Appendix — Hughes Tool Co. v. Trans World Airlines, Inc.

Supreme Court brief1973

Ask Donna

What actually matters in this document.

Text

: IN THE ee

Supreme Court of the united State

OorosEr Term, 1971

Ne 1-827

ea :

Huenes Too. Company and Raymonp M. Horzmay,

Petitioners,

rea § Wort Amres, Ino., Respondents.

APPENDIX TO PETITION FOR A WRIT

OF CERTIORARI

Attorneys for Petitioners

Pames or Braon 8. Apans Paurrmva, Dec., Wasurwarom, D. C.

=>,

INDEX

Page

A. Opinion and Order of the District Court, dated

February 7, 1963, Denying Defendants’ Motion

To Dismiss (214 F. Supp. 106)

B. Opinion and Order of the District Court, dated

May 3, 1963, Entering Default Judgment (32

F.R.D. 604)

C. Opinion of the Court of Appeals, dated June 2, 1964,

Dismissing Defendants’ Counterclaims and Re-

jecting Primary Jurisdiction of the Civil Aero-

nautics Board (332 F.2d 602)

D. Order of the Supreme Court, dated November 16,

1964, Granting Writs of Certiorari (379 U.S. 912) 44a

E, Order of the Supreme Court, dated March 8, 1965,

Dismissing the Writ of Certiorari as Improvi-

dently Granted in Hughes Tool Company et al. |

v. Trans World Airlines, Inc., No. 443

F, Order of the Supreme Court, dated March 8, 1965,

Dismissing the Writ of Certiorari as Improvi-

dently Granted in Hughes Tool Company v.

Trans World Airlines, Inc., et al., No. 501

G. Opinion and Order of the District Court, dated

November 16, 1965, Affirming Refusal of the

Special Master To Adopt Petitioner’s Interim

Findings (38 F.R.D. 499) 47a

H. Opinion and Order of the District Court, dated

December 23, 1969, Upholding the Final Report

of the Special Master (308 F. Supp. 679)

L Opinion and Order of the District Court, dated April

13, 1970, Awarding Costs and Attorney’s Fees

(312 F. Supp. 478)

J. Order of the District Court, dated April 14, 1970,

Entering Judgment 93a

ii Index Continued

Page

K. Opinion of the District Court, dated June 10, 1970,

Granting Stay of Execution and Establishing

Security Pending Appeal (314 F. Supp. 94) .... 94.

L. Order of the District Court, dated June 16, 1970,

Establishing Security Pending Appeal

peals, dated Septem-

ith Modification the

N. Orders of the Court of Appeals, dated September

98, 1971, Denying Petitions for Rehearing and

Rehearing In Banc 163a

O. Order of the Court of — dated October 7,

1971, Granting Stay of Execution Pending the

Filing of a Petition for Certiorari and Increas-

ing the Security Required

P. Order of the Court of Appeals, dated October 18,

1971, Denying Defendants’ Motion for Recon-

sideration of the Order Requiring Additional

Security 166a

Q. Statutes Involved

214 Federal Supplement 106

UNITED STATES DISTRICT OOURT

8. D. NEW YORK.

Feb. 7, 1963.

Trans Wort Aruness, Inc., Plaintiff,

Vv.

Howarp R. Hucues, Hucues Toot Company and Raymonp

M. Hotumay, Defendants,

and

Tas Equiraste Lire Assurance Socrety or THE UNITED

States et au., Additional Defendants on Counterclaims.

Merznez, District Judge.

Defendant Hughes Tool Company (Toolco) moves to

dismiss the complaint pursuant to rules 12(b) (1) and

12(b) (6) of the Federal Rules of Civil Procedure on

the grounds that the court lacks jurisdiction over the

subject matter and that the complaint fails to state any

claim upon which relief can be granted. The original

notice of motion was filed on August 9th, 1961 and in

addition to the grounds now urged requested summary

judgment pursuant to rule 56 of the Federal Rules of

Civil Procedure. In effect, the present notice of motion

brings on for hearing the original motion.

In its brief Toolco has stated,

*“‘At the suggestion of the Court (Transcript of pre-

, trial conference of September 6, 1961, pp. 50, 52)

Toolco agreed to postpone the motions and thereafter

commenced its pre-trial examination of TWA.”’

The opinion of this court of January 19th, 1963 sets forth

the numerous occasions on which counsel for Tool

agreed that the motion as originally filed was not ripe

for determination. Consequently, it was not a suggestion

of the court, to which Tooleo courteously agreed, that the

matter be postponed. Rather it was an understanding by

counsel that under the decisions of this circuit summary

judgment in this type of case should not be considered

until the deposition proceedings are completed. (See

also Poller v. Columbia Broadcasting System, 368 U8.

464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962)). The grounds

now urged under rule 12(b) existed and were adverted

to in the original notice of motion. Since counsel for Tooleo

has indicated he was prepared at that time to argue the

matter, he could just as well have submitted it then, in-

stead of requesting on January 14th, 1963 that the motion

now be heard, when the taking of the deposition of Howard

R. Hughes is imminent. Furthermore, the Special Master

on October 25th, 1962 granted the second adjournment

of this deposition, from October 29th to February 11th,

1963, and stated that the long adjournment of more than

three months was in order to allow Toolco’s counsel

sufficient time to make whatever motions he thought were

necessary.

On January 14th, 1963, when Toolco moved that its

motion to dismiss be set down for hearing, it also re

quested that TWA first proceed by written interrogatories

directed to Hughes, instead of by oral deposition. This

request was formally denied on January 19th, 1963, after

a pretrial conference held on January 17th. ;

Counsel for Toolco continually relates the taking of

the deposition to a determination of the motion to dismiss.

As I haye indicated before, this deposition depends not

only on the existence of alleged valid claims against

Toolco, but on Toolco’s counterclaims for $385,000,000

against plaintiff and the additional defendants.*

So much for the underbrush. Now as to the merits

of the motion, there is no doubt that the complaint on

its face sets forth a claim against the defendant and is

not subject to dismissal under rule 12(b) (6).

Briefly, the plaintiff, TWA, charges that Tooleo, Hughes,

and Holliday, named defendants, and Atlas Corporation

have combined and conspired to restrain, and have at-

tempted to monopolize, interstate and foreign commerce

of the United States in the furnishing of jet aircraft

and/or nonjet aircraft by sale, lease or other means, to

TWA, and to TWA and other air carriers, in violation of

sections 1 and 2 of the Sherman Act and sections 3 and

1 of the Clayton Act. It more specifically alleges that

the defendants and Atlas combined to restrain commerce

-40n the morning of the argument of this motion (February 6th,

1968) Toolco filed another notice of motion returnable February

§th, 1963 requesting that all further proceedings with respect to

the counterclaims be stayed pending a disposition by the Civil Aero-

nautics Board of a ‘‘Complaint of Hughes Tool Company and Re-

on for Investigation’? which had been filed that day with the

AB. The only document attached to the notice of motion is a

eopy of the complaint filed with the CAB, seeking relief under

motions 408, 409, 411 and 1002 of the Federal Aviation Act. That

complaint names all of the additional defendants in the action

pending in this court and also Pan American World Airways, Inc.

and Juan T. Trippe. It sets forth some of the allegations contained

in the counterclaims and also makes reference to the proposed

merger of TWA and Pan Am. It further alleges that Trippe, the

dominant force in Pan Am, also has been in the position to influence

the policies of Metropolitan Life Insurance Company, & large lender

to TWA and one of the additional defendants in this action. Thus,

the conspiracy alleged in the counterclaims has beem enlarged by

iicluding Pan Am and Trippe. Jurisdiction of the CAB is

‘ ‘predicated upon a claim that the decision in Pan American World

Inc. v. United States, 871 U.S. 296, 83 S.Ct. 476, 9

LEd.2d 825 (1963), grants the CAB ‘primary jurisdiction.

RE.

by providing financing of the acquisition by TWA of air.

craft only upon the condition that TWA acquire all such

aircraft from Toolco, and that they required TWA to boy-

eott all suppliers of aircraft except Toolco, in violation

of section 1 of the Sherman Act; and that sales and

leases of jet-powered aircraft were made on the condition

that the purchaser or lessee would not buy or lease the

goods of a competitor of the vendor or lessor, in viola-

tion of section 3 of the Clayton Act. The complaint also

charges that acquisitions of the stock of a corporation were

made in violation of section 7 of the Clayton Act.

The first claim is concerned with acts allegedly com-

mitted during and prior to December 1960 which, it is

claimed, violate all of the above mentioned statutes. The

second claim deals with events occurring subsequent to

December 1960 which are alleged to violate sections 1 and

2 of the Sherman Act and section 7 of the Clayton Act.

For these claims, plaintiff secks treble damages, divesti-

ture, and an injunction. The third claim charges that

the defendants have wilfully and maliciously damaged the

business of TWA by the acts alleged in the prior claims,

and seeks damages and an injunction under the common

law.

Defendant Toolco urges that the complaint be dismissed

because the control by Toolco over the plaintiff was av-

thorized by the CAB and was thereby exempted from the

antitrust laws. The other ground urged is that the sub

ject matter of the complaint is within the exclusive pri-

mary jurisdiction of the CAB.

Tooleo indicates that it has withdrawn its motion for

summary judgment. However, its brief relies on matter

outside the complaint to justify dismissal on the ground

that the acts done by Toolco were pursuant to the exer-

cise of control over TWA authorized by the CAB and

therefore exempt from the antitrust laws. Dismissal under

rule 12(b) (6) is not warranted, though summary judg-

ment might be available. Putnam v. Air Transport Ass’n

of America, 112 F.Supp. 885 (S.D.N.Y. 1953). The de-

fendant appears to be in a procedural dilemma. Since

defendant has raised the issue of exemption in its third

afirmative defense, the court will consider this branch

of the motion as one for judgment on the pleadings pur-

mant to rule 12(c). Matters dehors the complaint may

be considered on the branch of the motion seeking dismissal

for lack of subject matter jurisdiction. Cohen v. American

Window Glass Co., 126 F.2d 111, 114 (2d Cir, 1942);

Central Mexico Light & Power Co. v. Munch, 116 F.2d

8 (2d Cir., 1940); Moore v. Gorman, 75 F.Supp. 453

(8.D.N.Y. 1948).

‘Mooleo relies on the 1944 and 1950 orders of the CAB

permitting Toolco to acquire control of TWA. 6 CAB

168; 12 CAB 192. These orders were issued pursuant

to section 408(5) of the Civil Aeronautics Act of 1938,?

which makes it unlawful without CAB approval for ‘‘any

person engaged in any other phase of aeronautics, to

squire control of any air carrier in any manner what-

sever’. Toolco was considered as one engaged in a

phase of aeronautics because of its activities in the de-

velopment of aircraft and accessories.

‘Peotion 414 of the Federal Aviation Act, 49 U.S.C. § 1384,

provides that

- Any person affected by any order made under

~ sections 408 [49 U.S.C. § 1378] * * * shall be, and is

~~ hereby, relieved from the operations of the ‘antitrust

a laws’ * * * and of all other restraints or prohibitions

-_ made by, or imposed under, authority of law, insofar

* as may be necessary to enable such person to do any-

"This section is now 49 U.S.C. § 1378(5). The relat Aviation

yy 1958, 72 Stat. 737, 49 U.S.C. § 1301 et seq., superseded the

I Aeronautics Act of 1938, 52 Stat. 973, making no changes

t to the problem before the court.

thing authorized, approved, or required by such

order.’’

It is Toolco’s contention that all the acts complained of

by TWA are immunized from claims of violations of the

antitrust laws because of section 414. This leads to an

examination of what action was approved by the orders

issued pursuant to section 408(5) and what is the scope

of the exemption provided by the words ‘‘insofar as may

be necessary to enable such person to do anything an.

thorized, approved, or required by such order’’, in sec.

tion 414

Statutory authority granted regulatory agencies to give

exemption from the application of the antitrust laws is

not unusual.* But the Supreme Court has clearly stated

that immunity from the antitrust laws is not to be lightly

implied. California v. Federal Power Comm’n, 369 US.

482, 485, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962). Regulated

industries are not per se exempt from the antitrust laws.

United States v. Borden Co., 308 U.S. 188, 198-199,

§.Ct. 182, 84 L.Ed. 181. And it is elementary that repeals

by implication are not favored. Georgia v. Pennsylvania

RB. B., 324 U.S. 439, 456, 65 S.Ct. 716, 89 L.Ed. 1051 (1945).

Tn the latest decision by the Supreme Court, Pan American

World Airways, Inc. v. United States, supra note 1, which

will be discussed in detail below, the Court stated that

* See, e. g., 47 U.S.C. $222(b)(1) (telegraph mergers approved

by the Federal Communications Commission) ; 47 U.S.C. § 221(a)

(telephone mergers approved by FOC); 46 U.S.C. §814 (rate

fixing and other agreements between water carriers approved by

the Federal Maritime Board); 49 U.8.0. §5

approved by the Interstate Commerce ion) ; .

$§ 5a-b (agreements between carriers involving rates approved by

ICC) ; 15 U.S.C. § 18 (exempting from the operation of section 7

of the Clayton Act transactions approved within their statutory

authority by the CAB, FCC, Federal Power Commission, ICC,

FMB, Secretary of Agriculture, and, in some cases, the Securities

and Exchange Commission).

the regulatory scheme here in question would not be read

as designed completely to displace the antitrust laws ‘‘ab-

sent an unequivocally declared congressional purpose so

to do.’’ 371 U.S. at 305, 83 S.Ct. at 482. It went on to

say that the antitrust problems ‘‘expressly entrusted to

{the CAB] encompass only a fraction of the total.’’ Ibid.

‘ The orders of 1944 and 1950 relied on by Toolco merely

approved the acquisition of control of TWA by Toolco.

The antitrust violations that could possibly be present in

such acquisition—that it was a contract in restraint of

trade prohibited by section 1 of the Sherman Act, or was

an attempt to monopolize prohibited by section 2 of the

Sherman Act, or was an acquisition of stock prohibited

by section 7 of the Clayton Act—were within the con-

templation of the approval orders and protected by the

exemption provided by section 414. Cf. United States

vy. Southern Pac. Co., 290 Fed. 443 (D.Utah 1923). These

orders did not give Toolco a license to engage in other

acts that normally may be forbidden by the antitrust

laws. What has been approved and exempted is the fact

of “‘acquisition of control’’, not activities engaged in by

the controlling party subsequent to acquisition, which may

be illegal

I have found no case and none has been cited to me

which interprets the words ‘‘necessary to enable such

person to do anything authorized, approved, or required by

such order’’, or similar exemptive language in other stat-

utes, in a way that will sustain Toolco’s position. In

Putnam v. Air Transport Ass’n of America, supra, the

plaintiff was attacking a claimed boycott by the defend-

ants. The court in applying section 414 stated that the

boycott was ‘‘the inevitable result’’ of the agreement sanc-

tioned by the CAB which by its terms permitted the de-

fendants to choose with whom they would deal. This is

far different from the immunization claimed by Toolco.

Giggroes could not have intended that restraints or at-

tempts to monopolize, subsequent to an order allowing

acquisition of control, were necessary to enable Toolco

to do anything authorized or approved by the order.

One more point merits discussion under this branch

of the motion. The second claim for relief is based on

acts alleged to have been committed by the defendants

and Atlas subsequent to December 1960. In December

1960 TWA moved before the CAB for modification of the

original order of 1944 as amended. Approval was also

sought

‘‘under section 408 * * * for the transactions contem-

plated under the financing plan. Similarly sought is

approval * * * under section 409 of the Act, of the

interlocking relationships arising out of the designa-

tion of Raymond M. Holliday, as a representative of

Toolco, and of Ernest R. Breech and Irving 8. Olds

as representatives of the banks and institutional in-

vestors, to serve as Voting Trustees under a Voting

Trust set up for the Toolco-TWA s a

This relief was requested in connection with the jet air-

craft financing transactions which resulted in Toolco’s

putting its 78% stock interest in TWA under a voting

trust, which in effect gave control of TWA to the lenders

who are named as additional defendants in this action.

On December 29th, 1960 the CAB entered its order

on this motion (Order No. E-16195). In the course of the

opinion, the CAB said at page 6:

‘Under these circumstances, we think it clear that

Board action to facilitate TWA’s acquisition of jet

equipment is in the public interest. At the same time,

however, it is evident that Toolco’s control of TWA,

as exercised through Hughes, has presented substan-

tial problems requiring the Board’s attention.

‘(Tn short, and without further description of these

problems, the Board wishes to make clear the fact

that it would anticipate the proper filing of an ap-

plication under section 408 of the Act and the ob-

taining of the approval of the Board before Toolco

would attempt to reassume control over TWA.” It

is clear that such approval would not be forthcoming

without a searching inquiry into the public interest

factors affecting this control.” ’’

Footnote 19 in the above quotation reads as follows:

‘The Option Agreement — Tooleo, in exercising

the option, to provide a satisfactory opinion of counsel

that the exercise of the option, by purchase of the

notes, does not require governmental or regulatory

approval or that such approval has been granted and

is in force. No such provision could, of course, pre-

clude dissolution of the voting trust after the ten-year

term has expired. Nonetheless, it is clear that Toolco

should not resume direct control at that time unless

prior approval of the Board is sought and obtained.”’

