SERVED JANUARY 30, 2003 

EXCEPTIONS DUE 2-21-03 

REPLIES TO EXCEPTIONS DUE 3-17-03

1.  Respondent having been found to have violated section 10(b)(4) on 149 shipments in the Preliminary Ruling herein served March 5, 2002, is assessed a maximum civil penalty of $4,082,500. 46 U.S.C. app. § 1709(b)(4).

2.  No penalty at this time imposed for 149 violations of section 10(b)(1) since they arose from the same conduct or transactions as the section 10(b)(4) violations for which the maximum penalty is assessed. 46 U.S.C. app. § 1709(b)(1).

3.  No penalty imposed for the violations of sections 19(d)(1) and 19(d)(4) since respondent Sea-Land did not receive "fair notice" that the Preliminary Ruling would adopt the Bureau of Enforcement's interpretation of the forwarder compensation rules. 46 U.S.C. app. §§ 1718(d)(1) and (d)(4).

4.  If the Bureau of Enforcement provides no pre-enforcement warning, effectively choosing to employ investigation of an ocean common carrier as the initial means for announcing a particular interpretation of a regulation for the first time in almost four decades, the administrative law judge must determine whether a regulated party received or should have received notice of the Bureau of Enforcement's interpretation by the reading of regulations; if by reviewing regulations and other public statements issued, a regulated party acting in good faith would be able to identify with ascertainable certainty the standard which the Bureau of Enforcement expects the party to conform to, then the Bureau of Enforcement has fairly notified the party of the Bureau of Enforcement's interpretation.

5.  The Bureau of Enforcement did not provide respondent with clear notice of the Bureau of Enforcement's interpretations of section 19(d)(1), 46 U.S.C. app. § 1718(d)(1) and 46 C.F.R. § 510.23(c) (1998), now 46 C.F.R. § 515.42(c), Compensation of Forwarders by Carriers and related regulations, as requiring a manually-signed certification or a signature and not permitting a stamped "for deposit only" as an endorsement on the certification on the back of the carrier's compensation check, and thus the Bureau of Enforcement could not hold Sea-Land responsible financially for noncompliance; the regulations permitted endorsement of a check by means of a rubber stamp marked "for deposit only"; the regulations under the Bureau of Enforcement's interpretation would require a written signature contrary to industry practice; the Bureau of Enforcement did not provide clear notice of its interpretation, and evidence at the oral hearing did not establish that its interpretation was on clear notice. See General Elec. Co. v. U.S. E.P.A., 53 F.3d 1324 (D.C. Cir. 1995).

6.  Respondent entitled to rely on the "safe harbor" provided in 46 C.F.R. § 510.23(b) (1996), because of forwarder certification that it had an FMC forwarder license and that it was not improperly affiliated with the shipper. Respondent not required to conduct an investigation of veracity of forwarder certification as a condition precedent to issuance of forwarder compensation checks.

Stanley O. Sher, David F. Smith, Wayne R. Rohde, Joseph T. Nah, and Robert S. Zuckerman for respondent Sea-Land Service, Inc.

In the Preliminary Ruling served March 5, 2002, respondent Sea-Land Service, Inc. ("Sea-Land") was found to have knowingly and willfully committed the following violations of the Shipping Act of 1984 ("1984 Act") in 1996-1998. Sea-Land violated section 10(b)(1) on 149 shipments by charging shippers the inapplicable rates on cargo in 20-foot containers when Sea-Land moved the cargo in 40-foot containers. The cargo did not comply with the tariff rule as to equipment substitution since the cargo exceeded the tariff limits on weight and/or measure. Sea-Land violated section 10(b)(4) on the same149 shipments because the fact that the cargo's weight and/or measure exceeded the tariff limit for equipment substitution was concealed by an unjust and unfair device or means. Sea-Land and the shippers, acting in concert, thus misused the applicable tariff equipment substitution provision.

Sea-Land was also found in the Preliminary Ruling to have paid compensation to ocean forwarders who did not perform the statutorily mandated services, and Sea-Land also paid compensation to a person with a revoked FMC license, both in violation of section 19(d)(1) in 435 instances. Also, Sea-Land, in 170 instances, knowingly paid forwarder compensation to a forwarder who had a beneficial interest in the shipments in violation of section 19(d)(4).

This investigation has been bifurcated and the Preliminary Ruling found that the Bureau of Enforcement ("BOE") had carried its burden of proof and established by a preponderance of the evidence that Sea-Land had knowingly and willfully violated the 1984 Act, as alleged in the Order of Investigation and Hearing. The investigation moved to Phase II to address the issue of what penalty, if any, should be imposed. This Initial Decision and the Preliminary Ruling, served March 5, 2002, comprise the entire Initial Decision.

Due to the complexity of the proceeding, special rules of procedure evolved in Phase II. As a result, BOE filed its Opening Brief on May 9, 2002, Sea-Land filed its Reply Brief on May 30, 2002, BOE filed its Closing Brief on June 21, 2002, both BOE and Sea-Land filed Initial Supplemental Memoranda on July 15, 2002, and both parties filed Reply Supplemental Memoranda on July 24, 2002.

By order of July 18, 2002, Sea-Land's motion to admit into evidence the affidavits of Messrs. Maron, Caradonna, Rohde, and Zuckerman was denied, and on July 19, Sea-Land's proposed findings of fact (PSL113 - PSL131) were rejected. Sea-Land filed a motion for reconsideration of the denial or leave to appeal. BOE responded, and on July 31, 2002, Sea-Land's motion for reconsideration was granted and the proceeding was assigned for limited oral hearing to permit Sea-Land to present Messrs. Maron, Caradonna, and Zuckerman on August 8 and 9, 2002, in regard to their affidavits, designated Counsel's Exhibits 50, 51, and 52 , respectively, and to accord BOE the opportunity to conduct cross-examination, which BOE effected, and thereafter Counsel's Exhibits 50, 51, and 52 were received in evidence. Tr. 148 ln18 - l49 ln2.

On May 30, 2002, the National Customs Brokers and Forwarders Association of America, Inc. ("NCBFAA") filed a motion for leave to file a tendered amicus curiae brief. On June 21, 2002, Sea-Land and BOE replied to the motion, which was denied on July 18, 2002. On September 11, 2002, NCBFAA filed a motion for reconsideration. BOE and Sea-Land replied, and on November 22, 2002, the motion of NCBFAA for reconsideration was granted and leave was granted to NCBFAA to file the amicus curiae brief. BOE was permitted to respond to the amicus brief, and by letter dated November 26, 2002, BOE stated that it relied on BOE's Reply Supplemental Memorandum dated September 19, 2002, at pages 2-9, 15-17 and 17-28, and BOE's Counter-Findings dated September 26, 2002, at PSL 118-119, 121, 122, 124-126, 128-130, 132, 133, 137-139, 141, and 149-150.

Pursuant to the Further Procedural Schedule, BOE and Sea-Land submitted reply supplemental memoranda and additional proposed findings of fact, and BOE and Sea-Land filed objections and corrections to each other's proposed findings of fact. All of these documents have been given thorough consideration and the following findings of fact are adopted as relevant to the issues now outstanding in the penalty phase of this investigation.

BOE proposed findings PFF329 - 375, reflecting a continuation of the sequential numbering previously employed by BOE.

Sea-Land proposed findings PSL113 - 150, many of which were originally submitted on May 31, 2002, as amended or supplemented in some instances to reflect additional evidence received since that date. These findings also are numbered sequentially starting after the last Sea-Land finding adopted in the Preliminary Ruling.

As in the Preliminary Ruling, this Initial Decision adopts the following findings of fact proposed by BOE and Sea-Land which have appropriate references to the record and which have been edited in light of the record and the comments and arguments of the parties. The findings of fact proposed by BOE and Sea-Land which are adopted omit the prefatory "P" for "proposed." Any finding proposed by either BOE or Sea-Land and not adopted will be omitted but the numbering of the remaining findings of fact will be retained for the benefit of the parties and for administrative convenience.

FF331. Sea-Land's expert witness as to freight forwarder compensation, Mr. William A.

Maron, had personal knowledge of the operations of 25-50 forwarders and was familiar with the practices of many more. He has a good understanding of the practices of the industry generally through, among other things, attending industry meetings and seminars and reading industry publications. Maron Tr. 127 ln7 - 18; Co. Ex. 50, ¶¶ 2-3. Moreover, carriers, not forwarders, determine whether check certification will be used, and Mr. Maron has knowledge of the practices of virtually all ocean carriers in all U.S. trade lanes through having received compensation from them. Maron Tr. 101 ln10 - 102 ln4.

Mr. Maron's familiarity with the members of the National Customs Brokers and Forwarders Association of America ("NCBFAA") and the New York Association is significant. Mr. Maron was on the Board of Governors of the New York Association for 24 years, and served as its president. He was a member of the Forwarding Committee of the NCBFAA for 22 years, including 10 years as chairman. Ex. 50, ¶ 2.

FF343. Mr. Frank W. Caradonna, also a Sea-Land expert witness on forwarder compensation, testified that booking or confirmation of space may be done by telephone, and there is often no written record of such conversations. In those cases, it is impossible for the carrier to go back and reconstruct whether such communications took place when paying forwarder compensation. Caradonna Tr. 92 ln12 - 93 ln15. For example, Mr. Caradonna was aware of circumstances in which a shipper booked cargo, but a forwarder later confirmed the booking. Caradonna Tr. 128 ln9 - 12. The manner of determining whether the forwarder performed the requisite services is through the forwarder's certification, on which most carriers in the industry rely. Caradonna Tr. 123 ln21 - 124 ln21.

FF346. The shippers knowingly gave the forwarder name and other incorrect information to Sea-Land in their shipping instructions, falsely representing that they did have a forwarder. Tam Tr. 35 ln17 - 35 ln14; Tiao Tr. 195 ln3 - 8; 199 ln8 - 16.

FF347. There is no legal or regulatory prohibition on NVOs having forwarders operating out of the NVO's offices as an "in-plant" forwarder, any more than in proprietary shippers' offices, and therefore NVO booking could well be faxed to Sea-Land by a forwarder from a shipper's office.

FF352. Mr. Maron is one of the developers of the Certified Ocean Forwarder ("COF") Program. Maron Tr. 85 ln12 -6; 87 ln2 - 13. The COF Program seeks to educate the forwarder industry as to the best practices and raise the level of professionalism in the industry. Maron Tr. 86 ln6 - 13; 96 ln1 - 5.

FF353. The COF Program Guide serves as a reference for the industry as well as a training guide. Maron Tr. 86 ln20 - 87 ln1.

FF354. The COF Program Guide interprets the term "signature" broadly to include forms that are not handwritten, such as electronic signatures. Co. Ex. 59, p. III-2-76; Maron Tr. 116 ln13 - 20.

FF355. Mr. Maron followed the overwhelming industry practice by stamping check certifications, as is also an acceptable means of endorsing checks under the Universal Commercial Code ("UCC"). Maron Tr. 37 ln19 - 21.

FF357. Certifications on invoices were used only by "a few of the smallest steamship lines." Maron Tr. 75 ln3 - 4.

FF358. "Carrier employees that take bookings and prepare documentation are not generally qualified to evaluate what services forwarders have to perform in order to receive compensation." Co. Ex. 50, ¶ 16; Maron Tr. 56 ln4 - 18. It is not practical for carrier booking and documentation personnel to evaluate whether services supporting payment of forwarder compensation have been performed on each shipment. Co. Ex. 50, ¶¶ 16-17.

FF359. An annual or even semi-annual check by Sea-Land in this case would not necessarily have uncovered ITL's license revocation prior to the termination of Sea-Land's compensation payments to ITL, which extended at the latest to November 1997. Oh Tr. 39 ln8 - 40 ln5.

FF360. Mr. Maron does not know whether Sea-Land or other carriers have the current ability to utilize their accounting systems to verify that the shipper and forwarder are not using identical names on the same bill of lading. Maron Tr. 83 ln17 - 22.

FF361. When the forwarder compensation check is negotiated, Sea-Land assumes that certification has been provided by the forwarder. Caradonna Tr. 98 ln15 - 18; 106 ln12 - 21.

FF363. The forwarder is required to retain evidence that it has performed the required services enumerated on the certifications. See 46 C.F.R. 510.23(c). The Commission has often penalized forwarders, but not carriers, for the absence of proper certifications.

FF364. The fact that the check was cashed would indicate that it was endorsed and therefore certified, since the certification is on the back of the check. Carriers rely on the fact that a check was cashed to presume certification. See also SL123-124.

FF370. Sea-Land paid compensation to ITL Shipping by various checks issued through March 19, 1998. Co. Ex. 57. Since ITL's endorsement was on the check, Mr. Maron believed that ITL signed the certification because that is what he had to do to deposit the check. Maron Tr. 79 ln11 - 80 ln7. The carrier should be able to rely on the endorsement and negotiation of the check and cannot be obliged to determine the subjective intent of the signer.

FF371. Mr. Maron agreed that payments to a forwarder having a revoked license would affect the validity of payment. Maron Tr. 26 ln20 - 27ln1. Mr. Maron believes, however, that carriers should be able to rely on forwarder certifications of current license status, and that, as an industry practice, carriers rarely verify the information in certifications. Co. Ex. 50, ¶ 15; Maron Tr. 119 ln18 - 21, 120 ln4 - 15. In 40 years, Mr. Maron was never once questioned by a carrier about the validity of his forwarder license. Maron Tr. 119 ln18 - 21.

FF375. Most of the TWRA carriers used check certification as opposed to invoice or bill of lading certification. Maron Tr. 110 ln3 - 5. In addition, the payment of forwarder compensation, particularly $10-20 payments such as here, have no commercial significance and do not affect commercial actions of forwarders or carriers. Co. Ex. 50, ¶ 9; Co. Ex. 51, ¶ 5; Caradonna Tr. 118 ln3 - 119 ln9; Caradonna Tr. 131 ln1 - 11; Maron Tr. 117 ln4 - 12.

Additional Findings of Fact

SL114. In 1997, the revenues of forwarder Maron Shipping from carrier forwarder compensation declined to 10-15% of its revenues. That drop was typical of the industry as a whole. Other types of revenues are much more significant for a freight forwarder now than forwarder compensation received from ocean carriers. Maron Tr. 104 ln19 - 106 ln6.

SL115. The freight forwarder compensation paid by Sea-Land at issue in this case amounted to about $5,000 to ITL Shipping, or about $18 per shipment. About $1,700 was paid to General Air Freight, or about $10 per shipment. BOE Ex. 2, ¶¶ 21-23; 42-43; Atts. D, G. The total forwarder compensation paid by Sea-Land to both forwarders in this case was about $6,700.

SL116. On January 13, 1998, three months before this investigation began, General Air Freight returned to Sea-Land the forwarder compensation which Sea-Land had earlier paid to it. BOE Ex. 2, Att. F.

SL117. There is no evidence of the amount of Sea-Land forwarder compensation payments to ITL after notice of ITL's license revocation was published in the Federal Register on April 23, 1997. All documented payments were made prior to April 23, 1997. BOE ex. 2, ¶ 23, Att. D.

SL118. Because forwarder compensation payments are now so small, they have no commercial or regulatory significance. Forwarder compensation payments do not affect the conduct or business of ocean carriers, shippers, or forwarders with respect to ocean shipments. Co. Ex. 50, ¶ 9; Co. Ex. 51, ¶ 5.

SL119. The amount of forwarder compensation paid is not a significant factor in a forwarder's choice of ocean carrier. Maron Tr. 117 ln4 - 12. Most major ocean carriers pay the same amount of forwarder compensation, 1¼ percent. Forwarders earn half of their income from sources other than ocean carriers. Maron Tr. 117 ln13 - 118 ln1 and Tr. 105 ln8 - 10.

SL120. Forwarder compensation is not a commercial issue in service contract negotiations from either the carrier or shipper perspective. Caradonna Tr. 131 ln1 - 11.

SL121. Sea-Land had no contact with and did not speak to either ITL or General Air Freight, or to General Ocean Freight or World Pacific Container Line, regarding the payment of the forwarder compensation in this case. No arrangement was made for its payment. Tiao Tr. 199 ln8 - 200 ln19; BOE Ex. 13; Oh Tr. 93 ln16 - 19; Wu Tr. 169 ln4 - 12.

SL122. The endorsement of the forwarder compensation check containing preprinted certification language on the reverse of the check is by far the most common industry method by which forwarders certify that they are entitled to forwarder compensation. The "vast majority" of carriers and forwarders use check certification. Forwarders rarely send separate invoices and certifications because of the added cost and paperwork involved. Co. Ex. 50, ¶¶ 11, 14; Co. Ex. 51, ¶¶ 7, 8; Oh Tr. 79 ln15 - 22; 82 ln1 - 6; Caradonna Tr. 128 ln13 - 129 ln4.

SL123. When the check certification method is used, the carrier does not receive the "certification" until it receives its bank statement. Co. Ex. 51, ¶ 11.

SL124. Carriers generally assume that if the check has been cashed, it was endorsed and thereby the certification was given. Most carriers rely on the fact that the check has been endorsed and cashed as a certification that services have been performed and all other conditions for payment of compensation have been fulfilled. Co. Ex. 51, ¶ 11; Caradonna Tr. 143 ln9 - 144 - ln15.

SL125. Forwarder compensation checks are typically issued based on the identification of the forwarder and its license number in the forwarder box of the bill of lading. Maron Tr. 127 ln19 - 128 ln21; Caradonna Tr. 139 ln7 - 140 ln16, 143 ln9 - 144- ln14, 145 ln20 - 146 ln3.

SL126. Freight forwarders rarely fill in their license number in the space provided in the certification language stamped on the back of the compensation checks. The license number is almost always provided to the carrier in the bill of lading instructions and/or on the bill of lading. Co. Ex. 50, ¶ 12; Co. Ex. 51, ¶ 11; Maron Tr. 119 ln4 - 8; Caradonna Tr. 141 ln13 - 142 ln1; 141 ln13 - 143 ln3; 143 ln9 - 144 - ln4.

SL127. The majority of forwarders endorse compensation checks by stamps marked "for deposit only" with the forwarder's name and bank identification, rather than with a handwritten signature. Co. Ex. 50, ¶ 13; Co. Ex. 51, ¶ 9; Oh Tr. 82 ln7 - 21. Maron Tr. 113 ln2 - 113 ln12, 118 ln22 - 119 ln3.

SL128. A handwritten endorsement on a forwarder compensation check may give no more information than a stamped endorsement, and sometimes gives exactly the same information as a stamp. Co. Ex. 56; Maron Tr. 111 ln19 - 112 ln18.

SL129. Even in the rare cases when forwarder certifications are signed by hand, there is a wide variety of ways in which this is done. Sometimes the forwarder hand prints the name of the company in block letters, but not his individual name. Co. Ex. 56, 57 (endorsements of Surface Sea Forwarding and Inter Trade Lines). Sometimes the forwarder only initials the certification. Carey Tr. 621 ln3 - 7. Sometimes the signature is illegible and it is impossible to identify whether it is someone's name or instead merely their initials. Co. Ex. 56 (endorsement of Indus Shipping).

SL130. Under industry practice, a signature need not be handwritten to constitute a proper signature for purposes of a forwarder certification. For example, an electronic signature, which is not handwritten, is sufficient to constitute a signed certification. Co. Ex. 59, p. III-2-76; Maron Tr. 116 ln13 - 20.

SL131. In order to compensate forwarders, ocean carriers generally rely on the certification on the back of the compensation check made out to the freight forwarder for the following information: that the forwarder has a valid FMC license, that the forwarder is not affiliated with the shipper, and that the forwarder has performed the requisite services to be entitled to compensation. Co. ex. 50, ¶ 15; Co. Ex. 51, ¶ 12; Maron Tr. 120 ln4 - 8.

SL132. Carriers rarely independently verify the facts underlying the forwarder's certification. In his 40 years as a forwarder, Mr. William Maron never once was questioned by an ocean carrier about whether he had performed requisite services with respect to a shipment, whether his forwarding license was current, or whether he was affiliated with the shipper. Maron Tr. 119 ln9 - 120 ln8. In his 40 years experience, Mr. Maron was not aware of any other forwarder ever being questioned on those items. Maron Tr. 120 ln9 - 15.

SL133. Similarly, in his nearly 40 years experience, Mr. Caradonna is not aware of a single instance in which a carrier questioned a forwarder certification for failure to perform services, lack of current license, or affiliation with a shipper. Caradonna Tr. 129 ln5 - 130 ln10.

SL134. Sea-Land often received shipping instructions and other shipper documentation directly from a shipper even when a freight forwarder was involved in the shipments and was entitled to compensation. SL Ex. 2, ¶ 18. Sea-Land was not unique in this respect. As a general matter, documentation sometimes comes from a shipper's place of business even when a forwarder is involved because the forwarder prepares the documentation and gives it to the shipper to fax, or the forwarder is operating out of the shipper's offices as an "in-plant" forwarder. In-plant arrangements have become more common in recent years, and were in use in the industry in 1996-97 when the payments in this case were made. Co. Ex. 50, ¶ 19; Co. Ex. 51, ¶ 17.

SL135. In some cases shippers make bookings directly with the ocean carrier, but the forwarder later follows up to confirm the availability of space on the vessel, entitling him to compensation. Co. Ex. 50, ¶ 22; Co. Ex. 51, ¶ 16; Caradonna Tr. 128 ln9 - 12. These confirmations are often by telephone, with no written record kept by the carrier. Other types of forwarder-carrier communications are also telephonic or verbal, with no written record, making it impossible to go back and reconstruct the communications. Caradonna Tr. 127 ln3 - 128 - ln8.

SL136. There are 2,175 freight forwarders licensed by the Federal Maritime Commission for Fiscal Year 2001.

SL137. Sea-Land's documentation department processed 8-10,000 shipments per week (a significant portion of those in the outbound trades). Sea-Land would have handled upwards of 1,000,000 documents per year relevant to forwarder compensation. Preliminary Ruling, Finding SL20; Co. Ex. 50, ¶ 16; Co. Ex. 51, ¶ 13.

SL138. There is a large volume of documents that might give carriers a clue as to whether a forwarder has performed services with respect to a shipment. For each shipment, there are several documents the carrier receives or generates that a carrier could review, such as booking notes, bill of lading instructions, and dock receipts. Depending on the size of the carrier, this would mean the carrier would have to review thousands of documents a day and millions of documents each year. The carriers' clerical employees who take bookings and prepare documentation are not generally trained to evaluate what services forwarders have to perform in order to receive compensation. Co. Ex. 50, ¶ 16; Co. Ex. 51, ¶ 13.

SL139. If ocean carriers were required to verify independently the information contained in the forwarder's certification in order to pay the minor compensation involved, it is likely many carriers would simply cease payment of forwarder compensation altogether. Co. Ex. 50, ¶ 17; Co. Ex. 51, ¶ 14.

SL140. The Commission has not had occasion to consider in detail how freight forwarder compensation has been paid and how forwarder certifications are typically made. Apart from issuing the 1984 regulations, the Commission has never given advice or guidance to the forwarding industry, either in written form or in meetings, on the manner in which forwarder compensation should be paid or the form in which forwarder certifications should be made. Maron Tr. 106 ln14 - 107 ln9; Caradonna Tr. 131 ln12 - 20. Accordingly, the Commission should inform itself as to industry practices on forwarder compensation and provide guidance to the industry going forward.

SL141. Sea-Land's general practices with respect to payment of forwarder compensation, receipt of certifications, and reliance on those certifications were typical of most carriers in the industry. Co. Ex. 50; Co. Ex. 51.

Official notice is taken of the fact that there is no evidence that the Commission has ever penalized an ocean carrier for improper forwarder compensation payments, but that it has frequently penalized forwarders who have obtained compensation improperly.

SL142. Sea-Land searched for documents in office locations in all Sea-Land offices in which responsive documents were likely to be found, including Charlotte, NC, Long Beach, CA, Dallas, TX, Mexico, Hong Kong, Malaysia, Taiwan, and the People's Republic of China. Co. Ex. 52, ¶¶ 6-8.

SL143. No documents were destroyed after service of the Commission's Order of Investigation commencing this case. Co. Ex. 52, ¶ 9.

SL144. Sea-Land produced thousands of pages of documents relating to hundreds of shipments in response to BOE's document requests. Co. Ex. 52, ¶ 8. Every non-privileged document found that was responsive to discovery requests was produced to BOE. Co. Ex. 52, ¶ 5. In order to expedite BOE's review process, Sea-Land produced the documents in batches as they were obtained rather than waiting until all responsive documents from various locations were received. Co. Ex. 52, ¶ 6.

SL145. At no point during the case has BOE ever filed a motion to compel additional discovery responses by Sea-Land. But it is recognized that the duty to respond to discovery requests rested on Sea-Land without waiting for BOE to file a motion to compel, as earlier ruled.

SL146. Official notice is taken of the fact that the annual reports of the Commission show the following: During fiscal years 1992 - 2001, the Commission collected a total of 225 penalties, only four of which exceeded $500,000. One other penalty, paid by three respondents, totaled $1,500,000. All other penalties collected by the Commission during this period were below $500,000.

SL147. The total amount of improper equipment substitution discounts found by BOE's analyst to have been provided to shippers on the 149 shipments at issue in this case is $268,475. BOE Ex. 14, Attachment A.

SL148. The Commission compromised informally under the provisions of 46 C.F.R. § 502.604 three cases involving allegations of equipment substitution abuse by ocean carriers for $265,000, $350,000, and $425,000, respectively. Commission News Releases NR 97-14, 97-17, and 98-01. Another carrier settlement, for $925,000, involved rebating and other malpractices and was not based primarily on equipment substitution. A.P. Moller-Maersk Line-Possible Violations of Sections 10(b)(1), 10(b)(2) and 10(b)(4) of the Shipping Act of 1984, 28 S.R.R. 1075 (Settlement Approved and Investigation Discontinued, 1999), administratively final, October 19, 1999.

SL149. Mr. Maron, a knowledgeable expert in freight forwarder compensation practices, was a freight forwarder for over 40 years, during which time he received forwarder compensation from virtually every ocean carrier in every major U.S. trade lane, including the Transpacific. Co. Ex. 50, ¶¶ 1, 4; Maron Tr. 9 ln1 - 11 ln2; Maron Tr. 101 ln4 - 102 ln4. He was also active in industry trade associations, serving as chairman of the Forwarding Committee of the National Customs Brokers and Forwarders Association of America for 10 years, and has testified before Congress and taught on the subject. Co. Ex. 50, ¶¶ 2-3.

SL150. Mr. Frank W. Caradonna, also a knowledgeable expert on freight forwarder compensation practices, worked for ocean carriers from 1967 through 1999, and had direct or supervisory responsibility over documentation or forwarder compensation functions during much of that time. Co. Ex. 51, ¶¶ 1-3. He has also consulted for both carriers and shippers since 1999. Caradonna Tr. 40 ln3 - 41 ln11.

The salient excerpts from the parties' various briefs and other filings follow.

BOE points out that the Second Circuit's decision in Merritt v. United States, 960 F.2d 15 (2^nd Cir. 1992), which is instructive on the calculus of assessing civil penalties, endorsed the principle that the Commission "may in its discretion determine how much weight to place on each factor," Id., and that the court approved a balancing test in which respondent's ability to pay constitutes but a single factor and that the Commission's burden in presenting evidence upon the section 13(c) factors was one of "going forward with the evidence, not the burden of persuasion," Id. at 18.

BOE's arguments as to the various factors follow:

BOE contends that Sea-Land has a recent history of prior offenses; that the Order of Investigation cites Sea-Land for the same statutory violations for which Sea-Land previously settled with the Commission; that in November 1992, Sea-Land entered into a settlement with the Commission, resolving allegations that Sea-Land violated sections 10(a) and 10(b) of the 1984 Act in its operations in the Transpacific Trades, FF7;⁽²⁾ and that, nonetheless, Sea-Land has been found to have engaged in subsequent rate malpractices, in violation of sections 10(b)(1) and 10(b)(4) of the 1984 Act.

BOE points out that, under the terms of its 1992 settlement, Sea-Land committed that it would implement and maintain an effective self-auditing and compliance program, by means of a "Neutral Body" enforcement authority, so as to insure Sea-Land's observance of its tariff(s) and service contracts, FF8; that despite that commitment the Neutral Body conducted repeated audits of Sea-Land's performance, discovered violations, and penalized the carrier for its failure to comply with applicable tariffs, FF173-183 (First Neutral Body Investigation), FF188-194 (Second Neutral Body Investigation), and FF199-204 (Third Neutral Body Investigation). BOE emphasizes that the Neutral Body cited Sea-Land for enhanced penalties based upon its "repetition of the same violations described in previous Investigation Reports," FF200.⁽³⁾

BOE urges that no reduction in civil penalties would be warranted under this factor.

(ii) Ability to Pay a Civil Penalty

BOE contends that it has met its burden of "going forward" under the Merritt standard, and that because Sea-Land has stated that it will not raise any argument as to its ability to pay, Sea-Land is estopped from raising any "ability to pay" arguments.

BOE contends that in an analogous penalty situation in which all Shipping Act violations were "knowingly and wilfully" committed, the Commission found that the maximum potential penalties should be assessed even if respondents may no longer be viable entities, citing Arctic Gulf Marine Inc., Peninsula Shippers Association Inc. and Southbound Shippers Inc. ("Arctic Gulf Marine"), 24 S.R.R. 159, 160 (FMC 1987). Herein BOE urges imposition of the maximum penalty, citing also Kin Bridge Express Inc. and Kin Bridge Express (U.S.A.) Inc.-Possible Violations of Sections 8, 10(a)(1), 10(b)(1) and 23 of the Shipping Act of 1984 ("Kin Bridge"), 28 S.R.R. 984, 993-94 (ALJ 1999) (admin. final, August 2, 1999) (penalties aggregating $2,117,500 and $1,105,000, against Kin Bridge Taiwan and Kin Bridge USA, respectively); Comm-Sino Ltd.-Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 27 S.R.R. 1201, 1205 (ALJ 1997) (admin. final, May 2, 1997) (penalty of $650,000 assessed on 26 violative shipments); and Portman Square Ltd.-Possible Violations, 28 S.R.R. 80 (I.D., admin. final, March 16, 1998) (penalty of $797,500 assessed on 29 violative shipments).

BOE urges that no reduction in civil penalties would be warranted under this factor.

(iii) The Nature, Circumstances, Extent and Gravity of Sea-Land's Activities and Degree of Culpability

BOE asserts that neither the evidentiary record nor the findings and conclusions in the Preliminary Ruling leave room for doubt concerning Sea-Land's motivations, the extent of Sea-Land's activities and its legal culpability for the unlawful equipment substitution scheme that Sea-Land set in place, citing the Preliminary Ruling at 199-202.

BOE contends that the record and the Preliminary Ruling chronicle the rise of equipment substitution malpractices as Sea-Land's chosen course to increase revenues, control costs and improve export carryings in its outbound Transpacific service. BOE argues that Sea-Land's "zeal in obtaining cargo" to fill otherwise empty 40' and 45' containers being repositioned to the Far East was allowed to override the legal requirements that Sea-Land adhere to all the terms in the Trans Pacific Westbound Rate Agreement ("TWRA") tariff; that indeed, so long as any review of Sea-Land's practices could be quarantined entirely within the Neutral Body enforcement process, any monetary penalties which might ensue could be written off as a cost of doing business, Preliminary Ruling at 204-205. BOE urges that neither the Neutral Body investigations nor the ensuing penalties were effective in dissuading Sea-Land from its course of conduct, and that any such token penalties were incidental to the ultimate goal of Sea-Land of obtaining additional cargo to offset its container repositioning costs.⁽⁴⁾

BOE points out that no less scathing are the findings with respect to Sea-Land's rating practices generally, citing the Preliminary Ruling at 208. BOE also points out that following his extensive review of shipments selected by Sea-Land, the presiding judge concluded that:

. . . BOE's proof has established that it has sustained its burden to show by a preponderance of the evidence that the 149 shipments were incorrectly rated in violation of section 10(b)(1), 46 U.S.C. app. §§ 1709(b)(1).

Preliminary Ruling at 230.

BOE states that the findings of the presiding officer make clear that Sea-Land's equipment substitution malpractices were willful and targeted to benefit a specific segment of the market (NVOCCs) and to shipper accounts therein deemed likely to return immediate cargo gains to Sea-Land. BOE argues that, in contrast, the record also makes certain that Sea-Land's forwarder compensation malpractices were system-wide, and prone to abuse and manipulation; that the shortcomings and deficiencies of Sea-Land's forwarder compensation system were known; and that no effort was made however to resolve or upgrade a faulty system.

BOE asserts that the presiding judge properly discounted Sea-Land's claims of "technical" compliance, finding that the record demonstrated:

 . . that Sea-Land's personnel knew that ITL never communicated with Sea-Land to provide any of the requisite freight forwarding services for any of these 265 shipments. (FF 270, 293, 294, 295 and SL FF 101)

Preliminary Ruling at 238. BOE states that, likewise, Sea-Land's "system" proved commercially inadequate, and legally indefensible, in addressing or preventing forwarder compensation payments being issued to General Ocean and General Air, and that in the words of the presiding judge:

. . . Sea-Land automatically issued compensation checks to either party identified as a licensed forwarder (IL and General Air) in the bill of lading instructions, without regard to the statutory requirements. (FF 273, 274, 275, 292, 309, 310, 311, 312, 313 and SL FF 108)

Preliminary Ruling at 238-39. BOE states that neither did Sea-Land's compensation system comprehend the need to update its database to prevent payments to entities, such as ITL, who no longer retained a valid license as a forwarder. Preliminary Ruling at 239-40; and FF 280-218.

BOE states that neither was Sea-Land's compensation system commercially or legally adequate to prevent payments to a forwarder clearly and directly affiliated with the shipper, and that the Preliminary Ruling found:

It is abundantly clear that Sea-Land knowingly paid compensation to a forwarder, in violation of section 19(d)(4), because Sea-Land had actual and constructive knowledge that the forwarder had a direct or indirect beneficial interest in the shipments involved. . . .

Preliminary Ruling at 145.

BOE argues that, as memorialized in the evidentiary record herein, Sea-Land's forwarder compensation system operates automatically to issue payment checks to any entity detailed as the forwarder; that the system operates to process such payments without cognizance of external developments, e.g., revocation of forwarder licenses, even when published in the Federal Register; that the system likewise operates without cognizance of internal developments, e.g., records and knowledge by Sea-Land booking personnel that all arrangements as to booking and documentation were handled by the shipper, rather than the forwarder; and that Sea-Land's system issued compensation checks notwithstanding. BOE states that, as the Commission itself stated in addressing a similar fact situation in Independent Ocean Freight Forwarder, License Application No. 552, 10 F.M.C. 281 (1967):

It is this type of unearned payment (the legislative history calls it "unearned brokerage" or "automatic unearned brokerage fees") that Section 44(e) was enacted specifically to eliminate.

10 F.M.C. at 293, citing also Preliminary Ruling at 234-235, citing H.R. Rep. No. 2939, 84^th Cong., 2^nd Sess. 56 (1956), Investigation Into the Activities of Foreign Freight Forwarders and Brokers.

BOE argues that of equal significance in assessing Sea-Land's liability for monetary penalties is a system which automatically processed forwarder compensation payments to a forwarder clearly and directly affiliated with the NVOCC shipper General Ocean; that the findings of the presiding officer amply make clear that Sea-Land had knowledge of the common ownership, address and operation of both forwarder and shipper, Preliminary Ruling at 245-246; that the legislative history of the 1984 Act, in turn, evidenced the clear determination of the Congress to continue the prohibition as to compensation payments with respect to shipments in which the forwarder or any related company has a beneficial interest, Preliminary Ruling at 244-245, citing S. Rep. No. 3, 98^th Cong., 1^st Sess. 33-4 (1983); and that, by knowingly paying compensation to a forwarder that had a beneficial interest in the shipments, Sea-Land has, both in fact and in legal effect, used its forwarder compensation system as a means by which Sea-Land rebated freight monies to the shipper.

