Served December 29, 1999
FEDERAL MARITIME COMMISSION
DOCKET NO. 99-05
ANERA AND ITS MEMBERS -
OPTING OUT OF SERVICE CONTRACTS
Vern W. Hill, Charles L. Haslup, III, and Julie L. Berestov, for the Bureau of Enforcement.
David F. Smith and John W. Butler, Sher and Blackwell, for Asia North America Eastbound Rate Agreement and its Members.
Robert S. Zuckerman for Sea-Land Service, Inc.
Neal M. Mayer, Hoppel, Mayer & Coleman, for P&O Nedlloyd Limited and P&O Nedlloyd B.V.
Robert T. Basseches, Shea & Gardner, for APL Co. PTE Ltd. and American President Lines, Ltd.
ORDER
BY THE COMMISSION:*
INTRODUCTION
This proceeding was initiated by a Show Cause Order to the Asia North America Eastbound Rate Agreement ("ANERA") and its members to show cause why the practice of "opting out" of service contract rates does not violate sections 8(c) and 10(d)(1) of the Shipping Act of 1984 ("1984 Act"), 46 U.S.C. app. §§ 1707(c) and 1709(d)(1), and section 514.17(c)(2), 46 C.F.R. § 514.17(c)(2), of the Federal Maritime Commission's ("Commission" or "FMC") service contract regulations.(1) The practice, initiated by ANERA for the 1998 service contract year, permitted individual carrier members to be a signatory of a service contract but to charge for shipments at the tariff rates in effect at time of shipment rather than the rates specified in the contract. The practice came to the Commission's attention during Fact Finding Investigation No. 23, Ocean Common Carrier Practices In the Trans-Pacific Trades, in which the Commission's designated Fact Finding Officer investigated shipper allegations that carriers had allocated vessel space during the 1998 peak holiday shipping season on the basis of carrier profit and had refused to provide space for cargo unless shippers made significant rate concessions, in violation of the 1984 Act.
The Commission's Order to Show Cause, served April 14, 1999, noted that the opting out practice allowed a carrier participating in a conference service contract to charge a rate other than that agreed to by the shipper in the contract, by charging the ANERA tariff rates applicable to that carrier, while counting the cargo carried at those higher rates against the minimum quantity set forth in the contract and possibly reducing the conference's exposure to liquidated damages for failure to make sufficient space available at the contract rates. The Commission Order at Appendix A listed 198 ANERA service contracts active as of March 29, 1999 which contained opt out provisions and identified the carriers which had opted out.
Reciting the experience of one shipper which had complained to ANERA that Sea-Land Service, Inc. ("Sea-Land") had charged an excessive rate when it charged tariff rates for a shipment, the Order quoted both the conference's response to the shipper, citing Sea-Land's exercise of the opt out provision, and the opt out clause found in the service contract, SC 7490/98, at Note 3 to Article 6. ANERA's response to the shipper indicated that
All ANERA carriers can carry cargo under your contract and all must charge the contract rates except for Sea-Land, which must charge the general tariff rate at the time of shipment. Sea-Land liftings shall be counted towards the MQC [Minimum Quantity of Cargo] in your contract, although the rate is different than other carriers.
Show Cause Order at 3, quoting ANERA document No. 106690, produced in Fact Finding Investigation No. 23. The contract listed all of the ANERA carriers as participants. Article 6 of the service contract, setting forth the rates applicable under the contract, was annotated by Note 3, which provided:
The following participating carrier(s) has opted out of the following Contract rates pursuant to Rule 101.H of the ET tariff:
Line: Sea-Land Service, Inc.
Commodity: All
Port Pair: All
Pursuant to Rule 101.H, certain shipments at the tariff rates applicable to the above carrier and port pair(s) may apply under this Contract. (Emphasis supplied).(2)
The Commission stated that the opt out provisions found in the ANERA contracts listed in Appendix A appeared to render their essential terms "uncertain, vague and ambiguous in that neither the shipper nor the Commission nor the public knows which rates will apply to any particular shipment . . . [and] the rate can be modified by the conference, or by the individual carrier, at any time, without the shipper's consent." Show Cause Order at 4.
The Show Cause Order further charged that actions of ANERA and its members with respect to adoption and implementation of the opt out provisions appeared to constitute an unjust and unreasonable practice because, by refusing to accept bookings at the contract rates under these contracts, opting out carriers refused to receive, transport or deliver cargo at the rate for which a shipper has bargained in a service contract. In addition, the possibility was noted that a shipper might be exposed to liquidated damages for failure to meet its MQC under the contract if it elected not to ship at higher tariff rates with an opting out carrier.
ANERA and its members were ordered to show why they should not be found to have violated the 1984 Act and the Commission's regulations. The Commission's Bureau of Enforcement ("BOE") was made a party. The proceeding was limited to the submission of affidavits of fact and memoranda of law, although the Order also provided that any party could request that an evidentiary hearing be held. A party desiring an evidentiary hearing was required to submit a detailed statement of the facts to be proved, the relevance of those facts, a description of the evidence to be presented, and why affidavits would not suffice. Similarly, the opportunity to request oral argument was provided, upon specification of the reasons that argument by memorandum would be inadequate. Finally, the Order specified that, if violations were found, the proceeding be referred to an ALJ for an evidentiary hearing on whether, and in what amount, penalties should be assessed.
POSITIONS OF THE PARTIES
Response of ANERA to Order to Show Cause
ANERA's Response to the Order to Show Cause ("Response"), filed on behalf of its members and itself, made a number of substantive and procedural arguments and was supported by affidavits from ANERA's Managing Director and representatives of member lines which had opted out of contract rates in one or more ANERA service contracts.(3) ANERA states that the opt out clause was included in service contracts only with the "mutual agreement of both parties." According to ANERA, the clause was included as a note to paragraph 6 of Appendix A to each ANERA service contract in which a carrier wished to opt out. ANERA indicates that the opt out decision was made by individual carriers "unilaterally based on their own commercial judgments and analysis of the market." Response at 3. The complete Appendix A, showing all rates and terms, including the opt out clause, was sent to the shipper for review and execution prior to filing, ANERA maintains. If a shipper did not agree with the opt out clause, says ANERA, it could elect not to sign and reopen negotiations. "During 1998, no shipper refused to sign a service contract because of an opt-out." Response at 3, citing the Affidavit of Brian Conrad, Exhibit 1 to ANERA's Response at ¶9.
ANERA denies that the opt out procedure was unclear or ambiguous or resulted in rates that were not readily ascertainable as to any shipment. ANERA says that the plain language of the Essential Term ("ET") Rule, i.e. Rule 101.H, makes abundantly clear what rate applied. ANERA says that it was clear that, if the shipment was carried by a non-opting out, non-flagging out member, the service contract rate applied, and if it was carried by an opting out member, the tariff rate applied but the cargo counted toward the shipper's minimum quantity commitment. "All contract shippers understood this." Response at 5. Under "well accepted rules of tariff construction" analogous to construction of essential terms, ANERA says, all provisions must be read together as a whole and should be read reasonably, and strained and unnatural constructions of language are not favored. ANERA cites Pate Stevedore Co. of Mobile v. Alabama State Docks Department, 24 S.R.R. 657, 681 (ID 1987); Coke v. Amazon, 23 S.R.R. 1281, 1283 (ID) adopted 23 S.R.R. 701 (1986).
ANERA focuses on the language in the Show Cause Order concerning the opt out clause's cross-reference to rates established in ANERA's tariff, and the ability of the opting out carrier to modify the tariff rate unilaterally at any time. ANERA maintains that no uncertainty as to the service contract rate exists because the tariff rate was published and therefore knowable at the time of shipment. ANERA further argues that this cross-reference to the tariff is within the requirements of FMC regulations, at 514.17(d)(7)(vi).(4) Response at 6.
ANERA maintains that this practice is similar to Most Favored Shipper or "MFS" clauses, which permit cargo to be rated at the tariff rate at time of shipment. Such clauses are permissible in service contracts, ANERA observes, although they incorporate by reference to the tariff a rate which is ascertainable only at time of shipment since the carrier could change the tariff rate at any time up to time of shipment. Citing Service Contracts - "Most Favored Shipper" Provisions, 24 S.R.R. 1351 (1988) ("Service Contracts"). ANERA argues that the opt out rates do not fail the certainty test just because they were higher rather than lower (like the MFS rates) than the service contract rates. Response at 8. ANERA reasons that opt out rates are similar to service contract rates stated as a per cent discount from tariff rates applicable at time of shipment, which are equally within the unilateral discretion of the carriers and common and permissible. Response at 9.
With respect to the alleged violation of section 10(d)(1), ANERA attacks the charge as "incorrect on its face. For the opting out carrier, the parties bargained for the tariff rates, which is what was being charged, and not the contract rates applicable to other carriers." Response at 9. ANERA also charges that the Commission's order adds a new term to the statute without authority, by alleging that ANERA's opt out practices involve refusal to accept bookings and thus to transport (as well as receive and deliver) cargo. Response at 10 n.4. ANERA claims that the Show Cause Order assumes without support that section 10(d)(1) applies to carrier activities not involved in the "terminal-type activities" to which it has historically been applied. Id.
ANERA also argues that the opt out practice is not unreasonable. The allegation that a shipper might be faced with deadfreight penalties for failing to meet its MQC if it elects not to ship at the higher tariff rates applicable to the opting out carrier is "entirely speculative," according to ANERA, which states that there is no evidence that any shipper will be penalized for failing to meet its MQC as a result of an opt out clause. Moreover, says ANERA, the opt out procedure only helps shippers meet their MQC.
