Appendix — Safir v. Kreps

IN THE

Supreme Court of the Uutl Stare —

October Term, 1976

No 761505

MARSHALL P. SAFIR,

Petitioner,

—vs.—

at JUANITA M. KREPS, Individually, and as Secretary

of Commerce, et al.

Avenue

Brooklyn, New York 11217

Tel. No.: 212 - 858 - 2700

TABLE OF CONTENTS

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit ..............

Appendix B—Brief for Plaintiff-Appellant Dated

eee noha

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976 ͥd·rn»

Appendix D—Order of U.S. District Court,

District of Columbia, Dated October 21, 1975

Appendix E—Order of Secretary of Commerce

Dated September 9, 1974 .................

Appendix F—Memorandum and Order

Appendix K—Final Order on Recoveries of MSB

Dated October 10, 19733838222.

Appendix L—Memorandum for the Federal Re-

spondents in Opposition

Appendix M—Petition for Writ of Certiorari to

the United States Court of Appeals for the

Second Cireuit, August 3, 1973 ...........

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973 .....

Appendix O—Decision of United States Court of

Appeals, Dated November 29, 1972 ........

Appendix P—-Memorandum Incorporating Finding

of Fact and Order, Dated June 6, 1972 ....

Appendix Q—Memorandum Incorporating Find-

ings of Fact and Order, Dated June 23, 1971

Appendix R—Solicitor General’s Brief, Dated

„de

Appendix 8— Opinion of the Court of Appeals on

Petition for Rehearing, Dated June 18, 1969

Appendix T—Order of the Court of Appeals

Denying Rehearing En Banc, Dated June 18,

D cokes tne Geeoaseeten

Appendix U—Letter From U.S. Department of

Commerce, Maritime Administration, Wash-

ington, D.C. 20235, Dated May 20, 1970 ...

Appendix V—Decision of Court of Appeals,

Dated February 26, 1970 .................

Appendix W—Decision of Court of Appeals, Dated

Dr

Appendix X—JOURNAL OF MARITIME LAW

AND COMMERCE Vol. 2—No. 1—October

...... dees eee ese

Appendix Y—Letter From Congressman Paul N.

McCloskey, Jr., Dated March 31, 1977

Appendix Z—DECISION DATED JULY 8, 1975

American President Lines, Ltd., Japan/Saigon

Freight Conference, Dated July 15, 1965 ...

PAGE

177a

221a

25 7a

la

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

Notice: Tic opinion is subject to formal revision before

publication in the Federal Reporter or U.S. App. D.C. Reports.

Users are requested to notify the Clerk of any formal errors in

order that corrections may be made before the bound volumes

go to press.

Anited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-2050

MARSHALL P. SAFIR,

Appellant,

JUANITA M. KREPS, Individually and

as Secretary of Commerce, et al.

Appeal from the United States District Court

for the District of Columbia

(D.C. Civil Action No. 74-1474)

Argued October 27, 1976

Decided February 11, 1977

Marshall P. Safir, appellant pro se.

Richard A. Olderman, Attorney, Department of Jus-

tice, with whom Rex E. Lee, Assistant Attorney General,

Earl J. Silbert, United States Attorney, and William

Kanter, Attorney, Department of Justice, were on the

brief, for federal appellees. Barbara L. Herwig, At-

torney, Department of Justice, also entered an appearance

for federal appellees.

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

Robert T. Basseches and Daniel H. Margolis, with

whom Warren L. Lewis was on the brief, for intervenors-

appellees. American President Lines, Ltd., Prudential

Lines, Inc., and PSS Steamship Company, Inc. Verne W.

Vance was on the brief for intervenor-appellee Farrell

Lines, Inc.

J. Franklin Fort, with whom T. S. L. Perlman and

William H. Fort were on the brief, for intervenors-

appellees Lykes Bros. Steamship Lines, Inc. and Moore-

McCormack Lines, Inc.

James N. Jacobi was on the brief for intervenor-

appellee American Export Lines, Inc.

Elmer C. Maddy was on the brief for intervenor-

appellee United States Lines, Inc.

Before WRIGHT, MCGOWAN, and MACKINNON, Circuit

Judges.

Opinion for the court filed by Circuit Judge WROHTr.

WRIGHT, Circuit Judge: This case involves the most

recent episode in a ten-year battle by appellant, Marshall

P. Safir, to force the United States Government, acting

at various times through the Maritime Subsidy Board,

the Maritime Administrator, and the Secretary of Com-

merce, to recover construction differential subsidies and

operating differential subsidies paid to various shipping

companies collectively called the Atlantic and Gulf Ameri-

can Flag Berth Operators (AGAFBO). At this stage in

the proceedings appellant has won decisions in the Sec-

ond Circuit forcing the Maritime Administrator to take

action on appellant’s claims, Safir v. Gibson, 417 F.2d

972 (2d Cir. 1969) (Safir I), and further holding that

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

the AGAFBO lines are estopped from relitigating a

finding of the Federal Maritime Commission that the

lines engaged in predatory behavior against appellant’s

steamship company, Sapphire Steamship Lines, Inc., Safir

v. Gibson, 432 F.2d 137 (2d Cir.), cert. denied, 400 US.

850 (1970) (Safir II), Safir I also established that Sec-

tion 810 of the Merchant Marine Act of 1936, 46 U.S.C.

§ 1227 (1970), which prohibits payment of subsidies to

lines engaging in predatory practices, also allows the

United States to seek recovery of subsidies paid to ship-

ping lines during the period of their predatory behavior

but before it is discovered. Safir] at 977. The Maritime

Subsidy Board has now rendered an opinion, /nvestiga-

tion of Alleged Section 810 Violation, 3 Maritime Sub-

sidy Board Reports 128 (1973) (interim order), Supp.

App. 160, —— Maritime Subsidy Board Reports ——,

14 P & F SHIPPING REGULATION REPORTS 77 (1973)

(final order), JA 33, requiring various amounts of op-

erating differential subsidies to be recovered from lines

in direct competition with Sapphire Steamship Lines, Inc.

(the Trade intervenors”), but exonerating certain other

AGAFBO members (the Non-Trade intervencrs”). This

decision was appealed by the AGAFBO lines to the Secre-

tary of Commerce who, in an order dated September 9,

1974, JA 2, affirmed the Board in all respects except that

he further mitigated the amount of subsidy to be re-

covered from the Trade intervenors.'

Directly at issue here is an order of the District Court

denying appellant's motion for summary judgment and

granting appellees’ and intervenors’ motions for sum-

Further elaboration of facts of this case may be found in

Safir I and Safir II.

4a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

mary judgment.* We reverse and remand this case to

the District Court for further proceedings as indicated

in this opinion.

At the outset, a word is in order about the general

approach which ought to be taken to this case. As all

parties are well aware, the administrative proceedings

sought to be reviewed here would never have been in-

stituted in the absence of the Second Circuit’s decision

in Safir I. And, although that court did not order the

precise form of proceedings which have been conducted

here,“ it indicated that comparable proceedings would

have been ordered in the absence of voluntary action

intended to discharge the obligation of the Maritime

Administrator “to make a considered decision whether

to recover the subsidies paid in the past,” Safir I at

978. See Safir II at 144. The vagaries of the form

and venue of proceedings for judicial review of ad-

ministrative action should not, therefore, be allowed to

obscure the fact that the central issue here is whether

the mandate of the Second Circuit has been discharged.

Nor should the discontinuous nature of the judicial pro-

ceedings or the change of forum from New York to

Washington cloud the fact that we are here dealing for

all practical purposes with a single continuing lawsuit.

For this reason we think it inappropriate to reopen is-

sues which have been resolved by the Second Circuit un-

less there has been a supervening change of law or fact

which makes the prior resolution of an issue plainly

erroneous.

2 Appellees also made motions to dismiss. All motions before

the District Court were treated as motions for summary judg-

ment, see Order of Judge Bryant, JA 1, and we adopt this no-

menclature herein.

* See pp. 13-14, infra.

5a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

I

We now take up seriatim issues raised by the inter-

vening Trade and Non-Trade Lines and the Secretary of

Commerce in support of their respective motions for

summary judgment. We deal here only with those points

raised on appeal, assuming that points raised below but

not pressed here have been abandoned by the parties.

1. Appellant’s Standing. The standing issue has al-

ready been litigated in Safir I, a suit brought by three

parties: appellant Safir, his partner Arnold Weissberger,

and Sapphire Steamship Lines. Read literally, that opinion

affords standing only to Sapphire. See Safir I at 977.

However, we think such a limited construction is un-

warranted. The only evidence of an essential point—

that Sapphire hald] not washed [its] hands of the

business,” id. at 978—was Safir’s affidavit that “he de-

sired to return to the shipping business as soon as

possible.” Jd. Nor do we think much can be made of

the characterization of Sapphire as the “victim” of the

predatory practices since it is now clear, as it apparently

was not at the time of Safir J, that Sapphire’s financial

losses have been transferred at least in part to Safir

in his capacity as personal guarantor of many of Sap-

phire’s debts. Moreover, we find no evidence at all that

the Second Circuit intended to distinguish between the

corporate entity—Sapphire—and its co-owners for pur-

poses of standing. If it had intended to do so, it should

have dismissed the claims of both appellant Safir and

his partner Weissberger in Safir I and again in Safir II,

but this it did not do. We hold, therefore, that Safir J

established as of 1969 appellant’s standing to sue to force

the Maritime Administrator to make a “considered de-

cision” on whether to seek recoveries. We further hold

6a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

that implicit in the grant of standing in Safir J is a

further grant of standing to seek judicial review of the

decision of the Administrator (or Secretary of Commerce)

once it was made.

Our inquiry is not finished by an examination of the

scope of Safir I, however, because there has been a

major clarification of the meaning of standing under

Section 10 of the Administrative Procedure Act, 5 U.S.C.

$702 (1970), since Safir I was decided. In Ass’n of

Data Processing Service Organizations, Inc. v. Camp,

397 U.S. 150 (1970), the Supreme Court announced a

two-part test for standing to challenge administrative

action: first, “whether the plaintiff alleges that the chal-

lenged action has caused him injury in fact, economic

or otherwise,” id. at 152; and, second, “whether the

interest sought to be protected by the complainant is

arguably within the zone of interests to be protected or

regulated by the statute or constitutional guarantee in

question,” id. at 153. Subsequent cases put a gloss on

these requirements. Of particular importance here is the

decision in Simon v. Eastern Kentucky Welfare Rights

Organization, 426 U.S. 26 (1976), in which the Court

added the requirement that “the plaintiff who seeks to

invoke judicial power stand to profit in some personal

interest [if he wins the suit].” 426 U.S. at 39.

Although the Safir J court did not phrase its standing

opinion in the above terms, we think Safir’s standing

under subsequently announced law nonetheless follows

from what was said in Safir]. Safir I holds that Section

810 of the Merchant Marine Act of 1936, 46 U.S.C. § 1227

(1970), was intended by Congress “to promote the com-

petitive interest of a victim by authorizing the recovery

7a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

of subsidies improperly paid in the pat Safir

I at 978. From this language it is clear that, if Safir

still has a competitive interest, it is one within the “zone

of interests” protected by Section 810, and the second

Data Processing standing requirement is met. The Sec-

ond Cireuit's analysis of the congressional history of

Section 810 also establishes that Congress thought poten-

tial competitors would benefit from recovery of subsidy

payments since such recovery “poses an added cost on

the violators and thus will partially make up to the

victim for the burden which the earlier payments in-

directly imposed on him.” Id. at 977 (footnote omitted).

We do not think either Data Processing or Simon re-

quires appellant to demonstrate the truth of the above

proposition. It is enough if Congress thought a victim

would a, through recovery of illegally paid sub-

sidies and consequently failure of the Maritime Adminis-

trator to extend the intended benefit to a victim is injury

in fact. Again, however, Safir must continue to be a

potential competitor of the shipping lines which illegally

took the subsidies if he is to benefit from a decision to

recover such subsidies.

For the foregoing reasons, the three standing issues

come down to one: Is Safir a potential competitor of the

Trade and Non-Trade Lines? We begin by restating that

Safir I established that Safir had this status in 1969.

See pages 4-5 supra. Appellant’s desire to re-enter the

shipping business has apparently not changed, see Com-

plaint 3, Supp. App. 250, and appellees and intervenors

here have pointed to no change in circumstances which

would cause us to question the conclusion of the Second

Circuit that “an interruption of operations like that here

does not sufficiently alter the victim’s interest to take it

Appendiz A—Opinion of the Court of Appeals,

District of Columbia Circuit

out of the protection of § 810 * .“ Safir I at 978.

Moreover, for us to hold today that the Secretary of

Commerce can divest a person in appellant's position of

standing simply by footdragging would scarcely serve the

interests of Congress or the Constitution. After all,

the Secretary’s initial and allegedly continuing unwilling-

ness to protect Safir’s interests may well be a contribut-

ing factor to Safir’s inability to re-enter the shipping

business—certainly Congress in the Second Circuit's

view) thought that prompt termination and recovery of

subsidies would be of materia! assistance to the victim

of predation. Nor do we see how any Article III pur-

pose would be served by refusing Safir a forum in which

he might contest the adequacy of the Secretary's com-

pliance with an unquestionably valid order of the Second

Cireuit, especially where the only apparent ground for

such refusal would be delay caused by the very dilatori-

ness of the Secretary and the Administrator which led

to the initial suit. For all of the above reasons, there-

fore, we decline to hold that the passage of time has

removed appellant’s standing to prosecute this action.“

2. Exhaustion of Administrative Remedies. The

United States argues that appellant Safir’s failure to par-

ticipate in the review proceedings before the Secretary of

Commerce should act as a bar to relief in the District

Court. We disagree, finding this argument to be prema-

turely raised.

It appears that appellant participated fully in the

proceedings before the administrative law judge (ALJ)

* Because we hold today that Safir / established appellant

Safir’s personal standing to bring suit, we need not consider

the effect of § 70 of the Bankruptcy Act, 11 U.S.C. §110 (1970),

on appellant’s claim.

Appendix A—Opinion of the Court of Appeals,

’ District of Columbia Circuit

and the Maritime Subsidy Board in Docket No. S-243,

which is here under review. Upon entry of the final

order of the Board, appellant turned to the District Court

for review. Intervenors, on the other hand; petitioned

the Secretary of Commerce for further administrative

review of the Board’s order under procedures set out

in 46 C.F.R. § 202.1 (1976). The Secretary granted in-

tervenors’ petitions and, as a result, the District Court

dismissed Safir’s complaint as premature. Safir v. Dent,

No. 2156-73 (D. C.D. May 9, 1974), aff'd, No. 74-1716

(D.C. Cir. Feb. 18, 1975) (Supp. App. 246, 256).

The failure of Safir to appear before the Secretary

does not in itself require dismissal of this petition for

review. Administrative review before the Secretary is

nowhere made mandatory. It is a matter of grace, not

“The Secretary * * * may, on his own motion or on the

basis of a petition filed as hereinafter provided, review

any decision, report and/or order of the Maritime Sub-

sidy Board * * 46 C. F. R. § 202.1 (16.01) ‘emphasis

added). In addition, there is no requirement that parties

with the petitions for review, the regulation states that

“may file replies in writing there to,”

id. (emphasis added), not that they must. Finally, there

can Safir has protected his right to

seek judicial review by filing a complaint in the District

Court which would have been timely but for its ultimate

free

4

40

2

not to raise points with-

out regard to whether were argued at some stage

of the administrative process. While an exhaustion re-

10a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

it is a generally recognized common law principle. See,

e.g., 3 K. Davis, ADMINISTRATIVE LAW TREATISE § 20.01,

at 56-57 (1958); L. Jarre, JupiciaL CoNTROL oF Ab-

MINISTRATIVE ACTION 424 (1965). The purpose of ex-

haustion—to allow an agency “to consider [a] matter,

make its ruling, and state the reasons for its action,”

Unemployment Comm'n v. Aragon, 329 U.S. 143, 155

(1946), so that it will have “an opportunity to correct

[any] error, if error there be,” Brotherhood of R. R.

Trainmen v. Chicago, M., St. P. & Pac. R. Co., 380 F.2d

605, 608 (D.C. Cir.), cert. denied, 389 U.S. 928 (1967)

—is narrow, however. So long as the appellant or some

other party has put an objection on the record, the ob-

ligation to exhaust is discharged. This is especially so

at the stage of secretarial review since such review is

carried out on the record already made. In particular,

the Secretary must be charged with notice of objections

raised in prior administrative or judicial proceedings.

Applying this principle to the issues raised on this

appeal, we hold that there has been no demonstration

that appellant has failed to raise below all issues now in

tention. As we understand the present state of affairs,

all appellant Safir has so far proffered for decision is the

narrow question whether there was any room under Sec-

tion 810 for discretionary reduction of amounts of op-

erating and construction subsidies to be recovered. See

Plaintiff's Motion for Summary Judgment, Supp. App.

267-268. Sarfir’s second claim that the Secretary has

abused his discretion—is not presently before the District

Court and could not properly be so since the administra-

lla

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

notice of Safir’s contentions. These contentions were the

subject of Safir I and Safir II. The briefs in these cases

were certainly available to the Secretary since his agent,

the Maritime Administrator, was a defendant in both

suits. The opinions of the Second Circuit are a matter

of public record and well known to all involved. It

appears that Safir also presented these claims to the

ALJ and to the Maritime Subsidy Board. See /nvestiga-

tion of Alleged Section 810 Violation, supra, 3 Maritime

Subsidy Board Reports at 141, Supp. App. 181. What

more, then, was there to be said by a non-lawyer about

the appropriate construction of Section 810?

