Sea-Land Service, Inc. v. Federal Maritime Commission

• Decision Date: 14 April 1981
• Docket Number: SEA-LAND,No. 79-2493,79-2493
• Citation: 653 F.2d 544
• Parties: SERVICE, INC., Petitioner, v. FEDERAL MARITIME COMMISSION and United States of America, Respondents, Seatrain International S. A., Hapag-Lloyd A. G., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 544

653 F.2d 544

209 U.S.App.D.C. 289

SEA-LAND SERVICE, INC., Petitioner, v. FEDERAL MARITIME COMMISSION and United States of America, Respondents Seatrain International S. A., Hapag-Lloyd A. G., et al., Intervenors.

No. 79-2493.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 18, 1980.

Decided April 14, 1981.

Paul J. McElligott, Washington, D. C., with whom Neal M. Mayer, Peter J. King and Paul D. Coleman, Washington, D. C., were on the brief, for petitioner and Intervenor, Seatrain International S. A.

Edward G. Gruis, Deputy Gen. Counsel, Federal Maritime Commission, Washington, D. C., with whom John C. Cunningham, Atty., Federal Maritime Commission, Washington, D. C., was on the brief for respondents. Sanford M. Litvack, John J. Powers, III, Robert J. Wiggers and Robert B. Nicholson, Attys., Dept. of Justice, Washington, D. C., also entered appearances for respondent, United States of America.

Edward Schmeltzer, Washington, D. C., with whom George J. Weiner, Annandale, Va., was on the brief, for Intervenor, Hapag-Lloyd A. G., et al.

Before McGOWAN, Chief Judge, and EDWARDS and GINSBURG, Circuit Judges.

Opinion for the court filed by Chief Judge McGOWAN.

McGOWAN, Chief Judge:

Sea-Land Service, Inc. ("Sea-Land") petitions for review of a Federal Maritime Commission order modifying the Initial Decision of an Administrative Law Judge which had approved two agreements allowing for joint commercial activity among common carriers. These agreements were the product of negotiation and compromise between the parties to the agreements, on the one hand, and various independent carriers such as Sea-Land, who were likely to be significantly affected by the agreements, on the other. Upon reviewing the Initial Decision, the Commission modified the negotiated agreements in several respects. Because we find that the Commission effected major modifications in the agreements without giving prior notice and an opportunity for comment, we remand the Commission's order for further proceedings consistent herewith.

I

Section 15 of the Shipping Act of 1916, 46 U.S.C. § 814 (Supp. III 1979), requires that "(e)very common carrier by water ... shall file immediately with the (Federal Maritime) Commission ... every agreement with another such carrier, ... or modification or cancellation thereof, ... providing for an exclusive, preferential, or cooperative working arrangement." Id. at P 1. The Federal Maritime Commission, in turn, may "disapprove, cancel, or modify the agreement," id. at P 2, but any such modification or disapproval may be made only after "notice and hearing." ¹

In 1971, the Commission approved a joint service agreement (Agreement No. 9929), between two shipping lines, Hapag-Lloyd Aktiengesellshaft ("Hapag-Lloyd") and Holland-America Line, a predecessor in interest to Intercontinental Transport B. V. ("ICT"). This joint service, known as Combi-Line, operated LASH ² vessels between United States ports on the Gulf of Mexico or eastern seaboard, and ports in Europe excluding those in the Mediterranean. ³ Hapag-Lloyd and Holland-America shared one vote in any conference or rate agreement to which the joint service became a party. (II J.A. 312, 351).

In 1976, Hapag-Lloyd, ICT, and Compagnie General Transatlantique ("CGT") ⁴ filed an amendment to No. 9929, designated Agreement No. 9929-2, which differed from the original in four respects. First, it added CGT as a party to the agreement. It also terminated a portion of the Combi-Line joint service the containerized cargo carriage service and created in its place a new coordinated container service, whereby the parties to the joint service might cross-charter container space on each other's vessels but otherwise would market and solicit their own cargo spaces. Third, the amendment continued the joint LASH and conventional vessel service between Hapag-Lloyd and ICT. In addition, CGT joined the service for the purpose of contributing capital equipment and, at some later date, operating a LASH feeder operation. ⁵ Finally, Agreement No. 9929-2 authorized separate votes for Hapag-Lloyd, ICT, CGT, and the joint LASH service as a whole in any conferences or rate agreements in which they participated. ⁶

At the same time, ICT and CGT filed a separate Agreement, designated No. 10266. This was termed a "Joint Marketing Agreement," and provided that the parties would (1) market all available cargo space jointly, (2) designate joint agents, (3) issue a joint bill of lading, (4) share revenues and expenses, and (5) function as separate parties, with separate votes, in any conferences or rate agreements (II J.A. 338-41).

