DHL Corp. v. C. A. B.

• Decision Date: 26 October 1978
• Docket Number: No. 78-1054,78-1054
• Citation: 584 F.2d 914
• Parties: DHL CORPORATION, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 914

584 F.2d 914

DHL CORPORATION, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.

No. 78-1054.

United States Court of Appeals Ninth Circuit.

Oct. 26, 1978.

Peter J. Donnici (argued), San Francisco, Cal., Larry L. Hillblom (argued), Tamuning, Guam, for petitioner.

Thomas L. Ray, Assoc. Gen. Counsel, Civil Aeronautics Board, (argued), Washington, D. C., for respondent.

On Petition for Review of Order of Civil Aeronautics Board.

Before KILKENNY and TRASK, Circuit Judges, and NIELSEN, District Judge. ^*

KILKENNY, Circuit Judge:

Before us for disposition is the petition of DHL Corporation for a review of the order of the respondent dismissing its application for the issuance of a certificate for all-cargo air service pursuant to the provisions of 49 U.S.C. § 1388. We affirm.

BACKGROUND

On November 9, 1977, the Federal Aviation Act was amended by adding a new section 418 (49 U.S.C. § 1388), empowering the Board to issue operating certificates to conduct "all-cargo air service" between the fifty states, Puerto Rico, and the Virgin Islands. This legislation provided, among other things, for the issuance, within sixty days after application, of "Grandfather" Certificates to citizens who had been operating Scheduled all-cargo service.

Petitioner is an Air freight forwarder, doing business pursuant to authority granted by the Civil Aeronautics Board under Part 296 of the Board's Economic Regulations, 14 C.F.R. § 296. An "air freight forwarder" is defined to mean an indirect air carrier as defined in § 296.1(e). ¹

Petitioner applied for a Grandfather's Certificate authorizing it to begin providing all-cargo air service under the provisions of § 1388(a)(2). The Board concluded that the Grandfather Certificates could be issued only to direct Air carriers currently providing scheduled all-cargo service and that the Congress did not intend Grandfather Certificates should be issued to air freight forwarders, which are Indirect air carriers engaged in the business of consolidating and shipping property to be loaded and transported on direct Air carriers.

REGULATORY AND STATUTORY POSTURE

For in excess of forty years, Air carriers have been subject to precise economic regulation by the Board under the Federal Aviation Act and its predecessor, the Civil Aeronautics Act of 1938. An "air carrier" is defined by the statute, 49 U.S.C. § 1301(3) as "Any citizen of the United States who undertakes, whether directly or indirectly, or by lease or any other arrangement, to engage in air transportation: . . . " ²

The Board has consistently recognized two distinct kinds of air carriers direct and indirect. Monarch Travel Services, Inc. v. Associated Cultural Clubs, Inc., 466 F.2d 552 (CA9 1972); Railway Express Agency, Inc., Certificate of Public Convenience and Necessity, 2 C.A.B. 531 (1941); Air Freight Forwarder Case, 9 C.A.B. 473 (1948), Aff'd sub nom. American Airlines v. C. A. B., 178 F.2d 903 (CA7 1949), and Consolidated Flower Shipments, Inc. Bay Area v. C. A. B., 213 F.2d 814 (CA9 1954). Simply stated, these cases hold that direct air carriers are those who operate aircraft, while indirect air carriers hold out a transportation service to the public under which they utilize the services of a direct carrier for the actual transportation by air; i. e. those persons who procure shipments from shippers, assemble them, and tender the consolidated lot gathered from the various shippers to a direct air carrier for transportation at a bulk rate which is lower than the rates collected by the forwarders from the shippers. Although they carry no merchandise themselves, the forwarders assume the responsibility of a carrier, but ship by air in direct carrier's planes. Upon arrival of the shipment at the airport of destination, the forwarder divides the bulk shipment and distributes the separate portions to the individual consignees. See American Airlines v. C. A. B., supra, at 905.

A fundamental regulatory provision of the Act is 49 U.S.C. § 1371(a). It provides Not to be overlooked is the fact that Congress granted exemption authority to the Board under § 1386(b), as well as the classification power granted under § 1386(a). 14 C.F.R. § 298, which was promulgated pursuant to this authority, deals with classifications and exemptions of "air taxi operators." § 298.3 creates "a classification of air carriers, designated as 'air taxi operators' which Directly engage in the air transportation of persons or property . . . and which . . . do not . . . utilize large aircraft . . . ." Included in the "air taxi" classification are "commuter air carriers" defined as taxi operators performing at least five flights per week