BOE urges that no reduction in civil penalties would be warranted under this factor.

(iv) The Commission's Policies for Deterrence and Future Compliance

BOE contends that the legislative intent of the U.S. Congress in enacting higher monetary penalties in the 1984 Act for knowing and willful violations, and the Commission's own precedent, recognize that the burden of going forward with respect to avoiding or mitigating civil penalties must reside with the party seeking the benefit of such mitigation; that significant changes in financial circumstances, or even withdrawal from common carrier service generally, do not erode the deterrent effect intended by the Commission in imposing civil penalties, given the responsibility the Commission bears to the shipping industry as a whole, citing Arctic Gulf Marine, 24 S.R.R. at 160-161, and Stallion Cargo, Inc.-Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 29 S.R.R. 665 (2001) ("Stallion Cargo") (increasing, as deterrent measure, amount of civil penalties assessed against respondent whose OTI license also would be revoked).⁽⁵⁾

BOE also points out that the decision in Stallion Cargo also recognizes the relative importance of "aggravating factors" in calculating civil penalty amounts, Stallion Cargo, at p. 682.⁽⁶⁾ BOE submits that a substantial record already exists with respect to these aggravating factors.

BOE states that the Preliminary Ruling contains findings specific as to Sea-Land's attempt to evade responsibility and frustrate the administrative process. BOE cites Sea-Land's failure to respond fully and appropriately to discovery which had the direct effect of denying BOE access to evidence concerning Sea-Land's handling of shipments on behalf of these identified NVOCC shippers, including but not limited to: Sea-Land's receipt and knowledge of booking activity, FF142; overseas records maintained by Sea-Land reflecting variances in cargo descriptions, weights, or measurements known to Sea-Land at destination, FF148-149; packing lists and other outbound documentation required under applicable tariff requirements and Sea-Land's own Record Retention Policy, FF154;⁽⁷⁾ and gate tickets ("RCV" tickets) or other records of cargo weight such as those generated by the carrier at the loading terminal, FF170. BOE contends that Sea-Land's "lack of cooperation" and "pattern of impeding the Commission's investigation" may be considered as aggravating factors in determining whether the maximum monetary penalties should be assessed, citing Arctic Gulf Marine, supra, 24 S.R.R. at 160.

BOE emphasizes that, in addition, Sea-Land was found in the Preliminary Ruling to have continued practices in violation of its tariff and the 1984 Act, even after receiving "a warning shot across its bow" with respect to its equipment substitution practices stemming from Neutral Body investigations to which Sea-Land had committed to participate. Preliminary Ruling, at 208. BOE points out that Sea-Land's contracted Neutral Body enforcement authority identified the nature of the practices, detailed specific shipments by Sea-Land bill of lading number, and named the NVOCC shippers involved, citing FF173-183, 188-194, 199-204, and that, as the Preliminary Ruling found and concluded:

Sea-Land instituted no new adequate procedures to control equipment substitution [following the first Neutral Body Investigative Report in August 1997], and its misratings continued. . . . Despite the issuance of the [Second] Neutral Body Investigative Report on December 13, 1997, Sea-Land's misratings under equipment substitution did not abate. . . . Following the third Neutral Body Investigative Report issued March 27, 1998, Sea-Land instituted no new written controls on equipment substitution.

Id. at 201.

BOE states that despite ample notice and warning of its legal exposure, Sea-Land opted instead to continue the unlawful rating practices then in place with its NVOCC customers and that Sea-Land's "zeal to obtain cargo" ultimately overshadowed Sea-Land's need to adhere to the tariff, Preliminary Ruling at 208.⁽⁸⁾ BOE argues that the Commission has previously cited in its penalty considerations the failure of a respondent to "voluntarily comply with the requirements of the Shipping Act" and whether a respondent "continued to engage in conduct violative of the Shipping Act" even after receiving actual notice that such practices were believed unlawful, citing Stallion Cargo, supra, at 684; Kin Bridge, supra, 28 S.R.R. at 993.

BOE points out that in Kin Bridge, supra, Chief Administrative Law Judge Kline succinctly summarized the task at this stage of the present investigation: "The instant task is to fix civil penalties that will send a message of punishment and deterrence as regards these respondents who have disregarded U.S. law and chosen not to honor their promises made in their settlement agreements," citing Kin Bridge, supra, 28 S.R.R. at 994.

BOE argues that such a message cannot be defeated by the fact that Sea-Land is no longer operating in U.S. trades or its assets are now in the hands of another (as in Refrigerated Container Carriers Pty. Ltd., supra).

BOE contends that no reduction in civil penalties would be warranted under this factor.

(b)  Calculation of Maximum Penalty to be Assessed Against Sea-Land

Under section 13 of the 1984 Act, the U.S. Congress has established the penalties for knowing and willful violations as not more than $25,000 per violation if occurring on or before November 7, 1996. Those penalties increase to $27,500 per violation occurring after November 7, 1996. Inflation Adjustment of Civil Monetary Penalties, 27 S.R.R. 809 (FMC 1996). In Stallion Cargo, the Commission found legislative history that Congress intended to increase the deterrent effect of penalties for violations in the 1984 Act, inasmuch as the lower penalty maximums authorized under the predecessor Shipping Act, 1916 could be absorbed by regulated parties as a "cost of doing business." Stallion Cargo, 29 S.R.R. 677 fn 29, citing Martyn Merritt, 26 S.R.R. 663, 664-665 (FMC 1992).

Based on the findings of the Preliminary Ruling and its conclusions, BOE states that the calculus of civil penalties is as follows:

BOE submits that this case cannot be viewed as limited solely to the 149 shipments admitted into the record; that testimony of NVOCC shippers and Commission investigators, as well as numerous shipping documents entered into the record here, demonstrate that Sea-Land sponsored and facilitated equipment substitution abuses on a continuing basis through March 1998, receiving in exchange export shipments numbering into the thousands of containers, citing FF65, 66, 67 (Sea-Land's NVOCC shipper World Pacific); FF73 (Sea-Land's NVOCC shipper General Ocean); FF77-78 (Sea-Land's NVOCC customer Global Links); FF82 (Sea-Land's NVOCC customer Supertrans); FF90 (Sea-Land's NVOCC customer Brennan International); FF101-102 (Sea-Land's NVOCC customer Pan Pacific); FF107 (Sea-Land's NVOCC customer Morrison Maritime); FF110 (Sea-Land's NVOCC customer Jasper Freight; and FF115-116 (Sea-Land's NVOCC customer Pagoda Container).

BOE argues that Sea-Land's equipment substitution abuses were of significant competitive importance to Sea-Land and had detrimental competitive impacts upon the rest of the ocean common carrier and NVO community at the time; and that evidence of contemporaneous complaints from Sea-Land's carrier competitors as well as complaints from a competing NVOCC harmed by Sea-Land's continuing practice are in the findings of the Preliminary Ruling, citing FF171-172, 181, 185-187, 195-196.

BOE contends that Sea-Land's mindset of denial, both personal and corporate, compelled extended legal proceedings and demanded the personal appearance and testimony of numerous shippers, BOE investigators and former carrier employees, and that however the official policy of Sea-Land may be stated on paper, it did not in practice translate into effective measures to preclude equipment substitution abuses by the carrier and its employees.

On the basis of the facts and the evidence now admitted into the record, BOE urges the presiding officer proceed to penalize Sea-Land, in the most forceful terms, for its violations of section 10(b)(1), section 10(b)(4) and section 19(d) of the 1984 Act.

BOE contends that, in the absence of any record of mitigating circumstances, judgment should be entered against Sea-Land for these violations of the 1984 Act, and assess the maximum penalty appropriate under the Shipping Act and the legislative standards established thereunder.

Sea-Land states that it does not promote a sound and fair administration of the Act to advocate penalties so high that they have no nexus to fairness or past precedent; nor, Sea-Land submits, is it sound policy to advocate unjustified in terrorem penalties, apparently in the hope that the presiding Judge will adopt a "compromise," say, 25% or even 10% ($6,000,000 or $2,400,000)-still a penalty far in excess of any penalty in recent history.

Sea-Land states that BOE's intemperate proposal is not helpful in moving the process forward to a fair resolution; that, as the Commission has consistently recognized, the calculation of a civil penalty is an art, not a science; that judgment and fair play are essential, citing Alex Parsinia d/b/a Pacific International Shipping and Cargo Express, 27 S.R.R. 1335 (ALJ 1997), and Cari-Cargo International, Inc., 23 S.R.R. 1007 (ALJ 1986); and that the assessment of a penalty requires more than the use of a calculator; that its primary purpose is to promote deterrence and "future compliance" with the Act, citing 46 C.F.R. § 502.603.

Sea-Land alleges that the forwarder payments were nominal, consistent with industry practice, and of no commercial or regulatory significance; that, however, because BOE has urged such rigid and commercially unachievable standards governing forwarder payments and now advocates a $16,639,500 penalty for the small forwarder payments, the issue has been escalated; that, if BOE's approach is adopted, it would require a major industry change in forwarder payment practices and would threaten the payments themselves;⁽⁹⁾ and that imposing penalties on Sea-Land for forwarder violations would violate due process, is unduly harsh and would not promote compliance with the Act.

Sea-Land explains that the equipment substitution violations, on the other hand, fall into a different category; that violations of this type merit a penalty, but that the penalty, however, should be fair, consistent with past Commission penalty collections, and not more than necessary to promote future compliance with the Act.⁽¹⁰⁾

Sea-Land states that, ironically, BOE treats the forwarder issue more seriously ($16,000,000 penalty) than equipment substitution ($8,000,000 penalty); that this results from an undue emphasis on numbers and a failure to weigh the seriousness of the respective violations; that in BOE's approach, all violations are treated equally; that all merit the same maximum penalty; that this is not the law; and that the determination of the penalty amount is entrusted to the sound discretion of the Administrative Law Judge, and ultimately the Commission, to make a wise judgment based on a consideration of a number of factors.

An Overview

Sea-Land urges that careful consideration be given to the forwarder compensation issues, which now have consequences well beyond this proceeding; that the scope of BOE's proposal is so far reaching that it impacts settled forwarder practices across the industry; and that if BOE's approach is adopted-or even if it is not, but a penalty is assessed for practices that are allegedly common throughout the industry-not only will Sea-Land be unfairly victimized, it would throw industry forwarder practices into turmoil. In this regard, Sea-Land emphasizes six points:

Sea-Land argues that, first, the amount of forwarder compensation paid here was extremely small, about $18 on average. In evaluating the nature, circumstances, extent and gravity of a violation, Sea-Land contends that small amounts of money involved are recognized as a mitigating factor.⁽¹¹⁾

Sea-Land argues that, second, forwarder compensation payments generally, and particularly the nominal payments made by Sea-Land here, have no commercial or regulatory significance; that no one's conduct or business-ocean carrier, shipper or forwarder-is affected by these small payments, and that, in fact, Sea-Land did not even communicate with the two forwarders regarding the payments, let alone seek to obtain any quid pro quo for them.

Sea-Land urges that, third, the heavy compliance burden a penalty in this case would impose on ocean carriers generally allegedly is unachievable.⁽¹²⁾ Sea-Land argues that to require carriers to scrutinize hundreds of thousands of shipping documents and cancelled forwarder compensation checks to see whether there is a suspicious piece of evidence indicating that a forwarder's certification is inaccurate is to place an unrealistic and crushing burden on ocean carriers-all so that it can pay a small commission, and that the cost and burden of such a standard would likely result in ocean carriers eliminating payment of forwarder compensation altogether.

Sea-Land argues, fourth, that Sea-Land's forwarder compensation practices being attacked here are fully compatible in all respects with alleged standard industry practices, and that to penalize Sea-Land for paying forwarder compensation in accordance with alleged accepted industry practice is fundamentally unfair.

Sea-Land believes that, fifth, the primary regulatory purpose for imposing penalties, which is promoting future compliance with the Act, is not present here, and that Sea-Land is no longer subject to the forwarder regulatory scheme, so its future conduct cannot be influenced by any penalty. Sea-Land argues that if substantial penalties are imposed with the expectation that other ocean carriers will add a further level of personnel and cost to review voluminous forwarder payments, that expectation is misplaced, and that the result will not be increased policing of payments, but rather elimination of the payments entirely.

Sea-Land contends that, finally, since the present forwarder compensation rules were enacted in 1961, there has not been a single adjudicated case which has imposed a penalty on an ocean carrier for improper forwarder payments; that this is not coincidental; that the most direct and effective way, and the Commission's historical approach, to promote compliance with forwarder compensation rules is to address the party who has the relevant information, the forwarder; and that ocean carriers cannot realistically or effectively enforce the forwarders' obligations under the Act. Sea-Land contends that that, however, is precisely what BOE seeks when, as here, it penalizes the carrier yet ignores the forwarder,⁽¹³⁾ and that the result would be no deterrence or compliance whatsoever. Sea-Land is of the view that the carrier cannot and will not accept this level of risk in order to pay a meaningless $10 commission, while the forwarder (the real party at fault) is not confronted and, hence, not deterred, and that BOE's strategy literally stands the compliance policy on its head.

Sea-Land Alleges That Its Forwarder Compensation Practices Conformed to Industry Standards, and That Penalties for Such Conduct, Not Previously Believed Unlawful, Would Not Only be Unjust, They Would Violate Due Process

Sea-Land contends that its forwarder payments were done in accordance with accepted industry practices and the Preliminary Ruling finding them unlawful is an unexpected and novel interpretation of the Act and the Commission's regulations.⁽¹⁴⁾

Sea-Land points out that when there is no clear prior guidance that conduct is unlawful, an agency is precluded from imposing penalties by due process of law as well as the Administrative Procedure Act, citing General Electric Co. v. E.P.A., 53 F.3d 1324, 1328-9 (D.C. Cir. 1995) ("General Electric"), and Trinity Broadcasting of Florida, Inc. v. F.C.C., 211 F.3d 618, 628 (D.C. Cir. 2000).

Sea-Land states that the principle is succinctly stated by the Court of Appeals as follows:

In General Electric Co. v. EPA, 53 F.3d 1324, 1328, 1333 (D.C.Cir. 1995), we held that, because "[d]ue process requires that parties receive fair notice before being deprived of property," the Environmental Protection Agency ("EPA") could not penalize General Electric for asserted regulatory violations when General Electric lacked "fair warning of [EPA's] interpretation of the regulations." We made it clear that, "[i]n the absence of notice-for example, where the regulation is not sufficiently clear to warn a party about what is expected of it-an agency may not deprive a party of property," particularly when "the interpretation is so far from a reasonable person's understanding of the regulations that they could not have fairly informed [the regulated party] of the agency's perspective." Id. at 1328, 1330; see also Rollins Envtl. Servs. Inc. v. EPA, 937 F.2d 649, 652 n. 2 (D.C.Cir. 1991) ("[A] regulation carrying penal sanctions must give fair warning of the conduct it prohibits or requires.") (citation omitted); id. at 654 n. 1 (Edwards, J., dissenting in part and concurring in part)"

Sea-Land emphasizes that the court made clear that this "no punishment without notice" rule also applies in a "civil administrative context," General Electric, at 1329; that, even if the agency decision is upheld on the merits, no civil "fine" may be imposed unless the interpretation is "ascertainably certain" from the regulations, Id. at 1330; and that the Commission follows the same principle, citing Prudential Lines, Inc. v. Farrell Lines, Inc., 22 S.R.R. 826, 849 (ALJ 1984; administratively final, 1984); and Jorge Reynoso Import and Export Co.-Possible Violation of Section 44(a), Shipping Act, 1916, 22 S.R.R. 1558, 1568 (ALJ 1985; administratively final, 1985).

Sea-Land states that there was no precedent or fair warning that Sea-Land would be deprived of the "safe harbor" of the certification by the forwarders' "stamp" endorsement or its failure to insert its forwarder license number in the certification, or that it would be expected to undertake an independent investigation of the legality of the payments, despite receiving a certification, simply because it had no forwarder contact, the shipper and forwarder had common fax numbers, etc., etc. Sea-Land states that this is particularly unexpected because: (i) Sea-Land was allegedly following accepted industry practices; (ii) the Commission has never, since the forwarder rules were adopted 40 years ago, provided any guidance on these issues; (iii) the Commission has never formally penalized an ocean carrier for any of these practices in a litigated case; and (iv) the 1984 changes in the law were a sweeping liberalization of the payment procedures, making it all the more unexpected and unforeseen that the Commission would reverse course and hold Sea-Land to such stringent standards of what constitutes knowledge of illegality by forwarders.

Sea-Land Contends That it Reasonably Believed That Its Understanding of Forwarder Compensation Requirements Was Consistent With the Act and the Commission's Rules as Revised in 1984

Sea-Land states that even if the Preliminary Ruling's approach to carrier obligations with respect to forwarder certifications is upheld by the Commission, which Sea-Land will contest, it reasonably believed that its practices were consistent with existing law; that in 1984, both Congress and the Commission took specific steps to expand the use and protections of the forwarder certification and correspondingly relax the burdens and obligations on carriers paying compensation; that Congress eliminated the requirement that "Before any such compensation is paid" such person "shall certify" (Preliminary Ruling at 236); that the deletion of the prior certification requirement was designed to eliminate "onerous and counterproductive paperwork procedures" (Id.); that, in addition, the Commission changed its rules to allow for the certification to be placed on the endorsement of the forwarder compensation check (Id.); and that this allowed payments to be "better automated and less enmeshed in clerical procedures" (Id.).

Sea-Land contends that permitting the certification to be placed on the compensation check has certain obvious consequences; that it permits the carrier to rely on the fact that the check was cashed as satisfaction that the certification was provided; and that, if the check is not negotiated, there is no certification, but then there is no payment. Sea-Land states that, consistent with the elimination of the prior certification requirement, the check method also means that the carrier will not know how the certification was endorsed or completed until it receives the cancelled check a month or two after payment. Sea-Land believes that Congress and the Commission therefore added considerable flexibility to the process in the interest of making it less burdensome, and less demanding.

Sea-Land contends that, in contrast to the efforts of Congress and the Commission to streamline the system, the Preliminary Ruling does exactly the opposite; that, under the Ruling, Sea-Land is deprived of the "safe harbor" certification on technical grounds; that Sea-Land is required to examine hundreds of thousands of cancelled checks, and presumably required to seek repayment of these small amounts if there is a subsequent technical flaw in the endorsement; that Sea-Land is now required to compare addresses, fax numbers, bank accounts, and other shipment documentation to ensure proper $10 payments; and that this is precisely the type of system Congress and the Commission sought to avoid.

Sea-Land states that, in pointing out that the legal standard for carrier inquiry established by the Preliminary Ruling is at odds with the Act and the regulations, Sea-Land is not at this time rearguing the merits of the Ruling, although it disagrees with it; that it points this out during the penalty phase because, even if the Ruling is upheld, such an unexpected interpretation of the law cannot, without fair warning, serve as a basis for penalties, citing General Electric, 53 F.3d 1324, 1328-9.

Sea-Land Argues That the Fact That Sea-Land's Forwarder Compensation Payments Were Consistent With Industry Practice is Further Evidence That it Could Not Have Anticipated the Preliminary Ruling

Sea-Land Contends That the "Stamped" Check Endorsement is Industry and Uniform Commercial Code ("UCC") Practice

Sea-Land contends that the "stamped" check endorsement is industry and Uniform Commercial Code ("UCC") practice. Sea-Land points out that certification endorsements on the back of the compensation check are specifically authorized by the Commission's Regulations (CO Ex. 13, § 510.23(c)) and allegedly are the most common method of providing certification; that it is the industry norm-as it is in most businesses, generally-for a forwarder to stamp its endorsement on the back of the check, not have it done manually. Sea-Land questions how, then, could Sea-Land possibly know that when the Commission regulations authorized using "an endorsement on the carrier's compensation check," that it did not include the allegedly standard industry practice of endorsement by stamp, but rather was limited to the rarely used signature endorsement?

Sea-Land further contends that it can scarcely have known that the requirements to which it would be held would conflict with accepted practices governing negotiable instruments as set forth in the UCC, in which Section 3-401(b) of the Code states that:

A signature may be made (i) manually or by means of a device or machine, and (ii) by the use of any name, including a trade or assumed name, or by a word, mark, or symbol executed or adopted by a person with present intention to authenticate a writing.

that comment #2 to section 3-401 clarifies that:

A signature may be handwritten, typed, printed or made in any other manner. It may be made by mark, or even by thumbprint.

and that courts have cited comment 2 to Section 3-401 with approval, stating that "There is no particular way in which an indorsement is required to be made," citing Fairchild Industries, Inc. v. United States, 620 F.2d 807, 811 (Ct. Cl. 1980).

Sea-Land notes that the Preliminary Ruling also finds the check certifications inadequate because ITL and General Air did not understand or intend that their endorsement of the checks constituted a certification (Preliminary Ruling at 241). Sea-Land contends that, aside from the obvious difficulty that a carrier cannot possibly know the subjective intent of an endorsing forwarder, this position is also at odds with the UCC; that, as between the immediate parties, a negotiable instrument or an endorsement thereof is a binding "contract," citing 6 Ronald A. Anderson, Anderson on the Uniform Commercial Code, § 3-415.5 (1993); and that the "subjective intent" of an endorser is immaterial when not communicated and when the paper is not expressly conditioned on the basis of such intent, Id., § 3-414.8.

Sea-Land contends that the Preliminary Ruling conflicts with the Code on each of these points and that Sea-Land cannot be penalized for failing to anticipate that the Commission would interpret its endorsement requirement in a manner inconsistent with the UCC.

Sea-Land Argues That Inserting the Forwarder License Number in the Certification is Not Standard Industry Practice

Sea-Land points out that it was the forwarders, not Sea-Land, that failed to enter their FMC license numbers on the check endorsement, and yet BOE seeks to penalize only Sea-Land; that the correct license numbers were on the bill of lading instructions provided to Sea-Land, and placed on the bills of lading, for each transaction (Preliminary Ruling, FF275, 305); that this, too, conforms to industry practice; and that carriers generally do not review check certifications to see whether the forwarders inserted the number on the endorsement.

Sea-Land contends that, going one step further, presumably the legal requirement from the Preliminary Ruling is that Sea-Land should have reviewed all the tens of thousands of cancelled checks-all of which are received a month or more after the payment-and when it saw the license number was not entered (even though the forwarder had a valid license), it should have either sought the number from the forwarder-which it already had-or return of the $10. Sea-Land argues that if this is the requirement, and again its purpose seems dubious, certainly it is unprecedented and unanticipated, and cannot support a penalty.

Sea-Land States That it Relied on the Forwarders' Certification, in Accordance with Industry Practice, That They Performed Requisite Services

Sea-Land states that it is admittedly impermissible for a forwarder who has not performed the requisite services to receive compensation, and it is also now equally clear, as admitted by the two forwarders involved here, that they did not perform the services despite their stamped endorsements to the contrary on the check certification.

Sea-Land states that, thus, the only question is whether Sea-Land had adequate notice of the demanding new standard urged by BOE (and seemingly adopted in the Preliminary Ruling) which requires that Sea-Land should have independently investigated the facts behind the certifications provided in 1996 and 1997; that the Preliminary Ruling holds that Sea-Land could not rely on the certification because it should have known that the forwarder did not perform the services. Sea-Land queries, how did it "know"? Sea-Land states that, apparently, Sea-Land knew or should have known because the booking or other correspondence, faxes, etc., came from the shipper, not the forwarder (Preliminary Ruling at 243). Sea-Land argues that, if this were "knowledge," it would have required some detective work-of the type not typically undertaken in the industry-for Sea-Land to make the determination.

Sea-Land points out that the Preliminary Ruling, in fact, found that receipt of shipping documentation from shippers did not mean a forwarder had not performed services (SL109):

Sea-Land often received shipping instructions or other shipper documentation directly from a shipper, even when a freight forwarder was involved. The services performed by forwarders varied, and Sea-Land was not always informed of what services the forwarder performed with respect to a shipment. [Emphasis supplied by Sea-Land.]

citing also Sea-Land Ex. 2, ¶ 18.

Sea-Land states that, in this regard, the booking system on the World Pacific and General Ocean shipments in question would not have appeared unusual to most carriers; that frequently a forwarder prepares the booking but may use the shipper's fax or phone; that this may be because it uses the shipper's facilities (which small forwarders do), or it may be because of a more formal "in-plant" arrangement; and that the Commission is well aware of the "increasing use of in-plant forwarders," i.e., arrangements "whereby a freight forwarder places its own employee in the office or plant of the client shipper," citing Impact of Modern Technology on Freight Forwarding Industry, 28 S.R.R. 418, 419 (FMC 1998).

Sea-Land points out that, to address the increasing use of in-plants, shortly after the events of this case the Commission adopted 46 C.F.R. § 515.41(e)(1), which permits "sharing of office facilities, personnel, furnishings, equipment and supplies," by shippers and forwarders.

Sea-Land states that even if the shipper makes the booking, that does not preclude the forwarder from legitimately receiving compensation; that under the Commission's regulations, as reflected in the certification language, confirming the availability of space entitles the forwarder to compensation even if it did not book the cargo (CO Ex. 13, § 510.23(c)); and that carriers do not generally keep track of forwarders' calls confirming bookings, so a carrier would only know if that had been done from the forwarder's certification.

Sea-Land states that it may be that the Commission will agree that every time a shipper books the cargo, and the shipper is the contact, or there are common fax numbers, the carrier must undertake an independent investigation before payment of a $10 or $18 commission. Sea-Land argues that, for purposes of the penalty issue, however, the pertinent fact is that this would be a sharp departure from existing practice, quite literally, requiring untrained booking clerks to make judgments based on isolated clues found in thousands of documents as to whether forwarder payments may or may not comply with the Shipping Act, and that Sea-Land should not be penalized for paying compensation in accordance with alleged industry practice.

Sea-Land Contends That it Followed Industry Practice on the Affiliation Issue

Sea-Land notes that the Preliminary Ruling found a violation by Sea-Land for paying compensation to a forwarder who turned out to be affiliated with the shipper. Sea-Land states that, while it is clear that forwarders affiliated with shippers are not permitted to collect compensation, the issue for penalty purposes is whether Sea-Land had fair notice of how this principle would be applied to it.

Sea-Land states that the name of the forwarder here, General Air Freight, was given to Sea Land by General Ocean, Preliminary Ruling, FF321; that the compensation checks were later endorsed and cashed, containing the certification language that included a certification that the forwarder was unaffiliated with the shipper (Preliminary Ruling FF319); that it is doubtful that Sea-Land actually knew of any such affiliation; and that no one from Sea-Land so testified.⁽¹⁵⁾ Sea-Land states that the Preliminary Ruling, however, acknowledges that virtually all of the compensation checks were sent to the address of the forwarder General Air Freight, not General Ocean Freight, FF299. Sea-Land argues that, thus, even assuming in hindsight that there was some evidence that Sea-Land could have pursued to determine an affiliation, it would have taken some detective work; that requiring such investigation, which carriers do not do because they rely on the statement in the forwarder's certification that there is no affiliation, is a new and far more demanding standard; that Sea-Land was not aware in 1996-97 that this was expected of it; and that, hence, this standard cannot now be used to impose penalties for past conduct.

Sea-Land States That No Forwarder Payments Are Documented After ITL's License Revocation

Sea-Land states that it paid ITL total forwarder commissions of $4,936.95-or $18.63 per shipment-on 235 shipments in 1996 and 1997; that ITL's license was revoked on April 1, 1997 and the revocation was published in the Federal Register on April 23, 1997 (Preliminary Ruling, FF278-279); and that there are documents in the record for only 46 of ITL's shipments-and all 46 occurred before the April 23, 1997 notice of revocation (Preliminary Ruling, FF265; BOE Ex. 2, Attachments D-H).

Sea-Land states that there are two points which must be weighed in determining whether any penalty is appropriate for Sea-Land's failure to catch the revocation of ITL's license; that, first, it is difficult to maintain a current list of the constantly changing 2,175 FMC licensed forwarders and that it is for this reason, among others, that it is industry practice for an ocean carrier, when it commences doing business with a forwarder, to verify its license (as Sea-Land did here) but not to do a daily check to see what changes are made in the some 2000-plus licenses issued by the Commission; that, second, while there is some general testimony, there is no specific ITL shipment mentioned, documented, or proved after April 23, 1997; that, since there is no evidence in the record of any specific ITL shipment after April 23, 1997, there can be no finding on the number of such violations after the revocation of ITL's license; that, without the number of such violations, there can be no penalty; and that the Act provides for penalties for "each violation" (46 U.S.C. app. § 1712(a)), of which there is no evidence after April 23, 1997.

Sea-Land Contends That Penalties for Forwarder Compensation Violations Would be Unjust and Would Not Promote Compliance With the Act

Sea-Land contends that wholly apart from due process, there are a number of significant factors that weigh heavily against any assessment of penalties, e.g., (1) the small dollar amounts involved, (2) the lack of commercial significance, i.e., no one's conduct was affected by the payments, (3) lack of injury, (4) the lack of prior cases or instructive guidance on the newly-announced limited scope of the safe harbor, and (5) compatibility of Sea-Land's practices with industry standards, and that all of this makes any penalty unjust.⁽¹⁶⁾

Sea-Land states that, apart from the unjustness, the critical focus should be on implementing the most basic purpose of the penalty provisions-deterrence and promoting compliance with the Act, 46 C.F.R. § 502.603; that, in this case, penalties simply will not promote compliance by ocean carriers; that, because the payments are so small, serve no real purpose, and do not promote the carriers' interests, there is a third option-discontinue the payments; and that imposition of rigorous review and investigating responsibilities on carriers would result, not in compliance, but elimination of forwarder payments.

Sea-Land states that in the final analysis, these forwarder practices are issues of first impression and of significance to the industry, and that if they are to be addressed by the Commission, for the first time in 40 years, it should do so carefully, with all the facts and full industry participation, not in the context of a narrow penalty proceeding against one carrier who paid a total of $6,681.15 in commissions, who followed alleged industry practices in paying them, and who left the industry years ago.⁽¹⁷⁾

Because of Mitigating Factors, Sea-Land States That it Should be Assessed a Meaningful but Not Excessive Penalty for the 149 Violations of Sections 10(b)(1) and 10(b)(4)

Sea-Land states that although it disagrees with the finding in the Preliminary Ruling that Sea Land violated sections 10(b)(1) and 10(b)(4) on 149 shipments during 1996-98, for the purpose of its reply brief it assumes, without prejudice, the finding's correctness, and goes on to address the appropriate penalty for those violations. (See also footnotes 10 and 14 herein.)

Sea-Land understands that civil penalties are provided for under the Shipping Act and are a part of the Commission's regulatory regime, and that a penalty is appropriate for this type of violation, and that the only question is the appropriate amount of the penalty.

Sea-Land states that in determining the proper penalty for the equipment substitution violations found in this case, an orderly procedure should be followed consistent with prior Commission precedent; that one should consider all mitigating factors set forth in section 13(c) of the Shipping Act, which include the nature, circumstances, extent, and gravity of the violations committed, deterrence and future compliance with the Commission's rules and regulations and applicable statutes, respondent's degree of culpability, history of prior offenses, ability to pay, and such other matters as justice requires.

Sea-Land states that, contrary to BOE's contention, a number of mitigating factors apply in this case; that one should recognize that, as the Commission has noted, the assessment of penalties is not an exact science, citing Alex Parsinia d/b/a Pacific International Shipping and Cargo Express, 27 S.R.R. 1335, 1340 (ALJ 1997). Sea-Land states that one important factor consistently considered by the Commission is the amount of penalties issued in other cases; that, indeed, it would be arbitrary and capricious to assess a penalty that was out of line with similar penalties imposed by the agency; and that the Fourth Circuit has held that while penalties assessed by an administrative agency need not be uniform, "excessive variance, something more striking than 'mere unevenness,' would be evidence of arbitrary or capricious action," citing Cross v. United States, 512 F.2d 1212, 1217 (4^th Cir. 1975), and Cari-Cargo International, Inc. Jorge Villena and Sea Trade Shipping, 23 S.R.R. 1007, 1020 (ALJ 1986), where Judge Kline observed that while uniform penalties are not required, "too drastic a departure from a pattern may constitute arbitrary and unfair action." Sea-Land states that, clearly, the penalty in this case should not be out of line with other assessments.

Sea-Land urges that the approach recommended by BOE should not be adopted; that Sea-Land should not be penalized twice for the same transaction; that in its calculation of the maximum penalty, BOE calculates separate penalties for the 149 violations of section 10(b)(1) and the 149 violations of section 10(b)(4);⁽¹⁸⁾ that the sections 10(b)(1) and 10(b)(4) violations arose from precisely the same 149 shipments; that, moreover, a section 10(b)(1) violation is effectively a prerequisite for a section 10(b)(4) violation-it is not possible to violate section 10(b)(4) without charging a rate not in accordance with the applicable tariff or service contract; and that, thus, a violation of section 10(b)(1) is essentially a "lesser included offense" and it is functionally the same as a violation of section 10(b)(4).

Sea-Land states that it has been unable to find any case support or precedent for penalizing a respondent twice for the same conduct; that in some cases NVOCCs have been penalized once under section 10(a)(1) for misdeclaring to its carrier and separately under section 10(b)(1) for charging its own customer a non-tariff rate, but those are separate transactions with two different parties; that, here, Sea-Land had only 149 transactions with identified NVOCCs; that no cases have been cited as precedent for double penalties in this situation; and that, thus, the maximum penalty here is significantly less than represented by BOE.

Sea-Land contends that one should not presume that the maximum penalty should be assessed, and then use any mitigating factors to work down from the maximum; that this is not how the assessment process has traditionally been approached;⁽¹⁹⁾ that, rather, the Commission has considered the mitigating factors as part of the process of determining a reasonable penalty in light of other penalties that have been assessed; that due consideration must be given for the range of penalties that have been assessed for comparable violations in the past; that, as described in Alex Parsinia d/b/a Pacific International Shipping and Cargo Express, 27 S.R.R. 1335, 1340 (ALJ 1997):

The Commission must consider and weigh numerous factors set forth in section 13(c) of the 1984 Act and then quantify them into a precise number. The process is not scientifically accurate and involves judgment that is subject to criticism and second guessing. [Emphasis added by Sea-Land.]

Sea-Land Asserts That it Made Substantial Efforts to Remedy the Equipment Substitution Problem

Sea-Land states that at a corporate level, Sea-Land made numerous efforts to remedy the problem, even if those efforts did not prove entirely effective; that equipment substitution abuse was not Sea-Land company policy-just the opposite; that the Preliminary Ruling found that Sea-Land management made numerous efforts-involving several Sea-Land departments-to deal with the problem after each of the Neutral Body warnings; that the efforts to deal with the problem started with the first Neutral Body Investigation and continued through each one; that, in fact, the internal meetings occurred after the Neutral Body investigations at Sea-Land's offices, even before a formal letter was issued; that Sea-Land made an effort to obtain more complete backup documentation to support the information given by the shippers for the bills of lading during this period; that the Preliminary Ruling found that "Sea-Land obtained SEDs for virtually all equipment substitution shipments in the latter half of 1997 and 1998"; and that, in addition, "[o]n some equipment substitution shipments, Sea-Land also obtained backup documentation such as packing lists from World Pacific,"citing Preliminary Ruling, SL96.

