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In his testimony, Commissioner Eastman suggested that paragraph (m) might lead to some conflict or confusion as between the Postmaster General and the Commission. Since the Commission merely determines whether a new mail service would impair the ability of an existing carrier to continue in business, and does not pass upon the problems having to do exclusively with the needs of the Postal Service, I do not quite see how there can be any particular conflict.

The Postmaster General is the customer and determines the question of the need of new mail service from the standpoint of the customer.

The Commission looks merely to the economic consequences upon the industry, and so long as those consequences would not be disastrous to an existing carrier, then it must see to it that the service sought by the Postmaster General is authorized.

What Mr. Eastman suggested was the possibility that paragraph (m) of section 305 might be eliminated. In his letter to the committee, he pointed out that without this paragraph the bill permits any air carrier to apply at any time for a new certificate, or an amendment to an existing certificate, authorizing a new mail service, and the suggestion was that this is sufficient to the needs of the Postal Service. Such a change would amount to an adoption of what I have described as the third possible method of dealing with the question of authorizing mail carriers.

Mr. MARTIN. You are arriving now at the third method ?
Mr. GORRELL. Yes, sir.

Mr. MARTIN. I would like to ask a question before you proceed with that.

As I understand, the first method would be that all carriers receiving certificates would be thereby qualified for the carriage of the mails,

Mr. GORRELL. Yes, sir.
Mr. MARTIN. The second is the "grandfather clause."
Mr. GORRELL. Yes, sir.

Mr. MARTIN. That would give advantage to existing carriers now in the mail service, would it not?

Mr. GORRELL. I would not call it an advantage; I would call it continuing the rights that they now have. For example, at the present time they have indefinite contracts, which they would have canceled if this bill becomes law. - Mr. MARTIN. Well, this is a question somewhat analogous to the question I asked yesterday about the apparent interest of your association in and for legislation which would create competition.

It appears that the same situation would be presented in your favoring the first method. That is, that all carriers who are granted certificates are to be thereby qualified to carry the mail, and it looks to me, if the grandfather clause is adopted, the air interests that you represent would have the advantage. They already have it, and their monopoly of the air Mail Service would be perpetuated.

Mr. GORRELL. Sir, I did not favor the first method. I objections to the first method.

Í expressed a preference for the second method for a number of reasons which I expect to cover when I come to the question of the “grandfather” clause. The first is a constitutional reason. There is, I suppose, a legal reason for a grandfather clause. It avoids, I

gave certain

suppose, constitutional doubts. If a carrier has invested large sums and has built up a going business, it is at least questionable how far that business and investment may be disrupted by a new law providing for certificates where none were required before. To avoid that question, a grandfather clause takes the existing business and transposes it to the new system by certificates which automatically authorize a continuance of what was done in the past. I doubt very much if the Congress could take the contracts away from the existing contractors and not give anything in return for them.

Second, there is the moral and economical side. Air contractors have invested approximately $125,000,000 and lost about $60,000,000 of it in building up the business. They are in existence at this particular minute, to a certain degree, because of the mail. Just because it is proposed to turn over the economic regulation of the air lines to another governmental department, would seem to be no reason for destroying their present status as mail carriers. The disastrous effect upon their investment would be almost immeasurable. Such a policy would, in effect, penalize a carrier for having pioneered a service. The very fact that the service has been established should be enough guaranty of the public convenience and necessity to warrant its continuance.

Mr. ELLENBOGEN. Mr. Chairman-
The CHAIRMAN. Mr. Ellenbogen.

Mr. ELLENBOGEN. The contracts now in question are continuous, are they not?

Mr. ĜORRELL. They are.

Mr. ELLENBOGEN. The Post Office Department has authority to cancel them.

Mr. GORRELL. They do, for certain reasons of cause.
Mr. ELLENBOGEN. Well, they have the power to terminate them.
Mr. GORRELL. For reasons of cause; yes.

Mr. ELLENBOGEN. I do not see how you can bring in the Constitutional question. The Government surely has the right to discontinue the contracts. The contracts are not perpetual.

Mr. GORRELL. That is perfectly true, and for certain reasons they can discontinue them; but if you are going to continue the type of service, the persons with whom the contracts now exist are understood by the contractors to be the ones to carry on that service.

