W. R. Grace & Co. v. Civil Aeronautics Board ( 1946 )

FRANK, Circuit Judge.

1. It has been suggested that the Board should have considered and decided the issue of the violation of Section 411 by treating the proceeding as if it involved Grace’s petition No. 744.² But the scope of this proceeding (No. 779) is to be-measured, we think, by the directory part-of the Board’s order of September 10,. 1942; not by its recitals, save as these-may be necessary to throw light upon the-rest; nor by what the parties said in their arguments and briefs, or in the course of the hearings. Of course, we do not mean, that the order finally fixed the issues; but we think it did so in the absence of some-amendment plainly intended to change-them. Turning then to the order, the proceeding was “to determine whether the public convenience and necessity require that the certificate of public convenience and' necessity of Panagra should be altered.”' The proceeding was therefore under § 401 (h); and such we think it remained throughout, for the recital about No. 744-served no further purpose than to allege that .the Pan American Company was preventing Panagra from itself making the application. It would be too much to say that the Board treated the proceeding as a continuation of No. 707. But it came nearly to the same thing after Grace & Company had been cited in, and Pan American had been made a party by intervention, for No. 707 had also been addressed to the same issue of “public convenience and necessity.” The Board never carried through this purpose: eventually it felt itself foreclosed, because it did not treat Panagra as an applicant for the extension, and that limited the inquiry to whether the facts justified forcing such an extension upon an unwilling carrier. Once the Board had decided that they did not, it became impossible to go on with the original issue of public convenience and necessity; and the proceeding necessarily came to an abortive end. We will assume for argument that the Board was right in its holding, if Panagra was to be regarded as an unwilling carrier, and if therefore the only issue was whether the proposed extension could be forced upon it. That was indeed an issue with which the Board was peculiarly qualified to deal, and the new competition which the extension would invite — to say nothing of its expense- — • may well have put the extension outside those additional burdens which a licensee impliedly accepts as part of the control to which his rights are in any event subject. Unless therefore it was within the power of the Board to inquire into the right of Grace & Company to speak for Panagra, and by doing so to make the application a voluntary one, it may well be that the order was right. If on the other hand the Board had power to make that inquiry, it could have pressed the proceeding to a conclusion along the lines on which it had been initiated, and we think that this is what it should have done.

In Pittsburgh, etc., R. Co. v. United States, 281 U.S. 479, 50 S.Ct. 378, 74 L.Ed. 980, the Supreme Court held that, in reviewing an order of the Interstate Commerce Commission, the court might not examine whether the majority shareholders of a railroad, a party to the proceeding, were- abusing their power in taking the position in the proceeding which they did. Such an inquiry was to be reserved for a separate suit, and could not be interjected into the controversy before the Commission. In spite of some differences which we will point out, we might feel that decision conclusive here, were it not for the decision in American Power & Light Co. v. Securities and Exchange Commission, 325 U.S. 385, 65 S.Ct. 1254; particularly that part of it which dealt with Okin’s appeal. Okin, the court said, had no interest in the proceeding before the Commission different from any other shareholder’s ; he could speak only for his class and his claim was therefore necessarily derivative. Since he was allowed to appeal, we can see no escape from concluding that he had a standing to assert a right of the Electric Bond & Share Company.³ If he had not, he had no standing at all — -unlike the American Power & Light Company, which had an individual grievance. His power so to speak for the company depended upon his allegation that the action of the directors was actuated by “illegality and fraud” (325 U.S. at page 392, 65 S.Ct. at page 1257) which made futile any recourse to the management. In accord with this, it seems to us that, if Grace & Company could prove that the opposition of Pan American (the parent company, for we disregard the subsidiary) to Panagra’s applying for an extension was due to “illegality and fraud,” it would follow that this proceeding should. be regarded as a voluntary application for the extension; and then it would be open to the Board to decide the issue of public convenience and necessity.⁴ Certainly there is everything to be said in favor of such a course, if it is possible. To await the outcome of a suit brought in a court to direct Panagra to apply for the extension, would be at best dilatory and vexatious, and.there are other and more important reasons against it.

