Foreign Study League v. CAB

• Citation: 475 F.2d 865
• Decision Date: 20 March 1973
• Docket Number: 72-1348.,No. 72-1265,72-1265
• Parties: FOREIGN STUDY LEAGUE, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent. TRANSAMERICA CORPORATION and Trans International Airlines, Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

475 F.2d 865 (1973)

FOREIGN STUDY LEAGUE, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.

TRANSAMERICA CORPORATION and Trans International Airlines, Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent.

Nos. 72-1265, 72-1348.

United States Court of Appeals, Tenth Circuit.

March 20, 1973.

David L. Berman, Salt Lake City, Utah (Walter D. Hansen, Washington, D. C., on the brief), for petitioners.

Warren L. Sharfman, Associate Gen. Counsel, CAB (O. D. Ozment, Deputy Gen. Counsel, Robert L. Toomey and Paul W. Wallig, CAB, Thomas E. Kauper, Asst. Atty. Gen., Harold E. Shapiro, Dept. of Justice, and R. Tenney Johnson, Gen. Counsel, CAB, Washington, D. C., on the brief), for respondent.

William D. Maroney, New York City, for intervenor, International Studies Assn.

Before HILL and DOYLE, Circuit Judges, and O'CONNOR, District Judge.

HILL, Circuit Judge.

These consolidated Petitions for Review seek to set aside an order of the Civil Aeronautics Board (Board) requiring Transamerica Corporation (Transamerica) to divest its wholly owned subsidiary, the Foreign Study League (FSL). Jurisdiction was asserted by the Board over Transamerica's 1968 acquisition of FSL under Section 408¹ of the Federal Aviation Act. The Board concluded that such acquisition was contrary to the "public interest" because Transamerica's common ownership of FSL, a substantial user of chartered air transportation, and Trans International Airlines (TIA), a major United States supplemental air carrier, raised possibilities of anticompetitive consequences.

Petitioners raise both jurisdictional and substantive matters in support of reversal. It is their contention the Board cannot bootstrap its 408(a) statutory jurisdiction over one acquisition so as to require 408 Board approval of a subsequent acquisition over which the Board otherwise would not have 408(a) jurisdiction. Their second argument is that jurisdiction is lacking because FSL is not an indirect air carrier whose acquisition is subject to Board approval under 408(a)(5)² of the Federal Aviation Act. The final jurisdiction argument is that although FSL is a substantial user of air transportation, it is not a person engaged in a phase of aeronautics as defined in 408(a)(6).³ Petitioners then charge that even if the Board has jurisdiction to decide this matter, the Board's decision was rendered under improper legal standards and upon inadequate evidence.

We believe the Board correctly exercised jurisdiction under 408(a) and 408(b) of the Federal Aviation Act and properly found the Transamerica-FSL acquisition to be contrary to the public interest. Because the Board possessed jurisdiction under 408(a) and 408(b) by virtue of the Transamerica-Trans International Airlines acquisition, it will be unnecessary to decide whether FSL was an "indirect air carrier" or "engaged in a phase of aeronautics."

The Foreign Study League is a Utah based corporation sponsoring foreign summer school programs for American students. FSL retains its own faculty, adopts its own curriculum and publishes its own textbooks. High schools in 49 of the 50 states grant credit for completed FSL courses, and several colleges give credit for student participation. Highly respected educators attest to the value of FSL's summer program; and no party to this appeal has questioned its quality.

Since its inception in 1963, FSL has grown rapidly and is now substantially larger than any of its competitors. In 1964 1,920 students participated in the program while five years later the enrollment had mushroomed to nearly 14,000 students. By 1969, FSL described itself as the oldest and largest of the concerns specializing in foreign study-travel business, about as large as all the other foreign study-travel organizations combined.

In 1968 FSL, one of the nation's largest buyers of overseas transportation, was acquired by Transamerica, one of the nation's and world's largest conglomerates. Transamerica has substantial holdings in a large variety of businesses; backing these subsidiaries is the parent company's assets which in 1969 totaled over 3.5 billion dollars.

