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City of New Haven v. Civil Aeronautics Board

UNITED STATES COURT OF APPEALS, SECOND CIRCUIT


decided: March 3, 1980.

CITY OF NEW HAVEN, CONNECTICUT, PETITIONER,
v.
CIVIL AERONAUTICS BOARD, RESPONDENT, EASTERN AIR LINES, INC., ALLEGHENY AIRLINES, INC., INTERVENORS.

Petition for review of an order of the Civil Aeronautics Board which declined to prohibit intervenor air carriers from suspending service to New Haven, Connecticut. Denied.

Before Gurfein,*fn* Van Graafeiland and Kearse, Circuit Judges.

Author: Kearse

In 1978, after four decades in which the domestic air transportation industry was subject to comprehensive economic regulation by the Civil Aeronautics Board (the "Board" or "CAB"), Congress passed the "Airline Deregulation Act" (the "Deregulation Act" or "1978 amendments"), amending the Federal Aviation Act of 1958, 49 U.S.C. § 1301 et seq. (1976), (the "Act"). The Deregulation Act was designed "to encourage, develop, and attain an air transportation system which relies on competitive market forces to determine the quality, variety, and price of air services . . .." P.L. 95-504, 92 Stat. 1705, 1705 (1978). Effective October 24, 1978, the Deregulation Act substantially altered the Board's role in regulating such matters as airline fares and routes.

In December 1978, relying on provisions of the Deregulation Act, Eastern Air Lines and the Allegheny Airlines gave notices that 90 days hence they would terminate their service at New Haven, Connecticut. The City of New Haven sought unsuccessfully to have the Board order Eastern and Allegheny to continue providing such service. The Board determined (Order No. 79-3-98, dated March 15, 1979 (hereinafter "March order")) that as a result of the Deregulation Act, prior restraints on unilateral termination of service by an airline had been substantially removed and that an airline could terminate service at a community merely by giving 90 days' notice of its intent to do so, provided that it did not thereby deprive that community of "essential air transportation." The Board found, pursuant to § 419(a)(10) of the Deregulation Act, that in light of other air service currently offered at New Haven, the proposed suspensions did not "reasonably appear( ) to deprive" New Haven of "essential air transportation."

New Haven has petitioned this Court to review the CAB order refusing to prohibit Eastern and Allegheny from terminating service to New Haven. It challenges the substantive determinations of the March order and the procedures used by the Board. Finding none of New Haven's arguments persuasive, we deny the petition.

I. Background of the Deregulation Act

From 1938, when the first comprehensive statute governing regulation of civil aviation was passed,*fn1 until 1978, the domestic air transportation industry was subject to stringent control by the CAB. The principal airlines i. e., major airlines, or "trunk" carriers, such as United Air Lines, American Airlines, and Eastern, and regional airlines, or "local service" carriers, such as Allegheny, Ozark Air Lines and Hughes Airwest operated pursuant to certificates of "public convenience and necessity." The Board could permit a certificated carrier to enter a new market only if the carrier showed that the service it proposed was "required" by the public convenience and necessity. Market exit was similarly restricted. Under § 401(g), a carrier's certificate could be amended to permit the carrier to terminate service at a given point upon a showing that the amendment was required by the public convenience and necessity.*fn2 Alternatively, § 401(j) provided that a carrier could "abandon" a route or part thereof upon showing that the abandonment was required by the public interest.*fn3 Finally, in the markets they were serving, the carriers were required by § 404(a)(1) to provide "safe and adequate service."*fn4

The Deregulation Act was designed to phase out government regulation of the industry, while protecting, by federal subsidy if necessary, smaller communities from such withdrawals of services as would result in their loss of "essential air transportation."*fn5 Section 419(a) of the Deregulation Act required the CAB to determine by October 24, 1979, what constituted "essential air transportation" for each community served by no more than one certificated air carrier;*fn6 the Deregulation Act established as the minimum that could be determined by the Board, two daily round-trips five days per week, or the carrier schedules for 1977, whichever was less.

