American Great Lakes Ports Association et al v. Zukunft et al

Cross MOTION for Summary Judgment and Opposition to Plaintiffs' Motion for Summary Judgment

D.D.C.November 17, 2016

1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA __________________________________________ AMERICAN GREAT LAKES ) PORTS ASSOCIATION, et. al., ) ) Plaintiffs, ) ) v. ) Case No. 16-1019 (RC) ) ADMIRAL PAUL F. ZUKUNFT, in his ) official capacity as Commandant, United ) States Coast Guard, et al., ) ) Defendants. ) ) ST. LAWRENCE SEAWAY PILOTS ) ASSOCIATION, et al., ) ) Defendants-Intervenors ) ) __________________________________________) DEFENDANTS’ COMBINED CROSS-MOTION FOR SUMMARY JUDGMENT AND OPPOSITION TO PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT Defendants, the United States Coast Guard and Admiral Paul F. Zukunft, Commandant of the United States Coast Guard, by and through undersigned counsel, respectfully submit this motion for summary judgment in the above-captioned case. A supporting memorandum is attached that sets forth the grounds for this motion. Respectfully submitted, CHANNING D. PHILLIPS., D.C. BAR #415793 UNITED STATES ATTORNEY DANIEL F. VAN HORN, D.C. BAR # 924092 Civil Chief By: ___________/s/__________________ JEREMY SIMON, D.C. BAR #447956 Assistant United States Attorney Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 1 of 31 2 Civil Division 555 4th Street, N.W. Washington, D.C. 20530 (202) 252-2528 jeremy.simon@usdoj.gov Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 2 of 31 1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA __________________________________________ AMERICAN GREAT LAKES ) PORTS ASSOCIATION, et. al., ) ) Plaintiffs, ) ) v. ) Case No. 16-1019 (RC) ) ADMIRAL PAUL F. ZUKUNFT, in his ) official capacity as Commandant, United ) States Coast Guard, et al., ) ) Defendants. ) ) ST. LAWRENCE SEAWAY PILOTS ) ASSOCIATION, et al., ) ) Defendants-Intervenors ) ) __________________________________________) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AND IN OPPOSITION TO PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT In this action the Plaintiffs, a group of foreign owned and flagged shipping companies and associations of these companies, along with their agents and certain ports, seek review of a rule issued by the United States Coast Guard setting pilotage rates for the 2016 Great Lakes shipping season. See Great Lakes Pilotage Rates—2016 Annual Review and Changes to Methodology, 81 Fed. Reg. 11,908 (March 7, 2016) (Final Rule) (AR 1334 to 1369). The Court granted a motion by the three pilot associations who provide pilot services on the Great Lakes to intervene. As explained more fully below, in 2015, the Coast Guard faced clear evidence that its previous rate making methodology was not producing sufficient revenue to provide pilot compensation as defined by that methodology’s regulations. The Coast Guard, working with recommendations from the Great Lakes Pilotage Advisory Committee, revised its rate making Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 3 of 31 2 methodology in a number of ways and published new rates based on this new methodology. The decision to revise the methodology and the Coast Guard’s application of the new methodology represent reasoned agency decision making. I. STATUTORY AND PROCEDURAL BACKGROUND A. The Coast Guard’s Ratemaking Authority The Great Lakes Pilotage Act of 1960 (“Act”), Pub. L. No. 86-555, requires all foreign merchant vessels and certain U.S. vessels1 to employ American or Canadian registered pilots when transiting the American waters of the St. Lawrence Seaway and the Great Lakes system. 46 U.S.C. § 9302. The United States Coast Guard is responsible for licensing Great Lakes pilots and establishing the conditions of their service. 46 U.S.C. §§ 9303(a)–(e). The waters subject to the Act are divided into three districts, which are each subdivided into multiple areas. Within each district, the American pilots are organized into voluntary associations; these associations form the pools from which pilots are drawn when an American pilot is assigned to a vessel traversing the waters of a given district.2 The Coast Guard also possesses the authority to set rates for pilots’ services in the Great Lakes system and St. Lawrence Seaway. The Act requires the Secretary of Homeland Security3 1 The requirement also applies to those U.S. vessels that are “on register”—meaning that the vessel’s certificate of documentation has a registry endorsement allowing it to be employed in foreign trade or trade with U.S. outlying possessions. See 46 U.S.C. § 12105; 46 C.F.R. § 67.17. 2 Areas within the Great Lakes and St. Lawrence Seaway system are also classified as either “designated” or “undesignated” waters. In designated waters, a pilot must be on a ship’s bridge and actively directing its movements. In undesignated waters, a pilot must merely be on board and available to direct the vessel’s movement, subject to the discretion of the vessel’s master. See 46 U.S.C. § 9302(a)(1) (granting the President the authority to designate certain Great Lakes waters for this purpose). See also Lake Pilots Ass’n v. U.S. Coast Guard, 257 F. Supp. 2d 148, 151–52 (D.D.C. 2003). 3 Originally the Secretary of Transportation. Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 4 of 31 3 to “prescribe by regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.” 46 U.S.C. § 9303(f). The Secretary has delegated this authority to the Commandant of the Coast Guard, who in turn has delegated it to the Director of the Coast Guard’s Great Lakes Pilotage Office (GLPO). Apart from the mandate to consider the public interest and costs of services, the Act provides no substantive guidance to the Secretary in formulating rates. It does, however, impose timing requirements. The Secretary must establish base pilotage rates by a “full ratemaking” at least once every five years; for each intervening year, the Secretary must conduct annual reviews of rates and make any needed adjustments. New pilotage rates must be established by March 1 of each year. Id. Congress has also created the Great Lakes Pilotage Advisory Committee (CLPAC), a body subject to the Federal Advisory Committee Act, as a resource for the Coast Guard in discharging its statutory functions. 46 U.S.C. § 9307. The Act specifies that the Committee’s seven members, to be appointed by the Secretary, consist of the presidents of each of the three pilotage districts, members representing the interests of vessel operators, ports, and shippers, respectively, and a financial or accounting expert. Id. at § 9307(b)(2). Pursuant to its statutory authority, the Committee may “advise, consult with, report to, and make recommendations to the Secretary on matters relating to Great Lakes pilotage,” and may review proposed GLPO regulations. Id. at § 9307(a)(2). B. The Prior Rule Prior to the promulgation of the 2016 Final Rule that is the subject of this litigation, the Coast Guard’s ratemaking process had been governed for approximately two decades by methodology set forth in 1995 regulations. See Final Rule, Great Lakes Pilotage Rate Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 5 of 31 4 Methodology, 1995 WL 155705 (F.R.) (Apr. 11, 1995).4 Under the 1995 Rule, which was set forth in Appendix A to 46 C.F.R. Part 404, the Director of the GLPO followed a seven-step process when conducting full ratemaking: (1) Projection of operating expenses -- The Director first received, from each of the three pilots’ associations, a report of expenses from the past year. After determining which of the submitted expenses are allowable for purposes of ratemaking, the Director adjusted for inflation to arrive at an operating expenses projection for the coming year. (2) Determination of target pilot compensation for each area – This step proceeded in two parts. First, the target compensation rate was derived from current union contracts from the American Maritime Officers Union (AMOU) for first