On April 17, 2024, the United States Court of Appeals for the Fifth Circuit upheld the Coast Guard's determination that a vessel is considered "built in the United States" for purposes of coastwise endorsement eligibility notwithstanding its incorporation of a foreign-made crane. Diamond Services Corp. v. Curtin Maritime Corp., et al., No. 23-20118, – F.4th –, 2024 WL 1648002 (5th Cir. Apr. 17, 2024). The decision turned on whether a crane installed on a dredging barge is considered part of the barge's hull or superstructure.
Background
Curtin Maritime Corporation ("Curtin") sought a preliminary ruling from the Coast Guard that its dredging barge, the DB AVALON, could operate in the United States. Before a vessel can dredge in U.S. navigable waters, it must meet certain requirements imposed by federal law including a "certificate of documentation [COD] with a coastwise endorsement." Only vessels "built" or "rebuilt" in the United States are eligible for a coastwise endorsement.
Curtin's application to the Coast Guard detailed that the AVALON would be constructed with steel at a shipyard in the United States, but the vessel's spuds and crane would be removed from a foreign vessel and shipped to the United States prior to installation. The crane would be bolted to the AVALON's hull, not welded, and the spuds would also be removable. Based on the removability of the spuds and crane, the Coast Guard regarded them as "outfitting" and not part of the AVALON's hull or superstructure. Because the AVALON would "remain a complete and intact vessel and be fully capable of operating as a vessel without the spuds and crane," the Coast Guard determined that the AVALON "would be considered built in the United States." On July 27, 2022, the AVALON received its COD with a coastwise endorsement.
Legal Challenges and Court Proceedings
Around this time, the Port of Houston Authority ("the Port") awarded Curtin a bid for the expansion of the Houston Ship Channel. Diamond Services Corporation ("Diamond"), a competitor of Curtin, thereafter sued Curtin, the Port, and several federal defendants under the Administrative Procedure Act (APA) and the Declaratory Judgment Act (DJA). Diamond's complaint urged the district court (i) to declare that the issuance of the AVALON's COD was arbitrary and capricious and thus violated federal law, (ii) to enjoin Curtin from performing any work using the AVALON in the United States, and (iii) to enjoin the Port from awarding Curtin funds or work involving the AVALON.
Curtin and the Port moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), contending that Diamond lacked standing and failed to state a claim. Diamond moved for summary judgment against the defendants, and the federal defendants moved for summary judgment against Diamond. The district court granted Curtin and the Port's motion to dismiss for lack of standing, denied Diamond's motion for summary judgment, and granted the federal defendants' motion for summary judgment. In granting the federal defendants' motion for summary judgment, the district court deferred to the Coast Guard's reasonable interpretation of its own regulations. The Coast Guard interpreted its regulations to focus on whether the crane and spuds "could be removed without affecting the [AVALON's] operation as a vessel, the structural integrity of the hull, or the integrity of the superstructure." Such an interpretation, according to the district court, fell within the agency's expertise and was a proper application of its regulations.
Fifth Circuit Appeal and Ruling
On appeal, the Fifth Circuit upheld the district court's holding that Diamond lacked standing to sue Curtin as one of its competitors. Although Diamond had standing to sue the federal defendants, standing with respect to one defendant does not, on its own, confer standing as to another defendant. The Fifth Circuit also upheld the district court's deference to the Coast Guard's interpretation of its regulations and resulting judgment that the Coast Guard did not violate the APA by issuing the AVALON a COD with a coastwise endorsement.
To reach this conclusion, the Fifth Circuit employed the Supreme Court's multi-step test to resolve whether deference to an agency's interpretation of a regulation is warranted. Because Diamond had waived any argument that the spuds were not part of the AVALON's hull or superstructure, the Fifth Circuit solely considered the crane in its analysis. First, the Fifth Circuit analyzed whether the Coast Guard regulation defining "superstructure" (46 C.F.R. § 67.3) is "genuinely ambiguous" with respect to the AVALON's crane. The regulation defines "superstructure" as "the main deck and any other structural part above the main deck." Neither the regulation nor its history clearly establishes whether a crane constitutes a "structural part" of a dredging barge. Thus, the Fifth Circuit deemed the Coast Guard regulation genuinely ambiguous.
Second, the Fifth Circuit resolved whether the Coast Guard's interpretation of the regulation was reasonable. The Court noted the Coast Guard's Review Criteria for Steel Weight Components, which excludes cranes from the meaning of "superstructure":
Includes portions of the hull extending above the freeboard deck, such as forecastles. Also includes deckhouses and pilothouses, but not breakwaters, crane or mast houses, or ventilation or exhaust trunks (these being outfitting components).
Based on the Review Criteria, which regards cranes as outfitting components, and prior agency determinations, the Court concluded that the Coast Guard's finding about the AVALON's crane was reasonable.
Third, the Court made an independent inquiry into whether deference to the Coast Guard's determination is proper. " '[E]specially important markers' for this inquiry are whether the interpretation (1) was actually made by the agency, (2) implicates the agency's substantive expertise, and (3) reflects fair and considered judgment." Finding that all three markers were satisfied, the Fifth Circuit affirmed the district court's deference to the Coast Guard's determination and grant of summary judgment in favor of the federal defendants.
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