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WATERMAN S.S. CORP. v. BURNLEY

August 5, 1988

WATERMAN STEAMSHIP CORP., Plaintiff,
v.
JAMES H. BURNLEY, SECRETARY OF TRANSPORTATION, et al., Defendants



The opinion of the court was delivered by: SPORKIN

STANLEY SPORKIN, UNITED STATES DISTRICT JUDGE.

 Memorandum Opinion and Order

 Introduction

 There are two principal benefits which flow from a section 615 "right" or "authorization," pursuant to which foreign-built U.S.-flag vessels are treated as if they were U.S.-built. One benefit is that the authorization may make the holder eligible for operating-differential subsidies ("ODS") *fn2" -- provided the holder satisfies certain other criteria. The other benefit the holder can derive from a 615 authorization is access to U.S. preference cargoes three years sooner than otherwise would be possible. The possession of a section 615 authorization serves to waive the normally required three year waiting period before a newly documented U.S. flag ship can become eligible for the transportation of federal preference cargoes under Section 901(b) of the Merchant Marine Act of 1936 (46 U.S.C.App. § 1241(b)). *fn3" Central Gulf Lines ("CGL"), the defendant-intervenor and the recipient of the 615 rights at issue in this case, is presently not eligible to receive ODS -- it therefore claims that it seeks to use the three 615 authorizations it has purchased only to obtain the waiver of the three-year waiting period to ship U.S. preference cargoes.

 The Parties

 The principal actors in this case are: 1) plaintiff, Waterman, a common carrier operating U.S.-flag, U.S.-built subsidized vessels in foreign commerce under an ODS contract with the United States. Waterman did not apply for section 615 authorizations and it has not been a transferee of such authorizations; 2) defendants, Maritime Subsidy Board ("MSB"), United States Maritime Administration ("MarAd"), and Secretary of Transportation Burnley, who collectively have the responsibility for authorizing, making, amending and terminating ODS contracts, and allegedly have the authority to authorize the transfer of Section 615 rights to build ships foreign yet have them "deemed" to have been U.S. built; 3) defendant-intervenor, CGL, a common carrier that operates ships under the U.S. flag but does not receive operating subsidies. CGL is the transferee of the three Section 615 authorizations at issue. It paid $ 1,550,000 to obtain these rights. CGL has not previously been a transferee of any other Section 615 rights; 4) amicus curiae American President Lines ("APL"), a common carrier and a party to an ODS contract with the United States. APL operates U.S. flag vessels in foreign commerce. APL also is the transferee of several other build-foreign authorizations (Section 615 rights) initially granted to another party by MarAd.

 The Facts

 The factual development of this dispute began on September 14, 1982, when United States Lines ("USL") received authorization from MarAd to construct fourteen Jumbo Econship vessels at a foreign shipyard pursuant to section 615. Proposed Administrative Record at 101-104 ("P.A.R. "). USL received such authorization because construction differential subsidy ("CDS") *fn4" funds were unavailable. P.A.R. at 27. Although it was an ODS operator, USL did not receive authorization for any ODS for the subsequent operation of any of the vessels built. P.A.R. at 37. USL had twelve Jumbo Econships built pursuant to the September, 1982, section 615 authorizations. *fn5" It retained two section 615 authorizations.

 On September 30, 1982, Delta Steamship Lines, Inc. ("Delta") received authorization from the MSB to construct up to ten vessels in a foreign shipyard pursuant to section 615 authorizations. *fn6" At the time of its application, Delta was operating 24 vessels with ODS. Delta, like USL, received the section 615 authorizations because CDS funds were unavailable. Delta constructed three vessels pursuant to the section 615 authorizations. On January 11, 1985, the Maritime Administrator and the MSB authorized Delta to assign one of its section 615 authorizations to United States Lines S.A. ("USL S.A."). The transaction was completed on January 25, 1985. *fn7"

 On November 4, 1986, USL and USL S.A. filed voluntary bankruptcy petitions under Chapter 11 of the Bankruptcy Act. The two corporations, acting as debtors-in-possession in the bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York, offered three unused section 615 authorizations for sale -- the two USL authorizations and the section 615 authorization USL S.A. obtained from Delta. USL, USL S.A. and CGL obtained approval from MarAd for the proposed sale of the section 615 rights to CGL on March 26, 1987. *fn8" A little more than a month later, CGL prevailed in a bidding contest conducted by the Bankruptcy Court for the three authorizations -- and on April 17, 1987, purchased the authorizations for $ 1,550,000. *fn9" The federal defendants made the sale of the three section 615 rights subject to certain conditions, including the requirement that CGL obtain approval from MarAd of the commercial characteristics of the vessels to be procured, and that the Navy Department approve the National Defense features of the ships to be obtained pursuant to the section 615 rights. *fn10" In addition, CGL indicated to MarAd that it intends to operate the three vessels without ODS. See March 26, 1987 Letter from CGL to MarAd. *fn11"

 On April 6, 1987, Waterman petitioned the Secretary of Transportation to review MarAd's approval of the transfer of the three section 615 rights. CGL opposed the petition on April 13. No action was taken by the Secretary and the transactions became final on April 21, 1987. Waterman brought this action on June 19, 1987.