There will be more than enough opportunity to raise

waiver issues again once the trial court has the ad-

ministrative record before it and can assess the possibility

of prejudice in terms of the actual argument and evi-

dence adduced before the ALJ and the Board. If actual

prejudice appears at that time, the trial court is free to

reconsider the waiver issue including any extenuating

circumstances which would make imposition and exhaus-

tion requirement inequitable.

3. Collateral Estoppel or Res Judicata. We agree

with appellees’ position that appellant may not relitigate

questions that were actually decided in either Safir / or

Safir II. We disagree, however, with appellees’ conten-

tion that the holdings of these cases are sufficiently broad

to warrant dismissal of appellant’s complaint. Two issues

were raised in Safir I: whether Safir had standing, and,

if so, whether the Administrator’s decision not to seek

refunds of subsidies paid was a matter “committed to

agency discretion by law“ under 5 U.S.C. § 701 (a) (2)

(1970) and therefore unreviewable. Both issues were

decided in Safir’s favor; however, only the second is

12a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

relevant here. On the discretion point the Safir I court

held that the Maritime Administrator could not “refuse

to proceed against AGAFBO lines without at least con-

sidering the interest of the victim, about which Con-

gress was so concerned,” and that he “was at least re-

quired to make a considered decision whether to recover

the subsidies paid in the past.” Safir I at 978. Safir |

thus indisputably rejected the Administrator’s extreme

position that his decision whether or not to seek recovery

was unreviewably committed to his discretion. This hold-

ing is consistent with the supervening case of Citizens

to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402

(1971), and consequently we do not inquire further into

it.

Safir I, in addition to rejecting the Administrator’s

claim of unreviewable discretion, specifically reserved the

question whether “there may be other limits on [the

Administrator’s] discretion” going beyond the require-

ment that he consider the victim’s interest before decid-

ing not to seek recovery of subsidies paid. Safir / at 978.

However, when in Safir II appellant sought to test these

limits by arguing that the Administrator had no dis-

cretion to do other than seek recovery of all subsidies

paid to all AGAFBO members, this extreme position was

rejected. In a footnote the Second Circuit stated:

Nothing we have said should be read as prevent-

ing the Maritime Administration from investi-

gating the nature and extent of the individual

carriers’ participation in the illegal action, should

it find these matters relevant to its ultimate deci-

sion on whether to seek recovery of subsidies paid

during the violation and, if so, how much and from

whom.

13a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

Safir II at 145 n.2. The propriety of the Administrator’s

considering “the nature and extent of the individual car-

riers’ participation” was reiterated on rehearing. Safir

II at 146. As matters now stand, therefore, the District

Court properly rejected appellant’s sole contention on

his motion for summary judgment that “the Secretary

of Commerce, through his constituent agency, the Mari-

time Administration—Maritime Subsidy Board, is under

a mandatory duty to impose the inflexible [sic] sanction

of Section 810 * * * to recover all construction and

operating subsidies paid * * *.” Supp. App. 268.

Nevertheless, the District Court could not properly

dismiss Safir’s complaint as a whole since that complaint

is not limited to the sweeping claim that the Secretary

lacked any discretion to demand recovery of less than

the full amount of subsidies paid.“ It alleges that the

Maritime Subsidy Board and the Secretary abused what-

ever discretion they may enjoy by arbitrarily and capri-

ciously mitigating the penalty assessed against AGAFBO,

see Complaint 2, 5, 6.b, Supp. App. 249, 251, and par-

ticularly questions the propriety of the Secretary’s fur-

ther mitigation of recoveries,’ which was based solely on

Government complicity in (and benefit from) the preda-

tory act of the AGAFBO lines, see id. | 6.b, Supp. App.

251. Litigation of this and other issues raised by Safir’s

» Appellant apparently sought to resolve by summary judg-

ment only issues which could be decided without examination

of the administrative record, an approach ultimately sanctioned

by the District Court when it consolidated and then stayed the

actions brought by intervenors herein. See Order of April 10,

1975 (Docket Item No. 32).

“Order of the Secretary of Commerce in Maritime Subsidy

Board Docket 8-243, Sept. 9, 1974, JA 2.

14a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

complaint, such as the propriety of reducing subsidy

recovery to reflect the proportion of military cargo car-

ried by the predatory lines, and hence in direct competi-

tion with Sapphire Steamship Lines, Inc., is not barred.

The propriety of considering such factors could not have

been litigated before the Second Circuit because the or-

ders announcing the Administrator’s reliance on them

were not entered until after Safir II. Therefore, such

issues are plainly open now no matter what theory of

estoppel is applied to the Second Circuit’s decisions. More-

over, consistent with our view that what is really at

issue here is the Administrator’s (Secretary’s) discharge

of the Second Circuit’s mandate, the general issue of the

arbitrariness of the precise action taken is and must be

open for review now, regardless of any discretion which

the Administrator may enjoy. See Citizens to Preserve

Overton, Park Inc. v. Volpe, supra.

II

From what we have said above it should be clear that

there are issues to be tried on remand. In particular,

it is necessary for the trial court to determine whether

the various factors other than the “extent of individual

carriers’ participation in the illegal action,” Safir II at

145 n.2, cited by the Administrator and the Secretary

as justifying mitigation can properly be considered,

given the purpose and legislative history of Section 810

and its construction in other cases. In other words, the

issue reserved by the Second Circuit in Safir ]—the pre-

cise limits on the Administrator’s (Secretary’s) discre-

tion not to seek recovery of all subsidies paid—must now

be decided. If it is decided that all the cited factors could

Investigation of Alleged Section 810 Violation, 3 Maritime

Subsidy Board Reports 128, 161-167 (1978), Supp. App. 216-223.

15a

Appendix A Opinion of the Court of Appeals,

District of Columbia Circuit

lawfully be considered, the trial court must further de-

termine whether the Administrator (Secretary) acted

arbitrarily or capriciously, or abused his discretion in

this case, given the facts developed in the hearing before

the ALJ. See Citizens to Preserve Overton Park, Inc. v.

Volpe, supra; Dunlop v. Bachowski, 421 U.S. 560 (1975).

If it becomes necessary for the District Court to re-

view the facts found by the Maritime Subsidy Board

or the Secretary, it will first have to determine whether

the appropriate standard of review is substantial evidence

on the record as a whole, see 5 U.S.C. § 706(2)(E), or

whether the facts found must merely be free of arbi-

trariness or caprice, given the evidence adduced, see

Dunlop v. Bachowski, supra. In making this determina-

tion, the trial court should be aware of the unusual pro-

cedural posture of this case. The hearings before the

ALJ were begun “to provide a basis for recommending

to the Maritime Subsidy Board * * * the appropriate

action that should be taken” in response to the order of

the Second Circuit in Safir IJ. See Maritime Subsidy

Board Order in Docket 8-243 at 3 (Oct. 24, 1969). Ulti-

mately, however, a final order was entered which pur-

ports to conclude an adjudication of the amounts owing.

See Investigation of Alleged Section 810 Violation, ——

Maritime Subsidy Board Reports , (1973),

JA 45-46. While there is some sanction for this form

of procedure in Safir II at 144, we would not have thought

that a formal adjudication was required to discharge the

obligation put on the Administrator in Safir IJ. Cf. Dun-

lop v. Bachowski, supra. In addition, no statutory provi-

sion has been called to our attention which would au-

thorize the Secretary, Administrator, or Board to adjudi-

cate what Judge Friendly characterized as a contract

dispute. See Safir I at 977. Because no one has objected

to the procedures adopted and because this decade-long

16a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

litigation has already consumed more than enough judi-

cial and administrative time, however, we would be

strongly inclined simply to ignore the procedural anom-

alies of this litigation and assume with the parties that

the proper procedure is quasi-adjudicative and conse-

quently the proper standard of review is substantial evi-

dence on the record as a whole. Nonetheless, since this

is a case of first impression and since the parties have

not yet addressed the standard of review issue, we leave

the determination of the appropriate standard to the

trial court for further examination.

III

While we do not wish to prejudge issues more properly

decided by the District Court on remand, efficiency does

require us to indicate our views on one issue. The opin-

ion of the Secretary is a document remarkable for its

brevity. Brevity, however, while the soul of wit, can be

the bane of judicial review. This is the case here with

the Secretary’s Order further reducing amounts to be

recovered solely because of Government participation in

the trade respondents’ rate reductions.” Investigation of

Alleged Section 810 Violation, supra, 3 Maritime Sub-

sidy Board Reports at 144, Supp. App. 185. This con-

officials that such pressure was not a factor causing

rates to be reduced, see id. at 148 & n.36, Supp. App.

193, and the Board’s astute observation that

if the trade respondents were bowing to unrelent-

ing pressure from the military for rate reductions,

17a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

it is a curious mystery why AGAFBO members let

its condemned reduced rates reve.* to former high

levels in the very teeth of such press bre.

Id. at 148-149, Supp. App. 193. When these detailed

and plausible findings of the Board are compared to the

peremptory announcement of the Secretary that “the rec-

ord indicates that the United States Government actively

induced the rate reductions here in issue,” JA 2, the

conclusion is virtually compelled that the Secretary has

simply failed to come to grips with the difficulties in the

evidence in the record. Certainly the Secretary’s failure

to identify the evidence in support of his reversal of

the Board gives little assurance that we have been pre-

sented with an order resulting from a reasoned decision-

making process. Because of this unexplained inconsist-

ency between the findings of the Secretary and of the

Board, the trial court should carefully scrutinize the

evidentiary support for the Secretary’s ruling and should,

if necessary, remand the record to the Secretary for

clarification of his reasons for interpreting the evidence

as he has. See Camp v. Pitts, 411 U.S. 138 (1973);

Citizens to Preserve Overton Park, Inc. v. Volpe, supra,

401 U.S. at 415-416.

IV

For the reasons stated above, the order of the District

Court is reversed and this case is remanded for further

proceedings consistent with this opinion.“

Reversed and remanded.

*Further appellate consideration of the issues raised here

would be greatly facilitated if the District Court would reinstate

its order of consolidation entered in Nos. 74-1474, 74-1788, and

75-0077 on March 5, 1975 (Docket Item No. 29), which was

modified on April 10, 1975 (Docket Item No. 32), so that the

contentions of all parties can, in the future, be disposed of at one

time.

18a

Appendix A—Opinion of the Court of Appeals,

District of Columbia Circuit

Anited States Court of Appeals

FoR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-2050

September Term, 1976

Civil Action No. 74-1474

MARSHALL P. Sarm, Appellant

V

JUANITA M. Kreps, Individually

and as Secretary of Commerce, et al.

Before WRIGHT, MCGOWAN, and MACKINNON, Circuit

Judges.

Order

It is ORDERED by the court that the opinion in the

above entitled case filed this day, February 11, 1977, be

and it hereby is amended as follows:

On page 9, line 17 of the first full paragraph,

insert before the comma: “and pursued all manda-

tory review procedures”

Per Curiam

For the Court

GEORGE A. FISHER

Clerk

United States Court of Appeals

For the District of Columbia Circuit

Filed Feb. 11, 1977

GEORGE A. FISHER

Clerk

19a

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

IN THE

Anited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA

Docket No. 75-2050

Civil Action No. 74-1474 Consolidated with 74-1788 and

75-0077 on Appeal from the United States District Court

for the District of Columbia.

MARSHALL P. SAFIR,

Plaintiff-A ppellant,

—vx.—

FREDERICK DENT, Secretary of Commerce, et al.,

Defendants-A ppellees,

AMERICAN EXPORT LINES, INC., et al., and

AMERICAN PRESIDENT LINES, et al.,

Intervening-Defendants-A ppellees.

BRIEF FOR PLAINTIFF-APPELLANT

MARSHALL P. SaFir, Pro Se

Plaintiff-Appellant

41 Flatbush Avenue

Brooklyn, N. Y. 11217

November 26, 1975

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

TABLE OF CONTENTS

PAGE

Questions Presented ...............ccccccceccees 1

References to Parties and Rulings ............... 2

555 6 5

Statement of the Cass 6

ARGUMENT:

I. The recovery of the subsidy funds improperly

disbursed is mandatory upon the Secretary and

does not fall under the exception “by law com-

mitted to agency discretion” ................ 8

II. Recovery of public subsidy money is not a for-

feiture” or “penalty” of moneys “earned” .... 11

III. The Secretary of Commerce and his constituent

agency MSB exceeded their authority by in-

appropriate exercise of their ruling making

„„ „„. „„ „ „ „ „„ „eee 14

CASES CITED

Citizens to Preserve Overton Park v. Volpe, 401 U.S.

GOB .. . „„ 8

Marshall P. Safir, et al. v. James W. Gulick, et al.,

E. D. N. V. Civ. No. 680643 (1968) 3

Safir v. Gulick, 297 F. Supp. 630 (E. D. N. V. 1969) 4

Safir, et al. v. Gibson, et al., 330 F. Supp. 225

n. Mh.... 5

Safir, et al. v. Gibson, et al., 417 F. 2d 972 (2d Cir.

. . . ... „eee 4, 12

Safir, et al. v. Gibson, et al., 432 F.2d 137 (2d Cir.

1970), cert. denied, 400 U.S. 850 (19700) 4,9

Sapphire Steamship Lines, Inc., et al. v. James W.

Gulick, et al., N.D. Cal. Civ. No. 48985 (1968) 3

\

— — —

LV —

21

— B—Brief for Plaintiff-Appellant

Dated November 26, 1975

States Marine Int'l v. Peterson, decided Sept. 5, 1975

15, 17

United States v. Griswold, 24 F. 36 13

United States ex rel. Marcus v. Hess, 317 U.S. 537 13

United States v. Walker, 409 F. 2d 47 (9th Cir. 1969) 9

STATUTES CITED

Merchant Marine Act of 1936:

D ⸗ ⸗²⸗⁰⁴. „ passim

r sec ece be ccceccccecess 5, 11

F ccc cco decccecceccoscces 5, 11

V 5

V 3

. 5

46 U.S. C. 11152 „„ 5

Seh „ 5

r 5

„ 5

Soc eee 5, 6, 10

49 Stat. 1985p 5

False Claims Act RS

„„ „„ 5

„„ „„ 5

Administrative Procedure Act:

ai) Va) St „„ eee 5

“S) ' ) | rere eee 5

5 U.S. C. $556 (e) 2.6... e eens 5

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

IN THE

Anited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA

Docket No. 75-2050

MARSHALL P. Sarm,

Plaintiff-Appellant,

—vV.—

FREDERICK DENT, Secretary of Commerce, et al.,

Defendants-A ppellees,

AMERICAN Export Lines, INC., et al.,

AMERICAN PRESIDENT LINES, et al.,

Intervening-Defendants-A ppellees.

BRIEF FOR PLAINTIFF-APPELLANT

Appendiz B—Brief for Plaintiff-Appellant

Dated November 26, 1975

II.

Whether the Secretary and the Maritime Subsidy

Board in construing Section 810 as a penal statute and

thus subject to mitigation of penalties acted arbitrarily

and not in accordance with law.

II.

Whether the Secretary and the Maritime Subsidy

Board in retrospectively establishing a refund rule for

the assessment of retroactive penalties exceeded their

authority by inappropriate exercise of their rule making

powers.

References to Parties and Rulings

The action that plaintiff-appellant prays the Court to

review and vacate is an order of the United States Dis-

trict Court for the District of Columbia, Bryant, J., dated

October 21, 1975 (attached hereto as Appendix A) reject-

ing review of an order of the Secretary of Commerce

dated September 9, 1974 (attached hereto as Appendix B).

The order of the Secretary of Commerce was in re-

sponse to a petition for review of an order of the Mari-

time Subsidy Board in Docket 8243 dated October 15,

1973 (Reported at Pike & Fisher 14SRR-77) implement-

ing refund rules for a purported recovery of subsidy.

The refund rules were promulgated with a finding of

violation of Sec. 810 by the MSB on April 16, 1973.

Reported at Pike & Fisher 13 SRR 809.

Plaintiff is an individual, former chief executive of

Sapphire Steamship Lines, Inc., owner of 50% of its

stock and personal guarantor of certain of its obligations.

Defendant is the Secretary of Commerce and as such

responsible for administering the Merchant Marine Act,

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

1936 through his constituent agency the Maritime Ad-

ministration Maritime Subsidy Board.

Intervening defendants are eight American Flag

steamship operators whose actions in concert against

Sapphire Steamship Lines, Inc. were found by the MA/

MSB and the Secretary of Commerce to have violated

Sec. 810 of the MMA of 1936.

The genesis of all litigation of this matter, including

this action, was a determination by the Federal Maritime

Commission that from March 29, 1965, to March 1, 1966,

AGAFBO set rates “reduced to an admittedly non-

compensatory and unreasonable level in an attempt un-

fairly to compete with Sapphire”, thereby violating among

others section 15 of the Shipping Act, 1916, as amended,

46 U.S.C. 814. Rates on U.S. Government Cargoes,

Docket No. 65-13, 11 F. M. C. 263, 287 (1967).