ANERA charges that the Show Cause Order improperly shifts the burden of proof to ANERA, in contravention of the Administrative Procedure Act ("APA"), 5 U.S.C. § 556(d) (the proponent of a rule or order has the burden of proof).(5) In further support of its argument that "a show cause order is only appropriate to resolve purely legal questions, such as whether or not certain conduct is authorized by the wording of an FMC agreement," ANERA principally relies on Pacific Coast Port Equalization Rule, 7 F.M.C. 623, 2 S.R.R. 842 (1963)("Port Equalization"), aff'd sub nom. American Export & Isbrandtsen L. v. Federal Maritime Comm'n, 334 F.2d 185 (9th Cir. 1964); and Interpool Ltd. - Petition for Order to Show Cause, 23 S.R.R. 899, 902 (1996) ("Interpool"). Response at 14.
ANERA also contends that civil penalties would not be appropriate as a remedy under such a procedure; only prospective relief would be. Moreover, pointing out that it is no longer entering into service contracts as of May 1, 1999, ANERA contends that "the issue is moot and the appropriate action would be to discontinue this proceeding." Response at 13. "The fact that ANERA no longer contracts as a group and the opt-out provision is no longer being used in contracts reinforces the futility of this proceeding," says ANERA, citing Credit Practices of N. Europe-U.S. Atlantic Conference, Order of Discontinuance, 25 S.R.R. 576 (1989) and Credit Practices of Sea-Land & Nedlloyd, 25 S.R.R. 1308 (1990) as grounds to terminate the proceeding without referral to an ALJ for penalties. Response at 18. Since no FMC precedent or action, or complaint from shippers, warned ANERA that the opt out provision might not be lawful, it would be a violation of the APA and due process to assess penalties, according to ANERA.
Reply of the Bureau of Enforcement
BOE's Reply to the Response of ANERA and its Members ("BOE Reply") argues that the opt out practice does constitute a violation of the 1984 Act both as to its actual and apparent lack of clarity to shippers and carrier staff alike and its unreasonableness as a practice. Appendices A through J consist of affidavits and documents and transcripts of testimony secured through Fact Finding Investigation No. 23.
BOE points out that the opt out language quoted by ANERA and reflected in the Show Cause Order is "far from clear," Reply at 2: the "boilerplate" (referring the reader to Rule 101.H), indicates that "certain shipments applicable to the above carrier and port pair(s) may apply under this contract." Reply at 2 n.3. (Emphasis supplied). Rule 101.H itself indicates that participating carriers may opt out of the rates but that "cargo carried by such participating carrier during any opt out period shall count toward the Quantity Commitments of this Contract," provided that it is carried at the governing tariff rate and "may count under the contract only if the applicable tariff rate is higher than" the service contract rate. (Emphasis supplied). BOE thus suggests that the use of the indefinite "may" in the terms of the contract most visible to shippers might lead shippers to expect that the provision grants carriers discretion as to the rate to be applied.
As further indication of the lack of clarity of the opt out provision, BOE suggests that even the carriers were unsure of the parameters or extent of the practice. Thus, BOE offers evidence that the number of service contracts with opt out provisions exceeded the number reflected in ANERA's ET publication, upon which the Commission's list in Appendix A to the Show Cause Order was based, as well as those identified by Sea-Land in Fact Finding Investigation No. 23. There were at least another 92 ANERA service contracts with opt out clauses, and Sea-Land opted out of 78 of those, according to the Affidavit of Michael Carley, FMC Area Representative ("Carley Aff."), Att. A, at App. F to BOE Reply. BOE also notes that none of the non-ET-published service contracts with opt outs was identified or discussed in ANERA's response to the Show Cause Order. Moreover, says BOE, the ANERA Response did include a supporting affidavit from T.Y. Cheng of K-Line, stating that K-Line was innocent of 1984 Act violations by reason of not having opted out of any ANERA service contracts but merely being erroneously listed in 12 as opting out as a result of an ANERA clerical error. Neither ANERA or K-Line refer to an additional six service contracts which list K-Line opt outs identified in the Carley Affidavit. BOE Reply at 10, Carley Aff., App. F, Att. C. The same appears to be true as to Hapag Lloyd's exercise of the opt out provision: the affidavit of Ulf Schawohl filed in support of ANERA's Response states that Hapag Lloyd opted out of eight service contracts in 1998, and that Hapag Lloyd carried no cargo at the opt out rates under these service contracts. However, says BOE, Carley found an additional nine not mentioned in the affidavit or the ANERA Response.
BOE argues that ANERA's failure to file the opt out provisions in the ETs for 92 Service contracts is contrary to its assertions in its Response and Brian Conrad's Affidavit, and violates FMC Rules at 46 C.F.R. § 514.17(d)(7)(vi).(6) Moreover, says BOE, this failure effectively prevented other shippers, competing carriers, and the public from having notice of the opt out clause and the applicable rates. Even the Commission was misled, BOE notes, in listing the ANERA service contracts with opt outs in the Show Cause Order. Reply at 13 and n.16. BOE also charges that
clerical error may explain the failure to file a few of the essential terms of approximately 290 Service contracts containing opt out clauses . . . [but] failure to file almost one third of those opt out clauses in the essential terms appears to require more than clerical error by an experienced conference staff,
suggesting the possibility that even ANERA staff "was confused" by the opt out provision. Reply at 13.
BOE also advises that "at least some shipper signatories themselves did not understand what rates would apply to their shipments when their contract contained an opt out clause." Id. BOE cites the example of Mr. T. E. Ha at Kolon Industries, Inc. ("Kolon"), who wrote ANERA requesting a refund of charges assessed by Sea-Land. ANERA's response to Ha explained that all ANERA carriers except Sea-Land were obligated to charge the contract rates reflected in Kolon's service contract, but that Sea-Land had opted out of those rates and therefore had to charge the tariff rates. Another example cited is Kewalram Philippines, Inc. ("Kewalram"), which was subjected to even more confusion as to which ANERA carriers were participating in its service contract by ANERA's letter forwarding the contract for signature, which stated that Maersk was among those not participating, while the opt out clause at note 3 to Article 6, Appendix A, of the contract lists Maersk as participating but opting out. In addition, the opt out is not shown in the ET publication for this service contract.(7) BOE notes that this was not one of the service contracts listed in the Show Cause Order and Maersk's subsequently-prepared affidavit in this proceeding did not reflect this opt out, or four others for which there was no ET publication, in response to the Show Cause Order. BOE also cites a service contract in which Sea-Land is shown on the first page as not participating in the service contract but is also shown as opting out in note 3. This opt out was also not reflected in the ET publication. Reply at 8 and App. H.
As further evidence that the opt out provision lacks clarity, BOE points to the testimony of carrier personnel in Fact Finding Investigation No. 23. Frankie Lau, Sea-Land's ANERA Tradelane Pricing Manager, testified to his understanding that the opt out provision gave carriers options for participation in a service contract.(8) BOE further observes that Michelle Barragan, Assistant Vice President, Pacific Trade Conference Affairs, Pricing and Yield Management, for P&O Nedlloyd testified to her understanding that the terms "flag out" and "opt out" meant the same thing as applied to ANERA service contracts. Reply at 9 and excerpt of Barragan testimony, App. I.
BOE asserts that ANERA's reliance on the FMC's acceptance of MFS clauses as providing sufficient certainty to meet the requirements of section 8 is misplaced. Reply at 15. BOE deems the lawfulness of MFS clauses of little relevance to this proceeding because of the differences in operation of the two rate mechanisms: under a shipper-negotiated MFS clause, says BOE, the shipper voluntarily undertakes "the burden of becoming aware of other rates that might trigger the clause," Reply at 16, citing Service Contracts, 24 S.R.R. at 1363. The second difference, according to BOE, is that the opt out clause refers to application under the contract of only tariff rates which are higher than the contract rate, without reference to tariff rates of opting out carriers which are lower than the contract rate. The status of those rates under the contract is "less clear," says BOE. Reply at 17.
BOE takes issue with ANERA's statements as to how and when the opt out procedure originated, noting the lack of evidence of consideration of the procedure in any minutes of meetings filed at the FMC.(9) ANERA's evidence concerning the adoption of the opt out provision (the Conrad Affidavit at ¶4) is also contradicted, says BOE, by Conrad's earlier testimony in Fact Finding Investigation No. 23. Compare Conrad Affidavit ¶4, Exhibit 1 to ANERA's Response, and Appendix I to BOE Reply. BOE Reply at 2 n.2, and Statement of Robert M. Blair ("Blair Statement"), Appendix A.
BOE states that the opt out provision was not negotiated with shippers but was "thrust upon [them] without adequate explanation and in an atmosphere of impending vessel space shortages." Reply at 18. BOE further charges that the opt out provision was "a cleverly drafted device" used to "extract more revenue from contract shippers" especially by Sea-Land, which "utilized the device to offer space to shippers when other contract participants claimed no space was available (at contract rates)." Reply at 18.
BOE characterizes as "particularly unreasonable" the possibility that shippers might be forced to use space at higher rates to avoid liquidated damages for failing to meet the MQC. Reply at 19. The lack of evidence that any shipper will actually be penalized for failure to meet minimums as a result of this clause when all boxes are counted, offered by ANERA as grounds for finding the provision lawful, misses the point, says BOE, because the unreasonableness inheres in the fact that the opt out provision "carried with it this possibility of liquidated damages levied upon a shipper which chose not to pay $9,000 for a container under a contract in which the negotiated rate was $4125." Reply at 19 [footnote omitted].
BOE also contends that the putative benefit to the shipper of having the cargo counted under the MQC applies only at substantially higher cost than bargained for in the service contract, pointing out that Sea-Land's advertised space and "guaranteed" service at "minimum open tariff rates" exceeded the service contract rates by averages, depending on type of service, of 34.5% (to the U.S. west coast), 45.89% (minilandbridge service to the U.S. east coast), and 39.24% (all water service to the U.S. east coast). Carley Aff.(10)
In addition, BOE notes that the opting out carrier's offer to accept cargo at higher tariff rates fulfilled the conference's obligation to provide space, thus insulating the conference members from damages the shipper might be entitled to for failure to meet service obligations. BOE illustrates the clause's use for this purpose in the 1998 peak season in Sea-Land's July 23, 1998 message to ANERA. Sea-Land had been contacted by a service contract shipper complaining that, from the first week of July, "all conference carriers [except K Line] rejected our booking" and expressing concern over whether it would meet its MQC in light of the rejections: "the safety net s/l provides to the group can get anera off the hook of reducing the mqc and potential liquidated damage claim from this shipper assuming this nvocc will not agree to use s/l at tariff rates." BOE Reply at 4, App. B. ANERA proposes that, without the opt out provision, carriers would have flagged-out of hundreds of service contracts, and supports this claim with an affidavit from Sea-Land. BOE points out, however, that ANERA's contention is directly contradicted by Sea-Land's own history of participation in almost all ANERA contracts in 1997, when there was no opt out provision. Thus, says BOE, "[t]he practice exudes unreasonableness." Reply at 20.