For cause, the Government could terminate the domestic contracts and give the service to somebody else. That was done once before with domestic air-mail contracts.

Mr. ELLENBOGEN. You do not mean to say that the Post Office Department could not at any time terminate those contracts?

Mr. GORRELL. They could under certain conditions; yes, sir.

Mr. ELLENBOGEN. So the constitutional question does not arise, does it?

Mr. GORRELL. I think it does. I think that if the air-mail service to the public were discontinued, if you were to have no more air-mail service in the United States, that the Government could cancel the domestic contracts, or if some carrier violated its contract, the Government could cancel it, as was the case in 1934, when there were allegation of collusion and fraud. The Government canceled them then.

Mr. ELLENBOGEN. Do you mean to say that the Government has perpetually tied its hands to continue these contracts?

Mr. GORRELL. No, sir; not by any means.

Mr. ELLENBOGEN. Without cause, the Government can change its policy?

Mr. GORRELL. It could, sir.
Mr. ELLENBOGEN. I think, Mr. Chairman, that is very important.

If you claim that the carriers now carrying the mail have a perpetual franchise

Mr. GORRELL. That is quite a different question.
Mr. ELLENBOGEN. You do not claim that?
Mr. GORRELL. No, sir. They have an indefinite contract.
Mr. ELLENBOGEN. Subject to cancelation.

Mr. GORRELL. But, for reasons I have given-in the contract, sir. The contract specifies, within itself, reasons for cancelation.

Mr. ELLENBOGEN. Well, are they not renewable from time to time?

Mr. GORRELL. There are two types of domestic contracts. One is the type of contract that had an initial period of 1 year, and another is the type of contract that had an initial period of 3 years. At the end of that period of time, the mail rates specified in the contract, are superseded by rates to be fixed by the Interstate Commerce Commission instead of the actual bid rate.

Mr. ELLENBOGEN. The contract does not specify the price of the contract?

Mr. GORRELL. Sir?

Mr. ELLENBOGEN. The contract does not specify the price in the contract; then, it is not a contract, because it lacks one of the essential elements of a contract.

STATEMENT OF HOWARD C. WESTWOOD, COUNSEL, AIR TRANS

PORT ASSOCIATION OF AMERICA, WASHINGTON, D. C.

Mr. WESTWOOD. May I possibly clear up one point there, Mr. Congressman?

Mr. ELLENBOGEN: Yes.

Mr. WESTWOOD. In the Air Mail Act, as amended by the 1935 amendment

The CHAIRMAN. Will you state your name?

Mr. WESTWOOD. Howard C. Westwood. I am acting as counsel to the Air Transport Association.

In the amendment it was provided, in the 1935 amendment, that all contracts entered into either under the 1934 act itself or under the act as thereafter amended by the 1935 act-might be indefinitely extended after the expiration of the initial period that Colonel Gorrell has mentioned.

That is, the period of 1 year, or the period of 3 years, as the case might be.

Now, there was no obligation upon the Postmaster General, by virtue of that statute, to extend any contracts, as I understand it.

Nevertheless, it was provided that if service during the initial period had been satisfactory, the contract might be indefinitely extended.

Then, as I understand the law, it was provided that, by mutual agreement between the carrier and the Postmaster General, the con

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tracts thereafter-after the initial period, if indefinitely extendedmight at any moment be canceled by such mutual agreement.

It was likewise provided, upon notice and hearing, that the Interstate Commerce Commission itself, apparently–regardless of the consent of the carrier—could cancel the contract which had been indefinitely extended.

Now, as to the question of the rates applicable, the rate of compensation applicable-although there might be some uncertainty about the law-I believe it has been administered in this way: The original bid which had been accepted, when the contract was let, would govern the compensation during the initial period of the contract. When and if the contract was extended, the rate of compensation should thereafter be fixed by the Interstate Commerce Commission.

Consequently, from the time of the extension of the initial contract on, the matter as to compensation was under the regulation of the Commission; and apparently the only situation where a complete cancelation of the right to carry the mail could occur, except by mutual agreement, would be after notice and hearing, and after action by the Interstate Commerce Commission.

