Am. President Lines LLC v. Matson, Inc.
| Decision Date | 30 September 2022 |
| Docket Number | 21-cv-02040 (CRC) |
| Parties | AMERICAN PRESIDENT LINES, LLC et al., Plaintiffs, v. MATSON, INC. et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Two groups of companies offer container shipping services between the U.S. mainland and Guam: plaintiff American President Lines (“APL”) and defendant Matson. In this Sherman Act case, APL, the newcomer to the market, accuses Matson, the incumbent, of monopolizing, and attempting to monopolize, the mainland-to-Guam route. Matson has mainly done so, APL claims, by bullying would-be APL customers and unfairly leveraging its dominant position in the busier route between the U.S. mainland and Hawai‘i, which federal law prevents APL from servicing because it is foreign owned. Matson moves to dismiss the case.
Finding that APL has adequately alleged an injury to competition, a relevant market, monopoly power, and at least some exclusionary conduct on Matson's part, the Court will permit APL's claims to proceed to discovery, with certain limitations. The Court will, however, dismiss the Matson group's parent company, Matson, Inc., as a defendant because APL has not attributed any illegal conduct specifically to it.
The plaintiffs in this case are a trio of related shipping companies, American President Lines, LLC, APL Maritime, Ltd. and APL Marine Services, Ltd. (collectively “APL”). As relevant here, APL manages and operates a fleet of ocean vessels that transport container cargo from the west coast of the United States to Guam. Am. Compl. ¶¶ 16-18, ECF No. 10. The only other fleet offering U.S.-to-Guam container shipping services is owned or operated by a competing trio of companies-the Matson defendants, consisting of Matson, Inc., Matson Navigation Company, Inc., and Matson Logistics, Inc. (collectively, “Matson”). Id. ¶¶ 19-21, 35. Matson also transports container cargo from the mainland U.S. to Hawai‘i. Id. ¶ 38.
Before delving further into the details of the relevant players and markets, a bit of statutory and regulatory background is in order. A federal statute called the Jones Act governs who may operate trans-ocean cargo container vessels between U.S. ports. Subject to certain exceptions, the Act permits only American-made and -owned container vessels, manned by an American crew, to transport cargo between any two destinations in the United States. 46 U.S.C. § 55102(b); see also id. §§ 12112, 50101(a). As a result, only Jones Act vessels may transport cargo between the continental U.S. and Hawai‘i. Am. Compl. ¶ 27. According to APL's amended complaint, only two companies operate Jones Act vessels that service Hawai‘i: Matson (which APL says controls “at least 70%” of the mainland U.S.-to-Hawai‘i market) and The Pasha Group (which controls the remaining 30-or-so percent). Id. ¶ 38.
Crucially here, however, the Jones Act exempts from its requirements vessels carrying cargo shipments between the U.S. and Guam. See 46 U.S.C. § 12111(b). Those vessels still must be U.S.-flagged, meaning they must be registered in the United States, but they do not have to be U.S.-owned. Id. § 12111(a), (b); id. § 12103; Am. Compl. ¶ 28. APL, which is foreign-owned, first secured approval to operate a U.S.-flag vessel with service to Guam in December 2015, Am. Compl. ¶¶ 3, 33, and thereafter began offering services on a fortnightly basis. Id. ¶ 33. In 2016, APL added a second U.S.-flagged vessel, which allowed it to expand its Guam service to weekly routes. Id.
APL obtained approval of these vessels from the U.S. Maritime Administration as part of the Maritime Security Program (“MSP”). Am. Compl. ¶ 3. That program aims to maintain “a fleet of active, commercially viable militarily useful, privately owned vessels to meet national defense and other security” needs. See 46 U.S.C. § 53102(a). In exchange for assisting the U.S. in times of war or other emergencies, the government makes multi-million-dollar payments to owners and operators of MSP vessels. See Am. Compl. ¶ 32; 46 U.S.C. § 53106(a); see generally id. §§ 53101-53111, 53101(2), 53101, 53107. Historically, all MSP vessels could carry cargo between the U.S. and Guam. Am. Compl. ¶ 32. That was until Congress inserted a provision into the 2018 National Defense Authorization Act (“NDAA”) barring MSP vessels from servicing Guam, which APL attributes to Matson's “aggressive lobbying efforts.” Id. ¶ 34. The change in law eliminated the ability of U.S.-flag vessels enrolled in the MSP to transport cargo between the U.S. and its territories, including Guam, except for those vessels already operating under the MSP prior to the 2018 NDAA's enactment. Id.; see 46 U.S.C. § 53105(a).
