Initial Decision Served 2/3/99
Notice Not to Review Served 3/9/99
FEDERAL MARITIME COMMISSION
DOCKET NO. 98-16
EASTERN MEDITERRANEAN SHIPPING CORP.
d/b/a ATLANTIC OCEAN LINE AND ANIL K. SHARMA
POSSIBLE VIOLATIONS OF SECTIONS 10(a)(1), 10(b)(1)
AND 10(d)(1) OF THE SHIPPING ACT OF 1984
Respondent Eastern Mediterranean Shipping Corp. and its sole owner, respondent Anil K. Sharma, found to have operated as an NVOCC (non-vessel operating common carrier) and to have knowingly and willfully violated sections 10(a)(1), 10(b)(1), and 10(d)(1) of the Shipping Act of 1984, by misdescribing cargo, by failing to charge filed tariff rates, by mishandling shipments, failing to pay freight, and providing misleading information to their shipper customers. Respondents have closed their business and have disappeared.
Both respondents found to have violated section 10(a)(1) on five discrete occasions. Respondent Eastern Mediterranean found to have violated section 10(b)(1) on 21 discrete occasions, and to have violated section 10(d)(1) on 14 discrete occasions.
The record shows that there are no mitigating factors excusing respondents' flagrant and continued disregard of the Shipping Act and their current inability to pay does not excuse the assessment of the maximum penalties allowed by law.
Maximum civil penalties are assessed against respondents Eastern Mediterranean and Anil K. Sharma jointly and severally in the amount of $137,500; maximum penalties are assessed against respondent Eastern Mediterranean for the violations of section 10(b)(1) in the amount of $577,500 and for violations of section 10(d)(1) in the amount of $385,000. Also a cease and desist order is issued.
Vern W. Hill and Heather M. Burns for the Bureau of Enforcement.
No appearance for respondents.
INITIAL DECISION(1) OF NORMAN D.
KLINE,
ADMINISTRATIVE LAW JUDGE
The Commission began this investigation of respondents Eastern Mediterranean Shipping Corp. d/b/a Atlantic Ocean Line (Eastern Med) and Anil K. Sharma personally to determine whether these respondents either in their corporate form or Mr. Sharma individually should be found to have violated three sections of the Shipping Act of 1984. These three sections are: section 10(a)(1), which prohibits any person from knowingly and willfully, directly or indirectly, obtaining or attempting to obtain ocean transportation at less than the properly applicable rates; section 10(b)(1), which prohibits a common carrier from charging rates other than those specified in its filed tariffs; and section 10(d)(1), which makes it unlawful for a common carrier to fail to establish, observe and enforce just and reasonable regulations and practices related to the receiving, handling, storing, or delivering property.
The Commission's Order of Investigation and Hearing identified respondent Anil (a.k.a. "Andy") K. Sharma as the 100-percent owner of Eastern Med and, at the time of the Order (September 18, 1998), as the corporation's President and Chief Executive Officer who was then managing Eastern Med and was actively involved in the company's day-to-day operations as an NVOCC (non-vessel operating common carrier). According to the Commission's Order, it appeared that Eastern Med had failed to establish and observe reasonable practices regarding property entrusted to it by its customers and that the Commission's Office of Informal Inquiries had received numerous complaints about Eastern Med from shippers and freight forwarders who had dealt with Eastern Med, because of such things as failing to pay ocean freight to underlying vessels, failing to respond to requests for information about shipments, failing to release bills of lading after freight had been paid, failing to deliver cargo as promised, and giving out deceptive information.
It early appeared that respondents had closed down their business and that Mr. Sharma had departed for parts unknown. Accordingly, they failed to respond to any rulings or requests properly served on them by the Commission's Bureau of Enforcement (BOE).(2) On motion by BOE, a procedure was established by which BOE would tender its evidence with its motion to admit such evidence into the record and respondents would be allowed to file an answering case and reply to BOE's motion to admit. Thereafter BOE would file its opening brief and respondents were allowed to file their reply briefs. BOE has tendered its written evidence, which has been admitted without objection or reply by respondents, and has submitted its opening brief again without any response by respondents.(3) The proceeding is therefore ripe for decision.
FINDINGS OF FACT
The following findings of fact are derived from BOE's Proposed Findings of Fact set forth in BOE's Opening Brief. References to the evidence supporting each finding of fact are omitted but can be found in that brief. Respondents have declined to participate in the proceeding and accordingly the findings of fact are undisputed.
