This appeal presents the recurring question which has plagued public regulation of industry: whether the regulatory agency is unduly oriented toward the interests of the industry it is designed to regulate, rather than the public interest it is designed to protect. Petitioners, some 32 congressmen, alleged that the Civil Aeronautics Board, in considering the lawfulness of increases in domestic passenger fares filed by all the major air lines, excluded the public from ex parte meetings with representatives of the air line industry and then held a pro forma hearing limited to oral argument, as a result of which changes in the fare structure resulting in a six per cent rise in domestic fares were unlawfully approved. The Board admits the ex parte meetings, denies that the hearing was pro forma, and admits that, without complying with the statutory procedural requirements and criteria for rate-making by the Board, it approved in advance the filing without suspension of air line tariffs providing for a six per cent increase in air line revenues from passenger fares.
I
The statutory plan is relatively simple. Air line passenger rates can be made by the carrier or by the Board.
An air line carrier may change the existing rate by filing a new tariff with the Board indicating the new rate.
II
Petitioners had complained to the Board on prior occasions both about the Board's practice of holding ex parte,
On September 12, 1969, eight days after the oral argument, the Board issued its order.
The carriers promptly withdrew their previous filings and filed for new increases based on the Board's model. Petitioners, in an application for reconsideration of the September 12 order, opposed the new filings and requested their suspension and investigation. On September 30, 1969, the application was denied and the fares based upon the Board formula were allowed to stand without suspension or investigation.
III
The question presented by this appeal is whether the Board should have followed the procedures and standards established by Sections 1002(d) and 1002 (e) of the Act before proposing the rate schedule it set forth in its September 12 order. Petitioners complain that the Board effectively "determined" rates, within the meaning of Sections 1002(d) and 1002(e), to be charged by the air carriers without proper notice and hearings as required by Section 1002(d) and without taking into account the rate-making factors enumerated in Section 1002(e).
The Board also admits that immediately after its September 12 order the air lines withdrew their August tariffs and filed new tariffs listing rates based directly on and in conformity with that order. But the Board disclaims any legal responsibility for the rates listed in the carriers' September tariffs. According to the Board, the detailed outline of the rate structure which it "proposed to accept" in its September 12 order was not an attempt to prescribe or determine rates for the future within the meaning of the statute, but merely served to explain to the carriers — as required by the statute
This legalistic reading of the statute is supposedly supported by the Supreme Court's decision in Arizona Grocery Co. v. Atchison, Topeka & Santa Fe Railway Co.
IV
After finding that the rates proposed by the carriers might be unjust or unreasonable and ordering an investigation, the Board went on in the September 12 order to point out that, because of the need for revenue which the carriers had shown, the Board would "be disposed to grant an increase computed in accordance with the criteria set out below." It then set forth a rate-making formula, variously described in the order as "the formula which we are proposing," the formula "we propose to accept," and the formula which "[w]e * * * adopt * * * for our model." The formula detailed by the Board, which is set out in the margin,
The Board also "concluded" that it would be appropriate for all fares to be rounded off to the nearest whole dollar.
The Board even claimed to be acting in accordance with some of the rate-making provisions of Section 1002(e). It explained that it had granted the increases because, "[t]aking into consideration these cost pressures on the carriers, and the marked decline in earnings and profit margin since the February increase, the Board finds that a further increase in fares at this time is necessary from the standpoint of the rate-making standards of Section 1002 (e) of the Act and the need to maintain the financial vitality of the carriers as a group." Also, according to the Board, its formula "produces a reasonable increase in revenues and recognizes the economies inherent in long haul carriage * * * as well as the value of service limitations in short haul markets."
As a practical matter, the Board's order amounted to the prescription of rates because, as the Board admits, the pressures on the carriers to file rates conforming exactly with the Board's formula were great, if not actually irresistible.
V
It would be blinking reality to hold, as the Board argues, that the order of September 12 did no more than suspend and initiate an investigation
We do not need to decide, however, in the context of this case the exact extent of agency participation which will make an agency responsible for the rates being charged by carriers. For the cases which the Board cites simply are not apposite.
