Petition for Writ of Certiorari — Ozark Air Lines, Inc. v. Civil Aeronautics Board

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IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1971

ree

OZARK AIR LINES, INC.,

Petitioner,

v.

CIVIL AERONAUTICS BOARD.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals

for the Eighth Circuit

NEALE, NEWMAN, BRADSHAW & FREEMAN

PAUL L. BRADSHAW

705 Woodruff Building

Springfield, Missouri

Counsel for Petitioner

October 29, 1971

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Opinions Below ............. Pe er rere 2

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Constitutional Provisions Involved ................ 3

Statement of the Case .............ccceeeee weaken 5

Reasons for Granting the Writ .................05- 8

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Ee ea RE ee RE re rT i eT A-1

A. Order determining subsidy refund ............ A-1

B. Opinion of United States Court of Appeals for

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C. Petition for Rehearing to the Eighth Circuit ..A-13

Case Citations

H.D.&D. Moving & Storage Co., Inc., et al. v. United

States, et al, D. C. Hawaii, 298 F. Supp. 146, 751(4) 9

Miscellaneous Cited

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Federal Administrative Procedure Act

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Federal Administrative Procedure Act (5 U.S.C. 706) 3

Fifth Amendment of the United States Constitution... 8

Sec. 406, Federal Aviation Act of 1968 (49 U.S.C.

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IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1971

re

OZARK AiR LINES, iNC.,

Petitioner,

V.

CIVIL AERONAUTICS BOARD.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals

for the Eighth Circuit

Fetitioner, Ozark Air Lines, Inc., prays that a writ of

certiorari issue to review the judgmeat of the United

States Court of Appeals for the Eighth Circuit entered

May 5, 1971, affirming an order No. 70-5-107 (Appendix

A-6) of the Civil Aeronautics Board made pursuant to

rules promulgated under Sec. 406 of the Federal Aviation

Act of 1968 (49 U.S.C. 1376(b)) as amended, ordering

petitioner to repay $246,579 of subsidy received by Peti-

tioner for Calendar Year 1966, and that on hearing the

Court of Appeals’ judgment be reversed,

a, ee

OPINIONS BELOW

The opinion or the Court of Appeals for the Eighth Cir-

cuit (Appendix A-6) is reported at 441 F 2d 892.

The opinion of the Civil Aeronautics Board is unre-

ported and is printed here as Appendix A-1.

JURISDICTION

The judgment of the Court of Appeals (Appendix A-6)

was entered on May 5, 1971. Timely Motion for Rehearing

was filed and was denied on June 2, 1971 (Appendix A-13).

On August 19, 1971, Associate Justice Harry A. Biack-

mun signed an order extending the time for filing this

petition for writ of certiorari to and including October 30,

1971.

The jurisdiction of this Court is invoked under the pro-

visions of 28 U.S.C.A., § 1254 (1).

QUESTIONS PRESENTED

1. Whether the procedure adopted by Respondent for

determination of subsidy refunds for 1966 was discrimi-

natory in that the financial data which was utilized by the

Respondent to determine Petitioner’s liability was not

consistent among all the carriers in the class so that any

cairier’s liability for subsidy refunds was solely depend-

ent upon when a carrier’s final subsidy determination was

made.

2. Whether Respondent abuse! its discretion in con-

sidering losses reflected by pro forma tax returns filed by

Petitioner in 1969, although Section III-E-1 of Class Rate

Itl-A required that losses not reflected in tax returns

‘“‘Submitted to taxing authorities’’ not be considered in

_—

determining a refund of subsidy, inasmuch as Petitioner

had not ‘‘submitted’’ tax returns to ‘‘taxing authorities.’’

3. Whether Respondent discriminated between Peti-

tioner and Frontier Airlines, Inc. by considering Peti-

tioner’s 1969 losses in relation to its subsidy determina-

tion for 1966, while not considering a similar loss suffered

by Frontier for 1968, where losses for both carriers were

known to Respondent at the time it made its respective

determinations.

CONSTITUTIONAL, STATUTORY AND RULES

PROVISIONS INVOLVED

The Fifth Amendment to the Constitution of the United

States provides ‘n pertinent part as follows:

‘‘No person shall . . . be deprived of life, liberty,

or property, without due process of law; .. .”

