Petition — Seatrain Shipbuilding Corp. v. Shell Oil Co.

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APR 30 1979

IN THE .

Supreme Court of the United States

OCTOBER TERM, 1978

No. ‘ 7 9 “ag!

1651

SEATRAIN SHIPBUILDING CORPORATION

and

POLK TANKER CORPORATION,

. Petitioners,

SHELL OIL COMPANY, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

JOHN W. VARDAMAN, JR.

WILLIAM E. MCDANIELS

JANE E. GENSTER

WILLIAMS & CONNOLLY

Hill Building

Washington, D.C. 20006

NEAL M. MAYER

CoLEs & GOERTNER

1000 Connecticut Avenue, N.W.

Washington, D.C. 20036

JONATHAN BLANK

PRESTON, THORGRIMSON, ELLIS,

HOLMAN & FLETCHER

919 - 18th Street, N.W.

Washington, D.C. 20006

Counsel for Petitioners

April 30, 1979

anneal

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

TABLE OF CONTENTS

Page

ee eee ii

Ne casene 2

EE 2

QUESTION PRESENTED 2... 2

STATUTORY PROVISIONS INVOLVED .................. 2

STATEMENT OF THE CASE oon... eeseeceeeeeeeeeee 2

REASONS FOR GRANTING THE WRIT .................... 10

NSE LETRA 26

ASS SE la

EE ECS 96a

TABLE OF AUTHORITIES

CASES: Page

E. 1. duPont de Nemours & Co. v. Collins, 432 U.S.

Es ESSER PANES sama ee nO eee 20

NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974)... 20

Permian Basin Area Rate Cases, 390 U.S. 747

RI nr ee CR are 1 cicalioen ieeibaapestansiaceniens 25

Red Lion Broadcasting Co., Inc. v. FCC, 395 U.S.

Ne en acinsehemmeunsanmnesanbenies 20

Udall v. Tallman, 380 U.S. 1 (1965) ....................--.. 20

STATUTES:

Merchant Marine Act, 1936, c. 858, § 506, 49 Stat.

TREES A CIR Fo CEES Cer eT 16

Merchant Marine Act, 1936, as amended, 46 U.S.C.

I TN chs eenncasiaiap abaperrioonanieneelicneilinnion passim

Merchant Marine Act, 1920, 48 U.S.C. § 883

I a i sealdaieeciabeenonnedionalpenisies 4, 22

LEGISLATIVE MATERIALS:

Reports

H.R. Rep. No. 2168, 75th Cong., 3d Sess.

ad sien sap aieenabedini 17

H.R. Rep. No. 1277, 74th Cong., Ist Sess.

OO a anion 16

S. Rep. 898, 74th Cong., Ist Sess. (1935) ...... 16

Bills

H.R. 9756, 92d Cong., Ist Sess. (1971) _........ 19

H.R. 7521, 74th Cong., Ist Sess. (1935) ......... 15

S. 4110, 74th Cong., 2d Sess. (1936) ................ 15

S. 3500, 74th Cong., 2d Sess. (1936) (Com-

mittee Print of March 3, 1936) -................... 15

S. 2582, 74th Cong., Ist Sess. (1935) -............. 15

Ill

TABLE OF AUTHORITIES—Continued

Hearings Page

Amending the Merchant Marine Act, 1936:

Hearings on S. 3078 Before the Senate Com-

mittees on Commerce and Education and

Labor, Part I, 75th Cong., 2d Sess. (1937)...... 17

Proposed Merchant Marine Act, 1936:

Hearings on S. 3509, S. 4110, and S. 4111 Be-

fore the Senate Committee on Commerce, 74th

oR et 16

MISCELLANEOUS:

Comptroller General Opinion B-155039, 44 Comp.

SG NP CD pith sGencntiadiohethact as wo tence passim

eee ee een Oe ee ee

IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

No.

SEATRAIN SHIPBUILDING CORPORATION

and

POLK TANKER CORPORATION,

¥ Petitioners,

SHELL OIL COMPANY, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Seatrain Shipbuilding Corporation and Polk Tanker

Corporation pray that a writ of certiorari issue to

review the judgment and opinion of the United States

Court of Appeals for the District of Columbia Cir-

cuit, entered February 6, 1979, reversing the sum-

mary judgment granted petitioners by the United

States District Court for the District of Columbia

and remanding for the entry of an order granting

respondents the relief requested.

OPINIONS BELOW

The opinion of the court of appeals is unreported

and set forth in Appendix A at la-6la. The opinion

of the district court is reported at 445 F. Supp. 1128

(D.D.C. 1978) and set forth in Appendix A at 65a-

95a.

JURISDICTION

The Court of Appeals entered judgment on Febru-

ary 6, 1979 and denied a timely petition for rehearing

on March 22, 1979. The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

QUESTION PRESENTED

Whether the broad contracting authority of the

Secretary of Commerce under the Merchant Marine

Act, 1936, includes the power to amend a construction

differential subsidy contract to remove domestic trade

restrictions in consideration for full subsidy repay-

ment, where the existence of such power is supported

by the legislative and administrative history of the

Act and furthers the Act’s fundamental policy goals.

- STATUTORY PROVISIONS INVOLVED

The relevant sections of the Merchant Marine Act,

1936, as amended, 46 U.S.C. § 1101, et seqg., are set

forth in Appendix B.

STATEMENT OF THE CASE

The T.T. STUYVESANT is a 225,000 deadweight

ton oil tanker constructed by Seatrain Shipbuilding

Corporation (“Seatrain”) for Polk Tanker Corpora-

Pb 2s ERR Ge BOA che ie Dnata! Vict Be Name» aaa

ee ae

tion (“Polk”) between 1972 and 1977. The vessel

was constructed with the assistance of a $27.2 million

construction differential subsidy (“CDS”) from the

federal government. In contracting for the CDS,

Seatrain and Polk agreed to limit the vessel’s opera-

tion in the domestic trades in accordance with Title V

of the Merchant Marine Act, 1936, as amended, 46

U.S.C. §§ 1101 et seg. (“the Act’).

On August 31, 1977, the Assistant Secretary of

Commerce for Maritime Affairs and the Maritime

Subsidy Board took a series of actions that enabled

the STUYVESANT to engage in the transportation

of Alaskan oil. Those actions included\a decision to

accept a full repayment of the $27.2 million CDS and,

in exchange, to delete from the contract the domestic

trade restrictions. The three respondent companies

filed suit for declaratory and injunctive relief, con-

tending inter alia that the Act does not authorize the

removal of trade restrictions in consideration for

subsidy repayment. The district court’s decision that

the Act empowered the federal officials to take the

challenged actions was reversed by a divided panel of

the court of appeals.

1, Statutory Framework

The Merchant Marine Act, 1936 was designed to

“foster the development and encourage the mainte-

nance” of an efficient U.S.-built, owned, manned and

serviced merchant marine capable of meeting the

nation’s defensive and commercial needs in the do-

mestic and foreign trades. (Section 101 of the Act,

46 U.S.C. § 1101.) The Act vests in the Secretary

of Commerce commensurate responsibility and auth-

ority to administer the nation’s maritime functions;

she is broadly charged to keep current on the entire

industry and “to study all maritime problems arising

in the carrying out of the policy set forth in Title I

of the Act.” (Sections 210-212 of the Act, 46 U.S.C.

§§ 1120-1122.) The Secretary is empowered to “enter

into such contracts ... a may, in [her] discretion,

be necessary to carry on the activities authorized by

this Act, or to protect, preserve, or improve the col-

lateral held by the [Department of Commerce] to

secure indebtedness... .” (Section 207 of the Act,

46 U.S.C. § 1117.)

The construction differential subsidy program,

codified in Title V of the Act, 46 U.S.C. §§ 1151-

1161, was designed to stimulate domestic ship-

building and to increase the number of American-

owned vessels. Although the requirements of the

Jones Act, 46 U.S.C. § 883, assured that vessels ope-

rating in the U.S. domestic trades would be built

here and owned by U.S. citizens, no similar provision

governs ships operating in the U.S. foreign trades.

Because the cost of building ships in this country is

and has historically been higher than that of building

them abroad, simple economics would dictate the use

of foreign shipyards for ships intended for the for-

eign trades in the absence of some equalizer. Congress

supplied that equalizer in Title V; the CDS program

BR RMIT, I II ID IE EN WP Boat em

authorizes the Secretary to subsidize the construction

of vessels intended for the foreign trade by paying

the approximate difference between the cost of do-

mestic and foreign construction.

The Secretary of Commerce and her delegees (here-

inafter “the Secretary”) have full authority over the

administration of the CDS program. Section 501, 46

U.S.C. § 1151, provides that CDS applications be sub-

mitted to the Secretary who is afforded broad dis-

cretion to determine subsidy eligibility. Sections 502

and 504, 46 U.i3.C. §§ 1152 and 1154, provide the

basic CDS contracting authority; that authority is

expansive in accordance with the Act’s multiple policy

goals. Section 503, 46 U.S.C. §§ 1153, provides that

CDS-built vessels shall be documented under the U.S.

flag throughout their useful lives and § 505, 46.U.S.C.

§ 1555, requires that subsidized vessels be constructed

in U.S. shipyards with domestic materials. Finally,

as relevant to this proceeding, § 506, 46 U.S.C. § 1156,

provides that owners of vessels for which CDS has

been paid “shall agree” to limit the operation of their

vessels to the foreign trade. Section 506 also provides

that the Secretary may, when she determines it

“necessary or appropriate to carry out the purposes

of this Act,” permit a CDS vessel to operate tem-

porarily in the domestic trades for up to six months

in any year in exchange for a partial, proportionate

CDS repayment.

Title XI provides an additional method by which

the federal government may assist the financing of

shipbuilding in the country. Obviating the need for a

ship owner to use his own credit to raise construction

capital, this title authorizes the agency to provide

substantial loan guarantees to finance both initial

construction costs of a vessel and a full or partial

CDS repayment.

2. Statement of Facts

In 1969, Seatrain commenced construction of a

series of supertankers at the shipbuilding facilities

of the former Brooklyn Navy Yard. Seatrain’s

adaptation of those facilities and institution of a

program to train and employ hard-core unemployeds

from the Bedford-Stuyvesant section of Brooklyn

attracted substantial economic assistance from the

Economic Development Administration of the Depart-

ment of Commerce (“EDA”), including loans of $5

million and 90% guarantees of $82 million in loans

to Seatrain.

The third vessel in the construction program, the

T.T. STUYVESANT, was constructed between 1972

and 1977. Its construction was initially assisted by

loan guarantees of $30.2 million pursuant to Title XI

of the Act and a $27.2 million construction differen-

tial subsidy paid pursuant to Title V of the Act. As

required by § 506, the STUYVESANT’s CDS con-

tract contained terms restricting the vessel’s opera-

tion in the domestic trade.

Trade conditions changed dramatically during the

six years that the STUYVESANT was under con-

struction. The 1973 Middle East conflict, the Arab

oil embargo and ensuing worldwide economic prob-

lems converged to decrease drastically the demand

for supertankers in the foreign trades. By 1977, the

foreign tanker market that the STUYVESANT had

been constructed to serve offered no prospect for its

employment. However, at the same time, the domestic

transportation of Alaskan oil—reserved to U.S.-built,

owned and operated vessels by the Jones Act—was a

thriving and undertonnaged tanker trade that sought

the STUYVESANT’s service. In mid-1977, Polk

secured an attractive opportunity to charter the

STUYVESANT for three years to Standard Oil Com-

pany of Ohio (“SOHIO”) to carry oil between Alaska

and Panama and, as a result of the charter, to sell

the vessel. The charter and sale were premised upon

the vessel’s ability to obtain release from the domestic

trade restrictions in its CDS contract.

On August 25, 1977, Polk applied for permission

to repay the $27.2 millic_., subsidy in exchange for the

permanent release of domestic trade restrictions on

the STUYVESANT. The Maritime Subsidy Board

and the Assistant Secretary of Maritime Affairs ap-

proved Polk’s request on August 30, 1977 on the

grounds that the STUYVESANT had no other op-

portunity for employment, the approval of the CDS

repayment and SOHIO charter would improve the

government’s collateral position and prevent default

on the various obligations insured and guaranteed by

the Department of Commerce, and the failure to

approve the proposal would jeopardize the continued

operation of the Seatrain shipyard.

A closing of the various financial transactions sur-

rounding the repayment, sale and charter of the

STUYVESANT was scheduled for September 23,

1977. On September 22, 1977, the respondents filed

suits against the Department of Commerce officials,

seeking temporary and permanent injunctive relief

from their decisions concerning the STUYVESANT.”

Polk and Seatrain were permitted to intervene as

defendants.

A temporary restraining order was granted and

subsequently dissolved when the court denied prelimi-

nary injunctive relief. The transactions closed on

September 30. As a result of these transactions,

% Alaska Bulk Carriers, Inc. and Trinidad Corporation

filed an action against the Secretary of Commerce Juanita M.

Kreps, Assistant Secretary of Commerce Robert J. Blackwell,

the Maritime Administration and the Maritime Subsidy

Board. In addition to Secretary Kreps and Assistant Secre-

tary Blackwell, Shell Oil Company sued Howard F. Casey,

then Deputy Assistant Secretary of Commerce, and Samuel

B. Nemirow, then General Counsel to the Maritime Admin-

istration.

2 At that time, the STUYVESANT was transferred to

United States Trust Company (“USTC”) as owner-trustee

for the new equity owner, General Electric Credit Corpora-

tion (“GECC”). The Secretary amended the STUYVES-

ANT’s CDS contract to delete the restrictions on the vessel’s

domestic trading, and Polk issued a fully collateralized

promissory note to the Secretary for $27,200,000 in repay-

ment of the full amount of the CDS. The note was assumed

i i in fe 4

(1) the Department of Commerce received a fully

collateralized $27.2 million note and was released

from $28 million of loan guarantees, (2) the STUY-

VESANT, which supports over $60 million of govern-

ment-insured indebtedness, is profitably employed

rather than standing idle in lay-up, and (3) a critical

shortage of tonnage for the transportation of Alaskan

oil was alleviated. The STUYVESANT has been

transporting oil from Alaska to Panama for SOHIO

since that time.

After cross motions for summary judgment were

filed, the district court held that the Secretary’s broad

contractual powers under the Act include the authority

to remove permanently trade restrictions on a CDS-

built vessel in exchange for CDS repayment. The

court rejected respondents’ argument that § 506 im-

plicitly bars the permanent removal of domestic trade

restrictions and reasoned that an absolute prohibition

of such action “precludes any and all administrative

flexibility and thereby at least potentially obstructs

by USTC which also assumed responsibility for $60,200,000

of government-insured indebtedness on the vessel, $31,355,000

of which is indebtedness incurred at the closing through the

sale of bonds. The proceeds received from the sale of the

bonds were used to repay loans of $28,000,000 guaranteed by

the EDA. USTC also paid Polk $32,600,000 in cash; these

funds were placed in an interest-bearing certificate of deposit

account and secure a guarantee to GECC provided by Sea-

train Lines, Inc., the parent corporation of Seatrain and

Polk. USTC then bareboat-chartered the vessel to Queensway

Tankers which in turn time chartered it to SOHIO for

three years.

the Secretary’s ability to effectuate the broad statu-

tory goals set forth [in Title I of the Act].” (App.

A at 78a.) A divided panel of the court of appeals

disagreed and reversed. Interpreting the Act to ear-

mark permanently suosidized and unsubsidized vessels

for “two completely separate competitive areas”

(App. A at 50a), the panel majority concluded that

the Secretarv’s action is unauthorized by the Act,

implicitly prohibited by § 506, and contrary to the

Act’s overal. purposes.

REASONS FOR GRANTING PETITION

This case presents an important issue of federal

law in a unique posture. No court other than the

lower courts in this case have ruled on the issue here.

The four judges who have considered the case have

split evenly on the fundamental question of the Secre-

tary’s statutory authority. Regardless of its merit,

the disposition of the case by the court of appeals

will prevent the Secretary from granting any perma-

nent release of trade restrictions in the future. Thus

there will never be another opportunity for this Court

or any other court to review the issue presented by

this case. The importance of the issue to the federal

maritime program, the staggering economic conse-

quences to the commercial transactions entered into

on the basis of the Secretary’s action, the panel ma-

jority’s crabbed and erroneous interpretation of the

Secretary’s authority under the Act, and the blatant

anti-competitive effect of the decision below combine

to warrant review by this Court.

cee Caan, ee a Ow ee he Ree Pe ee OR ene ee ee ve

1. The decision of the court of appeals overturns a

longstanding agency interpretation and carries seri-

ous adverse implications, both short and long term,

for the Department of Commerce and the nation’s

maritime industry.

The immediate impact of the decision below is the

disqualification of the STUYVESANT from long

term, continuous employment in the nation’s domestic

trades. That disqualification threatens enormous

financial loss to the United States treasury and the

parties to the charter and sale transaction. It de-

prives the federal government of a $27 million sub-

sidy repayment, jeopardizes $60 million of loans and

guarantees extended by the Department of Commerce

and secured by the STUYVESANT, threatens Sea-

train Lines, Inc. with an obligation to perform on its

$30 million guarantee to GECC, and potentially rele-

gates a $100 million American-built, owned and

crewed supertanker to lay-up and foreclosure.

The more general consequence of the decision is to

cripple the Secretary’s ability to oversee and permit

deployment of the American fleet in the best interests

of the industry and the public. It denies her the dis-

cretion and flexibility necessary to respond effectively

to the exigencies of changing conditions and markets

in the maritime world, and thus to effectuate the

fundamental and explicit purposes of the Act. This

result presents a windfall to the unsubsidized fleet by

permanently insulating it from fair competition with

vessels that once received but have remitted their

subsidy. The decision skews the Act to benefit one

segment of the American merchant marine at om

expense of the rest of the industry, and thus su

stantially undermines the balance of interests that

Congress achieved in the Act itself.

