Am. Great Lake Ports Assn v. U.S. Coast Guard

443 F.Supp.3d 44

AMERICAN GREAT LAKE PORTS ASSN., et al., Plaintiffs,

v.UNITED STATES COAST GUARD, et al., Defendants,

Case No. 18-cv-2650 (CRC)

United States District Court, District of Columbia.

Signed March 10, 2020

Charles Jonathan Benner, Thompson Coburn LLP, Washington, DC, for Plaintiffs.

Marsha Wellknown Yee, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendants.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge

The United States Coast Guard undertakes an annual rulemaking to establish rates that international shipping companies operating on the Great Lakes must pay for American seamen who pilot their vessels. And each year, it seems, either the shipping companies or the associations that supply the pilots sue the Coast Guard to challenge aspects of the rulemaking. The shippers perennially complain that the rates are too high, while the pilots gripe that they are too low. The latest iteration of this pattern comes as a challenge by the shipping industry to the Coast Guard's 2018 Final Rule. For the reasons explained below, the Court rejects the shippers' challenge and will, accordingly, grant summary judgment in favor of the Coast Guard and the pilot associations that have intervened as defendants.

I. Background

A. The Statutory Framework

The Great Lakes Pilotage Act of 1960 (the "Act") obligates all foreign shipping vessels, as well as U.S. vessels engaged in foreign trade, to use either American or Canadian registered pilots to navigate the American portion of the Great Lakes and the St. Lawrence Seaway. 46 U.S.C. § 9302(a)(1).¹ The Coast Guard has partitioned the American portions of those waters into three districts, which are further divided into "designated" and "undesignated" waters.² Id. Each district has one private pilotage association that supplies pilots for the shippers' use. While the associations are private, the Coast Guard sets the number of pilots that must be registered in each district, oversees the organizational structure of the three pilotage associations, and establishes the work rules for the pilots. 46 C.F.R. §§ 401.220, 401.320, 401.340.

The Act requires the Secretary of Homeland Security to "prescribe by regulation rates and charges for pilotage services," and the Secretary has delegated that task to the Great Lakes Pilotage Office of the United States Coast Guard. Dep't of Homeland Sec. Delegation No. 0170.1, para. II (¶ 92.f). The statute does not prescribe any particular method for calculating appropriate rates. It merely instructs the Coast Guard to establish rates "giving consideration to the public interest and the costs of providing the services." 46 U.S.C. § 9303(f). The statute requires the Coast Guard to conduct a full ratemaking every five years and an annual review each year. Id.

The Court details the rate-setting process in detail below. In sum, however, the Coast Guard projects how much total revenue each pilot association will need for the upcoming shipping season and then calculates a pilot's hourly rate by dividing that figure by the number of hours the Coast Guard anticipates that pilots will have to work to satisfy the shipping demand. The Coast Guard aims to set the rate at a level high enough to enable the associations to recoup their operating expenses, compensate the pilots, and retain an additional return to fund capital improvement projects like ship repairs.

More specifically, Coast Guard uses the following ten-step process to establish hourly pilotage rates for the upcoming shipping season, which runs from mid-March to mid-December. See Great Lakes Pilotage Rates—2018 Annual Review and Revisions to Methodology, 83 Fed. Reg. 26,162, 26,170 (June 5, 2018) ("2018 Final Rule").³ In this case, only the steps marked with an asterisk are challenged by Plaintiffs.

Step 1:Recognize previous operating expenses. The Coast Guard determines each association's operating expenses based on audited statements supplied by the associations. The audited expenses lag the annual ratemaking process by three years—meaning that the 2018 ratemaking relied upon 2015 expense data.

Step 2:Adjust operating expenses for inflation or deflation. Using the expenses recognized in Step 1, the Coast Guard applies inflation adjustors to update the figures for the current year.

Step 3:Determine number of pilots needed. Using a staffing model that accounts for the number of pilots needed during the peak traffic periods at the beginning and close of the season, the Coast Guard estimates the number of pilots that will be needed to satisfy demand.

*Step 4:Set a target pilot compensation benchmark. Using a two-step process, the Coast Guard determines the aggregate revenue needed for pilot compensation in each district. First, the Coast Guard calculates the total compensation needed for each pilot using a compensation benchmark. Next, it multiplies that figure by the projected number of pilots needed (as determined in Step 3) to determine total target pilot compensation for the year.

