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PUERTO RICO MARITIME SHIPPING AUTH. v. DOLE

August 1, 1985

PUERTO RICO MARITIME SHIPPING AUTHORITY, Plaintiff,
v.
ELIZABETH HANFORD DOLE, Secretary of Transportation, HAROLD E. SHEAR, Maritime Administrator, WARREN G. LEBACK, Deputy Maritime Administrator, and MARITIME ADMINISTRATION, United States Department of Transportation, UNITED STATES DEPARTMENT OF TRANSPORTATION, Defendants, AERON MARINE SHIPPING CO., ARIES MARINE SHIPPING CO., ATLAS MARINE CO., AQUARIUS MARINE CO., AMERICAN SHIPPING, INC., PACIFIC SHIPPING, INC., and NORTH OIL TRANSPORT CO., Defendant-Intervenors; MATSON NAVIGATION COMPANY, INC., Plaintiff, v. THE UNITED STATES OF AMERICA and ELIZABETH HANFORD DOLE, Secretary of Transportation, Defendants; AMERICAN MARITIME ASSOCIATION, Plaintiff, v. THE UNITED STATES OF AMERICA, ELIZABETH HANFORD DOLE, Secretary of Transportation, HAROLD E. SHEAR, Maritime Administrator, and WARREN G. LEBACK, Acting Maritime Administrator, Defendants


Stanley S. Harris


The opinion of the court was delivered by: HARRIS

These three consolidated cases are now before the Court on the motion of the plaintiff Puerto Rico Maritime Shipping Authority (PRMSA) for a preliminary injunction, the motion of the defendant-intervenors Aeron Marine Shipping Company, et al. (Aeron) for summary judgment, the motion of the federal defendants to dismiss, or alternatively, for summary judgment, and the motion of the plaintiffs American Maritime Association (AMA) and Matson Navigation Company (Matson) for injunctive relief and summary judgment. The plaintiffs seek judicial review of an opinion and order issued by the Secretary of Transportation on December 17, 1984, and a subsequent order on remand issued by the Acting Maritime Administrator on February 7, 1985. Plaintiffs challenge the approval under § 805(a) of the Merchant Marine Act, 46 U.S.C. § 1223(a), of the applications of seven companies (Aeron) operating subsidized tankers in foreign commerce for permission to affiliate with an entity that owns and proposes to operate a roll-on/roll-off vessel, ATLANTIC SPIRIT, in the domestic trade. Plaintiffs ask for a declaratory judgment and injunction prohibiting the operation of the ATLANTIC SPIRIT between destinations in Hawaii, Alaska, and Puerto Rico and destinations in the contiguous United States unless the defendants suspend payment of an operating-differential subsidy (ODS) to Aeron (or any affiliate, subsidiary, or holding company).

 I. Background of the Controversy

 The Merchant Marine Act of 1936, as amended, 46 U.S.C. § 1101 et seq., differs in its treatment of foreign and domestic commerce. Ships operated in domestic commerce must be built in the United States, documented under the laws thereof, predominantly staffed with United States crews and officers, and owned by United States citizens. Ships in domestic commerce compete only against other ships with equal constraints and the consequent costs of compliance. In contrast, the Act imposes no protective restrictions to ships operating in foreign commerce. Therefore, in order to offset the disadvantage of higher shipbuilding and operating costs of United States vessels built in the United States, the Merchant Marine Act provides subsidies to make the United States Merchant Marine competitive in the foreign trades. Domestic carriers such as the plaintiffs do not receive any federal subsidies.

 To avoid unfair competition between subsidized and non-subsidized vessels, Congress provided that subsidized vessels could not operate in domestic trades except under limited circumstances with certain safeguards. Specifically, § 805(a) of the Merchant Marine Act states:

 
It shall be unlawful to award or pay any subsidy to any contractor under authority of subchapter VI of this chapter, or to charter any vessel to any person under subchapter VII of this chapter, if said contractor or charterer, or any holding company, subsidiary, affiliate, or associate of such contractor or charterer, or any officer, director, agent, or executive thereof, directly or indirectly, shall own, operate, or charter any vessel or vessels engaged in the domestic intercoastal or coastwise service, or own any pecuniary interest, directly or indirectly, in any person or concern that owns, charters, or operates any vessel or vessels in the domestic intercoastal or coastwise service, without the written permission of the Secretary of Transportation. Every person, firm, or corporation having any interest in such application shall be permitted to intervene and the Secretary of Transportation shall give a hearing to the applicant and the intervenors. The Secretary of Transportation shall not grant any such application if the Secretary of Transportation finds it will result in unfair competition to any person, firm, or corporation operating exclusively in the coastwise or intercoastal service or that it would be prejudicial to the objects and policy of this chapter: Provided, That if such contractor or other person above-described or a predecessor in interest was in bona-fide operation as a common carrier by water in the domestic, intercoastal, or coastwise trade in 1935 over the route or routes or in the trade or trades for which application is made and has so operated since that time or if engaged in furnishing seasonal service only, was in bona fide operation in 1935 during the season ordinarily covered by its operation, except in either event, as to interruptions of service over which the applicant or its predecessor in interest had no control, the Secretary of Transportation shall grant such permission without requiring further proof that public interest and convenience will be served by such operation, and without further proceedings as to the competition in such route or trade.
 
