Tiger Intern., Inc. v. C. A. B., 75-1774
| Decision Date | 18 May 1977 |
| Docket Number | No. 75-1774,75-1774 |
| Citation | 554 F.2d 926 |
| Parties | TIGER INTERNATIONAL, INC. and the Flying Tiger Line, Inc., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent. |
| Court | U.S. Court of Appeals — Ninth Circuit |
M. Laurence Popofsky, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., Charles N. Brower, John Lewis, White & Case, Washington, D. C., argued, for petitioners.
Griffin B. Bell, U. S. Atty. Gen., U. S. Dept. of Justice, Civ. Div., Jerome Nelson, Gen. Counsel, Civil Aeronautics Bd., Thomas E. Kauper and Carl D. Lawson, Antitrust
Div., App. Section, U. S. Dept. of Justice, Washington, D. C., argued for respondent.
Petition to Review a Decision of the Civil Aeronautics Board.
Before GOODWIN and WALLACE, Circuit Judges, and FERGUSON, * District Judge.
This appeal comes to us in the form of a petition to review certain orders of the Civil Aeronautics Board (CAB). 49 U.S.C. § 1486. The petitioners, Tiger International, Inc. (TI) 1 and The Flying Tiger Line Inc. (FTL), argue that the CAB had no jurisdiction to issue Order 70-6-119 and that it acted beyond its authority, in an arbitrary and capricious manner, without a basis in substantial evidence, and in violation of due process in issuing Order 73-12-106 and Order 75-2-1. Because we find that we have no jurisdiction to review Order 70-6-119, we dismiss the petition as to that matter. We affirm both Order 73-12-106 and Order 75-2-1.
In July 1969 The Flying Tiger Line Inc. (Flying Tiger), 2 an air carrier specializing in transporting cargo, requested the CAB to disclaim jurisdiction over certain aspects of a proposed corporate reorganization and to approve the transfer of the carrier's certificates of public convenience and necessity to a new corporation. Under the proposed reorganization, the carrier would create a holding company, TI, and a wholly-owned subsidiary, FTL. FTL would be an operating company and would continue the air cargo business of the predecessor carrier. It was to FTL that Flying Tiger desired to transfer its certificates of public convenience and necessity.
The primary purpose for the reorganization into a holding company format was to facilitate diversification into businesses other than air transport. The air carrier industry traditionally has been cyclical, with alternating periods of prosperity and business downturn. The management of Flying Tiger believed that through diversification it could achieve a more stable profit pattern, make more efficient use of working capital in excess of aviation needs, achieve economies and reap more fully the benefits of certain provisions of the tax laws.
On May 5, 1970, the CAB entered its Order 70-6-119 (1970 Order) 3 in which it refused to disclaim jurisdiction over the reorganization. Rather, it asserted jurisdiction under section 408 of the Federal Aviation Act (the Act), 49 U.S.C. § 1378, 4 and pursuant thereto approved the reorganization subject to several conditions designed by the agency. One of those conditions (condition 3) required that TI
or any other company within the existing Flying Tiger Corporation system of affiliates and subsidiaries shall not in any calendar year, and without prior Board approval, either individually or jointly enter into any inter-company transactions with or affecting (the air carrier, FTL) which will have an aggregate value of $100,000 or more. 5
On June 24, 1970, the Flying Tiger management accepted the conditions of the 1970 Order. Shortly thereafter, in Order 70-6-153 (June 30, 1970), the CAB directed Flying Tiger to transfer its certificates of public convenience and necessity to FTL. 6
Between 1970 and 1971, TI and FTL commenced their diversification program by acquiring all of the common stock of North American Car Corporation (NAC). In 1971, the diversification continued when NAC purchased the common stock of National Equipment Rental Limited (NER).
In July 1973, TI, FTL, NAC and NER entered into a tax allocation agreement. Because the operation and ramifications of this agreement bear significantly on the resolution of several of the issues raised in this appeal, a detailed explanation of its provisions is necessary.
Under the agreement, the holding company, TI, could, if it elected to do so, file a consolidated federal income tax return that is, one covering all subsidiaries or affiliates of TI. Each subsidiary, however, was to compute its own tax liability as if it were filing a separate tax return and then to pay to TI the amount of that liability. If the subsidiary had no liability but rather would be entitled to a refund if it filed a separate return, TI was to pay that amount to the subsidiary. Also, TI was to give to each subsidiary except FTL a credit for the amount of any net operating losses or tax credits generated by that subsidiary and applied in computing the consolidated tax return. 7 To FTL, however, TI was to give not credits but an immediate cash payment equaling the tax savings achieved from the use of FTL's tax credits and operating losses. Although entered into in 1973, the tax allocation agreement provided that it was to have effect in the 1971 and 1972 tax years, as well as prospectively.
