Am. Great Lakes Ports Ass'n v. Zukunft
Am. Great Lakes Ports Ass'n v. Zukunft
Opinion of the Court
I. INTRODUCTION
In 2016, the Coast Guard promulgated new rules for calculating the rates that international shippers must pay American maritime pilots on the waters of the Great Lakes. Throughout the notice-and-comment process, Plaintiffs-representatives of the international shipping community-criticized the proposed rules in a variety of ways. After having their comments largely rejected, the shippers sued the Coast Guard in this Court under the Administrative Procedure Act,
II. BACKGROUND
With limited exceptions, all foreign vessels
In September 2015, the Coast Guard issued a Notice of Proposed Rulemaking ("NPRM") informing the public that the Coast Guard sought to "revis[e] the current methodology by which the Coast Guard sets base rates for U.S. pilotage service" and to set pilotage rates for the 2016 shipping season using that new methodology. Great Lakes Pilotage Rates-2016 Annual Review and Changes to Mehodology,
A. 2016 Rate-Setting Methodology
The final pilotage rate-setting methodology adopted by the Coast Guard was largely the same as the rule that it had proposed in September 2015. See
id="p34" href="#p34" data-label="34" data-citation-index="1" class="page-label">*34
In concept, the revised methodology is rather straightforward. The Coast Guard seeks to set hourly pilotage rates that will be sufficient to cover pilotage associations' expenses and also provide a modest rate of return. To do this, the Coast Guard first estimates the expenses that it expects the pilotage associations will incur, including expenses associated with pilot compensation, in the upcoming season. It then adds a return on investment based on high-grade corporate securities. Viewed together, the expenses and the return on investment, represent the target revenue amount that the Coast Guard is hoping the pilotage associations will achieve. To come up with an hourly pilotage rate sufficient to meet this goal, the Coast Guard divides the target revenue by an estimate of the number of hours it expects the associations will work. The Coast Guard can then adjust this rate on an ad hoc basis under "supportable circumstances." The Coast Guard has broken out this methodology into the following eight steps:
Step One: "Recognize previous operating expenses." First, the Coast Guard examines the pilotage associations' prior expenses based on independent third-party audits and then determines which expense items should be recognized for the purpose of ratemaking.
Step Two: "Project operating expenses, adjusting for inflation or deflation." Next, the Coast Guard projects the pilotage associations' operating expenses (other than those expenses associated with compensating pilots) using the recognized operating expenses identified from Step One and adjusting them for inflation or deflation using U.S. government consumer price index data for the Midwest.
Step Three: "Determine number of pilots needed." The Coast Guard then projects how many pilots the Great Lakes will need in the upcoming shipping season. Unlike the prior methodology, this step takes into account not only the "hours a pilot is on the vessel's bridge, but also the total average time a pilot spends in preparing for and returning from each pilot assignment." It also uses a "peak-staffing model," which aims to determine the number of pilots needed at all times by looking to the amount of pilots needed during average peak-season demand in previous years.
Step Four: "Determine target pilot compensation." The Coast Guard then uses "the most relevant currently available non-proprietary information" to determine base individual pilot compensation. The Coast Guard then multiplies that figure by the number of pilots needed calculated in Step Three.
Step Five: "Project return on investment." Because associations have management responsibilities and exposure to business risk, the Coast Guard calculates *35a return on investment. To do this, the Coast Guard multiplies the sum of the operating expenses from Step Two and the target pilot compensation from Step Four by the annual rate of return for high-grade corporate securities.
Step Six: "Project needed revenue." Here, the Coast guard estimates the revenue that each pilotage association will need to successfully operate by adding together the projected operating expenses (Step Two), projected pilot compensation (Step Four), and projected return on investment (Step Five).
Step Seven: "Initially calculate base rates." At this step, the Coast Guard divides the projected needed revenue from Step Six by the averages of past hours worked in each geographic area's waters.
Step Eight: "Review and analyze rates." Finally, the Coast Guard reviews the base pilotage rates to make sure the rates meet the "goal of ... promot[ing] safe, efficient, and reliable pilotage service on the Great Lakes." At this step, the Coast Guard may either finalize the rates or "make[ ] necessary and reasonable adjustments to them based on requirements of Great Lakes pilotage agreements between the United States and Canada, or other supportable circumstances."
