Petition for Writ of Certiorari — Anselmi v. Attorney General of the United States (No. 225)

JUL 31 1953

IN THE

Supreme Court of the Unite

Octobe 1953

No. 2

‘eee wesersescoese

WESTERN AIR LINES, INC,

Petitioner,

vs.

CIVIL AERONAUTICS BOARD, ARTHUR E. SUMMERFIELD,

POSTMASTER GENERAL OF THE UNITED STATES, AND

THE UNITED STATES OF AMERICA, ON BEHALF OF THE

POSTMASTER GENERAL,

Respondents.

CIVIL AERONAUTICS BOARD,

Petitioner,

US.

ARTHUR E. SUMMERFIELD, POSTMASTER GENERAL OF THE

UNITED STATES; THE UNITED STATES OF AMERICA, ON

BEHALF OF THE POSTMASTER GENERAL; AND WESTERN

AIR LINES, INC.,,

Respondents.

Petition of Western Air Lines, Inc., for a Writ of

Certiorari to the United States Court of Appeals

for the District of Columbia Circuit.

ae W. Dartine,

Donatp K. Hatt,

523 West Sixth Street,

Los Angeles 14, California,

Attorneys for Petitioner Western Air Lines, Inc.

i. P. RENDA,

6060 Avion Drive, :

Los Angeles 45, California,

Of Counsel.

BLEED THROUGH-— POOR COPY

SUBJECT INDEX

PAGE

Opinions below 2

Jurisdictional statement 2

Summary and statement of matter involved 2

Statutes saivolved 4

Questions presented 4

Specifications of errors to be urged 5

Reasons for granting the writ 6

A. It is essential to the proper regulation of the air trans-

portation industry to have the statutory term “shall take

into consideration” interpreted by this court

B. It is of vital importance to the air transportation industry,

to the Civil Aeronautics Board and to the Postmaster

General to have the meaning of the statutory expression

“all other revenue of the air carrier” settled

C. The decision of the Court of Appeals is not good law

and must be reversed

1. The Court of Appeals misconstrued the meaning of

“shall take into consideration,” contrary to the plain

intent of the Congress.

(a) Established principles of rate-making demand

that the Board have considerable flexibility...

(b) The words “take into consideration” impose no

obligation on the Board to act..................

(c) The words “among other factors” permit the

Board to consider and act upon factors other

than are set forth in the statute

BLURRED COPY

12

14

15

16

17

18

ar =

PIA PERE OLS, ELIT AIOE EMM mys

PAT

|

PAGE

2. The Court of Appeals failed to meet the issue of the

meaning of “all other revenue of the air carrier” in

Subsection 406(b) 20

(a) Western’s contentions are persuasive and demon-

strate that “all other revenue” is limited to reve-

nue of the air carrier from the carriage of pas-

sengers and property 22

(1) The Congress did not intend in Section 406

to depart from the customary pattern of

fixing rates prospectively, thus limiting the

meaning of “revenue” 22

(2) The term “revenue” has a restricted mean-

ing and was used in a restricted sense in

Subsection 406(b) 23

(3) The Board has no control over the amount

of income an air carrier derives from col-

lateral or incidental activities 25

Conciusion 26

Appendices :

Appendix A. Opinion of the United States Court of Ap-

peals App. p. 1

Appendix B. Pertinent statutes involved App. p. 15

——————

BLEED THROUGH-— POOR COPY

—£

ul.

TABLE OF AUTHORITIES CITED

Cases PAGE

Baltimore & Ohio Railroad Company v. United States, 345 U.

S. 146 17

Board of Trade v. United States, 314 U. S. 534.0 eee 16

Chicago, B. & Q. R. Co. v. United States, 60 Fed. Supp. 580... 18

Interstate Commerce Commission v. Cincinnati, N. O. & T.

. RS 62 25

New York v. United States, 331 U. S. 284 000....cccccccccceeceeeceeeeees 17

i fa ee ke . \ 21

Transcontinental & Western Air v. Civil Aeronautics Board, 336

U. S. 01 s diehiabeddatiidentasidinidiniiadmian 19, 25

United States v. Interstate Commerce Commission, 88 F. 2d

780; cert. den., 300 U. S. 684 ....17, 18

United-Western, Acquisition of Air Carrier Property, 8 C. A. |

B. 298... 3

STATUTES

Civil Aeronautics Act:

SO SD <aistuicraeihbicinniiienanehinemntinasstiniia 24

Sec. 1(10) 24

Sec. 1(21) 24

Sec. 2 9, 19

a ee nee ee Re ee 10, 24

Sec. 401 (d) - 11

ce 10

en ..4, 5, 22, 25, 26

Sec. 406(a) wei 2, 3

Sec. 406(b) .... 2, 3, 4, 5, 6, 11, 12, 15, 20, 24, 25

Sec. 1002 25

Sec. 1002(e) ...... = ...8, 9, 23, 24, 25

Sec. 1002(e) (5) 24

BLURRED COPY

ww 2m

iv.

Interstate Commerce Act, Sec. 15(a) (2)...

52 Statutes at Large, p. 998...

United States Code, Title 28, Sec. 1254(1)

United States Code, Title 49, Sec. 316(i)

United States Code, Title 49, Sec. 402

United States Code, Title 49, Sec. 481

United States Code, Title 49, Sec. 486

United States Code, Title 49, Sec. 642..

United States Code, Title 49, Sec. 646(f)

United States Code, Title 49, Sec. 907(f)

BLEED THROUGH-— POOR COPY

IN THE

Supreme Court of the United States

October Term, 1953

IOS csitinisciaitatnibinkes

WESTERN AIR LINES, INC,

Petitioner,

vs.

CIVIL AERONAUTICS BOARD, ARTHUR E. SUMMERFIELD,

POSTMASTER GENERAL OF THE UNITED STATES, AND

THE UNITED STATES OF AMERICA, ON BEHALF OF THE

POSTMASTER GENERAL,

Respondents.

CIVIL AERONAUTICS BOARD,

vs.

ARTHUR E. SUMMERFIELD, POSTMASTER GENERAL OF THE

UNITED STATES; THE UNITED STATES OF AMERICA, ON

BEHALF OF THE POSTMASTER GENERAL; AND WESTERN

AIR LINES, INC.,

Respondents.

Petitioner,

Petition of Western Air Lines, Inc., for a Writ of

Certiorari to the United States Court of Appeals

for the District of Columbia Circuit.

Western Air Lines, Inc., respectfully petitions that a

Writ of Certiorari issue to review the judgment of the

United States Court of Appeals for the District of

Columbia Circuit in Summerfield v. Civil Aeronautics

Board, No. 11259, and Western Air Lines v. Civil Aero-

nautics Board, No. 11324.

BLURRED COPY

Ne

—*

te ART tak td

LEE IN FTE ONDA ANITA PT AM RIN Cr ANT

x 1 ete

SP POTEET NEEL SRE NOT LD ENE I A OO BE ALLEL IEDLP AAA IBLE | PA ACEP SI Raat PRE

oe

Opinions Below.

The opinion of the Court of Appeals,’ which is not yet

reported, appears in the record of this proceeding com-

mencing at page 341.”

The opinions of the Board which were reviewed by

the Court of Appeals are included in the record of this

proceeding commencing separately at pages 183, 258 and

333.

Jurisdictional Statement.

The judgment of the Court of Appeals was entered

on May 4, 1953 [R. 354]. The jurisdiction of this Court

is invoked under Subsection 1254(1) of Title 28, U. S,

Code, and Subsection 646(f) of Title 49, U. S. Code.

Summary and Statement of Matter Involved.

This case concerns the fair and reasonable rate of

compensation which Western is entitled to receive for

transporting mail by aircraft during the period from May

1, 1944, through December 31, 1948. The dispute centers

upon the language employed by the Congress in Sub-

section 406(b) of the Act (49 U. S. Code, Sec. 486).

Subsection 406(a) of the Act is the enabling provision

which empowers the Board to fix and determine fair and

reasonable rates of compensation for the transportation

of mail by aircraft.

'For convenience, the United States Court of Appeals for the

District of Columbia Circuit will be referred to as the “Court of

Appeals,” Western Air Lines, Inc., as “Western,” the Civil Aero-

nautics Board as the “Board,” and the Civil Aeronautics Act as

the “Act.”

*For convenience also, the opinion of the Court of Appeals is

included in this petition as Appendix A.

BLEED THROU GH-— POOR COPY

~~" - i MEAS

—

Subsection 406(b) sets forth guides to aid the Board

in determining the rates.

