National Air Freight Forwarding Corp. v. Civil Aeronautics Board

197 F.2d 384, 90 U.S. App. D.C. 330, 1952 U.S. App. LEXIS 4061

• Court: Court of Appeals for the D.C. Circuit
• Decided: April 10, 1952
• Docket: 10630
• Status: Published

Opinions

BAZELON, Circuit Judge.

Air freight forwarders, like their surface counterparts, are common carriers who consolidate individual shipments into bulk lots for transportation. In addition, they perform certain other services, such as picking up freight at point of origin, delivering it to its ultimate destination from air terminals, and planning the routing of shipments. Forwarders do not themselves perform the basic transportation; this is done by an underlying air or surface carrier. The charge to shippers for the forwarder’s service is an amount equal to or slightly in excess of the rate which the individual shipper would pay if he were to ship his freight directly. The freight forwarder, in turn, ships at a lower bulk rate. From the spread between these two rates, the forwarders must draw their expenses and profit.

Freight forwarders have long existed in the field of surface transportation. Their importance was recognized in 1942 when a separate chapter providing for their regulation was added to the Interstate Commerce Act.¹ The present Civil Aeronautics Board order marks their initial mass entry into the field of air -transportation.² Among the many applicants for permission to operate as air freight forwarders³ were three whose relationship to railroads raised problems under § 408 of the Civil Aeronautics • Act of 1938.⁴ One of these applicants, National Air Freight Forwarding Corporation,⁵ now seeks reversal of that portion of the order denying it operating authority.

Air Freight advances three reasons as a basis for reversal: (1) the CAB erred in measuring its application by criteria found in § 408 of the Civil Aeronautics Act; ⁶ (2) certain findings of the Board are not supported by the evidence; and (3) the Board acted arbitrarily and capriciously in granting certain applications while .denying permission to Air Freight.

Section 408(a) (5) of that Act⁷ makes it unlawful, without CAB approval,⁸ “For any * * * common carrier * * * to acquire control of any air carrier in any manner whatsoever.” There is no dispute that an air freight forwarder is an air carrier.⁹ Nor can there be any doubt that Air Freight is controlled by a common carrier; for all of its stock is owned by a common carrier, National Carloading Corporation, one of the largest surface freight forwarders. National Carloading’s stock is, in turn, owned by railroad interests. The initial question which must be resolved is whether a grant of authority to Air Freight to enter the air freight forwarding field would result in the acquisition of an air carrier by a common carrier within the meaning and intent of § 408. If the grant of authority would not result in a technical acquisition under § 408, then we must ascertain whether the CAB can nevertheless consider the policies of that section in a proceeding instituted under § 1(2).

While there is no doubt that § 408 applies where a common carrier acquires control of an established air carrier, the parties dispute its application where, as here, control is acquired of a newly-organized company applying to enter the air transportation ¡field for the first time. Since such a company is not an air carrier until a certificate has been issued, it would appear at first blush that its relationships to other types of carriers are not subject to the restriction of § 408. It has been held, however, in Pan-American Airways Co. v. Civil Aeronautics Board, 2 Cir., 1941, 121 F.2d 810, that the very process of certification brings the control relationships between the newly certificated air carrier and its parent within § 408. Otherwise a common carrier seeking entry into the air transportation ¡field would be able to evade § 408 merely by organizing a subsidiary and causing it to apply for a certificate of public convenience and necessity under § 401. We agree with the Pan-American decision that it would be unwise for the Board to close its eyes to the fact that with completion of the certification process, there would be in existence an air-surface carrier control relationship which important segments of the Act were designed to regulate.¹⁰

Even if Pan-American were not persuasive and this case were not treated as a combined § 401 and § 408 proceeding, we think there is ample support for the proposition that the Board may apply the policies of § 408 in a §'401 proceeding, even where there is no technical § 408 control relationship. Recent decisions of the Supreme Court with regard to the Interstate Commerce Act make it clear that all the policies of a regulatory statute become elements of the public interest to be weighed in a certification proceeding.¹¹

