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Case number 24-1298, World Shipping Council Petitioner versus Federal Maritime Commission and United States of America.

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Mr. McGovern for the petitioner, Mr. Summers for the respondents.

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Good morning, counsel.

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Mr. McGovern, please proceed when you're ready.

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Good morning, your honor.

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May it please the court, Robert McGovern for Petitioner, World Shipping Council.

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This case addresses whether the Federal Maritime Commission adopted a rule that exceeds its statutory authority under the US Shipping Act

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and is arbitrating capricious under the APA.

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To address COVID-19 supply chain disruptions, including when shippers were competing for very limited vessel space during a time of unprecedented demand, Congress amended the Shipping Act and directed the FMC to adopt a rule that defines the term unreasonable in the context of negotiating and providing vessel space.

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That rule that it adopted violates the Shipping Act and the APA in three key respects.

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First, the rule impermissibly allows the FMC to regulate ocean carrier prices, notwithstanding Congress's express repeal of that raid-making authority over 40 years ago.

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Second, the rule directly interferes with the business of ocean carriers by requiring them to create, file, and then have their actions judged against prospective export policies.

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And third, the rule consciously jettisons legitimate business reasons as an explicit factor with no meaningful or logical explanation, reversing decade-long precedent that the FMC itself relied on in its own proposed rule.

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As to the rate making factor, the rule allows the Commission to consider, quote, the quoting of rates that are so above market rates that they cannot be considered a real offer or an attempt at engaging in good faith negotiations.

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But Congress explicitly repealed the Commission's statutory rate making authority in 1984.

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And it did so for a very specific reason.

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Quoting legislative history, Congress determined, quote, excessive government involvement has unnecessarily interfered in many aspects of shipping activity where commercial parties more appropriately should govern their own conduct.

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This is on pages seven and eight of our opening brief.

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And importantly, this statutory regime remains even after OSER 22 was passed.

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Now, I expect that my colleague will argue that the rule only allows the commission to evaluate and not to set rates.

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But whatever terminology the FMC wants to use, consider, benchmark, evaluate, there's no scenario under which an agency that does not have statutory rate-making authority can then turn around and tell regulated entities that their rates are too high.

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That rate-making factor in the rule also fails under the APA because the Commission never explained what it means for a rate to be too high.

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It never explained what methodology it would determine what a reasonable market rate might be in comparison.

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And it never explained what amount of deviation between the two would, in the Commission's view, be considered unreasonable.

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Section 4104 of the Shipping Act also does not allow the commission to require carriers to create and file prospective export policies.

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And as always, on questions of statutory- Can I ask you about the business decisions argument?

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Of course.

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As you know, FMC indicated in the rule, quote, information on business decisions relevant to establishing a reasonable refusal to deal would still be relevant.

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And I would interpret the APA's Arbitrary and Capricious standard to require the agency to consider relevant factors when it takes agency action.

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So putting kind of those two things together, why should I be worried that the FMC will not consider business decisions as a factor when the business decisions are relevant?

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Thank you, Your Honor.

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So we have to start from where the FMC started in the proposed rule.

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And they had business factors explicitly in there.

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Why?

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Because they said, we have business vectors in here because it is a recognition of our longstanding policy that this is a factor that we consider when addressing reasonable bits under the statute.

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The FMC is not starting from a blank slate here.

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41104A3 and A10 were already in the statute when OSER 22 passed.

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They don't have to persuade us that the final rule is better than the proposed rule.

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They just have to persuade us that the final rule is reasonable and reasonably

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And I think, Your Honor, to answer your question, why should you be concerned?

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The FMC has made a choice here.

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The FMC has said that these factors were in the proposed rule, but then we removed them.

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And we removed them because we had a concern that they had the potential to overwhelm other factors.

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That's at JA 51.

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That's not an explanation of departing from your past precedent.

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What that is is saying that a factor is apparently so significant

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that has the potential to overwhelm factors, but not significant enough to be listed alongside those in the rule.

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I'm going to ask them about that.

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I do think it's a little wild that that was the best they could do in explaining what they did.

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But I'm asking you in part because I think it goes a little bit to the merits, but a little bit to standing if

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If I have every reason to believe that in spite of their, we're not gonna include business decisions in the rule because they're too important to include some version of that.

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Regardless of that, if I have every reason to believe that information on business decisions that are relevant will be considered, then I'm not sure how the party that says we want business decisions that are relevant to be considered is injured.

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Your honor, I would answer your question this way.

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One, the FMC has already signaled in both its rulemaking and its brief how it wants fact-finders to adjudicate these cases.

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It's making a conscious policy decision now

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to deprioritize these.

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They've listed some factors.

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They've taken business factors and said, we may consider them down the road.

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There's also a slip of the tongue that the FNC makes in both the rule and its brief when it says that it removed business factors referring to something that they must consider to being something that they may consider under the regulatory catch-all that you're referring to.

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Well, our understanding is none of these rules are, all of them are a suite of non-exclusive factors.

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But even if, even if they said,

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We're changing it to may.

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If the APA requires them to consider business decisions when the business decisions are relevant, it seems like regardless of whether they said may or must, the APA imposes a must.

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And Judge Walker, the FMC has made promises like this before.

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In a case before this court, Evergreen versus the FMC involving an FMC interpretive rule, the FMC said in that rule, we'll consider one factor and we may consider a number of other factors.

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And then the first time that the FMC had to evaluate that, they considered only the one and ignored all the others.

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And then what did you do?

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uh we challenged it in court and what we're hoping to do now is uh if you don't remember did you we we did your honor so why why not why isn't that from a standing perspective uh injury that's either now or imminent why wouldn't we require you to do what worked for you last time

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Because the lack of explanation on the business factors, we don't consider, Your Honor.

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Our argument, World Shipping Council's argument, is that just saying that we may consider it as part of a regulatory catch-all is not sufficient under the APA to explain why the FMC is departing from past precedent.

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We both don't believe that we should have to wait until some future adjudication.

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We believe that violation under the APA exists now, and that's why we're challenging it now.