The operation of the tax allocation agreement can be clarified by presenting an example. In 1973, FTL's independent tax liability would have been approximately $10,960,000. The Tiger group's consolidated tax obligation, however, was less than one-third that amount, primarily because of the net operating losses of NAC. In a conscious attempt to offset FTL's pre-tax book profits, NAC had both greatly increased its capital purchases by buying in 1973, for example, 5,500 new railroad cars at a cost of $110,000,000 and adopted an accelerated method of depreciation. Thus the tax allocation agreement would have required FTL to pay the $10,960,000 to TI, which in turn would have used a fraction of that amount to pay the consolidated tax and the balance to meet the capital needs of the member subsidiaries and to continue the diversification program.
Because the tax allocation agreement constituted an intercompany transaction within the scope of condition 3 of the 1970 Order, TI and FTL applied to the CAB to secure its approval of the transaction. They did not, however, request a hearing on the matter, and the CAB did not order one. The CAB thereafter refused to approve the agreement as submitted, substituting instead its own plan. Order 73-12-106 (December 26, 1973) (1973 Order). Under the CAB approach, FTL cannot transfer to TI its tax-sheltered profits in the form of "independent tax liability" and FTL is permitted to pay to TI only its proportionate share of the consolidated tax liability. The CAB further directed FTL to issue its own credits to other members of the TI group whose losses and tax credits are used to shelter FTL income.
The 1973 Order was, by its own terms, "a temporary measure, to be superceded by" a final CAB order in the then pending Air Carrier Reorganization Investigation (ACRI). 1973 Order, at 3 n.4. With its 1970 reorganization, FTL had become the second air carrier to adopt a holding company format for diversification purposes. United Air Lines was the first, 8 and Braniff Airways attempted to become the third with an application to the CAB some time before March 1972. In response to this new phenomenon in the air carrier industry, the CAB instituted ACRI in March 1972. The purpose of the investigation was to determine "whether air carriers should be permitted to diversify their business activities through the creation of holding companies, and, if so, what policies, rules and/or regulations, if any, should the (CAB) adopt in order to regulate this form of diversification . . .." Order 75-10-65, at 1 (October 17, 1975). ACRI resulted in final orders, Orders 75-10-65 et seq. (ACRI Orders), which contain a comprehensive regulation of the holding company format, including regulation of tax allocation agreements. The ACRI Orders' effective date is May 14, 1976, at which time the measure here under attack, the 1973 Order, ceased to be operative. 9
After the CAB in its 1973 Order significantly modified the tax allocation agreement, TI and FTL petitioned for reconsideration. Again they did not request a hearing. On February 3, 1975, the CAB denied that petition in its Order 75-2-1 (1975 Order). TI and FTL then petitioned this court for a review of the 1973 and 1975 Orders and, indirectly, for a review of the 1970 Order.
The only basis for our jurisdiction over this controversy is section 1006(a) of the Act, 49 U.S.C. § 1486(a), which provides in part:
Any order, affirmative or negative, issued by the Board or Administrator under this chapter . . . shall be subject to review by the courts of appeals of the United States or the United States Court of Appeals for the District of Columbia upon petition, filed within sixty days after the entry of such order, by any person disclosing a substantial interest in such order. After the expiration of said sixty days a petition may be filed only by leave of court upon a showing of reasonable grounds for failure to file the petition theretofore.
The CAB concedes that the petition of TI and FTL to review the 1973 Order, as reaffirmed in the 1975 Order, is timely under section 1006(a). 10 It contends, however, that we lack jurisdiction to review the 1970 Order because TI and FTL failed to petition for review within 60 days of its entry. 11
TI and FTL attempt to circumvent this jurisdictional defect with three theories. First, they argue that the 1970 Order is a "necessary predicate" to the later two orders and that it therefore must be considered first. In short, TI and FTL are presenting the three orders as so intertwined as not to permit separate review.
While granting that there is a direct connection between the 1970 Order, particularly condition 3, and the 1973 and 1975 Orders, we find the argument of TI and FTL unpersuasive. As a...
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