How will a ‘landmark’ US Supreme Court ruling impact the FMC?

For observers of the maritime business, an immediate question concerns the Federal Maritime Commission (FMC), an agency which has flexed its muscles in a big way in recent years. Indeed, following the enactment of the Ocean Shipping Reform Act of 2022 (OSRA 2022), the FMC has been aggressive in penalizing carriers for violations of its rules, particularly in the area of Demurrage and Detention (D & D). OSRA 2022 built on previous legislation going back to the Shipping Reform Act of 1984 and its follow-on in 1998

Washington, D.C. based lawyer Jeff Vogel, a Partner in Cozen O’Connor’s Maritime practice, told Seatrade Maritime News: “There is a potential impact on the Federal Maritime Commission that we’ve been looking at; it’s worth exploring,” adding that: “There is absolutely a lot of scrutiny now being applied to what the FMC has been doing…many industry participants are watching to see how this all will play out.”

In effect, the Supreme Court’s new ruling backtracks on “The Chevron Deference”, a mid - 1980’s Supreme Court case (Chevron USA, Inc. v. Natural Resources Defense Council). In that decades-old decision, the Supreme Court ruled that a lower court must look to how the relevant agency (in that case, the Environmental Protection Agency) has interpreted a Federal statute if the legal wording was ambiguous, or completely silent, on a particular issue.

In the Loper Bright case, which deals with regulation in the fishing industry- but will have implications across a broad swath of industries well beyond maritime, the Supreme Court said that lower courts can make their own judgements (rather than looking only at what an agency said) to determine with the agency has followed the relevant Federal statutes.

Loper Bright concerned interpretations by a lower court in New England supporting the National Marine Fishery Service (NMFS, which regulates commercial fishing) on its assignment of costs that were imposed on commercial fisherman.

Cozen O’Connor’s Vogel, talking about the present state of affairs, emphasized D & D, where the FMC promulgated its “Final Rule” earlier this year. He told Seatrade Maritime, “The World Shipping Council has actually challenged that final rule…and there is a case pending before the D.C. Circuit Court. Prior to the [end June] decision, the FMC would have been given some deference by the D.C. Circuit, provided that their interpretation of the Shipping Act and their authority to regulate demurrage and detention was permissible. But now the D.C. circuit is now required, as a result of the Supreme Court decision, to exercise its own independent judgement.”

He explained further: “Essentially, the heart of the matter is whether the FMC had the authority to promulgate the D&D regulations under the Shipping Act in the manner that it did….Prior to the new decision, the D.C. circuit court would have had to defer to the FMC’s interpretation on any aspect of the Shipping Act that was ambiguous. There is certainly ambiguity within the Shipping Act, so now the court has to look at the uncertainties completely independently.”

Looking ahead, Cozen O’Connor’s Vogel said: “There is certainly an opportunity here for some of the penalties that have been levied against ocean carriers to be appealed. Following the repeal of Chevron Deference, the calculus that would be applied by the courts would now be very different. We have some significant civil penalties that have been levied against the carriers this year…I would not be surprised to see them appealed.”

Reader Resource: https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf