Sea-Land Serv. v. Danzig

• Decision Date: 08 May 2000
• Docket Number: SEA-LAND
• Parties: (Fed. Cir. 2000) SERVICE, INC., Appellant, v. Richard J. Danzig, SECRETARY OF THE NAVY, Appellee. 99-1124 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1373

211 F.3d 1373 (Fed. Cir. 2000)

SEA-LAND SERVICE, INC., Appellant, v. Richard J. Danzig, SECRETARY OF THE NAVY, Appellee.

99-1124

United States Court of Appeals for the Federal Circuit

DECIDED: May 8, 2000

Appealed from: Armed Services Board of Contract Appeals

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Raymond S.E. Pushkar, McKenna & Cuneo, L.L.P., of Washington, DC, argued for appellant. With him on the brief was Michael A. Hopkins. Of counsel on the brief was James P. Moore, Sea-Land Service, Inc., of Arlington, Virginia.

Steve J. Gillingham, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for appellee. With him on the brief were David W. Ogden, Acting Assistant Attorney General; David M. Cohen, Director; and Kirk T. Manhardt, Assistant Director. Of counsel was Daniel Wentzell, Office of Counsel, Military Sealift Command, Department of the Navy, of Washington, DC; and Charna J. Swedarsky, Office of Counsel, Military Sealift Command, Department of the Navy, of Washington, DC.

John Longstreth and Rolf Marshall, Preston Gates Ellis & Rouvelas Meeds, LLP, of Washington, DC for Amicus Curiae The Transportation Institute.

Robert T. Basseches, Shea & Gardner, of Washington, DC, for Amici Curiae American President Lines, Ltd, et al.

Before LOURIE, RADER, and BRYSON, Circuit Judges.

BRYSON, Circuit Judge.

This is a government contract case. The contract at issue was between the Navy's Military Sealift Command (MSC) and Sea-Land Service, Inc., for the shipment of military supplies to and from the Middle East during the Gulf War. After performance of the contract was completed, MSC claimed that the rates that Sea-Land charged to transport certain cargo under the contract violated the McCumber Amendment to the Cargo Preference Act of 1904, 10 U.S.C. § 2631, because Sea-Land's rates for transporting that cargo were greater than the rates Sea-Land charged private shippers to transport like goods. Sea-Land challenged MSC's right to recoupment, but the Armed Services Board of Contract Appeals upheld MSC's claim.

I

The McCumber Amendment was first enacted as a proviso to the Cargo Preference Act of 1904. As currently codified, the Cargo Preference Act reads as follows, with the McCumber Amendment emphasized:

Only vessels of the United States or belonging to the United States may be used in the transportation by sea of supplies bought for the Army, Navy, Air Force, or Marine Corps. However, if the President finds that the freight charged by those vessels is excessive or otherwise unreasonable, contracts for transportation may be made as otherwise provided by law. Charges made for the transportation of those supplies by those vessels may not be higher than the charges made for transporting like goods for private persons.

10 U.S.C. § 2631.

The purpose underlying the Cargo Preference Act was to help U.S. carriers meet foreign competition by giving them a preference in transporting military goods. See Curran v. Laird, 420 F.2d. 122, 127 (D.C. Cir. 1969). Congress was concerned, however, that the statutory preference could enable U.S. carriers to hold the United States Treasury hostage by charging exorbitant rates. Two provisions were added to the statute to guard against that possibility. The first authorized the President to disregard the statutory preference if he found that domestic carriers were imposing excessive or unreasonable charges for transporting military freight. The second, the McCumber Amendment, prohibited U.S. carriers from charging higher rates to the military than to private shippers for transporting like goods.

II

In August 1990, MSC issued a request for proposals for cargo transportation services to support U.S. military activities in the Persian Gulf area. The request for proposals asked the carriers to quote separate rates for the port-to-port and inland shipping components of the transportation. The port-to-port rates would govern all port-to-port shipping, and the port-to-port and inland rates would be combined to produce the total charge for all transportation having an inland component.

MSC awarded a contract to Sea-Land, as well as to every other carrier that submitted a bid. The contracts were awarded under an umbrella agreement, referred to as the Special Middle East Sealift Agreement (SMESA). The agreement set the general terms under which transportation services would be provided, although no carrier was guaranteed any particular amount of cargo. The agreement allowed MSC to select the carrier for each shipment based on factors such as sailing dates, travel times, and vessel capacities.

