298 F. 2d 430 - Las Vegas Hacienda Inc v. Civil Aeronautics Board

Las Vegas Hacienda, Inc. operates a resort hotel at Las Vegas, Nevada. Over a period of years it has advertised and sold in the Los Angeles area a "package tour" which includes a "free" airplane ride to and from Las Vegas. The transportation is provided in planes owned by Hacienda and operated by its employees through its "Flight Division," managed by Henry F. Price. The Civil Aeronautics Board has held that Hacienda and Price are engaged in "the carriage by aircraft of persons or property as a common carrier for compensation or hire" in interstate commerce without the certificate of public convenience and necessity required by the Federal Aviation Act, and has ordered them to cease and desist.

Petitioners challenge both the Board's power to issue the order, and the form in which the order is cast. As to the Board's power, they argue that they are not subject to economic regulation under the Act because the transportation they provide is merely incidental to their resort hotel business. As to form, they argue that the Board's order is so vague and general that it fails to give fair notice of the conduct which it prohibits. We conclude that the Board's classification of Hacienda as a "common carrier for compensation or hire" required to be certificated is supported by substantial evidence and soundly based in law, and that the Board's cease and desist order provides fair notice of what it prohibits when read in the light of the Board's opinion. We further conclude that the record does not contain substantial evidence to support the Board's order with respect to Price. This portion of the Board's order is stricken, and the Board's order is otherwise affirmed.

* The Federal Aviation Act1 provides for broad economic regulation2 of "air transportation."3 The Civil Aeronautics Board is under an affirmative statutory duty to exercise its regulatory powers over "air transportation" so as to foster sound economic conditions, promote economical and efficient service at reasonable charges, and avoid destructive competitive practices.4 The legislative history of the Act emphasizes the importance attached by the Congress to the achievement of these purposes.5 Obviously the economic regulation contemplated by the statute can be effective only if the commercial activity to which it is made applicable — "air transportation" — represents a reasonably discrete market in practical business terms. The proper interpretation of this statutory term is therefore of crucial importance in the administration of the Act.

So far as here pertinent, the term "air transportation" is ultimately defined by the Act as "carriage by aircraft of persons or property as a common carrier for compensation or hire * * *."6 The term "common carrier," which is central in this statutory definition of "air transportation," is an ancient one in our law and has been applied in many legal and factual contexts. It is not surprising that the numerous decisions defining the term are somewhat less than harmonious. The fact is that these precedents leave a considerable area of choice which the Board necessarily exercises in applying the broad definition of the statute to particular carriers to determine whether they are subject to regulation.

Whether the Board has chosen correctly in any given instance is, of course, subject to review by this court, for "[a]n agency may not finally decide the limits of its statutory power. That is a judicial function." Social Security Board v. Nierotko, 327 U.S. 358, 369, 66 S.Ct. 637, 643, 90 L.Ed. 718 (1946). It is equally clear, however, that the Board's decisions in these cases involve the application of technical knowledge which the Board, and not the court, is presumed to have. We understand that in these circumstances we are to affirm the Board's action if it has "`warrant in the record' and a reasonable basis in law." N. L. R. B. v. Hearst Publications, 322 U.S. 111, 131, 64 S.Ct. 851, 88 L.Ed. 1170 (1944). And see N. L. R. B. v. CocaCola Bottling Co., 350 U.S. 264, 269, 76 S.Ct. 383, 100 L.Ed. 285 (1956); Swift & Co. v. United States, 316 U.S. 216, 224-225, 62 S.Ct. 948, 86 L.Ed. 1391 (1942); Shields v. Utah Idaho Central R. Co., 305 U.S. 177, 184-185, 59 S.Ct. 160, 83 L.Ed. 111 (1938).

The Board centered its inquiry in the present case upon whether the alleged common carrier was engaged as a regular business in offering air transportation to the general public in the commercial market. The Board has taken the same approach in other cases.7 This general emphasis is justified by the common law precedents, for the dominant factor in fixing common carrier status at common law is the presence of a "holding out" to transport the property or person of any member of the public who might choose to employ the proffered service. State of Washington ex rel. Stimson Lumber Co. v. Kuykendall, 275 U.S. 207, 211-212, 48 S.Ct. 41, 72 L.Ed. 241 (1927). The test which the Board applies is an objective one, relying upon what the carrier actually does rather than upon the label which the carrier attaches to its activity or the purpose which motivates it.8 So long as the air carrier is competing commercially in the market for the patronage of the general public, the Board holds that it is immaterial that the service offered will be attractive only to a limited group;9 or that it may be performed pursuant to special contract.10 And it is also immaterial that in terms of the carrier's own bookkeeping the transportation may be furnished at cost,11 at a loss,12 or even without charge.13 The Board thus interprets the Act in a way which makes effective economic regulation under the statute possible by bringing within the regulatory scheme all those who compete in the commercial market in the business of offering air transportation to the public generally.