The Deregulation Act substantially reduced barriers to entry of airlines into new markets, by, inter alia, allowing automatic entry in some circumstances, and replacing the former standard that the public interest "require" a service, with a more liberal policy under which the CAB must allow entry if it is not shown to be inconsistent with the public convenience and necessity. See, e. g., § 401(d)(1)(A), 49 U.S.C.A. § 1371(d)(1)(A) (Cum.Supp.1979). With respect to exit from a given market, § 401(j), dealing with abandonment of routes by the carrier, was replaced by a new provision which forbids a carrier to terminate all service to a point unless it has provided 90 days' notice to the Board and to the concerned state and local authorities.*fn7 Section 401(g), which permits certificate amendments upon a showing of public convenience and necessity, was not substantively changed.*fn8

II. The Present Controversy

Eastern Air Lines was certificated to provide air service to New Haven in 1946. Eastern formerly offered service between New Haven and Boston, Baltimore, Atlanta, and Jacksonville and Pensacola, Florida. In 1974, however, the Board granted Eastern authority to suspend service for a five-year period ending March 22, 1979. On December 21, 1978, Eastern filed notice with the Board "pursuant to § 401(j)(1)" of the Act that it intended "to suspend all service at New Haven" on March 22, 1979.*fn9 The proposed 1979 suspension would not have caused a reduction in actual service; rather, it would have relieved Eastern of the obligation to resume service at New Haven.

Allegheny Airlines was certificated to serve New Haven in 1959. At one time Allegheny offered service from New Haven to Boston and Washington. By 1978, however, Allegheny was providing service only between New Haven and Harrisburg, Pennsylvania, via New York, to the extent of two round-trip flights on weekdays and one round-trip flight a day on weekends, using 25-seat aircraft. On December 29, 1978, Allegheny filed a notice "under Sections 401(j)(1), 401(j) (2) and 419(a)(3)" of the Act that it intended to suspend all service at New Haven as of March 29, 1979.

When they filed their notices of intent to suspend service, Eastern and Allegheny were the only carriers certificated by the Board to provide air service at New Haven. Several non-certificated commuter airlines were also providing such service, however. Pilgrim Aviation and Airlines, Inc., ("Pilgrim"), using 19-seat aircraft, offered ten or more nonstop flights per weekday in each direction between New Haven and New York and six or more nonstop flights per day in each direction on weekends. Pilgrim also provided four round-trips each weekday and one round-trip per day on weekends between New Haven and Boston, and offered additional service between New Haven and New London, Connecticut. In addition, Business Aircraft Corporation and New Haven Airways, using six- and eight-seat aircraft, offered weekday flights to Albany, White Plains, and Islip, New York, Hartford and Bridgeport, Connecticut, Philadelphia and Baltimore.

On March 8, 1979 the Board announced that it would consider the notices of suspension filed by Eastern and Allegheny at a public meeting on March 15. On March 12 the City of New Haven, the New Haven Board of Airport Commissioners and the New Haven Economic Development Commission petitioned the Board to prohibit the proposed suspensions of service. The New Haven parties contended first, that §§ 401(g) and 404(a) of the Act prohibit carriers from suspending service merely on notice, and that prior Board approval upon a showing of "public convenience and necessity" is required; and second, they contended that § 419(a)(10) of the Act required the Board to block the instant suspensions because they would deprive New Haven of "essential air transportation."

The Board received the submissions of the New Haven parties but did not hold a hearing. In its March order, the Board rejected both of New Haven's positions. On the question of suspension of service on notice, the Board stated that it was "not persuaded" by New Haven's argument, but deferred "detailed" consideration of the question until its decision in another pending case.*fn10 The Board simply asserted:

For now it is sufficient to observe that the New Haven Parties (1) ignore the central change in section 401(j) of the new Act the elimination of the requirement of prior Board approval before a carrier may "abandon any route, or part thereof"; and (2) ignore the legislative history of the Senate version of the new termination/suspension provision (the primary predecessor of the final bill), which clearly indicates that the Senate intended to give carriers the flexibility to withdraw from points without our permission if they provide the necessary notice and their withdrawal does not affect "essential air transportation."

Moreover, our interpretation of the Act that notice and the essential air transportation obligations are the only prerequisites to suspending at a point is more clearly in harmony with the Congressional policy favoring maximum reliance on market forces and on actual and potential competition to provide needed transportation.