2. In reversing the district court and declaring the

Secretary’s actions beyond her statutory authority,

the panel majority concluded that the permanent

removal of domestic trade restrictions on a CDS-built

vessel is not authorized by any provision of the Act,

is implicitly precluded by § 506, and is contrary to

the overall purposes of the Act. The majority makes

three basic mistakes: (a) the Act amply empowers

the Secretary to take the action challenged here; (b)

§ 506 does not bar the permanent removal of trade

restrictions; and (c) the action is fully supportive of

and consistent with the congressional policy expressed

both in the legislative history and the structure of the

Act, including § 506 itself.

a. The Secretary’s Authority

No provision of the Act authorizes in haec verba

the Secretary to delete from a CDS contract the terms

restricting domestic trading by a vessel constructed

with CDS assistance in consideration for full CDS

repayment. That omission, however, does not deny

the Secretary the amendatory authority where such

a power is included in the broader authority afforded

by the Act. The decisions of the district court and

the dissent below recognize that the expansive con-

Ae SA pr lal “ina to BK Fite

tractuai powers of the Secretary under the Act pro-

vide ample authority for the Secretary’s decision con-

cerning the STUYVESANT.

The Act entrusts to the Secretary the formidable

obligation to effectuate the policy goals set forth in

Title I. That title declares a national policy of bolster-

ing domestic shipyards, and fortifying and increasing

the number and competitive abilities of Jones Act

vessels in both the domestic and foreign trades.

The discretionary powers afforded the Secretary

under the Act are as broad as the duties imposed upon

her. Section 207 flatly empowers the Secretary to

“enter into such contracts, upon behalf of the United

States, ... as may, in [her] discretion, be necessary

to carry on the activities authorized by [the] Act, or

to protect, preserve or improve the collateral held by

the [government] to secure indebtedness ... .” (App.

B at 99a.) Section 504 places within the Secretary’s

power the full authority to make CDS contracts ( App.

B at 122a), and this sectiox has been interpreted,

correctly we submit, in reorganization plans to in-

clude the related authority to amend and terminate

such contracis.* (See App. B at 107a, 112a-113a.)

The Secretary’s CDS contracting authority is qualified

only by the requirement of §§ 501(a) and 504 that

CDS contracts “shall not restrict the lawful or proper

* Reorganization Plan No. 21 of 1950, § 105(1), 64 Stat.

1278. See also Reorganization Plan No. 7 of 1961, § 202(b)

(1), 75 Stat. 840.

use or operation of the vessel, except to the extent

expressly required by law.” (Emphasis added. )

(App. B at 113a-114a, 122a.)

These contractual powers embrace the ability to

amend a CDS contract to delete domestic trade re-

strictions in consideration for subsidy repayment,

unless the existence of such authority is otherwise

expressly denied by the Act or inconsistent with its

overall purposes and policies. All opinions issued be-

low agree that the Act contains no provision that

expressly prohibits the permanent release of trade

restrictions. The decision of the panel majority

turned instead upon its erroneous reading of § 506

as an implicit bar to such authority and its misper-

ception of the Act’s fundamental purposes.

b. Section 506 of the Act

The panel majority concluded that § 506 implicitly

prohibits the permanent removal of domestic trade

restrictions on a CDS-built vessel. An examination of

the provision, its legislative history, and administra-

tive interpretation demonstrates the error of this

conclusion.

Section 506 requires a vessel owner to agree to

operate the vessel in the foreign trades as the quid

——< pro quo for CDS payment. That agreement is not

absolute. Rather § 506 expressly contemplates that

a CDS vessel may spend six months of every year,

and thus half its economic life, in direct competition

with unsubsidized vessels in the domestic trades. The

aa ie

Geiser’ ARR oats PEE a SN

——ee .

Ss Shi SR Saat EES SSG SREY DS

opportunity for such temporary doinestic trading is

conditioned upon (1) the owner’s remittance of a

proportionate amount of its subsidy, and (2) the

Secretary's determination that the temporary trans-

fer is “necessary or appropriate to carry out the pur-

poses of [the] Act.” (App. B at 122a-128a.)

; The language of § 506 establishes only the restric-

tions that attach to a vessel that has received and

still retains the financial benefits of the subsidy. The

provision does not address, and thus imposes no re-

striction on, the trading opportunities of a vessel that

once received but has remitted in full a subsidy. The

logic of the statutory provision does suggest, however

that any trade restrictions that attach as m condition

of the subsidy’s receipt should be removed in consid-

eration for its full repayment, if the Secretary finds

ra such action would further the purposes of the

An analysis of the Act’s legislative history plainly

establishes that result as the intention of the fram-

ers of the Act. Indeed, multiple bills proposed prior

to the Act’s passage,* statements in the relevant Con-

‘See, e.g., H.R. 7521, 74th Cong., lst Sess

(introduced by Judge Bland, Chairman of Aone

on Merchant Marine and Fisheries) ; S. 2582, 74th Cong., 1st

Sess. §504 (1935) (introduced by Senator Copeland Chair

man of Senate Commerce Committee) ; S. 4110, 74th Sone:

2d Sess. § 27 (introduced by Senator Guffey) ; S. 3500 74th

Cong., 2d Sess. §506(b) (introduced by Senator Copeland

Committee Print of March 3, 1936). “3

gressional reports,’ the comments of the Act’s pio-

neers, including Senators Black, Copeland and Guffey,’

and the original language of § 506° all expressly

contemplated and approved the permanent release of

the trade restrictions upon full subsidy repayment.

Although the panel majority grudgingly recognized

the demonstrable intent of the enacting Congress, it

concluded that a 1938 amendment to § 506° dispelled

the authority to release permanently domestic trade

restrictions. The incorrect observation rests exclu-

sively on the unexplained deletion of the language de-

scribing the Secretary’s permanent waiver authority

during the course of the 1938 amendment and contra-

dicts the legislative history and the contemporaneous

industry understanding. The legislative history firmly

5 See H.R. Rep. 1277, 74th Cong., 1st Sess. 22 (1935).

® See, e.g., S. Rep. 898, 74th Cong., 1st Sess. 44 (1935) ;

Proposed Merchant Marine Act, 1936: Hearings on S. 3500,

§. 4110 and S. 4111 Before the Senate Committee on Com-

merce, 74th Cong., 2d Sess. 124, 183 (1936).

7 Section 506 as enacted in 1936 stated in relevant part: “It

shall be unlawful to operate any vessel, for the construction

of which any subsidy has been paid pursuant to this title,

other than exclusively in the foreign trade.... unless the

owner of such vessel shall receive the written consent of the

Commission so to operate and prior to such operation shall

agree to pay to the Commission, upon such terms and condi-

tions as the Commission may prescribe, an amount which

bears the same proportion to the construction subsidy there-

tofore paid or agreed to be paid... . as the remaining eco-

nomic life bears to its entire economic life.” Act of June 24,

1986, c. 858, § 506, 49 Stat. 1999.

® Act of June 23, 1988, § 18, 52 Stat. 958.

Pen —

pat a 0 Fai latte ce at

EP ee, Bees

establishes that the purpose of the 1938 amendment

to § 506 was to clarify the requirement of a propor-

tionate subsidy repayment in cases of temporary

domestic trading by CDS vessels.° The dissent cor-

rectly notes that “nowhere in the legislative history

is there any indication that permanent waivers, ap-

parently permissible under the 1936 Act, were ex-

pressly considered and eliminated in 1938.” (App. A

at 55a.) Moreover, Congress specifically stated that

the 1938 amendment effected “[n]o fundamental

change in the original purpose of the section,” ” a

purpose that plainly included permanent trade re-

striction release. Finally, the legislative history dem-

onstrates that the unsubsidized operators did not

share the panel majority’s view of the effect of the

amendment. Indeed, their representatives testified

against the amendment on the grounds that it ex-

panded the ability of CDS vessels to compete in the

domestic trades and urged upon Congress the result

that the amendment did not offer them—the perma-

nent bar of a vessel built with CDS assistance from

the domestic trades.”

The agency has consistently interpreted the Act

to authorize the release of domestic trade restrictions

° See, e.g., H.R. Rep. 2168, 75th Cong., 8d Sess. 21 (1988).

1 Id.

Amending the Merchant Marine Act, 1936: Hearings on

S. 8078 Before the Senate Committees on C

ommerce and

Education and Labor, Part I, 75th Cong., 2d Sess. 44 (1987).

upon full CDS repayment. It first exercised the au-

thority in 1964 in response to a request by Grace

Line that the agency amend CDS contracts on two of

its vessels to delete the domestic trade restrictions in

exchange for full CDS repayment. At that time, the

agency decided and the Comptroller General agreed *

that no provision of the Act, including § 506, pro-

hibited the exercise of that authority. Although the

panel majority distinguishes the facts and quarrels

with the reasoning of the Grace Line decision, the

opinion quite plainly evidences the agency’s consid-

ered view of its powers under the Act. That inter-

pretation has been consistently, albeit sparingly, re-

affirmed by the agency in the intervening years and,

rather than attempting to curb the authority, Con-

gress has knowingly approved the interpretation and

promoted the exercise of the Secretary’s permanent

waiver authority.

Six years after Grace Line, Congress amended

the Act including Title V in some detail, leaving

intact the agency’s 1964 interpretation of its Title V

powers."* Two years later, in its 1972 amendments

to Title XI of the Act, Congress specifically consid-

ered and indeed facilitated the exercise of the per-

manent release authority. Among the amendments

adopted to improve the Act’s responsiveness to the

12 Comptroller General Decision B-155039, 44 Comp. Gen.

180 (1964).

18 See P.L. 91-469, 84 Stat. 1018 (1970).

PID RE NED IE Rt ts ih He a POE AO AE DONS be MELA E RR ie Sir

PS eet ee a

financing needs of the industry was § 1104 (a) (3),

46 U.S.C. §1274(a)(3). (App. B at 123a-124a.)

Section 1104 (a) (3) extends to the Secretary the au-

thority to guarantee private obligations that aid in

“financing, in whole or in part, the repayment of

any amount of construction-differential subsidy .. .”

As originally proposed, the section explicitly embraced

full CDS repayments made to obtain the permanent

release of trade restrictions. In order to extend the

financing guarantees to both full CDS repayment for

trade restriction release and partial CDS repayment

for § 506 temporary and incidental trade, Congress

deleted the qualifying language that referred specifi-

cally to the permanent removal of trade restrictions.

However, as the dissent recognizes, Congress’ ex-

planation of the amendment establishes unequivocally

its knowledge and approval of the Grace Line au-

thority. (See App. A at 57a-58a.)

The agency’s interpretation in Grace Line and

Congress’ subsequent affirmation of its authority mer-

** As originally introduced, the bill provided for

“. . . financing, in whole or in part, the repayment

to the United States of any amount of construction-

differential subsidy paid with respect to a vessel pur-

suant to Title V of this Act, as amended, in order to re-

lease such vessel from all restrictions imposed as a result

of the payment of construction-differential subsidy, when

such repayment is permitted by the Secretary of Com-

merce after considering the competitive effect of releas-

ing such vessel from such restrictions.” H.R. 9756, 92d

Cong., Ist Sess. §8 (1971).

_—

= > ipepitny Le Ssetie

20 21

ing and increasing the number and competitive abili-

ties of Jones Act vessels in both the United States

ited the deference afforded them by the district court

and the dissent below.

“Subsequent legislation declaring the intent of

an earlier statute is entitled to great weight in

statutory construction. And here this principle

is given special force by the equally venerable

principle that the construction of a statute by

those charged with its execution should be fol-

lowed unless there are compelling indications

that it is wrong, especially when Congress has

refused to alter the administrative construction.

Here, the Congress has not just kept its silence

by refusing to overturn the administrative con-

struction, but has ratified it with positive legis-

lation.” Red Lion Broadcasting Co., Inc. v. FCC,

395 U.S. 367, 380-382 (1969). (Footnotes de-

leted. )

See NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-

275 (1974). The agency interpretation must be af-.

firmed unless it is unreasonable, Udall v. Tallman,

380 U.S. 1, 16-18 (1965), or there are “compelling

indications” that it is incorrect. E. I. du Pont de

Nemours & Co. v. Collins, 482 U.S. 46, 54-55 (1977 ).

c. The Purposes and Policies of the Act

The decision of the panel majority proceeds from

its fundamental belief that the unsubsidized owner

needs, is entitled by statute to receive, and has relied

upon freedom from any competition with CDS-built

vessels. The 40-year history of the Act contradicts

this anticompetitive approach. The express and over-

riding purposes of the Act declare a policy of fortify-

Ds LE RM bd BPS Bahn <TR i i Pd en

domestic and foreign trades. The language and legis-

lative history of the Act, particularly that of § 506,

reveal no generalized congressional intent to bar com-

petition between the subsidized and unsubsidized fleets

but instead evince a circumscribed purpose to assure

that all such competition would be fair.

Congress recognized the potential for unfair com-

petition between subsidized and unsubsidized vessels

under circumstances where the retention of the sub-

sidy could afford a material competitive advantage.

To eliminate unfair competition, § 506 exacts the

price of domestic trading restrictions for the sub-

sidy benefit. The full disgorgement of the subsidy,

however, eliminates any unfair advantage that a

CDS-built vessel might otherwise have. Indeed, as

Judge Bazelon aptly observed below:

Full repayment of subsidy irrevocably places the

transferred vessel on the same footing as all

other ships in the Jones Act fleet, without afford-

ing an unfair advantage to the previously sub-

sidized operator. The only conceivable harm to

the Jones Act operators is an increase in com-

petition from an additional U.S.-flag, U.S.-built

vessel. I do not believe it is the purpose of

§ 506 in particular, or the Merchant Marine Act

as whole, to protect Jones Act operators from

this type of competition. (Footnote deleted.)

(App. A at 59a.)

The panel majority misapprehends the Act and its

history by reading into it a purpose never intended—

the isolation of subsidized and unsubsidized vessels

into two “completely separate competitive areas.”

(App. A at 50a.) The majority’s approach confuses

the protectionist purposes of the Jones Act with the

distinct purposes of the Merchant Marine Act, 1936.

The Jones Act reserves United States domestic trade

for U.S.-built and U.S.-flag vessels. The STUYVES-

ANT satisfies all requirements of the Jones Act. The

Merchant Marine Act, 1936, established a system

for subsidizing U.S.-built and operated vessels in the

foreign trade with the express objective of increasing

the overall strength of the national merchant marine.

All of the Act’s multiple purposes, including the pro-

tection of the unsubsidized owner from unfair com-

petition,” were served by the Secretary’s decision

- concerning the STUYVESANT.

15 At the direction of the district court on remand, the

agency reconsidered its decision admitting the STUYVES-

ANT to the domestic trade with particular focus on the com-

petitive impact of the vessel’s entry on that trade. The

agency invited and received comments from interested parties,

including the respondents in this case. The conclusion reach-

ed in the agency’s 37-page opinion was that the competitive

effect of accepting CDS repayment under the approved terms

and of allowing the STUYVESANT to engage in the Alaska

trade is “none or minimal.” (TT STUYVESANT—Repay-

ment of CDS, Operation in Jones Act Trade, MSB Docket

A-124, Final Opinion and Order on Reconsideration, January

6, 1978.)

The STUYVESANT became available for domestic

commerce while it had been unmarketable in the

United States foreign trade. The STUYVESANT re-

mains capable of responding in a military emergency.

The STUYVESANT continues to be owned and

operated under a United States flag by United States

citizens. The STUYVESANT is a safe vessel con-

structed in the United States and manned by trained,

efficient United States personnel. The STUYVES-

ANT’s construction and the Secretary’s financial aid

to the shipyard made a significant contribution to the

existence of domestic facilities for shipbuilding and

repair. Finally, as an added advantage of the deci-

sion, the revenues generated by the sale and charter

transaction permitted the repayment of debt guaran-

teed by the government and protected the collateral

for the government’s outstanding loans and guaran-

tees.

The purposes of the Act are not furthered, and

indeed are thwarted, by the profoundly anti-competi-

tive view advanced by the panel majority. The Act

does not license the unsubsidized owner’s exploiting

a demand/supply imbalance in the domestic trades

when an American-built, owned and operated vessel

is without a market and poses no unfair competitive

threat in the domestic trade. In extending such com-

mercial privilege to the respondents, the panel ma-

jority unduly credited their dramatic claims of sur-

prise at the Secretary’s action and of reliance upon the

absence of permanent competition with vessels con-

structed with CDS assistance in the Alaskan oil

trade. Pursuant to the six-month transfer and inci-

dental trade provisions of § 506 and the permanent

trade restriction release option exemplified by Grace

Line, vessels built with CDS can and do fairly com-

pete with other Jones Act vessels in the domestic

trades. The possibility of full or part time competi-

tion with CDS vessels has been widely recognized by

the industry for years. Moreover, the events that

swelled the demand for tankers in Alaska were as

unforeseeable as those that depressed the foreign

market for such vessels.

The respondents, through this action, have strived

vigorously to preclude the entry of a new competitor

into the important Alaskan oil trade. The efforts of

the respondents here parallel the requests made of

Congress by unsubsidized operators in 1938. Only

the result reached by the court of appeals is different.

The decision of the panel majority awards the un-

subsidized Jones Act owners the permanent monopoly

in the domestic trades that Congress in the past re-

fused to sanction.