In response to ANERA's procedural arguments concerning the burden of proof and appropriate use of show cause proceedings, BOE maintains that use of a show cause order is appropriate in this case. Section 556(d) of the Administrative Procedure Act, as well as FMC regulations at 46 C.F.R. § 502.155, place the burden of proof on the proponent of the rule or order, meaning only that the party initiating the proceeding must meet its burden of persuasion by presenting sufficient evidence to form a prima facie case. BOE cites Director, Office of Workers' Compensation Programs, Dep't of Labor v. Greenwich Collieries, 512 U.S. 267, 280 (1994): "[W]hen the party with the burden of persuasion establishes a prima facie case supported by 'credible and credited evidence,' it must either be rebutted or accepted as true." The fact that the FMC bears this initial burden of going forward does not relieve ANERA of its burden to produce evidence to rebut that case and to support its contentions, says BOE.
ANERA's reliance on Interpool is also misplaced, BOE suggests, because in that case the rule being attacked did not appear to be violative of the Act on its face and the parties had not provided "uncontroverted facts to show that the Rule in practice violated the Act." 23 S.R.R. at 902, BOE Reply at 21. Thus, BOE indicates, the Commission's distinction in that case went to the question of whether, in the absence of a violation apparent from the face of the provision, the information provided by the parties was sufficient to constitute a prima facie case. That is not the case here, says BOE.(11)
BOE contends that imposition of penalties would be appropriate if violations are found in this case, because the practice was adopted at some point without reflection in minutes of ANERA meetings, contained in 92 contracts without reflection in the ETs and not reported in response to questions in the Fact Finding Investigation, and resulted in numerous instances of confusing terms in specific service contracts (such as naming as opting out a carrier not listed as participating, or listing carriers as opting out without their knowledge), as well as carrier personnel confusion over terminology, and shipper confusion over rates. These facts, says BOE, argue in favor of imposing sanctions for such collective misbehavior.
ANERA's Response to BOE's Reply
In its Response to BOE's Reply ("ANERA Reply"), ANERA contends that "BOE, as well as the Commission, has chosen to challenge the opt out provision on its face, as a matter of law, not as it was applied to any particular contract." ANERA contends that this is an "either or" proposition: the practice either constitutes a violation as a matter of law or the practice is unlawful as applied to one or more contracts. If the charges are a matter of law, ANERA concludes, "the only 'facts' that are relevant are the words of the opt out provision as stated in the ANERA service contracts and the published essential terms Rule . . . ." ANERA Reply at 2. ANERA thus maintains that BOE's factual assertions are "at best irrelevant" and constitute material which should and must be disregarded by the Commission. Id. at 3. If however it is contended that the practice is unlawful as applied, BOE would have had to present "uncontroverted evidence" regarding "each specific contract challenged and the individual circumstances surrounding its negotiation, execution, and implementation." Id. Not only has BOE failed to do this, but, APL contends, "the record . . . contains no analysis of circumstances surrounding individual contracts . . save for the two inadmissible and . . . unavailing examples . . . Appendices C and G to the BOE Reply." ANERA Reply at 3 n.1.
ANERA charges that BOE concentrates its argument that the opt out provision is unclear as to the rates that apply under the service contract only on the language of Appendix A to the service contract, without respect to the language of ET Rule 101.H twice referenced in the provision. The two must be read together, says ANERA, under standard contract construction. BOE further errs, says ANERA, by concentrating on the word "may" in the language of the Appendix A provision, contending without basis that this use of "may" gives carriers a choice of rates to apply. ANERA Reply at 4. There is, however, "no choice and . . . no uncertainty" says ANERA. ANERA asserts that the purpose of this language is "to identify which carrier was opting out of what contract rates." ANERA Reply at 4. ANERA maintains that no one reading Rule 101.H could reasonably conclude that anything other than the tariff rate applies. Thus, the Commission's "real objection" says ANERA, that the rates are indeterminable in advance of shipment and can be modified by the conference or the carrier without the shipper's consent, citing the Show Cause Order at 4, is refuted by the "unassailable fact" that the filed tariff rate applies. Such rates are not uncertain and comport with the "entire system of tariff filing that was in effect" from 1961 through April, 1999. ANERA Reply at 5.
ANERA further argues that no element of uncertainty as to the rates to be applied under the contract results from the fact that opt out shipments count toward the MQC only if the tariff rate is higher than the service contract rate, terming this characteristic a "classic non sequitur." ANERA Reply at 6. Thus, says ANERA, "whether or not cargo counts against the service contract MQC (depending on its rate level) has nothing whatever to do with whether the Rule clearly states what rate applies." ANERA charges that BOE confuses the issue of what rate applies with the issue of whether cargo counts under the contract, citing BOE's statement that, for shipments by a service contract shipper via a participating but opting out carrier for whom the tariff rate is lower than the service contract rate, there would be "no rate at all" under the contract. (ANERA Reply at 6, quoting BOE Reply at 12). According to ANERA, under the Rule, "a tariff rate that is lower than the service contract rate would apply for an opt out carrier; a shipment so rated just would not count toward the contract MQC." ANERA Reply at 7.
ANERA contends that BOE has not shown by its examples that any shipper misunderstood the opt out rule, and has confused the issue of whether the language is clear as a matter of law with the issue of whether any particular shipper "understood or even read its contract." ANERA Reply at 7. ANERA also claims that the evidence offered by BOE is inadmissible and requests that the shipper statements in BOE's exhibits, and associated argument, be stricken from the record.(12) According to ANERA, these statements are not reliable or probative enough to be admissible, even under the "relaxed standard" for admissibility in administrative hearings. In the alternative, if the statements and exhibits are not stricken, ANERA argues that the material does not support BOE's argument.(13) The weakness of BOE's case, ANERA contends, is demonstrated by its lack of evidence that more than two of the hundreds of shippers who signed service contracts with the opt out provision did not understand the provision. ANERA also complains that BOE's claim that shippers are reluctant to come forward for fear of retaliation is an improper and unsupported charge made "to explain away its inability to provide meaningful support for its arguments." ANERA Reply at 11.
ANERA also contends that BOE's examples of supposed carrier confusion over the meaning of the opt out clause are similarly unavailing and unsupportive of its arguments. ANERA dismisses Frankie Lau's testimony (to the effect that a carrier could opt out during the term of a service contract) as the misunderstanding of one mistaken employee, and the testimony of Michelle Barragan, (that the terms "opt out" and "flag out" were the same) as that of an employee with very limited experience with service contracts and opt outs, noting that P&O Nedlloyd had opted out of only one service contract. ANERA Reply at 12-13. Moreover, says ANERA, Barragan's later testimony indicating a clearer understanding of the opt out provision, citing TR at 94-95, was not included by BOE. ANERA Reply at 13.
ANERA argues that BOE has failed to distinguish Service Contracts, because the question of whether the opt out clause was negotiated is irrelevant to the issue of "whether applicable language provides sufficient information 'so as to permit a person to ascertain the agreed upon rate . . . .' 24 S.R.R. at 1362." ANERA Reply at 14.
ANERA reiterates its argument that the charges set forth in the Show Cause Order, that ANERA "refuse[d] to accept bookings" at service contract rates and therefore refused to "transport" cargo at the service contract rates, are not within the purview of section 10(d)(1). ANERA cites Los Angeles By-Products Co. v. Barber S.S. Lines, 2 USMC 106, 114 (1939); Time Limit on the Filing of Over Charge Claims, 10 F.M.C. 1, 7 (1966); Definition of Package, 23 S.R.R. 111, 114 (1985); Bills of Lading - Incorporation of Freight Charges, 3 USMC 111, 113 (1949); Beaumont Port Comm'n v. Seatrain, 3 FMB 556, 561 (1951; D.I. Piazza Co. v. West Coast Line, Inc., 3 F.M.C. 608. 616 (1951); Heavy Lift Practices & Charges of Hapag-Lloyd, 17 S.R.R. 505, 527-33 (ALJ), adopted 18 S.R.R. 1491 (1977). ANERA also suggests that the Commission is not free to depart from its longstanding interpretation in this proceeding. ANERA Reply at 17.
ANERA also proceeds to refute BOE's allegations as to the reasonableness of its practice. With respect to BOE's charges that the opt out provision was not negotiated but was thrust upon shippers without adequate explanation when space shortages were imminent, ANERA says these charges are unsupported by evidence. ANERA also denies that the opt out provision created pressure on shippers to ship at the higher rates in order to avoid liquidated damages for failing to meet the MQC under the service contract, offering arguments and affidavits to refute what it contends is BOE's single piece of evidence on this point.(14) ANERA maintains that no shipper would have felt compelled to pay an additional $5,000 to ship a container in order to avoid paying $250 in liquidated damages. ANERA Reply at 20-21.
ANERA also denies BOE's charge that the opt out provision was used to protect ANERA against shipper claims for liquidated damages for failure to meet service contract service obligations.
Although "ANERA regrets any confusion caused by its failure to verify the number of opt outs identified" in the Show Cause Order, ANERA avers that BOE's arguments as to the numbers of service contracts with opt out provisions, the failure to list opting out carriers in the ETs, and the failure to reflect adoption of the opt out provision in FMC minutes filings are irrelevant to the issue of the lawfulness of the general practice charged by the FMC. ANERA Reply at 22-24.
