OSG Bulk Ships, Inc. v. US

• Decision Date: 22 March 1996
• Docket Number: Civil Action No. 94-0006.
• Citation: 921 F. Supp. 812
• Parties: OSG BULK SHIPS, INC., et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants.
• Court: U.S. District Court — District of Columbia

921 F. Supp. 812

OSG BULK SHIPS, INC., et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants.

Civil Action No. 94-0006.

United States District Court, District of Columbia.

March 22, 1996.

COPYRIGHT MATERIAL OMITTED

Allan Abbot Tuttle, Patton & Boggs, LLP, Washington, DC, for Plaintiff.

Michael Joseph Ryan, Douglas A. Wickham, Cynthia Schnedar, Assistant U.S. Attorneys, Washington, DC, for U.S., Federico Pena, and Albert Herberger.

Am Loeserman Klein, Bagileo, Silverberg & Goldman, Washington, DC, for Intervenor/Defendant Puerto Rico Maritime Shipping Authority.

E. Alex Blanton, Dyer, Ellis, Joseph & Mills, Washington, DC, for Intervenor/Defendants BP Oil Shipping Company, USA, Aquarius Marine Company and Atlas Marine Company.

Anne Ellison Mickey, Sher & Blackwell, Washington, DC, for Intervenor/Defendants Margate Shipping Company and Chestnut Shipping Company.

Allan Abbot Tuttle, Patton & Boggs, LLP, Washington, DC, for Intervenor/Plaintiffs Attransco, Inc. and Matson Navigation Company, Inc.

John M. Nannes, Skadden, Arps, Slate, Meagher & Flom, Washington, DC, for Intervenor/Defendant Sea-Land Service, Inc.

Robert Treinis Basseches, Shea & Gardner, Washington, DC, for Intervenor/Defendant American President Lines, Ltd.

Theodore S.L. Perlman, Fort & Schlefer, Washington, DC, for Intervenor/Defendant Mormac Marine.

OPINION

PAUL L. FRIEDMAN, District Judge.

OSG Bulk Ships, Inc. sued the United States, the Secretary of Transportation and the Administrator of the Maritime Administration ("MarAd"), seeking declaratory and injunctive relief with respect to the defendants' interpretation of Section 506 of the Merchant Marine Act of 1936, 46 U.S.C. app. § 1156. Attransco, Inc. and Matson Navigation Company, Inc. were granted leave to intervene as plaintiffs.¹ Thereafter, American President Lines, Ltd., Puerto Rico Maritime Shipping Authority, Sea-Land Service, Inc., Margate Shipping Company, Chestnut Shipping Company, Mormac Marine Transport, Inc., BP Oil Shipping Company, USA, Aquarius Marine Company, and Atlas Marine Company sought and were granted leave to intervene as defendants.²

The case is before the Court on the cross-motions for summary judgment of OSG Bulk Ships and of the United States (supported by the separate motions and briefs of the defendant-intervenors). The Court concludes that there are no genuine disputes of material fact and that the defendants are entitled to judgment as a matter of law.

I. BACKGROUND

A. The Merchant Marine Act Of 1936

Congress enacted the Merchant Marine Act of 1936 to "foster the development and encourage the maintenance" of a merchant marine with U.S.-flag ships and American sailors in order to provide for the national defense and the commercial welfare of the United States. See 46 U.S.C. app. § 1101. The Act was necessary because constructing ships in American shipyards and manning them with American crews was, and continues to be, more expensive than constructing ships in foreign shipyards and staffing them with foreign crews. See Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 574-75, 100 S.Ct. 800, 802-03, 63 L.Ed.2d 36 (1980). To overcome these cost disparities and to protect and support the shipbuilding and shipping industries of the United States, Congress fashioned two different solutions, one for the domestic trade and one for the foreign trade.

The Merchant Marine Act of 1920, known as the Jones Act, 46 U.S.C. app. § 883, reserves the United States domestic trade — which is defined as trade "between points in the United States, including Districts, Territories, and possessions thereof embraced within coastwise laws" — for vessels that are built in United States shipyards, owned by United States citizens and operated under the United States flag. 46 U.S.C. app. § 883. All United States shippers operating exclusively in the domestic trade thus incur equivalent costs in constructing and operating their fleets and are protected against lower-cost foreign competition which, under the Jones Act, are prohibited from operating domestically in the United States. 46 U.S.C. app. § 883.

The Merchant Marine Act of 1936 (hereafter "the Merchant Marine Act"), 46 U.S.C. app. §§ 1101 et seq., authorizes the maritime agency of the United States, the Maritime Administration ("MarAd"), to provide subsidies to enable U.S.-built and -staffed vessels to compete effectively in foreign trade with foreign-built and -staffed vessels.³ Title V of the Merchant Marine Act provides subsidies for the domestic construction of U.S.-flag vessels that will in turn be used exclusively in foreign trade and have to compete with foreign-flag vessels built at lower costs on foreign shipyards, so-called "construction-differential subsidies" ("CDS"). 46 U.S.C. app. §§ 1151 et seq. Under the CDS program, the government may pay up to half the construction costs of a U.S.-built vessel to be used in the foreign trade. 46 U.S.C. app. §§ 1151-61. Title VI of the Act provides subsidies for the operation of U.S.-flag ships in foreign trade, "operating-differential subsidies" ("ODS"). 46 U.S.C. app. §§ 1171 et seq.

