BEFORE THE
Federal Maritime Commission
________________________________
Docket No. 98-06
Sea-Land Service, Inc. – Possible Violations
of Sections 10(b)(1), 10(b)(4), and
19(d)
of the Shipping Act of 1984
_______________________________
AMICUS CURIAE
BRIEF
submitted by
THE NATIONAL
INDUSTRIAL TRANSPORTATION LEAGUE
_______________________________
The
National Industrial Transportation League
By Its Attorneys
Nicholas J. DiMichael
David Benz
Thompson Hine LLP
1920 N St. N.W.
(202) 263-4103
BEFORE THE
Federal Maritime Commission
__________________________
Docket No. 98-06
Sea-Land Service, Inc. – Possible Violations
of Sections 10(b)(1), 10(b)(4), and
19(d)
of the Shipping Act of 1984
_________________________
AMICUS CURIAE
BRIEF
submitted by
THE NATIONAL
INDUSTRIAL TRANSPORTATION LEAGUE
________________________
The National Industrial Transportation League (“League” or “NITL”) respectfully submits this Brief as amicus curiae pursuant to 46 C.F.R. Part 502.76. Accompanying this Brief is a motion for leave to file the Brief pursuant to 46 C.F.R. § 502.76.
The League is one of the oldest and largest national associations representing companies engaged in the transportation of goods in both domestic and international commerce. Founded in 1907, the League currently has over 600 company members. These company members include some of the largest users of the nation’s and the world’s transportation system, but also include numerous smaller companies engaged in the shipment and receipt of goods.
During 2002, the League expanded its membership to include not just shippers, but carriers and all others involved or interested in the transportation of goods. Thus, the League’s members now represent all aspects of the nation’s transportation system, including shippers and receivers of goods, carriers, third party intermediaries, logistics companies, and others. League members are engaged in the domestic and international transportation of huge quantities of goods by rail, ocean, air, and motor carriage.
For nearly 100 years, the League has worked for a
competitive, efficient, and safe transportation system in the
SUMMARY
OF ARGUMENT
In this proceeding, the Administrative Law Judge imposed the maximum possible penalty on Sea-Land Service, Inc. (“Sea-Land”) for certain violations of the Shipping Act of 1984. Specifically, Sea-Land has been found to have charged, during the time period from 1996 to 1998, rates for the transportation of goods in 20-foot containers while in fact Sea-Land was using 40-foot containers. Although the League takes no position on the facts of this case, the League does believe that, even assuming that Sea-Land has committed the acts for which a penalty was imposed, the carrier should not be subject to the maximum penalty possible under the statute, and the penalty imposed on Sea-Land should be substantially reduced.
The substantial change in
The fact that OSRA was effective after the date of the violations does not mean that the purposes and policies of OSRA cannot be consulted in determining a penalty for Sea-Land’s alleged violation of the pre-OSRA statute. It is not unusual for administrative agencies and courts to take notice of subsequent changes in law or policy when imposing penalties. Courts and administrative agencies do not ignore subsequent changes in policy and law in their decision-making process, but instead include them when equity dictates.
The overriding purpose of Commission penalties is to deter future violations. Despite the fact that ocean carriers now ship primarily under OSRA-encouraged service contracts rather than under public tariffs, and despite the fact that the activities for which Sea-Land was penalized may now be engaged in through the use of service contracts, the Administrative Law Judge imposed the maximum penalty. In view of the substantial changes in law and policy represented by OSRA, the deterrent value of any penalty is only minimally implicated. The penalty, if any, imposed by the Commission should reflect this fact, and therefore the penalty should be substantially reduced.
Finally, a consideration of the statutory penalty
factors requires a significant reduction in the maximum penalty assessed by the
Administrative Law Judge. These factors,
found in 46 U.S.C. App. §1712(c), are supposed to determine if there are any
mitigating or equitable reasons to impose a lesser penalty. In this case, at least three of the factors
are implicated because of the new
ARGUMENT
I. The Fundamental Changes That Have Occurred in Ocean
Shipping Policy and Regulation under the Ocean Shipping Reform Act Do Not
Support Imposition of the Maximum Penalty on Sea-Land in this Case and Indicate
that the Penalty Should Be Substantially Reduced
With the passage of the Ocean Shipping Reform Act of 1997, the policies affecting the regulation of ocean shipping in the United States were drastically changed. These changes were prompted by a consensus that emerged both in the industry and in the Congress regarding the need for more market-sensitive and individualized pricing structures, as well as the effect on U.S.-based shippers of public tariffs, which permitted foreign competitors to know the price of a key element in a company’s overall competitive position, namely, the price of ocean transportation.
