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AMERICAN HAWAII CRUISES v. SKINNER

May 16, 1989

AMERICAN HAWAII CRUISES, Plaintiff,
v.
SAMUEL K. SKINNER, et al., Defendants, and S/S MONTEREY LIMITED PARTNERSHIP, Defendant-Intervenor. AMERICAN MARITIME OFFICERS SERVICE, Plaintiff, v. SAMUEL K. SKINNER, et al., Defendants


Joyce Hens Green, United States District Judge.


The opinion of the court was delivered by: GREEN

JOYCE HENS GREEN, UNITED STATES DISTRICT JUDGE:

 In these consolidated cases, the Court is called upon to delve into the murky waters of federal maritime law, which requires that, whenever a rebuilt vessel seeks to engage in trade between ports of the United States, the "entire rebuilding" must be conducted within this country. In August 1988, the United States Coast Guard found that a cruise vessel, the S/S MONTEREY, had not been "rebuilt" abroad and was therefore eligible for American coastal trade. Plaintiffs American Hawaii Cruises and American Maritime Officers Service now seek judicial review of that determination. Having plumbed the depths of the parties' arguments, the Court concludes that the Coast Guard strayed off course in issuing its decision.

 I. Setting Sail: The Statutory and Regulatory Background

 Federal maritime law prohibits foreign vessels from transporting passengers between ports in the United States. See 49 U.S.C. App. § 289. If, however, a ship has been built in this country and is owned by citizens of the United States, it may receive a license to engage in coastwise trade from the Secretary of Transportation. 46 U.S.C. § 12105(c). The license is not absolute, and one restriction is found in section 27 of the Merchant Marine Act of 1920 (the Jones Act):

 
No vessel which has acquired the lawful right to engage in the coastwise trade, by virtue of having been built in, or documented under the laws of the United States, and which has later been rebuilt, shall have the right thereafter to engage in coastwise trade, unless the entire rebuilding, including the construction of any major components of the hull or superstructure of the vessel, is effected within the United States.

 49 U.S.C. App. § 883 (emphasis added). Interpreting this provision, which is commonly referred to as the "second proviso" to the Jones Act, the Coast Guard has issued regulations stating that a vessel is deemed to be "rebuilt" when "any considerable part of its hull or superstructure is built upon or is substantially altered." 46 C.F.R. § 67.27-3(a).

 The focus of these consolidated cases is the S/S MONTEREY, which was originally built in Baltimore, Maryland in 1952 as a freight vessel. In 1956 the ship was rebuilt in the United States as a combination cargo/passenger vessel with cabin space for 365 passengers. When the owner of the S/S MONTEREY declared bankruptcy in 1978, all operations ceased and the ship was laid up in San Francisco. The ship was eventually purchased by S/S Monterey Limited Partnership (MLP), a group that intended to operate the S/S MONTEREY as a cruise ship among the Hawaiian Islands. Because necessary modifications to the vessel had been made both in the United States and in Finland, MLP sought guidance from the Coast Guard as to whether the work performed violated the "rebuilding" proscription contained in the second proviso to the Jones Act. The Coast Guard issued a series of four rulings, the last on August 8, 1988, which held that the S/S MONTEREY was not rebuilt within the meaning of regulations it had issued construing the second proviso. *fn1"

 One day after the Coast Guard's final ruling, the first of these consolidated cases (Civil Action No. 88-2217) was filed by plaintiff American Hawaii Cruises (AHC), a joint venture that currently operates two cruise ships in the Hawaiian Islands. Suing under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701 et seq., AHC contended that the S/S MONTEREY had been rebuilt abroad and that the Coast Guard's decisions to the contrary were unlawful, an abuse of discretion and unwarranted on the facts. It sought an order setting aside those rulings and injunctive relief precluding defendants, Secretary of Transportation James H. Burnley IV and Coast Guard Commandant Admiral Paul A. Yost, Jr., from issuing similar rulings in the future and ordering them to revoke the S/S MONTEREY's portfolio that allowed it to engage in coastwise trade. *fn2" Shortly thereafter, MLP's unopposed motion to intervene as a party-defendant was granted.

 The second of these cases (Civil Action No. 88-2618) was commenced on September 16, 1988 by plaintiff American Maritime Officers Service (AMOS), a trade organization whose membership, according to its complaint, contains both present and potential competitors of the S/S MONTEREY in the Hawaiian cruise trade. AMOS's suit named the same defendants, made virtually identical arguments and requested almost identical relief as AHC's. Upon AMOS's motion and with the consent of all parties, the two cases were consolidated for all further proceedings by Order dated November 3, 1988. AHC, AMOS and MLP have now moved for summary judgment; the federal defendants have filed a motion to affirm the Coast Guard's decisions. In addition, the Court has received an amicus brief in support of plaintiffs from Matson Navigation Company, Inc. (Matson). *fn3" These motions are now ripe for decision. *fn4"

 III. Staying Afloat: Standing

 The federal defendants and MLP contend that both plaintiffs lack standing to bring these lawsuits. For the reasons set forth below, the Court disagrees.

