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New York Foreign Freight Forwarders and Brokers Association Inc. v. United States

October 14, 1964

NEW YORK FOREIGN FREIGHT FORWARDERS AND BROKERS ASSOCIATION, INC., INGE AND COMPANY, INC., BARR SHIPPING COMPANY, INC., MAJOR FORWARDING COMPANY, INC., AND JOHN H. FAUNCE, INC., PETITIONERS,
v.
FEDERAL MARITIME COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, PHILADELPHIA FREIGHT BROKERS, FORWARDERS AND CUSTOM BROKERS ASSOCIATION, INC., BALTIMORE CUSTOM HOUSE BROKERS AND FORWARDERS ASSOCIATION, FOREIGN COMMERCE CLUB OF BOSTON, INC., AND EXPORT AND IMPORT FORWARDING ASSOCIATION OF VIRGINIA, INTERVENERS. NATIONAL CUSTOMS BROKERS & FORWARDERS ASSOCIATION OF AMERICA, INC., PETITIONER, V. FEDERAL MARITIME COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS. FARRELL SHIPPING CO., INC., FARRELL BROS. BROKERAGE, INC., PETITIONERS, V. FEDERAL MARITIME COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS.



Author: Kaufman

Before MOORE, SMITH and KAUFMAN, Circuit Judges.

KAUFMAN, Circuit Judge:

In these consolidated appeals ocean freight forwarders, individually and through trade associations*fn1, question the validity of six regulations issued by the Federal Maritime Commission. The regulations, which implement the Freight Forwarder Law of 1961, 75 Stat. 522, 46 U.S.C. §§ 801, 841a, 841b, generally concern "brokerage" payments from ocean carriers to forwarders and the forwarders' methods of billing shippers.

Our discussion of the regulations will be clearer if the duties of a forwarder are first brought into focus. Most American exporters use the services of ocean freight forwarders who, in essence, act as export departments for their shipper clients. An exporter who ships goods abroad customarily consigns the merchandise to a forwarder who then makes all arrangements for dispatch to a foreign port. Thus, the forwarder will secure cargo space with a steamship company, give advice on governmental licensing requirements, proper port of exit and letter of credit intricacies, and arrange to have the cargo reach seaboard in time to meet the designated vessel. The forwarder also prepares required shipping documents, including the dock receipt, delivery order, bill of lading, export declaration and the consular invoice required on shipments to certain countries.

Often the forwarder performs so-called accessorial services, such as arranging insurance either under his own policy or the exporter's open marine policy. He may provide for local trucking of less than carload parcels to the pier and occasionally he will store partial shipments. To reimburse himself for the cost of arranging these accessorial services the forwarder charges the shipper a fee greater than his actual disbursement.

Most forwarders receive their revenues from two sources. They are paid by shippers for the various forwarding services performed and on many shipments forwarders receive, in addition, brokerage payments from ocean carriers.

Despite the forwarders' valuable role in relieving exporters of the many details and formalities of foreign trade and facilitating the flow of water-borne commerce, certain activities within the industry have been scrutinized by public agencies and found objectionable. Criticism has focused primarily on the forwarders' activities as brokers and the payments received for such brokers' services from ocean carriers as well as the forwarders' methods of billing shippers.

The history of public investigation begins in 1942 when the Maritime Commission instituted a probe, under the 1916 Shipping Act, 39 Stat. 728, 46 U.S.C. § 801, into the propriety of forwarder practices at the Port of New York. The proceedings were temporarily sidetracked when the forwarders challenged the agency's statutory authority to regulate their industry's activities. The Maritime Commission's jurisdiction was upheld in United States v. American Union Transport, Inc., 327 U.S. 437, 66 S. Ct. 644, 90 L. Ed. 772 (1946), when the Supreme Court concluded that foreign freight forwarders, even though not contractually or corporately affiliated with a common carrier by water, are subject to the Shipping Act's regulatory provisions.

The Court pointed out that forwarders are "agents of the shipper," intimately related to both shipper and carrier as a "go-between," and that "considerations of policy and history" called for their inclusion within the regulatory scheme. 327 U.S. at 443, 445, 450, 66 S. Ct. 644. In Mr. Justice Rutledge's words:

"Section 16 forbids various forms of discrimination, as well as other practices, on the part of any common carrier by water 'or other person,' which an independent forwarder readily may commit or induce. * * * [Some] of the practices forbidden appear to be peculiarly if not exclusively susceptible of commission or inducement by forwarders, brokers and shippers' agents, all specifically mentioned in the section.

"The purpose of § 17, in relevant part, is to provide for the establishment, observance and enforcement of just and reasonable regulations and practices relating to or in connection with the receiving, handling, storing or delivering of property. By the nature of their business, independent forwarders are intimately connected with these various activities. Here again, unless the Commission has jurisdiction over them, it may not be able effectively to carry out the policy of the Act." 327 U.S. at 447-449, 66 S. Ct. at 649-650.

