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06/10/80 Puerto Rico Ports v. Federal Maritime

June 10, 1980







Before McGOWAN, Circuit Judge, LUMBARD,* Senior Circuit Judge, United States Court of Appeals for the Second Circuit, and MIKVA, Circuit Judge.




Nos. 78-1950, 78-1969, 78-1970, 78-1978 1980.CDC.136

Rehearing Denied July 22, 1980.

Petitions for Review of Orders of the Federal Maritime commission.



These consolidated cases arise on petition for review of two Federal Maritime Commission (FMC or Commission) decisions that resulted from a controversy surrounding two high-speed container cranes located on berths at the "Isla Grande" terminal at the port of San Juan, Puerto Rico. In FMC Docket No. 76-38 the Commission found that the Puerto Rico Ports Authority (Ports Authority) and the Puerto Rico Maritime Shipping Authority had violated section 15 of the Shipping Act, 46 U.S.C. § 814 (1976), through their failure to secure Commission approval of agreements concerning the use of terminal facilities. In FMC Docket No. 76-41, the Commission found violations of sections 16 and 17 of the Shipping Act, 46 U.S.C. §§ 815, 816 (1976), through the Ports Authority's failure to condition PRMSA's use of the terminal on, and PRMSA's failure to allow, sharing of PRMSA's high-speed container cranes by a competing carrier. For the reasons hereinafter appearing, we reverse the Commission as to each of the violations determined by it to exist. I

The Puerto Rico Ports Authority, established by the Puerto Rico Legislature in 1942, is a public corporation charged with the ownership, development, and operation of transportation facilities and marine services in, to, and from Puerto Rico. It holds the sole authority to select and assign suitable berths to vessels calling at the Port of San Juan.

The Puerto Rico Maritime Shipping Authority, established in 1974, is a nonstock public corporation organized to provide ocean common carrier service between mainland United States and the Commonwealth of Puerto Rico. To implement its operation, it acquired vessels, equipment, and terminal leasehold improvements from several container carriers. These included Seatrain Lines, Inc., which had owned the facilities at Isla Grande, as well as Sea-Land Service, Inc., and Sea-Land's affiliate Gulf Puerto Rico Lines, Inc. In addition, PRMSA acquired the outstanding stock of the roll on/roll off carrier Transamerican Trailer Transport, Inc. In October 1974, PRMSA began carrier service between San Juan and the Atlantic and Gulf Coasts of the United States.

Seatrain Gitmo, Inc. is a subsidiary of Seatrain Lines, Inc., whose assets PRMSA had acquired at the outset of its carrier service. Both are intervenors in this litigation and are referred to collectively as Seatrain. After having left the Puerto Rico-mainland trade with the sale of assets devoted thereto in 1974, Seatrain reentered that trade between Atlantic ports and Puerto Rico in January 1976. Its re-entry and concomitant request for berthing facilities in Puerto Rico precipitated this litigation.

The Port of San Juan comprises a number of terminal facilities, among them Isla Grande, Puerto Nuevo, Pan American Dock, Frontier Pier, and Puerto Rican Drydock. For Dcontainership operation, Isla Grande and Puerto Nuevo assume the most significance; Isla Grande, however, is the focus of this litigation.

Isla Grande terminal has been used for containership operation since 1962, and its rather unique configuration is critical to the FMC decisions under review. Isla Grande has two 663 foot berths, which are contiguous end to end. Extending along the water side of the wharf for the length of the berths is a "dip," 15-22 feet wide and 11/2-3 feet lower than the bulkhead (the beginning of the wharf structure at the water line) and the remainder of the wharf. Steel "bitts" or piles, 21/2 feet high and 2 feet in diameter, are located every 100 feet along the center of the dip. The presence of this dip affects the use of the terminal. Ship-mounted cranes can be used effectively only if they have the reach necessary to place cargo over the dip. Mobile cranes, which might otherwise operate within the dip, are impeded by the bitts, which are used to moor vessels. To circumvent these difficulties, two parallel crane rails, designed to accommodate shoreside container cranes, are embedded on the wharf, the first almost next to the dip, and the second, in back of the first. High-speed shoreside cranes, owned by Seatrain until PRMSA purchased them in 1974, are installed on these rails. Behind the 250 foot wide wharf is a marshalling area of approximately 21 acres. The entire terminal occupies approximately 35 acres.

Puerto Nuevo, the newest docking area in the Port of San Juan, has been planned and developed as the major container facility in the port, with the potential for future expansion. The Ports Authority has constructed ten berths at Puerto Nuevo, four of which have been in use throughout the Commission's proceedings in these cases. Parallel crane rails extend across these four berths and across two others that have not been used for container operations. The remaining Puerto Nuevo berths have no crane rails, but are designed to accommodate them.

In developing docking facilities at the Port of San Juan, the Ports Authority has adopted a passive approach. Instead of providing all the facilities essential to container shipping, it opted to develop the harbors, wharves, and channels and to offer only berths and wharfing areas to the carriers. Any further improvements essential to containership operations were to be installed by the carriers themselves, to suit their individual needs. Such improvements might include crane rails and container cranes, pavement of backup land, lighting, fencing, and any necessary buildings. The Ports Authority protected the carriers' investments by offering long-term agreements for preferential use of the berths and adjacent wharves, and long-term exclusive leases of backup land.