It is clear from this opinion that the CAB does not

look upon Toolco as controlling TWA after December

1960. Thus, anything done by Toolco subsequent to that

date has not been approved by orders of the CAB and

certainly no exemption exists as to the second claim.

We come now to the question of “primary jurisdiction’’

Which is defendant’s second ground for dismissal of these

daims. In discussing the primary jurisdiction of the CAB

in relation to this complaint, there is some overlap with the

discussion as to the effect of an order issued under

section 408(5) and the extent of the exemption granted by

section 414. In this case we are concerned primarily with

Whether there exists exclusive primary jurisdiction in the

GAB without regard to whether or not it has taken any

ation in relation to a particular transaction. Cf. Far

East Conference v. United States, 342 U.S: 570, 72 S.Ct.

402, 96 L.Ed. 576 (1952). e

iw)

10a

Defendant places great reliance upon the recent decision

of the Supreme Court in Pan American World Airways,

Inc. v. United States, supra, popularly known as the

Panagra case. In determining the scope of this decision

we must first go to the next to the last sentence of the

majority opinion, which reads:

_ We think the narrow questions presented by this

complaint have been entrusted to the Board and that

the complaint should have been dismissed.’’ 371 US.

at 313, 83 S.Ct. at 486.

The Court was dealing with section 411 of the act, 49

U.S.C. § 1381, which gives the CAB jurisdiction over “‘un-

fair or deceptive practices’ and ‘‘unfair methods of com-

petition” by air carriers. The acts charged to be antitrust

violations were limitations of routes, divisions of territories,

and the relation of a common carrier to air carriers, which

the Court stated were ‘‘precise ingredients of the Board’s

granting, qualifying, or denying certificates

i modifying: ifyi , suspending , or revoking them,

482. The Court went on to say:

‘Tt would be strange, indeed, if a division of ter-

ritories or an allocation of routes which met the re-

quirements of the ‘public interest’ as defined in §2

were held to be antitrust violations. It would also

be odd to conclude that an affiliation between a com-

mon carrier and an air carrier that passed muster

under § 408 should run afoul of the antitrust laws.

Whether or not transactions of that character meet

the standards of competition and monopoly provided

by the Act is peculiarly a question for the Board,

subject of course to judicial review eee 371 US.

at 309, 83 S.Ct. at 484.

lla

If we substitute in this quotation the words ‘‘acquisition

of control of any air carrier by any person engaged in

any other phase of aeronautics’’ in place of ‘‘an affiliation

between a common carrier and an air carrier’, we have

presented the fact situation upon which Toolco relies.

However, the acts complained of by TWA are acts al-

legedly done by the controlling party after the acquisition

had been approved, not only to the detriment of the car-

rier in question, but to other carriers and to competitors

of the controlling party. This in my view is the distinguish-

ing factor between this case and the Panagra case. While

the acts charged here could be proper subjects for con-

sideration by the Board in determining whether control

of TWA by Toolco was in the public interest,‘ they are

not the type of acts over which the Board has exclusive

primary jurisdiction. They are not within the contem-

plation of the regulatory powers granted the CAB. Of.

Georgia v. Pennsylvania R. R., supra.

Furthermore, the Board has no ‘power to award dam-

ages, and we do not reach the statement of the Court in

the Panagra case to the effect that since the Board’s es-

sential regulatory powers deal with the division of terri-

tories, etc., then Congress must have intended to give it

authority that was ample to deal with the evil at hand.

Rather, the statement by the Court that a court has juris-

dicion under the antitrust laws if the agency has no power

t grant relief is controlling here. 371 U.S. at 313 n. 19,

83 8.Ct. at 486 n. 19.

“It is also clear that once a regulatory agency has acted

the court is competent to consider and determine the scope

of the exemption claimed. River Plate & Brazil Confer-

enees v. Pressed Steel Car Co., 227 F.2d 60 (2d Cir., 1955) ;

Putnam v. Air Transport Ass'n of America; supra. The

cases of American Airlines v. Standard Air Lines, 80

bp eee

}Bee CAB Order No. E-16195 quoted at page 18, supra.

12a

F.Supp. 135 (S.D.N.Y. 1948) and United States v. Railway

Express Agency, 89 F.Supp. 981 (D.Del. 1950), relied on by

Toolco, are not in point.

Tn addition to the determination that as a matter of law

the Board does not have exclusive primary jurisdiction

over the acts alleged in the complaint, the practical aspects

of this case make especially apposite the statement in the

River Plate case, supra, to the effect that a reference to

the’ agency would be ‘‘useless and time-consuming’’ (227

F.2d at 63). Over 10,000 pages of testimony have already

been taken by Toolco in deposition proceedings and over one

and a quarter million documents have been produced in

these proceedings by all parties. If there is any policy that

would favor referral, it is not present in this case. See

Atlantic Coast Line R. R. v. Riss & Co., 105 U.S.App.D.¢.

380, 267 F.2d 657, 658 (1958).

Consequently, the motion to dismiss is denied. The ap-

plication made upon oral argument for a certificate pur-

suant to 28 U.S.C. § 1292(b) was denied at that time. Tool-

co’s application for a stay of all deposition-discovery pro-

ceedings pending an application for a stay to the Court of

Appeals was granted on the oral argument to the extent

that all deposition-discovery proceedings are stayed until

5 p.m. February 8th, 1963 to allow Toolco time to request

a stay from the Court of Appeals beyond that time.

So ordered.

13a

32 Federal Rules Decisions 604

UNITED STATES DISTRICT COURT

8, D. NEW YORE.

May 3, 1963.

Trans Woritp Ariss, Ino., Plaintiff,

ve. *

Howarp R. Hucues, Hucues Toot Company and RarmMonp

M. Houumayr, Defendants,

and

Tue Egqurrastz Lire Assurance Society oF THE

Unrrep Srares et au., Additional

Defendants on Counterclaims.

Merznzr, District Judge.

The plaintiff Trans World Airlines, Inc. (TWA) has

moved for an order pursuant to rules 37(b) (2) (iii), 37

(d) and 55(b) (2) of the Federal Rules of Civil Pro-

cedure directing the entry of a judgment by default against

the defendant Hughes Tool Company (Toolco). It requests

that a hearing be held to determine the amount of damages

to be paid by Toolco for the injuries alleged in the com-

plaint, and that Toolco divest itself of all of its right, title

and interest in the stock of TWA. The motion also seeks

leave to increase the ad damnum clause following para-

graph 70 of the complaint, from $105,000,000 to $135,000,000.

It further seeks a dismissal of the counterclaims with preju-

dice. The motion further requests that Toolco, its officers

and employees, or anyone acting in concert with them, be

enjoined from instituting any action based uport the counter-

claims set forth in the answer of Tooleo and from insti-

tuting any proceeding before an administrative agency

of the United States in which TWA is a party and which

is based upon the allegations of the counterclaims. Finally,

lé4a

it is requested that the claims asserted by TWA against

the defendant Holliday be severed from these proceedings.

Toolco owns 78% of the stock of TWA and Howard R.

Hughes owns all of the stock of Toolco. It is clear that

during all of the times covered by the complaint the man-

agement of TWA was controlled by Hughes personally.

Pursuatit to an authorization from Hughes, the attorney

for Toolco accepted service of a witness subpoena directed

to Hughes by TWA. The deposition of Hughes was orig-

inally scheduled for September 2th, 1962 and was ad-

journed by the court to October 29th, 1962. On October

25th the Special Master adjourned the deposition of Hughes

to February 11th, 1963. On December 28th, 1962 the

Special Master stated that when this adjournment was

granted there was no doubt that it was the intention and

expectation that the deposition would start on the ad-

journed date and proceed until it was concluded according

to law.

In the pretrial order of January 10th, 1963 the court

affirmed this ruling of the Special Master, and stated that

the date of February 11th, 1963 would be adhered to in

the absence of extraordinary circumstances. The order of

January 10th also directed Toolco to produce certain docu-

ments as to which it claimed an attorney-client privilege.

The order pointed out that Toolco’s opposition to producing

such documents was in fact a reargument of the order of

this court dated July 24th, 1962 which denied the claim of

privilege.

The order of January 10th also denied Toolco’s appli-

cation to proceed at that time with the examination of

two witnesses on the ground that such deposition would

interfere with the taking of the Hughes deposition sched-

uled for February 11th.

On January 15th counsel for Toolco moved for an order

that the Hughes deposition be taken on written interroga-

15a

tories, @r, in the alternative, that the motion to dismiss

the complaint, pending since August 9th, 1961, be brought

on for hearing. On January 16th Toolco’s counsel was

informed that he would be given until February Ist to

submit all papers in support of his motion to dismiss. On

January 19th Toolco’s motion to take Hughes’ deposition

in writing was denied. The court, however, allowed coun-

sel for Toolco time to indicate whether he desired the

place of deposition to be changed for the convenience of

Hughes. No such request was ever made.

On January 23rd the Court of Appeals denied Toolco’s

application for a stay of the orders of January 10th and

19th.

On February 1st, on Tvolco’s appeal from an order of

the Special Master, the court affirmed that order, and di-

rected that Toolco produce certain tax documents to TWA

on a daily basis up to February 11th.

On February 6th a hearing was held on Toolco’s motion

to dismiss the complaint._ The motion. was denied from

the bench with an indication that the formal opinion would

be filed the following day. The denial of the motion em-

braced a finding that the court had jurisdiction of the

daims. Toolco was granted a stay of deposition-discovery

proceedings until 5 p.m. on February 8th, to afford it an

opportunity to apply to the Court of Appeals for a further

stay pending an application for a writ of mandamus.

The formal opinion of February 7th, 214 F.Supp. 106,

denying Toolco’s motion to dismiss the complaint, pointed

out that the grounds urged for a dismissal existed and

were adverted to in the original notice of motion filed on

Angust 9th, 1961, and served several weeks prior to the

assignment of this case for all purposes, pursuant to rule

2 of the general rules of this court. The court indicated

that counsel for Toolco could just as well have argued the

motion at the inception of the litigation, instead of waiting

witil the taking of the deposition of Hughes was imminent.

16a

A pretrial conference was held on Friday, February 8th,

at 5 p.m., on information that counsel for Toolco was not

going to proceed with the deposition proceedings of Hughes

on the following Monday. Toolco did not apply to the

Court of Appeals for a stay pending an application for

a writ of mandamus, but, rather, submitted a ‘‘ Notice of

Position’’ to the court at the time of the hearing. In e

sence, this document stated that because of the enormous

‘expenses that would be incurred in further pretrial ani

trial proceedings, which in Toolco’s belief would exceed

the amount of damages provable by TWA under the com.

plaint, Toolco decided to rest on the merits of its position,

so that the Court of Appeals would have an- opportunity

to rule upon the propriety of the denial of the motion t

dismiss the complaint.

At the hearing counsel for Toolco stated that he had

advised his client of the sanctions available to TWA

under rule 37, and that by insisting upon a right to obtain

a review of the legal questions involved in the proceedings

to date Toolco understood that it might be deprived of

further defending on the merits. Counsel referred to this

as a ‘“‘busimess decision.’’

Counsel for Toolco specifically stated that Hughes would

not appear for deposition on February 11th and that if it

were necessary to clarify the record everyone could gather

on the following Monday (February 11th) to

‘‘note the fact that the Tool Company is failing i

[sic—and?] refusing to produce Mr. Hughes, and then

you can have your record and you can take your

remedy on it,’’

Counsel also stated that he did not intend to further

litigate the counterclaims until after a determination of

a complaint filed by Toolco with the Civil Aeronautics

Board on February 6th which includes some of the allege

tions of the counterclaims.

17a

» Embraced within the refusal to proceed with the depo-

sition of Hughes is the refusal to obey the orders of the

gourt directing Toolco to produce the documents referred

to above.

On the basis of this record TWA made the motion now

before the court. 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 appear on

February 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 de-

fault was deliberate and willful and justifies the court in

atering a default judgment as provided in rule 37(b) (2)

(ii) and 37(d). A judgment by default shall be entered

infavor of TWA against Toolco, and the counterclaims as-

srted by Toolco against TWA shall be dismissed with

prejudice.

That branch of the motion seeking to increase the ad

damnum clause from $105,000,000 to $135,000,000 is granted.

This is not a case where a party has defaulted in appear-

ance. Here issue was joined and adversary proceedings

continued in the pretrial stages of this litigation. The

damages originally asserted were unliquidated and TWA

is entitled to recover for whatever damage it can show it

suffered. Furthermore, Toolco will be represented at the

hearings necessary to assess damages under rule 55(b) (2).

Rule 54(c); Peitzman v. City of Ilmo, 141 F.2d 956. (8th

Gir.), cert. denied, 323 U.S. 718, 65 S.Ct. 47, 89 L.Ed. 577

(1944); cf. Riggs, Ferris & Geer v. Lillibridge, 316 F.2d

0 (2d Cir. 1963).

Before entering the final judgment a hearing must be

held to determine the amount of damages to be awarded

TWA since the damages are unliquidated. Therefore, pur-

‘suant to rule 55(b) (2), the question of the amount of the

damages to be paid by Toolco to TWA is referred to J. Lee

_ the Special Master heretofore designated by the

18a

court, who has presided over the deposition-discovery p

ceedings for the past year.

TWA has also requested that Toolco divest itself

its 78% stock interest in TWA. The propriety of granti

this prayer for relief will be determined by the court

The determination of the application by TWA for

injunction will be held in abeyance pending the entry

the final judgment.

The application to sever the action against Holliday |

been withdrawn on his election to be individually bot

by the defaults of Toolco. Consequently, the applicati

for a default judgment is deemed to include a requ

for similar relief against this defendant, and the dis

sition of this motion as to Toolco is also dispositive

to Holliday.

I am of the opinion that this order involves a controll

question of law (see Pan American World Airways, |

v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed

325 (1963)) as to which there is a substantial ground |

difference of opinion. Emormous expense has already b

incurred in this litigation, and the hearings before |

Special Master on the question of damages, with a potent

recovery of $135,000,000 on the first two claims and $!

000,000 on the third claim, may well be prolonged. An i

mediate appeal from thie order is justified, since it m

materially advance the ultimate termimation of this |

gation.

So ordered.

19a

332 Federal Reporter, 2d Series 602

UNITED STATES COUBT OF APPEALS

SECOND CIROUIT.

Nos. 150, 151, Dockets 28405, 28406.

Trans Wortp Are.inzs, Inc., Plaintiff-Appellee,

Howarp R. Hucues, Defendant,

and

Hvuexes Toot Company and Raymonp M. Hoiimay,

Defendants-A ppellants.

Trans Wortp Armiines, Ino., Plaintiff-Appellee,

Howazp R. Hucues and Rarmonp M. Ho.tumay, Defendants,

and

Hucues Toot Company, Defendant-Appellant,

and

Tae Equrraste Lire Assurance Soormty or THE UNITED

Srarzs, et aL., Additional Defendants-Appellees,

and

Eenezst R. Breecu, Additional Defendant.

Argued Nov. 13, 1963.

Decided June 2, 1964.

Before Lumsanp, Chief Judge, and Kaurman and Hays,

Circuit Judges.

Lumparp, Chief Judge:

These separate appeals, heard together, are from two

orders of the United States District Court for the Southern

- District of New York in the same case. In the first appeal,

No. 28405, the defendants, Hughes Tool Company (Toolco)

and Raymond M. Holliday, Toolco’s chief financial officer,

20a

attack the validity of an order which granted default jud

ment in favor of the plaintiff, Trans World Airlines, In

because of the defendants’ failure to produce Tooleo

managing agent, Howard R. Hughes, for examination a1

their failure to produce certain papers and documents, ;

F.R.D. 604 (S.D.N.Y. 1963). In the second appeal, N

28406, Tooleco attacks an order which dismissed with pre

udice its first five counterclaims against TWA and a gro

of additional defendants and an order of the same da

which granted summary judgment in favor of TWA on tl

sixth counterclaim.

TWA’s complaint charged the defendants with a varie

of violations of the antitrust laws as well as with havi

committed willful and malicious injury to TWA’s busines

and sought divestiture of Toolco’s interest in TWA, injun

tive relief, and money damages, trebled with respect to t

antitrust violations. On May 3, 1963, Judge Metzner o

dered the entering of a default judgment in favor of TW

against Toolco’ but referred to a special master the iss

of damages, on TWA’s claim of $35,000,000 which the an’

trust statute would treble, and retained for further consi

eration the ceson ot divestiture. Judge Meter d

certify under 28 U.S.C*4°1292(b) that immediate appeal w

justified inasmuch as a controlling question of law was i

volved and hearings on the question of damages-might |

prolonged. We granted leave to appeal limited to two que

tions: first, whether the district court lacked jurisdiction

the treble damage action by reason of primary jurisdicti:

over these matters residing in the Civil Aeronautics Boar

and second, whether the issuance of certain orders by tl

CAB permitting the defendant to take certain actions co

stitutes a good defense to the antitrust action. Thus fl

1 Due to the relationship of the parties, the district court accept

the election of defendant Holliday, an officer and director of Tool

to be bound by Toolco’s decision to forego further discove

proceedings.