The Federal Administrative Procedure Act (5 U.S.C.

706), provides in pertinent part as follows:

‘“‘To the extent necessary to decision and when

presented, the reviewing court shall decide ail rel-

evant questions of law, interpret constitutional and

statutory provisions, and determine the meaning or

applicability of the terms of an agency action. The

reviewing court shall—

(2) hold unlawful and set aside agency action,

findings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discre-

tion, or otherwise not in accordance with law;

(B) contrary to constitutional right, power,

privilege, or immunity;

(C) in excess of statutory jurisdiction, author-

ity, or limitations, or short of statutory right;’’

a on

The Federal Aviation Act (49 U.S.C., § 1376(b)), pro-

vides in pertinent part as follows:

‘*(b) In fixing and determining fair and reasonable

rates of compensation under this section, the Board,

considering the conditions peculiar to transportation

by aircraft and to the particular air carrier or class

of air carriers, may fix different rates for different

air carriers or classes of air carriers, and different

classes of service. In determining the rate in each

case, the Board shall take into consideration, among

other factors . . . (3) the need for each such air

carrier . . . for compensation . . . sufficient to in-

sure the performance of such service, and, togetser

with all other revenue of the air carrier, to enabie

such air carrier under honest, economical, and efficient

management, to maintain and continue the cevelop-

ment of air transportation to the extent and of the

character and quality required for the commerce of

the United States, the Postal Service, and the na-

tional defense.’’

Section IIT-E of Civil Aeronautics Board Order E-23850,

June 23, 1966, the Board Rules for determining the rate

under the Federal Aviation Act (49 U.S.C., § 1376(b))

provides in pertinent part as follows:

‘**Federal and State income taxes shall be deter-

mined on the basis of the carrier’s actual income

taxes, including the reducing of taxes resulting from

loss carrybacks and carryovers, as reported on its

income tax returns submitted to taxing authorities

for each year, with such amendments and revisions

as may have been filed as of the final determin.tion

or profit-sharing hereunder; Provided, however, that,

for the purposes of this order, the carrier’s actual

income taxes for a given review year will be adjusted

to exclude taxes related to income which is not other-

wise considered in the profit-sharing determination,

hereunder, for that review year; Provided, further,

that where a final profit-sharing determination for

a p.ior period has been made and the tax basis relied

upon in that final determination has been amended

or revised subsequently, the effect of the change in

taxes will be considcicd as income or expense for

profit-sharing purposes in the year in which the

change is made... .”’

STATEMENT OF THE CASE

Petitioner is one of nine local service carriers which re-

ceive federal subsidy under the Federal Aviation Act of

1968, as amended, 49 U.S.C., § 1376(b). Respondent admin-

isters the subsidy program.

The amount of subsidy paid to a carrier is based on

such carriers’ ‘‘need’’ during a given year, that ‘‘need’’

being determined by a uniform class rate formula. In

1966, the class rate contained a ‘‘ profit-sharing’’ provision,

requiring a carrier to refund to the Federal Government

a portion of its profit for the year in question, as shown

by the carrier’s income tax return. In 1966, the year in

dispute here, the rate was known as Class Rate III-A.

Section III-E-1 of Class Rate III-A provides that tax

allowances shall be based upon ‘‘tax returns submitted to

taxing authorities for each year, with such amendments

and revisions as may have been filed as of the final de-

termination of profit-sharing hereunder . . .”’

On May 11, 1967, the Respondent’s staff made an audit

of Petitioner’s operations for 1966, based upon certain

required forms filed by Petitioner. The staff determined

Petitioner’s subsidy refurd to be $98,788.00, with which

figure petitioner was in agreement. On July 22, 1969, the

—

staff increased this figure to $299,532.00 because of its

interpretation of the method used in treating capital gains

in computing petitioner’s 1968 net operation loss carry-

back.

