Northeast Airlines, Inc. v. CAB, 6365.

• Decision Date: 07 May 1965
• Docket Number: No. 6365.,6365.
• Citation: 345 F.2d 662
• Parties: NORTHEAST AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent.
• Court: U.S. Court of Appeals — First Circuit

345 F.2d 662 (1965)

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

No. 6365.

United States Court of Appeals First Circuit.

May 7, 1965.

Loyd M. Starrett, Boston, Mass., with whom Henry E. Foley and Foley, Hoag & Eliot, Boston, Mass., were on brief, for petitioner.

Frederic D. Houghteling, Attorney, C. A. B., with whom William H. Orrick, Jr., Asst. Atty. Gen., Lionel Kestenbaum, Atty., Dept. of Justice, John H. Wanner, Gen. Counsel, C. A. B., Joseph B. Goldman, Deputy Gen. Counsel, C. A. B., O. D. Ozment, Associate Gen. Counsel, Litigation and Legislation, C. A. B., and John M. Stuhldreher, Atty., C. A. B., were on brief, for respondent.

Before WOODBURY, Chief Judge, ALDRICH, Circuit Judge, and CAFFREY, District Judge.

CAFFREY, District Judge.

Northeast has petitioned for review of a refusal by the Board to rule that a set-off arrangement between petitioner and one of its trade creditors is not inconsistent with or violative of Section 403 of the Federal Aviation Act of 1958 (49 U.S.C. § 1373).

By way of background, it appears that on September 5, 1963 Northeast filed an application with the Board stating that as of June 30, 1962 it had been indebted to various creditors for substantial sums; that the amount of the sums was undisputed, already due and, in many cases, overdue, and unconditionally payable; that on July 1, 1962 Northeast had informed these creditors that they could obtain payment in whole or in part of these sums by setting off amounts which thereafter would become due to Northeast for such transportation as these creditors of Northeast might thereafter elect to obtain from Northeast; and that subsequent to July 1, 1962 Northeast has in fact discharged portions of its indebtedness to some of its creditors by the use of such set-offs. The petition did not set forth the number of creditors involved in this arrangement, the amount due to any individual creditor, or the total amount due to all creditors. The petition was silent as to what, if any, arrangement had been made by Northeast for payment of sums due or overdue to any of its creditors who did not elect to avail themselves of Northeast's transportation services.

The request for exemption contained in the petition filed September 5, 1963, under Section 416(b), (49 U.S.C. § 1386 (b)), was based on what Northeast called its "excessive overdue indebtedness."

The Board denied petitioner's request, refused to enter either of the orders requested, and dismissed the application on January 16, 1964. The Board noted that this action was premised on a finding that Northeast's application of September 5, 1963 was inadequate to advise the Board as to "the amount of indebtedness which would be discharged in the manner proposed by Northeast, the identity and number of the individuals which may be involved, or the period within which such indebtedness is anticipated to be discharged."

Petitioner filed a new application on February 17, 1964 limited to a request for a declaratory order to the effect that its arrangements with one particular trade creditor, Sperry Rand Corporation, did not violate Section 403 of the Act. This new application recited certain specific facts in an attempt by Northeast to eliminate the uncertainties which formed the basis of the Board's denial of the first petition. It alleged that between October 1961 and June 1962, Northeast had purchased various mechanical items from Sperry on open account at standard list prices set out in Sperry's published catalogues; that these purchases resulted in an undisputed balance due from Northeast to Sperry as of June 30, 1962 in the amount of $8554.04. It further alleged that Sperry thereafter agreed in writing to accept payment of the $8554.04 in equal installments of $237.61 per month over a 36-month period. Northeast agreed to pay six per cent interest on the unpaid balance of this debt from time to time. Northeast and Sperry further agreed that Northeast's debt to Sperry might be further reduced by off-setting any amounts thereafter becoming due from Sperry to Northeast for air transportation purchased by Sperry from Northeast, computed at Northeast's published tariff rates.