 The APA provides:

 
A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.

 5 U.S.C. § 702. In Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970), the Supreme Court set forth a two-part test for determining questions of standing under this provision. First, the party bringing suit must meet Article III constitutional concerns and "allege[] that the challenged action has caused him injury in fact, economic or otherwise." 397 U.S. at 152. As noted above, AHC operates two cruise ships that now compete with the S/S MONTEREY. It alleges that the rebuilding work done in Finland on the S/S MONTEREY saved its owners approximately $ 25 million and that the arrival of that vessel in the Hawaiian cruise market has diverted passengers that would otherwise have utilized one of its cruise ships. *fn5" AHC clearly satisfies the "injury in fact" requirements.

 A potential plaintiff must also meet prudential requirements and show that "the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute." Id. at 153. Clarke v. Securities Industry Association, 479 U.S. 388, 93 L. Ed. 2d 757, 107 S. Ct. 750 (1987), made clear that the "zone of interests" test "is not meant to be especially demanding," and that review should be denied only when "the plaintiff's interests are so marginally related to or inconsistent with the purposes implicit in the statute that it cannot reasonably be assumed that Congress intended to permit the suit." 479 U.S. at 399. *fn6" Justice White observed that "at bottom the reviewability question turns on congressional intent, and all indicators helpful in discerning that intent must be weighed." 479 U.S. at 400.

 Defendants contend that AHC is not within the zone of interests protected by the Jones Act. They first assert that the "rebuild" restriction in the second proviso was intended to protect domestic shipyards, not domestic shipowners like AHC. Defendants correctly note that Pennsylvania R.R. Co. v. Dillon, 118 U.S. App. D.C. 257, 335 F.2d 292 (D.C. Cir.), cert. denied, 379 U.S. 945, 13 L. Ed. 2d 543, 85 S. Ct. 437 (1964), denied standing to three American shipowners who sought to challenge a Coast Guard determination that two other vessels were not "rebuilt" and that the Dillon court observed that the second proviso "was intended basically as a benefit to shipyards not shipowners in the coastwise trade." 335 F.2d at 295-96 n.5 (emphasis in original). Their reliance on Dillon is misplaced, however, for that decision was issued prior to the Supreme Court's formulation of the "zone of interests" test in Data Processing, Clarke and other cases. Recognizing "the trend . . . toward enlargement of the class of people who may protest administrative action," Data Processing, 397 U.S. at 154, the Court has recently adopted a broad interpretation of the phrase "a relevant statute" in 5 U.S.C. § 702 and has made clear that courts should examine the entire legislative scheme, rather than just a particular provision, in considering the "zone of interests" inquiry. Clarke, 479 U.S. at 396-97.

 A number of post-Dillon maritime decisions from this circuit have utilized this more expansive approach. In Autolog Corp. v. Regan, 235 U.S. App. D.C. 178, 731 F.2d 25 (D.C. Cir. 1984), for example, three shipowners and a union of seamen brought suit to preclude a foreign vessel from carrying passengers and their automobiles from New York to Florida by way of the Bahamian islands. In finding that the union had standing, the court did not focus exclusively on the statute, 46 U.S.C. § 289, at issue. Rather, it noted that that provision was part of " the laws creating a coastwise monopoly for domestic shippers and crews" and "read [it] together" with another provision, 46 U.S.C. § 672a, which required American crews on American ships. 731 F.2d at 30 (emphasis added). It found standing because the maritime laws "function together to ensure the American monopoly over all aspects of coastal shipping, and one crucial purpose of this monopoly is the protection and development of American crews." Id. n.3. In Manhattan Tankers, Inc. v. Dole, 587 F. Supp. 473 (D.D.C. 1984), aff'd, 252 U.S. App. D.C. 111, 787 F.2d 667 (D.C. Cir. 1986), the court held that a shipowner had standing to attack a Coast Guard ruling that another vessel could enter the coastwise trade pursuant to the Wrecked Vessels Statute, 46 U.S.C. § 14. Although the statute had a rebuilding requirement that would, under the approach used in Dillon, appear to benefit shipyards only, Judge Richey also considered other provisions of maritime law (46 U.S.C. §§ 289 and 883) which insulated shipowners from competition with foreign-owned or foreign-built vessels. 587 F. Supp. at 476. Finally, while the court in Curran v. Laird, 136 U.S. App. D.C. 280, 420 F.2d 122 (D.C. Cir. 1969) (en banc), did not expressly overrule Dillon, it did cite that decision as an example of outdated caselaw that required "an explicit statutory provision . . . to confer standing on a competitor." 420 f.2d at 126 & n.8. Defendants' argument that the second proviso, in and of itself, bars suit by AHC must be rejected. *fn7"

 This Court's inquiry must therefore be expanded beyond the second proviso's "rebuild" requirement to include the coastwise laws as a whole. Two main purposes are evident. The first is suggested in the preamble to the Jones Act, which provides:

 
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 by citizens of the United States; and it is declared to be the policy of the United States to develop and encourage the maintenance of such a merchant marine.