As a result of these laws, only APL's two U.S.-flag ships in the MSP and Matson's Jones Act vessels currently provide container cargo transportation services between the U.S. and Guam. Am. Compl. ¶ 35.
That legal backdrop frames the alleged markets in the case. The amended complaint identifies two primary geographic markets: container shipping services between (1) the U.S. mainland and Guam and (2) the U.S. mainland and Hawai‘i. Am. Compl. ¶ 37. APL further alleges the existence of smaller geographic submarkets “consisting of each departure-destination route” between these locations, id.; for instance, Oakland to Guam is a proposed submarket, as is Seattle to Hawai‘i. Id. APL alleges that “[m]ost if not all container cargo” shipped on the U.S.-to-Guam and U.S.-to-Hawai‘i routes leave from ports in Los Angeles, Oakland, or Seattle. Id. ¶ 91. It appears, however, that APL does not service the Seattle-to-Guam route, id. ¶ 51 n.6; its vessels call on Guam only from L.A. or Oakland. Id. ¶¶ 39, 51 n.6. APL also does not compete along the U.S.-Hawai‘i route, which according to APL is “five to six times larger” than the U.S.-Guam trade. Id. ¶ 43.
The product (or really, service) market at issue is “container cargo shipping services,” Am. Compl. ¶ 36, and APL identifies at least three distinct product-based submarkets for such cargo: “frozen” containers, “dry” containers, and “chilled” or refrigerated containers. Am. Compl. ¶¶ 51 n.6, 80. Although the amended complaint does not make clear what goods or products are shipped in each type of container, Matson explains (and APL does not contest) that chilled containers carry fresh food. See Defs.' Mot. Dismiss at 1, 22-24. APL apparently has never competed in the chilled-container submarket because of its “transit time from the U.S. West Coast to Guam.” Am. Compl. ¶ 51 n.6. But it does transport frozen and dry cargo containers on the U.S.-Guam route. Id. APL explains that “[s]hipping containers are standard in size,” so most vessels can carry any of these containers, whether frozen, dry, or chilled. Id. ¶ 81.
APL alleges that Matson achieved a monopoly in the cargo container shipping market between the U.S. and Guam in 2011, when it acquired “its only existing competitor, Horizon Lines, Inc.” Am. Compl. ¶ 2. APL alleges that Matson then jacked up its rates to the detriment of shippers and residents of Guam. Id. Meanwhile, Matson has also remained dominant along the U.S.-to-Hawai‘i route. APL asserts that, since 2015-2016, Matson's share of the market on that route has been “at least 70%,” with the only other competitor being The Pasha Group. Id. ¶ 38.
As noted, in December 2015, APL entered the U.S.-Guam market with fortnightly service from its Oakland and L.A. ports. Id. ¶ 39. APL alleges that, since its entry, Matson has maintained “at least 70% of the container cargo shipping services between the United States and Guam,” based on overall volume. Id. ¶¶ 38, 67.
In response to its market entry, APL alleges that Matson began an onslaught of anticompetitive conduct-what Matson's CEO colorfully called “an ‘axe fight.'” See Am. Compl. ¶ 4. APL trains much of its fire at Matson's customer loyalty program. Under that program, shippers receive 25% discounts on both the Guam and Hawai‘i routes if they use Matson for 90% of their shipments on both routes. Id. ¶ 41. Or, if customers use Matson for 90% of their shipments on one of those routes, they receive a 20% discount on that route. Id. The discounts apply to the “first dollar,” meaning customers risk losing the discount over their entire shipments if they fail to meet the threshold by even a small amount. Id.; Pls.' Opp'n at 26. APL further alleges that when customers nonetheless used APL, Matson notified them that they would lose the rates given “to loyal Matson shippers.” Id. ¶ 44. The amended complaint also alleges “on information and belief” that Matson used “tying arrangements” conditioning its U.S.-to-Hawai‘i favorable shipping terms “on shippers eliminating or drastically curtailing their Guam dealings with APL.” Id. ¶¶ 49-51. Because customers ship much larger volumes along the Hawai‘i route, APL says, they cannot pass up these discounts or “economically or reasonably use APL services” along the Guam route. Id. ¶ 43.
APL further asserts that Matson threatened, boycotted, and punished shippers to steer them away from doing business with APL. See, e.g., Am. Compl. ¶ 9 (); Id. ¶ 49 (Matson “conditions the availability of shipping services in the U.S./Hawai[‘]i market[], or discounts rebates, and/or other favorable shipping terms in those markets, on shippers eliminating or drastically curtailing their Guam dealings with APL”). APL accuses Matson of retaliating against it directly as well, after APL enhanced its services...
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