SERVED AUGUST 29, 2003 
EXCEPTIONS DUE 9-22-03
REPLIES TO EXCEPTIONS DUE 10-14-03

Consistent with the June 1, 1998 order of remand, holding that respondents' rates have been shown to be unreasonable for the years indicated, complainants were accorded the opportunity to establish the amount of reparations which may be awarded to them. Complainants' methodology fails to demonstrate a requisite causal link between the excess revenues earned by respondents and the "just and reasonable" rate for any of the shipments in issue and otherwise fails to meet the requirements of sections 18(a) and 22 of the 1916 Act, 46 U.S.C. app. §§ 817(a) and 821(a), and section 4 of the Intercoastal Shipping Act, 1933, 46 U.S.C. app. § 845(a), as amended in 1978. Complaint dismissed.

______________________________

MaryEva Candon and Peter G. Hirsh for complainants.

C. Jonathan Benner and Leonard L. Fleisig for respondent Sea-Land Service, Inc.

Robert T. Basseches, David B. Cook, and Eric C. Jeffrey for respondent American President Lines, Ltd.

________________________________

After discovery, GovGuam submitted an affidavit, supporting worksheets, tables, and individual shipment documentation of Dr. Ernest Nadel. After further discovery, respondents' motions to dismiss were granted reducing the number of shipments for which complainants seek reparation from 554 for respondent American President Lines, Ltd. ("APL") and 262 for respondent Sea-Land Service, Inc. ("Sea-Land") to 37 APL shipments and five Sea-Land shipments. Thereafter, respondents submitted the affidavit of Dr. Andrew Joskow, his supporting exhibits, and exhibits consisting of discovery responses and stipulations made by complainants.

GovGuam, APL, and Sea-Land have filed opening and reply briefs totaling more than 230 pages.

APL proposed the following findings of fact which are the only findings of fact submitted by any party and they are adopted, as edited:

II. The Proceeding and the Record

1. The Commission's June 1, 1998 Report and Order remanded this proceeding to the Administrative Law Judge for a determination of the reparations due complainants. Id. at 131-132.

2. In the remand proceeding, discovery was re-opened at complainants' request (and over respondents' objections). Upon completion of their additional discovery, complainants on April 2, 2001, submitted their evidentiary case on reparations, consisting of the Affidavit of Dr. Ernest Nadel, his supporting worksheets and tables, and individual shipment documentation. (Dr. Nadel is a principal in an economic consulting firm and had testified for complainants in Phase 1.)

3. After discovery by respondents addressed to complainants' evidentiary submission, respondents filed motions to dismiss, on standing and adequacy of documentation grounds, addressed to a large majority of the 554 APL shipments and 262 Sea-Land shipments for which complainants claimed reparations. By orders of 3/27/02 and 4/16/02, respondents' motions were granted, and complainants' reparations claims were dismissed except as to 37 APL shipments and 5 Sea-Land shipments.

II. The Rates and Shipments at Issue

5. The carriers's rates took the form of particular tariff freight rates applicable to a wide range of cargoes, incurring a wide range of costs and intrinsic value.

6. Consistent with industry practice, the individual commodity rates were established to take account of a range of cost and demand factors, including commodity-specific costs, the commodity's value, anticipated volume and the sensitivity of volume to the rate, and customer needs ranging from $1700/FEU for bagged rice to $5900/FEU for trucks.

III. Complainants' Proposed Methodology for Calculating "Reparations"

8. Complainants rely on the Affidavit of Dr. Nadel which asserts that reparations for the complainants' shipments should be calculated as follows: (i) For every year, the entirety of the carrier's annual trade-wide after-tax "excess return" as calculated in Appendix 10 of the 6/1/98 Decision should be converted to "excess revenue" by grossing up to pre-tax dollars. (ii) The entirety of this trade-wide excess revenue should be considered "overcharges" to be refunded to shippers. (iii) For every year, the ratio of the carrier's excess revenue to its actual revenue should be deemed to constitute an "overcharge percentage." (iv) For any given shipment by any given shipper during any given year, damages equal the annual overcharge percentage times total Bill of Lading (B/L) revenue for the shipment (plus interest).

9. Complainants passed transportation charges on to their own customers with a substantial markup.

10. Under Dr. Nadel's methodology, it is not possible to identify the tariff commodity rate that should have been charged for any particular shipment or that should have been in the tariff for any time period.

12. In order to evaluate Dr. Nadel's methodology further, APL evaluated the assumed regulatory regime on which it is predicated. This requires consideration of the ongoing implications that Dr. Nadel's methodology would have for regulatory policy and service in an ongoing regime.

13. Dr. Nadel attempts to justify his use of a single percentage applicable to all shipments by analogy to a Commission rollback of a general rate increase (GRI), in which a carrier increases substantially all of its rates by a single percentage; and the Commission, if it finds the GRI unjustified in whole or part, reduces the carrier's figure down to a smaller single percentage (or to zero). Since Dr. Nadel's methodology applies a single reparations percentage to all rates, his analogy to the GRI situation is based on the implicit factual assumption that all rates in APL's Guam tariff were uniformly increased by the same percentage across-the-board and that the relative rate structure in the tariff was constant.

14. However, there had not been a GRI in the Guam trade since 1984, four years prior to the first year at issue in this case (1988), and the rates did not increase by a uniform percentage and the structure of the tariff changed over time.

15. Given the wide differences among commodities and commodity rates, as well as the fact that rates were established based on factors relating to individual commodities, it is clear that any reduction in rates would have been made by considering factors relating to particular commodities; but that complainants state that their proposed methodology does not attempt to measure what the rates would have been taking those factors into consideration-(the "but for" rates). The results of Dr. Nadel's methodology are thus speculative, and the methodology is arbitrary because the same "overcharge" percentage would apply to, for example, a low-rated low-value shipment requiring no special equipment/handling and to a high-value shipment that did require special equipment handling.

16. B/L revenue includes, in addition to the tariff commodity rate, Port of Guam charges which varied according to the physical characteristics of particular cargoes, meaning that application of a uniform reparations percentage would result in arbitrary distinctions among shippers, i.e., shippers would receive significantly different amounts of reparations based solely on Port of Guam charges that were not set by the carriers and that were passed on by the Port.

17. Dr. Nadel's use of a single annual percentage would create additional arbitrary distinctions among shippers. Under G.O.-11, "excess" revenues for a year can be greatly affected by events occurring in mid-year (such as APL's introduction of leased ships). Applying a single percentage for the entire year would mean that shipments prior to the event would receive reparations even though the event could be relevant only to subsequent shipments; or that a shipment on December 31 would receive different reparations from an identical shipment a day later because Dr. Nadel's reparations percentage differs from year to year.

18. The G.O.-11 regulations required a carrier in the domestic trades to file annual reports with the Commission calculating its rate of return using the standard G.O.-11 fully distributed cost (FDC) methodology, 46 C.F.R. § 552.2(a). During the 1980's, the annual G.O.-11 reports of U.S. Lines (the dominant carrier in the trade until it ceased operations in 1987) showed Guam trade rates of return that fluctuated in a range between 38 percent and 62 percent-uniformly several multiples of the rate of return that had been allowed in cases involving turnaround operators in other domestic trades (ballpark 12 percent). APL's annual G.O.-11 reports to the Commission similarly showed returns that were substantially above the turnaround operator benchmark for three of APL's five reports filed before the complaint in this proceeding (55 percent, 35 percent and 22 percent) and that fluctuated erratically (including negative returns in 1985-86).

19. APL received no feedback from the Commission or its staff; APL believed that this was an indication that the Commission and its staff did not regard the standard G.O. 11 FDC methodology used n the annual reports to provide a meaningful evaluation of the return of APL's Guam pass-by service. The record shows that this belief was more than reasonable because (a) APL served Guam as a very small piece of a very large international transportation system, and application of the standard FDC methodology raised severe problems in allocating costs and investments that were not present in the case of a turnaround domestic operator; (b) these problems had been acknowledged by the Commission staff in public forums; (c) the Commission had never previously adjudicated the applicability of the G.O. 11 FDC methodology to an operating context such as APL's; (d) the language of G.O. 11 itself provided for the use of alternative allocation methodologies based on the nature of a carrier's operations; (e) given the nature of APL's transportation system, APL had not for its own business planning or evaluation purposes attempted an FDC analysis of any of its particular trades and APL did not rely on its Guam trade annual G.O.-11 reports for business purposes; and (f) according to the methods APL used to evaluate rate levels in all its various trades, rates in the Guam trade were reasonable.

20. The Commission staff at the time did not consider the G.O.-11 FDC methodology to be meaningful as applied to APL's operating context. This is established by the testimony of the Commission's senior economist at the time, Dr. Robert Ellsworth, who testified: (i) the staff was aware that both U.S. Lines and APL had filed annual G.O.-11 reports stating rates of return that were very high by reference to the turnaround trade benchmark; (ii) the Commission's then Office of Financial Analysis and the Bureau of Hearing Counsel, predecessor to BOE (and Dr. Ellsworth himself), did not consider those reports determinative due to concerns that the G.O.-11 FDC methodology did not provide an accurate basis on which to evaluate Guam trade rates; (iii) this concern was based on the difficulty of using an FDC methodology to allocate a small portion of a carrier's expenses and investments to a small domestic trade that is served as part of a much larger foreign trade operation; (iv) on at least one specific occasion in the mid-1980s, the staff recommended to the Commission that Guam rates not be investigated even though the carrier's return on its annual report was in the neighborhood of 30 percent; and (v) a commissioner suggested that the staff should consider developing a methodology that would be meaningful for the Guam trade, but this was never completed due in significant part to the complexity of the task.

21. The Commission had never before adjudicated a case applying the G.O.-11 FDC methodology to an operator serving a domestic island using a transoceanic foreign trade system (as opposed to a turnaround domestic operator). This raised numerous methodological issues of first impression-within the framework of the G.O.-11 FDC methodology itself-that the Commission did not decide until its 1988 decision in this case

22. In sum, there was no advance identification of APL's "allowable" rate of return or "allowable" revenues in the Guam trade. The apparent and actual policy of the Commission staff was that the G.O.-11 FDC methodology was not meaningful as applied to APL's operating context.

23. From the standpoint of economics and regulatory policy it is necessary to consider the reasons why the carrier's revenues exceeded the allowable G.O.-11 revenues. To the extent that the excess revenues were caused by factors other than inappropriate behavior by the carrier that harmed shippers, it is not reasonable to equate the excess with damages; in this case, a very large proportion of APL's G.O.-11 "excess" revenues-and hence of Dr. Nadel's claimed damages-was caused by identifiable factors that did not involve inappropriate carrier behavior that harmed shippers.

24. APL's G.O.-11 "excess revenues were caused in substantial part by a strong shift in consumer demand due to major service improvements made by APL which allowed it to offer a weekly service with a faster transit time than Sea-Land, yielding APL an increased share of the market for time-sensitive (and higher-rated commodities) such as reefer cargoes and household goods and increased APL's G.O.-11 return resulting in the "excess" revenues that Dr. Nadel equates with reparations.

25. Another major, and related, cause of APL's "excess" revenues was the use of four leased vessels to provide weekly (rather than bi-weekly) calls at Guam. Under G.O.-11 accounting rules, however, use of the leased vessels greatly reduced APL's "rate base," and thereby greatly increased its G.O.-11 return and "excess" revenues.

26. In MSC v. Matson, 21 S.R.R. 459, 465-466 (FMC 1982) ("Matson 1982" or "MSC v. Matson"), the FMC recognized that, even though reparations were potentially available for an excessive GRI, it remained appropriate to consider a variety of factors in determining whether reparations should be actually awarded, including the fact that the carrier's earnings were below the ceiling in prior and subsequent years and that the excess was largely the result of a recent methodological decision by the Commission.

27. In this proceeding, a very large portion of the "excess" revenues was caused by "changes in the market environment" including "competitive forces"-e.g., changes in APL's commodity mix due to the competitive forces relating to its service improvements-as well as by use of the leased ships that made the service improvements possible, and that such factors cannot reasonably be deemed to create "damages."

28. The retroactive imposition of reduced revenues would involve the retroactive imposition of reduced rates, but this is not an outcome that could have actually occurred in the real world, given the nature of a two-carrier trade.

29. Complainants' proposed regulatory regime is not shown to promote an efficient and economic service in the trade. Moreover, the carrier would be denied the opportunity to make a rational decision whether it is in its business interest to serve the trade because revenues could be retroactively reduced below the point at which the carrier would have been better off deploying its assets elsewhere. It is a self-evident general principle of regulation that the regulatory system itself must not determine the provision of necessary or improved service.

By simple formulae, Dr. Nadel converted these excess returns to damages and reparations owed by APL and Sea-Land, respectively, to the Guam shippers and consignees, for each year. Dr. Nadel states that one simple formula converts after-tax dollars to their pre-tax equivalent: 1 after-tax dollar is associated with 1/(1-tax rate) pre-tax dollars. Dr. Nadel states that the FMC used 40% as APL's and Sea-Land's tax rate. Dr. Nadel states that at a 40% tax rate, each dollar of after-tax excess return corresponds to $1.6667 of pre-tax excess return.

Dr. Nadel states that the excess after-tax returns for APL equate to pre-tax excess returns of $8,998,992, $9,783,113, and $9,106,171 for 1988, 1989, and 1990, respectively, or about $27.9 million for the three full years, and that the excess after-tax returns for Sea-Land equate to pre-tax excess returns of $7,914,309, and $2,543,127 for 1988 and 1989, or about $10.5 million for the two half-years as reported by Sea-Land.

Dr. Nadel explains that another formula expresses the overcharges for APL as a percentage of the revenues that APL charged in each respective year, and that, therefore, by division, the overcharges, as a percentage of carrier revenue, were 21.4%, 20.1% and 17.1%, respectively.

Dr. Nadel used three annual percentage overcharges to determine the overcharge associated with each payment made to APL, depending on which year the shipment was made. He measured each payment by the amount shown on each complainant's APL Bill of Lading. Dr. Nadel explained that the same formulas express the overcharges for Sea-Land as a percentage of the revenues that Sea-Land actually charged in each respective year; that the FMC found that Sea-Land's revenues were $25,282,000 and $11,518,000, respectively, for these half-years; and that, therefore, by division, the overcharges as a percentage of revenue were, for Sea-Land, 30.9% and 22.1% for 1988 and 1989, respectively.

Dr. Nadel used a proportional methodology to distribute the tradewise overcharge, from each respective carrier, among all the trade's shippers and consignees, since the damages they suffered are only proportional to their share of the total excess revenues earned by APL and Sea-Land, respectively, in the trade.

ECONOMIC ANALYSIS

Dr. Nadel contends that economic analysis demonstrates the relationship between the carriers' excess rate of return in the Guam trade to the carriers' excessive charges (or, overcharges) in the trade; that the reparations owed to the Guam shippers and consignees by the carriers are those overcharge revenues (plus interest) which, had they not been charged and earned by the carriers, would have resulted in the carriers earning an allowable rate of return in the trade rather than an excessive rate of return in the trade; and that by comparing the overcharge revenues to the actual revenues (that is, by division) one derives the percentage rate overcharges by the carriers, by year, in the trade.

Dr. Nadel explained that he measured the damages of complainants as equiproportional to the revenue earned by the carriers from complainants; that, in this method, for each year, every bill of lading paid by every shipper and consignee can be fairly and reasonably adjudged to have been in excess by the exact same percentage; that, thus, for example, every shipper and consignee using APL in 1988 paid charges that contained a 21.4% overcharge; that a shipper who paid $4,000 for a particular APL shipment in 1988 suffered damages of 21.4% of $4,000 or $856; and that analogous comments apply to shippers using Sea-Land.

Dr. Nadel contends that equiproportional-to-revenue application of tradewide percentage freight rate excesses to individual bills of lading is an economically sound method for damages determination; that it determines, reasonably and justly, the damages suffered by, and the reparations owed to, the individual shippers and consignees in the Guam trade for that carrier/year. Dr. Nadel adds that with this method, the variance in the freight rates for each commodity and the variance in the amount of cargo moved, and the charges paid, by each shipper and consignee in the Guam trade, leads to a variance in the dollar amount of overcharge suffered-but not a variance in the percentage overcharge suffered at the hands of the same carrier for the same year.

Revenue proportionality and the GO-11's

Dr. Nadel states that the FMC has chosen rate-of-return-on-rate-base reasonableness as a determinant of whether freight rates and revenues in the regulated domestic trade are "just and reasonable"; that to determine whether revenues are just and reasonable the FMC devised the GO-11 regulations and has required the carriers to prepare and submit audited GO-11 calculations each year and prepare and submit audited GO-11 calculations each time the carriers have sought to levy general rate increases (GRI's). Dr. Nadel states that the FMC uses the GO-11 information to determine whether it would be just and reasonable for the carrier to earn the projected levels of revenues resulting from the GRI, and that the GO-11 is, fundamentally, a revenue requirements investigation.

Revenue Proportionality and GRI's

Dr. Nadel states that the revenue proportionality method is the method that the FMC has used when it has disallowed, on excess rate of return grounds, a portion of a carrier's GRI. Dr. Nadel explains that, when a carrier requests a GRI, it does not do so on the basis of a cost calculation allocated to each type of shipment or commodity; that, instead, the carrier identified an overall requirement for additional revenues; that, in the request for the GRI, those additionally required revenues are spread by the carrier across-the-board, across all the commodities and shipments, based on a proportional-i.e., "a general"-rate increase; that when the FMC determines that the GRI requested by the carrier will likely produce an excessively high rate-of-return on rate base, the FMC requires a reduction or rollback in the proposed rate increase proportional to the amount of excess revenues that would be generated if the carrier were granted its entire GRI; that the FMC demands that rates be reduced from the carrier-sought-level by the proportional amount needed to reduce the rate of return to a reasonable level; and that the reduction demanded by the FMC is an across the board reduction of all freight rates, and a reduction that is equiproportional to all freight rates. Dr. Nadel states that this is exactly the method that he used in applying, to individual freight rates and bills of lading, the FMC's determinations of excess rates of return earned by the carriers in this proceeding.

Dr. Nadel contends that when a carrier requests a GRI, the result is that if the GRI is approved, each and every rate in the tariff is increased by the same proportion, but by varying absolute amounts per container or per ton; that the FMC does not require that the carrier justify each of these varying freight rate increases in the carrier's tariff; and that, consequently, it would be inconsistent with FMC practice in GRI cases to require that a damages and reparations analysis, which stems from a finding of an excess in the rate of return in the trade as a whole, allocate the damages by other than the proportional method he employed.

Analogy to Antitrust Damages

Dr. Nadel contends that using such a common-percentage-application principle mimics the way in which damages and reparations are calculated when there has been an antitrust violation that has led to a price overcharge; that the usual method is to determine by how much average prices were artificially raised because of the antitrust violation, and to give proportional damages to each plaintiff; and that, thus, plaintiffs who paid slightly higher prices per unit than others get slightly higher reparations per unit.

Use of the Physical Measure of the Cargoes

Dr. Nadel considered and rejected whether an alternative method for determining by how much each shipment's freight rates were excessive could be to spread the carrier's tradewide excess revenues proportional to the physical measure of the cargo. He states that the serious problem with this method is that there is a significant variance in the physical unit of measurement and rating of the cargoes-i.e., in how the revenue, and therefore the excess revenue, was generated in the first place; that some cargoes were charged on the basis of weight tons, some on the basis of measurement tons, while other cargoes were charged on the basis of containerload; and that, in addition, the containers varied by whether they were 20-feet, 40-feet or 45-feet in length, whether 8 feet, 8 ft 6 inches, 9 ft, or even 9 ft 6 inches in height. Dr. Nadel thus believes that use of the physical dimensions of the cargo risks producing difficult measurement problems and incompletely understood results, and that the results would also be unsatisfactory and unreasonable because they are not related to the way the excess revenues were generated. Dr. Nadel contends that there is no evidence to indicate whether such a physical-based distribution of the damages would create greater or lesser total damages suffered by complainants, compared to the revenue-proportional method he used.

Consideration of Cost Factors

Dr. Nadel also considered the even more severe measurement problem that would arise if one tried to exclude costs per shipment from the revenues per shipment, since the carriers do not calculate nor report to the FMC total costs per shipment or even economic costs by direction. He stated that carriers do not prepare total cost analysis by commodity type and by direction because the common costs are much the predominant component of the costs and, just as the carriers do not allocate total costs per shipment, they do not allocate their rate of return or rate of profit to each shipment by its physical characteristics or by its commodity characteristics.

Revenue Proportionality and the Rate Structure

Dr. Nadel states that when this revenue-proportional method is applied, it produces a pattern of "corrected" freight rates which keeps the fundamental relative-freight-rate-structure unaltered; that there exists an underlying, and perhaps very complex, rationale for the existing relative-freight-rate-structure which reflects such rate-impacting factors as historical experience, carrier revenue needs, carrier costs, shipment equipment and handling and port costs, commodity competition, shipper ability and shipper willingness to pay; that general rate increases and general rate decreases do not by themselves alter the relative-freight rate structure; that only slight changes in the structure are ever introduced by exclusion of particular commodities from the general rate percentage changes; and that by using an across the board percentage method, the differential impact of the various individual factors is minimally disturbed.

Consideration of "Transportation Characteristics"

Dr. Nadel states that he also considered whether to add shipment-specific information on shipment "transportation characteristics"; that the FMC's decision has implicitly suggested that such factors not be taken into account in this stage of the proceeding; that in the last full paragraph on page 130, carrying over to page 131, the FMC addressed the issue of the "18 commodities" whose rate increase was the immediate precedent to this case; that the FMC rejected a specific analysis for these 18 commodities, requiring that they be treated exactly the same as all the other commodities in each carrier's tariff; and that the FMC stated:

If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage. . . . In sum, under a rate of return analysis, the eighteen commodity rates are no less reasonable than any other rate in the Guam Rate Agreement tariff.

Dr. Nadel applied this analysis by the FMC of the "18 commodities" to all of the complainant shipments for which he was asked to calculate damages and reparations.

Dr. Joskow is of the view that, even under the assumption that excess revenue is an appropriate measure of total damages, Dr. Nadel's justifications for allocating the damages through an equiproportional allocation of the excess revenues are flawed, and that Dr. Nadel's treatment of taxes is inconsistent with his argument that the purpose of his damage calculation is to have carriers disgorge their excess profits.

In Dr. Joskow's affidavit, the term "excess revenue" refers to the calculations made by Dr. Nadel in his affidavit. The term "excess return" refers to the calculations made in the FMC decision. "Allowable revenues" or "allowed revenues" refers to the pre-tax total revenues that the carriers would have to earn in order to achieve the allowable rate of return.

Dr. Joskow urges that Dr. Nadel incorrectly equates the excess revenues derived from the FMC decision as to damages.

Dr. Joskow states that to determine damages Dr. Nadel simply takes the excess returns determined by the FMC and translates those returns into an excess revenue calculation;⁽³⁾ that he then equates the excess revenues to "overcharges" to the Guam shippers and consignees; that Dr. Nadel states that these overcharges represent the reparations or "damages" that are due in this proceeding; that he assumes that the percentage overcharge on each rate is equal to the percentage by which total revenues are in excess of allowed revenues for each year; that that means that under Dr. Nadel's methodology all rates were uniformly "high" by the same percentage for each carrier for each year; and that the damages, as calculated by Dr. Nadel, are then allocated to the complainants proportionate to the revenue on their bills of lading in the relevant time period.⁽⁴⁾

Dr. Joskow states that Dr. Nadel concludes that the excess revenues are damages without analyzing why the revenues earned by the carriers exceed the allowable revenues; that from the standpoint of calculating damages, however, it is necessary to identify the reasons why revenues were excessive for the relevant time period; and that, to the extent that the excess revenues were caused by factors other than inappropriate behavior on the part of the regulated entity that harmed consumers, it is incorrect to equate the excess revenues with damages.

Dr. Joskow states that, for example, even if each and every individual rate was reasonable, a shift in demand to higher rated cargo would cause aggregate revenues to increase; that Dr. Nadel's methodology for computing damages does not account for this type of possibility; that, in fact, under his analysis, the carriers should have been lowering rates during those shifts to higher rated commodities in order to keep the revenues they earned in line with whatever the allowable revenues are deemed to be; that, of course, this is not sensible because there is no reason to believe all shippers have been damaged and are due reparations simply because there was a shift in demand by some shippers to higher rated cargo; that, in addition, factors such as how vessels are treated for accounting purposes will directly affect the amount of excess revenues, and also damages under Dr. Nadel's approach; that Dr. Nadel's overcharges may actually be attributable to factors that are not dependent on inappropriate behavior by carriers (and not harmful to the shippers) and that are not related to whether rates were reasonable; that the failure to control for these other relevant factors in the damage estimate calls into question Dr. Nadel's entire damage methodology; and that it is essential to control for these types of factors when doing a damage calculation.⁽⁵⁾

Dr. Joskow contends that it is also not sufficient to take a revenue figure and assume that all rates are uniformly too high by a fixed percentage; that damage calculations must establish the "causal link" between improper behavior on the part of the defendants and the harm caused to the plaintiffs;⁽⁶⁾ that an economically meaningful calculation of damages would first consider what rates would have been but for particular inappropriate behavior on the part of the carriers that caused damage to the shippers and consignees on Guam; that then damages would be determined by comparing individual commodity rates to the rates that would have occurred in this "but for" world; that this calculation would consider, and control for, all other factors besides the inappropriate behavior by a carrier that could have affected rates: for example, macroeconomic conditions or changes in the demand for particular products; that Dr. Nadel's methodology masks these substantial shortcomings; that following his approach would lead to damages awarded in an arbitrary manner; and that, in this case, one cannot calculate a useful or meaningful damage estimate with respect to rates from an analysis of total revenues.

