Opposition Brief — Hughes Tool Co. v. Trans World Airlines, Inc.
Supreme Court brief1973
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E. ROBERT SEAVER, CLERK
IN THE —
Supreme Court of the United States
OCTOBER TERM, 1971
No. 71-827
Hucues Toor Company
and
Raymonp M. Hotipay,
Petitioners,
v.
Trans Worip Arruixes, Inc.,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCUIT
——__—_—_
BRIEF FOR RESPONDENT TRANS WORLD
AIRLINES, INC. IN OPPOSITION
Duprey B. TENNEY
80 Pine Street
New York, New York 10005
Counsel for Respondent -
Of Counsel: Trans World Airlines, Ine.
PauL W. WitiiaMs
IMMANUEL KoHN
Raymonp L. Faris, JR.
Wii T. LirLanp
Marsnau. H. Cox, Jn.
CaniLL, Gorpox, SonNnetT,
Rempet & Ont.
s Pine Street
New York. New York 10005
January 21, 1972
INDEX
PAGE
()rders and Opinions Below wnecececereeenenceese 2
Questions Presented aneeecenencencnesseenenenseeeewenenancwes oo 3
Counter-Statement Of the Case ........-------s-ssseecceceeenses
The Complaint ......---------esse-eeeesneeeseeeneenents ; 6
The answers and counterelaims: issues presented .. 4)
DISCOVOLY -ssseercsesconsesssenesenesevtsnaeenssensennecnnssestensesnennecenaennas Pi
The default: amendment of ad danmum clause ..... s 5
The 1963-1965 appeals .....
The damage hearings ...2...
Summary of Argument ..............---
Arguinent
\. Defendants were not denied due process of law
by the district court’s pretrial discovery orders. |
(Petition, Section A) . : D5
RB. It is not a violation of due process to enter and
} enforee a default judgment under Rule 37
against defendants who wilfully and with full
knowledge refuse to permit discovery of evi-
dence of vital importance on all contested
isenes. (Petition, Section B) —.<............... 32
) (. There is no basis in law or in conscience for
defendants to pay less than the amount of
damages for which they were found liable after .
a contested evidentiary damage hearing. (Peti-
tion, Section C) . 38
D. The default judgment was not precluded by
the Federal Aviation Act or any action of the
Civil Aeronautics Board. (Petition, Section
KE. That Tooleo “mismanaged” TWA’s affairs ig
no defense to liability under’ the antitrust
Jaws. (Petition, Section E)
Sreeccosoocosesercencncbcsescccccs
I. Defendants cannot refuse discovery and defend
on the merits on the basis that there is no proof
they were more than “potential” competitors,
(Petition, Section F) :
G. The Special Master and the courts below cor-
rectly found that TWA, in proving the amount
of its damages, had demonstrated that each
item recovered flowed from the allegations of
unlawful conduct and resultant injuries admit-
ted by defendants’ default. (Petition, Section
H. The precedential impact of the decisions below,
(Petition, Section H)
Conclusion
Pooseceunesneseenccevetecnsncbevesscesccccccce
Annex
Pretrial Order, September 7, 1961
Pretrial Order, February 7, 1962
Pretrial Order, July 12, 1962
Opinion and Order, July 24, 1962 ooo.
Pretrial Order, September 21, 1962
Pretrial Order, January 10, 1963
Pretrial Order, January 19, 1963
Pretrial Order, oes 5, toe
Opinion and Order, January 4, 1966
TORR One nw ene naenwadeneeeseeece
apie “
"nobly th aL ge ee
— “ % SPUN LY Seti RE IE Ho EPI RIE a Ll igh STRAT 9 RAS IB ead Tne
kon ras da ings 7 ,
PAGE
47
49
iii
TABLE OF AUTHORITIES
Cases
PAGE
Allied Air Freight, Inc. v. Pan American World Air-
ways, 393 F.2d 441 (2d Cir.), cert. denied, 393 U.S.
_ 846 (1968) 41
Bell v. Hood, 327 U.S. 678 (1946) = 42
Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251
(1946) - 55
Blonder-Tongue Laboratories, Inc. v. University of
Illinois Foundation, 402 U.S. 313 (1971) ........---.-.-..- 4
California v. F° ederal Power Commission, 369 U.S. 482
(1962) 45
Carnation Co. v. Pacific Westbound Conference, 383
US. 213 (1966) nee eeeeteetecececeeseeseneeseesenesesasaceceesesesasens 41,46
Continental Ore Co. v. Union Carbide & Carbon Corp.,
370 U.S. 690 (1962)
Cromwell.v: County of Sac,94 U.S. 351 ETD aisdecsss 4
Eastman Kodak Co. v. Southern Photo Matertals Co.,
973 U.S. 359 (1927) 55
Fong v. United States, 300 F.2d 400 (9th Cir.), cert.
denied, 370 U.S. 988 (1962) .....------2----eeeeeeeeeeeees 34..37n, 39
Fortner Enterprises, Inc. v. United States Steel Corp.,
304.U.S. 495 (1969) ....... BL ae, £8
Georgia v. Pennsylvania R.R., 324 U.S. 439 (1945) ...... 45
Hammond Packing Co. v. Arkansas, 212 U. 8. 322
(1909). ... is o:- 34
Harshman v. Knox County, 122 U. 8. 306 (1887) -....... 36
Jones y. Uris Sales Corp., 373 F.2d 644 (2d Cir. 1967) 34
LaBuy v. Howes Leather Co., 352 U. S. 249 (1957) ....... 50n
McAllister v. Kuhn, 96 U.S. 87 (1877) ...-.- 36
Michigan Window Cleaning Co. v. Martino, 173 F.2d
466 (6th Cir. 1949) .. ~ o&
iv
Norfolk Monument Co. v. Woodlawn Memorial
Gardens, Inc., 394 U. S. 700 (1969) . Op
Norman v. Young, 422 F.2d 470 (10th Cir. 1970) 3
Pan American World Airways v. United States, 371
U. S, 296 (1963) .. 4
Partmar Corp. v. Paramount Pictures Theatres Corp,,
347 U.S. 89 (1954) 4
Peitzman v. City of Illmo, 141 F.2d 956 (Sth Cir.),
cert. denied, 323 U. S. 718 (1944)
- 39
Perma Life Mufflers, Inc. v. International Parts Corp.,
392 U. S. 134 (1968) 37
34
Pioche Mines Consolidated, Inc. v. Dolman, 333 F.2d
257 (9th Cir. 1964), cert. denied, 380 U. S. 956 (1965)
Poller v..Columbia Broadcasting System, Inc., 368
U.S. AGE (1962) onc ccceecceecseccseecstttettteteeeeec 27, 34n
Radovich y. National Football League, 352 U. S. 445
(1957) ...... Lespinastocsacdececcncaipiienaaetnnalllcesanenetantio 37
Riggs, Ferris € Geer vy. Lillibridge, 316 F.2d 60 (2d
Cir. 1963) cesses _
Sarlie v. E. L. Bruce Co., 265. F.Supp. 371 (S.D.N.Y.
1967) .... 39
Silver v. New York Stock Exchange, 373 U. 8. 341
(1963) :
Story Parchment Co. v. Paterson Co., 282 U. S. 555
(1931) - 55
Superintendent of Insurance v. Bankers Life &
Casualty Co., 40 U.S.L.W. 4001 (U. S. November 8,
GGA Y scanned cecssccucassodssaatccninatinentnanneeesstigeess 41
Thomson vy. Wooster, 114 U.S. 104 (1885) ................32, 35, 37
Trans World Airlines, Inc. y. Civil Aeronautics Board
(Hughes Tool Company, Intervenor), 339 F.2d 56
(2d Cir. 1964), cert. denied, 382 U.S. 842 (1965) ... 19n
United States v. Borden Co., 308 U. S. 188 (1939) ..... 45
United States v. Philadelphia National Bank, 374
U.S. B21 (1963) eccceeeeee eee
46
SESS RARE RETR PEN EET LT HRI IRN RIE LOPE I
v
PAGE
Jnited States v. Procter & Gamble Co., 356 U. 8. 677
(1958) . 28n
United States v. Ryan, 402 U. S. 530 (1971) -..........---.-- 28n
gdanok v. Glidden Co., 327 F.2d 944 (2d Cir.), cert.
denied, 377 U.S. 934 (1964) ... 4
Zenith Radio Corp. Vv. Ilazeltine Research, Inc.,. 395
U.S. 100 (1969) : 55
Statutes and Rules
Clayton Act, Section 3, 15 U.S.C. § 14 (1970) oo. Tn
Clayton Act, Section 7, 15 U.S.C. § 18 (1970) ................ Tn
Federal Aviation Act, Section 408, 49 U.S.C. § 1378
(1970) 42
Federal Aviation Act, Section 414, 49 U.S.C. §1384 42
Federal Rules of Civil Procedure
Me Ey acess ise a ecsente eeteese 42
Wilke TBR) ccs ctcnsecreeete perc dete eee 40
Reale 16> ..ccccccccecdeeceessosssssscsssesccosscecsssssseensecesonseesenne 16, 25, 29, 31
Rule 26(¢)-(C) ..cescssoescossessossesonconeesonssensescnugeeneesoneeseneeeeee 31
Rabe 87 eeccseeecteeentctenentetntettteetntnsetentetets By By BD
TO I cess iin as rs ceees 18
Rule 54(c) cette 40
General Rules for the United States District Court,
Southern District of New York
SRI I) wccsesscccccccesscosaedscccccvenececcseasosevvbabeactenesidacasancascnstse 11
Judicial Code |
28 U.S.C. §.1292(b) (1970) cuvette eeeeeeeeeeeee 18
Sherman Act, Section 1, 15 U.S.C. § ETSI) secreesces 6
Sherman Act, Section 2, 15 U.S.C. § 2 (1970) 2002... 6
ESE EDGE OTA AE EAD 0 OCT Oe be NOS
vi
Miscellaneous Authorities
W. Brennan, Pretrial Procedure in New Jersey—A
Demonstration, 28 N.Y.S. Bar But. 442 (1956) 39
F. James, Crvm Procepure (1965) . 3]
Manuva For CoMPLex AnD Mutt1-District Liticatiox
(1970) 3 . 2%
6 J. Moore, Freperat Practice 9754.61, 55.08 (2d ed.
1971) weretacsntensnnensenenaeneeeescsesenensenenecetetesescetesecencosec, 39
Original Advisory Committee Note of 1937 to Fed. R.
Civ. P. 37
sernensstaileernnnsemonsut gadinapenocshsedednensstsesen:sencetanntasccis 35
Symposium, The Practical Operation of Federal Dis-
covery, 12 F.R.D. 131 (1952) 30
C. A. Wricut, Feperat Courts (2d ed. 1970) oo... 31
J. Wricut, Pre-Trial on Trial, 14 La. L. Rey. 391
(1954) 30
. cress ERO Me tie ee
ee. PORES OS IEEE TET EM GEO OLLIE URAL Rs
ge ee ON Pe eee See ro neh . .
BE EE SG OR ND ETI AE BEEBE PS DD PPM FEIT EG 8 BD BRB APA ADAP RT IN KOS
IN THE
Supreme Court of the United States
OCTOBER TERM, 1971
No. 71-827
a a
Hucues Toot Company
; and
~ Raymonp M. Hotuinay,
Petitioners,
v.
Trans Wortp AIRLINES, INc.,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCUIT
| BRIEF FOR RESPONDENT TRANS WORLD
AIRLINES, INC. IN OPPOSITION
The petition herein seeks review of a decision by the
United States Court of Appeals for the Second Circuit
entered September 1, 1971 [108a et seg.*] on which rehear-
ing was denied on September 28, 1971 [163a-164a] and
which is reported at 449 F.2d 51. The decision of the court
of appeals modified as to the rate of interest applicable and
otherwise affirmed the opinions and judgment of the United
States District Court for the Southern District of New
York reported at 308 F. Supp. 679 [50a et seq.] and 312
F. Supp. 478 [81a et seqg.]. These decisions of the district
court and of the court of appeals confirmed in its entirety
* Citations with the suffix “a” are to pages of the appendix to the
\
Sait RNY ya Si eal a9 a Sah Se Nai f 4s ESN Se aes :
BRN gh a en aS a eur NaNO
wire ae
the Report and Award of the Special Master in this cas
Ilon. Herbert Brownell, filed September 21, 1968 (the
“Brownell Report”).
By their petition, Hughes Tool Company (“Tooleo”
and Raymond M. Holliday (collectively, “défendants”
also seeking reconsideration of matters previously decided
by the United States Court of Appeals for the Second
Circuit in a decision entered on June 2, 1964 and reported —
at 332 F. 2d 602 [19a et seq.]. Writs of certiorari with
respect to this earlier decision were granted on November
16, 1964 and, after full briefing and argument, were dis.
missed on March 8, 1965 as having been improvidently
. granted, as -had been suggested during oral argument by
counsel for TWA. 379 U.S. 92 [44a], 380 U.S, 248, 249
[45a, 46a].
2
) are
ORDERS AND OPINIONS BELOW
The “Opinions Below” listed in defendants’ petition at
pp. 1-3, and the separately bound appendix accompany-
ing defendants’ petition, omit (a) the opinions and orders
of the district court in the course of supervising pretrial
discovery, which the first two of defendants’ “Questions
Presented” ask this Court to review, (b) the opinion and
order of the district court dated January 4, 1966, refusing
to make the finding of fact on which the fifth of defendants’
“Questions Presented” is logically dependent, and (c) the
Brownell Report, which sets forth the Special Master’s
fiadings that plaintiff Trans World Airlines, Ine. (“TWA”)
had established that it was damaged in the amount of
$45.870.478.65 hy defendants’ conduct in violation of the
antitrust laws, as alleged in the complaint.
The Brownell Report, with its original pagination, has
been filed herein and in No. 71-830 as a separately bound
ana mae ext Re Oe rah:
3
Appendix to TWA’s Conditional Cross-Petition for a Writ
of Certiorari and Supplemental Appendix to Accompany .
Brief in Opposition. Certain of the relevant pretrial
orders and opinions of the district court, not otherwise
available to this Court, are also reprinted as an annex at
the end of this brief.°
QUESTIONS PRESENTED
The seven “Questions Presented” listed in the petition
are dealt with, in the same order, in the Argument (p. 25
t seq. infra). That Argument and the Counter-Statement
of the Case (p. 4 et seq.) demonstrate that none of these
questions is actually presented on the record in this case.
A threshold question is presented, however, as to the
extent to which principal issues defendants seek to reargue
are judicially foreclosed. The propriety of the very same
discovery orders, the claimed right of defendants to make
a “business decision” not to obey them, and the correctness
of the district court’s conclusion that this refusal of discov-
ery compelled the entry of an order against defendants
under the default provisions of Fed. R. Civ. P. 37— these
precise issues were adjudicated in the court of appeals’
fnal (not interlocutory) judgment in 1964. This was the
judgment which affirmed the dismissal with prejudice of
Tooleo’s counterclaims against TWA and others, never
alluded to in the petition, and a writ of certiorari with
respect to it (No. 501) was dismissed by this Court as
+ Gitations with the suffix “t” are to the annex to this brief; cita-
tions with the suffix “a” are to the appendix to defendants’ petition;
citations to “Brownell Report” are to TWA/’s appendix to condi-
tional cross-petition and supplemental appendix to this brief in .op-
position; citations to “2d Cir. App. A- __” are to the Joint Appen-
dix in the court of appeals, a certified copy of which has been
furnished to this Court by defendants; citations to “AX- =
are to the Joint Appendix of Exhibits in the court of appeals, a
certified copy of which has been furnished to this Court by TWA;
and citations to “Doc. ” are to documents in the record
before the court of appeals not otherwise reproduced.
Se SR SA 4
4
having been improvidently granted. 380 U. S. 249 (46a),
In its 1971 decision the court of appeals held that its Prior
decision was not binding on the present appeal, and there.
fore found it necessary to re-examine these questions and
the record of pretrial proceedings, reaching the same
conclusions as the 1964 panel. TWA suggests, however,
that all of the elements calling for application of estab.
lished doctrines of judicial finality are here met and that
this alone is a sufficient reason for not granting the writ
with respect to issues adjudicated in dismissing Tooleo’s
counterclaims. Cromwell v. County of Sac, 940. 8. 351, 353
(1876); Partmar Corp. v. Paramount Pictures Theatres
Corp., 347 U. S. 89, 100-01 (1954) ; Zdanok v. Glidden Co.,
327 F. 2d 944, 954-55 (2d Cir.), cert. denied, 377 U. S. 934
~ (1964) ; cf. Blonder-Tongue Laboratories, Inc. y. Univer.
sity of Illinois Foundation, 402 U. S. 313, 328-29 (1971)
COUNTER-STATEMENT OF THE CASE
This lawsuit was commenced on June 30, 1961. Plain.
tiff TWA was a corporation with more than 13,000
public stockholders (now 38,000), the stock of which has.
at all relevant times been traded on the New York Stock
Exchange. It was and is the only United States-flag air.
line authorized to conduct regularly scheduled operations
on both transatlantic and transcontinental routes. The
named defendants were Howard R. Hughes, Tooleo,
a diversified corporation wholly owned by Hughes, and
Raymond M. Holliday, an officer and director of Toolco and
a director of TWA.
Until the end of 1960, six months before the complaint
was filed, TWA had been for many years dominated by
Hughes and Tooleo. At that time, TWA had available for
service only 27 jet aircraft; of which 17 were on day-to-day
leases from Tooleo [AX-101].* On December 30, 1960, at
* Hughes, indeed, appears to have been personally negotiating at
around this time for the sale to American Airlines of 15 of the 27
jets operated by TWA [2d Cir. ‘App. A-203].
eet. Phe ” 4 Te tp =
- ous cae See Pre ye tet ah ede RGA en Ph ae
Jie AINE AERA ET, BK ERS
\ 5
the insistence of TWA’s senior creditors, Toolco’s holdings
of TWA stock (amounting at the time to 78% of the out-
standing shares) were placed in a voting trust. In an opin-
ion and order dealing with this and certain related trans-
actions, the Civil Weronauties Board (the “CAB”) stated:
“We have not been told officially of the reasons
which motivated the decision of the insurance com-
panies and banks to seek this protection. However,
we have not been unaware of TWA’s problems.