The legal points necessitating this petition involve the

proper construction of (1) the statutory expression “shall

take into consideration, among other factors” and (2)

the statutory expression “all other revenue of the carrier,”

appearing in Subsection 406(b).

The pertinent facts in the case are simple. On April

2%. 1944, Western filed a_ petition under Subsection

406(a) of the Act for an increase in the rate of its

compensation for carrying the mail [R. 15]. That pe-

tition was acted upon by the Board for the first time :

late in 1948, more than four years after the filing date

[R. 54]. During the long interim, Western sold, with

Board approval,® one of its air routes and certain equip-

ment and properties used in connection with the route at

a net book profit of approximately $1,000,000.00 [R.

196]. Western also experienced during the delay period,

among other income, net profits of approximately

$88,000.00 from the operation of slot-machine conces-

sions in Las Vegas, Nevada, and restaurants and can-

teens [R. 192].

In 1951 the Board finally awarded to Western the

sum of $3,917.361.00 as its total compensation for the

transportation of mail in the past period, May 1, 1944,

through December 31, 1948 [R. 338]. In arriving at 4

this determination, the Board ruled that Western’s net i

adjusted profit from the sale of the route in 1947 and

Western’s net profits from the operation of slot machines, :

PF PIPE

8United-W estern, Acquisition of Air Carrier Property, 8 C. A. B. :

298 (1947).

ERENCE ede ecea

BLURRED COPY

BNE eo His se seenihenes ——— a

‘inatliie

restaurants and canteens were “other revenue” within

the meaning of Subsection 406(b) of the Act [R. 191-

200, 261, 266-267]. However, the Board chose to allow

Western to retain a part of the profit from the route

sale by not offsetting it against Western’s mail compensa-

tion on the policy ground that voluntary route adjust-

ments would be encouraged [R. 262-265].

The Court of Appeals agreed with the Board’s appli-

cation of the statutory expression “other revenue” but

ruled that the Board is without power under the statute

to fix individual rates of compensation for the transpor-

tation of mail other than on the basis of the particular

carrier’s specific need for compensation, regardless of

other public interest factors [R. 349-450].

Statutes Involved.

Section 406 of the Civil Aeronautics Act (52 Stat.

998; 49 U. S. Code, Sec. 486) is set forth in Appendix

B to this petition. Other sections of the Act are only

indirectly involved and will be set forth at the places

where they are mentioned.

Questions Presented.

1. Does the statutory expression ‘‘shall take into con-

sideration, among other factors” in Subsection 406(b)

bestow on the Board judicial discretion with respect to

the weight it shall give to each factor material to the

process of rate-making?

BLEED THROUGH-— POOR COPY

ls Sek 8 a CRIB EIS OR ere RS I ae RL ON 1 0 AL RL ORO CPO ATOR

2. Does the statutory expression “all other revenue

of the air carrier” in Subsection 406(b) of the Act em-

brace more than revenue derived from the carriage of

passengers and property?

3. Does the statutory expression “all other revenue

of the air carrier” in Subsection 406(b) include the net

profit from the sale of an air route and related equip-

ment?

4. Does the statutory expression “all other revenue

of the air carrier” in Subsection 406(b) include an air

carrier’s net profit from the operation of slot machines,

restaurants or canteens?

Specifications of Errors to Be Urged.

The Court of Appeals erred in holding:

1. That the Board followed a concept of its power

unauthorized by Section 406 in not offsetting all of

Western’s profit from the route sale against Western’s

mail compensation.

2. That Western’s net adjusted book profit from the

sale of an air route and equipment used in connection

with the route constituted “other revenue” within the

meaning of Subsection 406(b).

3. That Western’s net profit from the operation of

slot machines, restaurants and canteens constituted “‘other

revenue” within the meaning of Subsection 406(b).

BLURRED COPY

a

REASONS FOR GRANTING THE WRIT.

A. It Is Essential to the Proper Regulation of the

Air Transportation Industry to Have the Statu-

tory Term “Shall Take Into Consideration” In-

terpreted by This Court.

This case involves important considerations of public

interest. Crucial questions of federal law—the inter-

pretation of a rate-making statute—going to the very

core of the regulatory scheme adopted by the Congress

for the indispensable air transportation industry are at

stake. The vital issues have not been presented to the

courts before.

Stripped down to the essentials pertinent to the proper

construction of “shall take into consideration, among other

factors,” Subsection 406(b) reads:

se

In determining the rate in each case, the

Board shall take into consideration, among other

factors, . . . the need of each such air carrier

for compensation for the transportation of mail

sufficient . . . , together with all other reve-

nue of the air carrier, to enable such air carrier un-

der honest, economical, and efficient management, to

maintain and continue the development of air trans-

portation to the extent and of the character and

quality required for the commerce of the United

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

The Board consistently has taken the position that

the term “shall take into consideration,” as used in Sub-

section 406(b), only requires the Board to consider

the factors enumerated, among others, leaving to the

BLEED THROU GH- POOR COPY

ollie

Board the discretionary right of doing what appears to

be proper." This contemplates, of course, that the discretion

will be exercised judiciously. Western agrees with the

Board’s interpretation.

The Postmaster General takes the opposite view. He

contends that after the Board has considered all of the

other revenue of a carrier (which the Postmaster General

thinks is all income) the Board has no discretion but

must apply that revenue in reduction of the mail com-

pensation regardless of what public interest considerations

might exist for doing otherwise.°

Apparently the Court of Appeals adopted the Postmas-

ter General's theory, although the opinion of the lower

court, written by Circuit Judge Prettyman is, at best,

confusing.” And, this confusion is somewhat confounded

by the dissenting opinion of Circuit Judge Prettyman in

the companion case below, Summerfield v. Civil Aero-

4In its opinion and order dated June 26, 1951, the Board stated:

“While we are required by the Act to ‘take into considera-

tion’ the ‘need’ of the carrier for mail compensation together

with ‘all other revenue,’ we do not understand the language

of section 406(b) as requiring us to reduce the carrier’s mail

pay ‘need’ with any part of such ‘other revenue.’ This is a

matter within our discretion.” [R. 262.]

‘In his Petition to Reconsider before the Board dated July 27,

1951, the Postmaster General stated:

“The mail rate section (406(b)) of the Civil Aeronautics

Act does not permit the Board discretion to disregard the net

revenues derived from the sale of a route certificate when

determining the carrier’s need for subsidy mail compnsation.”

[R. 282.]

®The Court of Appeals in its opinion below stated:

“Thus we think that, while the so-called ‘need’ provision

of the statute, above quoted, does provide for the payment

of sums sufficient to enable the carrier under consideration to

maintain and continue development of air transportation, such

payments are restricted to the need of each individual carrier

to maintain and continue a development program of its own.”

[R. 349-350. ]

BLURRED COPY

oe Se OP aera

sili

nautics Board, No. 11351, in which this irreconcilable

statement is found on page 10 of the printed opinion:

“IT am so convinced of the soundness of a com.

plete separation of this foreign rate from the do-

mestic operation, that I would have to agree with the

Board that the elastic statutory phrase ‘take into

consideration’ is sufficiently flexible to permit the

omission of domestic carnings from the foreign cal-

culation, even after such earnings are taken into

consideration.’

So long as uncertainty attaches to the meaning of

“shall take into consideration” in consequence of divergent

views entertained by the Board (shared by the industry )

and the Postmaster General, coupled with a hazy majority

opinion below, contrasting with the conflicting dissenting

opinion written by the same Circuit Judge, uncertainty in

the administration of a vital part of the Act—the rate-

making part—will prevail. And, uncertainty breeds in-

stability, which was the principal evil that the Act was

designed to remove.

Although this case concerns only compensation for

carrying the mail, the meaning of the term here under

discussion has a direct bearing on the Board’s control

of passenger and property tariffs. Exactly the same

phrase is employed in Subsection 1002(e),* which sets

‘Emphasis in quoted material added throughout unless otherwise

noted.

Section 1002(e) (49 U. S. Code, Section 642) reads in part:

“In exercising and performing its powers and duties with

respect to the determination of rates for the carriage of per-

sons or property, the Board shall take into consideration,

among other factors—

* * * * * * *

(5) The need of each air carrier for revenue sufficient to

enable such air carrier, under honest, economical, and efficient

management, to provide adequate and efficient air carrier

service.”

BLEED THROUGH— POOR COPY

willis

forth some of the factors which the Board is required

to consider in exercising its powers with respect to pas-

senger and property tariffs.

