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07/19/71 Kodiak Airways, Inc. v. Civil Aeronautics Board;

July 19, 1971




Tamm, MacKinnon and Wilkey, Circuit Judges.




In its Order 70-7-113, dated July 23, 1970, the Civil Aeronautics Board (hereinafter "the Board") allowed Western Air Lines, Inc. (hereinafter "Western") to temporarily suspend service on a certain intra-Alaskan air route. In the same order the Board granted Wien Consolidated Airways, Inc. (hereinafter "Wien") a temporary exemption from the certification requirements of section 401 of the Federal Aviation Act of 1958, 49 U.S.C. § 1371 (1964). This exemption authorized Wien to serve the route pending completion of proceedings being held to determine which carrier should be given certification authority to provide this service. The Board also approved an agreement between Western and Wien which provided that Western would assign and sublease certain terminal facilities to Wien and that Wien would employ Western personnel working at these facilities.

Kodiak Airways, Inc. (hereinafter "Kodiak"), one of the applicants for certification authority, asks us to set aside the Board's three interrelated actions on the ground that in granting Wien exemption authority the Board did not comply with the statute governing such grants, section 416(b) of the Aviation Act, 49 U.S.C. § 1386(b) (1964). Before reaching the merits of this claim, however, we must first decide whether Kodiak has sufficient interest in Order 70-7-113 to challenge it. I. History of the Case

The route segment in question here extends from Anchorage to Kodiak and includes intermediate stops at Kenai and Homer. Prior to the grant of exemption authority to Wien this route was served exclusively by Western, which was certificated for the route. Western was also the only carrier operating scheduled nonstop flights between Kodiak and Seattle.

The proceedings in this case began in 1968 when Kodiak, Northern Consolidated Airlines, Inc., later to become Wien Consolidated Airways, Inc. by virtue of its merger with Wien Alaska Airline, Inc., and Alaska Airlines, Inc. (hereinafter "Alaska") filed applications for exemption authority to provide additional service in several of the markets of the Anchorage-Kodiak route segment. In Order 69-3-68, issued March 19, 1969, the Board denied these applications for exemption authority. In the same order the Board instituted the Alaska Service Investigation, which was designed:

to examine the entire Alaskan air route structure to determine what changes are necessary to provide for better service to the public, improved scheduling and operational flexibility for the carriers, elimination of uneconomic and wasteful competition, and reduction of federal subsidy payments.

(Id. at 1.) Included in the investigation were the questions of authorizing new or additional service in the Kodiak, Homer, Kenai and Anchorage markets and of terminating or modifying Western's authority to serve these markets.

On February 2, 1970, Western and Wien filed a joint application requesting temporary suspension of Western on the route in question and a temporary exemption for Wien to provide replacement service pending final resolution of the Alaska Service Investigation. *fn1 The joint application also requested approval of an agreement whereby Western contracted to sell Wien its ground property and equipment and assign or sublease its interests in terminal facilities located at the Kenai, Homer and Kodiak stations, *fn2 with the proviso that this property was to be re -transferred to Western if Wien was not granted certification authority to serve the route. Western's employees at the stations involved were to be offered employment by Wien and integrated into its seniority structure and employment plan. Contemporaneous with the consummation of this agreement and the filing of the joint application, Western discontinued its nonstop flights between Seattle and Kodiak.

Kodiak, Alaska, and Western Alaska Airlines, Inc. (hereinafter "Western Alaska") filed answers in opposition to the joint application and applications of their own for exemption authority to provide service between Kodiak and Anchorage. *fn3 They also applied for certification authority over the Anchorage-Kenai-Homer-Kodiak route, and the Board consolidated these applications in the Alaska Service Investigation.

In Order 70-3-110, issued March 23, 1970, the Board denied all four applications for exemption authority, doing so because they "raised difficult and complex questions including issues of carrier selection and mutual exclusivity" which "would be more appropriately decided after the development of a complete evidentiary record in the pending Alaska Service Investigation." (J.A. 112.) The Board also rejected a request for severance of the issues regarding service on the Anchorage-Kenai-Homer-Kodiak route, concluding that "no useful purpose would be served by instituting a separate investigation at this time." (J.A. 112, n. 3.)

Petitions for reconsideration of the Board's order were filed by Alaska and by Western and Wien jointly. Kodiak and Western Alaska filed a joint answer opposing these petitions, and Western filed an answer in opposition to Alaska's petition in which it stated that it would resume Kodiak-Seattle nonstop service. It did so, on a seasonal basis, on June 1, 1970.

