American Great Lakes Ports Association v. Zukunft

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
AMERICAN GREAT LAKES PORTS :
ASSOCIATION, et al., :
:
Plaintiffs, :
: Civil Action No.: 16-1019 (RC)
v. :
: Re Document Nos.: 18, 20, 21
ADMIRAL PAUL F. ZUKUNFT, :
Commandant, United States Coast Guard, :
et al., :
:
Defendants. :
MEMORANDUM OPINION
GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT;
GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTIONS FOR SUMMARY
JUDGMENT
I. INTRODUCTION
In 2016, the Coast Guard promulgated new rules for calculating the rates that
international shippers must pay American maritime pilots on the waters of the Great Lakes.
Throughout the notice-and-comment process, Plaintiffs—representatives of the international
shipping community—criticized the proposed rules in a variety of ways. After having their
comments largely rejected, the shippers sued the Coast Guard in this Court under the
Administrative Procedure Act, 5 U.S.C. §§ 500 et seq. All the parties have now moved for
summary judgment on Plaintiffs’ claims. For the various reasons explained below, the Court
grants in part and denies Plaintiffs’ motion for summary judgment.
II. BACKGROUND
With limited exceptions, all foreign vessels1 operating in the Great Lakes and some of
their connecting waters (collectively “the Great Lakes”) must employ a registered Canadian or
American maritime pilot to aid in navigation. 46 U.S.C. § 9302(a)(1). In 1960, Congress
enacted the Great Lakes Pilotage Act (“GLPA”), which authorized the United States Coast
Guard (“Coast Guard”) to “form[] . . . a pool . . . of United States authorized pilots to provide for
efficient dispatching of vessels and rendering of pilotage services” in the waters of the Great
Lakes. Id. §§ 9301(2), 9304(a). Thus, pilots on the Great Lakes are organized into private
associations certified by the Coast Guard, which operate in three separate geographical districts.2
See Great Lakes Pilotage Rates—2016 Annual Review and Changes to Methodology, 81 Fed.
Reg. 11,908, 11,910 (Mar. 7, 2016). The Coast Guard is responsible for setting “standards of
competency” for registered American pilots and prescribes “rates and charges for pilotage
services, giving consideration to the public interest and the cost of providing the services.” 46
U.S.C. § 9303(a), (f). Thus, the Coast Guard determines the base pilotage rates that foreign
vessels must pay to hire American maritime pilots to navigate the Great Lakes and reviews and
adjusts these rates annually. See id.
In September 2015, the Coast Guard issued a Notice of Proposed Rulemaking (“NPRM”)
informing the public that the Coast Guard sought to “revis[e] the current methodology by which
1
The statute applies both to “foreign vessel[s]” and “vessel[s] of the United States
operating on register,” which are U.S.-flag vessels participating in foreign trade. 46 U.S.C. §
9302(a); 46 C.F.R. § 67.17.
2
“District One comprises areas 1 and 2, the U.S. waters of the St. Lawrence River and
Lake Ontario. District Two comprises areas 4 and 5, the U.S. waters of Lake Erie, the Detroit
River, Lake St. Clair, and the St. Clair River. District Three comprises areas 6, 7, and 8, the U.S.
waters of the St. Mary’s River, Sault Ste. Marie Locks, and Lakes Huron, Michigan, and
Superior.” 81 Fed. Reg. at 11,910.
2
the Coast Guard sets base rates for U.S. pilotage service” and to set pilotage rates for the 2016
shipping season using that new methodology. Great Lakes Pilotage Rates—2016 Annual
Review and Changes to Mehodology, 80 Fed. Reg. 54,484, 54,484 (Sept. 10, 2015). The reasons
for the methodology change were twofold. First, the Coast Guard explained that “over many
years both pilots and industry have identified certain methodology issues that they believe
significantly distort[ed] ratemaking calculations.” Id. In particular, “[p]ilot associations
believe[d] those distortions result[ed] in low rates that contributed to their difficulty in retaining
pilots and attracting applicant pilots.” Id. Second, a methodology change was required because
certain data that the Coast Guard previously relied upon would no longer be available. See id.
Before 2016, the Coast Guard’s pilotage rate-setting methodology relied, in part, on union
compensation data for merchant marine masters and mates.3 81 Fed. Reg. at 11,908; see also St.
Lawrence Seaway Pilots Ass’n, Inc. v. United States Coast Guard, 85 F. Supp. 3d 197, 204–05
(D.D.C. 2015). According to the Coast Guard, “only one union’s contract data [was] ever []
made available to the Coast Guard,” but that union “now regards th[e] data as proprietary and
[would] no longer disclose it to the Coast Guard.” 80 Fed. Reg. at 54,484. Consequently, “the
Coast Guard no longer ha[d] access to the detailed breakdown of compensation calculation that
[its] [former] methodology [once] relie[d] on.” Id. Thus, as a result of the previous complaints
from pilots and industry concerning the old methodology combined with the future unavailability
of pilot compensation data, the Coast Guard decided to change its methodology.
3
The Coast Guard’s aim was to compensate Great Lake registered pilots in a comparable
way to first mates on U.S. Great Lakes vessels. St. Lawrence Seaway Pilots Ass’n, Inc., 85 F.
Supp. 3d at 204.
3
A. 2016 Rate-Setting Methodology
The final pilotage rate-setting methodology adopted by the Coast Guard was largely the
same as the rule that it had proposed in September 2015. See 81 Fed. Reg. at 11,942. The Coast
Guard developed this methodology based on a set of recommendations made by the Great Lakes
Pilotage Advisory Committee (“GLPAC”). See id. at 11,911. The GLPAC is a committee
created by statute whose purpose is to assist the Coast Guard in formulating pilotage rates and
policies.4 See 46 U.S.C. § 9307(a). When the Coast Guard engages in those functions, the Coast
Guard is required to consider the GLPAC’s recommendations, id. at § 9307(d)(2), and in this
instance, the Coast Guard accorded the GLPAC’s recommendations significant weight, see 81
Fed. Reg. at 11,911.
In concept, the revised methodology is rather straightforward. The Coast Guard seeks to
set hourly pilotage rates that will be sufficient to cover pilotage associations’ expenses and also
provide a modest rate of return. To do this, the Coast Guard first estimates the expenses that it
expects the pilotage associations will incur, including expenses associated with pilot
compensation, in the upcoming season. It then adds a return on investment based on high-grade
corporate securities. Viewed together, the expenses and the return on investment, represent the
target revenue amount that the Coast Guard is hoping the pilotage associations will achieve. To
come up with an hourly pilotage rate sufficient to meet this goal, the Coast Guard divides the
target revenue by an estimate of the number of hours it expects the associations will work. The
4
The GLPAC is composed of seven members, including a representative from each of
the three private associations, a representative for the interests of vessel operators, a
representative for the interests of the ports, a representative for the interests of shippers whose
cargoes are transported through the Great Lakes ports, and a member with a background in
finance or accounting and must be unanimously selected by the other members of the committee.
46 U.S.C. § 9307(b)(2).
4
Coast Guard can then adjust this rate on an ad hoc basis under “supportable circumstances.” The
Coast Guard has broken out this methodology into the following eight steps:
Step One: “Recognize previous operating expenses.” First, the Coast Guard
examines the pilotage associations’ prior expenses based on independent third-
party audits and then determines which expense items should be recognized for
the purpose of ratemaking.
Step Two: “Project operating expenses, adjusting for inflation or deflation.”
Next, the Coast Guard projects the pilotage associations’ operating expenses
(other than those expenses associated with compensating pilots) using the
recognized operating expenses identified from Step One and adjusting them for
inflation or deflation using U.S. government consumer price index data for the
Midwest.
Step Three: “Determine number of pilots needed.” The Coast Guard then
projects how many pilots the Great Lakes will need in the upcoming shipping
season. Unlike the prior methodology, this step takes into account not only the
“hours a pilot is on the vessel’s bridge, but also the total average time a pilot
spends in preparing for and returning from each pilot assignment.” It also uses a
“peak-staffing model,” which aims to determine the number of pilots needed at all
times by looking to the amount of pilots needed during average peak-season
demand in previous years.
Step Four: “Determine target pilot compensation.” The Coast Guard then uses
“the most relevant currently available non-proprietary information” to determine
base individual pilot compensation. The Coast Guard then multiplies that figure
by the number of pilots needed calculated in Step Three.
Step Five: “Project return on investment.” Because associations have
management responsibilities and exposure to business risk, the Coast Guard
calculates a return on investment. To do this, the Coast Guard multiplies the sum
of the operating expenses from Step Two and the target pilot compensation from
Step Four by the annual rate of return for high-grade corporate securities.
Step Six: “Project needed revenue.” Here, the Coast guard estimates the revenue
that each pilotage association will need to successfully operate by adding together
the projected operating expenses (Step Two), projected pilot compensation (Step
Four), and projected return on investment (Step Five).
Step Seven: “Initially calculate base rates.” At this step, the Coast Guard divides
the projected needed revenue from Step Six by the averages of past hours worked
in each geographic area’s waters.
Step Eight: “Review and analyze rates.” Finally, the Coast Guard reviews the
base pilotage rates to make sure the rates meet the “goal of . . . promot[ing] safe,
5
efficient, and reliable pilotage service on the Great Lakes.” At this step, the Coast
Guard may either finalize the rates or “make[] necessary and reasonable
adjustments to them based on requirements of Great Lakes pilotage agreements
between the United States and Canada, or other supportable circumstances.”
See 81 Fed. Reg. at 11,908–42.
B. The Present Action
On May 31, 2016, the American Great Lakes Ports Association, a not-for-profit
organization representing the interests of commercial ports and port users in the United States,
and several other organizations in the shipping industry sued the Coast Guard under the
Administrative Procedure Act (“APA”), claiming that the new methodology and 2016 pilotage
rates were arbitrary and capricious in various respects. See Compl. at 4–5, 20, ECF No. 1.
