Opinion ID: 303595
Heading Depth: 1
Heading Rank: 4

Heading: Administrative and Judicial Construction of Section 15 of the Shipping Act of 1916

Text: 60
61 The Commission asserts that when confronted with transactions such as presented by the case at bar which affect competition, whether by sale or merger, it has held that they are subject to the requirements of Section 15. However, investigation of the cases cited by the Commission in support of this assertion reveals that in each instance the transaction at issue was one of a continuing nature calling for the supervision of the Commission, not a single transaction such as a sale of ships with no restrictions governing their subsequent use. 39 The Commission has not prior to this time asserted jurisdiction over a simple ship sale where the agreement does not limit competition between the parties, either by a merger or by a covenant not to compete. 40 The Commission's silence in this respect for over fifty years indicates that even in the view of the FMC, at least until the present, Section 15 does not provide for FMC jurisdiction over a sale of ships, absent either a provision limiting competition among the parties or a provision of some other type requiring continuing supervision. 62 The type of agreements which the FMC has approved is indicated by the following: 63 Any agreement on which the Commission stamps it [sic] approbation is specifically exempted from the antitrust laws under the act. . . . As of the time of the subcommittee's hearings [1962], there were in effect and approved by the Board [now the Commission] under section 15 roughly 129 conference agreements of one sort or another and some 400 related agreements dealing with transshipment of cargo, providing for joint service and joint sailing relationships, the pooling of cargo, etc. There had also been approved by the Board approximately 15 interconference agreements (not including agreements providing merely for joint administration of two or more conferences); 29 terminal agreements; 100 agreements between freight forwarders; and a relatively small number of miscellaneous agreements. 41 64 These are the type agreements which fall within the seven categories of Section 15 and which we would expect to find as the grist for the FMC mill. 65 We recognize that there is a certain apparent inconsistency (more apparent than real) in holding that the parties are not required to file with the Commission and the Commission is not required to approve or disapprove a simple contract for the sale of ships and all assets, and yet a similar contract coupled with an agreement not to compete, which may involve more complicated antitrust issues than the more simple sale contract, is required to be filed and the Commission may have jurisdiction to pass on all questions, including antitrust issues. The explanation lies in (1) the wording of Section 15, (2) its legislative history, (3) the fact that the degree of antitrust complexity is not what determines the Commission's jurisdiction, and (4) perhaps in a caveat. 66 As for (1), the wording of Section 15, a simple sale of ships and assets, nothing more, is just not covered by any of the seven categories of agreements listed in Section 15. As for (2), the legislative history, the Alexander Report and all the background of the Shipping Act of 1916 show that a simple ship sale, even of all ships and assets, was not the type contract which was to be filed with and regulated by the Commission. The Alexander Report and the Congress prescribed two remedies for what ailed the shipping industry: compel the public filing of all noncompetitive agreements; and let a government agency approve or disapprove initially, then observe and supervise the continuing effect of the agreements. A ship sale is necessarily recorded to pass title and thus comes to public notice without being filed with the Commission; once the sale is made, there is a completely executed contract, over which there is no purpose in requiring Commission supervision. Thus it is not (3), the complexity of the antitrust issues involved, which determines if the FMC has jurisdiction. The FMC has or does not have jurisdiction depending on its statutory grant, and this was largely done by Congress on the basis of its recognition of industry needs and the helpfulness of government regulation. We have construed the FMC jurisdiction in relation to the antitrust laws, and done so above on the well-established principle that the normal administration of the antitrust laws should apply unless the statutory grant in derogation thereof is clear. Now for (4), the caveat: of the Commission's own decisions exercising authority to pass on antitrust questions after the agreements had been filed with the FMC, only two have ever been challenged in court. 42 And in these two instances, the courts reached opposite conclusions. To be accurate, then, administrative practice with respect to ship sales plus other continuing elements offers no support one way or the other. 67
68 There are two principal cases cited by the parties, one supporting the Commission's interpretation of Section 15, the other the Department of Justice's view. The latter, United States v. R. J. Reynolds Tobacco Company, 43 involved the question of whether the FMC has authority to exempt shipping industry mergers from the antitrust laws. The court observed in regard to the legislative history accompanying Section 15: 69 Consistently throughout the [Alexander] Report, mergers and other corporate reorganizations, when occasionally mentioned, are referred to by the terms consolidation by ownership and control through acquisition or variations thereof. Never is the word agreement used in the Report to refer to a merger agreement. It is clear that the Alexander Committee distinguished conceptually between agreements in the sense of ongoing, cooperative agreements and agreements of consolidation or acquisition (of which merger agreements are a form). . . . 70 It must be assumed that the Alexander Committee knew that acquisitions of water lines and ownership of accessories to such lines were the products of contracts or agreements, as that term is commonly understood. . . . 71 [The court], therefore, reach[es] the unavoidable conclusion that agreement is a term of art, a word of technical legal significance, as used by the Alexander Committee and Congress in enacting Section 15 of the Shipping Act. 44 72 The court thus concluded that mergers and other forms of corporate reorganization were beyond the protection from the antitrust laws afforded by Section 15. 73 This contrasts with the two-to-one decision of the Ninth Circuit in Matson Navigation Co. v. FMC, 45 relied upon by the Commission here. Matson involved the issue of FMC authority to approve an agreement for the proposed merger or consolidation of three steamship lines. The court found that mergers were included within the meaning of the term agreement as employed in Section 15 of the Shipping Act. However, the Matson court did not engage in the careful analysis of the legislative history which characterizes Judge Garth's opinion in Reynolds Tobacco, supra. Instead, it simply contented itself with saying, after quoting from the Supreme Court's decision in Volkswagenwerk v. FMC: 46 74 While Volkswagenwerk did not deal with a merger agreement, its holding applies to such agreements with rational force. The direct and destructive impact upon competition which may result from a merger renders it the kind of arrangement as to which expert scrutiny most clearly is to be desired. 75 [The court] conclude[s] that the Commission has jurisdiction under Sec. 15 to approve merger agreements. 47 76 We respectfully disagree with the majority in the Ninth Circuit, find Judge Carter's dissent persuasive, and submit that reliance on Volkswagenwerk, supra, by the Commission here and in Matson is misplaced. 48 Despite the Court's statement in Volkswagenwerk that [n]othing in the legislative history suggests that Congress, in enacting Sec. 15 of the Act, meant to do less than follow this recommendation of the Alexander Report [that all 'agreements' be filed for approval with the FMC] and subject to the scrutiny of a specialized government agency the myriad of restrictive agreements in the maritime industry, 49 the reference to a myriad of restrictive agreements does not include agreements other than those of a continuing nature. The myriad includes such diverse agreements as pooling of earnings, losses, or traffic; fixing or regulating rates; allotting ports; and the like. Furthermore, the agreement at issue in Volkswagenwerk itself was a cooperative working arrangement of a continuing nature, entered into by an association of shipping industry employers subject to the Shipping Act, for the purpose of allocating among themselves a common assessment for a union trust fund. 77 The legislative history discussed above, illuminated by Judge Garth's analysis in Reynolds Tobacco, supra, makes clear that agreements as used by the Alexander Committee embraced the type involved in Volkswagenwerk, but did not include mergers, acquisitions, and the like, such as the sale of all assets in the case at bar.