 The Case as it was Originally Framed

 Waterman initially brought this suit for "review . . . of agency actions . . . approving the sale of special statutory privileges authorizing construction of U.S.-flag ocean vessels in foreign shipyards which would be entitled to the benefits reserved to U.S.-built vessels." Complaint at 2. According to the plaintiffs,

 
. . . these privileges were intended to be available only to subsidized U.S.-flag vessel operators in 1982 to fill their then-current needs. Their sale or barter was not authorized by Congress.

 Complaint at 2 (emphasis added). The core issue in this case, according to Waterman at that juncture, was the legality of selling section 615 authorizations to the highest bidder. Plaintiff challenged the federal defendants' authority to approve the purchase of these authorizations by either defendant-intervenor CGL, or for that matter, any other party. Plaintiff emphasized that:

 
The privileges bought by CGL were granted under 46 U.S.C. § 1185, which was intended by Congress to authorize foreign building only by vessel operators receiving or applying for operating subsidy who could not contract for new vessels in U.S. yards at economical prices because of the unavailability of construction subsidy. They were not meant to be saleable and certainly were not meant to be sold to unsubsidized operators merely to give them access to U.S.-built vessel cargoes. The defendants' purported authorization of the sales of these privileges was arbitrary, capricious, abused defendants' discretion and was not in accordance with law.

 Complaint at 3 (emphasis added). The gravamen of plaintiff's complaint at the start of this litigation, therefore, was that the transfer of Section 615 authorizations was not in keeping with either the plain meaning of the statute or Congress' intent when it enacted Section 615. *fn12" The fact that plaintiff initially mounted a full fledged attack on the transferability of Section 615 rights is further borne out both by a review of CGL's and the federal defendants' briefs, *fn13" which address the issue of general transferability, and APL's entry into this case as amicus curiae solely to argue that this court should not invalidate the transferability of Section 615 rights in toto -- but rather, should decide the case either in favor of CGL's right to be a recipient of 615 rights or on one of Waterman's other proposed grounds. *fn14"

 Standing

 In order to satisfy Article III standing requirements, a party must "'show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant' and that the injury 'fairly can be traced to the challenged action' and 'is likely to be redressed by a favorable decision.'" Valley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464, 102 S. Ct. 752, 758, 70 L. Ed. 2d 700 (1982) (footnote and citations omitted).

 Waterman challenges the validity of the federal defendants' approval of the transfer of three section 615 rights to CGL. Waterman will be injured by the actions of the federal defendants if CGL, pursuant to the transfer of the section 615 rights, enters three new, foreign-built vessels into competition with Waterman for U.S. preference cargoes three years earlier than otherwise would be possible. CGL, however, contends that Waterman cannot prove that it will use the new vessels to compete with Waterman and that "nothing has been offered to prove precisely how Waterman has been injured to date, or how and when it will be injured in the future." CGL's Summary Judgment and Dismissal Brief at 33.

 CGL, however, has provided strong indications that it intends to use the new vessels to compete on Waterman's trade routes. See generally Affidavit of J. R. Leyh (Senior Vice President of Waterman) and attached Statement of Erik F. Johnsen (President of CGL). CGL historically operates in those markets where Waterman is currently operating its vessels. Id. Furthermore, the record in this case reveals no indication about the sort of vessels CGL will acquire or construct; nor have the federal defendants imposed any apparent limitations on CGL's use of the vessels, either in terms of the type of use or the geographical locations of such use. It would be inequitable to permit CGL to take advantage of the blank check nature of the section 615 authorizations it has obtained to deflect attacks by those who realistically claim they will be competitively harmed by the operation of the vessels. *fn16" I find that the threatened competition for its essential cargoes is sufficient to satisfy the injury-in-fact requirement for standing upon Waterman. See e.g. Investment Company Institute v. Camp, 401 U.S. 617, 91 S. Ct. 1091, 28 L. Ed. 2d 367 (1971); Clarke v. Securities Industry Association, 479 U.S. 388, 107 S. Ct. 750, 754 n.4, 93 L. Ed. 2d 757 (1987). Waterman has asserted an injury in fact, fairly traceable to the agency defendant's conduct and redressable by the relief sought. Waterman has constitutional standing. Allen v. Wright, 468 U.S. 737, 104 S. Ct. 3315, 3324-25, 82 L. Ed. 2d 556 (1984).

 CGL, relying on a strained reading of Clarke v. Securities Industry Association, supra, also contends that Waterman was not an intended beneficiary of section 615 and hence lacks "zone of interest standing." According to CGL, evidence of Congressional intent to benefit the plaintiff is required for standing. Even under that crabbed conception of the zone of interests test, Waterman merits standing. CGL argues that Congress' only purpose for the September 30, 1982 termination date in section 615:

 
. . . was to place a limit on the total number of brand new build-foreign licenses that could be issued . . . said limitation was prescribed exclusively for the benefit of the U.S. ...

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