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06/25/82 Alaska Bulk Carriers, Inc. v. Andrew L. Lewis

June 25, 1982

ALASKA BULK CARRIERS, INC., TRINIDAD CORPORATION, APPELLANTS

v.

ANDREW L. LEWIS, JR., SECRETARY OF TRANSPORTATION, U.S. DEPARTMENT OF TRANSPORTATION, ET AL.; SHELL OIL COMPANY (A

DELAWARE CORPORATION), APPELLANT

v.

ANDREW L. LEWIS, JR., SECRETARY OF TRANSPORTATION, U.S. DEPARTMENT OF

TRANSPORTATION, ET AL.; ALASKA BULK CARRIERS, INC., TRINIDAD CORPORATION

v.

ANDREW L. LEWIS, JR., SECRETARY OF TRANSPORTATION, U.S. DEPARTMENT OF TRANSPORTATION, ET AL.

COMPANY (A DELAWARE CORPORATION

v.

ANDREW L. LEWIS, JR., SECRETARY OF TRANSPORTATION, U.S. DEPARTMENT OF



Before the closing of the complex transaction that would have implemented the permanent-release/full-repayment agreement, appellants filed an action in the district court seeking declaratory and injunctive relief prohibiting the Secretary from granting a permanent release from the section 506 foreign-trade-only requirement.10 Appellants argued that the Secretary lacked authority to grant such a release, and that, even if the Secretary had the authority, the exercise of the authority in this case was an abuse of discretion.

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

POLK TANKER CORPORATION, ET AL., APPELLANTS; SHELL OIL

TRANSPORTATION, ET AL. SEATRAIN SHIPBUILDING CORP. and POLK

TANKER CORP., APPELLANTS

Nos. 77-2080, 78-1211, 78-1212, 78-1281 1982.CDC.166

On Remand from the Supreme Court.

APPELLATE PANEL:

Wilkey, Circuit Judge, Bazelon and McGowan, Senior Circuit Judges.

PER CURIAM DECISION

This case, which is before us on remand from the Supreme Court, *fn1 involves the construction-differential subsidy program authorized by Title V of the Merchant Marine Act. *fn2 The Supreme Court held that the Act authorizes the Secretary of Commerce *fn3 to release a ship from the operating restrictions of the CDS program in exchange for the full repayment of the subsidy received. The issue before us on remand is whether the Secretary has authority under the Act to accept full repayment of a CDS in the form of a promissory note. We conclude that the Secretary has such authority, provided that the terms of the promissory note place the shipowner on an equal financial footing with a shipowner who never participated in the CDS program. I. BACKGROUND *fn4

Because the costs of constructing ships in the United States and operating them with American crews are higher than comparable costs in foreign ports, Congress has enacted a number of laws designed to protect the United States shipping and shipbuilding industries. The Merchant Marine Act of 1936, *fn5 intended to promote American participation in foreign trade, is a central pillar of that statutory system. In order to make up for the cost disadvantages of American shipbuilding, Title V of that Act authorizes the Secretary of Commerce to subsidize up to 50% of the cost of constructing a ship in this country. In return for receiving this "construction-differential subsidy" , section 5066 requires the owner of the ship to agree to operate it exclusively in foreign trade except under certain limited circumstances.7

Beginning in the early 1970s, Seatrain Shipbuilding Corporation began building the Stuyvesant, a 225,000 deadweight ton oil tanker. At that time, Polk Tanker Corporation, Seatrain's affiliate and purchaser of the Stuyvesant, agreed to operate the ship exclusively in foreign trade, so that Seatrain received a CDS of $27.2 million.8 By the time construction of the Stuyvesant was completed, however, Polk was unable to find employment for the ship in foreign trade. The employment opportunity that Polk eventually found for the Stuyvesant was in the transportation of Alaskan oil to the eastern United States and the Carribbean. But because that trade is domestic rather than foreign, the Stuyvesant was barred from employment there by section 506 of the Act. To overcome that obstacle, Polk agreed to repay the CDS with a twenty-year promissory note if the Secretary of Commerce would release the Stuyvesant from the section 506 restrictions. The Secretary acceded to the permanent-release/full-repayment agreement for four reasons: First, there were no employment opportunities open to the Stuyvesant in foreign trade; second, employment in the Alaskan trade would strengthen the collateral that secured government-guaranteed loans to Seatrain;9 third, employment in the Alaskan trade might prevent default on those obligations; and fourth, if the Stuyvesant were not permitted to operate in domestic trade, the Seatrain Shipbuilding Corporation might not be able to continue operation.

On November 22, 1977, the district court ruled that the Secretary had the authority to release the Stuyvesant from the section 506 restrictions in exchange for full repayment of the CDS, and that the Secretary had the authority to accept repayment in the form of a promissory note.11 The court also held, however, that the Secretary had abused her discretion by releasing the Stuyvesant from the trade restrictions without analyzing the effect that release would have on the Alaskan trade. The court, therefore, remanded the case to the Secretary for further proceedings but certified its decision as final under Rule 54(b) of the Federal Rules of Civil Procedure.

Alaska Bulk Carriers, Inc., Trinidad Corporation, and Shell Oil Co. appealed the district court's decision to this court and we reversed, holding that the Merchant Marine Act did not authorize the Secretary to enter into a permanent-release/full-repayment agreement.12 The Supreme Court, however, reversed this court and remanded the case to us for review of that part of the district court's decision holding ...


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