B-128890, AUGUST 22, 1956, 36 COMP. GEN. 140

B-128890: Aug 22, 1956

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ARE CONTROLLED BY W. UNDER WHICH THE BANK WILL OPERATE CERTAIN FOREIGN VESSELS IN THE DOMESTIC AND FOREIGN TRADE OF THE UNITED STATES. 1956: REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 9. IS NOT AN AFFILIATE OF GRACE LINE. WITH POWER IN THE BANK AS TRUSTEE TO EXERCISE VOTING AND OTHER RIGHTS RESULTING FROM CORPORATE SHARE OWNERSHIP AND TO PAY THE NET INCOME FROM THE TRUST PROPERTY TO NAMED CHILDREN OF THE GRANTOR WHO ARE NATURAL BORN CITIZENS OF THE UNITED STATES. THE TRUSTEE IS TO RECEIVE AN AMOUNT AGREED UPON BETWEEN THE TRUSTEE AND THE GRANTOR. SINCE IT IS THE INTENT OF BOTH THE GRANTOR AND TRUSTEE THAT VARIOUS VESSELS. OWNED BY CORPORATIONS IN WHICH THE TRUSTEE WILL HOLD LEGAL TITLE TO A MAJORITY OF THE CAPITAL STOCK.

B-128890, AUGUST 22, 1956, 36 COMP. GEN. 140

MARITIME ADMINISTRATION - SUBSIDIES - CORPORATE AFFILIATION RESTRICTION ALTHOUGH BOTH THE GRACE NATIONAL BANK OF NEW YORK AND GRACE LINE, INC., A HOLDER OF AN OPERATING-DIFFERENTIAL SUBSIDY CONTRACT UNDER TITLE IV OF THE MERCHANT MARINE ACT, 1936, ARE CONTROLLED BY W. R. GRACE AND COMPANY, THE EXECUTION OF A TRUST AGREEMENT BY THE GRACE NATIONAL BANK OF NEW YORK, UNDER WHICH THE BANK WILL OPERATE CERTAIN FOREIGN VESSELS IN THE DOMESTIC AND FOREIGN TRADE OF THE UNITED STATES, DOES NOT REFLECT AN AFFILIATION OF THE NATURE REFERRED TO IN SECTION 805 (A) OF THE ACT, WHICH RESTRICTS SUBSIDIZED OPERATORS AND THEIR AFFILIATES FROM OPERATING OTHER VESSELS IN THE DOMESTIC COMMERCE WITHOUT PRIOR WRITTEN AUTHORIZATION OF THE MARITIME ADMINISTRATOR.

TO THE ADMINISTRATOR, MARITIME ADMINISTRATION, AUGUST 22, 1956:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 9, 1956, ENCLOSING A COPY OF A TRUST AGREEMENT EXECUTED BY ARISTOTLE'S S. ONASSIS, AS GRANTOR, AND GRACE NATIONAL BANK OF NEW YORK, AS TRUSTEE, AND REQUESTING OUR CONCURRENCE IN YOUR DETERMINATION THAT THE BANK, WHILE ACTING IN ITS CAPACITY AS TRUSTEE, IS NOT AN AFFILIATE OF GRACE LINE, INC., WITHIN THE MEANING OF SECTION 805 (A) OF THE MERCHANT MARINE ACT, 1936, AS AMENDED.

AS INDICATED IN YOUR LETTER THE TRUST AGREEMENT HAS BEEN EXECUTED, IN COMPLIANCE WITH THE TERMS OF A SETTLEMENT AGREEMENT BETWEEN THE UNITED STATES OF AMERICA AND ARISTOTLE'S S. ONASSIS, ET AL., FOR THE PURPOSE OF INSURING CONTROL OF TRAFALGAR STEAMSHIP CORPORATION, UNITED STATES PETROLEUM CARRIERS, INC., AND ITS SUBSIDIARIES BY UNITED STATES CITIZENS WITHIN THE MEANING OF SECTION 2 OF THE SHIPPING ACT, 1916, 46 U.S.C. 802, AS AMENDED, AND OF THE REGISTRY LAWS OF THE UNITED STATES. SUBJECT TO VARIOUS SPECIFIC LIMITATIONS AND DIRECTIONS, THE TRUST AGREEMENT PROVIDES, GENERALLY, THAT THE GRANTOR SHALL TRANSFER LEGAL TITLE TO SHARES OF CAPITAL STOCK REPRESENTING AT LEAST 75 PERCENT OF THE VOTING CONTROL OF EACH OF THE ABOVE-NAMED CORPORATIONS TO GRACE NATIONAL BANK OF NEW YORK, SUCH SHARES TO CONSTITUTE THE CORPUS OF A TRUST, WITH POWER IN THE BANK AS TRUSTEE TO EXERCISE VOTING AND OTHER RIGHTS RESULTING FROM CORPORATE SHARE OWNERSHIP AND TO PAY THE NET INCOME FROM THE TRUST PROPERTY TO NAMED CHILDREN OF THE GRANTOR WHO ARE NATURAL BORN CITIZENS OF THE UNITED STATES. AS COMPENSATION FOR SERVICES RENDERED, THE TRUSTEE IS TO RECEIVE AN AMOUNT AGREED UPON BETWEEN THE TRUSTEE AND THE GRANTOR.