See
B. The Present Action
On May 31, 2016, the American Great Lakes Ports Association, a not-for-profit organization representing the interests of commercial ports and port users in the United States, and several other organizations in the shipping industry sued the Coast Guard under the Administrative Procedure Act ("APA"), claiming that the new methodology and 2016 pilotage rates were arbitrary and capricious in various respects. See Compl. at 4-5, 20, ECF No. 1. Thereafter, the three Great Lakes pilotage associations ("Pilots") moved to intervene as defendants. Pilots Ass'ns Mot. Intervene Supp. Defs., ECF No. 6. The Court granted the pilotage associations' motion to intervene because of their strong interest in the outcome of the litigation. See Am. Great Lakes Ports Ass'n v. Zukunft , 16-cv-1019,
C. 2017 Modification to Rate-Setting Methodology
On April 5, 2017, the Coast Guard issued a notice of proposed rulemaking setting rates for the 2017 shipping season. In that notice, the Coast Guard also proposed modifying the rate-setting methodology to account for so-called "weighting factors"
III. LEGAL STANDARDS
In a typical case, the Court must grant summary judgment to a movant who "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Winston & Strawn, LLP v. McLean ,
Under
An agency action is arbitrary and capricious if the agency "entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before [it], or [the explanation] is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." State Farm Mut. Auto. Ins. Co. ,
IV. ANALYSIS
In this case, Plaintiffs present a litany of arguments for why the Coast Guard's 2016 rate-setting methodology and 2016 pilotage rates were arbitrary and capricious.
A. Challenge to the Coast Guard's Overall Rationale-Pilot Recruitment and Retention
According to the Coast Guard's NPRM, one of the reasons the Coast Guard sought to change the rate-making methodology was to address the problem of attracting and retaining qualified pilots to service the Great Lakes. The NPRM states:
According to the pilot associations, the variance between projected revenue and actual revenue represents a significant challenge, because failure to achieve published revenue projections deprives them of the resources they need to provide safe, efficient, and reliable pilotage service. The associations cite challenges in making capital investments, recruiting and retaining adequately qualified pilots, achieving professional development and training schedules recommended by the American Pilots Association, updating *38technology, and achieving target compensation goals. The associations say that as a result, several experienced pilots have left the system, and that other desirable mariners have been discouraged from applying to become pilots.
During the notice-and-comment period, Plaintiffs complained that the Coast Guard had cited "no evidence of having verified [the pilotage associations'] claims or having examined the many issues-beyond compensation-that [affect] pilot recruitment and retention." Administrative Record ("A.R.") at 317, ECF Nos. 27-1 though 27-3.
In its Final Rule, the Coast Guard acknowledged and responded to Plaintiffs' comments. The Coast Guard observed that thirty-one pilots had left the Great Lakes pilotage associations in the preceding eleven years and that the total number of pilots servicing the Great Lakes had decreased by twenty-two percent between 2007 and 2014.
*39Plaintiffs now argue that the Coast Guard's promulgation of the modified rate-making methodology was not an exercise in reasoned decisionmaking because it was based in part on the Coast Guard's belief that low pilotage compensation was responsible for the recruitment and retention problems, which Plaintiffs contend was not supported by empirical evidence. Pls.' Mot. at 31. As discussed above, "[a]n agency decision arrived at through informal rulemaking must have a rational basis in the record and be based on a consideration of the relevant factors under its statutory mandate." Nat'l Ass'n of Regulatory Util. Comm'rs v. FCC ,
Based on the record and the deferential arbitrary and capricious standard, the Court finds no basis to overrule the Coast Guard's considered judgment as to pilot recruitment and retention. As the Coast Guard noted, the number of pilots servicing the Great Lakes had been steadily dropping for years. In total, the Great Lakes system had lost twenty-two percent of its pilots between 2007 and 2014.
In addition to the Coast Guard's failure to identify empirical evidence supporting its decision, Plaintiffs fault the Coast Guard for its failure to evaluate whether recruitment and retention challenges could have been remedied in other ways. The Court finds this argument unpersuasive. First, as noted above, Plaintiffs never actually quibbled with the Coast Guard's conclusion that pilot retention and recruitment was significantly impaired by compensation that was not competitive for the industry. Rather, Plaintiffs merely recommended that the Coast Guard explore other potential causes and solutions, but provided no cogent rationale for doing so. For example, the Plaintiffs suggested examining and potentially addressing the barriers to entering the pilotage profession, A.R. at 317, but this of course would not address the retention issues experienced by the pilotage associations. Moreover, the only other solutions that the Plaintiffs recommended for consideration were simply amorphous improvements to "quality of life, living standards, and job satisfaction," without explanation of what that would entail. A.R. at 317. Given this state of affairs, the Coast Guard was not required to delay promulgating a rule designed to resolve a verified issue with an undisputed cause when the commenters failed to offer any other cogent solutions. See Star Wireless, LLC v. FCC ,
B. Challenges Based on Features Included in the Coast Guard's Rate-Setting Methodology
Plaintiffs raise challenges to two features that the Coast Guard included in its rate-setting methodology-both of which concern how the Coast Guard projects expenses associated with pilot compensation. First, Plaintiffs contest the method through which the Coast Guard estimates the number of pilots needed for a given season. Second, they question how the Coast Guard goes about setting the target compensation for those pilots.
