Oliver M. Elam, Jr., Co., Inc., In re

• Decision Date: 30 August 1985
• Docket Number: No. 84-5452,84-5452
• Citation: 771 F.2d 174
• Parties: In re OLIVER M. ELAM, JR., CO., INC., Plaintiff. COALPORT, INC., Plaintiff-Appellant, v. Malcolm BALDRIDGE, Secretary of Commerce; Carlos Campbell, Assistant Secretary of Commerce, Economic Development Administration; and Eastern Kentucky Port Authority, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 174

771 F.2d 174

In re OLIVER M. ELAM, JR., CO., INC., Plaintiff COALPORT, INC., Plaintiff-Appellant, v. Malcolm BALDRIDGE, Secretary of Commerce; Carlos Campbell Assistant Secretary of Commerce, Economic Development Administration; and Eastern Kentucky Port Authority Defendants-Appellees.

No. 84-5452.

United States Court of Appeals Sixth Circuit.

Argued March 28, 1985.

Decided Aug. 30, 1985.

James Park, Jr., argued, Katherine K. Yunker, Brown, Todd & Heyburn, Lexington, Ky., Richard E. Wentz, Robinson, Arnzen, Parry & Wentz, Covington, Ky., Roger R. Cantrell, Cantrell & Nichols, Greenup, Ky., for plaintiff-appellant.

Louis DeFalaise, U.S. Atty., Lexington, Ky., Ms. Leslie Dellon, argued, Dept. of Justice, Civil Div., Washington, D.C., Roger W. Hall, Adkins, Hall, Howell & Duggan, Ashland, Ky., for defendants-appellees.

Before ENGEL and KRUPANSKY, Circuit Judges, and HULL ^*, District Judge.

ENGEL, Circuit Judge.

This litigation challenges the adequacy of findings made by the Economic Development Administration of the Department of Commerce (EDA) in connection with its approval of federal government funding for a riverport facility to be located on the Ohio River in Ashland, Kentucky. The riverport was designed to provide complete cargo services with covered storage for general cargo and facilities to handle general cargo loading and coal loading between rail, river and truck. While the estimated cost of the project was $4 million, the amount of the direct grant requested from the EDA was $1.5 million. Because we find that the EDA failed to recognize the requirement of the enabling statute that the project "fulfill a pressing need of the area," 42 U.S.C. Sec. 3131(a)(1)(B), and because the agency's findings fail to demonstrate any good faith recognition of the limitations Congress placed upon such funding in 42 U.S.C. Sec. 3212, we vacate the judgment of the district court upholding the grant and direct a remand to the EDA for further proceedings consistent with our opinion.

Congress enacted the Public Works and Economic Development Act of 1965 (PWEDA) to "help areas and regions of substantial and persistent unemployment and underemployment to take effective steps in planning and financing their public works and economic development." 42 U.S.C. Sec. 3121. The Act empowers the Secretary of Commerce, and through him the Assistant Secretary for Economic Development, id. Sec. 3201, to provide federal financial assistance "to communities, industries, enterprises, and individuals in areas needing development" so that those areas can "help themselves achieve lasting improvement and enhance the domestic prosperity by the establishment of stable and diversified local economies and improved local conditions." Id. Sec. 3121.

While Congress makes general appropriations for various programs created by the Act, the EDA determines which specific projects will receive financial aid. Several types of financial assistance are available. Organizations seeking public works grants must file an application with the EDA. Id. Sec. 3131. The EDA may make a direct grant of not more than 50 percent of the cost of a project if it finds that

(A) the project for which financial assistance is sought will directly or indirectly (i) tend to improve the opportunities, in the area where such project is or will be located, for the successful establishment or expansion of industrial or commercial plants or facilities, (ii) otherwise assist in the creation of additional long-term employment opportunities for such area, or (iii) primarily benefit the long-term unemployed and members of low-income families or otherwise substantially further the objectives of the Economic Opportunity Act of 1964;

(B) the project for which a grant is requested will fulfill a pressing need of the area, or part thereof, in which it is, or will be, located;

(C) the area for which a project is to be undertaken has an approved overall economic development program as provided in section 3142(b)(10) of this title and such project is consistent with such program; and

(D) in the case of a redeveloped area so designated under section 3161(a)(6) of this title, the project to be undertaken will provide immediate useful work to unemployed and underemployed persons in that area.

