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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1953

## Text

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.

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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

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12

14

15

16

17

18

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PIA PERE OLS, ELIT AIOE EMM mys

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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

——————

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—£

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

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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)

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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.

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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.

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~~" - 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

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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?

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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).

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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

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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. ]

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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.”

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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

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_ 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.”

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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

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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.]

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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

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—

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.”

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==

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

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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.)

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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

_ |

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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

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—

=

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,

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— =

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]

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—

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).

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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

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=

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

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=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

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~ =

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.)

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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

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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.

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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, |

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_

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.

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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.

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=

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.

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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).

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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).

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=

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

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_

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).

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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.”

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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

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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

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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

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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.

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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.

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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

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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.

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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

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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

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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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386408_0014%3A06. Public record. Not legal advice.