OSG Bulk Ships, Inc. v. U.S.

• Decision Date: 16 January 1998
• Docket Number: No. 96-5156,96-5156
• Citation: 132 F.3d 808
• Parties: , 328 U.S.App.D.C. 107 OSG BULK SHIPS, INC., Appellant, v. UNITED STATES of America, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 808

132 F.3d 808

1998 A.M.C. 1287, 328 U.S.App.D.C. 107

OSG BULK SHIPS, INC., Appellant, v. UNITED STATES of America, et al., Appellees.

No. 96-5156.

United States Court of Appeals,

District of Columbia Circuit.

Argued Dec. 3, 1997.

Decided Jan. 16, 1998.

Appeal from the United States District Court for the District of Columbia (No. 94cv00006).

Joseph A. Klausner, Washington, DC, argued the cause for appellant, with whom Allan A. Tuttle was on the briefs.

Cynthia A. Schnedar, Assistant U.S. Attorney, Washington, DC, argued the cause for the federal appellees, with whom Mary Lou Leary, U.S. Attorney, John D. Bates and R. Craig Lawrence, Assistant U.S. Attorneys, were on the brief. Michael J. Ryan, Assistant U.S. Attorney, entered an appearance.

Thomas L. Mills, Washington, DC, argued the cause for the private appellees, with whom Robert M. Rader, T.S.L. Perlman, Anne E. Mickey and John W. Butler were on the joint brief. Richard A. Hibey entered an appearance.

T.S.L. Perlman, Washington, DC, was on the brief for appellee Mormac Marine Transport, Inc.

Before: HENDERSON, ROGERS and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

The Maritime Administration has a longstanding interpretation of the Merchant Marine Act of 1936 under which any vessel built with the aid of a "construction-differential subsidy" from the federal government, and thus limited at least initially to service in foreign trade only, can enter domestic trade after the statutorily defined economic life of the vessel expires. OSG Bulk Ships, Inc. challenged that interpretation in the district court, which granted summary judgment to the defendant agency and several private defendant-intervenors after concluding that, especially in light of a Supreme Court decision that involved a closely related issue, the agency's interpretation was unobjectionable. We affirm.

I.

Because building ships and manning them in the United States was and remains more expensive than in other countries, Congress enacted the Merchant Marine Act of 1920 (commonly known as "the Jones Act") and the Merchant Marine Act of 1936 ("the 1936 Act") in an attempt to protect the American shipping industry against foreign competition. See Independent U.S. Tanker Owners Comm. v. Lewis, 690 F.2d 908, 911-12 (D.C.Cir.1982). In these acts, Congress effectively divided the American commercial shipping fleet in two--one fleet for domestic trade and one for foreign--and took different steps to support each. In the Jones Act, Congress limited trade between domestic ports to ships built in American shipyards, owned by American citizens, and operated under the American flag. See 46 U.S.C. app. § 883 (1988). Foreign vessels cannot compete in this domestic market with the Jones Act fleet. See id.

American ships operating in trade between foreign and domestic ports do not enjoy the same protection from international competition, but in the 1936 Act, Congress instituted two types of government subsidies in an attempt to make these vessels competitive in the international market: the operating-differential subsidy ("ODS") and the construction-differential subsidy ("CDS"). See id. §§ 1151, 1171. Under the ODS program, the Secretary of Transportation ("the Secretary") can grant subsidies to American vessels in foreign trade to offset the higher operating costs these vessels generally face compared to their international competitors. See id. § 1171. Under the CDS program, the Secretary can enter into contracts to subsidize American shipyards' construction of new vessels to be operated under the American flag. See id. § 1154.

Because vessels built with the aid of the CDS program would have an unfair advantage if allowed to compete directly with the unsubsidized Jones Act ships in domestic trade, section 506 of the 1936 Act limits CDS-built vessels to operation "exclusively in foreign trade," with two exceptions. Id. § 1156. ¹ First, CDS-built vessels can make certain domestic stops on bona fide foreign voyages. See id. Second, the Secretary may consent to allow CDS-built vessels to engage in domestic trade for temporary periods up to six months in any year. See id. In each case, however, the owner of a CDS-built vessel using one of these exceptions must repay to the government a portion of the CDS depending on the time spent in domestic trade compared to the vessel's economic life, which is established by statute as twenty years for tankers and twenty-five years for vessels carrying dry goods. See id.; Pub.L. No. 86-518, §§ 1, 3, 74 Stat. 216, 216 (1960); H.R.REP. NO. 86-1744, at 5-8 (1960), reprinted in 1960 U.S.C.C.A.N. 2383, 2386-87.