Findings with Respect to Background on Eastern Mediterranean Shipping Corp.
1. Eastern Mediterranean Shipping Corp. (Eastern Med) filed its NVOCC tariff in ATFI and it became effective on February 10, 1995.
2. Eastern Med was established as a New York corporation on or about October 1994.
3. Eastern Med's offices were located at 990 Avenue of the Americas, Suite 6E, New York, NY 10018, and were previously located in Suite 16H in the same building.
4. The President and sole officer of Eastern Med is Anil K. Sharma (aka "Andy Sharma"), who managed the day-to-day operations of Eastern Med.
5. Eastern also did business as Atlantic Ocean Line which was listed as a d/b/a on Eastern's ATFI tariff.
Findings with Respect to Section 10(a)(1) Issues
6. In September 1997, Eastern Med entered into a service contract, number Z1427, with Zim-American Israeli Shipping Co., Inc. ("Zim").
7. Seth Shipping Corp. ("Seth Shipping") also participated under service contract no. Z1427 as an affiliate of Zim.
8. Between October 5, 1997 and February 24, 1998, Zim and Seth Shipping transported cargo for the account of Eastern Med pursuant to the rates and terms of service contract no. Z1427.
9. On December 17, 1997 and March 3-4, 1998, Bureau of Enforcement Area Representative Michael Carley visited the offices of Eastern Med and collected records for certain shipments handled by Eastern Med.
10. In each of the five (5) shipments, an inaccurate commodity description was furnished by Eastern Med to the ocean common carrier.
11. The shipments were rated by Zim or Seth Shipping in accordance with the false commodity description provided by Eastern Med.
12. Eastern Med knew of, and willingly engaged in such cargo misdescription since, in each of the 5 shipments, Eastern Med issued its own house bill of lading, its own invoice or received information from the shipper correctly identifying the commodity being transported.
13. In each of the five instances cited, the commodity actually being shipped was not listed in service contract no. Z1427, and the appropriate commodity rate should have been Cargo NOS.
14. In each of the five instances cited, Eastern Med provided the ocean common carrier with a commodity description available under service contract no. Z1427, so that the rates charged by Zim or Seth Shipping were lower than the freight rates otherwise applicable for the commodities actually transported for the account of Eastern.
15. In the five instances cited, the aggregate undercharges obtained by Eastern Med through misdescribing the commodities to Zim or Seth Shipping total $89,760.00.
Findings with Respect to Section 10(b)(1) Issues
16. Eastern Med's tariff rule number 2, Part R, requires that where a specific commodity rate is not provided, Cargo NOS will be applied.
17. Eastern Med's tariff rule number 2, sub-rule 4, requires that a bill of lading processing fee of $35.00 be applied to each shipment.
18. Eastern Med's tariff rule number 3 requires that the rate applicable to a particular shipment is the rate in effect when the cargo is received by Eastern Med.
19. Eastern Med's tariff rule number 10, sub-rule B, requires that a bunker surcharge of $25.00 W/M be applied to each shipment.
20. Eastern Med's tariff rule number 10, sub-rule C, requires that a currency shipment factor of fifty percent of the basic ocean freight be applied to each shipment.
21. Eastern Med's tariff rule number 23, sub-rule B, requires that a terminal handling charge of $25.00 W/M be applied to each shipment.
22. From May 25, 1997 through February 27, 1998, under Eastern Med's tariff 013236-001, the rate for Cargo NOS was $600.00 W/M under TLI #0000-00-0000.
23. On December 17, 1997 and March 3-4, 1998, Bureau of Enforcement Area Representative Michael Carley visited the offices of Eastern Med and collected records for certain shipments handled by Eastern Med.
24. In each of the 21 instances examined by Mr. Carley, Eastern Med acted in its capacity as an NVOCC on shipments destined to foreign ports and points and issued its own NVOCC bill of lading with respect to each shipment.
25. In each of the 21 instances, Eastern Med issued an invoice to the shipper and charged or collected less or different compensation for such shipments than the freight rates then applicable in its tariff. Eastern Med knew, or had reason to know, that the compensation charged for such shipments was less or different than the freight rates then applicable in its tariff.
26. In each of the 21 instances, the cargo was received by Eastern Med prior to being laden on board.
27. For fifteen (15) of the 21 instances, Eastern Med filed the commodity rate for the shipment after the cargo was laden on board, and the Cargo NOS rate should have been applied.
