Maher Terminals, LLC v. Federal Maritime Commission ( 2016 )


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  • United States Court of Appeals
    FOR THE DISTRICT OF COLUMBIA CIRCUIT
    Argued February 8, 2016               Decided March 22, 2016
    No. 15-1035
    MAHER TERMINALS, LLC,
    PETITIONER
    v.
    FEDERAL MARITIME COMMISSION AND UNITED STATES OF
    AMERICA,
    RESPONDENTS
    PORT AUTHORITY OF NEW YORK AND NEW JERSEY,
    INTERVENOR
    On Petition for Review of Final Memorandum Opinion and
    Order
    of the Federal Maritime Commission
    Richard P. Bress argued the cause for petitioner. With him
    on the briefs were Melissa Arbus Sherry and Benjamin W.
    Snyder.
    Joel F. Graham, Attorney, Federal Maritime Commission,
    argued the cause for respondents. With him on the briefs were
    William J. Baer, Assistant Attorney General, U.S. Department
    of Justice, Robert B. Nicholson and Robert J. Wiggers,
    Attorneys, and Tyler J. Wood, General Counsel, Federal
    Maritime Commission.
    2
    Richard A. Rothman and Peter D. Isakoff were on the briefs
    for intervenor the Port Authority of New York and New Jersey
    in support of respondent.
    Before: GARLAND, Chief Judge, TATEL, Circuit Judge, and
    SILBERMAN, Senior Circuit Judge.
    Opinion for the Court filed by Senior Circuit Judge
    SILBERMAN.
    SILBERMAN, Senior Circuit Judge: Petitioner Maher, a
    marine terminal operator, challenges a decision of the Federal
    Maritime Commission authorizing preferential lease terms to a
    competitor, APM-Maersk. We grant the petition and remand
    because we think the Commission provided an inadequate
    explanation.
    I.
    In the late 1990s, the Port Authority began negotiating new
    leasing terms for maritime terminal operators servicing the Port
    of New York and New Jersey. This was a part of an overall
    effort to modernize the port’s facilities and make it an attractive
    location for shipping into the future. Among the companies the
    Port Authority negotiated with were Maher and APM-Maersk.
    Maher is an independent marine terminal operator, which means
    that it has no affiliated carrier fleet, and services only third party
    carriers and shippers through its rented terminal. APM-Maersk,
    on the other hand, is affiliated with the largest ocean carrier-fleet
    in the United States, Sea-Land, though it also services third
    party cargo through its terminals.1
    1
    What we refer to as APM-Maersk now, as a result of mergers
    and acquisitions over the period in question, includes both Sea-Land
    3
    Lease negotiations between Maher and the Port Authority
    began in 1995. Maher sought an agreement that would make it
    competitive with other terminal operators, and tentative terms,
    including an effective annual rate of $68,750 per acre, were
    reached in late 1997. Negotiations with Maher were suspended
    in 1998, however, when the Port Authority began negotiating
    with APM-Maersk. That larger terminal operator had found the
    initial terms offered by the Port Authority too expensive, and
    threatened to go to Baltimore. APM-Maersk’s business was
    critical to the Port of New York and New Jersey because of the
    high volume of container business it could bring through its
    affiliated carriers. Indeed, Maher’s CEO expressed great
    concern over the potential departure, writing a letter to the
    Governor of New Jersey warning of the “grave” risk to the port.
    The Port Authority opened negotiations with APM-Maersk
    in July by offering a 350-acre terminal at a rate of $63,000 per
    acre, per year. That was rejected. Later, in September, the offer
    was reduced to $36,000 per acre, but again rebuffed. APM-
    Maersk made clear that it would require as much as $120
    million in cost reduction in order to make the port as attractive
    as other options. The Port Authority finally agreed, and
    submitted terms that included $30 million in capital and
    structural improvements paid for by the Port Authority at the
    terminal, as well as $90 million in basic rent reduction. Those
    concessions, of $120 million total, reduced APM-Maersk’s
    effective base rent to $19,000 per acre, per year.
    Since the purpose of the concessions was to keep APM-
    Maersk, because of its affiliated carrier fleet and the promise of
    additional tonnage of cargo, the Port Authority got a “port
    guarantee,” requiring APM-Maersk to actually bring cargo from
    its affiliated carriers through the port. The Port Authority hoped
    and Maersk shipping companies.
    4
    that meant APM-Maersk would not entice third party carriers
    away from other terminal operators, like Maher. A deal was
    reached at an effective annual base rent of $19,000 per acre,
    with certain penalties designed to increase the rent where the
    port guarantee was not met.
    With APM-Maersk secured as a tenant, the Port Authority