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Mr. Govind.

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In your reply brief, you deal with the state of California case, the commission.

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And your response to the commission is that Congress expressly removed the relevant authority in 1984 and continuing on that removal of this authority

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as well as Congress's removal of the commission's general rate-making authority suggests that California would be decided differently under the current version of the shipment.

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So looking at the then prevailing and now incumbent versions, I see that when California was decided, 1944 I think, every such carrier shall establish, observe, and enforce just and reasonable regulations and practices

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Whenever the board finds that such regulation or practice is unjust or unreasonable, it may determine and prescribe an order in force to adjust and reasonable regulation and practice, which in 1944 was prescribing rate change.

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Current version, a common carrier may not fail to establish, same as most establish, observe and enforce just and reasonable regulations and practices, et cetera.

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Commission may prescribe regulations to carry out its duties and powers.

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What is lacking?

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in the current version that was present before, that could explain, that could put California to one side.

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So the state of California, you're right, Your Honor.

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A 1944 Supreme Court case cited by the commission to support its inclusion of the rate-making factor.

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That case was decided under the 1916 Act.

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I just read the provisions from 19 and from the current.

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So the provision under the 1916 Act

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your honor.

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The difference is that the FMC in that case, pardon me, the, um, rate making authority in that case, the, um, they didn't have authority over the carrier in question or the port in question because it was a state entity.

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Right?

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So they didn't have regular, they didn't have rate making authority over that entity.

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I think it was the city of Oakland, but nonetheless,

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because there was an unjust, unreasonable practice so found they were able to prescribe a right as the cure.

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And your honor is right, to determine, prescribe, and order enforced just in reasonable practice.

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But they were utilizing their authority in the 1916 Act in that case, their rate-making authority that they don't have now.

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And that is why we believe that the removal of that authority in 1980.

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They're using their rate-making authority when they didn't have rate-making jurisdiction over that incident.

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Well, Your Honor, the court's reasoning in the state of California case was that the commission could require certain compensatory charges due to Congress's, and this is quoting from the case, Congress's unlimited grant of the power to stop those practices.

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So the practices in question in the California case related to compensatory charges.

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And the unlimited grant of power that the Supreme Court referred to was the

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authority that the Commission had prior to 1984 relating to its power to regulate charges.

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The withholding of rate making, this is from the case, the withholding of rate making power for services other than water carriers does not qualify the unlimited grants of the Commission for power to stop effectively all unjust and unreasonable practices in regard to handling of freight.

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Finding wrong, which it is duty bound to remedy, the Commission may

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within the general framework of the act fashion, the tools for so doing seems to be pretty clear that they're just saying they don't have rate making authority.

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They've got an unjust practice.

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They have to deal with it and they can do it by prescribing a rate.

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Your Honor, I would answer your question this way, which is only then the situation that we have before us is very different than the state of California case.

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The situation that we have before us is not just determining, prescribing, and ordering as it relates to the rate

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What the FMC has done here is that we're going to consider whether or not a rate is so high above market rates to be considered unreasonable.

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We say there are two problems with that.

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One, from a statutory perspective, how does this play out?

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So somebody challenges an ocean carrier rate, and it goes to the commission.

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And the commission says, that's too high.

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It's too high above a market rate.

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One, we don't know what market rate they're using to compare it to.

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But the carrier's only then remedy on this one is to reduce its rate because the commission just told it that it was too high.

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And how does that play out?

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That plays out by, well, what if the shipper then

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continues to say no the carrier's rate is still too high and goes back to the Commission says still too high the Commission then under this rule can say your charge is still unreasonable because your rate is too high that process would go until ultimately the carrier charge is something that's consistent with whatever the whatever rate the Commission determines to be reasonable if that's not rate setting and it's hard to see what is well the way it plays out I take that scenario

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accurate portrayal of what to expect.

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I'm just not sure why it's different in the end, because it is in the end prescribing the rate.

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Let's accept that it is.

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And Your Honor, it is interesting that, one, the FMC has not pointed to a single statutory provision that allows for this type of rate because it can't.

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Here, as you said, in California, the result was to require

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Was it compensating a compensatory rate charge to impose a charge?

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The problem was their charges were too low.

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That's right.

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The demurrage charges.

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So they were distorting the market for attracting traffic.

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And so it says, they said the only way to correct the preferential and reasonable results of noncompensatory charges was to require compensatory charges to prescribe a rate, in other words.

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And you're saying, well, effectively, that's what they're doing here by indirection.

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And I think if you're correct, it's still within what happened there.

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That's right, Your Honor.

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And I would say it's interesting that the only case that the FMC cites to support its rape-making factor is a 1944 case when the FMC had rape-making authority.

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They don't have any other cases to cite it.

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And this is rape-making.

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And what courts have held is that agencies cannot do indirectly what they're doing.

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They're making authority over Oakland.

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That's your problem.

[00:15:15] Speaker 05:
Can I ask a question coming at it a little differently?

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The same set of issues, though.

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The statute prohibits unreasonably refusing to deal or negotiate.

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If a rate that's proposed is so stratospheric,

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that it's indicative of a refusal to reasonably deal or negotiate.

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Is that something that the commission can take into account?

[00:15:41] Speaker 02:
Your honor's question is a situation that the FMC discussed in their brief.

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They used the words, well, what if a rate is so absurdly high that it can't possibly be considered a refusal

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in actual negotiating.

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There's just one, we don't know what the FMC means by absurdly high.

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Nobody does.

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Do you disagree?

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There's no such thing.

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But nevertheless, that's right.

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If Congress wanted the FMC to have the authority to regulate rates, it would have expressly given them that authority.

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So I'm trying to get my answer.

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So suppose they say a billion dollars.

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Do you think that's something that the commission just can't consider?

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Not as a factor for reasonableness, your honor.

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That's right.

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That's a rate-making factor.

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And I would add, too, to that, that there's a read.

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Congress has made this decision.

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And the reason is that's ignoring market realities to say that there's nothing that can be done.

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If an ocean can't.

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So how about this?