21a

propriety of the court’s entering a default judgment against

the defendants with respect to the complaint is not before

gs and we consider it only in connection with the court’s

dismissal of the five counterclaims asserted by the defend-

ants. The second appeal is taken as of right from a final

jadgment which dismissed Toolco’s first five counterclaims

and granted summary judgment to TWA on the sixth

counterclaim.

BACKGROUND OF THE LITIGATION

An understanding of the issues requires a preliminary

statement of certain background facts set forth in the plead-

ings and which on this record and in view of the default

of the defendants we must take as established.

Commencing about five years after TWA was organized

in 1984, Toolco, which at all times has been 100 percent

owned and controlled by Howard Hughes, began to pur-

chase TWA common stock, and by 1944 it held 45 percent

of this stock. By 1958 Toolco had increased to 78 percent

its interest in TWA’s common stock; from 1944 until De-

camber 1960 it nominated a majority of TWA’s directors.

Since 1955 the commercial air industry has largely con-

verted to the use of jet aircraft. TWA’s competitors began

in that year to aid in the development of and to purchase

jet planes. Prior to 1955 Toolco had entered into an ar-

rangement with the General Dynamics Corporation (Con-

vair) for the joint development of jet aircraft, but in that

year the two companies terminated the arrangement. Toolco

lad also entered into a plan whereby it would develop and

manufacture its own jet aircraft for sale or lease to TWA

and its competitors. That plan was abandoned guring 1956.

Daring this period, Toolco arranged for the purchase on

ite own account of jet aircraft from Convair and the Boeing

Company, these arrangements providing that Toolco could

assign to TWA its rights to such aircraft.

22a

Despite repeated requests by TWA, Toolco refused to

assign any planes to TWA during the period 1956 to 1960,

The only jet-powered aircraft which the defendants per.

mitted TWA to use during this period were leased on a

day-to-day basis by Toolco to TWA during 1959 and 1960

on the condition that TWA would not purchase or lease

aircraft from any other potential supplier.

At some time prior to May 1960 Toolco and Atlas Cor.

poration, which owns a controlling stock interest in North.

east Airlines, entered upon a plan to have Northeast pro.

pose to TWA a merger of the two air carriers. In Novem.

ber 1960, while the proposed merger plan was pending,

Tooleo diverted to Northeast six of the Convair jet aircraft

which by previous agreement it had assigned to TWA.

. The defendants pursued a continuous policy of refusing

to permit TWA to undertake equity financing except on the

condition that Toolco increase its equity position in TWA;

as a result TWA was limited to obtaining funds through

debt financing. When in 1960 Toolco and Hughes finally

agreed to ontside financing for TWA, the cost of such

financing had risen greatly and the financing could be

only on less favorable terms than had theretofore

available, terms which had been secured by TWA’s

competitors. Under the 1960 financing arrangement

Tooleo’s stock in TWA was placed in a voting trust.* The

CAB approved this financing arrangement and the voting

trust on December 29, 1960, finding that these arrangements

18 The commitments of the various lending institutions had been

conditioned upon the continuation of satisfactory TWA manage

ment. The lenders reserved the right to insist upon a voting trust

during the term of the loan in the event of a change in TWA man-

agement which they deemed to be adverse to TWA’s credit posi-

tion. When Charles Thomas abruptly resigned as president of

TWA in July 1960 the lenders offered to effect the transaction if

Tooleo agreed to place ite stock in TWA in a voting trust. In

December 1960 Toolco executed the voting trust agreement.

23a

were in the public interest. Thereupon, the Metropolitan

Life Insurance Company and the Equitable Life Assurance

Society loaned TWA $92,800,000 and a group of banks for

which the Irving Trust Company acted as agent loaned

TWA. $72,000,000. In March 1961 TWA’s Board of Direc-

tors authorized the purchase of 26 Boeing jet aircraft.

Thereafter the defendants continued their attempts to have

TWA purchase from Toolco jet aircraft which Toolco had

previously agreed to purchase from Convair. The defend-

ants have also continued to press their demand for a merger

of TWA and Northeast and have otherwise, despite the

existence of the voting trust, attempted to prevent TWA

from acquiring jet aircraft other than from Toolco.

Tue Fimst Appzat—Docket No. 28405

TWA’s complaint alleges that the facts heretofore stated

constitute violations of the Sherman and Clayton antitrust

acts, insofar as the defendants have attempted to monop-

olize a substantial segment of interstate and foreign com-

merce and trade, have required that TWA boycott all sup-

pliers of aircraft other than Toolco, and have agreed to

provide financing and to sell aircraft to TWA on the con-

dition that TWA not purchase or lease the goods of a

competitor. The defendants assert that the Civil Aero-

mautics Board possesses primary jurisdiction over these

matters and in the exercise of its powers has approved all

of the transactions alleged in the complaint and thereby

immunized the defendants from the operation of the anti-

trast laws. Judge Metzner held that nothing in the Federal

Aviation Act precludes the district court from asserting

jorisdiction in this case and that the CAB’s approval of

various transactions between TWA and Toolco did not

tonfer immunity upon the defendants from the operation

of the antitrust laws. We agree.

‘The proposition has so often been stated that it has be-

tome hornbook law that immunity from the operation of the

antitrust laws is not lightly to be inferred from the enact-

ment of a regulatory statute. See Georgia v. Pennsylvania

R. Co., 324 U.S. 439, 65 S.Ct. 716, 89 L.Ed. 1051 (1945).

Yet Congress may effect such a design through explicit

enactment of an immunizing provision, and Congress has

done so on occasion.? Under § 408(a) (6) of the Federal

Aviation Act, 49 U.S. § 1378(a) (6), no person engaged

in any phase of aeronautics* may lawfully acquire control

of any air carrier without the prior approval of the CAB.

Section 411 empowers the Board to order any air carrier

to cease and desist from ‘‘unfair or deceptive practices or

unfair methods of competition.’’ Section 414 of the Act

provides that any person affected by any order made under

§ 408* ‘‘shall be, and is hereby, relieved from the operation

of the ‘antitrust laws’ * * * and of all other restraints or

prohibitions made by, or imposed under, authority of law,

insofar as may be necessary to enable such person to do

anything authorized, approved, or required by such order.”

In attempting to ascertain the extent of the antitrust im-

munity conferred by the Aviation Act we do not explore

wholly uncharted territory. In Pan American World Air-

ways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9

L.Ed.2d 325 (1963) (Panagra) a case upon which all par-

ties in this litigation principally rely, the Supreme Court

considered the extent to which the Aviation Act has granted

2 See, e. g., Clayton Act § 16, 38 Stat. 737 (1914), 15 U.S.C. § 26

(1958) ; Shipping Act §15, 39 Stat. 734 (1916), 46 U.S.C. § 814

(1958) ; Interstate Commerce Act § 5a(9), 62 Stat. 473 (1948), 49

U.S.C. § 5b(9) (1958).

8In Transcontinental & Western Air, Inc., Control by Hughes

Tool Company, 6 C.A.B. 153 (1944), the Board determined that

Tooleo was engaged in a phase of aeronautics and thus subject to

Board action under § 408.

4 Section 414 applies to 49 U.S.C. § 1379 (interlocking relation-

ships) and 49 U.S.C. § 1382 (pooling and other agreements) a3

well as to § 408. . ;

25a

the CAB jurisdiction over matters involving the commercial

aviation industry which might otherwise constitute antitrust

violations.

Pan American, a major airline in interstate and foreign

commerce, and W.R. Grace & Co., a common carrier, were

charged in a civil action brought by the United States with

violations of the antitrust laws arising from their relations

with Panagra, an airline which had been formed by Pan

American and Grace, each of which owned 50 percent of its

stock. The government’s complaint alleged restraints of

trade in that Pan American and Grace had agreed that

Panagra would have the exclusive right to traffic along the

west coast of South America free of Pan American com-

petition and that Pan American would enjoy the exclusive

right to traffic in other areas in South America and be-

tween the Canal Zone and the United States; that Pan

American and Grace had conspired to monopolize and did

monopolize air commerce between the eastern coastal areas

of the United States and western coastal areas of South

America and Buenos Aires; and that Pan American had

exercised its 50 percent control over Panagra to prevent

itfrom securing authority from the CAB to extend its serv-

ice from the Canal Zone to the United States.

The district court found a single violation in Pan Amer-

iean’s activities with regard to the extension of Panagra’s

routes and ordered divestiture of Pan American’s stock

interest in Panagra. On direct appeal from the district

gurt, the Supreme Court reversed the lower court judg-

ment on the ground that the questions presented by the gov-

ermment’s complaint had been entrusted to the CAB and the

district court therefore lacked jurisdiction in the premises.

“Noting that those aspects of antitrust problems entrusted

to the Board are ‘‘but a fraction of the total,’’ the Court

emphasized that the limitation of routes, the division of

territories, and the relation of common carriers to air car-

26a

riers are ‘‘basic to [the] * * * regulatory scheme”’ of the

Federal Aviation Act and that the acts charged in the gov-

ernment’s complaint are ‘‘precise ingredients of the Board’s

authority.’’? The term ‘‘unfair methods of competition”’ in ,

§ 411, the Court noted, must gather meaning from the con-

text of the regulatory scheme envisioned in the Act, and it

would be strange if the ‘‘public interest’’ standard incor-

porated into § 411° was deemed satisfied by the Board as to

a particular transaction and yet that transaction was viola-

tive of the antitrust laws; it would be equally strange for

a transaction approved under § 408 by the Board to be

adjudged subsequently to be in violation of the antitrust

laws.

5 Title 49 U.S.C. § 1302 provides:

“(Tn the exercise and performance of its powers and duties

under this chapter, the Board shall consider the following,

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

accordance with the public convenience and necessity :

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

portation system properly adapted to the present and future

needs of the foreign and domestic commerce of the United

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

‘*(b) The regulation of air transportation in such manner

as to recognize and preserve the inherent advantages of, assure

the highest degree of safety in, and foster sound economic con-

ditions in, such transportation, and to improve the relations

between, and coordinate transportation by, air carriers;

‘*(¢) The promotion of adequate, economical, and efficient

service by air carriers at reasonable charges, without unjust

discriminations, undue preferences or advantages, or unfair |

or destructive competitive practices ;

‘©(@) Competition to the extent necessary to assure the

sound development of an air-transportation system properly

adapted to the needs of the foreign and domestic commerce of

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

defense ; ?

** (e) The promotion of safety in air commerce ; and

‘«(f) The promotion, encouragement, and development of

aeronautics.’’

27a

The striking dissimilarities between the operative facts

in Panagra and those in the instant case as well as the

whole tenor of the Supreme Court’s opinion compel us to

the conclusion that the district court properly asserted ju-

risdiction in this cause. The relationship between the al-

legedly unlawful activities in Panagra and the scope of the

Board’s powers to deal with such activities was direct. Un-

der 49 U.S.C. § 1371, it is the specific function of the CAB

to certify airlines to operate on a particular route between

terminal points directed by the Board. The unlawful divi-

sion of territories and allocation of routes with which Pan

American, Grace and Panagra were accused were therefore

directly within the ambit of powers explicitly granted the

Board by the Congress. -.To permit the courts to intrude

into this area would have been, as the Court noted, to permit

the erection of an independent yet parallel body of law in

direct contravention of the regulatory scheme embodied in

the Aviation Act.

By contrast, in the instant case TWA’s complaint alleges

transactions which are unrelated to any specific function of

the CAB. The Board is explicitly entrusted with the duty

of considering for approval any potential acquisition of

contro] over an air carrier by a person engaged in any phase

of aeronautics ; and to the extent of such approval—but only

to that extent—the Act grants immunity from the operation

of the antitrust laws. Surely Congress did not contemplate

that CAB approval of an acquisition would be tantamount

to approval of every transaction which might be entered

into by the controlling party. The focus of the Board’s

powers in this sphere is the acquisition itself rather than

the broad range of activities into which the controller may

enter thereafter. Thus the plaintiff’s complaint enumerates

a variety of transactions over which the Board is given no

' explicit jurisdiction by the Act: an attempt to monopolize a

substantial segment of interstate and foreign air commerce,

imposition by the defendants on TWA of the condition that

28a

the airline not purchase or lease aircraft from any sup-

plier other than Toolco, and the tying of financing of air.

craft acquisitions with the purchase of such aircraft from

Toolco.

Nowhere in the Act is the Board specifically charged with

the duty of monitoring each transaction which is ultimately

effected between the carrier and its controller once an acqui-

sition is approved. The Board concededly may condition

its approval of a control acquisition upon such terms as it

may find to be just and reasonable, and thereby retain a

continuing jurisdiction over the activities of the controlling

party.® In the exercise of this supplementary power the

Board may investigate and regulate certain aspects of trans-

actions effected between an air carrier and the controlling

party. But the existence of this power—which was em-

ployed in approving Toolco’s acquisition of control over

TWA—hardly supports the defendants’ claim that Con-

gress placed the regulation of everything which might flow

from such transactions within the exclusive jurisdiction of

the CAB. The issue here is not whether the CAB may con-

sider such matters but rather whether the federal courts

have been excluded from their consideration by Congress.

There is virtually no limit to the nature and variety of

the transactions which fall within this category. In the

absence of an explicit congressional mandate entrusting

such transactions exclusively to the Board we can find no

basis for declaring the federal courts to be without jurisdic

tion in such matters.

* Section 408, provides, in pertinent part:

“Unless, after such hearing, the Board finds that the con-

solidation, merger, purchase, lease, operating contract, or acqui-

sition of control will not be consistent with the public interest

or that the conditions of this section will not be fulfilled, it

shall by order, approve such consolidation, merger, purchase, —

lease, operating contract, or acquisition of control, upon such

terms and conditions as it shall find to be just and reasonable

and with such modifications as it may prescribe * * *.’’

29a

In Panagra the Civil Aeronautics Board could have con-

sidered the activities of Pan American under its broad

power set out in § 411 of the Act to ‘‘investigate and deter-

mine whether any air carrier * * * has been or is engaged

in unfair or deceptive practices or unfair methods of com-

petition in air transportation * * *,’’ a provision to which

the Supreme Court explicitly adverted in holding that the

matters there in dispute had been specifically entrusted by

Congress to the Board. By contrast, the Board enjoys no

such power to deal with the allegedly unlawful activities of

Hughes and Toolco, inasmuch as § 411 is applicable solely

to ‘any air carrier, foreign air carrier, or ticket agent.”’

The limited applicability of § 411 merely underscores the

limited jurisdiction conferred by Congress upon the Board

to deal with the multifarious antitrust problems which may

arise in the management and operation of the commercial

air industry. Moreover, it is not even clear that the Board

any longer possesses any jurisdiction over the activities of

Hughes and Toolco, even under § 408 of the Act, inasmuch

as the voting trust arrangement adopted in 1960 appears

to have ousted Hughes and Toolco from control over the

operations of TWA, such control being a prerequisite to the

Board’s acting under § 408.

We are reinforced in ovr conclusion by the Supreme

Court’s recognition of the limitations of its holding in

Panagra. Characterizing the questions presented in the

government’s complaint as ‘‘narrow’’ ones, the Court, as

we have no emphasized that the antitrust problems

entrusted by the Act to the Board ‘‘encompass only a frac-

tion of the total.’”” The activities here drawn into issue by

TWA’s complaint fall without the ambit of that small frac-

tion of antitrust problems placed within the Bgard’s exclu-

sive jurisdiction.

The Aviation Act itself bears testimony that matters such

a8 those with which we are here concerned were not intended

tae placed without the competence of the federal judiciary.

“ig

30a

Title 49 U.S.C. § 1506 declares that ‘‘Nothing contained in

this chapter shall in any way abridge or alter the remedies

now existing at common law or by statute, but the provi-

sions of this chapter are in addition to such remedies.”

Moreover, the Act fails to empower the Board to grant the

very relief principally sought by the plaintiff in this action

—the award of money damages, trebled under the mandate

of the antitrust laws.

Even if we were to view as the subject of judicial dis.

cretion the question whether the CAB is to be given primary

jurisdiction in the consideration of activities such as those

here alleged, we could find no compelling reason to adopt

such a course on the facts presented. While the entire

regulatory scheme of the Federal Aviation Act demands

that the Board be given great latitude in fashioning public

policy with regard to the development of the commercial

air industry through the acquisition of control over air

carriers—and the Board possesses a substantial expertise

in these matters—there is no such necessity for a uni-

formity of policy with regard to the consideration of the

validity of individual transactions effected between an air

carrier and its controller which are alleged to be unlawful

under the antitrust laws. Nor is the Board any more quali-

fied to consider such charges than the federal courts, which |

daily encounter and resolve antitrust problems. The dis

position of such matters by the courts would not intrude

upon the Board’s function of fashioning the broad frame-

work of control for the commercial air industry. We can

thus find no warrant for adopting the position that the sub-

ject matter of this litigation was entrusted by Congress to

the exclusive jurisdiction of the Civil Aeronautics Board.

