REA Express, Inc. v. C. A. B.

• Decision Date: 06 October 1975
• Docket Number: No. 380,D,380
• Citation: 524 F.2d 54
• Parties: REA EXPRESS, INC., Petitioner, Brotherhood of Railway and Airline Clerks et al., Intervenors, v. CIVIL AERONAUTICS BOARD, Respondent, Air Freight Forwarders Association et al., Intervenors. ocket 74-1611.
• Court: U.S. Court of Appeals — Second Circuit

Page 54

524 F.2d 54

REA EXPRESS, INC., Petitioner Brotherhood of Railway and Airline Clerks et al., Intervenors, v. CIVIL AERONAUTICS BOARD, Respondent Air Freight Forwarders Association et al., Intervenors.

No. 380, Docket 74-1611.

United States Court of Appeals Second Circuit.

Argued Nov. 21, 1974.

Remanded for Reconsideration Dec. 23, 1974.

Decided after Remand and Reconsideration Oct. 6, 1975.

Bert W. Rein, Washington, D. C. (Kirkland, Ellis & Rowe, Washington, D. C., Arthur M. Wisehart, John J. C. Martin, Peter G. Wolfe, New York City, Anderson, Russell, Kill & Olick, P. C., New York City, of counsel), for petitioner REA Express, Inc.

Peter R. Steenland, Jr., Atty., Civ. Aeronautics Bd., Washington, D. C. (Thomas J. Heye, Gen. Counsel, C.A.B., O. D. Ozment, Deputy Gen. Counsel, Glen M. Bendixsen, Associate Gen. Counsel, Robert L. Toomey, Atty., C.A.B., Washington, D. C., Thomas E. Kauper, Asst. Atty. Gen., Howard E. Shapiro, Atty., Dept. of Justice, Washington, D. C., of counsel), for respondent Civil Aeronautics Bd.

Louis P. Haffer, Washington, D. C. (Robert N. Meiser, Haffer & Meiser, Washington, D. C., of counsel), for intervenors Air Freight Forwarders Association.

Solomon I. Hirsh, Rosemont, Ill. (William J. Donlon, Brotherhood of Railway, Airline & Steamship Clerks, Rosemont, Ill., Reilly, Fleming & Reilly, New York City, Highsaw & Mahoney, Washington, D. C., of counsel), for intervenor Brotherhood of Railway, Airline and Steamship Clerks.

Jerry W. Ryan, Washington, D. C. (Reavis, Pogue, Neal & Rose, Washington, D. C., of counsel), for Emery Air Freight Corp.

Eugene Wallman, New York City (N. Marshall Meyers, Washington, D. C., of counsel), for intervenors Pet Industry Joint Advisory Council, Association of Animal and Fish Distributors, Inc., National Pet Dealers and Breeders Assn Inc., Pet Producers of America, Inc., Florida Tropical Fish and Farm Assn., Inc., Safari Animal Imports, Inc., Gators of Miami, Inc., A-1 Animal Ranch, Inc.

William Q. Keenan, New York City (Martin S. Snitow, Arsham & Keenan, New York City, of counsel), for intervenors National Small Shipments Traffic Conference, Inc., Drug and Toilet Preparations Traffic Conference and Eastern Industrial League, Inc.

Richard A. Hyde, Director Legal Proceedings, United Air Lines, Inc., Chicago, Ill., for United Air Lines, Inc., one of Airlines participating in Air Express Service.

Russell S. Bernhard, Washington, D. C. (Macleay, Lynch, Bernhard & Gregg, Washington, D. C., William C. Burt, Koteen & Burt, Washington, D. C., of counsel, for Airlines participating in Air Express Service.

Before SMITH, HAYS and MANSFIELD, Circuit Judges.

MANSFIELD, Circuit Judge:

REA Express, Inc. ("REA") has petitioned for review of several orders of the Civil Aeronautics Board ("Board") affecting REA's operations, the most important of which are orders (1) terminating REA's authority as an indirect air carrier to provide "air express" service under an agreement with some 33 United States airlines ¹ but authorizing REA to act as an air freight forwarder in lieu of providing "air express" service, and (2) denying REA's application for authority independently to set rates for air express services, free from any veto power by the airlines. The orders had been entered in the Board's Express Service Investigation (Dkt. 22388) which had been instituted in 1970 following REA's filing of a complaint with the Board seeking independent rate-making authority and aid in REA's stalemated negotiations with the air carriers. ² By order dated July 16, 1974, we stayed the Board's orders pending our review.

