author: FRYE, Judge:

text:
    PEOPLES NATIONAL BANK OF WASHINGTON, a national association; Plaintiff, v. Paul Dean NICHOLS, Sally Nichols, Roger Brinkley, Karen Brinkley, and W. Leigh Campbell, dba Nicabi and N.B. Properties, aka N/B Properties; Defendants. PEOPLES NATIONAL BANK OF WASHINGTON, a national association; Plaintiff, v. Eldon C. EVANS; Defendant.
    Civ. Nos. 83-1307-FR, 84-647-FR.
    United States District Court, D. Oregon.
    July 10, 1985.

      Don H. Marmaduke, Scott G. Seidman, Tonkon, Torp, Galen, Marmaduke & Booth, Portland, Or., for plaintiff.
    Eric R. Haessler, Thomas S. Moore, Portland, Or., for defendants.
   OPINION

FRYE, Judge:

Plaintiff, Peoples National Bank of Washington (Peoples), brings these consolidated actions to collect on various promissory notes given by defendants to Peoples. Peoples contends that the promissory notes arose out of loans made by Peoples to defendants so that defendants could purchase stock in Willamette Falls State Bank (WFSB).

In their Affirmative Defenses and Counterclaims, defendants allege that the transactions between Peoples and defendants are not loans, but are installment sales of WFSB stock in which Peoples participated as a seller.

Defendants contend that following an alleged undisclosed agreement between Peoples and WFSB, Peoples acted in concert with others in the sale of WFSB stock to public investors, including defendants; that defendants’ notes to Peoples are an integral part of the stock selling plan and the sale of the WFSB offering; and that stock sales were made to defendants with material omissions, misstatements of fact, and misleading acts.

Defendants deny liability on the promissory notes and seek to affirmatively recover damages and punitive damages from Peoples for common law fraud and violations of federal and state securities laws and federal and state racketeering laws.

In the matter before the court, Peoples moves for summary judgment on its claims against defendants and on all counterclaims asserted by defendants against Peoples. In the alternative, Peoples moves for partial summary judgment dismissing defendants’ counterclaims.

FACTUAL BACKGROUND

Efforts to organize WFSB began in late 1978 with the actions of David Peery, the prospective president of WFSB. On January 1, 1979, a prospectus was issued offering the sale of stock. The prospectus represented that all proceeds from the sale of the stock would be deposited and maintained in an escrow account in Peoples and that no funds would be released from the account until the stock offering was fully-subscribed and paid for and the release authorized by the Oregon Superintendent of Banks.

In September, 1979, the escrow funding requirements had been satisfied. Thereafter, a charter was issued to WFSB and the escrow funds were released. Soon thereafter, WFSB opened its doors. The subsequent events are in dispute but it is uncontroverted that WFSB failed.

The dispute in this action arises out of the purchase by the defendants of stock in WFSB. Defendants executed and delivered promissory notes to Peoples in order to purchase stock in WFSB. There is no dispute between the parties that these promissory notes were executed and that they are now in default. The issue before the court is whether the defendants have any defenses or counterclaims entitling them to relief from the obligations on the notes.

Peoples contends that it acted solely as a lender in the transactions and performed only ordinary banking functions. It contends that there is no issue of material fact as to defendants’ liability on the notes.

Defendants contend that they are not obligated to pay the notes because the transactions between the parties were, in fact, conditional installment sales in that Peoples has at all material times retained possession of the stock. In addition, defendants contend that as an offset, counterclaim, or by way of recoupment, they are entitled to recover damages equal to all sums paid to Peoples and others for WFSB’s shares, together with interest thereon since the date paid; to relief from all obligations that Peoples claims are owed by defendants; and to costs and reasonable attorney fees. Defendants contend that Peoples’ actions constitute violations of (1) Sections 12 and 17 of the Securities Act of 1933,15 U.S.C. § 77(Z), (q); (2) Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, 15 U.S.C. § 78j; (3) RICO, 18 U.S.C. §§ 1341, 1343, and 1961; (4) Oregon Securities Law, ORS Chapter 59; (5) common law fraud; and (6) Oregon RICO, ORS Chapters 164 and 166.

Defendants contend that Peoples acted fraudulently in affirmatively misleading them and in failing to disclose material facts which it had a duty to disclose. Defendants advance the following version of the facts, relying upon a number of affidavits and depositions:

As a part of an aggressive funding of an active participation in the organization of a system of correspondent banks, Chris Collins, manager of Peoples’ correspondent banking division and/or Dan Doyle, Collins’ boss and Peoples vice-president in charge of Peoples correspondent banking division, contacted David Peery. After meeting, Peery and Peoples agreed that in return for Peoples becoming WFSB’s major correspondent bank, Peoples would (1) advance Peery $75,000 to pay organizational expenses including salaries and costs of stock sales; (2) fund 75% of share subscriptions to prospective purchasers of substantial amounts of shares, at the unusually low interest rate of prime plus one-half; (3) Peoples would serve as escrow for the offering; and (4) Peoples would advance or commit $74,000 for acquisition of a mobile home for the initial banking facility.
The sale of stock was commenced in January, 1979, pursuant to the prospectus. The prospectus was materially deficient in that it did not disclose that (1) Peoples was funding the organization and stock sale; (2) Peoples was making substantial loans to principal officers of WFSB; (3) Peoples had agreed to make 75% loans to officers, directors, and major purchasers of stock; (4) Peoples was going tó become WFSB’s principal correspondent bank; (5) these commitments and arrangements had been agreed upon between Peoples and WFSB in October, 1978, before the preparation of the prospectus and commencement of the stock sale; and (6) Peoples had initiated all of these transactions.
Peery and Richard Russell, a prospective vice president of WFSB, began calling upon local residents of Oregon City to make stock sales. Collins and Doyle joined them in calling upon prospective buyers. Peoples opened an escrow account in Seattle to accept proceeds from the stock sale. Perry, Russell, Doyle, and Collins advised prospective buyers that Peoples would make 75% loans in connection with WFSB stock purchases.
Notwithstanding these efforts, WFSB stock sales were lagging by late March, and organizers, at the insistence of Peoples, turned to lawyer Thomas E. Wolf. Irving Potter, Wolfs law partner, became secretary and director of WFSB, and Wolf became personally active in the stock sale. Wolf was a personal friend of Peoples' Executive Vice President Charles Riley and had participated jointly with Peoples in the funding and organization of at least five other banks.
Peoples and Wolf used similar methods in organizing the other five banks, including recruiting young branch managers without senior managerial experience to serve as prospective presidents, to make stock sales, and to enroll prominent local people to serve as directors. These five other banks all failed. Defendants were caught in this type of sales pitch and are local people with no real experience in stock ownership, securities, or banking.
Wolf assumed primary responsibility for the sale of the balance of the stock after he was retained, placing approximately 60,000 shares. A substantial amount of these shares were “parked”; that is, sold to subscribers with the understanding that they would be resold after the close of escrow. Peoples financed all but one of these sales, which was financed by funds from a trust account under Wolf’s fiduciary control.
In late August, 1979, Wolf and Peery flew to Seattle with two prospective buyers to meet Collins and Doyle of Peoples. With Peoples funding the loan, Collins
and Doyle purchased the final shares necessary to release the funds from escrow. Defendants allege that the shares were parked and submit the affidavits of Collins and Doyle which state that they were told by Wolf they would not be personally at risk in the purchases. The bank then opened.
WFSB had a serious market problem when it opened because approximately 60% of the outstanding shares were pledged to Peoples subject to interest and repayment requirements. In addition, a significant number of shares had been “parked” with a commitment that the investor would incur no risk, and that the shares would be resold. As a result, WFSB was unable to raise any further capital to meet expenses because of the recurring pressure to sell pledged shares to relieve doubtful loans and promises to parkees. The resulting pressure- becomes particularly intense if the apparent market price drops below the public offering price ($10/share in this case). Peoples and Wolf advised that WFSB stock would go up in value and stated that investors, including defendants, should make particular purchases in order to keep the price of the shares on resale above the $10 level. In other words, Wolf and Peoples promoted price manipulation.
On October 12, 1979, Doyle of Peoples, Peery of WFSB, and Wolf met with defendant Paul Dean Nichols and urged Nichols to become a director and shareholder because he could influence deposits from Tri-Met (he was on their board) and other public bodies. On November 8, Wolf and Collins of Peoples met with Nichols and urged him to buy stock, stating that the market value was $11 and that there was a buyer for all outstanding stock at $13. Collins stated that it could go higher. In December, 1979, Nichols purchased 100 shares for $1200 and agreed to become a director. In early April Nichols met with' Wolf and Charles Riley, Peoples’ Executive Vice President, who spoke enthusiastically about WFSB stock. A few days later Nichols purchased 1900 shares with a 75% loan from Peoples.
In May, 1980, Nichols and Joyce Evans were encouraged to and did buy additional shares. In late June, 1980, Nichols purchased more. In January, 1981, Nichols and Joyce Evans bought out the shares of Peery. In all of these transactions, Peoples failed to disclose that the proceeds were being applied to pay off loans to Peoples and that Peoples had a duty to disclose this information.
The price manipulation and maintenance above $10 a share ended abruptly when Peoples stopped financing purchases of stock through a revolving succession of loans.