Sea-Land states that it believed the SEDs to be generally accurate at the time because they are signed under threat of civil and criminal penalties; that even Mr. Gravitt acknowledged that while they are sometimes wrong, "yes generally they can be reliable"; that Mr. Gravitt (and the Administrative Law Judge) found the house bills of lading issued by the NVOCC to be more reliable ultimately in determining the weight and cube of the cargo in the container; that, however, Sea-Land did not have access to the NVOs' house bills of lading or other internal documentation at the time of shipment; and that, thus, Sea-Land's efforts to obtain SEDs on all shipments after it was made aware of an equipment substitution problem was a reasonable and meaningful attempt by the company to remedy the problem that had been identified.

Sea-Land states that another step Sea-Land took to mitigate the problem was to convince the TWRA group to disallow equipment substitutions on Freight All Kinds, or "FAK," shipments, which Sea-Land understood to be the major source of the problem, and that the Preliminary Ruling so found:

Sea-Land sponsored an effort within TWRA which resulted in July 1997 in prohibiting 20' equipment substitution on FAK shipments. CO Ex. 29; BOE Ex. 14, ¶ 9.

Preliminary Ruling, SL98. Sea-Land contends that such a step would have been inconsistent with a company that was making no effort to resolve the problem, and that the step also sought to address what was recognized to be not just a Sea-Land problem, but a problem for the whole industry, as many of the NVOCC witnesses affirmed.

Sea-Land states that its documentation department processed 8-10,000 shipments per week, and 149 violations over nearly two years averages less than two per week, and that Sea-Land's challenge in detecting and eliminating equipment substitution abuse from this volume of shipments becomes apparent.

Sea-Land contends that corporate policy against abuses of this type, coupled with its specific efforts to curb the equipment substitution problems once it became aware of them, are significant mitigating factors that should be taken into account in imposing a penalty for equipment substitution violations; and that these efforts moderate Sea-Land's culpability, as well as the nature, circumstances, extent and gravity of the violations committed.

Sea-Land Argues That an Excessive Penalty for the Equipment Substitution Violations Would Not Serve the Policies of Deterrence and Future Compliance With the Commission's Rules and Regulations and Applicable Statutes

Sea-Land Points Out That it No Longer Operates in the U.S. Foreign Trades Regulated by the Commission

Sea-Land asserts that a penalty here would have no deterrent effect on Sea-Land; that Sea-Land cannot engage in violations of either section 10 or section 19 of the 1984 Act, because it is not operating in regulated trades; and that Sea-Land publishes no tariff with equipment substitution or any other rules pursuant to the 1984 Act, and therefore by definition cannot permit a shipper to obtain transportation at a rate other than that in its published tariff, by unjust device or means or otherwise, or by abuse of equipment substitution or otherwise.

Sea-Land states that in Credit Practices of the North Europe-U.S. Atlantic Conference and the North Europe-U.S.A. Rate Agreement, Order of Discontinuance, 25 S.R.R. 576 (FMC 1989), the Commission dismissed a show cause proceeding when the respondent conferences presented evidence that the credit provisions at issue had been removed from their tariffs; that the Commission concluded, "[u]nder the circumstances, we are satisfied that no regulatory purpose would be served by continuing this proceeding," Id. at 577; that the Commission reached the same conclusion with respect to one respondent that had withdrawn the provisions in question from its tariff in Credit Practices of Sea-Land Service, Inc., 25 S.R.R. 1308, 1310 (FMC 1990); that in Marcella Shipping Co., Ltd., 23 S.R.R. 857, 870 (ALJ 1986), the presiding judge held that "[s]ubsequent elimination of wrongdoing can be considered as a factor in mitigation"; that, more recently, the Commission refused to penalize the Asia North America Eastbound Rate Agreement (ANERA), despite finding that ANERA had violated sections 3(21) and 8(c) of the Act and section 514.17(c)(2) of the Commission's regulations, because ANERA was no longer active; that the Commission noted that "the practice is no longer in use; that ANERA is no longer an actively operating management; that there are no ANERA service contracts for 1999," citing ANERA and its Members-Opting Out of Service Contracts, 28 S.R.R. 1215, 1231 (FMC 1999); and that the Commission determined "not to impose penalties on ANERA or the carrier respondents," Id.⁽²⁰⁾

Sea-Land contends that the case cited by BOE on this point (BOE's Brief at 21), Refrigerated Container Carriers Pty. Ltd.-Possible Violations of Section 10(a)(1) of the Shipping Act of 1984, 28 S.R.R. 799 (ALJ 1999), is inapposite; that in that case, where the respondent was no longer an active NVOCC because it was in bankruptcy, the issue of regulatory purpose was not considered; that the fact that the respondent no longer operated in the U.S. trades was only considered in the context of the "ability to pay" factor; that the issue of a penalty's deterrent value was not raised; and that, moreover, the Refrigerated Container Carriers case was very different from the present investigation, because the respondent therein had ignored the Commission proceedings entirely, and no mitigating factors were presented.

Sea-Land states that, like Sea-Land, TWRA, whose tariff was applicable in this case, no longer operates under the Commission's jurisdiction; that TWRA dissolved in 1999; and that, thus, there is no deterrent factor or regulatory benefit with respect to Sea-Land's or TWRA's equipment substitution practices or even more generally their adherence to tariff provisions.

Sea-Land contends that, even as to the industry as a whole, the regulatory benefits of penalties in cases such as this have been reduced by changes in the law and carrier operations; that the complaint in this case is that Sea-Land permitted shippers to obtain lower rates than those published in the TWRA tariff, through equipment substitution abuse; that, as the Commission's study on the effects of the Ocean Shipping Reform Act of 1998 ("OSRA") demonstrated, there has been a 200% increase in the number of service contracts and amendments since OSRA's enactment; and that in "The Impact of the Ocean Shipping Reform Act of 1998," Federal Maritime Commission, September 2001, at 18, the Commission noted:

NOI [Notice of Inquiry] commenters revealed that substantial portions of cargo shipped under tariffs prior to OSRA shifted to individual contracts. In certain of the major trade lanes, some shippers now are moving nearly 100 percent of their cargo under service contracts. This shift is due primarily to the confidentiality and flexibility achieved through individual contracts.

Sea-Land states that a carrier can now easily achieve exactly the same result found unlawful here-i.e., giving a shipper a secret lower rate-by simply entering into or adjusting a confidential service contract; that there is virtually no incentive today to discount public tariff rates covertly, because very few such rates exist; that the point is that Congress has now expressly sanctioned secret rates, in large part to help U.S. exporters protect sensitive commercial and contract information, citing S. Rep. 105-61, 105^th Cong., 1^st Sess. (1997) at 24; and that this is not to say that there is no purpose in penalizing tariff violations, but that the deterrent effect of any penalty in this case would be quite limited.

Sea-Land States That it Participated Fully in This Proceeding and Did Not Avoid its Discovery Obligations

Sea-Land contends that, in contrast to other cases in which substantial penalties have been assessed, Sea-Land has participated fully in this proceeding; that it has produced documents, put forth witnesses and affirmative documentation in support of its case, participated in all hearings and motions, and briefed the issues on the merits at length; and that it did not ignore or flaunt the Commission's procedures.

Sea-Land states that in discussing deterrence and future compliance, BOE argues that an aggravating factor in this case is "Sea-Land's attempt to evade responsibility and frustrate the administrative process" by its alleged "failure to respond fully and appropriately to discovery," BOE's Brief at 19. Sea-Land argues that this allegation (a) is not true, and (b) is not appropriately raised at this stage of the proceeding.

Specifically as to discovery, Sea-Land states that its personnel undertook a thorough and extensive search of its headquarters as well as numerous offices in the United States and throughout the world for responsive documents; that, as a result of the search, Sea-Land produced several thousand pages of shipment records and other documents to BOE in response to its discovery requests; and that no responsive documents that were found were withheld.

Sea-Land states that BOE has mischaracterized certain findings of fact from the Preliminary Ruling that note the limited number of various types of documents that were available from Sea-Land's discovery; that there was no finding that Sea-Land withheld or concealed documents in its possession or otherwise acted improperly, nor would any evidence in the record support such a finding; and that, in some cases, Sea-Land may not have followed its document retention policy, but it was not uncooperative or unresponsive in discovery.

Sea-Land argues that it is inappropriate for BOE to allege discovery failures at this stage of the proceeding; that if BOE believed Sea-Land was less than forthright in responding to discovery, the customary approach is to file a motion to compel or a motion for sanctions at the time; that BOE never did so; and that BOE therefore cannot make unfounded allegations "through the back door" in the context of the penalty phase of this proceeding.

Sea-Land States That it Has No History of Prior Offenses

Sea-Land states that BOE cites Sea-Land's November 1992 settlement with the FMC as a "recent history of prior offenses"; that, however, the 1992 settlement provided that Sea-Land did not admit any violations of law as part of the settlement; that the November 13, 1992 press release announcing the settlement (referred to in BOE Ex. 2) made clear that in the settlement agreed to by the Commission, "[t]he settling carriers did not admit to any violations of law"; and that the settlement was signed by BOE.

Sea-Land argues that it is therefore both inaccurate and improper to characterize this settlement as a prior offense; that, in fact, if Sea-Land had known the settlement would be cited as a prior offense, contrary to the provisions of the signed settlement agreement, it may have reconsidered settling claims of violations it did not acknowledge; and that it expects that carriers would have the same concerns if they knew settlements would be later cited as prior offenses for penalty purposes.

Sea-Land states that BOE also asserts that Sea-Land has somehow contravened its commitment to the Commission to "maintain an effective self-auditing and compliance program" because the Neutral Body penalized Sea-Land. Sea-Land states that this is not correct; that BOE has placed no evidence in the record as to the nature of Sea-Land's alleged commitment, and that the Neutral Body decisions prove the opposite of what BOE contends-the policing program was effective in raising the equipment substitution issue with Sea-Land and other carriers in the trade.

Sea-Land contends that for purposes of evaluating prior offenses, it is important to note that the Neutral Body assessments were also settlements; that Sea-Land did not admit violations in settling those allegations; and that, at the same time, those audit findings were used, as the Neutral Body findings are intended to be used, not as findings of violations of the Shipping Act but as guidance on possible malpractices that need to be addressed, which is why Sea-Land instituted its remedial procedures discussed at length earlier.

Sea-Land Argues That the Active Participation of the NVOCCs Moderates Sea-Land's Culpability

Sea-Land argues that the extent of Sea-Land's culpability is mitigated by the active complicity and participation of the NVOCCs in carrying out and promoting equipment substitution abuse; that in terms of promoting misuse of equipment substitution, it cannot be accurately measured how many of the 149 shipments would not have occurred had the NVOCCs not actively promoted the malpractices among themselves; and that what is undisputed is that they did so. Sea-Land states that the NVOCC witnesses made very clear that NVOCCs were telling other NVOCCs about equipment substitution abuse; that it was other NVOs, not Sea-Land, that were initially responsible for abuses by the two NVOCCs that were most involved; that World Pacific, which was responsible for 31 of the 149 shipments and whose activities touched off the Commission's investigation, did not originally find out about equipment substitution misuse from Mr. Favor or Sea-Land, quoting from the Preliminary Ruling, Finding SL78:

World Pacific first learned of Sea-Land's practice from World Pacific Container Line in Hong Kong, its destination agent for U.S. export shipments. Tam Tr. 41 ln10 - 43 ln12. The abuse was such a widespread practice among NVOCCs that "Everyone knows the policy with respect to 'equipment substitution' and it is such a large industry practice that no one needs to say anything about it." BOE Ex. 3, page 4.

that it was only after that initial contact that World Pacific discussed with Mr. Favor how to implement equipment substitution, Id.; that, similarly, Global Links Express, which accounted for 79 of the 149 shipments, "heard of Sea-Land's equipment substitution practice through sources such as General Ocean and Pagoda . . .," Preliminary Ruling, SL79; and that, while Global Links subsequently confirmed the arrangement with Mr. Favor, Id., it has not been shown that either World Pacific or Global Links would have found out about or used equipment substitution in the first place, or at least not as early as they did, had it not been for the contacts from other NVOCCs.⁽²¹⁾

Sea-Land states that these NVOCCs admitted to repeated dishonesty; that they admitted under oath to providing false information on bill of lading instructions submitted to Sea-Land in order to obtain more favorable rates, a prima facie violation of section 10(a)(1) of the Shipping Act; that they also apparently falsified information on packing lists and SEDs, the latter of which subjected them to criminal penalties, and provided false information on the participation of freight forwarders in the shipments; and that, as the Preliminary Ruling found at SL43:

Although they have admitted under oath that they knowingly misdeclared information to Sea-Land and other carriers for the purpose of obtaining a lower rate than would be applicable under the tariff, none of the NVOCCs has yet been penalized by the FMC or yet been given a notice of a penalty or other proceeding for a violation of the Shipping Act while the present proceeding is pending. . . .

that the statute of limitations has now run on many of the NVOCCs' violations; and that, in other words, BOE is taking the position that Sea-Land should shoulder 100% of the penalty burden for activities for which Sea-Land was one of two parties involved.

In response to BOE's allegation (BOE's Brief at 22-23) that Sea-Land's equipment substitution practices had adverse competitive effects on competing NVOs and carriers, Sea-Land contends that the fact that numerous members of the NVOCC community were involved in the practice, with many carriers in addition to Sea-Land, contradicts any potential competitive harm; that there is extensive testimony that equipment substitution abuse was widespread with other carriers besides Sea-Land; that the World Pacific witnesses testified that "all other carriers are involved in this practice," BOE Ex. 3, 4; that Simon Wu of General Ocean Freight testified, "I also understand that all other carriers serving the U.S. export trade were engaged in similar practices as Sea-Land," BOE Ex. 5; and that Dean Chang of Pagoda testified, "My friends assured me that all of the carriers knew about the misuse of the equipment substitution rule and would not pay any attention to the quantities of cargo described on their bills of lading," BOE ex. 8, ¶ 2.

Sea-Land contends that it is clear that Sea-Land did not benefit from equipment substitution to the exclusion of other carriers; that, indeed, because of the extensive involvement of other carriers, it would be unfair to penalize Sea-Land disproportionately; and that it is also important to recognize that it was Sea-Land who took the lead in trying to clean up this practice industry-wide by prohibiting equipment substitution on FAK cargo, Preliminary Ruling, SL98.

Sea-Land notes that BOE alleged that in determining a penalty amount for equipment substitution, other shipments beyond the 149 found to be in violation should be taken into account, and that these shipments had competitive impacts, based on contemporaneous complaints of such harm by Sea-Land's competitors and NVOCCs. Sea-Land argues that these complaints are all hearsay and they are made to a large extent by competitors of Sea-Land, with no confirmation of their veracity; that it would be inappropriate to take these shipments into account; that the number of such shipments is wholly speculative; that it is unclear how many, if any, of such shipments involved abuse of equipment substitution; that none of the other shipments have been proven by substantial evidence to be in violation; that, moreover, it is clear from the record that many equipment substitution shipments with Sea-Land were not in violation; that BOE investigator Mr. Gravitt testified that he did not find violations on over a third of the shipments he examined; that the testimony of some of the NVOs made clear that not all their equipment substitution shipments were misdeclared, citing, e.g., Sehwani Tr. 62 ln6 - 9; Tam Tr. 36 ln15 - 20; and that one should not go outside the violations found in the Preliminary Ruling to increase the penalty amount.

Sea-Land States That Justice Would be Served With a Penalty in the $500,000- $600,000 Range for the Equipment Substitution Violations

Sea-Land contends that the range of penalties that have been paid to the Commission over the past 10 years for violations of the Act-most of which have been section 10(b)(1) and (4) cases-is helpful and instructive in setting a fair penalty here. Sea-Land states that, in all, 225 penalties were collected during the past 10 years; that the average penalty collection ranges from a low of $27,280 in 1995 to a high of $169,095 in 1999; that one penalty above $1,000,000 ($1,850,000 in 1999) was collected; that three other penalties above $500,000 were collected ($925,000 in 2000, $802,477 in 1999, and $550,000 in 1998); and that the remaining 221 penalties collected were $500,000 (in one case) or below.

Sea-Land notes on pages 10-11 of BOE's Brief, that BOE has cited some cases which have assessed huge penalties, ranging from $650,000 to $2,117,500;⁽²²⁾ that in each of these cases, the respondents (who usually committed particularly egregious and repeated violations) ignored Commission procedures, did not respond to the complaints and/or discovery, and offered no mitigating factors; that these respondents were assessed massive penalties with the recognition that the likelihood of collecting the penalty was nil (and the amounts of the collections show that, with the exception of one $50,000 collection, none of these penalties has been collected); and that these penalties were also assessed without any indication of what mitigating factors might have been applicable if the respondents had come forward.

Sea-Land asserts that default cases, where only one side of the case is presented and where part of the penalty is because the respondent has ignored and flaunted Commission procedures, have limited precedential value and should not govern the assessment of the penalty in this case, because Sea-Land fully participated in all phases of this case, and in the default cases where the presiding judge or Commission was comfortable in assessing maximum penalties, the maximum was nowhere near $25,000,000; that, in those cases, the maximum was in the $500,000 - $1,500,000 range; and that it is noteworthy that Judge Kline did not give a second thought to the "astronomical" statutory maximum penalty of $36 million in Kin Bridge, 28 S.R.R. at 993.

Sea-Land states that, in addition to the default cases, BOE has cited another recent case, Stallion Cargo, Inc.-Possible Violations of the Shipping Act of 1984, 29 S.R.R. 665 (FMC 2001); that the Stallion case is similar in practical terms to the default cases discussed above; that although the respondent participated in the case, it was quite clear that the Commission knew that when it imposed a penalty of $1,340,000 that the penalty would likely never be collected; that in Stallion, the respondent NVOCC had misdescribed cargo to two ocean carriers and had failed to charge its tariff rates to its own customers on numerous occasions; that the Administrative Law Judge assessed a penalty in the amount of $50,000 after consideration of the applicable factors; and that the Commission held that the Administrative Law Judge had relied too heavily on the "ability to pay" factor, and increased the penalty to $1,340,000.

Sea-Land argues that the Stallion case is markedly different from the current case in a number of respects; that the violations in Stallion were particularly flagrant; that Stallion continued violating the law for nearly a year after the FMC issued its formal notice of investigation, and in fact the violations may have continued even longer; and that, in addition, the respondent in Stallion was still actively in business and was still a current threat to violate the Shipping Act. Sea-Land points out that, in its decision, the Commission distinguished another case, David P. Kelly and West Indies Shipping & Trading, Inc.-Possible Violations, Joint Request to Approve Settlement Granted, 29 S.R.R. 46 (2001), based on the fact that Stallion was still in business while Kelly had not been, and that based on the combination of the above factors the Commission stated:

Assessing a civil penalty to deter future violations is of particular importance here, as Respondent has not readily demonstrated its willingness to comply with the Shipping Act.

that this is in direct contrast to Sea-Land's situation, where (a) the latest of the 149 equipment substitution violations occurred before the FMC investigation started on April 24, 1998, and (b) Sea-Land is not currently in the international business regulated by the Commission, and cannot violate the Shipping Act, making deterrence a non-issue for Sea-Land; and that, in sum, any civil penalty imposed on Sea-Land should be significantly less than that imposed on Stallion.

Sea-Land, therefore, proposes that a fair penalty for the equipment substitution violations in this case would be $500,000 - $600,000. Sea-Land contends that this would strike a balance between (a) the lower amounts of penalties that have actually been collected in the last 10 years (i.e., yearly averages from $27,280 to $169,095, with the vast majority well below $500,000), and (b) the higher amounts assessed in reported default decisions ($650,000 - $1,450,000) where there were no mitigating factors and the respondent was not likely to pay the penalty.

For all the foregoing reasons, Sea-Land urges the Administrative Law Judge to (i) assess no civil penalty for the forwarder compensation violations, and (ii) assess a civil penalty in the $500,000 - $600,000 range for the violations relating to equipment substitution.

BOE contends that by asserting that the Commission has been "unclear" as to its expectations of carrier compliance and oversight of payments made to freight forwarders, Sea-Land would recast itself from its role, so found in the Preliminary Ruling, as one of reckless indifference whether the carrier compensated forwarders in exchange for any forwarding services actually provided in the dispatch of Sea-Land's shipments, to the status of regulatory naif, whereby Sea-Land was unaware and altogether unassuming as to the consequences of its actions.

BOE contends that this is not a situation where there was no "clear prior guidance" by the Commission as to a carrier's statutory obligations; that in 1961, the agency explicitly dealt with carrier compensation practices; and that the Federal Maritime Board's descriptions in Freight Forwarder Investigation, 6 F.M.B. 327 (FMB 1961), fit to a "T" the system employed by Sea-Land during the period at issue here:

. . . The carriers insist that they rely primarily upon the fact that a particular forwarder is registered with the Board, that it is impossible for them to inquire into any possible relationships of forwarders with the shipper and an onerous burden would be imposed on them were they to be required to ascertain whether the forwarders actually performed any services on shipments on which brokerage is claimed, in view of the great number of shipments handled by the forwarders.

With the recent development of machine accounting systems, several carriers have instituted an automatic method of payment of brokerage. Under this method, all bills of lading showing on their face that a registered forwarder is in any way connected with the shipments are collected together, information showing the name of the forwarder, the bill of lading number, and the ocean freight charges are transcribed to machine records, computations as to the amount of brokerage due are automatically made and checks issued to the forwarders, all without requiring the forwarders to submit any claims or invoices for brokerage. This automatic method of payment results in cost savings to the carriers, in that it eliminates the necessity of checking numerous forwarder invoices against carrier records, and it is regarded by some as a competitive device in that it results in more prompt payment of brokerage to the forwarders.

. . . In the case of automatic brokerage payments, the checks of the carriers include a similar certification as a part of the endorsement, which must be executed by the forwarders when negotiating the checks. The record leaves little doubt that these certificates are executed indiscriminately by the forwarders, and that the present regulation and the certificates are ineffective in preventing rebates, direct or indirect, in cases where the forwarders provide services free of charge to their shipper clients, as in American Union Transport v. River Plate & Brazil Confs., supra [5 F.M.B. 216 (1957)], upheld in American Union Transport v. United States, 257 F.2d 607 (1958), cert. den. 358 U.S. 828, or in cases where there is an identity of interest between a particular forwarder and his shipper clients, as in Samuel Kaye-Collection of Brokerage/Misclassification, supra [5 F.M.B. 385 (1958)], and Luis (Louis) a Pereira-Collection of Brokerage, supra [5 F.M.B. 400 (1958)].

The Committee is disturbed by the apparent widespread practice of automatic payment of brokerage commissions to registered forwarders irrespective of the services that they may or may not have performed. Consequently, in view of the testimony on this point, we believe that appropriate legislation is required. . . . Accordingly, we are convinced that an orderly system of licensing is needed under which reasonable rules and regulations shall be prescribed aimed at (1) the preclusion of undesirable applicants from engaging in the business of forwarding, and (2) the elimination of "automatic unearned brokerage fees."

Investigation Into the Activities of Foreign Freight Forwarders and Brokers. BOE states that underlining these Congressional concerns, the Commission has uniformly placed upon the carrier the burden to collect this signed certification from the ocean freight forwarder as a condition of making payment and made clear that a carrier cannot make payment if the carrier knows the certification to be incorrect, citing 46 C.F.R. § 515.42, formerly 46 C.F.R. § 510.23; that, thus, neither the compliance standards nor indeed the specific carrier practices at issue here may be said to be either novel or otherwise lacking in "clear prior guidance."

BOE urges that absent a showing of ambiguity or unreasonable result, the literal language of the Commission's forwarder certification regulations must control, citing U.S. v. Tenzer, 127 F.3d 222, 227 (2d Cir. 1997), cert. denied, 523 U.S. 1096 (1998), wherein the Court of Appeals expressed the rule as follows:

As with statutory interpretation, we interpret this agency policy in accordance with the plain meaning of its words, unless such a reading "will produce a result demonstrably at odds with the intentions of its drafters." [Citations omitted by BOE.]

and comparing U.S. v. Lin, 101 F.3d 760, 765-66 (D.C. Cir. 1996) (holding that "absent ambiguity," resort to legislative history "is not only unnecessary but improper"), citing U.S. v. Yunis, 681 F. Supp. 896, 904 (D.D.C. 1988); Vaughn v. Sullivan, 83 F.3d 907, 910 (7^th Cir. 1996) ("[U]nambiguous statutory text prevails over arguments based on statutory purpose or history . . ."); Nat'l Ass'n of Regulatory Utility Com'rs v. SEC, 63 F.3d 1123, 1126 (D.C. Cir. 1995). BOE argues that, in like fashion, "plain meaning" governs the interpretation of an agency regulation, citing Charles H. Koch, Jr., 3 Administrative Law and Practice, § 11.26[2] (2d ed. 1997).

BOE argues that the Commission's regulations are not ambiguous; that former section 510.23(c), now recodified as section 515.42(c), is emphatic in mandating that the forwarder shall sign a certification, and expressly providing the exact language necessary to constitute a valid certification; and that the regulation states in pertinent part:

Where a licensed freight forwarder is entitled to compensation, the forwarder shall provide the common carrier with a signed certification which indicates that the forwarder has performed the required services that entitle it to compensation. . . . The certification shall read as follows:

The undersigned hereby certifies that neither it or any holding company, subsidiary, affiliate, officer, director, agent or executive of the undersigned has a beneficial interest in this shipment; that it is the holder of valid FMC License No. [blank provided in original], issued by the Federal Maritime Commission and has performed the following services: . . . .

46 C.F.R. § 510.23(a) (emphasis added by BOE). Thus, BOE concludes that the plain language of the regulation requires a forwarder to sign a verbatim representation of the above certification, and that the certification, by its language, requires the forwarder to state that it is the holder of a valid FMC license by, inter alia, inserting its issued FMC license number in the blank space required to be provided in the form.

BOE contends that as the Preliminary Ruling reflects, the Commission's regulations are permissive only as to the location where the forwarder may place its certification, Id. at 240; that the forwarder certification form can be provided on the back of checks, in addition to bills of lading, a forwarder's summary statement, or forwarder's compensation invoice, Id.; that, however, the form of that certification does not vary based on its placement; and that there must be some affirmative certification that verifies the forwarder's performance of the required services.

BOE argues that in Sea-Land's Reply Brief on Penalties, Sea-Land seeks to amend former 46 C.F.R. § 510.23 to incorporate, by implication, banking provisions of the UCC dealing with negotiating commercial paper; that inasmuch as Sea-Land has failed to show the requirement for a signed certification to be ambiguous, there can be no basis to introduce testimony from extrinsic sources seeking to interpret, or re-interpret, that regulation.⁽²³⁾ BOE contends that parol evidence as to an informal "practice" is irrelevant in the face of the plain meaning of the regulation, and therefore inadmissible as evidence under the APA and the Commission's Rules of Practice and Procedure, citing 46 C.F.R. § 502.156.

BOE urges that the courts have applied the "plain meaning" rule even in the context of carrier tariffs; that in Gilbert Imported Hardwoods Inc. v. 245 Packages of Guatambu Squares, 508 F.2d 1116 (5^th Cir. 1975), the court specifically declined to permit introduction of custom in the industry for the purposes of varying a conference tariff rule; and that the court summarized its views as follows:

In conclusion, we observe that while evidence of custom and usage is very often an invaluable device for enabling courts and juries to interpret ambiguous contracts as the makers of the contract intended, that is not to say that this tariff is susceptible to a gloss based on extra-contractual evidence. Since the rate basis of a tariff must be unambiguous in order for the tariff fully to serve its anti-discriminatory purpose, it is only when the specifications of the tariff call for timbers of custom and usage that such beams may be incorporated into the rate structure. Congress has made tariffs strictissimi juris, and businessmen may not make them otherwise, even with tools of hoary tradition. If A & H desires a different rule than that set out in the tariff, it must secure an appropriate amendment of that document.

BOE contends that the Commission's regulations as to forwarder compensation specify that compensation may be paid to a forwarder only as "specifically provided for in the carrier's effective tariff(s)," 46 C.F.R. § 510.23(b), (d) and 46 C.F.R. § 514.15(b)(9) (1996 ed.) (requiring "clear and definite" statement of tariff rule as to payment of forwarder compensation); that, thus, not only must Sea-Land overcome the burden of demonstrating that the Commission's regulations as to forwarder compensation are ambiguous, it allegedly must demonstrate the TWRA's rule as to payment of such compensation (mandatory tariff rule 9) then embodied the "industry practice" of which Sea-Land speaks; and that Sea-Land did not make such tariff showing at the hearing on liability, nor has it done so in attempting to raise this issue untimely at the penalty stage.

BOE argues that, in essence, Sea-Land is asking the presiding judge to set aside the express language of the regulation and, so that it may gain exoneration from penalties for compensation activities knowingly and willfully committed, Sea-Land would have the presiding judge substitute, as acceptable regulatory practice, its opinion in the place of rulemaking test adopted by the Commission under the full requirements of the APA; that contrary to Commission regulation and rules as to interpreting carrier tariff rules strictissimi juris, Sea-Land would seek to short-cut that process to simply incorporate "industry practice" as the basis for an unwritten rule permitting forwarders to comply with the regulation by stamping "for deposit only" on the back of a compensation check, without more; and that the relief which Sea-Land seeks is beyond the effective power of the presiding judge to grant.

BOE states that in Sea-Land's Reply, it contends that, since Sea-Land did not admit violations of law pursuant to its settlement with the Commission in 1992, such fact may not be considered by the Commission as part of respondent's history of prior offenses, Id. at 38; that Sea-Land proffers no legal authority for this proposition; and that consideration of a respondent's prior history has long been recognized and accepted in the section 13 process of assessing civil penalties, both before the Administrative Law Judge and before the Commission itself.

BOE points out that in Kin Bridge Express Inc.-Possible Violations of Sections 8, 10(a)(1), 10(b)(1) and 23 of the Shipping Act of 1984, 28 S.R.R. 984 (ALJ 1999), BOE entered into the record evidence of a settlement by Kin Bridge Taiwan in 1991, and a 1995 settlement with the Federal Maritime Commission by Kin Bridge U.S.A., and that Chief Administrative Law Judge Kline entered specific findings as to such prior history, Id. at 989, and concluded that respondents' "breaches of their settlement agreements with the Commission can be considered as aggravating factors," Id. at 994. BOE also cites Banfi Products Corp., 26 S.R.R. 951 (FMC 1993) (where the Commission allowed the admission into evidence of settlement agreements and related evidence in subsequent litigation and concluded that barring such use "could negate the deterrent effects of those settlements" and "remove from the fact finding process evidence that may be highly relevant to issues in dispute," Banfi Products Corp., supra, 26 S.R.R. at 958.⁽²⁴⁾

BOE notes that Sea-Land has suggested that the "draconian unfairness" of BOE is evidenced by a proposed penalty "six times higher" than the highest penalty ever imposed; that Sea-Land does not disclose that the identity of that violator is Sea-Land; and that because of Sea-Land having raised this earlier penalty as relevant to the "fairness" of the penalty to be imposed herein, BOE believes such penalty should be considered as reflective of Sea-Land's history of prior offenses.

In its Opening Brief on Penalties, BOE cited as an aggravating factor Sea-Land's attempt to evade responsibility and to frustrate the administrative process, and states that Sea-Land now claims this assertion is untrue, and that BOE's claim is untimely because it was not raised earlier by way of a motion to compel or motion for sanctions; that, like the Preliminary Ruling, this issue has previously been decided adverse to Sea-Land; that the presiding officer concluded that Sea-Land's obligations as to discovery were independent of any order of compulsion:

Thus, [Federal] Rule 26 and the Commission's closely modeled Rule 201 clearly impose a broad requirement on parties to update their disclosures and discovery responses without awaiting an order of the court or the presiding officer. Both rules likewise apply to Sea-Land. (Order at 21.)

It is clear that the rules as to supplementary material carry their own mandatory requirement. Sea-Land's conduct in this regard cannot be condoned nor sanctioned.

(Order at 25; emphasis added by BOE.)

that Sea-Land's arguments therefore have been previously reviewed, and previously rebuffed; and that respondent's failure to respond fully and appropriately to discovery should be taken as an aggravating factor in determining the amount of penalty.

BOE states that Sea-Land next contends that Sea-Land's culpability is mitigated by reason of the active complicity of the NVOCCs participating therein. BOE contends that Sea-Land cannot now exonerate itself nor minimize its exposure to penalties by claiming greater culpability on the part of the involved NVOCCs utilizing Sea-Land's equipment substitution practices because, in an action predicated on a failure to comply with the published tariff, the "balance of equities" between carrier and shipper is not even to be considered, citing United States v. Seatrain Lines Inc., 370 F. Supp 483 (SD NY 1973), and cases cited therein; that, thus, whether the NVOCCs were aware of and participated in the misratings of cargo is irrelevant to the issue of the carrier's own responsibility under the statute; that the Commission has expressly found such evidence is "not necessary to the ultimate conclusions and rulings" with respect to such party's liability for violations incurred by reason of its own practices, citing American President Lines Ltd. v. Cyprus Mines Corporation et al., 26 S.R.R. 969, 974-75 (ALJ 1993), aff'd 26 S.R.R. 1227 (FMC 1994); that, rather, the presiding judge found specific evidence of Sea-Land's "egregious behavior" whereby the "concealment of the true weight and measurements of these shipments was initiated and sponsored by Sea-Land as its chosen method of capturing cargo and allowing lower rates for Sea-Land's NVO shipper accounts," citing the Preliminary Ruling, at 202; and that it was this "zeal in obtaining cargo" that establishes Sea-Land's degree of culpability for purposes of assessing penalties.

BOE contends that neither can Sea-Land claim to mitigate responsibility for its own unlawful actions by pointing to the actions or culpability of other carriers; that extenuating circumstances such as "meeting unfair competition of others doing the same thing is not relevant" under the statute, citing Rubin, Rubin & Rubin, 6 F.M.B. 235, 240 (FMB 1961); that Sea-Land asserts that, at the very least, it should be credited for "trying to clean up this practice industry-wide by prohibiting substitution on FAK Cargo"; and that here again, the Preliminary Ruling found to the contrary:

The equipment substitution rule was subject to abuse as noted by the Neutral Body, and effective July 18, 1997, Rule 2 G5 was amended to prohibit its use on FAK shipments. (CO Ex. 29, Bates Stamp 149; Hagan Tr. 64 ln17 - 68 ln11; Gravitt Tr. 1022 ln1 - 1024 ln2) The record shows that Sea-Land abuse of the equipment substitution rules continued after that date.

(Preliminary Ruling, at 195.) BOE concludes that to the extent Sea-Land sought an "industry-wide" solution to equipment substitution, it did so expressly without intention that such restrictions be applied to Sea-Land itself.

BOE states that of the four cases cited with respect to deterrence and future compliance, Sea-Land speaks only to one (Refrigerated Container Carriers Pty. Ltd., 28 S.R.R. 799); that Sea-Land asserts that, because the respondent NVOCC was in bankruptcy and no longer in active service, "The issue of a penalty's deterrent value was not raised." BOE answers that Sea-Land is mistaken; that Judge Kline stated:

Should the Commission fail to exercise its discretion to assess meaningful civil penalties, including the maximum allowed by law when there are few or no mitigating factors , on account of limited ability to obtain evidence on one of the factors set forth in section 13(c) of the Act, the message would go out to the regulated industry that it need not cooperate with BOE in the pre-docketed "compromise" discussions because no significant civil penalty would likely result if the matter moved into formal Commission proceedings and respondents decided to boycott the formal proceedings. (Emphasis added by BOE.)

(Refrigerated Containers Carriers Pty. Ltd., 28 S.R.R. 799, 805 (I.D., administratively final, May 21, 1999.) BOE points out that, likewise, in the decision in Kin Bridge Express Inc. and Kin Bridge Express (U.S.A.) Inc.-Possible Violations of Sections 8, 10(a)(1), 10(b)(1) and 23 of the Shipping Act of 1984, 28 S.R.R. 984, 993-94 (I.D., administratively final, August 2, 1999), the Administrative Law Judge stated:

The instant task is to fix civil penalties that will send a message of punishment and deterrence as regards these respondents who have disregarded U.S. law and chosen not to honor their promises made in their settlement agreements.

