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AMERICAN-HAWAIIAN S.S. CO. v. UNITED STATES

January 21, 1949

AMERICAN-HAWAIIAN S.S. CO.
v.
UNITED STATES. THE ALASKAN. Supplemental Opinion Feb. 15, 1949



The opinion of the court was delivered by: LEIBELL

Pursuant to the provisions of a requisition time charter and acting under the Merchant Marine Act of 1936, T. 46 U.S.C.A. § 1128, the War Shipping Administration issued a policy of war risk insurance covering the S.S. 'Alaskan' under which the United States of America became obligated to pay the owner, American Hawaiian Steamship Company, 'just compensation' if the vessel was lost through a risk covered by the policy. The Alaskan was requisitioned May 25, 1942 on a time charter basis and was delivered to the War Shipping Administration, under the charter, on June 12, 1942. The binder for the insurance was dated July 27, 1942. Clause E of the requisition time charter and Endorsement No. 2 on the insurance binder provided that 'just compensation' was to be determined in accordance with Section 902 of the Merchant Marine Act of 1936, as amended. T. 46 U.S.C.A. § 1242. The Alaskan was torpedoed and sunk on November 28, 1942. The loss of the Alaskan was 'due to operation of a risk assumed by the United States under the terms of a charter' § 1242(c), and it was a risk covered by the War Shipping Administration's standard hull risk insurance policy which included perils from mines and torpedoes. The Merchant Marine Act of 1936, as amended, T. 46 U.S.C.A. § 1128d, provides that actions on claims from losses on account of insurance, 'shall proceed and shall be heard and determined according to the provisions of sections 741-752 of this title' Title 46. Those sections constitute the Suits in Admiralty Act.

The War Shipping Administration determined that 'just compensation' for the loss of the Alaskan was the sum of $ 776,003 and on December 23, 1944 tendered that amount with interest at 7/8 of 1% from January 29, 1943. The tender was rejected by the American Hawaiian Steamship Company. The government later paid the company 75% of that sum under § 1242(d) of T. 46 U.S.C.A, and the company became entitled to sue for a sum which when added to the 75% 'will make up such amount as will be just compensation' for the loss.

On November 27, 1944 the American Hawaiian Steamship Company filed a libel in this Court against the United States of America under the Suits in Admiralty Act, T. 46 U.S.C.A. §§ 741-752, claiming that just compensation for the loss of the Alaskan was $ 1,035,000, together with interest. The total amount paid by the government on account of the loss was $ 582,002.25 (75% of $ 776,003). The suit was authorized under T. 46 U.S.C.A. § 1128d, in the event of disagreement as to a claim for losses on account of insurance issued under §§ 1128-1128d of that title.

 On July 9th, 1947 Judge Knox appointed George W. Alger as Commissioner, pursuant to Rule 43 of the Admiralty Rules, 28 U.S.C.A., 'to hear the parties and take proof upon all the issues of law and fact presented by the pleadings and to ascertain and compute the amount, if any, owed to the libelant by respondent and to report thereon to this Court'.

 The Commissioner filed his report on July 14, 1948 in which he determined that just compensation for the Alaskan, as of date of delivery under the time charter on June 12, 1942, the beginning of the risk, was $ 983,250 ($ 95.00 per deadweight ton); and that that sum was also her value as of the time of her loss on November 28, 1942. The Commissioner also held that the libelant was entitled to 4% interest on the amount unpaid, the interest to be calculated from November 27, 1944, the date on which the libel was filed. T. 46 U.S.C.A. §§ 743 and 745. Both the libelant and the respondent filed exceptions to the Commissioner's report.

 Libelant's exceptions numbered (1) and (2) relate to the amount found by the Commissioner to be 'just compensation' for the Alaskan. Other exceptions of libelant refer to various subfindings, such as (3) the market for vessels in 1941; (4) the absence of a market in 1942; (5) the earning power and replacement cost of the Alaskan; (6) the cost of her upkeep; (7) the type of her crew quarters; (8) the bearing of governmental restraints and controls over the transfer, use and earnings of vessels on the issues in this case; (9) the failure of proof of their effect on earning power and value; (10), (11) and (12) the purpose, use, effect and legality of the governmental restraints and controls over vessels. Libelant's exceptions (13) to (15) inclusive, are directed against the Commissioner's rulings as to the rate of interest and the period for which interest is allowable.

