# Petition — Seatrain Shipbuilding Corp. v. Shell Oil Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_0150%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 - **Citation:** 444 U.S. 572 ## Text weprcniy vUUTT, U. & = riLEDp APR 30 1979 ~~ IN THE . Supreme Court of the United States OCTOBER TERM, 1978 my No. ‘ 7 9 “ag! a 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 \ ' a 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 II 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. 2 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 3 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- 4 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 5 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 6 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- 7 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 8 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 ed 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. 10 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 11 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 12 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- & a Ae SA pr lal “ina to BK Fite 13 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. 14 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 —— 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 eee 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. w 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, 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 V. 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. ERE La A BOES LES IEG TC (NA Oe Be ee ged IEG SR TIEN ROTEL IPE LEEPER IL TAL ARSE BATT A SRN 62a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT SEPTEMBER TERM, 1978 No. 77-2080 ALASKA BULK CARRIERS, INC., TRINIDAD CORPORATION, APPELLANTS Vv. JUANiITA M. KREPS, SECRETARY OF COMMERCE, U. S. DEPARTMENT OF COMMERCE, ET AL. And Consolidated Case Nos. 78-1211, 78-1212 and 78-1281 (Filed March 22, 1979) BEFORE: BAZELON, MCGOWAN, and WILKEY, Circuit Judges ORDER Upon consideration of the petitions for rehearing filed by appellees/cross appellants (Seatrain Shipbuilding Corp., et al.) and appellees (federal), it is ORDERED, by the Court, that the aforesaid petitions for rehearing are denied. Per Curiam FoR THE COURT: /s/ George A. Fisher GEORGE A. FISHER Clerk Circuit Judge Bazelon would grant the petitions for rehearing. FO Ee SP ee ee wee RARE ATIILE LIEL L RTIT LET LNe t SE IES Tine RA SEREESETERAA, Se 63a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT SEPTEMBER TERM, 1978 No. 77-2080 ALASKA BULK CARRIERS, INC., TRINIDAD CORPORATION, APPELLANTS Vv. JUANITA M. KREPS, SECRETARY OF COMMERCE, U. S. DEPARTMENT OF COMMERCE, ET AL. And Consolidated Case Nos. 78-1211, 78-1212 and 78-1281 (Filed March 22, 1979) BEFORE: Wricnut, Chief Judge; BAZELON, MCGOWAN, TAMM, LEVENTHAL, ROBINSON, MACKIN- NON, Ross, and WILKEY, Circuit Judges ORDER Upon consideration of the suggestions for rehearing en banc filed by appellees/cross appellants (Seatrain Shipbuilding Corp., et al.) and appellees (federal), hav- ing been transmitted to the full Court and a majority of the judges of the Court in regular active service not having voted in favor thereof, it is PPI ETI TORII I he FNM he RAPPER ELE BLN ESE IG IY LEG OEE a ROR PY “6 Fe mE Meg 64a _ORDERED, by the Court, that the aforesaid sugges- tions for rehearing en banc are denied. Per Curiam FOR THE COURT: /s/ George A. Fisher GEORGE A. FISHER Clerk Circuit Judge Bazelon would grant the suggestions for rehearing en banc. EGG Mi ILL NE CLES PLL IL ALE IIE IEG NIELS, TILE STR oe OOLILD FORT IIE UE LT OF EY 65a UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA SHELL OIL COMPANY, Plaintiff, Vv. JUANITA M. KREPS et al., Defendants. ALASKA BULK CARRIERS, INC., and TRINIDAD CORPORATION, Plaintiffs, Vv. JUANITA M. KREPS et al., Defendants. Civ. A. Nos. 77-1645, 77-1647 Nov. 22, 1977 As Corrected March 6, 1978 MEMORANDUM OPINION CHARLES R. RICHEY, District Judge. These consolidated cases are presently before the Court on cross-motions for summary judgment.’ Plaintiffs here- in, Shell Oil Company (Shell), Alaska Bulk Carriers, 1 Defendants and defendant-intervenors have, in the alternative, moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. However, because the Court has considered matters outside the pleadings, the Court has, pursuant to the last sentence of Fed.R.Civ.P. 12(b), treated defendants’ and defendant-intervenors’ motions solely as motions for summary judgment pursuant to Fed.R.Civ.P. 56. —— + 66a Ine. (Alaska Bulk), and Trinidad Corporation (Trini- dad), seek judicial review of certain actions taken by the defendants, Juanita M. Kreps, Secretary of Commerce, the Maritime Administration (MarAd), Robert J. Black- well, Assistant Secretary of Commerce for Maritime Af- fairs, and the three members of the Maritime Subsidy Board (MSB). The actions challenged relate to the Sec- retary’s decision to remove domestic trading restrictions from the ship known as the S. S. STUYVESANT in exchange for the repayment of a construction-differential subsidy (CDS) of some $27.2 million by the Polk Tanker Corporation (Polk), the owner of the