Peoples contends that the defendants manipulated their positions as directors and affiliates to arrange massive “insider” loan transactions as well as to acquire large blocks of stock in the speculative hope that they would make “a killing” should WFSB be acquired, or merged into, a larger bank. Peoples contends that the WFSB management mismanaged WFSB’s affairs, allowing it to become overextended in its loan-to-deposit ratio in general and with respect to “insider” transactions in particular. Peoples points to a review of WFSB by the Federal Deposit Insurance Corporation (FDIC) in which it criticized the poor quality of WFSB’s portfolio, the inept direction of WFSB, and the “insider” loan transactions.

On December 14, 1981, the FDIC formally charged WFSB with numerous unsound banking practices, including maintaining insufficient loan loss reserves and making improper insider loans. On or about that same date WFSB’s directors received a consent decree, which they subsequently signed, acknowledging that they had mismanaged WFSB’s affairs.

Peoples contends that it was through mismanagement that the stock defendants purchased became worthless and that defendants are now trying to avoid their obligations to Peoples by asserting a host of groundless defenses and counterclaims.

PEOPLES’ MOTION FOR SUMMARY JUDGMENT ON ITS CLAIM

There is no dispute as to the execution and default of the loans. Defendants assert as a defense that the loans were conditional sales agreements because Peoples has retained the stock at all times.

DEFENDANTS’ COUNTERCLAIMS

Defendants assert six counterclaims based upon federal and state law.

1. Sections 12 and 17 of the Securities Act of 1933:

Section 12 of the Securities Act of 1933 specifically exempts “any security issued or guaranteed by a bank.” Section 3(a)(2). Furthermore, there is no private right of action under Section 17(a) of the Securities Act of 1933 for the reasons stated in Brabham v. Patenta, N.V., 614 F.Supp. 568 (D.Or.1984). Plaintiff’s motion for summary judgment on defendants’ counterclaim under the Securities Act of 1933 is GRANTED.

2. Section 10 of the Securities Exchange Act of 1933 and Rule 10b-5.

Section 10(b) makes unlawful the use or employment of “any manipulative or deceptive device or contrivance” in contravention of the rules of the Securities Exchange Commission (SEC). The elements of a private cause of action under Rule 10b-5 are: (1) a misstatement or an omission (2) of a material fact (3) made with scienter (4) upon which the plaintiff relied (5) that proximately caused his or her injury.

In addition, the elements of a cause of action for aiding and abetting under section 10(b) are: (1) the existence of an independent wrong; (2) actual knowledge by the alleged aider and abetter of the wrong and of his or her role in furthering it; and (3) substantial assistance in the wrong. Harmsen v. Smith, 693 F.2d 932, 943 (9th Cir.1982). Liability as an aider and abetter attachs where the defendant owed a duty to disclose material facts to the claimant. In determining the scope of that duty the court should consider: (1) the relationship of the defendant to the plaintiff; (2) the defendant’s access to information compared to that of the plaintiff; (3) the benefit the defendant derived from the relationship; (4) the awareness by the defendant of the plaintiff’s reliance on him or her; (5) the defendant’s activity in initiating the securities transaction in question. Stephenson v. Calpine Conifers II, Ltd., 652 F.2d 808 (9th Cir.1981).

Peoples contends that defendants have failed to identify with requisite specificity any material misrepresentations made by Peoples’ employees and have created confusion as to who made what allegation, thereby branding Peoples through guilt by association. Peoples asserts that it provided no more than ordinary banking functions in the transactions at issue and therefore had no duty to disclose to the defendants.

Peoples would have no duty to disclose where it performed only ordinary banking functions, but defendants contend that Peoples was a seller or a substantial participant in the sales of WFSB stock to defendants and therefore had a duty to disclose. In addition, defendants contend that the announced completion of the WFSB offering with such a large quantity of shares “parked” and/or pledged to Peoples constitutes manipulative conduct in violation of Section 10 and Rule 10b-5.

Defendants submit the affidavits of three individuals who state that they bought shares at the urging of Wolf that “they would not be personally at risk on the shares.” This is the evidence upon which defendants rely to support their contention that there was “parking” of the shares. Peoples contends that if there was some wrongdoing, it was at the hands of Wolf, and the defendants should sue Wolf. There remains an issue as to whether Peoples was aware of Wolf’s activity. The connection between Wolf and Peoples was a close one. In addition, the individuals who allegedly purchased shares that were “parked” received loans from Peoples, and it is possible that Peoples was aware of the arrangement. If Peoples was aware of Wolf’s arrangements, there would be an issue as to aiding and abetting, if there was a duty to disclose.

