Aquarius Marine Co. v. Pena
| Decision Date | 24 August 1995 |
| Docket Number | D,1381,Nos. 1153,s. 1153 |
| Citation | 64 F.3d 82 |
| Parties | AQUARIUS MARINE CO., Plaintiff-Appellee, v. Federico F. PENA, as Secretary of Transportation of the United States; Albert J. Herberger, as Maritime Administrator United States Department of Transportation, Defendants-Appellants, Shipbuilders Council of America, et al., Intervenor-Defendants-Appellants. ockets 94-6222, 94-6224. |
| Court | U.S. Court of Appeals — Second Circuit |
Jeffrey Clair, Washington, DC, (Frank W. Hunger, Asst. Atty. Gen., Robert S. Greenspan, Dept. of Justice, Washington, DC, Zachary W. Carter, U.S. Atty., E.D.N.Y., Brooklyn, NY, on the brief), for defendants-appellants.
Jonathan Blank, Washington, DC (Lisa M. Helpert, Preston Gates Ellis & Rouvelas Meeds; Andrew J. Simons, A. Kathleen Tomlinson, Farrell, Fritz, Caemmerer, Cleary, Barnosky & Armentano, P.C., Uniondale, NY; Scott Himes, Stillman, Friedman & Shaw, P.C., New York City, on the brief), for intervenor-defendants-appellants.
Mark P. Schlefer, Washington, DC (T.S.L. Perlman, Fort & Schlefer, on the brief), for plaintiff-appellee.
Before: MINER, JACOBS and LEVAL, Circuit Judges.
This appeal is taken by the Secretary of Transportation and various private intervenors from an order of the United States District Court for the Eastern District of New York (Platt, Judge ), which vacated and remanded a final order of the Maritime Administrator of the Department of Transportation ("Administrator"). The issue on appeal is whether the Administrator was arbitrary and capricious in concluding that a vessel owned by plaintiff Aquarius Marine Co. ("Aquarius") had been "rebuilt" in a foreign shipyard within the meaning of the Cargo Preference Act, sections 901(b)(1) and 901b, Merchant Marine Act of 1936, 46 U.S.C.App. Secs. 1241(b)(1) and 1241f, and was therefore ineligible to carry certain government-sponsored cargo. Believing that the Administrator's construction of the statute was a permissible one, we reverse the judgment of the district court.
Aquarius owns the Golden Monarch, a bulk carrier vessel designed and built in 1975 as a tanker. She has at all times sailed under the United States flag. From 1977 to September 1992, the Golden Monarch carried primarily oil cargo. In late 1992, however, the Coast Guard inspected the vessel and concluded that she could not be recertified as a tanker without extensive repairs. Rather than make these costly repairs, Aquarius relinquished the vessel's tanker certification and modified her to carry grain cargoes. These modifications were undertaken in U.S. shipyards and entailed adding small hatches to facilitate grain loading, and removing certain apparatus used for oil transport. The Coast Guard certified the vessel for grain cargoes in November of 1993.
During 1993, Aquarius designed more extensive modifications to the Golden Monarch intended to improve her efficiency and competitiveness in the dry bulk grain trade. In her then-existing condition, the vessel was at a disadvantage because some businesses and federal agencies would not ship grain on vessels with a tanker configuration, and because some ports would not allow tankers to unload cargo at the dock, making unloading more costly and time-consuming. The proposed modifications included reconfiguring the cargo holds throughout the ship, cutting larger hatches in the main deck, providing new hatch covers, coamings, and doubler plates, removing cargo pumps, and relocating pipes and wires. These alterations affected mainly the cargo hold; the outer hull and superstructure were not to be altered. All told, 1,380 long tons of steel were to be removed, and 953 long tons of steel to be installed; the tonnage of the new steel would equal eight percent of the original hull weight. Aquarius solicited bids for the work from several shipyards around the world. The bids ranged in price and dry-dock time from $6 million and 90 days in a South Korean shipyard, to $11.5 million and 200 days in a U.S. shipyard.
Before selecting a contracting yard, Aquarius needed to investigate whether the performance of the work abroad would disqualify the vessel from United States coastwise trade (being trade between U.S. ports). Section 27 of the Merchant Marine Act of 1920, 46 U.S.C.App. Sec. 883, generally referred to as the "Jones Act," reserves the coastwise trade for vessels owned by U.S. citizens and built in the United States. The Jones Act permanently disqualifies from domestic trading any vessel originally built in the United States that is later "rebuilt" in a foreign country. 1 Administration of the Jones Act falls in part to the Coast Guard, which issues qualifying certificates. The Coast Guard defines a vessel as "rebuilt" "when any considerable part of its hull or superstructure is built upon or substantially altered." 46 C.F.R. Sec. 67.177(a) (1993).
