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TWA v. HUGHES

December 23, 1969

TRANS WORLD AIRLINES, INC., Plaintiff,
v.
HOWARD R. HUGHES, HUGHES TOOL COMPANY, AND RAYMOND M. HOLLIDAY, Defendant


Metzner, District Judge.


The opinion of the court was delivered by: METZNER

METZNER, District Judge:

The special master, Herbert Brownell, Esq., has submitted his report awarding plaintiff $137,611,435.95 as damages after trebling as provided in § 4 of the Clayton Act, 15 U.S.C. § 15. The matter had been referred to him for assessment of damages following the entry of a default judgment imposed as a sanction for failure of Howard R. Hughes to appear for deposition. Trans World Airlines, Inc. v. Hughes, 32 F.R.D. 604 (S.D.N.Y. 1963). In the ensuing discussion, plaintiff will be referred to as TWA and defendants Howard R. Hughes and Hughes Tool Company as Hughes and Toolco, respectively.

 Both parties have filed objections to the report. The defendants move to confirm those portions of the report which are favorable to them and move to reject those portions which are adverse to their position. If their contentions are correct, TWA is not entitled to any damages. TWA objects to the report on the ground that the amount awarded is inadequate. The maximum figure for which it contends is $510 million plus prejudgment or moratory interest of over $175 million. The respective contentions of the parties will be discussed below.

 The history of this litigation, in which TWA sought damages for claimed antitrust violations, shows that it has been long and complex. It was originally instituted on June 30, 1961. On August 31, 1961, the case was assigned to me for all purposes pursuant to Rule 2 of the General Rules of this court. Since then it has been the subject of many pretrial rulings, opinions and appeals. The sufficiency of the complaint was upheld in an opinion reported in 214 F. Supp. 106 (S.D.N.Y. 1963). In that opinion this court also ruled adversely to defendants' contention that the acts complained of were exempt from the antitrust laws by virtue of certain orders of the Civil Aeronautics Board. After the court was informed that Hughes would refuse to appear for examination, it granted TWA's application for a default judgment. 32 F.R.D., supra. The Court of Appeals affirmed the rulings found in 214 F. Supp., supra, but refused to pass upon the propriety of the entry of the default judgment. 332 F.2d 602 (2d Cir. 1964). On March 8, 1965, the Supreme Court dismissed writs of certiorari as improvidently granted. 380 U.S. 248, 249, 85 S. Ct. 934, 13 L. Ed. 2d 817. The special master and the court then made preliminary rulings as to the effect of the default judgment on the damage hearings. 38 F.R.D. 499 (S.D.N.Y. 1965). *fn1"

 The hearings before the special master commenced on May 2, 1966. Some 11,000 pages of testimony were taken from expert witnesses in the fields of economics, engineering, finance and accounting. Over 800 exhibits containing 60,000 pages were admitted in evidence. The special master thereafter rendered a 323-page report. A hearing was held on the objections of the parties to the report. They submitted over 1,300 pages of briefs and memoranda, including a 62-page listing by defendants of 216 specific objections to the report.

 At page 12 of his report, the special master states, "Despite prior rulings in the case, this (effect of the default) has been the subject of continuing disagreement between the parties in the damage hearings." I thought that this issue had been clearly disposed of in the preliminary report of the original special master, dated July 30, 1965, and in this court's opinion in 38 F.R.D. 499.

 As stated in that opinion at page 501:

 
"Liability is not an issue for the Special Master except in a very limited sense. The sufficiency of the complaint has already been established by the denial of defendant's motion to dismiss. 214 F. Supp. 106 (S.D.N.Y. 1963), aff'd, 332 F.2d 602 (2d Cir. 1964), writ of cert. dismissed, 380 U.S. 248, 85 S. Ct. 934, 13 L. Ed. 2d 817 (1965). By virtue of the default the defendant has admitted the truth of the well-pleaded allegations of the complaint. Thomson v. Wooster, 114 U.S. 104, 5 S. Ct. 788, 29 L. Ed. 105 (1885)."

