United States District Court, District of Columbia
MEMORANDUM OPINION GRANTING IN PART AND DENYING IN
PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT; GRANTING IN
PART AND DENYING IN PART DEFENDANTS' MOTIONS FOR SUMMARY
RUDOLPH CONTRERAS, United States District Judge
2016, the Coast Guard promulgated new rules for calculating
the rates that international shippers must pay American
maritime pilots on the waters of the Great Lakes. Throughout
the notice-and-comment process, Plaintiffs-representatives of
the international shipping community-criticized the proposed
rules in a variety of ways. After having their comments
largely rejected, the shippers sued the Coast Guard in this
Court under the Administrative Procedure Act, 5 U.S.C.
§§ 500 et seq. All the parties have now
moved for summary judgment on Plaintiffs' claims. For the
various reasons explained below, the Court grants in part and
denies Plaintiffs' motion for summary judgment.
limited exceptions, all foreign vessels operating in the
Great Lakes and some of their connecting waters (collectively
“the Great Lakes”) must employ a registered
Canadian or American maritime pilot to aid in navigation. 46
U.S.C. § 9302(a)(1). In 1960, Congress enacted the Great
Lakes Pilotage Act (“GLPA”), which authorized the
United States Coast Guard (“Coast Guard”) to
“form . . . a pool . . . of United States authorized
pilots to provide for efficient dispatching of vessels and
rendering of pilotage services” in the waters of the
Great Lakes. Id. §§ 9301(2), 9304(a).
Thus, pilots on the Great Lakes are organized into private
associations certified by the Coast Guard, which operate in
three separate geographical districts.See Great
Lakes Pilotage Rates-2016 Annual Review and Changes to
Methodology, 81 Fed. Reg. 11, 908, 11, 910 (Mar. 7, 2016).
The Coast Guard is responsible for setting “standards
of competency” for registered American pilots and
prescribes “rates and charges for pilotage services,
giving consideration to the public interest and the cost of
providing the services.” 46 U.S.C. § 9303(a), (f).
Thus, the Coast Guard determines the base pilotage rates that
foreign vessels must pay to hire American maritime pilots to
navigate the Great Lakes and reviews and adjusts these rates
annually. See id.
September 2015, the Coast Guard issued a Notice of Proposed
Rulemaking (“NPRM”) informing the public that the
Coast Guard sought to “revis[e] the current methodology
by which the Coast Guard sets base rates for U.S. pilotage
service” and to set pilotage rates for the 2016
shipping season using that new methodology. Great Lakes
Pilotage Rates-2016 Annual Review and Changes to Mehodology,
80 Fed. Reg. 54, 484, 54, 484 (Sept. 10, 2015). The reasons
for the methodology change were twofold. First, the Coast
Guard explained that “over many years both pilots and
industry have identified certain methodology issues that they
believe significantly distort[ed] ratemaking
calculations.” Id. In particular,
“[p]ilot associations believe[d] those distortions
result[ed] in low rates that contributed to their difficulty
in retaining pilots and attracting applicant pilots.”
Id. Second, a methodology change was required
because certain data that the Coast Guard previously relied
upon would no longer be available. See Id. Before
2016, the Coast Guard's pilotage rate-setting methodology
relied, in part, on union compensation data for merchant
marine masters and mates. 81 Fed. Reg. at 11, 908; see also
St. Lawrence Seaway Pilots Ass'n, Inc. v. United States
Coast Guard, 85 F.Supp.3d 197, 204-05 (D.D.C. 2015).
According to the Coast Guard, “only one union's
contract data [was] ever  made available to the Coast
Guard, ” but that union “now regards th[e] data
as proprietary and [would] no longer disclose it to the Coast
Guard.” 80 Fed. Reg. at 54, 484. Consequently,
“the Coast Guard no longer ha[d] access to the detailed
breakdown of compensation calculation that [its] [former]
methodology [once] relie[d] on.” Id. Thus, as
a result of the previous complaints from pilots and industry
concerning the old methodology combined with the future
unavailability of pilot compensation data, the Coast Guard
decided to change its methodology.
