Brief for the CAB — Transcontinental & Western Air, Inc. v. Civil Aeronautics Board

Supreme Court brief1949

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~ INDEX

Opinions below -.-.-.__--

Jurisdiction. _.-._._- EPR eee Pee

Question presented..." ~

ee ee ee

Statutes involved. . 3:.-<.:-...- :

Statement..___. _. pion es Set Ae ES SL

Summary of argumeny 2.

Argument:

I. The Board cannot fix a new mail rate to be effective

durin ¢ a périod in which a final rate previotsly fixed

by the Board was in effect and eens * by the

. initiation of a mail-rate proceeding----_-_..--.—..---

Snéeadestion.....: .....-s~.-&.~

ie wskat abe --<-

Page

Crna

-A. Section 406 of - the Civil Asnamantion Act. es- ~

tablishes a system for the regulation of future

rates, not machinery for the award of cOmpen-—

ra for the past..........-

The origins and. the language of the Act-”

a3 show that it establishes a public utility

; rate-inaking Is and tweed na Samet

2. The developmental aspects of the Act are

consistent with a public utility rate-

making pattern... _.__. ;

3. A public utility rate-making pattern such :

as is established by the Act provides for

’ future rates which have the attribute of .

CO PORE KEES

oy abide a 0b Oh _-——“——---

4. Acceptance of petitioner's contention |

would thwart the congressional pur-

a. The rate- making pat tert ‘would be

REE SS ag A EE

“b. Achievement of the objectives of

the Act would bé impaired _. - - -

B. Section 406 (a) (1) was intended only. to empower

« the Board to make rate orders effective as of

the institution of the rate proceeding. :

1. The lafguage of section 406__._..__._-- s

; 2. The legislative history

822435 49 1 ahi se"

2 il GC q .

A rgument— Continued ; _ Page

I. The Board cannot fix a new mail rate—C ontinued

Int ope ion— Continued

The Board's prior administration of the Act sup- ~

ports the e conclusion reached by it in this ease __ 72

1. The Board has consistently. refused to fix

mail rates to be.effeetive during a period

ee eee ee in which a final rate previously fixed by .

the Board Was in effect and unchallenged - * /

; s. 4 aby the initiation of a rate proceeding __ 72,

az & . 2. All of the instances cited by petitioner in- F

; -\ volve different factual situations and in -

: . none of them did tie Board indicate that —.

. «+ . © ft had the assertéa powét....-....--- ‘ 74

: a.. The new route cases... 75

“b.: The Systems CNNNe oS cg ole on

Fe a to ee ‘reopening”’ ” case. SP A Re hote 77

d. The “Ameriean” case... 25... 78

" e. The nune pro tune pétition device - 78

ie oe The general practice of the Baard in fixing

future rate® is inconsistent with the

ae el existence of the power to réfix ee rates

prior to the petition date. * _-.____* Sl

. 4. The practice of the Board produces no ine *

; ‘-congruous results. ._.... 2. -l....e. ; 85

~ < DD. The ‘Aet need not be interpreted as “iW \ sug-

id gests in order to preserve its constitutionality. 93

Conelusion.......2 552%. . ni 2223 heli Pps as es Cac ncal 99

oF ne Sah ae he eee AER owie 100

CITATIONS : .

Cc SOS ¢ ‘ : : .-

Air Freight Case, Docket 810 (Cc. > ecco. ois ie

Air, Mail Compensation, 216 1..C, - 166.7% ....... 54, 66, 67, 69

Air. Mail Compensation, 222 1. €. C. 602. in ot aainate oes a

Air Mail Compensation, 2321, C. C. 608___ - 69

alin, Mail Rates for Route No. 33, fer ORE OF 381. 68

Aiaska Airlines, Inc., Mail Rates (C2. A. 33. Order. Serial

No. E-1885, decided August 13, 1948__ iis tees 84.

* Ait tmrrican-Ariation Mail Rates, 4 c. a. B. 354- 74°

“ -All Ames rican Aviation, Mail Raté for, Route No. 49, 3C ; 4.

B. 79 (1941). ce net

Atiehoma, Aidiiene, Mail tetas, 3A, B. 323 (1912)... 5, 53,78

American Airlines, Tne. ee Rates, 6C. A. a D67 (1945) 5

“American, Steve: lore s, lac., Vv. "orello, 330 U.S. 446. 4 SA 710

Arizena Groceex: Tichioon Ry., 284 U.S. 370, ; pee |

Bluefield, Wt rworks & Improvement Co, v.- Public Service

ho aw -

attinisson, 262 UU: 8.679. : REE anf Sate we See

yor tw o* i B

Oo... * It : i

Cases- C ‘ontinued P eat of ei Page

. Board: of Public tality Commissioners: taly. New York -.

- Telephone Company, 271 U8. 230 22. TRS IRS * 36

Braga ff Airways, Ine., Mail Rates, 3 C. AWB. 633 (1942). «| 74

Branfi : Aitways, Ine.. Mari Rates, 4 C. A. Be S88 (19445. 5

Braniff Airways, Ine... Mail Rates (C. A. Bo), Order No.

I: 2129, October 28, 1948 _ . ; eS

Capital Airlings, Inc. v. Civil Aeronautics Board, C. A.

D..C., decided December 6, 1948__- : ce - 68,98

Cartbbean- Atlantic Air Mail Ratgs, 6 C. A.B. 407 (1945). 75

ee ree Airlines, Tne., Mail Rates. 7 C.°A. b.

aE Fe psiroals an 7A

Challenger Airlines Compan: iy. Temporary Bait Re tite (C, A.

B.), Order Seria! No £°560, decided May 21, LOT o.. S4

Chicago and Southern Air Line s, Mail Rates, 4 ©. A. B. 419

(1943) = Sea, Re 81 .

Chicago & Southern Air Lines v. Watergnan S.S. Corp., 333. &

ee ere | Fockok, ae ae

Colonial Airlines, Matl Rates (C. A. B.), Order Sérial No.

1263 (Mar:.4,-1948, and Order Serial No. E- 1340,

Apt. t; 1948)_......_- e org eke

Continental . oT Lines, Ine., Mail cola td Routes Nos. 29. ° Sok

and 48,2.C. A. B, 683... ee ae

Continental Air Lines, Ine.. Mail Rate: s for Routes Nos. 29 .

and 43,36. AWB. 395 (1942) ) ee eee

Enstern Air Lines, Ine., Mail Rates, 6 ©. A: B. 551 (1945)_. © 5 i i

Exssair, Tne.,: Temporary Maii Rate, . A. BL 687 (1946). a4 :

Federal: Power ees cae v. National Gas bee Lie Co., r

315 US 8. 575 : amas 3h, 36, 9S”

| EER Electric eaaaes ge City of. ‘Galve ston, ut at., 258

U.S. 388. ae _ 35,89, 98

Geergia Railwoe ay and Power Com por. yu, a ‘al v. Railroad . &

«= Commission? 262 U.S. 625, affirming 278 Fed, 242. _° 35,98

Kendall v. Stafford, 17S N.C. AGI CLOT 9). Ae Sete et on 49

, Mid-Continent Airlines, Ine, Mail Rates, 1C. A. A. 45(1939). 9 83

Mid-Continent Airlines, Inc., Mail Rates, 3 C. A. B. 4645 —

(1942) _. . « G4 |.

National Airiines, Ine., Mail Rates, 7 C. A. B. 387 (1946). 8&7

National Airlines, Ine., Mail Rates 1c. A. B.), Order Serial ae

. No. “E-1271, decided March 5, 1948 ne ae

National Airlines, Inc., Temporary Mail Rates (C. A. BO,

; Ofder Nos.‘ E-2237 and 2285, December 11, 1948_ : ie;

nae wlan Vv, ¢ onaqiiept d Gas Company of New Jersey, Zon v.

O., 3h y

Pie ai Airlines, Tue., Mul Rates C. AL Bo, Order Serial

No, B+1250, decided February 26,-1948) - ; ste

Northwest Atrlines, lne., Mail Wate x 4 C. ALB. SLD | 1943) — fi

Pa Th Nae rican why Meher, luc.. Masha Mail Rate x, 6 . a BB

GL Iss. None et

. Cases-—Continued Pay ee het me, - Page

Pan Am, Airways’ Co. (Del.), Transatlantic Mail Rates, 1

| ee Ba Ts Be Ch oe nes cc 77

Pan Am. Airways Co. (Del.), U. Ss. -~Asores Mail Rates, |

C. A.. A. 650. .....-.-----.----------------------}- 77

Pa an American Airways, Inc., Latin-American Mail Rates,

6 C..A..B. 85 (July 17, 1944, Supplemental ‘Opinion) . - . 77

en Mail Pay, 216 I. Si Wk Re cae iweadeenteaia ss 51

Railway Mail Pay, 1441. C. C. 675_--. 0 - 52

Railway Mail Pay, 15.1. C. C. 734__--- ipniee te bill Pe pee Mee:

Railway Mai] Pay, 185 I. C. C. 715. .-.---.--.----. - 61

Skidmore v. Swift & Co., 323 U. S. 134.. 2 80

Transcontinental & W eolerss Air, Ine., Mail Rates, 4ClA. -B: 3

SUS oo sae oe nae 74, 76. -

Transcontinental & Western Air, The: Mail Rates, 6 C oA. B.

MS Sade ce eae Oh - 4, 38

United A. L. Mail Rate ier Route. Ne: 57, 3 Cc. ‘‘ B. 381

i) eee er ss ate : 75

United Air Lines, Inc., Mail Rates, 6C. ry B. 581 (1945) _ 5

United States v. Alabame Southern Rd. Co., 142 U.S. 615. 79

United — v. New. York Central R. Co. 279 U. 8.:73.. 16,

20, 52, 94

Western Air len: Inc., Mail Rates, ia isl of Tentative

Findings and Conclusions (C. .A. B.), Order No. E-2333,

December 36, 1948... <2. oc. ee 4 92

Western Air Lines, Mail Rates, 4 C. A. B. 441 (1943). A 76

a of the United States:

Fifth Amendment... PM Rye eh SE 16, 97

Fourteenth Amendment. . ae as . ee 17, 97

- Statutes: : aay

Air Mail Act of 1934, “Act .of June 12, 1934, c. 466, 48°

Seat. O08; 5. Sr aa kk een deeded ke

one, ee de, PE ee , Sipe:

Air Mail Act of 1934 ainan by the ‘Act of August © 14,

. 1935, 49 Stat. 614./.-....-- ayes 53

Air Mail Act.of. 1935, Act. of August 14, 1935, c. 530, 49,

See ac aa Gk : 53

Civil Acronatttics of 1938, Act of Jutie 23, 1938, c. 601, 52:

Stat. 977, as amended, 49 U: 8. C. 401, et seq.:

ee eee eae Ae ecuvuaeeen _. 26, 41, 44, 100

Section 401__._.. HOSS pio Pre » _. 95, 96, 101

Section 404___- a NE lel PFs: ------ 25, 1064

ee WE os hot so eee ec e 84

Section 406. __- Cees a il, 13, 18, 21,

cf Re, 24, 25, 26, 40, 41,44, 46, 47, 48, 49, 64,76, 93

* Section 1002_. fades ois 24, 25, 26, 28, 105

' Seetion 1005. - ae ere : P #8, 106

Bebtion 1006... oo cote ate ns 2 Bee

Statutes—Continued — a Page

Thterstate Commerce Act (24 Stat. 379), as amended,

49 U. 8. C. 1, et eq... - -- ee. 22, 96:

Me ae ey’s Consolidated ices: hes See Y ork, Annotated, |

Book 47 (Public Service Law), Section 49 -. ° : 24

Merchant Marine ‘Act of 1936, Act of June 29, 1936, c. 858,

.49 Stat. 1885, .Tit. V, — (b) (49 Stat. 1998), Tit. VI, .

“ § 603 (c) 49 Stat. 2002. : . 45

Motor Carrier Act of. i; 49 Stat,- 543, 49 WU. 8: C. 301,

et seq.). Sage Ser ca asa caged ae é..-<, 92,32

Sec. 216 (i). a kaa ee es a oe Ra. 27

Railway Mail Pay gh of 1916, Act of July 28, 1916, c. 261,

_ 39 Stat. 412 (39 U.S. C. §542).. 2. ..., 51, 94,95

-Renegotiatign Act, re a April 28, 1942, ¢, 247, Tit. IV,

§ 403 (56 Stat. 245), as amended, 50 U.S. C. App. eh. . 46...

Transportation Act of 1920, Act of February 28, 1920, |

¢. 91, 41 Stat. 456, ‘Tit. TV, § 422, 41 Stat. 488-491! 45

Transpo fion Act of 1940, ¢. 722, Title 1, § 1 (54 Stat.

-899) ; . Rene ; 33

* Congressional Material:

81 Cong. Rec. 8839, 8882, 8957, 8968, 9202, 9204, 9220,

9226: _.. sean ae 58,59

83 Cong. Rec. 6725_.__- paeruses __e 60

Federal Aviation Commission, Report, S. Doe. 15 (74th

~Cong:,. ON eet ae ae a atime 29

Hearings before the House Committee on intocatate and

Foreign Commerce on ‘A - 5234 and H. CR. 4652, 75th

Cong., Ist Sess Dachenckakoeas does nes aiets 23,

. 24, 29, 30, 31, 32, 57, 58

. Hearings before the House Committee on Interstate and _

Foreign Commerce on H. R. 9738, 75th Cong., 3d Sess. 24, 60

Hearings before Subcommittee of Senate Interstate Com-

merce Committee on S. 2 and 8. 1760, 75th Cong., Ist.

saath ante ae 23,

: 24, 29, 31, 33, 55, 56, 57; 58, 64, 65, 66

ices before, a Subcommittee of the Senate’ Committee

-- on Interstate Commerce, on 8. 3659, 75th Cong. 3d Sess. 29, 60

Bens. 2...

H. Rep. 911, 75th Cong. Ist Sess____- 58, 59

H. Rep. 2254, 75th Cong., 3d Sess:, p. 3_. a ot 32

H. Rep. 2635, 75th Cong. 3d Sess., pp. 71-72 Te 32

H. R. 5234, 75th Cong.,. reintroduced as H. R. 7273. (81

Cong. Ree.) 5095... "58

_ H.R. 9738, 75th Cong... Ree 60

e = Rep. 6867 35th Cong, int Bees * : ; 58 -

S. Rep. 1661, 75th Cong., 3d Sess. _ * 5 ee . 3s.

S. 3659, 75th Cong. 3d Sess. - oy ae 60

S. 3845, 75th Cong: 3d Sess. __. pain “2 tom . 60

‘*

7 i

‘Miscellaneous: ; f. Page

Ballard, Federal Kegulation of Aviation (1947), 60 Harv. L.

Rev. 1235--_-_ - ie 24

Burt and Highsaw (1946) Pye of Rates in Air Trans-

portation, 7 La. L. Rev. 1, 378-et seq_- - 5

~ Civil Aeronautics pore First Annual Report, 1939,

eS Ee ese 41,81.

Civil Aeronauties. hated, Annual Report, 1947 Ree 5

Civil Aeronautics Board, Annual Report, 1943. ree | gi)

Civil Aeronautics Board, Annual Report, 1941... -.. 22 81

' Eeonomie Regulations, Civil Aeror-auties Board, seni aeG.k

(14 Code of, Fed. Reg. (1938 Supp’), ie 216.1)... - 90

Reorg. Plan No. IV, Sec.,7, effective Juhe 30, 1940, 5 F. R.

2421, 54 Stat. 1235, 49 U.S. C. 401, et seq... . 22

Rhyne, The Civil Aéronautics Act Annotated (1939) - 22

Sharfman, The Interstate Commerce Commission, Pt. IV

i. 7g pepe d = 26

Webster's New International Dicdiduirs (2d ed., 1938) —

| |

hae

+ ie

° f2

Inthe Supreme Court of the itd States

Oc TOBER Term, 1948

No. 387

: ; ‘alee ¢.

TRANSCONTINENTAL & WESTERN AIR, INC.,

PETITIONER

- Vv.

Civin Arronavtics Boarp

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE DISTRICT OP COLUMBIA CIRCUIT

BRIEF FOR THE CIVIL AERONAUTICS BOARD —

OPINIONS BELOW -

The opinien of the Court of Appeals for the

District of Columbia Cireuit’(R. 111) is reported

“at 169 B. 2d 8932 The opinion of the Civil

avn Ses Board CR. 63)) is reported’ at 8

A, Bo (No. a2) 685,-

JURISDICTION

ai judgment of the Court. of Appeals was

entered on August 2, 1948 CR. 116). The petition

for al writ of certiorart was filed on October 30,

. 1948, and Was’ eranted on December. 6, 1948

(R. 118). The jurisdiction of this Court: rests

on 28. U.S. C. 1254. 7

“(hy

_ QUESTION PRESENTED

"Whether the. Board has authority under. the

Civil’ Aeronauties Act to fix a new mail rate to

be effective during a period in which’a final rate.

previously ‘fixed by the Board was in Sffect and .

“unchallenged by the ‘initiation of a ‘mail-rate

proceeding. : :

= oes g

‘ STATUTES INVOLVED ae

The statutory provision which is basie to the

decision of this case is Section 406. (a) and (b)

of the Civil Aeronautics Act of 1938, as amended, ‘

which will be’referred to as the Act. It provides:

~ Sec. 406. (a) The Authority is empow-

ered and directed, upon its own initiative

‘or upon petition of the Postmaster General .

or an air carrier, (1) to fix and determine

'~ from.time to time, afternotice and hearing,

the fair and reasonable rates of compensa-

tion for the transportation of mail by air-

craft, the facilities used and useful there-

for, and the services connected therewith

(including the transportation of mail by

ay air carrier by other means than aircraft

whenever such transportation is incidental

to the transportation of mail by aireraft

or is madé necessary by conditions of emer-

gency arising from aireraft operation), by

each holder of a certificate authorizing the

tr ansportation of mail by. aircraft, and to

) * Act of June: 23, 1938, ¢. 601, 52 Stat. 977. 54 Stat. 1235 (49

U.S.C. 401, ef seg.).

We ascot wer |

‘ eS oy site & “ x “

AD toe ot aha Ere Rep aE aS A AS le wae

,, he

puted

TRE SS ee OLR IS

Re a og SOR See ee ROP woe oe

RSPR RM FSi ato ih ROI ls Sa

® .

PRR TODOS rhs

Dhaest bei

Potten ite HOt

ees care

make such rates effective from such date

as.it shall determine to be proper; -(2) to

’ preseribe the method or methods, by aireraft-

mile, pound-mile, weight, space, or any com-

bination thereof, -or otherwise, ‘for ascer-

taining such rates of compensation for each

air carrier or class of air carriers; and (3)

to publish the same; and the rates so fixed

and determined shall be paid by the Post-

master General from appropriations for the

transportation of mail by aireraft..

