Fourth Circuit Deals A Setback To Foreign-Flagged Ships Entering US Ports in Norfolk’s “Magic Pipe” Case.

Marissa Henderson

The federal appeals court for the Fourth Circuit dealt a blow for foreign-flagged vessels attempting to depart U.S. Waters, concluding the Coast Guard has free reign to refuse port departure clearance under the Act to Prevent Pollution from Ships (“APPS”). Actually, to be fair, the Fourth Circuit clarified that the Coast Guard already had unfettered, unreviewable discretion in this area, and no court can second-guess this discretion under any circumstances.

Typically, federal agency decisions are reviewable by federal courts if they are arbitrary, capricious, or an abuse of discretion. 5 U.S.C. § 706(2)(A). The district court in Norfolk, Virginia, found the Coast Guard had indeed overstepped its authority. However, there are two exceptions to this agency review, and the Fourth Circuit applied one of these exceptions.

First, a look at the lower court’s findings is warranted. Judge Robert G. Duomar’s May 8, 2013 opinion offers a scathing critique of the Coast Guard (it can be found here). The Coast Guard detained the M/V Antonis G. Pappadakis, an ocean-going bulk cargo carrier, at the Portsmouth Marine Terminal on April 19, 2013. It had just taken on a full load of coal and was preparing to go to sea when a crewmember passed a note to a Coast Guard inspector that the ship had dumped oily waste water through the ship’s sanitation system. (There has been little discussion about whether the “whistleblower” reward paid by the Coast Guard for such “tips” was a motivating factor.) The Coast Guard indeed found, per reports, evidence that prior to entering U.S. waters bilge and waste liquids were dumped straight into the sea via a portable pump and hoses (i.e. “magic pipes” that made the waste disappear) that bypassed the ship’s oily water separator and storage tanks. The ship’s Oil Record Book, which the APPS requires be kept by cargo ships operating in U.S. waters regardless of their flag, was allegedly falsified to cover up the illegal discharges of oily water. The Coast Guard revoked the ship’s departure clearance and demanded the owners put up a $3 million bond and meet several conditions relating to cooperating with the criminal prosecution before the ship would be allowed to leave port. The ship owner and operator quickly moved for relief in federal court, claiming the amount of the bond was excessive and would bankrupt the owner. Judge Duomar found the Coast Guard’s terms for allowing the vessel to leave Norfolk, including the amount of the bond, were patently unreasonable:

In more than thirty years on the bench, this Court can recall seeing no greater disregard for due process, nor any more egregious abdication of the reasonable exercise of discretion.

Sadly for the vessel owners, on July 22, 2013, the Fourth Circuit handed down its opinion concluding it was the trial court that had overstepped its bounds because it simply had no jurisdiction in the matter.

The Fourth Circuit did not address the merits of the Coast Guard action but instead focused on a close interpretation of statutes. On the one hand, it noted the actions of federal agencies acting in an arbitrary and capricious manner can be checked by federal courts under the APA. On the other hand, when Congress delegates discretionary power to the agency without any meaningful standards or guidelines to follow, the court concluded there can be no judicial review. See 5 U.S.C. § 701(a)(2). The Fourth Circuit reasoned that in such cases the courts would have no “meaningful standard against which to judge the agency’s [actions.]” The court noted that this provision of the APPS does not provide any “judicially manageable standards” as to when clearance should or should not be granted, and it does not outline any parameters for what form or amount a bond or other surety should take. Quite simply, the court held the Act to Prevent Pollution from Ships lets the Coast Guard decide a bond amount and to withhold departure clearance with absolute, unfettered discretion.

While the ANTONIS G. PAPPADAKIS still sits in dock with a full crew and a load of coal that is now worthless, federal prosecutors are pursuing criminal action. A Norfolk federal grand jury has indicted the ship’s chief engineer, the owner, Angelex, Ltd., and the operator, Kassian Maritime Navigation Agency Ltd. In 2007, Kassian paid a $1 million fine in another magic pipe incident aboard a different vessel. As with other magic pipe cases in the U.S. in the past several years, it is likely large fines will be imposed and the chief engineer is facing prison time. However, little thought seems to have been given by the Coast Guard as to what to do if the vessel owner walks away from the ship, stranding the vessel, cargo and crew in Norfolk.

The real lesson to be learned here for vessel owners and operators is to follow the U.S. environmental regulations to a “T” and implement whistleblower prevention programs. The United States enacted APPS to implement MARPOL, the international marine pollution convention. APPS applies to foreign-flagged vessels entering U.S. waters. APPS provides for administrative remedies and huge fines, but APPS also makes certain violations Class D felonies. In recent years, the U.S. government has stepped up enforcement of APPS. APPS authorizes “whistleblowers” to receive as much as 50% of the fines assessed against violators. This creates a situation in which seafarers on foreign vessels can violate MARPOL/APPS while in international waters (create a “magic pipe”), report the violations to U.S. port authorities, testify as to the violations to assist in the prosecution, and share in the huge fines assessed against the owner and/or operator. See here for a good article on whistleblower risks and prevention.

It does not take much for the Coast Guard to refuse departure clearance. Under the APPS, if the Coast Guard has “reasonable cause” to believe there is a violation of the statute or its implementing regulations, it “shall refuse or revoke” departure clearance. 33 U.S.C. § 1908(e). There is no indication that the “reasonable cause” determination can be reviewed by the courts.  The Coast Guard may grant clearance under whatever bond and other conditions that satisfy it. The sky is the limit on the Coast Guard’s decision—at least according to the Fourth Circuit.