The Merchant Marine Act, 1936—as originally en-

acted by Congress, as interpreted by the agency, and

subsequently affirmed by Congress—affords the Secre-

tary the necessary authority to respond to the extra-

ordinary confluence of factors that prompted and sup-

port her STUYVESANT decision. The repayment of

the CDS satisfies the congressional requirement of

fairness embodied in the Act. The employment of the

vessel, the safeguarding of the federal guarantees and

loans, and the assistance to the shipyard respond

directly to the Act’s overriding and fundamental

goals to foster and maintain an efficient national

merchant marine. “This Court has repeatedly held

that the width of administrative authority must be

measured in part by the purposes for which it was

conferred. . . . Surely the [Secretary’s] broad re-

sponsibilities . . . demand a generous construction of

[her] statutory authority.” Permian Basin Area

Rate Cases, 390 U.S. 747, 776 (1968) (Citations de-

leted.) The decision of the panel majority under-

mines the equilibrium of interests established by

Congress, intrudes upon the Secretary’s rightful au-

thority, and awards the respondents an unwarranted

freedom from competition in the domestic trades.

CONCLUSION

For all of the above reasons, a writ of certiorari

should issue to review the judgment and opinion of

the Court of Appeals for the District of Columbia

Circuit.

Respectfully submitted,

JOHN W. VARDAMAN, JR. ‘

WILLIAM E. MCDANIELS

JANE E. GENSTER

WILLIAMS & CONNOLLY

Hill Building

Washington, D.C. 20006

(202) 331-5000

M.M

"ae idee sf APPENDICES

1000 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 296-5460 ~—

JONATHAN BLANK

PRESTON, THORGRIMSON, ELLIS,

HOLMAN & FLETCHER

919 - 18th Street, N.W.

Washington, D.C. 20006

(202) 331-1005

Counsel for Petitioners

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 77-2080

ALASKA BULK CARRIERS, INC.

TRINIDAD CORPORATION, APPELLANTS

JUANITA M. KREPS, SECRETARY OF COMMERCE,

U.S. DEPARTMENT OF COMMERCE, ET AL.

(Civil Action No. 77-1647)

No. 78-1211

SHELL OIL COMPANY

(a Delaware Corporation) , APPELLANT

JUANITA M. KREPS

(INDIVIDUALLY AND AS SECRETARY OF THE UNITED STATES

DEPARTMENT OF COMMERCE ACTING IN HER OFFICIAL

CAPACITY), ET AL.

(Civil Action No. 77-1645)

No. 78-1212

ALASKA BULK CARRIERS, INC.

TRINIDAD CORPORATION

JUANITA M. KREPS, SECRETARY OF COMMERCE

U.S. DEPARTMENT OF COMMERCE, ET AL.

PoLK TANKER CORPORATION, ET AL., APPELLANTS

(Civil Action No. 77-1647)

No. 78-1281

SHELL OIL COMPANY

(a Delaware Corporation),

JUANITA M. KREPS

(INDIVIDUALLY AND AS SECRETARY OF THE UNITED STATES

DEPARTMENT OF COMMERCE ACTING IN HER OFFICIAL

CAPACITY), ET AL.

SEATRAIN SHIPBUILDING CORP. AND

POLK TANKER CORP., APPELLANTS

(Civil Action No. 77-1645)

Appeals from the United States District Court

for the District of Columbia

Argued 16 October 1978

Decided 6 February 1979

Before BAZELON, MCGOWAN, and WILKEyY, Circuit

Judges.

Opinion for the Court filed by Circuit Judge WILKEY.

Dissenting opinion filed by Circuit Judge BAZELON.

II.

III.

IV.

¥s

OUTLINE OF THE OPINION

Alaska Bulk Carriers V. Kreps, et al.

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Bi, CII ancien ss ccevceciecsinorsssesentennnesetnnconmneemninten

BR, FI onc mcs csterteetirenstieinaeememnnale

THE WUE... e

ANALYSIS OF SECTION 506 OF THE MER-

CHANT MARINE ACT OF 1986 ....................-..-

A. Section 506 on Its Face ................-2..--..-..----++-

1. Exclusion of Other Exceptions ................

2. Findings of Need as Essential Basis for

Vie IT 5. sésscccccaosserhinemansdninrdelnens

B. Legislative History of Section 506 ......... Part

1. The Original 1986 Act ..............................

2. 1988 Amendments .......................-ccc0c0-20000

C. Administrative Interpretation .......................-

SECTIONS OF THE MERCHANT MARINE

ACT OF 1936 RELIED UPON BY THE

AGENCY AND THE TRIAL COURT AS

SOURCES OF AGENCY AUTHORITY ........

A. Section 504, Title V, of the Merchant, Ma-

rine Act of 1936 (46 U.S.C. § 1154) EMR

B. Section 207, Title V, of the Merchant Ma-

rine Act of 19386 (46 U.S.C. § 1117) ............

C. Section 1104(a), Title XI, of the Merchant

Marine Act of 1986 (46 U.S.C. § 1274(a)

GID Doce rencneviccsieanenceetenienineesecustcnnssnnniaensinassiiomeats

POLICY OF THE MERCHANT MARINE ACT

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Page

WILKEY, Circuit Judge: This is an appeal from an

unsuccessful challenge in the District Court by appellant-

plaintiffs to action taken collectively by the Secretary of

Commerce, the Maritime Administrator, and the Mari-

time Subsidy Board. The Agency (to use the term in-

clusive of the actions and authority of all appellee-

defendants) had removed statutory restrictions barring

operations of the 225,000-ton tanker Stuyvesant in the

domestic maritime trade in exchange for the repayment

(by 20-year promissory notes) of the entire $27.2 million

subsidy the Agency had previously paid toward construc-

tion of the Stuyvesant. We hold that nothing in the

Merchant Marine Act of 1936° permi‘s the permanent

removal of the statutory bar to the utilization of

construction-subsidized vessels in the domestic maritime

trade, and therefore reverse the decision of the District

Court.

I. BACKGROUND

A. Statutory

It has long been recognized that the cost of building

ships in U.S. shipyards, and likewise the cost of operat-

ing vessels with American crews and according to Ameri-

can safety standards, is considerably higher than con-

struction in foreign shipyards or operation with foreign

crews. It has also long been recognized that an adequate

merchant marine is vital to both the national defense and

the commercial welfare of the United States.* Since the

earliest days of the Republic, the problem of maintaining

an adequate merchant marine in the domestic trade has

been solved by preferential legislation that only U.S.-

1 Pub. L. No. 74-835, ch. 858, 49 Stat. 1985 (20 June 1936), as

amended, 46 U.S.C. § 1101 et seq. (1970).

2 See Sea Land Service, Inc. v. Kreps, 566 F.2d 763, 765 (D.C.

Cir. 1977) ; Merchant Marine Act of 1936, 46 U.S.C. § 1101 (pre-

amble) ; Approval of Operating-Differential Subsidies Under Sec-

tion 605(c) of the Merchant Marine Act of 1936: A New Standard

for “Adequacy,” [1978] DUKE L.J. 252.

built and U.S.-flag vessels can be operated in commerce

between points in the United States.* The Jones

Act, § 27 of the Merchant Marine Act of 1920,* provides

that only vessels “built in and documented under the laws

of the United States and owned by persons who are citi-

zens of the United States” may engage in domestic trade,

defined as trade “between points in the United States, in-

cluding Districts, Territories, and Possessions thereof em-

braced within coastwise laws. . . .”° Since all ships

operating in the U.S. domestic trade are both US.-built

and owned, there has thus never been a need for a

subsidy.

In U.S. foreign commerce, however, the practical com-

petitive situation is otherwise. Every foreign nation with

which the United States trades has precisely the same

interests and precisely the same right to have cargo

passing between the two countries carried in ships of its

flag. If the construction and operating costs of the

foreign-flag vessels are lower, which they are and have

been for many years, then on a purely competitive basis

both import and export cargo of the United States

will be carried exclusively in foreign-flag vessels. To

forestall this highly undesirable situation, Congress for

many years has authorized both a subsidy for ships to

3 See Act of 4 July 1789, ch. II §5, 1 Stat. 24, 27 (discount

on duties for goods imported in vessels owned by U.S. citizens) ;

Act of 20 July 1789, ch. III, 1 Stat. 27 (tax on foreign vessels

transporting U.S. products “coastwise” within the United States) ;

Act of 1 March 1817, ch. XXXI, 3 Stat. 351 (direct prohibition of

use of foreign vessels in domestic trade).

*P.L. No. 66-261, ch. 250, § 27, 41 Stat. 999 (5 June 1920), 46

U.S.C. § 8883 (1970). The term “Jones Act” is perhaps most

commonly used to refer to § 33 of the Merchant Marine Act of 1920.

See 41 Stat. 1007, 46 U.S.C. § 688 (1970). This section provides for

recovery for injury to or death of a seaman. See id. In this opinion,

however, we will use the term “Jones Act” to refer only to § 27 of

the Merchant Marine Act of 1920.

5 See Merchant Marine Act of 1920, supra, § 27, 46 U.S.C. § 883

(1970).

be built in U.S. yards and an operating-differential sub-

sidy for the manning of American-flag vessels by Ameri-

can citizens in accordance with American safety stand-

ards. Under the construction-differential subsidy pro-

gram,’ which is the only subsidy at issue here, the Gov-

ernment may pay up to 50% of the construction costs of

vessels needed for the U.S. foreign maritime trade.’

The U.S. merchant fleet is thus divided into two dis-

tinct segments. The “Jones Act” fleet, which operates

in the protected U.S. domestic trade, cannot economically

compete in foreign trade with either foreign ships or

the U.S. subsidized fleet, because Jones Act ships are

built and operated without subsidy and are thus far more

costly to their American owners. The subsidized U.S.

merchant fleet has never been allowed to compete in the

domestic trade, because it would be grossly unfair to

allow U.S. vessels which have received a sudsidy of up to

50% of construction costs to compete with U.S. vessels

whose owners paid the full costs of construction in U.S.

yards. The Jones Act preference legislation, designed to

encourage construction in U.S. shipyards and the em-

ployment of U.S.-fiag vessels in the domestic trade, all

without direct cost to the taxpayers, would be completely

negated if subsidized U.S.-flag competition were allowed

to invade this protected reserve. As a consequence of

such competition, American shipowners would be re-

luctant to build vessels without subsidy and the long-

range investment decisionmaking of American shipowners

and shipbuilders would be seriously upset.*

The appellants argue that “[u]ntil the agency actions

complained of here, ships built in U.S. shipyards for the

* See 46 U.S.C. §§ 1151-61 (1970).

7 See 46 U.S.C. § 1152(b) (1970).

® See Opening Brief for Appellants Alaska Bulk Carriers, Inc.

and Trinidad Corp. at 6-8 [hereinafter cited as Brief for Alaska

Bulk and Trinidad].

subsidized fleet were permanently barred from competing

with the Jones Act fleet in the protected domestic trade.” °

Appellants point to § 506 of the Merchant Marine Act

of 1936 as providing this statutory barrier. Section

506 provides that the owner of any ship built with

construction-differential subsidy must agree that the

vessel is to be operated only in foreign trade, except for

certain intermediate stops in the United States or its

territories as part of world-wide voyages or under tem-

porary waivers granted by the Agency not to exceed

six months in any one year.“ The exact language of

§ 506 constituting this statutory bar, with two exceptions,

is:

Every owner of a vessel for which a construction-

differential subsidy has been paid shall agree that

the vessel shall be operated exclusively in foreign

trade... [or on voyages with intermediate stops as

part of world-wide voyages] . .. and that if the

vessel is operated in the domestic trade on any of

the above-enumerated services, he will pay .... [a

proportional amount of the subsidy]. The Secretary

may consent in writing to the temporary transfer

of such vessel to service other than the service cov-

ered by such agreement for periods not exceeding six

months in any year, whenever the Secretary may de-

termine that such transfer is necessary or appropri-

ate to carry out the purposes of this chapter. [Pro-

portional repayment of the subsidy again provided.]

While other sections of the Merchant Marine Act of

1936 are discussed by both sides in this case, § 506 is

the centerpiece about which the argument turns, and in

our view its proper interpretation is decisive here.

® See id. at 6.

1046 U.S.C. § 1156 (1970).

1 Jd,

B. Factual

The Stuyvesant, a 225,000 deadweight ton oil tanker,

was built at a total allocated cost of $102.7 million by

Seatrain Shipbuilding Corporation.” The United States

Government’s contribution to the financing was as

follows: “

$27.2 million—

construction-differential subsidy awarded by the

Agency in 1972, the equivalent of 26% of the

total cost of construction of the Stuyvesant, un-

a V of the Merchant Marine Act of

1936;

$30.2 million—

loans guaranteed by the Agency under Title

XI of the Act;

12 See Brief for the Secretary of Commerce and Other Federal

Appellees at 15-16 & n.11. Cf. Affidavit of Robert Brown, Vice

President-Finance of Seatrain Lines, Inc., parent company of inter-

venors Seatrain Shipbuilding Corp. and Polk Tanker Corp., Jt.

App. at 256, 262 (approximate $120 million cost of eventual “sale”

of Stuyvesant to United States Trust Company as owner-trustee

for General Electric Credit Corporation) (affidavit dated 25 Sept.

1977) [hereinafter cited as Affidavit of Robert Brown]. Other

estimations of the value of costs of construction of the Stuyvesant

at different times, however, have yielded different figures. See, e.g.,

letters of James Dawson, Jr., Secretary of Maritime Administration,

to Polk Tanker Company and Queensway Tankers, Jt. App. at 208,

209; 213, 214 (construction costs of $70.2 million and net interest

of $5.4 million, yielding figure of “final actual cost of construction”

of approximately $75.6 million) [hereinafter cited as letters of

James Dawson].

18 See Affidavit of Robert Brown, supra note 12, Jt. App. at 257-61

(reviewing construction-differential subsidy payment for Stuyvesant

and loans conferred or guaranteed by Economie Development Ad-

ministration) ; letter of Howard Pack, Prseident of Seatrain Lines,

Inc., to Robert Blackwell, Assistant Secretary for Maritime Affairs,

Jt. App. at 190, 191 (noting debt financing under Title XI) (letter

dated 8 July 1977) [hereinafter cited as letter of Howard Pack].

$5 million—

loan by the Economic Development Administra-

tion (EDA), another agency of the Department

of Commerce, for conversion from military to

civilian purposes of the former Brooklyn Naval

Yard, which constructed the Stuyvesant and

other ships for Seatrain Shipbuilding Corpora-

tion (Seatrain) ;

$73.8 million—

EDA guarantee to the extent of 90% of addi-

tional $82 million private loans to Seatrain

Shipbuilding for the purpose of developing and

maintaining the Brooklyn Naval Yard.

In accordance with § 506 of the Act, as a condition to

receiving the $27.2 million subsidy, Seatrain and Polk

Tanker Corporation (Polk), the vessel’s purchaser, exe-

cuted agreements to operate the Stuyvesant exclusively in

the foreign trade of the United States.”

In contrast with two similar vessels constructed by

Seatrain Shipbuilding, when the Title V subsidy and the

Title XI financing insurance were awarded, the Stuyve-

sant had no firm commitment for employment in the for-

eign trade. Unfortunately, on its completion in 1977,

there were still no prospects for the Stuyvesant in for-

eign comerce.” As the Stuyvesant’s owners looked about

14 See Construction-Differential Subsidy Contract MA/MSB-164

between the Maritime Subsidy Board and Seatrain Shipbuilding

Corp., Jt. App. at 112, 114 (subsidy conferred to aid construction

of vessel “to be used in the foreign commerce of the United

States”) (preamble) (contract signed 30 June 1972); Contract

between the Maritime Subsidy Board and Polk Tanker Corporation,

Contract MA/MSB-165, Article 9(b)(i), Jt. App. at 160. 177

(purchaser agrees that vessel “shall be operated exclusively in

foreign trade. . .”) (contract signed 30 June 1972).

15 See Affidavit of Robert Brown, supra note 12, Jt. App. at 257-

60 (severe downturn in demand for crude oil tankers in 1975 forced

cessation of construction of Stuyvesant, as well as of tanker Bay

Ridge; construction of Stuyvesant recommenced upon agreement

}

10a

for her gainful employment, they observed the changed

situation in the carriage of Alaska oil. Contrary to

original expectations, Alaska crude was not being carried

from Valdez on relatively short hauls to U.S. West Coast

ports, but because of the glut of oil in the West was

being hauled around Cape Horn to the Eastern United

States and the Caribbean. Furthermore, the world tanker

tonnage over-supply had little effect on this trade, be-

cause this trade by U.S. maritime laws was largely

confined to American-flag vessels.’

There was, however, one obvious obstacle: while the

Stuyvesant was American-built, it was also constructed

by subsidy and thus was not eligible for employment in

the domestic coastwise trade. To overcome this obstacle

in July 1977 the Stuyvesant owners applied for a three-

year waiver of the § 506 restrictions on employment of

the ship in other than the U.S. foreign trade, invoking

the general contract-making authority of the Secretary

of Commerce under § 207 of the Merchant Marine Act

of 1936.7 The present plaintiff-appellants and others

by Standard Oil Company of Ohio (SOHIO) to charter vessel for

three years of use in coastal “domestic” trade) ; Brief for Appellees-

Cross Appellants Seatrain Shipbuilding Corporation and Polk

Tanker Corporation at 8 (no business available for Stuyvesant in

foreign commerce; SOHIO domestic charter the only option) [here-

inafter cited as Brief for Seatrain and Polk Tankers].

16 See generally Affidavit of Charles Dunagan, Shell Oil Com-

pany, Jt. App. at 282, 283-86 (comparing projected demand for

tankers in the domestic Alaskan oil trade with available unsub-

sidizer tanker supply) (affidavit of 12 October 1977); Affidavit of

of John Ervin, President of Trinidad Corporation), Jt. App. at

493, 496 (projected U.S. coastal trade is only viable market for

unsubsidized domestic vessels) (affidavit of 21 September 1977).

