Aeron Marine Shipping Co. v. United States

• Decision Date: 21 October 1981
• Docket Number: Civ. A. No. 79-2048.
• Citation: 525 F. Supp. 527
• Parties: AERON MARINE SHIPPING CO., et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants, and American Maritime Association, Defendant-Intervenor.
• Court: U.S. District Court — District of Columbia

525 F. Supp. 527

AERON MARINE SHIPPING CO., et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants, and American Maritime Association, Defendant-Intervenor.

Civ. A. No. 79-2048.

United States District Court, District of Columbia.

October 21, 1981.

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Michael Joseph, Thomas L. Mills, Mark P. Schlefer, Washington, D. C., for plaintiffs.

John O. Birch, Asst. U. S. Atty., Washington, D. C., for defendants.

Joseph Klausner, Allan A. Tuttle, Donald Lofty, Patton, Boggs & Blow, Washington, D. C., for defendant-intervenor.

MEMORANDUM OPINION

NORMA HOLLOWAY JOHNSON, District Judge.

This case presents an issue involving the interaction of certain provisions of the Merchant Marine Act of 1936 (the Act),¹ its 1970 Amendments,² and various Acts which provide preferences for American-flag ships for the carriage of certain cargo.³ Before detailing the procedural posture of the instant litigation, it appears necessary to discuss the major congressional objective of the 1970 Amendments to the Act. To build a strong merchant marine, Congress in 1936 provided for operating differential subsidies (ODS)⁴ for United States-flag, liner vessels. While most foreign trade in 1936 was of a break bulk variety transportable in liner vessels, most foreign trade in 1970 was carried by foreign-flag bulk carriers.⁵ The few existing American bulk carriers were engaged almost exclusively in the carriage of preference cargoes at premium freight rates paid by the government as an indirect subsidy to offset higher United States-flag operating costs. To encourage the operation of American bulk carriers in foreign commercial trade, Congress in the 1970 Amendments extended the ODS to bulk carriers.⁶

One of the issues left unresolved by Congress in the 1970 Amendments was whether subsidized carriers⁷ could carry preference cargoes.⁸ In June 1972, the Maritime Subsidy Board (MSB) concluded that subsidized carriers could participate in the preference trades under certain conditions.⁹ Both the D.C. and Ninth Circuits subsequently upheld the MSB's order, which removed a significant barrier to the entry of subsidized carriers in the preference trades.¹⁰ Nevertheless, other legal requirements had to be satisfied before the MSB would permit a subsidized carrier to enter the preference trades.

On April 18, 1978, Aeron Marine Shipping Co. (Aeron) and five other subsidized bulk contractors¹¹ filed applications with the MSB in which they sought to remove restrictions in their existing ODS agreements barring the carriage of dry bulk preference cargo reserved for United States-flag carriers.¹² After the timely submission of comments by various organizations including the American Maritime Association (AMA), the MSB held an expedited one-day hearing, pursuant to the stipulation of all parties,¹³ under § 605(c) of the Act.¹⁴ On September 8, 1978, the MSB found, inter alia, that § 605(c) was no bar to the carriers' applications because United States-flag service in the bulk preference trades was and would continue to be inadequate and the operation of the applicants' seven vessels would further the accomplishment of the purposes and policy of the Act.¹⁵

Despite clearance of the 605(c) barriers, the applicants still had to satisfy other statutory requirements¹⁶ which were reserved by the MSB in its 605(c) opinion for later consideration.¹⁷ After an initial consideration of these non-605(c) issues, the MSB on March 16, 1979, issued a tentative opinion and order in which it denied all of the applications except those of the two vessels operated by Aeron.¹⁸ In addition, the MSB granted Aeron's application on the condition that Aeron would charge world rates for the carriage of preference cargoes.¹⁹ The MSB then invited comments on the tentative opinion and, following consideration of the comments, issued a final opinion on June 15, 1979, which adopted all the material findings of the tentative opinion.²⁰ Aeron and the five unsuccessful applicants filed suit on August 3, 1979, against the United States, challenging the MSB's authority to exclude five ships from the preference trades and to impose conditions on the rates that the two Aeron vessels could set for the carriage of preference cargoes.

The case is now before the Court on cross-motions for summary judgment. After plaintiffs' cross-motion was filed, AMA, an active participant in all phases of the administrative proceeding underlying the MSB decision, was permitted to intervene in this litigation. AMA then filed a memorandum in support of defendants' motion for summary judgment and in opposition to plaintiffs' cross-motion for summary judgment.