mates on U.S. Great Lakes vessels. It was set at approximately equal to the benchmark union contract for undesignated waters, and at 150% of the union contract for designated waters. Second, the target number of pilots for an area was determined with reference to the total number of “bridge hours”—the time a pilot is aboard a vessel providing basic pilotage services—in that area. The total target compensation for an area was determined by multiplying the target rate by the target number of pilots. (3) Projection of revenue – Drawing from a projection of vessel traffic (i.e., demand for pilotage services) and total pilotage revenue received if existing rates were left unchanged, the Director projected the total revenue that would be available to pilots’ associations in each area. (4) Calculation of investment base – Through use of a formula set forth in Appendix B to 46 C.F.R. Part 404, the Director calculated each district pilots’ association’s “investment base”—the recognized capital investment in the assets used by each association to support pilotage operations. (5) Determination of target rate of return on investment – Using market rates of return on shareholder investment from a cross-section of transportation industry equities, the Director allotted to each district association a target rate of return on investment for its investment base as determined by step 4. (6) Adjustment determination – The director then compared the projected return on investment—using the results of the first four steps of the methodology—to the target rate of return calculated in step 5. If the two figures diverged significantly, the 4 An additional Final Rule published roughly a year later responded to comments invited by the 1995 Final Rule, but made no significant changes to the methodology that had been adopted. See Final Rule, Great Lakes Pilotage Methodology, 1996 WL 233314 (F.R.) (May 9, 1996). Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 6 of 31 5 Director would determine that an adjustment to the associations’ revenue was required. (7) Adjustment of pilotage rates – Finally, the Director adjusted the base pilotage rates if step 6 showed that, for a given area, projected revenues at the rate provisionally determined at step 2 diverged unacceptably from the target rate of return. 60 Fed. Reg. at 18371–73. The 1995 Rule also set forth procedures, codified at Appendix C of 46 C.F.R. Part 404, governing annual rate adjustments in years when the Director did not conduct a full ratemaking. Id. at 18373. From 2011 to 2015, the Director conducted a full “Appendix A” ratemaking every year. C. The 2015 Notice of Proposed Rulemaking and 2016 Final Rule On September 10, 2015, the Coast Guard published a Notice of Proposed Rulemaking (NPRM) in which it announced its intention to make a complete revision of its ratemaking methodology in advance of its ratemaking for the 2016 shipping season. 80 Fed. Reg. 54484-01 (F.R.) (Sept. 10, 2015) (AR 1 to 24). As it explained in the Notice’s preamble, the Coast Guard’s revised methodology sought to address two concerns with the old procedure. First, both pilots and industry groups had identified “certain methodology issues” that distorted the calculations. The Coast Guard believed that, over time, these distortions had produced pilot compensation rates that were lower than what was needed for the associations to retain their existing pilots and attract qualified new ones. Second, the union contracts that had been used as target compensation rate benchmarks had become unavailable, necessitating a new data source to serve as a benchmark. As the Coast Guard acknowledged, the proposed new methodology was also intended to respond to a 2015 federal district court ruling that identified problems with the existing protocol—specifically, its reliance on first mates’ contracts from the American Maritime Officers Union (AMOU) as benchmarks for its target pilot compensation rates. In St. Lawrence Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 7 of 31 6 Seaway Pilots Association, Inc. v. U.S. Coast Guard, 85 F. Supp. 3d 197 (D.D.C. 2015), the Court sustained the three pilots’ associations’ challenge to the results of the Coast Guard’s 2014 ratemaking. At issue in the case was the Coast Guard’s decision to use abridged data from AMOU union contracts as the basis for its 2014 target rate, despite the fact that this data did not factor in the union first mates’ holiday, weekend, or bonus pay. The court concluded that the Coast Guard’s use of such data, where updated information from the union contracts was available, violated the APA. Id. at 206–07. Not only did the Coast Guard’s attempt to adjust its benchmark data result in 2014 rates, which the pilots’ associations challenged as unreasonably low, but it also demonstrated the difficulties inherent in pegging target rates to union contracts when the AMOU makes the data underlying those contract rates only partially available for the Coast Guard’s use. The Coast Guard’s new methodology consists of eight steps set forth in detail in the Notice of Proposed Rulemaking. The steps can be summarized as follows: (1) Recognize previous year’s operating expenses – The Director compiles the allowable operating expenses for each district association, broken down by area. (2) Determine projected operating expenses – The Director adjusts the previous year’s expenses data for inflation in order to calculate a projected value for the current year. (3) Determine the number of pilots needed – This step proceeds in multiple stages. First, the Director determines what data from previous years to use as a base period. Second, the Director calculates the average “cycle time”—period on assignment—for each pilot assignment in each area over the base period. For the 2016 Rule, this calculation draws on the Bridge Hour Definition and Methodology Final Report that the Coast Guard commissioned in 2013.5 In future years, the Coast Guard hopes to draw on the Great Lakes Pilotage Management System, once that database has compiled sufficient information to serve such a purpose. Third, the Director calculates demand for pilots over the base period, basing the calculation on the demand associated with peak late-season traffic—times in which (because the hours 5 Bridge Hour Definition and Methodology Study, Final Report (June 25, 2013), available at http://www.uscg.mil/hq/cg5/cg552/docs/Pilotage%20Study%20Final%20Report%2028%20JUN %202013.pdf. Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 8 of 31 7 demanded of a single pilot would exceed safety standards) the associations must be staffed to provide double pilotage in designated waters. The number of pilots needed per area is determined by combining the hours-per-assignment data and the peak- period traffic data over the base period. (4) Determine target pilot compensation – The Director uses compensation rates for pilots of the Canadian Great Lakes Pilots Association as a benchmark, having considered and rejected other potential benchmark figures. In recognition of differences in pay and benefits between Canadian and American pilots, the Director then adjusts the Canadian benchmark upward by 10% to arrive at the target rate for American pilots. The target rate per pilot is multiplied by the actual number of pilots working in each district to calculate a target compensation figure per district. (5) Determine return on investment – The Director applies the recent (for this year’s rule, figures from 2013) market rate of return for high-grade corporate securities to each district’s projected total operating and compensation expenses (as calculated in steps 2 through 4 above) to determine the allowable rate of return on investment for each district association. (6) Determine needed revenue – Each association’s needed revenue is determined by summing its projected operating expenses (from step 2), its total target pilot compensation (from step 4), and its proposed rate of return on investment (from step 5). (7) Make initial base rate calculations – Using the same multi-year base period as used in step 3, the Director calculates initial base hourly pilot rates, dividing the total revenue figure (from step 6) by the total number of hours worked per area (from step 3). (8) Review and finalize rates – Exercising his discretion pursuant to 46 C.F.R. § 401.401, the Director reviews the hourly rate calculated in step 7 and considers whether adjustments are needed. In the 2015 Proposed Rule, the Director applied a surcharge ranging from 4% to 6% (depending on the district) to the initial rates. In doing so, he explained that the pilots’ associations require additional pilot-training funds to compensate for recent years’ shortfalls in pilot recruiting and retention. 