INDEPENDENT U.S. TANKER OWNERS COMMITTEE, ET AL., PETITIONERS V.
SAMUEL K. SKINNER, SECRETARY OF TRANSPORTATION, ET AL.

   No. 89-1223

   In The Supreme Court Of The United States

   October Term, 1989

   On Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The District Of Columbia Circuit

   Brief For The Federal Respondents In Opposition

            TABLE OF CONTENTS
   Questions Presented
   Opinions below
   Jurisdiction
   Statement
   Argument
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-21a) is reported
at 884 F.2d 587.  The decision of the district court (Pet. App.
25a-46a) is unreported.

                             JURISDICTION

   The judgment of the court of appeals was entered on August 22,
1989.  Petitions for rehearing were denied on November 2, 1989.  Pet.
App. 22a.  The petition for a writ of certiorari was filed on January
31, 1990.  The jurisdiction of this Court is invoked under 28 U.S.C.
1254(1).

                          QUESTIONS PRESENTED

   1. Whether Section 505 of the Supplemental Appropriations Act of
1987, Pub. L. No. 100-71, 101 Stat. 471, prohibited the Secretary of
Transportation from applying the June 1987 maritime construction
subsidy repayment rule to allow four oil tankers to participate in the
domestic oil trade.

   2. Whether the court of appeals properly determined that the
Secretary of Transportation did not exceed his authority under the
Merchant Marine Act, 1936, 46 U.S.C. 1101 et seq., in promulgating the
June 1987 maritime construction subsidy repayment rule.

                               STATEMENT

   1. As this Court has noted, "(t)he costs of constructing ships in
American shipyards and manning them with American crews are higher
than comparable costs in foreign ports.  Accordingly, Congress has
taken a number of steps to protect and support the United States'
shipping and shipbuilding industries." Seatrain Shipbuilding Corp. v.
Shell Oil Co., 444 U.S. 572, 574 (1980).  In the Merchant Marine Act
of 1936, 46 U.S.C. 1101 et seq., Congress "established a number of
programs to help American vessels compete effectively in foreign trade
with vessels constructed and staffed abroad." Seatrain Shipbuilding
Corp., 444 U.S. at 575.  One such program authorizes the Secretary of
Transportation to subsidize construction costs for ships built in
American shipyards;  /1/ the subsidy is known as a
"construction-differential subsidy" (CDS).  In order to receive a CDS,
the owner of a vessel must agree to operate the vessel "exclusively in
foreign trade, or on a round-the-world voyage * * * ." 46 U.S.C. 1156.
 /2/

   The Act authorizes the Secretary, in his discretion, to evaluate,
approve, or reject CDS applications and contracts.  See, e.g., 46
U.S.C. 1154.  And the Act generally empowers the Secretary to "enter
into such contracts, upon behalf of the United States, * * * as may,
in * * * his discretion, be necessary to carry on the activities
authorized by this chapter, or to protect, preserve, or improve the
collateral held by the * * * Secretary to secure indebtedness * * * ."
46 U.S.C. 1117.

   2. a. Beginning in the mid-1970s, MarAd, reacting to the changing
conditions in the world's oil market, sought to enable certain
CDS-built vessels -- very large crude oil carriers (VLCCs) -- to
participate in the domestic oil trade, principally "carry(ing) Alaskan
oil to Panama where it is transshipped to Atlantic and Gulf Coast
ports." Pet. App. 4a.  In the late 1970s, the Secretary approved, on a
case-by-case basis, contracts that permitted CDS-built vessels to
enter the domestic trade once the CDS subsidies they had previously
received had been repaid in full.  In Seatrain Shipbuilding Corp. v.
Shell Oil Co., supra, this Court held that the Merchant Marine Act
"empowers the Secretary to approve (such)
full-repayment/permanent-release transactions." 444 U.S. at 597.

   b. In that decision's wake, the Secretary published and made
immediately effective on October 15, 1980, an interim rule that
limited the full CDS repayment option to certain types of large
vessels.  The rule further provided that the Secretary "would only
accept repayment in 'exceptional circumstances' after a determination
that the vessels had little prospect for viable employment in foreign
trade over an extended period." Pet. App. 4a-5a (quoting 45 Fed. Reg.
68,393, 68,394 (1980)).  About one month later, the Secretary approved
repayment and return to domestic service for the VLCC Bay Ridge.
After it repaid its subsidy, the Bay Ridge began operating
domestically.  Pet. App. 5a.