On the strength of this determination plaintiff Safir

prosecuted the following proceedings:

1. Sapphire Steamship Lines, Inc., et al. v. James W.

Gulicl, et al., N. D. Cal. Civ. No. 48985, began March 29,

1968, seeking a declaration that section 810 of the

Merchant Marine Act, 1936, 46 U.S.C. 1227, made illegal

the payment of subsidy to AGAFBO members during such

violation, and seeking an injunction forbidding defendants

from paying such subsidy. This was voluntarily dis-

missed and the same plaintiffs began

2. Marshall P. Safir, et al. v. James W. Gulick, et al.,

E.D.N.Y. Civ. No. 68C643, began June 24, 1968, seeking

substantially the same relief, plus a mandatory injunction

At the time of the violation in 1965-1966 there were nine

operators. Since that time two of them Prudential 8.8. Lines

and Grace Lines—have merged.

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

compelling defendants to recover subsidies illegally paid.

From a dismissal on all counts, Safir v. Gulick, 297 F.

Supp. 630 (E.D.N.Y. 1969), plaintiffs appealed and in

3. Safir, et al. v. Gibson, et al., 417 F.2d 972, 978

(2d Cir. Sept. 26, 1969), secured a holding that:

1. Plaintiffs had standing to question the Secre-

tary’s unwillingness to seek recovery of subsidy.

2. The Maritime Administration was “required

to make a considered decision whether to recover

the subsidies paid in the past” to AGAFBO mem-

bers found by the Federal Maritime Commission

to have violated section 15 of the Shipping Act,

1916, and a remand. Whereupon the Maritime

Subsidy Board initiated

4. In the matter of the complaint of Sapphire Steam-

ship Lines, Inc. re violation by . . . (AGAFBO)

of Section 810 of the Merchant Marine Act, 1936, as

amended, Docket No. 8-243, begun October 24, 1969

(Docket S-243). It is of the order of the Secretary of

Commerce served in this Docket S-243 that appellant

Safir, here seeks review and set aside of this retroactive

recovery formula.

Plaintiff-appellant Safir then resorted to the courts on

three subsequent reported occasions:

5. In Safir, et al. v. Gibson, et al., 432 F.2d 137, 145

(2d Cir. 1970), cert. denied, 400 U.S. 850 (1970), Sap-

phire and Safir secured a mandate to “the Maritime Ad-

ministration not to redetermine the issue whether the

AGAFBO carriers’ concerted action in reducing their

rates to an unreasonably low level and holding them there

for eleven months was unjustly discriminatory or unfair

to Sapphire,” thus making the Federal Maritime Com-

26a

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

mission’s determination in its Docket 65-13 under section

15 of the Shipping Act, 1916, conclusive upon the Secre-

tary in Docket S-243 under section 810 of the Merchant

Marine Act, 1936.

6. In Safir, et al. v. Gibson, et al., 330 F. Supp. 225

(E.D.N.Y. 1971), Sapphire and Safir obtained an in-

junction barring any further disbursement of operating-

differential subsidy for the violation period March 31,

1965, to March 1, 1966, unless and until the Maritime

Administration determined the entitlement thereto of

AGAFBO members or otherwise insured recoverability

thereof.

;

(a) Merchant Marine Act, 1936 as amended (here-

after MMA 36) 49 Stat. §§ 1985ff, 46 U.S.C. 1101ff,

particularly Sec. 501(a) 46 U.S.C. §1152 authorizing

the payment by the United States under certain conditions

of Construction Differential Subsidy for construction of

merchant ships for American Registry; § 601, § 602, and

§ 603, 46 U.S.C. 1171, 1172, 1173, authorizing payment

under certain conditions of operating differential subsidy

for the operation of such ships and most particularly sec.

810, 46 U.S.C. 1227 mandating the bar of all subsidy

payments to violators of said section.

(b) The act originally known as the False Claims

Act RS § 3490, 5348; 31 U.S.C. § 231, § 232.

(e) Administrative Procedure Act, 5 U.S.C. § 551ff

{hereafter (APA)] particularly sec. 7-5 U.S.C. § 553,

§ 556(e) requiring rules and orders to be based on the

record and supported by and in accordance with the reli-

able probative and substantial evidence and sec. 10e 5

U.S.C. 706 requiring the reviewing Court to compel

27a

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

agency action unlawfully withheld and to hold unlawful

and set aside agency action, findings, and conclusions

found to be arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law, short of statu-

tory right, unsupported by substantial evidence or with-

out observance of procedure required by law.

Statement of the Case

This appeal is the culmination of an eight year effort

beginning in December 1967 to recover for the United

States public subsidy funds improperly paid in the past

to violators of Section 810 of the MMA 1936.

The Maritime Subsidy Board decisions in Docket

8-243 of April 16, 1973—reported in Pike & Fisher Vol.

13 SRR at 809 and its final decision on “recoveries” of

October 10, 1973 reported in Pike & Fisher Vol. 14 SRR

at p. 7 set forth the history of the case to that point.

On September 9, 1974 Secretary of Commerce

Frederick Dent issued a final order in the case after a

petition for review of the MSB action had been filed by

the offending ocean carriers who had been found by the

MSB to have violated Sec. 810 in concert.

The Secretary's order confirms the finding of violation

against all eight petitioners.

Section 810 of the Merchant Marine Act, 1936, 46

U.S.C. § 1227, which provides:

It shall be unlawful for any contractor receiv-

ing an operating-differential subsidy under sections

1171-1182 of this title or for any charterer of

vessels under sections 1191-1204 of this title to

continue as a party to or to conform to any agree-

ment with another carrier or carriers by water,

Appendix Brief for Plaintiff-Appellant

Dated November 26, 1975

or to engage in any practice in concert with an-

other carrier or carriers by water, which is un-

justly discriminatory or unfair to any other citizen

of the United States who operates a common

carrier by water exclusively employing vessels

registered under the laws of the United States on

any established trade route from and to a United

States port or ports.

States or any agency of the United States to any

contractor or charterer who shall violate this sec-

Confronted with this language the Maritime Subsidy

Board decided that it had discretion if it found mitigating

circumstances to establish a refund rule in 1973 to apply

to the 1965-1966 violation. The Board then formulated

its rule which in the words of Judge Dooling of the

E.D.N.Y., “appears to measure out forfeitures equal

to the part of each cost subsidy allocable to the cargo on

which the offending rates were made.” (See App. C).

The Secretary in his order affirmed the concept of

rule and found further mitigation in order on the

t Federal officials, in an excess of zeal, induced

take the illegal predatory acts against

victim.

re

5

i

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

He then reduced the refund by 50% of the MSB

formula on this new finding which had previously been

rejected by both the Administrative Law Judge and

the Board. Further adjustment downward of the assessed

“recovery” would make it up to the offenders for what he

felt the Federal officials did to them!“

Plaintiff-appellant then filed a petition for review in

the District Court under APA moved for summary judg-

ment on the abuse of discretion for an order to reverse

and set aside his order.

Judge Bryant without opinion denied and dismissed

the action.

ARGUMENT

I.

The recovery of the subsidy funds improperly die-

bursed is mandatory upon the Secretary and does not

fall under the exception by law committed to agency

Under the teachings of the Supreme Court in Citizens

to Preserve Overton Park v. Volpe, 401 U.S. 402 et seg.

1971, Plaintiff submits that there are no grounds con-

sistent with the statute which would permit the Secretary

of Commerce, after a finding of violation of Section 810,

any discretion to refuse to invoke the sanction of the

statute to recover at least the CDS and ODS subsidies im-

properly paid out during the period of violation.

In “Overton Park,” the relevant statute provided that

the Secretary of Transportation shall not approve any

program or project that should require the use of public

parkland unless 1) there is no feasible and prudent

alternative to the use of such land and 2) such program

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

includes all possible planning to minimize harm to such

park.” The Court said the language was not discretionary

but “a plain and explicit bar to the use of federal funds

for construction of highways through parks—only the

most unusual situations are exempted.” at 411.

The Merchant Marine Act is cast in exactly the same

mandatory form as far as the section critical to the

present proceeding, those covering award and payment

of subsidy and withdrawal of same when certain viola-

tions are proved.

Section 810 states “no payment or subsidy of any kind

shall be paid directly or indirectly out of the funds of

the United States to any contractor who shall violate this

section.” “With a mandatory type statute the Secretary

must take certain action if requirements are met, the

discretion of the Secretary is limited to deciding whether

the requirements have been met.” United States v. Walker,

409 F.2d 47, 480 (9th Cir. 1969). In this present case

the Second Circuit Court of Appeals in Safir v. Gibson,

432 F.2d 137-143 (1970) supra stated that the discretion

of the Secretary in determining the violation was limited

only to proof that the AGAFBO Lines were receiving

operating differential subsidy at the time and that the

carrier adversely affected was a “citizen of the United

States who operates a common carrier by water exclusive-

ly employing vessels registered under the laws of the

United States on any established trade route from and to

a United States port or ports.” The Maritime Subsidy

Board determined that this requirement was met.

In the present case as in Overton Park, the terms “No

subsidy shall be paid.” is absolute—at least for the period

of violation. This language (to paraphrase Overton) is

a plain and explicit bar to the use of Federal funds for

3la

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

all subsidy payments for at least the period of violation.

At this point, it should be noted that the Solicitor General

in his brief in opposition to this plaintiff’s earlier Petition

for cert. 400 U.S. 850 denied stated “the penalty created

by Section 810 is inflexible as it bars all subsidy payments

for at least the period of violation.” (App. D p. 9).

Plaintiff agrees with this description and definition

but would substitute “sanction” for penalty“. In the

light of Overton Park “action committed to agency dis-

cretion is only applicable in those rare instances where

statutes are drawn in such broad terms that in a given

case there is no law to apply.”

In the case of Section 810 the clarity of the statutory

language precludes any rationalization for avoiding the

hard command of the statute. The position taken by the

Maritime Subsidy Board in its Final Decision of April 16,

1973 (13 SRR 809) was based on the premise that the

general policy of the Merchant Marine Act to promote

the welfare of the Merchant Marine conflicted with Sec-

tion 810 and required reconciliation by allowing the

Secretary of Commerce to engage in a wide range bal-

ancing of competing interests.

But as is stated in Overton Park, no such wide range

endeavor was intended by the statute. If Congress in-

tended general policy factors for the promotion of

American flag lines against foreign competition to be

on equal footing with the protection of an unsubsidized

American business citizens acting in concert there would

have been no need for Section 810 at all. This protection

2? Plaintiff respectfully submits that the Solicitor General's

designation of this command as “penalty” was in the context of

the definition of the punitive effect being a desirable by product

by Judge Friendly in Safir v. Gibson, 1969 supra.

Appendix B—Brief for Plaintiff-Appellant

Dated November 20 1975

was paramount. As Judge Friendly fully recognized in

the 1969 opinion “The primary concern manifested by

the Congress in the legislative history of 46 U.S.C. 1227

was with the added burden which subsidies imposed on

the competitive position of the victim.”

When these “public monies are used to assist some

citizens to hurt others in a manner inimical to the inter-

ests of the United States,” Judge Friendly wrote that

relief beyond a treble, damage remedy to private citizens

was available. The Supreme Court in Overton Park has

carried the mandatory sanction for the evil at which

Section 810 was aimed beyond administrative discretion.

Plainly there is law to apply and thus the exemtion for

action committed to agency discretion is inapplicable.

II.

Recovery of public subsidy money is not a for-

feiture” or penalty of moneys earned“.

Recovery of subsidy illegally paid is not a penalty,

since Section 810 is not a penal statute. It is a return to

the United States Treasury of moneys falsely claimed by

the violating carriers when they, without the consent of

the government contracting authority (the Maritime Ad-

ministration), abrogated their subsidy contracts and the

statutory provisions in the Merchant Marine Act of 1936

establishing these contracts. The civil penal statute for

such false claims may later be invoked under the double

damage provision of Title 31 U.S.C. § 231, § 232, but this

is not presently at issue.

At issue is the actual recovery of approximately Two

Hundred Twenty Seven Million Dollars ($227,000,000.00)

of payments, not as forfeits, not as fines, not as penalties,

but as funds falsely claimed and improperly paid out.

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

The Maritime Administration, through its staff coun-

sel, Michael J. MeMorrow, in Docket 8243 (Proposed

Finding of Fact), states: “. in the present case and

notwithstanding the inclusion of the requirements of § 810

of the act in each and every subsidy agreement, the

respondents did not request contractual permission, but

proceeded to effect. rate reductions and to wage battle

before the F.M.C. Once the Board was involved, and

only through the behest of Mr. Safir, the respondents

firmly deny to this date that rate actions are subject to

the section. These distinctions are all too apparent.

What remains is a clear provision of the subsidy contract

and an explicit statute both binding on the respondents as

of the day they first began, without any overture to the

Maritime Administration, the unlawful behaviour”.

The Second Circuit did not say “some” of such pay-

ments, or “part” of such payments. An attempt at ad-

ministrative revision of this wording was thwarted by

this plaintiff-appellant when the first edition of the MSB

decision in $243 of April 16, 1973 was published. Con-

trast page 58 in Appendix E-2 with page 58 as originally

printed prior to plaintiff's protest (Plaintiff's Appendix

E-1).

This sly pattern of legal revisionism was not reserved

for the defendant-appellee—it was used in the brief of

the so-called “trade defendant intervenors” in this action.

On page 20 of their memorandum brief, they quote the

2nd Circuit opinion as follows: “The legislative history

of (§ 810) demonstrates that termination of subsidies was

not. considered a desirable by-product. Safir v. Gibson,

417 F.2d at 97”.

The quote as the opinion properly reads, is as follows:

“The legislative history demonstrates that termination of

34a

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

subsidies was not designed to be a purely penal measure,

although quite likely the punitive effect was considered a

desirable by-product.”

The importance of this falsification of the record can-

not be overlooked, because the crux of the “mitigation”

argument is the “penal” characterization of the mandate

of $810. The United States is not an uninjured third

party in this case, but, instead, is a major injured party.

As the 2nd Circuit stated in Safir v. Gibson, supra, 1969

in footnote No. 8, “Even if the victim is successful in a

treble damage suit against the violators, his recovery

does not correct the evil at which § 810 was aimed, namely

that Public Monies have been used to assist some citizens

to hurt others in a manner inimicable to the interest of

the United States.”

Nor is the sum sought to be exacted grossly dispro-

portionate to the actual damage because the sum is less

than the damages to the United States when a percentage

of the recovery must be paid to the party at whose behest

the fraud was uncovered. (United States ex rel. Marcus V.

Hess, 317 U.S. 537-561; United States v. Griswold, 24

F. 366) (Cf. Title 31 U.S.C. § 231-§ 232).

This misquotation of the 2nd Circuit opinion is, there-

fore so significant as to spotlight the inapplicability of

the mitigation concept altogether.

Seen in this light, not only is the inducement of certain

Department of Defense officials in the illegal action ir-

relevant, but penalty formulae concocted out of misleading

euphemisms such as “mitigated recoveries of subsidy”

only compound the capriciousness of defendant Dent's

circumventions.

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

A revealing aspect of his dilemma can be found in his

frank answer to the subsidized violators in their United

States District Court action against him CADC #74-1788

(App. F). When defending against them he is in complete

agreement with this appellant’s position as Appendix G

attests. His answer to the Plaintiff's in that action (later

consolidated with this one) clearly states:

“... by characterizing defendants’ orders re-

quiring a recovery of public subsidy money as

working a forfeiture or ‘penalty’ of monies ‘earned’,

plaintiffs materially misstate the true facts. Al-

th. ugh plaintiffs use such terms throughout their

complaint this allegation will not be repeated.”

The Secretary apparently found his own “mitigated

recovery of subsidies paid” a better if misleading euphe-

mism for an illegal penalty assessment. Nonetheless one

cannot mitigate recovery of unearned government funds

illegally disbursed without leaving in the pockets of the

violators monies belonging to the public fisc.

His peremptory command “this allegation will not be

repeated” apparently was to apply only to the Docket

74-1788 and not the action brought by this plaintiff in

Docket 74-1474 where the record is replete with his and

intervenors use of the word “penalty” and forfeiture for

months after this January 3, 1975 order to the troops.

Perhaps

The final MSB order on “recoveries” of October 10,

1973 states as follows Appendix H)

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

In the Opinion and Order we made the legal conclusion

that under Section 810 all ODS paid during past viola-

tions may be recovered and that we have discretion to

mitigate such recoveries. The recoveries for all trade

respondents were mitigated to the following percentage

formula of ODS:

“After carefully considering all of the facts and

policy objectives of the Act applicable to trade re-

spondents’ violations, we are persuaded to further

limit their recovery to the same percentage of speci-

fied ODS payments as military cargo revenues bore

to total revenues on the trade route whereon the

condemned rate reductions were in effect.” (p. 61)

This formula was restated for Lykes as follows:

“Hence, the amount to be recovered from Lykes is

the percentage of ODS received from subsidized

operations on the U.K./B-H range, as represented

by the ratio of military cargo revenue received on

such route to total revenues received therefrom

during the period of violation.” (p. 62)

The underlying princip’e of this formula is that recoveries

would be mitigated to a certain level—a ratio of ODS in-

volving all military cargo revenue received on the route

during the violation.

The Secretary of Commerce in his order of September

9, 1974 then proceeded to mitigate “subsidy subject to

recovery” by are unexplained and arbitrary 50% based

on “the effect of U.S. government action.”

Neither of these actions were in accordance with pro-

cedure required by law.

On September 5, 1975, this Court decided in States

Marine Int’l v. Peterson, as yet unreported see App. I

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

that rule making which change existing interpretations

of subsidy reduction and subsidy recovery are proper if

Clearly, the application of a new refund rule estab-

lished in 1973 and modified in 1974 for a violation of

sec. 810 that oceurred in 1965-1966 is a retrospective

formulation tailored to achieve in hindsight what could

not be done under the prospective interpretation by the

Maritime Administration in 1965 of the obligation of the

government when sec. 810 is found to have been violated.