The significance of this alleged “parking” is explained in the case of A.J. White & Co. v. Securities and Exch. Com’n, 556 F.2d 619 (1st Cir.1977), where the initial stock offer was made to appear successful when about half of the minimum.amount was raised through short-term loans rather than bona fide sales to investors. The court explained:

Our question, therefore, is whether it matters significantly to investors that about one-half of the minimum amount was raised through short-term bank loans rather than bona fide sales to investors. We believe the Commission’s conclusion that this, too, was a serious violation was well within its discretion. The knowledge that the minimum amount has been sold to bona fide investors may be a very important matter to the other investors. Particularly in cases such as this, an offering of shares in a new company, one of the investors’ major concerns will be whether the price they are paying for the securities is a fair market price. The inability of the underwriter to sell the specified minimum to bona fide investors may well indicate that the market judges the offering price to be too high. Thus, to declare an offering completed through non-bona fide sales financed through bank loans, where the purported investors have not made an investment decision backed with their own money, may significantly mislead the legitimate investors as to a crucial factor in their decision.
Nor are the initial investors the only ones likely to be harmed. If the scheme employed by petitioners was to be successful, and the loans repaid, there had to be persons willing to purchase Develco stock after the offering at a price above, or at least equal to, the initial offering price. Such investors, too, would probably be influenced by the representation that the offering had been successful when deciding whether to purchase. Thus, petitioners’ contention that “[n]o manipulation took place,” and that no investors lost any money as a result of their actions, may well be short-sighted— many investors may have paid more for these securities than they would otherwise have done, or bought them when they would not otherwise have done so, with, incidentally, White receiving part of the profit.

There may be a question of fact as to whether the affiant stock purchasers were bona fide purchasers since they agreed to a purchase where they were assured that they would not be personally at risk in the purchase. In addition, there is some evidence through the affidavit of Richard T. Busby that this arrangement existed between Wolf and David Clery, an individual who purchased stock with Wolf as personal guarantor.

Lastly, Peoples asks the court to grant its motion for summary judgment on the grounds that these facts were discovered by defendants prior to the two year statute of limitations period. Defendants submit affidavits stating that they did not know of the alleged misrepresentations and omissions until after 1983, yet their depositions indicate that some of the facts were discussed prior to that time. These are disputed issues of fact for a trier of fact.

The remaining issues under 10b-5 are scienter and causation. Peoples urges the court to find that there is no material issue of fact that the defendants’ loss was caused by mismanagement of bank officials. Peoples relies upon the consent decree signed by bank directors admitting mismanagement. While a jury could find that the failure of the bank was due to mismanagement, a jury could also find that the failure was due to inadequate capitalization and artificial price inflation. Furthermore, a jury could conclude that these defendants would not have made the initial purchases if all the facts were on the table. Joyce Evans states in her deposition:

A. Well, if I’d have known that, to me it would have signified that Peoples was funding the opening of this new bank completely and then it would have been like a branch of Peoples. And we had the conception that it was a totally local thing that was going to be a community start of an independent bank and that these organizers were putting up their own money to get this thing off the ground. And if we’d have known that this was an out-of-state bank’s promotion or whatever you want to call it, we wouldn’t have gone into it. And I think a lot of other people wouldn’t have.

Plaintiff’s motion for summary judgment on defendants’ counterclaim under Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5 is DENIED.

3. Claims under RICO and ORICO.

Defendants’ counterclaims under RICO and ORICO are dismissed. See Willamette Sav. & Loan v. Blake & Neal Finance Co., 577 F.Supp. 1415 (D.Or.1984).

4. Common Law Fraud.

Since the court has declined to grant to plaintiff summary judgment as to defendants’ counterclaim for a violation of Section 10 of the Securities Exchange Act of 1934, it also declines to grant summary judgment to plaintiff on defendants’ common law fraud counterclaim.

IT IS ORDERED that

1. Plaintiff’s motion for summary judgment on defendants’ counterclaim under the Securities Act of 1933 and RICO and ORICO is GRANTED.

2. Plaintiff’s motion for summary judgment on defendants’ counterclaim under Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5 and common law fraud is DENIED.

ON MOTION TO AMEND PRETRIAL ORDER

In the matters before the court the defendants move (1) to amend the pretrial order to include an allegation that plaintiff violated 18 U.S.C. § 1962 and (2) to reconsider this court’s order of July 10, 1985 dismissing defendants’ counterclaims under RICO and ORICO.

Defendants seek to reinstate their RICO and ORICO claims based upon the recent United States Supreme Court decisions in Sedima, S.P.R.L. v. ImrexCo, Inc., — U.S.-, 105 S.Ct. 3292, 87 L.Ed.2d 361 (1985) and American National Bank and Trust Company of Chicago v. Haroco, Inc., — U.S. -, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985), which hold that a RICO plaintiff need not prove a prior conviction of a RICO violation or a “racketeering injury” distinct from an injury from the predicate acts themselves.

Plaintiff objects to reinstating the RICO and ORICO claims on the grounds that a corporate defendant cannot be both the defendant and the enterprise in a RICO action as held by the Ninth Circuit Court of Appeals in Rae v. Union Bank, 725 F.2d 478 (9th Cir.1984).

The court finds that defendants have failed to state an adequate claim in that they have not identified an “enterprise” as required under the language of 18 U.S.C. § 1962 separate from the plaintiff. The decisions of the Supreme Court in Sedima and Haroco fail to address this requirement set out by the Ninth Circuit Court of Appeals in Rae.

IT IS ORDERED that:

1. Defendants’ motion to amend the pretrial order is DENIED.

2. Defendants’ motion to reconsider the court’s ruling of July 10, 1985 is DENIED.


source: Caselaw Access Project

author: HATFIELD, District Judge.

license: Public Domain

text:
    Kenneth and Theodora WEATHERWAX; and on Behalf of Minor Child, Austin CARLSON, Plaintiffs, v. Michael FAIRBANKS, individually and as BIA Superintendent; Richard Whitesell, individually and as BIA Area Director; United States Department of Interior; Blackfeet Tribe; Melvin Rutherford; Orville Goss; Katherine Sloss, individually and as Blackfeet Appeals Court Judges; Louise Burke, individually and as Blackfeet Trial Court Judge; Glen Little Bird, individually and as BIA Police Supervisor; Mike Connelly, individually and an BIA Police Officer; and John Doe, BIA Police Agent, Defendants.
    No. CV-85-159-GF.
    United States District Court, D. Montana, Great Falls Division.
    July 10, 1985.

      Vance Gillette, Browning, Mont., for plaintiffs.
    Philip E. Roy, Gen. Counsel, Blackfeet Legal Dept., Browning, Mont., for defendants.
   MEMORANDUM AND ORDER

HATFIELD, District Judge.

The plaintiffs bring this action in an effort to challenge a judgment of the Tribal Court of the Blackfeet Indian Reservation which determined certain visitation rights in a child custody case. Invoking jurisdiction under the Indian Civil Rights Act, 25 U.S.C. §§ 1301 et seq., in conjunction with 28 U.S.C. § 1331, the plaintiffs request this court to grant them relief from the judgment of the Tribal Court by way of habeas corpus relief under authority of 25 U.S.C. § 1303.

In an obviously confoundable manner, the plaintiffs also request the court to enjoin the Department of the Interior and its agents, acting through the Bureau of Indian Affairs, from enforcing the Tribal Court judgment at issue.

HABEAS CORPUS

25 U.S.C. § 1303 authorizes any person “detained” by order of an Indian Tribe to test the validity of that detention in the federal courts by way of a writ of habeas corpus. The plaintiffs sub judice challenge the validity of a judgment of the Blackfeet Tribal Court granting visitation rights with their minor son to an aunt of that son. Having preliminarily considered the plaintiffs’ petition, the court finds that the plaintiffs are not entitled to habeas corpus relief.