_'(b) In fixing and determining fair_and—

reasonable rates of compensation ‘under this “

‘ section, the Authority, eonsidering the condi- .

tions peculiar to transportation by aircraft.

and to the particular air carrier or class of.

air carriers, may fix different rates for dif-

- ferent air carriers or classes of air carriers,

and different classes of service. In de-

‘termining the rate‘in each case, the Au-

thority shall take into ‘consider ation, among .

other factors, the condition that such air

carriers may hold and operate under cer-

tificates authorizing the carriage of mail

only’ by providing necessary. and adequate

facilities and service for the transportation |

of mail; such standards respecting the char-

acter and quality of service to be rendered

by air carriers as. may be preseribed by

or pursuant to law; and the need of each

such air earrier for compensation for the

transportation of mail sufficient to insure

the performance of. such service, and to-

gether with all other -revenuie of the. air

$22435-—49.-—-2

46 rae

carrier, to enable sucheoair carrier under

honest, economical, and efficient manage-

ment, to maintain and continue the develop-

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 national defense.

Other. pertinent, provisions of -the:- Act are ‘set...

forth in the Appendix, inf ra, p " 100-108. :

: - STATEMENT 5 |

A proper appraisal of the issue presented by

‘this ‘case - necessitates an understanding of the

facts relating to TWA’s mail rates since January

1, 1945.7 Oi that date the Board directed. TWA,

and the three other largest domesti¢ air carriers,

to show cause why their mail rates should not

be reduced from 60 cents to 32 cents per ton-mile

of mail carried, On August 13, 1945, with the

termination of. the war, the - Board issued an

amended statement of tentative. findings and con-

| -elusions substituting a.tentative mail rate of 45

cents per ton-mile for the rate of 32 cents pre--

viously proposed. TWA’ raised no dbjection to

this latter proposal. Public hearing -was held

on September 14, 1945,-at which the data under-

lying the Board’s proposals was,submitted for the

record. The ease ‘was then submitted to the

, Board for decision, :

i sccsinblagoatel Western Air, Iné.. Mail Rates,

64". A: BL 595 (October 26, 1945).

ged were |

: ie oe

seul peers SR iri este 2 ae nat he aetcdnartey iSite ical ein aa ia hal aceite patie ene whee

v3 2 . =)

' :

In its opinion, the Board discussed the changed

_cireumstanees resulting from the cessation of the

war betweei the date of its original “show cause . ©

order and its tinal order; it appended: indices

of selected opeyating statistics both actual and

estimatéd for the future, and exhibits showitig op-

erating results and. investme nt _requireme nts, both

actual and estimated for the future: it it considercd

the ‘similarity of costs and) operating «patterns

for the digrde naaps ‘arriers, and suport such

evide nce and other fac tors dee ided to continue 1)

_ effect uniform “service” rates” for sich: carrie ys:

and finally it considered the cost of the mail

service, Mae Sat 2

“

* The Board bal decked ¢ two types of mail rates—the

“service” mail rate and the “need” mail rate. ‘The “service”

rate bears a direct relationship to the cost of the mail serv-

ice for which the rate is to be fixed. The “need” rate, on

the other- hand, is concerned with the deficiencies.of the car-

rier’s nonmail services and thetamount of mail pay needed

Yo maintain it in the sound condition contemplated by the

Act. Burt and Highsaw, ——, of Rates.in Air Trans-

portation (146). T La. L.-Rev. 1, Ng et seq. :. American

lirlines, Liw.. Mail Rates. 3 C. A.B. 325, 337-3381 1942) ;

| Brauiff . l/r mays LHe, + Mail Rates. 4 ne A. LB. 5SS- ( 1944.) :

Northwest Airlines. Lune. Mail Rates. 4C,. A.-B. 515 ( 145

* Although the cases of: the "Big Four” were not consol-

-idated. the decisions in all of ghe « ‘uses Were rendered on the’

same date and fixed fMentic: ‘al “service” mail rates for the

carriers involved. See alse “A ine rican Nirlines, Tne. Mail

Mite a. 6 ¢ - A: i NOT { 1945} . Unite d lir Line ss dine s% Mail

I ate rx. OC. A, B. dsl (1945): Kastern Air Lines? luce. Mail

Reites 6C, A. i. Dol ( Io),

tt ce

In ‘conelusion,- the Board ‘stated as follows —

(6 C. A. B. 601-2):

In our consideration of the fair ‘and

reasonable service mai] rate we have given

} weight to the many. uncertain short-run

» factors: related to the transitional period

as well as*to the extraordinary circum.

stances and conditions in the air-transport

‘industry which will materially affect the —

-, problems and attending risks which will

confront. management in the immediate |

future. A successful bridging of the diffi-

cult transitional period will, in our opinion,

constitute a major step in the attainment

by the industry of a healthy, postwar status.

Heine, it is not our intention here- eithe ..

to indorse or to enunciate any new phi-

losophy or long-range principles’ of wen

making. Instead, it is our purpose to fix

a service mail rate which will be high enough

to provide re: asonable s security. against the

risks inherent in the dynamie and un-

charted transitional ‘period ahead and

which at the same time. will, be Jow enough’

to provide a strong competitive incentive

for economical. and efficient management.

It is our further intention to fix a service

‘mail. rate which over the transitional pe- ~

riod will provide a fair and reasonable.

return on the used and useful investment

although on the basis of reported results

for selected) shert- periods the- rate) may

appear either unduly high o» unduly low.

. Py

‘og

. a :

;

” : Sy . : ; ‘

- ; ie

4 a 7 e = \

In order that these objectives may be

realized and that the mail rate may be kept —

at-a level reasonably, in accord with the-

dynamic operating conditions which will pre-

vail during the ‘present transitional period

and provide an adequate margin: of security

igainst the uncertainties and risks which rea-

iaae may be encountered, we concludé that

a mail ‘ate. of 45 cents per mail ton-mile is :

required. 7 | |

.* * * Sie oe *

_ As shown in appendix Ne:-2;. the inclu-

“sion of mail revenue at 45 cents) per ton-mile /

“results in an estimated operating profit before

income® taxes of. approximately $3,459,000

which, after 40 percent Federal income taxes,

represents a return of 13.77 percent. of the ~

_total investment required for the entiré com-

mon earrier operations. .

TWA did not ‘ask the Board to Cone its ‘

order; nor did TWA seek to have such order. re- :

viewed in Court pursuant to the provisions of the

Act (Section 1006 (a), 49 U.S. C. 646 (a), infra,

p. 107). The order became final on October 26,

1945. From that date until March 14, 1947,

TWA performed required air carrier service and

received presumably final payment therefor at the

rate provided in that order. . No action was taken

by TWA, the Board, or the Postmaster General

prior to. March 14, 1947, to initiate a change in

this rate. : a rape Ns

On March 14, 1947, TWA. filed a sation’ with °

the Board alleging that its mail rate had not been

ret

. ; eet

fair and reasonable since January 1, 1946, and re-

questing the ‘Board to fix a fair and reasonable

rate ** from and after January 1, 19467" CR. 8-13).

Public Counsel of the Board moved. to. dismiss ©

‘ the petition insofar as it requested relief for, the

period from January 1, 1946,. to March 14, 1947,

when the siete was. filed, on “policy? grounds |

(R..13-21). - After TWA filed. an ans\ye rto theirs aa

motion, (R. 29 ST}, Public Counsel amended it to’ oe

specify the Board’s lack of “author ity’’ to re-

vise TW A's mail rate for the period prior to the

institution of the proceeding as an additional

ground (Ro). Oral argument was hearfor the: :

motion (R. B9-60). ‘ \

On December 2, 1947, the Board entered an

order “dismissing the petition ‘insofar as it re-

“quests the fixing of-a mail. rate fora period: pr hor

to March 14, 1947’? cR. 91). The opinion of the

Board stated that its action w as : based on its lack

of power to grant the relief requested (R. a

Member Lee dissented (R. 92-108). aa on

On January 30, 1948, TWA applied for review

of the Board’s order to the United States Court

of Appeals for. the District of Columbia Circuit.

The Court of Appeals’ concluded that the Board ~

“has no power to revise mail rates retroactively to-

“

a period-in which a final rate previously entered fi

by the Board was in effect and unchallenged, anh.

on August 2, 1948, affirmed the order of the \

. Board - 111- 115). 4 apa ted ; er

eee o

SUMMARY OF ARQUMENT >

| Congress patterned the ( ‘ivil. Aeron: tuties Act

upon its previous regulatory eriactme nts in the

transportation field, and sought, through tlrat Act,

to apply the usual public utility regulator Y prin-

ciples to the air-transport industry. hose pro-

-. visions of the Act. applicable to the determination

of rates for the carriage of mail ‘embody ‘public

utility rate-fixing coneepts which preclude the

retroactive superimposition of new rates on rates

previously, finally established, for which _peti-

tioner here contends. | 7

The Congressional directive that the Board, in

fixing mail rates, must seck to-enable air ‘carriers

“under honest, economical, and efficient manage-

ment,. to’ maintam and. continue the development

of air transportation to. the extent and of the

character and quality :1 required for the commercé

of the United’ States, the Postal Service, and the

national » defense’’ (Section 406 (by), does not

convert the Board’ s primary ‘function of* fixing

rates of compensation for the futnre.into a duty

to’award amounts-of, compensation for the past.

This is clearly shown by the legislative history of

‘the Act’s mail pay provisions. -Moreover, such a

directive is not unique ‘to the Civil Aeronautics

Act and is fomnds-in substantially identical form,

in other legislation governing the transportation.

industry whieh undoubtedly ‘embodies, neverthe-

is \ P

less, a typical rate-making pattern. Under well-

_ settled principles, such legislation precludes rate

revision for a period in which a final rate pre--

viously fixed was in effect and unchallenged by the

_~ initiation of a new-rate proceeding. While rates

promulgated on principles. of public-utility regu-

lation must afford a genuine opportunity to earn

a fair return, they do not. guarantee that such

a return will, in fact, be e umned:

: Acceptance of: the . petitioner's contention that

* the Board has the power rétroactively to revise °

finally established rates .would thwart the Con-

- gressional purpose to establish a Fate- -making

method for determination of mail pay and would

impede the accomp ishment of the very objective’.

. the Act was’ designed to ac chieve, the encourage-

ment: and developmem of a self- -sufficient air,

transport system. White—the petitioner. insists

that it seeks to establish only the power ‘of the

Board in this, respect and that that power need

only rarely be exercised, its view of the statutory

and constitutional requireme nts would, in facet,

‘require the general adoption of a system of cost- .

plus auditing to reimburse carriers for past losses |

and recapture excessive profits earned in the past.

Certainly, if the Board does have a ‘revisory

power, the most obvious : dete ‘rminant of the pro-.

priety of its exercise would be’ whether, at all.

~*~

. . °

a wn ES og thee ass . " we . | Tes :

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times, the applicable rates’ wer e “*fair and reason, » |

able.’ The Board would thus necessarily he

, ,

- required to determine the fairness and reasonable-.

ness of. the return to the carrier during a past

_ period rather than the fairness and reasonable-

ness of a rate for the carrier in the future. . The

eost-plus* awards which would . follow would re-; ’

move all incentive for managerial efficiency and

the development of nonmail rev venues, and destroy

any hope of esti tblishing a. uniform rate ‘for a a

group of carriers appropriately classified.

‘In the light of the manifest purpose of Con-

gress to establish a public utility -rate-making.

pattern for the’ determmation of compensation

for carrying mail by air, it is questionable

whether that pattern could be taken-to have been

nullified by language in a subsection of the Act

far more clear than that upon which the petitioner

relies. Certainly, Section 406 (a) (1) of the

Aet, which empowers the Board ‘to’ make such

[fair and reasonable mail] rates [as it: -fixes]_

effective ‘from such date as. it shall determine to

be proper” does net werk that result.

Read in its context, this language only -em-

powered the Board to make its mail rate orders

effective from the date a proceeding was in-

stituted to change a rate. The Act's directions

to the Board to “fix” “‘rates’’, to take into con-

' sideration the service *tto be rendered,” and the

need for compensation “to imsure-.the — per- ey

fermanee’” of such service. all become me aning-

less if the’ “make effective’? clause relied upon

by “the petitioner permits the. Board to) refix a’

rate for a past period during whie h the prior

rate fixed by the Board was in effect -and.-

unchallenged. | i si

The legislative history of the ‘*make effective’

clause puts its meaning beyond: doubt. At the

time of the: principal legislative hearings mm con-~ ,

nection Ww ith the Civil. Aer onautics. Act, the mem-

bers of the Interstate Commerce € ommission were

li disagreement: as to. “whether the Air Mail Act

of 1934, as amended, authori ine ‘d them to inake

/thei ‘ir mail rate ‘orders under the Act effective

(rete the. date a proceeding was instituted. This

division of -opinién, on the Cominissicii - was

< echoed by witnesses ‘and legislators at the hear-

ines. The- resolution ‘af ‘the disagre ement Wats

important | because’ the mail rate provisions of

the hiils being consider ‘ed were subktantially | iden-

tical to those of thie Air Mail, Act of 1934, as

amended, in this respec t. The spokesman for the

air transport industry expounded ‘atClength the

thesis ‘that. the. Commission © was. one red. ‘to

make its rate orders effective from the date a

proceeding Was initiated rather than: being remy

stricted to making them elfoctive duly: from the

date on which they were issued. To clarify the

“situation he offered: fhe “make effe etive”’ Clause

as an anwendment, explaining that it was to: “‘pre-

serve the “present authority’ "of the @Qommission

z .

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The amendment was adopted by beth the Senate

and House committees. From that time on, the *

“make effective’ clause remanted in all the prin-

cipal bills considered down to the enactment. of

the Act. The subseqient legislative proceedings

clearly: indicate that Congress not only adopted

the amendment “of the air tr: sport, industry

spokesman -but also his explanation of lis ame ni

ment. The ‘tmake effective clause uicans no

more, therefore, than that the Board may make

its mail rate orders effective prospectively. from

the date on which a proceeding is commenced.

The petitioner is quite wrong in stating that the

issue upon which the ‘Commission had divided

Was put at rest by the Net's s imposition of a com-

pulsory duty to carry the mails. Under the Act

the obligation to carry the mail is voluntarily as-

sumed. by the carrier and, ‘but for.the “make ef-

fective. clause”, the hasis for disagreement with

respect to the power to tix rates as of the date of

+ the application for e change would remain. ‘See-

t..

tion 406 (a) (1) hi va no purpose other than to .

resdlve this issue.

The specific issue presented by this case has

been presented to the Board on-eight oreasions in

the past. ‘In nowe of these eases did the Board.

“eXere ise power to revise final rates. ‘retroac-

tive lve? Saving the question of its statutory au-

‘thority to exercise such power, it declined to‘act—

> . earns *

°14

as a matter of ‘‘sound generar policy”’ beeause

its orders had to have finality. However, in no

case did it reexamine the past period, and_ its’

‘“nolicy’’ never admitted of any exception. Since

the Board’s ‘‘policy’’ had never’ admitted of “any

. exception, it Concluded in this case: to state ur-

equivocally, that .the basis for its rule of inaction

was its lack of power. These decisions, far from

establishing the petitioner’s proposition that the

Board has acted consistently ‘with its view, estab-

lish a consistent course of administrative conduct

‘and afford a substantial reason’ for tinding that

the Board is ae in authority to revise mail

rates ‘‘retroactively.”’ |

The Board, decisions upon whith the petitioner

relies involved various factual situations wholly -

unlike that in the case at bar. No instance has

-been cited, because there is none, in which .the

Board fixed) a new mail rate applicable to “a

period during which a final rate previously fixed

by the Board .was in effect and unchallenged by

the initiation of a rate. proceeding. The Board,

from ite inception, has been primarily coricerned

with fixing “final rates for the future. It ¢ annot

reasonably be assuméd that the Board would ex-

>pend time, effort, and money to fix future rates

if it construed the statute.as requiring it to re-

place all such determinations with the results.

taken from audits after-carrier experience ceases

to be a matter for estimate and becomes a known

fact.

* rt

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15:

There are, to be sure, . situations in w Mch a

rate order is made effective-as of a date prior

to- its issuance. The direction of the ‘‘make ef-

fective’? clause, for example, requires the Board

to fix fair and reasonable amounts of compensa-

tion for limited periods back to the institution. of

proceedings. But such retroactive orders do not

eliminate, the rate-making method as the primary

determinant of mail pay because they do not

destroy the finality of previous orders, cover only

the limited per lod of time necessary to determine

a new rate, and are normally accompanied by the

determination of a rate for an indefinite period

in the future.

None of the incongruities envisaged by the peti-

tioner have resulted from, or will follow ‘upon,

the Board’s refusal to reimpose new rates on pre-

viausly fixed final rates. Sudden changes in.

conditions caused by groundings, or other ‘“catas-_

trophes”’ are properly taken into account in. fixing

rates; neither the Board nor other public-utility

“regulatory agencies treat such risks as operating

risks but rather as capital risks.. The Board

generally fixes a rate of return commensurate

with the risks of the industry, ahd it matters not ;

at all that a carrier has.a petition on file when

disaster strikes. Other changes in conditions

whieh affect the adequacy of the return do not

happen overnight, and the right of a carrier te

petition for an inerease, when circumstances re-

-16

quire, is sufficient protection. The petitioner’s

suggestion that the Board's view can be brought

eé

to naught by, a carrier practice of keeping

-on file at all times: is négated

tective petitions’

by experience which reveals few such protective

_ petitions”, possibly because such a device sub-

jects the carrier to recapture of excessive profits.

Moreover, there is considerable edoubt ‘as to

whether a paper filed the day after a rate has

been — fixed constitutes .a ‘petition’ within’ the

meaning of ‘Section 406 (ay (1). :

4 Pe re

pro-

)

The Board’s construction of the Act gives rise |

to no constitutional difficulties. dn United States

. New York CentraleR. Co., 279 U.S. 73, upon

oak the petitioner reliés, jthis Court assumed

‘that the. Constitution does not requre that rates

be-refixed ‘for periods during: which they stand,

without protest by the carrier. Moreover, there

is no con? ulsion on the airlines to carry. the

‘mails equivalent to that in the Railw: w Mail“Pay-

_ Aet, involved‘in- the New York Central case and

upon the basis of which the Court. suggested

‘that unless rates were-made effective as of the

date of application for increase, serious consti-

tutional questions might he raised:

The true measure of the airlines’ constitutional

rights under the Civil Aeronautics Act is) the

protection afforded public utilities by the Fifth

and ‘Fourteenth Amendments. Like air mail

4 a 17

3 earriers, public. utilities perform repetitive Serv-

: iceS at rates normally predetermined, and they

4 are subject to ‘the same type of compulsion te

: render service. This ‘ourt has repeatedly held

that the Constitution does riot’ guarantee the re-

imbursement of losses incurred by public utilities

ae ery

Ree item aay eiri-c s eat

‘prior to an application fora rate increase.

: ARGUMENT

; THE Boarp Cannor Fix a New Maiz Rare Yo Br

? EFFECTIVE DURING A PERiop IN Wuich «A FINAL

Rare Previousity Frixep py THE Boarp Was 1x

EFFECT AND UNCHALLENGED BY THE INITIATION

oF A MATL-Rate. PROCEEDING |

Tnutroduction.—In its narrowest compass, this

case raises the question «whether. the Civil.

