877 F.2d 540 (7th Cir. 1989), 88-3034, City of Milwaukee v. Yeutter

Docket Nº:88-3034, 88-3198 and 88-3213.
Citation:877 F.2d 540
Party Name:CITY OF MILWAUKEE, et al., Plaintiffs-Appellees/Cross-Appellants, v. Clayton K. YEUTTER, Secretary of Agriculture, et al., Defendants-Appellants/Cross-Appellees.
Case Date:June 08, 1989
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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877 F.2d 540 (7th Cir. 1989)

CITY OF MILWAUKEE, et al., Plaintiffs-Appellees/Cross-Appellants,


Clayton K. YEUTTER, Secretary of Agriculture, et al.,


Nos. 88-3034, 88-3198 and 88-3213.

United States Court of Appeals, Seventh Circuit

June 8, 1989

Argued March 30, 1989.

Grant F. Langley, Vincent D. Moschella, Office of the City Atty., Milwaukee, Wis., Robert E. Jensen, George D. Baker and John J. McMackin, Jr., Williams & Jensen, P.C., Washington, D.C., for plaintiffs-appellees/cross-appellants.

Mark W. Pennak, Leonard Schaitman, Dennis G. Linder, Sandra M. Schraibman, Dept. of Justice, Civ. Div., Appellate Section, Washington, D.C., Ann M. Kisting, Asst. U.S. Atty., Milwaukee, Wis., for defendants-appellants/cross-appellees.

Jonathan Blank, Allen Erenbaum, Preston, Thorgrimson, Ellis & Holman, Washington, D.C., for intervenors.

Before EASTERBROOK and RIPPLE, Circuit Judges, and HENLEY, Senior Circuit Judge. [*]

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EASTERBROOK, Circuit Judge.

Several federal programs provide free or subsidized food for nations in need. American vessels get a preference in transporting the food:

[T]he appropriate agency or agencies shall take such steps as may be necessary and practicable to assure that at least per centum of the gross tonnage ... which may be transported on ocean vessels shall be transported on privately owned United States-flag commercial vessels, to the extent such vessels are available at fair and reasonable rates for United States-flag commercial vessels, in such manner as will insure a fair and reasonable participation of United States-flag commercial vessels in such cargoes by geographic areas....

46 U.S.C.App. Sec. 1241(b)(1), as modified by 46 U.S.C.App. Sec. 1241f(a)(1). Our case involves the application of this rule to food bought and shipped by the federal government under Title II of the Agriculture Trade Development and Assistance Act of 1954, 7 U.S.C. Secs. 1721-1726, known popularly as the Food for Peace program and within the shipping business as the Title II or P.L. 480 program.

Much of the food suitable for this program is grown in or near the midwest and could be exported from ports on the Great Lakes. Modern U.S.-flag ships suitable for this trade can't squeeze through the Welland Canal, however, and therefore cannot operate above Lake Ontario. Foreign-flag vessels accordingly dominate ocean commerce at upper Great Lakes ports. The cities and labor unions who filed this suit want the government to export more commodities on foreign vessels through the upper Great Lakes. The district court originally dismissed the suit for want of standing, 634 F.Supp. 760 (E.D.Wis.1986), but we directed it to decide the case on the merits, 823 F.2d 1158 (7th Cir.1987).

Any rule using a percentage requires definition of the denominator. Seventy-five percent of which shipments, from which ports, over what period of time? The federal agencies responsible for buying and shipping food under the P.L. 480 program--the Agency for International Development (AID) and the Commodity Credit Corporation (CCC), operating under regulations promulgated by the Maritime Administration (MarAd) of the Department of Transportation--chose one year as the accounting period, without protest. They chose the entire nation as the geographic basis. Computing the percentage port-by-port, or by range of ports (Gulf Coast, East Coast, West Coast, and Great Lakes), could lead to substantial deviation from the 75% figure for the nation as a whole. Selecting the nation as the base means that Great Lakes ports cannot load more than 25% of the cargo, and as a practical matter they handle much less. The locks are frozen for four months; more, under a nationwide accounting system every shipment on a foreign-flag vessel from a coastal port reduces the maximum that can be exported via the Great Lakes.

The City of Milwaukee and the other 17 plaintiffs (collectively Milwaukee) asked the district court to direct the federal agencies to compute percentages by port. They maintain that if grain appears in Milwaukee for export, it may go on a foreign-flag vessel because no U.S.-flag vessel is available at any price, let alone a "reasonable" one. If grain appears in Baltimore, 75% of it must go on domestic vessels available at prices reasonable "for United States-flag commercial vessels". That the share of U.S.-flag vessels in total exports under Milwaukee's approach would be less than 75% is, as Milwaukee sees things, simply a consequence of the requirement that U.S.-flag vessels be available at reasonable prices where the cargo is. If U.S.-flag carriers want to carry midwestern grain, they have only to come and get it.