28. For two (2) of the 21 instances, Eastern Med failed to charge the shipper the correct commodity rate on file with the Commission, resulting in Eastern Med's undercharging the shipper.
29. For four (4) of the 21 instances, Eastern Med did not have a commodity rate filed for the shipment, and the Cargo NOS rate should have applied.
30. The difference, or amount of undercharge, by which Eastern Med provided transportation at less than applicable tariff rates for the 21 shipments resulted in undercharges totaling $850,248.79.
Findings with Respect to Section 10(d)(1) Issues
31. From July 1996 until April 1998, the Commission's Office of Informal Complaints, Inquiries and Informal Dockets received at least 64 complaints regarding the business practices of Eastern Med and the manner in which Eastern Med handled the cargo entrusted to them for shipment overseas.(4)
32. In handling shipments entrusted to it, Eastern Med repeatedly failed to pay the freight to the common carrier, although the freight was pre-paid to Eastern Med by the customer. As a result, the customer was often forced to pay storage and demurrage charges at the destination port. Eastern Med also forced the customer to pay more freight in order to have the cargo released from the port of final destination.
33. Eastern Med repeatedly provided false and misleading information to its customers regarding location of cargo and departure and arrival times for cargo.
34. Eastern Med repeatedly failed to provide original bills of lading and other documentation as promised to the customer, despite the customer pre-paying the freight to Eastern Med.
35. Cargo entrusted to Eastern Med often arrived after the original estimated time of arrival due to Eastern Med's failure to properly handle the cargo, ensure that the cargo departed on the proper vessel and ensure that the cargo was properly transshipped.
Findings with Respect to Respondents' Ability to Pay a Civil Penalty
36. In the ordinary course of conducting investigations of regulated parties, the Bureau of Enforcement requests and utilizes reports from reputable commercial credit reporting services as an initial means of confirming corporate status, identifying principals and ascertaining facts of official record with respect to corporate parties.
37. In the course of informal negotiation proceedings with Eastern Med, Sharma provided to the Bureau of Enforcement corporate financial documents which were reviewed and utilized to determine the financial viability of Eastern Med.
38. As of March 1998, Eastern Med had three unsatisfied court judgments against it, totaling $10,005; six pending lawsuits against the company for claims totaling $91,745; and one open lien against the company filed by the Internal Revenue Service for $61,182. These judgments and lien total $162,932.00.
39. In 1996, Eastern Med filed a U.S. Corporation Income tax return, Form 1120, and reported gross receipts of $2,947,550; total income of $494,736; total taxable income of negative $54,940. Eastern Med appears to be insolvent and unable to pay its current debts at the time this tax return was filed.
40. In 1996, Eastern Med reported on its U.S. Corporation Income tax return, Form 1120, that it paid its officer, Anil Sharma, $72,000 in compensation.
41. Through October 26, 1998, Eastern Med maintained an NVOCC bond, number 8941330, for the amount of $50,000 with Washington International Insurance Company.
42. Effective October 26, 1998, Eastern Med's bond was canceled by the action of the bonding company.
43. In the absence of the required NVOCC bond, the Commission's Bureau of Tariffs, Certification and Licensing canceled Eastern Med's NVOCC tariff, effective October 29, 1998.
44. Sharma closed Eastern Med and his other NVOCC, Atlantic Ocean Line, Inc., over the weekend of September 5-7, 1998, which remain closed to date, and his whereabouts are unknown.
45. As a result of Sharma's abruptly closing Eastern Med, the Commission's Office of Informal Inquiries, Complaints and Informal Dockets received 6 complaints from Eastern Med's customers claiming their shipments had been abandoned, held by the carrier for payment of freight, or were otherwise mishandled. The total amount of losses incurred from Sharma closing down his companies totaled approximately $42,814.00.