DNL IRS AN

Aeronautics Board is empowered to fix a new

- mail rate for petitioner. for the period from

. January 1,-1946, to March 14, 1947. An affirma-

tive answer to, this question, however, will necés-

Ce lal Hen Bier RSA

* sarily mean that all mail rate, orders of the Board

are subject to retroactive revision by the Board

at any time, either upwards or downwards... Sach

Seite Mactan: asia

| F

4 a complete: destruction of the finality of the

‘4 Board's mail rate orders would constitute so

i sweeping “a, reversal in the administration and

j functioning’ of the mail rate provisions of the

Act as to render meaningless the work of the

9 *- Board -in-this fied for the past ten years. The

broad implications of this seemingly narrow. issue

ne tere ener eee ee!

ae is Rott

require, therefore, that. it be subjected to a search- .

ing scrutiny. , ae

Petitioner’s claim is that Section 406 (a) (1)

of the Civil Aeronautics Act, in granting to the

Civil Aeronautics Board the power to make -

‘rates. effective frem- such date as it shall de-

termine to be proper,”? conferred the authority

‘to make a new rate order effective as of a time

prior to the filing of the airline’s , petition to

change an existing rate (Br. 3). While the ques-

_ tion involved may be thus simply’ stated, the

issue tendered by the petition is basic in the

administration of the Act: } | |

The statenient by the court hefow of the alterna-

tives which were open to the Congress which en-

acted the. Civil Aeronautics Act is enlightening.

Tp the course of its opinion, the court. said

(Re 113-114) : |

There are at least two, eal perhaps more,

different schemes or plans possible’ in a

system of payment for service such as—

this.. The first is where a price per unit

is fixed. In ‘such an arrangement, the .

fixing of.the price “is customarily ‘in ad-

vance; the contractor makes or loses as his

- economic: skill permits, and he bears. the

risks of the operation.. This.is the method

ordinarily employed by authorities in regu-

lating the charges of publie utilities. The

word -ordinarily used is ‘‘rates.’’. The

second general type, or -plan, is where.a

net result of the operation, or of a unit

mee |

. thereof, is contemplated -and provided for.

In such an arrangement, advance payments

‘may be made to the contractor but the final -

figure’ cannot be determined until the opera-

tion, or the controlling unit thereof, is com-

plete; the net to the contractor is the same

not matter what the quality. of the per,

formance may -be, and he bears none of

the risks of the operation. - The so-called

“vost-plus’’ contracts fall with this Classi-

fication.

We think that the scheme of the statute

before us is of the former kind.

What. petitioner really seeks from this Court

is a declaration that Congress chose the latter .

alternative described by the court below, and |

that the Civil: Aeronautics Act confers on the

Board the power to superimpose, on rates validly |

and finally established, new rates which will com-

pensate the airline for losses which it had suffered

during the period preceding its application for

a rate increase. Such a d®claration. would eon-

vert the Civil Aeronautics Act: from: an enact-

ment establishing a system of future rate regula-.

tion into one which has set up.mae ‘hinery for the.

award of compensation for past servicés akin; as

the court below stated, to that to whieh cost-plus

contractors are entitled: 3

The difference between the petitioner and the

Board is thus not with respect to the meaning

of a narrow: procedural provision ; the issue is,

rather, substantive ard fundamental. The type_

~— .

of regulatory system to which air lines-@arry ing

the- mails are ‘to be subjected depends upon this.

Court's answer to the question here presented. >.

Viewed in this perspective; the basic problem

in this case and the materials upon the analysis of

which depends its resolution, t take on a wholly

‘different color. It is the Board's view thatthe

language of the Act and its legislative history

deny the power which the petitioner seeks to at-

tribute to the Board. It insists, moreover , that .

what might be. wholly legitimate contrary read-

ings ef statutory language and quite rational con-

trary. inferences from Congressional choice of

phraseology were the question less basic, become

entirely inadmissible. when the question is prop-

erly appr aised.’

» This Court has so approached other cases. In een

& Southern Air Lines v. Waterman SS. C orp. 833 CL S.103,

110, this Court held that an order of the Civil nage

Board was not subject to judicial review notwithstanding the

- Court's statement that “it may be conceded that a literal read-

ing of § 1006 {of the Civil Aeronautics Act] subjects this

order to reexamination by. the Courts. It also appears that .

the language was deliberately employed by Congress, al-

though nothing indicates that Congress foresaw or intended

the consequences aseribed to it iy the decision of the Court

below.” Likewise in United States v. New York Central R.

(0..279 U.S. 73.979; this Court, in holding that the Interstate

— Commerce Commission had power to fix a railway mail rate

back to the date of. petition, stated that it was “quite aware

thirt minutiae of expression may be found that ‘show C ONZTLSS ,

to have been thinking of the future.” and that “we put our i

sleision not on any specific phrase. but on the reasonable

implie ation of an authority to change the rates of pay which

existed from the day the applicatien was filed, * * *°

MEER cae De tic hN OT EIS PD SOO Mn ht SSRI ED SRE Rpt Tie att OSG

™ 7

nh ost 2h =

* aathinoies séaias, TL ees nes

221

_ That being so, the meaning of Section 406 (a)

(1) is to be. gleaned hot frome a mere’ te ‘Xtual

analysis of its language but froma proper under-

standing of the entire Aet.. its history and its -

purposes. In Point A, therefore.swe shall show

that Congress, when it enacted the Civil Aero-

nauties Act, contemplated a typical rate regu-

latory scheme, not. a method for determining com-

pensation -for past services. We. shall, in this

. part of our argument, also show that the peti-

tioner’s interpretation of Section 406 (a) (1) is

flatly inconsistent with the statutory scheme and

that, that being so, Section 406 (a) (1) cannot be .

read as: accomplishing in one phrase ina’ sub-

‘section of a detailed and complicated legislative

enactment what Congress studiously aint purpose-

fully avoided doing in the Act as a whole.

Tn that light, we proceed, in Point B, to analyze

| the language of Section 406 (a3 (1). in its context

and to ex umine its legislative history to'show that

it affords nothing like’the clear mandate whieh

would be necessary to upset what is plainly the

Congressional purpose. “We shall show, on the

contrary, that the legislative history makes crystal

—¢lear that. Congress did’ not intend to confer .on

the Board the power for which petitioner con-.

tends. That the (Board's administrative practice

fully supports the conclusion it reached in this

ease and produces te Incongrious results will he

deinonstrated in Point .€. And, finally, in Point

on a* P ; 22

v C

D, we shall show that the Board's. view does not -

“render the Act vulnerable toa charge af constitu-

tional mavaney.

‘A. SECTION 406 OF THE CIVIL AERONAUTICS ACT

ESTABLISHES A SYSTEM FOR THE REGULATION OF

FUTURE RATES, NOT MACHINERY FOR THE AWARD

OF COMPENSATION FOR THE PAST

1. The origins and the language of the Aet

show that it establishes a public. utility rate-

making pattern.—Causciously modeled _— the

Interstate Commerce Act (24 Stat. 379, as

amended, 49 U. S..C. 1,: ct’ seq.), the Motor

. Carrier Act of 1935 (49 Stat. 543, 49. U3 S.-C.

301, et seq.) and the Air Mail Act of 1934 (48

Stat. 933),° the Civil Aeronauties Act of 1938

provides for comprehensive regulation of the eco-

nomic and safety aspects of the air transport

industry.’ , Testimony at the hearings on the bills .

“which formed the basis for the Act’ was almost

unanimous in requestiffg the establishment of a

regulatory scheme. that would afford relief and

* For a summary of portions of the lejielative history of

the Act supporting this conclusion see ‘Rhyne, The Civil

“Aeronautics Act Annotated (1939), p. xiil, note f: see also

note 11, infra.

* The Act as originally enacted conferred certain functidns

on tlie. Authority. The functions of the Authority in con-

nection with, inter alia, rates for the transportation by air

carriers of persons, property, and mail were transferred to

the Civil Aeronautics Board by Reorganization Plan No.

IV. which took effect June 30. 1940 (34 Stat. 1255.2 5 FL RR.

2421). Accordingly, the term “Board” should be siibstitutes!

for “Authority” in all referenc es thereto,

> 2 a ate Ayan SONGHAI Fs Sh SN Ot BS! PS, gm! OF aba beain es ca A, ‘

ee OA hk AN Pip Bait ol cobahy

ashe ANY CRAPS ae ANE RS UE i,

38 Pe eA He RE hoe mea Cr An See ees IE ry $ ste They

ight Mae hs at Vil aA AT AE ROS aid Bh it Lalas Oc Siiade inh RAL AED iD “RR

a8 Snare

protection aleng the lines customarily accerded:

to public utilities. Thus, witnesses pefore the

Congressional committees, making frequent refer-

ences to legislative controls over railroad, motor’

carriers and even to electric utilities,” advocated

the use of certificates of publie convenience and

necessity, the regulation of passenger and prop-

erty rates to prevent cut-throat competition, the

protection of routes, safety regulation, labor regu-_

lation, control of mergers, ete. The President

of the Air Transport Association, and acknowl-

edged spokesman for the air transport industry,

Edgar S..Gorrell, testified that:

The bill before you is more or-less the

usual form of’ American regulation of

* Hearings before the House Committee on Interstate and

Foreign Commerce oreH. R. 5234 and H. R. 4652, T5th Cong., »

Ist Sess., pp. 39, 46-48, 66,76; Hearings before Subcom- .

mittee of Senate Interstate Commerce Committee on S. 2

and 8. 1760, 7th Cong., ist Sess., pp. 493, 310.

° House Hearings, note 8, supra, pp. 26-27, 39, 40, 46-47, 66,

67, 68-74, 167-214; Senate Hearings, note 8; supra, pp- 51-64,

310, 376-377, 467, 493. Aeamore generalized - view Was e@X-_

pressed by A representative of the National Association of

Railroad and Utilities Commissioners: “It is the view of our —

association that any important public-utility industry re-_

quires regulation in the public interest and will be regulated

sooner or later, and that the-full-purpose of regulation can —

best be accomplished only by regulation from the beginning

_ of the development of the industry” (House Hearings, note 8,

supra, p. 168). This witness urged further that losses

and wastes from’ open competition could be avoided:

“* * * if the Congress shali at this time prov ide for the

i haracter of regulation’ which i is now being given to a

‘public utility enterprises.” 1d. at 164.

toe

utilities or itunaboviaticl audeernbraces the:

points which are common. to a such. types

of Tegislation.

Jt is not surprising, therefore, that the provisions .

of the Act bear a striking similarity to the pro-

visions of Giher Federal laws. regulating ‘different-

parts of the transportation industry " and public

utility statutes generally.” iter

The petitioner concedes that. the authority

granted to the Board to ‘determine and pre-

. Fe e . ° ° e ‘

® Hearings before the House Committee on Interstate and

Foreign Commerce on. 1, R. 9738, Tth Cong., 3d Sess.. p: 297.

~ 1 Commissioner E: astman testified (Senate Hearings, note

8, supra, p. 70): “Now, these two bills you have before | you

follow the usual pattern of regulatory bills. And vou will

find thet much of the language is similar to language which-

is now already.ih the law with reference to-vailroads or with

reference to motor carriers.” In the same vein, the Presi-

. dent of the: Air Transport Associatiot, Edgar 8. ‘Gorrell,

testified (JZouse Hearings, note 8, supra, p. 264): “HER.

5234 [an early form of the bill which became the Civil Aero-

“nautics Act] is, in many instances, a Chinése copy of Parts

Land II | of the Inter state C ommerce Act ].”

“In general the new Act followed the regulator Vv pattern of

_ the Interstate Commerce Act, particularly Part IL thereof,

comprising the Motor Carrier Act’ of 1935. Many provi-

“sions were taken over substantially verbatim.” Ballard,

Fede Sic dasaeaias of Aviation aces ) 6O ‘Harv; L. Rev. 1230 i

1257,

” then, for -example VeKinney’ 8 ( Tonsolidated Laws’ for

New York, Annotated, Book 47 (Public Service Law), Sec-

tion 49. Cf. Section 406 (na) and (b) of the Act relating to

mail rates (supra, pp. 2-4). and Section 1002 -(d) and (e)

‘relating to rates. for the carriage of Persons and property.

— PP. 105-106.

ie,

2° aes

Pe \

seribe "Just and reasonable * © © rates” for \y

*the carriage of persons and, , property ‘(Sections aN

404 (a) and 1002’ (d)) 1s typical ofa public ‘utility

rate-making authority and inconsistent with uny:

power to make adjustments retroactively for un-

anticipated losses or unexpected excessive profits

(Br. 35). It contends,- however, that the Board’s | -

power with respect to establishing compensation. -

for carrying mail is of quite a different sort.

Although Section 406 (a) authorizes the Board

to. “fix and determine” “fair .and reasonable

‘ates’? for the carriage of mai, the petitroner as-.

serts that the standards, for pe

rates are so different from those for determining. -

‘ates for the carriage of persons. and property

£ ° : e ; . aM . . ; .

3 as to make inapposite rules for the fixing of

4g e . > oe ‘ oe »

2 typical public-utility rates (Br. 37-46).

; That assertion may be tested. by a“compari ison

; of the. standards made applicable by the Act for

a the fixing of rates for the carriage of persons and

property and rates governing mail transportation:

Standards for Fi ring Rates

for the Carriage of Per-

sons and Property (Sec-:

tion 1002 (e))

“(t)} The effect. of such ~~

rates upon the moveinent of

traffic; —

3 “(2) ‘The need in the pub-

lic interest '* of adequate | and

efficient transportation of-

persons and property by air -

‘carriers at the lowest cost

consistent with the furnish-

ing of such service;

6(3) Such standards _ re-

specting the character and

ec of service to be ren-

ered by air carriers as may

\be prescribed by or pursuant

—tolaw:

.“(4) The inherent advan-

tages of transportation by

aireratt and

(5) ‘The need of each air

car ed for revenue sufficient

‘to enable\such air carrier

under honest, economical,

and efficient management, to.

provide adequate and efficient —

air carrier service. ” 36

C ompa! ‘able

Fixing Rates for the

riage of . Mail (Section

406 (b)) *

(1) No comparable stand-

ard. (See note 18 infra,

p- 28.)

P 9) “The will of each

such air carrier for compen-

sation * * ¥ sufficient

* * * to enable [them]

*. * to maintain’ and

continuet he development of

air transportation to the ex-

tent and of the character and

quality required for the com-

- merce of the United States,

the Postal Service, and the

national defense.” .

*(3) Such teniendh ¥o-

‘specting the character and

quality of service to be ren-

duced: by air carriers as may

be prescr ibed by or ‘pursuant,

to law: 3

(4y “The conditions pe-

culiar to transportation. by.

aircraft.”

(5) “The need of such air \

carrier for compensation’ for

the transportation of mail

sufficient to insure the per-

formance of such service.

~The full text akiestion 406 (b) is-set forth supra, pp. 3-4.

‘Public interest\is defined, in Section 2 of the Act (49

U.S.C. 402), to include—

“(a) The encouragement and development of an air-trans-

/portation system properly adgpted to the present and future

needs of the foreign and domestic commerce of the U1 ited

States, of the Postal Service, and of the national defense.

” Section, 406 (b) has’ an additional standard which is

really included within the standard quoted in the text. The’

additional standard is:

‘(Footnote 15 continued on p. 27. S

6 Seep. 27,

Ntandards 24

ees

PY >

‘4

List *

“a

ee,

“s

bed

Jag

“=

—_

;

This comparison reveals that, with but one

possible exception which we shall now_ proceed

to discuss, the Act embodi¢s: substantially ‘the |

same rate-making method and . the same rate-

‘making standards for determining the. compen- |

sation to be received by air carriers for carrying

— and ‘property and for carrying mail.

' 2. The developmental aspects: of the Act: “are -

2 consistent with a -public utility _rate-making

pattern—The rate-making standards applicable

in fixing mail rates differ principally from those

typically applied in that the last clause of Section

406 (b) provides that the mail rates fixed by the

Board shall be high- enough so that the revenue

expected to'be derived therefrom and from all

other sources will permit an air carrier to meet

ae anticipated costs of operation tinder **honest,

economical, and efficient management’’ and to

earn a return calculated to enable it to ‘“‘maintain

and continue the development of air transporta-.

_ tion to. the extent and of the character and quality

required for the commerce of the United ‘States,

the Postal Service, and the national defense.”’”

under certificates authorizing the carriage of mail only by |

-providing necessary, ‘and adequate facilities and service for 7

the transportation cee ©? SS

** These provisions. are substantially. identical tor wr the pro-

visions of Section 216 (i) of the Motor Carrier Act of 19@

(49 Stat. 545, 558,49 U.S. C. 316 (1)) applicable'to common

carriers by motor yehicle.. Cf. Sharfman, The Interstate -

» Commerce Commission, Pt. TV (1937). pp. 214-120.

7 See note 3, eupra, and the authorities.cited therein

s . til .

$22425—49-~—— 2 . i

. | yA

“The condition that such air carriers may hold and operate

2g) ee

° | : -

This is. the. so- called “subsidy” provision of the —

| Act." As will appear, it does not change, the

rate-making method fot determining mail pay.

‘The. legislative history of the Act empliasizes

“what is plain from the language of the Act, and

its. origins, namely, that the mail pay . provision

- was. to. be administered by a “‘rate’ * technique

and that the needs of the commerce of the United

States, the Postal Service, and the national de-

fense Were not to be. met by direct subsidies but,

rather, that these needs were additional elements.

to be” cinside ed. ‘in fixing “fair and re asonable

“se VICE - rendered and that subsidies shonid. be

“fixing of man rates. rates.which ¢ are only applicable toa single |

of the: United States: to confine. air-mail payments to air-)

‘ates? far’ the Carriage of mail. “Although the

Feieral Aviation Commission; had: ree ommended

that: “Mail rates ‘should be compensatory . for the

sensi laloninntppmanettiteneeniads om

1s "Pie reison why tlie last Clause of Section. 406 (b) is some-

times called a “subsidy” provision is that, it- relates to the

eustorierthe Lnited States. Since itis no longer the policy

* mail: revenues, as Was-true under Section 6 ¢€) of the Air

~ Mail Act of 1934 448 Stat. 933,.936). it is evident that the.

“the. vokn

higher i dil rates are fixed the higher will be the revenues of

the car

ane gaat resiilt in lower rev enues caused by a.dec line in

namely, the wbility of trafhie to pay, whie ‘hmakes this standard

pattic cutarls heneficial to carriers in the fixing of niall rates

-amdLresilts in the stand: ard being called a “subsidy” provision.

Not withstanding‘ the results obtained, mail compensation: 1s:

amermmed through the rate- making process. :

pane wie eo

Pee ee

iers therefrom. With other types of traffic, rate~

wof trafic which will be offered ut the higher rates. |

ef. Section 1002-(e) (Ly of the Act, aH Prd, Py. 26). tis.”

therarpphic ability of the usual economic limitation on arate,

29 -

paid separately, " the bills subsequently considered.

7 hy Congress’ atid not sO provide. Thus, the presi-

dent of the Air Transport Assoc lation, Kdgar S.

