Liberty Maritime Corp. v. U.S., s. 90-5051

• Decision Date: 08 March 1991
• Docket Number: 90-5101,Nos. 90-5051,s. 90-5051
• Parties: LIBERTY MARITIME CORPORATION, et al., Appellants, v. UNITED STATES of America, et al. OMI CORPORATION, et al., Appellants, v. UNITED STATES of America, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 413

928 F.2d 413

289 U.S.App.D.C. 1

LIBERTY MARITIME CORPORATION, et al., Appellants, v. UNITED STATES of America, et al.

OMI CORPORATION, et al., Appellants, v. UNITED STATES of America, et al.

Nos. 90-5051, 90-5101.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 5, 1991.

Decided March 8, 1991.

Appeals from the United States District Court for the District of Columbia (Civil Action Nos. 88-03185 & 88-03194).

Michael Joseph, with whom Alex Blanton and Joseph O. Click were on the joint brief, for appellant Liberty Maritime Corp. in No. 90-5051. Glenn P. Harris, Washington, D.C., also entered an appearance for appellant.

Jonathan Blank and John Longstreth, Washington, D.C., were on the joint brief, for appellants OMI Corp. and Seafarers Intern. Union in No. 90-5101.

Jeffrey T. Sprung, Asst. U.S. Atty., Dept. of Justice, with whom Jay B. Stephens, U.S. Atty., John D. Bates and R. Craig Lawrence, Asst. U.S. Attys., Dept. of Justice, Washington, D.C., were on the brief, for Federal appellees in both cases.

Richard H. Saltsman, with whom Roy G. Bowman, Washington, D.C., was on the brief, for appellees Belmont VLCC I, Inc., Belmont VLCC II, Inc., and Belmont VLCC III, Inc., in both cases.

Before WALD, BUCKLEY and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

Concurring opinion filed by Circuit Judge BUCKLEY.

WALD, Circuit Judge:

Liberty Maritime Corporation and OMI Corporation ("Appellants") challenged the Secretary of Transportation's ("the Secretary") sale of three repossessed vessels to private defendants ("Belmont"). The Secretary acquired the vessels as defaulted collateral under the Ship Mortgage Insurance Fund program in Title XI of the Merchant Marine Act, 1936, as amended ("the Act"). See 46 U.S.C. App. Secs. 1271-1280 (Supp.1989). Appellants asserted in district court that the Secretary violated two limitations on his sales authority contained in other provisions of the Act: Sec. 705, which establishes a minimum price for the sale of vessels constructed with subsidies, and Sec. 508, which imposes restrictions on competition in foreign commerce for vessels sold for scrap. Appellants alleged economic damage as a result of the sale, claiming that the sale of the vessels resulted in a subsidy to Belmont, which allowed Belmont to bid below the appellants for a contract to carry preference cargo under the Cargo Preference Act of 1954. 46 U.S.C. App. Sec. 1241(b) (Supp.1989).

The district court found that Sec. 1105(c) of the Act grants the Secretary broad discretion to sell vessels repossessed under Title XI at any price and under any terms it deems appropriate. Therefore, the Secretary did not violate Sec. 508 or Sec. 705 of the Act when it sold the vessels to Belmont. See Liberty Maritime Corp. v. United States, Civ.Action No. 88-3185, Memorandum Opinion ("Mem. op.") at 20. We agree. Because we find that there was no subsidy involved in the sale, we also reject appellants' Cargo Preference Act claim of economic harm. Accordingly, we affirm the district court's dismissal of the complaint on all counts.

I. STATUTORY FRAMEWORK

Congress enacted the Merchant Marine Act to "foster the development and encourage the maintenance" of a merchant marine in the United States for domestic and foreign trade and military support. 46 U.S.C. App. Sec. 1101. The Act aims to place "American shipowners on a parity with their foreign competitors, by equalizing the higher cost of building ships in the United States and operating them under American registry." S.Rep. No. 1721, 74th Cong., 2d Sess. 22 (1936). The statute provides government subsidies, as well as government-backed investments, to encourage the construction and operation of ships in the United States. The provisions of the Act at issue in this case include Sec. 508 under Title V, Sec. 705 under Title VII, and Sec. 1105(c) under Title XI.

Title V of the Act provides subsidies for the price of vessels constructed specifically for a United States citizen who has applied to the Secretary for construction of a new vessel for use in foreign commerce. See 46 U.S.C. App. Secs. 1151-1161. Upon granting the application, the Secretary contracts with an American shipyard for the construction of the vessel for the purchaser. See 46 U.S.C. App. Sec. 1152(a). The Secretary then sells the vessel to the purchaser at a price below the construction cost representing the difference between the actual cost of building a vessel in the United States and the estimated cost of building the same vessel in a foreign shipyard. See 46 U.S.C. App. Sec. 1152(b). The difference between the actual cost of construction and the sale price is called a "construction-differential subsidy" or "CDS." Id. The Secretary also places a lien on the remainder of the purchase price owed by the purchaser to protect the government's interest in the payment of the balance. See 46 U.S.C. App. Sec. 1153.

