author: WILLIAM E. DOYLE, Circuit Judge. SETH, Circuit Judge

text:
    PHILLIPS PETROLEUM COMPANY, a Delaware corporation, et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, The State of New Mexico, Intervenors.
    Nos. 71-1659, 71-1739, 72-1134 and 72-1167.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted July 12, 1972.
    Decided Feb. 20, 1973.
    Rehearing Denied April 10, 1973.

      Edwin S. Nail, Tulsa, Okl., and Kirk W. Weinert, Houston, Tex. (Kenneth Heady and John L. Williford, Bartlesville, Okl., on brief for Phillips Petroleum Co.; Edwin S. Nail, Tulsa, Okl., on brief for Amerada Hess Corp.; Edward J. Kremer, Jr., Dallas, Tex., and Charles E. McGee, of McGee & Ketcham, Washington, D. C., on brief for Atlantic Rich-field Co.; Lynn R. Coleman, J. Evans Attwell, and Vinson, Elkins, Searls & Smith, Houston, Tex., on brief for Belco Petroleum Corp. and High Crest Oils, Inc.; Cecil E. Munn, of Cantey, Hanger, Johnson, Scarborough & Gooch, Fort Worth, Tex., on brief for Beta Development Co.; Justin R. Wolf, Wolf & Case, Washington, D. C., on brief for Chevron Oil Co., Western Division; Thomas H. Burton, Houston, Tex., on brief for Continental Oil Co.; Warren M. Sparks and B. James McGraw, Tulsa, Okl., on brief for Gulf Oil Corp.; Martin N. Erck, Kirby Ellis and John R. Rebman, Houston, Tex., for Humble Oil & Refining Co.; William A. Sackmann, Findlay, Ohio, for Marathon Oil Co.; Ronald J. Jacobs, Tulsa, Okl., for Skelly Oil Co.; Stanley M. Morley, of Shannon & Morley, Washington, D. C., on brief for Sun Oil Co.; John E. Watson, Houston, Tex., on brief for Tenneco Oil Co.; J. Donald Annett, Washington, D. C., Kirk W. Weinert, John M. Young, C. Fielding Early, Jr., Houston, Tex., for Texaco Inc.; Douglas C. Gregg, George C. Bond, Robert L. Humphrey, Dee Hughes Richardson, Los Angeles, Cal., on brief for Union Oil Co. of California), for petitioners.
    Gordon Gooch, General Counsel (Leo E. Forquer, Solicitor; J. Richard Tiano, Deputy Solicitor; Joan E. Heimbigner, Atty., Federal Power Commission, Washington, D. C., on brief), for respondent.
    David L. Norvell, Atty. Gen. of New Mexico, on brief for State of New Mexico.
    Joel B. Burr, Jr., and William J. Cooley, Farmington, N. M., on brief for Four Corners Gas Producers Assn.

      Tilford Jones, Bethesda, Md., for United Distribution Co.
    Donald S. Graham, of Davis, Graham & Stubbs, Denver, Colo., and G. Scott Cuming, El Paso, Tex., for El Paso Natural Gas Co.
    William G. Webb, of Turner, Hitchins, Mclnerney, Webb & Hartnett, Dallas, Tex., for Pubco Petroleum Corp.
    Norman J. Provost, K. R. Edsall, and W. H. Owens, Los Angeles, Cal., for Southern California Gas Co.
    Barr McClellan, of Clark, Thomas, Harris, Denius & Winters, Austin, Tex., for Aztec Oil & Gas Co.
    Thomas G. Johnson and Dan A. Bruce, Houston, Tex., for Shell Oil Co.
    Before SETH, MeWILLIAMS and DOYLE, Circuit Judges.
   WILLIAM E. DOYLE, Circuit Judge.

The Phillips Petroleum Company, together with the several intervenors, all independent producers of natural gas in the Rocky Mountain area, seek review of an order of the Federal Power Commission promulgating a rulemaking procedure for the fixing of rates of natural gas sales in interstate commerce pursuant to the Natural Gas Act, 15 U.S.C. § 717 and, particularly, §§ 4 and 5 of the Act, 15 U.S.C. §§ 717c and 717d, which grants the Commission the authority to establish “just and reasonable rates.”

The peculiar aspect of this case is that the Commission has drastically changed the procedure from the traditional method involving trial-type adjudicatory proceedings to this rulemaking method. This is an informal hearing which is not conducted on the record and which does not afford an opportunity for cross-examination. It is used so as to enable the Commission to establish area rates without having an individual hearing on each producer. It calls for composition and reconciliation of written submissions of the various producers. The validity of this procedure is the issue which is presented to us.

I.

HISTORY OF THE CONTROVERSY

The Commission’s authority to regulate interstate sales of natural gas derives from the Natural Gas Act of 1938 which declares that “the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest.” 15 U.S. C. § 717(a). The Commission is empowered to set aside and modify any rate or contract which it determines after hearing to be “unjust, unreasonable, unduly discriminatory or preferential.”

A brief history of some of the antecedent events is necessary. In 1954 the Supreme Court decided in Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035 (1954), that independent producers of natural gas are natural gas companies within the meaning of § 2(6) of the Act. From this time forward, the Commission has “labored with obvious difficulty to regulate a diverse and growing industry under the terms of an ill-suited statute.” In re Permian Basin Area Rate Cases, 390 U.S. 747, 756, 88 S.Ct. 1344, 1354, 20 L.Ed.2d 312 (1968).

Following the Phillips decision, the Commission undertook the regulation of rates of approximately 2,500 producers selling gas in interstate commerce and did so on a company-by-company basis. The result of all this was somewhat ineffectual. See Permian Basin, supra, at 757 n. 13, 88 S.Ct. 1344. Thus in 1960 the Commission undertook to regulate producers on an area basis, whereby a uniform ceiling price applicable to all producers would be established based upon producers’ actual costs, area data for the flowing gas costs and national data for new gas-well costs. See Phillips Petroleum Co., 24 FPC 537, 540 (1960), aff’d sub nom. Wisconsin v. FPC, 112 U.S.App.D.C. 369, 303 F.2d 380 (1961), aff’d, 373 U.S. 294, 83 S.Ct. 1266, 10 L.Ed.2d 357 (1963). The Commission spent five years with its first area rate case which involved the establishing of rates for the Permian Basin. See Permian Basin Area Rate Proceeding, 34 FPC 159 (1965). This case was reviewed by the Supreme Court and the area rate procedure was affirmed. In re Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968).

As a result of the approval given in the Permian Basin case, the Commission instituted a number of other similar proceedings. These proceedings were lengthy and cumbersome, and as a result of this experience the Commission undoubtedly considered some of the admonitions given in the Permian Basin opinion which included: the Commission should “continue to examine both the premises of its regulatory methods and the consequences for the industry’s future of its rate-making orders Permian is “the first of many steps toward a more expeditious and effective system of regulation.” Based on these statements and the ruling in the Permian case, the Commission issued a notice of proposed rulemaking which called for the issuance of rules fixing just and reasonable rates for independent producers in the Appalachian and Illinois Basin Area. In less than a year after its notice rates were prescribed for these areas.

The next step was for the Commission to embark on a nationwide rulemaking proceeding, whereby it sought information on independent producers’ costs of exploring and developing natural gas, gas supply, rate of return and general revenue requirements and prices for new gas sales. 35 Fed.Reg. 11638 (1970). Public hearings of record were held and arguments were heard concerning the Commission’s attempt to promulgate rates through a rulemaking procedure. See 36 Fed.Reg. 13585 (1971). See also Order No. 435 which established some rates under § 7 of the Gas Act. This case is currently on appeal, American Public Gas Ass’n v. FPC, D.C.Cir., No. 71-1812.

This led to the issuing of notice of proposed rulemaking and order procedures for the Rocky Mountain area. 36 Fed.Reg. 13621 (1971). This notice provided that just and reasonable rates would be issued for gas contracts dated before October 1, 1968. It provided also for determination as to whether the rates under Order 435 were to apply to contracts dated between October 1, 1968 and June 17, 1970. Except for these specifics contained in the notice, the rulemaking proceedings in Docket No. R-389A continued in effect. It was thus clear that informal rulemaking was being employed since the order outlined the manner in which data was to be submitted and provided that the Commission’s staff would composite and reconcile such data. It named the petitioners herein together with the purchasing pipelines. It allowed other persons to become parties by filing a notice of intention to respond by August 2, 1971.

The petitioners challenged the new rulemaking procedures. These challenges were, however, unsuccessful before the Commission. Motions for rehearing and for reconsideration were made in which the present contentions as to the necessity for evidentiary hearings were made. The Commission rejected the contention that an adjudicatory hearing was required, stating that both the Natural Gas Act and the Administrative Procedure Act recognized the use of rulemaking procedures by notice to interested parties and the opportunity to submit written material.

The Phillips Petroleum Company then filed its petition seeking review in this court. Amerada Hess Corporation on behalf of itself and others filed a petition for review in the Court of Appeals for the District of Columbia. This petition was transferred and consolidated with the Phillips case for the purposes of this review.

The matter submitted for review herein is “Notice Instituting Proposed Rule-making and Order Prescribing Procedure”, which document was, as previously noted, issued by the Commision on July 15, 1971 in Docket No. R-425. This was called by the Commission a rule-making procedure having the purpose of more quickly effectuating the Commission’s task of fixing just and reasonable rates. The Commission ordered:

(1) completion by petitioners and pipelines producing natural gas of questionnaires covering “flowing gas costs and operational data on an individual company 1969 test year basis.”
(2) composition of such data by the Commission’s staff before October 22, 1971, the results being available to any party on request.
(3) verified written responses to the proposed rulemaking before November 12, 1971.
(4) a conference on August 3, 1971, for “developing the issues and procedures to be followed” in the proceeding, as such “appears to be warranted in the public interest.”

No specific rates were set forth in the notice or release.

It is noteworthy that the Commission has initiated the procedure for setting area rates and by doing so it was engaging in a rulemaking proceeding. However, its notice or release also formulated a procedure to be used in the area rate proceeding. This is also a rulemaking proceeding. Thus the question on the merits which we are called on to review is the validity of the proposed procedure of the Commission which in effect abolishes the traditional trial-type hearing and substitutes for it the informal evaluation of written submissions.

II.

