Appendix — Hughes Tool Co. v. Trans World Airlines, Inc.
Supreme Court brief1973
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Text
INDEX
Volume I
Ry.
Soka
ing
~
at of Relevant Docket Entries
[A Complaint [Doe. 1]
der Referring This Action to Judge Metzner for
All Purposes, dated August 31, 1961 [Doc. 42] ....
ginion and Order of December 5, 1961 [Doe. 50] ..
fetrial Order, February 7, 1962 [Doe. 59] ........
00 \ o’s Answer and Counterclaims [Doc. 63]
sltid y’s Answer [Doc. 83]
petrial Order, July 12, 1962 [Doe. 101]
trial Order, September 21, 1962 [Doe. 122]
Order, January 10, 1963 [Doc. 144]
Pretrial Order, January 19, 1963 [Doc. 146] ........ A-127
pinion and Order of Special Master dated January
22, 1963, Exhibit C to Bromley Affidavit dated
eFebruary 15, 1963 [Doc. 179] A-133
Inhibit A to the Affidavit of John F. Sonnett, dated
‘February 1, 1963 [Doc. 166] A143
hibit B and C to the Affidavit of John F. Son-
~mett, dated February 1, 1963 [Doc. 167] —.........
re Order, February 1, 1963 [Doc. 168] 7
Opi ion and Order, February 7, 1963 [Doc. 173] ....
Pedleo’s Notice of Position, dated Februaty 8, 1963
Db. 174]
fatiecript of Pretrial Hearing, February 8, 1963
Doc. 188]
ript of Pretrial Hearing, May 2, 1963 [Doc.
A-ii
Opinion and Order, dated May 3, 1963 [Doc. 191] ....
Opinion and Order of May 3, 1963 Granting Addi-
tional Defendants’ Motion to Dismiss (memoran-
dum endorsed on motion papers dated February
15, 1963) [Doc. 179B]
Judgment of the Court of Appeals on Interlocutory
» Appeal, Entered July 10, 1964 [Docket No. 28405]
[Doc. 478]
Judgment of the Court of Appeals Affirming Dis-
missal of the Counterclaims, Entered July 10,
1964 [Docket No. 28406] [Doc. 479]
Opinion of the Court of Appeals in Dockets No.
28405 and No. 28406 [Doc. 478]
Opinion and Order of Special Master J. Lee Rankin,
dated July 30, 1965 [Doc. 481]
Opinion and Order of Judge Metzner, dated Novem-
ber 16, 1965 [Doc. 487]
Transcript of Hearing Before Judge Metzner on
December 30, 1965 [Doc. 498]
Opinion and Order of Judge Metzner Denying De-
fendants’ Motion for a Pre-Hearing Order, dated
January 4, 1966 [Doc. 496]
Order by Judge Metzner of January 4, 1966 Desig-
nating Herbert Brownell as Special Master in
Placé of J. Lee Rankin [Doc. 497]
Volume II
Excerpts from Testimony at Damage Hearing of
Robert W. Rummel [Docs. 554-2 through 554-10]
Testimony at Damage Hearing of John B. Connelly
[Doc. 554-11]
AS.
a2
a”
A317
A323
A3%4
A-326
A328
A-357
A-396
AA
AA22
AAA
AAD
A-977
Ai
Volume III
PAGE
Excerpts from Testimony at Damage Hearing of
Edward J. Morehouse [Does. 554-13, 554-14] ... A-1209
- Excerpts from Testimony at Damage Hearing of
Edward Wemple [Docs. 554-15 through 554-18,
554-32] , A-1243
Excerpts from Testimony at Damage Hearing of
John C. Biegler [Doc. 554-19] A-1527
Volume IV
Excerpts from Testimony at Damage Hearing of
Gene M. Woodfin [Does. 554-23, 554-24] -.............. A-1567
Excerpts from Testimony at Damage Hearing of
Nathan S. Simat [Does. 554-25, -26, -27, -28, -30,
31) A-1575
Excerpts from Testimony at Damage Hearing of
L. John Eichner [Doces. 554-31, -32] A-1727
Testimony at Damage Hearing of Van Court M.
Hare, Jr. [Doc. 554-32] A-1773
Excerpts from Pretrial Deposition of Robert W.
Rummel [Does. 224, 225, 226] A-1797
Excerpts from Pretrial Deposition of Charles C.
Tillinghast [Docs. 210 through 222] -.................. A-1850
Excerpts from Pretrial Deposition of Emmett O.
Cocke [Does. 228, 231, 233, 235] A-1913
Jones v. Uris Sales Corp.—Master’s Report [not a
part of the Record herein]
A-1934
Volume V
Notice of Filing of Report of Special Master dated
September 21, 1968 [Doe. 509] A-1965
Report of Special Master, Filed September 21, 1968
_ fDoe. 508) A-1966
A-iv
PAGE
Defendants’ Objections to the Report of the Special
Master, dated November 1, 1968 [Doc. 511] .... A-1967
Opinion and Order, Filed December 23, 1969, Adopt-
ing and Confirming the Report of the Special
Master [Doc. 519] A-2027
Opinion and Order of April 13, 1970 Awarding
Attorney’s Fee and Costs [Doc. 530] -................. A-2060
Final Judgment Entered April 14, 1970 [Doe. 531] ... A-2073
Volume VI
Toolco’s Notice of Motion to Dismiss TWA’s Com-
plaint, August 8, 1961 [Doc. 22] A-2075
Order by Judge Herlands, dated August 14, 1961
[Doc. 25] A-2077
Transcript of Pretrial Hearing Before Judge Metz-
ner, September 6, 1961 [Doc. 47] A-2078
Pretrial Order of Judge Metzner, September 7, 1961.
(Doc. 44] A-2112
Transcript of Pretrial Hearing Before Judge Metz-
ner, October 2, 1961 [Doc. 48] A-2115
Pretrial Order of Judge Metzner, December 18, 1961
[Doc. 354] A-2138
Tooleo’s Notice of Motion Before Special Master
J. Lee Rankin, February 15, 1962 [Doc. 66] ....... A-2140
Transcript of Pretrial Hearing Before Judge Metz-
ner, February 23, 1962 [Doc. 79] A-2141
Orders of Special Master J. Lee Rankin, April 17,
1962, contained in excerpts from transcript of
deposition of Charles C. Tillinghast, Jr. [Doc.
217] A-2176
Interrogatory Propounded by TWA to Tooleo, May
4, 1962 [Doc. 89] A-2197
A-V
PAGE
Interrogatory Propounded by TWA to Raymond M.
Holliday, May 4, 1962 [Doc. 90] A-2203
~ franscript of Pretrial Hearing Before Judge Metz-
ner, May 17, 1962 [Doc. 96] A-2206
Portion of Transcript of Proceedings Before Spe-
cial Master J. Lee Rankin, June 4, 1962 [Doc.
218] A-2233
TWA’s Notice of Motion and Affidavit of John F.
Sonnett, June 25, 1962 [Doc. 305] A-2234
Affidavit of John R: Hupper, July 2, 1962 [Doce.
315] A-2240
Transcript of Pretrial Hearing Before Judge Metz- —
ner, July 12, 1962 [Doc. 107] A-2245
Pretrial Order of Judge Metzner, July 23, 1962
[Doc. 103] A-2267
Pretrial Order of Judge Metzner, July 24, 1962
[Doc. 93] A-2268
Transcript of Pretrial Hearing Before Judge Metz-
ner, July 26, 1962 [Doc. 113] A-2270
Affidavit of Robert G. Zeller, August 28, 1962 with
Exhibits A-K [Doc. 110] A-2283
Memorandum Reviewing the History of TWA’s Ap-
plication for Permission to Propound an Inter-
rogatory of Hughes Tool Company Concerning
the Location of Howard R. Hughes, August 30, '
1962 [Doc. 106] ‘ A-2297
Transcript of Pretrial Hearing Before Judge Metz-
ner, September 6, 1962 [Doc. 355] A-2305
Affidavit of John F. Sonnett, September 14, 1962,
and Exhibits C and D thereto [Doe. 117] —......... A-2316
Portions of Transcript of Proceedings Before Spe-
ial Master J. Lee Rankin, September 15, 1962
_ (Doe. 226] A-2382
A-vi
Transcript of Pretrial Hearing Before Judge Metz-
ner, September 19, 1962 [Doc. 129]
Portions of Transcript of Discovery Proceedings
Before Special Master J. Lee Rankin, October 25,
1962 [Doc. 226] A-24%8
Transcript of Pretrial Hearing Before Judge Metz-
ner, October 29, 1962 [Doc. 184] A-2438
Notice of Motion by Tooleo, December 4, 1962, for
Leave to Depose Sessel and Wadsworth [Doc.
338] A-2461
Transcript of Proceedings Before Special Master
J. Lee Rankin, December 14, 1962 [Doc. 237] ..... A-2462
Transcript of Proceedings Before Special Master
J. Lee Rankin, December 28, 1962 [Doc. 237] .... A-2514
| Transcript of Pretrial Hearing Before Judge Metz-
ner, January 9, 1963 [Doc. 185] A-2523
Transcript of Proceedings Before Special Master
J. Lee Rankin, January 14, 1963 [Doc. 237] ....-... A-2571
Notice of Motion by Toolco, January 14, 1963 [Doe.
145] A-2574 ©
Transcript of Pretrial Hearing Before Judge Metz-
ner, January 17, 1963 [Doc. 186] A-2576
Notice of Motion by Tooleo, January 22, 1963 [Doe.
147] A-2602
Transcript of Proceedings Before Special Master
J. Lee Rankin, January 23, 1963 [Doc. 237] ......- A-2608
Notice of Motion by Tooleo, January 25, 1963 [Doe.
152] A-2615
Transcript of Pretrial Hearing Before Judge Metz-
ner, January 28, 1963 [Doc. 187] A-2616
Letter of Chester C. Davis to Judge Metzner, Jan-
uary 29, 1963 [Doc. 448] A-2642
A-vii
PAGE
Letter of Chester C. Davis to Special Master J. Lee
Rankin, February 4, 1963 [Doc. 458] -........-.....--- A-2645
Letter from John F. Sonnett to Chester C. Davis,
February 5, 1963 [Doc. 459] A-2647
Notice of Motion by Toolco, February 6, 1963 [Doc.
170] A-2648
Affidavit of Nazeeh Habashy, February 6, 1963 [Doe.
172] A-2649
Transcript of Pretrial Hearing Before Judge Metz-
ner, February 6,.1963 [Doc. 187] A-2650
Affidavit of Bruce Bromley, February 15, 1963
[without exhibits] [Doc. 179] A-2676
Affidavit of William C. Chanler, February 15, 1963
[Doc. 179] A-2689
Order to Show Cause dated February 16, 1963, and
Affidavit of John F. Sonnett, February 15, 1963
[Doc. 180] A-2692
Transcript of Pretrial Hearing Before Judge Metz-
ner, February 21, 1963 [Doc. 189] A-2704
Order of the Court of Appeals for the Second Cir-
cuit dated June 6, 1963, Granting Leave to Appeal
and Staying Damage Hearing Pending Appeal .. A-2736
Orders of the Supreme Court of the United States,
dated November 16, 1964 Granting Writs of Cer-
tiorari ‘eee. A-2737
Orders of the Supreme Court, dated March 8, 1965,
Dismissing the Writs of Certiorari*as Improvi-
dently Granted in Hughes Tool Company et al. v.
Trans World Airlines, Inc., Nos. 443 and 501 .... A-2738
Opinion of the Court of Appeals dated September 1,
1971, in Docket Nos. 34902, 35114, Affirming with
- Modifications the Judgment of the District
“Court A-2739
A-vili
Orders of the Court of Appeals, dated September
28, 1971, Denying Petitions for Rehearing and
Rehearing in banc A-2799
Volume VII
PAGE
Excerpts from Transcript of Deposition of Charles
C. Tillinghast, Jr. [Excerpts from Docs. 54, 210,
211, 216, 221) A-2800
Vol. 11 of Defendants’ Exhibits to Deposition of
Charles C. Tillinghast, Jr. (consisting of Ex-
hibit 11, with subparts 11-A through 11-T, inelu-
sive) [Doc. 238] A-320
Opinions and Orders of the Civil Aeronautics Board
with respect to the Hughes Tool Company—TWA
Control Relationship, as follows :
(a) CAB Opinion and Order No. 3210, October
17, 1944 (officially reported at 6 C.A.B.
153) [not a part of the Record herein] .... A-3297
(b) CAB Order No. 4437, January 26, 1946 .... A-3307
(c) CAB Order No. E-922, October 29, 1947 .... A-3309
(d) CAB Opinion and Order No. E-1735, June
30, 1948 (officially reported at 9 C.A.B.
381) [not a part of the Record herein] -.. A-3311
(e) CAB Opinion and Order No. E-4701, Oc-
tober 6, 1950 (officially reported at 12
C.A.B. 192) [not a part of the Record
herein) A-3333
(f) CAB Opinion and Order No. B-16195, De-
cember 29, 1960 (officially reported at 32
C.A.B. 1863) A-3403
A-1965
Notice of Filing of Report of Special Master
Dated September 21, 1968
[Doe. 509]
[carrion ] 61 Civ. 2324
PLeasz TAKE Notice, that the undersigned has this day
filed his report in the above entitled action.
Dated: New York, New York
September 21, 1968.
/s/ Hensert Browne_i
Sprout Master
Cami, Gorpon, Sonnert,
Remope. & Onn
Attorneys for Plaintiff
Trans World Airlines, Inc.
Office & P.O. Address
80 Pine St.
New York, New York 10005
Donovan Leisure Newton & Irvine
Office & P.O. Address
2 Wall St.
New York, New York 10005
Cuester C. Davis, Esq.
Office & P.O. Address v
120 Broadway
New York, New York 10005 ‘
Attorneys for Defendants
Hughes Tool Company and
Raymond M. Holliday
A-1966
The Report of Hon. Herbert Brownell, Special
dated September 21, 1968, was filed with the District Cour;
in printed form. - Since sufficient copies of the Special
Master’s 323-page Report are available as originally
printed, it has not been reprinted but has been bound inty
this Joint Appendix following this page. -
ee _ eee
Runited States Bistrict Court
Sournern District-or New York
61 Civ. 2324
we
i
Trans Wortp Amuryss, Inc.,
A Plaintiff,
—against—
Howarp R. Hucues, Hucues Toor Company, and
Raymonp M. Ho.umay,
Defendants.
REPORT OF HERBERT BROWNELL,
SPECIAL MASTER
—
Dated: September 21, 1968
Ruited States District Comt
Sournern Disrrict or New Yorx
61 Civ. 2324
——
Trans Wortp Aruings, Inc.,
Plaintiff,
—against—
Howarp R. Hucues, Hucues Toot Company, and
Raymonp M. Hotuinay,
Defendants.
<>
REPORT OF HERBERT BROWNELL,
SPECIAL MASTER
Introduction—Prior History of the Case
This is an action by plaintiff Trans World Airlines
(“TWA”) against Howard R. Hughes (“Hughes”), Hughes
Tool Company (“Toolco”), and Raymond M. Holliday
(“Holliday”), an officer of Tooleo and a director of
TWA at the time of the filing of the complaint. The
complaint was filed on June 30, 1961. Service was made
on Tooleo at that time, but service of process on Holliday
was not made until January, 1962. Both Toolco and Hol.
liday appeared and answered the complaint. Hughes was
uever Served, and he has not appeared in the action.
The complaint sets forth three claim The first claim
alleges violations of Sections 1 and 2 of ‘the Sherman Act
2
and Sections 3 and 7 of the Clayton Act. The second claim,
based on certair. of the acts alleged in support of the first
claim but only those acts committed since December 31,
1960, also alleges violations of Sections 1 and 2 of the
Sherman Act and Section 7 (but not Section 3) of the
Clayton Act. These two claims allege that TWA is a
major U. S. air carrier with both domestic and interna.
tional routes, that Tooleo “was and is engaged .. . since
in or about 1939 in the development, manufacture and
acquisition of aircraft and related equipment from the
manufacturers thereof . . . and in the sale or lease of such
aircraft to air carriers”, and that Toolco has acquired
78% of the common stock of TWA. The first two claims
further allege that through various acts the defendants
and Atlas Corporation (named as a co-conspirator but not
as a defendant) required TWA to acquire all of its jet
_ aircraft from Tooleco and to boycott all other suppliers,
provided financing for the acquisition of jet aircraft only
on the condition that TWA purchase all its jet aircraft
from Toolco, and sold and leased jet aircraft on the con-
dition that the purchaser would not buy or lease from any
competitor. The third claim, based on pendent jurisdic.
tion, alleges malicious and wilful interference with the
business of TWA through the same acts pleaded in sup
port of the first two claims. The complaint seeks treble
damages and also injunctive relief requiring defendants
to divest themselves of all stock in TWA and to refrain
from acquiring any interest in TWA or secking to exer-
cise control or domination over TWA. In its answer to
the complaint, Toolco asserted various counterclaims
against TWA and also against others. .
In|August 1961, the case was signe to p udge Charles
\
\
M. Metzner for all 3 teat pursuant to ag 2 of the
i
3
General Rules of the District Court. On February 7, 1962
Judge Metzner appointed J. Lee Rankin as Special Master
to supervise the discovery proceedings.
Simultaneously with filing the complaint, TWA moved
by order to show cause on June 30, 1961 to take the depo-
sition of Hughes. This motion was denied, however, and
Tooleo was allowed priority in the taking of depositions.
