American President Lines v. United States, 1740.

• Decision Date: 02 May 1958
• Docket Number: No. 1740.,1740.
• Citation: 162 F. Supp. 732
• Parties: AMERICAN PRESIDENT LINES, Limited, Libelant, v. The UNITED STATES of America, Respondent.
• Court: U.S. District Court — District of Delaware

162 F. Supp. 732

AMERICAN PRESIDENT LINES, Limited, Libelant, v. The UNITED STATES of America, Respondent.

No. 1740.

United States District Court D. Delaware.

May 2, 1958.

David F. Anderson (of Berl, Potter & Anderson), Wilmington, Del., and Warner W. Gardner and Vern Countryman (of Shea, Greenman, Gardner & McConnaughey), Washington, D. C., for libelant.

Carl C. Davis, Asst. Chief, Admiralty and Shipping Section, Department of Justice, Washington, D. C., Robert D. Klages, Attorney, Admiralty and Shipping Section, Department of Justice, Washington, D. C., of counsel, for the United States.

CALEB M. WRIGHT, Chief Judge.

This is a suit in Admiralty initiated by libelant, American President Lines, against the United States to recover alleged excessive charter payments. Jurisdiction of the libel is predicated on 46 U.S.C.A. § 741 et seq.

The cause is presently before the court on libelant's exceptions to respondent's answer and libelant's prayer for judgment pro confesso. There being no dispute of material fact the libel is in a dispositive posture.¹

As World War II drew to a close Congress realized that many vessels employed in the War effort would be of little use to the Government in the ensuing post War period. It was also deemed expedient to maintain a properly functioning, privately owned, peace-time Merchant Marine, so that the vessels would be readily available in the event of a national emergency. Consequently, the Merchant Ship Sales Act of 1946 was enacted to dispose of the excess tonnage.² The United States Maritime Commission (Commission) was designated the Administrator of the Act.

While the primary purpose of the Act was the demise of the ships to domestic users, Congress also realized charter of the vessels would be preferable in some instances.³ To accomplish this a chartering provision was inserted in the Act.⁴

Encompassed within the provisions of the Ship Sales Act of 1946 were all vessels constructed or contracted for the account of the United States during the period beginning January 1, 1941 and ending September 2, 1945.⁵

On January 16, 1942, the Maritime Commission and the Bethlehem-Alameda Shipyard, Inc., entered into a contract for the construction of ten troop carriers designated P2-SE2-R1.⁶ Eight of the vessels were completed and delivered in 1944 and 1945. Arrangements were made in 1944 to complete the remaining two vessels as commercial combination passenger-cargo vessels, type P2-SE2-R3. Formal amendment of the construction contract reflecting these changes was accomplished on November 7, 1946.⁷ As a result of these innovations the two ships styled the President Cleveland and the President Wilson were of a unique class. The chart set forth below summarizes the construction history of the two vessels:⁸

                                      Contract
                                      Delivery
                   M. C. Hull No.      Date        Keel Laid     Launched     Delivered
                   ____________________________________________________________________
                   686 (Cleveland)     8-1-45       8-28-44       6-23-46     12-15-47
                   687 (Wilson)        9-1-45      11-27-44      11-24-46      4-27-48
                

Chartering of the Cleveland/Wilson

In order to clarify the factors involved in the instant litigation it is necessary to set out the sequence of events leading to the chartering of the Cleveland/Wilson.

The chartering sections of the Ship Sales Act of 1946 provide in pertinent part, "Any citizen of the United States * * * may make application to the Commission to charter a war-built dry-cargo vessel, under the jurisdiction and control of the Commission, for bare-boat use. * * *"⁹ Pursuant to this provision libelant made formal application to charter in June, 1946.¹⁰ The Commission by letter dated December 12, 1947, advised libelant that a proposed charter for the Cleveland/Wilson had been approved. The letter stated in part:¹¹

"The basic charter hire on each vessel to be 8½% per annum on the statutory sales price of each vessel under the 1946 Act as of the date delivered by the Shipbuilder. (Estimated floor price and Sales Price is $7,267,241)."

On the same day, December 12, 1947, the Commission, as required by law, published in the Federal Register the following information:¹²

"(kk) Type P2-SE2-R3 (Not previously published).

"The P2-SE2-R3 type is a passenger-cargo vessel.

"The prices of the standard type are as follows:

                                     Unadjusted
                Prewar                statutory
                domestic            sales price
                cost            (50% 1941 cost)
                $11,200,000         1$5,600,000
                

"1 The vessel floor price is estimated to be about $7,267,241 and the minimum sales price will be so determined. The war built cost and floor price will not be finally determined until the vessels have been completed."