Thereafter, the three Great Lakes pilotage associations (“Pilots”) moved to intervene as
defendants. Pilots Ass’ns Mot. Intervene Supp. Defs., ECF No. 6. The Court granted the
pilotage associations’ motion to intervene because of their strong interest in the outcome of the
litigation. See Am. Great Lakes Ports Ass’n v. Zukunft, 16-cv-1019, 2016 WL 8608457 (D.D.C.
Aug. 26, 2016). Plaintiffs, Defendants, and Intervenors have each moved for summary
judgment, and the motions are now ripe for decision. See Pls.’ Mot. Summ. J. (“Pls.’ Mot.”),
ECF No 18; Def.–Intervenors’ Cross-Mot. Summ. J. (“Pilots’ Mot. Summ. J.”), ECF No. 20;
Defs.’ Cross-Mot. Summ. J. (“Coast Guard’s Mot. Summ. J.”), ECF No. 21.
C. 2017 Modification to Rate-Setting Methodology
On April 5, 2017, the Coast Guard issued a notice of proposed rulemaking setting rates
for the 2017 shipping season. In that notice, the Coast Guard also proposed modifying the rate-
setting methodology to account for so-called “weighting factors”5 that it did not account for in
5
As described in greater detail infra, “weighting factors” are multipliers that are used by
pilotage associations to calculate the actual pilotage fees that the associations will charge for any
6
2016. Great Lakes Pilotage Rates—2017 Annual Review, 82 Fed. Reg. 16,542 (Apr. 5, 2017).
However, the Coast Guard made clear that “until a final rule is produced, the 2016 rates will stay
in effect, even if a final rule is not published by the start of the 2017 season.” Id. at 16,542 On
August 31, 2017, the Coast Guard issued a final rule incorporating the weighting factors into its
rate-making methodology. See Great Lakes Pilotage Rates—2017 Annual Review, 82 Fed. Reg.
41,466, 41,466 (Aug. 31, 2017). While this rule revised “the pilotage rates for the remaining
portion of the 2017 shipping season,” it made no purported adjustments to the rates applied in the
2016 shipping season. See id.
III. LEGAL STANDARDS
In a typical case, the Court must grant summary judgment to a movant who “shows that
there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Winston & Strawn, LLP v. McLean, 843 F.3d 503,
505 (D.C. Cir. 2016). But in the context of the APA, the Court’s review of the administrative
record is limited. Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89 (D.D.C. 2006)
(citing National Wilderness Inst. v. United States Army Corps of Eng’rs, 2005 WL 691775, *7
(D.D.C. 2005)). It is the agency’s role to resolve issues of fact and regulate in accordance with
those facts. See id. The district court’s review is confined to determining whether, as a matter of
law, the evidence in the administrative record supports the agency’s decision. Citizens for
Responsibility & Ethics in Washington v. SEC, 916 F. Supp. 2d 141, 145 (D.D.C. 2013).
“Summary judgment thus serves as the mechanism for deciding, as a matter of law, whether the
agency action is supported by the administrative record and otherwise consistent with the APA
given voyage. In essence, the larger the vessel, the higher the weighting factor, and the more the
pilotage associations can charge.
7
standard of review.” Id. at 90 (citing Richards v. INS, 554 F.2d 1173, 1177 & n. 28 (D.C. Cir.
1977)).
Under 5 U.S.C. § 706(2)(A), a reviewing court must set aside agency actions that are
arbitrary or capricious. The touchstone of arbitrary-and-capricious review is reasoned
decisionmaking. Harry T. Edwards, Linda A. Elliott & Marin K. Levy, The Requirement of
Reasoned Decisionmaking: Arbitrary and Capricious Review Under the APA, Federal Standards
of Review Ch. XV (Apr. 2013) (“Federal Standards of Review Ch. XV”) (citing Motor Vehicle
Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). Thus, a
court cannot set aside an agency rule that is “rational, based on consideration of the relevant
factors[,] and within the scope of the authority delegated to the agency by the statute.” State
Farm Mut. Auto. Ins. Co., 463 U.S. at 42–43. Although this is a deferential standard, it still
requires a reviewing court to take a “hard look” at an agency’s reasoning. See Federal Standards
of Review Ch. XV (quoting Nat’l Lime Ass’n v. EPA, 627 F.2d 416, 451 n.126 (D.C. Cir. 1980)).
In the context of notice-and-comment rulemaking, “[t]he function of the court is to assure that
the agency has given reasoned consideration to all the material facts and issues.” Greater Boston
Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970). This requires the agency to
“articulate with reasonable clarity its reasons for decision, and identify the significance of the
crucial facts.” Id.
An agency action is arbitrary and capricious if the agency “entirely failed to consider an
important aspect of the problem, offered an explanation for its decision that runs counter to the
evidence before [it], or [the explanation] is so implausible that it could not be ascribed to a
difference in view or the product of agency expertise.” State Farm Mut. Auto. Ins. Co., 463 U.S.
at 43. Thus, an “agency must examine the relevant data and articulate a satisfactory explanation
8
for its action including a rational connection between the facts found and the choice made.” Int’l
Ladies’ Garment Workers’ Union v. Donovan, 722 F.2d 795, 814 (D.C. Cir. 1983) (quotation
marks and citation omitted). With that said, “[a]n agency has discretion to design rules that can
be broadly applied, sacrificing some measure of ‘fit’ for administrability.” Leather Indus. of
Am., Inc. v. EPA, 40 F.3d 392, 403 (D.C. Cir. 1994) (citing Petroleum Commc’ns v. FCC, 22
F.3d 1164, 1172 (D.C. Cir. 1994)); see also Am. Pub. Gas Ass’n v. Fed. Power Comm’n, 567
F.2d 1016, 1046 (D.C. Cir. 1977) (internal quotations and citations omitted) (“Courts cannot
fairly demand the perfect at the expense of the achievable.”). Shortcomings and analytical weak
points, if justified or explained in light of practical constraints, do not render a regulation
arbitrary or capricious. See City of Brookings Mun. Tel. Co. v. FCC, 822 F.2d 1153, 1168 (D.C.
Cir. 1987). Indeed, even the “best available data standard leaves room for error, so long as more
reliable data did not exist at the time of the agency decision.” Baystate Med. Ctr. v. Leavitt, 545
F. Supp. 2d 20, 49 (D.D.C. 2008), amended in part, 587 F. Supp. 2d 37 (D.D.C. 2008), judgment
entered, 587 F. Supp. 2d 44 (D.D.C. 2008).
IV. ANALYSIS
In this case, Plaintiffs present a litany of arguments for why the Coast Guard’s 2016 rate-
setting methodology and 2016 pilotage rates were arbitrary and capricious.6 Broadly speaking,
these challenges fall into three categories. First, Plaintiffs challenge one of the Coast Guard’s
overall rationales underpinning the changes to the rate-setting methodology. Specifically, they
challenge the Coast Guard’s conclusion that pilotage rates should be increased to address the
6
The Court concludes that oral argument would “be of no meaningful assistance [to it] in
rendering a final decision,” and thus exercises its discretion to deny Plaintiffs’ request for oral
argument. Owen-Williams v. BB & T Inv. Servs., Inc., 797 F. Supp. 2d 118, 126 (D.D.C. 2011);
see also LCvR 7(f).
9
pilotage associations’ problems in recruiting and retaining pilots. Second, Plaintiffs challenge
features that the Coast Guard chose to include in its rate-setting methodology. Namely, the
methods by which the Coast Guard estimates expenses associated with pilotage compensation.
Finally, Plaintiffs challenge certain features that the Coast Guard decided not to include in its
rate-setting methodology. In particular, Plaintiffs argue that the Coast Guard’s failure to
consider the impact of so-called “weighting factors” on revenue was arbitrary and capricious. In
addition, Plaintiffs contend that the Coast Guard also violated the APA when it decided not to
include a “truing up” mechanism to account for the differences between projections and actual
collections in past years. The Court addresses each of these arguments in turn.
A. Challenge to the Coast Guard’s Overall Rationale - Pilot Recruitment and Retention
According to the Coast Guard’s NPRM, one of the reasons the Coast Guard sought to
change the rate-making methodology was to address the problem of attracting and retaining
qualified pilots to service the Great Lakes. The NPRM states:
According to the pilot associations, the variance between projected revenue and actual
revenue represents a significant challenge, because failure to achieve published revenue
projections deprives them of the resources they need to provide safe, efficient, and
reliable pilotage service. The associations cite challenges in making capital investments,
recruiting and retaining adequately qualified pilots, achieving professional development
and training schedules recommended by the American Pilots Association, updating
technology, and achieving target compensation goals. The associations say that as a
result, several experienced pilots have left the system, and that other desirable mariners
have been discouraged from applying to become pilots.
80 Fed. Reg. at 54,486. The Coast Guard, therefore, sought “specific regulatory changes
intended to address these issues.” Id.
During the notice-and-comment period, Plaintiffs complained that the Coast Guard had
cited “no evidence of having verified [the pilotage associations’] claims or having examined the
many issues—beyond compensation—that [affect] pilot recruitment and retention.”
10
Administrative Record (“A.R.”) at 317, ECF Nos. 27-1 though 27-3.7 Thus, they proposed that
the Coast Guard study other potential causes and evaluate additional remedies. Specifically, they
recommended that the Coast Guard study “statistical and historical pilot retention issues by,
among other means, conducting interviews with pilots who have left the Great Lakes system.”
A.R. at 317. Plaintiffs posited that difficulties with attraction and retention could be caused by
factors like the high barriers to entry in the pilotage profession or the revenue sharing practices
used by the pilotage associations, but they did not provide a factual basis for these alternative
hypotheses. A.R. at 317. The commenters also requested that the Coast Guard consider whether
the retention challenges could be resolved through incentives other than increased wages, such as
changes that would improve pilots’ “quality of life, living standards, and job satisfaction,”
though the commenters did not provide any specific suggestions in this regard. See A.R. at 317.
In its Final Rule, the Coast Guard acknowledged and responded to Plaintiffs’ comments.