JURISDICTION TO REVIEW

Petitioners assert that there is jurisdiction pursuant to § 19(b) of the Natural Gas Act, 15 U.S.C. § 717r(b). The Commission does not deny this, for they are equally desirous of having a determination of the validity of the proposed procedure. Hence, the Commission takes the position that the orders entered are final and that the attempted review is not a premature effort. This court is obligated, however, to view the condition and determine for itself that there is jurisdiction to determine the case. See Sunray DX Oil Co. v. FPC, 351 F.2d 395, 397 (10th Cir. 1965).

In the proposed rulemaking procedure, specific rates, terms or conditions are not set forth. It is a rule which prescribes standards for the setting of area rates in the Rocky Mountain region and to that end it orders submission of certain data. Thus it is clear that the Commission is presently engaged in an exercise of its rulemaking power, even though it is merely formulating the procedure to be used.

The matter before us is a question of law and not of fact. However, it is procedural in its nature, even though it may have profound substantive effects, and we are mindful that mere procedural orders have been held to be not within the scope of the circuit courts of appeal. See FPC v. Metropolitan Edison Co., 304 U.S. 375, 385, 58 S.Ct. 963, 82 L.Ed. 1408 (1938). But this line of cases goes to the proposition that courts will not interfere with the administrative process and will limit themselves to review of an actual order following a hearing. See FPC v. Metropolitan Edison Co., supra; Amerada Petroleum Corp. v. FPC, 285 F.2d 737 (10th Cir. 1960); United Gas Pipe Line Co. v. FPC, 206 F.2d 842 (3d Cir. 1953); Eastern Utilities Associates v. SEC, 162 F.2d 385 (1st Cir. 1947). If the order is as bad as the petitioners claim, it would require a holding that there exists a denial of rights guaranteed by the due process clause of the Fifth Amendment and a holding also that the Commission is acting beyond the law and outside the Administrative Procedure Act as well. Violations of this magnitude would render the entire proceeding invalid, and it could be raised following the setting of rates, but there would be much wasted motion in proceeding in this manner.

The statute in question, § 19(b), provides for judicial review of final agency orders and under such a statute challenges to newly promulgated agency regulations prior to their application against particular individuals have often been entertained. See FCC v. ABC, 347 U.S. 284, 74 S.Ct. 593, 98 L.Ed. 699 (1954); Columbia Broadcasting System v. United States, 316 U.S. 407, 425, 62 S.Ct. 1194, 86 L.Ed. 1563 (1942); Gardner v. Toilet Goods Ass’n, 387 U.S. 167, 87 S.Ct. 1526, 18 L.Ed.2d 704 (1967); Toilet Goods Ass’n v. Gardner, 387 U.S. 158, 87 S.Ct. 1520, 18 L.Ed.2d 697 (1967); Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). In the latter three cases Mr. Justice Harlan, writing for the Court, mentioned two applicable criteria: first, whether the issues tendered are appropriate for judicial resolution, that is to say e. g., whether specific facts were needed in order to decide the case and, secondly, whether the impact on the parties is substantial. In one of the food, drug and cosmetic act cases, Toilet Goods Ass’n v. Gardner, supra, it was determined that a question existed as to whether the threatened inspection would ever materialize. In the other two cases, Abbott Laboratories v. Gardner, supra, and Gardner v. Toilet Goods Ass’n, supra, it was held that a pre-enforcement judicial review was justified because the questions were straightforward legal ones not depending on specific facts and, secondly, that the regulations had an immediate substantial impact on the manufacturers involving large expenditures and the risk of serious penalties.

In our case the petitioners present a clear-cut legal issue, alleged deprivation of procedural due process, and it could not be made any clearer by factual background. Furthermore, the impact is immediate and the cost of its application, if it proves to be invalid, is substantial. The delay which would result from remanding this case for full-scale procedure would be great and unquestionably injury would result to the petitioners and would be felt by the public at large. The words of Chief Justice Stone in Columbia Broadcasting System v. United States, 316 U.S. 407, 425, 62 S.Ct. 1194, 1204, 86 L.Ed. 1563 (1942), come to mind:

The ultimate test of reviewability is not to be found in an overrefined technique, but in the need of the review to protect from the irreparable injury threatened in the exceptional case by administrative rulings which attach legal consequences to action taken in advance of other hearings and adjudications that may follow, the results of which the regulations purport to control.

Accordingly, we view the present order as one which is appropriate for judicial review and resolution since it tenders a pure question of law and, secondly, the hardship to the petitioners which would result from refusal to review the question would be of great magnitude, and we conclude that the case is a proper one for the exercise of this court’s jurisdiction.

III.

VALIDITY OF THE PROPOSED REGULATION BY RULEMAKING UNDER THE NATURAL GAS ACT

The Act does not expressly authorize the procedure which the Commission has adopted; by the same token, the Act does not prohibit it. Section 5 of the Act gives the Commission the power to fix just and reasonable rates. It does require that a hearing shall be held, and the rules of procedure regarding hearings are found in § 15 of the Act, 15 U. S.C. § 717n. Part (b) of this particular section provides that

[a] 11 hearings, investigations, and proceedings . . . shall be governed by rules of practice and procedure to be adopted by the Commission, and in the conduct thereof the technical rules of evidence need not be applied. No informality in any hearing, investigation, or proceeding or in the manner of taking testimony shall invalidate any order, decision, rule, or regulation issued under the authority of this chapter. (Emphasis added.)

The Commission, acting pursuant to § 16 of the Act, 15 U.S.C. § 717o, issued a rule which provides, as we have seen, for an informal hearing. This would appear to be in conformity with the plain terms of § 15 quoted above.

Section 16 is entirely consistent with the particular order adopted. It provides the Commission with the “power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate. This provision goes on to say, referring to the Commission, that it “may prescribe the form or forms of all statements, declarations, applications, and reports to be filed.” This section thus provides the Commission with a broad authority in prescribing procedures for obtaining information upon which it is to act. As was said by the Court of Appeals for the District of Columbia, a primary objective is the obtaining of information to enable the Commission to carry out effectively the provisions of the Natural Gas Act. The court went on to say that the Commission has the ability to choose with relative freedom the procedure that it will use to acquire relevant information. The Commission has the power to tailor its proceedings so as to fit the issues before it together with the information that it needs to illuminate those issues and the manner of presentation which will bring before it the information in the most efficient manner. See City of Chicago v. F.P.C., 147 U.S.App.D.C. 312, 458 F.2d 731, 743-744 (1971).

After reading §§ 15 and 16, one is constrained to conclude that the Commission has a very broad discretion indeed in determining the form of its proceedings. The petitioners, on the other hand, maintain that § 5 of the Act in providing for a hearing, necessarily means a formal or adjudicative type of hearing with full right of cross-examination and participation in the preparation of a public record, a record which must be the product of the ratemaking procedure. This, so it is argued, is the method which has' been followed throughout the years and the present attempts at innovations are not authorized by the statute.

It is true that the Commission has traditionally conducted individual company-by-company hearings. See, e. g., FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037 (1942), which upheld the procedures under the Natural Gas Act and endorsed the adjudicative formal-type hearing. However, the Court in that instance did not consider the nature of the proceedings required under the law. It merely stated that a prerequisite to a rate order is a hearing and findings. In that ease the companies had full opportunity to cross-examine witnesses and although the Supreme Court approved the proceeding as a fair hearing, it did not establish that a formal hearing is necessary in order to comply with the Gas Act or the Constitution.

The petitioners also rely on other regulatory statutes and seek to argue that in order to have a fair hearing it must be a formal proceeding. However, we cannot justifiably apply standards which have been laid down in quasi-judicial proceedings.

Decisions of the Supreme Court since the rulings in the Phillips cases have pointed the way to adoption of a more flexible and less formal method for fixing the rates of gas producers. Its first effort was area rate setting, itself a departure from the adjudication process. The Supreme Court approved this early effort in FPC v. Texaco, Inc., 377 U.S. 33, 84 S.Ct. 1105, 12 L.Ed. 112 (1964), a pre-Permian Basin case. The Court, though dealing with § 7 of the Gas Act, held that

the statutory requirement for a hearing under § 7 does not preclude the Commission from particularizing statutory standards through the rulemaking process and barring at the threshold those who neither measure up to them nor show reasons why in the public interest the rule should be waived. ... To require the Commission to proceed only on a ease-by-ease basis would require it, so long as its policy outlawed indefinite price-changing provisions, to repeat in hearing after hearing its conclusions that condemn • all of them. We see no reason why under this statutory scheme the processes of regulation need be so prolonged and so crippled.

The decision of the Supreme Court which we regard as dispositive of the issues raised here is In re Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). In that area rate decision Mr. Justice Harlan, writing for the Court, described in detail the difficulties experienced by the Commission in seeking to regulate the producers’ sales. It was described as the “outstanding éxample in the federal government of the breakdown of the administrative process,” citing Landis, Report on Regulatory Agencies to the President-Elect.

In the Permian Basin case the Supreme Court, utilizing the price regulation analogy, stated that the Constitution does not prohibit the determination of rates through group or class proceedings and that it does not require that the separate financial position of each member of the class be evaluated. Indeed, the only limitation noted was that the prices fixed must be calculated in conformity with the constitutional limitations; that such prices must not be arbitrary, discriminatory or irrelevant to the policy which the legislature had agreed to adopt.

As we view it, the present effort is, to a large degree, the result of the encouragement which the Supreme Court gave to the FPC to innováte. Thus in the Permian case the Court stated that “the breadth and complexity of the Commission’s responsibilities demand that it be given every reasonable opportunity to formulate methods of regulation appropriate for the solution of its intensely practical difficulties.” This message was many times repeated: “the width of administrative authority must be measured in part by the purpose for which it was conferred”; “the ultimate achievement of the Commission’s regulatory purposes may easily depend upon the contrivance of more expeditious administrative methods”; “administrative authorities must be permitted, consistently with the obligations of due process, to adapt their rules and policies to the demands of changing circumstances”; “ [p] rovided only that they do not together produce arbitrary or unreasonable consequences, the Commission may employ any ‘formula or combination of formulas’ it wishes, and is free ‘to make the pragmatic adjustments which may be called for by particular circumstances.’ ”

The final contention of the petitioners is that there can be a valid judicial review only if there is a record. However, we do not agree that this requires that there be a record resulting from a formal evidentiary hearing. The important point is that there shall be a record which will allow an orderly review of the Commission’s findings and conclusions. Under the rule the record will consist of the written comments submitted by the respondents to the Commission together with questionnaire data filed by producer and pipeline companies and composited by the Commission staff. The submissions of the petitioners would be placed in public files and made available for public inspection. Thus the petitioners are aware of the material which will be considered together with the application of Commission expertise to the information submitted.

