Federal Maritime Com'n v. Atlantic & Gulf/Panama Can. Zone

• Decision Date: 27 April 1965
• Parties: FEDERAL MARITIME COMMISSION and United States of America, Plaintiffs, v. ATLANTIC & GULF/PANAMA CANAL ZONE et al., Defendants.
• Court: U.S. District Court — Southern District of New York

241 F. Supp. 766

FEDERAL MARITIME COMMISSION and United States of America, Plaintiffs, v. ATLANTIC & GULF/PANAMA CANAL ZONE et al., Defendants.

United States District Court S. D. New York.

April 27, 1965.

Robert M. Morgenthau, U. S. Atty., New York City, Louis E. Greco, Atty. in Charge, N. Y. Office, Admiralty & Shipping Section, Dept. of Justice, for plaintiffs, Gilbert S. Fleischer, New York City, H. B. Mutter, Federal Maritime Commission, of counsel.

Casey, Lane & Mittendorf, New York City, for defendants, John R. Mahoney, David Orlin, New York City, of counsel.

TENNEY, District Judge.

On April 7, 1965, plaintiffs Federal Maritime Commission (hereinafter referred to as "Commission") and the United States of America filed their complaint in this Court and, after hearing, obtained a temporary restraining order which restrained defendants from imposing or collecting a ten percent surcharge on ocean shipments carried between United States ports and ports in Latin America, including the Caribbean. The surcharge had been announced by defendants to be effective on April 5, 1965, and was ostensibly imposed as an emergency measure to counteract the effects of port congestion due to the recently-ended longshoremen's strike. Pursuant to the terms and conditions of the dual rate contract (exclusive patronage contract) utilized by defendants, rate charges, under certain specified emergency conditions, may be imposed on thirty days' notice, whereas regular rate increases may be imposed only on ninety days' notice. Defendants' surcharge was imposed on the shorter, thirty-day notice period.

Plaintiffs request issuance of a preliminary injunction "pending answer to and disposition by the Court of this complaint", and thereafter a permanent injunction restraining defendants from putting into effect the surcharge until thirty days after the conclusion of an investigation of said surcharge commenced by plaintiff Commission.

Hearings were held on April 12, 14, 16 and 22, 1965, at which time both sides were afforded full opportunity to present both oral and documentary proof and argue both the law and the facts. Based on the evidence adduced at those hearings, the lack thereof, the affidavits submitted and the memoranda of law, the following are my findings of fact and conclusions of law.

FINDINGS OF FACT

1. Each of the defendants is a Steamship Conference maintaining offices in New York, New York.

2. The total number of member lines of all of the defendants is eighteen, of which eight are United States flag lines and four are lines of the flag of a country in the defendants' destination areas.

2(a). The United States flag lines are: Alcoa Steamship Company, Inc.; Grace Line, Inc.; Gulf and South America Steamship Company, Inc.; Lykes Bros. Steamship Company, Inc.; United Fruit Company; Moore-McCormack Lines, Inc.; States Marine Lines, Inc., and Sealand.

2(b). The four national flag lines consist of: Compania Sud Americana De Vapores (Chilean Line); Flota Mercante Dominicana (Dominican Steamship Lines); Flota Mercante Grancolombiana, S.A. (Grancolombiana (New York) Inc.); Mariana Mercante Nicaraguense, S. A. (Mamenic Line).

3. The defendant, West Coast South America Northbound Conference, is concerned with ocean transportation from ports in Peru and Chile to Atlantic and Gulf ports of the United States. (T.R. 392.)

4. The defendant, United States Atlantic and Gulf/Jamaica Conference, is concerned with ocean transportation from United States Atlantic and Gulf ports to Jamaica. (T.R. 392.)

5. The defendant, United States Atlantic and Gulf/West Coast of South America conference, is concerned with ocean transportation from United States Atlantic and Gulf ports to the West Coast of South America. (T.R. 392.)

6. All other defendants are concerned with ocean transportation between United States Atlantic & Gulf ports and ports in their respective destination areas in Latin America. They are two-way Conferences and cover both the outward and inward movement of cargo.

7. Each defendant which is concerned with ocean transportation from United States Atlantic and Gulf ports to destination areas in Latin America operates a dual rate contract system in its trade from the United States to Latin America, but no defendant operates a dual rate contract system in its trade from Latin America to the United States, other than the defendant East Coast Colombia Conference, whose dual rate contract system from the east coast of Colombia to the United States is limited to coffee. (T.R. 394.)