that no one may operate as an air carrier without first obtaining a certificate of public convenience and necessity from the Board. However, 49 U.S.C. § 1301(3) empowers the Board to relieve air carriers not directly engaged in the operation of aircraft from the regulatory provisions of the Act. It was under the authority of this provision and 49 U.S.C. § 1386(a) that the Board proceeded to establish just and reasonable classifications of groups of air carriers for purposes of the Act. 14 C.F.R. § 296 was promulgated to implement the provisions of this legislation. § 296.2 established a class of "indirect air carriers" which included "air freight forwarders." 14 C.F.R. § 296.11 provides, among other things, that "Air freight forwarders and international air forwarders are hereby relieved from all" of the Act's economic regulatory provisions (with stated exceptions not here applicable). 14 C.F.R. § 296 for all intents and purposes gave an absolute freedom of entry into air transportation to those who were in the freight forwarding business under the regulation. Air Freight Forwarder case, supra, at 499-500; ABC Air Freight Co. v. C. A. B., 391 F.2d 295, 301 (CA2 1968).

between two or more points pursuant to published schedules.

THE 1977 AMENDMENT, FEDERAL AVIATION ACT, § 418;

49 U.S.C. § 1388(a)(1), (2) AND (b)(1)(A)

The 1977 amendment, 49 U.S.C. § 1388(a)(1) and (2) added two grandfather provisions to the existing legislation.

§ 1388(a)(1) provides that holders of a certificate of necessity issued under § 1371(d)(1) who provided scheduled all-cargo service between January 1st and November 9, 1977 (the date of enactment) may, within 45 days of enactment, apply for a certificate to provide all-cargo service. ³

Another grandfather provision is contained in 49 U.S.C. § 1388(a)(2). It is this provision which appellant believes supports its position. The provision permits, within 45 days of enactment, an application for an all-cargo certificate by a U.S. citizen "(which) operates pursuant to an exemption granted by the Board under 49 U.S.C. § 1386," and which "provided scheduled all-cargo service continuously . . . during the twelve-month period ending on November 9, 1977." ⁴

Under 49 U.S.C. § 1388(b)(1)(A) the Board is directed to issue a Grandfather's At the outset, we observe that the petitioner holds no certificate under 49 U.S.C. § 1371 (Section 401 of the Federal Aviation Act). Thus, the first of the two Grandfather Clauses previously mentioned has no application whatsoever. If petitioner is entitled to a certificate, it must fall within the language of the second provision.

Certificate not later than sixty days after submission of the application under either § 1388(a)(1) or (2). ⁵

To obtain a certificate under the second Grandfather Clause, 49 U.S.C. § 1388(a)(2), an applicant must meet two requirements: (1) the applicant is required to operate pursuant to an exemption granted by the Board under 49 U.S.C. § 1386(b); and (2) the all-cargo service it afforded during the twelve months before enactment of the 1977 amendment, must have been Scheduled. We hold that petitioner fails to meet either requirement.

The Board concedes that DHL operates under an exemption granted to freight forwarders under 14 C.F.R. § 296.11 of the Board's Economic Regulations, but forcefully argues that such exemption was not granted pursuant to 49 U.S.C. § 1386, the original classification and exemption statute. The parties agree that a statutory source of 14 C.F.R. § 296.11 and its predecessors is 49 U.S.C. § 1301(3), which provides, among other things, that the Board may by order relieve air carriers who are not directly engaged in the operation of aircraft in air transportation from the provisions of the Act, including the Act's certificate of necessity requirement. The authorities support this view. Air Freight Forwarder case, supra, 9 C.A.B. at 499, 512; ABC Air Freight Co. v. C. A. B., supra, 391 F.2d at 296.

The Board has never made findings in favor of air freight forwarders as required for a § 1386(b) exemption. (See Appendix A). For that matter, under part 296 C.F.R. the Board cites as its authority for the regulations: §§ 101(3), 204(a) and 416(a) of the Federal Aviation Act of 1958, as amended (49 U.S.C. §§ 1301(3), 1324(a), and 1386(a)). Of significance is the fact that the Board in promulgating the regulations specifically mentioned 49 U.S.C. § 1386(a), the classification section, and made no mention whatsoever of subdivision (b), the exemption section upon which the petitioner relies.

We must assume that the Congress, when speaking in 1977 of the § 1386(b) exemption, was aware of the decision in Hughes Air Corp. v. C. A. B., 160 U.S.App.D.C. 301, 492 F.2d 567 (1973), where the court in passing on the Board's regulations said:

"In order to exempt a class of carriers from any of the regulatory requirements deriving from the Federal Aviation Act, the Board must find that enforcement would be (1) 'an undue burden' on the class to be exempted because of the 'limited extent' of the class's operations, or because of 'unusual circumstances' affecting its operations, and (2) not in the 'public interest.' Since exemption cannot be in the public interest unless the end that it is calculated to achieve is in the public...