Petitioner protested this determination, and on March

18, 1970, Respondent determined that the staff’s deter-

mination was erroneous, and that its original figure

(98,788.00) was correct. By this time, however, Peti-

tioner’s losses for 1969 were evident. The respondent asked

for and received, Petitioner’s pro forma tax return for

1969. and on the basis of the losses shown therein, the

Respondent, in its Order 70-5-107, assessed Petitioner’s

refund for 1966 at $246,579.00. At the time of Respond-

ent’s final determination petitioner had not sabmitted its

1969 tax return to taxing authorities, having received an

extension from the Internal Revenue Service. Therefore,

the Respondent’s determination admittedly was not, and

could not, have been based upon ‘‘tax returns submitted

to taxing authorities’’ as provided for in Section III-E-1

of Class Rate III-A.

Other carriers whose subsidy determinations for 1966

were processed earlier in point of time did not have 1969

losses taken into account by Respondent. For example,

Respondent determined the ‘‘profit sharing’’ of Frontier

Airlines on January 24, 1969. At that time Respondent

had before it certain reports showing that Frontier suf-

fered a loss in 1963, and that the loss would be carried

back to offset Frontier’s 1966 profits. These losses were

not considered by the Respondent in its determination of

Frontier’s 1966 ‘‘profit sharing’’ and it was not required

to submit pro forma tax returns for 1968 nor refund any

1966 subsidy.

Petitioner petitioned Respondent to reconsider its order,

and upon Respondent’s refusal to do so, appealed to the

— aa

United States Court of Appeals for the Eighth Circuit.

The Court of Appeals affirmed the Respondent’s order.

The opinion of that Court is set out in Appendix A-6.

The Court of Appeals reasoned that to overturn the

Board’s order would allow Petitioner to reap a windfall

for 1966, noting that inasmuch as Petitioner did not di-

rectly compete with the other eight carriers and that ‘‘gen-

eral fairness’’ prevailed with respect to the Board’s treat-

ment, there was no discrimination among the various

carriers.

The Court also noted that the Board was justified in

ignoring the literal terms of Section III-E-1 inasmuch as,

to do otherwise, would ‘‘ignore reality’’ since Petitioner’s

pro forma tax return showed that a loss carryback would

be claimed, notwithstanding the fact that no tax return

had been filed with the Internal Revenue Service.

Petitioner seeks review of the decision of the Court of

Appeals, and a reversal of its judgment affirming the Re-

spondent’s Order No. 70-5-107.

=

REASONS FOR GRANTING THE WRIT

1. The Respondent’s Order No. 70-5-107 is discrimina-

tory and violates the Fifth Amendment of the United

States Constitution and Section 10(E) of the Admiristra-

tive Procedure Act. The Petitioner was required to re-

fund subsidy for 1966 while other airlines similarly situ-

ated were not so required. This resulted f1m the pro-

cedure adopted by the Respondent for determining ‘‘ profit

sharing,’’ since there obtained no consistency with respect

to the data which would be utilized by the Board to deier-

mine any liability to refund subsidy.

The result was that the Respondent utilized 1969 losses

in computing the 1966 subsidy for Petiticner, but did not

do so for others. In Petitioner’s case, the Respondent had

the 1969 losses before it only hecause of the delay result-

ing from its staff’s error in determining Petitioner’s 1966

‘*profit sharing’’ until after 1969 losses became ascertain-

able. Thus Petitioner’s ultimate liability was the direct

result of the order in which its case was processed, there

being no uniform date as to when losses would no longer

be considered for subsidy purposes.

2. Section II-E-1 of Class Rate III-A contemplates

losses reflected by a carrier’s tax returns submitted to

‘‘taxing authorities.’’ At no time had Petitioner ‘‘sub-

mitted’’ its 1969 tax returns to ‘‘taxing authorities’’ and

the Respondent’s order was based upon a pro forma fed-

eral tax return supplied by Petitioner at Respondent’s re-

quest. With this data in hand, Respondent took the posi-

tion—as reflected by its order—that by following the clear

terms of its cwn rule, it would, insofar as Petitioner was

concerned, ‘‘ignore reality.’’

The Respondent clearly abused its discretion wheu it

disregarded the mandate of its own rule simply because it

—

did not agree with what the result would be if the unam-

biguous terms of the rule were to be applied to Petitioner.

This is not a case where an administrative agency inter-

preted its rules. No question of interpretation is involved,

as shown by Order No. 70-5-107, and the Respondent made

its decision simply because it disapproved of the result

that a literal interpretation would necessarily bring.