The Coast Guard observed that thirty-one pilots had left the Great Lakes pilotage associations in
the preceding eleven years and that the total number of pilots servicing the Great Lakes had
decreased by twenty-two percent between 2007 and 2014. 81 Fed. Reg. at 11,919. While the
Coast Guard did attempt to identify the jobs that former pilots went on to perform, it did not
identify the specific reasons that the pilots left the pilotage associations. See id. at 11,919–21.
Implicitly, however, the Coast Guard suggested that the recruitment and retention problems were
at least partially caused by the relatively low compensation offered to pilots in the Great Lakes.
Indeed, the Coast Guard skeptically viewed the commenters’ proposed solutions “given the
career-long prospects a recruit or new pilot faces for lower compensation than their counterparts
7
Because of its size, the parties filed the administrative record in three parts. Pages 1–
271 are filed on ECF at 27-1; pages 272–540 are filed at 27-2; and pages 541–1369 are filed at
ECF No 27-3.
11
[on the] Canad[ian] side [of the Great Lakes] or in other U.S. ports.” Id. at 11,921. According to
the Coast Guard, “[t]he pilots have emphasized these issues repeatedly at pilotage summits and
GLPAC meetings, and [the Coast Guard] [was] not aware of evidence that the pilots’ emphasis
[was] misplaced.” Id. While the Coast Guard reiterated its openness to “any reasonable
proposals for mitigating th[e] [recruitment and retention] difficulties,” it believed that the
remedies “suggested by [Plaintiffs] may not work and could take longer than the system [could]
sustain in the face of more pilot departures and the inability to replace those pilots.” Id.
Therefore, the Coast Guard concluded that “increased pilot rates [were] the best and quickest
way to attract and retain more qualified pilots.” Id.
Plaintiffs now argue that the Coast Guard’s promulgation of the modified rate-making
methodology was not an exercise in reasoned decisionmaking because it was based in part on the
Coast Guard’s belief that low pilotage compensation was responsible for the recruitment and
retention problems, which Plaintiffs contend was not supported by empirical evidence. Pls.’
Mot. at 31. As discussed above, “[a]n agency decision arrived at through informal rulemaking
must have a rational basis in the record and be based on a consideration of the relevant factors
under its statutory mandate.” Nat’l Ass’n of Regulatory Util. Comm’rs v. FCC, 737 F.2d 1095,
1124 (D.C. Cir. 1984) (citing Almay, Inc. v. Califano, 569 F.2d 674, 681 (D.C. Cir. 1977)).
Thus, “when an agency undertakes a thorough, primary, evaluation of all relevant facts, it is
highly desirable that the agency: independently amass the raw data; verify the accuracy of that
data; apply that data to consider several alternative courses of action; and reach a result
confirmed by the comments and submissions of interested parties.” Id. However, contrary to
Plaintiffs’ suggestions, “[t]he APA imposes no general obligation on agencies to produce
empirical evidence. Rather, an agency has to justify its rule with a reasoned explanation.”
12
Stilwell v. Office of Thrift Supervision, 569 F.3d 514, 519 (D.C. Cir. 2009); see also Chamber of
Commerce of United States of Am. v. NLRB, 118 F. Supp. 3d 171, 183 (D.D.C. 2015) (“The
agency . . . need not—indeed cannot—base its every action upon empirical data; depending upon
the nature of the problem . . . .” (internal citations and quotation marks omitted)). Thus, an
agency may, for example, “rely on comments submitted during the notice and comment period as
justification for [a] rule, so long as the submissions are examined critically.” Chamber of
Commerce of United States of Am. v. Nat’l Labor Relations Bd., 118 F. Supp. 3d 171, 183
(D.D.C. 2015) (internal citation omitted); see also Nat’l Ass'n of Regulatory Util. Comm’rs, 737
F.2d at 1124 (“A degree of agency reliance on these comments is not only permissible but often
unavoidable.”).
Based on the record and the deferential arbitrary and capricious standard, the Court finds
no basis to overrule the Coast Guard’s considered judgment as to pilot recruitment and retention.
As the Coast Guard noted, the number of pilots servicing the Great Lakes had been steadily
dropping for years. In total, the Great Lakes system had lost twenty-two percent of its pilots
between 2007 and 2014.8 81 Fed. Reg. at 11,919. Based on the Coast Guard’s long-experience
regulating Great Lake pilotage and the numerous comments supporting its position, the Coast
Guard could rationally conclude that there existed “chronic pilot attraction and retention
difficulties” and that these difficulties were caused, at least in part, by the under-compensation of
pilots. Indeed, the administrative record is brimming with comments submitted during the notice
8
Plaintiffs take issue with the fact that the Coast Guard did not provide the number of
pilots who have left Great Lakes pilotage associations until publication of the final rule. Pls.’
Mot. at 31. Plaintiffs acknowledge that disclosing such data at the time the final rule is
announced is only problematic if they would have had “something useful to say” about it. See
Pls.’ Mot. at 31 (quoting Am. Radio Relay League, Inc. v. FCC, 524 F.3d 229, 237 (D.C. Cir.
2008)). However, they never explain what useful thing they would have had to say about it;
instead they criticize it as incomplete. See Pls.’ Mot. at 31.
13
and comment period and statements at GLPAC meetings that explain, albeit anecdotally, that
seasoned pilots were leaving and that the associations could not attract new qualified pilots
because pilot compensation in the Great Lakes was low relative to other areas in the United
States and Canada. See e.g., A.R. at 126; (“These revenue shortfalls have led to severe problems
in attracting and retaining the very best mariners to serve as Great Lakes pilots”); A.R. at 343
(“My last few years have been a constant battle to attract skilled pilots to replace an aging
group”); A.R. at 349 (“During my 13 years with Western Great Lakes Pilots I watched young,
qualified pilots leave one after another. The lack of time off and never seeing a single pilot in 13
years reach ‘Target Compensation’ was too much for many former pilots to endure.”); A.R. at
599 (the Great Lakes pilots are “the lowest paid pilots in America” and “have the highest
workload in America,” so “it’s not particularly surprising that they would have a retention and
attraction problem.”); A.R. at 600–01 (established pilots have left to work in the Gulf, which
used to be considered “the bottom of the pickle barrel” because “nobody went to the Gulf,” and
have reported back that they will never return to the Great Lakes because they are “making real
money” in the Gulf). Furthermore, Plaintiffs have never presented any evidence nor have they
even suggested—either in their comment or in their briefing—that compensation was not a
leading cause for pilot recruitment and retention problems. Thus, the Coast Guard’s decision to
increase pilotage rates such that, among other things, pilot compensation might be improved is a
rational decision based on the record, even absent the empirical evidence demanded by Plaintiffs.
See Stilwell v. Office of Thrift Supervision, 569 F.3d 514, 519 (D.C. Cir. 2009) (finding “no
basis, at least under the deferential arbitrary and capricious test, for overruling [agency]’s
considered judgment of the need for [specific] regulation,” despite the lack of “empirical
evidence justifying the new regulation,” when the agency “based its proposed rule on its long
14
experience of supervising mutual savings associations” and “its view found support in various
comments submitted in response to the proposed rule”).
In addition to the Coast Guard’s failure to identify empirical evidence supporting its
decision, Plaintiffs fault the Coast Guard for its failure to evaluate whether recruitment and
retention challenges could have been remedied in other ways. The Court finds this argument
unpersuasive. First, as noted above, Plaintiffs never actually quibbled with the Coast Guard’s
conclusion that pilot retention and recruitment was significantly impaired by compensation that
was not competitive for the industry. Rather, Plaintiffs merely recommended that the Coast
Guard explore other potential causes and solutions, but provided no cogent rationale for doing
so. For example, the Plaintiffs suggested examining and potentially addressing the barriers to
entering the pilotage profession, A.R. at 317, but this of course would not address the retention
issues experienced by the pilotage associations. Moreover, the only other solutions that the
Plaintiffs recommended for consideration were simply amorphous improvements to “quality of
life, living standards, and job satisfaction,” without explanation of what that would entail. A.R.
at 317. Given this state of affairs, the Coast Guard was not required to delay promulgating a rule
designed to resolve a verified issue with an undisputed cause when the commenters failed to
offer any other cogent solutions. See Star Wireless, LLC v. FCC, 522 F.3d 469, 475 (D.C. Cir.
2008) (“an agency need not address all problems at once. Instead, its rules may solve first those
problems it prioritizes.” (citing U.S. Cellular Corp. v. FCC, 254 F.3d 78, 86 (D.C. Cir. 2001))).
Thus, in light of the Plaintiffs’ comment and the record before the agency, the Court cannot
conclude that the Coast Guard “relied on factors which Congress has not intended it to consider,
entirely failed to consider an important aspect of the problem, offered an explanation for its
decision that runs counter to the evidence before the agency, or [promulgated a rule] so
15
implausible that it could not be ascribed to a difference in view or the product of agency
expertise.” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43.
B. Challenges Based on Features Included in the Coast Guard’s Rate-Setting Methodology
Plaintiffs raise challenges to two features that the Coast Guard included in its rate-setting
methodology—both of which concern how the Coast Guard projects expenses associated with
pilot compensation. First, Plaintiffs contest the method through which the Coast Guard estimates
the number of pilots needed for a given season. Second, they question how the Coast Guard
goes about setting the target compensation for those pilots.
1. Use of the Peak-Staffing Model
Under Step Three of the Coast Guard’s revised rate-setting methodology, the Coast
Guard must determine how many pilots will be needed in a given shipping season. To do this, it
relies on a so-called “peak-staffing model.” Plaintiffs contend that the Coast Guard’s
promulgation of the revised rate-setting methodology, which included this model, is arbitrary and
capricious because the Coast Guard failed to explain why the shipping industry “should incur the
substantial cost of a peak demand model” and because the Coast Guard failed to address
comments that “questioned its necessity and suggested viable alternatives.” Pls.’ Mot. at 22.