 In the present report, the special master has referred to another case, Harshman v. Knox County, 122 U.S. 306, 30 L. Ed. 1152, 7 S. Ct. 1171 (1887), which on its facts is even stronger than Thomson v. Wooster, supra. Without going into the details of that case, it is sufficient to quote the Court's language at page 317:

 
"In the absence of a denial, the fact as stated in the petition of the plaintiff is confessed by the default, and stands as an admission on the record, of its truth by the defendant."

 In the hearings before the special master, TWA did not have to present any evidence to support the well-pleaded allegations of the complaint, and defendants may not offer evidence to controvert such allegations. To the extent that they did, it will be disregarded. That opportunity was forfeited by defendants as a result of the default.

 Defendants may show, however, that an allegation is not well pleaded, but only in very narrow, exceptional circumstances. The Thomson and Harshman cases clearly support this rule. For example, an allegation made indefinite or erroneous by other allegations in the same complaint is not a well-pleaded allegation. Other examples, as detailed in 38 F.R.D. at 501, are allegations which are contrary to facts of which the court will take judicial notice, or which are not susceptible of proof by legitimate evidence, or which are contrary to uncontroverted material in the file of the case. That opinion went on to say:

 
"However, it may be shown by plaintiff, in the context of this case, that some matters of which the court may take judicial notice should not be so noticed. See McCormick, Evidence § 330 (1954). Where file material is involved, if the plaintiff did not have full opportunity to meet or controvert such material, then it should not be used to nullify the allegation. If evidence merely tends to show that an allegation is not true, the allegation must be taken as true in this default. Finally, the plaintiff is entitled to the benefit of all reasonable inferences from the evidence tendered.
 
"Attempts by defendant to escape the effects of its default should be strictly circumscribed. It should not be afforded an opportunity to litigate what has already been deemed admitted in law. In the absence of an exceedingly strong showing that an allegation is untrue under the rules set forth above, the allegation stands as admitted." 38 F.R.D. at 501.

 This quoted language had in mind the impact of the failure of Hughes to appear for deposition. His default stymied TWA in the acquisition and presentation of evidence in support of its claim. As the Court of Appeals said (332 F.2d at 614):

 
"We think it clear beyond any question, in light of all the circumstances here presented, that the deposition of Hughes was necessary to all aspects of this litigation . . . ."

 And again at page 615:

 
"Hughes' deposition was absolutely essential to the proper conduct of the litigation."

 Defendants claim that there are allegations in the complaint which are contrary to facts of which the court will take judicial notice. They particularly refer to that portion of the third paragraph of the complaint which alleges that Toolco was engaged

 
"since in or about 1939 in the development, manufacture and acquisition of aircraft and related equipment from the manufacturers thereof in various states and in the sale and lease of such aircraft to air carriers in various other states for use in interstate and foreign commerce."

 They request that judicial notice be taken of the fact that Toolco never "manufactured" or engaged "in the sale and lease" of aircraft. I cannot take judicial notice of these matters because they are not indisputably true.

 The question whether judicial notice can be taken of facts which are not indisputable has been the subject of disagreement among scholars. Wigmore thought that notice should not be limited to indisputable facts. He took the position that the taking of judicial notice of a fact merely relieved the offeror of more formal proof. However, this did not prevent his opponent from disputing the fact by offering contrary evidence. 9 Wigmore, Evidence § 2567 (3d ed. 1940). See also Thayer, Preliminary Treatise on Evidence 308-309 (1898); Ohio Bell Telephone Co. v. Public Utilities Comm'n of Ohio, 301 U.S. 292, 301-302, 81 L. Ed. 1093, 57 S. Ct. 724 (1937); United States v. Aluminum Co. of America, 148 F.2d 416, 445-46 (2d Cir. 1945). The more recent thinking is that only indisputable facts such as matters of common knowledge and matters capable of certain verification will be judicially noticed. When noticed such facts are binding. Morgan, The Law of Evidence, 1941-1945, 59 Harv. L. Rev. 481, 482-87 (1946); McCormick, Evidence § 330 (1954); McNaughton, Judicial Notice, 14 Vand. L. Rev. 779 (1961); Alvary v. United States, 302 F.2d 790, 794 (2d Cir. 1962).