If the Board lack judicial discretion under Subsection

406(b) relating to mail compensation, as here claimed

by the Postmaster General and probably approved by the

Court of Appeals, the Board necessarily lacks judicial

discretion under Subsection 1002(e). If this be so,

disaster could easily engulf the air transportation §in-

dustry, as nowhere is sound discretion needed more than

in the passenger and property tariff-fixing power of the

Board—the very jugular vein of air transportation.

If the Board’s rate-making power be stripped of dis-

cretion, as it would be under the Postmaster General's

philosophy and the probable ruling of the Court of

Appeals, the Board’s ability to respond to its duties under

Section 2 of the Act,® which relates to the encouragement

eo

%Section 2 (49 U. S. Code, Section 402) reads:

“In the exercise and performance of its powers and duties

under this chapter, the Board shall consider the following,

among other things, as being in the public interest, and in

accordance with the public convenience and necessity—

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

portation system properly adapted to the present and future

needs of the foreign and domestic commerce of the United

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

“(b) The regulation of air transportation in such manner

as to recognize and preserve the inherent advantages of, assure

highest degree of safety in, and foster sound economic condi-

tions in, such transportation, and to improve the relations

between, and coordinate transportation by, air carriage ;

“(c) The promotion of adequate, economical, and efficient

service by air carriers at reasonable charges, without unjust

discriminations, undue preferences of advantages, or unfair

or destructive competitive practices ;

“(d) Competition to the extent necessary to assure the

sound development of an air-transportation system properly

adapted to the needs of the foreign and domestic commerce

BLURRED COPY

_ oo

and development of air transportation, would be shackled.

No provision in the Act, not even the authority to

grant, amend and modify route certificates under Section

401, gives the Board as much power to foster the

development of air transportation as does its rate-making

power, both mail and passenger, provided, but only pro-

vided, the Board be cloaked with reasonable judicial dis-

cretion. That discretion exists only if the term “shall

take into consideration” be construed here as it should be.

Innumerable examples of the grave importance of this

issue to the continuing long-range development of the

vital air transportation industry could be listed, but none

is as pointed as the example found in this case. In exer-

cising what it thought was its discretionary power in off-

setting or not offsetting other revenue after having taken

that other revenue into consideration, the Board declared:

“In order to avoid the danger of confining the

present air pattern to a rigid mold, and to continue

to encourage voluntary action by the carriers, we

believe that the incentive of profit which may be

derived from the sale of a route . . . should be

preserved here.” [R. 263.]

The exigent significance of this is underscored by refer-

ence to Section 401 of the Act (49 U. S. Code, Sec. 481).

Subsection 401(e), commonly referred to as the “grand-

father clause,” established a method for automatic issu-

ance of certificates covering air routes in existence when

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

defense ;

“(e) The regulation of air commerce in such manner as to

best promote its development and safety; and

“(f) The encouragement and development of civil aero-

nautics.”

BLEED THROU GH-— POOR COPY

=_~7—“—" ene

aniline

the Act came into being. Many of those routes had grown

up like Topsy, and at least some of them have proved to

be ill-advised. In addition, experience has proved that

some of the new certificates since granted by the Board

under Section 401(d) likewise are ill-advised or could be

operated more economically and more effectively by some

other carrier. Still the Board has no direct power under

the Act to force an abandonment of a route, a transfer of

a route from one carrier to another or the merger of

two or more carriers. With the discretionary power to

allow a selling carrier to retain the nonrecurring profit

(assuming this to be revenue required to be heeded under

Sub. 406(b)) resulting from the voluntary sale of a '

route, great impetus will be given to a voluntary and

beneficial realignment of the air route pattern. If that

profit must be or might be drained off as an offset against

the mail compensation, all incentive would be destroyed.

FO EOF SORE Fe es

The essence of the opinion of the Court of Appeals is

that lacking a showing of need the Board is powerless to

fix a rate of compensation for transporting the mail ex-

ceeding a naked compensatory rate. But this theory gives

no effect to the statutory language “among other factors.”

On the contrary, the theory fetters the Board by a literal

interpretation which is completely at odds with the flexi-

bility intended by the Congress. The expression “among

other factors” means simply that the Board within the

limits of sound discretion may fix the rate on the basis

of factors other than the “need” of the air carrier or on

the basis of that “need” as modified by other factors or

on the basis of that “need” alone. The Court of Appeals

does not challenge or deny the force of the Board’s reason

for doing what it did in this case but rests its decision

Re eS

BLURRED COPY

a

=— =

on a construction of the statute which, contrary to the

terms of the statute, denies the Board discretionary power

and restricts mail payments to the need of the air carrier.

B. It Is of Vital Importance to the Air Transporta-

tion Industry, to the Civil Aeronautics Board and

to the Postmaster General to Have the Meaning

of the Statutory Expression “All Other Revenue

of the Air Carrier” Settled.

The Postmaster General has interpreted Subsection

406(b) to mean that all income of an air carrier, regard-

less of source, must be applied in reduction of or in the

nature of an offset to the carrier's mail compensation.”

The Board has interpreted the subsection to mean that

all income of an air carrier from activities related to air

carrier functions should be considered in fixing the fair

and reasonable rate of compensation for transporting

mail."

Western adheres to the position that the “all other

revenue” required to be considered by the Board under

Subsection 406(b) is limited to revenue derived from the

transportation of persons and property.

On page 21 of the Postmaster General’s Brief to the Court of

Appeals, this statement is made:

“Moreover, it is evident that the carrier’s actual need can

be determined only by a comparison of its actual income from

all sources, with the amount of income determined by the

Board to be sufficient to enable the carrier to perform its

transportation functions properly and to receive a fair return

on its investment.”

"In its opinion of November 24, 1950, the Board stated:

“Where the activity from which the income arose is related

to the air carrier functions, such income should be considered

as ‘other revenue.’”” [R. 193.]

BLEED THROUGH— POOR COPY

a" a

It is self-evident that one of the three theories is right.

No other interpretation of the subsection, stemming

from reason, can be conceived.

Although the language of the Court of Appeals in the

opinion under attack is far from clear, it is probable

that the Court intended to place its imprimatur on the

theory espoused by the Board.

Until the issue has been finalized no air carrier ex-

cept those enjoying a so-called “compensatory” mail

rate, can plan or budget its future. Until these car-

riers know with certainty what type of income will be

and what type of income will not be applied in reduction

of their mail compensation, they cannot create plans to

expand their activities into broader fields, related or un-

unrelated, in augmentation of their income or as a shield

against a depressed air traffic period or make plans to

merge or sell any of their routes to other air carriers.

If the Board’s theory—the middle road—be given

court approval, the industry still will be in a state

of confusion unless the related activities, the income

from which would be applied in reduction of the mail

compensation, are defined with sufficient accuracy to

enable the carriers as well as the Board and the Post-

master General to determine what ventures or activities

will be within and what will be without the offsetting

area. It is not right and it is contrary to the American

conception of fairness to allow a condition to exist under

which a carrier does not know and cannot determine

whether the profit, if any, from a certain course of con-

duct or from a certain venture may be retained or will

be applied in reduction of its mail compensation. So, if

the Board’s middle ground philosophy be accorded court

BLURRED COPY

—

approval, the term “related activities” will have to be de-

fined.

If either the Board’s theory or the Postmaster Gen-

eral’s theory be approved, it is essential that the industry

know, and the Board and the Postmaster General must be

told with authority, whether or not a loss from an act or

a venture will be underwritten through increased mail

compensaticn. If a profit from a particular venture be

subject to offset it would be in violation of all sense of

justness to hold that a loss from the same venture would

not be subject to recoupment. But the Board thinks

otherwise,” so the issue must be resolved in court.

C. The Decision of the Court of Appeals Is Not

Good Law and Must Be Reversed.

The opinion of the Court of Appeals makes bad law

and adds more ambiguity to important provisions of the

Act which were and stiil are in need of clarification.

Unless and until reversed by this Court or corrected by

an act of Congress, the Board will be bound in its future

administration of the Act by the opinion below. In the

meantime, the American Flag air transportation industry

will suffer to the irreparable damage of the public welfare.

%On page 16 of its brief to the Court of Appeals, the Board

stated :

“ce

Further, even if a particular related air carrier

activity is of such nature that losses will not be underwritten,

we still see no reason why profits therefrom should not be

offset against the carrier's need for subsidy.”