3. The respondent discriminated between Petitioner and

Frontier Airlines in determining subsidy refunds for 1966.

Frontier’s determination was made on January 27, 1969,

and 1969 losses were neither available nor considered. Re-

spondent did, however, know that Frontier had sustained

losses in 1968 which would be carried back to offset 1966

profits. Despite its knowledge, Respondent did not take

Frontier’s 1968 losses into consideration inasmuch as

Frontier had not filed its tax return with federal ‘‘taxing

authorities.’’ The Respondent did not require Frontier to

submit pro forma tax returns for 1968, and although cer-

tain other reports filed by Frontier indicated a 1968 loss,

such loss was not computed in Frontier’s 1966 ‘‘profit

sharing.’’

By ignoring the loss in Frontier’s case and including the

loss in Petitioner’s case, Respondent discriminated against

Petitioner, and Petitioner was denied the equal treatment

required by the Fifth Amendment, inasmuch as there was

no rational basis for the distinction. H.C.&D. Moving &

Storage Co., Inc., et al. v. United States, et al, D. C.

‘Hawaii, 298 F. Supp. 746, 751 (4).

4. There is now pending before the United States Court

of Appeals for the Fourth Circuit the case of Allegheny

Airlines, Inc. v. Civil Aeronautics Board, No. 14,892, and

there is pending before the United States Court of Ap-

peals for the District of Columbia Circuit the case of

Texas International Airlines, Inc. v. Civil Aeronautics

—_—

Board, No. 24459. The Allegheny case was heard before

the Court of Appeais on June 9, 1971, and the Texas

International case was heard before the Court of Appeals

on September 17, 1971, but as of the filing of this Petition,

no decision has been rendered in either case.

Like Petitioner, both Allegheny and Texas International

were required to refund a portion of the subsidy they had

received for 1966, based on later year tax loss carrybacks.

Their appeals now pending are, in almost every respect,

identical with the appeal which the Court of Appeals for

the Eighth Cireuit decided adversely to Petitioner and

which occasions this Petition for Writ of Certiorari.

CONCLUSION

It is, therefore, entirely possible that the decision in the

Allegheny or Texas International case, now pending before

the respective Courts of Appeals will be in conflict with

the decision rendered in the Eighth Circuit in the case of

the Petitioner. Should such a conflict become apparent,

Petitioner respectfully submits that Certiorari should be

granted pursuant to Supreme Court Rule 19 (1) (b).

Respectfully submitted

NEALE, NEWMAN, BRADSHAW &

FREEMAN

PAUL L. BRADSHAW

705 Woodruff Building

Springfield, Missouri

Attorneys for Petitioner, Ozark

Air Lines, Ine.

as em

APPENDIX A

Order 10-5-107

UNITED STATES OF AMERICA

CIVIL AERONAUTICS BOARD

WASHINGTON, D. C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D. C.

on the 21st day of May, 1970

SIDY RATE (OZARK AIR

LINES, INC. SUBSIDY RE-

FUND—1966)

Dockets 16750

LOCAL SERVICE CLASS SUB-

| and 15359

ORDER DETERMINING SUBSIDY REFUND

In this order the Board has determined, pursuant to

the provisions of Class Rate ITI-A,! that Ozark Air Lines,

Ine. shal) refund $246,579 of subsidy for calendar year

1966. Since $95,621 has already been withheld by the

Board, the net refund required will be $150,958.

The history, background and general nature of class

rate profit-sharing determinations have been thoroughly

canvassed and explained in numerous Board orders deter-

mining subsidy refunds for local service carriers.2 For

present purposes, it is sufficient to state that Class Rate

1 Orders E-23697, May 18, 1966, and E-23850, June 23, 1966.

2 See e.g., Ozark Air Lines, Inc. Subsidy Refund 1963-1964,

Order E-25553, August 18, 1967, and Subsidy Refund 1965, Or-

der 69-1-129, January 30, 1969,

a * aan

III-A, like most of the other class rates,? under certain

conditions requires refunds of a portion of the subsidy

paid; that the refunds are to be made in accordance with

the detailed profit-sharing provisions of the rate formula;

and that a specia: report, Form T-88, must be submitted

by each local service carrier in order to. facilitate the

profit-sharing and subsidy refund calculations. The ad-

miuistration of profit-sharing and subsidy refunds does

not involve rate-making determinations and the profit-

suaring provisions of Class Rate III are final, are not open

to contest retroactively, and are not in issue.

