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Statement of Chairman Michael A. Khouri Puerto Nuevo Terminals LLC Cooperative Working Agreement, FMC No. 201292

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There has been continued public comment concerning the Federal Maritime Commission’s (FMC) decision that allowed the Puerto Nuevo Terminals LLC Cooperative Working Agreement (the “Agreement”) to go into effect. I voted to not allow the Agreement to become effective under the Shipping Act of 1984 (Shipping Act) because I held that the FMC does not have subject matter jurisdiction over the Agreement by virtue of §40301(c) of the Shipping Act.

46 U.S.C. §40301(c) of the Shipping Act provides: “ACQUISITIONS. – This part does not apply to an acquisition by any person, directly or indirectly, of any voting security or assets of any other person.” A “person” is any individual, corporation, partnership, or other entity organized under the laws of the United States, any State, or territory of the United States.

Puerto Rico Terminals (PRT) and Luis Ayala Colon (LAC) are “persons”. They are setting up a new limited liability company, Puerto Nuevo Terminals LLC (PNuevoT), also a “person”.

As noted in the FMC’s press release of August 29, 2019, under the terms of the Agreement, LAC and PRT will hold 50/50 membership units (i.e. equity) in PNuevoT, which will then acquire, through assignments, leases, sub-leases, transfers, and other corporate means, all terminal services agreements, land leases, cranes, yard equipment and other related assets from LAC and PRT. Thereafter, PNuevoT, through its single management team and board of directors, will negotiate and enter into all terminal services agreements, crane and other yard equipment purchases and/or leases, coordinate labor for on dock stevedoring and all other matters related to the normal operation of a marine container terminal. LAC and PRT will totally withdraw from the container terminal operating business in San Juan, Puerto Rico – the relevant geographic market.

The language of §40301(c) –   “acquisition by any person, both directly or indirectly, of any voting security or assets of any other person” –  has its roots in a series of statutory amendments to the Clayton Act. Following the initial passage of the Clayton Act, clever corporate attorneys were structuring business transactions with similar types of leases, assignments, contract transfers, etc. in order to avoid the strictures of the Clayton Act. Congress finally adopted the referenced language to cover any and all business combinations and said – look to the economic effect of the transaction. Court cases have reaffirmed this point perhaps hundreds of times. There is NO ambiguity in the language of the statute and Congress wrote it with intent to make its point clear.

Whether LAC and PRT continue as shell holding companies as lessors with their primary asset being the membership units equity of PNuevoT or, whether such membership units and leases are, at some point in time, transferred up stream to corporate parents, thus extinguishing the existence of LAC or PRT, is not germane to the threshold question – “does the business transaction presented to the FMC fall within the clear and unambiguous  words of §40301 (c)?

If YES – then Congress has spoken – the proposed Agreement is not subject to the FMC’s subject matter jurisdiction, the Shipping Act, and the resulting antitrust immunity afforded by the Shipping Act.

The fact that PRT chose to not acquire the equity of LAC, or conversely, that LAC is not acquiring the equity of PRT, and then effecting a corporate name change to PNuevoT is not relevant. Similarly, the two parties’ decision to not effect an outright purchase of all the assets of the other with the surviving company then effecting a name change to PNuevoT is not relevant. The economic effect of [1] an equity acquisition, or [2] an asset acquisition, or [3] the corporate transactions described in and contemplated by the Agreement are the same.

The fact that, due to the expansive definition the FMC has given to the term “Marine Terminal Operator” (MTO) to include landlord ports, operating ports and all similar organizations, with the result  that the term “MTO” will continue to legalistically apply to LAC and PRT –  even after they divest themselves of ALL assets needed to actually provide container terminal services – is equally not germane to the simple threshold question above.

Lastly, the fact that, by virtue of a clause in the Agreement that PRT and LAC – the two holders of the Membership Unit equity – may elect to dissolve PNuevoT at some point in the future and divide up the assets that are, at that future date, owned, leased, or otherwise controlled by PNuevoT, is likewise not germane to the referenced threshold question. The dissolution of PNuevoT at some point in the future after all terminal services agreements, land leases, crane equipment, and other yard equipment that was in PNuevoT’s company name would present many complicated “unwinding” issues – which is further testimony to the true economic effect of the business transaction that is contemplated by the Agreement.

The ultimate effect of the Agreement that first, creates PNuevoT by PRT and LAC, and second, acquires “. . . directly or [and] indirectly . . .” all relevant container terminal assets of PRT and LAC by PNuevoT, as contemplated in the Agreement; simply takes the Agreement outside of the FMC’s subject matter jurisdiction. Whether or not the acquisition by PNuevoT of all of PRT’s and LAC’s container terminal assets can survive legal inquiry pursuant to other antitrust laws of the United States by the citizens and elected public officials of Puerto Rico who have standing is a question for the appropriate Article III federal courts.

Chairman Michael A. Khouri is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not necessarily represent the position of the Commission.