Fifth Circuit Upholds Coast Guard Determination That Dredging Barge With Foreign-Made Crane May Operate In The United States – Marine/ Shipping

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On April 17, 2024, the United States Court of Appeals for the
Fifth Circuit upheld the Coast Guard’s determination that a
vessel is considered “built in the United States” for
purposes of coastwise endorsement eligibility notwithstanding its
incorporation of a foreign-made crane. Diamond Services Corp.
v. Curtin Maritime Corp., et al., No. 23-20118, – F.4th
–, 2024 WL 1648002 (5th Cir. Apr. 17, 2024). The decision
turned on whether a crane installed on a dredging barge is
considered part of the barge’s hull or superstructure.

Background

Curtin Maritime Corporation (“Curtin”) sought a
preliminary ruling from the Coast Guard that its dredging barge,
the DB AVALON, could operate in the United States. Before a vessel
can dredge in U.S. navigable waters, it must meet certain
requirements imposed by federal law including a “certificate
of documentation [COD] with a coastwise endorsement.” Only
vessels “built” or “rebuilt” in the United
States are eligible for a coastwise endorsement.

Curtin’s application to the Coast Guard detailed that the
AVALON would be constructed with steel at a shipyard in the United
States, but the vessel’s spuds and crane would be removed from
a foreign vessel and shipped to the United States prior to
installation. The crane would be bolted to the AVALON’s hull,
not welded, and the spuds would also be removable. Based on the
removability of the spuds and crane, the Coast Guard regarded them
as “outfitting” and not part of the AVALON’s hull or
superstructure. Because the AVALON would “remain a complete
and intact vessel and be fully capable of operating as a vessel
without the spuds and crane,” the Coast Guard determined that
the AVALON “would be considered built in the United
States.” On July 27, 2022, the AVALON received its COD with a
coastwise endorsement.

Legal Challenges and Court Proceedings

Around this time, the Port of Houston Authority (“the
Port”) awarded Curtin a bid for the expansion of the Houston
Ship Channel. Diamond Services Corporation (“Diamond”), a
competitor of Curtin, thereafter sued Curtin, the Port, and several
federal defendants under the Administrative Procedure Act (APA) and
the Declaratory Judgment Act (DJA). Diamond’s complaint urged
the district court (i) to declare that the issuance of the
AVALON’s COD was arbitrary and capricious and thus violated
federal law, (ii) to enjoin Curtin from performing any work using
the AVALON in the United States, and (iii) to enjoin the Port from
awarding Curtin funds or work involving the AVALON.

Curtin and the Port moved to dismiss pursuant to Federal Rules
of Civil Procedure 12(b)(1) and 12(b)(6), contending that Diamond
lacked standing and failed to state a claim. Diamond moved for
summary judgment against the defendants, and the federal defendants
moved for summary judgment against Diamond. The district court
granted Curtin and the Port’s motion to dismiss for lack of
standing, denied Diamond’s motion for summary judgment, and
granted the federal defendants’ motion for summary judgment. In
granting the federal defendants’ motion for summary judgment,
the district court deferred to the Coast Guard’s reasonable
interpretation of its own regulations. The Coast Guard interpreted
its regulations to focus on whether the crane and spuds “could
be removed without affecting the [AVALON’s] operation as a
vessel, the structural integrity of the hull, or the integrity of
the superstructure.” Such an interpretation, according to the
district court, fell within the agency’s expertise and was a
proper application of its regulations.

Fifth Circuit Appeal and Ruling

On appeal, the Fifth Circuit upheld the district court’s
holding that Diamond lacked standing to sue Curtin as one of its
competitors. Although Diamond had standing to sue the federal
defendants, standing with respect to one defendant does not, on its
own, confer standing as to another defendant. The Fifth Circuit
also upheld the district court’s deference to the Coast
Guard’s interpretation of its regulations and resulting
judgment that the Coast Guard did not violate the APA by issuing
the AVALON a COD with a coastwise endorsement.

To reach this conclusion, the Fifth Circuit employed the Supreme
Court’s multi-step test to resolve whether deference to an
agency’s interpretation of a regulation is warranted. Because
Diamond had waived any argument that the spuds were not part of the
AVALON’s hull or superstructure, the Fifth Circuit solely
considered the crane in its analysis. First, the Fifth Circuit
analyzed whether the Coast Guard regulation defining
“superstructure” (46 C.F.R. § 67.3) is
“genuinely ambiguous” with respect to the AVALON’s
crane. The regulation defines “superstructure” as
“the main deck and any other structural part above
the main deck.” Neither the regulation nor its history clearly
establishes whether a crane constitutes a “structural
part” of a dredging barge. Thus, the Fifth Circuit deemed the
Coast Guard regulation genuinely ambiguous.

Second, the Fifth Circuit resolved whether the Coast Guard’s
interpretation of the regulation was reasonable. The Court noted
the Coast Guard’s Review Criteria for Steel Weight Components,
which excludes cranes from the meaning of
“superstructure”:

Based on the Review Criteria, which regards cranes as outfitting
components, and prior agency determinations, the Court concluded
that the Coast Guard’s finding about the AVALON’s crane was
reasonable.

Third, the Court made an independent inquiry into whether
deference to the Coast Guard’s determination is proper. “
‘[E]specially important markers’ for this inquiry are
whether the interpretation (1) was actually made by the agency, (2)
implicates the agency’s substantive expertise, and (3) reflects
fair and considered judgment.” Finding that all three markers
were satisfied, the Fifth Circuit affirmed the district court’s
deference to the Coast Guard’s determination and grant of
summary judgment in favor of the federal defendants.

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