(Kin Bridge, supra, 28 S.R.R. at 994.) BOE also cites Universal Logistic Forwarding Co., 29 S.R.R. 325, 334 n.8 (ID 2001), adopted in part, 29 S.R.R. 474 (FMC 2002), rejecting reduction or suspension of penalty "because it would undermine the message of deterrence that should be sent to NVOCCs and others who choose to benefit by participating in a U.S. trade but treat with disdain U.S. laws."

In reply to Sea-Land's suggestion that this message may have application to others in U.S. trades, but should have no application to Sea-Land, BOE argues that such a stern message cannot be defeated by the insolvency of the respondent (as in Arctic Gulf Marine, supra), and that it cannot be defeated by the fact that respondent has abandoned service and no longer operates in U.S. trades (as in Refrigerated Container Carriers Pty. Ltd., supra), nor by the fact that other remedies have been implemented to prevent further violative activities, as in the case of Kin Bridge, supra (order directing suspension of OTI tariff) or of Stallion, supra (order of OTI license suspension).

BOE contends that Sea-Land side-steps the significance of a system which automatically processed forwarder compensation payments to a forwarder clearly and directly affiliated with the NVOCC shipper General Ocean; that the findings of the presiding officer amply make clear that Sea-Land had knowledge of the common ownership, address and operation of both forwarder and shipper, Preliminary Ruling at 245-246; that the legislative history of the 1984 Act, in turn, evidenced the clear determination of the Congress to continue the prohibition as to compensation payments with respect to shipments in which the forwarder or any related company has a beneficial interest, Preliminary Ruling at 244-245, citing S. Rep. No. 3, 98^th Cong., 1^st Sess. 33-4 (1983); that by knowingly paying compensation to a forwarder that had a beneficial interest in the shipments, Sea-Land has, both in fact and in legal effect, used its forwarder compensation system as a means by which respondent rebated freight monies to the shipper; and that Mr. Wu plainly recognized Sea-Land's forwarder compensation system for what it was, the means to derive a "bonus" for patronizing Sea-Land on the shipments of General Ocean, citing, e.g., Wu Tr. 168 ln12 - 169 ln12 ("We must have somebody using our license to move the cargo. We can get a commission from the shipping line. And then to me, of course that means we have some bonus."). BOE contends that Sea-Land has, both in fact and in legal effect, used its forwarder compensation system as a means by which Sea-Land rebated freight monies to the shipper.⁽²⁵⁾

BOE emphasizes, as just one example, express provision is made to recognize, within the amount of any compromise, the "cost of collecting the claim" which the Commission will save, both in staff time and in Commission resources; that after four years of litigation, Sea-Land cannot lay claim to the same status or mitigation as those who have settled or compromised in the past; that, likewise, many of the cited settlements with BOE were concluded with small shippers and NVOCCs; that BOE is obligated to consider their respective "ability to pay"; and that, as Sea-Land does not contend that ability to pay is a factor in determining the amount of its penalty, comparisons to settlements that incorporate such considerations are inapposite.

BOE contends that Sea-Land's comparisons are not apt as a reflection of either the number of violations, nor the degree of culpability involved; that unlike the alleged but as-yet unproven claims of violations compromised by BOE, Sea-Land has been heard, and has been found to have "knowingly and willfully" violated the Shipping Act in more than 900 instances; that the statute plainly differentiates between those violations committed knowingly, and those which are not; and that the assessed penalty must reflect these determinations.

BOE agrees with Sea-Land that the assessment of a penalty requires more than the use of a calculator; that Sea-Land was not a small business or a small shipper; it was a multi-billion dollar enterprise; that it operated up to 70 container vessels and controlled over 200,000 containers in worldwide trade; that Sea-Land operated vessels, container equipment, terminal facilities and other assets, placing it in the foremost ranks of the ocean carrier industry; that its position, and therefore its responsibility for wrongdoing, must be determined commensurate to that leadership role and the egregious nature of its violations; and that all applicable statutory criteria must be applied to ascertain the amount of penalty appropriate here.

BOE finds a clear nexus to "fairness and past precedent" in the manner in which the Commission has determined penalties in the past. BOE states that Sea-Land paid, and the Commission collected, a record amount with respect to Sea-Land's unlawful activities; that the dollars paid by Sea-Land in 1977 have been much diminished in their impact in the year 2002 by the effects of inflation; and that to derive a penalty having no less equivalent impact and deterrence in the year 2002, BOE has determined from the Bureau of Labor Statistics calculations⁽²⁶⁾ that Sea-Land's penalty in the instant proceeding should be not less than $11,867,990.

On the basis of the facts and the evidence now admitted, BOE urges the presiding judge to proceed to penalize Sea-Land, "in the most forceful terms," for its violations of section 10(b)(1) on 149 occasions as well as for violations of section 10(b)(4) on 149 occasions, and to assess "significant civil penalties" with respect to Sea-Land's knowing and willful violations of sections 19(d)(1) and 19(d)(4) of the 1984 Act (435 violations and 170 violations, respectively.)

BOE submits that the extensive record in this proceeding, the policies in favor of deterrence and future compliance (both as to Sea-Land specifically and as to the ocean common carrier industry in general), and the failure of Sea-Land to carry its burden to establish mitigating factors for consideration, mandate a penalty not less than the amount previously paid by Sea-Land as adjusted to current (2002) dollar values; that inasmuch as Congress intended to increase the deterrent effect of penalties for violations following the 1984 Act, a penalty lower than that paid by Sea-Land under the predecessor Shipping Act, 1916, would be seen by Sea-Land and its carrier counterparts as just a "cost of doing business."

BOE accordingly recommends that the presiding judge now assess against Sea-Land, for respondent's knowing and willful violations of the 1984 Act, a civil penalty in the range of $11.9 million - $18.0 million.

Pursuant to the order served July 2, 2002, BOE and Sea-Land, on July 15, 2002, filed initial supplemental memoranda. BOE and Sea-Land filed reply supplemental memoranda on September 19, 2002.

Sea-Land believes that a penalty in the $500,000 - $600,000 range is in line with Commission precedents, promotes the purposes of the Act, is not arbitrary or capricious, and submits that Sea-Land has struggled to recommend a meaningful, even significant, penalty in order to bring this case to a sensible conclusion.

Sea-Land explains that it looked first at the penalties actually paid in all Commission cases (litigated and settled) over the past 10 years; that an agency that adheres to its own precedent is unlikely to be found to have acted arbitrarily, citing, e.g., Wisconsin Valley Improvement Company v. FERC, 236 F.3d 738, 748 (D.C. Cir. 2001) (agency which departs from previously held position without explanation is arbitrary and capricious); and that, on the other hand, assessment of a penalty outside the range of prior penalties would likely be considered arbitrary and capricious, citing Monieson v. CFTC, 996 F.2d 852, 865 (7^th Cir. 1993) (court reduced $500,000 penalty, which dwarfed fines in prior agency cases, to $200,000), and Stallion, 29 S.R.R. 204, 217 (I.D. 2001) (citing Monieson and other cases).

Sea-Land states that its suggested penalty in the $500,000 - $600,000 range for the equipment substitution violations is on the high end of the penalties collected by the Commission over the past 10 years and on the lower end of the egregious default cases relied on by BOE, a mid-point between the two sets of precedent.

Sea-Land explains that the amounts of penalties actually paid to the Commission during the last ten years are instructive; that only four penalties out of 225 collected by BOE during the past 10 years exceeded $500,000; that the average penalties collected ranged from $27,280 in 1995 to $169,095 in 1999; that Sea-Land did not adopt these specific figures because, while a guide, many of the cases are settlements in which the factual record was not fully developed, they may or may not have involved knowing and willful conduct, and they were not equipment substitution cases; that Sea-Land reluctantly concluded that, due to these factors, some increase from this level is likely merited; that the ten years of penalties analyzed include both litigated cases and settlements; that it could be argued that settlements are less helpful in a litigated case such as this; that, however, that is not so for three reasons; that, first, there are so many more Commission settlements than litigated cases that to ignore the settlements would have meant discarding over 95% of the Commission's enforcement actions; that, second, the "litigated" cases are not only few, but fall under a strikingly similar pattern that renders them of less assistance and questionable applicability here; that they are mainly default cases-only BOE's side was presented-and they were brought against small NVOs who "disappeared" after the investigation commenced, at least under the name of the respondent in the case, citing Comm-Sino Ltd.-Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 27 S.R.R. 1201 (I.D. 1997), and Portman Square Ltd.-Possible Violations, 28 S.R.R. 80 (I.D., administratively final, March 16, 1998); that, moreover, in none of these cases was a penalty other than the amount available from the NVOCC's bond collected, nor was there apparently any expectation that a penalty would be paid; that, therefore, while they are Commission precedents that must be considered, these cases should be treated with circumspection; and that, third, the Commission has repeatedly held that the criteria for both assessment of penalties and approval of settlement are the same, citing Armada Great Lakes/East Africa Service, Ltd., 23 S.R.R. 946, 956 (I.D., August 27, 1986, administratively final, October 9, 1986), in which the presiding judge stated:

As seen, Section 13(c) of the 1984 Act and §505.3 of the Commission's regulations, which implements both Section 13 of the 1984 Act and Section 31 of the 1916 Act, explicitly set forth criteria for assessment of penalties and while they do not directly address the criteria for settlement penalties, I believe the latter are subsumed by the former . . . . those standards provided criteria for both settlements and assessments." [Emphasis in original.]

Sea-Land points out that, in support of his finding, the presiding judge cited Eastern Forwarding International, Inc., 20 S.R.R. 283, 286 (I.D., July 30, 1980, administratively final, September 8, 1980), and Behring International Inc., 20 S.R.R. 1025, 1032-33 (I.D., March 17, 1981), administratively final, June 30, 1981). Sea-Land states that also relevant on this point is A.P. Moller-Maersk Line-Possible Violations of Sections 10(b)(1), 10(b)(2), and 10(b)(4) of the Shipping Act of 1984, 28 S.R.R. 1075, 1077 (I.D., September 15, 1999, administratively final, October 19, 1999).

Sea-Land further points out that to refine the analysis of penalties paid, it then looked more specifically to recent settlements of equipment substitution violations by ocean carriers, that it found four such cases, for which Sea-Land attached the Commission press releases, or in one case the order approving the settlement, to its supplemental filing herein; and that the cases are as follows:

Hyundai Merchant Marine Co. Ltd. (8/14/97) $265,000

Kawasaki Kisen Kaisha, Ltd. (10/1/97) $350,000

NYK Line (1/8/98) $425,000

A.P. Moller - Maersk Line (10/19/99) $925,000

Sea-Land states that an average of the first three settlements, which were for, among others, section 10(b)(1) and 10(b)(4) violations, points to a figure in the $350,000 range; that the Maersk settlement for $925,000, which BOE has cited in its briefs, is less on point because it was not based primarily on equipment substitution but rather was, according to BOE, about "rebates" and other "malpractices" on "hundreds of shipments" over "a significant period of time" in the South American trades, 28 S.R.R. at 1075; that from BOE's description, the equipment substitution issues in the case were of lesser importance, relegating any penalty pertaining to those issues to a minor portion of the total $925,000 penalty; and that this would, at a minimum, bring Maersk's settlement of equipment substitution issues into line with the other such cases, i.e., the $350,000 or less range.

Sea-Land states that it also reviewed the numbers in the "egregious" cases cited by BOE in which penalties close to, or in some cases exceeding, $1,000,000 were assessed; that these cases were viewed as setting the upper limit of the penalty range, since (i) they are the highest assessments in recent Commission history, (ii) they were default cases, (iii) they involved respondents that flouted the Commission's processes, and (iv) no penalties were collected; that in Comm-Sino Ltd., supra, the Administrative Law Judge imposed a maximum fine of $650,000 where the respondent's conduct showed "utter disregard for the statute's requirements," 27 S.R.R. at 1207, and no mitigating factors were presented because Comm-Sino did not enter an appearance or respond to discovery requests; that, unlike the present case, "there was no evidence that CS has discontinued all NVOCC operations" in the trades in which it operated, Id.; that in Portman Square, supra, the presiding judge ordered a penalty of $797,000 after finding "that there are no mitigating factors to explain Portman Square's conduct," 28 S.R.R. at 86; that this was at least in part because Portman Square failed to respond to discovery requests or to requests to participate in the case despite numerous notices, 28 S.R.R. at 81; and that the presiding judge also issued a cease and desist order because "respondent has used a false shipper name to facilitate its malpractices," 28 S.R.R. at 84.

Sea-Land states that it also considered the 149 equipment substitution violations at issue here; that as a matter of mathematics a maximum fine of $27,500 for each of the 149 violations would yield a penalty of $4,042,500; that such a penalty amount is so out of line with all precedents that it would be arbitrary and capricious; that the precedents and fairness, moreover, look more to the total penalty, not the per violation number, particularly when there are a significant number of shipments arising from one course of conduct; that this is so because, in the final analysis, it is the total dollar amount of penalty that is most important-obviously for the respondent, but also for the Commission; and that, also, to rely too heavily on the "per violation" approach with the number of shipments involved in this case would yield an unjust result.

Sea-Land states that the unjustness of too rigid reliance on per violation analysis is illustrated by the highest reported litigated penalty case in the Commission's 86-year history, Kin Bridge Express Inc.-Possible Violations of Sections 8, 10(a)(1), 10(b)(1) and 23 of the Shipping Act of 1984, 28 S.R.R. 984 (I.D. 1999), and that in Kin Bridge, a default penalty of $2,117,500 was assessed against one of the respondents.⁽²⁷⁾ Sea-Land points out that there were, however, at least 1504 violations, which would have resulted in a penalty of approximately $37,617,500 using a "statutory maximum" approach of the type urged by BOE in this case; that Judge Kline did not even consider this approach, even though mathematically permissible, since it would have reached an absurd and excessive result; that the point is that even assessing a penalty which is only 5% of the per violation maximum-as in Kin Bridge-yields a significant total penalty, and satisfies the purposes of the Act; and that a similar rationale exists here.

Sea-Land states that apart from the actual dollar amounts of these past cases, it also weighed the statutory factors; that the one factor that seemed most significant in this context was deterrence/compliance, i.e., a penalty should be assessed which would likely deter future violations and promote compliance; that a penalty in the $500,000 - $600,000 range accomplishes that result; that it is significant and meaningful, particularly in an industry of traditional low profitability, and where virtually no carrier is presently making a profit; that Sea-Land has, of course, already incurred significant costs and expenses in litigating this proceeding; that the $500,000 - $600,000 range is higher than virtually all Commission payments of the past 10 years and higher than the other equipment substitution settlements; that implicit in those lower equipment substitution settlement numbers is the Commission's, and/or BOE's, judgment that such levels provide deterrence and promote compliance; that, if not, the settlements do not serve their purpose or satisfy the statutory criteria; and that since the $500,000 - $600,000 penalty would "deter violations and achieve the objectives of the Act," to go further would be "unduly harsh or extreme," citing World Line Shipping-Order to Show Cause, served January 24, 2002, Docket No. 00-05 at 5.

Sea-Land also urges that under the World Line Shipping case, Sea-Land cannot be penalized twice for the same conduct; that in that case, the respondent operated as an ocean transportation intermediary without proof of financial responsibility on seven occasions, among other violations; that the Administrative Law Judge found that those seven shipments violated both section 19(d) of the Act and a cease and desist order issued against the same respondent in a previous proceeding; and that the presiding judge refused to impose two penalties for those seven transactions, holding that "[t]he assessment of multiple penalties for those actions by the respondents would amount to an improper circumvention of the monetary limits [in Section 13(a)] by, in effect, doubling the maximum penalty for a single occurrence."

Sea-Land notes that BOE excepted to this holding, arguing that "even if cease and desist order violations arise from violations of the Shipping Act, it is appropriate to assess civil penalties for them"; that as it has in this case, BOE contended "that the statute does not prevent the assessment of separate penalties for violations arising out of a single transaction"; that the Commission squarely rejected BOE's position and upheld the presiding judge's ruling that a double penalty for the same conduct would be inconsistent with the Act. Sea-Land argues that the only possible distinction between World Line Shipping and the instant case is that World Line Shipping involved a violation of a cease and desist order and a section of the Act, rather than two sections of the Act; that this is a distinction without a difference; that violations of cease and desist orders are penalized under section 13 in the same manner as violations of the Act, and in the same amounts; that, hence, there were two statutory violations in World Line Shipping just as here; and that the presiding judge in World Line Shipping in fact viewed both violations as comparable, citing 29 S.R.R. at 393.

Sea-Land believes that, in fact, a convincing argument can be made that a double penalty would be more appropriate in World Line Shipping (a cease and desist order as well as a violation of the Act) than here (two statutory violations); that the cease and desist order adds an additional and separate element of contempt over and above the violation itself; that some of the dual violations in this case are of section 19, as in World Line Shipping, while others are violations of sections 10(b)(1) and 10(b)(4) which are related sections in which the latter essentially subsumes the former; that the Commission's clear holding is that a double penalty for the same conduct in this situation would exceed the statutory penalty amount as it would "effectively double the penalty for each section 19(b) violation"; and that that is precisely what BOE is again seeking here and that is why BOE is again in error.

Sea-Land agrees that some language in the World Line Shipping decision, read in isolation, might be construed as indicating that the Commission denied a double penalty as a matter of discretion, not law, and that while Sea-Land does not believe that is a correct reading of the case, even if it were, the presiding judge in this case should be guided by the Commission's reasoning and sense of fairness-imposing double penalties for the same transaction is contrary to congressional intent and repugnant to a fair administration of the Act.⁽²⁸⁾

Sea-Land next contends that the "no punishment without notice" rule applies to the penalty phase of this case; that the Presiding Judge's July 2, 2002 Order (at page 5) seeks comment on "the applicability of the cited court cases to the Shipping Act"; that, as an initial matter, there can be no question that the Shipping Act and proceedings under it are subject to both due process and the Administrative Procedure Act ("APA"); and that the Commission so held in World Line Shipping, supra, citing its obligation to provide respondents notice of the charges against them "so that no prejudice or violation of due process principles result" and "in order to comport with the Administrative Procedure Act," citing also California Shipping Line, Inc. v. Yangming Marine Transport Corp., 25 S.R.R. 1213, 1231 (FMC 1990).

Sea-Land points out that the July 2, 2002 Order also asks the parties to address whether the "no punishment without notice" rule applies to the issues in the penalty phase of this investigation; that this question relates at least in part to the fact that the Commission decisions cited in Sea-Land's penalty brief preceded the court cases; that Sea-Land's point was not that the Commission cases specifically relied on those court cases, but rather that the Commission's own precedent is consistent with the holdings in the court cases, although based more on fairness than constitutional principles; and that, in any event, the application of the "no punishment without notice" principle to civil administrative proceedings dates back to at least 1968, well before the Commission decisions.

Turning again to the July 2, 2002 Order, which notes the language in General Electric that an agency not impose a penalty "unless the interpretation is ascertainably certain from the regulations," Id. at 1330, Sea-Land points out that BOE has argued at length that the requirements found in the Preliminary Ruling were clear from the Commission's Regulations' text, and therefore Sea-Land had fair notice of them. Sea-Land responds that this is not the case; that even assuming the holdings are correct, they are novel and without precedent in Commission jurisprudence.⁽²⁹⁾ Sea-Land argues that an examination of relevant precedent as applied to the regulatory provisions involved shows that Sea-Land had no reasonable expectation, much less an ascertainable certainty, that the certification requirements would be applied in practice as they were in the Preliminary Ruling; that, for example, the decision in U.S. v. Chrysler Corp., 158 F.3d 1350 (D.C. Cir. 1998), is instructive in illuminating how a regulation's substantive requirements may appear reasonably clear, but can be subject to different constructions when applied in practice; that in Chrysler, the respondent challenged a court-ordered recall of vehicles that allegedly failed to meet safety standards for seat belts; that the National Highway Traffic Safety Administration ("NHTSA") required the seat belts to withstand force as it was increased to 3,000 pounds of force over 30 seconds and then to withstand 3,000 pounds of force for 10 seconds after that level was reached; that Chrysler's seat belts met these "certain" standards in tests Chrysler conducted, but failed to meet the standards when the tests were conducted independently at the request of the NHTSA; that, accordingly, NHTSA obtained a court order to recall the vehicles in question; that Chrysler appealed, arguing that the standards the seat belts were required to meet were not ascertainably certain; that the court agreed, finding that the different test results were due to different positioning of the "pelvic body blocks" used in testing; that since the regulations did not specify the required position of the blocks, they were not sufficiently clear to permit imposition of a penalty (i.e., the recall) on Chrysler for testing with the weight in that position; and that the substantive requirement was clear, but not how it was to be achieved.

Sea-Land believes that the analysis in the instant case with respect to forwarder compensation is remarkably similar to that in Chrysler; that the general requirement is "ascertainably certain"-i.e., that the regulations require a certification by the forwarder; that, however, the implementation of the requirement in a specific situation-e.g., that a check certification must be manually signed-is not clear from the regulations, just as the placement of the block for seat belt testing was not clear in Chrysler; that section 510.24(c) states that the required certification may be done "as an endorsement on the carrier's compensation check"; and that, here, the checks were "endorsed" by a stamp, which it is not disputed was a sufficient signature to cash the check, as provided under the Uniform Commercial Code.

Sea-Land contends that, similarly, the regulations themselves do not give notice that forwarders must fill in the license number on the check itself; that the Regulations contemplate an opportunity to add the license number, but do not expressly require it; that it is not disputed that the forwarders' actual license numbers were given to Sea-Land on the relevant bills of lading, and that filling in those numbers on the back of the check merely would have given Sea-Land information it already had; that, thus, Sea-Land reasonably believed the forwarder had certified that it had a license and had provided its license number; and that further, as a matter of common sense, could Sea-Land reasonably have expected that if a forwarder did not fill in a blank on a $10 check endorsement-with a license number Sea-Land already had-then Sea-Land was violating the law, let alone subjecting itself to a $55,000 penalty? Sea-Land contends that as a matter of law under the General Electric line of cases, including Chrysler, it could not.

Sea-Land states that the final issue is whether it was clear from the regulations that Sea-Land had an obligation to investigate whether the forwarders provided services, had current licenses, or were affiliated with the shipper, and that the applicable provision, after describing the obligation of the forwarder to certify among other things that it has a current FMC license and that it is not affiliated with the shipper, reads as follows: "The common carrier shall be entitled to rely on such certification unless it knows that the certification is incorrect," citing 46 C.F.R. § 510.23(b) (1996).

Sea-Land contends that it could not know from this regulation that it should not pay compensation when it had only "reason to know"-i.e., if it investigated beyond the certification-that the forwarder was not entitled to compensation; that the exception on its face applies when the carrier "knows" that the certification is incorrect, i.e., actual knowledge; that this is consistent with the legislative changes in 1984 liberalizing the certification as a "safe harbor"; that, for example, Sea-Land did not have actual knowledge that ITL's license had been revoked; that the Preliminary Ruling found that Sea-Land did not utilize Federal Register notices and therefore did not know about the revocation (FF280); that, similarly, the Preliminary Ruling found that "a carrier never contacted by the forwarder for a particular shipment has reason to know that a forwarder is not performing those forwarding services necessary for the payment of compensation," citing the Preliminary Ruling at 237 (emphasis added by Sea-Land); and that the evidence of Sea-Land's knowledge or affiliation is not only exceedingly thin, but imputing this knowledge to Sea-Land is based on a wholly unexpected standard of what "reason to know" means in practice-investigation, which is not industry practice.

Sea-Land argues that perhaps the best evidence of whether the Preliminary Ruling's interpretations were clear from the regulatory text is that they are, in virtually every respect, contrary to prevailing industry practice; that (i) certifications by check endorsements are by far the most common method of compliance; (ii) forwarders do not manually sign those certifications; (iii) forwarders do not fill in their license numbers in the blank provided; and (iv) carriers do not investigate behind the certifications to verify certified items such as performance of services, currency of forwarder license, or lack of affiliation with the shipper.⁽³⁰⁾

Sea-Land argues that it strains credulity that the entire industry has been knowingly ignoring a "clear" regulation for years, and that a more reasonable conclusion is that the regulations were open to more than one interpretation and therefore, absent clear Commission guidance, it would be unlawful (and unfair) to penalize Sea-Land for following one of those interpretations.

Sea-Land contends that a penalty in the $500,000 - $600,000 range is eminently reasonable; that the World Line Shipping case forbids double penalties for the same transactions; and that the "no punishment without notice" principle applies to the penalty issues in this case.

BOE states that it complied fully with the Commission's invocation to furnish a "suggested range of penalties"; that while disputing Sea-Land's entitlement under each of the evidentiary components by which respondent claims mitigation herein BOE nonetheless signaled that it would not object to the presiding judge's consideration of a "modest" downward adjustment in the maximum penalties to be assessed for Sea-Land's knowing and willful violations; and that taking "in aggregate" those equitable and policy arguments raised by Sea-Land on brief, BOE proffered that reduced penalties be assessed in the suggested range of $11.9 million - $18 million.

BOE reiterates that in no event can Sea-Land justify reductions in civil penalties to an amount less than $11.9 million, corresponding to the penalty amount previously paid by Sea-Land for violations of the predecessor Shipping Act, 1916, as adjusted to current (2002) dollar values. BOE argues that any penalty lower than that paid by Sea-Land under the predecessor Shipping Act, 1916, would be seen by Sea-Land and its industry counterparts as a "cost of doing business," a result which the Congress has sought to proscribe by legislation when it enacted the Shipping Act of 1984.

BOE contends that as to the Commission's decision in World Line Shipping, at best, Sea-Land raises an equitable argument that "[i]n view of the size of penalty" which may now be assessed by the presiding officer, any additional penalty amounts might be deemed, in the words of the Commission in Stallion Cargo, to be "unnecessary."

BOE states that under General Electric, it must first be shown that the forwarder certification regulation is ambiguous; that the forwarder certification regulation at 46 C.F.R. § 510.23(c) is clear on its face in calling for a "signed certification" to be conveyed by the forwarder to the carrier, and that the express requirement therein that such certification be executed "by the undersigned" unambiguously requires a written signature; that if the Commission's forwarder regulation is sufficiently clear, in and of itself, to permit compliance therewith, the literal language of the regulation will control.

BOE argues that, once duly promulgated by the Commission, the certification regulations became "part of the warp and woof of the Act's enforcement scheme . . . and, if reasonably faithful to the statutory language and intent, constitute binding law," citing Dantran Inc. v. U.S. Dept. of Labor, 171 F.3d 58, 65 (1^st Cir. 1999).

BOE contends that the instant case, involving application by BOE of the literal requirements of the regulations by which the forwarder certifies and conveys to the carrier his entitlement to receipt of forwarder compensation, is clearly distinguishable from that more complex and difficult situation found in General Electric, and that the D.C. Circuit explained the rationale for its General Electric decision in the following terms:

In GE, EPA had fined General Electric for distilling used solvents and incinerating only the contaminated portion instead of immediately incinerating the entire solution. 53 F.3d at 1326-27. Although we deferred to EPA's interpretation of its regulations as requiring immediate incineration of the entire solution, we held that the agency could not fine GE for its failure to comply with an interpretation that was "so far from a reasonable person's understanding of the regulations that [the regulations] could not have fairly informed GE of the agency's perspective." Id. at 1330.

Trinity Broadcasting of florida Inc. v. FCC, 211 F.3d 618, 628 (D.C. Cir. 2000) ("Trinity Broadcasting"). BOE contends that Sea-Land does not assert that BOE construed 46 C.F.R. § 510.23 by improperly referencing other regulatory provisions as in General Electric and Trinity Broadcasting,⁽³¹⁾ nor by incorporating other agency standards, as in United States v. Chrysler Corp.;⁽³²⁾ that neither has it shown that BOE's insistence on plain meaning is somehow inconsistent or impermissible under the forwarder certification regulations; that both in effect and in actuality, Sea-Land makes the same argument raised unsuccessfully by the respondent in Brock v. L.R. Willson & Sons Inc., 773 F.2d 1377, 1386-87 (D.C. Cir. 1985), i.e., that the company "did not have reasonable notice" because the agency "has not enforced the interpretation of the regulations he advances here" and that the lack of enforcement, purportedly in the face of wide-spread non-compliance, had "lulled the industry into a false sense of security" and thus "deprived Willson of adequate notice"; that the D.C. Circuit expressly rejected these arguments, finding that the regulation was "sufficiently clear" to put Willson on notice as to the proscribed conduct, citing Brock v. L.R. Willson & Sons Inc., supra at 1327, in turn citing Cedar Constr. Co. v. OSHRC, 587 F.2d 1303, 1306 (D.C. Cir. 1978), and Brock v. Williams Enterprises of Georgia Inc., 832 F.2d 567, 572 (11^th Cir. 1987) (in applying same regulation as in L.R. Willson, court finds that Williams had "adequate notice because the Secretary's interpretation is a straightforward reading" of the regulation); and that the court declined also to construe the regulations by looking to industry custom and practice:

If Willson is arguing that widespread industry practice or the Secretary's failure to enforce the regulations in effect bars enforcement of §.105(a) against the company, we soundly reject that argument. Even in cases in which industry practice is considered in interpreting OSHA standards, that practice is not dispositive when the industry has failed to provide necessary protections. This court has warned that it will act "to prevent an industry which fails to take sufficient precautionary measures against hazardous conditions, from subverting the underlying purposes of the Act." L.R. Willson & Sons Inc. v. OSHRC 698 F.2d 507, 513 n17 (DC Cir 1983) (quoting Bristol Steel & Iron Works, Inc v. OSHRC, 601 F.2d 717, 723 (4^th Cir 1979)).

Brock v. L.R. Willson & Sons Inc., supra at 1388.

BOE notes that in answer to the contention that Sea-Land and the "whole industry" lacked notice because of the failure to prosecute violations, the D.C. Circuit in Brock has also quoted with approval the 7^th Circuit decision in Faultless Div. v. Secretary of Labor, 674 F.2d 1177 (7^th Cir. 1982):

[T]he argument for reliance on industry practice would permit employers to avoid compliance with specific safety mandates by relying on the (perhaps equally objectionable) practices of their peers. Nothing in the OSH Act or its legislative history requires or permits the Secretary to await an industry consensus about unsafe conditions before moving to enforce.

BOE contends that those Commission decisions cited by Sea-Land, namely, Prudential Lines Inc. v. Farrell Lines Inc., 22 S.R.R. 826 (I.D. 1984), and Jorge Reynoso Import and Export Co., 22 S.R.R. 1558 (I.D. 1985), do not support application of the rule of lenity in general; that Prudential Lines is a private reparations action and therefore does not involve issues of punishment; and that, likewise, the decision not to impose penalties in Jorge Reynoso Import and Export Co. was predicated on findings that respondent was unable to pay a penalty in that amount.

Sea-Land Contends that BOE's Penalty Proposals, if Accepted, Would be Arbitrary, Unfair and Unconstitutional

Sea-Land Argues that BOE's Refusal to Provide More Specific Input as Requested by the Judge and the Commission Creates the Presumption that Its Penalty Proposals are Arbitrary

Sea-Land states that the July 2 Order requested "more specific input" from each party "to support the derivation of a specific number" for a penalty in this case (p. 3); that the request was also based on a prior and similar general request made to BOE by the Commission last year in Stallion Cargo; that in its July 15 filing, nonetheless, BOE adamantly refused to provide more specific penalty numbers or a more meaningful rationale for its suggested penalty range; and that BOE spends more space (four pages) justifying its refusal to respond to the request than answering it (two paragraphs).

Sea-Land states that, strangely, BOE states, "Neither would BOE proffer its penalty calculus in substitution for that discretion properly exercised by the Administrative Law Judge (BOE Brief at 5, fn. 5), and that, "BOE does not presume, however, to view the penalty criteria under section 13 through the "same lense [sic] as would the presiding officer" (BOE Brief at 5), and Sea-Land queries: "What does this mean? That BOE believes it is not, as are the Judge and the Commission, obligated to reach a fair and reasonable result? That its role is to present a more partisan, one-sided approach not designed to point the Judge to a just decision?" Sea-Land states that, if so, it strongly disagrees with BOE's view of its own role.⁽³⁴⁾ Sea-Land states that of course the ultimate decision is within the discretion of the Administrative Law Judge and the Commission, but that does not mean that when the Judge-or the Commission-asks for specific recommendations on how that discretion should be exercised, the request should be ignored; that government lawyers traditionally offer detailed guidance on the nature of a penalty; and that it is, Sea-Land submits, the very essence of their responsibility.

Sea-Land argues that BOE's entire approach to the penalty issue-numbers thrown out at the eleventh hour without meaningful explanation or opportunity for reply-not only prevents a meaningful exchange of views between the parties, it increases the likelihood of an inequitable result. Sea-Land states that in its May 30, 2002 Reply Brief, Sea-Land responded to BOE's $24,802,500 figure, the only number in BOE's penalty brief, and that then in BOE's Closing Brief on Penalties-to which Sea-Land could not reply-BOE suggested for the first time a markedly different "range": $18,000,000 to $11,900,000, each of these figures appearing for the first time, the former unexplained and the latter based on a rationale never before mentioned; that the $11,900,000 figure is not disclosed until page 25 of BOE's Closing Brief and, in the ultimate obfuscation, the $18.0 million" figure is, quite literally, the very last word in BOE's last brief (p. 26), without any explanation whatsoever; and that this is scarcely a sensible or fair procedure.

Sea-Land states that BOE's new penalty range is so vast, and its rationale for that range so vague and unsubstantiated, that it continues to make Sea-Land's response exceedingly difficult; that, more important, BOE's approach still does not provide the Judge with a workable framework for reaching a fair result; that while there may be no satisfactory remedy for BOE's refusal to come forward with more specifics, Sea-Land urges treating the refusal as a strong indication that there is no rational basis for BOE's numbers; that when a party refuses to come forward with facts within its control, it may be presumed they are unfavorable, citing Comm-Sino Ltd.-Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 27 S.R.R. 1201, 1206 (Show Cause Order 1997), and Dazzio v. F.D.I.C., 970 F.2d 71, 78 (5^th Cir. 1992); that that principle applies here; and that BOE's refusal to provide more specifics or rationale creates the presumption that its penalty proposals cannot withstand critical examination and are arbitrary and unsupportable.

Sea-Land Argues that BOE's Penalty Range ($11.9 Million to $18 Million) is Arbitrary, Capricious, and Unconstitutional

Sea-Land Contends that BOE's $18 Million Figure Has All the Legal Infirmities of Its Original $24 Million Figure

Sea-Land notes that BOE claims that its upward penalty range, $18 million, reflects, "in aggregate . . . those equitable and policy arguments raised by Sea-Land on penalty brief" (BOE Brief at 5); that it reflects a penalty of roughly $20,000 per violation, a reduction of "27.5%" from the statutory maximum as BOE calculates it (ibid). Sea-Land states that BOE, however, fails to explain which equitable and policy arguments it believes merit reductions or why; that BOE also fails to explain why a 27.5% reduction is warranted as opposed to some other number; that the $20,000 per violation is just another way of expressing, not explaining, the $18,000,000; and that BOE's Brief sheds no further light on the rationale for its suggested high end number. Sea-Land states that the D.C. Circuit has made clear that an agency's failure to "[articulate] a satisfactory explanation for its action including a 'rational connection between the facts found and the choice made'" is arbitrary and capricious, citing Sloan v. Department of Housing and Urban Development, 231 F.3d 10, 15 (D.C. Cir. 2000), in turn quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29 43 (1983).