Having decided that § 408 does apply to Air Freight, we must next consider petitioner’s argument that the Board erred in concluding “that the authorization of National Air Freight Forwarding Corporation to engage in air transportation as an air freight forwarder would not toe consistent with the public interest.”¹² To support this conclusion, the Board found that (1) Air Freight would have a competitive advantage over other air freight forwarders resulting from its railroad connections and (2) because Air Freight was controlled by powerful railroads, an incentive to divert potential air freight traffic to the railroads would exist. Petitioner challenges the adequacy of the evidence to support these findings. We think that the record as a whole discloses substantial evidence to support these conclusions, and in the face of such evidence we cannot set the administrative judgment aside.¹³

The CAB found- as undisputed fact that Air Freight was indirectly controlled

by three railroads — Chesapeake & Ohio, Pere Marquette, and Erie — which comprise a great sector of the American railroad industry, and directly by one of the three largest surface freight forwarders; and that Air Freight will use the facilities of its direct parent, National Carloading.¹⁴ It is conceded that National Carloading uses some of the facilities of the railroads, especially office and warehouse space.¹⁵ From these facts the Board concluded that railroad facilities would be used to the competitive advantage of Air Freight.¹⁶ Faced with some fifty other air freight forwarder applicants who did not present the problems involved in Air Freight’s application and who were fit and willing to meet the public need for air freight forwarder service, the Board decided .that it would not be in the public interest to give Air Freight operating authority. “We are unable to say * * * that the [Board] erred in reaching the result .it did. The facts being undisputed, we aré free to disturb the * * * conclusion only if it lacks any rational and statutory foundation.”¹⁷ Whether or not we would have reached the same -result is not the test. For similar reasons, we do not think the Board committed error when it found that the great fixed investment in railroad facilities not capable of use in air services would create an incentive to divert traffic to surface transportation. These are judgments which Congress entrusted to the Board when it wrote special provisions into the law governing applications by air carriers which are controlled by surface carriers. The record does not “clearly preclude the Board’s decision from being justified fey * * * its informed judgment on matters within its special competence * * *,”¹⁸

We come finally to the argument that the Board acted arbitrarily and capriciously when it granted operating authority to other applicants, particularly to the Railway Express Agency, Inc.,¹⁹ while denying authority to Air Freight. Petitioner points out that REA is also completely controlled by railroads.²⁰ And, it says, the Board failed to apply the same principles to Air Freight’s application which it applied to REA. This failure, in Air Freight’s view, resulted in the denial of its application and amounts to discriminatory treatment for which it is entitled to relief in this court.

The Board’s action with respect to REA must be viewed in its entire context. REA has been carrying air express under contracts with the major airlines since 1929. With the passage of the Civil Aeronautics Act in 1938, these activities became subject to CAB regulation. ’In 1941, the CAB decided that REA was not entitled to a certificate of public convenience and necessity for these operations under the grandfather provisions of the Act.²¹ At the same time, the Board concluded that the public interest required continuation of REA’s air express operations, and it granted a temporary exemption under § 1(2) of the Civil Aeronautics Act. There was apparently no suggestion of a § 408 problem in this proceeding, for that section was not mentioned in the Board’s opinion. In 1943, REA’s contracts with the air carriers were revised at the Board’s suggestion to eliminate certain features which it 'had found objectionable.²² As more air carriers were certificated by the Board, REA entered into contracts with them.²³ At the time of the hearings below, REA operated under an exemption “subject to revocation * * * at any time if * * * the exemption * * * is no longer in the public interest.”²⁴

When the hearings were held in this case, REA was serving 23,OCX) communities by rail, motor or air connections. The air express division alone served some 880 communities in 1946. In the same year, REA handled 3,146,000 air shipments. At the hearing, many representatives of business interests testified to the public need for REA’s services. And the airlines themselves, many of whom opposed the certification of air freight forwarders, joined in requesting that REA’s air express operations be continued until the airlines as a group were ready to take over all air express operations. The record does not indicate that any other applicant sought to meet the public need for air express service which REA alone was supplying.

In the instant case, REA sought for its air express operations either a certificate of public convenience and necessity or an enlarged exemption order which could be revoked only by public hearing and findings. It also sought permission to engage in the air freight forwarding business, to handle air freight, and to enter into contracts with non-certificated carriers. One mark of the care with which the Board treated REA’s application is its denial, at least temporarily, of all applications for permission to inaugurate service other than air express. And as to air express, the Board did nothing but continue the exemption under which REA has operated, with modification, since 1941.²⁵

The CAB did not view the continuation of REA’s air express service as raising a problem of compliance either with the letter or the policy of § 408 of the Civil Aeronautics Act. The key to the Board’s opinion is its conclusion that Congress did not intend to make § 408 applicable to “a control relationship created prior to the effective date of the Civil Aeronautics Act and existing unchanged from that date forward.”²⁶ This is a view which the Board has publicly held for at least eight years²⁷ Appellants present us with no reason for 'holding this to be an incorrect interpretation of the statute. Indeed, they have not argued the point other than to assert that permitting REA to continue in the air express business while keeping Air Freight out of the air freight forwarding field was so arbitrary and capricious as to be discriminatory.