7 Gorrell, testifie d:

‘Phere ‘are only. two ways whereby. the

necessary capital can be provided -to ‘this

-industry. One is the way isons wheh'.

the governments of foreign. lands increas-‘

ingly tend—tlie way of mounting govern-

“mental subsidies, whereby public funds are

‘poured without stint into air transport. |

The other Way is the traditional American

Way, a way Which invites the confidence, of

the investing publie by providing a basic.

economic charter that promises the Jiope

of stability and security, and orderly and

“intelligent growthi under wate ‘hful govern:

ment supervision, res .

It is the second way, the traditional

’ American way, a is here. proposed.”

a op ne ye

” Report ofthe Federal Aviation Commission, Sen. Doe.

“Nosld (74th Cong., Ist Sess.), pp. 49-51. ‘The Commission's.

* recommendation number (3) was st: ated : as follows:

“The carriage of mail ‘should be put on a comnierc ‘ial Siac:

“with payinents to lines within the’: amount received by the

Post Office. Whatever additional sums are for the time

being necessary to ‘maintain and’ develop adequate transport

‘services should be allacated specifically to that purpose by.

tlie governinent.” |

“Wearings beforea subcommittee of the Ne pate € ‘Onvanittes

on Luaterstate Commerce on S, 3G59 (7th Cong. 3d Sess. ).

p. ob: see also p. 2h. and House IE arings, Wole LO. suped,

p.2olo and pp. 1. Hcl. 169, S37-8. 339, $5, 468 and ors

Hs arings, note’ S. vu pra, hp.: 16. a9, 11, vt. 2H: 0S, —~

Early in, the hearings, Commissioner Bastian

pointed out: the siniilarity between the problem

of fixing mail compensation , for air carriers and

fixing railroad rates. He. stated: 3

Whether that [Sections 304. (e) sik 310

(f) of H. R. 5254] is to be regarded as a

subsidy or not, [-am ‘not sure. As a matter

-of. fact,-it is much like the’ situation with

respect to the railroads.. There the most im-

portant part of. the service is the freight

service * > * /* they have frequently

argued to the’ Commission that it is impos-

sible for.them to ‘get a fair return. on the

passenger ‘business and therefore the freight

must carry that load, if theyare to get the

fair-return .* ** ." “thé situation: is much

thejsame here * *. * {ff it should be the

situation that for competitive and other rea-

sons the passenger—part of the business: can-

not be made to pay its way, then it ‘follows

‘that the companies cannot operate success-

fully from a financial point of view unless

they get enough. from rarry ing the mail to

cover the deficiency on passengers? ass

This analogy to rate-making for, the railroads,

which was already embodied in the: bills before .

Congress, was emphasized by the spokesman for:

~ thé air-transport industry, Mr. Gorrell:

Before leavi ing the stibjec t of mail compen-

sation, I want to refer briefly to ‘the question

of considerations involved in fixing compen-

' /

” House Hearings, note 8, supra, p. 36.

Sas ars aes A Be Sh ea honk OOr SoU cae SAORI a

EARS SBI IARC ARSE RESIS Sead aN Shee

Tae Ee ca

CASED

oe Ss de Sy ooh =

Sulan Gs pees

=fo!

ee ee |

Pte eee

SEC RREEGAR G0 PEI hate ea RRR Oe atic!

Sas mrt ot ene SNS ang

WER IE OPEN

31 -

sation. “Phe fundamental consideration in fix-

Ing mail, passenger; express, and freight rates

is, of course, that there should be a return to =

the carrier which will. give at enough revenne

to keep going under economie management.

This consideration is operative with respect

to every form of transportation and’ is. in-

deed, tle task of the whole question: of rate

regulation of any public utility. In a serise,

the problem of fixing rates for particular

classes of traffic by ar egulatory agenty re-

solves itself into determining what share’ of

the total return necessary .to the carrier .

“+ should be borne by each particular class of

traffic. ; on )

“As Commissioner, Eastman pointed out to

this committee, such a consideration. has, iv

fact, been dealt with in the case of regulat-

ing certain, freight rates for the railroads. —

_. Thus, in the last, analysis, the problem is to~

determine what the carrier should ultimately

receive from all sources and then to allocate

the burden among the various classes of. traf-

fie, including. the mail, as may be justified i

ee public. interest.” |

> Nenate MW arings, note 8, supra, p. 458: see also p. 497,

Similar statements were made by this witness to the House

Committee: “The end in view ts, of course, a reasonable se-

turn to the carrier, under economical muthagement, <i that

it can continue in service. ‘Thiat return is to be secured ss a

whole from various classes of traffic. including mail. * The

division of the burden between these classes, nist depend

\upon niuny factors, including the ability of each class to pay,

the relative IApeort ance of each class. the constane y of We-

nik ened, the facilities that have to be devoted because of the

The brief and unequivocal reports of the Con-

eressional committees handline’ the bills, which

were enacted into law without material changes in

this respect, make it abundantly clear that the

Congress adopted this view and adhered. to the

ixectsuandy concepts of public utility rate regula-

then.” - v

‘The statutory requirement that *‘the needs of

the * * * commerce of the United States, of .

the Postal Service, and of the national defense”

be taken. into account is not umque.to the Civil

_Aeronauties Act. A similar statgment is found in

the Motor Carrier Att of 1935 (49 Stat. 543 and

identical language was. inserted into the Inter-_

state Commerce Act by the Transportation ~Act-

pecul iar demands of each class, and soon.” “House Hearings,

note S8,-supra, p. 317. Again, “* * “* ‘the rate-making

body should * * * take into consideration the need for

produc ing total revenues that will vive a fair return. That

need_is fundamental to rate-making, and consideration of it

is particularly applicable to fixing rates for mail transporta- .

.tion where there is only a single customer and where the.

commodity transported, the njail, cannot be readily compared,

in terms of dolar value or other Wise, with other traffic” (1d.

at p. 359), ee eee.

“The Senate Committee reported: “The recognized and

accepted principles of the regulation of public utilities, as

applied te other forms of tranisportation, have been incorpo-

rated in S.3845" (S. Rep: No. 1661) (to: accompang. 8. SS45).

7th Cong. 3rd Séss.. p. 2). . The House Committée reported :

“(the Board | would have the power.to * * ©

for the carriage of passengers, property, and mail * * °*.?

CH. Rep. No, 22: Doty (1o accompany H. R. 0758). 75th Congd

. a) so . y 4 ~ ‘

Sra Sess. p. -). See jals o IL Rep. No, 2655. Conference

Report to accompany. S. 3445). Toth Cong. 3rd ‘Sess... pp.

1-72

fix mae

aan |

$3 |

of 10" And yet -no one has ever. contended

thaf this statement of the “national transporta-

tim polie vy’? caused’ the Interstate Commerce ‘Act:

to cease to be a rate regulatory statute Inia

typical, sense, '

“3. A. public utility rate- -making pattern ic as

is: éstablished by the Act provides for future rates

which have the attribute of finality.—The assump- _

tion .of power by the ‘Board to de terngme com-

pensation for the pres calc of maily by

aircraft during a pe riod in which a final rate.

previously fixed by the eee was in effect and

‘

Ee ey ORNS DEN ae Ph eee rh DN

Sh SAGE ARS Ag TOON REE OER ENE TR SOR

*4 The Transportatio“ Act of 1940, ce. 722. Title IT, § 1.

. (54 Stat. §99) amended the Interstate Commerce Act. by

inserting a new paragraph entitled "National Transportation

Policy” before Part Lof the Act. It reads.as follows:

“It iS hereby declared to be the national transportation

policy of the Congress to provide for fair and impart ii] regu-

lation of all modes of transportation subject to the provisions

of this Act, so administered as to-recognize and preserve the

cinherént advantages of each: to promote safe, adequate, eco-

—uomical, and efficient service and foster sound economic con-

ditions in transportation and among the several carriers; to

encourage, the establisiment and maintenance of reasonable

charges for transportation services, without unjust discrim-

inations, undue preferences or advantages, or’ unfair or de-

structive competitive practices: to cooper ate with the several

States and the duly anthorized ofliGials thereof: and to en-

courage fair wages and equiti able working conditions : all to

the end-of deve loping. coordinating and preserving a national

RAG peels Le eS ~

Se PASO ARES

» Xx

ALE reed

3 ’ my wate ora Sere * = Bees Tei .¢ eas

aap REN re eh Bal satiivilniadh tosh coin Siaiiaus RRS Sass RON SUE PD

transportation system by waters highway. and iil. as ell as

other means, ade quate to meet the needs of the’ TOM MENCE of .

the United States, of the. PostakiNygvice. and of the jiational

de fe nse, tl of the prov ISOS Of- BIN. . Let shall be ad minis-

tered and ¢ nforce do with a viedf to car ryuing out the above

d: clavation uf policy.” | Italics supplied]

34 ee

unchallenged by the initiation of a_ mail-rate.

proceeding is wholly inecnsistent with the well-

developed. rate- making pattern of the statute. It

being plain that Congress, in the Civil Aeronau-.

tics Act, adopted-the usual public utility method

for the fixing of mail transportation | rates, the

petitioner’s view as to the power of. the Board

must be measured against the principles which

govern public utility rate regulation. | ;

Under the usual public utility” rate-making

method, the rate-making authority does not fix

the income of the utility but only the rate it is

to: receive in the future for the sale of services,

such rate being ealeulated to produce gross in-

come for the utility sufficient -to meet such 4

necessifty and allowable expenditures as are an- -

“ticipated and a return whieh will satisfy .stat-

‘utory standards and be non-confiseatory in the

constitutional sense. Such rates deal ‘with the

future and‘ are not nor mally concerned with re-

imbursement of past losses. They. are. aot sub-.’

ject to revision with respect’. to completed

transactions but are final. Such rates afford an

opportunity to earn a fair return but do not

guarantee that such oa return will, in fact, be

earned. * a0

If the rate- -making ‘authority “sets too low ae

rate, the car rier has no redress save a new hearing

-and the fixing of a more adequate ate for =

future.”” Arizona Grocery V. Atchison Ry. a

ore

—

. } >

U.. S. 370, 387. 'Phus, this Court has , refused

to require the capitalization. of past losses in

the ‘rate. base for the purpose of fixing future

rates,* or the current reimbursement. cut of

new rates of deficiencies arising from a failure

to earn a reasonable return in past years,” or

the capitalization of costs of: maintaining excess -

capacity during the early period, of operation.”

Through Chief Justice Stone, this. Court has.

stated : | sea

5S ae regulation does. not insure

that the business shall produce net revé-

nues, nor does the Constitution require that

the losses of the business in one year shall

‘be restored from future earings ‘by the

device of capitalizing -the Josses and adding

s Galveston Electrie Com pany. City of Galveston, et al.,

258 U.S.388. 0 . o

* Georgia Railway and Power Company, etal. vs Railroad

} Commission, 262 U.S. 625, affrming 278 Fed. 242 (N.D. Ga.)

where the distric€ court stated at’ p. 247: “The claim that

the failure to earn a reasonable return, if established, should

‘now be either allowed as capital investment or amortized

under this or future rates we cannot allow.. * * * A rate

established as reasonable, whether by the company or by the:

commission, is not guaranteed by the commission or-the pub-

lic.. Whether it will actually yield moré or less than a fairre-

_turn during its continuanée is a risk of the business. We do

_ not deny that it is within the discretion of the comnrssion to

consider the experience of the immediate past in fixing a just

rate for the future, but we hold that no legal right exists to

have disappointments or surpfises. in results balanced.”

* Federal Power Commission, et al. ¥. Natural Gas Pipe-

line Co., et al. B15 U. S. 575.

them to the rate base * * *. The de-

ficiency may not thus be added to the rate

- base, for the obvious reason that. the hazard

that property will not earn a profit remains

on the company in the case of a regulated,

as well as an unregulated, business.” ,

These rules are applicable equally to mail, pas-

_senger and property rates under the Act. This .

“rate’? pattern was well established for public:

. . utilities,: particularly in the transportation . in- -

dustry, when the Act was passed ; it is a _pattern

that w as fully elucidated before the Congressional

committees’ considering regulation of the :air-

transport industry; it is a pattern that’ was

plainly specified in the Act; and it is a pattern

that has been consistently followed by t e Board

in its administration - the mail-rate ©

’ of the Act.

Petitioner’s arguments in shige of the propo-

sition that ‘*the Court of Appeals relied-on a false

: analogy. to public utility rate. statutes’ (Br.

27-44) are totally irrelevant to the issue. The.

Court of Appeals (R. 114), like the Board (R.

67-70),. reasoned (1) that Section 406 was in-. -

tentionally cast -in the’ form of a “uspal public - |

87d. at p. 590. - . Conversely, it is well established that a

regulated utility cannot be required to give up excess earn-

ings from past operations. Board of Public Utility Commis-

_ sioners, et al. v. New York Telephone Company, 271-U. S.

rovisions 7

23, 31-32; Newton v. Consolidated Gas ee ai New —

Jersey,2 58 U. S. 165.

ras]

ge ge Br?

ae . 37

utility rate-determination measure”; (2) that

rates under such measures were primarily future

rates and were final; and (3) therefore, the rates

determined under Section 406 we re of such char-.

“acter. In res rching its cone ‘Ansion, the Court of;

Appeals did not assert the view that carrying

‘mails is a

-. or that it was impractical to..adjust mail rates

sé

pubic utility function” (Br. 29-30),

‘retroactively’? as was true in the case of other

public utility rates (Br. 33-37). At most, peti-_

tioner’s arguments are reasons which might have

been pr esented | to Congress as to. why ‘Congress

might have legislated differently ‘than it did.

They furnish no basis, however, , for construing the

Act. . ;

Likewise, it is ‘of {ittle signifieshes that Con-

eress has the power to increase mail rates “retro--

_ actively.” (Br. 13-16). That may -be conceded °

(R. 86). The question is not what Congress

might have done but what it did. Of this the

Act and its legislative history’ leave no..doubt;

Congress established a public utility rate-making

pattern for the determination .of compensation

for carryinganail by air. Indeed, the failure of

Congress to provide for retroactivity in the Act

_ in the same: clear tertns that it did in the statutes

cited by TWA (Br. 13-16), and others (note 34,

infra), iS convincing evidence that it: had no In-.

tention ef doing so.

4. Acceptance of petitioner's contention woud

haart the congressional purpose —The facts of

this very case/ ‘serve to highlight the dichotomy

between the ubli¢ utility regulatory pattern dis-

-~-eerned by the Board and the court below in the

Act and Ahe petitioner’s view of the mail rate’

provisi lytis as authorizing compensation awards.

In the course of the pr oceeding which TWA now

seeks to nullify, the Board, as stated above, p.

prepared and introduced into the record of she

proceeding indicés of selected operé ating statistics

for the future, and estimates of operating results,

and ‘investment requirements for ‘the future. - On.

the basis of such materials and witha (6 C. A: B.

: sa i ce . | : z

| | purpose to fix a service mail mite which

will be. high enough to provide reasonable

security against the risks inherent - in: the

dynamie and uncharted transitional period:

ahéad and which at the same time will be

low enough to provide x strong competitive

incentive for economical and _ efficient

management,; . Petes ih man

the Board concluded “that a mail rate of 45

cents per ton-milé is required.”* Ibid. Although

its decision applies in part to a past per lod,”

nothing could be plainer than that -the Board

Was primarily concerned with the future effect

of its order, which it considered to he final and

” The Board's order, issued on Oc ‘tober 26, 1945, Was made

effective as of Janu: ry 1, 1945,-the-: date; 2 show cnuse order’

Was issued proposing to reduce TWA’S vr ate from 60 to 32

cents, - This was in accordane avith the Board's usual prac-

tice. See infra, 'p: So.

OT er

Sa Muar ott

th ee a

Lae 57

# PERS $ v4 eH Tas RpRRE EE Shs ER OL IEE Oats ae

OI BER PINTO ee Poe ee ‘ae Se ian IEE, Te ae ee Ae el athe

Baz ee bape 8) Pin re x9 90) SORT = 3 RD URE ee ah EE aan ee Sa No BF i

Gee fe iad cy

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eye ath aes ey es

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binding. This i is put beyond doubt by the Bi ard’s

éstimate, that on the basis of the mail rafes ‘it

fixed, ‘TWA would secure a return of 13.77 per

* cent, after taxes, on the total investment required

for its entire domestic common carrier operations.

Such a high rate of return is wholly inconsistent

with the lack of risk involved in the petitioner’s

. view that the Board is required to guarantee fair.

and reasonable amounts of mail. compensation by

the device of ‘retroactive’ rate orders. And yet,

the petitioner accepted the rates according it

this return and, more significantly, the theory

of regulation’ which those rates embodied. It ‘can-

not now ‘urge, consistently, that the ground should

onee again. bé retraced‘and a compensation award

be ‘substituted for the rates designed, without

objection by TWA, to provide reasonable security

and yet assure. “strong competitive incentive for

econoniical and efficient management.’

The rate-making g pattern would. be de-

si ie f the petitioner’s View, ‘ofthe Board’s

" power were accepted, the rate-making method, for

the determination of .mail pay prescribed by the

Act would be completely eliminated and a cost-

plus * auditing system substituted. _ Petitioner

urges that the ‘niake effective” clause in Section-

“406° (a)-(1) permits the Board to’ make a new

“rate! effective during a past period in which a

previously determined rate was in effect and un-

chi allenged by the initiation of a rate proceeding

ieee es

23 i | ; aay

(Br. 11-24). If this were true, the Board would:

not merely. be permitted, but would be required,

to take such action. While Section 406 (a) (1)

merely requires the Board to make the’ fair and

reasonable rate it: fixes effective from such date

cas it “determines to: be proper,” if that pro-

vision is to-be read as the petitioner reads it, ‘the 7

most obyious determinant of: the propriety of the

effective date of an order is|whether or not the-

“pate” was ‘fair and reasonable’’. from such ~. *

date (Br. 28-29). The Board, then, would neces-

‘sarily be determining the fairness and reasonable-

ness of the return to the carrier during a past

period rather than’the fairness and reasonable-

ness.of a rate for a carrier in the future.” Wopile

the petitiorer repeatedly itisists that its conten-

ie la Disk aah Sie is Re ND Sh i, i

? v7)

tions go omy to the power of the Board ‘and not

its exercise (Br. 3, 10, 17, 74), its assertion that

both the statute (Br. 40, 77, 81, 83) and the Con-

stitution require (Br. 11, 80) that the airline be

assured of a fair and reasonable dmount of mail

~~ ‘ & - ss ; * - :

RIDE AKA al gabe aia NC in aa Alas AR ME aS

compensation at all times demonstrates that what

the petitioner really seeks is a declaration that the

Board must, in all cases, audit a carrier’s books

‘for a past_period and award mail compensation

sufficient to cover proper costs and a reasonable

rate of ‘return instead of fixing fair and reason-—

able rates for the carriage of mail for the future. ~

So to hold would. completely destroy -the finality

‘ , Pye {8 “a 3 vee y DORR Ge, ro a Oe

Sood bist haath Sea NGM nd Rent Saar BE cee OM St ee

fae &

Leis <i . : . re a . * ~ : STEM ARS CSA oust Bo esr eee tir tes bri. Y EE esp PRR EL So Ot ee ons Pe EE =

ron ray ae ee dabane fon ox. 08 a OST Od RPE ER TO Re, Ce CER MO gon ARN Oe ekg, a ee ae See Hae pe ne pe Pee Ps ,

AR A atropine ra Ue ld Alas RN RRNA 5 BORER GOS al ia Ln NRO aed ie : ‘

ks Nea 41

of. the Board's forward-looking rate orders and

”

make all such orders merely tentative.”

b,. Achievement of the ‘objectives of the <Aet

would be impaired—This system of. cost plus

auditing to determine mail _compensation would,

if recognized, impede the : accomplishment of the

very objective the Act is designed to achieve,

namely, the encouragement and developmente of -

a self-sufficient air transport system.”

