policy, and the proper administration of §406 of the Act. Those ques- | | tions are highlighted by the Board’s decision that TWA unduly prolonged the illegal strike.?° = : ve A. The Union’s No-Strike Covenant at ' TWA used navigators only_on international flights. To _ save money, it planned to dispense with them as suitable radio facilities were developed [1325-1326]. An agreement with the navigators’ union (‘‘ALNA’’) reached late in 1952 ‘recognized that TWA intended to discontinue using navigators [1327-1328]. | | 4 This agreement—which was in effect when ALNA ‘called the July 1953 strike [1039-1040]—contained elaborate pro- visions for submitting disputes to a System Board of Ad- justment under the Railway Labor Act [1213], which applies to air carriers.” It also provided ‘that during the term of this Agreement the Company will not lock out > any employee covered hereby and the Union will not au- . thorize or take part in any strike or picketing of Company premises until the procedures for settling disputes as provided herein and as provided by the Railway Labor Act’ have been exhausted”’ [1213]. ~ 20 The Board was sharply divided on the strike issue. One member voted for TWA in all respects [798] and two against it in all respects - °[794]., The deciding votes were cast by two members who concluded that the first four days of the strike were not due to “any lack of honest, economical and efficient management on the part of TWA” [748], but . ’ expressed reservations about the pre-strike period which affected their decision to attribute two-thirds of the strike costs to TWA [751-752]. The reservations. were. unwarranted, but to focus attention on the major legal quesfions we shall riot discuss them at this. juncture. | #1 49 Stat. 1189, 45 U.S. C. §181 ff.; International Assn. of Machin- ists, AFL-CIO v. Central Airlines Inc., 372 U. S. 682, 685 (1963). 4 ET Ory _— Se et ae : [1051- 1052]. 1268-1271]. 16 a Illegal Strike After investigation, the Civil Aeronautics | Administra- , tioh decided TWA no longer neede@ navigators on flights between Paris and Rome [1244- 1248]. ‘In June 1953, it gave TWA ‘final approval to discontinue navigators on such flights. [1251-1252]. ALNA ‘claimed the Wiscontina- ance ‘would violate the contract [1265]. The union’s counsel warned ALNA’s’ executive com- mittee that a strike would violate the contract [1040], and © ‘‘the International Union could not approve or authorize a strike”? [1038]. But, the committee disregarded his » advice to invoke ‘the grievance machinery”’ {1050; see--—- also, 1039]. On the _— of July 9, 1953, ‘it ealled a strike ‘ At noon on July io, 1953, ALNA hon picketing TWA - [1330]. The strike violated the Railway ‘Labor Act and . the contract [1040, 1237]. Thereafter TWA discharged each navigator who™ refused to. accept flight i [1064, _C.° The Meetings in the First F ew Dew of the Strike Later we shall note the reasoris. which the Board gave for agreeing ‘‘with the examiner’’ that the strike ‘‘was - unnecessarily prolonged by TWA’s intransigeance’’. [752]. Evidently the. court. was not persuaded by them; instead, it referred to TWA’s supposed “rebuff of the efforts of . federal mediators to bring the: ‘parties together” and ‘‘its * refusal for some time. to talk with any union, official’? (App. C, p. C29). The actual facts are illuminating. i On July 11, 1953, the day after the strike, a member. of the National Mediation Board met separately with TWA and ALNA, a frequent practice [1070]. At his instance, TWA’s vice-president of industrial relations met’ the’ next ee, / 17 two days:with ALNA’s attorney [1065, 1353,'1354], who ‘‘represented the International Srapaport Workers Union and substantially all of its local unions’? including the — ‘navigators group’’. (1026, 1027], and ‘‘negotiated’’ the navigators’ ‘‘contracts with TWA”’ [1027]. ALNA’s at- _ torney said these meetings were held on a ‘‘personal’’ basis [1065, 1353]. However labelled, the méetings were undoubtedly held. | The Examiner, with whom the Board agreed, ‘summed up the situation clearly [826]: ‘After the strike occurred TWA refused to deal. directly with union officials until the , navigators ° returned to work.. The navigators would not return ’ to work until TWA would agree to reinstate the discharged navigators. TWA did meet indirectly with the uyion on July-11 through a mediator and had direct discussions’ with the union’s -counsel (not an Official of. the: union) on. July y 12 and- 13. - . However, since it was adamant in its refusal to - reinstate the discharged navigators .and the -union: was equally adamant about returning to work with- - out a reinstatement of the discharged navigators, the discussions broke off,”’ 4 D. The Union’s Rejection of Mediation TWA tried to get ALNA to comply with the Railway Labor Act and honor. its no- strike ‘agreement by calling’: off the illegal strike. ALNA refused unless TWA uncon- ditionally reinstated the discharged’mavigators [1353]. The mediator then suggested a compromise, which the Board completely ignored. On July 13, 1953, he proposed. that t the navigators return to work and accept mediation | [1273-1274]. ALNA flatly rejected the proposal © [1066]. It did not want either mediation or arbitration [1073]. ‘ALNA feared that it “‘would have no bargaining power’’ once the strike ended [1073]. ‘‘Once they are out on magia wad 18 strike and go back, the likelihood of them going back as a group ... is not very great’’. [1075]. In plain English, | ALNA ‘aneae to use the illegal strike to foree concessions from TWA. In that purpose, it succeeded: E. The Settlement of the Strike — Mediation talks resumed on July 19, 1963. After two ‘days*of work, an agreement was reached and ratified on ony 21_[1070, 1237- 1241]. ‘The unlawful strike, which the Board thought ‘obviously: a failure from the start,’ had,its effect on TWA. It prevented 75% of TWA’s transatlantic flights ** and in- flicted damage of over $1,000,000 on TWA in less than two weeks [828]. | By the settlement agreements TWA made concessions. _ It took, back the discharged navigators, but with a ‘‘pen- alty”’ amounting to ‘‘$200 or $300 or $400 apiece’’ in addi- tion to ‘‘a loss of earnings’’ [1071, 1076, 1077, 1239-1240]. . It also waived damages [1240]. ALNA admitted the strike was illegal [1077, 1237]. It also conceded the point leading to the strike by recognizing TWA’s ‘‘inherent right to dis- continue the use of navigators’’ [1071-1072, 1238]. F. The Board’s Theory The Board theorized [752] : ‘“‘ALNA’s. request “for feinstatement of the dis- . _ charged navigators was not an unreasonable one, even though the strike itself was illegal ; TWA in. fact acceded to this request in the- ultimate settle- “ ment of the strike. As the examiner found, if a 22 It also said that “within a very short time after the walkout, the navigators realized its futility” [752]. Whatever the navigators’ pri- vate belief may have. been, it was not communicated to TWA at the time. ' 23 Inadvertently omitted from the Joint Appendix below was the page -- (Ex: T-810, p. 70) supporting that statement. 19 TWA had not so long continued to insist on what amounted to unconditional surrender on the union’s . part, it could have achieved precisely the settle- ment it ultimately did at the cost of a substan- tially shorter strike.’’ é: - The Non-Eaistent Demand for “Unconditional Sur- . render.’’ Unconditional: ‘surrender involves submission to _* victor’ s unilateral terms. TWA asked instead that ALNA © comply with the law, call off the illegal strike, and have. an impartial tribunal resolve: any remaining issue. 