Finally, the reviewing court is at liberty to remand the cause to the agency for further delineation, information or expression of views.

In the light of the provisions of the Act, together with the Supreme Court’s comments concerning the need for streamlined procedures, we are of the opinion that the proposed rulemaking is consistent with the Natural Gas Act and is valid.

IV.

THE CONTENTION THAT THE ADMINISTRATIVE PROCEDURE ACT REQUIRES FORMAL PROCEEDINGS

Petitioners read the Administrative Procedure Act (APA) as requiring a formal hearing whenever a hearing is called for in a particular type of proceeding. The Commission, on the other hand, contends that the key to the requirement of a formal hearing is the term “hearing on the record.”

The APA expressly provides for two categories of administrative hearing and decision: rulemaking and adjudication. The term “rule” in § 2, 5 U.S.C. § 551(4), includes the approval or prescription of future rates. Unquestionably, therefore, the hearing required by the Gas Act fixing rates is a rulemaking procedure rather than adjudication.

Two types of rulemaking are recognized under § 4. Informal is that generally used, and § 4 prescribes the procedure in connection with informal rule-making such as proper notice so that interested persons are given an opportunity to participate “through submission of written data, views, or arguments with or without oral presentation”; the rules adopted must incorporate a statement as to their basis and purpose. Formal rulemaking is the exception which is set forth in § 4(b) which provides:

When rules are required by statute to be made on the record after opportunity for an agency hearing, sections 556 and 557 of this title apply instead of this subsection.

The § 4(b) exception calls for the procedural formalities that are found in adjudication including the right to submit oral evidence and to cross-examine, This approach is a hybrid one which is in part rulemaking and in part adjudieation.

The fact, as previously noted, that the Gas Act does not contain the words “on the record” furnishes a strong argument in support of the Commission’s contention that informal rule-making satisfies the requirements of the APA. If the words “on the record” were contained in the Gas Act, it would furnish a basis for the petitioner’s position. See 2 Davis, Administrative Law Treatise § 13.08, at 225 (1958). Professor Davis states that the large number of administrative statutes do not contain the words “hearing on the record.” However, there are indications that the presence or absence of these words is not conclusive. See H.R.Rep.No. 1980, 79th Cong., 2d Sess. 51, n. 9 (1946); Wong Yang Sung v. McGrath, 339 U.S. 33, 70 S.Ct. 445, 94 L.Ed. 616 (1950). A more reliable test is the congressional intent as contained in the specific statute. See United States v. Allegheny-Ludlum Steel Co., 406 U.S. 742, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972).

The scope and depth of the § 4(b) exception are not apparent from a reading of the Committee reports and the debates. Moreover, a study of the research materials such as the Final Report of the Attorney General’s Committee, the Committee Monograph on the FPC and the Attorney General’s Manual on the Administrative Procedure Act do not, with the exception of the Attorney General’s Manual, contain any significant evidence which would indicate a congressional intent to require formal rulemaking procedures.

Comments in the Attorney General’s Manual at page 33 take for granted that rate setting hearings under the Gas Act will be on the record and thus will be formal and adjudicative. These comments are, however, not to be regarded as evidencing congressional intent because the Manual is not addressed to Congress but rather to various administrative agencies after the passage of the Administrative Procedure Act, and so this is at best very weak support for the petitioners’ contentions.

Accordingly, from the legislative history of the Administrative. Procedure Act, it must be concluded that Congress intended to allow administrative agencies a broad latitude in adopting rulemaking procedures. Throughout this period the FPC had been conducting experiments with various procedures, especially in the area of proof and evidence, and the Attorney General’s Committee recommended further experimenting. Congress sanctioned such procedural experimentation in the APA.

As we have seen the present proposed rulemaking stems from the suggestions of the Supreme Court in the Permian Basin case. There is no assurance, however, that this will be successful and the procedures may have to be modified or discontinued. But such flexibility was within the contemplation of the Congress when it enacted the APA, especially, where as here, formal rulemaking procedures are not required.

Finally, as we have noted earlier, the hearings here involve quasi-legislative rather than quasi-judicial activities. Where this is the situation, informal proceedings are generally held to be sufficient. See Norwegian Nitrogen Prod. Co. v. United States, 288 U.S. 294, 53 S.Ct. 350, 77 L.Ed. 796 (1933); I. C. C. v. Louisville & Nashville R. R. Co., 227 U.S. 88, 33 S.Ct. 185, 57 L.Ed. 431 (1913) (dictum).

In summary, we are of the opinion that the proposed rulemaking is in harmony with the comments of the Supreme Court contained in Permian Basin and in harmony also with the Natural Gas Act and the APA. The gas producers’ contrary argument is largely based on the FPC’s history of conducting adjudicatory hearings. Based on this history, the gas producers would seek to have the court impose a requirement that its hearings be conducted in this manner. We are convinced that such action would be unwarranted.

The petition for review should be and the same is hereby denied.

SETH, Circuit Judge

(dissenting):

I must dissent from the majority opinion filed herein as to the procedure required to be followed by the Federal Power Commission. It does not appear that the issue has been settled by the Permian Basin Area Rate Case, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312, as the opinion states. Also the specific method here sought to be used by the FPC as evidenced by its rulings and orders in this record has not been considered in reference to the doctrine of confiscation which provides the constitutional base for court review of proceedings of this nature. The specifics of rate-making include the resolution of disputed facts and a consideration of the constitutional problems attendant to the fixing of just and reasonable rates.

The issue is the method of setting rates for the gas producers, and although the Supreme Court has indicated that some substantial departures from traditional methods are permitted, the complete conversion to rulemaking under the orders here concerned does not appear warranted under existing decisions. I am not prepared to anticipate a further departure in view of the constitutional limitations.

Some further examination of the decisions appears to be necessary before considering some practical problems of the record, the required review by the courts, and some specific matters relative to the method here sought to be used by the FPC.

In F. P. C. v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037, the Court considered the ratemaking function of the FPC under section 5 of the Natural Gas Act. The Commission then was proceeding under the typical return on “investment” ratemaking doctrines. However, the Court described at some length the function of the courts and the nature of judicial review under the Natural Gas Act, and stated: “Once a fair hearing has been given, proper findings made and other statutory requirements satisfied, the courts cannot intervene in the absence of a clear showing that the limits of due process have been overstepped.” It is this determination by the courts that is frustrated by the procedure here adopted by the FPC.

The Supreme Court, prior to F. P. C. v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037, had decided Morgan v. United States, 298 U.S. 468, 56 S.Ct. 906, 80 L.Ed. 1288 (see also 304 U.S. 1, 58 S.Ct. 999, 82 L.Ed. 1129). One of the principal issues there raised and considered by the Court was the nature of the hearing required to be held under the Packers and Stockyards Act [7 U.S.C. §§ 181-229], The Court there held it was quasi-judicial and that a “full hearing” was required and said: “Nothing can be treated as evidence which is not introduced as such. Facts and circumstances must not be considered which should not legally influence the conclusion. Findings based on the evidence must embrace the basic facts which are needed to sustain the order.” This is a clear and direct reference to the procedure and to nothing else.

There have been several decisions by the United States Courts of Appeals which directly concerned summary proceedings under the Natural Gas Act. Some of these are based on the Act and some on due process. One of the earlier of these cases is Mississippi River Fuel Corp. v. F. P. C., 202 F.2d 899 (3d Cir.), where the court did not permit a summary refusal by the FPC to receive a rate schedule tendered under section 4. Later in Shell Oil Co. v. F. P. C., 334 F.2d 1002 (3d Cir.), the same court held that those objecting to filings under section 4 should have an opportunity to be heard and there be a “full hearing.” See also Hill v. F. P. C., 335 F.2d 355 (5th Cir.). In Murphy Oil Corp. v. F. P. C., 431 F.2d 805 (8th Cir.), the court considered FPC action on a rate application without a hearing. The Commission had sought to handle the issue under section j.6 of the Natural Gas Act, but the court held that a “hearing” was required, which was understood to mean a formal hearing. The court in American Louisiana Pipe Line Co. v. F. P. C., 120 U.S.App.D.C. 140, 344 F.2d 525, held an evidentiary record was required with a decision based upon the facts so developed and not upon the regulatory experience of the agency.

F. P. C. v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037, must be regarded as a significant case as to the issues before us. It is apparent that the nature of the proof required and the method of the Commission is now much different in the area rate cases such as the Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312, but this should not bring about a different result as to the fundamental nature of the hearings. The practices of the Commission have changed during the many years it has been in existence, but a present feeling' of urgency, as indicated in the Commission’s brief, should not overcome the statutory or constitutional requirements for a full hearing.

The FPC here relies on Hunt Oil Co. v. F. P. C., 424 F.2d 982 (5th Cir.), which is important, but is cited principally for the statement in it that area rate proceedings are quasi-legislative and thus not quasi-judicial. This is useful as a generality, but it does not assist us much in our problem.

The relation of the Administrative Procedure Act to the Natural Gas Act provisions has been elsewhere considered in detail and need not be repeated here other than to state the conclusion that even if the Natural Gas Act does not expressly require a full evidentiary hearing, it does require a “hearing on the record,” and thus if the Administrative Procedure Act is operative, a hearing to meet its requirements set out in 5 U.S.C. §§ 556 and 557 is necessary.

On the requirements of the Administrative Procedure Act as to rulemaking by the ICC, the Supreme Court has recently decided United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 92 S.Ct. 1941, 32 L.Ed.2d 453. This treats the application of 5 U.S.C. §§ 556 and 557 (the APA) when rules are required to be “on the record.” The Court there said:

“Because the proceedings under review were an exercise of legislative rulemaking power rather than adjudicatory hearings as in Wong Yang Sung v. McGrath, 339 U.S. 33, 70 S.Ct. 445, 94 L.Ed. 616 (1950), and Ohio Bell Telephone Co. v. Public Utilities Comm’n, 301 U.S. 292, 57 S.Ct. 724, 81 L.Ed. 1093 (1937); and because 49 U.S.C. § 1(14) (a) does not require a determination ‘on the record’ the provisions of 5 U.S.C. §§ 556, 557, were inapplicable.”