1746 U.S.C. $1117 (1970) (authority to “enter into such con-

tracts ...as may... be necessary . . . to protect, preserve, or

improve the collateral held by the [Federal Maritime] Commission

. . . to secure indebtedness. . . .”). See letter of Howard Pack,

supra note 13, Jt. App. at 190, 193-202 (application for three-year

waiver, urging resolution of possible conflict between sections 207

and 506 of Merchant Marine Act of 1936, 46 U.S.C. §§ 1117 & 1156

(1970) in favor of section 207).

lla

intervened before the Agency, pointing out that § 506

of the Merchant Marine Act specifically provided only

for a six-month waiver and that there was no legal au-

thority for a three-year waiver. In response to these ob-

jections, the Stuyvesant owners (intervening defendants

here) withdrew their application.”

There followed a series of ex parte meetings between

the Agency and Seatrain and Polk.” On 25 August 1977

Polk presented a new offer to the Agency, which would

permit the Stuyvesant to operate in the Alaskan or any

other domestic trade. The offer also provided that the

Agency release the restrictions required by the statute

and embodied in the subsidy contract upon Polk’s execu-

tion of a twenty-year promissory note payable in 40

semiannual installments as reimbursement of the amount

of the subsidy and other monies advanced by the Gov-

ernment.” This letter application was not published in

the Federal Register, but the Agency by two letters of

31 August 1977 to Polk and Queensway Tankers, Inc.

(the proposed operator of the Stuyvesant) approved the

application to waive the restrictions permanently as well

as various other features of the complicated refinancing

necessary.”

18 See letter of Steve Russell, Polk Tanker Corporation, to Robert

Blackwell, Assistant Secretary for Maritime Affairs, Jt. App. at

207 (withdrawing three-year waiver request) (letter dated 26

August 1977); Affidavit of Robert Brown, supra note 12, Jt. App.

at 260 (application of Polk to Maritime Administration for three-

year waiver withdrawn because of “numerous protests” against

application).

19 See Brief for Alaska Bulk and Trinidad, supra note 8, at 10.

20 See Affidavit of Robert Brown, supra note 12, Jt. App. at 260-

61 (Polk offer to repay construction-differential subsidy in return

for removal of domestic use restrictions) ; letter of Steve Russell,

Polk Tanker Corporation, to James Dawson, Secretary of Maritime

Administration, Jt. App. at 203 (formal application for removal of

use restrictions and providing terms of subsidy repayment).

21 See letters of James Dawson, supra note 12, Jt. App. at 208,

213 (outlining steps toward financing of Stuyvesant); letters of

James Dawson to Polk Tanker Corporation, Jt. App. at 72-75 (per-

Pe en ee ee

12a

On 22 September 1977, appellants filed this action in

the District Court, one day prior to the scheduled clos-

ing of the entire transaction. A temporary restraining

order was granted, ultimately preliminary injunction

was denied, and the transaction was consummated on

30 September 1977. After extensive discovery, cross-

motions for summary judgment on the merits were filed

and the District Court ruled for the defendants on the

principal issue of the Agency’s authority to waive per-

manently the restrictions on employment of the Stuyve-

sant in the U.S. domestic maritime trade.”

II. THE ISSUE

We regard the issue as one of straightforward statu-

tory interpretation, primarily of § 506, and, to whatever

extent relevant, of other sections of the Merchant Marine

Act of 1936.

The trial court phrased the first of his stated four

legal issues as:

[W]hether the Secretary has the legal authority

under the Merchant Marine Act of 1936 to remove

domestic trading restrictions upon the operation of

a vessel built with . . . [construction-differential

manently removing use restrictions on vessel to permit shipping of

“Alaskan oil to the lower 48 states”) (letter dated 31 August

1977). Because of the disposition we make of one issue we consider

critical to this case, an examination of the other financing measures

is not needed here. These measures are described in detail in the

District Court’s opinion. See Shell Oil Co. v. Kreps, et al., 445

F.Supp. 1128, 1132-33 (D.D.C. 1977).

22 See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1138.

Though the District Court decided other issues, such as the need to

remand to the Agency for a determination of the competitive effect

of the Stuyvesant’s entry into domestic trade, see id. at 1140-44,

none of these issues is relevant to the question which we find to

be dispositive of this case.

13a

subsidy] in exchange for repayment in full of the

. . . Leonstruction-differential subsidy]... .*

The trial court found no explicit authority for the

Agency action challenged here, either in § 506 or any

other part of the Act, but held that there must be in-

herent Agency power after subsidy repayment to waive

permanently the § 506 bar on a vessel’s operation in the

U.S. domestic trade. Our analysis is to the contrary:

a proper construction of § 506 shows that the statute

implicitly bars such waiver, the legislative history of

§ 506 supports this, and no other statutory provision

either explicitly or implicitly gives rise to the authority

asserted by the Agency here.

III. ANALYSIS OF SECTION 506 OF THE MERCHANT

MARINE ACT OF 1936

A. Section 506 on Its Face

The initial clause of § 506 is rather explicit :™

Every owner of a vessel for which a construction-

differential subsidy has been paid shall agree that

the vessel shall be operated exclusively in foreign

treads. ...

Recalling our discussion above, the purpose of this clause

is obvious: a construction-differential subsidy is only to

make American-built vessels competitive with foreign-

flag vessels in the foreign trade; there is no need or

purpose to make subsidized vessels competitive in the

U.S. domestic trade, because these vessels are exclusively

built in American shipyards without subsidy. To put

subsidized vessels into that trade would be unfair to

owners who have built and purchased without Govern-

23 See id. at 1131. Since we reach a result opposite from that of

the District Court on this issue, we do not find it necessary to reach

the other three legal issues posited by the District Court.

2446 U.S.C. § 1156 (1970).

l4a

ment subsidy, and ultimately would eliminate unsub-

sidized U.S. shipbuilding. Section 506, therefore, is the

clause in the Merchant Marine Act which separates the

two fleets, i.e., the Jones Act domestic trade fleet (un-

subsidized), and the U.S. foreign trade fleet (subsidized).

The statutory language is strong: “Every owner...

shall agree.” * It is not just the original builder or first

purchaser, but every owner during the life of the vessel

who must agree to the restriction.” The restriction is

“that the vessel shall be operated exclusively in foreign

trade,” for the obvious purpose aforementioned. The

restrictive language also refers to a subsidy which “has

been paid.” The idea is one of permanence; once the

ship has been constructed by Government assistance of

up to 50% of its original construction cost, the ship is

dedicated to the U.S. foreign trade. Payment of the

subsidy stamps indelibly the character of the ship then

and thereafter.

1. Exclusion of Other Exceptions

Section 506 not only mandates the owner’s obligation

to operate the vessel exclusively in U.S. foreign trade,

but it provides the only exceptions to that obligation

to be found in the Merchant Marine Act. These excep-

tions are, first, that certain intermediary stops may

be made in the course of long voyages in foreign trade,”

where the American vessel naturally would touch at more

26 Td.

2¢ Further, in the present case, a restriction on use of the

Stuyvesant applicable to all future owners is written into the con-

struction-differential subsidy contract itself. See Contract between

the Maritime Subsidy Board and Polk Tanker Corporation, Con-

tract MA/MSB-165, Article 9(d), Jt. App. at 160, 178 (“The fore-

going provisions [which require the purchaser to operate the ves-

sel exclusively in foreign trade] shall run with the title to the Vessel

and be binding on all owners thereof.”’).

27 46 U.S.C. § 1156 (1970).

15a

than one American port and it would be uneconomic to

forbid the vessel to carry cargo between such American

ports. Second, the Agency may consent to the temporary

operation of a subsidized vessel in U.S. domestic mari-

time trade for a period not to exceed six months in any

one year if such operation is deemed “necessary or ap-

propriate to carry out the purposes” of the Act.* If

either exception is invoked, the owner must pay back

that part of the construction™subsidy proportional to

the period of the exception.”

In the entire Merchant Marine Act, only § 506 ex-

plicitly does these three things:

(1) mandates the vessel’s exclusive operation in the

U.S. foreign trade;

(2) provides two exceptions to such exclusive foreign

trade operation; and

(3) authorizes the Agency to accept payback of sub-

sidy for vessels to operate in the domestic trade.

The obligation of exclusive operation is clear, the two

exceptions are precise and limited, and the financial

consequences of invoking the exceptions are equally pre-

cise and clear.

Since these provisions are so clear on the face of the

statute, we are puzzled by the trial judge’s statement

that “. . . nothing in section 506... either expressly or

implicitly addresses the issue of permanent revocation of

a... feonstruction-differential subsidy] contract.” ”

By the ugual canons of statutory construction, we think

the issue of permanent revocation of a construction-

28 Id.

2° Td.

30 Shell Oil Co. v. Kreps et al., 445 F.Supp. at 1135 (emphasis of

the District Court).

16a

differential subsidy contract is addressed implicitly by the

specific enumeration of the permissible exceptions to the

vessel’s permanent dedication to U.S. foreign trade.

Where a statutory mandate is laid down, followed by

specifically enumerated exceptions to such mandate, and

where neither this mandate nor exceptions thereto are

found anywhere else in the same statute, we think that

the unquestioned canon of statutory construction is that

the enumerated exceptions are exclusive, and that any

other exception (here, permanent waiver or revocation of

vessel use restrictions) is ruled out implicitly.”

2. Findings of Need as Essential Basis

for Limited Waiver

That § 506 implicitly forbids the permanent lifting

of the bar to employment of the subsidized vessel in the

domestic trade is borne out by examination of the pro-

cedure for implementing the limited waiver which is

authorized .by § 506. On inquiry by the court at oral

argument as to what finding the Secretary would need

to make under § 506 to justify consent to place the

subsidized vessel for six months in the domestic trade,

counsel for the Agency promptly replied, “. . . what the

need . . . [for vessels] will be in the foreseeable fu-

ture... .”* It was then observed that § 506 requires

51 See, e.g., National Railroad Passenger Corp. v. Nat’l Ass’n of

Railroad Passengers, 414 U.S. 453, 458 (1974), reh. denied, 415 U.S.

952 (1974) Continental Casualty Co. v. United States, 314 U.S. 527,

533 (1942); Saxon v. Georgia Ass’n of Independant Insurance

Agents, Inc., 399 F.2d 1010, 1013-14 (5th Cir. 1968); Gotkin v.

Miller, 379 F.Supp, 859, 865 (E.D. N.Y. 1974), aff’d, 514 F.2d 125

(2d Cir. 1975); Herzberg v. Finch, 321 F.Supp. 1367, 1369 (S.D.

N.Y. 1971).

82 Statement of Michael Kimmel, representing the Secretary of

Commerce, 16 October 1978.

This response of counsel is supported by the criteria for grant-

ing a six-month waiver to the prohibition of domestic use of

subsidized vessels set forth in the Federal Regulations. In a

17a

a partial return of the subsidy proportional to the limited

term the vessel is permitted in the domestic trade, and

therefore a complete return of subsidy might be thought

consistent with a permanent lifting of the barrier against

employment in the domestic trade, if such permanent

waiver were authorized. Continuing with the analysis,

the question then arises, what finding should the Secre-

tary make as a basis for consent to the permanent

waiver of the restriction? To this Government counsel

- responded that prediction of need for a vessel “would

be really . . . impossible to make over 25 years. The

Secretary can only predict what the needs will be...

[for] about three years.” *

Thus the analysis of the Government will not stand

up. Where a waiver for a limited period is involved,

it is rational to believe that the Secretary can make a

finding of need for the vessel for a limited period of

time, since the Government agencies and private busi-

nesses frequently make economic judgments for a period

of six months. In the case at bar, the determination

by the Secretary of the need for the Stuyvesant, and the

noncompetitive effect of the Stuyvesant’s entry into the

Alaska oil trade, was made for a limited period. How-

ever, a finding of need and no competitive effect result-

ing from the entry of a subsidized vessel into the entire

U.S. domestic trade for the permanent life of the vessel

final agency rule with effective date of 30 June 1977, the Maritime

Administration provided that the owner or charterer of a tank

vessel in applying for such a waiver must disclose for agency con-

sideration “fa]ll available information to support the applicant’s -

assertion that suitable vessels of a competitor would not be avail-

able for the prospective voyage or voyages.” In addition, the rule

that provides that consideration will be made by the Administra-

tion of all timely protests to the waiver request received from

prospective competitors. See 46 CFR Ch. II, Part 250, subsections

250.3 & 250.4, reprinted in 42 FED. REG. 33035-36 (1977).

88 See Statement of Michael Kimmel, supra note 32.

18a

—a period in excess of 25 years—is a finding impos-

sible to make. No Government agency or private enter-

prise can logically make a finding of need for this or

any other vessel for its entire life.**

34 This assessment was apparently shared by the Maritime Sub-

sidy Board, Maritime Administration, and Department of Com-

merce (collectively, the Agency) in the Agency’s Final Opinion

and Order on Remand for Reconsideration from the District Court’s

earlier opinion. See T. T. Stuyvesant—Repayment of CDS Opera-

tion in Jones Act Trade, MSB Docket No. A-124 (6 Jan. 1978)

{hereinafter cited as T. T. Stuwyvesant—Repayment of CDS], Jt.

App. at 590, on remand from the District Court’s opinion in Shell

Oil Co. v. Kreps et al., supra. On the issue of the likely com-

petitive effect of a permanent waiver of the Stuyvesant’s use re-

strictions, an issue which the District Court found had been af-

forded inadequate consideration by the Agency, see id. at 1140-43,

the Agency found that an “assessment of [future] supply and

demand” for tankers in the Alaska oil trade is “based on a num-

ber of variables that might change.” T. T. Stuyvesant—Repayment

of CDS, supra, Jt. App. at 610. These variables include the degree

of foreign flag-ship carriage of Alaskan oil to the Virgin Islands,

see American Maritime Association v. Blumenthal, —— F.2d

(D.C. Cir. 1978) (foreign-flag vessels not barred by Jones Act

from carrying Alaskan oil to Virgin Islands and then carrying

products refined from that oil to mainland from Virgin Islands) ;

need for tankers in Soviet grain programs; the possibility of re-

duced cargo deadweight passage of large vessels through the

Panama Canal; the effect of implementation of more stringent U.S.

Coast Guard pollution control regulations; and the possibility of in-

creased mainland production. See T. T. Stuyvesant—Repayment

of CDS, supra, Jt. App. at 610-11. As a result of these and other

“uncertainties,” the Agency on remand in early 1978 found that it

was “difficult or impossible to predict the supply and demand of

tankers in the Alaska oil trade beyond 1980... .” See id. at 611

(emphasis added). Despite these findings, the Agency aimed to

bolster its decision to waive permanently the use restrictions of

the Stuyvesant by concluding that “there is no substantial basis

known on which to conclude that . . . [permanent waiver of use

restrictions on the Stuyvesant would bring about] any unfair com-

petition through displacement of any unsubsidized vessels that

may be in... [the Alaska oil] trade in the future.” Jd. We would

conclude just the opposite: That because of numerous uncertainties

involved in both the global and domestic oil trade, and consequently

in the demand for vessels to carry that oil, there is no rational

basis on which a finding of need can be made for a vessel in a

particular trade for that vessel’s life—a period much longer than

the three year limit to estimation of future need set by the Agency.

aa i ili iia

19a

If it is logically possible to make a finding of need

and noncompetitive effect for a limited period of six

months, or perhaps even three years, then lifting the

restrictions for that limited period has a logical basis.

If it is logically impossible to make a finding of need

or noncompetitive effect on a permanent basis, for the

entire life of this new vessel, then it is logically im-

possible to make the only finding which will sustain

rationally the waiving of the restriction against the

employment of the subsidized vessel in the domestic

trade. For a limited period the finding to sustain the

waiver can be made; for an unlimited period the finding

to sustain the waiver cannot be made; therefore, the

waiver for a permanent period cannot be made.

B. Legislative History of Section 506

We think that § 506 properly analyzed forbids by. im-

plication the grant of the permanent waiver by the

Agency here. The trial court asserted that “nothing in

section 506... or in the legislative history of these pro-

visions either expressly or implicitly addresses the issue

of permanent revocation of a... [construction-differential

subsidy] contract.” ** Since we do, however, find support

in the legislative history for the statutory interpretation

set forth above, we will discuss briefly the legislative his-

tory as we have found it.

1. The Original 1936 Act

Prior to the enactment of the Merchant Marine Act

of 1936, the question of possible permanent release from

the restriction against the employment of subsidized ves-

sels in the U.S. domestic trade was discussed. Some

original proponents of the 1936 Act urged inclusion of a

provision allowing such release; others did not. All in

35 See Shell Oil Co. v. Kreps et al., supra, 445 F.Supp. at 1135

(emphasis of the District Court).

ee eS a a a

20a

all, some fifteen versions of the finally enacted Merchant

Marine Act of 1936 were considered.“ A number of

drafts of the eventual § 506 which were before the Con-

gress in 1935 and 1936 provided for time-unlimited

waivers conditioned upon repayment of subsidy.*’ For

example, the bill that first passed the House in 1935,

but failed to win approval in the Senate, allowed a vessel

constructed with the aid of Government subsidy to op-

erate in the domestic trade, if the owner received the

“written consent of the . . . [Agency] so to operate”

and repaid to the United States that amount of the con-

struction subsidy proportional to the “remaining economic

life of the vessel.” ** Since the prior experience of Con-

gress with construction subsidies had shown that the

domestic operation of ships constructed under subsidy

could disadvantage the unsubsidized Jones Act ‘leet,*

36 See, e.g., H.R. 8555, 74th ‘emg., Ist Sess. § 507 (introduced

in the Senate 13 May 1935, r »rted with an amendment, 29 July

1935) ; S. 3500, 74th Cong. ‘« owas. § 506 (introduced in the Sen-

ate 6 January 1936); S. 5% ‘(4th Cong., 2d Sess. § 506 (intro-

duced in the Senate 24 Februe*y 1936); S. 4110, 74th Cong., 2d

Sess. §27 (introduced in the Senate 24 February 1936); H.R.

8555, 74th Cong., 2d Sess. § 506 (introduced in the Senate 24 April

1936).