 The seven exceptions filed by the respondent are based on respondent's contentions that (1) just compensation for the Alaskan should have been fixed at $ 490,000 instead of $ 983,250; (2) that the vessel's value should have been fixed as of November 28, 1942, the date of her loss, instead of June 12, 1942, the date when she was requisitioned under the time charter and when the risk under the policy of insurance began; (3) that libelant should not have been allowed any interest, because it had been overpaid; (4) that the Commissioner fixed a unit price per deadweight ton for the Alaskan instead of fixing the Alaskan's value as a whole; (5) that he failed properly to take into account her depreciation in value due to her age; (6) that he failed properly to take into account the depressing affect of governmental restrictions on her use and transfer; and (7) that he improperly deemed the value of the Alaskan to have been enhanced by causes necessitating her taking and improperly awarded an amount including such enhancement.

 The $ 95.00 a deadweight ton when multiplied by the vessel's deadweight capacity of 10,350 tons if 'equivalent to' the $ 983,250 valuation figure fixed by the Commissioner. A similar multiplication of the number of deadweight tons by a certain dollar amount per ton is used as part of a formula for determining a basic valuation under Option I, paragraph E of the requisition time charter (Ex. 15). There is nothing wrong in stating that a vessel has a value of a certain amount per deadweight ton. Appraisers use those terms. Respondent's exception (4) is overruled.

 The Commissioner's report discusses what he considered the substantial issues in the case: (A) the amount to be awarded as 'just compensation' for the loss of the 'alaskan; (B) whether the date of requisition (June 12, 1942) or the date of the vessel's loss (November 28, 1942) should be taken as the date as of which the vessel is to be valued; and (C) the rate of interest on the amount determined to be the value of the vessel and the date from which interest should be calculated.

 The Commissioner held as to (B) that since this was a suit on an insurance policy the date of requisition (June 12, 1942), at which the risk under the insurance policy began, was the date as of which the Alaskan should be valued, but that as a practical matter it made no difference whether that date or the date the vessel was lost (November 28, 1942) was used, because in his opinion the value of the vessel was the same on both dates. Libelant's claim is based on a loss covered by an insurance policy. In marine insurance 'the value of the vessel at the beginning of the risk' is the 'amount of interest insured'. This rule is supported by the authorities *fn1" cited in the Commissioner's report and by the language of the policy in suit. Respondent's exception (2) is accordingly overruled.

 As to (C), the Commissioner held that under the Suits in Admiralty Act, T. 46 U.S.C.A. § 743, the rate of interest should be 4%, and that under § 745 no interest should be allowed on the claim for the period prior to the time when the suit was commenced. That the 4% interest rate is proper has been decided in the following cases:- The Comus, 2 Cir., 1927, 19 F.2d 774, 777; Smith v. United States Shipping Board Emergency Fleet Corp., 2 Cir., 1928, 26 F.2d 337, 339; National Bulk Carriers v. United States, 3 Cir., 1948, 169 F.2d 943; United States v. Eastern S.S. Lines, 1 Cir., 1948, 171 F.2d 589.

 The provision of § 745 of T. 46 U.S.C.A., barring interest on a claim for the period prior to the institution of the suit, was added to § 745 by amendment June 30, 1932. It had been in effect for almost four years when § 1128d, authorizing suits on claims for losses on account of insurance, was enacted June 29, 1936. No matter what may have been the original purpose of the aforementioned provision of § 745 when it was enacted, the Congress took it at its face value when it made that section applicable to suits authorized under § 1128d. The question of the date from which the interest runs has recently been passed upon by the Court of Appeals for the Third Circuit in National Bulk Carriers v. United States, supra, and by the Court of Appeals for the First Circuit in United States v. Easter S.S. Lines, supra. Both circuits held that interest on the valuation sum runs only from the date of suit. The arguments presented by the libelant in this case in support of its contention that the interest rate should be 6% and should cover a period prior to the filing of the libel were thoroughly considered answered in the opinion in the National Bulk Carriers case.

 In the case at bar the libel was not filed until November 27, 1944, almost two years after the vessel was lost. The provisions of the statute as to interest may seem harsh and not in accord with commercial practice; but a claimant can always preserve his claim for interest by bringing suit promptly. Further, as was observed by the First Circuit in the Eastern S.S. Co. case, (171 F.2d 594) 'relief must be sought in Congress, not in the courts.'