 46 U.S.C. § 861. Defendants maintain that allowing AHC to bring this suit would frustrate, not serve, this interest because the S/S MONTEREY is a domestic vessel that enhances the viability of this country's merchant marine. But that argument is misplaced for if, as plaintiffs assert, the ship were rebuilt abroad, it is ineligible to enter the coastwise trade under the second proviso and may therefore not be considered a "domestic" vessel. As the court of appeals refused to do in Public Citizen v. FTC, 276 U.S. App. D.C. 222, 869 F.2d 1541, 1549 (D.C. Cir. 1989), slip op. at 17, I will not "bootstrap" the argument on the merits to determine whether AHC has standing to assert its position.

 A second aim of the maritime laws is, as noted above, maintenance of an American monopoly in the coastwise trade. See Autolog, 731 F.2d at 28 (referring to "a legal structure that guarantees a coastwise monopoly to American shipping"). As Judge Kaufman so aptly put it:

 
Like all maritime nations of the world, the United States treats its coastwise shipping trade as a jealously guarded preserve. In order to participate in this trade, a vessel's credentials must be thoroughly American. The ship must have been built in an American shipyard and must be owned by American citizens. Moreover, it must not have trifled with its American heritage.

 Marine Carriers Corporation v. Fowler, 429 F.2d 702, 703 (2d Cir. 1970), cert. denied, 400 U.S. 1020, 27 L. Ed. 2d 631, 91 S. Ct. 581 (1971). Similarly, Judge Gasch noted in American Maritime Association v. Blumenthal, 458 F. Supp. 849, 856 (D.D.C. 1977), aff'd, 192 U.S. App. D.C. 40, 590 F.2d 1156 (D.C. Cir. 1978), cert. denied, 441 U.S. 943, 60 L. Ed. 2d 1045, 99 S. Ct. 2161 (1979), that "Congress considered American ship owners and operators, shipbuilders, and seamen to be protected by" the Jones Act, and Judge Flannery has observed that the Act was intended "to benefit American shipowners competing economically in the coastwise trade." Alaska Excursion Cruises, Inc. v. United States, 603 F. Supp. 541, 546 (D.D.C. 1984). As the American owner of a vessel now engaged in coastal trade facing (what it believes is) an inappropriate advantage resulting from the MONTEREY's rebuilding in Finland, AHC is surely within the zone of interests that the Jones Act is designed to protect.

 Defendants nevertheless continue to argue that standing is lacking in the instant cases. They maintain that, because AHC's two vessels, the S/S OCEANIC INDEPENDENCE and the S/S OCEANIC CONSTITUTION, were "sold foreign" and are only able to engage in coastal trade as a result of special legislation enacted by the Congress, see Pub. L. 96-111, 93 Stat. 845 (1979); Priv. L. 97-13, 96 Stat. 2617 (1982), these ships "do not qualify for coastwise privileges under the Jones Act." Motion to Affirm at 10; see also MLP's Motion for Summary Judgment at 13. This position lacks merit. For one thing, the very same legislation that granted coastwise privileges to AHC's ships also admitted the S/S MONTEREY to domestic passenger trade. See Section 3 to Pub. L. 96-111. Accepting defendants' argument would therefore deny the S/S MONTEREY the same privileges that it presently exercises under the Coast Guard's four "rebuilding" rulings. And in any event, the Coast Guard's own regulations refute its present position. They provide:

 
(a) A coastwise license endorsement entitles the vessel to employment in the coastwise trade . . . .
 
(b) The following vessels . . . are eligible for a coastwise license endorsement:
 
(1) Vessels built in the United States . . . .
 
(5) Vessels granted coastwise trading privileges by special legislation . . . .

 46 C.F.R. § 67.17-5. As AHC observes, see Opposition to Motion to Affirm at 15-16, it would be illogical for Congress to enable AHC's ships to participate in the coastal trade monopoly while simultaneously leaving them defenseless against perceived threats to that monopoly from ships that may have been rebuilt abroad contrary to the second proviso.

 Finally, defendants assert that AHC cannot be heard to complain about unfair advantage from abroad because, in the legislation granting the S/S OCEANIC INDEPENDENCE coastal privileges, Congress exempted the ship from the second proviso's "rebuild" requirement and allowed some work to be performed abroad. See Pub. L. 96-111, section 1(1)(B). This contention, however, ignores the fact that no foreign work was done on the S/S OCEANIC CONSTITUTION, the other vessel owned by AHC. More importantly, the argument raised by defendants is one better addressed to the Congress, not this Court. It was Congress that decided to admit the S/S OCEANIC INDEPENDENCE to the coastal trade and it was Congress that decided to grant the ...


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