80 Fed. Reg. 54491–501. The 2016 Final Rule, published on March 7, 2016 after the comment period closed, made some minor changes in response to comments, but preserved the Proposed Rule’s methodology. See Final Rule, Great Lakes Pilotage Rates – 2016 Annual Review and Changes to Methodology, 81 Fed. Reg. 11908-01 (Mar. 7, 2016). Of the changes made by the 2016 Rule to the 1995 Rule’s methodology, two emerge as Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 9 of 31 8 the most significant for the purposes of this litigation. First, the 2016 Rule revises the methodology to project the number of pilots needed in a given year. It follows a 2014 Great Lakes Pilotage Advisory Committee6 recommendation to extrapolate from a multi-year average of past data rather than “anecdotal information about future shipping.” 81 Fed. Reg. at 11912. This new pilot demand projection also incorporates two further analytical changes, both of which tend to increase the projected demand figures: (1) the “bridge hour” standard is broadened to include the total average time a pilot spends in preparing for and returning from assignments and recuperative rest allowances, rather than merely the time the pilot is actually on the bridge; and (2) late-season7 “peak demand” numbers are used as the baseline for demand. Second, the 2016 Rule abandons the AMOU first mate contracts as the benchmark for pilot compensation, instead using the rates for Canadian pilots—after applying a 10% upward adjustment.8 D. Procedural History The Plaintiffs – reflecting the view of the shipping companies that ultimately pay for the pilot services – submitted 39 pages of comments to the Notice of Proposed Rulemaking on December 9, 2015. See Plaintiffs’ Comments (Comment No. 53) (“Pls.’ Comments”), USCG- 6 The Great Lakes Pilotage Advisory Committee is a statutorily required Federal Advisory Committee. In accordance with 46 U.S.C. 9307, the membership of the Committee is comprised of the President of each of the three Great Lakes Pilotage districts, one member representing vessel operators that contract for Great Lakes pilotage services, one member representing Great Lakes ports, one member representing shippers using Great Lakes pilotage services, and one member with a background in finance or accounting, who must be recommended by unanimous vote of the other members of the Committee. 7 The shipping season on the Great Lakes for vessels requiring pilotage typically runs from mid-March to the end of December, depending upon winter weather conditions. 8 Another noteworthy change is that the 2016 Rule also simplifies the calculation of rate of return on investment, tacking a market rate of return onto projected expense and compensation figures rather than performing separate calculations of the associations’ investment bases. Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 10 of 31 9 2015-0497-53 (Dec. 9, 2015) (AR 283-321).9 In their comments, the Plaintiffs articulated four classes of objections to the proposed rule. First, they argued that the new methodology was inconsistent with the Coast Guard’s delegated ratemaking authority in that it deviated from a rigorous focus on actual costs as the baseline for setting rates and failed to demonstrate that an increase in rates was truly necessary. Id. at 9–19 (citing City of Detroit v. FPC, 230 F.2d 810, 817 (D.C. Cir. 1955); Farmers Union Cent. Exc., Inc. v. F.E.R.C., 734 F.2d 1486 (D.C. Cir. 1984)).10 Second, they contended that the Coast Guard was “arbitrary and capricious” in its treatment of certain data—namely, that it gave undue weight to recommendations from the Great Lakes Advisory Committee and improperly excluded certain past years’ data from the multi-year base period that it used to project pilot demand. Id. at 19–25. Third, Plaintiffs challenged the 2016 rate levels themselves as arbitrary and capricious, focusing in particular on the 10% upward adjustment from the Canadian benchmark and the discretionary surcharge proposed by the Director at step 8. Id. at 25–28. Lastly, the Plaintiffs urged that the Coast Guard consider alternatives to its proposed methodology, including eliminating the Coast Guard’s step 8 discretion, adopting a “negotiated rulemaking” model, making a more rigorous study of how factors apart from compensation rates might be affecting pilot recruitment and retention, and 9 Available at https://www.regulations.gov/#!docketBrowser;rpp=25;po=0;D=USCG-2015-0497. 10 The Plaintiffs broke this objection to the Rule down into several component arguments: (1) that the Coast Guard improperly failed to consider the “weighting factor” in setting pilotage rates; (2) that the Coast Guard failed to give due consideration to its adoption of a peak-season baseline for pilot demand; (3) that the Coast Guard’s new method of calculating bridge hours will unreasonably force shippers to pay pilots for periods of delay and detention, unlike the old method; (4) that the adoption of a new ratemaking methodology was an inappropriate vehicle for the Coast Guard’s proposal to add a mandatory pilot “change point” at Iroquois Lock in the Great Lakes system (note: the Coast Guard dropped this proposal from the Final Rule); (5) that the Coast Guard failed to give due consideration to its proposal to calculate all pilotage rates on an hourly basis; and (6) that the costs of American Pilots Association membership dues should not be subsidized by ratepayers. Pls’ Comments at 9–19. Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 11 of 31 10 paying more attention to what the Plaintiffs called the “economic realities” facing the shipping interests. Id. at 28–35. With some minor exceptions, the Coast Guard declined to alter the Final Rule to accede to these comments and suggestions. The Plaintiffs timely filed their complaint under the Administrative Procedure Act on May 31, 2016. The Court granted the motion of the three pilots’ associations—the St. Lawrence Seaway Pilots Association, the Lakes Pilots Association, and the Western Great Lakes Pilots Association—to intervene pursuant to Federal Rule of Civil Procedure 24. The pilots’ associations oppose the Plaintiffs’ requested reduction in the 2016 rates and deny that the Plaintiffs are entitled to any relief from the 2016 Rule under the APA. II. THE STANDARD OF REVIEW The Administrative Procedure Act (APA) “sets forth the full extent of judicial authority to review executive agency action for procedural correctness.” F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009) (citing Vermont Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc., 435 U.S. 519, 545–49, (1978)). The standard of review under the APA “is a narrow one,” see Marsh v. Or. Natural Res. Council, 490 U.S. 360, 378 (1989), and it begins with a presumption that the agency’s actions are valid. Envtl. Def. Fund, Inc. v. Costle, 657 F.2d 275, 283 (D.C. Cir. 1981). Thus, the plaintiffs bear the burden of establishing the invalidity of the agency’s action. St. Lawrence Seaway Pilots Ass’n, Inc. v. U.S. Coast Guard, 85 F. Supp. 3d 197, 204 (D.D.C. 2015) (citing Fund for Animals v. Babbitt, 903 F. Supp. 96, 105 (D.D.C. 1995)). Where plaintiffs seek to set aside agency action, they must show that the action