In the NPRM, the Coast Guard announced its intention to calculate the number of pilots
needed for a given shipping season based on the “number of pilots needed to meet each shipping
season’s peak pilotage demand periods without interruption to service.” 80 Fed. Reg. at 54,489.
In their comment, Plaintiffs argued that the Coast Guard “must consider necessity and public
interest in imposing the substantial cost increases proposed under the peak staffing model in the
proposed rule.” A.R. at 296. Plaintiffs pointed out that, as the Coast Guard was well aware,
“peak traffic demand is concentrated at the beginning of a shipping season, to handle the traffic
16
buildup created by the previous season’s closure, and at the end of the season, when vessels seek
to complete their voyages before closure.” A.R. at 296 (quoting 80 Fed. Reg. at 54,490).
Despite the fact that peak pilotage demand only spiked at the beginning and end of the seasons,
the peak staffing model proposed by the Coast Guard would maintain pilots throughout the
entirety of the season. See A.R. at 296. Plaintiffs argued that the prior methodology had proven
to be adequate, despite not relying on a peak staffing model. Plaintiffs pointed to a 2013 study
that showed, in 2011, one of the districts experienced a pilot shortage of only one day out of a
270-day season and that other districts had similar statistics. See A.R. at 296–97. Despite the
lack of delays under the former model (at least in 2011), the peak-staffing model would require
an additional fourteen pilots to meet peak-demand periods and therefore the pilotage associations
would need to recover a substantial amount of additional revenues to compensate those pilots.
See A.R. at 297. This additional cost would be borne by the shipping industry in the form of
increased pilotage rates. See A.R. at 297. According to Plaintiffs, this increased cost was
indefensible when the evidence did not demonstrate a need for more pilots. See A.R. at 297.
In response to Plaintiffs’ comment, the Coast Guard explained that while “[t]raffic peaks
usually are confined to the periods just after the opening and just before the closing of a season,”
they “could occur at other times as well.” 81 Fed. Reg. at 11,922. It argued that “[s]etting pilot
numbers high enough to accommodate all these peak periods is essential for reducing traffic
delays during peak periods.” Id. In addition, the Coast Guard believed that this staffing level
was “essential if [it] [was] to provide the recuperative monthly rest periods recommended by the
NTSB in the interests of safety.” Id. This recuperative rest was necessary, according to the
Coast Guard, to ensure that “pilots have sufficient off-assignment time during the season so they
can avoid chronic fatigue.” Id. at 11,918. Thus, broadly speaking, the two arguments advanced
17
by the Coast Guard in support of the peak staffing model were (1) to decrease shipping delays,
and (2) to ensure safe piloting on the Great Lakes by offering pilots sufficient recuperative rest.
With regard to its “delay” rationale, the evidence cited by the Coast Guard is perhaps best
characterized as inconclusive. In the Final Rule, the Coast Guard compared the overall strength
of pilot staffing against the total number of delay hours experienced on the Great Lakes between
2007 and 2014. One significant limitation of this data is that the delay data does not differentiate
between delays caused by pilotage shortages and delays caused by other factors. Thus, one
cannot specifically discern whether the delays were being caused by one factor or another.
Generally speaking, however, the data, when viewed together, does show a long-term trend of
more delays as pilotage numbers decreased. See 81 Fed. Reg. at 11,921, fig. 6. Indeed, there
were significantly more delays in 2015 than there were in 2007 and, at the same time, there were
also significantly fewer pilots. See id. Closer examination of the data, however, does not
necessarily show a strong correlation between the number of pilots and traffic delays. While the
number of pilots decreased steadily over time, the amount of delays fluctuated both up and
down—sometimes in ways that did not suggest pilotage shortages were the cause. See id. For
example, in some years, delays remained constant while the number of pilots decreased. See id.
In other years, it seems that delays increased even though the number of pilots remained the
same. See id. And in still other years, it appears that both delays and pilot numbers decreased
simultaneously. See id. Each of those scenarios seems inconsistent with the view that decreased
pilot staffing was responsible for increased delays. The Coast Guard admitted in its final rule
that “[o]ther factors contribute to delays,” but it still argued that “clearly pilot shortfalls are one
important factor.” Id. at 11,921. While this could be true, the Coast Guard’s data does not make
this point as “clearly” as the Coast Guard would suggest—at least not without some expert
18
explanation that the Coast Guard does not provide. Nonetheless, the Court cannot say that the
evidence necessarily runs counter to the Coast Guard’s conclusion, thus it cannot find the Coast
Guard to have acted arbitrarily or capriciously on this basis.
The Coast Guard’s second rationale—safety—stands on more solid footing. Under the
GLPA, the Coast Guard is required to give “consideration to the public interest and the costs of
providing the services” when it sets pilotage rates. 46 U.S.C. § 9303(f). There is of course a
strong public interest in maintaining safe pilotage. Menkes v. U.S. Dep’t of Homeland Sec., 637
F.3d 319, 334 (D.C. Cir. 2011) (“The legislative history of the GLPA indicates the factors at
issue in regulating Great Lakes pilotage—including the need for maritime safety . . . .”); see also
Transp. Inst. v. U.S. Coast Guard, 1989 WL 222493, at *4 (D.D.C. Aug. 3, 1989). It is
particularly in this regard to maritime safety, however, that “a great deal of deference is owed to
the ‘Coast Guard’s expertise.’” Pub. Emps. for Envtl. Responsibility v. Beaudreau, 25 F. Supp.
3d 67, 100 (D.D.C. 2014) (alteration omitted) (quoting Collins v. Nat’l Transp. Safety Bd., 351
F.3d 1246, 1253 (D.C. Cir. 2003)).
In this case, the record before the Coast Guard amply supported the Coast Guard’s
conclusion that greater staffing levels were needed to improve safe pilotage on the Great Lakes.
In 2013, the Coast Guard received a report that aptly noted that “[a]ppropriate staffing levels
need to reflect sufficient pilots to meet demand (to avoid delays) within reasonable workloads (to
avoid fatigue-related risks).” A.R. at 1187. Even at that time, the study found that one of the
key risks facing the Great Lakes system were inadequate rest periods for pilots, which were
“increasing fatigue and risking the safe navigation of [] ship[s].” A.R. at 1192. In addition,
during the notice-and-comment period, numerous comments agreed that increased staffing was
needed in order to combat pilot fatigue and improve safety. See, e.g., A.R. at 92 (“While the
19
rationale in the NPRM has focused on determining the number of pilots needed based on the
need to avoid costly delays to shipping, there is an equally if not more important need to reduce
potential for fatigue related accidents.”); A.R. at 114–15 (citing to studies showing that “more
than 80 percent of maritime property damage claims and more than 90 percent of collisions are,
conclusively, due to the Master of Pilot’s irregular work schedule,” particularly in light of the
“inherent lack of regular work/sleep cycles,” and stating that “a potentially inattentive or even
indifferent pilot, guiding a somewhat sub-standard vessel has ‘Environmental Disaster’ written
all over it”); A.R. at 588 (“Their arguments miss the point when they ignore that staffing to peak
demand is a safety issue to mitigate the dangers of overworked pilots impaired by fatigue
jeopardizing the safety of shipping and the environment.”). In light of the high degree of
deference owed to the Coast Guard in matters of safety and the record supporting its conclusion
that greater staffing was needed to address pilot fatigue, the Court cannot say that the Coast
Guard failed to engage in reasoned decisionmaking.9
Finally, Plaintiffs argue that the Coast Guard failed to consider the viable alternatives that
they presented in their comments. During the notice-and-comment period, Plaintiffs suggested
that, as a less-costly means of providing pilotage service during peak periods, the Coast Guard
could employ “contract pilots” and “cross-qualifying pilots such that pilots from one area are
9
Plaintiffs also seem to argue that whatever the overarching rationale for the peak
staffing model might have been, the Coast Guard still failed to specifically justify its cost. See
Pl.’s Reply at 24, ECF No. 23. What Plaintiffs fail to acknowledge is that the Coast Guard’s
safety rationale does justify the cost of the model. The Coast Guard has been clear that it
understands additional safety measures will come at a cost. See A.R. 602–03 (“The Coast
Guard’s position is this. We want safe. We’re going to demand safe, efficient and reliable
service. And there’s the flipside to that. That costs money. And whatever that cost is, you
know, we plan to be transparent as possible to let everyone know these are the costs that go into
that.”). Thus, when the Coast Guard decides, in its expert judgment, that safety measures are
necessary, that rationale is also necessarily a justification of the associated cost.
20
able to help relieve traffic delays in another area.” Pls.’ Mot. at 26; A.R. at 298. The Coast
Guard responded in two ways that each prove fatal for Plaintiffs’ proposed alternatives. First, it
noted that sufficiently high pilot numbers were “essential” to providing the necessary
recuperative rest periods for pilots throughout the shipping season, which it deemed necessary
for the interests of safety. 81 Fed. Reg. at 11,922. Simply, hiring contract pilots during peak
demand times alone would do nothing to ensure that pilots are given sufficient rest throughout
the shipping season. Second, the Coast Guard noted that contract pilots10 “are unlikely to
possess current and thorough knowledge of local waters,” which the Coast Guard “consider[s]
. . . essential for safe piloting, especially in the bad weather conditions often experienced during
peak periods.” Id. According to the Coast Guard, such knowledge takes up to four years to
acquire “and cannot be summoned at short notice to address temporary traffic peaks.” Id.
Plaintiffs do not dispute the Coast Guard’s logic on these points; rather, they categorically assert
that the Coast Gaurd did not address their suggestions. See Pls.’ Reply at 26. Because the Coast
Guard did indeed respond in a way that allows the Court to see why it did not opt for Plaintiffs’
alternative proposals, Defendants are entitled to summary judgment on this issue.
2. Pilot Compensation
The Court next considers the method that the Coast Guard chose to estimate target pilot
compensation. In previous ratemakings, the Coast Guard estimated pilot compensation based on
data that it received from a union for merchant marine masters and mates. 81 Fed. Reg. at
11,908; see also St. Lawrence Seaway Pilots Ass’n, Inc. v. United States Coast Guard, 85 F.
