June 2 grant of unlimited unsubsidized authority to USL. Third, MarAd emphasized that USL had already committed substantial resources in reliance on the June 2 order. Finally, MarAd reasoned that General Order 80, under which the plaintiffs wished to test USL's planned unsubsidized service, simply did not apply to the June 2 decision. See R. at 766-67, 809-12. Although neither Waterman nor Sea-Land pressed for a reopening, it is clear that MarAd would have denied such a request for the reasons given in the October 11, 1984 letters; accordingly, the refusal to reopen may be treated as exhausting the administrative remedies of all of the plaintiffs.
The Board's assertion that the 1981 Federal Register notice was adequate for purposes of USL's 1982 application is clearly erroneous. First, USL had on two previous occasions applied for authority to conduct nonsubsidized services; on both occasions, the Board provided notice and gave interested parties an opportunity to comment. See 45 Fed. Reg. 77,099 (1980); 46 Fed. Reg. 19,015 (1981). The Board offered no justification for its failure to engage in similar notice and comment proceedings when USL renewed its request for unsubsidized service in May of 1982. Such an unexplained deviation was unreasonable. Cf. Natural Resources Defense Council, Inc. v. Herrington, 247 U.S. App. D.C. 340, 768 F.2d 1355, slip op. at 143 (D.C. Cir. 1985). Second, the 1981 notice said nothing at all about Jumbo Econships, the huge vessels that formed a crucial element of USL's 1982 proposal. Even the Board acknowledged that the grant of unsubsidized authority for those ships was "a significant departure from authority previously granted to USL." R. at 421. Indeed, the Board has since conceded that "USL launched a service that was unprecedented and utterly new to the United States merchant marine." Memorandum of Points and Authorities in Support of Defendants' Motion to Dismiss at 37. Because USL's 1982 plans "differed in fundamental respects from"
the 1981 notice, it was a clear abuse of discretion for MarAd to conclude that such notice was adequate.
Even assuming that the 1981 Federal Register notice was adequate, MarAd subsequently misled interested parties to believe that they would have a further opportunity to make their views known. The Board's July 16, 1981 decision in Docket S-686 emphasized the importance of the unsubsidized service issue and added that the Board would address it "with respect to all subsidized operators." R. at 310-11 (emphasis added). The decision added that "in the meantime, USL will be subject to the provisions of [General Order 80]," a regulation which sets forth detailed administrative procedures. R. at 311; see note 3 supra. MarAd's statement created in the interested parties a legitimate expectation that USL would not be granted unlimited authority to conduct unsubsidized services in the absence of further proceedings. The parties were thus assured that they would receive further notice of MarAd's plans with regard to the unsubsidized service issue; the 1981 notice simply has no bearing on MarAd's subsequent failure to satisfy this obligation.
Similarly, the plaintiffs that declined to seek Secretarial review of the June 2, 1982 decision were justified in their failure to do so. The 1981 decision in Docket S-686 held that MarAd would not grant USL's request to conduct unlimited, unsubsidized operations in the absence of a proceeding calculated to explore such "a broad issue of far reaching policy implications." R. at 311. But MarAd issued the June 2 order without giving notice of USL's request to modify substantially the original ODS contract. Moreover, although the Amended Contract authorized USL to operate Jumbo Econships on USL's round-the-world service, it did not specify the trade routes that such service would involve. R. at 431. Since interested parties were at that time relying on MarAd's promise to conduct further proceedings, they had no reason to suspect that MarAd had granted USL broad authority to conduct unsubsidized operations that would compete directly with the services offered by plaintiffs. The Secretary himself emphasized that the Amended Contract differed from the ODS Agreement described in the 1981 notice principally in that it "approved ODS for five years instead of twenty years duration and limited the award to wage costs" and also "required United States Lines to build the new jumbo container vessels." R. at 583. The Secretary did not suggest that USL had been granted the broad unsubsidized authority that had been denied in the decision in Docket S-686. In short, neither the June 2 decision nor the Secretary's denial of the requests for review suggested that MarAd was doing something other than what it had promised to do in 1981.
Because the Board had expressly conceded the importance of the unsubsidized authority issue in 1981, it was under an obligation to explain exactly what it was doing when it later made a decision on that issue. The Board's failure to justify its June 2, 1982 decision in the context of its earlier promise lulled interested parties into the false belief that USL had not been granted sweeping authority. MarAd's refusal to reopen was in effect an attempt to lay the blame for the Board's imprecision on the parties; as such, the refusal was a clear abuse of discretion.
Even if the plaintiffs had been aware of what the Board intended, it is unlikely that they could have successfully pressed the issue at that time. The Board had earlier stated that it would not review the permissibility of operations under an ODS contract unless those operations were occurring or about to occur. Specifically, the Board noted "the inadvisability of ruling on theoretical operational movements that may vary significantly from services actually performed" and held that it would "review such service at such time as there is an actual service or prudent belief that there reasonably is likely to be such a service." Lykes Bros. Steamship Co., 20 S.R.R. 987, 991 (Maritime Subsidy Board 1981). In authorizing USL's Amended Contract, the Board conceded that "vessel deployment after the commencement of delivery of the new vessels, as well as numbers of vessels deployed, are unknown at present." R. at 421. Moreover, the application before the Board did not specify whether USL's proposed unsubsidized service would be eastbound or westbound. Thus, the plaintiffs could not have made their case to the Board until USL revealed its plans.
