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ALASKA BULK CARRIERS, INC. v. BALDRIGE

June 24, 1982

ALASKA BULK CARRIERS, INC., et al., Plaintiffs,
v.
Malcolm BALDRIGE, et al., Defendants, and Falcon World Shipping Corporation, et al., Intervenors-Defendants



The opinion of the court was delivered by: SMITH, JR.

MEMORANDUM

Plaintiffs, the owners and operators of unsubsidized United States-flag tanker vessels, bring this action to set aside an award of a construction differential subsidy (CDS) by the Department of Commerce's Maritime Subsidy Board. Falcon World Shipping Corporation, which received the CDS as an aid in the construction of two tankers, intervenes as a defendant. The action is before the Court on defendants' motion to dismiss for lack of standing and on plaintiffs', defendants' and intervenor-defendants' cross-motions for summary judgment.

 I.

 The Merchant Marine Act of 1936, 46 U.S.C. § 1101 et seq. (1976 & Supp. III 1979), is designed " "to foster the development and encourage the maintenance' of a large and effective merchant marine capable of meeting the Nation's future commercial and military needs." Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 584, 100 S. Ct. 800, 807, 63 L. Ed. 2d 36 (1980) (quoting 46 U.S.C. § 1101 (1976)). In pursuit of these objectives, the Act establishes a number of grant and loan programs, including the CDS program at the core of the present litigation. See 46 U.S.C. § 1151 (1976).

 Section 501(a) of the Act authorizes the Secretary of Commerce to award a CDS constituting up to fifty percent of the cost of constructing a proposed vessel in the United States. 46 U.S.C. § 1151(a) (1976). Prior to making the award, however, the Secretary must determine that

 
(1) the plans and specifications call for a new vessel which will meet the requirements of the foreign commerce of the United States, will aid in the promotion and development of such commerce, and be suitable for use by the United States for national defense or military purposes in time of war or national emergency; (2) if the applicant is the proposed ship purchaser, the applicant possesses the ability, experience, financial resources, and other qualifications necessary for the operation and maintenance of the proposed new vessel; and (3) the granting of the aid applied for is reasonably calculated to carry out effectively the purposes and policies of (the Merchant Marine Act).

 Id. In making these determinations, the Secretary may exercise "considerable discretion." Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. at 586 n.26, 100 S. Ct. at 808 n.26.

 The owner of the proposed vessel must be a citizen of the United States and must agree that the vessel be constructed in and documented under the laws of the United States. 46 U.S.C. § 883 (Supp. III 1979). The owner must also agree, in accordance with section 506 of the Act, to operate the vessel only in the foreign trade, which encompasses trade between a United States port and a foreign port as well as trade between a foreign port and another foreign port. 46 U.S.C. § 1156 (1976). Under either of two exceptions specified in section 506, however, the owner may operate the vessel in the domestic coastwise trade. Id. The first of the two exceptions permits the owner to operate the vessel in the domestic coastwise trade as an adjunct to certain specified foreign voyages. Id. The second exception permits the owner to operate the vessel in the domestic coastwise trade for up to six months in any twelve-month period upon a determination by the Secretary of Commerce that the vessel's transfer into the domestic coastwise trade "would be necessary or appropriate to carry out the purposes of (the Merchant Marine Act)." Id. To ensure that a vessel constructed with CDS and operating in the domestic coastwise trade pursuant to one of the two exceptions does not obtain an unfair competitive advantage over unsubsidized vessels similarly employed, section 506 also provides that the owner of the vessel must repay that portion of the outstanding CDS allocable to the vessel's domestic operations. Id.

 In this case, Falcon World Shipping Corporation filed an application with the Maritime Subsidy Board on October 26, 1979 for a CDS to aid in the construction of four 34,000 dead weight ton (DWT) product tanker vessels. Falcon indicated in a later amendment to its application that it was attempting to reach an agreement with the Military Sealift Command (MSC), a branch of the Department of Navy that provides ocean transportation for personnel and cargoes for the Department of Defense and other federal agencies, concerning the substitution of these four new tankers for four of Falcon's existing 37,000 DWT tankers already under charter to MSC but not constructed with CDS. Under the terms of the charters on Falcon's four existing tankers, MSC possessed renewal options on an annual basis through 1989 and 1990.

 On several occasions, plaintiffs requested the Maritime Subsidy Board to deny Falcon's application. On January 19, 1981, however, the Board approved a CDS award of $ 70.4 million to Falcon for the construction of two, as opposed to four, 34,000 DWT tankers. According to the specifications of the CDS award, the two new tankers are to contain several operational and cost-saving improvements over Falcon's existing tankers.

 The Board conditioned the CDS award on an agreement to be entered into between Falcon and MSC for the substitution of the two new tankers for two of Falcon's four existing tankers already under charter to MSC. Under the agreement, the two new tankers are to be substituted in 1983 and 1984, at which time the replaced tankers may enter either the foreign trade or the domestic coastwise trade. The two new tankers are to be chartered to MSC until 1988 and 1989, at which time MSC has options to renew the charters until 1993 and 1994.

 On February 5, 1981, plaintiffs petitioned the Secretary of Commerce to review the Maritime Subsidy Board's decision to award the CDS to Falcon. On February 19, 1981, the Secretary denied plaintiffs' petition.

 II.

 Independent of their claims under the Merchant Marine Act, plaintiffs present a claim based on the procedural safeguards of the Administrative Procedure Act (APA). Plaintiffs assert that the Maritime Subsidy Board failed to comply with section 555(e) of the APA, 5 U.S.C. § 555(e) (1976), in making its decision of January 19, 1981. Plaintiffs insist that, as a result, the Board's decision must be set aside, in accordance with ...


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