970 F.2d 1206 (3rd Cir. 1992), 91-3589, Conoco, Inc. v. Skinner

Docket Nº:in No. 91-3589,
Citation:970 F.2d 1206
Party Name:CONOCO, INC.; E.I. Du Pont De Nemours and Co., Petitioners
Case Date:July 16, 1992
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 1206

970 F.2d 1206 (3rd Cir. 1992)

CONOCO, INC.; E.I. Du Pont De Nemours and Co., Petitioners

in No. 91-3589,

v.

Samuel K. SKINNER, Secretary of Transportation; Warren G.

Leback, Maritime Administrator; and the United

States of America.

CONOCO, INC.; E.I. Du Pont De Nemours and Co., Appellants

in No. 91-3920,

v.

Samuel K. SKINNER, Secretary of Transportation; Nicholas F.

Brady; William A. Kime, Commandant of the Coast Guard;

Warren G. Leback, Administrator, U.S. Department of

Transportation; Carol B. Hallett, Commissioner of Customs,

U.S. Customs Service.

Nos. 91-3589, 91-3920.

United States Court of Appeals, Third Circuit

July 16, 1992

Argued May 19, 1992.

Rehearing and Rehearing In Banc Denied Aug. 18, 1992.

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Mark P. Schlefer (argued), T.S.L. Perlman, Leonard Egan, William C. Buckhold, Fort & Schlefer, Washington, D.C., for petitioners-appellants.

Stuart M. Gerson, Asst. Atty. Gen., William C. Carpenter, Jr., U.S. Atty., Robert V. Zener, Jeffrey Clair (argued), Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C., for respondents-appellees.

Before: HUTCHINSON, COWEN and GARTH, Circuit Judges.

OPINION

ROBERT E. COWEN, Circuit Judge.

This consolidated case involves the complex statutory scheme regulating the ownership, operation, and chartering of vessels in the coastwise trade. Petitioners-appellants Conoco and Du Pont challenged regulations of the Coast Guard and the Maritime Administration which required that parent corporations of subsidiaries operating vessels in the coastwise trade be 75 percent owned by U.S. citizens. The district court dismissed their claims for lack of jurisdiction. Conoco and Du Pont also filed a protective petition in this court asking us to review the Maritime Administration regulation. We hold that we have exclusive jurisdiction to hear this case, and thus affirm the district court's dismissal. On the merits, we uphold the regulation as promulgated by the Maritime Administration.

I.

A.

The ownership, operation, and chartering of vessels in the coastwise trade 1 is regulated by several statutory provisions. Section 2 of the Shipping Act of 1916, ch. 451, 39 Stat. 729, provides:

Within the meaning of this chapter no corporation, partnership, or association shall be deemed to be a citizen of the United States unless the controlling interest therein is owned by citizens of the United States ... but in the case of a corporation, association, or partnership operating any vessel in the coastwise trade the amount of interest required to be owned by citizens of the United States shall be 75 per centum.

46 U.S.C.App. § 802(a) (1988) (emphasis added). Thus, there are two citizenship requirements in section 2. Generally, U.S. citizens must hold a "controlling interest" in a corporation for the corporation itself to be considered a U.S. citizen. Section 2 describes "controlling interest" in terms of majority stock control and majority voting power. 46 U.S.C.App. § 802(b) (1988). However, there is an exception for corporations operating vessels in the coastwise trade; these corporations must be 75 percent owned by U.S. citizens. Whether this 75 percent requirement applies to parent corporations of subsidiaries operating coastwise vessels is the dispute in this case.

The citizenship requirement of section 2 is incorporated into section 9 of the Shipping Act, as amended, which provides:

[A] person may not, without the approval of the Secretary of Transportation--

(1) sell, mortgage, lease, charter, deliver, or in any manner transfer ... to a person

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not a citizen of the United States, any interest or control of a documented vessel ... owned by a citizen of the United States or the last documentation of which was under the laws of the United States ...

46 U.S.C.A.App. § 808(c) (West Supp.1992). Thus, it is a violation of section 9 to transfer a vessel owned by a U.S. citizen to a non-U.S. citizen without the Secretary's approval. See 46 U.S.C.App. § 839 (1988) ("such approval may be accorded either absolutely or upon such conditions as the Secretary of Transportation prescribes"). Section 2's citizenship requirement is also incorporated into section 27 of the Merchant Marine Act of 1920, ch. 250, 41 Stat. 999, commonly referred to as the Jones Act, which specifies that no merchandise shall be transported by water between points in the U.S. except in a vessel "owned by persons who are citizens of the United States." 46 U.S.C.App. § 883 (1988).