    turned back to negotiations with Maher. Maher sought parity
    with APM-Maersk, but the Port Authority was unwilling to offer
    the same terms. Lacking the bargaining power enjoyed by
    APM-Maersk, Maher ultimately agreed to an initial base rent of
    $39,750 per acre, with an escalator, such that the average base
    rent over the life of the lease would amount to $53,753 per acre.
    While the exact annual base rent charged to APM-Maersk may
    be somewhat variable over the period of the 30-year lease (due
    to the possibility of penalties for failure to meet cargo
    guarantees), it is undeniable that Maher was forced to pay
    substantially more than APM-Maersk.
    Maher was purchased by Deutsche Bank in 2007. As the
    global recession hit in 2008,the port’s total container traffic fell
    for the first time in almost 15 years. Maher lost nearly 15% of
    its business, while APM-Maersk failed to meet its port
    guarantees in 2008, 2009, and 2010.
    On June 3, 2008, nearly 8 years after executing its lease,
    Maher filed a complaint against the Port Authority, alleging that
    the differential terms between its and APM-Maersk’s leases
    violated the Shipping Act. It alleged that the Port Authority had
    violated 
    46 U.S.C. § 41106
    (2) in offering an “unreasonable
    preference” to APM-Maersk.
    5
    After some dispute regarding the applicable statute of
    limitations for the claims,2 the merits came before an ALJ, who
    issued a decision on April 25, 2014, denying the claims. Maher
    appealed, and the Federal Maritime Commission affirmed on
    December 17, 2014.
    The Commission did not deny that the Port Authority had
    treated Maher and APM-Maersk differently, but the
    Commission explained the difference was justified, on three
    counts. First, APM-Maersk had threatened credibly to abandon
    the port. Maher could make no such threat. Second, APM-
    Maersk was able to make a port guarantee, relying on its
    affiliated carrier fleet, that Maher was not. Finally, Maher’s
    terminal was of a higher quality than was APM-Maersk’s, thus
    justifying a higher rent. The Commission similarly dismissed a
    separate unreasonable practices claim, explaining that Maher
    had not met its assigned burden under the applicable regulations.
    II.
    It is common ground in this case that differences between
    similar entities contracting with Port Authorities must be based
    on “transportation factors.” That term goes back to the
    Interstate Commerce Act and was extended into the earliest
    Shipping Act.3 It is not clear whether it was originally
    2
    Shipping Act claims, as relevant here, have a statute of
    limitations of three years. On that basis, summary judgment was
    requested against Maher. The FMC ultimately held that Maher’s
    request for a cease-and-desist order was not time-barred, and that in
    the event a violation was found, Maher was entitled to reparations for
    the full three-year period, though not for the period before that running
    back to the execution of the lease.
    3
    See generally, Distribution Services, Ltd. v. Transpacific Freight
    Conference of Japan, 24 S.R.R. 714, 719-21 (FMC 1988).
    6
    articulated as an interpretation of the statutory term “undue or
    unreasonable preference”4 or whether it was a policy choice.
    Perhaps that is why petitioner conflates its challenge as both a
    statutory claim and an arbitrary/capricious one. And the dispute
    is further limited by the Commission’s concession that neither
    the port guarantee nor Maersk’s supposed superior terminal
    quality would justify the lower rent. The Commission’s
    decision thus rises or falls on APM-Maersk’s credible threat to
    leave the Port of New York and New Jersey – which the
    Commission claims is a “transportation factor,” justifying the
    distinction in the treatment of APM-Maersk and Maher.
    Before considering the issue on which the dueling briefs
    concentrate – whether a large terminal operator’s threat to leave
    can be legitimately regarded as a “transportation factor” – the
    more obvious question raised by petitioner is why the same rates
    were not offered to it, which would avoid the issue of
    discrimination altogether. In that regard, the Commission’s
    explanation in its Order is circular. It said, “The Port’s decision
    not to give Maher certain [the same] lease terms cannot be
    divorced from its decision to give those terms to APM-Maersk.”
    (Emphasis added.) In other words, we understand the
    Commission to be saying that the reasons APM-Maersk were
    given new terms somehow necessarily implies that petitioner
    should not be given the same terms. But that is a non sequitur.
    Whatever the reason the port determined to give lower rates to
    APM-Maersk, it doesn’t at all follow that those same or similar
    rates should not be offered to petitioner. After all, the
    4
    