“lor example, it is a matter of public record that
TWA’s major competitors arranged the financing of
their jet fleets at a significantly earlier date than did
TWA. The impact of this fact may be indeed far-
reaching. . * * °
“Moreover, it is probable that the delay in arrang-
ing financing has also prevented TWA from secur-
ing delivery of a substantially large portion of the
jet fleet which was ordered on its beh i. * * * It
appears that the failure to receive Shi equipment
as planned may have played a substantial part in
TWA’s recent inability to maintain its traffic posi-
tion relative to its principal competitors, * * ° It
appears to be significant that TWA’s jor com-
petitors have already taken delivery o h larger
jet fleets than TWA is operating and have firm
orders for delivery of more.
“Under these circumstances, we think it clear that
Board action to facilitate TWA’s acquisition of jet
equipment is in the public interest.” (32 C.A.B.
1363, 1364-65, Order No. F-16195 (Dec. 29, 1960) )
Of the three voting trustees, two were prominent independ-
ent businessmen appointed by the creditors: Irving S. Olds,
former Chairman of the Board of Directors of United
States Steel Corporation, and Ernest R. Breech, former
Chairman of the Board of Directors of Ford Motor Com-
pany. The third was the defendant Holliday, representing
0g ESP Rg ten aamaceg:
Tooleo and Hughes; Holliday, however, opposed alll of th,
steps thereafter taken by the trustees.
At a special stockholders’ meeting early in 1961 the
trustees caused a sufficient number of directors to by
replaced to establish a new, independent majority of the
board, which elected Charles C. Tillinghast, Jr, (formerly
Vice President—International Operations of The Bendix
Corporation) as president.* The new board also retained
independent counsel with no prior connections with either
TWA or Tooleo “* * * to determine whether [TWA] has
a cause of action to recover damages from any party or
parties in connection with the procurement of aire
ground equipment, training aids, financing thereof, or any
other matter” (Minutes of TWA’s Board of Directors
Meeting, March 20, 1961, p. 12). On the recommendation
of such counsel, made after an investigation of such sources
as were available to TWA, this lawsuit was brought against
Hughes, Toolco and Holliday.
The complaint .
The complaint charged defendants with a combination
and conspiracy to restrain and monopolize and an attempt
to monopolize a substantial segment of trade, beginning in
1939, the objects of which were to monopolize the supply of
aircraft to TWA and to use TWA as a captive market in
making Toolco a dominant source of supply of aircraft to
air carriers generally—all in violation of Section 1 of the
Sherman Act, 15 U.S.C. §1, and Section 2 of the Sherman
Act, 15 U.S.C. § 2 [complaint, pars. 9, 10, 11].**
*Tn addition to Tillinghast and Breech, who became chairman of
the board, the new directors were Clifford F. Hood, former President
of United States Steel Corporation; Barry T. Leithead, President
of Cluett, Peabody & Co. Inc.; Houston M. McBain, former Chair-
man of Marshall Field & Co.; and John A. McCone, former Chair-
man of the Atomic Energy Commission.
** TWA’s complaint is at 2d Cir. App. A-1 et seg.
7
The complaint charged that, for the purpose of estab-
lishing complete domination and control over TWA’s acqui-
sition of aircraft, Tooleo conditioned the supply of aircraft
t) TWA upon TWA’s confining itself to such financing
ss Tooleo provided for it, and conditioned the provision of
fnancing to TWA upon TWA’s accepting such aircraft
on such terms as Tooleo dictated [complaint, pars. 9, 10,
9, 24). It charged that Toolco imposed upon TWA a
boycott of manufacturers that could have supplied air-
craft to TWA directly [complaint, pars. 9, 10, 17, 20] and
that, during the years 1959 and 1960, pursuant to the con-
piracy, day-to-day leases of aircraft by Tooleo to TWA
yere conditioned on an understanding. that TWA would
not acquire aircraft except from Toolco [complaint, .pars.
9, 20].°
It charged that there were other conspirators besides
defendants, one being Atlas Corporation, in which Hughes
yas individually an 11% stockholder, and which in turn
entrolled Northeast Airlines [complaint, par. 6]. Atlas
yas alleged to have joined the conspiracy at an unknown
date prior to May 1960. An attempt, participated in by
Atlas, to impose upon TWA a merger with Northeast on
terms disadvantageous to TWA was alleged, as was a trans-
fer to Northeast of six Convair 880 jet aircraft ordered by
Tooleo, three of which had previously been contractually
assigned to TWA [complaint, pars. 21, 22].**
The mechanics of the attempt during 1955 and 1956 to
use the TWA captive market for aircraft to secure a
dominant position in the supply of jet aircraft were
* The leasing of jets on the illegal condition was alleged, in addi-
tion, to violate Section 3 of the Clayton Act, 15 U.S.C. $14. A
violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, was
also alleged, and divestiture and other equitable relief were asked, in
addition to damages. These claims for equitable relief were mooted,
however, on Toolco’s voluntary sale of all of its TWA stock in 1966,
for $546 million in cash, at a profit to Toolco of over $450 million.
** Subsequent to the filing of the complaint, Toolco acquired con-
trol of Northeast from Atlas, and leased four other Convair 880s to
Northeast.
alleged in considerable detail [complaint, pars. 14.17)
Defendants engaged in a joint venture with the Convair
Division of General Dynamics Corporation to develop a jet
aircraft which TWA would be required to buy as an initia)
captive customer [complaint, par. 14]. To Preserve this
captive market during this period, when TWA’s principal
competitors were placing direct orders with Boeing and
Douglas, Tooleo prevented TWA from arranging either for
direct acquisition of jet aircraft or for the financing of spch
aircraft. When the initial joint venture effort with Con.
vair failed, defendants were alleged to have thereafter
planned the direct manufacture by Toolco of jet aircraft
also to be marketed to airlines generally, with the TWA
market as a captive marketing base [complaint, pars, 15,
16, 17, 26]. In 1956, jet aircraft were ordered by Tooleo
from other manufacturers (Boeing and Convair), but it
was alleged that Toolco repeatedly refused to assign rights
to such aircraft to TWA [complaint, par. 18].
It was alleged that defendants’ attempts to prevent TWA
1960, and examples wer@ given [complaint, pars. 36-48].
The injuries caused TWA by this course of conduct
were spelled out [complaint, pars. 50-53]. They con-
sisted principally in its having been prevented from
obtaining jet aircraft and deprived of opportunity for
adequate use of jet aircraft from 1958 on, with a resultant
loss of profits [ecomplaint, par. 52(a)], and in its having
been prevented from obtaining financing in 1955 and 1956,
when interest rates were low and when its competitors ob-
tained such financing. Among the specific examples of
injuries alleged, in addition to such matters referred to
above as the assignment of Convair 880s to Northeast
and the day-to-day leases of jets in 1959 and 1960 on
unlawful conditions, was the diversion by defendants
9
‘
of six long-range Boeing jet aircraft to Pan American
World Airways, TWA’s principal transatlantic competitor
complaint, par 18]. Other injuries were alleged to
elude TWA’s inability to dispose of its used piston
sireraft (because of the insufficiency of its jet equip-
ment) until the market for such aircraft had dropped con-
siderably, impairment of TWA’s ability to secure financ-
ing, loss of goodwill, and general disruption of TWA’s
management and business [complaint; pars. 52, 53]. Dam-
ages were estimated as in excess of $35,000,000 [complaint,
par. 54). . |
Thus, TWA’s complaint charged that its late financing,
the delay in delivery and inadequacy of its jet flect, and its
loss of competitive position, to which the CAB had referred
in Order No. E-16195 (supra, p. 5), and the disastrous
losses which had resulted, were caused by defendants’
wrongful conduct and were the result of a conspiracy and
‘attempt to monopolize in violation of the antitrust laws.
The answers and counterclaims: issues presented
It proved impossible for TWA to serve process on
Hughes. Toolco’s answer (adopted in substance by Iol-
liday) put in issue substantially all of the averments
of TWA’s complaint, and also included extensive counter-
aims against TWA and nine additional defendants.*
The counterclaims charged that TWA and its new
management, a number of: financial institutions and their
officers (referred to collectively throughout the litigation
and here as “additional defendants”) had been engaged in —
a conspiracy ‘in violation of the antitrust laws to force
Tooleo to give up control of TWA and to monopolize air-
craft financing in the hands of the financial institutions.
*Toolco’s Answer and Counterclaims is at 2d Cir. App. A-41
et seq. and Holliday’s Answer is at 2d Cir. App. A-99 ef seq.
PLIERS LED ILE DOLE OL ALLL EWA LIE EE SORL IETS, Sp ELITE 2 5
Le Si
Bh ae igh a PB hg ia ry 2S Cag
Shi bp DEAD LGA ELBA ARS LE LAEE LIS ORI Te.
\ 10
TWA’s losses (stated to have exceeded $45 million [Toole
answer, par. 99], the amount to which TWA Subsequently
amended its own ad damnum clause) were charged to haye
been the result of this conspiracy, and Tooleo was stated
to have suffered damages amounting to $77 million.*
By its answer, Toolco identified the critical
which evidence would be needed, in addition to evidence of
the extent of TWA’s losses. For example, Toolco denied that
Hughes had directed, controlled and dominated it [Tooleo
answer, par. 4], and denied that it had engaged in the com-
bination, conspiracy aud attempt charged or that any of the
specific acts which it had admittedly done were done pur-
suant to such a combination, conspiracy and attempt, or
pursuant to an intent on the part of the defendants to
utilize TWA as a captive market for aircraft and to become
a dominant source of supply of aircraft to air carriers
[Toolco answer, par. 1]. It denied that it had engaged in
a joint venture with Convair to develop a jet aircraft to be
supplied by defendants to air carriers including TWA, for.
which aircraft TWA would serve as a captive market
[Tooleo answer, par. 10]. It denied that defendants had
caused and directed TWA to forego making any arrange.
ments for the acquisition of jet aircraft [Toolco answer,
par. 13]. It denied that it had refused to assign rights to
acquire jet aircraft to TWA, denied that. the transfer
of long-range Boeing jets to Pan American was caused
by defendants, and affirmatively alleged that this trans.
fer had heen recommended and approved hy TWaA’s
management [Toolco answer, par. 14]. Tt denied that it
issues as to
* Defendants’ omission of any mention of these counterclaims is
not an oversight. There has been an ad judication against Toolco which
is final and binding on every issue involved. Factually, that final
judgment constitutes a rejection of defendants’ version of what really
happened. Defendants are very anxious to avoid anv consideration
of the implications of the dismissal with prejudice, factual as well
as legal.
11
had prevented TWA from making test and acceptance
flights of specific Convair SSO aireratt |'Tooleo answer, par.
15). It denied that its day-to-day leases of aircraft to
TWA were conditioned on the understanding that TWA
yould not acquire aircraft from any other potential supplier
[Tooleo answer, par. 16}. It denied that it did not allow
TWA to make its own arrangements for financing aircraft
([Tooleo answer, par. 1].
This partial list sufficiently indicates the scope of the
‘sues on the merits of TWA’s claims to which discovery—
py FWA as well as by defendants—was necessarily
jirected. Central to the establishment by TWA of its
right to recover under the antitrust laws were the issues
“to defendants’ intent and purposes in establishing control
wer TWA, its financing and its aircraft acquisitions, and
shethef—and why—Toolco prevented TWA from ordering
4s own aircraft and arranging its own financing, and di-
reted jet aircraft needed by TWA to TW4A’s competitors.
The nature and purpose of the arrangements which defend-
ats made with Convair, and the nature and purpose of
jefendants’ equipment transactions and negotiations with
airlines other than TWA, were identified by the pleadings
as issues of critical importance. Toolco’s denial of control
by Hughes (accompanied by a denial of cach allegation of
the complaint connecting Hughes with the specific actions
and events charged) also placed in issue the details of
Hughes’s operating relationships with both Tooleo and
TWA.
Discovery .
Initial priority of discovery went to ‘defendants, and
TWA was required to begin production of documents in
August 1961 [1t].On August 31, 1961 the case was assigned
by the Chief Judge to Judge Charles M. Metzner for all
yurposes, pursuant to Rule 2 of the General Rules for the
Cnited States District Court for the Southern District of
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New York [2d Cir. App. A-33]. Pursuant to a schedule
fixed by Judge Metzner [6t-7t], Toolco began its deposition
of Tillinghast, TWA’s president, on J anuary 5, 1962 (Doe.
53].
Although Tillinghast had come from outside TWA, had
been president for less than three months when the com-
plaint was filed, and had no personal knowledge of events
before he joined TWA, defendants were still taking his
deposition in July 1962, with no signs of bringing it to a
conclusion. On July 12, 1962 Judge Metzner ordered the
deposition to be completed by July 25, 1962 (9t]. The depo-
sition transcript was 6,729 pages long at the conclusion of
Tillinghast’s testimony [Doe. 222]. Thereafter, a deposi-
tion of Robert W. Rummel, TWA’s principal procurement
officer, was taken and concluded on October 16, 1962 [Doe,
227, p. 1928]. Two other depositions were commenced by
defendants but still had not been completed on February
8, 1963, when defendants informed the district court and
the parties that they would refuse to participate in any
further discovery proceedings.
Before February 8, 1963, TWA and the additional de.
fendants were prevented from engaging in deposition dis.
covery, but Tooleo, the additional defendants and some
non-parties were required to produce documents in re.
sponse to various demands. It became apparent that criti.
cal documents were to be found in three areas: (a) such
records of Hughes’s conversations and directives as had
heen preserved, partly in Tooleo’s telephone and message
center at 7000 Romaine Street, Los Angeles, and partly in
the form of notes preserved by third parties of telephone
conversations with Hughes;* (b) documents involving the
lawyers through whom many of Hughes’s and Toolco’s busi-
* Apparently as a matter of-practice, Hughes never corresponded.
Communication with him was solely by telephone, and the Los Angeles
message center operated 24 hours a day, 365 days a year, to facilitate
this unique operating method.
=
13
ness negotiations had been conducted, as to which defend-
ants claimed attorney-client privilege; and (c) opie
yhich would reveal the financial aspects of defendants
jealings in aircraft, not only with TWA, but with others.
In the first area, the available records were fragmentary
in the extreme; occasional verbatim messages were kept
for later delivery, when the two parties could not be put in
direct contact, but the message center record of any actual
conversation Was limited to such comments as “They
talked” or “Omit. They talked” [AX-665-728 passim: e.g.,
4X.669, AX-673, AX-691, AX-694]. Subjects of particular
interest were from time to time summarized in “memo-
manda”, and the raw telephone records destroyed. Unfor-
tunately no memoranda were produced, defendants
axplaining that they, too, had been destroyed [Doc. 215, pp.
419.13: Doc. 306, pp. 2-3; Doc. 307, pp. 5-7]. It was thus
slain that oral discovery of Hughes was necessary to de-
velop the relevant, material facts. .
In the second area, defendants claimed attorney-client
privilege. Special Master J. Lee Rankin, who had been
appointed to supervise discovery proceedings [3t-4t], twice
held and the district court twice agreed that the privilege—
if any—had been waived, that the documents were material
and relevant, and that they should be produced [11t-12t,
1t-29t]. Defendants disregarded these orders, and as of
February 8, 1963 were in open and admitted defiance
of still a third order to produce this material [2d Cir. App.
305-06]. ;
In the third area, tax returns and audited financial state-
ments of Tooleo through 1960 were produced (with such
extraordinary precautions as to secrecy that the documents
are still sealed and appear nowhere in the printed record).
No work papers or detailed audit reports were produced,
and the extreme brevity of the returns and balance sheets
_ and income statements made it impossible to determine
with any precision the specific transactions reflected by any
ere |
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14
particular entry. A motion was made for the production of
work papers and other material which would clarify these
and related matters, specifying 23 categories of documents
in all, and including a demand for material Subsequent to
1960 [2d Cir. App. A-133-36]. The documents were held
relevant and material; Tooleo advised the parties that at
least nine cartons of such documents existed. Ordered to
turn them over to TWA and the additional
counsel for defendants, in open court, flatly
Cir. App. A-133-36, A-304-05].
TWA informed the court that its principal evidence on
the critical issues of the litigation would come from
Hughes. It exhibited doeuments which demonstrated that
Hughes had been the prime mover in every matter
described in the complaint [e.9., Does. 165, 166, 167]. The
district court (which conducted in this period over 19 pre-
trial hearings) found: “It is clear that during all of the
times covered by the complaint the management of TWA
was controlled by Hughes personally” (32 F.R.D. at 606)
[14a]. It further found: “Tt is clear that the deposition of
Hughes is essential for the proper presentation of TWA’s
case” (32 F.R.D. at 607) [17a].
Defendants’ conduct during this period has been exten-
sively reviewed, not only by the district court but by two
panels of the Court of Appeals for the Second Circuit.
Defendants’ motives were transparent—to conduct their
own discovery interminably while resisting at all cost any
meaningful discovery by TWA and the additional defend-
ants.* Chief Judge Lumbard summarized the unanimous
view of the court of appeals in these words:
defendants,
refused [24
“Tughes’ deposition was ahsoluteh essential to
the proper conduct of the litigation. Yet he and
* Tt was, of course, TWA and not Toolco that was _ ultimately
vulnerable to the financial burdens of interminable litigation. As
pointed out below, Toolco was worth “several” hundreds of millions
of dollars by its-own assertion, while TWA was in desperate finan-
cial straits during the first. two years after it was freed from
Hughgs’s control. The repeated assertions in defendants’ petition
that TWA’s lawsuit constituted financial oppression of Toolca on
Petition, pp. 14, 16, 17, 18) are utter nonsense.