In the present case the record shows that over a period of years the petitioners have conducted regularly scheduled passenger flights from the Los Angeles area to Las Vegas. The flights were conducted in planes owned by Hacienda, marked with its name, and operated by uniformed Hacienda employees. They departed from regular commercial airports. Passengers received the usual air terminal services: a check-in counter, boarding passes, flight calls, and the assistance of ground attendants. The flights were sometimes identified in Hacienda's advertising as "Fiesta Flights." The package tours of which the flights were a part were advertised and sold as "Champagne Tours." Patrons were solicited from the general public in the Los Angeles area through advertisements in radio, newspapers, and brochures. These used such leaders as "Fly Free to Vegas," described the aircraft used, and set out the flight schedules. "Champagne Tours" were sold both through Hacienda's own ticket offices and through travel and tour agents who also sold tickets on other regularly scheduled passenger airlines. The price of the "Champagne Tour" was $27.50. Round trip air transportation between Las Vegas and the Los Angeles area by certified carrier was $39.20 first class, $30.50 coach. As the Examiner found, not surprisingly, "the evidence here is substantial that some people purchase the tour merely to obtain transportation."14

Clearly the record contained substantial support for the Board's conclusion that Hacienda was a "common carrier for compensation or hire," as the Board correctly defined that statutory phrase.

Hacienda concedes that the record justifies the conclusion that it represented to the traveling public that transportation by air from the Los Angeles area to Las Vegas is available on a regularly scheduled basis by the purchase of Hacienda's "Champagne Tour." Nonetheless, Hacienda insists that it is not subject to economic regulation under the Act for a variety of reasons, all of which rest essentially upon the facts that Hacienda was primarily engaged in the resort hotel business and not the transportation business, that the furnishing of the transportation was only incidental to the promotion and operation of its resort hotel, and that it was not interested in profiting and did not profit directly from the transportation.

Petitioners advertised the transportation portion of their package tour as "free," and furnished it only as a part of a "Champagne Tour" consisting of other goods and services, the separate prices of which added up to the total price for the Tour.15 Hacienda's books attributed no income to the sale of the transportation as such and carried the expense of it's transportation activities as part of the general operating expense of the hotel. No transportation tax was paid to the Bureau of Internal Revenue.

Hacienda argued to the Board that the transportation which it provided was entirely free and hence was not "for compensation or hire" as required to bring it within the economic coverage of the Act. However, Hacienda has disclaimed that contention in this court in apparent recognition of the obvious fact that payment for the "Tour" was payment for all that the customer received in return, including the air transportation. Indeed, in the present case the air transportation was intended to be, and undoubtedly was, the principal inducement for the purchase of the package. The Act would be ineffective indeed if its economic regulations could be avoided simply by selling transportation only in combination with something else and calling it free. The Board was not compelled to adopt such a self-defeating construction of the statute. As we have seen, the Board's approach, and we think it was the proper one, was to look instead to the essence of petitioners' operation to determine whether it involved the area of competitive activity which the statute intended to subject to regulation — the furnishing of transportation by air to the general public on a commercial basis.16

The petitioners argue that if the requirement that the carriage be "for compensation or hire" is satisfied whenever the carrier realizes an ultimate economic advantage from furnishing the transportation, the limiting language is effectively read out of the statute since, as a practical matter, transportation will never be furnished wholly without hope of gain. But Hacienda did not furnish transportation for nothing more than the hope or expectation of some generalized business advantage; it imposed a direct charge upon its customers for the transportation in combination with other goods and services. Aside from the present case, we agree that transportation will rarely be offered to the general public on a genuinely gratuitous basis, but we do not believe that this circumstance requires the Board to restrict the concept of "compensation or hire" in a way which would exclude from the economic coverage of the Act carriage offered to the public in the market on a competitive commercial basis.17

Petitioners assert that they are not subject to economic regulation under the Act because their "Champagne Tours" are offered "in the conduct or furtherance of a business or vocation." The quoted language appears in the definition of "air commerce"18 (which is subject to safety regulation), but does not appear in the definition of "air transportation"19 (which is subject to economic regulation). Petitioners conclude that Congress intended flights "in the conduct or furtherance of a business or vocation" to be excluded from economic regulation. We think this construction is unwarranted. The coverages of safety and economic regulation under the Act are different. Economic regulation is limited to common carriage and the carriage of mail, but safety regulation is extended as far as the commerce power will permit.20 There is nothing to indicate that Congress intended that the statutory definitions applicable to the coverage of one should limit the other, and it would subvert the economic purposes of the Act to hold that they do.21

Petitioners urged the Board to exclude them from the coverage of the economic regulations of the Act through application of the "primary business doctrine," which was developed by the Interstate Commerce Commission under the Motor Carrier Act22 and which has been codified as a part of that Act.23 The Board properly declined to do so. The Board found adequate grounds for distinguishing the present case from Motor Carrier Act cases involving the "primary business doctrine," even assuming the applicability of that doctrine to cases arising under the Federal Aviation Act.24 Moreover, the two statutes are so dissimilar that the use of the doctrine in Federal Aviation Act cases could be of little help at best, and would involve constant risk of producing results inconsistent with the purposes and administrative scheme of that Act.25

The Motor Carrier Act specifically defines the terms "common carrier," "contract carrier," and "private carrier" for the purposes of that Act and provides separately for the economic regulation of each of the first two.26 The "primary business doctrine" is used to distinguish "common" and "contract" carriers, as defined, from "private" carriers, also as defined. The Federal Aviation Act, on the other hand, contains no definition of the common carriage to which the economic regulations of that Act apply, and neither "contract" carriage nor "private" carriage is defined or even mentioned. It would be wholly unjustified simply to assume that the two latter concepts are to be applicable in Federal Aviation Act cases and that they are to have the precise meaning attached to them in the definitions of the Motor Carrier Act and in the case law under that statute — yet an uncritical borrowing of the "primary business doctrine" would assume just that.