The issues, upon which such a shareholder’s suit would depend, would be whether the Pan American Company was opposing the extension because it was pursuing its own advantage to the prejudice of the joint interest (“fraud”), and because it was engaging in some unfair trade practice (“illegality”). Both those issues demand the same specialized acquaintance with commercial aviation and its ramifications as a decision upon the public convenience and necessity of the extension itself. No court, state or federal, would have that acquaintance; by hypothesis the Board does have it, and the Board alone. To remove the decision from the Board, not only duplicates the time and labor, but subjects the result to the -final determination of a relatively incompetent tribunal; for, if the court should decide that the Pan American Company’s refusal was neither oppressive, nor unlawful, there would be an end of this proceeding, and of No. 707. It might, however, still be possiblé for the Board under § 411 to order the Pan American Company to “cease and desist” from any unfair trade practices in which the Board — differing from the Court — might think it engaged; but surely such a conflict between court and Board would be to the last degree undesirable, regardless of the possible insufficiency of the available remedies. For these reasons it seems to us that in this proceeding the Board had power to determine, as between Grace & Company and the Pan American Company, which should speak for Panagra. Needless to say, we suggest nothing as to the proper outcome of that inquiry.

There remains only the question whether the Board would be justified in refusing to introduce that controversy into this proceeding, and in reserving it for either No. 707 or No. 744. In the first place it does not appear that, if the Board had believed the power to exist, it would have refused to press the proceeding to a conclusion; but, even if it would have refused, we should not concur. True,' the Board must have very wide latitude in deciding in what order to take up the issues in any litigation (Federal Communications Commission v. Pottsville Broadcasting Co., 309 U.S. 134, 60 S.Ct. 437, 84 L.Ed. 656); but Ashbacker Radio Corporation v. Federal Communications Commission, 326 U.S. 327, 66 S.Ct. 148, decided that there may be practical reasons for not determining part of an indivisible controversy in advance, even though the first decision will not be conclusive. In the case at bar more than four thousand pages of evidence had been taken and the record was complete, before the Board finally decided the motion which had been pending from the outset. It may prove possible in a separate hearing later to be called in No. 707 to introduce the evidence so taken; but we can see no conceivable reason, except a defect of power, for adopting so futile and dilatory a course.⁵ Arguendo, one might even agree that it might have been convenient in limine to decide whether the extension could be forced upon Panagra in invitum, reserving the trial of any other issues. But to frustrate the whole undertaking when it lay ripe for final conclusion was, we think, beyond even that generous latitude which must be accorded to the Board’s discretion. Hence we conclude that the Board should be directed to decide whether Panagra should be treated as applying for the extension; and if that turns out to be true, whether the public convenience and necessity require the extension to be granted. These two issues being intricately intermeshed, as we have said, we do not mean that they should be decided seriatim. Logically, indeed, they do arise in the order we mention, but the very purpose of joining them would be in part defeated if both were not decided together.

Whether the agreements of. August 31, 1928 and February 14, 1939, violated the anti-trust laws will not affect the issues. For, even if those agreements were legal, it does not follow that Pan American is not using its voting power in Panagra illegally. And even if the agreements, when made, were in violation of the anti-trust laws, Grace would not be thereby estopped from asking to be relieved of them; a party to a contract violative of a statute cannot be estopped from repudiating it when such repudiation will further the very public interest which the statute was designed to protect.⁶ Remanded.

Appendix

We think it well to set forth the following arguments which we have not found it necessary to consider but which have been advanced to support a not altogether dissimilar conclusion.