We believe the Board was correct in its view that § 408 has no effect where a control relationship in existence when the Civil Aeronautics Act was passed has continued unchanged. To suggest that “either there is or there is not” a congressional policy with respect to railroad control of air carriers is merely to pose the question, not answer it. Of course, there is such a policy. But the language of § 408 demonstrates that Congress intended that section to be prospective only — whether by way of technical application or by way of policy. In contrast, the language of §§ 409 and 412, which regulate such things as interlocking directorates and pooling agreements, indicates that, Congress intended to make those sections applicable to situations which existed at the time of the Act’s passage or on the expiration of a specified number of days thereafter.²⁸ Had Congress intended either the words or the spirit of § 408 to apply to control relationships already established in 1938 and remaining unchanged thereafter, it could have easily said so.²⁹ Since Carloading’s control of Air Freight was established subsequent to the passage of the Act, it is clear that the Board could not hold § 408 inapplicable to the Air Freight- Carloading relationship.³⁰

While the Board felt that the relationship between REA and the railroads did “not raise any issue under section 408 of the Act,” it should also be pointed out that the Board did consider whether “the railroad ownership of REA may have an adverse effect on the development of the air express potential and may be inconsistent with the public interest.” The Board found that REA had “actively and consistently encouraged the solicitation and ' development of air express,” had “joined with the [rail] carriers in authorizing the expenditure of large sums of money from gross air express revenues for advertising and promotional purposes” and that there was “nothing in the record to indicate that the railroads * * * have inhibited or restricted the air express operations to date.”³¹

Considering all the factors which distinguish REA from Air Freight, we do not think the Board was arbitrary or dis7 criminatory in its treatment of the two applicants. Treatment of REA was based upon a reasonable assessment of competing considerations. The Board, in a proper exercise of its expert judgment, weighed the acknowledged public need for air express service — which only REA was able to render — against the possibilities for abuse of the public interest resulting from REA’s railroad control.

It is unnecessary to recite in great detail the CAB’s treatment of the other applicants to dispel Air Freight’s argument that the order is arbitrary and discriminatory. In granting applications,, the CAB .stated one or more . factors which distinguished the applicant from Air Freight. In the case of applicants controlled by motor carriers, for example, the CAB found that the underlying motor carrier operated in a limited geographic area (New York, New England, the eastern United States), specialized in a particular type of service (household goods, fish, local pick-up and delivery service), or was so small as to create no real danger of a substantial conflict of interests between the motor carrying activities and the air freight forwarding activities. The CAB also found that the operations of motor carrier affiliates would be useful to the the applicants in bringing cargo to their consolidation points and in distributing shipments from break-bulk points. In treating applicants controlled by persons already engaged in phases of aeronautics, the Board granted the application only after finding that there would be no conflict of interest between the two phases of air activity. As an illustration, air freight forwarding authority was granted to one applicant only on the condition that the parent .give up its air freight charter service. As a- final example, in.dealing with independent surface freight forwarders, the Board pointed out that they lacked the relatively high fixed investment in surface transportation facilities which created the incentive for diversion of air traffic in the case of railroad-controlled air freight forwarders.³²

In conclusion, we think that the CAB’s order merely expressed its view of the balance between the potentialities of abúse in Air Freight’s control relationship and the public interest in having it enter a field for which there were many other applicants. “The appraisal of these numerous factors is for transportation experts. They may err. But the error, if any, is not of the egregious type which is within our reach on judicial review.”³³ It is also our view that Air Freight’s petition for reconsideration to the Board’ presented no facts which required the Board to reopen the case. Affirmed.

1 . Part IV, Interstate Commerce Act, 56 Stat. 284 (1942), 49 U.S.C.A. § 1001 et seq.

