John E. Moss et al., Petitioners, v. Civil Aeronautics Board, Respondent,american Airlines, Inc., Eastern Air Lines, Inc., Continental Air Lines, Inc., North Central Airlines, Inc., Mohawk Airlines, Inc., Braniff Airways, Inc., Northwest Airlines, Inc., Trans World Airlines, Inc., Intervenors, 430 F.2d 891 (D.C. Cir. 1970)

Mr. Alfred V. J. Prather, Washington, D. C., for intervenors American Airlines, Inc., Eastern Air Lines, Inc., Northwest Airlines, Inc. and Trans World Airlines, Inc. Mr. J. William Doolittle, Washington, D. C., also entered an appearance for intervenor American Airlines, Inc.

Mr. Philip A. Fleming, Washington, D. C., entered an appearance for intervenor Eastern Air Lines, Inc.

Messrs. Thomas D. Finney, Jr. and Lee M. Hydeman, Washington, D. C., entered appearances for intervenor Continental Air Lines, Inc.

Messrs. Russell A. Garman, Jr. and Raymond J. Rasenberger, Washington, D. C., entered appearances for intervenors North Central Airlines, Inc. and Mohawk Airlines, Inc.

Mr. B. Howell Hill, Washington, D. C., entered an appearance for intervenor Braniff Airways, Inc.

Mr. James M. Verner, Washington, D. C., entered an appearance for intervenor Northwest Airlines, Inc.

Mr. Ulrich V. Hoffman, New York City, entered an appearance for intervenor Trans World Airlines, Inc.

Before WRIGHT, McGOWAN and ROBINSON, Circuit Judges.

This appeal presents the recurring question which has plagued public regulation of industry: whether the regulatory agency is unduly oriented toward the interests of the industry it is designed to regulate, rather than the public interest it is designed to protect. Petitioners, some 32 congressmen, alleged that the Civil Aeronautics Board, in considering the lawfulness of increases in domestic passenger fares filed by all the major air lines, excluded the public from ex parte meetings with representatives of the air line industry and then held a pro forma hearing limited to oral argument, as a result of which changes in the fare structure resulting in a six per cent rise in domestic fares were unlawfully approved. The Board admits the ex parte meetings, denies that the hearing was pro forma, and admits that, without complying with the statutory procedural requirements and criteria for rate-making by the Board, it approved in advance the filing without suspension of air line tariffs providing for a six per cent increase in air line revenues from passenger fares.¹  We hold that the procedure used by the Board is contrary to the statutory rate-making plan in that it fences the public out of the rate-making process and tends to frustrate judicial review.

* The statutory plan is relatively simple. Air line passenger rates can be made by the carrier or by the Board.²  However made, the rates must be included in a tariff filed with the Board by the carrier.³  It is unlawful for the carrier to charge a rate other than the existing one on file.⁴  On complaint or on its own initiative, the Board may change an existing rate after public notice and hearing.⁵  The Board need not indicate a specific rate; it may simply fix a maximum or minimum or both.⁶  In determining and prescribing a rate the Board must take into consideration, among other factors, five statutory criteria.⁷ 

An air line carrier may change the existing rate by filing a new tariff with the Board indicating the new rate.⁸  Under the statute, on complaint or on its own initiative the Board, by giving the carrier a statement of its reasons, may suspend the new rate for a period not to exceed 180 days while conducting an investigation as to its lawfulness.⁹  After investigation and hearing, the Board may determine and prescribe the lawful rate, in accordance, of course, with the rate-making provisions of Sections 1002(d) and 1002(e) of the Federal Aviation Act.¹⁰ 

II

Petitioners had complained to the Board on prior occasions both about the Board's practice of holding ex parte,¹¹  informal meetings with the carriers concerning their need for increased fares, and about the Board's lack of standards for testing the reasonableness of fares. In spite of these complaints, the informal sessions between carriers and Board members continued into the summer of 1969. In early August of 1969, following the lead of United Air Lines, the carriers filed increased passenger tariffs with the Board. While these proposed rate increases were pending before the Board, another ex parte meeting between the air line officials and members of the Board was scheduled for August 14, 1969. Petitioner Moss requested and was refused permission to attend this meeting.¹²  Following the ex parte meeting on August 14, the Board issued an order calling for oral argument on the advisability of exercising its power to investigate and suspend the new rates before they went into effect. There was no suggestion in the order that the Board might promulgate its own fare formula.¹³  Petitioners renewed their complaints about the Board's continued ex parte meeting and rate practices and urged the Board to suspend the tariffs, to institute a general passenger fare investigation to define more clearly the statutory rate-making standards, and finally to set reasonable rates based on these more precise standards. Petitioners, however, refused to participate in the oral argument on the ground that the Board's decision on the rate increases had already been made.

