Petition for Writ of Certiorari — ABC Air Freight Co. v. Civil Aeronautics Board

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UPREME COURT, U. &. IN THE es

. Supreme Court of the United States:

October Term, 1969, I office Supreme Court, ret

FILED

1105 - JAN 22 1970

JOHN FL DAS, CLERK

ABC AIR FREIGHT COMPANY, INC:; ADD AIRFRE }GHT-COR— : ont

PORATION: AIRRORNI. EREIGHT CORPORATION; AIR-

LAND FREIGHT CONSOLIDATORS, INC.; AIR-SEA, FOR= ua

~ WARDERS, INC.; AIRWAYS AIREREIGHT: BARNETT AIR

CARGO, INC.;PETER A. BERNACKL, INC.; HENSEL, BRUCK- ?

MANN & LORBACHER, INC.; INTERNATIONAL CUSTOMS

SERVICE, INC.; H, G. OLLENDORFF, INC,: PANALPINA

AIRFREIGHT, INC.; WTC AIR FREIGHT, and AIR I isanssastths :

FORWARDERS ASSOCIATION,

Petitioness,

CIVIL AERONAUTICS BOARD

and

- &

CF AIR FREIGHT, INC.; CONSOLIDATED FREIGHTWAYS, INC.:

P.LE. AIR FREIGHT FORWARDING, INC.; PACIFIC INTER-

MOLNTAIN EXPRESS CO?; NAVAJO FREIGHT LINES, INC.:

YELLOW FREIGHT SYSTEM, INC.; GLOBAL AIR CARGO,

LTD.; GATEWAY TRANSPORTATION CO., INC., and GATE-

WAY AVIATION, INC.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

. TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

LOUIS P. HAFFER ‘

1730 Rhode Island Avenue, N.W. *

Washington, D.C., 20036

ROBERT N. MEISER

oe 1730 Rhode Island Avenue, N.W.

Washington, D.C., 20036

Attorneys for Petitioners

THE CASILLAS PRESS, INC. — 1717 K Street, N. W. — Washingtgn, O. C. 20006

i a

against ae

" OPINIONS BELOW

_ JURISDICTION |

QUESTIONS PRESENTED .

' APPLICABLE STATUTES AND. REGULATIONS

STATEMENT OF THE CASE . . ....

REASONS WHY CERTIORARI SHOULD

BE GRANTED

I. The Decision Below Sanctioned An - es

Important And Basic Change In The -

National Transportation System . .i. -.-

Il. - The Court Below Interpreted The

: Federal Aviation Act In A Manner

- Contrary -To Congressional Intent »

And Long-Standing Administrative _

Construction "ite ate ay See

II. | The Decision Below Would .Foster

: A Means Of Circumventing The

Review Provisions Of The Admini-

nistrative Procedyre Act And Review

Statutes.

IV, | The Decision Below Would Undermine -

Section 8(b) Of The Administrative Pro-

- cedure Act’ By Allowing Agencies To

Substitute “Experimentation” For The

Requisite Findings Under The Act .- ..

CONCLUSION

(ii)

CITATIONS

Cases:

= Freight Forwarder Case,

9 C.A.C. 473 (1948) aff'd sub. nom.

aaa Airlines, Inc. v. C.A.B.,

178 F.2d 903 (7th Cir. 1949) . ip.

Airfreight Forwarder Invesiigation,

21 C.A.B. 536 (1955) %

Amerieas Aitlines, Inc. v.° Civil Aeronautics Board,

359 F.2d 624 (D:c. Cir.),

cert. denied 385 US. 843 (1966) .

American ide Lines, et al., Petition,

7 C.A.B. 799 (1947)

On, 11, 14, 15

10 °

Application of ABCO Moving &-Storage Corp., et al.,

Order E-16474, March 3, 1961, C.A.B.

Docket No. 12193, p..4 (mimeo.). .

Burlington Truck Lines v. United States,

371 U.S. 156 (1962)

Columbia Broadcasting System v. United States,

~ 316 U.S. 407 (1941) ©

_ Domestic—Coterminal ‘Points—Europe All-

4 Cargo Service Inestigation,

Order E-25543, August 9, 1967,

C.A.B. Docket No. 18531, pp. 2 3 (mimeo.}

In Re Carter,

177 F.2d 75 (D.C. Cir.), cert. denied,

‘sub. nom. Laws v. Carter, 338 — 900 (1949) .

Latin American Air Service, :

6 C.A.B. 857 (1946) .-. .

19, 21n.

;

Railway Express, A irfreight Forwarder Application,

27 C.A.B. 500 (1958)

‘SEC. v. Chenery Corp.,

332 US. 194, reh. denied,

332 U.S. 783 (1947) .*

United Parcel Managers Co.,.

. Order E-7324, April 22, 1953

Statutes and Rules:

“Boe Aviation Act of 1958 ° 9

$101(3), 72 Stat. 737, as amended, 49 USC.

130103) 119864)_ ss

8102, 72 Stat. 740, 49 U.S.C.

$1302 (1964) ; ee

$408(a\(5), 83 Stat. 103 (1969), Pub. L.

.No. 91-62; 82 (Aug. 20, 1969), amend-

ing 49 US.C., 81378(a)(5) (1964).

$408(b), 72 Stat. 767, as amended,

49 U.S.C. §1378(b) (1964) .

$1006(a), 72 Stat. 795, 49°W.S.C.

$1486(a) (1964) ieee

Economic Regulations of the Civil

-Aeronautics Board

$296.1(a)(1), 14 C.F.R. §296.1(a(1) (1969).

$296.43, 14 C.F.R.: $296.43 (1969) :

$296.86, 34 Fed. Reg. 19342 (1969)

$297.1(a), 14 C.F.R, 8297.1(a) (1969)

$297.34, 14 C.F.R. §297.34 (1969)

$297.66, 34 Fed. Reg. 19343 (1969)

$302.24(m), 14 C.F.R. $302.24 (m) (1969) *

13, 14, 15

7Tn

_@v)

“ee 4 ’

“ &

Department of Transportation Act

80 Stat. 931 (1966), 49° U.S.C.

$1631 et seq. (Supp. IV, 1969)

Administrative Procedure ~Act

§2(e), 80 Stat. 388 (1966), 5 U.S.C:

"$558(c) (Supp. IV, 1969).