2 . In an appeal from a portion of the Board’s order not now in issue, several parties unsuccessfully challenged the CAB’s action in letting freight forwarders into the air transportation field at all. American Airlines, Inc., v. Civil Aeronautics Board, 7 Cir., 1949, 178 F.2d 908.f

3 . Many applicants requested certificates of public convenience and necessity. The Board concluded, however, that in view of the experimental nature of the air freight forwarder program, it would grant temporary exemptions for a maximum of five years under § 1(2) of the Civil Aeronautics Act, 52 Stat. 973, 977 (1938), 49 U.S.C.A. § 401(2), rather than certificates under § 401, 52 Stat. 973, 987 (1938), 49 U.S.C.A. § 481. Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 493-501.

4 . 52 Stat. 973, 1001 (1938), as amended, 49 U.S.C.A. § 488.

5 . Hereafter referred to as Air Freight. Its parent, National Carloading Corporation, is also a party to this suit.

6 . The Board did not apply the restrictive standard of the second proviso of § 408 (<b) to Air' Freight or to any other appli- ' cant. The Board said that this proviso is “directed to the case of control of a direct air carrier by a direct common carrier * * Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 503. Air freight forwarders are indirect air carriers'. See cases cited note 9, infra. Petitioner was one of approximately twenty persons whose applications called for special consideration under § 408.

7 . 52 Stat. 973, 1001 (1938), 49 U.S.C.A. § 488(a) (5).

8 . CAB approval is conditioned on compliance with the standards laid down in § . 408(b), 52 Stat. 973, 1001-2 (1938), 49 U.S.C.A. § 488(b).

9 . Railway Express Agency, Grandfather Certificate, 1941, 2 O.A.B. 531; Universal Air Freight Corporation, Investigation, 194-2, 3 C.A.B. 698.

10 . The Pan American case also decided that where a technical § 408 question is presented, compliance with § 408 is not a prerequisite to issuance of a certificate under § 401, “though the ability of [the applicant] to meet the standards [of § 408] might be considered by the Board * * * in connection with granting certificates of public convenience and necessity.” Pan American Airways Co. v. Civil Aeronautics Board, 2 Cir., 1941, 121 F.2d 810, 816.

11 . United States v. Rock Island Motor Transit Co., 1931, 340 U.S. 419, 71 S.Ct. 382, 95 L.Ed. 391; United States v. Texas & Pacific Motor Transport Co., 1951, 340 U.S. 450, 71 S.Ct. 422, 95 L.Ed. 409; American President Lines, 1947, 7 C.A.B. 799. Although the Supreme Court cases involved certificates of public convenience and necessity, the principles announced therein are equally applicable where, as here, the Board grants letters of registration under the exemption provisions of § 1(2).

12 . Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 511. The phrase “will not be consistent with the public interest” is found in § 408(b).

13 . 52 Stat. 973, 1024 (1938), 49 U.S.C.A. § 646(e); 60 Stat. 237, 243-4 (1946), 5 U.S.C.A. § 1009(e).

14 . Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 510-11. Subsequent to the CAB’s order, the Erie Railroad acquired all the stock of the National Carloading Corporation. J.A., p. 117.

15 . J.A., p. 112.

16 . Appellant argues that “The provisions of the Civil Aeronautics Act do not confer upon the Board either the authority or the duty to attempt to equalize competitive advantages of indirect or direct air carriers.” Brief for Appellant, p. 26. That the Board may consider' the competitive impact of an applicant on the air transportation industry as one element of the public interest is obvious from the Act’s declaration of policy, 52 Stat. 973, 980 (1938), 49 U.S.C.A. § 402 (d), and from the language of the first proviso of § 408(b), 52 Stat. 973, 1001-2 (1938), 49 U.S.C.A. § 488(b).

17 . Securities & Exchange Commission v. Chenery Corp., 1947, 332 U.S. 194, 207, 67 S.Ct. 1575, 1582, 1760, 91 L.Ed. 1995; see also Securities & Exchange Commission v. Central-IUinois Securities Corp., 1949, 338 U.S. 96, 127, 69 S.Ct. 1377, 93 L.Ed. 1836; Federal Security Administrator v. Quaker Oats Co., 1943, 318 U.S. 218, 227-228, 63 S.Ct. 589, 87 L.Ed. 724.