On February 7, 1962, in the same order appointing the
Special Master, Judge Metzner established a schedule of
depositions, which was subject to change by the Special
Master upon application of either party. This schedule
called for Toolco to continue with the depositions of some
twenty-four witnesses which had then been. noticed, with
the plaintiff to commence depositions immediately upon
completion of Toolco’s schedule. The last deposition by
Tooleo was set for April 19, 1962, and the depositions
noticed by TWA were to commence with the deposition
of Hughes on April 23, 1962.
This schedule was subsequently amended by the Special
Master. The deposition of Hughes was set for Septem-
ber 24, 1962, then adjourned to October 29, 1962, and finally
set for February 11, 1963. Although Hughes himself was
never served with process as a party, the Special Master
ruled that Tooleo would be responsible for his appearance
at the deposition, and Toolco did not contest this ruling.
On January 10, 1963, Judge Metzner denied an applica-
tion by Tooleo to further postpone the deposition of
Hughes, so that Toolco might continue with its own depo-
sitions. On January 14, Toolco moved to have the deposi-
tion of Hughes taken only on written interrogatories, and
in the event that this was denied, further moved to have
set down for h¢aring a motion which it had originally made
in August, 19@1 to dismiss the complaint. Characterizing
oat
4
this motion as appearing to be “another attempt to put of
the deposition of Hughes”, Judge Metzner denied the re.
quest to have the deposition taken by interrogatories, A;
to the second branch of the motion, Judge Metzner ob
served that the case “is not in a posture for a meaninghi
disposition of the motions to dismiss the complaint or for
summary judgment” and noted the agreement of Tool
on several occasions that such a motion was premator
However, the Court further stated that it “cannot prevent
defendant Toolco from pressing these motions at this time’
and set the motions down for argument.
After oral argument on February 6, 1963, Judge Metmer
denied Toolco’s motion from the bench and entered a for.
mal opinion and order the following day. (Reported at
214 F. Supp. 106). In that opinion, Judge Metzner stated
that “as to the merits of the motion, there is no doubt that
the complaint on its face sets forth a claim against th
defendants and is not subject to dismissal under rok
12(b)(6)”. Judge Metzner further ruled that the acts of
the defendants alleged in the complaint were not exempted
from the antitrust laws by virtue of certain orders of the
Civil Aeronautics Board, and that the C.A.B. did not have
exclusive primary jurisdiction over the subject matter of
the complaint.
Almost immediately thereafter, at a pre-trial conference
before Judge Metzner on Friday, February 8, 1963, counsel
for Tooleo announced that Hughes would not appear for
the deposition scheduled for the following Monday, Feb
ruary 11. Toolco also declared its unwillingness to pro
duce as previously ordered certain income tax returns, a
well as certain other documents for which a claim of at
torney-client privilege had been made but rejected, by the
court.' Toolco also filed a written, “Notice of Prali
‘
dated February 8, which recited in /part that:
5
“Tooleo hereby elects, subject only to whatever relief
it may hereafter obtain, to rest on the merits of its
positions as heretofore taken so that it may avoid the
burdens and expenses involved in further pre-trial and
trial proceedings prior to the time that an appellate
court has had the opportunity to rule upon the deci-
sions and orders heretofore made herein.”
- Counsel for Toolco elaborated on this position at the
pre-trial conference on February 8. Adverting to the
earlier ruling of the Special Master that Tooleo would be
‘responsible for Hughes’ compliance with the deposition
subpoena, with the possible sanction of a default if the
subpoena were not complied, with, counsel stated that “the
Tool Company did not seek a review of those rulings of
the Special Master by the Court and accepted in effect the
responsibility placed on it by that ruling.” (Tr. of Feb. 8,
p. 9). He also stated Toolco’s awareness of the possible
consequences of a failure to comply with the discovery
procedures :
“I have also had occasion to describe to my client,
the Hughes Tool Company, the sanctions available
under the Rules by reason of a respectful declination
or election to stand on the questions of law which have
been decided to date and not to proceed any further
with respect to discovery proceedings. I have particu-
* larly called to their attention the provisions of 37(d)
—Rule 37(d)—of the Federal Rules, with respect to
the sanctions which could be applied by the Court on
the Tool Company. [Tr. of Feb. 8, p.9]
“The Tool Company does want to rest on the merits
of its position, and it does so fully aware of the sanc-
tions which the Court, in its discretion, may impose
the Tool Company... . [Zbid., p. 11]
{
e e ° & *
6
“We are fully aware—my client is fully aware—that by
insisting on a right to obtain a review on the |
questions which have been decided to date, and should
it develop that they are in error, as indicated by your
Honor’s decisions and rulings, as a consequence they
may be deprived of further defending on the merits,
other than on the question of damages.” [Jbid., p. 12]
In response to questions from the Court, counsel advised
that embraced within the contemplation of the “notice of
position” was an advice to the Court that Hughes would
not appear for the deposition on February 11, and that
plaintiff could take any proceedings it is advised to tak
by way of sanctions under Rule 37. [Tr. of Feb. 8, p. 2]
When counsel for TWA questioned whether Hughes
would be bound by the anticipatory default, Toolco further
waived the right to any defense against sanctions should
Hughes in fact appear for the deposition:
“The Court: * * * Now, Mr. Davis says that as far
as the defendant Hughes Tool Company is concerned,
they will admit today that Mr. Hughes will not appear
on Monday and that as a result you may then take
whatever steps you wish to pursuant to Rule 37 [sic].
“T would also like Mr. Davis to state for the record
that if by chance Mr. Hughes should appear at the
courthouse on Monday, despite what has transpired
here this afternoon, that will be no defense to any
proceeding taken by T.W.A.
“Mr. Davis: I will so state, your Honor.” [Tr. of
Feb. 8, pp. 48-49]
Toolco also re-iterated its intention not to produce the
| documents which it had been ordered to produce, and the
Court summarized the “i of the proceedings to counsel
|
for the plaintiff and the defendants on the i
?
hoy
7
“The record is now set for you to take whatever action
you wish to take on the counterclaims and for Mr.
Sonnett to take whatever action he wishes to take on
the claims based on the default of Mr. Hughes on
Monday.
“Secondly, you have the failure to produce the tax
documents, which is an individual and separatr [sic]
ground for proceeding; and you have the failure to
produce the attorney-client documents, which are’ a
separate and individual ground for proceeding.” [Tr.
of Feb. 8, pp. 59-60. ]
After counsel for Toolco again stipulated as to the binding |
nature of these acts, the hearing was adjourned.
Thereafter, on February 15, 1963 TWA moved to
amend the ad damnum portion of the complaint and for-
mally moved for default judgment pursuant to Rule 37.
At the hearing on February 8, counsel for TWA had in-
timated an intention to increase the amount of damages
which TWA was seeking. On May 3, 1963 Judge Metzner
granted the motion to amend the complaint and directed
that default judgment should be entered for TWA, with
a hearing to be held to determine the amount of damages.
The question of “the amount of the damages to be paid”
was referred to the Special Master previously designated
to preside over the discovery proceedings. The counter-
dlaims were also dismissed with prejudice. The opinion is
reported at 32 F.R.D. 604. As will appear hereafter, the
commencement of the damage hearings was long delayed.
In granting this relief to plaintiff, Judge Metzner re-
viewed the history of the proceedings to date, and stated:
_ “It is clear that, the deposition of ‘Hughes is essential
for the proper presentation of TWA’s case. It is also
_ Clear that the failure of Hughes to appe r on February
a | |
; |
| l
8
11th for his deposition was the result of a clear and
studied determination by Toolco after all efforts to
postpone the appearance of Hughes had failed. The
default was deliberate and willful and. justifies the
court in entering a default judgment... .” 32 F.RD.
at 607.
The order was certified by Judge Metzner for immediate
appeal.
On June 2, 1964, the Court of Appeals, Second Circuit,
affirmed the propriety of the entry of the default and also
the earlier decision of Judge Metzner relating to the
Court’s jurisdiction. The decision of the Court of Appeals
is reported at 332 F. 2d 602. After ruling that the Civil
Aeronautics Board did not have primary jurisdiction over
the anti-trust activities alleged and that prior orders of
the C.A.B. did not immunize the acts alleged in the com-
plaint from the operation of the anti-trust laws, the Court
went on to uphold the complaint as stating a cause of action
under the anti-trust laws:
“The defendants maintain that in any event the com-
plaint fails to state facts sufficient to establish the
jurisdiction of the district court. They claim that the
allegations of antitrust violations in the complaint are
wholly conclusory and that the specific transactions
- alleged to have been effected by the defendants do not
state a cause of action under the antitrust laws. We
do not agree. We cannot say that the specific trans-
actions alleged in TWA’s complaint—that Toolco re-
fused to finance aircraft acquisitions by TWA unless
TWA agreed to. purchase planes from no supplier
other than Toolco; that Toolco required TWA gen-
erally to boycott all other suppliers of aircraft; that
the defendants have attempted through various means
: monopolize a substantial segment of interstate and
oreign air commerce—are on their face insufficient to
U
9
support a claim of antitrust violations, a claim which
surely falls within the jurisdiction of the district.court.
The allegations state the outlines of a tying arrahge-
ment, an economic boycott of the defendants’ competi-
tors, and an attempt to monopolize commerce, \all
unlawful under the antitrust statutes. It would be par-
ticularly inappropriate to find these allegations insuffi-
cient to establish the district court’s jurisdiction inas-
much as the defendants denied the plaintiff the right
through pre-trial discovery to add more detail and
substance to the allegations set forth in the complaint.
e. * « o a * .
“We are satisfied that the complaint sufficiently states
a cause of action and establishes the district court’s
jurisdiction.” 332 F. 2d at 610-11.
With respect to the dismissal of the counterclaims with
prejudice, the Court held that one such counterclaim
against additional defendants should have been dismissed
for lack of jurisdiction, but otherwise affirmed the dismis-
sal of the counterclaims with prejudice as a consequence
of the default. In doing so, the Court affirmed the rulings
of the District Court that required production of the tax
documents and those documents as.to which the claim of
attorney-client privilege had’ been claimed, and affirmed the
propriety of granting a judgment by default in view of
the non-compliance with these orders and the failure of
Hnghes to appear as ordered.
“The sanction of judgment by default for failure to
comply with discovery orders is the most severe sanc-
tion which the court may apply, and its use must be
‘tempered by the careful exercise of judicial discretion
to assure that its imposition is merited. However,
, Where one party has acted in willful and deliberate
«disregard reasonable and necessary court orders
\
oer |
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10
and the efficient administration of justice, the appli
cation of even so stringent a sanction is fully justified
and should not be disturbed. [citations omitted]
“Hughes’ deposition was absolutely essential to’ the
proper conduct of the litigation. Yet he and Toole
seized upon every opportunity to forestall this event,
To this end they demanded the production of a multi.
tude of documents by TWA and the additional defen.
dants and secured successive adjournments of the dep.
osition. Indeed, Hughes and Toolco seemed to look
upon the entire discovery proceedings as some sort of
a game, rather than as a means of securing the jast
and expeditious settlement of the important matters
in dispute. It was only at the very eve of the Hughes
deposition—after the other litigants had been put to
much delay and expense—that the defendants made
‘business decision’ to terminate discovery.
“Hughes’ conduct is particularly intolerable ina
large and complex litigation such as this one. The
protracted antitrust suit taxes the energies and re.
sourcefulness of each party to the litigation; and it
consumes much time of the court and the special
masters it appoints. Tactics such as Hughes’ serve
only to frustrate the implementation of the discovery
machinery devised by the federal judiciary to expedite
the handling of such complex litigation. See Hand-
book of Recommended Procedure for the Trial of Pro
tracted Cases, Report of the Judicial Conference Study
Group on Procedure in Protracted Litigation, 25 F.R.D.
351 et seq. (1960).
“In the light of all these circumstances, the distriet
court was not obliged to employ sanctions less severe
than the dismissal of the counterclaims with prejudice.
Whatever lesser sanctions might have sufficed with
regard to the documents withheld by the defendants,
it seems to us that a dismissal of the counterclaims was
appropriate, in view of Hughes’ intransigence after
pote and expensive discovery proceedings already
|
protracted for more than one year.” 332 F. 2d at 6145.
ih
4
11
The Supreme Court granted certiorari as to the decision
of the Court of Appeals, but the writ of certiorari was
subsequently dismissed as improvidently granted. 380
U. 8. 248-9 (March 8, 1965).
On May 10, 1965, TWA moved before J. Lee Rankin,
the Special Master, for an order adopting certain interim
findings of fact, based on the allegations of the complaint.
The interim findings were sought by TWA “as a basis
for the submission of its further evidence as to the amount
of its damages.” On July 30, the Special Master entered
an order which outlined the effect of the default and which
tentatively adopted some of the proposed interim findings
while tentatively refusing to adopt others.
The failure of the Special Master to adopt the omitted
findings was appealed by TWA to the district court. On
November 16, 1965, Judge Metzner entered an opinion and
order which did not deal with specific findings but which
further stated the law pertaining to the- effect of the de-
fault and returned the matter to the Special Master. 38
FRD. 499 (1965). These two decisions by the Special
Master and Judge Metzner, as well as a subsequent de-
cision by Judge Metzner noted below, are described more
fully elsewhere in this opinion.
Shortly thereafter, Tooleo moved before Judge Metzner
for an order calling on TWA to set forth the facts which
would preclude a finding that Toolco had never been en-
gaged in the manufacture or supply of aircraft in competi-
tion with any other manufacturer or gupplier. This motion
was denied by Judge Metzner on January 4, 1966.
J. Lee Rankin, who had been appointed Special Master
to determine the amount of damages, resigned this position
upon : appointed i ae of the City of
{
|
|
|
hd es
fas
New York, The undersigned was appointed as Special
Master under the same terms as the original reference,
On May 2, 1966, the hearing on damages formally com.
menced with the submission of the plaintiff's direct tegtj.
mony on damages in written narrative form. Defendants’
direct testimony was also thereafter submitted in written
narrative form. All witnesses were subjected to thorough
cross-examination, which (together with the oral testimony
of one rebuttal witness for plaintiff) covers nearly 11,00
pages. More than 800 exhibits were also introduced by -
both parties. The hearings closed on April 9, 1968, and
printed briefs have been submitted by both parties.
rad
. Effect of the Default
12
The first question which must be considered is the effect
of the default on plaintiff’s case and the extent of the buf.
den which plaintiff must still meet in order to justify
recovery. Despite prior rulings in the case, this has been
the subject of continuing disagreement between the parties
in the damage hearings.
Prior to the commencement of the hearings on damages,
plaintiff moved before Special Master Rankin, as noted
above, for certain findings of fact based on the allegations
of the complaint, which were requested on an interim basis
as a foundation for the submission of its evidence on dam-
ages. Plaintiff took the position that the default justified
the entry of such findings without further offer of proof by
plaintiff. After full written and oral argument, Special
Master Rankin entered on July 30, 1965 an opinion and
order which discussed in detail the effect of the default
and which adopted certain of the proposed findings on an
interim basis. However, Special Master Rankin declined,
13
Fon an interim basis, to adopt the balance of the pro-
eed findings. A full statement of his opinion is required
y'properly evaluate the positions of the ‘parties in the
damage hearings. The Special Master described the effect
of the default as follows:
- “The default having been entered for the reasons
“indicated above, the question remains as to its effect.
. The default is an admission implied by law as a result
“Sof the default, which thereupon dispenses with any
“proof of the facts alleged in the complaint, except as
~ to unliquidated damages. The default not only has
"the legal effect of an admission of the allegations, but
_ precludes any showing of defensive matters in regard
_ thereto except as to damages. When the damages are
~ not liquidated, there is no admission as to the damages -
by reason of the default, and proof thereof is required.
- *(See 3 Freeman, Law of Judgments, Secs. 1281-1282,
pp. 2662-2664 (Tuttle’s Ed. 1925).
_ “All parties agree that Thomson v. Wooster, 114
U.S. 104 (1885) is the leading case by the Supreme
Court of the United States on the effect of a default.
‘It is recognized in that decision that upon the entry
of a decree pro confesso all matters alleged with suffi-
cient certainty are admitted. However, it is as to those
matters not adequately alleged with regard to cer-
tainty, or subjects which from their nature and the
_ course of the court proceedings require an examination
_ Of details imposing an obligation on the complainant
to furnish proof, that differences arise.
“While conclusions of law are for the court in the
determination of any judgment to be awarded and it
_ thus decides whether the damages proved did in fact
» flow from the violations of law alleged, the defendants
} after their default no longer have the right to contest
14
whether the asserted violations did in fact occur. They
are limited to pointing out such information or eyi.
dence as may be in the record where the court
take judicial notice of records or facts which show
that the allegations could not be true.
“When the plaintiff has pleaded a ‘statement of
claim’ showing that he is entitled to relief (FRC.
P. Rule VIII (a)), he may yet be unable to prove the
ease alleged. But that is not a problem in a default
where the allegations are, in legal effect, admitted
Defaulting defendants are allowed to raise questions
as to allegations contrary to judicially known fact;
because when a pleader states matter as facts which is-
not out of harmony with that which the court judicially
knows, such averments in the pleading are disregarded.
Greeson v. Imperial Irrigation District, 59 F. 2d 529
(9th Cir. 1932); Interstate Natural Gas Company vy.
