Trans World Airlines, Inc. v. Hughes

• Decision Date: 02 June 1964
• Docket Number: 151,Dockets 28405,28406.,No. 150,150
• Citation: 332 F.2d 602
• Parties: TRANS WORLD AIRLINES, INC., Plaintiff-Appellee, v. Howard R. HUGHES, Defendant, and Hughes Tool Company and Raymond M. Holliday, Defendants-Appellants. TRANS WORLD AIRLINES, INC., Plaintiff-Appellee, v. Howard R. HUGHES and Raymond M. Holliday, Defendants, and Hughes Tool Company, Defendant-Appellant, and The Equitable Life Assurance Society of the United States, et al., Additional Defendants-Appellees, and Ernest R. Breech, Additional Defendant.
• Court: U.S. Court of Appeals — Second Circuit

332 F.2d 602 (1964)

TRANS WORLD AIRLINES, INC., Plaintiff-Appellee, v. Howard R. HUGHES, Defendant, and Hughes Tool Company and Raymond M. Holliday, Defendants-Appellants.

TRANS WORLD AIRLINES, INC., Plaintiff-Appellee, v. Howard R. HUGHES and Raymond M. Holliday, Defendants, and Hughes Tool Company, Defendant-Appellant, and The Equitable Life Assurance Society of the United States, et al., Additional Defendants-Appellees, and Ernest R. Breech, Additional Defendant.

Nos. 150, 151, Dockets 28405, 28406.

United States Court of Appeals Second Circuit.

Argued November 13, 1963.

Decided June 2, 1964.

COPYRIGHT MATERIAL OMITTED

John F. Sonnett, New York City (Jerrold G. Van Cise, Paul W. Williams, Dudley B. Tenney, Marshall H. Cox, Jr., Raymond L. Falls, Jr., and William T. Lifland, Cahill, Gordon, Reindel & Ohl, New York City, on the brief), for plaintiff-appellee Trans World Airlines, Inc.

Chester C. Davis, New York City, for defendants-appellants Hughes Tool Co. and Raymond M. Holliday.

Bruce Bromley, New York City (Cravath, Swaine & Moore, New York City, on the brief), for additional defendants-appellees The Equitable Life Assur. Soc. of the United States, Metropolitan Life Ins. Co., James F. Oates, Jr. and Harry C. Hagerty.

William C. Chanler, New York City (Winthrop, Stimson, Putnam & Roberts, New York City, on the brief), for additional defendants-appellees Irving Trust Company and Ben-Fleming Sessel.

Charles L. Stewart, New York City (Dunnington, Bartholow & Miller, New York City, on the brief), for additional defendant-appellee, Dillon, Read & Co.

Chadbourne, Parke, Whiteside & Wolff, New York City, for additional defendant-appellee Charles C. Tillinghast, Jr.

Before LUMBARD, Chief Judge, and KAUFMAN and HAYS, Circuit Judges.

LUMBARD, Chief Judge:

These separate appeals, heard together, are from two orders of the United States District Court for the Southern District of New York in the same case. In the first appeal, No. 28405, the defendants, Hughes Tool Company (Toolco) and Raymond M. Holliday, Toolco's chief financial officer, attack the validity of an order which granted default judgment in favor of the plaintiff, Trans World Airlines, Inc., because of the defendants' failure to produce Toolco's managing agent, Howard R. Hughes, for examination and their failure to produce certain papers and documents, 32 F.R.D. 604 (S.D.N.Y.1963). In the second appeal, No. 28406, Toolco attacks an order which dismissed with prejudice its first five counterclaims against TWA and a group of additional defendants and an order of the same date which granted summary judgment in favor of TWA on the sixth counterclaim.

TWA's complaint charged the defendants with a variety of violations of the antitrust laws as well as with having committed willful and malicious injury to TWA's business, and sought divestiture of Toolco's interest in TWA, injunctive relief, and money damages, trebled with respect to the antitrust violations. On May 3, 1963, Judge Metzner ordered the entering of a default judgment in favor of TWA against Toolco¹ but referred to a special master the issue of damages, on TWA's claim of $35,000,000 which the antitrust statute would treble, and retained for further consideration the question of divestiture. Judge Metzner did certify under 28 U.S.C. § 1292(b) that immediate appeal was justified inasmuch as a controlling question of law was involved and hearings on the question of damages might be prolonged. We granted leave to appeal limited to two questions: first, whether the district court lacked jurisdiction of the treble damage action by reason of primary jurisdiction over these matters residing in the Civil Aeronautics Board; and second, whether the issuance of certain orders by the CAB permitting the defendant to take certain actions constitutes a good defense to the antitrust action. Thus the propriety of the court's entering a default judgment against the defendants with respect to the complaint is not before us and we consider it only in connection with the court's dismissal of the five counterclaims asserted by the defendants. The second appeal is taken as of right from a final judgment which dismissed Toolco's first five counterclaims and granted summary judgment to TWA on the sixth counterclaim.