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They say, I'm not going to negotiate with you.

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That clearly is a violation.

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It is.

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And that's expressed in the FMC's law.

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OK.

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And then they say, oh, darn it.

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I have to negotiate.

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OK, billion dollars.

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So your answer is?

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The FMC doesn't have the authority to use ratemaking as a factor of reasonableness.

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But if the carrier offers a million dollars, there's only two ways that a carrier can make that offer, either through a service contract or through a tariff.

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If it makes it through a service contract,

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The shipper is just going to turn around and go in a very competitive industry to any other carrier that's going to give them a much different rate, obviously.

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If that million dollars is in the tariff, well, an ocean carrier has now just effectively turned away its entire customer base.

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It's precisely those market realities that cause Congress to say that the market polices itself, and there isn't a role for the FMC in this space.

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The answer to your question is no, that's not a factor that the commission can consider as reasonableness, even under the hypothetical that you've used.

[00:17:31] Speaker 05:
So they consider refusal to deal in that hypothetical situation based on something other than the rate that's proposed?

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That's right.

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That's the way you would look at that?

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Yes.

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And what would they look at if the only thing that's on the table is a rate of $1 billion?

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I understand your honor's question.

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And I guess, first of all, all of this is done on a case-by-case basis.

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That is the case.

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If that's the only case, then WSC's position is that is a rate factor that the commission simply doesn't have the authority in the shipping act to deal with.

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That's not a refusal to deal then?

[00:18:09] Speaker 02:
Not under the commission's authority under the act.

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Does it have the exact same effect as an express refusal to deal?

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So in practice, I understand the question.

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But it comes down to whether or not the FMC has this authority to consider it as a reasonableness factor or not.

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It comes back to the act itself.

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And if the court accepts WSC's argument that the FMC does not have the authority to consider rates

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as a factor and a reasonableness analysis, because Congress not only did not give them that authority in the Shipping Act, but it took that authority away, then that's not something the FMC can use as a factor under reasonableness.

[00:19:00] Speaker 06:
Company A says, I won't deal.

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Company B says, I'll deal, but the cost is a billion dollars.

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There is no practical difference.

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in the effect of those two companies' choices, correct?

[00:19:18] Speaker 02:
Correct.

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Practically, that's true.

[00:19:20] Speaker 02:
And under the market realities, you've then got companies C, D, all the way down to M, in which case there are competitive options for these shippers.

[00:19:31] Speaker 06:
And this is not- It seems like it would apply also in the situation A, where the company says, I won't deal.

[00:19:38] Speaker 06:
It seems like your answer will be well.

[00:19:39] Speaker 02:
It's no big deal because you can just go find company C through M. The commission's rule says that a categorical refusal to deal with no justification is considered unreasonable and not something that WSE disputes.

[00:19:53] Speaker 05:
Just to play it out one more time, so to take Judge Walker's hypo and just keep it with company A, the company A refuses to deal.

[00:20:03] Speaker 05:
You would say, OK, they can be justly held to account for refusing to deal.

[00:20:08] Speaker 05:
And then Company A says, oh, OK, I guess I can't refuse to deal, so $1 billion.

[00:20:14] Speaker 05:
And then you would say, Company A loses the first time, but wins the second time.

[00:20:20] Speaker 02:
Your Honor, that's right.

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And that's the commission's point of saying, what if somebody does an absurdly market rate?

[00:20:25] Speaker 02:
And I would submit that Congress has already made that determination that

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In the first instance, that's something the FMC can find unreasonable under its authorities in the act.

[00:20:33] Speaker 02:
In the second, it isn't.

[00:20:34] Speaker 06:
I think I know your answer to the next question.

[00:20:36] Speaker 06:
I want to totally prolong it.

[00:20:38] Speaker 06:
But the chief judge's question was about a billion dollars.

[00:20:43] Speaker 06:
Your answer would be the same if it was a trillion dollars.

[00:20:45] Speaker 06:
Yes, your honor.

[00:20:47] Speaker 06:
And your answer would be the same if it was a trillion dollars in pennies.

[00:20:51] Speaker 06:
Yes, your honor.

[00:20:54] Speaker 05:
Thank you, counsel.

[00:20:54] Speaker 05:
We'll give you a little time for rebuttal.

[00:20:56] Speaker 05:
Thank you.

[00:21:03] Speaker 04:
Summers.

[00:21:04] Speaker 04:
Good morning, and may it please the court, Harry Summers for the Federal Maritime Commission.

[00:21:11] Speaker 04:
This is not an example of rate making.

[00:21:13] Speaker 04:
This is not a freestanding complaint to the agency saying, hey, this rate is too high.

[00:21:22] Speaker 04:
As the questions that more than one of your honors were asking show, this is in the context of an administrative adjudication about whether there was an unlawful refusal to deal.

[00:21:33] Speaker 04:
That's a retroactive determination about whether one particular back pattern had an example of a rate that was so high it did not indicate a good faith negotiating posture in the context.

[00:21:47] Speaker 05:
And it only applies in the context before a deal has been made because it's only one question I had about that is I thought the way the commission framed this is that a rate might be unreasonable, not that

[00:22:02] Speaker 05:
a really high rate would be indicative of an unreasonable refusal to deal.

[00:22:07] Speaker 05:
With that, I can at least understand it for the reasons that were elicited earlier.

[00:22:12] Speaker 05:
But is the commission's view that the rate actually itself can be unreasonable or that a high rate can be indicative of an unreasonable refusal to deal?

[00:22:23] Speaker 04:
This only arises in the context of enforcing the refusal to deal statute.

[00:22:29] Speaker 04:
Congress asked us to further define that statute.

[00:22:33] Speaker 04:
This is not a freestanding requirement about rates.

[00:22:36] Speaker 04:
This is one permissive factor that can be considered along with other factors as has been discussed in evaluating in an administrative adjudication resulting from a private party complaint or the commission's enforcement division beginning an investigation into whether there was an unreasonable refusal to deal

[00:22:56] Speaker 04:
One factor the agency may consider is whether the rate quoted was so high that it doesn't reflect good faith negotiation.