Southern California Gas Company, 209 F. 2d 380 (9th
Cir. 1953). See also In Re: Woodmar Realty Com.
pany, 294 F. 2d 785 (7th Cir. 1961); Cert. Denied,
369 U. S. 803 (1962) and Glen Coal Company v. Dicken.
son Fuel Company, 72 F. 2d 885 (4th Cir. 1934),
“Thus, at this stage of the case, the court is obli-
gated to arrive at a judgment and that judgment must
be just. Therefore, whenever a court would take judi-
cial notice of the proceedings of public bodies such as
the Civil Aeronautics Board or other Federal commis.
sions or the files of the court or any similar matters
and such records and information would satisfy the
court that any allegation of the complaint or any part
of an allegation could not be true, the court is not
required by reason of the default to accept such alle.
gation, or such part of it.
“The effect of information appearing in the record
up to this date, or as hereafter developed, bearing
upon the truth of the allegations of the complaint, is
somewhat different. Where such evidence clearly shows
15
~ that the allegation or part of an.allegation could not
~ possibly be true, the court will not stultify itself by
~ accepting such allegation or part of it in the face of
gach evidence. Where, however, the evidence merely
"may tend to show that the allegation may not be main-
tained and the defendants by reason of the nature of
‘their default have materially interfered with the plain-
- tiffs ability to produce evidence which might support
the allegation or disprove such record evidence, the
‘eourt is not required to reject the allegations. Such
result would reward the defendants for their inter-
- ference with the processes of the court.
_ “For the reasons indicated the defendants, at this
point, do not have the right to produce evidence to try
to establish in any manner that the allegations of the
complaint other than as to damages cannot be main-
tained. That opportunity was given up by their deci-
_ sion to default. The rights of plaintiff resulting from
the default should not be taken away by any refine-
- ments and legalistic reasoning of any considerations
that do not reach to the level of necessary and proper °
requirements for a fair and just hearing on the ques-
tion of damages. Ta
“On the other hand, it should not be forgotten that
the court in entering a judgment of default is per-
forming ‘a judicial act’. Pope v. United States, 323
U.S. 1. Furthermore, Rule 55(b) (2), under which the
court directed that this hearing be held recognizes
that such is the nature of the responsibility, at this
point in the default proceeding, by stating:
‘Tf, in order to enable the court to enter judgment or
to carry it into effect, it is nécessary to take an
account or to determine the amount of damages or
to establish the truth of any averment by evidence
or to make an investigation of any other matter,
the court may conduct such hearings or order such
references as to it seems necessary and proper...’
16
“It is within the framework described that the Spe.
cial Master must proceed. Recognizing that it is his
duty on behalf of the court to be satisfied of the lis.
bility of the defendants, as well as of the proof,.ac.
cording to law, of the amount of damages claimed, he
must also be satisfied by a preponderance of the evi.
dence that any damages were proximately caused by
the violations of law alleged in the complaint. There.
fore, in the belief that the damage portion of. the trial
will be advanced by his doing so, the Special Master
has sustained a considerable portion of the plaintiff's
motion and has adopted certain findings requested,
but only on an interim basis, for the purposes of the
hearings on damages. He is reserving the right, how.
ever, before such hearings are closed to modify any
or all of said interim findings if he finds it desirable
or necessary in order that justice may be promoted
in this case. The Special Master has also declined
to adopt certain interim findings proposed in the mo.
tion. The findings adopted are set forth in Exhibit
AA attached to this opinion and order and made a part
_ hereof as fully as if set out herein. [Exhibit AA is not
reproduced herein. ]
“The failure to adopt, at this time, any proposed
finding is not a determination by the Special Master
that such finding is false, or disproved, or that it wil
not be fully established by the close of the hearings
on damages. Such proposed findings have not been
adopted at this time because in each instance they
appear directly or indirectly to have a bearing upon
the question of damages, and may be affected either
partially or wholly by the evidence which is adduced
in proof of damages herein.
“The failure to now adopt such proposed interim
findings, is not to be construed as placing such findings
at issue, except to the limited extent that there is any
information of which a court would take judicial notice,
or there is evidence in the record which would prove
such findings to be false or there may be evidence prop-
17
> erly adduced as a part of these hearings on damages
- which would establish such findings to be false and is
brought to the attention of the Special Master before
the hearings close. The defendants are not allowed
by the present refusal to adopt such tendered findings
to contest them on the merits as they could do if there
had been no default.”
On appeal by plaintiff to Judge Metzner from portions
of the Special Master’s opinion and order, the legal effects
of the default were again thoroughly briefed and argued
orally, On November 16, 1965, Judge Metzner entered an
opinion and order disposing of the appeal (reported at
3% F.R.D. 499). This opinion and order made no refer.
ence to any specific proposed findings which the Special
Master had agreed or declined to adopt. It did, however,
summarize generally the legal effect of the default, clarified
a seeming ambiguity in the opinion of the Special Master
relating to liability and proximate cause, and returned the
case to the Special Master for proceedings in accordance
with the Court’s opinion. That opinion is, of course, con-
trolling here.
Pointing out that the reference to the Special Master was
made “to determine the amount of damages”, Judge Metzner
deseribed the effect of the default as follows:
“Liability is not an issue for the Special Master
except in a very limited sense. The sufficiency of the
_‘omplaint has already been established by the denial
of defendant’s motion to dismiss,” 214 F-. Supp. 106
(8. D. N. Y. 1963), aff'd, 332 F. 2d 602 (2d Cir. 1964),
writ of cert. dismissed, 380 U. S. 248, 85 S. Ct. 934, 13
L, Ed. 2d 817 (1965). By virtue of the default the de-
fendant has admitted the truth of the well-pleaded
, allegations of the complaint. Thomson v. Wooster, 114
+U.S. 104,58. Ct. 788, 29 L. Ed. 105 (1885).
~ “Allegations are not well pleaded if they are shown
. to be indefinite or erroneous by other statements in
18
the complaint (Thomson v. Wooster, supra) ; or where
they are contrary to facts of which the court will take
_ judicial notice (Glenn Coal Co. v. Dickinson Fuel Co,
72 F. 2d 885, 889 (4th Cir. 1934)); or where they-are
not susceptible of proof by legitimate evidence (Cohes
v. United States, 129 F. 2d 733 (8th Cir. 1942) ; Greeson
v. Imperial Irr, Dist., 59 F. 2d 529 (9th Cir. 1932),
or where they are contrary to uncontroverted material
in the file of the case (Interstate Nat. Gas Co. y,
Southern Calif. Gas Co., 209 F. 2d 380, 384 (9th Cir,
1953) ; In re Woodmar Realty Co., 294 F. 2d 785 (7th
Cir. 1961), cert. denied, 369 U. S. 803, 82 S. Ct. 68
72 L. Ed. 550 (1962)). "However, it may be shown by
plaintiff, in the context of this case, that some mat. -
ters of which the.court may take judicial notice should
not be so notited. See McCormick, Evidence 4330
(1954). Where file material is involved, if the plaintiff
did not have full opportunity to meet or controvert such
material, then it should not be used to nullify the al-
legation. If evidence merely tends to show that an
allegation is not true, the allegation must be taken as
true in this default. Finally, the plaintiff is entitled to
the benefit of all reasonable inferences from the evi-
dence tendered.”
Judge.Metzner’s opinion makes clear that the failure of
the Special Master to adopt certain of the findings did not
constitute a determination that the allegations on whic
they are based are not well-pleaded :
“The Special Master stated that the failure to adopt
any proposed finding is not a determination ‘that such
finding
‘is false, or disproved, or that it will not be fully
established by the close of the hearings on damages’
Such proposed findings are not at issue except to the
limited extent noted above. The Special Master spe
cifically stated that
19
©" * the defendants are not allowed by the preserfiit.
és *fusal to adopt such tendered findings to contest them
-~ on the merits as they could do if there had been no
_... default.’”
findings not adopted by the Special r are admitted
by the default except to the extent ey can be dis-
foved ‘within the framework of the well-pleaded allega-
tions rule as set forth by the Court. Furthermore, the
ar t's opinion also establishes that the allegations are
presumed to be well-pleaded, and that the burden is on the
defendants to show that they are not:
_ % “Attempts by defendant to escape the effects of its
default should be strictly circumscribed. It should not
*: “net afforded an opportunity to litigate what has al-
ready been deemed admitted in law. In the absence of
, am exceedingly strong showing that an allegation is
- _ Untrue under the rules set forth above, the allegation
' ‘stands as admitted.”
it is thus clear from the Court’s a that even those
that
A subsequent opinion and order by Judge Metzner on
January 4, 1966 also shows that the defendants carry the
burden of disproving each allegation of the complaint, de-
spite the Special Master’s failure tentatively to adopt a
finding based on a particular allegation.
One of the findings which the plaintiff had requested but
which the Special Master failed to make at that point in
e Proceedings was to the effect that Toolco was engaged
he development and/thanufacture of aircraft, as alleged
in t » complaint. The Special Master did adopt a portion
@ same finding which stated that Tooleo was engaged
‘acquisition of aircraft from manufacturers in vari-
ts sake and in the sale and lease of such aircraft in inter-
commerce, but failed to adopt a further position to
20
the effect that such sales and leases were “to air carriers
in various other states”. The defendants, as above men.
tioned, nioved before Judge Metzner in December, 1965
for an order requiring TWA to set forth the facts on
which TWA would rely in order to preclude the entry
of a finding of fact as follows:
“The facts before this Court establish that at no
time during the period covered by the complaint herein
were the defendants, or any of them, engaged in the
manufacture or supply of commercial transport air.
craft in competition with any manufacturer or sup-
plier of such aircraft.” ,
Despite the failure of the Special Master to adopt the find.
ings noted above, Judge Metzner ruled that the burden
with respect to these facts still rested on the defendants
rather than the plaintiff, and denied the motion:
“It asks that plaintiff come forward to negative a fact
which defendant asserts as true. The shoe is on the
other foot.”
Finally, it may be noted that there is no procedural re.
quirement for making such interim findings before taking
evidence in the hearing on damages, and the Special Mas-
ter’s disposition of the request for findings appears to have
been simply an exercise of the Master’s power to regulate
the proceedings before him, which is generally subject to
review only for abuse of discretion. See 5 Moore’s Federal
Practice, 753.06. In fact, during oral argument befor
Judge Metzner on the motion to review the Special Mas-
ter’s failure to adopt certain of the proposed findings, both
counsel for Toolco and the Court treated the Special Mas
ter’s order as an exercise of discretion in the conduct of
the proceedings. Counsel for Todlco asserted that the Mas
Sie
ee
we,
a
Bee.
21
tercould have denied all of the proposed findings without
committing reversible error, and the Court agreed, stating
that the Master “wanted to lay down some ground rules
which could perhaps shorten the hearing.” (Tr. of Sept.
#8, 1965, pp. 15-16) |
It is, therefore, clear that the burden of disproving all
the allegations of the complaint still rests on the defen-
dants, and the failure of the Special Master to adopt cer-
tain findings of fact has not created in the plaintiff a bur-
den of proving those facts. Although the defendants have
asserted that the ‘findings which were not adopted repre-
sent “gaps” in plaintiff’s case which plaintiff is required to
fill in through proof, this contention cannot be and is not
sustained.
‘The burden assumed by a defaulting party is a heavy
one. Its weight is illustrated by Thomson v. Wooster, 114
U. 8. 104 (1885), which was cited by Judge Metzner, and
by other early Supreme Court decisions. In Thomson, the
plaintiff sued for infringement of a re-issued patent on a
folding guide for sewing machines. The original patent
was dated October 5, 1858, had been extended for seven
years in 1872, and had been re-issued in December 1872.
The complaint alleged that numerous suits had been
brought and sustained against other infringers, and sought
a accounting of profits and damages. The defendants ap-
peared but failed to file an answer to the complaint, and a
decree pro confesso was entered. The case was referred to
& master to determine the profits and damages. After an
award by the master, the defendants appealed, asserting
«mong other arguments that the re-issued patent was in-
valid because it was for an invention other than the one
a. by the original patent, and also because an ex-
i fe amount of time elapsed between the original issue
ea
22
and the re-issue, and as a further reason because the com.
plaint alleged that successful suits had been brought on the
original patent, whereas invalidity or inoperativeness were —
conditions precedent of a re-issue. These arguments were
rejected by the Supreme Court.
“A confession of facts properly pleaded
_ proof of those facts, and is as effecti
as confessed.
e * « * *
“ .. it seems clear that the defendants, after the en
of the decree pro confesso, and whilst it stood
voked, were absolutely barred and precluded from al-
leging anything in derogation of, or in opposition to,
the said decree. ... The attempt, on the hearing be-
fore the master, to show that the reissued patent was
for a different invention from that described in the
original patent, or to show that there was such unrea-
sonable delay in applying for it as to render it void
under the recent decisions of this court, was entirely
inadmissible because repugnant to the decree. The
defendants could not be allowed to question the va-
lidity of the patent which the decree had declared valid
The fact that the reissue was applied for and granted
fourteen years after the date of the original patent
would, undoubtedly, had the cause been defended and
the validity of the reissued patent been controverted,
been strongly presumptive of unreasonable delay; but
it might possibly have been explained, and the court
could not say as a matter of law, and certainly, under
the decree of the court, the master could not say, that
it was insusceptible of explanation. And on this ap-
peal it is surely irregular to question the allegations of
the bill. If anything appears in those allegations them-
selves going to show that the decree was erroneous,
of course it is assignable for error; but any attempt
23
, to introduce facts not embraced in those allegations,
' for the purpose of countervailing the decree, is mani-
festly improper. The introduction of the original pat-
~ ent, pending the appeal, was clearly irregular.” (114
U.S. at 110 and 114)
The Supreme Court: then noted the argument of defen-
dants that as a matter of law the re-issued patent must be
void, since (quoting the defendants’ assignment of errors),
“*... the bill avers that during the fourteen years of the
original term of patent the validity of said letters pat-
-ent was established in numerous suits in the Circuit
Courts of the United States, and that all persons sued
‘took licenses and paid therefor, as well as many others
not sued, thereby averring, in substance, that the origi-
nal letters patent were valid and operative:
“‘Wherefore, appellants ask this court to hold that
the original letters patent having been valid and op-
/ erative, as averred by complainant, for over fourteen
years, no reissue thereafter could he legally obtained,
because invalidity or inoperativencss are conditions
precedent to the grant of: a reissue.’
_ “The answer to this assignment is obvious. The
“suits brought on the original patent may have been
_ for infringements committed against particular parts
of the invention, or modes of using it and putting it
into operation, as to which the specification was clear,
fall and sufficient ; whilst, at the same time, there may
have been certain other parts of the invention, or
_Mmodes of using it and putting it. into operation, as to
which the specification was defective or insufficient,
and which were not noticed until the application for re-
issue was made; or, in the original patent the patentee
_ May have claimed as his own invention more than he
_ had a right to claim as new—a mistake which might be
corrected at any time. At all events, the court cannot
ig
B:,
so Um
24
Say, as mere matter of law, that this might not have
been the case.” (114 U. S. at 115)
The Supreme Court’s disposition in Thomson of the de.
fendants’ attacks on the validity of the allegations in the
plaintiff’s bill shows the exceedingly heavy burden assumed
by a defaulting party who attempts to disprove the allega.
tions of the complaint. Even when relying on matters
appearing of record, the defendant must show that such
matters conclusively, and beyond all doubt, prove that the
allegations could not be true.
Another case illustrating this heavy burden is Harsh.
man v. Knox County, 122 U. S. 306 (1887). Plaintiff had
sued the county on certain bonds which the county had
issued, and when the county defaulted, obtained a judg.
ment of $77,374.46. He then brought a proceeding by man.
damus against the Justices of the county court to compel
them to levy a tax sufficient to pay the judgment. The
county defended on the ground that the bonds were issued
pursuant to a special statute (incorporating a railroad)
which authorized a certain rate of tax to support the bonds,
that the county had levied such tax and still had insufficient
money to pay, and that there was no authority to levy
additional taxes. Although the bonds, which were attached
to the original complaint, recited that they were issued
pursuant to that special statute, the plaintiff.in his com. —
plaint alleged that the bonds were issued pursuant to a
different and more general statute which granted unlimited
taxing power. As recited in the Supreme Court’s opinion,
“... the contention of the respondents in the Circuit
Court was, that they were entitled to show by the
recitals in the bonds themselves, in contradiction to
those contained in the judgment founded upon them,
25
that they were in fact issued under the charter of the
corporation, and not under the general law. On this
int, the judgment of the Circuit Court was in their
vor, denying to the relator the peremptory writ of
mandamus, and this decision is now alleged as error,
for which the judgment should be reversed.” (122
U. S. at 316) °
Noting that the question was whether the county was
estopped to deny that the bonds were issued under the
general statute, the Supreme Court opinion stated:
“The averment to that effect in the petition in the action,
if material and traversable, was confessed by the de-
fault. * * * The averment as to the character of the
bonds, and the grounds and authority upon which they
were founded, so as to constitute them legal obliga-
tions of the county of Knox, contained in the petition,
was clearly material to the plaintiff’s cause of action.
If the defendant had denied it by a proper pleading,
the fact would have been put in issue, and the plaintiff
would have been bound to prove it. * * * In the absence
of a denial, the fact as stated in the petition of the
plaintiff is confessed by the default, and stands as an
admission on the record, of its truth by the defendant.”
(122 U. S. at 316-317)
The judgment of the Circuit Court was reversed, with
directions to award a peremptory mandamus.