BACKGROUND OF THE LITIGATION

An understanding of the issues requires a preliminary statement of certain background facts set forth in the pleadings and which on this record and in view of the default of the defendants we must take as established.

Commencing about five years after TWA was organized in 1934, Toolco, which at all times has been 100 percent owned and controlled by Howard Hughes, began to purchase TWA common stock, and by 1944 it held 45 percent of this stock. By 1958 Toolco had increased to 78 percent its interest in TWA's common stock; from 1944 until December 1960 it nominated a majority of TWA's directors.

Since 1955 the commercial air industry has largely converted to the use of jet aircraft. TWA's competitors began in that year to aid in the development of and to purchase jet planes. Prior to 1955 Toolco had entered into an arrangement with the General Dynamics Corporation (Convair) for the joint development of jet aircraft, but in that year the two companies terminated the arrangement. Toolco had also entered into a plan whereby it would develop and manufacture its own jet aircraft for sale or lease to TWA and its competitors. That plan was abandoned during 1956. During this period, Toolco arranged for the purchase on its own account of jet aircraft from Convair and the Boeing Company, these arrangements providing that Toolco could assign to TWA its rights to such aircraft.

Despite repeated requests by TWA, Toolco refused to assign any planes to TWA during the period 1956 to 1960. The only jet-powered aircraft which the defendants permitted TWA to use during this period were leased on a day-to-day basis by Toolco to TWA during 1959 and 1960 on the condition that TWA would not purchase or lease aircraft from any other potential supplier.

At some time prior to May 1960 Toolco and Atlas Corporation, which owns a controlling stock interest in Northeast Airlines, entered upon a plan to have Northeast propose to TWA a merger of the two air carriers. In November 1960, while the proposed merger plan was pending, Toolco diverted to Northeast six of the Convair jet aircraft which by previous agreement it had assigned to TWA.

The defendants pursued a continuous policy of refusing to permit TWA to undertake equity financing except on the condition that Toolco increase its equity position in TWA; as a result TWA was limited to obtaining funds through debt financing. When in 1960 Toolco and Hughes finally agreed to outside financing for TWA, the cost of such financing had risen greatly and the financing could be arranged only on less favorable terms than had theretofore been available, terms which had been secured by TWA'S competitors. Under the 1960 financing arrangement Toolco's stock in TWA was placed in a voting trust.^1a The CAB approved this financing arrangement and the voting trust on December 29, 1960, finding that these arrangements were in the public interest. Thereupon, the Metropolitan Life Insurance Company and the Equitable Life Assurance Society loaned TWA $92,800,000 and a group of banks for which the Irving Trust Company acted as agent loaned TWA $72,000,000. In March 1961 TWA's Board of Directors authorized the purchase of 26 Boeing jet aircraft. Thereafter the defendants continued their attempts to have TWA purchase from Toolco jet aircraft which Toolco had previously agreed to purchase from Convair. The defendants have also continued to press their demand for a merger of TWA and Northeast and have otherwise, despite the existence of the voting trust, attempted to prevent TWA from acquiring jet aircraft other than from Toolco.

THE FIRST APPEAL — Docket No. 28405

TWA's complaint alleges that the facts heretofore stated constitute violations of the Sherman and Clayton antitrust acts, insofar as the defendants have attempted to monopolize a substantial segment of interstate and foreign commerce and trade, have required that TWA boycott all suppliers of aircraft other than Toolco, and have agreed to provide financing and to sell aircraft to TWA on the condition that TWA not purchase or lease the goods of a competitor. The defendants assert that the Civil Aeronautics Board possesses primary jurisdiction over these matters and in the exercise of its powers has approved all of the transactions alleged in the complaint and thereby immunized the defendants from the operation of the antitrust laws. Judge Metzner held that nothing in the Federal Aviation Act precludes the district court from asserting jurisdiction in this case and that the CAB's approval of various transactions between TWA and Toolco did not confer immunity upon the defendants from the operation of the antitrust laws. We agree.

The proposition has so often been stated that it has become hornbook law that immunity from the operation of the antitrust laws is not lightly to be inferred from the enactment of a regulatory statute. See Georgia v. Pennsylvania R. Co., 324 U.S. 439, 65 S.Ct. 716, 89 L.Ed. 1051 (1945). Yet Congress may effect such a design through explicit enactment of an immunizing provision, and Congress has done so on occasion.² Under § 408(a) (6) of the Federal Aviation Act, 49 U.S.C. § 1378(a) (6), no person engaged in any phase of aeronautics³ may lawfully acquire control of any air carrier without the prior approval of the CAB. Section 411 empowers the Board to order any air carrier to cease and desist from "unfair or deceptive practices or unfair methods of competition." Section 414 of the Act provides that any person affected by any order made under § 408⁴ "shall be, and is hereby, relieved from the operation of the `antitrust laws' * * * and of all other restraints or prohibitions made...