In 1965 under the heading of Docket A-17 the Mari-

time Administration undertook in formal proceeding an

interpretation of the statute. (See American President

Lines Ltd., Japan/Saigon Freight Conference App. J).

This was decided in July of that year—ironically during

the height of the predatory activity against the victim in

this case.

A reading of this decision which was not appealed

lays to rest the protestations of the Secretary and the

Board as to the “technical nature” of the non-trade lines

Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

violation, and lays to rest the argument of the Board

for mitigation that the violators were not fully aware

of the extent of financial consequences for past violations.

It states in clear and unequivocal terms “The Maritime

Administration is obliged to stop subsidy payments to

violators of this section” (p. 14, App. J).

This language, furthermors is reflected in each op-

erating differential subsidy agreement thus making the

grant of subsidy conditional upon the operator not con-

tinuing to be a party to or conforming to any agreement

which is unjustly discriminatory or unfair to any other

American Citizen (Article II-18(b)) ODS contact. stand-

ard Part II... App. J, p. 16.

This court in SMI v. Peterson in discussion of CDS correctly

325

i

127

!

Si

111

1

12118

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Appendix B—Brief for Plaintiff-Appellant

Dated November 26, 1975

The doctrine in States Marine International v. Peter-

in the considered judgment of this Court in this decision.

regrets that he did not request the

Wherefore, plaintiff-appellant prays this Honorable

Court to vacate and set aside the order of the District

Court herein dismissing the complaint and to remand the

proceeding with directions to reinstate the complaint and

40a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

IN THE

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA

Docket No. 75-2050

Civil Action No. 74-1474 Consolidated with 74-1788 and

75-0077 on Appeal from the United States District Court

for the District. of Columbia.

MARSHALL P. SAFIR,

Plaintiff-Appellant,

—v.—

ELLIOT RICHARDSON, Secretary of Commerce, et al.,

Defendants-A ppellees,

AMERICAN EXPORT LINES, INC., et al., and

AMERICAN PRESIDENT LINES, et al.,

Intervening-Defendants-A ppellees.

REPLY BRIEF FOR PLAINTIFF-APPELLANT

MARSHALL P. Sarir, Pro Se

Plaintiff-Appellant

41 Flatbush Avenue

Brooklyn, N. Y. 11217

March 26, 1976

4la

Appendix C-—-Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

TABLE OF CONTENTS

PAGE

n e 1

eee 11

Certificate of Ser vie 12

TABLE OF CASES

Association of Data Processing Service Orgs. v.

Camp, 397 U.S. 150, 172 (1970) ............ 2

Bowman Transportation Inc. v. Arkansas Best

Freight System Inc., — US. — .............. 9

Citizens to Preserve Overton Park v. Volpe, 401

D ̃—wXA. ˙*˙²*A ² Aw veces 9

Safir v. Gibson, et al., 417 F.2d 972, et seq. 1969 5

Scanwell Laboratories v. Shaffer, 424 F. 2d 859 (D.C.

D ˙ ˙F ˙—˙¹· . Uli 2

Sell v. United States, 1964 C. A. Colo. 336 F. 2d 467 6

States Marine Lines v. Peterson, 518 F.2d (C. A.

D.C. 1975), cert. denied, —- U.S.L.W. — (March

c b's oe 10

Templeton v. United States, 199 F. Supp. 179-1889 3

United States v. Consolidated Mines & Smelting, 455

F. ad at 486 (9th Circuit) ................... 10

United States v. Onan, CA Minn. 1951, 190 F.2d 1,

cert. denied, 72 8. Ct. 112, 342 U.S. 869 .... 11

United States v. Pittman, C.C.A. Ala. 1945, 151 F.2d

851, cert. denied, 66 S. Ct. 1022 ............. 7

United States v. Tieger, D.C. N. J. 1954, 138 F. Supp.

709 aff'd 234 F. 2d 589, cert. denied, 77 S. Ct.

262, 352 U.S. 941 and 1 L.Ed. 2d 237 6

r ̃è ! »A o Ä 2 7

44a

Appendix C- Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

of his aggrievement. It is also proof that he is just as

much a victim of the false claims as the government with

which if he is successful here, as the real party in interest

he will seek to share in the recovery.

The subsidy claims paid to the defendant intervenors

were used to finance their predatory activity against

Sapphire SS Lines, many of whose liabilities were person-

ally guaranteed by this appellant.

This appellant, in personally repaying creditors of the

line from 1968 until this present day in March, 1976,

through either liquidation of assets—as was the case in

the sale of his family business to Novo Corp. (see Affi-

davit)—or the cash repayment out of personal earnings

in the ensuing years, or the assignment of his right to

the proceeds of the Anti-trust suit Sapphire SSL v.

AGAFBO (app. pp. A292, A299, A300), has been griev-

ously harmed, and the harm continues as these repayment

obligations continue.

He continues to be harmed as this drain of his financial

resources makes his reentry into competition with his

former competitors impossible from his weakened financia!

base.

Appellant submits that this is the aggrievement-in-fact

which confers standing under modern legal doctrine. Since

Scanwell Laboratories v. Shaffer, 424 F.2d 859 (D.C.

Cir. 1970), this Circuit is generally recognized as having

adopted the standard most hospitable to petitioners for

review, namely that they have standing if aggrieved-in-

fact. Davis, Administrative Law Treatise (1970 Supp.)

715-16, 727, 793; ef. opinion of Justices Brennan and

White, Association of Data Processing Service Orgs. v.

Camp, 397 U.S. 150, 172 (1970), suggesting that aggrieve-

ment suffice even if it is only damnum absque injuria.

— — —

45a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

This injury-in-fact is proved by the Appendixed Affi-

davit with its exhibits, and, thus, all the conclusions of

the appellees that Appellant Safir has no standing must

fall.

Competitors have always had standing if the applicable

statute revealed a purpose to protect their interests. A

test is “whether the interest sought to be protected is

arguably within the zone of interest to be protected or

regulated by the statute”. Data Processing, supra 153.

Appellant has no difficulty in meeting this test, since 46

U.S.C. § 1227 protects American flag competitors from

concerted acts of subsidized carriers found to be unjustly

discriminatory or unfair. Appellant meets this test in the

infirmity of Secretary Dent’s decision regarding the

Second Circuit’s requirement to protect the competitive

interest of the victim, or to recover the full subsidy falsely

claimed so that the Appellant upon amendment of his com-

plaint under 31 U.S.C. 232 could participate in the re-

covery. The statute of limitations is no bar here. Tem-

pleton v. United States, 199 F. Supp. 179-186 is squarely

on point. F. R. C. P., Rule 15 (e) 28 U.S.C.A.

Lastly, though it is his private interest that confers

standing, the Appellant’s true function here is to vindicate

the public interest as well. The aggrievement arises out

of the employment of subsidies defined by the statute to

protect unsubsidized American citizens from illegal prac-

tices in concert by predatory competitors rendered pos-

sible only by the receipt of their subsidies. Curing Ap-

pellant’s aggrievement vindicates the true intention of the

statute. Equally significant, as Scanwell observes 424

F.2d 866. if Appellant is not allowed to pursue his remedy

in this proceeding, no other person will defend the public

interest in the recovery of government funds when the

46a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976 *

added burden which subsidies impose on the com-

petitive position of the victim. We think this con-

969.

The Second Circuit in this decision made special refer-

ence to an affidavit by this appellant that because he

desired to return to the shipping business as soon as

possible he was a potential competitor.

The Court also stated that the government defendants

were wrong at that time in arguing that the United

States District Court for the Eastern District was correct

in finding that the provision of a private treble damage

remedy (as was used in separate actions by J. Reed

47a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

Smith, trustee, in bankruptcy for Sapphire Steamship

Lines and Arnold Weissberger, an officer and stockholder

of Sapphire Steamship Lines prior to its demise) created

a strong implication that the statute authorized no further

relief to a citizen. The Court in disagreeing stated, “The

grant to private citizens of a remedy that would not exist

in the absence of specific authorization in no way precludes

the availability of further relief consistent with the statu-

tory scheme. Even if the victim is successful in a treble

damage suit against the violators, his recovery does not

correct the evil at which Section 810 aimed, namely, that

public monies have been used to assist some citizens to

hurt others in a manner inimicable to the interest of the

United States.” The Court made no distinction between

a potential competitor like plaintiff Safir or a former

victim who has washed his of the business like

Mr. Weissberger. The Court felt that the in ption

of operations did not alter either victim’s interest

Maritime

this appellant elected to pursue the “further re-

— scheme Indeed, his

t with the statu

— — Claims Act lurked be

hind every word of the decision in Safir v. Gibson, supra,

1969. Nothing in the decision was inconsistent with

31 U.S.C. 231, 232.

48a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

Appellant’s reentry into competition will be delayed

only until he can invest his share of the recovery back

into the American Merchant Marine. Plaintiff is pre-

pared to reinvest these funds in order that such recovery

might not “fatally interfere with the general policy of

the act to foster the development of the American Mer-

chant Marine”. Appellant does not intend to “take the

money and run”.

Contrary to all statements made by the appellees the

Maritime Subsidy Board admitted that “the Second Cir-

most the Court found that while there may be some

discretion in the recovery of past subsidies as distin-

guished from payments to current violators the discretion

i ted”. This is a direct quotation from the

decision, see page 181 of the Supp. Appendix. Seven

have passed since the Second Circuit decision in

supra, 1971, whether the Second Circuit would still sub-

scribe to this double negatived equivocation.

In view of the Secretary's finding that all eight

carriers had violated the statute a proper order for the

recovery of all the subsidies during the eleven month

period would have permitted this appellant to amend his

complaint under his originai action in the United States

District Court for the Eastern District of New York

(Docket 68 C 643). See United States v. Templeton, D.C.

Tenn. 1961, 199 F. Supp. 179 and United States v. Tieger,

D.C. N. J. 1954, 138 F. Supp. 709 aff'd 234 F.2d 589, cert.

denied, 77 S. Ct. 262, 352 U.S. 941 and 1 L.Ed. 2d 237

and move for summary judgment under the doctrine of

49a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

Collateral Estoppel for double damages for the United

States and entitlement of 25% of said recovery for him-

self. (Sell v. United States, 1964 C.A. Colo. 336 F.2d

467). This would have been accomplished under a waiver

of notice of pendency by the Attorney General (See

United States v. Pittman, C.C.A. Ala. 1945, 151 F.2d 851,

cert. denied, 66 S.Ct. 1022).

If, as government counsel sets forth on page 21 of his

brief the Supreme Court decision in Warth v. Selden re-

quires that the challenged practice harm him, this appel-

lant unequivocally states that the Secretary’s illegal re-

trospective refund rule (States Marine Line v. Peterson,

supra) by its circumvention of his ministerial duty to re-

covery fraudulent disbursements, or to request the At-

torney General to recover these funds, has harmed him in

231, 282, 235, for the purpose of reinvesting this stake in

the United States Merchant Marine.

Further the Secretary’s unsupported charge that

federal officials in the Department of Defense induced the

illegal action against Sapphire was an attempt to cloak

the violators with immunity under a crudely contrived

estoppel against a government initiated action under 31

232,

. 231,

By coupling this charge with an illegal recovery for-

mula he could accomplish his objective—further delay of

the inevitable result of this case.

The formula would divert the victim-appellant into

APA review which would bring the Attorney General

the Secretary's defense while it would deter the Jus-

tice Department from its duty to prosecute the violators

50a

Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

under the False Claims Act under the justification of the

spurious estoppel.

His parry has temporarily succeeded in spite of its

transparency. Eighteen months have passed since his

order.

Neither the Adm. Law Judge nor Maritime Subsidy

Board found any credibility in this argument but even

assuming arguendo that they did and that the Secretary

was correct as regards these defense officials, the agency

upon whom the fraud was perpetrated was not the De-

partment of Defense but the Maritime Administration of

the Department of Commerce, his own agency.

The Attorney General has apparently resolved his

dilemma only now, and tacitly by delaying his answer in

this appeal beyond the 60 days required by law, he waived

notice of pendency, implementing this appellant’s right to

proceed for the United States in his stead.

i

;

The fact that government officials induced

is usually considered exemplary. The fact that

reduce rates by individual action under

sure is not illegal. But, in this case the

rates to a non-compensatory level was a violation of

tion 810 because it was done by the carriers in

willful abrogation of their

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5la

Appendix C—Reply Brief for Plaintiff-A nt

Dated March 26, 1976 *

Appendix C-—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

right to review of the Secretary's decision when he did

not apprise the Secretary of his opposition to that part of

the MSB decision which dealt with the arbitrary retro-

U.S.L.W. — (March 1976) in the District Court where

4

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tion eiting United States v. Consolidated Mi

ing, 455 F.2d at 436 (9th Circuit) which

doctrine of exhaustion of administrative

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Appendix C—Reply Brief for Plaintiff-Appellant

Dated March 26, 1976

duration. Appellant recognized that under the law in a

False Claims Act suit he could not represent the United

States as attorney but must engage licensed counsel

(United States v. Onan, CA Minn. 1951, 190 F.2d 1,

cert. denied, 72 S. Ct. 112, 342 U.S. 869).

Until that time he could however act pro se in an

APA review to set aside that part of the order as it

applied to mitigation of statutory damages. Accordingly,

this proceeding was commenced to reverse the subsidy re-

covery rule and then apply the collateral estoppel effect

of such reversal to an amended complaint under 31 U.S.C.

231, 232-235, either here or the Eastern District of New

York upon the remand to the District Court.* If he is

Wherefore, plaintiff-appellant prays this Honorable

54a

ppendiz C—Reply Brief for Plaintiſ- Appellant

7 Dated March 26, 1976

IN THE

Anited States Court of Appeals

For THE DisTRICT OF COLUMBIA CIRCUIT

No. 75-2050

MARSHALL P. Sar,

Plaintif-Appellant,

—.—

ELLIOTT RICHARDSON, SECRETARY OF COMMERCE, ET AL.,

Lefendants- Appellees.

FRAN Fort, Esq. ROBERT T. BAH CHE. Esq.

— Fort, — 734 15th Street, N.W

4 Borer Washington, D.C. 20006

1776 F Street, N.W. DANIEL H. MaRcouis, Esq.

Washington, D.C. 20006 WARREN IL. Lewis, Esq.

Broadway

New York, New York 10005

Verne W. VaNce, In., Ese. a

10 Post Office Square ttorneys,

Boston, Mass. 02109 Deparment of Justice,

Appendix D—Order of U.S. District Court,

District of Columbia, Dated October 21, 1975

Civil Action No. 74-1474

eke —

MARSHAI L P. Sarin,

Plaintiff,

—v.—

FREDERICK DENT, individually and as

Secretary of Commerce,

Defendant,

AMERICAN PRESIDENT LINEs, LTD., et al.,

Intervening Defendants.

Order

Plaintiff Marshall P. Safir, having moved for sum-

mary judgment, defendant Frederick Dent, and interven-

ing defendants’ Trade Lines and Non-Trade Lines having

replied to plaintiff's motion and cross-moved for summary

judgment, the Court having considered the motions, mem-

oranda of points and authorities of all parties, it is hereby

ORDERED that the plaintiff's motion for summary

judgment is denied, that defendant’s and intervening

defendants’ motions for summary judgment are granted

and the complaint herein is dismissed with prejudice this

21st day of October, 1975.

„„ „„ „„ „%% % % % eee „ „ „ „ „ „ „ „„ „„

56a

Appendix E—Order of Secretary of Commerce

Dated September 9, 1974

THE SECRETARY OF COMMERCE

Washington, D.C. 20230

ORDER

In the Matter of:

Subsidy Board Docket No. S-243 Investigation

of Alleged Violations of Section 810 of the

Merchant Marine Act, 1936, as amended.

The petitions of American Export Lines, Inc., Lykes Bros.

Steamship Co., Inc., Moore-MeCormack Lines, Inc.,

Bloomfield Steamship Co. and United States Lines for

review of the Maritime Subsidy Board’s decisions of April

9, 1973 and October 10, 1973 are hereby granted, solely

with respect to the mitigating circumstances and appro-

priate sanctions to be imposed on the trade respondents.

In all other respects, the petitions are denied. The peti-

tion for review of American President Lines, Ltd., Far

rell Lines, Inc., Prudential-Grace Lines, Inc., and Pru

dential Steamship Company, Inc. is denied.

The record before me fully presents the contentions of the

parties without need for further submissions or delay.

The record indicates that the United States Government

actively induced the rate reductions here in issue, and

received substantial financial benefit from such reduc-

tions. The record further suppports the conclusion that,

but for the active inducement, of federal officials, rates

found by the Federal Maritime Commission previously not

to have been unreasunably high would not have been re-

duced to noncompensating levels by respondents.

57a

Appendix E—Order of Secretary of Commerce

Dated September 9, 1974

Accordingly, having considered the total circumstances

surrounding the rate reductions in question, it is my con-

clusion that recovery from each of the trade respondents

in the October 10, 1973 Final Order on Recoveries shall

be modified by reducing the total amount of subsidy sub-

ject to recovery to $1,126,522.26 to be apportioned in ac-

cordance with the table attached hereto.

The adjustment here ordered is made to reflect the effect

of the United States Government action, notwithstanding

that the trade respondents shared in a greater or lesser

individual degree in the improper conduct that has been

determined to have ocewrred as charged in the petition to

the Board.

