UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

MATSON NAVIGATION COMPANY, INC.,

Plaintiff,

v.

U.S. DEPARTMENT OF TRANSPORTATION, et al., Civil Action No. 18-2751 (RDM)

Defendants,

and

APL MARINE SERVICES, LTD., et al.,

Intervenor-Defendants.

MEMORANDUM OPINION

In a prior opinion in this matter, the Court granted in part and denied in part Plaintiff

Matson Navigation Company, Inc.’s (“Matson”) motion for summary judgment, denied

Defendants Department of Transportation and Maritime Administration’s (“MARAD”) (together

“Federal Defendants”) and Intervenor-Defendants APL Marine Services, Ltd. and APL

Maritime, Ltd.’s (together “APL”) cross-motions for summary judgment, and granted the Federal

Defendants’ motion to dismiss in part for lack of jurisdiction. Dkt. 44. Of relevance here, the

Court concluded that it could not “discern the basis for MARAD’s 2016 determination

respecting the APL Saipan and, in particular, c[ould not] discern whether the agency (1)

construed the statute to permit an MSP contractor to replace an MSP vessel with another vessel,

so long as that vessel operates at least in part in foreign commerce; (2) failed to consider the fact

that the APL Saipan might not operate exclusively in foreign or mixed foreign and domestic trade due to its service to Saipan; or (3) concluded that the APL Saipan operates under a registry

endorsement under

that permits it to engage in trade between Saipan and the

coastal United States.”

at 2–3. The Court, as a result, held (1) that “the agency either

completely failed to explain its reasons for approving the replacement or entirely failed to

consider an important aspect of the question before it and thus failed to comply with the APA”

and (2) that the matter must be remanded to MARAD to “address in the first instance the

important questions of statutory interpretation presented by this case.”

.

In light of the record as it then stood, the Court left one issue unresolved in its prior

opinion: whether the remand should be with or without vacatur.

at 32–34. On June 5, 2020,

the Federal Defendants and APL filed supplemental memoranda arguing in favor of remand

without vacatur, Dkt. 42; Dkt. 43, and, on June 12, 2020, Matson submitted its memorandum

urging vacatur, Dkt. 45. APL subsequently filed a notice of supplemental authority addressing

the D.C. Circuit’s recent decision in American Great Lakes Ports Ass’n v. Schultz, No. 18-5154,

(June 16, 2020), Dkt. 46, and Matson responded to that notice, Dkt. 47. With

these additional filings before it, the Court now concludes that vacatur is warranted.

ANALYSIS

The Administrative Procedure Act (“APA”) directs that “[t]he reviewing court

shall . . . hold unlawful and set aside agency action, findings, and conclusions found to

be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

(emphasis added). “[A]lthough vacatur is the normal remedy,” courts in this circuit

“sometimes decline to vacate an agency’s action.” Allina Health Servs. v. Sebelius,

(D.C. Cir. 2014). The decision whether to vacate turns on the Allied-Signal factors,

which consider (1) the “seriousness of the order’s deficiencies,” and (2) the likely “disruptive

2 consequences” of vacatur. Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm’n,

, 150–51 (D.C. Cir. 1993) (citation omitted).

A. Seriousness of MARAD’s Approval’s Deficiencies

The first Allied-Signal factor—“the seriousness of the order’s deficiencies”—considers

“the extent of doubt whether the agency chose correctly.” Id. (citation omitted). As the D.C.

Circuit has explained, “[t]here is a fine line between agency reasoning that is ‘so crippled as to

be unlawful’ and action that is potentially lawful but insufficiently or inappropriately explained.”

Radio-Television News Dirs. Ass’n,

(D.C. Cir. 1999) (quoting Checkosky v.

SEC,

(D.C. Cir. 1994) (separate op. of Silverman, J.)). “In the former

circumstance, the court’s practice is to vacate the agency’s order, [and] in the later the court

frequently remands for further explanation (including discussion of relevant factors and

precedents) while withholding judgment on the lawfulness of the agency’s proposed action.”