“$8(b), 80 Stat. 387 (1966), § U.S.C.

8557(c) (Supp. IV, 1969).

: Miscellaneous Authorities:

1968 C.A.B. Ann. Rep. 139.

ce Davis, Administrative Law

Treatise 297 (1958)

4 Davis, Administrative Law ©

_ Treatise 242 (1958)- . ;

S. Rep. No: 752, 79th Cong.

Ist Sess., 18' (1945) eo

‘Final Report of the Attorney General’s

Ci itteé ony Administrative Procedure,

S. Doc. No. 8, 77th Cong.; Ist Seés.,

107-08 (1941) 4. ge Ser

Joxcrormuasions i P DAR ORR Riis RSE se

IN THE

“Supreme Court of the Huited States

October Term, 1969

\ No.: Sei eee

ABC AIR FREIGHT COMPANY; INC.; ADD AIRFREIGHT COR-

PORATION: AIRBORNE FREIGHT CORPORATION, | AIR-

LAND FREIGHT CONSOLIDATORS, INC.; AIR- SEA FOR-

WARDERS. INC.: AIRWAYS AIRFREIGHT; BARNETT AIR

CARGO, *INC.:PETER A. BERNACKI, INC.; HENSEL, BRUCK- .

MANN & LORBACHER, INC.: INTERNATIONAL CUSTOMS ‘

SERVICE, INC.; H. G. OLLENDORFF, INC.: PANALPINA |

AIRFREIGHT, INC.; WT@ AIR FREIGHT, and AJR FREIGHT

FORWARDERS ASSOCIATION,

Petitioners,

against

CIVIL AERONAUTICS BOARD

and

CF AIR FREIGHT, INC.; CONSOLIDATED FREIGHTWAYS, INC.:

i> P.I.E. AIR- FREIGHT FORWARDING, INC.; PACIFIC INTER-

MOUNTAIN EXPRESS CO?; NAVAJO FREIGHT LINES, INC.;

YELLOW. FREIGHT SYSTEM, INC:; GLOBAL AIR CARGO,

LTD.; GATEWAY TRANSPORTATION .CO., INC., and GATE-

WAY. AVIATION; INC., * ,

Respondents.

a PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

) FOR THE SECOND CIRCUIT

" Petitioners respectfully pray that a writ of certioran

‘issue to review ‘the judgment and opinion of the United

States Court of Appeals for the Second Circuit entered

in this proceeding on October 24, 1969.

- , *OPINIONS BELOW EY

The opinion of the Court bélow of which review is

sought appears in the Appendix“hereto (A. 1). It is

not yet reported. The earlier opinions delivered by the

Court and respondent Civil Aeronautics Board (Board)

are as follows: Opinion and Order on Remand of the!

Board dated April 21, 1969, not yet officially reported,

but unofficially reported ‘as C.A.B. Order 69-4-100. Docket >

16857'(A. 15) and “Proposed” Regulations PSDR-22

and EDR-159, Docket 20926 (A. 68): Opinion of the &

Court ef Appeals dated March 1% 1968, reported at *

-.. 391 F.2d 295 (A. 91),?- and Opinion and Order of the

Board dated September 22; 1967, not yet officially re-

ported, but unofficially reported as C.A.B. shined E-

25725 Docket 16857 (A. /\17).

}

[

JURISDICTION °

The salad nt sought 4p be reviewed was entered by

the Court of/ Appeals for- thé Second Circuit on Octo-

ber 24, 1969. The rw Wet of this Court. rests upon

28 U.S:C. 81 op 1). |

QUESTIONS Spieaeres |

1. Whether the Coutt s decision ibiie the Board.

to authorize long-haul motor .carfiers as air freight

: ihe is

a |

es. fl ms

! Citations to: the Appendix are prefixed wae, Ua > throughout

this document.

. » & - o

2 Citations tafthe Court’ s firs*Opinion are to the official Re- ,

port. For additforial reference, the page numbers of the official -

Report have ‘been indit itated in the copy of the Opinion repro-

‘difced in the Appendix hereto. >

> @® . ‘ -

‘3

forwarders violated Congressional policy as evidenced in . | os

the Federal Aviation Act of 1958 and elsewhere.

| bisa the Court’s sischekiia violated the Admin-

istrative Procedure Act, 5 U.S:C. 8557(c), by” allowing

the Board to substitute a so-called “experiment” for

the findings, conclusions and reasons required by the Po

Act, or otherwise.

‘

APPLICABLE STATUTES AND REG aa pasate

Federal Aviation Act of 1958_

| §101¢3), 72 Stat. 737, as amended. 49 U.S.C. 81301(3)

(1964) (A. 202).3

$102. 72 Stat. 740. 49 US.C: “$1302 (1964) (A, 202).

&408(a)(5), 83 Stat. 103 (1969), Pub. L. No. 91-62.

§2 (Aug. 20. 1969), amending 49 U.S.C. $1378(a\(5) 2

" (1964) (A. 203). « ,

§408(b). 72 Stat. 767. as amended. 49 U.S.C. 81378(b)

(1964) (A. 204). ;

81006(a), 72 Stat. 795, 49 U.S.C. 81486(a) (1964) (A. 205).

_ Economic ‘Regulations of the C iil. eronautics Board.

$296.43, 14 C.E.R. 8296.43 (1969) (A. 206).

- $296.86, 34 Fed. Reg. 19342 (1969) (originally pro-

~~ mulgated-with-the Order _here under review -on ae 21, oa’

1969) (A. 207). eee

§297.34, 14 C.FLR. pe taae (A. 208).

3 Because of their length ie applicable statutes and regulations

are set forth in the re ;

4 o

§297.66, 34 Fed. Reg. 19343 (1969) (originally pro-

mulgated with the Order here under review on April 21,

1969) (A. 210).

Administrativ e Procedure Act.:

§2(e), 80, Stat. 388 (1966), 5 U.S.C: £558(c) (Supp.

IV, 1969) (A. 211).