The two statutes differ in another respect relevant to this problem. The statutory scheme of the Motor Carrier Act contemplates that all "common" and "contract" carriage by motor vehicle subject to that Act will be conducted under certificates of public convenience and necessity or permits issued by the Commission, except as the statute itself specifically exempts certain classes of these carriers.27 Quite unlike the Motor Carrier Act, the Federal Aviation Act provides for broad economic regulation of common carriage without specific exemptions and vests in the Board itself the authority in appropriate circumstances to exempt carriers which would otherwise be subject to economic regulation.28 Thus, the Federal Aviation Act establishes a flexible system enabling the Board to provide an initial period in which new types of air transportation can be developed free of onerous regulations, to be brought into the regulatory pattern of the Act when they mature and under conditions consistent with their particular needs.29 This does not mean that the Board is left at large to extend or limit the coverage of the economic regulations of the Act as it may deem expedient,30 but it does suggest that the intentionally flexible operation of this statute ought not to be frustrated by the introduction of a doctrine based upon a different, and much more rigid, statutory scheme.31

The petitioners argued here and to the Board that the Hacienda flights are in the public interest in that the service is unique, operates at hours at which scheduled carriers do not fly, requires no government subsidy, and serves to introduce the public to the advantages of air travel. The Board properly held that these considerations are irrelevant to the only question in this enforcement proceeding — whether the operation involved is subject to the jurisdiction of the Board under Section 1371 of the Act.32 On the other hand, these and similar factors would, of course, be relevant in a proceeding to determine whether a certificate or exemption order should issue. The Board's instructions from the Congress include an injunction to foster "competition to the extent necessary to assure the sound development of an air-transportation system * * *,"33 and the Board has shown itself to be receptive to initiative and experimentation in the area subject to its regulatory control.

The petitioners' argument that the Board's order is unsupportably broad is disposed of for this Circuit by the decision in Consolidated Flower Shipments, Inc. v. Civil Aeronautics Board, 213 F.2d 814, 818 (9 Cir. 1954),34 in which a similar order was upheld as sufficiently particularized by reference to the Board's complaint, investigation, and opinion. A reading of the complaint and opinion of the Board in the present record will sufficiently apprise the petitioners of the conduct complained of, and now enjoined.35

The petitioner Price earnestly argues that he acted only as a salaried employee of Hacienda, and that the Board's cease and desist order therefore should not have been directed against him as an individual. If the Board finds that "any person has failed to comply with any provision" of the Act, it "shall issue an appropriate order to compel such person to comply therewith."36 The Board here found that Price "is engaged in interstate air transportation as a common carrier for compensation or hire * * * without authority from the Board in violation of Section 401(a) of the Act." We know of no authority holding that Price's status as a corporate employee insulated him from the requirements of the Act. S. E. C. v. Universal Service Ass'n, 106 F.2d 232, 238 (7 Cir. 1939), certiorari denied 308 U.S. 622, 60 S.Ct. 378, 84 L.Ed. 519, expressly holds to the contrary under the Securities Act of 1933 with respect to an attorney and corporate officer. This court's holding in Consolidated Flower Shipments, Inc. v. Civil Aeronautics Board, 213 F.2d 814 (9 Cir. 1954) does not aid petitioners. Indeed, an examination of the record in that case discloses that the order of the CAB which was affirmed by this court included an injunction against an individual officer of the corporate petitioner.

The question remains, however, whether the Board's finding that Price engaged in "air transportation" without a certificate of convenience and necessity from the Board was supported by substantial evidence. The evidence was ample that Price supervised the physical operation of the aircraft involved in the "Champagne Tours" and, of course, those operations admittedly were not certificated. However, the illegality of the uncertificated flights arose from the holding out (primarily through advertising, ticket sales, and similar activities) that the flights were available to the general public for compensation or hire. There is an occasional suggestion in the record that Price may have participated in this phase of the "Champagne Tour" operation as well, and that the Board concluded, from circumstances outside the record, that Price was in fact the effective organizer of both the "Champagne Tours" and of other, earlier violations of Section 1371. But these are occasional suggestions only, never pursued or developed in the record, and the Board's order must stand or fall upon the record as actually made. We conclude that as to Price the record is insufficient. Of course the order will continue to bind Price as well as others who may be "agents, successors and assigns" of Hacienda.

The order of the Civil Aeronautics Board is modified by striking the words "and Henry F. Price, individually and as agent and/or manager of the flight division of Las Vegas Hacienda, Inc.," and, as modified, is affirmed.