DISCUSSION AND CONCLUSIONS
The undisputed evidence set forth above establishes clearly and convincingly that respondents have committed the violations as charged in the Commission's Order of Investigation and Hearing. Although the standard of proof in an administrative proceeding such as this one is merely that of a preponderance of the evidence, which is also the normal standard of proof in civil cases before the courts, this record, which contains unrefuted, detailed evidence of malpractices by respondents, rises above the level of a mere preponderance to that of clear and convincing. See Alex Parsinia d/b/a Pacific Int'l Shipping and Cargo Express, 27 S.R.R. 1335, 1337 n. 2 (1997), citing, among other cases, Steadman v. S.E.C., 450 U.S. 91, 101-102 (1981), reh. denied, 451 U.S. 933 (1981); Port Authority of New York v. New York Shipping Association, 22 S.R.R. 1329, 1353 (I.D. 1984), adopted in relevant part, 23 S.R.R. 21, 49 (1985). On the basis of such clear and convincing evidence and BOE's persuasive arguments, all of which respondents have declined to refute or rebut, I find that respondents have violated sections 10(a)(1), 10(b)(1), and 10(d)(1), as described by BOE and shown by the evidence, and that a cease and desist order should be issued against them. However, because their tariff has been canceled, the issue concerning possible cancellation of such tariff has become moot. As I explain below, the only issue that poses any real intellectual challenge is that concerning the amount of civil penalties that should be assessed and against which respondents.
The Section 10(a)(1) Violations
The first issue framed in the Commission's Order is the following:
1) whether Eastern Mediterranean Shipping Corp. and/or Anil K. Sharma violated section 10(a)(1) of the 1984 Act by directly or indirectly obtaining transportation at less than the rates and charges otherwise applicable through the means of misdescription of the commodities actually shipped.
Section 10(a)(1) states:
No person may-(1) knowingly and willfully, directly or indirectly, by means of false billing, false classification, false weighing, false report of weight, false measurement, or by any other unjust or unfair device or means obtain or attempt to obtain ocean transportation for property at less than the rates or charges that would otherwise be applicable.
Citing ample case law as precedent, BOE correctly argues that on at least five occasions Eastern Med misdescribed commodities not listed in the service contract that Eastern Med had obtained with a vessel-operating carrier, for the purpose of obtaining lower rates than would be lawfully applicable. However, on Eastern Med's own bills of lading issued to its own shipper customers Eastern Med correctly described the commodities shipped. Such conduct is sufficient to show and I so find that Eastern Med and its sole owner, Anil Sharma, acted with gross indifference to the requirements of law and consequently acted "knowingly and willfully" within the meaning of section 10(a)(1) and thereby violated that law. See 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, 1204-1205 (ALJ), administratively final, 27 S.R.R. 1210 (1997); Portman Square Ltd.-Possible Violations of Section 10(a)(1) of the Shipping Act of 1984, 28 S.R.R. 80, 84-85 (I.D.), administratively final (1998); Shipman International (Taiwan) Ltd.-Possible Violations of Sections 8, 10(a)(1) and 10(b)(1) of the Shipping Act of 1984, 28 S.R.R. 100, 104-105 (I.D.), administratively final (1998). See also Equality Plastics, Inc., et al., 17 F.M.C. 217, 226 (1973), reconsideration denied, 14 S.R.R. 767 (1974). As the record also shows, by such conduct Eastern Med and Mr. Sharma, in effect, cheated the vessel-operating carrier out of some $89,760 for the five shipments.
The Section 10(b)(1) Violations
The second issue framed in the Commission's Order is the following:
2) whether Eastern Mediterranean Shipping Corp. violated section 10(b)(1) of the 1984 Act by charging, demanding, collecting or receiving less or different compensation for the transportation of property than the rates and charges shown in its NVOCC tariff.
Section 10(b)(1) of the Act states:
(b) No common carrier, either alone or in conjunction with any other person, directly or indirectly, may-(1) charge, demand, collect, or receive greater, less, or different compensation therewith than the rates and charges that are shown in its tariffs or service contracts.
BOE correctly argues with ample record support that Eastern Med, acting as an NVOCC, for 21 shipments either failed to file a tariff rate for the commodity shipped, filed a rate after the cargo had been laden on board the vessel, or failed to charge the correct tariff rate. Moreover, Eastern Med also failed to assess certain charges as required by its tariff rules (bunker surcharge, currency adjustment factor, and a terminal handling charge. As BOE contends and the evidence shows, as a result of failure to follow its tariff, Eastern Med undercharged its shipper customers by some $850,248.79.
With ample case citations, BOE argues that section 10(b)(1) is a strict liability statute, meaning that the only legal rate that the carrier is allowed to charge is that filed in its tariff regardless of a carrier's good-faith intentions or honest mistake. This is ancient tariff law. See Marcella Shipping Co., Ltd., 23 S.R.R. 857, 862 (I.D.), administratively final, March 26, 1986, citing Louisville & Nashville R.R. v. Maxwell, 237 U.S. 94, 97 (1915); F & D Loadline Corp., 27 S.R.R. 764, 767 (I.D.), administratively final (1996); Trans Ocean-Pacific Forwarding Inc., 27 S.R.R. 409, 412 (I.D.), administratively final (1996); Cari-Cargo Int'l, Inc., 23 S.R.R. 1007, 1016 (I.D.), administratively final (1986). Accordingly, I find that respondent Eastern Med violated section 10(b)(1) on at least 21 occasions.