The bill that eventually became the Ocean Shipping Reform Act was introduced as S. 414 in 1997. As noted in the Senate Report, the goal of Congress in passing OSRA was to provide choice and flexibility to shippers and carriers through the greatly-expanded use of liberalized, confidential service contracts. S. Rep. No. 105-61 at 5-6 (1997). Indeed, the Senate Committee asserted that the most important part of OSRA was the inclusion of a right to individual and independent service contracts. Id. at 21. This new right was intended to “develop an efficient and market-responsive ocean carrier industry.” Id. A second important aspect of the bill was removal of the requirement that prices in such service contracts be published publicly. Id. at 23-24. Lastly, OSRA also gave carriers more freedom to provide different service contract terms to similarly situated shippers. Id. at 28. Considered together, these three aspects of OSRA constituted a major transformation of the U.S. ocean shipping industry, whereby a largely market-driven environment was created.
Through the passage of OSRA, Congress made a clear statement of policy that ocean industry participants should be given certain freedoms. Paradoxically, the important freedoms given in OSRA include the freedom to engage in acts for which Sea-Land is now being prosecuted. Although the public tariff filing requirement was not eliminated for ocean common carriage, the fact of the matter is that under OSRA, ocean common carriers can completely avoid the strictures of public tariff filing through the simple and Congressionally-encouraged expedient of entering into confidential service contracts. Through the greatly-liberalized use of service contracts, ocean common carriers need not adhere to the prices in publicly-filed tariffs, but may individually and confidentially vary those prices (including, for example, charging an individual shipper rates for 20-foot containers even though actually using 40-foot containers) as the market demands.
The fact that OSRA was effective after the activities for which Sea-Land was penalized in this case does not mean that the policies and requirements of OSRA cannot be consulted in determining a penalty for pre-OSRA statutory violations. It is not unusual for administrative agencies and courts to take notice of subsequent changes in law or policy. For example, the railroad industry was largely deregulated with the passage of the Staggers Rail Act of 1980. The Staggers Act dramatically altered the national rail transportation policies implemented by the Interstate Commerce Commission. In some cases, the ICC decided to alter an initial decision due to this new national rail policy. See, e.g., Cancellation of Intermediate Routing, Michigan Northern Railway, 365 I.C.C. 51, 73-74 (1981).
Courts, too, are affected by dramatic policy changes. For example, a court has the power to alter a consent decree over which it has jurisdiction if a relevant law changes. System Federation No. 91 v. Wright, 364 U.S. 642, 651-652 (1961); United States v. City of Fort Smith, 760 F.2d 231, 233 (8th Cir. 1985). Furthermore, in some instances, a change in law before an appeal can also prompt a court to consider the new legal standard. Brusha v. Reno, Docket No. 98-15414, 2000 U.S. App. Lexis 22384 at *2 (9th Cir. March 16, 2000). Moreover, when a state legislature reduces the sentence applicable to a certain crime after the defendant committed the crime but before sentencing, state courts have been known to base the sentence on the later statute. Illinois v. Jackson, 99 Ill. 2d 476, 480 (1984); Litsey v. The District Court in and for the Twenty-First Judicial District, 193 Colo. 341, 343 (1977).
All of these considerations suggest that the Commission should substantially reduce the penalty imposed by the Administrative Law Judge on Sea-Land.
II. Particularly in View of the Statutory Changes Wrought by OSRA, the Deterrence Justification For Imposition of Penalties Does Not Warrant the Maximum Penalty in This Case
A. FMC Penalties Are Intended to Deter
Future Violations
It is clear that the primary purpose of civil penalties under the Shipping Act of 1984 is to deter regulatory infractions. See, e.g., H.R. Rep. No. 98-53, Part 1, at 19 (1983), reprinted in 1984 U.S.C.C.A.N. 167, 184; Eastern Mediterranean Shipping Corp., etc., Docket No. 98-16, Initial Decision, Feb. 3, 1999, 28 S.R.R. 791, 797, administratively final, March 9, 1999. The Commission has often reaffirmed the fact that the overriding purpose of a penalty is deterrence of future violations.[1] However, an examination of this case leads to the conclusion that deterrence is only minimally implicated here, and thus the maximum penalty imposed by the Administrative Law Judge should be substantially reduced.