15
Tooleo seized upon every opportunity to forestall
this event. To this end they demanded the produc-
tion of a multitude of documents by TWA and the
additional defendants and secured successive ad-
journments of the deposition. Indeed, Hughes and
Tooleo seemed to look upon the entire discovery pro-
ceedings as some sort of a game, rather than as a
-means of securing the just and expeditious settle-
ment of the important matters in dispute.” (332 F.2d
, at 615) [40a-41a]
>
Judge Kaufman, also speaking for a unanimous court,
stated :
“Clearly the court was entirely correct in con-
cluding that the litigation would only continue its
desultory course without the appearance on stage at
the earliest possible moment of the hitherto unseen
Prince of the drama.” (449 F.2d at 61) [122a]
The default; amendment of ad damnum clause
The default was eventually established in open court at
a hearing held at the close of business on Friday, February
1963, the last business day before the deposition of
lughes was to begin in Los Angeles at 10 a.m. on Mon-
day, February 11.* Demands by Toolco that extensive
interrogatories be answered by TWA and that issues be
* The deposition had been originally scheduled for April 23, 1962,
on the assumption that Toolco would have concluded its deposition:
by that time [7t]. T\WA’s attempts to serve a witness subpoena
on Hughes having been unsuccessful, Toolco was twice ordered in
July to answer interrogatories as to Hughes’s whereabouts [8t;
Doc. 103].. In lieu thereof, Toolco arranged to accept service of a
witness subpoena on Hughes’s behalf, and it expressly vouched for
the validity of this service [2d Cir. App. A-272]; elaborate precau-
tions were taken by the court to assure that Hughes was personally
advised of what chad been done in his name and its potential conse-
quences [15t-17t]. That subpoena provided for the deposition to
commence on September 24, 1962. This was postponed by court
order to October 29, 1962 to permit Toolco to carry its own discovery
further [ibid.] and then further postponed to February 11. 1963,
which date, however, was expressly stated to be subject to no further
adjournments “in the absence of extraordinary circumstances” [19t].
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16
limited in a so-called “Rule 16” conference prior to com.
mencement of the Hughes deposition had been denied, the
court providing that TWA would be permitted to examine
Hughes before it was required to answer the interro
tories, and stating that, since Hughes’s deposition would
“facilitate an intelligent ruling upon Tooleco’s application
pursuant to Rule 16”, the denial of the application was
without prejudice to a renewal after Hughes’s examination
had been completed [20t]. No suggestion was ever made
that there was any medical or other obstacle to Hughes’s
appearing, and as the court of appeals pointed out, Judge
Metzner had offered to have the deposition taken “in as
much privacy and under any other conditions that might
suit Hughes’s aversion to public appearance” (449 F9q
at 62) [122a].
On February 8, 1963 Tooleo served upon the Special
Master, TWA and the additional defendants a document
entitled “Notice of Position” stating that Toolco “hereby
elects * * * to rest on the merits of its positions as hereto-
fore taken so that it may avoid the burdens and expenses
involved in further pre-trial and trial proceedings * *
[2d Cir. App. A-268-69]. At TWA’s request the district
court scheduled a further pretrial hearing at 5 p.m. that
day to establish the meaning and implications of this com.
munication.
At the outset of the February 8 hearing, TWA’s counsel
gave formal notice that TWA claimed and now expected
to prove damages of at least $45 million before trebling,
and that TWA intended to move to ame..d its complaint in
that respect [2d Cir. App. A-271].
After this notice had been given, counsel for defendants
formally stated that it was his clients’ “business decision”
that the deposition would not be held, and to proceed no
further with any pretrial discovery, in defiance of all court
——
17
orders [2d Cir. App. A-280]*. The meaning and effect
of this decision was explored at length, and it was made
quite clear that defendants accepted that they would be
jable in damages if the several grounds on which they
were seeking review were determined against them. Coun-
«| for Toolco stated :
"we * © we are fully aware—my client is fully aware—
that by insisting on a right to obtain a review on
the legal questions which have been decided to date
* * * they may be deprived of further defending on
the merits, other than on the question of damages.”
(2d Cir. App. A-276]
At a later point in the same hearing he explained:
“My purpose of course is to obtain something
which will enable me to get a review on the law as
to whether or not you are entitled to be here in the
first place. And then I am prepared, if I am wrong
in that regard, to pay the consequences to the extent
to which you are able to prove damages.” [2d Cir.
App. A-297]
Since Hughes’s deposition was to be taken pursuant
to a valid witness subpoena, and Hughes had neither ob-
jected to it nor made any representation that he would be
mavailable or would refuse to testify, TWA took the posi-
tion that, regardless of Tooleo’s “business decision”, TWA
was entitled to proceed with this vital discovery [2d Cir.
App. A-292-98]. However, at Toolco’s express request and
in reliance upon its stated willingness to respond in
damages, Judge Metzner stayed TWA from proceeding
and directed that the deposition not be taken [2d Cir. App.
A307].
*It was at this February 8 hearing that counsel for defendants
gave as a reason for the ‘‘business decision” the cost of proceeding
with the Hughes deposition, of which so much is made in defendants’
petition [2d Cir. App. A-280]. He estimated it at $5 million (ex-
plaining that the figure was supplied by his clients and declining to
- vouch for its accuracy)—a ridiculous estimate that TWA at the
time called “obviously absurd” [2d Cir. App. A-293].
18
There followed inevitably the entry by the district court
on May 3, 1963 of a final judgment dismissing Tooleo’s oy,
counterclaims with prejudice and an interlocutory judgmen;
in TWA’s favor upon its complaint (32 F.R.D. at 607) [179:
2d Cir. App. A-323]. No final judgment could be entered
upon TWA’s complaint until after an evidentiary hearing ty
establish the amount of its damages. It was ruled, hoy.
ever, that since Tooleo would be represented at the damage
hearing and in a position to contest TWA’s damage proof
TWA was entitled to recover such actual damages as jt
could establish, and its motion to amend its complaint was
accordingly granted (32 F.R.D. at 607-08) [17a].
The 1963-1965 appeals
Following entry of the default judgment on TWA’s comp.
plaint and dismissal of Toolco’s counterclaims with preju-
dice, defendants were granted immediate review of the
decisions below. Tooleo appealed as of right from the
dismissal of its counterclaims (an order pursuant to
Fed.R.Civ. P. 54(b) having been entered), and after appro-
priate certification by the district court, the court of appeals
allowed defendants an interlocutory appeal, pursuant to 28
US.C. §1292(b), with respect to the complaint (32 F.R.D. at
608) [18a] (332 F. 2d at 605) [20a]. Both in the court of
appeals and later in this Court these separate appeals were
heard together. Thus, there were presented to both appel-
late courts at that time, on one or both appeals, not only
the jurisdictional but also the procedural questions which
the district court had passed upon in the course of the vari.
ous pretrial hearings, including all aspects of the conduct
of pretrial discovery.
The 1963-1965 appeals resulted in affirmance by the court
of appeals of the district court’s decisions on all matters
presently relevant. Certiorari was granted as to both
appeals, and there was full briefing and argument, including
acceptance by this Court of a brief amicus filed on behalf of
19
the CAB, which supported the correctness of the decisions
pelow insofar as they dealt with matters of primary juris-
diction and the asserted exemptive effect of the CAB’s prior
orders.
As his first point on oral argument, counsel for TWA
urged that certiorari be dismissed because the decisions
helow were plainly correct (Transcript of Argument in
No. 443, p. 18). On the next decision day both writs were
dismissed as improvidently granted.
Defendants’ petition attributes this dismissal to the fact
that the appeal from the judgment in TWA’s favor, No. 443,
yas interlocutory, not final (Petition, p. 10) ; but the appeal
from the dismissal with prejudice of Toolco’s counterclaims,
No. 501, was from a final judgment, plainly binding unless
reversed. This Court’s order left standing in its entirety
the court of appeals’ affirmance of the district court’s deci-
sion, as a final adjudication of every issue involved in the
dismissal with prejudice of the counterclaims.®
The damage hearings
The damage hearings followed next, before Special
Master Brownell. They extended over a period of 214 vears
_31, years if time spent. in determining various pre-
liminary matters relating to the scope of the default is
*An attempt by Tvolco, initiated after the default, to reacquire
control of T\VA through acquisition of the power to replace the
independent voting trustees was rejected by the court of appeals late
in 1964, on an appeal from a CAB order disclaiming jurisdiction.
The court of appeals held that no such reacquisition of control was
permissible without a public hearing. A petition for certiorari filed
by Toolco as intervenor, in which the CAB did not join, was denied
by this Court. Trans World Airlines, Inc. v. Civil Aeronautics Board,
(Hughes Tool Company, Intervenor), 339 F.2d 56 (2d Cir. 1964),
cert. denied, 382 U. S. 842 (1965).
=
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20
included.* The transcript of testimony taken at the damage
hearings totalled almost 11,000 pages, substantially all of
it cross-examination, since the direct testimony of Witnesges
was presented in written form. Over 60,000 pages of doen.
ments were admitted in the record as exhibits. The scope
and thoroughness of these hearings and the intensity with
which each issue was confested are reflected in the Brownell
Report. Every point which defendants’ petition attempts
to make to this Court was raised in the damage hearing and
is considered and rejected in the Report, except solely
their arguments with respect to the conduct of the discovery
proceedings and that the CAB had exempted their unlawful
conduct from the antitrust laws (Sections A and D of the
Petition), both of which had been expressly raised and
rejected on the previous appeals.
Defendants’ objections to the damage award were
voluminous. In all, more than 1,300 pages of briefs and
memoranda were submitted to the district court. Consider.
ation of the objections and review of the record occupied
the district court for over a year, after which the Browne!l
* One of these preliminary matters was an express refusal by the
district court to find that the allegations of paragraph 3 of TWA’s
complaint were untrue [32t-33t]. Such a finding was again te-
quested of the Special Master at the close of the damage hearing,
and was again expressly refused | Brownell Report, pp. 26, 28-33}.
This factual determination, confirmed yet again by the district court
in 1969 after a review of the entire record (308 F.Supp. at 686)
[60a] and affirmed unanimously by the court of appeals (449 F.2d
at 67-68) [133a-136a], is still disputed in defendants’ present peti-
tion on the basis of entirely unsupported assertions of facts not found
below. Defendants’ contention, now four times rejected, heads the
list of items in the footnote at pp. 11-12 of defendants’ petition which
are described as “facts, none of which had ever been in dispute” and
which were, it is claimed, “confirmed in the course of the cross-
examination of TWA’s witnesses”. That entire list, indeed, consists
of restatements of factual contentions and related claims of innocent
motivation which deferidants attempted to prove at the damage hear-
ing, which they asked the Special Master to find, and which he refused
to find.
21
Report was confirmed by Judge Metzner in its entirety,
each of the objections filed (those of TWA as well as those
of defendants) being expressly overruled.
The appeal which followed was given correspondingly
careful attention. The parties were permitted to file briefs
without regard to the ordinary length limitations. Count-
ing the various annexes bound in with the briefs, the appel-
late briefs totaled 719 pages, and the printed Joint Appen-
dix and Joint Appendix of Exhibits consisted of 12 bound
volumes. A full day was set aside for oral argument. The
meticulous attention given by the court of appeals to all
of defendants’ arguments—including those which had been
previously made, unsuccessfully, in the course of the 1963-
1965 appeals—is fully apparent from Judge Kaufman’s
opinion. Except for a modification of the rate of interest
on the judgment, the decisions below were unanimously:
affirmed in every respect.
Summary of Argument
While this lawsuit is unusual and perhaps unique, both
with respect to the factual issues involved in the basic con-
troversy and the unprecedented use by defendants of de-
fault as a tactic in a continuing litigation, there are no
special and important reasons for further review by this
Court. Such a lawsuit as this is not likely to recur, and as
a defaulted case it lacks the factual record necessary for
adequate consideration of the substantive antitrust ques-
tions tendered by defendants.
Nothing that has happened since this Court’s dismissal
of certiorari in 1965, after briefing and oral argument, has
matte the case more worthy of consideration by this Court.
The questions of law involved in the post-1965 proceedings
for the most part consist of long-established principles
applicable to wilful defaults. These principles are seldom
invoked because of the relative infrequency of such defaults
by parties wishing to continue in active litigation. Defend-
Ce tse |
22
ants’ strategy of discover, default and defend on the dam.
ages has not been widely imitated.
Only two of the seven legal questions now tendered by
defendants for decision by this Court were not presented in
1965" and none can he fairly described as of Seneral signi.
ficance. The decision below is not in conflict with the
decision of another circuit on the same matter**; it ig not
a decision of an important question of federal law which
requires settlement by this Court or which is in conflict with
applicable decisions of this Court. Nor is the exercise of
this Court’s power of supervision called for by any depar.
ture by the courts below from the accepted and usual course
of judicial proceedings.
Indeed, the action taken by the lower courts, once defend.
ants had taken the highly unusual step of electing to dis.
regard the district court’s discovery orders and thus
deprive TWA of access to critical evidence, was the mini.
mum that was fair to a plaintiff so disadvantaged. TWA
could not thereafter be required to prove the facts alleged
in the complaint, as defendants obviously understood when
they first announced and explained their “business deci-
sion”, but the lower courts did require TWA to prove its
damages in exhaustive detail. In the course of the damage
hearing and subsequent judicial review—the only aspect of
this proceeding taking place subsequent to this Court's 1965
dismissal of certiorari—defendants were accorded full Op-
portunity for cross-examination, submission of rebuttal evi.
dence and oral and written argument, and they exercised
these rights abundantly. |
The questions now advanced by defendants as a basis
for review by this Court are merely artfully phrased efforts
to extract from this controversy over defaults and damages
* No. 7 and the last clause of No. 2.
** The conflict between circuits alleged at p. 25 of the petition
is not a real one; confronted with the same facts there is no reason
to believe the circuits would have ruled differently. See pp. 39-40,
infra.
p DER PR
23
some legal issues of general significance. They simply are
not there. All of the questions posed are based on asser-
tions or assumptions of fact which are refuted by the record
or which the courts below declined to find because of defend-
ants’ election not to submit their contentions to the scrutiny
of discovery.
A. Defendants’ first proposed question hinges on their
factual assertion that the complaint and pretrial proceed-
ings prior to the scheduled deposition of Hughes did not
identify the allegedly illégal conduct “with reasonable
specificity.” The complaint here is in fact a very specific
one, upheld as sufficient by the lower courts, and there is
-no merit to the charge of failure of specificity. The illegal
transactions were clearly identified. Defendants had no con-
titutionally protected right to refuse to comply with lawful
discovery orders in order to foree TWA to establish its
case on the merits without benefit of discovery. Their con-
trary argument is frivolous. (pp. 25-31, infra)
B. Defendants’ second question relies on assertion
of the fact, not found by the Special Master or either court
below, that the cireumstances of the default did “not permit
a presumption that the defendant has no defense to the
action.” Tf any presumption is to be made with respect to
the real reasons for, the default, the normal presumption
that defendants realized that they could be shown to have
acted unlawfully cannot be excluded. Having deliberately
chosen as a “business decision” to refuse to comply with
lawful discovery orders with respect to evidence of vital
importance on all contested issues, and with the express
expectation that a default judgment might be entered,
defendants were not denied due process by the entry of
adefault judgment which ruled that the well-pleaded, mate-
rial and traversable allegations of the complaint were ad-
mitted. Any other result would constitute a serious depri-
vation of substantial justice and due process to the plaintiff
TWA to which discovery was denied. (pp. 32-38, infra)
Fan i! IESG aiid al ial et OY selina
baoshaiee
24
C. The implicit premise of the third question posed by
defendants is that the defaulting defendant had no notice of
the proposed amendment of the ad damnum clause at the
time of its decision to default and had no opportunity
thereafter to change its decision. In this case, that premise
is plainly false. Defendants had notice of the Proposed
amendment at the time they elected to default and despite
such notice stood by that election. Moreover, the default
Judgment was not entered until three months later, but
defendants never offered to comply with the district court's
discovery orders. (pp. 38-40, infra) ,
D. Defendants’ fourth question, which probably did not
survive the default in any case (see pp. 41-42, infra), is
based on the unstated premise that there was no unlawful
and undisclosed motive underlying the acts performed by
defendants in the exercise of their control over TWA. The
question of motivation would have been explored, if defen.
dants had been willing to permit discovery, and the present
record is therefore incomplete as to the critical facts needed
to resolve the question now posed by defendants. The
CAB’s brief amicus filed when this ease was here in 1965
confirms that the Board’s past orders, approving solely
defendants’ acquisition of control over TWA, were not in-
tended to and did not immunize them from liability in dam-
ages to TWA for conduct admitted by their default to be
pursuant to a conspiracy to restrain and monopolize and in
furtherance of their attempt to monopolize a substantial
segment of trade. (pp. 41-46, infra)
KE. Similarly, the fifth question raised by defendants em-
hodies the assumptions that the parent corporation (here
Tooleo) is not a competitor of equipment suppliers and is
not acting for unlawful purposes. These assumptions do
not and could not rest on any factual finding below, and are
* at variance both with the allegations of TWA’s complaint
25
and with evidence available to TWA concerning Toolco’s
dealings in aircraft. In any event defendants’ failure to
make discovery precluded building a record and making a
snding on this issue. (pp. 47-48, infra)
F. Defendants’ sixth question assumes that they
«in no way restrained or monopolized a particular area of
commerce.” This assumption is flatly contrary to the basic
allegations of the complaint admitted by the default. The
Special Master and both courts below found that the
evidence supported the inference that Toolco’s extensive
activities had important competitive impact in the relevant
market and “combined with appropriate related proof of
the intent, attempt, collusion, tying arrangements, boycotts
and monopolization alleged in the complaint” would have
supported an antitrust judgment for TWA in a trial on the
merits, had there been one. (pp. 49-51, tfra)
G. Defendants’ final question assumes that plain-
tiffs evidence of damage was not related to the alleged
restraint or monopolization and that plaintiff did not show
that without defendants’ interference it could have financed
the purchase of aircraft. These assumptions are obviously
not justified on the record as made in the damage hearing,
and the findings of the Special Master and the courts below
that TWA in fact made a sufficient shéwing were clearly
warranted. (pp. 51-56, infra)
ARGUMENT
A. Defendants were not denied due process of law
by the district court’s pretrial discovery orders.
