Am. Great Lakes Ports Ass'n v. Schultz

962 F.3d 510

AMERICAN GREAT LAKES PORTS ASSOCIATION, et al., Appellants

v.Karl L. SCHULTZ, in His Official Capacity as Commandant, United States Coast Guard, et al., Appellees

No. 18-5145

C/w 18-5167

United States Court of Appeals, District of Columbia Circuit.

Argued January 22, 2020

Decided June 16, 2020

C. Jonathan Benner argued the cause for appellants. With him on the briefs was Michael E. Deutsch. Kayla Grant, Washington, entered an appearance.

Jane M. Lyons, Assistant U.S. Attorney, argued the cause for federal appellees. With her on the brief were Jessie K. Liu, U.S. Attorney, and R. Craig Lawrence, Assistant U.S. Attorney. Jeremy S. Simon, Assistant U.S. Attorney, entered an appearance.

John Longstreth argued the cause for intervenor-appellees. With him on the brief was Mark Ruge, Washington.

Before: Srinivasan, Chief Judge, and Rogers and Rao, Circuit Judges.

Rao, Circuit Judge:

Ships engaged in foreign trade on the Great Lakes must use pilots registered pursuant to the Great Lakes Pilotage Act of 1960. The Coast Guard administers this licensing monopoly and sets rates for the American pilots, which has resulted in ongoing disputes between the Pilots and the Great Lakes commercial shipping and port interests ("Shippers"). This case requires us to resolve an Administrative Procedure Act challenge by the Shippers to the pilot rates for the 2016 commercial shipping season ("2016 Rule"). The Shippers claim the 2016 Rule set an artificially inflated pilot rate that caused significant harm to the industry. The district court upheld parts of the 2016 Rule setting higher compensation targets for the Pilots, but held several parts of the Rule to be unsupported by the administrative record and remanded to the Coast Guard without vacating the Rule. We affirm the district court's decision in full. Although remand without vacatur is the exception rather than the rule, in these circumstances, the district court acted within its discretion, given the disruption likely to occur from reallocating rates paid several years ago.

I.

The Great Lakes Pilotage Act requires foreign vessels and American vessels participating in foreign trade to hire an American or Canadian maritime pilot to assist in navigating the difficult waters of the Great Lakes. See 46 U.S.C. §§ 9301 – 9308. The Act authorizes the Coast Guard to certify pilots, establish conditions of service, and set the rates that pilots must charge for their services. See 46 U.S.C. § 9303. Pursuant to this statutory authority, the Coast Guard has certified three pilotage associations to be the exclusive American providers of Great Lakes pilotage services in their assigned regions. See 81 Fed. Reg. 11,908, 11,910 (Mar. 7, 2016). When setting rates, the Coast Guard must consider "the public interest and the costs of providing the services." 46 U.S.C. § 9303(f). The Coast Guard must "establish new pilotage rates by March 1 of each year," id. ,¹ which the agency does through notice and comment rulemaking.

After requests from the Pilots and Shippers, the Coast Guard proposed a new methodology to calculate Great Lakes pilot rates for the 2016 shipping season. The Coast Guard's proposed rule was based largely upon the recommendations of the Great Lakes Pilotage Advisory Committee (GLPAC), an entity created by Congress in 1983 for the purpose of assisting the Coast Guard in formulating rates. See 80 Fed. Reg. 54,484, 54,486 (Sept. 10, 2015) ; 46 U.S.C. § 9307(d)(2) ("The Secretary shall consider the information, advice, and recommendations of the Committee in formulating policy regarding matters affecting Great Lakes pilotage."). The agency identified two reasons for changing the methodology. First, both the Pilots and the Shippers identified methodological issues that distorted the ratemaking calculation. The Pilots argued that the methodology resulted in artificially low rates that made it difficult to attract and retain pilots (harming "the public interest") and the Shippers argued that the rates were artificially inflated (ignoring "the costs of providing the services"). See, e.g. , 80 Fed. Reg. at 54,486. Second, the Coast Guard previously relied on union compensation data for similarly situated merchant marine masters and mates to help determine target pilot compensation; however, such data was no longer available from the union. See id. at 54,484.