It is urged that the Board, when it issued its hearing order of September 10, 1942, had in mind Section 411, which is to be read in the light of Section 2(a), (c) and (d). For, it is suggested, from the face of that order and from the explicit statements in the Board’s opinion of May 24, 1944, describing the facts leading up to that order, the following appears: Grace, on December 16, 1941, filed a petition (called Docket No. 707) asking the Board to amend Panagra’s certificate to extend its route from the Canal Zone to the United States. On April 29, 1942, Grace filed what the Board describes as a complaint (called Docket No. 744), pursuant to § 411, asking the Board to require Pan American to cease and desist from actions (alleged by Grace to be in violation of § 411), and ordering Pan American to divest itself of its ownership of Panagra stock to the extent necessary to rid itself of its “negative control” of Panagra; in this complaint Grace renewed the request made in its previous petition (Docket No. 707). As the Board stated in its opinion, “no formal steps were taken by the Board in connection with the Grace petitions in Dockets No. 707 and 744 until September 1942.” Then — according to the Board’s own opinion — on September 10, 1942, the Board took such “formal steps in connection with the Grace petitions” by issuing its order (in what it called Docket No. 779) directing a hearing. The recitals of that order, it is said, make it plain that, although the Board stated that it was “acting upon its own initiative,” the Board called that hearing because of the Grace petitions. Nor, it is argued, was § 411 disregarded, for the order recited that the Board was proceeding “pursuant to the powers and duties vested in it under Titles II, IV and X of the Civil Aeronautics Act of 1938, as amended, and particularly § 401 (h) thereof,” and Title II of the Act includes § 411. (Pan American, in one of its briefs in this court, contends that the proceeding “was instituted not only under § 401(h)," but also under Titles II and X * * * ”) Also prominent in the recitals of the Board’s order are the statements that “unsatisfactory connecting service, if such exists, may result in air transportation service to the public between the United States and the west coast of South America which is inadequate and deficient as to both quality and quantity, and may also result in retarding the proper and sound development of air transportation service between the United States and the west coast of South America; and that such results would not be in the public convenience and necessity or in the public interest as defined in section 2 of said Civil Aeronautics Act of 1938, as amended; and that Pan American is the only air carrier authorized at the present time to engage in air transportation between the United States and South America, and that an additional service by another air carrier may provide 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.”

It is then suggested that, just as in Ash-backer Radio Corporation v. Federal Communications Commission, 326 U.S. 327, 66 S.Ct. 148, so here the Board’s decision as to its powers under § 401(h) without a simultaneous decision as to the alleged violation of § 411, may be seriously detrimental to the paramount public interest; and that therefore we must go behind the Board’s present picture of the nature of its proceeding in Docket No. 779 and remand for Board determination, in that proceeding, of the issues under § 411.

The Board argues that the report of its Examiners (pursuant to, the Board’s regur lation) resulting from the prehearing conferences, limited the scope- of the hearing so as to preclude consideration of issues under § 411. Grace replies that in fact a vast amount of evidence pertinent to the issue under § 411 was received at the hearing, for it was recognized by everyone concerned that the relations between Pan American and Panagra affected both the issue of “public convenience and necessity” and the issue whether Panagra was “fit, willing, and able to perform” the services involved in the proposed extension of its route. It is also said that the Board’s Regulation as to the Examiners’ Report on a pre-hearing conference, states that such report “shall control the subsequent course of the proceeding, but it may be reconsidered and modified at any time to-prevent injustice”; the Board, it is suggested, should now be required to adapt the scope of the hearing to conform to> the proof received, giving full opportunity to the parties to introduce further evidence, so far as necessary, relevant to the issue under section 411.⁷

Pan American argues that it, as distinguished from its wholly-owned subsidiary, was not made a party to the hearing and therefore was not given adequate notice to justify an order affecting it under § 411. But, says Grace, Pan American, on its own motion, was allowed to intervene and was active throughout the entire hearing.

Referring to § 1006, 49 U.S.C.A. § 646, which provides that “no objection to an order of the Board shall be considered by the court unless such objection shall have been urged before by the Board,” Pan American contends that the failure of the-Board to proceed in Docket No. 779 under §411 cannot be considered by us because Grace made no objection on that score before the Board. Grace replies that it objected to the Board’s rejection of jurisdiction; and, since the Board’s failure to act under § 411 involved a refusal by the Board to exercise its jurisdiction, Grace’s objection was sufficient to raise that issue here, especially as Grace’s right to maintain court review derives from the fact that it is vindicating the public interest, and this is not ordinary litigation between private persons.⁸ In like manner Grace re-

plies to the contention that it is estopped to raise any issue under § 411 because, before the Examiners, it took the position that the hearing did not extend to its complaint under that section, and because, in its petition in this court to review the Board’s order of May 24, 1942, it has not objected to the Board’s failure to act under § 411.