On September 12, 1969, eight days after the oral argument, the Board issued its order.¹⁴  In that order the Board found that the proposed tariffs on file "may be unjust [or] unreasonable"¹⁵  and ordered the tariffs suspended and investigated, as it is authorized to do by Section 1002(g) of the Federal Aviation Act.¹⁶  Still purporting to act in accordance with its suspension authority, however, the Board went further. It found that the carriers had demonstrated a need for "some additional revenue"¹⁷  because of greatly increased costs, and decided that a limited fare increase was necessary in order to maintain the financial vitality of the carriers as a group.¹⁸  Accordingly, in the same order which suspended the rates proposed by the carriers, the Board outlined its own fare formula and announced its decision to "permit tariff filings implementing" that formula to be filed without suspension,¹⁹  thus assuring almost immediate effectiveness.

The carriers promptly withdrew their previous filings and filed for new increases based on the Board's model. Petitioners, in an application for reconsideration of the September 12 order, opposed the new filings and requested their suspension and investigation. On September 30, 1969, the application was denied and the fares based upon the Board formula were allowed to stand without suspension or investigation.²⁰  The instant petition for review of both the September 12 and the September 30 orders followed.

III

The question presented by this appeal is whether the Board should have followed the procedures and standards established by Sections 1002(d) and 1002 (e) of the Act before proposing the rate schedule it set forth in its September 12 order. Petitioners complain that the Board effectively "determined" rates, within the meaning of Sections 1002(d) and 1002(e), to be charged by the air carriers without proper notice and hearings as required by Section 1002(d) and without taking into account the rate-making factors enumerated in Section 1002(e).²¹  The Board admits that it would have been required to act in accordance with subsections (d) and (e) if its actions amounted to the making of rates. The Board, however, contends that it was not required to adhere to the standards of subsections (d) and (e) because, as the formal title of its September 12 order ("Order of Investigation and Suspension") indicates, it was not determining rates but only exercising its power under Section 1002(g) to suspend, pending a more complete investigation, the rates initially filed by the carriers in August.

The Board also admits that immediately after its September 12 order the air lines withdrew their August tariffs and filed new tariffs listing rates based directly on and in conformity with that order. But the Board disclaims any legal responsibility for the rates listed in the carriers' September tariffs. According to the Board, the detailed outline of the rate structure which it "proposed to accept" in its September 12 order was not an attempt to prescribe or determine rates for the future within the meaning of the statute, but merely served to explain to the carriers — as required by the statute²²  — the Board's reasons for suspending the August filings. The Board points out that the carriers were not legally bound by the September 12 order of the Board to file a new tariff and list rates based on its formula. Therefore, the Board argues, even though the carriers did precisely what the Board indicated in its September 12 order should be done, the resulting rates are carrier-made rates for which the Board is not to be held accountable.

This legalistic reading of the statute is supposedly supported by the Supreme Court's decision in Arizona Grocery Co. v. Atchison, Topeka & Santa Fe Railway Co.²³  and its progeny. We find no support in Arizona Grocery for the Board's position. For that case referred to agency-made rates as those which had been legislatively prescribed as "a maximum reasonable rate for the future" by the agency.²⁴  We think that these rates, like those involved in Arizona Grocery, have been determined by the Board, with the cooperation of the carriers, to be "a maximum reasonable rate for the future." The Board itself stated that it "intend [ed] to consider fares produced by [its] formula as a `just and reasonable' ceiling." Any analysis of the September 12 order can fairly lead to no other conclusion.

IV

After finding that the rates proposed by the carriers might be unjust or unreasonable and ordering an investigation, the Board went on in the September 12 order to point out that, because of the need for revenue which the carriers had shown, the Board would "be disposed to grant an increase computed in accordance with the criteria set out below." It then set forth a rate-making formula, variously described in the order as "the formula which we are proposing," the formula "we propose to accept," and the formula which " [w]e * * * adopt * * * for our model." The formula detailed by the Board, which is set out in the margin,²⁵  using coach fares as its base, attempts to cope with the increased per mile costs of short flights by establishing a fixed "terminal" charge ($9.00) for all markets, with an additional charge based on the airport-to-airport mileage. According to the formula, the per mile rate decreases in each successive 500-mile block. From this formula anyone could have filled in the figures and computed the acceptable coach fares.