Finally, ANERA states that an evidentiary hearing and oral argument are unnecessary so long as the Commission does not rely on BOE's factual allegations. However, if the FMC relies on BOE's factual assertions, ANERA demands an opportunity to take discovery, cross-examine BOE's affiants, and submit its own evidence and testimony. Therefore, if the FMC accepts or relies on any of BOE's evidence, including evidence secured in Fact Finding Investigation No. 23, ANERA specifically requests an evidentiary hearing.
Rebuttal Memorandum of American President Lines
American President Lines' ("APL") separate Rebuttal Memorandum states that BOE has failed to show any violation of law as to APL's participation as an opting out carrier in three service contracts, and reiterates factual defenses it raised in the Affidavit submitted as Exhibit 2 to ANERA's Response. Thus, it maintains, BOE's Reply makes no showing which would support a finding of violations against APL. APL Rebuttal at 1-2.
DISCUSSION
This case presents a number of procedural issues raised by ANERA as well as issues relating to the merits. We will discuss the substantive issues first.
Sections 3(21) and 8(c) of the Shipping Act
of 1984 and 46 C.F.R. § 514.17(c)(2)
Section 3(19) of the 1984 Act defines a service contract in part as one in which "the ocean common carrier or the agreement commits to a certain rate or rate schedule and a defined service level."(15) (Emphasis supplied). 46 U.S.C. app. § 1702(19). Section 8(c) required that the "line haul rate" be stated as an essential term of each service contract, be made available to the public in tariff format, and be available to all similarly situated shippers. The Commission's regulation at 46 C.F.R. § 514.7(c)(2) incorporates the requirement of section 3(19) that service contract rates not be ambiguous or uncertain. The issue in this case is whether the line haul rates to be applied as an essential term under ANERA's 1998 service contracts which included the opt out provision for service by one or more carriers listed as participating in the contract were stated with sufficient specificity and clarity to be "certain" within the meaning of section 3(19).
Service contracts differ from ordinary contracts in that they are subject to certain statutory requirements as to their content and the relationships established between the parties, as well as the requirements (since repealed by the Ocean Shipping Reform Act of 1998, Pub. L. 95-258, 112 Stat. 1902 ("OSRA"), but applicable to the events in question) that their essential terms be available to similarly situated shippers. For that reason, unlike ordinary contracts, the 1984 Act requires that specified terms deemed "essential" be filed (now published) in tariff format. In addition, by defining a service contract as one in which the carrier or conference commits itself to provide service at a certain rate or rate schedule, the statute makes the clarity of this contract term an affirmative requirement.
Although the 1984 Act does not define the term "certain rate or rate schedule," it would appear reasonable to expect that it requires contracts whose terms are clear enough to give rise to a common understanding by the parties to them and are not reasonably subject to differing interpretations. In this, the question of rate certainty is analogous to the issue of ambiguity in contract law. Therefore, cases dealing with ambiguity in ordinary contracts establish a useful framework for determining whether service contract terms employed by carriers as "boilerplate" terms in individual service contracts and ET tariff publications meet the statutory requirements of the 1984 Act for "certain" rates.
In general, a contract is ambiguous if its terms are inconsistent on their face, or can support reasonable differences of opinion as to the meaning of the words employed and obligations undertaken. Fashion House, Inc. v. K-Mart Corp., 892 F.2d 1076 (1st Cir. 1989); Smart v. Gillette Co. Long Term Disability Plan, 70 F.3d 173 (1st Cir. 1995); Coll v. PB Diagnostic Systems, Inc., 50 F.3d 1115 (1st Cir. 1995). Contract terms susceptible to more than one meaning are ambiguous. Pennbarr Corp. v. Insurance Co. of North America, 976 F.2d 145 (3d Cir. 1992). See also Schachner v. Blue Cross-Blue Shield of Ohio, 77 F.3d 889 (6th Cir. 1996), cert. denied 519 U.S. 865 (1996). Thus, we would conclude that service contract essential terms which are subject to more than one reasonable interpretation or which are inconsistent with each other result in contracts which are ambiguous and lack the rate certainty required by sections 3(19) and 8(c).
ANERA argues that the contract must be read as a whole, and all of its terms must be read together. The standard for construing a service contract, according to ANERA, is "whether applicable language provides sufficient information 'so as to permit a person to ascertain the agreed upon rate . . .'" Service Contracts, 24 S.R.R. at 1362, cited at ANERA Reply at 14. Applying this standard and reading all of the contract terms together, as ANERA admonishes us to do, leads us to conclude that the contracts containing the opt out provision are ambiguous as to line haul rates, and that the ambiguity arises from the opt out clause.
As an initial matter, we agree with BOE that the contract language itself which references the opt out clause is ambiguous. As noted by BOE, the terms by which the contract, in Appendix A, clause 6, refers the reader to the description of the opt out practice in ANERA's ET publication, are themselves ambiguous: the footnote says that "certain shipments . . . may apply." Setting aside the indecipherable reference to "shipments" rather than rates, the indefinite "may" hardly gives notice of the terms which ANERA argues definitively establish the applicability of tariff rates for the carriers listed as opting out. ANERA's argument that ET Rule 101.H supplies the requisite certainty of rates invites us to ignore the existence of the indefinite language in the contract appendix at which the contract rates are defined. ANERA also offers a reason for the existence of this language ("to identify which carrier was opting out of what contract rates," ANERA Reply at 4) which is on its face unenlightening, is unexplained by ANERA, and is unsupported by anything in the record. The indefiniteness of its most prominent terms in Appendix A, including the very terms by which the reader is referred to the ET publication, appears to render the opt out clause ambiguous.
Moreover, by listing the participating carriers, without notation for carriers opting out of the negotiated rates, at the point in the contract specified by the Commission's regulations, see 46 C.F.R. 514.7(h)(1)(v), i.e. on the first or signature page (see Conrad Aff. at 1, ¶2), ANERA service contracts create a false impression that is belied by later terms. This apparent inconsistency between terms in itself creates ambiguity. See, e.g., Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580 (1st Cir. 1993); Fashion House, Inc. v. K-Mart Corp., supra.
Similar to its arguments as to the literal clarity of the opt out provision, ANERA repeatedly contends that the opt out clause was simply one of many aspects of service contract rates negotiated with individual shippers prior to final contract formation and therefore not unclear to shippers at all. However, BOE argues, and the evidence it presents in support of its arguments suggests, otherwise. We note here, moreover, that the question of whether individual shippers specifically knew of or negotiated over the terms of the opt out clause is not considered here as a matter of fairness, which might be relevant under section 10. The evidence of shipper and carrier knowledge of and understanding of the clause goes to the question of whether the contract parties had a common understanding of what the contract rates were: i.e., whether the rates were "certain" or were ambiguous.
As to the level of shipper knowledge of or active negotiation of this contract rate term, Sea-Land's own Trade Lane Director characterized as Sea-Land's "unilateral business decision" the decision to opt out of many of ANERA's 1998 service contracts. Cozza Aff. at 1, ¶4.(16) In addition, upon examination many of ANERA's contrary protestations as to the presentation of the opt out clause during 1998 contract formation appear to be overbroad. For example, the Conrad Affidavit, Exhibit 1 to ANERA's Response, states at page 3, ¶10 that "[i]t was clear at the beginning of the contract what carriers were participating in the contract rates and what carriers were opting for tariff rates." This conclusory and self-serving assertion, repeated by ANERA throughout its arguments, is unsupported by any evidence such as letters to or from shippers negotiating service contract terms.
To the extent that this record contains any evidence of what information shippers had at the time they entered into their contracts, that evidence does not support ANERA. ANERA's August 12, 1998 letter to Mr. Krishnamurthy, Appendix G to BOE Reply, forwarding the proposed service contract, states at page 2 ¶8 that
the following carriers have indicated that they will not participate in this contract: [APL, Hapag Lloyd, K-Line, Maersk, Mitsui OSK Line, and NYK Line] . . . Orient Overseas Container & P&O Nedlloyd B.V. have indicated that they will participate . . . but other ANERA members have not made their final decision at this point whether to participate in the contract. If you are able to sign our offer, we will include a final list of participating carriers in the contract at the time of filing. (Emphasis supplied).
Thus, the shipper had no conclusive picture of how many carriers would be "participating" in this contract when signed, contrary to ANERA's representations that shippers had full opportunity to know and understand the terms of the contract before signing.(17)
ANERA's letter to Kewalram did not mention the opt out clause at all. However, the Kewalram contract included an opt out clause which named Maersk, although the ANERA letter listed Maersk as among those not participating. The letter suggests, moreover, that opt outs might be exercised by carriers even after contract signature by the shipper.(18) Thus, negotiation of this service contract appears to have offered the shipper little assurance as to which rates would apply to which carriers when signed.
Moreover, ANERA's letter to Kewalram suggests that shippers who were explicitly made aware of some contract provisions while they remained in ignorance of, and were not called upon to or did not understand, the opt out provision, reasonably may have interpreted the line haul rate provisions of the contracts differently from the carrier parties to the contracts. The surprise and displeasure expressed in the Kolon correspondence with ANERA also suggests that this shipper had a different understanding of the rate provisions of the contract than did the carriers.
This alone, however, does not mean that the contract terms were ambiguous. Contract language does not become ambiguous simply because contract parties urge different interpretations. Seiden Associates, Inc. v. ANC Holdings, Inc., 959 F.2d 425 (2nd Cir. 1992); Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884 (2nd Cir. 1990); Port of Portland v. Water Quality Ins. Syndicate, 796 F.2d 1188 (9th Cir. 1986); Castlehagen, Inc. v. Resolution Trust Corp., 984 F.2d 1571 (10th Cir. 1993). It may not be unreasonable to infer, as ANERA suggests with respect to Kewalram, that some shippers were simply uninformed as to the existence of this term in their contract. ANERA's speculative interpretation, that uninformed or inattentive shippers accepted this contract term without question, does not support its contention that the rate terms of these contracts were clear and unambiguous, or the legal conclusion urged by ANERA that there was a meeting of the minds between shippers and the ANERA carriers over the line haul rate terms of these contracts.