After the public comment period, the Coast Guard finalized the 2016 Rule largely along the lines initially proposed and consistent with the GLPAC recommendations. 81 Fed. Reg. at 11,908. In adopting a new methodology, the Coast Guard found that the prior ratesetting undercompensated pilots, which resulted in pilot shortages and threats to vessel safety. The agency concluded rates must be increased to ensure a well qualified pool of pilots. Id. at 11,910. The new methodology was designed "to generate sufficient revenue for the pilots to provide the service [the public] require[s]." See id. at 11,909. To accomplish this, the Coast Guard, as relevant to this appeal, switched to the Peak Staffing Model, which pegged the number of necessary pilots to peak traffic periods in order to ensure the availability of rested pilots at all times. See 80 Fed. Reg. at 54,489 ; 81 Fed. Reg. at 11,908–909. The agency also employed Canadian pilot compensation as a benchmark for compensation, plus a ten percent cost of living upward adjustment to incentivize American pilots to remain in the Great Lakes region. 81 Fed. Reg. at 11,914 –915. Finally, the Coast Guard estimated the rule would cost the shipping industry an additional $1.87 million annually, as well as a one-time $1.65 million expense to cover training. Id. at 11,937 –38.

The Shippers, represented by the American Great Lakes Ports Association, filed a lawsuit challenging the 2016 Rule under the Administrative Procedure Act in the United States District Court for the District of Columbia. The Shippers disputed the overall justification for the new methodology, questioning the agency's conclusion that there was a compensation-driven pilot shortage in the Great Lakes region that could be remedied by increasing pilot rates. They also challenged the Coast Guard's failure to consider "weighting factors"² in the methodology; the setting of American pilot rates using Canadian pilot compensation with a ten percent upward adjustment; and the use of the new Peak Staffing Model to calculate rates.

The district court rejected the Shippers’ overarching challenge to the Coast Guard's new methodology. See Am. Great Lakes Ports Ass'n v. Zukunft , 296 F. Supp. 3d 27, 39–41 (D.D.C. 2017). As an initial matter, the court held the Coast Guard's decision to increase rates was not arbitrary and capricious because it rested on sufficient record evidence "even absent the empirical evidence demanded by Plaintiffs." Id. at 39–41. The court also affirmed the Coast Guard's use of the Peak Staffing Model to determine the number of rested pilots needed throughout the season because one of the agency's rationales—safety—was "amply supported" by the record. Id. at 42–43. The court, however, held two aspects of the Coast Guard's new methodology to be unsupported by the record. First, the court held there was no reasoned basis for setting American pilot compensation by reference to a ten percent increase over the base Canadian compensation rate because the figure came from unidentified comments during a GLPAC meeting. Id. at 46–48. Second, the court held that the Coast Guard acted arbitrarily by failing to account for increased pilot revenue from vessel weighting factors, resulting in a potential overcharge to the Shippers. Id. at 51–52. Noting the difficulty of crafting a remedy, the district court instructed the parties to file supplemental briefing on the appropriate remedy. Id. at 56.

Following additional briefing, the district court determined, in a separate published opinion, that remand without vacatur was the appropriate remedy. See Am. Great Lakes Ports Ass'n v. Zukunft , 301 F. Supp. 3d 99, 104–05 (D.D.C. 2018). The Shippers urged the court to vacate the 2016 Rule and order various forms of prospective and retroactive relief to compensate for the unlawfully inflated rates. Id. at 102. The district court noted the Shippers’ requests demonstrated they "fundamentally misunderstand th[e] Court's prior ruling" because the court had not held that the rates were too high, but instead that the rates were not justified by the administrative record. Id. The court found the errors in the 2016 Rule were substantial because the Coast Guard provided no support for pegging compensation to Canadian pilots or for its failure to include weighting factors (which were included in the 2017 rate review). Id. at 103. Although the court determined the Coast Guard's errors to be significant, it remanded without vacatur because the "disruptive consequences" of vacatur outweighed the seriousness of the errors. Id. at 103–05. The court noted it was unclear "whether and to what extent the pilotage associations might be required to issue refunds" in response to vacatur but that "to the extent that they would be required to do so, the disruptive consequences are clear." Id. at 104. The court thus remanded to the Coast Guard to "evaluate and justify an appropriate adjustment to benchmark compensation for its ratemaking methodology going forward." Id. at 105.

The Shippers appeal, arguing the district court erred in affirming parts of the 2016 Rule and further abused its discretion in declining to vacate the Rule despite finding significant parts of it unsupported by the record.

II.

As an initial matter, this court must assure itself that it has jurisdiction over the Shippers’ appeal of the district court's remand order. See Steel Co. v. Citizens for a Better Env't , 523 U.S. 83, 94–95, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). The courts of appeals have jurisdiction over "all final decisions of the district courts of the United States," 28 U.S.C. §...