Supp. 3d 197, 204–05 (D.D.C. 2015). However, the union later took the position that the data
10
Although the Coast Guard did not mention “cross-qualifying pilots” by name, the same
logic applies to them as it does to contract and semi-retired pilots; all three groups would be
called upon to pilot through unfamiliar waters.
21
was proprietary and would no longer provide it to the Coast Guard for ratemakings. 80 Fed.
Reg. at 54,484. Accordingly, the Coast Guard was forced to develop a new means of estimating
pilot compensation.
The Coast Guard considered three possible data sources to benchmark pilot compensation
in the NPRM: (1) Canadian Laurentian Pilotage Authority (“LPA”) pilot compensation data, (2)
Bureau of Labor Statistics (“BLS”) wage data for masters, mates and pilots, and (3) Canadian
Great Lakes Pilotage Association (“Canadian GLPA”) registered pilot compensation data. Id. at
54,497. After reviewing these sources, the Coast Guard suggested reliance on the Canadian
GLPA data because the work performed by those pilots was highly analogous to the work
performed by U.S. pilots on the Great Lakes. The Coast Guard found the LPA data to be
unsuitable as a benchmark because the LPA serviced ships year-round, rather than seasonally,
and because the ships that the LPA serviced were typically larger than those in the Great Lakes.
Id. The Coast Guard also found the BLS data to be inapt because it covered officers whose
duties and responsibilities differed greatly from those of U.S. pilots on the Great Lakes. For
example, unlike the U.S. Great Lakes pilots, most of the officers represented in the BLS data,
were “not directly responsible for the safe navigation of vessels of any tonnage through restricted
waters.” Id. Moreover, the Coast Guard found that the BLS data was “skewed downward by the
higher number of lower wage mates, who do not hold the same licenses as masters and pilots.”
Id. By contrast, Canadian GLPA pilots “work[ed] under the same conditions, months, and
vessels (sometimes concurrently) as the U.S. pilots.” Id.
However, while the “Canadian GLPA pilots provide[d] service that [was] almost
identical to the service provided by U.S. Great Lakes pilots,” the Coast Guard felt that some
amount of adjustment was needed to reflect the fact that, unlike U.S. pilots, Canadian pilots were
22
government employees. Id. As a result, Canadian GLPA pilots were “guaranteed minimum
compensation with increases for high-traffic periods,” had “retirement, healthcare, and vacation
benefits” as well as limited professional liability. Id. Based on these differences, the Coast
Guard believed that there were “supportable circumstances for adjusting U.S. target pilot
compensation.” Id. at 54,498. The Coast Guard recommended a ten-percent increase to the
benchmark based on comments made at a GLPAC meeting in 2014, which the Coast Guard
believed would appropriately “balance[e] the different status[es] of the U.S. and [Canadian]
GLPA pilots.” Id; see also A.R. at 1047.
After the notice and comment period, the Coast Guard adopted the compensation
estimation method that it set forth in its NPRM. In this suit, Plaintiffs argue that the Coast Guard
acted arbitrarily and capriciously by (1) using the Canadian GLPA data as a benchmark and (2)
increasing that benchmark by ten percent to account for the additional benefits enjoyed by the
Canadian GLPA pilots. Pl.’s Reply at 26. The Court finds that only the latter argument has
merit.
Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously by failing to
adequately address their comment concerning the use of the Canadian GLPA pilot compensation
data. Pl.’s Reply at 27–28. In their comment, Plaintiffs argued that the Canadian GLPA pilot
compensation was not appropriate because, according to Plaintiffs, Canadian pilots perform a
larger proportion of their services in designated waters whereas U.S. pilots “often operate vessels
over long stretches of undesignated waters.” A.R. at 308. This difference was significant in
Plaintiffs’ view because, “[u]nlike pilots in designated waters, pilots in undesignated waters are
only required to be ‘available’ to the Master,” which they claimed was “less demanding.” A.R.
at 308. But, contrary to Plaintiffs’ claims, the Coast Guard squarely addressed and disputed
23
Plaintiffs’ unsupported assertions. The Coast Guard emphasized once again that “[Canadian]
GLPA pilots provide service that is almost identical to the service provided by U.S. Great Lakes
Pilots.” 81 Fed. Reg. at 11,914. It pointed out that “[w]ith the exception of Area 3, the
[Canadian] GLPA provides pilotage service in the same waters as U.S. pilots do; in fact, whether
a GLPA or U.S. pilot is assigned to a vessel is a matter of chance.” Id. (emphasis added).
Consequently, it believed that “[t]he difference between the amount of work performed in
designated waters by U.S. pilots and GLPA pilots [was] minimal.” Id. Plaintiffs do not explain
how this response was in any way inadequate or unsupported by the evidence. Indeed, in their
brief, Plaintiffs do not even acknowledge the Coast Guard’s response. Thus, the Court cannot
conclude that the Coast Guard’s response to Plaintiff’s comment provides a basis to overturn the
Coast Guard’s judgment.11
Plaintiffs’ next argument, however, has merit. Plaintiffs argue that the Coast Guard’s
adoption of the ten-percent adjustment to pilot compensation violated the APA because it was
not the result of reasoned decision-making. In the NPRM, the Coast Guard specifically invited
the public to address “whether the 10% adjustment figure [was] appropriate for the 2016 rate.”
80 Fed. Reg. at 54,498. Perhaps not surprisingly, commenters from the pilotage associations
11
Plaintiffs also noted in their comment that Canadian GLPA pilots are government
employees and “Canada has its own unique social programs, tax regime, and currency.” Pl.’s
Reply at 27; A.R. 319. Plaintiffs cannot seriously contend, however, that the Coast Guard did
not adequately address the concern that Canadian pilots were government employees. Indeed,
the entire reason the Coast Guard implemented a ten-percent upward adjustment was precisely
because Canadian pilots were government employees. Plaintiffs made no attempt to explain why
that fact alone made them entirely unsuitable for comparison. Moreover, Plaintiffs did not
attempt to explain why the fact that Canada has “unique social programs, tax regime, and
currency”—in essence that Canada is a different country—makes Canadian pilots entirely
unsuitable comparators when all other aspects of their employment are nearly identical to U.S.
pilots. Accordingly, the Court cannot find that the Coast Guard acted arbitrarily in response to
these comments.
24
suggested that the adjustment was not high enough while commenters from the shipping industry
suggested that adjustment was too high. Pilotage associations argued that the adjustment should
be somewhere between twenty-five and thirty-seven percent. A.R. at 94, 152. These
commenters pointed to quantifiable factors such as cost-of-living adjustments, pension
contributions, and health care costs and submitted data and analysis supporting their calculations.
See A.R. at 93–94, 151–52. They also highlighted factors that are more difficult to quantify,
such as guaranteed minimum compensation and the limited liability of Canadian pilots. See A.R.
at 93–94. The shipping industry, on the other hand, questioned whether there was any need for
an increase whatsoever after certain “comparability adjustments” were applied. A.R. at 319.
Rather than adopt the twenty-five or thirty-seven percent adjustments advocated by
pilotage associations or, as the shipping industry suggested, forgoing an adjustment altogether,
the Coast Guard opted for the ten-percent adjustment that it had originally proposed in the
NPRM. See 81 Fed. Reg. at 11,915. Not only did the Coast Guard not adopt the proposals
submitted by commenters, the Coast Guard did not rely on any of their data or analysis. Indeed,
even though the Coast Guard noted that “[t]wo commenters provided arguments or data in
support of a higher adjustment,” the Coast Guard claimed that it “had not been able to validate
the data or analyze the commenters’ arguments within the time frame statutorily allowed for [the
2016] ratemaking.” Id. Thus, the Coast Guard’s decision for a ten-percent adjustment
apparently stood entirely on the “statements made at the 2014 GLPAC meetings” that it
originally referenced in the NPRM. Id.
However, the GLPAC statements offered no rational basis for a ten-percent adjustment,
as opposed to some higher or lower figure, and they generated no significant discussion by
GLPAC members. The statements that the Coast Guard relied upon occurred during a GLPAC
25
meeting in which the Committee was discussing a proposal for the Coast Guard to set pilot
compensation at a minimum of $295,000. See A.R. at 605. During discussion of the proposal,
one GLPAC member stated his belief that the $295,000 figure was “a good number for the Coast
Guard to go forward with” and an unidentified speaker interjected that the figure was “the
Canadian rate times 10 percent.” See A.R. at 605. Another member chimed in claiming that the
$295,000 figure was “not the high side of where we can argue on numbers.” A.R. at 605. He
noted that the figure was “not far out of line with the Canadians’ rate or compensation,”
especially when one considered the number of additional responsibilities that the Americans had
that the Canadians did not.12 A.R. at 605. Thus, the member believed that it was “well
justifiable to be 10 percent higher.” A.R. at 605. Despite this discussion, no one ever explained
the provenance of this ten-percent figure. Indeed, no one explained what factors it was taking
into account or what data it was relying upon. Nor did the GLPAC ever put this ten-percent
adjustment issue to a vote.13 See A.R. at 605. Nevertheless, the Coast Guard inexplicably
claimed that this adjustment was based “on the best data available,” despite no data being cited
anywhere. 81 Fed. Reg. at 11,915.
Faced with this record, the Coast Guard now argues that it felt that neither the pilotage
associations nor the shipping industries comments were convincing and therefore it “decided to
leave the ten percent adjustment intact.” Coast Guard’s Mot. at 24. Essentially, the Coast Guard
argues that it was invoking the wisdom of King Solomon by promulgating a compromise
number—however, unlike the Coast Guard, “King Solomon was not subject to the
12
The GLPAC member did not specify the additional responsibilities to which he was
referring. See A.R. 605
13
Indeed, even the proposal that they did put to a vote concerning the $295,000 base
compensation figure failed. See A.R. 605.