SINCE IT IS THE INTENT OF BOTH THE GRANTOR AND TRUSTEE THAT VARIOUS VESSELS, OWNED BY CORPORATIONS IN WHICH THE TRUSTEE WILL HOLD LEGAL TITLE TO A MAJORITY OF THE CAPITAL STOCK, WILL BE OPERATED IN THE DOMESTIC AND INTERCOASTAL COMMERCE OF THE UNITED STATES, AND BECAUSE THE CONTROLLING STOCK INTEREST OF BOTH GRACE NATIONAL BANK OF NEW YORK AND GRACE LINE, INC., A HOLDER OF AN OPERATING-DIFFERENTIAL SUBSIDY CONTRACT UNDER TITLE VI OF THE MERCHANT MARINE ACT, 1936, 46 U.S.C. 1171, AS AMENDED, IS HELD BY W. R. GRACE AND COMPANY, ARTICLE FIFTEENTH OF THE TRUST AGREEMENT PROVIDES THAT THE TRUSTEE WILL NOT PERMIT OPERATION OF VESSELS, OWNED BY THE CORPORATIONS NAMED IN THE TRUST AGREEMENT, WHICH WOULD BE CONTRARY TO LAW, WOULD CONFLICT WITH THE PROVISIONS OF THE OPERATING-1DIFFERENTIAL SUBSIDY AGREEMENTS OF GRACE LINE, INC., OR WHICH MIGHT RESULT IN LOSS OF SUBSIDY PAYMENTS THEREUNDER, WITHOUT FIRST OBTAINING SUCH WAIVERS, APPROVALS, CONSENTS, PERMISSIONS OR RULING FROM THE FEDERAL MARITIME BOARD, THE MARITIME ADMINISTRATION AND/OR THE COMPTROLLER GENERAL OF THE UNITED STATES AS MAY BE SATISFACTORY TO GRACE LINE, INC.

HOWEVER, UNDER THE PROVISIONS OF SECTION 805 (A) OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, IT IS UNLAWFUL TO PAY OPERATING DIFFERENTIAL SUBSIDY TO ANY CONTRACTOR---

IF SAID CONTRACTOR * * * OR ANY HOLDING COMPANY, SUBSIDIARY, AFFILIATE OR ASSOCIATE OF SAID CONTRACTOR * * *, DIRECTLY OR INDIRECTLY, SHALL OWN, OPERATE OR CHARTER ANY VESSEL OR VESSELS ENGAGED IN THE DOMESTIC INTERCOASTAL OR COASTWISE SERVICE, OR OWN ANY PECUNIARY INTEREST, DIRECTLY OR INDIRECTLY IN ANY PERSON OR CONCERN THAT OWNS, CHARTERS OR OPERATES ANY VESSEL OR VESSELS IN THE DOMESTIC INTERCOASTAL OR COASTWISE SERVICE, WITHOUT THE WRITTEN PERMISSION OF THE MARITIME ADMINISTRATOR.

IN VIEW THEREOF, AND SINCE THE GRANTOR CONSIDERS IT ESSENTIAL THAT CERTAIN OF THE INVOLVED VESSELS SHALL BE AVAILABLE AT ALL TIMES FOR IMMEDIATE USE IN BOTH DOMESTIC AND FOREIGN COMMERCE, YOU REPORT THAT HE INTENDS TO REQUIRE RESIGNATION OF THE PRESENT TRUSTEE IF IT NECESSARY THAT SUCH TRUSTEE OBTAIN THE PRIOR WRITTEN PERMISSION PRESCRIBED BY SECTION 805 (A) IN EACH INSTANCE WHERE THE SUBJECT VESSELS ARE TO BE USED IN THE DOMESTIC COMMERCE.

THE LEGISLATIVE HISTORY OF SECTION 805 (A) OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, INDICATES CLEARLY THE NATURE OF THE PRACTICES WHICH CONGRESS INTENDED TO CORRECT BY ENACTMENT OF ITS PROVISIONS. SUCH PRACTICES ARE ADEQUATELY DESCRIBED AT PAGE 11 OF HOUSE OF REPRESENTATIVES DOCUMENT NO. 118, 74TH CONGRESS, ST SESSION, AS FOLLOWS:

THE LIBERAL TREATMENT ACCORDED TO THE OPERATORS UNDER THE OCEAN-MAIL CONTRACTS HAS RESULTED IN MUCH WASTE AND EXTRAVAGANCE. TOO MANY OF THE CONTRACTORS HAVE DIVERTED THESE GRANTS OR SUBSIDIES, OR BY WHATEVER NAME THIS AID MAY BE CALLED, TO OTHER THAN SOUND SHIPPING OPERATIONS. MANY OF THEM HAVE EMPLOYED LOBBYISTS AND SPECIAL REPRESENTATIVES AT ENORMOUS FEES. THEY HAVE PAID HIGH SALARIES AND EXCESSIVE DIVIDENDS. IN ORDER TO PIPE THESE FUNDS AWAY FROM THE MAIL CONTRACTING COMPANY, THEY HAVE ORGANIZED HOLDING COMPANIES, OPERATING COMPANIES, TERMINAL COMPANIES, AGENCY COMPANIES, STEVEDORING COMPANIES, REPAIR COMPANIES, TOWBOAT COMPANIES, AND SUPPLY COMPANIES, THUS FREEZING OUT INDEPENDENT FIRMS.

THEY HAVE ALSO FORMED CORPORATIONS TO OPERATE INTERCOASTAL AND COASTWISE VESSELS IN COMPETITION WITH NONSUBSIDIZED AMERICAN LINES, CONTRARY TO THE SPIRIT OF THE LAW, WHICH DOES NOT PERMIT THE AWARD OF MAIL CONTRACTS OR SUBSIDIES TO OPERATORS ENGAGED IN THE COASTWISE AND INTERCOASTAL TRADE. BY THIS MEANS MILLIONS OF DOLLARS OF MAIL PAY HAS BEEN DIVERTED FROM USE IN FOREIGN TRADE AND USED TO OPERATE IN INTERCOASTAL AND COASTWISE TRADE, RESULTING IN UNFAIR COMPETITION WITH NONSUBSIDIZED AMERICAN LINES IN THE SAME TRADE. * * *

THERE IS NO INDICATION IN THE LEGISLATIVE HISTORY OF SECTION 805 (A) THAT ITS PROVISIONS WERE INTENDED TO RESTRICT OPERATIONS OR ACTIVITIES WHICH DID NOT TEND TO PROMOTE THE BASIC EVILS SET OUT ABOVE.

EXAMINATION OF THE TRUST AGREEMENT IN THE INSTANT CASE HAS FAILED TO INDICATE THAT THE POWERS, DUTIES, AND RESPONSIBILITIES CONFERRED UPON GRACE NATIONAL BANK OF NEW YORK AS TRUSTEE WILL RESULT IN SUCH CHANGE IN THE FINANCIAL, ECONOMIC, OR PERSONAL RELATIONSHIP BETWEEN GRACE NATIONAL BANK OF NEW YORK, AS TRUSTEE, GRACE LINE, INC., AND THE CORPORATIONS SUBJECT TO CONTROL BY THE TRUSTEE UNDER THE TRUST AGREEMENT AS MIGHT REASONABLY BE EXPECTED TO GIVE RISE TO THE DIVERSION OF SUBSIDY PAYMENTS CONTRARY TO THE EXPRESSED INTENTION OF CONGRESS. ADDITIONALLY, UNDER EXISTING BANKING LAWS AND REGULATIONS THE PROVISIONS OF THE TRUST AGREEMENT ARE TO BE ADMINISTERED BY A TRUST DEPARTMENT, WHICH SHALL BE SEPARATE AND APART FROM EVERY OTHER DEPARTMENT OF THE BANK, 12 C.F.R. SEC. 206.6; BOOKS AND RECORDS OF THE TRUST DEPARTMENT MUST BE KEPT SEPARATE AND DISTINCT FROM OTHER RECORDS OF THE BANK, 12 C.F.R. SEC. 206.7; AND TRUST ASSETS MUST BE SEGREGATED FROM GENERAL ASSETS OF THE BANK, 12 C.F.R. SEC. 206.12.

THUS, WHILE THE CORPORATE RELATIONSHIP BETWEEN THE GRACE NATIONAL BANK OF NEW YORK AND GRACE LINE, INC., LEAVES NO DOUBT OF THEIR AFFILIATION IN THE GENERALLY ACCEPTED MEANING OF SUCH TERM, IT IS OUR OPINION THAT THE RELATIONSHIP OF GRACE NATIONAL BANK IN THE PERFORMANCE OF ITS PRESCRIBED FUNCTIONS UNDER THE TERMS OF THE TRUST AGREEMENT DOES NOT REFLECT AN AFFILIATION OF THE NATURE WHICH WAS INTENDED BY CONGRESS TO BE RESTRICTED BY ENACTMENT OF THE PROVISIONS OF SECTION 805 (A).

UNDER THE CIRCUMSTANCES WE PERCEIVE NO OBJECTION TO YOUR DETERMINATION THAT THE BANK, WHILE ACTING IN ITS TRUSTEE CAPACITY, IS NOT AN AFFILIATE OF GRACE LINE, INC., WITHIN THE MEANING OF SECTION 805 (A).