in question was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2). The purpose of APA review is limited; courts’ role in screening for Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 12 of 31 11 “arbitrary” or “capricious” actions is to “insist that the agency examine the relevant data and articulate a satisfactory explanation for its action.” F.C.C., 556 U.S. at 513 (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). A court does not “substitute its judgment for that of the agency,” and should uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned. Id. at 513–514. Indeed, a court should consider only “whether the agency acted within the scope of its legal authority, whether the agency has explained its decision, whether the facts on which the agency purports to have relied have some basis in the record, and whether the agency considered the relevant factors.” Fulbright v. McHugh, 67 F. Supp. 3d 81, 89 (D.D.C. 2014). The question presented in an APA challenge, moreover, is limited to whether the agency made a reasonable decision, not whether it made the best decision or the decision the Court may have reached had it considered the issue de novo. See Lubow v. United States Dep’t of State, 783 F.3d 877, 887 (D.C. Cir. 2015) (“But under the APA’s standard of review, ‘a court is not to substitute its judgment for that of the agency.’ . . . Instead, we ask whether the agency’s decision ‘was based on a consideration of the relevant factors’ and whether ‘there has been a clear error of judgment.’”) III. THE COAST GUARD’S DECISIONS REGARDING ITS NEW RATE MAKING METHOLOGY ARE REASONABLE AGENCY DECISIONS IN BALANCING THE PUBLIC INTEREST (INCLUDING SAFETY) AND THE COST OF PROVIDING PILOTAGE SERVICES The Coast Guard faced a problem in 2015: its methodology was producing far less revenue than was necessary to generate the pilot compensation established by its regulations. As stated in the Final Rule, “[t]he Director of Great Lakes Pilotage has reviewed his data for 2005 through 2014 and estimates that over this period, the three pilot associations cumulatively fell short of revenue projections by $20 million.” 81 Fed. Reg. 11, 910. From the standpoint of the Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 13 of 31 12 public interest, this revenue shortfall was problematic. The Final Rule found that, as a result of the revenue shortfall over this period, “the pilot associations could not provide sufficient compensation to attract and retain qualified pilots, leading to pilot shortages and associated traffic delays. In turn, these shortages meant that each pilot had to carry an excessive workload and forego needed rest and training.” Id. The Coast Guard is mandated by statute to not only consider “the costs of providing the services” in establishing a rate methodology, but also to give “consideration to the public interest.” 46 U.S.C. § 9303(f). The revenue shortfall that existed under the prior methodology, therefore, not only was a question concerning the costs of services, but also one that implicated the public interest. Furthermore, the Coast Guard’s ability to access proprietary union contract data which served as the basis for calculating target pilot compensation under the prior methodology was becoming more limited. Finally, both Plaintiffs and pilots as well as other interested parties had for years complained about the Coast Guard’s ratemaking methodology. As explained more fully below, the Coast Guard reasonably determined that the Canadian pilots, who perform the same services in the same waters, represented the best new benchmark for target pilot compensation. Although the best available benchmark, there nevertheless were certain differences in compensation between Canadian and American pilots that necessitated certain adjustments, as addressed in the new methodology. Based on prior experience and data, the Coast Guard also declined certain proposed adjustments made in comments to the proposed rule, including those proposed by Plaintiffs that have been raised in this lawsuit as addressed more fully below. A. The Coast Guard Reasonably Decided to Maintain its Practice of Not Considering Weighting Factors When Calculating the Base Needed Revenue Under 46 C.F.R. § 404.106 Under its new methodology, the Coast Guard calculates each of the three pilotage Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 14 of 31 13 association’s base projected needed revenue by adding the projected operating expenses, the target pilot compensation, and the projected return on investment. AR 1340 (discussing 46 CFR § 404.106) The Coast Guard then uses this total projected needed revenue to calculate the base pilotage rates by dividing the total needed revenue between the designated and undesignated waters of each of the three districts based on a rolling average of the hours worked in each area.11 AR 1340 (discussing 46 CFR 404.107) This produces an hourly rate for each area which pilots use to bill vessels for pilotage services. Although there may be other possible methods for calculating projected needed revenue and, in turn, a base hourly rate, the question presented in this APA challenge is whether this methodology is based on a reasoned judgment. See, e.g., St. Lawrence Seaway Pilots Association, 85 F. Supp. 3d at 205. As noted by Plaintiffs, the rate that results from this methodology is a base rate which is increased by a weighting factor, ranging from 1.0 to 1.45, depending on the size of the vessel that is piloted. The weighting factor thus is applied after the hourly base rate is calculated. The weighting factor is not considered in the calculation of the base hourly rate itself. This also was the case under the prior methodology (AR 1350, 81 Fed Reg. 11923) but has never been raised as an issue by the Pilots or the Plaintiffs. Plaintiffs submitted a comment during the rulemaking arguing that weighting factors should be considered in calculating the pilot association’s projected needed revenue, which in turn would impact the base rate calculation because that calculation is the result of dividing projected needed revenue by a rolling average of hours worked as between designated and undesignated waters. Plaintiffs’ premise for this comment is that the projected needed revenue 11 Using a rolling average of historic data is a departure from the old methodology in which the Coast Guard attempted to forecast the demand for pilotage services. See AR0006. Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 15 of 31 14 number (i.e., the revenue that pilot associations need to derive to operate and attract and retain qualified pilots) should be discounted to reflect the positive impact weighting factors have on actual compensation to avoid over-collection pilotage revenues. Plaintiffs argue that the failure to consider the weighting factors in calculating the base hourly rate would generate more than the projected needed revenue since certain alleged data suggests that the average weighting factor applied to the base rate was 1.28 for the 2014 shipping season. (Pl. Mem. at 16-17) The Coast Guard saw potential merit in this comment, but ultimately declined to consider the weighting factors in calculating the base hourly rate because the actual revenue produced depends on many factors which cannot be accurately predicted at the time of the ratemaking. (AR 1350, 81 Fed Reg. 11923) In the Final Rule, the Coast Guard explained that “[g]iven the high variability from year to year in the numbers and types of vessels requiring pilotage, we have never considered weighting factors in projecting revenue projections of the rate.” (Id.) Indeed, weighting factors were not considered by the Coast Guard in determining base rates under its old methodology and those rates, when combined with subsequent adjustments based on vessel size, did not consistently produce greater than projected revenues. (Id. at 11, 910, noting record support for a cumulative shortfall of revenue projections by $20 