Nor do we find any merit in the defendants’ alternative

contention that the Civil Aeronautics Board, in approving

Toolco’s acquisition of control over TWA and certain spe-

cific transactions thereafter, immunized the defendants

from the operation of the antitrust laws as to all the

3la

ramifications of these transactions. Title 49 U.S.C. § 1384

extends such immunity only ‘‘insofar as may be necessary

to enable such person to do anything authorized, approved

or required by such order.’’ As Judge Metzner noted, the

Board’s approval of acquisition of control by Toolco over

TWA did not carry with it approval of every transaction

which Toolco might choose to effect in the exercise of its

entrol. To give §408 such a carte blanche effect would

be to pefVvert the entire regulatory, structure of the Avia-

tio Act, Nor can any of the activities with which Toolco

stands charged be deemed to have been necessary to the

exercise of its control relationship.

In its original grant of approval of the acquisition of

control over TWA by Toolco,’ the Board restricted com-

nercial transactions between the two companies to ‘‘trans-

ations involving complete items of property, the price of

which does not exceed $200 each, with the further limitation

that the total annual expenditure involved in such com-

mercial transactions by either party shall not exceed

$10,000.’ Over the years the Board has occasionally modi-

fed this order to permit specific intercompany transactions.

in 1959 and 1960 the Board issued five such modification

orders approving the specific transactions involving the

wquisition of jet aircraft which are the subject matter

ofthis litigation. In each case, however, the Board’s order

states merely the specific terms of the transaction and

none of the accompanying conditions which allegedly were

foisted upon TWA.* Order No. E-13873, issued on May

i, 1959, for example, states that the modification ‘‘is de-

sired to permit TWA to lease on an individual basis up

te eleven Boeing 707-131 aircraft from Hughes as they

become available, as well as to acquire from Hughes at

“Wiiasccntinentel & Western Air, Inc., Control by. Hughes Tool

Ommpany, 6 C.A.B. 153 (1944).

"Bee Order No. E-13542, February 26, 1959; Order No. E-13873,

ae 1959; Order No. E-14169, July 1, 1959; Order No. B-14504,

30, 1959; Order No. E-14877, January 29, 1960.

32a

Hughes’ actual cost a supply of spare parts, not to exceed

$3,500,000 in value, which are needed for the operation

of these aircraft. In addition, modification is requested

to permit the lease by Hughes of up to thirty spare jet

engines to TWA.’”? The Board stated in its order that

the proposed arrangements did not violate the purpose of

the original restriction in the control approval and that

the modification ordered was just and reasonable and in

the public interest; but the Board was careful to em

phasize that its action should not be deemed a determina

tion for rate-making purposes of the reasonableness of

the transactions. There is no indication whatsoever—o

any reason to believe—that the Board had been given any

indication of the conditions which had been attached to

Toolco’s agreements with TWA. The Board’s approval

extended only to the individual transactions involved in

these orders, not to the whole range of activities which

over a period of years constituted the backdrop against

which these transactions were effected. There is thus no

cause to hold that these individual and narrow Boar

orders immunized the defendants from the operation of

the antitrust laws with respect to activities not specifically

ruled upon by the Board.

The defendants maintain that in any event the com

plaint fails to state facts sufficient to establish the juris

diction of the district court. They claim that the allegations

of antitrust violations in the complaint are wholly cor

clusory 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 transactions alleged in TWA’s

complaint—that Toolco refused to finance aircraft acqu-

sitions by TWA unless TWA agreed to purchase planes

from no supplier other than Toolco; that Toolco required

TWA generally to boycott all other suppliers of aircraft

that the defendants have attempted through various mean

+o monopolize a substantial segment of interstate and for

33a

eign air commerce—are on their face insufficient to support

a claim of antitrust violations, a claim which surely falls

within the jurisdiction of the district court. The allega-

tions state the outlines of a tying arrangement, an eco-

nomic boycott of the defendants’ competitors, and an

attempt to monopolize commerce, all unlawful under the

gatitrust statutes. It would be particularly inappropriate

to find these allegations insufficient to establish the district

@urt’s jurisdiction inasmuch a8 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. ‘‘[T]he Federal Rules of Civil Procedure

do not require a claimant to set out in detail the facts

upon which he bases his claim. To the contrary, all the

Rules require is ‘a short and plain statement of the claim’

that will give the defendant fair notice of what the plain-

tiff’s claim is and the grounds upon which it rests.”” Conley

¥. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed. 2d 80

(1957). See Dioguardi v. Durning, 139 F.2d 774 (2 Cir.

1944); Knudsen v. Torrington Co., 264 F.2d 283 (2 Cir.

1958). Of course the Federal Rules apply with equal force

tosuits under the antitrust laws. Nagler v. Admiral Corp.,

U8 F.2d 319, 322-23 (2 Cir. 1957). We are satisfied that

the complaint sufficiently states a cause of action and es-

tablishes the district court’s jurisdiction.

Tae Szconp Appgzat—Docket No. 28406 _

‘The defendants also appeal, as of right, from orders

éf the district court which dismissed with prejudice their

first five counterclaims asserted against TWA and a group

of additional defendants and which granted summary judg-

ment in favor of TWA on a sixth counterclaim, because

af the defendants’ failure to produce Hughes for examina-

fion and their failure to produce certain papers and docu-

ments. The additional defendants are the three major lend-

ig institutions which participated in the 1960 financing

a voting trust agreements, certain of their officers, the

34a

incumbent president and chairman of the board of director

of TWA, and an investment banking concern which sing

early in 1959 has served as TWA’s principal financial

adviser.

The proper consideration of this appeal requires 1

chronological exposition of the lengthy and complicated

pretrial proceedings engaged in by the parties. Late n

1961 Judge Metzner was assigned to serve as a judge

for all purposes in this litigation under General Rule 2

General Rules of the United States District Courts for

the Southern and Eastern Districts of New York By

order of February 7, 1962, Judge Metzner confirmed 1

series of prior orders which had awarded Toolco priority

in the conduct of pretrial discovery, and he then appointed

J. Lee Rankin, Esq. as Special Master to supervise th

conduct of the discovery proceedings.

Shortly after the filing of the answer and counterclaim

on February 12, the Special Master granted Toolco’s mo.

tions to have the additional defendants produce a multi.

tude of documents. On March 5, Judge Metzner modified

the February 7 order so as to limit Toolco’s priority i

discovery to evidence which bore on the plaintiff’s claim

against Tooleo. The March 5 order stated that ‘‘The ad.

ditional defendants may participate in such deposition

conducted by plaintiff, in furtherance of their own depo

sition proceedings, or may separately schedule such depo

sitions to follow upon the completion of plaintiff’s deposi

tions.’? The court further ordered that upon the completior

of the additional defendants’ deposition proceedings Toole

could complete its own deposition proceedings.

On February 16, the Special Master had granted th

motion of the additional defendants for the production ¢

certain documents by Toolco, Tooleo withheld certai

of these documents on a claim of attorney-client privileg

After full consideration, the Special Master ordered th

production of these documents on April 17. After affirm

35a

ance by the district court of this order and of a second

order to produce issued by the Special Master, and denial

of review by this court, counsel for Toolco, in a letter to

Jodge Metzner on January 23, 1963, declared that Toolco

would refuse to comply with any of these orders.

‘Meanwhile, on September 6, 1962, counsel for Tooleo had

ssepted a subpoena calling for Hughes’ personal appear-

anee as a witness returnable on September 24, 1962. The

district court later set October 29 as the date for the Hughes

gposition. The court went on to adopt as its own a prior

06 of the Master that in view of the close connection

between Hughes and Toolco, Toolco would be responsible

for Hughes’ actions with respect to the subpoena, and that

if Hughes failed to communicate with the Special Master he

would be deemed to have acquiesced in this interpretation.

No communication from Hughes was received by the

Master.

On October 25, 1962, the Master granted Toolco’s motion

tp adjourn the Hughes deposition, but set February 11,

1963, as a firm date therefor. By order of January 10, 1963,

the district court affirmed the setting of this date, stating

that ‘‘this date will be adhered to in the absence of extraor-

dmary circumstances.’? Shortly thereafter, Tooleo moved

tg hold the Hughes deposition on written interrogatories

and to bring on for hearing its motion, pending since

=. 8, 1961, to dismiss the complaint for failure to state

adaim upon which relief may be granted. On January 19,

1968, the district court denied the first motion.

Yn preparation for the Hughes deposition, the additional

defendants had moved on January 9; 1963, for the produc-

tim by Toolco of certain income tax returns, revenue

gents’ reports, accountants’ work sheets and ether docu-

‘gets which would allegedly substantiate a claim that

Tooleo and Hughes had been motivated by a desire to reap

ax benefits at TWA’s expense in their dealings with TWA

Serning the acquisition of a jet-powered fleet of aircraft.

36a

On January 22, 1963, the Master ruled that the documents

were relevant to the issues in the case and that their pro.

duction would not place an unreasonable burden upon

Tooleo. On February 1, the district court affirmed the

order to produce, but Toolco failed to produce the docn-

ments, despite repeated demands by TWA and the addi-

tional defendants.

On February 6, 1963, five days before the scheduled

Hughes deposition, Toolco filed a complaint with the Civil

Aeronautics Board charging the additional defendants with

violations of the Federal Aviation Act. On the same day

Tooleo moved the district court for a stay of all proceed-

ings on the counterclaims pending disposition by the CAB

of the Toolco complaint, on the ground that under the

Supreme Court’s decision in Panagra, filed on January 14,

1963, the Board possessed exclusive jurisdiction over the

subject matter of the counterclaims. On February 6 the

district court denied Toolco’s motion to dismiss the com-

plaint, 214 F’. Supp. 106 (S.D. N.Y. 1963), and on February

8 it denied Toolco’s motion for a stay of all proceedings on

the counterclaims.

On February 8 counsel for Toolco informed the district

court that Toolco had made a ‘‘business decision’’ not to

proceed further with discovery proceedings, but rather to

rest on the merits of the positions theretofore taken and

seek judicial review thereof. Consequently, counsel for

Toolco stated, Hughes would fail to appear for the deposi-

tion ordered for February 11. He further stated that

Toolco was aware of the sanctions which could be imposed

by the district court for such a willful and deliberate failure

to proceed with the scheduled discovery proceedings.

The inevitable consequence of Toolco’s default in pro-

ducing Hughes as a witness and in producing the documents

as the court had directed was that on May 3 the district

court granted the motions of TWA and the additional

defendants for dismissal of the counterclaims with prej-

udice, under Rule 37(b) (2) (iii) and Rule 37(d) of the

37a

Federal Rules of Civil Procedure. From the final judg-

ments entered pursuant to that decision, and from a final

judgment entered the same day granting TWA’s motion for

summary judgment on the sixth counterclaim, Toolco

appeals.

Inasmuch as the sixth counterclaim raises issues unre-

lated to the first five counterclaims, we shall treat the sixth

counterclaim separately.

The First Five Cowiterclaime

The appellants raise several contentions: first, that the

district court should have granted their motion for a stay

of all proceedings on the counterclaims pending disposition

of the complaint which the defendants had filed with the

CAB; second, that the district court should have granted

the defendants a voluntary dismissal of the counterclaims

without prejudice; and third, that the district court orders

which directed Hughes to appear for deposition as noticed

by the additional defendants, and which directed Toolco to

produce the tax documents and the documents involving

the attorney-client privilege, were improper.

That there was no cause for granting a stay of all pro-

ceedings on the counterclaims appears clear from the nature

of these counterclaims. The first counterclaim alleges that

the additional defendants and the present management of

TWA improperly sought to perpetuate their control over

TWA by preventing termination of the voting trust accord-

ing to its terms. The second charges that Metropolitan and

Equitable had acquired control over TWA in violation of

$408 of the Aviation Act. The third counterclaim is

brought derivatively on behalf of TWA and asserts that

the additional defendants and the present TWA manage-

ment have conspired in violation of the antitrust laws to

monopolize the supplying of financing to air carriers. The

- fourth restates the allegations of the third counterclaim

‘and alleges that Toolco has suffered damages in excess of -

$77,000,000. Finally, the fifth counterclaim charges a com-

Son

Pee

88a

mon law conspiracy to interfere with Toolco’s rights as the

owner of 78 percent of the stock of TWA and to extend the

duration of the voting trust beyond the period permitted

by the applicable Delaware statute.

In the light of the views we have above expressed re.

garding the first appeal, it is plain that all of these counter-

claims save the second fall beyond the scope of the CAB’s

exclusive jurisdiction. They deal with alleged misconduct

on the part of the lending institutions in their dealings with

TWA and Toolco and in no respect with matters spe

cifically entrusted to the Board in the Act. Acts such as

those alleged in all but the second counterclaim may prop-

erly be made the subject of an action in a federal district

court. Inasmuch as the Board possessed no exclusive juris-

diction as to these claims, the defendants presented no

adequate basis for a stay of proceedings.

the second counterclaim—which alleges a violation

by the additional defendants of § 408 of the Aviation Act—

the Board clearly possesses exclusive jurisdiction. Under

that section, the Board is empowered to investigate alleged

violations, and the district court was without power to

adjudicate this issue. The court should have dismissed this

counterclaim for lack of jurisdiction, and we direct the

modification of the judgment below accordingly.

The defendants maintain that the district court should

have granted a voluntary dismissal without prejudice of the

counterclaims. It suffices merely to note that at no juncture

in the proceedings below did the defendants request that

the court grant such relief. Indeed, the very purpose for

the defendants’ “business decision’’ to terminate all pre

trial discovery was to gain judicial review of the positions

which the defendants had taken below.

, the defendants contend that the district court’s

dismissal with prejudice of the counterclaims was invalid

because the discovery orders upon which the district court

39a

based its order under Rules 37(b) (2) (iii) ° and 37 (d)

were improper.

We think it clear beyond any question, in light of all the

circumstances here presented, that the deposition of Hughes

was necessary to all aspects of this litigation, and his willful

and deliberate default constituted a sufficient basis under

Bule 37 for the dismissal of the counterclaims with preju-

dice. Hughes has at all times been the sole owner of Toolco

and the guiding light behind all the transactions between

Toolco and TWA. Both TWA and the additional de-

fendants had the right to depose Hughes. Although the

-*Rule 87 provides:

‘(b) Failure to Comply With Order.

**(2) Other Consequences. If any party or an officer or

managing agent of a party refuses to obey an order made

under subdivision (a) of this rule requiring him to answer

designated questions, or an order made under Rule 34 to pro-

duce any document or other thing for inspection, copying, or

or to permit it to be done, or to permit entry

upon land or other property, or an order made under Rule 35

requiring him to submit to a physical or mental examination,

the court may make such orders in regard to the refusal as

- are just, and among others the following:

‘* (iii) An order striking out pleadings or parts thereof, or

staying further proceedings until the order is obeyed, or dis-

missing the action or proceeding or any part thereof, or ren-

dering a judgment by default against the disobedient party

_ @@e¢67)

-® Rule 37 provides:

_. ‘*(d) Failure of Party to Attend or Serve Answers. If a

~ party or an officer or managing agent of a party wilfully fails

_ to appear before the officer who is to take his deposition, after

= served with a proper notice, or fails to serve answers to

interrogatories submitted under Rule 83, after proper service

& of such interrogatories, the court on-motion and notice may

: * strike out all or any part of any pleading of that party, or

2 i dione the action or proceeding or any part thereof, or enter

judgment by default against that party.’’

40a

defendants contend that the February 11, 1963 deposition

was to be held solely for the benefit of TWA, Judge

‘Metzner’s order of February 7, 1962 made clear that the

additional defendants could schedule separate deposition

proceedings of their own, or in the alternative participate

in TWA’s deposition proceedings. On February 14, 1962,

the additional defendants served notices to examine Tooleo

by Hughes, its managing agent. The additional defendants

had the right under Judge Metzner’s order to treat as their

own the Hughes deposition scheduled for February 11, and

it is abundantly clear from the record that they did so.

When Hughes chose net to appear for this deposition—

which action was taken deliberately and with full knowledge

of the sanctions available to the additional defendants un-

der Rule 37—Judge Metzner was fully justified in entering

judgments dismissing the counterclaims against TWA and

the additional defendants. The sanction of judgment by

default for failure to comply with discovery orders is the

most severe sanction which the court may apply, and its

use must be tempered by the careful exercise of judicial dis-

cretion to assure that its imposition is merited. However,

where one party has acted in willful and deliberate disre-

gard of reasonable and necessary court orders and the

efficient administration of justice, the application of even

so stringent a sanction is fully justified and should not be

disturbed. See Nasser v. Isthmian Lines, 2d Cir., 1964, 331

F. 2d 124; Link v. Wabash Railroad Co., 370 U.S. 626, 82

S. Ct. 1886, 8 L. Ed. 2d 734 (1962) ; Gill v. Stolow, 240 F. 2d

669 (2 Cir. 1957).

Hughes’ deposition was absolutely essential to the proper

conduct of the litigation. Yet he and Toolco seized upon

every opportunity to forestall this event. To this end they

demanded the production of a multitude of documents by

T’WA and the additional defendants and secured successive

adjournments of the deposition. Indeed, Hughes and

Tooleo seemed to look upon the entire discovery proceed-

ings as some sort of a game, rather than as a means of

securing the just and expeditious settlement of the impor-

tant matters in dispute. It was only at the very eve of the

Hughes deposition—after the other litigants had been put

4la

to much delay and expense—that the defendants made a

“business decision’’ to terminate discovery.