On New Haven's second point, the Board concluded that it was not required to block the suspensions of service at New Haven under § 419(a)(10), because it found that these suspensions would not deprive New Haven of "essential air transportation." In making this determination, the Board relied principally on the service being provided by Pilgrim, finding that Pilgrim was "fit, willing and able to provide essential air transportation" and that Pilgrim met the safety requirements of the Federal Aviation Administration. The Board concluded:

We believe the level of air service being provided at New Haven by Pilgrim reasonably appears to meet the essential air transportation requirements of New Haven. This, as supplemented by the service of Business Aircraft and New Haven Airways, affords New Haven passengers access to points throughout the nation. In addition, we note that the level of service provided by Pilgrim is substantially above the legal minimum for essential air transportation defined in section 419(f)(1) of the Act.

Thus, the Board entered the March order declining to block the proposed suspensions of service, and Eastern and Allegheny suspended service as planned in March, 1979. Currently, the only service in and out of New Haven is that provided by the commuter airlines. Following the March suspensions, New Haven filed this petition for review, which was argued on October 3, 1979.

On October 24, 1979, the Board issued Order No. 79-10-134, in which it made its determination, pursuant to § 419(a)(2)(A) of the Act, of what constitutes "essential air transportation" for New Haven. The level set by the Board as "essential" is significantly below the level of service currently provided to New Haven by the commuter airlines serving it. The correctness of the October determination is not involved in this petition, although the Board contends that the fact of that determination moots New Haven's petition for review of the March order.

III. Method of Terminating Service

New Haven's first substantive contention*fn11 is that the Act prohibits a carrier from suspending service to a certificated point unless it has obtained Board approval upon a showing that "public convenience and necessity" required the suspension. It argues that the airlines could not suspend service merely by giving notice under § 401(j)(1), but were required to seek a certificate amendment under § 401(g), deleting their authority to serve New Haven.*fn12 The question is whether the 1978 amendments and specifically, the amendment to § 401(j) altered the substantive requirements of the Act with respect to service suspensions. The Board concluded that the 1978 amendments did effect such a change, and for the reasons that follow, we agree.

Prior to the 1978 amendments, a carrier could be relieved of its obligation to serve a certificated point in one of three ways. First, § 401(g)*fn13 authorized the Board, either on the filing of a petition or on its own initiative, to suspend or terminate a carrier's authority at a point by amending its certificate, if the Board found the amendment to be required by "the public convenience and necessity." Second, § 401(j)*fn14 permitted a carrier to abandon a route for which it was certificated if, upon the carrier's application, the Board found the abandonment to be "in the public interest." Finally, the last sentence of § 401(j) permitted the Board, "by regulations or otherwise, (to) authorize such temporary suspension of service as may be in the public interest."

Thus, before the 1978 amendments, a carrier could permanently halt service to a certificated point only upon prior Board approval. And as to any certificated point, § 404(a)(1) required a carrier "to provide . . . safe and adequate service."*fn15

The 1978 amendments did not alter § 404(a)(1), nor did they materially change § 401(g).*fn16 The termination provision of old § 401(j), however, was replaced in its entirety. The new § 401(j)(1)*fn17 provides that a certificated carrier shall not terminate or suspend all service to a point "unless such air carrier has first given the Board (and the concerned local authorities) at least 90 days notice of its intent to so terminate (or) suspend" service. The final sentence of § 401(j)(1), like the final sentence of the old § 401(j), provides that the Board may authorize temporary suspensions of service by regulation or otherwise.

In the Board's view, the enactment of new § 401(j)(1) provided a new means by which a carrier may be permanently relieved of service obligations: the carrier may suspend service simply by giving 90 days' notice of its intent to do so. New Haven points out that the language of new § 401(j)(1), read literally, does not directly authorize suspensions on notice, but rather bars a carrier from suspending service unless it has given notice. It argues that the amendment to § 401(j) merely imposed an additional notice requirement on carriers seeking permission to suspend service in § 401(g) proceedings. New Haven's construction of § 401(j)(1), however, cannot be reconciled with other provisions added by the 1978 amendments, and it is inconsistent with the legislative history.