*Step 5:Project working capital fund. The Coast Guard calculates the contributions required for the pilotage associations' working capital fund, which is a pool of money intended for use by the associations for infrastructure and other capital improvement projects. This figure is calculated by adding the total operating expenses (Step 2) to the total pilot compensation (Step 4) and then multiplying that total by the preceding year's average annual rate of return for new issues of high-grade corporate securities.

Step 6:Calculate needed revenue. The Coast Guard adds the projected operating expenses (Step 2), the total target pilot compensation (Step 4), and the working capital fund (Step 5) to arrive at total projected needed revenue for each association.

*Step 7:Initially calculate base rates. At this step the Coast Guard determines what the hourly pilotage rate should be in order to generate the total projected revenue. To do this, the Coast Guard first calculates the traffic averages for each area over the past ten years, as expressed by pilot hours worked. It then divides the projected needed revenue (Step 6) by the ten-year traffic average for each area to arrive at the base hourly rate for each area.

Step 8:Calculate average weighting factors by area. Vessels do not all pay the same rate for pilotage services, but instead pay the base rate multiplied by a weighting factor, a number between 1.0 and 1.45 that corresponds to the size of a vessel. At this step, the Coast Guard calculates the average weighting factor.

Step 9:Calculate revised base rates. The Coast Guard modifies the initial base rate (Step 7) to account for the average weighting factors (Step 8) by dividing the initial base rate by the average weighting factor to produce a revised rate.

Step 10:Review and finalize rates. Lastly, the Coast Guard reviews the revised base rate to ensure that the calculated rates meet the goals of the Great Lakes Pilotage Act and 46 CFR § 404.1(a) —that is, to promote efficient, safe, and reliable pilotage service on the Great Lakes.⁴

46 C.F.R. §§ 404.101 – 404.110 ; Great Lakes Pilotage Rates—2018 Annual Review and Revisions to Methodology, 83 Fed. Reg. 2,581, 2,584 (Jan. 18, 2018) ("2018 NPRM"). The Coast Guard initiates a ratemaking by publishing a Notice of Proposed Rulemaking, detailing the agency's calculations at each step of the process and inviting public comment. After the comments have been reviewed and any necessary adjustments made in response, the Coast Guard publishes a Final Rule establishing the new rates.

B. Past Ratemakings

To understand Plaintiffs' challenges to the 2018 Final Rule, a brief recap of the Coast Guard's previous ratemakings—and relevant aspects of litigation that ensued—is in order. The Coast Guard employed the same ratemaking methodology from 1995 to 2015. See Great Lakes Pilotage Rates—2016 Annual Review and Changes to Methodology, 80 Fed. Reg. 54,484, 54,486 n.13 (Sept. 10, 2015) ("2016 NPRM"). In 2015, the agency announced that it intended to substantially revise its approach in its 2016 Rule. Id. at 54,484. The Coast Guard cited two reasons for adopting a new system. First, it explained that "over many years both pilots and industry have identified certain methodology issues that they believe significantly distort ratemaking calculations[,]" and "[p]ilot associations believe those distortions result in low rates that contribute to their difficulty in retaining pilots and attracting applicant pilots." Id. Second, the Coast Guard stated that in prior ratemakings, it had used contract data from a particular merchant mariner union—the American Maritime Officers Union ("AMOU")—to calculate the benchmark for pilot compensation (Step 4 above), but the union had ceased to make that data available. See id. (explaining that the AMOU had come to view "that data as proprietary and will no longer disclose it to the Coast Guard"). Moreover, the Coast Guard felt compelled to find a new compensation benchmark after Judge Chutkan upheld a challenge brought by a pilotage association to the Coast Guard's use of partial AMOU contract data that the union "affirmatively stated was inaccurate." See St. Lawrence Seaway Pilots Ass'n v. U.S. Coast Guard, 85 F. Supp. 3d 197, 202, 206 (D.D.C. 2015).

The 2016 Rule changed the Coast Guard's ratemaking methodology in a number of ways, many of which were subsequently challenged in this court by the shipping industry and related groups. See Am. Great Lakes Ports Ass'n v. Zukunft, 296 F. Supp. 3d 27, 35 (D.D.C. 2017) ; Great Lakes Pilotage Rates—2016 Annual Review and Changes to Methodology, 81 Fed. Reg. 11,908 (Mar. 7, 2016) ("2016 Final Rule"). First, the shipping companies contended that "the Coast Guard's promulgation of the modified rate-making methodology was not an exercise in reasoned decisionmaking because it was based in part on the Coast Guard's belief that low pilotage compensation was responsible...