Proof of Basic Anti-Trust. Allegations
Against the background of decisions such as these, and
having established that defendants bear the burden of
disproving the allegations in the complaint, regardless of
the Special Master’s interim findings, it must now be de-
temmined whether any of the allegations have been shown
EEE
to be disproved within the narrow confines of the “wel.
pleaded allegations” rule. The chief allegation which de.
fendants claim to be disproved is the allegation that Toole
was engaged in the development and manufacture of air.
craft and the supply of aircraft to air carriers. The de.
fendants claim that this allegation is disproved by variou
C.A.B. opinions, orders and records which are said to k
appropriate for judicial notice, and by certain exhibits
introduced during the hearings on damages as well as by
the testimony of certain of plaintiff’s witnesses during the
hearings.
The question of judicial notice is an important one, for
it underlies a major portion of Toolco’s defense on lia
bility. However, Toolco’s reliance upon judicial notice of
official documents and records is misplaced. Although judi.
cial notice may indeed be taken of official reports such as
reports of administrative agencies, the notice extends only
to the existence of the report and its contents, and not to
the accuracy of facts recited in the report. For example,
in Stasiukevich v. Nicolls, 168 F. 2d 474, 479 (1st Cir
1948), Judge Magruder denied judicial notice as to facts
recited in an official Congressional committee report:
“The official report of a legislative or congressional
committee is admissible in evidence in a judicial pro
ceeding, as an exception to the hearsay rule, wher
the report, within the scope of the subject matter dele
gated to the committee for investigation, contains fint
ings of fact on a matter which is at issue in the judicul
proceeding. See Wigmore on Evidence, §{ 1662, 1670.
Indeed, the court could properly take judicial notice
of the report, without its formal introduction into ev
dence. But though the court may receive the repor
in evidence, or may take judicial notice of its existent
and contents, this does not mean that the court mut
27
accept the findings in the report as indisputable truth;
the findings are merely evidence of the facts asserted.
See Unitd [sic] States v. Aluminum Co. of America,
2 Cir., 1945, 148 F. 2d 416, 445, 446; Morgan, The Law
of Evidence, 1941-1945, 59 Harv. L. Rev. 481, 485-86
(1946).”
McCormick on Evidence, §328 at p. 704, also notes that
while courts will take judicial notice of official documents,
this merely “dispenses with formal authenticating proof of
the genuineness of the documents” and “does not mean
that if the document is a statement of facts, such facts are
themselves judicially noticed.”
No authority has been cité€@“to support taking judicial
notice of facts merely Hetatise’tHey are contained in the
findings of an administrative ‘agency, and indeed, such
treatment would accord the findings of an administrative
agency greater weight than is accorded the findings of a
court of law. Determinations of fact by a court of law
may be used in a separate proceeding only within the
narrow confines of the doctrines of res judicata and col-
lateral estoppel, and are not binding on other parties. A
Court’s reliance on findings of fact in another case may
constitute reversible error. Cf. Radovich v. Cunard, 364
F. 2d 149 (2nd Cir. 1966). If judicial notice cannot be
taken of facts contained in findings of a court of law, it
would seem that a fortiori judicial notice may not be taken
of’ facts simply because they|are contained in findings of
an administrative agency. Such findings may be of some
probative value under the authorities cited above, and in
the absence of a default the C.A.B. materials might be quite
persuasive. However, they do not permit judicial notice
to be taken of the assertion that Toolco was never a manu-
facturer or supplier of aircraft.
’
SS
The existence and contents of an administrative order or
a document filed with an administrative agency may under
certain circumstances be of relevance to a judicial proceed.
ing apart from the facts recited therein. This is true, for
example, with regard to the question of whether an ad.
ministrative agency has primary jurisdiction over the sub.
ject matter being litigated. Interstate Nat. Gas. Co..y.
Southern Calif. Gas. Co., 209 F. 2d 380 (9th Cir. 1953),
However, the relevance of C.A.B. orders and filings to
primary jurisdiction in this case has already been con-
sidered and disposed of by Judge Metzner and by the Court
of Appeals.
Even if judicial notice were taken of the fact that no
U. S. air carrier ever purchased a commercial transport
aircraft manufactured by Toolco, this would not of itself
be sufficient to disprove the allegation that Toolco was
“engaged in” the development and manufacture of aircraft.
In addition to the general allegation of “engaging” in
paragraph 3 of the complaint, there is also an allegation
that “defendants and General Dynamics Corporation (here-
inafter called ‘Convair’) entered into an arrangement for
the joint development of a jet-powered aircraft to be manv-
factured by Convair and to be supplied by the defendants
to air carriers, including TWA” (Paragraph 14) as well as
an allegation that “the defendants also entered into a plan
under which Toolco would itself commence the manufac-
ture of a jet-powered aircraft” with the intent that “Tooleo
would furnish this aircraft ... both to TWA and to other
air carriers.” (Paragraph 15). While these efforts were
eventually abandoned, they would appear to constitute “en-
gaging in” the development and manufacture of aircraft.
Also, they occurred at the period of time when TWA alleges
that it should have been arranging for purchases from
29
other suppliers such as Boeing Aircraft. Corporation
(Boeing). Furthermore, there is evidence which would sug-
gest that the development and manufacture of the Convair
880 aircraft, which did in fact take place, had elements of
a joint venture between Toolco and Convair, with Toolco
to benefit financially from the sale of such aircraft over
and above the initial order for 40 placed by Toolco and
Delta Airlines Inc. (Delta). There is also evidence that
Hughes took steps to find buyers, including Delta, for the
Convair 880. Defendants do not seriously contest these
facts, and in many cases admit them. In view of the spe-
cific allegations of paragraphs 14 and 15 of the complaint,
which are admitted by the default and which have not been
disproved by the defendants under the “well-pleaded” rule,
and in view of the additional evidence suggesting what
might have been shown to be a joint venture between Con-
vair and Toolco, it is not possible to find that the allega-
tion of “engaging in” the development and manufacture of
aireraft could not be true. The testimony of Robert W.
Rummel cited at p. 55 of defendants’ brief likewise does
not show that the allegation could not be true, but at best
tends to show that it may not be true. This is not a suf.
ficient showing under the rules laid down in J udge Metz-
ner’s opinion:
“If evidence merely tends to show that an allegation is
not true, the allegation must be taken as true in this
default.”
The same holds true with respect to the allegations of
the complaint that Toolco was a supplier of aircraft pur-
chased from other manufacturers. The general allegation
that Tooleo was engaged in the supply of such aircraft
toairlines (Paragraph 3) is supplemented by allegations
..
30
that Toolco purchased aircraft from Boeing and Convair
(Paragraph 17), that defendants caused six of the Boeing
aircraft to be “diverted” to the principal transatlantic com.
petitor of TWA (Paragraph 18), that defendants caused
six of the Convair 880 aircraft to be leased to Northeast
Airlines Inc. (Northeast), of which three had previously
been assigned to TWA (Paragraph 22), and that Toole
also agreed to purchase Convair 990 aircraft from Convair
and sought to have TWA purchase these aircraft from
Tooleo, rather than purchasing additional aircraft from
Boeing as TWA proposed to do (Paragraphs 37 and 38).
There was also evidence that Tooleo purchased a large
supply of jet engines from Pratt & Whitney Aircraft Cor.
poration, which it subsequently sold at a profit.
Tooleo does not deny that it, purchased aircraft, or that
it sold aircraft to TWA. In fact, it asserts that all of the
aircraft which it purchased were purchased for TWA and
as a convenience to TWA, and that TWA would have been
unable to purchase such aircraft itself because of financial
considerations. It does not deny that six Boeing aircraft
purchased by Toolco from Boeing were assigned to Pan
American Airways Inc. (Pan Am), or that six of the thirty
Convair 880 aircraft originally purchased by Toolco from
Convair were leased by Convair to Northeast, but it does
contend that these were merely the disposition of aircraft
which had been determined to be excess to TWA’s needs
by TWA’s own management. Furthermore, it contends that
since all aircraft sold by Tooleo were manufactured by
Boeing or Convair, there can be no question of restraining
competition by Boeing or Convair, while Douglas Aircraft
Corporation (Douglas), the third major manufacturer, was
not in the running for TWA’s orders in any case. -
Here again, it is difficult to say how the issues would
have been resolved had this case gone to trial. However,
31
in the context of the default, it cannot be said that defen-
dants have met the difficult burden of showing that the
supplier allegations are not well-pleaded. While a prospec-
tive purchaser could purchase Boeing or Convair jets from
Boeing or Convair rather than Toolco, the element of de-
livery time was a factor which might cause such a pur-
chaser to turn to Toolco rather than to the manufacturer
directly. Jet aircraft, being an enormously expensive com-
modity, are not manufactured and sold from open stock.
A parchaser from a manufacturer at a particular point in
time would be offered certain dates for future delivery,
depending on the manufacturer’s backlog and production
facilities at the time of order. On the other hand, Toolco
might be able to offer the assignment of aircraft which had
been ordered previously and which were scheduled for de-
livery at dates earlier than those which the manufacturer
could offer. To the extent that only-one manufacturer is
involved, then it is true that the total number of aircraft
sold by that manufacturer remains the same. However, it
cannot be said as a matter of law that Toolco’s ability to
offer certain delivery dates to Pan American for Boeing
aireraft might not have influenced Pan American to forego
parchasing from Douglas, or that Northeast might not
have purchased or leased from some manufacturer other
than Convair if the Toolco 880’s had not been available.
Furthermore, price increases over a period of time by a
manufacturer might mean that the manufacturer’s price
at the time of negotiation with a new. customer was higher
than-that paid by Toolco. In fact, this appears to have
been the case with the Pratt & Whitney engines. The fact
that Tooleo in this litigation refused to make available
certain documents and information which might have had
ahearing on its sales of aircraft and engines and the
32
profits or tax savings which it may have derived therefrom,
makes it particularly difficult to sustain Toolco’s conten.
tion that it purchased only for the benefit of TWA. Ther
is, moreover, an allegation in the complaint that “Despite
repeated requests by TWA, Toolco refused throughout th:
period 1956 to 1960 to assign to TWA the rights to acquire”
the jets which Toolco had ordered from Convair and Boeing
(Paragraph 18). This allegation has not been disproved
under the “well-pleaded allegations” rule and therefor
stands as admitted. It tends to rebut the argument that
the aircraft were ordered solely for TWA.
Much of defendants’ argument that Toolco was nots
supplier of aircraft centers around evidence that Hughes
and Toolco were acting in an effort to secure “the newest
and finest equipment” for TWA. (Defendants’ brief, p. 74
and generally pp. 73-94). However, the fact that Hughes
and Toolco were interested in securing good aircraft for
TWA is not inconsistent with an intention to act as a sup-
plier of aircraft to TWA and to other airlines as well
Nor is the fact that aircraft were ordered to TWA spec
ifications of itself conclusive that such aircraft were in-
tended solely for TWA, since certain of these aircraft were
in fact sold or leased to other airlines, namely Pan Ameri-
can and Northeast. Furthermore, there is evidence that
Toolco ordered Convair 990 aircraft which were to be built
to the specifications of American Airlines.
Although there is evidence to suggest that Toolco may
have been purchasing solely for TWA, this does not consti-
tute a sufficient showing on the part of defendants. Fur.
thermore, the intention of Toolco in ordering the aircraft
is a subject which undoubtedly would have been developed
more fully had the deposition of Hughes been taken. The
default foreclosed fuller examination of this questia
33
Under all of the circumstances, it cannot be said that de-
fendants have disproved the “supplier” allegations within
the limits of the “well-pleaded allegations” rule.
In short, the evidence relied on by Tooleco merely tends
to support its position and does not conclusively establish
that the allegations could not be true. Moreover, in addi-
tion to the allegations of the complaint cited above, it is
also alleged that Hughes was the sole stockholder of Toolco
and controlled its activities ( paragraph 4) and that Tooleo
in turn had acquired more than 78% of TWA’s common
stock (paragraph 11), which is far more than a controlling
interest. Judge Metzner in his opinion of May 3, 1963
stated that :
“It is clear that during all of the times covered by
the complaint the management of TWA was controlled
_ by Hughes personally.” 32 F.R.D. at 606
Therefore, even a conclusive showing that the six Boeing
jets and ten Convair jets were declared excess to TWA’s
needs with concurrence of the Hughes-dominated TWA
management would not necessarily establish as a matter
of law that Toolco had no responsibility for the decision to
cat back, which Toolco asserts was the sole reason for the
sale of aircraft to carriers other than TWA.
One other allegation in the complaint which may require
special comment is the allegation that Atlas, though not
named as a defendant, was a co-conspirator with defen-
dants in seeking to restrain competition. Since Atlas was
not named as a defendant, it has not been represented by
counsel at any stage of this case. Furthermore, the oc-
cifrence of the default has precluded any examination of
Whether there is any evidence to support the charge of
34
The law of the default appears to require that Atlas h
deemed to have conspired with Toolco for purposes of this
litigation. The complaint alleges generally that Atlas, to.
gether with the defendants, engaged in a conspiracy and
attempt to restrain trade in violation of various provisions
of the antitrust laws (paragraph 9), that the acts of Atlas
were done in furtherance of the offenses charged and with
anti-competitive intent, for the profit of Atlas (paragraph
10), and that more specifically, Atlas joined with Toolw
in attempting to force upon TWA a merger with Northeast,
which would have enlarged the defendants’ captive market
for aircraft and would have furthered the anti-competitive
scheme (paragraphs 21 and 47). Since the allegations of
conspiracy have not been disproved within the limits of
Judge Metzner’s order, they must be taken as admitted as
far as the defendants in this case are concerned. The fast
that Atlas was not named as a defendant does not prevent
a charge that Toolco conspired with Atlas. U. 9. v. Griffith,
334 U. S. 100, 103 (1948). However, the “fact” of the con-
spiracy is taken to be true only for purposes of this litigs
- tion and between the parties to this litigation. There is
no intent to bind Atlas or to suggest what outcome would
have resulted as to it had the allegations of the complaint
been litigated.
Proximate Cause
Apart from the “well-pleaded allegations” rule, however,
the defendants argue that under the opinion of Special
Master Rankin, proximate cause is not admitted for any
purpose by the default. They assert that plaintiff has the
burden of proving that any injuries which it suffered were
proximately caused by antitrust violations of the defe-
35
dants. Although admitting that the default may have es-
tablished the existence of antitrust violations for purposes
of this proceeding, they assert that the default did not re-
lieve the plaintiff of establishing this causal connection by
means of proof submitted in the hearing on damages, In
support of this position, they point to the statement i
the Special Master’s opinion that he “must also be satis-
fied by a preponderance of the evidence that any damages
were proximately caused by the violations of law alleged
in the complaint”, a requirement flowing from the Special
Master’s duty “on behalf of the court to be satisfied of the
liability of the defendants, as well as the proof, according
to law, of the amount of damages claimed... .”
However, defendants’ position cannot be sustained.
Judge Metzner in his opinion noted that the Special Mas-
ter’s mention of a duty “to be satisfied of the liability of
the defendants” might appear to be inconsistent with an
earlier statement by the Special Master that “the defen-
dants, at this point, do not have the right to produce evi-
dence to try to establish in any manner that the allegations
- @f the complaint other than as to damages cannot be main-
tained.” Referring to this as an “ambiguity ... which may
need clarification”, Judge Metzner stated that the conflict
im approach was only an apparent one in light of the
Special Master’s entire opinion, that the matter was re-
ferred to the Special Master to “determine the amount of
damages”, and that “[IJiability is not an issue for the Spe-
cial Master except in a very limited sense.” The sufficiency
of the complaint had already been upheld, and the default
admitted all well-pleaded allegations of the complaint.
Therefore, liability was an issue only to the extent that
the defendants could show, within the rules laid out in
Jadge Metzner’s opinion, that particular allegations in the
9 “ tH
K
36
complaint were not well-pleaded. Thus under Judge Mety.
ner’s opinion (which is binding here), the reference to
proximate cause in the Special Master’s opinion is inter.
preted to mean that the plaintiff (as is customary) has
the burden of establishing proximate cause, but that this
burden is satisfied as to liability if proximate cause is ade.
quately alleged in the complaint, unless the defendants are
able to show that such allegations are not well-pleaded.
It does not mean that the plaintiff must always prove
proximate cause with evidence, regardless of a default,
This conclusion is fortified by the few authorities which
bear upon the subject. In the recent case of Jones v. Uris
Sales Corp., 63 Civ. 2018 (S. D. N. Y. June 27, 1966), af.
firmed 373 F. 2d 644 on the basis of the District Court’s
opinion on this issue, Judge MacMahon rejected a similar
| argument by a defaulting defendant that the plaintiff had
the burden of proving proximate cause in a hearing before
& special master on the question of damages :
“Defendants’ second contention, that even if the
allegations are ‘distinct and positive,’ plaintiff must
still prove ‘a causal relationship between the allegs.
tion deemed admitted and the damage resulting there.
from,’ is an obvious attempt to cripple the rule of
Thomson v. Wooster by qualifying it. Defendants
have cited no authority in support of their contention,
and we seriously doubt that any exists. In any event,
the causal relationship is stated distinctly in the com-
plaint....”
The implication of Rule 55, Federal Rules of Civil Pro-
cedure, also suggests that proximate cause can be admitted
by a default. Under Rule 55, judgment can be entered
without any hearing whatsoever if the amount of damages
is fixed. Cf. Ferraro v. Arthur M. Rosenberg Co., 156 F. 2
37 °
212 (2nd Cir. 1946). If a plaintiff alleges that a defendant
has proximately caused damages in a fixed amount, then
clearly he is not required to submit further proof of proxi-
mate cause, since no hearing is required. It is only when
the amount of damages is uncertain and unliquidated that
a hearing must be held to fix the amount of damages. Fur-
thermore, a plaintiff’s proof of proximate cause may well
require evidence in the possession of the defendant. To
hold that a plaintiff must always prove proximate cause
regardless of a default might allow a defendant to avoid a
judgment by withholding such evidence, regardless of the
sanctions of Rule 37.