Hughes’ conduct is particularly intolerable in a large

and complex litigation such as this one. The protracted

antitrust suit taxes the energies and resourcefulness 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

Handbook 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 cireumatinces, the district court

was not obliged to employ sanctions less severe than the dis-

missal of the counterclaims with prejudice. Whatever

lesser sanctions might have sufficed with regard to the docu-

ments withheld by the defendants, it seems to us that a

dismissal of the counterclaims was appropriate, in view of

Hughes’ intransigence after intensive and expensive dis-

covery proceedings already protracted for more than one

year.

We are also of the view that the other two discovery

orders were properly issued. After careful examination

of the documents, both the Special Master and the district

court determined that the attorney-client privilege claimed

by the defendants as to the first group of documents had

- been waived as the result of the defendants’ pleading advice

of counsel as a defense and as the result of two affidavits,

one of which was submitted to the CAB by Raymond A.

Gook, one of Toolco’s attorneys. As the Master noted,

the Cook affidavit purports to be based upon information

Tevived by Cook as Attorney for Toolco and in many re-

" ipects: parallels the allegations made in the answer and

nterelaims. The district court properly held that under

6 circumstances the affidavit constituted a waiver by

Melco of the attorney-client privilege. As for the docu-

mts concerning income tax a there can be

—

42a

little question of the relevance of this material to the liti-

gation. The additional defendants might well have based

a defense to the counterclaims upon a showing that Toolco’s

and Hughes’ activities with regard to the financing of air-

craft acquisitions by TWA were motivated by a desire to

reap income tax benefits for Hughes at the expense of

TWA. Of course, the test of relevance for discovery pur-

poses is less stringent than that applied to the admissibility

of evidence at trial. Moore, Federal Practice 34.10. The

district court properly ordered the production of the tax

documents.

The Siath Counterclaim

The December 1, 1960 financing agreement required the

subordination of prior indebtedness of TWA to Toolco, to

be achieved through the issuance by TWA of interim sub-

ordinated notes in payment pro tanto of the prior indebted-

ness. TWA was then obliged to offer to its stockholders

the right to purchase, at least at par, $100 million worth

of subordinated debentures. The interest on both the in-

terim notes and the debentures was set at 644 percent.

Toolco agreed to purchase the ‘‘principal amoun ”? of the

unsubscribed debentures within three business days of the

close of the subscription offering. The agreement further

provided that ‘“IT'WA shall ° ° * refund the Interim

Subordinated Notes * * * upon the purchase by Hughes

[Tooleo] of [the] Subordinated Debentures °° oe

Hughes shall accept such Subordinated Debentures in any

such refunding of the Interim Subordinated Notes up to

the aggregate principal amount of Subordinated Debentures

which Hughes is so obligated to purchase.”’ The transac-

tion was to be completed by TWA’s turning over to Toolco

the cash received from the subscription offering in addition

to accrued and unpaid interest on the interim notes to the

date of refunding.

The subscription offering expired on June 8, 1961. On

June 13, three business days thereafter, TWA delivered to

Tooleo some $19 million in cash received in the offering

43a

and nearly $81 million in unsubscribed debentures, total-

ling $100 million, the amount of the interim notes. TWA

also paid Toolco interest on the $100 million to June 8 and

interest on the $19 million through June 12. TWA paid

no interest on the $81 million from June 8 through June

12 on the ground that it substituting interest-bearing

debentures for the interim notes.

In its sixth counterclaim, Tooleo contends that under the

terms of the financing agreement, TWA was obliged to pay

interest on the interim notes to the date of refunding,

June 13, and that TWA’s failure to pay such interest re-

sulted in Toolco’s paying more than par value for the

subordinated debentures, in violation of the terms of the

agreement. We agree with Judge Metzner who found

that ‘‘based on the overall arrangements between the par-

ties, * * * it was their intention to substitute the deben-

tures for the interim notes and that payment of double

interest for the five days was not the intendment of the par-

ties.’ The fact that the subordinated debentures were is-

sued as of June 8 and bore interest from that date, in the

same amount as the interim notes, indicates that the ex-

change for the notes was to be effective as of that date.

The provision for having the closing three business days

thereafter was merely to afford time for the preparation

for that transaction. The most plausible reading of the

financing agreement would seem to be one which eliminates

‘the double interest for the period between June 8 and June

13 which Toolco now seeks. Judge Metzner properly

granted summary judgment to TWA on this counterclaim.

ConcLusion

As to the first appeal, we find that the district court had

jurisdiction of the action and that the Civil Aeronautics

Board orders do not constitute a good defense to the anti-

‘trust claim of the plaintiff.

_ The orders of the district court in the second appeal are

with the exception of the order dealing with the

‘@eond counterclaim. The second counterclaim is dismissed

ator lack of jurisdiction.

44a

379 U.S. 912

Ocroser Tzem, 1964.

November 16, 1964.

No. 443. Huaues Toot Co. et au. v. Trans Wortp An-

tings, Lvc.; and

No. 501. Hvcnes Toot Co. v. Trans Wortp Armuinzs,

Inc., er aL. O.A. 2d Cir. Certiorari granted. Paul A.

Porter, Victor H. Kramer and Werner J. Kronstein for

petitioners in both cases. John F. Sonnett, Dudley B. Ten-

ney and Raymond L. Falls, Jr., for respondent in No. 443,

John F. Sonnett for Trans World Airlines, Inc., and Bruce

Bromley, William C. Chanler, William M. Bradner, Jr.,

Edward R. Neaher, John R. Hupper and Charles L. Stewart

for Equitable Life Assurance Society of the United States

et al, respondents in No. 501. Reported below: 332 F.2d

602.

45a

E. .

380 U.S. 248

Ocroser TzRm, 1964.

Per Curiam.

Hvueues Toon Co. er au. v. Trans Woritp

Araurngs, Ivo.

CERTIORARI TO THE UNITED STATES COUBT OF APPEALS FOR

THE SECOND CIRCUIT

No. 443. Argued March 3, 1965.—Decided March 8, 1965.

Certiorari dismissed as improvidently granted.

Reported below: 332 F.2d 602.

Chester C. Davis argued the cause for petitioners.

With him on the briefs were Paul A. Porter, Victor H.

Kramer, Abe Krash, Dennis G. Lyons, Werner J. Kron-

stem and Daniel A. Rezneck.

John F. Sonnett argued the cause for respondent. With

him on the briefs were Dudley B. Tenney, Raymond L.

Falls, Jr., Marshall H. Cox, Jr., and Abraham P. Ordover.

Acting Solicitor General Spritzer, Assistant Attorney

General Orrick, Lionel Kestenbaum, O. D. Ozment and

Robert L. Toomey filed a memorandum for the Civil Aero-

nautics Board, as amicus curiae.

Per Cur.

The writ of certiorari is dismissed as improvidently

granted.

46a

380 U.S. 249

Hueues Toot Co. v. TWA.

Per Curiam.

Hvueues Toon Co. v. Trans WorLD

Aretines, Ino., BT AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIROUIT

No. 501. Argued March 4, 1965.—Decided March 8, 1965.

Certiorari dismissed as improvidently granted.

Reported below: 332 F.2d 602.

Chester C. Davis argued the cause for petitioners.

With him on the briefs were Paul A. Porter, Victor H.

Kramer, Abe Krash, Dennis G. Lyons, Werner J. Kron

stein and Daniel A. Rezneck.

Bruce Bromley argued the cause for respondents. With

him on the brief for the Equitable Life Assurance Society

of the United States et al. were William C. Chanler, Wit

liam M. Bradner, Jr., and Edward R. Neaher. On the

brief for Trans World Airlines, Inc., was John F. Sonnett.

Acting Solicitor General Spritzer, Assistant Attorney

General Orrick, Lionel Kestenbaum, .O. D. Ozment and

Robert L. Toomey filed a memorandum for the Civil Aero-

nautics Board, as amicus curiae.

Pen CunmM.

The writ of certiorari is dismissed as improvidently

granted.

47a

38 Federal Rules Decisions 499

UNITED STATES DISTRICT COURT

8. D. NEW YORK.

Teans Wortp Aruinzs, Ino., Plaintiff,

iu R. Hucues, Hucues Toot Company and Raymonp

M. Hotimay, Défendants.

Nov. 16, 1965.

' Marznzr, District Judge.

Plaintiff seeks review of so much of an opinion and order

of the Special Master as-fails to adopt some of the pro-

posed interim findings of fact requested by the plaintiff.

It is unnecessary to detail the long, drawn-out history of

this complicated antitrust litigation. The present problem

arose after the court directed the entry of a judgment by

default pursuant to Fed. R. Civ. P. 37(b) (2) (iii) and 37 (d),

and appointed a Special Master pursuant to rule 55(b) (2)

to determine the amount of damages.

The plaintiff, in an attempt to facilitate the hearings

before the Special Master, submitted proposed interim

findings of fact to formalize the basic findings which it con-

sidered flowed from the default. The plaintiff disagrees

with some of the views expressed by the Special Master in

his opinion and with so much of his order striking portions

of the proposed findings.

In the main I agree with the exposition by the Special

Master of the law and procedures to be followed by him

in assessing the damages in this case. There appears to be

some ambiguity in one portion of his opinion .which may

need clarification. :

He states that:

, “For the reasons indicated the defendants, at this

» point, do not have the right to produce evidence to try

48a

to establish in any manner that the allegations of the

complaint other than as to damages cannot be main.

tained.’’

The opinion goes on to state:

‘*Recognizing that it is his duty on behalf of the

court to be satisfied of the liability of the defendants,

as well as of the proof, according to law, of the amount

of damages claimed, he must also be satisfied by a pre

ponderance of the evidence that any damages were

proximately caused’’, * * *

The reference to a duty ‘‘to be satisfied of the liability of

the defendants”’ may, in light of the first quotation above,

indicate a conflict in approach, although a Péading of the

entire opinion does not warrant such a conclusion.

The order referring this matter to the Special Master

pursuant to the authority of Fed. R. Civ. P. 55(b) (2) was

intended to embrace this portion of the rule:

‘‘Tf, in order to enable the court to enter judgment * **

it is necessary to * * * determine the amount of dam-

ages * * * the court may * * * order such references as

it deems necessary and proper’’.

Liability is not an issue for the Special Master except in

a very limited sense. The sufficiency of the complaint has

already been established by the denial of defendant’s mo-

tion to dismiss. 214 F. Supp. 106 (S.D. N.Y. 1963), aff'd

332 F. 2d 602 (2d Cir. 1964), writ of cert. dismissed, 38

U.S. 248, 85 S. Ct. 934, 13 L. Ed. 2d 817 (1965). By virtue

of the default the defendant has admitted the truth of the

well-pleaded allegations of the complaint. Thomas v.

Wooster, 114 U.S. 104, 5 S. Ct. 788, 29 L. Ed. 105 (1885).

Allegations are not well pleaded if they are shown to

indefinite or erroneous by other statements in the complaint

(Thomson v. Wooster, supra) ; or where they are contrary

to facts of which the court will take judicial notice (Glen

Coal Co. v. Dickinson Fuel Co., 72 F. 2d 885, 889 (4th Cir.

1934) ) ; or where they are not susceptible of proof by legiti-

49a

mate evidence (Cohen 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. v.

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. 643, 7 L. Ed. 2d 550

(1962)). However, it may be shown by plaintiff, in the

context of this case, that some matters of which the court

may take judicial notice should not be so noticed. See

MeCormick, Evidence § 330 (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

tonullify the allegation. 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 evidence

tendered.

Attempts by defendant to escape the effects of its default

should be strictly circumscribed. It should not be afforded

an’opportunity to litigate what has already been deemed

admitted in law. In the absence of an exceedingly strong

showing that an allegation is untrue under the rules set

forth above, the allegation stands as admitted.

The Special Master stated that the failure to adopt any

proposed finding is not a determination that such finding

- “4s 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 lim-

ited extent noted above. The Special Master specifically

stated that

~ “the defendants are not allows by the present refusal

to adopt such tendered findings to contest them on

the merits as they could do if there had been no

‘Phe matter is returned to the Special Master to proceed

nce with these views. So ordered.

50a

Hx.

308 Federal Supplement 679

UNITED STATES DISTRICT COURT

8. D. NEW YORE.

Trans Wortp Aratinzs, Ino., Plaintiff’,

Howarp R. Hucues, Hucues Toot Company and Rarmom

M. Hotitmay, Defendants.

No. 61 Crv. 2324

Dec. 23, 1969.

Merznezz, District Judge.

The special master, Herbert Brownell, Esq.. has sub-

mitted his report awarding plaintiff $137,611,435.95 as dam.

ages after trebling as provided in § 4 of the Clayton Act,

15 U.S.C. $15. The matter had been referred to him for

assessment of damages following the entry of a default

judgment imposed as a sanction for failure of Howard B

Hughes to appear for deposition. Trans World Airlines,

Inc. v. Hughes, 32 F.R.D. 604 (S.D. N.Y. 1963). In the

ensuing discussion, plaintiff will be referred to as TWA and

defendants Howard R. Hughes and Hughes Tool Company

as Hughes and Toolco, respectively.

Both parties have filed objections to the report. The

defendants move to confirm those portions of the report

which are favorable to them and move to reject those por-

tions which are adverse to their position. If their conte-

tions are correct, TWA is not entitled to any damages

TWA objects to the report on the ground that the amout

awarded is inadequate. The maximum figure for which it

contends is $510 million plus prejudgment or moratory

interest of over $175 million. The respective contentions

of the parties will be discussed below.

The history of this litigation, in which TWA sought dam

ages for claimed antitrust violations, shows that it has been

long and complex. It was originally instituted on June 9,

1961. On Angust 31, 1961, the case was assigned to me for

5la

all purposes pursuant to Rule 2 of the General Rules of this

court. Since then it has been the subject of many pretrial

rulings, opinions and appeals. The sufficiency of the com-

plaint was upheld in an opinion reported in 214 F. Supp.

106 (S.D. N.Y. 1963). In that opinion this court also ruled

adversely to defendants’ contention that the acts com-

plained of were exempt from the antitrust laws by virtue of

certain orders of the Civil Aeronautics Board. After the

court was informed that Hughes would refuse to appear

for examination, it granted TW4A’s application for a de-

fault judgment. 32 F.R.D., supra. The Court of Appeals

sirmed the rulings found in 214 F. Supp., supra, but re-

fused to pass upon the propriety of the entry of the default

judgment. 332 F’. 2d 602 (2d Cir. 1964). On March 8, 1965,

the Supreme Coutt dismissed writs of certiorari as improvi-

dently granted. 380 U.S. 248, 249, 85 S. Ct. 934, 13 L. Ed.

% 817, 818. The special master and the court then made

preliminary rulings as to the effect of the default judgment

on the damage hearings. 38 F.R.D. 499 (S.D. N.Y. 1965).?

—_—

4 Despite these rulings defendants moved to compel TWA to come

forward with evidence to preclude the finding of a fact which in

elect would remove the basis of TWA’s claim. In a memorandum

opinion dated January 4, 1966, denying the motion, the court said:

“A T-inch stack of affidavits, briefs and supporting docu-

ments has been submitted in connection with this motion.

After reading them and listening to defendant’s extensive ar-

‘gument, one wonders why the case was never defended on

- the merits, if all that defendant contends for is true. At this

late date, after the complaint has been sustained and a default

_ Judgment entered, with appeals to the Court of Appeals and

- awrit of certiorari dismissed by the Supreme Court, defendant

- now, in effect, secks summary judgment in its favor. It asks

_ that plaintiff come forward to negative a fact which defend-

_ @nt asserts as true. The shoe is on the other foot. The plaintiff

has a judgment in its favor and the only limitation thereon

~ has been spelled out in the order of the Special Master dated

duly 30, 1965 and the order of this court dated November 16,

- 1965. Together they outline the procedures to be followed

9 ftir the Spe ate, where the matter is properly pend-

> ing. The court cannot conceive of any further reason for

- ; delay in proceeding before the Special Master until the hear-

2 ings are comple

52a

The hearings before the special master commenced on

May 2, 1966. Some 11,000 pages of testimony were taken

from expert witnesses in the field of economics, engineering,

finance and accounting. Over 800 exhibits containing 60,00

pages were admitted in evidence. The special master there.

after rendered a 323-page report. A hearing was held on the

objections of the parties to the report. They submitted

over 1,300 pages of briefs and memoranda, including a

62-page listing by defendants of 216 specific objections to

the report.

At page 12 of his report, the special master states, ‘De.

spite prior rulings in the case, this [effect of the default]

has been the subject of continuing disagreement between

the parties in the damage hearings.’’ I thought that this

issue had been clearly disposed of in the preliminary report

of the original special master, dated July 30, 1965, and in

this court’s opinion in 38 F.R.D. 499.

As stated in that opinion at page 501:

‘‘Tiability is not an issue for the Special Master ex-

cept in a very limited sense. The sufficiency of the

complaint has already been established by the denial

of defendant’s motion to dismiss. 214 F. Supp. 106

(S8.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, 5 8. Ct. 788, 29 L. Ed. 105 (1885).’’ <

In the present report, the special master has referred to

another case, Harshman v. Knox County, 122 U.S. 306,7

§. Ct. 1171, 30 L. Ed. 1152 (1887), which on its facts is even

r than Thomson v. Wooster, supra. Without going

into the details of that case, it is sufficient to quote the

Court’s language at page 317, 7 S. Ct. at pages 1175-1176:

‘**In the absence of a denial, the fact as stated in the

petition of the plaintiff is confessed by the default, and

53a

stands as an admission on the record, of its truth by

_ the defendant.”’