Dr. Joskow believes that Dr. Nadel ignores factors that help explain why revenues might exceed allowed revenues without either inappropriate behavior by the carriers or harm to the shippers.

Dr. Joskow urges that before using excess revenues as a way of measuring damages, Dr. Nadel should have asked why actual revenues are at a particular level and why the allowable revenues are at a particular level; that a number of factors may affect the amount of excess revenues without being related to inappropriate carrier behavior that harmed shippers as follows: 1) excess revenues can be, and in this case were, affected by shifts in demand or commodity mix; 2) given the accounting treatment of vessels under GO-11 changes and even improvements in vessel services can, and did, affect the level of excess revenues; and 3) the level of excess revenues is sensitive to the choice of a benchmark rate of return.

Dr. Joskow states that the excess revenues reflect shifts in demand. Dr. Joskow points out that Dr. Nadel testified that "APL's average ocean freight revenue per FEU ["Forty Foot Equivalent Unit"] in the Guam trade did increase . . . because of shifts in commodity composition . . . over this period [1987-1990], as the trade volume increased, the higher-rated commodities increased more rapidly than did the lower-rated commodities."⁽⁷⁾

Dr. Joskow states that, clearly, as identified by Dr. Nadel, there was a shift towards higher rated cargo carried by APL, including higher rated reefer or chill cargo and other cargoes with time-sensitivity (such as household goods) or special handling requirements, and that Sea-Land, on the other hand, saw declining revenue per FEU during the same period, indicating a shift in commodity mix towards lower cost commodities for their carrier service.

Dr. Joskow contends that the treatment of APL's changing commodity mix toward reefer cargo and other high-rated cargo under GO-11 can help explain why revenues might exceed allowable revenues during 1988-1990; that the GO-11 methodology treated a reefer FEU or a household goods FEU the same as a routine dry cargo move; that the higher revenues associated with such higher-rated cargoes in APL's commodity mix will lead to higher returns as calculated using G.O-11; and that the rate of return calculated by the FMC did not account for the higher costs of service.

Dr. Joskow states that a principal reason for the change in APL's revenues and commodity mix was the fact that APL's weekly direct service was nonstop, while Sea-Land's competing direct service stopped at Hawaii before Guam, which gave APL a transit time competitive advantage over Sea-Land in the Guam market; that this transit time advantage was significant to shippers of relatively high-rated refrigerated and other time-sensitive cargo; that APL's average revenue per FEU was higher than Sea-Land's in 1998 and 1989, and the difference was greater in 1989 than in 1988; and that, since there was no rate increase between 1986 and 1990 that was sufficient to raise APL's average revenue per FEU significantly during that period, and since in this two-carrier trade the carriers' rates were almost identical, these data are consistent with 1) shippers choosing to ship greater proportions of high-rated commodities with APL; and 2) a choice to ship more cargo with APL overall (APL carried over 60% more FEUs than Sea-Land in the Guam trade in each of 1988 and 1989). Dr. Joskow believes that these shifts in demand and effects of service advantages do not reflect either inappropriate behavior by the carriers or harm to shippers; that the increase in APL's average freight revenue per FEU between 1987 and 1990 was 10.4%; that Dr. Nadel makes no attempt to control for the impact of commodity mix in his damages calculation; and that, while Dr. Joskow did not attempt to quantify the effect of the commodity mix change on Dr. Nadel's excess revenue calculation, Dr. Joskow noted that for 1990 Dr. Nadel's overcharge figure is 17.1 percent, indicating that the commodity mix has an important impact on that number.

Dr. Joskow states that the excess revenues reflect changes in vessel deployments and the accounting treatment of leased vs. owned vessels; that under GO-11, allowable revenues are determined first by calculating the value of the rate base and then calculating an allowable rate of return on that rate base; that the formula for the rate of return is:

                    (Y + r)
ROR   =      B

that the rate of return ("ROR") is equal to the net Income (Y) plus interest expenses (r) divided by the rate base (B); that the rate base (B) is calculated as the sum of three major components: net investment in vessels (V), net other property and equipment (E), and working capital (C):

that allowable return is determined by multiplying total rate base by the "allowed" rate of return; that allowable revenues are then calculated as the allowable after-tax return plus a provision for taxes; and that, thus, the allowable revenues are affected both by the calculation of the rate base and the choice of a benchmark rate of return.

Dr. Joskow states that during the period 1984-1990 APL frequently changed its transpacific vessel deployments; that Mr. Michael Morris, Vice President of Logistics at APL, testified that vessel deployment decisions are based on a complex set of logistical decisions relating to the efficient functioning of the entire Pacific line haul system; that the particular vessels that were used to call at Guam changed frequently as part of APL's numerous reconfigurations of its overall transpacific deployments; that, as a result, APL introduced new vessels into its transpacific fleet to increase the efficiency and resolve operational problems of both the fleet and the associated port system; that, for Guam, different vessels serviced the trade at different times; and that, overall, Guam benefitted from vessel changes that created higher frequency and higher quality service.

Dr. Joskow states that changes in deployments due to operational and market conditions can have an important effect on the calculation of a carrier's rate base, rate of return, and allowable revenue; that, for example, in 1986, Guam was serviced by owned vessels that provided biweekly service; that the full year GO-11 net investment in vessels for these owned vessels was $6.07 million; that, in 1987, APL shifted to several leased vessels that now provided direct, weekly service; that, because leased vessels are excluded from the rate base under GO-11 accounting rules, full year net investment in vessels dropped to only $1.22 million even though the number of Guam calls increased; that, during part of 1988, leased L9 vessels provided direct, weekly service to Guam; that the full year net investment per vessel in 1988 was $5.51 million; that, in spring 1989, shortly after n operational problem was solved, APL began to service Guam with 5 C-9/J-9 vessels that it owned, and which were, therefore, reflected in the rate base; that, in 1989, full year net investment per vessel rose to $17.27 million; and that, from an accounting standpoint under GO-11, these changes in vessels substantially impacted both the Guam vessel investment and Guam vessel depreciation.

Dr. Joskow states that a shift in the accounting value of vessel investment is another key factor that would increase the level of excess revenues and thus "damages" under Dr. Nadel's procedure, and that, however, there is no explanation from Dr. Nadel for why shifts in the use of leased versus owned (or older versus newer) vessels should be related to a calculation that is supposed to reflect inappropriate and damaging carrier behavior.

Dr. Joskow states that significant changes in vessel deployment also occurred between 1988-1990; that total service vessel investment calculated by the FMC and Dr. Nadel was $87.6 million in 1988, $267.6 million in 1989 and $268.3 million in 1990; that in this case higher vessel investment, primarily because of a shift back to vessel ownership, was certainly an important factor leading to a reduced rate of return and an increased level of allowable revenues; and that higher allowable revenues seem to only say something about the effects of shifting from leased to owned (and older to newer) vessels, having a clear effect on the damage calculation, but say nothing about the existence of actual damages.

Dr. Joskow states that the impact of accounting treatment of vessels can also be seen in Sea-Land's rate base calculation; that Sea-Land serviced Guam between 1988 and 1989 with exactly the same vessels; that, in late 1988, however, it sold these vessels, and then immediately leased them back from the purchaser; that this shift in vessel financing, which had no impact on service to Guam, led to a dramatic decline in the vessel investment in the rate base, from $9.75 million in 1988 to $2.71 million in 1989; that this would reduce the "allowed" return and so increase Dr. Nadel's measure of excess revenues; and that there is no explanation for why one should pay more or less damages depending on a financing decision that made no change on service.

Dr. Joskow contends that Dr. Nadel's excess revenues depend on a flawed methodology for calculating the allowed rate of return that the FMC has rejected.

Dr. Joskow states that a regulatory regime in which G.O.-11 excess revenue is equated to damages would also place carriers in the position of having to set rates in advance so that on an annualized bass they would earn exactly the allowed rate of return determined in a subsequent proceeding.

Dr. Joskow contends that a sound regulatory regime would need to be predicated on the clear signals and feedback that a regulatory commission would give to carriers; that the carriers filed annual information reports using the G.O.-11 methodology with the Commission staff; that during the period prior to the filing of the complaint those annual reports showed the rates of return on rate base for APL, and for U.S. Lines before it went bankrupt and sold the assets used in its service to Sea-Land; that in U.S. Lines' case the fluctuating rates of return consistently were several multiples of the benchmark used in other trades; that in APL's case the varied rates of return were substantially above that benchmark for three of the five years (but negative for the other two years); and that these results were not seen, by either the carriers or the FMC, as a signal that rates were too high and needed to be reduced; and that APL considered the absence of FMC staff feedback concerning its annual reports to be a clear indication that the Commission and its staff did not regard the G.O.-11 standard methodology embodied in the annual reports to provide a meaningful analysis of the profitability of APL's Guam service.

Dr. Joskow contends that Dr. Nadel's approach to damages distorts a carrier's expected rate of return and its willingness to serve, leads to an unrealistic rate structure, and leads to a policy that could punish service improvements and threaten the existence of service.

Dr. Joskow states that use of Dr. Nadel's approach would be tantamount to a retroactive ratemaking process; that, with the carriers not knowing the allowed rate of return or the allowed revenues in advance, a finding of "overcharges" means that an adjustment in rates is being asked for based on a retroactive finding of the allowed rate of return and the allowed revenues; and that requiring retroactive revenue adjustment whenever revenues exceed an ex post determination of allowable revenues would prevent carriers from knowing on an ex ante basis whether they can expect to earn their cost of capital and can impede a carrier's ability to forecast economic tradeoffs of providing service or not. Dr. Joskow contends that Dr. Nadel's overcharge estimate would imply adjusted rates that could not have existed in this trade, and that a requirement that carriers always hold tightly to a given rate of return would discourage them from implementing service or productivity improvements.

Dr. Joskow urges that a retroactive adjustment in revenues will distort the expected rate of return, distort the ability of carriers to make informed decisions about service, and distort decisions on service improvements. Dr. Joskow contends that retroactive reductions mean that a carrier would not earn, on an expected basis, its cost of capital; that any time a firm earns more than the allowed rate of return based on a look-back, those excess revenues would be considered damages and would need to be disgorged; that the flip side would not be true; that there would never be a look-back to see whether a carrier had earned revenues below the allowed rate of return, thus entitling them to some form of recovery of unearned revenues; that this regime truncates potential profits on the up side without any way to truncate revenue drops; that the result of this asymmetry is that the expected rate of return will be below their cost of capital; that the carriers would not be provided with a sufficient return ex ante to attract capital and stay in the market; and that a retroactive adjustment in revenues can also distort business decisions regarding vessel deployment and service to particular trades.

Dr. Joskow states that under Dr. Nadel's proposed damage calculation, APL's average revenues per FEU would have to be substantially lower in 1988-1990 than in 1985-1986 (when, according to Dr. Nadel, the G.O.-11 rate of return was in line with "benchmark" levels) even though there were service improvements at the same time; that, under this system, APL would have had a strong disincentive against making improvements in service from which Guam greatly benefitted because it could both lead to average revenue increases and changes in the rate base that would lead to a declaration of "damages"; that to comply with Dr. Nadel's proposed regulatory regime, APL might have been better served by continuing the inferior biweekly transshipment service; and that this is not an outcome that Guam or the FMC could possibly view as favorable, but it is exactly the incentive Dr. Nadel's approach creates.

Dr. Joskow states that Dr. Nadel ignores the unrealistic rates that would result from reducing each carrier's rates by different percentages. Dr. Joskow explains that if the tariff is adjusted by Dr. Nadel's proposed overcharge percentages (30.9% for Sea-Land and 21.4% for APL), Sea-Land and APL will always charge different rates for exactly the same commodity; that APL's tariff rate on paper products would be $2770 per FEU whereas Sea-Land's rate would be $2435 per FEU; that no carrier could set rates for exactly the same commodity higher than its competitor and hope to continue to provide competitive services; and that this result itself calls into question Dr. Nadel's entire procedure for allocating damages since it is a fundamental predicate of damage estimation that damages must be calculated in reference to a but-for world that could actually have existed.

Dr. Joskow states that requiring regulated firms to conform tightly to an allowed rate of return has been shown to discourage efficient operations. Dr. Joskow argues that, in practice, regulators have avoided tight rate of return regulation; that, instead, regulators have sought either formally or informally to institute some form of "incentive regulation" to induce regulated companies to operate more efficiently; that one form of informally institutionalized form of incentive regulation has become known as "regulatory lag"; that the limitations on the ability of the regulator to constrain tightly the profits made by regulated firms leading to regulatory lag counteract the inefficiencies of cost of service regulation; that, for example, firms are free to capture profits, at least for some time, from productivity improvements or cost decreases; that a regulatory agency might eventually step in and determine that costs have changed sufficiently that the allowed level of revenues must be reduced-with a confirming reduction in rates; that change in allowed revenues and the associated rates are made on a forward looking basis; that the regulated firm keeps any revenues earned in the past that happened to be above the previously determined allowed rate of return; and that these revenues are not treated as "damages."

Dr. Joskow explains that many regulatory agencies and commissions have sought to institute formally some form of incentive regulation in an effort to incorporate the goal of efficient decision-making on the part of the regulated firms; that rate of return regulation has been jettisoned in favor of price cap regulation; and that regulating by price caps means that prices are set for long periods of time into the future, with the caveat that firms will be allowed rate increases commensurate with a chosen price index that would be adjusted downward to account for productivity improvements permitting consumers to share in the benefits from cost improvements while still giving the regulated firm the incentive to engage in the productivity improvements. Dr. Joskow states that what makes price cap regulation effective is the commitment for a substantial length of time to not change the price cap; that firms can be assured that they will be able to keep any returns that they have earned in the past, and that they are very likely to be able to keep earnings prospectively; and that these returns are meant as a reward for efficient behavior and not "damages" requiring reparations.

Dr. Joskow states that, in sum, ratemaking based on a retroactive determination of the allowed rate of return has long been considered inappropriate by regulators; that under Dr. Nadel's proposed damages regime carriers would not earn their cost of capital on an ongoing basis; that carriers may be forced to operate below their incremental cost without having the opportunity to decide whether to move their assets out of the trade under those circumstances; that the retroactive adjustment would result in rates that could not have actually existed; that carriers are forced to conform to a tight rate of return without any clear identification (or clear means of identification) in advance of the allowable return or the allowable revenues; and Dr. Joskow is not aware of an instance in modern U.S. regulatory history where an agency has retroactively adjusted revenues in circumstances such as these.

Dr. Joskow states that even under the assumption that excess revenue is an appropriate measure of total damages, Dr. Nadel's justifications for allocating the damages through an equiproportional allocation of the excess revenues are flawed.

Dr. Joskow states that Dr. Nadel makes two claims to justify this method: first, that rates historically have moved in uniform fashion up and down, and thus it is legitimate to assume that "overcharges" are incurred in the same way-an equal percentage of all rates; and second, that the equiproportional allocation methodology "mimics the way in which damages and reparations are calculated" in antitrust cases.

Dr. Joskow states that rates in the Guam trade do not always move up or down by the same percentage at the same time. Dr. Joskow states that Dr. Nadel justifies his methodology by analogizing to situations in which the Commission has disapproved in whole or in part a carrier's proposed across-the-board general rate increase; that when proposing such a GRI, the carrier proposes a single, prospective percentage increase in all its rates; and if the Commission disagrees it adjusts the carrier's proposed single percentage figure down to a smaller single percentage figure (or to zero); and that Dr. Nadel argues that since a finding of excess revenue for a proposed GRI normally leads the FMC to equiproportional reductions in proposed rates, it must follow that a finding of excess revenues earned in the past indicates that rates were too high and that the appropriate method for allocating reparations is to make an allocation that is functionally equivalent to a retroactive reduction in rates-a proportionate reduction applied to all rates.

Dr. Joskow states that Dr. Nadel's analogy to the GRI situation is based on an implicit factual assumption that the carriers in this trade always change their rates by a single percentage across-the-board; that, presumably, Dr. Nadel is referring to the series of GRIs and general rate reductions ("GRDs") that APL and U.S. Lines took during the first half of the 1980's, ending in 1985; that Dr. Nadel's affidavit offers no support for the factual assumption that rates were uniformly ratcheted up in the first half of the 1980's; that the rates for APL's 28 "major" commodities in the Guam trade can be used to illustrate that his premise is unfounded; that a number of these "major" commodities were subject to individualized rate changes; that, for example, the 20-foot container rate for foodstuffs increased by 12.9% on April 1, 1983; that the rates on other commodities remained unchanged on this date; that if rates moved in lockstep, all the commodity rates would have shifted by 12.9% on April 1; and that several "major" commodities were also exempted from one or more of the GRIs/GRDs.

Dr. Joskow states that the analogy to a GRI is factually inaccurate due to changes in both the composition of the commodities in the tariff and the changes in the definitions of various commodities; that when a carrier proposes a GRI at a particular point in time, the commodities and rates in its tariff are fixed as of that time; and that Dr. Nadel is attempting to apply the GRI analogy to a tariff over an extended period during which the very structure of the tariff changed, i.e., numerous commodity items and rates were added to, and dropped from the tariff throughout the 1980s. Dr. Joskow states that between 1984 and 1990, 51 commodities were added, 34 commodities were deleted from the Guam tariff, the number of rates in the tariff increased from 215 to 291, and the definitions of what is included or excluded from a given tariff category change over time.

Dr. Joskow states that the assumption that "overcharges" are uniform across commodities leads to arbitrary results; that Dr. Nadel's assertion that the use of uniform percentage overcharge "mimics" what is done in antitrust matters is not supported; that Dr. Nadel's method leads to arbitrary results in at least two ways; that, first, under Dr. Nadel's equiproportional allocation methodology, all customers in the trade would receive damages proportionate to their bill of lading revenues; that the allocation of excess revenues on a proportional basis is based on an arbitrary notion of the "but for world" in which the "correct" rates are a fixed percentage below the existing rates; that given the wide variety of commodities and rates in the tariff, it would only be by chance that this method would pay damages to any shippers that truly faced rates that were too high; that Dr. Nadel's methodology applies to total bill of lading revenue which includes Port of Guam charges (collected by carriers as a pass-through) and other special handling charges; that these charges represent different proportions of the total bill of lading revenue for different shipments, as the Port of Guam charges were based primarily on weight, not on a per container basis; that, thus, the damages attributable to each shipment would vary depending on the non-ocean freight charges; that because the proportion of charges is different for each commodity, some shippers will be rewarded a greater amount of damages simply because they paid higher Port of Guam fees; and that the adjustment the carriers would have to make to the commodity rates to achieve the allowable return would not be equiproportional.

Dr. Joskow states that Dr. Nadel's damage calculations are speculative; that the implied "but-for" prices do not control for numerous factors that might determine prices; that the application of a single percentage overcharge methodology assumes "common impact" across shippers; that shippers' rates are impacted by market factors that Dr. Nadel's analysis completely ignores; that the Government of Guam makes no attempt to identify the lawful or reasonable rate for individual shipments; that, in fact, they have stipulated that it is impossible to tell from their evidence what the commodity rate should have been for any shipment or what rate should have been in the tariff for any commodity for any time period; and that this appears to be a full admission that the retroactive revenue adjustment and the allocation of that adjustment proportionately to commodities purchased by the complainants does not determine actual damages.

Dr. Joskow states that, in antitrust cases, the key concept is that of the "but-for" price-what would prices have been if the wrongful act had never occurred; that, for example, in a price fixing case, the but-for price would represent what the price of a given product would have been absent a conspiracy to fix prices occurring, all other factors remaining equal. Dr. Joskow contends that common methods to determine but-for prices involve careful analysis of either the determinants of prices or a comparison of benchmark prices for similar unaffected products; that each individual customer's damages are calculated based on the difference between its but-for price and the actual price paid product by product; that but-for prices allow for each individual customer to receive reparations for the actual damage they incurred; that, in antitrust contexts, damages might be calculated based on a statistical analysis accounting for all relevant factors that impact product price; that, although damages may be calculated using a formula, the formula allows individual product differences to be accounted for; and that it is a common practice in antitrust to calculate damages with different damage percentages for each individual customer and product.

Dr. Joskow contends that an antitrust approach to damages would not rely on a blanket uniform percentage approach in this context; that Dr. Nadel's analysis assumes that every single rate on every single product under each individual circumstance was excessive by the same percentage; that the commodities shipped to Guam required different types of cargo services and involved different types and amounts of cost and the effect of treating all these products and rates as homogeneous is that the overall rate of return is the result of some rates that may have been "too high" along with other rates that may have been "too low"; that the competition for these products and the markets for these products likely varied as well; and that demand conditions varied for different products as well. Dr. Joskow states that the complainants represent only a small part of the variety of products that are shipped to Guam; that the wide range of commodities was subject to a wide range of tariff commodity rates; that a common percentage application as Dr. Nadel applies assumes away the relative importance of all of these differences and will not yield accurate or reliable estimates; and that the only methodology that would yield an appropriate and accurate damage calculation would require that differences between individual commodities be taken into account.

Dr. Joskow states that Dr. Nadel's treatment of taxes is inconsistent with his argument that the purpose of his damage calculation is to have carriers disgorge their excess profits.

Dr. Joskow states that Dr. Nadel grosses up the after tax excess revenues determined by the FMC to before-tax levels, and that Dr. Nadel argues that shippers pay in before-tax dollars, leading Dr. Nadel to conclude that the FMC's after-tax excess revenue calculation should be grossed-up to determine the amount that actually needs to be paid to complainants. Dr. Joskow urges that the proper treatment of taxes depends on what the reparations are trying to accomplish; that if the goal is to separate the carriers from the excess profits (or excess net income) they allegedly earned during the 1988-1990 period, then they should pay the amount equal to those excess profits, as Dr. Nadel has said; that those profits are just the difference in the after-tax net income that generates the earned rate of return minus the after-tax net income that generates the allowed rate of return; and that no "grossing-up" is necessary.

GovGuam states that the Commission also determined exactly how much more than a reasonable return each of the carriers had earned in the Guam trade; that APL earned $17.8 million too much, and Sea-Land earned $6.2 million in excess of a reasonable return; that the Commission also determined how that excess return was reflected in the carriers' rates and how it should now be reflected in reparations; that every commodity rate of each carrier is excessive by the same percentage that applies to that carrier for a given year, and every commodity rate of each carrier must bear reparations in equal proportion for each year; that, in order to calculate the reparations, the Commission ordered the matter remanded to the Presiding Judge; that GovGuam's expert has performed the calculation according to the Commission's findings and procedures, i.e., he has calculated the amount of revenue by which the carriers' charges must be reduced in order to eliminate the excess return, he has calculated the equal percentage by which each commodity rate must be reduced, and he has calculated the reparation to be borne equally by each such rate.

GovGuam states that the Commission found that the carriers' rates were unjust and unreasonable.

In the Commission's Report and Order of June 1, 1998, the Commission established that GovGuam's claims sound primarily under section 18(a) of the Shipping Act, 1916 ("1916 Act"), 46 U.S.C. app. 817(a), which provides that all rates charged by the respondent carriers in the domestic offshore trades must be "just and reasonable"; that the return on rate base established by G.O. 11 (46 C.F.R. Part 552) is the primary standard for evaluating rate reasonableness under section 18; that APL's rates earned it excess return during 1988, 1989 and 1990 of $17.8 million and that the returns earned by Sea-Land during 1988 and the first six months of 1989 exceeded its allowable returns by $6.2 million; and that, based on these findings, the Commission remanded the proceeding for a determination of reparations under section 22 of the 1916 Act.

GovGuam states that the excessive rates must be reduced through reparation of the amount necessary to eliminate the excess return from rates.

GovGuam states that it is important to note here that the Commission did not find the amounts by which APL or Sea-Land's cargo rates and charges exceeded the just and reasonable levels; that the Commission expressly limited its findings to the amounts by which the carriers' revenues allowed them unreasonably high returns; and that it is left to the parties to calculate the amounts by which the gross revenues must be reduced in order to eliminate the excess return and thereby yield just and reasonable cargo rates.

GovGuam states that section 22 of the 1916 Act is also silent on the precise method by which reparation is to be calculated; that it provides only that "Any person may file with the Federal Maritime Commission a sworn complaint setting forth any violation of this chapter by a common carrier by water in interstate commerce . . . and asking reparation for the injury, if any, caused thereby. . . . The Commission . . . may direct the payment, on or before a date named, of full reparation to the complainant for the injury caused by such violation." 46 U.S.C. app. § 821(a).