So ORDERED

Date: September 9, 1974

TABLE

United States

$ 968,091 $11,082,875

17.5%

24.7% 27.99%

*23.77%

i

$ 1,949,168.53

$ 48,428.83 $185,386.13 $ 762,891.99 $515,702.075

974,584.27

$257,702.075

$ 381,446

$ 24,214.43

$ 487,292.14

$ 487,292.14

$ 18,160.82

i

i

$ 381,446 $193,276.76

$ 46,346.54

$ 18,160.82

Amount Subject to Recovery

Appendix F—Memorandum and Order

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW Lokk

68 C 643

—_— ae —

MARSHALL F. SAFiR, et al.,

against

Rosert J. BLACKWELL, Maritime Administrator, Mari-

time Administration, U.S. Department of Commerce,

et al.,

Defendants.

Plaintiffs,

MEMORANDUM AND ORDER

The situation of the parties and the disposition of

events have not so changed as to require injunctive relief

different from that earlier granted. Judge Robinson's

decision of February 7, 1974, related to the basis on

which operating differential subsidies may properly be

granted, and not to the basis on which refunds could be

exacted. The refund rule appears to measure out for-

feitures equa) to the part of each cost subsidy allocable

to the cargo on which the offending rates were made.

It is, accordingly,

ORDERED that the motion made by the Affidavit and

Motion for Modification of April 5, 1974, is in all respects

denied.

60a

APPENDIX G

objectives are extended to recovery for a past violation

and that Congress sought by such recovery to impose “an

added cost on the violators and thus . . partially make

up to the victim for the burden which the earlier pay-

ments indirectly imposed on him.” *

It follows that recovery for past violations requires a

different standard for recovery of “payment or subsidy,”

as contemplated in Section 810, than non-payment for

existing violations.” The instant violation ceased long

before it was established to be a violation and requiring

return of all subsidies and payments made by the Gov-

ernment to the violators * * *

was designed to promote the competitive interest of a victim by

authorizing the reeovery of subsidies improperly

paid in the past.” Id. at 978. Thus, recoveries considered in this

proceeding are grounded on statutory authority, as interpreted

by the Court.

In Safir v. Gibson, 417 F.2d 972 (2d Cir. 1969), the Second

Cireuit found: a) “.. . the duty of the administrator may be less

absolute [for recovery of subsidies improperly paid in the past

to violators) than is the obligation to cease payments to current

violators.” Id. at 977, b) “So far as concerns payments, as dis-

tinguished from recoveries, the statute is mandatory where

applicable and perpetual debarment would be an exceedingly

harsh result, which might fatally interfere with the general policy

of the Act to foster the development of the American Merchant

Marine.” Ibid. e) “While the Maritime Administrator may have

same discretion in connection with the recovery of past subsidies

as distinguished from payments to current violators, the discretion

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61a

APPENDIX H

objectives are extended to recovery for a past violation

and that Congress sought by such recovery to impose “an

added cost on the violators and thus. partially make

up to the victim for the burden which the earlier pay-

ments indirectly imposed on him.“ “

It follows that recovery for past violations requires a

different standard for recovery of “payment or subsidy,”

as contemplated in Section 810, than non-payment for

existing violations.” The instant violation ceased long

before it was established to be a violation and requiring

return of all subsidies and payments made by the Gov-

ernment to the violators * * °

the

thorizing the of

paid in the past.” Id at 978. Thus, recoveries considered in this

proceeding are grounded on statutory authority, as interpreted

by the Court.

.

i

4

tinguished from recoveries,

applicable . . and perpetual debarment would be an exceedingly

harsh result, which might fatally interfere with the general policy

of the Act to foster the development of the American Merchant

Marine.” bid. e “While the Maritime Administrator may have

same discretion in connection with the recovery of past subsidies

as distinguished from payments to current violators, the discretion

:

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Appendix |—Complaint

UNITED STATES DISTRICT COURT

For THE District or CoLUMBIA

Civil Action No. 74-1788

en ee —2

—— ee Lines, INC.

New York, New York 10004

(212) 482-8000

LYKEs Bros. STEAMSHIP Co., INC.

300 Poydras Street

New Orleans, Louisiana 70130

(504) 523-6611

aay LINES, INCORPORATED

New York, New York 10004

Appendix - Complaint

James S. Dawson, IR., individually, and as Alternate

Member, Maritime Subsidy Board, United States De-

partment of Commerce, Washington, D.C. 20230

A. READING VAN Doren, IR., individually, and as Mem-

ber, Maritime Subsidy Board, United States Depart-

ment of Commerce, Washington, D.C. 20230

Howarp F. Casey, individually, and as Member, Mari-

time Subsidy Board, United States Department of Com-

merce, Washington, D.C. 20230

— EEE

for Review of Agency Action and for

Declaratory Judgment and Injunctive Relief

Jurisdiction

Defendants.

1. This is a civil action for a judgment declaring in-

valid, and for a judgment declaring invalid, and for a

permanent injunction against the enforcement of, a final

order of the Secretary of Commerce dated September 9,

1974 (Attachment A), an opinion and order of the Mari-

time Subsidy Board (the Board“ served April 16, 1973

(18 SRR 809), and a “Final Order on Recoveries” served

October 15, 1973 (14 SRR 77) by the Maritime Subsidy

64a

Appendix I- Complaint

This Court has jurisdiction under 28 U.S.C. 85 1831,

1337 & 1651; 5 U.S.C. §§ 701-706; and 28 U.S.C. §§ 2201-

2202. The matters in controversy exceed the sum or value

of $10,000 as to each Plaintiff exclusive of interest and

costs. Venue is proper pursuant to 28 U.S.C. § 1891.

Plaintiffs

2. Plaintiff, American Export Lines, Inc., is a

poration organized and existing under the laws of

State of New York and having its principal offices in N

York City; Lykes Bros. Steamship Co., Inc., is a corpora-

tion organized and existing under the laws of the State

of Louisiana and with principal offices in New Orleans;

Moore-McCormack Lines, Incorporated, is a corporation

United States Lines, Inc., is a corporation organized and

existing under the laws of the State of Delaware with

principal offices in New York City.

Defendants

1961 (75 Stat. 840), certain of his functions, including

the administration of Section 810 of the 1936 Act, may

be delegated to the Maritime Administration and the

Maritime Subsidy Board which are constituent agencies

within the United States Department of Commerce. The.

Maritime Administration was created by Reorganization

Plan No. 21 of 1950 (64 Stat. 1278).

65a

Appendix |—Complaint

7

Maritime Administration by Departmental Order No. 11

(Revised) effective August 12, 1961, by which certain

functions of the Secretary of Commerce were delega

to the Maritime Administration and the Maritime Subsidy

6. Defendant James 8. Dawson (“Dawson”), is the

Secretary of the Maritime Administration and the Board,

is the Alternate Member of the Board. The opinion and

order of the Board served April 16, 1973 (Pike & Fischer,

Blackwell, Daw-

(14 SRR 77), were issued by Defendants

son, and former Board Member, H. Clayton Cook, Jr.

(a) The Merchant Marine Act of 1936, as amended,

“Sec, 810. It shall be unlawful for any con-

tractor receiving an operating-differential subsidy

11

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67a

Appendix |—Complaint

(e 28 U.S.C. 2201-2202, providing for declaratory

judgment and injunctive relief.

Statement of the Case

11. Plaintiffs are parties to 20-year operating-differ-

ential subsidy contracts with the United States under the

Merchant Marine Act, 1936, 46 U.S.C. §§ 1101, et eg.

administered by the Board. They have a substantial

pecuniary interest in the forfeitures imposed by the Secre-

tary’s action of September 9, 1974 (Attachment A) herein

sought to be set aside.

12. Plaintiffs, during 1965 and 1966, were members

of a conference of 19 steamship companies, known as

AGAFBO, operating under Agreement No. 8086-2 en-

tered into and approved by the Federal Maritime Com-

mission under the of Section 15 of the Shipping

Act of 1916 (46 U.S.C. 814). At all relevant times they

provided common carrier service with United States-flag

request of the Military Sea Transportation Service

(“MSTS”), a division of the Department of Defense

(“DOD”), to discuss and negotiate terms for the carriage

of military cargos between those areas.

13. In 1964 a van line company which provided door-

of military household goods, named

charged the DOD by Plaintiff members of the AGARBO

group. DOD officials informed Plaintiffs of the proposed

lower rates and urged Plaintiffs to take steps to reduce

their rates in an equivalent amount and instituted a series

68a

Appendix 1—Complaint

of steps to force such reduction, including reserving cargos

for Sapphire and continuing pressure on Plaintiffs to meet

those rates. As a result of these pressures, AGAFBO

ultimately, under dates of March 29, 1965 and May 23,

1965, equalized its transportation charges with those of

Sapphire, but did not undercut the Sapphire rates. As

a result, DOD saved an estimated $14 million in ocean

went into bankruptcy.

15. In 1965 the Federal Maritime Commission in-

stituted a proceeding styled FMC Dockot 65-13, Rates on

United States Government Cargos, to determine whether

the rates charged for transportation of military

were excessive. The FMC determined (11 FMC 263

8, 1967 that AGAFBO had made an

that their military cargo rates were not too

however, that the rate reduction to the

were too low and accordingly violated

of 1

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175

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17477 ri

Appendix I Complaint

17. By order of October 24, 1969, the Board insti-

tuted a hearing in which Plaintiffs, among others, and

Mr. Safir, pro se, participated as parties, resulting in its

decision of April 16, 1973, holding that the members of

the AGAFBO conference, including Plaintiffs, had vio-

lated Section 810 of the Merchant Marine Act, 1936, by

reason of the rate equalization with Sapphire. The Board

held, however, that it was not required to order forfeiture

of all subsidies relying on a decision rendered in collateral

by the Second Circuit (Safir v. Gibson, 432

F.2d 187, cert. denied, 400 U.S. 850 (1970)), but that it

had discretion to mitigate penalties in the light of cir-

cumstances presented. The Board’s decision of April 16,

1973 ruled that the penalties to be imposed would be that

of subsidies earned from operations on the Sap-

phire routes during the 11-month period of alleged viola-

tion as military cargo revenue bore to commercial cargo

revenue during that period, with certain other mitigating

adjustments based on circumstances particular to the in-

Atlantic and therefore did not compete di-

— — — or participate in establishing the

that trade. Their violation was considered

. Nw Be The Board rejected four legal grounds

advanced by tiffs herein under which they contended

interpreted and applied ;

a Oe reat ot os

of subsidy would be lawful.

70a

Appendix 1—Compiaint

117-A, as amended, Section 6, 46 C.F.R. 202.1), asking

him to review and set aside the decisions and orders of the

Maritime Subsidy Board above described. By Order of

September 9, 1974 (14 SRR 928), the Secretary granted

the appeals of the Plaintiffs herein, among others, and

reduced the forfeitures assessed by the Board

ican Export Lines, Inc., was $18,160; as to Plaintiff Lykes

Bros. Steamship Co., Inc., $381,446; as to Moore-McCor-

19. Plaintiffs allege that the Secretary and the Board

misinterpreted and misapplied Section 810 of the Mer-

chant Marine Act, 1936, as a matter of law in the follow-

ing four respects:

the carriage of military cargo; accordingly, Section 810

may not be invoked by Sapphire or by the United States.

(b) Assuming, arguendo, that Sapphire operated

a common carrier service, Section 810 does not apply since

it has been consistently held by the Board and its pre-

decessor agencies that Section 810 may be invoked only

where a subsidized line has unfairly excluded another

United States-flag carrier from conference membership

and, furthermore, that the Section does not apply to rate

practices. Sapphire was never excluded from AGAFBO

but rather declined to join the AGAFBO conference.

Tla

Appendix 1—Complaint

(e) Assuming both that Sapphire maintained a com-

mon carrier service and that Section 810 applies to rate

practices, nevertheless, the sanctions of Section 810 have

been held to operate prospectively only where, as here,

the alleged violation involves the question of the reason-

(d) The United States, having exercised pressure

to induce the AGAF'BO lines to equalize their rates with

those of Sapphire and then having used those rates to its

benefit at the expense of the Plaintiffs, is estopped as a

matter of law from invoking the penalties of Section 810.

It is unconscionable and inequitable for the United States

having taken advantage of the rate equalization instituted

on its own demand, to penalize Plaintiffs a second time by

demanding refund of past earned subsidies.

Relief Requested

20. WHEREFORE, Plaintiffs pray this court for the

following relief:

(a) An order reversing and setting aside the Order

of the Secretary of Commerce dated September 9, 1974,

and the decisions and orders of the Maritime Subsidy

Board rendered April 16, 1973, and October 15, 1973,

respectively, insofar as they affect Plaintiffs ;

(b) A permanent injunction against the carrying

out by Defendants of the foregoing decisions and orders;

(e!) An order requiring Defendants, if recovery of

subsidy has been effected by set-off or paid under protest,

to refund any such sums so set off or paid; and

Appendix 1—Complaint

(d) To grant such other and further relief as to the

Court appears just in the premises.

Respectfully submitted,

J. FRANKLIN Fort

T. S. L. PERLMAN

WiLuiaM H. Fort

Kominers, Fort Schlefer & Boyer

1176 F Street, N.W.

Washington, D.C. 20006

(202) 467-5900

Attorneys for Lykes Bros. Steamship

Co., Inc. and Moore-MeCormack Lines,

Attorney for American Export Lines,

Ine.

ELMER C. MADDY

Kirlin, Campbell & Keating

120 Broadway

New York, New York 10005

(212) 782-5520

Attorney for United States Lines, Inc.

December 6, 1974

78a

Appendix J—Answer

IN THE UNITED STATES DISTRICT COURT

For THE District oF COLUMBIA

Civil Action No. 74-1788

TT Gi

AMERICAN Export LINgs, INC., et al.,

Plaintiffs,

— —

FREDERICK B. Dent, individually, and as Secretary of

Commerce, et al.,

Defendants.

— — e ——

Answer

The answer of defendants Dent, Blackwell, Dawson,

Van Doren and Casey admits, denies and alleges as fol-

lows:

First Defense

Answering the complaint by paragraphs:

1. Denies any facts which might be found herein,

except it is admitted that Attachment A hereto is a true

and correct copy of defendant Dent’s order of September

19, 1974, and that the Maritime Subsidy Board orders

referred to exist, are correctly reported as alleged, and

alleged that these three orders speak for themselves. It

further admits the judicial amount alleged. Defendants

further allege that by characterizing defendants’ orders

requiring a recovery of public subsidy money as working

a forfeiture or “penalty” of monies “earned”, plaintiffs

materially misstate the true facts. Although plaintiffs use

such terms throughout their complaint, this allegation will

not be repeated.

2. Admits.

74

Appendix J—Answer

3-9. Admits, except it is denied that defendant Dawson

issued the October 15, 1973, order, and it is further denied

that any defendant is suable individually. To the contrary,

defendants are suable, if at all, solely in their official

capacities and not otherwise.

10. Requires no answer.

11. Admits, except it is denied that United States

Lines is now party to any subsidy contract, having ceased

to be so in August 1970.

12. Admits, except it is denied that the confvrence

was formed at the request of the Military Sea Transporta-

tion Service.

for lack of information that the United States saved

$14,000,000 or any other amount.

14. Denies, except it is admitted and alleged that the

rates in question remained at their unreasonably low level

until February or March, 1966, at which time they were

increased. It is further admitted that Sapphire continued

re-

ported at 11 F.M.C. 263, which determination speaks for

itself.

16. Admits.

22. Defendants are subject to this review action, if at

Assistant U.S. Attorney

ALLEN van EMMERIK, Trial Attorney

Admiralty & Shipping Section

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Appendiz K—Final Order on Recoveries of MSR

Dated October 10, 1973

PROPRIETY OF THIS ORDER AT THIS TIME

We are cognizant of the outstanding petition of Mar-

shall P. Safir to the Supreme Court of the United States

reverse

AEL’s RECOVERY

AEL states that it “has established that the Board’s

approximate mathematical calculation is exact

under the formula AEL should return $38,036 to Gov

ernment.” Public Counsel laments the lack of original

records from which to verify AEL’s figures but suggests

that if such records were not promptly located, then final

figures be determined from the audit report of AEL’s sub-

mission.

The MarAd audit report concluded that

mission could not be verified because of the

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* The Safir petition would not stay the action

court unless the Supreme Court or the Court of

directed, 28 U.S.C. §2101(f) (1907). Neither the

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Appendiz K—Final Order on Recoveries of MSR

Dated October 10, 1973

We find and conclude that AEL owes an ODS recovery

of $38,050.25 for violation of Section 810. In the event

5

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Bloomfield claims that it owes $119,900.54 as ODS re-

covery under the Board’s Opinion and Order as compared

to the $140,450 estimated by the Board in that decision. It

insufficient supporting data available to express an opinion

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Sapphire operation.” Public Counsel indicates that such

nents sdverated by Bloomfield, Lobes and Mermec

“a r to be refinements of the principle enunciated by

the Board in the outstanding Opinion and Order.

