FMC Imposes $820,000 Fine Against Sea-Land for Equipment Substitution Violations (No Forwarder Compensation Violations Found)

Among other things, the FMC agreed with the ALJ's finding that sections 10(b)(1) and 10(b)(4) of the Act were violated and is imposing a penalty of $820,000 against Sea-Land for equipment substitution violations under section 10(b)(4) of the Act (down from the $4,082,500 penalty ordered by the ALJ).

FMC Focuses on Sea-Land's Attempts to Hide Undercharged Cargo

Violations of sections 10(b)(1) and 10(b)(4). The FMC concurred with the ALJ's findings that Sea-Land charged shippers less than applicable rates for cargo in 20-foot containers when the cargo was actually moved in 40-foot containers, which violated section 10(b)(1) of the Act. The FMC also agreed with the ALJ's finding that unjust and unfair devices or means were used to hide the fact that this undercharged cargo did not comply with the tariff rule on equipment substitution, which violated section 10(b)(4) of the Act.

However, the FMC determined not to assess penalties for section 10(b)(1) violations and instead chose to focus on Sea-Land's section 10(b)(4) violations, which it considered to be more egregious.

FMC imposes lower fine for violations of section 10(b)(4). The FMC reasons that Sea-Land concocted a fraudulent scheme to intentionally violate the Act and is fully culpable for its conduct. However, the FMC finds it necessary to balance the gravity of Sea-Land's violations of the pre-Ocean Shipping Reform Act (OSRA) against the impact of OSRA, the implementation of which would make Sea-Land's conduct lawful if undertaken pursuant to a properly executed and filed service contract.

According to the FMC, there is a sharply reduced need for the FMC to impose a penalty here for the purpose of deterring conduct similar to that of Sea-Land. Therefore, the FMC is imposing a penalty in the amount of $820,000 in order to punish Sea-Land's conduct violating section 10(b)(4) of the Act and to provide notice to others that the FMC takes seriously its obligation to enforce the Act.

FMC Declines to Find Forwarder Compensation Violations

Although a majority of Commissioners believe the ALJ had found violations of sections 19(d)(1) and 19(d)(4) of the Act which concern common carrier's compensation to ocean freight forwarders, the FMC declined to find any violations with regard to 19(d).

(In March 2002, the ALJ found that Sea-Land violated section 19(d) of the Act by, among other things, paying forwarder compensation without obtaining proper and adequate certifications.

However, in January 2003, the ALJ determined that no civil penalties should be assessed against Sea-Land for its violations of sections 19(d) of the Act because Sea-Land did not receive "fair notice" that the ALJ's March 2002 ruling would adopt the FMC Bureau of Enforcement's (BOE's) interpretation of the FMC's forwarder compensation regulations.

(Section 19(d) allows a common carrier to 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 certain specified services (e.g. contracted for space, prepared and processed an ocean bill of lading, etc.).)

FMC discussion of certification requirements for forwarder compensation. In 1984, the FMC promulgated regulations permitting forwarders to satisfy the above-mentioned certification requirement in four ways, by inserting it: on a copy of the bill of lading; in a summary statement; in an invoice for compensation; or as an endorsement on the back of a check. In this case, the ALJ found that Sea-Land relied upon the forwarder's deposits of Sea-Land checks containing the certification stamps on the back of each. Such certifications are authorized by FMC regulations and those regulations allow carriers to rely upon such certifications unless the carrier "knows" the certification is incorrect. The ALJ concluded that BOE's interpretation would run sharply counter to the FMC's regulations and to industry practices that have developed over a twenty year period. (See ITT's Online Archives or 02/14/03 news, 03021405, for BP summary of the BOE's interpretation of these requirements.)

The Commissioners find that the FMC's forwarder certification rule does not specify in detail how the requirements are to be met. The practice which has arisen in the industry is that checks are typically stamped by the carrier with the certification language contained in the current regulation and endorsed by the forwarder by stamping "for deposit only" on the back of each check. The FMC concludes that the industry practice is a reasonable interpretation of the FMC's forwarder certification regulations. Accordingly, the FMC declined to find violations of section 19(d).

(See ITT's Online Archives or 03/18/02 and 02/14/03 news, 02031830 and 03021405, for BP summaries of the ALJ's preliminary ruling and the ALJ's imposition of the $4,082,500 fine, respectively.)

(See ITT's Online Archives or 12/06/02 and 04/25/03 news, 02120610 and 03042525, for BP summaries of the NCBFAA's briefs filed in the Sea-Land case, respectively.)

FMC Order (D/N 98-06, served 02/08/06) available athttp://www.fmc.gov/file.asp?F=1CD769BCA3FC44D88D7DFB0EADA2D423%2Epdf&N=98%2D06FINALPLURALITYOrder02%2D07%2D2006%2Epdf&C=docket_activity