 I do not have to resolve the debate between scholars concerning the taking of judicial notice during trial. It is clear to me that after a default only indisputable facts should be noticed to contradict allegations of the complaint. Otherwise a preliminary hearing would be necessary to afford plaintiff a chance to rebut factual material which a defendant claims should be judicially noticed. See the Ohio Bell and Alcoa cases, supra. In effect it would permit a defendant to litigate facts which are foreclosed by a default under the Thomson and Harshman cases, supra.

 In determining indisputability, the courts will consider "the nature of the subject, the issue involved, and the apparent justice of the case." McCormick, Evidence § 330, at 709 (1954). Each of these factors counts against noticing the proposition offered by defendants. First, the subject of the proposition is not scientific, historical, geographic or statistical matter of the kind courts are most willing to notice. Instead it is a garden variety proposition about who did what, when and where. Second, the facts which defendants wish judicially noticed in this litigation would be relevant to the central issue of liability under the antitrust laws. The more critical an issue is to a case, the more reluctant courts should be to determine it by taking judicial notice. Third, the apparent justice of the case in the posture of a default based upon wilful refusal to appear for deposition requires me to resolve all doubts against defendants.

 The defendants are urging that certain facts are indisputable because they appear in orders of the CAB and material in the CAB files. While judicial notice may be taken of the existence and contents of such material, it does not follow that the court will take judicial notice of the truth or accuracy of the contents. Stasiukevich v. Nicolls, 168 F.2d 474, 479 (1st Cir. 1948). In that case the court found that "the findings are merely evidence of the facts asserted." and went on to state that "of course, the other party may introduce evidence tending to prove the contrary of the facts asserted in the official report." Since a finding is merely evidence and is rebuttable, it cannot be considered indisputable. As to material in the CAB files, it stands on even weaker footing, since it has not been subject to any sort of examination of an adversary nature.

 Defendants argue that TWA has failed to establish that it received late or inadequate deliveries of jet aircraft as a proximate result of the conduct of the defendants in violation of the antitrust laws. They assert that the claim "is defective for the further reason that the plaintiff has failed to establish by a preponderance of the evidence that, but for defendants' conduct, it would and could have accomplished the results now asserted."

 It has been said of "proximate cause" that:

 
"There is perhaps nothing in the entire field of law which has called forth more disagreement, or upon which the opinions are in such a welter of confusion . . . . Much of this confusion is due to the fact that no one problem is involved, but a number of different problems, which are not distinguished clearly . . . ." Prosser, Law of Torts 240 (3d ed. 1964).

 The question of proximate cause involved in this case arises out of a distinction between the fact of damage and the amount of damage. The Supreme Court explained this distinction recently in Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114, n. 9 23 L. Ed. 2d 129, 89 S. Ct. 1562 (1969):

 
"Zenith's burden of proving the fact of damage under § 4 of the Clayton Act is satisfied by its proof of some damage flowing from the unlawful conspiracy; inquiry beyond this minimum point goes only to the amount and not the fact of damage."

 Basically defendants seek to deny that they caused any injury to TWA, i.e., to deny the fact of damages. The fact of damages, however, is an element of liability. The complaint alleges that the defendants committed certain acts which caused injury to TWA. The allegations are admitted by the default and the fact of injury is thereby established. The only question remaining is the amount of damages defendants should pay TWA.