[00:23:05] Speaker 04:
And I think in the example.

[00:23:06] Speaker 05:
The commission can't say the rate that you proposed.

[00:23:11] Speaker 05:
I have authority to determine whether you're unreasonably refusing to deal.

[00:23:15] Speaker 05:
The rate that you propose is unreasonable.

[00:23:18] Speaker 05:
That, you think, can't be done.

[00:23:20] Speaker 05:
It would have to be.

[00:23:21] Speaker 05:
The rate you proposed potentially coupled with some other things, but let's just leave other things out.

[00:23:27] Speaker 05:
The rate that you proposed indicates an unreasonable refusal to do.

[00:23:32] Speaker 04:
I think that the commission is charged under the APA, as Judge Walker was saying, with a full evaluation and consistent with Judge Ginsburg's decision in Evergreen, a full evaluation of all the factors in the statute and in its regulation implementing the statute.

[00:23:51] Speaker 04:
In this case,

[00:23:52] Speaker 04:
there are a number of factors and examples the commission should consider.

[00:23:56] Speaker 04:
Some may be more relevant in a particular case than others.

[00:23:58] Speaker 04:
So in a case where there was a rate that was widely at variance with the market, that would certainly likely be an important factor, but not necessarily the only factor.

[00:24:11] Speaker 04:
So it's unlikely the agency would say, case closed, we're not going to consider any of the relevant factors.

[00:24:17] Speaker 04:
It would consider others that were relevant consistent with the APA.

[00:24:21] Speaker 04:
That's, if that answers your question.

[00:24:24] Speaker 03:
The council tells us rates in this area are volatile and change from day to day and there can be a great deal of dispersion among them.

[00:24:34] Speaker 03:
So what is the market rate?

[00:24:36] Speaker 04:
I think the market rate would be determined much as it may be in litigation generally.

[00:24:41] Speaker 04:
The parties would no doubt argue about what the market rate for the particular routes,

[00:24:50] Speaker 04:
shipping routes that were at issue in this retroactive determination, what was the market rate at that time?

[00:24:56] Speaker 04:
And there's a number of resources that parties can consult to determine shipping rates.

[00:25:01] Speaker 04:
There's online resources and platforms that regularly publish detailed analyses of what the market rates are for particular routes.

[00:25:11] Speaker 04:
The commission itself has experts who evaluate these rates, economists, and so

[00:25:17] Speaker 04:
I think there's a number of resources, just as in any litigation.

[00:25:20] Speaker 04:
Parties could.

[00:25:21] Speaker 03:
You have to get pretty deeply into the weeds in terms of the rate examination.

[00:25:26] Speaker 03:
Is it fair to say that unreasonably refused to deal or negotiate is essentially equivalent to refusal to bargain?

[00:25:39] Speaker 03:
I think that's- I appreciate bargain being pretty much anonymous.

[00:25:44] Speaker 03:
I think that's basically right, Your Honor.

[00:25:47] Speaker 03:
There are probably thousands of cases under the Labor Act in which the Labor Board has brought an 8A5 charge or an 8B5 charge claiming unreasonable failure to bargain in good faith.

[00:26:05] Speaker 03:
And I haven't read them all.

[00:26:07] Speaker 03:
So I can't tell you, but I have read hundreds of them because I've taught the subject for some years, and I've been on the court for 38 years.

[00:26:16] Speaker 03:
a bargaining good faith charge that was based on refuse an employer offering too low a number for some benefit or wage or the union demanding something too far way above the market.

[00:26:32] Speaker 03:
It's always about the process, bargaining a good faith.

[00:26:37] Speaker 03:
So for instance, General Electric under bullwarism could not say, we will make a firm fair final offer.

[00:26:44] Speaker 03:
firm fare first and final offer.

[00:26:47] Speaker 03:
That's not bargaining.

[00:26:49] Speaker 03:
It doesn't matter what the offer is.

[00:26:51] Speaker 03:
So I'm not sure why you have to get into rates at all in order to determine whether someone is reasonably refusing to negotiate or unreasonably refusing to negotiate.

[00:27:03] Speaker 04:
Your Honor, I think it relates to the potential for that term to provide a method of circumvention of the statute.

[00:27:11] Speaker 04:
I think for the reasons that were discussed earlier, it would be very easy

[00:27:15] Speaker 04:
to effectively refuse to deal, perhaps because you felt you could make much more money doing something else.

[00:27:25] Speaker 04:
This is something we saw that Congress saw during the pandemic, where a lot of US exports were left on the docks effectively because the carriers felt they could make a lot more money going back to overseas and bringing more products to the United States from elsewhere.

[00:27:44] Speaker 04:
Congress wanted the commission to try to strengthen this rule to avoid that.

[00:27:48] Speaker 03:
Well, couldn't people negotiate in good faith and still come to the conclusion that they're not going to pick up this traffic?

[00:27:54] Speaker 03:
They've got better things to do.

[00:27:56] Speaker 04:
It's possible, Your Honor, but it would be a very easy way to achieve the same result as simply refusing to negotiate at all if they could quote a rate that was absurdly high by any measure.

[00:28:06] Speaker 04:
So I think that that's what the commission was trying to achieve.

[00:28:09] Speaker 04:
And it's important to remember that it's just one factor.

[00:28:14] Speaker 04:
the commission can consider the other factors listed in the rule in an appropriate case.

[00:28:19] Speaker 04:
So it is case-specific determination, not.

[00:28:22] Speaker 03:
I think the example shows that in the labor area that it's possible to enforce good faith bargaining or not to prevent reasonable refusals to bargain without getting into rates at all.

[00:28:42] Speaker 03:
In this case, I think the commission

[00:28:44] Speaker 03:
And it is a little bit dicey since rate making authority was removed.

[00:28:51] Speaker 04:
I understand that concern.

[00:28:52] Speaker 04:
But I think this is really so far removed from actually setting rates.