1. Use of the Peak-Staffing Model
Under Step Three of the Coast Guard's revised rate-setting methodology, the Coast Guard must determine how many pilots will be needed in a given shipping season. To do this, it relies on a so-called "peak-staffing model." Plaintiffs contend that the Coast Guard's promulgation of the revised rate-setting methodology, which included this model, is arbitrary and capricious because the Coast Guard failed to explain why the shipping industry "should incur the substantial cost of a peak demand model" and because the Coast Guard failed to address comments that "questioned its necessity and suggested viable alternatives." Pls.' Mot. at 22.
In the NPRM, the Coast Guard announced its intention to calculate the number of pilots needed for a given shipping season based on the "number of pilots needed to meet each shipping season's peak pilotage demand periods without interruption to service."
*42In response to Plaintiffs' comment, the Coast Guard explained that while "[t]raffic peaks usually are confined to the periods just after the opening and just before the closing of a season," they "could occur at other times as well."
With regard to its "delay" rationale, the evidence cited by the Coast Guard is perhaps best characterized as inconclusive. In the Final Rule, the Coast Guard compared the overall strength of pilot staffing against the total number of delay hours experienced on the Great Lakes between 2007 and 2014. One significant limitation of this data is that the delay data does not differentiate between delays caused by pilotage shortages and delays caused by other factors. Thus, one cannot specifically discern whether the delays were being caused by one factor or another. Generally speaking, however, the data, when viewed together, does show a long-term trend of more delays as pilotage numbers decreased. See
The Coast Guard's second rationale-safety-stands on more solid footing. Under the GLPA, the Coast Guard is required to give "consideration to the public interest and the costs of providing the services" when it sets pilotage rates.
In this case, the record before the Coast Guard amply supported the Coast Guard's conclusion that greater staffing levels were needed to improve safe pilotage on the Great Lakes. In 2013, the Coast Guard received a report that aptly noted that "[a]ppropriate staffing levels need to reflect sufficient pilots to meet demand (to avoid delays) within reasonable workloads (to avoid fatigue-related risks)." A.R. at 1187. Even at that time, the study found that one of the key risks facing the Great Lakes system were inadequate rest periods for pilots, which were "increasing fatigue and risking the safe navigation of [ ] ship[s]." A.R. at 1192. In addition, during the notice-and-comment period, numerous comments agreed that increased staffing was needed in order to combat pilot fatigue and improve safety. See, e.g. , A.R. at 92 ("While the rationale in the NPRM has focused on determining the number of pilots needed based on the need to avoid costly delays to shipping, there is an equally if not more important need to reduce potential for fatigue related accidents."); A.R. at 114-15 (citing to studies showing that "more than 80 percent of maritime property damage claims and more than 90 percent of collisions are, conclusively, due to the Master of Pilot's irregular work schedule," particularly in light of the "inherent lack of regular work/sleep cycles," and stating that "a potentially inattentive or even indifferent pilot, guiding a somewhat sub-standard vessel has 'Environmental Disaster' written all over it"); A.R. at 588 ("Their arguments miss the point when they ignore that staffing to peak demand is a safety issue to mitigate the dangers of overworked pilots impaired by fatigue jeopardizing the safety of shipping and the environment."). In light of the high degree of deference owed to the Coast Guard in matters of safety and the record supporting its conclusion that greater staffing was needed to address pilot fatigue, the Court cannot say that the Coast Guard failed to engage in reasoned decisionmaking.
Finally, Plaintiffs argue that the Coast Guard failed to consider the viable alternatives that they presented in their comments. During the notice-and-comment period, Plaintiffs suggested that, as a less-costly means of providing pilotage service during peak periods, the Coast Guard could employ "contract pilots" and "cross-qualifying pilots such that pilots from one area are able to help relieve traffic delays in another area." Pls.' Mot. at 26; A.R. at *44298. The Coast Guard responded in two ways that each prove fatal for Plaintiffs' proposed alternatives. First, it noted that sufficiently high pilot numbers were "essential" to providing the necessary recuperative rest periods for pilots throughout the shipping season, which it deemed necessary for the interests of safety.
2. Pilot Compensation
The Court next considers the method that the Coast Guard chose to estimate target pilot compensation. In previous ratemakings, the Coast Guard estimated pilot compensation based on data that it received from a union for merchant marine masters and mates.
The Coast Guard considered three possible data sources to benchmark pilot compensation in the NPRM: (1) Canadian Laurentian Pilotage Authority ("LPA") pilot compensation data, (2) Bureau of Labor Statistics ("BLS") wage data for masters, mates and pilots, and (3) Canadian Great Lakes Pilotage Association ("Canadian GLPA") registered pilot compensation data.
However, while the "Canadian GLPA pilots provide[d] service that [was] almost identical to the service provided by U.S. Great Lakes pilots," the Coast Guard felt that some amount of adjustment was needed to reflect the fact that, unlike U.S. pilots, Canadian pilots were government employees.