37 See, e.g., H.R. 7521, 74th Cong., Ist Sess. § 504 (1935) (intro-

duced by Judge Bland, Chairman of House Committee on Merchant

Marine and Fisheries) ; S. 2582, 74th Cong., Ist Sess. § 504 (1935)

(introduced by Sen. Copeland, Chairman of Senate Commerce Com-

mittee).

88 See H.R. 8555, 74th Cong., 1st Sess. § 507(b), passed by the

House 27 June 1935. See also H.R. Rep. No. 1277, 74th Cong.,

Ist Sess. 22 (1935) (report of House Committee on Merchant

Marine and Fisheries, to accompany 1935 version of H.R. 8555, not

passed by the Senate) (“The ... [Agency] may, on certain

conditions, consent to the operation of . . . a [subsidized] vessel in

the domestic trade in which case . . . [a proportional] amount of

the subsidy shall be repaid ....”).

89 See S. Rep. No. 898, 74th Cong., Ist Sess. 14-15 (1935) (inter-

coastal mail delivery by subsidized American vessels works to dis-

advantage of unsubsidized American competitors and to American

merchant marine).

2la

later drafts reported to the Senate restricted the Agency’s

authority to lift the restriction against domestic trading.

For example, one draft considered by the Senate in

1936 permitted permanent waivers, but provided that the

Agency could not grant any waiver transferring a subsidy-

built vessel to the domestic fleet “except to replace a

vessel engaged in such trade, or unless there are not

available vessels to serve adequately the needs of com-

merce” in a particular domestic service “in which it is

proposed to operate such vessel.” *°

The drafting and redrafting process, with numerous

conflicting versions of the Merchant Marine bill appear-

ing and disappearing, understandably introduced certain

confusions and conflicting passages in the ultimate legis-

lation. The final Act** included visible traces of in-

dividual legislators’ conflicting desires which produced

a § 506 that, although ambiguous, could have been con-

strued to mean that permanent release could be granted

by the Agency on repayment of that part of the subsidy

proportional to the remaining life of the vessel.

As originally enacted in 1936, § 506 read:

It shall be unlawful to operate any vessel, for the

construction of which any subsidy has been paid pur-

suant to this title, other than exclusively in foreign

trade, or on a round-the-world voyage or a round

voyage from the west coast of the United States to

a European port or ports or a round voyage from

the Atlantic coast to the Orient which includes inter-

coastal ports of the United States, or on a voyage in

foreign trade on which the vessel may stop at an

40S. 3500, 74th Cong., 2d Sess. § 506(c) (introduced in the Senate

6 Jan. 1936).

41 See Pub. L. No. 74-835, ch. 858, 49 Stat. 1985 (29 June 1936),

now amended, 46 U.S.C. § 1101 et seq. (1970).

@ See id., 49 Stat. 1999 (emphasis added).

er eee

De ene eases

22a

island possession or island territory of the United

States, unless the owner of such vessel shall receive

the written consent of the Commission so to operate

and prior to such operation shall agree to pay to the

Commission, upon such terms and conditions as the

Commission may prescribe, an amount which bears

the same proportion to the construction subsidy

theretofore paid or agreed to be paid (excluding cost

of national-defense features as hereinbefore pro-

vided), as the remaining economic life of the vessel

bears to its entire economic life. If an emergency

arises which, in the opinion of the Commission, war-

rants the temporary transfer of a vessel, for the

construction of which any subsidy has been paid

pursuant to this title, to service other than exclusive

operation in foreign trade, the Commission may per-

mit such transfer: Provided, That no operating dif-

ferential subsidy shall be paid during the duration

of such temporary or emergency period, and such

period shall not exceed three months. . . .

The ambiguities of the language above are apparent.

Although the non-italicized first half of the long first

sentence of the 1936 version generally prohibited domestic

operation of a subsidized vessel, the italicized second

half of that sentence arguably created a general excep-

tion to that prohibition. That exception was conditioned

only upon “written consent of the Commission” and

agreement by the shipowner to repay to the Commission

an amount of subsidy proportional to the “remaining

economic life of the vessel.” This exception was not

expressly confined to any particular economic conditions

or to any type or duration of voyage. The second sen-

tence of the section dealt with temporary transfers of a

subsidized vessel to domestic service at times of “emer-

gency,” and could be read not to limit the much broader

exception to the prohibition provided in the first sen-

23a

tence. It was thus possible to read the 1936 version of

§ 506 as authorizing both (1) an unlimited waiver (de-

spite the absence of specific reference to such a waiver),

conditioned only upon approval of the Commission and

the shipowner’s agreement to repay a portion of the

subsidy; and (2) a temporary waiver allowable for a

period of three months, and only in the case of national

emergency.“

On the other hand, the second sentence of § 506 as

passed in 1936 could also be read as qualifying the first

sentence, so as to disallow permanent waivers in favor

of waivers allowable for periods of no more than three

months in the event of an “emergency.” “* Regardless

43 This interpretation is supported by commentary inserted in

the record of Senate Hearings by Senator Guffey, spensor of S.

4110, 74th Cong., 2d Sess. (1936), concerning two of the three

bills that formed the basis of the committee print eventually

passed by the Senate in 1936 and later also by the House, as the

Merchant Marine Act of 1936. See Merchant Marine Act, 19386:

Hearings Before the Committee on Commerce of the United States

Senate, 74th Cong., 2d Sess. 121, 124 (1936) (comment on S. 3500,

bill introduced by Sen. Copeland and altered in committee print 3

March 1936) (“Section 506(b) .. . states that, except as later

provided, no vessel on which a subsidy has been paid shall be op-

erated in other than foreign trade unless the unamortized construc-

tion differential is repaid to the [Agency] ....”) (emphasis added) ;

id. at 133 (comment on S. 4110, bill introduced by Senator Guffey)

(“Provision is made .. . for the transfer of . . . [a subsidized]

vessel from a foreign service to the intercoastal service if in the

opinion of the Commission the conditions warrant such transfer,

provided that the owner will immediately pay to the Commission the

unamortized portion of said subsidy.”).

“4 Though this reading of the language seems less plausible to this

court than the earlier one, and is urged by none of the parties to this

case as the correct reading of the statute in force in 1936, the

Chairman of the U.S. Maritime Commission in testimony before a

House Committee in 1938 premised his proposals for amendments

to the section on the fact that the interrelation between the first and

second sentences of § 506 was unclear. He proposed an amendment

to the section which led to the deletion of all language in the first

sentence that appeared to authorize a permanent waiver and which

was arguably in conflict with the second sentence, thus removing the

very source of the claimed “ambiguity.” See pp. 27-30 & notes 46-53

infra. -

“—se" - —

SS eS awe

a ae ae ee oe

24a

of one’s reading of the language of § 506 as enacted in

1936, however, it is perhaps most critical to the present

case to note that legislative history of the section shows

that the issue of use restriction waivers—whether tem-

porary or permanent, and whether allowed or disallowed

—was addressed by that section and nowhere else in the

Merchant Marine Act of 1936. Not a scintilla of legisla-

tive comment or debate has come to light which indi-

cates that any other section or provision of the Act

provided authority for, or was intended to deal in any

way with, the issue of waivers to restrictions imposed

by § 506.*

2. 1938 Amendments

In 1938, comprehensive amendments were passed to

the Merchant Marine Act of 1936.“ With regard to § 506

of the Act, then Maritime Commission Chairman Joseph

P. Kennedy stated that the purpose of the proposed

amendment was to remove “ambiguities” and “confu-

sions” in the section, described as follows: *

«5 Appellees, however, have claimed to find such authority in § 207

of the Act. See pp. 44-46 & notes 104-10 infra.

** See Act of 23 June 1938, § 18, 52 Stat. 958 (amending § 506).

47 See Amending Merchant Marine Act, 1936: Hearings on H.R.

8352 Before the House Committee on Merchant Marine and Fish-

eries, 75th Cong., 2d & 3d Sess. 8 (1937-38) (emphasis added)

{hereinafter cited as House Hearings on 1938 Amendments].

Appellants have appropriately pointed out, see Brief for Appellant

Shell Oil Co. at 33-34, that the Commission Chairman’s interpreta-

tion of the Amendments proposed in 1938 and of the reasons for

their proposal are entitled to carry weight, since the Chairman

headed the agency that administered the Act at the time of the

Amendments, see Zemel v. Rusk, 381 U.S. 1, 11 (1965), reh. denied,

382 U.S. 873 (1965); Udall v. Tallman, 380 U.S. 1, 16 (1965) reh.

denied, 380 U.S. 989 (1965), and the Chairman played an active

role in drafting the legislation and obtaining its passage, see Zuber

v. Allen, 396 U.S. 168, 192-93 (1969) (departmental construction of

its enabling legislation carries most weight when administrators

participated in drafting and made known their views before Con-

gress in hearings). Furthermore, the Chairman’s views as stated in

25a

The section now provides that the owner can only

engage in foreign trade exclusively with certain

enumerated excepted services, for which services the

owner is required to repay part of the construction-

differential subsidy. There are also provisions which

appear to give owners the right to engage in services

other than the excepted ones, if the Commission con-

sents to such use and the owner repays part of the

construction-differential subsidy. Whether this right

is restricted to the cases of emergency and to periods

of three months as mentioned in the section, it is

difficult to determine.

When the Maritime Commission Chairman noted that

“Tit is difficult to determine] [w]hether this right [to

engage in non-excepted services] is restricted to . . .,”

he referred to “the cases of emergency and to periods

of three months.” He did not specifically mention the

other alternative of his “whether,” but this could only

have been the arguable alternative at the end of the

first sentence of § 506 as enacted in 1936, 7.e., the am-

biguous reference to repayment of subsidy proportional

to the economic life of the vessel in return for the lifting

of restrictions on the use of that vessel.** Thus the Mari-

time Commission Chairman sought to relieve the am-

biguity of whether the section authorized a permanent

lifting of use restrictions in return for repayment of

subsidy, or merely a temporary waiver on the ground

of emergency. The proposed 1938 amendment, which

was adopted by both Houses and stands essentially un-

hearings were accepted almost verbatim into the reports of both

of the committees of Congress responsible for acting on the Amend-

ments, see p. 29 & note 52 infra, and we find that the Chairman’s

interpretation of the meaning and purpose of the Amendments is the

most plausible one in light of the language of the Amendments

themselves, see p. 28 infra.

#8 See p. 24 supra.

=. --

26a

changed as the present § 506,*° resolved the ambiguity

by eliminating all of the language in the original section

that established the arguable exception to that section’s

general prohibition of domestic use, i.e. the clause that

begins, “unless the owner [shall receive consent] .. .””

Thus the amendment removed the only language that

could be interpreted to authorize a permanent waiver,

and substituted therefor a clause requiring repayment

of subsidy proportional to the gross revenue derived from

the domestic leg of a foreign voyage.

The Maritime Commission Chairman described the ef-

fect of these changes as follows:

If the owner desires to engage in domestic trades

other than ... [domestic portions of world voyages],

he can do so only by receiving the consent of the

Commission. The consent for this service is limited

to 6 months in any one year. ... [T]he section as

rewritten will result in improved administration and

will protect the interests of the Government and those

of the carriers, both foreign and domestic.

This explanation by the Commission Chairman was in-

corporated almost verbatim into both the Senate and

House reports which accompanied the bill amending § 506

in 1938, thus demonstrating irrefutably that Congress

49 See 46 U.S.C. § 1156 (1970), reprinted at pp. 8-9 supra.

50 See language of § 506 in original 1936 Act, reprinted at pp. 23-

24 supra.

51 See House Hearings on 1938 Amendments, supra note 47, at 8-9.

8 The Senate Commerce Committee, see S. Rep. No. 1618, 75th

Cong., 3d Sess. 12-13 (1938), stated (emphasis added) :

Section 506 has been entirely rewritten to remove ambiguities

and confusion. . . . The section now makes it unlawful for the

owner of any vessel on which a construction-differential sub-

sidy has been paid to operate it, without the written consent of

the Commission, other than exclusively in foreign trade... .

The section further provides ... that in the event the owner

27a

intended in 1938 to allow only temporary waivers, with

duration of no more than six months.

Thus it does not now matter whether some of the

sponsors of the 1936 Act believed that language in the

statute authorized a permanent lifting of restrictions in

return for repayment of the full subsidy, because the

action of the Congress in 1938 resolved the ambiguity

operates a vessel on which a construction-differential subsidy

has been paid in services other than those which are not unlaw-

ful, he shall repay to the Commission a prescribed portion of

the ... subsidy. It is very difficult to determine whether or not

these instances in which repayment is required are restricted

to the cases of emergency and to periods of 3 months... .

As the section is rewritten, it is ... provided that the Com-

mission may consent in writing to the temporary transfer of

...@ vessel to services other than those enumerated for periods

not exceeding 6 months in any year whenever the Commission

may determine that such transfer is necessary.

Similarly, the House Committee on Merchant Marine and Fisheries,

see H.R. Rep. No. 2168, 75th Cong., 3d Sess. 21 (1938), stated (em-

phasis added) :

Section 506 ... has been entirely rewritten in order to re-

move ambiguities arising from the method of describing the

services other than foreign. As rewritten the section clearly

sets forth the obligation of the owner to use the vessel in for-

eign trade. .. . No fundamental change in the original purpose

of the section has been effected.

Appellees have suggested that the House Committee, in noting

that “no fundamental change in the original purpose of the section

has been effected” by the 1938 Amendment, must have intended

that any authorization that existed in the 1936 Act for permanent

waivers must have been carried through with the 1988 Amendments.

See Brief for Seatrain and Polk Tankers, supra note 15, at 31. As

we noted earlier, however, the most fundamental purpose of § 506,

as generally of the Merchant Marine Act of 1936, was to provide

subsidies to allow the American merchant marine to compete in

foreign trade, and to separate the subsidized American fleet from

the unsubsidized “Jones Act” fleet. See pp. 7-8 supra. It was un-

doubtedly this “original purpose” of Section 506, and of other

sections of the Act, to which the House Committee referred in its

report.

58 See pp. 31-32 infra.

28a

by removing from § 506 the only language which could

be interpreted to authorize more than a temporary waiver

of the restriction against employment in the domestic

trade. In 1938 the intention of Congress was unmistably

manifested: to eliminate the only statutory language

which could arguably have authorized the permanent

waiver of the domestic trading restriction upon repay-

ment of subsidy, and to limit the waiver of the domestic

trading restriction to six months in any one year, with

no discretion in the Secretary to authorize a longer

period.

No one in the present case, however, now contends

that § 506, as amended, authorizes permanent waivers.

The trial court specifically so stated,** and looked else-

where in the statute for inherent authority in the Sec-

retary to do this.*° However, the 1936 version of § 506

is the only provision which any party to this case has

ever cited as providing direct authority for permanent

waivers. That 'anguage is now gone, by specific direc-

tion of Congress. We cannot believe that by deleting

the only language in § 506 which could be argued to per-

mit permanent waivers, and by leaving only language

permitting temporary waivers, Congress thereby mani-

fested an intention that the Agency should have express

authority to issue temporary waivers under § 506 and

implied authority to issue permanent waivers, pursuant

not to § 506 but to some unexpressed inherent power con-

ferred in other sections of the Merchant Marine Act

of 1936.

As we read the legislative history, both permanent and

temporary waiver provisions were considered both in

1936 and in 1938 by the Congress, and Congress in

54 See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1134-35.

55 See id. at 1134.

56 For discussion of these claims of authority found elsewhere in

the Act, see pp. 44-52 & notes 104-29 infra.

29a

1938 determined, on the recommendation of the Maritime

Commission, to permit the Agency to grant only tem-

porary waivers. This deliberate Congressional intent,

pursuant to a carefully constructed policy to maintain

separate subsidized and unsubsidized fleets, cannot be

ignored by the Agency and the court on some vague

notion of inherent power elsewhere, which it now might

be convenient to utilize. Contrary to the assertion of the

trial court that there was “nothing” in the legislative

history of § 506 concerning permanent waivers,’ and

the court’s further reference to “this total dearth of

guidance from the statutory language and the legisla-

tive history,” ** we find ample legislative history relevant

to this question. Legislative history of the 1936 Act is

somewhat ambiguous, as was the 1936 statute itself. The

legislative history of the 1938 amendment, however, con-

firms our present interpretation of the statutory lan-

guage and demonstrates that whatever vestigial authority

there was in the original 1936 Act to issue permanent

waivers was eliminated by the 1938 amendment.

C. Administrative Interpretation

After remarking, erroneously we hold, on the “total

dearth of guidance from the statutory language and the

legislative history” of § 506, the trial court thus found

a justifiable basis for turning to “other indicia of legis-

lative intent” and “whether the [A] gency’s interpretation

of the Act ‘serves to further the purposes of the legisla-

tion....’” °° The principal Agency interpretation cited by

the court is “the Comptroller General’s 1964 decision

with respect to two... ships owned by Grace Line...

both of which were built under . {construction-

5? See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1135.

58 See id.

59 See id., citing Sea-Land Service, Inc. v. Kreps, 566 F.2d 763,

778 (D.C. Cir. 1977).

30a

differential subsidy] contracts. . . .”* In that 1964

decision * the Comptroller General advised the Secre-

tary of Commerce, in accord with a legal opinion on the

same question issued earlier by the Acting General Coun-

sel to the Maritime Administration,” that the Agency

had the legal authority to remove provisions in two

construction-differential subsidy contracts signed between

the Agency and Grace Line barring domestic operations

of two Grace Line vessels, in return for “repayment

to the Government of the unamortized construction-

differential subsidy. . . .”* The Comptroller General

reasoned that, “Upon the basis of the rationale for the

repayment of subsidy [provided for by section 506 of

the Merchant Marine Act of 1936], it appears that if

. .. the unamortized subsidy is repaid to the Government,

the owner should be in the same position as if he had

paid the full domestic price of the vessel . . . and should

not be bound to operate the vessel exclusively in foreign

trade.” *

The Grace Line affair, however, is no precedent * for

what the Agency has attempted to do here. First, the

two Grace Line vessels were not built under construction-

60 See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1136.

*1 See Comptroller General Decision B-155039, 44 Comp. Gen. 180

(1964).