$8(b), 80 Stat. 387 (1966), 5 U.S.C. 55710) (Supp.

IV, 1969) sin Bhan

STATEMENT OF THE CASE

This proceeding was instituted by the Board on Janu-

ary 12, 1966 as a “comprehensive” investigation “to

fully explore the possible consequences of allowing mo-

tor carriers, such as applicants, to be air freight forward-

ers *.* *” (J.A. 11).4. The Examiner in his initial-deci-

sion confirmed the broad nature of the investigation

when he stated that, while the immediate issue was

whether the [then] four applicants should be author-

ized, the “fundamental” question was whether “long-

haul motor carriers of general commodities should be

allowed to act as air freight forwarders” (J.A. 748).

Prior to the decision in this case and throughout the

more than twenty year history of the air freight forward-

‘ ing industry, the Board had allowed no long-haul motor

- 4 The record herein includes the. printed appendices in both No.

31,795 and 33,623 in the Court of Appeals, the former being the

assigned docket number prior to remand. The printed Appendix

in No. 31,795 was designated “Joint Appendix” and is prefixed

- “J.A.” herein, while that in No. 33,623 was designated ““Appen-

dix” and is prefixed “App.” The record also includes a Joint

Appendix in No. 31,795 that was not printed but instead con-

sists of photo copies of the original record. Since those pages

bear only the original record numbers, that part of the record

‘is prefixed “J.A(R.).”

. ;

‘ ‘

@ Kerw . a: acts . etl tii OL ESS CCN TA ER IE

, ° .

4 ‘

carrier,to become an air freight forwarder,> The Board

had acted pursuant to a rigid, exclusionary policy, urider

which air transportation, including air freight forward-

ing, was to be “free of control by surface carriers.”

Railway Express, Air Freight Forwarder Application, 27 ‘

C.A.B. 500, 502 (1958). This policy was not a mere

creature of the Board’ but, instead, was described as a

“fundamental cancept” which “Section 408 reflects”

and which is “‘in accord with congressional intent.’

(bid. ) (emphasis added)

The justification for the Congressional poligy is no-

where better illustrated than in this case. he air

freight forwarders and long-haul motor carriers are sub:

stantial competitors. Many shipments handled by the —

forwarders move also in motor carriage and vice versa.

(While air rates are concededly higher on the average,

air offers a distinct advantage in terms of speed.) Com- «

petition between the two modes is increasing. ay motor

carrier costs rise in relation to the costs of providing

air freight service, and as the rate differential between

- the two modes narrows.® In fact. with the railroads

. ad

> The’ Board’s only citation to a case where a long- -haul motor

carrier was allegedly awarded seeeny was to United Parcel Man-

agers Co., Order E-7324, April 22, 1953 (A. 122). However, ‘the

Court below properly dismissed that case as having been accorded

no significant precedential value, since that carrier's authority by

and large was and is restricted to parcels of 50 pounds or less

(391 F.2d at 301, n. 7). Hence, the Board, until’ now, has.never

awarded air freight forwarder authority to a long-haul motor car-

rier with unrestricted general commodity authority or even inti- _*&

mated that.it would do so.

more and -more surface freight (A. 25-26).

‘now virtually out of the passenger business, and with the

air freight forwarders becoming the major carriers of air

freight (sce p. 10, infra), there is now no greater area of

regulafed air-surface competition than that which exists

between the air freight forwarders ‘and the. OnE aus We mo-

tor carriers.

Notwithstanding this intensification of coapetition be-

tween the air freight. forwarders and the long-haul. motor.

carriers, the Board decided to admit the nation’s largest

long-haul motor. darriers into air freight forwarding (Or-

der E-25725, A. 117). The Court. however, on review.

vacated the ‘awards and remanded the case to the Board,

concluding that the Board’s findings in support. of entry

of long-haul truckers as a class were wanting in the care-

‘ ful investigation, substantial evidence, and rational expli-

- cation required by law, particularly in view of the: fact

that the Board’s’ proposed action (1) was “fraught with

danger” insofar as impact on the existing industry was

concerned (391 F.2d at 307), (2) constituted a total re-

versal of policy from that previously adhered to over

the course of many years (id., at 301), and (3) was

opposed to a “general policy Congress has long de-

creed” (id., at 307).

On remand, the Board, after receiving briefs and hear-

ing oral argument, but without further hearing and, in-

deed, without reopening the record, reached basically

the same result as the first time. (Order 69-4-100, A. 15).

At the same time, the Board rejected the ‘Court’s con-

clusion that it must follow Congressional policy as found

by the Court (A. 18). Perhaps for that reason, the ma-

jor differences in the Board’s second opinion were more

of form than of substance, that is, the long-haul motor

carrier applicants other than those parties to the pro-

ceeding were now to be screened through “proposed”

regulations which were issued simultaneously with the

decision (A. 68). _ The criteria for admission were to be

identical, however, to the criteria employed in the case

of the first three (A. 44). The Board nevertheless stated

that hereafter the policy was to be one of “monitored”

entry under: the regulations (A. 18):

Vice Chairman Murphy, who dissented from the orig-

; inal decision, again dissented on the grounds, infer alia,

that the Board’s Order was. 10n- responsive to the C ourt’ S

mandate (A. 49).

The Court of Appeals in its second Opinion affirmed

the Board’s Order on Remand (A. 1).’ It admitted,

however, ‘that the Board had failed to consider the ap-

plicable Congressional policy (A. 10) and also acknowl-

edged that the Board had failed to deal with other di-

receives of the Court upon Remand (A. 6). The Court

significantly made no determination whether the Board

had complied with Section 8(b) of the Administrative >

Procedure Act. Vener 391 F.2¢ at 298 and 307). Fi-

nally, the Court abandoned its earlier requirement that

the Board articulate its rules in terms of the impact of

_ the probable entrants on the existing independent air

» freight forwarding industry (id., at 298 and 300), the _

Court holding instead that the “‘proposed” rules. through

which other applicants were to be screened under the

monitored “experiment,” did not yet affect petitioners

and, therefore, were not subject to review (A. 12). As

will be evidenced hereafter, the Court’s decision is highly :

prejudicial to petitioners and-not in accord with law.

