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American Airlines Inc. v. Civil Aeronautics Board.

December 8, 1949


Author: Lindley

Before DUFFY, FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Petitioners seek to reverse an order of the Civil Aeronautics Board authorizing air freight forwarders to engage indirectly in interstate air transportation. They do not ask us to review the evidence but contend that the findings are insufficient to sustain the order and that the board has erroneously interpreted the law.

The suit had its inception in a consolidated proceeding known as the Air Freight Forwarder Case, where some 78 parties filed applications under the Civil Aeronautics Act, 49 U.S.C.A. § 401 et seq., requesting the board to issue either certificates of public convenience and necessity or exemption orders permitting them to engage in indirect air transportation as air freight forwarders. Air freight forwarders, who have become active but comparatively recently, procure shipments from shippers, assemble them and tender the consolidated lot gathered from the various shippers to an air carrier for transportation at a bulk rate which is lower than the rates collected by the forwarders from the shippers. The forwarder assumes the responsibility of a carrier, though he carries no merchandise himself but ships entirely by air in other carriers' airplanes. Upon arrival of the consolidated shipment at the airport of destination, the forwarder divides the bulk shipment and distributes the separate portions thereof to the individual consignees. The difference between the high rates collected by forwarders and the low rates paid by them to carriers is commonly spoken of as the "spread" and provides the forwarder with expenses and profits.

When the applications were filed, petitioners, consisting of permanently certified air carriers, engaged directly in transportation of persons, property and mail by air within the United States, having intervened, opposed them. After hearing and recommendation by the examiner, the board, on September 8, 1948, entered the order now on review.

In order properly to understand the order and its scope and significance, it is essential that we examine the statutory law involved. Section 401(a) of the Civil Aeronautics Act of 1938, 49 U.S.C.A. §§ 401, 481, provides that no air carrier shall engage in air transportation unless a certificate issued by the board authorizes such service. Section 401(d) provides that: "The Board shall issue a certificate authorizing the whole or any part of the transportation covered by the application, if it finds that the applicant is fit, willing, and able to perform such transportation properly, and to conform to the provisions of this Act and the rules, regulations, and requirements of the Board hereunder, and that such transportation is required by the public convenience and necessity; otherwise such application shall be denied."

Air freight forwarders, as we have seen, do not carry anything by air. They are classed as air carriers because they are included in the definition of that term in Section 1(2) of the Act, the pertinent portion of which follows: "'Air carrier' means 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: Provided, That the Board may by order relieve air carriers who are not directly engaged in the operation of aircraft in air transportation from the provisions of this Act to the extent and for such periods as may be in the public interest."

The board denied the applications for certificate of convenience and necessity but concluded that the forwarders, as indirect carriers, should be relieved from the provisions of the Act, adopted a regulation covering allowance of applications for air freight forwarders and directed that the 58 applicants be permitted to operate under exemption upon complying with the terms of the regulation. The board denied relief to such of the applicants as had abandoned their application during the progress of the proceedings and such of them as sought international rights and those directly or indirectly controlled by railroad interests. It made no finding that the applicants exempted were fit, willing and able to furnish public service as forwarders or that their operations were required by the public convenience and necessity; and it is largely upon this lack of finding that petitioners ground their objections to the order.

In other words, it is insisted by petitioners that the failure to make a finding that the applicants were fit, willing and able to perform transportation properly and that such transportation was required by the public's convenience and necessity as provided in Section 401(d) of the Act is a fatal defect. However, it is provided in Section 1(2) of the Act that the board may by order exempt air carriers who are not directly engaged in the operation of aircraft "to the extent and for such periods as may be in the public interest," and the board found that it was in the public interest to relieve such carriers from the provisions of the Act to the extent and for the period fixed. Our question then is whether, when the board enters upon a determination of whether it will grant exemption to an indirect carrier, that is, whether it will relieve the indirect carrier from the other provisions of the Act as provided in Section 1(2), it is necessary for the board to follow the standards of Section 401 under which, before authorizing the carrier to act, it must find that the applicant is fit, willing and able and that its operation is in the public interest. If the board was not bound to adhere to that standard and if it had a right under the statute, in the exercise of its discretion, to excuse indirect carriers, that is, those who do not engage directly in air operations, from the requirements of the Act, then its order was proper.

We think petitioners are over-meticulous in their conception of the standard fixed by the statute. These forwarders do not engage in air transportation; they merely father freight on the ground, assemble it, deliver it so assembled to the carrier for shipment, then, after shipment has ended, divide it and deliver it to the several consignees. All their activities are on the ground. The board found that their operations tend to help the direct air carriers by increasing the volume of air transportation and are, therefore, of benefit to petitioners. The board reasoned that, inasmuch as the applicants were in the unique position of being subject to the Act as indirect carriers but performed no function in the air and, inasmuch as they were comparatively recent newcomers in the industry, there was insufficient evidence to show that their operations were such that they should have certificates under Section 401, that is, certificates of convenience and necessity, but that, in view of their limited activities, they should have certificates of exemption from any requirement of the Act, limited in time.