The fact that none of the non-ET-published service contracts with opt outs was identified or discussed in the conference or carriers' responses or testimony in Fact Finding Investigation No. 23 or in ANERA's Response to the Show Cause Order suggests that ANERA's rate practices with respect to service contract opt outs were not clear or certain enough to alert the conference, its lawyers, or its members, let alone contracting shippers or the public, as to the rates applicable under those service contracts. ANERA's Response included several supporting affidavits which inaccurately and incompletely represented the extent to which certain carriers had employed the opt out provision and their usage of it. These included the affidavits from T.Y. Cheng of K-Line (stating that K-Line was innocent of Shipping Act violations by reason of not having opted out of any ANERA service contracts but merely being erroneously listed in 12 as opting out as a result of an ANERA clerical error); and Ulf Schawohl (stating that Hapag Lloyd had opted out of eight 1998 service contracts and had carried no cargo at the opt out rates). Neither ANERA or K-Line refers to an additional six service contracts listing K-Line opt outs found by Carley (BOE Reply at 10, Carley Aff., App. F, Att. C), or an additional nine service contracts with opt outs by Hapag Lloyd, not mentioned in the affidavit or the ANERA response (Id.). ANERA dismisses these as an "unfortunate" failure to check the FMC's identification in the Show Cause Order of contracts with opt out clauses. ANERA's response fails to address a central point made by BOE: that the carriers themselves were not sufficiently certain of the line haul rates reflected in contracts with the opt out clause to accurately list them in their publication of essential terms and thus misinformed the public as well as the Commission as to the essential terms of their contracts.
ANERA nevertheless maintains, in general terms, that the Commission should conclude that shippers were made aware of the opt out provision included in 1998 service contracts during contract negotiations because the terms of the contracts were clearly set forth and no shipper refused to sign such a contract. See Conrad Aff. at 1-3, ¶¶2, 7 and 9. However, as noted, the experience of at least one shipper, Kolon, documented in this record indicates that it was unpleasantly surprised by the substantially higher costs incurred for shipping via an opting out carrier listed as a participant in its ANERA service contract.(19) The experience of Kolon in this regard may be apocryphal and unique, because ANERA's tariff contained no applicable commodity rate: the range of differences between contract rates and tariff rates set forth in the Carley Affidavit (34.5% to 45.89%) suggests that while the increased cost for non-contract service would have been significant, it would not ordinarily have been of this magnitude.(20) Nevertheless, it beggars the imagination to conclude, as ANERA would have us do, that shippers knowingly negotiated for service contracts in which they committed to ship large quantities of cargo at rates which might exceed the contract rates by these averages or even be as high as the Cargo, N.O.S. rates. We find unconvincing ANERA's arguments that the opt out practice was merely part of the bargain knowingly entered into by numerous shippers.
ANERA's calculus for determining the lawfulness of the opt out practice would narrow the question to whether the clause itself and ET Rule 101.H result in rates which are ascertainable from published sources, thus arguably providing the certainty required by section 3(21), by analogy to MFS clauses. Service contracts historically were instituted as a means to provide lower than tariff rates to shippers willing to commit to ship more than a single shipment over time.(21) What MFS clauses add to this traditional purpose of service contracts is the assurance that the contracting shipper will not be disadvantaged by the subsequent availability of a lower rate offered via contract or tariff to the shipper's competitors. ANERA's analogy ignores the rate ceiling provided in most contracts with MFS clauses, via the rate specified in the contract, which is certain not to be exceeded for the term of the contract. The specified contract rate may be lowered as the result of subsequently occurring events specified in the contract, resulting in rates which are themselves ascertainable from published sources external to the contract, but the rate ceiling does not vary. Unlike these MFS clauses which may cross-reference a tariff rate lower than that specifically negotiated for in the contract, the opt out clause does not give the shipper the certainty that the rate he will pay for the cargo he has committed to ship will be no higher than the negotiated rate.(22) The rate for the putatively participating opting out carrier is not "initially" or at any time a "specific numerical rate" specified in the contract for participating carriers, but a rate that is always unilaterally set by the carriers, collectively or individually through IA, and changeable at any time upon the same 30 days notice for increases which applies to casual tariff shippers. Nor, as noted above, does the opt out clause specify particular events (e.g., the filing of a lower rate) which will trigger a change in an initially specified rate.
ANERA's argument, moreover, distorts the very nature of a service contract by tying a shipper's commitment of cargo to rates which are the same as or higher than tariff rates.
With respect to opting out carriers, the contract fails to provide a "certain rate or rate schedule" not because it refers to rates found in the conference tariff, but because it permits application of the tariff rates (so long as they are higher than the contract rates) to an unspecified amount of the MQC, without distinction from the rates and terms generally found in that tariff. Because tariff rates are unilaterally set, and are offered to all shippers without commitment to ship any amount or proportion of cargo, this would appear to render the rate portion of the carriers' collective contract commitment illusory. In this the opt out practice results in rates unlike those which result from contracts and MFS clauses pegging rates to a percentage or stated amount discount from otherwise available tariff rates. While both practices offer rates ascertainable only by reference to the publicly available tariff, and subject to unilateral change by the carrier, contracts with opt out clauses appear to lack a quid pro quo for the shipper's commitment to ship a stream of cargo over a term of time. Thus, we do not believe that ANERA's service contracts which list specific carriers both as participants in the contract and as opting out of the contract rates contain the essential line haul rate term for those parties to the contract.
Equally importantly, the opt out clause appears to render the line haul rate terms of the contract ambiguous because it is inconsistent with other contract terms. ANERA's boilerplate MFS clause, referenced at Appendix A, Article 6, of the contracts, not only provides that the service contract holder will receive the benefit of a tariff rate which is lower than the contract rate specified in the contract, it assures the shipper that cargo carried at such tariff rates will be counted toward the shipper's MQC.(23) The MFS clause suggests that the contract rates established at Paragraph 6 of Appendix A are subject to the MFS provisions of paragraph (b) of Rule 424. According to ANERA, these contract rates include those found in the tariff through referral by the opt out clause at Note 3 of Paragraph 6. Thus, it would appear reasonable to expect that the lower common tariff or IA rates apply to quantities shipped pursuant to the quantity commitments of the contract and count against the contract MQC. Notably, the ANERA letter forwarding the service contract to Kewalram Industries, at ¶4, assures the shipper that "[t]he contract rates set out in the attached Appendix A are subject to the Most Favour (sic) Shipper ("MFS") clause. In other words, if there is a lower common or independent action ("IA") rate, then your contract rate will be that lower rate less your MFS discount." This would at least appear to suggest that the service contract rate will always be the lesser of the tariff or service contract-specified rates. The presence of this MFS clause appears to be internally inconsistent with the provision in Rule 101.H providing that shipments via opting out carriers count toward MQC only if the tariff rate is higher than the service contract rate.
The Kewalram contract is not unique or even unusual in this inherent internal inconsistency. See Conrad Aff., Exh. 1 to ANERA Response, p.3 at ¶11. Examination of the 319 ANERA service contracts containing opt out clauses identified in Appendix A to the Show Cause Order and Attachment C to the Carley Affidavit reveals that 308 also contain ANERA's boilerplate MFS clause.(24)
In spite of these apparently confusing and contradictory contract terms, ANERA maintains that the "contract rate" is always clear. This appears to be based on ANERA's peculiar linguistic devices in which it suggests that "contract rate" may mean whatever rate may have been applied to the cargo of a service contract signatory shipper, whether the rate is that specified in paragraph 6 of Appendix A, or a tariff rate applied to cargo of the same shipper which is not counted under the contract. For such shipments, the negotiated service contract rate does not apply; the promise that the shipper will pay no rate higher than that charged the carriers' most favored shipper, including tariff rates which are lower than the negotiated contract rate, does not apply; and the promise that cargo carried by the signatory carriers will count toward the shipper's volume commitment does not apply. ANERA argues that this is contract cargo notwithstanding that no applicable element of the contract is fulfilled: the shipper with a valid service contract in essence is left to ship its cargo outside the contract. ANERA's insistence is a contrived claim that those shipments count as performance of its service commitments, thus fulfilling the only remaining element of the contract: the promise to supply space or alternatively to pay liquidated damages.
Linguistic contradictions are also evident in the fact that the carriers' own references to the term "service contract rate" usually distinguish the tariff rate for an opting out carrier, and use the term "contract rate" to refer to the commodity or per container rates specifically set forth at Appendix A, paragraph 6 of individual service contracts.(25) In stating that "Opt-Out status is non-participatory for rate purposes," Sea-Land, the major user of the opt out provision, clearly indicated that it did not consider the opt out provision to result in "contract rates." Letter of December 18, 1998 from Robert S. Zuckerman, Sea-Land Deputy General Counsel, to Fact Finding Investigation No. 23 Investigative Officer Delmond J.H. Won, App. E to BOE Reply. See also Conrad Aff. ¶2 at 1.
These linguistic acrobatics call to mind Lewis Carroll's fable of Alice in Wonderland: "'The question is,' said Alice, 'whether you can make words mean so many different things.' 'The question is,' said Humpty Dumpty, 'which is to be master, that is all.'" The opt out provision creates only an illusion of a certain rate.
This absence of a rate "certain" (or event which would trigger such a rate) and the resulting defect in contract formation under the service contract provisions of the 1984 Act, arises from the opt out provision itself, rather than from the carriers' exercise of it as to individual shipments or in individual contracts. Therefore, we find that ANERA's opt out provision set forth at Article 6, note 3 of 1998 service contracts and Rule 101.H of ANERA's Essential Terms Publication, and ANERA 1998 service contracts which contain the opt out provision, are ambiguous with respect to the line haul rate, an essential term of the contract, and therefore violate sections 3(21) and 8(c) of the 1984 Act and the Commission's regulations at 46 C.F.R. § 514.17(c)(2).