[00:28:56] Speaker 04:
And in fact, other parts of the statute, for example, sections 41, 104, 84, and 85 that Congress created do require that the commission evaluate, again, in the context of a retroactive determination about whether a practice was an unreasonably discriminatory practice or unfairly discriminatory.

[00:29:14] Speaker 04:
Rates and charges are specifically provided for as something that the agency should look at.

[00:29:20] Speaker 04:
So I think the Congress has, even though, as has been said, the commission can no longer actually set rates.

[00:29:28] Speaker 04:
It can evaluate rates in the context of adjudicative determinations to enforce other parts of the act that address things like.

[00:29:38] Speaker 03:
What's the remedy?

[00:29:39] Speaker 03:
If there's a complaint?

[00:29:41] Speaker 03:
shippers complaint and the carrier is found to have engaged failed to conduct self reason.

[00:29:49] Speaker 04:
Your honor, in the context of a private party complaint, the remedy is typically reparations, which are in the nature of damages.

[00:29:56] Speaker 03:
So it's reparations, a sum of money.

[00:29:59] Speaker 03:
Yes, a sum of money.

[00:30:00] Speaker 03:
And how would that money be measured if not against some hypothetical rate?

[00:30:05] Speaker 04:
I think it would depend on the facts of the case.

[00:30:08] Speaker 04:
But yes, that is a likely measure of damages.

[00:30:11] Speaker 03:
Ultimately, you have to determine a benchmark rate from which to compensate reparations.

[00:30:18] Speaker 04:
In the context of a particular case about past conduct, yes, I think there would have to be some measure of how the claimant was injured.

[00:30:28] Speaker 04:
And so to the extent that they could have

[00:30:34] Speaker 03:
So you have a statute that says, is that a statutory provision, remedies, reparations?

[00:30:41] Speaker 03:
Yes.

[00:30:41] Speaker 03:
Lost profits or whatever?

[00:30:43] Speaker 03:
Yes.

[00:30:43] Speaker 03:
OK.

[00:30:43] Speaker 03:
So if that's the provision, then I don't see how you can determine that without engaging in what you're talking about, rate evaluation.

[00:30:52] Speaker 04:
Yes, that's correct.

[00:30:53] Speaker 04:
But rate evaluation is very different from setting the rates.

[00:30:57] Speaker 04:
But calculating damages is very close to setting it.

[00:31:00] Speaker 04:
Well, it's evaluating one pass rate on one particular fact scenario, not setting the rates.

[00:31:06] Speaker 04:
The market sets the rates.

[00:31:07] Speaker 04:
This is just a comparison point to be used in an administrative adjudication.

[00:31:11] Speaker 05:
What if you have a case where there's just an outright refusal to deal?

[00:31:13] Speaker 05:
So take your archetypal violation, where there's just flat refusal to deal.

[00:31:19] Speaker 05:
Would there be reparations or damages in that situation, and then the way you'd

[00:31:25] Speaker 05:
calculated as what a reasonable rate would have been had there not been what everybody agrees is a violation, which is just an outright refusal to deal?

[00:31:33] Speaker 04:
I think that could be the measure of damages.

[00:31:34] Speaker 04:
I think it would depend on the particular situation and what the claimant had to do in order to move its products and perhaps in order to move its agricultural exports.

[00:31:47] Speaker 04:
Or in the case that it could not move them, perhaps there would be damages related to being unable to move them.

[00:31:55] Speaker 04:
or perhaps unable to move them on time.

[00:31:57] Speaker 04:
So those damages would relate to the particular facts in the case.

[00:32:00] Speaker 04:
But yes, it could involve a determination of what was a reasonable market rate at that time.

[00:32:06] Speaker 04:
And it could be used by measuring data on some of the resources that I mentioned earlier.

[00:32:12] Speaker 04:
So that data is out there.

[00:32:15] Speaker 03:
The provision requiring allowing for reparations.

[00:32:21] Speaker 06:
um seems to me brings the case even closer into the california pressing yes i think i think that's probably right i don't see how it can be avoided okay thank you the rule says it talks about quoting rates that are so far above current market rates and some of the questions we were asking your opposing council were uh fair or unfair way above current market rates questions and

[00:32:50] Speaker 06:
a million percent higher than current market rates.

[00:32:55] Speaker 06:
What do you mean by so far above current market rates?

[00:33:00] Speaker 06:
What's the floor on so far above?

[00:33:04] Speaker 04:
I don't think there is a precise definition, Your Honor.

[00:33:08] Speaker 04:
I think it would be very context dependent, like so much that's in the statute that is phrased in terms like unreasonable, unfair, unjust.

[00:33:17] Speaker 04:
These are the kind of terms that Loper-Brite

[00:33:20] Speaker 04:
mentioned that agencies may receive from Congress and are given a certain amount of discretion to define.

[00:33:26] Speaker 04:
Here, I think in a particular case, I believe the regulatory language is so far above market rates that they don't indicate a good faith negotiation or effort to negotiate and make a deal.

[00:33:44] Speaker 04:
I think if in a particular case the agency were to

[00:33:49] Speaker 04:
define that in a way that was unreasonable, inconsistent with the APA.

[00:33:54] Speaker 04:
There'd be reason to object.

[00:33:56] Speaker 04:
But I don't think it's required to define in advance exactly what that would be.

[00:34:00] Speaker 04:
Certainly, we couldn't assign a number, because there's so many potential variables with different shipping routes and over time and different economic conditions.

[00:34:09] Speaker 04:
And if you did assign a number, that would look a heck of a lot like rate settings.

[00:34:13] Speaker 04:
It would.

[00:34:15] Speaker 04:
Even though, still, it's only in the context of a larger evaluation

[00:34:19] Speaker 04:
of refusal to deal, and one of many potential factors.

[00:34:23] Speaker 04:
But yes.

[00:34:24] Speaker 06:
Your approach, if I understand, is we don't want to rate that, so we're not going to set a number.

[00:34:28] Speaker 06:
Instead, we're going to leave you in the dark about what the number is.