The record before MarAd on October 11, 1984 contained no specific explanation of USL's round-the-world service. In light of existing agency precedent, there was no basis for MarAd's holding that it was too late for the requesters to challenge the June 2 decision. In this case, plaintiffs' "untimeliness [was] excusable" and it was "an abuse of discretion to reject the petition." City of Rochester v. Bond, supra, 603 F.2d at 938 n.61.
MarAd also asserted that USL's investment in the Jumbo Econships precluded further consideration of the issues raised by the June 2 decision. But there is no indication in the record that MarAd ever conducted any inquiry to determine whether and to what extent USL actually relied on the Amended Contract approved by the June 2 order. Thus, MarAd's implied finding that USL had relied to its detriment because of the amended contract is based on nothing more than USL's assertions to that effect. In any event, while USL's reliance might limit the remedy that could be afforded to the parties requesting reopening, it would not prevent MarAd from inquiring into the legal issues raised in the requests. Because MarAd concluded otherwise, its refusal to reopen was a clear abuse of discretion.
Although the October 11, 1984 letters implicitly focused on the question of whether the request to reopen was timely, they also addressed a final issue central to the plaintiffs' claim: whether the Board should have considered USL's application for an amended ODS contract in the context of General Order 80, 46 C.F.R. § 281.11-281.17. In its 1981 decision in Docket S-686, the Board explicitly noted the significance of the unsubsidized authority issue,
declined to decide it, and added that pending an opportunity to consider the matter "with respect to all subsidized operators . . . . USL will be subject to the provisions of [General Order 80], as are other operators." R. at 311 (emphasis added); see also R. at 312.
The June 2, 1982 decision and MarAd's October 11, 1984 letters indicate that the Board considered General Order 80 but concluded that it was not relevant to USL's application for an amended contract. 46 C.F.R. § 281.11(b)(1) states that General Order 80 does not apply to:
Non-subsidized voyages specifically authorized by the operating-differential subsidy contract of the operator . . . which voyages will be acted on under the provisions of the operator's operating-differential subsidy agreement. . . .
The Board determined that USL's proposed unsubsidized operations were not subject to General Order 80 because "such nonsubsidized operations will be authorized by USL's amended and restated ODSA." R. at 431. Similarly, MarAd held that "the non-subsidized operations of the Jumbo Econships in the Round-the-World service are specifically authorized in USL's ODS Agreement No. MA/MSB-483, as amended and restated" and that General Order 80 therefore did not apply. R. at 810, 812. The question is whether it was a clear abuse of discretion for MarAd to conclude that the proposed unsubsidized service was "specifically authorized" by USL's Amended Contract.
Deference to MarAd's interpretation of General Order 80 "is due only when the interpretation 'is reasonable and consistent with the regulation. '" Miller v. Bond, 206 U.S. App. D.C. 44, 641 F.2d 997, 1002 (D.C. Cir. 1981) (citations omitted) (quoting Belco Petroleum Corp. v. FERC, 191 U.S. App. D.C. 157, 589 F.2d 680, 685 (D.C. Cir. 1978)). Thus, the Court need not accept MarAd's interpretation if it is "manifestly unreasonable." American Maritime Association, supra, at 560.
The Board had earlier interpreted section 281.11(b)(1) to mean that General Order 80 does not apply to continued post-contract operation of a pre-contract unsubsidized service. Thus, "the Board in its grant of a subsidy contract to USL on January 9, 1981 permitted specified unsubsidized operations so that USL could continue its existing unsubsidized service." R. at 311 (emphasis added). In short, a request that proposes merely to continue an already existing nonsubsidized service need not be considered under the General Order.
But MarAd's holding goes much farther, implying that the Board could avoid the effect of General Order 80 by the expedient of "specifically authorizing" an entirely new unsubsidized service in an ODS contract amendment. In other words, the propriety of extensive unsubsidized service -- which the Board had earlier described as "a broad issue of far reaching policy implications"
-- was to be disposed of, without notice to any of the parties involved in Docket S-686, by simply writing the disputed service into USL's Amended Contract. By holding, in effect, that General Order 80 does not apply when the Board chooses to characterize a given action as a contract amendment rather than an order, MarAd effectively renders General Order 80 a nullity.
Moreover, MarAd's interpretation makes a mockery of its earlier promise that USL would be subject to the provisions of General Order 80. In its decision in Docket S-686, the Board stated that General Order 80 requires subsidized operators "to obtain approval prior to making unsubsidized voyages." R. at 311. For that reason, the Board emphasized that "it does not follow that there are no restrictions on unsubsidized operations as contended by USL." R. at 311. The Board then explicitly guaranteed that USL would be subject to General Order 80. R. at 311-12. That promise was plainly misleading if the procedures set forth in General Order 80 could be sidestepped by using an amended contract instead of making a decision pursuant to the General Order. An agency "is not free to set policies in formal decisions and then vary from the policies in less formal rulings involving the same situation." Distrigas of Massachusetts Corp. v. FPC, 517 F.2d 761, 766 (1st Cir. 1975). Yet that is exactly what MarAd has done here.