The Federal Defendants argue that this case falls into the latter category because it is at

least “‘conceivable’ that MARAD could sustain the statutory interpretation it offered in its briefs

on remand.” Dkt. 42 at 3–4 (quoting Allied-Signal, 988 F.2d at 151). APL agrees and adds that,

even if MARAD declines to adopt the statutory argument advocated by its counsel in this case,

the agency is likely sustain its action based on the alternative theory APL pressed—that is, that

service to Saipan is permitted under the vessel’s registry endorsement. Dkt. 43 at 4. Matson, for

its part, disagrees on both counts. It argues that MARAD’s Approval Order was seriously

deficient in several fatal respects, including—most notably—the agency’s failure to address “an

important aspect of the problem.” Dkt. 45 at 5–6 (quoting SecurityPoint Holdings, Inc. v. TSA,

(D.C. Cir. 2017)).

3 The Court agrees with Matson that MARAD’s approval order was seriously deficient and

further concludes that there is considerable “doubt whether the agency chose correctly.” Allied

Signal, 988 F.2d at 150–51 (citation omitted). As the Court has previously explained, the

parties’ arguments before this Court bore “no relation to anything contained in the MARAD’s

2016 Approval Order or its supporting memorandum.” Dkt. 44 at 28. “Thus, while [MARAD’s

counsel] . . . argue[d] that

(f) merely requires that the replacement vessel

operate in foreign commerce . . . and not that it operate ‘exclusively’ in foreign commerce or

mixed foreign and domestic commerce under a registry endorsement, . . . the memorandum that

supports the [agency’s] 2016 Approval Order posited that [the statute] ‘requires that an eligible

vessel be operated exclusively in the foreign commerce or in mixed foreign commerce and

domestic trade allowed under a registry endorsement issued under section 12111.’”

at 29–30

(quoting AR 163). Nor does the 2016 Approval Order say anything “about the vessel’s routes to

and from Saipan” or offer any analysis that would permit the Court to infer that the conclusion

MARAD reached “with respect to the Guam routes answers” the question whether the Saipan

routes fall within the statutory exception for registry endorsements under

.

. To the contrary, “it appears that the agency did not address whether its Approval Order

can be squared with the APL Saipan’s trade with Saipan,”

and the reasoning that the agency

did apply is at odds with the argument that counsel made before the Court.

The errors in this case, accordingly, are fundamental, and the Court is left with

substantial doubt that MARAD reached the correct decision. To conclude on remand that the

APL Saipan qualifies as a replacement vessel MARAD will need to do one of two things: either

it will need to explain away its prior assertion that that the statute “requires that an eligible vessel

be operated exclusively in the foreign commerce or in mixed foreign commerce and domestic

4 trade allowed under a registry endorsement issued under section 12111,” Dkt. 44 at 29–30

(quoting AR 163), or it will need to adopt APL’s alternative argument, which neither MARAD

nor its counsel has previously embraced, that a Coast Guard regulation permits vessels in mixed

foreign commerce and domestic trade to provide service to Saipan under a registry endorsement

issued under

, see

, 27–28, 31. In seeking approval of the APL Saipan

as a replacement vessel on remand, APL will, at best, start from a blank slate and, if unsuccessful

in pressing its alternative theory, APL will need to convince MARAD that the above-quoted

language included in its 2016 memorandum was mistaken. Even if the error committed by

MARAD was simply a failure to consider and to address an important aspect of the problem—

the APL Saipan’s service to Saipan—then the decision suffers from a “major shortcoming[]” that

also counsels vacatur on remand. Stewart v. Azar,

(D.D.C. 2018)

(quoting Humane Soc’y v. Zinke,

(D.C. Cir. 2017)) (alteration in original).

The Court, accordingly, cannot conclude that this is a case in which the agency simply

needs better to explain a “potentially lawful but insufficiently or appropriately explained”

decision that it reached. Radio-Television News Dirs. Ass’n,

(quoting Checkosky,

). Although MARAD might be able to reach the same bottom line on remand (and

the Court, once again, expresses no view on that question), the decision that the agency did reach

either wholly ignored an important aspect of the problem or employed reasoning that does not

align with its conclusion. Either way, the deficiencies in the decision are serious.

