Sea-Land Service, Inc. v. Department of Transp.

• Decision Date: 13 March 1998
• Docket Number: SEA-LAND,97-1083,Nos. 93-1846,s. 93-1846
• Citation: 137 F.3d 640
• Parties: , 329 U.S.App.D.C. 108 SERVICE, INC., Petitioner, v. DEPARTMENT OF TRANSPORTATION, et al., Respondents.SERVICE, INC., Petitioner, v. FEDERAL MARITIME COMMISSION and United States of America, Respondents, American President Lines, Ltd., Intervenor to 97-1085.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 640

137 F.3d 640

1998 A.M.C. 1926, 329 U.S.App.D.C. 108

SEA-LAND SERVICE, INC., Petitioner, v. DEPARTMENT OF TRANSPORTATION, et al., Respondents.

SEA-LAND SERVICE, INC., Petitioner, v. FEDERAL MARITIME COMMISSION and United States of America, Respondents, American President Lines, Ltd., Intervenor

Nos. 93-1846, 97-1083 to 97-1085.

United States Court of Appeals, District of Columbia Circuit.

Argued Nov. 12, 1997.

Decided March 13, 1998

John M. Nannes, Washington, DC, argued the cause for petitioner. With him on the briefs were Richard L. Brusca, Robert S. Zuckerman, James P. Moore and Gary A. MacDonald.

Steve Frank, Attorney, U.S. Department of Justice, Washington, DC, argued the cause for respondent, Department of Navy, Military Sealift Command. With him on the briefs were Frank W. Hunger, Assistant Attorney General, Robert V. Zener, and Barbara C. Biddle.

Carol J. Neustadt, Attorney, Federal Maritime Commission, Washington, DC, argued the cause and filed the brief for respondent, Federal Maritime Commission.

Robert T. Basseches and John Townsend Rich, Washington, DC, were on the briefs for amicus curiae American President Lines, Ltd.

Before: WILLIAMS and ROGERS, Circuit Judges and BUCKLEY, Senior Circuit Judge.

STEPHEN F. WILLIAMS, Circuit Judge:

In 1993 the United States Maritime Administration ("MarAd") issued two orders (the "modification orders") deleting from several of its own previous orders a clause that it had become convinced was legally invalid. In No. 93-1846 Sea-Land Service, Inc. ("Sea-Land") appealed from the modification orders. In the course of that appeal it became apparent to the court that its resolution turned in part on a question within the primary jurisdiction of, and then pending before, the Federal Maritime Commission ("FMC"); accordingly we stayed our proceedings pending the FMC's decision. That decision, appealed by both sides, is now before us in No. 97-1083 and consolidated cases. We uphold a portion of the FMC decision and do not reach the other portion. For reasons that will become apparent, our ruling on the FMC decision completely undermines MarAd's modification orders, which we accordingly vacate. With the modification orders removed from the picture, the earlier MarAd orders resume their full original effectiveness.

* * *

Sea-Land is an ocean common carrier, transporting containerized freight, and a U.S. citizen within the meaning of certain maritime legislation, namely 46 U.S.C. app. § 808(c)(1). In 1988 Sea-Land acquired twelve large containerships that had been built for and operated by United States Lines, Inc. until its bankruptcy in 1986. Sea-Land's purchase was made in conjunction with a Cooperative Working Agreement with two foreign carriers, P&O Containers (TFL) Limited and Nedlloyd Lijnen P.V. Under the Agreement, Sea-Land agreed to charter two of the ships to the foreign carriers for a period of time, and to charter and cross-charter space with the foreign carriers on all twelve ships. Article 5(i) of the Agreement, the source of this litigation, prohibited the foreign carriers from carrying on Sea-Land's vessels cargo that was reserved to U.S.-flag vessels under the cargo preference laws of the United States. ¹

Ocean common carriers are regulated by the Shipping Act of 1916, 46 U.S.C. app. §§ 801-842, administered by MarAd, and the Shipping Act of 1984, 46 U.S.C. app. §§ 1701-1720, administered by the FMC. Cooperative working agreements among ocean common carriers must be filed with the FMC, which must reject agreements not meeting certain formal and substantive requirements. See 46 U.S.C. app. §§ 1704, 1705(b). If not rejected, an agreement becomes effective shortly after its filing. See id. § 1705(c). If the FMC at any time determines that an agreement is "likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost," it may seek an injunction against its operation. Id. § 1705(g). The 1984 Act exempts these agreements from the antitrust laws, but prohibits certain anti-competitive conduct. See id. §§ 1706, 1709.

If a cooperative working agreement provides for the charter of U.S.-flag ships to foreign carriers, it must also be filed with MarAd for its approval of the charter arrangements. See 46 U.S.C. app. § 808(c). Under § 41 of the 1916 Act MarAd is to approve charter agreements "either absolutely or upon such conditions as the Secretary of Transportation prescribes." 46 U.S.C. app. § 839.