    46 U.S.C. § 41106
    (2) instructs that a “marine terminal operator”
    may not “give any undue or unreasonable preference or advantage or
    impose any undue or unreasonable prejudice or disadvantage with
    respect to any person...”.
    7
    Commission has previously ordered that same remedy.5
    (Indeed, APM-Maersk sought lower lease rent for itself; it did
    not seek preferential rates vis-a-vis competitors in the Port of
    New York.)
    To be sure, the intervenor, the Port Authority, argued that
    it would be commercially irrational for it to extend the same
    terms to Maher. Even if we could accept intervenor’s
    explanations for that of the Commission – which, of course, we
    cannot – that terse comment is hardly adequate. There are all
    sorts of factors that might bear on that issue, including economic
    conditions in the port and the competitive impact of the
    preference.
    Assuming arguendo that the Commission adequately
    responded to petitioner’s contention that the same rates should
    be extended to it, the Commission’s explanation as to why
    APM-Maersk’s preference was based on a “transportation
    factor” was hopelessly convoluted, particularly in light of its
    precedent. The two cases upon which petitioner relies are
    Ballmill Lumber v. Port of New York, 10 S.R.R. 131 (FMC
    1968) and Ceres Marine Terminal v. Maryland Port
    Administration, 27 S.R.R. 1251 (FMC 1997).
    In Ballmill, Port Newark granted an exception to the largest
    lumber wholesaler, Weyerhauser, from a general policy
    previously applied to Ballmill. That policy obliged lumber
    wholesaler tenants to contract for logistical services with either
    the Port Authority itself or certain approved vendors.
    Weyerhauser was instead permitted to provide these services
    from its own in-house entity. The port sought to justify the
    preference based on Weyerhauser’s bargaining position. The
    5
    See Ballmill Lumber & Sales Corp. v. Port of N.Y. Auth., 10
    S.R.R. 131 (FMC 1968).
    8
    wholesaler was threatening to leave the Port of Newark if it
    didn’t get the terms it wanted. The Commission rejected that
    justification, and thus held it was an “unreasonable preference.”
    Interestingly, the Commission never even referred to the term
    “transportation factor.”
    Then, more recently, in Ceres, the Commission rejected the
    preferential rates the Maryland Port Authority granted Maersk
    at the Port of Baltimore for dockage, crane rental and land rental
    charges. The port presented a strikingly similar argument to that
    presented in our present case; that Maersk, then operating its
    own shipping line, threatened to switch to Norfolk, Virginia,
    which was seeking additional Maersk business.6                The
    Commission was told Maersk’s loss would be a devastating
    blow to Baltimore. The Commission, nevertheless, held that the
    cargo guarantees Maersk offered, and its size, did not justify the
    differential vis-a-vis Ceres. Put succinctly, the Commission
    said, “status alone is not a sufficient basis by which to
    distinguish between lessees.”
    The Commission did not overrule these cases. Instead, it
    offered rather lame distinctions we find quite unpersuasive. It
    stated that in Ballmill, the Commission did not in hoc verba
    reject the threat to leave the port as a legitimate justification.
    Therefore, it supposedly could have thought the threat was not
    credible (even though that was not even argued). And the
    Commission “interpreted” Ceres as holding only that
    preferential rates could not be based on status alone (a terminal
    operator’s affiliation with a carrier), even though the port’s
    argument had been squarely based on Maersk’s threat to leave
    – with its affiliated carrier.
    6
    That was prior to its affiliation with Sea-Land.
    9
    We express no views on whether the Commission could
    overrule or modify its previous decisions, but it must do so in a
    forthright manner. The distinctions the Commission offered
    were utterly unpersuasive. See Bush-Quayle ‘92 Primary
    Committee, Inc. v. FEC, 
    104 F.3d 448
    , 454 (D.C. Cir. 1997)
    (“Without adequate elucidation, this court has no way of
    ascertaining whether cases are indeed distinguishable, whether
    the Commission has a principled reason for distinguishing them,
    or whether the Commission is refusing to treat like cases
    alike.”).
    We note that in Ceres, although at the outset of its opinion
    the Commission describes the governing law as permitting
    discrimination based on “transportation factors,” its following
    discussion only asked whether the discrimination was
    “reasonable.” This “reasonableness” standard was also applied
    in our case; the Commission said Maher had not “met its burden
    of showing that the Port’s reasons...[were] unreasonable.” Does
    that mean the term “transportation factor” is simply a synonym
    for reasonable? If so, how does the Commission distinguish
    between reasonable and unreasonable preferences?
    In sum, we must remand this case to the Commission for an
    adequate explanation of its decision and its policy. It is obvious
    the underlying problem is competition between ports for a larger
    share of carrier traffic. We wonder if there is not a regulatory
    solution to the problem.
    ***
    For the foregoing reasons, the Order is remanded back to
    the Commission.
    So ordered.
    

Document Info

Docket Number: 15-1035

Judges: Garland, Tatel, Silberman

Filed Date: 3/22/2016

Precedential Status: Precedential

Modified Date: 3/2/2024