FARRELL LINES INCORPORATED v. United States, 42-72.

• Decision Date: 19 June 1974
• Docket Number: No. 42-72.,42-72.
• Citation: 499 F.2d 587,204 Ct. Cl. 482
• Parties: FARRELL LINES INCORPORATED v. The UNITED STATES.
• Court: U.S. Claims Court

204 Ct. Cl. 482, 499 F.2d 587 (1974)

FARRELL LINES INCORPORATED^* v. The UNITED STATES.

No. 42-72.

United States Court of Claims.

June 19, 1974.

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T. S. L. Perlman, Washington, D. C., attorney of record, for plaintiff. Richard S. Salzman and Kominers, Fort, Schlefer & Boyer, Washington, D. C., of counsel.

Edward J. Friedlander, Washington, D. C., with whom was Acting Asst. Atty. Gen., Irving Jaffe, for defendant.

Before COWEN, Chief Judge, and KUNZIG and BENNETT, Judges.

ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT OR TO REMAND AND PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

COWEN, Chief Judge:

Farrell Lines, Inc. contracted with the United States to provide shipping service on essential foreign trade routes for a period of 20 years starting on January 1, 1958. Under the contract, the Government was required to pay an operating-differential subsidy. The Maritime Subsidy Board of the Maritime Administration decided that plaintiff's payments to its employees' training funds and plaintiff's costs (in wages and fund contributions) for the cadets or apprentices aboard its ships as a part of a private training program are ineligible for subsidy.¹ The Board's decisions were affirmed by the Secretary of Commerce. In this action, plaintiff contends that the Board's determination violates the language of the contract and the policy of the Merchant Marine Act of 1936, 49 Stat. 1985, as amended, 46 U.S.C. §§ 1101-1294 (Supp. V, 1969).² The Government argues that the Board's action was a proper exercise of its statutory responsibility and that the case should be returned to the Board for further examination in the event we conclude that the costs in question are eligible for subsidy. The case is properly before us on cross-motions for summary judgment because there are no material issues of fact. We hold that the Board's finding of ineligibility is erroneous as a matter of law, but we remand the case for additional determinations yet to be made by the agency.

I Background of the Training Payment Controversy

The request for subsidy payments at issue here arises from technological advancements in the shipping industry and the corresponding changes in collective bargaining agreements. In the 1960's, the advent of modern mechanically complex ships with labor-saving automation brought about both a reduction in crew size on the new ships and a need for technically knowledgeable and skilled personnel. Recognizing both a threat and an opportunity in these new developments, the seafarers' labor unions introduced the subject of employer support for training into collective bargaining negotiations.

As early as the 1958 bargaining round, the radio officers' unions sought and obtained additional support for training by means of an agreement to permit the unions' welfare funds to bear the cost. The agreement provided for no increase in the employer's contributions to this fund; the cost of the training programs was, in effect, borne by the union members through the use of moneys of the Welfare Fund that would otherwise have been available to them for insurance, medical, or other benefits. Later, the radio unions bargained successfully for a five percent wage increase for graduates of the training programs, their new skills being valuable to the owners.

In 1963, the engineer officers' union, the National Marine Engineers Beneficial Association (MEBA), agreed with the owners to take part of a three and one-half percent wage increase (obtained two years earlier after a strike that caused a national emergency) in the form of increased contributions to the MEBA's Welfare Fund. By agreement between the employers and the union, the welfare trustee then used a portion of the augmented fund to set up and support training for union engineers to "upgrade" their licenses and to learn welding and electricity.

In 1965, the National Maritime Union (NMU) bargained for and received employer contributions of $.25 a day for each NMU crew member employed to compensate for the reduction in the size of the unlicensed crew. With this fund, designated as an "automation fund," the trustees of the NMU's Welfare Funds were authorized to establish a school.³ Unlike the previous instances, this fund consisted of a contribution of "new money" by the owners in support of training.

The 1965 contract renewals for the MEBA, Masters, Mates and Pilots Union (MM&P), and the American Radio Association were achieved only after a 77-day strike — the longest strike in the history of the offshore shipping industry. The owners sought firm agreement on lesser manning; the officers sought higher wages on the new ships and training for handling them at the owner's expense. The dispute was settled only after bitter bargaining under pressure for settlement from Government officials, up to and including President Johnson.

