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RAINBOW NAVIGATION, INC. v. DEPARTMENT OF THE NAVY

October 23, 1985

RAINBOW NAVIGATION, INC., Plaintiff,
v.
DEPARTMENT OF THE NAVY, et al., Defendants



The opinion of the court was delivered by: GREENE

 Plaintiff, Rainbow Navigation, Inc. (Rainbow), a shipping company in the business of carrying military cargo on the United States-Iceland route, challenges a determination of the Secretary of the Navy pursuant to the Cargo Preference Act of 1904, 10 U.S.C. § 2631, to deprive Rainbow of the preference provided by that statute, on the basis that Rainbow's rates are excessive or otherwise unreasonable. The Secretary's decision may be expected to result in reverting the American military cargo business to Icelandic vessels, as the government of Iceland has been insistently demanding of our government for some time.

 Presently pending before the Court is plaintiff's motion for partial summary judgment, which seeks injunctive and declaratory relief pursuant to the Cargo Preference Act, the Armed Services Procurement Act, 10 U.S.C. § 2301, and the Fifth Amendment to the Constitution. As will be seen below, at the heart of plaintiff's motion is a novel issue: may the congressionally-mandated cargo preference for U.S. vessels be revoked for foreign policy reasons? *fn1"

 I

 The material facts are not in dispute. *fn2" Plaintiff is a small shipping company whose sole business consists of carrying cargo between the United States and Iceland, a route on which it is the only U.S. flag carrier. *fn3" Rainbow's only ship, the M/V RAINBOW HOPE, is a United States flag ship; it is manned by U.S. citizens; and it operates pursuant to U.S. law and regulations.

 Under the Cargo Preference Act, U.S. flag vessels are required to be used to carry military supplies unless the President makes a determination that the freight rates charged by U.S. vessels are "excessive or otherwise unreasonable." *fn4" 10 U.S.C. § 2631. Prior to Rainbow's entry into the Icelandic trade on May 17, 1984, such cargo was carried exclusively by three Icelandic shipping companies, but as a result of the cargo preference for U.S. flag ships granted by the statute, Rainbow now carries 70% of the military cargo between Iceland and the United States.

 Ever since Rainbow's entry into the Icelandic trade, representatives of the government of Iceland have repeatedly approached U.S. government officials in an attempt to regain the U.S. military cargo trade for the Icelandic shipping companies. Indeed, Icelandic officials have raised the issue personally with the Secretary of State on at least six occasions during the past year. *fn5"

 On August 8, 1985, the Secretary of the Navy issued a one-paragraph memorandum *fn6" declaring that the rates being charged by United States vessels on the U.S.-Icelandic military cargo route were excessive and otherwise unreasonable, thereby invoking the exception to the cargo preference provisions of the Act. *fn7" The memorandum stated that the determination was made based on "all relevant circumstances, including consultation with the Secretary of State and the Secretary of Defense," without further elaboration. *fn8" No dissatisfaction had ever been expressed by the government regarding Rainbow's rates prior to the issuance of the August 8 memorandum, and Rainbow received no notice that such a determination was being considered nor did it have the benefit of a hearing prior to being cut off. *fn9" In fact, the company learned of the decision only as a result of a joint U.S.-Icelandic press conference in Iceland.

 On August 12, 1985, plaintiff filed the instant action, at the same time requesting a temporary restraining order. Prior to the hearing on the TRO, the parties agreed on a stipulation which obviated the need for such an order. The stipulation established a briefing schedule for summary judgment motions, with oral argument set for September 13, 1985. *fn10"

 On September 6, 1985, one week before the scheduled hearing, the Secretary of the Navy issued a second determination that Rainbow's rates were excessive and otherwise unreasonable. *fn11" This second determination was virtually identical to the first, except for the addition of the underlined language:

 
I have reviewed all relevant circumstances, including your memorandum of 30 August 1985, and have consulted with the Department of State and the Secretary of Defense, concerning ocean transportation of military supplies between the United States and Iceland. Pursuant to 10 U.S.C. § 2631, I hereby find that under the existing tariff filed by the United States flag carrier on that route, the rates currently charged by Rainbow Navigation, Inc., are excessive and are also otherwise unreasonable. Proceed to procure ocean transportation service between the U.S. East Coast and Iceland under principles of full and open competition (words no longer appropriate omitted).

 The Court has considered the memoranda and other papers submitted by the parties as well as the arguments made on September 13, and it has decided that plaintiff's position is well taken and that it is entitled to judgment. ...


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