After the notice and comment period, the Coast Guard adopted the compensation estimation method that it set forth in its NPRM. In this suit, Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously by (1) using the Canadian GLPA data as a benchmark and (2) increasing that benchmark by ten percent to account for the additional benefits enjoyed by the Canadian GLPA pilots. Pl.'s Reply at 26. The Court finds that only the latter argument has merit.
Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously by failing to adequately address their comment concerning the use of the Canadian GLPA pilot compensation data. Pl.'s Reply at 27-28. In their comment, Plaintiffs argued that the Canadian GLPA pilot compensation was not appropriate because, according to Plaintiffs, Canadian pilots perform a larger proportion of their services in designated waters whereas U.S. pilots "often operate vessels over long stretches of undesignated waters." A.R. at 308. This difference was significant in Plaintiffs' view because, "[u]nlike pilots in designated waters, pilots in undesignated waters are only required to be 'available' to the Master," which they claimed was "less demanding." A.R. at 308. But, contrary to Plaintiffs' claims, the Coast Guard squarely addressed and disputed Plaintiffs' unsupported assertions. The Coast Guard emphasized once again that "[Canadian] GLPA pilots provide service that is almost identical to the service provided by U.S. Great Lakes Pilots."
*46Plaintiffs' next argument, however, has merit. Plaintiffs argue that the Coast Guard's adoption of the ten-percent adjustment to pilot compensation violated the APA because it was not the result of reasoned decision-making. In the NPRM, the Coast Guard specifically invited the public to address "whether the 10% adjustment figure [was] appropriate for the 2016 rate."
Rather than adopt the twenty-five or thirty-seven percent adjustments advocated by pilotage associations or, as the shipping industry suggested, forgoing an adjustment altogether, the Coast Guard opted for the ten-percent adjustment that it had originally proposed in the NPRM. See
However, the GLPAC statements offered no rational basis for a ten-percent adjustment, as opposed to some higher or lower figure, and they generated no significant discussion by GLPAC members. The statements that the Coast Guard relied upon occurred during a GLPAC meeting in which the Committee was discussing a proposal for the Coast Guard to set pilot compensation at a minimum of $295,000. See A.R. at 605. During discussion of the proposal, one GLPAC member stated his belief that the $295,000 figure was "a good number for the Coast Guard to go forward with" and an unidentified speaker interjected that the figure was "the Canadian rate times 10 percent." See A.R. at 605. Another member chimed in claiming that the $295,000 figure was "not the high side of where we can argue on numbers." A.R. at 605. He noted that the figure was "not far out of line with the Canadians' rate or *47compensation," especially when one considered the number of additional responsibilities that the Americans had that the Canadians did not.
Faced with this record, the Coast Guard now argues that it felt that neither the pilotage associations nor the shipping industries comments were convincing and therefore it "decided to leave the ten percent adjustment intact." Coast Guard's Mot. at 24. Essentially, the Coast Guard argues that it was invoking the wisdom of King Solomon by promulgating a compromise number-however, unlike the Coast Guard, "King Solomon was not subject to the Administrative Procedure Act." Settling Devotional Claimants v. Copyright Royalty ,
Admittedly, the D.C. Circuit has permitted agencies in some instances to "split the difference" when presented with imperfect evidence in rate-setting and other analogous contexts. See United Parcel Serv., Inc v. U.S. Postal Serv. ,
Here, the Coast Guard gave no rational explanation for its adoption of a ten-percent increase to pilotage rates. The Coast Guard relied on a figure that was merely mentioned with approval by one or two people at a GLPAC meeting without any attempt to explain a factual basis for that number. Indeed, there is no evidence that the Coast Guard or its sources at the GLPAC ever relied on any relevant or creditable methodological evidence whatsoever in arriving at this figure. And even though commenters supplied data that the Coast Guard might theoretically have marshalled to support their decision, the Coast Guard admitted that it did not meaningfully engage or analyze either the data or the arguments, see
C. Challenges Based on Features Not Included in the Coast Guard's Rate-Setting Methodology
Finally, Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously when it failed to include two features in its methodology, despite their presentation in comments. First, Plaintiffs argue that because pilotage associations derive a significant amount of additional revenue based on the size of the ships that they service, the Coast Guard's failure to include any consideration of this factor in its revenue projections was arbitrary and capricious. Second, Plaintiffs argue that actual revenue collections rarely if ever match the revenue amounts that the Coast Guard projects for a given season, meaning that the pilotage associations either over-collect-to the detriment of shippers-or under-collect-disadvantaging pilotage associations. Yet, according to Plaintiffs, the Coast Guard refused to include a mechanism to adjust future rates based on the over-collection or under-collection by the pilotage associations in past years.