Grace asserts that the words “unfair methods of competition” in § 411 were taken from the Federal Trade Commission Act; that those words in that Act have been held to include conduct violative of the Sherman Act;⁹ and that a corporation violates the Sherman Act if it uses its voting power in another corporation to prevent competition between the two corporations.¹⁰

Pan American and the Board, however, argue that an order under § 411 may be directed only against an “air carrier,” and that Pan American is not itself an air carrier, but merely a holding company completely owning Pan American Airways, Inc., which is an air carrier. Per contra, it is said that § 1(2) of the Act, 49 U.S.C.A. § 401(2), defines an “air carrier” to mean “any citizen of the United States who undertakes, whether directly or indirectly or by a lease or any other arrangement, to engage in air transportation.” It is further contended that a complaint under § 411 must be by an “air carrier” and that Grace is not such. But it is answered that, as Grace charges that Pan American is illegally using its position in Panagra to prevent competition, Grace properly filed a derivative complaint, on Panagra’s behalf, under § 411; and that, were such derivative action not possible, a carrier illegally utilizing control of another carrier corporation could, with resultant injury to the public interest, block the victimized carrier from filing a complaint with the Civil Aeronautics Board in the manner contemplated by § 411.

Answering the contention that, even when a proper complaint is filed under section 411, the Board has an unreviewable discretion to decide whether it would be in the public interest to make such an investigation, it is said that here, by its own description of its action (in its September 10, 1942 order and its May 24, 1944 opinion), the Board has shown that it has already exercised that discretion, and that accordingly it could not arbitrarily abandon the hearing but should have continued it to find whether or not Pan American “is engaged in * * * unfair methods of competition,” in which event the Board should have ordered Pan American to cease and desist.

It is also suggested that, in its hearing order, the Board said that it was acting, inter alia, under Title X of the Act, and that that Title includes § 1002. In a brief the Board says that, if Grace’s petition filed April 29, 1942 (Docket 744), may be considered in this proceeding, then “Section 1002 of the Act may have a limited bearing. If Grace should be held not to he an air carrier under the Civil Aeronautics Act, and hence without standing to file a complaint under § 411 of the Act, subsection (a) of § 1002, which grants in broader language the right to file complaints for violations of the provisions of the Act, might be relied upon as a basis for Grace’s pleading.” These provisions, it is urged, seem to have been substantially borrowed from 49 U.S.C.A. §§ 13(1) and' IS, under which it has been held that the Interstate Commerce Commission must exercise its jurisdiction when a complaint is filed.¹¹

Before L. HAND, SWAN and FRANK, Circuit Judges.

2 In an appendix to this opinion we have stated, in some detail, the contentions in support of that position.

3 The Supreme Court, after what appear to be conflicting decisions as to whether a person with sufficient interest to become a party to a proceeding before an administrative agency has enough of an interest to maintain court review of that ageucy’s order entered in that proceeding, recently stated that the question is now open and undecided. See Alton R. Co. v. United States, 315 U.S. 15, 19, 62 S.Ct. 432, 86 L.Ed. 586; Chicago Junction Case, 264 U.S. 258, 267, 44 S.Ct. 317, 68 L.Ed. 667; Sprunt & Son v. United States, 281 U.S. 249, 255, 50 S.Ct. 315, 74 L.Ed. 832; Pittsburgh & W. V. R. Co. v. United States, 281 U.S. 479, 486-488, 50 S.Ct. 378, 74 L.Ed. 980; cf. Associated Industries v. Ickes, 2 Cir., 134 F. 2d 694, 711, 712 and note 57.