The above decision is significant here, but as the quotation indicates the Esch Act gives specifically to the ICC the authority to make “rules, regulations, and practices with respect to car service.” With this specific authority for rules for the limited subject before it in an Act which applies only to the ICC and its powers, it is not difficult to see how authority was found for the rulemaking type of hearing under the APA without use of sections 556 and 557.

The Supreme Court then in United States v. Florida East Coast Ry., 410 U.S. 224, 93 S.Ct. 810, 35 L.Ed.2d 223, considered essentially the same issue as in United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 92 S.Ct. 1941, 32 L.Ed.2d 453. Again it is a matter arising under the Esch Act with its limited scope of car service rules and with specific authority for rules relating to the subject. The Court there holds that evidentiary hearings are not required under the Esch Act with reference to the imposition of charges on carriers using cars of others. It also holds that the term, “hearing,” in section 1(14) (a) of the Interstate Commerce Act is not the equivalent to “on the record after opportunity for an agency hearing,” as used in section 553(e) of the Administrative Procedure Act. The Court also notes however that sections 556 and 557 of the APA could be “triggered” by other language. The opinion in Florida East Coast is in the narrow statutory area of “car rules,” but makes a general distinction between “rulemaking type proceedings” and “a proceeding devoted to the adjudication of particular disputed facts.” The Court distinguishes the Morgan case on the basis of notice to the parties. Attention is also directed in Florida East Coast to the distinction in Bi-Metallic Investment Co. v. State Board of Equalization, 239 U.S. 441, 36 S.Ct. 141, 60 L.Ed. 372, between disputed facts and general rules.

It would appear also that the hearing provisions in the Federal Power Act plus the contemplated review should “trigger” the provisions of sections 556 and 557 of the Administrative Procedure Act, and the exceptions in section 553 apply because this is certainly not a matter of general policy rules. We have before us an example of the need to resolve disputed facts under the distinction made in Florida East Coast in a traditional ratemaking situation. The Commission has expressly here stated in its Order of December 16, 1971, that would decide these disputed facts “in the light of the record before it and based on its own experience.” The decision is thus to be made on these two factors even without the benefit of an evidentiary hearing. Although Morgan v. United States, 298 U.S. 468, 56 S.Ct. 906, 80 L.Ed. 1288, may be weakened by the way in which it was distinguished in Florida East Coast, it still must stand for the proposition in the following quotation from the opinion relative to the reasons for an evidentiary hearing: it

“. . . The ‘hearing’ is designed to afford the safeguard that the one who decides shall be bound in good conscience to consider the evidence, to be guided by that alone, and to reach his conclusion uninfluenced by extraneous considerations which in other fields might have play in determining purely executive action. The ‘hearing’ is the hearing of evidence and argument. If the one who determines the facts which underlie the order has not considered evidence or argument, it is manifest that the hearing has not been given.”

See also I. C. C. v. Louisville & Nashville R. R., 227 U.S. 88, 33 S.Ct. 185, 57 L.Ed. 431.

By order of the FPC which instituted the rulemaking procedure, certain producers were named therein and made parties whether they wanted to be or not. Furthermore, they were “ordered and directed” to complete, “verify,” and file certain cost data within a specified time. The proceedings were directed to them specifically. Statements and “submittals” were required to be under oath. This procedure has to be unusual in a rulemaking proceeding where generally those interested may submit information if they wish. However, as to those named they are “hereby made respondents to this rulemaking proceeding,” and then ordered to respond. Thus it commences with all the compulsion used at any ratemaking hearing, but then provides for “submittals” and “responses” and “statements” which the staff “shall composite and reconcile.” After this, the Commission will “consider” the material and reach a decision, but from the record and brief references it also expects to rely on its “expertise” and the files which have been accumulated from the nationwide “hearings” previously conducted and from other sources. As indicated the FPC in its Order Denying. Motion for Cross-Examination in Docket R-425, issued December 16, 1971, said:

“In a rulemaking proceeding, such as the instant one, our primary objective is the acquisition of information which will enable us, inter alia, to determine just and reasonable producer rates for jurisdictional sales in the Rocky Mountain area for contracts dated prior to October 1, 1968. The purpose is not to allow interested parties to define the issues or narrow the scope of the proceedings. On the contrary, in soliciting comments from interested parties, and in relying upon the experience gained through previous area rate proceedings, we are building a record from which we can make a determination of said producer rates. We need not, as Amerada would require us to do, lose ourselves in an excursion into detail which would obscure, rather than clarify, the issues before us.”

The above quotation in the first sentence states that only one of the purposes of the hearing is to determine just and reasonable rates. If this is only one of the purposes and since “comments” are also “solicited” from other interested parties, and experience from other hearings is used, it is difficult to determine what “the record” of the “hearing” will be. It is also apparent that those ordered to be made parties will have no part in the making of the record of the proceedings, that is, through the introduction of exhibits or testimony with the right to object to or test the validity of the material. There is thus assembled material which cannot be considered a “public record,” and which is not really identifiable as having been assembled during the course of public proceedings.

In a matter related to the record, the petitioners raise the issue as to how there can be judicial review of the determination to be made by the FPC in this rulemaking proceeding. The statute expressly provides for review and the preparation of a record. Review is also required on constitutional grounds under the confiscation doctrine. The hearings must thus be held in contemplation of this review, and the record so developed must be suitable for the purpose. Also for a meaningful review the courts must know the basis for the decision by the administrative body. Thus the requirement for findings, and of equal importance the decision must be based on “the record.” It must be not only based on “the record” but the agency must consider only the record as the basis for its decision. See Bi-Metallic Investment Co. v. State Board of Equalization, 239 U.S. 441, 36 S.Ct. 141, 60 L.Ed. 372, and the quotation from Morgan above. A decision cannot be properly reviewed if it is based on matters outside the record. These requirements all relate to the constitutional confiscation doctrine prevailing in all ratefixing proceedings.

In the proceedings here contemplated only the staff members or the Commission know what material has been submitted. The parties have no knowledge as to what will be considered as part of the record and have no part in the development of the record as such during the course of the proceedings. This applies both to the record for decisional purposes and for review.

Further, with reference to the record for decision, the Commission has not stated that its determination will be based on the record alone, but has stated that it will “consider” the material submitted by the parties. It has also said it will use its experience to resolve disputed facts. Thus the problem relates to the decisional process, the matter of review, and the preparation of a “public” record. The general method of submitting all material in writing and having the Commission staff “composite and reconcile” such data leads to a question as to whether or not the procedure is really a “hearing.” Under the Act, the Commission must determine whether rates are just and reasonable and the Act provides that if the rates are not “reasonable,” they are “unlawful.” It is apparent from the orders entered by the Commission and from the Commission’s brief that it intends to rely on much more than the submittals and responses filed by the parties in its proceedings. In the Commission’s order of December 16, 1971, denying the motion for cross-examination, the Commission stated that it was “soliciting comments” and “in relying upon the experience gained through previous area rate proceedings, we will build a record upon which we can make a determination of said producers’ rates.” The Commission further states that the rulemaking method was chosen because of “the advantages of determining rates in a more expeditious manner, based on the informed judgment and expertise of the Commission through ten years of producer regulation,” etc.

The matter of cross-examination was also raised by the petitioners and expressly ruled upon by the Commission. It stated that there was no such procedure contemplated in rulemaking proceedings, and if there was it was “permissive” and could be denied entirely (as distinct from being limited).

Cross-examination in the situation here considered has several well recognized purposes, all of which relate to the matter of a fair hearing and the traditional “hearing” in judicial and administrative proceedings. The first purpose of cross-examination usually considered is to test the accuracy of the matters or facts presented by a party. This purpose needs no further description.

Another purpose of significance here is to test the knowledge of the witness as to the matters whereof he speaks; thus to show whether or not he is qualified or has the knowledge to so speak and thus to permit an evaluation of his testimony. The order of the Commission which sets out the procedure required the “submittals” to be under oath acknowledged in a certain way. This acknowledgment required the person to swear that “. . . he has examined the statements contained in the submittal or response, and that all such statements are true and correct to the best of his knowledge, information, and belief.” It is apparent that there is no way of telling, the extent of such person’s knowledge or information from his signature or title. There is no requirement as to the qualifications of the persons signing the submittals. Thus there is no way of testing whether the person knows whereof he speaks. The Commission does not know and the parties do not know.

Another purpose served by cross-examination is to develop the rest of a story partly told. The things which are omitted upon the direct examination are usually the most interesting and most revealing. Again with ex parte “submittals” the omitted details, when no further examination is expected, can be significant. Who better knows these things than the parties in the same or a related business?

As to bare conflicts in the facts which may result from the “submittals,” the Commission says in its Order Denying Cross-Examination of December 16, 1971, that: “The existence of disagreements among the several submissions does not preclude the Commission from making a reasonable determination in light of the record before it and based on its own experience.” Ratemaking after all deals with specifics, not generalities, as it can be the confiscation of the property of the regulated parties, and at the least constitutes a statutory imposition of restrictions on their earnings not so imposed on businesses in other fields.

In my opinion the proceeding here concerned is well within ratemaking. It is to resolve disputed facts, to determine rates retroactively to some extent, and to decide whether within the constitutional justification for court review the rates are just and reasonable or whether they are “unlawful.” This cannot properly be done by resorting to rulemaking powers, and deciding the facts on the basis of “submittals” by anyone and which cannot be tested for accuracy or completeness, and which in turn the Commission staff will “composite and reconcile,” whatever that may be. The Commission will then “consider” the submittals and whatever else is in their files and in their “experience.” This may then be reviewed by the court.

This method does not appear to be within the proper construction of the Federal Power Act nor the Administrative Procedure Act, much less in accord with the established standards for a constitutional test on the confiscation issue. We must consider what the Commission has said it is going to do in its orders, what it is going to consider and how. This is the specific procedure before us, and the issues must be so evaluated.

