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ALASKA EXCURSION CRUISES, INC. v. UNITED STATES

May 3, 1985

ALASKA EXCURSION CRUISES, INC., Plaintiff,
v.
UNITED STATES OF AMERICA, et al., Defendants; ALASKA EXCURSION CRUISES, INC., Plaintiff, v. UNITED STATES OF AMERICA, et al., Defendants.



The opinion of the court was delivered by: FLANNERY

 These consolidated cases come before the court on the parties' cross-motions for summary judgment. No. 83-2366 (the "Marad case") involves a challenge by Alaska Excursion Cruises, Inc. ("AEC") to the approval by the U.S. Maritime Commission ("Marad") of a "bareboat charter" to defendant-intervenor Westours, Inc. ("Westours"), a foreign corporation, to operate the vessel the GLACIER QUEEN in the U.S. coastwise trade. In addition to challenging the approval of the bareboat charter, AEC also challenges Marad's interpretation of that charter to allow Westours to operate a harbor tour service in Alaska's Skagway harbor in direct competition with plaintiff's harbor tour service. AEC contends that the charter allows only passenger service and that Marad's interpretation of the charter is arbitrary and capricious.

 In No. 84-0889 (the "Coast Guard case"), AEC challenges the United States Coast Guard's documentation of the GLACIER QUEEN as American-owned. AEC contends that the Coast Guard's initial decision to document the vessel as American-owned was arbitrary and capricious, and alleges that the Coast Guard's subsequent refusal to open an investigation into the ownership of the GLACIER QUEEN in the face of evidence which AEC claims to show that the vessel is in fact owned by Westours was also arbitrary and capricious.

 For the reasons discussed herein, the plaintiffs' motions for summary judgment shall be denied, and the motions of defendants United States Coast Guard and Marad and defendant-intervenor Westours for summary judgment shall be granted.

 I. Background

 The procedural history of these consolidated cases is laid out in detail in this court's previous Memorandum. See Alaska Excursion Cruises, Inc. v. United States of America, 603 F. Supp. 541 (D.D.C. September 28, 1984). At that time, the court consolidated these cases, limited AEC's standing to challenge defendants' actions with respect to vessels other than the GLACIER QUEEN, upheld the authority of Marad and the Coast Guard to approve foreign operation of American-owned vessels, and granted AEC's motions to amend its complaints so that the court could consider the issue of ownership of the GLACIER QUEEN. Id. at slip op. p. 5. The latter issue, as well as the propriety of Marad's interpretation of the GLACIER QUEEN charter order as permitting a harbor tour, are the only issues still to be addressed.

 As a non-U.S. citizen, as defined in section 2 of the Shipping Act of 1916, 46 U.S.C. § 802 ("section 2"), Westours is barred from owning a U.S.-flag vessel for operation in the domestic coastwise trade. 46 U.S.C. §§ 289, 883. Because Westours could not qualify as a U.S. citizen under section 2, it devised a scheme whereby the GLACIER QUEEN would be purchased by its bank, the Peoples National Bank of Washington ("PNBW"), a U.S. citizen under section 2, and then bareboat chartered by PNBW back to Westours. This agreement was conditioned on approval by Marad of the bareboat charter by PNBW to Westours, as required for the transfer or lease of any vessel owned by a U.S. citizen to an alien. Section 9 of the Shipping Act of 1916, 46 U.S.C. § 808 ("section 9").

 Under the bareboat charter, Westours has exclusive possession and control of the vessel for an initial seven-year term, after which Westours has a yearly option to renew the charter for up to ten more years. PNBW neither warranted the GLACIER QUEEN's seaworthiness nor warranted that the vessel was free of title defects that might hinder Westours' use under the bareboat charter. Westours is obligated to maintain and pay for the vessel's documentation, pay all maintenance and repair costs, pay virtually all taxes, obtain and pay for protection, indemnity, and hull insurance, and indemnify PNBW for all claims arising from the use of the GLACIER QUEEN. In the case of a total loss of the vessel, Westours is obligated to pay the charter hire, stipulated loss value and interest to PNBW, but would be allowed to keep all insurance proceeds that exceed that total amount. PNBW receives all tax benefits, and, in the event that tax benefits are recaptured, Westours is obligated to reimburse PNBW for the recaptured amount.