GovGuam contends that the injury in this case is the payment of a rate higher than the just and reasonable rate, and full reparation is the difference between the rate actually paid and the just and reasonable rate; that the Intercoastal Shipping Act ("1933 Act") supports this solution; that it incorporates the identical procedure for filing complaints, and the Commission has ruled in this proceeding that it requires use of the same G.O. 11 methodology for evaluation of the reasonableness of rates, whether brought by complaint under the 1916 Act or by the Commission under the 1933 Act; that the 1933 Act further provides the remedy called for here, namely, that, upon a finding of "unjustness or unreasonableness" of rates, the Commission "shall direct full reparation to the complainant of the difference between the charge collected and the just and reasonable rate, fare, or charge, plus interest. . . ." 46 U.S.C. app. § 845a; that that is precisely what is called for here, namely, a reparation of the difference between the unreasonably charge collected and the just and reasonable charge that does not reflect the excess return; and that the Commission's own regulation governing proof of overcharges calls for just such a calculation of overcharges, citing Rule 252.

GovGuam states that it was just that statement which formed the basis of GovGuam's reparation statement which has now evolved into the calculations incorporated into GovGuam's instant brief; that there remain only the calculation of the actual reparations, namely, the amounts by which the rates paid exceeded the rates that would and should have been paid without the gross excess revenues that yielded the unjust and unreasonable excess return.

GovGuam states that it is at its heart a simple calculation, incorporating the two fundamental principles required by the Commission's Order, namely, adjustment of rates to eliminate excess return and proportional reflection of reparations across all rates as Dr. Joskow acknowledges in his evidentiary affidavit. GovGuam agrees that, with one correction, Dr. Joskow's description is quite right; that Dr. Nadel does not "assume" that the overcharge on each rate is equal to a particular percentage; that rather, he is reflecting the Commission's specific ruling to that effect in its Order at page 130; that this is therefore not only "Dr. Nadel's methodology," it is the Commission's; and that the following are the results.

GovGuam states that of the 536 bills of lading for APL and 262 for Sea-Land, the Presiding Judge dismissed 518 bills of lading for APL and 257 for Sea-Land, leaving 37⁽⁸⁾ for APL and 5 for Sea-Land; that the reparations for APL now total $29,039.40, and for Sea-Land now total $8,139.33; and that this includes interest through 6/30/01, and must be updated through the date of final judgment.

GovGuam contends that the rates must be adjusted to reduce gross revenues by the amount necessary to eliminate excess return.

GovGuam states that Dr. Nadel's adjustment to the carriers' rates includes the conventional and rather unremarkable principle that in order to adjust for an overcollection of net revenue, a rather greater amount of gross revenue must be returned; that in order to assure that the excess revenue is not collected, the tax effect associated with the overcollected revenue must be accounted for; that otherwise the carriers would be giving up the net amount of the return adjustment but retaining as additional profits the taxes that would otherwise have been paid on the excess revenue; and that Dr. Nadel's approach covers this important principle.

GovGuam states that reparations must be borne proportionately by all commodity rates; that the Commission ruled (Order at 128) that the carriers' overall rate structures were unjust and unreasonable in that the overall revenues they supported yielded unreasonably high returns; and that ". . . If [a carrier's] revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage. In other words . . . by the same percentage as every other commodity rate in the tariff. Likewise, any reparations would be borne equally by each commodity rate. . . ." (Order at 130; emphasis added by GovGuam).

GovGuam states that Dr. Nadel has derived that equal percentage and applied it to the shipments in issue, for each carrier, for each shipper and for each year, with total reparations of about $37,000.

GovGuam contends that, under the 1916 Act, the regulated carriers in the Guam trade must charge rates that are just and reasonable; that, if not, then (1) the complainant is awarded reparations that flow from the excess charges; (2) that reparations are the sum of overcharges plus interest; and (3) that overcharges reflect the amounts charged in excess of what should have been charged and collected by the carrier.

GovGuam states that, in the 1998 Order, the Commission determined that the freight rates in the Guam trade in 1988, 1989, and 1990 were not just and reasonable; that they were above just and reasonable levels; and that the carriers' rates of return and revenues were above just and reasonable levels by the percentages that the FMC determined.

GovGuam contends that respondents' witness Dr. Joskow apparently believes that these determinations by the FMC are irrelevant to a damage or reparation methodology; that, in addition, Dr. Joskow apparently believes that the 1998 Order was based on what he judges to be the improper regulatory regime in G.O.-11; and that, therefore, Dr. Joskow would have the ALJ and the FMC "adjust" the FMC's findings in its 1998 Order so as to accommodate all of the objections he raises-which are, for the vast majority, essentially the objections Dr. Kolbe and the APL witnesses raised regarding using the G.O.-11 in the first place-all of them rejected by the FMC in its 1998 Order.

GovGuam argues that, in the last full paragraph of the 1998 Order, on page 130, and carrying over to page 131, the Commission addressed the issue of the "18 commodities" whose rate increase was the immediate precedent to this case, and that the Commission's statement is a direct rebuttal to Dr. Joskow:

If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage. In other words, the eighteen commodity rates would be excessive by the same percentage as every other commodity rate in the tariff. Likewise, any reparations would be borne equally by each commodity rate including the eighteen commodity rates in question. The relationship of the eighteen commodity rates to the other rates in the tariff would remain unchanged. In sum, under a rate of return analysis, the eighteen commodity rates are no less reasonable than any other rate in the Guam Rate Agreement tariff.

GovGuam notes that Dr. Joskow's basis for his criticism of Dr. Nadel's reparations analysis is as follows:

To determine damages Dr. Nadel simply takes the excess returns determined by the FMC and translates those returns into an excess revenue calculation. He then equates the excess revenues to "overcharges" to the Guam shippers and consignees. . . .

Essentially, that is all Dr. Nadel's analysis entails. He concludes that the excess revenues are damages without analyzing why the revenues earned by the carriers exceed the allowable level of revenues. From the standpoint of calculating damages, however, it is necessary to identify the reasons why revenues were excessive for the relevant period.

GovGuam contends that neither the law, the regulations, the FMC's 1998 Order, nor any statement or order by the ALJ, requires that this "why" question be answered. GovGuam contends that Dr. Joskow is making a "passivity" excuse as an exoneration from damages; that passivity was not an exoneration from the FMC's finding of an excess rate of return; and that is it an exoneration from damages and reparations.

GovGuam contends that Dr. Joskow can be paraphrased as essentially stating the following:

One possible explanation of the excess revenue is as follows: The carriers at one time in the past set the rates at their proper level. Then, over time, transportation service demand shifts occurred toward the higher-rated services, and so then the carriers' revenues went up, above allowable cost plus allowable profit, creating what FMC found, via GO-11, was "excess revenue." But it was not carrier "explicit behavior" and action or carrier rate increases, which made the revenues go up; it was customer behavior. The carriers were "passive"; the shippers and consignees were the "active" parties. So, the carriers are not "responsible" for the excess revenue.

GovGuam contends that that argument is fallacious; that passivity is not an excuse; and that passivity is irrelevant.

GovGuam states that Dr. Joskow alleges that if there is a demand switch to higher rated items, then no shipper or consignee has been harmed; that he is incorrect; that all the shippers and consignees are harmed every time, for whatever reason; that they as a group are paying more than the regulatory-required share of the carriers' costs, including profit and statutorily-calculated taxes; that they are all harmed if the carrier's costs go down, but rates are not adjusted downward; and that the carriers, the shippers and the consignees need to do the micro managing, but subject to maintaining a non-excessive level revenue, and subject to not exceeding the trade revenue requirement of the carriers.

GovGuam states that when Dr. Joskow criticizes the treatment of capital assets, whether owned or leased-he is challenging the G.O.-11, not the damage allocation-making his critique irrelevant at this date. In response to Dr. Joskow's suggestion that "Damage calculations must establish the causal link between improper behavior on the part of the defendants and the harm caused to plaintiffs," GovGuam states that that is exactly what the FMC Decision did; that that Decision showed that the carriers charged rates that were too high, and that they collected revenues that exceeded their revenue requirements; and that since the shippers and consignees are required by regulation to share in the expenses only to the level that are legitimately allowable, if they paid too much, they were harmed.

GovGuam alleges that Dr. Joskow's complaint against the G.O.-11's accounting treatment of leases is doubly without merit; that, first, as the FMC ruled at page 3 in the 1998 Decision, "Only leased vessels which are capitalized on the carrier's books and which meet the AICPA guidelines for capitalization may be included in rate base"; and that, second, as the FMC stated, at page 80, ". . . G.O. 11 requires that [APL's leased L-9s] be excluded from the calculation of APL's rate base, although their lease expense may be included in the calculation of interest expense and debt payments." GovGuam states that when the treatment changes from capitalization to expensing of the same asset, the rate base reductions are, more or less, depending on the specifics of the alternative financing costs, offset by increases in the operating expense, since the lease charge is a permitted financing expense.

GovGuam states that Dr. Joskow further suggests that a damage calculation could have estimated the "but for" rates, namely, what would each of the rates have been if the carriers had been responsible and had readjusted rates so as to keep revenues equal to, not above, allowable levels?

GovGuam alleges that, first, this is an irrelevant exercise from the perspective of having the carriers disgorge their excess profits; that it is not required by the statutes, the regulations, nor the Decision. GovGuam argues that, second, there would be no benefit to the carriers, nor to the shippers/consignees as a group by taking into account Dr. Joskow's ". . . all other factors . . . that could have affected rates" or "factors . . . exogenous to the carrier's rates"; and that the Commission's Decision, implicitly bypassing the unnecessary examination of these factors, was correct.

GovGuam notes that Dr. Joskow's second conclusion is: "Dr. Nadel ignores factors that help explain why revenues might exceed allowed revenues without either inappropriate behavior by the carrier or harm to the shippers."

GovGuam states that to the extent that there is uncertainty in the operations, uncertainty that could not possibly be anticipated despite the allowed expense for A&G ("Administrative and General"), this uncertainty should be reflected in the allowable rate of return; that the FMC allows a risk factor; and that, among other things, the risk factor is a cost factor to deal with uncertainty. GovGuam contends that the time for the carriers to have made their case that "changes are so sudden and rapid in this trade that we need a larger cushion in our allowable rates and therefore in our allowable rate of return" was in the argument about the risk factor in the case in chief, not here in the damages phase.

GovGuam notes that Dr. Joskow complains that the regulations demand that "only a carrier with perfect foresight could comply with the regulations." GovGuam responds that the regulations do not require perfect foresight; that while ostensibly a critique of Dr. Nadel's damages model, this claim by Dr. Joskow is really an invalid critique of the FMC's application of the G.O.-11.

GovGuam observes that Dr. Joskow writes that "[a] regulatory regime in which GO-11 excess revenue is equated to damages would also place carriers in the position of having to set rates in advance so that on an annualized basis they would earn exactly the allowed rate of return determined in a subsequent proceeding"; that "In fact it would be virtually impossible to comply with such a regime."

GovGuam responds that the statute merely does not permit the carriers to charge rates that exceed just and reasonable levels, and that the GO-11 regulations are not rate-setting regulations; they refer only to maximum rates.

GovGuam notes that Dr. Joskow's third conclusion is: "Dr. Nadel's approach to damages distorts a carrier's expected rate of return and its willingness to serve, leads to an unrealistic rate structure, and leads to a policy that could punish service improvements and threaten the existence of service."

GovGuam states that Dr. Joskow alleges that the carriers were hampered "with . . . not knowing the allowed rate of return or the allowed revenues in advance"; that this is not true; that the carriers knew very well what were the G.O.-11 requirements for computing the allowed rate of return and the allowed revenues; that one excellent example is that Sea-Land, for both years of its G.O.-11s, had virtually no difficulty in making those calculations; that Sea-Land's rates of return differed only minimally from what complainants and the FMC determined; that neither did APL have much difficulty when it first filed its 1987 and 1988 G.O.-11's; that APL knew quite accurately what the G.O.-11 required; that APL revised its 1988 filing, and deployed an altered approach for its G.O.-11's for these proceedings, only after this litigation was instituted, an altered approach, that, based on the record evidence, was not considered by anyone connected to this case before this case began; and that, before the refiling of its 1988 G.O.-11, and before the filing of consciously distorted and erroneous G.O.-11's for 1989 and 1990, APL filled out the G.O.-11's in a somewhat accurate and rule-following manner, and they showed very high rates of return, as is evidenced from the following:

                              1987                    1988                  1989                  1990
As Initially Filed      35.2%                  21.5%
As Refiled                                             7.5%                5.9%                 2.7%

(Source: Written Direct Testimony of Dr. Ernest Nadel, March 18, 1992, pp. 1-9.)

GovGuam states that Dr. Joskow alleges that the damage calculation Dr. Nadel made is "retroactive ratemaking"; that this is incorrect; that enforcement of the statute and the regulations are not "retroactive ratemaking"; and that disgorgement of excessive profits is not retroactive ratemaking.

GovGuam states that the FMC has not demanded a rate rollback, and that the carriers may set any array of current commodity rates they wish-so long as those rates produce revenues that are not excessive according to the just and reasonable standard.

GovGuam states that Dr. Joskow states that, "Dr. Nadel's approach to damages distorts a carrier's expected rate of return and willingness to serve"; that nowhere does he present evidence as to the carrier's expected rate of return, and what rate levels were, indeed, required to have the carriers "willing to serve"; that the record in this case amply demonstrates what is immediately obvious to any trained observer of the transpacific trade, namely, that Guam is, indeed, a Golden Goose for the carriers; that even G.O.-11 mandated rates are well above the incremental rates needed to cover the incremental costs of having the ships stop at Guam on the way to the Far East; and that Dr. Joskow states:

Dr. Kolbe, based on work by Michael Morris [an employee of APL] determined that APL was not covering its incremental costs of serving Guam. Guam continued to be served because, according to Michael Morris, "APL in the past has assumed that the revenues-which on average are higher than APL's westbound Far East revenues-justify the added costs and burdens." A retroactive reduction in revenues simply puts the carriers in a position in which its revenues are even further below the incremental costs estimated by Dr. Kolbe. Thus, the FMC could, after the fact, force carriers to serve Guam at a loss. The threat of a retroactive revenue adjustment creates a risk that the carriers will decide not to serve the market. (Joskow, p. 30.)

GovGuam states that yet in the immediately preceding paragraph, Dr. Joskow writes: "Carriers invest great time and effort into structuring deployment routes in an efficient manner"; that these two paragraphs contradict each other; and that Dr. Joskow alleges the existence of a ". . . threat of a . . . risk that the carriers will decide not to serve the market." GovGuam asks when was this to happen; that the data GovGuam is examining are from 1988 to 1990; that the FMC no longer regulates the trade; that these two carriers are no longer serving the trade; that the FMC has not ordered a rate rollback; that it has simply ordered that excess profits be disgorged and damages be paid; and that the "threat . . . of [a decision] not to serve the market" simply does not exist.

GovGuam notes that, at page 32, Dr. Joskow writes: "Dr. Nadel ignores the unrealistic rates that would result from reducing each carrier's rates by different percentages," and alleges that Dr. Joskow presumes that rate rollbacks are mandated, and that this is an incorrect presumption.

GovGuam states that Dr. Joskow writes, "If one hypothesized a retroactive rate decrease of this sort [with different rates by each carrier for the same commodity] it would lead to rates that would give one carrier a continuing competitive advantage over another. GovGuam states that, here again, Dr. Joskow is confusing maximum rates, which the regulations must enforce, with retroactive ratemaking which is not being mandated.

GovGuam states that Dr. Joskow writes that "[r]equiring regulated firms to conform tightly to an allowed rate of return has been shown to discourage efficient operations"; that in none of his following text does Dr. Joskow consider the particularities of the Guam trade, which is served exclusively as a passby; that the word "passby" does not appear in his Affidavit, but any prediction of what might actually happen in this trade, if rates were lower, must pay explicit attention to this fundamental fact of the trade; and that without paying attention to the economics of passby service for the Guam trade, Dr. Joskow's comments about carrier incentives and discouragement of service in the Guam trade have no proper basis.

GovGuam states that, despite Dr. Joskow's alarms, service to shippers cannot realistically be threatened or be at risk in this trade; that even if both U.S.-flag carriers, for whatever reasons, decided not to serve Guam, the regulatory agency-currently, the Surface Transportation Board-could invoke provisions that would permit foreign flag carriers to serve Guam (foreign flag service is permitted in other Jones-Act protected trades if there is no domestic service).

GovGuam shows that Dr. Joskow's fourth conclusion is "Even under the assumption that excess revenue is an appropriate measure of real damages, Dr. Nadel's justifications for allocating damages through an equiproportional allocation of the excess revenues are flawed,"and states that Dr. Joskow implies that the alleged flaw will have a deleterious impact on the trade or on the carriers. GovGuam's answer is that that cannot be true; that the equiproportional reduction in revenues does not mean that once this "Hearing" on damages is concluded, the rates will, indeed, be rolled back; that this is not a rate setting, rate rollback, hearing; that it is a damage allocation hearing.

GovGuam points out that Dr. Nadel explained the following:

Revenue Proportionality and the Rate Structure

When this revenue-proportional method is applied, it produces a pattern of "corrected" freight rates that keeps the fundamental relative-freight-rate-structure unaltered. There exists an underlying, and perhaps very complex, rationale for the existing relative-freight-rate-structure, a rationale which reflects such rate-impacting factors as historical experience, carrier revenue needs, carrier costs, shipment equipment and handling and port costs, commodity competition, shipper ability and shipper willingness to pay. General rate increases and general rate decreases do not by themselves alter the relative-freight rate structure. Only slight changes in the structure are ever introduced by exclusion of particular commodities from the general rate percentage changes. By using an across the board percentage method, the differential impact of the various individual factors is minimally disturbed, if disturbed at all.

GovGuam states that Dr. Joskow alleges, at page 41, that an equiproportional change in freight rates would be "arbitrary," but he has not compared that alleged "arbitrariness" to some important standard; that Dr. Joskow has produced no evidence that, for example, the 1989 rate pattern was ideal and was, itself, not "arbitrary," so there is no evidence that a change in that pattern would have been any more or less "arbitrary" than what was pre-existing; that he has produced no evidence that the "corrected" freight rates would have reflected a pattern that was harmful to the carriers-beyond their obligation to disgorge their excess profits via a damage determination; and that with no evidence as to the extent of the direct costs for each commodity, it is possible that the rates were based overwhelmingly on a "sharing" of the total costs of service, in which case an equiproportional charge would leave that pattern of sharing overwhelmingly unchanged.

GovGuam states that Dr. Joskow uses the data in his Table 5 to suggest that there was little stability in the trade's rate structure; that he does not show the significance of these changes in the trade, since he does not show how large were these deleted and added commodities; that his data show the opposite of what he alleges; that rather than show that there were significant changes over time, they show how very stable is the rate structure, and how little variation there has been over time; that there were 179 commodities in the tariff in 1982, and 205 in 1990; that this means that there was a commodity increase of only 1.7% per year; and that counting the deletions and additions can have no bearing on an evaluation of the impact of equiproportional changes on existing rates for any particular year, e.g., rates that are out stay out, and rates that are newly in are treated equally with the rest that are in.

GovGuam states that Dr. Joskow argues that the Port of Guam charges and other Non-Ocean Freight charges should have been excluded when allocating the damages. GovGuam states that these charges impacted APL's damages by permitting an increase in allowable Net Income; that in the G.O.-11 regulations, APL has been allowed an increase in allowable revenues through the Voyage Exchange Ratio (VER) which permitted an increased Administrative and General Expense (A&G) allowance and an increased Cargo Barge Container Expense (CBCE) allowance.

GovGuam states that the alleged problem that Dr. Joskow identified with his emphasis on the Guam Port pass through charges stems not from these being pass-throughs, but rather from "different proportions of the total bill of lading revenue for different shipments, as the Port of Guam charges were based primarily on weight, not on a per container basis." GovGuam points out that they were also based on cargo cube; but that Dr. Joskow is here pointing to just two features of the tariff; and that there are still others.

GovGuam states that Dr. Nadel addressed these issues in his initial Affidavit.

GovGuam states that by selecting just one variation among many-a partial analysis which is akin to "cherry picking"-Dr. Joskow is alleging a problem which is small and, when all the variations are taken into account, may well be canceled out by the action of the other factors.

GovGuam argues that Dr. Joskow states, "Because the [non-ocean freight] proportion of charges is different for each commodity, some shippers will be rewarded a greater amount of damages simply because they paid higher Port of Guam fees"; that Dr. Joskow's term "rewarded" is incorrect and misleading; that reparations will be awarded because damages have been incurred by the Guam shippers and consignees; and that until the awards take place and excess profits have been disgorged, only the carriers have been "rewarded," unjustly, for their improper behavior.

GovGuam states that, at page 44, Dr. Joskow cites Government of Guam Stipulation with respect to APL Discovery Request #2 and Sea-Land Discovery Request #42, December 6, 2001; that that stipulation, in relevant part, stated ". . . from the evidence Complainants have submitted it is not possible to identify or derive the commodity rate that should have been charged for any particular shipment"; and that Dr. Joskow interprets that as follows, "This appears to be a full admission that the retroactive revenue adjustment and the allocation of the adjustment proportionately to commodities purchased by the complainants does not determine actual damages."

GovGuam states that Dr. Joskow is wrong; that Part (b) of the Stipulation is instructive; that it states "Complainants have not attempted to identify the commodity rate that should have been charged for any particular shipment"; and that Part (c) simply adds this ". . . is not possible to . . ." do ". . . from the evidence Complainants have submitted." GovGuam concludes that these Stipulations have no bearing on actual damages.

GovGuam states that this is a case that proceeds from a finding that the overall level of rates was too high; that at this point, this case is not a challenge to individual rates; and that the Rule 252 criterion-"the rate that you claim should have been charged for each such commodity"-is not appropriate here because this case is dealing with a charge that rates are excessive because the overall revenues are too high, so the rates as a whole are not just and reasonable.

GovGuam agrees that a challenge against an individual rate could not be based on the rate of return considerations in G.O.-11, as the FMC noted when it turned down complainants on Count 2 of the complaint, which challenged the rates on 18 individual commodities.

GovGuam notes that Dr. Joskow alleges that a proper damage claim must predict every "but for" price, and alleges that Dr. Joskow is wrong; that it is often difficult to determine liability, and a "but-for" analysis is often used in order to prove liability; that, in some cases, one can prove a liability-that the defendants did collude and did try to raise prices collusively-but the analysis then determines that it was an unsuccessful collusion, that is, that the collusion in-and-of-itself did no harm; that, in some cases, one can show that even thought the colluders wanted the price to rise, and even though the price did in fact rise; that it is important, in such cases, to know what the price would have been "but for" the collusion, or "but for" the antitrust violation; and that it is to separate out such possibilities that one performs a "but-for" analysis on antitrust cases and in many other cases.

GovGuam states that an "antitrust liability" analogy is inappropriate here, since we already know that "there is a liability and there is a damage"; that a violation, a damage, did occur; that the rate of return analysis has proved that; that liability has been proved; that so, too, has the overall total of damages; that it has actually been proved to a fine point; that the only purpose of this damages hearing is to distribute the damages across all the possible complainants in the trade, and across the named complainants in particular; that the standards required here are very different; and that Dr. Joskow's use of the antitrust context and its "but-for" requirements is wrong.

GovGuam notes that, in Dr. Nadel's initial Affidavit, he invoked the antitrust analogy for cases where it is known that a violation did occur and that only the distribution of the damages need be measured, and that Dr. Nadel wrote:

Analogy to Antitrust Damages

Using such a common-percentage-application principle is reasonable and it is consistent with the FMC regulations and FMC practice. It also mimics the way in which damages and reparations are calculated in the most common price overcharge events-that is, when there has been an antitrust violation that has led to a price overcharge. That is, the usual method is to determine by how much average prices were artificially raised because of the antitrust violation, and to give proportional damages to each plaintiff; thus, plaintiffs who paid slightly higher prices per unit than others get slightly higher reparations per unit in antitrust cases.

GovGuam notes that Dr. Joskow writes:

The problem with Dr. Nadel's common percentage application can be illustrated by simply considering the differences among the shipper's products. . . . The effect of treating all of these products and rates as homogeneous is that the overall rate of return is the result of some rates that may have been "too high" along with other rates that may have been "too low". . . . The only methodology that would yield an appropriate and accurate damage calculation would require that differences between individual commodities be taken into account. (Footnote omitted.)

GovGuam states that Dr. Joskow here boils down his criticism of Dr. Nadel's damage calculation to what Sea-Land and APL have been alleging since 1992 regarding their rates, namely, that the rates must always be looked at individually and one must know with absolute precision what each rate should have been, or would have been in the "but-for" world-whether determining if rates are just and reasonable, or whether allocating damages; that otherwise, regardless of the excessiveness in the rates, the FMC must consider itself powerless to correct that injustice. GovGuam states that that argument has been rejected by the FMC and that Dr. Joskow seeks to resurrect that argument in a discussion of damages.