The Commission has argued that there is a matter of urgency in view of an impending shortage of natural gas and abbreviated hearings are necessary. Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, was decided in 1954 and the Act itself was passed in 1938. The area rate method was announced by the FPC in 1960. Congress has set up the regulatory machinery, and decided on the fact of regulation. We should act within this framework, and requests for substantial variations should be directed to Congress.

The orders relative to the nature of the hearing should be set aside and the matter remanded to the Commission.

      . E. g., Southern Louisiana Area Rate Proceeding, 40 RPC 530 (1968), aff’d, 428 F.2d 407 (5th Cir.), cert. denied sub nom. Municipal Distributors Group v. FPC, 400 U.S. 950, 91 S.Ct. 241, 27 L.Ed.2d 257 (1970); Hugoton-Anadarko Area Rate Proceeding, 44 FPC 761 (1970), affirmed, 466 F.2d 974 (9th Cir. 1972); Texas Gulf Coast Area Rate Proceeding, 45 FPC - (May 6, 1971), appeal pending, D.C.Cir., No. 71-1828; Other Southwest Area Rate Proceeding, 46 FPC - (October 29, 1971), appeal pending, 5th Cir., No. 72-1114.

      . Permian Basin Area Rate Cases, supra, at 816 n. 99, 88 S.Ct. at 1385.

      . Id. at 772 n. 37, 88 S.Ct. at 1362.

      . 34 Fed.Reg. 17341 (1969).

      . 44 FPC 1112 (1970). Although several parties challenged the Commission’s use of its rulemaking authority to establish rates, the Commission cited American Airlines, Inc. v. CAB, 123 U.S.App.D.C. 310, 359 F.2d 624, cert. denied, 385 U.S. 843, 87 S.Ct. 73, 17 L.Ed.2d 75 (1969), and stated that no party demonstrated a need for a formal, evidentiary hearing. 44 RPC at 1119. No party appealed the Commission’s order. The Commission had further noted that
      our action here is not one based on a nugatory record. We fully considered the staff report, and accepted it as evidence. We received lengthy and well-considered comments from many parties, and answers to said comments made by other parties. And, we considered the staff’s minutes of the conference of June 2, 1970, and the comments of such minutes filed by Cities Service on July 24, 1970. Added to our consideration of all of this rather extensive record, we have applied the expertise gained by us in determining previous area rate proceedings, and our long experience gained from dealing with the problems of these areas.
      44 FPC at 1119.

      . The Commission stated that there was nothing in the Natural Gas Act that required a “hearing on the record” or an adjudicatory hearing. As to the Administrative Procedure Act, the Commission said that even if § 7, 5 U.S.C. § 556, were applicable,
      we cannot determine how Amerada has been, or will be, prejudiced by the adoption of the procedures in Docket No. R — 425. Amerada has not pointed to specifics on which it needs to cross-examine or present live rebuttal testimony. Instead, Amerada refers to general subjects to which it, and other interested parties have filed written submissions, and states as reasons for its requests, “apparent disputes.” . The existence of disagreements among the several submissions does not preclude the Commission from making a reasonable determination in light of the record before it and based on its own experience.

      . Petitioners place reliance on Morgan v. United States, 298 U.S. 468, 56 S.Ct. 906, 80 L.Ed. 1288 (1936) and its successor, Morgan v. United States, 304 U.S. 1, 58 S.Ct. 999, 82 L.Ed. 1129 (1938). There the Supreme Court reversed a decision establishing rates under section 310 of the Packers & Stockyards Act of 1921, 7 U.S.C. § 211, because the administrative official making the decision did not hear the evidence, 298 U.S. at 478-479, 481 — 482, 56 S.Ct. 906, a situation not occurring in the case at bar. Moreover, the Morgan proceeding was characterized as quasi-judicial, 304 U.S. at 14, 58 S.Ct. 999, whereas area rate proceedings are quasi-legislative. Finally, it was stated that “full hearing” embraced the right to present evidence and the opportunity to know the claims of opposing parties. Id. at 18-21, 58 S.Ct. 999. Petitioners had this right and opportunity.
      Petitioners also misplace reliance on I.C.C. v. Louisville & Nashville R.R. Co., 227 U.S. 88, 33 S.Ct. 185, 57 L.Ed. 431 (1913). Not only does that case deal with the Interstate Commerce Act, but it is also a pre-Administrative Procedure Act case which is fully out of harmony with that statute.

      . FPC v. Texaco, Inc., supra, 377 U.S. at 39, 44, 84 S.Ct. at 1109, 1112. See Davis, Administrative Law Treatise § 7.01, at 153-54.

      . 390 U.S. at 790, 88 S.Ct. at 1372.

      . Id. at 776, 88 S.Ct. at 1364.

      . Id. at 777, 88 S.Ct. at 1365.

      . Id. at 784, 88 S.Ct. at 1369.

      . Id. at 800, 88 S.Ct. at 1377.

      . They cite in support of their argument the following cases: United States v. Alleglieny-Ludlum Steel Co., 406 U.S. 742, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972); Siegel v. AEC, 130 U.S.App.D.C. 307, 400 F.2d 778, 785 (1968); Pacific Coast European Conference v. United States, 350 F.2d 197, 205 (9th Cir. 1965).

      . The interpretation of § 4(b) contained in the Manual conflicts to some degree with the position taken by the Attorney General’s office prior to passage of the APA. The Attorney General’s Committee specifically found in its Monograph on the Federal Power Commission that formal rulemaking had proved unsatisfactory for rate setting and was not likely to be used in the future. Sen.Doc.No.10, 77th Cong., 1st Sess. pt. 12, at 40 (1941). The Final Report of the Attorney General’s Committee also suggests that rate setting will not be restricted to formal, adjudicatory proceedings. Sen.Doc.No.8, 77th Cong., 1st Sess. 106-11 (1941).


source: Caselaw Access Project

author: HEANEY, Circuit Judge.

license: Public Domain

text:
    Arthur BRUNE, Plaintiff-Appellant, v. Charles J. MORSE et al., Defendants-Appellees.
    No. 72-1122.
    United States Court of Appeals, Eighth Circuit.
    Submitted Oct. 19, 1972.
    Filed March 20, 1973.
    Rehearing Denied May 4, 1973.
    Burton H. Shostak, St. Louis, Mo., for plaintiff-appellant.
    Alan M. Levy, Milwaukee, Wis., for defendants-appellees.
    Before HEANEY and STEPHENSON, Circuit Judges, and BOGUE, District Judge.

       District of South Dakota, sitting by designation.

   HEANEY, Circuit Judge.

The sole issue on this appeal is the right of Arthur Bruñe to receive pension benefits from the Central States, Southeast and Southwest Areas Pension Fund on normal retirement. The trial court, 339 F.Supp. 159, held that Bruñe was not entitled to receive benefits because he had not been employed in the “Teamster industry” for twenty continuous years. We affirm.

Various Teamster affiliates and employers with whom they had collective bargaining agreements negotiated a pension plan to be effective July 1, 1964. Under the plan, an employee is eligible for normal retirement if he meets the following conditions at the time of retirement.

(1) Age 57.

(2) Twenty years of service in the Teamster industry.

(3) Five years of service under a Teamster collective bargaining agreement.

(4) Eighty weeks payment into the pension fund on his behalf.

(5) Is in an employee classification status at the time of retirement.

It is conceded that Bruñe meets all qualifications except the one requiring twenty years of continuous service in the Teamster industry.

Service in the Teamster industry is defined in the plan as follows:

“(a) Employment within a classification of work and in an industry which was at the time of such employment normally covered by Teamster contracts in the local metropolitan area; and/or
“(b) Employment in the same classification of work in which employed after the Effective Date under a Teamster contract and on which pension contributions have been made on behalf of the employee; and/or
“(c) Employment requiring the usual Teamster skills in traditional Teamster industries at the time of such employment ; * * * ’’

Brune worked for the International Shoe Company, in St. Louis, Missouri, from 1927 until 1960, as a lasting machine operator. That company did not have a collective bargaining agreement with a Teamster Union during that period and did not make contributions to the Central States Pension Fund. Moreover, the Teamsters Union did not have collective bargaining agreements with other shoe manufacturers in the St. Louis area during the period. The Teamsters Union did, however, have collective bargaining agreements with retail shoe repair shops in the area, and such contracts covered persons who operated lasting machines.

Bruñe worked as a warehouseman at Buescher’s Wholesale in St. Louis, Missouri, from 1961 to 1969. That company had a collective bargaining agreement with the Teamsters and contributed to the Central States Pension Fund on behalf of Brune from 1967 to Brune’s retirement in 1969.

When Brune retired, he applied for a pension. He added his years of service with International Shoe to his years of service with Buescher’s Wholesale to obtain the necessary twenty years. The trustees denied Brune’s application on the grounds that he did not have twenty years of credited service within the Teamster industry. They stated that Brune was entitled to credit for all years worked for Buescher’s Wholesale but not for the years worked for International Shoe. They did so on the grounds that during the years he worked for International Shoe, Brune was a production worker in a shoe factory rather than in a retail repair shop, and that there were no Teamster contracts covering production workers in shoe factories in the geographic area during the years in question.

Brune commenced an action in District Court. He again contended that he was entitled to credit for his years of service with International Shoe Company. The court rejected this contention. It stated:

“It is the opinion of the Court that the business of repairing shoes is not the same industry as that of manufacturing shoes although the subject matters of the two businesses are the same — shoes. Manufacturing is producing or making shoes. The logical extension of that process might well include distribution, marketing and ultimate retail sale to the consumer. However, shoe repair is a service performed at the request of and to the benefit of the shoe consumer. It is independent of and outside the process of manufacturing and producing shoes for ultimate sale to the consumer.
“Black’s Law Dictionary defines ‘Industry’ as:
“ ‘Any department or branch of art, occupation, or business conducted as a means of livelihood or for profit; especially, one which employs much labor and capital and is a distinct branch of trade. Chicago, R. I. & P. Ry. Co. v. State, 83 Okl. 161, 201 P. 260, 264; Dessen v. Department of Labor and Industries of Washington, 190 Wash. 69, 66 P.2d 867, 869.’
“Identical skills or crafts are utilized in different industries without altering the classification of the skill and without merging the industries into one single industry. The service of repairing shoes is a branch of trade distinct from that of manufacturing shoes.
“Accordingly, the Court finds that at the time of plaintiff’s employment as a shoe production worker, that industry was not normally covered by teamster contract in the local metropolitan area. The Court concludes that plaintiff’s years of employment with International Shoe cannot be treated as years of service for which credit can be given toward a pension from the defendant Pension Fund.

