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March 29, 1985


Harold H. Greene, United States District Judge.

The opinion of the court was delivered by: GREENE

At issue in these cases is the application of section 506 of the Merchant Marine Act of 1936, 46 U.S.C. § 1156. Plaintiffs in the American Trading case, owners of American flag ships built without subsidy which operate in the domestic trade, brought suit to invalidate a decision of the Maritime Administration (Marad) to permit two subsidized American vessels to operate in that trade. *fn1" The owners of the subsidized vessels were permitted to intervene as defendants. The related Atlantic Richfield action challenges Marad's decision not to permit that company's vessel, the "Arco Spirit," to enter the domestic trade. American Trading Transportation Company, Seatrain, and Boston VLCC were permitted to intervene in that action.

 On November 9, 1984, this Court denied American Trading's motion for a temporary restraining order, and the matter is now before the Court on motions for preliminary injunction filed both by American Trading and by Arco.

 It is clear -- and all parties agree -- that these cases involve a review of agency decisions and rulemaking, and that this Court's responsibility is therefore limited to a determination of whether Marad's action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2)(A); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971). The limited scope of judicial review in these cases, the substantial record before the Court, and the fact that there has been voluminous briefing and two oral arguments in these cases, makes it possible for the Court to dispose of them upon the merits. *fn2"


 It is the purpose of the Merchant Marine Act to foster the development and maintenance of the United States' merchant marine. *fn3" One of the methods employed to accomplish this objective has been the development of two separate fleets -- one to compete in the foreign trade and the other to operate in the domestic trade. Assistance is provided to vessels built in American shipyards which are destined for operation in the foreign trade in the form of construction-differential subsidies (CDS). However, in order to prevent the subsidized fleet from unfairly competing against unsubsidized vessels, the former are prohibited, as a general matter, from operating in the domestic trade.

 The Secretary of Transportation has authority to permit subsidized vessels to enter the domestic market after full repayment of their CDS, *fn4" or upon grant of a waiver for up to six months per year with pro rata repayment of the CDS. *fn5" The Secretary's decision under this scheme is a "highly discretionary" one ( Seatrain Shipbuilding Corp. v. Shell Oil Co., supra, 444 U.S. at 589), and it requires a balancing of a number of factors. Indeed, while the Secretary must consider the impact of a waiver upon the unsubsidized fleet ( Shell Oil Co. v. Kreps, 445 F. Supp. 1128 (D.D.C. 1977)) that is not the sole determinative factor: the Act permits a waiver to be granted whenever "necessary or appropriate to carry out the purposes of the Act" -- and those purposes are very broad. *fn6"


 In September 1984, three subsidized vessels, the "Brooklyn," the "Maryland," and the "Arco Spirit" applied to Marad for permission to enter the domestic trade to carry crude oil from Valdez, Alaska to the Panama Canal. All three vessels are Very Large Crude Carriers (VLCCs) over 100,000 deadweight tons (dwt) in size. On October 3, 1984, notice of the applications was published in the Federal Register, and comments were solicited, 49 Fed. Reg. 39143-44 (1984). Fourteen interested parties filed comments, and the applicants were given an opportunity to respond. On October 19, 1984, the Administrator extended the comment period to permit parties to comment on a potentially relevant court decision, Atlantic Richfield Co. v. United States, Civil Action No. 84-0139 (D.D.C. October 12, 1984), and the protestors filed additional comments and the applicants responded accordingly. Following the receipt of these comments, Marad denied requests for the filing of additional comments (see infra), and on November 7, 1984, it issued a brief order granting waivers to the "Brooklyn" and the "Maryland" but denying the "Arco Spirit" application. On November 16, 1984, the agency issued an opinion explaining in detail the reasons for the November 7 order.

 Marad's decision has been challenged by plaintiffs in both cases as being arbitrary, capricious, and an abuse of discretion. More specifically, American Trading challenges both the instant waiver proceeding and the propriety of the underlying regulation, while Arco challenges the authority of Marad to grant a waiver to some vessels but to deny it to others.


 On June 29, 1977, Marad published a final rule setting forth eligibility and other requirements for the carriage of Alaskan oil in the domestic trade by tank vessels which were built with CDS. 42 Fed. Reg. 33035 (June 29, 1977). According to the regulation, it has as its purpose the satisfaction of carriage requirements for Alaskan oil in the domestic trade after utilization of suitable vessels built without the benefit of CDS. The regulation is essentially procedural, that is, it does not list the factors which the Secretary will consider in making a determination under section 506. It does, however, contain one relevant substantive determination *fn7" -- that only vessels of over 100,000 dwt will be regarded as suitable for the Alaska-Panama Canal trade. The effect of this regulation, which is critical here, is as follows. A "suitable" subsidized vessel, i.e., one larger than 100,000 dwt, may apply for a waiver to enter this trade, and a "suitable" unsubsidized vessel has the power to protest and block the issuance of a waiver. However, a vessel not meeting the 100,000 dwt threshold is able to do neither. See 46 C.F.R. 250.

 In the seven years in which the regulation has been in effect, Marad has issued at least 15 decisions pursuant thereto, repeatedly stating that protests of vessels under 100,000 dwt would not be permitted to block the grant of waivers, and upholding its earlier determination that smaller vessels are not "suitable" for the trade. See, e.g., Dockets S-741 to 743 Arco Transportation Co., MA October 7, 1983, at 15.

 Plaintiffs in the American Trading case own or operate unsubsidized vessels which fall short of the 100,000 dwt limitation, and accordingly, when they protested the application of other vessels to enter the domestic trade, Marad did not consider their views. In this proceeding, these plaintiffs have presented two separate challenges to the regulation as well as numerous challenges to the waiver determination made ...

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