Modern containership operation depends on the availability of container cranes, either shoreside, mobile, or ship-mounted, for the efficient handling of cargo. Although containership operations began at the Port of San Juan in the early 1960s, high-speed container cranes were installed only later, by the carriers themselves in accordance with the Ports Authority's passive development plan. The agreements negotiated with individual carriers regarding the use of those cranes reflected the gradual development of the port for container shipping. Prior to the installation of cranes at Puerto Nuevo, for example, the Ports Authority had executed, with both Seatrain at Isla Grande and another carrier, Sea-Land Service, Inc., long-term agreements that required no equipment sharing. After Sea-Land installed high-speed cranes at Puerto Nuevo in 1965, the Ports Authority required Sea-Land to operate those cranes for other carriers, if such use would not interfere with Sea-Land's own operations. In 1975, however, when the Ports Authority negotiated new agreements for Puerto Nuevo with Sea-Land and with PRMSA (partial successor to Sea-Land at Puerto Nuevo), the agreements required no crane sharing. By then the Ports Authority had developed enough berths at Puerto Nuevo so that it could offer facilities on which containership carriers could install their own cranes and other equipment. No longer was crane sharing necessary to ensure access to the Port of San Juan for all container carriers.

Because Isla Grande is the focus of this controversy, a more detailed account of the situation existing at that terminal is required. In accordance with the Ports Authority plan for developing the Port of San Juan, Seatrain helped to improve the Isla Grande terminal. It installed crane rails, container cranes, paving, and other improvements. According to the terms of a 15-year agreement executed in 1972, *fn1 title to these improvements, with the exception of the crane rails, would remain in Seatrain until the expiration of the agreement. Title to the crane rails, in contrast, was to vest immediately in the Ports Authority. In 1974 at Seatrain's request, the Ports Authority released title to the crane rails so that Seatrain could sell them to PRMSA. Thus, when PRMSA entered the carrier trade in late 1974, it purchased Seatrain's vessels and terminal assets, including the cranes and crane rails. For the crane rails, PRMSA paid $512,554.93; for the cranes, $2,204,223.74.

Like the pre-1975 agreements executed for the Puerto Nuevo berths, the 1972 agreement between the Ports Authority and Seatrain for Isla Grande had included a crane sharing requirement: if the Ports Authority determined that crane sharing would not interfere with Seatrain's operations, the Authority could require Seatrain to furnish crane service to other carriers. The Ports Authority invoked this provision only twice, for noncommercial vessels. J.A., at 668.

When PRMSA purchased Seatrain's assets in 1974, Seatrain demanded release from its 1972 agreement. The Ports Authority consented only after PRMSA had committed itself to assume, but had not actually assumed, Seatrain's obligations under the 1972 agreement. When the Ports Authority and PRMSA finally executed an agreement in 1976, however, that agreement did not include the crane-sharing obligation. The Ports Authority attributes its failure to require secondary crane use to the pressing financial need for a signed lease for the Isla Grande terminal and, more importantly, to the inconsistency of a crane-sharing requirement with both the Ports Authority's overall plan for the development of the Port of San Juan and the availability of unimproved berths at Puerto Nuevo. This lack of a secondary use requirement and PRMSA's refusal to share its cranes voluntarily with Seatrain, its predecessor at Isla Grande and now its competitor, led to the Commission's finding of sections 16 and 17 violations. In addition, the Commission found that PRMSA and the Ports Authority had implemented an agreement for the use of Isla Grande without prior Commission approval, in violation of section 15 of the Shipping Act. II

Section 15 of the Shipping Act, 46 U.S.C. § 814 (1976), ensures Federal Maritime Commission supervision of designated classifications of agreements pertaining to the common carriage of goods by water. It requires such agreements to be filed with the Commission promptly; vests in the Commission the power to approve, disapprove, cancel, or modify the agreements; and provides that the agreements can be implemented lawfully only after Commission approval. *fn2 The requirements of section 15 extend to every "common carrier by water, or other person subject to this chapter." *fn3 No one disputes that both the Ports Authority and PRMSA come within its purview. Moreover, those parties concede that agreements in which a terminal operator grants a carrier preferential berthing rights in a marine terminal facility require section 15 approval. *fn4 At issue in this litigation is whether such preferential agreements subject to section 15 existed between the Ports Authority and PRMSA.

In Docket No. 76-38, the Commission found violations of section 15 in connection with three agreements between the Ports Authority and common carriers for the use of Isla Grande terminal. *fn5 Although only the Commission's findings as to the arrangement between the Ports Authority and PRMSA are the subjects of appeal in this litigation, an understanding of this arrangement requires a brief explanation of the earlier agreements.