BLEED THROUGH-— POOR COPY

==

1. The Court of Appeals Misconstrued the Meaning of

“Shall Take Into Consideration,” Contrary to the Plain

Intent of the Congress.

Subsection 406(b) requires that the Board, in deter-

mining the rate in each case, “shall take into considera-

tion” certain enumerated rate-making elements, “among

other factors.”

The Postmaster General argued below that the term

“shall take into consideration” charged the Board with

a mandatory duty rather than granting a discretionary

power."* The Court of Appeals evidently accepted this

argument, although Circuit Judge Prettyman, the author

of the opinion in this case, adopted a contrary view in

his dissenting opinion in the companion Chicago &

Southern case, as already has been noted in this petition.

Consistently, the Board has interpreted “shall take into

consideration” to mean what simple semantics would have

eee ee

it mean, the discretionary right of doing what good

judgment dictates—offsetting or not offsetting other reve-

nue against mail compensation—in accordance with the ;

circumstances that might prevail in each situation under

consideration. The Board has always thought that the

138] his Petition to Reconsider before the Board dated July 27,

1951, the Postmaster General stated:

“| | in the consideration of whether the development

of air transportation requires a subsidy to a particular carrier

in addition to compensation for services rendered, as directed ]

by the same section, the Board has no discretion under such

section but must take into account all other revenue of such

carrier obtained from all sources.” :

as cariteeeie ale

BLURRED COPY

only mandate which it was required to meet was to con-

sider and then act affirmatively or negatively in response

to its judicial discretion. Western agrees.

Had the Congress intended that the Board had to offset

all other revenue it would have been very simple to use

language that could not have been misconstrued, assum-

ing that there be any justification for the obvious mis-

construction placed on the term by the Postmaster Gen-

eral. Moreover, had the Congress intended that “shall

take into consideration” would require positive action be-

yond giving consideration it is not likely that the term

would be followed by the clause “among other factors”

without identifying those other factors.

(a) ESTABLISHED PRINCIPLES OF RATE-MAKING De-

MAND THAT THE Boarp Have CONSIDERABLE

FLEXIBILITY.

This Court has recognized that the process of rate-

making is one primarily within the exclusive province

of the expert governmental agency having the power to

fix rates. In Board of Trade v. United States, 314 U.S.

534 (1942), in an opinion delivered by Mr. Justice Frank-

furter, this Court declared:

“The process of rate-making is essentially empiric.

The stuff of the process is fluid and changing—the

resultant of factors that must be valued as well as

weighed. Congress had therefore delegated the en-

forcement of transportation policy to a permanent

expert body and has charged it with the duty of

being responsive to the dynamic character of trans-

portation problems.” (P. 546.)

BLEED THROU GH— POOR COPY

csi:

In connection with the provisions of Section 15(a) (2)

of the Interstate Commerce Act, Mr. Justice Douglas in

the case of New York v. United States, 331 U. S. 284

(1947), stated:

“The balancing and weighing of these interests

is a delicate task . . . There may be differences

of opinion concerning the weight to be given those

factors . . . But their significance is for the

Commission to determine; and, though we had

doubts, we would usurp the administrative function

of the Commission if we overruled it and substi-

tuted our own appraisal of these factors.” (Pp.

347, 349.)

The general principle was reiterated by Mr. Justice

Black in Baltumore & Ohio Railroad Company v. United

States, 345 U. S. 146 (1953), in this fashion:

“This mere sample of factors that have to be con-

sidered in rate cases demonstrates the absolute neces-

sity for considerable ficxibility in rate-making . .

Commission power to adjust rates to meet public

needs is implicit in the congressional plan for a na-

tionally integrated railroad system.” (P. 152.)

(b) THE Worps “Take INTO CONSIDERATION” IMPOSE

No OBLIGATION ON THE Boarp To ACT.

In United States v. Interstate Commerce Commission,

88 F. 2d 780 (1937), certiorari denied, 300 U. S. 684

(1937), the United States Court of Appeals for the Dis-

trict of Columbia construed the words “due considera-

tion,” appearing in Section 15(a)(2) of the Interstate

Commerce Act, in this manner:

“The mandate of the act . . . is that the

Commission shall give ‘due consideration.’ To give

due consideration to a particular factor necessarily

_ |

BLURRED COPY

9 ZEEE ELLIO II LOD SPN ORE

(c)

= =

means to give such weight or significance to it as

under the circumstances it seems to merit, and this,

of course, involves discretion; and, as has been said

many times, judicial discretion.” (P. 783.)

THE Worps “AMONG OTHER FAcTorRS” PERMIT THE

BoarD To CONSIDER AND Act Upon Factors OTHER

THAN ARE SET FortTH IN THE STATUTE.

In United States v. Interstate Commerce Commission,

88 F. 2d 780 (1937), certiorari denied, 300 U. S. 684

(1937), the United States Court of Appeals for the Dis-

trict of Columbia had this to say:

“Putting aside all questions of relative importance

of the various elements of rate making—because the

controlling facts in each case necessarily vary—there

can be no doubt that in prescribing reasonable rates

the Commission is required to take into considera-

tion, among other factors, first, the effect of the rate

on the movement of traffic; second, public need of

adequate low-cost service; third, the carrier’s need

of sufficient revenue to enable it to give such service,

This, we think, is the clear mandate of the statute.

But the weight to be given to these several factors

is left to the discretion of the Commission, as is also

the weight to be given the other and unnamed fac-

tors which of necessity vary in substance according

to the facts.” (P. 782, first italics in original.)

This broad sweep of discretion to choose the standard

or standards upon which to fix rates was reiterated by the

United States District Court for the Eastern District of

Kentucky in Chicago B. & Q. R. Co. v. United States,

60 F. Supp. 580 (1945):

“Congress has not prescribed the ‘other factors’

to be considered by the Commission in the exercise

BLEED THROUGH— POOR COPY

—

=

of its power to fix just and reasonable rates. The

determination of the issue of fact in respect to rea-

sonableness as well as the choice of the standard

upon which the determination is to be made in each

particular case, is left to the informed judgment of

the Commission . . .” (P. 585.)

The Board in this case rested its holding upon the

determination that there was a public need for readjust-

ment of the air route pattern through route transfers

between air carriers, in order to correct undesirable and

uneconomic route structures existing in the air trans-

portation system of this country. Recognizing that it

is without power to compel air carriers to transfer routes

or to merge, the Board here fixed upon a policy which

would preserve the profit incentive to voluntary route ad-

justments.

The Court of Appeals did not deny, nor could it have

denied, the existence of a public need for voluntary route

transfers. That is within the exclusive province of the

Board to determine. What the Court of Appeals denied

was the Board’s statutory power to encourage carriers,

including Western, to transfer routes, by providing incen-

tives in fixing mail pay.

The implementation of the public interest factors in

Section 2 of the Act,’ in fixing rates, is not a new con-

cept. In Transcontinental & Western Air v. Civil Aero-

nautics Board, 336 U. S. 601 (1949), this Court, in an

opinion delivered by Mr. Justice Douglas, stated:

“". . §406(b) authorizes the Board to fix rates

for ‘classes of air carrier.’ It is plain that the uni-

“Section 2 is quoted in full in footnote 9, pages 9-10,

BLURRED COPY

— =

form rate for the class is an important regulatory

device. For §2(d) of the Act looks to the sound

development of an air transportation system through

competition. A uniform rate forces carriers within

a given class to compete in securing revenue and in

reducing or controlling costs.” (Pp. 606-607.)

The right to encourage competition through uniform

mail rates, which do not necessarily reflect or correspond

to the individual carriers need for compensation, is not

different from the right to encourage improvement of

route structures and betterment of economic conditions in

the industry through the mail rate.

It is fitting that the Board be afforded ample flexibility

in its rate-making power to permit it to accomplish the

broad purposes of the Act and not alone those purposes

specified in Subsection 406(b).

2. The Court of Appeals Failed to Meet the Issue of the

Meaning of “All Other Revenue of the Air Carrier”

in Subsection 406(b).

Not once did the Court of Appeals discuss the meaning

of “revenue.” The Court's singular justification for not

replying to Western’s contentions regarding the meaning

of “revenue” was that the rate period had passed and

everyone knew Western had these special amounts of

income.”

The Court of Appeals in its opinion below stated:

“The Board knew, and we all know, that Western had in

this period this $1,000,000, or thereabouts, in profit.