To ensure that the construction subsidies granted to the CDS shippers do not give them an unfair advantage in the domestic maritime trade, Section 506 of the Act provides that the owners of vessels built with government subsidies must agree that they will operate exclusively in foreign trade. Section 506 sets forth two exceptions to this restriction. First, a CDS-built ship is permitted to operate in the domestic trade incident to a bona fide foreign voyage; the ship may sail in the domestic trade on one leg of certain overseas voyages. Second, the Secretary of Transportation may consent to the temporary transfer of a CDS-vessel to domestic trade for up to six months in any year when it is necessary to further the purposes of the Act. 46 U.S.C. app. § 1156. The shipowner, however, must refund proportionate amounts of the CDS subsidy when engaging in any domestic trade pursuant to either of these two exceptions. 46 U.S.C. app. § 1156.⁴

If a vessel is operated in the domestic trade pursuant to the first exception, the shipowner must "pay annually to the Secretary of Transportation that proportion of one-twenty-fifth of the construction-differential subsidy paid for such vessel as the gross revenue derived from the domestic trade bears to the gross revenue derived from the entire voyages completed during the preceding year." 46 U.S.C. app. § 1156. To operate under the second exception, the shipowner must agree to "pay to the Secretary of Transportation, upon such terms and conditions as he may prescribe, an amount which bears the same proportion to the construction-differential subsidy paid by the Secretary as such temporary period bears to the entire economic life of the vessel." 46 U.S.C. app. § 1156. The economic life is 25 years for a dry cargo ship or liner and 20 years for a liquid bulk carrier or tanker. Pub.L. No. 86-518, §§ 1, 3, 74 Stat. 216 (1960), as amended by Pub.L. No. 88-225, 77 Stat. 469 (1963); see also 1960 U.S.C.C.A.N. 2383, 2386-87.

The Maritime Administration has construed Section 506 to allow CDS-vessels to operate in the domestic trade after the expiration of their economic lives. Thus, in MarAd's view, ships built with government subsidies may compete domestically with ships built without such subsidies after 25 years in the case of a dry cargo ship or liner and after 20 years in the case of a liquid bulk carrier or tanker. MarAd's interpretation is not found in any formal legislative rule or regulation, but is expressed in a series of letters, memoranda, a Comptroller General decision, and other public statements dating back to 1963.

In the mid-1950's, the 1960's and the 1970's, MarAd entered into a number of CDS contracts for the construction of vessels. In all of these contracts, the parties agreed to be bound by the domestic trading restrictions of Section 506.⁵ Most of the contracts also provided that the restrictions of Section 506 "shall run with the title to the Vessels and be binding on all owners thereof except the United States." See, e.g., Contract No. MA/MSB-4, A.R. at 488; Contract No. MA/MSB-80, A.R. at 500; Contract No. MA/MSB-135, A.R. at 519. Other contracts provided that the operating restrictions "shall run with the title to the Vessel for the twenty-five year life of said Vessel and be binding on all owners thereof, excepting, however, the United States or any subsequent transferee of the United States." Contract No. MA/MSB-9, A.R. at 9; see also Contract No. FMB-48, A.R. at 3; Contract No. MA/MSB-2, A.R. at 12.⁶

B. The Parties To This Action

Plaintiff OSG and plaintiff-intervenor Attransco, Inc. are unsubsidized domestic operators. Their vessels were built without construction-differential subsidies and are eligible for trade under the Jones Act. OSG Bulk Ships, Inc. Complaint ¶ 2. OSG owns or leases 13 U.S.-flag tankers operating in the United States domestic trade carrying oil and oil products between United States ports. OSG Bulk Ships, Inc. Complaint ¶ 2. Attransco is the owner and operator of unsubsidized tankers carrying crude oil and oil products in the domestic trade. OSG Bulk Ships, Inc. and Attransco, Inc. Complaint ¶ 2. The complaints allege that these tankers are threatened with unlawful competition from government-subsidized tankers as a result of rulings by MarAd allowing tankers built with CDS for exclusive operation in the foreign trades to be diverted instead into the domestic trades after they reach the age of 20 years. OSG Bulk Ships, Inc. and Attransco, Inc. Complaint ¶ 1.

It is undisputed that many other tankers and bulk liquid carriers will soon reach the age of 20 years and that many dry cargo ships and liners will reach the age of 25 years; several already have and already operate in the domestic trade. Plaintiff's Statement of Material Facts ¶ 12; Letter from Joseph A. Klausner, C...