Authorities applying state law, while also relatively
scarce, also support this position. In Putney v. DuBois Co.,
226 8. W. 2d 737 (Mo. Ct. of App. 1950), proximate cause
was deemed admitted by the default, and in other cases, a
plaintiff was allowed to recover, apparently without offer-
ing proof of proximate cause. State of Maryland v. Travel-
ors Indemnity Co., 197 A. 2d 265 (Dist. of Col. Ct. of App.
1964); Anderson v. Gallman, 99 A. 2d 560 (Dist. of Col. Ct.
of App. 1953); Baltimore Transit Co. v. Mezzanotti, 174
A, 2d 768 (Md. Ct. of App. 1961); Osborn v. Gibson, 309
8. W. 2d 15 (Mo. Ct. of App. 1958).
On the other hand, defendants (as in Jones v. Uris,
supra) have been unable to cite any authority for the
Proposition that proximate cause, even if alleged, is not
admitted by a default. The case of E. V. Prentice Mach.
Co. v, Associated Plywood Mills, Inc.,’252 F. 2d 473 (9th
Cit.), cert. denied, 356 U. S. 951 (1958), cited by defen-
dants at p. 112 of their brief for the proposition that
plaintiff must show proximate cause despite an admission
of liability, is not in point. This was not a default case,
id the defendant, while admitting a violation of the anti-
Bl tig
38
trust laws, specifically excluded the question of whether
the plaintiff had suffered harm therefrom. Defendants’
contention cannot be sustained, and plaintiff may rely on
well-pleaded allegations in the complaint to establish pror-
imate cause.
Insofar as required to explain the basis for award of
damages in this Report, reference will be made in later
sections hereof to other specific allegations of the com.
plaint which are deemed to be well-pleaded. Unless a con.
trary conclusion is specified herein, all allegations of the
complaint on which damages are awarded are taken by me
to be well-pleaded.
Evidentiary Rulings
At the time that defendants tendered certain documents
as their Exhibits 321, 322 and 323, judicial notice was taken
of some portions (representing C.A.B. opinions and orders
which were also contained in plaintiff’s Exhibit 315), while
decision was reserved as to the balance. Judicial notice
will not be taken of these remaining documents.
For the most part, these remaining documents are mo-
tions, contracts and similar papers submitted to the C.AB.
in connection with the proceedings which resulted in the
orders which have been noticed. Defendants have offered
them either for admission into evidence or for judicial
notice. Special memoranda of law have been submitted by
both parties, and it is clear that defendants intend to us
these documents to contest the allegations of the complaint,
including paragraph 20 concerning conditions on the ait-
craft leases from Toolco to TWA. As indicated earlier,
defendants do not have the right to introduce evidenee to
contest the allegations of the complaint as to liability, and
39
therefore the only question is whether these documents
should be judicially noticed.
There is some question as to whether these documents
are a proper subject for judicial notice. However, they
will not be judicially noticed on grounds of relevance,
even if they are viewed as otherwise fit for such notice.
It is clear, as shown above, that judicial notice of these
documents would at best be judicial notice of their exist-
ence and contents. It would not constitute judicial notice
of the truth of what they contain. They would at best be
mere evidence to. be weighed with other evidence relating
to such truth.
For judicial notice to be taken of a fact, the better view,
in my opinion, is that such fact must be indisputable.
While Wigmore in Volume 9 of Wigmore on Evidence,
ard Ed., does take the position that a fact judicially noticed
may be contested through the introduction of evidence and
need not be indisputable, Morgan (in “The Law of Evi-
dence, 1941-1945”, 59 Harv. L. Rev. 481, 1946) takes the
opposite view and holds that facts must be indisputable
to be noticed. If indisputable, rebuttal evidence would be
improper. McNaughton, in a preliminary draft of his pro-
posed revision of Wigmore’s chapter on judicial notice,
accepts the Morgan view and holds that judicial notice
should be limited to indisputable facts. McNaughton,
“Judicial Notice—Excerpts Relating to the Morgan-Wig-
more Controversy”, 14 Vanderbilt L. Rev. 779 (1961). The
distinction may not be of overriding. importance in the
normal case, since as a practical matter it may not make
much difference whether the propriety of notice is argued
before notice is taken or after. However, in a default case,
the spirit of the Supreme Court cases dealing with the
effect of a default and the rationale of Rule 37 require
OO
that judicial notice not be used broadly to permit a conte
on the merits of the complaint, and that judicial notice
limited to those facts which are indeed indisputable, It
cannot be said that the facts recited in the documents sub.
mitted are indisputable, and that as a matter of law, plain.
tiff would not have been able to produce contradicting
evidence. It must be remembered that in Thomson y.
Wooster, the defendant was not permitted to introduce 4
government document (a patent) in his effort to dispute
the allegations of the complaint. Even though that patent
would have been strongly presumptive of the invalidity of
@ reissued patent, the court went to great lengths to point
out hypothetical means by which the two might be recon-
ciled.
Defendants also argue that the documents as to which
decision was reserved should be noticed on the ground
that they are necessary for a full understanding of those
opinions of the C.A.B. which have been noticed. However,
the meaning of these noticed opinions is clear on their
face, and in any event, since they would not be sufficient
to disprove the allegations of the complaint, there is no
reason for further detailed elucidation.
Other C.A.B. documents which have been considered are
those offered as Defendants’ Exhibit 358A, B, C and D.
These are reports filed by various airlines with the C.AB.
showing acquisition of aircraft, and are cited by defen-
dants in an effort to disprove the allegations of the com-
plaint concerning Toolco’s engagement in the manufactur
of aircraft (Defendants’ brief, p. 56). Defendants’ brief
suggests at pp. 46-47 that plaintiff has objected to this
exhibit. However, plaintiff did agree that the reports were
appropriate for judicial notice (Tr. 9590), and although
intimating that an objection might be made on other
41
grounds, no such objection was raised. This exhibit has
been considered, but it is insufficient to disprove the allega-
tions of the complaint, for the reasons set forth above.
Certain other C.A.B. documents were introduced which
bore not on the issue of liability but rather on the amount
of damages. Decision was reserved at the time as to these
exhibits, Defendants’ Exhibits Nos. 255, 259 and 261, which
bear on the issue of overcapacity in the airline industry
during the early 1960’s when TWA claims that it should
have had more jets. Exhibit 255 is a statement before the
House Subcomniittee on Appropriations on January 29,
1963 by the Chairman of the Civil Aeronautics Board.
Exhibit 259 is a C.A.B. order relating to a United Air
Lines fare proposal, and Exhibit 261 is a letter from the
President of United Air Lines to the Chairman of the
C.A.B. in response to that C.A.B. order. Judicial notice
will be taken that Exhibits 255 and 259 were issued, and
Exhibit 261 (which is of questionable standing for judicial
notice) will be deemed admitted into evidence. Neither the
Chairman of the C.A.B. nor the President of United were
available for cross-examination, but their statements have
been considered for their appropriate evidentiary worth.
One other ruling on an evidentiary matter was handled
separately, at request of defendants’ counsel. They re-
quested a ruling prior to filing of briefs on the introduc-
tion into evidence of DX 364 for identification. On June
13, 1968, I sustained the plaintiff’s objection to such intro-
duetion. Defendants’ counsel in their brief have requested
reconsideration of my ruling. I have reconsidered it in the
light of said request, and adhere to my former ruling
which is set forth below in full:
' " “During the hearing on damages (transcript page
~ 10,698) defendants offered in evidence certain portions
.
42
of the deposition of Emmet Osborn Cocke, a director
and officer of plaintiff Trans World Airlines, whid
were marked for identification as Defendants’ Exhibit
364. This deposition had been taken in the course of
the discovery proceedings prior to the entry of th
default against defendants. Plaintiff objected to th
receipt of Exhibit 364 into evidence, and a ruling o
the objection was reserved by the Special Master. That
objection is now sustained for the reasons set forth
below.
“Although Rule 26(d) (2), F.R.C.P. permits the depo.
sition of an officer or director of a party to be used by
an adverse party ‘for any purpose’, Rule 26(d) never.
theless makes clear that a deposition may be used only
‘so far as admissible under the rules of evidence. 1
the extent that proffered evidence bears on the amount
_ of damages, it is within the scope of the hearings on
damages in this case and the normal rules of evidence
apply. On issues of liability, however, the rules of
evidence have been substantially modified by virtue
of the default. As to liability, the default has admitted
the well-pleaded allegations of the complaint, and alle.
gations bearing on liability may be contested only
within the limits set forth in Judge Metzner’s opinion
of November 16, 1965 (38 F.R.D. 499).
“An examination of the proffered pages of the Cocke
deposition shows that they are concerned with issue
of liability rather than the amount of damages. For
the most part, they deal with the proposed merger
between TWA and Northeast Airlines, certain aspects
of TWA’s jet acquisition program, and the circum
stances surrounding the institution of the present anti
trust action. These proffered pages do not qualify
for consideration on such issues of liability under the
rules laid down in Judge Metzner’s opinion.
“The only portion of Judge Metzner’s opinion which
might justify admission of Exhibit 364 is the reference
in that opinion to ‘uncontroverted material in the fil
43
of the case.’ There is substantial question whether this
deposition represents ‘uncontroverted’ material and
whether plaintiff had ‘full opportunity to meet or con-
trovert such material.’ However, aside from this ques-
tion, the deposition would not appear to be entitled to
consideration. Mr. Cocke’s deposition was not ad-
mitted into evidence prior to the default and does not
constitute a part of the formal record in this case.
If Mr. Cocke were called as a witness at this time,
his testimony would be inadmissible because it would
constitute a presentation of evidence on liability which
is prohibited by the default. It is hard to see how Mr.
Cocke’s deposition can be admitted into evidence if his
live testimony could not.
“There is also some question as to whether the depo-
sition is admissible in light of the contention that
plaintiff has had no adequate opportunity for cross
examination, and a further question as to the relevance
of many of the pages offered. However, there is no
need to reach these questions in light of the considera-
tions set forth above.
“The objection is sustained.”
Other evidentiary rulings more appropriately appear
hereafter in the discussion of the damage claims.
—
44
Damage Claims
The plaintiff’s damage claims will now be discussed in
the following Sections:
I. Losses in operating profits due to inadequacy of jet
fleet caused by delays in delivery and failure to de.
liver jets.
(A) International division losses.
(B) Domestic division losses.
(C) B-331B’s.
(D) Mitigation claim.
(E) Adjustment in interest cost.
(F) Damages under Section I.
II. Losses due to being required to lease jets from
_ Toolco instead of buying jets from the manufac.
turers.
III. Losses connected with financing the jets.
IV. Losses due to delay in disposal of displaced piston
aircraft.
- Losses due to disruption of business.
V
VI. Alternative over-all claim for damages based upon
comparative profitability study.
VIL. Interest on damage claim.
VIII. Recapitulation and final award.
L Losses in Operating Profits Due to Inadequacy of Jet Fleet
The plaintiff has elected, in its damage claims, to pre-
sent specific evidence of damages with respect to only a
45
portion of the allegations of the complaint. The damages
claimed are confined to those said to stem from actions of
the defendants in the period from early 1955 to the end of
1960 when the Hughes-dominated board of directors of
TWA was replaced, for management purposes, by inde-
pendent voting trustees. “In its claim for damages due to
the inadequacy of its jet fleet (Section I) the plaintiff
takes the position that the main effect of these 1955-60
actions of the defendants was felt by TWA in a period
beginning in 1959 (when the planes TWA “should have”
ordered in 1955 would have begun being delivered in sub-
stantial numbers) through the end of 1963 (when TWA’s
_ independent management achieved “a more nearly adequate
fleet”). While actions of the defendants at earlier periods
are alleged in the complaint, they are referred to by the
plaintiff in the damage proceedings primarily for back-
ground purposes.
The complaint states:
“During this period [in or about October 1955] when
other United States-flag air carriers were placing
orders for jet powered aircraft, and thereafter, the
defendants caused and directed TWA to forego making
any arrangements for the acquisition, by sale, lease or
otherwise of any jet powered aircraft (par. ye?
TWA has further been injured in the following manner:
(a) TWA was prevented from obtaining jet powered
aircraft and was deprived of opportunity for adequate
use of jet powered aircraft during the years 1958, 1959,
1960 and to date with a resultant loss in profits.” (par.
52)
The complaint (pars. 9 and 10) also alleges that these
actions of the defendants resulted from and were in fur-
therance of defendants’ antitrust offenses.
46
It is undisputed that by 1955 aircraft manufacturers jp.
cluding Boeing and Douglas had prepared plans and dray.
ings for the manufacture by themselves of jet powered
aircraft intended for commercial use. At the same time
the major U.S. air carriers were devoting substantial ef.
forts to determine whether and how the jet powered air.
craft then being developed by Boeing, Douglas or others
could be best utilized by them.
Commercial jet aircraft concededly have a very great
competitive advantage over piston aircraft or turbo-prop
aircraft both in speed, comfort, efficiency and operating
costs. From the first introduction of the jets into commer.
cial service, passengers having the choice have chosen to
travel by jet rather than by piston aircraft.
The principal witness of the plaintiff in support of its
damage claim for loss in operating profits due to inade.
quacy of its jet fleet was Mr. Robert W. Rummel, Vice
President, Planning and Research, of TWA. He joined
TW Aas a senior engineer in charge of new aircraft studies
and future fleet planning in 1943. He became Chief Engi.
neer of TWA in 1949 and held that position until 1956,
when he was elected Vice President, Engineering. In 1959
he was appointed to his present position of Vice President,
Planning and Research. From 1956 through 1960 he was
also employed by Toolco as a consultant and special rep-
resentative in connection with the acquisition of jet air-
craft from Boeing and Convair, and the acquisition of jet
engines. As Toolco’s special representative during that
period he reported directly to Hughes. He had authority
to commit funds under Toolco contracts, and the Tooleo
factory representatives at Boeing and Convair reported te
him as special representative of Toolco responsible for the
technical administration of the Toolco contracts with such
manufacturers (TWA Ex. 2).
47
Rummel testified that since 1943 he had been actively
engaged in all of TWA’s major aircraft procurement pro-
grams and had been intimately concerned both with the
aircraft actually acquired through Toolco and also with
aireraft which TWA considered for procurement. He
stated that his activities included negotiations with aircraft
manufacturers with respect to technical specifications, per-
formance characteristics, provisioning and spare parts,
delivery schedules and acceptance tests. He was cross-
examined extensively as to his qualifications as an expert.
I fnd him qualified as an expert in these fields. I reserved
decision on the admissibility of his prepared testimony
(TWA Ex. 2) until I had an opportunity again to review
it in the light of the case as a whole.
In accordance with the foregoing discussion of the effect
of the default, defendants’ general objections (Nos. 1 and
2) to the testimony of Rummel, which were also reasserted
as to plaintiff’s other witnesses, are overruled. The first
objection was founded on the argument that plaintiff had
the burden of proving all allegations which were omitted
by Special Master Rankin in his Interim Findings, and the
second objection was based on the argument that plaintiff
bore the burden of introducing evidence to prove proxi-
mate cause, regardless of the default. Neither of these
positions can be sustained, for the reasons set forth above.
Decision had also been reserved as to certain of the spe-
cifie objections in part 3 of the objections to the testimony
of Rummel (specific objections 4, 5(a), 10, 11, 12, 13, 14,
15, 18, 19 and 21), and these objections are also hereby
overruled.
Similarly, I reserved decision on the admissibility of
the prepared testimony of the witnesses for the defen-
dants. I now rule that such testimony is likewise admitted
into evidence. I likewise decide that the experts called by
“RS
,
48
the plaintiff and defendants as witnesses in these proceed.
ings were qualified for the purposes for which they ap.
peared.
Rummel testified that although TWA’s principal competi.
tors, both on domestic routes and on international routes,
were engaged in serious negotiations for acquisition of
jet aircraft either with Boeing or Douglas during the last
six months of 1955, TWA and Tooleo, which were during
this period in all respects closely controlled in aircraft
procurement matters by Hughes personally, did not engage
in negotiations reasonably calculated to preserve TWA’s
competitive position in the industry for early deliveries of
jet aircraft. Rummel also testified that he had recom.
mended negotiations with Boeing before and during this
period for acquisition of a jet fleet for TWA, but that
Hughes did not authorize negotiations with Douglas and
informed Boeing that Tooleo and TWA were interested
in ordering the Boeing jets only if Toolco could obtain
a large priority in delivery positions (vis-a-vis its competi-
tors). He also testified that Boeing refused this demand
on the ground that it would wreck its commercial program
Rummel testified that in general the major air carriers
which placed orders first obtained the most advantageous
delivery positions. He stated that in order for TWA to ob-
tain competitive equality in early jet deliveries, TWA,
Pan-Am and American Airlines, Inc. (American) would
have had to commence and continue serious negotiations
looking toward a commitment with Boeing for.long range
jets at about the same time; also, all three carriers would
have had to have placed orders for these Boeing aircraft
at about the same time. He stated that “at about the same
time” does not mean that the actual signing of contracts
or letters of intent must be simultaneous, since execution
49
of such formal documents is not the significant factor; and
that minor differences in final contract dates are not signifi-
cant so long as the negotiations have been substantially
contemporaneous. He also testified that the size of the
order would play a role in priority of delivery positions;
that in fact the major carriers did place large orders ahd
got priority of deliveries; and that a carrier’s potential
total order was more important than the size of the first
order. He testified in detail, as hereinafter set forth, as to
his estimate of the delivery dates that the plaintiff could
have achieved and. would have achieved if it had not been
prevented by the defendants from ordering jets during the
period under consideration.
