On Petition for Review of a Regulation of the Secretary of Transportation and On Appeal from the United States District Court for the District of Delaware. (Civil Action No. 91-122-JLL).
Before: Hutchinson, Cowen and Garth, Circuit Judges
This consolidated case involves the complex statutory scheme regulating the ownership, operation, and chartering of vessels in the coastwise trade. Petitioners-appellants Conoco and Du Pont challenged regulations of the Coast Guard and the Maritime Administration which required that parent corporations of subsidiaries operating vessels in the coastwise trade be 75 percent owned by U.S. citizens. The district court dismissed their claims for lack of jurisdiction. Conoco and Du Pont also filed a protective petition in this court asking us to review the Maritime Administration regulation. We hold that we have exclusive jurisdiction to hear this case, and thus affirm the district court's dismissal. On the merits, we uphold the regulation as promulgated by the Maritime Administration.
The ownership, operation, and chartering of vessels in the coastwise trade*fn2 is regulated by several statutory provisions. Section 2 of the ShippingAct of 1916, ch. 451, 39 Stat. 729, provides:
Within the meaning of this chapter no corporation, partnership, or association shall be deemed to be a citizen of the United States unless the controlling interest therein is owned by citizens of the United States . . . but in the case of a corporation, association, or partnership operating any vessel in the coastwise trade the amount of interest required to be owned by citizens of the United States shall be 75 per centum.
46 U.S.C. App. § 802(a) (1988) (emphasis added). Thus, there are two citizenship requirements in section 2. Generally, U.S. citizens must hold a "controlling interest" in a corporation for the corporation itself to be considered a U.S. citizen. Section 2 describes "controlling interest" in terms of majority stock control and majority voting power. 46 U.S.C. App. § 802(b)(1988). However, there is an exception for corporations operating vessels in the coastwise trade; these corporations must be 75 percent owned by U.S. citizens. Whether this 75 percent requirement applies to parent corporations of subsidiaries operating coastwise vessels is the dispute in this case.
The citizenship requirement of section 2 is incorporated into section 9 of the Shipping Act, as amended, which provides:
[A] person may not, without the approval of the Secretary of Transportation --
(1) sell, mortgage, lease, charter, deliver, or in any manner transfer . . . to a person not a citizen of the United States, any interest or control of a documented vessel . . . owned by a citizen of the United States or the last documentation of which was under the laws of the United States . . .
46 U.S.C.A. App. § 808(c) (West Supp. 1992). Thus, it is a violation of section 9 to transfer a vessel owned by a U.S. citizen to a non-U.S. citizen without the Secretary's approval. See 46 U.S.C. App. § 839 (1988) ("such approval may be accorded either absolutely or upon such conditions as the Secretary of Transportation prescribes"). Section 2's citizenship requirement is also incorporated into section 27 of the Merchant Marine Act of 1920, ch. 250, 41 Stat. 999, commonly referred to as the Jones Act, which specifies that no merchandise shall be transported by water between points in the U.S. except in a vessel "owned by persons who are citizens of the United States." 46 U.S.C. App. § 883 (1988).
The so-called Bowaters Amendment of 1958, Pub. L. No. 85-902, 72 Stat. 1736, created a narrow exception for certain corporations which could not otherwise meet the stringent 75 percent citizenship requirement of section 2. 46 U.S.C. App. § 883-1 (1988). The amendment derives its name from the Bowaters Southern Paper Corporation, which was owned by Canadian and British interests and could not qualify as a U.S. citizen under section 2. See S. Rep. No. 2145, 85th Cong., 2d Sess. 2-3 (1958). Although Bowaters was headquartered in Tennessee, and managed and staffed almost exclusively by Americans, it could not own and operate barges in order to bring in pulpwood or send out newsprint to its U.S. customers. Consequently, an amendment to the existing laws was proposed to provide limited relief to corporations such as Bowaters and the Shell Oil Co., which was partially owned by Dutch and British companies.
The Bowaters Amendment allows certain corporations to document*fn3 vessels for coastwise trade, provided that the vessels are only used to carry "proprietary" cargo owned by either the corporation or its affiliates. To qualify as a "Bowaters corporation," a corporation must be incorporated under U.S. laws and satisfy five requirements: a majority of its officers and directors must be U.S. citizens; at least 90 percent of its employees must be U.S. residents; it must be engaged primarily in a manufacturing or mineral industry in the U.S.; the aggregate book value of the corporation's vessels cannot exceed ten percent of the aggregate book value of the corporation's assets; and it must purchase or produce in the U.S. at least 75 percent of the raw materials used or sold in its operations. 46 U.S.C. App. § 883-1.
The Bowaters Amendment also places several restrictions on Bowaters corporations. These corporations cannot operate vessels which they own as common carriers for the carriage of non-proprietary cargo. The amendment thus provides that no vessel owned by a Bowaters corporation "shall engage in the fisheries or in the transportation of merchandise or passengers for hire between points in the United States . . . except as a service for a parent or subsidiary corporation." Id. Bowaters corporations are also restricted in their ability to charter out vessels to other parties. Id.