 When we come to the computation of the amount of damages in an antitrust case, we look to the rules enunciated in Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 90 L. Ed. 652, 66 S. Ct. 574 (1946). Those rules are that the trier of the facts must use the most precise proof available, that even where a defendant by his own wrong has prevented a more precise computation, the award may not be based on speculation or guesswork, and that the award must be predicated on a just and reasonable estimate of the damage, based on relevant data.

 Finally, the report must be reviewed in the light of the strong presumption in favor of the findings of fact made by the special master. They are to be accepted unless clearly erroneous. Fed. R. Civ. P. 53(e)(2); Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 689, 90 L. Ed. 1515, 66 S. Ct. 1187 (1946); United States v. S. Volpe & Co., 359 F.2d 132, 134 (1st Cir. 1966); E.I. du Pont de Nemours & Co. v. Purofied Down Prods. Corp., 176 F. Supp. 688, 691 (S.D.N.Y. 1959). This rule is the same as Rule 52(a), which is applicable to findings of fact made by the trial court in a nonjury case. Such a finding is clearly erroneous only where "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 92 L. Ed. 746, 68 S. Ct. 525 (1948).

 The complexity of the proof in this case is attested to by the nature of the testimony proffered by the parties. Intricate questions of engineering, finance and economics were involved. *fn2" They were reviewed and resolved with painstaking care by a special master of extremely high competence. Especially apt here is the language of the court in Badenhausen v. Guaranty Trust Co., 145 F.2d 40, 53 (4th Cir. 1944), cert. denied, 323 U.S. 797, 89 L. Ed. 636, 65 S. Ct. 440 (1945), referring to the effect to be given to the findings of a special master who prepared a plan of railroad reorganization:

 
"Especially imperative is the rule when, as here, the master has lived with the case for four years, has patiently studied the complex questions involved and has listened with painstaking care in extended hearings to the arguments and proposals of all the parties who desired to be heard."

 To the same effect, see Santa Cruz Oil Corp. v. Allbright-Nell Co., 115 F.2d 604 (7th Cir. 1940).

 Bearing these considerations in mind, I will first pass upon the specific objections by the defendants to the report of the special master.

 Defendants' Objections to the Report of the Special Master

 
I. Determinations Relating to Defendants' Alleged Antitrust Violations.
 
A. Facts which defendants claim should have been found.

 Objections 1-3 and 13. The suggested findings as to CAB approval are irrelevant to the proceedings and were so adjudged by this court on defendants' motion to dismiss (214 F. Supp. 106), which determination was affirmed by the Court of Appeals (332 F.2d 602) when it said at page 610:

 
"Nor do we find any merit in the defendants' alternative contention that the Civil Aeronautics Board, in approving Toolco's acquisition of control over TWA and certain specific transactions thereafter, immunized the defendants from the operation of the antitrust laws as to all the ramifications of these transactions."

 Objection 4 with 11 subdivisions. These are suggested findings based on a suggested finding that Toolco never manufactured or supplied commercial transport aircraft to United States air carriers in competition with manufacturers and suppliers of such aircraft. First, the defendants by their default admit that they did engage in such activity. Second, the suggested findings do not necessarily clearly negative liability when all the allegations of the complaint are read together. Third, there is sufficient in the record on this default to justify the refusal of the special master to so find. In this regard, reference is made to the placing of orders by Toolco for Convair 880s built to the specifications of Capital Airlines, the placing of orders for Convair 990s built to the specifications of American Airlines, the sale of Boeing 331s to Pan American and the leasing of Convair 880s to Northeast Airlines.

 Objections 5-8. The suggested findings that during the period covered by the complaint Hughes did everything to explore the source of supply of jets in the best interests of TWA fly directly in the face of the alleged wrongdoing by the defendants which is admitted by the default. Additionally the record contains evidence to the effect that Hughes was not acting solely in the best interests of TWA in the development of the Model 18 by Convair.