After the Supreme Court's decision the Maritime Commission completed its investigation, Port of New York Freight Forwarder Investigation, 3 U.S.M.C. 157 (1949), and on May 18, 1950, issued regulations governing forwarder billing practices, special contracts between forwarders and shippers or consignees, and brokerage payments. 46 C.F.R. Part 244. In 1954 the agency began a second broad study of the forwarding industry. Some seven years later, on June 29, 1961, a comprehensive report was published, together with regulations to become effective after 120 days. Investigation of Practices, Operations, Actions, and Agreements of Ocean Freight Forwarders, 6 F.M.B. 327.

In the course of these extensive probes the maritime agency uncovered certain disturbing improprieties in forwarder billing methods; charges for accessorial services, for example, were marked up "in a random fashion." The 1961 report concluded that "discrimination, preference, and prejudice is the rule" in the assessment of forwarder charges and is unlawful absent justification. Accordingly, the 1950 regulations were modified "to prohibit the assessment of disguised markups in all instances which are shown on this record to result in violation of sections 16 and 17 of the Act." 6 F.M.B. at 359, 365.

The agency also investigated and analyzed brokerage payments from carriers to forwarders. After pointing out that forwarders are engaged by shippers to carry out shipper responsibilities, the Commission held that forwarders are generally not brokers in their relations with carriers. Nevertheless, according to the study, the carriers paid brokerage fees without ascertaining whether the forwarders had performed any services and without determining if forwarder-shipper relationships would make the payments illegal rebates under section 16. Having concluded that brokerage fees led forwarders to discriminate among shippers in violation of sections 16 and 17 of the Shipping Act, the agency resolved to prohibit brokerage payments covering cargo with respect to which forwarding services had been rendered.

Reaction from the freight forwarding industry followed swiftly and took the form of efforts to secure Congressional legislation which came to fruition in the Freight Forwarder Law, enacted September 19, 1961. 75 Stat. 522, 46 U.S.C. §§ 801, 841a, 841b. Congress' remedy for the industry's malpractices stopped short of the agency's proposed total ban on brokerage payments. Instead, compensation from carriers was authorized only where the forwarder renders specified services of value and issues a certificate to that effect. Additionally, forwarders would be licensed and other safeguards provided to enable the Maritime Commission to cure the abuses and undesirable practices uncovered in its extensive investigations.

Under the 1961 Law a common carrier may "compensate" a licensed forwarder "when, and only when" he has performed - and certifies to the carrier that he has performed - "the solicitation and securing of the cargo for the ship or the booking of, or otherwise arranging space for, such cargo" plus at least two out of five additional enumerated services. 46 U.S.C. § 841b(e). Moreover, a license is now required as a prerequisite to engaging in the forwarding business. 41 U.S.C. § 841b(a). A forwarder licensee must be "independent" - free of any affiliation with a shipper, consignee, seller, purchaser of the shipment, or with any person having a beneficial interest in the goods, 46 U.S.C. § 801 - in order to eliminate indirect rebates to shippers. Finally, the Maritime Commission is directed to prescribe "reasonable rules and regulations" to be observed by forwarders. 46 U.S.C. § 841a.

The Commission heeded this mandate and commenced a new rule-making proceeding. In December 1961 the agency issued regulations, without objection from the forwarders, setting forth the procedure for obtaining a forwarder's license. Shortly thereafter, in February 1962, proposed rules regulating the "Practices of Independent Ocean Freight Forwarders, Ocean Freight Brokers, and Oceangoing Common Carriers" were published. After reviewing the comments of interested parties, the Commission revised some of the proposed rules and republished them in January 1963. Further comments were received and the Commission heard oral arguments respecting those rules challenged by the forwarding industry. Finally, by order dated April 2, 1963, published in the Federal Register of May 1, 1963, 28 Fed.Reg. 4300, the Maritime Commission gave notice that, after further revision, the proposed rules had been adopted and would become effective June 1, 1963.On May 21, 1963, the Commission denied petitions by freight forwarders to reconsider certain of the adopted rules.

Having exhausted their administrative remedies, the aggrieved freight forwarders filed petitions with this Court and the Court of Appeals for the District of Columbia Circuit seeking judicial review of six of the proposed regulations. On May 28, 1963, we issued an interlocutory injunction restraining the Commission from putting into effect the challenged rules until thirty days after the determination of this appeal. The District of Columbia proceedings have been transferred to this Court pursuant to 28 U.S.C. § 2112(a), and the several cases have been consolidated. Our jurisdiction derives from the Administrative Orders Review Act, 64 Stat. 1129 (1950), 5 U.S.C.§§ 1031-1042 (1958).

The six challenged regulations may be briefly summarized: (A) Section 510.21 (1) defines a forwarder's "beneficial interest" in shipments to include "any lien interest" therein. (B) Section 510.22(a) prohibits a forwarder from collecting compensation from a carrier where the carrier performs part of the forwarding services. (C) Section 510.23(j) requires a forwarder to itemize or state separately on his bill his actual expenditures on the shipper's behalf as well as the charges or fees assessed for his own services. (D) Section 510.24(e) requires the forwarder to certify to the carrier, as to each shipment, which of the services specified in Section 44(e) of the 1961 Law he has performed. (E) Section 510.24(g) prohibits a licensed forwarder, and any person or firm in which he has a beneficial interest, from charging or collecting "any compensation or brokerage" from a carrier with respect to non-bulk cargo, unless the forwarder has performed the ...


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