Trans World Airlines, Inc. v. CAB
Decision Date | 12 September 1967 |
Docket Number | No. 19408.,19408. |
Citation | 385 F.2d 648 |
Parties | TRANS WORLD AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent. |
Court | U.S. Court of Appeals — District of Columbia Circuit |
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Mr. Charles Pickett, New York City, of the bar of the Court of Appeals of New York, pro hac vice, by special leave of court, with whom Mr. Warren E. Baker, Washington, D. C., was on the brief, for petitioner.
Mr. Frederic D. Houghteling, Atty., C. A. B., with whom Asst. Atty. Gen. Donald F. Turner, Messrs. Joseph B. Goldman, Gen. Counsel, O. D. Ozment, Deputy Gen. Counsel, Robert L. Toomey, Atty., C. A. B., and Howard E. Shapiro, Atty., Dept. of Justice, were on the brief, for respondent. Mr. Lionel Kestenbaum, Atty., Dept. of Justice, and Mr. John H. Wanner, Gen. Counsel, C. A. B., at the time the record was filed, also entered appearances for respondent.
Before DANAHER, WRIGHT and LEVENTHAL, Circuit Judges.
This case involves a petition by Trans World Airlines, Inc. (TWA) for review of certain orders of the Civil Aeronautics Board (Board), notably E-22022, entered April 2, 1965, which determined a final subsidy mail rate for TWA's transatlantic operations for the years 1946-1953. The determination was pursuant to Section 406 of the Civil Aeronautics Act of 1935, which has been carried over without substantial change into Section 406 of the Federal Aviation Act of 1958.1
The Board fixed TWA's international mail pay for those years at $48,633,000 — $22,375,000 in "service" (compensatory) pay and $26,258,000 in subsidy. Since TWA actually received $50,875,000 in temporary mail pay for these years, the Board's order required it to refund $2,152,000. TWA contests eight rulings of the Board and contends that the Board owes TWA more than $9,000,000 in additional subsidy.
Statutory framework of subsidy mail pay.
The terms "service" and "subsidy" do not appear in the Act but are widely used to describe the different forms of mail pay provided in Section 406. The "service" mail rate, paid by the Postmaster General, compensates carriers for transportation of mail, and is based on the cost of performing mail service including cost of equipment used and a fair return on the capital allocable to the mail service. In addition the Board makes "subsidy" payments to mail-certificated carriers whose operations are not self sustaining on the basis of commercial revenues and service mail pay. Section 406(b) provides that the "subsidy" is based on:
the need of each such air carrier other than a supplemental 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.
The subsidy comprehends what the carrier "needs" for "development," as well as for current operations, and for non-mail service as required for our commerce and national defense. A service rate applies only to mail carried, while the subsidy is based on miles flown. During the period involved service rates were based on costs of all carriers in the group, while the subsidy mail rate was based on the financial needs of each carrier. The amount of service mail pay, established at a group rate of 85 cents per ton mile for mail carried, is not contested in this case.
Prior proceedings.
TWA, originally a purely domestic carrier, began transatlantic operations in February 1946, and established a separate international division for this purpose. At that time, it was the Board's practice to treat such separate operating divisions as independent rate-making units and to fix domestic and international mail rates in separate proceedings. When TWA began its transatlantic operations, the Board set temporary subsidy mail rates for them, and as already noted these eventually yielded $50,875,000 for the years in question.
In July 1946 proceedings were commenced to establish a final transatlantic subsidy rate for TWA. In January 1952, after lengthy informal proceedings and on TWA's petition, the Board consolidated TWA's case with the transatlantic subsidy cases of Pan American World Airways and American Overseas Airlines (AOA). In March 1954, the Examiner rendered his Initial Decision in the consolidated cases,2 as to the period 1946-1952. By Orders E-8833 and E-9530, entered December 20, 1954, and August 30, 1955, the Board extended the Examiner's findings through 1953 on the basis of more recent data, revised several of his rulings, and concluded that TWA's international "need" for 1946-1953 was some $500,000 in excess of the temporary mail pay received.