On appeal, Brune again contends that he is entitled to credit for his years of service with International Shoe Company.

A careful review of the record and briefs convinces us that the trial court properly denied B rune’s petition for relief. On the basis of the record presented to this Court, it is clear that the trustees did not abuse their discretion in holding that shoe manufacturing was not an industry normally covered by Teamster collective bargaining agreements during the period 1927 through 1960. To the contrary, the record establishes that the Teamsters did not have shoe manufacturing companies under contract during that period. Nor did the trustees abuse their discretion in holding that Brune’s employment during the 1927 through 1960 period had not required “the usual Teamster skills in traditional Teamster industries during the time of such employment.” What evidence there is in the record on this point supports the view that this portion of the coverage language was intended primarily to cover drivers and ware-housemen.

We recognize that the language of the pension plan is so broad and so ambiguous that it invites arbitrariness on the part of the trustees; but, here, the trustees’ action was consistent with the letter of the plan and in accord with the purpose of providing pensions to those for whom contributions have been made over a period of years. Moreover, the trustees’ decision, if consistently followed, will strengthen the pension fund. To set aside the trustees’ decision here would give the plan a universality not intended and make it increasingly difficult for the plan to provide adequate benefits for employees with long years of service with employers who have contributed to the fund.

Affirmed.

      . Union participants were the Central Conference of Teamsters, the Central States Drivers Council, the Southern Conferences of Teamsters, the National Truckaway and Driveaway Conference, affiliated unions, and such other unions as the trustees may agree upon. .

      . “Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court, except to prevent an abuse by the trustee of his discretion.”
      Restatement (Second) of Trusts § 187 (1959). See also, Roark v. Lewis, 130 U.S.App.D.C. 360, 401 F.2d 425 (1968); Miniard v. Lewis, 128 U.S.App.D.C. 299, 387 F.2d 864 (1967), cert. denied, 393 U.S. 873, 89 S.Ct. 166, 21 L.Ed. 144 (1968).

      . In 1965, the executive secretary of the pension fund, in response to an inquiry by a local Teamster Union, stated that employers of a recently-organized subsidiary of the International Shoe Company would be given credit for past service with the parent. Bruñe contends that this letter supports his position. We agree that it may, but this record does not contain sufficient evidence to establish that it does. Moreover, no showing has been made that the executive secretary had authority to bind the trustees.

      . A further consideration in sustaining the trustees’ decision is the rajiidly growing concern with respect to vesting of pension benefits. The Central States Plan requires that an employee be actively employed by a participating employer on the date he retires. Thus, persons with long years of service must continue to work within the industry until normal retirement or lose pension benefits. Yet, one who becomes a current employee near the end of his career may well be eligible for substantial benefits. If current proposal with respect to vesting becomes law, additional financial burdens will be placed on the Central States Pension Fund. Thus, the trustees cannot be faulted for giving a restrictive interpretation to the phrase “Teamster industry,” as long as they do so consistently. For recent comments on vesting, see 82 L.R.R. 46 (January 15, 1973); 80 L.R.R. 188 (July 3, 1972); 80 L.R.R. 67 (May 22, 1972); Address by Senator Javits, prepared for delivery at the New York Conference on Labor, April 17-19, 1967, 1967 Labor Relations Yearbook, 229; Address by Stanley S. Surrey, Assistant Secretary of the Treasury, American Pension Conference, May 11, 1967, 1967 Labor Relations Yearbook, 41.


author: PER CURIAM: ALDISERT, Circuit Judge

text:
    UNITED STATES of America, Appellee, v. Martin H. NEFF, Appellant
    No. 72-1706.
    United States Court of Appeals, Third Circuit.
    Argued Nov. 28, 1972.
    Decided March 13, 1973.
    Certiorari Denied June 18, 1973.
    See 93 S.Ct. 3007.
    See also 343 F.Supp. 978.

      Fred T. Cadmus, III, Cadmus, Good & Patten, West Chester, Pa., for appellant.
    Robert E. J. Curran, U. S. Atty., John T. Thorn, Asst. U. S. Atty., Philadelphia, Pa., for appellee.
    Before McLAUGHLIN, ALDISERT and ADAMS, Circuit Judges.
   OPINION OF THE COURT

PER CURIAM:

Appellant Neff was convicted on five counts of selling and delivering various quantities of stimulant and depressant drugs in violation of § 301(q)(2) of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 331(q)(2).

The first and apparently principal contention on behalf of Neff is the admission of testimony concerning “hippie type” persons, observed at or near the back door of Neff’s office.

The defense attorney makes the brash statement that members of the trial jury would automatically associate “hippie type” with drug users. There is no justification for that statement in the entire trial record; nor was there any effort on the part of the attorney to document his insult to the integrity of the jury. Entrapment was also claimed for appellant on the spurious theory that drugs purchased from appellant by the undercover federal agents were the sole, isolated instances where Neff dispensed controlled drugs unlawfully. Actually Neff in making illegal drug sales, in some instances to people who turned out to be upholding the law, of itself did not support the entrapment charge. However, to rebut the erroneous, haphazard statement that the Government investigators were the only such buyers from Neff, evidence was introduced outlining a similar pattern and course of conduct by Neff in the past. The trial minutes indicate plainly that the prosecution was wholly concerned with the then activities of the people around the Neff office and not with their style of dress, hair, etc. It is very clear that the deliberate attempt to have appellant absolved from his conviction because among the people, in and out the Neff office back door, were some of the present younger generation. Those youngsters were just as much entitled to protection from Neff and his dangerous prohibited drugs as any other poor soul around the Neff place. They were also subject to the same palpable temptation of trying the available narcotics. The latter were being wrongfully sold by a physician, Neff who, above all other human beings, knew the awful, probable results of the misuse of those drugs, and who was directly commanded by law not to dispense them to anyone except for proper use in medical treatment. We find no error by the trial court in describing some of the younger generation who were around the Neff office at the time above mentioned.

The character evidence offered by the Government is attacked by the defense as having been wrongfully allowed by the district judge, particularly that given by Mr. Hoover, the principal of Unionville High School, and Mrs. Rice, who during the critical period was a student at the High School. Mr. Hoover was very much concerned regarding his students using drugs of the prohibited kind. Mr. Hoover talked with a number of his pupils regarding the situation and the responsibility for it. He was an impressive witness. He knew of Neff and his reputation among the community and the persons making up at least one of the circles which Neff frequented.

Mrs. Rice was also an important witness who had talked with other students during the local critical drug abuse stage and was familiar with what the people of the area thought of Neff. The defense would have all of the testimony of those knowledgeable witnesses thrown out because Mr. Hoover and Mrs. Rice did not know Neff personally. However, they both knew what was going on and who was to blame. The defense argues that the alluded-to witnesses had no standing under the opinion in the United States Supreme Court in Michelson v. United States, 335 U.S. 469, 69 S.Ct. 213, 93 L.Ed. 168 (1948). In that decision upon which the defense depends so much, the same factual problem arose. At page 480, 69 S.Ct. at 221 the Court held that “both the propriety and abuse of hearsay reputation testimony, on both sides, depend on numerous and subtle considerations difficult to detect and appraise from a cold record, and only on a clear showing of prejudicial abuse of discretion will Courts of Appeals disturb rulings of trial courts on this subject.” (Emphasis supplied).

What we have before us is a straightforward, truthful narration of an arrogant misuse of prohibited drugs from a source relied upon, particularly by simple, decent people with the courage to tell of the unbelievable menace that had struck their quiet community from a source they had been taught to trust always. In allowing the testimony of Mr. Hoover and Mrs. Rice there was no abuse of discretion by the district court. We hold that under the Michelson decision and the facts before us the ruling of the trial judge was just and right and should not be disturbed. There is one more assertion by the defense which claims again that appellant was the victim of prejudicial error. The foreman of the jury told the judge that a character witness for appellant was known to him, the juror. The latter, foreman of the jury in this trial, was worried as to whether he should take part in the trial. The judge listened to him to see if he needed instructions and decided he did not. The juror did continue in the trial. All the law pointed to by counsel for defendant is based on giving instructions to a juror where both sides were not present. In this juror’s difficulty there were no instructions needed, and the juror remained as the jury foreman. The judge here had merely taken care of this administrative matter immediately. As is seen there was no prejudicial abuse of discretion. It was purely a proper Michelson decision. The jury foreman conscientiously advised the judge that he knew one of the persons who appeared as a character witness for Neff. The judge, confident of the juror’s integrity, rightfully considered that there was no necessity of instructions regarding the juror, who continued in the trial. Appellant cites United States v. Woodner, 317 F.2d 649 (2 Cir. 1963) which actually ruled, regarding administrative duties, as to whether a juror is qualified to sit or not especially where there is no showing of prejudice. There, as here, the conclusion by the trial judge was found not to be erroneous. In Bacino v. United States, 316 F.2d 11 (10 Cir. 1963) the court held that interviewing a juror by the trial judge in the absence of defendant and counsel, was not reversible error where the interview was limited in scope and the judge admonished the juror to refrain from discussing the case. In the instant litigation, the interview was extremely limited in scope and there was no reason for discussing the merits of the appeal. As Woodner, 317 F.2d page 652, noted, “We have enough confidence in the integrity and fairness of the District Judges to assume that they will not make unfair remarks to jurors while undertaking administrative duties of this nature.”

The judgment of the district court will be affirmed. Judge Adams concurs in the result.

ALDISERT, Circuit Judge

(dissenting).

I am in essential agreement with the court’s analysis of appellant’s contentions except for the allegation of prejudicial error emanating from the trial court’s in camera colloquy with the jury foreman. I am not satisfied that adequate safeguards inhered in that proceeding to insure that appellant received a unanimous jury verdict based solely upon the law and the evidence presented in the courtroom.

I find two serious deficiencies in the brief discussion that transpired in the judge’s chambers. First, I am not satisfied that the juror ever retreated from the doubt he expressed about his inability to return an impartial verdict. When the juror confessed concern as to whether his familiarity with the character witness “would affect [his] thinking,” stating, “I don’t know. I would try not to let it, but — ,” he was interrupted by the trial judge who concluded: “I am sure it would not.” When the juror persisted in expressing concern, the judge intruded again with a statement of the judge’s personal confidence in him, described by the juror as “more confidence in me than I have in myself.”