Sea-Land states that BOE's $18 million number suffers from the same flaws as its original $24 million number; that it starts from a presumption of a $24 million maximum, which, as demonstrated in Sea-Land's reply brief on penalties, is not supported by FMC precedent;⁽³⁵⁾ that BOE's number still includes double penalties for the same transactions, which are not permitted or appropriate; and that the Commission has labeled double penalties as "overreaching," citing World Line Shipping, Inc. and Saeid B. Maralan (AKA Sam Bustani), 29 S.R.R. 808, 812 (FMC 2002).

Sea-Land contends that the $18 million penalty is excessive because: (i) it approximates the total amount of all penalties paid to the Commission by all respondents in the past 10 years (citing Attachment 1 to Sea-Land's Reply Filing); (ii) it is more than four times higher than the highest penalty paid in the history of the Shipping Act (the1977 Sea-Land settlement); and (iii) it is nine times higher than the highest penalty ever assessed in a litigated Commission case (citing Kin Bridge Express Inc. and Kin Bridge Express (USA) Inc.-Possible Violations of Sections 8, 10(a)(1), 10(b)(1) and 23 of the Shipping Act of 1984, 28 S.R.R. 984 (I.D. 1999)).

Sea-Land argues that in reviewing whether an agency action is arbitrary and capricious, a court will not "countenance an agency's failure to 'consider[] . . . relevant factors' or 'clear errors of judgment,'" citing Sloan, 231 F.3d at 15; that in Gulf Power Company v. Federal Energy Regulatory Commission, 983 F.2d 1095, 1099 (D.C. Cir. 1993), the court held that an FERC penalty was arbitrary and capricious when it was "wholly disproportionate to [respondent's] error" and when the penalty was "grossly excessive"; and that BOE's penalty recommendation suffers from the same infirmities in this case.

Sea-Land states that BOE's $18 million number is also arbitrary and capricious because it fails to take into account the nature or gravity of the different violations; that BOE would-without explanation-penalize Sea-Land the same amount ($40,000) for a $10 forwarder compensation payment that had no commercial consequences and that in many cases was repaid to Sea-Land before the case began, as it would for an "equipment substitution" violation; and that BOE, because it paints with such a broad brush, has ignored section 13's requirement that a penalty take into consideration the "gravity," i.e., nature, of the offense.

Sea-Land also contends that BOE's $18 million figure is not only arbitrary and capricious, but also unconstitutional under the Excessive Fines Clause of the Eighth Amendment; that in United States v. Bajakajian, 524 U.S. 321 (1998), the Supreme Court held that a forfeiture of the full amount of currency being transported out of the country, even though authorized by statute, would violate the Excessive Fines Clause because it would be "grossly disproportional to the gravity of a defendant's offense," 524 U.S. at 335; that the Excessive Fines Clause also applies in the civil penalty context, citing, e.g., Austin v. United States, 509 U.S. 602 (1993); that, in this case, BOE would fine Sea-Land $40,000 for each of its $10 forwarder compensation payments-a penalty 4000% greater than the "illegal" payment-grossly disproportionate to the gravity of the offense; and that such a fine would be unconstitutional.

Sea-Land Contends that BOE's $11,900,000 Penalty Figure is Arbitrary

Sea-Land states that BOE's low-end figure likewise has no rational justification; that the sole basis put forward for the $11,900,000 figure is that it is equal to the amount, adjusted for 2002 dollars, paid by Sea-Land in a settlement 25 years ago; that, however, BOE has not even attempted to explain why a 1977 settlement-about which it has presented no facts whatsoever-has any relevance to the current case; that BOE appears to contend that a respondent should pay at least what it paid in any previous settlement or penalty case regardless of the facts of the respective cases, gravity of the violations, changes in respondents' personnel or ownership, or the passage of time-and, in fact, it should be increased for inflation; and that BOE cites no authority whatsoever for this unique theory.

Sea-Land states that BOE's theory is arbitrary on its face; that BOE is espousing a curious concept, that is, the greater the passage of time and hence the more remote the case, the higher the penalty it supports; that the penalty increases with each passing day due to inflation; and that common sense dictates the opposite-the more time passes the less relevant is a previous settlement.

Sea-Land argues that there is no basis, in any event, to use the 1977 settlement of $4 million; that the 1977 case was a far different order of magnitude; and Shipping Act amendments described the case as "the largest civil penalty settlement in the history of U.S. transportation" involving "widespread payments of illegal rebates," citing House Report No. 96-232, 96^th Congress, 1^st Sess., June 4, 1979, at 5-6. Sea-Land explains that the1977 case involved allegations of "payment of some $19 million illegal rebates and other questionable practices in the 1971-75 period," citing a press release, attached to its Reply Filing, and that the case involved allegations of cash rebates paid "all over the world" that were self-investigated by "25 lawyers and more than 100 accountants." Sea-Land contends that to equate $19,000,000 in cash rebates in that case to the violations found in this case, including a number of $10 forwarder compensation payments, would be truly arbitrary and capricious; that, moreover, the owner of Sea-Land in 1977 (R.J. Reynolds) long ago sold its interest; and that there is therefore no commonality of ownership between the "Sea-Land" of 1977 and the Sea-Land of 2002.

Sea-Land argues that, interestingly, using the 1977 case actually supports a penalty even lower than Sea-Land is suggesting; that the $4 million settlement in the 1977 case amounted to 21% of the alleged $19 million in illegal payments; that, here, using the same formula, 21% of the total misrating (i.e., equipment substitution violations found)-some $268,475-results in a fine of $56,379; and that even if adjusted for 25 years of inflation using BOE's inflator, the comparable fine today would be roughly $165,000, even below the $500,000-$600,000 suggested by Sea-Land.⁽³⁶⁾

Sea-Land states that there is also a procedural problem with BOE's new inflation concept; that it comes too late; that raising that argument in its final brief has deprived Sea-Land of the opportunity to offer evidence on the issue-for example, the very different nature of the two cases, facts and expert opinion showing why the use of a general inflator is not sensible or applicable here since ocean carrier rates were higher in 1977 than they are now and thus carrier revenues have no relationship to inflation; that introduction of evidence without an adequate opportunity to respond is unfair and a denial of due process, citing Wallace v. Bowen, 869 F.2d 187, 190 (3d Cir. 1988), and Gullo v. California, 609 F.2d 649, 650 (2d Cir. 1979); and that, in sum, the $11,800,000 figure is procedurally improper and substantively arbitrary.

Sea-Land Contends That Its Proposed Penalty Has a Rational Basis, is Well Within the Range of Commission Precedent, and is Not Arbitrary or Capricious

Sea-Land states that it has presented three factors, all of which support a penalty in the $500,000-$600,000 range:

•  The range of penalties collected by the Commission during the past 10 years, which in 99% of the cases are below the range recommended by Sea-Land;

•  The amounts collected from other carriers in recent cases involving equipment substitution, the most relevant of which range from $265,000 to $425,000; and

•The amount of money involved in the wrongdoing, in this case $268,475.

and that these factors are discussed in more detail next.

Sea-Land States That an Examination of Penalties Paid Over the Past 10 Years is a Useful Guide in Assessing the Penalty Here

Sea-Land has proposed a penalty in the $500,000-$600,000 range, which it believes is a reasonable middle ground between, on the one hand, the amounts paid in the vast majority of penalty cases during the past 10 years and, on the other, the "default" cases in which very severe penalties (in the $650,000 - $1,500,000 range) have been assessed.

To establish the range of penalties collected by the Commission in the last 10 years, Sea-Land requests that the presiding judge take official notice of a summary compiled from the annual reports of the Commission for fiscal years 1992 through 2001 and attached to its Reply Filing.⁽³⁷⁾ Sea-Land states that official notice is provided for in Rule 226 of the Commission's Rules of Practice and Procedure, and has been taken of documents such as letters to the agency and complaints filed with the agency, citing Pacific Champion Express Co., Ltd.-Possible Violations of Section 10(b)(1) of the Shipping Act of 1984, 28 S.R.R. 1107 (Notice of Rulings Made at Special Conference 1999), and Sanrio Company, Ltd. v. Maersk Line, 19 S.R.R. 1627, 1661 (I.D. 1980). Sea-Land contends that Commission settlements are relevant in assessing penalties, citing discussion at pages 2-4 of Sea-Land's July 15 Brief.

Sea-Land points out that its Attachment 1 to its Reply Filing shows that a total of 225 penalties have been paid during the past 10 years; that only four of the 225 exceeded $500,000, one of those being $550,000 in 1998; that three other respondents collectively paid a total of $1.5 million, or $500,000 each on average, while the other 218 penalties were less than $500,000 each; that in six out of the ten years, the highest penalty paid during the entire year was less than $400,000; and that, thus, 222 out of 225 penalties, approximately 99%, paid during the past 10 years were lower than the $600,000 high-end amount recommended by Sea-Land.

Sea-Land recognizes that this aggregate compilation of penalties paid does not deal with the facts of individual cases, and Sea-Land does not rely solely on this penalty history; that, nevertheless, an understanding of the universe and range of recent penalty payments to the Commission provides a useful guide; that it places recent Commission penalty assessments, including the large cases cited by BOE which have been assessed in egregious cases, in some context and perspective; that it is quite unlikely that the Commission or a court would consider the penalty proposed by Sea-Land an inadequate punishment or deterrent when it represents a middle ground between, on the one hand, BOE's egregious cases and, on the other, 99% of all penalties paid during the past 10 years, which are lower; and that the chart is but one tool to be used in assessing a penalty here, but it is relevant for it shows what the Commission has in the past considered the appropriate monetary levels of penalties to promote the enforcement purposes of the Act.

Sea-Land States That Its Recommended Penalty is Consistent With Other Equipment Substitution Penalties

Sea-Land states that the three most recent settlements the Commission reached with ocean carriers relating to allegations of equipment substitution abuse ranged from $265,000 to $425,000, which the Commission obviously believed satisfied the purposes of the Act to punish and deter equipment substitution abuse and promote compliance with the Act,⁽³⁸⁾ and, thus, Sea-Land's proposed numbers in this case are well within the range of those previous cases.

Sea-Land Contends That When the Overall Amount of the Penalty is Considered, the Recommended $500,000-$600,000 is Reasonable in Light of the Dollar Amount Involved in the Violations Found

Sea-Land states that it is important to look not only at the number of individual violations and the amount to be assessed for each, but the overall penalty amount; that the Commission has consistently found that it would be unduly harsh to rely too heavily on per-violation penalties; that in Stallion Cargo, the Commission found a total of 167 knowing and willful violations of the Act; that, however, when it assessed a penalty of $1,340,000 by applying $10,000 per violation for 134 of the violations, "in light of the size of that penalty, the majority made a determination not to impose any penalty for the remaining 33 shipments," n. 41 (emphasis of Sea-Land); that, thus, the Commission has clearly established that the overall amount of the penalty is a significant consideration; that that is what promotes compliance; that, citing Stallion, Judge Rosas, in two recent decisions, assessed less than the maximum penalty amount "where the [overall] amount assessed was significant," citing Green Master International Freight Services Ltd.-Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 29 S.R.R._____ (2002), exceptions pending, slip op. at 14, and Transglobal Forwarding Co., Ltd.-Possible Violations of Section 10(a)(1) of the Shipping Act of 1984, 29 S.R.R._____ (2002).⁽³⁹⁾

Sea-Land states that Judge Kline followed the same approach in Pacon Express, Inc., Luis R. Hallon, and Sun Bong-Possible Violations of Sections 10(a)(1) and 19(d)(4) of the Shipping Act of 1984 and 46 CFR 502.23(g) and (h), 28 S.R.R. 352 (I.D. 1998, administratively final, June 19, 1998) ("Pacon"); that there, the respondent forwarder was penalized for setting up a "dummy forwarder" operation to obtain unlawful rebates from an ocean carrier; that Judge Kline noted that the maximum civil penalty "would amount to an astronomical amount of many millions of dollars because of the more than 2,000 violations committed during the one year and eight months' period of time discussed above at $25,000 per violation," 28 S.R.R. at 356; and that, thus, Judge Kline assessed only a small fraction of the maximum, $87,420.

Sea-Land points out that in Pacon, Judge Kline offered an alternative method of calculating penalties that is a useful approach-or cross check-in this case; that there, the penalty was measured by "the amount of money that such respondent has unlawfully extracted" due to his wrongdoing, Id. at 357; that the forwarder had collected $87,420 in wrongful forwarder compensation from the carrier and therefore was penalized in that amount;⁽⁴⁰⁾ and that one rationale for this approach-a method for assessing the gravity of the offense-was that the statutory maximum penalty amount would have resulted in an overall amount that was plainly excessive for the offense committed.⁽⁴¹⁾

Sea-Land states that applying the Pacon approach in this case, Sea-Land would be liable for a penalty of $268,475 for the equipment substitution violations, the amount of the discounts found by BOE's analyst to have been given to Sea-Land's equipment substitution customers, citing PSL147; that Sea-Land's recommended number ($500,000-$600,000) is twice that amount; and that this methodology therefore further validates the well-reasoned basis for Sea-Land's proposal.

Sea-Land concludes that, in sum, considering all the factors together-10 years of penalty collections, other carrier equipment substitution cases collected in recent years, and the dollar amounts involved in the violations in this case-they are consistent with Sea-Land's recommended penalty of $500,000-$600,000 and more than serve to effectuate the Commission's enforcement policies, and that a penalty in this range would not be held to be arbitrary and capricious.

Sea-Land Contends That BOE Has Provided No Legal Support for Imposing Double Penalties for the Same Transaction and That Double Penalties Are Impermissible Under the Commission's Decision in World Line Shipping

Sea-Land states that the July 2 Order also asks for comments as to whether "the Shipping Act warrants imposition of penalties twice for the same conduct" citing World Line Shipping-Order to Show Cause, Docket No. 00-05 (Jan. 24, 2002); that BOE's analysis and the cases it cites do not respond to the questions posed; and that, in any event, World Line Shipping bars double penalties.

Sea-Land notes that BOE argues at length citing numerous cases for the proposition that, "[t]he Commission historically has accepted that findings of violations under one section of the Shipping Act do not preclude finding violations of other statutory proscriptions, even when the same shipments serve as proof of both"; that Sea-Land does not dispute this point, nor was it in dispute in World Line Shipping; that that, however, is not the question posed; that the question here, as in World Line Shipping, is whether a double penalty may be imposed for such a dual violation; that the Commission clearly held that it cannot; that in not one of the cases cited (BOE Brief at 6-11) did the Commission or the courts assess two penalties for the same transaction; and that the BOE cases cited, with one exception, do not even address the issue.⁽⁴²⁾

Sea-Land states that BOE seeks to dismiss World Line Shipping by contending that the Commission's holding was not compelled by the Act, but was an exercise of the Commission's discretion; that Sea-Land disagrees; and that in making this argument, BOE selectively cites the following language from the case:

This does not mean that the Commission cannot impose a monetary penalty for a violation of a cease and desist order, but simply that in this case it appears unwarranted. . . .

citing BOE Brief at 10.

Sea-Land points out that the language BOE quotes conveniently omits a second ground for the decision: ". . . and would in effect amount to a dual penalty," slip op. at 5 (emphasis of Sea-Land); that, therefore, there were two grounds for the decision, double penalties were "unwarranted" (cited by BOE) "and" it was a "dual penalty" (omitted by BOE), which the Commission earlier noted, "would exceed the statutory penalty amount"; and that the more reasonable reading therefore is that a double penalty is impermissible under the Shipping Act.⁽⁴³⁾

Sea-Land contends that even if double penalties were legally permissible, since they were found inappropriate in World Line Shipping, they are certainly inappropriate here,⁽⁴⁴⁾ and that at bottom, irrespective of the rationale, the Commission has concluded that double penalties are "overreaching," slip op. at 5.

Sea-Land Contends That Lack of Notice of Regulatory Interpretation, Supported by Industry Practice, Bars Penalty Assessments

Sea-Land States That the Evidence of Industry Practice is Not Disputed and That Sea-Land's Practices Were in All Respects Consistent With Industry Practice

Sea-Land contends that the hearings held in Washington on August 8-9, 2002, along with the now admitted into evidence affidavit testimony of Messrs. Maron and Caradonna, have confirmed the prevailing industry practices with respect to forwarder compensation and in particular forwarder certifications; that these witnesses were clearly knowledgeable experts in forwarder compensation practices; that Mr. Maron was a forwarder for over 40 years, during which time he received forwarder compensation from virtually every ocean carrier in every major U.S. trade lane, including the Transpacific, citing Co. Ex. 50, ¶¶ 1, 4; Maron Tr. 9 ln 1 - 11 ln 2; Maron Tr. 101 ln 4-102 ln 4; and that he was also active in industry trade associations, serving as chairman of the Forwarding Committee of the National Customs Brokers and Forwarders Association of America for 10 years, and has testified before Congress and taught on the subject, citing Co. Ex. 50, ¶¶ 2-3.

Sea-Land states that Mr. Caradonna worked for ocean carriers from 1967 through 1999, and had direct or supervisory responsibility over documentation or forwarder compensation functions during much of that time, citing Co. Ex. 51, ¶¶ 1-3; and that he has also consulted for both carriers and shippers since 1999, citing Caradonna Tr. 40 ln 3 - 41 ln 11.

Sea-Land states that the following practices are not in serious dispute in this case, nor is there any evidence to the contrary:

•  Over 90% of freight forwarders currently provide certifications by endorsing carrier compensation checks, and that was the practice during the period covered by this case. In virtually all cases, the endorsements are made by stamping the checks rather than manually signing them. Forwarders rarely fill in their license numbers in the space provided in the standard certification language, because the license number is "always" included on the bill of lading. PSL122, 126, 127; Co. Ex. 50, ¶¶ 11-14; Co. Ex. 51, ¶¶ 7-9.

•  A check certification necessarily will not be received by the carrier until several weeks after the compensation check is issued. Carriers, including Sea-Land when it was operating in the U.S. foreign trades, do not generally review cancelled checks to verify endorsement, but rather assume that if the check has been negotiated and cashed, it must have been properly endorsed (and therefore certified). PSL123.

•Forwarder compensation checks are typically issued by carriers based on the identification of the forwarder, along with its license number, in the forwarder box of the bill of lading. PSL125.

•As Mr. Caradonna explained (Tr. At 102 ln 17-105 ln. 19), it is virtually impossible for a carrier as a practical matter to always know whether a forwarder has performed the requisite services or fulfilled the other criteria to receive compensation. For example, even if a forwarder did not book the cargo, it may later confirm the booking, which is usually done by telephone and not recorded by carriers. PSL135.

•Carriers do not typically investigate whether services have been performed, verify the currency of forwarder licenses, or investigate affiliations. This is true primarily because (a) carriers process thousands of shipments per week, and investigation into $10-20 forwarder payments would be impractical, and (b) the information is uniquely within the knowledge and control of the forwarder, on whose certification carriers rely. PSL131, 132.

•Messrs Maron and Caradonna each testified that in their 40 years experience in the industry, they had never seen any carrier withhold compensation from a forwarder, or question whether a forwarder had performed the requisite services to qualify it for compensation, whether it has a valid FMC license, or whether it was affiliated with the shipper. PSL132, 133.

•Carriers uniformly rely on the accuracy of forwarder certifications. PSL131.

Sea-Land states that the inescapable and uncontroverted conclusion is that Sea-Land's practices with respect to forwarder certification and compensation in this case were in all respects comparable to the practices of the vast majority of carriers in the industry and in accord with the spirit of the regulations.⁽⁴⁵⁾

Sea-Land Contends That BOE's Interpretation is Not Clear From the Face of the Statute and Regulations, and Therefore Industry Practice is Relevant in Determining Whether a Penalty Can be Assessed

Sea-Land believes the regulations are clear, but not the way BOE interprets them; that, if anything, the regulations are clear in authorizing the current practice of the overwhelming majority of the industry, including Sea-Land, when it was operating in the U.S. foreign trades, and that the 1984 Act eliminated the advance certification requirement and authorized certifications "as an endorsement on the carrier's compensation check," which is what Sea-Land used, citing Co. Ex. 13, 46 C.F.R. § 510.23(c).

Sea-Land contends that BOE, ignoring the word "endorsement" in the regulations, relies exclusively on the requirement of a "written certification" and a "signed certification" in contending that the forwarder's signature must be handwritten, not stamped as was the case with ITL and General Air Freight, and that, interestingly, two exhibits introduced by BOE itself at the recent hearing sharply undermine BOE's rigid, and supposedly "clear," interpretation of the "signed certification" requirement.

Sea-Land states that the first is Counsel's Exhibit 59, an excerpt from a 1996 Study Guide on freight forwarders published by the National Customs Brokers and Forwarders Association ("NCBFAA") in connection with its ocean freight forwarder certification program; that BOE presented this guide, published by the association for the industry, as a statement of the industry practice with respect to forwarder compensation, among other subjects; and that in section M(1)(b), the Study Guide addresses the requirement for a "signed certification" and makes clear that signatures may come in many forms, including forms that are not handwritten.

Sea-Land states that, specifically, the Study Guide discusses the trend away from paper documentation and toward electronic, or EDI, documentation; that it also discusses electronic forms of payment and notes that "in due course, EFT [electronic funds transfer] will replace paper checks" as a means of paying forwarder compensation, citing Co. Ex. 59, p. III-2-76; that the Study Guide cites as accepted practice at that time (i.e., 1996, the period at issue in this case) that a "'written certification' can be provided via the text of an E-MAIL or EDI message . . . .," obviously not a handwritten form; that the Study Guide then discusses the question, "can a 'signature' also be provided via these means?" (Co. Ex. 59 at p. III-2-76); and that its answer is clear:

The answer is yes; "electronic signatures" in the form of passwords and other authentication are now a routine aspect of data transmission security. These FMC regulations should be interpreted as permissive with respect to the means of communication.

Id. Sea-Land states that, in other words, the industry Study Guide published in 1996 interpreted the regulations as permitting electronic signatures on forwarder certifications as satisfying the "signed certification" requirement, and that BOE's own exhibit thus contradicts its position that the "signed certification" requirement is clear on its face in requiring manually handwritten signatures.

Sea-Land states that the second new exhibit that supports Sea-Land's position is Counsel's Exhibit 56, which included check certifications that were endorsed with handwritten block letters on the back of the check as follows:

FOR DEPOSIT ONLY
SURFACE SEA FORWARDING
ACC# 47310100403

Sea-Land notes that BOE presents this endorsement as meeting the "signed" certification requirement because it is handwritten, not stamped, but that no individual from Surface Sea Forwarding signed his or her name on the check, nor is any individual from the forwarder identified in any way.

Sea-Land contends that the endorsement in Counsel's Exhibit 56 gives no more information than, and is in substance no different from, the stamp used by ITL and General Air; that both state, "For deposit only," both give the name of the forwarding company, and both provide the forwarder's bank account number; that is Sea-Land really to be penalized (much less penalized millions of dollars) in this case because its forwarders stamped exactly the same information on the check that another forwarder block-printed in pen?; that BOE has provided no reason why the act of handwriting as opposed to stamping the name of the company and its account number constitute a valid certification; and that, moreover, in the nearly 20 years that check certifications have been permitted, the Commission has never stated that handwriting is necessary or preferable.

Sea-Land states that Counsel's Exhibit 56 triggers a number of other questions about BOE's interpretation of the signed certification requirement, both for check certifications and for other types of certifications, and Sea-Land asks: must an individual's name be indicated, or is the company's name sufficient (as in Co. Ex. 56)?; will the forwarder's initials suffice (see Carey Tr. at 621)?; must the handwritten certification be in cursive, as is typical of "signatures," or will mere printing in block letters suffice?; could a forwarder use a stamp of the principal's manual signature, as is done in many corporate contexts?; does the "written certification" requirement mean that the entire certification must be handwritten, or does that only apply to the "signature" portion?; must the handwritten signature be by a person with direct knowledge that services have been performed?; must the signature be by an officer of the company or another person of particular position or authority within the company?; if a non-check certification is used, are fax copies acceptable or must the carrier receive an original?; if all other documents with respect to a shipment are created electronically, must the certification be signed manually?; and are electronic signatures permitted at all?⁽⁴⁶⁾

Sea-Land observes that these are only a few examples of the many questions raised by BOE's narrow interpretation of the regulation; that the Commission has never answered any of them; that, similarly, the Commission has never enunciated a requirement that carriers check the Federal Register on a regular basis to verify current licenses, or that carriers check fax numbers of incoming shipping instructions or otherwise verify whether the forwarder actually performed the requisite services to which it certified; that the one thing that has been established beyond dispute by the record of this case, however, is that Sea-Land acted in the same manner as virtually every other carrier in obtaining forwarder certifications, citing PSL141.

Sea-Land contends that, under these circumstances, it cannot be concluded that the regulations were clear in giving Sea-Land fair notice that its conduct was in violation, and that it would therefore not only be unfair to penalize Sea-Land for its conduct, but violative of due process and the Administrative Procedure Act, citing General Electric Company v. U.S. Environmental Protection Agency, 53 F.3d 1324 (D.C. Cir. 1995).

Sea-Land Contends That the Cases Cited by BOE do Not Support Its Position Because They do Not Involve Penalty Assessments

Sea-Land notes that BOE cites eight cases, relying most heavily on Brock v. L. R. Wilson & Sons Inc., 773 F.2d 1377 (D.C. Cir. 1985), in support of its contention that a respondent may have adequate notice of an agency ruling despite lack of prior interpretation, enforcement by the agency, or prevailing industry practice to the contrary; that BOE's analysis, and its cases, miss the point; that not one of the cases relied upon by BOE focuses on penalties; that in Brock, the court only held that lack of prior agency action or industry practice did not prevent OSHA from finding a substantive violation of the Occupational Health and Safety Act in a case where there was "a substantial probability that death or serious physical harm could result" from the violations, citing Brock, 773 F.2d at 1389.

Sea-Land states that here, in contrast, the issue is whether Sea-Land should be assessed a monetary penalty, not whether a substantive violation can be found; that the D.C. Circuit has made clear the distinction between substantive violations and penalties; that in General Electric, EPA had found that GE was required to immediately incinerate liquids laced with PCBs rather than, as GE had done, permit part of it to evaporate through a distillation process; that EPA imposed a $25,000 fine for the violation; that the court on review sustained EPA's reading of the regulation and its prospective application, but overturned the assessment of the penalty because GE did not have fair notice of EPA's interpretation of a rule that could plausibly have been interpreted otherwise; that the court stated:

Had EPA merely required GE to comply with its interpretation, this case would be over. But EPA also found a violation and imposed a fine. Even if EPA's regulatory interpretation is permissible, the company argues, the violation and fine cannot be sustained consistent with fundamental principles of due process because GE was never on notice of the agency interpretation it was fined for violating. It is to this issue that we now turn.

(citing General Electric, 53 F.3d at 1328); and that, thus, the court deferred to the agency in its interpretation of the regulation going forward, but reversed the finding of liability and related fine because of lack of notice.

Sea-Land states that, similarly, in Rollins Environmental Services, Inc. v. EPA, 937 F.2d 649 (D.C. Cir. 1991), the court deferred to the agency interpretation of the applicable regulations but nonetheless overturned a $25,000 fine for a similar violation to that in General Electric because the respondent did not have fair notice of how the regulation would be applied, and that the court stated:

While we defer to EPA's interpretation of the rule, the lack of adequate notice resulting from the regulations' inherent uncertainty in meaning is a mitigating factor that had to be taken into account in assessing the civil penalty.

Selective law enforcement, if such it be here, is generally unappealing, particularly if it is preceded by a long period of inaction. The considerations of this character which appellant presses upon us would appear to be relevant to the issue of the extent of the civil penalties to be imposed in the pending District Court proceeding.

Sea-Land argues that this is an issue of first impression on which there has been no Federal Maritime Commission guidance and a lack of enforcement of forwarder rules against ocean carriers is not contested; that since 1961-and particularly since the 1984 statutory changes liberalizing the permitted methods of forwarder compensation-there is no evidence of reported FMC advices, circulars, letters, decisions or enforcement cases against carriers pertaining to the scope of their obligations under the forwarder rules; that Messrs. Maron and Caradonna each testified that in their 40 years of experience, they were not aware of any Commission guidance, formal or informal, on these issues, citing Maron Tr. 120 ln9 - 15 and Caradonna Tr. 129 ln5 - 130 ln10; and that this is particularly significant in Mr. Maron's case, since he was not only a forwarder for over 40 years, he served in prominent positions in the national and local forwarder associations for over 20 years.

Sea-Land contends that, in the final analysis, the most direct, effective and fair method of deterring unlawful forwarder payments is to proceed against the knowing perpetrator, the forwarder; that, after all, only the forwarder knows whether it performed services, whether it has a valid license, or whether it is affiliated; that when forwarders endorse a false certification on any of these points, they are committing fraud; that penalizing the target through selective law enforcement is not only unfair, but ineffective; that, seemingly, the Commission agrees; that in August 2002 the Commission instituted two new investigations alleging unlawful forwarder payments;⁽⁴⁸⁾ that, again, as has been done historically, only the forwarders are named, not the ocean carriers, underscoring the selective nature of this action against Sea-Land.

Sea-Land States That the Administrative Law Judge Should Recommend That the Commission Inform Itself of Industry Forwarder Practices, Review of Its Forwarder Rules, and Provide Guidance to the Industry

Sea-Land states that this case has brought to light a surprisingly broad disconnect between industry forwarder practices and what BOE believes is required by the Act; that equally surprising, it appears that the Commission is unaware of these industry-wide practices or at least of BOE's view that the entire industry is not complying with the Act; that, as explained by Messrs. Maron and Caradonna, the nature of the forwarder industry and the significance of forwarder compensation have changed dramatically in recent years, citing PSL113, 114; and that, as they also testified, BOE's interpretation of the requirements is not only at odds with prevailing practices, it may well result in the elimination of forwarder compensation entirely, citing PSL139.

Sea-Land therefore urges that the Administrative Law Judge recommend to the Commission that it inform itself as to current industry practices and thereafter advise the industry of what it expects going forward; that this could be accomplished through a variety of mechanisms-a rulemaking, notice of inquiry, or other formal or informal proceeding in which all segments of the industry could be heard; and that, in the final analysis, it is incumbent on the Commission to fully inform itself of current practices and advise the industry of the proper procedures for payment of forwarder compensation.

Sea-Land reiterates that a penalty in the $500,000-$600,000 range for the equipment substitution violations is reasonable and fair; that the World Line Shipping case forbids double penalties for the same transactions, and the "no punishment without notice" principle applies to the penalty issues in this case; and that no penalty is warranted for the forwarder compensation violations found in the Preliminary Ruling.

Issue "A" - Application of Decision in Stallion Cargo to Calculation of Penalty Amount

BOE replies to Sea-Land's citation of average settlements accepted by the Commission by highlighting the differences of the other carriers who did not have to contend with a history of prior offenses equivalent to Sea-Land's, who successfully raised issues as to their ability to pay a more substantial penalty, who had lesser degrees of carrier involvement or more difficult issues of proof of culpability for settlement purposes than did Sea-Land, and who cooperated fully with Commission investigations, did not frustrate the administrative process, and allowed the agency to conserve scarce Commission resources needed to meet its other enforcement duties. BOE argues that the stark difference demonstrates that Sea-Land may not gain mitigation indirectly through the device of comparing its current circumstances with the results of compromises negotiated by others.

In reply to Sea-Land's contention that penalties assessed in cases as to "egregious" violators are not apposite because they were exacted without "any expectation that a penalty would be paid" and are mainly default cases where only BOE's side was presented, BOE cites several contested cases to the contrary, e.g. Stallion Cargo, World Line Shipping, Kin Bridge Express, and Green Master Int' Freight Services Ltd.-Possible Violations, Docket No. 01-10, slip op. (I.D., July 30, 2002), pending on exceptions filed August 29, 2002. BOE states that a penalty in the range of $10,000-$22,500 for each violation would be supported by those findings and penalties and would not be either arbitrary or capricious.

Issue "B" - Application of Commission's Decision in World Line Shipping to the Calculation of Penalty Amount

BOE states that Sea-Land argues that the World Line Shipping decision also can be read as a legal bar to penalties as to sections 19(d)(1) and 19(d)(4). BOE replies that penalties are due under section 19(d)(1) inasmuch as it was found in the Preliminary Ruling that Sea-Land's forwarder compensation malpractices were system-wide and prone to abuse and manipulation; that the shortcomings and deficiencies of Sea-Land's forwarder compensation system were known; and that no effort was made, however, to resolve or upgrade a faulty system. BOE contends that, in contrast, the findings as to section 19(d)(4) are a specific, fact-driven indictment of Sea-Land's ongoing relationship to NVOCC and freight forwarder General Ocean Freight.

Issue "C" - Application of Rule of Lenity

BOE notes that Sea-Land states that "Sea-Land has no reasonable expectation, much less an ascertainable certainty, that the certification requirements would be applied in practice as they were in the Preliminary Ruling," and that "the implementation of the requirement in a specific situation-e.g. that a check certification must be manually signed-is not clear from the regulation. . . ."

BOE states that the Commission regulations unambiguously required delivery by the forwarder of a "signed certification" well prior to the 1984 amendments first authorizing placement on the back of carrier compensation checks, citing, e.g., 46 C.F.R. § 510.33(c) (1983 edition), and that nothing in the Notice of Proposed Rulemaking, the comments filed therein, nor the Final Rule published in Docket No. 84-19, Licensing of Ocean Freight Forwarders, intimated that the requirements for certifications on bank checks would be less or different than for the pre-existing requirements as to a signed certification upon the carrier's bill of lading.

BOE urges that the most telling evidence, however, is found in comments which Sea-Land itself filed in Docket No. 84-19, Licensing of Ocean Freight Forwarders. BOE states that Sea-Land's written statement, filed therein by Sea-Land attorney John Ridlon, confirms the plain meaning of the regulations and demonstrates how Sea-Land expected to comply with the Commission's certification requirement:

Sea-Land suggests that a carrier could accomplish the requisite need for certification verification by restrictively endorsing any check to be paid to and negotiated by a freight forwarder. The restrictive endorsement could be verbatim the certification required in the current proposed regulations of the Commission. If such a proposal were adopted, the forwarder, by his endorsement and negotiation of the cheque would certify those things required in proposed section 510.33(c). His signature, and the completion of his valid FMC license would be his affirmative certification.

The current requirements of prior certification appearing on the ocean bill of lading delay commercial obligations as between forwarder and carrier because of the need for manual verification of the existence of that certification and signature notwithstanding a computerized and automated documentation system. The current system simply results in delayed payment to the freight forwarder for services rendered by them. The proposal enclosed in these comments would eliminate that delay without diluting the enforcement capability of the required certification of services performed and records to be maintained to verify those services and proper payment for them.

citing Counsel Ex. 61, at 4 (emphasis added by BOE). BOE adds that in view of the above, Sea-Land's current demands to be relieved of any penalty on the basis that Sea-Land lacked knowledge of how the regulation would be interpreted and applied appear disingenuous.

BOE contends that, upon cross-examination, Sea-Land's testimony has been shown to be without significant weight, and that given the overreaching objectives set by Sea-Land for its witnesses, it is altogether unsurprising that the task of establishing the existence of an "industry practice" solely through the prepared testimony, without aid of any corroborating demonstrative evidence or documentation of such practices, should exceed the depth and factual grasp of Sea-Land's witnesses Caradonna and Maron.

BOE states that Sea-Land's witness for the forwarder community was Mr. Maron (Co. Ex. 50); that Mr. Maron testified that his base of knowledge of the industry was 25-50 of the largest and best-equipped forwarders (FF331); that these companies are generally members of the more prestigious forwarder organizations, such as the NCBFAA and the New York Freight Forwarders Association, Id.; and that Mr. Maron estimated that most forwarders solely stamp their compensation checks for deposit.

