Oceanic SS Co. v. United States

• Decision Date: 18 October 1978
• Docket Number: No. 238-75.,238-75.
• Citation: 586 F.2d 774
• Parties: The OCEANIC STEAMSHIP COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

586 F.2d 774

The OCEANIC STEAMSHIP COMPANY v. The UNITED STATES.

No. 238-75.

United States Court of Claims.

October 18, 1978.

COPYRIGHT MATERIAL OMITTED

T. S. L. Perlman, Washington, D.C., atty. of record, for plaintiff. Leonard, Egan, Kominers, Fort, Schlefer & Boyer, and Willis R. Deming, San Francisco, Cal., of counsel.

Bernard M. Brodsky, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant.

Before NICHOLS, KASHIWA and BENNETT, Judges.

ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

BENNETT, Judge.

The Oceanic Steamship Company (Oceanic) sues for damages under the Tucker Act, 28 U.S.C. § 1491 (1970), alleging that defendant breached its subsidy agreement with plaintiff. The dispute concerns the operating-differential subsidy (ODS) paid to plaintiff for the years 1962 through 1968 for operation of two American-flag vessels, the SS Mariposa and the SS Monterey, engaged in a combined passenger-and-cargo service between the Pacific Coast of the United States and Australia. The subsidies it received, plaintiff asserts, failed to place it in parity with its foreign competition with respect to wage costs of officers and crew. Plaintiff objects to this treatment, to certain withholding of information by the Maritime Administration (MARAD), and to unequal benefits given to another American-flag operator, American President Lines (APL). Plaintiff claims defendant breached the long-term subsidy agreement between them and violated the statute which authorized the contract, the Merchant Marine Act, 1936, as amended, 46 U.S.C. § 1101 et seq. (1970). Plaintiff seeks a judgment yielding it the higher subsidies which it claims should have been paid.

The parties are eager to resolve this case without trial. Both have moved for summary judgment, each asserting that no material issues of fact are in dispute. Numerous exhibits and affidavits have been supplied. Still, the record does not illuminate the facts to the extent trial might have. But we agree with the parties that the facts before us permit resolution of the case without remanding for proceedings in the trial division. With respect to the years involved in this lawsuit, in part III we determine the claims for 1962-64 to be barred by our statute of limitations, 28 U.S.C. § 2501 (1970). The claim for 1965 is barred by plaintiff's acquiescence in the rates set and its failure to exhaust administrative remedies, as we hold in part IV(A). The claims for 1966-68 are sustained on account of defendant's unconscionable failure in negotiation to divulge relevant information then in its possession, as we hold in part IV(B). In part V we remand the 1966-68 claims to the Maritime Administration for negotiation and the establishment of new rates.

Before turning to a discussion of the process by which plaintiff's rates were established over the years, we first examine the background of this litigation, reviewing briefly the subsidy program and plaintiff's place in it.

I

The history of the merchant ship subsidy system has been discussed in detail in prior opinions of this court. Reviews appear in American Export Isbrandtsen Lines, Inc. v. United States, 499 F.2d 552, 557-60, 204 Ct.Cl. 424, 431-37 (1974), and Moore-McCormack Lines, Inc. v. United States, 413 F.2d 568, 570-71, 188 Ct.Cl. 644, 649-50 (1969). Little of what has been said before needs repetition here.

The subsidy program is a product of the congressional judgment, expressed in 1936 and reiterated in 1970,¹ that vital national security and commercial interests are served by the maintenance of ocean vessels under United States registry. The problem Congress sought to address was the weakness of the American merchant marine, which was competitively disadvantaged by the lower costs, particularly with respect to wages, incurred by foreign competitors. As a consequence, Congress authorized long-term subsidy contracts under which American-flag operators receive operating-differential subsidies intended to create parity with foreign competition. See 46 U.S.C. §§ 1171-1183a (1970), especially section 1173.² In exchange, the operators obligate themselves, inter alia, to keep their ships under United States registry for a specified period (typically 20 years), to maintain certain shipping operations on specified routes, and to employ U.S. citizens exclusively.