(Petition, Section A)
Defendants’ constitutional argument depends upon the
proposition that their right to due process of law was vio-
lated when the deposition of Hughes was ordered before
the procedures of Fed. R. Civ. P. 16 had been used to
26
limit and narrow the issues, and before TWA answered
interrogatories propounded by defendants. This argument
is frivolous on its face.
Nothing can be plainer than that the discovery which
TWA sought and which the district court held TWA was
entitled to, was reasonably calculated to develop or dis.
cover the existence of relevant evidence—evidence relevant,
for example, to a determination
(i) that defendants had in fact engaged in the
conspiracy to restrain and monopolize trade and the
attempt to monopolize charged in the complaint (cf.
Petition, Section B),
(ii) that defendants’ activities of which TWA
complained were such that they had not been and
indeed could not be exempted from operation of the
antitrust laws by orders of the CAB (cf. Petition,
Section D),
(iii) that such activities did not constitute “nor-
mal and natural” conduet of a majority stockholder
' in relation to its subsidiary but instead represented
\ steps in a larger scheme, one part of which was a
, deliberate attempt to establish and exploit a captive
market for anticompetitive purposes (ef. Petition,
Section E),
(iv) that that scheme had been translated into
action with others than TWA (cf. Petition, Section
F), and
(v) that all of the foregoing was the cause of
TWA’s admitted losses—losses which defendants
themselves had alleged in their counterclaims to be
in excess of $45 million (cf. Petition, Section G).
Defendants could not construct in their petition a chal-
lenge to the materiality, relevance and probable availability
of such evidence. They are therefore reduced to claiming—
as a constitutional right—that a private antitrust plaintiff
‘sufficienc
-peing allow
a 27
st go through various preliminary tests as to the
y of the evidence already available to it before
ed the benefit of the discovery provided by the
Federal Rules. Before TWA was permitted to take a single
jeposition, the petition urges, the district court was re-
quired by the Constitution to compel TWA to answer all
defendants’ interrogatories and to hold a conference under
Rule 16 for the limitation and definition of the issues even
though the district court did not believe the case was ripe
must ‘fir
for such action. |
The petition makes no attempt to hide the fact that what
defendants really wanted was summary judgment, prior to
.
discovery by plaintiff. Summary judgment under such cir-
eunstances being forbidden by the decisions of this
Court, ¢.g., Poller v. Columbia Broadcasting System, Inc.,
ag U.S. 464, 473 (1962), they sought, and now claim as a
wnstitutional right, the same thing under a different name.
At p. 15 of the petition defendants say:
“Petitioners’ reaction to the complaint, was that this
case was a classic one for summary judgment heecause
the key facts apparently relied upon gave rise to no
antitrust claim, and petitioners were ready to stipu-
late them.”
Yet nothing could be plainer than that they were never pre-
pared to stipulate the basic, critical facts which the com-
plaint alleges. Indeed, each of those facts was then, has
heen since, and is still contested—defendants are still ask-
ing for summary judgment in their favor based on their
contrary assertions, without allowing TWA its rights of
discovery.
It is revealing to examine the nature of the interest for
the protection of which defendants are invoking this
daimed constitutional right to freedom from discovery.
The only interest now claimed is defendants’ financial inter-
x
Be
Pa
*E
TWA.
28
est in not being subjected to the expense of litigation
The deposition was “expected to take at least ‘a 00d two o;
three months’,” it would have been “enormously burden.
some”, it would have required expenditure of “an
nomical amount” by Tooleo (Petition, pp. 9, 16, 17).
Toolco had already taken depositions of its own for much
longer than “a good two or three months.” The “enorm.
ous” burdens of the litigation to Tooleo Were no less bp.
densome to TWA. As to the “astronomical cost”, what.
ever the true cost might have been of a single deposition to
Tooleo, it could not have been significantly different for
Tooleo’s own answer alleges that it had assets in 196]
and 1962 of “several hundred million dollars” (Tooleo
answer, par. 3). TWA on the other hand was near bank.
ruptey. In 1961 and 1962 it recorded losses totalling over
$44 million [AX-478]. At the end of 1962 its remaining
tangible assets, less liabilities and deferred credits, were
only $62.5 million [AX-476]. It was TWA, not Tooleo,
that was under a near-breaking financial strain. It was
TWA, not Tooleo, which might be ruined if the cost and
delays of this litigation were unnecessarily multiplied.
Why, then, the flat refusal to permit further discovery?
Plainly because this particular discovery might bring out
the truth. That was why defendants made a “business
decision” to prevent further discovery at all cost. They
gambled that they could minimize their risks by depriving
TWA of the access to evidence which the Federal Rules
normally guarantee to a plaintiff as to any other party,
and to which the court had held TWA entitled.*
* Defendants pretend to find a precedent for their “election” in the
position taken by the government in United S tates v. Procter &
Gamble Co., 356 U.S. 677 (1958) (Petition, p. 14). The crucial dif-
ference, however, is that in both Procter & Gamble and United States
v. Ryan, 402 U.S. 530 (1971), which defendants also cite, refusal to
comply with the discovery orders was directed at testing the validity
of the discovery orders themselves. Both cases make plain that if
the discovery orders were lawful, the disobedient litigant would
suffer the appropriate sanction for his refusal. =~
- 29
By the various references to Manuals and Handbooks
(Petition, pp. 15-18), defendants seck to suggest the exist-
ence of a body of authority that mandates the precise order
of depositions and timing of pretrial conferences, depriving
he trial court of all discretion. In fact, of course, the situ-
ation is quite otherwise.
“The suggestions made herein are subject always
to the discretion of each judge to adapt the pro-
cedures to the particular case or to deviate and
snnovate where necessary or desirable.” MANUAL FOR
Compex AND Mutti-Disrrict LrticaTion, at 0.4
(1970).
In this case, from the time the complaint was filed, the case
was given the most careful attention in the district court;
a single judge presided over it for all purposes; a special
master was appointed to supervise discovery and close con-
trol over all discovery was inaintained by the district judge;
and defendants’ contentions were carefully considered—not
just once, but many, many times. Tt is this close attention
and continuous supervision that the Manuals and Hand-
hooks are concerned with, not any mechanical series of
orders—and particularly not any automatic grant of in-
definite absolute priority of discovery to a filibustering
defendant.
By their interrogatories and their motion for a Rule 16
proceeding, defendants were seeking not just a definition
of issues—the pleadings had accomplished this—but a limi-
tation of issues, a binding order as to what TWA would
have the right to prove at trial. Judge Metzner held
TWA should have access to the key witness before answer-
ing interrogatories of this character, and stated that the
deposition of that key witness would “facilitate an intelli-
gent ruling” upon the Rule 16 application by the court
(20t]. Many experienced commentators have agreed that
adequate prior discovery is essential to proper use of these
hee aS
Shay RY
. >
30
procedures. Discussing the New J ersey state practice, Mr
Justice Brennan said in 1956:
“It is our conviction, justified by experience, that
the full benefit of pretrial conference procedure wil}
not be realized unless each litigant js afforded jn
advance of the conference the fullest Possible oppor.
tunity to find out all he can as to his Own and his
adversary’s case.” VW. BRENNAN, Pretrial Procedure
in New Jersey—A Demonstration, 28 N.Y.S. Bap
Buty. 442, 445 (1956).
This relationship between adequate discovery and issue-
limiting pretrial procedures is equally apparent in federal
practice. A symposium held in 1951 on “The Practical Oper.
ation of Federal Discovery” produced this comment by
United States District Court Judge Bard of the Eastern
District of Pennsylvania:
“Pre-trials are valueless unless there has been
liberal use of discovery, or unless there has been a
free voluntary exchange of information which is fre.
. quently given now because of the discovery pro.
visions in the federal rules. In other words, the dis-
covery procedure has induced pre-trials and made
pre-trials effective.” (12 F.R.D. 131, 153)
Professor Moore’s Frprra. Practice Ruies PAMPHLET
(1971) says at p. 641:
“The deposition and discovery rules are particu.
larly helpful in obtaining factual data as a basis in
moving for and opposing motions for summary judg-
ment. * * * And in affording the parties and the
court with a knowledge of the case so that pretrial
Rule 16 may function properly.” (emphasis added)
See also J. Wricut, Pre-Trial on Trial, 14 La. L. Rev. 391,
399-400 (1954) (“Much of the benefit from pre-trial is im-
q possible without discovery”).
Defendants are not simply arguing that it would be better
practice for this Court to require trial courts to engage in
31
reliminary issue-limiting procedures before permitting a e
plaintiff to engage in pretrial discovery. They are arguing t
that this is not a matter for the exercise of judgment at all.
They assert they were entitled to limit the issues before the :
deposition as a matter of due process—a constitutional 4
right of defendants.
If that is true, the present Federal Rules could hardly :
withstand constitutional attack. Rule 26(d), for example,
now expressly contemplates as the normal procedure that
there should be no such thing as absolute priority of dis-
covery, even on a temporary basis, and a defendant who
has a legitimate interest in avoiding or narrowing discovery
must seek his remedy under Rule 26(c) or not at all. Pro-
fessor Fleming James points out as to the specific conten-
ion that a Rule 16 proceeding should have preceded the
Hughes deposition:
“Rule 16 does not compel the federal district courts
to hold pretrial conferences and it leaves the court
which does use it the greatest latitude in prescribing
the time and manner of holding it.” F. James, Crviu
ProcepurE 223 (1965).
For, as has been generally agreed by all commentators:
«“* ® © one of the principal ideas embodied in the
rules is that it is wise to leave many details of pro-
cedure to the informed discretion of the judge, act-
ing in the circumstances of the particular case,
rather than reculating such details by rigid provi-
sions.” C. A. Wricut, Feperat Courts 433 (2d ed.
1970).
It is frivolous for defendants to contend, as they do, that
the district court abused its discretion in 1963 in deciding
when to hold a hearing to narrow the issues. It is pre-
sumptuous to present that contention to this Court as an
important question of law, and it is nothing short of absurd
to denominate it as a question of constitut onal law, involv-
ing deprivation of due process rights.
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32
B. It is not a violation of due process to enter and
enforce a default judgment under Rule 37 against
defendants who wilfully and with full knowledge
refuse to permit discovery of evidence of vital
importance on all contested issues. (Petition, Sec.
tion B)
Defendants themselves admit that:
“When [defendants] filed their Notice Of Position
they took their chances on whether they were right
or wrong a the applicable law. They gave y
their right to challenge the factual allegations of the
complaint.” (Petition, p. 23)
These two sentences, although obscured by defendants’
assault upon this Court’s holding in Thomson y. Wooster,
114 U. S. 104 (1885), still amount to a concession that the
rulings below as to the effect to be accorded the default
judgment in this case were correct.
As the Brownell Report and the opinions of the district
court and the court of appeals make clear, the Judgment
in this case is grounded upon specific well-pleaded allega-
tions of TW.A’s complaint, allegations originally placed in
issue when defendants appeared and answered, but which
they could no longer challenge because of their default
Since defendants’ decision to bar discovery into the critical
issues effectively blocked all access to evidence of the
motives and intent that led defendants to act as they did,
no other result from that “business decision” was ever
conceivable, and it is apparent on the record that no other
result was expected by defendants at the time. As Chester
C. Davis, Tooleo’s counsel, stated to the court:
“I have also had occasion to describe to iny client,
the Hughes Tool Company, the sanctions available
: ner Rules hy reason of a respectful declination
or electron to stand on the questions of law which
have been decided to date and not to proceed any
further with respect to discovery proceedings.” (2d
Cir. App. A-274]
33
And again:
“The Tool Company does want to rest on the
merits of its position, and it does so fully aware of
the sanctions which the Court, in its discretion, may
impose. * * *.” [2d Cir. App. A-275]*
Summarizing, in response to TWA’s statement that the
Hughes deposition should proceed, “business decision” or
no “business decision”, Mr. Davis also said:
«@ ® * if it will help your record, Mr. Sonnett, on
Monday * * * you can note the fact that the Tool
Company is failing in [stc—and?] refusing to pro-
duce Mr. Hughes, and then you can have your record
and you can take your remedy on it.” [2d Cir. App.
A-297]
4s Judge Kaufman stated for the court of appeals:
“Jt would usher in a new era in the dynamics of
litigation if a party could suffer a default judgment
to be entered against it and then go about its busi-
ness as if the judgment did not exist and as though.
despite the opportunities to comply with the court’s
orders and to defend on the merits which had been
ignored, the slate was wiped clean and a new day
had dawned. To state the proposition is to expose
the folly of it.” (449 F.2d at 63-64) [127a] .
If defendants were right, the correct litigation tactic for
any defendant charged with an antitrust violation, proof
of which lies largely in his own hands, would be (a) to
attempt to wear down the plaintiff by extended discovery,
(b) to refuse any significant discovery himself and instead
default, (c) to continue to assert his innocence, and (d)
to count on exoneration because the plaintiff would be left
* See, also, statements quoted at p. 17, supra.
‘ — Se ere tee awash 25 ass
ed OL US a RRA REA IS BEA
4
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CIES, HIRT AED na trnes en .
34
without the means of proving liability.* The result would
be a true denial of due process: the plaintiff would be denieg
not just the rights accorded to him under the Federal Rules
but effective access to the courts upon his claims, Hammond
Packing Co. v. Arkansas, 212 U.S. 322, 351 (1909).
Under present law, a refusal to make discovery in a civil
case is, as it should be, rare indeed. Defendants refer to
no other case where such a refusal was described ag an
“election” and justified as a “business decision”, But in
those rare cases in which, for whatever reasons, defendants
have wilfully refused to permit lawful discovery of import.
ant evidence, the courts have consistently found that entry
of a default judgment “was compelled * * * in order to
protect the statutorily-created right of discovery and the
constitutionally-guarded due process rights of plaintiff”
Norman vy. Young, 422 F.2d 470, 474 (10th Cir. 1970) ; see
also Jones vy. Uris Sales Corp., 373 F.2d 644, 647-48 (24
Cir. 1967); Pioche Mines Consolidated, Inc. v. Dolman, 333
F.2d 257, 269 (9th Cir. 1964), cert. denied, 380 US, 956
(1969); Fong v. United States, 300 F.2d 400, 408-09 (9th
Cir.), cert. denied, 370 U.S, 938 (1962); Michigan Window
Cleaning Co. v. Martino, 173 F.2d 466, 468 (6th Cir. 1949),
These cases confirm the hasie wisdom of the presumption
announced in Hammond vy. Arkansas, that the refusal to
produce material evidence is an admission of want of
merit in the asserted defense. That is the analysis, of
* These tactics would open a novel means of evading this Court's
repeated admonition against deciding complex antitrust litigation on
motions to dismiss or for summary judgment while issues of anti-
competitive motive and intent remain unresolved by trial. Poller
v. Columbia Broadcasting System, Inc., 368 U. S. 464, 473 (1962)
(“* * * summary procedures should be used sparingly in complex
antitrust litigation where motive and intent play leading roles, the
proof is largely in the hands of the alleged conspirators, and hostile
Witnesses thicken the plot.”). Fortner Enterprises, Inc. v. United
States Steel Corp., 394 U. S. 495, 499-500 (1969); Norfolk Monu-
ment Co. v. Woodlawn Memorial Gardens, Inc., 394 U. S. 700, 704
(1969). ; \
35
course, Which was expressly relied upon by the Advisors
(see Original Committee Note of 1937 to Fed. R. Civ. P. 37)
when they developed tlie system of pretrial discovery, en-
forceable by all of the sanctions provided for in Rule 37,
which today forms the basic framework for the administra-
tion of civil justice in the federal courts.*®
Defendants’ present criticism of Thomson v. Wooster
asa museum piece and their rejection of the standards fixed
by it reflect a remarkable change in the move to Washing-
ton from New York. Typical of their previous view is
their description of Thomson v. Wooster in 1965 as “the
fountainhead of judicial wisdom on the effect of a default”
(Memorandum in Opposition to Plaintiff’s Motion for
Interim Findings of Fact, June 2, 1965, p. 15). Rationally,
a default judgment grounded upon a refusal to permit dis-
covery essential to plaintiff's case could have no other
effect than that given it by the courts below, grounded on
the principles laid down by this Court in Thomson v.
Wooster and Hammond vy. Arkansas. ‘
Charges that the allegations of TWA’s complaint are
“eonclusory” or mere “legal conclusions” cannot assist de-
fendants. The distinctions which they are trying to make
are at best a throwback to 19th century pleading and are as
semantically incorrect in those terms as they are under
the present Rules. Nothing makes this clearer than de-
fendants’ own example to illustrate the kind of complaint
in which “the facts admitted by the default give rise to
below as if it were a money fine imposed6y the district court as a
punishment for Toolco’s contemptuous Conduct [e.g., “The judgment
below for $145 million * * * was entered as a sanction under Civil
Rule 37” (p. 4); defendants “were penalized by entry * * * of a
default judgment * * * 30 times the largest judgment ever awarded
***” (pn, 22); and see n. 20 at p. 23]. L f course, the default
judgment carried no money amount whatever; $137 million (and cost
of suit) was awarded, after hearing, because Toolco had admitted,
by its default, that it violated the antitrust lays and injured TWA
thereby and because TWA proved the actual amount of its damages
to be over $45 million.
