Sea-Land Service, Inc. v. Kreps

• Decision Date: 01 November 1977
• Docket Number: SEA-LAND,Nos. 76-1204 and 76-1389,s. 76-1204 and 76-1389
• Citation: 566 F.2d 763,185 U.S.App.D.C. 98
• Parties: SERVICE, INC. v. Juanita M. KREPS, Individually and as Secretary of Commerce, et al., American President Lines, Ltd., Appellant.SERVICE, INC. v. Juanita M. KREPS, Individually and as Secretary of Commerce, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 763

566 F.2d 763

185 U.S.App.D.C. 98

SEA-LAND SERVICE, INC. v. Juanita M. KREPS, Individually and as Secretary of Commerce, et al., American President Lines, Ltd., Appellant.

SEA-LAND SERVICE, INC. v. Juanita M. KREPS, Individually and as Secretary of Commerce, et al.

Nos. 76-1204 and 76-1389.

United States Court of Appeals District of Columbia Circuit.

Argued 17 March 1977.

Decided 30 Sept. 1977.

Rehearing Denied Nov. 1, 1977.

Warner W. Gardner, Washington, D. C., with whom Franklin D. Kramer, Washington, D. C., was on the brief, for appellant in No. 76-1204.

Michael Kimmel, Atty., Dept. of Justice, Washington, D. C., with whom Rex E. Lee, Asst. Atty. Gen., Earl J. Silbert, U. S. Atty. and Leonard Schaitman, Atty., Dept. of Justice, Washington, D. C., were on the brief, for appellants in No. 76-1389 and appellee, Kreps in No. 76-1204. Morton Hollander, Atty., Dept. of Justice, Washington, D. C., also entered an appearance for appellants in No. 76-1389.

Edward M. Shea, Washington, D. C., with whom Gary R. Edwards, Washington, D. C., was on the brief, for appellee, Sea-Land Service, Inc.

Before McGOWAN, ROBINSON and WILKEY, Circuit Judges.

Opinion for the Court filed by WILKEY, Circuit Judge.

Dissenting opinion filed by SPOTTSWOOD W. ROBINSON, III, Circuit Judge.

WILKEY, Circuit Judge:

This appeal is from an order of the District Court (Robinson, J.) reversing the decision of the Maritime Subsidy Board (hereinafter the Board) to grant an amended operating differential subsidy (ODS) contract to intervenor-appellant American President Lines, Ltd. ¹ (APL) pursuant to the Merchant Marine Act of 1936 (the Act). ² Before the Board can grant an ODS to a United States flag carrier, it is required by section 605(c) of the Act to find that "the service already provided by vessels of United States registry is inadequate. . . ." ³

The sole issue presented in this appeal is whether the Board can lawfully recognize transoceanic cargo carried by U. S. flag vessels between Canada and the Far East in making the finding as to the adequacy of U. S. flag service on a particular trade route. ⁴ The Board ruled that such cargo could be recognized for purposes of making the section 605(c) adequacy determinations; ⁵ the District Court reversed the Board on this point. ⁶ We conclude that the District Courts' interpretation of section 605(c) was in error and that the Board's position was a proper interpretation and application of the Act entitled to deference from the reviewing court. Accordingly, we reverse the order of the District Court and remand the case with instructions to affirm the Board's decision to grant the ODS application of APL.

I. BACKGROUND

A. Statutory Framework.

The Merchant Marine Act of 1936 was enacted to foster the development and continued maintenance of a modern merchant marine fleet for the United States. ⁷ The Act's declaration of policy states that

It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (b) capable of serving as a naval and military auxiliary in time of war or national emergency * * *. ⁸ To accomplish these goals the Act establishes two subsidies for American shipping enterprises the operating-differential subsidy that is the focus of this appeal, and a construction-differential subsidy (CDS) that is not implicated in these proceedings. ⁹

The operating-differential subsidy is governed by Title VI of the Act. Under section 601(a) of the Act, the Secretary of Commerce is authorized and directed "to consider the application of any citizen of the United States for financial aid in the operation of a vessel or vessels, which are to be used in an essential service in the foreign commerce of the United States * * *." ¹⁰ The approval of an application for ODS is predicated on a determination by the Secretary that "the operation of such vessel or vessels in an essential service is required to meet foreign-flag competition and to promote the foreign commerce of the United States"; that the applicant possesses the vessels and qualifications necessary to enable him "to meet competitive conditions and promote foreign commerce"; and that the subsidy is "necessary to place the proposed operations * * * on a parity with those of foreign competitors, and is reasonably calculated to carry out effectively the purposes and policy of this Act." ¹¹