The Board also "concluded" that it would be appropriate for all fares to be rounded off to the nearest whole dollar. It further "propose [d] that first class jet fares be set at 125 percent of the coach fare derived by the above formula." It "would accept night coach fares computed at 75 percent of the new coach fares." The order then listed each of the various promotional fares, such as Youth Fare and Discover America, and the discounts which "the Board would permit."²⁶ 

The Board even claimed to be acting in accordance with some of the rate-making provisions of Section 1002(e). It explained that it had granted the increases because, " [t]aking into consideration these cost pressures on the carriers, and the marked decline in earnings and profit margin since the February increase, the Board finds that a further increase in fares at this time is necessary from the standpoint of the rate-making standards of Section 1002 (e) of the Act and the need to maintain the financial vitality of the carriers as a group." Also, according to the Board, its formula "produces a reasonable increase in revenues and recognizes the economies inherent in long haul carriage * * * as well as the value of service limitations in short haul markets."

As a practical matter, the Board's order amounted to the prescription of rates because, as the Board admits, the pressures on the carriers to file rates conforming exactly with the Board's formula were great, if not actually irresistible.²⁷  All the carriers had indicated an urgent need for an immediate increase in revenues; the Board had made it clear, by threatening to use its power to suspend proposed rates, that only rates conforming to its detailed model would be accepted and not suspended. It explicitly stated that it would "consider fares produced by the formula as a `just and reasonable' ceiling, and any fare in excess of this ceiling would be viewed prima facie as outside the realm of justness and reasonableness and would ordinarily be suspended and ordered investigated." Any carrier wanting to file higher tariffs would be dissuaded, not only by the indications in the order that only those tariffs meeting the standards set down by the Board would be accepted, but also by the Board's explicit statement that increases would be considered only "where strong justification was shown." Furthermore, while tariffs in conformity with the Board's model would go into effect and give the carriers some additional revenue almost immediately, the Board required all filings requesting increases above those provided in the September 12 order to have a proposed effective date 75 days after filing. It would seem that upon any realistic interpretation this order involved the legislative determination of rates by an agency for the future, as described in the Arizona Grocery case.

V

It would be blinking reality to hold, as the Board argues, that the order of September 12 did no more than suspend and initiate an investigation²⁸  of the rates proposed by the carriers in August. The Board did all that it could, short of formally styling its order as rate-making, to induce the carriers to adopt the proposed rates. The Board does not dispute these facts, but, in order to insulate itself from responsibility for these rates, relies upon the fact that it never in so many words "ordered" the carriers to file the rates now being charged. According to the Board, as long as the Board only "suggests" and does not order the future rates, the rates remain carrier-made. In support of this proposition the Board cites a series of cases which followed Arizona Grocery, each of which holds that certain action does not amount to agency approval of the rates in question.²⁹  It has been held, for example, that the agency's refusal to suspend proposed rates does not constitute agency approval of those rates. To the extent that the I.C.C. precedents are relevant to this case³⁰  we would agree with the Board that it takes more than a refusal to suspend proffered rates to transform them into agency-made rates.

We do not need to decide, however, in the context of this case the exact extent of agency participation which will make an agency responsible for the rates being charged by carriers. For the cases which the Board cites simply are not apposite.³¹  We are not dealing with rates filed by carriers which the Board has refused to suspend, or even with allowance of small percentage increases in revenue based on existing rates,³²  but with a complete and innovative scheme for setting all passenger rates for the continental United States.³³  The Board has pointed to no case in which the Board or Commission has set out such a complete and detailed scheme for making rates which it wanted filed and in which a court has held that the resulting rates were carrier-made rates. Even a cursory reading of the order makes it clear that the Board told the carriers what rates to file; it set forth a step-by-step formula requiring major changes in rate-making practices and in rates which it expected the carriers to adopt. And the Board concededly took this action after closed sessions with carrier representatives, without statutory public hearings and, according to petitioners, without reference to the rate-making standards of the statute.

If, as the Board argues, the rates resulting from this procedure are carrier-made, rather than agency-made, the public would not only be fenced out of its role in rate-making, but judicial review of the Board's actions would be severely limited. On appeal agency-made rates are tested against the Act's explicit rate-making procedures. Thus a court must decide whether, in determining rates, the Board has properly observed the statutory procedures and taken into account the factors which Congress has said should be considered when rates are made. If the statutory plan has been complied with, the court can then determine whether substantial evidence in the record supports the Board's rates. Here the Board has in effect determined rates and the record made in so doing is inadequate for judicial review. By contrast, if the tariffs filed pursuant to the Board's order of September 12 are not Board-determined rates, judicial review is practically non-existent. Aggrieved parties can object to carrier-made rates and ask the Board to investigate them, but the Board's refusal to investigate would be reviewable only for an abuse of discretion.³⁴  And, of course, it would be very difficult indeed to apply this limited standard of review to a record made in large part behind closed doors.