   c. In the meantime, petitioners, the Independent U.S. Tanker Owners
Committee and several domestic shipping firms, challenged the
Secretary's action under the interim rule.  /3/ In Independent U.S.
Tanker Owners Comm. v. Lewis, 690 F.2d 908, 918-920 (D.C. Cir. 1982)
(ITOC I), the court of appeals acknowledged that the Secretary had
statutory authority to promulgate a CDS repayment rule, but held that
he had not provided an adequate "general statement of (the rule's)
basis and purpose" as required by the Administrative Procedure Act, 5
U.S.C. 553(c).  The court therefore vacated the Secretary's interim
rule and remanded for further proceedings;  the court nevertheless
permitted the Bay Ridge to continue operating domestically pending the
outcome of those proceedings.  690 F.2d at 931.

   3. a. In May 1985, the Secretary published his final CDS repayment
rule permitting any U.S. flag tanker to participate in the domestic
trade upon repayment of the unamortized amount of its CDS, plus
interest compounded from the date of the payment of the subsidy.  50
Fed. Reg. 19,178 (1985).  /4/ That rule allowed repayment for only a
one-year period, that is, through June 6, 1986, in order to minimize
any uncertainty in the domestic fleet and shipbuilding industry.  See
id. at 19,173.  During that period, only three VLCCs took advantage of
the rule -- the Arco Independence, the Arco Spirit, and the Brooklyn.
Pet. App. 5a.  The Secretary permitted those tankers to operate
domestically after the owners repaid a total of $105.8 million in CDS
and interest.  See 52 Fed. Reg. 23,524 (1987).

   b. Petitioners also challenged the Secretary's May 1985 rule.  In
Independent U.S. Tankers Comm. v. Dole, 809 F.2d 847, 851 (D.C. Cir.)
(ITOC II), cert. denied, 484 U.S. 819 (1987), the court of appeals
again vacated the rule, concluding that the Secretary had not provided
a "sufficiently reasoned discussion of why (the) rule was adopted and
alternatives were rejected in light of the purposes of the Merchant
Marine Act." The court of appeals, however, stayed its mandate until
July 16, 1987, both to avoid disruptions in the domestic trade and to
give the Secretary the opportunity to "address the problems of the
merchant marine trade." Id. at 855.  Consequently, the three VLCCs
affected by the May 1985 rule continued to operate in the domestic
fleet.

   c. In April 1987, the Secretary published a notice of rulemaking,
proposing to reaffirm the allowance of CDS repayment and rescission of
the domestic trading restriction only for the three tankers that MarAd
had approved under the May 1985 rule -- the Arco Independence, the
Arco Spirit, and the Brooklyn -- as well as the tanker that MarAd had
approved under the prior October 1980 rule -- the Bay Ridge.  52 Fed.
Reg. 12,199, 12,202 (1987).  In other words, the proposed rule applied
only to those vessels that were already operating in the domestic
trade on a full-time basis as a result of prior rules.

   On June 22, 1987, the Secretary issued the final rule, which was
accompanied by a comprehensive statement of its basis and purpose and
an analysis of the comments received and alternatives considered.  52
Fed. Reg. 23,522 (1987).  The Secretary made the rule effective
immediately upon publication, invoking the "good cause" exception to
the 30-day waiting period required by the Administrative Procedure
Act, 5 U.S.C. 553(d).  See 52 Fed. Reg. 23,536 (1987).

   4. Meanwhile, Congress had begun work on a rider to an
appropriations bill that was designed to bar CDS repayment
arrangements.  Pet. App. 6a.  After promulgation of the Secretary's
June 1987 final rule, Congress enacted Section 505 of the Supplemental
Appropriations Act, 1987, Pub. L. No. 100-71, 101 Stat. 471.  Section
505 expressly provides that no appropriated Merchant Marine Act funds

      shall be used * * * to propose, promulgate, or implement any
      rule or regulation, or, with regard to vessels which repaid
      subsidy pursuant to the (1985) rule * * * conduct any
      adjudicatory or other regulatory proceeding, execute or perform
      any contract, or participate in any judicial action with respect
      to the repayment of construction differential subsidy for the
      permanent release of vessels from the restrictions in Section
      506 of the Merchant Marine Act * * * .

Ibid.  The President signed the Supplemental Appropriations Act on
July 11, 1987.  Pet. App. 6a.  /5/

   5. In June 1988, petitioners returned to the district court and
challenged the Secretary's June 1987 rule on a number of grounds,
including that the rule lacked an adequate statement of basis and
purpose, conflicted with the purposes of the Merchant Marine Act, and
violated Congress's prohibition on further subsidy repayments in
Section 505 of the Supplemental Appropriations Act of 1987.  Pet. App.
26a-27a.

