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AIR FREIGHT HAULAGE CO. v. RYD-AIR

February 26, 1976

Air Freight Haulage Co., Inc.
v.
Ryd-Air, Inc., Air Cargo, Inc., Ryder System, Inc., American Airlines, Inc., Eastern Air Lines, Inc., Northeast Airlines, Inc., Air Canada, Allegheny Airlines, Inc., Braniff Airways, Inc., British Overseas Airways Corp., Delta Air Lines, Inc., Flying Tiger Lines, Inc., Mohawk Airlines, Inc., National Airways, Inc., New York Airways, Inc., Northwest Airlines, Inc., Ozark Air Lines, Inc., Pan American World Airways, Inc., Piedmont Aviation, Inc., Airlift International, Inc., Seaboard World Airlines, Inc., Southern Airways, Inc., Trans World Airlines, Inc., United Air Lines, Inc.


Lasker, D.J.


The opinion of the court was delivered by: LASKER

Memorandum

LASKER, D.J.

 The defendant air carriers and Air Cargo, Inc., *fn1" move for summary judgment dismissing the complaint, pursuant to Rule 56 of the Federal Rules of Civil Procedure, on the ground that the activities challenged in the complaint have been immunized from the antitrust laws by orders of the Civil Aeronautics Board (CAB) issued pursuant to Sections 412 and 414 of the Federal Aviation Act of 1958, 49 U.S.C. §§ 1382 and 1384. *fn2" The plaintiff cross-moves for summary judgment on the issue of liability.

 The complaint charges that the defendants conspired to monopolize and unreasonably restrain the trucking of freight to and from major metropolitan New York City airports in violation of Sections One and Two of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section Seven of the Clayton Act, 15 U.S.C. § 18. Although the facts of this case are set forth in Breen Air Freight, Ltd. v. Air Cargo, Inc., 470 F.2d 767 (2d Cir. 1972), cert. denied, 411 U.S. 932, 36 L. Ed. 2d 392, 93 S. Ct. 1901 (1973), a brief recapitulation is in order.

 In 1947, the scheduled domestic air carriers, anxious to consolidate cartage services at the nation's airports, agreed that Air Cargo, Inc. (ACI) alone would provide, "directly or by contract," air freight and pick-up and delivery services for the airlines. (Memorandum of Air Carrier Defendants and Air Cargo, Inc., Exhibit A.) ACI, first established by the air carriers as a joint research corporation, is wholly-owned and controlled by the national airlines. The ACI agreement was filed with the Civil Aeronautics Board and, on December 31, 1947, the CAB approved the agreement in a memorandum order. (Memorandum of Air Carrier Defendants and ACI, Exhibit B.) Although in the earlier years the CAB specified in its order that it would require ACI to file its future cartage contracts for approval, in fact, in 1962, the Commission exempted ACI from further filing. However, CAB has insisted on reviewing all amendments subsequent to the 1947 agreement. (Memorandum of Air Carrier Defendants and Air Cargo, Inc., Bernhard Affidavit, pp. 3-4.)

 In the New York City area, beginning in 1957, ACI contracted with three freight trucking companies, Breen Air Freight, Ltd., Mercury Air Freight, Inc., and Air Freight Haulage, the plaintiff in this action, to act as ACI's cartage agents. On September 30, 1970, these contracts were terminated. At the same time, ACI executed two agreements with defendants Ryder System, Inc. and Ryd-Air. These agreements constitute the basis of the antitrust complaint. In the first agreement, ACI and Ryder System provided for the formation of Ryd-Air, a subsidiary of Ryder that would provide cartage services in metropolitan New York City. As part of this agreement, ACI acquired twenty percent of the stock of Ryd-Air and the right to nominate two of the five members of its Board of Directors. By the second agreement, Ryd-Air became ACI's exclusive air-freight cartage agent in New York City. This arrangement lasted three years. On October 1, 1973, ACI terminated its pickup and delivery contract with Ryd-Air and commenced its own direct operation.

