Aloha Airlines, Inc. v. C. A. B.

• Citation: 194 U.S.App.D.C. 331,598 F.2d 250
• Decision Date: 30 March 1979
• Docket Number: No. 76-2131,76-2131
• Parties: ALOHA AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 250

598 F.2d 250

194 U.S.App.D.C. 331

ALOHA AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.

No. 76-2131.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 10, 1978.

Decided March 30, 1979.

Raymond J. Rasenberger, Washington, D.C., for petitioner.

John T. Ezell, III, Atty., C. A. B., Washington, D.C., with whom James C. Schultz, Gen. Counsel, Jerome Nelson, Deputy Gen. Counsel, Glen M. Bendixsen, Associate Gen. Counsel, Alan R. Demby, Atty., C. A. B., John H. Powers, III, and Frederic Freilicher, Attys., Dept. of Justice, Washington, D.C., were on the brief, for respondents. Also Robert L. Toomey, Atty., C. A. B., Washington, D.C., entered an appearance for respondent. Also Carl D. Lawson, Atty., Dept. of Justice, Washington, D.C., entered an appearance for respondent.

Before ROBINSON, MacKINNON and ROBB, Circuit Judges.

Opinion for the Court filed by ROBB, Circuit Judge.

ROBB, Circuit Judge:

This case comes here on a petition by Aloha Airlines ¹ to review an order of the Civil Aeronautics Board. In its order the Board found Aloha guilty of illegal rebating, unjust discrimination, and unfair practices and methods of competition in violation of the Federal Aviation Act of 1958, as amended, sections 403(b), 404(b) and 411, 49 U.S.C. §§ 1373(b), 1374(b) and 1381. We affirm the Board's decision in part.

The case began with a complaint filed by Hawaiian Airlines, the principal competitor of Aloha, on August 2, 1973. In substance the complaint attacked a so-called "fly-drive" arrangement between Aloha and Budget Rent-A-Car, a company engaged in the car rental business in the Hawaiian Islands. Specifically, it was alleged that in violation of section 403(b) of the Act Aloha offered to its round-trip passengers a discount of.$7.00 on any car rented from Budget, and that because Aloha arranged this discount by paying.$7.00 to Budget for each car thus rented the discount constituted an illegal refund. The complaint further alleged that by limiting the discount offer to round-trip passengers Aloha subjected one-way passengers to unjust and unreasonable discrimination in violation of section 404(b) of the Act. Finally, the complaint charged that these practices were unfair and engaged in for the purpose of diverting passengers from Hawaiian to Aloha and thereby causing financial injury to Hawaiian, in violation of section 411 of the Act.

On October 11, 1973 the Director of the Board's Bureau of Enforcement filed a Petition for Enforcement, based on Hawaiian's complaint. The petition was filed pursuant to the Board's Procedural Rule 206, 14 C.F.R. § 302.206 (1978), ² and averred that the complaint gave reasonable grounds to believe that violations of the Act had occurred and formal investigation by the Board was in the public interest. Hearings on the petition took place before an Administrative Law Judge (ALJ) in May 1975. Aloha, Hawaiian, and the Bureau of Enforcement participated.

In his initial decision issued September 19, 1975 the ALJ found that Aloha and Budget entered into a "fly-drive" agreement on September 22, 1971. In substance the agreement provided that Budget would offer to rent automobiles to Aloha's round-trip passengers for.$7.00 for one day's rental of a Vega, Toyota, or similar car. The rate for one-way passengers would be $10.50. Budget's normal rate was $14.00 a day, and without the payments from Aloha the discounts would have caused Budget to lose money. The agreement provided that for each car rented to a round-trip passenger Aloha would pay Budget.$7.00, and for each rental to a one-way passenger $3.50. All passengers would pay Aloha its published tariff fare, but when a passenger thereafter rented a car from Budget the agreed portion of this fare.$7.00 or $3.50 would be transferred to Budget by Aloha.

The Budget-Aloha agreement specified that Aloha's payments to Budget constituted Aloha's "share of the advertising costs". While the agreement was in operation the payments were made through an advertising agency which sent Aloha invoices purporting to reflect charges for that "pro-rata share". In fact however information for the billings was furnished by Budget, and the payments were not related to advertising costs at all, but were based solely on the number of rental contracts between Budget and Aloha's passengers. Budget's advertising expenses between September 1971 and December 1973, the period covered by the agreement, amounted to less than $360,000 but Aloha's payments to Budget were more than $1,350,000. The ALJ found that the purpose of the devious billing arrangement was to create the false impression that Aloha's payments were for advertising expenses.

