Summerfield v. Civil Aeronautics Board

• Decision Date: 04 May 1953
• Docket Number: 11324.,No. 11259,11259
• Citation: 92 US App. DC 248,207 F.2d 200
• Parties: SUMMERFIELD, Postmaster General et al. v. CIVIL AERONAUTICS BOARD. WESTERN AIR LINES, Inc. v. CIVIL AERONAUTICS BOARD.
• Court: U.S. Court of Appeals — District of Columbia Circuit

92 US App. DC 248, 207 F.2d 200 (1953)

SUMMERFIELD, Postmaster General et al. v. CIVIL AERONAUTICS BOARD.

WESTERN AIR LINES, Inc. v. CIVIL AERONAUTICS BOARD.

Nos. 11259, 11324.

United States Court of Appeals for the District of Columbia Circuit.

Argued December 5, 1952.

Decided May 4, 1953.

Writ of Certiorari Granted October 12, 1953.

Mr. Daniel M. Friedman, Special Asst. to the Atty. Gen., Department of Justice, pro hac vice, by special leave of Court, with whom Mr. Newell A. Clapp, Acting Asst. Atty. Gen., Department of Justice, was on the brief, for petitioners in No. 11259. Mr. Charles H. Weston, Chief, Appellate Section of the Antitrust Division, Department of Justice and Mr. William E. Kirk, Jr., Asst. U. S. Atty., Washington, D. C., at the time of argument, also entered appearances in behalf of the petitioners in No. 11259.

Mr. Hugh W. Darling, Los Angeles, Cal., for petitioner in No. 11324. Mr L. Welch Pogue, Washington, D. C., also entered an appearance in behalf of petitioner in No. 11324.

Mr. O. D. Ozment, Attorney, Civil Aeronautics Board, Washington, D. C., with whom Mr. Emory T. Nunneley, Jr., General Counsel, Civil Aeronautics Board, Washington, D. C., was on the brief, for respondent. Mr. John H. Wanner, Associate General Counsel, Civil Aeronautics Board, Washington, D. C., also entered an appearance in behalf of respondent.

Before PRETTYMAN, PROCTOR and BAZELON, Circuit Judges.

Writ of Certiorari Granted October 12, 1953. See 74 S.Ct. 49.

PRETTYMAN, Circuit Judge.

These cases concern orders of the Civil Aeronautics Board which fixed the compensation of Western Air Lines for the transportation of mail from May, 1944, through December, 1948. The dispute revolves about Section 406 of the Civil Aeronautics Act.¹ The proper treatment of several matters is involved.

Principally the petitions concern the treatment of the profit derived by Western from the sale to United Air Lines of a certificate for an air route and certain equipment used in connection therewith. Prior to September 15, 1947, Western owned a certificate for Route 68 — between Los Angeles and Denver. After a hearing the Civil Aeronautics Board approved the sale of the route and the equipment to United Air Lines² for a total price of $3,750,000. Of this $722,000³ was then computed as profit on the sale of tangibles and $447,000 as profit on the sale of intangibles. The Board decided that the transfer of the route at the amount to be paid by United was in the public interest, because the profit on the transaction would provide the necessary incentive for Western to make a sale and the purchasing carrier could operate the property to greater advantage to the public. The Board acted upon the premise that it has no power to force a carrier against its will to transfer property to another carrier; its only power to influence such transfers is the power of inducement. It decided that a profit on a sale would be such an inducement. Hence it approved the sale.

When the Board came, in the present proceeding, to the determination of compensation to Western for the transportation of mail, a problem arose as to the treatment of this profit in the computations.

The statute, in pertinent part, provides:

"(a) The Board is empowered and directed * * * to fix and determine from time to time, after notice and hearing, the fair and reasonable rates of compensation for the transportation of mail by aircraft * * *.