2016 Rate-Setting Methodology
final pilotage rate-setting methodology adopted by the Coast
Guard was largely the same as the rule that it had proposed
in September 2015. See 81 Fed. Reg. at 11, 942. The
Coast Guard developed this methodology based on a set of
recommendations made by the Great Lakes Pilotage Advisory
Committee (“GLPAC”). See Id. at 11, 911.
The GLPAC is a committee created by statute whose purpose is
to assist the Coast Guard in formulating pilotage rates and
policies. See 46 U.S.C. § 9307(a).
When the Coast Guard engages in those functions, the Coast
Guard is required to consider the GLPAC's
recommendations, id. at § 9307(d)(2), and in
this instance, the Coast Guard accorded the GLPAC's
recommendations significant weight, see 81 Fed. Reg.
at 11, 911.
concept, the revised methodology is rather straightforward.
The Coast Guard seeks to set hourly pilotage rates that will
be sufficient to cover pilotage associations' expenses
and also provide a modest rate of return. To do this, the
Coast Guard first estimates the expenses that it expects the
pilotage associations will incur, including expenses
associated with pilot compensation, in the upcoming season.
It then adds a return on investment based on high-grade
corporate securities. Viewed together, the expenses and the
return on investment, represent the target revenue amount
that the Coast Guard is hoping the pilotage associations will
achieve. To come up with an hourly pilotage rate sufficient
to meet this goal, the Coast Guard divides the target revenue
by an estimate of the number of hours it expects the
associations will work. The Coast Guard can then adjust this
rate on an ad hoc basis under “supportable
circumstances.” The Coast Guard has broken out this
methodology into the following eight steps:
Step One: “Recognize previous operating
expenses.” First, the Coast Guard examines the
pilotage associations' prior expenses based on
independent third-party audits and then determines which
expense items should be recognized for the purpose of
Step Two: “Project operating expenses, adjusting
for inflation or deflation.” Next, the Coast Guard
projects the pilotage associations' operating expenses
(other than those expenses associated with compensating
pilots) using the recognized operating expenses identified
from Step One and adjusting them for inflation or deflation
using U.S. government consumer price index data for the
Step Three: “Determine number of pilots
needed.” The Coast Guard then projects how many
pilots the Great Lakes will need in the upcoming shipping
season. Unlike the prior methodology, this step takes into
account not only the “hours a pilot is on the
vessel's bridge, but also the total average time a pilot
spends in preparing for and returning from each pilot
assignment.” It also uses a “peak-staffing model,
” which aims to determine the number of pilots needed
at all times by looking to the amount of pilots needed during
average peak-season demand in previous years.
Step Four: “Determine target pilot
compensation.” The Coast Guard then uses
“the most relevant currently available non-proprietary
information” to determine base individual pilot
compensation. The Coast Guard then multiplies that figure by
the number of pilots needed calculated in Step Three.
Step Five: “Project return on
investment.” Because associations have management
responsibilities and exposure to business risk, the Coast
Guard calculates a return on investment. To do this, the
Coast Guard multiplies the sum of the operating expenses from
Step Two and the target pilot compensation from Step Four by
the annual rate of return for high-grade corporate
Step Six: “Project needed revenue.”
Here, the Coast guard estimates the revenue that each
pilotage association will need to successfully operate by
adding together the projected operating expenses (Step Two),
projected pilot compensation (Step Four), and projected
return on investment (Step Five).
Step Seven: “Initially calculate base
rates.” At this step, the Coast Guard divides the
projected needed revenue from Step Six by the averages of
past hours worked in each geographic area's waters.
Step Eight: “Review and analyze rates.”
Finally, the Coast Guard reviews the base pilotage rates to
make sure the rates meet the “goal of . . . promot[ing]
safe, efficient, and reliable pilotage service on the Great
Lakes.” At this step, the Coast Guard may either
finalize the rates or “make necessary and reasonable
adjustments to them based on requirements of Great Lakes
pilotage agreements between the United States and Canada, or
other supportable circumstances.”
See 81 Fed. Reg. at 11, 908-42.
The Present Action
31, 2016, the American Great Lakes Ports Association, a
not-for-profit organization representing the interests of
commercial ports and port users in the United States, and
several other organizations in the shipping industry sued the
Coast Guard under the Administrative Procedure Act
(“APA”), claiming that the new methodology and
2016 pilotage rates were arbitrary and capricious in various
respects. See Compl. at 4-5, 20, ECF No. 1.