The Section 10(d)(1) Violations
The third issue framed in the Commission's Order is the following:
3) whether Eastern Mediterranean Shipping Corp. violated section 10(d)(1) of the 1984 Shipping Act by failing to establish, observe and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.
Section 10(d)(1) of the Act states in pertinent part:
(d)(1) No common carrier . . . may fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.
Again citing case authority, BOE correctly argues that respondent Eastern Med's conduct demonstrates its failure to establish and observe reasonable practices relating to its handling and delivery of property. As the record shows, Eastern Med conducted such practices as failing to remit payments to vessel-operating carriers on behalf of Eastern Med's shipper customers, providing false and misleading information to the shippers regarding the whereabouts of the shippers' cargoes, failure to provide bills of lading to its shipper customers, and causing delays in delivery because of its actions or inactions. The evidence shows, furthermore, that such conduct on the part of Eastern Med shows that Eastern Med had failed to establish and observe reasonable practices on at least 14 occasions. BOE correctly argues that such conduct resembles that found to have occurred in two previous cases in which the respondent "middlemen" were found to have violated section 10(d)(1). The cases are: Nordana Line A/S v. Jamar Shipping, Inc., 27 S.R.R. 233 (I.D.), administratively final, April 19, 1995; and Balladin v. Liberty Lines, Inc., 26 S.R.R. 1527 (ALJ 1994). In Nordana Line A/S, the respondent freight forwarder was found to have violated section 10(d)(1) by failing to remit the shipper's money to the vessel-operating carrier and in using the money for the forwarder's own purposes. In Balladin, the respondent NVOCC not only failed to forward funds to the proper carrier but provided misleading information to the shipper as to the status of the shipment. As the unrefuted evidence shows, on at least 14 occasions Eastern Med has either failed to remit shippers' funds to the proper vessel-operating carriers, has made it necessary for the shippers to pay storage and demurrage charges in order to receive their cargo, or made them have to pay more freight after the cargo had arrived at destination for the same purpose. Moreover, somewhat like Balladin, cited above, Eastern Med made it a common practice to provide false and misleading information to its shipper customers who inquired as to the status and location of their cargo, and even failed to provide a bill of lading to its customers even if the customer had paid for it on demand of Eastern Med.
As if all the foregoing were not enough to show that Eastern Med had failed to establish and observe reasonable practices, Eastern Med and/or Mr. Sharma have been found to have violated section 10(d)(1) in two formal complaint proceedings, namely, Panalpina, Inc. v. Eastern Mediterranean Shipping Corp., 28 S.R.R. 526 (I.D.), administratively final (1998); and Docket No. 98-24 - Go/Dan Industries, Inc. and Atlantic Customs Brokers, Inc. v. Eastern Mediterranean Shipping Corp., d/b/a Atlantic Ocean Lines, Anil . . . Sharma and Atlantic Ocean Lines, Inc., I.D., December 10, 1998, administratively final, January 27, 1999, 28 S.R.R.____. In addition to the above, according to the testimony of the Commission's Director of the Office of Informal Inquiries and Complaints, Mr. Farrell, from July 1996 until April 1998, his office received at least 64 informal complaints regarding the business practices of Eastern Med and the manner in which Eastern Med handled the cargo entrusted to it for shipment overseas. In these informal complaints, moreover, it was alleged that cargo entrusted to Eastern Med often arrived weeks or months after the original quoted time of arrival and shippers even had to pay additional freight. When respondent Sharma closed down his businesses abruptly in September 1998, Mr. Farrell's office received six complaints alleging a total of $42,814 in damages suffered by customers whose shipments were abandoned in mid-journey. I find therefore that Eastern Med failed to establish and observe just and reasonable practices, in violation of section 10(d)(1) on at least 14 occasions.
The Issue of Civil Penalties
The fourth issue framed by the Commission's Order is the following:
4) whether, in the event violations of sections 10(a)(1), 10(b)(1) and 10(d)(1) of the 1984 Shipping Act are found, civil penalties should be assessed against Eastern Mediterranean Shipping Corp. and/or Anil Sharma and, if so, the amount of penalties to be assessed.
