Pacific Seafarers, Inc., et al., Appellants, v. Pacific Far East Line, Inc., et al., Appellees, 404 F.2d 804 (D.C. Cir. 1969)

This case concerns the applicability of sections 1 and 2 of the Sherman Act to an alleged conspiracy among defendant-appellees, 21 American shipping lines and two conferences to which they belong,¹  to destroy plaintiff-appellants' business of carrying AID² -financed cement and fertilizer cargoes between Taiwan and South Vietnam. The charges were first aired before the Federal Maritime Commission, which dismissed plaintiffs' complaint alleging violations of sections 15, 16 First, and 18 of the Shipping Act³  on the ground that this trade between foreign ports, of goods owned and shipped by foreigners to foreigners,⁴  was not within the Commission's jurisdiction under the Shipping Act. That ruling was not appealed. Plaintiffs' subsequently-filed complaint for damages under the antitrust laws⁵  was dismissed, at the close of oral argument, when the District Court granted defendant's motion for dismissal of the complaint. This order was presumably based on the jurisdictional ground that the Sherman Act was inapplicable to the complaint because of the absence of a claim of restraint of foreign commerce.⁶  We reverse that determination.

These are the pertinent facts as set forth in the complaint, which must be accepted as true for purposes of a motion to dismiss. Plaintiffs Pacific Seafarers, Inc. (PSI) and Seafarers, Inc. (Seafarers)⁷  are American corporations, formerly engaged in the ocean shipping business. They operated United States flag vessels, manned by American crews. Plaintiffs' business operations were centered in New York, and their ships intermittently returned to the United States for personnel and maintenance requirements. Plaintiffs' business was selling their American-flag shipping services to cement and fertilizer exporters in Taiwan, and, to a lesser extent, Thailand, who needed American-flag shipping for AID-financed sales to importers in South Vietnam. AID does not own the goods, nor does it arrange for their transportation. It does, however, provide, either on loan or grant basis, dollars to the South Vietnamese Government, which in turn sells these dollars to South Vietnam merchants desiring to finance their purchases abroad. AID implements the Cargo Preference Law⁸  by regulations requiring that at least 50% of AID-financed cargoes be transported to the recipient country in privately owned United States-flag commercial vessels. Furthermore, as a matter of policy, AID finances the costs of transportation, in addition to cargo, where the shipping is done in American-flag vessels.⁹  These regulations effectively reserve the trade in carriage of AID-financed cargo for American shipping.

At the time plaintiffs entered the business it was handled primarily by American-flag competition engaged in round-trip voyages from the United States to the Far East. In the course of their journeys, these vessels would stop to take on cargoes of foreign origin destined for ports farther along. The rate for this service was set by AFBO,¹⁰  an association of American-flag carriers which are members of either or both AGAFBO¹¹  or WCAFBO,¹²  both conferences of American-flag shippers organized to carry military cargoes for the Government (which must likewise use American-flag shipping where available). Neither the AFBO agreement, nor the rates set thereunder for cargoes originating in foreign ports and destined to foreign ports, were filed with the Federal Maritime Commission.

Plaintiffs thought that by using older, less-expensive vessels they could institute and profitably operate a substantial service in AID-financed cargoes. As stated by plaintiffs, defendant American-flag shipping lines acted to preserve this profitable trade to themselves, at rates set pursuant to concerted action and not subject to regulatory scrutiny. They first sought to erect legal barriers to plaintiffs' getting the business, and when they failed in that endeavor they dropped their prices and drove plaintiffs out of business.

(a) Their first effort was to seek issuance of a directive from AID limiting AID-financed shipping in the area to "conference liners." That would have excluded plaintiffs' vessels, but it was not obtained.

(b) Defendants then successfully urged the Director General of Commerce of South Vietnam to issue a ruling to South Vietnamese importers requiring that all future AID-financed shipments of cement be shipped on liners operated by AFBO members. Plaintiffs were not then members of AFBO, but AID countermanded that directive.

(c) Next, plaintiff PSI was told by the Director General that it would have to join WCAFBO if it wished to continue in the South Vietnamese cement business. When PSI tried to comply, its application for membership was blocked because it had no Military Sea Transportation Service Contract (MSTS) with the Defense Department, as did all other WCAFBO members. Plaintiff sought such a general eligibility contract, and seven of the appellees tried to block it by protesting to the Defense Department. That too was unsuccessful.

(d) Finally, at an AFBO meeting held in the United States, the rates on cement and fertilizer from Taiwan to South Vietnam, and on cement from Thailand to South Vietnam were thrown open, and they dropped from $8.95 per long ton to $4.96 per long ton. All other rates were maintained.

Plaintiffs were shortly driven out of business. Thereafter defendants raised the rates, and indeed raised them to substantially higher levels than those prevailing before plaintiffs sought to enter the trade.

1. We first consider defendants' arguments that principles of collateral estoppel and "practical primary jurisdiction considerations" preclude relitigation by plaintiffs of the Federal Maritime Commission's determination that this trade, carried on "totally within the confines of Far Eastern ports," was not part of "our foreign commerce."

Principles of collateral estoppel may properly be applied in administrative cases.¹³  In general these principles apply to jurisdictional issues¹⁴  and we may assume that they require giving effect in subsequent litigation to an agency's determination of facts underlying its conclusion that jurisdiction was lacking. In this case, however, there is no real dispute concerning those facts which the Commission held to be jurisdictional. Thus, plaintiffs do not seriously allege that they were plying a trade other than selling shipping services to foreigners, for transportation of foreign-owned goods to foreign consignees. They do not allege that the goods thus transported between foreign ports originated in the United States. On the other hand, defendants cannot seriously contest that the key to this whole trade was that plaintiffs and defendants were not just selling shipping services: They were selling United States-flag shipping services, which fact was of crucial importance to importers requiring AID-dollar financing for their transactions. Thus the sole question is whether, under those facts, a conspiracy to drive plaintiffs out of the business of selling United States-flag shipping services is a restraint on United States foreign commerce subject to the Sherman Act.

Although the Commission was of the view that defendant's activities had no effect on United States "foreign commerce," that determination rested solely on the standards of the Shipping Act of 1916. Thus the Commission held that its entire jurisdiction was limited to activities affecting "foreign commerce" within the intendment of section 1 of the Shipping Act,¹⁵  which defines a "common carrier by water in foreign commerce" as a "common carrier * * * engaged in the transportation by water of passengers or property between the United States or any of its Districts, Territories, or possessions and a foreign country." As plaintiffs carried no property or passengers to or from the United States they were not engaged in foreign commerce under the Shipping Act.¹⁶ 

The Commission did not rule that there was no "foreign commerce" as that term is used in the Sherman Act, nor did it rule that the standards under the two acts were the same. It is commonplace in the law to encounter instances of the same words being given different scope in different contexts.¹⁷  Indeed counsel for the defendants effectively put it to the Commission that jurisdiction under the Shipping Act is narrower than under the Sherman Act, and counsel objected to antitrust principles being "dragged in by the heels."¹⁸  Accordingly defendants cannot bootstrap the Commission's determination into a preclusive ruling on whether foreign commerce was restrained under Sherman Act standards.¹⁹ 

2. We turn therefore to the principal issue in the case: Whether the District Court was correct in its jurisdictional determination that the complaint made no allegation of restraint on United States foreign commerce. Seeking affirmance of that ruling, defendants urge that there can be no restraint of United States foreign commerce, and hence no Sherman Act violation, no matter how egregious the conduct under Sherman Act standards, unless there is restraint of, or substantial effect on, United States commodity imports or exports or transportation to or from the United States.

In our view plaintiffs, in participating in the market of supplying the service of transportation in United States-flag vessels, were engaged in foreign commerce of the United States. We have no doubt that the Sherman Act applies to the restraint alleged here, an attempt by American firms to deny another American firm access to a line of international shipping trade created by Congress for the general benefit of American shipping. We hereafter elaborate our reasons for these views.

3. We may usefully begin our analysis by considering defendants' rather guarded assertions that the carriage of foreign-owned goods between foreign ports in American vessels may not be "commerce with foreign nations" subject to constitutional regulation by Congress. Concededly defendants themselves are engaged in United States foreign commerce, because they carry United States exports and imports. Their actions clearly can be regulated by Congress. Their contention, however, is that the Sherman Act cannot be applicable unless United States foreign commerce itself is restrained.²⁰  Obviously if plaintiffs were not engaged in United States foreign commerce in the constitutional sense, there could be no such restraint. We therefore consider whether plaintiffs engaged in United States foreign commerce.

Gibbons v. Ogden²¹  makes clear that, as used in the Constitution, "commerce" is a very broad concept which includes navigation — not merely because of the relationship between shipping and the movement of goods,²²  most certainly commerce, but also because shipping itself is a form of gainful economic activity.²³  Were it not so, Chief Justice Marshall wrote, "the government of the Union has no direct power over the subject, and can make no law prescribing what shall constitute American vessels, or requiring that they shall be navigated by American seamen."²⁴ 

Gibbons v. Ogden unequivocally states that the constitutional language granting Congress power to regulate "commerce with foreign nations" authorizes Congressional enactment of laws regulating "every species of commercial intercourse between the United States and foreign nations."^24A That much was "universally admitted" in 1824. Plainly, United States vessels engage in a "species of commercial intercourse" between the United States and foreign nations regardless of the ownership or national origin of the goods they carry.

One of the significant accounts in foreign commercial intercourse is the fact that certain maritime nations earn income for their balance of international payments by providing transportation services involving neither their ports nor their products. Examples readily suggest themselves: e. g., Norway, Greece, Great Britain. They are engaged, in terms that are readily and fully understood by practical businessmen as well as theoretical economists, in the "export" of shipping services. So too, when American vessels earn transportation income, whether by payments from foreigners or Americans, there is direct benefit to the economy of the United States. More American seamen are employed and there is more business for American-based service industries dependent on shipping — e. g., repair and insurance. The fact that American-flag vessels must carry American crews,²⁵  and are liable to penalty tax if they are repaired abroad,²⁶  and are available to the Government in time of national emergency²⁷  provides a substantial and on-going nexus to the United States.

These are the kinds of beneficial consequences, apart from any interest of the vessel owner himself, that nations further in their public interest by protecting the trade aspirations of their citizens. That policy is particularly compelling where ships are concerned because of the need to maintain a strong merchant marine available in wartime regardless of its peacetime routes.

Substantiating our view that the sale of American flag shipping services to foreigners is itself a form of United States foreign trade, is the protection Congress accorded to that trade in section 14 of the Shipping Act of 1916. That section authorizes the Federal Maritime Commission to bar foreign carriers from United States ports if they are parties to an agreement respecting transportation between foreign ports that excludes American-flag carriers from admission on equal terms.²⁸  And defendants apparently concede that the National Labor Relations Act, 29 U.S.C. § 151 et seq., passed by Congress under its commerce power, is applicable to all American-flag vessels.²⁹ 

4. We hold that plaintiffs were engaged in the foreign commerce of the United States for purposes not only of determining constitutional power, but also of determining the applicability of the Sherman Act, which prohibits conspiracies "in restraint of trade or commerce among the several States, or with foreign nations."

The basic approach to Sherman Act construction is the broad premise that Congress exercised therein the full scope of its powers under the Commerce clause of the Constitution.³⁰  That premise has been stated in cases involving interstate commerce, and may well be subject to limitations — for cause shown, so to speak — in regard to foreign commerce.³¹  For example, it may fairly be inferred, in the absence of clear showing to the contrary, that Congress did not intend an application that would violate principles of international law.³² 

However, the broad statement that Congress has exercised the full sweep of its commerce powers is not without significance in determining whether the Sherman Act applies as to restraints that operate, in the constitutional sense, against the "foreign commerce" of the United States. The Sherman Act has aptly been characterized as a "charter of freedom."³³  Its principle of limiting the accumulation and exercise of dominant economic power³⁴  is rooted in historic notions of the invalidity of unreasonable trade restraints,³⁵  and that policy has been increasingly accepted as a fundamental principle of our system.³⁶  If, as defendants contend, that policy cannot extend to the full sweep of American foreign commerce because of the international complications involved, then surely the test which determines whether United States law is applicable must focus on the nexus between the parties and their practices and the United States, not on the mechanical circumstances of effect on commodity exports or imports.