2. The Speculation That TWA Would Have Gotten the Same Results by Capitulating Earlier. Even at the end, when the.navigators were sobered by their growing loss of income, ALNA balked at an unqualified admission of - TWA’s ‘‘inherent rights’’ to stop using navigators [1071]. It is highly doubtful this admission would acta been made earlier. 24 The main point, however, goes deeper. Early capitula- tion to ALNA might conceivably have ended this particular strike sooner. But.the issue transcended the immediate controversy. It concerned TWA’s relations with ALNA for.years fo come. Meek acquiescence in ALNA’s ower to call—and end—an illegal strike on its own terms, with — practical immunity, would have created a dangerous prece- dent inviting several future strikes. Resistance might _ entail more initial loss but avoid far more severe injury in the long run. TWA decided to resist ALNA’s illegal duress as — as it could. The sequel is significant. After the strike, — TWA followed ‘‘the same - general policy’’ as before in 24 Belittling the admission, “the Board éaid a «1952 collective bar- gaining agreement had already established TWA’s right to eliminate navigators” [752]. Yet*that very issue had led to the strike [1265]. — claimed: it had never: admitted any such right (1077].:- . G dealing with ALNA [1025]. Yet ALNA never struck . v * 20 -. TWA again [1054, 1332]. 3. The Reliance on Concessions Wrung by Unlawful Economic Pressure as Evidence of TWA’s Imprudence. The Board said ‘‘ALNA’s request for reinstatement of the discharged navigators was not an unreasonable one, ‘ even though the strike itself was illegal; TWA in fact acceded to this strike’’ [752].” request in the ultimate settlement of the TWA was eminently reasonable in asking that ALNA abide by the law and not prosecute an unlawful strike to enforce its ‘‘request.’’ Apart from that, a con- cession made under illegal duress may not properly be used to show it was imprudent to resist the duress (infra, p. 42). In like vein, the Board argued that TWA’ s. ‘‘failure to — seek damages from the union was inconsistent with its 2 own professed justification for its rigid: attitude during the strike’? [753]. Of course TWA waived damages by the settlement agreement [1240]. But waiving a claimed right to settle a dispute is not inconsistent with the claim ef right. Certainly a waiver extracted by unlawful duress cannot be utilized to establish the supposed inconsistency (infra, p. 42). a8 G. The Board’s ‘Decision ° The Esharainer agreed TWA’s position after the strike ‘“‘had strong moral and legal justification’’ [1364], but 25 Actually ALNA asked for unconditional reinstatement of the dis- charged navigators before the strike ended [1353]; under the settlement, TWA took them back after the strike ended, and only “with a penalty” and “a loss of earnings” [1071, 1076, 1077, 1239-1240]. 26 Similarly, the Board said the strike “‘was obviously a failure from the start, as the settlement agreement acknowledged” [752]. . Actually the agreement contained no such acknowledgment. Had it done so, how- disadvantage. ‘ -ever, the Board could not properly use the acknowledgment to TWA’s’ ~~ x 21 recommended allowing only one-third of TWA’s total strike losses of $1,033,000. Although the Board was sharply divided on the issue, the majority voted to sustain the Examiner’s. ultimate conclusion (supra, p. 15 n. 20). In net effect, it found TWA inefficient and uneconomical because it continued to try - to get ALNA to obey the law. Reasons for Allowing the Writ This case raises important questions as to the proper. construction of the Act’s rate section and erroneous ap- plications of this court’s decisions 27 interpreting its sub- sidy provision.?® Also involved are issues on the proper accommodation of statutes, since the Board frustrated both Congress’ defense policy in the accelerated ‘amortization _ statute and its labor policy in the Railway Labor Act. I. The Accelerated Amortization Issue This issue raises the. important ‘‘problem of accommo- dation’”’ of two statutes; the decision under the Act frus- - trated the accelerated amortization law, ‘‘not only a more recent but a more specific expression of policy.’? McLean Trucking Co. v.-United States, 321 U.S. 67, 79 (1944). The ‘‘policies of’? the two stafutes ‘‘necessarily must be accommodated, offe to the other,’’? Burlington Truck Lines, Inc. v. United States, 371 U. S. 156, 172 (1962), ‘‘so that the obvious purpose in the enactment of each is pre- served.’? Brotherhood of Railroad Trainmen v. Chicago River & Indiana Ra. €o., 353 U. S. 30, 40 (1957). An 27 Transcontinental & Waters Air, Inc. v. Civil Aeronautics Board, 336 U. S. 601 (1949); Western Air Lines, Inc. v. Civil Aeronautics Board, 347 U. S. 67 (1954); Data Air seven, Ine. v. Summerfield, 347 ° U.S. 74 (1954). \ 28 In the fiscal year 1966, the Board allotted subsidies eneunting ¢ to -. $74,100,000 to 23 subsidized carriers. Annual Report of the Civil . Aeronautics Board, 1966, pp. 35, 64. Rp BRT AL LPR RICE PB St AS oe REGIS Lo oS ey eee ge Le eee agency administering a rate statute must harmonize it with a tax law so that there will be ‘‘no frustration of the tax laws inherent in [its] action.’? Federal Power Comm. v. United Gas Pipe Line Co., 386 U.°S. 237, 246 (1967) .”° 7 Here the Board frustrated the policy of the accelerated amortization statute—which for brevity we shall some- times call §168—by failing to follow the recognized pro- cedure for harmonizing it with rate statutes. A. The Board’s Frustration of: the Policy Underlying the Accelerated, Amortization Statute. Congress enacted ° §168°‘‘to encourage construction in the interest of national defense.’’ City of Detroit v. Federal Power Comm., 97 U. 8. App. D. C, 260, 271, 230 F. 2d 810, 821 (1955), cert. den. 352 U. S..829 (1956). To that end, as noted (supra, p. 8), it held out the incentive ofa temporary deferment of taxes amounting ‘‘to an interest-free loan in the earlier years of the service life of assets to be repaid in later years.’’ General Passenger-Fare Investigation, 32 C..A. B. - 291, 327 (1960). - Congress did not try to persuade people to invest in emergency facilities ‘by saying: ‘‘Acquire the facilities ° and you may temporarily defer $2,990,000 of taxes (which you must expect to pay later) by accelerating depreciation for five years. If you so elect, however, you will lose an additional $2,859,000 that. you would have received. os Such a proposal would have given the taxpayer only E an illusory right to accelerate amortization. . Far from 29 See also, ¢.g., United Mine Workers of America v. Pennington, 381 U. S. 657, 665 (1965); Seaboard Air Line Rd. Co. v. United States, 382 U. S. 154, 156 (1965); Carnation Co. v. Pacific Westbound Con- ference, 383 U.S. 213, 218 (1966); Denver & Rio Grande Western Rd. . Co. v."United States, 387 U.S 485, 494-495 (1967). a JL Rw getting the free use of the deferred taxes, he would have to pay a fabulous rate of interest. No such proposal would x induce any taxpayer to acquire defense facilities. . ° _ Yet the Board’s decision retroactively converted the tax statute into just such a delusion. TWA was able to acceler- ate amortization only by losing $2,859,000 in mail. pay. - It was left worse off than if it had never taken accelerated amortization (supra, pp. 9-10). ‘Congress held out a benefit to TWA but the Board nullified it by refusing to follow ’ the course theretofore adopted to aécommodate the Policy of §168 with the. policy underlying rate statutes. > B. The Board Departed From the Recognized Method of Accommodating the Policies of the Accelerated Amorti- zation Statute and Rate Statutes. Prior decisions rejected the Board’s approach here, ee 1... The Basic Test of ‘‘Need.’’ The Act provides for such ‘‘rates as the ‘need’ of the air carrier makes appro- priate. But such a Standard -has its counterparts in other legislation dealing with rate-making . . 2? Transcontinen- tal € Western Air, Inc. v. Civil Aeronautics Board, 336 U.S. 601, 604 (1949). Rate statutes generally are designed “to produce rates no higher than the utility néeds. For instance, the Natural Gas Act envisages a rate ' which will be ‘‘the lowest possible reasonable rate consist- ent with the maintenance of adequate service in the public interest.’’ Atlantic Refining Co. v. Public Service Comm., 360 U. S. 378, 388 ( 1959). The Commission ‘“must see to it’? that any requested i increase ‘‘is in fact needed, and . is no more than is needed, for the purpose.’ City of _ Detroit v. Federal Power Comm., 97 U. 8. App. D. C. 260, 267, 230 F. 2d 810, 817 (1955), cert. den. 352 U. Ss. 829 (1956). . 89 Panhandle Eastern Pipe Line Co. v. Federal Power Comm., 115 U. S. App. D. C. 8, 12, 316 F. 2d 659, 663 (1963), cert. den. 375 U. S. 881 (1963), also noted that natural -” rates are limited by need. a tes _ 2. The ‘Actual Tax”’ Policy. A utility needs to pay its taxes but not taxes it will not have to pay. Usually, therefore, rates are based only on-taxes actually paid. Thus, under the Natural Gas Act, a‘rate is not based on ) ‘*hypothetical tax expense.’’- Federal Power Comm. v. United Gas Pipe Line Co., 386 U. S.°237, 244 (1967). Whatever ‘‘federal income taxes were actually paid’’ are ‘‘treated as part of the cost of service . . . No theoretical amount not actually paid can be so included.’’ El Paso - Natural Gas Co. v. Federal Power Comm., 281 F. 2d 567, 573 (5 Cir. 1960), cert. den. 366 U. S. 912 (1961). The Board has the same general ‘‘actual tax’’ policy. It will not allow an ‘‘amount for i income taxes which has not been, and will apparently not be, disbursed .. .’’ _ Western Air Lines, Inc., et al., Mail. Rates, 14 C. A. B. 201, 251 (1950), affd. on this point in Summerfield v. Civil Aeronautics Board, 92 U.S. App. D.C. 248, 207 F. 2d 200 (1953). - 3. Accommodation of §168 oad Rate Statutes by Tax ““N ormalization. ”? The problem arose how’ to réconcile the policy of §168 with the actual tax policy of rate statutes.*? Taking. accelerated amortization under $168 reduced income taxes, and therefore. _ expenses, during the first five years. Viewing that period alone, a ‘‘saving”’ of taxes resulted. By mechanical application of the actual tax policy, rates for that period would be reduced to reflect the ‘‘saving’’ of expenses. , ' That meckanical logic, however, distorted Congress’ scheme and thwarted its purpose in enacting §168. Con-. gress did not view the first five years in isolation. It was dealing with a unitary whole—the entire life of the emer- 31 This court did not pass on the point when it affirmed in Western Air Lines, Inc. v. Civil Aeronautics Board, 347 U. S. 67 (1954). $2 Plainly the question is not whether there has been an “implied re- peal” (App. ¢, P. C36) of that policy. ff ' oe Aig eum as hoes ai lent Bo 5 25 gency facilities. ‘Any concept which treats such an ; unusual tax reduction as a ‘saving’ to belong solely to the: five years allowed, is totally out of-touch with reality,’ Boone County Rural Hlectric- Membership Corp. v. Public Service Comm., 239 Ind. 925, 536, 159 N. E. 2d 121, 126 (1959). Repeatedlf, therefore, courts and administrative agencies held that rates should not be lowered to reflect the temporary tax “‘saving’’ during the initial five years, Instead income tax expense was ‘‘normalized, ”? with in- come taxes computed for Trate-making purposes as if accelerated amortization had ‘not been taken, This practical way of harmonizing the policy of §168 with the actual tax policy of rate Statutes was adopted early under the Natural Gas Act. Matter of Treatment of Federal Income Taxes as A fected by Accelerated Amor- tization, 12 F. P. ©. 369 (1953).%* It was sustained in City ‘of Detroit v. Federal Power Comm., 97 U. S. App. D. ©. 260, 272, 230 F. 24 810, 822 (1955), cert, den. 352 U. S. 829 (1956): ‘Unless this is permitted, it is difficult to see | _ how Panhandle [the utility] could benefit substantially from section 124A [now §168].’’ ‘“‘Normalization’’ still obtains under the Natural Gas | Act. when accelerated amortization is taken under §168,% App. D. C. 8, 10, 316 F. 2d 659, 661 (1963), cert. den. 375 U. S. 881 (1963), it also permitted the utility “to include reserves for deferred taxes in its rate base.” No question arises here whether that further holding was sound, since TWA proposed no such addition to the rate base. ~ = future. The Commission no longer permits normalization where §167 is concerned, Alabama-T ennessee Natural Gas Co. v. Federal Power Comm., 359 F. 2d 318 (S Cir. 1966), cert. den. 385 U. §. 847 (1966), OE ae RE ERE NS PN Pal i PP ET AS EL . . ad 26 Taxes are also ‘‘normalized”’ under other rate statutes to reconcile the purpose of §168 with the actual tax . policy. 35 : ° 4,. The Board’ 8 Approval ” §168 “Normalization” in Non-Subsidy. Rate Cases. .When subsidy rates are not involved, the Board ‘holds taxes should be ‘‘normalized’”’ - to effectuate the policy of §168. To ‘‘deny the normalized taxes would. be contrary to the clear intent of Congress: to grant to all taxpayers what amounts to an interest-free loan in the-earlier years of the service life of assets to be repaid in later years.’’ General Passenger-Fare In- vestigation, 32 C. A. B.-291, 326 (1960), adhered to recently in Domestic Service Mail Rate. Investigation, Order E- 25610 (Aug, 28, 1967).°° 5. The Subsidy Argument. Frastration of Congress’ _ “eléar intent”? in- enacting §168 is not justified because a. subsidy is involved. (a) Suggesting that copWA? s plight’’ was ie to con- trolling authority, the court remarked that ‘the Board does not have the option to decline to carry out the impli- cations of the Delta decision’’ (App. C, p. C37). But Delta Air Lines, Ine. v. Summerfield, 347 U. S. 74 (1954), did not 35 Boone County Rural Electric Membership Con. v. Public Service Comm., 239 Ind. 7525, 536, 159 N. E. 2d 121, 126 (1959); Applica- tion of Montana-Dakota Utilities Co., 102 N. W. 2d 329 339-340 (N. Dak. 1960); Calvert v. Houston Lighting & Power Co., 369 S. W. 2d 502, 509 (Tex. Civ. App. 1963), writ of error refused; Board of Supervisors of Arlington County v. Virginia Electric & Power Co., 196 Va. 1102, 1123, 87 S. E. 2d 139, 151 (1955). . 36 In the General Passenger-Fare opinion, the Board quoted approv- | ingly (32 C. A. B., at p. 327) from the leading §168 “normalization” case under the Natural Gas Act, City of Detroit vy. Federal Power ~ Comm., 97 U.S. App. D. C. 260, 230 F. 2d 810 (1955) cert. den. 352 U.S. 829 (1956). In its Domestic Service Mail Rate opinion, the Board adopted (p. 3) “the rationale of the Examiner” as set forth in Appendix “€ thereto (pp. 24-25), ‘iia the ae adhering to the General Passenger-Fare decision. | involve $168 or any issue of accommodating its policy with the Act. Nor did it remotely suggest that ‘the Board may leave a carrier exercising the right conferred by §168 finan- - cially worse off than it would otherwise have been. . © | : aT | | | | ‘oe Delta held—which: no-one disputes heré—that ‘‘the re- _ turn in form of a subsidy must be éomputed with reference to the entire operations 6f the carrier’? (p. 79). This court | ruled that, when Congress has stated one policy in the Act, the Board may not adopt a different policy expressed i in no statute (pp. 79-80). Here the problem is very different. = > Congress stated a general policy in the Act and a specific. policy in $168. The question how to harmonize those policies did not even arise in Delta. . : “a #. (b) As summarized i in Delta, the: Act’s panne subsidy j} policy: is that ‘‘subsidy may not exceed’’ the ‘‘carrier’s . ‘need’ ’’ which ‘‘is an amount’ which, ‘together with all other revenue’ of the carrier, will- enable it-to meet and maintain the objectives of the Act’’ (347 U. S., at p. 79). The Act’s objectives include development of ‘the national defense’’ (52 Stat. 998, 49 U.'S. ©. §486(b)).