* Memorandum from Graydon L. Andrews, Acting General Coun-

sel, Maritime Administration, to the Chairman, Maritime Subsidy

Board, Jt. App. vol. III at 660-65 (Memorandum dated 28 July

1964).

** See Comptroller General Decision B-155039, supra, 44 Comp.

Gen. at 184.

64 Jd.

°° Appellants argue further that the Comptroller General Decision

is incorrect on substantive grounds. See Brief for Alaska Bulk and

Trinidad, supra note 8, at 33-34. In light of this court’s opinion in

the present case, we can only agree with appellants’ argument. It is

sufficient at present, however, to find that the Decision does not serve

as precedent here.

ne ET ET

3la

differential subsidy contracts; they were originally built

unsubsidized, then later converted from cargo to con-

tainer vessels by subsidy funds for use in foreign trade.”

The 1964 action by the Agency was on the proposal of

Grace Line, which was experiencing difficulties in operat-

ing the vessels abroad, to sell the vessels to a domestic

operator for use in the domestic trade.” As we discuss

in Part V, infra, the fact that the vessels were originally

constructed in American yards without subsidy is im-

portant for basic Merchant Marine Act policies.** Com-

peting domestic operators could take the tonnage of these

vessels into account at the time the vessels were built in

making their own future investment decisions. However,

in the instant case, American carriers estimating future

demand for Alaskan oil tankers could not have known

that the Stuyvesant, under construction in American

yards with subsidy, would in its initial operation try to

enter the Alaskan market in competition with unsub-

sidized vessels.”

Second, the request to return the Grace Line vessels

to the unsubsidized fleet was unopposed, so far as the

record shows. It is also significant that there was no

court test of the validity of the Agency’s action in re-

moving the restrictions on the vessel’s use.”

¢ See Comptroller General Decision B-155039, supra, 44 Comp.

Gen. at 180.

67 See id.

68 These fundamental policies were nowhere considered in the 1964

Comptroller General Decision, see id., or in the earlier memorandum

of the Maritime Administration Acting General Counsel to the

Maritime Subsidy Board, see note 62 supra.

6° See generally Brief for Alaska Bulk and Trinidad, supra note 8,

at 6-8 (need to keep subsidized and unsubsidized fleets separate to

enhance long-range investment decisions) .

7 Furthermore, the Comptroller General Decision is not binding

on this court. See Keco Industries, Inc. v. Laird, 318 F. Supp. 1361.

1363 (D.D.C. 1970) (Comptroller General’s opinion on legality of

32a

Finally, the 1964 Comptroller General’s opinion is to-

tally inconsistent with the trial court’s rationale as to the

source of the Agency’s authority to accept the return of

subsidy in exchange for a waiver of use restrictions.

The trial court specifically held that “nothing in section

506 ... either expressly or implicitly addresses the issue

of permanent revocation .. .,”™ and rested its approval

of the Agency’s action on the ground that “such au-

thority is inherent in the Secretary’s broad contractual

authority provided'by sections 504 and 207, 46 U.S.C.

§§ 1154 and 1117” and is “expressly contemplated by

section 1104(a) (3), 46 U.S.C. § 1274(a) (3) ...."™ In

1964, however, the Comptroller General’s opinion relied

solely on § 506 as the source of the Agency’s authority.”

Therefore, we held that the 1964 Grace Line opinion

furnishes no precedent for the trial court’s rationale of a

permanent waiver authority implicit somewhere else in

the Act.

Nor do we agree that “[slince the 1964 Grace Line

transaction, the Secretary has consistently interpreted

section 506 as not precluding permanent waiver of do-

mestic trading restrictions. .. .” "* We find the Agency’s

internal interpretations of dubious consistency, and

neither numerous nor impressive. In fact, the most

thoroughly developed Agency interpretation cited by the

court provides no support whatsoever for the Agency’s

contract not binding on courts); United States ex rel Brookfield

Construction Co. v. Stewart, 234 F. Supp. 94, 100 (D.D.C. 1964),

aff'd, 339 F.2d 753 (D.C. Cir. 1964) (Opinions of Comptroller Gen-

eral binding only on Executive Branch).

1 Shell Oil Co. v. Kreps, et al., supra, 445 F. Supp. at 1135.

7 Jd. at 1134.

78 See Comptroller General Decision B-155039, supra, 44 Comp.

Gen. at 181-84.

™ Shell Oil Co. v. Kreps, et al., supra, 445 F. Supp. at 1137.

i Ore ee oe

33a

action in the present case.” This Agency interpretation

was formulated in response to the application in 1970

of Seatrain Lines, Inc., the parent corporation of the

appellee Seatrain Shipbuilding Corporation here, for a

construction-differential subsidy for two vessels other

than the Stuyvesant.: As part of its application, Sea-

train sought from the Agency a contractual prior com-

mitment to authorize future “permanent operation of the

vessels in the domestic trade upon the repayment of the

unamortized portion of . . . [the subsidy].”” In an

opinion considering the legality of such a provision, the

General Counsel to the Maritime Administration urged

strongly against granting Seatrain’s request because ad-

vance agreement to waive the prohibitions of § 506

would “conflic{t] . .. with the basic purposes of the

. . . [eonstruction-differential subsidy] provisions of the

.. . [Merchant Marine Act of 1936].”" The General

Counsel pointed out, as in the present opinion we have

as well, that “Neither section 506 nor any other pro-

vision of the Act relating to the . . . [construction-

differential subsidy] provides for releasing a... [ship

built with such subsidy] from the domestic trade restric-

tions imposed by section 506 upon repayment of un-

amortized . . . [subsidy].”** The General Counsel no

more than implied in his opinion that the Agency might

have authority in a future case to grant a timely request

for such a waiver,” and he set forth no circumstances or

7 See Legal Opinion of H. Clayton Cook, Jr., General Counsel to

Maritime Administration, Department of Commerce, Jt. App. at

666-68 (10 December 1970) [hereinafter cited as 1970 Seatrain

Opinion].

76 See id., Jt. App. at 666 (citing formulation of Seatrain’s request

by Department of Commerce) (emphasis in the original).

7 Td.

78 Jd. at 668.

79 See id. (“To approve an application for . . . [subsidy] on the

basis proposed by Seatrain would, in effect, bind future Boards to

exercise a discretionary authority ....”).

34a

conditions under which he believed such approval would

be appropriate.” It is incredible, therefore, that the trial

court and appellees in the present case find support in

this General Counsel’s opinion for the Agency’s claim of

authority to waive on a permanent basis the prohibitions

of section 506.

The other Agency interpretations cited by the trial

court are no more compelling.** The trial court reports

that in 1976 the Agency amended two subsidy contracts

to permit subsidy repayment and possible future entry

into the domestic trade of two vessels operating between

the Virgin Islands and the continental United States, “if

the non-domestic status of the Virgin Islands is changed

at some later date.” ** These contract amendments by

8° The opinion suggested only that the Government in granting

any such waiver—the propriety of which the General Counsel di-

rectly questioned, see p. 34 swpra—would need to be assured an

“adequate consideration.” See id.

81 See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1137.

& See id. (emphasis of the District Court). The Agency and

shipowner in that instance were referring to § 21 of the Merchant

Marine Act of 1920, 46 U.S.C. § 877 (1970), which excludes the

Virgin Islands from the “coastwise laws of the United States until

the President shall . . . declare that such coastwise laws shall extend

to the Virgin Islands ....” This provision has the effect, until

possible reversal by the President, of exempting ships carrying

goods to and from the Virgin Islands from the domestic flag-ship

requirements of the “Jones Act,” § 27 of the Merchant Marine Act

of 1936, 46 U.S.C. § 883. See American Maritime Association v.

Blumenthal, No. 77-1934 (D.C. Cir. 20 Nov. 1978), slip op. at 18-19

n.43 (for limited purposes of Jones Act, Virgin Islands analogous

to a foreign port). Owners of ships involved in the Virgin Islands

trade may be understandably reluctant to bind themselves to an

indefinite contractual bar against domestic use of those ships in

light of the hotly contested status of the Virgin Islands exemption.

See id., slip op. at 25 & n.59 (ten bills introduced in various sessions

of Congress to modify or repeal Virgin Islands exemption). Though

we pass no judgment on the matter at the present time, in light of

the court’s present opinion we doubt that it would be appropriate

to allow a shipowner to effect an end-run around the domestic use

proscriptions of § 506 of the Merchant Marine Act of 1936, at issue

here, even under the anomalous and potentially variable circum-

stances of the Virgin Islands trade.

35a

the Agency were conditional, restricted, as yet unexer-

cised, and therefore as yet unchallenged in any court.

One further instance of Agency approval of a prospec-

tive waiver of domestic use restrictions on subsidized

vessels has also been reported.** This waiver option, like

that granted to the two vessels operating in the Virgin

Islands trade, was apparently approved despite the ear-

lier opinion of the General Counsel to the Maritime Ad-

ministration in 1970 that suck prospective agreement

would “conflict with the basic policies” of the Merchant

Marine Act of 1936 and, further, that no waiver of the

§ 506 proscription was authorized either by § 506 or by

any other provision of that Act.“ Also, the vessels which

were the subject of this waiver, like the two Virgin Is-

lands vessels, have not yet exercised their option and

entered the domestic trade.”

Though the Agency actions on behalf of the owners of

these various ships are arguably consistent with each

other (if not with the advice of Agency legal counsel),

they are all distinguishable on their facts from the pres-

ent case, where an immediate rather than a prospective

waiver is sought. The Agency actions do not, in any

event, constitute compelling precedent in view of our

present construction of the law, and clearly they do not

bind this court.

The Grace Line reconversion remains the only instance

of actual entry into domestic operations by vessels that

83 See Affidavit of James S. Dawson, Jr., Secretary of Maritime

Administration and Martime Subsidy Board, Jt. App. at 278, 280

(affidavit dated 28 September 1977) (approval granted in August

1977 of request by Wilmington Trust Company to repay construc-

tion-differential subsidy on two vessels under construction for trade

between Indonesia and Japan).

84 See 1970 Seatrain Opinion, supra note 75, Jt. App. at 666, 668.

85 See Affidavit of James S. Dawson, supra note 83), Jt. App. at

280. ::

36a

received construction-differential subsidy, but, as dis-

cussed above,” this Agency action likewise does not serve

as precedent here. We also do not believe, as will be

discussed herein,*’ that Congress has in any sense “rati-

fied” the Grace Line action by subsequent enactments.

IV. SECTIONS OF THE MERCHANT MARINE ACT OF 1936

RELIED UPON BY THE AGENCY AND THE TRIAL COURT

As SOURCES OF AGENCY AUTHORITY

All parties to this appeal agree, and the trial court

found,“ that the Agency does have authority to accept

total repayment of the construction-differential subsidy,

if such repayment is offered. But, as is made amply clear

by the argument of parties on this appeal, that is not

the issue. The issue here is whether the Secretary has

authority to lift permanently the restriction against entry

of previously subsidized vessels into the domestic trade

in return for such payment.”

We cannot assume that it follows as night follows day

that if the subsidy is repaid in full, then the operating

restriction against entry into the domestic trade must

automatically be lifted. We have already set forth above

the policy reasons that indicate why this should not be

true,” and we develop these reasons more fully herein.”

86 See pp. 32-35 & notes 59-72 supra.

8? See pp. 49-52 & notes 120-29 infra.

88 See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1138.

8° As the trial court pointed out, repayment of construction-

differential subsidy may be made for purposes other than waiver of

domestic use restrictions. See id. at 1134 n.la (“permissible” repay-

ment to obtain Title XI financing under 46 U.S.C. § 1274(b) (2) and

for permission to engage in trade between foreign countries rather

than between United States and foreign countries).

* See pp. 7-8 supra.

*! See Part V infra.

37a

But policy arguments aside, for the Agency to take the

extraordinary step of removing the restriction on the

originally subsidized vessel’s operation in the domestic

trade to allow competition of that vessel with U.S. ships

built without subsidy, the agency must, in our view, find

some specific authority in statutory law. The trial judge

clearly and appropriately rejected the existence of any

such authority, explicit or implicit, in § 506,°* and he was

right. The trial judge then turned to three other sections

of the Act ** to find such Agency authority, and there we

think he was wrong.

Curiously, while the Government and the private party

appellee here urge that affirmative authority to lift the

operational restriction is found in sections 207, 504, and

1104(a) (3) of the Act, the trial court’s opinion does

not claim to find authority for lifting the restriction in

those sections. The trial court said:™

The threshold issue before the Court is whether the

Secretary has authority to accept total repayment of

. . . [eonstruction-differential subsidy in exchange

for the removal of the domestic trade restrictions

imposed by section 506-of the Act, 46 U.S.C. § 1156.

Resolution of this issue requires this Court to deter-

mine first whether the Secretary has the general

authority to accept total repayment of ... [the sub-

sidy] after the subsidy contract has been executed,

and second, whether section 506 bars the Secretary

from removing domestic trade restriction in exchange

for such total repayment.

% See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1135

(issue of authority to allow permanent revocation not “address[{ed]”

by § 506).

%3 See id. at 1134 (citing sections 207, 504 & 1104(a)(3) of Mer-

chant Marine Act of 1936).

* Td. at 1133-34.

38a

The trial court’s analysis thus reflects an assumption

that accepting total repayment is extricably linked with

removal of the domestic trade restriction—an assump-

tion that it contradicts by citing other statutorily “per-

missible” reasons for which repayment might be made.”

Though the trial court found no authority in section 506

or the other cited sections to waive domestic trade re-

strictions, but only to accept repayment of subsidy un-

der “appropriate circumstances,”® the court neverthe-

less resolved that such a waiver was not “addressed”

and thus not “precluded” by those sections.” The court

then sought to justify the waiver by reference to a

claimed, long-standing Agency understanding of this

right and the “implicit” ratification by Congress of this

right in certain amendments passed in 1972. Thus the

trial court found little more than an assumed authority

to accept repayment without discussing, in relation to

the relevant statutory sections, whether this also in-

cluded authority to lift the domestic trade restriction.

On this appeal the Government and private party ap-

pellees have recognized the distinction by strenuously

arguing that an additional legal determination is neces-

sary to their case, i.e., that the three statutory sections

do affirmatively confer authority to lift the restrictions.

In our own analysis, this second finding is necessary to

the appellees’ case and to support the trial court’s judg-

ment; but we do not find such authority in any of the

three sections cited, and instead we find that § 506 itself

is a positive bar to lifting the restrictions.

We turn now to consider each of those three sections.

% Td. at 1134 n.la.

% See id.

7 Jd. at 1135, 1138.

% Jd, at 1137-39.

39a

A. Section 504, Title V, of the Merchant Marine Act

of 1936 (46 U.S.C. § 1154)

Section 504 grants to the Agency certain contractual

powers: arguably the power both to make and to amend

contracts conferring construction-differential subsidies,

and the right to include terms which will protect the in-

terest of the United States in subsidy contracts.° How-

ever, this contractual authority is not so broad as to

eliminate restrictions mandated by statutes enacted spe-

cifically to protect maritime interests,’” as the last sen-

tence of § 504 makes unmistakably clear:

%° Section 504 of the Merchant Marine Act of 1936, 46 U.S.C.

§ 1154, provides in pertinent part:

If a qualified purchaser under the terms of . . . [Subchapter V

of the Act, 46 U.S.C. §§ 1151-61] desires to purchase a vessel

to be constructed in accordance with an application for con-

struction-differential subsidy under this subchapter, the Secre-

tary of Commerce may .. . contract to pay only construction-

differential subsidy and the cost of national defense features

to the shipyard constructing such vessel. The construction-

differential subsidy and payments for the cost of national de-

fense features shall be based upon the lowest responsible

domestic bid. . . . No construction-differential subsidy, as pro-

vided in this section, shall be paid unless the said contract or

contracts or other arrangements contain such provisions as are

provided in this subchapter to protect the interests of the

United States as the Secretary of Commerce deems necessary.

Such vessel shall be documented under the laws of the United

States. . . . The contract of sale, and the mortgage given to

secure the payment of the unpaid balance of the purchase price,

shall not restrict the lawful or proper use or operation of the

vessel, except to the extent expressly required by law.

100 As the Appellee Secretary of Commerce concedes, “. . . [Section

504} does not specifically address the question whether the Secretary

may later agree to amend the subsidy contract to recoup the subsidy

in appropriate circumstances. ...” Brief for the Secretary of Com-

merce and Other Federal Appellees at 49. Accord, Brief for Alaska

Bulk and Trinidad, supra note 8, at 13 (“Nothing in section 504

speaks to authorization for the Secretary of Commerce to accept a

payback of construction-differential subsidies for any reason. The

section confers only authority to pay the subsidy, and says nothing

about repayment.’’).

101 See 46 U.S.C. § 1154 (1970) (emphasis added).

(

;

‘i

40a

The contract of sale, and the mortgage given to se-

cure the payment of the unpaid balance of the pur-

chase price, shall not restrict the lawful or proper

use or operation of the vessel, except to the extent

expressly required by law.

Certainly, “lawful or proper use or operation of the ves-

sel” requires conformity with other sections of the Mer-

chant Marine Act, and with other statutes. Specifically,

we think such use and operation must be in conformity

with § 506.°% The appellees agree that this language

of § 504 refers to, among other provisions, the § 506

domestic trade restriction, but argue that § 506 does not

purport to speak to the situation where the subsidy is

repaid in full in exchange for an unlimited waiver.’”

As discussed above, we hold that § 506 does contain an

implicit prohibition against a waiver uniimited in time.