On May 12, 1967, Ozark submitted Form T-88 in con-

nection with the determination of prcfit-sharing for 1966.

In accordance with established practice, the Form T-88

has been subjected to field audit by the Board’s staff at

the site of the carrier’s operations, and a staff report of

the audit findings has been made to the Board. Upon re-

view of the audit report, the carrier’s Form 41 reports,

the data contained in the carrier’s T-88 report, and the

supplemental materials developed in communications and

discussions between Ozark and the Board’s staff, we have

concluded that under the terms of Class Rate IUI-A Ozark

shall refund $246,579 in subsidy for calendar year 1966.

The Form T-88 subizitted by the carrier for 1966 con-

forms to, and is consistent with, the requirements of the

class rate, except in the following respects:

1. Section III B 1 requires that expenses be consistent

with the reporting requirements of the Federal Aviation

Act and the Board’s regulations. Pursuant to this section,

we have made the following adjustments:

3 Under Class Rate IV, Orders E-25162, May 17, 1967, and

E-25231, June 1, .967, a revenue-growth adjustment reduction

factor has replaced the profit-sharing provisions of prior class

rates,

—A-3—

a. We have eliminated from expense a credit of

$20,969 relating to an overaccrual of payroll taxes in

1965, which was reflected in the 1965 profit-sharing de-

termination.

b. Ozark amortized prepaid rent on leased aircraft

and engines on the basis of a three-year lease, although,

with option clauses granting the carrier the right to ex-

tend the lease for a period of five years, the lease had a

life of eight years. Consistent with Board regulations

the carrier should have amortized the prepaid rent over

the entire life of the lease. We have therefore adjusted

the amortization period and disallowed $14,856 of amorti-

zation.

2. Pursuant to section Lil B 4 various adjustments have

been made to reflect the correct amortization of develop-

mental and preoperating costs resulting in a net disallow-

ance of $2,078 from the carrier’s claim.

3. Consistent with our actual tax policy, as reaffirmed

in Order 70-3-92, March 18, 1970, and in accordance with

the requirements of section III E, we have adjusted fed-

eral income taxes for 1966, reported by Ozark on its Form

T-88, to reflect, the carryback of 1969 net operating losses.

As a result, no provision has been made for federal income

taxes for 1966 profit-sharing. However, since the various

state tax laws make no provision for operating loss carry-

backs, we have provided for taxes as reported by Ozark

on its state tax returns, adjusted to eliminate $5,028 of

taxes applicable to capital gains on flight equipment ex-

cluded from income for profit-sharing.

4. Pursuant to section III F, the Board has made

appropriate adjustments to the carrier’s Form T-88 invest-

ment to reflect the various revenue and expense adjust-

ments set forth above. In addition, the following adjust-

ments to investment have been made:

ow A 4

a. Section III C 2 f requires that investment shall

not include equipment purchase deposits, and specifica-

tions in Schedule W of Form T-88 require that such de-

posits be eliminated from investment on a pro rata basis.

The carrier instead of eliminating $3,463,902 of special

deposits from investment on a pro rata basis, excluded

the entire amount from debt investment. We have there-

fore adjusted the carrier’s T-88 by (1) increasing average

debt investment by $2.467,337, (2) excluding $1,211,673

frem average convertible debenture investment, and (3)

excluding $1,255,664 from average equity investment.

We have also adjusted the carrier’s entry of $83,559

of average capitalized interest on special equipment de-

posits by excluding that amount from investment on a

pro rata basis, whereas the carrier eliminated this amount

entirely from debt investment. The net effect of our ad-

justment is that average debt investment is increased

by $59,519 while average convertible debenture invest-

ment and average equity investment are reduced by $29,-

229 and $30,290, respectively.