STUYVESANT and a wholly-owned subsidiary of Seatrain Lines, Inc. Polk and Seatrain Shipbuilding Corporation (Seatrain Shipbuilding), the builder of the STUYVESANT and another wholly-owned subsidiary of Seatrain Lines, Inc., were permitted to intervene herein as party-defendants. The cross-motions for summary judgment now before the Court present four legal issues: (1) whether the Secretary has the legal authority under the Merchant Marine Act of 1936 to remove domestic trading restric- tions upon the operation of a vessel built with CDS in exchange for repayment in full of the CDS; (2) if the Secretary has such legal authority to remove domestic trading restrictions, whether she has the legal authority to accept as repayment therefor a promissory note pay- able over 20 years; (3) whether the procedures utilized by the Secretary in taking the actions here in issue de- prived plaintiffs of property in violation of the Due Process Clause of the fifth amendment; and, finally, (4) whether the Secretary’s decision to exercise such au- thority on the facts of the instant case was arbitrary and capricious or otherwise violative of the Administrative Procedure Act (APA). For the reasons hereinafter stated in sections III and IV, infra, the Court concludes that the Secretary has the 67a legal authority both to remove permanently domestic trading restrictions from a CDS vessel in exchange for CDS repayment and to accept a 20-year promissory note as repayment. The Court further concludes that the procedures utilized by the Secretary did not deprive plain- tiffs of any property interest cognizable under the Due Process Clause. Accordingly, the Court will grant de- fendants’ and defendant-intervenors’ motions for sum- mary judgment as to these issues. However, for the rea- sons set forth in section V, infra, the Court concludes that the Secretary failed to consider relevant factors in making her decision to take the actions herein challenged, and the Court therefore concludes that these actions are arbitrary and capricious and an abuse of discretion, with- in the meaning of section 10(e) of the APA, 5 U.S.C. $ 706(2) (A). Accordingly, the Court will grant plain- tiffs’ motion for summary judgment on this issue, and will remand this matter to the Secretary for further consideration in accordance with this opinion. I. STATUTORY FRAMEWORK Title V of the Merchant Marine Act of 1936, (the Act), as amended, 46 U.S.C. §§ 1151 et seg., empowers the MSB to award a “construction-differential subsidy” (CDS) to persons building new vessels for use in the “foreign commerce of the United States.” 46 U.S.C. §1151(a). Such a subsidy is intended to equalize the costs of vessel construction between United States and foreign shipyards, where construction costs are lower as a result of lower labor and material costs and/or foreign government subsidies. The CDS program thus enables ships built in the United States to compete in charter rates against foreign-built ships. See generally Moore-McCormack Lines, Inc. v. United States, 413 F.2d 568, 188 Ct.Cl. 644 (1969). No such CDS, however, is necessary for ships not in competition with foreign-built ships. Section 27 of the OPER PEDALS TIE PALE 68a Merchant Marine Act of 1920, as amended, 46 U.S.C. § 883, provides that only vessels “built in and documented under the laws of the United States and owned by per- sons who are citizens of the United States” may engage in domestic trade—trade “between points in the United States, including Districts, Territories, and possessions thereof embraced within the coastwide laws.” (Emphasis added.) See American Maritime Association v. Blumen- thal, No. 77-1508 (D.D.C. October 14, 1977). Since no foreign-built ships can compete in domestic trade with the higher-cost United States-built ships, no CDS may be paid to United States ships engaged in domestic trade. In order to protect the unsubsidized vessels, United States ships that are built with the aid of CDS are prohibited from engaging in domestic trade since they are able to offer lower charter rates than unsubsidized United States ships. This prohibition, codified in section 506 of the 1936 Act, 46 U.S.C. § 1156, is the focal point of this litigation. This section, quoted in its entirety in section III(b) infra, requires recipients of CDS to agree not to operate the subsidized vessel in domestic commerce, though it does provide a mechanism whereby the Secre- tary can waive such domestic trading restrictions for up to six months per year in exchange for a pro rata repayment of CDS. One final statutory provision of relevance to this case is Title XI of the Act, 46 U.S.C. §§ 1271 et seg., which authorizes the Secretary to provide loan guarantees for the financing of United States-built vessels. Section 1104 (a) (3) of the Act, 46 U.S.C. § 1274(a) (3), authorizes the use of such guarantees for the “financing, in whole or in part, [of] the repayment to the United States of any amount of construction-differential subsidy paid with respect to a vessel pursuant to title V of the Act.” Other subsections of section 1104(a) set forth other types of financing for which loan guarantees may be made. Sec- FE PEE PIII