The meaning of section 506 cannot be understood without reference to Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 100 S.Ct. 800, 63 L.Ed.2d 36 (1980). In Seatrain, the Court addressed the legality of an action under the 1936 Act by the Maritime Administration ("MarAd"), ² in which the agency allowed the owners of a CDS-built vessel to enter the domestic market upon repayment of the CDS to the government. See id. at 574, 100 S.Ct. at 802. In upholding this action, the Supreme Court ruled that the 1936 Act empowered the Secretary to approve full repayment/permanent release transactions of this type. See id. at 588-95, 100 S.Ct. at 809-13. Section 506, the Supreme Court noted, only limited when temporary exceptions to the foreign-trade-only requirement would be available; neither that section nor any other addressed when permanent releases would be permissible, and the legislative history did not show that Congress intended to preclude such permanent releases. ³ See id. at 588, 100 S.Ct. at 809. The discretion given to the Secretary to administer the 1936 Act, the Court concluded, was broad enough to allow him to permit the entry of the vessel into the domestic market. See id.

The policy upheld in Seatrain reflected MarAd's longstanding view that, under the 1936 Act, when the owner of a CDS-built vessel has repaid the government for the value of the subsidy--through monetary repayment, service in the foreign shipping market for the vessel's economic lifetime, or a combination of the two--there is no longer any need to restrict that vessel to service in foreign trade only. Correspondingly, MarAd has allowed CDS-built vessels to enter the domestic market in the middle of their economic lives upon repayment of a sum equal to the unamortized value of the CDS for the remaining portion of the ship's economic life. In addition, MarAd has long made known its position that the section 506 foreign-trade-only restriction would lapse, even without payment, at the end of CDS-built vessels' economic lives, because at that time the CDS debt to the government had been repaid in full through service in foreign trade. Seatrain did not invalidate these practices, nor has the agency retreated from its general interpretation of section 506 since that time.

II.

OSG Bulk Ships, Inc. ("OSG") owns eleven non-CDS tankers carrying oil in domestic trade and leases two more. Many other companies built tankers with the aid of the CDS program between 1973 and 1984; the first of these reached the end of its economic lifetime on August 8, 1993, with thirty more scheduled to do so by the year 2004. On January 1, 1994, with MarAd's acquiescence, the Coronado became the first CDS-built tanker to enter the domestic market and begin to compete directly with OSG's unsubsidized tankers.

In July 1993, before the economic lifetime of any CDS-built vessel had expired, OSG sought to have the agency reconsider its interpretation of section 506. Approving the permanent release of CDS-built vessels whose economic lives had expired, OSG argued, would be inconsistent with the plain language of the statute and its underlying purposes. In response, several other companies urged the agency not to alter its interpretation. The agency concluded that its interpretation of the 1936 Act was sound, and reported its decision to reaffirm that interpretation in a series of letters dated March 31, 1994, and April 1, 1994.

On January 3, 1994, three months before MarAd sent these letters, OSG filed suit against the agency, challenging MarAd's interpretation of section 506 under which CDS-built vessels could enter the domestic market after their economic lives had passed. Two private companies thereafter intervened as plaintiffs ⁴ and nine as defendants. ⁵ The district court concluded that there was no basis on which to overturn MarAd's interpretation. Applying the two-step analysis of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the court noted that under Seatrain it was clear first that the statute did not answer the precise question and second that the Secretary had broad discretion to implement the statute; thus, MarAd clearly had discretion to interpret the 1936 Act with regard to permanent release of CDS-built vessels into the domestic market, and the interpretation it chose was a permissible one. See OSG Bulk Ships, Inc. v. United States, 921 F.Supp. 812, 818-27 (D.D.C.1996). On cross-motions for summary judgment, the court granted summary judgment for the defendants. See id. at 828.

III.

While our review of the grant of summary judgment is de novo, see Tao v. Freeh, 27 F.3d 635, 638 (D.C.Cir.1994), we affirm substantially for the reasons set forth by the district court in its opinion. See OSG Bulk Ships, 921 F.Supp. at 812-28. We need only address a threshold jurisdictional issue and elaborate upon the response to OSG's economic arguments challenging the reasonableness of MarAd's interpretation.

The jurisdictional issue arises as a result of appellee's contention that the district court did not even have jurisdiction to hear the case in the first place. ⁶ Appellees characterize OSG's complaint as a challenge to MarAd's decision not to enforce the section...