 The government's position on the interest question in the case at bar appears to be this: the government agrees with the Commissioner's ruling that provisions of the Suits in Admiralty Act apply, but contends that the libelant herein was overpaid (having been paid $ 582,002.25 as against a value of $ 490,000, now asserted by the government) and hence no interest should have been allowed by the Commissioner. The basis for the $ 490,000 valuation will be hereinafter discussed. Since I have concluded that the Commissioner's valuation ($ 983,250) was correct, the government's contention that no interest should be allowed is rejected. Libelant's exceptions (13), (14) and (15), and respondent's exception (3), which relate to the matter of interest, are overruled.

 The exceptions challenging the correctness of the Commissioner's finding as to the value of the Alaskan on June 12, 1942, present, as the questions to be reviewed, 'whether all the relevant factors which the law requires to be given effect were duly considered and, if so, whether the evidence adequately supports the finding.' Ozanic v. United States (The 'Petar'), 2 Cir., 165 F.2d 738, at page 740. As stated by Judge Chase in his opinion in 'the Petar case, there is no formula of fixed application that can be laid down as a 'rule of thumb' in determining the value of a vessel. 'Each valuation that is contested will have to be reviewed on the merits of the particular case.'

 The finding of the Commissioner that the Alaskan had a value of $ 983,250 as of June 12, 1942, is 'entitled to great weight and to be given effect unless there was a clear mistake in arriving at it.' The Petar, supra.

 Admiralty Rule 43 1/2 provides:-

 'In all references to commissioners or assessors, by consent or otherwise, whether the reference be of all issues of law and fact, or only particular issues either of law or fact or both, the report of the commissioners or assessors shall be treated as presumptively correct, but shall be subject to review by the court, and the court may adopt the same, or may modify or reject the same in whole or in part when the court in the exercise of its judgment is fully satisfied that error has been committed: * * * .'

 At this point it seems proper to consider the basis for the government's present contention that the value of the Alaskan should be fixed at $ 490,000.

 For reasons set forth in Exhibit 40 the Comptroller General, on November 28, 1942, expressed an opinion (at page 124 of the Exhibit) that the enhancement clause in § 902(a), of T. 46 U.S.C.A., prohibits the payment as compensation for a requisitioned vessel of any amount that may be based upon a valuation in excess of the values existing on September 8, 1939, 'provided such excess be determined as due to economic conditions directly caused by the national emergency'. Starting with a stipulated value of $ 450,000, for the Alaskan as of September 8, 1939, the respondent works out a value for the Alaskan as of November 28, 1942 'of a little under $ 490,000, a sum less than the amount paid by the Government on account'. September 8, 1939 was the day on which the President, by Proclamation, declared the existence of a limited national emergency. It was not until May 27, 1941 that the President declared the existence of an unlimited national emergency.

 The Advisory Board on Just Compensation, composed of Circuit Judges L. Hand, J. J. Parker and J. C. Hutcheson, Jr., was established by Executive Order dated October 15, 1943, No. 9387, to formulate rules for the guidance of the War Shipping Administration in determining the 'just compensation' to be paid for requisitioned vessels. At the time the Board was named the Comptroller General and the War Shipping Administration held divergent views on the elements to be weighed in determining the value of a requisitioned vessel. The Commissioner in the case at bar, properly gave due consideration to the Rules formulated by the Advisory Board. The $ 490,000 figure now advanced by the government would not be just compensation. Indeed, the chief appraiser of the Maritime Commission at the hearing before the Commissioner gave the Alaskan a value of $ 716,000.

 The Commissioner, George W. Alger, in the following quoted paragraph of his report states how he arrived at the conclusion that the value of the Alaskan should be fixed at $ 983,250-

 'In reaching a conclusion as to what price would result from negotiations between an owner willing to sell and a purchaser willing to buy the Alaskan in 1942 when it was requisitioned and sunk, I have taken into consideration all relevant evidence and sought to reach a conclusion which is a reasonable judgment based thereon. I first considered that the sale in 1941 of comparable vessels afforded a fair and proper market basis for considering such value of the Alaskan giving due regard to certain advantages of the Alaskan over these vessels of almost similar age and in connection therewith I gave due regard to the testimony concerning the effect of Government restrictions made partly effective in the fall of 1941 and supplemented by further regulations and restrictions in 1942. I also considered not only the facts concerning the sales of specific ships in the market of 1941 but testimony on general ship sales values in that year to the extend that they indicated a rising market during that year. I then checked my conclusion, tentatively reached thereon, with the facts in the record concerning the character and appointments of the vessel itself, its age, cost, improvements, its earnings and physical condition both before and after requisition, and the testimony of experts on its reproduction cost less depreciation, and all other factors relating to value not specifically enumerated above which are contained in the record. Using these as a basis for checking my previous conclusion I reached a result consistent with and a confirmation of the conclusion reached by the first process specified above. Giving due weight to all the proof submitted before me my conclusion is that the value of the Alaskan should be fixed at $ 95.00 per deadweight ton, or the sum of $ 983,250.'