* Defendants throughout the impose to the final judgment
Pi a ad
3
*
4
a
4
:
2
36
liability” (Petition, p. 21). According to defendants
one such complaint is that which “* * * alleges that
on a particular day at a particular place defendant negli.
gently drove a motor vehicle against plaintiff as a result of
which plaintiff was thrown down and had his leg broken
and other injuries* * * ” (ibid.). The allegation that defend.
ant “negligently drove a motor vehicle against plaintiff” jg,
of course, admitted by a default. But whether that admis.
sion of negligence is an admission of fact or of mixed fact
and law, or of a conclusory allegation, is immaterial to the
effect to be accorded the admission by default. The allega.
tion is proper, material and traversable and by defaulting
a defendant admits it, and all the legal consequences that
flow from it. Harshman v. Knox County, 122 U. S. 306,
316-17 (1887).
As early as McAllister vy. Kuhn, 96 U.S. 87 (1877), a case
cited by defendants (Petition, p. 21), this Court held that
where a complaint states a cause of action, a defendant's
default in failing to answer admits the allegation that de.
fendant converted stock belonging to plaintiff:
“If the statements contained in the petition are
true, and McAllister had actually converted the stock
to his own use, Kuhn was entitled to his damages,
By his default, whatever had been properly pleaded
was confessed. Had issue heen joined upon the aver.
ment of conversion, it would have been necessary to
show the existence of facts which in law constituted
a conversion; but, for the purposes of pleading, the
ultimate fact to be proven need only be stated. The
circumstances which tend to prove the ultimate fact
can be used for the purposes of evidence, but they
have no place in the pleadings. We think the com-
plaint does state all the facts necessary to constitute
a cause of action.” (96 U.S. at 89)
So negligence and conversion are typical conclusory
allegations of “ultimate fact”, the type of fact to which
EOC LYELL IES LEASE BO TLE EY COON EOI AEE
37
Pomeroy is referring in the quotation on p. 20 of defend-
ants’ petition, the type of fact which is admitted by a
Jefault under the rule of Thomson v. Wooster, which held
validity of a patent to be admitted. In precisely the same
way defendants admitted here, by the default, TWA’s alle-
gations of conspiracy to restrain and monopolize and
aitempt to monopolize a particular segment of trade or
commerce, set out in paragraphs 9 and 10 of the complaint
(2d Cir. App. A-8-10]. These allegations as to the over-
all scheme in which defendants were engaged, and of the
relation to that scheme of the specific acts that injured
TWA and are the basis for TWA’s recovery, must be taken
as admitted by the default, no less than the allegation of
negligence in defendants’ example, the allegation of con-
version in McAllister v. Kuhn, or the allegation of the
validity of the reissued patent in Thomson v. Wooster.*
Defendants’ suggestion (Petition, pp. 21-22) that antitrust
cases should be treated differently because they present iffi-
alt and complex questions is wrong in present law and
msound as a suggestion for future policy. Private anti-
trust plaintiffs are not a disfavored class of litigants upon
whom specially onerous burdens of pleading and proof are
to be placed. ‘Perma Life Mufflers, Inc. v. International
Parts Corp., 392 U. S. 134, 139 (1968) ; Radovich v. National
Football League, 352 U.S. 445, 454 (1957) (“* * * this Court
should not add requirements to burden the private litigant
beyond what is specifically set forth by Congress in [the
antitrust] laws”).
* In Fong v. United States, 300 F.2d 400 (9h Cir.), cert. denied,
370 U.S. 938 (1962), the defendant’s refusal to return from South
America to complete a deposition in progress resulted in entry of a
default judgment against him. That default judgment was accorded
the same effect as the default judgment here. When defendant
sought at the damage hearing to require the government to prove the
allegation in its complaint that he was the alter ego of certain cor-
porations and hence responsible for their acts, the court ruled that
this critical allegation (of “ultimate fact”, in the old terminology)
on by his default and not subject to challenge (300 F.2d
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38
In the unique circumstances here, the courts below conlj
have done nothing other than what they did.
C. There is no basis in law or in conscience for
defendants to pay less than the full amount of
damages for which they were found liable after a
contested evidentiary damage hearing. (Petition,
Section C)
1, The supposed conflict of authority as to the propriety
of permitting an ad damnum clause to be amended in a cane
like this is wholly imaginary, and the petition is able to
construct that imaginary conflict only upon a inisstatement
of the order of events surrounding defendants’ default,
However early defendants may have reached their deci-
sion to refuse discovery, it was not until the hearing before
Judge Metzner on February 8, 1963 that their studied non.
compliance with the court’s discovery orders was formalized
as a default. The transcript is clear that, as the court of
appeals states, h
“* * * at the February S hearing, prior to Hughes's
non-appearance, TWA clearly announced its inten.
tion to apply for an increase in the prayer for dan.
ages to the trebled $135 million.” (449 F.2d at 79)
[157a]
Although on notice of TW.A’s intention to amend, defend.
ants nonetheless went forward with their default. Three
months ensued before the default judgment was actually
entered against them.on May 3, 1963 during which not the
slightest suggestion was heard from defendants that they
would be willing to remedy their default. The petition’s
argument of the supposed question in terms of “due pro-
cess” and “basic justice” is simply not justified by the facts
of this case, as those facts have been found by the courts
below.
2. In any event, TWA was entitled to recover the full
amount of the damages which it was able to prove. The
. Ae
39
courts below agreed that this was the only just interpreta-
tion of the Rules where a claim for damages in an unliqui-
dated amount is involved, the default followed appearance
und answer, and plaintiff at the damage hearing would be
required to prove, and defendants in a position to contest,
every dollar of the claimed damages.
There is no contrary authority to the position taken by
the courts below. In his opinion permitting the amendment
Judge Metzner cites Peitzman v. City of Illmo, 141 F. 2d
956, 962 (Sth Cir.), cert. denied, 323 U.S. 718 (1944), which
_although the facts of the case are somewhat confused—
plainly stands for the proposition that if the defendant is
ina position to contest the plaintiff’s proof of damage, he
is liable for the entire amount found to be proven. Both
Judge Metzner and the court of appeals refer to Riggs,
Ferris € Geer v. Lillibridge, 316 F.2d 60, 62-63 (2d Cir.
1963), which deals with the basie principle that damages
if unliquidated must be proven in their entirety, and that
a plaintiff under the modern procedure can obtain such
damages (or other relief) as he can. prove he is entitled
to. In Sarlie v. FE. L. Bruce Co., 265 F. Supp. 371, 377-78
(S.D.N.Y. 1967), the district court in a default case reached
the same conclusion as was reached in the instant case. Pro-
fessor Moore is in accord. See 6 J. Moore, Feprerat Prac-
rick 154.61, at p. 1206, 155.08, at p. 1823 (2d ed. 1971).
Fong v. United States, 300 F.2d 400 (9th Cir.), cert.
denied, 370 U. S. 938 (1962), does not take a contrary view.
In the Fong case there were originally several claims for
relief, some of which claimed actual damages for such mat-
ters as conversion and wrongful sale of the vessels which
were the subject matter of the action. A contract claim
for liquidated damages per ship of $100 per day
for each day up to 180 days during which the vessels
were not scrapped and $25,000 for any period there-
after was upheld; the other claims were held insufficient as
40
a matter of law. After appearing, the defendant defaulted
and was forbidden to contest the factual allegations of the
complaint. Judgment by default was entered against hin
after a damage hearing at which the government Sought
to recover actual damages in addition to liquidated dam.
ages. On defendant’s motion, the court amended its judg.
ment to limit the award to the liquidated d
rejecting the government’s argument that the demand
made in the insufficient claims could be used to support the
higher recovery. The Court of Appeals for the Ninth Cir.
cuit held that, since cach claim seeking actual damages had
been found not to state a claim, it would be unjust to import
into the single sufficient claim the entirely different theories
of damage computation embodied in the insufficient claims*
There is no conflict between that decision and the decision
reached below.
Any other result than that reached below would be con.
trary to the principles which the Federal Rules were ip.
tended to embody. Certainly, Fed. R. Civ. P. 54(e) is to be
read in conjunction with the provision of Fed. R. Civ, P.
15(a) that leave to amend a pleading “shall be freely given
when justice so requires.” Since defendants were on
notice, before their default, of TWA’s intention to amend
its ad damnum clause and in fact exercised their right to
defend as to the amount of damages, permitting the amend-
ment was plainly just.
* The United States did not petition for certiorari; the petition
which was filed and denied was by the defendant and based on an
asserted right to dispute well-pleaded allegations of the complaint
despite his default. See footnote, supra, p. 37.
41
D. The default judgment was not precluded by the
"Federal Aviation Act or any action of the Civil ¢
Aeronautics Board. (Petition, Section D) i
Defendants’ arguments, now as in 1965, are directed to
the interpretation and application of particular orders of
the CAB issued many years ago and without any continuing
effect whatever today. After full briefing and argument,
this Court declined to consider thes@ issues of antitrust
exemption when the case was last here seven years ago.
There is no reason why certiorari should be granted to
consider them now. Recent decisions of this Court and of
the courts of appeals in cases like Carnation Co. v. Pacific
- Westbound Conference, 385 U. 8. 213, 220-23 (1966), have
adequately charted the law. Compare, for example, Allied
Air Freight, Inc. v. Pan American World Airways, 393
F.2d 441, 445-48 (2d °Cir.), cert. denied, 393 U. S. 846
(1968).
None of defendants’ activities which have been held to
have violated the antitrust laws, and none of the specific
actions resulting in injury to TWA, for which TWA has
been awarded damages, has ever been approved by the
CAB, formally or informally, by order or otherwise. The
orders on their face plainly include no such approval. The
CAB expressly stated in its brief amicus on the prior
review in Nos. 443 and 501, October Term 1964, that no
such approval was ever intended, and that it lays no claim
to the power to immunize such activities from the reach of
the antitrust laws even if it had the desire to do so.
Tt is by no means clear that defendants are entitled to
raise these matters following a default for refusal to per-
mit relevant discovery. Neither the defense that their con-
duct was exempted from the antitrust laws by order of the
CAB nor the related defense urged on the prior appeals
that the subject matter of the claims was within the “pri-
mary jurisdiction” of the CAB is jurisdictional, in the
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sense of going to the power of the district court to hear
and determine the questions presented to it. Cf. Bell y
Hood, 327 U. S. 678 (1946). Indeed, they are Plainly
affirmative defenses which under Fed. R. Civ. P. 8(¢) re
to be pleaded as such. Defendants’ refusal to allow dis.
covery to proceed prejudiced the consideration of the
defenses of primary jurisdiction and antitrust exemption,
just as it did of the other issues raised by the pleadings,
In any event, the district court and the court of appeals
correctly concluded that the conduct alleged in the com.
plaint and which formed the basis for the default judgment
was not exempted or insulated from antitrust prosecution,
To establish an exemption defendants must bring their con.
duct within the scope of the Board’s authority, and point
to orders of the Board conferring the exemption. They can
do neither. sad
The only relevant authority of the Board to exempt con.
duct from the antitrust laws derives from Sections 408
and 414 of the Federal Aviation Act, 49 U.S.C. §&§ 1378,
1384. Section 414 provides, in pertinent part, that any per-
son affected by any order made under Section 408 “shall
be, and hereby is, relieved from the operation of the ‘anti.
trust laws’ * * * insofar as may he necessary to enable
such person to do anything authorized, approved or required
by such order” (emphasis supplied).* Section 408(b) pro-
vides, with respect to an acquisition of an air carrier bya
person engaged in any other phase of aeronautics that:
“Tnless, after such hearing, the Board finds that
the * * * acquisition of control will not be consistent
* The language of Section 414 is perfectly clear that the exemp-
tion, if it applies at all, is not only from the “antitrust laws” but
from “all other restraints or prohibitions made by, or imposed under,
authority of law * * *.” Literally, this would include the restraints
of the common law applicable, ¢.4., to frauds, deceits, and breaches
of fiduciary duty. Such broad language emphasizes the importance
of Congress’s further direction that the exemption should only be
available “insofar as necessary” to enable the doing of something
“authorized, approved or required.”
43
with the public interest or that the conditions of this
section will not be fulfilled, it shall by order approve
such * * * 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
* * *” (emphasis supplied)
It is evident from the language of these provisions that
the Board’s only power is to approve the acquisition and
the only thing exempted is the acquisition itself. The
default judgment here, however, is not based upon an
allegedly unlawful acquisition.
Judge Lumbard put the matter succinctly in his opinion
for the Second Circuit in its first review of this case:
“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.” (332
F.2d at 608) [27a]*
The original orders authorizing the acquisition of first
45% and then 73% of TWA’s stock were intended, as the
court of appeals found, only to approve the acquisitions,
nothing more (332 F.2d at 610) [30a-31a]. This was all the
Board could approve and all it did approve. The subse-
* In its brief amicus when the case was previously before this
Court, the CAB strongly supported this interpretation:
“But orders authorizing control do not approve prospectively
all things that may be done in the exercise of control; and the
Board’s orders did not permit Toolco to utilize its power as
a means of violating the antitrust laws. As the court below
summarized TWA’s complaint, it charges ‘the outlines of a
tying arrangement, an economic boycott of the defendants’
competitors, and an attempt to monopolize commerce’ (332
F.2d at 611). Such conduct plainly did not constitute acts
‘necessary to enable’ Toolco to do ‘anything authorized [or]
approved’ by the Board’s order.” (p. 15)
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quent orders amending the original orders to permit par.
ticular transactions in no way broadened, nor could they
have broadened, the scope of the exemption which flowed
from the original orders.
The Board, in its amicus brief, confirmed the accurae
of this construction of its orders and pointed out that its
concern was only to prevent Toolco from pressing unneeded
equipment on TWA, not to police possible antitrust vio.
phan al 9
lations:
“* * * no immunity was conferred by the various
, orders modifying the basic orders of approval.* *+
The orders were entered solely on the basis of motions
filed by TWA, and without hearings or adversary
pleadings. The Board stressed the limited nature
of its approvals by pointing out that it was apprais.
ing the transactions in the light of the original intent
of the restriction in the control order, thus focusing
upon whether Toolco was using its control relation.
ship to sell to TWA aircraft not economically justi.
fied by its operation. It also stated that it was not
passing upon the reasonableness of the transactions
for ratemaking purposes. In short, the Board did
not purport to approve anything but the specific
transactions involved, and the misconduct alleged in
the complaint was no more necessary to the consum.
mation of those transactions than it was to the origi.
nal acquisition of control. (Amicus brief, pp. 15-16)
(emphasis added)
The CAB is without jurisdiction under the Federal Avia-
tion Act over either the acquisition of equipment by air
carriers or their financing. Moreover, no CAB order ever
dealt at all with the particular transactions which caused
injury to TWA. TWA was awarded damages for the fol-
lowing actions of defendants, each taken pursuant to the
conspiracy and attempt to monopolize alleged in the
complaint:
(1) Preeluding TWA from ordering Boeings in
1955 :—no CAB order approved such preclusion;
(2) Diverting 6 Boeings to Pan American :—no
CAB order approved such diversion ;*
(3) Denying 10 Convairs to TWA:—no CAB
order approved such denial ;
(4) Preventing timely delivery of 20 Convairs to
TWA :—no CAB order approved such prevention ;
(5) Conditioning the leasing of planes to TWA
upon TWA’s acquiring planes from no one else :—no
CAB order approved such condition; and
(6) Disrupting the training of TWA’s flight crews
and ground personnel :—no CAB order approved
such disruption.
The real thrust of defendants’ argument, as_ the
courts below and the CAB have recognized, is that when
Tooleo was authorized to acquire control, they secured
blanket immunity from the antitrust laws. The ruling of
the court of appeals that they did not, that the legality of
the acquisition of control does not carry with it the legality
of each exercise of that control, is a simple application of
principles which this Court has consistently taught. See
Silver v. New York Stock Exchange, 373 U. S. 341, 357
(1963) ; Continental Ore Co. v. Union Carbide & Carbon
Corp., 370 U. S. 690, 707 (1962). It has long been empha-
sized that statutory provisions granting or authorizing
exemptions from the antitrust laws are to be kept within
the narrowest of limitations. E.g., United States v. Borden
Co., 308 U.S. 188, 206 (1939); Georgia v. Pennsylvania
RR., 324 U.S. 439, 456-57 (1945) ; California v. Federal
Power Commission, 369 U.S. 482, 485 (1962); United
*Toolco seeks to present these diversions and those of the Con-
vair 880s to Northeast as if they did not involve dealings in aircraft
—profitable dealings—by Toolco (Petition, pp. 11n, 24n). They
were assignments of contracts for planes, at a profit. The diversion
of the Boeings is described in Pan American’s Annual Report for
1959 as follows:
“Six long-range Intercontinentals were purchased from
Hughes Tool Company during the year at a cost of
$40,000,000.” [AX-868; emphasis added]
With the working papers withheld, the details are not available, but
Toolco’s secret tax returns leave no doubt that its profit in deals like
this in 1959 and 1960 amounted to many millions of dollars.
46
States v. Philadelphia National Bank, 374 U.S. 321, 350.51
(1963). Even without that cautionary Tule, however, it
would be plain that nothing the Board has done had the
effect of immunizing from liability the conduct which
formed the basis of the present judgment,
Once it is concluded that the Board has not expressly
exempted Toolco’s conduct from antitrust liability, ‘“
viable argument of primary or exclusive agency jurisdiction
remains. The court of appeals in 1964 carefully and ae.
curately distinguished Pan American World Airways y,
United States, 371 U. S. 296 (1963), pointing out, inter alia,
that in that case the conduct complained of was at the heart
of the Board’s jurisdiction whereas here the conduct was
beyond the Board’s reach, and that there injunctive relief
was sought, of a kind which could be provided by the
Board whereas here TWA seeks treble damages for past
conduct, which the Board has no power to award. In Car.
nation Co. v. Pacific Westbound Conference, 383 U. 8, 213
(1966), this Court emphasized the difference:
“The award of treble damages for past and com.
pleted conduct which clearly violated the Shipping
Act would certainly not interfere with any future
action of the Commission.” (383 U.S. at 222)
This observation is particularly pertinent here since the
CAB has not only no remedy available to give TWA
redress, but no continuing jurisdiction at all over Tooleo’s
conduct.*
* The court of appeals pointed out (332 F.2d at 609) [29a] that
the Board’s jurisdiction to deal at all with Toolco’s conduct vis-a-vis
TWA probably expired in 1960 when Toolco ceased to control TWA.