BOE points out that Mr. Maron was unable to speak with personal knowledge of the practices of the remainder of the 2700 licensed U.S. freight forwarders, and that he acknowledged that other forwarders were completing forwarder certifications on compensation checks by inserting their forwarder license number and signing the certifications.

As an evidentiary matter, BOE disputes that an "industry practice" in the manner of submitting forwarder certifications and issuing forwarder compensation payments can be affirmatively demonstrated by Sea-Land through the medium of those particular witnesses which it presented at hearing. BOE states that, when pressed upon cross-examination, Sea-Land's "experts" were found unable to furnish specifics as to carrier practices regarding processing forwarder compensation payments and the handling of such checks upon their return to the carrier or carrier's bank, and that the witness testimony previously challenged by BOE has been shown unpersuasive and lacking in the most elemental qualities of personal knowledge and the competence of the witness to speak thereto.

BOE states that Mr. Maron neither knew of, nor claimed to follow any policy or advice emanating from, the largest trade associations serving the forwarder industry, and that Mr. Maron never sought "informed compliance" by inquiring of the Commission whether stamp endorsement of forwarder compensation checks, without more, would satisfy the statute and the Commission.

To begin at the beginning, when determining under maritime law whether a penalty should be imposed the Commission's power to assess civil penalties must be examined under section 13 of the 1984 Act, which provides, as pertinent here, as follows:

SEC. 13. PENALTIES.

(a) ASSESSMENT OF PENALTY.-Whoever violates a provision of this Act, a regulation issued thereunder, or a Commission order is liable to the United States for a civil penalty. The amount of the civil penalty, unless otherwise provided in this Act, may not exceed $5,000 for each violation unless the violation was willfully and knowingly committed, in which case the amount of the civil penalty may not exceed $25,000 for each violation. Each day of a continuing violation constitutes a separate offense. 46 U.S.C. app. § 1712(a).

The $25,000 maximum penalty is raised 10 percent for violations occurring after November 7, 1996. See Inflation Adjustment of Civil Monetary Penalties, 27 S.R.R. 809, 61 Fed. Reg. 52704 (October 8, 1996). All but a dozen violations happened after November 1996. Thus the newer violations are subject to a possible maximum penalty of $27,500 each.

Section 13 also enumerates the statutory factors to be addressed in assessment of civil penalties against those found to have violated the 1984 Act:

(c) ASSESSMENT PROCEDURES-Until a matter is referred to the Attorney General, the Commission may, after notice and opportunity for hearing, assess each civil penalty provided for in this Act. In determining the amount of the penalty, the Commission shall take into account the nature, circumstances, extent, and gravity of the violation committed and, with respect to the violator, the degree of culpability, history of prior offenses, ability to pay, and such other matters as justice may require. 46 U.S.C. app. § 1712(c).

Pursuant to section 17(a) of the 1984 Act, the Commission "may prescribe rules and regulations as necessary to carry out this Act." 46 U.S.C. app. § 1716(a). The Commission's regulations, in addition to the statutory criteria, proclaim that the Commission's own policies as to "deterrence and future compliance" are additional factors to be considered:

(b) Criteria for determining amount of penalty. In determining the amount of any penalties assessed, the Commission shall take into account the nature, circumstances, extent and gravity of the violation committed and the policies for deterrence and future compliance with the Commission's rules and regulations and the applicable statutes. The Commission shall also consider the respondent's degree of culpability, history of prior offenses, ability to pay and such other matters as justice requires. (Emphasis added.) 46 C.F.R. 502.603 (2001).

The ultimate issue in this Initial Decision is the amount of the penalty to be assessed against respondent Sea-Land for its knowing and willful violations of the 1984 Act as found in the Preliminary Ruling served March 5, 2002 (as corrected on June 3, 2002). BOE seeks the largest amount of money for the violations of the forwarder regulations and section 19 of the 1984 Act. The Preliminary Ruling found that, between January 1, 1996 and December 31, 1997, Sea-Land violated section 19(d)(1), 46 U.S.C. app. § 1718(d)(1), for 435 shipments by compensating forwarders that did not perform the requisite forwarding services, paying forwarder compensation without obtaining proper and adequate certifications, and paying forwarder compensation to a person with a revoked forwarder license, and for 170 shipments by knowingly paying forwarder compensation to a forwarder that had beneficial interest in the shipments.

BOE contends that the forwarder rules, 46 C.F.R. § 510.23(c), required Sea-Land not to pay forwarder compensation where the forwarder had not manually signed the certification on the back of the compensation check when cashing it, had not inserted its FMC license number on the back of the check and had not shown that it was not affiliated with a shipper. BOE contends that the forwarder compensation rules require a manual signature because the rule refers to a "signed certification" and also refers to "undersigned." BOE argues that its interpretation is in keeping with the literal language of the regulation and enables BOE to readily complete its regulatory checks of forwarders for compliance with the forwarder certification portion of the regulations.⁽⁴⁹⁾

Sea-Land contends that the regulations did not require a manual signature on the reverse of the compensation check nor the insertion of the FMC license number on the certification which also stated that the forwarder was not affiliated with the shipper.

BOE contends that "clear prior guidance" as to a carrier's statutory obligations in regard to compensation practices was given in 1961 and refers to Freight Forwarder Investigation, 6 F.M.B. 327 (FMB 1961). The Commission concluded in that proceeding that "the widespread rebating and discrimination here shown cannot reasonably be expected to cease without the total prohibition of brokerage payments to forwarders in connection with cargo with respect to which they render forwarding service." Id. at 364.

However, instead of the total prohibition of all common carrier payments to forwarders sought by the Commission, Congress authorized the continued payment of compensation to forwarders. Judge Kaufman, writing for a panel of the Second Circuit in New York Foreign Frgt. F. & B. Ass'n. v. Federal Maritime Com'n., 337 F.2d 289 (1964), explained what happened next.

. . . [T]he agency resolved to prohibit brokerage payments covering cargo with respect to which forwarding services had been rendered.

Reaction from the freight forwarding industry followed swiftly and took the form of efforts to secure Congressional legislation which came to fruition in the Freight Forwarder Law, enacted September 19, 1961. 75 Stat. 522, 46 U.S.C. §§ 801, 841a, 841b. Congress' remedy for the industry's malpractices stopped short of the agency's proposed total ban on brokerage payments. Instead, compensation from carriers was authorized only where the forwarder renders specified services of value and issues a certificate to that effect. Additionally, forwarders would be licensed and other safeguards provided to enable the Maritime Commission to cure the abuses and undesirable practices uncovered in its extensive investigations.

Under the 1961 Law a common carrier may "compensate" a licensed forwarder "when, and only when" he has performed-and certifies to the carrier that he has performed-"the solicitation and securing of the cargo for the ship or the booking of, or otherwise arranging space for, such cargo" plus at least two out of five additional enumerated services. 46 U.S.C. § 841b(e). . . . Id., 337 F.2d at 293.

Certain forwarders challenged six of the Commission's regulations and the Commission was upheld by the 2^nd Circuit in the decision written by Judge Kaufman. 337 F.2d 289 (1964). That forwarder compensation law, enacted by Congress in 46 U.S.C. app. § 841b(e), provided that:

Before any such compensation is paid to or received by any person carrying on the business of forwarding, such person shall, if he is qualified under the provisions of this paragraph to receive such compensation, certify in writing to the common carrier by water by which the shipment was dispatched that he is licensed by the Federal Maritime Commission as an independent ocean freight forwarder and that he performed the above specified services with respect to such shipment. Such carrier shall be entitled to rely on such certification unless it knows that the certification is incorrect. (Emphasis added.) 46 U.S.C. app. § 841b(e).

Thus, the quoted section of the 1916 Act, 841b(e), required an advance certification by the ocean freight forwarder (or licensee) that it had performed the requisite forwarding services before the ocean carrier could properly pay compensation. This is shown by the emphasized language in 46 U.S.C. app. § 841b(e):

Before any such compensation is paid to or received by any person carrying on the business of forwarding, such person shall . . . certify . . . that he performed the above specified services with respect to such shipment. . . . (Emphasis added.)

(1) A common carrier may compensate an ocean freight forwarder in connection with a shipment dispatched on behalf of others only when the ocean freight forwarder has certified in writing that it holds a valid license and has performed the following services:

(A) Engaged, booked, secured, reserved, or contracted directly with the carrier or its agent for space aboard a vessel or confirmed the availability of that space.

(B) Prepared and processed the ocean bill of lading, dock receipt, or other similar document with respect to the shipment. 46 U.S.C. app. § 1718(d)(1).

In seeking to make complementary changes in the forwarder rules subsequent to the enactment by Congress of the 1984 Act, the Commission instituted another rulemaking proceeding, Docket No. 84-19, Licensing of Freight Forwarders, 22 S.R.R. 1148 (1984), 49 Fed. Reg. 36296, Sept. 14, 1984.

Referring to the new statutory provision (46 U.S.C. app. § 1718(d)(1)), the Commission initially proposed interim rules proclaiming that:

[The new] legislation substantially alters the regulatory responsibilities of the Commission and directly impacts on the Commission's regulations pertaining to the ocean freight forwarding industry. . . . While most of the changes are technical in nature some will have a significant impact on the industry.

(49 Fed. Reg. 18,839.) The FMC promulgated interim regulations which proposed that the forwarder certification be made exclusively on the bill of lading, and merely changed "Before" to "Prior":

Prior to receipt of compensation, the licensee shall file with the carrier a signed certification as set forth below on one copy of the relevant ocean bill of lading which indicates performance of the listed services. . . . (Emphasis added.) (Former 46 C.F.R. § 510.33.)

The Commission decided not to continue on that path realizing that the vast majority of the commenting parties limited their criticisms to the certification requirements. The commenters complained that section 510.33 of the forwarder rules (which contained the "advance notice" rule) creates "substantial administrative expenses both on the part of the forwarder and the carrier which could be eliminated through use of efficient automated systems for payment of compensation. . . . [T]he 1984 Act specifically eliminates the language of the Shipping Act, 1916 . . . requiring certifications prior to payment of compensation by the carriers. It is suggested that this change expresses Congress' intent to eliminate the current onerous and counterproductive paperwork procedures." Id. The Commission concluded that streamlining the certification procedures would provide substantial benefits for both forwarders and carriers, as follows (Id.):

It has been estimated by one commenter that with a revised rule, as recommended, the industry could realize a saving of three million dollars. The significant saving, it is suggested, would result from elimination of the need both for forwarders to submit the huge volume of certifications to carriers and for carriers to process and retain their paperwork in order to generate appropriate compensation checks. Payment of compensation, it is believed, could be better automated and less enmeshed in clerical procedures. 28 S.R.R. at 1149

By adopting this dynamic change required in the 1984 Act by Congress, the Commission also determined to liberalize dramatically the certification rule by permitting the forwarders to comply with the required certification in any of four ways, either on a copy of the bill of lading as in the interim rules, or on a summary statement, or on an invoice for compensation, or as an endorsement on the back of a carrier's compensation check. Id. The Commission explained that, "It is our belief that this change is consistent with the language of the 1984 Act, and it will afford the industry an opportunity to streamline procedures for the payment of ocean freight forwarder compensation for benefit of all concerned." Id.

Section 510.23(c) was therefore amended to permit forwarders to make the required certification "as an indorsement on the carrier's compensation check."⁽⁵⁰⁾

The rule does not specify the manner in which a certification must be signed. By providing that the certification could be placed on the carrier's compensation check, the Commission recognized that an endorsement of that instrument would satisfy the requirements of the rule. It is the usual practice in this industry, as well as most other commercial enterprises, that checks are typically endorsed for payment by "for deposit only" stamps, rather than by actual signatures. Thus, a manual signature is not required on a forwarder's compensation check. The regulation, as interpreted by BOE, failed to give fair notice that a manual signature was required. Reading that regulation would not reveal BOE's interpretation with "ascertainable certainty" in view of the recited modernization and development of the rules and the intent of Congress and the Commission.

Corroboration of the ambiguity of the forwarder rules as interpreted by BOE is found in Counsel's Exhibit 59, an excerpt from a 1996 Study Guide on freight forwarders published by NCBFAA, which submitted the amicus curiae brief. In section M(1)(b) of the Study Guide, turning to the requirement for a "signed certification," it is shown that signatures come in many forms including electronic signatures and others that are not handwritten. It is of importance that this exhibit was introduced by BOE and contradicts its claim that manual signatures were required. Its own evidence refutes this.

Official notice is taken of the Uniform Commercial Code ("UCC"), which governs commercial banking practices, and provides that "[a] signature is made by use of any name, including any trade or assumed name, upon an instrument, or by any word or mark used in lieu of a written signature." (USS § 3-401(2)). The UCC provides that a "signature" need not be written. Instead, and as the Comment to Section 3-401 makes clear, there is no particular way in which a signature is to be made. See, e.g., Fairchild Industries, Inc. v. United States, 620 F.2d 807, 811 (U.S. Ct. Cl. 1980). ("There is no particular way in which an indorsement is required to be made. Comment 2 to Section 3-401 of the Code states that an indorsement may be made in a variety of ways, such as 'handwritten, typed, printed or made in any other manner.'"⁽⁵¹⁾

In adopting the present version of the certification rule, the Commission was cognizant that in the 1984 Act Congress determined to liberalize and streamline the compensation certification procedures, and the agency therefore adopted the present form of the certification rule.

In the Preliminary Ruling, it was found that the involved forwarders did not insert their license numbers in the blank space provided in the certification on the back of the carrier's check. NCBFAA, as amicus curiae, representing over a thousand forwarders, explained that this is consistent with the general practice of the industry and that relatively few forwarders insert their license number on the certifications appearing on the back of carriers' compensation checks, and for good reason, since the regulations permit but do not require it. Consequently, the absence of an FMC license number on the back of a compensation check would not, in light of standard industry practice, by itself raise questions about the forwarder's entitlement to compensation.

Moreover, there is no reason why the absence of an FMC license number on the certification either is-or should be-a condition precedent to the payment of compensation, since the forwarder's license number would typically appear on the carrier's bill of lading, and the purpose of the rule-namely, that compensation be paid only to licensees-would be satisfied. Indeed, the record shows that it is the appearance of the name and license number of the forwarder on the bill of lading (in the forwarders box) that normally triggers the payment of compensation in this industry. Caradonna Tr. 143 ln9 - Tr. 144 ln15.

The record shows that the usual practice is that carriers generally establish procedures to pay compensation if a forwarder and its license number is properly inserted in the appropriate space on the bill of lading. Thus, when the forwarder endorses the check containing the required certification, both the carrier and forwarder would already have satisfied their obligations under the rule (unless the carrier "knows" the certification is incorrect).

It must be realized that the whole process of paying forwarders compensation was initiated by Sea-Land by sending the compensation checks to the forwarders. Clearly then, canceled checks with the appropriate certifications would not be available to Sea-Land until much later. Thus, when Sea-Land did receive the canceled checks at a subsequent date, it reasonably believed what was stated on the certification, i.e., that the forwarder had certified that it had an FMC license, had provided its license number, and that it was not affiliated with the shipper. Clearly, the regulations, as interpreted by BOE, did not give Sea-Land notice that if a forwarder did not fill in a blank on a $10 forwarder compensation check endorsement, with an FMC license number which Sea-Land already had, that Sea-Land was violating the 1984 Act or exposing itself to a possible huge penalty.

The next issue is whether Sea-Land had an obligation to go behind the certifications and investigate whether the certifications were incorrect.

Section 510.23(b), after describing the obligation of a forwarder to provide a written certification, provides that: "The common carrier shall be entitled to rely on such certification unless it knows the certification is incorrect."⁽⁵²⁾ The quoted sentence provided a "safe harbor" for Sea-Land in that it could rely on the truth of the certification unless it knew that the certification was incorrect. The regulation imposed no duty on Sea-Land to investigate, no other condition precedent before Sea-Land was "entitled to rely on such certification." This is because the burden of certifying that the requisite services have been performed is imposed on the forwarder, not the carrier. Rose Int'l. Inc. v. Overseas Moving Network Int'l, Ltd., 29 S.R.R. 177-178 ("the regulations require a freight forwarder to certify that it has performed the services . . . the forwarder must certify that it has performed the enumerated services.").

The phrase "unless it knows" in the rule clearly applies only when Sea-Land had actual knowledge that the certification is incorrect. This is consistent with the legislative changes in 1984 liberalizing the certification as a "safe harbor." The record in this case indicates that Sea-Land did not have actual knowledge that ITL's license had been revoked. The Preliminary Ruling found that Sea-Land did not utilize Federal Register notices and therefore did not know about the revocation. FF280. Similarly, the Preliminary Ruling found that "a carrier never contacted by the forwarder for a particular shipment has reason to know that a forwarder is not performing those forwarding services necessary for the payment of compensation." Preliminary Ruling at 237. However, when it comes to the possible imposition of a penalty on respondent, imputing this degree of knowledge to a carrier is not shown to be based on an established condition precedent, a standard of what "reason to know" means in practice. It has not been shown to embrace a duty to conduct an "investigation." The record shows that this is neither industry practice nor can it be found required by the forwarder rules.

The most recent session of the oral hearing reveals that the best evidence of whether BOE's interpretations were clear from the regulatory text is that they are, in virtually every respect, contrary to prevailing industry practice. The affidavits of industry experts Messrs. Maron and Caradonna, as supported by the amicus curiae brief of NCBFAA, establish that: (i) certifications by check endorsements are by far the most common method of compliance; (ii) forwarders do not manually sign those certifications; (iii) forwarders do not fill in their license numbers in the blank provided there; and (iv) carriers do not investigate behind the certifications to verify certified items such as performance of services, currency of forwarder license, or lack of affiliation with the shipper.

As Sea-Land asserts, "It strains credulity that the entire industry has been knowingly ignoring a 'clear' regulation for years." Thus, the record shows that the regulations were open to more than one interpretation and therefore, absent clear Commission guidance, the record would not support the assessment of a penalty on Sea-Land for not following the interpretation urged by BOE. As the Court stated in Puerto Rico Sun Oil Co. v. U.S. E.P.A., 8 F.3d 73 (1^st Cir. 1993), "It may come as a surprise that agency decisions must make sense to reviewing courts." Id. at 77. Obviously, to adopt BOE's interpretation in these circumstances would not make sense.

As NCBFAA points out in its amicus curiae brief:

. . . requiring an actual written signature at this juncture, almost twenty years after the rule was promulgated, would require a substantial-and costly-reeducation of the industry. At the least, a restrictive interpretation of this nature would require forwarders to adopt cumbersome procedures to ensure that compensation checks, unlike other checks or drafts they may receive, would need to be singled out for a handwritten signature. And, carriers would then need to carefully audit their cancelled checks to ensure that the requisite license numbers and handwritten signatures were present and correct. That unnecessary scenario would create the very burden the Commission wished to avoid when it promulgated the rule, and likely spell the end of the compensation system to the detriment of the forwarding industry.

Sea-Land points out in addition that any penalty for violating the forwarder rules would not promote compliance by ocean carriers. Normally a heavy penalty promotes compliance because the regulated entity has only two options-comply (onerous though it may be) to retain the regulated benefit (a route?/rate?, a permit, a license, etc.) or run the risk of further penalties. That should not be the case here because the forwarder compensation payments are so small and do not promote the carriers' interests. There is a third option-discontinue the payments. It seems likely from the testimony in the record that imposition of rigorous review on the carriers and investigating responsibilities would result, not in compliance, but in elimination of forwarder payments.

Thus, the "new and novel interpretation" in the Preliminary Ruling would contravene normal commercial practices, violate the "fair notice" doctrine explained in General Elect., Gates & Fox, Chrysler, Satellite Broadcasting, and Rollins, infra. Similarly, such a holding cannot result in the penalty sought by BOE against Sea-Land for alleged violations of the forwarder rules because it would jeopardize the intent of Congress and the purpose of the 1984 revisions to 46 C.F.R. § 510.23(c), which were intended to streamline the compensation process and establish the presumed reliability of the certification process.

By revising the regulations to eliminate the advance certification and permitting a certification as an endorsement on the reverse of the compensation check, the FMC, following industry practice, allowed the endorsement by a stamp marked "for deposit only" rather than requiring a manual signature. This was part and parcel of the changes to streamline the procedure and save the industry $3 million.

Requiring a manual signature as a condition precedent to completion of the certification clearly does not comport with the intent of the FMC and Congress to eliminate the former onerous and counter-productive paperwork procedures and enable the industry to streamline the compensation system in a dynamic economical manner.

BOE's interpretation, however, is entitled to deference for the future, if the Commission so requires. In General Electric, the Court explained the deference rule, at page 1327:

. . . We accord an agency's interpretation of its own regulations a "high level of deference," accepting it "unless it is plainly wrong." General Carbon Co. v. OSHRC, 860 F.2d 479, 483 (D.C. Cir. 1988) (internal punctuation and citations omitted); see also Hazardous Waste Treatment Council v. Reilly, 938 F.2d 1390 (D.C. Cir. 1991) (court will not reverse unless interpretation is "plainly erroneous or inconsistent with the regulation" (internal punctuation and citation omitted)). Under this standard, we must defer to an agency interpretation so long as it is "logically consistent with the language of the regulation[s] and . . . serves a permissible regulatory function." Rollins Envtl. Servs., Inc. v. EPA, 937 F.2d 649, 652 (D.C. Cir. 1991). . . .

* * *

[2] In adhering to this policy, we occasionally defer to "permissible" regulatory interpretations that diverge significantly from what a first-time reader of the regulations might conclude was the "best" interpretation of their language. Cf. American Fed. Gov't Employees v. FLRA, 778 F.2d 850, 856 (D.C. Cir. 1985) ("As a court of review . . . we are not positioned to choose from plausible readings the interpretation we think best." (internal punctuation and citation omitted)). We may defer where the agency's reading of the statute would not be obvious to "the most astute reader." Rollins, 937 F.2d at 652. And even where the petitioner advances a more plausible reading of the regulations than that offered by the agency, it is "the agency's choice [that] receives substantial deference." Id.

[3] Through this policy of deference, agencies, not courts, retain control over which permissible reading of the regulations they will enforce. Appropriately so, since it is the agencies, not the courts, that have the technical expertise and political authority to carry out statutory mandates. See Chevron, 467 U.S. at 864-66, 104 S.Ct. at 2792-93.

Although there are problems with BOE's literal interpretation, if BOE had merely required Sea-Land to comply with its interpretation for the future, this portion of the investigation would be over. See General Electric v. U.S. E.P.A., 53 F.3d 1324 (D.C. Cir. 1995). "Had EPA merely required GE to comply with its interpretation, this case would be over." Id. at 1328.

But since BOE seeks to have a huge penalty assessed against Sea-Land, Sea-Land argues that due process requires that parties receive fair notice before being deprived of property-here a fine. BOE responds that the regulations were clear and that Sea-Land's position cannot be sustained. Because this issue of "fair notice" is critical, the ruling case law must be examined in depth.

In General Elec. Co. v. U.S. E.P.A., 53 F.3d 1324 (D.C. Cir. 1995), Judge Tatel, writing for a panel of the District of Columbia Circuit, stated that the Environmental Protection Agency fined the General Electric Company $25,000 after concluding that it has processed polychlorinated biphenyls in a manner not authorized under EPA's interpretation of its regulations. "We conclude that EPA's interpretation of those regulations is permissible, but because the regulations did not provide GE with fair warning of the agency's interpretation, we vacate the finding of liability and set aside the fine." Id. at 1325. (Emphasis added.) Judge Tatel continued:

[1] GE argues that EPA's complaint is based on an arbitrary, capricious, and otherwise impermissible interpretation of its regulations. See U.S.C. § 706(2)(A) (1988). To prevail on this claim, GE faces an uphill battle. We accord an agency's interpretation of its own regulations a "high level of deference," accepting it "unless it is plainly wrong." General Carbon Co. v. OSHRC, 860 F.2d 479, 483 (D.C. Cir. 1988) (internal punctuation and citations omitted); see also Hazardous Waste Treatment Council v. Reilly, 938 F.2d 1390, 1395 (D.C. Cir. 1991) (court will not reverse unless interpretation is "plainly erroneous or inconsistent with the regulation" (internal punctuation and citation omitted)). Under this standard, we must defer to an agency interpretation so long as it is "logically consistent with the language of the regulation[s] and . . . serves a permissible regulatory function." Rollins Envtl. Servs., Inc. v. EPA, 937 F.2d 649, 652 (D.C. Cir. 1991). . . .

[2] In adhering to this policy we occasionally defer to "permissible" regulatory interpretations that diverge significantly from what a first-time reader of the regulations might conclude was the "best" interpretation of their language. Cf. American Fed. Gov't Employees v. FLRA, 778 F.2d 850, 856 (D.C. Cir. 1985) ("As a court of review . . . we are not positioned to choose from plausible readings the interpretation we think best." (Internal punctuation and citation omitted)). We may defer where the agency's reading of the statute would not be obvious to "the most astute reader." Rollins, 937 F.2d at 652. And even where the petitioner advances a more plausible reading of the regulations than that offered by the agency, it is "the agency's choice [that] receives substantial deference." Id.

[3] Through this policy of deference, agencies not courts, retain control over which permissible reading of the regulations they will enforce. Appropriately so, since it is the agencies, not the courts, that have the technical expertise and political authority to carry out statutory mandates. See Chevron, 467 U.S. at 864-66, 104 S.Ct. at 2792-93.

[5, 6] Due process requires that parties receive fair notice before being deprived of property. See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 7 S.Ct. 652, 657, 94 L.Ed. 865 (1950). The due process clause thus "prevents . . . deference from validating the application of a regulation that fails to give fair warning of the conduct it prohibits or requires." Gates & Fox Co. v. OSHRC, 790 F.2d. 154, 156 (D.C. Cir. 1986). In the absence of notice-for example, where the regulation is not sufficiently clear to warn a party about what is expected of it-an agency may not deprive a party of property by imposing civil or criminal liability. . . . But as long ago as 1968, we recognized this "fair notice" requirement in the civil administrative context. In Radio Athens Inc. v. FCC, we held that when sanctions are drastic-in that case, the FCC dismissed the petitioner's application for a radio station license-"elementary fairness compels clarity" in the statements and regulations setting forth the action with which the agency expects the public to comply. 401 F.2d 398, 404 (D.C. Cir. 1968); see also Maxwell Telecom Plus, Inc. v. FCC, 815 F.2d 1551, 1558 (D.C. Cir. 1987) (describing FCC's legal duty to provide adequate notice of requirements). This requirement has now been thoroughly "incorporated into administrative law." Satellite Broadcasting Co. v. FCC, 824 F.2d 1, 3 (D.C. Cir. 1987); see also Rollins, 937 F.2d at 654 n. 1, 655 (Edwards, J., dissenting in party and concurring in part) (principle is not constitutional, but "basic hornbook law in the administrative context," and "simple principle of administrative law").

[7-9] Although the agency must always provide "fair notice" of its regulatory interpretations to the regulated public, in many cases the agency's pre-enforcement efforts to bring about compliance will provide adequate notice. If, for example, an agency informs a regulated party that it must seek a permit for a particular process, but the party begins processing without seeking a permit, the agency's pre-violation contact with the regulated party has provided notice, and we will enforce a finding of liability as long as the agency's interpretation was permissible. In some cases, however, the agency will provide no pe-enforcement warning, effectively deciding "to use a citation [or other punishment] as the initial means for announcing a particular interpretation"-or for making its interpretation clear. E.g. Martin v. OSHRC, 499 U.S. 144, 158, 111 S.Ct. 1171, 1180, 113 L.Ed2d 117 (1991) (noting that such a decision may raise a question about "the adequacy of notice to regulated parties"). This, GE claims, is what happened here. In such cases, we must ask whether the regulated party received, or should have received, notice of the agency's interpretation in the most obvious way of all: by reading the regulations. If, by reviewing the regulations and other public statements issued by the agency, a regulated party acting in good faith would be able to identify, with "ascertainable certainty," the standards with which the agency expects parties to conform, then the agency has fairly notified a petitioner of the agency's interpretation. See Diamond Roofing Co. v. OSHRC, 528 F.2d 645, 649 (5^th Cir. 1976).

Three recent cases in this circuit illustrate the application of the fair notice rule to agency regulatory interpretations. Gates & Fox Co. v. OSHRC involved OSHA regulations that required employers who were constructing tunnels to provide emergency breathing equipment for employees working on the "advancing face" of the tunnel, and also required "[s]uch equipment . . . [to] be on the haulage equipment and in other areas where employees might be trapped by smoke or gas." 790 F.2d at 155 (citation omitted). An OSHA investigator cited Gates & Fox for not providing breathing equipment in an area in which, while nowhere near an "advancing face," employees might nonetheless have been "trapped by smoke or gas." Id. The agency's Review Commission was unable to agree on whether the regulation could be read to require breathing equipment in such areas. It compromised by finding a violation, although not a willful one. Writing for the court, then-Judge Scalia concluded that OSHA had not provided Gates & Fox with "constitutionally adequate notice." Id. at 156. Pointing out that the language of the regulation regarding "areas where employees might be trapped" could "reasonable be read to refer only to . . . areas near an advancing face," we held that the regulation failed to "give fair notice" that breathing equipment was necessary in all areas where employees might be trapped. Id. However, we "expressed no opinion on whether, in a non-penal context, the [agency's] interpretation of [the regulation] might be permissible." Id. We therefore left open the possibility that we would have deferred to the agency's interpretation had it merely required Gates & Fox to provide such apparatus and not punished it until after it had given notice of that requirement.

In Satellite Broadcasting Co. v. FCC, the FCC dismissed Satellite's application for a microwave radio station because it was filed in Washington, D.C., not in Gettysburg, Pa., as the FCC determined the regulations to require. But the specific regulation governing the filing of the application was silent on the appropriate location to file, and other regulations offered "baffling and inconsistent" advice. 824 F.2d at 2. Assuming "arguendo" that the interpretation was permissible, we ruled that the Commission should not have dismissed Satellite's application: "[T]he Commission through its regulatory power cannot, in effect, punish a member of the regulated class for reasonably interpreting Commission rules. . . . The agency's interpretation is entitled to deference, but if it wishes to use that interpretation to cut off a party's right, it must give full notice of its interpretation." Id. at 4.

In Rollins Environmental Services, Inc. v. EPA, as in this case, the EPA accused the petitioner of failing properly to incinerate a solvent that it had used to rinse out containers-in that case, concrete basins-that had once contained PCBs. 937 F.2d at 651. The relevant rule for rinsing basins stated that "[t]he solvent may be reused for decontamination until it contains 50 ppm PCB. The solvent shall then be disposed of as a PCB in accordance with § 761.60(a)." Id. (Citation omitted). Rollins reused the solvent several times, but it never reached a concentration of 50 ppm PCBs, and so Rollins disposed of the solvent in a way that was not TSCA-approved. An ALJ found a violation of the regulation, but a second ALJ assessed no financial penalty because he thought the regulations "unclear" and that Rollins' interpretation "had a definite plausibility." Id. On appeal within the agency, the reviewing officer concluded that the regulation was clear and imposed a $25,000 fine. Id. at 652.

Although we held that EPA's interpretation of the regulations was permissible, we agreed with the second ALJ that the language of the regulation was ambiguous and that both interpretations were reasonable. We also pointed out that "significant disagreement" existed among EPA's various offices regarding the proper interpretation of the language. Id. at 653. But Rollins had failed to raise the due process issue in his briefs or before the agency, so we allowed the violation to stand. Nonetheless, we concluded that the ambiguity of the regulation justified rescinding the fine against Rollins under TSCA's mitigation provision, which required the agency to take into account the "extent, and gravity of the violation . . . the degree of culpability and such other matters as justice may require" in setting the amount of the penalty. Id. at 654 (citing 15 U.S.C. § 2615(a)(2)(B)). Dissenting in part, now-chief Judge Edwards concluded that Rollins had adequately raised the "fair notice" issue and that the regulation clearly did not provide fair notice. He would have vacated the violation altogether, thereby precluding EPA from using the violation as a basis for increasing fines against the company in later liability proceedings. Id. at 654-57 & n.2.

[10] Unlike in Rollins, GE has clearly raised the due process "notice" issue in this case. Although we defer to EPA's interpretation regarding distillation because it is "logically consistent with the language of the regulation[s]," Rollins, 937 F.2d at 652, we must, because the agency imposed a fine, nonetheless determine whether that interpretation is "ascertainably certain" from the regulations, see Diamond Roofing, 528 F.2d at 649. As in Gates & Fox and Satellite Broadcasting, we conclude that the interpretation is so far from a reasonable person's understanding of the regulations that they could not have fairly informed GE of the agency's perspective. We therefore reverse the agency's finding of liability and the related fine.

We thus conclude that EPA did not provide GE with fair warning of its interpretation of the regulations. Where, as here, the regulations and other policy statements are unclear, where the petitioner's interpretation is reasonable, and where the agency itself struggles to provide a definitive reading of the regulatory requirements, a regulated party is not "on notice" of the agency's ultimate interpretation of the regulations, and may not be punished. EPA thus may not hold GE responsible in any way-either financially or in future enforcement proceedings-for the actions charged in this case. Although we conclude that EPA's interpretation of the regulations is permissible, we grant the petition for review, vacate the agency's finding of liability, and remand for further proceedings consistent with this opinion.

(Id., 1328-1334; emphasis added.)

The Court's opinion in General Electric was not a judicial aberration but has been followed more recently in U.S. v. Chrysler Corp., 158 F.3d 1350 (D.C. Cir. 1998), where the Court discussed the requirement of fair notice as follows:

In General Electric Co. v. EPA, 53 F.3d 1324, 1328, 1333 (D.C. Cir. 1995), we held that, because "[d]ue process requires that parties receive fair notice before being deprived of property," the Environmental Protection Agency ("EPA") could not penalize General Electric for asserted regulatory violations when General Electric lacked "fair warning of [EPA's] interpretation of the regulations." We made it clear that, "[i]n the absence of notice-for example, where the regulation is not sufficiently clear to warn a party about what is expected of it-an agency may not deprive a party of property," particularly when "the interpretation is so far from a reasonable person's understanding of the regulations that they could not have fairly informed [the regulated party] of the agency's perspective." Id. at 1328, 1330; see also Rollins Envtl. Servs. Inc. v. EPA, 937 F.2d 649, 652 n. 2 (D.C. Cir. 1991) ("[A] regulation carrying penal sanctions must give fair warning of the conduct it prohibits or requires.") (citation omitted); id. at 654 n. 1 (Edwards, J., dissenting in part and concurring in part) ("It is basic hornbook law in the administrative context that 'the application of a regulation in a particular situation may be challenged on the ground that it does not give fair warning that the allegedly violative conduct was prohibited.'") (citation omitted); Satellite Broad. Co. v. FCC, 824 F.2d 1, 3 (D.C. Cir. 1987) ("Traditional concepts of due process incorporated into administrative law preclude an agency from penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule."); Gates & Fox Co. v. OSHRC, 790 F.2d 154, 156 (D.C. Cir. 1986) ("[T]he due process clause prevents . . . the application of a regulation that fails to give fair warning of the conduct it prohibits or requires."). (Emphasis added.)

Similarly, in the present investigation, the implementation in a specific situation that BOE espouses, namely, that the certification on the reverse of the check must be manually signed, is not "ascertainably certain" from the regulations. In the words of Circuit Judge Randolph, writing for a panel of the D.C. Circuit in Rollins Environmental Services v. U.S. E.P.A., 937 F.2d 649, 652 (D.C. Cir. 1991), BOE's interpretation of the regulations "would not exactly leap out at even the most astute reader," just as where the regulations wanted the pelvic blocks placed for seat belt testing was not "ascertainably certain" in Chrysler.