The defendants have failed to disprove, in any manner
open to them in the light of their default, that they pre-
vented TWA from entering into negotiations with Boeing
as alleged in the complaint or that Toolco failed seriously
to negotiate with manufacturers during the latter half of
1955, all contrary to Rummel’s advice and to TWA’s demon-
strable competitive needs, with the result of keeping TWA
from ever getting as favorable delivery positions for long-
range jets as those obtained by TWA’S principal competi-
tors in the years in question.
Mr. Ralph Damon, the then President of TWA, advised
the Board of Directors of TWA on December 9, 1955 of
the substantial orders for jets by TWA’s principal competi-
tors. and pointed out that these jets would be coming into
competition with TWA possibly in 1959-and surely in 1960
and 1961, at which time “Every airplane which TWA now
owns or has on order or option will be either totally obso-
leté or heavily outclassed in speed, comfort, passenger ac-
ceptability and economics on competitive routes.” (DX 44).
4
fe yt een
In his report to the Board he also predicted that any air.
line which did not have comparable equipment by that tim
would be practically out of business soon thereafter. Rum.
mel testified that Damon had been kept out of any par.
ticipation in the consideration of jet equipment by Hughes,
Hughes finally authorized negotiations with Boeing
for acquisition of jets, presumably for TWA, in late
December 1955. A protective order for eight delivery
positions for Tooleo for B-131s was secured from Boeing
on January 6, 1956 (D Ex. 47). A contract for eighteen
B-33ls was entered into on March 19, 1956. Additional
B-131 jets were ordered in a series of contracts entered
into between March 2, 1956 and January 10, 1957, with a
ultimate total of fifteen (TWA Ex. 2, p. 8; Ex. R-l; Ex
R-2; D Ex. 66, 67). The numbers of B-331s and B-131s
finally fixed upon were based upon discussions betwee
Rummel and Hughes as to the proper number of Boeing
aircraft for TWA’s foreseeable needs for long range jets
as of that date.
The delivery dates for these Boeing jets were later than
those obtained by the plaintiff’s chief competitors. These
aircraft moreover were not to be purchased by TWA but
were to be purchased by Toolco, with Toolco retaining the
power to make a later decision as to their ultimate use and
destination.
Later, in April 1956, Hughes caused Toolco to enter into
a contract with Convair for thirty CV-880 medium range
jet aircraft which had been recommended to him by Rummé
for inclusion in TWA’s projected jet fleet. (See complaint
par. 17.) Here again Toolco retained the power to makes
later decision as to whether the planes would go to TWA
(TWA Ex. R-3, R-4.) The plaintiff does not complain that
the medium range jets should have been ordered earlier but
51
does allege that the defendants interfered with the produc-
tion of the planes and caused late deliveries of some of the
jets and diverted others of them to Northeast and prevented
delivery to TWA of still others.
Experts for both plaintiff and the defendants submitted
estimates of thé changes in TWA’s operating revenues
and expenses which would have occurred if the additional
sireraft had been secured and the existing aircraft had
been delivered earlier. Their estimates were made on the
basis of the following premises:
(a) TWA would have received six additional Boeing
B31 aircraft (long range jet aircraft suitable for non-
stop trans-Atlantic operations) which were diverted to
Pan-Am.
(b) Fifteen Boeing B-131 aircraft (a slightly shorter
range jet suitable for trans-continental operations but not
well suited for trans-Atlantic operations) and twelve B-331
aireraft, which were actually received by TWA, would have
been received on earlier delivery dates.
(c) Twenty CV-880 aircraft, which TWA actually re-
ceived, would have been received on earlier delivery dates.
(d) Ten additional CV-880’s would have been received.
Estimates of the delivery dates for the additional Boeing
and Convair aircraft in categories (a) and (d) and of the
catlier “reconstructed” delivery dates for the aircraft in
categories (b) and (c) were prepared by Rummel. The
B81 and CV-880 aircraft were all used in TWA’s domes-
fe operations, and the delivery dates are discussed in the
section of this opinion dealing with domestic operations.
The B-331 aircraft were used in both international and
dimestic operations. As to these, Rummel prepared a table
52
showing the improvement in delivery position he estimated
that TWA would have achieved, taking into account both
the six additional planes (which had been diverted to Pap.
Am) and the delays in delivery of the twelve other Boeing
B-331 jets. The table, shown below, lists in the first colum
the actual receipt date for the twelve B-331’s by TWA
and the actual receipt dates for the six additional B-331’;
by Pan-Am. Since all eighteen were part of the original
Toolco contracts with Boeing, the delivery dates for all
eighteen would have been advanced by making timely or.
ders. The actual delivery dates were earlier than the con.
tract delivery dates, so are used by the plaintiff in comput-
ing its damage estimates. Opposite each “actual receipt
date” is the “reconstructed earlier receipt date” fixed by
Mr. Rummel on the assumptions hereinafter described.
Reconstructed
Actual Receipt Date
*November 5, 1959
November 10, 1959
November 10, 1959
November 25, 1959
Earlier Receipt Date
*July 19, 1959
August 22, 1959
August 28, 1959
September 22, 1959
*October 6, 1959
October 27, 1959
*November 5, 1959
November 10, 1959
*December 15, 1959
December 30, 1959
January 18, 1960
February 29, 1960
53
(in the case of two of the planes, Toolco failed to make
payment when they were ready for delivery so the “ready
for delivery” date is used in the above table rather than
the “actual receipt” date.)
Since the B-331 aircraft, were used by TWA in both in-
temational and domestic operations,-the added availability
of these planes was allocated between the international
and domestic operations of TWA in the same proportion
as the allocation actually made by TWA of its B-331 air-
aft during this period. The details of this allocation of
the additional B-331 availability are shown in the sections
of this report dealing with TWA’s international and do-
mestic operations. As to responsibility for diversion of the
six B-331 aircraft to Pan American, I have already rejected
defendants’ argument that ratification of the assignment
by the Hughes-dominated TWA Board of Directors is suf-
feient, under the rules of the default, to relieve defendants
of responsibility for this portion of plaintiff’s claim.
The Rummel testimony was corroborated in many sig-
ifiant aspects by the testimony of Mr. J. B. Connelly,
Viee President and Assistant General Manager of Boeing’s
Aireraft Division. (TWA Ex. 3) Connelly testified that
he was familiar with the development, production, sales
and deliveries of commercial jet aircraft by Boeing during
the period 1954 to 1961 and in particular the jet aircraft
mown as the Boeing 707-120 and the Boeing 707-320 series.
The policies followed by Boeing coneerning the sale of
‘mmercial jet aircraft to commercial air carriers through-
mt the period 1955 to 1961 were testified to by Connelly.
He testified that he participated in and was generally fa-
uiliar with the negotiations between Boeing and Pan-Am,
ttween Boeing and American and between Boeing and
legleo as well as other air carriers. He stated that in 1955
te
=
eee,
54
Boeing wished to sell substantial numbers of 707 jet air.
craft to TWA. This included the 707-330 Series, long-range
jets suitable for TWA international service. (The con.
figuration later chosen from this Series for TWA’s use
was designated as B-331.) It also included the 707-10
Series, suitable for transcontinental service. (The con.
figuration.in this Series chosen for TWA was B-131.)
Connelly testified that Boeing would have afforded TWA
substantially as early delivery positions as those afforded
to other customers of comparable interest to Boeing. He
stated specifically that had TWA commenced negotiations
and ordered jet aircraft comparable in number to those
ordered by Pan-Am and American, respectively, at about
the same time as such other customers ordered jet aircraft
from Boeing, Boeing would have afforded TWA substan
tial equality in early delivery positions with Pan-Am and
American. He stated that Boeing would have sought to
provide substantial equality of early delivery positions as
between Pan-Am and TWA for planes used primarily o
international routes and substantial equality of early de
livery positions as between American and TWA as to air
craft used primarily on domestic routes. He stated that
Boeing would have agreed, assuming that TWA had placed
such orders, to deliver and would have delivered to TWA
jets of the B-120 and B-320 Series earlier than such ait-
craft were in fact delivered under the Boeing agreements
with Toolco. He further testified that he had examine
the “Statement of Improvement of Delivery Position’,
prepared by Rummel and hereinafter discussed, and ¢-
pressed the opinion that it constituted a reasonable esti-
mate of the improvement in delivery positions which TWA
would have obtained. With reference to the six B-331 jet
which were originally ordered by Toolco and were late
55
delivered by action of Toolco to Pan-Am instead of TWA,
Connelly corroborated the testimony of Rummel as to the
eatliest delivery positions Pan-Am could have obtained
from Boeing for six such jets if they had been ordered
from Boeing in July 1959. The Connelly testimony was
not seriously controvertéd,
The Rummel and Connelly testimony reinforce the above-
quoted allegations of the complaint in respect of the in-
adequacy of the plaintiff’s long range jet fleet caused by
action of the defendants. .
In view of the-fact that the “reconstructed” TWA pos-
sessed six additional Boeing B-331 jets and ten additional
CV-880 jets, it was assumed that this larger fleet would
have rendered unnecessary certain additions to the TWA
fleet which were made when the management of TWA was
tarned over from the Hughes interests to independent vot-
ing trustees in December 1960. It was assumed that TWA
would not have acquired five B-331B (fan jet) aircraft
which it leased in 1962 and 1963, and that it would not
have acquired six CV-880 aircraft which it purchased in
1963. However, it was assumed that even with the larger
“reconstructed” fleet, TWA would nevertheless have ac-
quired the four B-720B aircraft (a later model Boeing me-
range jet) which were leased during 1961 and 1962,
would also have purchased the eighteen additional
aircraft (fan jets) which it received in 1962.
The foregoing assumptions, which set forth a hypothetical
jet fleet for TWA in 1959-1963, constitute the basic equip-
ment premises for the estimates of the expert witnesses for
both plaintiff and defendants. As to the piston fleet which
vould have been operated by TWA during this period, each
si such adjustments in TWA’s actual piston oper-
mons as, in his opinion, would have accompanied the hy-
oth jet operations.
ss os
Si
Defendants argue that there is no certainty that the
hypothetical jet fleet recommended by Rummel, which forms
the basis for that part,of the plaintiff’s damage claims due
to inadequacy of its jet fleet, would in fact have been im.
plemented by the plaintiff under an independent manage.
ment. They stress that Rummel was not chief executive off.
cer of TWA nor in any position to impose his equipment
views on the Board of Directors. They cite various inter.
office memoranda, introduced into evidence, indicating that
there was a running exchange of comments, and differing
opinions, among TWA officers and staff members from time
to time over the types and amounts of jet equipment to be
purchased. Defendants also introduced in evidence various
opinions expressed by CAB officials, trade magazine editors
and airline executives, including some TWA officials, to the
effect that airlines may have overbought jet equipment c-
pacity and would suffer adverse financial consequences if .
they did not cut back their jet programs. They conclnde
that the plaintiff's expert testimony is too speculative to be
accepted as a basis for damages.
Given the well-pleaded allegations of the complaint, hov-
ever, the testimony of Rummel, who was chief procurement
officer for the plaintiff at the time and an equipment pro-
curement representative of Hughes, as well as the Connolly
testimony, and the evidence that the assumed additional
fleets of B-331s, B-131s and CV-880s were in fact ordered
in the same type and quantity by a Hughes-dominated
TWA, although at later dates, I am of the opinion that the
hypothetical jet fleet and reconstructed delivery dates cor-
stitute a proper basis for computing damages under this
Section I. The evidence of the plaintiff’s experts as to the
reconstructed jet fleet is well within the standards of dis
tinctness and positiveness of proof allowable in default sit-
56
57
uations under the doctrine of Bigelow v. RKO Radio Pic-
tures, Inc., 327 U.S. 251 (1946).
By way of orientation for the detailed discussion which
follows showing the methodology used by the various ex-
perts in making up their estimates of damages due to the
inadequacy of TW A’s jet fleet, it should be stated at this
point that estimation of the changes in TWA’s operating
revenues requires a consideration both of the added rev-
ennes and costs that would have accompanied additional
jet operations and of the decreased revenues and costs that
would have resulted from eliminated piston operations. The
estimates of revenues and costs produced by the plaintiff’s
experts and the defendants’ experts were dramatically dif-
ferent (see Tables pp. 59 and 83). The plaintiff’s experts
estimated that TWA would have experienced an increase in
net operating profits after appropriate adjustment for de-
preciation for the years 1959 through 1963 in the amount
of §1.7 million dollars, whereas the defendants’ experts
estimated that if TWA had acquired and operated the
hypothetical jet fleet as assumed by the plaintiff, it would
have experienced a decrease in net operating profits after
depreciation adjustments for these same years, of 95.91 mil-
lion dollars. The defendants’ brief states at page 220:
“It was not, of course, Simat’s {expert witness of de-
fendants’] opinion that the management of recon-
structed TWA would have permitted such staggering
losses to accumulate. Management could have dras-
tically cut schedules * * * but while such measures
might have avoided the dire consequences of operat-
ing Wemple’s [expert witness of plaintiff] added
plane miles, they would not have sufficed to put the
added fleet in the black.”
At this point I shall separate the claims of the plaintiff
With Tespect to the adequacy of its jet fleet into divisions
58
A and B, ie., between claims for loss of operating profi
of its International Division and claims for loss of oper.
ating profits of its Domestic Division.
(A) International Division
It will be useful, I believe, from time to time while read
ing the ensuing discussion as to the International Divisia
to refer to the table which follows, comparing the amount
of the estimates of experts retained by the plaintiff an
defendants. The table is a portion of plaintiff’s Ex. 49
(Sch. C).
(Table reproduced on following page)
As to the International Division, the plaintiff’s claim
shown on foregoing Table is for $22.4 million damages, It
may usefully be divided into two parts. First, the redw
tion of the plaintiff’s projected Boeing jet fleet by the co
ceded diversion of six of the eighteen B-331 jets by action
of Toolco to Pan-Am, TW4A’s principal transatlantic com-
petitor, at a time when fierce competition existed for the
lead in the jet service on international routes (cf. com
plaint, pars. 9, 10). The amount of damages claimed by
reason of this diversion is $17.6 million. Second, the delays
in the delivery of that fraction of the B-331 jets assigned
to the International Division which resulted from the orig-
inal equipment orders being delayed by Toolco until after
the earliest delivery positions for the long range jets had
been preempted by Pan-Am. This second claim is for $48
million. &
~~
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lie OE MU att ra A ad ao NSS 5 3
60
Revenues—First Part
The plaintiff retained the firms of Coverdale & Colpitts
(sometimes referred to as “Coverdale”) and Price Water.
house & Co. to calculate the change in operating profits
based upon the foregoing assumptions.
Coverdale, with its predecessor firm, is a nationally
known firm providing consulting engineering and financial
services to industry and government. It conducts indus.
trial studies involving mergers and reorganizations, man-
agement appraisals, transportation and product pricing
analyses, plant location and operations studies. These
studies have included all forms of transportation including
air transportation. The Coverdale study in this case was
presented through the direct testimony of Edward L.
Wemple who has been a partner in the Coverdale firm since
1956. Studies in the airline field which have been made
under his supervision have included analyses of operations
programs for TWA, Flying Tiger Line and British Over.
seas Airways, as well as traffic and revenue studies for
various airports, including O’Hare International Airport.
He is a member of the American Institute of Consulting
Engineers.
Before discussing the Coverdale report on the additional
B-331 planes, it should be remembered that these planes
were assumed to have obviated the leasing of five B-331B
aircraft in 1962-1963. The international service actually
operated with the B-331B aircraft were assumed to be per-
formed by the additional B-331’s. Revenue and cost figures
were adjusted accordingly by all expert witnesses.
The Coverdale estimate of changes in operating profits
relating to the six diverted B-331s will now be summarized
It starts with a computation from TWA equipment records
of the annual average number of additional B-331 Boeing
61
jets that would have been available for commercial service
for the International Division if there had been no transfer
Sshithe six B-331s to Pan-Am by action of Tooleo and these
planes had been in TWA’s service (a jet in service for
one-tenth of a year would show as one-tenth of a jet in
the annualized figures) +
The computation of such annual average number of addi-
tional jets is as follows:
1959 0.2 B-331s
1960 3.6 “
1961 3.7 “
1962 48 “
1963 09 «
Coverdale relied on actual TWA experience as to the
time ordinarily elapsing between the date of receipt of a
plane and the date of commencing service in fixing the
date when an aircraft was “available for commercial ser-
vice.” Aircraft “available for commercial service” is a
term which is defined to include not only aircraft actually
employed in revenue-producing activities, but all other
owned or leased aircraft on hand, once commercial service
has been inaugurated with aircraft of the same type. (See
TWA Ex. 4(c)(4), Ex. B, C; Tr. 4653-62, 4695-4703. )
Thus the term includes aircraft not overhauled, aircraft
being used for pilot training activity and other similar
non-productive aircraft.