But of course grain doesn't just appear at dockside. Somebody sends it there. "Somebody" turns out to be the Kansas City Commodity Office (KCCO) of the Department of Agriculture's Agricultural Stabilization and Conservation Service, which when informed by AID of the need (and appropriations) buys the food, gets it to a port, and pays for ocean transportation. Until 1987 the KCCO decided what to buy

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and which port to use by a formula called "lowest landed cost". 7 C.F.R. Sec. 1496.5 (1985). If AID wanted to give 100 tons of corn to Pakistan, KCCO would take bids on a package of corn, inland transportation, and ocean transportation. Grain merchants such as Cargill would find the combination that produced the lowest cost as delivered ("landed") in the port of destination. On a given shipment this might mean buying the corn in Illinois, shipping it by rail to Milwaukee, and using a foreign vessel out the Great Lakes, through the Panama Canal, thence to Pakistan. Or it could mean buying corn farther west, rail to the West Coast, and U.S.-flag vessels to Pakistan.

This method would have minimized costs if there were no cargo preference. But if the bid assumed shipment on foreign vessels from a coastal port, U.S.-flag vessels might be available there at the same time. Transferring the shipment to satisfy the preference could increase the cost over what it would have been had the food been purchased elsewhere and shipped through a different port. Consistent application of the lowest landed cost method also could send so much food to ports with few U.S.-flag vessels that the agencies could not meet the domestic preference--at least not if the preference were administered nationally.

In August and September 1985 the KCCO diverted cargo from the Great Lakes (to which it had been assigned under the lowest landed cost formula) to coastal ports to satisfy the U.S.-flag quota. The Food for Peace program directed extra supplies to Africa to cope with a famine in 1985, and because few U.S.-flag vessels serve that continent most of the traffic went on foreign bottoms. Thus the need for extra U.S.-flag shipments. These diversions precipitated this suit.

Before the district court could render a decision, both Congress and the federal agencies changed the rules. In December 1985 Congress enacted 46 U.S.C.App. Sec. 1241f which, among other things, raised the domestic preference from 50% to 75%. Because the increase would affect Great Lakes ports adversely, Congress gave them a grandfather clause:

[T]he Secretary of Transportation, in administering this subsection and section 1241(b) of this title ... shall take such steps as may be necessary and practicable without detriment to any port range to preserve during calendar years 1986, 1987, 1988, and 1989 the percentage share, or metric tonnage of bagged, processed, or fortified commodities, whichever is lower, experienced in calendar year 1984 as determined by the Secretary of Agriculture, of waterborne cargoes exported from Great Lake ports pursuant to title II of the Agricultural Trade Development and Assistance Act of 1954.

46 U.S.C.App. Sec. 1241f(c)(2)(B). It added for good measure a change in the accounting year. Early in the year is the "best" time for shipments on foreign vessels, because the KCCO does not feel pressure to "make the quota"; in the fall, however, the KCCO may divert shipments so that things come out right. Great Lakes ports are closed at the beginning of the calendar year and open when the KCCO may be diverting traffic. Thus the impetus for a different accounting year: Instead of being coterminous with the calendar year, the accounting year now starts on April 1, when Great Lakes ports open for business. 46 U.S.C.App. Sec. 1241f(c)(2)(A).

In February 1987 MarAd changed the rules under which KCCO evaluates bids. 52 Fed.Reg. 5726, 5729 (1987), 7 C.F.R. Sec. 1496.5 (1988). These regulations require KCCO first to "calculate the lowest landed cost using only higher-priced United States-flag ship rates for the portion of its commodities that it believes is necessary to meet its obligations under the act on a nationwide basis", 823 F.2d at 1162, and then allow full competition between U.S. and foreign-flag vessels for the rest. In other words, the regulations segment the market. KCCO requires its bidders to use only U.S.-flag rates when making bids for 75% of the exports, and it allows bids based on lowest available cost for the remaining 25%. It gave this rationale for the new system:

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In most cases, [the prior method] resulted in commodities being procured and allocated to ports (or port ranges) on the basis of foreign flag vessel rates since these rates are often lower than U.S. flag rates. Foreign flag and U.S. flag vessels are then contracted to carry portions or all of the cargoes allocated to these ports (or port ranges). Generally, cargo preference requirements have been met by contracting with U.S. flag vessels calling at these ports. On occasion this practice results in higher expenditures for U.S. flag carriage than is necessary to comply with cargo preference because commodities allocated on an LLC basis may not have been allocated to...

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