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CAB v. SCOTTISH-AMERICAN ASSN.

January 9, 1976

CIVIL AERONAUTICS BOARD, Plaintiff,
v.
SCOTTISH-AMERICAN ASSOCIATION, INC., FRANCIS JOHN FOLAN, a/k/a FRANKIE ROSS, individually and as Officer, Agent, Servant or Employee of, and d/b/a SCOTTISH-AMERICAN ASSOCIATION, INC. and TRAVEL-A-GO GO, INC., JULIA ANN FOLAN, individually and as Officer, Agent, Servant or Employee of, and d/b/a SCOTTISH-AMERICAN ASSOCIATION, INC. and TRAVEL-A-GO GO, INC., et al., Defendants



The opinion of the court was delivered by: JUDD

MEMORANDUM AND ORDER

 JUDD, J.

 Plaintiff seeks, by motion for summary judgment pursuant to F.R.C.P. 56, a permanent injunction compelling the defendants Francis John Folan and Julia Ann Folan, to make refunds out of their personal assets to purchasers of affinity charter air transportation.

 This is not the ordinary motion for summary judgment on affidavits where facts may be disputed. The two individual defendants and other witnesses have been deposed; there has been testimony in court hearings on this and related matters in the action; and the court made many findings of fact in connection with a preliminary injunction granted on July 28, 1975 which has not been appealed.

 Facts

 The Scottish-American Association, Inc. (hereinafter Scottish-American) is a membership corporation organized under the law of the State of New York. It was organized as a social and philanthropic group for Americans of Scottish ancestry. It was founded by Francis John Folan, who served as its chief operating officer. Scottish-American has its principal offices at 6809 Fourth Avenue, Brooklyn, New York.

 Travel-A-Go Go (hereinafter Travel) is a travel agency organized under the Business Corporation Law of the State of New York. Travel's offices also are located at 6809 Fourth Avenue, Brooklyn, New York.

 Julia Ann Folan is the incorporator of Travel. Francis John Folan and Julia Ann Folan, husband and wife, controlled and operated all of Travel's activities.

 During 1974 Scottish-American became actively engaged in the chartering of aircraft for flights between New York and points in Europe, primarily London and Glasgow. Scottish-American did not limit its charter flight passengers to its bona fide members. On the contrary, Scottish-American accepted passengers on its flights who were solicited as customers of Travel. Scottish-American granted nominal membership to anyone seeking to participate in its charter flights. Many of these people were not bona fide members of Scottish-American for over six months at the time they travelled on charter flights operated by Scottish-American, but were merely members of the general public who became nominal members of Scottish-American in order to take advantage of its charter flights. Tickets on the charter flights were sold at a firm price rather than on a pro rata share of the cost of each charter.

 During the summer of 1974 Pan American World Airways cancelled its charter program with Scottish-American based on the latter's inability to meet certain filing requirements of the British aeronautical authorities. As a result of this cancellation, Francis John Folan, chief operating officer for Scottish-American, on his own authority, made arrangements for Scottish-American's charter passengers to fly on regularly scheduled flights at regular rates. The added cost for these flights, due to the higher rate for scheduled flights, as opposed to charter flights, was provided from the deposits of passengers for charter flights scheduled to depart at later dates. As a result, no funds remained to cover the expense of these later flights. Approximately 1,700 passengers have failed to receive either their charter flight or a refund of their deposit.

 On August 2, 1974 District Judge Platt entered a temporary restraining order prohibiting the defendants from violating the Federal Aviation Act of 1958, 49 U.S.C. § 1371(a), the Civil Aeronautics Board's regulations concerning charter air transportation, 14 C.F.R. Parts 207, 208, 212 and 214, and the Civil Aeronautics Board's Cease and Desist Order 72-9-3, issued September 1, 1973. The temporary restraining order, among other things, enjoined Mr. and Mrs. Folan from failing to make prompt refunds of all transportation which had not been performed, and from making expenditures of more than $1,500 from corporate or personal assets. When the temporary restraining order brought about no refunds by the Folans, CAB instituted a proceeding to hold them in contempt. At this hearing, testimony was taken of Mr. Folan and of George Kearney, who represented him on August 2, 1974. It appeared that Mr. Kearney had taken the responsibility himself not to oppose any provisions of the temporary restraining order. However, he had not been in contact with the Folans before the order was presented, and there was a possible conflict of interest with them, because he was suing Mr. Folan personally in the Supreme Court of the State of New York. Consequently, the court directed that the temporary restraining order be modified to the extent that any finding of personal liability of Francis John Folan and Julia Ann Folan to make refunds be deleted, and the motion for contempt be held in abeyance pending further depositions. Apparently, no order was entered on this decision.

 The court had granted a preliminary injunction against other parties to the action, who contested the CAB's position concerning affinity charter flights both on the facts and on the law. An appeal from this preliminary injunction of October 9, 1974 resulted in its affirmance by the United States Court of Appeals on March 7, 1975. Civil Aeronautics Board v. Carefree Travel, Inc., 513 F.2d 375 (2d Cir. 1975).

 By its Memorandum and Order dated July 28, 1975 this court granted a preliminary injunction against Scottish-American, Travel, and the Folans, consistent with the provisions of the temporary restraining order. In addition, the court adopted certain findings of fact and conclusions of law, the substance of which is outlined herein.

 The court at the same time set September 2, 1975 for trial on the merits. On that day defendants were not ready to proceed, but stipulated in open court that, except for the personal liability of Francis John Folan and Julia Ann Folan, the provisions of the preliminary ...


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