Toolco misses the principal point of the court of appeals comment
when it suggests (Petition, pp. 27-28) that the situation is somehow
altered by TWA’s decision not to attempt to prove damages attribut-
able to Toolco’s post-1960 conduct. The point is that after 1960 the
Board lacked power to reach any of Toolco’s conduct, whether it
antedated or post-dated 1960. The Board simply lost jurisdiction
over Toolco—and could only regain it in connection with a new
acquisition of control.
47
—. That Toolco “mismanaged” TWA’s affairs is no
defense to charges under the antitrust laws.
(Petition, Section E)
It is obviously no defense to antitrust charges that a
parent’s conduct also amounted to “breach of fiduciary
duty” and “mismanagement” (Petition, p. 34). Cf. Super-
intendent of Insurance v. Bankers Life & Casualty Co.,
40 U.S.L.W. 4001, 4003 (U.S. November 8, 1971), rejecting
a similar argument that mismanagement that also amounts
to illegal conduct in connection with the purchase or sale of
a security is not cognizable under the Securities Exchange
Act. Such an argument, indeed, comes with singular ill
grace from @ “fiduciary” which, having chosen concealment
over disclosure, has defaulted to antitrust charges instead
of complying with discovery orders.
Before their wilful default, it was open to defendants
to prove, if they could, that nothing which they had done
amounted to anything more than normal oversight by
Tooleo of the aircraft acquisitions of its 78%* subsidiary.
That argument, however, is no longer open. The basic
charge of the complaint was that Toolco’s arrogation of all
authority for buying aircraft was illegal and violated the
antitrust laws because it was pursuant to, and a principal
part of, defendants’ unlawful scheme to make TWA a “cap-
tive market” upon which defendants could build in fulfilling
their purpose to secure a dominant position in the supply
of aircraft to air carriers. Judge Kaufman’s summary of
TWA’s complaint (449 F.2d at 64-65) [128a-130a] empha-
sizes that the specific acts alleged, upon which the dam-
ages ultimately awarded were based, all were “performed
in furtherance of the offenses charged and for the improper
purposes alleged” (449 F.2d at 65) [129a].
* During the critical 1955-56 period, Toolco owned 74% of
TWA’s stock. It had started buying stock in 1939 and by 1945 had
accumulated 45%, which increased to 73% in 1948. The 78% was
not reached until 1958.
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It is mere sophistry, under these circumstances, to assert
that the court of appeals’ decision “extends to a startling
degree the liability of a parent corporation for determin;
the manner in which its subsidiary does business” (Pe.
tion, pp. 33-34) or amounts to a ruling that “a parent that
decides that its subsidiary should buy from X rather than
Y may be held liable for antitrust damages if, with the
wisdom of hindsight, the subsidiary can show that the
decision was unwise” (Petition, pp. 34-35).* Such state.
ments, like the assertion that “the mere fixing by a parent
of a subsidiary’s price of production or the selection by the
parent of those persons with whom its subsidiary may o;
may not deal” is not, without more, per se illegal (Petition,
p. 34, emphasis added) have no relevance to the present
case.
TWA’s success in a trial on the merits was in no way
dependent on a showing of per se violations, as this Court
reaffirmed recently in l’ortner Enterprises, Inc. v. United
States Stecl Corp., 394 U.S. 495, 499-500 (1969). All that
was required of TWA was to plead allegations which, taken
as a whole, spelled out violations whether per se or not. It
did so.
The fundamental issue of defendants’ motivation and
intent in limiting to Toolco the acquisition of all aircraft
for TWA was raised by the allegations of the complaint
and the denials in defendants’ answers. It was a proper
subject for discovery and a matter to be determined at trial
(supra, pp. 10-11). But defendants chose not to defend on
the merits, and they cannot now pose as an issue for this
Court one that presupposes their motives to have been only
the innocent anxiety of a parent for its subsidiary’s wel-
fare.
* Whether defendants’ decisions were wise or unwise is irrelevant
here, but TWA’s damages show how costly they proved for TWA,
while Toolco’s secret tax returns show how profitable they were for
Toolco.
49
F. Defendants cannot refuse discovery and defend
on the merits on the basis that there is no proof
they were more than “potential’’ competitors.
(Petition, Section F)
“We cannot say that proof at a trial—prevented by
Toolco’s conduct—that Toolco was more than a con-
duit for TWA but rather possessed independent
competitive significance with respect to the commer-
cial aircraft market, would be insufficient, «f com-
bined with appropriate related proof of the intent,
attempt, collusion, tying arrangements, boycotts, and
monopolization alleged in the complaint, to support
an antitrust judgment for TWA.” (449 F.2d at 67)
[134a] (emphasis added)
These words have been omitted from the quotation in
whigh-defendants discern the “potential competition” theory
that they then go on to belabor (Petition, p. 37n). The
omission demonstrates that this attack is directed against
a straw Iman.
The court of appeals did not formulate any new sub-
stantive rules, let alone devise “a Clayton Act test for a
Sherman Act violation” (Petition, p. 36). In the usual
case the trier of fact would decide what role the alleged
antitrust violator had played and what effect his alleged
antitrust violations had had within the relevant field of
commerce. Here, however, defendants barred TWA from
access to evidence about this subject and attempted in-
stead. on the basis of the limited evidence offered at the
damage hearing, to convince the Special Master and the
courts below that Toolco had nothing at all to do with the
business of supplying aircraft to air carriers. The ques-
tion which those courts had therefore to consider was
whether the evidence to which Tooleo pointed was such as
to foreclose the possibility that TWA with benefit of dis-
covery would have been able to show that Toolco played a
role sufficient to support a finding of an antitrust violation
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50
“under any of the several hypotheses put forward in the
complaint * * *.” (449 F.2d at 68) [136a]*
Both the Special Master [Brownell Report, pp. 38.49)
and the court of appeals (449 F.2d at 67-68) (1340-1364)
have reviewed at some length the evidence showing how
actively Tooleo and Hughes participated in the commercig]
aircraft market outside of the TWA market which they
completely monopolized. The district court also referred
to certain of the relevant evidence in confirming the Special
Master’s refusal to find that Tooleo never engaged in the
manufacture or supply of commercial transport aircraft to
United States air carriers in competition with manufac.
turers and suppliers of such aircraft (308 F. Supp. at 686)
* The court of appeals catalogued these “several hypotheses” as
including
“* * * in addition to the Yellow Cab theory [United States y.
Yellow Cab Co., 332 U.S. 218 (1947)], (1) unlawful intent
. to monopolize a substantial portion of the commercial aircraft
market in restraint of trade; ( 2) unlawful conspiracy to do
so, see Sunkist Growers, Inc. v. Winckler & Smith Citrus
Products Co., 284 F.2d 1 (9th Cir. 1960), rev’d on other
grounds, 370 U.S. 19 (1962); Poller y. Columbia Broadcast-
ing System, Inc., 368°U.S. 464 (1962): Perma Life Mufflers,
Inc. v. International Parts Corp., 392 US. 134 (1968):
Albrecht v. Herald Co., 390 U.S. 145 (1968); Simpson y.
Union Oil Co., 377 U.S. 13 (1964); (3) enforcement of an
illegal boycott, see Fashion Originators’ Guild v. Federal Trade
Commission, 312 U.S. 457 (1941 ); United States v. New York
Great Atlantic & Pacific Tea Co., 173 F.2d 79 (7th Cir, 1949).
Klor’s Inc. v. Broadway-Hale Stores, 359 U.S. 207 (1959):
(4) tying adequate financing of TWA to its purchase or lease
of jets from Toolco, and vice-versa, see Fortner Enter prises,
Inc. v. United States Steel Corp., 394 U.S. 495, 562-503
(1969); and (5) the lease of aircraft to TWA on the condi-
tion that TWA not purchase or lease aircraft from other
suppliers, see /nternational Salt Co. v. United S tates, 332 US.
392 (1947); Standard Oil Co. of California v. United States,
337 U.S. 293 (1949).” (449 F2d at 68-69) [136a-137a]
Defendants refer to none of the cases cited in the above quotation.
Indeed, the only decision by this Court in a private antitrust case
mentioned by defendants is LaBuy v. Howes Leather Co., 352 US.
249 (1957), cited for a non-antitrust Proposition (Petition, p. 18n).
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51
[60a]. Defendants continue to ignore such matters as
Tooleo’s sale of Boeings to Pan American, leases of Con-
yairs to Northeast, and temporary corner on jet engines
‘n 1956—marketed “in competition to Pratt & Whitney”,
as that manufacturer complained [2d Cir. App. A-178-79].
The express assumption of this particular argument as
stated by defendants in their summary formulation in
“Questions Presented” No. 6 (Petition, p. 4) is that Tooleo
“has in no way restrained or monopolized a particular area
of commerce.”
That assumption is contrary to the findings by the Special
Master and the courts below. It is negatived even by the
limited evidence that defendants permitted to be developed
before their default. It contradicts essential allegations of
TWA’s complaint. The argument based on it is simply
not available on the record.
G. The Special Master and the courts below correctly
found that TWA, in proving the amount of its
damages, had demonstrated that each item re-
covered flowed from the allegations of unlawful
conduct and resultant injuries admitted by de-
fendants’ default. (Petition, Section G)
Defendants again ignore the state of the record in mak-
ing their “proximate cause” argument.
The answer to Mr. Justice White’s question—“How can
you prove how much you have been damaged without show-
ing what you have been damaged from?” (see Petition, p.
39) is that TWA did in fact show what it was damaged
from. Despite what would appear from defendants’ selec-
tive quotations from the court’s opinion (cf. Petition, p.
40), the court of appeals so found:
“The default had the effect of admitting or estab-
lishing that the acts pleaded in the complaint violated
the antitrust laws and that those acts caused injury
to TWA in the respects there alleged. Because,
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however, the damages were unliquidated and UNcer.
tain, F.R. Civ. P. 55(b), it was necessary for TW,
at the hearing to establish the extent of the injuries
established by the default. The outer bounds of th
recovery allowable are of course measured by the
principle of proximate cause. The default judgment
did not give TWA a blank check to recover fro
Toolco any losses it had ever suffered from Whatever
source. It could only recover those damages arising
from the acts and injuries pleaded and in this sense
it was TWA’s burden to show ‘proximate cause’ On
the other hand, there was no burden on TWA to show
that any of Toolco’s acts pleaded in the complaint
violated the antitrust laws nor to show that those
acts caused the well-pleaded injuries, except as we
have indicated that it had to for the purpose of estab.
lishing the extent of the injury caused TWA, in
dollars and cents.” (449 F.2d at 70) [144a]
TWA was damaged by the specifically pleaded depriva-
tions it suffered in its jet fleet-—inadequate in number, re.
ceived too late, initially available only. through day-to-day
leases from Tooleco—as a result of the defendants’ primary
concern with establishing themselves as suppliers of air.
craft to air carriers generally [see complaint, pars. 9, 10,
14, 17-20, 22-24, 26, 28, 49-53]. As to the effect to be given
to these allegations see pp. 35-37, supra. The amount of the
losses which TWA suffered from these fleet deprivations
was proven in the course of a bitterly contested two-year
hearing before the Special Master, whose 323-page Report is
itself a complete refutation of defendants’ pretense that
proof of damage was lacking. The Special Master’s find.
ings with respect to each of TWA’s damage claims were ex-
pressly related to the allegations of its complaint [Brownell
Report, pp. 45, 100-01, 112-13, 168-69, 186-87, 194, 224-96,
265, 296, 302-03]. Judge Kaufman found that TWA “did not
53
rely only on its default judgment but introduced evidence
jinking each component of the damages claimed to the
pleaded illegal acts of Toolco and injuries to TWA” (449
Vad at 72) [144a].
_ Apart from disagreeing (Petition p. 40) with this express
finding, defendants utilize their “proximate cause” argu-
ment chiefly to argue that TWA failed to prove that it could
have financed the acquisition of additional jets.
TWA historically received and paid for 47 jets. TWA
presented evidence that, except for defendants’ activities, it
would have received 6 additional Boeing B-331 jets and 10
additional Convair 880 jets. This evidence was accepted
by the Special Master, who expressly found that the result-
ing “hypothetical jet fleet and reconstructed delivery dates
constitute a proper basis for computing damages * * *”
(Brownell Report, p. 56]. As to the financing of this addi-
tional equipment, the Special Master found that (a) “the
full purchase price of [the 6 additional Boeings] and related
spare parts and equipment [would have amounted] to a
capital expenditure of $43.1 million” [Brownell Report, p.
149], and (b) “the full purchase price for [the 10 additional
Convairs} and related spare parts and equipment would
have amounted to $48.1 million” [Brownell Report, p. 150].
Thus, a total of $91.2 million of additional funds would have
been needed to acquire the 16 jets that defendants’ unlawful
conduct kept TWA from acquiring. The Special Master, for
purposes of his “cost of capital” computations, treated all
of these funds as borrowed. In light of the default and his
rulings on the evidence, he made what he described as the
“fair and reasonable assumption” that “funds were avail-
able at the time of the delivery of each aircraft” that TWA
did not receive because of defendants’ unlawful conduct,
54
stating that the record was “sufficiently complete to alloy
these assumptions to be taken” [Brownell Report, p. 148)"
After weighing the very same argument that defendants
now put to this Court, the court of appeals held:
“Assuming then that an independent TWA would
have attempted to acquire the same G3-jet fleet or.
dered by Tooleo, defendants contend that TWA
would not have been able to finance such an under.
taking, which would have cost about $353 million or
$93 million more than TWA actually ‘spent for its
47-jet fleet. Tooleo notes that $100 million of the
financing for the 47-jet fleet was Supplied by Tooleo
itself through its purchase of TWA subordinated
debentures. We find untenable Tooleo’s characteriza.
tion as insufticient to support the Special Master's
contrary assumption that an independent TWA
would and could have financed the full 63-jet fleet,
the evidence that United, American, and Pan Ameri.
ean Airlines cach were in fact able to finance com.
parable ventures during the same period. Tooleo
directs our attention to financial reversals experi-
enced by TWA during the period preceding the time
* The Special Master had before him an extensive body of infor-
mation relevant to TWA’s capability to have arranged for the
additional funds if it had not been the victim of defendants’ un-
lawful combination and conspiracy to restrain and monopolize and
attempt to monopolize in violation of the antitrust laws. Among other
things, the record includes (a) the well-pleaded allegations of TWA’s
complaint—accepted by the Special Master and entitled to controlling
weight in any consideration of what TWA could have done if de-
fendants had not violated the law and injured it [see Brownell Re-
port, p. 254]; (b) expert testimony that an independent TWA
could have financed the acquisition of ‘an adequate jet fleet, including
the 16 additional jets [AX-353, AX-429]; (c) evidence that each of
I'WA’s principal competitors—United, American and Pan American
—successfully financed a fleet larger than the 63-jet fleet (449 F.2d
at 74) [1474]; and (d) evidence of TWA’s actual financing and the
various possibilities available to it to have raised any additional money
needed [AX-861, AX-865]. Traffic and accounting studies demon-
strated that availability of the earlier and larger jet fleet would have
produced a large increase in funds internally generated from opera-
tions. The increase in 1959 and 1960 alone would have provided the
major part of the necessary funds [AX-479], .
55
Brownell assumed TWA would have financed the
fleet (1958-59). But the well-pleaded allegations of
the complaint demonstrate conclusively that crip-
pling TWA’s financial posture and reducing it to a
state of vassalage, dependent on Toolco’s support,
was part of defendants’ overall antitrust violation.
See Complaint {7 17, 18, 19, 22, 23, 24, 26, 50, 51
and 52(a). To the extent of negating Toolco’s at-
tempted reliance on TW4A’s asserted financial weak-
ness, these allegations must be given effect. Any
inferences other than that an independent TWA
would have fared neither better nor worse than com-
peting airlines in financing its jet fleet would have
been unwarranted.” (449 F.2d at 74) [147a].
Thus, defendants’ “proximate cause” argument simply
ignores both their default and what was decided below.
As for their concern for “loosening of the requirements
of proof in antitrust litigation” (Petition, p. 41), this
Court’s views need fo reaffirmation. The basic guidelines
for determining the amount of damages to be awarded a
plaintiff injured by violations of the antitrust laws were
laid down in Eastman Kodak Co. v. Southern Photo Ma-
terials Co., 273 U.S. 359 (1927); Story Parchment Co. v.
Paterson Co., 282 U.S. 555 (1931); and Bigelow v. RKO
Radio Pictures, Inc., 327 U.S. 251 (1946). The Court has
never departed from the rules set forth in those three cases,
but has reaffirmed them again and again—most recently in
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S.
100, 123-24 (1969).