In 1981, E. I. Du Pont Nemours and Co. ("Du Pont"), an American chemical corporation, battled Joseph E. Seagram & Sons, Inc., a Canadian corporation, for control of Conoco, Inc. See Joseph E. Seagram & Sons, Inc. v. Conoco, Inc., 519 F. Supp. 506 (D. Del. 1981). Conoco, which was founded in 1876, is an oil company engaged in the production, transportation, refining, and marketing of petroleum and petroleum products. Du Pont ultimately prevailed and now holds all of the capital stock of Conoco through Du Pont Energy Company. Seagram exchanged its Conoco stock for Du Pont stock, and was given limited representation on Du Pont's board of directors. Seagram also agreed to vote for directors nominated by Du Pont and not to acquire more than 25 percent of the voting stock of Du Pont.
In 1984, JES Developments, Inc., an indirect, wholly-owned subsidiary of Seagram, controlled 24.5 percent of Du Pont stock. Another 0.59 percent of Du Pont's stock was held by stockholders with registered addresses outside the U.S. Since it was likely that many of these stockholders, as well as others with U.S. addresses, were non-citizens, Du Pont informed the Department of Transportation that it could no longer certify that it was 75 percent owned by U.S. citizens. Faced with section 2's citizenship requirement which it appeared no longer to satisfy, Du Pont argued that U.S. citizens continued to hold a "controlling interest" (i.e., more than 50 percent stake) in Du Pont, and thus, its wholly-owned subsidiary, Conoco, continued to be owned by an U.S. citizen under section 2. In short, Du Pont argued that Conoco could own and operate vessels in the coastwise trade, even though Du Pont could not.
Both Du Pont and Conoco have substantial economic interests at stake, since the operation of vessels in the coastwise trade is important to both of their businesses. Du Pont owns 32 bulk liquid chemical barges, and "bareboat" charters*fn4 12 barges. Conoco owns 10 pushboats (towboats) and 17 bulk liquid petroleum barges, and bareboat charters one pushboat and nine barges.
Du Pont uses its barges to transport its chemical products between Du Pont facilities and occasionally to its customers. A barge which transports chemical products must be cleaned before a different product can be transported in the barge. The cleaning process is expensive and releases pollutants which must be disposed of or stored. Due to the large volume of chemical products which are shipped by Du Pont, the company is able to "dedicate" almost all of its barges to the carriage of a single chemical product, thus avoiding the necessity of cleaning the barges between trips. If Du Pont were forced to seek greater service from independent barge operators with "non-dedicated" barges, Du Pont alleges that its costs would increase substantially.
In 1990, Conoco used its coastwise vessels to carry 27 million barrels of crude and refined petroleum products, including approximately 10 million barrels for others for compensation. If Conoco were required to dispose of all of its vessels and rely completely on independent marine operators for transportation, it contends that it would lose more than $12 million each year, in part because some of the shallow waters of southern Louisiana near Conoco's Lake Charles refinery are not serviced by independent operators. If Conoco were only required to stop carrying products for other companies, thus leaving its vessels underutilized, it claims that it would lose $5 million each year.
Du Pont and Conoco requested that the Department of Transportation agree to their interpretation of section 2. The Department is responsible for the administration of the statutes concerning the documentation and transfer of vessels. The administration of the documentation requirements has been delegated to the Coast Guard, 46 U.S.C. § 2104 (1988); 49 C.F.R. §§ 1.4(b), 1.46(d), and the administration of the transfer requirements to the Maritime Administration ("Marad"). 46 U.S.C. App. § 876 (1988 & Supp. 1990); 49 C.F.R. §§ 1.4(j), 1.66(a)(b) & (t) (1991). The Department took Conoco's request under advisement.
In February 1989, Marad promulgated an "interim final rule" which stated that "the interest owned by citizens of the United States shall be not less than 75 percent in the event of direct or indirect ownership of a vessel engaging in the coastwise trade." 54 Fed. Reg. 5387 (1989) (to be codified at 49 C.F.R. § 221.3(k)(2)). In October 1989, the Coast Guard proposed to revise its vessel documentation regulations to require that a stockholder of a vessel-owning corporation be a citizen eligible to document vessels in its own right. 54 Fed. Reg. 41,992 (to be codified at 46 C.F.R. § 67.03-2(b)). "In keeping with longstanding Coast Guard practice, the American control provisions are interpreted to require American control among all the entities which have an ownership interest in a vessel owning entity." 54 Fed. Reg. 41,996 (emphasis added). In May 1990, Du Pont filed a comment on the proposed Coast Guard regulation, stating its contrary interpretation of section 2.