8. From 3,000 to 6,000 shippers have signed dual rate contracts with each defendant operating a dual rate contract system. (T.R. 401.)

9. The dual rate contracts of each defendant inter alia provide: "If the Merchant has the legal right at the time of shipment to select a carrier for the shipment of any goods subject to this Agreement, whether by the expressed or implied terms of an agreement for the purchase, sale or transfer of such goods, shipment for his own account, operation of law, or otherwise, the Merchant shall select one or more of the Carriers." (Article 2(a) of Exhibits D-1 through D-8); "The Conference shall offer to the Merchant a subscription to its tariffs at a reasonably compensatory price; however, the Merchant shall be bound by all notices accomplished as aforesaid without regard to whether he subscribes to the Conference Tariff." (Article 9(b) of Exhibits D-1 through D-8); "In the event of any extraordinary conditions not enumerated in Article 10(a), which conditions may unduly impede, obstruct, or delay the obligations of the Carriers, the Carriers may increase any rate or rates affected thereby, in order to meet such conditions; provided, however, that nothing in this Article shall be construed to limit the provisions of Section 18(b) of the Shipping Act, 1916, in regard to the notice provisions of rate changes. The Merchant may, not less than 10 days before increases are to become effective, notify the Carriers that this Agreement shall be suspended insofar as the increases are concerned, as of the effective date of the increases, unless the Carriers shall give notice that such increase or increases have been rescinded and cancelled." (Article 10(c) of Exhibits D-1 through D-8); "Any and every dispute arising out of, or relating to, this Agreement or the breach hereof shall be settled by submission in New York, N. Y., under the laws of the State of New York pursuant to the New York Simplified Procedure for Court Determination of Disputes Act. * * *" (Article 14 of Exhibits D-1 through D-8).

10. Section 18(b) (2) of the Shipping Act, 1916, (46 U.S.C. § 817(b) (2) (Supp.1964), incorporated into the aforementioned dual rate contracts via Article 10(c), provides:

"No change shall be made in rates, charges, classifications, rules or regulations, which results in an increase in cost to the shipper, nor shall any new or initial rate of any common carrier by water in foreign commerce or conference of such carriers be instituted, except by the publication, and filing, as aforesaid, of a new tariff or tariffs which shall become effective not earlier than thirty days after the date of publication and filing thereof with the Commission, and each such tariff or tariffs shall plainly show the changes proposed to be made in the tariff or tariffs then in force and the time when the rates, charges, classifications, rules or regulations as changed are to become effective; * * *."

11. On March 5, 1965, each of the defendant Conferences published in its tariff and filed with the Commission a "Notice to Shippers" which provided in part:

"Because of extraordinary conditions in Atlantic and Gulf ports, resulting from the strike of longshoremen which began January 11, 1965 and still in effect in some ports, this Conference announces that, pursuant to Section 18(b) of the Shipping Act, 1916, and, where applicable, Article 10(c) of the Conferences form of dual rate agreement, a temporary emergency surcharge of 10% will be in effect, commencing April 5, 1965, and expiring not later than October 3, 1965, on all cargo moving to and from all United States ports served by the Conference. The surcharge will apply to all commodities which are subject to contract rates when the rates on such commodities have been in effect for ninety days and to all other commodities when the rates have been in effect for thirty days * * *". (T.R. 416, 418.)

12. After March 5, 1965, the Federal Maritime Commission received 23 complaints from various shippers alleging that the imposition of the surcharge on less than ninety days' notice would result in irreparable harm, including the loss of markets by shippers in the United States who are doing business in Latin America. (T.R. 83.)

13. The defendants acknowledge that they received 26 complaints concerning the surcharge, a number which they consider about average for any rate increase. (T.R. 402.)

14. Subsequent to March 5, 1965, an investigation into the increase was begun by the staff of the Federal Maritime Commission.

15. On March 31, 1965, the Chairman of the Conferences informed the Commission that the imposition of the surcharge was taken pursuant to Article 10(c) of the defendants' dual rate contracts. The Chairman's letter stated in part:

"We very definitely believe that under Article 10(c) we are entitled to recover the expenses and losses which gave rise to the surcharge before the surcharge became effective. In this connection we would observe that while under this Article we are relieved from the giving of a full 90 days' notice, we did give 30 days' notice under Section 18(b) (2) of the Shipping Act even though we might have requested special permission from the Commission to make the surcharge effective on lesser notice." (Par. 12, Complaint.)

16. The Federal Maritime Commission instituted a proceeding dated April 2, 1965, entitled, Docket No. 65-7, In the Matter of Imposition of Surcharge at...