Petchem, Inc. v. Federal Maritime Com'n

• Decision Date: 09 August 1988
• Docket Number: No. 86-1288,86-1288
• Parties: PETCHEM, INC., d/b/a Petchem, Inc. of Connecticut, Petitioner, v. FEDERAL MARITIME COMMISSION and the United States of America, Respondents, Canaveral Port Authority, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 958

853 F.2d 958

272 U.S.App.D.C. 27

PETCHEM, INC., d/b/a Petchem, Inc. of Connecticut, Petitioner, v. FEDERAL MARITIME COMMISSION and the United States of America, Respondents Canaveral Port Authority, et al., Intervenors.

No. 86-1288.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 29, 1987.

Decided Aug. 9, 1988.

Warner W. Gardner, with whom Robert T. Basseches and Timothy K. Shuba, Washington, D.C., were on the brief, for intervenors Canaveral Port Authority, et al.

J. Michael Cavanaugh, Stuart S. Dye, and David C. Nolan, for Carnival Cruise Lines, Inc.; Forest A. Hainline, III, and Timothy A. Ngau for Royal Caribbean Cruise Line, Inc.; Edward P. Henneberry for Holland America Line-Westours, Inc.; Pierre J. LaForce and Christine V. Simpson for Ocean Cruise Lines, Inc.; and Jeffrey S. Davidson for Cunard Line, Ltd. were on the brief for amici curiae Cruise Lines and Cruise Lines Intern. Ass'n, urging affirmance.

Paul C. Warnke and John G. Calendar, Washington, D.C., were on the brief for amicus curiae American Ass'n of Cruise Passengers.

C. Jonathan Benner, with whom Charles L. Coleman, III, San Francisco, Cal., and Jonathan W. Cuneo, Washington, D.C., were on the brief, for petitioner.

John C. Cunningham, Atty., Federal Maritime Com'n, with whom Robert D. Bourgoin, Gen. Counsel, Federal Maritime Com'n, Catherine G. O'Sullivan, and Robert J. Wiggers, Washington, D.C., Attys., U.S. Dept. of Justice, were on the brief, for respondents.

Before BUCKLEY and WILLIAMS, Circuit Judges, and LOUIS F. OBERDORFER, ^* United States District Judge for the District of Columbia.

Opinion for the court filed by Circuit Judge BUCKLEY.

BUCKLEY, Circuit Judge:

Petchem, Inc. applied for a nonexclusive franchise to provide tugboat services for commercial vessels at Port Canaveral. At the time, Hvide Shipping, Inc. held an exclusive franchise from the Canaveral Port Authority to provide those services. The Port Authority denied Petchem's application. Petchem filed a complaint with the Federal Maritime Commission, which ultimately found that the Port Authority had not unreasonably concluded that the grant of the requested franchise would jeopardize the Port's ability to meet the needs of commercial shipping. We do not decide intervenors' challenge to the Commission's jurisdiction over the tugboat franchise issue, but we deny Petchem's petition for review on the merits.

I. BACKGROUND

A. Port Canaveral

The Canaveral Port Authority ("CPA" or "Port Authority") is an agency of the State of Florida charged with the construction and operation of a deep-water port at Cape Canaveral. The Port Authority has been endowed with broad authority over Port Canaveral and its operations, including authority to exercise police and tax powers, franchise services, and own and operate terminal and other facilities. See Chapter 28922, 1953 Laws of Florida 268; as amended, Joint Appendix ("J.A.") at 926-51.

The Port itself consists of three adjacent basins and a dredged channel connecting the basins to the Intercoastal Waterway. The eastern basin and a majority of the land surrounding the middle basin is owned by the United States and used by the military and the National Aeronautics and Space Administration. The CPA exercises overall jurisdiction over the Port and owns and operates its commercial facilities, including warehouses, terminals for passenger cruise ships, and berths for tankers, barges, and commercial cargo ships.

The United States contracts for towing services in its part of the Port. From 1958 to 1983, these were provided by subsidiaries of intervenor Hvide Shipping, Inc. (collectively "Hvide"). Hvide's military contract allowed it to provide towing services to commercial vessels. Although, in 1983, Hvide became ineligible to bid for a renewal of the military towing contract because its revenues exceeded a Small Business Administration ceiling, it continued to serve as the sole provider of commercial tug and towing services under a franchise agreement with the CPA. The present agreement, J.A. at 722-25, provides that the Port Authority may not grant a franchise to any other commercial tug towing service without first holding a public hearing and determining that "convenience and necessity" so require.

In 1983, after Hvide had been found ineligible for a renewal, the military awarded its Port Canaveral tugboat business to Petchem. Prior to that time, Petchem had had no tugboat experience. In December 1983, before beginning work under its military contract, Petchem applied to the Port Authority for a non-exclusive franchise to provide commercial tug and towing services as well. The CPA appointed a committee to study the matter, and pursuant to the terms of its franchise agreement with Hvide, the Port Authority held a hearing in February 1984 at which it accepted its committee's recommendation that the Petchem application be denied. J.A. at 726-40.

