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IBERIA AIR LINES OF SPAIN v. NATIONWIDE LEISURE CO

February 24, 1976;

IBERIA AIR LINES OF SPAIN, Plaintiff,
v.
NATIONWIDE LEISURE CORPORATION, Defendant



The opinion of the court was delivered by: NEAHER

NEAHER, District Judge

 This action for breach of contract presents on motion of defendant the question whether the court must invoke the doctrine of primary jurisdiction and dismiss or stay the action in order to afford the Civil Aeronautics Board (CAB) an opportunity to exercise administrative discretion over the matters in issue. Plaintiff Iberia Air Lines of Spain (Iberia) is a foreign air carrier authorized by the CAB to engage in foreign air transportation. § 402 of the Federal Aviation Act of 1958 (the Act), 49 U.S.C. § 1372(a). Defendant Nationwide Leisure Corporation (Nationwide) is a wholesale travel agent in the business of marketing charter flights and tours.

 On February 11, 1974, Iberia entered into a "reservation of space" agreement with Nationwide which provided for the operation of a "charter chain," i.e., daily "back to back" flights from December 19, 1974 to October 31, 1975 between points in the United States and Spain, the flights to be operated by Iberia with space to be sold for charter groups by Nationwide. Under the terms of the agreement Nationwide might not cancel any of the flights between December 19, 1974 and October 10, 1975 and promised to pay Iberia the full price applicable to any cancelled flights. For flights between October 11 and October 31, 1975, Nationwide might cancel up to 23 flights by giving notice of the cancellation but remained obligated for the contract price for any cancelled flights if it failed to notify Iberia by July 11, 1975.

 The contract was written in Spanish and provided for interpretation in accordance with Spanish law. It also provided that all questions under the contract were to be submitted to the Courts of Madrid (Spain). This action presumably waives that provision.

 The agreement was not filed with the CAB for approval. Iberia characterizes the agreement as a "shell" under which future charter contracts made by Nationwide, for example, contracts for inclusive tours with groups or affinity charters, would have arisen, and these particular contracts could if necessary have been later filed with the CAB.

 Iberia was operating under an effective charter tariff during the time which was to be covered by the flights. Although that tariff included provisions for specified charges to charterers in case of their cancellation of flights, they did not apply to the agreement between Iberia and Nationwide.

 On November 29, 1974, three weeks before the first scheduled flight, Iberia alleges Nationwide repudiated the entire agreement and rescheduled the flights with other airlines. Iberia then brought this action to recover damages measured by the contract price, based on the cancellation clause and Spanish law, or alternatively its lost profits.

 Nationwide now moves to have the issue of legality of the cancellation provision determined by the CAB. Nationwide argues that the flight cancellation provisions requiring full payment of the contract price in event of cancellation constitute unreasonable penalties and in effect unreasonable rates in conflict with CAB rules and policies and in violation of Section 403 of the Act, 49 U.S.C. § 1373. Nationwide further argues that because its claim brings into question the reasonableness of a rate, the CAB has jurisdiction over the matter and should have the first opportunity, under the doctrine of primary jurisdiction, to decide the issue of reasonableness.

 This argument assumes as its premise that a cancellation provision in a contract between an air carrier and a charterer is a rate or charge for air transportation within the meaning of Section 403 of the Act. As statutory background, Section 403 requires every air carrier and foreign air carrier to file "tariffs showing all rates, fares, and charges for air transportation." It also provides that "no air carrier . . . shall charge . . . or receive a greater or less or different compensation for air transportation" than provided in its effective tariff. 49 U.S.C. § 1373(a) and (b).

 Section 403 thus refers to air transportation charges or services rendered in connection therewith. Nationwide argues that the cancellation clause is such a charge. Two courts have ruled to the contrary applying what the court finds to be a reasonable interpretation of that section. See Northwest Airlines, Inc. v. United States, 195 Ct. Cl. 356, 444 F.2d 1097 (1971); McCulloch International Airlines v. Anne Storch International, ASTI Tours, Inc., 13 Av.Cas. (CCH) P l7,562 (S.D.N.Y., Feb. 14, 1975); 13 Avi. P 17,562. But see Ford Employees Recreational Association, CAB Order 75-9-114 (Sept. 30, 1975).

 McCulloch was an action for breach of contract by an airline against an inclusive tour operator for recovery, inter alia, under a liquidated damages clause for the charterer's cancellation of certain flights. On the charterer's claim that the absence of a liquidated damages clause from the carrier's effective tariff violated Section 403 the court held that the clause was not a "charge" within the meaning of that section. The court interpreted Section 403 to relate only to services rendered in the actual operation of an aircraft and not possible breaches of contract between a carrier and charterer.

 Similarly Northwest Airlines, Inc. v. United States, supra, involved a charterer's claim that a "no show provision" in the contract between the carrier and the charterer, in this case a government agency, should have been included in the carrier's effective tariff. The clause required the charterer to pay in full for any unused seats not cancelled at least 15 days prior to flight. The court categorized the clause as a "reservation of space" provision and not an air transportation rate. As such the provision was not inconsistent with either the filed tariff or Section 403. The court ruled that the clause need not have been included in the filed tariff under Section 403.

 The court finds these cases to be persuasive authority on the question of the nature of the cancellation clause involved in the present agreement. In contrast to a charge for air transportation the cancellation clause in the agreement between Iberia and Nationwide was the agreed proviso for the failure to use reserved air space for which Nationwide had contracted with Iberia. The provision when fairly read does not set a rate for air transportation or a charge for services connected thereto.

 Whether this particular provision for cancellation of flights is even applicable to a total anticipatory repudiation of the agreement or whether the clause is unenforceable as a penalty are separate ...


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