The plaintiffs are simply challenging the propriety and wisdom of an Indian tribal court decision in a child custody action. This court concludes, however, that federal habeas corpus relief under 25 U.S.C. § 1303 is not available to test the validity of a child custody decree of an Indian tribal court. A child custody ruling is not sufficient to trigger federal habeas corpus relief since the custody involved is not the kind which has traditionally prompted federal courts to assert their jurisdiction. See, Doe v. Doe, 660 F.2d 101 (4th Cir.1981); Sylvander v. New England Home for Little Wanderers, 584 F.2d 1103 (1st Cir.1978); Donnelly v. Donnelly, 515 F.2d 129 (1st Cir.1975), cert. denied, 423 U.S. 998, 96 S.Ct. 429, 46 L.Ed.2d 373 (1975). Consequently, the court finds it appropriate to dismiss the plaintiffs’ petition for habeas corpus relief, since it plainly appears from the face of the petition that they are not entitled to the relief requested.

MANDAMUS

As best as the court can ascertain from the complaint, the plaintiffs’ request for relief in the nature of mandamus seeks to compel the Secretary of the Interior (“Secretary”), pursuant to 28 U.S.C. § 1361, to exercise the discretion vested in the Secretary, under § 109 of the Indian Self Determination Act (the “ISDA”), 25 U.S.C. § 450m, to rescind any contract or grant existing between the Secretary and the Blackfeet Tribe under authority of § 104 of the ISDA, 25 U.S.C. 450h(a). The plaintiffs’ request is designed to compel the Secretary to terminate any funding or assistance provided the Blackfeet Tribal Court, pursuant to 25 U.S.C. § 450h(a), until such time as the Blackfeet Tribal Court vacates or amends its judgment with respect to the custody of plaintiffs’ minor child.

The gist of the plaintiffs’ request for mandamus relief is based on the plaintiffs’ belief that the Secretary should act to remedy, what the plaintiffs perceive to be, a violation of their right to due process of law as secured to them by the Indian Civil Rights Act, 25 U.S.C. §§ 1301 et seq. Having met with an adverse decision at both the trial and appellate levels of the Blackfeet Tribal Court with respect to the custody of their minor child, the plaintiffs seek to compel the Secretary to exercise the discretion vested in the Secretary to terminate any federal monetary assistance which the Tribal Court is receiving pursuant to the ISDA. The complaint asserts that the Secretary, although notified of the alleged violation of the plaintiffs’ civil rights occasioned by the judicial proceedings at issue, failed to take affirmative action in an effort to remedy the situation.

25 U.S.C. § 450m provides a mechanism whereby the Secretary, in an effort to remedy, inter alia, violations of civil rights by any tribal organization, may withdraw federal funding and assistance provided the offending organization under the provisions of the ISDA. Section 271.75, Chapter 1 of Title 25, Code of Federal Regulations, establishes the procedure whereby the Secretary may rescind a contract or grant agreement under the ISDA. Review of the text of 25 U.S.C. § 450m, however, reveals that Congress did not specifically or impliedly grant a private cause of action to any person aggrieved by actions of a tribal organization. Rather, the determination whether to rescind a contract or grant agreement is a matter committed to the discretion of the Secretary. The plaintiffs’ attempt to direct the manner in which the Secretary is to exercise the discretion granted the Secretary, under 25 U.S.C. § 450m, by invoking relief in the nature of mandamus under 28 U.S.C. § 1361 is entirely improper. Consequently, the court finds it appropriate to dismiss the plaintiffs’ claim for relief under 28 U.S.C. § 1361 for want of subject matter jurisdiction.

28 U.S.C. § 1361 confers original jurisdiction on federal district courts over actions “to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff.” Section 1361, however, did not enlarge the generally recognized scope of mandamus relief but, in conjunction with 28 U.S.C. § 1391(e), was intended only to ease the burden of proceeding against officers and employees of the federal government, formerly suable only in the District of Columbia. Jarrett v. Resor, 426 F.2d 213, 216 (9th Cir.1970). Section 1361 makes mandamus available to enforce ministerial duties, Workman v. Mitchell, 502 F.2d 1201 (9th Cir.1974), and to require the exercise of discretion, Commonwealth of Penn. v. National Assoc, of Flood Insurers, 520 F.2d 11 (3rd Cir.1975). Mandamus relief under Section 1361, however, is not available to direct the manner in which the discretion vested in a particular government agent will be exercised, Jarrett v. Resor, supra; see also, Kennecott Copper Corp. v. Costie, 572 F.2d 1349 (9th Cir.1978), or to correct an abuse of discretion. Jarrett v. Resor, supra; contra, Haneke v. Sec. Health, Educ, & Welfare, 535 F.2d 1291 (D.C.Cir. 1976); Chaudoin v. Atkinson, 494 F.2d 1323 (3rd Cir.1974).

The complaint in this action does not allege that the Secretary has failed to fulfill a plainly prescribed ministerial duty. Rather, the complaint, at best, alleges that the Secretary has failed to exercise the discretion vested in him by 25 U.S.C. § 450m in a manner which will serve to effectuate the plaintiffs’ desire to obtain relief from the Tribal Court judgment in controversy. Accordingly, the court concludes that the complaint, neither on its face, nor in substance, properly invokes the jurisdiction of this court under Section 1361.

For the reasons set forth herein,

IT IS ORDERED that the present complaint be, and the same hereby is, DISMISSED in its entirety.

      . The plaintiffs name the Blackfeet Tribe and four judges of the Blackfeet Tribal Court system as respondents with respect to the request for habeas corpus relief under 25 U.S.C. § 1303.

      . This court has consistently found the law which has developed with respect to actions for habeas corpus relief under 28 U.S.C. § 2254 to be applicable by analogy to actions founded upon 25 U.S.C. § 1303.

      . 25 U.S.C. § 450m vests the Secretary with the discretion to rescind contracts or grants extant between any Indian tribe and the Secretary pursuant to § 450h(a) if, after a hearing, the Secretary finds the program is mismanaged, or the tribal organization’s performance under the contract or grant agreement involves the violation of rights or endangerment of the health, safety, or welfare of any persons.

      . Federal district courts have jurisdiction to review administrative action of the Secretary with respect to Indian matters under 28 U.S.C. § 1361. See, Coomes v. Adkinson, 414 F.Supp. 975 (D.S.D.1976). Jurisdiction to review actions of the Secretary also lies under 28 U.S.C. § 1331 in conjunction with the Administrative Procedures Act ("APA"), 5 U.S.C. §§ 701 et seq. Cali-fano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977); Kennedy v. United States, 534 F.Supp. 269 (D.Mont.1982), rev’d. on other grounds, 721 F.2d 1252 (9th Cir.1983). Although the plaintiffs invoke the jurisdiction of this court under both of the foregoing jurisdictional grants, the court finds it necessary to address only the former in detail.
      The APA provides that judicial review of agency action may be precluded where the agency action is committed by law to agency discretion. 5 U.S.C. § 701(a)(2) (1976); see also, McCartin v. Norton, 674 F.2d 1317 (9th Cir. 1982). The agency action, or perhaps inaction, challenged by the plaintiffs at bar is a matter clearly committed to the discretion of the Secretary. Although this fact alone does not prevent judicial review to determine whether that discretion has been abused or exceeded by a decision that is arbitrary or capricious, id. at 1320, the exception to re-viewability contained in 5 U.S.C. § 702(a)(2) applies where a statute is "drawn in such broad terms that in a given situation there is no law to apply.” Citizen to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410, 91 S.Ct. 814, 820, 28 L.Ed.2d 136 (1971); Johnson Oyster Co., Inc. v. Baldridge, 704 F.2d 1060, 1062 (9th Cir.1983). This court finds the discretion vested in the Secretary by 25 U.S.C. § 450m to be drawn in such "broad terms" as to preclude judicial review, under 5 U.S.C. § 701(a)(2), of the Secretary’s exercise of that discretion.

