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12/23/83 Sea-Land Service, Inc., v. Elizabeth Hanford Dole

December 23, 1983





Appeal from the United States District Court for the District of Columbia.


Edwards, Bork and Scalia, Circuit Judges. Opinion for the Court filed by Circuit Judge Scalia.


Sea-Land Service, Inc. ("Sea-Land"), appeals from a district court decision granting summary judgment in favor of appellees in an action brought under the Administrative Procedure Act and the Merchant Marine Act of 1936. Appellant, plaintiff below, contends that appellee the Secretary of Transportation *fn1 violated § 605(c) of the Merchant Marine Act of 1936, 46 U.S.C. § 1175(c) (Supp. V 1981), by including in an operating differential subsidy contract with appellee Waterman Steamship Company ("Waterman") permission for the subsidized vessels to call on certain ports off the subsidized route without holding a hearing to examine the sufficiency of existing service on the routes thereby affected. I

The Merchant Marine Act of 1936, ch. 858, 49 Stat. 1985 (codified as amended at 46 U.S.C. §§ 1101-1295g (1976 & Supp. V 1981)), was enacted, according to its declaration of policy, in order to foster an efficient, modern, American-owned and -operated merchant fleet, able to carry a substantial portion of American export and import trade, and able to serve as a naval auxillary in time of war. Id. at § 1101. As amended, the statute establishes a program of construction-differential subsidies, authorizing the Secretary of Transportation to grant a subsidy of up to 50 percent of the cost of constructing new American-flag merchant ships, in exchange for assurances that the subsidized vessels will be used only in foreign commerce. Id. at 1151-1161. The Act also establishes a system of operating-differential subsidies , id. at §§ 1171-1185, the procedural requirements of which are at issue in this case.

The ODS program arose from the Congressional belief that, without subsidy, the higher operating costs of American vessels, particularly their labor costs, would render them uncompetitive and drive them out of the merchant marine market. See H.R. Rep. No. 1277, 74th Cong., 1st Sess. 13 (1935). Accordingly, the Secretary of Transportation is authorized to enter into contracts granting financial aid to certain vessels operated in United States foreign commerce. 46 U.S.C. § 1171 (a) (Supp. V 1981). The ODS program is administered by the Department of Transportation's Maritime Administration, through its Maritime Subsidy Board.

To receive an ODS, an operator must file an application satisfying § 601 of the Act, id. at § 1171 (Supp. V 1981), which imposes financing, ownership, and vessel equipment conditions, and requires that the subsidy be used for operation in an essential service. For the purposes here relevant, the Act defines "essential services" as those services, routes and lines that are "determined by the Secretary of Transportation to be essential for the promotion, development, expansion, and maintenance of the foreign commerce of the United States," taking into account various specified factors, including "the intangible benefit the maintenance of any such line may afford to the foreign commerce of the United States, to the national defense, and to other national requirements." *fn2 46 U.S.C. § 1121(a) (Supp. V 1981). Section 605 of the Act contains provisions specifically excluding certain vessels from ODS subsidy, including the following provision that is central to the present case.

No contract shall be made under this subchapter with respect to a vessel to be operated in an essential service served by citizens of the United States which would be in addition to the existing service, or services, unless the Secretary of Transportation shall determine after proper hearing of all parties that the service already provided by vessels of United States registry is inadequate, and that in the accomplishment of the purposes and policy of this chapter additional vessels should be operated thereon . . . .

46 U.S.C. 1175(c) (Supp. V 1981).

In 1973, Waterman Steamship Corporation applied for an ODS to operate subsidized shipping service for a required number of sailings on Trade Route 21, which runs between the United States Gulf Coast and United Kingdom and European ports. It also sought the privilege of making stops, with subsidy, on Trade Routes 5-7-8-9 and 11, which describe service from North and South Atlantic ports to United Kingdom and European ports, and Trade Route 6, which runs between United States North Atlantic ports and Scandanavian and Baltic ports. In 1975, Waterman filed a separate application seeking an ODS that would require it to serve Trade Routes 5-7-8-9, 6, and 11. In 1977, after published notice of these applications, comments in opposition by other shipping companies, and public hearings, an administrative law judge made the 605(c) finding that United States flag service on all the trade routes at issue was inadequate, and that Waterman's proposal would serve the purposes of the Act. Waterman Steamship Corp., 17 S.R.R. 25, 72 (M.S.B. 1977) (Initial Decision of ALJ). In September of 1978, the Maritime Subsidy Board agreed with the administrative law judge that service on Trade Route 21 was inadequate, and that § 605(c) was not a bar to Waterman's additional service on that route. The Board found, however, that United States flag service on Trade Route 5-7-8-9 was adequate, and that although existing service on Trade Routes 6 and 11 was inadequate, Waterman had not proven its service on those routes would further the policies of the Act. Waterman Steamship Corp., 18 S.R.R. 925, 945 (M.S.B. 1978).

On September 18, 1978 Waterman responded to the Board's decision by revising its application for ODS on Trade Route 21, changing the request for permissive subsidized calls at the ports served by Trade Routes 5-7-8-9, 6, and 11 to a request for permissive calls on a nonsubsidized deviation basis to load and discharge cargo. (Waterman also sought reconsideration of the Board's prior denial of ODS on those routes, in petitions dated September 19 and 21, 1978; by order dated November 15, 1978, those petitions were denied. Waterman Steamship Corp., 18 S.R.R. 1257 (M.S.B. 1978).) On November 21, 1978 the Board granted Waterman's revised application by letter. The Board noted that its determination on the original application satisfied the requirements of § 605(c), given that Waterman's subsidy was to be limited to operations on Trade Route 21. The Board's letter formed the basis for the ODS contract, specifying the subsidy for Trade Route 21, authorizing nonsubsidized service on the other trade routes, and describing how the subsidy was to be allocated among subsidized and nonsubsidized operations of the same vessel. Sea-Land's petition to reconsider the permission to conduct nonsubsidized operations was denied. Waterman Steamship Corp., 18 S.R.R. 1550, 1552 (M.S.B. 1979).

Since the Merchant Marine Act contains no special provision for judicial review of subsidy determinations, Sea-Land brought suit against the government appellees in the United States District Court for the District of Columbia under the so-called non-statutory review provision of the Administrative Procedure Act, 5 U.S.C. § 703 (1982). Waterman was permitted to intervene as a party defendant. Sea-Land has standing because it operates vessels upon some of the trade routes on which the nonsubsidized operations may be conducted, and will thus suffer competitive harm as a consequence of the Secretary's action allegedly taken "without observance of procedure required by law," 5 U.S.C. 706(2) . See Association of Data Processing Service Organizations v. Camp, 397 U.S. 150, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970).

In this appeal from the District Court's award of summary judgment, Sea-Land contends that the Board's action violated § 605(c) which, it claims, requires the Board to hold hearings to investigate the adequacy of existing service before entering into a contract that authorizes even ...

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