The first Allied Signal factor, accordingly, weighs against remand without vacatur.

B. Disruptive Consequences of an Interim Change

The second Allied Signal factor requires the Court to evaluate the extent of the disruption

that vacatur would cause. MARAD relies on the declaration of William G. McDonald, Director

5 of the agency’s Office of Sealift Support, to argue that vacatur might undermine military

readiness. Dkt. 42-1 at 1 (McDonald Decl. ¶ 1). McDonald attests that “MSP vessels are

available on a moment’s notice to [the Department of Defense] to move equipment and supplies

to support U.S. troops in the event of war or national emergency.” Dkt, 42-1 at 1 (McDonald

Decl. ¶ 3). He further attests that, if the Court were to vacate MARAD’s approval of the APL

Saipan, “the MSP fleet would be down one vessel, consisting of 59 vessels instead of the

Congressionally-intended 60” because the APL Saipan “would no longer be subject to the MSP

Operating Agreement, and would no longer be required to be maintained in active service, or

under the U.S.-flag, nor would the vessel necessarily be subject to the obligation to be a part of

the emergency preparedness program as set out under

.”

at 1–2

(McDonald Decl. ¶¶ 4–5) (footnote omitted). According to the McDonald declaration, removal

of the APL Saipan from the MSP fleet “would adversely affect national defense in terms of

military readiness for anywhere from two to six months, and in terms of movement of military

equipment and supplies to support U.S. troops should a contingency arise.”

(McDonald

Decl. ¶ 4). “MSP vessels are particularly important,” in McDonald’s view, “because they must

be operated for at least 320 days a year in order for carriers to receive full MSP payments,”

which means that MARAD “can be assured that these vessels are generally operating and

available.”

(McDonald Decl. ¶ 5). McDonald also attests that the APL Saipan meets

unique needs because it serves the Pacific and can “navigate and conduct cargo operations in

smaller ports with shallower harbors.”

(McDonald Decl. ¶ 9).

As the McDonald declaration explains, the extent of any disruption resulting from

vacatur of the 2016 Approval Order depends in part upon whether “APL decide[s] that it cannot

operate [the APL Saipan] under the U.S.-flag without the MSP payment and lay up the S[aipan],

6 or withdraw the vessel and propose a different vessel as a replacement.”

(McDonald

Decl. ¶¶ 4, 7). McDonald asserts that, if APL chose to lay up the APL Saipan, “APL would also

likely lay off the vessel’s U.S.-citizen crew” and “the need to re-hire a U.S.-flag crew would

further complicate making the vessel available to [the Department of Defense] in an emergency.”

(McDonald Decl. ¶ 7). If, instead, APL were to withdraw the APL Saipan from

consideration and offer another vessel in its stead, various required approval processes for that

vessel “could take up to six months” and the same layoff and rehiring concerns would likely

apply.

at 4–5 (McDonald Decl. ¶ 8).

APL, in turn, offers the declaration of Eric L. Mensing, its President and Chief Executive

Officer. Dkt. 43-1 at 1 (Mensing Decl.). Mensing attests that, APL has received over $17

million in MSP subsidy payments to date for the APL Saipan and that “[d]iscontinuation of those

payments . . . during a remand would . . . force APL to potentially suspend or discontinue its

service” and to possibly withdraw the vessel “from its Emergency Preparedness Agreement with

the Department of Defense . . . , leaving the military with reduced critical sealift capacity and

support.”

(Mensing Decl. ¶¶ 3–4) (emphasis added). He further asserts that “APL’s service

in the Guam-Pacific trade is only viable with MSP payments.”

(Mensing Decl. ¶ 4). APL

also offers three letters emphasizing the importance of MSP vessels and their service to Guam.

