Court Opinion

ID: 3187530
Source: CourtListenerOpinion
Date Created: 2016-03-22 15:04:21.107773+00
Date Added: 2024-06-11T07:39:03.248373
License: Public Domain

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.