* * . * * * *

“It seems to us that under this statute the Board, in fixing

a rate of compensation for a past period, may view the facts

as it knows the facts to be, that in determining ‘need’ it is

not compelled to ignore that which it knows.” [R. 347-348]

BLEED THROUGH-— POOR COPY

—

In taking for granted without analysis the meaning

of “all other revenue,” the Court of Appeals not only

ignored Western’s arguments but ignored the elementary

rules of statutory construction.

Mr. Justice Sutherland in Porto Rico v. Shell Co., 302

U. S. 253 (1937), made this declaration:

“Words generally have different shades of mean-

ing, and are to be construed if reasonably possible

to effectuate the intent of the lawmakers; and this

meaning in particular instances is to be arrived at

not ony by a consideration of the words themselves,

but by considering as well, the context, the purposes

of the law, and the circumstances under which the

words were employed.” (P. 258.)

Evidently the Court of Appeals was much impressed

with the word “need,” together with which “all other

revenue of the air carrier’ is to be considered by the

Board. But the word “need,” which is found in the same

context in all Federal! statutes pertaining to interstate

common carriers and their rates,"* is no more than a

shorthand, legislative method of expressing the detailed

cost analysis of the results of operations, pervading every

rate-making proceeding.

The Court of Appeals admitted that its construction

would complicate the Board’s duty under the statute and

would give rise to unforeseen and inequitable differences

between air carriers [R. 348]. The Congress hardly could

have intended such a result.

WE. g., 49 U. S. Code, Subsections 15a(2), 316(i), 907(f).

BLURRED COPY

RR a ie 9

mate RAST NEE FIN UM EPRI GIR LOREEN septa

ain

—22.~

(a) WEsTERN’s CONTENTIONS ARE PERSUASIVE AND

DEMONSTRATE THAT “ALL OTHER REVENUE” Is

LIMITED TO REVENUE OF THE AIR CARRIER From

THE CARRIAGE OF PASSENGERS AND PROPERTY.

(1) The Congress Did Not Intend in Section 406 to

Depart From the Customary Pattern of Fixing Rates

Prospectively, Thus Limiting the Meaning of

“Revenue.”

The manifest intent of the Congress in Section 406

is that rates of compensation for the transportation of

mail by aircraft will be fixed prospectively. The Board

at all times since its creation has acted on this premise.

And, it has been only where lack of expedition in a mail

rate-making proceeding has occurred, as in this case,

that the Board has been confronted with fixing a retro-

active rate.

This design of the Act is an important, if not the con-

trolling, consideration in the proper construction of the

statute. Income which is susceptible and capable of

being forecast by the Board is “revenue” which the Board

must take into consideration. Conversely, income which

is not susceptible or capable of being forecast by the

Board is not “revenue” which the Board must take into

consideration. A nonrecurring, sporadic capital gain (or

loss), such as from the sale of a route, is not susceptible

of anticipation and therefore may not be deemed “revenue”

(or expense) in the Board’s rate-making.

Revenue derived from the transportation of persons

and property is the only type of income which can be

forecast by the Board with expertness and within range

of fairness. During any period projected into the future

every certificated air carrier, except the few holding

BLEED THROU GH- POOR COPY

=

limited certificates, is certain to derive some revenue from

the transportation of passengers and property—the only

variance being the volume—and the Board members, being

experts in air transportation, are qualified to estimate

the revenue from these two sources.

But even though the pharse “all other revenue” be

tortured improperly to mean all other income from what-

ever source and of whatever nature, it could only mean

the type of income which would lend itself to foresight

estimates—rather than hindsight knowledge. This in

turn signifies that the term, even as thus twisted, could

only embrace reasonably anticipative earnings from normal

activities and operations. It could not possibly include a

nonrecurring profit, such as the sale of a route certificate

or capital assets, for instance, or some type of a “wind-

fall,” if a colloquialism will be permitted, such as a sub-

stantial book profit from an insured casualty.

It is certain that the Congress would not have burdened

the Board members, experts in air transportation but

not in other fields of business ventures, with the duty of

having to estimate what an air carrier might earn during

a future period from running a restaurant, maintaining a

dry goods store or operating slot machines and oil wells.

(2) The Term “Revenue” Has a Restricted Meaning

and Was Used in a Restricted Sense in Subsection

406(b).

The word “revenue” is used only twice in the Act.

The second time is in Subsection 1002(e), which reads

in part:

“In exercising and performing its powers and

duties with respect to the determination of rates

BLURRED COPY

=o

for the carriage of persons or property, the Board

shall take into consideration, among other factors—

* * * * * * * *

“(S) The need of each air carrier for revenue,

sufficient to enable such air carrier, under honest,

economical, and efficient management, to provide ade-

quate and efficient air carrier service.”

The word “revenue” in Subsection 1002(e)(5) means

revenue derived from the rates charged for the carriage

of persons and property. The word cannot possibly

mean anything more or anything else. It follows that

the expression “other revenue” used in Subsection 406(b)

cannot refer to any revenue other than the revenue re-

ferred to in Subsection 1002(e), because the term “reve-

nue” is not used in any other section of the Act.

It is worthy of note that the other revenue required

to be considered by the Board is “revenue of the air car-

rier.” An air carrier under Subsection 1(2) of the Act

(49 U. S. Code, Sec. 401) is “any citizen of the United

States who undertakes . . . to engage in air trans-

poration.” Accordingly, in using the words “revenue of

the air carrier” the Congress must have intended to mean

the revenue which the air carrier would derive from be-

ing engaged in air transportation. Air transportation

under Subsection 1(10) of the Act includes interstate

air transportation, which in turn under Subsection 1(21)

means the carriage by aircraft of persons or property as

a@ common carrier for compensation or the carriage of

mail by aircraft. Had Congress not intended to limit

BLEED THROUGH-— POOR COPY

~ =

other revenue, as used in Subsection 406(b), to the

revenue referred to in Subsection 1002(e), it would have

used language which would have been unequivocal.”

In Interstate Commerce Commission v. Cincinnati, N.

0. & T. P. R. Co., 167 U. S. 479 (1879), this Court at

page 495 noted that the language by which the power

to fix rates is granted is so often used and is so familiar

to the legislative mind that it “is capable of

definite and exact statement.”

(3) The Board Has No Control Over the Amount of

Income an Air Carrier Derives From Collateral or

Incidental Activities.

Under the Act the Board has control over and power

to prescribe the revenue of air carrier only with refer-

ence to the three principal sources of air carrier income

—passengers, property and mail. Section 1002 gives the

Board the power to determine and prescribe the rates

which an air carrier may charge for transporting pas-

sengers and property. Section 406 empowers the Board

to determine and fix rates of compensation for trans-

porting the mail. The Board has no power to determine

the prices an air carrier shall charge or the amount of

income an air carrier shall receive in connection with in-

1™Mr. Justice Jackson, dissenting Transcontinental & Western

Air v. Civil Aeronautics Board, 336 U. S. 600 (1949), gave recog-

nition to the true meaning of the word “revenue,” in this fashion:

“But Congress believed that, in the interest of the national

defense and commercial aviation, it had to subsidize pioneering

air lines and underwrite revenues above those to be realized

from passenger and cargo carriage.” (P. 609.)

BLURRED COPY

iis

cidental or collateral activities, such as the operation of

restaurants and slot machine concessions.

Since the Board has control over the revenues derived

from transporting passengers and property and thus has

the power to see to it that those revenues are productive

of a reasonable return to the carrier in connection with

the air transportation service it is required to maintain,

it is altogether fitting that the Board should have the

right to consider those revenues in fixing a fair and

reasonable rate of compensation for transporting the

mail. Since the Board does not have the power to de-

termine the prices that an air carrier shall charge or re-

ceive in connection with its incidental or collateral ac-

tivities, it is only proper that the income (or loss) from

those sources should not be considered by the Board in

arriving at a fair and reasonable rate of compensation

for the transportation of mail.

Conclusion.

Three reasons, each involving considerations of com-

pelling public interest, exist for issuing a writ of certiorari

in this case:

1. The fair and legal administration of Section 406

of the Act—one of the paramount sections—requires a

full and final interpretation by this Court;

2. The unresolved divergent constructions placed upon

an essential part of Section 406 by the two governmental

agencies most concerned with its administration will create

continuous confusion and dissention in a utility of critical

importance to the country; and

BLEED THROUGH— POOR COPY

2 -

—27—

3. Unless corrected, the error of the Court of Ap-

peals in upholding the Postmaster General’s erroneous

interpretation of “shall take into consideration” in this

and its companion case, Summerfield v. Civil Aeronautics

Board, and in approving the Board’s fallacious interpre-

tation of “all other revenue” will set in motion a chain of

bad decisions by the Board, thereby hampering the con-

tinued development of air transportation.