Sea-Land accordingly submitted its agreement to both agencies in early 1988. The Military Sealift Command ("Sealift Command"), the branch of the Navy Department responsible for procuring transportation of military cargo, opposed Article 5(i) of the Agreement before both agencies on the grounds that it would "unreasonably restrict competition" and raise the costs of such transportation. Despite the Sealift Command's objections, MarAd issued charter orders approving the agreements. Indeed, the orders, in their Condition 4, required the parties to adhere to cargo-preference limitations identical to those of Article 5(i).

The Sealift Command's attempt to persuade the FMC to pursue an injunction proved equally unavailing. The FMC noted that Article 5(i) "raised issues under the 1984 Act," but correspondence with MarAd apparently satisfied it that MarAd, in imposing Condition 4, saw its orders as "an expression of the laws and policies of the United States." This being so, the FMC advised the Sealift Command, "this agency has no authority to directly overturn an action by MarAd taken under sections 9 and 41 of the 1916 Act on any ground; such a result must be sought by [Sealift Command] in some other forum." The FMC decided to defer any decision on an investigation--a preliminary step to requesting an injunction--in order to allow the Sealift Command to pursue its challenges elsewhere.

On February 16, 1990 the Sealift Command filed a complaint against Sea-Land with the FMC, alleging that Article 5(i) violated, inter alia, § 10(c)(6) of the 1984 Act, 46 U.S.C. app. § 1709(c)(6). That section bars carriers from

allocat[ing] shippers among specific carriers that are parties to the agreement or prohibit[ing] a carrier that is a party to the agreement from soliciting cargo from a particular shipper, except as otherwise required by the law of the United States or the importing or exporting country, or as agreed to by a shipper in a service contract.

46 U.S.C. app. § 1709(c)(6) (emphasis added). The Sealift Command's complaint alleged that Article 5(i) constituted a proscribed "allocation." Sea-Land responded with a motion to dismiss, based in part on a contention that the agreements were not "allocations," and in part on the proposition that they fell within § 10(c)(6)'s exception because MarAd's charter orders constituted "law of the United States" and, by incorporating the restrictive condition, "required" the cargo-preference arrangement.

The Sealift Command had also petitioned MarAd to reconsider its approval of the charter orders. MarAd denied this petition while the FMC proceeding was under way. The Sealift Command then notified the administrative law judge presiding over the FMC proceedings that it was making a "recommendation to proper higher authority for further action on the MarAd denial," and the ALJ stayed the FMC proceeding to await the result. The "higher authority" turned out to be the Department of Defense (Sealift Command's parent Department). That Department, accurately viewing the matter as a legal dispute between two executive branch agencies, itself and the Department of Transportation (MarAd's parent), asked the Justice Department's Office of Legal Counsel ("OLC") for a resolution. The Sealift Command argued to OLC that MarAd had exceeded its authority in imposing Condition 4 as part of its charter orders.

On October 19, 1993 OLC issued a memorandum answering the agencies' claims. First, it found that Article 5(i) of the Cooperative Working Agreement was an allocation under § 10(c)(6) of the 1984 Act. It was therefore unlawful unless § 10(c)(6)'s exception for allocations "required by the law of the United States" applied. And the exception could not apply, thought OLC, because MarAd had no legal authority to validate an illegal act. As a result, MarAd on December 3, 1993 sent orders to Sea-Land modifying each of the charter orders by removing the restrictive Condition 4. Sea-Land promptly sought judicial review of MarAd's modifications here, arguing in part that the restrictive clause did not constitute an allocation of shippers within the meaning of Section 10(c)(6), and that even if it did, it was legitimized by the original MarAd orders, which counted as "law of the United States" under the "except" clause. Just after oral argument of the case here, MarAd stayed its modification orders until 20 days after our resolution of the case.

That resolution did not follow with the customary speed. After oral argument we issued an order on our own initiative staying our proceedings pending a decision by the FMC on the Sealift Command's complaint against Sea-Land. The validity of the MarAd charter conditions depended at least in part on their status under § 10(c)(6), which was, we said, a question within the primary jurisdiction of the FMC.

The FMC proceeding, of course, had itself been stayed pending our decision, so the matching stays created the risk of an Alphonse and Gaston standstill. In fact, however, the ALJ promptly lifted the stay in the FMC proceeding. American President Lines, Ltd. ("APL"), a carrier with interests akin to Sea-Land's, was allowed to intervene to present legal arguments. After initial decisions by the ALJ, the FMC issued its report and order on December 10, 1996. The FMC agreed with OLC that Article 5(i) did constitute an allocation within the meaning of § 10(c)(6). But, disagreeing with OLC, the FMC also found that...