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MANHATTAN TANKERS, INC. v. DOLE

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA


October 31, 1984

MANHATTAN TANKERS, INC., Plaintiff,
v.
ELIZABETH H. DOLE, Secretary of Transportation and ADM. JAMES S. GRACEY, Commandant, U.S. Coast Guard, Defendants, and OGDEN CHALLENGER TRANSPORT, INC., Intervenor-Defendant

The opinion of the court was delivered by: RICHEY

OPINION OF THE HONORABLE CHARLES R. RICHEY UNITED STATES DISTRICT JUDGE

 INTRODUCTION

 This matter comes before the Court on cross motions for summary judgment. The plaintiff owns an oil tanker, the MANHATTAN, built in the United States for use in the U.S. coastwise shipping trade. It brought this action challenging the decision of the Coast Guard permitting the entry of a vessel, owned by the intervenor-defendant, into the coastwise trade under the Wrecked Vessel Statute, 46 U.S.C. § 14. In an earlier Opinion, this Court determined that the plaintiff, Manhattan Tankers, a competitor of the intervenor-defendant, has standing to bring this suit. Manhattan Tankers, Inc. v. Dole, 587 F. Supp. 473 (D.D.C. 1984).

 After considering the cross motions for summary judgment, supporting and supplemental memoranda, and oral argument, the Court has decided, for the reasons set forth in this Opinion, to deny the plaintiff's motion, and to grant the joint motion of the defendants and intervenor-defendant for summary judgment. The Court has today issued an Order consistent with this Opinion.

 BACKGROUND

 A. The Statute and the Legislative History.

 The plaintiff challenges the Coast Guard's documentation of a vessel now owned by the intervenor-defendant, Ogden Challenger Transport ("Ogden"). The Coast Guard registered the ship pursuant to the Wrecked Vessel Act, 46 U.S.C. § 14. That statute was enacted in 1915, and it was similar to a predecessor statute in effect from 1852 to 1906. In essence, the statute provides for registration of foreign-built vessels which have wrecked in U.S. waters, and have been substantially rebuilt by U.S. repairmen. In complete text, the statute reads:

 

The Commissioner of Customs may issue a register or enrollment for any vessel wrecked on the coasts of the United States or her possessions or adjacent waters, when purchased by a citizen or citizens of the United States and thereupon repaired in a shipyard in the United States or her possessions, if it shall be proved to the satisfaction of the Commissioner, if he deems it necessary, through a board of three appraisers appointed by him, that the said repairs put upon such vessels are equal to three times the appraised salved value of the vessel: Provided, That the expense of the appraisal provided for shall be borne by the owner of the vessel: Provided further, That if any of the material matters of fact sworn to or represented by the owner, or at his instance, to obtain the register of any vessel are not true, there shall be a forfeiture to the United States of the vessel in respect to which the oath shall have been made, together with tackle, apparel, and furniture thereof.

 46 U.S.C. § 14.

 Although this statute was originally enacted in 1915, a very similar statute was in effect between 1852 and 1906. Congress repealed the act in 1906 because the Commerce Department, in a rare desire to relieve itself of authority, had complained that it lacked the expertise and manpower necessary to make the statutory determinations. As the 1914 Senate Report stated, in reference to the earlier repeal:

 

The burden of the objections to Section 4136 made by the Commissioner of Navigation . . . was that his bureau had a limited clerical force, incapable of giving the proper investigation to the important subject involved, and that the committees of Congress could examine more thoroughly into each case as it presented itself.

 S. Rep. No. 816, 63d Cong., 2d Sess. 2 (1914).

 After the 1906 repeal, Congress itself took over the registration of eligible wrecked vessels through special legislation on a case-by-case basis. But after a few years, the Senate Commerce Committee concluded that the repeal had adversely affected American shipyards, and in 1915 the statute was enacted as it appears today. See 46 U.S.C. § 14. This new statute, however, contained some changes from the earlier one. Congress was still aware of the burdens involved in administering the statute, so the new act provided for an independent board of appraisers to relieve the administering agency from becoming entangled in complex registration proceedings. To reduce the costs to the government, the act required the applicant to cover the expenses of the appraisal. Congress also provided a new safeguard on the face of the statute -- a penalty of forfeiture if the applicant makes any false representations to the board.

 In 1979, the House of Representatives undertook consideration of a bill which would have eliminated the registry provisions permitting certain foreign-built vessels to enroll for, inter alia, the U.S. coastwise trade. See 125 Cong. Rec. H7972 (1979) (House consideration of H.R. 1196). The Senate substituted a different measure, which still allowed documentation under the Wrecked Vessel Statute (46 U.S.C. § 14). The Senate bill also delegated the responsibility for vessel documentation to the Coast Guard. See 126 Cong. Rec. at S15949 (1980) (remarks of Senator Cannon). The House accepted this substitute, and in effect reenacted the Wrecked Vessel Statute as it has existed since 1915. Id. at H12269.

 B. The Regulations.

 In 1981, the Coast Guard proposed to revise the regulations pertaining to the documentation of vessels. 46 Fed. Reg. 56,318 (1981). Because the Wrecked Vessel Statute contains no requirement for the promulgation of any rules, only the Administrative Procedure Act's requirements governing "informal" or "notice and comment" rulemaking were adhered to. 5 U.S.C. § 553(c). The notice of proposed rulemaking ("NPR") required by 5 U.S.C. § 553(b) was duly published in the Federal Register on November 16, 1981. The NPR originally provided for a 60 day comment period, ending January 15, 1982, but the Coast Guard accepted comments as late as February 3, 1982. On June 24, 1982, the Coast Guard published the final rules accompanied by a discussion of all comments received. 47 Fed. Reg. 27,492 (1982).