Even more recently, in applying the fair notice rule, in Trinity Broadcasting of Florida, Inc. v. F.C.C., 211 F.3d 618 (D.C. Cir. 2000), the Court stated:

. . . Concluding that Trinity had abused Commission processes by exercising de facto control over NMTV in violation of section 73.3555, the Commission imposed a severe penalty-denial of Trinity's application to renew its commercial television station license. Because "[d]ue process requires that parties receive fair notice before being deprived of property," we have repeatedly held that "[i]n the absence of notice-for example, where the regulation is not sufficiently clear to warn a party about what is expected of it-an agency may not deprive a party of property by imposing civil or criminal liability." GE, 53 F.3d at 1328-29. We thus ask whether "by reviewing the regulations and other public statements issued by the agency, a regulated party acting in good faith would be able to identify, with ascertainable certainty, the standards with which the agency expects parties to conform. . . ." Id. at 1329 (internal quotation marks omitted).

In Satellite Broadcasting Co., Inc. v. FCC, 824 F.2d 1 (D.C. Cir. 1987), for example, the Commission had dismissed as untimely applications to operate radio stations finding that the applications had been filed in the wrong location. Because the rules addressed the filing of applications "in a baffling and inconsistent fashion," we held that the FCC had failed to give fair notice of its interpretation and thus could not "use that interpretation to cut off a party's right." Id. at 2, 4. In GE, EPA had fined General Electric for distilling used solvents and incinerating only the contaminated portion instead of immediately incinerating the entire solution. 53 F.3d at 1326-27. Although we deferred to EPA's interpretation of its regulations as requiring immediate incineration of the entire solution, we held that the agency could not fine GE for its failure to comply with an interpretation that was "so far from a reasonable person's understanding of the regulations that [the regulations] could not have fairly informed GE of the agency's perspective." Id. at 1330. See also, e.g., United States v. Chrysler Corp., 158 F.3d 1350, 1354-57 (D.C. Cir. 1998) (holding that agency failed to provide fair notice of specific requirements of compliance testing and government therefore could not seek an automobile recall on the ground that Chrysler had failed properly to perform the testing); Rollins Envtl. Svcs. (NJ) Inc. v. EPA, 937 F.2d 649, 653 (D.C. Cir. 1991) (rescinding fine assessed by EPA because regulation was ambiguous); Gates & Fox Co., Inc. v. OSHRC, 790 F.2d 154, 156 (D.C. Cir. 1986) (holding that agency failed to give fair notice of its interpretation that breathing equipment was required where the regulation "would reasonably be read" not to require the equipment).

. . . our conclusion in GE applies here as well: "Where, as here, the regulations and other policy statements are unclear, where the petitioner's interpretation is reasonable, and where the agency itself struggles to provide a definitive reading of the regulatory requirements, a regulated party is not 'on notice' of the agency's ultimate interpretation of the regulations, and may not be punished." 53 F.3d at 1333-34. (Emphasis added.)

In PMD Produce Brokerage v. U.S. Dept. of Agriculture, 234 F.3d 48 (D.C. Cir. 2000), the Court held that neither the Secretary of Agriculture's Rules of Practice nor any other action by the Secretary provided fair notice, as required by due process, to dealers of perishable products that "issuance" of the administrative law judge's oral decision recommending revocation of license was "receiving service" so as to trigger time for appeal especially when statements by the ALJ and hearing clerk indicated that appeal time ran from "service."

Circuit Judge Rogers, writing for a panel of the United States Court of Appeals for the District of Columbia Circuit, explained at 52:

[1] The dismissal of PMD's appeal implicates the Secretary's obligation to give fair notice because the sanction of dismissal of its appeal petition as untimely forecloses relief from revocation of its license under PACA [Perishable Agricultural Commodities Act]. In Satellite Broadcasting Co. v. FCC, 824 F.2d 1 (D.C. Cir. 1987), the court explained:

Traditional concepts of due process incorporated into administrative law preclude an agency from penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule. The dismissal of an application, we have held, is a sufficiently grave sanction to trigger this duty to provide clear notice.

Id. at 3 (citations omitted). In that case, an applicant for FCC licenses had failed to file its application in the proper location. See id. at 2-3. The court observed that the rules, taken as a whole, were conflicting. Id. at 2. Thus, while an "agency's interpretation [of its own rule] is entitled to deference, [] if it wishes to use that interpretation to cut off a party's right, it must give full notice of its interpretation." Id. a 4. Because the FCC had not provided fair notice of its interpretation of the relevant rules, the court held that it had acted arbitrarily and capriciously in dismissing the license applications, and that the applicant was entitled to reinstatement of the applications nunc pro tunc. See id.

Similarly, in General Electric Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995), the court deferred to the agency's reasonable interpretation of its rules but held that the agency could not fine a private party for failure to comply with a rule interpretation that was "so far from a reasonable person's understanding of the regulations that [the regulations] could not have fairly informed GE of the agency's perspective." Id. at 1330. Most recently, in Trinity Broadcasting of Florida, Inc. v. FCC, 211 F.3d 618 (D.C. Cir. 2000), the court rejected the agency's contention that its regulation requiring an entity to be "minority-controlled," id. at 628, provided fair notice of its interpretation of the regulation as mandating that non-profit organizations demonstrate de facto minority control and not simply a majority-minority board. See id. at 625, 628-30. The court likewise rejected the agency's contentions that agency statements and other agency action provided fair notice of its interpretation. See id. at 628-31. Therefore, the court reversed the denial of an application for renewal of a broadcast license. See Trinity Broadcasting, 211 F.3d at 632.

The fair notice rule set forth in General Elec., Satellite Broadcasting, Gates & Fox, and Rollins, as applied in cases before the Environmental Protection Agency, the Federal Communications Commission, the Occupational Safety & Health Review Commission, NHTSA, the Department of Agriculture, and other administrative agencies, is of controlling influence here. As Chief Judge Edwards stated in Chrysler, "It is basic hornbook law in the administrative context that 'the application of a regulation in a particular situation may be challenged on the ground that it does not give fair warning that the allegedly violative conduct was prohibited.'"

This is the first investigation of an ocean carrier for violations of the forwarder regulations and section 19 of the 1984 Act. The FMC has never before sought to penalize an ocean carrier for any of these practices in a litigated proceeding. The 1984 changes in the Shipping Act were a sweeping liberalization of the forwarder compensation procedures. Thus, the interpretation favored by BOE is all the more unexpected and unforeseen since it would have the Commission reverse course and hold Sea-Land to such stringent standards of what constitutes knowledge of illegality by forwarders.

Although courts normally extend great deference to an agency's interpretation of its own regulations for future application, they have refused to extend this deference to an unclear agency policy that would, if applied, result in a "drastic" penalty to the private party.

Deterrence is one of the main goals of imposition of penalties. The most direct and effective way, and the Commission's historical approach to promote compliance with forwarder compensation rules, is to address the party who has the relevant information, the forwarder, not the ocean carrier. The following are examples of such forwarder compensation penalty cases in this vein-forwarders not performing services or performing them without a license, etc., with the amounts of the penalty in parentheses. See, e.g., Robert S. Rullo, dba ABA Forwarding (NR 01-05, April 5, 2001) ($15,000); A.T.I. U.S.A., Inc. (NR 00-07, November 30, 2000) ($25,000); F.R.T. International Inc. d.b.a. Frontier Logistics Services (NR 00-06), March 23, 2000) ($15,000); Brian Min d.b.a. B & A Express (NR 00-06, March 23, 2000) ($20,000); Ace Shipping Corp. and Young S. Kim d.b.a. Ace Young Company (NR 00-06, March 23 2000) ($23,000); Metro Freight Services, Inc. and Georges T. Samaha (NR 99-11, May 6, 1999) ($15,000); Penbroke Marine Services, Inc. (NR 98-04, August 19, 1998) ($25,000); Seabridge International Inc. (NR 98-04, August 19, 1998) ($25,000); Transport Partner USA, Inc. and Kathy Morris (NR 98-92, May 4, 1998) ($14,000); and Sims, Waters & Associates, Inc. (NR 98-02, May 4, 1998) ($15,000).

It has been held that an agency "through its regulatory power cannot, in effect, punish a member of the regulated class for reasonably interpreting Commission rules." Satellite Broadcasting Co. v. F.C.C., 824 F.2d 1, 4 (D.C. Cir. 1987). As shown earlier in Rollins, 937 F.2d at 654, the Court concluded that "the ambiguity of the regulation justified rescinding the fine against Rollins under [a] mitigation provision, which required the agency to take into account the "extent and gravity of the violation . . . the degree of culpability and such other matters as justice may require" in setting the amount of the penalty; provisions also found in section 13 of the 1984 Act.

Sea-Land has clearly raised the due process "notice" issue and, although deference to BOE's interpretation of "signed certification" and "the undersigned" is warranted because it is "logically consistent with the language of the regulation," Rollins, 937 F. 2d at 652, when it comes to the penalty issue, it has been further determined that BOE's interpretation as to whether a manual signature is required on the compensation check is not "ascertainably certain" from the regulations. See Diamond Roofing, 528 F.2d at 649.

As in Gates & Fox, Satellite Broadcasting, and General Electric., and explained by the testimony of most forwarders as to their practice, it is concluded that BOE's interpretation is so far from a reasonable person's understanding of the revised applicable regulations that it could not have fairly informed Sea-Land of the agency's perspective for these violations of section 19(d).

In addition, it is evident that Sea-Land did not receive fair warning that BOE expected Sea-Land to pursue its separate inquiry of the lawfulness of the payments when it became aware of such matters as the lack of contact from the forwarder and when it realized that the shipper and forwarder had common fax numbers. Sea-Land could hardly have anticipated this since Sea-Land was complying with accepted industry practices of relying on the completed certification and since no guidance has been furnished from any source since the forwarder rules were promulgated four decades ago.

Sea-Land was entitled to rely on the forwarder's completion of the certificate form by endorsing the compensation check as proving that the forwarder complied with the forwarding regulations and section 19 of the 1984 Act. Section 510.23(b) assured Sea-Land of the safety of its position and of the established practice of the industry when it provides that, "[t]he common carrier shall be entitled to rely on such certification unless it knows the certification is incorrect." Section 510.23(b) also puts the onus on the forwarder for it provides that compensation may be paid where the licensee has provided a written certification in paragraph (c) of this section. Rose, 29 S.R.R. at 177-178.

In light of the ambiguity of the regulation, as interpreted by BOE, the showing that Sea-Land's method of certification as to forwarder compensation complied with industry practice, the absence of deleterious consequences, as well as the minuscule amount of money involved, mandates the conclusion that imposing a fine for violating the forwarder regulations would be arbitrary and capricious.

The Commission's own precedent is consistent with the holdings in General Electric and related court cases on grounds of fairness. See Prudential Lines, Inc. v. Farrell Lines, Inc., 22 S.R.R. 826, 849 (ALJ 1984) (administrative final, FMC, 1984), and Jorge Raynosa Import and Export Co.-Possible Violation of Section 44(a) of the Shipping Act, 1916, 22 S.R.R. 1558 1568 (Init. Dec. 1985) (administratively final, FMC, 1985).

The principles underlying the payment of forwarder compensation rules are known (such as certain services are specified and the forwarder must have a valid license etc.), but the practical application of these rules, espoused by BOE and adopted in the Preliminary Ruling, are novel. For example, as shown, there was no precedent or fair warning that Sea-Land would be deprived of the "safe harbor" of the certification by the forwarder's stamp endorsement, of its failure to insert its forwarder license number in the certification or that Sea-Land would be expected to undertake an independent investigation of the legality of the payments despite receiving a certification, simply because it had no contact with the forwarder and the shipper, and the shipper and the forwarder had such things as common fax numbers. This is particularly unexpected because, as the testimony of the industry experts explained, Sea-Land was following accepted industry practices and the Commission has never, since the forwarder rules were adopted 40 years ago, promulgated any advice or guidance on these issues. Moreover, BOE has never until this investigation sought to penalize an ocean carrier for any of these practices in a litigated case. Seemingly disregarded are the sweeping changes in the 1984 Act by which Congress mandated a liberalization and streamlining of the payment procedures for economic reasons. Thus, it is all the most unexpected and unforeseen that BOE would reverse course and seek to hold Sea-Land to such stringent standards of what constitutes knowledge of illegality by forwarders and advocate it as a basis for penalizing Sea-Land.

Sea-Land's contention that it reasonably believed that its practices were consistent with existing law is plausible and accepted since in 1984 both Congress and the Commission took specific steps to expand the use and protections of the forwarder certifications and correspondingly relax the burdens and obligations on carriers paying compensation. Congress eliminated the antecedent requirement that "Before any such compensation" such person "shall certify." The deletion of the prior certification requirement in response to the pleas of the industry was designed to eliminate "onerous and counterproductive paperwork procedures." Moreover, the Commission made the major change to the rules and allowed the certification to be placed on the endorsement of the forwarder compensation check. It naturally followed that this revolutionary change allowed the carriers to make payments "better automated and less enmeshed in clerical procedures."

What had been previously condemned became an approved business procedure. By permitting the certification to be placed on the reverse of the compensation check, one could anticipate the industry practice of rubber stamp endorsement. This also allows certain other benefits to follow. Clearly, it allows the carrier to rely on the fact that the check was cashed as proof that the certification was provided. Obviously, if the carrier does not receive the canceled check because it was not negotiated, there is no certification, but then there is no payment either. Another concomitant result of the check method is that the carrier will not learn how the certification was endorsed or completed until it receives notification a month or two after payment that the check was cashed. Clearly, Congress and the Commission added welcome flexibility to the process in the interest of making it less burdensome, less demanding, and more economical. Otherwise, ocean carriers would be required to compare addresses, fax numbers, bank accounts, and other shipment documentation to insure proper compensation checks. This was not the recent intention of either Congress or the Commission.

The record, especially the elimination of the advance certification by Congress and the changes in the forwarder rules by the 1984 Act, mandates the conclusion that Sea-Land cannot be penalized for not knowing that when the Commission regulation, 46 C.F.R. 510.23(c), authorized using "an endorsement on the carrier's compensation check," that it did not include the standard industry practice of endorsement by stamp but instead was limited to the rarely used manual signature endorsement. It is also now evident on the basis of the August 8 and 9, 2002 testimony, that industry practice did not require Sea-Land to independently investigate the facts behind the certifications provided in 1996 and 1997.

In this investigation, it was earlier determined that certain bookings or other correspondence faxes, etc., came from the shipper, not the forwarder, and the conclusion was reached that Sea-Land should have thus known that the forwarder had not performed the requisite services. However, the record now establishes that frequently forwarders prepare the bookings but may use the shipper's fax or phones and the shipper's facilities because they are small forwarders or since there is an "in-plant" arrangement whereby a freight forwarder is authorized to place its own employee in the office or plant of the client shipper. See Impact of Modern Technology on Freight Forwarding Industry, 28 S.R.R. 418, 419 (FMC 1998), and SLFF124. In addition, 46 C.F.R. § 515.41(e), as modified, permits "sharing of office facilities, personnel, furnishings, equipment and supplies" by shipper and forwarders.

Moreover, that it "confirmed the availability of that space," as stated in Rule 510.23(c), entitled the forwarder to compensation even if it did not book the cargo. 46 C.F.R. 510.23(c). Mr. Maron, an experienced forwarder, testified that some of his shipper customers preferred to book their own cargo but the forwarder confirmed the space later and received the compensation on the shipments. Co. Ex. 50, ¶ 22. Carriers do not generally keep track of forwarders' calls confirming bookings, so a carrier would only know that the calls had been made from the forwarder's certification. Co. Ex. 51, ¶ 16.

To require a carrier to make an independent investigation whenever a shipper books the cargo and the shipper is the contact person or there are common fax numbers would require a sharp departure from current practice, devastating the carefully designed and streamlined procedure and result in untrained booking clerks making judgments on isolated clues on thousands of documents as to whether forwarder payments may or may not comply with the Shipping Act regulations. This is not the consequence anticipated by Congress. Clearly, no monetary penalty can be imposed on Sea-Land for paying forwarder compensation in those instances when it followed industry practice.

Section 19(d)(4) of the 1984 Act and section 510.23(h), 46 U.S.C. app. § 1718(d)(4), and 46 C.F.R. § 510.23(h) preclude a forwarder from receiving compensation from a common carrier with respect to a shipment in which the forwarder has a direct or indirect beneficial interest.⁽⁵³⁾ Thus, forwarders connected with shippers are not allowed to receive compensation from common carriers. The inquiry at this juncture, however, is whether Sea-Land, the common carrier, had fair notice of how the rules would be applied to the circumstances in this case.

The Preliminary Ruling, FF312, found that the name of the freight forwarder at issue, General Air Freight, was given to Sea-Land by General Ocean; that the compensation checks containing the certification that the forwarder did not have a beneficial interest in the shipment were later endorsed and cashed (Preliminary Ruling, FF319). As thoroughly explained earlier, the common carriers' usual practice is to rely on the forwarder's certifications, and this includes the assertion that they have no beneficial interest in the shipment. In such circumstances, as with the other assertions in the forwarder's certification, no monetary penalty can be justified against Sea-Land in this instance for failing to uncover the shipper-forwarder relationship at issue in 1996-1997. Sea-Land was entitled to rely on the safe harbor provided by the forwarder rules. 46 C.F.R. § 510.23(c). No penalty can be imposed for the novel interpretation of the forwarder rules for which Sea-Land did not previously receive fair warning. See the earlier discussion and General Electric Co. and related cases.

Sea-Land paid ITL total forwarder commissions of about $5,000, or about $18 per shipment, on 235 shipments in 1996 and 1997 (SL114). ITL's license was revoked on April 1, 1997, and the revocation was published in the Federal Register on April 23, 1997 (Preliminary Ruling, FF278-279). The pertinent documents as to ITL shipments, which total 46, are dated before the date of the notice of revocation, April 23, 1997 (Preliminary Ruling, FF265; BOE Ex. 2, Attachments D-H). No testimony was adduced in relation to and the record does not contain any reference to specific ITL shipments by bill of lading etc., number, after April 23, 1997. Thus, there cannot be a finding as to any violation on the number of ITL shipments after its license was revoked since the 1984 Act provides for penalties for "each violation" and without any specific evidence there is no proof of any particular violation. 46 U.S.C. app. § 1712(a). In the circumstances and as discussed, no penalties are warranted on this record for any violations of section 19 of the 1984 Act or the forwarder regulations.

Next to be addressed are the amounts of the penalties for the 149 violations of section 10(b)(1) because Sea-Land charged shippers lower inapplicable rates on cargo in 20-foot containers when Sea-Land moved the cargo in 40-foot and 45-foot containers, while the cargo was not within the tariff maximum weight and/or measure limits. Also to be addressed are the penalty amounts because the same 149 occurrences or instances also violated section 10(b)(4), while the fact that the weight and/or measure of the cargo exceeded that permitted by the equipment substitution tariff was concealed by an unfair device or means.

As noted earlier, the Shipping Act provides that in complying with the "Assessment Procedures" to assess each civil penalty provided for a willful and knowingly committed violation of the 1984 Act and in determining the amount of the penalty the Commission, in section 13(c), "shall take into account the nature, circumstances, extent, and gravity of the violation committed and, with respect to the violator, the degree of culpability, history of prior offenses, ability to pay, and such other matters as justice may require." 46 U.S.C. app. § 1712(a) and (c).

The Commission stated, many years ago, that, "The prescription of fair penalty amounts is not an exact science. There is a relatively broad range within which a reasonable penalty might lie." Midland Pacific Freight Transfer License, 22 S.R.R. 181, 184 (1983), cited in Marcella Shipping Co. Ltd., 23 S.R.R. 857 (I.D. 1986) (FMC notice of finality, March 26, 1986). In Merritt v. U.S., 960 F.2d 15 (2d Cir. 1992), the court stated that findings must be made as to each factor listed in section 13(c) and that "the Commission may in its discretion determine how much weight to place on each factor." 960 F.2d at 17.

Dispositive weight should not be given to any one particular factor. This includes recognition that the basic policy of the Shipping Act has been to establish a nondiscriminatory regulatory process for the common carriage of goods by water in the foreign commerce of the United States with a minimum of government intervention and regulatory costs. 46 U.S.C. app. § 1701(1), and 46 U.S.C. app. § 1712(c). The primary role of the FMC is to review conduct to protect carriers, shippers, and ports from unfair or discriminatory shipping practices. Sea-Land Dominicana, S.A. v. Sea-Land Service, Inc., 26 S.R.R. 578, 581 (1992). In this role, the "Commission may prescribe rules and regulations as necessary to carry out [the 1984 Act]." 46 U.S.C. app. § 1716. What will insure fulfillment of that duty must involve, of necessity, an exercise of careful discretion. See Nowicki v. United States, 536 F.2d 1171 (7^th Cir. 1976), cert. denied, 429 U.S. 1092 (1977), where the court stated:

. . . where Congress has entrusted an administrative agency with the responsibility of selecting the means of achieving the statutory policy "the relation of remedy to policy is peculiarly a matter for administrative competence." American Power Co. v. SEC, 329 U.S. 90, 112 . . . (1946). . . .

Finding nothing in the record to justify the action of the reviewing court in overturning the suspension authorized by the statute, the Court held that the court below clearly exceeded its function of judicial review. The Court concluded: "The fashioning of an appropriate and reasonable remedy is for the Secretary, not the court. The court may decide only whether, under the pertinent statute and relevant facts, the Secretary made 'an allowable judgment in [his] choice of the remedy.' Jacob Siegel Co. v. FTC, 327 U.S. 608, 612 [66 S.Ct. 768, 760, 90 L.Ed. 888] (1946)." Id. at 188-9, 93 S.Ct. at 1459.

In Butz [v. Glover Livestock Company, 411 U.S. 182 (1973)], the Court twice cited with apparent approval our G. H. Miller & Co. v. United States, supra. 411 U.S. at 187, 93 S.Ct. 1455. In G. H. Miller & Co., on rehearing en banc, we held:

It is, therefore, clear to us that if the order of an administrative agency finding a violation of a statutory provision is valid and the penalty fixed for the violation is within the limits of the statute the agency has made an allowable judgment in its choice of the remedy and ordinarily the Court of Appeals has no right to change the penalty because the agency might have imposed a different penalty. (Emphasis in original.)

260 F.2d at 296. We further found the remedy selected had a reasonable relationship to the practice found to exist. Id. at 296-7.

In Judge Russell's dissent in Cross, 512 F.2d at 1224-5, he quoted with approval the Butz standard, as well as its approval of our G. H. Miller & Co. holding.

[3] In sum, therefore, we adhere to what we said in Save More, and if that is not specific enough, it is now made clear by our incorporation of the Butz standard of review. Having found that the Secretary here made an allowable judgment in his choice of remedy, that the sanction imposed bears a reasonable relationship to the goal the legislation was intended to accomplish, and that the sanction was within the limits of the applicable statute and was valid, we feel compelled to reverse that part of the judgment of the district court which reduced the sanction from one year to 120 days as an impermissible intrusion into the administrative domain under the circumstances present here. [536 F.2d at 1178.]

See also similar rulings as to other agencies, e.g., Rizek v. S.E.C., 215 F.3d 157 (1^st Cir. 2000) (S.E.C. charged with choosing means to protect the public), and Sultan Chemists, Inc. v. U.S. E.P.A., 281 F.3d 73, 83 (3^rd Cir. 2002) (E.P.A. charged with choosing the means by which to enforce and achieve the goals of FFRA [the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136j (2001)]). The courts have also emphasized the following other important considerations. A court will review the record to determine whether the agency and the presiding officer considered the relevant factors and acted within its discretion. Aquarius Marine Co. v. Pena, 64 F.3d 82, 87 (2d Cir. 1995). Although narrow, appellate review of an administrative record must nonetheless be careful, thorough and probing. The Administrative Procedure Act permits a reviewing court to set aside the agency action only if it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2)(A). Ward v. Brown, 24 F.3d 516, 521 (1d Cir. 1994). Courts review findings of fact for "substantial evidence" on the whole record. The substantial evidence test is deferential. "[T]he possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence. Illinois Central R.R. v. Norfolk & W. Ry., 385 U.S. 57 (1966), quoting Consolo v. Federal Maritime Comm'n, 383 U.S. 607, 620 (1966). Substantial evidence has also been defined as "more than a mere scintilla and means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Chrysler Corp. v. U.S. Envtl. Protection Agency, 631 F.2d 865, 890 (D.C. Cir. 1980) (internal quotation and citation omitted.)

Assuming that the agency's findings of fact are supported by "substantial evidence," inferences based on those findings are discretionary and can only be disturbed if they are "arbitrary and capricious." When reviewing inferences, courts are obliged to guard against an agency's drawing inferences that are arbitrary in relation to the facts found, no matter how substantial may be the support for those facts. Midtel Paper Corp. v. United States, 857 F.2d 1489, 1498 (D.C. Cir. 1988).

A more recent example of how important it is to explain how the penalty assessed is tailored to the facts, is suitable for the violation, and comports with the deterrent goal, may be seen in U.S. v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001). In a per curiam opinion, the United States Court of Appeals for the District of Columbia Circuit vacated "the District Court's remedies decree for the additional reason that the court has failed to provide an adequate explanation for the relief it ordered. The Supreme Court has explained that a remedies decree in an antitrust case must seek to 'unfetter a market from anti-competitive conduct.' Ford Motor Co., 405 U.S. at 577, 92 S.Ct. 1142, to 'terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation and ensure that there remain no practices likely to result in monopolization in the future.' United States v. United Shoe Mach. Corp., 391 U.S. 244, 250 (1968) (additional citations omitted)." "The District Court has not explained how its remedies decree would accomplish those objectives. . . . Nowhere did the District Court discuss the objectives the Supreme Court deems relevant." Id. at 403.

The Commission applied the relevant principles in Stallion Cargo-Possible Violations of the Shipping Act of 1984, 29 S.R.R. 204 (2001), on review of an Initial Decision which assessed a penalty of $50,000 on an NVOCC in recognition of respondent's limited operating revenue. On exceptions, respondent argued that the $50,000 penalty was three times higher than its annualized income during a six-month period when it earned a small profit. BOE sought a much higher penalty than $50,000. The Commission, at 29 S.R.R. 665 (2001), assessed a penalty of $1,340,000 and made the following important findings which are relevant in the present investigation. It reiterated that the main Congressional purpose of imposing civil penalties is to deter future violations of the Shipping Act, Id. at 680-681; that this is shown by increased penalties set by Congress and shows in the legislative history of the 1984 Act since the lesser penalties under the 1916 Act could be absorbed in the cost of doing business, Id., fn 39; and that by giving the FMC the power to assess and increase penalties, Congress wants the FMC to enforce the Act "vigorously," Id. at 679:

It stands to reason that the Commission would more clearly fill this mandate by treating these tariff law violations with particular disfavor. . . . [I]t is necessary that we impose strong sanctions for tariff law violations in order to send a strong message to other current or would-be violators.

The Commission held that strict enforcement of tariff law is essential to the effective outlawing of discrimination, Id. at 679; that the Commission takes tariff law violations seriously, Id.; and that once a carrier breaches its duty to rate cargo accurately, the Shipping Act requires the imposition of liability without fault. "No other approach is consistent with the overriding statutory purpose of eliminating unjust discrimination between shippers." Id., fn 29.

During the period at issue from May 1996 through March 1998, Sea-Land employed a fraudulent scheme by which it permitted NVOs to obtain lower rates and charges through the intentional misuse of TWRA equipment substitution tariff provisions. For those NVO shippers solicited by Sea-Land's sales representatives, Sea-Land's fraudulent scheme rested on an explicit understanding as to misdeclaration or falsification of the weights and measurements of the cargo in the containers so that NVO shipments would receive lower rates from Sea-Land. Moreover, it was understood that Sea-Land would not challenge NVO shipments rated under equipment substitution. Preliminary Ruling at 202.

Sea-Land's fraudulent scheme allowed NVO shippers to order or book empty containers and by using code words such as "equipment substitution" the NVOs would receive 40- and 45-foot containers in place of 20-foot containers by carrier manipulation and abuse. The fraudulent scheme was so prevalent that it was common knowledge on the street. Preliminary Ruling at 198.

Sea-Land's awareness of equipment substitution malpractices was long-standing and pre-dated and post-dated the investigations of the Neutral Body and establishes that Sea-Land's violations were knowing and willful. The record shows that there was no sufficient operational reason for the vast amount of 40- and 45-foot containers that Sea-Land permitted to be furnished. Preliminary Ruling at 199-200.

Such egregious malpractice and concealment of the actual weight and correct measurements of this cargo, sanctioned by Sea-Land as its preferred method of attracting cargo and allowing lower rates for its NVO customers clearly constitutes an "unfair device or means" within the meaning of section 10(b)(4) of the 1984 Act, 46 U.S.C. app. § 1709(b)(4), as explained by Judge Learned Hand in Prince Line Ltd. v. American Paper Exports, Inc., 55 F.2d 1053 (2d Cir. 1932). Sea-Land taught the NVOs how to do it-how to adjust the numbers on the paperwork so that it made the cargo appear that it was within the tariff size and measurement limits. Preliminary Ruling at 202.

The record and the Preliminary Ruling recite the history of Sea-Land's fraudulent equipment substitution scheme as its chosen path to inflate revenues, limit costs and increase export tonnage. Sea-Land's "zeal in obtaining" cargo to fill otherwise empty 40- and 45-foot containers being repositioned to the Far East overrode the legal mandate that Sea-Land adhere to all the terms in the applicable TWRA tariff. Any monetary penalties stemming from this conduct could be written off as a cost of doing business. Preliminary Ruling at 204-205.

Ocean common carriers, including Sea-Land, have long been aware that they are required to maintain and observe the requirements of their ocean common carrier tariffs as a concomitant condition of doing business as common carriers in the foreign commerce of the United States. Despite this, Sea-Land consistently and deliberatively failed to apply its tariffs properly in matters of that carrier's commercial pricing and practices with respect to its NVO shippers-customers through a consistent course of conduct during the issue period. Both in practice and effect, Sea-Land's equipment substitution fraudulent scheme became the means by which such shippers were allowed to obtain rates lower than the NVOs could obtain had their cargoes been correctly declared. Preliminary Ruling at 208.

In summary, the weight and cube of these 149 shipments at issue, as shown by BOE's evidence consisting of NVO testimony, NVO and other documentation, RCV tickets and the analysis of the sole rate expert, BOE's Mr. Gravitt, who introduced the best evidence of record, clearly rebutted the validity of the "matching theory" of Sea-Land as to its SEDs ("Shippers' Export Documents"). BOE's proof has established that it has sustained its burden to show by a preponderance of the evidence that as to the 149 issue shipments Sea-Land violated section 10(b)(4), 46 U.S.C. app. § 1709(b)(4).

BOE contends that no reduction in civil penalties is warranted under the history of prior offenses factor but rather that aggravating facts exist.

BOE cites the settlement which Sea-Land entered into with the Commission in November 1992 to resolve allegations that Sea-Land violated sections 10(a) and 10(b) of the 1984 Act in the Transpacific Trades.

The Preliminary Ruling shows the following:

FF7. In November 1992, Sea-Land and other carriers entered into a compromise agreement with the Commission, resolving allegations that the carriers violated sections 10(a) and 10(b) of the 1984 Act in their operations in the Transpacific Trades. BOE Ex. 2, ¶ 49.

FF8. As part of such settlement, Sea-Land and other carriers participated in an agreement to provide effective "neutral body" policing in the Transpacific Trades. BOE Ex. 2, ¶ 49.

FF9. Under the auspices of the Transpacific Self-Policing Agreement (Agreement No. 203-011452), Robinson Stark Associates Ltd. furnished "neutral body" services enforcing, on behalf of TWRA members and other Transpacific carriers, the rate provisions and applicable rules published in TWRA's tariffs, including the authority to assess penalties for carrier violations. BOE Ex. 2, ¶ 49.

Following each of three Neutral Body investigations Sea-Land was charged with tariff violations. See, e.g., FF173-183 (First Neutral Body Investigation); FF188-194 (Second Neutral Body Investigation; and FF199-204 (Third Neutral Body Investigation).

BOE also contends that Sea-Land's payment of the highest penalty ever imposed by the FMC should be considered as reflective of Sea-Land's history of prior offenses. Official notice is taken from the 16^th Annual Report of the FMC, at pp. 42, 64 and Appendix B, showing that as a result of a settlement with Sea-Land a $4 million penalty was assessed which arose from a claim asserted for violations of the rebating provisions of the Shipping Act, 1916. 46 C.F.R. § 502.226.

Sea-Land urges that such settlements should not be considered as evidence of "prior offenses." Under the terms of the settlements with the Neutral body, Sea-Land did not admit to any violations and agreed to the settlements to reduce the amount of the penalties and to avoid continued litigation. Sea-Land argues that if such prior settlements are going to be introduced to prove that an entity has committed "prior offenses" despite language to the contrary in the settlements, then entities will be reluctant to enter into settlements in the future.

Sea-Land emphasizes that the November 1992 settlement with the Commission provided that Sea-Land did not admit to any violations; that this was confirmed by the November 13, 1992 press release of the Commission; that the settlement was signed by BOE and approved by the Commission; and that, as noted, the Neutral Body assessments also resulted in settlements in which again Sea-Land admitted to no violations and that the Neutral Body findings provided guidance on possible malpractices that needed to be addressed.

Official notice has also been taken of Sea-Land's summary of penalties collected by the Commission during a recent 10-year period and compiled from the annual reports of the Commission for fiscal years 1992 through 2001, pursuant to 46 C.F.R. § 502.226. See Pacific Champion Express Co. Ltd. Possible Violations of the 1984 Act, 28 S.R.R. 1107 (Notice of Rulings Made at Special Conference, 1999), and Sanrio Company, Ltd. v. Maersk Line, 19 S.R.R. 1627, 1661 fn 26 (I.D. 1980).

Both parties presented extensive evidence of prior settlements, Sea-Land urging the relevance of the history of the Commission's settlement experience over a ten-year period, especially those involving allegations of equipment substitutions violations, and BOE urging the relevance of Sea-Land's settlements for $4 million in 1992 and settlements as a result of the Neutral Body Investigations.

The first question is, what is a prior "offense"? Is it sufficient that the FMC institutes an investigation alleging violations and ultimately reaches a compromise settlement with the respondent who neither admits nor denies that it committed the alleged violation? Can those be termed prior offenses? Or must there be proven violations to count as "prior offenses"?

Black's Law Dictionary defines offense as follows: "The word offense while sometimes used in various senses, generally implies a felony or a misdemeanor infringing public as distinguished from more private rights, and punishable under the criminal laws, though it may also include the violation of a criminal statute for which the remedy is merely a civil suit to recover the penalty." The term "second offense" is defined as follows: "One committed after conviction for a first offense. It is the previous conviction, and not the indictment, which is the basis of the charge of a second offense." (Citation omitted.) Thus, it would seem to follow that under the heading "prior offenses," only proven, not merely alleged, violations would count. Since settlements contain language that the respondent neither admits nor denies that the alleged violations were committed, such compromise settlements should not be counted as "prior offenses." "The law considers the settlement of a claim not as an admission that the claim is valid but merely as an admission that there is a dispute and that an amount is paid to be rid of the controversy." 25 A.C.J.S. Compromise & Settlement, S.22, cited in Merck Sharp & Dohme v. Atlantic Lines, I.D. of Judge Norman D. Kline, 17 F.M.C. 244, 247 (1973), adopted by the FMC, 1974.

BOE also cites Banfi Products Corp., 26 S.R.R. 951, which dealt with a settlement agreement which provided that all documents and information heretofore submitted to the Commission have been given confidential treatment to the full extent of the law, "provided, however, that such confidential treatment shall not bar the Commission from using and disclosing such documents and information to the extent necessary to carry out its enforcement responsibilities." Id. at 958.