Even assuming that General Order 80 could be interpreted as MarAd has, the Amended Contract simply does not " specifically authorize" USL's proposed non-subsidized voyages. Indeed, the Board flatly stated that "vessel deployment after the commencement of delivery of the new vessels, as well as numbers of vessels deployed, are unknown at present." R. at 421 (emphasis added). Moreover, the Board apparently had no itinerary before it. Since the Board did not know exactly what it was authorizing, it cannot be said that anything was specifically authorized. Even under its own interpretation, then, the Board was obligated to consider USL's application pursuant to General Order 80. MarAd's refusal to do so was a clear abuse of discretion.
Plaintiffs were denied an opportunity to press their claims before the Board because they had no notice of the proceedings leading up to the June 2 decision, and because they received no adequate notice of its consequences before MarAd issued its decision refusing to reopen Docket S-686. The Board clearly abused its discretion in denying plaintiffs' requests to reopen.
Having determined that MarAd's October 11 refusal to reopen was a clear abuse of discretion, the next question is whether laches bars plaintiffs' challenge to the June 2, 1982 order and the related May 23, 1983 contract. The record contains no clear statement about the trade routes on which USL was planning to operate its round-the-world service. Thus, the plaintiffs had no reason to know that their rights were threatened. Moreover, the Board's 1981 decision in docket S-686 affirmatively misled the plaintiffs to believe that they were entitled to further administrative proceedings before the Board authorized a service that would affect their rights.
The additional material presented in the motions for summary judgment does not alter this conclusion. The plaintiffs did not know until the fall of 1984 that USL's proposed service would compete directly with their services. See Skouras Affidavit at paras. 24-28 (March 15, 1985); Staunton Affidavit at paras. 10, 14-15. The plaintiffs may not be accused of lack of diligence for failing to discover the particulars of USL's proposed service at an earlier date.
In any event, the plaintiffs would not have been able to seek judicial review until USL's proposal had assumed a discernible form. A suit brought before plaintiffs knew that their rights were threatened would have been dismissed because the effect of the Board's decision would not yet have been "felt in a concrete way." Abbott Laboratories v. Gardner, 387 U.S. 136, 148, 18 L. Ed. 2d 681, 87 S. Ct. 1507 (1967). Because plaintiffs were justifiably ignorant of the threat to their rights until late 1984, their suit is not barred by laches. See Allen v. Carmen, 578 F. Supp. 951, 963 (D.D.C. 1983).
Accordingly, the June 2 decision may be reviewed by the Court. The standard of review is whether the Board's decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A).
The Board did not provide notice or an opportunity to comment on USL's May 1984 application to undertake extensive unsubsidized services. This omission was contrary to the Board's established practice of giving the parties notice of USL's applications for unsubsidized service. See p. slip op. at 13 supra. Moreover, the failure to provide notice is manifestly inconsistent with the language of the 1981 decision in Docket S-686, which held that USL's application raised a very important issue warranting careful consideration under General Order 80. See pp. slip op. at 5-6 supra. The Board's failure to adhere to the principles that it had announced in its earlier decisions is by itself sufficient reason to hold that the Board's June 2, 1982 order was arbitrary, capricious and an abuse of discretion.
Moreover, sound principles of administrative decision making require that important actions be taken only after the agency compiles an adequate record and announces a reasoned decision sufficient to provide a basis for judicial review. As our Court of Appeals has held in a similar case:
The distinct and steady trend of the courts has been to demand in informal adjudications procedures similar to those already required in informal rulemaking. Courts have required some explanation for agency action and, to ensure the adequacy of that explanation, some opportunity for interested parties to be informed of and comment upon the relevant evidence before the agency. Thus, despite the Supreme Court's dictum in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., [435 U.S. 519, 524, 55 L. Ed. 2d 460, 98 S. Ct. 1197 (1980),] that courts may not add to the procedural requirements of the APA except in "extremely rare" circumstances, we are justified in demanding some sort of procedures for notice, comment, and a statement of reasons as a necessary means of carrying out our responsibility for a thorough and searching review.
Independent U.S. Tanker Owners Committee v. Lewis, 223 U.S. App. D.C. 185, 690 F.2d 908, 922-23 (D.C. Cir. 1982) (footnotes omitted) (emphasis in original). Moreover, like the interim rule in Tanker Owners, General Order 80 gives this demand "a more concrete form" because "it states the procedures MarAd must follow in considering applications" for authority to conduct unsubsidized services. Id. at 923.
The wisdom of this admonition becomes clear after considering what the Board has failed to do in this case. The Board acknowledged that
The non-subsidized operational flexibility requested by USL does represent a significant departure from authority previously granted to USL or any other subsidized operator. It will, in effect, enable USL to compete on a non-subsidized basis with virtually every other subsidized operator.