Los Angeles, California, July 29, 1953.

Respectfully submitted,

Hucu W. Dar Linc,

Donatp K. HAtt,

Attorneys for Petitioner Western Air Lines, Inc.

D. P. RENDA,

Of Counsel.

BLURRED COPY

APPENDIX A.

UnItTepD StTATEs Court oF APPEALS

for the District of Columbia Circuit

- a a os

No. 11259

Arthur E. Summerfield, Postmaster General of the

United States, and The United States of America, on

behalf of the Postmaster General, Petitioners, v. Civil

Aeronautics Board, Respondent.

No. 11324

Western Air Lines, Inc., Petitioner, v. Civil Aero-

nautics Board, Respondent.

On Petitions for Review of Orders of the Civil Areo-

nautics Board. Decided May 4, 1953.

,

Mr. Daniel M. Friedman, Special Assistant to the At-

torney General, Department of Justice, pro hac vice, by j

special leave of Court, with whom Mr. Newell A. Clapp,

Acting Assistant Attorney General, Department of Jus-

tice, was on the brief, for petitioners in No. 11259. Mr. ;

Charles H. Weston, Chief, Appellate Section of the Anti-

trust Division, Department of Justice, and Mr. William E. ’

Kirk, Jr., Assistant United States Attorney at the time of

argument, also entered appearances in behalf of the peti- :

tioners in No. 11259. :

/

Mr. Hugh W. Darling for petitioner in No. 11324. Mr.

L. Welch Pogue also entered an appearance in behalf of

petitioner in No. 11324.

Mr. O. D. Ozment, Attorney, Civil Aeronautics Board,

with whom Mr. Emory T. Nunneley, Jr., General Counsel, |

BLURRED COPY

_

Civil Aeronautics Board, was on the brief, for respondent,

Mr. John H. Wanner, Associate General Counsel, Civil

Aeronautics Board, also entered an appearance in behalf

of respondent.

Before PretryMAN, Proctor and Bazeton, Circuit

Judges.

PRETTYMAN, Circuit Judge: These cases concern orders

of the Civil Aeronautics Board which fixed the compensa-

tion of Western Air Lines for the transportation of mail

from May, 1944, through December, 1948. The dispute

revolves about Section 406 of the Civil Aeronautics Act.

The proper treatment of several matters is involved.

Principally the petitions concern the treatment of the

profit derived by Western from the sale to United Air

Lines of a certificate for an air route and certain equip-

ment used in connection therewith. Prior to September

15, 1947, Western owned a certificate for Route 68—be-

tween Los Angeles and Denver. After a hearing the

Civil Aeronautics Board approved the sale of the route

and the equipment to United Air Lines? for a total price

of $3,750,000. Of this $722,000* was then computed as

profit on the sale of tangibles and $447,000 as profit on

the sale of intangibles. The Board decided that the

transfer of the route at the amount to be paid by United

was in the public interest, because the profit on the trans-

action would provide the necessary incentive for Western

152 Stat. 998 (1938), as amended, 49 U. S. C. A. §486.

*United-Western, Acquisition Air Carrier Property, 8 C. A. B.

298 (1947).

8Later recomputed to be $648,102.

BLEED THROU GH— POOR COPY

wa

—

to make a sale and the purchasing carrier could operate

the property to greater advantage to the public. The

Board acted upon the premise that it has no power to

force a carrier against its will to transfer property to

another carrier; its only power to influence such transfers

is the power of inducement. It decided that a profit on

a sale would be such an inducement. Hence it approved

the sale.

When the Board came, in the present proceeding, to

the determination of compensation to Western for the

transportation of mail, a problem arose as to the treat-

ment of this profit in the computations.

The statute, in pertinent part, provides:

“(a) The Board is empowered and directed * * *

to fix and determine from time to time, after notice

and hearing, the fair and reasonable rates of com-

pensation for the transportation of mail by aircraft

xO OK :

“(b) * * * In determining the rate in each case,

the Board shall take into consideration, among other

factors, * * * the need of each such air carrier for ;

compensation for the transportation of mail sufficient

to insure the performance of such service, and, to-

gether with all other revenue of the air carrier, to

enable such air carrier under honest, economical, and

efficient management, to maintain and continue the

development of air transportation to the extent and

of the character and quality required for the com-

merce of the United States, the Postal Service. and

the national defense.’

‘Supra, note 1.

BLURRED COPY

=

a

The statutory language which is critical in the present

dispute is “the need of each such air carrier for compen-

sation * * * sufficient * * *, together with all other

revenue of the air carrier, * * * to maintain and con-

tinue the development of air transportation.”®

Perhaps the problem is made clearer by use of a little

simple arithmetic. If a carrier has $1,000,000 in revenue

and $1,300,000 in expenses, obviously it needs $300,000

to break even; the “break even need.” Then it needs a

return on its investment and some working capital; let

us say $200,000 for those needs. The statute says that

the carrier should receive the amount needed not only

to insure the performance of the service but also to enable

it to continue the development of air transportation,

Let us suppose that for the latter purpose the carrier

needs another $100,000. In sum the carrier needs $600,-

000. Now, obviously, in this calculation the greater the

amount of the carrier’s existing revenues, the less the

amount it needs by way of additional mail pay: and the

less the revenues the greater the additional mail pay.

So the inclusion of a given amount in revenues lessens the

mail pay by that amount, and the omission of an amount

from revenues increases the needed mail pay. Such is our

present problem.

The Board at first decided that the entire profit on the

sale of Route 68 was “other revenue,” and it included

this amount as revenue in calculating the amount of mail

pay needed by Western. The effect was to reduce the

mail pay by that amount. Upon reconsideration the

5Of course the statute provides, in effect, for a minimum which

is actual compensation for service performed. That payment is

not in dispute here.

BLEED THROU GH-— POOR COPY

ovine

Board changed its position. It included the profit from

the sale of tangibles as “other revenue” in its calculation,

but it did not include the profit from the sale of intan-

gibles. The effect was to reduce mail pay by the amount

of the profit on the tangibles, but the profit on the in-

tangibles was left out of the calculation entirely.

The Postmaster General is a party in interest by reason

of the duties in respect to mail pay imposed upon him

by the statute.° He says the Board was in error in its

treatment of the profit on the intangibles. Western says

the Board was in error in its treatment of the profit on

the tangibles. The Postmaster General would include in

revenues the entire profit on the sale of the route and

the equipment. Western would exclude the entire profit

from revenues in the calculation.

We turn first to the problem of the profit on the tan-

gibles. This was a gain derived from the sale of capital

assets. As such it was “income” within the meaning

which that term has had ever since Doyle v. Mitchell

Bros. Co.’ But our problem is whether it was “revenue”

within the meaning of this rate-making statute. We think

the answer should be sought chiefly in the substantive

meanings of the statutory provisions rather than in the

semantics of the phrases.

The difficulty of the problem arises because this pro-

ceeding is to determine a rate of compensation for a past

period. Ordinarily, of course, rates are fixed for the fu-

ture. We think it clear that the profit from an isolated

past sale of capital assets could not be included in a

®Sec. 406 of the Act, 52 Stat. 998 (1938), 49 U. S. C.-A. §486.

7247 U. S. 179, 62 L. Ed. 1054, 38 S. Ct. 467 (1918).

BLURRED COPY

a

calculation of compensation to be paid in future years

for carriage of the mail. It would not be anticipated reve-

nue in the future period. With that proposition the Board

agrees. In fixing the rate for the future it has consid-

ered as revenue only reasonably anticipated items.

Western bases its foremost argument upon the foregoing

as a premise. It insists that the present proceeding is a

rate-making proceeding and nothing else; that a rate-

making proceeding must be, in contemplation of law, rate-

making for the future—a prospective rate-making, since.

it says, rate-making is inherently a prospective concept.

The Board itself has several times so held. And. of

course, that is a generally accepted view as to utility

rates. There is great power in that argument.

But we are impressed by the practical aspects of the

situation. In this instance the Board was in fact looking

at a period which had passed. The actual facts as to

revenues and expenses for that period were known. The

actual need, or lack of it, of the carrier in that period was

known. In saying that the Board was looking at a past

period we are not departing from the rule in the T. W. A.

case.” The period began when the petition for the rate-

making was filed, i.c., May, 1944; as of that date the rate-

making was prospective. When the Board got around

to making its findings and decision the period 1944-1948

was past. It is to the latter actually that we refer.

