Thursday, October 3, 2024
Second Circuit Upholds Time Charter Allowing for Viking River Cruises on the Mississippi
Viking River Cruises (Viking) is known for its excursions in Europe and Egypt. It wanted to expand operations into the United States, entering into an agreement through an American subsidiary for a charter though an American company, River 1, LLC (River 1). Viking worked with River 1 because provisions of the Jones Act prohibit Viking, a foreign corporation, from operating on its own. According to the Second Circuit, the deal with River 1 provided that "River 1 employees would manage the ship’s maritime activities, while Viking employees would manage the onboard entertainment operation." They applied to the United States Maritime Administration (MARAD) for approval of the time charter, which MARAD granted in March, 2022. The Viking Mississippi has been operating since September 2022, as you can see in the video below.
American Cruise Lines (ACL) challenged that decision, alleging that the agreement was a "bareboat charter," and that its approval would result in an impermissible transfer of control over the vessel to which the charter pertained to a non-citizen corporation.
The Administrative Procedures Act (APA) applied to ACL's petition for review. In American Cruise Lines v. United States, the Second Circuit first noted that, under the APA, the Court could only reverse MARAD's determination if it were "arbitrary and capricious." According to the Second Circuit, it was not.
The issue was whether the agreement between Viking and River 1 established a time charter. Under a time charter, “the charterer engages for a fixed period of time a vessel, which remains manned and navigated by the vessel owner, to carry cargo wherever the charterer instructs.” A bareboat charter, by contrast, shifts "exclusive possession and control of the chartered vessel from the owner to the charterer during the charter period." The Court found reasonable MARAD's construction of the charter between Viking and River 1 as a time charter.
Among the features of the charter supporting MARAD's conclusion are the following:
- River 1 provided the crew and the vessel master, who oversees the ship's operations;
- Viking retains power to replace the vessel master, but only in the case of unsatisfactory performance and has not power to name the replacement; and
- River 1 maintains primary responsibility for the ship's maintenance and care.
No aspects of the transaction run afoul of the Jones Act or regulations. The regulations prohibit a foreign corporation from absorbing "all of the costs and normal business risks associated with ownership and operation of” the vessel. But here, Viking has not done so. MARAD did not behave impermissibly in finding that an American Fishing Act regulation did not apply to the transaction, perhaps because the cruise ship was not engaged in fishing.
The rest of the opinion has to do with proper procedures under notice and comment provisions. Ultimately, the Second Circuit's decision was a narrow one. Future charters will require independent review, but MARAD's finding that this agreement created a time charter was not arbitrary and capricious.
Now I'm thinking of doing some follow-up research on the next available cruise.
https://lawprofessors.typepad.com/contractsprof_blog/2024/10/second-circuit-upholds-time-charter-allowing-for-viking-river-cruises-on-the-mississippi.html