Section 10(d)(1) of the Shipping Act of 1984
The Commission's Show Cause Order also charged that the opt out provision violated section 10(d)(1) of the Act, i.e., that its use was not a just and reasonable practice relating to or connected with receiving, handling, storing or delivering property.
BOE urges that the practice be found unreasonable for a number of reasons, not least of which is the manner in which the practice was imposed on shippers. BOE alleges that ANERA imposed the practice without notice to either the Commission (through the filing of minutes of ANERA meetings at which the decision to adopt the opt out procedure was made) or shippers and without negotiation with shippers whose contracts included opt out clauses. As indicated above, BOE has now settled the matter of ANERA's liability for failure to file minutes of all ANERA meetings during this period, and ANERA has filed minutes of meetings which reflect adoption of the practice. However belatedly filed, these minutes do show that the opt out procedure was collectively considered and adopted by ANERA members. However, its use was a matter of individual and unilateral carrier decision as demonstrated through the Fact Finding testimony of Brian Conrad (as well as the two Conrad Affidavits filed herein by ANERA) and Sea-Land's Frankie Lau.
ANERA's Response argues that the practice is not unreasonable chiefly because all shippers knew of, or should have known of, and agreed to the inclusion of the clause in their contracts, and because the clause benefits shippers by assisting them to meet their contract MQCs. ANERA also states a forceful case that the practices at issue here -- the service contract provisions stating line haul rates -- do not come within that section's limitation to the functions of receiving, handling, storing, and delivering cargo.
However, because we have found the opt out practice to be in violation of section 8(c) of the 1984 Act and the Commission's regulations at 46 C.F.R. § 514.7(c)(2), we find it unnecessary to determine whether the practice also constitutes a violation of section 10(d)(1). Such a finding would be unnecessary to a judgment finding it otherwise unlawful under section 8(c) and the Commission's regulations. See Sea-Land Service, Inc. v. Department of Transportation, 137 F.3d 640, 649 (D.C. Cir. 1998).
Procedural Issues
Burden of Proof and Proceeding By Order to Show Cause
ANERA's attacks on the procedures employed in this proceeding are without basis. ANERA's argument that the Commission improperly shifted the burden of proof is inapposite. Both ANERA and BOE rely on Port Equalization, 7 F.M.C. 623. That case discussed the appropriateness of instituting a proceeding by show cause order where the issue raised was the lawfulness of conference tariff provisions which reflected practices allegedly not within the authority contained in the conference's approved agreement. In affirming the appropriateness of the show cause procedure, the Commission noted that what the proceeding involved was not a question of fact but one of law. 7 F.M.C. at 626. Similarly here, the question of whether ANERA's opt out provision comports with the requirements of the statute and regulations for certainty and clarity is a question of law. Whether contract terms are ambiguous is generally considered a question of law. Rodriguez-Abreu v. Chase Manhattan Bank, N.A., supra; Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568 (2nd Cir. 1993); Technical Consultant Services, Inc. v. Lakewood Pipe of Texas, Inc., 861 F.2d 1357 (5th Cir. 1988); Cooper v. Lakewood Engineering,& Mfg. Co., 45 F.3d 243 (8th Cir. 1995).
Moreover, the Show Cause Order identified specific language in the contract terms which create uncertainty; identified numerous service contracts in which the terms appeared and the carriers subscribing thereto, listing both at Appendix A; and described shipper complaints with respect to the practice which had been raised in Fact Finding Investigation No. 23. The prima facie case presented by the Commission met its initial burden of going forward with the evidence. In doing so, it did not shift the basic burden of persuasion from itself to ANERA but only the burden of going forward with the evidence. Director, Office of Workers' Compensation Programs, Dep't of Labor v. Greenwich Collieries, 512 U.S. 267, 276, 280 (1994); Thomas v. National Football League Players Ass'n, 131 F.3d 198, 202 (D.C. Cir. 1998). See also American Grain Trimmers, Inc. v. Office of Workers' Compensation Programs, 181 F.3d 810 (7th Cir. 1999), petition for cert. filed 68 USLW 3292 (October 19, 1999) and Garvey v. National Transportation Safety Board, 190 F.3d 571, 579-80 (D.C. Cir. 1999).
Evidentiary Issues
In this case, the question of ambiguity turns largely, as ANERA suggests, on the terms of the contracts and governing publications themselves. Just as was the case in Port Equalization, 7 F.M.C. at 628, these provisions are in the record (or on file with the Commission and subject to official notice) and are undisputed. ANERA charges that much of BOE's evidence, including evidence as to inconsistencies in listing opting out carriers in specific contracts or publishing opt out terms in the ET publication, may not be considered because the Commission did not charge that the opt out clause violates the Act as implemented by individual carriers in practice. ANERA argues that the Commission is limited to consideration of the provision's language, based on the violations charged. Charges that the opt out provision was unlawful as applied in individual contracts would, by contrast, according to ANERA, require examination of the circumstances surrounding negotiation and implementation of each contract.
We do not accept ANERA's argument that the Commission is limited to consideration of the terms of the opt out provision itself and the ET Rule, without reference to facts outside those terms. Nor do we accept ANERA's contention that in determining whether a provision is vague or uncertain it is irrelevant to consider whether those issuing the provision and those shipping subject to it understand it and consistently apply it.(26)
Evidence extrinsic to the terms of the service contract provision and ET Rule 101.H may be relevant to the question of the existence of ambiguity of the contract terms. In determining whether contract terms are ambiguous, courts consider extrinsic evidence as well as the language of the contract. In re New Valley Corp., 89 F.3d 143 (3rd Cir. 1996), cert. denied New Valley Corp. v. New Valley Corp. Senior Executive Ben. Plan Participants, 117 S. Ct. 947.(27) Extrinsic evidence may include the structure of the contract, bargaining history, and the parties' conduct that reflects their understanding of the contract's meaning. Id.
As to the admissibility of such extrinsic evidence, to the extent that facts outside the contracts or governing publications are relevant in this case, they are sufficiently provided by documents, most of which were originated by Respondents and obtained from them by compulsory process in Fact Finding Investigation No. 23, or from the shippers. ANERA's objections to the statements of Mr. Ha and Mr. Krishnamurthy, made on behalf of shippers Kolon and Kewalram, respectively, appear to be limited to quibbles about their execution or to portions of the statements themselves, without reference to the supporting documents filed with the statements. The nature or origin of the documentary attachments are not in dispute, and are not therefore matters as to which an evidentiary hearing is necessary. ANERA does not allege that the letter from Kolon's Mr. Ha concerning the rates charged by Sea-Land was not sent to ANERA, and ANERA's own letter is clearly responsive to Mr. Ha's.(28) Similarly, the documents attached to Mr. Krishnamurthy's statement, including ANERA's August 12, 1998 letter forwarding the contract for signature and its letter notifying Kewalram of Maersk's decision to delete its opt out, are not challenged on the basis of unreliability, e.g., any defects as documents. Thus, ANERA's objections to the evidence do not go to the bona fides of the documents.(29)
ANERA cites no cases in support of its demands that the Commission exclude evidence. The fact that ANERA's own evidence in response to the Show Cause Order, consisting largely of affidavits containing sweeping generalities and conclusory statements, was successfully contradicted by BOE's evidence, does not provide a reason for exclusion of the latter. ANERA had ample opportunity to provide documentary evidence and affidavits of its own in this proceeding. ANERA had, and used, the opportunity to present rebuttal to the BOE evidence. None of the evidence challenged by ANERA appears to be inherently unreliable or otherwise inadmissible. Therefore, we see no reason to refuse to admit the evidence adduced by BOE to the record. To the extent that ANERA's arguments relate to the probative value of the evidence, those arguments have been considered.
ANERA justifies its request for exclusion of the challenged evidence solely on the basis of its alternative request for an evidentiary hearing. However, it offers no indication of any evidence it would adduce at an evidentiary hearing. ANERA suggests that such a hearing is necessary first, because the testimony under oath of such carrier personnel as Ms. Barragan and Mr. Lau in Fact Finding Investigation No. 23 is flawed inasmuch as attorneys for the carriers had no opportunity to question such witnesses in that proceeding, and, similarly, because Mr. Ha and Mr. Krishnamurthy were not subject to cross examination.
ANERA objects particularly to consideration of the Fact Finding Investigation No. 23 testimony of Ms. Barragan, because she could not be questioned by attorneys for ANERA who might have sought to rehabilitate her testimony.(30) However, ANERA had the opportunity in this proceeding to provide rebuttal affidavits and memoranda from those witnesses. ANERA has not done so. We see no reason to exclude from this proceeding the testimony under oath of ANERA or carrier employees taken in Fact Finding Investigation No. 23.
As previously noted, the same reasoning underlies ANERA's objections to the statements of Mr. Ha and Mr. Krishnamurthy.(31) However, these witnesses are not carrier or conference employees whose further testimony could have been provided by ANERA through affidavits. As a practical consideration, the delay and expense for all parties which would be involved in holding an evidentiary hearing in this proceeding solely to give ANERA an opportunity to cross examine these witnesses leads us to consider the necessity of their testimony separate and apart from the wealth of other evidence in this record. The Commission has sufficient grounds without reliance on such evidence which might be subject to dispute to decide the issue of whether the opt out provision results in rate terms which are impermissibly vague or ambiguous. The terms of the service contracts and governing publications in this case provide reliable and probative evidence to support the conclusion that line haul rates were not stated with sufficient clarity in the ANERA service contracts for 1998 identified in Appendix A to the Show Cause Order and Attachment C to the Carley Affidavit to comport with the requirements of sections 3(21) and 8(c) of the 1984 Act, or with the Commission's service contract regulations. This conclusion is supported as well by documentary evidence in the record and by affidavits filed by ANERA and BOE, other than the Ha and Krishnamurthy statements. Therefore, while not excluded from the record, these statements are unnecessary to and do not form the basis for our decision.
