Moore-McCormack Lines, Inc. v. United States

• Citation: 188 Ct. Cl. 644,413 F.2d 568
• Decision Date: 16 July 1969
• Docket Number: 74-68 and 75-68.,No. 51-68,55-68,51-68
• Parties: MOORE-McCORMACK LINES, INC. v. The UNITED STATES. AMERICAN PRESIDENT LINES, LTD. v. The UNITED STATES. DELTA STEAMSHIP LINES, INC. v. The UNITED STATES. AMERICAN EXPORT ISBRANDTSEN LINES, INC. v. The UNITED STATES.
• Court: Court of Federal Claims

188 Ct. Cl. 644, 413 F.2d 568 (1969)

MOORE-McCORMACK LINES, INC. v. The UNITED STATES.

AMERICAN PRESIDENT LINES, LTD. v. The UNITED STATES.

DELTA STEAMSHIP LINES, INC. v. The UNITED STATES.

AMERICAN EXPORT ISBRANDTSEN LINES, INC. v. The UNITED STATES.

Nos. 51-68, 55-68, 74-68 and 75-68.

United States Court of Claims.

Decided July 16, 1969.

COPYRIGHT MATERIAL OMITTED

Ira L. Ewers, Washington, D. C., attorney of record, for plaintiff Moore McCormack Lines, Inc., W. B. Ewers and J. R. Ewers, Washington, D. C., of counsel.

Warner W. Gardner, Washington, D. C., attorney of record, for plaintiff American President Lines, Ltd., Shea & Gardner and Kurrus & Jacobi, Washington, D. C., of counsel.

Donald Macleay, Washington, D. C., attorney of record, for plaintiff Delta Steamship Line, Inc., Macleay, Lynch, Bernhard & Gregg, Washington, D. C., and Peter A. Greene, Washington, D. C., of counsel.

Warner W. Gardner, Washington, D. C., for plaintiff American Export Isbrandtsen Lines, Inc., Richard W. Kurrus, Washington, D. C., attorney of record; Shea & Gardner and Kurrus & Jacobi, Washington, D. C., of counsel.

Edward J. Friedlander, Washington, D. C., with whom was Asst. Atty. Gen. Edwin L. Weisl, for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON, and NICHOLS, Judges.

DAVIS, Judge;

Four American steamship lines sue to obtain review of construction-subsidy awards by the Maritime Subsidy Board of the Maritime Administration. The claim is that the Board's action was arbitrary and capricious, unsupported by substantial evidence, and reached through procedures which violated constitutional, statutory, and contractual rights. The Government has moved to dismiss, arguing that this court is without jurisdiction to review such an award and that even if it has jurisdiction there is no cause to disturb these particular determinations. The companies resist the motion to dismiss, primarily on the ground that the procedures were fundamentally unfair. We deny the Government's motion and suspend further action in this court so that the Maritime Subsidy Board can redetermine the amounts due the four plaintiffs under proper procedures.¹

I The Merchant Ship Subsidy System

Since at least the turn of the century, United States shipowners and shipbuilders have been unable to compete effectively with foreign shipyards and operating fleets. The higher wage rates for skilled laborers and more stringent safety standards prevailing in this country result in much higher costs for the production of ships; higher seamen's wages, more protective working conditions, and greater food, outfitting, insurance, and repair costs make it impossible for a shipowner operating in foreign commerce to compete with ships under foreign flags.² Indirect and direct subsidies given shipyards and operating fleets by other nations further aggravate the disparity in costs. As this competitive reality became apparent, the reaction of the American shipping industry was to have its ships built abroad, registered under foreign flags, and manned by foreign seamen.

After World War I, during which this country's military efforts suffered from lack of an adequate merchant navy and trained sailors, Congress decided that the national security required a sound merchant marine, to protect foreign trade, to develop American seamen, and to provide support for the armed forces in time of war or national emergency. Congress also deemed essential to preparedness a modern, efficient shipbuilding industry, capable of providing military vessels in periods of stress. To stimulate the building of new ships and to maintain a merchant marine under the United States flag, the Jones-White Act of 1928, 45 Stat. 689, provided for construction loans and an indirect subsidy through ocean-mail contracts to vessels giving regular foreign shipping service. Reported abuses by the subsidized companies resulted in extensive investigations, and in 1936 Congress chose to replace the hidden subsidy of the ocean-mail contracts with direct subsidies to equalize the position of American-flag and foreign-flag ship-owners with respect to operating expenses, construction costs, and foreign subsidies.