      . See, Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979).


author: OBERDORFER, District Judge.

text:
    FARRELL LINES, INC., Plaintiff, v. Elizabeth Hanford DOLE, et al., Defendants. SEA-LAND SERVICE, INC., Plaintiff, v. MARITIME SUBSIDY BOARD, et al., Defendants. PRUDENTIAL LINES, INC., Plaintiff, v. MARITIME SUBSIDY BOARD, et al., Defendants. WATERMAN STEAMSHIP CORPORATION, Plaintiff, v. MARITIME SUBSIDY BOARD, et al., Defendants.
    Civ. A. Nos. 84-3294, 84-3532, 84-3563, 85-0192.
    United States District Court, District of Columbia.
    Aug. 1, 1985.

      Clifford J. Roth, New York City, Daniel J. Piliero, II, Tighe, Curhan & Piliero, Washington, D.C., for plaintiff Prudential Lines, Inc.
    John P. Meade, Washington, D.C., for the plaintiff, Waterman SS. Corp.
    Edward Aptaker, Schmeltzer, Aptaker & Sheppard, P.C., Washington, D.C., for Farrell Lines Inc.
    Edward M. Shea, John E. Yargo, Washington, D.C., for plaintiff Sea-Land Service, Inc.
    John H.E. Bayley, Jr., Asst. U.S. Atty., Washington, D.C., for defendants.

      Sanford M. Litvack, Eric J. Lobenfeld, Donovan Leisure Newton & Irvine, Washington, D.C., New York City, for inter-venor-defendant United States Lines, Inc.; Russell T. Weil, James W. Pewett, Kirlin, Campbell & Keating, Washington, D.C., of counsel.
   ORDER

OBERDORFER, District Judge.

For the reasons set forth in an accompanying Memorandum, it is this 1st day of August, 1985, hereby

ORDERED and ADJUDGED: that plaintiffs’ motions for summary judgment be, and are hereby, GRANTED; and it is further

ORDERED and ADJUDGED: that defendants’ and intervenor-defendant’s motions for summary judgment be, and are hereby, DENIED; and it is further

ADJUDGED and DECLARED: that the Maritime Administration’s October 11,1984 refusal to reopen the proceedings in Docket S-686 was a clear abuse of discretion; and it is further

ADJUDGED and DECLARED: that the Maritime Subsidy Board’s actions of June 2, 1982 and May 26, 1983, were arbitrary, caparicious, an abuse of discretion and not in accordance with law to the extent that those decisions granted intervenor-defend-ant United States Lines, Inc. authority to conduct nonsubsidized operations with its Jumbo Econships and with other vessels in conjunction with them; and it is further ORDERED, ADJUDGED and DECREED: that these proceedings are remanded to the Maritime Administration and the Maritime Subsidy Board; and it is further

ORDERED, ADJUDGED and DECREED: that intervenor-defendant United States Lines, Inc., shall file, on or before August 23, 1985, an appropriate application for authority to conduct the unsubsidized operations previously authorized by the June 2, 1982 and May 23, 1983 orders; and it is further

ORDERED, ADJUDGED and DECREED: that the Maritime Administration and the Maritime Subsidy Board shall thereafter provide notice of that application and an opportunity for interested parties to comment on it; and it is further ORDERED, ADJUDGED and DECREED: that MarAd shall, as expeditiously as possible, enter a reasoned decision addressing the issues raised in the comments submitted by interested parties.

MEMORANDUM

The four plaintiffs in these consolidated eases are U.S.-flag carriers that challenge the decision of the Maritime Administration (“MarAd”) to authorize intervenor-defend-ant United States Lines (“USL”) to begin a new, unsubsidized round-the-world service using fourteen new containerships known as Jumbo Econships. Plaintiffs claim that MarAd’s decision was arbitrary and capricious because the Maritime Subsidy Board (“Board”), which was charged with making the initial determination in this case, did not provide adequate notice or a hearing before reaching its decision and failed to ascertain the adequacy of United States-flag shipping on the trade routes affected by USL’s planned unsubsidized service. The action is now before the Court on the parties’ cross-motions for summary judgment.

I.

The Merchant Marine Act of 1936, 46 U.S.C. § 1101 et seq., authorizes MarAd to subsidize the construction and operation of U.S.-flag vessels in foreign trade. Specifically, the Act enables MarAd to enter into “operating-differential subsidy” (ODS) contracts with U.S.-flag shippers. 46 U.S.C. § 1173. The amount of the subsidy is the difference between the domestic costs of operating ships on a given trade route and the corresponding costs incurred by foreign competition, or such lesser amount as the parties may agree upon. 46 U.S.C. § 1173(b). The subsidy is intended to foster foreign commerce and a strong merchant marine.

For many years, USL operated its ships on Trade Routes 5, 7, 8, 9 and 11 (U.S. Atlantic/North Europe) and 12 and 29 (U.S. Atlantic and Pacific/Far East) without subsidy. In November of 1980, USL applied to MarAd to acquire the interest of plaintiff Farrell Lines, Inc. (“Farrell”) in two vessels, as well as Farrell’s rights to ODS on the U.S. North Atlantic/North Europe and U.S. Atlantic/Far East trade routes. R. at 1-105. USL also asked MarAd

to permit unrestricted voyages, in terms of numbers and places served, by U.S. Lines or by any affiliated company on trade routes or services not covered by the Subsidy Contracts, by vessels not subject to the Subsidy Contracts and by vessels, subsidized or unsubsidized, on the Trade Routes without regard to the minimum/maximum number of sailings for which ODS will be paid.

R. at 5-6. A summary of USL’s application was published at 45 Fed.Reg. 77,099 (1980); R. at 36. In comments responding to this notice, plaintiff Sea-Land Service, Inc. (“Sea-Land”) and others opposed the part of USL’s application that would permit unlimited unsubsidized operations by subsidized and unsubsidized vessels. R. at 106, 118-120.

On January 9, 1981, the Board and USL entered into ODS contract MA/MSB-483. The Board thus approved the transfer of Farrell’s ODS rights. It also emphasized that USL’s application for unsubsidized services did not warrant a hearing under section 605(c) of the Merchant Marine Act, 46 U.S.C. § 1175(c), since “such application is not for additional service on [the U.S. North Atlantic/North Europe trade route] and section 605(c) does not extend to unsubsidized service.” The Board further held that inclusion of USL's existing unsubsidized operations in the contract was “expressly not subject to [General Order 80], inasmuch as, among other reasons, such nonsubsidized operations will be authorized by USL’s ODSA.” R. at 158.

