United Air Lines, Inc. v. C. A. B. (Holding Co. Reorganizations), s. 75-2165
| Decision Date | 23 January 1978 |
| Docket Number | Nos. 75-2165,76-1099,75-2211,76-1101 and 76-1118,s. 75-2165 |
| Citation | 569 F.2d 640 |
| Parties | * UNITED AIR LINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD (HOLDING COMPANY REORGANIZATIONS), Respondent. TIGER INTERNATIONAL, INC., a corporation, et al., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent (two cases). UNITED AIR LINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent. BRANIFF INTERNATIONAL CORPORATION, a corporation, et al., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Robert L. Stern, Chicago, Ill., for petitioner in Nos. 75-2165 and 76-1101.
H. Templeton Brown, Henry L. Hill and Harold E. McKee, Jr., Chicago, Ill., were on the brief for petitioner in Nos. 75-2165 and 76-1101.
J. Stanley Stroud, Chicago, Ill., also entered an appearance for petitioner in Nos. 75-2165.
Charles N. Brower, Washington, D. C., with whom John Lewis and Alan L. Morrison, Washington, D. C., were on the brief, for petitioners in Nos. 75-2211 and 76-1099.
J. W. Rosenthal, Washington, D. C., entered an appearance for petitioners in No. 75-2211.
Alexander E. Bennett, Washington, D. C., with whom Thomas J. McGrew, Washington, D. C., was on the brief, for petitioners in No. 76-1118.
Thomas L. Ray, Atty., Civil Aeronautics Bd., Washington, D. C., with whom Jerome Nelson, Deputy Gen. Counsel, Glen M. Bendixsen, Associate Gen. Counsel, Robert L. Toomey, Atty., Civil Aeronautics Bd., and Carl D. Lawson, Atty., Dept. of Justice, Washington, D. C., were on the brief, for respondent. Barry Grossman and Lee I. Weintraub, Attys., Dept. of Justice, Washington, D. C., entered appearances for respondent in No. 75-2165.
Peter R. Steenland, Jr., Atty., Civil Aeronautics Bd., Washington, D. C., entered an appearance for respondent in Nos. 75-2165 and 75-2211.
Samuel R. Simon, Atty., Dept. of Justice, Washington, D. C., also entered an appearance for respondent in No. 75-2211.
Before BAZELON, Chief Judge, and McGOWAN and MacKINNON, Circuit Judges.
Opinion for the court filed by Circuit Judge MacKINNON.
United Air Lines, Inc. (United), The Flying Tiger Line, Inc. (Tiger), and Braniff Airways, Inc. (Braniff), formed holding companies through corporate reorganizations, respectively: UAL, Inc.; Tiger International, Inc. (formerly Flying Tiger Corp.); and Braniff International Corporation. After these reorganizations the three air carriers retained their certificates of public convenience and necessity, but each had become a subsidiary of its respective holding company. Each holding company then acquired other non-air carrier subsidiaries which were engaged in diversified businesses. 1
Subsequent to the United and Tiger reorganizations, but concurrent to that of Braniff, the Civil Aeronautics Board (CAB) instituted its Air Carrier Reorganization Investigation. At the close of this proceeding, the Board developed a regulatory program for these three air carriers covering their relations with their respective holding companies. The regulatory program, designed to protect the financial health of the carriers, requires the reporting and prior CAB approval of various corporate activities of the carriers in their relations with their affiliated companies. Basing its action upon various of its regulatory powers under the Federal Aviation Act of 1958, 2 the Board amended the certificates of the three airlines to require their compliance with its regulatory program. The carriers and the holding companies 3 have petitioned for review of the Board's orders.
Prior to 1969, several certificated air carriers were acquired as subsidiaries by "conglomerate" corporations who were not themselves air carriers, and other air carriers diversified by acquiring non-air carrier subsidiaries. In 1969, United became the first air carrier to attempt to diversify by creating a holding company so that the carrier became the subsidiary of a holding company owned, at the outset, by the same stockholders and governed principally by officers and directors who served the "old" air carrier. United petitioned the Board to disclaim jurisdiction over the reorganization under section 408(a) of the Federal Aviation Act, which at that time provided:
It shall be unlawful unless approved by order of the Board as provided in this section
(5) For any air carrier or person controlling an air carrier, any other common carrier, or any person engaged in any other phase of aeronautics, to acquire control of any air carrier in any manner whatsoever;
49 U.S.C. § 1378(a) (1970). The Board concluded that section 408(a)(5) was inapplicable to United's internal reorganization and approved the transfer of the certificate to the "new" air carrier subsidiary. Order 69-4-67 (Feb. 4, 1969).