Thereafter, the three Great Lakes pilotage associations
(“Pilots”) moved to intervene as defendants.
Pilots Ass'ns Mot. Intervene Supp. Defs., ECF No. 6. The
Court granted the pilotage associations' motion to
intervene because of their strong interest in the outcome of
the litigation. See Am. Great Lakes Ports Ass'n v.
Zukunft, 16-cv-1019, 2016 WL 8608457 (D.D.C. Aug. 26,
2016). Plaintiffs, Defendants, and Intervenors have each
moved for summary judgment, and the motions are now ripe for
decision. See Pls.' Mot. Summ. J.
(“Pls.' Mot.”), ECF No 18;
Def.-Intervenors' Cross-Mot. Summ. J. (“Pilots'
Mot. Summ. J.”), ECF No. 20; Defs.' Cross-Mot.
Summ. J. (“Coast Guard's Mot. Summ. J.”), ECF
2017 Modification to Rate-Setting Methodology
April 5, 2017, the Coast Guard issued a notice of proposed
rulemaking setting rates for the 2017 shipping season. In
that notice, the Coast Guard also proposed modifying the
rate-setting methodology to account for so-called
“weighting factors” that it did not account for in
2016. Great Lakes Pilotage Rates-2017 Annual Review,
82 Fed. Reg. 16, 542 (Apr. 5, 2017). However, the Coast Guard
made clear that “until a final rule is produced, the
2016 rates will stay in effect, even if a final rule is not
published by the start of the 2017 season.”
Id. at 16, 542 On August 31, 2017, the Coast Guard
issued a final rule incorporating the weighting factors into
its rate-making methodology. See Great Lakes Pilotage
Rates-2017 Annual Review, 82 Fed. Reg. 41, 466, 41, 466
(Aug. 31, 2017). While this rule revised “the pilotage
rates for the remaining portion of the 2017 shipping season,
” it made no purported adjustments to the rates applied
in the 2016 shipping season. See id.
typical case, the Court must grant summary judgment to a
movant who “shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment
as a matter of law.” Fed.R.Civ.P. 56(a); see also
Winston & Strawn, LLP v. McLean, 843 F.3d 503, 505
(D.C. Cir. 2016). But in the context of the APA, the
Court's review of the administrative record is limited.
Sierra Club v. Mainella, 459 F.Supp.2d 76, 89
(D.D.C. 2006) (citing National Wilderness Inst. v. United
States Army Corps of Eng'rs, 2005 WL 691775, *7
(D.D.C. 2005)). It is the agency's role to resolve issues
of fact and regulate in accordance with those facts. See
Id. The district court's review is confined to
determining whether, as a matter of law, the evidence in the
administrative record supports the agency's decision.
Citizens for Responsibility & Ethics in Washington v.
SEC, 916 F.Supp.2d 141, 145 (D.D.C. 2013).
“Summary judgment thus serves as the mechanism for
deciding, as a matter of law, whether the agency action is
supported by the administrative record and otherwise
consistent with the APA standard of review.”
Id. at 90 (citing Richards v. INS, 554 F.2d
1173, 1177 & n. 28 (D.C. Cir. 1977)).
U.S.C. § 706(2)(A), a reviewing court must set aside
agency actions that are arbitrary or capricious. The
touchstone of arbitrary-and-capricious review is reasoned
decisionmaking. Harry T. Edwards, Linda A. Elliott &
Marin K. Levy, The Requirement of Reasoned
Decisionmaking: Arbitrary and Capricious Review Under the
APA, Federal Standards of Review Ch. XV (Apr. 2013)
(“Federal Standards of Review Ch. XV”) (citing
Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). Thus, a
court cannot set aside an agency rule that is
“rational, based on consideration of the relevant
factors[, ] and within the scope of the authority delegated
to the agency by the statute.” State Farm Mut.
Auto. Ins. Co., 463 U.S. at 42-43. Although this is a
deferential standard, it still requires a reviewing court to
take a “hard look” at an agency's reasoning.