On February 17, 1981, USL applied for a twenty-year ODS contract under which it would receive subsidies on two trade routes on which it was already providing the services proposed to be subsidized. The application described USL’s proposed subsidized service and, in connection with that service, requested permission to undertake

an unrestricted number of voyages without subsidy by new or existing vessels of U.S. Lines or an affiliated company, on trade routes and services for which it receives subsidy or on trade routes and services for which it does not receive subsidy, so long as U.S. Lines fulfills its obligations under its subsidy agreement.

R. at 177. USL’s application was noticed in the Federal Register, where it was assigned Docket No. S-686. 46 Fed.Reg. 19,-015 (1981); R. at 226-27. American President Lines and plaintiffs Sea-Land and Waterman Steamship Corporation (“Waterman”) submitted comments objecting to USL’s application for nonsubsidized service. R. at 238-40, 244, 258.

The Board issued a decision in Docket S-686 on July 16, 1981. R. at 302-312. First, the Board held that section 605(c) of the Merchant Marine Act did not bar award of an ODS contract for USL’s existing subsidized services on certain trade routes. R. at 312. Second, the Board reiterated its view that section 605(c) does not apply to unsubsidized operations. However, “because of the alleged undue advantage and prejudice that follow from grant of the unsubsidized privileges requested by USL and because of the critical nature of the requested unsubsidized service to the opposition of several parties,” the Board exercised its discretion to address USL’s request for unsubsidized services. R. at 310. The Board concluded that:

The issue of the appropriate flexibility of unsubsidized service for subsidized operators is a broad issue of far reaching policy implications, as the intervenors have made plain. The matter is appropriate for the Board to address with respect to all subsidized operators. In the meantime, USL will be subject to the provisions of [General Order 80], as are other operators.

R. at 311 (emphasis added). In addition, the Board noted in its findings and conclusions that “USL’s requested unsubsidized services will be subject to [General Order 80] under any ODSA awarded.” R. at 312.

On April 23, 1982 Farrell reached an agreement in principle under which it was to sell two vessels to USL. R. at 393-402. Three days later, USL’s president wrote to the Maritime Administrator and proposed to amend the twenty-year ODS contract, which had been approved in Docket S-686 but not yet awarded, in order to create a new agreement with a term of five years. R. at 403-05. Among other things, USL offered to construct without subsidy fourteen Jumbo Econships, to be operated under U.S.-flag with American crews. R. at 404. In exchange, USL proposed that under the new contract it would “have the absolute right and flexibility ... to operate the new Jumbo Econships together with a complement of feeder vessels and any other vessels in any legal trade route on an unsubsidized basis.” Id. (emphasis added). The letter by which this proposal was made did not, however, explain how or where USL intended to operate the Jumbo Econships. Moreover, the record contains no indication that the participants in Docket S-686 — including plaintiffs Sea Land, Waterman and Prudential Lines, Inc. (“Prudential”) — received any notice of USL’s proposal.

According to the minutes of a Board meeting held on June 2, 1982, USL’s proposal was accepted when the Board approved Amended and Restated ODS Contract No. MA/MSB-483 (“Amended Contract”), which was characterized as an amendment to the ODS agreement approved in Docket S-686. R. at 411-44. By letters dated June 2, 1982, MarAd notified USL and Farrell of the Board’s decision. R. at 445-81. USL and Farrell later accepted the Amended Contract. R. at 482-507.

The Amended Contract permitted USL to acquire two vessels belonging to plaintiff Farrell. It also featured a reduction in ODS otherwise payable to USL annually, a cap on the total amount of ODS payable to USL, termination of subsidy on affected trade routes after five years, and an obligation to construct fourteen Jumbo Econ-ships. In addition, the Amended Contract authorized USL to operate the Jumbo Econships and certain other ships in USL’s fleet

on [USL’s] existing services up to the máximums for such services specified in Appendix A (minus the number of subsidized sailings made by USL’s existing vessels) and on USL’s Round-the-World service or any constituent leg of such service on a non-subsidized basis up to a maximum of 52 sailings annually

R. at 431. The Board did not, however, apply General Order 80 in considering whether to grant USL’s request for unsubsidized service. R. at 415.

The Amended Contract was later described in a MarAd press release. R. at 508. The press release did not reveal any details about USL’s proposed unsubsidized service, noting only that MarAd had granted USL permission to build fourteen large containerships and that these vessels would not be receiving construction or operating subsidies. Id.

American President Lines and plaintiff Waterman eventually requested review by the Secretary of Transportation. R. at 509-29. American President Lines criticized the adequacy of notice, and Waterman asked that MarAd be required to hold a full hearing on USL’s requests. R. at 527, 513. Plaintiffs Sea-Land and Prudential did not seek Secretarial review at all. USL and Farrell requested that the Secretary decline to review MarAd’s decision. R. at 531-64. On June 28, 1982 the Secretary decided not to review the matter. R. at 565, 581-83. All of the parties in Docket S-686, including plaintiffs in this action, received notice of the Secretary’s decision. R. at 566-67. However, no carrier sought judicial review. On June 29, 1982, USL’s contract was formally amended and restated to conform with the June 2 decision. R. at 890-907.

On January 26, 1983, Farrell and USL jointly submitted a letter to the Board seeking permission to transfer Farrell’s subsidized service on the U.S. Atlantic and Gulf/Australia and New Zealand trade route to USL, along with four vessels. Notice of this application was published in the Federal Register. 48 Fed.Reg. 9,122 (1983); R. at 654. On May 23, 1983, the Board approved this arrangement and incorporated authority for the new service into USL’s Amended Contract. R. at 662-719. The Board also included provisions permitting nonsubsidized operations nearly identical to those described in the June 2 order. R. at 694.

On February 17, 1984, plaintiff Farrell wrote to the Maritime Administrator requesting clarification of the portions of the Amended Contract that authorize operation of USL’s Jumbo Econships in a round-the-world service or leg of such service. R. at 752-55. Farrell had assumed that the Amended Contract merely permitted USL to link up its existing service on certain trade routes in order to form a continuous Round-the-World service. But this assumption was apparently jarred by unspecified “recent developments” which indicated

that USL’s authority to make unsubsidized Round-the-World voyages may be interpreted as permitting USL to inaugurate a service of as many as 104 voyages in Trade Routes 10/13 in direct competition with Farrell’s long-standing service in those routes.

Id. at 753-54. Farrell argued that MarAd could not permit the operation of such unsubsidized service without inquiring into the competitive effects of that service and that, at a minimum, Farrell should have received notice and an opportunity to comment on USL's proposed unsubsidized service. Id. at 754-55. R. at 756-63. On May 24, 1984, the Maritime Administrator denied Farrell’s requested clarification as “untimely.” R. at 767.

Sea-Land noted this exchange of correspondence and submitted its own letter and legal memorandum on June 22,1984. R. at 769-98. Sea-Land argued that USL could not undertake a broad round-the-world service without further action by MarAd, subject to notice and an opportunity for comment by affected U.S.-flag carriers. R. at 772. On June 13 and July 23, Farrell submitted letters responding to the Maritime Administrator’s May 24, 1984 decision. R. at 768, 799-806.

