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Parties Involved:
Federal Maritime Commission
Respondent
Maher Terminals, LLC
Petitioner
Port Authority of New York and New Jersey
Intervenor for Respondent
United States of America
Respondent

Document Text:

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. 

USCA Case #15-1035 Document #1605041 Filed: 03/22/2016 Page 1 of 9
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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

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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. APMMaersk 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 APMMaersk, 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. 

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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.

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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, APMMaersk 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). 

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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...”. 

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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). 

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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. 

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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. 

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