Although the details of the legislation have been changed frequently, the basic concept has remained the same — a government authority is empowered to enter into contracts with American ship-owners to provide an operating-differential subsidy, a construction-differential subsidy, and a special subsidy to meet extraordinary aid to foreign shipping lines by their governments.³ The purpose of each subsidy is to put the American-flag owner on a parity with his foreign competitor; he is to get his ship for the price his competitor would pay,⁴ his labor and operating expenses at the foreign rate, and he is also to be in a position to neutralize any extraordinary help received by his competitor. The Federal Government bears this burden of the higher cost of constructing and operating the ships. In turn, the subsidized ship-owner shoulders a number of obligations, chiefly the maintenance of the vessel under United States registry.

Although they appear in separate sections of the Merchant Marine Act, and are meant to serve separate functions, the operating and construction-differential contracts are closely interrelated. An owner accepting construction aid agrees to keep his ship under the American flag for twenty years, an obligation he would and could probably not assume were it not for the operating subsidy. Conversely, there is an intimate connection between the plaintiffs' long-term (20-year) operating-differential contracts and their construction agreements. In general, no vessel is eligible for this operating subsidy unless constructed in an American yard. In order to guarantee the replacement of obsolete vessels and further stimulate construction in American shipyards, the operating contracts set out for each operator, a schedule of new vessel construction. The owner is obliged to meet this schedule, or subject its operating subsidy contract to cancellation, if the Government supplies a construction-differential subsidy for each replacement ship.

II Determination of the Construction-Differential Subsidy

The present litigation concerns the construction-differential subsidy. That type of award is defined in the Merchant Marine Act as an amount which "may equal, but not exceed, the excess of the bid of the low-bid responsible domestic shipbuilder * * * over the fair and reasonable estimate of cost, as determined by the Secretary of Commerce, of the construction of the proposed vessel if it were constructed * * * in a foreign shipbuilding center which is deemed by the Secretary to furnish a fair and representative example * * *", but in no event more than 55% of the domestic cost. 46 U.S. C. § 1152(b) (1964) (§ 502(b) of the 1936 Act).

All parties agree that the determination of the cost of building a ship to American specifications in a foreign shipyard is a very complex and conjectural computation. Few if any such vessels are built abroad; the man-hours required to do a particular task here and overseas may be entirely different; the relative priority given to use of more materials or more skilled fabrication of limited materials varies; the practices as to overhead allocation and profit are not the same; the factors determining the amount of profit will vary with the economic circumstances in each foreign shipbuilding center, and perhaps in the world market at any precise moment in time. Despite these difficulties, Congress has felt that a case-by-case determination is the proper way to achieve parity for the owner.⁵ Both the Maritime Subsidy Board and the owners have therefore developed elaborate systems for estimating the foreign cost (in economic terms it is actually the foreign "price") of a proposed ship. One method, used extensively by the owners, is to obtain a great deal of detailed information on the costs of the myriad components of the ship in the foreign ship-building center. From this data they compute a hypothetical low bid for their ship in that location. The Board and its staff use this method on occasion. They are also reported to employ other estimating methods, calculating from purchased bids or known foreign ship prices the prices per weight unit of major types of components for a particular time period. This method, according to the Board, is more useful for the greater number of different ship prices to be estimated by it, and obviates the gathering of detailed quotations on each ship. A third means for both owners and Board is to extrapolate from the known prices of foreign ships built abroad to the probable costs of an American ship with different capacity, weight, speed and other features, taking into consideration different contract terms, economic conditions, and particular competitive situations. This can produce a rough estimate of the foreign price, and is said to be used to check results reached by the other methods.⁶

The issues for us, at this time, do not revolve around the content of these estimating systems, but rather the procedures used by the Maritime Administration and the Maritime Subsidy Board. In the four cases, the procedure for reaching a construction-differential subsidy figure was substantially the same. The owner prepared plans and specifications for each ship according to the replacement schedule of his operating-differential contract. The plans were then examined and approved by the Maritime Administration and the Navy, and adjustments made for national defense purposes (for which changes the Government would pay the entire cost). Then the plans were released to domestic shipyards for bids, and a low-bid yard chosen. At the same time the Division of Estimates of the Office of Ship Construction of the Maritime Administration prepared a staff report concluding that Japan was the representative foreign...