Dkt. 43-2 at 2 (Ex. A) (letter from General Stephen R. Lyons of the U.S. Army, noting that

“[a]ny potential disruptions in the ocean transportation system would increase [the Department

of Defense’s] risk to deploy and sustain forces globally.”); Dkt. 43-3 at 2 (Ex. B) (letter from

Representative Michael F.Q. San Nicolas of Guam in support of MSP service to Guam); see also

Dkt. 43-4 at 2 (Ex. C) (December 2016 letter from Representative Gregorio Kilili Camacho

Sablan to MARAD expressing support for APL Saipan’s service to the Northern Mariana Islands

7 which would “expand the commercial and military opportunities for the benefit of our economy,

safety, and security”). Finally, the company argues that vacatur would “create great legal

uncertainty” concerning the payments already made to it under the MSP, Dkt. 43 at 7, and

“undoubtedly lead to disputes over transactions that have long been settled,” which would cause

considerable disruption. Dkt. 46 at 2 (discussing Am. Great Lakes Ports Assoc. v. Schultz, No.

18-5145,

, at *6–7 (D.C. Cir. June 16, 2020).

Matson responds that “there is ample capacity in the Pacific trade to carry U.S.

government cargo to and from the island territories of Guam and Saipan, even without the APL

S[aipan].” Dkt. 45 at 10. It represents that its own vessels are capable of filling any service gap

left by the APL Saipan, including service requiring a vessel of the same size as the APL Saipan.

at 10–11 (citing Lauer Decl. ¶¶ 9–10). In particular, APL’s Senior Vice President John P.

Lauer attests that, as of July 1, 2020, the company will operate five vessels in the “‘Guam

Service,’ which includes cargo shipped to or from Guam and Saipan;” that those vessels each

“transship to Saipan . . . once a week;” that “[f]or approximately four years prior to the launch of

APL’s Guam and Saipan service, Matson carried 100% of the U.S. government’s cargo to Guam

and Saipan in its Guam Service;” and that the five vessels that Matson will operate in the Guam

Service “have more than sufficient excess capacity to meet the shipping needs of the U.S.

military that are currently being served by the APL Saipan.” Dkt. 45-1 at 1 (Laurer Decl. ¶¶ 1–

9).

Based on the parties’ competing declarations, the Court is unpersuaded that the Federal

Defendants and APL have carried their burden on showing that vacatur would result in

significant disruption. To start, the Court finds that this is not a case in which vacatur would

have consequences that would prove difficult to unscramble or would alter the status quo in a

8 manner that cannot readily be restored. See Shands Jacksonville Med. Ctr. v. Burwell,

(D.D.C. 2015). Moreover, even beyond that, the MARAD and APL have

failed to offer evidence, beyond conclusory assertions, that temporarily having 59—instead of

60—vessels in the MSP fleet would materially affect military readiness. To the contrary, APL

merely asserts that, if the Court vacates the 2016 Approval Order, the company would

“potentially suspend or discontinue its service” and that it “could also be forced to withdraw the

APL Saipan from its Emergency Preparedness Agreement with the Department of Defense. . . ,

leaving the military with reduced critical sealift capacity and support.” Dkt. 43-1 at1 (Mensing

Decl. ¶ 4) (emphasis added). The fact that APL, which is best placed to know how it would

respond, can offer only a “maybe” casts significant doubt on whether anything other than a

financial loss to APL would result from vacatur. That conclusion is reinforced, moreover, by

Matson’s unqualified assurance that it has the capacity to pick up any slack left should APL

choose to alter its service in the region due to vacatur of MARAD’s Approval Order. To be sure,

that might have economic ramifications for the government and for APL, but economic

ramifications of that sort do not rise to the level of disruption that would justify leaving a

seriously flawed agency order in place. See Reed v. Salazar,

(D.D.C.

2010) (“The fact that there may be some costs . . . associated with [vacatur] does not mean that

there should be an exception from the default rule that arbitrary and capricious agency action be

set aside.”).

Accordingly, the second Allied Signal factor weighs against remand without vacatur.

9 CONCLUSION

Because both Allied Signal factors weigh against remand without vacatur, and because

vacatur is the norm, the Court will VACATE the agency’s 2016 Approval Order and REMAND

the matter to MARAD for further proceedings.

A separate order will issue.

/s/ Randolph D. Moss RANDOLPH D. MOSS United States District Judge

Date: June 30, 2020

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