The Board’s opinion concluded that the facilities of the railroads, especially in the solicitation of traffic, might he used to Air Freight’s advantage. In its petition for rehearing before the Board, Air Freight took considerable care to point out that neither National Carloading nor Air Freight will use the railroad’s traffic solicitors. J.A., pp. 105, 106-7) 119. This showing is undoubtedly one factor which we must consider on review, Universal Camera Corp. v. National Labor Relations Board, 1951, 340 U.S. 474, 487-488, 71 S.Ct. 456, 95 L.Ed. 456. But even if the Board’s conclusion with respect to traffic solicitors be incorrect we are unable to say, in view of the other findings, that the Board erred in denying Air Freight’s application.

18 . Universal Camera Corp. v. National Labor Relations Board, 1951, 340 U.S. 474, 490, 71 S.Ct. 456, 95 L.Ed. 456.

19 . Hereafter referred to as REA.

20 . REA’s authorized capital stock, which consists .of one .thousand shares, has been distributed -to seventy different railroads whose respective holdings were determined by the amount of express business each conducted. Of REA’s sixteen directors, fifteen have railroad affiliations. Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 478.

21 . Railway Express Agency, Grandfather Certificate, 1941, 2 C.A.B. 531.

22 . Railway Express Agreements, 1943, 4 C.A.B. 157.

23 . These contracts and future contracts which might be identical in terms were approved on September 3, 1946; Order ’ Serial No. 5149.

24 . Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 479.

25 . Id., at page 512.

26 . Id. at page 485; Railroad Control of Northeast Airlines, 1943, 4 C.A.B. 379. In our view the reasons for the Board’s conclusion that § 408 does not apply to REA are unmistakable from its opinion, especially in view of its citation of the Northeast Airlines case.

27 . See id. at pages 385-387.

28 . Section 409(a) prohibits certain interests without CAB approval, “After one hundred and eighty days after the effective date of this section * * Sec-. tion 409 (b) prohibits certain transactions “After this section takes effect * * 52 Stat. 973, 1002, 1003 (1938), 49 U.S. C.A. § 489. Section 412 provides: “Every air carrier shall file with the Board a true copy * * * of every contract or agreement * * * affecting air transportation and in force on the effective date of this section or hereafter entered into, or any modification or can-celation thereof, between such air carrier and any other air carrier * * * for pooling or apportioning earnings, [etc.]. * * *

“The Board shall by order disapprove any such contract or agreement * * * that it finds to be adverse to the public interest, or in violation of this chapter * * 52 Stat. 973, 1004 (1938), as amended, 49 U.S.C.A. § 492.

29 . “Retroactivity, even where permissible, is not favored, except upon the clearest mandate. It is the normal and usual function of legislation to discriminate between closed transactions and future ones or others pending but not completed.” Claridge Apartments Co. v. Commissioner of Internal Revenue, 1944, 323 U.S. 141, 164, 65 S.Ct. 172, 185, 89 L.Ed. 139.

30 . We find no confusion between the Board’s conclusion in 1941 that REA was not entitled to a grandfather certificate, Railway Express Agency, Grandfather Certificate, 2 C.A.B. 531, and its conclusion that § 408 does not apply to REA’s railroad control as presently constituted. In the grandfather case the Board decided only that one could not get a certificate under § 401(e), 52 Stat. 973, 988 (1938), 49 TJ.S.C.A. § 481(e), of the Civil Aeronautics Act, without showing actual physical operation of aircraft during the grandfather period.

This does not conflict with the Board’s later holding that Congress intended neither the language nor the policy of § 408 to apply to surface — air carrier control relationships which remain unchanged since the Act’s passage. The latter view does not, in our opinion, as the dissent argues, “bring it [REA] within the in-tendment of the Congress that a certificate be not denied because of REA’s operations prior to the Act.” In the first place, no one contends that the Board is without power to deny REA operating authority for any reason merely because § 408 does not apply to its control as presently constituted. In the second place, we are not dealing with a case where the degree of control exercised over REA has been increased since the Act’s passage — be that increase ever so slight.

31 . Air Freight Forwarder Case, 1948, 9 C.A.B. 473, 485.

32 . Appellants also argue that the Board confused the facts concerning Air Freight’s application with those of another railroad-controlled applicant. The opinion in our view evidences the Board’s consideration of the differing circumstances presented by Air Freight.

33 . New York v. United States, 1947, 331 U.S. 284, 331, 67 S.Ct. 1207, 1232, 91 L.Ed. 1492.