In short, we find nothing whatsoever in § 504 which

would authorize the lifting of the domestic trade restric-

tion of § 506. To the contrary, the reference to “lawful

or proper use or operation” refers to the § 506 restric-

tion against entry of a subsidized vessel into the domestic

trade.

1 This view is reinforced by review of the legislative history of

the last sentence of § 504, which was added to the section by amend-

ment in 1951. Reports of both the House and Senate Committees

responsible for acting on that amendment stated explicitly : “Subject

to the exceptions contained in section 506 of the 1936 act as to use

in domestic trades, sections 1 and 4 [of the amendments] . . . pro-

vide that the lawful or proper use of a vessel constructed with . . .

[construction-differential subsidy] may not be restricted.” S. Rep.

No. 295, 82nd Cong., Ist Sess. 4 (1951); H.R. Rep. No. 2221, 82nd

Cong., 2d Sess. 25 (1952) (emphasis added).

103 See, e.g., Brief for the Secretary of Commerce and Other Fed-

eral Appellees at 50.

4la

B. Section 207, Title V, of the Merchant Marine Act

of 1936 (46 U.S.C. § 1117)

At oral argument, in discussing the statement in the

Government’s brief that “the Secretary will consider the

advisability of issuing proposed guidelines or rules out-

lining the exceptional circumstances which might justify

. . . [permanent waiver of domestic trade restrictions]

in the future,” ?°* Government counsel was asked on

what section of the Merchant Marine Act these guide-

lines and rules would be based. He immediately re-

sponded, “Section 207, which gives the Secretary con-

tractual powers... .”* This was consistent with the

position taken in the Government’s appellate brief, which

cited § 207 as the Agency’s basic source of authority to

take the action at issue here.’”

The pertinent part of § 207 states: *°’

The Federal Maritime Commission and the Secretary

of Commerce may enter into such contracts, upon

behalf of the United States, and may make such

disbursements as may, in its or his discretion, be

necessary to carry on the activities authorized by

[. . . the Merchant Marine Act of 1936] or to pro-

tect, preserve, or improve the collateral held by the

Commission or Secretary to secure indebtedness, in

the same manner that a private corporation may

contract withi: the scope of the authority conferred

by its charte:.

We think § 207 is what is commonly called a “house-

keeping statute,” and a similar provision is found in

104 See id. at 31.

105 See Statement of Michael Kimmel, supra note 32.

106 See Brief for the Secretary of Commerce and Other Federal

Appellees at 27-30.

107 46 U.S.C. § 1117 (1970) (emphasis added).

42a

nearly every administrative agency basic statute. It is

a section which details the means and methods of im-

plementation of specific powers which are granted else-

where in the statute. It is not an independent grant of

power in itself..°° The authority to make and amend

contracts cannot imply the authority to enter into a

contract in violation of another section of the same Act

or other applicable law, or without a power conferred

in another section, just as the power to enter into con-

tracts commonly conferred by corporate charter cannot

authorize a corporation to enter into contracts foreign

to the purposes of the corporate charter or in violation

of law.

In Dollar v. Land,’” a case analogous to the present

one, this court concluded that § 207 conferred no powers

upon the Agency not otherwise specified in the Merchant

Marine Act of 1936. In Dollar the Maritime Commission

108 An analogous provision is 15 U.S.C. § 7170 (1976), which con-

fers general administrative powers on the Federal Power Commis-

sion to “perform any and all acts, and to prescribe, issue, make,

amend, and rescind such orders, rules, and regulations as it may

find necessary or appropriate to carry out the provisions of” the

Natural Gas Act, Pub.L. No. 75-688, 52 Stat. 821, 830 (21 June

1938), as amended. Courts have universally held that this provision,

which is even more specific in conferring powers on the Federal

Power Commission than § 207 of the Merchant Marine Act of 1936

is in conferring powers on the Agency, see 46 U.S.C. § 1117, does

not enlarge the powers of the Commission conferred elsewhere in

the Act. See, e.g., New England Power Co. v. Federal Power Com-

mission, 467 F.2d 425, 430-31 (D.C. Cir. 1972), aff’d, 94 S.Ct. 1151,

415 U.S. 345, 39 L.Ed.2d 383 (1974) (section 717 merely augments

existing powers conferred upon Commission by Congress and con-

fers no independent authority to act); Murphy Oil Corp. v. Federal

Power Commission, 431 F.2d 805, 810-11 (8th Cir. 1970) (no en-

largement of specific authority of Commission granted in § 717);

Texaco, Inc. Vv. Federal Power Commission, 412 F.2d 740, 742-43

(3d Cir. 1969) (rulemaking procedural requirements not waived

by § 717).

auar F.2d 245 (D.C. Cir. 1950), cert. denied, 344 U.S. 806

43a

argued that, upon the authority of § 207, it had power

to take title to stock of a steamship company. We stated

in that case: '°

The power to own and operate transoceanic steam-

ship lines is a power of tremendous scope... . It

is inconceivable to us that Congress would have left

to implication so vast a power. We do not think

that if Congress had intended the Maritime Commis-

sion to enter upon such ownership and operations it

would have left the matter entirely to a clause which

merely authorized the Commission to execute con-

tracts.

Similarly, § 207 cannot be a foundation of Agency power

to waive statutorily imposed restrictions and thus upset

the vital underlying purposes of the Merchant Marine

Act, or, indeed, to exercise any power not otherwise

granted in the Act or other statute.

C. Section 1104(a), Title XI, of the Merchant Marine

Act of 1936 (46 U.S.C.A. § 1274(a)(3))

While the Government appellees rely principally upon

§ 207 as a source of Agency authority, the private party

appellees and the trial court rest more strongly upon

§1104(a) (3). The trial court concluded that “. . .

[T]he Secretary does in fact possess general authority to

accept total . . . [subsidy] repayment in appropriate

eases. . . . [T]his authority is expressly contemplated

by section 1104(a) (3), 46 U.S.C. § 1274(a) (3)... 2"

The trial court turned to § 1104(a) (3) after finding a

“total dearth of guidance from the statutory language

and the legislative history [of § 506],”*” an area in

110 Jd. at 249.

111 See Shell Oil Co. v. Kreps, et al., supra, 445 F.Supp. at 1134.

112 Jd. at 11,

44a

which we have found decisive guidance. Yet § 1104(a) (3)

does not deal with the issue of construction-differential

subsidy at all. It is not part of Title V, which pertains

to such subsidies, but.of Title XI, which authorizes Gov-

ernment guarantees of private loans to finance shipbuild-

ing in American yards.’

Section 1104(a) (3) was added in 1972 to extend the

Agency’s authority to make guarantees, and provides that

the Secretary: **

. .. May guarantee or make a commitment to guar-

antee, payment of the principal and interest on an

obligation which aids in—

(3) financing, in whole or in part, the repayment

to the United States of any amount of construction-

differential subsidy paid with respect to a vessel pur-

suant to... [Title] V of this... [Act].

On its face, this provision gives no authority to repay

subsidy, much less to lift any statutory operational re-

strictions. All it does is provide a means for financing

repayment, if such repayment is otherwise authorized by

statute.

How, when, and by what authority subsidy can be re-

paid must be found in Title V,”* not Title XI™° of the

Act. Title V provides for two general conditions under

which subsidy may be repaid, and both are found in

§ 506." The 1938 amendment removed any ambiguity

in Title V, and there is no conflict between Title V and

13 See 46 U.S.C. §§ 1271-80 (1970) (Federal Ship Mortgage

Insurance).

14 46 U.S.C.A. § 1274(a) & 1274(a) (3).

115 46 U.S.C. §§ 1151-61 (1970).

16 46 U.S.C. §§ 1271-80 (1970).

17 See 46 U.S.C. § 1156 (1970).

45a

§ 1104(a) (3) of Title XI. Nothing in Title XI changes

the plain meaning of § 506 of Title V.

Underlying the appellees’ and the trial court’s rationale

that somehow the 1972 amendment to Title XI provides

authority to perform an‘act—the permanent waiver of

trade restrictions—which is contrary to the implicit pro-

hibition of § 506 of Title V, in spite of the fact that if

such authority were granted we would expect to find it

in § 506 and nowhere else, is the failure to recognize

that there may be reasons for subsidy repayment com-

pletely unrelated to domestic trading. A shipowner might

choose to repay subsidies in order to be eligible for re-

financing up to 8714% of the vessel’s cost,"* or perhaps

to escape U.S.-flag requirements as to manning and other

U.S. rules of vessel operation."*® As we have pointed out

before, no party here argues that any section of the

Merchant Marine Act prohibits the Agency’s acceptance

of subsidy repayment, but the Agency’s power to waive

permanently the § 506 domestic trading restriction is

quite another matter.

In summary, § 1104(a) (3) reflects only a congressional

understanding that subsidy may be repaid, either under

§ 506 of Title V or for other reasons unrelated to entry

into the domestic trade. It says nothing about authority

of the Agency to grant trade restriction waivers.

Strangely, however, the argument of appellees and the

rationale of the trial court really do not rest upon the

language of §1104(a)(3) as enacted in 1972, but on

118 See 46 U.S.C.A. § 1274(b) (2).

119 Such relief could be won by gaining permission from the

Agency to engage in foreign-to-foreign trade rather than trade

between the United States and foreign countries. See Shell Oil Co.

v. Kreps, et al., supra, 445 F.Supp. at 1134 n.la.

Pe eon re

ean eS ACR, da nim ba leva ite Secs te RS tS ae Si ata? >

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46a

language which was proposed but never enacted.”° An

initial draft of this section in 1971 provided for: ”

. .. financing, in whole or in part, [of] the repay-

ment to the United States of any amount of con-

struction-differential subsidy paid with respect to a

vessel pursuant to Title V of this Act, as amended,

[ENACTED] in order to release such vessel from all

restrictions imposed as a result of the payment of

construction-differential subsidy, when such repay-

ment is permitted by the Secretary of Commerce

after considering the competitive effect of releasing

such vessel from such restrictions. [NOT ENACT-

ED]

It is the above language which was never enacted which

the appellees and the trial court cite as a source of the

Agency’s present authority to release subsidized vessels

from operating restrictions. They reach this conclusion

by citing language in the House Report which com-

mented on the deleted language,“* and by concluding

that the nonenactment shows that the Agency already

had such powers and that the 1964 Grace Line action

was thereby confirmed by a iater- Congress. Unfortu-

nately for this singularly convoluted line of reasoning,

both the House and Senate disclaimed any intention of

so doing.

The language of the House Report relied on by the

appellees and the trial court reads as follows: **

In the entire history of the administration of the

1936 Act there has been only one instance where a

120 See id. at 1137; Brief for Seatrain and Polk Tanker, supra

note 15, at 16-17; Brief for Secretary of Commerce and Other

Federal Appellees at 43-45.

121 H.R. 9756, 92d Cong., 1st Sess., § 3 (1971).

122 H.R. Rep. No. 92-688, 92d Cong., Ist Sess. (1971).

123 Jd. at 10.

ceemewe ees

47a

construction-differential subsidy repayment, author-

ized by the Secretary under very special circum-

stances, could have called into play the provisions of

this paragraph. Your committee questions the desir-

ability of general legislation to deal with such an

unusual situation, and feels that Title XI assistance

should be extended to all instances of subsidy repay-

ments under Title V, so as to include the relatively

frequent situation of repayments under the first sen-

tence of section 506 of the Act. Your Committee

has therefore amended the legislation by deleting the

language [specifying the conditions under which

repayment could be accepted and trade restrictions

waived]....

There are several points vitiating the reliance of the

appellees and the trial court on this language. First, it

is clear that the Committee regarded the Grace Line case

as a “very special circumstance[e]” and “an unusual

situation,” *** and chose the path of leaving such matters

entirely to the courts rather than enshrining any principle

in general legislation. So the Congress specifically de-

clined to adopt the Agency’s Grace Line action as a

general principle. As aptly stated by one appellant here,

“The most that can be said about the . . . [intent of

Congress in 1972 is that it] declined to commit itself

on the issue.” *°

Second, the language of § 1104(a) (3) refers specifi-

cally to subsidy repayments under Title V.% Yet the

only types of domestic trade restriction waivers autho-

rized calling for subsidy repayments under Title V are

124 See id.

25 See Brief for Alaska Bulk and Trinidad, supra note 8, at 27.

26 See 46 U.S.C.A. § 1274(a)(3) (providing for “. . . financing

[of] . . . the repayment . . . of construction-differential subsidy

paid ... pursuant to... [Title V]... .”).

48a

those cited in § 506, which are limited to certain world

voyages embracing ports in the U.S. coastwise trade and

to temporary periods not to exceed six months.’

Third, and most importantly, the House Committee

Report quoted above contains a sentence following the

portion quoted and relied upon by the trial court, which

the trial court omitted. That sentence reads: “This

paragraph [§ 1104(a) (3)] in Title XI does not in any

way extend or affect the application of Title V of the

Act.” ** The Senate Report contained the same language

omitted by the trial court: *”°

Paragraph (3) [of § 1104(a)] is new. This para-

graph would permit the Secretary of Commerce to

guarantee an obligation which aids in financing, in

whole or in part, the repayment to the United States

of any amount of construction-differential subsidy

pursuant to Title V of the Act. This paragraph in

Title XI does not in any way extend or effect the

application of Title V of the Act.

Nothing whatever was said in the Senate Committee

report about the Grace Line matter or authorizing waiver

of domestic trade restrictions.

The bottom line of the legislative history of § 1104

(a) (3) in both House and Senate is clear: “This para-

graph in Title XI does not in any way extend or affect

the application of Title V of the Act.” We think that

no inference of reaffirmed or expanded waiver authority

can be drawn from either the congressional action or the

Reports with. regard to § 1104(a) (3). Congress plainly

refused to ratify the Grace Line action or to permit

21 See 46 U.S.C. § 1156 (1970).

128 H.R. Rep. No. 92-688, 92d Cong., Ist Sess. 10 (1971).

mS. Rep. No. 92-1137, 92d Cong., 2d Sess. 9 (1972) (emphasis

added).

SP DIC PARE A. ae

49a

the enactment of § 1104(a) (3) to change Title V as the

statutory section determining exclusively the circum-

stances under which subsidy can be repaid in exchange

for a lifting of trade restrictions.

V. PoLicy OF THE MERCHANT MARINE ACT OF 1936

In Sea-Land Service, Inc. v. Kreps,’ a case involv-

ing the award of operating-differential subsidy under

Title VI of the Merchant Marine Act of 1936," we in-

dicated that when “[t]he relevant statutory language

provides no direct guidance in resolving ... [a] dispute”

over that statute’s proper application, both the Agency

and the reviewing court “must of necessity look to the

purposes underlying the particular statutory provision

and the Act in general... .”™ It should be clear that

in the present case we believe there is much guidance to

be derived from the language of the statute itself, par-

ticularly § 506 of Title V. In addition to this, we now

turn to consider whether the Agency’s interpretation of

the statute on which its action in the instant case is

based will in the long run further the purposes of the

legislation in a reasonable and sound manner.

We believe there is risk of harm to the overall and

long-term policies of the, Merchant Marine Act in sus-

taining the Agency action here. The policy of the Act

is to create a protected area of purely American ship-

building and ship operation in the domestic coastwise

trade. This is accomplished by excluding all foreign-

built or foreign-operated vessels from this trade. The

American shipowner and shipbuilder then knows that he

must compete only with like-situated American ship-

owners and shipbuilders, and he can adjust his sights

130 566 F.2d 763 (D.C. Cir. 1977).

131 46 U.S.C. §§ 1171-83a (1970).

182 Sea-Land Service, Inc. v. Kreps, supra, 566 F.2d at 773.

eh eee

50a

accordingly. On the basis of known economic facts, the

builder or operator makes his calculations of the market

and of competition, in which the Government plays no

direct part, except in administering guarantees of con-

struction loans available equally to all.

The American shipowner and shipbuilder competes in

foreign trade on an entirely different economic footing.

To compete with foreign shipping, the American builder

and operator are able to secure up to 50% of a ship’s

construction costs from the U.S. Government. The pur-

pose of this policy is to enable the American operator to

compete initially with foreigners on an equal basis of

cost per ship, and to sustain the viability of American

shipyards. The American operator is further aided by an

operational-differential subsidy, which compensates him

for the recognized extra cost of American crews. The

American shipbuilder and operator know the competitive

factors present in the foreign trade, and they are as-

sisted by U.S. Government funds in meeting foreign

competition.

Given these two completely separate competitive areas,

unsubsidized American vessels have always operated in

the protected, Jones Act domestic trade, while subsidized

American vessels, in accord with the restriction of § 506,

have always operated in the foreign trade.'* To permit

a ship heavily subsidized in its construction cost to com-

pete with unsubsidized U.S.-built ships is to introduce

into the domestic portion of our maritime trade a totally

variable and incalculable factor. While the Government

may feel that it should be able to take whatever action

is necessary to free itself of its unfortunate financial

obligations here, and though indeed there may be public

(but not maritime) policy arguments strongly in its

favor, yet the transfer of, first, the Stuyvesant and pos-

88 The two Grace Line vessels may be the only possible exceptions.

See pp. 32-39 & notes 59-36 supra.

5la

sibly later of the Bay Ridge** into the domestic trade

would inevitably have a depressive impact on the future

of American shipbuilding and ship operation by Ameri-

can Owners. To accomplish a short-term Government

goal, the actions of the Agency here would imperil a

carefully conceived, long-established, and far-sighted

maritime policy of the United States.

CONCLUSION

We find the Agency’s action unauthorized by any ap-

plicable statute, prohibited by § 506 of the Merchant

Marine Act of 1936, and contrary to the overall con-

gressional policy expressed in the structure of that Act.

The decision of the District Court is reversed, and the

case is remanded to the District Court with instructions

to enter an appropriate order granting the plaintiff-

appellants the relief requested.

Reversed and Remanded.

