## Facts

- Owners and operators of unsubsidized U.S.-flag tankers (largely serving protected domestic petroleum trades, including Alaskan North Slope oil carriage) challenged a Department of Transportation/Maritime Administration rule affecting competition in domestic trades.
- Under the Merchant Marine Act of 1936, the federal government may provide construction differential subsidies (CDS) to support U.S.-flag ships in foreign commerce, and subsidized vessels are generally restricted from competing in protected domestic trades.
- The Secretary of Transportation, through Maritime Administration rulemaking, adopted a generally applicable “payback rule” allowing CDS-built vessels to obtain release from domestic-trade restrictions by repaying the unamortized portion of the subsidy plus interest within a specified period.
- The rule was adopted through notice-and-comment procedures and was justified as addressing recurring fleet problems, including underutilization of CDS tankers and increasing U.S.-flag participation in domestic petroleum carriage.
- Plaintiffs sued under the Administrative Procedure Act seeking to set aside the rule as exceeding statutory authority, conflicting with the Merchant Marine Act’s domestic/foreign trade structure, and being arbitrary and capricious; they also raised rulemaking procedure objections.
- The district court upheld the rule on summary judgment, concluding the Secretary acted within statutory limits and discretion.
- Plaintiffs appealed; related appeals were consolidated in the D.C. Circuit.

## Issues

1. Whether the Merchant Marine Act of 1936 authorized the Secretary to adopt a general rule permitting CDS vessels to enter domestic trade upon repayment of the unamortized subsidy plus interest.
2. Whether the rule was arbitrary and capricious for failing to provide a reasoned explanation connecting the rule to the Merchant Marine Act’s objectives.
3. Whether alleged notice-and-comment defects required invalidation of the rule.

## Decision

- The court held the Secretary had statutory authority to promulgate a generally applicable payback rule.
- The court remanded because the agency failed to adequately explain how the rule served the Merchant Marine Act’s objectives, as required by APA reasoned decision-making.
- The court rejected plaintiffs’ specific procedural challenges to the rulemaking process, apart from the need for a fuller substantive explanation.
- Disposition: affirmed in part and remanded for further agency explanation.

## Legal Principles

- When a statute does not clearly foreclose an agency’s policy choice, a permissible agency construction within delegated authority will be upheld.
- Agency action must satisfy APA § 706(2)(A): the agency must provide a reasoned explanation showing a rational connection between the record and the policy choice, including how the rule advances the governing statute’s objectives.
- A court may remand a rule for inadequate explanation without holding the rule outside statutory authority or vacating it on procedural grounds.

## Conclusion

The D.C. Circuit upheld the Secretary’s authority under the Merchant Marine Act to allow CDS vessels to “buy out” domestic-trade restrictions through subsidy repayment, but remanded because the agency did not adequately explain—on the record—how the policy furthered the Act’s purposes and accounted for effects on the domestic segment of the U.S.-flag fleet.


Independent U.S. Tanker Owners Comm. v. Dole, 809 F.2d 847 (D.C. Cir. 1987)