The Sherman Act is not limited, in effect, to restraints on sales of goods. That is the thrust of defendants' distinction. In the domestic setting, however, it is settled that the Sherman Act's bar on unreasonable restraints on trade or commerce extends to service industries — and transportation is clearly a service industry³⁷  — as part of commerce.³⁸  There is no basis in the statute or in reason to argue that conspiracies in service industries are proscribed only if the services are in interstate commerce, and not if they are in foreign commerce.³⁹ 

Defendants correctly point out that the cases hitherto applying the Sherman Act to foreign commerce have in fact involved either exports or imports of goods, or transportation to or from United States ports,⁴⁰  and conclude that it is inapplicable unless one or the other is present.⁴¹  We recognize that ours is the first ruling on the issue before us — but if there has never before been a ruling affirming application of the Act to this kind of trade, neither has there been a ruling rejecting that application. The matter is res nova, and we must decide it in the light of the reasoning and analysis that appears to us to be sound.

It may be noted that in related contexts contentions close to those urged by defendants have not been accepted. A mechanical commodity export-import limitation was rejected by the District Court in In re Grand Jury Investigation of the Shipping Industry, 186 F. Supp. 298, 313 (D.D.C. 1960). Prior to that it had been rejected as unsound by the 1955 Report of the Attorney General's National Committee to Study the Antitrust Laws (pp. 77-80). We reject it also.

It may be assumed that, as a matter of construing Congressional intent, the Sherman Act has no application where the market involved consists of shipping services between two foreign ports, without any American characteristic, and the only American aspect is that one or some of the persons competing in the transportation market is offering American flag ships. In the case before us, however, we hold that, since there is an identifiable, distinctive market for American-flag shipping service where the American characteristic is dominant — a market defined as involving the transportation of AID-financed cargoes, which has a definite nexus with significant interests of the United States — the Sherman Act is applicable to a conspiracy to exclude newcomers from the trade.⁴² 

Our conclusion as to the existence of the requisite nexus is influenced by three salient considerations. First, the trade is entirely a product of the United States policy of subsidizing its merchant marine. It is the United States that has the greatest interest in this trade, and its conduct on a strong and efficient basis. Defendants claim that AID is merely a financier, yet the fact that the foreign importers were willing to accept the burden of higher-cost United States-flag shipping in order to get AID financing tends to show that AID was providing a stimulus to trade far beyond the realm of the conventional private financier. We may take note of what Judge Ryan found, on a more complete record, concerning the significance of AID and its programs. In United States v. Concentrated Phosphate Export Ass'n he wrote:

We also do not accept or agree with defendant's argument that AID was but an incidental party to the transaction — no more than the usual financing institution found in international transactions where there are problems of currency exchange. AID was at the center of the transactions, it was the force which initiated, directed, controlled and financed them. Without AID, there would have been no sale or purchase and the extent of the role it played was known in every detail to and relied on by both parties to the transactions, particularly by the supplier who looked to it for payment and obligated itself to conform to its requirements and conditions if he was to receive payment.⁴³ 

Since the United States has established and promoted, in carriage of AID-financed movements, this trade of providing American-flag shipping service, it is only reasonable to expect the "fundamental national economic policy" of the antitrust laws to be applicable.⁴⁴  Clearly, the right of all American-flag ships to participate is basic. Had there been a conspiracy of foreign carriers to exclude American-flag ships from access to trade, the Federal Maritime Commission would have been directed to exclude them from United States ports.⁴⁵  Can it be supposed that Congress intended American competitors to be able to organize a similar conspiracy with total immunity for their conduct?