134 The Bay Ridge was under construction in the Brooklyn Naval

Yard at the same time as the Stuyvesant. See Brief for the Secre-

tary of Commerce and Other Federal Appellees at 15-16.

52a

BAZELON, Circuit Judge, dissenting: Although the ma-

jority gives a plausible account of the statutory frame-

work governing this case, I am persuaded that nothing

in the Merchant Marine Act precludes the Secretary from

waiving domestic trading restrictions in return for total

repayment of subsidy. In my view, the Secretary had

ample authority to enter into the contractual modification

at issue in this case, and in exercising that authority

she did not abuse her discretion. I therefore respect-

fully dissent from the decision to reverse the district

court.

I cannot agree that the 1938 Amendments to the

Merchant Marine Act of 1936 “unmistakeably mani-

fested” * Congress’ intention to preclude total repayment

of the construction differential subsidy in return for a

permanent waiver of the domestic trading restrictions

contained in § 506 of the Act. The Report of the House

Committee on Merchant Marine and Fisheries observed

that “[n]o fundamental change . . . has been effected” in

§ 506 by the 1988 Amendments.? The original version of

§506 was part of Congress’ effort to strengthen the

American built and operated “foreign-going” fleet through

the creation of a “construction differential subsidy,”

which replaced the much abused “ocean mail contract

subsidy” program. One of the principal failures of the

ocean mail subsidy was the diversion of subsidy payments

from foreign to domestic service, providing the sub-

sidized operators an unfair advantage over the unsub-

sidized, “Jones Act” operators.*

1 Majority Op. at 28.

2 H.R. Rep. No. 2168, 75th Cong., 3d Sess. 21 (1938).

3 See, Preliminary Report of the Special Committee of the Senate

to Investigate Air Mail and Ocean Mail Contracts. S. Rep. No. 898,

74th Cong., Ist Sess. 1933.

Ira

COREA AS BOING PELL LOLLY LG I ae Oo GE

53a

The 1936 Act eliminated much of the unfair competi-

tion by restricting the conditions under which a ship

built with a construction subsidy could engage in the

domestic trade. At the heart of the original § 506 was

the requirement that owners of subsidized vessels must

repay a portion of the construction differential subsidy

corresponding to the remaining economic life of the

vessel in order to engage in direct competition with the

unsubsidized, Jones Act fleet.‘

The remaining text of § 506, however, introduced a

central ambiguity into the operation of the section, an

ambiguity that led to the 1938 amendment.® The origi-

nal § 506 could be read to permit permanent waiver of

the domestic trade restrictions, contingent on proportional

*P.L. 74-825, 40 Stat. 1999 (1936), the original § 506 provided

inter alia:

It shall be unlawful to operate any vessel, for the construc-

tion of which any subsidy has been paid pursuant to this title,

other than exclusively in foreign trade, or on a round-the-world

voyage or a round voyage from the west coast of the United

States to a European port or ports or a round voyage from the

Atlantic coast to the Orient which includes intercoastal ports

of the United States, or on a voyage in foreign trade on which

the vessel may stop at an island possession or island territory

of the United States, unless the owner of such vessel shall re-

ceive the written consent of the Commission so to operate and

prior to such operation shall agree to pay to the Commission,

upon such terms and conditions as the Commission may pre-

scribe, an amount which bears the same proportion to the con-

struction subsidy theretofore paid or agreed to be paid (exclud-

ing cost of national-defense features as hereinbefore provided),

as the remaining economic life of the vessel bears to its entire

economic life. If an emergency arises which, in the opinion of

the Commission, warrants the temporary transfer of a vessel,

for the construction of which any subsidy has been paid pursu-

ant to this title, to service other than exclusive operation in

foreign trade, the Commission may permit such transfer:

Provided, That no operating differential subsidy shall be paid

during the duration of such temporary or emergency period,

and such period shall not exceed three months.

5 See note 3, supra.

54a

repayment of subsidy, as well as “emergency” temporary

waiver of restrictions without the need to pay back any

of the construction differential subsidy. Alternatively,

the section could be read to permit only temporary

waivers, coupled with the requirement of payback.

As Judge Wilkey notes, the former is the more plaus-

ible interpretation of the original § 506.° Accordingly,

the “original purpose” of § 506 included the possibility

of permanent waiver so long as the source of unfair

competition, the previously granted construction differ-

ential subsidy, was eliminated. In contrast, the ability

to secure emergency temporary waivers without the re-

quired payback of subsidy did provide operators of sub-

sidized vessels a significant advantage over their Jones

Act competitors. It therefore seems likely that Congress

was addressing this latter situation when clarifying the

“original purpose” of § 506. Congress clearly eliminated

the temporary waiver advantage, since the amended

§ 506 clearly requires a payback of subsidy for even

temporary transfers.

Nonetheless, it is undeniable that in eliminating the

3-month temporary transfer for which no subsidy need be

repaid, Congress also eliminated from § 506 the language

that appeared to authorize permanent transfer from for-

eign to domestic service. Despite its expressed intention

not to alter the “original purpose” of the section, the

House Report stated:

The section has been entirely rewritten in order to

remove ambiguities arising from the method of de-

scribing the services other than foreign. . . . If the

vessel is used, with the consent of the Commission,

in the domestic trade in services other than those

* Majority Op. at 24.

me, ©

RL PLINER Ons

eos

2 IO AAFC RITE OSS Ot

55a

enumerated, the obligations of the owner to repay

part of the subsidy are clearly defined.’

The clearly defined obligation of the amended § 506

includes partial, but not permanent repayment of subsidy.

Yet nowhere in the legislative history is there any indica-

tion that permanent waivers, apparently permissible un-

der the 1936 Act, were expressly considered and elimi-

nated in 1938.°

Il.

In 1964, the Comptroller General issued his decision in

Grace Line® upholding the Secretary of Commerce’s au-

7 H.R. Rep. No. 2168, supra, note 2, at 21 (emphasis added).

8’ Compare Majority Op. at 29. The discussion of the amendment

to § 506 was sparse. In addition to the above-discussed House Re-

port, reference to the amendment was limited to: 1) a brief similar

comment in the Senate Report, S. Rep. No. 1618, 75th Cong., 3d

Sess., 12-13 (1938), quoted in pertinent part in Majority Op. at 27

n.52; 2) the comment of Maritime Commission Chairman Joseph

P. Kennedy in introducing the 1938 Amendments, see Amending

Merchant Marine Act, 1936, hearings on H.R. 8532 before the House

Committee on Merchant Marine and Fisheries, 75th Cong., 2d Sess.

8 (1938) quoted in Majority Op. at 25-27; and 3) the testimony of

E. M. Bull (president of an unsubsidized carrier), id. at 251-258;

John T. Corbett (representing the Brotherhood of Locomotive Engi-

neers), id. at 571-72; and Edgar F. Luckenbach (president of an

unsubsidized carrier), id. at 105-06. Although none of the com-

ments can be fairly characterized as resolving the question before

this court, it is instructive that the comments of the unsubsidized

operators, Bull and Luckenbach, generally criticized the amendments

as extending rather restricting the right of subsidized operators to

compete with the unsubsidized vessels. The failure of these witnesses

to comment favorably on the apparent elimination of the right to

transfer permanently may be some indication that eliminating the

permanent waiver was not intended. Alternatively, their failure

to address permanent transfer may suggest that the prospect of a

permanent waiver accompanied by repayment of subsidy was not

viewed as a threat to domestic, unsubsidized carriers. It is clear

from the testimony that the principal concern of the unsubsidized

operators was the ability of subsidized ships to move back and

forth between foreign and domestic service, enjoying the benefits

of subsidy on their foreign voyages and entering the domestic

service only on the choicest routes and occasions. Permanent trans-

fer does not pose similar problems.

* 44 Comp. Gen. 180 (1964).

eee ee eT

M980 ote ot ane

56a

thority to remove domestic trading restrictions in return

for repayment of the unamortized construction differen-

tial subsidy. Although there are some factual differences

between the present case and Grace Line, I do not believe

that they are material to the question of the Secretary’s

authority, since the action taken in Grace Line was not

contemplated by the express language of § 506 any more

clearly than the present action of the Secretary.

I find the Comptroller’s rationale in Grace Line ques-

tionable. The Comptroller’s reasoning began with the

observation that ships built with subsidy would be per-

mitted to engage in domestic activities without restric-

tion once the subsidy had been fully depreciated. In the

Comptroller’s view, this represented a congressional judg-

ment that when the unfair advantage created by the

subsidy terminated, the reasons for the restriction would

expire, thus justifying unrestricted domestic trading by

previously subsidized vessels. Applying the same reason-

ing to an “accelerated amortization” through repayment,

the Comptroller concluded that the purpose of the re-

strictions would lapse upon repayment, and the Secretary

could then permit domestic trading, consistent with the

Act.

The difficulty with this argument is that the statute

explicitly contemplates a subsidized ship entering unre-

stricted domestic trade after the economic life of the sub-

sidized vessel had expired, without any further repayment

of subsidy.” In contrast, no such explicit provisions

governs “accelerated” amortization.

Although Grace Line thus does not stand as well-

reasoned precedent, it is precedent nonetheless, and appel-

10 P.L. 88-225, 77 Stat. 469 (1963), 46 U.S.C. § 1125 (note)

(1970), amended the basis for computing the amount of subsidy

to be repayed pursuant to § 506. Application of that formula yields

a zero repayment once the subsidy has been fully depreciated.

eee

57a

lees argue that subsequent congressional actions represent

ratification of at least the result in Grace Line.

In 1970, Congress enacted a number of amendments

to the Merchant Marine Act designed to promote Ameri-

can ship-building for the foreign trade, but § 506 was left

intact.** However, Congress’ failure to amend § 506 under

those circumstances cannot be viewed as a ratification of

Grace Line, since the issue of transfer from the foreign

to domestic trade was not germane to the principal focus

of the Amendments.

A stronger case can be inferred from Congress’ amend-

ment in 1972 of § 1104 of the Merchant Marine Act.” As

introduced, the new § 1104(a) (3) clearly contemplated

the release of the domestic trading restrictions in return

for full repayment of subsidy. The House Committee

however, deleted the explicit reference to repayment in

return for lifting the trading restrictions, observing:

In the entire history of the administration of the

1938 Act there has been only one instance where a

construction-differential subsidy repayment, author-

ized by the Secretary under very special circum-

stances, could have called into play the provisions of

this paragraph. Your committee questions the de-

sirability of general legislation to deal with such an

unusual situation and feels that Title XI assistance

should be extended in all instances of subsidy repay-

ments under Title V, so as to include the relatively

frequent situation of repayments under the first sen-

tence of section 506 of the Act. Your committee

therefore has amended the legislation by deleting the

language.”

11 Merchant Marine Act of 1970, P.L. 91-469, 84 Stat. 1018

(1970).

12 Federal Ship Financing Act of 1972, P.L. 92-507, 86 Stat. 909

(1972).

48 H.R. Rep. No. 72-688, 92d Cong., 1st Sess. 9-10 (1971).

a ee PE eT RN

58a

There are three items of note in the quoted passage.

First, Congress showed a~clear-awareness of the Grace

Line precedent. Second, by characterizing the purpose of

the language so as “to include” partial repayments, Con-

gress intended that other types of repayment might oc-

cur."* Finally, Congress indicated that the enactment of

§ 1194(a) (3) was not, in its view, an alteration of Title

V. Thus, whether or not such repayments were intended

must be gauged by the Act as it stood prior to 1972. But

in judging what restrictions Title V imposed prior to

1972, we must take into account Congress’ awareness of

Grace Line as an interpretation of Title V.

I have little doubt that in enacting the 1972 Amend-

ments the House Committee clearly contemplated the use

of § 1104(a) (3) loans for precisely the sort of repayment

of subsidy at issue in Grace Line and here, albeit with the

expectation that full repayment would be rare. There is

no note of disapproval in the House Committee’s discus-

sion of Grace Line. A fortiori, the House Committee must

have believed the Secretary had the authority to accept

repayment in return for waiving domestic trading restric-

tions, and that Title V posed no barrier to such an ar-

rangement.

III.

This result is perfectly consistent not only with the

overall purposes of the Act (fostering the development

of a U.S.-flag, U.S.-built merchant marine) but is equally

consistent with the purpose of the trading restrictions

14 Admittedly, the fact that full repayment was contemplated by

the 1972 amendments is not in itself sufficient to establish Congres-

sional approval of removing domestic trading restrictions in return

for that repayment. There are other reasons why an operator might

seek to repay the subsidy. For example, the operator might seek the

right to engage in foreign-to-foreign, rather than foreign-to-U.S.

trade, with the attendant relief from U.S. flag requirements. Alter-

natively, repayment of subsidy would make the operator eligible to

secure financing of up to 8742% of the cost of the vessel.

59a

imposed by § 506. Unlike the temporary transfers, a

permanent transfer does not allow the vessel’s operator

to take advantage both of the benefits of subsidy in

foreign trading, and the protection of the Jones Act in

domestic trading. Full repayment of subsidy irrevoc-

ably places the transferred vessel on the same footing

as all other ships in the Jones Act fleet, without affording

an unfair advantage to the previously subsidized opera-

tor.* The only conceivable harm to the Jones Act op-

erators is an increase in competition from an additional

U.S.-flag, U.S.-built vessel. I do not believe it is the

purpose of § 506 in particular, or the Merchant Marine

Act as whole, to protect Jones Act operators from this

type of competition.”

The fact that the 92nd Congress thought that § 506

did not preclude removal of domestic trading restric-

tions in return: for full repayment does not conclusively

15 To the extent that the Secretary did not require a repayment

of subsidy with interest, the owners of the STUYVESANT did receive

an unfair advantage. Accordingly, I would modify the decision of

the district court to require the amount of repayment to include

interest on the subsidy.

16 This raises an interesting question of appellants’ standing to

challenge the Secretary’s decision. The issue of standing is not

addressed in Judge Wilkey’s opinion. I take it that the only “injury

in fact” which appellants can allege is the harm from additional

competition. Although I believe this is an adequate basis for appel-

lants’ standing, see Ass’n of Data Processing Organizations, Inc.

v. Camp, 397 U.S. 150 (1970), it demonstrates that appellants are

concerned primarily with insulating their vessels from competition.

Although the nation’s merchant marine policy does shield domestic

carriers from competition by foreign built vessels, as well as from

unfair competition by subsidized vessels, it was not intended to

limit the competition among American built, unsubsidized vessels.

Appellant Shell argues that “[p]ersons planning to construct unsub-

sidized vessels must be able to assess future vessel supply in the

legislatively protected domestic market.” Reply Br. for Shell at 3.

This mischaracterizes the protection created by the Jones Act and

§ 506, since the builder of an unsubsidized vessel has no way of

— how many other unsubsidized vessels might be built in the

uture.

a6 Sanh | I . . ner:

60a

end our inquiry. Although the views of subsequent Con-

gress’ are entitled to significant weight, NLRB v. Bell

Aerospace-€0., 416 U.S. 267, 275 (1974), where the

intent of the enacting Congress is unmistakable, it is the

latter that controls, unless expressly overriden by the

positive act of a later Congress. International Brother-

hood of Teamsters v. United States, 431 U.S. 324, 354

n. 39 (1977). The difficulty posed by this case is, on

the one hand, the original intent is not unmistakable

(as in Teamsters) but, on the other hand, the intention

of the later Congress was not embodied in legislation

directly affecting the ambiguous provision, that is, Title

Although the matter is not free from doubt, I would

affirm the decision of the district court, subject to the

qualification expressed in note 15, supra.” My conclu-

sion is buttressed by the language in both §§ 501 and

504 of the Act, 46 U.S.C. §§ 1151 and 1154 (1970), that

“(t]ne contract of sale ... shall not restrict the lawful

or proper use or operation of the vessel except to the

extent expressly required by law.” (emphasis added)

Taking all the relevant guides to interpretation together,

I cannot say that the Secretary’s interpretation is un-

reasonable. See Udall v. Tallman, 380 U.S. 1, 16-18

(1965), nor that there are “compelling indications” that

her interpretation is wrong, see E.J. du Pont de Nemours

& Co. Vv. Collins, 482 U.S. 46, 54-55 (1977) ; Columbia

17 Assuming that § 506 does not preclude full repayment of sub-

sidy in return for removing domestic trading restrictions, I believe

the Secretary has the authority, pursuant to § 207 of the Act, 46

U.S.C. § 1117 (1970) to amend the contract to remove the domestic

trading restrictions. The Secretary has recognized that her discre-

tion to do so is not unlimited, see the Secretary’s proposed rule,

Construction-Differential Subsidy Repayment, Total Repayment Pol-

icy, 43 Fed. Reg. 51045 (1978) (to be codified in 46 C.F.R. § 276.3),

- must be exercised consistent with the overall purposes of the

6la

Broadcasting System, Inc. v. Democratic National Com-

mittee, 412 U.S. 94, 121-22 (1973).

Despite the statement of counsel for the Secretary at

oral argument, I do not believe the question of whether

the Secretary must make a finding of necessity for a full

repayment is relevant to the Secretary’s authority to ac-

cept such repayment, since full repayment is not ex-

pressly covered by 506.% A finding of need is man-

dated by § 506 for partial repayment and temporary

transfer. This is consistent with a concern that sub-

sidized carriers not take unfair advantage of unsub-

sidized carriers simply to skim off the most lucrative

domestic trade and return at will to foreign service.

In contrast, full repayment places the formerly subsidized

earrier on an equal footing with the other vessels in the

Jones Act fleet, and the possibilities of abuse are thereby

eliminated. Nonetheless, the Secretary cannot arbitrarily

agree to accept repayment, but rather must provide a

reasoned basis for that action. The circumstances of

this case provide ample support for the Secretary’s dis-

cretionary decision to accept repayment.

18 Compare Majority Op. at 16-19.

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62a

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

SEPTEMBER TERM, 1978

No.

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