Sea-Land Service, Inc. v. Connor

• Decision Date: 04 June 1969
• Docket Number: No. 22140.,22140.
• Citation: 418 F.2d 1142
• Parties: SEA-LAND SERVICE, INC., Appellant, v. John T. CONNOR et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

418 F.2d 1142 (1969)

SEA-LAND SERVICE, INC., Appellant, v. John T. CONNOR et al., Appellees.

No. 22140.

United States Court of Appeals District of Columbia Circuit.

Argued February 28, 1969.

Decided June 4, 1969.

Mr. Edward M. Shea, Washington, D. C., with whom Mr. John Mason, Washington, D. C., was on the brief, for appellant.

Mr. Leavenworth Colby, Atty., Department of Justice, with whom Asst. Atty. Gen. Edwin L. Weisl, Jr., at the time the brief was filed, Messrs. David G. Bress, U. S. Atty., at the time the brief was filed, and John C. Eldridge, Washington, D. C., Attorney for appellee Connor and certain other appellees.

Mr. Richard W. Kurrus, Washington, D. C., with whom Mr. James N. Jacobi, Washington, D. C., was on the brief, for appellee American Export Isbrandtsen Lines, Inc.

Before McGOWAN, TAMM and LEVENTHAL, Circuit Judges.

TAMM, Circuit Judge:

Since approximately seventy percent of the world's surface is covered by water and since possibly more than seventy percent of this country's foreign trade is carried, at some time, in the holds or on the decks of water-borne carriers and further, since this country is constantly striving to have the finest fleet of merchant ships, Congress, in 1936, enacted the Merchant Marine Act as the vehicle to provide for a sufficient service in shipping, a back-up force for national defense, an opportunity opened only to United States' citizen-entrepreneurs and the best, safest and grandest fleet in the world. To implement these ends Congress saw fit to establish the United States Maritime Commission, 46 U.S.C. § 1111 et seq. (1964), as its regulatory arm. That organ worked to make our merchant marine fleet capable of competing with foreign flag vessels by extending government aid, in the form of subsidies, to insure the viability of the more costly American-flag shipping. In 1961, pursuant to Reorganization Plan No. 7, 75 Stat. 840, as amended, the area of economic assistance in this field was thereafter overseen by the Secretary of Commerce, the Maritime Administration and the Maritime Subsidy Board (hereinafter collectively known as the "Secretary"). The Secretary, when acting in this area, must adhere to the pertinent sections of the Merchant Marine Act or find itself out of step with the law. It is the position of the appellant that such imprecision with the law by the Secretary, in violating certain procedural requirements of notice of application for subsidy, is cause for reversal of the district court's affirmance of the Secretary's action. We are in accord with that position and reverse the implicit finding of lawful conformance by the trial court in its grant of summary judgment to the appellee.

In 1962 American Export Isbrandtsen Lines, Inc. (hereinafter "Export") was granted permission to operate a non-subsidized trade over Route Nos. 5-7-8-9 between the northeastern United States and the western countries of Europe. Under its agreement Export was to utilize two break-bulk type vessels,¹ the S.S. Remsen Heights and the S.S. Sir John Franklin for a maximum total of 18 sailings per year. On February 24, 1964, Export filed with the Secretary an application for an operating-differential subsidy under Subchapter VI of the Merchant Marine Act of 1936, as amended, 46 U.S.C. § 1171 et seq. (1964), with regard to this same route. In that application Export requested "that the Operating-Differential Subsidy² Agreement between the United States * * * and Export * * * (Contract No. FMB-87)³ be amended to include authority to operate the S.S. Sir John Franklin and S.S. Remsen Heights in subsidized service on Trade Routes Nos. 5-7-8-9 * * *." (Attachment #1, p. 18; emphasis supplied.) The application also requested permission "to interchange the vessels (Remsen Heights and Sir John Franklin) * * * with the other cargo vessels used by it on its Lines sic G and Line H. * * *" (Attachment #1, p. 19.) Lines G and H were also served by vessels of the break-bulk type (Attachment #1, p. 17). Export further noted that "as to Applicant's long-range vessel replacement plans * * * it is contemplated that suitable replacement for the SS Sir John Franklin and the SS Remsen Heights, the subject of this Application, will be agreed upon." (Emphasis supplied, Attachment #1, p. 43.) The application urged the need for additional vessels to operate these routes in the face of an inadequate service by United States' flag vessels.