[00:34:33] Speaker 04:
I don't think it would be practical or perhaps even defensible to try to define a precise number, because there are so many potentially relevant factors in a retroactive analysis of that type.

[00:34:46] Speaker 04:
So it would be very context dependent.

[00:34:48] Speaker 04:
And again, it's just one of many potential factors.

[00:34:51] Speaker 03:
Was any shipper filing a complaint prevailed and gone on to remedy since the amendment of the statute?

[00:35:02] Speaker 04:
Your Honor, I'm not aware of one.

[00:35:03] Speaker 04:
I know there are some pending cases where the rule has been broadly cited, but I'm not aware that that has happened.

[00:35:11] Speaker 03:
Could there be cases before amendment of the statute in which reparations were awarded?

[00:35:15] Speaker 04:
I believe so, Your Honor.

[00:35:16] Speaker 04:
I don't have an example.

[00:35:18] Speaker 04:
In front of me, yes.

[00:35:19] Speaker 06:
We'll find it.

[00:35:20] Speaker 06:
I guess my concern is it has to be that sometimes a rate can be quoted that's above market rate.

[00:35:34] Speaker 06:
Otherwise, market rates would never increase, right?

[00:35:37] Speaker 06:
Yes.

[00:35:38] Speaker 06:
And so if they're allowed to quote rates above market rates, they're not allowed to quote rates that are

[00:35:46] Speaker 06:
too far above market rate.

[00:35:48] Speaker 06:
You don't tell them what too far is.

[00:35:50] Speaker 06:
It seems like quite the bind there.

[00:35:54] Speaker 04:
Your Honor, I think the language in the regulation is very strong in the sense that it's not superlative, but it's a very strong expression that the rate is very far removed from the market rates.

[00:36:16] Speaker 04:
so far above that it does not indicate a good faith negotiation.

[00:36:21] Speaker 04:
I think that's not like a small inflation level increase.

[00:36:27] Speaker 04:
That's something more.

[00:36:29] Speaker 04:
And I think if the agency were to act unreasonably in evaluating that in a particular case, there would be certainly grounds to object and an opportunity on the part of the responding carrier to object to that.

[00:36:43] Speaker 04:
But in the abstract,

[00:36:45] Speaker 04:
And just based on the regulation by itself and the abstract, I think it's a reasonable expression of an important method to avoid circumvention of the statute.

[00:36:58] Speaker 06:
If you prevail here, and then if, at a certain point, a petition is filed saying we quoted a rate, and it really wasn't so far above current market rates,

[00:37:14] Speaker 06:
was used against us, I'm on the panel.

[00:37:18] Speaker 06:
I'm going to quote what you just said and decide the case.

[00:37:24] Speaker 06:
For sure.

[00:37:25] Speaker 06:
You think it's fair?

[00:37:26] Speaker 05:
Fair enough.

[00:37:27] Speaker 05:
I suppose you could also have a concern in the commission's part that if you tried to identify some kind of parameter on what is so far above that it would pose an issue, that it could be that there's actually a good explanation for why something that that's far above actually shouldn't pose an issue.

[00:37:45] Speaker 05:
And I assume the commission's open to being persuaded on that.

[00:37:48] Speaker 05:
And one reason why you might be reluctant, the commission might be reluctant to try to identify a number or a range could be that that number or range could turn out actually not to be prohibitive.

[00:37:59] Speaker 05:
And in fact, it turns out that you can be within the realm of good faith negotiation and still propose something that might at first appear to be outsized because of some contextual considerations that are unpredictable at the moment.

[00:38:13] Speaker 04:
Yes, Your Honor, I think that's right.

[00:38:15] Speaker 04:
I think in many cases, the kind of scenario you suggest would actually cause the market to change.

[00:38:21] Speaker 04:
And so such a rate that was for those reasons would also affect the rates being charged elsewhere, other carriers are quoting.

[00:38:29] Speaker 04:
But if for some reason that wasn't the case, there are the other permissive factors in the rule to be considered.

[00:38:35] Speaker 04:
And it may be that those factors would outweigh this one in the analysis.

[00:38:41] Speaker 04:
And in fact, there is the catchall

[00:38:43] Speaker 04:
provision where the agency will consider any other relevant factors or elements that may bear on that decision.

[00:38:53] Speaker 04:
So the carrier could certainly, citing those provisions, make that argument.

[00:39:01] Speaker 04:
And the commission, I believe, would consider that carefully.

[00:39:07] Speaker 06:
Can I ask you about the business decisions regulation?

[00:39:11] Speaker 06:
Yeah.

[00:39:13] Speaker 06:
business decisions be a less important part of the analysis than they were before this challenge regulation was promulgated?

[00:39:25] Speaker 04:
Your honor, I understand the question.

[00:39:29] Speaker 04:
I don't think that the commission indicated that they would be less important.

[00:39:33] Speaker 04:
I think that it elected after consideration starting in the NPRM and through the SNPRM

[00:39:40] Speaker 04:
And in the final rule, not to include that as an explicit factor in its new rule.

[00:39:46] Speaker 04:
There had never been a rule like this before, so it wasn't like it was changing some previous rule.

[00:39:51] Speaker 04:
It didn't include that.

[00:39:53] Speaker 04:
It did point to the apparent potential for the factor to be given more weight than some of the commenters felt was appropriate.

[00:40:04] Speaker 04:
It elected not to specifically put it in the regulation.

[00:40:07] Speaker 04:
However, it made very, very clear

[00:40:09] Speaker 04:
in the preamble and the other rulemaking documents, that that was a factor that was still potentially relevant, that the agency would consider going forward.

[00:40:19] Speaker 04:
It made mention of the past adjudications in which that had been a factor, which my friend cited in the brief.

[00:40:27] Speaker 04:
Those remain relevant.

[00:40:29] Speaker 04:
The history of this is that it was a statute that was explained in adjudications over the years.

[00:40:36] Speaker 04:
And all that material remains relevant here.

[00:40:40] Speaker 04:
prohibit consideration.

[00:40:41] Speaker 04:
In fact, those catch-all provisions that I just mentioned are what allows the business decisions to still be considered.