In the hearings before the special master, TWA did not

have to present any evidence to support the well-pleaded

allegations of the complaint, and defendants may not offer

evidence to controvert such allegations. To the extent that

they did, it will be disregarded. That opportunity was for-

feited by defendants as a result of the default.

Defendants may show, however, that an allegation is not

well pleaded, but only in very narrow, exceptional circum-

stances. The Thomson and Harshman cases clearly sup-

port this rule. For example, an allegation made indefinite

or erroneous by other allegations in the same complaint is

not a well-pleaded allegation. Other examples, as detailed

in $8 F.R.D. at 501, are allegations which are contrary to

facts of which the court will take judicial notice, or which

arenot susceptible of proof by legitimate evidence, or which

are contrary to uncontroverted material in the file of the

cage. That opinion went on to say:

‘‘However, it may be shown by plaintiff, in the con-

- text of this case, that some matters of which the court

" may take judicial notice should not be so noticed. See

- McCormick, Evidence § 330 (1954). Where file ma-

- terial is involved, if the plaintiff did not have full op-

» portunity to meet or controvert such material, then it

should not be used to nullify the allegation. If evi-

dence merely tends to show that an allegation is not

~ true, the allegation must be taken as true in this de-

fault. Finally, the plaintiff is entitled to the benefit

~ Of all reasonable inferences from the evidence tendered.

pS _ **Attempts by defendant to escape the effects of its

default should be strictly circumscribed. “It should not

__be afforded an opportunity to litigate what has already

>, been deemed admitted in law. In the absence of an

seaceedingly strong showing that an allegation is untrue

54a

' wnder the rules set forth above, the allegation stands

as admitted.” 38 F.R.D. at 501 (emphasis added).

This quoted language had in mind the impact of the

failure of Hughes to appear for deposition. His default

stymied TWA in the acquisition and presentation of evi-

dence in support of its claim. As the Court of Appeals

said (332 F. 2d at 614):

‘*We think it clear beyond any question, in light of

all the circumstances here presented, that the deposi-

tion of Hughes was necessary to all aspects of this

litigation e@¢ @.99

And again at page 615:

‘*Hughes’ deposition was absolutely essential to the

proper conduct of the litigation.’’

Defendants claim that there are allegations in the com-

plaint which are contrary to facts of which the court will

take judicial notice. They particularly refer to that portion

of the third paragraph of the complaint which alleges that

Toolco was engaged

‘*gincein or about 1939 in the development, manufac-

ture and acquisition of aircraft and related equipment

from the manufacturers thereof in various states and

in the sale and lease of such aircraft to air carriers in

various other states for use in interstate and foreign

commerce.’’

They request that judicial notice be taken of the fact that

Toolco never ‘‘manufactured’’ or engaged ‘‘in the sale and

lease’’ of aircraft. I cannot take judicial notice of these

matters because they are not indisputably true.

The question whether judicial notice ean be taken of facts

which are not indisputable has been the subject of dis

agreement among scholars. Wigmore thought that notice

should not be limited to indisputable facts. He took the

position that the taking of judicial notice of a fact merely

55a

pelieved the offeror of more formal proof. However, this

did not prevent his opponent from disputing the fact by

offering contrary evidence. 9 Wigmore, Evidence § 2567

(8d ed. 1940). See also Thayer, Preliminary Treatise on

Evidence 308-309 (1898) ; Ohio Bell Telephone Co. v. Public

Utilities Comm’n of Ohio, 301 U.S. 292, 301-302, 57 S. Ct.

74, 81 L. Ed. 1093 (1937) ; United States v. Aluminum Co.

of America, 148 F. 2d 416, 445-446 (2d Cir. 1945). The

more recent thinking is that only indisputable facts such as

matters of common knowledge and matters capable of cet-

tain verification will be judicially noticed. When noticed

such facts are binding on the trier of the facts. Morgan,

The Law of Evidence, 1941-1945, 59 Harv. L. Rev. 481,

42-87 (1946); McCormick, Evidence § 330 (1954);

McNaughton, Judicial Notice, 14 Vand. L. Rev. 779 (1961) ;

Alvary v. United States, 302 F. 2d 790, 794 (2d Cir. 1962).

Tdo not have to resolve the debate among scholars -con-

@rning the taking of judicial notice during trial. It is clear

tome that after a default only indisputable facts should be

wticed to contradict allegations of the complaint. Other-

wise a preliminary hearing would be necessary to afford

plaintiff a chance to rebut factual material which a defend-

ant claims should be judicially noticed. See the Ohio Bell

and Alcoa cases, swpra. In effect it would permit a defend-

ant to litigate facts which are foreclosed by a default under

the Thomson and Harshman cases, supra.

In determi 1ing indisputability, the courts will consider

“the nature o: the subject, the issue involved, and the ap-

parent justice of the case.’’ McCormick, Evidence § 330,

at 709 (1954). Each of these factors counts against notic-

ing the proposition offered by defendants. First, the stib-

of the proposition is not scientific, historical, geo-

ic or statistical matter of the kind courts are most

‘to notice. Instead it is a garden variety proposition

who did what, when and where. Second, the facts

defendants wish judicially noticed in this litigation

be relevant to the central issue of liability under the

56a

antitrust laws. The more critical an issue is to a case, the

more reluctant courts should be to determine it by taking

judicial notice. Third, the apparent justice of the case in

the posture of a default based upon wilful refusal to appear

for deposition requires me to resolve all doubts against

defendants.

The defendants are urging that certain facts are indis-

putable because they appear in orders of the CAB and

material in the CAB filés. While judicial notice may be

taken of the existence and contents of such material, it does

not follow that the court will take judicial notice of the

truth or accuracy of the contents. Stasiukevich v. Nicolls,

168 F. 2d 474, 479 (1st Cir. 1948). In that case the court

found that ‘‘the findings are merely evidence of the facts

asserted,’’ and went on to state that ‘‘of course, the other

party may introduce evidence tending to prove the con-

trary of the facts asserted in the official report.’’. Since a

finding is merely evidence and is rebuttable, it cannot be

considered indisputable. As to material in the CAB files,

it stands on even weaker footing, since it has not been

subject to any sort of examination of an adversary nature.

Defendants argue that TWA has failed to establish that

it received late or inadequate deliveries of jet aircraft as a

proximate result of the conduct of the defendants in viola-

tion of the antitrust laws. They assert that the claim ‘“‘is

defective for the further reason that the plaintiff has failed

to establish by a preponderance of the evidence that, but

for defendants’ conduct, it would and could have accom-

plished the results now asserted.’’

It has been said of ‘‘proximate cause’’ that:

‘There is perhaps nothing in the entire field of law

which has called forth more disagreement, or upon

which the opinions are in such a welter of confusion

* ** Much of this confusion is due to the fact that

no one problem is involved, but a number of different —

problems, which are not distinguished clearly * * * .”

Prosser, Law of Torts 240 (3d ed. 1964).

The question of proximate cause involved in this case arises

ont of a distinction between the fact of damage and the

amount of damage. The Supreme Court explained this

distinction recently in Zenith Radio Corp. v. Hazeltine Re-

gearch, Inc., 395 U.S. 100, 114 n. 9, 89 S.Ct. 1562, 1571, 23

L.Ed.2d 129 (1969) :

‘¢*Zenith’s burden of proving the fact of damage un-

- der § 4 of the Clayton Act is satisfied by its proof of

some damage flowing from the unlawful conspiracy;

inquiry beyond this minimum point goes only to the

amount and not the fact of damage.’’

“Basically defendants seek to deny that they caused any

injury to TWA, i.e., to deny the fact of damages. The fact

of damages, however,-is an element of liability. The com-

plaint alleges that the defendants committed certain acts

which caused injury to TWA. The allegations are admitted

by the default and the fact of injury is thereby established.

The only question remaining is the amount of damages de-

fendants should pay TWA.

When we come to the computation of the amount of dam-

ages in an antitrust case, we look to the rules enunciated in

Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 66 S.Ct.

574, 90 L.Ed. 652 (1946). Those rules are that the trier of

the facts must use the most précise proof available, that

even where a defendant by his own wrong has prevented a

More precise computation, the award may not be based on

speculation or guesswork, and that the award must be

predicated on a just and reasonable estimate of the dam-

age, based on relevant data.

Finally, the report must be reviewed in the light of the

strong presumption in favor of the findings of fact made

by the special master. They are to be accepted unless

dearly erroneous. Fed.R.Civ.P. 53(e)(2); Anderson v.

Mt. Clemens Pottery Co., 328 U.S. 680, 689, 66 S.Ct. 1187,

# L.Ed. 1515 (1946) ; United States v. S. Volpe & Co., 359

P2d 132, 134 (1st Cir. 1966); E. I. du Pont de Nemours &

58a

Co: v. Purofied Down Prods. Corp., 176 F.Supp. 688, 691

(S.D.N.Y. 1959). This rule is the same as Rule 52(a),

‘which is applicable to findings of fact made by the trial

court in a nonjury case. Such a finding is clearly errone-

ous only where ‘‘the reviewing court on the entire evidence

is left with the definite and firm conviction that a mistake

has been committed.’ United States v. United States Gyp-

sum Co., 333 U.S. 364, 395, 68 §.Ct. 525, 542, 92 L.Ed. 746

(1948).

The complexity of the proof in this case is attested to by

the nature of the testimony proffered by the parties, In-

tricate questions of engineering, finance and economics

were involved They were reviewed and resolved with

2 An example of the complexities of the proof may be found in

the following quotation from the report (page 94) which relates

to testimony affecting only one aspect of an item of damage:

“The above formula for the B-83ls was determined by a

method commonly recognized by statistical experts for deter-

mining relationships between two variables, and known as re-

gression analysis or as the method of least squares (Tr. 7805-

6). As an example, by plotting on graph paper aircraft hours

operated (independent variable) and amount of operating

expenses (dependent variable) for several airlines, one can

servations, one gets the standard error of estimate; and, given

a normal distribution of errors, 68% of the observations should

fall within one standard of error and 95% of the observations

should fall within two standard errors. Relationships based

on fewer observations tend to be more untrustworthy, and

results showing a large proportion of observations outside

the standard error of estimate likewise tend to be untrust-

worthy unless validated by independent means.

‘‘No claim was made by Simat that regression analysis was

anything more than a statistical method useful in testing the

59a

painstaking care by a special master of extremely high

competence. Especially apt here is the language of the

court in Badenhausen v. Guaranty Trust Co., 145 F.2d 40,

§8 (4th Cir. 1944), cert. denied, 323 U.S. 797, 65 S.Ct. 440, —

89 L.Ed. 636 (1945), referring to the effect to be given to

the findings of a special master who prepared a plan of

railroad reorganization:

‘‘Hspecially imperative is the rule when, as here, the

master has lived with the case for four years, has pa-

tiently studied the complex questions involved and has

listened with painstaking care in extended hearings to

the arguments and proposals of all the parties who

desired to be heard.’’

To the same effect, see Santa Cruz Oil Corp. v. Allbright-

Nell Co., 115 F.2d 604 (7th Cir. 1940).

Bearing these considerations in mind, I will first pass

upon the specific objections by the defendants to the report

of the special master.

Defendants’ Objections to the Report

of the Special Master

L Determinations Relating to Defendants’ Alleged Anti-

trust Violations.

A. Facts which defendants claim should have been

found.

Objections 1-3 and 13. The suggested findings as to CAB

approval are irrelevant to the proceedings and were so ad-

judged by this court on defendants’ motion to dismiss (214

validity of assumptions made by non-mathematical observa-

tions and raw data and conclusions based thereupon. Never-

theless Simat was of the opinion that the statistics produced by

regression analysis under the assumptions made in his report

confirmed his expert opinion as to the financial results that

+. would have been obtained under the relevant equipinent as-

sumptions. ’’

Bids P

pea frais gs Rs %

eek :.

> a

60a

F.Supp. 106), which determination was affirmed by the

Court of Appeals (332 F.2d 602) when it said at page 610;

‘‘Nor do we find any merit in the defendants’ alter.

native contention that the Civil Aeronautics Board, in

approving Toolco’s acquisition of control over TWA

and certain specific transactions thereafter, immunized

the defendants from the operation of the antitrust laws

as to all the ramifications of these transactions.’’

Objection 4 with 11 subdivisions. These are suggested

findings based on a suggested finding that Toolco never

manufactured or supplied commercial transport aircraft to

United States air carrier® in competition with manufac

turers and suppliers of such aircraft. First, the defendants

by their default admit that they did engage in such activity.

Second, the suggested findings do not necessarily clearly

negative liability when all the allegations of the complaint

are read together. Third, there is sufficient in the record

on this default to justify the refusal of the special master

to so find. In this regard, reference is made to the placing

of orders by Toolco for Convair 880s built to the specifica-

tions of Capital Airlines, the placing of orders for Convair

990s built to the specifications of American Airlines, the

sale of Boeing 331s to Pan American and the leasing of

Convair 880s to Northeast Airlines.

Objections 5-8. The suggested findings that during the

period covered by the complaint Hughes did everything to

explore the source of supply of jets in the best interests of

TWA fly directly in the face of the alleged wrongdoing by

the defendants which is admitted by the default. Addition-

ally the record contains evidence to the effect that Hughes

was not acting solely in the best interests of TWA in the

development of the Model 18 by Convair.

Objections 9, 9a, 9b and 10. These are suggested findings:

that defendants did not engage in financing the acquisition

of aircraft in competition with insurance companies, com-

mercial banks or other lending institutions and that TWA

6la

shtained such financing from various airplane manufac-

tarers and banks. I fail to see their relevancy in view of

the charges contained in the complaint which are, in effect,

that defendants dictated to TWA the methods and means

of financing the acquisition of aircraft. See paragraphs

10(g), 23, 24, 26, 27 and 28 of the complaint.

‘Objections 11 and 12. These are suggested findings that

Atlas never manufactured or developed aircraft and sub-

mitted a proposal pursuant’ to an agreement with Toolco

for merger of Northeast Airlines and TWA which was re-

ported as being fair. The default admits the allegations

of the complaint regarding the conspiracy and that the pro-

posed merger was advantageous to the defendants and dis-

advantageous to TWA. Further, as regards TWA reports

favorable to the merger, the domination and control of

TWA by Hughes must be taken into consideration in evalu-

ating such reports.

B. Findings claimed to be clearly erroneous.

Objections 14, 15 and 17 to the findings that the activity

by Toolco constituted ‘‘engaging in’’ the development and

manufacture of aircraft by Toolco. The record is sufficient

te sustain these findings.

Objection 16 to the finding that Toolco was engaging in

this activity when TWA should have been arranging for

purchases from other suppliers. This finding is sustained

by paragraphs 16, 17, 24, 25 and 26 of the complaint.

‘Objections 18, 19 and 20 to the findings regarding the

purehase of Pratt & Whitney engines, Toolco’s trading on

its delivery positions as to jets and Toolco’s refusal to

assign to TWA its rights to acquire jets. These objections

ate predicated on an assumption that the findings were

made after a contested trial following full pretrial discovery

procedures. Obviously it is not open to defendant to claim,

wit does in objection 20, that it disproved the allegations

in paragraph 18 of the complaint, or that the engines were

62a

purchased for TWA’s best interests and were not resold

at a profit.

Objection 21 to the finding that TWA’s management

dominated by Hughes is clearly frivolous. The finding is

not only admitted by the default, but was so found in 22

F.B.D. at 606 and 332 F.2d at 614.

Objection 22 to the finding that the factory represents.

tives were Tooleco employees reporting to Rummel as the

representative of Toolco is captious. The record shows

that Rummel was Toolco’s special representative even

though he received compensation from TWA. The factory

representatives reported to a TWA employee, Rourke, who

reported to Rummel. If Rourke had been paid by Tooleo,

reimbursement would have been made to Toolco by TWA

as part of the cost of the aircraft.

C. Conclusions of law claimed to be erroneous.

Objections 1-12 are directed to conclusions of law made

by the special master. His findings of fact have been sus-

tained by the rulings on the objections made above. Para-

graphs 9 and 10 of the complaint have been admitted by

the default and defendants’ ial notice argument has

been rejected. The conclusions of law are further but

tressed by the opinion of the Court of Appeals that the-

specific transactions alleged to have been effected by the

defendants state a cause of action under the anti-trust laws.

332 F.2d 602, 611. These objections are overruled.

II. Determinations Relating to TWA’s Claim That It

Received an Inadequate and Late Jet Fleet.

A. Facts which defendants claim should have been

found.

Objections 1, 2, 3 and 4 are suggested findings similar

to those in objections 6 and 7 in I A, supra, and are similarly

disposed of. It is frivolous to claim that this record could

possibly sustain a finding that TWA was an independent

Objection 5. The suggested finding that defendants’

negotiations with Convair in 1955 did not restrain trade

takes. a mediate fact, meaningless without other mediate

facts, and draws a negative co ion of law out of context.