BOE argues that a "significant" civil penalty should be assessed against respondent Eastern Med because of respondents' flagrant conduct shown by the evidence of record, none of which respondents bothered to contest. BOE appears to focus on the corporate respondent, Eastern Med, when urging assessment of civil penalties, but BOE also acknowledges that "collecting a civil penalty from either Eastern or Sharma at present is low due to the number and dollar amount of claims against Eastern's bond as well as the current unknown whereabouts of Sharma. However, any penalty assessed in this proceeding may be collected in the future should Sharma be located and found to have assets." (BOE's Opening Brief at 18.) The Commission's Order, of course, asks whether civil penalties should be assessed not only against the corporate respondent, Eastern Med, but against Mr. Sharma personally. However, the Commission's Order charges respondent Sharma only with possible violations of section 10(a)(1) whereas it is the corporate respondent, Eastern Med, that is charged with violations of sections 10(b)(1) and 10(d)(1), as well as section 10(a)(1). Accordingly, consistent with due process of law, the civil penalties to be assessed for the section 10(b)(1) and 10(d)(1) violations will be confined to the corporate respondent.(5)
The question whether to assess any civil penalties at all against these respondents is rather simple. Their egregious conduct and considerable harm they caused and their evident contempt and disdain for the Shipping Act amply justify assessment of significant civil penalties. Indeed, as there are no mitigating factors, this record would justify the assessment of the maximum civil penalties allowed by law, as has happened in several recent cases of this type. Such penalties are especially warranted if the Commission is to carry out the congressional purpose in giving the Commission authority to assess civil penalties, which authority had previously been confined to the courts, and even to increase the amount of civil penalties, in order to deter violations of the Act. See Docket No. 89-27 - Martyn Merritt-Possible Violations of Shipping Act of 1984, Order on Remand, 26 S.R.R. 663, 664 n. 4 (1992) ("The legislative history of the 1984 Act indicates that Congress meant to enhance the deterrent effect of penalties for activities prohibited under section 10."); see also discussion in same case, 26 S.R.R. 1346, 1350 (I.D.), ultimate penalty modified on other grounds, 27 S.R.R. 142 (1995); Inflation Adjustment of Civil Monetary Penalties, 27 S.R.R. 809, 810 (1996) (civil monetary penalties increased due to inflation "to ensure that they continue to maintain their deterrent value").
The Commission's authority to assess civil penalties is set forth in section 13(c) of the 1984 Act. That law requires the Commission to consider and balance a number of factors when fixing a specific amount of penalty. Thus the law states:
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.
BOE describes what the record shows concerning respondents in terms of the statutory factors. Thus, BOE points out that respondents have a history and track record of being sued by formal and informal complaints and of failure to respond to various orders in previous cases. As the record shows, the Commission's Office of Informal Inquiries and Complaints has received at least 64 informal complaints against Eastern Med. BOE also describes the nature, circumstances, extent and gravity of Eastern Med's violations and its degree of culpability. Thus, the record shows willful misdescriptions by respondents in order to obtain lower rates under a service contract, a repeated failure to file tariff rates before the cargo was laden on board vessels, failure to file tariff rates at all, and failure to charge the appropriate rates even when they were on file. Also, the record shows Eastern Med's failure to handle and deliver cargo properly to its final destination and Eastern Med's frequent failure to pay freight to the underlying vessel-operating carrier despite having been fully paid in advance by the shipper customers. As if the foregoing were not enough, the record shows that Eastern Med often provided false and misleading information to its shipper customers who inquired about the status of their shipments. Eastern Med and Mr. Sharma also were no novices as far as their knowledge of the Shipping Act was concerned, considering that they were frequently involved with both formal and informal complaints brought under that Act.
There is only one factor among the many set forth in the statute that causes one to hesitate before fixing appropriate penalties that will have deterrent effects and protect the shipping public from NVOCCs like Eastern Med. That factor is ability to pay. BOE candidly discusses the fact that Eastern Med is totally insolvent and has accumulated debts and suffered unsatisfied court judgments against it as well as an open lien against it filed by the Internal Revenue Service. BOE states, moreover, that "it is apparent that since at least 1996 Eastern has been an insolvent entity, unable to meet its debts, and it had a total taxable income of negative $54,940.00." (BOE's Opening Brief at 18.) BOE goes on to say, however, that Eastern Med paid Mr. Sharma an annual salary of $72,000, at least as of 1996. (Ibid.) Eastern Med also had a bond in the amount of $50,000, but there have been various claims against that bond.
