Northwest Airlines, Inc. v. CAB, 16355

• Decision Date: 25 January 1962
• Docket Number: No. 16355,16396.,16356,16355
• Citation: 303 F.2d 395
• Parties: NORTHWEST AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent, United Air Lines, Inc., Capital Airlines, Inc., Intervenors. DELTA AIR LINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent, United Air Lines, Inc., Capital Airlines, Inc., Intervenors. EASTERN AIR LINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent, United Air Lines, Inc., Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

303 F.2d 395 (1962)

NORTHWEST AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent, United Air Lines, Inc., Capital Airlines, Inc., Intervenors.

DELTA AIR LINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent, United Air Lines, Inc., Capital Airlines, Inc., Intervenors.

EASTERN AIR LINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent, United Air Lines, Inc., Intervenor.

Nos. 16355, 16356, 16396.

United States Court of Appeals District of Columbia Circuit.

Argued November 6, 1961.

Decided January 25, 1962.

Mr. Hans A. Klagsbrunn, Washington, D. C., with whom Messrs. Lawrence D. Hollman and Emory T. Nunneley, Jr., Washington, D. C., were on the brief, for petitioner in No. 16355.

Mr. Richard S. Maurer, Atlanta, Ga., with whom Messrs. James W. Callison, Washington, D. C., and Frank F. Rox, Atlanta, Ga., were on the brief, for petitioner in No. 16356. Messrs. Joseph J. O'Connell, Jr., and Robert Reed Gray, Washington, D. C., also entered appearances for petitioner in No. 16356.

Mr. Allison Wade, Atlanta, Ga., of the bar of the Supreme Court of Georgia, pro hac vice, by special leave of court, for petitioner in No. 16396. Mr. Harold L. Russell, Atlanta, Ga., was on the pleadings for petitioner in No. 16396.

Mr. O. D. Ozment, Associate Gen. Counsel, Litigation and Research, Civil Aeronautics Board, with whom Mr. John H. Wanner, Gen. Counsel, Civil Aeronautics Board, Mr. Joseph B. Goldman, Deputy Gen. Counsel, Civil Aeronautics Board, Mr. William F. Becker, Atty., Civil Aeronautics Board, and Mrs. Richard A. Solomon, Atty., Dept. of Justice, were on the brief, for respondent.

Mr. H. Templeton Brown, Chicago, Ill., of the bar of the Supreme Court of Illinois, pro hac vice, by special leave of court, with whom Messrs. Robert L. Stern, Chicago, Ill., and James Francis Reilly, Washington, D. C., were on the brief, for intervenor United Air Lines, Inc.

Mr. Macon M. Arthur, Washington, D. C., entered an appearance for intervenor Capital Airlines, Inc., in Nos. 16355 and 16356.

Before WILBUR K. MILLER, Chief Judge, and PRETTYMAN and FAHY, Circuit Judges.

PRETTYMAN, Circuit Judge.

Nos. 16355 and 16356 are petitions to review an order of the Civil Aeronautics Board, which approved a merger of United Air Lines, Inc., and Capital Airlines, Inc. Petitioners, who were intervenors before the Board, are certificated air carriers, and their interest is the alleged competitive impact of the merger upon their respective operations.

Capital was the fifth largest domestic trunkline carrier. Its certificated routes extended from Minneapolis-St. Paul eastward to New York and thence south to New Orleans and Miami. In 1955 it purchased a fleet of Viscount aircraft from Vickers-Armstrong, Ltd., the British manufacturer, giving chattel mortgages on the planes, and promissory notes, in the amount of $66,700,000. Thereafter it fell upon hard times. It operated at a loss after 1955; its net worth declined from $17,000,000 in that year to $3,695,000 in 1960. It defaulted in its payments to Vickers, and Vickers instituted foreclosure proceedings. Capital, as the Board said later, was "in extremis".

The Board instituted several proceedings of investigation and inquiry, considering subsidies, the alteration of certificates, the transfer of routes, and merger possibilities. At that point, July 28, 1960, United came forward, having been approached by Capital, with an offer to acquire Capital. After hearings before an examiner, an initial decision, and argument on exceptions, the Board rendered findings and conclusions at some length. It approved the merger.