1. Consideration of Revenues Based on Vessel Size-"Weighting Factors"
Fees collected by pilotage associations are largely based on three numbers that are multiplied together: (1) the base hourly pilotage rate established by the Coast Guard, (2) the hours that the registered pilot is on the bridge or available to the master of the vessel, and (3) a weighting factor. It is this third element, the weighting factor, that Plaintiffs argue the Coast Guard's rate-setting methodology neglected to account for when projecting revenues for upcoming shipping seasons. A weighting factor is a value ranging from 1.0 to 1.45 that corresponds with the size of a given vessel based on its length, breadth, and depth. Larger vessels yield higher weighting factors, which therefore result in greater pilotage fees for a given voyage. Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously when it "[ (1) ] failed to account for a relevant factor (the weighting factor), [ (2) ] failed to properly address Plaintiffs' comments regarding the weighting factor, and [ (3) ] failed to articulate why it chose to disregard the weighting factor even though it had considered the weighting factor previously." Pls.' Mot. at 13.
*49a. Mootness
Before reaching the merits of Plaintiffs' claims, the Court must first consider the effect that the Coast Guard's final rule for 2017 pilotage rates has, if any, on these proceedings. On August 31, 2017, the Coast Guard published its final rule setting pilotage rates for the 2017 shipping season. See 82 Fed. Reg. at 41466. As part of that rule, the Coast Guard updated the ratemaking methodology to now "incorporate the income generated from weighting factors" and pledged to use those factors to set rates in the future. See id. Defendants argue that the issuance of this final rule necessarily moots the weighting factor issue for purposes of this action. See Defs.'s Notice Final Rule, ECF No. 30. Plaintiffs disagree. They argue that "[n]othing in the 2017 Rule remedies either the legal infirmities of the 2016 ratemaking proceeding or the overcharges resulting from inflated pilotage rates over the past seventeen months." Pls.'s Opp'n Suggestion of Mootness, ECF No. 31.
Article III of the United States Constitution grants the Judiciary authority only to adjudicate "Cases" and "Controversies." U.S. Const. Art. III. As a result, plaintiffs who bring suit in federal court must demonstrate that a case or controversy exists by showing that they have suffered "personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright ,
The thrust of Plaintiffs' argument is that the Coast Guard's inclusion of weighting factors in its 2017 rate-making methodology does not eradiacte the effects of the 2016 rule. But, "[t]he determination whether sufficient effects [of the alleged violation] remain to justify decision often will turn on the availability of meaningful relief." 13C Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure , § 3533.3.1, at 104-05 (3d ed. 2008). On the one hand, "a case is not moot if a court can provide an effective remedy." Larsen v. U.S. Navy ,
*50Church of Scientology of Cal. v. United States ,
b. Merits
In the event that the Court concludes the issue is not moot, the Court would find that the Coast Guard's actions with respect to weighting factors were arbitrary and capricious. During the notice-and-comment period, Plaintiffs observed that the proposed rule sought to set pilotage rates that would achieve "a target revenue figure given the expected demand in the upcoming year." A.R. at 293. But, as Plaintiffs pointed out, actual pilotage association revenues were not just a function of pilotage rates and demand (i.e. the amount of shipping traffic in a given season). See A.R. at 293-94. Indeed, they argued that fees based on vessel size, as measured by weighting factors, represented a non-trivial portion of the revenue realized by pilotage associations. See A.R. at 294. However, because the Coast Guard's proposed rate-setting methodology failed to account for these additional revenues, the rate-setting calculation would necessarily result in higher pilotage rates than necessary to achieve the pilotage associations' revenue targets. See A.R. at 294. Applying these higher rates, pilotage associations would realize revenue far in excess of their revenue targets. See A.R. at 294. Commenters argued, for example, that if the average weighting factor was 1.25 and the Coast Guard accurately predicted demand, under the proposed methodology, pilotage associations would realize revenue that was twenty-five percent higher than the target they were trying to achieve. This result was not far-fetched given that, according to the commenters, the average weighting factor for all vessel traffic in the 2014 shipping season was 1.28. Thus, commenters urged that the Coast Guard's rate-setting methodology "must consider the effect of the weighting factor on anticipated revenues when setting rates." A.R. at 295.
In response, the Coast Guard stated that it saw "potential merit in the suggestion that [its] ratemaking take weighting factors into account" and noted that the Coast Guard would "take it under advisement."
*51In their motion, Plaintiffs argue, consistent with their comments, that the "weighting factor constitute[d] too important a variable to simply ignore" because "[t]he weighting factor, by formula, increases pilot revenue, and even if the average weighting factor varies from year to year ..., at least some allowance for the weighting factor must be made to impart accuracy to revenue projections and actual collections." Pls.' Mot. at 15. According to Plaintiffs, the Coast Guard's "failure to consider the weighting factor constitutes exactly the type of failure to consider a relevant factor that courts routinely hold violative of the APA." Pls.' Mot. at 15. Defendants respond most prominently by arguing that, even though weighting factors will actually result in greater revenue for pilotage associations, the Coast Guard did not include those factors in their projections because, based on its experience, "actual revenue and projected revenue rarely match." Coast Guard's Mot. at 15. As evidence, Defendants point to a supposed $20 million revenue gap between projected revenues and actual revenues realized by the pilotage associations between 2005 and 2014. Thus, according to the Coast Guard, it decided to "take this comment under advisement to see if the new methodology with its several changes [would] correct this historic pattern." Coast Guard's Mot. at 16. The Pilots put a finer point on this argument. According to the Pilots, the Coast Guard declined to use the weighting factors in its analysis because it believed that doing so would continue to "result in undercompensation of the pilots." Pilot's Mot. at 19-20.