When a vessel becomes obsolete, the owner may apply to the Secretary to replace it with a newly constructed vessel. See 46 U.S.C. App. Sec. 1157. Section 508 authorizes the Secretary to scrap or sell the old vessel, and then to authorize construction of a replacement vessel, after the Secretary has determined that the old vessel "is of insufficient value for commercial or military operation to warrant its further preservation." ¹ 46 U.S.C. App. Sec. 1158. In the event the purchaser of the old vessel decides not to scrap it, the purchaser must agree not to use that vessel to compete with U.S.-flag vessels in foreign commerce for ten years. Id.

Under Title VII the Secretary may directly acquire new or reconditioned vessels, constructed specifically for the government, and then charter or sell them. See 46 U.S.C. App. Secs. 1191-1206. Under Sec. 705 the Secretary cannot sell an acquired vessel for less than the vessel's depreciated estimated foreign cost. ² See 46 U.S.C. App. Sec. 1195. Section 705 applies to vessels that have been newly constructed under Title VII or built under Title V and then repossessed because of the buyer's default on the Title V lien. See S.Rep. No. 724, 76th Cong., 1st Sess. 11-12 (1939); H.R.Rep. No. 824, 76th Cong., 1st Sess. 10 (1939).

Title XI establishes a government loan guarantee program to encourage private investment in the construction and rebuilding of ships. See 46 U.S.C. App. Secs. 1271-1280. As originally enacted, Title XI allowed the government to insure loans from private lenders to ship purchasers for the purchase price of the vessel. In 1972, Congress changed the nature of the government's participation from insurance to guaranteed bonds. See Pub.L. No. 92-507, 86 Stat. 909 (1972). Under the current statutory scheme of Title XI, the purchaser issues a bond to the bondholder, who in turn pays the purchase price for the ship. The bond is guaranteed by the government, and in the event of default, the bondholder may pursue the government for its claim. See 46 U.S.C. App. Sec. 1274(a). The government holds a security interest in the purchased vessel in the form of a mortgage and may foreclose on that security interest when the buyer defaults. See 46 U.S.C. App. Secs. 1273(b), 1275. Title XI established the Federal Ship Financing Fund as a revolving fund to pay claims on the guaran teed bonds. See 46 U.S.C. App. Sec. 1272. In order to maintain the solvency of the fund, Congress gave the Secretary the authority to collect fees and sell repossessed vessels and deposit the proceeds into the fund. This authority is set forth in Sec. 1105(c):

... Notwithstanding any other provision of law relating to the acquisition, handling, or disposal of property by the United States, the Secretary shall have the right, in his discretion, to complete, recondition, reconstruct, renovate, repair, maintain, operate, charter, or sell any property acquired by him pursuant to a security agreement with the obligor or may place a vessel in the national defense reserve. The terms of the sale shall be as approved by the Secretary.

46 U.S.C. App. Sec. 1275(c).

II. FACTUAL BACKGROUND

This case involves the sale of three U.S.-flag oil tankers by the Secretary under Title XI of the Merchant Marine Act. The original shipowner purchased the vessels in 1972, financed in part by a construction subsidy under Title V, with the remainder of the purchase price funded with bonds guaranteed by the United States under Title XI. In return for the guarantee of the bonds, the United States held a security interest in the form of a first preferred mortgage on each vessel. As a result of the owner's default on the Title XI guaranteed bonds, the Secretary acquired the vessels. The Secretary solicited bids for the sale of the vessels, and sold all three vessels to Belmont for less than the vessels' scrap value and significantly less than the minimum price computed under Sec. 705 of the Act. Belmont was the highest bidder that agreed to keep all three vessels in continued operation.

Appellants brought suit in the district court claiming that the sale to Belmont violated the minimum price requirement of Sec. 705 and the noncompetition requirement of Sec. 508. Appellants contended that the sale, without restrictions on price or competition, enabled Belmont to submit the lowest bid for a "preference cargo" ³ contract in competition with appellants. Appellants allege that this "unfair competition" resulted in economic injury to them. Underlying their claim is the assertion that Sec. 1105(c) does not preempt other provisions of law in the Merchant Marine Act, such as Sec. 508 and Sec. 705. The district court rejected all of appellants' assertions, denied appellants' motion for partial summary judgment, and granted defendants' motion for summary judgment, dismissing appellants' complaint on all counts. Mem. op. at 20. Appellants now appeal the district court's decision.

III. DISCUSSION

The Secretary asserts that Sec. 1105(c) grants the Secretary "discre...