If such application be allowed, it shall be unlawful for any of the persons mentioned in this section to divert, directly or indirectly, any moneys, property, or other thing of value, used in foreign-trade operations, for which a subsidy is paid by the United States, into any such coastwise or intercoastal operations; and whosoever shall violate this provision shall be guilty of a misdemeanor.

 46 U.S.C. § 1223(a). Under the statute, then, no application for participation in the domestic trades shall be granted if the Secretary of Transportation finds it will result in unfair competition to any person, firm, or corporation operating exclusively in the coastwise or intercoastal service or that it would be prejudicial to the objects and policy of the Act.

 In 1982, Acadian Shipping Corporation, an unsubsidized company affiliated with Aeron and six other ODS contractors, applied for permission to own and operate the ATLANTIC SPIRIT in domestic trade. *fn1" The application sought permission covering the entire domestic trade, although the only intended operation was to be along the Atlantic coast. Several parties intervened, including each of the plaintiffs, and participated in the application process before an Administrative Law Judge. The ALJ concluded that since none of the ODS money received by Acadian affiliates would likely be diverted to the ATLANTIC SPIRIT's operation, the granting of the application would not result in unfair competition. Diversion would be impossible, according to the ALJ, because (1) the subsidy paid for out-of-pocket expenses already incurred, (2) the domestic vessels were operated separately from the foreign subsidized vessels, and (3) no residual subsidy would remain passively after proration from the subsidized operations to assist the separate unsubsidized operation. *fn2"

 The ALJ went on to hold, nevertheless, that the grant of the application in regard to the trade between Puerto Rico and the United States would result in prejudice to the objects and policy of the Act. Operation in other domestic trades was permitted but limited to three years. The ALJ relied on a stipulated factual scenario that if the ATLANTIC SPIRIT were operated in the Puerto Rico trade, it would always operate at 100% capacity and would draw all its cargo from cargo presently carried by PRMSA. *fn3" Under the stipulation, the ALJ found that PRMSA's financial losses would increase *fn4" and if PRMSA were thereby forced to cease operations the long-term prospects were for the eventual elimination of the current level of service to Puerto Rico. The ALJ found that the trade was highly competitive and currently over-tonnaged with the result that existing carriers had net losses or only minimal profits.

 Upon review, the ALJ's initial decision was affirmed by the Maritime Administrator. The Administrator considered whether unfair competition could result from factors other than diversion of subsidy funds, but found that there was no evidence that the ATLANTIC SPIRIT's owners would benefit from an inherent stability resulting from affiliation with subsidized operators or that below-cost cutthroat rates would be offered by the ATLANTIC SPIRIT. *fn5" He went on to conclude that the ALJ was correct in his reliance on evidence of adverse impact upon existing operators and upon service to Puerto Rico in reaching his conclusion as to prejudice to the objects and policy of the Act. Finally, the Administrator held that there was no evidence that operation of the ATLANTIC SPIRIT in the Alaskan and Hawaiian trades would not also result in prejudice to the objects and policy of the Act. Therefore, he denied permission to operate in the Puerto Rican, Alaskan, and Hawaiian trades.

 After the ATLANTIC SPIRIT was purchased, Aeron petitioned the Secretary of Transportation for review of the Administrator's decision. The Secretary elected to review the decision despite PRMSA's argument for dismissal on the grounds that the Secretary had delegated final decision making authority to the Administrator without reservation. *fn6" The Secretary overturned the Administrator's decision as to Alaska and Hawaii and remanded as to Puerto Rico. *fn7" She found that Aeron had been erroneously subject to the burden of proving a negative, i.e., that operation of the ATLANTIC SPIRIT would not prejudice the objects and policy of the Act. She found that the correct placement of the burden of proof was only initially with Aeron to show that its domestic vessels would not benefit from ODS funds; the burden then shifted to PRMSA or any other intervenor to show that the overall service to the trade would be harmed. This was, in effect, a new standard for determining prejudice to the Act's objects and policy since it looked to the long-term adverse impact upon projected service in the trade as a whole rather than the immediate impact upon the existing individual vessel operators. She went on to find that, under this standard, the previous decisions contained insufficient evidence to support the findings of long-term adverse impact. Accordingly, she remanded the case to the Administrator solely for the purpose of determining whether the record contained evidence to support the ALJ's and Administrator's findings.

 On remand, the Administrator held that the record had no such evidence and, in accordance with the Secretary's instructions, he granted Aeron's application for operation of the ATLANTIC SPIRIT in the United States/Puerto Rico trade. *fn8"

 The instant action was filed February 25, 1985. PRMSA's motion for a temporary restraining order was denied and the Court consolidated for hearing PRMSA's motion for a preliminary injunction and ...


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