"(b) * * * In determining the rate in each case, the Board shall take into consideration, among other factors, * * * the need of each such air carrier for compensation for the transportation of mail sufficient to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier under honest, economical, and efficient management, to maintain and continue the development of air transportation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense."⁴

The statutory language which is critical in the present dispute is "the need of each such air carrier for compensation * * * sufficient * * *, together with all other revenue of the air carrier, * * * to maintain and continue the development of air transportation".⁵

Perhaps the problem is made clearer by use of a little simple arithmetic. If a carrier has $1,000,000 in revenue and $1,300,000 in expenses, obviously it needs $300,000 to break even; the "break even need". Then it needs a return on its investment and some working capital; let us say $200,000 for those needs. The statute says that the carrier should receive the amount needed not only to insure the performance of the service but also to enable it to continue the development of air transportation. Let us suppose that for the latter purpose the carrier needs another $100,000. In sum the carrier needs $600,000. Now, obviously, in this calculation the greater the amount of the carrier's existing revenues, the less the amount it needs by way of additional mail pay; and the less the revenues the greater the additional mail pay. So the inclusion of a given amount in revenues lessens the mail pay by that amount, and the omission of an amount from revenues increases the needed mail pay. Such is our present problem.

The Board at first decided that the entire profit on the sale of Route 68 was "other revenue", and it included this amount as revenue in calculating the amount of mail pay needed by Western. The effect was to reduce the mail pay by that amount. Upon reconsideration the Board changed its position. It included the profit from the sale of tangibles as "other revenue" in its calculation, but it did not include the profit from the sale of intangibles. The effect was to reduce mail pay by the amount of the profit on the tangibles, but the profit on the intangibles was left out of the calculation entirely.

The Postmaster General is a party in interest by reason of the duties in respect to mail pay imposed upon him by the statute.⁶ He says the Board was in error in its treatment of the profit on the intangibles. Western says the Board was in error in its treatment of the profit on the tangibles. The Postmaster General would include in revenues the entire profit on the sale of the route and the equipment. Western would exclude the entire profit from revenues in the calculation.

We turn first to the problem of the profit on the tangibles. This was a gain derived from the sale of capital assets. As such it was "income" within the meaning which that term has had ever since Doyle v. Mitchell Bros. Co.⁷ But our problem is whether it was "revenue" within the meaning of this rate-making statute. We think the answer should be sought chiefly in the substantive meanings of the statutory provisions rather than in the semantics of the phrases.

The difficulty of the problem arises because this proceeding is to determine a rate of compensation for a past period. Ordinarily, of course, rates are fixed for the future. We think it clear that the profit from an isolated past sale of capital assets could not be included in a calculation of compensation to be paid in future years for carriage of the mail. It would not be anticipated revenue in the future period. With that proposition the Board agrees. In fixing the rate for the future it has considered as revenue only reasonably anticipated items.

Western bases its foremost argument upon the foregoing as a premise. It insists that the present proceeding is a rate-making proceeding and nothing else; that a rate-making proceeding must be, in contemplation of law, rate-making for the future — a prospective rate-making, since, it says, rate-making is inherently a prospective concept. The Board itself has several times so held. And, of course, that is a generally accepted view as to utility rates. There is great power in that argument.

But we are impressed by the practical aspects of the situation. In this instance the Board was in fact looking at a period which had passed. The actual facts as to revenues and expenses for that period were known. The actual need, or lack of it, of the carrier in that period was known. In saying that the Board was looking at a past period we are not departing from the rule in the T. W. A. case.⁸ The period began when the petition for the rate-making was filed, i. e., May, 1944; as of that date the rate-making was prospective. When the Board got around to making its findings and decision the period 1944-1948 was past. It is to the latter actuality that we refer.

At this point the two different considerations embodied in this statute must be noted. The statute provides for actual compensation for the service performed in carrying the mail — a so-called service rate. This is the ordinary purpose of a utility rate. It involves reimbursement for expenses incurred in performing the service, return on the investment used in the service, and a reasonable profit on the transaction. This much is due whether the service is past or future. In the case at bar no dispute arises in respect to that phase of the matter.

But this statute adds to these ordinary features of a utility rate another consideration. It provides that the pay for carrying the mail shall be sufficient to meet the carrier's need. It describes that need as being for funds to perform the service of carrying the mail and also to maintain and develop air transportation. The problem under this provision of the statute is: How much does the carrier need? The answer depends upon (1) the gross, or total, need in dollars and (2) how much the carrier will have outside of mail pay.

In the ordinary case, where the rates are for the future, the revenue of the carrier must be anticipated. But where the pay is being computed for a past period may the Board accept as a fact that which it knows to be a fact, or must it ignore the known fact and compute the rate as though it were...