On April 1, 1964, this application, pursuant to 46 C.F.R. § 201.72 (1968), was published in the Federal Register inviting "interested parties" to file for leave to intervene in a hearing under section 605(c) of the Act to determine "(1) whether the application is one with respect to vessels to be operated on a service, route or line served by citizens of the United States which would be in addition to the existing service * * * and, if so whether the service already provided by vessels of United States registry * * * is inadequate, and (2) whether in the accomplishment of the purposes and policy of the Act additional vessels should be operated thereon." (Attachment #8, p. 2.) Section 605(c) of the Merchant Marine Act of 1936, as amended, 46 U.S.C. § 1175(c) (1964), requires that

no contract (of subsidy) shall be made * * * with respect to a vessel to be operated on a * * * route * * * served by citizens of the United States which would be in addition to the existing services * * * unless the Federal Maritime Board shall determine after proper hearing of all parties that the service already provided by vessels of United States registry * * * is inadequate, and that in the accomplishment of the purposes * * * of this chapter additional vessels should be operated thereon * * *. (Emphasis supplied.)

The statute goes on to require

no contract shall be made * * * if the Board shall determine the effect of such a contract would be to give undue advantage or be unduly prejudicial, as between citizens of the United States, in the operation of vessels in competitive services * * * unless following public hearing, due notice of which shall be given to each line serving the route, the Board shall find * * * it is necessary to enter into such contract in order to provide adequate service by vessels of United States registry.

Waterman S.S. Company, a wholly-owned subsidiary of McLean Industries, Inc. (the parent company of Sea-Land Service), was the only petitioner for intervention for it also served Trade Routes Nos. 5-7-8-9 at the time of the February 24, 1964, application. However, Waterman was thereafter sold to a third party and its intervention dropped.

On May 21, 1964, a prehearing conference was held before the Secretary's trial examiner and, in the absence of opposition to or petitions for intervention in the grant of subsidy, the application was forwarded to the Secretary for administrative determination. On February 8, 1965, the Office of Government Aid of the Secretary recommended that Export's application be approved "on an interim subsidized basis pending replacement." (J.A. 41.) However, action on that recommendation was deferred pending the outcome of a second application hereinafter discussed.

On April 7, 1965, Export applied to the Secretary for an establishment of "the first fully containerized steamship service in the foreign commerce of the United States, which service it believed would offer unprecedented benefits. * * *" (Attachment #12, p. 1, emphasis supplied.) This application was filed on behalf of a yet to be formed subsidiary of Export to be known as Container Marine Lines, Inc. In that application Export requested a "construction-differential subsidy" to enable it to convert two vessels (ore carriers) into cellular containerized ships. While Export considered its application as being only a "containership program being * * * actually a pilot or experimental proposal" it sought an operating-differential subsidy for the operation of these vessels when they would come on the Trade Route Nos. 5-7-8-9 in the place of the Remsen Heights and Sir John Franklin. This second application was not formally noticed in the Federal Register⁴ by the Secretary nor was a public hearing offered in that regard.

In the interim, between the filing of the first and second application, on September 1, 1964, appellant, Sea-Land Service, Inc. (hereinafter "Sea-Land"), instituted certain pre-inaugural plans for a containership service over this same trade route. Sea-Land is and has been operating on a non-subsidized basis with respect to the operating-differential aid of the Secretary. Its planned container service would also be a non-subsidized service. That service was, in fact, instituted in March of 1966 and has been continuously in service through weekly sailings since that time.

On August 16, 1965, Export was notified that the Secretary had "denied its application of February 24, 1964, regarding the SSs Remsen Heights and Sir John Franklin. * * *" (Attachment #10.) However, this disappointment was lessened by the fact that the Secretary, in certain letters of August 13, 1965, had notified Export that on August 12, 1965, it had approved "the application * * * dated April 7, 1965, as supplemented May 5, 1965, and June 2, 1965." (Attachments # 26, 27.) In addition, the Secretary, by press release dated August 19, 1965, noted its grant of subsidy under the April 7, 1965, application as well as its denial of the February 24, 1964, application. (Attachment # 28.)

A petition for "reopening for the purpose of rehearing, reargument, or reconsideration," was served on the Maritime Subsidy Board and the Maritime Administration by Sea-Land on September 1, 1965, pursuant to 46 C.F.R. § 201.174 (1968). On September 9, 1965, the Board Administrator denied Sea-Land's petition to reopen (J.A. 17). Ten days later Sea-Land petitioned for Secretarial review of the lower determination but this also was denied on October 4, 1965. Sea-Land filed a complaint in the...