DC Circuit Says FMC Properly Tossed Claims Against High Ship Storage Fees

The U.S. Court of Appeals for the District of Columbia Circuit in a July 29 judgment dismissed ship reseller Crocus Investments's claim against Marine Transport Logistics' high storage fees. The court ruled that the Federal Maritime Commission appropriately changed its interpretation of 46 U.S.C. Section 41102(c), which bars certain ocean transportation industry members for failing to enforce reasonable regulations relating to storing property. The new interpretation says that a party is only liable for violations of this rule occurring on a continued basis and not a one-off mishap (Crocus Investments v. Federal Maritime Commission, D.C. Cir. #21-1199).

Crocus buys, repairs and resells boats. In 2013, Crocus contracted with Marine Transport to store a boat, named "Formula," in New Jersey. Marine Transport charged Crocus around $39,000 in storage fees, leading the ship reseller to file a complaint with the commission alleging that the fees violated Section 41102(c). A judge at the commission initially dismissed the claim on jurisdictional grounds, though the commission vacated the ruling in 2019.

While the case was pending appeal, the commission changed its interpretation of the law. In 2010, the commission implemented a new interpretation of the rule, creating liability for even a single unjust act. The commission then restored its interpretation to its pre-2010 form, which says that liability is only established for violations occurring on a continued basis. Under this new interpretation, a judge ruled that Marine Tranpsort's fees doesn't violate Section 41102(c).

Crocus took its case to the appellate court, arguing that the commission violated the Administrative Procedure Act by applying their interpretation retroactively and by finding that Crocus did not have a viable claim against Marine Transport under the new interpretation. Addressing the first claim, Judges David Tatel, Patricia Millett and Neomi Rao said that the new interpretation was "permissibly applied" retroactively to Crocus' case.

"The law has long been settled that when an agency interprets a statute that it is charged with administering 'as an incident of its adjudicatory function[,]' it 'may apply that new interpretation in the proceeding before it,'" the judgment said. "That is true regardless of whether the agency had previously 'memorialized [its] interpretation' in a rule. Any retroactivity of the interpretive rule itself is 'completely subsumed in the permissible retroactivity of the agency adjudication.' For that reason, Crocus’s threshold argument that, as an interpretive rule, [the new interpretation] may only be applied prospectively is foreclosed by precedent."

The judges then looked at the five factors which guide analysis of whether retroactively is unjust in a particular case. The judges ruled that the commission " correctly weighed" them and found it was not unjust to retroactively hit Crocus with its interpretation of the law.

Under the third factor -- whether a party relied on the former rule -- the commission said it backed its retroactive application of its interpretation since Crocus produced no evidence that it relied on the previous interpretation of the law when storing the Formula with Marine Transport. Crocus said its past litigation counts as reliance. "That argument fails," the court held. "Of course parties litigate under the rules in effect at the time of the proceeding. But, as the Commission explained, what constitutes reliance in a retroactivity analysis is a showing that the party 'changed or conformed its [non-litigation] conduct' -- here, storing the boat -- 'based on that prior interpretation and is now being unfairly penalized for doing so.'"

The court also addressed the merits of Crocus' claim, which the plaintiff evidenced with four prior commission proceedings showing excessive storage fees. The court said only one of these stands as evidence of unreasonable storage fees, but that one prior violation falls short of the requirement to show a continued practice of violations. "The Commission’s analysis of those four cases was logical, and its conclusion that they do not add up to a normal or customary practice of overcharging for storage was reasonable and grounded in the administrative record," the judgment said. "That is all the APA requires here."