—L—

7 Jurisdiction in the Court of Appeals was based on Section -

1006(a) of the Federal Aviation Act of 1958, 72 Stat. 795, 49

U.S.C. $1486(a) (1964).

"HER

REASONS WHY CERTIORARI

SHOULD BE GRANTED : ne

c .

I. The Decision Below Sanctioned An Important

* And Basic Change'In The National Transporta-

tion System. {x

Air freight forwarding is a’dynamic and rapidly grow-

_ing segment of the nation’s transportation system. Air

transportation generally is the growth leader among

transportation modes, and within .air transportation, .air

freight is growing faster than passenger traffic.® — And,

as will be demonstrated below, the air freight business

gf the forwarders is growing more rapidly than that of

the direct air carriers. » ‘

The air forwarder is a common carrier. As such, he as--

sumes total responsibility’ for his customers’ shipments

from origin to destination. Since air freight forwarders’

do not operate aircraft, his services necessarily consist

of promoting, selling, routing and handling air freight,

document preparation, and movement of air freight on

the ground at origin and destination, as well as at in-

terline points. The forwarder’s customer normally is

not aware of the identity of the underlying direct air

carrier utilized for his shipment. The forwarder often

acts as a transportation advisor, thereby preventing the

shipper from making costly distribution errors. (See

generally J.A. 729-30; 391 F.2d at 304.)

The dramatie growth in the volume of revenues (but

not earnings) in the air freight forwarding industry is at-

tributable in large part to the nature of the air freight

market and the functiens-the forwarder performs. Air

8 A. 50; 1968 C.A.B. Ann. Rep. 139.

. 9

freight traffic is theoretiéally capable of moving from

the door of the consignor to the door of the consignee

at nearly the speed of sound. In fact, however, the

door-to-door time is considerably slower. The reason

is that the traffic consists of relatively small shipments -

(as opposed to bulk shipments), and each shipment must ~

be handled, moved on the ground, documented and con- .

solidated for line-haul movement. The dramatically in-

creased efficiencies in the line-haul movement of air

freight brought about by new and better aircraft has

required the industry. to keep pace on the ground in

order that the inherent advantages of air transportation

not be lost. As the figures indicate, the forwarders,

whose expertise lies in these “areas of increasing need,

have risen to the occasion and have met these needs

with marked success.?

The forwarder receives compensation for his services,

~in part, from being able to consolidate smaller shipments

into larger ones, which then meve at the lower volume

unit rates of the direct air carriers, the rate structures

of the latter reflecting reduced unit costs a large. ship-_

ments (J.A. 730).

In 1965, the year of record in this proceeding, the

air freight forwarding industry generated commercial

‘revenues of $164 million, or 37% of total air freight

services sold to the public, against 63% for the direct

air carriers.'!° In ‘1968, the volume of forwarding

9 In contrast, the surface forwarder operates in a more lim-,

ited segment of the total market and has fewer opportunities.

Air Freight Forwarder Case, 9 C.A.B. 473, 517-18 (1948).

10 These figures are taken from the following reports required

to be filed with the Board, of which official notice may be taken

under Rule 24(m) of the Board’s Rules of Practice: Forms 244

cont’d

i ( )

\ 10

revenues had risen to $298 million ~ nearly double

1965 — and its share of the total market climbed to.

42%. compared with 58% for the direct carriers. Com-

mercial air freight revenues far the industry in 1968

totalled more than $700 million. It is thus apparent

that what is involved in this decision today is close to a

billion-dollar industry, in which the independent air freight

forwarders are substantial contributors and imminently °

may well be the major contributors.

On the basis of the foregoing figures, and given the

rate of technological growth in air transportation through-

out the years, it has frequently been predicted that in’

the not too distant future, freight revenues will exceed

passenger revenues in air transportation. American Air-

- lines, Inc. v. Civil-Aeronautics Board, 359 F.2d 624, >

637 (D. C. Cir.), cert. denied, 385 U.S. 843 (1966)

(dissenting Opinion of Judge Burger). Compare 1968

C.A.B. Ann. Rep. 139. \

As noted earlier, the Board’s Order affirmed by the

Court would,. for the first time, allow the nation’s lar-

- gest mgtor carriers as a Class to become air freight for-

warders. The invasion would be large scale. Already,

a total of sixteen such carriers have been admitted or

- have filed applications and are waiting-in the wings

to enter (A. 44). More will surely follow if for

no other than competitive reasons (391 F.2d. at 300).

Under the announced standards most if nof all future

(Footnote 10 continued)

(filed by air freight forwarders); Handbook of Airline Statistics,

Part II, Table 83 (1967 ed.) (summarizing the direct air carrier

data). The reported figures of the direct air carriers have been

adjusted to eliminate revenues not received from the shipping

- public, ie., forwarder payments.

oS aN

applicants will be admitted, since there will be no basis

for distinguishing the latter from those already admitted.

As & result of the Court’s. decision, the shipping pub-

lic stands to lose the substantial benefits of long-haul

motor carrier/air freight forwarder competition, which

Congress has taken such pains to preserve (see Point II,

infra). The choice of mode for the shipper’s goods —.

which any carrier operating competing modes. could

strongly influence through its sales efforts, service and

position as transportation advisor — will be made in this

instance on the basis of carrier profitability. And be-

cause of:the substantial fixed investment of the truck-

_ers in their motor carrier operations in comparison to

-air,!! the major incentives of these applicants will be to

pen surface transport at the expense of air, in direct

violation of Section 102 of the Act. Application of

“ABCO Moving & Storage Corp. et al., Order E-16474, *

March 3, 1961, C.A.B. Docket;No. 12193, p. 4 (mimeo.);

Air Freight Forwarder Case, 9 C.A.B. 473, 510 (1948);

Latin American Air Service, 6 C.A.B. 857, 903-04 (1946).