* The court below also made reference to the presumption

agrainst retroactivity. {R. ile . HS.) TWA’s brief urges

that this presumption is appligable only where a statute is

* applied to a period ‘prior: to its enactment (Br. 25-27).

TWA’s argument misses the court’s pojnt. Obviously the -

court yas not laboring ynder the misapprehension that this

Act applied to events prior to its enactment. ‘The court was

simply drawing an analogy between the uncertainty created

by such a statute and the uncertainty‘ created by T WA's in-

terpretation of this statute. The hostility of the law to retro-~

activity is merely-a judicial recognition of the desirability -

of finality and ae Cf. A rizona Groce ry \.. Atchison

Ry..: 284 U.S. 370,

* See Sections 2 ad 406 (b) of the Act Unfra. pp. 100

101, and supra, pp. 3-4.) In the First Annyal Réport of the

Civil Aeronautics Authority ens sald. , p- 21, it was.

stated: -~~-.———. eee 3

“This administration of the act necessarily involtes n

' policy of rate determination whie h serves to recognize man-

agerial efficiency and to permit’ benefit therefrom to re-

~ dound to the carriers, thus providing an incentive to manage-

-ment- for further development while at the same time dis-

“couraging ineflicient management by refusing, in fixing air-

mail rates, to allow any of the costs i incident thereto. Accord-

ingly, the Authority { Board} has analyzed both past and

forecast operating revenues and expenses of the air carrier in

each. proceeding in the light of the statutory’ test of thonest.

economical, and effic “iednt management” not for the purpose

‘

d@ -

R He

A ee

= bs: " i . 4 . ° ‘ j . ‘

“First, if-the Board were required to use a-sys-

tem ‘of cost-plus -auditing to reimburse ‘arriers

for past losses then, under the same. system,. it

world have to recapture excessive profits carned

im the: past. As a. result, carriers could ever

be ceert ain that. they could-keep earaings: from.

the ‘carriage of mail. “This would have. two

deleterious effects gu the’ achievement of “the

objectives of the Act. “It: would remove: all ine

:@ entive ‘toward managerial efficiency and the de-

“velgpnrent of ‘nonmail revenues since, as profits

arose therefroin, mail payments would - ‘tend to

~ become exe essivé: arid: subject tor 14 ecapture. Fur-

ther, the possi¥ility: of rec ipture | of excessive

profits for carrying mail in’ past yea art would —

write a question -mark across the financial state-

al “eS . ;

ments, ,of ‘carriers and sertously. impair their

ability to raise « private capital for’ expansion,

new ‘equipment and other needs éssential ‘to the-.

_(R.J14-115);

TWA suggests, however, that. there is “nothing

deve ‘lopment. of a self -suffici ent air transport sys-

tem. This is one of the prine ‘ipal reasons why

low cone luded that the Board had no

the court:

power td re vis

to: fear’? in ve capture, Assuming, it states, that

ee w

of invadin? P proper manager ial duction but with the object

> -.of encouraging a progressive, efficient: management which

- wilt be characterized by a constant effort to increase com-

mercial revenues, thereby resulting in “the attainment of an

ine reasing mreasnre oF commerci:t] self- suffici eNCY.

ates’ ‘retroactively in this case,

9»

Yeap ree INE PR CTE VT A

Canes heart WN Re obi. ue edt aS

a y

Creager

‘Ee

roe

SPs

BFE cae

Ele

sae tehggg oe 52 Oa eaten gt A, ea Sty he eS ig 44

Fe BO i te Seth, Sine eee ae) PO eG

EL abies te ws

oS othe 1% Leea sary

ESP rt fe

Lge

Peres

an ainline “earns an unconscionpbly high profit

from its mail pay’ and ‘‘that/ the airline has

made nb disbursements and u ertaken no com-

mitments on. the faith of that profit” why

‘ shouldn’t the - Board reeapture 2 ie. 77-90).

While this hy potheti¢é a} situation may ie an ih-

triguing possibility, it hardly squares with busi-

/ness reality.’ What business would cam = very

high: profits and undertake: ‘no commitments”

of its funds?. Common business practice is to

commit. such profits . to: tlie enterprise or déclare

a dividend. If the Boar could only recapture

when an airline had never *‘changed its position’’,

_ it could in fact never re ‘aptur e-at all, The mail

_ bay provisions woulds be administered not with

bi anes -handed justice’? but with Ope Whanded in-

Justice. It i is far more likely that the Board would

be‘required to recapture baiehi, i tive of the com-

mitments made hy carriers. Thege ‘ffeet of sich

recapture. would’ be industry-wic disruption.

Whether-or not the Board. finally re ‘aptures ex-

cess earnings in a given: ease, there will ajways

“be uncertainty ag to what ats action may be. So

far as the effectuation. of the: policies of the Act

“is concer ned, the. vice of the ‘situation lies. in the

existence of the: power as much as An its" “Cxercise,

for its mere existence. gives rise to uncertainty.

Second, if petitiotier’s view were te prevail,

one of the basic techniques for assuring efficient

operation, tamely, the fixing of uniform rates for

822435 +494 wa Oo

2 - ° . .

for ‘‘classes of carriers.

a] iF a * ©.

ccarrierstwitle sinailting operating charae teristics,”

would lose nich of. its effectiveness as ame lean

. of ‘furthering the poliey of the Act to develop a

sound: air transport sy stem through competition.’

Section 406 (b) authorizes the-Board to fix rates

The nig rate Is an

important regulatory device | » foree carriers

withim a given class to ini an the develop-

-ment of reveriug and contrel of costs.” If the

fg. characteristics of the. carriers

‘basic* opey

-are similar, a uniform rate for a class. of ear-

riers can kave an important. effe ‘et in stimulating |

good competitive performance. Under the: cost

plus system of auditing which TW A reads into

the Act, a carrier could always seé Kk relief from

the unite ala and: would, therefore, have no

incentive to live within it. .

Tf the interpretation of the Civil Aeronautics

Act urged by TWA is correct, Congr ess gave ‘the

~ Board a blank check and atithorized it to guaran

tee the airline industry’ for an. unlimited time

. . * :

against all losses assuming only that there was

economical management. A guarantee of an en--

tire industry against loss could rest orfty upou the

~~ most epertee } anguage from which that intention

oe cayhlaheach

? For examples of the use of this technique, see the. cases ©

cited in notes 1 and 2 of the Board’s opinion in this case, fix-

ing uniform service rates for the “Big Four” carriers and

the “Little Six” carriers (R..64). Aras +:

® Section 2 (d) vec a Act ( Appendix, infra, p. 101).

s se oe “

a tee : ’

ica Bs. ae -

R Pr #, ‘*

‘aia be ane beyond | the shall: af a donb

There is no such language in ‘the Act. So radiéa

and unprecedented’ a departure woh allen

have been the | occasion of, conside rable ise ission

“qmong legislators. There is no such discussion

in the legislative history. The clarity with which,

‘Congress, in other ‘situations, has granted anueh -

“more limited power to “ree aptire’) “execssive

earnings or retroactively increase “rates” when

that has bgen its intention,” le: ids to the cone ‘lf-

‘sion that “retroactive” power to. determine “mail

eit ; Saad ] >

compensation and “the Sawer to ‘‘recapture’” ex-

cessive earnings, both of which powers TWA as-

-serts are possesed by the Board, should not be

thrust upon the Board without a clearer sanction

from the Congress. What Congress did clearly

provide was a typical. public utility. regalatery

plan whereby air carriers were entitled to, re-

weive final future. mail rates which offered a

genuine opportunity to earn profits from air var-

rier operations asa whole.

_ : ao ™ “Bs

o * Transportation Act of 1920 (Act of February 28, 1920.

T), 41 Stat. 456, Tit. TV. § 422. 41 Stat. 488-491: Merchant ~

Preis Act of 1936 (Act of June 29, 1936), ¢. 858, 49 Stat.

1985. Tit. V. $05 (bh). (49 Stat. 1998). Tit. VI. $ 603 (e) (49.

Stat. 2002) ; Renegotiation Act (Act of April 28, 1942. ¢. 247,

Tit. IV. § 403 (56 Stat: 245).as amended, 50 UL S.C. App.

1191: see ian ihe examples cited by TWN (Br. 13-16).

’

—_%,

B. SECTION 406 (A) (4). W AS INTENDED ONLY TO EM-

PQWER THE BOARD TO MAKE RATE ORDERS EFFEC-

TIVE AS OF THE INSTITUTION OF THE RATE.

PROC EEDING oe 4% .

Ww e have alre: dy shown that the Act estab-

lishes a public utility rate-making pattern for th

determination of compensation fer carrying mai

by air, and that,, under. this plan,’ mail pay -

detesffiined primarily by fixing ‘rates of compen-

sation for future services. TWA attempts to

pervert this pattern into a cost- plus scheme. of

: \

pricing whereby a carrier's hooks ‘will be post

audited and it will be awar ded fair.and re: sonable” !

amounts of compensation for services rendered in

the past. It seeks to achieve this result solely by’

- reference to the “make effective”’ clause of See- |

tion 406. (a) (1) of the Act, w hich. empowers the

Board ‘Sto make ‘such [fair and reasonable mail] _

rates [as it fixes] effective been such date as it

shall determine to “be proper.” (Br. 9, 16). It

is questionable whether, the burden of nullifying -

the pattern of the Act could be sustained on the»

basis of the “‘make effective’? clause alone even

if it could more readily be construed to mean, as

TWA conténds, that the Board can make its mail

rate orders effective at any time. In any event,

when the clause 1s read in the context ‘of Section

406, and particularly. in the light of its legislative

history, it is clear that its eo and meaning

‘Was neither to “empower” nor “direct”? the

Board, to mi ike its mail rate orders’ e foe tive ' “rete:

Cai ee

roaetively,? thus. est royinig. the carefully nur-

tired pattern of the Avt, but simply to make its

“words and plirases used in Section 406 point to

tions of Section 406" (a). (1) to “fix” “fair and

ties, used and, useful therefor, and the services

‘connected therewith’; (2) ‘‘to prescribe . the

. ‘method. or methods, by airer aft-mil., pound-mile,

weight, “pace, ‘or any combination thereof, or

other rwise, for ascertaining such rates” ; (3) to

fix rates upon “Hetition ee “an air car-

aA (4) to do so only “after notice and hear-

ing’’; and (5) to ‘deter mine rates upon the basis of

the. standards specified, are cast in the form, and

use the language, of traditional public utility:

regulatory measures. Pair and reasonable 1 rates

fownd (Re 114), and TWA concedes (Br. 35),

look to the future.” Effect may -be given to the

foregoing language of Section 4(6, the a only

_ if the cone ept of future rates is pi served through

the ite paves adopted by the Board and the

Court of Appeals, TWA attempts: to reconcile

aks mail rate orders effective from the. date a pro-.

ceeding Was instituted to change- a rate, a pro- *

. cedure wholly cmisonant with the pattern ‘of the -

Act. Re aR as ee .

AL The language of Section 406. —Many of the

the necessity for interpreting the Act as the

Board and the Court of Appeals did. Thedirec- |

reasonable rates ** for ear rying ‘mail, “*the facili-

fixed by such measures, as the Court of ° Appeals |

‘

ee he ae

arguing that ‘‘rates”’

"the use of the word *rates”’ in Section 406 with its

‘interpretation of the ‘make effective” clause by

js traditional mail pay lan-

However, this argument ig-

guage ’".( Br. 28. 33).

nores the accompan ring language in Section 406,

whith is public utility’ rate-making language, and

‘the clear intention of ( cress to establish a typical

pablic utility regulatory ‘measure, ” |

That the Word * rates ” as used in Section 406

(a) and: (b), and even in the “make “effec ‘tive; zs

cl: wise itself, refers to a measure of payment for

future operations, is’ borne. out by some of the |

lahguage of Section 406 (b), which in_ itself

limits, or-etse conflicts. with, the asserted phan

meaning of the. tinake effective”’ clause, Thus,

Section 406 ()) requires the Board, in fing rates -

under Section 406 (a), to take into consideration ~

among other factors ‘‘sueh standards reflecting

the character and quality of service to be ren-—

dered by fir carvers as may. be prescr ibed by or

pursuant io law; and the nec ed of each such air

carrier for compensation for ‘the transportation |

of mail — to insure the. performance of

such service.”’ [Italics supplied. ] The portions ¢

of the above quotation which We have emphasized

demonstrate that the rates the Board is: to. ftx

are to apply to future operations. Moreover, if *

these words’ are ty be. given content they. must

limit or else conflict with the asserted meaning.

of the “make effective” rd for what is to

* : rr F “Ppt vas ¥

< AC

* 49

happen in the future is hardly a \ prope “ conside a=

tion for deterinifiing the ‘extent pf payne nt for

past” SETVICES, ; oe

T ‘he basic directive to the Boatil i in Sec tien 406

: (a) is to “fix’and determine from trie to time .

Bom ey fair and reasonable rates.” “The well

understood meaning of “fix? is Sto settle’

“make. permanent,”’ “inake certain.” © But if,

as the: petitioner Ir urges, the: ‘maker effective”

clause were ‘construed to grant. the Board au-

thority to refix a rate for a period for which a

~ prior rate tixed by the. Board: was in effect witb-

pPinenuent the Board. would -in fact neVer

“fix’’ a rate. but would only make tentative de-

a It is impossible to considera rate.

as fixed if at any time thereafter it can “be re-

* vised. It is clear, therefore, that “**fix’’ cannot

‘be given its soni meaning if the “make effec-’

tive’ clause i is given the construc tion whie h TWA

\ asserts: is’ plain. 7

The use of the’ word ‘such’ in} the “make

ear effective” chauseé is also significant. It establishes —

that the clause is not,to confer any new or in-

- dependent substantive authority to fix and de-

me © © ite [fix] ordinary meaning is to make pes rnin-

7 nent something that is unsettled.” Rendall vy. Stafford. 17s

N.C. 461, 466 (1919); “To make firm, stable, or fast; * * *

to-set or pl: we definitely: : to establish; station: settle: eee

to asign precisely * * *” Webster's New {[nternational

Dictionary (ad ed. Lins), }. OFS.

¢ 2 ; »

co | ~ 50. |

termine mail rates, but dit: te ‘deal’ w “ith such

rates’? as have been fixed; and even then, unly to

deal with “such rates’? in one of their pr gcedural

4 oo, aspects. - To construe the clause 80 as to require the

-. Board ‘to insure .a ‘carrier a’ fair and reasonable

amount of compensation atiall times, as TWA does, »

nullifies the werd “such’?aind creates a wholly

neav concept, of compe nsation without statutory

justification. ee

It was on the basis of considerations like these

that the -court below coneluded that: **'The

language of the disputed clause is not necessarily

“retroactive. It is as apt in reference to the future

oe ‘it is to the past’? (R, 113); and ‘‘ We think that

aS reading-the -wliole of the statutory pro-

‘visions relative to these rates [Section wd must

conclude that they specify the: fixing ‘of a ‘ate,

or tates, for the carrying of a physical unit of

- mail, and that they contemplate future oper ation”’

(R. 114). 60

ahs hile a Sevtids view of Section. 406. lee

*+ the “make effective’ clause, limited to the dic-

| tionary theanings of. the words employe ‘dd would'

sustain the conclusion of the Board and the Court |

of Appeals, it might . leave uncertainty. as th

whether effect were being given to the intentions

of Congress. Any such uneertainty, however, is

completely “dispe Hed by the legislative history of:

’ the “make effective” clause to whieh we now

“turn,

BL ' °

”

2, The le gislative - histery. — After considering

‘he materials set forth below, the Court of Ap-

peals eonchided: “that the addition to the original .

bills of the ‘mutke effective’ clause appears to have

* been désigned to establish in the Beard the sume

pow ers which had ‘theretofore e ‘xisted at ( sic) the .

Interstate. Commerce Commission in respeét to’

railway mail... And it had been ‘established thaf.

the Interstate Commerce Commission could make

its orders effective as of the daté of the beginning

of the proceedings; buf it had never been cl ainied

that. the Interstate Commerce Commission had

unfettefed: retroactive power” (R. 113). These_

‘lust sns-are-amply- supported. -— 3 eo

“In none of the: 18 mail- rate. cases decided by

the Interstate Commerce Commission under the

Railway Mail Pay Act * prior to the passage of

the Civil Aeronautics Act did the Commission

refix, a. rate:to “be effective during a period pr ior |

to. the initiation of a_rate-proceeding | (Re 71);

“in most of them, however, the Commission “made.

‘its order effective as. of the date the proceeding

was initiated.” Most signifie: antly, in Railway

* Act of July 28, 1916, Sec. 5, ¢. 261, 39 Stat. 412. 429, 3

U.S. C. 542... This sehen t is substantially the same as

Section.406 (a). (1). of the Civil Aeronautics Act of 1938,

except that the last claute differs from tee “make effective”

clause of Section 406 (a) (1).

* See, for example, Raiiray Mail Pay, 216 1. C. C. 467

(1936) ¢ Railway Maiy Pay, Ue VOC. GTS, T20 T1952):

Raitliray Mail Pay UAT CLC. TAI). oe

' . sis : Aus

Mail Pay, 144 1. C. C. 675 (1928), the Commission

refused to make highér-rates for some carriers

effective prior to the date they were brought into

the proceeding although it found that their rates

had beconte less. than fair and. reasonable before

that daty. In one Gf these railway mail pay

‘ases, the peutic: General questioned the

right of the Conimission to ‘make its order effee-

tive as of the date the rate. proceeding was—

initiated rather than. upon the issuance of .the

order. The resulting: litigation culminated in the

decision in-United States v. New York Central

R. Co., 279 U.S. 73. - This "Court there held that

the Commission could make its mail-rate orders ef-

fective from the date proceedings were injitiated.

It stated (27 9U.S S. at 78-79): _ ata ior tere

We assume that. while the ‘ailroads per-

form these servie es.and accept pay without ‘

protest they get no ground for subsequent.

-complaint.. * * * But. the filing of an

application expresses a present dissatisfae-

co. tion and*’a demand for more. * * *. -If

*. the claim of the railroads: is just they

* should be paid f rom the’ moment when the

é¢appli¢ation, is filed. * * the neces-"

sary investigation. rata a: jong time, in

these cases years; but reasonable compen-

sation for the years thus oceupied. is-a con-

stitutional right mf the « companies no Jess

than tit is: for the future. * -* -* We.

put our i deeision not:on any specific phrase,

: but aL the yeasonable Ampligation of an.

