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06/02/60 Delta Air Lines, Inc. v. Civil Aeronautics Board

June 2, 1960




Before PRETTYMAN, Chief Judge, and WILBUR K. MILLER, and BAZELON, Circuit Judges.


June 2, 1960.


BAZELON, C. J.: This is the second appeal involving efforts of the Civil Aeronautics Board to fix mail-pay rates for the international operations of Chicago & Southern Airline , subsequently merged with Delta Air Lines ("Delta"), petitioner here.

Mail rates may include a subsidy based on need, *fn1 as well as compensation for services performed. The purpose of the subsidy is to promote the development of air transportation to the extent required by interstate commerce, the postal service and national defense. Mail rates are usually set prospectively, on the basis of estimated revenues and expenses. *fn2 When so established, mailpay rates, like ordinary utility rates, run for an indefinite period, subject to reopening at any time. If, however, a carrier performs services during a period for which no final rate has been previously determined, the Board in setting rates for that past period need not "ignore the known facts and compute the rate as though it were looking at the unknown future as of the beginning of the period." *fn3 Instead it may set such rates retrospectively on the basis of actual operating results. This method is, in effect, "cost plus" compensation. *fn4

The former appeal was from the Board's order of October 18, 1951, fixing new international rates on a prospective basis, effective December 16, 1950. At the time that order was entered, several years of actual operations had transpired under the then effective domestic rate. This experience revealed profits well in excess of those estimated when that rate was originally set on a prospective basis. The Board refused the Postmaster General's request to "offset" these past excess domestic profits against the new international rate. The Postmaster General appealed. We sustained his position, set the order aside and remanded the case with directions "to determine and fix the rates in accordance with this opinion." *fn5 The Supreme Court granted certiorari, and affirmed. *fn6

On remand, hearings were held to determine the amount of excess profits on the domestic division to be offset against the international mail rate. After hearings before the Examiner and shortly before oral argument to the Board, the Board sua sponte raised the additional question of whether the international rate itself, against which the set-off was to be applied, should be recomputed on a past-period basis. By that time, the international rate period commencing December 16, 1950 had been closed as of July 31, 1952, and complete figures based upon actual operating experience were thus available for the full period. These figures disclosed a 36 percent rate of return - 26 percent more than was estimated. The Board decided, over sharp dissent, that under our remand its inquiry was not limited to the question appealed and that it was free, if not required, to redetermine the proper rate on the basis of actual operating results.Delta brought the present petition to review this action.

Petitioner challenges the Board's power to reopen the entire rate question, and further contends that, even if the Board had the power, its exercise in this case was arbitrary and an abuse of discretion.

Underlying these contentions is Delta's assertion that its merger with C & S, while the former appeal was pending, proceeded upon the assumption that the C & S international rate was final, subject only to a possible set-off; and that it is unfair for the Board to retroactively alter a situation upon which its stockholders, suppliers, financiers and the stock-purchasing public relied.

More specifically, the Board is said to have exceeded its power because (1) the issue of excess profits under the new international rate could have been, but was not, raised and tested upon the prior review, and (2) the mandate of this court, directing the Board "to determine and fix the rate in accordance with this opinion," precluded the Board from considering, de novo, questions not dealt with in our opinion.

With respect to the first argument, it is true that by the time the international rate, effective as of December 16, 1950, was entered in October of 1951, the Board and the Postmaster had available operating figures for at least part of the already elapsed ten-month period of operation under this new rate. *fn7 But at the time the Postmaster filed his petition for review (March 1952), the international rate was still in effect for an indefinite period. Even if the early operating experience showed an excessive return, the Postmaster could have refrained from challenging the basic rate on the reasonable assumption that further operating experience might be less profitable, thus rendering the average rate for a longer period fair and reasonable.

Moreover, we agree with the Board that, even if the Postmaster could, as a practical matter, have challenged the rate level upon the prior review, his failure to do so did not, by itself, estop or foreclose the Commission Board from reconsidering the matter on remand in the light of subsequent events. See St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 62-64 (1935); Panhandle Eastern Pipe Line Co. v. Federal Power Comm'n, 236 F.2d 289 (3d Cir. 1956). See generally, 2 DAVIS, ADMINISTRATIVE LAW ยง 18 (1958).

Delta's second argument, that our mandate denied the Board power to reconsider questions not raised on the first appeal, relies upon cases which hold that questions not raised upon appeal are foreclosed upon remand to a lower court; *fn8 and, in particular, upon Arizona Grocery Co. v. Atchison, T. & S. F. Ry., 284 U.S. 370 (1932), which holds that the Interstate Commerce Commission cannot reopen a final rate determination and retroactively apply a lower rate.

The Board rejected these arguments on the authority of Federal Communications Comm'n v. Pottsville Broadcasting Co., 309 U.S. 134 (1940). In that case, Pottsville appealed to this court from the Commission's denial of its license application. We reversed on the ground that the Commission had misinterpreted state law, and remanded for reconsideration in light of the applicable legal principles. While judicial review was pending, however, the Commission had received and processed two rival applications for the same facility. After our remand, the Commission consolidated the other applications and Pottsville's for oral argument, to determine which of the three would best serve the public interest. Pottsville then obtained a writ of mandamus from this court requiring the Commission to follow the mandate by determining Pottsville's qualifications on the original record, and not on a comparative basis. The Supreme Court reversed, holding that the institutional characteristics of administrative agencies charged with protecting the public interest "at all times" require far greater flexibility and ...

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