Penalties
We find unconvincing ANERA's argument that the Commission may not seek penalties for conduct which it might have detected when the service contracts containing opt out clauses were filed.(32) Moreover, like tariff matter, the filing of a contract does not establish the lawfulness of its provisions. The Commission's power to reject does not preclude its determination that a provision contained in a filed tariff or contract is in violation of the Act.
At least one among BOE's reasons for imposing penalties (the fact that the practice was adopted at some point without reflection in minutes of ANERA meetings), appears to have been satisfied by the settlement under which ANERA agreed to pay $55,000 in penalties for these lapses. BOE also urges that the evidence (especially the number of failures to reflect opt outs in the ETs or report them in response to questions in the Fact Finding Investigation, as well as carrier personnel confusion over terminology, and shipper confusion over rates) demonstrates collective misbehavior justifying sanctions. BOE fears that failure to impose penalties merely because the practice has stopped would vitiate the FMC's enforcement programs.
On the other hand, ANERA is correct in pointing out that the practice is no longer in use. ANERA is no longer an actively operating agreement. There are no ANERA service contracts for 1999. This fact, as ANERA notes, makes it unlikely that the opt out provision at issue will recur in the future. In addition, as a result of OSRA, it is likely that there are and will continue to be few service contracts collectively negotiated and administered by conferences or other rate setting agreements. We are also mindful that referral of this matter to an administrative law judge for the further hearings which would be necessary to resolve the penalty issues, as contemplated in the Show Cause Order, would entail further delay and expense which does not appear warranted by any likely benefit to the shipping public.(33)
In Credit Practices of N. Europe-U.S. Atlantic Conference, Order of Discontinuance, supra, and Credit Practices of Sea-Land & Nedlloyd, supra, the Commission declined to impose penalties on carriers for practices which had been terminated while the Commission's investigation was proceeding. In view of the unlikelihood that an opt out provision will reappear in ANERA or members' multi-carrier service contracts under the 1984 Act as amended by OSRA, and the delay and expense foreseeable upon referral of this case of first impression for hearings on penalties which would provide neither relief nor benefit to shippers, the Commission has determined not to impose penalties on ANERA or the carrier respondents.
NOW THEREFORE, IT IS ORDERED, That the Order to Show Cause served on the Asia North America Eastbound Rate Agreement and its members on April 14, 1999, is amended by deleting the eleventh ordering paragraph, which provides that, if violations are found by the Commission, this proceeding will be referred to an administrative law judge for assessment of civil penalties; and
IT IS FURTHER ORDERED, That this proceeding is discontinued.
By the Commission.
Ronald D. Murphy
Assistant Secretary
ENDNOTES
* Commissioners Delmond J.H. Won and Joseph E. Brennan did not participate in this case.
1. Section 8(c), as then constituted, provided, inter alia, that "each contract entered into . . . shall be filed confidentially with the Commission, and, at the same time, a concise statement of its essential terms shall be filed with the Commission and made available to the general public in tariff format, and those essential terms shall be available to all shippers similarly situated. The essential terms shall include:
* * *
(3) the minimum volume;
(4) the line haul rate;
(5) the duration;
(6) service commitments; . . .
Section 10(d)(1), as then constituted, provided that "[n]o common carrier . . . may fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property."
Rule 514.17(c)(2) provided that "[e]ssential terms may not (i) be uncertain, vague or ambiguous; or (ii) contain any provision permitting modification by the parties other than in full compliance with this part." (These provisions have been retained at 46 C.F.R. § 530.8(c)(1) and § 530.10(b).)
2. Rule 101.H of ANERA's Essential Terms tariff provided:
H. Any participating carrier may opt out of any of the rates in this Contract. Notice of any such opt-out shall be given prior to the effective date of this contract and shall be shown in Appendix A hereto. The participating carrier may revoke the opt-out at any time during the term of this Contract by written notice to ANERA and the Shipper, after which it would be fully a party to the Contract for the remainder of its term and may not opt out further. Cargo carried by such participating carrier during any opt out period shall count toward the Quantity Commitments of this Contract, provided that the rate shall be the governing tariff rate (either common or I/A) applicable to that participating carrier at time of shipment, and provided further that such cargo may count under the Contract only if the applicable tariff rate is higher than the corresponding rate set forth in Appendix A of this Contract. All rules, extra charges, and other terms and conditions of the Contract shall apply per the Contract.
3. Affidavit of Brian M. Conrad ("Conrad Aff."), Managing Director of ANERA; Declaration of Michael J. McCarty ("McCarty Dec."), Director, Eastbound Pricing, APL; Affidavit of Ulf Schawohl, Director, Transpacific Trade, Eastbound, for Hapag-Lloyd; Affidavit of T. Y. Cheng, Assistant Vice President, Transpacific Trade, K Line; Affidavit of James G. Galligan, Vice President, Marketing and Pricing Administration, Mitsui O.S.K. Lines; Affidavit of Jeremy Nixon, Senior Vice President, Pacific Trade, P&O Nedlloyd; Affidavit of Jorgen T. Schmidt, Vice President, Pacific Services, Maersk; and Affidavit of Paul J. Cozza ("Cozza Aff."), Trade Lane Director, Pacific Services, Sea-Land Service.
4. 46 C.F.R. 514.17(d)(7)(vi) states that contract term 6 must contain the service contract rates "and any and all conditions and terms of service or operation or concessions which in any way affect such rates and charges."
5. ANERA cites Freeman United Coal Min. Co. v. OWCP, 988 F.2d 706 (7th Cir. 1993), which cited NLRB v. Transportation Management Corp., 462 U.S. 393, 403 n.7 (1976); and Merritt v. U.S., 960 F.2d 15, 18 (2nd Cir. 1992).
6. Conrad and ANERA assert that the essential terms for each contract were published in ANERA's ET Publication and included notation of any carrier's opt out. Response at 1 and 16 and Conrad Aff. at ¶8.
7. Just before expiration of this service contract, but after the Show Cause Order, ANERA notified the shipper that Maersk wanted to drop the opt out and participate in the service contract. ANERA's letter ascribed Maersk's action to its desire to "apply the contract rate" in future movements of cargo "under the contract." April 20, 1999 Letter from Fred Dela Pena, ANERA, Appendix G to BOE Reply, quoted at BOE Reply at 7.
8. Lau indicated that carriers could move from no participation in the contract, to participating but opting out of the rates, to some or full participation at service contract rates during the term of the contract, so that a carrier who did not initially participate in a service contract could sign on later with whatever degree of service and rates it desired. Appendix I to BOE Reply.
9. On September 9, 1999, ANERA filed with BEAA minutes of meetings and telephone conferences which occurred on March 20, March 27, and August 8, 1998. On the same date, the conference and its members and BOE entered into a settlement agreement compromising any liability of ANERA and its members for violations arising from failure to file minutes of these ANERA meetings, in which ANERA agreed to pay $55,000 in compromise of civil penalties. A September 16, 1999 letter from BOE filed herein, indicates that the minutes of the March 20 and 27, 1998 meetings reflect discussion and adoption of the opt out provisions.
10. BOE cites the experience of one shipper who complained to ANERA that it was charged double the service contract rate for a container moved on Sea-Land, without being informed by Sea-Land, listed as a participating carrier in the service contract, that the service contract rate would not apply, until after the vessel sailed. Supporting Affidavit of Mr. T.E. Ha, Kolon Industries, Inc., App. C. BOE Reply at 4. The only tariff rate which applied was, moreover, a Cargo, N.O.S. rate because ANERA did not have a rate for that commodity for those ports or points, according to the Affidavit of Ernest L. Estes, Bureau of Tariffs, Certification, and Licensing, App. D to BOE Reply.
11. BOE, like ANERA, relies on Port Equalization, 7 F.M.C. 623, but cites the case for its discussion of the adaptability of the show cause process, and its application in resolving the issue of whether a tariff provision was authorized by a conference agreement as purely a question of law.
12. ANERA claims that the statement of Mr. Krishnamurthy for Kewalram is defective because it was not made under oath, contains hearsay, and has not been subjected to cross examination. The statement made by Mr. Ha on behalf of Kolon is said to be similarly defective except that it "may," says ANERA, have been made under oath.
13. With respect to Kewalram, ANERA cites BOE's letter to Mr. Krishnamurthy (asking whether Maersk had in fact opted out and whether Kewalram was "aware that was going to occur at the time the contract was signed?") and Krishnamurthy's response (stating that "Yes, we were aware it will occur at the time the contract was signed as proven on item 6 of Appendix A of our service contract.") This example, says ANERA, shows only that the shipper had clearly read and understood the opt out provision. ANERA Reply at 9. With respect to Kolon, ANERA states that the affiant (Mr. Ha) does not claim to have been confused by the provision but rather that he was unaware of its existence. This means he did not read the contract as carefully as he should have, according to ANERA. ANERA Reply at 10.
14. ANERA asserts that Mr. Ha's affidavit concerning the shipment made by Kolon -- at a tariff rate more than twice its service contract rate -- shows that he did not expect to pay $9,000 at the time of the shipment (i.e. Kolon was not motivated by a desire to avoid the penalties). ANERA also argues that Kolon cannot have felt pressured to make this shipment to avoid falling short of its MQC because the shipment moved early in the term of Kolon's service contract by which time Kolon had nevertheless shipped 80 of the 93 containers of its MQC, and had arranged shipment of the remaining 13 at service contract rates on the next day. ANERA cites another Brian Conrad affidavit, Exh. 2 to ANERA Reply.
15. Section 3(21) was renumbered as section 3(19) by the Ocean Shipping Reform Act, effective May 1, 1999. 112 Stat. 1902, Pub. L. 105-258, October 14, 1998. For ease of reference, we refer to this section as presently designated 3(19).
16. Cozza also reported that this course was elected "because it was more advantageous for the shippers." Id. BOE views this supposed benefit as non-existent or pretextual: it applies only at substantially higher cost than bargained for in the service contract. BOE argues that the illogicality of a shipper willingly negotiating to commit a large quantity of cargo to be shipped at rates which may at times be twice the rate it otherwise bargained for is itself an indication that the opt out clause was not included in contracts through negotiation.