The Federal Register Notice of the filing of the new and amended agreements elicited protests and requests for hearing from Sea-Land, as well as from numerous other independent carriers. ⁷ Accordingly, the Commission issued an Order of Investigation and Hearing to determine whether Agreements No. 9929-2 and 10266 should be approved, disapproved, or modified pursuant to Section 15 of the Shipping Act.

In its order, the Commission observed that joint service agreements are presumptive violations of section 1 of the Sherman Antitrust Act, (I J.A. 7), and that the proponent of any such agreement must meet the heavy burden of showing that, on balance, the agreement is in the public interest. Among the issues the Commission then set for hearing were (1) "whether approval of the Agreements will enable the parties (to the agreements) to offer a valid container service without overtonnaging the trade, as the proponents claim, or whether the trade is already overtonnaged and will be made more so by approval of the Agreements, as the protestants claim," and (2) "whether the separate voting provisions contained in Agreements No. 9929-2 and 10266 may result in unjust or unfair advantages to the parties in conference affairs." (I J.A. 5-6).

The parties to the upcoming hearing, proponents and opponents alike, then began marshalling their evidence. Proponents assertedly failed to comply with certain of Sea-Land's discovery requests. Proceedings to compel answers to interrogatories and depositions ensued, and eventually proponents withdrew Proposed Agreements Nos. 9929-2 and 10266 and submitted modified proposals in their place.

These modified proposals, designated Agreements Nos. 9929-5 and 10266-2 respectively, differed markedly from the earlier agreements. First, they dispensed with the controversial multiple voting provisions, providing instead that, as parties to a conference, proponents could "not exercise in a total a greater number of votes than that which may be accorded to a single member of such conference." (II J.A. 361). Henceforth, whenever a party entered a conference as a member of a joint service, it would cast only one vote in concert with the other members of the joint service, and not retain a separate vote. ⁸ Second, proponents reduced the maximum amount of tonnage that could be transported on the joint service lines per week. After these amendments were concluded, testimony was heard on the amended agreements only, and all evidence as to the earlier agreements was stricken from the record. (I J.A. 114, 116; II J.A. 347-50).

Agreements Nos. 9299-5 and 10266-2 were subsequently approved in a lengthy Initial Decision by Administrative Law Judge Stanley M. Levy (II J.A. 177-232). The ALJ first observed that both Agreements were rate-fixing provisions presumptively violative of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 (Supp. III 1979) (II J.A. 208). The Supreme Court has held that the party seeking approval of such an agreement must "bring forth such facts as would demonstrate that the ... rule was required by a serious transportation need, necessary to secure important public benefits or in furtherance of a valid regulatory purpose of the Shipping Act." ⁹

The ALJ concluded, however, that the proponents had met this burden. (II J.A. 208-232). He reasoned that the agreements would not adversely affect competing carriers because proponents had added sufficient cargo capacity limitations to No. 9929-5 and had eliminated multiple voting from the Agreements. (II J.A. 224). No exceptions were filed to the Initial Decision, although the ALJ had placed several conditions on the operation of the agreements. ¹⁰

Nonetheless, the Commission undertook to review the Initial Decision and, on June 5, 1979, issued an Order Partially Adopting Initial Decision. (II J.A. 234-51). The Commission modified the agreements in both technical and substantive respects. First, it divided No. 9929-5 into two separate agreements: No. 9929-6, the Hapag-Lloyd/ICT joint service; and a new Agreement, designated No. 10374, which authorized the cross-charter container arrangement involving Hapag-Lloyd, ICT and CGT. The Commission also deleted the authority of the parties jointly to charter supplemental space on other carriers' vessels. (II J.A. 240-41).

With respect to Agreement No. 10266-2, the Commission found that the Agreement actually created a joint service, not merely a joint marketing arrangement, because the Agreement provided for revenue sharing, as well as several other characteristics of a joint service. ¹¹ Although the Commission believed it unlikely that the ICT/CGT joint service would ever operate outside the framework of Agreements Nos. 9929-6 and 10374, the Commission believed that, in the event Agreement No. 10374 were ever terminated, ICT and CGT might begin transporting unlimited amounts of cargo under Agreement No. 10266-2, creating serious overtonnage problems for competing lines. (II J.A. 242-43). Therefore, the Commission placed an 800 TEU per week (averaged quarterly) cargo limitation upon this service, similar to that placed upon the parties to Agreement No. 10374. ¹²

Finally, the Commission modified two agreements with respect to voting. Originally, Agreement No. 9929-5, as approved by the ALJ, had provided that...