See Federal Standards of Review Ch. XV (quoting
Nat'l Lime Ass'n v. EPA, 627 F.2d 416, 451
n.126 (D.C. Cir. 1980)). In the context of notice-and-comment
rulemaking, “[t]he function of the court is to assure
that the agency has given reasoned consideration to all the
material facts and issues.” Greater Boston
Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir.
1970). This requires the agency to “articulate with
reasonable clarity its reasons for decision, and identify the
significance of the crucial facts.” Id.
agency action is arbitrary and capricious if the agency
“entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs
counter to the evidence before [it], or [the explanation] is
so implausible that it could not be ascribed to a difference
in view or the product of agency expertise.” State
Farm Mut. Auto. Ins. Co., 463 U.S. at 43. Thus, an
“agency must examine the relevant data and articulate a
satisfactory explanation for its action including a rational
connection between the facts found and the choice
made.” Int'l Ladies' Garment Workers'
Union v. Donovan, 722 F.2d 795, 814 (D.C. Cir. 1983)
(quotation marks and citation omitted). With that said,
“[a]n agency has discretion to design rules that can be
broadly applied, sacrificing some measure of ‘fit'
for administrability.” Leather Indus. of Am., Inc.
v. EPA, 40 F.3d 392, 403 (D.C. Cir. 1994) (citing
Petroleum Commc'ns v. FCC, 22 F.3d 1164, 1172
(D.C. Cir. 1994)); see also Am. Pub. Gas Ass'n v.
Fed. Power Comm'n, 567 F.2d 1016, 1046 (D.C. Cir.
1977) (internal quotations and citations omitted)
(“Courts cannot fairly demand the perfect at the
expense of the achievable.”). Shortcomings and
analytical weak points, if justified or explained in light of
practical constraints, do not render a regulation arbitrary
or capricious. See City of Brookings Mun. Tel. Co. v.
FCC, 822 F.2d 1153, 1168 (D.C. Cir. 1987). Indeed, even
the “best available data standard leaves room for
error, so long as more reliable data did not exist at the
time of the agency decision.” Baystate Med. Ctr. v.
Leavitt, 545 F.Supp.2d 20, 49 (D.D.C. 2008), amended
in part, 587 F.Supp.2d 37 (D.D.C. 2008), judgment
entered, 587 F.Supp.2d 44 (D.D.C. 2008).
case, Plaintiffs present a litany of arguments for why the
Coast Guard's 2016 rate-setting methodology and 2016
pilotage rates were arbitrary and capricious. Broadly speaking,
these challenges fall into three categories. First,
Plaintiffs challenge one of the Coast Guard's overall
rationales underpinning the changes to the rate-setting
methodology. Specifically, they challenge the Coast
Guard's conclusion that pilotage rates should be
increased to address the pilotage associations' problems
in recruiting and retaining pilots. Second, Plaintiffs
challenge features that the Coast Guard chose to include in
its rate-setting methodology. Namely, the methods by which
the Coast Guard estimates expenses associated with pilotage
compensation. Finally, Plaintiffs challenge certain features
that the Coast Guard decided not to include in its
rate-setting methodology. In particular, Plaintiffs argue
that the Coast Guard's failure to consider the impact of
so-called “weighting factors” on revenue was
arbitrary and capricious. In addition, Plaintiffs contend
that the Coast Guard also violated the APA when it decided
not to include a “truing up” mechanism to account
for the differences between projections and actual
collections in past years. The Court addresses each of these
arguments in turn.
Challenge to the Coast Guard's Overall Rationale - Pilot
Recruitment and Retention
to the Coast Guard's NPRM, one of the reasons the Coast
Guard sought to change the rate-making methodology was to
address the problem of attracting and retaining qualified
pilots to service the Great Lakes. The NPRM states:
According to the pilot associations, the variance between
projected revenue and actual revenue represents a significant
challenge, because failure to achieve published revenue
projections deprives them of the resources they need to
provide safe, efficient, and reliable pilotage service. The
associations cite challenges in making capital investments,
recruiting and retaining adequately qualified pilots,
achieving professional development and training schedules
recommended by the American Pilots Association, updating
technology, and achieving target compensation goals. The
associations say that ...