Secondly, all parties must be Americans to participate in serving this market for American-flag shipping. Consequently there are few possible international complications to justify an interpretation that deliberately cuts back on the scope of the antitrust laws as applied to commerce which greatly concerns the United States. It is plain that where American foreign commerce is affected foreigners may be held under our antitrust laws for restraints thereon.⁴⁶  It is also significant, for the purpose of determining whether what is involved constitutes activities affecting American foreign commerce within the scope of the antitrust laws that the trade not only has significant contacts and nexus with the United States but also is the province of American concerns.⁴⁷ 

5. We now consider whether the foregoing analysis is to any extent aborted or negatived by defendants' contention that, whatever the case as to the application of the antitrust laws generally to foreign commerce not involving commodity exports, the Sherman Act must be read in conjunction with, and be limited by, the Shipping Act of 1916. Defendants thus switch from their prior position before the Commission,⁴⁸  and now urge that the Commission's jurisdiction and the Sherman Act are coterminous. If the two acts are to be held to have similar coverage, it may well be because insofar as agreements of common carriers affecting foreign commerce are concerned, the Commission was in error in its narrow view of Shipping Act jurisdiction,⁴⁹  not because the Sherman Act is to be narrowed.

The Supreme Court has specifically held that the antitrust laws, which "represent a fundamental national economic policy," continue in effect as to the shipping industry, and their rate-making activities in foreign commerce. Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 86 S. Ct. 781, 15 L. Ed. 2d 709 (1966). The Court recognized that the Shipping Act limits the scope of the antitrust laws, but this curtailment was confined to the "explicit provision exempting activities which are lawful under § 15 of the [Shipping] Act," and the Court declined to countenance any "unstated legislative purpose to free the shipping industry from the antitrust laws." See 383 U.S. at 216, 217, 86 S. Ct. at 783. (Emphasis added) Therefore the antitrust laws continue in effect, without modification based merely on implication, as to common carriers, subject to the Act, which do not obtain the Commission approval under § 15 which Congress required as a condition of exemption. The antitrust laws also continue in effect as to areas not subject to the Shipping Act — e. g., a restraint engineered by one or more ocean tramps affecting American foreign commerce. The fact that the Shipping Act is limited by virtue of § 1, to those vessel operators who are "common carriers" certainly cannot be supposed to make an exemption available, say, to operators not common carriers, offering service of transporting commodities from the United States. That instance is not our case, of course, but it exemplifies that the two acts do not precisely mesh.⁵⁰ 

In a more sophisticated contention, defendants say that the fact that the provision in § 15 providing an exemption from the antitrust laws was not made applicable to shipping between foreign ports is an indication of Congressional understanding that such shipping was not subject to the American antitrust laws. Indeed Congress contemplated in § 14 of the Act that American carriers would participate in foreign rate conferences governing shipping between foreign ports, and could hardly have supposed that they would be subject to the antitrust laws, or to more competition than governed shipping to and from the United States.

The dispositive analysis seems to us to run as follows: We are not to turn to the acts of subsequent Congresses for unstated exemptions, or implied repeals, of the antitrust laws. That is clear from Carnation.⁵¹  Moreover, "how members of the 1914 Congress may have interpreted the 1890 Act is not of weight for the purpose of construing the Sherman Act."⁵² 

The immunity granted by Congress in the Shipping Act was limited to those instances where there was some assurance, provided by Commission approval, that acts immunized from the antitrust laws were not contrary to the over-all public interest. We have already expressed our doubt whether the Commission correctly disclaimed jurisdiction over the commerce before us. But assuming, for discussion, that the Commission was right, this is at most a casus omissus, and the antitrust exemption or limitation is not to be implied, but is to be furnished only when and as directed by the legislature, which has hitherto accompanied such directions with substitute provisions to safeguard the public interest.

Finally, we turn to defendants' argument that American participation in unapproved foreign conferences is contemplated by § 14 of the Shipping Act, and hence cannot reasonably be deemed governed by the antitrust laws. Such foreign conferences do not have the primary nexus of American contacts (supra point 5), which underlies our ruling that the activities before us constitute foreign commerce within the meaning of the Sherman Act.

Reversed and remanded.