In December 1990, a final Coast Guard regulation was promulgated with language essentially identical to the proposed regulation. This final regulation stated:
For purposes of meeting the stock or equity interest requirements for citizenship under this subpart where title to a vessel is held by an entity comprised, in whole or in part, of other entities which are not individuals, each entity contributing to the stock or equity interest qualifications of the entity holding title must be a citizen eligible to document vessels in its own right with the trade endorsement sought.
55 Fed. Reg. 51,251 (1990) (to be codified at 46 C.F.R. § 67.03-2(b)) (emphasis added). Under this regulation, the 75 percent citizenship requirement of section 2 applied to each corporation in the ownership chain.
In March 1991, Du Pont and Conoco filed a complaint in the district court challenging both the Marad "interim final rule" and the Coast Guard final regulation as being contrary to the language of section 2. Named as defendants were the Secretary of Transportation, the Secretary of Treasury, the Commandant of the Coast Guard, the Administrator of Marad, and the Commissioner of the U.S. Customs Service.*fn5 Du Pont sought a declaratory judgment that it was a citizen under section 2 and thus, its subsidiary, Conoco, was allowed to own and operate vessels in the coastwise trade. In the alternative, both Du Pont and Conoco asserted that as "Bowaters corporations," they should be deemed "constructive" U.S. citizens for the purpose of bareboat chartering U.S.-documented vessels from corporations that qualified as U.S. citizens. Although both Conoco and Du Pont qualified as Bowaters corporations*fn6 and were allowed to own vessels for the transportation of proprietary cargo, they argued to the district court that both corporations should be allowed to bareboat charter vessels from other corporations for the transportation of non-proprietary cargo for hire as long as other corporations held nominal title to the vessels.
In July 1991, after commencement of the district court action, Marad promulgated a second "interim final rule" interpreting sections 2 and 9, and the Bowaters Amendment.*fn7 This rule applied the 75 percent citizenship requirement to "any Controlling Interest stockholder, any Person whose stock is being relied upon to establish the requisite U.S. citizen ownership and any parent corporation . . . at all tiers of ownership." 56 Fed. Reg. 30,665 (1991) (to be codified at 46 C.F.R. § 221.3(c)) (emphasis added). Thus, both parent and subsidiary corporations are required to be 75 percent owned by U.S. citizens. In reaching the Conclusion that this requirement applied at each tier of ownership, this second Marad rule explicitly relied on the December 1990 Coast Guard regulation: "MARAD's language, while not identical, is entirely consistent with that adopted by the Coast Guard and reflects MARAD's administrative policy in this area." Id. at 30,655.
The second Marad rule also defined a Bowaters corporation as "a Noncitizen corporation." Id. at 30,665 (1991) (to be codified at 46 C.F.R. § 221.3(a)). Under the Marad rule, regulatory approval is not granted for bareboat charters to Bowaters corporations for operation in the coastwise trade. Id. at 30,667-68 (to be codified at 46 C.F.R. § 221.13(a) & (b)). Time charters are approved as long as the vessel would not be engaged in for-hire transportation except as a service for a parent or subsidiary corporation. Id. at 30,668 (to be codified at 46 C.F.R. § 221.13(b)(2)). The Marad rule appeared to codify what had been an unstated policy of the agency:
Time charters and other arrangements in [sic] the Bowaters corporations require (and routinely receive) MARAD approval. Because of MARAD's longstanding policy against approval of bareboat or demise charters to non section 2 citizens of vessels operating in the coastwise trades, Bowaters companies have not received approval for such charters.
Id. at 30,659. In September 1991, Du Pont filed a comment on this second Marad rule.
In the district court proceedings, the defendants-appellees moved to dismiss the complaint on the ground that the court of appeals has exclusive jurisdiction to review any regulation issued by an agency within the Department of Transportation. Conoco*fn8 then filed a protective petition in this court asking us to review, set aside, and suspend the July 1991 Marad rule. In December 1991, the district court dismissed Conoco's claims for lack of jurisdiction. Conoco v. Skinner, 781 F. Supp. 298 (D. Del. 1991). Conoco appeals the dismissal to this court. The appeal and petition for review were consolidated.
At the outset, we note that our Discussion of jurisdiction does not affect our ability to hear the merits of this case, since Conoco timely filed a protective petition in this court for review of the July 1991 Marad rule. For reasons unknown to us, Conoco did not file a protective petition seeking review of the merits of the Coast Guard regulation.*fn9 Although only the substantive validity of the Marad rule is before us, we must still consider our jurisdiction over both the Coast Guard and Marad regulations. We hold that the district court's dismissal for lack of jurisdiction was proper, because this case should have been brought originally in the court of appeals.
The Administrative Orders Act, 28 U.S.C. §§ 2341-51 (1988), which is commonly referred to as the Hobbs Act, vests this court with exclusive jurisdiction over many types of agency regulations. The act states in pertinent part:
The court of appeals . . . has exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of --
(3) all rules, regulations, or final orders of --
(A) the Secretary of Transportation issued pursuant to section 2, 9, 37, 41, or 43 of the ...