B In Light of
OSRA, the Goal of Deterrence Is Only Minimally Implicated in This Case
Scholars often divide the goal of deterrence into two types, specific or particular deterrence and general deterrence. Specific deterrence consists of deterring the punished criminal from again committing that particular crime, or any crime. General deterrence is directed at everyone else: it is supposed to deter all potential criminals from committing that particular crime, or any crime. See, generally, Wayne LaFave & Austin Scott, Jr., Criminal Law § 1.5, at 22-27 (2nd ed. 1986). By analogy, the purpose of deterrence in the Shipping Act is no different from the purpose of deterrence generally: to specifically deter a particular defendant from repeating that particular Shipping Act violation and from violating all FMC rules, and to generally deter all maritime industry entities from repeating that particular violation or from violating all FMC rules. But even taking the varied purposes of deterrence into account, such purposes are only minimally implicated in this case.
First, the pricing activities for which Sea-Land is
being punished are permissible now, as long as engaged in through confidential
service contracts. Ocean carriers can
now create a confidential service contract and charge, for example, the 20-foot
container rate, or even less, for a 40-foot container, without offering the
same arrangement to all similarly-situated shippers, and still be fully
compliant with Commission rules. There
is thus no need to deter Sea-Land from this behavior in the future.
Second, a penalty in this case will not deter Sea-Land
from violating all FMC rules related to tariffs and rebates. As a result of OSRA, Sea-Land is functioning
in an environment completely different from that existing in 1996-1998. Congress’ imposition of market-based
principles in the ocean shipping industry under OSRA has meant that ocean
carriers can set whatever rate they want, they can keep that rate confidential,
and they need not offer that rate to other similarly situated shippers. Given these provisions of OSRA and the
proliferation of service contracting by shippers and ocean carriers, there is
no need to deter Sea-Land from offering illegal “secret rebates” to certain
shippers, which was the problem in 1983 that Congress wished to remedy. H.R.
Rep. No. 98-53, Part 1, at 7 (1983), reprinted at 1984 U.S.C.C.A.N. 167,
172. Indeed, Congress, in OSRA, has
instead encouraged the market-driven, individualized, confidential activity for
which Sea-Land is being punished.
Moreover, for the same reason that there is little value in deterring Sea-Land, there is likewise little value in imposing a large penalty for the purpose of deterring other ocean carriers from engaging in the same activities as Sea-Land. As discussed above, the activities that prompted this proceeding are no longer proscribed for ocean carriers as long as such carriers utilize Congressionally-encouraged service contracts. Ocean carriers are completely free to create contracts in which they may charge whatever prices they want, keep their rates confidential, and treat similarly situated shippers differently. No deterrence message needs to be sent to other carriers as a result of this proceeding.
The only deterrence even arguably at issue in this proceeding is a very broad and unfocused one: namely, to generally deter carriers from violating Commission rules. As a general proposition, the League strongly agrees that carriers should comply with FMC rules and regulations, for the Commission does have an important role to play in the nation’s ocean shipping policy, and it does enforce critically-important aspects of a competitive and efficient ocean shipping industry. However, given the fact that this general broad deterrence is the only element of deterrence that is implicated in this situation, and given the fact that the legality of the particular activity that is the subject of this proceeding has been substantially altered by OSRA, the League questions whether this proceeding, and this violation, is the proper venue for imposing a maximum penalty. The League respectfully suggests that it is not.
III. Particularly in Light of the Changes
Wrought by OSRA, a Consideration of the Statutory Penalty Factors Requires a
Substantial Reduction in the Maximum Penalty
In assessing penalties for violations of the Shipping Act of 1984, the Commission must first make a determination of willfulness, pursuant to 46 U.S.C. § 1712(a). Then, in determining the penalty up to the maximum, the Commission is required to consider the eight factors given in 46 U.S.C. App. § 1712(c), including the nature, circumstances, extent and gravity of the violation committed; the degree of culpability, history and ability to pay of the violator, and finally, “other matters as justice may require.”
The Commission must consider each of these eight factors in determining a penalty amount. Martyn Merritt v. United States, 960 F.2d 15, 17 (2d Cir. 1992). While, the League makes no argument as to the nature, circumstances, or extent of Sea-Land’s violations, or Sea-Land’s history of prior offenses or ability to pay, the League believes that, particularly in light of the changes wrought by OSRA, a careful consideration of three of the factors -- the gravity of the violation, the culpability of Sea-Land, and such other matters as justice may require -- shows that the penalty should be reduced.