GovGuam states that Dr. Joskow's fifth conclusion is, "Dr. Nadel's treatment of taxes is inconsistent with his argument that the purpose of his damage calculation is to have carriers disgorge their excess profits"; that, again, Dr. Joskow is incorrect; that Dr. Nadel's treatment is consistent with the argument that the purpose of the damage calculation is to have carriers disgorge their excess revenue; that that treatment is also consistent with the FMC's findings in this case, since it is the only proper methodology that would leave the carriers with revenues in the trade-which are payments by the shippers and consignees-that yield the carriers only the FMC's allowable net revenue after taxes using the FMC's statutory tax rate; and that only a just and reasonable level of freight rates would have yielded the carriers the FMC's allowable net revenue after tax.

GovGuam observes that Dr. Joskow notes that Dr. Nadel "grossed up" the after tax excess revenues to yield before-tax levels; that, in the grossing up, Dr. Nadel used the 40% statutory tax rate that the FMC itself mandates; that Dr. Joskow concludes his affidavit by stating, "No 'grossing up' is necessary"; and that Dr. Joskow's conclusion is erroneous.

GovGuam states that Dr. Joskow identifies the goal as, ". . . to separate the carriers from their excess profits" which he incorrectly inferred from Dr. Nadel's answer contained in Government of Guam Response to Sea-Land Discovery Request #35, and that Dr. Joskow has misstated that Response and he mistakenly quantified the application of that response which stated:

. . . The award is designed to put the carrier into the position it would have experienced but for the overcharge. Dr. Nadel notes that the FMC used a nominal tax rate, not the carrier's actual average or marginal tax rate; Dr. Nadel used the tax rate that FMC used in its decision.

GovGuam states that Dr. Joskow fails to realize that Dr. Nadel's damage determination did exactly that, it "put the carrier into the position it would have experienced but for the overcharge," whereas the absence of a "gross up," an absence he recommends, would put the carrier in the position of still having overcharges, charged the shippers too much, having excess revenues, and having earned an overcharge benefit at the shippers' expense and shippers' harm; that the only goal must be to reduce carrier trade revenues to an allowable amount, to an amount that would be produced by just and reasonable charges to the shippers and consignees.

GovGuam states that the FMC found that APL's Guam trade income before provision for taxes was $12,000,000, on a rounded basis (this rounding produced a minor discrepancy among the various figures); that the question that must be answered is: what excessive part of that $12,000,000 revenue must be disgorged by APL?

GovGuam states that the FMC used a statutory (not actual) 40% tax rate; that subtracting this Provision for Income Taxes leaves $7,200,000 in Net Income; and that adding Interest Expense produces a Net Income and Interest Expense of $7,746,000.

GovGuam states that the FMC determined that the allowable return, after tax, was only $2,346,490 (unrounded); that, therefore, the FMC determined that the Excess Return, after tax, was $5,399,396; that Dr. Nadel computed the required excess revenue disgorgement as $8,998,992, which is the $5,399,396 grossed up by the factor of 1.667; and that the gross-up factor is one, divided by one minus the statutory tax rate, which equals 1/(1-0.4) = (1/0.6) = 1.667.

GovGuam states that Dr. Joskow would have the excess revenue disgorgement be only $5,399,396, with "no grossing up necessary"; that Dr. Joskow is wrong; and that, in effect, his erroneous gross-up factor is 1.0 instead of the required 1.667.

GovGuam states that APL's Income before provision for taxes in the trade would have been $12,000,000 less an excess revenue disgorgement of $8,998,992, which equals $3,001,008; that using the statutory 40% tax rate, a Provision for Income taxes of $1,200,327 would leave APL with $1,800,605 in Net Income; and that adding Interest Expense of $546,000 would produce a Net Income and Interest Expense of $2,346,605, which matches exactly the Net Income and Interest Expense that the FMC determined was the allowable amount.

GovGuam states that if Dr. Joskow's excess revenue disgorgement is used, APL's income before provision for taxes in the trade would have been $12,000,000 less an excess revenue disgorgement of $5,399,395, which equals $6,600,605; that using the statutory 40% tax rate, a Provision for Income taxes of $2,640,242 would leave APL with $3,960,363 in Net Income; and that adding Interest Expense of $546,000 would produce a Net Income and Interest Expense of $4,506,363, which exceeds the Net Income and Interest Expense that the FMC determined was the allowable amount.

Sea-Land states that this proceeding has the singular distinction of being a case of first and last impression; that no shipper has ever pursued to the extent of GovGuam an argument that general revenue analysis under the Commission's General Order 11 could sustain a finding of reparations for individual commodity rates; and that changes in statutes and jurisdictional responsibilities of the Commission and its sister agency, the Surface Transportation Board ("STB"), ensure that no such claim will ever be pursued in the future.⁽¹⁰⁾ Sea-Land contends that the continuing fundamental affliction that has attended the controversy from its inception to the present moment is the yawning analytical gap between information concerning rates of return for common carriers at given points in time and the determination of the lawfulness of any given commodity rate in a tariff that contains many rates.

Sea-Land points out that the entire Phase II direct case submission of GovGuam is found in an affidavit of Dr. Ernest Nadel ("Nadel Affidavit"); that Dr. Nadel's testimony is an arithmetic narrative in which he allocates the gross amount of Sea-Land revenues for 1988 and 1989 found to be excessive by the Commission in its June 1, 1998 Report and Order "(June 1998 Order") across a range of Sea-Land (and APL)shipments tendered by or to complainants in the relevant years; that Dr. Nadel then derived "by simple division" a percentage of total revenues that represented excess revenues under the Commission's G.O. 11 analysis; and that he applied these percentages to the gross amount of ocean freight bills that showed a named complainant as an involved party in the shipment and added an interest component.⁽¹¹⁾

Sea-Land states that, on March 27, 2002, respondent carriers' motions to dismiss claims related to shipments for which GovGuam claimed reparations, but for which no proof of payment had been advanced, were granted in substantial part, so that the universe of shipments by Sea-Land now in dispute is essentially two categories of transaction:

1.  A payment to Sea-Land of $78.10 by the Guam Telephone Authority of August 16, 1988, for which Guam seeks reparations of $24.16; and,

2.  Four containers of potato chips shipped for the account of Micronesian Brokers Inc., a complainant in this action, for which Dr. Nadel advocates payment of $2,603.69.

Sea-Land states that, on the arithmetic level, this mammoth litigation has resolved itself into a question of whether Sea-Land owes Micronesian Brokers Inc. $2,609.69 in reparations and interest for unspecified harm that Micronesian Brokers allegedly suffered in connection with the shipment in 1989 of somewhat less than eight tons of potato chips.⁽¹²⁾ Sea-Land states that GovGuam and Dr. Nadel offer no testimony that indicates that the potato chip rate was unreasonable by virtue of its effects on the market in Guam; that the physical or economic characteristics of the cargo in any way rendered the rate unreasonable; that Micronesian Brokers suffered any commercial loss because of the potato chip rate or that the patterns or volumes of potato chip shipments were affected by the rate; that the relatively negligible amounts of money at stake should not, however, obscure important issues of proof and legal issues concerning the structure, purpose, and effects of the Shipping Act, 1916, and its amendments; that GovGuam has made clear that it intends to challenge rulings by the ALJ and the Commission that confine the universe of shipments in contention to those tendered by named complainants in the relevant time period; that the implications of the Commission's disposition of GovGuam's reparations claims are not trivial, and could have substantial negative impact on respondent carriers; and that it is imperative that the ALJ and the Commission ratify existing precedent and enunciate clear principles for determining the lawfulness of particular rates.

Sea-Land contends that complainants must establish proof that particular shippers have suffered particularized economic harm arising out of the shipment of particular commodities in a trade where rates have been remarkably stable before, during and after the period that is the subject of this proceeding.

Sea-Land points to the Commission's June 1998 Order where:

. . . the Commission recognized that the relationship of overall revenues to the lawfulness of individual rates could not be readily established. The Commission stated that: "because Sea-Land is correct in arguing that there is no nexus between the reasonableness of overall revenues and the reasonableness of individual commodity rates, GovGuam's burden as to this element of its case is to prove that the individual commodity rates are unreasonable. Accordingly, GovGuam cannot rely on a finding that overall revenues are unreasonably high to establish the unreasonableness of individual commodity rates." (June 1998 Order at 54.)

Sea-Land states that because GovGuam had, in addition to its general revenue claims attacked rate increases on eighteen specific, relatively low-rated commodities in the Guam Rate Agreement tariff, the Commission specifically addressed the carriers' contentions that these rate increases required separate analysis under traditional commodity rate standards; that the Commission, after expressly agreeing with the ALJ and the carriers that G.O. 11 analysis was inappropriate to analysis of commodity rates, concluded:

Because we reject GovGuam's legal theory that a rate of return analysis can be used to determine the reasonableness of individual commodity rates it is unnecessary for us to reach the various contentions advanced by the parties regarding the appropriate accounting methodology to determine the costs attributable to the carriage of the eighteen commodities. (June 1998 Order at 131.)

Sea-Land notes that, in the footnote accompanying the quoted text, the Commission further stated that "any challenge of individual commodity rates must focus on the rate making factors traditionally considered in fixing such rates," citing the June 1998 Order at 131, n. 46.⁽¹³⁾

Sea-Land contends that the shipments at issue represent only a tiny portion of the trade and thus render a trade-wide derived formula for reparations unworkable, unrealistic, and irrational.

Sea-Land states that Dr. Nadel's reliance on GRI rate rollback methodology ignores the Commission's Order in Phase I of this proceeding; that the Commission's finding that there is no cause of action under section 3 of the 1933 Act undermines the validity of Dr. Nadel's reparations by analogy methodology.

Sea-Land contends that the fact that the revenue proportionality method is the method that the FMC has used when it has disallowed, on excess rate of return grounds, a portion of a carrier's General Rate Increase does not render that methodology as suitable for a section 18(a) proceeding; that reference to GRI rollback methodology is immaterial and irrelevant to the quantum of damages available to a limited universe of shippers shipping a limited number of commodities that had not been subject to an across-the-board rate increase.

Sea-Land contends that the Commission's findings with respect to the nonapplicability of section 3 of the 1933 Act to this proceeding specifically negates the ability of GovGuam to incorporate by reference the GRI rollback methodology to rates that were not set across the board at a specific point in time. Sea-Land states that the unrebutted testimony of Sea-Land establishes that the rates at issue in this proceeding were set without reference to (1) the "cost" of moving the commodity to Guam, (2) rate of return calculations, or (3) rates charged in other trades.

Sea-Land contends that it is irrational to award reparations on a proportional basis for shipments that moved under rates that were established at different times, for different reasons unrelated to either carrier cost or the need to meet overall revenue goals.

Sea-Land states that the Commission clearly distinguished this proceeding from a GRI proceeding where the carriers would provide a "refund to any person who was charged on the basis of such general increase an amount equal to that portion thereof found to be not just and reasonable," citing the June 1998 Order at 51; that for the Commission's statement to have any meaning at all it must be viewed as an implicit assertion that in a non-GRI proceeding, the obverse is applicable; and that proportional reparations make no sense in the absence of proportional rate setting.

Sea-Land states that, in response to Dr. Nadel's testimony, respondent carriers have proffered the testimony of Dr. Andrew Joskow; that Dr. Joskow critiques Dr. Nadel's formulaic approach to calculating reparations by observing that the concept of reparations precludes a simple allocation of some portion of overall revenues to all cargo equally; that Dr. Nadel's emphasis on general revenue analysis without consideration of the particular circumstances of individual rates can lead to the imposition of liability from carrier to shipper in contexts where no harm has been incurred by the shipper and no wrongful act by the carrier can be identified; that, in this proceeding, the Commission's use of General Order 11 methodology in Phase I to reach a finding that the carrier's revenues had exceeded allowable limits did not attribute those overages to wrongful activity by the carriers; and that, similarly, neither in Phase I nor in Phase II, has GovGuam made any showing that any particularized harm was caused to any individual shipper, including any shipper for whom Dr. Nadel advocates payment.

Sea-Land states that Dr. Joskow also addresses the impact that internal changes in ownership and accounting practices could have in affecting the General Order 11 results generated by both carriers; that during the time period covered by this proceeding, both APL and Sea-Land underwent internal reorganizations that affected the accounting treatment of key elements of the carriers' rate bases; that these changes were essentially invisible to users of either carrier's services, but had significant mathematical impact on the calculations that are performed pursuant to the Commission's analysis of general revenues; that Sea-Land's vessel investment in rate base declined substantially between 1988 and 1989; that the mathematical impact is to magnify the resulting return, despite an external environment of rate stability and constant service; and that, in the case of both carriers, these internal changes had no recorded adverse impact on levels of service.

Sea-Land notes that Dr. Joskow states that "[d]amage calculations must establish the 'causal link' between improper behavior on the part of the defendants and harm caused to the plaintiffs"; that the implications of Dr. Nadel's application of General Order 11 analysis would be to require constant revision of individual commodity rates as the carriers refinanced or otherwise adjusted their accounting treatment of vessel assets or as cargo mixes shifted from lower to higher revenue commodities; that such a regime is wildly impractical as an operational matter is apparent; and that the irrationality of such an environment is magnified when it is recognized that a carrier is never compensated for instances in which these factors drive returns below allowable maxima under General Order 11.

Sea-Land states that Dr. Joskow notes that to equate arithmetically post-hoc general revenue analysis with reparations for "damages" sustained by shippers would require "perfect foresight" on the part of a carrier; and that such a regime would become its own risk to the rational operations of carriers in any trade.

Sea-Land contends that in the case of the potato chip shipments for which GovGuam now seeks reparations, there is no indication in the record that any one of these four containers moved at rates that caused any quantifiable harm to the rate payor; that to subject carriers in the Guam Trade to Dr. Nadel's equation of revenue analysis with damages subject to monetary reparation would penalize efficiency and leave the carriers vulnerable to the mathematical impacts of matters beyond their control (e.g., fluctuations in demand, cargo mix, or cargo volumes); and that Dr. Joskow states that "I am aware of no instance in U.S. regulatory history where an agency has retroactively adjusted revenues in circumstances such as these."

Sea-Land argues that GovGuam has not provided evidence sufficient to warrant reparations for any of the remaining shipments at issue.

Sea-Land contends that GovGuam's reparation case rests on one proposition that if a carrier's revenues are found to be excessive, every single rate in the carrier's tariff is too high; that each individual rate is too high in direct proportion to the amount of the excessive revenue; that each commodity, whether bouillon cubes or gold bouillon, is treated as entirely fungible and interchangeable; and that if the carrier's revenues are deemed to be excessive by a factor of ten percent the shipper of the $1,200 container of rice is entitled to $120 in reparations.

Sea-Land states that, as the United States Shipping Board first observed in 1921:

While the evidence submitted by the transportation company to the effect that its common carrier operations as a whole were unprofitable is admittedly of value, obviously, this is not a controlling determinant of the reasonableness of the particular rate in question. Indeed, rates on particular commodities may be unreasonably high and yet the carrier fails to realize a fair rate of return from its entire operation.

Wool Rates from Boston to Philadelphia, 1 U.S.S.B. 20, 21 (1921) (Emphasis added by Sea-Land.)

Sea-Land contends that the Board there addressed a carrier's alleging that because its overall rate of return was below the profitable levels, all of its rates were presumptively reasonable; that, here, GovGuam confronts the Commission with the obverse; and that because carrier aggregate revenues have been found to be excessive by General Order 11 standards, all rates in the tariff, including the rate for potato chips, are too high.

Sea-Land states that it has argued from the commencement of this litigation that even if GovGuam could establish that Sea-Land's revenues were too high, it had done nothing to establish that any individual rate was unlawful; that there is not, nor has there ever been in the history of FMC rate proceedings, a determination that inexorably links the one concept to the other; that in 1992 Sea-Land advanced the argument that "when involved in a complaint case, section 18(a) of the Shipping Act, 1916, requires that the Commission perform a commodity-specific analysis to determine whether a challenged rate is "unjust or unreasonable"; and that ten years ago Sea-Land argued that the commodity-specific microeconomic analysis required for determining reparations in rate proceedings should not be confused with the type of macroeconomic analysis undertaken by GovGuam in attacking Sea-Land's trade wide rate of return.

Sea-Land contends that it is the long-held view of this Commission that the analysis of the reasonableness of specific commodity rates must be based on factors unique to that commodity, and quotes as follows:

What constitutes a just and reasonable rate is determined by a number of interdependent facts, among which are value of service, necessity, cost of service, capacity, volume and competition.

citing Hawaii Meat Co. v. Matson Navigation Co. (FMC Docket No. 77-45), 21 F.M.C. 43, 18 S.R.R. 479, 484 (I.D. 1979) (citing Chicago Board of Trade v. United States, 223 F.2d 348, 351 (D.C. Cir. 1955)).

Sea-Land states that GovGuam's theory of the case carries with it the implicit assumption that all cargo is fungible and susceptible of the same economic analysis; that important concepts such as value of service, competitive conditions in the Trade, and competition for the commodity at issue no longer be referenced to the economic and physical characteristics of the cargo being transported; that this lack of individual analysis neglects long held Commission precedent that:

. . . [E]ven a finding . . . that [respondents'] rates were unreasonably high would not be tantamount to a finding that its rates on particular commodities were unreasonable. It is well-settled that the reasonableness of rates for particular commodities is not measured by the reasonableness of a carrier's general level of rates.

citing Matson Navigation Co.-Increased Rates, FMC Docket No. 73-22 et al., 17 S.R.R. 175, 180 (ALJ 1976); and that GovGuam has been aware of these requirements for over a decade.

Sea-Land states that, traditionally, the factors involved in analyzing a carrier's cost of transporting a particular commodity include handling factors peculiar to that commodity as well as such other transportation factors as the value of the commodity, the value of the service to the shipper, and the effect of the carrier's rate on the market for that commodity.

Sea-Land states that the Commission has confirmed that attempts to mix commodity-specific claims with general rate of return analysis are "extraneous," "futile," "essentially irrelevant" and "wasteful"; that the Commission acknowledged the long-standing view that "courts have recognized that the issues in a general revenue case are essentially different from those in specific commodity cases"; and that acceptance of the GovGuam methodology carries with it acceptance of the proposition that potato chips and washing machines are identical in terms of their value, volume, and shipping characteristics.

Sea-Land contends that the Commission's decision in Phase I of this proceeding did not overturn 100 years of its own precedent; that the Commission remanded the proceeding and provided GovGuam with one final opportunity to link the Commission's finding of an unreasonably high rate of return to a finding that individual commodities shipped to complainants contained unreasonably high rates; that the Commission, in its June 1, 1998 finding on liability, "allowed" GovGuam to establish that Sea-Land's (and APL's) revenues were unreasonably high; that, however, the FMC did not decide that GovGuam's theory as to reparations was correct; that the FMC stated that on remand GovGuam would have the opportunity to establish that individual commodities were susceptible of an award of reparations; that in the section of the decision entitled "Overall Rate Level Challenges" the FMC held that "a complaint case may challenge a carrier's overall rate of return under sections 18 and 22 of the 1916 Act"; and that, in the next section of the decision, entitled "Burden of Proof on Methodology to Apply," the Commission took pains to point out that despite ruling that a complainant can mount an attack on a carrier's overall rate of return that did not absolve the complaint of the burden of proving that specific commodity rates were unreasonable:

As respondents correctly point out, Complainants have the ultimate burden of proof or the burden of persuasion in this case. This is true with respect to both the general level of rates and the reasonableness of the individual commodity rates identified in Complaint Count II. Moreover, because Sea-Land is correct in arguing that there is no nexus between the reasonableness of overall revenues and the reasonableness of individual commodity rates, GovGuam's burden as to this element of its case is to prove that the individual commodity rates are unreasonable. Accordingly, GovGuam cannot rely on a finding that overall revenues are unreasonably high to establish the unreasonableness of individual commodity rates.

citing June 1998 Order at 54.

Sea-Land contends that GovGuam might attempt to argue that the Commission holding is applicable only to the 18 individual commodities referenced in Count II of the complaint; that such an argument does not withstand scrutiny; that the Commission's holding here stands for the following propositions:

1.  GovGuam bears the ultimate burden of proof or persuasion in this phase of the case. (Sentence 1)

2.  GovGuam bears this burden as to both Count I and Count II of the complaint (Sentence 2)

3.  Moreover, because there is no nexus between overall revenues and individual commodity rates, GovGuam must prove that individual commodity rates are unreasonable (sentence 3) even though the Commission finds that Sea-Land's overall revenues are too high (sentence 4).

Sea-Land contends that no reasonable person could argue that the Commission's finding that there was no nexus between rates of return and individual commodity rates is limited to the individual commodities included in Count II of the complaint; that this is particularly true in view of the fact that the Commission had just taken pains to limit this proceeding to individual shipments made to the named complainants, citing Decision at 130-131; that the shipments at that time consisted of a narrow universe of commodities shipped to GovGuam and four private complainants and now only consist of three containerloads of potato chips for one complainant; and that, in the footnote immediately following this passage, the Commission went on to state that "any challenge of individual commodity rates must focus on the rate making factors traditionally considered in fixing such rates," citing Id. at 131, fn. 46.

Sea-Land states that any methodology that calculates revenues based upon the inclusion of non-ocean freight revenue is flawed; that as is set out in the Joskow Affidavit:

Second, for any particular bill of lading, the resulting damage calculation is arbitrary. Dr. Nadel's single percentage methodology applies to total bill of lading revenue, not to rates. This is an important distinction-bill of lading revenue, as an accounting measure, includes Port of Guam charges (collected by carriers as a pass-through) and other special handling charges. These charges represent different proportions of the total bill of lading revenue for different shipments, as the Port of Guam charges were based primarily on weight, not on a per container basis. Thus, the damage attributable to each shipment would vary depending on the non-ocean freight charges.

Citing Joskow Affidavit at 42. Sea-Land states that because the proportion of non-ocean freight charges varies depending upon the weight-to-volume ratio of the cargo, "the proportion of charges is different for each commodity, and some shippers will be rewarded a greater amount of damages simply because they paid higher Port of Guam fees," Id. at 44; and that by seeking an award of reparations for accessorial Port of Guam charges, GovGuam effectively seeks damages in a non-equiproportional manner.

Sea-Land states that the inclusion of accessorial charges in the reparations statement undermines the reliance of GovGuam on GRI rollback methodology employed by the Commission in section 3 proceedings; that, historically, a typical GRI increased ocean freight rates across-the-board but did not necessarily bring with it an increase in surcharges (e.g., bunker adjustment, currency adjustment, port congestion, or war risk surcharges that typically move upwards or downwards relative to circumstances unrelated to revenue needs); that, consequently, any GRI-mandated rollback would be applicable only to base ocean freight charges and not accessorial charges that had not increased; that there is no support advanced for the proposition that the Commission should roll back a separately-stated port surcharge; and that GovGuam's reparations demand should be stricken to the extent it seeks reparations for non ocean freight charges.

Sea-Land states that GovGuam's methodology is flawed because it does not take into account the possibility that shipments bearing low-rated freight moved at reasonable rate levels; that almost eight years ago the complainants made the following assertion of rate reasonableness:

BCI calculated that, had APL earned the benchmark, or maximum allowable, rate of return in the Guam trade, its average revenue per FEU would have been $2,650 in 1990. (Ex. N-IV-4.) Similarly, D&T calculated that Sea-Land's average revenue per FEU, had it earned the maximum allowable rate of return in 1989, would have been $2,769 per FEU (Hahne WDT Table IV-1.) The reasonableness of these average revenue figures is demonstrated graphically by comparing these rates with the revenue figures shown in the chart on the following page.

Citing Complainants' Post-Trial Memorandum on Rate of Return Issues, p. 205 (December 5, 1994). Sea-Land states that according to GovGuam's own calculations and assertions, for the shipment set out at Exhibit A (document number 212 on GovGuam's original reparations spreadsheet), the rate charged was presumptively reasonable; that this shipment, although dismissed from the case for failure of proof of payment, is valuable as an illustration of the arbitrary nature of Dr. Nadel's approach; that a review of the freight bill indicates that the shipment involved a forty (40') foot container of soap that moved under Sea-Land tariff item number 770; that it took a minimum container charge of $2,200, and with all extra charges, the gross revenue billed amounted to $2,576.30; that based upon GovGuam's own statement of the case, Sea-Land derived $192.70 less than the "maximum allowable" revenue (of $2,769) under GovGuam's own standards of reasonableness; that if even one shipment is found to be presumptively reasonable (and there are no doubt many others) and not subject to an award of reparations, then the equiproportional methodology collapses on its own weight; and that if shipments that moved below certain rate and/or revenue levels are found to be reasonable (and GovGuam tacitly admits that any Sea-Land container that moved at less than a total of $2,769 per FEU is reasonable) and not subject to an award of damages, then the utilization of a proportional reparation methodology must fail to obtain its desired purpose.

Sea-Land argues that the remaining shipments should be dismissed from this proceeding on the grounds that GovGuam has not met its burden of establishing the unreasonableness of any specific commodity rate and by its failure to provide an acceptable methodology by which the quantum of damages available for any given shipment may be established.