The carrier did not exclude from investment the funds

which had been recorded as a current asset but which

more properly should have been recorded as a special

deposit. Accordingly, pursuant to section III C 2 f we

have eliminated $48,695 frem pro rata investment.

b. Equity has been reduced by an average of $105,945

to reflect the portion of Ozark’s liability for 1964 and

1965 profit-sharing (after taxes) which was not reflected

in the carrier’s reports for 1966.

c. Investment has been decreased by an average of

$5,334 reflecting costs incurred in unsuccessful route cases

not eliminated from the carrier’s T-88 investment.

d. Section III C 2 b requires nonoperating property

to be eliminated from investment on a pro rata basis.

—_ a

The carrier did not exclude from investment the value

of nine DC-3 aircraft, which had been taken out of serv-

ice. We have therefore reduced average pro rata invest-

ment by $32,653.

e. Average equity investinent has been increased by

$218,689 to reflect the carrier’s actual income tax liability

for 1966, after giving effect to refunds resulting from the

carryback of a 1967 investment tax credit and to reflect

a carryback of net operating losses from 1969,

With the revisions indicated above, and after reflect-

ing the impact of such revisions in the related calcula-

tions under the formula, the amount of subsidy refund

due from Ozark Air Lines, Inc., for the calendar year

1966 is determined to be $246,579.

Accordingly, It Is Ordered That: Ozark Air Lines, Inc.

shall refund $246,579 to the Government for the calendar

year 1966 pursuant to Class Rate III-A.

By the Civil Aeronautics Board:

Harry J. Zink

Secretary

(Seal)

* In addition to the revisions and adjustments discussed

above, other minor adjustments of a miscellaneous and routine

nature have been made, but none of them are of sufficient con-

——- either individually or collectively to warrant discus-

sion herein.

nition

APPENDIX B

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

No. 20,543

Ozark Air Lines, Inc.,

Petitioner, | On Petition for Re-

v. view of Orders of

the Civil Aeronau-

Civil Aeronautics Board, ties Board.

Respondent.

_—<

[May 5, 1971.]

Before Aupricu,* Lay and Bricut, Ci: -uit Judges.

Aupricu, Circuit Judge.

This dispute between Ozark Air Lines, Inc. and the

Civil Aeronautics Board can be reduced to a relatively

simple basic issue. Ozark, and a number of other so-called

local service airlines in other parts of the country, for

years have required subsidization, determined by ‘‘need.’’

Federal Aviation Act of 1958, as amended, 49 U.S.C.

§ 1376(b). Prior to 1961 this was effected on an individual

basis, but the resulting problems led to the adoption of a

* Of the First Circuit, sitting by designation.

=

uniform rate structure. See Local-Service Class Subsidy

Rate Investigation, 34 C.A.B. 416 (1961). This general

formula was altered from time to time. For the year 1966

it was known as Class Rate III-A. Investigation of the

Local Service Class Subsidy Rate, Orders E-23697, May

18, 1966, and E-23850, June 23, 1966. This required, if

operations proved to be profitable after taxes, a partial

repayment of the subsidy, to effect profit sharing between

the airline and the government. Taxes were to be those

reported, ‘‘with such amendments and revisions as may

have been filed as of the final determination of profit

sharing hereunder.’”” (Emphasis added.) Ozark made a

profit in 1966, and incurred a tax. In 1969 it operated at

a loss. This gave it a loss carry-back, which could be used

to reduce its 1966 tax, and hence increase its 1966 profit

as measured under the order. The Board, still in the

process of determining the amount of profit-sharing for

1966 when the information for 1969 became available,

calculated the tax adjustment to which Ozark was en-

titled, and therefore required a larger profit-sharing re-

fund to the government. Local Service Class Subsidy

Rate, Subsidy Refunds, Order 70-3-92, March 18, 1970;

Order Determining Subsidy Refund Order 70-5-107 May

21, 1970. Ozark objects.

