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INGRAM BARGE CO. v. UNITED STATES

July 28, 1988

INGRAM BARGE COMPANY, Plaintiff,
v.
UNITED STATES OF AMERICA, ET AL., Defendants



The opinion of the court was delivered by: GASCH

 HONORABLE OLIVER GASCH, SENIOR UNITED STATES DISTRICT JUDGE.

 In a five-count complaint and application for a temporary restraining order, plaintiff Ingram Barge Company ("Ingram") petitioned the Court for review of action taken by the United States Coast Guard ("Coast Guard" or "Agency") authorizing defendant-intervenor Consolidated Grain and Barge Company ("CGB") to operate vessels on American waterways in the coastwise trade. On May 19, 1988, the Court issued a temporary restraining order that dissolved certain Certificates of Compliance ("Certificates") issued to CGB under 46 U.S.C. App. § 883-1 and 46 C.F.R. § 68.01-5(b) (1987). *fn1" Thirteen days later, Ingram's motion for preliminary injunction was denied, and the Court directed the parties to brief for summary judgment count II of the complaint which alleges a violation of the Administrative Procedure Act, 5 U.S.C. § 706. The cross-motions for summary judgment are now before the Court. *fn2"

 I. BACKGROUND

 The history of this case is fully recounted in the Court's opinion denying plaintiff's motion for preliminary injunction. See Memorandum at 2-6 (June 14, 1988). A digest of that history begins with a proposal by CGB to two Japanese entities -- Zen-noh and C. Itoh ("Japanese entities") -- for the sale of CGB. The assets to be transferred included grain elevators, grain processing facilities, and barges. On March 7, 1988, the Japanese entities, which operate an agricultural cooperative and commodities trading business, agreed to purchase CGB.

 Ingram, a large coastwise barge line, learned of the contemplated transaction on April 7, 1988. Immediately, Ingram wrote to the Japanese entities stating its belief that the transaction would leave CGB in violation of various maritime statutes. Ingram offered to allay this problem by purchasing CGB's maritime assets. The Japanese entities declined the offer of assistance.

 In late April 1988, Ingram also contacted the Coast Guard regarding anticipated applications from CGB for Certificates. Through counsel, Ingram expressed its concern that the sale of CGB would place in foreign hands vessels that operated in the coastwise trade. The company further stated its opinion that, when owned by the Japanese entities, CGB would not qualify as a United States citizen under 46 U.S.C. App. § 808 or section 883-1 of that title.

 On May 2, 1988, counsel for CGB confirmed to the Coast Guard the rumored transaction. Contrary to Ingram's opinion, however, the Agency was assured by CGB that it would qualify for Certificates under section 883-1. The Coast Guard was not entirely mollified by CGB's representation and instructed counsel to submit evidence in support of the section 883-1 affidavits. Which are normally sufficient on their face to constitute a complete application for Certificates.

 The Coast Guard reviewed CGB's submissions, which included no more than a list of CGB's officers and directors, and concluded that the Certificates should be issued. On May 18, 1988, Ingram submitted a legal memorandum and additional evidence purporting to contradict the veracity of CGB's affidavits. The Coast Guard found this submission devoid of new evidence and issued the Certificates on May 19, 1988 with the caveat that the Agency's investigation would continue.

 Contemporaneous with the Coast Guard action, Ingram filed this suit against the Coast Guard to enjoin issuance of the Certificates. *fn3" Anticipating that the Certificates would be issued despite the lawsuit, Ingram claims in count II that such action by the Agency is arbitrary and capricious and contrary to law. See 5 U.S.C. § 706(2)(A). The remaining counts contend that because CGB does not qualify under section 883-1, it is operating vessels in violations of 46 U.S.C. Appx. §§ 802(a), 808, 883 & 46 U.S.C. § 12106 and that the Coast Guard and the Maritime Administration ("MARAD") have a mandatory duty to enforce these laws which duty they have refused to fulfill. The cross-motions for summary judgment focus on the propriety of the Coast Guard's decision to issue Certificates without completing its investigation and the correctness of its interpretation of 46 U.S.C. App. § 883-1.