Tariff 536 is one of Sea-Land's commercial tariffs. It covers the ocean transportation of commercial cargo between the same points and ports in the Continental United States and the Middle East as SMESA. Tariff 536 was on file with the Federal Maritime Commission and was in effect throughout the period that MSC was shipping goods under SMESA.

The SMESA agreement divided all cargo into three categories: vehicles, refrigerated goods, and cargo not otherwise specified (Cargo N.O.S.). Only Cargo N.O.S. is at issue in this case. Under SMESA, certain explosives and other hazardous materials could be shipped as Cargo N.O.S. as long as they were not required to be transported on deck. Tariff 536 also contained a rate for Cargo N.O.S. The Tariff 536 Cargo N.O.S. rate, however, specifically excluded explosives and other hazardous materials.

Following the expiration of the SMESA agreement, an MSC contract specialist compared SMESA's Cargo N.O.S. rates with those of Sea-Land's Tariff 536 for inbound cargo shipped back from the Middle East. The contract specialist determined that Sea-Land's port-to-port rates under SMESA were significantly higher than its port-to-port rates under Tariff 536. Based on that determination, MSC made a claim against Sea-Land for an overpayment of more than $18 million. Sea-Land contested MSC's claim by appealing to the Armed Services Board of Contract Appeals.

The Board upheld MSC's claim on the ground that the McCumber Amendment prohibited Sea-Land from charging higher rates for the port-to-port component of its transportation services than it charged private shippers for port-to-port transportation of like goods under Tariff 536. In ruling in favor of MSC, the Board first rejected Sea-Land's argument that the McCumber Amendment does not create a right to recover for overcharges, but is simply a condition that must be satisfied in order for domestic carriers to enjoy the statutory preference established by the Cargo Preference Act. The Board then rejected Sea-Land's argument that differences between the service provided under SMESA and the service provided under Tariff 536 justified the differences in rates. The Board ruled that the McCumber Amendment prohibits different charges for the transportation of like goods, but contains no exception for differences in the service offered in connection with the transportation. Finally, although the Board noted that the kinds of goods that could be shipped as Cargo N.O.S. under Tariff 536 differed in some respects from the kinds of goods that could be shipped as Cargo N.O.S. under SMESA, it concluded that the differences did not affect Sea-Land's liability in this case, because Sea-Land had failed to show that MSC actually shipped any goods as Cargo N.O.S. under SMESA that would not have qualified as Cargo N.O.S. under Tariff 536.

III

At the outset, the government challenges our jurisdiction over this appeal. The Contract Disputes Act authorizes this court to review decisions of the boards of contract appeals. See 41 U.S.C. § 607(g)(1). Excepted from that grant of jurisdiction, however, are appeals "arising out of maritime contracts." 41 U.S.C. § 603.

The provision of the Contract Disputes Act barring this court from hearing appeals concerning maritime contracts is based on the traditional exclusive jurisdiction of United States district courts over admiralty cases. See Southwest Marine, Inc. v. United States, 896 F.2d 532, 534 (Fed. Cir. 1990). Thus, the reference in the Contract Disputes Act to disputes "arising out of maritime contracts" incorporates the law regarding the scope of admiralty jurisdiction, which provides that admiralty extends only to contracts that are "wholly maritime" in nature. See Dalton v. Southwest Marine, Inc., 120 F.3d 1249, 1250 (Fed. Cir 1997); Alaska Barge & Transp., Inc. v. United States, 373 F.2d 967, 970 (Ct. Cl. 1967). That general rule, however, is subject to two exceptions: an admiralty court will retain jurisdiction over a contract that is not wholly maritime in nature if (1) the non-maritime feature of the contract is merely incidental, or (2) "the non-maritime feature of the contract is separable from the maritime elements, so that it may be severed and litigated independently without prejudice to any party." Alaska Barge, 373 F.2d at 970.

Under the terms of SMESA, Sea-Land was required to offer both port-to-port and "through intermodal" transportation, i.e., integrated transportation of goods over both sea and land. Nearly all of the more than 5000 transportation orders that are at issue in this case were for through intermodal transportation rather than port-to-port transportation. Thus, the vast bulk of the shipping orders were not "wholly maritime" in nature. Moreover, the land transportation component of many of those transportation orders was considerable, involving substantial transportation between inland locations and ports both in this country and in the Middle East. The land transportation component of the SMESA shipments thus cannot be regarded as merely "incidental" to the maritime component. See Alaska Barge, 373 F.2d at 971; Kuehe & Nagel (AG & CO) v. Geosource, Inc., 874 F.2d 283, 290 (5th Cir. 1989). The jurisdictional question in this case therefore turns on whether the second...