B. Proceedings Before the FMC

Petchem filed a complaint with the Federal Maritime Commission ("FMC" or "Commission") alleging that the CPA's denial of its application constituted an "unreasonable practice" in violation of section 17 of the Shipping Act of 1916, 46 U.S.C. app. Sec. 816 (1982 & Supp. I 1983) ("1916 Act"), as well as "undue prejudice" against Petchem and an "unreasonable preference" in favor of Hvide in violation of section 16 of the 1916 Act. 46 U.S.C. app. Sec. 815 (1982 & Supp. I 1983). J.A. at 99. While these proceedings were pending before the Commission, Congress enacted the Shipping Act of 1984 ("1984 Act"), which contained provisions similar to those in the 1916 Act. In later pleadings and filings, Petchem broadened the scope of its complaint to include allegations of violations of sections 10(b)(11)-(12) and 10(d)(1) of the 1984 Act, 46 U.S.C. app. Sec. 1709(b) & (d) (Supp. II 1984). Thus the FMC's inquiry addressed both Petchem's qualifications for a non-exclusive franchise and the propriety of the CPA's franchise policy under the two Acts.

An administrative law judge ("ALJ") initially heard the case. Following discovery and public hearings, the ALJ concluded that the Commission had jurisdiction over the dispute and that Petchem had standing to challenge the denial of the franchise before the FMC. On the merits, the ALJ determined that the Port Authority had violated the 1916 and 1984 Acts (collectively "the Shipping Acts"). Petchem, Inc. v. Canaveral Port Auth., 23 Shipping Reg. (P & F) 480 (1985) ("ALJ Op."). Relying on the Commission's ruling in A.P. St. Philip, Inc. v. Atlantic Land & Improvement Co., 13 F.M.C. 166 (1969) ("St. Philip "), the ALJ decided that Petchem's proof of an exclusive franchise arrangement had established a prima facie case of a violation of the Shipping Acts, thereby shifting the burden of justifying the arrangement as just, reasonable, and non-prejudicial to the Port Authority, which failed to meet it.

The ALJ concluded that the franchise constituted "unjust prejudice" not only against Petchem but also against any other commercial tug operator interested in serving the Cape Canaveral market. He also held that the CPA's denial of Petchem's application under "a vague test of convenience and necessity" was unreasonable. ALJ Op., 23 Shipping Reg. (P & F) at 499. The CPA and Hvide filed exceptions to the ALJ's decision.

The FMC upheld the ALJ's findings of jurisdiction but reversed on the merits. Petchem, Inc. v. Canaveral Port Auth., FMC No. 84-28, 23 Shipping Reg. (P & F) 974 (1986) ("FMC Op."). The Commission agreed that it had jurisdiction on several grounds: the CPA provided "terminal facilities" to passenger cruise lines that engaged in "common carriage" as defined by the Shipping Acts, id. at 981-83; various provisions of the Shipping Acts "plainly include carriers of passengers," or "clearly protect passengers" by prohibiting preferential or prejudicial treatment of any person, or "can be read to protect the property of passengers," id. at 984; and the franchising of tug towing service constitutes the provision of terminal facilities, id. at 986-87 (citing St. Philip ).

In a concurring opinion, Commissioner Thomas F. Moakley expressed a contrary view. He argued that "[i]t does not follow from the fact that the respondent Canaveral Port Authority is a marine terminal operator that all of its activities are, therefore, subject to regulation under the Shipping Act of 1984." Id. at 995 (footnotes omitted). He noted that in Bethlehem Steel Corp. v. Indiana Port Commission, 21 F.M.C. 629 (1979), the Commission had drawn a distinction between navigational and terminal services, and that this distinction between port functions resulted in "a proper narrowing of the broad language of the St. Philip case," and concluded that "[t]ug services fall neatly on the navigational side of such a dividing line and outside the scope of terminal services." Id. at 996 (footnote omitted).

On the merits, the Commission reversed the ALJ and upheld the Port Authority's action denying Petchem's application for a nonexclusive franchise. The Commission noted that in St. Philip and California Stevedore & Ballast Co. v. Stockton Port Dist., 7 F.M.C. 75 (1962) ("Stockton Port "), it had found exclusive arrangements for tugging and stevedoring services to be "prima facie unreasonable and must be justified by their proponents." FMC Op., 23 Shipping Reg. (P & F) at 988. Furthermore, in providing its justification, the Port Authority must meet a two-part standard: "whether [its] decision was reasonable at the time it was made and, even if so, whether it was still reasonable in light of its subsequent effects." Id. (citing Agreement No. T-2598, 17 F.M.C. 286, 295 (1974)). Viewed from either perspective, the Commission concluded that the Port Authority offered sufficient justifications for its action.

Petchem petitions for review and asks this court to affirm the FMC's jurisdiction but to reverse on the merits. The Port...