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FARRELL LINES, INC. v. DOLE

August 1, 1985

FARRELL LINES, INC., Plaintiff,
v.
ELIZABETH HANFORD DOLE, et al., Defendants; SEA-LAND SERVICE, INC., Plaintiff, v. MARITIME SUBSIDY BOARD, et al., Defendants; PRUDENTIAL LINES, INC., Plaintiff, v. MARITIME SUBSIDY BOARD, et al., Defendants; WATERMAN STEAMSHIP CORPORATION, Plaintiff, v. MARITIME SUBSIDY BOARD, et al., Defendants



The opinion of the court was delivered by: OBERDORFER

 For the reasons set forth in an accompanying Memorandum, it is this 1st day of August, 1985, hereby

 ORDERED and ADJUDGED: that plaintiffs' motions for summary judgment be, and are hereby, GRANTED; and it is further

 ORDERED and ADJUDGED: that defendants' and intervenor-defendant's motions for summary judgment be, and are hereby, DENIED; and it is further

 ADJUDGED and DECLARED: that the Maritime Administration's October 11, 1984 refusal to reopen the proceedings in Docket S-686 was a clear abuse of discretion; and it is further

 ADJUDGED and DECLARED: that the Maritime Subsidy Board's actions of June 2, 1982 and May 26, 1983, were arbitrary, capricious, an abuse of discretion and not in accordance with law to the extent that those decisions granted intervenor-defendant United States Lines, Inc. authority to conduct nonsubsidized operations with its Jumbo Econships and with other vessels in conjunction with them; and it is further

 ORDERED, ADJUDGED and DECREED: that these proceedings are remanded to the Maritime Administration and the Maritime Subsidy Board; and it is further

 ORDERED, ADJUDGED and DECREED: that intervenor-defendant United States Lines, Inc., shall file, on or before August 23, 1985, an appropriate application for authority to conduct the unsubsidized operations previously authorized by the June 2, 1982 and May 23, 1983 orders; and it is further

 ORDERED, ADJUDGED and DECREED: that the Maritime Administration and the Maritime Subsidy Board shall thereafter provide notice of that application and an opportunity for interested parties to comment on it; and it is further

 ORDERED, ADJUDGED and DECREED: that MarAd shall, as expeditiously as possible, enter a reasoned decision addressing the issues raised in the comments submitted by interested parties.

 MEMORANDUM

 The four plaintiffs in these consolidated cases are U.S.-flag carriers that challenge the decision of the Maritime Administration ("MarAd") to authorize intervenor-defendant United States Lines ("USL") to begin a new, unsubsidized round-the-world service using fourteen new containerships known as Jumbo Econships. Plaintiffs claim that MarAd's decision was arbitrary and capricious because the Maritime Subsidy Board ("Board"), which was charged with making the initial determination in this case, did not provide adequate notice or a hearing before reaching its decision and failed to ascertain the adequacy of United States-flag shipping on the trade routes affected by USL's planned unsubsidized service. The action is now before the Court on the parties' cross-motions for summary judgment. *fn1"

 I.

 For many years, USL operated its ships on Trade Routes 5, 7, 8, 9 and 11 (U.S. Atlantic/North Europe) and 12 and 29 (U.S. Atlantic and Pacific/Far East) without subsidy. In November of 1980, USL applied to MarAd to acquire the interest of plaintiff Farrell Lines, Inc. ("Farrell") in two vessels, as well as Farrell's rights to ODS on the U.S. North Atlantic/North Europe and U.S. Atlantic/Far East trade routes. R. at 1-105. USL also asked MarAd

 
to permit unrestricted voyages, in terms of numbers and places served, by U.S. Lines or by any affiliated company on trade routes or services not covered by the Subsidy Contracts, by vessels not subject to the Subsidy Contracts and by vessels, subsidized or unsubsidized, on the Trade Routes without regard to the minimum/maximum number of sailings for which ODS will be paid.

 R. at 5-6. A summary of USL's application was published at 45 Fed. Reg. 77,099 (1980); R. at 36. In comments responding to this notice, plaintiff Sea-Land Service, Inc. ("Sea-Land") and others opposed the part of USL's application that would permit unlimited unsubsidized operations by subsidized and unsubsidized vessels. R. at 106, 118-120.

 On January 9, 1981, the Board and USL entered into ODS contract MA/MSB-483. The Board thus approved the transfer of Farrell's ODS rights. It also emphasized that USL's application for unsubsidized services did not warrant a hearing under section 605(c) of the Merchant Marine Act, 46 U.S.C. § 1175(c), *fn2" since "such application is not for additional service on [the U.S. North Atlantic/North Europe trade route] and section 605(c) does not extend to unsubsidized service." The Board further held that inclusion of USL's existing unsubsidized operations in the contract was "expressly not subject to [General Order 80], inasmuch as, among other reasons, such nonsubsidized operations will be authorized by USL's ODSA." R. at 158. *fn3"

 On February 17, 1981, USL applied for a twenty-year ODS contract under which it would receive subsidies on two trade routes on which it was already providing the services proposed to be subsidized. The application described USL's proposed subsidized service and, in connection with that service, requested permission to undertake

 
an unrestricted number of voyages without subsidy by new or existing vessels of U.S. Lines or an affiliated company, on trade routes and services for which it receives subsidy or on trade routes and services for which it does not receive subsidy, so long as U.S. Lines fulfills its obligations under its subsidy agreement.

 R. at 177. USL's application was noticed in the Federal Register, where it was assigned Docket No. S-686. 46 Fed. Reg. 19,015 (1981); R. at 226-27. American President Lines and plaintiffs Sea-Land and Waterman Steamship Corporation ("Waterman") submitted comments objecting to USL's application for nonsubsidized service. R. at 238-40, 244, 258.

 The Board issued a decision in Docket S-686 on July 16, 1981. R. at 302-312. First, the Board held that section 605(c) of the Merchant Marine Act *fn4" did not bar award of an ODS contract for USL's existing subsidized services on certain trade routes. R. at 312. Second, the Board reiterated its view that section 605(c) does not apply to unsubsidized operations. However, "because of the alleged undue advantage and prejudice that follow from grant of the unsubsidized privileges requested by USL and because of the critical nature of the requested unsubsidized service to the opposition of several parties," the Board exercised its discretion to address USL's request for unsubsidized services. R. at 310. The Board concluded that:

 
The issue of the appropriate flexibility of unsubsidized service for subsidized operators is a broad issue of far reaching policy implications, as the intervenors have made plain. The matter is appropriate for the Board to address with respect to all subsidized operators. In the meantime, USL will be subject to the provisions of [General Order 80], as are other operators.

 R. at 311 (emphasis added). In addition, the Board noted in its findings and conclusions that "USL's requested unsubsidized services will be subject to [General Order 80] under any ODSA awarded." R. at 312.

 On April 23, 1982 Farrell reached an agreement in principle under which it was to sell two vessels to USL. R. at 393-402. Three days later, USL's president wrote to the Maritime Administrator and proposed to amend the twenty-year ODS contract, which had been approved in Docket S-686 but not yet awarded, in order to create a new agreement with a term of five years. R. at 403-05. Among other things, USL offered to construct without subsidy fourteen Jumbo Econships, to be operated under U.S.-flag with American crews. R. at 404. In exchange, USL proposed that under the new contract it would "have the absolute right and flexibility . . . to operate the new Jumbo Econships together with a complement of feeder vessels and any other vessels in any legal trade route on an unsubsidized basis." Id. (emphasis added). The letter by which this proposal was made did not, however, explain how or where USL intended to ...


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