At this point the two different considerations embodied

in this statute must be noted. The statute provides for

actual compensation for the service performed in carrying

8T. W. A. v. Civil Aeronnautics Board, 336 U. S. 601, 93 L.

Ed. 911, 69 S. Ct. 756 (1949).

BLEED THROUGH— POOR COPY

=

the mail—a so-called service rate. This is the ordinary

purpose of a utility rate. It involves reimbursement for

expenses incurred in performing the service, return on

the investment used in the service, and a reasonable profit

on the transaction. This much is due whether the service

is past or future. In the case at bar no dispute arises in

respect to that phase of the matter.

But this statute adds to these ordinary features of a

utility rate another consideration. It provides that the

pay for carrying the mail shall be sufficient to meet the

carrier's need. It describes that need as being for funds

to perform the service of carrying the mail and also to

maintain and develop air transportation. The problem

under this provision of the statute is: How much does

the carrier need? The answer depends upon (1) the

gross, or total, need in dollars and (2) how much the car-

rier will have outside of mail pay.

In the ordinary case, where the rates are for the future,

the revenue of the carrier must be anticipated. But

where the pay is being computed for a past period may the

Board accept as a fact that which it knows to be a fact, or

must it ignore the known fact and compute the rate as

though it were looking at the unknown future as of the

date of the beginning of the period? The Board knew,

and we all know, that Western had in this period this

$1,000,000, or thereabouts, in profit. That profit was de-

rived from the disposition of assets acquired for or

created by its operations under its certificate.

Let us suppose, as was the case in the basic findings

here, that Western’s total non-mail revenue was about

$33,000,000 and its total operating expenses were about

$36,000,000. How much does it need? How much does it

BLURRED COPY

_

need if, in addition to the $33,000,000, it also has a special

profit of $1,000.000? Does it actually need $3,000,000, or

does it actually need only $2,000,000?

The gist of the answer lies in the fact that we are to

determine “need.” We are not determining merely ade-

quate compensation for services rendered, in the ordinary

public utility sense. To be sure, the payment is cast by

the statute as a rate, and the process as a rate-making.

But even so the Supreme Court held in the West Ohio Gas

case® that, when the period under consideration has

passed, fair and reasonable rates should be ascertained

from what is known and not from a nunc pro tunc esti-

mate. In the case now before us the disputed basic con-

sideration is a need, a need beyond the requirements of

fair compensation for a service performed, not dependent

upon the amount or the nature of the service rendered,

A fortiori, from the West Ohio Gas case, the amount of

need for a period which has passed must be ascertained

in the light of known facts.

It seems to us that under this statute the Board, in

fixing a rate of compensation for a past period, may

view the facts as it knows the facts to be, that in deter-

mining “need” it is not compelled to ignore that which it

knows. We conclude that in ascertaining Western’s need

for the period May, 1944, to December, 1948, the Board

was permitted to take into consideration the fact that

Western had this profit in that period from the sale of

these assets.

We fully realize that our view of the statute will give

rise to difficulties in respect to losses and also in respect

®*"West Ohio Gas Co. v. Comm'n (No. 2), 294 U. S. 79, 82,

79 L. Ed. 773, 55 S. Ct. 324 (1935).

BLEED THROU GH— POOR COPY

_ on

to unusual or unanticipated earnings. The rule may make

too much depend, from the standpoint of the carrier, upon

tactical decisions whether and when to file petitions for

rate-making. But we think such possibilities cannot nega-

tive statutory terms. Moreover other difficulties arise

from any other rule. And, again, it seems to us that much

of the anticipated difficulty can be prevented by expedition

on the part of the Board, so that what is prospective in

legal theory will be prospective in actual fact. If expe-

ditious disposition of petitions does not meet the troubles

arising from the rule, it is always possible that Congress

may change the statutory provision. Our part is done

when we conclude what Congress meant by the provision

now before us.

We turn next to the treatment of the profit on the in-

tangibles. The Board did not find, and it does not claim

now, that Western itself needs the additional amount of

mail pay which is shown when the profit on the sale of the

intangibles in this transaction is omitted from “other

revenue’ in the computation. The claim of the Board is

that it can allow Western to exclude this sum from stated

revenues in order to encourage other carriers (not West-

ern) to follow a given course of action. The Board said,

in its opinion in the present case, that it wished to em-

phasize that the “decision not to include the net profit

from the sale of intangibles was reached solely because

we are thus seeking to encourage improvement of the air

route pattern through voluntary route transfers by other

air carriers. In other words, we have decided not to

offset this profit against the carrier’s need because we are

secking in this way to spur the development of a self-

sufficient air transport industry.”

BLURRED COPY

— a

—10—

We recognize the force of the Board's description of

the desirability of encouraging carriers to transfer routes

and other property. But we cannot find in the statute

any power conferred upon the Board to do so in fixing

mail pay. We do not find any mail pay provision which

is authority for the Board to provide incentives to the

industry generally for the development of air transpor-

tation through the voluntary actions of carriers.

In the first place, the language of the statute sharply

limits developmental allowances to the needs of the car-

rier under consideration. (1) The statute speaks of the

“need” of the carrier. It does not speak of the desirability

of allowances. It does not speak of purely bonus awards,

(2) It speaks of “each” air carrier and compensation

sufficient to enable “such air carrier” to develop. The

statute is not cast in terms applicable to the general field

of air transportation but to the situation in which each

air carrier finds itself. (3) The statute provides that the

mail pay shall be sufficient “to enable” the air carrier to

maintain and continue development. This is a sharply

limited expression. It does not extend to bonus awards

which might be encouraging to the industry generally,

Thus we think that, while the so-called “need” provision

of the statute, above quoted, does provide for the pay-

ments of sums sufficient to enable the carrier under con-

sideration to maintain and continue development of air

transportation, such payments are restricted to the need

of each individual carrier to maintain and continue a

development program of its own.

In the second place, the Supreme Court held in the

T. W. A. case, supra, that the mail pay provisions of this

statute describe a rate-making authority, and the Court

BLEED THROUGH— POOR COPY

-

said that the statutory language does not suggest that

Congress intended to break with the traditions of public

utility rate-making. Allowances designed as developmen-

tal incentives for the utility whose rates are being

determined are quite common in public utility rate-mak-

ing. But the award of bonus subsidies for the purpose of

encouraging an industry generally to follow courses

deemed desirable by the regulatory authority is a vast

departure from rate-making. Mr. Justice Jackson made

the distinction indisputably clear in his dissent in the

T. W. A. case. He was of opinion that in these provi-

sions of the statute Congress intended to subsidize the

carriers and to underwrite their revenues. We think that

the decision in the T. W. A. case as to the nature of the

mail pay provisions leaves no room for bonus subsidies

not connected with the particular carrier’s own need. So

the statute does not support the theory upon which the

Board desires to go in this proceeding in respect to the

profit from the intangibles.

—])]—

We must conclude, therefore, on this point that the

Board was in error in the theory upon which it excluded

from the calculation the profit from the sales of the in-

tangibles.

The parties dispute the Board’s treatment of federal

income tax liabilities in its computation of the mail pay.

The tax liability upon an estimated basis as of the begin-

ning of the period was some $600,000. It developed that,

due to carry-back losses and other provisions of the fed-

eral tax statutes. Western had little or no tax liability

for this period. In its final orders on mail pay the Board

acted upon the latter basis of fact. We think it was

BLURRED COPY

a

— =

correct in doing so. The preceding discussion is sufficient

as a statement of our reasons.

Western also asserts that the Board erred in including

as “other revenue” in the calculation of mail pay the

profits derived from the operation of restaurants and

slot machine concessions at its airports. We think the

Board was clearly correct in this treatment. When the

statute says “all other revenue” it must mean to include

revenue derived from activities incidental to the operation

of the airline. Whether it would also include revenue from

activities unconnected with airplane operation is a ques-

tion not before us and upon which we intimate no opinion,

Western asserts as reversible error the decision of the

Board to fix in this proceeding the mail pay beginning in

May, 1944. Western says that the consideration should

have begun as of January 1, 1946. But the Board has

power under the statute (Sec. 406( a)) to “make such rates

effective from such date as it shall determine to be

proper,” and the Supreme Court field in the T. W. A.

case that that clause empowered the Board to go back

as far as the date of the filing of the petition. That is

what the Board did in this case. Western filed its peti-

tion for redetermination of mail pay on May 1, 1944,

We add one further comment in regard to the expres-

sions “offset,” “deduction” and “recapture” used by the

parties in describing the treatment of the profit from the

sale of the assets if it be included in revenue. The

phraseology would not be important if it did not embody

BLEED THROUGH-— POOR COPY

willis

erroneous ideas. The need which this statute contem-

plates is a net figure; the extra amount which appears

necessary over and above that which the carrier has. The

process provided by the statute is for an affirmative

ascertainment of that need. The need is not a gross

figure from which offsets or deductions are made. Thus

the passenger revenue etc., is not “offset’’ against or

“deducted” from the need of the carrier. None of the

earned revenue is recaptured. The bare, uncomplicated

situation is that when the carrier has substantial revenues

from non-mail sources the margin of its need for mail

pay is less. In practical dollar effect, and perhaps in

accounting entries, the treatment may be set up as a

gross need with offsetting items, and so it takes on an

appearance of recapture. But the legal contemplation of

the statute is not that, and the use of the quoted terms

leads to erroneous reasoning.