In its order on reconsideration, Order 70-7-113, dated July 23, 1970, the Board approved Western's application for temporary suspension of services on the Anchorage-Kenai-Homer-Kodiak route segment, *fn4 granted Wien an exemption to provide service on this route until 90 days after final decision in the Alaska Service Investigation, and approved the agreement between the two dealing with the transfer of Wien's ground facilities and the disposition of its employees. The Board changed its mind with regard to the Western/Wien application "in the light of changed circumstances and various matters raised in the pleadings." (J.A. 161.) The only "changed circumstance" referred to specifically was Western's resumption of nonstop service between Seattle and Kodiak on a seasonal basis. The Board felt that "Alaska's exemption application was predicated on Western's discontinuance of Kodiak-Seattle non -stop service" and that it would be " inappropriate" to grant Alaska's application in view of the fact that this condition no longer existed. (J.A. 162.) Of the three remaining applicants, the Board felt Wien was clearly the best qualified. The Board emphasized, however, that its selection of Wien for exemption authority would not affect its decision in the Alaska Service Investigation as to which carrier should be granted certification authority. (J.A. 162-63.)

Kodiak filed a motion for stay of the effectiveness of Order 70-7-113 with the Board and, before the Board rendered its decision, filed a similar motion with this court. Both motions were eventually denied. We did, however, grant Kodiak's motion for expedited consideration of its appeal.

Proceedings in the Alaska Service Investigation have continued while the parties contested the grant of exemption authority to Wien, but they are still not completed. Hearings ended on July 22, 1970, and the record was officially closed on August 5, 1970. The Hearing Examiner issued an initial decision awarding the route to Wien on March 26, 1971, but appeals from this decision are expected to consume several more months. II. Kodiak's Interest in the Board's Order 70-7-113

Section 1006 of the Federal Aviation Act of 1958, 49 U.S.C. § 1486 (1964), reads in pertinent part:

(a) Any order, affirmative or negative, issued by the Board or Administrator under the Act . . . shall be subject to review by the courts of appeals of the United States or the United States Court of Appeals for the District of Columbia upon petition . . . by any person disclosing a substantial interest in such order.

Thus, to obtain review of the Board's Order 70-7-113, Kodiak must establish that it has a substantial interest in this order.

It is important at the outset to note the nature of the interest which Kodiak claims in these proceedings. Although Kodiak was itself an applicant for exemption authority, it does not rely on its competitive position in asserting that it has a "substantial interest" in the Board's order. In fact, it now contends that the statutory prerequisites for granting exemption authority were not and could not be met in these circumstances and that the grant of exemption authority to any carrier was therefore improper. Kodiak's claim of interest in these proceedings rests solely upon its argument that the allegedly improper grant of exemption authority will prevent it from receiving fair comparative consideration of its application for certification authority. Kodiak thus claims the requisite standing not as a disappointed contender for exemption authority, but as an applicant for certification authority.

Any claim of standing on this basis ultimately derives from Ashbacker Radio Corp. v. FCC, 326 U.S. 327, 90 L. Ed. 108, 66 S. Ct. 148 (1945). In that case the Federal Communications Commission had before it two mutually exclusive applications for licenses, and it granted one application without holding hearings while setting the other for hearing. The Supreme Court set aside the Commission's grant on the ground that the later hearing, though theoretically complying with the statutory mandate that all applicants for licenses be given an opportunity to be heard, was for all practical purposes "an empty thing." (Id. at 330.) The effect of the Court's decision was, of course, to require the Commission to hold competitive hearings regarding the two applications.

In Ashbacker the Court did not address itself specifically to the issue of the legality of grants of temporary authorization to operate pending decisions as to licensing or certification. It did, however, imply that such grants are proper in some circumstances, *fn5 and this conclusion is compelled by the realities of the situation. "Comparative hearings are lengthy and detailed affairs . . ." and "the need for continuing already operating services, or establishing new ones, [may be] so great as to render it against the public interest to withhold authorization pending final outcome of the necessary hearings." Community Broadcasting Co. v. FCC, 107 U.S. App. D.C. 95, 100, 274 F.2d 753, 758 (1960).

Nonetheless, the spirit of Ashbacker requires that grants of temporary authority pending ultimate decision be closely scrutinized, for they are "pregnant with danger to truly comparative consideration." 107 U.S. App. D.C. at 100, 274 F.2d at 758. The "temporary" operator may have spent a large amount of money constructing and operating the necessary facilities, and the individuals passing on the applications for license or certification authority will undoubtedly realize that he may suffer substantial losses if he is not the successful applicant and is forced to sell "on a distress market." 107 U.S. App. D.C. at 100, 274 F.2d at 759. These individuals will also be aware of the "temporary" operator's "demonstrated past performance" (107 U.S. App. D.C. at 99, 274 F.2d at 758) and of the likelihood that earlier judgments have been made in his favor on issues the same as or similar to those involved in their decision. Springfield Airport Authority v. CAB, 109 U.S. App. D.C. 197, 285 F.2d 277 (1960). Try as they might, and undoubtedly will, the triers of fact may in some cases be unable to ignore the "temporary" operator's investment, his "track ...

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