Although Defendants may wish for these to have been the arguments advanced by the Coast Guard in response to the commenters' observations, they were not. When reviewing agency action under the APA, this Court may only rely upon the reasons given by the agency, rather than "counsel's post hoc rationalizations for agency action." State Farm Mut. Auto. Ins. Co. ,
*52In truth, the Coast Guard simply failed to consider the impact that weighting factors might have on projected revenue calculations. The Coast Guard has stated that, in revising the pilotage rate-setting methodology, its goal was to "align[ ] projected revenues with the actual association collections." 82 Fed. Reg. at 41,467. At the time the Coast Guard decided to revise the pilotage rate-setting methodology, it was aware that pilotage associations generated some amount of revenue based on weighting factors. Yet, when commenters pointed out that the proposed methodology's revenue projections failed to account for weighting-factor revenue, the Coast Guard declined to even consider the issue. Indeed, the Coast Guard simply pledged to "take the matter under advisement," even though it also saw "potential merit" in the commenters' suggestion. But reasoned decisionmaking requires giving present consideration to important aspects of problems-not merely promising to consider those matters at some point in the future .
Instead of considering whether the inclusion of weighting factor revenue in the rate-setting methodology was appropriate, the Coast Guard simply explained why it had not historically considered weighting factors. But that commentary does not adequately explain why the new rate-setting methodology should not account for those factors. First, the mere fact that the Coast Guard had not previously accounted for weighting factors is not in and of itself reason for not doing so now. Indeed, part of the Coast Guard's reasoning for modifying the rate-setting methodology in the first place was because the prior methodology was "distort[ed]."
In short, the Coast Guard's failure to even consider the propriety of including weighting factor revenue in its rate setting methodology was arbitrary and capricious because it represented "an important aspect of" the revenue streams that it was attempting to estimate.
2. "Truing Up" or Refund Mechanism
Finally, the Court considers the Plaintiffs' arguments concerning the need for a mechanism to adjust-or "true up"-future rates based on the differences between projected and actual revenue in past *53years. During the Notice and Comment period, Plaintiffs argued that:
[a] major defect in the NPRM and in the overall administration of these statutory authorities by the [Coast Guard] is that these authorities have not been adequately deployed to ensure rate payers that the rate-setting process is using reliable data either for past periods or as a basis of projected pilot revenue requirements. In most government rate-setting environments, rate payers can expect that the regulated utilities are subject to a uniform system of accounting, that the regulated entities' financial submissions are routinely audited and verified by the rate-setting body, that the rate-setting agency maintains accurate, current operational data to enable past periods to be checked against projections for those periods, and a 'truing up' or refund mechanism to compensate rate payers when disparities between projections and actual data for a given period yield excess revenue collections. These features do not exist in the current system administered by [the Coast Guard], despite considerable statutory power available to [the Coast Guard] to impose these mechanisms.
A.R. at 284-85. The Coast Guard responded, stating that it believed it had "provided extensive evidence in support of [its] analysis of association expenses and revenues." A.R. at 1350. Specifically, it explained that "the associations follow uniform reporting procedures and use the reporting software [it] provide[s]." A.R. at 1350. It also noted that independent accounting firms audit expenses and revenues and financial information is posted on the Coast Guard website, and that the Coast Guard used the most recent audited data to analyze the impact of its Final Rule. The Coast Guard concedes, however, that it did not mention or respond to the portion of the comment concerning the 'truing up' or refund mechanisms. Plaintiffs have zeroed in on this omission and claim that it now provides a basis to overturn the Coast Guard's judgment. See Pl.'s Mot. at 21.