APL states that the Commission's calculation of APL's trade-wide rates of return in its 1998 decision gives complainants a purportedly convenient starting point. APL contends that trade-wide rate of return cannot be used to award reparations for individual shipments because:

1. Complainants have stipulated that under their trade-wide rate of return approach it is not possible to identify the commodity rate that should have been charged for any of the particular shipments for which they seek reparations;

2. Complainants' reparations methodology is predicated on the assumed existence of a regulatory regime under which, if a carrier is determined after the fact to have earned an "excess" rate of return during any year it automatically becomes liable to all shippers generally to "refund" all of its "excess revenue." APL states that this assumed regulatory regime cannot rationally-or legally-be deemed to have existed and urges that:

• The Commission has already rejected the notion that a general refund was available in this case, citing 1998 decision, pp. 50-51.
• Complainants' assumed regulatory regime is inconsistent with the 1933 and 1916 Shipping Acts; Congress withheld from the Commission power to order the type of general refund that complainants presuppose, which presupposed power would destroy the purpose that the 1933 Act (as amended in 1978) was intended to accomplish, i.e., creation of a climate providing the certainty and predictability necessary to ensure investment and the provision of adequate service in the domestic offshore trades.

APL contends that a refund of subsequently determined "excess" return is impermissibly retroactive, because it deprives the carrier of the opportunity to decide whether to serve the regulated trade (or deploy its assets elsewhere) at the after-the-fact determined "allowable" revenue levels. APL states that complainants' assumed regulatory regime (i) would automatically require "excess" revenues to be refunded even when (as here) the excess was caused by factors that greatly benefitted shippers, (ii) would retroactively impose rates that never could have existed, and (iii) would ensure that carriers would not earn their cost of capital over time.

APL states that complainants' methodology assumes that the bill of lading revenue for every shipment of every shipper during a year was excessive by the exact same percentage; that, however, that assumption is erroneous, where-as here-rates had not been increased across-the-board by a single-percentage general rate increase.

APL states that the rejection of this regulatory regime cannot be avoided by pointing to the facts that the underlying statutes have been repealed and the STB now has jurisdiction over the domestic offshore trades, and that an arbitrary and capricious result cannot be excused on the ground that the Commission no longer has jurisdiction over the trade.

APL states that it is well established that an award of reparations does not automatically follow from a finding that a respondent violated the statute; that it is not unusual for the Commission to determine at the end of a proceeding that the complainant is entitled to a declaration of statutory violation but not to an award of reparations; and that, if a complainant has not proven the requisite elements of a reparations claim, there is no injustice or futility in denying reparations.

GovGuam states that respondents' initial briefs insist that the Commission is powerless to provide a remedy for the overcharge found in the June 1, 1998 Order. GovGuam states that, in the respondents' contemplation, the Commission meant something other than what it said when it held that "The Carriers' rates have been found to be unreasonable for the years indicated. The Commission has further decided to remand the proceeding to the ALJ for a determination of the reparations due Complainants. . .," citing Commission decision at 131 (emphasis supplied by GovGuam). Complainants contend that the Commission did not remand to determine whether reparations are due, but to establish the amount "of the reparations due" and that the essence of GovGuam's position is that the Commission meant what it said; that, if the Commission meant something other than what it said there, then its Decision, indeed the entire proceeding is meaningless; and that the respondents, however, urge precisely that interpretation.

GovGuam states that respondents base this extraordinary conclusion almost entirely on their reading of the Commission's disposition of one small aspect of the case that has nothing whatever to do with the fundamental ruling of the Commission that the carriers' rates-all of them-were unreasonably high because they afforded an excessive rate of return as shown by the G.O.-11 analysis.

GovGuam states that, in addition to bringing the G.O.-11 case against the respondents' entire rate structure in Count 1 of the complaint, complainants also singled out, in Count 2, 18 specific rates that had been increased, and complained that those rates individually were unreasonably high, and that the Commission, however, ruled that proof of the unreasonableness of these 18 Count 2 rates-as distinct from the entirety of a carrier's rates challenged in Count 1-could not separately be proven by the G.O.-11 methodology (Commission decision at 54).⁽¹⁴⁾ GovGuam states that the respondents seize on this comment for the proposition that it applies not to the 18 Count 2 rates, but to all of the rates at issue in the proceeding, and precludes finding that any of their rates were unreasonable.

GovGuam asserts that this position is remarkable in its contrast to the express findings of the Commission, as well as to APL's position on the import of the unquoted portion of the second passage on which it otherwise so heavily relies.

GovGuam states that, first, the fundamental holding of the Commission's decision is that proof of an excessive rate of return supports a finding that a carrier's rates-all of them-are unjust and unreasonable, and therefore violate section 18 of the 1916 Act; that the core of this holding is at pages 48-49 of the Commission decision:

[GovGuam] argues that there is nothing in either the 1916 Act or the 1933 Act that prevents a private party from filing a complaint alleging that a carrier's overall rate of return is violative of Section 18, and seeking reparations. . . . GovGuam's reading of the statutes is correct. . . . Moreover, it appears that Congress, when it referred to a rate in the singular form, intended to encompass groups of rates, including a carrier's entire rate structure. . . . [T]he Commission customarily relies on [section 4 of the 1933 Act] as authority to require a carrier to reduce the overall level of its rates to achieve a "just and reasonable" rate of return.

Commission decision at 48-49 (emphasis supplied by GovGuam.)

GovGuam notes that, later, in finding an excessive rate of return, the Commission said:

For the reasons set forth above, the Commission holds that respondents' rates have been shown to be unreasonable for the years indicated.

Id. at 131 (emphasis supplied by GovGuam). GovGuam states that it is difficult to imagine a plainer, clearer statement that every rate in a group of rates producing an excessive rate of return is unreasonably high, and in violation of section 18, and that, moreover, the Commission explained exactly how unreasonable each of the excessive rates is, as follows:

The rate of return analysis in this case addresses APL's overall rate of return, but it does not address the individual rates in the Guam Rate Agreement tariff. If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage.

GovGuam states that the respondents do not merely ignore these important passages; they flout them; that at page 40 of its initial brief, APL attempts to quote from this same section to the effect that the G.O.-11 analysis cannot support the unreasonableness of any rate, while dismissing the above quoted passage on the grounds that it speaks to reparations rather than liability; that this is a nice distinction indeed; that APL relies heavily on the Commission's rejection of the theory that the rate of return analysis can be used to determine the reasonableness of 18 individual rates; and that it goes on to argue that "the 1998 decision cannot reasonably or properly be understood to have made any final determinations regarding reparations issues, including any determinations as to whether complainants can seek reparations based on a trade-wide rate of return analysis," citing APL initial brief at 41.

GovGuam states that this position ignores the obvious; that, first, the Commission's determination at page 130, that "each commodity rate in the tariff would be excessive by the same percentage," is the immediate antecedent and express premise of APL's quote, which it takes from the very next sentence after the passage it rejects; and that APL does not explain why we should ignore the passage that pertains directly to the body of rates that are directly at issue in this proceeding and rely instead on the passage that expressly distinguishes and applies only to the 18 rates that are not separately at issue.

GovGuam states that, second, APL's assertion that the Commission has not made any determination "as to whether complainants can seek reparations based on a trade-wide rate of return analysis" is simply wrong, and that, as quoted earlier:

[T]here is nothing . . . that prevents a private party from filing a complaint alleging that a carrier's overall rate of return is violative of Section 18, and seeking reparations. . . . Congress . . . intended to encompass groups of rates, including a carrier's entire rate structure. . . . [T]he Commission customarily relies on [section 4 of the 1933 Act] as authority to require a carrier to reduce the overall level of its rates to achieve a just and reasonable rate of return.

(Commission decision at 48-49; emphasis added by GovGuam.) GovGuam states that the Commission's decision is not only reasonably and properly read to allow reparations based on the G.O.-11 analysis, it is unequivocal and explicit in its mandate of reparations; that GovGuam believes the Commission meant precisely what it said simply and directly in the 1998 decision that the carriers' rates (all of their rates: the "entire rate structure") are unjust and unreasonable, and by the same percentage across the board in a given year; and that if the decision does not mean just this, then it means little.

GovGuam states that APL also relies heavily on the assertion that reparations are not always the appropriate remedy for unjust and unreasonable carrier practices; that this argument is based exclusively on cases other than rate overcharges in which there are legitimate questions as to the relationship between the unlawful conduct and monetary charges; that no such questions exist in this case; that APL also ignores the plain meaning of the applicable statute; that section 4 of the 1933 Act at first provides that the Commission may order reparations when it finds an unreasonable rate or charge; but that when that finding is based on a complaint by a shipper, however, reparations are mandatory:

Provided further, That upon such finding of unjustness or unreasonableness in a proceeding instituted by a complainant pursuant to the provisions of section 22 of the Shipping Act, 1916, the Commission shall direct full reparation tot he complainant of the difference between the charge collected and the just and reasonable rate, fare, or charge.

46 U.S.C. app. § 845a; that the meaning of this provision could not be plainer; that in a Commission investigation it has discretion to award reparations; but that when it finds an unreasonable rate in a complaint proceeding such as this one, the Commission shall award full reparations.

In reply to APL's contention that the Commission's 1998 determination that APL exceeded the allowable rate of return in the years 1998-90 does not form a proper logical or legal basis for an award of reparations to GovGuam, GovGuam argues that APL is simply wrong, as a matter of both logic and law; that APL set shipping rates for carriage in the Guam trade that were impermissibly high; that it overcharged by a lot ($16.7 million over three years when the allowable return was some $11.3 million); that, in other words, its excess return was 148% of what was permitted, and what it received as actual return ($28.1 million) was therefore 248% of what it was allowed to receive; and that the Commission itself stated that reparations were the appropriate relief, remanding this proceeding for "a determination of the reparations due Complainants," citing Report and Order of June 1, 1998, p. 131.

In response to APL's argument that a generic finding of "a statutory violation" does not without more support an award of reparations, GovGuam states that it is irrelevant; that the cases marshaled by APL in support of the proposition that reparations are not always the appropriate remedy are not rate cases; that overcharging obviously causes injury as its direct and proximate result, and the measure of that injury is the amount by which what was charged was excessive; and that make-whole relief requires that the innocent party be placed where it would have been had the violation not occurred, and the proper response of the enforcement agency is an order that the overcharged amount be repaid, together with compensation for the time-value of money. GovGuam states that it is not necessary for it to defend the position that "an award of reparations in Phase 2 is necessary to justify the effort that it put into litigating Phase 1," citing APL's initial brief, p. 48.

GovGuam states that as parens patriae of the Territory, GovGuam happens in fact to believe that very statement, which could certainly be a factor considered in the exercise of agency discretion, and that there is no discretion to exercise in reaching the conclusion that reparations to offset the overcharges are the only appropriate relief for the violations already found in this case.

GovGuam contends that APL is flat wrong when it denies that the value of establishing liability in Phase 1 is not at stake here; that, indeed, if there were not a principle much more important than the mere "declaration that the carriers' rates of return were too high," it is doubtful that APL and Sea-Land would be filing their hundreds of pages of briefs over the few thousand dollars remaining directly at issue in this phase; that at stake here is the fundamental principle that GovGuam has fought for from the beginning: that the carriers exploiting one trade must be forced to make reparations of the excess gains from that exploitation to the fullest extent that payment of the excessive rates may be proven by any shipper willing to make the effort; that the fact that the amount remaining proven at this stage is nominal is hardly a reason for reducing it to nothing; that, indeed, the Commission has yet to rule on whether it should have been so reduced, and the courts have yet to rule on other issues that could put the full amount of the excess returns back on the table; and that neither the presiding judge nor the Commission should be mislead by the argument that there is no more at stake here than an empty declaration.

GovGuam notes that APL next asserts that when GovGuam stipulated that it was not making an individualized rate case-such as was rejected with respect to the 18 rates in Count 2-it was stipulating away its entire reparations case under section 4 of the 1933 Act. GovGuam answers that that stipulation was made in partial compromise of discovery disputes early in the reparations phase of this proceeding, long before GovGuam's evidentiary submission on reparations was filed; that, from the outset, GovGuam's theory of the case was that the excessive carrier returns established that their rates were unreasonably high; that the G.O.-11 analysis was the core of that case; that GovGuam never intended to prove unreasonableness of particular rates (except for the rejected 18 rates under count 2)⁽¹⁵⁾ "with reference to individual commodity rates" and neither intended to nor was required to present the section 4 comparison until the culmination of the reparations phase with the filing of the approved reparation statement, Exhibit 1, to Rule 252, which expressly provides all of the evidence, including the rate paid and the amount in excess of the reasonable rate as required by section 4. GovGuam contends that the Stipulation that APL relies upon was entered into many months before the required evidence was part of the record, and was no more than a truism reflecting the state of the record at the time and the nature of GovGuam's G.O.-11 case, and that to proffer it now as an argument that GovGuam has not fully complied with the requirements of section 4 and Rule 252 is misleading at best.

In response to APL's referring to the reparations calculation prescribed by the Commission's decision as a "regulatory regime" that GovGuam simply "assumes" to exist, GovGuam answers that it is neither "assumed" nor a "regime"; that it is a simple, effective and logical measure for making reparation of unreasonable charges, potentially of the entire amount of overcollections, and is specifically prescribed by the Commission's decision.

GovGuam contends that the Commission's decision contemplates the complainants' methodology; that the methodology would result only in proportional reparations to represented shippers presenting proof of payment of the unreasonable rates; and that GovGuam's remedy is not only completely consistent with these findings, it is expressly prescribed by the discussion already quoted at length at p. 130 of the Commission's Order.

GovGuam notes that APL offers the argument that proportional refunds would confer on a single shipper a power that the Commission itself cannot exercise; that APL continues to characterize the remedy as a "trade-wide refund" and makes the assertion that this constitutes "an exercise of general regulatory power" without regard to the principles of reparations awards. GovGuam answers that it would be exercising no such plenary power; that only represented shippers may receive any refunds; and that, as the Commission has pointed out, this entitlement is, as a matter of law, neither more nor less than that of the Commission itself to challenge existing rates and obtain reparations of unreasonable charges to individual shippers:

[N]othing in the 1916 Act . . . bars GovGuam's cause of action. . . . Indeed, in its Order dismissing Docket No. 89-05, the Commission acknowledged that GovGuam had the same right to challenge the past and present rates of the Guam carriers as the Commission had.

Commission's Order at 50. GovGuam states that the right referred to there is to challenge all the existing rates of a carrier, and was expressly limited by the Commission in the following passage to recover of reparations only by represented shippers. Gov Guam contends that complainants' reparations methodology enforces the plain meaning of the statutes; that APL complains that the approach urged on the Commission by GovGuam is "flatly inconsistent" with "both the basic scheme and the basic purpose of the 1933 Act"; that it is interesting to note what APL does not allege: it does not claim any inconsistency with the letter of the statute; and that there is, of course, a reason for this: GovGuam states that its case is on all fours with the statutory language, and, in such a situation, there is no reason for the Commission to have recourse to context or to legislative history.

GovGuam states that the granting of reparations in this case will not constitute a "retroactive ratemaking"; that reparations represent the disgorgement of ill-gotten gains; that there is a necessarily "retroactive component to any decision that a past practice was illegal; that, in this case, the determination by the Commission of the maximum rate of return allowable to APL in the referenced period-the determination from which the fact and the measure of the illegal overcharges could be inferred-was "retroactive" in that trivial sense; that the Commission did decide the highest rates of return to which APL had a right, eight to ten years after the fact; and that the Commission did not engage in a general rate analysis, nor did it order the "refund" applicable to all shippers. In response to APL's contention that it is completely incongruous to think that a private complainant can exercise general regulatory power to retroactively reduce a carrier's trade-wide rate of return, even though that power was denied to the Commission itself, GovGuam states that GovGuam and the other complainants "exercised" no "power"; they successfully protested illegal behavior, and established the basis on which the Commission may now order fair and effective compensation for the victims of violations of the law.

GovGuam contends that the evidence elicited by APL from the legislative history of the 1933 Act, and its 1978 amendments, sheds no light on the issues now before the Commission. GovGuam states that APL presupposes that the instant case is one of general ratemaking but that is not what the case is about; that the complaint that began the matter did not request a general refund and the Commission did not order one; that what was challenged was not a general rate increase but specific instances of illegal overcharges; and that there was no issue of revising or rolling back a generally-applicable rate structure.

GovGuam states that APL's objection to the "retroactive" nature of reparations as a remedy goes to the very heart of the matter, namely, that in APL's view, it is free to overcharge despite the existence of legal restrictions and no one can ever order it to compensate its victims; and that APL justifies this extraordinary position by complaining that, in the existing regulatory environment (including the proper application of the law by the Commission to cases like this one), it cannot earn the cost of capital that it needs to remain in business.

GovGuam contends that this is not the forum before which to make these arguments; that APL has the right, like every other American person natural or juridical, to disagree with the law, and even to work for its amendment or repeal; that the fault that APL finds with the remedy GovGuam seeks in this case is not in their argument or in any particular methodology that might be applied to measure reparations: it is in the statutory structure itself. GovGuam argues that the law that permits the Commission to identify, adjudicate, and ultimately order remedies for illegal overcharging by carriers is in the cross-hairs of APL's opening brief, and that the Commission therefore should, in a manner with governing law and regulation, and with the consistent interpretation of agencies and reviewing courts, reject the argument that an order of restitution to individual complainants is equivalent to a retroactive general ratemaking.

GovGuam responds to APL's argument, namely, that there is but one case in which the Commission has addressed the availability of reparations based on a rate of return analysis, and in that case the Commission limited the remedy to cases of GRI increases, by contending that APL is mistaken on both counts; that, first, in Matson Navigation Co. Proposed Rate Increases, 19 S.R.R. 263 (FMC 1979) ("Matson 1979"), the Commission decidedly did not limit the remedy to GRI cases; that in the passage relied on by APL, the Commission distinguished between a GRI and a "multi-tiered general increase in rates"; that this case, however, is neither and that Matson 1979 is entirely inapposite; that the instant case is one in which the rates became unreasonable not by virtue of a general rate filing of any kind, but by virtue of changes in carriers' practices and conduct that progressively increased profit margins to the excessive points reached by 1988; that, contrary to APL's assertion, there is one additional Commission case directly on point with respect to the availability of reparations for excessive rates in these circumstances; that that case is, of course, the Commission's decision in this case where the Commission has expressly found that all rates are excessive by the same percentage, expressly including this case in the purview of Matson 1979, citing the Commission's decision at 130; and that, despite the respondents' repeated attempts to deny or ignore that decision, it remains the law of this case, which, as APL has observed, is binding on the parties.

GovGuam states that G.O.-11 is completely adequate notice of the allowable return; that GovGuam's methodology is not only rational, but the law of this case and that the reasons for the excess revenues, apart from unreasonably high rates, are irrelevant; that APL does not cite a single case, under the Shipping Acts or any other regulatory regime, for the proposition that once a rate has been found to be unreasonable, the "reasons" that it was excessive must be considered in determining whether refunds are due; that in making the argument, APL has apparently confused the basis for a finding of unreasonableness with the basis for ordering refunds of unreasonable rates; that, for example, in Virgin Islands Tel. Co. v. FCC, 989 F.2d 1231 (D.C. Cir. 1993), the court held that "once the Commission finds that a carrier has exceeded . . . its prescribed rate of return, it should then consider other relevant factors in determining whether a rate is unreasonable and reparations are warranted" (emphasis by GovGuam); that this is a telling passage, indeed; that, in that case, the admonishment was to consider other factors in determining whether the rate was unreasonable, not in deciding whether reparations were due once unreasonableness had been found; and that that is not applicable here, as the Commission has already found that the rates were unreasonable.

GovGuam states that APL's argument, namely, that imposition of refunds would discourage service and service improvements by carriers, is a policy argument against the refund provisions of the 1916 Act in general, which argument APL may make to the Congress, but it hardly excuses the respondents' clear violation of section 18 of the 1916 Act.

Sea-Land notes that Exhibit 1 to Rule 252 requires that the prevailing complainant set out for each shipment at issue the commodity, the rate as charged and the rate as it "should be"; that the Commission's 1998 Report and Order directed "that the proceeding is remanded to the Administrative Law Judge for a determination of the reparations due Complainants"; that a prevailing complainant was and remains obligated to file a Rule 252 statement with the Commission; and that Rule 252 directs the complainant to identify the commodity, the commodity rate charged and the commodity rate as it "should be" as part of that statement.

Sea-Land notes that GovGuam states that this is a case that proceeds from a finding that the overall level of rates was too high; that the Rule 252 criterion-"the rate that You claim should have been charged for such commodity"-is not appropriate here because this case is dealing with a charge that rates are excessive because the overall revenues are too high, so the rates as a whole are not just and reasonable.

Sea-Land contends that GovGuam ignores not only the Commission's own rules, but it also ignores the negotiated Procedural Order Adopted on Remand as to Reparations issued by the Administrative Law Judge on March 1, 1999, which provided that, as to reparations, "[t]he basic procedure to be followed is set forth in Rule 252 of the Commission's Rules of Practice and Procedure, 46 C.F.R. § 502.252," and that the complainants would submit, 45 days after resolution of discovery, "their entire evidentiary case on reparations, which shall include all data and documents required by Rule 252." Sea-Land urges that GovGuam's refusal to undertake a Rule 252 analysis for purposes of reparations is not supported by either Commission precedent, by the plain language of Rule 252, or by the Procedural Order issued on remand that was crafted with the advice and consent of GovGuam.

Sea-Land notes that the reasons underlying GovGuam's repeated disavowal of the methodology demanded by Rule 252 are as follows:

A challenge against an individual rate could not be based on the rate of return considerations in GO-11, as the FMC noted when it turned down complainants on Count 2 of the complaint, which challenged the rates on 18 individual commodities.

Sea-Land observes that GovGuam rightly asks in this context, "what was the purpose of the 'excess revenue' determination by the FMC? Was it just a fully inconsequential exercise?" Sea-Land's reply is that the result is as "inconsequential" as the structure of the case GovGuam chose to present; that the FMC's Report and Order put a dollar value on the excess revenue earned by Sea-Land; that it did not put a dollar value on the reparations to which each shipper might be entitled if individual harm had been incurred and its economic value quantified; that there is a distinct difference in approach; and that the pro-rata across the board reparations theory advanced by GovGuam would, if applied to every shipper on Guam, result in Sea-Land disgorging the exact amount of that excess revenue without regard to demonstrated economic harm to any individual shipper or the peculiarities of any particular commodity.

Sea-Land contends that GovGuam's assertion that its reparations methodology is designed to "put the carrier into the position it would have experienced but for the overcharge" sets out the fundamental flaw in GovGuam's approach to this phase of the proceeding; that the core purpose of damages is not to put the carrier into the position it would have been in but for the overcharge, but to put the shippers, not the carrier, into the position they would have experienced but for proven economic damage caused by a violation of law. Sea-Land contends that GovGuam's attempt to punish the carriers rather than compensate shippers for real, verifiable economic harm enforces the view that the reparations theory utilized by GovGuam is an inadequate basis upon which to base an award of reparations, citing a fundamental precept that:

[the] basic purpose of the law of damages is to restore the injured person to the position he or she was in prior to the violation of law or to the same economic position he or she would have been in if the injury had not occurred. 22 Am Jur 2d, Damages, sec. 26; Barnes v. United States, 685 F.2d 66, 69 (3d Cir. 1982); Affiliated Foods v. Puerto Rico Marine Management, 645 F. Supp. 838, 840 (D.P.R. 1986).

Brewer v. Saeid B. Maralan (AKA Sam Bustani) and World Line Shipping, Inc. (Docket No. 99-19), 2000 WL 126793 (I.D. 2000).

Sea-Land argues that GovGuam has not established a mechanism by which this court could determine the difference between the rate actually paid for a container-load of potato chips and a just and reasonable rate for that commodity, and that there has been no quantification of economic harm suffered by any particular shipper.

Sea-Land states that the failure of GovGuam's case with regard to damages is described most succinctly by GovGuam itself, and that Dr. Nadel recites that:

I have considered whether an alternative method for determining by how much each shipment's freight rates were excessive could be to spread the carrier's trade-wide excess revenues proportional to the physical measure of the cargo, rather than (as I have done above) proportional to the financial (revenue) measure of the cargo. I rejected this alternative method. The serious problem with this method is that there is a significant variance in the physical unit of measurement and rating of the cargoes-i.e., in how the revenue, and therefore the excess revenue, was generated in the first place. Some cargoes were charged on the basis of weight tons, some on the basis of measurement tons, while other cargoes were charged on the basis of container load. In addition, the containers varied by whether the container unit was 20-feet, 40-feet or 45-feet in length, whether 8 feet, 8 ft 6", 9 ft., or even 9 ft 6 inches in height. Thus, use of the physical dimensions of the cargo risks producing difficult measurement problems and incompletely understood results; the results would also be unsatisfactory and unreasonable because they are not related to the way excess revenues were generated. There is no evidence to indicate whether such a physical based distribution of the damages would create a greater or less total damages suffered by complainants, compared to the revenue-proportional method I have used.

citing GovGuam Brief at 31-32.