The record indicates that during the 16-month period, September 1962 through December 1963, Northeast made monthly payments in the total amount of $2851.32 and that Sperry obtained transportation services from Northeast in the total amount of $5116.52, leaving a balance due as of January 1, 1964 of $586.20, plus interest at six percent. While the agreement between Northeast and Sperry is silent as to which portion of Northeast's obligation is to be discharged by set-offs for transportation furnished to Sperry, it would appear from the conduct of the parties that they contemplated that a regular payment of $237.61 would be made month after month without regard to the amount of transportation services purchased by Sperry in any given month, with the practical result that purchases of transportation by Sperry were used by Northeast to offset and cancel the monthly payments to become due at the end of the 36-month period in reverse order commencing with the payment due in August 1965.

Eastern Airlines filed an answer opposing Northeast's application of February 17, 1964, in which Eastern alleged that as a competitor of Northeast it would be injured by the continuation of the practice proposed by Northeast and Sperry and that the practice was illegal as a violation of Section 403. Northeast filed a reply to Eastern's answer challenging the validity of Eastern's conclusions. On May 22, 1964, the Board denied Northeast's February 17, 1964 application.

The Board's decision was based in part on a ruling that the transportation charges to be incurred by Sperry in the future were not independently incurred and that there was an obvious tie-in between Northeast's debts and Sperry's utilization of air transportation. The Board noted that while the agreement did not legally obligate Sperry to purchase air transportation services from Northeast, nevertheless the proposed agreement gave Sperry a strong incentive to use Northeast to the exclusion of other carriers offering comparable service. The Board found that the contemplated use of an off-set over a three-year period was no less a barter transaction than would be an agreement by which Northeast bound itself to furnish transportation to a supplier of goods and services in return for a certain amount of the merchandise of the supplier. Concluding that for these and other reasons Northeast's arrangement with Sperry violated Section 403, the Board denied Northeast's request for a declaratory order, whereupon the present petition for review was filed with this court on July 9, 1964.

We are met at the threshold with the jurisdictional question of whether or not the Board's order is reviewable in view of the fact that it did not direct petitioner to cease and desist from the practice in question nor otherwise directly impose any legal obligation on Northeast with regard to the arrangement. The order did, however, set forth the Board's interpretation of the Act as applied to the specific facts alleged by Northeast in its petition. The Board does not contest the appropriateness of judicial review of the order, and points out in its brief that petitioner's continued performance under this arrangement or under similar arrangements with other creditors might very well subject Northeast to substantial civil penalties under Section 901(a) of the Act. (49 U.S.C. § 1471(a).)

The question whether the Board's determination is appropriately reviewable at this point is essentially one of the proper timing of judicial review and of whether this matter involves a sufficiently particularized controversy which is final in the sense that it is an at least firm (and perhaps binding) adoption of a position by the agency with regard to a course of conduct on the part of a member of the regulated industry which does not require further administrative action other than the possible imposition of sanctions. Among the factors to be considered are the relative formality of the agency's position, the degree of potential harm to the petitioner and the relative clarity of the issue presented for review. The Board's determination is not a mere advisory or interpretive opinion with regard to Section 403(b). Rather, it constitutes the adoption of a firm stance taken in the light of a well-defined body of judicial interpretation of a statutory provision similar to the one in question, and taken in response to a definite course of conduct proposed by Northeast. The Board's determination raises a clearcut legal issue, the basic or underlying facts being undisputed. We think that in the words of former Chief Judge Magruder (Algonquin Gas Transmission Co. v. Federal Power Comm'n., 201 F.2d 334, 337 (1 Cir. 1953), we are confronted with "administrative action of a substantial character approaching some degree of finality." We think that the Board's determination affords Northeast a Hobson's choice — both with regard to its business planning and with regard to the possible imposition of statutory penalties.

In Frozen Food Express v. United States, 351 U.S. 40, 76 S.Ct. 569, 100 L. Ed. 910 (1956), the Court held that an order of the Interstate Commerce Commission was subject to judicial review although the order therein was issued after an investigation instituted by the Commission on its own motion and was, in effect, a declaratory ruling that certain commodities specified therein were not "agricultural commodities" within the meaning of Section 203(b) (6) of the Interstate Commerce Act. That order, like the instant order, did not direct any particular carrier to cease and desist from carrying the commodities involved unless the carrier first obtained a certificate of public convenience and necessity, nor did that order impose any specific legal obligation on any named carrier....