Ozark’s complaint is that the Board had no right to

consider its potential tax reduction in 1966 resulting from

the 1963 losses. Its first reason is that when the Board

took March 18, 1970 as the final determination date for

the refund due from 1966, Ozark’s tax return for 1969,

showing a loss, had not in fact been filed, Ozark having

obtained an extension of the March 15 filing date. Con-

sequently, Ozark says, even if the Board could properly

take March 18, 1970 as the date of final determination of

1 Investigation of tire Local Service Class Subsidy Rate, Or-

der E-23850, June 23, 1966, § III-E-1

=,

profit sharing, by considering a return that had not yet

‘‘been filed” it departed from the terms of the general

order, quoted ante. To this the Board replies that all of

the information it used had already been supplied in re-

ports that Ozark had been obliged to file with it, including

a ‘‘pro forma’’ tax return, the correctness of which Ozark

concedes. These reports, the Board found, showed that

the tax credit would in fact be claimed. Hence, for Ozark

to escape the consequences of its known, actual tax credits

by the simple process of obtaining the consent of the

Internal Revenue Service not to file on time, even if

done in good faith and for other purposes, would be

to ‘‘ignore reality.’’ We cannot but agree. This is a case

for the application of the rule that if literal use of lan-

guage Jeads to ‘‘absurd results’’ in the light of a provi-

sion’s obvious purpose, the purpose must control. United

States v. American Trucking Ass’ns, Inc., 1940, 310 U.S.

534, 543-44. Ozark’s ‘‘need’’ of a subsidy is not to be

determined by formalisms.

Adternatively, Ozark contends that the Board improp-

erly selected March 18, 1970 as the date of final determina-

tion of the 1966 profit sharing, and that if an earlier

settlement date had been selected its carryback loss would

not have accrued and its net profit for 1966, in which the

government was entitled to share, would not have been

enhanced. More exactly, at an earlier date the parties

would not have known that the profit was going to be

enhanced by a tax reduction derived from net losses in

1969, and the Board, by closing the books, would have

foreclosed the government’s right to share in the increased

profits when in due course they utimately accrued.

Ozark’s argument for ‘‘ignoring reality’’ in this respect

is somewhat more sophisticated but, we believe, equally

fallacious. It is true, as Ozark points out, that consistent

with orderly procedure, the Board attempts to make a

—* oo

final determination with respect to each year—and each

airline—as promptly as possible, and that benefits aceru-

ing after the final determination need not then be shared

with the government.2 With regard to 1966 a dispute

arose between Ozark and the Board’s staff as to an un-

related matter affecting the profit-sharing determination,

which greatly postponed the settlement date. But for this

dispute there would have been a final settlement before

the 1969 losses occurred and generated the carryback,

and Ozark would have been able to retain the entire in-

crease. The difficulty with this argument is that while

application of Class Rate III-A could result in windfalls,

it adopted an ‘‘actual tax’’ policy? under which the Board

computed the tax as accurately as possible on the basis of

the facts as known at the time that all other disputes were

resolved and the case was ready for closing. It looks to

the true facts, in other words, in each case, so far as it

is possible to determine them, without speculating, and

without delaying longer than other circumstances require.‘

2 This collows from the language of Class Rate III-A, as

quoted ante.

3 Western Air Lines, Inc., and Inland Air Lines, Inc., Mail

Rates, 14 C.A.B. 243, 251-55 (1951), aff'd in relevant part sub

nom. Summerfield v. CAB, 207 F.2d 200, aff'd sub nom. Western

Air Lines, Inc. v. CAB, 347 U.S. 67.

* We can do no better than quote the Board.

“The Board is here applying a policy it has consistently ap-

plied to all carriers similarly situated. That policy is to predi-

cate the tax allowances on the basis of the Carrier’s actual

income tax liability so far as it is known at the time of the

Board determination. The Board has always been aware of

the fact that in the normal course of administration of tax

laws, the carrier’s taxes for a given year are subject to

after our determination has been made final. But it would

be totally infeasible to attempt to hold open each case until

all possibility of amendment to the carrier’s tax returns for *‘ ~ }

that year had passed. Taxes can be affected by carryback

credits, by voluntary amendments of returns by the taxpayers,

and by deficiency assessment of the Internal Revenue Service,

and were we to deter our final action on return and profit-

— A-10—

This practice not only seems reasonable, it costs the air-

line nothing in terms of the true facts. All that Ozark

can say is that had the formula provided for an earlier

fixed date, or had there not been in this case another

dispute, it would have received a windfall. We see nothing

arbitrary about this loss. Nor does the circumstance that

the Board ultimately overruled its staff, so that Ozark

won the other dispute, call for a different result. There

is no suggestion that the staff was acting other than in

good faith.5 That the staff proved to be wrong no more

calls for ignoring the then-known realities of Ozark’s

tax position than does the fact that Ozark chose to delay

the filing of its tax return.

