United States v. Pan American World Airways, Inc.

• Decision Date: 08 March 1961
• Parties: UNITED STATES of America, v. PAN AMERICAN WORLD AIRWAYS, INC., W. R. Grace and Company, and Pan American-Grace Airways, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

193 F. Supp. 18

UNITED STATES of America, v. PAN AMERICAN WORLD AIRWAYS, INC., W. R. Grace and Company, and Pan American-Grace Airways, Inc., Defendants.

United States District Court S. D. New York.

March 8, 1961.

William P. Rogers, Atty. Gen., Edward R. Kenney, E. Riggs McConnell, Herbert F. Peters, Jr., Washington, D. C. Joseph H. Shortell, Trial Attys., Dept. of Justice, Juneau, Alaska, for plaintiff.

Cahill, Gordon, Reindel & Ohl, New York City, for defendant W. R. Grace and Co.; Lawrence McKay, William E. Hegarty, Raymond L. Falls, Jr., New York City, of counsel.

Cleary, Gottlieb, Friendly & Hamilton, New York City, for defendant Pan American World Airways, Inc.; James W. Lamberton, New York City, John K. Mallory, Jr., Washington, D. C., David W. Peck, Edward A. Woolley, New York City, of counsel.

White & Case, New York City, for defendant Pan American-Grace Airways, Inc.; Thomas Kiernan, Thomas Leary, Lowell Wadmond, New York City, of counsel.

THOMAS F. MURPHY, District Judge.

Nominally this is a government antitrust action brought pursuant to § 4 of the Sherman Act, 15 U.S.C.A. § 4, in which the defendants, Pan American World Airways, Inc., W. R. Grace and Company and Pan American-Grace Airways, Inc.,¹ are charged with violations of Sections 1, 2, and 3 of that act (15 U. S.C.A. §§ 1, 2 and 3.) Actually it is a continuation of a bitter family quarrel rampant since 1941 arising out of the unhappy and quondam unholy union of Pan American and Grace, each of whom owns 50% of the stock of Panagra, that the Civil Aeronautics Board (C.A.B.) could not resolve.²

Briefly, the complaint charges defendants with unlawful combination and conspiracy to restrain and monopolize trade and commerce between the United States and South America, particularly the west coast of South America. The relief sought is a decree requiring Pan American and Grace to divest themselves of their ownership of Panagra and enjoining all defendants from any and all challenged activities that are found to be violative of the antitrust laws. The ultimate objective of the government is to facilitate the merger of defendant Panagra with Braniff International Airways (Braniff), the only other American flag carrier operating between the United States and South America aside from Pan American and Panagra.³ This is in accordance with the recommendation of the C.A.B. in 1954 in order to make possible thereby "effective" competition between American carriers in that area and to reduce substantially the heavy burden of subsidy presently borne by this government. New York-Balboa Through Service, Reopened, 18 C.A.B. 501, 505.

The principal defenses urged are condonation by the government of the acts complained of, estoppel and laches; immunity because many of the agreements and mergers and acts complained of were approved by the Civil Aeronautics Board under a grant from Congress that absolved the defendants from antitrust violations and, as far as Pan American is concerned, that this court has no jurisdiction at this time because of the primary jurisdiction conferred by Congress in the Civil Aeronautics Board.

The Parties

Pan American is a corporation organized in 1927 under the laws of the State of New York as Pan American Airways, Inc. In 1950 its corporate name was changed to Pan American World Airways Inc. Pan American directly operates routes in air transportation of persons, property and mail between the United States and various points in Europe, Asia, Africa, Australia and Central and South America. It is today the largest international air carrier in the world. It also has a number of subsidiaries, including foreign corporations engaged in the transportation by air of persons, property and mail.

Grace is a corporation organized in 1899 under the laws of the State of Connecticut with its principal office in New York City. Grace has subsidiaries which engage in various aspects of industry, trade and commerce including Grace Line, Inc., which operates a steamship route, among others, for the transportation of persons, property and mail between the United States and the west coast of South America.