: et

e 7 : a \

| . -\

ser

Py ' on rt ra

2 “a A ae

autharity to change. the rates of pay which

existed from, the day the applic ition “was

filed; the manifest intent to refer all the

rights of the railroads to, the Interstate _

yommerce Commission, and the fact that;

| unless the Commission has the’ power as-

\ yg ... sumed, a part of the railroads’ constitu-

tional rights will be left. _in 1 the aix-—

The Air Mail Act of 1934 both initially * and

after amendmefit by the Act of August 14, 1935,

contained a provision ~ tor ~ deter mination by

the Interstate Commerce mission of rates ~

for the carriage of mail by air substantially the -

same as. that in the Railwiiy Mail Pay .Act of

1916." In. none of the 26 cases decided by th®

+ Interstate: Commerce’ Commission Ws adler \these

oe <fatutes. lid the Commission 1 refix a“ rate to” ‘De.

effective during a period prior te the ’ ‘date of *

initiation of the proceeding’ (Be 71) ; in ‘nost of '

| ue) .

them, ‘however, the Comriyssion mi rdé its order -

e fective as of the date of the initj ation of the.

proce eeding."* While the result in thése cases was

_ the same as that reached: under the Railway Mail >

Pay Act, there Was a: sharp divergence of views

en —. >

. °

* 48 Stat. 933, 935. . a

"49 Stat, Gbt, 616. | a i re

_ “ These ‘provisions are also subst: antially ‘the same as Sec-

+ tion 406 (a) of the Civil Aeronaatics Act except for the. last

clause. which differs from the “mi ake effective” clatise of the

— enactment.

“TWA agrees with these conc}usions (Br. 36-57) exe ep

th: at it points to one case (Br. AS, note #2) which it interprets _

£>

54 °2 ae s 8 s - =

° : f:: rie Seah ee eee

within the Luterstate Commerce Conntiiission \a

. to. its correctness. In: AirMail Compe waation,

"decided June 6.1936, b by "Division 3,” it was held,”

in substantial reliance: upon. the Ne w York Cen-

~ tral case, that the Commission | had authority to

maké. its mail’ rite orders effective prior to the’

decision date and ba¢k to the date. of commence-

ment. of. proceedings. Chaiiman, Mahatfie (lis-:

sented on this issue on the ground that the New

York Central case Was based one minent domain

and. constitutional requireme ntg and on is not a...

governing authority under, the Air Mail Act of.

“19: ~~ net

On saat the full ¢ iomsaaiesidh, the. deci ision

of Division 3° W was sustained. #.¢C ommissioner s Lee

“and Mahaffié dissented,. and * Jommiissioners

Splawn arid Caskie concurred fla separate opin- ”

ion; those who concurred separately pointed out

that. the’ New York Central case’ was not nec-.-

: essarily a governing precedent for the Commis-,

°°

as having increased mail pay “ “retroactively.” This case 1s

discussed, infra; note 62, p. 68. *

Some of the cases supporting these ccasbtianibobin are cited by

TWA (Br. 57, notes 70-71). TWA also refers (Br. 58, nete

72) to two cases described in American Airlines, Mail Rates,

38 C. A. B.323, 327 note 12, in.which mail-rate decreases were

adjusted retroactively to March 1, 1935: .This action was

taken by the Postmaster General and not the ‘Commission and

Was apparently based on Section 6 (c) of the Air Mail Act

of 1934, as.amended (Pet. Br., App. B, pp: B10-B11), whith

specifically provided for retroactivity to March f, 19%

"216 LC. C. 166, ; oe Anes,

“9 Td. at P91. |. ee Ree

_ * Ate Mail C oniipe nsation, 222.1. C. C, 602 (1937).

? ea ’ i °

. « ”

4 -¢ ae

sion’s action. Commissioner Mahaftie continued

- to. dissent on this point, even after enac tment.

-of the Civil. ‘Acronauties ‘Act -of 19: 38 (R. 75)."

. ‘Thus, prior to, during, and after the hearings

on’S. 2: and H. R. 5234 during the Spring of

1937, the bills: in ‘which the Civil ‘Acronautiés a

Act found* its” ars “(see infra, pp.- 58-60).

the effect of the language ofthe Air Mail Acts of

192 34 and 1935 with regard to. the power of the

~ Commission to make its mail rate orders, effective

from the date of-a petition avas in dispute,

The disagreement m the Commission appeared |

“soon after in’ the legislative a arena, During ‘the:

he earings on 8. 2 (Substitute), Senator McKellar

attacked, and Hanae McCarran defended, the

“Commission for; dixing mail rates’back to the date

‘a petition wag filed.“ Since -the ‘mail rate pro-

visions of the bills ovewhich- hearings were being

“held were practically identical with those in the...

|. Railway Mail, Pay Ket and the Air.Mail Aets

_of 1934 and 1935, the disagreement in. the Com-

Iiission and.among witnesses and legislators Was «

.botind to be- perpetuated ‘by: the bills.

3 After much inconclusive testimony at the hear-

ie ings, Jolonel Gorrell, the president and spokes-

man for-the Air Transport: Association, gave a

‘detailed explanation of the New York Central

mm 7 ° °

Seven additional dissenting: ‘opinions by Commissioner

_ Mahaffie are eited by TWA (Br. 57, note-70). In all of them, .

Van simply referred to his dissent in Air Mail Compensation,

216 1.C. C. 166,191. ‘%

* Senate Hearings, note 8. supra, 179, 180, 0, 29%, AS.

- . <3 , ‘ we

\ . v sg d

“A

mt me 56.

, 9 . ms . 2 ; ro

case and his views on Retroactive Dates re Nail

Compensatiow.’ Yeon other things, he stated :

On a iuinber? of” occasions mention has

‘. ‘been made before this connnittee as to the

power of the Interstate Commerce Cow-

mission. tu make a retroae tive awired, .

* a * >® ey

In the first place, the character of the so-

called retroactive order involved should be

cleayly ‘understood. Senatér McKellar re-

fers’ to the same as “‘back pay.”* This

‘seems to me a mistaken deseription.

* * * All the Commission. did that

Was in any sense retroactive was to make

its final order [216 1. C, C4166] effective

as of the date of the filing of: the peti-

tion * * *. The order did not, grant any

“back pay!’ but simply changed the rates

in accordance with its decision on the. peti-

tion filed June 27, 1935, —

* * * * 2.

make its order effective as of the date its

attention’ was called to the insufficiency of

the rates, the carrier would have had to

earry mail for an ‘insufficient rate: and

possibly might have had to litigate its ¢ saaene

in the Court of Claims.

+. % _* * * - *

*»

et there is no ‘substantial doubt

but: that the be Gonunirion| is empow nee to put,

“1d. at PP. 483,485.

: Piece tt oe

aoe rate order - in effect as of the date when

the Commisisan has been formally advised

an unjust rate then and thiere e xisted,* i

The important point €hote from Colonel Gor: * $:

rell’s testimony is that, just as was trué within ye

the ‘Interstate Commerce Commission, the only | /

disagreement which he attempted to resolve in-

volved the question whether the ¢ ‘omission was ,

“empowered to make air imail rate orders effective

_as of the date the rate proceedings were initiated

‘or Whether it was restricted to makiag such ,

‘ orders: effective upon their: issuance. |

In order to prevent the disdigreement in the

Commission And at the hearings from persisting

if the pending bills were enacted into law, Colonel |

Gorrell, on the same day, offered the following

amendment : Pig

On: page 31 of the substitute change the

semicolon in line 11 to a comma and. in-.

.sert thereafter the following: “‘and to’make

such rates effective from such date as it °

. shall determine to~pe proper * * *”’

Explanation of the foregoing amendment

is submitted to accompany the amendment

proposed to pages 46 and 47, infra”. +)

* Colonel Gorrell gave substantially identical testimony be-

- fore the House Committee on Interstate and Foreign Com-

merce on ‘April 8. (1987, House Hearings, note 8, supra,

pp. 325—F, ; “3 : =

+ | (May 27, ,193 a 5095-6) and reported to the House (H.

7 he full explanation that. Me gave fottows:

2 ~The . foregoing ‘amendment “and that

. proposed at page 31, line 11, are necessary Pe

| in oder. to carry forward under the. new

‘legislative jurisdiction any unfinished pro-

= ceedings begun under acts repealed by this

~ bill wand continues, any undecided proceed-_

ings in court, Evidence and. arguments

_ submitted prior to the enactment. of the bill

-" are preserved for appropriate future, use,

and the present authority of the Commis:

sion-to fix Sissohe 4 the effective date.

of its rate decisions. 1 likewisé' specifically

pr eserved. . [Itafies. supplied. ]~ ;

i & “Colonel. Gorrell proposed the same amendments

to 0 the House Bill (H. R.5234) and made exactly

the same. comment to the House! Committee.” ©

- Both the Senate and House Committees accepted

Colonel) Gorrell’s amendment and incorporated

the “make effec tive” “clause into the bills which

they reported outs” :

“The Rae PAE pro Bose to pages 46 and 47 prov ided

that all orders, reports and regulations made by the Commis-

sion under the prior law w ould r remain in effect until modified

hy the Commission.

” Senate Hearings, note.8, supra, p. 525.

” House Hearings, note 8, supra, p. 408. oe =)

” FIR. 5234 was reintroduced as H.-R. 7273 (81 Cong. Rec.

Rep. No, O11, 7 ith Cong., 1st Sess.). S.2was re rtéd to the

Senate on June 7, 1937 (Sen. Rep. No. 686, 75th Cong., Ist

pra ) and debated:an August 13; 14, 16, and 18, 1937 ca

Cong. Rec. 839, 8882, 8957, 5968, 9202, 9204, 9220, 9226)...

The Report of the House Comntittee. and the.

remarks of the Senate-floor leader in debate make :

it abundantly clear that the testimony atid ex-

planations of the&proponent of the “make effee-

tive” clavse amendment _ were algo accepted’ by

the Committees, for the 'V. empliasize the . thesis

of Colonel Gorrell that, uider the bill, rates for ;

air mail were to be’ treated just as the Interstate

Commerce Commission had treated air mail rates

and . railway mail rates in’ the, past. Thus, the

~ Hoilse'R R. port stated :. ' 7 ESF

Rates for the carriage “of: air “mail. would

‘be fixed by the Commission in the same

manner as the Coiimission how fikes the

Ss, airmail rates for -all :domestic air-mail

carriers.” [i_e., undér vedios: Mail Act is

1935.) eee

Sdnator Truman, who was it: charge of the. bill.

in me Senate, described it as follows Re ae tes

‘It follows exactly sections 1 and 2 2 of the

‘Interstate Commeree Act so far as that can

* ‘*

a hé applied-to air transportation.

That part of the pill which refers: to air,

“mail treats air mail. just as- mail on rail- ~

roads is treated.”

. * * * this bill is sinipiy i pegulatoiy

“measure. which does for the air carriers -ex-.

actly what is done for railroads and ‘for

‘busses and trucks. I cannot too strongly

emphasize that fact." -

‘ : V.

H. Rep. No. 911, zth Cong. 1st Sess.. p. 18.

38] Cong. Rec. 9202.

581 Cong. Ree. 9204.

28435 —49—-5_

At the hearings on the 1938 bills (S. 3845, S.

3659 and. H. R. 97 38);° which had mail rate pro-

visions substantially identical:to those in the 1937

bills (S..2 and H., R, 7273), Colonel Gorrell did

not testify further,on the ‘make effective’’ clause.

At the stiggestion of the Committee Chairman

“*(at both House and Senate hearings), he did not

repeat those details covered in his testimony on

the earlier bills, stating to the House Committee :

-“With ‘your permission we will net cover any of

the details’ which we covered: last year “and to

the Senate Committee : “With ae ‘penitaes:

~~T-shatt cover nothing that would: be repetitious of

_tast ye ar’s testimony but shall adhere solely to

the essential points now before you.”’” _ This tes-

' timony was given before. the House Committee’ on”

“March 30, 1938 and before the Senate Committee

on April 6, 1938. . The three bills being considered

. at these’ hearings became the Civil Aeronautiés

Act of 1938. There was no further merition

made of the “‘make effective’ .clausé prior. io

the enactment of the Act. Accordingly, the legis- ——

lative history of S. 2 and H. R. 5234 is the most

important source of information as to Congres-.

sional inte ent with respect to the ‘make effective”

—clause in Section 406. (a) of the Act.

The three bills were fundamentally | the same. 83 Cong.

Tes. 6725.

* House Hearings, note 10, supra, p. 297. -

“ Senate Hearings, note 20; supra, p. vi.

Ses

hoe

aes

*e,

ies

“

‘The “make effective’ clause was thus .inserted

‘in the hills. which eventuated in the Act m order

‘to resolve a disagreement ‘Among the members

of the Interstate Conymerce Commission. and

among ‘witnesses and legislators at the hearings

con the bills as to whether the Interstate Com-

merce Commission had authority to make its mail

rate orders under the Air Mail Acts of 1934 and

1935 ‘effective as of the date a mail rate proceed-

ing Was initiated or whether it was limited to

making such orders effective from their issuance.

The resolution of these disagreements was es-

senfial to the legislation being considered beeduse |

that legislation was in the same form as the Air

Maj!’ Acts of 1934 and 1935, and. if left un-

changed, would be subject to the same disagree-

ments, with resulting une ertainty. The witness’

who offered the amendment inserting the ‘make

effective’? clause in the*pending bills explained

that thereby “the present authority of the Com-

mission to fix appropriately the effective date

of its rate decisions is * * * specifically pre-

served.’ The same witness had just® previously

testified that ‘*there*is no substantial doubt but

that the Commission is empowered to put a rate

order, in effect as of the date when the Commis-

— has been formally advised that an unjust

ratéthen ad there existed.” C learly the person.

Who offered the “make effective’ clause amend-

ment and explained it expressed’ an intention to

grant the Commission authority to make its’ mail

; ey

rate ‘orders effective as of the date a mail rate

proceeding was initiated, and. nothing mee ; and

-he is the only person.who ever explained or even

commented on the make effective’? clause during

the extensive legislative consider ‘ation of the Act.

Theveafter, both the Senate and House ‘Com-

‘mittees accepted the amendment and incor porated

it into the bills which they reported to their re-

spective Houses. - The Report of the House, Com-

mittee and the remarks of Ahe Senate floor léader

in debate make it: abyndantly clear that the testi-

mony. and explanations of the- ‘proponent of the

“make. effective’ a clause were also 2c cepted - by

the Committees, for they emphasize the thesis of

Colonel Gorrell that ‘under the bills the rates for

air mail. are treated just as the Interstate Cém-

merce tre ‘ated air mail ratés and railway mail

‘ates in the past. As noted earlier, the almost

invariable practice of the Comniission both in air

mail and railway mail cases was to make its ate

orders effective as of the date a proceeding was

initiated. as a |

“'PWA: has now come forth with a ea aes of

arguments desighed to minimize the reliance. to

be placed on this legislative history. It contends,

in the first place, that the foregoing legislative

history of the ‘make effective’? clause should not,

G27: >

be considered at all because S. 2 and H. R. 273.

were not passed, and that the: 1938 bills which:

ultimately became law were “ore; itly reeast.”" It

urges that *“the-only \ ‘alid levislative histor v “of See-

RWS See ae PME eS

Ee thee =: ry

pe 42%

¥ AS

ENE est

7 f

ie ss SARL IS

Shale gk

—_—_———

- the ni: Ub-rate provisig

Aree : re

tion 406 (a) (1) appears mM the ¢ ‘onference Report *

‘issued in June, 1938" (Br.42, 72-73). This argu-

ment wholly ove ‘rlooks the fact that during the hear- |

ings on the 1938 bills, which? ultimately became

the Aet t, Colonel Gorrell, at Ane. request of:

both the Senate and. House Committees, stated

.that he “would nat cover any of the details

which we covered last year, > and cited the pages

of his previeus’ testimony to the €C ommittees. It is

perfectly clear that these statements, made in the

spring of 1938 just prior to the passage of the Act,

Incorporated by reference all of Colonel Gorrell’s

testimony on the 1937 bills. It is apparent also that

‘although the’ Net niay have been ‘greatly recast”? in

‘ome respects, no signifitayd changes were made in

and it was therefore un-

necessary for Colonel Gorrell to repeat his testi-.

mony of the preceding year. Of « ourse; the Con-

ference Report on the bills which became the

Act is significant to the. determination of the

meaning of the Act. However, the “wenerality’ :

of the statement in that report relied on by TWA

(Br. 45)-shows that it ‘was totally unrelated to

the specific problem here at issue: (Br. 72, ,

note 107). ° | :

TWA’s second objection to the use we make .

of the legislative history of the ‘make effective’

clause is that “the rate making provisions of the

1937 billy were entirely different from those of

the Air Mail Acts. Al the ‘minutiae of ex-

pression eee that show ‘Convress to have

been thinking of the future’ * * > were elimi-

mated” (Br, 64-65), and hence the “make effec-

tive’? clause’ Was not nec essary merely to confer ve

authority to fix rates back ‘to the petition date. |

The: meager examples it cites, and apparently

there are no others, are both ‘teabaelianes and

cynac curate.” Both provisions conferred the same

basie rate- making authority cand prior to the

aes fF cites three instances ( Br. 65 note 83). (1) es states

that “rates were no longer to be fixed ‘by order’ which was to —

the 1937 bilf&. {Senate Hearings, note 8. supra, p. 31). now.

embodied in Section 1005 (a) of the Act, provided that “all

orders of the Commission * * * shall continue in force —

until its further order.” ~Thus, the. provision referred to by

TWA was not_climinated fron:the-#937 billssand the bill

and the Air Mail. Acts remained the same in this respect.

(2) Next, TWA points to the elimination of the provision

“permitting ‘reexamination’ of an order only after a 6-monuths

waiting period.” * But the omission of this provision in the

bills does not: indicate that the bills were not concerned with

the future aspects of mail rates. If the elimination of this

provision has any significance. it is far outweighed’ by the

elimination of tlie provision in Section @ (c) of-the Air Mail :

Acts, which specificatly permitted the Commission to estab.

lish mail rates retroactively to March 1, 1935. (3) Finally, ;

TWA refers té the provision in the 1937 ills (Section 406

(a) of the Act) that “the Commission was ‘directed’ to act

at all times*U pon itsown initiatives “- T his does not appear °

_ to be different in substance from the: 5 cor’ ixions of Sections ,

6 (a) and 6 (b) af the Air Mail Ac ‘ts, and the practice there-

under. In any event, it can hardly be argued that. becatise +

‘the 1937 bills directed the Commission to: proceed upon its

own initiative, the mail rates subseque tly fixed by the Con:

mission would not have future application, particulariy sine

the Commission Was direc ted to aet from ‘time te: time.”