In other words, the interest necessary to maintain court review has been regarded as at least as great as, if not greater than, that necessary to participate in proceedings before the agency. Consequently, one who, like Okin (and therefore like Grace), has the status to initiate judicial review would seem clearly to be entitled to initiate an administrative proceeding.

4 The Board tells us that in other cases it has treated consents by carriers, filed in section 401(h) proceedings, as voluntary petitions for extensions under § 401(d). We think that a correct conclusion.

5 More than four years have elapsed since Grace, on December 16, 1941, filed its petition (No. 707) but the Board has not yet acted thereon. It is not impossible that should the Board much longer delay, and then decide that the extension should be granted to Panagra, its action might be frustrated by the intervening grants of licenses to other carriers. Indeed, in the briefs of the parties we are told the following facts which do not appear of record: Since the date when the Board dismissed the present proceedings, other carriers have applied for certificates covering routes between the Canal. Zone and the United States, and the Board has held a consolidated hearing on such applications known as the Latin American Proceeding (Docket No. 525 et al.). In that consolidated hearing, the Board’s Examiners and its Public Counsel have reported that, while the public interest would best be served by the extension of Panagra to a United States terminal, they considered that recommendation foreclosed by the Board’s decision in the proceedings now before us, and consequently they recommended that routes between the United States and the Canal Zone be awarded to other carriers.

The Public Counsel, in his brief before the Examiners in Docket No. 525, said: “Probably Panagra carries this traffic as far on its own system as the distance between Balboa and New York or Miami. This fact, in addition to the fact that Panagra has carried this traffic for a number of years, would seem to entitle Panagra to a certificate for this route. Such an authorization would also provide the greatest public convenience. However, as is well known, the Panagra directors representing Pan American have refused to approve an application for such an extension. Thus, Pan American, through its 50 percent ownership, has prevented the countries on the west coast of South America from realizing the convenience of a one-carrier service from a United States carrier. Since we are prevented by this action of Pan American from recommending the best possible service, we must turn to the next best solution.”

6 See, e. g., Cleveland, C. C. & St. L. R. Co. v. Hirsch, 6 Cir., 204 P. 849, 858, 859; Scott Paper Co. v. Marculus Mfg. Co., 66 S.Ct. 101; 12 C.J.S., Cancellation of Instruments, § 46, p. 1019.

7 It is suggested that that portion of the Board’s amendatory order of October 22, 1942, denying “motions for consolidation of other applications and dockets with this proceeding” was ambiguous and that it may well have related not to Grace’s petitions but to the motions of other air carriers to consolidate their applications for extensions with Docket No. '744; for, in April, 1942, the Board had announced that for the duration of the existing national emergency, no further action would he taken with respect to applications for authority to operate a new air transport unless special considerations of national interest were involved.

8 It is also noted that Grace’s petition for review contains a prayer for “such other relief as to the court may seem just and proper in the premises.”

9 Federal Trade Commission v. Pacific States Paper Trade Association, 273 U.S. 52, 47 S.Ct. 255, 71 L.Ed. 534; Federal Trade Commission v. Beech-Nut Packing Co., 257 U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307, 19 A.L.R. 882; Federal Trade Commission v. R. F. Keppel & Bro., 291 U.S. 304, 310, 54 S.Ct. 423, 78 L.Ed. 814.

10 Baush Machine Tool Co. v. Aluminum Co., 2 Cir., 72 F.2d 236, 239, 240, certiorari denied 293 U.S. 589, 55 S.Ct. 104, 79 L.Ed. 683.

11 See, e. g., I. C. C. v. Baird, 194 U.S. 25, 39, 24 S.Ct. 563, 48 L.Ed. 860; Louisville Cement Co. v. I. C. C., 246 U.S. 638, 642, 643, 644, 645, 38 S.Ct. 408, 62 L.Ed. 914; I. C. C. v. United States ex rel. Humboldt Steamship Co., 224 U.S. 474, 485, 32 S.Ct 556, 56 L.Ed. 849.