We think the order did not contravene the purpose of the statute but rather carried it into effect. Apparently Congress contemplated that for all kinds of carriers there should be two methods by which operations could be authorized; first, for all operations, certificates of convenience and necessity might issue; second, for indirect operations, certificates of exemption might issue. The plain reading of the statute impels this conclusion. It is unambiguous and, when properly construed, its language leads only to this one conclusion. Section 401 clearly requires the board, before issuing a certificate, to find that the transportation authorized is required by the public's convenience and necessity and that the applicant is fit, willing and able; but the proviso of Section 1(2), just as clearly fails to include any such requirements and authorizes the board to issue relief or exemption orders for indirect carriers "to the extent and for such periods as may be in the public interest." The first section is concerned with the necessity or convenience demanding air transportation service and the second, with the advisability of relieving indirect carriers of the obligation of proving such necessity. We agree with the board that if the test for determining whether an indirect carrier should be relieved of the obligation of proving necessity is to require proof of necessity in every case, it would completely nullify the purpose of Congress as expressed in Section 1(2). As said in Cox v. Hart, 260 U.S. 427, 435, 43 S. Ct. 154, 157, 67 L. Ed. 332: "The office of a proviso is well understood. It is to except something from the operative effect, or to qualify or restrain the generality, of the substantive enactment to which it is attached." "If possible, the act is to be given such construction as will permit both the enacting clause and the proviso to stand and be construed together with a view to carry into effect the whole purpose of the law. 1 Kent, Com. 463." White v. United States, 191 U.S. 545, 551, 24 S. Ct. 171, 172, 48 L. Ed. 295. See also Foster v. United States, 7 Cir., 47 F.2d 892. Applying these principles to the Civil Aeronautics Act, we think there can be no question that the board properly construed each of the sections and that there is no requirement of proof of convenience and necessity of the proposed operations to be read into Section 1(2) in order to preserve other portions of the Act and its basic objectives.

That ground for distinction between direct carriers and indirect carriers exists, is substantiated by the findings which stand unimpeached before us. Indirect carriers do not operate aircraft; they merely gather freight on the ground to be carried in aircraft; they do not compete with direct aircraft carriers, such as petitioners, in the operation of airplanes. All of the merchandise gathered by forwarders must move from them to and over one of the direct carriers, and for carrying it, the direct carrier receives the full amount of the legal tariffs. The forwarder has relatively a very small investment. Obviously the functions of direct and indirect carriers are in no wise competitive and Congress was perfectly justified in distinguishing their respective functions and in relieving the indirect carrier from the obligations imposed on direct carriers by virtue of Section 401. We think the findings of the board and the language of the Act are such that the order of the agency charged with the administration of the law must be approved. National Labor Relations Board v. Hearst Publications, 322 U.S. 111, 130, 64 S. Ct. 851, 88 L. Ed. 1170; Unemployment Compensation Commission v. Aragan, 329 U.S. 143, 153, 154, 67 S. Ct. 245, 91 L. Ed. 136.

The petitioners apparently contend that sufficient subsidiary findings of fact upon the part of the board to support the ultimate finding are lacking. We do not have the transcript of evidence before us but we do find subsidiary findings clearly indicating the basis for the decision and demonstrating the reasonableness of the ultimate finding that the temporary exemption of air freight forwarders from certain provisions of the Act is in the public interest. It should be remembered and emphasized that "administrative finality is not, of course, applicable only to agency finding of 'fact' in the narrow, literal sense. The (agency's) findings * * * based upon judgment and prediction, as well as upon 'facts' * * * are not subject to re-examination by the court unless they * * * were not arrived at in 'accordance with legal standards.'" Securities and Exchange Comm. v. Central-Illinois Securities Corp., 1949, 338 U.S. 96, 69 S. Ct. 1377, 1393. See also Securities and Exchange Comm. v. Chenery Corp., 332 U.S. 194, 207, 67 S. Ct. 1575, 1760, 91 L. Ed. 1995.

The regulation creates a distinct class of indirect carriers known as Air Freight Forwarders, a member of which is defined by the following language: One who, "1, assembles and consolidates or provides for assembling and consolidating of such property and performs or provides for the performance of brake-bulk and distributing operations with respect to such consolidated shipments, 2, assumes responsibility for the transportation of such property from the point of receipt to point of destination, and 3, utilizes for the whole or any part of the transportation of such shipments, the services of a direct air carrier subject to the Act." It provides that no person may operate as an air freight forwarder without first procuring a letter of registration from the board; that such letter shall issue only if an application supplying certain detailed information has been filed and then, only if it appears that the applicant's operations will not be inconsistent with the public interest. The authorization may be revoked at any time and is not valid beyond five years. All such forwarders are exempted from the requirement of proof of fitness, willingness and ability and of public convenience and necessity. This regulation, we think, is clearly within the purview of the authority granted to the board by Section 1(2) of the Civil Aeronautics Act which we have quoted. The plain intent is that a forwarder may be relieved from the requirements of the Act to such extent as the board concludes is in the public interest. There is no requirement of proof that the operations of the forwarder be in the public interest, but, rather, the forwarder is to be relieved if the board finds that such ...

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