 II. THE HISTORY OF LEGISLATION GOVERNING THE COASTWISE TRADE

 The nucleus of this case is a statutory scheme that comprehensively controls the ownership of vessels operating in the coastwise trade. Corporate ownership has historically been severely restricted. Before 1825, no vessel documented under United States registry laws could be owned by a corporation. For thirty years thereafter, corporations owned entirely by United States Citizens were permitted to document vessels. The pendulum of reform reached its apex in 1858 when corporations with foreign stockholders became empowered to document and operate vessels in both foreign and domestic trade. The pendulum swung substantially back towards greater restrictions on foreign influence on coastwise activities in 1920 with section 27 of the Jones Act, ch. 250, 41 Stat. 999 (1920) (codified at 46 U.S.C. App. § 883). As discussed more completely below, section 27 imposed a United States citizenship requirement upon corporations operating vessels on domestic waterways. See generally Letter from Sinclair Weeks, Secretary of Commerce, to Warren Magnuson, Chairman, Senate Committee on Interstate and Foreign Commerce (June 3, 1958), reprinted in 1958 U.S. Code & Cong. Admin. News 5195, 5196-97. The momentum of this reversion stuttered somewhat in 1958 when Congress adopted the Bowaters Amendment, which created a "minor exception" to the Jones Act citizenship requirement. Pub. L. No. 85-902, 72 Stat. 1736 (1958) (codified at 46 U.S.C. App. § 883-1). This Amendment is the focus of the controversy in this case.

 A. The Statutory Scheme That Protects The Coastwise Trade

 Most critical to the statutory scheme are sections 2 and 9 of the Shipping Act of 1916, ch. 451, 39 Stat. 730 (codified at 46 U.S.C. App. §§ 802 & 808), section 27 of the Jones Act, 46 U.S.C. App. § 883, and the Bowaters Amendment, 46 U.S.C. App. § 883-1. The context within which this scheme is to be interpreted is set by Congress' express statement in section 1 of the Jones Act, 46 U.S.C. App. § 861, of the purpose for which domestic maritime activities are protected:

 
It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, in so far as may not be inconsistent with the express provisions of this Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.

 (Emphasis added).

 The foundation of the scheme appears in section 9 of the Shipping Act which with exceptions not relevant in this case states:

 
I t shall be unlawful, without the approval of the Secretary of Transportation, to sell, mortgage, lease, charter, deliver, or in any manner transfer, or agree to sell, mortgage, lease, charter, deliver, or in any manner transfer, to any person not a citizen of the United States, or transfer or place under foreign registry or flag, any vessel or any interest therein owned in whole or in part by a citizen of the United States and documented under the laws of the United States, or the last documentation of which was under the laws of the United States.
 
. . . .
 
Any such vessel, or any interest therein, chartered, sold, transferred, or mortgaged to a person not a citizen of the United States or placed under a foreign registry or flag, or operated, in violation of any provision of this section shall be forfeited to the United States, and whoever violates any provision of this section shall be guilty of a misdemeanor and subject to a fine of not more than $ 5,000, or to imprisonment for not more than five years, or both.

 46 U.S.C. App. § 808 (Jones Act § 27). This statute perpetuated an historic proscription against foreign ownership of any vessel previously owned by a United States citizen or documented under the laws of this country. Not satisfied merely to restrict transfer of American vessels, Congress adopted citizenship and domestic construction requirements for operation of vessels in the coastwise trade:

 
No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the merchandise . . ., between points in the United States, including Districts, Territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States, or vessels to which the privilege of engaging in the coastwise trade is extended by [ 46 U.S.C. §§ 13 or 808] . . . .

 46 U.S.C. App. § 883 (Jones Act § 27). Essential to application of these statutes is the definition of United States citizenship which is ...


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