Moreover, I am unable to characterize this interview as a purely administrative obligation of the court. Both counsel should have been offered the opportunity to be present so they could have either addressed questions to the juror or have suggested inquiries to the court as to the juror’s ability to return a verdict in accordance with the juror’s oath.

While there may be occasions when a trial judge is privileged to communicate with the jury or a member thereof without affording counsel the opportunity to be present, I am not persuaded that it is ever appropriate during a trial where there is an expression by a juror which is equivalent to a declaration that he may be unable to return a verdict in accordance with the evidence and the law.

I would reverse and remand for a new trial.

      . THE COURT: The gentleman, who is No. 1 juror, has raised his hand, and we will stand in recess in order to determine what his inquiry may be of me.
      Ladies and gentlemen of the jury, I do not think this will take very long. You are welcome to remain in your seats or to go into the jury room.
      (Recess 1:52 P.M.)
      (In Room 2112:)
      THE COURT: What is your question, sir?
      JUROR NO. 1: Well, I have been personally acquainted with and I have had business dealings with Mr. Shoemaker [a character witness] in Downingtown for eight to ten years now.
      In my company at Lukens Steel Company we have a musical organization called the Lukens Steel Band of which I am business manager and have been for approximately 16 years. We played concerts in the summer months in surrounding communities. One of them is Downingtown. The Mayor and I have dealt with this business of contracts and money, and so forth, for this amount of time.
      I am just not sure when you — your are going to ask me now, would this affect my thinking? I don’t know. I would try not to let it, but—
      THE COURT: I am sure it would not. I have perfect confidence in you, sir, that you will listen, as you are sworn to do, to the testimony and that you will accept the charge of the Court as controlling the reception of evidence, and I have complete confidence that you will be completely fair and impartial.
      JUROR NO. 1: You have more confidence in me than I have in myself.
      THE COURT: No, seriously; we are free-born Americans—
      JUROR NO. 1: Yes.
      THE COURT: —and I have great confidence in the jury system, and you have a duty to perform under your oath, and I have every confidence that you will fulfill it.
      JUROR NO. 1: Well, other trials I have been on they wanted to know if anybody knew the witnesses, and so forth, and I—
      THE COURT: You have been sworn and your instructions are to abide by the charge of the Court, and I am confident that you will do so.
      JUROR NO. 1: O.K. Thank you.
      THE COURT: We will return to the courtroom.
      (In open court at 1:55 P.M.)
      THE COURT: You may proceed, Mr. Cadmus.
      MR. CADMUS: May we approach the bench a moment, Your Honor?
      THE COURT: Yes.
      (At side bar:)
      MR. CADMUS : If Your Honor please,' I must note an objection to the Court’s conference with Juror No. 1 in the absence of counsel.
      THE COURT: Very well. It is noted.
      MR. CADMUS: Thank you, sir. (End at side bar.)


author: HILL, Circuit Judge.

text:
    FOREIGN STUDY LEAGUE, Petitioner, v. CIVIL AERONAUTICS BOARD, Respondent. TRANSAMERICA CORPORATION and Trans International Airlines, Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent.
    Nos. 72-1265, 72-1348.
    United States Court of Appeals, Tenth Circuit.
    March 20, 1973.

      David L. Berman, Salt Lake City, Utah (Walter D. Hansen, Washington, D. C., on the brief), for petitioners.
    Warren L. Sharfman, Associate Gen. Counsel, CAB (O. D. Ozment, Deputy Gen. Counsel, Robert L. Toomey and Paul W. Wallig, CAB, Thomas E. Kauper, Asst. Atty. Gen., Harold E. Shapiro, Dept, of Justice, and R. Tenney Johnson, Gen. Counsel, CAB, Washington, D. C., on the brief), for respondent.
    William D. Maroney, New York City, for intervenor, International Studies Assn.
    Before HILL and DOYLE, Circuit Judges, and O’CONNOR, District Judge.
   HILL, Circuit Judge.

These consolidated Petitions for Review seek to set aside an order of the Civil Aeronautics Board (Board) requiring Transameriea Corporation (Transamerica) to divest its wholly owned subsidiary, the Foreign Study League (FSL). Jurisdiction was asserted by the Board over Transamerica’s 1968 acquisition of FSL under Section 408 of the Federal Aviation Act. The Board concluded that such acquisition was contrary to the “public interest” because Transamerica’s common ownership of FSL, a substantial user of chartered air transportation, and Trans International Airlines (TIA), a major United States supplemental air carrier, raised possibilities of anticompetitive consequences.

Petitioners raise both jurisdictional and substantive matters in support of reversal. It is their contention the Board cannot bootstrap its 408(a) statutory jurisdiction over one acquisition so. as to require 408 Board approval of a subsequent acquisition over which the Board otherwise would not have 408(a) jurisdiction. Their second argument is that jurisdiction is lacking because FSL is not an indirect air carrier whose acquisition is subject to Board approval under 408(a)(5) of the Federal Aviation Act. The final jurisdiction argument is that although FSL is a substantial user of air transportation, it is not a person engaged in a phase of aeronautics as defined in 408(a)(6). Petitioners then charge that even if the Board has jurisdiction to decide this matter, the Board’s decision was rendered under improper legal standards and upon inadequate evidence.

We believe the Board correctly exercised jurisdiction under 408(a) and 408(b) of the Federal Aviation Act and properly found the Transamerica-FSL acquisition to be contrary to the public interest. Because the Board possessed jurisdiction under 408(a) and 408(b) by virtue of the Transamerica-Trans International Airlines acquisition, it will be unnecessary to decide whether FSL was an “indirect air carrier” or “engaged in a phase of aeronautics.”

The Foreign Study League is a Utah based corporation sponsoring foreign summer school programs for American students. FSL retains its own faculty, adopts its own curriculum and publishes its own textbooks. High schools in 49 of the 50 states grant credit for completed FSL courses, and several colleges give credit for student participation. Highly respected educators attest to the value of FSL’s summer program; and no party to this appeal has questioned its quality.

Since its inception in 1963, FSL has grown rapidly and is now substantially larger than any of its competitors. In 1964 1,920 students participated in the program while five years later the enrollment had mushroomed to nearly 14,000 students. By 1969, FSL described itself as the oldest and largest of the concerns specializing in foreign study-travel business, about as large as all the other foreign study-travel organizations combined.

In 1968 FSL, one of the nation’s largest buyers of overseas transportation, was acquired by Transamerica, one of the nation’s and world’s largest conglomerates. Transamerica has substantial holdings in a large variety of businesses ; backing these subsidiaries is the parent company’s assets which in 1969 totaled over 3.5 billion dollars.

The other important link in this divestiture suit is Trans International Airlines, which Transamerica acquired in 1968. TIA, one of the largest United States certificated supplemental air carriers, is authorized to operate in the domestic, transatlantic, Caribbean, Central and South American and transpacific markets. When Transamerica elected to acquire TIA in early 1968, both corporations filed a joint application for approval with the Civil Aeronautics Board. This was necessary since Transamerica was engaged in a “phase of aeronautics” and thus required by 408(a)(5) of the Federal Aviation Act to secure Board approval. Following evidentiary hearings, the Board conditionally approved the acquisition. Subsequent to the TIA acquisition, Transamerica acquired the Foreign Study League. With Transamerica’s new acquisition, the Board reopened its record on the Transamerica TIA acquisition to determine whether the purchase of FSL constituted a change in the Transamerica-TIA relationship. A second reason for reopening the record was to decide whether FSL was an “indirect air carrier” or was “engaged in a phase of aeronautics,” thereby subjecting the TransamerieaFSL acquisition independently to § 408(a) jurisdiction.

The Hearing Examiner reasoned that the Board maintained jurisdiction over the Transamerica-FSL acquisition as a result of conditions imposed on the Transamerica-TIA acquisition at time of approval. The Examiner further held that FSL is an indirect air carrier and thereby subject to Board jurisdiction under § 408(a). After settling jurisdictional issues, the Examiner concluded that acquisition of FSL by Transamerica constituted a violation of Section 7 of the Clayton Act with no balancing considerations in the public interest that would warrant approval of the acquisition. On review the Board affirmed the Examiner’s decision sustaining jurisdiction. Additionally, the Board held that FSL was engaged in a “phase of aeronautics” thereby subjecting it to Board jurisdiction. The Examiner’s determination that the FSL acquisition constituted antitrust violations was rejected, but the Board nevertheless struck it down as creating a “conflict of interest” and therefore contrary to the public interest.

Petitioners first contend the Board lacks jurisdiction to order divestiture of FSL because any statutory jurisdiction over the Transamerica-TIA acquisition does not extend to the purchase of FSL. Stated another way, the Board may not use the power to condition its approval of a 408(a) acquisition under 408(b) to extend its jurisdictional power to subsequent acquisitions that were not involved in the 408(a) acquisition approved and which do not involve any factors material to the approved 408(a) acquisition. Petitioners charge the conditions imposed in the TransamericaTIA acquisition are between Transamerica’s subsidiary, DeLaval Turbine, a manufacturer of airplane component parts, and TIA, a certificated air carrier. Any subsequent developments in the Transamerica-TIA acquisition concerning the relationship between TIA and FSL have no connection whatsoever with the DeLaval-TIA association.

The Board initially imposed conditions on the Transamerica-TIA acquisition as authorized by 408(b) which states in material part:

Unless, after such hearing, the Board finds that the . . . acquisition of control will not be consistent with the public interest ... it shall by order approve such ... acquisition of control, upon such terms and conditions as it shall find to be just and reasonable with such modifications as it may prescribe. .

The Board justifies its divestiture order of FSL by arguing that conditions imposed in the Transamerica-TIA order legitimate the order of divestiture. The condition presently in controversy is condition 8, which states:

8. That the Board shall retain jurisdiction over this proceeding for the purpose of:
(1) re-examining at any time the control relationships approved herein ; and (2) imposing at any time, with or without hearing, such other conditions as it may find to be just and reasonable, including the submission of any special reports by applicants or any of their affiliates or subsidiaries that the Board may find required in the public interest.