In addition, the entry of the motor carriers can be

expected to adversely affect the “Highly vulnerable”

existing air freight forwarders. Ninety percent of the °

forwarders collectively suffered a,loss of $1.1 million

in 1965 (391 F.2d at 299). Such entry. under the

circumstances would thus be in derogation of the +

Court’s finding that “the continued health of the

independent forwarders is of utmost importance not only

Wn 1965, the applicants’ collective investment in long-haul

motor vehicles alone approximated $157 million dollars, before

considering any other fixed investments incidental to applicants’

long-haul motor carrier business-(J.A(R.) 1892, 2524, 3076 and

' 3086). Against that massive: figure applicants propose to invest

only a total of $1 million in air freight forwarding facilit‘es (J.A.

(R.) 1904, 2596-2600 and 3046). -

_ to themselves but to the future of air freight” (id., at 300). !?

Of course, competition would be further eliminated to the

the extent present independent forwarders are driven

from the industry.

These undesirable competitive effects are being sanc-

tioned apparently in the name of intermodal coordina-

tion’ (see the discussion of the Examiner ‘at A. 162 which

was adopted by the Board at A. 18). ‘ While that concept

is presently much in vogue, Congress has. yet to legislate

_in the area.!3~ .

In short, what jis "involved in this case is-a basic change -

in the national transportation system which will adversely

affect competition by eliminating the Congressional policy

against entry of surface carriers into air transportation in

an area where it is most effective. While such change might .

properly be the subject of legislative concern, it is beyond

. the power of the Board to enact under existing: statutes.

| 12 On remand, but without reopening the record, the Board

simply abandoned its earlier finding that entry of the motor car-

riers would hasten the demise of a number of air freight forward-

ers (A 39 and 121). It also ignored for the purpose of deter-

mining competitive impact, the substantial total financial resources’

of the applicants, denying that such resources would give appli,

cants a substantial competitive, advantage over petitioners (A,/38-

39). But’ as the Board noted’ elsewhere, such total resoyfces

would be available to the applicants (A. 27), and the’ serious-

ness of the threat to the forwarders is indicated by the fact that

the operating revenues of just*the three applicants gflready admit-

ted exceed” those of .the entire ait freight forwar ng industry

(J.A. sigs 2892). .

13% Point Il, infra. The Act creating thé Department of Trans- ,

portation left the various economic > regulatory functions of the

independent administrative agencies intact and did not: change

‘any substantive economic regulatory law in the transportation

field. Department of Transportation Act, 80 Stat. 931 (1966),

49 USC. $1651, et seq. (Supp. IV, 1969).

Bare’

Il. The Court Below Interpreted The Federal

‘Aviation Act In A Manner Contrary To

Congressional Intent And Long-Standing

Administrative Construction.

—

_ This case involves the power of the Board under the

Act to reverse a long-established course of action (391

AR. 2d at 301 and 302) in a direction not only fraught

with danger but also clearly in opposition to Congres-

sional’ intent (id., at 307).

The Board has generally licensed air freight’ forward-

ers under the broad public interest standards contained

~in_ Sections 101(3) and 102 of the Federal Aviation Act

of 1958, respectively 49 U.S.C. 881301(3) and 1302.

(1964), and Regulations issued pursuant thereto, 8296.43

and 297.34 of the Board’s Economic Regulations. In ad-

dition to those standards, Section 408(a)(5) jof the Act,

49 U.S.C. 81378(a)(S) (1964), as recently amended by

Pub. L. No. 91-62, 82 (Aug. 20, 1969): in fespects not

here material, proscribes the acquisition of /air freight

forwarders by other common carriers, unless the Board

finds under Section. 408(b), 49 U.S.C. 813/78(b) (1964),

that such transactions are in the public interest and do

not tend to restrain trade or create a mo cpoly. -

Beyond those very broad standards, hgwever, the stat-

utes contain some very pointed language} which relates

to the matter at hand. Subsection (b) of Section 408

of the Act further provides that, while

certain circumstances, may approve acquisitions of con-

trol by common carriers:of air carriers;

Mite ibe OE applicant is,a carrier other

- than an air carrier, or a person controlled

by a carrier other than an air carrier or

affiliated therewith within the meaning of

Section 5(8) of the Interstate Commerce

e Board, under .

fs Act, as, amended, such applicant shall

‘for the’ purposes of this section be con-

sidered an air carrier and the Board shall

riot enter such an order of approval un-

"* less it finds that the transaction proposed

‘will promote the public interest’ by enabl-

ing such carrier other than an air carrier

to use aircraft to public advantage in its ;

Operation and will not ‘restrain,competi-

tion.”

~The long-haul motor carriers clearly fall within the

_ purview of the above-quoted statute, which has been

‘held to constitute virtually an absolute bar to the en-

try of any surface common carrier into air. transporta-

tion as a direct air carrier. American President Lines,

et.al., Petition, 7 C.A.B. 799 (1947).° But because of

the reference to,the use of ‘ ‘aircraft to public advan-

tage in [applicant’s] operation” in the second proviso

of Section 408(b), and the fact that air freight forward-

ers:are expressly prohibited by Board Regulations (14

C.F,R. 88296.1(a)(1) and 297.1(a)) from operating air-

craft directly, the Board has uniformly held the second

proviso to be ROM-appHcaic literally to an acquisition

. of an air freight forwarder. !#

. However, ‘notetthatamaine that holding, the Board for over

twenty years at the same time applied a rigid policy of exclu-

sion against surface carrier invasion of air freight forward-

ing. Thus, in the Railway Express Case, supra, p. 5,

14 American Airlines, Inc. v. C.A.B., 178 F.2d°903, 909-10

(7th Cir. 1949).. It should be noted, however, that the Board’s

decision in this matter was not unanimous, member Jones in 4°

\ dissenting opinion having concluded otherwise (9 C.A.B. 524).

which involved the application of a railroad-controlled

company for air freight forwarding authority, the Board

concluded:

“Section 408 reflects:the established gen-

eral policy that our air transportation

system shall. be free of contro! by sur-

face carriers. - This fundamental concept /

cannot be ignored. * * * Rigid limita-

tion of other forms of transportation in

the Nation’s air transportation system is

in accord with congressional intent and

is necessary fora soundly developed Sys;

tem.” (27 C.A.B. at ae

See also the Board’s Opinion in the ‘Air Freight Forwarder

Case, supra, 9 C.A.B. at $02.