The clearest indication in the statute that Congress intended the amended § 401(j)(1) to authorize suspensions on notice is found in §§ 419(a)(6) and (a) (7), which were also added to the Act by the 1978 amendments. Section 419(a)(6) provides that "notwithstanding section 401(j)," if a carrier serves notice of its intent to reduce service to a point below the "essential air transportation" level, and if the Board does not find a replacement carrier within the notice period, the Board shall "require" the original carrier to continue service for additional 30-day periods. Section 419(a)(7) provides that where the Board requires a carrier to continue service "beyond the date on which such air carrier would, but for paragraph (6) of this subsection, be able to suspend . . . service to such point," the Board must compensate the carrier for any resulting losses. These provisions clearly contemplate that 90 days after a carrier serves notice under § 401(j)(1), the suspension will go into effect unless the Board prevents it; and the touchstone as to whether or not the Board should prevent it is the "essential air transportation" level, not the "public convenience and necessity."

New Haven nonetheless contends that a construction of § 401(j)(1) to permit suspension on notice is inconsistent with § 401(g), taken alone or in conjunction with § 404(a)(1). It argues that Congress evidenced its intention that § 401(g) retain its vitality by amending the section merely to include reference to simplified procedures and leaving it otherwise unchanged. New Haven contends that the Board's construction of § 401(j)(1) renders § 401(g) meaningless. This is hardly so, however, since § 401(g) remains the only means by which a carrier can be eliminated from a market at the instigation of the Board or third parties.*fn18

As to § 404(a)(1), which requires that a carrier provide safe and adequate service at any place for which it is certificated,*fn19 New Haven points out that Congress provided that § 404(a)(1) would cease to be effective on December 31, 1981, and argues that the section continues in full force and effect until that date.*fn20 Thus, the argument goes, Eastern and Allegheny must provide service to New Haven as long as they are certificated for New Haven, and their certificates can be amended only pursuant to § 401(g). While this argument may have some technical appeal, we do not believe it is persuasive or that our rejection of it eviscerates § 404(a)(1). The Board's construction of § 401(j) (1) does not give a carrier complete freedom to evade its § 404(a)(1) obligation to provide service; the carrier must still wait at least 90 days until its notice of suspension becomes effective, and there are circumstances in which suspension could be delayed indefinitely (see Part IV A, infra ). In any event, we believe New Haven's § 404(a)(1) argument must yield to the clear indications in §§ 419(a)(6) and (7), described above, that Congress intended § 401(j)(1) to allow termination of service on notice.*fn21

Our conclusion is reenforced by a reading of the legislative history. The new § 401(j)(1) was put into its final form by the Conference Committee. The section as enacted, however, is in large part the same as § 401(h)(1) passed by the Senate in S.2493, 95th Cong., 2d Sess. (1978). See H.R.Rep.No.1779, 95th Cong., 2d Sess. 61, 67 (1978) (Conference Report).*fn22 Section 401(h)(1) of the Senate bill, like § 401(j)(1) as enacted, was framed in negative terms as prohibiting suspensions unless the carrier has given notice, rather than as an explicit affirmative authorization of suspensions on notice. The sponsor of S. 2493, Senator Cannon, clearly expected his bill to permit suspension of service on notice, absent Board action to block the suspension:

Under sections 401 and 419, exit is permitted after notice of 90 days, unless the carrier is the last one serving the community in which case extensions are required if no replacement carrier has been found.

124 Cong.Rec. S5850 (daily ed. Apr. 19, 1978) (remarks of Sen. Cannon). The Senate Report reflects the same understanding:

While carriers certificated under this section (401) will be permitted to exit communities under the notice requirements provided(,) if the carrier's termination will result in the communities' "essential" air transportation needs being unmet, the Board will require the carrier to continue service until a replacement carrier is found.

S.Rep.No.631, 95th Cong., 2d Sess. 61 (1978). These explanations persuasively support the Board's construction of § 401(j)(1).

New Haven relies on a comment by Representative Anderson, to the effect that the House version of the 1978 amendments, H.R. 12611, 95th Cong., 2d Sess. (1978), would not affect the Act's requirement that a carrier obtain prior Board approval before terminating all service to a point. 124 Cong.Rec. H10320 (daily ed. Sept. 21, 1978). The pertinence of Representative Anderson's comment, however, is diminished by the fact that H.R. 12611 did not provide any modification of the old § 401(j). See H.R.Rep.No.1211, 95th Cong., 2d Sess. 49 (1978) U.S.Code Cong. & Admin.News 1978, p. 3737. The Conference Committee followed the Senate bill on this point, replacing the old § 401(j) with a version which resembled § 401(h)(1) of the Senate bill. See H.R.Rep.No.1779, supra at 61, 67. Thus Representative Anderson's comments were not directed to the provision finally enacted, and do not affect our reading of the new § 401(j)(1).