The Maritime Administrator denied these requests on October 11, 1984, reasoning that USL’s proposed round-the-world service fell within the terms of the Amended Contract, that interested parties had had an opportunity to comment on USL’s 1981 application for that contract, and that no further proceedings were necessary before the service was initiated. R. at 807-812. Moreover, the Maritime Administrator informed Prudential and Farrell that “[o]ne constituent leg of [USL’s] proposed service includes the Mediterranean trade in which your companpes] also operatef ].” R. at 809, 811. The plaintiffs initiated separate suits shortly thereafter, and these related actions were later consolidated.

Plaintiffs fear that the enormous capacity of the Jumbo Econships will effectively prevent them from competing on USL’s unsubsidized trade routes. They argue that this result is at odds with the purposes of the Merchant Marine Act, which was intended to strengthen America’s merchant marine. Plaintiffs have therefore asked the Court to vacate MarAd’s June 2, 1982 and May 23, 1983 decisions to authorize USL to conduct unsubsidized operations.

II.

At the outset, defendant and USL assert that this action is barred by laches. To determine the merit of this claim, it is necessary to identify the decisions that the plaintiffs are challenging. After Farrell’s request for clarification was denied in May of 1984, Farrell, Prudential and Sea-Land wrote letters explaining their concern about the rumored breadth of USL’s round-the-world service. In essence, all three requested that the administrative record be reopened in order to give them an opportunity to be heard. See 46 C.F.R. §§ 201.-171-201.175 (1984).

Our Court of Appeals has observed that if an agency declines to reopen, “that decision itself [is] a statutorily reviewable order.” City of Rochester v. Bond, 603 F.2d 927, 938 (D.C.Cir.1979) (footnote omitted). Indeed, the plaintiffs concede that the October 11, 1984 refusal to reopen “was the impetus for these suits.” Statement of Points and Authorities of Sea-Land Service, Inc. in Support of Plaintiffs' Joint Motion for Summary Judgment at 2. Thus, it is first necessary to review “the agency’s reasons for not reconsidering its earlier order.” Id.; accord Northern Colorado Water Conservancy District v. FERC, 730 F.2d 1509, 1515 (D.C.Cir.1984).

Laches applies only where plaintiffs have failed to exercise due diligence in ascertaining their rights. Gull Airborne Instruments, Inc. v. Weinberger, 694 F.2d 838, 843 (D.C.Cir.1982). Plaintiffs’ attack on MarAd’s October 11, 1984 refusal to reopen is clearly not barred by laches because the plaintiffs brought suit promptly after the Board announced its decision.

Thus, the threshold task before the Court is to review the October 11 decision. The standard of review is well-established: MarAd’s refusal to reopen may be reversed only if that refusal amounted to a clear abuse of discretion. See American Maritime Association v. United States, 766 F.2d 545, 556-57 (D.C.Cir.1985) (citing Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 294-96, 95 S.Ct. 438, 446-47, 42 L.Ed.2d 447 (1974)); Deukmejian v. NRC, 751 F.2d 1287, 1317-18 (D.C.Cir.1984).

MarAd’s October 11 letters and the order denying Farrell’s request for clarification indicate that the agency had four reasons for concluding, in effect, that the plaintiffs had not shown “good cause” for failing to request reopening at an earlier date. 46 C.F.R. § 201.172 (1984). First, the plaintiffs assertedly had an opportunity to comment when USL’s 1981 application for an ODS contract was published in the Federal Register. Second, plaintiffs allegedly could have sought timely review of MarAd’s June 2 grant of unlimited unsubsidized authority to USL. Third, MarAd emphasized that USL had already committed substantial resources in reliance on the June 2 order. Finally, MarAd reasoned that General Order 80, under which the plaintiffs wished to test USL’s planned unsubsidized service, simply did not apply to the June 2 decision. See R. at 766-67, 809-12. Although neither Waterman nor Sea-Land pressed for a reopening, it is clear that MarAd would have denied such a request for the reasons given in the October 11,1984 letters; accordingly, the refusal to reopen may be treated as exhausting the administrative remedies of all of the plaintiffs.

The Board’s assertion that the 1981 Federal Register notice was adequate for purposes of USL’s 1982 application is clearly erroneous. First, USL had on two previous occasions applied for authority to conduct nonsubsidized services; on both occassions, the Board provided notice and gave interested parties an opportunity to comment. See 45 Fed.Reg. 77,099 (1980); 46 Fed.Reg. 19,015 (1981). The Board offered no justification for its failure to engage in similar notice and comment proceedings when USL renewed its request for unsubsidized service in May of 1982. Such an unexplained deviation was unreasonable. Cf Natural Resources Defense Council, Inc. v. Herrington, 768 F.2d 1355, 1431 (D.C.Cir.1985). Second, the 1981 notice said nothing at all about Jumbo Econships, the huge vessels that formed a crucial element of USL’s 1982 proposal. Even the Board acknowledged that the grant of unsubsidized authority for those ships was “a significant departure from authority previously granted to USL.” R. at 421. Indeed, the Board has since conceded that “USL launched a service that was unprecedented and utterly new to the United States merchant marine.” Memorandum of Points and Authorities in Support of Defendants’ Motion to Dismiss at 37. Because USL’s 1982 plans “differed in fundamental respects from” the 1981 notice, it was a clear abuse of discretion for MarAd to conclude that such notice was adequate.

Even assuming that the 1981 Federal Register notice was adequate, MarAd subsequently misled interested parties to believe that they would have a further opportunity to make their views known. The Board’s July 16, 1981 decision in Docket S-686 emphasized the importance of the unsubsidized service issue and added that the Board would address it “with respect to all subsidized operators.” R. at 310-11 (emphasis added). The decision added that “[i]n the meantime, USL will be subject to the provisions of [General Order 80],” a regulation which sets forth detailed administrative procedures. R. at 811; see note 3 supra. MarAd’s statement created in the interested parties a legitimate expectation that USL would not be granted unlimited authority to conduct unsubsidized services in the absence of further proceedings. The parties were thus assured that they would receive further notice of MarAd’s plans with regard to the unsubsidized service issue; the 1981 notice simply has no bearing on MarAd’s subsequent failure to satisfy this obligation.

Similarly, the plaintiffs that declined to seek Secretarial review of the June 2, 1982 decision were justified in their failure to do so. The 1981 decision in Docket S-686 held that MarAd would not grant USL’s request to conduct unlimited, unsubsidized operations in the absence of a proceeding calculated to explore such “a broad issue of far reaching policy implications.” R. at 311. But MarAd issued the June 2 order without giving notice of USL’s request to modify substantially the original ODS contract. Moreover, although the Amended Contract authorized USL to operate Jumbo Econships on USL’s round-the-world service, it did not specify the trade routes that such service would involve. R. at 431. Since interested parties were at that time relying on MarAd’s promise to conduct further proceedings, they had no reason to suspect that MarAd had granted USL broad authority to conduct unsubsidized operations that would compete directly with the services offered by plaintiffs. The Secretary himself emphasized that the Amended Contract differed from the ODS Agreement described in the 1981 notice principally in that it “approved ODS for five years instead of twenty years duration and limited the award to wage costs” and also “required United States Lines to build the new jumbo container vessels.” R. at 583. The Secretary did not suggest that USL had been granted the broad unsubsidized authority that had been denied in the decision in Docket S-686. In short, neither the June 2 decision nor the Secretary’s denial of the requests for review suggested that MarAd was doing something other than what it had promised to do in 1981.

