HQ 116012 - Use of Vessels in Dredging Operations; 46 U.S.C. App. 292; Charterer for purposes of 46 U.S.C. App. 292; Use of Crane Barge to Move Dredged Material within Disposal Site; 46 U.S.C. App. 883 - United States International Trade Commision Rulings

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HQ 116012

July 24, 2003

VES-10-02-RR:IT:EC 116012 rb

CATEGORY: CARRIER

Christopher J. Kerkering, Esq.
Mundt MacGregor LLP
999 Third Avenue, Suite 4200
Seattle, WA 98104-4082

RE: Use of Vessels in Dredging Operations; 46 U.S.C. App. 292; Charterer for purposes of 46 U.S.C. App. 292; Use of Crane Barge to Move Dredged Material within Disposal Site; 46 U.S.C. App. 883

Dear Mr. Kerkering:

In your letter of June 20, 2003, you state that your client, Miller Contracting, Inc., has been awarded a contract for dredging contaminated sediment and related environmental cleanup operations within the Hylebos Waterway in the Port of Tacoma, Washington. You request a ruling as to whether the anticipated activities of your client in connection with the dredging operations and the subsequent rearrangement of the dredged sediment following its deposit in a Nearshore Confined Disposal Facility (CDF) would be in compliance with the provisions of the coastwise dredging statute, 46 U.S.C. App. 292, and the coastwise merchandise law, 46 U.S.C. App. 883. Our ruling in this matter follows.

FACTS:

A company incorporated in the state of Washington, and owned entirely by Canadian citizens (hereinafter company W), has been awarded a contract for an environmental cleanup project involving the dredging of contaminated sediment and attendant disposal operations in a waterway located within the limits of a United States port. Company W contemplates engaging in such dredging operations under either of three possible options, in hopes of complying especially with the requirement in the coastwise dredging statute, 46 U.S.C. App. 292(a)(2), that a charterer of a dredging vessel be a U.S. citizen under 46 U.S.C. App. 802 (i.e., in the case of any corporation operating any vessel in the coastwise trade, the corporation must be at least 75 percent owned by citizens of the United States).

Under the first scenario, which is the option that company W would prefer to adhere to as closely as possible in conducting the dredging operations, the company would subcontract with a California corporation (company C), an established operator of dredges, to rent the following vessels for dredging and related purposes: a flat-bottomed crane barge; a tug; and a split hull dump barge. It is the crane barge that would be employed for the actual dredging operations. It is stated that these vessels are U.S.-documented, and coastwise-qualified, and that company C meets the citizenship requirements of section 802.

In accordance with the proposed subcontract under the first option, only employees of company C would operate the vessels and machinery, while a project superintendent and a surveyor employed by company W would either be on, or in voice contact with, the vessels, for the purpose of ensuring that the dredging is effected in the correct location and to the correct depths under the terms of the project contract. Company C would provide payroll and subsistence costs for its employees, and would pay for the maintenance of, and the insurance policies on, the vessels; and company W would reimburse company C for all such costs incurred.

Under a second possible scenario, company C would rent the vessels to an unaffiliated third party that meets the citizenship requirements of section 802. The rental agreement would be for the same vessels and for the same price as in the first option. Company W would then enter into a separate subcontract with the third party, the terms of which have not been finalized, but which would involve either a lump sum agreement or be structured around a schedule of hourly rates. In the alternative, under a third option, company W would rent the vessels from company C and then sublease the vessels to an unrelated third party meeting the citizenship requirements of section 802. Under both the second and third options, it is stated that the third party would be in direct control of the dredging activity, with company W again providing only general project management.

Company W concedes that section 292(a)(2) clearly prevents a foreign entity from acquiring a coastwise-qualified vessel under a bareboat charter agreement for the purpose of dredging in U.S. waters, but the company maintains that it would not be reasonable to interpret the statutory provision so broadly as to prevent a foreign entity from subcontracting dredging operations to a qualified U.S. entity, as the company asserts it proposes to do under its second and third options.

Following the dredging, it is intended that the dredged sediment would be transported by the split-hull and flat-bottomed barges for off-loading directly into an existing Nearshore Confined Disposal Facility (CDF). To accommodate the dredged sediment in the CDF facility, company W would need to raise the berm or dike at the facility by about 10 feet (to +5 feet above the mean lower low water level (MLLW)).

Because the raised dike would be well above the elevation required for barge clearance during off-loading, and in order to maximize the amount of dredged material that could be deposited in the CDF, further handling or repositioning of the sediment in the CDF would be required once it is deposited there by the barges. To accomplish this, company W proposes to employ a non-coastwise-qualified barge equipped with a crane and dump bucket to move some of the contaminated sediment within the CDF facility. However, in so doing, company W states that it only intends to use the crane and bucket attached to the barge, while the barge itself remains stationary, to move/rearrange the contaminated sediment within the CDF facility in order to more effectively maintain the spoil area there.

The questions that have been explicitly presented for determination in this case are set forth below.

ISSUES:

1. Whether the dredging of contaminated sediment under the above-proposed three options would comply with the requirements of the coastwise dredging statute, in particular, 46 U.S.C. App. 292(a)(2).

2. Whether the use of a non-coastwise-qualified vessel as a stationary work platform to move the dredged sediment from one point to another in the CDF facility by means of a crane and dump bucket affixed to the vessel would constitute either the movement of merchandise in the coastwise trade under 46 U.S.C. App. 883, or dredging under 46 U.S.C. App. 292.