Judge Friendly confirmed the existence of this statu-

tory policy behind the second proviso of Section 408(b)

prohibiting entry by surface carriers into air freight for-

warding in his first opinion, setting forth at length the

various manifestations of the policy, and nating that it

was not wholly agency determined, but, instead, was a

“radiation”’ from Congress.'© While recognizing ex-

pressly that the second proviso of Section 408(b) did

not literally apply to the acquisition of indirect air car-

riers, he- concluded that the Board nevertheless:

“is necessarily obliged to consider the pol-

icies behind the proviso in regulating el

try into forwarding.” (391 F.2d at 302)

(emphasis added.)

In response to this clear mandate of the Court, the

Board, incredibly, stated on remand:

15 39) F.2d at 302-03.

“At the outset, the Board rejects the con-

tention that the second proviso of Sec-

tion 408(b) reflects a Congressional policy

against surface carrier participation in. the

air forwarding business.”” (A. 18.)

It was beyond the power of the Board thus to reject and .

to refuse to consider the applicable Congressional policy.!6

The\ Board is required to formulate policy within the

four corners of the statute.

cognizes: .

“It is not the function of an -administra- ~

tive body to create basic policy but to

administer that which Congress has pre-

scribed.” (American President Lines, su-

pra, ‘7 C.A.B. -at~800)

And as one noted commentator has stated:

“On ordinary problems of interpreting stat-

utes, except when the subject matter is

technical and nonlegal, the courts are the

specialists, whether analysis of legislative

history is called for, or whether the main

process is one of finding the meaning of

the words.” (4 Davis, Administrative Law

Treatise 242 (1958.)

—

As the Board itself re-

16 Judge Friendly, in two classic understatements, noted that

the Board had “attempted” to deal with the Court’s objections as

Stated in its first Opinion (A. 6), and charagterized the Board’s’con-

frontation with the Court on the issue of the pick

408(b) as involving but a

“nuance of difference between the Board’s views

and: those intimated in our previous opinion”

(A. 10).

The record, however, speaks for itself.

eV behind Section

ane

The Court’s action allowing the Board to reject Con-

gressional policy was thus clearly error. It was also

highly prejudicial to petitioners.

P a es S

First, the Board’s erroneous view of what the Con-.

gressional policy is, undoubtedly colored its findings and

helped to render them deficient. See Point IV, infra.

- Second, we do not believe the Board could have

reached the result that. it did if it had applied the ap-

propriate standards. The Board had before it the lar-

gest carriers (p. 12, n. 12, supra) from by far the most

competitive mode of transportation for air freight-(p. 6,.

supra). Under the circumstances, if there was any pol-

icy against surface entry at all, the Court could not very

well have allowed the Board to admit these particular ap-

plicants, much less have provided for the entry of a sub-

stantial number of other long-haul motor carriers, as it did.

Indeed, considering the nature of the competition be-

tween the applicants and petitioners, to have done so

would’ have been consistent only with the Board’s state-

ment that absolutely no such Congressional policy against

surface’ carrier participation existed.

It is not at all surprising, thereforé, that the: Board

apparently felt constrained to confront the Court on

this issue. But for the reasons shown above, it was and

_is beyond the power of the. Board to alter Congressional

policy in this important area of commerce. What is sur-

prising, and gross prejudicial error, is for the Court in

its second Opinion to ignore its interpretation of the

_ statute given to the Board in the Court’s first Opinion,

and to permit the Board to reject the Court’s own cor-

rect interpretation of the statute.

\ "TI. The Decision Below Would Foster A Means

Of Circumventing The Review Provisions Of

The Administrative Procedure Act And Re-

view Statutes. 3

The Board has furmulated a procedure designed ef-

\ fectively to prevent review by the Courts of the impact

\ of its actual decision in this case, and the Court of Ap-

} peals has given its blessing. The procedure, while ingen-

ious, results in a denial of petitioners’ rights under the

applicable review statutes.

The Court of Appeals’ was greatly troubled when it

first reviewed this case over the probable impact of the

Board’s unlimited entry policy on the existing independ-

ent air freight forwarders (391 F.2d at 298). Recogniz-

ing that the independent forwarders must be preserved

as\a viable competitive force (id., at 300), the Court

expressly required the Board to articulate its entry pol-

icy \and assess its impact in terms of numbers of prob-

able \entrants (id., at 300) and resultant competitive im-

pact tid.: at 298).

On remand, the Board, as noted previously, reached»

the same conclusion with respect to the same applicants

before it, but this time. as to all future applicants, pro-

fessed to withhold judgment and to adopt a policy of

“monitored” entry (A. 18). It gave form to its latter

pronouncement by promulgating “proposed”’ regulations

governing future entry (A. 68). The criteria for admis- .

sion were tb be exactly the same, however, as those ap-'

plied |to the members of the class already admitted.

Indeed, the Board expressly stated that it would.

apply the .“‘same criteria” to future entrants as were ap-

plied to the applicants before it (A: 44), and further

noted its rules were being “codified”. in the ‘proposed

regulations” (A. 18). It is noteworthy that the. “pro,

posed” regulations have now been made final. As

eye ae

promised by the Board. theré was ‘n@--CRange a

in the criteria for future admission. ed pe proposed

Sections 296.86 and 297.66 at A. 79 and 84 With their

“final” counterparts at 34 Feds Reg. 19342 and 1934

The Court of Appeals nevertheless this time affirmed

the Board. In so doing, it avoided the impact issue. its

justification being that the Board had only issued pro-

posed regulations, review of which would be “prema- 7

ture’ (A. 12). The Court said that petitioners were re- _!

; quired to “await further grants pursuant to the regula-

tions by which petitioners might be aggrieved” (ibid. ). :

The Court’s rationale for avoiding the impact issue.

will not stand scrutiny. Prematurity, or conversely re-

viewability, is a function of the practical effect of the

decision below, not of form. Columbia Broadcasting

System yv. United States, 316 U.S. 407, 416-17 (1941).