In the resulting settlement, the training issue for the MEBA was resolved by requiring the subsidized employers to maintain a training program for engineers assigned to automated ships and to pay a premium in wages for these trained engineers. The MM&P did not win their demands for training costs because the arbiter, Professor Walter Gellhorn, held that, although training for deck officers was desirable, it was not essential. The MM&P then elected to allocate part of one of its annual wage increases to a training program.⁴

With the advent of a heavy sealift to Vietnam in 1966, the Government's employment of ships from the reserve fleet caused a shortage of seamen; sailings were delayed and ships sailed shorthanded. See Maritime Manpower Shortage, Hearings Before the Special House Subcomm. on Maritime Education and Training of the Comm. on Merchant Marine and Fisheries, 89th Cong., 2d Sess. 129-30 (1966). To help alleviate the shortage, a joint industry-union school was established by MEBA to train engineers for automated ships and to offer an accelerated course for new men seeking to become engineers. The course included on-the-job training through service of apprentice or cadet engineers in vacant engineers' positions on working ships. The school was financed in part by increased employer contributions to the MEBA training fund, in part by engineers foregoing part of a wage increase, and in part by paying the apprentice engineers a low wage (and contributing to the training fund the difference between that pay and the wages of the regular engineers). In 1966, the Radio Officers Union established a similar apprenticeship program, financing it by reduced contributions to its welfare fund and replenishing the fund by the difference between the regular wage scale and the reduced wage of the apprentice radio officers. Plaintiff was a party to all these collective bargaining agreements and trusts, as were scores of other shipping companies, subsidized and unsubsidized.

In accordance with Circular Letter No. 8-60 issued in 1960, the operators were required to submit a justification for increases approved and concessions made by them in collective bargaining agreements. Plaintiff submitted requests for the payments in issue, and they were denied by the Subsidy Board and the Secretary of Commerce. The contributions to training funds, designated as Count I, and apprentices costs in wages and fund contributions, designated as Count II, were treated in several actions before the Subsidy Board.

In dealing with Count I, the Subsidy Board, on July 13, 1965, declared that contributions to the MEBA Welfare Fund to be used for training (Docket No. A-14) and contributions to the NMU's "automation fund" (Docket No. A-15) were ineligible for subsidy. The Subsidy Board based its decision on the fact that the specific use of the fund was not certain and upon its finding that the employer contributions to these funds were not "wages" within Section 603(b) of the 1936 Act. On appeal, the Secretary of Commerce affirmed the Board's decision as to the MEBA training fund contributions and the MNU "automation fund" costs. The Secretary further held, however, that the disallowances in Docket A-14 could be reconsidered by the Subsidy Board along with other aspects of the Board's decision that were reversed.

On December 17, 1965, the Subsidy Board reaffirmed its prior position on the MEBA Welfare Fund contributions and the NMU's "automation fund." At that time, the Subsidy Board's action also included a determination affecting plaintiff that was not mentioned in the prior series "A" decisions. The Board found that the 1961 and 1964 agreements with the Radio Officers Union (ROU) were ineligible for subsidy, because they were not within the definition of "wages" under section 603(b) as interpreted in the Manual of General Procedures for Determining Operating-Differential Subsidy Rates (hereinafter sometimes referred to as Manual).

On December 27, 1965, plaintiff filed a general petition for reconsideration with the Subsidy Board. Plaintiff also submitted additional information in 1966 and 1967 to the Board concerning the MEBA, NMU, and ROU plans. On February 20, 1969, the Subsidy Board found the MEBA training fund costs ineligible for subsidy and issued a lengthy opinion, entitled Docket No. A-36, stating its reasons and conclusions. For the first time, the Board held that such expenses were ineligible for subsidy because of the provisions of Section 216 of the Merchant Marine Act.⁵ In a summary paragraph of Docket No. A-36, the Board stated:

Based on the foregoing, it is the opinion of this Board that the contributions in question are neither "wages" nor "other items of expense" eligible for subsidy participation in keeping with the provisions of the "Manual" and consonant with long-established precedent on this subject by this Board and its predecessor agency, the Federal Maritime Board. Further, in keeping with the Merchant Marine Act of 1936, as amended, the Congress has made specific provisions for training under Section 216

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