 The Commissioner's report discusses the evidence on many of the elements he considered, and his reasoning in relation to each. A careful reading of the report, which analyzes the testimony of the experts, discloses the Commissioner's 'thought processes'.

 Libelant's exceptions (6) and (7) relate to comparatively minor matters. What the Commissioner stated in reference thereto was general in its nature and of no real importance. *fn2" It certainly would not justify a rejection of the report. Libelant's exceptions (6) and (7) are overruled.

 In his main brief libelant's counsel states that his exceptions (8) through (12) are directed to the Commissioner's holding that this court is 'no forum in which to decide the legality of the regulations adopted by our government' and to the Commissioner's failure to disregard the effect of the 'controls' in determining just compensation, or, alternatively, to his failure to find as a matter of fact, that the 'controls' did not depress the earning power and value of the Alaskan as claimed by the respondent. On the other hand the brief of the respondent's counsel argues that 'The Commissioner, despite his ruling that governmental controls must be taken into account, erroneously valued the Alaskan on the basis of a rising market that had gone out of existence long before any date material to this proceeding by reason of governmental controls, restraints and burdens which completely reversed the trend of vessel values and, in fact, ignored the effects of controls over shipping'. This is an amplification of respondent's exception (6).

 The governmental regulations and controls affecting the sale, chartering, use and operation of vessels, were given proper consideration by the Commissioner in fixing the value of the Alaskan.

 On September 8, 1939 the President by a formal Proclamation, No. 2352, 54 Stat. 2643, 22 C.F.R.P. 59, 143.1 (1939 Supp.), declared the existence of a limited national emergency caused by the existence of a state of war between certain nations, which imposed 'on the United States certain duties with respect to the proper observance, safeguarding, and enforcement of such neutrality, and the strengthening of the national defense within limits of peacetime authorization'. The proclamation contained a 'Whereas' clause that 'measures required at this time call for the exercise of only a limited number of powers granted in a national emergency * * * .'

 On May 27, 1941 the President issued a further Proclamation, No. 2487, 50 U.S.C.A.Appendix, note preceding § 1, p. 78, 22 C.F.R. 143, 35 C.F.R. 3, 46 C.F.R. 48, declaring the existence of an unlimited national emergency, in order to 'mobilize and have ready for instant defensive use all of the physical powers, all of the moral strength and all of the material resources of this nation.'

 The proclamations activated certain executive orders, administrative regulations and statutory powers that had been held in reserve, and also formed the basis for subsequent Acts of Congress which were designed to facilitate the purposes of the proclamations by subjecting practically all industries to regulation in respect to allocations of materials, priorities thereto, the export and import of vital materials, and the prices of commodities and manufactured products. All of this radically affected the commercial life of the United States and limited profits in the interest of national security.

 The Shipping Act of 1916 was one of the statutes made operative by the issuance of the President's emergency proclamations. It provided T. 46 U.S.C.A. § 808, that:-

 ' * * * it shall be unlawful, without the approval of the United States Maritime Commission, to sell, mortgage, lease, charter, deliver, or in any manner transfer, or agree to sell, mortgage, lease, charter, deliver, or in any manner transfer, to any person not a citizen of the United States, or transfer or place under foreign registry or flag, any vessel or any interest therein owned in whole or in part by a citizen of the United States and documented under the laws of the United States, or the last documentation of which was under the laws of the United States.'

 Section 835 of Title 46, U.S.C.A., which also became operative by virtue of the Presidential Proclamation, provided that:-

 'When the United States is at war or during any national emergency, the existence of which is declared by proclamation of the President, it shall be unlawful, without first obtaining the approval of the commission:' to transfer, sell, mortgage, lease, charter, deliver, or place under foreign registry any vessel owned by a citizen of the United States or to construct for or for the benefit of a foreigner any vessel in the United States.