The danger in overemphasizing the one factor, ability to pay, in the face of so many other factors that the statute commands the Commission to consider, is that this one factor could nullify all the others and totally defeat the primary congressional purpose in deterring violations of the 1984 Act and in protecting the shipping public. This danger has been addressed in previous cases involving insolvent and disappearing NVOCC "scofflaws" but has not deterred the assessment of maximum penalties allowed by law in each of those cases. See Portman Square Ltd.-Possible Violations of Section 10(a)(1), Shipping Act of 1984, 28 S.R.R. 80, 85-86 (I.D.), administratively final, March 16, 1998); Comm-Sino Ltd.-Possible Violations of Sections 10(a)(1) and 10(b)(1), 27 S.R.R. 1201, 1206-1207 (ALJ); 1210 (I.D.), administratively final May 21, 1997. See especially the discussion in Ever Freight Int'l Ltd., et al.-Possible Violations of the Shipping Act of 1984, 28 S.R.R. 329, 335 (I.D.), administratively final, June 26, 1998 (F.M.C. not required to elevate ability to pay above all other factors when fixing amount of civil penalty). As in the cited cases, I conclude that consideration of the other statutory factors, "such other matters as justice may require," and the overriding congressional purpose of deterrence, means that the one factor, ability to pay, should not nullify all the others. The statute simply does not say that "notwithstanding all the foregoing factors and the interests of justice, a respondent's inability to pay shall be the final determining factor." Accordingly, I must take the statute as Congress has written it and I find that consideration of all the factors without giving any one of them controlling influence, warrants the assessment of the maximum civil penalties allowed.(6)
The evidence shows that both respondents Eastern Med and Mr. Sharma violated section 10(a)(1) on five separate occasions. The maximum penalty for committing such violations knowingly and willfully, as did these two respondents, is $27,500 per violation. See section 13(a), Shipping Act of 1984, as increased by 10-percent for violations occurring after November 6, 1996. See Inflation Adjustment of Civil Monetary Penalties, 27 S.R.R. 809 (1996). The five violations of section 10(a)(1) occurred in October of 1997. Accordingly, respondent Eastern Med and Anil K. Sharma are jointly and severally assessed $137,500 (5 times $27,500) for these violations, and they are ordered to pay that amount.
The evidence shows that respondent Eastern Med violated section 10(b)(1) on 21 discrete occasions, all occurring in 1997 and 1998. Accordingly, Eastern Med is assessed a civil penalty of $577,500 (21 times $27,500) for these violations, and is hereby ordered to pay that amount.
The evidence shows that Eastern Med violated section 10(d)(1) on 14 discrete occasions occurring in 1997 and 1998. Accordingly, Eastern Med is assessed a civil penalty of $385,000 (14 times $27,500) for these violations, and is hereby ordered to pay that amount.
The Issue as to Suspending Eastern Med's Tariff
The fifth issue framed by the Commission's Order is as follows:
5) whether, in the event violations of sections 10(a)(1) or 10(b)(1) of the 1984 Shipping Act are found, the tariff of Eastern Mediterranean Shipping Corp. should be suspended.
As BOE states, following the disappearance of respondent Sharma and the Commission's institution of the instant proceeding, Eastern Med's bonding company gave notice of its intention to cancel Eastern's surety bond, effective October 26, 1998, and the Commission thereafter canceled Eastern Med's tariff for its failure to maintain an NVOCC bond. Consequently, there is no need for an order suspending Eastern Med's tariff.
The Issue Whether to Issue a Cease and Desist Order
The sixth issue framed by the Commission's Order is as follows:
6) whether, in the event violations are found, an appropriate cease and desist order should be issued.
BOE argues that it has no indication that Eastern Med continues to conduct NVOCC operations. However, BOE also argues that the whereabouts of respondent Sharma are unknown and that it would be appropriate to issue a cease and desist order against both respondents to prevent Sharma from opening a new shipping operation and conducting business in the same manner as before. BOE cites Marcella Shipping Co., Ltd., 23 S.R.R. 857, 871-872 (ALJ), administratively final, March 26, 1986 (cease and desist order is justified if there is likelihood that offenses will continue). I agree that such an order would be appropriate and desirable.