[00:40:48] Speaker 06:
So that all sounds pretty fine.

[00:40:53] Speaker 06:
There were a couple lines in the brief, though, that seemed more aggressive.

[00:41:00] Speaker 06:
One of them is you say,

[00:41:07] Speaker 06:
that the petitioners seem to be using business decisions as a kind of code for always seeking to charge the highest rate as the commission recommends.

[00:41:17] Speaker 06:
I understand that in terms of what the carriers give, there are going to be plenty of requirements, and they're going to be expensive, and that's going to cut into profit margin.

[00:41:30] Speaker 06:
But in terms of what carriers get, the money they get for carrying,

[00:41:36] Speaker 06:
I don't understand why they wouldn't always seek to charge the highest rate.

[00:41:42] Speaker 04:
I think the import of language you're talking about isn't that they can't seek to make a profit.

[00:41:50] Speaker 04:
It's just that that's not the only consideration in making the kind of determination.

[00:41:54] Speaker 04:
When should they not seek to charge the highest rate?

[00:42:01] Speaker 04:
Well, I think if they sought a billion dollars,

[00:42:06] Speaker 04:
then that would be an unlawful refusal to deal.

[00:42:09] Speaker 04:
So there are contexts where that... Which is a scenario that you've already covered.

[00:42:14] Speaker 06:
But that, I mean... For your other regulation.

[00:42:16] Speaker 06:
I mean, I think that's... I think what your argument is in defense of that regulation is it's not really going to the rate.

[00:42:23] Speaker 06:
It's using an exorbitantly high rate as a pretext for not dealing.

[00:42:29] Speaker 06:
I mean, I would think, especially if these companies are publicly owned, it would be...

[00:42:34] Speaker 06:
perhaps even illegal in terms of their due to their shareholders to not seek to charge the highest rate.

[00:42:41] Speaker 04:
It's really part of a larger analysis.

[00:42:43] Speaker 04:
So it's not that they can't or shouldn't seek to charge a high rate.

[00:42:51] Speaker 04:
It's that if in evaluating why they refuse to deal or why they refuse to provide cargo space, a factor is

[00:43:03] Speaker 04:
what their position, shall we say, as to these business factors or business decisions.

[00:43:11] Speaker 04:
It's not an automatic basis to evade the statute to cite that.

[00:43:20] Speaker 06:
That's not at all what petitioners are asking for, and that's not at all how the proposed rule would have read.

[00:43:25] Speaker 06:
The proposed rule would have just said business decisions are a factor that the commission considers.

[00:43:31] Speaker 04:
And they are still a factor.

[00:43:33] Speaker 04:
So I feel like it's where Congress hasn't required that we state any particular factor in the rules.

[00:43:39] Speaker 06:
You said they are still a factor.

[00:43:40] Speaker 06:
I just want to pin that down.

[00:43:42] Speaker 06:
It would not be OK for the commission to decline to consider a relevant business decision, correct?

[00:43:55] Speaker 04:
Hi.

[00:43:59] Speaker 04:
Yeah, I agree with that.

[00:44:02] Speaker 04:
A relevant business decision, yes.

[00:44:04] Speaker 03:
Yes.

[00:44:06] Speaker 03:
Because it would be arbitrary, not Sam.

[00:44:08] Speaker 03:
Correct.

[00:44:09] Speaker 03:
Yes.

[00:44:12] Speaker 03:
OK.

[00:44:12] Speaker 03:
The objective is to determine whether they are negotiating in good faith.

[00:44:16] Speaker 03:
The question about the rate is, I think it should be, whether that rate is indicative of a desire ever to reach agreement.

[00:44:25] Speaker 04:
I believe that's right, Your Honor.

[00:44:26] Speaker 04:
Yes.

[00:44:26] Speaker 03:
Or not just that rate, but any rates, counter offers, and so on.

[00:44:32] Speaker 05:
Thank you, Council.

[00:44:33] Speaker 05:
Thank you.

[00:44:38] Speaker 05:
Mr. McGovern will give you two minutes for rebuttal.

[00:44:40] Speaker 02:
Thank you, Your Honor.

[00:44:42] Speaker 02:
I want to just stress a few things that have been discussed today.

[00:44:45] Speaker 02:
First, on what I will refer to as the billion-dollar hypothetical, I mentioned that there are two ways for a carrier to price their ocean transportation services.

[00:44:56] Speaker 02:
One is through a service contract.

[00:44:57] Speaker 02:
One is through a public tariff.

[00:44:58] Speaker 02:
In the billion-dollar hypothetical we were talking about, ocean carrier A goes to a potential customer and says, sure, I'll move your cargo, but only for a billion dollars.

[00:45:10] Speaker 02:
We have to keep in mind, too, that that customer, not just the competitive options that I've mentioned earlier today, but that customer also has the ability to move cargo under the ocean carrier's tariff.

[00:45:20] Speaker 02:
And the tariff will not say a billion dollars.

[00:45:22] Speaker 02:
And the reason a tariff will not say a billion dollars is

[00:45:25] Speaker 02:
If it does, it's effectively turned off its entire customer base.

[00:45:29] Speaker 02:
So there are options here.

[00:45:30] Speaker 02:
And the reality is understanding the court's practical questions about it.

[00:45:35] Speaker 02:
But there is a way for the way that the market works for a shipper to get the service it's asking.

[00:45:44] Speaker 02:
Are you saying that no one ever pays more than the tariff?

[00:45:47] Speaker 02:
Usually, the tariff is on the higher side.

[00:45:51] Speaker 02:
through an individually negotiated confidential service contract, you come to a lower rate.

[00:45:57] Speaker 02:
That's usually the case.

[00:46:01] Speaker 03:
You refer to the instability of the rates and market rates being all over the place.

[00:46:09] Speaker 03:
Now you're telling us below whatever the tariff rate happens to be.

[00:46:14] Speaker 03:
Is there a public source of information on that?

[00:46:17] Speaker 03:
Terrors are publicly filed.

[00:46:19] Speaker 03:
No, no.