LAW AND ANALYSIS:

1. In pertinent part, pursuant to 46 U.S.C. App. 292 (the coastwise dredging statute), a chartered vessel may dredge in the navigable waters of the United States only if the charterer of the vessel is a citizen of the United States under 46 U.S.C. App. 802 (for a corporate charterer to be a U.S. citizen under section 802, the amount of interest in the corporation required to be owned by U.S. citizens must be at least 75 percent) (46 U.S.C. App. 292(a)(2)).

A charter party may consist of either a bareboat, time or voyage charter (see Guzman v. Pichirilo, 369 U.S. 698, at 699-700 (1962)). To this end, inasmuch as section 292 does not expressly define, or limit, the term “charterer,” the term as used in the statute, would thus, on its plain face, distinctly appear to encompass any form of charter party, as specified; and this point is conclusively confirmed by resort to the legislative history of section 292, as amended by section 5501(a)(1), Public Law 102-587 (November 4, 1992), where the Congressional author of the amended provision declared that “if the dredge is chartered under a time voyage or demise [bareboat] charter, the charterer of the vessel also must meet the citizenship requirements under...46 App. U.S.C. 802...The purpose of this restriction is to ensure that these vessels are always under the control of U.S. citizens” (emphasis added) (138 Cong. Rec. 5006, at 5018 (Mr. Tauzin)).

In this overall context, then, a charter party has been generically described as a contractual arrangement where one person (the charterer) becomes entitled to the use of the whole of a vessel belonging to another (the owner) (Trico Marine Operators, Inc. v. Falcon Drilling Co., 116 F.3d 159, at 161 (Trico) (5th Cir. 1997). Consistent with this, Trico, id., at 161-162, cited with approval similar definitions of a charter party by leading authorities on the subject: Thomas J. Schoenbaum, Admiralty & Maritime Law § 11-1 at 169 (2d ed. 1994) (defining a charter party as a specialized form of contract for the hire of an entire ship; the party that obtains the use and service of the ship is called the charterer); and Grant Gilmore and Charles L. Black, The Law of Admiralty § 4-1 (2d ed. 1975) (defining a charter as the document in which are set forth the arrangements and contractual engagements entered into when one person (the charterer) takes over the use of the whole of a ship belonging to another (the owner)).

Specifically, in Trico, supra, at 161, a company (“Century”) that contracted with the operator of a drilling vessel under a “Daywork Drilling Contract” for the use of the vessel along with its crew in prospecting for oil was held to be a charterer of the vessel, where Century personnel provided general supervision to the vessel operator’s crew, such as directing the vessel where to prospect for oil (“Century, by contracting to use a vessel...belonging to another...satisfies the definition of a charterer” (id., at 162)).

Similarly, in Lewis v. Keyes 303, Inc., 894 F. Supp. 191 (Lewis) (S.D. Tex. 1993), where the owner of a jackup drilling rig furnished the rig and its crew to a company [Unocal] under an “Offshore Daywork Drilling Contract,” Unocal was thereby held to be the charterer of the drilling rig. In Lewis, id., at 195-196, Unocal gained the exclusive use of the vessel for the period needed to drill one or more wells and directed the location of the vessel’s operations and ultimately controlled the manner in which those operations were conducted. In this latter respect, most significantly, in order to exercise the referenced direction and control, Unocal, closely comparable to company W under option one, kept a “company man” on board the vessel to oversee these operations.

Against this backdrop, therefore, in subcontracting with company C for the rental of its crane barge for use in dredging contaminated sediment in the port waterway under option one as described above under “FACTS,” company W would clearly be a charterer of the barge for purposes of section 292(a)(2). Since company W would not meet the citizenship requirements of section 802 as required under section 292(a)(2), the charter of the crane barge to company W under option one in this case would be in violation of the coastwise dredging statute, 46 U.S.C. App. 292.

The other two options advanced in this case would introduce a third party into the contractual arrangements concerning the use of company C’s vessels. Yet, these options are only vaguely and incompletely developed, and it is, in any event, entirely unclear under the circumstances exactly how either option would effectively relieve company W from being a charterer of the dredging vessel, given the relevant criteria already discussed in consideration of option one.

Parenthetically, insofar as any lease or charter party contemplated in this case may fall within the scope of 46 U.S.C. App. 808(c), it is noted that any such arrangement would also be subject to approval by the Department of Transportation (Maritime Administration, Division of Domestic Shipping, Office of Ports and Domestic Shipping, 7th and D Streets, SW., Room 7201, Washington, D.C. 20590).

2. A non-coastwise-qualified barge employed as a stationary work platform using only a crane and dump bucket to move/rearrange previously dredged sediment after its disposal within a CDF facility in order to maintain the spoil area there would not be engaged in either transporting merchandise in the coastwise trade under 46 U.S.C. App. 883, or in dredging under 46 U.S.C. App. 292 (compare Headquarters ruling 104460, dated March 17, 1980 (p.5) (a spud barge was engaged in neither coastwise trade nor dredging when employed as a stationary work platform using only a crane and clam bucket to move/position into place previously dredged sand and gravel (considered to be merchandise in this regard) after it had been dumped at certain sites located in U.S. territorial waters, where the movement/repositioning of the dredged material dumped at those sites was done for purposes of forming artificial (man-made) islands as a prelude to constructing drilling platforms thereon)).

HOLDINGS:

1. Under the facts presented, the dredging of contaminated sediment under the three above-proposed options would not comply with the requirements of the coastwise dredging statute, in particular, 46 U.S.C. App. 292(a)(2).

2. A non-coastwise-qualified barge employed as a stationary work platform using only a crane and dump bucket to move/rearrange previously dredged sediment after its disposal within a CDF facility in order to maintain the spoil area there would not be engaged in transporting merchandise in the coastwise trade under 46 U.S.C. App. 883, and would not be engaged in dredging under 46 U.S.C. App. 292.

Sincerely,

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