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INDEPENDENT U.S. TANKER OWNERS COMM. v. DOLE

October 25, 1985

INDEPENDENT U.S. TANKER OWNERS COMMITTEE, Plaintiff,
v.
ELIZABETH H. DOLE, et al., Defendants; ALASKA BULK CARRIERS, INC., et al., Plaintiffs, v. ELIZABETH H. DOLE, et al., Defendants; FIRST ATTRANSCO TANKER CORP., et al., Plaintiffs, v. ELIZABETH H. DOLE, et al., Defendants; OVERSEAS SHIPHOLDING GROUP, INC., Plaintiff, v. ELIZABETH H. DOLE, et al., Defendants



The opinion of the court was delivered by: JACKSON

 These consolidated cases represent a renewal of the protracted conflict between the Executive Branch official responsible for the administration of the Merchant Marine Act of 1936, 46 U.S.C. App. §§ 1151 et seq. (1982 & Supp. I 1983), (the "Act"), *fn1" and an ad hoc guild of shipowners who fear an infringement of the franchise they presently enjoy under the Act and related legislation.

 Plaintiffs are owners and operators of various-sized U.S.-flag tankers built entirely with private capital and now employed in the domestic trade, primarily in the transport of crude oil from the oil fields of the Alaskan North Slope ("ANS") to Panama. Defendant Secretary of Transportation (the "Secretary") has, by rule last published May 7, 1985 (the "payback rule"), purported to enable similar vessels built with government subsidies to be relieved of statutory restrictions on competition with plaintiffs' ships in the same trade by repaying their subsidies within the year. *fn2" Defendant-intervenors are subsidized-vessel owners/operators who expect to avail themselves of the payback rule. At issue is whether, and, if so, to what extent and in what circumstances, the Secretary may lawfully implement the payback rule. The cases are presently before the Court on cross-motions for summary judgment, and, because they entail only a review of agency action taken pursuant to the notice-and-comment provisions of the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. (1982) ("APA"), the parties agree that there are no material issues of fact in dispute which could be tried in this forum. See Camp v. Pitts, 411 U.S. 138, 36 L. Ed. 2d 106, 93 S. Ct. 1241 (1973). *fn3" For the reasons set forth below, the Court concludes that the Secretary acted in accordance with law and within the limits of her discretion, and will, therefore, deny plaintiffs' motions for summary judgment, grant those of defendant and defendant-intervenors, and dismiss the several complaints with prejudice.

  I.

 The twentieth-century tribulations of the American maritime industry have been well-documented in the history of the legislation which has been enacted for its protection and in the judicial antecedents of this case. *fn4" In brief and general summary, the U.S. merchant marine has been so beset by circumstances - including, inter alia, large subsidies given by other trading nations to their own flag fleets, and the higher wages, safety standards, and costs of operation obtaining aboard its own - that it has been rendered largely uncompetitive with foreign merchantmen at sea. To redress its competitive disadvantages and encourage American shipping abroad, therefore, Congress has for a number of years authorized construction and operating differential subsidies ("CDS" and "ODS," respectively) to be paid by the government for ships to be built in U.S. shipyards which are destined for carriage in foreign commerce under the U.S. flag. 46 U.S.C. App. §§ 1151-61. Only U.S.-flag vessels which have received no construction or operating differential subsidies, however, are eligible to participate in an artificial domestic shipping market from which both foreign carriers and government-subsidized U.S.-flag ships are excluded by Section 27 of the Merchant Marine Act of 1920 (the "Jones Act"), 46 U.S.C. App. § 883 (1982 & Supp. I 1983), and Section 506 of the Act of 1936, 46 U.S.C. App. § 1156 (1982 & Supp. I 1983). The U.S.-flag fleet is, thus, divided generally into two distinct segments: the so-called "Jones Act fleet," operating exclusively in the protected U.S. domestic trade, safe from all but intramural competition; and the subsidized overseas fleet, permitted, as a matter of policy, to operate only in foreign commerce. *fn5"

