Dichman, Wright & Pugh, Inc. v. United States

• Decision Date: 29 September 1956
• Citation: 144 F. Supp. 922
• Parties: DICHMAN, WRIGHT & PUGH, Inc., Libelant, v. UNITED STATES of America, Respondent.
• Court: U.S. District Court — Southern District of New York

144 F. Supp. 922

DICHMAN, WRIGHT & PUGH, Inc., Libelant, v. UNITED STATES of America, Respondent.

United States District Court S. D. New York.

September 29, 1956.

Hill, Betts & Nash, New York City, Kominers & Fort, Washington, D. C., for libelant. J. Franklin Fort, Washington, D. C., Edwin Longcope, New York City, John Cunningham, Israel Convisser, Washington, D. C., of counsel.

Paul W. Williams, U. S. Atty., New York City, for respondent. Leavenworth Colby, Chief, Admiralty & Shipping Section, Dept. of Justice, Benjamin H. Berman, Attorney in Charge, New York Office Admiralty & Shipping Section, Dept. of Justice, Washington, D. C., of counsel.

DIMOCK, District Judge.

This is a suit in admiralty to recover amounts of charter hire which libelant claims to have overpaid. Three "causes of action" are set forth in the libel but the first and third have been held to be time barred. Respondent United States, the shipowner, excepts to the second on the ground of insufficiency.

Libelant seeks to recover amounts paid, under a sliding scale of "additional charter hire" set forth in the charter party, insofar as they exceed 50% of so much of its profits as exceed 10% on the capital employed in the operation of the ships. It cites in support of its claim section 709(a) of the Merchant Marine Act of 1936, as amended, 49 Stat. 1985, 46 U.S. C. § 1101 et seq., which is copied in the margin¹. The sliding scale in the charter party, in clause 13, copied in the margin², begins by providing for payment to respondent of 50% of the profits over 10%, just as does section 709(a), but the charter party maintains that rate only so long as the profits do not exceed $100 per day. Insofar as they do exceed $100 per day, and do not exceed $300 per day, the charter party, unlike section 709(a), goes on to provide for payment of 75% and, insofar as they exceed $300 per day, 90%.

Libelant contends that the 50% rate fixed by section 709(a) is a limitation. Respondent contends that it is a mere minimum. For the reasons hereinafter stated, I hold that it is a limitation and that libelant is entitled to the return of the excess paid on the face of the libel.

Section 709(a), by its terms, contemplates two types of payment to the shipowner: "the charter hire reserved in the charter" and "additional charter hire". The "additional charter hire" is 50% of so much of the profits "(after payment of the charter hire reserved in the charter * * *)" as exceeds 10% on the capital employed. Thus the "charter hire reserved in the charter" is a factor in the computation of the "additional charter hire".

The obvious purpose of the statutory requirement that charters shall contain a provision for the payment of this "additional charter hire" is to cut down the excessive profits payable in case the "charter hire reserved in the charter" has been fixed too low.

At the time of the adoption of section 709(a), it was clear that the share of the excess profits destined for the owner was 50% and that the Commission was powerless to raise or lower that share. By section 706(a) of the Act it was provided that the Commission should not "charter its vessels to private operators except upon competitive sealed bids" and section 707(a) contained the direction that the "Commission shall award the charter to the bidder proposing to pay the highest monthly charter hire". When the critical section 709(a) referred to "the charter hire reserved in the charter" it must have meant this "monthly charter hire" which constituted the basis of the bids. Thus the requirement in that section that the charter should contain a provision for "additional charter hire" of 50% of the excess profits was for the purpose of giving the owner a share of the windfall if the bid should prove to have been too low. In order to bid intelligently the bidders had to know in advance what percentage of the total excess profits this share would be. The statute said 50%. Certainly the Commission by its fiat could not say "Bids will be on the assumption that the rate of recapture will be 75%" and even less could it, after a bid had been accepted, say "Your bid was on the assumption that the rate of recapture would be 50% but the charter party is going to provide that it will be 75%".

Since, therefore, section 709(a) at the time when it was adopted did not admit of any recapture rate in excess of 50%, the owner's position must be that its meaning was changed for the purposes of its application to the Merchant Ship Sales Act of 1946, 60 Stat. 41, 50 U.S. C.App. § 1735 et seq.

Section 5(c) of that act made applicable to charters thereunder the critical section 709(a) of the Merchant Marine Act of 1936, copied in note 1 supra. The new act, in section 5(b) copied in the margin,³ abandoned competitive bidding as a basis for fixing charter hire and provided that the charter hire must be fixed "at such rate as the Commission determines to be consistent with the policies of this Act". This section places two bottom limits on the Commission's scope, however. The rate shall not be less than 15% of the statutory sales price except upon the affirmative vote of at least four members of the Commission and, even then, shall not be less than the prevailing world market charter rates, except in the case of large passenger ships.

Congress was not satisfied with the restrictions that the charter hire must be at a rate determined to be "consistent with the policies of this Act" and must not be less than 15% of the sales price in the absence of the affirmative vote of four commissioners and even then must not be less than the world market rate. It made applicable the old provision in section 709(a) of the Merchant Marine Act of 1936 so that, in the event of a windfall due to too generous a determination or a change in traffic conditions, the charterer must share the excessive profits with the owner. According to the words of the statute the charterer and the owner are to share these excess profits fifty-fifty. In spite of the express direction: "every charter * * * shall provide that * * * the charterer shall pay over * * * one-half" of such profit, and contrary to the clear intent of the statute when originally enacted, the respondent says that the charter need only provide that the charterer shall pay over an expressed fraction of such excess profit at least as large as one-half.

To substantiate such an expansion of the literal meaning of the statute and of its original intent, the owner invokes the power given to the Commission by section 5(b) to fix the charter hire rate. That power, however, was exhausted when the amount of the charter hire was fixed. That amount was fixed in dollars "at such rate as the Commission determines to be consistent with the policies of this Act". To say that the power to fix the charter hire carries over to the fixing of the rate of division of the excess profits under 709(a) would be to render the statutory scheme for two items of charter hire meaningless. The effect of the rule contended for by the owner is that the Commission could fix the rate of the owner's share of the excess profits at any figure not less than 50% so long as the net result would be that the sum of the "charter hire reserved in the charter" and the "additional charter hire" would produce "such rate as the Commission determines to be consistent with...