Gorrell amendment, both were subject to dispute

cas tp the power to fix rates back to the petition

date.. |

In the third place, TWA. ctiticizes our a ahaties

on the ground that Commissioner Mahatffie’s dis-",

: agreement with the Commission only ‘arose over

the question whether. air ocarr iprs were com.

pelled: to render service under the Air Mail Acts, -

and since there was ‘nv -doubt but that: air

carriers were required to render such Services

under the 1937 bills the point. of disagreement °

-would not have - been perpetuated by the 1937

bills (Br. 65-66). This is inaccurate. It is ‘true

that Commissioner Mahaffie disagreed with _

majority of-the-Commission whe nit relied on the

New York Central case in awarding. mail. pay

under the Air ‘Mail Acts back to the date of a

petition. It is also: true. that his disagreement

was predicated on the fact that aif carriers were -

not compelled ‘to carry the mail. , However . it is

not true that air carriers would be compelled to

carry the mail under the 1937 bills, as TWA

contends. Under Section 305. of’ the, 1937. bills

(Section 401 of the Act) air carriers were, per-

4 mitted to apply for ce rtific ates of convenience and

‘heeessity Without requesting authority, or accept-

ing the obligation, to transport marl. Senate Hear-

"ings, note 8, supra, pp. 22-24. The suggestion

that every certificate should require the carrying

of mail, a “situation. characterized as being like

‘that existing for railrodids, Was dise ussed. i in detail

or Colonel: Gorryll, whe opponed: such a require-

ment for air catriers because ‘the airlines’ ‘eco-

nomic situation differed from that of the rail-

roads, and the suggestion was never accepted by

_ the Committee (Id. at pp. 455-458).”

Thus, the airlines’ situation was cts different

from that of the railroads; petitioner -concedes._

. that the railroads had no duty to.carry the mail

°° (plonel Gorrell described the proposal, which, he said,

‘“seems agreed * * * would be undesirable” . as follows:

«“In other words, although with respect. to. applications for

certificates to operate a service between any particular points

the Commission would be free-to determine. whether a cer-

tificate- should be granted for passengers, or for express, or

for freight, or for all of such classes of service, the Commis-

* sion would not be free to grant a-certificate which would ex-

- clude authority to carry mail; every certificate, no matter for

what class of traffic, would carry with it the authorization to

carry the mail whenever the Postmaster General desired to |

place mail upon the craft of that carrier bet ween ‘tie points

in question.

“This niethod of Healing: w ith the sila’ is, a8 sI have said,

substantially the method adopted in the case of the railroads.

That is,every railroad is under an obligation to carry the

mail if the Post master Gengral desires to place mail upon its

trains.” (Senate Hearings, note 8, supra, pp. 455-456.) He

summarized his reasons/for indicating why such a proposal

was apt for railroads but not, for airlines in the following

slanguage: “As T-have said, the method adopted in the case

~ of the railroads is perfecthy appropriate for that industry

because of the relatively mitior part that the mail traffic plays. —

EveryYailroad, if it is able to enter basiness at all, is able to”

carry the mail, and if there is enough traffie generally to j@-

tify a.new service the presiunption is that an additional rail-

road mail carrier will not seriously affect the position of other

such ‘carriers. Among air carriers, however, this situation

‘does not obtain” (/hid., at p. 447) -

prior to the Railway Mail Pay Act (Br. 46-47),

but were “compelled to do so by that enactment

(Br. 49), unless they discontfined. theit railroad

operations. Under the 1937 bills, and the Act

itself, air carriers could be authorized to continue

all of their existing operatgons except the carriage

of-mail,-although practically, in view of the bene-

“fit of the mail subsidy to them, a request for stich |

limitedauthorization would be unlikely. Commis-

sioner Mahatftie could have pointed out the same

kind of thing that ‘he pointed out in his dissenting .

opinion ‘undey, the Air Mail Act, nam Iv, “The air

line is under no legal ‘compulsion to beeome ‘a

_ contractor leesietl. * Atr Mail Compensation, .

216 I. C. C. 166, 192.” Indeed; the voluntary.

character o a carrier’s operations under the Civil

_ Aeronautics Act was recently pointed out by the

7 . 2 ;

“ This is also the fallacy in TW A‘s contention that if Con-

gress had wished to.codif¥ such power as existed under the

Railway Mail Pay Act it only had to copy'the language of |

that Act, without adding the “make effective” clause (Br. 45,

72). Since the 1937 bills did not compel carriers to carry

thail unless they chose to do so, their-situation differed from

that of railroads, It was precisely this difference between in-

voluntary carriers under the Railway Mail Pay Act and

voluntary carriers uitder the AirMail Acts that led to dis-

- agreement in the Commission and between witnesses and

legislators at the hearifigs. Recognizing that if it used the

same language as inthe earlier acis, it would carry over the

‘eXisting disputes as to what the language meant, Congress

altered the language to make clear that under the new Act

mail rates could be made effective as of the time a petitien

Was filed.

out of the Board’s decision in this case." Jt is

evident, therefore, that the disagreement in the

“Commission over the Air Mail Acts would have

beer per ated had the 1937 bills heen enacted

nto law without the addition of the “make effae-

tive” clause. is |

Finally, TWA. says that our analysis of the

_ legislative history ‘of the “‘make effective’ clause .

is wrong. because, in, addition to the disagreement

under the Air Mail Acts as to whether rates

could be made effective back to the date’ of 4 a peti-

- tion rather than from the date of issuance of: an

‘order, there was also disagreement as to the power

of the Commission. to make rates retroactive gen-

erally, and that the disagreement concerning the

general. power of the’ Commission was also re-

<solved in favor of the regulatory body (Br. 66—_

49). In support of this-préposition, TWA argues ~

first that the difference between ‘Commissioner:

Mahaffie and the Interstate Commerce Commis

sion was of this dual character. However, the dis-

senting opinions which it cites do not bear out its

contention.” “It is perfectly plain, comaumer ang all

" Capital Ailes: i a ‘ivi Dustin Board, de-

cided December 6, 1948, where the cdurt stated: “The C ivil

“Aeronautics Act, under which Capital chose to operate, em-

bixdies a-scheme,” ete. | Italics supplied. ] se

“ The three cases relied on by TWA are cited on page 66

of its brief in note 87. An analysis of Commissioner Ma-

haffie’s cliscent in these cases follows: In Aér Mail Rates For -

Route No, 33, 216 1. C. C. 381, 404, Commissioner Mahaffie

"+9

of Commissioner Mahaftie's dissents, that the dis-

agreement. among the members of the Interstate

C onmnel ‘ce Commission was limited to the narrow

question of whether the Commission had authority

discussed the facts of Pee and stated: “In my opinion, we

are not justified on this record in attempting to adjust com- |

pensation for the car rygng of air mail so as to make théentire °.

operation profitable.” Commissioner Mahaffie urged that, on

the fats of that partictlar case, there was no basis for fixing

_ higher rates back to March 1.1935. The Act specifically con- °

ferred power to fix rites back to March 1, 1935, and Commis-

> sioner: Mahaflie did not unqu: alifiedly’ dispute. that/yower as

ates retro- :

he did in the cases where the Commission fixed 4

actively to the date of a petition. In Air Mqil Compensation,

"292 [,C.€. GOL, 610, C ommissioner ——— dissented onthe -

sole ground that the Commission’ wa¢ without power to fix a-

rate retroactively to the date a petition was filed. There is

no basis gor concluding that he dissented because “the Com-

mission amen fl a 1985 order by a proce eding begyn in 1987, .

“so as to insert ¥proviso which had the effect of reducing rates

from 1935," as TWA suggests. The amendment inserting the

proviso was dealt with summerily by the Commission and not

mentioned in the dissefit, Moreover, in Air Mail Compensa-

tion, 232 1. C. C. 608 614, the third: case relied on by TWA,

where the ¢ ‘omntission “amended the order again and struck lh

out the proviso.” Commissioner Mahaftie dissented without

opinion. ‘To the extent that the two cases last cited involve

wny problem of, retroactivity diffetent from the issue as to

whether the Commission was empowered to make its rates -

effective as of the date of the filing of the petition, the prob-

lem is not unlike that involved in the Board's “reopening”

cnses, cliscussed infraApp. 7-78, <t ok

In contrast to the foregoing dissenting opinions, in every

date of a petition. Commissioner Mahaflie dissented w ith the

statement that he was doing so for the reasons stated in his

dissenting opinion in .t/e Mail Compensation, 216 LC. 4

166.191 (see Pet. Bro iT. note TO). : : e q

to fix mail: rates back to the date of a 1 petition or

‘ whether it was restricted to making - such r: ates

effective from the date of i issuance of an order, ;

It is equally clear, contrary ‘to TWA’S second )

argument on ‘this. point, that’ the disagreement’

~ between: Witngsses and legislators at the hearings’

on the: 1937. ‘bills concerned precisely the same.

_’ issue. It may be con¢eded that during. the hear-

ings there were’ some gener oo nen nees to retro-

activity? ineluding references to rates being made”

retroactive to March 1, 19: 35, as ‘specifically pro-

vided 1 in the Air Mail Acts, and that **charges and -

counter-charges of all sorts were made.” : (Pet. Br.

68.) Nevertheless, it is crystal clear that asthe ar-

_. gument developed, it narrowed - into the preeise’

question of whether the Commission had authority

“to. fix mail rates back to the date. ofa “petition.

~ Colonel Gorrell. resolved the issue. He addressed

himself at length to this precise problem and

- concluded that ‘*there is no substantial donbt

but that tite: Commission is to put a rate order in

“effect as of. the date. when the Commission ‘has _

_ been formally advised an unjust’ r ttesthen: and °

“there existed” (supra, pp. 56-57). His statement is\,

replete with references to a specific proceeding i in. ‘

»which the Conimission fixed a rate back to the . .

date ‘of a petition. “Hig whole concern was with

that “ probleni, IIe smade no reference to any.

general problem of \retroactivity, although such

}. e V7 aes : ; ;

problem had. “been mantis’ in the hearings.”

He’ then offered the ‘make _ effective’ ‘clause

amendment to preserve th: “power and his ex-—

* planation leaves no doubt, o1 lat score. isloal oy

belated attempt to confuse. what -is’ clear takes

no account ofthese facts. Far fiom being con-

cerned here with ‘mute intermediate Jegislative

manenyers”” (Br. 72), we are concerned, with a

prepared,/ detailed ‘statement on a narrow issue

by the person who offered an amendment which

ultimately was incorporated | into the Act without.

change. - Such evidence is conclusive. — :

TWA urges further that the “make effective’ ;

clause cannot have the limited meaning Colonel

. Gorrell indicated because the ‘language used was

too broad, particularly when viewed in the light

of the language of other parts of the Acts (Br.

18-19). ‘it may be conceded that the ‘*make effee-

tive’ clause ¢é ould have been drawn. more nar-

rowly and haye “accomplished its purpose ; it

-inust likewise be conceded that it was adequate

‘to accomplish the purpose of the draftsman? The

most likely reason for: the: difference betwee n its

minecasey that of other’ parts. of the ‘Act ‘is’.

that they, were prepared by different draftsmen,

a .

oe .

“This situation’ differs sharply from that, in American,

NStévedores, Ine. Vv. Porello, BHU, S. 446 (Pet. Br.-71, note

16). In this case, Colonel Gorrel] wits not only aware of the

general-problems of retroactivity, but he specifically limited

himself to providing an answer to the question whether the

Colmmission should have power to fix: mail rates back fo the

“dite coli ate tion. ‘

‘2.

the ‘make effective’? clause being engrafted onte

va completed bill. It is unnecessary to speculate,

however, on the reasons for such différences.. The

nieantlt ifthe “make effective” clause is abun-

dantly cléar from its legislative history. If the

remainder of the Act is examined, we get -con-

firmation, rather than denial, of the fact that

the meaning ai the ‘‘make effective’ clause is

~limited to conferring authority en the Boatd to

make mail.rates effective from the date of initia-

‘tion of a mail rate proceeding, for any broader

inte rpretation would destroy the rate-making pat-

tern’ which is fundamental to the .Act.

Tt must be concluded, theréfore, that the ‘make

effective’’ clause does no more than clear ly author-

‘to be proper, to make its mail rate orders effec.

tive from. the date of the initiation of mail rate

proceedings. “This being so, the “make effective’’

elause cannot have the effect petitioner claims:

for it, with the, result that-the deéi ision of the

Court of Appeals must be affirmed. |

C. THE BOARD’S PRIOR ADMINISTRATION OF THE. XeT

* SUPPORTS THE ‘CONCLUSION’ REACHED BY IT IN THIS |

CASE nar av

. The Board. has dgnsist nily refused to fir

, a rates to be effective during a period in it hick

a final rate previously fired by the Board was in

‘effect and unchallenged by the initiation “of a rate

proceeding.—The only sound way to determine

MS Peso 73

the Board’s construction ofthe “Act with refer-

ence to the isstie raised by this case is to examine

its previous decisions where that issue was roised

and ‘decided. - There are eight such -detérmina-

tions arid in every one of them the Board refused

- to fix a final rate prior to the petition date. The

Board explained its position as. follows (Con-

tinental Air Lines, inc., Mail Rates for Routes Nox.

29 and 13,30. A. B. 39: 94401) :

if Aside from the question of whether it:

{the Board] has the statutory power to

_ review a rate prior to the date of.the in-

~ stitution of the proceeding, -it seems desir-,

able as a matter of policy that. -the rate

for any given periéd become finally fixed

at some point in time and that sach point |

be that at which the rate is first challenged

or questioned by the institution of a rate

proceeding by the carrier or by the Board.

Such a poliey appears, to. be fair since .it

permits, every rate order to be final. for

any period during which ‘it is not ques-

——Fionred by a proceeding looking toward its

- révision. | frees, rs

In seven other decisions on this issue, priorte

the determination in the case at bar, the. Board

followed the same reasoning anid reached the

“TWA cites a series of instances in which the Board is —

Wleged to have exercised the statutory power now in issue. .

These-cases, involving virrious factual situations anlike that

in the case at bar, will be considered below, pp. 4 SO.

same conclusion, although in the later Lassie it:

* — <made no reference to its statutory authority.’

From these decisions it is apparent that the”

‘Board has never asserted its alleged power. to.

- redetermine rates “retroactive ‘ly,’? but, ‘on the

. contrary, has specifically+ reserved the question

_ of ats statutory authority to do so. In each in-.

stanee, without acamining - ‘the. past period, it has

refused to fix rates ‘‘retroactively,’”

of ‘sound general policy”’ (R. 15). In deciding

. . these cases ow one of two available grounds, the

Board. was following a , copmmonplace judicial

technique, which in no- way inilic: ited that it be-—

— the statute authorize d it to review rates’.

‘retroactively.’ Riis .

- 2, All of the instances cited by petitioner in-

volve different factual situations and in none of

them did the Board indicate that it had. the as-.

se rted power —TW. A attempts by reference to

® Continental . pre Line 8,1 ne., Mail Rates for Routés Vos. 29

and 43,2 C..A. B..683, 688 (1941): Mid- Continent . Airlines,

Inet. Mail Rates: 3C.. A.B. = oe (1942) ; Braniff ; Airway» .

Tne. Mail Rates. 3 C. A. B. 633, 635-637 £1942) ; Transconti-

negtat i Western Air, Inc. me va Rates, 4 C. A. B. 139, 143

Pod bi 3 ie All. Imerican Aviation, Mail Rates, 4 C. A. B. 354,

e-P B5T (1943): Pan American. Airways, Inc. Alaska Mail Rates,

AL B. 61, 69 (1944): Carthbean-Atlantic Airlines, Inc.,

.. pe Rates, 7 CHA. B. 943, 946 (1947). In the 477A merican

| Aviation case, the Board stated, “Moreover, adoption of re-

spondent’s contention would, in effect, result in the establish-

ment of a ‘cost plus’ system of-rate making and would tend

to destroy respondent's incentive to-dev elop air express and

to nn Lint costsat a rensonable le vel, 42

on grounds

isolated decisions and actions of the Board .in

wholly different factual situations to establish

that the Board has fixed rates pines to. the date

a proceeding was. initiated, or “retroactively, is

hoping thereby: to create an inference that the

Board has. interpreted the Act as authorizing it

to revise rates ‘ ‘retroactively’ in the situation

under consideration (Br. 85-97). We shall dis- +

cuss these cases on the basis of the classific ation

a. The new route cases.—In these eases, the

Gan. /

Board fixed an initial rate for new routes from

the date oper ations cOmmenc ‘ed thereon even —

though that date was pr ior to the‘initiation of the |

rate proceedings.” “Since no rate had ever, been

_ fixed for these operations, the Board did. not ret-

C, ALB. 79 (1941): United A. L. Mail Rate for Route No. 47,

3B C. A.B. 381 (1942): Caribbean-Atlantic Air Mail Rates,

6 CO. A.B. 407. (1945); Pan American Airways, Inc., Alaska

Mail Rates, 6 C. A. B. 61 (1944), where in the same proceed-_

ing the Board refused to revise a rate “retroactively” but

fixed a raté for a new route prior to the date the proceeding.

was initiated. The Board stated at page 70: “Accordingly.

the review of the rates for these routes’ [ Junean- Whitehorse

and Whitehorse- Fairbanks] will be confined'to the period on

and aftet the date of the filing of the petition. The period

review forthe Seattle-Juneau route, however, w ill. comn

on June 21, 1940. as that was the date of inaugur ofmail -

service on.that route and no rate has heretofore been fixed:”

Obviously, the Board did riot think .its new route doctrine

“Was inconsistent with its refusal to revise final rates “retro-

actively” or it would not have-applied both principles in suc--

cessive sentences in the same opinion.

822435.-49 7)

roactively revise-a final rate prior te the peti-

tion date as TW'A secks to have it do here. The

finality of a Board rate order was not’ impaired.

See infra, pp. 83-85. css Sea |

—b. The system cases——In_ these ‘ases,” the

Board merely extended the new route «doctrine —

‘to a carrier with old routes, the existence of more

than one route necessitating the determination

of “need”! on a system basis.” In neither of these

‘ases did the Board’s order/ revise. the previously °

* Western Air Lines, Mail Rates, 4 C, A. Lb. 441 (1945) ;

Northeast: Airlines, Ine., Mail Rates;-Order Serial Now E-

1230, decided February 26, 1948. TWA also cites Colonial

Airlines, Mail Rates. ‘Ordat, Serial No. E-1263 (March -4

1948) but this casemerely fixed a temporary rate: which is

expressly subject to revision when the final rate is fixed. Or-

der Serial No. E-1340, April 1, r94s.

Section. 406 éb) provides th: at. mn determining a mail rate,

the Board must consider the “need” of each * ‘air carrier” for

compensation which “together with all other revenue of. the

air carrier” will permit the achievement of the statutory ob-

jectives. (Italics supplied. ) The examination of the reve-_-

nues of the carrier on a “system or over-all basis” is, there-

fore, “necessitated” irrespective of whether the rate is fixed

ona route orasystemrbasis. As the Board stated in an earlier

ease (Z'ranscontinental & Western Air, Inc., Mail Rates, 4

C. A. B: 159, 145 (1945),). ini concluding that TWAS rates

should be reviewed on a systembasis: “* * * petitioner re-

quested the fixing of fair and reasonable rates for route No.

2 only. . However, under thé provisions of the Act we are

required to determine the need of a carrier for mail compen-

sation suflicient to enable it. together with revenue from all ,

sources, to continue to render adequate transportation sery-”

ice. Under the present circumstances the Board deenw it:

necessary to review the operations of petitioher as 2 whole al-

though we may fix a rate fora single route if ‘such a review

indicates the nec essity therefor.”

divi

Bits

Patient

bs iY SN a ah

He gE LS Set Solan

; « ; : ® . .

fixed final rate for the old route although’ it

examined the rates for sich routes im, order to

determine the ‘tneed’” of the svstem as a whole.