Under
In this case, Plaintiffs' comments about a "truing up" or refund mechanism does not meet this threshold. In the nearly forty-page comment submitted by Plaintiffs, the issue of these adjustments appears in *54exactly one sentence. And, even in that sentence, the central thrust of it is devoted to the reliability of the Coast Guard's data, not the implementation of truing up mechanisms. Based on this comment, it is far from clear that Plaintiffs are suggesting the implementation of any system. Rather, they simply suggest that "truing up" mechanisms exist in other rate-setting environments (though they cite no support for that contention) and note that such mechanisms do not exist in the Coast Guard's methodology for setting pilotage rates. Plaintiffs, however, offer no explanation whatsoever as to why the absence of such a mechanism is significant or why the Coast Guard should otherwise adopt one. Under such circumstances, the Court cannot find that the Coast Guard's failure to respond to this comment was either arbitrary or capricious. As the Supreme Court aptly observed, "administrative proceedings should not be a game or a forum to engage in unjustified obstructionism by making cryptic and obscure reference to matters that 'ought to be' considered and then, after failing to do more, to bring the matter to the agency's attention, seeking to have that agency determination vacated on the ground that the agency failed to consider matters 'forcefully presented.' " Vermont Yankee Nuclear Power Corp. v. NRDC ,
Curiously, Plaintiffs also complain that, in setting rates for 2016, the Coast Guard deviated from a supposed policy when it did not reduce pilotage rates based on the surplus revenues collected by the pilotage associations in 2014. See Pls.' Mot. at 20. Plaintiffs argue that this was a violation of the APA because, when an agency changes policy, "it must provide reasoned explanation for its action, which would ordinarily demand that it display awareness that it is changing position." Nat'l Ass'n of Home Builders v. EPA ,
Plaintiffs argue that the Coast Guard should have, according its purported policy or practice, reduced the 2016 pilotage rates based on excess revenue collections in 2014. But, for their argument, Plaintiffs do not point to any instance in which the Coast Guard had previously reduced rates based on prior over-collections. Instead, they rely on a single ten-percent, upward adjustment in pilotage rates that the Coast Guard imposed in 2015. That adjustment, however, does not support Plaintiffs' position.
When the Coast Guard went about setting rates for the 2015 shipping season, it found that application of its former rate-setting methodology would result in "rates across the Great Lakes [that would], on average ... decrease by approximately 12 *55percent from the 2014 rates." Great Lakes Pilotage Rates-2015 Annual Review and Adjustment,
This one-time adjustment to rates does not support the Plaintiffs' position for several reasons. First, contrary to Plaintiffs' intimations, there is nothing in the 2015 ratemaking that suggested that the Coast Guard was either starting or continuing any policy of always adjusting future rates based on over-collections or under-collections in past years. Rather, it simply represents a single judgment to increase rates based on an ad hoc examination of relevant facts, as it was permitted to do under the rate-making regulations. To the extent that such adjustments were needed, they were only needed before the Coast Guard modified its methodology. Indeed, as the Coast Guard explained, its adjustment to the 2015 rates was simply an attempt to overcome the "hindrances" of its prior methodology.
Even if the Coast Guard's actions in 2015 could be construed as establishing a new policy, the policy is not as broad as Plaintiffs would suggest. The Coast Guard did not adjust rates merely because there was a discrepancy in the prior year between the revenues it had projected and the revenues that the pilotage associations had collected. Rather, it increased rates because it believed that the continuation of low pilotage rates represented a serious threat to the safe, efficient, and reliable pilotage on the Great Lakes. Thus, to the extent that the Coast Guard espoused any policy, it was a policy of increasing rates when those public interests were threatened. In this case, Plaintiffs are not arguing that the Coast Guard should have increased rates, it is arguing that the Coast Guard should have lowered rates, but they make no argument that such an adjustment was needed to preserve safe, efficient, and reliable pilotage. Accordingly, the Court finds that the Coast Guard's failure to adjust 2016 pilotage rates based on revenue surpluses in 2014 was not an unexplained deviation from past policy, and thus it was not arbitrary and capricious.
*56D. Remedy
In total, the Court has found the Coast Guard has acted arbitrarily and capriciously in two respects. First, it failed to engage in reasoned decisionmaking when it imposed a 10% increase on the benchmark compensation for pilots because the amount of that increase was not supported by any analysis. Second, the Coast Guard failed to consider an important factor when it refused to consider the impact that weighting factor revenue would have on its rate-making calculations. The typical remedy for arbitrary and capricious agency action is to vacate the rule. Am. Bioscience, Inc. v. Thompson,
V. CONCLUSION
For the foregoing reasons, the Court will grant in part and deny in part Plaintiffs' motion for summary judgment and grant in part and deny in part Defendants' motions for summary judgment. An order consistent with this Memorandum Opinion is separately and contemporaneously issued.
The statute applies both to "foreign vessel[s]" and "vessel[s] of the United States operating on register," which are U.S.-flag vessels participating in foreign trade.
"District One comprises areas 1 and 2, the U.S. waters of the St. Lawrence River and Lake Ontario. District Two comprises areas 4 and 5, the U.S. waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River. District Three comprises areas 6, 7, and 8, the U.S. waters of the St. Mary's River, Sault Ste. Marie Locks, and Lakes Huron, Michigan, and Superior."
The Coast Guard's aim was to compensate Great Lake registered pilots in a comparable way to first mates on U.S. Great Lakes vessels. St. Lawrence Seaway Pilots Ass'n, Inc. ,
The GLPAC is composed of seven members, including a representative from each of the three private associations, a representative for the interests of vessel operators, a representative for the interests of the ports, a representative for the interests of shippers whose cargoes are transported through the Great Lakes ports, and a member with a background in finance or accounting and must be unanimously selected by the other members of the committee.