26
Administrative Procedure Act.” Settling Devotional Claimants v. Copyright Royalty, 797 F.3d
1106, 1109 (D.C. Cir. 2015). Rate setting is of course not “an exact science” and perfection is
not “mandatory.” Ass’n of Am. Publishers, Inc. v. Governors of U. S. Postal Serv., 485 F.2d 768,
773 (D.C. Cir. 1973). But, the Coast Guard is obligated to make reasoned decisions supported
by the written record before it. See 17 U.S.C. § 803(c)(3). It does not do so when it selects a
figure that is entirely detached from any data or analysis, but merely happens to fall within a
range of figures proposed by commenters.
Admittedly, the D.C. Circuit has permitted agencies in some instances to “split the
difference” when presented with imperfect evidence in rate-setting and other analogous contexts.
See United Parcel Serv., Inc v. U.S. Postal Serv., 184 F.3d 827, 840 (D.C. Cir. 1999)
(“Admittedly, the choice of the one-percent figure (as opposed to some other point between
0.18% and 7.85%) is somewhat mysterious, but the general path is clear enough . . . Although
with more time the Commission might have been able to get better information . . . a ‘judgmental
approach’ selecting a figure between these two estimates, though favoring the low end of the
spectrum, was within the Commission’s authority.” (internal citation omitted)); National Cable
Television Ass’n, Inc. v. Copyright Royalty Tribunal, 724 F.2d 176, 187 (D.C. Cir. 1983)
(declining to “label the Tribunal’s determination lawless or the product of caprice” when it
“could not mathematically derive its ultimate decision [and] [i]nevitably, it used its expert
judgment to make a ‘best guess’” by “split[ing] the difference.”); Ass’n. of Am. Publishers, Inc.
v. Governors of U. S. Postal Serv., 485 F.2d 768, 773 (D.C. Cir. 1973) (“[T]he rough splitting of
a difference between two fairly but not wholly satisfactory rate calculations is a familiar
permissible technique.”). But “in those cases, the administrative body relied on some relevant
and creditable methodological evidence, even if it was ‘far from perfect’ or ‘fairly but not wholly
27
satisfactory.’” Settling Devotional Claimants, 797 F.3d at 1121 (quoting National Cable
Television Ass’n, Inc., 724 F.2d at 184 & Assoc. of Am. Publishers, Inc., 485 F.2d at 773)
(emphasis in original, internal citations omitted). Absent even that minimal foundation, a court
cannot countenance such a rough-justice approach to ratemaking. See id.
Here, the Coast Guard gave no rational explanation for its adoption of a ten-percent
increase to pilotage rates. The Coast Guard relied on a figure that was merely mentioned with
approval by one or two people at a GLPAC meeting without any attempt to explain a factual
basis for that number. Indeed, there is no evidence that the Coast Guard or its sources at the
GLPAC ever relied on any relevant or creditable methodological evidence whatsoever in arriving
at this figure. And even though commenters supplied data that the Coast Guard might
theoretically have marshalled to support their decision, the Coast Guard admitted that it did not
meaningfully engage or analyze either the data or the arguments, see 81 Fed. Reg. at 11,915, and
therefore it cannot now rely on them as a basis for its decision, see EchoStar Satellite L.L.C. v.
FCC, 457 F.3d 31, 36 (D.C. Cir. 2006) (disregarding agency’s argument because, “[t]hough
some broadcasters made th[e] argument before the Commission, the agency never adopted it”).
In short, the Coast Guard arrived at the ten-percent adjustment without engaging in reasoned
decisionmaking, and therefore its decision was arbitrary and capricious in violation of the APA.
C. Challenges Based on Features Not Included in the Coast Guard’s Rate-Setting
Methodology
Finally, Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously when it
failed to include two features in its methodology, despite their presentation in comments. First,
Plaintiffs argue that because pilotage associations derive a significant amount of additional
revenue based on the size of the ships that they service, the Coast Guard’s failure to include any
28
consideration of this factor in its revenue projections was arbitrary and capricious. Second,
Plaintiffs argue that actual revenue collections rarely if ever match the revenue amounts that the
Coast Guard projects for a given season, meaning that the pilotage associations either over-
collect—to the detriment of shippers—or under-collect—disadvantaging pilotage associations.
Yet, according to Plaintiffs, the Coast Guard refused to include a mechanism to adjust future
rates based on the over-collection or under-collection by the pilotage associations in past years.
1. Consideration of Revenues Based on Vessel Size – “Weighting Factors”
Fees collected by pilotage associations are largely based on three numbers that are
multiplied together: (1) the base hourly pilotage rate established by the Coast Guard, (2) the
hours that the registered pilot is on the bridge or available to the master of the vessel, and (3) a
weighting factor. It is this third element, the weighting factor, that Plaintiffs argue the Coast
Guard’s rate-setting methodology neglected to account for when projecting revenues for
upcoming shipping seasons. A weighting factor is a value ranging from 1.0 to 1.45 that
corresponds with the size of a given vessel based on its length, breadth, and depth. Larger
vessels yield higher weighting factors, which therefore result in greater pilotage fees for a given
voyage. Plaintiffs argue that the Coast Guard acted arbitrarily and capriciously when it “[(1)]
failed to account for a relevant factor (the weighting factor), [(2)] failed to properly address
Plaintiffs’ comments regarding the weighting factor, and [(3)] failed to articulate why it chose to
disregard the weighting factor even though it had considered the weighting factor previously.”
Pls.’ Mot. at 13.
a. Mootness
Before reaching the merits of Plaintiffs’ claims, the Court must first consider the effect
that the Coast Guard’s final rule for 2017 pilotage rates has, if any, on these proceedings. On
29
August 31, 2017, the Coast Guard published its final rule setting pilotage rates for the 2017
shipping season. See 82 Fed. Reg. at 41466. As part of that rule, the Coast Guard updated the
ratemaking methodology to now “incorporate the income generated from weighting factors” and
pledged to use those factors to set rates in the future. See id. Defendants argue that the issuance
of this final rule necessarily moots the weighting factor issue for purposes of this action. See
Defs.’s Notice Final Rule, ECF No. 30. Plaintiffs disagree. They argue that “[n]othing in the
2017 Rule remedies either the legal infirmities of the 2016 ratemaking proceeding or the
overcharges resulting from inflated pilotage rates over the past seventeen months.” Pls.’s Opp’n
Suggestion of Mootness, ECF No. 31.
Article III of the United States Constitution grants the Judiciary authority only to
adjudicate “Cases” and “Controversies.” U.S. Const. Art. III. As a result, plaintiffs who bring
suit in federal court must demonstrate that a case or controversy exists by showing that they have
suffered “personal injury fairly traceable to the defendant’s allegedly unlawful conduct and
likely to be redressed by the requested relief.” Allen v. Wright, 468 U.S. 737, 751 (1984). An
“actual controversy” must exist not only “at the time the complaint is filed,” but throughout “all
stages” of the litigation. Alvarez v. Smith, 558 U.S. 87, 92 (2009) (internal quotation marks
omitted); see also Arizonans for Official English v. Arizona, 520 U.S. 43, 67 (1997) (“To qualify
as a case fit for federal-court adjudication, ‘an actual controversy must be extant at all stages of
review, not merely at the time the complaint is filed’ ” (quoting Preiser v. Newkirk, 422 U.S.
395, 401, (1975))). “A case becomes moot—and therefore no longer a ‘Case’ or ‘Controversy’
for purposes of Article III—‘when the issues presented are no longer “live” or the parties lack a
legally cognizable interest in the outcome.’” Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013)
(quoting Murphy v. Hunt, 455 U.S. 478, 481 (1982)) (per curiam). To demonstrate that an issue
30
is moot, a party must show “that (1) ‘there is no reasonable expectation that the alleged violation
will recur,’ and (2) ‘interim relief or events have completely or irrevocably eradicated the effects
of the alleged violation.’” Nat’l Black Police Ass’n. v. Dist. of Columbia, 108 F.3d 346, 349
(D.C. Cir. 1997) (quoting Cty. of Los Angeles v. Davis, 440 U.S. 625, 631 (1979)).
The thrust of Plaintiffs’ argument is that the Coast Guard’s inclusion of weighting factors
in its 2017 rate-making methodology does not eradiacte the effects of the 2016 rule. But, “[t]he
determination whether sufficient effects [of the alleged violation] remain to justify decision often
will turn on the availability of meaningful relief.” 13C Charles Alan Wright, Arthur R. Miller &
Edward H. Cooper, Federal Practice and Procedure, § 3533.3.1, at 104-05 (3d ed. 2008). On
the one hand, “a case is not moot if a court can provide an effective remedy.” Larsen v. U.S.
Navy, 525 F.3d 1, 4 (D.C. Cir. 2008). At the same time, courts may not decide a controversy
where post-filing events “make[ ] it impossible for the court to grant ‘any effectual relief
whatever’ . . . .” Church of Scientology of Cal. v. United States, 506 U.S. 9, 12 (1992); see also
Conservation Force, Inc. v. Jewell, 733 F.3d 1200, 1204 (D.C. Cir. 2013) (case rendered moot
“when, among other things, the court can provide no effective remedy because a party has
already ‘obtained all the relief that [it has] sought’ ”) (quoting Monzillo v. Biller, 735 F.2d 1456,
1459 (D.C. Cir. 1984)); Kennecott Utah Copper Corp. v. U.S. Dep't of Interior, 88 F.3d 1191,
1207 (D.C. Cir. 1996) (a party “no longer suffer[s] a legally cognizable injury traceable to the
alleged violations” where “the court can no longer provide . . . any meaningful relief”).