First, with respect to the gravity of the violation, by charging the inapplicable rates of 20-foot containers while in fact using 40-foot containers, Sea-Land effectively charged a rate lower than that listed in the applicable tariff, thus violating section 10(b)(1) of the Shipping Act of 1984. However, as described in section I.B, supra, while Sea-Land’s violations took place from 1996-1998, Congress when it passed OSRA in 1998 legalized the types of conduct in which Sea-Land engaged, as long as such activities are conducted pursuant to a service contract. An infraction that is soon thereafter permitted under the statute cannot be so grave that it requires the maximum penalty. Instead, the Commission should consider the most grave infractions to be the ones that Congress has not legalized, such as violations of restrictions on conference activities under 46 U.S.C. App. § 1709.
A similar analysis holds with respect to the factor of culpability. In this case, the Administrative Law Judge found Sea-Land culpable and deserving of blame because of several knowing violations of the Shipping Act. However, if we separate culpability into degrees, then Sea-Land’s violation cannot be deemed the highest degree of culpability, which should be reserved for Shipping Act violations that are against current U.S. maritime policy and that are not now promoted and encouraged by Congress. Indeed, it would appear that, given the changes wrought by Congress in OSRA, violations of the filed tariff rule should be deemed among the lowest degrees of culpability, and hence penalties for such violations should be among the lowest imposed by the Commission.
The last penalty assessment factor acts to ensure overall fairness: a consideration of “other matters as justice may require.” In this case, it would be unfair to impose maximum punishment when the underlying act was encouraged by Congress just a short time later. Justice requires that the Commission use its discretion to substantially reduce the penalty assessed by the Administrative Law Judge. The maximum punishment should be reserved for activities that flout basic Shipping Act principles, not for activities that were permitted by Congress soon thereafter.[2]
CONCLUSION
The Administrative Law Judge imposed the maximum possible penalty on Sea-Land. However, in 1998 the Congress dramatically changed the nation’s maritime policy to encourage and promote the competitive pricing acts for which Sea-Land is now being punished. The overriding function of penalties, deterrence, is only minimally implicated here. Furthermore, an analysis of the statutory factors that guide the choice of a penalty shows that three of them cannot support the maximum penalty. Given the dramatic change in policy represented by OSRA, the maximum penalty is not appropriate, and the penalty should be substantially reduced.
Respectfully submitted,
The
National Industrial Transportation League
1700 North Moore Street
Suite 1900
Arlington, Virginia 22209
By Its Attorneys
Nicholas J. DiMichael
David Benz
Thompson Hine LLP
1920 N St. N.W.
Suite 800
Washington, DC 20036
(202) 263-4103
March 24, 2003
[1] Transglobal Forwarding Co., Ltd. – Possible violations of section 10(a)(1) of the Shipping Act of 1984, Docket No. 01-09, Initial Decision, 29 S.R.R. 814, 820, May 10, 2002, administratively final, June 17, 2002; Stallion Cargo, Inc. – Possible violations of sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 29 S.R.R. 665, 680, Docket No. 99-18 (served Oct. 18, 2001); Refrigerated Container Carriers Pty. Ltd. – Possible violations of section 10(a)(1) of the Shipping Act of 1984, Docket No. 98-20, Initial Decision, April 13, 1999, 28 S.R.R. 799, 805, administratively final, May 21, 1999.
[2] Finally, the League would note that, in a very recent Commission decision, a party was found in willful violation of the Shipping Act and assessed a penalty of $22,500 per violation despite the fact that no mitigating factors were found. Green Master Int’l Freight Services Ltd. – Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, Docket No. 01-10 (served Feb. 28, 2003). This penalty, less than the statutory maximum, was justified only by the fact that it was sufficient for deterrence. There are three mitigating factors in Sea-Land’s case, see section III.A-D, supra, and deterrence is only generally and partially implicated, see section II, supra. In another case, the Commission assessed a penalty of $10,000 per violation, much less than the statutory maximum, based only on one mitigating factor, ability to pay, and also on the fact that the defendant cooperated in the proceeding against it. Stallion Cargo at 681-682. Again, given the three mitigating factors and lessened need for deterrence in Sea-Land’s case, a substantial reduction in the maximum penalty is warranted.