Moreover, the Board's suspension authority, on which it relies for justification of its actions in this case, is totally insulated from judicial review.³⁵  It is this power which the Board uses to work its will in rate-making rather than the judicially reviewable statutory rate-making plan designed by Congress to protect the public. In the absence of a compelling justification for the Board's admitted practice of making rates by use of its suspension power, we cannot help but conclude that the Board is only seeking to avoid the strict requirements of the rate-making portion of the statute and the resulting more stringent judicial review. No requirement of Board operation or policy of the Act seems to support the Board's blatant attempt to subvert the statute's scheme.

The Board has argued that to hold it accountable for these rates would "hobble the administrative process," seemingly because it feels that the procedures required by Sections 1002(d) and 1002(e) of the Act do not permit the Board to respond quickly enough to met the immediate revenue needs of the carriers in times of rapidly rising costs.³⁶  While we recognize that under the statute the Board has an obligation to afford the carriers sufficient revenues,³⁷  that obligation cannot become a carte blanche allowing the Board to deal only with the carriers and disregard the other factors, such as the traveling public's interest in the lowest possible fares and high standards of service, which are also enumerated in the Act as rate-making criteria.³⁸ 

Furthermore, we see no inconsistency between adhering to the statutory plan and awarding a speedy increase in carrier revenues. The statute does not require a complete, time-consuming, scholarly and theoretical review of all aspects of rate-making before the Board passes upon proposals which are submitted,³⁹  The Board is expected to use its experience gleaned from ongoing studies and investigations in its day-to-day activities, and it can act with reasonable speed as long as it affords public notice, holds a proper hearing, and takes the statutory factors into account when it determines rates. In any case, ignoring the general public's interests in order to better serve the carriers is not the proper response to the difficulties supposedly created by an outdated or unwieldy statutory procedure. After all, there is more to rate-making than providing carriers with sufficient revenue to meet their obligations to their creditors and to their stockholders.

In short, we simply do not agree with the Board that abdication from its proper supervisory role under the statute need be the result of today's holding requiring the Board to comply with the statute in rate-making. We would be sympathetic, for example, to instances in which the Board felt that compelling circumstances required it to act without complete information before an investigation is completed. Any approval of rates under such conditions would be subject to revision once more complete information is obtained. We would liken such emergency Board action to the interim approval which Judge Tamm recently remarked upon, in a somewhat different context. Speaking for the court, he said:⁴⁰ 

"* * * [Our] assessment of the Board's findings should be bifurcated, with different standards applied to the findings relating to full and interim approval. That is, the fact that interim approval is useful primarily in situations in which the Board needs to act expeditiously * * * but lacks sufficient information to determine authoritatively whether the agreement as a whole will serve the public interest, indicates that our review of the findings supporting the interim approval should be relatively limited. Since the Board in electing to order an interim approval is essentially saying that * * * further data gleaned from practical experience is necessary to an enlightened determination of the public interest, a reviewing court can do little more than ask whether this conclusion is reasonable and based upon substantial evidence. * * *"

We fully recognize that a carrier's exigent economic circumstances at times will make it necessary for the Board to act on the basis of incomplete data. But we emphatically reject any intimation by the Board that its responsibilities to the carriers are more important than its responsibilities to the public. Board action must always comply with the procedural requirements of the statute and must always be based on an assessment of the relevant available data, with due consideration given to all the factors enumerated in the statute, which factors taken together make up the public interest.

VI

It is true that the practice followed in this case does not fit neatly and precisely into the statutory concept of rate-making by the Board or by the carriers. Actually the practice produces rates arrived at through the cooperation of the carriers and the Board. The Board candidly admits that it devised the practice because the volatile economic conditions in the air line industry made use of the Section 1002(d) and (e) procedures impractical. But Congress requires public participation in making rates because it is the public who pays them. And under this Act, as distinguished from the Interstate Commerce and Motor Carriers Acts, there is no statutory provision for reparations to the public if the rates charged are unreasonable.⁴¹  Hence observance of safeguards designed to protect the public before the rates are imposed is imperative.

Since the record shows, as the Board admits, that the public notice and hearing requirements of Section 1002(d) were not observed in issuing the order of September 12, that order is invalid and the tariffs filed by the carriers based thereon are unlawful. Under the circumstances, this case is remanded to the Board for further proceedings.

So ordered.