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SEA-LAND SERV. v. DOLE

June 26, 1984

SEA-LAND SERVICE, INC., Plaintiff,
v.
ELIZABETH HANFORD DOLE, et al., Defendants; FOSS ALASKA LINE, INC., et al., Plaintiffs, v. ELIZABETH HANFORD DOLE, et al., Defendants



The opinion of the court was delivered by: OBERDORFER

 On June 29, 1983, the Court granted summary judgment for the plaintiffs in these consolidated cases and declared an amended order of the Secretary of Transportation to be arbitrary, capricious, an abuse of discretion, and contrary to law. Both the Secretary of Transportation and defendant-intervenor American President Lines, Ltd. ("APL") have moved to alter and/or amend that judgment on various grounds. The motions will be denied in an accompanying order.

 At issue is a decision of the Secretary of Transportation authorizing APL to carry certain cargo between Dutch Harbor, Alaska, and Vancouver, British Columbia. The facts have already been summarized in the Court's memorandum of June 29, 1983, which is attached as an exhibit. Nevertheless, the complexity of the legal and factual issues raised in the motions to alter and/or amend warrant a brief restatement.

 I.

 
no operating differential subsidy shall be paid for the operation of any vessel on a voyage on which it engages in coastwise or intercoastal trade.

 46 U.S.C. § 1175(a). Section 506 requires that owners of subsidized American vessels agree that their ships will be operated exclusively in foreign trade or on a round the world voyage. 46 U.S.C. § 1156.

 On January 31, 1983, Secretary of Transportation Drew Lewis issued a brief opinion and order that on its face was inconsistent with the statutory provisions noted above. The order, which reversed a contrary decision of the Maritime Subsidy Board, authorized APL, a subsidized American line, to carry cargo between Dutch Harbor, Alaska, and Vancouver, British Columbia. Under the order, the cargo carried between these ports could originate in or be destined for points in the United States Pacific Northwest ("USPNW"), with connection to Vancouver by rail. It is not contested that all current cargo service between the USPNW and Dutch Harbor and other proximate Aleutian ports is conducted exclusively by unsubsidized American lines such as the plaintiffs in these cases. It is also undisputed that competition by a subsidized American line in the Dutch Harbor-USPNW trade could have a devastating effect on the business of the unsubsidized American carriers.

 Faced with this threat by the Secretary's January 31, 1983 decision, plaintiffs petitioned the Secretary for reconsideration, and when no response appeared to be forthcoming, filed these lawsuits. *fn1" The complaints asserted that the Secretary's January 31, 1983, decision embodied improper interpretations of both APL's Operating Differential Subsidy ("ODS") agreement and the Merchant Marine Act of 1936.

 While the suits were pending, but before summary judgment motions became ripe, the new Secretary of Transportation, Elizabeth Dole, issued an opinion and order granting in part and denying in part plaintiffs' motions for reconsideration. Opinion and Order of May 31, 1983. In the January 31, 1983, decision, Secretary Lewis had interpreted a phrase in APL's long-standing ODS agreement which limited APL to "overseas carriage." Although trade between the USPNW and Dutch Harbor via Vancouver would clearly be "coastwise" (i.e., domestic) trade within the meaning of the Merchant Marine Act of 1936, Secretary Lewis concluded that it would also be "overseas" trade within the meaning of the ODS contract because it was "transoceanic carriage . . . over the 1700-plus nautical miles between the foreign port of Vancouver and the domestic port of Dutch Harbor." Decision and Order of January 31, 1983, at 3. Secretary Lewis failed to explain, however, how such carriage could be squared with the Merchant Marine Act of 1936.

 Secretary Dole's opinion on reconsideration embraced Secretary Lewis's novel interpretation of the ODS contract, but also added lengthy discussion explaining why carriage of cargo from Dutch Harbor to Vancouver for transshipment to the USPNW would not violate the provisions of the Merchant Marine Act of 1936 that barred subsidized shippers from coastwise trade. In that portion of the May 31, 1983, opinion, Secretary Dole concluded that the term "coastwise trade" in 46 U.S.C. § 1175(a) did indeed mean domestic trade, even though the term "overseas trade" in the ODS agreement did not mean foreign trade. Nevertheless, she concluded that APL could still carry cargo from Dutch Harbor to Vancouver and then transship it by rail to points in the United States. She reasoned that 46 U.S.C. § 1175(a), in barring subsidized shippers from coastwise (i.e., domestic) trade, was really intended by Congress only to bar subsidized shippers from that portion of the domestic market that was protected from foreign competition by the Jones Act, 46 U.S.C. § 883 (1976 & Supp. V 1981). She then interpreted the third proviso of the Jones Act *fn2" as creating the possibility that foreign ships could carry cargo between Dutch Harbor and the USPNW via Vancouver. Opinion and Order of May 31, 1984, at 15. Since foreign shippers might compete in the future with unsubsidized American lines in the Vancouver-Dutch Harbor trade, the Secretary reasoned, subsidized American carriers should be able to compete with unsubsidized American lines on that route as well.