Coverdale assumed that an increase, in the number of
aireraft available for commercial service would produce a
proportionate increase in plane miles flown, thus allowing
for maintenance, training and other non-productive em-
ployment of the additional aircraft on a basis exactly pro-
ornionate to TWA’s historical experience in the same year
mA aircraft of the same type. The Coverdale computa-
° E fy
ri oy,
62
tions also implicitly assume that in any given year addi-
tional aircraft of any type would be employed in operations
substantially similar in kind to those in which aircraft of
the same type were employed by TWA in the same year,
The assumed additional aircraft available for commercial
service in the International Division would have produced
additional passenger revenue jet plane miles, as follows:
1959 0.1 million miles
1960 6.3 45 ”
1961 6.6 " -
1962 8.4 - ”
1963 1 5 “ “
The estimates of these additional jet plane miles were
obtained by applying the experienced annual utilization for
the B-331s in a particular year to the assumed additional
availability of that type of jet in the same year.
Coverdale then estimated the corresponding reduction of
the number of piston aircraft miles. This estimate was
based on determining the ratio between the increase in all
jet plane miles flown historically in the International Div
sion in a given year over those flown in the preceding year,
and the decrease in all piston plane miles flown in this
Division between the same two years, and estimating that
a further increase in jet plane miles would have produced
a further and proportionate decrease in piston plane miles
for that year.
The corresponding reduction of piston passenger revenue
plane miles was as follows:
1959 0.1 million miles
1960 | Ss .
1961 —_—
These reductions would have been piston plane miles
flown by Lockheed L-1649As and are obtained by applying
63
to the experienced annual utilization for the L-1649As in a
particular year in the International Division their assumed
lesser availability in that year.
_ The ratio of the number of transatlantic flights to mil-
lions of plane miles being fairly uniform, the number of
assumed increased transatlantic flights was then computed
ona basis directly proportionate to the net increase in plane
miles; and on the basis of seating capacity of the B-331
aircraft, the number of increased available seats was com-
puted, with the following results:
Additional
Additional Flights Available Seats
1959 — 1.1 thousan
1960 228 89.1 “
1961 987 154.3 °
1962 1,793 251.0 -
1963 311 44.0 *
The additional seats in 1959 resulted from using aircraft
of greater seating capacity, even though the number of
fights remained the same.
The international operations of TWA consisted of trans-
atlantic flights and continuation of certain of these flights
“beyond the gateway” (the gateway being the point at
which the eastward transatlantic flight made its first Euro-
pean stop). It was conceded there is no source to obtain the
industry figures for the number of “beyond the gateway”
scheduled passengers (Tr. 8498). It was accordingly as- .
sumed by Coverdale that increased TWA service for the
International Division would have beén divided between
scheduled transatlantic operations and other international
operations as historically divided.
During the years in question, the figures submitted by the
laintiff’s experts showed a very close correlation between
BWA’s percentage of the total available transatlantic seats
eg
es
64
and its percentage of total transatlantic passengers on all
airlines constituting the members of the International Air.
line Transportation Association (IATA). Their estimate of
additional TWA transatlantic passengers which would have
been obtained is therefore obtained by taking the increased
percentage of seats and proportionately increasing the
number of passengers.
Here it should be noted that in estimates for 1959-60, the
additional seats offered by TWA would have been, in effect,
a transfer of seats from Pan-Am to TWA, because TWA’:
additional aircraft would have been transfers of the six
diverted B-331s from Pan-Am and there would have been
no increase in the total U. S.-airline available transatlantic
seats; but since Pan-Am could have obtained delivery of
other similar jets from manufacturers in the spring of
1961, the annua] total numbers of transatlantic seats avail.
able for the years 1961, 1962 and 1963 were assumed by the
plaintiff to have been increased by the number of additional
seats that would have been offered by TWA.
The industry competitive factors in 1959-60 were
markedly different in international travel from the 1961-63
period. Notice of these differences is taken in discussing
damage theories hereinafter.
The calculation of TWA’s additional transatlantic pas-
sengers in accordance with the above premises produced
the following results:
Revised Number
Actual Passengers of Passengers
1959 146 thousand 147 thousan
1960 243 ws 298 ”
1961 208 “7 275
1962 277 ” 382 -
1963 359 ‘~ 377 ”
65
There were then computed the additional revenues which
would have been received by TWA in respect of these addi-
tional passengers. This was done by taking the actual
International Division passenger revenues for each of the
five years in question and increasing them by the same
percentage as the increase in the number of TWA trans-
atlantic passengers for each year in question.
The additional passenger revenues, so calculated, are as
follows :
1959 $ 0.6 million
1960 _ 18.9 .
1961 20.4 =
1962 29.5 *
1963 5.3 ”
There was additional assumed revenue from mail, ex-
press, freight and excess baggage which all experts esti-
mated at 5% of the assumed additional passenger revenue.
The total estimated additional revenue from the assumed
six additional B-331s was therefore $78.4 million for the
International Division. |
Hereafter we will discuss the estimates of the plaintiff’s
experts as to the amount of attendant increased operating
expenses which amounted to $60.8 million leaving the net
additional revenue of $17.6 million as the amount of the
plaintiff's damage claim for the International Division with
respect to the six additional B-331s transferred by reason
of the action of Toolco to Pan-Am. Before reviewing the
estimates for operating expenses, howéver, we will first
discuss the computations of the defendants’ experts with
respect to the change in operating revenues related to the
international Division from these six assumed additional
B-331s,
The defendants retained as their experts to analyze the
e estimates, and to prepare their own estimates
nN
“ %
66
of changes in operating profits, the firm of Simat, Helliesen
& Eichner, Inc. (sometimes referred to as “Simat”),
The report of Simat was presented through direct testi.
mony of Messrs. Nathan S. Simat, Robert I. Helliesen and
L. John Eichner, officers of that organization. The Simat
organization was formed in 1963 and engages in economic
and transportation studies for government and private
clients. It has conducted studies for various air carriers
from every sector of the air transport industry. Simat
was for many years employed by the Civil Aeronautics
Board as a transportation economist. As Head Economist
of the Analysis Division of the CAB, he prepared numer.
ous operating and financial analyses dealing with air traffic,
revenues and costs, feasibility of equipment purchase pro-
grams and he appeared in numerous commercial rate and
mail proceedings. As Chief of the Certificates Section of
the Routes Division of the CAB he prepared or supervised
the preparation of studies dealing with the economic con-
sequences of adding and deleting air services. He has acted
in management and economic consulting capacities for
Northeast Airlines and Sabena Belgian World Airlines.
Helliesen was for some years employed by American
Airlines, Inc. in various economics and marketing capaci-
ties and held the office of Director of Schedule Planning and
Business Research in that company. He has done economit
research for the Air Transport Association of America it
connection with the CAB general passenger fare investigs-
tion and has also been retained by the Convair Division of
General Dynamics. He formed the Aircraft Exchange,
which provided regular market reports of bids and offers
for the purchase, sale and lease of used transport aircraft,
and served as its head in 1958-1962. He joined the Sims
organization in 1965.
67
Kichner served in responsible positions with Capital
Airlines, Trans-Texas Airlines and from 1961 to 1966 was
Assistant Vice President of Corporate Planning for Ameri-
can Airlines, Ine., where his duties included the prepara-
tion of special studies and forecast of. revenues, expenses
and ground facilities for- various types of air equipment.
He joined the Simat organization in 1966.
The Simat report assumed the same reconstructed earlier
delivery dates for the jet equipment as the Coverdale re-
port, and assumed all the other equipment assumptions of
the Coverdale report, so that the size of the hypothetical
jet fleet in both reports for the five year period 1959-1963
is identical. The defendants’ experts used the Coverdale
estimates for the number of added and deleted aircraft and
aircraft miles and further used the assumption that all
deleted piston aircraft services in TWA International Divi-
sion had been operated with L-1649A aircraft. They also
testified that it was not unreasonable to use the percentage
share of available [ATA transatlantic seats as a guide for
estimating TWA’s percentage share of transatlantic pas-
sengers and accordingly used the same number of TWA
transatlantic seats assumed to be added.
It was their opinion, however, that Coverdale’s esti-
mate that TWA could increase its share of available trans-
atlantic seats was erroneous. Simat’s opinion was that the
transatlantic market. is the leading international air travel
market in the world and the object of vigorous competition
by nearly 20 air carriers exclusive of «supplemental and
charter carriers and that it was difficult, if not impossible,
to conceive of a market where a likelihood of unilateral
competitive action without response from other carriers in,
the market, is more remote.
th
68
Under this theory of “competitive response” developed
by defendants’ experts, and more fully stated hereafter,
the reconstructed estimates for additional transatlantic
passengers by Simat were:
1959 146 thousand
1960 281 -
1961 255 ™
1962 343
1963 368 4
The opinion of Simat on this theory of competitive re.
sponse was that Pan-Am, as TWA’s principal transatlantic
competitor, would have taken some of its long range jets
off of its other international flights to maintain its “his.
toric ratio” of available transatlantic seats vis-a-vis TWA,
or else it would have retained some of the piston seats
which were historically retired, or both. Simat was also
of the opinion that foreign airlines would have likewise
responded competitively. He selected the second and third
quarters of the years 1960-63 (omitting the first and fourth
quarters when various airlines observed different policies
in the seasonal reduction of weekly frequencies) and noted
that in these selected quarterly periods, for each flight
(including pistons as well as jets) added by TWA, the fol- -
lowing “pattern of competitive response” in annualised
average additional planes was shown in 1960, 1961, 1962
and 1963: In the second quarter of said years Pan-Am
added .07, 1.3, 2.1 and 1.9; foreign flag carriers added 33,
4.2, 5.4 and 5.3; and in the third quarter of said years
Pan-Am added 1.7, 1.8, 2.5 and 2.7; foreign flag carriers
added 4.4, 5.0, 4.4 and 6.4.
It will be illuminating to discuss the defendants’ argu-
ments separately for the 1959-60 period and for the 1961-3
period.
Simat estimated that in 1959 Pan-Am would have trans-
ferred .04 jet aircraft (on an annualized basis) to the trans-
atlantic service from its other international routes but that
the foreign competitors, since it was assumed that no in-
crease in the total transatlantic service of U.S. airlines
would be involved, would not have responded competi-
tively. For 1960 Simat first estimated that for each flight
added by TWA, Pan-Am would have responded competi-
tively by adding one flight and other foreign competitors
taken as @ group would have responded by adding one
fight; but since he did not assume that the additional seats
generated by TWA through the replacement of piston
flights by jet flights would have engendered a competitive
response, he adjusted his estimates of competitive re-
sponses to the net addition of .85 transatlantic seats by
Pan-Am and the same by the other IATA carriers for each
seat that would have been added by TWA.
Conclusions 2sto Revenue Estimates
The severe worldwide shortage of jet equipment through
1960 was such in my opinion, as to make the assumed
transatlantic competitive response unrealistic for the 1959-
6) period. It is reasonable to assume that TWA’s usage
of the six diverted B-331s would have been proportionately
the same as its usage of the curtailed fleet it did acquire,
and thus that approximately one-third of the diverted six
B-331s would have been used domesticatly by TWA. The
total U.S. airline competition on the transatlantic route
vould thus have involved the use of two fewer jets during
these years, thus appearing to rule out any probability of
“competitive response” from foreign lines. As to Pan-
Am piston aircraft with their higher cost and lower
ess were in no position to compete effectively
70
against jets. On cross-examination of Simat, it was brought
out that essentially there was no “historical pattern” of
response by competitors to additional TWA transatlantic
service. Tne ratio of such TWA to Pan-American serviee
for example, varied from 53% to 82% in the years leading
up to introduction of the jets (Tr. 8378).
Also it was shown that in 1960 TWA historically in.
creased its percentage of transatlantic seats vis-a-vis
Pan-Am, without competitive response, indicating that
Pan-Am made a management decision that it preferred
to use many of its jets on other international services to
maintain or improve its position there. If Pan-Am had
not received the diverted planes, it presumably would have
been in an even less favorable position to exert a “competi-
tive response” on the transatlantic service during the years
in question. Pan-Am faced jet competition, for example,
on the Pacific routes where Quantas and BOAC were op-
erating jets. When Pan-American did receive B-331s in
quantity, it transferred the B-131s theretofore used on the
transatlantic service to the Caribbean service, thus farther
indicating the need on its part to distribute its jet equip
ment on a worldwide basis. All airlines dropped piston
service on transatlantic routes as jets became available,
because of customer preference for jets.
Finally, no testimony was introduced as to the effect
financially on the other worldwide operations of TWA’:
transatlantic competitors of transfer of jet service from
these other international operations to the transatlantic
route. In the absence of such figures, and considering the
facts summarized above, it appears to be sheer speculation
to conclude that the managements of the competing air-
lines would have automatically made a competitive re
sponse in any given ratio to the changed conditions on the
transatlantic route.
71
Support for this conclusion also may be found in an
examination of Pan Am’s Pacific operations and a com-
parison of the profitability of these operations with Pan
Am’s Atlantic operations. The table below, comparing
Pan Am’s Pacific and Atlantic divisions for both seat miles
and operating profit, is taken from statistics in the C.A.B.
Handbook of Airline Statistics 1965 Edition, which has
been frequently relied on by both sides. This comparison
shows that in the years in question, except for transition
_ -year 1959, Pan Am’s Pacific operations were far more pro-
ductive on a revenue per seat mile basis than were its
Atlantic operations. It cannot be lightly assumed that
Pan Am would have sacrificed its earnings on the Pacific
in order to match T.W.A. flight increases on the less prof-
itable Atlantic route.
COMPARISON OF PAN AM PACIFIC AND
ATLANTIC OPERATIONS
(000’s omitted)
Paorric Drvision Atiawrio Division
Operating
Seat Miles Profit Seat Miles Profit
(000) ($000) (000) ($000)
1959 1,397,428 5,557 2,447,837 17,469
1960 2,108,703 18,672 3,220,514 16,593
1961 2,525,397 21,689 4,361,135 4,468
1962 2,915,237 30,965 5,123,207 12,489
1963 3,267,904 38,814 6,007,142 33,273
‘Source: C.A.B. Handbook of Airline Statistics, 1965 Ed., Part
Uf Tables 83 and 85, Part IV Tables 83 and 85,
~ As to the availability of jet aircraft for foreign flag car-
tiers from non-competitive sectors, it is not known whether
not the profitability of these non-competitive sectors
wait or would not inhibit the shifting of jet aircraft to the
” Also, it is not clear whether the individual non-
72
competitive sectors recorded by Simat were not
intermediate portions of a longer flight, which could not be
deleted if the longer flight was to be retained, or that these
sectors were operated with jet aircraft suitable for trans.
atlantic operations.
Finally, there is no evidence that scheduling consider.
ations would have permitted the shifting of aircraft from
their actual routes to the Atlantic. For example, elim.
ination of a short non-competitive flight by Pan Am or
some other carrier might not free enough jet hours for an
additional transatlantic flight, afi even if sufficient hours
were available, there is no evidence that they would have
been available at times which were commercially attractive
for transatlantic operations.
The defendants’ experts stated a further objection to the
plaintiff’s method of calculating changes in operating rev-
enues in that the plaintiff’s experts assume that the cate-
gories of passengers other than scheduled transatlantic
passengers included in the International Division (“beyond
the gateway” and charter service passengers) would in-
crease in the same percentage as for IATA scheduled
transatlantic passengers. Defendants’ experts produced
statistics designed to show that TWA’s actual experience
demonstrated that “beyond the gateway” International
Division passenger revenues, as defined by them, increased
during the years in question at only 52% of the rate of
increase for transatlantic [ATA passengers; that the per-
centage of “beyond the gateway” passengers, as defined
by them, to the total TWA International Division passer-
gers dropped from 40.4% in 1959 to 29.5% in 1963; and
that in terms of absolute numbers such TWA “beyond
the gateway” passengers remained relatively unchanged
over this period except for a “spurt” in 1963, while its
IATA transatlantic passengers increased almost fourfold.
73
The evidence was conflicting as to the proper basis for
easuring the volume of “beyond the gateway” passengers
(Tr. 8506; TWA Ex. 340).
‘The plaintiff’s claim for the 1959-60 period, however,
does not rest upon any increase in traffic from year to year.
It assumes only that whatever traffic moved in the Inter-
national Division area would have been proportionately
redistributed in its favor, if it had the assumed increase
intumber and betterment in quality of equipment. Trans-
atlantic passenger figures of the industry are used as a
basis for computations because they are admittedly accurate
and constitute the bulk of revenues for the Internationa]
Division, whereas no one was able to produce satisfactory
International Division territory figures for the industry
for estimation purposes (Tr. 8498). As to overall charter
sevice in the area served by the International Division,
it@eems reasonable to assume, as the plaintiff did, that it
isabtained for the transatlantic service generally in pro-
portion to capacity offered, assuming the same type of
equipment is used.
The plaintiff points out, finally, that the defendants’ ex-
perts assume that if TWA had failed to obtain a favorable
eastomer response to a larger jet capacity offered to char-
ttf eustomers and to “beyond the gateway” customers,
VA nevertheless would have continued the same propor-
ions e distribution of its International Division jet air-
“s it between transatlantic service and these other services
sitdid historically. They stated that any, rational manage-
mi, during this period of jet shortage, would have
Mimiply redistributed its aircraft assigned to the Inter-
Menal Division so as to take advantage of the demand
u Be more profitable segments. If the more profitable
mts consisted of transatlantic service, then service
Hhave been transferred by management from the “be-
74
yond the gateway” service and the charter service to sched.
uled transatlantic flights.
