The Federal Maritime Commission is getting support for a proposed interpretive rule that seeks to clarify the scope of a prohibition in the Shipping Act against carriers, marine terminal operators and ocean transportation intermediaries failing “to establish, observe and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing or delivering property.”
Five trade organizations — the World Shipping Council, American Association of Port Authorities, the National Customs Brokers and Forwarders Association of America (NCBFAA) the New York/New Jersey Foreign Freight Forwarders and Brokers Association, and International Trade Surety Association — have submitted statements supporting the rule.
Their statements, made in response to a notice of proposed rulemaking by the FMC, were the only ones submitted to the FMC. No individual shippers or associations representing them responded to the FMC call for comments.
The proposed rule offers an interpretation of 46 U.S.C. § 41102(c), previously known as Section 10 (d)(1) of the Shipping Act of 1984. It would guide future FMC decisions.
In a series of cases before the FMC that began in 2010, the majority of the FMC commissioners held “that discrete 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.”
In an executive summary explaining the planned interpretive rule, the FMC said the recent decisions “diverge from consistent commission precedent dating back to 1935 and reaffirmed as recently as 2001 which required that a regulated entity must engage in a practice or regulation on a normal, customary and continuous basis in order to be found to have violated § 41102(c) of the Shipping Act.”
“In essence,” observed the NCBFAA, the proposed interpretive rule “seeks to reverse the precedent set in a series of cases beginning in 2010 holding that a regulated entity can be found in violation of §41102(c) due to alleged issues arising out of the handling of a single shipment.” The NCBFAA said while it “agrees that this section of the act should not be used to convert isolated commercial disputes into Shipping Act violations or turn the commission into a small claims court, this section should remain as an important check on more systemic malpractices.”
The FMC is an independent federal agency that can have up to five members. However, three commissioners have left the commission in the past two years. All Democrats, they are Mario Cordero, William Doyle and Daniel
Maffei. President Donald Trump has not yet nominated successors.
The two current members of the FMC, Acting Chairman Michael Khouri and Commissioner Rebecca Dye, both Republicans, had disagreed with the previous majority of commissioners on the proper interpretation of §41102(c) in a series of decisions.
The FMC is now proposing an interpretive rule that reflects the views of Khouri and Dye.
The World Shipping Council said, “The recent history of commission adjudications … leaves us today with a handful of commission cases that starkly diverge from prior precedent but that have not been subjected to judicial review. For a litigant considering filing a claim, or for a respondent defending against a claim, it is quite difficult today to know what the law is.”
It said the FMC’s proposed rule “would strike the right balance between encouraging meritorious Shipping Act cases on the one hand and on the other hand discouraging litigants from filing with the commission cases that should instead be brought in other fora.”
The more recent interpretation of §41102(c) gave shippers more time to make claims.
James Devine of the tariff publishing company Distribution Publications Inc., in Oakland, Calif., said the boilerplate language in a typical bill of lading may give shippers or consignees only three days to give notice of loss or damage to cargo and just one year to file a lawsuit. In contrast, the Shipping Act says, “If the complaint is filed within three years after the claim accrues, the complainant may seek reparations for an injury to the complainant caused by the violation.”
The AAPA said the FMC’s proposal would re-establish commission precedent as articulated in proceedings from the 1950s to the 2000s “rather than making it a catchall that would encompass virtually any commercial dispute or breach of contract claim.”
AAPA said its member ports have been subject for several decades to suits by large, well-financed private parties attempting to improve their bargaining position in commercial dealings with public port authorities by filing Shipping Act claims against them. These proceedings have included claims of unjust and unreasonable practices that have made no effort to allege that the purported unlawful ‘practice’ was undertaken on a normal, customary and continuous basis as opposed simply being a non-systemic, one-off event or incident peculiar to the complainant’s own dispute with a port, or other person subject to the Shipping Act.
“Under the law as it was understood for many decades, these one-off unreasonable practice claims did not state a claim. However, several recent decisions that the proposed interpretive rule seeks to address threaten yet another means by which discrete commercial disputes can be morphed into alleged violations of the Shipping Act. Unless checked, this will add an additional layer of uncertainty and expense to the defense of these actions, further diverting ports’ attention and resources away from their primary goal of encouraging the development and free flow of U.S. waterborne commerce,” said AAPA. “The proposed rule would restore a proper interpretation of the Shipping Act’s prohibition on unjust or unreasonable practices or regulations and overturn an interpretation that was beyond the agency’s authority.”