There is no question the Board can condition its approval of an acquisition if it has jurisdiction over the subject matter. Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963). Petitioners argue, however, that condition 8 of the Board’s order granting Transamerica’s acquisition of TIA has no effect on the subsequent FSL acquisition. We do not agree. Technically, the Board’s order requiring Transamerica to divest FSL has nothing to do with the Transamerica-FSL acquisition. What the Board is doing is reexamining its approval of the Transamerica-TIA relationship in light of subsequent developments. It is the changed condition of TIA emanating from Transamerica’s acquisition of FSL that is subject to Board jurisdiction.

Certainly petitioners would not argue the Board lacked jurisdiction to consider tie-in effects of FSL and TIA if FSL had been acquired prior, to TIA. The Board, in fact, is compelled to examine such circumstances before granting its initial approval. Northern Natural Gas Co. v. FPC, 130 U.S.App.D.C. 220, 399 F.2d 953 (1968). Petitioners nevertheless state that once the initial approval is given, no review of subsequent acquisitions is permitted unless it concerns the DeLaval Turbine-TIA relationship. We do not believe Congress so restricted 408(b). Such an interpretation feeds the hunger of large conglomerates who would thereby enjoy immunity for acquisitions considered not to be in the public interest. A conglomerate could do through its subsidiaries what it cannot do on its own.

Petitioners reject the Board’s conclusion that without authority to order divestiture of future acquisitions under 408(b) the Board's jurisdiction is contingent upon the order in which the acquiring party arranges its acquisitions. Petitioners apparently argue that jurisdiction only exists if the Board proves Transamerica had timed their transaction to circumvent the statute, but as no proof of intentional circumvention was presented, 408(b) jurisdiction cannot be invoked. We feel petitioners’ argument concedes the point. Jurisdiction does not depend on the parties’ intent, but on the statutory objectives to be achieved. By reexamining the Transamerica-TIA acquisition in light of changed circumstances, the Board might reasonably conclude TIA’s ownership by Transamerica was no longer in the public interest. Whether or not Transamerica intended to circumvent the statute is irrelevant.

As already emphasized, petitioners’ contention that Transamerica’s control of FSL has nothing to do with the Transamerica-TIA relationship is not well founded. Transamerica’s acquisition of FSL brought under the roof of a single corporation one of the nation’s largest supplemental air carriers and the nation’s largest buyer of air transportation in the foreign study-travel business. Such a potential tie-in definitely creates possible anticompetitive consequences which must be considered. Denver & Rio Grande Western Railroad Company v. United States, 387 U.S. 485, 87 S.Ct. 1754, 18 L.Ed.2d 905 (1967). The Board must determine whether the market structure maximizing competition will be endangered by the changed circumstances in the Transamerica-TIA relationship. National Air Carrier Association v. CAB, 141 U.S.App.D.C. 31, 436 F.2d 185 (1970).

Petitioners sound a note of alarm by asserting that if the Board has discretionary power to exercise jurisdiction over all subsequent transactions involving parties to the original 408(a) acquisition, then all later acquisitions regardless of their connection with the 408 approval may be subject to Board approval. The result is that if Transamerica buys a motel, the purchase is subject to Board approval. This argument is without merit. There must be some relevant connection between the Board approved acquisition and the subsequent acquisition. In the present case this connection is apparent because now living under the wings of one of the world’s largest conglomerates is one of the nation’s largest suppliers of chartered aircraft and the nation’s largest buyer of air transportation in the foreign study-travel business.

Having determined the Board had jurisdiction to order divestiture of FSL, we now turn to the Board’s decision that Transameriea’s relationship with TIA and FSL is inconsistent with the public interest standard of § 408. Section 408(b) provides that “[U]nless . . . the Board finds that the . . . acquisition of control will not be consistent with the public interest ... it shall by order approve such . . . acquisition of control. . . .” Section 408 (b) further provides:

That the Board shall not approve any consolidation, merger, purchase . . . or acquisition of control which would result in creating a monopoly or monopolies and thereby restrain competition or jeopardize another air carrier. . . . ”

These provisions of § 408(b) compel the Board to make two independent antitrust determinations. First, the Board must determine whether the acquisition has resulted in a monopoly that restrains competition or jeopardizes another carrier. If the Board determines there are no such consequences from the acquisition, it must then determine whether the acquisition results in antitrust violations less drastic than monopoly.

Although the Transamerica-FSL acquisition was not found to constitute a monopoly, the Board felt it did create potential anticompetitive conditions contrary to the public interest. Petitioners respond by charging the Board with improper application of the § 408(b) public interest provision. It is their position that applying a “conflict of interest” standard to determine public interest introduces a phrase foreign to the Federal Aviation Act’s language. The result has been findings of fact that would be unsupportable by the record if the Board had correctly applied the public interest standard.

We do not believe a “conflict of interest” test is an improper standard for determining public interest. The Board is vested with statutory authority to determine the overall transportation policy which best serves the interest of the public. To comply with the mandate, the Board must consider such factors as “conflicts of interest.”

Congress gave the Board authority to prohibit acquisitions which create monopolization. The Board has correctly determined that this authorization includes anticompetitive effects less extreme than monopolization if against the public interest. Logically, “conflicts of interest” must be considered when determining public interest. Such an interpretation is necessary in light of the immunity from antitrust laws conferred by § 414 of acquisitions approved by the Board. Denver & Rio Grande Western Railroad Company v. United States, supra; Seaboard Air Line Railroad Company v. United States, 382 U.S. 154, 86 S.Ct. 277, 15 L.Ed.2d 223 (1965); Butler Aviation Company v. CAB, 389 F.2d 517 (2d Cir. 1968).

Our only involvement in the Board’s decisions in determining whether there is substantial evidence to support its findings. French v. CAB, 378 F.2d 468 (10th Cir. 1969); 49 U.S.C. § 1486(e). A careful review of the record convinces us there was sufficient evidence for the Board to find the potential TIA-FSL tie-in contrary to public interest.

FSL is the nation’s largest foreign study-travel business. There are approximately 17 study-travel organizations competing against FSL; but with the exception of the American Institute for Foreign Study, whose operation is approximately one-half that of FSL’s there is no other organization which handles over 1,000 students. The size of FSL has increased substantially since 1963, and with this increase has come a corresponding need for more overseas transportation.

Fear of a tie-in between FSL and TIA is not unfounded in light of the benefits Transamerica could derive from such an association. For example, if all of FSL’s charter business were given to TIA, that carrier would have the competitive advantage of a guaranteed base for its transatlantic program. No TIA competitor would enjoy such a guaranteed base. To maximize TIA’s competitive advantage, it could schedule FSL charters in such a manner as to position aircraft, thereby eliminating ferry mileage. TIA’s benefit would be FSL’s burden as not only would flights be chartered around TIA’s schedule, but FSL might also be charged a higher price than it could obtain from other carriers.

The converse is also true. Transamerica could require the two companies to operate for FSL’s benefit. TIA could be required to give FSL lower rates, thereby unduly strengthening FSL’s position in the competitive market. By giving FSL preference in charter scheduling, maximum benefits would be engendered at the expense of competitors.

The potential integration of TIA-FSL is not without factual support. For example, both before and after the acquisition FSL did business with other subsidiaries of Transamerica. Film given to students by FSL could only be processed by a Transamerica subsidiary. FSL’s student insurance in 1969 was written by Transamerica’s subsidiary Pacific Fidelity Life Insurance Company. The deferred student tuition plan was financed by Transamerica Credit Corporation. Transamerica ran an article about FSL in its employee magazine and transmitted with its quarterly dividend check to its stockholders a small booklet concerning FSL. A television station owned by Transamerica interviewed FSL on its public interview show, and on occasion Transamerica mentioned the name of FSL in its corporate advertising program. Transamerica has advertised FSL in such periodicals as the Wall Street Journal, Time Magazine and Business Week.

Evidence was introduced indicating that, when all other factors are equal, subsidiaries of Transamerica do business with each other. Intersubsidiary cooperation, in fact, is encouraged by the parent corporation. As one Transamerica executive stated in a letter to the officers and directors, “ . . . we are always looking for ways to scratch each other's back.”

The interrelationship between TIA and FSL already has begun. In 1967, the year prior to Transamerica’s acquisition of FSL, TIA operated no FSL flights. In each of 1968 and 1969, TIA operated only one transatlantic round trip flight. In 1970, however, TIA operated 16 of the 65 transatlantic round trip flights. This was a jump from about 1.5 percent in 1968 and 1969 to 25 percent in 1970.

In light of Transameriea’s policy of encouraging its subsidiaries to work together and more specifically, in light of the potential effects of a TIA-FSL tie-in, we believe the Board’s findings of fact were based on substantial evidence and thus we are compelled to affirm its orders.

      . 49 U.S.C. § 1378.

      . 49 U.S.C. § 1378(a)(5).

      . 49 U.S.C. § 1378(a)(6).

      . 408(a) It shall be unlawful unless approved by order of the Board as provided in this section—
      (5) for any air carrier or person controlling an air carrier, any other common carrier, any person engaged in any other phase of aeronautics, or any other person to acquire control of any air carrier in any manner whatsoever . . . ;
      (6) for any air carrier or person controlling an air carrier to acquire control, in any manner whatsoever, of any person engaged in any phase of aeronautics otherwise than as an air carrier.

      . 49 U.S.C. § 1302. Consideration of matters in public interest by Board
      In the exercise and performance of its powers and duties under this chapter, the Board shall consider the following, among other things, as being in the public interest, and in accordance with the public convenience and necessity:
      (a) The encouragement and development of an air-transportation system properly adapted to the present and future needs of the foreign and domestic commerce of the United States, of the Postal Service, and of the national defense;
      (b) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic conditions in, such transportation, and to improve the relations between, and coordinate transportation by, air carriers;
      (c) The promotion of adequate, economical, and efficient service by air carriers at reasonable charges, without unjust discrimination, undue preferences or advantages, or unfair or destructive competitive practices;
      (d) Competition to the extent necessary to assure the sound development of an air-transportation system properly adapted to the needs of the foreign and domestic commerce of the United States, of the Postal Service, and' of the national defense;
      (e) The promotion of safety in air commerce ; and
      (f) The promotion, encouragement, and development of civil aeronautics.

      . 49 U.S.C. § 1384.