   On cross-motions for summary judgment, the district court vacated
the Secretary's June 1987 rule and ordered that "any vessel operating
in the domestic trade of the United States pursuant to (that) rule * *
* be removed from that trade as soon as is practical." Pet. App. 48a.
Turning to the legal effect of the appropriations rider, the court
observed that "(r)ather than permit the agency the opportunity to
reconcile the rule with the (Merchant Marine) Act, Congress moved
decisively to end the rulemaking altogether." Id. at 28a.  The court
further noted that the "agency knew that Congress opposed CDS
repayment and that it was in the process of legislating that
opposition." Ibid.  In these circumstances, the court determined,
"(t)he agency's attempt to outrace Congress on this issue cannot be
given effect." Ibid.  The court therefore concluded that "Congress
clearly intended to bar promulgation of any rule authorizing CDS
repayment as of January 16, 1987 through enactment of Section 505 of
the Supplemental Appropriations Act of 1987." Id. at 33a.

   The district court also concluded that the Secretary's June 1987
rule was "arbitrary, capricious, an abuse of discretion or not
otherwise in accordance with law." Pet. App. 35a.  The court found
that the Secretary had adopted the rule principally for economic
reasons, i.e., based on a determination that "the advantages of
efficiency and transportation saving outweigh(ed) the net adverse
impact on vessels and seam(e)n in the domestic trade." Id. at 36a.
Those factors, however, are "not among the enumerated objectives of
the Merchant Marine Act." Id. at 37a.  The court found that "the
evidence in the record strongly suggests that the challenged rule will
not further directly many of the objectives of the Merchant Marine
Act," id. at 39a, and concluded that the Secretary could not rely on
"nonstatutory criteria at the expense of the objectives of the
Merchant Marine Act," id. at 41a.  /6/

   6. The court of appeals reversed.  Pet. App. 1a-21a.  /7/ The court
of appeals concluded that the Secretary "has cured the shortcomings *
* * identified in ITOC II and provided a sufficient statement of basis
and purpose for the 1987 rule." Id. at 15a.  The court accepted the
Secretary's concession that "the rule will result in some reduction in
employment," and reiterated that the Secretary "may not be able to
pursue all of the (Merchant Marine) Act's goals simultaneously." Ibid.
(citing ITOC II, 809 F.2d at 854 n.4).  The court also found that
"while others might interpret the evidence in different ways, the
(Secretary's) conclusions have adequate support in the record." Pet.
App. 15a.  The court therefore held that the Secretary "acted neither
arbitrarily nor capriciously, but in full accord with (his) legal
responsibilities and the purposes of the (Merchant Marine) Act." Id.
at 16a.

   Turning to the effect of the appropriations rider, the court of
appeals first dismissed the district court's suggestion that the June
1987 rule "must be set aside because MarAd had advance notice of
congressional opposition to CDS repayments." Pet. App. 16a.  The court
observed that "it was by no means clear that the final version of the
appropriations bill would contain section 505 because the Senate had
already been persuaded to drop the section from its version of the
Supplemental Appropriations Act." Ibid.  And the court emphasized that
"we know of no principle that holds that the executive branch must
stay its hand whenever it learns that the legislative branch may
change the law." Ibid.

   The court of appeals next rejected the district court's conclusion
that Section 505 barred the June 1987 rule, "find(ing) it difficult to
reconcile the district court's interpretation with the plain language
and stated purpose of (that provision)." Pet. App. 19a.  The court
concluded that Section 505's spending prohibition "is inherently
prospective as the language does not purport to reach expenditures
already made." Ibid.  The record showed that the Secretary's
self-executing rule became final before Congress enacted Section 505
and required no additional expenditure of appropriated funds.  As a
result, the court concluded that Section 505 "neither retrospectively
voids the 1987 rule nor prevents it from becoming fully operational."
Id. at 21a.  /8/

                               ARGUMENT

   1. Petitioners renew their contention (Pet. 9-15) that Section 505
of the Supplemental Appropriations Act of 1987 prohibited the
Secretary from applying the June 1987 maritime construction subsidy
repayment rule to allow four oil tankers to participate in the
domestic oil trade.  The language of Section 505 forecloses that
argument.  By its terms, the statute provides that none of the
appropriated funds "shall be used * * * to propose, promulgate, or
implement any rule or regulation" with respect to the repayment of
subsidies in order to permit CDS vessels to operate domestically.  101
Stat. 471.  As the court of appeals correctly noted, Section 505
"operates exclusively as a restriction on the expenditure of
appropriated funds.  Such a prohibition is inherently prospective as
the language does not purport to reach expenditures already made."
Pet. App. 19a.  /9/