°7 The specific objective of $168 was to develop national defense (supra, pp. 6-7). Harmonization of the statutory policies is there- fore even easier than under rate statutes, like the Natural Gas Act, without an_express national defense objective. — By §168, Congress held out one benefit to induce people to invest in defense facilitiés—for a limited period, they did , not have to turn over to the Government. an amount of money which they could use in their business. In Congress’ view, they needed that amount to develop national defense in the desired way. Yet here the Board required TWA to turn over that..amount to the Government. and deprived TWA of the free use of the funds which Congress believed 7 also, §2(a) and (a), 52 Stat. 980, 49 U.S. C. ated and | a ¢ « ‘ = sd ° Py ’ ey Cee ae joey Masked f _ \ A y were needed to develop ‘national defense. The Board thus frustrated the defense objective of §168. (c)’ In a subsidy case, the Board is doubtless “‘not-ar- bitrating between private economic interésts’’ (App. C, p. Ss . C84) s Neither is it so ‘‘arbitrating,”’ however, when it sz | fixes a service mail rate;**’ Yet it ‘‘normalizes’’ taxes then, | to preserve the. broad defense policy of §168. Domestic Service Mail Rate, Investigation, supra, p. 26 n. 36. When Congress decided by §168 that. persons investing | in - -defense. facilities. could temporarily retain. part of the rf taxes they would ordinarily have ‘paid, the taxpayers as a group bore: the resultant. burden.’ Congress regarded that -as ‘worthwhile to achieve \a’ par amount national de-- fense goal beneficial to. the whole ‘country. Taking the re- tained ‘mohey away. to benefit taxpayers as a group defeats - Congress’ purpose just.as mueh as taking it away to bem fit ‘“private economic interests. eal a (d). Evidently the Board and the court thought it unwise _ to extend $168 to subsidized, éarriers. Thé court remarked | ‘there is nothing to show that Congress intended to pile this’ Ossa of ‘inducement on top of the Pelion of the incen- a . tive in the 406 subsidy « . .’” (App. C, p. 036). The metaphor appears highly: inappropriate. By leav- es ing TWA financially worse off than if it had never exer- eised its statutory right: under §168, the Board not only -. ‘removed ‘‘Ossa’’ but also levelled’ “‘Pelion:”? 39 Apart from that, the argument: is quite unsound. , 38 Likewise; _— the Board: fixes a mail rafe—seryice or sub- sidy-—its. ‘primary duty” is to pay. out no more “than is, currently needed “to accomplish the purposes. of Section 406” (App. C, p. C34). 39 One. could readily prevent TWA from getting a benefit ‘from §168 while it ‘was receiving subsidy by deducting from’ its $2,990,123 reserve + for deferred’ taxes the amount of the benefit derived from §168, i.e.,: the’ — * value of the : ‘interest-free loan” ‘resulting from the. deferral of- those, - taxes. That.would put, WA in the same position as if it had not taken accelerated amortization. The Board went ‘much further, however, and treated the whole reserve as “excess” domestic income. — sy 29 The legislative history is silent on ‘the precise point. Evidently Congress did ‘not consider it, one way or the other.*° Since, however, the Board does not grant sub-. sidy to enable -an air carrier to acquire capital equipment - (supra, p: 10, n. 13), Congress could well have concluded that ‘‘Ossa’’ would not be piled on ‘‘Pelion’’ in any event. Congress might have made carriers receiving subsidy ineligible for the benefit afforded by §168 or required: the amount of that benefit to be deducted from any subsidy © otherwise payable. . Instead of doing so, it used all-embrac-: ing language. ‘‘Every person, at hiselection, shall be _ entitled to a deduction with respect to the amortization .. . _of any emergency facility . ...”’ 26 U. S. C. §168(a). There ' is ‘‘no justification for oie limitations, restrictions, or qualifications into the statute.’’ Ken-Rad Tube ¢ Lamp Corp. v. Commissioner of Internal Revenue, 180 F. 2d 940, 942 (6. Cir. 1950); see also, Arkansas-Oklahoma Gas Co. v. Commissioner of Internal _—. 201 F. 2d 98, 103 (8 Cir. 1953). 7 The agencies adhinistering §168 seit regarded it as covering subsidized carriers. They encouraged all air- lines to participate in the defense program [1197]. Al- though subsidized, TWA was issued certificates of neces-. sity [1197-1198, 1308]. This administrative construction is of great weight, United States v. Allen-Bradley Co., 352 U. S. 306, 309-310 (1957) ; it confirms that. §168 should’ ».' be read as Congress wrote it. ° s at Sunaina after a ‘specific catt ' has already arisen, Congress | resolves it by express language, as it did with the investment tax credit discussed in North Central Airlines, Inc. v. Civil Aeronautics Board, 124 U. S. App. D. C. 251, 363. F. 2d 983 (1966), mentioned below (App. C, p. C36). Usually, however, Congress leaves the harmoniza- tion of statutes to the courts and) its resolution of one particular issue does not indicate how other, different issues should be resolved. Bis CAS eet Saks oe cee ed 30 Whether a subsidised carrier should receive the benefit of §168 was a matter of policy for Congress to decide. The Board was not at liberty to disregard Congress’ pol- icy because it preferred a different one. Western Air Lines, Inc. v. Civil Aeronautics Board, 347 U.S. 67, 73 (1954); Delta Air Lines, Inc. v. Summerfield, 347 U. S. 74, 79-80 (1954); Civil Aeronautics Board v. Delta Air Lines, Inc,, 367 U. S. 316, 322 (1961)... Its decision, conflict- ing with prior decisions involving §168, is a serious error of federal law which this court should rectify. — Il. The 1946 Tax Refund Issue | * The extraordinary result below, under which a hypotheti- © eal airline not making certain expenditures nonetheless re- ceived a tax refund:-attributable to them (supra, pp. 12-13), contravened this court’s settled rules. A. The Controlling Principles.. The Board’s fallacy is’ patent.. A hypothesis must be used consistently through- out. When hypothetical ‘‘normal’’ income rather than ac- tual income is utilized, both receipts and deductions must be adjusted to conform to the same hypothesis.* ’ 41 See; e.g., Re Michigan Consolidated Gas Co., 5 PUR.3d 449, 464 (Mich. Pub. Serv. Comm..1954)—when contributions are disallowed in fixing rates, “income tax credits resulting from such contributions” should be deducted from actual revenue; Glenshaw Glass Co., Inc. v. Commissioner, 23 T. C. 1004, 1016 (1955)—constructive income from - hypothetical cancellatiqn of contract must be offset by “increased Penn- sylvania income tax on the augmented. income”; Ainsworth Mfg. Corp. . v. Commissioner, 23 T. C. 372, 377 ( 1954)—constructive i income from hypothetical mill operations must be offset by hypothetical patent royal- ties which would have been payable; National Grinding. Wheel Co. v. Commissioner, 8 T. C. 1278, 1286 (1947)—constructive income ‘from hypothetical equipment operations must be offset by additional depreci- ation which would have resulted; Lanzit Corrugated Box Co. v..Com- missioner, 29 T. C. 330, 339 (195%)—same; Brown-Forman Distillers ° Corp. v. Commissioner, 33 T. C.87, 109 (1959)—constructive income _ from hypothetical whiskey sales must be offset by additional advertising expenses which would have been needed. NM 31. . That follows from the familiar principle’ that a person ‘‘cannot blow hot and cold’? in litigation. Callanan Road . Improvement Co. v. United States, 345 U. S. 507, 513. (1953). Any theory utilized must be ‘‘miade use of con: sistently, and regardless of the consequences.’’ West Ohio Gas Co: v. Public Utilities Comm. of Ohio (No. 1), 294 . U. S. 63, 71 (1935).*2 Presumably ‘‘Congress could constitutionally have speci- fied’” otherwise in a subsidy. case (App. ©, p. C39), but such @ ‘‘real innovation’’ should ‘‘have a more solid basis than”’ judicial ‘‘predilections.’’ Transcontinental & West- ern Air, Inc. v. Civil Aeronautics Board, 336 U. S. 601, 607 (1949). A statute will not be read to produce ‘‘ex- - traordinary,”’ ‘‘unreasonabie’’ or ‘‘absurd’’ results.** The Act does not even purport to authorize inconsistency by the Board. , : ) ~B. The. Unsound Appeal to Authority. Nor is incon- sistency sanctioned by. the case cited below.*4 No tax refund was involved there. The issue was how much extra mail pay carriers should be allowed ‘‘to cover Federal income taxes’? (14 C. A. B., at p.. 252). When fixing a mail rate in advance, the. Board would normally *? See also, e.g., United Fuel Gas Co.’ v. Railroad Comm. of Ken- tucky, 278 U.S. 300, 30%308 ( 1929); Hall v. Federal Communica- tions Comm., 99 U. S. App. D. C. 86, 94, 237 F. 2d 567, 575 (1956); Roth v. McAllister Bros., Inc., 316 F. 2d 143, 145 (2 Cir. 963). 43 See, e.g., Armstrong Paint & Varnish Works v. Nu-Enamel Corp., 305 U. S. 315, 333 (1938); United States v. Brown, 333 U. S. 18, 27 (1948); United States v. Bryan, 339 U. S.. 323, 338 (1950); Perry w. Commerce Loan Co. 383 U.S. 392, 400 (1966) ; United States v. Cook, 384 U. S. 257, 262 (1966); National Labor Relations Board v. Allis- Chalmers Mfg. Co., 388 U.S. 175, 184 (1967). 44 Western Air Liues, Inc. and Inland Air Lines, Inc., Mail Rates, 14 C. A. B. 201 (1950), affd. in Summerfield v. Civil Aeronautics Board, 92 U. S. App. D. C. 248, 207 F. 2d 200 (1953). . This court did: not pass on the issue in affirming. Western Air Lines, Inc. v. Civil Aeronautics Board, 347 U.S. 67 (1954). + aed nee er DOL he nO . * Sa al RRR a nang eine i hati cs pe Shik it as Inne Ok a ns 32 allow enough extra to cover the carrier’s estimated taxes. But ‘tit developed that, due to carry-back losses and other. provisions of the federal tax statutes, Western had little or no tax liability for this period’’ (207 F. 2d, at p. 206). The Board limited the extra amount to the taxes actually . payable, to avoid ‘‘awarding the carrier an amount for -income taxes which has not been, and will apparently not be, disbursed, and which must therefore be considered a windfall to the carrier’’ (14 C. A. B., at p. 251). In par- ticular, it awarded no extra amount for income .taxes on disallowed items, saying (14 C. A. B., at p. 253) : ‘*What Western and Inland are insisting on there- fore is that for every dollar disallowed for ratemak- . ing purposes—e.g., an expense incurred because of uneconomic or inefficient management—there must be returned to the carrier an amount representing Federal income taxes on that dollar even though no taxes have been, or will be, paid on the dollar. (There is normally no tax liability, because the Bureau of Internal Revenue usually allows the iteni to be deducted for tax purposes.) ae In short, the Board held that carriers should not be allowed mail pay to cover imaginary taxes, since the al- i lowances would be ‘‘gratuities’’ (14 C. A. B., at p. 253).*° That is a far ery indeed from saying that, in determining what a carrier would need under efficient, ‘cconespica! man- — 45 This part of the Board’s opinion was omitted from the quotation below (App. C, pp. C39-40). 46 Far from Saying Carriers should be punished for having made dis- allowed expenses, the Board indicated the opposite: “The constructive method is thus revealed as a convenient vehicle for reimbursing carriers for substantial parts of funds disallowed by the Board sin accordance with the\ratemaking standards of the Act. The carriers characterize the denial of this kind of reimbursement as ‘punishing’ the carrier. On the . contrary, we consider such allowances gratuities which we can no longer tolerate” (14 C..A. B., at.p. 253). # .¢ — agement, the Board may—as here—use inconsistent hy- potheses to compute receipts and deductions. : C. The ‘Public’ Fisc’’ Argument. The court made. “the point that the public fise had: already been drawn on to provide to the ‘carrier that made excessive expendi- * tures a (tax. refund) payment’’ (App. C, p. C40). But - TWA is not being’ punished for making expenditures later. « - disallowed (supra, p: 32 n. 46). The only issue is what it would have earned under efficient, economical management. — Since such. a.management would neither have made the disallowed expenditures nor received asdarge a tax, refund, TWA’s net. income would have been less than the figure fixed below. _No one need wear ‘blinders’? (App. C, p. C40) to recognize that simple fact. < Here the Board ended with fantasy by proceeding on inconsistent bases. This court should review its gross mis- application of the Act.< "HL. The “Termination Indemnities” Issue « The decision on this significant issue violated this court’s _ Settled rule that a legitimate expense or cost incurred in one year by virtue of activities occurring then should be accrued to avoid distorting true income in that year. ° A. The Basic Statutory Provisions. Section 406(b) (1) —~ of the Act requires every mail rate—whether ‘service or * ", Subsidy—to take into consideration ‘the condition that } such air carriers may hold and operate under certificates | authorizing the carfiage of mail only by providing neces- Sary and adequate facilities and service for the transporta- ; tion of mail.’’ 1. Since mail Service cannot be provided without in- curring expenses, every mail rate should cover the legiti- mate expenses incurred. ‘The statute. provides for actual - eT rere ORR MRE OD DER RTI na Ube ee | compensation for the service performed in carrying the mail—a so-called service rate. This is the ordinary purpose of a utility rate. It involves reimbursement for expenses incurred .. .’’ Summerfield v. Civil Aeronautics Board, . 92 U.S. App. D. C. 248, 252; °207 F. 2d 200, 204. (1953), affd. Western Air Lines, Inc..v. Civil Aeronautics Board, 347 U.S. 67 (1954). | 2. After the rate has provided for ‘‘reimbursement for expenses incurred’’ in carrying the mail, §406(b)(3) of the Act .‘‘adds to thése ordinary features of a utility rate another consideration’’ which is ‘‘a need beyond the re- ' . quirements of fair compensation for a service performed.” Summerfield v. Civil Aeronautics Board, supra. ‘This sub- ‘© sidy is ‘‘mail pay in addition to reasonable compensation , for, services rendered’’ to ‘‘enable the carrier to meet. the objectives of the statute ...’? Pan Américan Airways, Inc. v. Cwil Aeronautics Sid: 84 U. ‘S. App. D. C. 96, 97, 171 F. 2d 189, 140 (1948). | 3. ‘A carrier having no need for a subsidy gets only the service rate. Western Air Lines, Inc. u Civil Aeronautics . Board, 347 U.S. 67, 72 (1954). Since that rate is designed sion for the carrier’s ciimiaaaee expenses in rendering mail service. —4,z ‘‘ Administration of these provisions requires a com- putatien of the revenues and expenses of the carrier.’’ q Pan American Airways, Inc. ¥. Civil Aeronautics Board, ” eV. S. App. D. C. 96, 97, 171 F. 2d 139, 140 (1948).. The Act. does not distinguish between expetises in service and ' subsidy cases. Formerly a mail rate was not even divided into service and subsidy elements. Now §406(c) of the Act tequires such a division but nowhere did Congress say the Board ' to cover expenses, however, every mail rate makes provi- 35 - eould treat a legitimate expense as incurred in one year for service rate purposes but in a later year for subsidy . purposes. The Board first determines under- §406(b) the carrier’s reasonable compensation for carrying mail in — light of the expenses involved in providing that service and then what subsidy, if any, the carrier needs to achieve - the statutory objectives, including ‘‘compensation for the transportation of mail sufficient to imsure the performance of such service.’’ Performance of mail. service cannot be - insured unless all legitimate expenses incurred in-providing that service are covered. When—as here—the Board fixes a rate for a past period, even ‘‘unusual and unforeseen costs” properly. incurred must ‘“‘be treated as facts.”’ American Overseas Airlines, Inc. v. Civil Aeronautics - Board, 103 U. 8: App. D. C. 41, 47, 254 F. 24 744, 750° (1958). | . fie B. The Basic Facts. Foreign law imposed on TWA an obligation to pay compensation for ai employee’s work in R, a review year, consisting of (a) wages paid cur- | » Tently in R, and (b) deferred wages (called a termina- ‘tion indemnity) payable when the employment ended in a later year, Y. 3 Realistically, both payments were expenses incurred during R—a part of TWA’s cost of doing business in that year.*7 The deferred installments were clearly not part | *? Thus, the, Board holds the ‘costs of a plan to provide employees pensions in the future are Proper expenses in subsidy cases. because they are in fact part of the cost currently required to retain’ the services of veteran employees, and as such properly chargeable to current operating expenses.” Pan American World Airways, Inc:, Latin’ American Divi. sion, Mail Rates, 12 C. A. B. 250, 252 (1950); Reopened Delta-C&S — Mail Rate Case, 28 C. A. B. 820, 843 and n. 56 (1959), affd. without discussion of this point, Delta Air Lines, Inc. vy. Civil Aeronautics Board, 108 U. S: App. D. C. 88, 280 F. 2d 636 (1960), cert. den. 364 _U. S. 870 (1960). ee ee ae ee “ ata 4 ‘aidan Tala Pace as ROA EES Nine, ATUL ter 34 of the cost of doing business during the later year, Y. TWA had to pay them even if it-did no business in Y. C. The Basic Principles. Frequently an expense in- curred in R, by reason of activities in R, is not’ payable until a later year Y. . The question then arises whether _ that expense is properly allocable to R or Y. Attributing the expense to the latter understates the real cost of activi- ties in R and overstates that of activities in Y. Long ago, therefore, it was recognized that a concern on the accrual . basis (like TWA), should determine its income by accruing the expense and charging it to R. ‘The accrual is more than. good accounting. It is needed to avoid distorting true income. 1. ‘For instance, a 5 tox imposed because of operations in R may not be assessed or payable until Y, but in reality is a charge against income in R. Since the taxpayer’s _ “true income for [R] could not have been determined _ without deducting from its gross income for the year the total costs and expenses attributable to the production of that income during the year,’’ a reserve for the taxes . ‘must have béen deducted before'the net results of the operations for the year could be ascertained.’’ United States v. Anderson, 269. U. S. 422,°440 (1926). The de- duction is made “‘for purposes of accounting and of as- ‘certaining true income fora given accounting period .. .”’ Ibid., at p. 441.48 ‘v2. Similarly, compensation for services rendered in R: may not be fully payable until Y. Here too the proper procedure is ‘‘to establish a reserve and deduct the ex- pense thus set aside in the year in which the related in- 48 Other tax cases include Fawcus Machine Co. v. United States, 282 U. S. 375, 378 (1931); United States v. Consolidated Edison Co., 366 U. S. 380, 385 n. 5 (1961); Doric Co. v. Commissioner i Internal Revenue, 341 P. 2d,967, 971 (9 Cir. 5998). ? * bo. 87 come ‘accrues, ”? Central Cuba Sugar Co. v. Commissioner of Internal Revenue, 198 F. 2d 214, 218 (2 Cir. 1952), cert. ‘den. 344 U..S. 874 (1952); this method ‘‘clearly reflected — the true income.’’ American National Co. v. United States, 274 U. S. 99, 105. (1927).*° 3. Often a webotential period elapses between accrual of a reserve for an expense in R and its eventual payment in Y. That, however, is not decisive. Rather the issue is whether the expense is actually a part of the cost of ac-: tivities in R because incurred then. If it is, the accrual is upheld even though the interval between R and Y was considerable.” 4. Accruals for a contingent liability are not recognized. Kchoing the Board [109], the court said the reserves ‘‘may never be wholly paid out’’ (App. C, p. C20).- But while an employee may forfeit his right to an indemnity «in excep- tional cases (supra, p. 14 n. 18), that is immaterial. 49 See also, e.g., Rath Packing Co: v. Bacon, 255 F. Supp. 809, sit: 812 (S: D. Towa 1966); Avco Mfg. Corp. v. Commissioner, 25 7.¢ 975, 1001 (1956). Cases sustaining accrual of other contractual or statutory obligations include Bebchick v. Public Utilities Comm., 115 U. S. App. D. C. 216, 221-222, 318 F: 2d 187, 192-193 (1963), cert. den. 373 U. S. 913 (1963); Pacific Grape Products Co. v. Commissioner of Internal Revenue, 219 F.2d 862, 869 -(9 Cir. 1955); Commissioner of Internal Revenue v."Champion Spark Plug Co., 266 F. 2d 347 (6 Cir. 1959); Kershaw Mfg. Co., Inc: v. Commissioner of Internal Rev- enue, 313 F. 2d 942 (5 Cir. 1963). 5° For instance, the interval was five years in American National Co. v. United States, 274 U. S. 99 (1927); Schuessler v. Commissioner of Internal Revenue, 230 F. 2d 722 (5 Cir. 1956); up to ten years in ' Bebchick v. Public Utilities Comm., 115 U. S. App. D.C. 216, 221- 222, 318 F. 2d 187, 192-193" (1963), cert. den. 373 U. S. 913 (1963) ; two and a half years in Commissioner of Internal Revenue v. Champion Spark Plug Co., 266 F. 2d 347 (6 Cir. 1959); two years in Frost Lum- ber Industries, ‘Ine. v. Commissioner of Internal Revenue, 128 F. 2d 693 (5 Cir. 1942); and indefinite in Ohmer Register Co. v. Commis- sioner of Internal Revenue, 131 F. 2d 682, 143 A. L. R. 1164 (6 Cir. 1942); Central Cuba Sugar Co. v. Commissioner of Internal Revenue, 198 F. 2d 214 (2 Cir. 1952), cert. den. 344 U. S. 874 (1952).; Rath Packing Co. v. Bacon, 255 F. Supp. 809 (S. D.’ lowa 1966). . . ! é NS RE is Miata Br POs gee Darah itew Soe > vie 38 (a) No liability is ever certain to be paid. A creditor may forgive a debt, as the Government sometimes for- ' gives. taxes, or wait until the statute of limitations has run. Insistence on absolute ‘certainty of full payment ‘ . ° » ‘ would medn that no acerual of an incurred expense would be recognized. - Hence even the very strict income tax eases uphold. accruals ‘altliough the ‘‘present liability may subsequently be discharged by some condition subse- . quent,’? Heluering v. Russian Finance & Construction b ? -Corp., 77 F. 2d 324, 327 (2 Cir. 1935), or its ‘‘amount may _be diminished by subsequent events.’? Harrold v. Com- missioner of Internal Movenns, 192 bok 2d 1002, 1004 (4 Cir. 1951). | (b) The amount of the liability need not be determinable — with mathematical exactitude. It suffices if one can ‘‘ascer- tain with reasonable accuracy the amount’’ even though the accrual may prove only ‘‘approximately in accord with what”’ is ‘‘eventually found.’’ Continental Tie & Luniber - Co. v. United States, 286 U. S. 290, 297, 298 (1932). Here TWA’s reserve was carefully accrued on the basis of past experience [992, 1089]. Even the Board’s witness admitted there was “little likelihood’’ the money accrued would not be fully paid [933]. 51 See also, ¢.g., Frost Lumber Industries, Inc. v. tana of Internal Revenue, 128 F. 2d 693, 696 (5 Cir. 1942); Ohmer. Register Co. v. Commissioner of Internal Revenue, 131 F. 2d 682, 686, 143: A: L. R. 1164, 1170-1171 (6 Cir. 1942); Central: Cuba Sugar Co. F.%. Commissioner of Internal Revenue, 198 F. 2d 214, 217-218 (2 Cir... 1952), cert. den. 344 U. S. 874 (1952). - °52 See also, e.g., Harrold v. Commissioner of po Revenue, 192 F. 2d 1002, 1006 (4 Cir. 1951); Central Cuba Sugar Co. v. Commis- sioner of Internal Revenue, 198 F. 2d 214, 217-218 (2 Cir. 1952), cert. den. 344 U. S..874 (1952); Schuessler v. Commissioner of Internal Rev- enue, 230 F. 2d 722, 724 (5 Cir. 1956); Seiberling Rubber Co. v. United States, 156 Ct. Cl. 219, 226-227, 297 F. 2d 842, 847 (1962); Southwest Exploration Co. v. — "362 F. 2d 833, 837 (9 Cir. 1966). . en eal 39 D. The Subsidy Argument. The court’s basic premise , —that a legitimate expense incurred in R because -mail was transported during R, and therefore normally allocable ‘ to R, could be shifted to a later year Y if the Board fixed a subsidy rather than a service rate—is contrary to the Act (supra, pp. 33-35). 1. American Overseas Airlines, Ince. v. Cwil Aeronautics Board, 103 U. S. App. D. C. 41, 47, 254. F. 2d 744, 750 _ (1958), neither held nor said that a carrier’s expenses are ‘ any less’ in subsidy cases than ‘‘for rate regulation pur- poses’? (App. C, p. C21). It distinguished solely. between fixing rates prospectively ‘‘for the future’’ (when only ‘‘ordinary and necessary expenses are forecast’’) and retrospectively for ‘‘a past period’’ (when all expenses, including ‘‘unusual and unforeseen costs,’’ must be treated as ‘‘facts’’). 103 U. S. App. D. C. at p. 47, 204 F. 2d at p. 750. Utility rates are nearly always fixed yooepectiveny; whereas mail rates arg often fixed retrospectively. Certainly American Overseas did not say that the Board © should be less libéral in recognizing expenses when subsidy was fixed than when a service or utility rate was fixed. If — anything, the converse should hold, since the subsidy is designed not only to pay for the mail service poovied but ~ also to ‘‘insure the performance of such service.’ | 2. Although the Board’s past practice could not over- -- ride the clear import of the Act, it does not resolve the point. Perhaps the Board has been ‘‘chary’’ in subsidy cases about recognizing ‘‘expenses not actually paid out prior to or during the review period’’ (App. C, p. C19). No instance has been cited, however, in which the Board 53 The only other case cited for that proposition by the ‘court, Delta Air Lines, Inc. v. Civil Aeronautics Board, 108 U. S. App. D. C. 88, 92, 280 F. 2d 636, 640 (4960),. cert. den. 364 U. S. 870 (1960), does "ot even touch the point. 40 A treated a similar expense imposed by law as allocable to the year when the- -employee would receive the .benefit. Indeed, tes Board currently recognizes voluntary ‘*ac- eruals . .. to provide for pensions” to employees of local service sidtines as proper expenses for subsidy purposes.” -3. Finally, the court offered no “sound reason why the Board should treat an expense as incurred in ong year in a service or utility rate case but in a later based in a sub- sidy case. \ @e _ “The. key point, ”? it said, ‘‘is that rate regulation and subsidy administration lay the burden on different classes, and different considerations are involved in’ the allocation of burdens”? (App. C, p. C21). Whether an expense is part of the cost of rendering a service in a given year, however; does not depend on the identity of the recipient ‘who pays for, the service. Besides, the Government pays for carrying the mail. in all cases. A legitimate expense which is. part of the carrier’s cost of transporting mail during a review year is no less so whether the Government ultimately pays a service rate or a subsidy rate. _ This court should correct the Board’s major error on this issue “large i in significance” (App. C, p. C17). IV. The Illegal Navigators’ Strike Issue In addition to important questions of novel impression on the accommodation of the Railway Labor Act to the Act’s subsidy provision, this issue raises basic problems i in the administration of §406(b). A. The Basic Public..Policy Violated by the Illegal Strike. The ‘‘basic policy of national legislation” is to 54 C, A..B. Economic Regulations, Part 241, Account 57; 14 C. F. R. 241, Section 13, Account 57- (1967) as amended by ER-483, Janu- ary 23, 1967, 32 Fed: Reg. 2811; Investigation of the Local "Service Class Subsidy Rate, Order E-23850, dated Sasa 23, 1966, p. 11. 41 os _ ‘promote the arbitral process as a substitute for economic » warfare.’’ Local 174, Teamsters, Chauffeurs, Warehouse- men & Helpers of America v. Lucas Flour r Coy, 369 U. S. - 95, 102 (1962). - That policy underlies the Railway Labor Act (48 Stat. - 1185, 45 U. S. C.. §151 ff.), which applies to air earriers (supra, p. 16 n. 21). ‘‘Minor’’-disputes must be settled without striking; even in ‘‘major’’ disputes, lengthy: statu- tory procedures must be ‘‘exhausted before resort can be had to self- help.*? Elgin, Joliet & Eastern Rd. Co. v. Butley, 325 U.S. 711, 725 (1945). o ‘ALNA’s contract with TWA implemented that public G& policy by providing for submitting disputes to a board . established under the Railway Labor Act and forbidding strikes until the procedures of. that statute’ had been exhausted ° [1213]. Both the statute and the contract re- ‘quired ALNA to arbitrate any dispute and ‘forbade the — _ economic pressure of’a strike. This court has repeatedly it. B. The Board Eroded the Policy Underlying the Rail- _ way Labor Act and ALNA’s No-Strike Covenant. Not _ only did ALNA call the strike in defiance of Congress’ ' policy and its own contract, but it refused to stop it lest " upheld that salutary policy.°> The Boagd’s decision éroded , it lose its ‘bargaining power”? [1073]—the illegal bargain- . . Ing power which the Railway.Labor Act prohibited and ALNA had agreed not to use. As TWA did not capitulate 55 See, €.8-5 Textile Workers Union v. Lincoln Mills, 353 U. S. 448, 453, 455° (1957); United Steelworkers of America v. American M fg. Co., 363 U. S. 564, 566 (1960); United- Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U. S. 574, 581 (1960); Local 174, etc. v. Lucas Flour Co., 369 U. S. 95,,104 (1962); Atkinson v. Sinclair Refining Co., 370 U. S. 238, 246 (1962); Drake @akeries, Inc. v. Local 50, etc., 370 U. S. 254, 263- 264 (1962); Local Union No. 721, etc. V. Needham Packing Co., 376 U.S. 247, 2515252 (1964). ra : ina ih me P ere $ . 49 i aici ctl i ini nis sce ee "42... ‘promptly to ALNA’s unlawful economic duress, the Board . termed it ‘‘intransigeant,’’ relying improperly on subse- -quent concessions obtained by the duress. 1. The Improper Reliance on Congessions Obtained ‘s Illegal Duress. In a, passage which the court called ‘‘its critical finding’’ (App. C, p. C8); the Board said: “ALNA , ae request for reinstatement of the discharged . navigators was not an unreasonable one, even though the strike itself was illegal; JWA in fact acceded to this request in the ultimate settlement of the strike’’ [752].°° ihe ‘If ALNA thought the discharged navigators should be reinstated, its proper remedy was to end the strike and ~ arbitrate the point. Persistence in its unlawful strike to - force acceptance of its demand only aggravated its illegal conduct. Both the Railway Labor Act and the no-strike * covenant prohibit use of the economic pressure of a strike ' to extort concessions from an employer. Here that pres- — sure, was illegal duress, to which TWA bowed as the ‘lesser of two evils.’”