 Objections 9, 9a, 9b and 10. These are suggested findings that defendants did not engage in financing the acquisition of aircraft in competition with insurance companies, commercial banks or other lending institutions and that TWA obtained such financing from various airplane manufacturers and banks. I fail to see their relevancy in view of the charges contained in the complaint which are, in effect, that defendants dictated to TWA the methods and means of financing the acquisition of aircraft. See paragraphs 10(g), 23, 24, 26, 27 and 28 of the complaint.

 Objections 11 and 12. These are suggested findings that Atlas never manufactured or developed aircraft and submitted a proposal pursuant to an agreement with Toolco for merger of Northeast Airlines and TWA which was reported as being fair. The default admits the allegations of the complaint regarding the conspiracy and that the proposed merger was advantageous to the defendants and disadvantageous to TWA. Further, as regards TWA reports favorable to the merger, the domination and control of TWA by Hughes must be taken into consideration in evaluating such reports.

 B. Findings claimed to be clearly erroneous.

 Objections 14, 15 and 17 to the findings that the activity by Toolco constituted "engaging in" the development and manufacture of aircraft by Toolco. The record is sufficient to sustain these findings.

 Objection 16 to the finding that Toolco was engaging in this activity when TWA should have been arranging for purchases from other suppliers. This finding is sustained by paragraphs 16, 17, 24, 25 and 26 of the complaint.

 Objections 18, 19 and 20 to the findings regarding the purchase of Pratt & Whitney engines, Toolco's trading on its delivery positions as to jets and Toolco's refusal to assign to TWA its rights to acquire jets. These objections are predicated on an assumption that the findings were made after a contested trial following full pretrial discovery procedures. Obviously it is not open to defendant to claim, as it does in objection 20, that it disproved the allegations in paragraph 18 of the complaint, or that the engines were purchased for TWA's best interests and were not resold at a profit.

 Objection 21 to the finding that TWA's management was dominated by Hughes is clearly frivolous. The finding is not only admitted by the default, but was so found in 32 F.R.D. at 606 and 332 F.2d at 614.

 Objection 22 to the finding that the factory representatives were Toolco employees reporting to Rummel as the representative of Toolco is captious. The record shows that Rummel was Toolco's special representative even though he received compensation from TWA. The factory representatives reported to a TWA employee, Rourke, who reported to Rummel. If Rourke had been paid by Toolco, reimbursement would have been made to Toolco by TWA as part of the cost of the aircraft.

 C. Conclusions of law claimed to be erroneous.

 Objections 1-12 are directed to conclusions of law made by the special master. His findings of fact have been sustained by the rulings on the objections made above. Paragraphs 9 and 10 of the complaint have been admitted by the default and defendants' judicial notice argument has been rejected. The conclusions of law are further buttressed by the opinion of the Court of Appeals that the specific transactions alleged to have been effected by the defendants state a cause of action under the antitrust laws. 332 F.2d 602, 611. These objections are overruled.

 II. Determinations Relating to TWA's Claim That It Received an Inadequate and Late Jet Fleet.

 A. Facts which defendants claim should have been found.

 Objections 1, 2, 3 and 4 are suggested findings similar to those in objections 6 and 7 in I A, supra, and are similarly disposed of. It is frivolous to claim that this record could possibly sustain a finding that TWA was an independent negotiator.

 Objection 5. The suggested finding that defendants' negotiations with Convair in 1955 did not restrain trade takes a mediate fact, meaningless without other mediate facts, and draws a negative conclusion of law out of context.

 Objections 6, 7, 8, 9, 11, 12, 13, 14 and 16. These suggested findings are misleading. They state facts which assume that the conditions were not of defendants' doing. The assumption is wrong, since the state of the record on liability shows that defendants' conduct brought about the fact situation, and it is this very conduct which is the basis of TWA's complaint. Furthermore, reliance on achieving better delivery dates with an increase in orders ...


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