[00:46:20] Speaker 03:
Of the fluctuation in rates.

[00:46:22] Speaker 03:
So I think you indicated there's a commercial service or something that publishes.

[00:46:26] Speaker 02:
The commission mentioned that there are a number of public services that are available.

[00:46:30] Speaker 02:
Things like companies like Alphaliner and Peers and TrueRaid, there are people who move to monitor the rates.

[00:46:36] Speaker 03:
Are those all behind the paywall?

[00:46:40] Speaker 02:
Many are.

[00:46:41] Speaker 02:
Many are behind the paywall.

[00:46:42] Speaker 02:
Is there one that's not?

[00:46:46] Speaker 02:
among the ones that I've just mentioned, Your Honor, they're all behind the paywall.

[00:46:50] Speaker 02:
And on that point, on the market rates, you know, the rule, despite what we heard from my colleague today, the rule doesn't say anything about what a market rate would be or where it would be developed.

[00:47:01] Speaker 02:
It doesn't say anything about any of these public services or how the FMC would

[00:47:05] Speaker 02:
determine what would be too high.

[00:47:07] Speaker 02:
And it doesn't say anything about what deviation between an actual rate and a market rate would be.

[00:47:11] Speaker 02:
We just don't know.

[00:47:13] Speaker 02:
And at that point, that gives carriers have no ability then to run their businesses.

[00:47:17] Speaker 02:
And the FMC has a discretion to just decide for itself without any clarity in the rule.

[00:47:23] Speaker 02:
The FMC in its briefing here today also said.

[00:47:26] Speaker 06:
On the business decisions regulation,

[00:47:30] Speaker 06:
You heard the government just say that the commission must consider relevant business decisions.

[00:47:37] Speaker 06:
If that's how we read the regulation, do you have standing?

[00:47:45] Speaker 02:
We still do have associational standing, Your Honor, to challenge all three of these.

[00:47:49] Speaker 02:
But that's not what the regulation says.

[00:47:52] Speaker 06:
But how are you injured by a regulation that is read to require

[00:48:00] Speaker 06:
the commission to consider relevant businesses.

[00:48:03] Speaker 02:
If the regulation were to be read that they have, they must, they must consider business decisions that's in line with this past precedent.

[00:48:12] Speaker 02:
And therefore, um, there's not an APA violation because the APA violation here is, uh, not if that's how you read the regular, that is not your honor, how we read the regulation.

[00:48:22] Speaker 02:
And I'm not sure how the FMC reads it that way either.

[00:48:25] Speaker 06:
If we read it the same way the FMC reads it and

[00:48:29] Speaker 06:
hold in a published opinion you don't have standing, it seems like you've basically gotten what you wanted.

[00:48:35] Speaker 02:
On the business factors, Your Honor, you're right about that.

[00:48:39] Speaker 02:
On rate making, if I can go back, the commission in his brief and here today said, look, this is just one permissive factor we may or may not consider.

[00:48:48] Speaker 02:
That's really just downplaying its statutory over each year and the FMC has made clear that these rate factors are in their in their words, critical and significant.

[00:48:57] Speaker 02:
So the inverse is also true under the way that the FMC has structured the rule.

[00:49:00] Speaker 02:
Our reading of the rule rates could be the only factor that the commission considers to find.

[00:49:06] Speaker 02:
unreasonable, and carriers would be left without any recourse there.

[00:49:11] Speaker 02:
And lastly, Your Honors, there's a theme throughout the FMC's brief and also mentioned here today, which is Congress gave the FMC broad authority to adopt a rule to address serious supply chain concerns.

[00:49:28] Speaker 02:
But Congress's direction in this rule was clear, it was narrow, and it was simple.

[00:49:32] Speaker 02:
Define the term unreasonable.

[00:49:34] Speaker 02:
Here's what Congress didn't do.

[00:49:35] Speaker 02:
It did not reinsert the authority for the FMC to regulate ocean carrier prices.

[00:49:40] Speaker 02:
It did not remove the core purposes of the Shipping Act that the FMC regulate with minimal government intervention.

[00:49:46] Speaker 02:
And it did not give the FMC the ability to depart from past precedent without reasonable explanation.

[00:49:52] Speaker 02:
So we asked that the court vacate the rules remaking export policy provisions that exceed the authority in the act and at a minimum ask that the court remand the case back to the FMC to explain how

[00:50:01] Speaker 02:
each of these disputed factors are relevant to and would be used in a reasonable analysis.

[00:50:06] Speaker 03:
Mr. Governor, before you leave, is there any commission supervision of the tariff rates?

[00:50:12] Speaker 02:
Tariff rates are publicly filed, and so that... In any way constructed?

[00:50:16] Speaker 02:
Other than the requirement in the shipping act that they be publicly filed, they don't have any authority to determine tariff rate up or down.

[00:50:25] Speaker 03:
And tariff rates, would you say, still

[00:50:31] Speaker 03:
commonly the ones charged or is most everything under service conduct.

[00:50:35] Speaker 02:
Your Honor, roughly speaking, it's about, my understanding is about 75% service contract, 25% tariff.

[00:50:42] Speaker 02:
But actually this gets to, Your Honor, this gets to the point that the commission has made.

[00:50:45] Speaker 02:
There are other comparable provisions in the statute.

[00:50:48] Speaker 02:
They're not comparable provisions.

[00:50:50] Speaker 02:
Actually, you know, they're very different.

[00:50:52] Speaker 02:
And the ones that, you know, the FMC has talked about 4502, 41104, those are all just requirements to file a service contract, requirements that carriers adhere to their tariff.

[00:51:02] Speaker 02:
Those are general monitoring requirements, but the FMC doesn't have any authority to tell a carrier what it can and should charge in a service contract or a tariff because Congress never gave them that authority.

[00:51:14] Speaker 05:
Thank you.

[00:51:15] Speaker 05:
Thank you, counsel.

[00:51:16] Speaker 05:
Thank you to both counsel.

[00:51:17] Speaker 05:
Thank this case under submission.