Objections 6, 7, 8, 9, 11, 12, 13, 14 and 16. These sug-

gested findings are misleading. They state facts which

sggume that the conditions were not of defendants’ doing.

The assumption is wrong, since the state of the record on

liability shows that defendants’ conduct brought about the

fact situation, and it is this very conduct which is the basis

of TWA’s complaint. Furthermore, reliance on achieving

tetter delivery dates with an increase in orders only

battresses TWA’s position that prompt action with its

velfare in mind would have achieved even better results.

Objections 10 and 15. These are suggested findings that

TWA equalled its domestic competitors in jet service in

1969, and in 1960 flew more transatlantic seats relative to

Pan American and earned a higher operating revenue than

Pan American. Assuming the suggested findings to be

trae, they miss the point in issue that defendants’ actions

prevented even better results from being achieved.

Objection 17. This is a suggested finding that TWA has

failed to show that it would have ordered jet aircraft in

195 from Boeing rather than from Douglas absent the

exercise of any control by defendants. The default pre-

dudes the necessity of making any such showing.

Objections 18, 19 and 20. The suggested findings that

Tooleo in 1959 determined that it was advisable to reduce

the planned jet fleet and that Thomas and the firm of

Coverdale & Colpitts agreed are negatived by the default

wnd are not borne out by the record.

Pbjection 21. The suggested finding that in the spring

of 1959 TWA was in poor financial condition ignores the

" ie

vee =>

64a

allegations of paragraphs 4, 10(b), 10(g), 23, 24 and %

of the complaint regarding Toolco’s domination and control

of TWA.

- Objection 22. The suggested finding that it was not m.

usual for an airline to cut back initial jet orders covers

only part of the relevant fact. The remainder is that such

an airline would, and did, at the same time increase orders

for other models, :

Objection 23. The suggested finding that TWA has

failed to show domination by defendants preventing the

exercise of independent judgment by the executives of

TWA completely ignores the default.

Objection 24. The suggested finding that Rummel was

a middle echelon executive with no power of decision as

to what equipment could be purchased by TWA ignores the

record, unless it be defendants’ contention that the decision

as to what equipment could be purchased was lodged in

Hughes.

Objections 25 and 33. he suggested findings that the

decision to reduce the size of the initial jet fleet and that

the administration of the Convair contract by defendants

were not in restraint of trade are contrary to the admis

sions made by the default.

Objection 26. The suggested finding that Thomas and

the board of directors of TWA ratified the transfer by

Toolco of six of the Boeing 331s to TWA’s competitor Pan

American overlooks the admitted exercise of control and

domination of TWA by Hughes.

Objection 27. The suggested finding that the transfer

was not in restraint of trade is contrary to the admissions

made by the default.

Objections 28, 29 and 29A. These are suggested findings

that TWA has failed to show that absent control by defend-

ants it would have ordered 63 jets, that it could have

financed such fleet and obtained earlier delivery dates.

65a

The default precludes the necessity of making any such

showing.

Objections 30, 31 and 32. These are suggested findings

that failure to meet the delivery schedule of the Convair

880s was not defendants’ responsibility, that such delay

was attributable to Convair, even after J anuary 1961.

The suggested findings are contrary to the admissions in-

herent in the default and to the testimony in the record.

Objection 33. The suggested finding that TWA has

failed to show that defendants’ administration of the

Convair contract unreasonably restrained trade ignores the

effect of the default.

B. Findings claimed to be clearly erroneous.

The objections under this subdivision 4re numbered 34

through 74, In the main, the findings attacked are just

the opposite of what defendants claim the special master

should have found as set forth in objections 1 through 33

in II A above.

The findings made by the special master which are

referred to in this subdivision are not clearly erroneous.

As to objection 56 to the finding that the hypothetical jet

fleet and reconstructed delivery dates constitute a proper

basis for computing damages, I refer to the discussion of

the Bigelow case, supra. Many of the findings are clearly

established by the admissions inherent in the default.

Others rely on disputed evidence in the record, but ob-

viously this does not require their rejection under the

“clearly erroneous’’ rule. In addition to these comments

for overruling the objections, I refer to specific-comments

made in ruling on objections 1 through 33 in IT A above.

C. Conclusions of law claimed to be erroneous.

, Objections 1, 2 and 3 have been disposed of in the dis-

cussion of proximate cause and the Bigelow case, supra.

The remaining objections 4 through 14 are directed toward

66a

conclusions of law which are amply supported by the find.

ings of fact sustained by the above rulings.

III. Determinations Relating to TWA’s Claim That It

Was Injured by Leasing Jet Aircraft from Tool,

A. Facts which defendants claim should have been

found.

Objection 1. The suggested finding that the leases of

jets in 1959 and 1960 were made pending consummation of

permanent financing disregards the admissions of the

allegations in paragraph 20 of the complaint,

Objections 2 and 3. The suggested findings that the

leases were approved by the CAB and did not disclose any

restrictions in acquisitions by TWA are subject to the same

rulings made on objections 1-3 and 13 in I A above, The

leases were between Toolco and its controlled TWA.

Objections 4 and 5. The suggested findings that there is

no evidence that the rentals were unreasonably~high and

that Toolco received no rental until December 30, 1960 are

immaterial

Objection 6. The suggested finding that there is no testi-

mony that TWA would have purchased rather than leased

the jets absent the alleged conduct of defendants in viol:

tion of the antitrust laws is subject to the same ruling made

with regard to objection 17 in IT A above. —

B. Findings claimed to be clearly erroneous.

Objection 7 to the finding that the leased jets were the

first made available to TWA by defendants during the

years 1955 to 1960 is overruled because there is no’ such

finding. |

Objection 8 to the finding that the leases were made with

the understanding that TWA would not lease or purchase

jets from other potential suppliers is overruled because of

67a

the admission of the factual allegations of paragraph 20

ofthe complaint.

‘Objections 9, 10 and 11 refer to statements of conten-

tions by the special master and are not findings.

C. Conclusions of law claimed to be erroneous.

‘Objections 1 through 5. In view of the rulings and

- gmments on the objections referred to in A and B of this

part, the conclusions of law’ made by the special master,

referred to in objections 1 through 4, are correct. Objec-

tion 5 to the use of interest cost of capital is more an

objection to a finding of fact and is overruled because the

finding is not clearly erroneous.

IV. Determinations Relating to TWA’s Claim for Lost

_ Operating Profits.

A. Facts which defendants claim should have been

found with reference to the International Division.

Objections 1, 2, 3 and 4. These are suggested findings

that TWA has failed to prove damage in this category

based on assumptions of TWA’s expert. They are

predicated on finding that the figures of defendants’ experts

ate correct. The refusal to make such findings was not

dearly erroneous.

‘Objection 5 is a suggested finding that there is no evidence

in the record to justify an assumption that TWA would

have leased Boeing 331s to. Northeast in October and

November 1959. The assumption made by TWA’s expert

was justified on the facts as to the time of year and pas-

senger demand.

eB, Findings claimed to be clearly erroneous with

; reference to the International Division.

Million increase in operating revenue. This finding is not

68a

Objections 7 through 7j. These objections except 7i are

directed to findings as to the ‘‘competitive response”

which defendants’ expert relied on in his computations,

The findings are supported by the record and are not

clearly erroneous. Objection 7i is to the finding that

TWA’s comparative shortage of jet equipment caused it

to lose its market position. The finding is supported by

the record.

- Objection 8 is to the finding relating to ‘‘beyond-the-

gateway and charter service passengers.’’ This finding is

supported by the record.

Objections 9, 9a and 9b. These objections disagree with

the special master’s findings as to operating costs. The

findings are supported by the record.

C. Facts which defendants claim should have been

found with reference to the Domestic Division.

Objection 1. The suggested finding that there is ne

evidence that TWA would have leased four Boeing 720Bs

or bought 18 Boeing 131Bs would not be a correct finding.

The record justifies the opposite finding made by the special

master.

Objection 2. The suggested finding that TWA has failed

to prove that its net operating profits would have increased

is predicated on accepting defendants’ evidence. The con-

flict in the evidence was for the special master to resolve

and his contrary finding is supported by the evidence.

Objection 3 is a suggested finding that TWA has failed

to prove that its average rate of capacity could have been

maintained with an added jet capacity. The suggested

finding relies on the testimony of defendants’ expert which

the — master was entitled to reject.

ding that in the 1959-1963

pacity which alarmed the

a oe suggested finding

69a

does not affect the fact that under proper conditions TWA

would have been able at least to maintain its competitive.

position in relation to other carriers. See chart at page

138 of the report.

Objection 5 is a suggested finding that as airlines added

jet capacity in 1959-1963 the load factors steadily de-

clined. The implication of this suggested finding disregards

the fact that with an adequate jet fleet TWA’s position

would have been different. See page 133 of the report.

D. Findings claimed to be clearly erroneous with

reference to the Domestic Division.

Objections 6 and 13 to the findings as to increased trans-

portation revenues and increased operating costs are over-

ruled. The findings are supported by the record.

Objections 7 and 8 are to the findings as to TWA’s

shortage of jet equipment. The findings are supported by

the record.

Objections 9, 9a and 9b to the findings using the average

annual load factor in estimating added traffic are over-

ruled. See comments on the immediately apatiars

objections 3-5.

Objection 9c. The objection does not encompass the

complete finding of the special master.

Objection 9d. The finding objected to is correct in the

context used by the special master.

Objections 10, 10a, 10b, 10c, 10d, 10e and 10f. These

objections go to findings by the special master in which

he refused to accept defendants’ testimony as to ‘‘marginal

load’? factor as opposed to accepting TWA’s testimony

as to ‘‘annual average load factor.’? Here again there is

present a conflict of testimony which the special master

was justified in resolving as he did. See the findings to

a, 9, 9a and 9b immediately nae are

Ske Oak es

eoNe

70a

Objection 11 is to the finding that TWA testimony

adequately takes into account changes in stage lengths

accompanying the introduction of jets. The special master

simply resolved the conflicting testimony on this subject

and his finding is supported by the record.

Objections 12 and 12a. Here again the objections are

predicated on the refusal of the special master to accept

the testimony of defendants’ expert as opposed to that

of TWA’s expert. The objections are overruled.

E. Fact which defendants claim should have been

found with regard to the added cost of operating

the Boeing 331s.

Objection 1. The suggested finding that there would

have been increased costs in operating five 331s over the

actual cost of operating five 331Bs which were leased is

predicated on accepting defendants’ testimony. The

special master was justified in refusing to do so for the

reasons stated in the report.

F. Facts which defendants claim should have been

found with regard to mitigation of damages.

Objections 1 and 2. These are suggested findings that

Toolco offered TWA four Convair 880s in 1961 which TWA

refused and that TWA could have acquired additional jets

in 1961-1963, which it failed to do. The suggested findings

completely ignore the existence of the new management of

TWA, its problems with defendants at the time, and its

business judgment to concentrate on Boeing planes for the

best interests of TWA. o

G. Finding claimed to be clearly erroneous with

reference to mitigation of damages.

Objection 8 to the finding that the purchase\ of four Con-

vair 880s was not feasible as a business matter is over-

ruled. See ane t on |\the immediately pr

tions 1 and 2. 1 A

ing ober

7la

H. Conclusions of law claimed to be erroneous.

Objection 1. The import of the conclusion as set forth

in this objection does not appear in the report.

Objection 2. The application of the standards of proof

set forth in the Bigelow case, supra, is proper.

Objection 3. The special master was justified in accept-

ing the testimony of TWA’s expert.

Objections 4,5 and 6. The special master acted properly

with regard to the matters to which these objections are

made.

Objection 7. This objection ties in with objection 1 in

E immediately above and is similarly disposed of.

Objection 8. This objection does not correctly reflect

the cited page of the report. The conclusion reached by the

master there was proper.

V. Determinations Relating to TWA’s Claim for Dis-

ruption of Its Business.

A. Facts which defendants claim should have been

found.

| Objection 1. The suggested finding that the defendants

were not responsible for late deliveries of the 880s has been

rejected above (II A, objections 30-33).

Objection 2. The suggested finding that TWA was not

subject to expenses it would not otherwise have incurred

is not sustained by the record.

Objections 3, 4, 5.and 6. These are suggested findings

that TWA was not damaged by reason of certain payments

made to maintenance instructors and crew members, or

costs allocated for use of a simulator and transition train-

ing plane. The suggested findings overlook the fact that

TWA was paying for enforced idleness and refresher train-

‘ing made necessary by the delays. These are proper items

jot damage.

ot “

72a

VI. Determinations Relating to the Computation of the

Amount of the Damage Award.

A. Facts which defendants claim should have been

found.

Objections 1 and 2. The suggested findings relate to a

$12.3 million increased cost of capital on advance deposits

and progress payments for the reconstructed fleet. The

special master explained that to make such findings would

‘‘involve elaborate calculations and several speculative

assumptions.’’ The suggested findings are not a"

by the record.

Objection 3. The suggested finding regarding the cost

of purchasing the theretofore leased jets is incomplete

and misleading standing alone.

B. Findings claimed to be clearly erroneous.

Objection 4 is to the finding refusing to make provision

for increased cost of capital on advanced deposits and

progress payments. The finding is merely the opposite

of what defendants claim should have been found as de-

tailed in objections 1 and 2 in IV A above. The objection

is overruled.

Objection 5 is to the finding which added interest cost

on advance deposits for twenty 880s to TWA’s capital base.

The finding is not clearly erroneous.

Objections 6 and 7 are to the findings excluding capital

expenditures for ratable parts, expendable parts and con-

struction work. The findings are not clearly erroneous.

Objection 8 is to the finding limiting to the years 1959

and 1960 the increased interest cost of owning instead of

the finding.

73a

C. Finding claimed to be erroneous regarding the use

of TWA Exhibit 50.

Objection 1 is to the finding that the principles of com-

bination and adjustment used by TWA’s expert were

proper. The special master was justified in making this

finding. :

D. Conclusions of law claimed to be erroneous.

Objection 1 is to the use of the external borrowing rate

and is overruled.

Objection 2 relates to objection 4 in VI B above and is

overruled.

Objection 3 to thé adjustments of TWA’s historical

fnancial statements is overruled.

TWA’s Objections to the Report

of the Special Master

TWA has filed objections to the report on the following

grounds :

1. The award as a whole is inadequate.

2. The special master erred in rejecting TWA’s com-

parative profit measure of damages.

3. The award on TWA’s claim for losses in operating

profits is inadequate.

4. The award on TWA’s claim for losses due to leasing

jets from Toolco is inadequate.

5. The special master erred in denying damages for

losses connected with financing the jet fleet.

6. The special master erred in denying damages for

losses due to delay in disposing of the displaced piston

. aircraft. _ |

?7. The special master erréd in finding that TWA is not

itled an award of prejydgment or moratory interest.

| |

74a

I. Inadequacy of Total Award.

The contention that the award as a whole is inadequate

is predicated on a claim that it permits the defendants to

retain the fruits of their wrongdoing.

Toolco is alleged to have acquired its stock interest in

TWA at a cost of $94 million. On May 3, 1966 it sold this

stock for a net price of $545.8 million, with a resulting

profit of $452 million. After payment of the 25% capital

gains tax, the net profit after taxes is calculated at $339

million. I am advised that any judgment for damages in

this case is fully deductible from current income for tax

purposes. Therefore, on the award recommended by the

special master, the ultimate cost to Toolco of paying such

award would only be $75 million, leaving Toolco with a net

profit of $265 million. TWA claims that Toolco should

not be permitted to retain this amount since it violates the

theory of unjust enrichment.

The fallacy in the application of this theory to this case

is that the profit on the sale of the stock is not attributable

to the illegal acts of the defendants. Defendants’ control

and domination of TWA ended on December 30, 1960.

TWA does not seek damages for the period subsequent

to 1963 because it claims that by the end of 1963 the ill

effects of defendants’ control had been eliminated. At that

time the stock was selling at about $32 a share compared

with $86 a share at the date of sale. Therefore, the

high value that the TWA stock reached in 1966 had nothing

to do with the acts of the defendants. There is no dispute

that Toolco’s acquisition of the controlling interest in

TWA was legal. It was the improper exercise of control

that is attacked by the complaint. 214 F.Supp. at 109-110.

What TWA seeks under this objection is not damages

based on unjust enrichment flowing from the acts of the

defendants, but rather punishment not within the con-.

templation of any accepted measure of damages. The cases

relied on by TWA (Bigelow, ouprea; Southern Pacific On.

| alee

75a

y. Darnell-Taenzer Lumber Co., 245 U.S. 531, 38 S.Ct. 186,

62 L.Ed. 451 (1918); Hanover Shoe, Inc. v. United Shoe

Mach. Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231

(1968)) are not in point, since they speak of the unfairness

of permitting a defendant to retain the profits flowing from

his illegal acts.

This objection is overruled.

Il. The Comparative Profit Measure of Damages.

TWA claims that the special master erred in not using

its comparative profit studies as the measure of damages.

One such study showed losses to TWA of approximately

$170 million. Another showed losses of $121 million. TWA

advanced a second measure of damages based on specifically

computed losses claimed to flow from the defendants’ con-

duct. The special master proceeded on this theory, but

only awarded $45 million of TWA’s claim of $105 million.