million during the period from 2005 to 2014) Plaintiffs themselves acknowledge that their argument requires the assumption that “other projected factors are accurate,” (Pl. Mem. at 14), an assumption that is not borne out by experience given year-to-year variability. Based on that empirical experience, the Coast Guard reasonably decided not to consider weighting factors in calculating the base rate. Plaintiffs argue, erroneously, in the context of discussing the rate methodology that the Coast Guard has considered “the revenue impacts of weighting factors in the past.” Pl. Mem. at 14. This statement is misleading because it implies that the Coast Guard considered the revenue Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 16 of 31 15 impacts of weighting factors in setting base pilotage rates. This is not correct. In 2013, based on the unanimous recommendation of the Great Lakes Pilotage Advisory Committee, the Coast Guard decided to align the weighting factors used by American pilots with those used by the Canadian pilots to provide greater parity between the two countries and reduce billing confusion. The Coast Guard clearly stated in that year’s ratemaking that these “weighting factors are applied to the charges for pilotage service; they are not used in the ratemaking methodology.” See Great Lakes Pilotage Rates-2014 Annual Review and Adjustment, 78 Fed. Reg. 48,374, 48,376 (Aug. 8, 2013). Although the Coast Guard observed that increasing the weighting factors to match the Canadian weighting factors would lead to an increase in revenue, that observation does not support the conclusion advanced by Plaintiffs that the Coast Guard has deviated from its past practice regarding weighting factors in its ratemaking methodology. The problem for the Coast Guard is that there is no guarantee that all of the revenue projecting factors will turn out as predicted because the number of vessels and types of cargoes moving through the Great Lakes in a given season are a function of global economic conditions and demand for particular commodities such as grain or steel. There is no guarantee that the demand for pilotage services will meet the projected demand. The mix of demand between designated waters and undesignated waters may be different than projected. Vessels entering the Great Lakes system are assigned either a Canadian or an American pilot on an alternating basis with no attempt to balance the weighting factors between vessels carrying Canadian and American pilots. AR 0434. The bottom line is that, based on historical experience, actual revenue and projected revenue rarely match, as evidenced by the $20 million revenue shortfall over the period from 2005 to 2014. Given this historical pattern, the Coast Guard considered, but reasonably chose to not include weighting factors in its calculation of base rates under the Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 17 of 31 16 new methodology, but rather to take this comment under advisement to see if the new methodology with its several changes will correct this historic pattern. See, e.g., City of Waukesha v. EPA, 320 F.3d 228, 258 (D.C. Cir. 2003) (“comment response sufficient if it ‘demonstrates that the agency at least considered whether it should adopt [an alternative] model’”). B. The Coast Guard Used the Most Recent Audited Revenue Figures in the Final Rule; Did Not Deviate from A Past Practice; and Responded Appropriately to Plaintiffs’ Actual Comment in the Rulemaking Plaintiffs argue that the Coast Guard deviated from its past practice of adjusting rates to correct past miscalculations of actual revenue and failed to use the actual revenues for 2014 in supporting the rate increase in its final rule. Neither of these arguments was presented in their comment in the ratemaking and neither argument is correct. First, Plaintiffs’ assertion that the Coast Guard did not consider the actual 2014 revenues in its Final Rule is incorrect. The Final Rule (published in March 2016) used audited, actual revenue figures from 2013 and 2014 to support the estimated effect of the rate changes on the shippers who use American pilot services. (AR 1364) Contrary to Plaintiffs claim that it ignored audited and verified financial information on the rulemaking docket, the Coast Guard accurately noted that the audited, actual revenue across the entire system for 2014 was $16,875,073. (Id.) Although Plaintiffs are correct that the Coast Guard used projected revenue for 2014 in its Notice of Proposed Rulemaking published on September 10, 2015, that occurred because the Coast Guard did not receive the revenue audits (showing 2014 actual revenue) from the three pilot associations until October 16, 2015. See AR 0519, 0543, 0564. Second, Plaintiffs argue that, in a deviation from past practice, the Coast Guard failed to account for the difference in the 2014 targeted and actual revenues in setting the projected Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 18 of 31 17 revenue figure number for the 2016 rate calculation. (Pl. Mem. at 19-20) Plaintiffs contend that 2014 actual revenue exceeded target revenue by 31 percent and that, consistent with its alleged past practice (in which it has adjusted projected needed revenue upward when prior audited data reflected a shortfall in actual revenues), the Coast Guard should have made a downward adjustment to account for this overage. (Id.) The example of past practice cited by Plaintiff is the 2015 Ratemaking in which the Coast Guard used its discretion to increase rates by ten percent to account for differences between actual and projected revenue in 2013 audited data. However, what actually happened in the 2015 Ratemaking is more complex than Plaintiffs have characterized. The Coast Guard’s initial calculation of the 2015 pilotage rates resulted in approximately a twelve percent decrease in rates across the system from the 2014 rates. 2015 Final Rule, 80 Fed. Reg. at 10380. The Coast Guard believed that this decrease was the result of a change in the AMOU contract data which had previously been used to calculate target pilot compensation. Id. at 10381.12 The Coast Guard also noted that “recently completed independent audits of pilot association revenues detail a significant gap between revenues projected by the Coast Guard and those actually collected by the pilot associations.” Id. The Coast Guard further noted that actual pilot compensation was averaging $168,094 per pilot, more than 35 percent below the present value of the 2011 target pilot compensation of approximately $260,000 (2011 being the last year the Coast Guard believed it had uncontested AMOU contract data.) Id. Given all this data indicating there was a problem with its ratemaking methodology, the Coast Guard decided to increase rates by ten percent in each district because all the data 12 This was incorrect. The Coast Guard misinterpreted the input it received from AMOU and therefore significantly undercalculated target compensation. See, St. Lawrence Seaway Pilots Ass’n, Inc., 85 F.Supp.3d at 207 Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 19 of 31 18 available to the Coast Guard indicated that at least a ten percent increase was needed to produce adequate revenue in 2015, not to correct for a shortfall of revenue in the past. Plaintiffs’ question why the Coast Guard did not exercise its discretion to change the rates for its 2016 ratemaking when 2014 actual revenues exceeded projected revenues. One reason is that the 2016 ratemaking used the new methodology and thus the concerns underlying the 2015 discretionary adjustment (i.e., that the then-existing ratemaking methodology had become unreliable due to the lack of complete AMOU contract data) were not present. Another reason is that the demand for pilotage services unexpectedly exceeded the projection for 2014 by approximately 40 percent, thus contributing to the increase in actual revenue for that year. (Compare AR 1361, Figure 25 (58,188 actual bridge hours) and AR 