Independent U.S. Tanker Owners Committee v. Dole

United States Court of Appeals for the District of Columbia Circuit · Administrative Law

Administrative LawAdministrative Procedure Actarbitrary and capriciousstatement of basis and purposenotice and commentMerchant Marine Actstatutory objectivesreasoned decisionmaking

Facts

The Secretary of Transportation adopted a payback rule permitting tanker vessels built with federal construction-differential subsidies to undertake domestic operations if they repaid the unamortized portion of the subsidy plus interest within a one-year period. The rule was designed to address problems in both foreign and domestic tanker markets by allowing ships that were not competitive in foreign commerce to shift into domestic trade without retaining a subsidy-based advantage over unsubsidized ships. Earlier litigation had established that the government had authority to approve subsidy repayment in return for permission to enter domestic trade, but this court had previously invalidated a similar interim rule for inadequate explanation. In adopting the new payback rule, the Secretary emphasized efficiency, competition, use of underemployed resources, and deregulation, while giving only cursory treatment to the Merchant Marine Act's statutory objectives and to alternatives proposed in the rulemaking.

Issue

Whether the Secretary had statutory authority under the Merchant Marine Act to promulgate the payback rule, and if so, whether the rule nevertheless had to be set aside under the Administrative Procedure Act because the Secretary failed to provide an adequate statement of basis and purpose connecting the rule and rejection of alternatives to the Act's objectives.

Rule

An agency engaged in notice-and-comment rulemaking under 5 U.S.C. § 553(c) must provide a statement of basis and purpose that identifies the major policy issues raised, explains why the agency responded as it did, and does so in light of the statutory objectives the rule must serve. Even where an agency has broad statutory discretion and may consider factors not explicitly stated in the statute, it may not substitute new policy goals for the governing statute's objectives without explaining how its action is consistent with those statutory objectives; otherwise the rule is arbitrary and capricious under 5 U.S.C. § 706(2)(A).

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The Federal Port Services Board issues a notice-and-comment rule allowing operators of federally assisted cargo terminals in Baltimore to convert to private mixed-use logistics hubs if they repay outstanding grant balances with interest. In the final rule, the Board says the policy will "modernize the sector" and "improve market efficiency," but it discusses the governing statute's listed goals of emergency transport capacity and preservation of domestic shipping infrastructure only in two conclusory sentences.

If a court reviews the rule under the APA, which is the strongest argument for setting it aside?

Explanation. In notice-and-comment rulemaking, the agency must identify the major policy issues and explain its response in light of the statutory objectives the rule must serve. The defect here is not necessarily lack of power, nor the mere mention of efficiency, but the failure to connect the adopted rule to the governing statute's objectives. An agency may consider non-statutory factors, but it must explain how they are compatible with the statute's aims. (Derived from Independent U.S. Tanker Owners Committee v. Dole (n.d.).)