It is clear that the Board both in its original Order

and in Order 69-4-100 did, in fact, formulate final rules

for entry of long-haul motor carriers as a class into air

freight forwarding. Merely labeling its rules as *“pro-

posed” does not make them any less reviewable, particu-

larly in view of the Board’s stated intention to apply

already formulated criteria to future applicants (A. 44).

. Nor were the rules any less effective because made on

an evidentiary record in an adjudicatory proceeding.

S.E.C. v. Chenery Corp., 332 U.S. 194, 203, reh. de-

nied, 332 U.S. 783 (1947).!7 Opinions accompanying

adjudicatory proceedings ° ‘may have essentially the same

effect as rules.” 1 Davis, Administrative Law Treatise

297 (1958).

17 Indeed, the Board’s manner of proceeding was eminently

sound, since the rules announced in this case bear upon eco-

nomic enterprise and touch upon the financial aspects of great

numbers of businesses affected (see Final Report of the Attor-

ney General’s Committee on Administrative Lhe ates a

(cont'd)

It is also clear that the practical effect of the Board’s

rules thus formulated is prejudicial to petitioners’ rights.

First, as matters now stand, petitioners will be re-

- quired to review the orders of the Board admitting ap-

plicants under its regulations seriatim. This obviously

places an impossible burden-on petitioners, as well as

the Courts, in that it will either require petitioners to

prosecute multiple appeals as a means of anticipating

the precise moment the Board’s entry policy becomes,

illegal due to its cumulative impact or, if petitioners

are to attempt to estimate the single precise moment

when the invasion becomes unbearable (assuming it has

not already been reached), it will place an undue risk

of irreparable injury on petitioners which could arise

from having waited a moment too long.

Second, the matter is clearly ripe for review because

petitioners will be irreparably harmed by «a large scale

invasion of motor carriers into their midst if review is

not obtained (see p. 12, n. 12, supra). As will be de-

monstrated in Part IV, infra, while the agefcy has

purported to substitute experimentation for the

findings required undef Section 8(b) of the Admin-

istrative Procedure Act, this so-called experiment is in

reality uncontrolled, since its impact will be ascertain-

‘ able only on an after-the-fact basis by reason of data

to be reported by an unspecified number of successful

applicants. It is uncontrollable for the further reason

that the legal means to terminate or reduce the experi-

ment are lacking (p- 23, infra).

In shori, petitioners are exposed to serious risks

unless it oBtains review. now. Petitioners are nof faced '

with a mere modification of rights under their present

(Footnote 17 continued)

No. 8,:77th Cong., Ist Sess., 107-08 (1941)), and the proceed-

ing also involves sharply conflicting factual issues (S. Rep. No.

752, 79th Cong., Ist Sess., 18 (1948)). In ‘any event, having

made rules in this manner, the Court’ cannot allow the Board

to run away from the record.

licenses. Petitioners, instead, have been plunged into a

highly unstable environment featuring a massive invasion a

newly-licensed competitors which is already well under way.!

Certainly, there is no: administrative purpose to be

served by waiting. The record, upon which the ‘Tegula-

tions were promulgated’ and their impact can be assessed,

is the record before us. There has been full opportunity

to make necessary findings on the impact issue (indeed,

the Court directed the Board to.do so (391 F.2d at

300)).

Accordingly, the Court’s finding that “‘[p] etitioners

will be affected by the regulations only when, as and

if the Board grants further authorizations to long-haul

truckers under them” (A. 12), and the Board’s findings,

which were limited solely to the impact of the three

- applicants before it (A. 17), are clearly inadequate. -By

thus ignoring the real impact of the regulations, the

Court has effectively deprived petitioners of their right

of review, and has invited other agencies to: defeat- review

in the same .manner.

IV. The Decision Below Would Undermine Section

&b) Of The Administrative Procedure Act By

Allowing Agencies To Substitute “Experimenta-

tion” For The Requisite Findings Under The

Act. a

While the Board struggled on remand to patch up its

findings in a few of the numerous respects earlier found

18 We again call this Court’s attention to the Board’s stated

intention to license future applicants on the same basis as the in-

stant ones (A. 44), a factor clearly to be given great weight in

deciding the question of reviewability. Columbia Broadcasting

System v. United States, supra, 316 U.S. at 422.

deficient, it failed a second time. Indeed, many of the

major defects found by the Court the Board ignored

the second time around. satisfying itself with lengthen-

ing rather than sup; orting its decision. Perhaps realiz-

ing the difficulty in supporting its devision with findings

on this record, it resorted to the ex pedient of justifving

all in’ the name of “experimentation.” Such action, jf

approved, could completely pervert Section 8(b) of the

Adminisfrative Procedure Act.

In Burlington Truck Lines v, United States, 371 US.

156 (1962), this Court stated:

“Unless we make the requirements for

administrative action strict and demand-

ing, expertise, the strength of modern

government, can become a monster which

rules with no practical limitations on its

discretion.”” (371 U.S. at 167.)

The foregoing statement applies with equal force to

experimentation.

‘We do not believe any experimentation is permissible

in this case, in view of the clear Congressional policy

against surface carrier entry into air freight forwarding

(Section II, supra) and the danger which a reversal of

such policy entails (391 F.2d at 307). But even if those

factors were not present, what was done here is not

proper experimentation. ;

1. Proper experimentation in this case would require

an estimate of the number of participants and

the impact if the experiment goes wrong (394

F.2d at 300). Here, the Board quite clearly

did not make such an estimate and therefore

has no idea what the limits of its “experiment”

are.

“3

The Court has apparently adopted the Board’s’

contention in support of its experiment that f

control can be maintained by instantly revok-

ing the. licenses issued to participants. How-

ever. the operating authorization of an air

freight forwarder .is a license within the nican-

ing of Section 2(¢c) of ,the Administrative Pro-

cedure Act, 5 U.S.C. §558(c), see Airfreight

Forwarder Investigation, 21 C.A.B. 536. 609

(1955), notwithstanding the fact that such li-

cense may be obtained initially without hear-

ing. It is also clear that the Board could not

simply cancel the authorizations here at issue |

without a lengthy and protracted hearing meas-.

ured in years. In’Re Carter,-177 F.2d 75

(D. C. Cir.), cert. denied, sub nom., Laws y.