491 ($16.9 million actual revenue) with 79 FR 12084 (March 4, 2014), Table 13 (projecting 41,585 bridge hours) and Table 15 (projecting $12.5 million in revenue)). Consistent with its mandate to consider the public interest, including safety, the Coast Guard addressed the overwork problem reflected in the 2014 data by adjusting its methodology for determining the number of pilots (as addressed more fully in section C below). Thus, the Coast Guard accounted for the 2014 actual revenue data in its 2016 rate methodology. That it did so in a different manner than preferred by Plaintiffs does not render that methodology arbitrary or capricious. Plaintiffs contend that there “is no explanation in the Final Rule for the Coast Guard’s decision to depart from [past] practice.” (Pl. Mem. at 20). However, Plaintiffs’ characterization of the 2015 Ratemaking as evidence of a “past practice” that could be translated to the 2016 Ratemaking is not accurate for reasons discussed above. Moreover, this argument regarding past adjustments of revenue was not presented in Plaintiffs’ comment in the ratemaking and, therefore, the Coast Guard did not discuss this matter in its Final Rule. Because Plaintiff did not Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 20 of 31 19 present this comment, the Coast Guard’s failure to do address it in the Final Rule cannot be considered arbitrary and capricious. Health v. Burwell, 126 F. Supp.3d 28, 69 (D.D.C. 2015) (“whether comments have been presented to the agency matters in applying the arbitrary and capricious standard of review”). Plaintiffs’ actual comment was more generic. Plaintiff asserted that in a proper ratemaking system ‘the regulated utilities are subject to a uniform system of accounting, that the regulated entities' financial submissions are routinely audited and verified by the rate- setting body, that the rate-setting agency maintains accurate, current operational data to enable past periods to be checked against projections for those periods, and a ''truing up" or refund mechanism.’ AR 0284. The Coast Guard’s response was more detailed than the Plaintiffs excerpt: “we believe we have provided extensive evidence in support of our analysis of association expenses and revenues.” AR 1350. The Coast Guard noted “that the associations follow uniform reporting procedures and use the reporting software we provide” (a uniform system of accounting). Id. An independent accounting firm audits expenses and revenues and financial information is posted on the Coast Guard website (submissions are routinely audited and verified.) Id. As discussed previously, the Coast Guard used the most recent audited data to analyze the impact of its Final Rule. As for a refund mechanism, Plaintiffs’ comment provides no details of how a refund mechanism would work or the specific authority for the Coast Guard to establish such a mechanism. A recent attempt by the Coast Guard to refund to shippers alleged pilotage overcharges was successfully challenged so there is some question as to whether the Coast Guard has the authority to force the pilot association to refund properly billed charges in the event the association receives more revenue during the year than projected. See Lakes Pilots Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 21 of 31 20 Ass’n v. U.S. Coast Guard, 2013 U.S. Dist. LEXIS 140029 (E.D. Mich. 2013). Charging a “supplemental bill” to foreign flag vessels who may never again call in the United States when a pilot association’s actual revenue falls short of projected revenue would be even more problematic. C. The Coast Guard Determined the Number of Pilots Needed by Considering Both Safety and Reducing Costs by Minimizing Delays Plaintiffs objected to the Coast Guard’s peak-staffing model arguing that staffing for peak demand provides more pilots than are necessary during the majority of the shipping season when demand is lower. Plaintiffs’ Memorandum on this issue contains a significant error of fact and fails to acknowledge that the peak-staffing model is based on many considerations other than staffing to meet peak season demands, including safety considerations. (AR1339-40) Plaintiffs also ignore their own past demands that the Coast Guard address delays caused by a shortage of pilots that cost them millions of dollars. At most, the term “peak-staffing model” is somewhat of a misnomer because it obscures the fact that the pilot demand calculation is driven by more than just avoiding delays at peak periods of demand. But that is not a basis to find the model to be arbitrary or capricious. Furthermore, in its NPRM for the 2017 ratemaking, the Coast Guard has proposed a change to its calculation of pilot demand which if implemented will moot some of Plaintiffs’ arguments with regard to this issue. See 81 FR 72011, 72014 (Oct. 19, 2016). As an initial matter, Plaintiffs incorrectly argue that the peak-staffing demand model added nearly $6 million of additional costs in 2016. (Pl. Mem. at 24) While Plaintiffs are correct that the Coast Guard projected an ultimate demand for 54 pilots under the new methodology, only 42 pilots were counted for the purposes of setting the 2016 rates. (AR 1360) This is not significantly different than the number of pilots counted for setting the rates from 2009 through 2015, which ranged from 36 to 40. See Plaintiffs’ Mem. at 23 n.20. The increase Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 22 of 31 21 over past seasons ranges from two to six pilots resulted in increased costs of just over $600,000 to just under $2 million – one-tenth to one-third of Plaintiffs’ claim. (AR 1361, Figure 22 (target compensation per pilot of $326,114)) This closely aligns with industry’s estimate of the $1 million in additional costs attributable to seasonal delays according to Plaintiffs. See Plaintiffs’ Mem. at 24 n.21. In complaining to the Coast Guard about delays, Plaintiffs have cited higher figures. See AR 136, n.2. In the Final Rule, the Coast Guard estimated delays since 2007 ranging from around $600,000 to around $1.3 million with a rising trend. (AR 1348 Figure 5) Plaintiffs also gloss over the fact that the Coast Guard had multiple objectives and bases for calculating pilot demand other than simply staffing to avoid delays during peak periods. For instance, Plaintiffs correctly note that the Coast Guard previously “relied upon historical data, input from pilots and industry, periodicals and trade materials, and information from conferences to project future demand for pilotage services.” Plaintiffs’ Mem. at 23. Essentially, in the past, the Coast Guard would attempt to forecast demand anew each year using objective and anecdotal data but this could lead to wide fluctuations in demand from year to year. By switching to a rolling-average of the past ten years’ demand under the 2016 rate methodology, the Coast Guard will be able to forecast demand based on more objective data and, in the process, minimize the potential for wide fluctuations in demand projections. In the 2016 rate methodology, the Coast Guard also changed its bridge hour standard from one that had only considered how many hours a pilot was on a vessel providing pilotage services to one which accounted for the complete pilot cycle time (i.e., one that also accounts for the time spent in transportation to and from the vessel embarkation/debarkation point, administrative time, delay and the ten hours off required between jobs). (AR 1359) On average, Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 23 of 31 22 the complete pilot cycle time adds an additional 14-16 hours per assignment. Id. As a result, a pilot in designated waters could expect to at most handle one vessel per day and pilots in undesignated waters would generally require a day and a half to two days to complete an assignment. Id. The bridge hour standard may have underestimated the demand for pilots particularly in undesignated waters where pilots were expected to be able to provide 1,800 hours