If, as the Board argues, the rates resulting from this procedure are carrier-made, rather than agency-made, the public would not only be fenced out of its role in rate-making, but judicial review of the Board's actions would be severely limited. On appeal agency-made rates are tested against the Act's explicit rate-making procedures. Thus a court must decide whether, in determining rates, the Board has properly observed the statutory procedures and taken into account the factors which Congress has said should be considered when rates are made. If the statutory plan has been complied with, the court can then determine whether substantial evidence in the record supports the Board's rates. Here the Board has in effect determined rates and the record made in so doing is inadequate for judicial review. By contrast, if the tariffs filed pursuant to the Board's order of September 12 are not Board-determined rates, judicial review is practically non-existent. Aggrieved parties can object to carrier-made rates and ask the Board to investigate them, but the Board's refusal to investigate would be reviewable only for an abuse of discretion.
Moreover, the Board's suspension authority, on which it relies for justification of its actions in this case, is totally insulated from judicial review.
The Board has argued that to hold it accountable for these rates would "hobble the administrative process," seemingly because it feels that the procedures required by Sections 1002(d) and 1002(e) of the Act do not permit the Board to respond quickly enough to met the immediate revenue needs of the carriers in times of rapidly rising costs.
In short, we simply do not agree with the Board that abdication from its proper supervisory role under the statute need be the result of today's holding requiring the Board to comply with the statute in rate-making. We would be sympathetic, for example, to instances in which the Board felt that compelling circumstances required it to act without complete information before an investigation is completed. Any approval of rates under such conditions would be subject to revision once more complete information is obtained. We would liken such emergency Board action to the interim approval which Judge Tamm recently remarked upon, in a somewhat different context. Speaking for the court, he said:
We fully recognize that a carrier's exigent economic circumstances at times will make it necessary for the Board to act on the basis of incomplete data. But we emphatically reject any intimation by the Board that its responsibilities to the carriers are more important than its responsibilities to the public. Board action must always comply with the procedural requirements of the statute and must always be based on an assessment of the relevant available data, with due consideration given to all the factors enumerated in the statute, which factors taken together make up the public interest.
VI
It is true that the practice followed in this case does not fit neatly and precisely into the statutory concept of rate-making by the Board or by the carriers. Actually the practice produces rates arrived at through the cooperation of the carriers and the Board. The Board candidly admits that it devised the practice because the volatile economic conditions in the air line industry made use of the Section 1002(d) and (e) procedures impractical. But Congress requires public participation in making rates because it is the public who pays them. And under this Act, as distinguished from the Interstate Commerce and Motor Carriers Acts, there is no statutory provision for reparations to the public if the rates charged are unreasonable.
Since the record shows, as the Board admits, that the public notice and hearing requirements of Section 1002(d) were not observed in issuing the order of September 12, that order is invalid and the tariffs filed by the carriers based thereon are unlawful. Under the circumstances, this case is remanded to the Board for further proceedings.
So ordered.
FootNotes
"Turning now to the actual formula which we propose to accept, coach fares will form the core of the fare structure from which all other fares will be based. We believe that the revenue increase produced by the American formula is appropriate as discussed hereinafter, and therefore we adopt that formula for our model, to wit:
"Mileage Blocks Rate Per Mile 0 - 500 6.0¢ 501 - 1000 5.6¢ 1001 - 1500 5.2¢ 1501 - 2000 5.0¢ Over 2000 4.8¢
"Use of this formula will have the desirable result of reducing slightly some long haul fares * * * which have for some time been considerably in excess of costs, while at the same time producing only moderate increases in short haul fares, thus minimizing the impact on the movement of traffic in these markets.
"American has proposed that city center to city center mileage be used in computing fares. However, we are of the opinion that direct airport-to-airport mileage offers a more reasonable and rational basis for computing fares and will adopt that mileage basis for our model. We recognize that there will be instances where application of a mileage basis will be inequitable or impractical, as for example, where a carrier is required by its certificate to operate via a circuitous routing. We will permit exceptions to the rule over a particular routing where good cause is shown. Further, it is not our intent to discourage common faring of cities or of airports situated about a single city; we would expect to permit common faring under the proposed formula in much the same manner as we have heretofore, provided the mileage used bears a rational relationship to the points so common rated."