 Even with the substantial help of government subsidies, however, U.S.-flag tankers have fared poorly in the international mercantile competition over the course of the last decade. Primarily as a result of market forces beyond the United States' - or any one nation's - control, world shipping rates have fallen below the break-even costs of the subsidized American industry. At the same time, however, not altogether by coincidence, the domestic market has flourished, especially down the West Coast en route from the Alaskan oil fields to Panama. As a result, since the late 1970s, substantial pressure has been building to relax the strictures of Section 506 of the Act and admit subsidized tankers to the domestic trade to share the bounty.

 In 1980, the Supreme Court held the Secretary to have authority to release a single financially-distressed CDS vessel permanently from its foreign trade commitment, provided the unamortized portion of its subsidy were repaid with interest. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 63 L. Ed. 2d 36, 100 S. Ct. 800 (1980). Although the Seatrain case involved but one ship in unique circumstances of duress upon which the Supreme Court dwelt at length in its opinion, shortly after the decision MarAd issued what it called an "interim" rule of general applicability which would have permitted certain other vessels to repay their CDS to gain admission to the domestic trade, upon a showing of exceptional circumstances and after a determination that no favorable employment opportunities existed for them in foreign commerce. Then, pursuant to its "interim" rule, MarAd granted an application for repayment of its CDS by a second large tanker.

 The "interim" rule was immediately challenged by plaintiff Independent U.S. Tanker Owners Committee ("ITOC") on both procedural and substantive grounds vaticinal of most of those it asserts here. *fn6" In September, 1982, the court of appeals struck down the "interim" rule for MarAd's failure to accompany it with a statement of basis and purpose, and remanded to the district court with instructions to vacate the "interim" rule and order new rulemaking proceedings. Independent U.S. Tanker Owners Committee v. Lewis, 690 F.2d 908, 918-20 (D.C. Cir. 1982) (hereinafter cited as " ITOC ").

 On January 31, 1983, therefore, the Department of Transportation published the immediate ancestor of the instant payback rule, which purported to permit the repayment of its CDS by any vessel without first requiring a demonstration of economic necessity. 48 Fed. Reg. 4408 (1983). While the rulemaking was pending, however, Congress acted, on three separate occasions, to preclude implementation of the proposed rule for finite periods, the last prohibition expiring May 15, 1985. *fn7" A week earlier, anticipating the removal of the impediment, the Secretary promulgated the instant payback rule, in its present and final form, 50 Fed. Reg. 19,170 (1985)(to be codified at 40 C.F.R. pt 276)(proposed May 7, 1985), to become effective one month later. The payback rule provides, in substance, that any tanker vessel built with CDS may repay its subsidy, with interest, in return for permission to permanently enter the domestic trade, conditioned only by a requirement that the repayment obligation be satisfied by June 8, 1986.

 During the two-year hiatus occasioned by Congress' moratoria on implementation of the rule, plaintiffs, or some of them, petitioned the Secretary to reopen the record to receive comments with respect to "changed circumstances" in the interim. But, although it appears from the record that some additional comments were received informally from other interested parties, plaintiffs' petitions to reopen were formally denied, in conjunction with the promulgation of the rule in final form, on the ground that the reopening of the record was both unnecessary (the Secretary having been already sufficiently apprised of plaintiffs' positions) and would serve only to delay the matter further. The Secretary also stated that she was receiving "up-to-date" information from the Department of Energy and other sources, bringing to her attention directly any "changed circumstances."

 II.

 The Secretary's Authority Under the Act

 Notwithstanding the Seatrain case, supra, plaintiffs say, the Secretary lacks authority under the Act to lift domestic trading restrictions on all CDS-built vessels by means of single rule which applies automatically to the entire subsidized tanker fleet without regard to circumstances. The Secretary maintains the issue was determined in her favor by the Supreme Court in Seatrain.


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