Id.

However, section 702 of the Act, 42 U.S.C. Sec. 3212, places an express restriction on the extension of financial aid:

No financial assistance under this chapter shall be extended to any project when the result would be to increase the production of goods, materials, or commodities, or the availability of services or facilities, when there is not sufficient demand for such goods, material, commodities, services, or facilities, to employ the efficient capacity of existing competitive commercial or industrial enterprises.

In May, 1982, the Eastern Kentucky Port Authority (EKPA) applied to the EDA for a development grant to be used as partial funding for a general cargo riverport to be constructed in Ashland, Kentucky. During the public comment period, considerable support for the riverport was expressed by the City of Ashland, various county officials and certain local industries and small businesses, including electric power co-operatives and independent coal producers and brokers. There was also strenuous opposition from the operators of existing local riverports, who argued that the area was already over-saturated with coal-loading facilities.

The Office of Compliance Review of the EDA conducted a "702 study" to determine whether the proposed grant would comply with section 702 of the PWEDA, 42 U.S.C. Sec. 3212. Although the study contained no specific finding on the under-utilization of existing facilities, production figures from five area coal-loading ports indicated that they were operating far below their permit capacities. The study also projected increases in waterborne coal shipments from eastern Kentucky of at least 1,000,000 tons per year through 1990. The EDA compared this projected increase in demand with the capacity of the proposed riverport and determined that no analysis of the utilization of existing facilities was necessary because the projected increase in demand was greater than the projected capacity of the new facility. Accordingly, the EDA approved the grant despite the objections of the existing riverport operators.

Pursuant to 42 U.S.C. Sec. 3211, which authorizes suit against the Secretary of Commerce in federal district court, Coalport, Inc. and Oliver Elam, Jr., Inc., operators of local coal-handling docks, brought an action in the Eastern District of Kentucky, seeking judicial review of the grant. They claimed that existing coal-handling ports within the market area were not being used to their efficient capacity and that EDA funding of the EKPA's proposed project was therefore proscribed by section 702. Upon cross-motions for summary judgment, the matter was referred to a magistrate. In a seemingly inconsistent report, the magistrate found that the EDA had not applied section 702 in an unlawful manner, but suggested that the portion of the grant to be used for construction of the coal-handling facility be withheld because "EDA acted arbitrarily and capriciously in making the grant for the coal facility without properly addressing plaintiffs' underutilization of existing capacity argument."

The district judge accepted the magistrate's conclusion that the "702 study" was properly conducted by the EDA. However, he held that the court had no authority to divide the grant. Finding that the EDA did not exceed its statutory authority or act arbitrarily and capriciously, the district judge granted the defendants' motion for summary judgment. Coalport alone appealed.

The parties do not challenge the jurisdiction of the district court or the standing of plaintiffs to bring this suit. They agree that this matter concerns informal agency action and that, therefore, the scope of review is governed by the Administrative Procedure Act, 5 U.S.C. Sec. 706(2). Under subsections (A) and (C) of section 706(2), the court must set aside agency action, findings or conclusions that it finds "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," or "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right."

Coalport's primary argument is that approval of the federal grant to the EKPA violates section 702, and therefore exceeds the EDA's statutory authority, because the proposed riverport will increase the availability of coal-loading facilities when there is not sufficient demand to employ the efficient capacity of existing competitive coal-loading ports. Coalport also argues that the findings of the 702 study are arbitrary and capricious because the study did not restrict its projections of increased demand to the market in which Coalport claims the new riverport would compete. In contrast, the EDA claims that its action did not exceed statutory authority because its interpretation of what section 702 requires is reasonable. It also claims that its findings were not arbitrary and capricious because the market in which the riverport will compete is not limited to ports used by small independent coal producers.

Only two federal court decisions have dealt directly with the EDA's interpretation of section 702. Afton Alps, Inc. v. United States, 392 F.Supp. 543 (D.Minn.1974); Van Hoven Co. v. Stans, 326 F.Supp. 827 (D.Minn.1971). Both of these cases originated in the District of Minnesota although they were decided by different judges. In each case the court accepted the government's argument that the EDA had satisfied section 702, merely by determining that projected increased demand would be sufficient to absorb the output of the proposed project.

The opinion in Afton Alps contains the more detailed explanation of the rationale for the government's position. That case involved a grant to...