Accordingly, whether this issue is moot will necessarily turn on the availability of a remedy in
this case. As discussed infra, the Court is not prepared at this point to decide the complex issue
of redressability based on the current state of the record and the briefing. Accordingly, the Court
31
will reserve judgment on the issue of mootness and order the parties to submit supplemental
briefs addressing the matter.
b. Merits
In the event that the Court concludes the issue is not moot, the Court would find that the
Coast Guard’s actions with respect to weighting factors were arbitrary and capricious. During
the notice-and-comment period, Plaintiffs observed that the proposed rule sought to set pilotage
rates that would achieve “a target revenue figure given the expected demand in the upcoming
year.” A.R. at 293. But, as Plaintiffs pointed out, actual pilotage association revenues were not
just a function of pilotage rates and demand (i.e. the amount of shipping traffic in a given
season). See A.R. at 293–94. Indeed, they argued that fees based on vessel size, as measured by
weighting factors, represented a non-trivial portion of the revenue realized by pilotage
associations. See A.R. at 294. However, because the Coast Guard’s proposed rate-setting
methodology failed to account for these additional revenues, the rate-setting calculation would
necessarily result in higher pilotage rates than necessary to achieve the pilotage associations’
revenue targets. See A.R. at 294. Applying these higher rates, pilotage associations would
realize revenue far in excess of their revenue targets. See A.R. at 294. Commenters argued, for
example, that if the average weighting factor was 1.25 and the Coast Guard accurately predicted
demand, under the proposed methodology, pilotage associations would realize revenue that was
twenty-five percent higher than the target they were trying to achieve. This result was not far-
fetched given that, according to the commenters, the average weighting factor for all vessel
traffic in the 2014 shipping season was 1.28. Thus, commenters urged that the Coast Guard’s
rate-setting methodology “must consider the effect of the weighting factor on anticipated
revenues when setting rates.” A.R. at 295.
32
In response, the Coast Guard stated that it saw “potential merit in the suggestion that [its]
ratemaking take weighting factors into account” and noted that the Coast Guard would “take it
under advisement.” 81 Fed. Reg. at 11,923. Ultimately, however, it declined to incorporate any
weighting factors adjustment into its 2016 methodology. The Coast Guard explained simply
that, “[g]iven the high variability from year to year in the numbers and types of vessels requiring
pilotage, [it] ha[s] never considered weighting factors in projecting revenue projections of the
rate.” Id. (emphasis added). Notably, the Coast Guard did not claim that this variability
prevented it from making a weighting factor projection or from accounting for revenues derived
from weighting factors in any way.
In their motion, Plaintiffs argue, consistent with their comments, that the “weighting
factor constitute[d] too important a variable to simply ignore” because “[t]he weighting factor,
by formula, increases pilot revenue, and even if the average weighting factor varies from year to
year . . . , at least some allowance for the weighting factor must be made to impart accuracy to
revenue projections and actual collections.” Pls.’ Mot. at 15. According to Plaintiffs, the Coast
Guard’s “failure to consider the weighting factor constitutes exactly the type of failure to
consider a relevant factor that courts routinely hold violative of the APA.” Pls.’ Mot. at 15.
Defendants respond most prominently by arguing that, even though weighting factors will
actually result in greater revenue for pilotage associations, the Coast Guard did not include those
factors in their projections because, based on its experience, “actual revenue and projected
revenue rarely match.” Coast Guard’s Mot. at 15. As evidence, Defendants point to a supposed
$20 million revenue gap between projected revenues and actual revenues realized by the pilotage
associations between 2005 and 2014. Thus, according to the Coast Guard, it decided to “take
this comment under advisement to see if the new methodology with its several changes [would]
33
correct this historic pattern.” Coast Guard’s Mot. at 16. The Pilots put a finer point on this
argument. According to the Pilots, the Coast Guard declined to use the weighting factors in its
analysis because it believed that doing so would continue to “result in undercompensation of the
pilots.” Pilot’s Mot. at 19–20.
Although Defendants may wish for these to have been the arguments advanced by the
Coast Guard in response to the commenters’ observations, they were not. When reviewing
agency action under the APA, this Court may only rely upon the reasons given by the agency,
rather than “counsel’s post hoc rationalizations for agency action.” State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 50 (1983) (“It is well-established that an agency’s action must be upheld, if at
all, on the basis articulated by the agency itself”); see also SEC v. Chenery, 318 U.S. 80, 95
(1943) (“[A]n administrative order cannot be upheld unless the grounds upon which the agency
acted in exercising its powers were those upon which its action can be sustained.”); EchoStar
Satellite L.L.C., 457 F.3d at 36 (disregarding agency’s argument because, “[t]hough some
broadcasters made th[e] argument before the Commission, the agency never adopted it”);
Chamber of Commerce of U.S. v. SEC, 412 F.3d 133, 143 (D.C. Cir. 2005). Here, the only
argument that the Coast Guard advanced in its final rule was that it had “never [previously]
considered weighting factors in projecting revenue” due to “the high variability from year to year
in the numbers and types of vessels requiring pilotage.” 81 Fed. Reg. at 11,923. Thus,
Defendants’ new argument that the Coast Guard feared that the inclusion of weighting factors
might continue to undercompensate pilotage associations must be disregarded for purposes of
this Court’s APA review.14
14
In any event, this argument is unpersuasive. While it is true that there is evidence in
the record suggesting that there have been revenue short-falls during some years in the past, see
A.R. 1192, the record does not reveal what these shortfalls amounted to in the aggregate or that
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In truth, the Coast Guard simply failed to consider the impact that weighting factors
might have on projected revenue calculations. The Coast Guard has stated that, in revising the
pilotage rate-setting methodology, its goal was to “align[] projected revenues with the actual
association collections.” 82 Fed. Reg. at 41,467. At the time the Coast Guard decided to revise
the pilotage rate-setting methodology, it was aware that pilotage associations generated some
amount of revenue based on weighting factors. Yet, when commenters pointed out that the
proposed methodology’s revenue projections failed to account for weighting-factor revenue, the
Coast Guard declined to even consider the issue. Indeed, the Coast Guard simply pledged to
“take the matter under advisement,” even though it also saw “potential merit” in the
commenters’ suggestion. But reasoned decisionmaking requires giving present consideration to
important aspects of problems—not merely promising to consider those matters at some point in
the future.
Instead of considering whether the inclusion of weighting factor revenue in the rate-
setting methodology was appropriate, the Coast Guard simply explained why it had not
historically considered weighting factors. But that commentary does not adequately explain why
the new rate-setting methodology should not account for those factors. First, the mere fact that
the Coast Guard had not previously accounted for weighting factors is not in and of itself reason
there was any persistent trend as of 2014. Defendants cite an analysis performed by the Coast
Guard’s Director of Great Lakes Pilotage suggesting that there was a $20 million shortfall
between 2005 and 2014. But neither that analysis nor any data supposedly relied upon in that
analysis can be found anywhere in the administrative record. “Where, as here, an agency’s
determination is based upon a complex mix of controversial and uncommented upon data and
calculations, there is no APA precedent allowing an agency to cherry-pick a study on which it
has chosen to rely in part.” Am. Radio Relay League, Inc. v. FCC, 524 F.3d 227, 237 (D.C. Cir.
2008) (internal quotations omitted). Moreover, the Coast Guard gives no reason why it would
expect shortfalls to continue despite the fact that it was revising rate-setting methodologies in
several important respects.
35
for not doing so now. Indeed, part of the Coast Guard’s reasoning for modifying the rate-setting
methodology in the first place was because the prior methodology was “distort[ed].” 80 Fed.
Reg. at 54,484. Thus, the Coast Guard cannot rationally suggest it is correcting prior distortions
in the rate-setting methodology while at the same time ignoring a factor that would admittedly
make the calculation more analogous to actual revenue collections. Second, even if there is, as
the Coast Guard claims, “high variability from year to year in the numbers and types of vessels
requiring pilotage,” the Coast Guard did not insist that these figures could not be estimated, that
it lacked any necessary data to make those projections, or any other reason that the variability of
ships forecloses consideration of weighting-factor revenue. Thus, it is hard to understand how
this variability, standing alone, necessarily leads to the conclusion that weighting factor revenues
should not be accounted for. Indeed, just a year later, the Coast Guard revised its rate-setting
methodology to specifically include this weighting-factor revenue in its methodology. See 82
Fed. Reg. at 41,466.
In short, the Coast Guard’s failure to even consider the propriety of including weighting
factor revenue in its rate setting methodology was arbitrary and capricious because it represented
“an important aspect of” the revenue streams that it was attempting to estimate.
2. “Truing Up” or Refund Mechanism
Finally, the Court considers the Plaintiffs’ arguments concerning the need for a
mechanism to adjust—or “true up”—future rates based on the differences between projected and
actual revenue in past years. During the Notice and Comment period, Plaintiffs argued that:
[a] major defect in the NPRM and in the overall administration of these statutory
authorities by the [Coast Guard] is that these authorities have not been adequately
deployed to ensure rate payers that the rate-setting process is using reliable data either for
past periods or as a basis of projected pilot revenue requirements. In most government
rate-setting environments, rate payers can expect that the regulated utilities are subject to
a uniform system of accounting, that the regulated entities’ financial submissions are
36
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 to compensate rate
payers when disparities between projections and actual data for a given period yield
excess revenue collections. These features do not exist in the current system administered
by [the Coast Guard], despite considerable statutory power available to [the Coast Guard]
to impose these mechanisms.
A.R. at 284–85. The Coast Guard responded, stating that it believed it had “provided extensive
evidence in support of [its] analysis of association expenses and revenues.” A.R. at 1350.
Specifically, it explained that “the associations follow uniform reporting procedures and use the
reporting software [it] provide[s].” A.R. at 1350. It also noted that independent accounting
firms audit expenses and revenues and financial information is posted on the Coast Guard
website, and that the Coast Guard used the most recent audited data to analyze the impact of its
Final Rule. The Coast Guard concedes, however, that it did not mention or respond to the
portion of the comment concerning the ‘truing up’ or refund mechanisms. Plaintiffs have zeroed
in on this omission and claim that it now provides a basis to overturn the Coast Guard’s
judgment. See Pl.’s Mot. at 21.