The Commission held that, "Exclusion of the evidence could frustrate the Commission's enforcement efforts, both in this proceeding and in future actions. In this case, barring use of settlement-related material would remove from the fact-finding process evidence that may be highly relevant to issues in dispute. With regard to future disputes, disallowing admission of settlement agreements could negate the deterrent effect of those settlements. Banfi agreed in the Settlement Agreement to 'institute measures designed to eliminate, discourage, and prevent the receipt by respondents or its agents of rebates, remittances, or allowances, and to provide copies of the Settlement Agreement to its officers, employees and agents. If these commitments were kept out of subsequent litigation, the Commission would be hindered in its efforts to hold parties to their promises of future attentiveness and compliance.'" Id.

In the present investigation no evidence as to prior settlements was barred from the hearing so the quoted portion of Banfi is inapposite and would be unaffected by this ruling.

The Commission also stated in Banfi that, "the ALJ has imposed restrictions on the use of the evidence to protect settling parties' interests (i.e., it may not be used to show propensity or to prove violations), thereby minimizing any possible "chilling" of settlements." (Emphasis added.) Id.

The prior settlements involving Sea-Land did not prove that it committed any "violations" and do not prove that it committed any "prior offenses."

There was an additional question in Banfi as to the meaning of "on the matter" in Rule 91(b), 46 C.F.R. § 502.91(b), which provides that:

(b) No stipulation, offer or proposal shall be admissible in evidence over the objection of any party in any hearing on the matter." (Emphasis mine.)

Judge Kline explained in Banfi that "if the present proceeding was instituted [in 1987] to determine whether respondent had violated law in 1974 or 1975 by receiving rebates, the evidence of their compromise and settlement could not be used against them to prove such violations. The rule bars the use of such evidence in any hearing 'on the matter.'" 26 S.R.R. at 312.

On the same point the Commission explained it this way: "Furthermore, the situation in this case, in which a prior settlement agreement is relevant to motive or intent in subsequent litigation on a different claim against the same party, is unusual, as evinced by the lack of precedent. Therefore, it is unlikely that admission in this case will have a widespread effect on future respondents' willingness to settle." 26 S.R.R. at 958.

Thus, applying the foregoing principle here, the evidence of Sea-Land's prior settlements does show "motive or intent" and that it acted "knowingly and willingly," but does not prove any prior violation or prior offense.

Turning to Sea-Land's evidence of the 10-year history of settlement amounts, that evidence deals with averages and lacks facts as to the nature and extent of the alleged violations including the alleged equipment substitution malpractices. Too many parts of the puzzle are missing. Prior settlements have not been shown to be controlling precedents in this extensively litigated proceeding involving issues of first impression, but the parties' respective evidence as to prior settlements has been given thorough consideration.

Turning to another factor, ability to pay, Sea-Land objected to BOE's attempt to obtain access to corporate documents relating to the sale of its international services subject to the jurisdiction of the Commission, and indicated that it would interpose no objection to a finding that Sea-Land has the ability to pay a fine as a result of this investigation. No other argument or evidence as to this factor was presented and, as a result, the finding is warranted under this factor that Sea-Land has the ability to pay the penalty which will be assessed.

In regard to section 10(b)(1) of the 1984 Act, the Commission has long adhered to the principle that this section sets a strict adherence and an absolute liability standard so much so that a violation occurs when any rate other than the rate filed in a carrier's tariff is charged, collected, demanded or received. The charging by Sea-Land of a lower rate than the one properly applicable was willful within the meaning of the statute in that it was the intentional doing of an act which the statute forbid. Powell v. United States, 112 Fed. Rep. 764, 767 (1940). The Commission has indicated that it takes tariff law violations seriously. Stallion Cargo-Possible Violations of the Shipping Act of 1984, 29 S.R.R. 665, 679 (2001). The Commission also stated that by giving the power to assess and increase penalties to the Commission, Congress wants the Commission to enforce the Act vigorously. Id. at 679. "It stands to reason that the Commission would more clearly fulfill this mandate by treating these tariff law violations with particular disfavor." Id.

Here, Sea-Land's attitude clearly demonstrated that it willfully and knowingly violated section 10(b)(1) by being plainly indifferent to the requirements of the statute and disregarding its strict requirements.

In such circumstances, it is important for deterrent purposes to send a strong signal to the industry. Great care has been exercised to tailor the penalty to the violations committed and to arrive at a penalty intended to deter future violations while achieving the stated objectives of the Act.

Much of the time at the hearings dealt with the evidence relating to the applicable rates on whether the cargo in 149 shipments complied with the size and weight limits in the tariffs. The evidence showed that Sea-Land developed an equipment substitution scheme to attract shippers to use its service and ship cargo which exceeded the weight and/or measure tariff limits in 40-foot and 45-foot containers but only pay the charges on cargo in 20-foot containers. The evidence showed that there was no legitimate operational demand for such a large number of substitutions of 40-foot containers for 20-foot containers. The word got out that, unlike other carriers, Sea-Land would not question whether the cargo fit the tariff limits of size and/or weight. Sea-Land maximized this scheme to minimize the empty 40-foot boxes being returned to the Far East and to override its adherence to law. Sea-Land showed the NVOCC shippers how to do it, how to "adjust" the figures on the paperwork so that in computing the total size and weight of the cargo they would fit under the tariff maximum weight and size limits. The malpractice was so common and widespread that one could take advantage of it and obtain the larger container while only paying for a smaller one by uttering code words such as "equipment substitution." Everyone knew what it meant. Sea-Land would not question the paperwork to see if the cargo fell within the tariff limits. Thus, Sea-Land's wrong was two-fold: a knowing and willful failure to adhere to its tariff, the bulwark against unjust discrimination, and the fraudulent scheme to substitute equipment without proper regard to the terms of the tariff. BOE's rate witness, Mr. Gravitt, the only rate expert to testify, amply explained in detail how Sea-Land's scheme worked.

The penalty amount is designed to reflect the twin goals of deterring the egregious violations and achieving a suitable punitive penalty. It must not be seen as so low as to be written off as a mere cost of doing business. Nor can it be viewed as too high that it can be termed unduly harsh. It is higher than that accepted by the Commission in settling other equipment substitution cases. But those settlement amounts cannot be controlling here because of the paucity of comparable facts and the inherent differences between proceedings which terminate in compromise settlements and this litigated case, which has extended for several years and incurred large legal expenses.

The amount arrived at, after considerable effort and reflection, takes into account the measure of all applicable and proper mitigating and aggravating factors. The aggravating factors include Sea-Land's failure to respond appropriately to discovery which had the direct effect of denying BOE access to evidence concerning Sea-Land's handling of shipments on behalf of those identified NVOCC shippers, such as, for example, overseas records maintained by Sea-Land reflecting variances in cargo descriptions, weights, or measurements known to Sea-Land at destination, FF248-149; packing lists and other outbound documentation; gate tickets ("RCU" tickets) or other records of cargo weight such as those generated by Sea-Land at the loading terminal, FF170. See Arctic Gulf Marine, supra, 24 S.R.R. at 160. It was previously ruled that Sea-Land was in error in arguing that it could wait until BOE filed a motion to compel. The onus was on Sea-Land to respond to discovery requests and to furnish supplementary material as it became available. This is the essence of the discovery process which Sea-Land transgressed.

Sea-Land seeks to mitigate its own culpability by pointing to the NVOCCs who participated in its scheme. Such finger pointing has never been very successful in deflecting blame. Moreover, the record is clear that the NVOCCs sought out Sea-Land because they knew that, unlike other carriers, Sea-Land was an active participant in the illegality and would close its eyes to questionable paperwork whereas other carriers would not. Moreover, in an action based on the failure to comply with all the conditions of the tariff, the "balance of equities" between the carrier and the shipper is not to be considered. United States v. Seatrain Lines, Inc., 370 F. Supp. 483 (S.D.N.Y.); American President Lines Ltd. v. Cyprus Mines Corporation, et al., 26 S.R.R. 969, 974-975 (ALJ 1993), aff'd 26 S.R.R. 1227 (FMC 1994), and Rubin, Rubin & Rubin, 6 F.M.B. 235, 240 (FMB 1961).

Choosing an appropriate monetary penalty is not rocket science but requires choosing an amount tailored to the facts in recognition that it is both punitive and a deterrent. Sea-Land has voluntarily removed itself from the jurisdiction of the Commission. The penalty is in an amount to serve as a deterrent to those who would violate the law in the future, whomever they may be, as well as punitive for Sea-Land's past violations.

The record shows that six shipments moved before November 7, 1996 and that 143 shipments moved thereafter. The maximum penalty before November 7, 1996 was $25,000 for each violation and $27,500 thereafter because of the inflation adjustment.⁽⁵⁴⁾

(Neither of these figures takes into account the fact that under section 13(a) each day of a continuing violation constitutes a separate offense. 46 U.S.C. app. § 1712(a).)

With that in mind, the penalties imposed here on Sea-Land for the 149 violations of section 10(b)(4), 46 U.S.C. app. § 1709(b)(4), will be as follows:

IT IS ORDERED, that a penalty in the amount of $4,082,500 is assessed against respondent Sea-Land Service, Inc., and respondent is directed to send a certified check for $4,082,500, made payable to the Federal Maritime Commission, to Bryant L. VanBrakle, Esq., Secretary, Federal Maritime Commission, 800 North Capitol Street, N.W., Washington, D.C., 20573, within 15 days after the order in this investigation becomes final, or such other time as may be prescribed.⁽⁵⁵⁾

IT IS FURTHER ORDERED, that no penalty is assessed for the violations of sections 10(b)(1), 19(d)(1), and 19(d)(4), 46 U.S.C. app. §§ 1709(b)(1), 1718(d)(1) and (d)(4).

Frederick M. Dolan, Jr.
Administrative Law Judge
Washington, D.C.

January 30, 2003

ENDNOTES

1. This decision will become the decision of the Commission in the absence of review thereof by the Commission (Rule 227, Rules of Practice and Procedure, 46 C.F.R. 502.227).

2. These citations are to the Findings of Fact adopted in the Preliminary Ruling, served March 5, 2002.

3. BOE recognizes that Sea-Land settled the investigations of the Neutral Body, and as a result, substantially reduced the amount of the penalties, FF192 and FF201. See also fn. 8 herein.

4. BOE argues that, while ineffectual on Sea-Land's marketing practices, the Neutral Body investigations were not without consequences upon others. BOE states:

Having heard of these rate malpractices internally and through the Neutral Body, Sea-Land's Operations Department sought to insulate itself from any involvement in those unlawful substitution practices undertaken by Sea-Land's sales personnel. FF 175-178, 179. See also FF 124-126, 128-130.

Following the first Neutral Body investigation and discussions with Mr. Glenn Spargo, Mr. Rich Favor withdrew from employment at Sea-Land. FF180. The malpractices themselves continued. See e.g. Preliminary Ruling at 195. Following the second Neutral Body investigation, Glenn Spargo terminated Mr. Jerome Ginn from his sales position handling Sea-Land's FAK shipper accounts, including General Ocean Freight and World Pacific Container (USA). FF193. In contrast to his subordinates, Sea-Land Regional General Manager Glenn Spargo retired on a pension from Sea-Land. SL 66.

5. BOE points out that in Refrigerated Container Carriers Pty. Ltd., 28 S.R.R. 799, 805 (I.D., administratively final, May 21, 1999), Chief Administrative Law Judge Norman D. Kline distilled additional implications of the Commission's penalty policy as follows:

Should the Commission fail to exercise its discretion to assess meaningful civil penalties, including the maximum allowed by law when there are few or no mitigating factors, on account of limited ability to obtain evidence on one of the factors set forth in section 13(c) of the Act, the message would go out to the regulated industry that it need not cooperate with BOE in the pre-docketed "compromise" discussions because no significant civil penalty would likely result if the matter moved into formal Commission proceedings and respondents decided to boycott the formal proceedings.

BOE points out that, as explained, Id., at 28 S.R.R. 806, certain "mitigating" factors may warrant a downward adjustment of the maximum potential monetary penalties, and that such issues may include evidence of limited ability to pay a monetary penalty and an absence of any history of prior offenses.

6. BOE points out that aggravating factors are those which "offset" any reduction otherwise claimed by a respondent, as in the case of a record of continuing violations or refusal to cooperate with the discovery process, citing Refrigerated Container Carriers Pty. Ltd., supra, 28 S.R.R. at 806 fn. 6

7. BOE states that, for many shipments, the tariff specified that such documentation was a prerequisite to the carrier's rating of the cargo, citing BOE Ex. 1, ¶¶ 145, 147, and CO Ex. 28 (TWRA Rule on mixed commodity shipments).

8. BOE notes that Sea-Land elected to pay reduced penalties to the Neutral Body, amounting to $15,000 for the second violation and $27,500 for the third instance, FF192 and 201, and that the Administrative Law Judge concluded that Sea-Land viewed such expenditures as a "cost of doing business," Preliminary Ruling at 204, 208.

9. Sea-Land urges that, to the extent the Commission's overall approach to forwarder compensation were to be reviewed, it should be addressed more broadly, i.e., outside the narrow confines of a penalty case, such as through rulemaking, industry-FMC meetings, or in any forum where the industry practices and issues can be fully aired, and that there is a wide disconnect between BOE's approach and alleged prevailing industry practice.

10. Sea-Land emphasizes that the analysis of penalty amounts herein is predicated upon the findings in the Preliminary Ruling, but is without prejudice to Sea-Land's right to seek relief from the Commission on exceptions, and that, if Sea-Land's liability is reduced on the 10(b)(1)/10(b)(4) issue, for example, the suggested penalty amount discussed herein for that issue would be correspondingly reduced.

11. Sea-Land states that, in another context, Chief Judge Norman D. Kline noted, "[r]elatively small dollar amounts of misratings have been considered by the Commission as a mitigating factor," Marcella Shipping Co. Ltd., 23 S.R.R. 857, 870 (ALJ 1986), and that in Certified Corp. and Seaway Distribution Corp.-Possible Violation of Section 16, Initial Paragraph, 21 S.R.R. 468, 470 (FMC 1982), the Commission reduced by half the penalty imposed by the Administrative Law Judge for a shipper's misdescriptions violations, in part because of "the relatively small amount of the underpayments" involved. (In that case, the shipper had underpaid $1,402.31 on four shipments, and $309 of that had been repaid to the carrier.)

12. Sea-Land states that the burden would fall on other carriers, not Sea-Land, because Sea-Land no longer operates in the U.S. foreign trades and therefore no longer pays forwarder compensation subject to the Shipping Act.

13. Sea-Land contends that it is, moreover, quite unfair to fine an ocean carrier for mistakenly paying $10, but imposing no sanctions whatsoever against the forwarder who knowingly flaunted the Act by pocketed unearned commissions.

14. Sea-Land states that it will contend before the Commission that its forwarder payments were in full compliance with the Act, and that, for the purpose of its brief, it assumes, without prejudice, that they were not.

15. Sea-Land contends that the evidence relied on to show that Mr. Rich Favor knew of the affiliation (FF308) is too ambiguous to support penalties. The testimony relied on reads:

Q:  Mr. Wu, did you ever talk to Sea-Land about the nature of the affiliation between General AirFreight and General Ocean Freight?

A:  I never talked to Sea-Land. Only Rich Favor myself.

Q:  And I take it you never talked with Mr. Favor about how General AirFreight and General Ocean Freight were related, did you?

A:  He know what kind of company we are, air and ocean, what we were doing.

Wu Tr. 171 ln14 - 23. Sea-Land argues that knowing that these companies performed air and ocean forwarding is a far cry from knowing their ownership and corporate status; that, further, it is not credible to rely on what Mr. Wu ambiguously thought Mr. Favor knew, when Mr. Favor was a BOE witness and he was not asked the question directly; and that, if one has the information, and does not come forward, it may be assumed that the fact is unfavorable, citing Adair v. Penn-Nordic Lines, Inc., 26 S.R.R. 11, 15 (ALJ 1991, FMC 1991), in turn citing Alabama Power Co. v. F.P.C., 511 F.2d 383, 391 n. 14 (D.C. Cir. 1974).

16. Sea-Land states that it has previously committed that it would not raise the "ability to pay" issue and it stands by that promise, and that, however, had it known that BOE would seek an unprecedented $24,000,000 in penalties, it is doubtful it would have made the commitment.

17. Sea-Land states that forwarder compensation penalty cases (performing services without a license, not performing services, etc.) even when against the primary culprit, the forwarder, have generally settled at very modest levels, usually in the $15,000-$25,000 range, citing, e.g., Robert S. Rullo, dba ABA Forwarding (NR 01-05, April 5, 2001) ($15,000); A.T.I. U.S.A., Inc. (NR 00-07, November 30, 2000) ($25,000); Suntrans International, Inc. (NR 00-06, March 23, 2000) ($25,000); F.R.T. International Inc. d.b.a. Frontier Logistics Services (NR 00-06, March 23, 2000 ($15,000); Brian Min d.b.a. B & A Express (NR 00-06, March 23, 2000) ($20,000); Ace Shipping Corp. and Young S. Kim d.b.a. Ace Young Company (NR 00-06, March 23, 2000 ($23,000); Metro Freight Services, Inc. and Georges T. Samaha (NR 99-11, May 6, 1999) ($15,000); Penbroke Marine Services, Inc. (NR 98-04, August 19, 1998) ($25,000); Seabridge International Inc. (NR 98-04, August 19, 1998) ($25,000); and Sim, Waters & Associates, Inc. (NR 98-02, May 4, 1998 ($15,000).

18. Sea-Land contends that this same analysis would apply to the section 19 violations, should the Administrative Law Judge determine that a penalty is appropriate; that the 170 payments to General Air Freight that were found to violate section 19(c) were all also included in the 435 payments for which section 19(a) violations were found; and that Sea-Land should not be penalized twice for the same forwarder compensation payment because it violates two similar sections of the Act.

19. Sea-Land states that for this proposition, BOE relies on Arctic Gulf Marine Inc., Peninsula Shippers Association Inc. and Southbound Shippers Inc., 24 S.R.R. 159, 160 (FMC 1987); that BOE has taken this case out of context; that, in that case, the Commission cast the issue as whether the maximum penalty should be assessed only because that was what Hearing Counsel had requested, not because that was the accepted or usual way of determining the amount of penalties; that the Arctic Gulf case-where the respondents failed to call any witnesses or present a direct case and exhibited "a lack of cooperation and a pattern of impeding the Commission's investigation as well as a general lack of mitigating circumstances" (24 S.R.R. at 159-160)-was similar to other "default" cases in which the Commission has assessed the maximum penalties, usually in the $500,000 - $1,500,000 range; and that those cases are discussed in detail later.

20. Sea-Land states that BOE might argue that although it does not currently operate in the U.S. trades, Sea-Land might re-enter the trades at some future time; that this would be incorrect; that the Commission must address the facts as it knows them, and cannot possibly tailor penalties to address every conceivable future scenario, however speculative; that Sea-Land has not re-entered the foreign trades since the sale in December 1999, and there is no evidence or indication it will do so; and that, more importantly, in the cases cited by Sea-Land, the respondents could theoretically have resumed the violative practices at some point in the future, but the Commission nevertheless withheld the imposition of civil penalties despite finding violations, because there was no evidence that respondents were currently engaged in the practices.

21. Sea-Land states that, indeed, in Mr. Favor's most recent testimony, he testified not that he went out and promoted equipment substitution abuse, but that "he was approached by certain NVOCCs, beginning with Pan Pacific, who demanded that they be given the same equipment substitution program offered by other carriers. Favor I Tr. 204" (Preliminary Ruling, SL51); that, in other words, (a) the NVOs initially came to him, not the other way around, and (b) they were seeking to obtain from Sea-Land what they already had from other carriers.

22. Sea-Land states that its research indicates that the $2,117,500 penalty against Kin Bridge is the largest ever assessed in a litigated decision, citing Kin Bridge Express Inc. and Kin Bridge Express (U.S.A.) Inc.-Possible Violations of Sections 8, 10(a)(1), 10(b)(1) and 23 of the Shipping Act of 1984, 28 S.R.R. 984 (I.D. 1999); that the other cases cited by BOE on page 11 of its Brief involved penalties of $650,000 and $797,500; that the next highest assessment after Kin Bridge appears to be Trans Ocean Pacific Forwarding, Inc.-Possible Violations, 27 S.R.R. 409 (I.D. 1996) ($1,450,000), and the amounts go down from there; and that, in other words, with one exception, the penalties in the most egregious cases have been in the $650,000 - $1,450,000 range; and that the current case is not in that same category.

23. BOE contends that, paradoxically, Sea-Land's approach would create the very problems it purports to resolve in insinuating a new standard for forwarder certifications based upon a perceived "industry practice"; that, in reading into the regulation a new meaning which incorporates, by implication, the effect of Article 3 of the UCC, Sea-Land promotes a different meaning of "signed certification" when used in the case of compensation checks than that employed for the same forwarder certification when located on any other document permitted by the same regulation to be used for certification purposes; and that nothing in the regulation or background history can support such divergent results.

24. BOE contends that of further application here, the Commission in Banfi Products Corp. also found unpersuasive respondent's claim that allowing use of settlement-related matter would have a "chilling" effect on future settlements, Banfi Products Corp., supra, 26 S.R.R. at 957-58.

25. BOE argues that in doing so, Sea-Land further establishes the relationship by which Sea-Land's prior penalty payment to the Commission becomes the benchmark for the penalties now to be assessed.

26. BOE cites the Bureau of Labor Statistics "Inflation Calculator," which is available online at http://data.bls.gov/cgi-bin/cpicalc.pl .

27. Sea-Land argues that Kin Bridge was, in any event, a much more flagrant case than the present one; that Kin Bridge had done business as an NVOCC for at least four years without a tariff or bond, and misdescribed cargoes to ocean carriers; that the misdescriptions continued on at least 17 occasions even after the Commission proceeding began; that Kin Bridge's tariff had been suspended because of its failure to respond to discovery in the case; that there were virtually no mitigating factors, at least in part because Kin Bridge disregarded the Commission's procedures, and Kin Bridge violated a settlement agreement it had reached with the Commission earlier, citing 28 S.R.R. at 993; and that a penalty for this case in the Kin Bridge range would be arbitrary and capricious.

28. Sea-Land points out that elimination of the double penalties reduces BOE's claimed penalties by $8,757,500, and that BOE has claimed $4,082,500 on section 10(b)(4) violations in addition to the same amount for section 10(b)(1) violations for the same transactions, and $4,675,000 for section 19(d)(4) violations for the same transactions as 170 section 19(d)(1) violations.

29. Sea-Land states that the wording of the Regulations is the only possible source of notice, and that under these rather unusual circumstances, it is therefore not surprising that Sea-Land could not anticipate how the regulations would be interpreted.

30. Sea-Land contends that it does not raise these issues at this time, as BOE argues, to challenge or reargue the correctness of the Preliminary Ruling (although they are relevant to it), but rather to provide strong evidence in support of the proposition that penalties for such conduct were totally unanticipated and, in any event, would be unfair.

31. BOE notes that in Trinity Broadcasting, the FCC sought to apply a 1982 Policy Statement and an earlier agency decision in Southwest Texas Public Broadcasting, 85 F.C.C.2d 713 (1981), as announcing the standards by which the agency would interpret the meaning of "minority controlled" under FCC rules, section 73.3555.

32. United States v. Chrysler Corp., 158 F.3d 1350, 1356 (D.C. Cir. 1994), in which BOE notes that the NHTSA sought recall of Chrysler vehicles by interpreting seat belt assembly requirements in Standard 210 as incorporating "testing range" found only in Standard 208. BOE also points out that the court found that the language of the agency Federal Register notice was "far too general" to suggest that respondent should look to a standard not explicitly identified nor expressly incorporated therein.

33. BOE contends that Sea-Land does not assert that the Commission specifically referenced the application of the Uniform Commercial Code during its consideration of Docket No. 84-19, Licensing of Ocean Freight Forwarders, much less gave notice of incorporating the UCC therein; that Sea-Land's repetitive references here to the Commission's use of the word "endorsement" in Docket No. 84-19 is not tantamount to incorporating the UCC, either expressly or by implication; and that, as found by the D.C. Circuit in Chrysler Corp., supra, such language in an agency's Federal Register notice would be "far too general" to apply a standard not identified nor expressly incorporated therein.

34. Sea-Land contends that a brief submitted by a government lawyer should not be "colored and one-sided"; that that is a "standard" the courts "will not accept," citing NLRB v. Billen Shoe Co., 397 F.2d 801, 803 (1^st Cir. 1968); that government lawyers are representatives of "a sovereignty whose obligation . . . is not that it shall win a case, but that justice shall be done," citing Freeport McMoRan Oil & Gas Co. v. F.E.R.C., 962 F.2d 45, 47 (D.C. Cir. 1992), in turn quoting Berger v. United States, 295 U.S. 78, 88 (1935), and "The attorney representing the government must be held to a higher standard than that of the ordinary lawyer," citing Silverman v.Erlich Beer Corp., 687 F. Supp. 67, 70 (S.D.N.Y. 1987).

35. Sea-Land states that BOE's position that the maximum penalty should be the presumption is at odds with Commission practice, and that two years ago, the Commission stated that "[t]he Commission rarely has imposed the statutory maximum civil penalty . . . ." Inflation Adjustment of Civil Monetary Penalties, 28 S.R.R. 1548, 1549 (August 15, 2000).

36. Sea-Land argues that if BOE's settlement theory had any basis, which it does not, the more appropriate Sea-Land settlement to use for comparison would be Sea-Land's more recent settlement with the FMC, in 1992 (citing BOE Ex. 2), and that under BOE's theory, Sea-Land's penalty in the current case should be around $300,000, which is the $250,000 adjusted for inflation since 1992.

37. Sea-Land states that this chart was originally attached to the Affidavit of Wayne R. Rohde, which was not admitted into evidence; that Sea-Land now offers this chart independently, without Mr. Rohde's accompanying testimony, as a compilation of information taken from publicly available sources; that for the presiding judge's convenience in this regard, Sea-Land attached copies of the relevant pages from the Commission's Annual Reports supporting the compilation in the chart; that while BOE has argued that these numbers do not support Sea-Land's position on penalties, none of the figures have ben challenged; that the relevance of the chart should not be confused with its weight; that, if relevant, it should be admitted; and that the weight accorded it, in the final analysis, is for the presiding judge to decide.

38. Sea-Land notes that the fourth settlement, for $925,000, included equipment substitution but that was only a minor part of the case, which focused primarily on broad-ranging allegations of rebating, and thus, the equipment substitution portion of that case would, at a minimum, be consistent with other cases.

39. Sea-Land points out that Green Master, like the other "high-end" penalty cases cited by BOE, is distinguishable from the current case; that the penalty assessed against Green Master was based in large part on a finding that its general manager (characterized as a "serial violator of the 1984 Act") also controlled Trans Ocean-Pacific Forwarding, which was assessed a penalty (unpaid) of $1,450,000 for similar violations in 1996, citing Trans Ocean-Pacific Forwarding, Inc., Possible Violations of Section 10(b)(1), 27 S.R.R. 409 (I.D. 1995), notice of non-review, February 9, 1996; that, in addition, the amounts of money involved in Green Master far exceeded those involved in the current case; that through its violations, Green Master deprived two VOCCs of $266,763.53, and undercharged its customers a total of $802,443.84, slip op. at 12; and that, thus, a penalty in the $1,500,000 range, as in Green Master, is not appropriate in this case.

40. Sea-Land contends that, here, BOE seeks to penalize Sea-Land up to $12 million for paying out a total of only $6,681.15 in forwarder compensation.

41. Sea-Land contends that Judge Kline employed a similar approach in Royal Venture Cruise Line, Inc. and Anastassius Kiriakidis-Possible Violations of Passenger Vessel Certification Requirements, 27 S.R.R. 1069 (I.D. 1997), and that after consideration of a number of factors including ability to pay and others, he imposed a penalty of $110,000, the amount of the improper payments received by the respondent, although the maximum penalty could have been $267,200.

42. Sea-Land states that in United States v. Atlantica, S.p.A., 478 F. Supp. 833 (S.D.N.Y. 1979), penalties were assessed, but not double penalties; that the respondent had violated the predecessors of sections 10(b)(1) and 10(b)(4) by charging less than the applicable tariff rate on 269 shipments, through an "unjust or unfair device or means"; that the court imposed a penalty for the section 16 violations, but specifically declined to add a second penalty for the section 18(b)(3) violations arising out of the same transactions (Id. at 837, n. 6); that the judge in dicta did say he had discretion to impose double penalties (Id.); that this, however, was in a different forum and under a different statutory authority to impose penalties than at issue here; and that the more recent World Line Shipping is controlling here and, in any event, the result in Atlantica is consistent with World Line Shipping-in both double penalties were rejected.

43. Sea-Land states that the administrative law judge in World Line Shipping also rejected BOE's claim of double penalties as a matter of law; that he found that "multiple penalties" are an "improper circumvention of the monetary limits" for a "single occurrence," citing World Line Shipping, Ind. and Saeid B. Maralan (AKA Sam Bustani)-Order to Show Cause, 29 S.R.R. 384, 393 (I.D. 2001); that this is not the language of discretion, but rather statutory interpretation.

44. Sea-Land states that World Line Shipping is truly an egregious case involving a notorious respondent; that World Line Shipping was involved in repeated failures "to publish a tariff, file a bond or register a trade name"; that its failure to follow Commission procedures was "cavalier and irresponsible" and "obstructive"; that it "masked" its activities through "numerous corporations"; and that it did not "pay" the civil penalties, 29 S.R.R. at 391-2.

45. Sea-Land states that the only testimony BOE offered on this issue was from investigator James Carey; that, however, it is clear that Mr. Carey's familiarity with forwarder compensation practices is quite limited and outdated; that, for example, Mr. Carey testified that he was only aware of one carrier, Sea-Land, that used check certifications; that he believed that the most common method was by separate invoice, citing Carey Tr. 623; that Mr. Maron, who received compensation from virtually every carrier operating in the U.S. trades, testified that the "vast majority" of certifications are now done by check, and that carriers and forwarders have used check certification for a number of years, citing Maron Tr. 118 ln 10- 21; and that that figure was corroborated by Mr. Caradonna, who testified that OOCL used check certification and that virtually every other carrier does the same, citing Caradonna Tr. 128 - 129 ln 4.

46. Sea-Land states that what makes this even less clear is that BOE's interpretation of the Shipping Act requirement conflicts with the common and accepted meaning of an "endorsement" of a check under the Uniform Commercial Code ("UCC") (which can be by a stamp, a mark, etc.); that it also conflicts with the Electronic Signatures in Global and National Commerce Act (or "E-SIGN"), Pub. L. No. 106-299, 114 Stat. 464 (2000) (codified at 15 U.S.C. §§ 7001-7031), the guiding principle of which is that a signature cannot be denied legal effect merely because it is in electronic (i.e., not handwritten) form; and that, when confronted with two possible statutory constructions, one of which conflicts with another statute, the general rule is to choose the interpretation that harmonizes the two statutes, citing Detweiler v. Pena, 38 F.3d 591, 594 (D.C. Cir. 1994), and Morton v. Maneari, 417 U.S. 535, 551.

47. Sea-Land states that there is no reported case indicating a penalty was ever assessed for the violation in that case.

48. Sea-Land cites Docket No. 02-10, All Flags Forwarding Inc.-Possible Violations of Sections 10(a)(1) and 19(d) of the Shipping Act of 1984, as Well as Section 19(e) of the Shipping Act of 1984 as Amended by the Ocean Shipping Reform Act of 1998, Order of Investigation and Hearing, served August 1, 2002, and Docket No. 02-11, Empire United Lines Co.,Inc.-Possible Violations of Sections 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, and Section 10(b)(2)(A) of the Shipping Act of 1984 as Amended by the Ocean Shipping Reform Act of 1988, as Well as the Commission's Regulations at 46 CFR 515.31(e) as Amended, Order of Investigation and Hearing, served August 1, 2002.

49. The danger of seizing on a couple of words literally was pointed out in a familiar case. In Federal Maritime Commission v. DeSmedt, 366 F.2d 464 (1966), Judge Henry Friendly wrote that:

. . . Judge Learned Hand was not preaching novel doctrine when he instructed more than twenty years ago: "There is no surer way to misread any document than to read it literally.". . . Courts of the United States are not, like Elsa in the Lohengrin legend, forbidden to ask whence something sprang; on the contrary, they are bound to seek out the source of a critical sentence of a statute, as we have recently done in F.M.C. v. Caragher [364 F.2d 709 (2d Cir. 1966)]. "Where the mind labors to discover the design of the legislature, it seizes everything from which aid can be derived," Marshall, C. J., in United States v. Fisher, 2 Cranch (6 U.S.) 358, 386, 2 L.Ed. 304 (1805). Such inquiry is particularly necessary when a literal reading produces an anomalous result . . . ." Id. 469-470.

50. Section 510.23(c) provides:

§ 510.23 Forwarder and carrier; compensation.

(c) Form of certification. Where a licensee is entitled to compensation, the licensee shall provide the common carrier with a signed certification which indicates that the licensee has performed the required services that entitle it to compensation. The certification shall read as follows:

The undersigned hereby certifies that neither it or any holding company, subsidiary, affiliate, officer, director, agent or executive of the undersigned has a beneficial interest in this shipment; that it is the holder of valid FMC License No._______, issued by the Federal Maritime Commission and has performed the following services:

    (1) Engaged, booked, secured, reserved, or contracted directly with the carrier or its agent for space aboard a vessel or confirmed the availability of that space; and

    (2) Prepared and processed the ocean bill of lading, dock receipt, or other similar document with respect to the shipment.

The required certification may be placed on one copy of the relevant bill of lading, a summary statement from the licensee, the licensee's compensation invoice, or as an endorsement on the carrier's compensation check. Each licensee shall retain evidence in its shipment files that the licensee, in fact, has performed the required services enumerated on the certification. 46 C.F.R. § 510.23(c).

51. As explained in NCBFAA's amicus brief, this is consistent with a line of cases going back a hundred years. See Mayers v. McRimmon, 53 S.E. 447 (N.C. 1906); Metropolitan Discount Co. v. Davis, 170 P. 707 (Okl. 1918); Union Trust Co. v. Never Break Range Co., 190 S.W. 1045 (Mo. 1916); Pingree National Bank v. MacFarland, 195 P. 313 (Utah 1921); Allenberg v. Rapken & Co., 291 P. 281, 282 (Cal. App. 1930).

52. 46 C.F.R. § 510.23(b) provides:

(b) Certification required for compensation. A common carrier may pay compensation to a licensee only pursuant to such common carrier's tariff provisions. Where a common carrier's tariff provides for the payment of compensation, such compensation shall be paid on any shipment forwarded on behalf of others where the licensee has provided a written certification as prescribed in paragraph (c) of this section and the shipper has been disclosed on the bill of lading as provided for in paragraph (a) of this section. The common carrier shall be entitled to rely on such certification unless it knows that the certification is incorrect. The common carrier shall retain such certification for a period of five (5) years. 46 C.F.R. § 510.23(b).

53. Beneficial interest as defined in 46 C.F.R. § 510.2(b), includes a lien or interest in any part of a shipment of cargo where such interest arises by agreement, express or implied.

54. See the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461, as amended by the Debt Collection Improvement Act of 1996, Pub. L. 104-34, April 26, 1996. See also Stallion Cargo, 29 S.R.R. 678 fn. 30.

55. If this Initial Decision is not affirmed as to the maximum penalty to be assessed for the 149 violations of section 10(b)(4), further consideration could be given to the assessment of a penalty for the 149 violations of section 10(b)(1) as long as the total penalties for the 10(b)(4) and 10(b)(1) violations do not exceed the maximum penalty set forth in section 13, 46 U.S.C. app § 1712. See World Line Shipping, Inc. and Saeid B. Maralan (a/k/a Sam Bustani), 29 S.R.R. 808 (2002).