Finally, we note that the Board's construction of § 401(j)(1) is more closely attuned to the Congressional concern, in passing the 1978 amendments, with promoting free competition in the airline industry, see S.Rep.No.631, supra at 5-6; H.R.Rep.No.1211, supra at 3-4, and with "(t)he placement of maximum reliance on competitive market forces and on actual and potential competition . . . to provide the needed air transportation system." § 102(a)(4), 49 U.S.C.A. § 1302(a)(4) (Cum.Supp.1979). The effectiveness of freer entry, as a means of fostering competition, would be substantially undercut by a construction of § 401(j)(1) which did not allow correspondingly free exit from markets.

Thus, we agree with the Board that the new § 401(j)(1) conditionally permits a carrier to suspend service to a point upon giving 90 days' notice of its intent to do so. Allegheny and Eastern were entitled to suspend service at New Haven, unless the suspensions "reasonably appear(ed) to deprive" New Haven of "essential air transportation." § 419(a)(10).

IV. The March Determination as to Essential Air Transportation

New Haven's second substantive claim is that the Board should have blocked these suspensions in March 1979 under § 419(a)(10) because they deprived New Haven of "essential air transportation." The Board contends that the March order is now moot and was, in any event, correct.

A. Mootness of the March Order

The Board argues that its "interim" determination of "essential air transportation" under 419(a)(10) has been superseded by the "final" determination of "essential air transportation" under § 419(a)(2)(A), and that as a result, nothing turns on the correctness of the former order. We disagree. Since the Board's § 419(a)(2)(A) determination of "essential air transportation" for New Haven was made after the Eastern and Allegheny suspensions, we conclude that a successful challenge to the § 419(a)(10) determination (in the event that New Haven also prevails on its challenge to the § 419(a)(2)(A) determination) could result in a practical benefit to New Haven arising from the operation of other provisions of § 419(a) that would not be available from a successful challenge to the § 419(a)(2)(A) determination alone.*fn23

The relevant elements of the § 419(a) "guaranteed essential air transportation" program, designed to protect small communities from service reductions following the introduction of free competition to the airline industry, are as follows. The program applies to all points which a certificated carrier was serving or was authorized to serve on the date of enactment, October 24, 1978. § 419(a)(1). Within one year after enactment i. e., by October 24, 1979 the Board was required to "determine what is essential air transportation" for points, such as New Haven, which were being served by no more than one certificated carrier on the enactment date. § 419(a)(2)(A). During this one-year interim period, the Board, upon receiving notice of a carrier's intent to suspend service, was required to prohibit any service reduction "which reasonably appears to deprive such point of essential air transportation, until the Board has completed (the § 419(a)(2)(A)) determination." § 419(a)(10).*fn24 As noted above, New Haven's substantive claim rests upon this last provision.

Once the Board has made its § 419(a)(2)(A) determination, other provisions governing service reductions may come into play. If a carrier wishes to effect a reduction or termination of service that will have the effect of reducing service below the level set by the Board as "essential," the carrier must give 90 days' notice pursuant to § 419(a)(3)(A).*fn25 If by the end of the 90-day notice period the Board has not found another carrier to provide service at the level deemed "essential," the Board must require the carrier that gave notice to continue serving the point for successive 30-day periods until the Board finds a substitute carrier. § 419(a)(6). While the carrier is being compelled to provide service beyond the notice period, the Board must compensate it for resulting losses, § 419(a)(7)(B), and "shall continue to make every effort to secure" a substitute carrier. § 419(a)(9).

Apart from these obligations which arise when the Board is notified of proposed service reductions, the Board is required, whenever it determines that "essential air transportation" will not be provided to a point without compensation, to seek and entertain applications to provide such service for compensation. § 419(a)(4). However, nothing in § 419(a) authorizes the Board to compel a carrier that is not serving a point to commence service to that point.