The adjustment sought by Bloomfield, Lykes and Mor-

mac is not a refinement of any principle previously estab-

lished in this proceeding. In the Opinion and Order

81a

Appendix K—Final Order on Recoveries of MSB

Dated October 10, 1973

This formula was restated for Lykes as follows:

“Hence, the amount to be recovered from Lykes is

the percentage of ODS received from subsidized

operations on the U.K./B-H range, as represented

by the ratio of military cargo revenue received on

such route to total revenues received thereform

during the period of violation.” (p. 62)

The underlying principle of this formula is that recoveries

would be mitigated to a certain level—a ratio of ODS in-

Further, at the time of the Opinion and Order the

Board was aware that its formula took into account some

military cargo by trade respondents at lawful rates even

though the exact quantum of that carriage was not of

record. For instance, the Board’s decision referenced

military cargo rate reductions which occurred

the period March 29, 1965 to March 1, 1966;

fell

2

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82

reductions that occurred subsequent to March

Public Counsel, in particular discussed these

condemned military rate reductions in his

Fact at 20-21. It follows that it was ap-

some military cargo was carried by respon-

March 29, 1965, at lawful rates before the

cargo were unlawfully reduced. However,

pea

HH

* Docket No. 65-13, Rates on Government Cargoes, 11 F.M.C.

263, 287 (1967).

Appendix K—Final Order on Recoveries of MS

Dated October 10, 1973

Moreover, we are not persuaded to extend further our

— 1 — ——ů — -

by trade respondents for violation of Section 810. In

and Order we carefully considered all the asserted

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Appendix K—Final Order on Recoveries of MSR

Dated October 10, 1973

cites the statutory provision that interest is not assessed

against the Government except where explicitly allowed by

statute or contract, 28 U.S.C. §§ 2411, 2516 (1970), and

distinguishes cases cited by Bloomfield. He asserts that

neither Bloomfield’s subsidy contract nor any implement-

ing regulations permit recognition of interest in the event

that a final accounting is not processed immediately for

payment.

We completely concur with Public Counsel’s position

on this matter that there has been no improper or illegal

withholding of subsidy and that no statute, subsidy con-

tract, or implementing regulation permits recovery of

interest against the Government for such withholding.’

In conclusion, we find that Bloomfield owes $139,039.60

in ODS recovery for violation of Section 810 of the Act

* Bloomfield cites Bell v. United States, 404 F.2d 975, 984

(Ct. Cl. 1968), and Peoria Tribe of Indians of Oklahoma v. United

i

.

con-

tracts. See Sun Shipbuilding 4 Dry Dock Company v. United

States Lines, Inc., 12 S.R.R. 561, 598 n. 39 (1971). In Peoria

the Supreme Court did not allow interest as part of damages for

the Government's breach of its fiduciary obligations under treaty

since “the United States is not liable for interest on judgments

in the absence of an express consent thereto... .” 390 U.S. at

473 n. 6. It therefore suggested that if an interest rate measure

were adopted for determining the damages, it must be simple and

not compound interest.

84a

Appendix K—Final Order on Recoveries of MSH

Dated October 10, 1973

($750,551.12 ODS times 24.7% military to total freight

revenues times 75% mitigation reduction) and that no

interest payments from the Government for withholding

accrued subsidy offsets that recovery. The withheld

$121,893.67 in ODS payments is hereby acknowledged as

partial satisfaction of amounts owing for such violation.

LYKEs’ RECOVERY

Lykes calculates the ODS recovery due the Government

in this proceeding is $764,264.53 compared to the esti-

mated recovery of $1,130,123 in the Board’s decision.

The difference is attributed to more exact figures and cal-

culation of ODS on a per diem rather than on a termina-

tion basis. Lykes contends the recovery should be re-

duced to $703,920.67 so as to exclude any subsidy paid for

carriage of military cargo not carried at the condemned

reduced rates. Public Counsel adopts the MarAd audit

account the correction, Lykes would owe in recovery, based

on the Board’s Opinion and Order, $762,891.99 ($2,725,-

587.69 ODS times 27.99% military to total freight rev-

enues ratio).

We have previously discussed and decided not to accept

the advocated adjustment for revenue from carriage of

military cargo at lawful rates during the period of viola-

tion. As for Lykes’ different method of accounting we note

that the accounting bases for all trade respondents vary

considerably. However, these different bases have been

reviewed by MarAd auditos, who have concluded, to the

Appendix K—Final Order on Recoveries of MHS

Dated October 10, 1973

extent underlying data is available, that each submission

is reasonably responsive to the directive in this proceeding.

We concur with that judgment. Accordingly, we find and

conclude that Lykes owes $762,891.99 in ODS payments

for violation of Section 810.

MORMAC’S RECOVERY

During the period of violation Mormac operated on

Trade Route No. 6 with the authority to make calls on

ports in the Bordeaux-Hamburg range (Trade Route 7-8-

9) in certain instances. Mormac suggests that the sub-

sidy paid for operation on the Bordeaux-Hamburg range

be computed from the radio of revenue carried on that

range to the revenue earned on the entire trade route

(T. R. 6-7-8-9). On such basis it calculates the ODS re-

covery under the Board’s outstanding Opinion and Order

as $281,497 instead of the Board estimated recovery of

$492,443. Mormac's calculation includes three adjust-

ments to eliminate (i) revenue from cargoes carried on

unsubsidized voyages during the strike period in June,

July and August of 1965, (ii) revenue from carriage of

refrigerated cargoes at lawful rates on the Bordeaux-

Hamburg range, and (iii) revenue from other military

cargo carried at lawful rates on the Bordeaux-Hamburg

range. Public Counsel offers no objection to Mormac’s

proposed recovery and relies on the MarAd audit report of

Mormac’s submission. MarAd’s auditors concluded that

Mormac’s submission was a reasonable representation of

the data required in this proceeding although they could

not give complete verification in the absence of certain

underlying data.

As previously discussed, we have already decided not

to make any adjustment in recoveries for carriage of mili-

Appendix K—Final Order on Recoveries of MSH

Dated October 10, 1973

tary cargoes at lawful rates on the Bordeaux-Hamburg

range during the period of violation. On the other hand,

we are persuaded to make an adjustment in Mormac’s

recovery for revenues earned from cargoes carried on un-

subsidized voyages during the strike period. No Govern-

ment support was paid for such operation and Mormac

held no advantage over Sapphire Steamship Lines Inc.

by such unsubsidized operation.

With respect to Mormac’s recovery and military reefer

cargo the Board made the following statement in its

Opinion and Order:

“The military cargo revenue figures include revenue

from carriage of military refrigerated cargo since

we are not persuaded to further mitigate Mormac’s

recovery to exclude such cargo, even though Sap-

phire’s carriage of such cargo was of a limited

amount.” (p. 65, note 63)

The essential point is that the Board refused to further

exercise its discretion to limit Mormac’s recovery on ac-

count of this reefer carriage. Mormac may be contending

that the amount of Sapphire’s carriage of this cargo is

relevant because Sapphire could not have sustained any

injury from Mormac’s military reefer carriage and there-

fore its recovery should be accordingly mitigated. The

reference to the “limited amount” of military refrigerated

cargo carried by Sapphire was to Mr. Safir’s testimony

that a Sapphire vessel had carried a reefer container

(which presumably contained refrigerated cargo) although

the Sapphire ships did not have reefer capacity built into

them. However, the quantity of military refrigerated or

reefer cargo carried by Sapphire is not relevant because

we have already held that, “even as a factor of mitiga-

87a

Appendix K Final Order on Recoveries of MSR

Dated October 10, 1973

tion, . It his proceeding is not concerned with the in-

jury to Sapphire” but rather with “policies regarding re-

coveries from respondents for actions intending injury to

Sapphire and affecting the welfare of the U.S. merchant

marine.“ Mormac’s analogy to the following finding on

USL’s passenger service is not apposite.

“In view of the dissimilarity of passenger and

cargo ship operations and of Sapphire having

operated no passenger ships, we are persuaded, as

a matter of discretion, that recovery from USL

for past violation of Section 810 should not be re-

lated to subsidies received for such passenger ship

operations. No other trade respondent operated

any passenger ship on a subsidized service on the

U.K./B-H range during the period of violation.”

(p. 58)

This unique circumstance is not comparable to Mormac’s

carriage of military reefer cargo. Mormac did not have

a military reefer service but rather presumably a com-

mercial freight service. USL had a passenger service.

Accordingly, we find and conclude that Mormac owes

for violation of Section 810 of the Act $386,776.56 in ODS

recovery ($968,091 ODS times 58.27% military [$2,454,-

640] to total freight revenues [$4,607,364] ratio times

75% mitigation reduction), which amount will be with-

held from the ODS accrued during the period of violation

and not yet paid pursuant to court injunction.

USL’s RECOVERY

USL calculates its recovery as $1,056,074.62 as con-

trasted to the estimated recovery of $969,751 in the

Opinion and Order, served April 16, 1978, at 36.

Appendiz K—Final Order on Recoveries of MSB

Dated October 10, 1973

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Petitioner,

to recovery sub-

of the Atlantic

Merchant

tors (AGAFBO)

in Opposition

owner of Sapphire Steamship Company,

Maritime Subsidy Board

named

Flag Berth

of Section

Stat. 20

Hine

11721211

i121

Memorandum for the Federal Respondents

iy

THOR

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Appendiz K—Final Order on Recoveries of MSB

Dated October 10, 1973

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131

*

Appendix Memorandum for the Federal Respondents

in Opposition

amounts to be repaid were to be determined by a formula

based on the volume of military cargo carried at reduced

rates (Pet. App. 77a-78a), and those subject to the

order to repay were given an opportunity to submit their

views on the amounts recoverable (Pet. App. 87a). The

order further stated (App. 87a):

An order determining final recoveries will therc-

after be issued. Upon issuance of said order on

final recoveries this decision will become final.

Without awaiting the further proceedings called for

by the order, or for a final decision, petitioner filed in the

United States Court of Appeals for the Second Circuit

a “motion” to overturn the Board’s order and to require

greater penalties from all respondents (Pet. App. 119a-

120a).' The respondents opposed the motion and con-

tended that the court of appeals lacked jurisdiction to

conduct the judicial review sought by petitioner and that,

in any event, such review was premature. The court of

appeals denied petitioner’s motion (Pet. App. la). Peti-

tioner seeks review of that denial.

entertain such an action as a court of first instance.

American Federation of Labor v. National Labor Rela-

' Petitioner's motion was filed under the caption of an early

appeal in this unique and much-litigated matter in which the court

of appeals had reversed a district court’s dismissal of petitioner's

complaint seeking to compel the federal respondents (or

predecessors) to institute proceedings of the type now

lenged by petitioner. Safir v. Gibson, 417 F.2d 972 (C.A. —).

:

Eg

Appendix Memorandum for the Federal Respondents

in Opposition

tions Board, 308 U.S. 401; Turkel v. Food and Drug

Administration, 334 F.2d 844 (C.A. 6), certiorari denied,

379 U.S. 990; Schwab v. Quesada, 284 F.2d 140 C. A. 8);

City of Dallas v. Rentzel, 172 F.2d 122 (C. A. 5), cer-

tioruri denied, 338 U.S. 858. There is no statute con-

ferring such jurisdiction in this case.’

agency action.” Boston

Marine Terminal Association of Rederiaktie

Transatlantic, 400 U.S. 62, 71. The Board’s explicitly

interlocutory decision in the instant case is not final

under that test. No legal consequences flow from the

order, no rights or obligations have been determined

finally, and judicial review would disrupt the orderly

functioning of the administrative process in this case.

It is therefore respectfully submitted that the petition

for a writ of certiorari should be denied.

MARSHALL P. Sari,

Petitioner,

Rospert W. BLACKWELL, Assistant Secretary of Commerce

for Maritime Affairs, Successor to and Substituted for

ANDREW GSN, JAMES S. Dawson, IR, Secretary

Maritime Subsidy Board and FREDERICK DENT, Secre-

tary of Commerce, Successor to and Substituted for

MAURICE STANS,

Appendix M—Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

CONCLUSION

Circuit, August 3, 1973

TABLE OF CONTENTS

„ „ O ͤ „ „ „ „ „ „ «eee

„ % h % — — KF FHMZ̊)i FH „ „ „ „ «

Appendix M—Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 3, 1973

IN THE

Maritime Subsidy Board and FREDERICK DENT, Secre-

on May 16, 1973 (App. #1, p. 1).

Opinions Below

The first opinion of the Court of Appeals is reported at

417 F.2d 972 (1969) (App. #12, :

97a

Appendix Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 3, 1973

The recent opinions of the United States District

Court for the Eastern District are unreported. They are

listed here as Appendix Exhibit 8, pp. 138a-142a and

Appendix Exhibit 10, pp. 145a-150a.’

Jurisdiction

The judgment of the Court of Appeals was en

May 16, 1973. The jurisdiction of this Court is invoked

under 28 U.S.C. 1254(1).

;

Statute Involved

Section 810 of the Merchant Marine Act, 1936, 49

Stat. 2015, 46 U.S.C. 1227 App. Ex. 14, p. 197a).

Appendix M—Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 8, 1973

Statement of the Case

This case was first brought to this Court by this peti-

tioner three years ago as Petition #388 of the

Term, 1970. At that time the petition was denied

primarily on the prematurity of its posture. “The

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hearing examiner in S 243 that Sapphire Steamship Lines

Subsidy

Appendix M—Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 8, 1973

met all the criteria necessary to qualify for the protection

of Section 810, this petitioner moved in United States

District Court, Eastern District of New York, for an

injunction to prevent payment of $80 million of past sub-

sidies to the violators pending the administrative agency’s

decision in 8 243. Judge John Dooling, in part, granted

injunction (App. Ex. 10, pp. 145a-150a). By the time

the relief was effective, however, payment of all but $1

million had been paid to the violators.

2. In May, 1972, an “initial” decision by the Hear-

ing Examination (by this time the Chief Administration

Law Judge) issued wherein he found that the so-called

“Trade Respondents” had violated Section 810 and recom-

mended certain subsidy recoveries he felt within the dis-

cretion of the agency to formulate based on the Court of

Appeals mandate —albeit 13 months after this Court’s

decision in Citizen to Preserve Overton Park v. Volpe.

This petitioner moved in the District Court for an order

requiring the Secretary of Commerce to escrow all amounts

payable to certain of the violators in the sale of their

passenger ships pending a “final” decision by the Mari-

time Subsidy Board in 8 243. Judge Dooling denied the

motion (See App. Ex. 8, pp. 138a-14la). Petitioner then

appealed to the Second Circuit not only for the escrow of

the funds but because his right to participate with the

United States in the recoveries was threatened by Judge

Dooling’s questioning of his standing under 31 U.S.C.

231, 232 (see App. Exs. 6 and 7, pp. 124a-137a).

The Court of Appeals affirmed but left open the ques-

tion of petitioner’s rights under 31 U.S.C. 231, 232. The

„See, App. Ex. A, pp. 36a-37a, Dated April 16, 1973 as it

conflicts with App. Ex. 13, pp. 183a-187a, Dated March 2, 1971.

100a

Appendix M—Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 3, 1973

decision contained a broad implication of a wider discre-

tionary grant to the agency to minimize both the amount

of recovery from the violators and to reduce the number

of lines in the culpable group.

On April 16, 1973 the final decision of the Maritime

Subsidy Board in S 243 was served (App. Ex. A).

The Board found that all respondents violated Section

810 and then exercised the discretion it felt the Court of

Appeals had granted by mitigating the penalties to an in-

consequential level. Petitioner then on April 27, 1973

moved the Court to set aside the discretionary conclusions

2A through 2F of the decision (see App. Ex. 3, pp. 1la-

14a and App. Ex. 2, pp. 2a-3a). The Court of Appeals

denied (App. Ex. 1, p. 1) hence this petition.

Reason for Granting the Writ

The primary reason is that the Court of Appeals’ in-

terpretation of Section 810 in its decision 417 F.2d 972,

1969 and in its decision 432 F.2d 137, 142, 1970, and its

decision in Docket 72-1753 unreported, granted broader

and broader discretion by word and implication to the

Government, and that this discretion so granted is in

direct conflict with the decision of the Supreme Court in

"App. Exhibit 9, pagel43—“The judge’s (Dooling), order

was well within his discretion; he was not bound to accept plain-

Dawson certified a payment of $149,610,000 in ODS funds during

the period of violation (App. Ex. 5, p. 122a). Hearing examiner

recommended ODS recovery of only $6,690,000, and this from

“trade” defendants only, as he found no violation against “non-

trades” (App. Ex. A, p. 19a).

10la

Appendix M—Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 3, 1973

Citizens to Preserve Overton Park, Inc. v. Volpe, Secre-

tary of Transportation, decided March 2, 1971 (App. Ex.

13, pp. 183a-186a).

In 417 F.2d 972 (1969) the court of Appeals granted

a measure of discretion to the Administrator under APA

5 U.S.C. 701 et seg. by stating that the requirements for

the recovery for past subsidies by the Government may be

“less absolute” than to cease payment to current violators

and followed this in its sequel decision 432 F.2d 137, 142

(1970) wherein it granted wider discretion by stating

“nothing we have said should be read as preventing the

Maritime Administration from investigating the nature

and extent of the individual carriers participation in the

illegal action, should it find these matters relevant to its

ultimate decision in whether to seek the recovery of sub-

sidies paid during the violation and if so, how much and

from whom” (see App. Ex. 11, p. 162a). As has been

noted previously Maritime Subsidy Board’s discretion was

further broadened by implication in its per curiam deci-

sion in Docket 72-1753 of November 29, 1972.

“Overton” holds that under the Administrative Pro-

cedure Act the exception for action committed to agency

discretion is only “applicable in those rare instances

where ‘statutes are drawn in such broad terms that in a

given case there is no law to apply. (See App. Ex. 13,

pp. 183a-184a).