Carter, 338 U.S. 900 (1949): Air Freight For-

warder Investigation, supra. In the meantime,

given the precarious posture of the existing .

independent gifreight forwarding industry ,

(391 F.2d 299), irreparable injury would

have been ddne.

What forced the Board into_this posture of ex peri-

mentation is clear. It. the decision it

apparently wanted to reach on thssésis of policy on

the record before it. Following are a selected sample

of key findings which illustrate the strain that the Board

must have been under. We do not ask the Court to de-

termine the substantiality of the evidence on all substan-

tive issues in this case at this juncture.. Instead, we pre-

sent these examples merely to shed light on the Board’s

action, which the Court sanctioned, whereby it (1) re-

fused to apply the applicable Congressional policy to this

case (Point II, sipra), (2) resorted to artful devices to

avoid judicial review of the issue of competitive impact

(Point Ill, supra), and (3) substituted “experimentation”

for findings, reasons and evidence required by Section

8(b) of the Administrative Procedure Act.

1. The Court affirmed an ultimate finding that ap-

plicant’s services are needed because the air treight in-

dustry, is plagued by an overabundance of unused ca-

pacity. The specific finding was that less than 25% of

the available capacity for freight was being utilized (A.

25). The 25% figure is either ‘absurd or, if it is accur-

ate. such: waste of resources does not speak. well of both

the regulators and the regulated.

Fortunately, it is the former which is true. The evi-

dence relied on siya at J.A. (R. ) 2204-05.

The Board’s pert factor finding is patently absurd be-

cause the 25% figure is a weight load factor. However,

the capacity of freight services, particularly that avail-

able on passenger aircraft, is limited by volume. No.

meaningful estimate of unused capacity can be made,

therefore, without determining what portion of avail-

able space goes out empty. 19 This the Board did not .

do. It should/also be noted that the practical capacity

19 The space problem is particularly acute for freight carried

in the odd shaped belly compartments of passenger aircraft. In

passenger services, there is very little space left after allowing for

the space needed for passengers above deck, the space needed for

passenger baggage and mail below deck and the plumbing and

other fixtures which intrude iato the belly compartment of an

airplane, none of which factors the Board took, into considera-

tion. Were it not for the Board’s expertise, this might appear

to be a classic case where one look at the average loaded passen-

ger aircraft and the available freight, which weighs at most 10

pounds per cubic foot on the average, is worth thousands of

pages or record, and where, in view of the Board’s finding, the

regulators might well be accused of regulating from an ivory

tower.

of any given airline operation — whether passenger or

freight, or whether based on weight or space — is con-

siderably dess than 100%. Because of the uneven flows

of traffic and the volume limitations on capacity, any

carrier that consistently runs without substantial amounts

of so-called “unused” capacity measured by weight is

not providing enough capacity. There thus has been

not “only no colorable attempt to make a finding as to

the amount of unused capacity in the industry, but the

circumstances are such, given the Board’s expertise, as

to call into ‘question the objectivity of the Board in

this entire case.

2. The Court affirmed the Board’s finding that the

long-haul motor carriers will promote traffic in the out-

lying, secondary air freight markets. The evidence re-

lied on, however, was simply data showing that most

existing air freight forwarder traffic is generated in a

relatively small number of top markets (A. 28), and that

air freight forwarding “may not be directly profitable”

at the outlying points (ibid.). There is absolutely no

indication that operations at such points would be any

more profitable and? hence, any more productive of

traffic for the motor carrier forwarders (ibid.). What is

indicated is that the truckers would do. everything pos-

sible to protect their substantial investments by using

their: trucking facilities there and elsewhere (see p: 11,

supra). Moreover, the Board has found in other cases

before it that there is in fact no undeveloped air freight

potential at the outlying markets. See Domestic Coterminal

Points-Europe All-Cargo Service Investigation, Order’

E-25513, August 9, 1967, C.A.B. Docket No. 18531.

pp. 2-3 (mimeo.). . oa ete

3. The Court after remand did not require a find-

ing as to whether long-haul motor carriers would suffer

disabling conflicts of interest as between their air and

surface operations (the Board merely concluded, after

believing for twenty years to the contrary, that any sug-

gestion of conflicts was nothing more than “hypothesis’’)

(A. 35). Based on a review of the record, Judge Friendly

had earlier found tiie Board’s original findings of no

conflicts to be “at war with common sense” and to suf-

fer from a “certain unreality” and “serious confusion of

thought” (391 F.2d at 304) and, indeed, he further found

that it would be a “formidable” task to find no conflicts on

remand on this record (id., at 303). Thus, it is explained

why there is now no-finding on thi$ very crucial issue.

4. The Court affirmed an Order and Opinion in which

the major findings are in conflict. On the one hand, the

Board found that, the Jong-haul motor carriers would

have no conflicts of interest because they would gladly

divert shipments of up to 200 pounds from their sur-

face operations to a more profitable air freight forwarder

operation (A. 34). . On the other hand, the domi-

nant public interest justification .for the decision below

was that applicants’ services were needed at the outly-

ing secondary points, where traffic is allegedly not being

promoted (A. 28).. The evidence relied on undisputedly

indicates, however, that air freight forwarding is more

profitable. than tong-haul motor carriage only in the case

of a relatively few forwarders (J.A.(R.) 4466), who ad-

mittedly concentrate most of their services at the major

points (A, 28) where profitable consolidations can be

effected Jibid. ). It’ is undisputed that the /ong-haul

truckers provide no short-haul service today. Missing

is any finding that would reconcile these contra-

dictory findings by showing how the applicants would

get their small shipments from the secondary points to

thé major points where the profits are but where there

is already a plethora of service and, hence, no justifica-

tion for their operations. -

CONCLUSION

For the foregoing reasons, the writ of certiorari should

issue. ° Zs

Respectfully submitted,

LOUIS. P. HAFFER

— : 1730 Rhode Island Avenue, N.W: .

Washington, D.C., 20036

ROBERT N. MEISER*

1730 Rhode Island Avenue, N.W.

. Washington, D.C., 20036

Attorneys for Petitioners

January 22, 1970 |

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