   Moreover, the record shows, and petitioners do not seriously
dispute, that the June 1987 rule was self-executing and became final
before Congress enacted Section 505.  That rule required no
expenditure of appropriated funds -- after July 11, 1987 -- in order
to become effective.  Thus, there was no expenditure of Merchant
Marine Act funds to "conduct any adjudicatory or other regulatory
proceeding, execute or perform any contract, or participate in any
judicial action with respect to the repayment of construction
differential subsidy" for the vessels covered by the 1987 rule.  As
the court of appeals found, "because payment from the three VLCCs has
already been received and because the tankers have operated
domestically since 1985, the rule affirms the right of (those tankers)
to remain in domestic commerce, and their contracts need not be
amended to confirm this right." Pet. App. 20a.  /10/ In other words,
Section 505, by its terms, did not affect actions already taken by the
Secretary on June 22, 1987 -- the effective date of the rule.  For
that reason alone, petitioners' attack (Pet. 12) on the "literalism"
of the court of appeals is particularly inappropriate.  /11/

   2. Petitioners also contend (Pet. 15-20) that the June 1987 rule
should be vacated because the Secretary did not consider a reasonable
alternative to that subsidy repayment rule.  Specifically, petitioners
note that Sections 601(a) and 603(b) of the Merchant Marine Act, 46
U.S.C. 1171(a) and 1173 (b), authorize the payment of operating
subsidies to tankers to enable them to remain in the foreign trade,
and contend that the Secretary should have considered granting such
subsidies with respect to the four tankers at issue here.
Petitioners, however, did not raise this issue in the court of
appeals, and they have therefore not preserved it for review.  E.g.,
United States v. Lovasco, 431 U.S. 783, 788 n.7 (1977);  Adickes v.
S.H. Kress & Co., 398 U.S. 144, 147 n.2 (1970).

   In any event, petitioners' claim rests on two mistaken premises.
First, the record shows that the Secretary did consider, but
ultimately rejected, the alternative petitioners now propose.  Full
subsidy to the four tankers involved here would have cost the federal
government "$5 million annually per ship" -- an amount the Secretary
determined to be "exorbitant" and incompatible with federal budgetary
limitations.  52 Fed. Reg. 23,522, 23,528 (1987).  The Secretary
further found that, if he provided such subsidies, "(t)here would be
no incentive for efficient operation and the Government would become
the guarantor of profitable operation." Ibid.  The Secretary
determined that "the trade ramifications of such a massive open-ended
subsidy could prove totally counterproductive at a time when the
United States is seeking to remove other anticompetitive trade
measures by our trading partners." Ibid.

   Second, the pertinent provisions of the Merchant Marine Act, by
their terms, do not require the Secretary to provide operating
differential subsidies on demand.  Section 603(a) of the Act, 46
U.S.C. 1173 (a), provides that the Secretary "may enter into a
contract with the applicant for the payment of an
operating-differential subsidy determined in accordance with the
provisions of subsection (b) of this section * * * " (emphasis added).
 And Section 601 (a) of the Act, 46 U.S.C. 1171(a), makes plain that
"(n)o such application (for a subsidy) shall be approved by the
Secretary * * * unless he determines that," among other things, "the
granting of the (subsidy) * * * is reasonably calculated to carry out
effectively the purposes and policy of this chapter." Thus, there is
no warrant for petitioners' suggestion (Pet. 18) that the provision
for operating subsidies is mandatory.

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   JOHN G. ROBERTS, JR.

      Acting Solicitor General /12/

   STUART M. GERSON

      Assistant Attorney General

   LEONARD SCHAITMAN

   RICHARD OLDERMAN

      Attorneys

   MARCH 1990

   /1/ The Maritime Administration (MarAd) oversees the merchant
marine.  See 49 C.F.R. 1.4(j)(1).  MarAd was originally located within
the Department of Commerce.  In 1981, Congress transferred the agency
to the Department of Transportation, and thus the Secretary of
Transportation currently exercises jurisdiction over shipping matters.
 See 46 U.S.C. 1601;  Pet. App. 4a-5a.

