ABC Air Freight Company v. CAB

• Decision Date: 13 March 1968
• Docket Number: Docket 31795.,No. 281,281
• Citation: 391 F.2d 295
• Parties: ABC AIR FREIGHT COMPANY, Inc., et al., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent. C. F. Air Freight, Inc., Consolidated Freightways, Inc., P I E Air Freight-Forwarding, Inc., Pacific Intermountain Express Co., D C International, Inc., and Navajo Freight Lines, Inc., Intervenors-Respondents.
• Court: U.S. Court of Appeals — Second Circuit

391 F.2d 295 (1968)

ABC AIR FREIGHT COMPANY, Inc., et al., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent C. F. Air Freight, Inc., Consolidated Freightways, Inc., P I E Air Freight-Forwarding, Inc., Pacific Intermountain Express Co., D C International, Inc., and Navajo Freight Lines, Inc., Intervenors-Respondents.

No. 281, Docket 31795.

United States Court of Appeals Second Circuit.

Argued January 4, 1968.

Decided March 13, 1968.

Louis P. Haffer, Washington, D. C. (Paul Berger, New York City, Andrew P. Goldstein, Washington, D. C., of counsel), for petitioners.

Raymond J. Rasenberger, Lear, Scoutt & Rasenberger, Washington, D. C., for intervenors, D C International, Inc. and Navajo Freight Lines, Inc.

Eugene T. Liipfert, Verner, Liipfert & Bernhard, Washington, D. C., James M. Verner, Washington, D. C., on brief, Robert J. Sisk, New York City, Hughes, Hubbard, Blair & Reed, New York City, on brief, for intervening respondents, CF Air Freight, Inc., Consolidated Freightways, Inc., P. I. E. Air Freight Forwarding, Inc., and Pacific Intermountain Express Co.

Warren L. Sharfman, Assoc. Gen. Counsel, Joseph B. Goldman, Gen. Counsel, O. D. Ozment, Deputy Gen. Counsel, Harry N. Stein, Donald F. Turner, Howard E. Shapiro, Attys., Dept. of Justice, Washington, D. C., for respondent, Civil Aeronautics Bd.

Before LUMBARD, Chief Judge, and MOORE and FRIENDLY, Circuit Judges.

FRIENDLY, Circuit Judge:

Under § 296.11 of the Civil Aeronautics Board's Economic Regulations, effective October 15, 1948, as amended, air freight forwarders are exempted from the certificate provisions of § 401 of the Federal Aviation Act (other than subdivision (k) (3)), see § 101(3), but must obtain letters of registration. While these are normally issued, under delegated power, by the Bureau of Operating Rights, 14 C.F.R. § 385.13(d) (1967), without a hearing,¹ the Board's policy as we shall later develop in some detail, had been to deny such letters to motor carriers or subsidiaries of motor carriers significantly competing with air carriers.

In January 1966 the Board began a proceeding known as the Motor Carrier-Air Freight Forwarder Investigation, noting that "The fundamental question posed is whether long-haul motor carriers of general commodities should be allowed to participate in air transportation, either in their own right or through the device of acquiring an air freight forwarder." Various applications for approval of acquisitions of air freight forwarders were consolidated.

These applications had somewhat altered their aspect by the time Examiner Ruhlen rendered his initial decision. Two long-haul truckers, D. C. International, Inc. and Navajo Freight Lines, Inc., sought authority to act as air freight forwarders in their own right. Consolidated Freightways, Inc., the nation's largest long-distance trucker, which had initially sought approval of its acquisition of control of an existing domestic and international air freight forwarder, applied for a letter of registration for its wholly-owned subsidiary, CF Air Freight, Inc., and for the necessary ancillary approvals under §§ 408 and 409. Pacific Intermountain Express Company, which also had initially sought approval only of its acquisition of control of an international air freight forwarder, applied both for this and for letters of registration for its subsidiary, P. I. E. Air Freight Forwarding, Inc., and related relief. The applications were opposed by eight scheduled airlines including the six largest domestic operators, by all-cargo air carriers, and by air freight forwarders and their association, most of whom have joined in the instant petition for review. They were opposed also by the Board's Bureau of Operating Rights.

The Examiner rendered an Initial Decision in April 1967. He began by saying that:

"The immediate issue is whether the four applicants should be authorized to operate as air freight forwarders, but the Board, in instituting this proceeding, stated that the fundamental question is whether long-haul motor carriers of general commodities should be allowed to act as air freight forwarders."

