Summerfield v. Civil Aeronautics Board

• Decision Date: 04 May 1953
• Docket Number: No. 11351.,11351.
• Parties: SUMMERFIELD, Postmaster General, et al. v. CIVIL AERONAUTICS BOARD et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

207 F.2d 207 (1953)

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

No. 11351.

United States Court of Appeals 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. Newall A. Clapp, Acting Asst. Atty. Gen., Department of Justice, was on the brief, for petitioners. Messrs. Charles H. Weston, Chief, Appellate Section of the Antitrust Division, Department of Justice, and William E. Kirk, Jr., Asst. U. S. Atty., Washington, D. C., at the time of argument, also entered appearances in behalf of the petitioners. Mr. H. Graham Morison, Asst. Atty. Gen. at the time the record was filed, also entered an appearance in behalf of the petitioners.

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

Mr. William A. Roberts, Washington, D. C., with whom Messrs. Harold A. Kertz, James E. Wilson and Mrs. Irene Kennedy, Washington, D. C., were on the brief, for the intervenor, Chicago and Southern Air Lines, Inc.

Before PRETTYMAN, PROCTOR and BAZELON, Circuit Judges.

Writ of Certiorari Granted October 12, 1953. See 74 S.Ct. 48.

PROCTOR, Circuit Judge.

This case is before us to review an order of the Civil Aeronautics Board fixing mail pay rates for Chicago and Southern Air Lines' Latin American routes.¹

In July, 1948, the Board fixed final rates for the carrier's domestic routes. These included a prospective rate commencing January 1, 1948, estimated to yield a net return, after taxes, of 7.4% on the carrier's investment allocable to domestic operations. Actually the average yield for the years 1948 through 1950 was 12.51%, or $654,000 more than estimated.

Later, October 18, 1951, the Board ordered final mail rates for the carrier's Latin American routes, retroactively from November 1, 1946 to December 15, 1950, and prospectively from December 16, 1950. These rates were estimated to yield a net return of 7% for the past period and 10% for the future. In determining the same the Board refused, for what it termed "sound reasons * * * of economic policy," (J. A. 54), to offset the carrier's excess profits of $654,000 from its domestic routes against "need" or subsidy requirements for the international operations (J. A. 53). The refusal to make the offset forms the basis of this appeal.

Although the brief filed in behalf of the Board carries an intimation (p. 12) that refusal to offset the carrier's excess domestic profits may be supported under § 406(b) permitting "different rates for * * * different classes of service", findings and conclusions of the Board reveal no such reason. Their action is explained in these words:

"The public interest in maintaining and furthering the incentive to carriers generated under forward final rates leads us to the conclusion that at this time, without review of any question of power but simply as a matter of policy, we should not offset the profits of the domestic division of C & S earned under the closed rate in establishing the mail rate for the international operation." Emphasis added.

(J. A. 21. See also J. A. 53.)

Thus it appears that the Board was initiating a new "incentive" policy without consideration of its authority under the Act to adopt a plan which omitted an offset of the excess profits arising from domestic operations.

The Postmaster General does not question the Board's authority to fix rates separately for different operating divisions of the carrier, but he does insist that the end result of fixing rates for a carrier must not go beyond that point where the total subsidy exceeds the need of the carrier as a whole. We agree with this contention.

In our opinion failure of the Board to make the offset is at variance with the plain meaning of § 406(b). That section speaks in terms of a carrier as a single entity; not as divisible units conducting separate operations. This meaning is clearly reflected in the requirement that "In determining the rate of mail pay in each case, the Board shall take into consideration * * * the need of each such air carrier for compensation * * to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier"² to meet the declared objectives of the Act. Accordingly, in determining the "need" requirements of Chicago and Southern Air Lines for its Latin American routes the Board must consider "all other revenue of the air carrier". Admittedly the excess profit of $654,000 derived from domestic operations is part of that revenue, so refusal of the Board to "take" the item "into consideration" in determining a rate for the Latin American routes results in allowing the carrier $654,000 more than its actual need, in disregard of the statutory requirement to keep subsidy allowances within those bounds.

Heretofore the Board has treated an air carrier as "the primary unit around which the national air transportation system was to be developed through the instrumentality of air mail compensation," and the "need" as "that of the air carrier as a whole and not that of any particular geographical division of its operations." Chicago and Sou. A. L., Mail Rates — Route Nos. 8 and 53, 3 C.A.B. 161, 190 (1941). This principle was reaffirmed in Pan Am. Airways, Inc., Alaska Mail Rates, 6 C.A.B. 61, 67 (1944), wherein the Board denied subsidy mail pay on the Airways' Alaska division because excess earnings from its more profitable divisions greatly exceeded the Alaska division's requirements. Thus we have an established construction of the Act by the Board which should be given weight. Federal Power Comm. v. Panhandle Eastern Pipe Line Co., 1949, 337 U.S. 498, 513, 69 S.Ct. 1251, 93 L.Ed. 1499, 1509; United States v. Amer. Trucking Ass'ns, 1940, 310 U.S. 534, 549, 60 S.Ct. 1059, 84 L.Ed. 1345, 1354.

We agree with those pronouncements of the Board. We think they correctly indicate the duty of the Board in fixing "fair and reasonable rates of compensation" under § 406(b) in each case to "take into consideration, among other factors * * * all other revenue of the air carrier".

Attention is called to our decision in Summerfield, Postmaster General v. Civil Aeronautics Board, 92 U.S.App.D.C. 248, 207 F.2d 200. There, in an opinion by Judge Prettyman, we hold that profits derived by Western Airlines, Inc., from sale of an air route certificate with operating equipment cannot be excluded from revenue for the purpose of providing an industry incentive. We see no essential difference between that case and this.

The order of the Board of October 18, 1951, fixing mail pay for Chicago and Southern Airlines' Latin American operations is set aside and the case remanded with directions to determine and fix the rate in accordance with this opinion.

Reversed.

BAZELON, Circuit Judge (concurring).

I add this comment to describe another difficulty stemming from the statutory inadequacies which are discussed in my concurrence this day in Summerfield v. Civil Aeronautics Board, 92 U.S.App.D.C. 248, 207 F.2d 200, and Western Air Lines v. Civil Aeronautics Board, 92 U.S.App. D.C. 248, 207 F.2d 200.

The Board refused to offset Chicago and Southern Air Lines' $650,000 excess over anticipated domestic earnings in establishing the mail rate for international operations. It concluded that such refusal would further managerial incentive to low cost operation and high revenue production in the domestic division. This may well be a highly desirable economic objective. But the premise essential to the Board's conclusion is that the domestic excess is directly related to these factors. Neither the Board nor the courts on review can say whether that premise is valid. The statute does not separate need or subsidy payments from compensation for services. Hence it cannot be determined whether all or any part of this domestic excess is attributable to managerial efficiency reflected by low cost operation and high revenue production or to exorbitant subsidy payments included in Chicago and Southern's domestic mail rate. We cannot impute to Congress an intent that the Board should chart its course without such essential information.

PRETTYMAN, Circuit Judge (dissenting).

The court holds that in fixing mail pay for transportation in foreign commerce the Board must include as ...