As this Court noted in Bigelow, “The most elementary
concepts of justice and public policy require that the
wrongdoer shall hear the risk of the uncertainty which his
own wrong has created” (327 U.S. at 265). By defaulting,
defendants admitted the antitrust violations alleged in the
complaint, and the fact that injuries resulted from those
violations. All that was left was to calculate the amount
of damages necessary to compensate TWA for those in-
ESI LEE OLE INOS LEI IT LS I
AOE REESE PN NT IN
2 NRG oa |
56
juries. That amount was determined in the Brownell Re.
port, which the court of appeals characterized as reflecting
“an extraordinary awareness of the issues raised and
applicable principles of law” (449 F.2d at 73) ‘[144a),
Twice that Report has been painstakingly reviewed and
confirmed in all respects, first by the district court and then
by the court of appeals. As the court of appeals observed:
“Tooleo must bear the responsibility for any lack of
preciseness of proof, and there is good reason that
this should be so. The default itself by Tooleo Ten.
dered precise proof of damages even more diffienlt
than in the usual antitrust case, where the plaintif
may avail itself of the full battery of discovery pro.
cedures to prove damages as well as to prove lig.
bility. Tooleo cannot be permitted to block the
discovery of precise, clear and direct evidence and
then be heard to complain that the evidence should
have been more convincing.” (449 F.2d at 73) [1452]
H. The precedential impact of the decisions below.
(Petition, Section H) _
Defendants pretend that the decision below “is an out.
rage” which will “inflict serious wounds on sound prin-
ciples of procedure and antitrust law” and “impose heavy
burdens on the Federal Courts.” In every respect except
the factual determination of the amount of TWA’s damages,
the decision below is nearly eight years old, and this Court's
dismissal of certiorari occurred seven years ago. No such
impact has been visible. No court has suggested disagree.
ment with the earlier decision, nor, indeed, has any court
suggested that that decision broke any new ground. No
great number of defendants has “elected” to defy discovery
orders, but instances of such defiance were equally rare
before.
The one real possibility that the course of this litigation
would result in drastic changes either in procedure or in
substantive law would arise if the litigation were to culmi-
nate in defendants’ arguments being upheld.
RTI aA. MR INR 1S AAI DE ES SPIE CR PST
57
CONCLUSION
For the reasons stated, the petition for a writ of certio-
rari should be in all respects denied.
Respectfully submitted,
&
Dupiey B. Tenney :
80 Pine Street ;
New York, New York 10005 ‘
Counsel for Respondent 3
Trans World Airlines, Inc. ¢
Of Counsel: :
Pau, W. WiLLiaMs
IMMANUEL KoHN
Raymonp L. Fauus, Jr.
Writ T. LirLanp
MarsHaty H. Cox, Jr.
CaHILL, Gorpon, SONNETT,
Rernvet & OnL
80 Pine Street
New York, New York 10005
January 21, 1972
lt
Pretrial Order, September 7, 1961
[Doe. 44]
UNITED STATES DISTRICT COURT
SoutrHerN District or New’ York
61 Civ. 2324
Trans Worvp Airings, INnc.,
Plaintiff,
against
Howarp R. Hucues, Hucues Toot Company
and Raymonp M. Ho.uipay,
Defendants.
A pretrial conference was held in this cause on Septem-
ber 6, 1961, wherein the following proceedings were had.
Il.
Plaintiff TWA has already gathered some of the docu-
ments called for by the subpoena duces tecum served on
TWA on August 16, 1961 by defendant Hughes Tool Co.
TWA shall continue gathering the material called for by
this subpoena duces tecum and shall complete compliance
with the subpoena by Friday, October 13, 1961. Defendant
Hughes Tool Co. may commence the inspection and copy-
ing of said documents on September 7, 1961.
THI.
Plaintiff’s motion pursuant to F.R.C.P. 34 shall be
argued on September 21, 1961 at 10:30 a.m. in chambers.
3
7
F
4
;
;
aie eRe Bea:
2t
Pretrial Order, September 7, 1961
Defendant Hughes Tool Co. shall serve and file its
in opposition prior to 10 a.m. on September 18, 1961.
IV.
The question as to when defendant Hughes Tool Co,
shall commence taking depositions and when it shall com.
ply with any order entered on plaintiff’s motion pursuant
to F.R.C.P. 34 will be argued in conjunction with said
motion.
V.
The motion by defendant Hughes Tool Co. to dismiss
the complaint pursuant to F.R.C.P. 12 and for summary
judgment pursuant to F.R.C.P. 56 shall be held in abeyance.
Said defendant shall notify the Court when it desires the
motions to be heard. A date will then be fixed for the
serving and filing of papers in opposition and argument
on the motions.
vb
The service of subpoenas by defendant Hughes Tool (»,
may continue.
So Orperep.
Dated: New York, N. Y.
September 7, 1961.
/s/ Cartes M. Merover
U.S.D.J.
ee OPRETEL GRE AG PB REIS I OE IAA LE LS Ld GO ARs ERE PU RE a
3t
Pretrial Order, February 7, 1962
[Doc. 59]
UNITED STATES DISTRICT COURT
SourHERN District or New York
61 Civ. 2324
Trans Wortp AIRLINES, INC.,
. Plaintiff,
against
Howarp R. II]vucues, HWucures Toor Company
and Raymonp M. Hotu.ipay,
Defendants.
Pretrial conferences were held in this cause on January
10, 1962 and January 23, 1962, wherein the following pro-
ceedings were had.
The deposition of the plaintiff by Charles C. Tillinghast,
Jr. shall be continued and the depositions of the other
witnesses shall be commenced in accordance with the
schedule annexed hereto. The Special Master hereinafter
appointed may vary this schedule upon application of either
party if in his opinion the circumstances require such
variance.
III.
‘ Upon the consent of counsel for the plaintiff and the
defendant Hughes Tool Company, the Court was em-
powered to appoint a Special Master. J. Ler Rawxrn, Eso.,
of 36 West 44th Street, New York 36, New York is herehy
appointed Special Master to act in connection with the
depositions and other discovery proceedings undertaken bv
any person now a party or any person who may hereinafter
Bile Ia AERA OE Dis Te VP oe BAe * + . os . “ 3 “ Vim Fee a
4t
Pretrial Order, February 7, 1962
become a party, with the following powers: to Preside over
and supervise the conduct of depositions and in Conneetion
therewith to rule on such objections to questions, whether
heretofore made or to be made, as have not been Teserye
by stipulation of the parties to the time of trial; to rule
on objections, whether heretofore made or to be made, with
respect to the production of documents; to make any and
all other rulings which may be required pursuant to the
provisions of Rules 26 to 37, and 45, of the Federal Rules
of Civil Procedure and such other rules as may from time
to time become applicable.
IV.
Any action taken or ruling made by said Special Master
shall be subject to review by the Honorable Charles
Metzner, United States District Judge for the Southem
District of New York, upon timely application with reason.
able notice.
V.
The Special Master shall be reimbursed for such expenses
as are reasonably and necessarily inenrred by him and the
compensation of the Special Master is to be fixed at $60.00
per hour. Such reimbursement and compensation are to
be taxed as costs atthe conclusion of this action; provided,
however, that until the taxation of costs the compensation
of the Special Master is to be paid at monthly intervals,
fifty per cent (50%) by plaintiff Trans World Airlines, Inc.,
and fifty per cent (50%) by defendant Hughes Tool Com-
pany, and provided, further, that such payments shall be
subject to reallocation among any additional parties who
may hereafter be joined and who may participate in the
depositions.
ot
Pretrial Order, February 7, 1962
VI.
Defendant Hughes Tool Company shall file its answer
to the complaint herein upon the day following the comple-
tion, in accordance with the annexed schedule, of the deposi-
tion of plaintiff by Charles C. Tillinghast, Jr., Robert W.
Rummel and E. O. Cocke.
VII.
The deposition of plaintiff by A. V. Leslie, in view of his
present illness, is adjourned without date and shall be
re-scheduled by the Special Master upon_reasonable notice
by the defendant at an appropriate time in light of the
health of the witness and at a date not in conflict with
the annexed schedule.
VIII.
Any request for a change in the date fixed for the pro-
duction of writings and other material by the defendant
Hughes Tool Company, presently set for March 15, 1962 by
order of this Court dated December 18, 1961, shall be made
to the Special Master.
So ORDERED.
Dated: New York, N. Y.
February 7, 1962
/8/ Cuar.tes M. Metzner
Charles M. Metzner
U.S. D. J.
E>
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Date
Feb. 13, 1962
Feb. 20, 1962
Feb. 21, 1962
Feb. 27, 1962
Feb. 27, 1962
Feb. 28, 1962
Mar. 1, 1962
Mar. 8, 1962
Mar. 15, 1962
7.
Pretrial Order, February 7, 1962
SCHEDULE OF DEPOSITIONS
I.
Depositions Noticed by Defendant
Hughes Tool Company
Deponent
Trans World Airlines, Inc.
By:
Charles C. Tillinghast, Jr.
R. W. Rummel
E. O. Cocke
Charles Thomas
Bank of America
By: Keith Carver
Robert Gordon
Bankers Trust Company
By: E. F. Ebert
Morgan Guaranty Trust Co.
of New York
By: John Schroeder
The Mellon Bank
By: Frederick Gwinner
Ralph Ehler
Ben-Fleming Sessel
Robert A. Kerr
Irving Trust Company
By: Ben-Fleming Sessel
Robert A. Kerr
Frederic H. Brandi
Arthur L. Wadsworth
Dillon, Read & Co., Inc.
By: Frederic H. Brandi
Arthur L. Wadsworth
James F. Oates, Jr.
Grant Keehn
Equitable Life Assurance Society
of the United States
By: James F. Oates, Jr.
Grant Keehn
\Varner Mendel
Tustin, Calif,
13042 Myfori
120 Broadway
New York, \.Bj
10 a.m., Room 2
120 Broadwar
New York, \.
10 a.m., Room
120 Broadwar
New York, \3l
COPY BOUND ¢
, 1962
2, 1962
, 1962
, 1962
Pretrial Order, February 7, 1962
Deponent
Harry C. Hagerty
Gordon P. Jenkins
. Metropolitan Life Insurance
Company
By: Harry C. Hagerty
Gordon P. Jenkins
Irving S. Olds
Ernest R. Breech
Boeing Company
Ly: William M. Allen
J. O. Yeasting
Prudential Insurance Company
of America
By: Monroe Chappelear
I.
Depositions Noticed by Plaintiff
Trans World Airlines, Inc.
Howard R. Hughes
Hughes Tool Company
By: Raymond Holliday
Hughes Tool Company
By: M. E. Montrose
Hughes Tool Company
By: C. H. Price
Hughes Tool Company
By: C. S. Johnson
Hughes Tool Company
By: H. E. Rogers
Hughes Tool Company
By: C. Collier
ri ck ate i lalaalas Kale
LOSE IN CENTER
| Time and Location
of Depositions
10 a.m., Room 3113
120 Broadway
New York, N. Y.
10 a.m., Room 3113
120 Broadway
New York, N. Y.
10 a.m., Room 3113
120 Broadway
New York, N. Y.
10 a.m.
Clerk’s Office
U.S. District Court
Seattle, Wash.
10 a.m., Room 3113
120 Broadway
New York, N. Y.
10 a.m.
Beverly Hills Hotel
Beverly Hills, Cal.
10 a.m., 18th Floor
80 Pine Street
New York, N. Y.
10 a.m., 18th Floor
80 Pine Street
New York, N. Y.
10 a.m., 18th Floor
80 Pine Street
New York, N. Y:
10 a.m., 18th Floor
80 Pine Street
New York, N. Y.
10 a.m., 18th Floor
80 Pine Street
New York, N. Y.
10 a.m., 18th Floor
80 Pine Street
New York, N. Y.
' Serene |
8t
Pretrial Order, July 12, 1962
[Doe. 101]
UNITED STATES DISTRICT COURT
: SoutHern District or New Yorx
61 Civ. 2324
Trans Worvp Airings, Inc.,
, Plaintif,
against
Howarp R. Hucurs, Hucues Toot Compayy
and Raymonp M. Hotuipay,
Defendants,
A pretrial conference was held today on the respective
appeals by the plaintiff and defendant Hughes Tool Com.
pany from rulings of the Special Master:
rs
1. Defendant Hughes Tool Company appeals from a
ruling of the Special Master overruling Toolco’s objections
to interrogatories propounded to it by plaintiff. After
hearing counsel and reading the papers submitted in sup-
port of and in opposition to the appeal, the ruling of the
Special Master is modified as indicated below and as modi-
fied is sustained.
Interrogatory No. 1 is modified by striking the words
“or attorney”. It is further modified by limiting any
knowledge, information or belief of a director to such
knowledge, information or belief which said director has
acquired as a director of the defendant Tooleo.
: As to Interrogatory No. 4, the defendant need not make
‘ any answer thereto insofar as any of the named persons
in this interrogatory are former employees or consultants,
<
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Pade onbsg se toubenh UMe eal eins aiid Ame Ves
Bice tet
: oeosetat
Bere eee went is ' ieee
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9t
Pretrial Order, July 12,1962 .
However, the defendant in its answer to this Interrogatory
No. 4 shall indicate which of said persons are former
employees or consultants. \ Insofar as consultants are con-
cerned, the term shall embrace those persons who are in
normal usage considered as independent contractors.
Interrogatory No. 7 refers to employees, agents and/or
representatives of Tooleo. The information requested by
this interrogatory shall be furnished as to such persons
only if those persons performed services of a personal
nature or otherwise for Hughes individually and if such
services were compensated for by the defendant and not
by Hughes personally.
The dates referred to in the interrogatories shall be
computed from the date of this order.
2. Plaintiff has appealed from a ruling of the Special
Master denying the motion of the plaintiff for an order
determining that rule 4 of the Civil Rules of the United
States District Court of the Southern District of New York
is applicable in the instant case. After hearing argument
of counsel and reading the papers in support of and in
opposition to this motion, the appeal is disposed of as
follows:
‘Irrespective of rule 4, the court has the power to ary
any order heretofore entered fixing priority of deposition-
discovery proceedings. In view of the number of days
which the defendant Tooleo has devoted to the deposition
of Tillinghast, the president of the plaintiff, defendant is
directed to complete that deposition on or before J uly 25th,
1962. It shall commence taking the depositions of the other
noticed individuals immediately thereafter. Plaintiff may
renew its motion before the Special Master on September
CS REE AA PIES ED ABER LISP EAS
ee
10t
Pretrial Order, July 12, 1962
20th, 1962 if at that time it is advised that the depositions
scheduled upon the completion of the Tillinghast deposition
are not moving as expeditiously as possible, and that any
further delay in the taking of the depositions of the de.
fendant would be prejudicial to the plaintiff.
So Orperep.
Dated: New York, N. Y. .
July 12, 1962
/S/ CHartes M, MErTzyER
US.D.J.
llt
Opinion and Order, July 24, 1962 (Memorandum
Endorsed on Motion Papers Dated May 11, 1962)
[Doe. 93]
UNITED STATES DISTRICT COURT
SourHerN District or New York
61 Civ. 2324
Trans Worvp AIRLINES, Inc.,
Plaintiff,
against
Howarp R. Hucues, Hugues Toot Company
and Raymonp M. Ho.uipay,
Defendants.
Defendant Hughes Tool Company has applied to the
court to review the opinion of the Special Master rendered
on April 17, 1962 and the order of the Special Master con-
tained in his letter of May 2d, 1962, as modified by his
letter of May 3d, 1962, to the extent that the defendant is
required to produce for inspection and copying by adverse
parties any privileged communications between attorney
and client.
The court has reviewed the opinion of the Special Master
which appears in the transcript at pp. 4361-4369 and the
letters referred to above. The Special Master has made
an exhaustive study of the law applicable to the attorney-
client privilege. The court agrees that the law is as stated
by the Special Master both as to the privilege and the
waiver thereof. The court sustains the ruling of the Spe-
cial Master as he has applied the law to questions presented
to him. If there are any specific documents concerning
which the defendant desires specific rulings as to their ad-
Ags es siltant
Veen
cosh Bie ZED LON EL NEALE AE SPIES RED,
Set
12t
Opinion and Order, July 24, 1962
missibility, they may be submitted to the Special Master
pursuant to the directions appearing at p. 4391 of the trap,
script and in the letter of May 2d, 1962, as modified by the
letter of May 3d, 1962.
So Orprrep.
Dated: New York, N. Y.
July 24, 1962
/8/ Cares M. METzyrp
US.D.J.
13t
Pretrial Order, September 21, 1962
[Doe. 122]
UNITED STATES DISTRICT COURT
SourHerN District or New York
61 Civ. 2324
Trans Wor.p AIR.iNEs, Inc.,
Plaintiff,
against
Howarp R. Ilucues, IfveHes Toot Company
and RaymMonp M. Ho.uipay,
Defendants.
A pretrial conference was held on September 19th, 1962
upon a notice from the attorneys for the plaintiff that it
was appealing from so much of the Special Master’s ruling
of September 15th, 1962 as denied the plaintiff the right to
/ proceed with the deposition of Howard R. Hughes on Sep-
tember 24th, 1962. After hearing counsel for the plaintiff,
the defendant Hughes Tool Company and the additional
lefendants, and after reading the transcript of the hearing
before the Special Master on September 15th, 1962, the ap-
peal is disposed of as follows.
Sometime prior to July 12th, 1962 the Special Master
evidenced his serious concern about whether or not Howard
R. Hughes would be available as a witness in this proceed-
ing if and when his deposition was properly reached under
the orders of the court. This concern of the Special Master
was not aroused in connection with any application by the
plaintiff to interfere with the priority of deposition previ-
ously determined by order of the court dated February
ith, 1962 as amended by the order of March 5th, 1962. In
order to resolve that problem prior to the time of request-
:
os
=
3
ayored
14t
Pretrial Order, September 21, 1962
ing Howard R. Hughes to appear as a witness, the Special
Master afforded the Tool Company alternative Procedures
Either it was to answer certain interrogatories as to the
whereabouts of Howard R. Hughes, in order to facilitate
the service of a witness subpoena, or counsel for the Tog]
Company was to provide satisfactory proof that he was
authorized to accept service of the subpoena on behalf of
Howard R. Hughes.
