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American President Lines v. United States

Decided: June 2, 1987.

AMERICAN PRESIDENT LINES, LTD., APPELLEE/CROSS-APPELLANT
v.
UNITED STATES, APPELLANT/CROSS-APPELLEE



Appealed from: U.S. Claims Court Judge Yock

Davis, Circuit Judge, Skelton, Senior Circuit Judge, and Nies, Circuit Judge.

Skelton

SKELTON, Senior Circuit Judge

In this case, that involves two trade-in agreements and two use agreements between the plaintiff American President Lines, Inc. (APL) and the defendant United States, which provide for the transfer of four obsolete ocean-going vessels from the plaintiff to the Government, with interim use by the plaintiff pending its construction of a new modern ship in a Government shipyard, the Claims Court reformed the agreements and awarded damages of one-half the lay-up costs of the obsolete vessels to the plaintiff against the Government in the sum of $1,146,364.00 in a decision reported in 10 Cl. Ct. 1 (1986). Both parties have appealed. We affirm in part and reverse in part.

The facts in the case are not in dispute, and are fully set forth in the opinion of the Claims Court, which we reproduce here, with a few changes, omissions and additions, as follows.

Facts

APL is an operator of an ocean steamship service line. On November 21, 1978, the plaintiff submitted an application to the

Assistant Secretary of Commerce for Maritime Affairs, to trade in certain obsolete vessels in exchange for an allowance of credit on the purchase and construction of a new MA Design C9-S-132a vessel, pursuant to authority contained in the Merchant Marine Act of 1936, as amended, (46 U.S.C. § 1111, et. seq. (1982)), (the Act). On April 30, 1979, based on the plaintiff's application, APL and the United States executed two trade-in agreements (with two supplementary use agreements), Contract No. MA-9180/9181 and Contract No. MA-9227/9228.

Under section 510 of the Merchant Marine Act of 1936, as amended, 46 U.S.C. 1160 (1982) ("section 510"), the United States Government is authorized to acquire obsolete vessels owned by private owners that are constructing new vessels in United States shipyards in exchange for an allowance of credit in an amount determined by the Secretary of Transportation at the time of the acquisition of the obsolete vessel. Section 510(b) provides:

Promotion of construction of new vessels; allowance on obsolete vessels

(b) In order to promote the construction of new, safe, and efficient vessels to carry the domestic and foreign waterborne commerce of the United States, the Secretary of Transportation is authorized, subject to the provisions of this section, to acquire any obsolete vessel in exchange for an allowance of credit. The obsolete vessel shall be acquired by the Secretary of Transportation, if the owner so requests, either at the time the owner contracts for the construction or purchase of a new vessel or within five days of the actual date of delivery of the new vessel to the owner. The amount of the allowance shall be determined at the time of the acquisition of the obsolete vessel by the Secretary of Transportation.

Owners are given trade-in credit allowances on obsolete vessels, based on fair and reasonable value as determined by the Secretary of Transportation.*fn1 If the United States acquires an obsolete vessel at the time the owner contracts for construction of its new vessel, the owner may continue to use the old vessel during the period of construction, with a reduction in the net trade-in allowance by an amount representing the fair value of such use as provided in the use agreements. Vessels acquired by the United States under section 510 may at the option of the Government, become a part of the United States' national defense reserve fleet for use in times of national emergency.

Section 510(d) of the Act establishes criteria for determining trade-in allowances:

The allowance for an obsolete vessel shall be the fair and reasonable value of such vessel as determined by the Secretary of Transportation. In making such determination the Secretary of Transportation shall consider: (1) the scrap value of the obsolete vessel both in American and foreign markets, (2) the depreciated value based on a twenty or twenty-five year life, whichever is applicable to the obsolete vessel, and (3) the market value thereof for operation in the world trade or in the foreign or domestic trade of the United States. In the event the obsolete vessel is acquired by the Secretary of Transportation at the time the owner contracts for the construction of the new vessel, and the owner uses such vessel during the period of construction of the new vessel, the allowance shall be reduced by an amount representing the fair value of such use.

46 U.S.C. § 1160(d) (1982).

Under APL's trade-in contracts, the United States acquired four obsolete vessels in exchange for an allowance of credit upon the purchase price of one new MA Design C9-S-132a vessel. The Government acquired the S. S. President Lincoln and the S. S. President Tyler under Contract No. MA-9180/9181, and the S. S. President Harrison and the S. S. President Monroe under Contract No. MA-9227/9228.

Title to APL's obsolete vessels passed to the United States concurrently with the delivery of a bill of sale for each vessel. The contracts also provided for the continued temporary use of the vessels until redelivery by APL and for a reduction of the trade-in allowance to compensate for such use. APL was to redeliver the vessels to the United States in good operating repair at the Suisun Bay National Defense Reserve Fleet Site, Benecia, California, following the period of use, after "deactivating" the vessel and performing the lay-up work necessary to prepare it for storage. This repair and lay-up work was to be performed in accordance with the instructions prescribed in NSA Order No. 64 (3d Rev.). By the terms of the contracts, the United States was required to reimburse APL for one-half of the "fair and reasonable" costs incurred by APL in preparing the vessels for lay-up. APL performed all required repair and lay-up work for each of the traded-in vessels and completed redelivery.*fn2 MarAd determined that the "fair and reasonable" value of the lay-up work performed was $2,292,728.00 and reimbursed APL for one-half of that amount, or $1,146,364.00.

The four agreements provided that the following costs and expenses would be deducted by the Secretary from the trade-in allowance (value) of each of the obsolete vessels at the time of redelivery to the Government:

1. One-half of the lay-up costs, as determined by the Government. (Clause 13(d)(1) of Use Agreement).

2. Charter hire of $75 per day for off-voyage use of each vessel, and $1,458.60 per day for on-voyage use of the President Harrison and for the President Monroe. (Article 3(b) of the Contract and Clause E of Use Agreement).

3. Repairs and insurance incident to such repairs. (Article 6(b)(1) of the Contract).

4. Missing inventory. (Article 9(d) of the Contract).

The dates of redelivery and amounts and dates of reimbursement of lay-up costs of the four vessels were as follows:

Date of Lay up Date of

Vessel Redelivery

Cost Reimbursement Reimbursement

Lincoln 11/14/79

$539,377.00 12/18/80 ...


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