The term "essential service " is expressly defined in section 601(a) to mean "the operation of a vessel on a service, route, or line described in section 211(a) * * *." ¹² Section 211(a) of the Act authorizes and directs the Secretary to determine

(t)he ocean services, routes, and lines from ports in the United States, or in a Territory, district, or possession thereof, to foreign markets, which are, or may be, determined by the Secretary of Commerce to be essential for the promotion, development, expansion, and maintenance of the foreign commerce of the United States, and in reaching his determination the Secretary of Commerce shall consider and give due weight to the cost of maintaining each of such steamship lines, the probability that any such line cannot be maintained except at a heavy loss disproportionate to the benefit accruing to foreign trade, the number of sailings and types of vessels that should be employed in such lines, and any other facts and conditions that a prudent business man would consider when dealing with his own business, with the added consideration, however, of the intangible benefit the maintenance of any such line may afford to the foreign commerce of the United States, to the national defense, and to other national requirements(.) ¹³

If the Secretary approves the application for an ODS, a contract is entered into with the applicant for payment of the subsidy. ¹⁴ The amount of the ODS is the excess of certain operating costs (wages, insurance, maintenance and repairs) incurred in the operation of the subsidized vessel over the estimated fair and reasonable cost of the same items of expense if the vessel were operated under the registry of a foreign country whose vessels are substantial competitors of the subsidized vessel ¹⁵. The subsidy contract specifies the trade route (the "essential service") for which the subsidy is authorized, including the number of vessels to be operated thereon, and the minimum and maximum number of outbound and inbound sailings by such vessels per year. Contracts are typically for 20-year terms.

Section 605(c) of the Act the provision involved in this case provides in pertinent part No contract (for ODS) shall be made * * * with respect to a vessel to be operated in an essential service served by citizens of the United States which would be in addition to the existing service, or services, unless the Secretary of Commerce 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 and policy of this Act additional vessels should be operated thereon * * *. ¹⁶

The Secretary of Commerce has interpreted this provision to cover significant changes in existing ODS contracts involving additional service (not only new ODS contracts); and to cover, among other things, additional sailings by existing subsidized vessels as well as the operation of additional vessels by existing subsidized lines. ¹⁷

The effect of section 605(c) is thus to bar any increase in the maximum number of sailings specified in an ODS contract for a subsidized line operating in a particular trade route, if any other objecting American shipping company (subsidized or unsubsidized) operates U. S.-flag vessels in that trade route, unless the Secretary determines at a hearing that the existing service provided by all U. S.-flag vessels is "inadequate." Under a general guideline established by the Board, carriage by U. S.-flag vessels of less than 50 percent of the available waterborne U. S. foreign commerce on a particular trade route will be considered "inadequate." Carriage of 50 percent or more of the available U. S. foreign commerce by U. S.-flag vessels will be considered adequate unless a higher percentage is feasible. ¹⁸

In summary, the Act authorizes the payment of ODS in order to promote the development of an American merchant marine, both for national defense purposes and to carry a substantial portion of this country's foreign commerce. ODS is authorized for U. S.-flag vessels in order to meet foreign flag competition and to carry U. S. foreign commerce in particular essential trade routes between American and foreign ports. Where competing U. S.-flag carriers operate, no ODS contracts may be executed, and no additional sailings by subsidized vessels can be authorized, unless existing services provided by all U. S.-flag vessels in a particular trade route are determined to be inadequate.

B. The Application by APL.

APL, a subsidized line, filed an application with the Board on 3 June 1971 requesting authority for additional sailings between ports in the Pacific Northwest of the U. S. and the Far East, within Trade Route No. 29. ¹⁹ Trade Route No. 29 shipping service has been determined by the Secretary of Commerce to be an "essential service" under section 211(a) of the Merchant Marine Act. ²⁰ This Route is the ocean trade route between U. S. Pacific ports (in Alaska, Washington, Oregon, California, Hawaii, and U. S. islands lying between the United States and the Far East) and ports in Japan, Taiwan, Philippines, the Continent of Asia from the U.S.S.R. to Thailand, inclusive, and other Pacific Islands lying between...