The other important link in this divestiture suit is Trans International Airlines, which Transamerica acquired in 1968. TIA, one of the largest United States certificated supplemental air carriers, is authorized to operate in the domestic, transatlantic, Caribbean, Central and South American and transpacific markets. When Transamerica elected to acquire TIA in early 1968, both corporations filed a joint application for approval with the Civil Aeronautics Board. This was necessary since Transamerica was engaged in a "phase of aeronautics" and thus required by 408(a)(5) of the Federal Aviation Act to secure Board approval. Following evidentiary hearings, the Board conditionally approved the acquisition. Subsequent to the TIA acquisition, Transamerica acquired the Foreign Study League. With Transamerica's new acquisition, the Board reopened its record on the Transamerica-TIA acquisition to determine whether the purchase of FSL constituted a change in the Transamerica-TIA relationship. A second reason for reopening the record was to decide whether FSL was an "indirect air carrier" or was "engaged in a phase of aeronautics," thereby subjecting the Transamerica-FSL acquisition independently to § 408(a)⁴ jurisdiction.

The Hearing Examiner reasoned that the Board maintained jurisdiction over the Transamerica-FSL acquisition as a result of conditions imposed on the Transamerica-TIA acquisition at time of approval. The Examiner further held that FSL is an indirect air carrier and thereby subject to Board jurisdiction under § 408(a). After settling jurisdictional issues, the Examiner concluded that acquisition of FSL by Transamerica constituted a violation of Section 7 of the Clayton Act with no balancing considerations in the public interest that would warrant approval of the acquisition. On review the Board affirmed the Examiner's decision sustaining jurisdiction. Additionally, the Board held that FSL was engaged in a "phase of aeronautics" thereby subjecting it to Board jurisdiction. The Examiner's determination that the FSL acquisition constituted antitrust violations was rejected, but the Board nevertheless struck it down as creating a "conflict of interest" and therefore contrary to the public interest.

Petitioners first contend the Board lacks jurisdiction to order divestiture of FSL because any statutory jurisdiction over the Transamerica-TIA acquisition does not extend to the purchase of FSL. Stated another way, the Board may not use the power to condition its approval of a 408(a) acquisition under 408(b) to extend its jurisdictional power to subsequent acquisitions that were not involved in the 408(a) acquisition approved and which do not involve any factors material to the approved 408(a) acquisition. Petitioners charge the conditions imposed in the Transamerica-TIA acquisition are between Transamerica's subsidiary, DeLaval Turbine, a manufacturer of airplane component parts, and TIA, a certificated air carrier. Any subsequent developments in the Transamerica-TIA acquisition concerning the relationship between TIA and FSL have no connection whatsoever with the DeLaval-TIA association.

The Board initially imposed conditions on the Transamerica-TIA acquisition as authorized by 408(b) which states in material part:

Unless, after such hearing, the Board finds that the . . . acquisition of control will not be consistent with the public interest . . . it shall by order approve such . . . acquisition of control, upon such terms and conditions as it shall find to be just and reasonable with such modifications as it may prescribe. . . .

The Board justifies its divestiture order of FSL by arguing that conditions imposed in the Transamerica-TIA order legitimate the order of divestiture. The condition presently in controversy is condition 8, which states:

8. That the Board shall retain jurisdiction over this proceeding for the purpose of:

(1) re-examining at any time the control relationships approved herein; and (2) imposing at any time, with or without hearing, such other conditions as it may find to be just and reasonable, including the submission of any special reports by applicants or any of their affiliates or subsidiaries that the Board may find required in the public interest.

There is no question the Board can condition its approval of an acquisition if it has jurisdiction over the subject matter. Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963). Petitioners argue, however, that condition 8 of the Board's order granting Transamerica's acquisition of TIA has no effect on the subsequent FSL acquisition. We do not agree. Technically, the Board's order requiring Transamerica to divest FSL has nothing to do with the Transamerica-FSL acquisition. What the Board is doing is reexamining its approval of the Transamerica-TIA relationship in light of subsequent developments. It is the changed condition of TIA emanating from Transamerica's acquisition of FSL that is subject to Board jurisdiction.

Certainly petitioners would not argue the Board lacked jurisdiction to consider tie-in effects of FSL and TIA if FSL had been acquired prior to TIA. The Board, in fact, is compelled to examine such circumstances before granting its initial approval. Northern Natural Gas Co. v. FPC, 130 U.S.App.D.C. 220, 399 F.2d 953 (1968). Petitioners nevertheless state that once the initial approval is given, no review of subsequent acquisitions is permitted unless it concerns the DeLaval Turbine-TIA relationship. We do not believe Congress so restricted 408(b). Such an interpretation feeds the hunger of large conglomerates who would thereby enjoy immunity for acquisitions considered not to be in the public interest. A conglomerate could do through its subsidiaries what it cannot do on its own.

Petitioners reject the Board's conclusion that...