Plaintiff was the owner and operator of ocean-going steamships and, beginning in 1937, received subsidies under contracts with the United States under the Merchant Marine Act, 1936. This suit involves the most recent of plaintiff's contracts, No. FMB—44, dated July 28, 1955, for a term ending December 17, 1972. Plaintiff and defendant's Federal Maritime Board,³ agreed that the former would operate and the latter subsidize plaintiff's combination passenger-freight service and freight service on Trade Route 27, generally between Pacific Coast ports of the United States and ports of Australia and New Zealand.⁴

Plaintiff's combined passenger-and-cargo business⁵ under the 1955 contract involved two ships, now known as the SS Mariposa and the SS Monterey,⁶ which traveled between Australia and the American West Coast, with stops along the way. There was substantial competition from other ships on this route, primarily from ships owned by a United Kingdom operator now known as P&O Orient Lines (P&O). Shipping operations of the Crusader Line, also operating under the British flag, provided secondary competition.

The presence of substantial foreign competition triggered a contractual provision requiring payment of subsidies reflecting the operating-expense differential between plaintiff's ships and those of P&O. That provision, in pertinent part, read as follows:

I—4. Determination of Amount of Subsidy. (a) Subject to all the terms of this agreement and effective as prescribed in Article I—1 of this agreement, the United States shall, pursuant to Section 603(b) of the Act 46 U.S.C. § 1173(b) pay to the Operator, as operating-differential subsidy, sums equal to the excess of the fair and reasonable cost (as determined by the Board) of * * * wages and subsistence of officers and crews * * * over the Board's estimate of the fair and reasonable cost of the same items of expense * * * if such vessels were operated under the registry of a foreign country whose vessels are substantial competitors of the vessels covered by this agreement. Subsidy payments shall be based upon rates determined in accordance with Section 603(b) of the Act, which rates the Board determines will place the Operator on a parity basis with his foreign flag competitors * * *.⁷

It thus may be seen that the determination of the operating expense differential was dependent upon an estimate by the Federal Maritime Board, later the Maritime Subsidy Board of the Maritime Administration, of the fair and reasonable cost of enumerated items of expense (the largest component of which were wages of officers and crews) as if plaintiff's vessels were operated under the registry of a foreign country whose vessels were substantial competitors of the vessels covered by the agreement. So that a "foreign cost" for operation of plaintiff's ships could be constructed, estimates about what it would have cost P&O to run the Monterey and the Mariposa were made. The subsidy rate was the calculated difference between the American-flag cost and the estimated foreign-flag cost of the same operations, which difference was stated as a percentage of the American-flag cost. Thus, over the period 1962 to 1968, the parties' agreement that P&O's wage costs were, roughly, 30-33 percent of plaintiff's costs resulted in wage subsidy rates ranging from close to 67 percent to just over 70 percent. Thus, for each dollar of subsidizable wage expense incurred by plaintiff, the Government paid, depending on the year, about 67 to 70 cents. Plaintiff now says the wage subsidy rate should have been 82.3 percent for each of the years and asks $6,253,792 in damages.

Subsidy rates were periodically proposed by the Maritime Subsidy Board and sent to plaintiff with a solicitation of approval. Plaintiff was not obligated to agree to the rates and could request a hearing when dissatisfied with the rates proposed by defendant.⁸ Failing agreement, the board could unilaterally set the rates, although plaintiff could then appeal to the Secretary of Commerce.⁹ If, however, the proposed rates were accepted, no hearing was necessary and the rates would be incorporated by addendum into the contract, in accordance with provision I—4(b) thereof. Paragraph I—4(d) provided that the rates so incorporated should apply to all voyages terminating during the year for which the ODS rate was determined. Paragraph I—5(a) of the contract, in accordance with section 606 of the Act (codified at 46 U.S.C. § 1176 (1970)), specified that the amount of future payments to plaintiff should be subject to review and readjustment from time to time, but not more frequently than once a year, at the instance of either plaintiff or defendant. Revised rates, the provision stated, would be applicable to voyages commencing on and after the effective date of any revision. Pending the establishment and determination of new ODS rates for any period, paragraph I—5(b), reinforced by paragraph II—23, permitted the operator —

in the discretion of the United States, to receive payments on account computed on the basis of not to exceed 75 per centum¹⁰ of the differential rates in effect for the period immediately preceding the effective date of the requested revision.

II

Plaintiff first operated the Mariposa and the Monterey in 1956. In 1959, when subsidy rates were being established for 1956 and 1957 (a time lag was usual), a first step was to determine what the fair and reasonable cost of operating such vessels would have been if under United Kingdom administration. Concerning the "wages and...