 Some time after their contracts had been terminated, Breen Air Freight, Ltd., and Mercury Air Freight, Inc., the plaintiff's companion cartage agents for ACI between 1957 and 1970, commenced an antitrust action against ACI, Ryder System, Ryd-Air and the airlines, all of whom are defendants in the present action. The defenses raised -- as in the present case -- were that the acts complained of had been immunized from antitrust claims by virtue of earlier CAB approval and that the primary jurisdiction over the subject matter resided in the CAB. The district court denied the defendants' motion to stay the action until such time as the CAB conducted administrative proceedings on the complaint. On an interlocutory appeal to the Second Circuit, the district court was affirmed -- the doctrine of primary jurisdiction was held inapplicable in the circumstances. Breen Air Freight, Ltd. v. Air Cargo, Inc., supra. The defendants in the present case argue that the factual finding in Breen was erroneous and, further, that Breen was "reversed" by the Supreme Court's decision in Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363, 34 L. Ed. 2d 577, 93 S. Ct. 647 (1973).

 We find the reasoning of the Breen court persuasive. The agreement between ACI and Ryder System was viewed by the Second Circuit as involving signatories who are not "air carriers." 470 F.2d at 771-72. Nor did the Breen court agree with the defendants' argument that the airlines became parties to the agreement because ACI signed the document on behalf of the airlines as their agent:

 
Furthermore, it seems obvious from the agreement of 1947 that ACI was given no authority to act on behalf of the airlines in a transaction such as the Ryd-Air agreement. Indeed, the airlines primarily limited ACI to performing the functions of providing cartage and terminal services directly or by contract -- functions which clearly do not include promoting a new corporation, owning stock in it, or sitting on its Board of Directors. Furthermore, there is no merit to defendants' argument that the airlines have "ratified" the agreement and thereby have become parties to it. . . . Here there is no evidence in the record that the airlines knew the material facts involved in the formation of Ryd-Air or that they communicated a desire to ratify its formation. Id. at 772-73 (footnotes omitted).

 Since the Ryder-ACI agreement was not signed by "air carriers," and since the airlines had not authorized or ratified ACI's participation in the formation of Ryd-Air, the agreement could not be immunized from the antitrust laws by the CAB, whose jurisdiction extends only to agreements involving air carriers. *fn3" 470 F.2d at 773.

 The defendants in this case characterize the conclusion of the Breen court as "contrary to fact." (Memorandum of Air Carrier Defendants and Air Cargo, Inc., at 15.) Yet the defendants have failed to tender facts that contradict the findings of the Breen court or that suggest a hearing would unearth information not available to the Second Circuit in Breen. The affidavit of Russell Bernhard, vice-president and general counsel to ACI, only indicates that the air carriers, dissatisfied with the service provided by ACI's cartage agents, requested ACI to arrange for a single contractor to handle the carting operations. (Memorandum of Air Carrier Defendants and Air Cargo, Inc., Bernhard Affidavit, at 9-10.) Nothing in the affidavit, apparently the sole basis for the argument made by the defendants on this point, suggests that the airlines were aware of the details of the ACI-Ryder System agreement or that they communicated a desire to ratify the formation of Ryd-Air. In the absence of new information to suggest that the defendants' agency theory is any more viable now than when Breen was decided, there is no basis for departing from the Breen ruling or for a hearing on this issue.

 The Breen panel also concluded that, even if the CAB could immunize the ACI-Ryd-Air agreement, the doctrine of primary jurisdiction was inapplicable since the 1947 CAB order could not possibly

 
have comprehended the formation of Ryd-Air or approved its creation years after the issuance of the order. . .. Manifestly, there is nothing in the agreement authorizing the promotion by ACI of a new company, the ownership of a stock interest in it, or the holding of seats by ACI nominees on a new corporation's Board of Directors. . . . Although defendant has the authority to provide services directly it does not have the authority to provide such services indirectly through an ownership interest in a joint venture which it has not been authorized to promote or to participate in. The Board's 1947 approval of ACI merely authorizes its establishment and approves its then contemplated activities which flow therefrom. Trans World Airlines, Inc. v. Hughes, 332 F.2d 602 (2 Cir. 1964). 470 F.2d at 774.

 The defendants argue that this portion of the Breen opinion, premised on the Second Circuit's 1964 decision in Trans World Airlines, Inc. v. Hughes, 332 F.2d 602 (hereinafter referred to as Hughes) has been undermined by the Supreme Court's decision in Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363, 34 L. Ed. 2d 577, 93 S. Ct. 647 (1973) (hereinafter referred to as Hughes Tool Co.) In Hughes Tool Co., the Supreme Court reversed the 1964 holding of the Second Circuit in Hughes. An examination of the Supreme Court's decision in Hughes ...


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