Libelant on December 15, 1947, accepted the general terms and conditions outlined in the Commission letter of December 12. By letter dated January 9, 1948, the Commission advised libelant that it had approved the chartering of the Cleveland/Wilson. Since the rate of charter was below the statutory minimum the approval of four board members was necessary.¹³ The requisite approval was procured. The letter stated in part:¹⁴

"* * * from effective date of delivery thereof (and subject to ultimate adjustment to a rate of 8½% per annum of the finally determined statutory sales price of each vessel), the sum of $51,476.29 payable monthly in advance * * *. The formal Bareboat Charter Agreement and amendments to the Operating-Differential Subsidy Agreement giving effect to the foregoing are being prepared under direction of the General Counsel of the Commission and will be submitted for execution * * *."

The formal charter party MCc-60935 hereafter referred to as "the first charter" was executed by the Commission in October, 1948 and covered the period of time from delivery of the vessels until completion of voyages on or about June 30, 1949. Clause E of this charter provided:¹⁵

"Rate of Basic Charter Hire. As to each Vessel the Charterer shall pay as basic charter hire from effective date of delivery thereof (and subject to ultimate adjustment to a rate of 8½% per annum of the finally determined statutory sales price or the floor price of such vessels whichever is higher) the sum of $51,476.29 per calendar month (and pro rata for any part of a month) payable monthly in advance."

The sum of $51,476.29 per month specified in both the Commission letter of January 9, 1948 and the first charter (October 5, 1948) represents 1/12th of 8½% of the estimated floor price, $7,267,241, promulgated in the Federal Register on December 12, 1948 and incorporated in the Commission's December 12 letter to libelant.¹⁶

Delivery of the Cleveland and Wilson to libelants transpired on December 15, 1947 and April 27, 1948, respectively.¹⁷

At the request of libelant the first charter was supplemented by an addendum, hereafter referred to as "the second charter", calling for a reduction in basic hire from 8½% to 5% and extending the original charter period until the last voyage completed on or about June 30, 1952.¹⁸ The addendum dated February 8¹⁹ and April 10, 1950²⁰ provided in relevant part:²¹

"2. That, with respect to each vessel, during the period of the extension as aforesaid, basic charter hire shall be paid, pursuant to the provisions of Clause 12, at the following rate: 5% per annum of the preliminary sales price of $7,267,241., (herein referred to as the minimum basic hire) which shall be deemed to be an unconditional obligation, provided, that additional basic charter hire of 3-½% per annum of such preliminary sales price shall be paid from net voyage profits relating to each calendar year or other accounting period before any participation in such earnings by the Charterer pursuant to the provisions of Clause 13, Part II, and provided further, that such basic charter hire shall be subject to ultimate adjustment to the same rate of the finally determined statutory sales price of each of the vessels. If, therefore, at the end of any calendar year, or other accounting period, the total cumulative net voyage profits relating to such calendar year or other accounting period of both vessels before basic hire therefor are in excess of such minimum basic charter hire, the basic hire for the two vessels shall be increased by the amount by which such cumulative net voyage profits before such basic hire exceeds the minimum basic hire, provided that such increase shall not operate to increase the basic hire to in excess of 8-½% per annum on the basis hereinabove provided.

"3. That, except as herein specifically modified, all the terms and conditions of the Agreement (first charter) shall remain in full force and effect." (Parenthesis supplied.)

Prior to the expiration of the second charter, Section 5 of the 1946 Act was amended by the insertion of subparagraph (f) which stated, "the Secretary of Commerce may charter any passenger vessel, whether or not war-built, owned by the United States on or after June 30, 1950, pursuant to Title VII of the Merchant Marine Act, 1936, as amended."²² Section 1196 of the 1936 Act requires all charters of Government owned vessels be awarded on competitive bidding.²³ Accordingly, the Maritime Administration on June 6, 1952, issued an invitation for bids which provided in pertinent part:²⁴

"No bid for the charter of the vessels, which is conditioned on receiving an operating differential subsidy, will be considered which offers the payment of basic charter hire in an amount less than 8½% of the finally-determined statutory sales price or the floor price of such vessels (whichever is higher) * * *. The estimated floor price of the Vessels is $7,267,241."

Pursuant to the invitation, libelant submitted a bid for charter of the vessels as follows:²⁵

"(a) For charter with operating-differential subsidy the sum of Fifty One Thousand Four Hundred Seventy Six and 29/100 Dollars ($51,476.29), subject to ultimate upward adjustment if

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