 The plaintiff knew about the proposed rulemaking. Indeed, the then-counsel for the plaintiff submitted comments on behalf of another client. Despite the proposed regulations' lack of provisions for participation by interested parties in determinations by a board of appraisers, and the lack of guidance as to such a board's methodology, the plaintiff submitted no comments.

 The final Wrecked Vessel regulations were made effective on July 1, 1982. They were clearly promulgated in compliance with the Administrative Procedure Act ("APA"). The regulations, of which the pertinent parts are herein set forth, vary little from the statutory requirements:

 

§ 67.19-9 Wrecked vessels.

 

(a) Under the provisions of 46 U.S.C. 14, a wrecked vessel is one which:

 

(1) Has incurred substantial damage to its hull or superstructure as a result of natural or accidental causes which occurred in the United States or its adjacent waters; and

 

(2) Has undergone, in a shipyard in the United States or its possessions, repairs equaling three (3) times the appraised salved value of the vessel.

 

(b) The determinations of the appraised salved value and that the repairs made upon the vessel are equal to three (3) times that value must be made by a board of three (3) appraisers. The Commandant will appoint the members of the board, and the cost of the board must be borne by the applicant. . . .

 

Note. -- Calculation of appraised salved value will include consideration of the fact that the vessel, if in compliance with the Act, will attain costwise [sic] and fishery privileges. (46 C.F.R. § 67-19.9).

 C. The OGDEN-COLUMBIA's Application.

 On March 31, 1982, a tow boat collided on the lower Mississippi River with a Japanese-built oil tanker, then sailing under the Liberian flag, known as the ARKAS (subsequently renamed the OGDEN-COLUMBIA). *fn1" The OGDEN-COLUMBIA was substantially damaged. On July 18, 1982, Avondale Shipyards, Inc. ("Avondale") a subsidiary of Ogden Corporation and at the time an affiliate of the intervenor-defendant Ogden Challenger Transport, purchased the tanker and bunkers (engine fuel) for $7.75 million.

 On July 19, 1982, Avondale formally requested that the Coast Guard convene a board of appraisers pursuant to the Wrecked Vessel Statute, supra. (The Coast Guard's ARKAS file ("AF") at 1). Before such a foreign-built ship, (wrecked in U.S. waters, bought by U.S. citizens, and repaired in the U.S.), may be enrolled in the U.S. coastwise trade, the Coast Guard must determine that the repairs equal three times the salved value of the vessel. The Statute allows the Coast Guard to appoint a board of three appraisers to make such determinations of the salved value of the ship and the cost of repairs. The costs of the Board's appraisal must be paid by the vessel's owner. 46 U.S.C. § 14.

 On August 24, 1982, the Coast Guard convened such a board of three appraisers to consider the application of the OGDEN-COLUMBIA. In a letter to the Board members, Captain Verne E. Cox, the Coast Guard Officer in Charge, Marine Inspection in New Orleans, instructed the Board to determine if the vessel had incurred substantial damage to the hull and superstructure, and to establish the salved value of the vessel. In determining the salved value, the Board was instructed to consider that the vessel might obtain coastwise trading privileges. (AF 34). The letter also stated that the Board "may, but need not, consider" the $7.75 million purchase price "as relevant to the salved value of the vessel." (AF 34).

 On August 30 and September 10, 1982, counsel for Manhattan Tankers wrote to the Coast Guard seeking to participate in the OGDEN-COLUMBIA proceedings. (AF 35-37, 38-39). The letters included, among other things, Manhattan Tanker's assertion that the Board should consider, in determining the salved value of the vessel, the cost of construction of a comparable tanker in a U.S. shipyard. Such a cost assertedly would be $140 million. (AF 38-39). The letters also requested that the Board carefully evaluate, in advance, the proposed repair costs because the ship was being repaired at a shipyard owned by the vessel's owner, Avondale. The Coast Guard determined that this information was not pertinent, and thus it did not convey these requests to the Board.

 On September 15, 1982, the Board rendered a report which found, inter alia, that the salved value of the vessel was $3,500,000, and that the cost to repair it would almost assuredly exceed three times the salved value. (AF 41-42). The Coast Guard noticed that these initial determinations by the Board contained some errors, and on September 21, 1982, the Coast Guard requested written clarification from the Board on three matters. (AF 49-50). Two of these matters are significant here. First, while the Coast Guard instructed the Board to make a finding of whether there was substantial damage to the tanker's hull or superstructure, (AF 34), the Board returned a finding of "substantial damage to hull, superstructure and machinery." (AF 41). Because damage to the machinery was not a proper consideration, the Coast Guard requested clarification.

 Secondly, the Coast Guard requested the Board to explain its methodology in arriving at the salved value figure of $3,500,000, and whether that value included the consideration of the OGDEN-COLUMBIA's potential coastwise trading privileges.

 The Board responded on October 4, 1982. In pertinent part, that revised report stated:

 VESSEL CONDITION:

 

Vessel suffered substantial damage to hull and superstructure due to collision and fire.

 VALUATIONS:

 

Subsequent to our joint conversations today with U.S. Coast Guard, Captain Vernon E. Cox, we submit the following methodology by which we arrived the salved value of $3,500,000.00:

  a. Fair world marked [sic] $ 11,500,000.00 value as confirmed by reputable brokers. b. Low bid for repairs was submitted by Japanese Shipyard in the amount of $ 8,000,000.00. c. Therefore the salved value is $3,500,000.00.

19841031

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