As to the 1961-63 period, competitive conditions
changed materially from the 1959-60 period. Jets had be.
come available in greater quantity and the industry load
factor dropped. Economic conditions were less favorable
for international travel during most of the period. Piston
service on the transatlantic route ceased, and TWA’s com.
parative shortage of jet equipment in 1961 caused it rapidly
to lose its market position. The plaintiff has assumed that
in this period the total number of seats offered by the in-
dustry in general transatlantic competition would have in.
creased because Pan-Am could have received delivery from
Boeing directly of six B-331s which it decided to buy in
1959. Accordingly the plaintiff has estimated that TWA
would have obtained its historical share of passengers
based on the increased industry capacity. The net increase
in operating profits estimated by the plaintiff for these
years (on the basis outlined above) is substantially lower
than for the 1959-60 period. The figures are as follows:
Net Estimated
Gross Estimated Estimated Additional
Additional Revenue Increased Costs Revenues
1961 $21.4 million $19.6 million $1.8 million
ie 6 6G me te.
1963 | rs 7 Be we 6 ies
For background purposes, it is noted at this point that
during the 1961-63 period, Pan-Am’s Atlantic Division his-
torically made an operating profit of $50.3 million; and
TWA’s historic operating profit for this period in its Inter-
national Division was $25.1 million.
The defendants make the same two points in respect of
the 1961-63 period as discussed above to dispute the validity
of the plaintiff’s estimates—i.e—‘“competitive response”.
75
and disproportionate increase assumed for “beyond the
gateway” and charter service. In reply the plaintiff makes
several additional points in respect of the years 1961-63:
(a) It is unrealistic and speculative to assume TWA’s for-
eign competitors would have weakened their competitive
position on other routes to meet such increased transat-
lantic competition as would have been produced by Pan-
Am’s assumed acquisition of six additional jets early in
1961. Pan-Am would have had during this period, under the ©
posited assumptions, exactly the same number of jets that
it historically had, and presumably would have distributed
them worldwide as it historically did. (b) It is reasonable
to assume that an increase in jet service by TWA with re-
sultant increase in its proportion of total service offered by
the industry, would have correspondingly increased its pro-
portion of total traffic carried in its International Division.
The reasoning of the plaintiff appears to me to be valid
and accordingly I accept the added revenue estimates in
_ ‘Respect of the six diverted B-331s as computed by the plain-
tiffs experts for the International Division.
Estimates of Operating Costs
The added costs of operating the six additional jets in
the International Division were computed in detail by the
experts for the plaintiff and defendants. (See summary
thereof in table on p. 83.)
A brief description of the methodology used by the plain-
tiffs expert in estimating changes in operating expenses
tttendant upon the assumed additional TWA operations in
respect of the six diverted B-331s is set forth below.
Changes in operating expenses are separately computed
forthe increases in jet operations and the decreases in
yawOn Operations. As to cach category, hereafter described,
, re
a determination was made of the extent to which it varied
historically in the years in question as the scale of opeta.
tions changed, and an estimate was made based on the as.
sumption that further changes in the scale of operations
would produce further changes in expenses on a propor.
tionate basis. Following are the categories and the method
used for each in computing the changes in expenses for
the assumed changes in operations.
Flying operations and maintenance expense incurred for
operating and maintaining aircraft were changed in pro
portion to the assumed changes in plane miles or number
of aircraft available.
Aircraft servicing expenses which have to do generally
with ground activities for aircraft were computed on the
basis that the estimated net increase of plane miles oper-
ated would have been proportional to the increase in nun.
ber of flights processed on the ground and accordingly |
plane miles were used as the index for calculation of
changes in this class of expense.
Passenger service expense which has to do with pas-
sengers while in flight was computed insofar as cabin per-
sonnel is concerned in proportion to plane miles operated;
and expenses for food supplies and liability insurance
were varied in accordance with passenger revenues.
Traffic servicing expense which has to do with handling
passenger and cargo traffic on the ground were veces in
proportion to transportation revenues.
Service and administration expense which has to do
with supervisory and administrative activities for servie-
ing of aircraft and traffic was varied in accordance with
changes in plane miles.
Promotion and sales expenses were varied in accord-
ance with changes in transportation revenues.
77
General and administrative expense which has to do
with corporation matters in certain activities such as finan-
cial, accounting, legal and general administration were
varied in accordance with changes in transportation reve-
nnes,
Depreciation and amortization were computed by Price
Waterhouse & Co. and certified by it as being appropriate
under the assumed changes in equipment.
The detailed changes in operating expenses are set forth
in the Coverdale Report, Volume I and summarized at pages
37 and 38 thereof by years.
The total increased costs found by the defendants’ ex-
perts for this facet of the case were less than those found
by the plaintiff’s experts by reason of the fact that the
defendants’ experts had calculated costs on the basis of a
smaller increase in traffic. The total added costs under this
facet of the case found by the plaintiff’s experts was $60.8
million; the corresponding total found by the defendants’
experts was $51.9 million. If the estimates of the plaintiff’s
experts as to increased traffic and revenues for the Inter-
national Division are accepted, and the cost estimates of
the defendants’ experts are recomputed on that basis but
using their own costing methods, the recomputed cost esti-
mates of the defendants’ experts would be at least as low
8 those of the plaintiff’s experts. Since the estimates of
the plaintiff’s experts are accepted by me as to traffic and
revenues, their estimates as to operating cost. should be
accepted. Accordingly, at this point no detailed discussion
of the different costing methodologies used by the experts
for the International Division-is called for.
aay a 42
78
Revenues and Operating Coste—Second Part of Claim
The second part of the plaintiff’s claim as to the Inter.
national Division, as stated above, is a claim for $4.8 mil.
lion damages caused by delays in delivery of the 18 Boeing
B-331 jets (insofar as a fraction thereof is assumed to be
used in the International Division service) which resulted |
from orders therefor being delayed by Toolco until after
the earliest delivery positions had been preempted by Pan.
Am. The assumed earlier delivery dates would have af.
fected operations’only in 1959 and 1960 since the last of
the B-331s was historically delivered in 1960.
There is agreement between the experts that the annual
average added B-331 aircraft for the International Divi-
sion under assumption of the earlier deliveries of the twelve
B-331 jets for 1959 would be .9 aircraft and for 1960 would
be .6 aircraft; that the added jet aircraft miles would bk
1.6 million miles for 1959 and 1.1 million miles for 198;
that there would be a reduction of 1.6 million piston air-
@raft plane miles in 1959 leaving the International Divi-
sion total plane miles unchanged; that there would be no
reduction of piston plane miles in 1960 and accordingly
the net increased plane miles for the International Divi-
sion in 1960 would have been the same as the gross increase,
i.e., 1.1 million plane miles; that the additional transat-
lantic seats for 1959 would have been only from the dif-
ference in size between the jets and the replaced pistons
and would have amounted to 17 thousand additional trans-
atlantic seats; and finally that the additional transatlantic
seats for 1960 would be 27 thousand. Translating thes
figures into increased revenue, on the same basis as wa’
used in the case of the six additional (Pan-Am) planes,
79
and adding thereto the 5% for additional revenues from
cargo, the plaintiff’s experts estimate that the total addi-
tional International Division operating revenues from as-
sumed earlier delivery of twelve B-33ls would have been
$45 million in 1959 and $6.4 million in 1960. The defen-
dants’ experts would reduce these figures, as in the case
ofthe six additional (Pan-Am) planes for the factors of (a)
competitive response and (b) failure of “beyond the gate-
way” and charter traffic to increase proportionately to
the increase in transatlantic service. The defendants’ ex-
perts’ figures, with these reductions, show assumed ad-
ditional operating revenues of only $2.79 million in 1959
‘and $2.03 million in 1960. For the reasons above stated,
the plaintiff’s estimates of additional revenues are ac-
| capt.
Aa to operating costs, here again if the plaintiff's esti-
_ ‘Mates on increased traffic and revenues are accepted, and
_ the defendants’ cost figures are recomputed under its own
_ methods of costing but on the basis of the plaintiff's in-
- @eased traffic and revenue figures, the result would be a
total of operating costs at least as low as the plaintiff’s cost
figures. The plaintiff’s operating cost estimates are accord- .
ingly accepted.
A recapitulation of the damages awarded in respect of
the International Division is set forth at the end of Section
lof this discussion of plaintiff's damage claims.
(B) Domestic Division :
The next division of plaintiffs claims for damages with
Teapect to inadequacy of its jet fleet is for loss of operat-
ing profits in its Domestic Division. Here because of the
\ greater variety of aircraft types compared to the Inter-
tational Division, the opportunity for changing segment
a
80
(stage) lengths of flights, the more complicated fare struc.
ture, and the difficulty of computing applicable load fao.
tors, the estimation of changes in operating results is more
difficult. .
As a beginning to a review of this aspect of the case,
it will be instructive to examine the following table show.
ing the historical jet competitive picture between the plain.
tiff and its chief domestic competitors, the quantitative
extent to which TWA historically lagged behind its chief
domestic competitors in acquiring jets in the years 1959.
63, and comparative operating profits:
Domestic Operating Profit (Loss)
va.
Percent of 1964 Jet Fleet?
American Uniteds T.W.A,
Operating No,
Operating No. %of Operating No. %of Profit of
Profit of 1964 Profit of 1964 (Loss) Jets
(000) Jets Fleet (000) Jets Fleet (000)
1959 $24,517 24 30.0% $18,802 15 134% $26,308 18
1960 24,720 34 42.5 9,429 44 39.3 ( 883) 21
1961 19,089 49 61.3 8,100 76 67.9 (10,226)* 42
1962 19,385 63 78.8 14,845 87 17.7 ( 7,391) 56
1963 39,004" 64 80.0 26,685 91 81.3 17,552 61
1964 61,245 80 100.0 49,865 112 100.0 50,892 831
* Excludes special adjustments. If these are included, the tendenci
more accentuated. Thus, for American in 1963 inclusion of the adjustment
in 0 ing profit of 900,000 and in 1961 for TWA results in
loanee of $54,200,000.
* Excludes Capital 1959-1960. If Capital is included, the United
profit is $19,100,000 in 1959, and $3,100,000 in 1960. United’s 1961 and (to
extent) 1962 ing results were affected by its acquisition-on June 1,
Prony Airlines which had already incurred operating losses in
81
i subdivisions of the plaintiff's Domestic Division
m are:
: (a) failure to receive certain B-331s which were di-
r by action of Tooleco to Pan-Am and delay in
ry of other B-331s; and delay in delivery of fif-
B-131s;
= (b) delay in delivery of twenty Convair 880s;
“¢) failure to receive an additional ten Convair 880s
#f which six were diverted by action of Toolco to North-
east Airlines.
Iwill also be useful I believe, from time to time, while
nding the ensuing discussion relating to the Domestic
bwision, to refer to the tables which follow comparing the
womts of the estimates of the plaintiff’s experts and the
{or Supplemental) Estimates of the defendants’ ex-
trelating to the Domestic Division. The first table is
nt f’s Exhibit 420, Schedule B, showing the compari-
f the two sets-of-experts for each of the years 1959-
i vel as the comparisons of the totals for five years.
the second table is Schedule B1 of plaintiff’s Exhibit
It sets forth the plaintiff’s (Coverdale) estimates of
f said years by categories. Category II-1 relates to
dapler IT of the Coverdale Report dealing with the six
wiifional B-331s. Category III-1 relates to chapter III
he Coverdale Report dealing with earlier receipt of
ep and B-331 aircraft. Category IV relates to chapter
the Coverdale Report dealing with the delay in re-
t of twenty CV-880 aircraft. Category V relates to
dapte V of the Coverdale Report dealing with the failure
pave ten CV-880 aircraft.
Ihe third table is Schedule B2 of plaintiff’s. Exhibit 420.
tts forth the final (or Supplemental) estimates of the
S
82
defendants’ expert (Simat) for each of the five yea
1959-1963. Simat, in its Supplemental Report referred ty
hereinafter, did not break down its estimates by categorie
(although it did so in its Original Report referred to hers
inafter). The Final (or Supplemental) Simat Report give,
as will be noted, separate estimates for added jet revenny
and costs, and for revenues and costs of deleted piston,
in lieu of breaking down the figures by the above me.
tioned categories.
(Tables reproduced on following pages.)
84
B331’s and B131’s—Plaintiffs’ Position
(a) We will first discuss the plaintiff’s revenue estimate
(Coverdale) for the B-331s allocated to the Domestic Divi.
sion. The facts with respect to failure to deliver and delay
in delivery of the Boeing B-331s have been set forth above
We have also previously listed (p. 52) the reconstructed
earlier receipt dates for the B-331s as computed by Rummed
and have set forth the underlying assumptions by whic
they were fixed.
The Coverdale report computed the change in operating
profits for the Domestic Division by a different method.
ology than used by it for the International Division claims
in certain particulars. These are set forth in the discus
sion, which follows, to the extent the methodology is dif.
ferent. The annual average number of B-331s which would
have been available for commercial service (after the above.
described adjustment for the B-331Bs and for a non-
controverted short-term lease of aircraft time to North.
east) was computed for the Domestic Division under the
same method heretofore set forth. They were as follows
(TWA Ex. 4(c)(1), pp. 13, 27, 42):
Planes Allocated Planes Allocated
from the 6 from Late Delivery
Diverted B-331s of the 12 B-331s
1959 — none 1959 — 0.6
1960 — 14 1960 — 0.7
1961 — 2.2
1962 — 1.0
1968 — 0.5
These assumed additional jet aircraft would have pro
duced (under the method heretofore described) additional
85
passenger revenue plane miles as follows (id., pp. 28, 43,
44):
For the Diverted Planes For the Late Deliveries
1960 — 2.0 million miles 1959 — 0.8 million miles
1961 — 3.3 “ 6 ‘“ ‘“
1962 — 1.4 “ “
_aauey ¢ °*
Using actual seats per aircraft and actual TWA average
load factors for B-331s in Domestic Division service for
each year (except the B-131 load factor was used for B-331
computation for 1959 when no B-331s were in domestic
service) the resulting passenger miles for the additional
jet aircraft would have been as follows (id., pp. 28, 43, 44):
’ For the Diverted Planes For the Late Deliveries
1960 — 156 million miles 1959 — 74 million miles
19%61— 206 “ “« 190— 78 * ws
1%2— 76 “ “
1968 — 42 6 6
The reduction of piston passenger revenue plane miles,
based upon the actual annual TWA experienced: ratios in
domestic service of all piston plane mile decrease to all
jet plane mile increase, was as follows (id., pp. 29, 43, 44):
For the Diverted Planes For the Late Deliveries
1960 — 2.9 million miles 1959 — 0.8 million miles
mi—42 “ “ 1960-14 “— «
1992-09 “ «
s—03 « «
~
The reduced piston passenger miles were then computed
by using the average number of seats based on the aver-
age for all TWA piston aircraft for the year and actual
annual average load factors of TWA’s piston aircraft used
86
in the Domestic Division during the years in question. Th
resulting figures were (id., pp. 30, 44, 45 and by caleuk
tion) :
For the Diverted Planes For the Late Deliveries
1960 — 123 million miles 1959 — 38.4 million mily
1961 — 182 “ “ 1960 — 59 wR
1962 —- 44 “ “
1968 — 9 “ “
The net increase in passenger miles was then computed
Using TWA’s annual average yield (Domestic Divisin
actual passenger revenue, combined jet and piston, per
passenger mile) the increase in Domestic Division revenues
for the B-331 aircraft operations was estimated at (id., pp
30, 44, 45 and by calculation) :
For the Diverted Planes For the Late Deliveries
1960 — $1.9 million 1959 — $1.9 million
1961 — $14 4“ 1960 — $1.1 “
1962 — $2.0 “
19638 — $19 “
The additional revenue for non-passenger traffic (mail
express, freight, excess baggage) was calculated at 5% of
the estimated additional passenger revenue. The resulting
total additional revenue estimate was:
For the Diverted Planes For the Late Deliveries
of B-831s
1960 — $2.0 million 1959 — $2.0 million
1961 — $15 “ 1960 — $1.2 “
1962 — $2.1 “
1963 — $2.0 “
The total of additional revenues thus claimed in resped
of the B-331s under subdivision (a) is $10.8 million.
Next we summarize the plaintiff’s revenue estimates
respect of the late deliveries of B-131s.
87
Rummel prepared a table showing the effect on delivery
positions by reason of the delays in delivery of the B-131s.
His underlying assumptions in computing the reconstructed
earlier receipt dates therefor were the same as those dis-
cussed above (pp. 48-56) in respect of the B-331 earlier de-
livery dates, and are accepted for the reasons stated above.
The list below shows the actual receipt dates for the
B-13is and opposite each such date is the corresponding
reconstructed earlier receipt date. (TWA Ex. 4(c)(1), p.
#.) Each plane, as in the case of the B-331s, was fully
- identified, and actual receipt date verified for the record,
from official CAB records.
Actual Receipt Reconstructed Earlier Receipt
~ 1/29/59 11/30/58
3/17/59 12/31/58
3/30/59 1/31/59
4/ 3/59 2/27/59
4/18/59 3/30/59
4/29/59 4/ 3/59
5/10/59 4/18/59
5/13/59 5/10/59
5/24/59 5/13/59
5/28/59 5/24/59
6/13/59 5/28/59
7/ 1/59 6/13/59
7/10/59 6/29/59 '
7/14/59 7/10/59
8/ 1/59 9727/59
On the basis of TWA’s experienc
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