Sea-Land urges that these commodity-based variances are precisely the factors Sea-Land contends were balanced in the process of setting the commodity rates; that GovGuam admits that all these factors create a significant variance in the "rating of the cargoes, i.e., in how the revenue, and therefore the excess revenue, was generated in the first place," Id. Sea-Land states that this is exactly Sea-Land's point; that if, in fact, there are significant variances in how rates are originally assessed, there must be significant variances in the quantum of damages available for shipments of differing cargoes moving under differing rates. Sea-Land contends that GovGuam blithely insists that the results of a rate-specific rather than revenue-specific approach to damages would produce results that "are not related to the way the excess revenues were generated"; that, in fact, finding the correlation between how rates were set and excess revenue is exactly what GovGuam was obligated to do in this phase; and this is also exactly what it has failed to do.

Sea-Land points out that its total revenues were not earned monolithically as the result of a decision by Sea-Land management to earn a specific rate of return; that they were earned shipment-by-shipment as an accretion of more than one hundred individual commodity rates; that the G.O.-11 rate of return is an historic, retrospective calculus determined long after the shipping transactions that were the essence of the relationship between each complainant and the ocean carrier; that the revenues earned by Sea-Land were derived as the result of a series of individualized, atomized product-specific rate-setting decisions made by Sea-Land's pricing department frequently after consultation with individual shippers; and that as long as Commission precedent requires a showing of specific damage as a prerequisite to an award of damages in rate reasonableness cases, an examination of these factors remains an integral part of the complainants' burden of proof.

Sea-Land contends that GovGuam admits that the cargoes shipped on Sea-Land to the named complainants consisted of a variegated cargo mix; that yet GovGuam insists that reparations be handled in a manner that effectively treats potato chips in exactly the same manner as a container of furniture; and that cargoes, unlike kilowatts of electricity, are not fungible and the reparations analysis must take this into account.

Sea-Land states that iced tea is different from rice, which in turn is different from furniture; that the rates charged by Sea-Land reflected the differences in the characteristics of those products; and that, consequently, any approach to damages that does not consider these differences will invariably fail to serve the purpose of damages which is to compensate the injured party with specificity.

Sea-Land contends that the mere fact that GovGuam keeps repeating that it is entitled to reparations, without more, does not meet the burden of proof required of plaintiffs seeking damages, citing Gladish & Associates v. Sea-Land Service, Inc., 20 S.R.R. 708 (FMC 1980) (reconsideration of Commission decision denying reparations for failure of complainant to meet its burden of proof where complainant merely reargued its position).

Sea-Land states that GovGuam also attacks Sea-Land's suggestion that a damage calculation could estimate the "but for" rates, i.e., what each rate would have been if the carriers had been responsible and had readjusted rates so as to keep revenues at allowable levels; that GovGuam argues that this calculation is not required by the statutes, the regulations, nor the Commission's decision; and that the Commission's decision implicitly bypassed the examination of these factors. Sea-Land replies that GovGuam fails to provide any support for the notion that the results would not differ, and that there is not, nor can there be any support for the assertion that a commodity-specific analysis would achieve the same result as Dr. Nadel's theory of damages.

Sea-Land notes that the only support for GovGuam's reparations methodology is GovGuam's argument that damages in this case are analogous to rate rollbacks in G.R.I. proceedings, and Sea-Land argues that GovGuam's failure to support its reparations demand with reference to any Commission or federal court law represents a failure to comprehend its own burden of proof.

Sea-Land argues that GovGuam fails to recognize that the FMC decision was focused on overall rate reasonableness; that because damages are being awarded on individual bills of lading, overall rate reasonableness is no longer at issue but that the individual rates are; and that, thus, an individualized approach is necessary.

Sea-Land states that the percentages Dr. Nadel proposes to use to calculate damages are "different for each carrier, resulting in an unrealistic rate structure"; that "historic experience shows that in the Guam trade rates on the same commodities were normally the same for the two carriers"; that, however, Dr. Nadel necessarily applies different overcharge percentages to Sea-Land and APL; that "Applying different percentage rate reductions to these carriers would mean that on a retroactive basis the rate structures would no longer be the same"; that "these rate differentials are unlikely to be sustainable in a two-carrier trade" because such a retroactive decrease "would lead to rates that would give one carrier a continuing competitive advantage over another"; and that "this result itself calls into question Dr. Nadel's entire procedure for allocating damages since it is a fundamental predicate of damage estimation that damages must be calculated in reference to a but-for world that could actually have existed," citing Joskow at 28-34.

Sea-Land notes that GovGuam attacks both of these arguments by claiming that this case is not retroactive ratemaking and that Dr. Joskow is confusing the concept with maximum rates; that, "in practice, regulators have avoided tight rate of return regulation" in favor of instituting a form of "incentive regulation," citing Joskow at 345; and that GovGuam argues that Dr. Joskow ignores the particularities of the Guam trade and therefore his comments have no proper basis here.

Sea-Land states that Dr. Joskow argues that Dr. Nadel's method leads to arbitrary results in at least two ways, first, that "the allocation of excess revenue on a proportional basis to the complainants is based on an arbitrary notion of the 'but for world' in which the 'correct' rates are a fixed percentage below the existing rates; that, given the wide variety of commodities and rates in the tariff, it would only be by chance that this method would pay damages to any shippers that truly faced rates that were too high"; and that "if used on a regular basis, the proportionate allocation of damages would encourage frivolous damage claims by those not actually damaged, while under-compensating any shippers who were truly damaged."

Sea-Land states that Dr. Joskow again addresses "but for" price in his affidavit by stating that "the damage measure should not be based on speculation. The application of a single percentage overcharge methodology assumes 'common impact' across shippers. But, shippers' rates are clearly impacted by market factors that Dr. Nadel's analysis completely ignores"; that Dr. Joskow then discusses "but-for" price in the context of antitrust damages cases, stating that "But-for prices allow each individual customer to receive reparations for the actual damage they incurred"; and that "it is a common practice in antitrust to calculate damages with different damage percentages for each individual customer and product," citing Joskow at 44-45.

Sea-Land notes that GovGuam claims that estimating the "but for" rates is an irrelevant exercise from the perspective of having the carriers disgorge their excess profits, and that it is not required by the statutes, the regulations, nor the Commission's decision. In response to GovGuam's statement that "The injury in this case is the payment of a rate higher than the just and reasonable, and full reparation is the difference between the rate actually paid and the just and reasonable rate," Sea-Land argues that estimating a "but for" rate would allow the parties to arrive at a just and reasonable rate by which to compare the rate actually paid.

Regarding GovGuam's contention that Dr. Joskow's use of the antitrust context and its "but-for" requirement is wrong, that liability and total damages have been proved, and that the only purpose of this damages hearing is to distribute the damages across the complainants, Sea-Land replies that, however, GovGuam is wrongly arguing that Dr. Joskow is analyzing "antitrust liability" when in fact he is referring to "damages" calculations; and that while GovGuam claims that the "but for" analysis Dr. Joskow refers to is used to determine liability, it provides no support for this claim.

Sea-Land notes that GovGuam cites four Federal Energy Regulatory Commission ("FERC") cases to support Dr. Nadel's adjustment to the carriers' rates to account for taxes. Sea-Land contends that a review of the FERC cases and the nature of those cases support the general proposition advanced by Sea-Land that GovGuam continues to seek damages for reasons not causally connected to the law of damages. Sea-Land states that, according to GovGuam, in order to adjust for an over collection of net revenue, a rather greater amount of gross revenue, which reflects the tax effect associated with the over collected revenue, must be returned; that, otherwise, the carriers would be giving up the net amount of the return adjustment but retaining as additional profits the taxes that would otherwise have been paid on the excess revenue. Sea-Land states that GovGuam relies on Lakehead Pipe Line Co., 71 F.E.R.C. ¶ 61,338 at 62,313 (1995), to support its argument that the carriers' rates should be adjusted to account for taxes; that, in Lakehead, FERC stated that in determining a natural gas pipeline's cost-of-service, FERC would include an allowance for state and federal income taxes based on corporate income tax rates to ensure that the pipeline would have the opportunity to earn its allowed after-tax return on equity; that, thus, the income tax allowance is no different from the allowance for any other cost; that, according to FERC, a regulated entity cannot collect through the tax component of its cost-of-service an amount greater than its actual tax liability; that, if FERC were to allow an excessive or deficient tax allowance, this would distort the regulated entity's opportunity to earn its return on equity either to its benefit or detriment with the opposite result to its ratepayers; that, thus, FERC ruled that a limited partnership should not receive an income tax allowance in its cost-of-service with respect to income attributable to limited partnership interests held by individuals because those individuals do not pay a corporate income tax; and that, in short, because no tax would actually be incurred (or paid), it could not be recovered as cost-of-service.

Sea-Land states that the remaining three FERC cases that GovGuam cites support the general proposition that firms are permitted an appropriate tax allowance when determining cost-of-service and what a firm may recover through its rates.

Sea-Land contends that, in the instant case, GovGuam argues that the revenues earned by APL and Sea-Land were too high; that if APL and Sea-Land are required to pay reparations, which reflect rate overcharges derived from that excessive revenue, carrier revenue for the periods at issue will decrease; and that a decrease in revenue would also mean a decrease in tax liability, for which GovGuam argues that the ALJ must account and include in reparations.

Sea-Land contends that, while these cases explore how to establish properly a rate by accounting for various costs, including taxes, they do not provide a methodology for examining tax effects on excess returns, revenues or rates.

Sea-Land states that Dr. Nadel argues that "each carrier's excess pre-tax return is the excess revenue-i.e. the 'unjust and unreasonable' charges-paid by the Guam shippers and consignees to the carrier." Sea-Land contends that, however, the pre-tax return is in fact a number that reflects the carriers' net income (revenue minus expenses) before deducting income taxes, which may not necessarily be the equivalent of excess revenues; that, moreover, as Dr. Joskow argues, the proper treatment of taxes depends on what the reparations are trying to accomplish; that "If the goal is to separate the carriers from the excess profits (or excess net income) they allegedly earned during the 1988-1990 period, then they should pay the amount equal to those excess profits"; and that excess profits equals the difference between after-tax net income that generates the earned rate of return minus the after-tax net income that generates the allowed rate of return, and therefore no grossing up to pre-tax return is necessary.

Sea-Land notes that, in response to Dr. Joskow's affidavit, GovGuam argues that Dr. Nadel's tax adjustment would "put the carrier into the position it would have experienced but for the overcharge," whereas the absence of a "gross up" would put the carrier in the position of still having overcharges, citing GovGuam at 36. Sea-Land contends that this argument assumes that Dr. Nadel's equiproportional-to-revenue theory for determining the overcharges is correct and that a "gross up" can be cleanly done to adjust those overcharges to pre-tax revenues; but that, however, GovGuam has failed to provide any proof that the equiproportional theory and the tax "gross up" can correctly put the carriers into the position they would have experienced but for the alleged overcharges.

APL states that GovGuam claims that the Commission has already decided that it is entitled to reparations using Dr. Nadel's single-percentage methodology based on the following passage from page 130 of the 1998 decision, which passage states: "If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage. In other words, the eighteen commodity rates would be excessive by the same percentage as every other commodity rate in the tariff. Likewise, any reparations would be borne equally by each commodity rate including the eighteen commodity rates in question."

APL states that the 1998 decision cannot be read to be determinative of reparations issues because, early on, the proceeding was bifurcated, at GovGuam's request, so as to defer reparations issues until a second phase; that, due to the bifurcation, at the time of the 1998 decision the parties had not made, and the Commission did not have before it, a record on which reparations issues could properly be decided, citing the D.C. Circuit's decision in Verizon Telephone Companies v. FCC, 269 F.3d 1098, 1112 (D.C. Cir. 2001) ("Verizon"), where the Federal Communications Commission had held that certain regulated companies had violated the relevant statute; that the agency had considered and "reject[ed] defendants' arguments asserting they should not have to pay damages," but had gone on to bifurcate the proceeding and to order further procedures so the parties could address how to prove and calculate the amount of damages; that the D.C. Circuit found that the effect of this bifurcation was to render tentative and non-final the agency's statement that the respondents should pay damages, so that the companies could still argue-and the agency could still determine-that the companies should not be required to pay any damages, citing 269 F.3d at 1112; and that, in short, the agency's statement concerning reparations in the first phase of a bifurcated proceeding could not be finally determinative of reparations issues.

APL states that, in Verizon, the bifurcation of the agency proceeding did not occur until the agency's decision at the end of an administrative proceeding that addressed both liability and damages, so that the defendants had already presented their cases with respect to the issue of damages; that, here, in contrast, the proceeding was bifurcated very early, before respondents submitted any testimony; that thus, at the time of the FMC's decision in Phase 1, respondents had not had the occasion or the opportunity to submit evidence focused on reparations issues (such as the Joskow affidavit submitted in Phase 2) or to provide focused briefing on reparations issues (such as APL's opening brief in Phase 2); and that there are numerous factual considerations and legal arguments centrally relevant to reparations issues that APL, due to the bifurcation order, had not put before the Commission in Phase 1.

APL contends that it would violate respondents' due process rights to deem the central reparations issues to have been decided on the basis of the record in Phase 1, citing also In re Julien Co., 146 F.3d 420, 415 (6^th Cir. 1998), where the court of appeals held that it violates due process for a trial court to decide prematurely an issue that was set to be tried in a later phase pursuant to a bifurcation order, because such a procedure deprives the parties of their due process entitlement to notice of the issues to be addressed and an opportunity to be heard through the presentation of evidence and argument.

APL reiterates that GovGuam's position is contradicted by two other passages from the 1998 decision that "reject GovGuam's legal theory that a rate of return analysis can be used to determine the reasonableness of individual commodity rates," and that these passages state:

[B]ecause Sea-Land is correct in arguing that there is no nexus between the reasonableness of overall revenues and the reasonableness of individual commodity rates, GovGuam's burden as to this element of its case is to prove that the individual commodity rates are unreasonable. Accordingly, GovGuam cannot rely on a finding that overall revenues are unreasonably high to establish the unreasonableness of individual commodity rates. 1998 Dec. p. 54.

[W]e reject GovGuam's legal theory that a rate of return analysis can be used to determine the reasonableness of individual commodity rates. . . . In rejecting a rate of return analysis as an appropriate standard to evaluate the reasonableness of the eighteen rates [specified in count II of the complaint], the Commission does not wish to imply that GovGuam could not have challenged these rates. However, any challenge of individual commodity rates must focus on the rate making factors traditionally considered in fixing such rates. Id. at 131 & n. 46.

APL argues that these two passages result in a large ambiguity on the face of the 1998 decision that refutes GovGuam's claim that that decision spoke clearly or definitively on the key reparations issues; that, moreover, if one were forced to choose between the dueling quotations, a careful parsing of the language would result in a conclusion that is the opposite of complainants', as Sea-Land has persuasively argued, citing Sea-Land br. pp. 6-7.

APL contends that the decision whether to award reparations for a Shipping Act violation requires consideration of a range of factual, policy and equitable considerations; that the 1998 decision did not purport to address those considerations; that it is not reasonable to think that the Commission would or did intend, in ambiguous passages in the 1998 decision, to preempt its own future consideration of such matters on review of the initial decision in the remand proceeding ordered by the same decision; that the Commission stated that the remand proceeding would be subject to Rule 61 and would result in an "Initial Decision," thereby indicating that the Commission recognized that substantive issues remained to be decided, citing 1998 Order at 132; and that GovGuam's reading of the 1998 decision would result in the overruling, sub silentio, of the only prior Commission decision to address the question of reparations based on a finding of excessive rate of return, namely, Matson 1979.

APL states that even looking narrowly at GovGuam's passage from the 1998 decision in isolation, the passage does not support GovGuam's attempted interpretation of it; that GovGuam's interpretation fudges the difference between two issues; that one issue is whether (and if so how) the Commission's finding about annualized trade-wide excess rate of return can be translated into findings about the amount-if any-by which any particular commodity rate was unreasonable at the time of any particular shipment; and that a second issue is whether reparations should be awarded based on the wide variety of factual, policy and equitable considerations that must enter into a decision whether to award reparations under the Shipping Act. APL states that the passage, quoted earlier at page 98, on which GovGuam relies is relevant only to the first issue, i.e., the passage talks about whether individual commodity rates would be excessive by a uniform percentage, but it nowhere addresses the second issue of whether reparations should or must be awarded; that the only sentence in the passage that evens mentions reparations refers to "any" reparations, thus leaving open the question, to be resolved in Phase 2, of whether a reparations award is warranted; that an award of reparations does not automatically follow from a finding of violation of the 1916 Act; and that, in the circumstances here, there are a large number of compelling factual and legal reasons why complainants should not be awarded reparations even assuming arguendo that the Commission's finding of excessive trade-wide annualized rate of return could be translated into findings that particular commodity rates were unreasonable by particular amounts.

APL adds that, even with respect to the issues to which it is arguably relevant-the use of a single percentage to determine the unreasonableness of individual commodity rates-the passage from the 1998 decision does not support GovGuam's position; that the passage states that "each commodity rate in the tariff would be excessive by the same percentage"; but that it does not say by what percentage, as GovGuam's own brief acknowledges when it states:

It is important to note here that the Commission did not find the amounts by which APL or Sea-Land's cargo rates and charges exceeded the just and reasonable levels. The Commission expressly limited its findings to the amounts by which the carriers' revenues allowed them unreasonably high returns." Comp. Br. p. 4.

APL states that neither Dr. Nadel's affidavit nor GovGuam's brief even attempts to identify a percentage that would fit the passage in the 1998 decision on which they rely; that the passage is focused on "commodity rates" (1998 decision p. 130); but that complainants have specifically eschewed any consideration of commodity rates,

APL contends that Dr. Joskow's affidavit explained that Dr. Nadel's reparations methodology was economically unreasonable because it automatically equated G.O.-11 trade-wide "excess" revenue with damages, without considering the reasons for the excess; that, in APL's case, the excess was caused in very large part by identifiable factors that reflected desirable APL conduct (e.g., major service improvements) that resulted in substantial benefits, not harm, to Guam shippers, and that therefore cannot reasonably be considered to result in damages. APL notes that GovGuam's brief repeatedly claims that such considerations are irrelevant as a matter of law; that GovGuam does not cite a single case to support this legal position. APL contends that the case law establishes that grant of reparations under the Shipping Act, 1916, is permissive not mandatory; that the Commission has discretion-and a duty-to consider a wide range of factors, including but not limited to the policies of the Act and the nature of the underlying carrier conduct; that in the only previous case in which the Commission has considered reparations for statutory "violation" based on excessive rate of return-Military Sealift Command v. Matson Navigation Co., 21 S.R.R. 459 (FMC 1982)-the Commission made clear that equitable and policy factors are properly considered; and that consideration of such factors, including the reasons for "excess" return, is also required by U.S. regulatory law more generally.

APL states that GovGuam ignores its own testimony and brief to the Commission; that, during Phase 1, Dr. Nadel testified that revenue increases caused by changes in commodity mix do not, in principle, support a conclusion that rates were unreasonable.

APL contends that the Supreme Court's decision in Consolo v. Federal Maritime Commission, 383 U.S. 607 (1966), held that factors to be considered by the Commission in exercising its discretion under section 22 include the policies of the Act, consistency with prior agency interpretations of the Act, and the "culpability" of the carrier.

APL notes that GovGuam claims that, by asking the Commission to consider the factors that caused the G.O.-11 "excess" revenue, APL is relying on a "passivity" excuse, i.e., they try to make it seem that APL sat back and did nothing while trade conditions changed in ways that benefitted APL. APL responds that it was hardly passive in the Guam trade; that it continuously upgraded and improved its service, and the very actions it took to improve service and benefit shippers wound up being the direct cause of a very large portion of the "excess" revenues which complainants seek to equate with damages, e.g., the improved commodity mix resulting from favorable shipper reaction to APL's improved service and the G.O.-11 accounting treatment of the leased vessels that enabled APL to provide the improved service.⁽¹⁶⁾ APL contends that the issue is not whether APL benefitted from passivity, but whether APL is to be penalized for actively upgrading its service; that APL began the process of improving its service when its rate of return had been below the "allowable" level over a two-year period (according to the G.O.-11 methodology used by the Commission in the 1998 decision); and that GovGuam has never answered the question: How can it be reasonable to award reparations based on the proposition that a carrier, starting from a baseline of inadequate revenue, should sharply reduce rates at the same time it was greatly improving service?

APL notes that GovGuam claims that its position is fair because it works both ways, i.e., just as a carrier is required (according to GovGuam) to reduce its rates when market factors such as commodity mix change so as to increase the G.O.-11 calculation of rate of return, a carrier is permitted to increase its rates when market conditions change so as to reduce the carrier's calculated return; that, in complainants' view, this makes their position fair.

APL states that this statement only serves to illustrate a basic flaw in GovGuam's position; that in all of the eventualities posited by GovGuam, the carrier could, obviously, consider increasing its rates but any rate increase could only be prospective; that if a carrier achieves less than the G.O.-11 "allowable" revenue in any year, it cannot retroactively increase rates for shipments during that year; that, indeed, under the 1933 Act regime the carrier could not even prospectively implement a general rate increase that included an amount designed to make up for the earlier shortfall; that, in contrast, under GovGuam's proposed regulatory regime, if revenues exceeded the "allowable" amount in any year-regardless of the reason-rates for all shipments during that year would be retroactively reduced; and that this is the antithesis of a two-way street and is impermissible as a matter of both law and policy.

In regard to complainants' claim that APL should have adjusted its Guam rates on an ongoing basis so as not to exceed its "allowable" annual return in any year, APL states that (a) APL at the time did not know how to calculate its "allowable" Guam trade revenue or return so there was no target to shoot for; that (b) even if APL somehow had known in advance what its "allowable" revenue and return were for an upcoming year, APL could not have established rates as of January 1 that would achieve the allowable revenue, given (i) the impossibility of predicting the myriad events-both in the Guam trade which was in great flux, and in APL's fast-changing transpacific foreign trades-that could, and did, substantially affect the G.O.-11 equation, and also given (ii) the 240-day time lag before a statutorily defined general rate increase or general rate decrease could be effective; and that (c), in any event, APL's ability to adjust its rates was significantly limited by Sea-Land's rates, which would have been significantly different from APL's rates under the world that GovGuam seeks to construct retroactively.

As to GovGuam's suggestion that, when unforeseen developments in September caused APL to change its planned deployment in a way that significantly reduced the annual G.O.-11 rate base, APL could and should have reduced rates in time to make the G.O.-11 equation come out at the "allowable" level for the year, APL answers that that would have been a neat trick, given the 240-day statutory time lag for the required general rate reduction, and that, moreover, the concept of GovGuam's suggestion, under which shipments in the last quarter of the year would be charged much lower rates than shipments in the first three quarters, is inconsistent with their notion that a single reparations percentage should apply to all shipments during the year.

APL states that GovGuam claims that "[t]he carriers knew very well what were the G.O.-11 requirements for computing the allowed rate of return and the allowed revenues," and that GovGuam points to APL's 1987 and originally-filed 1988 G.O.-11 annual reports as evidence that APL knew how to prepare a fully distributed cost analysis in accordance with standard G.O.-11 methodology. APL states that this is a non sequitur, because even if APL had known how to apply the standard methodology, that would not be relevant to the issue of whether the standard methodology was considered at the time to provide a meaningful evaluation of APL's Guam service; that GovGuam's reference to APL's 1987 and original 1988 annual reports-which GovGuam has repeatedly excoriated as containing major methodological errors-merely serves to reinforce the point that there was large uncertainty at the time as to how to prepare a G.O.-11 FDC report for a service such as APL's; that the uncertainty is apparent from the large disparity between the rates of return calculated by APL in its annual reports, by Dr. Nadel in his testimony which purported to faithfully implement the regulations, and by the Commission in the 1998 decision; and that no one knew whether and/or how the G.O.-11 fully distributed cost methodology applied to APL's Guam service until the Commission issued its Phase 1 decision in 1998.

As to GovGuam's claim that their "disgorgement" regime was part of the regulatory compact that the carriers signed onto when they entered the Guam trade, APL replies that the regulatory compact was embodied in the terms and scheme of the 1916 and 1933 Acts which do not provide for retroactive adjustment of pre-existing rates (as opposed to a GRI) on rate of return grounds.

APL states that it is relevant to note that the concept is a non sequitur in the context of this case, in which only a small handful of shippers are participating, and that GovGuam's trade-wide "disgorgement" concept does not apply here.

APL emphasizes that over 93 percent of the reparations claims against APL have been dismissed with prejudice; that there are only 37 APL shipments at issue (out of 35,000 APL FEUs covered by the G.O.-11s for the relevant years), which account for one tenth of one percent of the G.O.-11 revenues; and that reparations for those shipments cannot be justified, or calculated, based on the fiction of trade-wide disgorgement.

APL states that GovGuam strains to make a distinction between "a damage allocation hearing," which it says this is, and a retroactive rate reduction or rollback hearing, which it says this is not; that damages are viewed as the refund of money to shippers without determining what the commodity rates for particular shipments should have been; that GovGuam seems to be saying that, so long as it does not attempt to specify what the particular commodity rates should have been, it cannot be accused of retroactively reducing rates; that GovGuam takes the position that it does not need to defend the real-world implications of the regulatory regime it proposes; and that it claims that it does not matter that its reparations methodology would retroactively result in significantly different rates for the carriers in a two-carrier trade, which could not and would not have occurred in the real world because it is purportedly only "allocating damages," not changing the rates.