17. Although ANERA's letter urges that the Kewalram contract be signed promptly in order to avoid application of a soon-to-be-effective surcharge, this timing does not account for ANERA's failure to correctly characterize Maersk's participation or to include the opt out provision among those to which the shipper's attention was directed.
18. ANERA maintains that a carrier may opt out of contract rates only prior to the contract's effective date. However, under the terms of ET Rule 101.H, the operative time for carrier decision to opt out is the effective date, i.e., the date upon which the contract is filed at the FMC, not the date upon which the conference makes its offer of contract terms to the shipper or even the date upon which the shipper accepts the offer (the traditional point at which a contract is considered to exist). Thus, it is possible for individual carriers to give notice that they will opt out of contract rates after a contract is signed but before its effective date. The inchoate nature of this term is also evident in that the carrier's determination is not irreversible: ET Rule 101.H provides that a carrier may subsequently withdraw its opt out by written notice to ANERA and the shipper, after which it will be a full participant in the contract.
19. This incident is presented in the Ha Affidavit, at App. C to the BOE Reply. ANERA objects to its admission on grounds that the affiant was not subject to cross examination or discovery. However, in addition to documents relating to this shipment otherwise found in the record, we note that ANERA did produce evidence of its own relating to Kolon's experience under this contract (see Brian Conrad second Affidavit, Exh. 2 to ANERA Reply) and arguments in rebuttal. While we do not accept ANERA's contentions regarding the admissibility of this affidavit, for reasons set forth later in this Order, the Commission nevertheless has elected not to rely upon the affidavit as a basis for its decision.
20. BOE suggests that the provision forced shippers to use opt out carriers despite their higher rates in order to avoid penalties for failing to meet their MQC. However, ANERA's Rebuttal points out, with respect to Kolon's experience, that the degree of difference between the amount of deadfreight penalty ($250) and the amount by which the cargo, N.O.S. rate exceeded the service contract rate (more than $4,000), would have caused an ordinarily prudent shipper to pay the deadfreight penalties rather than ship at the higher rate.
21. The concept of service contracts may be said to have originated with the dual rate contracts offered by conferences, which were initially found to be unlawful, Federal Maritime Board v. Isbrandtsen, 354 U.S. 481 (1958) but were legalized by amendment of the Shipping Act, 1916 in 1961. Pub. L. 87-346, 75 Stat. 762. Thereafter, section 14(b) of the Shipping Act, 1916, specifically authorized "the use by any common carrier or conference of such carriers in foreign commerce of any contract . . . which is available to all shippers and consignees on equal terms and conditions, which provides lower rates to a shipper or consignee who agrees to give all or any fixed portion of his patronage to such carrier or conference . . . ." (Emphasis supplied). 46 U.S.C. 813a (1983). Congressional consideration of the 1984 Act generally reflected the expectation that service contracts, like dual rate contracts, would incorporate rates more favorable than those available in common carrier or conference tariffs. See, e.g., Report of the Merchant Marine Committee, H. Rep. 98-53, Pt. 1, 98th Cong., 1st Sess. (April 12, 1983) at 17: "In a service contract, a shipper, in effect, reserves or contracts his space aboard a vessel or vessels at a rate which presumably would be beneficial to the shipper. In exchange for the guarantee of us [sic], the carrier agrees, in addition to a preferred rate, to meet certain service commitments which are required by the shipper who is a party to the contract." (Emphasis supplied). See also Sen. Rep. No. 98-53, at 31: "A 'service contract' is, by definition, an undertaking between a shipper and a carrier or conference that involves consideration and obligations different than those applicable when business is transacted under a general common carrier tariff, . . ." Although this Senate Report also recognized that "[t]o the extent any contract charge or allowance is the same as that in the carrier's or conference's general public tariff, incorporation by reference will suffice," it expressed the understanding that any variations in contract rates would be tied to specific volume commitments: "Paragraph (3) refers to the minimum volume of cargo to be shipped at the line haul rate specified in paragraph (4). Read together, this means that if there are 'staged' volumes and rates to the contract - for example, different rates applicable to different quantities of cargo - each minimum volume and each related line haul rate is an essential term of the contract. Again, the legislative intent is to provide meaningful commercial disclosure." Id.
22. See Service Contracts, 24 S.R.R. at 1362, quoted by ANERA at page 8 of its Response:
As we noted in the Proposed Rule, a contract must be drafted so as to permit a person to ascertain the agreed upon rate from the face of the document or a specified rate schedule. The initial rate to be charged under a contract containing an MFS clause is a specific, numerical rate and is, therefore, "certain" for Section 3(21) purposes. Moreover, to the extent that that rate is subsequently adjusted based upon circumstances specifically set forth in the MFS clause, that "adjusted" rate is capable of being ascertained from objective data, although published elsewhere. (Emphasis supplied).
23. The ANERA MFS clause, as reflected in Rule 424 of ANERA's ET publication, provides, in pertinent part:
6. CONTRACT RATES
(a) Except as otherwise specified in this Article or Appendix A, and subject to Article 3, the contract rates charged for the carriage of commodities under this Contract shall be those set forth in paragraph 6 of Appendix A.
* * *
(b) Except as otherwise provided in Appendix A or Article 4 hereof, the Contract rates provided for in Article 6(a) hereof shall be subject to the following adjustments; . . .
(1) ANERA and Independent Action Tariff Rates.
If, at any time during the term of this contract or if done prior thereto and continuing, ANERA establishes a common commodity ocean freight rate ("common tariff rate") or if any participating carrier takes independent action ("I/A") with respect to any commodity and origin(s) and destination(s) within the scope of this Contract, and if said common tariff rate or I/A, when discounted by the MFS adjustment factor ("MAF") set forth in Appendix A hereto is below the otherwise applicable contract rate for carriage of said commodity under this Contract, the rate under this Contract applicable to such cargo carried by such participating carrier(s) on such routing, and for the period of time the common tariff rate or I/A is in effect, shall be said common tariff rate or the applicable I/A rate in effect at the time of the shipment, discounted by the MAF.(Emphasis supplied).
The MFS clause, however, was not applicable by its terms to shipments of General Department Store Merchandise.
24. Most of these referenced Rule 424 or similar language in Rules 201, 301, 403, 421, and 423.
25. They also use the term to refer to rates applied as a result of the MFS clause.
26. ANERA argues that evidence adduced by BOE which indicates that a few shippers may not have understood their contracts is irrelevant to the question of the lawfulness of the provision and may not be relied on to invalidate a provision used in hundreds of contracts. In this respect, ANERA's objections would appear to go to the probative weight of the evidence (a matter for argument) and not its relevance. As an additional basis, ANERA suggests that the Kolon and Kewalram statements (and attached documents) at App. C and G of BOE's Reply must be excluded because ANERA did not have an opportunity to cross examine the affiants. This claim is another matter, which is dealt with below.
27. Where an ambiguity, i.e., language subject to more than one meaning, is found on the face of a contract, the court may examine extrinsic evidence to determine the meaning of the contract's terms. Canutillo Independent School Dist. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 99 F.3d 965 (5th Cir. 1996); Burnside-Ott Aviation Training Center v. Dalton, 107 F.3d 854 (Fed. Cir. 1997); Local Motion, Inc. v. Niescher, 105 F.3d 1278 (9th Cir. 1997); and Pittston Co. Ultrama America Ltd. v. Allianz Insurance Co., 124 F.3d 508 (3rd Cir. 1997). Here, however, the Commission is not called on to determine the meaning of an ambiguous term, that is to interpret it, which might be relevant in a District Court suit for breach of contract, but merely whether the term is ambiguous, and therefore whether it fails to meet the 1984 Act's requirement for certainty. Compare Pennbarr Corp. v. Insurance Co. of North America, supra, 976 F.2d at 151 (To determine whether the contract is ambiguous, the court must "consider the words of the [contract,] alternative meanings suggested by counsel, and extrinsic evidence offered in support of those meanings.") with Schachner v. Blue Cross-Blue Shield of Ohio, supra (When language subject to more than one meaning is found on the face of a contract, the court may examine extrinsic evidence to determine the meaning of the contract's terms.)
28. The ANERA letter responding to Mr. Ha was part of the record in Fact Finding Investigation No. 23, and was thus available to the Commission without the statement itself. Mr. Ha's letter to ANERA was apparently not independently part of that record, but constitutes a document which is itself not otherwise inadmissible.
29. Nor does ANERA challenge the affidavits of Commission employees Blair, Carley or Estes.
30. BOE acknowledges this problem in its Reply, at 8 n. 11, noting that attorneys for the witnesses could not object to questions or offer direct or redirect questions. ANERA also objects to BOE's use of the Barragan testimony as evidence that carrier personnel themselves did not understand the opt out procedure because BOE did not reflect the whole of her testimony. Again, ANERA's objections would appear to go to the probative weight of the evidence, to which it has responded.
31. ANERA also objects that a portion of the statement of Mr. Ha contains hearsay which, according to ANERA, is inadmissable. The portion of Mr. Ha's statement specifically objected to relates to the understanding or expectations of personnel of Sea-Land Korea of the contract rates to be applied to Kolon's shipment. In administrative hearings, hearsay is not per se inadmissable. Nevertheless, the matter objected to is separable from the remainder of the statement and has been disregarded in our consideration of the issues.
32. Moreover, the Commission's awareness of the provision may have been substantially impeded by ANERA's own failure to reflect the adoption of this new policy in the minutes of meetings it was obligated, but failed, to file. The provision came to the Commission's attention, along with other carrier rate and service contract practices in the Transpacific, by way of shipper complaints about their treatment during the 1998 peak shipping season. Those complaints were explored through the initiation and conduct of Fact Finding Investigation No. 23.
33. The Show Cause Order specifies that the issues of whether penalties should be imposed, and if so, against which Respondents and in what amounts, are to be referred to an ALJ if violations are found.