As described in greater detail infra ,"weighting factors" are multipliers that are used by pilotage associations to calculate the actual pilotage fees that the associations will charge for any given voyage. In essence, the larger the vessel, the higher the weighting factor, and the more the pilotage associations can charge.
The Court concludes that oral argument would "be of no meaningful assistance [to it] in rendering a final decision," and thus exercises its discretion to deny Plaintiffs' request for oral argument. Owen-Williams v. BB & T Inv. Servs., Inc. ,
Because of its size, the parties filed the administrative record in three parts. Pages 1-271 are filed on ECF at 27-1; pages 272-540 are filed at 27-2; and pages 541-1369 are filed at ECF No 27-3.
Plaintiffs take issue with the fact that the Coast Guard did not provide the number of pilots who have left Great Lakes pilotage associations until publication of the final rule. Pls.' Mot. at 31. Plaintiffs acknowledge that disclosing such data at the time the final rule is announced is only problematic if they would have had "something useful to say" about it. See Pls.' Mot. at 31 (quoting Am. Radio Relay League, Inc. v. FCC ,
Plaintiffs also seem to argue that whatever the overarching rationale for the peak staffing model might have been, the Coast Guard still failed to specifically justify its cost. See Pl.'s Reply at 24, ECF No. 23. What Plaintiffs fail to acknowledge is that the Coast Guard's safety rationale does justify the cost of the model. The Coast Guard has been clear that it understands additional safety measures will come at a cost. See A.R. 602-03 ("The Coast Guard's position is this. We want safe. We're going to demand safe, efficient and reliable service. And there's the flipside to that. That costs money. And whatever that cost is, you know, we plan to be transparent as possible to let everyone know these are the costs that go into that."). Thus, when the Coast Guard decides, in its expert judgment, that safety measures are necessary, that rationale is also necessarily a justification of the associated cost.
Although the Coast Guard did not mention "cross-qualifying pilots" by name, the same logic applies to them as it does to contract and semi-retired pilots; all three groups would be called upon to pilot through unfamiliar waters.
Plaintiffs also noted in their comment that Canadian GLPA pilots are government employees and "Canada has its own unique social programs, tax regime, and currency." Pl.'s Reply at 27; A.R. 319. Plaintiffs cannot seriously contend, however, that the Coast Guard did not adequately address the concern that Canadian pilots were government employees. Indeed, the entire reason the Coast Guard implemented a ten-percent upward adjustment was precisely because Canadian pilots were government employees. Plaintiffs made no attempt to explain why that fact alone made them entirely unsuitable for comparison. Moreover, Plaintiffs did not attempt to explain why the fact that Canada has "unique social programs, tax regime, and currency"-in essence that Canada is a different country-makes Canadian pilots entirely unsuitable comparators when all other aspects of their employment are nearly identical to U.S. pilots. Accordingly, the Court cannot find that the Coast Guard acted arbitrarily in response to these comments.
The GLPAC member did not specify the additional responsibilities to which he was referring. See A.R. 605
Indeed, even the proposal that they did put to a vote concerning the $295,000 base compensation figure failed. See A.R. 605.
In any event, this argument is unpersuasive. While it is true that there is evidence in the record suggesting that there have been revenue short-falls during some years in the past, see A.R. 1192, the record does not reveal what these shortfalls amounted to in the aggregate or that there was any persistent trend as of 2014. Defendants cite an analysis performed by the Coast Guard's Director of Great Lakes Pilotage suggesting that there was a $20 million shortfall between 2005 and 2014. But neither that analysis nor any data supposedly relied upon in that analysis can be found anywhere in the administrative record. "Where, as here, an agency's determination is based upon a complex mix of controversial and uncommented upon data and calculations, there is no APA precedent allowing an agency to cherry-pick a study on which it has chosen to rely in part." Am. Radio Relay League, Inc. v. FCC ,
Plaintiffs also make a seemingly related argument concerning the data that the Coast Guard relied upon in setting the 2016 pilotage rates. Plaintiffs argue that the Coast Guard failed to rely on actual 2014 revenue figures in its rate-making, despite the availability of those figures. See Pl.'s Reply at 15-16. This non-reliance, however, is really no surprise given that revenues for prior years are not inputs in the rate-making calculation. To the extent that this is just another way of saying that the Coast Guard should have considered these revenues and adjusted rates downward to "true up rates," the Court has already found that the Coast Guard's action in this regard was not arbitrary and capricious.
Reference
- Full Case Name
- AMERICAN GREAT LAKES PORTS ASSOCIATION v. Admiral Paul F. ZUKUNFT, Commandant, United States Coast Guard
- Cited By
- 8 cases
- Status
- Published