 In its memorandum of June 29, 1983, the Court accepted the Secretary's interpretation of the ODS contract, but found the Secretary's interpretation of the Merchant Marine Act of 1936 to be untenable. Although the Secretary's interpretation of the ODS agreement was questionable, it appeared to lie within the limits of the agency's discretion in interpreting documents that it had itself created. Memorandum Opinion of June 29, 1983, at 5. The Secretary's interpretation of the provisions of the Merchant Marine Act of 1936 barring subsidized shippers from coastwise trade, however, were a different matter. Based on a review of the administrative record, the Court found it to be arbitrary, capricious, an abuse of discretion, and contrary to law *fn3" to interpret a provision barring coastwise trade by subsidized lines such as APL in a way that permitted a subsidized line such as APL to engage in coastwise trade. Such an interpretation, the Court reasoned, flew in the face of the clear statutory intent of 46 U.S.C. § 1175(a), which was to protect unsubsidized lines such as plaintiffs here from competition by subsidized lines such as APL on domestic cargo routes. Memorandum Opinion of June 29, 1983, at 6-7. *fn4"

 II.

 Unfortunately, the Memorandum Opinion of June 29, 1983, appears to have created an unintended ambiguity and to have tabled a related issue that must now be addressed. The ambiguity was created when the Court, after rejecting the Secretary's interpretation of 46 U.S.C. § 1175(a), noted in passing that there was in fact no actual or potential foreign competition in the Alaska-USPNW trade. The absence of actual foreign competition was undisputed, but the Court noted as well that potential foreign competition was barred because the joint rate tariffs requisite to such competition were non-existent. Memorandum Opinion of June 29, 1983, at 7.

 In their motions to alter or amend the Court's judgment, the Secretary and APL have gone to considerable lengths to show that there is potential foreign competition in the Dutch Harbor-USPNW trade. Thus, the Secretary has solicited letters from government officials indicating that it is possible that a foreign carrier could press for appropriate joint rate tariffs (although not for the container cargo that apparently predominates the current trade of APL) and might in the future enter the market. See United States Motion to Alter or Amend Judgment at 3-7 (filed July 15, 1983).

 However tenuous these documents as support for the proposition that there is a realistic threat of foreign competition in the Dutch Harbor-USPNW trade, the Court need not discredit them. They are irrelevant simply because the presence or absence of potential foreign competition is irrelevant to the validity of the Secretary's interpretation of 46 U.S.C. § 1175(a). That interpretation fails on the face of the express statutory provision, which says, and was intended to say, that subsidized American lines shall not compete on coastwise routes (such as that between Dutch Harbor and the USPNW) with unsubsidized domestic carriers. The Court can find nothing in the Jones Act's third proviso or the legislative history of the proviso noted by the Secretary which contradicts this clear command of the Merchant Marine Act of 1936. To the extent the Court, in its June 29, 1983, opinion, noted the weakness of the Secretary's allegations concerning potential foreign competition, it was merely underscoring the faults in the Secretary's position even assuming that her interpretation of the Merchant Marine Act of 1936 was correct. Because that interpretation was incorrect, the discussion of foreign competition was not essential to the opinion.

 In ruling against the Secretary on June 29, 1983, the Court was not unaware of the principle, recently emphasized by our Court of Appeals, that the judiciary's job is not to provide its own original construction of the Secretary's governing statute, but rather to determine whether the Secretary's construction is sufficiently reasonable to be allowed. Sea-Land Service, Inc. v. Dole, supra, 723 F.2d at 979. Accepting this standard, the Court has held that when the Congress expressly barred subsidized American vessels from "coastwise" trade, and notably omitted Alaska-USPNW trade from the exceptions, it meant what it said. It did not mean to permit what was expressly barred -- coastwise trade by APL between Alaska and the USPNW -- merely because another proviso in another statute created the possibility, however remote, of foreign competition on that route. The Court here holds that it is not "sufficiently reasonable" to interpret the statute in a way that ignores the demonstrable, undisputed threat of subsidized competition with unsubsidized lines -- a threat that 46 U.S.C. § 1175(a) was expressly intended to disarm -- simply because of the somewhat uncertain threat of foreign competition created by the Secretary's as yet untested interpretation of the third proviso of the Jones Act. Accordingly, to the extent the Secretary's opinion and order permit carriage between Dutch Harbor and Vancouver with direct transshipment to or from the USPNW, it is invalid and contrary to law.

 When the Court reached this conclusion in the Memorandum Opinion of June 29, 1983, it appeared that no further analysis of the issues presented in the briefs was required. Plaintiffs had advanced several arguments against the Secretary's actions in addition their reliance on 46 U.S.C. § 1175(a), but the Court found it unnecessary to reach them. Memorandum Opinion of June 29, 1983, at 5 n.2. The court assumed from the briefs that all carriage by APL between Dutch Harbor and Vancouver would be barred by its interpretation of 46 U.S.C. § 1175(a). The motions to alter or amend the judgment correctly point out, however, the Court's holding would only bar that portion of APL's Dutch Harbor-Vancouver carriage which originates in or is destined for the lower 48 states without prior interim processing into other products in Canada. Section 605(a) of Merchant Marine Act of 1936, even as interpreted by the Court, does not bar a subsidized shipper from carrying cargo of Canadian origin or destined for Canadian use or consumption between Dutch Harbor and Vancouver, nor does it bar transport of goods that are to be processed into other products in Canada prior to their export ...


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