Aquarius requested a preliminary ruling by the Coast Guard on whether the performance of the work in the South Korean shipyard would disqualify the vessel from coastwise trade. In January 1994, the Coast Guard issued a preliminary ruling that the proposed alterations would not be deemed a "rebuilding" under the Jones Act, so that the Golden Monarch would remain eligible. Upon receipt of this decision, Aquarius entered into a contract with the low-bidding South Korean shipyard.
Section 901(b) of the Cargo Preference Act of 1954, 46 U.S.C.App. Sec. 1241(b)(1), a protectionist statute enacted as an amendment to the Merchant Marine Act of 1936, reserves 50 percent of certain foreign-bound, government-sponsored cargo for "privately owned United States-flag commercial vessels." Id. The statute defines "privately owned United States-flag commercial vessels" to exclude "any vessel which ... shall have been ... rebuilt outside the United States ... until such vessel shall have been documented under the laws of the United States for a period of three years." 46 U.S.C.App. Sec. 1241(b)(1). Thus, like the Jones Act, the Cargo Preference Act disqualifies merchant marine vessels "rebuilt" abroad from certain trade. The disqualification under the Cargo Preference Act, however, is less severe than under the Jones Act, as it is limited to three years and applies to only certain types of cargoes. See id. The Maritime Administration ("MarAd"), a subdivision of the U.S. Department of Transportation, has responsibility for determining which vessels qualify for U.S. cargo preferences under the Act. 49 C.F.R. Secs. 1.4(j)(8) & 1.66(e).
As the work was beginning in the South Korean yard, Aquarius requested a ruling by MarAd as to whether the reconfigured ship would remain eligible for preference in awards of government shipping contracts under Sec. 901(b). On April 15, 1994, the Administrator of MarAd issued a ruling finding that the conversion of the Golden Monarch constituted a "rebuilding" within the meaning of the Cargo Preference Act, and that the vessel was therefore disqualified from the preference cargo trade for three years.
The Administrator first noted that the Cargo Preference Act did not define the term "rebuilt," or address whether the conversion of a ship from one type to another (e.g., from an oil tanker to a dry bulk carrier) would constitute a "rebuilding." MarAd therefore looked to its longstanding policy governing the "reconstruction" of ships for purposes of granting construction differential subsidies and government-guaranteed financing of ship work under other provisions of the Merchant Marine Act of 1936. 2 MarAd's policy manual defined "reconstruction" under these programs as "a conversion of a ship requiring extensive structural and physical changes." Opining that there was no meaningful distinction between a "reconstruction" and a "rebuilding," MarAd concluded that, because the conversion work to the Golden Monarch involved extensive changes and would constitute a "reconstruction" for purposes of the subsidy program, it also constituted a "rebuilding" under the Cargo Preference Act.
MarAd thus declined to follow the Coast Guard definition of "rebuilt" as having "any considerable part of [the] hull or superstructure [ ] built upon or substantially altered," or to conform its eligibility determination to that reached by the Coast Guard under the Jones Act. Citing the observation of Keystone Shipping Co. v. United States, 801 F.Supp. 771, 785-786 (D.D.C.1992) that MarAd had "abdicated its responsibility" in another case by adopting Coast Guard findings without conducting an independent assessment of the controlling statute, the agency concluded that it would base its decision on the cumulative impact of the structural, outfitting, and functional changes to the vessel.
Furthermore, in reviewing the legislative history of Sec. 901(b), MarAd concluded that, in disqualifying vessels rebuilt abroad, Congress intended to (1) preserve work for U.S. shipyards, and (2) protect the domestic merchant marine against competition from vessels that have been enlarged and made more efficient in low-cost foreign shipyards. The Administrator determined that the disqualification of the Golden Monarch would further these protectionist purposes.
In a subsequent decision, the Administrator ruled that the Golden Monarch was also ineligible for preference cargoes falling under a later amendment to the Merchant Marine Act known as the Food Security Act of 1985, 46 U.S.C.App. Sec. 1241f (1988). The Food Security Act reserves an additional 25 percent of certain agricultural cargoes to U.S.-flag ships. MarAd determined that the three-year foreign-rebuilt exclusion of Sec. 901(b) applies also to shipping contracts obtained under the Food Security Act.
Aquarius instituted this action as a petition for judicial review of MarAd's decision pursuant to the ...
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