The record before the ALJ disclosed and he found that on December 28, 1973, in response to Hawaiian's complaint, the original fly-drive arrangement was superseded by a new agreement. This agreement provided that Aloha would not make payments to Budget based on the number of rental car contracts, but would assume full and direct responsibility for advertising the fly- drive program. Pursuant to the agreement Aloha paid "some $360,000" for advertising during the period January 1974-May 1975. This amounted to "virtually" the entire advertising costs of the program. Budget in turn continued to rent cars to Aloha passengers at discount rates varying from $9.95 a day in 1974 to $13.95 in 1975, for Mazda cars. In carrying out the agreement Aloha did not make payments to Budget on the basis of the number of cars rented.

The ALJ found that Aloha violated section 403(b) of the Act by rebating, through Budget, a portion of the air fare paid by Aloha passengers who rented cars at reduced rates. He reached this conclusion with respect to both the original 1971 agreement and the superseding arrangement of 1973. He also concluded that the discount practices under both arrangements constituted unjust discrimination between passengers who used the fly-drive package and those who did not in violation of section 404(b) of the Act. He recognized that the complaint alleged only discrimination between round-trip passengers and one-way passengers, whereas the evidence showed that discounts were extended to both. Nevertheless he reasoned that the allegation in the complaint fairly "raised the (broad) question of unequal treatment of Aloha passengers under the fly-drive arrangement." Finally, he held that Aloha's operations under both the 1971 and 1973 arrangements violated the provisions of section 411 of the Act, in that they constituted unfair or deceptive practices or unfair methods of competition.

Aloha petitioned the Civil Aeronautics Board for discretionary review of the initial decision. The Board granted review, sustained the decision, and adopted as its own the reasoning, findings, and conclusions of the ALJ. The Board also denied a motion by Aloha to reopen the record and remand the proceeding to consider "newly discovered evidence" which was alleged to show that Hawaiian had engaged in rental car arrangements similar to the Aloha fly-drive program.

In this court Aloha opens its attack on the Board's decision with the argument that "(t)he Board's conclusion that Aloha violated section 411 must be set aside because the required 'public interest' finding, which must be made before an unfair competitive practice proceeding can be instituted, was not made."

Section 411, 49 U.S.C. § 1381 provides in relevant part:

The Board may upon its own initiative or upon complaint by any air carrier, . . . if it considers that such action by it would be in the interest of the public, investigate and determine whether any air carrier . . . has been or is engaged in unfair or deceptive practices or unfair methods of competition in air transportation or the sale thereof.

It is established that a finding that an investigation would be in the public interest is jurisdictional; the Board may not act to vindicate private rights. FTC v. Klesner, 280 U.S. 19, 50 S.Ct. 1, 74 L.Ed. 138 (1930); American Airlines, Inc. v. North American Airlines, Inc., 351 U.S. 79, 76 S.Ct. 600, 100 L.Ed. 953 (1956).

In this case the petition for enforcement filed by the Director of the Board's Bureau of Enforcement stated:

In the opinion of the undersigned Director of the Bureau of Enforcement, there are reasonable grounds to believe that certain provisions of the Act and requirements thereunder have been violated by the above-named respondent as alleged in the complaint filed and verified in the above-captioned proceeding, and that formal investigation by the Board of the alleged violations is in the public interest.

(J.A. 44)

Aloha says the Director's finding was invalid because the authority to make such a finding had not been properly delegated by the Board. In any event, Aloha argues, the allegations of the complaint do not support a public interest finding.

The Board's rules 200-218, 14 C.F.R. §§ 302.200-302.218 (1978) set out the Board's "special rules applicable to proceedings for enforcement of the economic regulatory provisions of the act, and rules, regulations, orders, limitations, conditions and requirements issued thereunder." (14 C.F.R. § 302.200 (1978)) Rule 201, 14 C.F.R. § 302.201 (1978) provides for the filing of "a formal complaint by a person other than an enforcement attorney (hereinafter called a third party)." Rule 203, 14 C.F.R. § 302.204 (1978) requires that a third-party complaint be served upon the Director of the Bureau of Enforcement. Rule 206, 14 C.F.R. § 302.206 (1978) states:

Whenever in the opinion of the Director of the Bureau of Enforcement there are reasonable grounds to believe that any provision of the act . . . has been or is being violated, that, in the case of third-party complaints, efforts to satisfy a complaint failed, and that investigation of any or all of the alleged violations is in the public interest, the Director of the Bureau of Enforcement may institute an economic...