The necessity for reconsiderations, redeterminations and

recalculations in the light of this opinion causes us to

remand the matter to the Board. The remand is to

enable the Board to determine, in the light of this opinion

and pursuant to the statutory terms, the amount of com-

pensation to be paid Western for the transportation of

mail during the period here involved—May, 1944, to De-

cember, 1948.

Affirmed in part, reversed in part, and remanded.

BLURRED COPY

oe

BAZELON, Circuit Judge, concurring: I agree with the

court’s opinion and its comment that the rule we adopt in

construing the statute “will give rise to difficulties in re-

spect to losses and also in respect to unusual or unantici-

pated earnings’’ but I am unable to agree that “much of

the anticipated difficulty can be prevented by expedition

on the part of the Board.’” I think these difficulties or

“other difficulties [which might] arise from any other

rule’* are inherent in the statute and will persist so

long as there is no express differentiation therein between

compensation for mail service and need payments to sub-

sidize the development of air transportation. This is

so because the absence of such a distinction, says the Su-

preme Court, requires the application of traditional prin-

ciples of rate making.* The effect of this is to make

applicable to subsidy as well as compensation payments

the familiar principle that “past excessive earnings be-

long to the [carrier] just as past losses must be borne

by it.”* Therein lies the mischief. For that principle

derives its validity from the premise that rates are cal-

culated to allow for some financial risk on the part of the

public utility." But since the very purpose of need or

subsidy payments is to remove any vestige of risk, that

principle has no place in fixing such non-rate payments.

1Majority opinion, p. 8.

2T bid.

3] bid.

*Transcontinental & Western Air v. Civil Aeronautics Board,

336 U. S. 601, 605 (1949).

*Washington Gas Light Co. v. Baker, 88 U. S. App. D. C. 115,

125, 188 F. 2d 11, 21 (1950), cert. denied, 340 U. S. 952 (1951).

And see my concurrence this day in Summerfield, et al. v. Civil

Aeronautics Board, No. 11351.

®]bid., and cases cited in note 15 therein.

BLEED THROU GH— POOR COPY

O

O

Q

W

m

4

2

_

a

POOR COPY

BLEED THROU GH-

=o

APPENDIX B.

RATES FOR TRANSPORTATION OF MAIL

Board to Fix Rates

Sec. 406 [52 Stat. 998, 49 U. S. C. 486] (a) The

Board is empowered and directed, upon its own initiative

or upon petition of the Postmaster General or an air car-

rier, (1) to fix and determine from time to time, after

notice and hearing, the fair and reasonable rates of com-

pensation for the transportation of mail by aircraft, the

facilities used and useful therefor, and the services con-

nected therewith (including the transportation of mail by

an air carrier by other means than aircraft whenever

such transportation is incidental to the transportation of

mail by aircraft or is made necessary by conditions of

emergency arising from aircraft operation), by each

holder of a certificate authorizing the transportation of

mail by aircraft, and to make such rates effective from

such date as it shall determine to be proper; (2) to pre-

scribe the method or methods, by aircraft-mile, pound-

mile, weight, space, or any combination thereof, or other-

wise, for ascertaining such rates of compensation for

each air carrier or class of air carriers; and (3) to pub-

lish the same; and the rates so fixed and determined shall

be paid by the Postmaster General from appropriations

for the transportation of mail by aircraft.

Rate-Making Elements

(b) In fixing and determining fair and reasonable rates

of compensation under this section, the Board, consider-

ing the conditions peculiar to transportation by aircraft

and to the particular air carrier or class of air carriers,

may fix different rates for different air carriers on classes

BLURRED COPY

_—_

_— oe

of air carriers, and different classes of service. In deter-

mining the rate in each case, the Board shall take into

consideration, among other factors the condition that such

air carriers may hold and operate under certificates ay.

thorizing the carriage of mail only by providing necessary

and adequate facilities and service for the transportation"

of mail; such standards respecting the character and

quality of service to be rendered by air carriers as may

be prescribed by or pursuant to law; and the need of each

such air carrier for compensation for the transportation

of mail sufficient to insure the performance of such sery-

ice, and, together with all other revenue of the air carrier,

to enable such air carrier under honest, economical, and

efficient management, to maintain and continue the de-

velopment 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 de-

fense.

Statement of Postmaster General and Carrier

(c) Any petition for the fixing of fair and reasonable

rates of compensation under this section shall include a

statement of the rate the petitioner believes to be fair and

reasonable. The Postmaster General shall introduce as

part of the record in all proceedings under this section a

comprehensive statement of all service to be required of

7So in original.

BLEED THROUGH— POOR COPY

=

the air carrier and such other information in his pos-

session as may be deemed by the Board to be material to

the inquiry.

Weighing of Mail

(d) The Postmaster General may weigh the mail trans-

ported by aircraft and miake such computations for

statistical and administrative purp ‘es as may be required

in the interest of the mail service. The Postmaster Gen-

eral is authorized to employ such clerical and other as-

sistance as may be required in connection with proceedings

under this Act. If the Board shall determine that it is

nececsary or advisable, in order to carry out the provi-

sions of this Act, to have additional and more frequent

weighing of the mails, the Postmaster General, upon re-

quest of the Board, shall provide therefor in like man-

ner, but such weighing need not be for continuous periods

of more than thirty days.

Availability of Appropriations

(e) Except as otherwise provided in section 405(k),

the unexpended balances of all appropriations for the

transportation of mail by aircraft pursuant to contracts

entered into under the Air Mail Act of 1934, as amended,

and the unexpended balances of all appropriations avail-

able for the transportation of mail by aircraft in Alaska,

shall be available, in addition to the purposes stated in

such appropriations, for the payment of compensation by

the Postmaster General, as provided in this Act for the

BLURRED COPY

—

transportation of mail by aircraft, the facilities used and

useful therefor, and the services connected therewith,

between points in the continental United States or between

points in Hawaii or in Alaska or between points in the

continental United States and points in Canada within

one hundred and fifty miles of the international boundary

line. Except as otherwise provided in section 405(k),

the unexpended balances of all appropriations for the

transportation of mail by aircraft pursuant to contracts

entered into under the Act of March 8, 1928, as amended,

shall be available, in addition to the purposes stated in

such appropriations, for payment to be made by the Post-

master General, as provided by this Act, in respect of

the transportation of mail by aircraft, the facilities used

and useful therefor, and the services connected therewith,

between points in the United States and points outside

thereof, or between points in the continental United States

and Territories or possessions of the United States, or

between Territories or possessions of the United States.

Payments to Foreign Air Carriers

(f) If any case where air transportation is performed

between the United States and any foreign country, both

by aircraft owned or operated by one or more air carriers

holding a certificate under this title and by aircraft

owned or operated by one or more foreign air carriers,

the Postmaster General shall not pay to or for the ac-

count of any such foreign air carrier a rate of com-

pensation for transporting mail by aircraft between the

BLEED THROU GH-— POOR COPY

—19~—

United States and such foreign county, which, in his

opinion, will result (over such reasonable period as the

Postmaster General may determine, taking account of

exchange fluctuations and other factors) in such foreign

air carrier receiving a higher rate of compensation for

transporting such mail than such foreign country pays to

air carriers for transporting its mail by aircraft be-

tween such foreign country and the United States, or

receiving a higher rate of compensation for transporting

such mail than a rate determined by the Postmaster Gen-

eral to be comparable to the rate such foreign country

pays to air carriers for transporting its mail by aircraft

between such foreign country and an intermediate coun-

try on the route of such air carrier between such foreign

country and the United States.

BLURRED COPY