Upon the argument of this appeal on November 21, 1974, we were informed that on that very date an agreement had been reached between REA and all but six or seven of the air carriers, which would meet most of the Board's objections to the continuation of the air express service as operated jointly by REA and the air carriers. Since friction between REA and the air carriers and their inability to reach a new agreement had been a factor influencing the Board's decision to terminate REA's air express service, we remanded the case to the Board for reconsideration in the light of this new development, retaining jurisdiction over the appeal which had been briefed and argued. By orders dated April 9, 1975, and May 23, 1975, the Board disapproved the latest REA-airlines agreement as not in the public interest and reaffirmed its earlier decision. Thereupon the parties filed additional memoranda directed toward the Board's decision after remand. We affirm the Board's orders under review.

"Air express," the oldest method of shipping air cargo, is a door-to-door priority air cargo service offered only by REA which, pursuant to its agreements with United States air carriers, functions as the single agency responsible for all ground services required to make the shipment, including pick-up, terminal handling, interline transfers, and delivery to the consignee. In addition to single carrier responsibility, it features single documentation, expedited priority air service, a simplified rate structure, and wide geographical coverage throughout the United States, particularly in small cities which do not generate enough business to support a larger scale air cargo service. Under its arrangements with the airlines, REA issues a single uniform express bill of lading and bills the customer at special air express tariffs which cover door-to-door charges at simplified rates based essentially on commodity and distance and which are shared by REA and the air carriers. The airlines dispatch the customer's shipment on the first available flight to its destination. For the purpose of handling this business REA maintains offices at some 69 airports. At the remaining 500 airports or so REA's ground services are provided by airline personnel.

For many years REA's air express service represented the only method of shipping merchandise by air carrier. Following the Board's decision in Railway Express Agreements, 4 C.A.B. 157 (1943), however, the air carriers began offering to the public airport-to-airport "air freight" services to be rendered by the carriers on their own at tariffs posted by the airlines. The shippers and consignees were required, respectively, to deliver and pick up their shipments at the airports involved. In 1948 a third form of air cargo service known as "Air Freight Forwarder" service was authorized by the Board, see Air Freight Forwarder Case, 9 C.A.B. 473 (1948), whereby indirect carriers known as air freight forwarders were authorized to pick up freight from shippers at a given point, assemble and consolidate the shipments for transfer by direct air carrier and, upon arrival of the consolidated shipment at its designation, perform break-bulk and distribution functions.

The introduction of competition by direct carrier air freight service and by forwarders resulted in air express eventually developing primarily into a door-to-door small package service, with the average shipment weighing only 27 pounds and moving approximately 500 miles. Air freight forwarders attracted larger size shipments (80-pound average) while the airlines' own air freight service averaged 300 pounds per shipment. Unlike REA the forwarders for the most part could not provide single carrier responsibility and single documentation except for shipments between pick-up and delivery zones of airports covered by their tariffs. ³ As a result most forwarders have tariffs based on the point-to-point tariffs of the direct air carriers with only a few publishing door-to-door tariffs.

Air express service is available at every airport city covered by scheduled air carriers. Although REA maintained at one time 3,000 office or agency locations performing its operations throughout the country, this number has been considerably reduced in recent years. However, the number of cities and towns covered by its services far exceed the facilities offered by forwarders, which generally maintain no facilities at all at the small airport cities except for some "destination" agencies which do not originate shipments.

By the late 1960's the amount of forwarder business was increasing enormously (168% During the period 1966-70) in contrast to REA's air express business, which was virtually at a standstill (3% Increase during 1966-70). REA, furthermore, was experiencing acute financial adversity, resulting in substantial annual losses from 1966 to 1974, which led to its institution of Chapter XI bankruptcy proceedings in 1975. The cooperation between REA and the air carriers, which was essential to the successful operation of air express service, faltered. As the airlines increased their own competing air cargo freight service, their negotiations with REA stalemated and REA, because of its financial plight, had difficulty making payments due the airlines.

In the Express Service Investigation REA argued that in order to survive it needed (1) independent rate-making authority, (2) dual authority to provide both air express and air freight forwarding service, and (3) permanent status as the exclusive air express carrier. Fundamental to REA's position was the assumption that air express provides a priority service over a larger geographical area and at a lower cost to the public than air carriers or forwarders and that continuance of air express was therefore in the public interest. However, while the airlines conceded in the Express Service Investigation that there was a public need for the existing form of air express service at least with respect to certain types of small shipments (e. g., "life or death" commodities, highly perishable products, animals), the forwarders urged abolition of air express service on the ground that, in view of the increasingly comparable service being provided by them and by the carriers, air express was no longer needed and had the adverse effect of stifling competition and the...