# Opposition Brief — Hughes Tool Co. v. Trans World Airlines, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0039%3A18 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1973 - **Citation:** 409 U.S. 363 ## Text 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 ug . ee ea Rn Ye oe 3 # : s & i 4G ae < aig $ “4 i Ee eS 12 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 | may eh OA Ce Sete hee se Ok ees Secu 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]. Ri ‘ emer e te as. | Nae al Budiey ea RET Mit ce, ries eae: 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). = = ee ¥ % 5 Neh gy Anite 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. eer hs 4 ‘ a. LANG, re sgn Sea » p sent CEH GS eid ra Lene) | Se BNP ES PEER E EES a OLE NEE MRD A HB Lig BY CS BE i OPIE LG ges Saad, ib Singha Pectin ote ut iE ae pha fol a A Re LSS SSR ada AERA Bee rs 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 % 9 A - : pg ope Cate ee PETAL TE ROOTS 0 PRED EPEAT VIS BE TRS 9 ; 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 at . z : : % z 3 x & € = y 3 | & ected Base eit ~ Wa or ~ 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 SE SILER TE TE EN TEE EEA SNES I TN = & 3 ; ; ae re 3 : 2 3 ‘ 4 € +7 z > & g ¥ s P ) emp NETS 9 RES 42 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) et | a 7 +. af ip SDA RSE RE RE IROL ETNA ELI . 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. a i LIPPINCOTT ean na ill P< Dy; Fs ah 4 a Re & = be & % 5 “SS s & kas z Ne =) SS RR BEER Ri RA SRLS 4 a GET OPLE C8 Sy Sea LIE GAIA ELE IED 48 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 ». Bae yh Riles retest st an faye d REAR RETR ORI oan’ eat RY CEE Ee Var) ey ue ae sete oe A Rea ee 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). a“ REMEBER Pes RTT ht i ealhlai® 5 g Fakes BEE NC a PED, Lee 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, DiteesS phtie -eAb DN, < pict LAAT les walt £4 tet ota eS Le ‘ee Bemeereece: RORRETINT C FRERLT ORES 52 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 de [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0039%3A18. Public record. Not legal advice.