of pilotage service in just nine months13 without accounting for these additional demands on a pilot’s time. By using pilot cycle time, the Coast Guard is likely better able to assess the number of pilots required to meet the expected demand. Finally, the peak staffing demand model is designed to provide the pilots days off for recuperative rest during non-peak months in order to combat chronic fatigue issues in accordance with a National Transportation Safety Board (NTSB) recommendation. (AR 1349 (Response to Projected Number of Pilots Needed), AR 1350 (Response to Recuperative Rest for Pilots), AR 009, AR 092, AR 402) Peak demand periods generally occur at the beginning and end of the seasons because the Great Lakes are frozen over during the winter months. At the beginning and end of the seasons, bad weather is common, ice remains over portions of the Lakes, and buoys that were removed for the winter have not all been replaced. Consequently, especially in designated waters, two pilots are often assigned to a vessel. Traffic is also higher as vessels enter or leave the Lakes. During these peak demand periods, all pilots will remain on call, but during lower demand periods the expectation is that pilots will have up to ten days per month of recuperative rest. (AR 1350) The Coast Guard’s expertise in maritime safety and commerce is why the Coast Guard is tasked with regulating Great Lakes pilotage and the issue of pilot fatigue 13 In comparison, a typical 40 hour a week schedule with two weeks off over the course of a year would total 2,000 hours not including holidays. Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 24 of 31 23 is a consideration consistent with the Coast Guard’s statutory mandate to consider the public interest in setting rates. See Halverson v. Slater, 129 F.3d 180, 188 (D.C. Cir. 1997) (noting that both the language and the legislative history of the governing statute "manifest the Congress's intent to limit the individuals to whom [Pilotage Act] powers and duties--which involve primarily maritime safety and commerce--may be delegated. "). In sum, the Coast Guard’s decision to calculate the number of pilots needed by giving consideration to minimizing the costs due to delay and providing for adequate rest to address the NTSB’s recommendation is an example of reasoned decision making. The Coast Guard is entitled to “extreme deference” in matters regarding maritime safety. See, e.g., St. Lawrence Seaways Pilot Ass’n, 85 F. Supp. 3d at 204 n.9. And contrary to Plaintiffs’ assertion, the Coast Guard explained why proposed alternative approaches were not viable. 80 Fed. Reg. at 11,922. D. The Coast Guard Proposed a Ten Percent Adjustment to Target Compensation Based on Input From Its Advisory Committee and Received Conflicting Comments Regarding Whether This Adjustment Was Too High or Too Low The Coast Guard determined that the compensation for Canadian pilots who serve the same vessels in the same waters as the American pilots was the best benchmark for setting target pilot compensation. Nevertheless, although both Canadian and American pilots do the same work, they are not equally situated. Canadian pilots are government employees with a guaranteed minimum salary and government benefits. Canadian pilots also have a cap on liability in the event they are sued. (AR 149, AR 331) In contrast, overall compensation for American pilots is less certain. Moreover, the American pilot association also must pay for all of the infrastructure associated with providing pilot services including pilot boats, dispatch services, administrative responsibilities through the revenue generated by pilot charges. (AR 805-806, AR 957, AR 1335) Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 25 of 31 24 For this rate making, the Coast Guard recognized annual operating expenses of almost $4.5 million for the pilot associations. (AR 1361, Figure 24) If actual revenues are less than projected revenues, all of those operating expenses must still be paid and pilot compensation will be reduced. Given the uncertainties of compensation for American pilots compared to their Canadian counterparts, there are a number of reasons to believe that target pilot compensation should be greater than the benchmark of Canadian pilots. As with many aspects of the revised methodology, the Coast Guard sought a recommendation from the Great Lakes Advisory Committee. Although that Committee did not provide a formal recommendation, several Committee members supported the concept of a ten percent upward adjustment to account for differences in relative compensation between Canadian and American pilots. (AR 1047-48, July 24, 2014 Tr. at 42-46) The Coast Guard used that ten percent figure in its proposed rulemaking and hoped to get additional information on this question from the public comments. The Coast Guard received a number of comments on this issue including from pilots who felt that ten percent was far too little to compensate for the differences between the American and Canadian pilotage systems. (AR 149-156) The pilots felt that the Canadian compensation should be increased by 37% rather than just ten percent and provided some details to support its calculation, including data from domestic pilot associations operating in the Port of New Orleans and the San Francisco Bay area, as well as an analysis of relative retirement benefits as between Canadian and American pilots. (Id.) Plaintiffs also submitted a comment stating that ten percent was too high but provided limited support for that position. (AR 308-309) Ultimately, the Coast Guard felt that neither explanation was convincing and therefore decided to leave the ten percent adjustment intact. Plaintiffs’ contention that the 10% adjustment Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 26 of 31 25 is arbitrary in that it is too high is contradicted by the data provided by the pilots’ association to support a greater adjustment. Although the Coast Guard’s decision not to make an adjustment to the extent requested by the pilot associations was not arbitrary or capricious (and is not alleged to be so in this litigation), the record, if anything, supports at least a 10% adjustment and includes data that could have supported a higher adjustment had the Coast Guard determined that to be appropriate. Accordingly, the 10% adjustment – which reflected a compromise between the position advanced by Plaintiffs and the pilot association – is supported by the record and cannot be challenged by Plaintiffs as being unreasonably too high. E. Pilot Associations Have Experienced Difficulty Recruiting and Retaining Pilots and This Impacts Maritime Safety The Coast Guard is concerned with the recruiting and retention of pilots and has regular interaction with the three pilot associations to discuss these issues particularly when an association does not have sufficient qualified pilots to meet demand as has happened a number of times over the years in which the old methodology was used to calculate rates and to determine demand. (AR 1346, AR 1347 (Figure 3)) Pilots frequently complained that lack of time off and failure to be paid adequately as reasons for recruiting and retention problems. This concern is well known among those in the Great Lakes shipping industry and has been a topic of discussions over the years at the Great Lakes Advisory Committee. Plaintiffs commented that the Coast Guard provided no data in support of its retention and recruitment concerns. The Coast Guard in its Final Rule supported these concerns by providing its understanding of why thirty-one pilots have left the three pilot associations over the past eleven years. (AR 1346) This represents a turnover of seventy-five percent to eighty-six percent depending on whether one calculates from the high of forty-four pilot or the low of thirty-six pilots during the period. This turnover is significant because it is unusual for pilots in Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 27 