It is clear from the provisions of § 419(a), therefore, that assuming that the airlines' terminations would be found under § 419(a)(2)(A) to deprive New Haven of essential air transportation, New Haven has a very definite stake in obtaining a reversal of the § 419(a)(10) determination involved in the present case: such a reversal would invalidate the suspensions by Eastern and Allegheny, and require them to resume service; the carriers could very well file new notices of their intent to suspend service, but at that point the Board would be required, under § 419(a)(6), to search for a replacement carrier and to block the suspensions for successive 30-day periods until it found a replacement.

If, on the other hand, the Board's § 419(a)(10) determination were allowed to stand (or is bypassed as moot), Eastern and Allegheny would not have to resume service to New Haven. Then, even if their withdrawals were found, under § 419(a)(2)(A), to deprive New Haven of essential air transportation, the Board would be required merely to seek applicants to provide New Haven service for compensation, under § 419(a)(4). The Board could not compel any carrier to provide this service, and until a new carrier was found, New Haven would be without essential air transportation.

Since a reversal of the § 419(a)(10) determination could affect the level of service at New Haven, we find that New Haven's petition for review of the March order under § 419(a)(10) is not moot.

B. The Determination of Essential Air Transportation

In challenging the Board's § 419(a)(10) determination, New Haven argues that the Board misanalyzed the issues and misconstrued the statute. We reject both contentions, and therefore uphold the Board's action.

New Haven first argues that the Board did not analyze the "essential air transportation" question as required by the statute. Relying on the language of § 419(f),*fn26 New Haven argues that the Board failed to consider whether the service offered by the commuter airlines would satisfy New Haven's "needs" for transportation "to one or more communities of interest" and would "insure( ) access to the Nation's air transportation system" at fair prices. It is true that the Board, in its order, did not specifically undertake to define New Haven's "needs," or its "communities of interest," or what would constitute fair prices. But the Board did explicitly find that "the level of air service being provided at New Haven by Pilgrim reasonably appears to meet the essential air transportation requirements of New Haven," Order No. 79-3-98 at 5, and that Pilgrim's service "is substantially above the legal minimum for essential air transportation defined in section 419(f)(1)." Id. In our view, therefore, although the Board did not use the precise words of § 419(f), it made the finding required by § 419(a)(10) that the noticed terminations did not "reasonably (appear) to deprive (New Haven) of essential air transportation."*fn27

New Haven also appears to be arguing that the Board's interpretation of "essential air transportation" is unduly narrow. It is clear that New Haven's view of what constitutes "essential air transportation" is substantially more expansive than that adopted by the Board. Thus, New Haven asserts that the Board should have investigated, in this proceeding, New Haven's "needs" for service to a number of midwestern cities to which New Haven has never had service.*fn28 The Board, on the other hand, concluded that the present service to New York and Boston was more than sufficient to meet the "essential air transportation" test. The Board's more modest view of "essential air transportation" seems more in line with Congressional expectations, see, e. g., 124 Cong.Rec. S5850 (daily ed. Apr. 19, 1978) (remarks of Sen. Cannon), and in any event is entitled to our deference. See C.A.B. v. Carefree Travel, Inc., 513 F.2d 375, 390 (2d Cir. 1975). However, there is no need for this Court precisely to delineate the scope of "essential air transportation" in this case. The only question before us is whether we should uphold the Board's determination that the instant suspensions did not "reasonably appear " to deprive New Haven of "essential air transportation." Congress committed this determination to the Board, in the first instance, and clearly contemplated that the Board would act quickly and informally, on the basis of its expertise; accordingly, judicial review of the Board's determination must be a limited one. Cf. S.E.C. v. New England Elec. System, 390 U.S. 207, 211, 88 S. Ct. 916, 920, 19 L. Ed. 2d 1042 (1968). It is sufficient to conclude, as we do, that the Board did not act in an arbitrary or capricious manner,*fn29 Rombough v. F.A.A., 594 F.2d 893, 896-97 (2d Cir. 1979); Tiger Int'l, Inc. v. C.A.B., 554 F.2d 926, 935-37 (9th Cir. 1977), cert. denied, 434 U.S. 975, 98 S. Ct. 532, 54 L. Ed. 2d 467 (1978), in determining that these suspensions did not "reasonably appear" to deprive New Haven of "essential air transportation."

The petition is denied.


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