Under 5 U.S.C. § 553(c), it is certainly incumbent upon the Coast Guard to “respond [ ]
in a reasoned manner to significant comments received.” U.S. Satellite Broad. Co., Inc. v. FCC,
740 F.2d 1177, 1188 (D.C. Cir. 1984); see also, e.g., Home Box Office, Inc. v. FCC, 567 F.2d 9,
35–36 & n.58 (D.C. Cir. 1977). But it “has never been interpreted to require the agency to
respond to every comment, or to analyze every issue or alternative raised by the comments, no
matter how insubstantial.” See, e.g., Thompson v. Clark, 741 F.2d 401, 408 (D.C. Cir. 1984).
The “dialogue” between administrative agencies and the public is intended to be “a two-way
street.” Home Box Office, 567 F.2d at 35. “Just as the opportunity to comment is meaningless
unless the agency responds to significant points raised by the public, so too is the agency’s
opportunity to respond to those comments meaningless unless the interested party clearly states
37
its position.” Northside Sanitary Landfill, Inc. v. Thomas, 849 F.2d 1516, 1520 (D.C. Cir. 1988)
(internal citations and quotation marks omitted). Thus, “comments must be significant enough to
step over a threshold requirement of materiality before any lack of agency response or
consideration becomes of concern. The comment cannot merely state that a particular mistake
was made . . . ; it must show why the mistake was of possible significance in the results [the
agency reaches].” Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375, 394 (D.C. Cir. 1973).
In this case, Plaintiffs’ comments about a “truing up” or refund mechanism does not meet
this threshold. In the nearly forty-page comment submitted by Plaintiffs, the issue of these
adjustments appears in exactly one sentence. And, even in that sentence, the central thrust of it is
devoted to the reliability of the Coast Guard’s data, not the implementation of truing up
mechanisms. Based on this comment, it is far from clear that Plaintiffs are suggesting the
implementation of any system. Rather, they simply suggest that “truing up” mechanisms exist in
other rate-setting environments (though they cite no support for that contention) and note that
such mechanisms do not exist in the Coast Guard’s methodology for setting pilotage rates.
Plaintiffs, however, offer no explanation whatsoever as to why the absence of such a mechanism
is significant or why the Coast Guard should otherwise adopt one. Under such circumstances,
the Court cannot find that the Coast Guard’s failure to respond to this comment was either
arbitrary or capricious. As the Supreme Court aptly observed, “administrative proceedings
should not be a game or a forum to engage in unjustified obstructionism by making cryptic and
obscure reference to matters that ‘ought to be’ considered and then, after failing to do more, to
bring the matter to the agency’s attention, seeking to have that agency determination vacated on
the ground that the agency failed to consider matters ‘forcefully presented.’” Vermont Yankee
Nuclear Power Corp. v. NRDC, 435 U.S. 519, 553–54 (1978); see also WildEarth Guardians v.
38
Jewell, 738 F.3d 298, 310 (D.C. Cir. 2013) (noting that “the last-ditch, kitchen-sink nature of
[plaintiff]’s suggestions bears on the extent to which the [agency] was required to address them”
when plaintiff protested the agency’s failure to “consider a list of alternative ideas that [plaintiff]
submitted in a single paragraph” in its comment).
Curiously, Plaintiffs also complain that, in setting rates for 2016, the Coast Guard
deviated from a supposed policy when it did not reduce pilotage rates based on the surplus
revenues collected by the pilotage associations in 2014. See Pls.’ Mot. at 20. Plaintiffs argue
that this was a violation of the APA because, when an agency changes policy, “it must provide
reasoned explanation for its action, which would ordinarily demand that it display awareness that
it is changing position.” Nat’l Ass’n of Home Builders v. EPA, 682 F.3d 1032, 1038 (D.C. Cir.
2012) (internal quotation marks omitted). The Court must point out, however, that this argument
is in direct tension with the comment that the Plaintiffs submitted during the rule making. As
noted above, Plaintiffs suggested that the Coast Guard’s methodology did not contain a “truing
up” mechanism, but now they argue that the Coast Guard had an entire “practice” of making just
such adjustments. The Court fails to understand how plaintiffs reconcile these conflicting
positions. Nonetheless, Plaintiffs had it right the first time—the Coast Guard had never
established a policy of making these adjustments. Thus, there was no APA violation.
Plaintiffs argue that the Coast Guard should have, according its purported policy or
practice, reduced the 2016 pilotage rates based on excess revenue collections in 2014. But, for
their argument, Plaintiffs do not point to any instance in which the Coast Guard had previously
reduced rates based on prior over-collections. Instead, they rely on a single ten-percent, upward
adjustment in pilotage rates that the Coast Guard imposed in 2015. That adjustment, however,
does not support Plaintiffs’ position.
39
When the Coast Guard went about setting rates for the 2015 shipping season, it found that
application of its former rate-setting methodology would result in “rates across the Great Lakes
[that would], on average . . . decrease by approximately 12 percent from the 2014 rates.” Great
Lakes Pilotage Rates—2015 Annual Review and Adjustment, 80 Fed. Reg. 10,365, 10,380–81
(Feb. 26, 2015). The Coast Guard found that this decrease, however, was “not due to increased
efficiencies in pilotage services but rather a result of adjustments to [the union] contract data”
that the Coast Guard used to estimate pilot compensation. Id. at 10,380–81. The Coast Guard
declined to impose this decrease because recently completed independent audits had revealed
that, in the prior season, there was a significant gap between projected revenues and those
actually collected by pilotage associations. Accordingly, the Coast Guard believed that
“[i]mplementing a rate decrease would further widen this disparity . . . .” Id. at 10,381. The
Coast Guard was particularly concerned that further decreasing rates would “adversely impact
the provision of safe, efficient, and reliable pilotage service on the Great Lakes,” which it
considered to be “integral to the public interest.” Id. Thus, to “begin aligning actual and
projected revenues,” the Coast Guard, in its discretion, increased pilotage rates by ten-percent.
Id. at 10,368. Although the Coast Guard did not “propose a solution” for the broader
methodological issue in the ratemaking process, it assured stakeholders that it was “working to
develop new proposals to address the significant hindrances of the [old] methodology.” Id.
This one-time adjustment to rates does not support the Plaintiffs’ position for several
reasons. First, contrary to Plaintiffs’ intimations, there is nothing in the 2015 ratemaking that
suggested that the Coast Guard was either starting or continuing any policy of always adjusting
future rates based on over-collections or under-collections in past years. Rather, it simply
represents a single judgment to increase rates based on an ad hoc examination of relevant facts,
40
as it was permitted to do under the rate-making regulations. To the extent that such adjustments
were needed, they were only needed before the Coast Guard modified its methodology. Indeed,
as the Coast Guard explained, its adjustment to the 2015 rates was simply an attempt to
overcome the “hindrances” of its prior methodology. Id. at 10,368. But, by 2016, it had
modified the rate-setting methodology and believed that both it and the 2016 “rate increases
support[ed] safe, efficient and reliable pilotage.” 81 Fed. Reg. at 11,923.
Even if the Coast Guard’s actions in 2015 could be construed as establishing a new
policy, the policy is not as broad as Plaintiffs would suggest. The Coast Guard did not adjust
rates merely because there was a discrepancy in the prior year between the revenues it had
projected and the revenues that the pilotage associations had collected. Rather, it increased rates
because it believed that the continuation of low pilotage rates represented a serious threat to the
safe, efficient, and reliable pilotage on the Great Lakes. Thus, to the extent that the Coast Guard
espoused any policy, it was a policy of increasing rates when those public interests were
threatened. In this case, Plaintiffs are not arguing that the Coast Guard should have increased
rates, it is arguing that the Coast Guard should have lowered rates, but they make no argument
that such an adjustment was needed to preserve safe, efficient, and reliable pilotage.
Accordingly, the Court finds that the Coast Guard’s failure to adjust 2016 pilotage rates based on
revenue surpluses in 2014 was not an unexplained deviation from past policy, and thus it was not
arbitrary and capricious.15
15
Plaintiffs also make a seemingly related argument concerning the data that the Coast
Guard relied upon in setting the 2016 pilotage rates. Plaintiffs argue that the Coast Guard failed
to rely on actual 2014 revenue figures in its rate-making, despite the availability of those figures.
See Pl.’s Reply at 15–16. This non-reliance, however, is really no surprise given that revenues
for prior years are not inputs in the rate-making calculation. To the extent that this is just another
way of saying that the Coast Guard should have considered these revenues and adjusted rates
41
D. Remedy
In total, the Court has found the Coast Guard has acted arbitrarily and capriciously in two
respects. First, it failed to engage in reasoned decisionmaking when it imposed a 10% increase
on the benchmark compensation for pilots because the amount of that increase was not supported
by any analysis. Second, the Coast Guard failed to consider an important factor when it refused
to consider the impact that weighting factor revenue would have on its rate-making calculations.
The typical remedy for arbitrary and capricious agency action is to vacate the rule. Am.
Bioscience, Inc. 269 F.3d at 1084. In deciding whether to provide the typical remedy, the Court
should consider the seriousness of the deficiencies and any potentially disruptive consequences
of vacatur. See Heartland Regional Med. Center v. Sebelius, 566 F.3d 193, 198 (D.C. Cir.
2009). However, in addition to the typical remedy, Plaintiffs also request that “the Court instruct
the Coast Guard to complete remand proceedings promptly and make whole the ratepayers who
have been burdened by the arbitrary Final Rule crediting in the calculation of future rates
excessive 2016 pilotage fees paid by the ratepayers.” At this time, however, the Court is not
inclined to decide the issue of remedy without additional briefing from the parties now that the
issues in the cross-motions have been resolved.
downward to “true up rates,” the Court has already found that the Coast Guard’s action in this
regard was not arbitrary and capricious.
42
V. CONCLUSION
For the foregoing reasons, the Court will grant in part and deny in part Plaintiffs’ motion
for summary judgment and grant in part and deny in part Defendants’ motions for summary
judgment. An order consistent with this Memorandum Opinion is separately and
contemporaneously issued.
Dated: November 3, 2017 RUDOLPH CONTRERAS
United States District Judge
43