The first argument to support the comparative profit

measure of damages is related to TWA’s claim of unjust

enrichment. Since the unjust enrichment theory has been

rejected, this argument for the use of comparative profit

studies fails.

TWA then argues that the comparative profit study is a

proper and standard method of measuring damages with-

out regard to the amount that it would produce. The

special master rejected the comparative profit studies

because there was a more precise method of ascertaining

damages, which was the method he used. Further, he

found that the comparative profit study was based on

indefinite allegations of the complaint. The method he

used was predicated on more specific allegations of the

complaint. TW4A’s reliance on Bigelow, supra, for the use

of the comparative profit measure of damages is mis-

placed. In that case the Court found at page 266 of 327,

iUS. at page 580 of 66 S.Ct. that it was proper to use com-

,Parative receipts to measure damages because the defend-

| | | aa |

76a

ants’ “wrongful action had prevented petitioners from

making any more precise proof of the amount of the

damage.”’

This objection is overruled.

III. Inadequacy of Award for Losses in Operating Profit.

TWA complains that in determining the ‘‘cost of capital”

factor in computing operating profit the special master

erred in using 6% for 1959 and 6.3% for 1960. If the jet

fleet had been available for use by TWA at the times it

should have been, TWA would have needed capital at those

times to finance the purchase of the jets. The interest paid

for borrowing the money would be a cost factor to be added

to other operating expenses each year, and would be offset

against the expected receipts to determine the operating

profits that would be realized if there had been an adequate

jet fleet.

The special master first determined the amount of money

that had to be available beginning in 1959 to finance the

purchases based on the ‘‘reconstructed”’ delivery dates of

the aircraft. He then applied TWA’s historical external

borrowing rate at those times to arrive at the yearly cost

of capital. :

TWA contends that it was error to use this rate because

its financial condition and the program of financing it

followed were the result of the illegal acts of the defend-

ants. It claims that if it had been free of restraint it could

have undertaken financing in 1955, and that the maximum

cost of borrowing would have been only the 434% paid by

its competitors in 1955 and 1956 rather than the 6 to

614% it paid in 1960.

The use of the lower rate for ‘‘cost of capital’’ would

increase the operating profits found by the special master

for the years in question, and would result in an increase

| | li i a

77a

of $4.9 million (before trebling) in the award for this

item of damage.

The special master rejected TWA’s theory of damage

on losses connected with financing the jets (see V below).

Included in that loss was a projected cost of capital

predicated on what TWA might have done in the area of

financing in 1955. In view of this ruling, the rate of

interest paid by competitors in 1955-1956 is not the true

measuring rod. Rather, the rate paid by competitors in

1959 and 1960 is the more accurate figure. The record

shows that it ranged from 5 to 614%, not significantly

different from the 6 and 6.3% rate used by the special

master.

This objection is overruled.

IV. Inadequacy of Award for Losses Due to Leasing Jets

from Toolco.

TWA seeks an increase of $1.6 million (before trebling)

in the award for this item of damage. What has been said

in IIT above applies equally as well to this objection. This

objection is overruled.

V. Refusal to Award Damages for Injuries Alleged to

_ Have Been Suffered in Financing the Jets.

It is the claim of TWA that the illegal acts of defendants

with respect to financing the acquisition of jets by TWA

caused it damage in the amount of $30 million. The claimed

damage is based on the difference in its cost under the

Program which it was forced to adopt and a plan which

it claims an independent TWA would have adopted. TWA

offered expert testimony by Drexel Harriman Ripley, Inc.,

4 firm of investment bankers, as to\ what an independent

TWA would have done to provide ¢ dequate financing for

ithe jet age. Defendants countered with their 1 Loeb,

Mi} |

loades & Co., a firm of investment bankers.

78a

The special master reviewed the conflicting testimony in

detail in pages 186 through 264 of his report. TWA claimed

it would have undertaken financing operations in May 1955,

October 1955 and May 1959. It appears that the latter

two financings depended on ‘‘the prudence and doability

of the May 1955 equity financing.’’

The special master referred to the standards of the

Bigelow case (see page 12 of this opinion) and also noted

that he was aware that TWA’s financial condition in 1955

reflected the influences of Toolco. He then stated (page 258

of the report) :

‘¢However, after careful deliberation, I have deter-

mined that TWA has not established that a prudent

and competent management of TWA acting independ-

ently and free of any control or interference on the

part of Tooleo would and should have calculated in the

spring of 1955 the amount of the financial require-

ments of TWA for the jet aircraft age. It is also my

determination that an independent and prudent TWA

management would not have accepted the recommenda-

tion of Drexel Harriman Ripley that TWA sell in May

1955 $55.5 million (net proceeds) in common stock of

TWA.

‘‘Mor me to find to the contrary would in my opinion

endow Drexel Harriman Ripley and an independent

prudent Board of TWA in 1955 with a prescience,

wisdom and perfection of timing that exceeds the

natural capacity of the most experienced men acting

without the benefit of hindsight.’’

The special master pointed out that no alternative theory

of damages was presented by either TWA or the defend-

ants. After discussing in detail the basis for his findings,

the special master concluded that TWA had failed to

sustain its burden of proof as to damages claimed to have

been suffered as the result of the financing program that it

was forced to adopt.

79a :

As already indicated, proof as to the amount of /damages

is unfettered by the effect of the default. The resolution

of conflicting testimony is a question for the special master

and the clearly erroneous rule is applicable. Me

This objection is overruled.

VI. Losses on Sales of Used Piston Aircraft.

TWA complains that the special master erred in refusing

to award any damages for claimed losses on the sale of

piston aircraft. It admits that no other area of damages

presented quite such complex questions of computation.

The amount of damages it seeks under this item is $2.7

million.

TWA takes the position that when jets wére introduced

into service pistons were made obsolete. Therefore, any

delay in delivery. of jets must have caused delay in the

disposal of pistons. Since the market price of pistons

steadily declined during this period, it is claimed that a loss

to TWA resulted.

Here again the difference must be recognized between

the fact of injury which is, admitted and the amount of

damages which TWA must show flowed from that injury.

The special master found that TWA had failed to sustain

its burden of proof on this item of damage and detailed

his reasons on pages 272 through 295 of his report. I have

reviewed those findings and find that they are supported

by the record. ;

This objection is overruled.

VIL. Moratory Interest.

TWA has asked to be awarded moratory, or prejudg-

‘Ment, interest on its recovery. This raises the question

whether moratory interest is within my power to grant in

im antitrust action for treble damages. |

80a

The right to interest on a sum recoverable under 4

federal statute is determined by federal, not local, lay,

Rodgers v. United States, 332 U.S. 371, 373, 68 S.Ct. 5,

92 L.Ed. 3 (1947); Brooklyn Sav. Bank v. O’Neil, 3%

U.S. 697, 715, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). Under

federal law interest is not available on sums recovered

as penalties. Rodgers v. United Stat2s, supra; United

States v. United Drill & Tool Corp., 87 U.S.App.D.C. 236,

183 F.2d 998, 1000 (1950) (dictum). Some cases have

ruled that interest is also unavailable on double or treble

damage recoveries in certain circumstances. Brooklyn Say.

Bank v. O’Neil, supra (Fair Labor Standards Act) ; United

States v. Globe Remodeling Co., 196 F.Supp. 652, 658

(D.Vt. 1961) (False Claims Act).

Relying on Brooklyn Bank, Judge Wyzanski denied

moratory interest in a treble damage antitrust case. Cape

Cod Food Prods., Inc. v. National Cranberry Ass’n, 119

F.Supp. 900, 911 (D.Mass. 1954). He cites an unpublished

decision by Judge Caffey in this district which reaches the

same result. A different result is suggested by the rationale

of United Mine Workers v. Coronado Coal Co., 258 F. 829,

846-847 (8th Cir. 1919), rev’d on other grounds, 259 U.S.

344, 42 S.Ct. 570, 66 L.Ed. 975, 27 A.L.R. 762 (1922), but

that decision came before Brooklyn Bank or Rodgers.

Interest should not be allowed in antitrust actions where

the statute provides for punitive damages. Treble damages

compensate a plaintiff handsomely for all his losses, in-

cluding loss of the use of money rightfully his.

This objection is overruled.

Conclusion

The report of the special master awarding damages in

the sum of $137,611,435.95 pursuant to 15 U.S.C. § 15 is

confirmed.

So ordered.

8la

312 Federal Supplement 478

UNITED STATES DISTRICT COURT,

8.D. NEW YORK.

Trans Wort Arauinzs, Ino., Plaintiff,

Vv.

Howagp R. Hucues, Huéues Toot Company and

Rarmonp M. Hotumay, Defendants.

No. 61 Civ. 2324. .

_ aprit 13, 1970.

Merzner, District Judge.

Plaintiff, Trans World Airlines, Inc., moves for the award

of reasonable attorney’ s fees and costs of suit as the suc-

cessful party in this antitrust litigation. Clayton Act § 4,

5 U.S.C. §15. Plaintiff requests counsel fees in the sum

of $10,500,000 and costs of suit in the sum of $2,230,602.

This court has already awarded damages in the sum of

$137,611,435.95. 308 F. Supp. 679 (S.D.N.Y. Dec. 23, 1969).

The general rule is that the fixing of counsel fees in an

antitrust action is within the discretion of the trial court,

“reasonably exercised.’’ Montague & Co. v. Lowry, 193

US. 38, 48, 24 S.Ct. 307, 48 L.Ed. 608 (1904). The prob-

lem of how to exercise this discretion reasonably has been

the subject of much discussion. Farmington Dowel Prods.

Co, v. Forster Mfg. Co., 297 F. Supp. 924 (D. Me. 1969),

modified on appeal, 421 F.2d 61 (1st Cir. 1969); Hanover

Shoe, Inc. v. United Shoe Mach. Corp., 245 F. Supp. 258,

#2 (M.D. Pa. 1965), vacated on other grounds, 377 F. 2d

176 (3d Cir. 1967), aff’d in part on other grounds, rev’d

in part on other grounds, 392 U.S. 481, 88 S.Ct. 2224, 20

ge 1231 (1968) ; Noerr Motor Freight, Inc. v. Eastern

Pres. Conf., 166 F. Supp. 163, 168 (E.D.Pa. 1958),

a 273 {| 218 ( Cir. 1959)

| rev’d on other grounds, >|

82a

865 U.S. 127, 81 S.Ct. 523, 5 L.Bd.2d 464 (1961). In Haw

over Shoe, supra, the court detailed what appear to be the

generally accepted factors to be weighed in determining a

reasonable attorney’s fee. They are:

fa) whether plaintiff's counsel had the benefit of a

prior judgment or decree in a case brought by the

- Government, .

(2) the standing of counsel at the bar—both counsel re.

ceiving the award and opposing counsel,

(3) time and labor spent,

(4) magnitude and complexity of the litigation,

(5) responsibility undertaken,

(6) the amount recovered,

(7) the knowledge the court has of the conferences,

arguments that were presented and of work shown

by the record to have been done by attorneys for

the plaintiff prior to trial,

(8) what it would be reasonable for counsel to charge

~ - @ victorious plaintiff.’’

However, these factors are only general guidelines and

in the final analysis, ‘‘The reasonableness of an attorney's

fee can only be determined with reference to a particular

case.’’ Noerr, supra, at 168.

We have here an unprecedented recovery—some 30 times

greater than the next highest recoveries on record. In

Union Carbide & Carbon Corp. v. Nisley, 300 F:2d 561, 587

(10th Cir. 1961), petition for cert. dismissed per stipula-

tion, Wade v. Union Carbide & Carbon Corp., 371 U.S. 801,

83 S.Ct. 13, 9 L.Ed. 2d 46 (1962), the treble damages were

$4,400,000 and in Hanover Shoe, supra, at 302, they were

$4,239,000. Obviously the fee to be awarded will be w-

precedented, but the court will attempt to insulate itself

83a

against the impact of the amount requested in determining

what a reasonable attorney’s fee should be in this case.

“The action was instituted on June 30, 1961. On August

$1, 1961 it was assigned to me for all purposes pursuant

‘totale 2 of the General Rules of this court. The suit was

of great magnitude and complexity, and was bitterly con-

tested from its inception. The first phase of the litigation

started with defendant Hughes Tool Company conducting

deposition proceedings and discovery being made by both

parties. Massive sets of interrogatories were served by

both parties. The deposition proceedings. covered some 80

days of testimony embodied in 13,000 pages of transcript.

During this period attempts were made by TWA to serve

Howard Hughes so that his deposition might be taken.

Tooleo engaged in extensive legal maneuverings to fore-

stall the taking of the deposition. Some-.of those activities

ate recited in 332 F.2d 602, 611-613 (2d Cir. 1964). Defend-

ait finally moved to dismiss the complaint, which motion

was denied, 214 F. Supp. 106 (S.D.N.Y. 1963). The cul-

nmation of the maneuvering occurred on February 8, 1963

when counsel for Toolco stated that Hughes would not ap-

pear for deposition. He referred to ‘‘a business decision”’

not to proceed further with discovery proceedings, but

mither to rest on the merits of the positions theretofore

taken and seek judicial review thereof. The Court of Ap-

peals said: .

_ Hughes’ deposition was absolutely essential to the

. proper conduct of the litigation. Yet he and Toolco

~ seized upon every opportunity to forestall this event.

~ To this end they demanded the production of a mul-

_ titude of documents by TWA and the additional de-

_ fendants and secured successive adjournments of the

* deposition. Indeed, Hughes and Tooled seemed to look

~ upon the entire discovery proceedings as some sort

- of a game, rather than as a means of securing the just

* and expeditious settlement of the important matters

84a

_ 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 a

“business decision’ to terminate discovery.’ 332 F.4

at 615.

Twenty-one pretrial hearings were held by this court

during this phase of the litigation, resulting in the entry

of many orders and opinions after hearing argument and

reading papers submitted on contested matters.

The first phase ended, as far as this court was concerned,

with the striking of Toolco’s answer for failure of Hughes

to appear for deposition. A judgment by default was di-

rected to be entered in favor of TWA against Toolco and

the counterclaims asserted by Toolco against TWA were

dismissed with prejudice. 32 F.R.D. 604 (S.D.N.Y. 1963).

Separate appeals were taken by Toolco from these two de-

terminations (214 F. Supp. 106 and 32 F.R.D. 604), and the

hearing on the amount of damages to be awarded TWA

was stayed pending these appeals. The Court of Appeals

did not pass upon the propriety of the entry of the default

_ judgment against Toolco with respect to the complaint. It

limited its review and affirmance to the holding that the

district court had jurisdiction of the treble damage action

and that issuance of certain orders by the CAB did not

constitute a defense to the action. 332-F.2d 602. At the

same time it sustained the dismissal of the counterclaims

with prejudice because of Toolco’s failure to produce

Hughes for examination and its failure to produce certain

papers and documents. Id. at 615. It also affirmed the

granting of summary judgment to the plaintiff on the sixth

counterclaim. Id. at 616. The Supreme Court granted

certiorari in both appeals, 379 U.S. 912, 85 8.Ct. 261, 13

L.Ed.2d 184 (1964), and after hearing oral argument on

March 3 and 4, 1965, dismissed the writs of certiorari as

improvidently granted, 380 U.S. 248, 249, 85 S.Ct. 934, 18

L.Ed.2d 817 (1965).

85a

The second phase of the litigation commenced with the

hearings on the damage claims before a special master.

Preliminarily, some matters of procedure were disposed of,

including an appeal to this court from a ruling of the

special master (38 F.R.D. 499 (S.D.N.Y. 1965)), and a mo-

.tion by the defendant which in effect asked for summary

judgment in its favor. This latter motion was denied on

January 4, 1966. The special master thereafter directed

that on May 2, 1966 plaintiff submit in written form all of

the testimony it proposed to offer as its affirmative case.

Plaintiff offered eight witnesses who were cross-examined

by the defendant for a period of 50 days. The defendant

followed the same procedure of submitting the testimony

of its witnesses in written narrative form and offered four

witnesses who were cross-examined by plaintiff for a total

of 85 days. The testimony covered some 11,000 pages of

transcript with over 800 exhibits containing 60,000 pages

iimitted in evidence. Experts of recognized standing in

the fields of economics, engineering, finance and accounting

were called by both sides. At the conclusion of the hear-

ings before the special master, some 745 pages of briefs

were submitted by the parties. The special master then

rendered a 323-page report. Cross-motions addressed to

the report were submitted to the court with an additional

0 pages of briefs by the parties in support of their re-

| spective positions. The court’s opinion on these motions

| was rendered on December 23, 1969. 308 F. Supp. 679.

ln this application, counsel of record have stated that

they have spent 64,000 hours on this case since they were

Telained by plaintiff. I have excluded some 4,000 hours that

are credited to persons who worked on the case but who

Were not members of the bar in the year that the services

Were rendered. One of these persons is credited with 3300

hours over a three-year period. An additional 1400 hours

have been. excluded, since they are not within the period

fér which compensation should be considered. I have also

tade an adjustment of hours depending on whether, at the

86a

time the services were rendered, the person involved was a |

partner or associate. The result is that the firm is credited

with 58,600 hours, of which 20,000 hours are allocable to

partners’ time and 38,600 hours allocable to associates’

time. These hours were all a

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.