Hughes Tool Co. v. Trans World Airlines, Inc.

PETITIONER: Hughes Tool Co.
RESPONDENT: Trans World Airlines, Inc.
LOCATION: Longshore and Warehouse Union

DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 380 US 248 (1965)
ARGUED: Mar 03, 1965
DECIDED: Mar 08, 1965

Facts of the case


Media for Hughes Tool Co. v. Trans World Airlines, Inc.

Audio Transcription for Oral Argument - March 03, 1965 in Hughes Tool Co. v. Trans World Airlines, Inc.

Earl Warren:

Number 443, Hughes Tool Company et al., Petitioner, versus Trans World Airlines Incorporated.

Mr. Davis.

Chester C. Davis:

Mr. Chief Justice, may it please the Court.

I'm Chester Davis, counsel of the Hughes Tool Company and I've lived three-and-a-half years with this case now and I cannot tell you how much I appreciate this opportunity to address to Court with respect to the issue which it involved.

Number 443 and 501 which is on the counter nearly following this one are really companion cases.

It's only from certiorari granted to the Second Circuit, 443 involved the compliant, 501 involved the counterclaims.

The issue in 443 is whether the District Court had a jurisdiction under the antitrust laws, there were no diversity of citizenship, that's the only basis for jurisdiction, of a complaint by TWA against its 78% stockholder, the Hughes Tool Company, the complaint which was filed by a new lender controlled management who had acquired control of TWA by insisting upon a voting trust as a condition to making certain senior financing available to TWA in 1960 for the purpose of financing some jet aircraft and who insisted about a 22% premium as a condition to a repayment of those advances.

And that is -- that involved the issues in 501.

Now, in order to appreciate the legal questions which are here involve, I think it would be helpful to the Court if I would take a little time to describe the origin of this -- of relationship between Toolco, Hughes Tool Company, we refer in the record as Toolco and TWA.

In 1944 the CAB under the Federal Aviation Act, better known as Civil Aeronautics Act, review the origin of the interest of the Hughes or Mr. Hughes in a Hughes Tool Company and TWA and found that that because as a result of invitation by the then president TWA, Frey inviting Mr. Hughes to develop an interest in the airline which has been unquestionably a sick airline.

And Mr. Hughes develop an interest in the development of the Constellation aircraft by Lockheed and as a result of that, I'm referring to now what the CAB found in 1945, found that that since the Tool Company had placed the orders for these Lockheed Constellations for the benefit of TWA with the intent of assigning those aircraft of TWA, the Tool Company even though primarily engaged in providing drilling press to the oil business was to be regarded as a person engaged in the phase of aeronautics within the meaning of Section 408 and as a “dealer” in aircraft.

And therefore had a public hearing under 408 to determine whether or not that relationship, at that time, the Tool Company had approximately 45% of the outstanding capital stock of TWA and therefore was a controlling stockholder of TWA, whether or not that relationship was permissible under the standards of Federal Aviation Act pursuant to 408.

It held hearings and it concluded in that it was in the public interest.

In so doing, it said, I'm referring now to what appeared in 68 (b) at 156, it's also referred to in the footnote of our main brief at page 13, that the obvious if not the expressed purpose of these arrangements was to give TWA the benefit of the credit and financial standing of Hughes Tool any transaction involving substantial financial responsibility.

At that time, however, the CAB was aware of the duty that the Congress have placed upon it and to reconcile the public interest involved by antitrust laws and the public interest involved under the Federal Aviation Act.

We were all aware of the fact that prior to 1934, there was, if I may describe, the scandalous situation in existence where aircraft manufacturers were in control of commercial airlines, and in the Air Mail Act of 1934, there was flat provision against it, the continuation of that relationship between an aircraft manufacturer supply of aircraft in an airline.

Following the recommendation of Federal Aviation Commission, the Congress the adopted the regulatory approach and passed Civil Aeronautics Act of 1938, the Federal Aviation Act of 1950 are identical for the purposes of consideration here.

Namely, to place the control relationship of a person engaged in the phase of aeronautics with an airline under the regulatory regime of the CAB and if approved by the CAB, the exemptions of 414 are triggered in those exempts the person who is subject to a CAB order from all of the antitrust laws or any other law applicable.

Now, in view of that responsibility and based upon the recommendation of Department of Justice and the public counsel in 1945, what the CAB did was to impose a condition upon that relationship.

It prohibited any transaction in excess of $200 between the Tool Company and TWA without obtaining further CAB approval.

That was the way in which CAB intended it to regulate and control the relationship created between someone it's found to be engaged in the phase of aeronautics and the airline.

It is not disputed that each and every subsequent transaction between the Tool Company and TWA, rendering financial assistance of providing or furnishing aircraft was submitted to CAB and was specifically approved by the CAB under Section 408.

In 1947, after some of -- business -- the business was given.

TWA was in need of additional funds and the Tool Company provided it with it a loan of $10 million with an agreement that it was to have a majority of the board of TWA, and also which provided that additional acquisition of equipment by TWA was to be approved by the Hughes Tool Company.

They want to control the condition of making this $10 million available.

The $10 million loan was also convertible and if converted, it would have given Tool Company in excess of 70% of the outstanding stock.

The CAB, on its own initiative, started another set of hearings in 1950 by reason of what they referred to this further control relationship between the Hughes Tool Company and TWA.

At that time, both public counsel contended and the examiner held that it would -- it would be necessary to review the entire relationship, the matter in which assistance have theretofore being given and the way to describe in all aspect of matters relating to financing, management, related activities and particularly with the respect to equipment acquisition.

The examiner stated in effect this requires an examination of the activities of the controlling corporation with respect to TWA for the period during which the prior approved control existed.

It also justified having another public hearing on the ground that that under this new agreement, a control relationship has been established with the control company, that is TWA, which formally responded to orders from one person with the assistance from others by proxy having only 45% of the outstanding stock, now responds or may respond to one person at its sole instance.