 The terms of this arrangement between Westours and its bank, and the purpose for which PNBW sought to purchase the GLACIER QUEEN, were known to both the Coast Guard and Marad at the time that the GLACIER QUEEN was documented as American-owned and the bareboat charter to Westours was approved. Marad contends that its decision to approve the bareboat charter under section 9 was a proper exercise of its discretion to permit foreign operation of U.S.-flag vessels in the domestic coastwise trade, and that the terms of the charter were neither unusual nor sufficient to constitute a transfer of "ownership." *fn1" Indeed, counsel for the government contended at oral argument that he could not theorize any situation in which a bareboat charter could transfer "ownership."

 The Coast Guard's position is that absent some irregularity on the face of the application for documentation, there is no duty to investigate the ownership of a vessel. Here, the chain of title indicated that the GLACIER QUEEN had never been owned by an alien. Further, there was no evidence of alien control of any of the present or prior titleholders of the vessel. Defendants argue that the Coast Guard has no duty to ensure that a bareboat charter approved by Marad under section 9 does not transfer too much control over a U.S.-flag vessel to a non-citizen.

 II. Discussion

 Neither Marad's decision to approve the bareboat charter to Westours nor the Coast Guard's decision to document the GLACIER QUEEN as American-owned can be successfully challenged unless it can be said that the transaction between Westours and PNBW vested so many of the "indicia of ownership" in Westours that either Westours became the de facto owner of the GLACIER QUEEN or PNBW could not be deemed the "sole" owner of the vessel. In other words, only if the bareboat charter between Westours and PNBW can be deemed a transfer of "ownership" to a noncitizen for domestic coastwise operation can the government's decisions be deemed arbitrary and capricious or not in accordance with law.

 As a threshold matter, it is necessary to address the contention that so long as legal title of a U.S.-flag vessel is vested in a bona fide American corporation which bears no trust or other fiduciary obligations to an alien, Marad is free to approve any nature of a charter or lease arrangement with a noncitizen, and the Coast Guard is required to grant that arrangement its imprimatur, provided that that arrangement does not contemplate that legal title will ultimately vest in the noncitizen. Based on the meaning and intent of the Shipping Act, however, the court is unable to accept the position that the location of legal title is dispositive for purposes of determining ownership of a U.S.-flag vessel.

 The statutory scheme regulating the relationship between noncitizens and the U.S. shipping industry and its underlying legislative history indicate a concern that foreign interests might somehow obtain clandestine control over the U.S. shipping industry and merchant marine, with the result that U.S.-flag vessels would not be readily available in times of national emergency. See Meacham Corp. v. United States, 207 F.2d 535, 542-43 (4th Cir. 1953); H.R. Rep. No. 568, 65th Cong., 2d Sess. 4 (1918); S. Rep. No. 536, 65th Cong., 2d Sess. 3-4 (1918); 56 Cong. Rec. 8029, 8032 (1918). To assuage this fear, and, at least in part, to protect American shipping interests from foreign competition, Congress determined that only U.S. citizens could own U.S.-flag vessels operating in the domestic trade, and imposed restrictions on the extent to which aliens could become involved with American corporations before those corporations would lose their status as "U.S. citizens." See Meacham, supra. Although noncitizens could operate U.S.-flag vessels in the domestic coastwise trade, they could do so only after obtaining Marad's approval. The issue, then, is whether Congress simply intended to preclude transfer of legal title to aliens who are operating U.S. vessels in the domestic coastwise trade, as defendants contend, or whether Congress also intended to prevent de facto ownership by aliens of those vessels. In light of the congressional intent to bar foreign control of the American merchant marine, and the lengths to which Congress went to insure that aliens would not gain control of U.S. vessels through interests in American corporations, the court is unable to conclude that defendants' elevation of form over substance is a satisfactory approach to the agencies' duties under the Shipping Act. Marad cannot sanction under section 9 a bareboat charter that would vest de facto ownership in an alien who could not hold legal title under section 2. Similarly, the Coast Guard has the authority to refuse documentation of a vessel if the foreign control over that vessel is so complete as to constitute de facto foreign ownership. Indeed, the Coast Guard has in the past recognized its duty to refuse documentation when the underlying transaction and subsequent agreements between the "owner" and the charterer are such that it can be said that the titleholder is not the "true" owner. See Memorandum of Points and Authorities in Support of Alaska Excursion Cruises, Inc.'s Motion for Summary Judgment, Shell case, Exhibit 12 at 1 [hereinafter cited as "Shell case"]. Moreover, the Coast Guard cannot avoid this duty to refuse or rescind vessel documentation of a vessel "owned" by a noncitizen ...


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