Hughes Tool Company v. Trans World Airlines, Inc Trans World Airlines, Inc v. Hughes Tool Company

• Decision Date: 10 January 1973
• Docket Number: Nos. 71-827,71-830,s. 71-827
• Citation: 409 U.S. 363,93 S.Ct. 647,34 L.Ed.2d 577
• Parties: HUGHES TOOL COMPANY et al., Petitioners, v. TRANS WORLD AIRLINES, INC. TRANS WORLD AIRLINES, INC., Petitioner, v. HUGHES TOOL COMPANY et al
• Court: U.S. Supreme Court

409 U.S. 363

93 S.Ct. 647

34 L.Ed.2d 577

HUGHES TOOL COMPANY et al., Petitioners,

v TRANS WORLD AIRLINES, INC.

TRANS WORLD AIRLINES, INC., Petitioner,

v. HUGHES TOOL COMPANY et al.

Nos. 71-827, 71-830.

Argued Oct. 10, 1972.

Decided Jan. 10, 1973.

Rehearing Denied March 5, 1973.

See 410 U.S. 975, 93 S.Ct. 1434, 1435.

Syllabus

Trans World Airlines (TWA) brought this antitrust action against the Hughes Tool Co. (Toolco) and others for treble damages as a result of the manner in which Toolco had exercised its controlling interest in TWA, with particular reference to Toolco's asserted acts to control and dictate the acquisition and financing of aircraft by TWA. As an organization engaged in phases of aeronautics, Toolco could not acquire control of an air carrier such as TWA without consent of the Civil Aeronautics Board (CAB). In 1944 the CAB approved de facto control of TWA by Toolco as comporting with the provisions of § 408 of the Federal Aviation Act. That provision permits acquisitions of control that the CAB finds are not inconsistent with the public interest and that will not result in monopoly. Section 414 immunizes from antitrust liability any conduct approved by a CAB order issued under § 408. The approval narrowly limited intercompany sales transactions without specific CAB approval, and required annual reporting. A few years later, Toolco and TWA made an agreement permitting Toolco to obtain full legal control of TWA. The CAB, after full hearings into the Toolco-TWA relationship, found that Toolco's financial and other support was of great importance to TWA and concluded that 'the continued interest of Toolco in TWA appears essential to the best interests of the carrier and the public.' The CAB's approval was made subject to the conditions of the 1944 order. As a result, from 1944 to 1960, every acquisition and lease of aircraft by TWA from Toolco and each financing by TWA from Toolco received CAB approval pursuant to § 408. In 1960, Toolco's stock in TWA was placed in a voting trust in connection with a program for financing TWA's acquisition of jet equipment. Shortly thereafter, TWA brought this suit. As a defense, Toolco relied on Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325. The District Court entered a default judgment against Toolco. The Court of Appeals affirmed, concluding that Pan American was inapplicable because, unlike the situation in that case, the conduct challenged in TWA's complaint was 'unrelated to any specific function of the CAB' and not within the CAB's exclusive competence. Held: The transactions that TWA challenged as violative of the antitrust laws were under the CAB's control and surveillance, and, by virtue of §§ 408 and 414 of the Federal Aviation Act, had immunity under the antitrust laws. The Court of Appeals, therefore, erred in holding that Pan American, supra, is not controlling on the facts involved here. Pp. 366—389.

449 F.2d 51, reversed.

Charles Alan Wright, Austin, Tex., for Hughes Tool Co. and others.

Dudley B. Tenney, New York City, for Trans World Airlines, Inc.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The complaint in this litigation alleged antitrust violations and damages suffered by Trans World Airlines (TWA) while under control of Hughes Tool Co. (Toolco). A default judgment was entered for over $145 million with interest at the rate of 7 1/2%. The District Court's opinions confirming the damages award are reported at 308 F.Supp. 679, 312 F.Supp. 478. The Court of Appeals affirmed, 449 F.2d 51. The cases are here on a petition for certiorari¹ and on a cross petition. 405 U.S. 915, 92 S.Ct. 960, 30 L.Ed.2d 785.

The crux of TWA's complaint was the use by Toolco of its control over TWA to control and dictate the manner and method by which TWA acquired aircraft and the necessary financing thereof.²

Whether or not that complaint states a cause of action under the antitrust laws is a question we do not reach. Another defense of Toolco was that those transactions were under the control and surveillance of the Civil Aeronautics Board and by virtue of the Federal Aviation Act of 1958 those transactions have immunity from the antitrust laws.

It is our view that the Court of Appeals erroneously rejected that defense. This result, we think, is required by §§ 408 and 414 of the Federal Aviation Act and by our prior decision in Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963).