DISCUSSION

I. Standard of Review Under the Administrative Procedure Act

A reviewing court under the APA must set aside agency action found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law," 5 U.S.C. § 706(2)(A) (1976), or contrary to constitutional, statutory, or procedural mandates. See 5 U.S.C. § 706(2)(B), (C), (D) (1976). In two other narrowly defined instances, agency action must be set aside if the court finds that the action was not supported by "substantial evidence," 5 U.S.C. § 706(2)(E) (1976), or if, after a trial de novo, the court concludes the action was "unwarranted by the facts." 5 U.S.C. § 706(2)(F) (1976). The substantial evidence standard applies only to cases where agency action is predicated upon a public adjudicatory hearing (5 U.S.C. §§ 556, 557 (1976)), or where agency action is taken after a rulemaking hearing required by statute (5 U.S.C. § 553 (1976)). See Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971). Neither circumstance applies here. While § 605(c) provides for a "proper hearing," this provision has been interpreted not to require a public, trial-type hearing. See Sea-Land Service v. Connor, 418 F.2d 1142, 1148 (D.C.Cir.1969). See generally United States v. Fla. E. Coast Ry. Co., 410 U.S. 224, 234, 93 S.Ct. 810, 815, 35 L.Ed.2d 223 (1973). As a result, no public adjudicatory hearing was held in the instant case. The Act likewise does not require a rulemaking hearing and such a hearing was not held. Hence, the substantial evidence standard is clearly inapplicable to the instant case.

Generally, the proper standard of review in a direct appeal of a MSB decision on an ODS determination is the "arbitrary, capricious, or abuse of discretion" standard. See Sea-Land Service, Inc. v. Kreps, 566 F.2d 763, 772 (D.C.Cir.1977). The plaintiffs contend, however, that the MSB's decision is subject to de novo review. De novo review is authorized only "when the action is adjudicatory in nature and the agency fact-finding procedures are inadequate ... or when issues that were not before the agency are raised in a proceeding to enforce nonadjudicatory agency action." Overton Park, 401 U.S. at 415, 91 S.Ct. at 823. Because plaintiffs' suit is not designed to enforce agency action, the latter situation is inapplicable to this case. Thus, plaintiffs' contention hinges on meeting the dual requirements that the MSB proceedings were adjudicatory and that the MSB's fact-finding was inadequate.

Plaintiff's argument fails first because the MSB proceedings cannot be characterized as "adjudicatory in nature." The MSB has argued persuasively that when it considers ODS applications, it engages in a legislative function:

This granting of public funds for ODS in an effort to realize a public purpose is clearly a legislative function. We are not determining "rights" or "interests" between parties like the courts would do. We are deciding whether to grant public moneys to private interests to accomplish a public purpose.... We have to look at our national purpose and goals as set out in the statute, and we have to decide not the rights between competing lines ... but rather between the national interest and the individual interest of various U.S. citizens as Congress would do if it had the time.

American President Lines, Ltd., 2 Shipping Reg. Rep. (P&F) 633, 646, 649 (1963). While it is true that the MSB in its ODS proceedings may consider some adjudicative facts,²¹ the predominant consideration in these proceedings is whether granting the ODS fulfills the purposes and policy of the Act. Therefore, the MSB proceedings in the instant case should not be considered "adjudicatory in nature."

Assuming, arguendo, that the MSB proceedings are "adjudicatory in nature," plaintiffs fail to demonstrate that the MSB's fact-finding was inadequate. Plaintiffs contend that the MSB engaged in inadequate fact-finding in determining that Aeron's vessels must carry preference cargoes at world rates. Where no "hearing" of any type is required by statute,²² procedural fairness demands that plaintiffs be informed of the MSB's position on the world rate issue and have an opportunity to respond to MSB's contentions before the issuance of a final determination on the issue. See Moore-McCormack Lines, Inc. v. United States, 413 F.2d 568, 584-85 (Ct.Cl.1969). These procedural prerequisites were satisfied in the instant case. After the MSB issued its tentative opinion in which it fully discussed its reasoning for requiring world rates, see Defendant's Exhibit No. 1, supra at 19-22, the MSB afforded all of the interested parties an opportunity, which the plaintiffs exercised, to comment on the tentative opinion. As the MSB's final opinion indicates, see Defendant's Exhibit No. 2, supra at 10-12, the MSB fully considered plaintiffs' arguments in reaching its final determination. Moreover, the conclusion that the MSB engaged in adequate fact-finding is enforced by the plaintiffs' concession that "the fundamental arguments contained in their affidavits²³ were presented to the Board and fully considered in its Final Decision." Hence, even the extra record materials submitted by the plaintiffs...