Panagra is a corporation organized in 1929 under the laws of the State of Delaware. Panagra is engaged in air transportation of persons, property and mail over routes between the Canal Zone and Buenos Aires, Argentina, via the countries on the west coast of South America. It is wholly owned by defendants Pan American and Grace, each of whom owns 50% of the stock thereof. The principal offices of Pan American and Panagra are located in New York City.

Civil Aeronautics Board

Commercial aviation in this country is a highly regulated industry, but became such only after Congress passed the Civil Aeronautics Act of 1938 (C. A.A.).⁴ That act authorized the creation of the Civil Aeronautics Board and established for the first time a comprehensive system of economic regulation of air transportation and removed, or attempted to remove, the threat of uneconomic and destructive competition in that field by providing that no air carrier may engage in air transportation without first receiving a certificate of public convenience and necessity. It gave to the President of the United States approval and veto power for such certificates as related to "overseas" and "foreign" air transportation (49 U.S.C.A. § 601). Since, however, a number of air carriers were in operation prior to the act it provided that as to those they could receive certificates of public convenience and necessity, under the so-called "grandfather" clause (49 U.S.C.A. § 481(e)). Accordingly, Pan American and Panagra received certificates of convenience and necessity for the operations which had been conducted by them under the various foreign mail contracts.

Congress also provided what policy the C.A.B. should follow as being in the public interest and in accordance with the public convenience and necessity, and defined that policy as follows:

"(a) The encouragement and development of an air-transportation system properly adapted to the present and future needs of the foreign and domestic commerce of the United States, of the Postal Service, and of the national defense;

"(b) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic conditions in, such transportation, and to improve the relations between, and coordinate transportation by, air carriers;

"(c) The promotion of adequate, economical, and efficient service by air carriers at reasonable charges, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices;

"(d) Competition to the extent necessary to assure the sound development of an air-transportation system properly adapted to the needs of the foreign and domestic commerce of the United States, of the Postal Service, and of the national defense; * * *" (49 U.S.C.A. § 402).

Congress also gave to the C.A.B. the power to approve or disapprove rates and tariffs, all types of mergers, consolidations, acquisitions, pooling and other agreements (49 U.S.C.A. § 481 et seq.) and with reference to certain of its orders antitrust immunity (49 U.S.C.A. § 494).

The Complaint

The government's case was fashioned along three major lines which, however, are interdependent both theoretically and evidencewise.

The first line deals with alleged restraints of trade relating to a division of markets in the transportation of passengers, cargo and mail in commerce between the United States and South America asserted to be illegal both from the standpoint of reasonableness and as a per se violation of law. It is the government's claim that Pan American and Grace entered into an agreement prior to the formation of Panagra whereunder the proposed jointly owned company was to have the exclusive right to traffic along the west coast of South America from the Canal Zone south free from Pan American competition, and Pan American was to be free from competition from the proposed jointly owned company elsewhere throughout South America and between the Canal Zone and the United States.

The second line of attack relates to alleged restraints imposed upon Panagra by its two parent companies, Pan American and Grace. To a large extent the evidence of restraints on Panagra in the categories of joint offices, communications, equipment, publicity and sales are matters of agreement that must be initially approved by the C.A.B. and to a large degree have been approved and others are awaiting approval or extension of approval previously granted.

These agreements are, however, interrelated to the third line of attack wherein the government alleges that Pan American and Grace conspired to monopolize transportation between the eastern coastal areas of the United States and South America, particularly the western coastal areas of South America and Buenos Aires, Argentina. It is alleged that Pan American and Grace agreed to combine in the formation of Panagra, equally controlled by them to engage in a limited operation from the Canal Zone south along the west coast of South America with the intent and purpose of preventing competition between Pan American and Grace with respect to transportation by air and preventing the establishment of an air transportation service independent of the control of themselves which would be competitive with the projected air services of Pan American and the surface operation of Grace Line, Inc.

It is claimed that these defendants, pursuant to such alleged conspiracy, organized Panagra in such a fashion that they each have a negative control of the latter's competition with their independent operations, and have prevented Panagra's extension of its routes in South America and to the United States, and from developing its own facilities in the United States independent of the control of Pan American, and in South...