Section 810 (46 U.S.C. 1227) states in pertinent part:

“No payment or subsidy of any kind shall be

paid directly or indirectly out of the funds of the

United States or any agency of the United States

to any contractor who shall violate this section.”

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Petitioner agrees to this description and definition

disagrees with the Solicitor General’s belief in the

discretion to invoke the remedy. In fairness, however,

brief in this case preceded the Overton decision by seven

months, perhaps this view is no longer held. But even

assuming arguendo, the availability of such discretion, by

invoking sanctions against five violators in Conclusion #2

(Ex. A, pp. 86a-87a) certainly the inflexibility of the sanc-

tion demanded full recovery from these contractors in ac-

cordance with the definition no longer in conflict.

ö

1032

Appendiz M Petition for Writ of Certiorari to the

United States Court of Appeals for the Second

Circuit, August 3, 1973

the Secretary of Commerce to engage in a wide range

balancing of competing interests."

But, as is stated in “Overton” no such wide ranging

August 3, 1973

* Re Congressional intent see Docket A 17 (Ex. C. pp.122a-113a).

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

U.S. DEPARTMENT OF COMMERCE

MARITIME ADMINISTRATION

MARITIME SUBSIDY BOARD

— — ——ñx?x:³

Docket No. 8-243

Investigation of Alleged Section 810 Violation

In the matter of the complaint of Sapphire Steamship

Lines, Inc. re Alleged Violation by Atlantic and Gulf

American Flag Berth Operators (AGAFBO) of Sec-

tion 810 of the Merchant Marine Act, 1936, as

amended.

Chairman, Robert J. Blackwell; Member, H. Clayton

Cook, Jr.; Alternate Member, James S. Dawson, Jr.

Served Upon:

Marshall P. Safir, 41 Flatbush Avenue, Brooklyn,

New York 11217 pro se.

James N. Jacobi, Esqg., Kurrus & Jacobi, 2000 K

Street, N. W., Washington, D. C. 20006 for

American Export Lines, Inc.

J. Franklin Fort, Esq. and Richard S. Salzman, Esq.,

Kominers, Fort, Schlefer & Boyer, 1401 K Street,

N. W., Washington, D. C. 20005 for Lykes Bros.

Steamship Co., Inc. and Moore-McCormack Lines,

Incorporated.

105a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

John Williams, Esq., Kirlin, Campbell & Keating, 120

Broadway, New York, New York 10005 for

United States Lines, Inc.

Amy Scupi, Esq. and Olga Boikess, Esq., Galland,

Kharasch, Calkins & Brown, 1054 3lst Street,

N. W., Washington, D. C. 20007 for Bloomfield

Steamship Co.

Robert T. Basseches, Esq., Shea & Gardner, 734 Fif-

teenth Street, N. W., Washington, D. C. 20005

and Daniel H. Margolis, Esq., and Murray J.

Belman, Esq., 21 Dupont Circle, N. W., Wash-

ington, D. C. 10036 for American President

Lines, Ltd., Prudential-Grace Lines, Inc. and

Prudential Steamship Company, Inc.

Verne W. Vance, Esq. and Andrew J. McElaney, Jr.,

Esq., Foley, Hoag & Eliot, 10 Post Office Square,

Boston, Massachusetts 02109 for Farrell Lines,

Inc.

Michael J. McMorrow, Esq., Maritime Administra-

tion, Washington, D. C. 20235, as Public Counsel.

Docket No. 8-243 is an investigative proceeding insti-

tuted by the Maritime Subsidy Board Board) on October

24, 1969 to determine whether Section 810 of the Mer-

chant Marine Act, 1936, as amended (Act), had been

violated by conduct of certain carrier members of the

Atlantic and Gulf American Flag Berth Operators

(AGAFBO) and the appropriate action that should be

taken. Named as parties to the proceeding were peti-

tioners Sapphire Steamship Company (Sapphire) and its

individual owners, Marshall P. Safir and Arnold Weiss-

146 U.S. C. § 1227 (1970).

106a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

berger, who along with others,’ had petitioned the Board

in December 1967 for, among other things, recovery of

any subsidies paid to such members of AGAFBO and

others based on alleged violations of Section 810. Also

named as parties were steamship operators which had

been both members of AGAFBO and under operating-

differential subsidy (ODS) contracts during all or a part

of the period March 29, 1965 to March 1, 1966. Of these,

the following had competed with Sapphire in the U.S.

Atlantic and Gulf to U.K./Bordeaux/Hamburg trade

(U.K./B-H range): American Export Isbrandtsen Lines,

Inc. (presently American Export Lines, Inc. (AEL),

Bloomfield Steamship Company (ceased being party to

an ODS contract after December 31, 1965), Lykes Bros.

Steamship Co., Inc. (Lykes), Moore-McCormack Lines,

(USL). Those subsidized members which had not com-

peted with Sapphire in such trade were: American Presi-

dent Lines, Ltd. (APL), Farrell Lines Incorporated (Far-

rell), Grace Lines, Inc. (presently Prudential-Grace Lines,

Inc. (Grace), and Prudential Lines, Inc. (presently Pru-

dential Steamship Company, Inc. (Prudential) ).

These were two service organizations, Pioneer Overseas

Services Corporation, a traffic management agency wholly owned

by Mr. Safir, and Liberty-Pac Internati nal Corporation, a

forwarded specializing in the overseas transportation of

ff

hold goods wholly owned by Mr. Weissberger. They were ex-

tended tue opportunity to file petition for leave to intervene in

the proceeding but never made such filing. Of all the petitioners,

only Mr. Safir made an appearance in the proceeding representing

himself pro se and claiming to represent Sapphire. Sapphire

was a U.S. non-subsidized steamship company owned equally

by Mr. Safir and Mr. Weissberger which was declared bankrupt

in May 1967. The court appointed trustee for Sapphire expressly

107a

Appendix M- Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

first group are referred to collectively as the “trade re-

spondents” while the latter collectively are referred to

as “non-trade respondents.”

The conduct questioned as violating Section 810 con-

cerned the respondents acting in concert to reduce selected

military cargo rates in the U. K. B-H range and holding

them there during eleven months (March 29, 1965 to

March 1, 1966) allegedly for the purpose of driving Sap-

phire from the U.K./B-H range. The Federal Maritime

Commission (FMC) held in Docket 65-13 in 1967 that

such rate reductions violated the Shipping Act, 1916, as

amended :

“AGAFBO, by reducing its rates to an admittedly

noncompensatory and unreasonable level in an at-

tempt unfairly to compete with Sapphire, violated

section 15 by knowingly setting rates which were

contrary to section 18(b) (5) and which were detri-

mental to commerce and contrary to the public

interest.” *

Petitioners obtained a judicial order from the US.

Court of Appeals for the Second Circuit as formulated by

the U.S. District Court for the Eastern District of New

York on remand that the above FMC finding was res

judicata and under the doctrine of collateral estoppel con-

stituted a finding of violation of Section 810 but for

certain peripheral elements of that statute.‘ The court

* Safir v. Gibson, 482 F.2d 187, 148 (2d Cir.), cert. denied,

U.S. 942 (1970); Order on Mandate of the US. Court of

Appeals for Second Cirewit, Docket 680643 (E.D.N.Y. 1970).

the FMC finding binding on Marad consti-

such AGAFBO conduct respecting the rate

“unjustly discriminatory or unfair” to Sapphire

within the meaning of Section 810 of the Act.

268, 287 (1967).

400

:

4

108a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

order directed that the Board proceed with determining

whether a violation had occurred, whether to recover sub-

sidies during th period of violation, and, if so, how much

and from whom. The Board in an order served December

19, 1970 directed the Chief Hearing Examiner Paul N.

Pfeiffer, now Chief Administrative Law Judge, to pro-

ceed in such manner.

A public hearing was conducted from March to Sep-

tember 1971, principally in Washington, D.C. and a full

record compiled. Chief Judge Pfeiffer served a Recom-

mended Decision on April 24, 1972. He recommended

that the trade respondents but not the non-trade respond-

ents, had violated Section 810. After considering mitigat-

ing circumstances, he found that Lykes was the initiator

of the violation with AEL, Mormac and USL somewhat

reluctant followers, and Bloomfield’s participation signifi-

cantly less. He recommended as sanctions against the

trade respondents that about $6,690,000 in ODS be re-

covered, that about $158,000 in unpaid construction-

differential subsidy (CDS) on certain purchased ships be

refunded, that the Department of Agriculture be notified

of the opportunity to recover about $2,880,000 premium

rates paid on carriage of cargoes under Public Law 480,

that about 14,300 in advantageous charter hire to USL be

Justice Department with regard to Lykes for such civil

or criminal action as Justice may decide to pursue.

All parties except Public Counsel filed exceptions to

the Recommended Decision and all parties

;

f

109

Appendix M Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

We have considered the record, the Recommended De-

cision, and the arguments of all parties. We find that all

subsidized members of AGAF BO violated Section 810 but

that recovery of operating subsidies is appropriate only

from those who were in direct competition with Sapphire

(the trade respondents). TThe issues for discussion con-

cern the violation of Section 810, the Board’s discretion

to mitigate recoveries for past violations under Section

810, the mitigation factors advanced by respondents, and

the appropriate recoveries giving regard to factors of

mitigation.

DISCUSSION

I. Violation of Section 810

Section 810 of the Act provides in part as follows:

“It shall be unlawful for any contractor receiv-

ing an operating-differential subsidy under Title

VI or for any charterer of vessels under Title VII

of this Act to continue as a party to or to conform

to any agreement with another carrier by water,

or to engage in any practice in concert with ar-

other carrier or carriers by water, which is un-

justly discriminatory or unfair to any other citizen

of the United States who operates a common ca.

rier by water exclusively employing vessels regis-

tered under the laws of the United States on any

established trade route from and to a United

States port or ports.”

In compliance with the court order finding the previously

19667 FMC finding as binding on Marad, the

has established that “the AGAFBO carriers’ con-

action in reducing their rates to an unreasonably

level and holding them there for eleven months from

HUF

110a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

March 29, 1965 to March 1, 1966] was unjustly dis-

criminatory or unfair to Sapphire.“

ing on Marad. The FMC decision referred to the March

29, 1965 AGAFBO rate reductions on the military house-

hold goods under Through Government Bill of Lading

(TGBL) and on military household goods shipped free in

and out (F1lO—without loading or discharge costs to the

ship) and to AGAFBO’s notification to the Military Sea

Transportation Service (MSTS) that these rates

made as a strictly temporary competitive measure and

were not fair, reasonable, or compensatory. The FMC

the Sapphire rates” were believed to be non-compensatory

and that AGAFBO had informed MSTS in February 1966

that the AGAFBO temporary reduced rates to the U.K./

B-H range “due to expire as of March 1, [1966]” were

not fair, reasonable or compensatory.. The AGAFBO

temporary military rate reductions in the U.K./B-H

range, which expired on March 1, 1966, included those for

‘Order Denying Petition for Ruling, Docket No. 8-243, 11

S.R.R. 1144, 1148 (MSB 1970); Safir v. Gibson, 431 F.2d 137,

148 (2d Cir.), cert. denied, 400 U.S. 94% (1970); Order on Man-

date of the U.S. Court of Appeals for the Second Circuit, Docket

680648 (E.D.N.Y. 1970).

*11 F.M.C. at 274-275.

"FMC Docket 65-13, Tr. 62-63 (S-248 Exhibit R-98); FMC

Docket 65-18, Exhibit 485 (S-243 Exhibit PC-151).

llla

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

TGBL-HHG, FIO-HHG, empty conex containers, general

cargo, and vehicles of certain weight. We find that these

are the rate reductions which occurred during the period

March 29, 1965 to March 1966, which the FMC condemned

as violating the Shipping Act, 1916, as amended, and

which the court ordered not to be relitigated as to whether

they were unjustly discriminatory or unfair to Sapphire

under Section 810 of the Act.

As for the other elements necessary for a violation of

Section 810, no exception was taken to the Chief Judge’s

finding that Sapphire was a U.S. citizen exclusively em-

ploying U.S. registered vessels and operating on estab-

lished U.S. Trade Routes 5-7-8-9 and 11 during the eleven

month period and that all respondents were ODS contrac-

tors during this period with Bloomfield’s contract expiring

on December 31, 1965. We adopt those findings. Excep-

tions were taken to his findings that Sapphire was a

common carrier, that Sapphire operated in the U.S. Gulf

on Trade Route 21 and that Section 810 extends to AGA-

FBO rates in the U.K./B-H range. Further issues are

raised as to whether Section 810 applies to rate cutting

and not just exclusion from a steamship conference, and

whether Section 810 can only apply prospectively.

A. Sapphire’s Common Carrier Status and Operation

on T. R. 21

All parties agree that the test of a “common carrier

by water” applicable to Section 810 is as defined by the

Supreme Court in Propeller Niagara v. Cordes, 62 US.

7, 22 (1858):

“A common carrier is one who undertakes for hire

to transport the goods of those who may choose to

employ him from place to place. He is, in general,

bound to take the goods of all who offer, unless his

complement for the trip is full, or the goods be of

112a

Appendix N Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

such a kind as to be liable to extraordinary danger,

as such as he is unaccustomed to convey.” *

The Chief Judge found that Sapphire had common carrier

status from U.S. Atlantic and Gulf ports to ports of the

U.K./B-H range during the period of violation, relying on

its holding out and its carriage of some commercial cargo

over a substantial period of time and a large quantity of

(TGBL-HHG) cargoes and privately-owned vehicles

(POV) for the military, which he considered as properly

commercial cargoes since they moved through normal

commercial! channels. Sapphire’s limited Gulf service was

found to be a common carrier service despite limited

activity since it was “entirely conceivable” that absent

the Lykes and Bloomfield reduced rates in concert with

the other AGAFBO U.K./B-H range members, Sapphire

“could have developed a viable operation to and from the

Gulf.” Public Counsel supports the Sapphire common

carrier findings of the Chief Judge.

Trade respondents argue that Sapphire operated a

military express service and not a common carrier service

because it contradicted its holding out of a commercial

service to the public by making it difficult for agents to

book commercial cargoes, by placing an embargo on all

commercial cargoes during a summer 1965 strike against

other carriers, and by rejecting all but the most lucrative

and convenient parcels of commercial cargoes offered by

the shipping public and instead carrying almost exclusively

military cargoes and negligible commercial cargoes. They

»The definition was cited in Jsbrandtsen Co., Inc. v. American

Export Lines, Inc., 4 F.M.B. 772-782 (1956), as controlling on

the meaning of “common carrier by water” under Section 810

of the Act.

113a

Appendix M— Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

emphasized that in its entire existence Sapphire never

carried a cumulative total of a single shipload of commer-

cial cargo “solicited at openly advertised tariffs.” They

also contend that TGBL-HHG and POV cargoes are mili-

tary and not commercial cargoes because of the Govern-

ment’s interest therein and because all authorities recog-

nize them as military cargoes. The Gulf trade respon-

dents argue especially that Sapphire never established

itself as a Gulf common carrier because it had minimal

vessel contact with but one port in the Gulf, de minimis

shipments of non-military cargoes in the Gulf, and in fact

had rejected cargoes at ports other than New Orleans.

The Gulf trade respondents further contend that even if

Sapphire is considered a Gulf common carrier, that service

could not have commenced until April 9, 1965, when

Sapphire’s tariff for its Gulf service became effective, and

that the service ended in May 1965 with the termination

of any Sapphire Gulf commercial coverage followed by

cessation of advertisement of Gulf service in August 1965

and any Gulf operation in January 1966. Bloomfield adds

that Section 810 in promoting the January 1966. Bloom-

field adds that Section 810 in promoting the competitive

interest of a victim requires the establishment of a com-

petitive relationship between the subsidized carrier and

the victim and that there was never any actual competi-

tion between it and Sapphire.

It is undisputed that Sapphire held itself out as a com-

mon carrier at least in the U.S. Atlantic/U.K./B-H

range over the entire period of violation. It advertised its

voyages, published by filing with the FMC its commercial

and military cargo tariff rates, and solicited commercial and

military cargoes by appointing agents in many of the U.S.

and European ports it serviced. Sapphire did have a practice

ll4a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

of requiring its agents not to book commercial cargoes on

Sapphire vessels without first getting clearance from the

line’s New York headquarters. The record shows, however,

that such practice did not result in the rejection of any

offered commercial cargo unless it was offered at less than

tariff rates or deviated from an advertised sailing itinerary

or involved a special call.“ Sapphire also interrupted its

solicitation efforts for two months during the U.S. mari-

time strike lasting from June to September 1965. Al-

though the strike did not affect Sapphire vessels and com-

petitor lines not struck were carrying commercial cargoes,

it appeared the Sapphire management was attempting to

protect against collateral union action. In any event the

interlude in solicitation for a limited period does not in-

dicate any desire by Sapphire not to hold itself out on a

permanent basis as a common carrier by water.

It is also undisputed that Sapphire carried at least

$262,957.55 of commercial cargoes during the period of

*Trade respondents cite only two instances of Sapphire re-

jecting offered commercial cargoes. The first instance involved

of this offer on the present record does not rebut a common

carrier finding. reer

tons of aluminum ingots from London to Baltimore and Phila-

delphia (Exhibit R-16). However, London was not an advertised

call and the offer was rejected.

1l5a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

alleged violation,“ that on all voyages on which commercial

cargoes were carried multiple shippers were served, that

it served, a regular and defined route, that it issued cus-

tomary bills of lading for commercial carriage thereby

assuming responsibility for safe carriage and that it was

responsible for loading and unloading commercial cargoes.

