Acting chairman asserts proposed rule is designed to “get us back into the navigation channel of longstanding precedent.”
The Federal Maritime Commission wants comments from the public as it seeks to enact a rule that it says would restore the correct interpretation of a provision in the Shipping Act of 1984.
In a Notice of Proposed Rulemaking (NPRM) published Thursday, the FMC asks the public to comment on the scope of a provision in the Shipping Act of 1984, found at 46 U.S.C. of § 41102(c).
That provision, which is also frequently referred to by its prior designation, Section 10(d)(1) says, “A common carrier, marine terminal operator or ocean transportation intermediary may not fail to establish, observe and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing or delivering property.”
Comments on the proposed rule may be submitted through Oct. 10.
In recent years FMC commissioners have disagreed about the correct way to interpret that provision.
Michael Khouri, the acting chairman of the FMC, said the goal of the proposed rule is to “get us back into the navigation channel of longstanding precedent” when deciding when there is a complaint that a carrier, terminal operator or OTI has engaged in an unjust or unreasonable practice.
The NPRM explains that beginning in 2010, there have been a series of cases before the FMC that have held that if a company’s “conduct with respect to a particular shipment, if determined to be unjust or unreasonable, represents a violation of § 41102(c), regardless of whether that conduct represents a respondent’s practice or regulation.”
Back in 2013, in the decision Kobel, et al. v. Hapag-Lloyd A.G. et al., the majority opinion from the FMC had said, “Even the failure in a single transaction can be a failure to observe and enforce a just and reasonable regulation and practice.”
If the proposed rule is adopted, that view would be scuttled and “discrete or occasional actions by regulated entities not reflecting a practice or regulation would not constitute a violation of § 41102(c).”
At the time of the Kobel decision, the majority of the FMC seats were held by Democrats — Chairman Mario Cordero, Richard Lidinsky Jr. and William Doyle. After Lidinsky left the FMC, he was replaced by Daniel Maffei, another Democrat.
Khouri and Commissioner Rebecca Dye, both Republicans, dissented in the Kobel decision and similar cases in which the majority said a single transaction could be viewed as a violation of §41102(c).
Khouri said he preferred to look at the difference of opinion among the commissioners not as one that divided Democrats and Republicans, but said, “Those of us on the conservative side look at we should be staying within the legitimate boundaries that Congress has given us with the statutes that we’re supposed to be faithfully administering.
“Another philosophy is we, the agency, should be trying to stretch and expand our areas of jurisdiction,” he said.
The disagreement between the two sides revolves around how to read certain words and phrases in the law.
The NPRM explains, “Having a long legislative provenance, Congress used the word ‘practice’ and the full phrase ‘establish, observe and enforce just and reasonable regulations and practices’ in both the original 1916 Act and in Section 10(d)(1) of the 1984 Act, now § 41102(c), in a particular way and in a context that was clear to the drafters, to the commission and to the reviewing courts.”
In a 2016 dissent in Gruenberg-Reisner v. Respondent Overseas Moving Specialist, Khouri wrote, “While the difference between the majority restatement and the original statutory language may appear to be subtle and inconsequential, the majority’s reformulation entirely changes the original purpose and intention of § 41102(c).”
He said the change laid out in the NDPRM is “not anything radical, but it’s a return to the law that existed for 80-something years.
“We cannot just wake up each morning and say, ‘Well, forget about all that stuff, I’m going to start with a clean white board and put a new gloss on it.’ That is not how the process works,” he added.
A former FMC commissioner who did not want to be named said that one justification for the reading favored by the Democrats is the pervasive use of containers to transport general cargo.
The value of cargo in a single container can be so great that its destruction because of mishandling could be catastrophic to a shipper, he said. He viewed the proposed change as taking a pro-carrier position.
But in announcing the NPRM, Khouri said, “Traditional legal venues designed to address such circumstances will continue to be available to parties injured by discrete instances of unreasonable or unjust conduct.”
Ed Greenberg, the general counsel for the National Customs Brokers and Forwarders Association of America, said one problem with the way the rule has been interpreted in recent years is that it can override the Carriage of Goods at Sea Act (COGSA), which provides a limitation of liability of $500 per customary freight unit and a one-year statute of limitations to file a claim.
“But if a shipper is concerned about his cargo being damaged and he can shoehorn his claim into a 10(d)(1) violation, all of a sudden he’s bypassed COGSA and he could file suit up until three years later because there’s a three-year statute of limitations for violation of the Shipping Act,” said Greenberg. “And reparations claims wouldn’t be limited by the $500 per package limitation of COGSA.”
Former Commissioner Dan Maffei said in a concurring opinion in which he agreed with Cordero and Doyle that he shared the view of Khouri and Dye that the FMC “should not become a court of general claims against the wishes of Congress.”
The proposed interpretative rule would be used by administrative law judges and the commission to guide them when they are making decisions.
The FMC has up to five members, but since President Trump became president, all three Democrats have left the agency — Cordero to become executive director of the Port of Long Beach, Doyle to become executive director and chief executive officer of the Dredging Contractors of America and Maffei on June 30 after he was not reappointed by Trump. Trump has not nominated any new commissioners, but both Khouri and Dye are Republicans.
Khouri noted that there are several cases currently before the FMC that claim violations of §41102(c), and that he and Dye could decide them as they view the law, but that he wanted to air the proposed change in an “open and transparent way.”
“Now everybody, public stakeholders can comment and we’ll review all the comments and move forward from there.”
GOP-controlled FMC says it’s righting Shipping Act