Finally, Ozark <untends that the Board’s selecting a

different date for it than for some other lines® enjoying

sharing matters until the various statutory limitation periods

expired, it would be virtually impossible to maintain carriers

on a current rate status and there would be continual uncer-

tainty as to the goverrment’s obligations under section 406,

as weil as uncertainty as-to the carrier’s revenues. It is for

these reasons that the Board has followed the practice of rely-

ing upon the tax returns on file as of the date of finalization

of the rate or profit-sharing case. In this manner, both the

carrier and the Board are bound to the facts then existing.

Subsequent changes in the tax allowance may work to the

carrier’s benefit or to its detriment, and the carrier takes the

risk that a subsequent deficiency assessment by Internal Rev-

enue Service will occur in a closed rate period and will not be

underwritten under section 406. By the same token, tax

refunds for the year become beyond our reach if they occur

during % closed rate period.”

Local Service Class Subsidy Rate, Subsidy Refunds, ante.

5 Ozark states in its brief,

“We recognize, of course, that all carriers cannot be proc-

essed simultaneously. And we do not claim that the Board

has failed to a-t as expeditiously as possible under the circum-

stances or that the Board has intentionally processed the car-

riers in such order as to help or hurt any particular one.”

6 The March 18, 1970 order affected a number of local service

carriers, but some others, with whom there had been less exten-

sive disputes, had had their 1966 subsidies previously determine?.

—*;

the benefits of Class Rate III-A subsidies caused inequali-

ties in results, and was so arbitrary as to violate due

process. This raises two questions: what are the disad-

vantages of a different rule governing the time of deter-

mination, and how serious is the occasional divergence in

result calied for by the present one. To take the second

question first, while the matter was not gone into, Ozark

conceded in oral argument that it was not in competition

with the other local service airlines. There is hence no

pressing obligation that in any particular year they should

all receive equal treatment, so long as there is general

fairness.

As to the alternatives open to the Board, Ozark has

suggested two.

‘First. It could have delayed the final determina-

tion of any carrier’s 1966 subsidy until all carriers

had been processed so that simultaneous determina-

tions could be made for all; .. .”?

That all carriers should have to wait to know what their

subsidies are to be until the last argument between the

Board and the last carrier has been finally settled—it may

be noted that after five years this one has not been settled

yet—seems so unreasonable as to cause wonder why it

should be advanced.

Ozark’s second suggestion is that it would be fairer to

have an arbitrarily fixed, identical, settlement date for

all airlines as to the effect of taxes on the calculation of

*‘profit.’? Certainly this would not help lines that had

already reached agreement with the Board before that

date had arrived tv achieve the final certainty that all

parties agree is desirable. Nor could it lead to early

certainty with respect to other lines which, by hypothesis,

were still engaged in disputes. Nor, in terms of wind-

falls, is it necessarily to an airline’s advantage to have an

— --12 —

early settlement date. As the Board pointed out, n. 4, ante,

the windfall, if any, resulting from an earlier settlement

date may benefit the government. Had there been a tax

deficiency established with respect to 1966 in this case,

rather than a loss carryback, the carrier would have bene-

fitted rather than lost by the delay. In this respect the

‘‘yamble’’ resulting from a differentiation in settlement

dates, dictated by independently good reasons, is ap-

plicable to all alike. We see nothing illegal or arbitrary

about Class Rate III-A, or the Board’s procedure there-

under.

Affirmed.

A true copy.

Attest:

Clerk, U. S. Court of Appeals, Eighth Circuit.

APPENDIX ©

United States Court of Appeals

For the Eighth Circuit

No. 20543 September Term, 1970

zB

Ozark Air Lines, Inc., 1

Petitioner, | On Petition for Re-

VB. view of Order of

; the Civil dAero-

Civil Aeronautics Board, nautics Board

Respondent. -

Petition of petitioner for rehearing filed in this cause

having been considered, it is now here ordered by this

Court that the same be, and it is hereby, denied.

June 2, 1971