Section 810 does not require that the victim have a com-

parable common carrier service to the violators. It is well

known that unsubsidized operators have immense prob-

lems in carrying purely commercial cargoes on a profitable

basis in the U.S. foreign commerce. Since Sapphire held

itself out to carry commercial cargoes and regularly car-

ried some such cargoes over a substantial period of time

over a set trade route, we are persuaded that Sapphire

met the common carrier test as between U.S. Atlantic

ports in the U.K.-B-H range during the period of alleged

violation. This conclusion is consistent with that of the

FMC, which in Docket 65-13 found that Sapphire “operated

a liner service” on the U.K./B-H range,” and with MSTS,

which found the new company Sapphire was “a common

During the period of alleged violation Sapphire received

total revenues of $5,203,875.12. Commercial cargo was carried

on 18 of 34 voyages up to and including the 28th voyage. This

commercial cargo consisted of soybeans, lumber and general car-

goods) ; Activities, Tariff Filing Practices and Carrier Status of

Containerships, Inc., 9 F.M.C. 56, 61-65 (1965).

"11 F.M.C. 263, 265 (1967).

x

116a

Appendix N Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

carrier, with scheduled sailings on a designated trade

route or routes, and with sufficient ships to support the

schedule.

We are not persuaded that TGBL-HHG and POV car-

goes carried by Sapphire for the military can be considered

as commercial cargoes for purposes of common carrier

status. These cargoes are privately-owned and private

shippers (not individual owners) contract with the ocean

carriers for shipment. More importantly, however, these

cargoes are shipped on a government bill of lading at gov-

ernment expense pursuant to a freight rate negotiated

ments are made by the government for its convenience.

Further, we think it clear that a court would find these

government cargoes subject to statutory preference for

U.S.-flag for their ocean shipment as apparently even Mr.

Safir recognized in testimony before the FMC.“

Exhibit PC-158 (March 31, 1965); Tr. K-76. This finding

117a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

We also find that Sapphire maintainea an operation on

Trade Route 21 (Gulf/U.K.-B.H.) as a common carrier

during a portion of the period of alleged violation. In so

finding we do not reach the issue of whether Section 810

requires the victim to be a common carrier by water

wherever it operates. For the Gulf U. K. B-H range Sap-

phire filed with the FMC a commercial tariff effective

April 9, 1965, hired soliciting agents, and advertised sail-

ings. Through January 1966 Sapphire loaded cargo at

New Orleans three times and called at New Orleans twice

inbound, incident to taking delivery or making redelivery

of chartered vessels. On each voyage it earned substantial

revenues, total commercial freight revenues representing

about 30% of total revenues for all five voyages. There

house rate] in view of the requirement of the 1904 Act

that you charged the Government not more than you were

charging commercial shippers? “A. [Mr. Safir) The ques-

tion of whether the military household goods was a com-

mercial shipſ ment] or not is a debatable point.

“Mr. Klausner: Mr. Hansen Secretary of AGA-

FBO], in fact, testified that it was a military movement.”

Exhibit R-2, pp. 2322)

Further, prior to Sapphire’s entrance in the market these cargoes

were includable in the MSTS military cargo allocation system

(Tr. 1227-1228, K8-10).

In United States Lines, Co. v. United States, 223 F. Supp.

838, 844 (S.D.N.Y.), aff'd 324 F.2d 97 (2d Cir. 1963), the court

held that POV cargoes shipped on private ocean carrier

.

Government expense under Government bill of lading came under

10 U.S.C. 2631. Public Counsel’s distinction that the case in-

volved a shipping order issued directly by the military to the

carrier is simply not a material distinction in view of the over-

whelming incident of military control and contact with the cargoes.

According to trade respondent Lykes, total freight revenues

of Sapphire for its Gulf operation amounted to $271,487 during

its period of operation and the record shows that Sapphire carried

$81,761.63 of commercial freight revenues of that total (Exhibit

118a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

L

:

i

a

HEI

inne

fit

lint

10

iit

PEPE

competition between Sapphire and Bloomfield to establish

a violation. While Section 810 may be designed “to pro-

mote the competitive interest of a victim by authoring

recovery of subsidies,” the Section does not require a

competitive relationship between the violator and the vic-

The Chief Judge found that the trade respondent

members of AGAFBO who actively participated in the

Safir v. Gibson, 417 F.2d 972 (2d Cir. 1969).

119a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

conspiracy against Sapphire violated Section 810, but that

the non-trade respondents who had not overtly partici-

pated did not violate Section 810. He distinguished a

Board decision in Docket No. A-17, American President

Lines, Ltd., Japan/Saigon Freight Conference, 6 S.R.R.

57 (1965), which held that the mere continued non-voting

membership in an international steamship conference

which excluded other U.S. flag operators violated Section

810. The Chief Judge stated that in the situation in

Docket A-17 continued membership inured benefits to the

conference member U.S. carrier but that there were no

benefits to the non-trade respondents in AGAFBO’s rate

reductions.

The non-trade respondents emphasize the recommended

finding that they had not violated Section 810, and Public

Counsel emphasizes that no violations were found as to

the limited subject of this proceeding; i.e., the condemned

AGAFBO rate reductions. Mr. Safir argues that the de-

cision in Docket No. A-17, in finding an 810 violation for

being a party to or conforming to a discriminatory agree-

ment, forecloses the Board from making any distinctions

between the violators.

We recognize that the Second Circuit expressly noted

that it “said nothing about who was responsible for these”

condemned rate actions and that the matter is open for

our decision. We are persuaded that the non-trade re-

spondents as members of AGAFBO, and therefore parties

to the AGAFBO rate tariffs, have violated Section 810.

The AGAFBO agreement, FMC Agreement No. 8086,

provided in part as follows:

„Safe v. Gibson, 482 F.2d 187, 146 (1970). See also Order

Denying Petition for Ruling, 11 S.R.R. 1144, 146 (1970).

120a

Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1978

“Meetings shall be called by the Secretary from

time to time by mailing a notice to each party con-

taining a docket of the matters to be considered

. . Except as otherwise provided for, all actions

within the scope of this agreement shall be upon a

vote of 75% of those parties present and voting

thereon at a meeting. However, as to any matter

having application only to a specific region, such

as the Bordeaux-Hamburg range, the Persian Gulf,

the Far East, etc. only those parties having a

shipping contract or rate agreement with MSTS

covering such area or regularly serving a non-con-

tract area shall be entitled to vote thereon. Any

of the parties entitled to vote on such matter shall

hav the right to have the matter submitted to a

full membership vote with action thereon to be

taken by 85% of those parties present and voting

thereon. All actions taken pursuant to this agree-

ment shall be binding on all parties hereto.” (Em-

phasis added. )

With regard to the AGAFBO rates in the U.K./B-H

range the option of area members to require an area rate

action to the full membership was never exercised. None

of the non-trade respondents voted on any of the con-

demned AGAFBO rate reductions. It is unclear as to

the extent, if any, of their participation in any discus-

sions on the merits of such rate reductions." Once the

121a

Appendix NM Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

vote was taken by the U.K./B-H members of AGAFBO

it became binding on all members of AGAFBO with a

potential fine by the organization of $10,000 for violating

such action should the non-trade respondent commence a

service in the range and not abide by the AGAFBO rate.

The organization AGAFBO and not the individual

that the “AGAFBO rates“, reduced to an admittedly non-

compensatory and unreasonable level in an attempt to

unfairly compete with Sapphire, violated Section 18 (b

(5) of the 1916 Shipping Act and that “AGAFBO” by re-

ducing such rates violated Section 15 of the 1916 Shipping

Act. From such findings the Second Circuit found that

“AGAFBO” carriers’ concerted action in reducing their

rates to an unreasonably low level and holding them there

for eleven months was unjustly discriminatory or unfair

It was

15

:

i

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Appendiz N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

Section 810 decrees as unlawful a subsidized operator

acting in concert (1) “to continue as a party to or to con-

form to any agreement,” or (ii) “to engage in any prac-

tice . . . which is unjustly discriminatory or unfair.

We find that the Section 810 prohibited activity is (1)

continuing as a party to or conforming to the AGAFBO

military TGBL-HHG cargo rate tariff effective March 29,

1965, and similar rate tariff amendments on the U.K./

B-H range admitted to be non-compensatory and unrea-

sonable, or (2) engaging in the “practice” of filing such

tariff amendments. Non-trade respondents as well as

trade respondents were members of AGAF BO, bound by

all its actions,” and, therefore, a party to the AGAFBO

rate reduction tariffs and amendments which were un-

justly discriminatory and unfair. They therefore have

technically violated Section 810.

The decision in Docket A-17, finding that an Ameri-

was noted in that decision that Section 810 “makes no

mention of voting, nor does it divide membership into

types and classes.” We add that Section 810 also fails to

distinguish between conferences governing one trade area

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

and conferences governing multiple trade areas as AGA

the U.K./B-H range, it is clear

indirectly most of them saw the matter possibly

rate reductions and competition to

their own areas and achieved benefits in that such rate

did not spread to other areas. It is not an

adequate rebuttal by either non-trade respondents or

trade respondents that a finding of violation of Section

810 is precluded because such respondents woul’. have had

to resign to avoid violating Section 810, ther_oy breaking

up the AGAF BO conference which allegedly the Govern-

ment desired to continue. American subsidized operators

cannot be parties to unfair and unjustly discriminatory

agreements against another U.S.-flag operator covered

by the provisions of Section 810 without violating that

C. Section 810, Rate Activity and Prospective

Applicati

Trade respondents argue that the Second Circuit in

the Safir v. Gibson decisions did not foreclose a finding

that Section 810 does not apply to rate activity. The

Chief Judge, supported by Public Counsel, found that

Section 810 applied not only to exclusion of an American-

flag carrier from conference membership but also to con-

tory rate practices against an American-

flag carrier. It is sufficient to observe that the Second

Cireuit stated that “the fixing of unjustly discriminatory

or unfair rates aimed at an American-flag carrier pur-

% Tr. 979-81, 986, 993 (APL); Tr. 1025, 1028 (Prudential);

Tr. 1125 (Grace).

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

suant to a conference agreement would constitute a prae-

tice’ [unlawful under Section 810].”" Further, the

premise of the court’s directing the Board “not to re-

determine the issue whether the AGAFBO carriers’ con-

certed action in reducing their rates to an unreasonably

low level and holding them for eleven months was un-

justly discriminatory or unfair to Sapphire” was that

Section 810 applies to rate activity.

In a similar manner the trade respondents’ contention

Second Circuit has not foreclosed finding that

Section 810 operates prospectively only is without any

basis. The Second Circuit stated that § 810 was de-

signed to promote the competitive interest of a victim by

authorizing the recovery of subsidies improperly paid in

the past. Further, we would not be under man-

date to reach a decision on recovery for past violations

under Section 810 if the Second Circuit had not found

Section 810 applies to recoveries for such past violations.

In summary, we find that all respondents were ODS

contractors from March 29, 1965 to March 1, 1966, ex-

cept Bloomfield which was an ODS contractor until De-

cember 31, 1965, and that all respondents in concert were

Sapphire was a U.S. citizen operating as a

common carrier by water and exclusively employing U.S.

on

registered ships on Trade Routes 5-7-8-9 and 11 (Atlan-

* Safir v. Gibson, 432 F.2d 137, 142 (1970), cert. denied, 400

US. 972 (1970).

2 Safir v. Gibson, 417 F.2d 972, 978 (1969). See discussion

of this finding infre on consideration of Mr. Safir’s arguments

that recoveries for violations of Section 810 are made to the

victim.

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

tic/U.K./B-H trade) during such time period and on

Trade Route 21 (Gulf/U.K./B-H trade) within that time

period. Further, we find that Section 810 provides for

recovery of payments and subsidies for past violations

and applies to rate activity as well as to exclusion of a

U.S. carrier from a conference. Therefore, we find that

all respondents violated Section 810 from March 29, 1965

to March 1, 1966, except that respondent Bloomfield’s

violation extended only to and including December 31,

1965, and further that on the same basis all respondents

breached their ODS agreements with the Government

which set forth pertinent provisions of Section 810.

II. Board Discretion in Recovering Past Payments.

The Chief Judge found that the Second Circuit, the

District Court and the Board have all recognized the

Board’s discretion on “whether to seek recovery of sub-

sidies paid during the violation and, if so, how much and

from whom.” Apparently, only Mr. Safir excepts to such

finding. Mr. Safir argues that it is irrelevant to in-

vestigate the nature and extent of the individual carrier’s

participation in the illegal action because the decision in

Docket A-17, found that continued membership in a con-

ference excluding American-flag carriers violates Section

810.

The Second Circuit did not make any definite finding

regarding any discretion in connection with recovery of

payments for past violations. At most the court found

that while there may be “some discretion in connection

with the recovery of past subsidies as distinguished from

payments to current violators, the discretion is not un-

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

limited.“ We agree with the Chief Judge that Congress

intended discretion to be exercised in imposing any such

recovery. Congress had two objectives in permitting,

under Section 810, recovery of payments or subsidies

made in the past: primarily, removal of the added burden

that U.S. payments to the violators imposed on the com-

petitive opportunities of the victim and, secondarily, im-

posing a certain deterrent effect against future viola-

tions.“ However, conflicting statutory purposes are pre-

sented. On the one hand, the Act requires promotion of

the U.S. merchant marine through subsidies and other

means, and, on the other hand, Section 810 requires with-

drawal of those subsidies when they are used to the detri-

ment of a U.S. operator within our merchant marine.

Certainly, Congress intended both purposes of the Act to

be carried out. Therefore, it is apparent that Congress

intended considerable discretion in weighing the recov-

eries to be effected for past discontinued violations so as

not to infringe seriously upon the promotional purpose

of the Act. Further since Section 810 is at least partially

penal in character in requiring retroactive recovery of

2 Ibid. It is also noteworthy that the Second Circuit, in

response to concerns of non-trade respondents, expressly stated:

“Nothing we have said should be read as preventing the

Maritime Administration from investigating the nature and

extent of the individual carrier’s participation in the illegal

action, should it find these matters relevant to its ultimate

decision on whether to seek recovery of subsidies paid

during the violation and, if so, how much and from whom.”

Safir v. Bibson, 432 F.2d 187, 145 n.2, 146 (2d Cir.), cert. denied,

400 U.S. 942 (1970).

See discussion of the Congressional intent in Section 810 as

to recoveries for past violations at page 56-60 infra.

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

subsidy for past violations, mitigating circumstances can

be considered in determining the sanctions to be imposed.”

The decision in Docket A-17 considered only the liability

under Section 810 for ongoing violations. It did not con-

sider recoveries for past violations or the discretion, if

any, of the amounts to be recovered with respect to each

individual violator. Accordingly, we consider respond-

ents’ arguments for mitigation of recoveries.

III. Mitigation Factors

Mitigation factors pertain both to non-trade respon-

dents and trade respondents. The former have the same

arguments for mitigation as for a finding of their not

having violated the statute. The latter advance several

mitigation factors which they claim require that no

amounts be recovered from any trade respondent.

A. Non-trade Respondents

Although the non-trade respondents technically vio-

lated Section 810, we are not persuaded that any sanc-

tions are warranted. As stated hereinabove, the non-

trade respondents did not, and could not under the AGA-

FBO agreement as implemented, vote on any of the illegal

rate reductions. None of these respondents had any com-

petitive service with Sapphire during the violation and

therefore carried no cargo at the reduced AGAFBO rates.

Their only connection with the condemned rate actions

was as a technical party to the AGAFBO condemned

rate tariffs due to their membership in AGAFBO.

Such technical connection, while conclusive of their

liability for violating Section 810, provides no basis under

2 . 9. United States v. H.M. Prince Textiles, Inc., 262 F.

Supp. 383, 388-89 (S. D. N. V. 1966).

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

the circumstances for imposing any sanctions for such

violation.

B. Trade Respondents

Trade respondents argue that some seven factors war-

rant mitigation of all recoveries for violating Section

810: (i) the military (Department of Defense—DOD, in-

cluding Military Sea Transportation Service — MSTS)

pressured AGAFBO to reduce rates to Sapphire’s level;

(ii) the Government is estopped by its actions from

penalizing respondents for making those reductions; (iii)

the reductions were made on advice of counsel; (iv) the

reductions did not injure Sapphire; (v) AGAFBO’s van

line policy towards associated companies of Sapphire was

justified; (vi) the reductions involved no predatory intent

toward Sapphire; and (vii) individual respondents had

special circumstances regarding the rate reductions merit-

ing mitigation.

(1) Military Pressure for Lower AGAFBO Rates

The Chief Judge found that the military exerted pres-

sure to get lower AGAFBO rates, but that the military

also believed that AGAFBO’s original rates were too high

for the services rendered and that AGAFBO members

rates for commercial cargoes were disparately lower than

for similar cargoes shipped under military auspices. He

also found that the military made no effort to obtain

reductions below compensatory rate levels or to obtain

reductions only to match the Sapphire rates but rather

that the military sought rate reductions across the board.

Trade respondents argue “that in actual facts MSTS

did not care one whit whether the rates offered by the

AGAFBO carriers were compensatory or not” and that

MSTS and DOD did seek AGAFBO rate reductions on a

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Appendix N—Opinion and Order of the Maritime

subsidy Board, Dated April 16th, 1973

discriminatory basis to the U.K./B-H range. They

particularly argue that the military sought lower AGA-

FBO rates by means of reducing for Sapphire certain

requirements usually iniposed upon carriers of military

cargoes. Public Counsel argues that the emphasis

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