Section 408 of the Act makes illegal certain mergers, consolidations, and other transactions without the approval of the Civil Aeronautics Board.³ Specifically s 408(a)(5) requires the approval of the Board when 'any person engaged in any other phase of aeronautics' seeks to acquire control of any air carrier in any manner whatsoever. Section 408(b) authorizes and directs the Board to approve such transactions, including ac- quisitions of control, that are in the 'public interest' and prohibits approval of any transaction 'which would result in creating a monopoly or monopolies and thereby restrain competition or jeopardize another air carrier' not a party to the transaction. Section 102 of the Act requires that in assessing the public interest and the public convenience and necessity, the Board should consider, among other things, '(c) ompetition to the extent necessary to assure the sound development of an air-transportation system properly adapted to the needs of the foreign and domestic commerce of the United States . . ..'⁴ Section 408(e) empowers the Board, upon complaint or its own initiative, to investigate and determine whether any person is violating any provision of subsection (a) and, if such violation is found, to 'require such person to take such action, consistent with the provisions of this chapter, as may be necessary, in the opinion of the Board, to prevent further violation of such provision.' Under § 408(d), the Board has broad control over the accounts, records, and reports of anyone controlling an air carrier, and their inspection. The Board is further granted power to control the designation of any officer or director of an air carrier who is an officer, director, member, or the controlling stockholder of any person who is engaged 'in any phase of aeronautics.' § 409(a), 49 U.S.C. § 1379(a). Section 414 relieves from the operation of the antitrust laws any person affected by any order under § 408 'insofar as may be necessary to enable such person to do anything authorized, approved, or required by such order.'⁵

It was against this statutory backdrop that the Civil Aeronautics Board issued a series of decisions and orders with respect to the control of TWA by Toolco, the major decisions being issued in 1944, 1948, 1950, and 1960. The first decision, 6 C.A.B. 153 (1944), authorized control of approximately 45.6% of the outstanding stock of TWA. From the Board's opinion issued at that time, it appears that Howard Hughes first became interested in TWA at the invitation of his friend, Jack Frye, the president of TWA. Hughes began acquiring TWA stock through Toolco, which he solely owned. By 1942 Toolco had acquired 42.1% of TWA's outstanding stock and for all practical purposes was in position to control the day-to-day affairs of the carrier. Meanwhile, Hughes and Frye and jointly designed a four-engine transport, later known as the Constellation, which Lockheed agreed to manufacture under contract with Toolco. The contract was assigned by Toolco to TWA in 1942, Toolco reserving the right to purchase a sizable number of such aircraft through TWA. It was this arrangement by which Toolco might actually acquire for resale a number of commercial aircraft that, together with its experimental work in aviation and its manufacture of aircraft parts for the military, characterized Toolco as an organization engaged in any phase of aeronautics and therefore forbidden to acquire control of an air carrier such as TWA without the consent of the Board. Toolco's control of TWA, by virtue of its stock ownership which had by 1944 increased to 45.6%, was approved by the Board as being in the public interest and consistent with the provisions of § 408, including the prohibition against monopoly. In order to insure that Toolco would not abuse its power over TWA, 'to its own profit and to the detriment of the public interest,' 6 C.A.B., at 156, the approval was to continue only so long as intercompany purchases did not exceed $200 per item and did not amount to more than $10,000 in any one calendar year. Annual reports were required in this respect.⁶ 6 C.A.B., at 158.

The 1948 and 1950 decisions of the Board originated in a letter agreement presented by Toolco to TWA on January 8, 1947, and accepted by TWA the following day. By this agreement, Toolco agreed to loan $10 million to TWA in return for the latter's interest-bearing notes which were convertible into common stock of the company. On its own initiative, the Board opened an investigation into the matter. At the threshold was the question of Board jurisdiction, which was hotly contested. The Board's June 1948 opinion sustained its jurisdiction, 9 C.A.B. 381. The opinion took a dual approach to the jurisdictional question. It first inquired whether 'any change in the activities of Toolco in the field of aeronautics since October 17, 1944, has affected or altered the character of the control approved in Docket No. 1182. It is clear that a substantial change in the activities of Toolco in the field of aeronautics would result in a transaction subject to the Board's jurisdiction under section 408 by reason of the fact that the character and propriety of control originally approved might be altered or changed as a result thereof.' 9 C.A.B., at 382.

After reviewing the aeronautical activities of Toolco, it was concluded that the aircraft division of the com- pany was chiefly a large-scale experimental plant for the...