The so-called Bowaters Amendment of 1958, Pub.L. No. 85-902, 72 Stat. 1736, created a narrow exception for certain corporations which could not otherwise meet the stringent 75 percent citizenship requirement of section 2. 46 U.S.C.App. § 883-1 (1988). The amendment derives its name from the Bowaters Southern Paper Corporation, which was owned by Canadian and British interests and could not qualify as a U.S. citizen under section 2. See S.Rep. No. 2145, 85th Cong., 2d Sess. 2-3 (1958), 1958 U.S.Code Cong. & Admin.News 5190. Although Bowaters was headquartered in Tennessee, and managed and staffed almost exclusively by Americans, it could not own and operate barges in order to bring in pulpwood or send out newsprint to its U.S. customers. Consequently, an amendment to the existing laws was proposed to provide limited relief to corporations such as Bowaters and the Shell Oil Co., which was partially owned by Dutch and British companies.

The Bowaters Amendment allows certain corporations to document 2 vessels for coastwise trade, provided that the vessels are only used to carry "proprietary" cargo owned by either the corporation or its affiliates. To qualify as a "Bowaters corporation," a corporation must be incorporated under U.S. laws and satisfy five requirements: a majority of its officers and directors must be U.S. citizens; at least 90 percent of its employees must be U.S. residents; it must be engaged primarily in a manufacturing or mineral industry in the U.S.; the aggregate book value of the corporation's vessels cannot exceed ten percent of the aggregate book value of the corporation's assets; and it must purchase or produce in the U.S. at least 75 percent of the raw materials used or sold in its operations. 46 U.S.C.App. § 883-1.

The Bowaters Amendment also places several restrictions on Bowaters corporations. These corporations cannot operate vessels which they own as common carriers for the carriage of non-proprietary cargo. The amendment thus provides that no vessel owned by a Bowaters corporation "shall engage in the fisheries or in the transportation of merchandise or passengers for hire between points in the United States ... except as a service for a parent or subsidiary corporation." Id. Bowaters corporations are also restricted in their ability to charter out vessels to other parties. Id.

B.

In 1981, E.I. Du Pont Nemours and Co. ("Du Pont"), an American chemical corporation, battled Joseph E. Seagram & Sons, Inc., a Canadian corporation, for control of Conoco, Inc. See Joseph E. Seagram & Sons, Inc. v. Conoco, Inc., 519 F.Supp. 506 (D.Del.1981). Conoco, which was founded in 1876, is an oil company engaged in the production, transportation, refining, and

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marketing of petroleum and petroleum products. Du Pont ultimately prevailed and now holds all of the capital stock of Conoco through Du Pont Energy Company. Seagram exchanged its Conoco stock for Du Pont stock, and was given limited representation on Du Pont's board of directors. Seagram also agreed to vote for directors nominated by Du Pont and not to acquire more than 25 percent of the voting stock of Du Pont.

In 1984, JES Developments, Inc., an indirect, wholly-owned subsidiary of Seagram, controlled 24.5 percent of Du Pont stock. Another 0.59 percent of Du Pont's stock was held by stockholders with registered addresses outside the U.S. Since it was likely that many of these stockholders, as well as others with U.S. addresses, were non-citizens, Du Pont informed the Department of Transportation that it could no longer certify that it was 75 percent owned by U.S. citizens. Faced with section 2's citizenship requirement which it appeared no longer to satisfy, Du Pont argued that U.S. citizens continued to hold a "controlling interest" (i.e., more than 50 percent stake) in Du Pont, and thus, its wholly-owned subsidiary, Conoco, continued to be owned by an U.S. citizen under section 2. In short, Du Pont argued that Conoco could own and operate vessels in the coastwise trade, even though Du Pont could not.

Both Du Pont and Conoco have substantial economic interests at stake, since the operation of vessels in the coastwise trade is important to both of their businesses. Du Pont owns 32 bulk liquid chemical barges, and "bareboat" charters 3 12 barges. Conoco owns 10 pushboats (towboats) and 17 bulk liquid petroleum barges, and bareboat charters one pushboat and nine barges.

Du Pont uses its barges to transport its chemical products between Du Pont facilities and occasionally to its customers. A barge which transports chemical products must be cleaned before a different product can be transported in the barge. The cleaning process is expensive and releases pollutants which must be disposed of or stored. Due to the large volume of chemical products which are shipped by Du Pont, the company is able to "dedicate" almost all of its barges to the carriage of a single chemical product, thus avoiding the necessity of cleaning the barges between trips. If Du Pont were forced to seek greater service from independent barge operators with "non-dedicated" barges, Du Pont alleges that its costs would increase...

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