Nor do these cases afford any basis for. conclud-

ing that the Board interpreted the Act as, giving

it power to make suc ie revisions.

%. The “reopening’ " CUSES, —In one” of the two

‘ases cited (Br. 89-91), the -—Board reopened

“merely for the purpose of clarifying an ambigu-

‘ous order and applied the clarification as of the

effective. date of the original order: In the

other,” the Board” reopened a’ proceeding

promptly and then later broadened the reopened’

proceeding to specifically encompass additional

issues." In “both cases the reopening wase a

°° Pan Am. Airways Co. (Meh). Transatlantic . Mail Rates.

1C.C. A. 220. (1929) ; Pan Am. Airw ays Co (Del. ds U. S.=

Azores Mail Rates.1 C. A. A. 650 ¢ L940),

™ Pan. American. Airways, Ine.. Latin-American Mail

Rates, 6 C. A. BOSS (duly 17. 144. Supplemental Opinion).

* The original opinion was issued on August 28, 1942. Pan

wLimeHean Airways, Ine. Latin-American Rate Cc axe, 3 CEA,

3. GOT (1942). Pursuant to the request of the carrier dated

October 22,1942. the Board. by-order (Serial No. 2051) dated

November 20, 1942, “reopened” the proceeding “for rehear-

ing, reargument, and rec olsideration * § 16C. A, B.

Sd). “Subsequently it was brouglit, to the Board's attention

that certain amounts had been erroneously*included in the

computation of respondent's investment upon which a return

was allowed for rate-muaking purposes in our original opihion.

Accordingly, by order [Serial No, 2726] of. February 28,

‘1944. the proceeding was further reopened so as to permit -

revision of respondent's investment in this respect™. (6C. A

B..at pp. 85-56). “The modified order was made effective as

of the same date as the original order (6 C. A.B. at p. 94).

proper exercise of the Board's powers and

neither case can fairly be. construed as retro-:

actively. revising a final rate under: the disguise of

reconsideration, — ;

d. The “A me rican? case-——This case * was lim-

ited to fixin. « rate back to the date of the insti-

tution. of the proceeding. The revision.of the rate’

“prior 1 to that date was’ not in issue. The state-

‘ments of the Board so‘often quoted by TWA (Br.

17, 39-40, 51, 61, 76, 83). were directed solely to

the power to fix a rate ba¢k to—not a

‘date the proceeding ae Cf. Pet. Br.

The nune pro ‘tunc petition device. aw ee

. the Board memorandum of June 3, 1942 proposed

a limited use of such petitions in a special war

time situation for i a limited pe riod of 17 days, no -

petitions were actually filed. In making this

offer, the Board was not directing: its attention to_

the question of Whether the statute authorized it

to revise rates ‘‘retroactively’? but was concerned

with. finding a. p ‘acti cal means of fulfilling its.

promise to the carriers, made in the memorandum _

of May 22; 1942, to institute rate proceedings as

of June 1. If the memorandum of June 3, 1942.

evidenced. the Board’s conviction that. it had

7 Sec. 1005 (dd). 49 U.S.C. 645 (d).. This Section pro-

vides : “Except as otherwise provided in this Act, the | Board ]

is empowered to suspend or ‘modify its orders upon such

notice and in such manner as it shall — proper,

8 American Air. Lines, Mail Rates, 3 C. A. B. 32: 3 (1942).

Bis st Sears fe

pe TR oS TROT ee Ra ee,

EI Oa ESE ia cases

ee Ter

Po Agee a a eo, cara toe

power to revise mail rates ‘retroactively’, then

the. elaborate proposal in the memorandum ‘to

treat petitions filed between June 3 and 17 as

having bee ‘n filed on dune 1 was wholly unneces- _

sary ‘because, on such an assumption, it could

have made its ultimate rate orders effective on .

June 1. ane

No instance has been cited, because there is

none, where the Board fixed a new mail rate |

applicable to a period: duri ing whic h a final rate -

previously fixed by the Board was in effect and

unchallenged by the initiation of: a rate _proceed-

‘ing, as TWA seeks to have it do here. Nor has

any instance heen cited where the Board has said

or done anything from which it may reasonably

be inferred that the Board believed it had power

tot take such action. j | |

“We have sought to demonstrate that the Board

decisions upon which the petitioner relies have no -

bearing on the issue with which this case is eon-

| cerned. But-even if these cases, or some of them,

\may be deemed ‘by. have some relev ancy, they are

ae deci islons th whieh the Board has consciously ae

und earefully, after thorough consideration, re-

jected a previously consistent course of conduct."

Only a deliberate administrative judgment is

LV anlted Ntatess. Alabama Nouthern led. Co. 142 US. 615.

SO >

; | eae | |

‘given weight: in the resolution of a controversy

as to the meaning of a legislative enactment.”

All of the cases relied on by petitioner were

fully presented to the court below. Upon con-

sideration of them the Court of Appeals concluded

.(R..115): eis Mie ee. 3

TWA * * * urges what it considers

* examples of retroactive application of

Board orders... But we do not find those

instances indicative of the retroactivity

Which is necessary to support its position

here.” TWA‘ also urges. the - implications

- from the Board’s failure, over the: years,

to say it had*no -retroactive power. . We -

think that the administrative history of:

this statute has no material bearing one_

way or the‘other upon the. question of

statutory power,

Skidmore ve Swift. Co.. 323: U.S. 154. This Court

there.stated with reference to the Interpretativ e Bulletins of

the Wage and Hour Administrator:

“They are not, of course, conclusive, éven ‘in, the cases-with

which they Cirectly deal, much’ Jess in those to which, they

apply only by analogy” (323 U.S. at 139). -

The Court went on to state (323 U.S. at 140) :

“The weight of sucli- [a ruling, interpretation or opinion |

in a partic ular case will depend upon the thoroughness evi- |

dent in its consideration, the validity of its reasoning, its

consisteney with earlier and later pronouncements. and al

those factors which give it power to persuade, if lac king

power to controk”, ; Rus

It is apparent that under these standards, opinions of the :

Bortrd which do not relate to the question of statutory con-

Struetion at Issue. ws is true of the e: “aseS re lied on by T Ww A, are”

entitled to no weight.

‘cor ‘ )

e. SI . ra

3. The yeneral practice af the Board in fixing —

future rates is tneonsistent with the existence of

the power to refir final rates prior to the petition -

date.—It hears vepeating that the Board views

the Act as establishing a rate-making method for

eS the determination of mail compensations eon-

ae trasted with TWA ve view that the Act establishes

~* a cost plus system of auditing for such purposes. +,

This means that the Beard, is interested primarily

in fixing fair and veasonable rates of compensation.

for the future rather than fixing fair and reason- ,

‘able amounts of compensation. for the past. It

means further that the rate orders of the Board

have the attribute of finality and are not always

‘subject to revision, | ° 3

_ During the ten years of its éxistence, the Board

has been concerned consistently and substantially

iit fixing fair and‘reasonable rates forthe trans-

portation of mail by aircraft to be applicable in the

future.”

all of the numerous .similar mail. rate decisions, :

‘At will suffice to refer to the-typical decision in

the rate proceeding involving TWA, which TWA

“how seeks to. nullify (see pages 4-7, supra), and-

It would serve no purpose to examine

_ the Board’s statement i Chicago and Sputhern

Air Lines, Mail Rates, 4 C. A. B. 419 (1943),

Where the Board denied the carrier's request that)

| Boara | ISS). p. YI: cannnal Be port of the Civil Aero

newitics Board, 1944. pp. ‘; 15: Annual he port of the Cived

Aeronautics Board, 1943. p. 25: Annual Re part of the Civil

«Aeronautics Board, 1947, p. 11. = rake

—- &2- a

a reduction in rates be deferred watil it had an

opportunity to accumulate net earnings sufficient

to yield a fair return-on its investment from the

beginning: of operations. The: Board stated bs

420) : :

The mail-rate provisions of the Civil Aéro-

nauti¢és. Aet dé not eall for what would

-° be in effect a revision of historical earn-

ings so as to reimbuse the carrier for in-

=~ ade quate profits received in : the past; those

provisions require. the establishment - of

present and future rates which will enable —

the carrier under honest, economical, and.

efficient management to dise harge its pub-

lic. service obligations as specified by the

.Act. The. statutory policy is, not remedial,

of past inadequacies; it is instrumental of |.

_ present. and future accomplishment. — * 6)

* Sine e the Board’s practice has bee n to establish

‘mail rates for - the. future ft*must have construed”

the ‘statute as giving those rate determinations

finality. It cannot reasonably be ‘assumed that

the Board would expend: time, effort, and money to

fix future rates. if it construed the statute as

requiring | it: to: replace all such determinations

with the resulfs taken from audits made after

the facts became known. It is submitted that the

practice followed by the Board in ‘administe ‘ring,

and deciding cases under, the mail rate provisions ~

of the Act shows a course of eonduet whiich is-

“only cohsistent with the view that» Its. ‘mutil rate

orders have the attribute of finality.

It. does hot follow, however, -that the Board |

never makes a rate order effective as of a date

_ preceding its. cigsuanee. ‘As weshave seen in the

preceding ser tion uf this n br ie Ty Tie trtke ffee- We

tive’ clause Was designed to make clear that the

Board had power te make. its mail rate orders —

effective’ from the date rate proceedings were

initiated, notwithstanding that the order was not

issued until a much later date. In its first mail

rate decision,” the ‘Board used the discretion con--

ferred by the “make .effective’’ clause, stating:

“We find .* * * the fair and reasonable rate

of compensation from and after Octo-

ber 22, 1938, the date of the filing of the petition

herein,is * *% *."" "This practice has generally

been followed by the Board,” with the result that

in most mail rate decisions the Board is not only |

fixing rates for the future: but also for the past.

peridd between ‘the initiation of the proceeding:

and the issuance of its decision... a .

Likewise, the Board’s practice of issuing tem-.

porary rate orders under certain circumstances

while it is conducting permanent rate: investiga-

tions results in a readjustment of the’ ecompensa-

tion = to the carrier under the te mporary rate

sa * *

POY je Continent Airline wdne., Mail Rates, 1 €. A. A. 45.

oS (April 14, 1950).

Apinnwal Report of the Civd Ae ronautics ‘eed: 1943. pr.

AZ: see Continental Air Lines, Ine. Mail Rates for Routes

Vos. 29 and 53.3 C..A. Bo 395. 401 ¢ 142). and eases cited

therein. 2

“4 a

"on the basis of the final rate-when it is ultimately

~ determined.” In these situations, and others,”

*A “temporary rate order dees not fix a timid) rate but

merely establishes a conservative basis for payment upon

estimated accrued obligations of the Government pending'the

determination of a permanént rate which may be either

higher or lower. than the temporary rate therétofore ine

effect.” National Aittines, lne.c Mail. Rates, Order Ser ial No.

E-1271, decided, Mareh 5, 1948, p. 5. Temporary rate orders

“are issued in two classes of cases: (1) where a new air carrier

without past operating eXperience is involved, and the fail-

“ire to establish-a temporary rate and afford some mail com-

pensation would result in the undue dissipation of its work-

ing capital (E'xsair, Inc. Temporary Mail Rate, 6 Cy A.

6ST (1946); Challenger Airlines Company, Order Serial N

E560, decided May 21, 1947) : and (2) where a carrier ans

financial necessity. In order that a carrier be placed in this

class, “First, there must be a showing that its immediate

financial position is éritical, Secondly, it must appear that

its existing rate is substantially inadequate.” National Air-

lines, Ine... Mail Rates, supra, p: 6. TWA’ s comment (Br, 85.

note 124) that a temporary rate is frequently i increased ret ro-

actively to a date prior to the institution 6f the proceeding -

- brought to change the temporary_rate is accurate but of no

significance.. The temporary rate is never made effective

prior to the date when the perntiment rate ultimately fixed

will be made effective. The temporary rate procedure is de-

_ signed to relieve carriers from hardships during the pendency

of the investigation of final rates and obviously must be, flex-

ible if it is to be of any value. ‘Of course t temporary rates are

‘always adjusted in accordance with the rates finally deter-

mined. ‘ - 8

* The Board has interpreted Section 405 (a) of the Aet

faz Stat. 994 49 US CL asd (a)) as granting it authority

to make mail rate ma effective prior to their issuance in

the situations there deseribedt. Alaska Ave lines. Tne.. Mail

Rates, Order Serial No, E-18s5, decided August 15, 1948. 4

sitailar situation appears to exist: under the provigions of

Section 105 (b) of the Net.

the order of the Board thay be termed **retro-

active” in effect. It is important to note, how-

ever, that these orders are not “ retroae tive’ ‘in the.

sense that TWA uses the term, for none of. .

these orders superimpose new rates on rates pre-

‘viously and finally fired. ce ay eae

This distinction is mportant because ‘*retro-

active’? orders of the kind \the Board admittedly /

issues do not destroy. the rate-making method as

the primary determinant: of mail compensation,

whereas ‘‘retroactive’’ orders ef. the kind con-

templated by TWA make all rate orders subject

to revision and. result in a c¢ yst plus. system. of

auditing becoming the ultimate method -for de-

termining mail compensation. , \ For; under ne

tioner’s construction, there will invariably be :

contention that the fair and reasonable. Pie

rate fixed by the Board should be revised by a

post-andit after the results of opel rations tnder

it beeome known in, order to supple ment or reduce

the level of f profit achieved. Undeb these cir-

daadan, the rate-making process. would lose

all signifieance (Cf. Br, 42-43 saleee: a

4. The practice: of the Manad pr OUNCES | no inCOn-

‘gruons results. ——TWA atfempts to show that the -

veneral prac tice of the Board ats set forth above and

sanetioned by the € ourt of Appeals, cannot be what

Was ‘intended because it produces such. Incongru-

ons results, One such result, it is claimed, is the in-.

. ability'of the Board te correct its rate “predictions”

or ** prophecies; which are necessarily difficult to

make accurately. (Br. 8, 13, 77, 84.) In fixinig a

future mail’ rate there is, ‘of course, 2 ‘visk that the

estimates made by the Boartl may not be realize dor |

may be exceeded. Such risks may be minimized: in

— differerit ways. In the Civil Aeronautics “Act, Cou-

gress. did so by. providing that rate determinations 3

_ be made by the Board after yptice and hearing,

_ followed ey review in the courts, and that such

_ Yates could he changed in new proceedings, simi-

larly safeguarded, initiated by aly of the inter-

+ -ested partiés at any time. Clearly, the Act estab-

lishes a pro dure giving the Board\a high-degree

of flexibility. in correcting its ‘‘prophecies.”’

TWA complains, however, that the device of

filing a petition at any ‘time to ‘protect against —

changes in circumstances . affecting ‘a mail rate

unfairly dise1 ‘iminates hetween ‘arTiers because

it makes relief dependent upon the luc ‘ky coinei-

dence’’ of having a petition on file when ‘‘eatas-

trophe”’ strikes; and hist the rash and

penalizes the prudent airline’? (Br. 19-22). -As_.

an example of the “lucky coincidence * argument,

it points to a situation where airerft used By

two airlines are suddenly’ grounded. Qarrier Mey

which has a petition on file for other. reasons,

will be protected, while ‘arrier Y, with no petition.

on file, will be unable to obtain “full redress,””

the argument runs. Actually, there is no diserin- ~ oa

ination because carrier Y and carrier X reerive the’ )

same: protection frou the Board against sudden™ —

_—

. SF. 5

- groundings,” “or cether ‘‘eatastgophes.."" In a

recent opinion the Board explained ‘its position

as follows:”

While costs attributable to the grounding

- of aireraft types are neither normal nor

/ recurrent in nature, such costs are, lever-

theless, peculiar to the air. transportation

industry and must be taken into corisidera-

tion in establishing’ both mail and non-mail

. Yates for air carriers. But costs of this

5 nature are neither predictable nor capable

of accurate ‘measurement on a prospective

basis. No accurate prediction can be made

as to-the incidence of the cost with respect

that sueh cost may be incurred exists in

the case of all carriers.- The ‘imminence

and universality of a’ contingency such as _

this cause it to become established as- one

of the-risks of doing business which is. re--

flected. as a normal cost of capital rather

- than as a normal cost of operations. —

- ” Braniff ‘Airw ays, Inc. Mail mis Order No. E-2129,.

A betober 28, 1948. >

“In National Airlines, a Mail Rates, 7 C. A. Be 887

(1946), the Board ‘held that costs attributable to accidents

are not allowable for rate-making purposes. In Va¢ional Air-

lines, Ine., Temporary Mail Rates, Order Nos. .E-2237 and

_ | 2285, December 11, 1 48, the Board refused te recognize strike

losses for purposes of establishing a temporary rate because

-they were abnormal. | | \. ’

,= Braniff . lirirays, Inv. Nail Hides. supra. TW A's. quo-

tation of only part of this —— is quite misleading. ,

(Br. 20, pote 17).

> *

to a particular carrier although the risk e

‘eu oaie

“The treatment of all carriers, ' whe ‘ther ey ash?” of

‘“*prudent’’ or “lucky” or “untuc ky" in ‘filing

petitions, is therefore the same in connection with

‘catastrophes’, “disasters”, or “ealamities””

Such risks are chpital- risks and not operating

risks. «The cost incurred as a result theresf are

not reimbursed as operating expenses butvin the

‘rate of return which is calculated on ‘thé ‘basis

of the long term risks gf the business. The pro-

tection afforded carriers for losses because of

catastrophes is ifot de pendent - upion the filing

ofa petition but upon the pay ment over a period

of time of a rate of return comme nsurate with

the long run risks inherent in the air transport

industry. aN 7 :

ee the ined should 6x j a rate im whieh the re-

. tarn on investment did not fully recognize those .

risks, its order would, of course, be subject to

judicial review. -Actually, because of the risk of

catastrophes, the Board has ‘given air carriers a

high rate of return on their investment. Thus,

in the decision‘which TWA now seeks to destroy

by a retroactive revision of: rates, the Board fixed

a rate calculated to give TWA a return of 13.17.

per cent, after taxes, on its investment (see page:

7, supra). : -

In considering the risks of the biiedisinins 1 in com-

puting the rate of return, the Board was follow-

ing the: accepted practice in public utility: rat

making.“ While ‘tgroundings®”* may be a ‘risk

peculiar to air carriers, public utilities are also

subject to ‘‘eatastrophes”’ of different? kinds

cludmg: strikes, floods, hurri ‘anes’ and explosions.

The courts have given no indication that. the

possibility of the occurrence. of “catastrophes”

~ affecting a public utility, makes the refusal te

reimburse past losses yn a.rate “arbitr ary” and.

“unfair’’. ae

Since it appears that airlines receive the same

treatment witli respect to disasters irrespective

of whether they have a petition on file with the

Board, we turn now, to the problem of losses aris-

ing from normal changes... Such changes. cori-,

cern variations in the volume of traffic, in the

level of costs, and similar factors, rather—than

‘atastrophes. They do not change abr uptly from

day to day.~~ Nor does’ a reasonable 1 ‘ate become

confisc: atory, at a given hour, er on a. given day.

™ Bhic field - Waterworks & I

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