   /2/ That condition is subject to limited exceptions.  For example,
a CDS-built ship may sail in the domestic trade on the first or last
leg of certain overseas voyages.  See 46 U.S.C. 1156.  The Secretary
may also permit a CDS-built ship to "operate domestically for a
maximum of six months per year provided that the vessel repays a pro
rata share of the subsidy." Pet. App. 3a;  see 46 U.S.C. 1156.  In
order to invoke that exception, the Secretary must determine that the
transfer to the domestic trade "is necessary or appropriate to carry
out the purposes (of the Act)." 46 U.S.C. 1156.

   /3/ As the court of appeals noted at the inception of this
prolonged litigation, petitioner Independent U.S. Tankers Owners
Committee "is composed of owners and operators of non-proprietary,
unsubsidized tanker vessels, many of which are operating in the
carriage of crude oil from Alaska to points in the U.S. (Petitioner's)
members are, thus, directly affected by any new entrants to that
trade." Independent U.S. Tanker Owners Comm. v. Lewis, 690 F.2d 908,
916 (D.C. Cir. 1982).

   /4/ The Secretary had issued his proposed rule in January 1983.
See 48 Fed. Reg. 4408 (1983).  Through successive appropriations
riders, however, Congress prevented the Secretary from adopting that
rule as final.  See Pub. L. No. 98-78, Section 315, 97 Stat. 472
(1983);  Pub. L. No. 98-166, 97 Stat. 1077 (1983);  Pub. L. No.
98-411, 98 Stat. 1551 (1984).  The last rider, by its terms, expired
on May 15, 1985.

   /5/ In approving the legislation, the President stated that he
"signed this bill into law based on the understanding that because
this restriction on (the Secretary's) authority is not retroactive, it
will have no effect on vessel owners who previously repaid their
subsidies pursuant to a CDS repayment rule published in the Federal
Register on June 22, 1987." President's Statement on Signing H.R. 1827
into Law, 23 Weekly Comp. Pres. Doc. 800 (July 11, 1987).

   /6/ The district court also concluded that the Secretary lacked
"good cause" to waive the 30-day waiting period under 5 U.S.C.
553(d)(3).  Pet. App. 42a-45a.  The court of appeals did not reach
that issue, holding that the Secretary, under 5 U.S.C. 553(d)(1), had
authority to make the rule effective upon publication.  Petitioners
have not sought further review of that aspect of the court of appeals'
judgment.

   /7/ The court of appeals had stayed the district court's order
pending disposition of the appeal.

   /8/ One week after petitioners filed their petition for a writ of
certiorari in this Court, petitioner Overseas Shipholding Group, Inc.,
on February 8, 1990, filed in the court of appeals a motion to recall
and modify the mandate.  That motion remains pending before that
court.

   /9/ Petitioners' position is also inconsistent with the
well-established principle that "congressional enactments * * * will
not be construed to have retroactive effect unless their language
requires this result." Bowen v. Georgetown Univ. Hosp., 109 S. Ct.
468, 471 (1988).  Nor can petitioners take refuge (Pet. 12 n.7) in
United States v. Sperry Corp., 110 S. Ct. 387, 396-397 (1989), since
the law at issue there -- Section 502 of the Foreign Relations
Authorization Act, Fiscal Years 1986 and 1987, Pub. L. No. 99-93, 99
Stat. 438 -- unlike Section 505 of the Supplemental Appropriations Act
of 1987, by its terms applied retroactively.

   /10/ Petitioners suggest in passing (Pet. 11-12 n.6) that the
Secretary needed to take further action after June 22, 1987, in order
to allow the tankers to operate domestically.  The court of appeals,
however, determined that the record contradicts that suggestion.  See
Pet. App. 20a.

   /11/ This is not a case where the pertinent legislative history
shows that "the literal application of a statute will produce a result
demonstrably at odds with the intentions of its drafters." Hallstrom
v. Tillamook County, 110 S. Ct. 304, 310 (1989) (internal quotation
marks omitted).  The legislative history of Section 505 is at best
inconclusive.  See, e.g., H.R. Conf. Rep. No. 195, 100th Cong., 1st
Sess. 112 (1987);  compare 133 Cong. Rec. E3170 (daily ed. July 30,
1987) (statement of Rep. Regula) (The House and Senate conferees
intended that "(Section) 505 would be prospective in nature and would
not in any way effect the legal viability of the final (June 1987)
rule.") with 133 Cong. Rec. S9142 (daily ed. July 1, 1987) (statement
of Sen. Hollings) (The conferees had specifically intended to thwart
the Secretary's efforts to allow tankers that had already repaid their
subsidies to operate domestically.).

   /12/ The Solicitor General is disqualified in this case.