He considered that the issue must be resolved against the background of "free entry" into air freight forwarding which he regarded as established in the Air Freight Forwarder Case, 9 C.A.B. 473 (1948). Reviewing various contentions of the applicants as to what their position as motor carriers would enable them to contribute to air transportation, he found these claims of special advantages were not made out, save only that "use of the sophisticated accounting, billing, and reporting systems which only a large organization can afford should assist the applicants in providing a convenient service to the public." Nevertheless he concluded that "the applicants, by providing sophisticated management, personnel, and equipment and devoting their well-financed experienced organization to the generation and transportation of cargo by air, will contribute a substantial benefit to the public." Turning to the effect on existing air freight forwarders, he thought "the strong and efficient forwarders will suffer only minor losses with the entry of the applicants into competition," although "the demise of some of the weaker air freight forwarders may be hastened by the competition provided by the applicants." Believing that "If the applicants are to be successful, they will have to rely on newly generated traffic," the Examiner dismissed the arguments based on their conflict of interest primarily on the basis that "although in some circumstances for short periods of time an energetic and clever promoter may be able to persuade shippers to use modes of transportation adverse to their economic interests, in the long run, the shipper will choose that form of transportation which best meets his needs." Finally, following a previous Board ruling that the second proviso to § 408(b)² was inapplicable to "indirect air carriers," Air Freight Forwarder Case, supra, 9 C.A.B. at 503, reaffirmed in Air-freight Forwarder Investigation, 21 C.A. B. 536, 544-45 (1955), he held there was no legal barrier to the applications, and proposed that all should be granted for an experimental period of five years.

The Board, over a dissent by Vice Chairman Murphy, followed the Examiner's recommendations except in a minor respect not here material.³ However, the Board exhibited markedly greater enthusiasm over the new departure than had the Examiner. Apparently dissatisfied with the Examiner's theory that the conflict of interest arising from authorizing long distance truckers to act as air freight forwarders should be disregarded because it would not be effective in the long run, the Board decided that the double role would lessen conflict rather than increase it. Whereas the Examiner seemed to have thought that generation of new air freight by the truckers would be only of the same sort that any vigorous sales effort would engender, the Board found a particularized source in the "large proportion of the truckers' present surface traffic * * * comprised of shipments weighing less than 200 pounds," which they now transport "at a loss or minimal gain," and whence they "could earn more as forwarders by shipping such packages by air." It concluded also that authorizing the truckers to act as air freight forwarders "should increase the intermodal carriage of freight by air and truck"; indeed, it regarded its decision "as a real break-through in opening up the most hopeful avenue for increasing intermodal transportation of freight by surface and air." It thought also that "The participation * * * of motor carriers like the applicants may well be necessary to achieve the full promise of air cargo," emphasizing especially the role they could play in areas outside the ten cities in which the traffic is most developed. For these reasons, as well as those urged by the Examiner, it was "convinced that a new policy towards motor carriers like the applicants deserves a trial."

I.

The Board's decision does not measure up to the standards required by § 8(b) of the APA, as recently applied in Northeast Airlines, Inc. v. CAB, 331 F.2d 579 (1 Cir. 1964), see especially Judge Aldrich's concurring opinion, 331 F.2d at 589. The most serious deficiency lies in the ambiguity whether the Board has established a policy of entry for all truckers who want to act as air freight forwarders or has merely granted the four applications that were before it, and the inadequacy of its consideration of effect on the existing forwarders if the former is the right interpretation as we strongly suspect.

Certainly the Examiner thought, as instanced by our first quotation, that the decision would have general applicability. That also would be the natural inference from such statements by the Board as that "Our purpose in instituting this investigation was to determine whether our traditional restrictions on surface carriers have become outmoded for motor carriers like the applicants," that it regarded its decision "as a real break-through" in stimulating intermodal transportation, and that it was establishing "a new policy towards motor carriers like the applicants." Indeed the Board's brief in this court concedes that "its findings and pronouncements also were such as to indicate that it may be expected to grant future applications by other long-haul motor carriers to engage in air freight forwarding activities" — which, as indicated, is normally done by its staff and without a hearing.

On the other hand, the agency almost completely failed to examine the effect that entry of large numbers of motor carriers will have upon the structure of the air freight forwarding industry. The Board's opinion does not really consider this question at all — its finding that "motor carriers like the applicants" would stimulate the development of air cargo is based entirely upon a review of the operational plans submitted by the four carriers in...