Interrogatories were framed by the plaintiff and serveq
upon the Tool Company which thereafter were amended
by order of the court dated July 12th, 1962. Subsequently
by order dated July 26th, 1962, the time for the Tool Gos’
pany to answer the interrogatories was fixed for August
27th, 1962. Counsel for the Tool Company then served
and filed with the court a document which he asserted gave
him the authority to accept service of the witness subpoena
on behalf of Howard R. Hughes. At this time the court
reserves for future determination any question raised by
the plaintiff regarding the authenticity of that document,
Pursuant to the document filed with the court, Chester
C. Davis, counsel for the Tool Company, accepted service
of a witness subpoena on behalf of Howard R. Hughes on
September 6th, 1962. That subpoena was issued out of the
United States District Court for the Southern District of
California upon the notice by the attorneys for the plain-
tiff served upon Chester C. Davis, which stated that the
deposition of Howard R. Hughes as a witness would he
taken at the United States District Courthouse for the
Southern District of California in Los Angeles on Sep
tember 24th, 1962. The return of the marshal, indicating
service upon Chester C. Davis in Los Angeles, was accom
panied by an affidavit by Mr. Davis stating that he had
15t
Pretrial Order, September 21, 1962
been authorized in writing by Howard R. Hughes to accept
such service.
Pursuant to the order of the court dated July 12th, 1962
and the suggestion made by the court at a hearing held on
September 6th, 1962, the plaintiff moved before the Special
Master on September 15th, 1962 for permission to suspend
the taking of the depositions by the Tool Company in order
to permit plaintiff to commence taking the deposition of
Howard R. Hughes on September 24th, 1962, and that the
suspension of the taking of depositions by the Tool Com-
pany be continued until the deposition of Howard R.
Hughes was completed. The Special Master denied the
application of the plaintiff.
However, in connection with this denial the Special
Master directed Chester C. Davis to write to Howard R.
Hughes and inform him that the Special Master considered
that the subpoena is binding upon Mr. Hughes and that he
is subject to appear pursuant to that subpoena on Septem-
ber 24th, 1962 or at any other date fixed by the court. The
Special Master stated for reasons set forth in the record
that unless Howard R. Hughes communicated with him by
today, Friday, September 21st, 1962 he would consider that
Mr. Hughes has acquiesced in this interpretation and that if
Mr. Hughes subsequently either attacked the validity of the
subpoena or failed to appear pursuant to that subpoena on
September 24th, 1962, or at any future time that the court
might direct for the taking of the deposition of Mr. Hughes
pursuant to that subpoena, he, the Special Master, would
consider the imposition of sanctions upon the Tool Com-
pany, and that he would entertain a motion to strike the
answer of the Tool Company and enter judgment against it.
Without passing upon the power of the Special Master
STEELER NIN
PRN dt A OA da
16t
' Pretrial Order, September 21, 1962
to grant the entry of such judgment, the court adopts the
interpretation and conditions expressed by the Special
Master. Any determination by the Special Master on an
application for a default judgment would, of course, be
reviewable upon appeal to the court.
On the hearing of this appeal the court inquired of
Chester C. Davis as to whether he had followed the direc.
tions of the Special Master. Mr. Davis adyised the court
that he had written to Howard R. Hughes on Monday,
September 17, 1962, and enclosed the pages of the transcript
of the hearing before the Special Master on September
15th, 1962 which contained the views of the Special Master
Howard R. Hughes has neither communicated with the Spe-
cial Master nor the court as of 5:30 p.m. today, which is the
end of the business day. Therefore, I find that Mr. Hughes
has acquiesced in the interpretation and conditions ex-
pressed by the Special Master.
The Special Master has presided over the deposition
proceedings practically since their inception. The propriety
of plaintiff’s application is peculiarly within his com.
petence. He is aware of the court’s views contained in the
last paragraph of the order of July 12, 1962. Plaintiff
has not made an adequate showing at ths time that the
ruling of the Special Master within this framework is in
error. I approve and affirm the ruling of the Special Master
denying the a plication of the plaintiff to proceed with the
deposition of Howard R. Hughes on September 24th, 1962
to the extent that the return date of September 24th, 1962
contained in the subpoena served upon Howard R. Hughes
is adjourned by order of € urt to October 29th, 1962 at
the same time and place. Tool Company may apply to
the Special Master on October 22nd, 1962 for a further
adjournment of the date now fixed for the deposition of
Howard R. Hughes.
17t
Pretrial Order, September 21, 1962
Chester C. Davis is directed to notify Howard R. Hughes
of this determination before 9 p.m. tonight, Eastern Day-
light Time, both by telephone communication and by mail-
ing a copy of this order air mail special delivery to Howard
R. Hughes.
So ORDERED.
Dated: New York, N. Y.
September 21, 1962
/8/ Cuantes M. Metaner
U.S. D. J.
SEAS ae
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18t
Pretrial Order, January 10, 1963
[Doe. 144]
UNITED STATES DISTRICT COURT
SoutHern District or New Yorx
61 Civ. 2324
Trans Worp Airings, Inc.,
Plaintif,
against
Howarp R. Iucurs, Hucues Toor, Company
and Raymonp M. Hotummay,
Defendants,
A pretrial conference was held on January 9th, 1963 to
consider various matters brought to the court’s attention
by notices of appeals from rulings of the Special Master,
These matters are disposed of as follows:
1. The appeal by TWA, pursuant to a telephone re.
quest, to review an order of the Special Master adjourning
the deposition of Howard R. Hughes to February 11th,
1963 is withdrawn by counsei for TWA pursuant to an
application filed January 8th, 1963.
2. The appeal by Hughes Tool Company dated January
3rd, 1963 seeking to review an order of the Special Master
dated December 28th, 1962 denying Toolco’s application to
examine Ben-Fleming Sessel and the Irving Trust Com-
pany by Sessel and Arthur L. Wadsworth and Dillon, Read
& Co. by Wadsworth is denied and the ruling of the Special
Master is affirmed. The court adopts the statement of the
Special Master appearing on page 11 of the transcript of
19t
Pretrial Order, January 10, 1963
proceedings before the Special Master dated December
98th, 1962, which states:
“I do not think it [the depositions of Sessel and
Wadsworth] would advance the proper administra-
tion of this case since it would in my judgment
inevitably branch out into the issues of the counter-
claims, or result in such continuous controversy 1s
to the exact limits of such issues that it might inter-
fere with the taking of Mr. Hughes’ deposition at
the time and place fixed.”
The court has previously indicated that priority of depo-
sition is not sacrosanct, and even without the adoption as
of July 1st, 1962 of rule 4 of the Civil Rules of this district
the court has the power to alternate the taking of deposi-
tions by the parties.
During a ten-month period the defendant has conducted
over 80 days of depositions of the plaintiff, which have
consumed over 10,000 pages of testimony. It will have sub-
stantially completed the deposition of the plaintiff this
month with the testimony of Cocke and Leslie. It has then
scheduled the depositions of other witnesses, ineluding
Sessel and Wadsworth, which can consume a very long
period of time. The deposition of Howard R. Hughes by
the plaintiff and the additional defendants should now £0
forward. This deposition was originally scheduled for
September 24th, 1962 and then adjourned to October 29th,
1962. It has now been adjourned to February 11th, 1963
and this date will be adhered to in the absence of extraor-
dinary circumstances. The complicated nature of this
action necessitates long and involved deposition-discovery
proceedings and it is only fair that plaintiff be allowed to
proceed without waiting for the defendant to complete its
deposition proceedings. This is especially true where the
ee Seca |
Be
20t
Pretrial Order, January 10, 1963
plaintiff claims that 75% of the proof necessary to sustain
its claim is obtainable from Hughes personally,
Furthermore, the completion of such deposition wil] ad.
vance materially the date when the court could meaning.
fully entertain the various motions which Mr. Davis’ has
indicated he would like to press for a dismissal of the com.
plaint and for summary judgment. It will also facilitate
an intelligent ruling upon Toolco’s application pursuant to
rule 16 of the Federal Rules of Civil Procedure and the
sufficiency of TWA’s compliance with interrogatories served
on October 11th, 1962 and the further interrogatories
served on November 13th, 1962.
The court concurs in the ruling of the Special Master
contained in his order of December 28th, 1962 clarifying
his order of October 25th, 1962, directing that Howard R.
Hughes appear on February 11th, 1963 for deposition in
Los Angeles. The return date of the subpoena served on
September 6th, 1962 as adjourned by order of this court
dated September 21st, 1962 and the notice to take depnsi-
tion are adjourned to February 11th, 1963 at the same time
and place. The provisions of the order of this court dated
September 2ist, 1962 are reaffirmed and reiterated, and
Mr. Davis is directed to notify Howard R. Hughes of the
directions of the court contained in this order by telephonic
communication and by written communication to be made
and sent by 5 p.m. on January 11th, 1963.
~~
3. The motion by Hughes Tool Company, pursuant to
rule 16 of the Federal Rules of Civil Procedure, to author.
ize the Special Master to conduct pretrial conferences, with
recommendations to the court for the form and terms of
a pretrial order defining and limiting the legal and factual
issues in this case, is denied without prejudice to a renewal
21t
Pretrial Order, January 10, 1963
)
30 days after the completion of the deposition of Howard
R. Hughes.
4, The appeal by Hughes Tool Company dated Septem-
ber 19th, 1962 from an order of the Special Master made
on September 15th, 1962 which requires Hughes Tool Com-
pany to produce for inspection and copying by opposing
counsel, prior to a further definition of the issues, the docu-
ments with respect to which Hughes Tool Company claims
attorney-client privilege is denied and the order of the
Special Master is affirmed.
A reading of the briefs and the oral argument would
indicate that the application under advisement is in fact a
reargument of the order of this court dated J uly 24th, 1962.
At that time the court indicated that it had reviewed the
opinion of the Special Master which appeared in the tran-
«ript at pages 4361-4391 and the letters of the Special
Master dated May 2nd, 1962 and May 3rd, 1962. The court
concurred with the opinion of the Special Master and di-
rected that if there were any specific documents concern-
ing which Hughes Tool Company desired specific rulings
they should be submitted to the Special Master.
At pages 122 et seq. of the transcript of September 15th,
counsel for the Hughes Tool Company stated that he had
made available to the Special Master the documents con-
cerning which the defendant was asserting the attorney-
dient privilege. Counsel went on to state that the docu-
ments were made available for a ruling by the Special
Master not as to whether they would be normally covered
by the attorney-client privilege, but “whether or not the
attorney-client privilege had been waived.” He then went
on to say at page 124 that:
“What is developing is simply the question of the
procedure to be followed in obtaining rulings of the
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Pretrial Order, January 10, 1963
Special Master with respect to individual documents,
applying the principles of law announced by the Spe.
cial Master and affirmed by Judge Metzner, and the
only area which I am aware constitutes a difference
of opinion, perhaps, is whether those documents are
to be produced at this time on the ground that prior
- to this time there had been a waiver of the privilege.”
Documents heretofore submitted to-the Special Master
shall be made available to all parties by noon on January
14th, 1963. If there are any additional documents to which
the defendent Hughes Tool Company asserts a non-waived
attorney-client privilege, such documents shall be submitted
for a ruling to the Special Master by noon of January 14th,
1963 and a list thereof furnished at the same time to coun.
sel for all parties. °
5. The appeal by TWA, pursuant to a telephonic re.
quest, to review an order of the Special Master denying its
motion to quash or strike interrogatories served by Tooleo
on October 11th, 1962 is denied except that the order of the
Special Master is modified to the extent that TWA shall
answer the interrogatories within 60 days after the comple.
tion by TWA of its deposition of Howard R. Hughes. 0b-
jection to specific interrogatories shall be made to the Spe-
cial Master within 55 days after the completion of the
deposition of Howard R. Hughes.
6. The appeal by TWA dated December 20th, 1962 from
an order of the Special Master appearing in the transcript
of the proceedings before the Special Master on December
ord, 1962 is denied except that the order of the Special
Master is modified to the extent that TWA shall answer
Uie interrogatories within 60 days after the completion by
TWA of its deposition: of Howard R. Hughes. Objection
23t
Pretrial Order, January 10, 1963
. specific interrogatories shall be made to the Special
Master within 55 days after the completion of the deposi-
tion of Howard R. Hughes.
So OrpERED.
Dated: New York, N. Y.
January 10, 1963
/s/ CHarLes M. Metzner
U.S. D.J.
PO
MR SB th SLES
24t
Pretrial Order, January 19, 1963
[Doec. 146]
UNITED STATES DISTRICT COURT
SourHern District or New York
61 Civ. 2324
Trans Wortp Airings, INc.,
; Plaintiff,
against
Howarp R. Hucuers, Hucues Toor, Company
and Raymonp M. Houuay,
Defendants,
Defendant Hughes Tool Company (referred to as Tooleo)
has moved for an order pursuant to rule 30(b) of the
Federal Rules of Civil Procedure that the deposition of
Howard R. Hughes be taken on written interrogatories or,
in the alternative, that if such relief pursuant to rule 30(b)
is denied that the motions of Toolco to dismiss the com.
plaint or for summary judgment pursuant to rules 12(b)
and 56(b) be brought on for hearing and determination,
The motion further requests that the order of this court
dated January 10th, 1963 be stayed until the determination
of the motions to dismiss or for summary judgment.
This case was assigned to me for all purposes by the
Chief Judge on August 31, 1961 pursuant to rule 2 of the
General Rules of this court. After the disposition of sev.
eral preliminary matters concerning production of docv-
ments and scheduling, Tooleo commenced taking deposi-
tions of the plaintiff in February 1962. The parties
requested that a Special Master be appointed to supervise
the deposition proceedings and fhe court designated J. Lee
Rankin for this purpose. Since that time over 80 sessions
2ot
Pretrial Order, January 19, 1963
have been held and over 10,000 pages of testimony have
been taken. .
Sometime prior to July 12th, 1962 the Special Master
indicated his serious concern about whether or not Howard
R. Hughes would be available as a witness in this proceed-
ing if and when his deposition was reached. Without de-
tailing the subsequent events, all of which are set forth in
the order of this court dated September 21, 1962, the prob-
lem seemed to have been resolved when counsel for Tooleo
filed with the court a document purportedly signed by
Howard R. Hughes authorizing said counsel to accept serv-
ice of a witness subpoena on behalf of Howard R. Hughes.
Plaintiff attacked the authenticity of this authorization.
Counsel for Toolco flew to Los Angeles and accepted serv-
ice of a witness subpoena from a Deputy United States
Marshal for the Southern District of California at 7 a.m.
(10 a.m. New York time) on September 6th, 1962, the morn-
ing of the hearing before this court on plaintiff’s claim of
forgery. The disposition of that matter has been held in
abeyance. The subpoena provided for the appearance of
Howard R. Hughes at the United States District Court-
house in Los Angeles on September 24th, 1962.
Subsequently, plaintiff moved before the Special Master
to suspend the taking of depositions by Tooleco in order to
permit plaintiff to commence taking the deposition of
Hughes pursuant to the subpoena. The Special Master
denied this application and this court affirmed that ruling
by its decision and order of September 21st to the extent
that the deposition was adjourned to October 29th, 1962.
Leave was given Tooleo to make application to the Special
Master for a further adjournment if in its opinion this
was necessary. Such application was made on October
22nd, 1962 and the Special Master adjourned the return
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BF he pain a
26t
Pretrial Order, January 19, 1963
date of the subpoena to February 11th, 1963, The conrt
has affirmed that ruling. During the months of September,
October, November and December, Tooleo has proceeded
with its deposition of the plaintiff.
On December 28th, 1962 defendant Tooleo made applica.
tion to the Special Master to take the deposition of two ad.
ditional witnesses which if granted would have necessitated
a further adjournment of the Hughes deposition. The Spe.
cial Master denied this application and the ruling of the
Special Master was affirmed by the court in its decision and
order of January 10th, 1963.
Counsel for Tooleo has repeatedly indicated since the
assignment of this case to me that motions theretofore
made to dismiss the complaint and for summary judgment
would be noticed for argument, but agreed that they were
premature.’
The present motion appears to be another attempt to
put off the deposition of Hughes. As I stated in my order
of January 10th,
“The complicated nature of this action necess.
tates long and involved deposition-discovery pro-
ceedings and it is only fair that plaintiff be allowed
to proceed without waiting for the defendant to com-
plete its deposition proceedings. This is especially
true where the plaintiff claims that 75% of the proof
necessary to sustain its claim is obtainable from
Hughes personally.
“Furthermore, the completion of such deposition
will advance materially the date when the court could
* Transcript of pretrial conference September 6, 1961, pp. 25-
28, 40-41.
Transcript of pretrial conference October 2, 1961, pp. 10, 23.
Transcript of pretrial conference F ebruary 23, 1962, pp. 58-59,
Transcript of pretrial conference September 19, 1962, p. 39.
Transcript of pretrial conference January 9, 1963, p. 17.
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27t
Pretrial Order, January 19, 1963
meaningfully entertain the various motions which
Mr. Davis has indicated he would like to press, for a
dismissal of the complaint and for summary judg-
ment. It will also facilitate an intelligent ruling
upon Toolco’s application pursuant to rule 16 of the
Federal Rules of Civil Procedure and the sufficiency
of TWA’s compliance with interrogatories served on
October 11th, 1962 and the further interrogatories
served on November 12th, 1962.”
Because of the issues involved in this litigation and the
nature of the proof songht from Hughes, the use of written
interrogatories would be a wholly-unsatisfactory procedure.
(Contemplated answers to specific interrogatories may not
he fortheoming, which would render meaningless subse-
quent questions. Answers given might suggest further
questions to sufficiently probe for the facts, but such ques-
tions would not appear in the interrogatories. None of
the grounds asserted or implied are sufficient in this case
to justify proceeding initially by written interrogatories.
Consequently, the first branch of the motion, seeking relief
pursuant to rule 30(b), is denied.
As I have indicated above in the quotation from the
January 10th order, it would appear to the court that the
case is not in a posture for a meaningful disposition of the
motions to dismiss the complaint or for summary judgment.
The motion papers filed before the assignment of the case
pursuant to rule 2, which T assume are the motions Tooleo
is now bringing on for hearing, were predicated upon the
grounds that the complaint fails to state a claim upon
which relief can he granted, that this court lacks jurisdic-
tion of the subject matter of the action, and that there is
no genuine issue as to any material fact. More specifically,
it is stated that the transactions complained of were sub-
ject to and approved by orders of the CAB under section
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