? Union, Pacific Rd. Co. v. Public Service Comm., 248 U. S. 67, 70 (1918); Abie State Bank v. Bryan, 282 U. S. 765, 776 (1931) ; Garrity v. New sata 385 U..S. 493, 498 (1967). - Concessions -obtained. by_illegal — may not be used to the prejudice of the victim of the duress. Illegality does not ‘‘change character from its success.’? United States v. Di Re, 332 U.:S. 581, 595 (1948) ; Ker v. Califor- nia, 374 U. S. 23, 40 n. 12 at 41 (1963). Unlawful -duress _ vitiates whatever significance an act induced by it might’ _have if Voluntary.” : 56 The factaal errors in that finding are noted supra, p. 20. 57 See the cases cited in the preceding paragraph and Nishiwaka v. Dulles, 356 U. S. 129, 136-137 (1958). aera = Equally improper was the Board’s iethtiind, to DWA’s s prejudice, on other concessions- or supposed admissions made in the séttlement agreement (supra, p. 20).°8 2. The Improper Holding That TWA Imprudently Did . Not Capitulate Sooner to the-Illegal Duress. The Board held TWA should have"Geceded sooner than it did to the unlawful economic pressure of the strike, and penalized — it by hundieds of thousands of dollars because it did not ‘appease ALNA sooner. This sanction frustrated the: basic policy of the Railway Labor Act. Carriers are forced ' to bargain under the unlawful duress from which Congress wanted them free when they run the risk of losing mail pay if they resist illegal strikes stoutly. Conversely, anions _are encouraged” in. illegal strikes when they know that . carriers will not resist long because of that. risk. Jtdge Cardozo said long ago that “the law, which creates a right; can certainly not concede that an insistence upon its enforcement is evidence of a wrong.’” Morning- star v. Lafayette Hotel Co., 211 N. Y. 465, 468, 105 N. E. 656, 657. (1914). ‘Here the Board held to the contrary, eroding the salutary policy of the Railway. Labor Act. But its plain duty was to administer §406(b) to effectuate that policy. Southern | Steamship Co. v. National Labor -— - Relations Board, 316: U. S. 31, 46-48 (1942) ; and see supra, pp. 21-22. ‘C. The Board nttennls Determined ' Fhat TWA Was Inefficient and Uneconomical.’ According to the — 58 The court sought to support the “intransigeance” theory by citing non-existent facts on which the, Board did not rely (supra, pp. 16-17). But an administrative decision cannot be sustained on a ground- which the agency itself avoided taking, Securities & Exchange Comm. v. Chen- ery Corp., 332 U. S. 194, 196 (1947); Burlington Truck Lines, Inc. v. United States, 371 U. S. 156, 168-169 (1962); National Labor Rela- tions Board v. Metropolitan Life Ins. Co., 380 U. S. 438, 444 (1965), and the Board’s improper reliance on the concessions or supposed ad- missions completely infected its conclusion of “intransigeance.” | ia Board, ‘‘good labor relations is not simply a matter of ‘strict observance of and insistence upon: legal and con- tractual rights and duties,’’ but ‘‘also of relations among human beings, and due account must be taken of ordinary . human attitudes and emotions”? [750]. ‘It then ignored its own criterion: ‘ “phic. a Executives as well as. employees are ‘‘human beings’’ with ‘‘ordinary’ human attitudes and emotions.’’ ALNA’s, illegal strike confronted TWA?’s management with a seri- ous dilemma. The Board did not even mention it, although warned in an earlier strike case: ‘‘Many different opera- tions—different in policy, in mode, and in result—may all be honest, economical and efficient. Its not enough for _the Board to say that an operation it designs and favors. meets those tests and it will approve that course and none ~ other. The operation by the company may also be honest, economical and efficient.’’ American Overseas Airlines, © Inc. v. Ciwil Aeronautics Board, 103 U. S. App. D. C. 41, 46, 254 F. 2d 744, 749 (1958). ALNA refused to call off the illegal strike unless the the discharged navigators were reinstated unconditionally ‘__ [1072]. Quick capitulation to the demand would “have ‘rendered: TWA .moré vulnerable to future strikes and ‘ jeopardized its long-range program to eliminate needless costs. In addition, TWA would run the risk that: the Board would claim that appeasement was the wrong policy and it was inefficient and uneconomical not to resist the eaaaich den strike longer... =~ 59 At the time, ‘it was generally believed an illegal strike could not be enjoined [1052-1053]. Not until four years later did this court hold that a strike violating the Railway Labor Act could be “enjoined despite the Norris-La Guardia Act. Brotherhood of Railroad Trainmen v. Chi- cago River & Indiana Rd. Co., 353 Us S. 30 (1957)... -- ? 7) 45 ; Stout resistance, the other alternative, could be far more © "prudent. Here ALNA did not contest ‘TWA’s right to stop. using navijsators after it met determined resistance.. The progressive decrease in force saved over $2,000,000 - in payroll costs alone [1185]. No further strike occurred { 1332]. Certainly TWA’s management could reasonably conclude a firm course would have that beneficial effect.” On the other hand, it exposed TWA: to the risk that. the Board would claim that appeasement was the right policy ’ arid it avas inefficient amd uneconomical to resist the unlaw- - ful strike longer. ALNA’s illegal duress thus posed hard alternatives. ‘In reality, the carrier [was} given no choice, except.a choice between-the rock.and the whirlpool. ..’’ Frost € Frost ' Trucking Co. v. Railroad Comm., 271 U. S. 583, 593 (1926); _~ Stevens v. Marks, 383 U. S. 234, 243 (1966) ; Garrity v. New Jersey, 385 U. S8.-493, 496 (1967). What this court said recently of a policeman should apply equally to an air ¢arrier; its ‘‘lot is not so unhappy that [it] must choose between being charged with derelic-. tion of duty’’ no matter which course it follows. Pierson v. Ray, 386 U. 8. 547, 555 (1967). - foo ‘Whether or. not in any particular instance there should be submission and payment or stout resistance thus neces- . — 60 The Board’s argument that TWA’s 1953 ition averted future strikes was “pure speculation” [752] only points up the cruel dilemma — facing TWA. No matter which course it ‘ches se, TWA could never prove conclusively what would have happened if another course had been fol- - lowed. ‘Thé fact remains: that TWA’s management could well believe that firm resistance would avert future — and any shows they actually were averted. _ 61“The strike was in breach of the agreement and the company pro- posed to carry on within its terms when the men went. back to work— a proposal again within the normal processes of collective bargaining.” ‘Timken Roller Bearing Co. v. National Labor Relations Board, 161 F. “2d 949, ) 955 (6 Cir. rtd, ; 46 Ss - saffly must rest in the discretion of the persons constituting the management of the i ee like other business: questions in general . . .”’. Hornstein v. Paramount: Pic- tures, Inc., 22 Misc. 2a 996, 1008, 37 N. Y. S. 2d 404, 417 (N. ¥. Cty. 1942), affd. 266 App. Div. 659, 41 N. Y. S. 2d - 210 (1st Dept. 1943), affd. 292 N. Y. 468, 55 N. E. 2d 740 (1944). 7 Congress ‘did aot leave the choice to thie’ Board. Tts ‘experience and expertise is with transportation not labor relations problems.’ Outland v. Civil Aeronautics Board, 109 U.S. App. D. C. 90, 94, 284 F: 24 224, 228 (1960). The . Board is “not empowered té substitute its judgment for ° that of the directors of. the corporation ...? Southwestern — Bell. Telephone Co. v., Public Service Comm., 262 U.S. . 276, 289 (1923);