APL responds that the payment of damages for particular shipments would, by definition, have the effect of retroactively reducing the rates for those shipments; that the carrier received specific amounts for specific shipments, and it would wind up receiving smaller amounts-by definition reducing the rates; and that GovGuam cannot justify the fact that the retroactively reduced rates are unrealistic and unsupportable by pretending that damage allocation to particular shipments has nothing to do with the rates for those shipments.

APL states that GovGuam contends that, because they are only allocating damages (resulting from the trade-wide revenue produced by all rates), individual rates are not relevant at all, i.e., "this case is not a challenge to individual rates"; that, for this reason the requirement of Commission Procedural Rule 252-that a complainant seeking reparations identify the rate that "should have been charged for each commodity"-"is not appropriate here." APL responds that this is yet another admission by GovGuam that its "damage allocation" methodology does not meet the statutory requirement for an award of reparations, because the Rule 252 requirement mirrors the prerequisite for a reparations award specified in section 4 of the 1933 Act.

APL states that GovGuam concedes that Dr. Nadel's damages methodology would not result in the payment of "but for" rates, i.e., the rates that would have existed if the carriers had earned only their "allowable" return. APL states that GovGuam claims that this is justified by analogy to antitrust law, under which, it claims, "but for" prices are used in establishing liability but not in measuring or apportioning damages; that this claim is advanced without citation to a single antitrust case, antitrust treatise, or other authority; that Dr. Joskow, the former Deputy Assistant Attorney General for Economics in the Antitrust Division of the Justice Department, explained-in response to Dr. Nadel's reliance (also without citation) on purported antitrust doctrine-that damages are indeed determined in antitrust cases by the use of "but for prices," citing Joskow Aff. p. 45-46; and that authoritative commentators on antitrust law explain that: "[A]ntitrust damage calculations necessarily require a determination of what would have been in a 'but for' world." * * * "The guiding principle is that the antitrust victim should recover the difference between its actual economic condition and its 'but for' condition"; and "In an overcharge case . . . the usual measure of damage is the difference between the illegal price that was actually charged and the price that would have been charged 'but for' the violation, multiplied by the number of units purchased," citing 2 Areeda & Hovenkamp, Antitrust Law §§ 391a, 391b (2d ed. 2000) (emphasis added by APL).

APL states that as to the issue of whether any reparations should be calculated on a pre- or post- tax basis, the object would be to put the carrier in the position it would have experienced if it had earned only the "allowable" revenue for the year; and that, by definition, this refers to the carrier's after-tax net revenue. APL states that GovGuam throws out a series of numbers in an attempt to show that grossing reparations up to pre-tax dollars would put the carrier in the position it would have been in if it had earned only the "allowable" revenue; that GovGuam argues that the "excess revenue disgorgement" should be $8,998,992. APL responds that that would not put the carrier in the position it would have been in if it had earned the "allowable" return, because the carrier already paid 40 percent of the $8,998,992 to the government in tax; that GovGuam would make the carrier "disgorge" money that it did not keep, thereby putting it in a worse position than if it had earned the "allowable" return.

GovGuam cites four Federal Energy Regulatory Commission cases, which it suggests stand for the proposition that reparations must be "grossed up" to pre-tax figures. APL replies that none of those cases, however, speaks to that issue; that, instead, the cases concern the proposition that when initially setting an allowable rate of return it is necessary to include an allowance for taxes that the company will pay; and that none of the cases contains any discussion about the entirely different question of whether, if a refund of excess earnings is ordered many years later, it is appropriate to make the company refund not only the excess earnings it retained, but also the amounts it paid to federal and state taxing authorities.

APL states that for the foregoing reasons and the reasons given in APL's opening brief, complainants' reparations claims must be dismissed.

The Commission also remanded this proceeding "to permit GovGuam to quantify the port-to-port containers handled by Sea-Land after it withdrew from the Guam Rate Agreement and to permit the named complainants to prove injury and damages as a consequence of Sea-Land's failure to file a tariff with the Commission covering the movement of port-to-port shipments in violation of section 2 of the 1933 Act, 46 U.S.C. app. § 844." (Footnote omitted.) June 1, 1998 Order. Id. at 40. The Order also stated, ". . . the Commission rules that cargo tendered by shippers directly to Sea- Land at Sea-Land terminals is port-to-port and is subject to the Commission's jurisdiction. The proceeding is remanded for a determination of the number of containers that fall within this category." Id. at 46. The Order also stated, "Finally, the Commission finds that while it does not have jurisdiction over transportation between Hawaii and Guam that involved inland transportation beyond the port of Agana, it nevertheless does have jurisdiction over port-to-port cargo that did not move pursuant to a joint-through arrangement with a Guam motor carrier. The proceeding is remanded for a determination of the number of containers, if any, falling within this category." Id. at 46. The Order concluded that the proceeding is remanded "to quantify the number of Sea-Land containers subject to the Commission's jurisdiction and as to which reparations may be awarded to Complainants." Id. at 132.

Despite the foregoing invitation by the Commission for GovGuam to quantify the number of described containers, GovGuam has not provided any such evidence in Phase II and has made no effort to address the matter which it raised in its Exception No. 2. As Sea-Land states in fn. 7 of its opening brief, "in the absence of any jurisdictional predicate GovGuam is foreclosed from seeking reparation for any post-June 23, 1989 shipments." GovGuam did not respond to this in its reply brief. This office has no separate capability to obtain the requested information and in the circumstances the contentions of GovGuam, raised earlier in its related Exception No. 2 as to jurisdiction, will be considered as abandoned and will not be further considered. Cf. Baer Bros. v. Denver & R.G. R.R., 233 U.S. 479, 491 (1914) (other assignments of error were not discussed in the railroad's brief and they were treated as abandoned).

In Count I, GovGuam alleges that, in violation of section 18(a) of the Shipping Act, 1916 ("1916 Act"), 46 U.S.C. app. § 817(a) (amended 1984), and section 2 of the Intercoastal Shipping Act, 1933 ("1933 Act"), 46 U.S.C. app. § 844 (amended 1984), respondents charged unjust and unreasonable rates pursuant to tariffs filed with the Commission.⁽¹⁷⁾

Judge Joseph N. Ingolia (who had been initially assigned to handle this proceeding) dismissed that portion of the complaint seeking reparations on behalf of all similarly situated Guam shippers on the ground that only those who paid unreasonable rates are entitled to reparation.⁽¹⁸⁾

GovGuam's direct case relied heavily on an analysis of respondents' financial results, which generally followed the rate of return methodology prescribed by the Commission's regulations at 46 C.F.R. Part 552 (1994) ("G.O. 11").⁽¹⁹⁾

Pertinent to the reparation issue, the Commission's June 1, 1998 Report and Order further explained at 48-56:

2. GovGuam

GovGuam appears to concede that the 1933 Act only authorizes Commission-instituted proceedings and not private challenges to a carrier's overall rate of return. However, it observes that section 22(a) of the 1916 Act states:

That any person may file with the board a sworn complaint setting forth any violation of this Act by a common carrier by water in interstate commerce . . . and asking reparation for the injury, if any, caused thereby.

GovGuam states that the Commission has recognized that section 18 of the 1916 Act requires a carrier's rates to be just and reasonable. It argues that there is nothing in either the 1916 Act or the 1933 Act that prevents a private party from filing a complaint alleging that a carrier's overall rate of return is violative of section 18, and seeking reparations.

3. Disposition

GovGuam's reading of the statutes is correct. There is no express prohibition against a private action challenging a carrier's overall rate of return pursuant to sections 18 and 22 of the 1916 Act. . . .

However, there is no cause of action under section 3 of the 1933 Act, which applied only to new rate filings. The rates at issue in this proceeding were in effect at the time the complaint was filed. This is of some significance because, unlike section 3 of the 1933 Act, section 22 of the 1916 Act, as amended by section 4 of the 1933 Act, only provided for reparations to complainants. See Mar-Mol Co. and CopyCorp. v. Sea-Land Service, Inc., 27 S.R.R. 1085, 1089 (1997). By contrast, section 3 of the 1933 Act, which applied to general increases in rates, provided that upon a finding "that any unsuspended portion of the increase is not just and reasonable, the Commission shall order the carrier involved to refund to any person who was charged on the basis of such general increase an amount equal to that portion thereof found to be not just and reasonable plus interest." (Emphasis in original.) There is also nothing in section 22 of the 1916 Act that would permit a governmental entity such as the Government of Guam to seek reparations on behalf of shippers that were not named as complainants. Accordingly, the Commission concludes that only named complainants may obtain reparations in this proceeding. (Footnote omitted.)

In summary, the Respondents' Protective Exceptions are denied. The Commission rules that a complaint case may challenge a carrier's overall rate of return under sections 18 and 22 of the 1916 Act. The Commission further rules that because the rates at issue in this proceeding were in effect when the complaint was filed, there is no cause of action under section 3 of the 1933 Act. Finally, the Commission determines that only named complainants may secure reparations in this proceeding. Id. 48-51.

D. Burden of Proof on Methodology to Apply (Footnote omitted.)

3. Disposition

As Respondents correctly point out, Complainants have the ultimate burden of proof or the burden of persuasion in this case. This is true with respect to both the general level of rates and the reasonableness of the individual commodity rates identified in Complaint Count II. Moreover, because Sea-Land is correct in arguing that there is no nexus between the reasonableness of overall revenues and the reasonableness of individual commodity rates, GovGuam's burden as to this element of its case is to prove that the individual commodity rates are unreasonable. Accordingly, GovGuam cannot rely on a finding that overall revenues are unreasonably high to establish the unreasonableness of individual commodity rates. Id. 52-54.

At pages 128-132 of the Order, the Commission found that the respondents earned excessive rates of return in the years at issue and remanded the proceeding, stating as follows:

2. Conclusions Regarding Rates of Return

The Commission finds that the rates of return earned by APL in the FMC-regulated Guam trade during the years 1988, 1989, and 1990 as shown in Appendix 9, Rate of Return for APL, exceeded the allowable (benchmark) rates of return by the amounts shown in Appendix 10, APL's Excess Return Earned in the Guam Trade. The Commission also finds that the rates of return earned by Sea-Land in the FMC-regulated Guam trade during 1988 and the first six months of 1989 as shown in Appendix 9, Rate of Return for Sea-Land, exceeded the allowable rates of return [by the amounts] shown in Appendix 10, Sea-Land's Excess Return Earned in the Guam Trade. Based on these findings, the proceeding is remanded to the ALJ for further proceedings to determine the amount of reparations which may be awarded to Complainants herein, consistent with our findings above as to the form of remedy available under section 22 of the 1916 Act.

F. Individual Rates⁴⁴

Under the facts established in this case, the Guam trade is characterized by revenue abundance, not revenue inadequacy. This negates the need for any rate increase on any commodity, even those commodities at the lower end of the tariff structure. (Footnote omitted.)

__________________________

⁴⁴This section addresses GovGuam Exception #5 and Respondents' Replies thereto. [In its exception No. 5, GovGuam avers that the Initial Decision improperly finds that evidence of the overall reasonableness of Respondents' rates may not, as a matter of fact or law, be the basis for finding that rates charged individual shippers in those trades during that period of time are unjust and unreasonable under section 18(a) of the 1916 Act. Order at 26.]

Complainant's Post-Trial Memorandum on Rate of Return Issues, at 239. GovGuam argues that APL's average ocean freight rates for these commodities equaled or exceeded the average allowable cost for each year at issue.

The ALJ declined to find that any of the eighteen commodity rates were unreasonable because GovGuam's case was based solely on its G.O. 11 analysis of APL's overall rates. He found that the economic concepts and cost accounting methods necessary to a rate of return analysis of overall rate structure were not appropriate to an analysis of individual commodity rate reasonableness. I.D. at 48 - 50, App. C at 105 - 107.

APL contends that GovGuam is attempting to apply a rate of return standard to individual commodity rates. APL Reply to Exceptions at 306 - 309. It states that the criteria for evaluating the reasonableness of a carrier's overall rate of return are quite different from the criteria used for assessing the reasonableness of an individual commodity rate. APL argues that carriers take a number of factors into consideration in establishing individual rates. APL identifies the following: general economic conditions in the trade; market and competitive forces in the trade; physical and economic characteristics of the product involved, including its value; the volume moved; commodity-specific expenses; the relationship of the commodity rate to other rates in the tariff; and the sensitivity of the volume shipped to the rates. APL Reply to Exceptions at 308.

The ALJ and APL are correct. The increase of eighteen commodity rates (1) changed the relationship of rates in the tariff of the Guam Rate Agreement, and (2) increased the revenue to the member lines. The rate of return analysis in this case addresses APL's overall rate of return but it does not address the relationship of individual rates in the Guam Rate Agreement tariff. If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage as every other commodity rate in the tariff. Likewise, any reparations would be borne equally by each commodity rate including the eighteen commodity rates in question. The relationship of the eighteen commodity rates to the other rates in the tariff would remain unchanged. In sum, under a rate of return analysis, the eighteen commodity rates are no less reasonable than any other rate in the Guam Rate Agreement tariff. Because we reject GovGuam's legal theory that a rate of return analysis can be used to determine the reasonableness of individual commodity rates, it is unnecessary for us to reach the various contentions advanced by the parties regarding the appropriate accounting methodology to determine the costs attributable to the carriage of the eighteen commodities.⁴⁶

_________________________

⁴⁶In rejecting a rate of return analysis as an appropriate standard to evaluate the reasonableness of the eighteen rates, the Commission does not wish to imply that GovGuam could not have challenged these rates. However, any challenge of individual commodity rates must focus on the rate making factors traditionally considered in fixing such rates.

For the reasons set forth above, the Commission holds that Respondents' rates have been shown to be unreasonable for the years indicated. The Commission has further decided to remand the proceeding to the ALJ for a determination of the reparations due Complainants, and to quantify the number of Sea-Land containers subject to the Commission's jurisdiction, as explained above.

IT IS FURTHER ORDERED, That the proceeding is remanded to the Administrative Law Judge for a determination of the reparations due Complainants;

FINALLY, IT IS ORDERED, That in accordance with Rule 61 of the Commission's Rules of Practice and Procedure, the Initial Decision on remand of the Administrative Law Judge shall be issued by December 4, 1998 and the final decision of the Commission shall be issued by April 5, 1999. [These dates were later extended from time to time at the Judge's request.]

. . . That upon such finding of unjustness or unreasonableness in a proceeding instituted by a complainant pursuant to the provisions of section 22 of the Shipping Act, 1916, the Commission shall direct full reparation to the complainant of the difference between the charge collected and the just and reasonable rate, fare, or charge, plus interest . . . .

The Order found that, based on excess return of $16.7 million for APL and $6.2 million for Sea-Land, respondents' rates were "unreasonable for the years indicated, and remanded the proceeding to determine the amount of reparations. GovGuam has established that freight totaling about $37,000 has been collected on the issue shipments, but the question is what was the"just and reasonable rate" on those shipments so that the difference between the freight collected and the just and reasonable rate can be measured. This is the statutory test from the quoted language in 46 U.S.C. app. § 845a. GovGuam admits that the record does not contain evidence of any "just and reasonable rates." It substituted evidence of revenue of tradewise overcharge and developed a proportional methodology to distribute the tradewise overcharge from APL ($16.7 million) and Sea-Land ($6.2 million) among all the trade's shippers and consignees.

But in my judgment the record does not support the conclusion that substituting revenue evidence for rate evidence comports with the requirement of the statute to establish "the just and reasonable rate." GovGuam's faulty methodology posits that, for example, a container of potato chips is no different than a container of rice, household cleaning supplies, kitchenware or charcoal. This is obviously contrary to fact. GovGuam failed to provide any probative evidence to support its contention.

GovGuam considered other alternative methods for determining by how much each shipment's freight rate was excessive. GovGuam considered but dismissed the use of physical measure of the cargoes, costs and other transportation characteristics. GovGuam suggests no adequate alternative. And the burden of proof remains on GovGuam which filed the complaint. This is not a Commission investigation. The record thus lacks the essential ingredient of what are the "just and reasonable rates."

GovGuam itself recognizes this, stating in its initial brief that "It is important to note here that the Commission did not find the amounts by which APL or Sea-Land's cargo rates and charges exceeded the just and reasonable levels. The Commission expressly limited its findings to the amounts by which the carriers' revenues allowed them unreasonably high returns. Order at 128-130. It is left to the parties to calculate the amounts by which the gross revenues must be reduced in order to eliminate the excess returns and thereby yield just and reasonable cargo rates." GovGuam's Initial Brief at 4. GovGuam's further view follows: "It is at its heart a simple calculation, incorporating the two fundamental principles required by the Commission's Order and Report: adjustment of rates to eliminate excess return and proportional reflection of reparations across all rates." GovGuam's Initial Brief at 6. GovGuam further acknowledges in its initial brief that: "A challenge against an individual rate could not be based on the rate of return considerations in G.O.-11 as the FMC noted when it turned down complainants on Count 2 of the complaint, which challenged the rates on 18 individual commodities.⁽²⁰⁾ GovGuam's Initial Brief at 33.

Furthermore, Dr. Nadel, GovGuam's economic affiant, stated in his affidavit, at 4:

. . . I have used a proportional methodology to distribute the tradewise overcharge, from each respective carrier, among all the trade's shippers and consignees. The named complainants do not represent the entirety of the shippers and consignees in the Guam trade. Therefore the damages they suffered are only proportional to their share of the total excess revenues earned by APL and S/L, respectively, in the trade. (Emphasis of Dr. Nadel.) Nadel Affidavit at 4.

Dr. Nadel further explained in his affidavit, at 5, 6:

Revenue proportionality and GRI's

The revenue proportionality method is the method that the FMC has used when it has disallowed, on excess rate of return grounds, a portion of a carrier's General Rate Increase (GRI). . . .

When a carrier requests a GRI, it does not do so on the basis of a cost calculation allocation to each type of shipment or commodity. Instead, the carrier identifies an overall requirement for additional revenues. And, in the request for the GRI, those additionally required revenues are explicitly spread by the carrier across-the-board, across all the commodities and shipments, based on a proportional-i.e., "a general"-rate increase.

And, when the FMC determines that the GRI requested by the carrier will likely produce an excessively high rate-of-return on rate base, the FMC requires a reduction or rollback in the proposed rate increase proportional to the amount of excess revenues that would be generated if the carrier were granted its entire GRI. The FMC demands that rates be reduced from the carrier-sought-level by the proportional amount needed to reduce the rate of return to a reasonable level. The reduction demanded by the FMC is an across the board reduction of the freight rates, and a reduction that is equiproportional to all freight rates. This is exactly the method that I have used in applying, to individual freight rates and bills of lading, the FMC's determination of excess rates of return earned by the carriers in this proceeding. (Emphasis of Dr. Nadel.) (Dr. Nadel's affidavit at 5, 6.)

Dr. Nadel continued in his affidavit at 7, 8:

Consideration of "Transportation Characteristics"

* * *

. . . the FMC's decision itself has implicitly suggested we not take such factors into account in this stage of the proceeding. In the last full paragraph on page 130, carrying over to page 131, the FMC addressed the issue of the "18 commodities" whose rate increase was the immediate precedent to this case. The FMC rejected a specific analysis for these 18 commodities, requiring that they be treated exactly the same as all the other commodities in each carrier's tariff. Specifically, FMC stated:

If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage. . . . In sum, under a rate of return analysis, the eighteen commodity rates are no less reasonable than any other rate in the Guam Rate Agreement tariff.

I have applied this analysis by the FMC of the "18 commodities" to all of the complainant shipments for which I have been asked to calculate damages and reparations." (Dr. Nadel's affidavit at 7, 8.)

In order to understand what GovGuam and Dr. Nadel have done, and for the convenience of the reader, it is deemed necessary to highlight the complete relevant portions of the Commission's Decision, from pages 130-131, so that the critical sentences can be examined in their proper context.

F. Individual Rates⁴⁴

* * *

APL contends that GovGuam is attempting to apply a rate of return standard to individual commodity rates. APL Reply to Exceptions at 306 - 309. It states that the criteria for evaluating the reasonableness of a carrier's overall rate of return are quite different from the criteria used for assessing the reasonableness of an individual commodity rate. APL argues that carriers take a number of factors into consideration in establishing individual rates. APL identifies the following: general economic conditions in the trade; market and competitive forces in the trade; physical and economic characteristics of the product involved, including its value; the volume moved; commodity-specific expenses; the relationship of the commodity rate to other rate in the tariff; and the sensitivity of the volume shipped to the rates. APL Reply to Exceptions at 308.

_______________________

⁴⁴This section addresses GovGuam Exception #5 and Respondents' Replies thereto. [In its exception No. 5, GovGuam avers that the Initial Decision improperly finds that evidence of the overall reasonableness of Respondents' rates may not, as a matter of fact or law, be the basis for finding that rates charged individual shippers in those trades during that period of time are unjust and unreasonable under section 18(a) of the 1916 Act." Order at 26.]

The ALJ and APL are correct. The increase of eighteen commodity rates (1) changed the relationship of rates in the tariff of the Guam Rate Agreement, and (2) increased the revenue to the member lines. The rate of return analysis in this case addresses APL's overall rate of return but it does not address the relationship of individual rates in the Guam Rate Agreement tariff. If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage. In other words, the eighteen commodity rates would be excessive by the same percentage as every other commodity rate in the tariff.⁽²¹⁾ Likewise, any reparations would be borne equally by each commodity rate including the eighteen commodity rates in question. The relationship of the eighteen commodity rates to the other rates in the tariff would remain unchanged. In sum, under a rate of return analysis, the eighteen commodity rates are no less reasonable than any other rate in the Guam Rate Agreement tariff. Because we reject GovGuam's legal theory that a rate of return analysis can be used to determine the reasonableness of individual commodity rates, it is unnecessary for us to reach the varius contentions advanced by the parties regarding the appropriate accounting methodology to determine the costs attributable to the carriage of the eighteen commodities.⁴⁶

_____________________

⁴⁶In rejecting a rate of return analysis as an appropriate standard to evaluate the reasonableness of the eighteen rates, the Commission does not wish to imply that GovGuam could not have challenged these rates. However, any challenge of individual commodity rates must focus on the rate making factors traditionally considered in fixing such rates.

As may be seen, the language in the Commission's discussion of the eighteen (18) commodity rates has been segregated from its context by Dr. Nadel as support for his equiproportional reparations methodology. The critical quoted sentences follow the Commission's endorsement of the ALJ's and the respondents' condemnation of the use of rate of return or general revenue analysis in this complaint proceeding to determine the maximum reasonableness of individual commodity rates. Dr. Nadel isolates the language in two simple sentences from their context of accord with the respondents and the ALJ to somehow interpret the language as a rejection of "a specific analysis for these 18 commodities." This strained interpretation is extraordinary and without any proper foundation given the Commission's express reaffirmation that decades of Commission precedent required commodity-specific analysis of individual rates. As Sea-Land explains at page 7 of its brief, "It is clear from the Commission's careful use of the conditional voice ('If APL's revenues are found to produce an excessive rate of return, each commodity rate in the tariff would be excessive by the same percentage.') that the passage was a Commission paraphrase of GovGuam's advocacy for use of general revenue analysis to evaluate the lawfulness of individual rates. (See GovGuam's exception 5, referred to in fn. 44 of the Commission's Order, above.) Had the Commission wished to endorse the simplistic arithmetic approach ultimately deployed by Dr. Nadel, it obviously could have done so without the necessity of remand. The Commission was clear that 'the ALJ and APL [and, presumably, Sea-Land] are correct,' that the Commission was not countenancing departure from individual rate analysis ('we reject GovGuam's legal theory') and emphatically, elsewhere in the Report and Order, that 'GovGuam cannot rely on a finding that overall revenues are unreasonably high to establish the unreasonableness of individual commodity rates.' June 98 Order at 54." Sea-Land brief at 7.

Neither GovGuam nor its expert will be permitted to abuse the context and meaning of the June 98 Order to support an exercise that was expressly rejected by the Commission. APL and Sea-Land have analyzed the Report and Order correctly and Sea-Land's arguments at pages 7 and 22-23 of its opening brief and APL's opening brief at 40 and reply brief at 6-10 are accepted and GovGuam's methodology is flawed and is rejected. GovGuam's reparations methodology is in flagrant violation of the Commission's findings and directive that a finding that overall carrier revenues are unreasonably high cannot be used to establish the unreasonableness of individual commodity rates. See Decision at 54, 131 and 132.