Subsequently, Tiger, a scheduled all-cargo carrier, petitioned for Board disclaimer of jurisdiction over a similar reorganization. In the interim, section 408(a)(5) had been amended, adding to the list of persons whose acquisition of control of an air carrier required Board approval: "or any other person." 4 The Board concluded that this transaction was within its jurisdiction under the amended section 408(a)(5), and therefore refused to disclaim jurisdiction. Order 69-12-121 (Dec. 29, 1969). Tiger's reorganization, however, was approved subject to conditions requiring reporting and prior CAB approval of certain transactions. Order 70-6-119 (May 5, 1970). Tiger accepted these conditions and the reorganization was consummated. 5 In 1970, Airlift International, another cargo carrier, submitted a like plan of reorganization. The Board asserted jurisdiction and approved subject to similar restrictions, Orders 70-6-120 (June 19, 1970) and 70-9-8 (Sept. 2, 1970), but Airlift's reorganization plan was abandoned and it is not now a party to this action.
Finally, in 1971, Braniff petitioned the Board for approval of a similar reorganization. Rather than disclaim jurisdiction or approve subject to conditions, the Board instituted an investigation, denominated the Air Carrier Reorganization Investigation, No. 24283. Order 72-3-27 (March 10, 1972), J.App. 13. The purpose of the investigation, as announced in the order, was to determine the probable effects of the creation of air carrier holding companies upon the air carriers, whether Braniff's and similar future reorganizations should be approved, and if so subject to what conditions. The Board also reopened the United and Tiger proceedings and joined them as parties to the Investigation. It noted, "Since the outcome of the investigation may have industry-wide effect, petitions of other air carriers for leave to intervene will be favorably considered." Id. at 5, J.App. 17. On August 28, 1972, however, the Board denied DOT's motion to join as parties all certificated air carriers in order that their experiences with various forms of diversification could be made part of the record. Order 72-8-118, J.App. 19.
A proceeding, in which briefs were submitted and argument heard, was conducted before a Board administrative law judge (ALJ). The Departments of Transportation (DOT) and Justice, and the Board's Bureau of Operating Rights (BOR) participated along with the three petitioners. Two other air carriers intervened at this stage, but one soon withdrew and neither is now a party. The carrier parties argued that diversification was beneficial to the financial health of air carriers, and urged that no restrictions at all be imposed upon diversified carriers, whether reorganized under the holding company form or otherwise. Each of the governmental parties agreed that diversification offered some advantages to air carriers, but also warned that it posed significant hazards.
The BOR urged that Braniff's reorganization be approved subject to conditions similar to those already applied to Tiger, that the same controls be made applicable to United, and that a rulemaking proceeding be initiated to impose similar controls on all diversified carriers. It recommended that the carriers be required to enter into a "transaction agreement" with the Board covering each class of regulated transaction. Justice and DOT adopted an intermediate position, agreeing that the Board had some regulatory authority in this area but arguing that a more limited regulatory program was appropriate, primarily involving reporting requirements.
The ALJ issued a voluminous initial decision on August 27, 1973, J.App. 159. He essentially agreed with the position advanced by the BOR. The ALJ noted initially that there was relatively little experience with airline-formed holding companies upon which to base an evaluation of their effect upon air carriers. By analogy to the experience of other industries, however, particularly the railroad industry, he concluded that the holding company form presented both advantages and hazards to air carriers. In addition, the ALJ found some evidence of relatively minor abuses of the holding company form by UAL and Tiger International, and concluded that the holding company form of diversification posed somewhat greater dangers for air carriers than did the other forms. However, he concluded that the Act did not prohibit such reorganizations by air carriers provided they were subjected to a regulatory plan like that recommended by the BOR.
The ALJ ultimately decided that Braniff's reorganization should be approved subject to conditions. He also concluded that the same conditions should be imposed upon United and Tiger under the Board's continuing section 408 power, notwithstanding the Board's initial disclaimer, before the 1969 amendment of section 408(a)(5), of such jurisdiction over the United reorganization. In addition, the ALJ recommended that the Board promulgate rules of general...
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