Before entering upon consideration of the legal points advanced by counsel, we pause to note the plain, hard problem faced by the Board. This was a naked crisis of practical realities. The fifth largest carrier in the country was about to disappear. There was nothing artificial about the problem; nobody urged it or encouraged it or intentionally created it. It came about through the operation of impassive economic forces. It was real. It was not an academic speculation. Sometimes mergers are arranged by the parties as desirable forward steps in some plan deemed by both to be a good one. The present merger was not of that sort. Neither of the parties to it liked it; neither wanted it. It was an emergency crash measure. Opening its opinion the Board said:

"In essence, the Board has decided to approve the merger of Capital and United because it has no practicable alternative. Notwithstanding the claims to the contrary, the simple fact is that Capital is financially in extremis and will not survive if the merger is disapproved."

The legal problems posed to us must be examined under the light of those facts. It is very well to theorize in hindsight about possibilities; but a regulatory agency must sometimes deal with immediate crises upon a realistic judgment of the moment. To be sure, it cannot be excused for mistakes thus made; but the area of permissible discretion can be measured in terms of the situation then existing.

We also note at this point the attitude of United in the matter, since a thread of criticism of that attitude seems to run through much of the argument. The record does not picture United as an enthusiastic proponent of the merger. It did not ask the Board to specify the terms and conditions upon which an acquisition might be approved. It did not offer to become a party to a merger, terms to be agreed upon or fixed. United appears to have been a willing party, but no more. It was agreeable to a certain contract but to none other. It was willing to buy at a certain price and upon certain terms, but at no other price and on no other terms. It made its offer. Nobody else made any offer. Those who now say that Capital might have been dismembered and sold off in pieces did not then come forward with proffers of prices or terms.

United's action and attitude seem to us to have been those of normal business. As commonplaces of the business world, men make offers and stand upon them. Of course negotiating and bargaining are also commonplace. But the submission of one offer, and one only, is a familiar procedure. It is the core of competitive bidding and of one-price policies. No moral, legal or economic principle dictates that there must be a counter-offer to every offer. Men and nations make offers and stand upon them; indeed this process is often more honest than is a proposal designed for bargaining purposes. United was interested in a certain purchase, at a certain price, and upon certain terms. It made its offer, fully and frankly. It stood on it. It was interested in nothing else. We see no shadow of impropriety or of the unusual in its position. And this position was one of the factors in the proceeding.

Petitioner Northwest Airlines, Inc., is a certificated carrier serving routes principally across the northern part of the United States (with extended service to Alaska, Tokyo, Hong Kong, Honolulu, and south from Chicago to Miami). In its sectors from Minneapolis-St. Paul east to New York, it serves many of the markets formerly served by both United and Capital, and which are now served by United alone. The Board's order, says Northwest, approving the merger substantially as proposed, has a direct adverse effect upon it.

Delta Air Lines, Inc., is a certificated carrier serving, principally, routes in the eastern section of the United States, such as the north-south routes from Chicago, Detroit and New York to Houston, New Orleans and Miami. Significant segments of Capital's north-south routes paralleled routes served by Delta. Delta says, for example, that on Route 51 — New York, Philadelphia, Atlanta and New Orleans — Capital, although certificated, had been only a minor participant and in many of the segments of the route its operating authority had become virtually dormant. Delta urged that Capital's certificate for this route be suspended, terminated, or sold to Delta; and that these determinations be included in the merger proceeding. Delta also argued that in the Chicago-New York area the merger inevitably resulted in "monopoly gaps", meaning certain markets in which United and Capital had been the only carriers or had carried an overwhelming majority of the traffic.

Eastern Air Lines, Inc., petitioner in No. 16396, is a certificated carrier, serving an elaborate system of routes over the eastern half of the United States. Its motions for stay and remand are, principally, to prevent United from reactivating allegedly unused, dormant or abandoned operating rights formerly used by Capital and, procedurally, to remand the case to the Board for further consideration of the transfer of those rights from Capital to United.

Petitioners say the minimum legal requirements for the scope of the full, fair and meaningful hearing to which they were entitled are absent here. Specifying, they say the hearing did not include full exploration of alternative proposals, or full consideration of terms, conditions and modifications which might have been imposed, that certain essential issues were erroneously deferred; and that the Board's order of July 25, 1961, ordering an investigation of the need for competitive service, is no substitute for the legal requirements of the scope of the hearing on the merger itself.

This particular proceeding began when United and Capital filed a joint application requesting approval of a merger agreement. The agreement provided, inter alia multa, that all of Capital's certificates would be reissued to United. It set a date, February 1, 1961, for unilateral rescission if the agreement were not by then approved. It provided for certain stated exchanges of United stock for Capital stock and debentures, and for a readjustment of the then-$34,000,000 Vickers debt. Vickers concurred. The Board assigned the application to an examiner. Petitioners (intervenors before the Board) sought to have the proceeding...