Independent U.S. Tanker Owners Committee v. Dole

In the Merchant Marine Act, Congress gave the United States Department of Transportation (the department) (defendant) authority to enact informal rules to implement certain objectives. The act’s objectives included fostering the development of an American merchant-marine fleet that was sufficient to fulfill (1) domestic waterborne commerce needs, (2) a substantial portion of the country’s international waterborne commerce needs, and (3) auxiliary military needs in times of war. The act did not list economic efficiency, deregulation, or similar concepts as objectives. To better compete with other countries, the federal government had subsidized certain ships for use in international trade. To keep domestic competition fair, these subsidized ships were not allowed to carry cargo domestically. Then, an Alaskan oil increase also increased the need for domestic tankers. The department proposed an informal rule allowing international tankers to convert to domestic tankers if they paid back their subsidies. After the necessary notice-and-comment procedures, the department adopted the informal rule, called the payback rule. As required by the Administrative Procedure Act (APA), the department included a statement of basis and purpose in the rule. This statement focused on how the rule would increase economic efficiency and deregulate markets. The statement claimed that the international fleet was dying and that allowing the international ships to enter the domestic market would increase competition and therefore market efficiency. The statement acknowledged that this action would force some domestic tankers out of service, reduce the number of militarily useful tankers, and possibly cause companies to default on government loans. The statement did not explain how the smaller version of an already dying international fleet would continue to meet the country’s international needs or address the loss of the militarily useful domestic ships. The Independent US Tankers Owners Committee and others (collectively, the domestic tankers) (plaintiffs) sued the department in federal district court, alleging that the payback rule was invalid because its basis-and-purpose statement did not meet the requirements of the APA. The district court upheld the rule. The domestic tankers appealed.