 One of the most important Acts designed to regulate and control the use and charter rates of vessels was the Ship Warrants Act of July 14, 1941, T. 50 U.S.C.A.Appendix, § 1281 et seq. The statute was enacted as part of the emergency and war shipping legislation. It provided:-

 ' § 1281. Priorities in transportation by merchant vessels during National Emergency; issuance of warrants

 'During the emergency declared by the President * * * the President may, notwithstanding any other provisions of law, * * * authorize the United States Maritime Commission to issue warrants as hereinafter provided * * * .'

 ' § 1282. Form and content of warrants; supervision of vessel by owner or charterer; effect on coastwise laws.

 'The warrants to be issued pursuant to this Act shall be in such form as the Maritime Commission shall prescribe, and shall set forth the conditions to be complied with * * * by reference to an undertaking of the owner or charterer with respect to the trades in which such vessel shall be employed, the voyages which it shall undertake, the class or classes of cargo or passengers to be carried, the fair and reasonable maximum rate of charter-hire or equivalent, * * * .'

 The priorities are described in § 1283 of T. 50, U.S.C.A. Appendix, as follows:-

 'Vessels holding warrants issued pursuant to this Act shall be entitled to priority over merchant vessels not holding such warrants, with respect to the use of facilities for loading, discharging, lighterage or storage of cargoes, the procurement of bunker fuel or coal, and the towing, overhauling, drydocking or repairs of such vessels.'

 On July 30, 1941, about two weeks after the enactment of the Ship Warrants Act, the United States Maritime Commission announced in Press Release No. 970a-

 'new scale of maximum time charter rates for United States and foreign flag vessels, effective August 1, materially reducing existing rates.'

 The Commission stated that the new scale was established

 'coincident with the request by President Roosevelt for enactment by Congress of legislation establishing a ceiling on prices and rents * * * in keeping with its longstanding policy of maintaining steamship charter and cargo rates at as reasonable a level as possible, in order to prevent inflationary influence on commodity prices.'

 Thereafter the United States Maritime Commission adopted Ship Warrant Regulations, 46 C.F.R. 241 (1941 Supplement) which were approved by the President, August 26, 1941, 6 F.R. 4537. These regulations provided in Sec. 241.42 ( § 4.02) thereof, a form of application for a warrant wherein the applicant agreed to conform to certain restriction with respect to routes, passengers and cargoes, the amount of charter hire and schedules of information. After filing an undertaking and an application for a warrant, a ship warrant of a certain class would issue (Sec. 241,31 of 46 C.F.R., 1941) entitling the vessel to priority use of facilities in the United States, its Territories or possessions, including the Philippine Islands and the Panama Canal Zone.

 On January 13, 1942 the United States Maritime Commission issued General Order 49 (Gen. Order 3, W.S.A.) which provided for 'Uniform Conditions which Applicant may Incorporate into the Undertaking by reference on Schedule 'A". This order contained regulations regarding routes, conditions of operation, priorities of materials transported, charter rates and other charges. On December 15, 1943 the War Shipping Administration issued General Order No. 39, 8 F.R. 16919, which permitted shipowners to appeal the charter rates fixed by schedules to the War Shipping Administrator who could fix rates in individual cases in excess of the prescribed rates.

 The Renegotiation Act of 1942, T. 50 U.S.C.A.Appendix, § 1191, provided for a system of renegotiation and adjustment on all contracts made with the government to eliminate excessive profits during the war. Shipping contracts were subject to that Act.

 Among the controls which became applicable to the shipping industry by reason of the Presidential proclamation were those embodied in the Merchant Marine Act of 1936, 46 U.S.C.A. § 1101 et seq., which provided in § 1242, subdiv. (a) that:-

 'during any national emergency declared by proclamation of the President, it shall be lawful for the Commission to requisition or purchase any vessel or other watercraft owned by citizens of the United States, or under construction within the United States, or for any period during such emergency, to requisition or charter the use of any such property. * * * '

 The principle of 'just compensation' was reiterated in subdivision (c), added to § 1242 by the Amendment of August 7, 1939.

 Concerning the effect to be given to the government's regulations and controls the Commissioner, in the case at bar, found:-

 'Restraints on earnings were imposed through control of the Government time charter and other shipping rates. * * * Libelant earnestly urges that the so-called controls exercised by the Maritime Commission and the War Shipping Administrator of charter rates and insurance valuations should be disregarded in determining just compensation. * * * This however is no forum in which to decide the legality of the regulations adopted by our Government in war time to prevent an unconscienable possible misuse of the Government's ...


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