GovGuam also justifies use of its proportional methodology on the basis that the FMC has used that method when it has disallowed, on excess rate of return grounds, a portion of a carrier's GRI. In my judgment, GovGuam has improperly employed the methodology used in effecting refunds in Commission investigations as an unlawful substitute to obtain reparation in this complaint case. APL's rate structure in the Guam trade had not been the subject of an across-the-board general rate increase for over four years, but had been established upon consideration of "general economic conditions in the trade; market and competitive forces in the trade; physical and economic characteristics of the product involved, including its value; the volume moved; commodity-specific expenses; the relationship of the commodity rate to other rates in the tariff; and the sensitivity of the volume shipped to the rates. APL Reply to Exceptions at 308." Order at 130. The same was true as for Sea-Land:

•Among the principal factors that Sea-Land considered in setting rates to Guam are the following: (1) the value of the commodity; (2) the value of the transportation service provided to the customer; (3) physical characteristics of the commodity, in terms of weight-to-volume ratio; (4) rates for similar commodities in the trade; (5) the potential volume of cargo to be shipped; (6) competitive rates in the same trade; (7) rates on similar goods moving to Guam via other trade lanes such as Asia or Australia; and (8) the needs of the customer. [Reighter WDT at 37,37, Kenwell WDT at 11-12, Kenwell Tr. at 26:15-28:16; Reighter Tr. at 14:21-17:24; 109:08-111:02; see Kolbe WD at 6:5-6:6; Kolbe Tr. at 616:22-628:13.] pp. 110-111

•In addition, Sea-Land considered specific economic factors relating to the commodity, as provided by its customers, and tariff minimum container requirements. [Kenwell WDT at p. 11] p. 111

•Complainant's expert, Dr. Nadel, acknowledged in Phase I that these were legitimate factors to consider in setting individual commodity rates although he did not take account of any of them in his analysis. [Nadel Tr. at 1198:09-1202:23; 1227:12-1227:23, 1229:12-1231:14; Exhibit 68; See Nadel Tr. at 1263:06-1264:13; Exhibit 69, pp. 48, 67.] In fact, Dr. Nadel acknowledged that in an earlier proceeding, he had testified: "Because such a large portion of a liner operator's expenses are fixed and a significant portion of the expenses which depend on volume of cargo cannot be allocated to specific movements in an unambiguous manner, the rate structure of a carrier or conference - that is, the rates for individual commodities or services - is related much more to market forces than to expense elements directly associated with each movement. . . . Historically, high value cargoes have paid higher rates than low value cargoes having approximately the same shipping considerations (density, origin-destination, et cetera) . . . As we have shown, the total transportation charges paid by a shipper includes many factors, few of which can be allocated to particular cargo shipments in an unambiguous way." [Nadel Tr. at 1263:06-1264:13; Exhibit 69, pp. 48, 67.]

•Sea-Land did not consider (or attempt to consider) the following factors in setting rates to Guam: (1) total "cost" of moving the commodity to Guam; (2) rate of return calculations, or (3) Rates charged in other trades. (Reighter WDT at 42, 46-49; Reighter Tr. at 11:04-11:18, 114:08-114:25; 115:16-116:03, 165:14-165:25; Kenwell Tr. at 59:14-59:19

Sea-Land Brief, pp. 11-12. Since GovGuam did not establish that the rates in issue were established by a GRI, it is illogical and unsound to borrow a refund methodology confined to occasions when the FMC has disallowed, on excess rate of return grounds, a portion of a carrier's excess across-the-board single factor general rate increase. GovGuam's other reasons for using its methodology are similarly deficient and cannot be accepted as a reparations standard nor does the record permit a restatement in this regard.

The Commission came to a similar conclusion in Matson Navigation Corp.-Proposed Rate Increases, 19 S.R.R. 263 (FMC 1979) ("Matson 1979"), where the Commission found that in a complaint proceeding reparation can be awarded based on proof of a complainant that a carrier had earned an excess rate of return. However, essential elements of that cause of action include (a) the carrier instituted an across-the-board single percentage increase in rates which was not suspended; (b) the shippers actually paid the increased rates while they were in effect; (c) the increase was subsequently found to be unjust and unreasonable in a Commission-instituted investigation. Id. As seen, there are several important ingredients for that cause of action which GovGuam omitted here. One of the essential elements is that the carrier instituted a single percentage increase in rates. Absence of this element bars the cause of action as the Commission noted in footnote 25 of Matson 1979, at 270. Clearly, GovGuam has failed to meet the requirements of Matson 1979. The yawning gap between investigations involving single percentage general rate increases, including orders to the carrier to refund the excess, and shippers assailing individual commodity rates in complaint cases and seeking an award of reparations has been explained in many cases, and GovGuam's presentation did not overcome the hurdles laid out by Chief Judge Norman D. Kline in, for example, Sea-Land Service, Inc.-General Rate Increases, 20 S.R.R. 1319, 1366, et seq. (I.D. 1981), and cases cited there.

GovGuam has thus failed to prove what is the "just and reasonable rate" for any shipment at issue. It seeks an order requiring the respondents to disgorge their excess profits, but in the absence of a GRI any additional revenues which accrued to respondents cannot serve as the basis for a reparations order. Moreover, the Commission's findings with respect to the inapplicability of section 3 of the 1933 Act to this proceeding because it applies to "new" rates also prohibits GovGuam from incorporating by reference the GRI rollback methodology to rates that were not shown to have been established by a uniform method at a specific point in time. Without that sine qua non or solid foundation GovGuam's case crumbles.

By focusing on revenues GovGuam concedes that it does not seek reparations designed to restore any complainant to the position he or she would have occupied but for the injurious effect of a particular rate as required by the statute. GovGuam's stated goal is not to provide reparations for the shippers and consignees but to cause the carriers to disgorge excessive earnings. Thus, the amount of damages sought by GovGuam bears no proper relation to the specific injury for the shipments at issue. Clearly, there is no causal relationship between GovGuam's proportional methodology and any injury alleged to have been suffered. GovGuam has failed to provide probative evidence, required by Rule 252, 46 C.F.R. § 252, Exhibit 1 to Subpart O, as to the required logical nexus between the excessive revenues earned by APL and Sea-Land and the specific just and reasonable rates and resulting amounts in reparations to which each shipment is entitled. Despite being accorded ample opportunity, GovGuam clearly has failed to establish, with specificity, the measure of damages available for each shipment in a manner designed to compensate each individual complainant for damages it incurred by paying each respective respondent a particular rate on a particular shipment.

GovGuam's rate of return reparation theory, resting on a single proposition that if a carrier's revenues are found to be excessive every single rate in the carrier's tariff is too high in direct proportion to the amount of the excess revenue, is clearly fallacious. GovGuam treats each cargo, whether it consists of potato chips, rice, household cleaning products, kitchenware or charcoal, as entirely fungible and interchangeable. If a carrier's revenues are deemed to be excessive by a factor of 10 percent, the shipper, from whom the carrier collected freight of $1200 for transporting a container of rice, would be entitled to reparation of $120 plus interest according to GovGuam.

While the Commission agreed "that the instant case is one of 'first impression'" and that there is nothing in the 1916 Act that prevents a private party from filing a complaint alleging that a carrier's overall rate of return is violative of sections 18 and 22 and seeking reparations, the Commission emphasized over and over again that there is no nexus between overall rate revenue reasonableness and individual commodity rate reasonableness. Id. at 54, 60, 130 and 131. Moreover, some 82 years ago, the United States Shipping Board observed that "while the evidence submitted by the transportation company to the effect that its common carrier operations as a whole were unprofitable is admittedly of value, obviously this is not a controlling determinant of the reasonableness of the particular rate in question." Wool Rates from Boston to Philadelphia, 1 U.S.S.B. 20, 21 (1921). GovGuam's reparation theory and methodology is fatally deficient.

To determine the correct standard for judicial review of a case courts have turned to the standards of other courts in their review of decisions made by various agencies in rate cases concerning the common carriage of freight, passengers or natural gas, especially involving statutes involving administrative rate setting, which "trace their lineage to the prototypical ratemaking statute, the Interstate Commerce Act. . . ." Chief Judge McGowan explained this in Las Cruces TV Cable v. F.C.C., 645 F.2d 1041, 1047 (D.C. Cir. 1981).

Contrary to GovGuam's contention, the necessity of establishing the "but for" or "what would have been" rates is not a new requirement. A sister agency established the rule years ago. It has been held in a similar situation under the former Interstate Commerce Act that ". . . before we are authorized to award reparation for alleged damages from past transactions it is necessary to find and fix what would have been a reasonable rate, regulation, or practice at the time of the transactions which are the objects of the claim for reparation, and in addition thereto not only to find that the rate, regulation, or practice was unlawful, but, if it be the amount of the rate that is involved, that such rate was unreasonable and resulted in actual damage to the complainant, and also to ascertain the amount of such damage. . . ." Sloss-Sheffield Steel & Iron Co. v. L & N R.R. Co., 51 I.C.C. 635, 639 (1918), order sustained in Louisville & N. R. Co. v. Sloss-Sheffield Steel and Iron Co., 269 U.S. 217 (1925). In the opinion of Justice Brandeis for the majority he also held that "The liability in the case at bar arises out of the wrongful exaction from the shipper, not out of the unlawful receipt or unjust enrichment by the carrier." Id. at 234. His opinion also pointed out that, "awarding reparation for excessive charges in the past and regulating rates for the future involve the determination of matters essentially different. Baer Bros. Mercantile Co. v. Denver & Rio Grande R.R. Co., 233 U.S. 479 (1914)."

GovGuam's failure to establish the just and reasonable or "but for" rates violates the holdings in the above-cited landmark cases.

Section 22 of the 1916 Act provides that the Commission "may direct the payment . . . of full reparation to the complainant for the injury caused by such violation." 46 U.S.C. § 821. (Emphasis added.) Justice Byron White stated that, "This contemplates that the Commission shall have a certain amount of discretion. . . ." See Consolo v. Federal Maritime Comm'n., 383 U.S. 607, 621-22 (1965).

However, neither section 18(a) of the 1916 Act nor sections 3 and 4 of the Intercoastal Act, 1933, provided that rates which are unjust and unreasonable are unlawful. And in T.I.M.E. Incorporated v. United States, 359 U.S. 464, 468-472 (1959), the Supreme Court cast doubt on whether under a similarly worded statute the I.C.C. had the power to award reparations for unreasonable rates of motor common carriers. To remedy this gap in the Shipping Acts, in 1978, Congress passed amendments to the 1933 Act, one of which amends section 4 of the act to clarify the right of a complainant (usually a shipper) to obtain retroactive reparation in a proceeding under section 22 of the Shipping Act, 1916, upon a finding that the rate charged the shipper was unjust and unreasonable. The language in the pertinent provision reads, ". . . The Commission shall direct full reparation to the Complainant of the difference between the charge collected and the just and reasonable rate fare or charge, plus interest. . . ." (Emphasis added.) The provision is intended to eliminate any possible misinterpretation of section 22 which would preclude a successful complainant under that section from receiving retroactive reparations for an unjust and unreasonable rate; and to prescribe the measure of damages to be awarded upon such a finding. GovGuam believes that the Commission's discretion in this regard is gone and GovGuam relies on the change from "may" to the word "shall" in section 22.

In interpreting statutes, courts will apply that construction which best carries into effect the purpose of the statute under consideration in order to determine whether the statute is mandatory or discretionary. 3 Norman J. Singer, Sutherland on Statutes & Statutory Construction, § 57.3 at 7. In passing the 1978 amendments to the 1933 Act Congress expressed no intention to remove the Commission's discretion in complaint proceedings seeking reparations for unjust and unreasonable rates. Justice Byron White, writing the opinion in Consolo v. Federal Maritime Comm'n., 383 U.S. 607, 621-622 (1965), explained that "the Commission could validly consider factors as to whether a reparations award would enhance enforcement of the Act, and whether the shipper had suffered compensable injury and whether the award of reparations would be consistent with the previous application of the Act, as well as the factor of culpability of the carrier." 383 U.S. 621-622.

In Military Sealift Command v. Matson Navigation Co., 21 S.R.R. 459 (FMC 1982) ("MSC v. Matson"), a section 22 complaint proceeding seeking reparations for unreasonable rates based on a prior Commission finding under the 1933 Act that Matson's single percentage across-the-board general rate increase resulted in unreasonable rates because the 3.5% across-the-board general increase would result in an excessive rate of return, the Commission had found that all rates subject to the GRI were excessive by a uniform percentage and that Matson had "instituted an across-the-board uniform increase in rates."⁽²²⁾ Matson Navigation Co.-Rate Increase, 19 S.R.R. 263, 270 (1979). However, in the subsequent complaint case, MSC v. Matson (written after the 1978 amendments), the Commission held that an award of reparations was not automatic and that Matson could raise various equitable and policy considerations in arguing that reparations could not be awarded. These considerations include the lack of FMC guidance regarding reasonable rates of return, prior Commission decisions regarding Matson's permissible rate of return and Matson's historically low rates of return. 21 S.R.R. 465. In holding that Matson could raise these factors in opposing an award of reparation, the effect of the use of "shall" in section 4 on the Commission's normal discretion under section 22 to determine whether reparations are appropriate in the circumstances was not specifically addressed. No further comment on this issue is appropriate at this time.

Even if GovGuam is correct that Congress removed the Commission's discretion whether to award reparation in a complaint case for unjust and unreasonable rates and made it mandatory that the Commission "shall direct full reparation . . . of the difference between the charge collected and the just and reasonable rate . . .," the Commission has always held that the mere proof of a violation of law without proof of pecuniary loss and without a showing of proximate causation did not warrant an award of reparation. Thus, almost 40 years ago, in Puget Sound Tug & Barge Co. v. Foss Launch & Tug Co., 5 S.R.R. 67, 77 (1964), after remanding the case to the presiding examiner to determine whether to award reparation after a violation of law had been found, the examiner and the Commission dismissed the complaint. The Commission dismissed the complaint partially on equitable grounds but also on legal grounds because the type of violation (failure to file an agreement) was not the proximate cause of the alleged injury. The Commission explained:

Additionally, there is a legal bar to such award, because Northland's lower rates, which the Commission has found not unlawful, were the proximate cause of complainant's alleged injury, not the technical violation of Section 15. In Waterman v. Stockholms Reder. Svea et al., 3 F.M.B. 248, 249 (1950), the Commission's predecessor stated: "It has long been established by the courts and Government agencies having jurisdiction in such matters that (a) damages must be the proximate result of violations of the statute in question; (b) there is no presumption of damage; and (c) the violation in and of itself without proof of pecuniary loss resulting from the unlawful act does not afford a basis for reparation." (Citing Pennsylvania R.R. Co. v. Int'l Coal Co., 230 U.S. 184, 203, 206. See also Phila. Ocean Traffic Bureau v. Export S.S. Corp., 1 U.S.S.B.B. 538, 541 (1936).)

Moreover, as discussed earlier, GovGuam has not proved what would be the "just and reasonable rate" for the shipments in question so that the statutory measure of damages cannot be applied.

In sum, GovGuam has not presented a methodology by which the difference between the charges paid by the complainants for the cargo in each container and the just and reasonable rate for that commodity could be determined. Moreover, there has been no proof of proximate cause and no quantification of injury or economic harm suffered by any complainant. These are all well-established requisites for the relief sought by a shipper contending that it was charged unjust and unreasonable rates. See Prudential Lines, Inc. v. Farrell Lines, Inc., 22 S.R.R. 1054 (FMC 1984)⁽²³⁾ (complainant had adequately shown that the respondent carrier had violated sections 18(c)(1) and (3) of the 1916 Act, but had failed to prove its right to reparations by establishing a causal connection between the violations and the alleged injury). ". . . An essential element in a complainant's case for reparations is a demonstration of injury and the statutory violation as proximate cause of such injury. See, e.g., West Indies Fruit Co. v. Flota Mercante Grancolombiana, 7 F.M.C. 61, 70 (1962); Ballmill Lumber & Sales Corp. v. The Port of New York Authority, 11 F.M.C. 494, 510-511 (1968)." Id. a 1058.

Therefore, assuming arguendo that GovGuam had otherwise met its burden of proof, consideration could then be given to the respondents' arguments as to (1) whether an award of reparation would be proper because GovGuam's proposed methodology would retroactively reduce trade-wide revenues even though there was no advance determination of APL's allowable rate of return and no clearly understood methodology for calculating that rate of return until the June 1, 1998 Decision; (2) whether APL's excess revenues were caused in substantial part by a strong shift in consumer demand due to major service improvements made by APL which allowed it to offer a weekly service with a faster transit time than Sea-Land and gave APL an increased share of the market for time sensitive commodities and increased APL's G.O.-11 return resulting in the excess revenues that GovGuam equates with reparations; (3) whether consideration could be given, for damage assessment purposes, to whether APL's use of leased vessels to provide weekly rather than bi-weekly service calls at Guam (which greatly reduced APL's rate base and greatly increased its G.O.-11 return and excess revenues) caused any damage or instead resulted in improved service to shippers; and (4) whether Dr. Nadel's adjustment to the carriers' rates to account for taxes is proper.

Requested findings not specifically discussed have been considered but found unnecessary for a proper disposition of the issues presented.

IT IS ORDERED, That, for the reasons stated in this Initial Decision, GovGuam's request for an award of reparations is denied and the complaint is dismissed.

Frederick M. Dolan, Jr.
Administrative Law Judge
Washington, D.C.

August 29, 2003

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. This includes, as now relevant, three shippers, Pacific International Company, Inc., Town House Department Stores, Inc., and Micronesian Brokers, Inc.

3. These excess revenues include a grossing-up to pre-tax dollars. Dr. Nadel's treatment of taxes is discussed later.

4. Nadel Affidavit, pp. 2-3. Dr. Joskow understands that the FMC has determined that only shipments by named complainants are eligible for reparations in this docket; that, however, Dr. Nadel has proposed that reparations for these complainants be calculated using a general formula based on all shipments and all revenues in the trade, and that Dr. Joskow's affidavit accordingly addresses that general formula.

5. Dr. Joskow cites, for example, Proving Antitrust Damages: Legal and Economic Issues, Section of Antitrust Law, American Bar Association, 1996, pp. 55-57.

6. Dr. Joskow cites Robert E. Hall and Victoria A. Lazear, "Reference Guide on Estimation of Economic Losses in Damages Awards," Reference Manual on Scientific Evidence, Federal Judicial Center, 1994, p. 482.

7. Citing Nadel Testimony, p. IV-13. Dr. Joskow states that, in this instance, Dr. Nadel is referring to shifts in APL's commodity mix rather than in the trade as a whole, citing Nadel Oral Testimony, p. 165.

8. By letter received August 12, 2003, David B. Cook, Esq., counsel for APL, states:

In response to your inquiry, we have conferred with counsel for complainants regarding the APL shipments that remain in the case as the result of your April 16, 2002 order granting the motion to dismiss. Counsel are in agreement that they are the 37 shipments identified in footnote 6 on page 10 of APL's November 19, 2002 opening brief.

The 37 shipments are identified in APL's opening brief by reference to their sequence number on specified worksheets in Dr. Nadel's Table 1-APL that was part of complainants' April 2, 2001 evidentiary submission. For ease of identification, we are attaching copies of the relevant Nadel worksheets with the sequence numbers for the 37 remaining shipments circled.

9. Sea-Land states that on June 23, 1989, Sea-Land initiated joint through intermodal operations in the Guam trade pursuant to tariffs filed with the Interstate Commerce Commission; that although GovGuam has attacked the validity of these ICC-tariffed operations, and the jurisdictional significance of the post-June 23, 1989 shipments occupied considerable attention of Sea-Land and GovGuam in Phase I of the proceeding, GovGuam has made no effort in Phase II to provide evidence that any particular post-June 23, 1989 shipment was subject to FMC jurisdiction; and that, in the absence of any jurisdictional predicate GovGuam is foreclosed from seeking reparations for any post-June 23, 1989 shipments.

10. Sea-Land states that GovGuam currently is pursuing claims for excessive rates against Sea-Land and Matson Navigation Company, Inc. before the STB, and that litigation is now awaiting STB determination of applicable methodologies, citing Government of the Territory of Guam v. Sea-Land Service, Inc. and Matson Navigation Company, Inc., STB Docket No. WCC-101.

11. Sea-Land states that Dr. Nadel also bumped up his claimed reparations amounts by adjusting them to reflect pre-tax carrier revenues; that Sea-Land contends that such an adjustment is technically incorrect, however trivial its monetary impact on the few remaining shipments; and that Dr. Nadel's calculations concerning prejudgment interest are not ripe for review.

12. Sea-Land states that the Guam Telephone Authority payment to Sea-Land of $78.10 has not been linked to any particular shipment; that Sea-Land urges herein that the record is inadequate to support a finding that any component of this payment represents ocean freight charges and requests that claims for reparations for this transaction be dismissed. GovGuam has provided no objection to Sea-Land's request and it is granted.

13. Sea-Land states that language in the Commission's discussion of the eighteen commodities has been isolated from its context by Dr. Nadel as support for his "across-the-board" numbers crunching (Nadel Affidavit at 7); that the language in question follows the Commission's endorsement of the ALJ's and the carriers' critique of the use of general revenue analysis to evaluate the lawfulness of individual rates; and that the Nadel Affidavit says:

If APL revenues are found to produce an excessive rate of return each commodity rate in the tariff would be excessive by the same percentage. In other words, the eighteen commodity rates would be excessive by the same percentage as every other commodity rate in the tariff. Likewise, any reparations would be borne equally by each commodity rate including the eighteen commodity rates in question. (June 1998 Order at 130.)

Sea-Land states that Dr. Nadel separates this language from its context of accord with the carriers and the ALJ to describe the language as a rejection of "a specific analysis for these 18 commodities. . . ."

Sea-Land contends that this interpretation is extraordinary, given the Commission's express endorsement of the consistent position by the carriers that decades of Commission precedent required commodity-specific analysis; that it is clear from the Commission's careful use of the conditional voice that the passage was a Commission paraphrase of GovGuam's advocacy for use of general revenue analysis to evaluate the lawfulness of individual rates; that had the Commission wished to endorse the simplistic arithmetic approach ultimately deployed by Dr. Nadel, it could have done so emphatically and without the necessity of remand; that the Commission was clear that "the ALJ and APL [and, presumably, Sea-Land] are correct," that the Commission was not countenancing departure from individual rate analysis ("we reject GovGuam's legal theory") and, emphatically, elsewhere in the Report and Order, that "GovGuam cannot rely on a finding that overall revenues are unreasonably high to establish the unreasonableness of individual commodity rates" (June 1998 Order at 54); and that neither GovGuam nor its expert should be permitted to abuse the context and meaning of the June 1998 Order to support an exercise that was expressly rejected by the Commission.

14. The Count II allegations in the complaint are thus considered abandoned.

15. Count II of complaint abandoned.

16. APL states that GovGuam notes that the 1998 decision found that APL's leased vessels should be excluded from the rate base under G.O.-11 accounting rules; that that is beside the point for present purposes, however-i.e., at this stage the issue is whether, under the standards governing reparations awards, reparations can be based on the introduction of vessels that greatly improved service (whatever their accounting treatment), an issue that the 1998 decision did not discuss; and that as for GovGuam's unsupported claim that the effect of the rate base reduction was offset by increases in operating expenses, that is blatant factual speculation of counsel that is contradicted by the extensive record testimony concerning the dramatic effect that the introduction of leased vessels had on APL's "allowable" G.O.-11 revenue, citing Joskow Aff. pp. 16-18.

17. All the relevant statutory provisions from the 1916 and 1933 Acts were repealed, effective September 30, 1996, by the Interstate Commerce Commission Termination Act, Pub. L. No. 104-88, 109 Stat. 803 (1995).

18. Two years after Judge Ingolia's ruling, GovGuam filed an action in the U.S. District Court for the District of Columbia on behalf of the unnamed Guam shippers for the purpose of tolling the two-year statute of limitations contained in section 22(a) of the 1916 Act, 46 U.S.C. app. § 821(a) (amended 1984). The court dismissed the action on the ground that there is no implied right of action under the 1916 Act or the 1933 Act for a shipper to challenge a carrier's rates in a district court. The Government of Guam v. American President Lines, Ltd., 809 F. Supp. 150 (D.D.C. 1993), aff'd, 28 F.3d 142 (D.C. Cir. 1994).

19. The Commission's regulations governing financial reports of vessel operating common carriers by water in the domestic offshore trades (e.g., U.S. - Guam) were originally designated as Commission General Order 11. Although this designation is no longer official, Part 552 of 46 C.F.R. was generally referred to as "G.O. 11" by the industry and the Commission. That custom has been followed here.

20. See page 131 of the Decision: ". . . we reject GovGuam's legal theory that a rate of return analysis can be used to determine the reasonableness of individual commodity rates. . . ."

21. The sentences upon which GovGuam and Dr. Nadel rely as the linchpin of their reparation methodology, and which they lifted out of the paragraph are highlighted.

22. Because each commodity bore the general rate increase by the same percentage proportion, the extent to which it was found to be excessive applies equally to all commodities that took the increase. The contrary would be true, however, if this case involved a multi-tiered general increase in rates designed to bring the comparative levels of commodity rates into line with their individual transportation factors. 19 S.R.R. at 270.

23. Cited with approval in Docket No. 94-32, James J. Flanagan Shipping Corporation d/b/a James J. Flanagan Stevedores, Inc. v. Lake Charles Harbor and Terminal District and Lake Charles Stevedores, Inc., Slip Opinion, August 26, 2003 (Commission order upholding ALJ's decision on remand and denying request for additional reparations for failure to prove that lost profits were caused by invalid switching charge).