When PRMSA entered the Puerto Rico carrier trade in 1974 Seatrain had been docking at Isla Grande for some 12 years. In 1962 and again in 1968, the Ports Authority and Seatrain had entered into agreements found not to be subject to section 15. In 1972, however, Seatrain entered into another agreement for preferential berthing rights and exclusive use of the marshalling area at Isla Grande. *fn6 The implementation of that agreement, neither filed with nor approved by the Commission, was held in No. 76-38 to violate section 15. In conjunction with PRMSA's purchase of Seatrain's assets in 1974, Seatrain and the Ports Authority executed but did not file a lease termination agreement, also found by the Commission to have violated section 15.

As PRMSA entered the container trade, it advised the Ports Authority of its willingness to enter into contracts assuming Seatrain's obligations under the 1972 agreement. Nonetheless, in October 1974 PRMSA initiated its container operations at Isla Grande without having executed contracts with the Ports Authority. Only in October 1975 was an agreement drafted, and the parties did not execute that agreement until May 1976, when they filed it with the Commission. The agreement, T-3308, granted PRMSA preferential use of the berth and wharf, and exclusive use of the marshalling area at Isla Grande, in exchange for specified annual fees in addition to the usual dockage and wharfage tariffs. Seatrain protested the agreement, and the Commission held it for 10 months without taking action. In March 1979, Agreement T-3308 was withdrawn, and two superseding agreements, T-3453 and T-3453A, were filed.

In FMC Docket No. 76-38, the Commission concluded that the Ports Authority and PRMSA had committed two separate violations of section 15. One involved the marshalling or backup area, and stemmed from an oral agreement giving PRMSA exclusive use of the area. The other involved the berthing area, and resulted, not from agreement T-3308, but from an unfiled, unapproved agreement that the Commission inferred from the evidence in this docket and in Docket No. 76-41. Because we find neither conclusion supported by substantial evidence, *fn7 we reverse the Commission's findings of section 15 violations.

The Marshalling Area

The parties conceded that PRMSA was using the backup area at Isla Grande pursuant to an oral agreement, neither submitted to nor approved by the Commission, with the Ports Authority, pending execution of a written lease. Thus, the existence of a section 15 violation turns on whether that oral lease of backup land was subject to approval by the Commission.

According to Commission precedent, a landlord-tenant agreement between a ports authority and a carrier for use of a marshalling area is subject to section 15 approval only when the area is "essential" to use of the berth. *fn8 The Commission's finding that the marshalling area at Isla Grande is essential is therefore critical to its decision and must be supported by substantial evidence in the record. No such substantial evidence exists in Docket No. 76-38. Indeed, the record suggests the opposite conclusion: Seatrain's own statements imply that the marshalling area is not essential for effective use of the berths at Isla Grande. Seatrain's initial written request to gain access to Isla Grande specified its need for a marshalling area of approximately 5 acres, which could be separated from the Isla Grande terminal. *fn9 Moreover, in an affidavit contravening the suggestion that Seatrain's use of the Isla Grande would cause congestion at the terminal, a Seatrain vice president stated that Seatrain could discharge its vessels at Isla Grande and move the container to its marshalling area at the nearby Pan American Dock. *fn10

In the absence of substantial evidence as to the essentiality of the marshalling area to the use of Isla Grande, *fn11 the Commission's finding that the oral lease was subject to section 15 approval must fail. Accordingly, the Commission's decision that the Ports Authority and PRMSA violated section 15 by failing to secure approval of the oral lease is reversed.

The Berthing Area

The Commission found that "the evidence establishes the existence of an unfiled, unapproved agreement relating to PRMSA's use of the berthing area at Isla Grande." J. A., at 18. To support this conclusion, the Commission noted that no other carrier has used Isla Grande since PRMSA began operations there, *fn12 and cited the presence of PRMSA's assets at the terminal. The Commission also asserted that Isla Grande is virtually useless as a container terminal without PRMSA's cranes, which PRMSA will not share; therefore the terminal is not available to other carriers on any basis. As additional factors in its decision, the Commission cited the Ports Authority's consent to a possible assignment by Seatrain of its rights, covenants, and obligations (presumably, but not explicitly, including Seatrain's secondary crane use provision) to PRMSA, J. A., at 66; a letter from Teodoro Moscoso, Chairman of PRMSA, expressing PRMSA's willingness to assume the obligations established in Seatrain's then-terminated lease, J. A., at 1198; the effective date (1 October 1975) contained in agreement No. T-3308; *fn13 and the unity of PRMSA and the Ports Authority insofar as Isla Grande is concerned. *fn14 The unfiled agreement established by this evidence, the Commission concluded, constituted a violation of section 15. *fn15

The evidence adduced in Docket No. 76-38 is insufficient to support the Commission's finding of an unfiled agreement between the Ports Authority and PRMSA. Rather, uncontroverted evidence shows that PRMSA paid only the standard wharfage and dockage charges prescribed by the Ports Authority tariff, and did not pay any preferential berthing fee. *fn16 Moreover, the critical finding that Isla Grande is unavailable for use by other container carriers without PRMSA's cranes is not supported by substantial evidence in the record. Indeed, the question of Isla Grande's availability to other carriers without PRMSA's cranes was not posed in this proceeding, ...

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