of 31 26 the United States to leave a position as a pilot to take another position in the maritime industry. (See AR 108, 127, 129 FN3, and 134) Plaintiffs suggest that the Coast Guard consider other potential barriers to recruitment such as reducing apprentice periods and whether other available incentives such as quality of life measures will help recruitment (presumably in lieu of higher pay.) As noted above, the Coast Guard does believe quality of life is a concern with regard to recruitment and retention --specifically the lack of time when pilots are not subject to call throughout the season. The Coast Guard’s decision to provide up to ten days of recuperative rest throughout the season by providing a sufficient number of pilots is based on safety concerns, but will likely also assist with retention issues. Plaintiffs also argue that the increase or decrease in delay hours do not necessarily correlate with the number of pilots available in a given year. (Pl. Mem. at 32) The Coast Guard, however, noted in the Final Rule that the trend over the nine years from 2007 through 2015 was that the number of available pilots had decreased 22 percent while delay hours have increased 45 percent. upward for both delay hours and the associated costs. (AR 1348) As stated in the Final Rule, although “[o]ther factors contribute to delays, . . . clearly pilot shortfalls are one important factor.” (Id.) Although Plaintiffs cite data that could be interpreted to support its position, they cannot establish that the Coast Guard erred in relying on the competing data cited in the Final Rule. Contrary to Plaintiffs’ assertion, the Coast Guard supported its position with record evidence, just not the data preferred by Plaintiffs. Doing so was within the Coast Guard’s discretion and does not render its decision unreasonable or without rational basis. F. Plaintiffs’ Request for Remedy Should Be Denied Plaintiffs include in their motion a request for a remedy that includes vacating the 2016 Final Rule and remanding the matter to the Coast Guard to promptly issue a “new and proper Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 28 of 31 27 methodology for ratemaking,” as well as a direction to the Coast Guard that it “make whole the ratepayers who have been burdened by the arbitrary Final Rule by crediting in the calculation of future rates excessive 2016 pilotage fees paid by the ratepayers.” Pls. Mem. at 34. Defendants disagree. As a general observation, it is premature, and presumptive, of Plaintiffs to address the question of remedy in their filing when the Court has not ruled on whether any aspect of the 2016 Final Rule is a violation of the APA that would require redress. As discussed above, moreover, in its NPRM for the 2017 ratemaking, the Coast Guard has changed its calculation of pilot demand which if implemented may moot some of Plaintiffs’ arguments. Thus, at the time the Court issues a decision on the parties’ competing motions, circumstances may have arisen that impact on the remedy question – if that is even a question that the Court needs to consider based on its ruling – and, given the various potential contingencies, the issue of remedy is most appropriately left for briefing and consideration at a later date. That said, however, it can be definitively stated at this time that Plaintiffs request for a “credit[] in the calculation of future rates” for allegedly excessive amounts paid under the 2016 Final Rule is improper. Plaintiffs’ argument for retroactive relief does not address the controlling Supreme Court precedent: Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988). There, hospital providers of in-patient services challenged a rule adopted in 1984 by the Secretary of the Department of Health and Human Services that allowed the agency to recoup from providers money that had previously been paid to them dating back to 1981. A unanimous Supreme Court held that the retroactive rule could not be upheld as an exercise of the agency’s authority to make retroactive corrective adjustments (which were to be made on a case-by-case Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 29 of 31 28 basis) and that such retroactive rulemaking was also invalid under the Medicare Act’s general grant of authority to promulgate cost-limit rules. The Court observed: It is axiomatic that an administrative agency’s power to promulgate legislative regulations is limited to the authority delegated by Congress. In determining the validity of the Secretary’s retroactive cost-limit rule, the threshold question is whether the Medicare Act authorizes retroactive rulemaking. 488 U.S. at 208 (the Court later concluded that there was no such statutory authorization). The Court further observed: [A] statutory grant of legislative rulemaking authority will not, as a general matter, be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms. [Citations omitted.] Even where some substantial justification for retroactive rulemaking is presented, courts should be reluctant to find such authority absent an express statutory grant. Id. In a concurring opinion, Justice Scalia analyzed the language of the Administrative Procedure Act and explained why that language supports the conclusion reached by the Court in the case: Under the APA, rules are prospective in application and adjudications address matters retrospectively. 488 U.S. at 216-25. See also Consolid. Edison Co. of NY v. FERC, 347 F.3d 964, 969 (D.C. Cir. 2003) (A “related rule against retroactive ratemaking ‘prohibits the [agency] from adjusting current rates to make up for a utility’s over or under-collection in prior periods.’”) Here, the Coast Guard is only authorized to prescribe the rates and charges for pilotage services. 46 U.S.C. § 9303(f). There is no indication – and Plaintiffs have not pointed to any such indication - that Congress intended the Coast Guard to set those rates in a retroactive manner or authorize the shipping companies to receive a credit for amounts paid for services Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 30 of 31 29 already provided. The Coast Guard’s authority to set rates is purely prospective and falls far short of the “express statutory grant” required for retroactive rulemaking under Georgetown University Hospital. Plaintiffs’ reliance on Allied-Signal, Inc. v. NRC, 988 F.2d 146, 153 (D.C. Cir., 1993), is inapposite because that case involved user fee allocations and a different statute, and also did not present filed rate issues. CONCLUSION For the foregoing reasons, the Court should deny Plaintiffs’ motion for summary judgment and grant Defendants’ cross-motion for summary judgment. Respectfully submitted, CHANNING D. PHILLIPS, D.C. BAR #415793 UNITED STATES ATTORNEY DANIEL F. VAN HORN, D.C. BAR # 924092 Civil Chief By: ________/s/____________________ JEREMY SIMON, D.C. BAR #447956 Assistant United States Attorney Civil Division 555 4th Street, N.W. Washington, D.C. 20530 (202) 252-2528 Jeremy.Simon@usdoj.gov Case 1:16-cv-01019-RC Document 21 Filed 11/17/16 Page 31 of 31 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA __________________________________________ AMERICAN GREAT LAKES ) PORTS ASSOCIATION, et. al., ) ) Plaintiffs, ) ) v. ) Case No. 16-1019 (RC) ) ADMIRAL PAUL F. ZUKUNFT, in his ) official capacity as Commandant, United ) States Coast Guard, et al., ) ) Defendants. ) ) ST. LAWRENCE SEAWAY PILOTS ) ASSOCIATION, et al., ) ) Defendants-Intervenors ) ) __________________________________________) ORDER Upon consideration of Plaintiffs’ Motion for Summary Judgment, Defendants’ Cross- Motion for Summary Judgment, oppositions thereto, and the entire record herein, it is this _________ day of _______ 2016, ORDERED that Plaintiffs’ Motion is DENIED and Defendants’ Cross-Motion is GRANTED; and it is FURTHER ORDERED that summary judgment is granted in favor of Defendants. SO ORDERED. _______________________ United States District Judge Case 1:16-cv-01019-RC Document 21-1 Filed 11/17/16 Page 1 of 1