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07/30/69 Marine Space Enclosures, v. Federal Maritime

July 30, 1969




McGowan, Leventhal and Robinson, Circuit Judges.




Marine Space Enclosures, Inc. (Petitioner) brings this action to review a decision and order of the Federal Maritime Commission , approving without hearing a contract for the construction and maintenance of maritime passenger terminal facilities in the port of New York City, and a companion agreement between carriers and the Port Authority for use of the terminal. We think that the Commission's failure to hold a hearing was a violation of § 15 of the Shipping Act of 1916, and remand for further proceedings. I. BACKGROUND AND PROCEDURES.

A. The proposals for a new terminal.

On January 17, 1969, after extensive hearings before the City Council of New York, the City entered into an agreement with the Port of New York Authority (the Port Authority) authorizing the Port Authority to construct and maintain on City-owned property a new terminal to handle maritime passenger traffic. Under the agreement financing will be provided by the City and the Port Authority will lease the facility at a fixed rental, calculated to amortize the City's $60,000,000 cost over a 20-year period.The contract is subject to renewal at expiration by the Port Authority. Tariffs, which include under the contract "rates of dockage and wharfage and the amounts of passenger fees, visitors' fees and parking rates, for all users of the . . . terminal" are to be fixed by the Port Authority. The only limitation placed on the Port Authority is that tariffs be maintained "having due regard to estimated maintenance and operating costs, and to increases thereof which may be occasioned by the passage of time and the aging of the facility." *fn1

The agreement also establishes an "interim" arrangement whereby, pending completion of the new proposed facilities, the City will turn over to the Port Authority certain piers and docks in Manhattan which are presently used for maritime passenger traffic. Existing leases with private operators for the maintenance of these piers will be terminated, or negotiated release obtained, wherever possible.

Implementing the basic arrangement are certain restrictive covenants, covering the term for both interim and permanent operations, which are the focus of this controversy. First, the contract provides that neither the City nor the Port Authority will "promote, finance, establish, construct, operate, or maintain any pier, wharf, bulkhead, dock, terminal or other facilities for the accommodation of passenger vessels, or authorize any other person so to do [for a term] no more than fifty years after the expiration of the original term of the letting of the permanent premises." Thus there is provided a restraint lasting in excess of 70 years. *fn2 A separate restriction precludes construction or effective maintenance of facilities on privately owned frontage that might be suitable for a terminal. *fn3

It is also provided that the agreement between the City and the Port Authority is conditioned on the separate agreement of the ship lines to use exclusively the new facility once completed, and the interim facilities in the meanwhile. *fn4 The clause has been given effect in a contract, which is also before the FMC, wherein the signatory carriers agree with the Port Authority to "undertake, from the date of the commencement of the letting under the Basic Agreement, to operate all their passenger vessel service to and from the Port of New York . . . only to and from the Interim Terminal . . . and upon completion of the construction, to and from the Permanent Terminal only." Under the agreement with the subscribing carriers the City and Port Authority promise not to allow non-signatory carriers to use the Interim or permanent facilities. The term of this agreement is coextensive with the 70-year term of the Basic Agreement. Six carriers have thus far subscribed to the agreement.

B. Proceedings before the Commission.

In accordance with § 15 of the Shipping Act of 1916, the City's and Port Authority's plans and the two proposed agreements were filed with the FMC for approval and on February 28, 1969, the Commission noticed the matter in the Federal Register and invited comments or requests for a hearing. *fn5 Petitioner, Marine Space Enclosure, identifying itself as interested in operation of a different terminal, filed a timely response on March 11, 1969, protesting the anti- competitive features of the two contracts, which, it contended, constituted a prima facie contravention of the "public interest" under applicable case law. The protest urged disapproval of the arrangement, or that, at the very least, a hearing be scheduled.

By way of answer the City and Port Authority defended the agreements on the grounds that the plans for the proposed terminal had been the subject of public hearings before the City Council of New York; that new facilities were urgently needed and that a hearing before the Commission would cause unnecessary and critical delay; and that the restrictive provisions of the two agreements did not preclude construction and maintenance of terminal facilities on property not controlled by or under the jurisdiction of the City or Port Authority, *fn6 and finally, that no carrier had intervened or protested before the Commission.

Supplemental papers were subsequently lodged by both the petitioner and terminal proponents, including correspondence between the Port Authority and several carriers, indicating that carrier approval of the plan was not without some reservations, a fact stressed by petitioner in its supplemental protest.

On April 7, 1969, based on this skeleton record, *fn7 the Commission issued a memorandum Order of Approval. The FMC found, in conclusory terms, that there was a "demonstrated need" for the agreements and that they were not "unjustly discriminatory or unfair or detrimental to the Commerce of the United States and are not contrary to the public interest." Petitioner's protest was dismissed on the ground that Marine Space Enclosures had only an "indirect and remote interest." Noting, however, that the contract provisions were "unique" and had "especially anticompetitive character and effect," the Commission asserted continuing jurisdiction "to cancel or modify" the agreements and to monitor operations by requiring reports from the Port Authority.

C. Developments subsequent to the FMC's decision. *fn8

Subsequent to the April 7 Order of Approval the Commission received requests from several carriers for further informal discussion of the proposals for the new terminal. In a supplemental order of May 12, the Commission discounted the significance of this request which it noted did not amount to a formal protest. The April 7 order was reaffirmed, relying on the stipulation of the City and Port Authority to resubmit the agreements for approval at the end of the amortization period. On May 14, the carriers applied to this court for leave to ...

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