Now, the question raised has never been passed upon, of course, by a court as to what might furnish cause for cancelation.

We know only what the words of the statute provide, and I think that it was that point which the colonel mentioned.

Mr. ELLENBOGEN. Under this section, in your opinion, could the Department divide the mail, on the same route on which it is now being carried by an existing carrier, with another carrier?

Mr. WESTWOOD. Under the existing situation!
Mr. ELLENBOGEN. Yes.
Mr. WESTWOOD. I think that is possible.
Mr. ELLENBOGEN. You think that is possible!
Mr. WESTWOOD. Yes.

Mr. ELLENBOGEN. In other words, there is no constitutional question involved ? Mr. WESTWOOD. No; that seems to me not to follow.

If the Government were simply to deny completely to an existing carrier the privilege of mail carriage

Mr. ELLENBOGEN (interposing). Well, that has not been proposed.

The proposal is made another carrier on that route be given the privilege. That would not affect the contractor's rights. ..Mr. WESTWOOD. I doubt very much that that would raise a question, and the Colonel did not suggest that.

Mr. ELLENBOGEN. Yes; he did, as I understood it. Of course, there is no proposal to cancel those contracts. The first method has been considered—I would not want to say proposed—but, if they were given the privilege of carrying the mail

Mr. WESTWOOD. Well, I did not understand the Colonel to suggest that, if the first method were adopted, the first of the two methods that he outlined, that a constitutional question would arise. I think that what the colonel suggested was that, generally speaking, the reason for having a "grandfather” clause, not only with respect to mail, but also with respect to the carriage of other classes of traffic, has to do with constitutional considerations. In connection with

the regulation of motor busses, or any other industry, there is always a "grandfather" clause.

Now, generally speaking, the reason underlying a “grandfather" clause, I think, may well be described as a reason having some relation to consideration of constitutionality as well as to considerations of the economic good of the industry.

But I do not believe that the colonel suggested at all that the difference between the first method of carrying the mail and the second method of authorizing mail service was one which should be influenced by constitutional considerations.

Mr. ELLENBOGEN. Then, in your opinion, the Congress may choose any of the three methods proposed ?

Mr. WESTWOOD. Yes, sir.
Mr. ELLENBOGEN. Without raising any legal question?
Mr. WESTWOOD. Oh, yes, sir; I think that is true.

Mr. MARTIN. Since you are discussing that question, I would like to ask one more question.

Mr. ELLENBOGEN. I believe that is contrary to what the colonel said.

Mr. WESTWOOD. I do not believe it is. I have never so advised him, and I do not believe that he said anything to the contrary.

Mr. ELLENBOGEN. I would like to know what he meant by the constitutional question.

Mr. GORRELL. I was attempting to refer to the question of the "grandfather" clause, and not the other method, because

Mr. ELLENBOGEN (interposing). What raises the constit ional question?

Mr. GORRELL. I thought, sir, that the language of the "grandfather” clause in transforming a system of contracts into a system of necessity and convenience, might raise the question.

Mr. ELLENBOGEN. And you positively state that it does not?
Mr. WESTWOOD. No.

Mr. ELLENBOGEN. I would like to ask if you withdraw that statement.

Mr. GORRELL. Well

Mr. WESTWOOD. I did not understand him to say that. I understood him to say the same thing as I said.

Mr. ELLENBOGEN. Then I do not understand either one of you.

He said that Congress is free to choose any of the methods proposed

Mr. WESTWOOD. That is perfectly true; Congress is free.
Mr. ELLENBOGEN. Where is the constitutional question raised?

I think that is important to the committee. If there are any rights to be violated, I want to know it.

Mr. WESTWOOD. May I answer the question, Mr. Congressman? Mr. ELLENBOGEN. Yes.

Mr. WESTWOOD. I think that the only constitutional question that would arise would be in this event: If the first method that the Colonel mentioned were to be adopted, without there being in the law any “grandfather” clause, then I think a very serious constitutional question might arise.

Mr. ELLENBOGEN. You do not mean a constitutional question; you mean a question of the violation of contract, which has nothing to do with the Constitution. Claims might arise by virtue of a breach of

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