Meanwhile, in Delta Air Lines v. Summerfield,3 decided earlier in 1954, the Supreme Court held that in determining whether there was 406 need qualifying a carrier for subsidy pay, the Board could not base rates on the "need" of only one division but must take into account the operations of the carrier as a whole, offsetting against the "need" of one division any "excess profits" earned by another division. In September 1954 the Board instituted the so-called "offset" phase of the case to determine if there were excess earnings by TWA's domestic division during the 1946-1953 period.4 The "offset" hearings overlapped the final stages of the "transatlantic" case. Any excess earnings in the domestic division were to be balanced against the determined need of the transatlantic division in order to arrive at what was net "406 need" under the Delta principle. By Orders E-10117 (March 23, 1956) and E-10176 (April 9, 1956), the Board came to the same conclusion as the Initial Decision of (another) Examiner issued November 23, 1955, that TWA's domestic division had excess earnings of $4,183,000, which must be used to offset its international "need" for compensation. This became translated into $8,715,000 available to reduce subsidy requirements because of the 52 per cent tax effect. The Board fixed TWA's net international mail pay after offset at $42,942,000, and ordered an $8,153,000 refund of temporary mail pay.
On petition for review this court, on January 23, 1958, without reaching the merits, set aside the Board's mail pay determinations as to TWA because the Board Chairman participated in the decision of the so-called "deferred tax" issue after having been of counsel for the Post Office during an earlier phase of the case. Trans World Airlines v. CAB, 102 U.S.App.D.C. 391, 254 F.2d 90 (1958). As to AOA, the court held that the Board's disallowance of strike losses was based on a misconstruction of the statute. American Overseas Airlines v. CAB, 103 U.S.App.D.C. 41, 254 F.2d 744 (1958).
On remand, new hearings were held but by agreement the only issues reopened were those involved in this court's decisions: the "strike loss" issue, in both the transatlantic and offset phases, and the "deferred tax" issue in the offset phase. The "strike loss" issue was determined in TWA's favor in part, and the "deferred tax" issue was decided against TWA. The 1965 determination in Order E-22022 that TWA was entitled to only $48,633,000 in transatlantic mail pay called for a $2,152,000 refund — a decline from the $8,153,000 refund ordered at the end of the offset phase, prior to the remand hearing.
Three of the issues raised by TWA affect the determination of the subsidy "need" of its international division.
TWA suffered a pilots' strike in 1946 and a navigators' strike in 1953. In the transatlantic phase the Board disallowed all the strike losses on grounds of general labor relations and rate-making policy. On the remand, and applying to TWA the principle of our American Overseas Airlines decision, the CAB considered whether these expenses met the "prudent management" test, that is, whether they were expenses that would have been incurred under "honest, economical, and efficient management" within Section 406(b).
The Board allowed in full the losses of the 1946 strike, two members dissenting. However, it disallowed 2/3 of TWA's $1,003,000 strike losses in 1953, when the navigators for transatlantic flights were out for 12 days, because it found that to this extent the prolongation of the strike could have been avoided by economical and efficient management.
We affirm the Board's ruling on this issue. Its conclusions flow rationally from its findings, and they in turn are supported by substantial evidence.
TWA leans primarily on the fact that TWA acted legally at all times, and the navigators acted illegally when their vain quest for job security in the face of displacement by equipment led them to strike in violation of their no-strike covenant. But the issue is not whether the company acted lawfully but whether it acted prudently — a higher standard. The contract and the Railway Labor Act, also invoked by TWA, may well have given TWA the right to spend its own funds without limit in implementation of the attitudes of management. But they do not give TWA a right to a subsidy to cover losses in a strike prolonged by its imprudent intransigence, and that is the critical finding before us.
The Board considered that the union's wildcat strike was illegal. But it noted (Tr. 16691):
But good labor relations is not simply a matter of strict observance of and insistence upon legal and contractual rights and duties; it is a matter also of relations among human beings, and due account must be taken of ordinary human...
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