In previous cases of the instant type, when the evidence shows that respondents NVOCCs have discontinued operations but have had a history of gross indifference to the Shipping Act, the Commission has issued appropriate cease and desist orders so as to provide the maximum degree of protection to the shipping public and vessel-operating carriers and to facilitate future enforcement. See Ever Freight Int'l Ltd. et al., cited above, 28 S.R.R. at 336; Alex Parsinia d/b/a Pacific Int'l Shipping and Cargo Express, 27 S.R.R. 1335, 1342-1343 (I.D.), administratively final, December 4, 1997.
Accordingly, respondents Eastern Med and Anil K. Sharma are ordered to cease and desist from violating sections 10(a)(1), 10(b)(1) or 10(d)(1) in the manner shown by the evidence in this proceeding.
Norman D. Kline
Administrative Law Judge
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. Service of the rulings and orders in this proceeding was made on respondents' last known business address, which appears to be closed. However, service was also made on respondents' registered agent for service of process. Respondents have disappeared, leaving no forwarding address. However, according to case law, it was their duty to keep the Commission and their registered agent informed of their whereabouts. They have failed to do this and accordingly the cases hold that service on the registered agent constitutes good service. See Docket No. 98-24 - Go/Dan Industries and Atlantic Customs Brokers, Inc. v. Eastern Mediterranean Shipping Corp. et al., Initial Decision, December 10, 1998, at 2 n. 3, citing cases, F.M.C. notice of finality, January 27, 1999, 28 S.R.R._____.
3. The evidence of record consists of the following materials: BOE's requests for admissions of certain facts, with Attachments A, B and C, which were unanswered by respondents and accordingly the facts requested were deemed to be admitted pursuant to 46 C.F.R. 502.207(a)(2)(ii); Exhibit 1, which is an affidavit of Mr. James F. Carey, the Commission's Area Representative for the Washington, D.C. office, with Attachments A and B; Exhibit 2, an affidavit of Mr. Joseph T. Farrell, the Commission's Director of the Office of Informal Inquiries, etc.; and Exhibit 3, an affidavit of Mr. Emanuel J. Mingione, the Commission's New York Area Representative.
4. In its unanswered Request for Admissions No. 77, BOE asked respondents to admit that the Commission's Office of Informal Complaints had received "at least forty-four (44)" complaints regarding Eastern Med's business practices. However, the declaration of Mr. Farrell (Exhibit 2, para. 3), the Commission's Director of the Office of Informal Inquiries, states that his office had received "at least sixty-four (64)" complaints regarding Eastern Med's business practices.
5. See Ever Freight Int'l Ltd.-Possible Violations of the Shipping Act of 1984, etc., 28 S.R.R. 329, 333 n. 3 (I.D.), administratively final June 26, 1998 (cannot find violations of law that were not specified in the Commission's Order, as a matter of due process of law); California Shipping Line, Inc. v. Yangming Marine Transport Corp., 25 S.R.R. 1213, 1231 (1990) (Commission reversed Initial Decision which had assessed civil penalties against respondent carrier partially because of lack of proper notice to respondent that it would have to defend against the charge); Levatino & Sons v. Prudential-Grace Lines, 18 F.M.C. 82, 87 (1974) (Commission remanded proceeding to give respondent opportunity to defend against finding of violation of law that respondent claimed had been inadequately noticed); see also Ariel Maritime Group, Inc., 24 S.R.R. 517, 531 (1987) (corporations and individual respondent held jointly and severally liable where there was no issue about lack of proper notice).
6. The reason why there had been any concern about how to deal with the one factor, ability to pay, when fixing amounts of civil penalties, is the fact that the court in Merritt v. United States, 960 F.2d 15 (2d Cir. 1992), reversed a Commission decision because the Commission had arguably failed to seek out evidence regarding respondent's ability to pay and had placed the burden on the respondent to develop the evidence on the subject as a type of affirmative defense. Court cases subsequent to Merritt have appeared to relax that decision and in any event BOE has attempted to develop evidence on the subject to the best of its ability. See Portman Square Ltd., cited above, 28 S.R.R. at 83, 86; Alex Parsinia d/b/a Pacific Int'l Shipping and Cargo Express, 27 S.R.R. 1335, 1341 (I.D.), administratively final, December 4, 1997; Ever Freight Int'l Ltd. et al., cited above, 28 S.R.R. at 335. For an earlier case in which the Commission assessed the maximum statutory penalties (exceeding $1 million) against two defunct and bankrupt corporations, see Arctic Gulf Marine, Inc., 24 S.,R.R. 159 (1987).