Order, at 6-7.
"Type of Fare Percent Discount 8 Discover America 20% Youth Standby 40 Youth Reservation 20 Family plan: Children 2-11 50Children 12-21 33 1/3"8 . With respect to the contention of Northwest Airlines that discounts on discounts should be eliminated, the Board would look with favor on tariff amendments that would eliminate these practices (such as children's 50 percent discount on Discover America excursion fares)."
Order, at 8.
We feel that the Board's reliance upon this case is misplaced. The Supreme Court construed the Commission's statements only as a refusal to suspend proposed rates on the grounds offered by the complainants. According to the Court, the true thrust of the Commission's action was that "the proposed schedules could not be struck down upon the erroneous view advanced by the protestants." Id. at 686, 63 S.Ct. at 1305. Furthermore, the rates in question were filed by the carriers of their own volition, and were not rates outlined by the agency. See also Note 30, supra.
The Board, in arguing these cases, omits one very crucial fact. In these cases, involving a general rate order of the Commission which permitted an overall maximum percentage rate increase, the question presented to the court was whether individual shippers could challenge, in court, the validity of individual rates filed by carriers pursuant to the general rate order before asking the Commission to determine the reasonableness of the individual rates pursuant to §§ 13 and 15 of the Interstate Commerce Act, 49 U.S.C. §§ 13 and 15 (1964).
The cited cases do not involve an attempt to avoid judicial review of agency action or the fixing of rates without complying with the procedural requirements of the statute. In recent cases of the same genre as Birmingham and Algoma, such as Alabama Power Co. v. United States, infra, the Commission has explicitly stated that judicial review of its general rate order is available. See 49 U.S.C. § 15(a) (1964). The Commission admits that its finding in these proceedings, to the effect that a "general rate increase is warranted," see 49 U.S.C. § 15a (1964), must be supported by substantial evidence, and that a claim to the contrary "states a claim warranting direct judicial review." Memorandum for the United States, the Interstate Commerce Commission and the Secretary of Agriculture, Alabama Power Co. v. United States, probable jurisdiction noted, 398 U.S. 903, 90 S.Ct. 1687, 26 L.Ed.2d 60 (1970). See also Alabama Power Co. v. United States, D.D.C., Civil Action No. 2970-68, December 4, 1969 (Wright, J., dissenting).
In the 1935 rate proceedings discussed above, before allowing certain percentage increases in rates "[a]s a temporary measure, for the immediate alleviation of the more acute financial distress of the railroads," Emergency Freight Charges, 1935, supra, 208 ICC at 48, the Commission conducted nearly three months of public hearings at sites scattered throughout the country so the general public could easily attend and offer comments, see id. at 9, and invited written comments and briefs from all interested parties. In like manner the Commission held extensive hearings, before four examiners concurrently, from September 9 to October 8, 1968, in the proceedings which were challenged in the Alabama Power case.
Thus the Commission, unlike the Board, seems to recognize its responsibility to follow the procedural requirements of the statute and to allow its action permitting the general rate increase to be tested against the statute. The Commission only asks that court review of particularized, individual rates be withheld under these circumstances until the Commission itself has had an opportunity to judge the reasonableness of the particular rate in question and award reparations if warranted.
While we have no occasion to pass upon the wisdom of that decision, which involves a somewhat different statute and a different industry, we note that the case is distinguishable from the one at bar. There is no indication in the court's opinion that the Commission determined the new rates by use of its suspension power, see 47 U.S.C. § 204 (1964), as was done in this case. Nor is there any indication that the Commission advised the Bell System about the rate filings which would be acceptable to the Commission and which would, in the Commission's opinion, constitute a "`just and reasonable' ceiling," as the Board advised the carriers in the instant case.
Petitioners' Brief at 34 n. 27. (Emphasis in original.)
261 U.S. at 197-198, 43 S.Ct. at 275. See also United States v. Louisiana, 290 U.S. 70, 76-77, 54 S.Ct. 28, 32, 78 L.Ed. 181 (1933):
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