Because the Board had expressly conceded the importance of the unsubsidized authority issue in 1981, it was under an obligation to explain exactly what it was doing when it later made a decision on that issue. The Board’s failure to justify its June 2, 1982 decision in the context of its earlier promise lulled interested parties into the false belief that USL had not been granted sweeping authority. MarAd’s refusal to reopen was in effect an attempt to lay the blame for the Board’s imprecision on the parties; as such, the refusal was a clear abuse of discretion.

Even if the plaintiffs had been aware of what the Board intended, it is unlikely that they could have successfully pressed the issue at that time. The Board had earlier stated that it would not review the permissibility of operations under an ODS contract unless those operations were occurring or about to occur. Specifically, the Board noted “the inadvisability of ruling on theoretical operational movements that may vary significantly from services actually performed” and held that it would “review such service at such time as there is an actual service or prudent belief that there reasonably is likely to be such a service.” Lykes Bros. Steamship Co., 20 S.R.R. 987, 991 (Maritime Subsidy Board 1981). In authorizing USL’s Amended Contract, the Board conceded that “vessel deployment after the commencement of delivery of the new vessels, as well as numbers of vessels deployed, are unknown at present.” R. at 421.- Moreover, the application before the Board did not specify whether USL’s proposed unsubsidized service would be eastbound or westbound. Thus, the plaintiffs could not have made their case to the Board until USL revealed its plans.

The record before MarAd on October 11, 1984 contained no specific explanation of USL’s round-the-world service. In light of existing agency precedent, there was no basis for MarAd’s holding that it was too late for the requesters to challenge the June 2 decision. In this case, plaintiffs’ “untimeliness [was] excusable” and it was “an abuse of discretion to reject the petition.” City of Rochester v. Bond, supra, 603 F.2d at 938 n. 61.

MarAd also asserted that USL's investment in the Jumbo Econships precluded further consideration of the issues raised by the June 2 decision. But there is no indication in the record that MarAd ever conducted any inquiry to determine whether and to what extent USL actually relied on the Amended Contract approved by the June 2 order. Thus, MarAd’s implied finding that USL had relied to its detriment because of the amended contract is based on nothing more than USL’s assertions to that effect. In any event, while USL’s reliance might limit the remedy that could be afforded to the parties requesting reopening, it would not prevent MarAd from inquiring into the legal issues raised in the requests. Because MarAd concluded otherwise, its refusal to reopen was a clear abuse of discretion.

Although the October 11, 1984 letters implicitly focused on the question of whether the request to reopen was timely, they also addressed a final issue central to the plaintiffs’ claim: whether the Board should have considered USL’s application for an amended ODS contract in the context of General Order 80, 46 C.F.R. § 281.11-281.-17. In its 1981 decision in Docket S-686, the Board explicitly noted the significance of the unsubsidized authority issue, declined to decide it, and added that pending an opportunity to consider the matter “with respect to all subsidized operators____ USL will be subject to the provisions of [General Order 80], as are other operators.” R. at 311 (emphasis added); see also R. at 312.

The June 2, 1982 decision and MarAd’s October 11, 1984 letters indicate that the Board considered General Order 80 but concluded that it was not relevant to USL’s application for an amended contract. 46 C.F.R. § 281.11(b)(1) states that General Order 80 does not apply to:

Non-subsidized voyages specifically authorized by the operating-differential subsidy contract of the operator ... which voyages will be acted on under the provisions of the operator’s operating-differential subsidy agreement____

The Board determined that USL’s proposed unsubsidized operations were not subject to General Order 80 because “such nonsubsi-dized operations will be authorized by USL’s amended and restated ODSA.” R. at 431. Similarly, MarAd held that “[t]he non-subsidized operations of the Jumbo Econships in the Round-the-World service are specifically authorized in USL’s ODS Agreement No. MA/MSB-483, as amended and restated” and that General Order 80 therefore did not apply. R. at 810, 812. The question is whether it was a clear abuse of discretion for MarAd to conclude that the proposed unsubsidized service was “specifically authorized” by USL’s Amended Contract.

Deference to MarAd’s interpretation of General Order 80 “is due only when the interpretation ‘is reasonable and consistent with the regulation.’ ” Miller v. Bond, 641 F.2d 997, 1002 (D.C.Cir.1981) (citations omitted) (quoting Belco Petroleum Corp. v. FERC, 589 F.2d 680, 685 (D.C.Cir.1978)). Thus, the Court need not accept MarAd’s interpretation if it is “manifestly unreasonable.” American Maritime Association, supra, at 560.

The Board had earlier interpreted section 281.11(b)(1) to mean that General Order 80 does not apply to continued post-contract operation of a pre-contract unsubsidized service. Thus, “the Board in its grant of a subsidy contract to USL on January 9, 1981 permitted specified unsubsidized operations so that USL could continue its existing unsubsidized service.” R. at 311 (emphasis added). In short, a request that proposes merely to continue an already existing nonsubsidized service need not be considered under the General Order.

But MarAd’s holding goes much farther, implying that the Board could avoid the effect of General Order 80 by the expedient of “specifically authorizing” an entirely new unsubsidized service in an ODS contract amendment. In other words, the propriety of extensive unsubsidized service— which the Board had earlier described as “a broad issue of far reaching policy implications” — was to be disposed of, without notice to any of the parties involved in Docket S-686, by simply writing the disputed service into USL’s Amended Contract. By holding, in effect, that General Order 80 does not apply when the Board chooses to characterize a given action as a contract amendment rather than an order, MarAd effectively renders General Order 80 a nullity.

Moreover, MarAd’s interpretation makes a mockery of its earlier promise that USL would be subject to the provisions of General Order 80. In its decision in Docket S-686, the Board stated that General Order 80 requires subsidized operators “to obtain approval prior to making unsubsidized voyages.” R. at 311. For that reason, the Board emphasized that “[i]t does not follow that there are no restrictions on unsubsidized operations as contended by USL.” R. at 311. The Board then explicitly guaranteed that USL would be subject to General Order 80. R. at 311-12. That promise was plainly misleading if the procedures set forth in General Order 80 could be sidestepped by using an amended contract instead of making a decision pursuant to the General Order. An agency “is not free to set policies in formal decisions and then vary from the policies in less formal rulings involving the same situation.” Distrigas of Massachusetts Corp. v. FPC, 517 F.2d 761, 766 (1st Cir.1975). Yet that is exactly what MarAd has done here.

Even assuming that General Order 80 could be interpreted as MarAd has, the Amended Contract simply does not “specifically authorize” USL’s proposed non-subsidized voyages. Indeed, the Board flatly stated that “vessel deployment after the commencement of delivery of the new vessels, as well as numbers of vessels deployed, are unknown at present.” R. at 421 (emphasis added). Moreover, the Board apparently had no itinerary before it. Since the Board did not know exactly what it was authorizing, it cannot be said that anything was specifically authorized. Even under its own interpretation, then, the Board was obligated to consider USL’s application pursuant to General Order 80. MarAd’s refusal to do so was a clear abuse of discretion.

Plaintiffs were denied an opportunity to press their claims before the Board because they had no notice of the proceedings leading up to the June 2 decision, and because they received no adequate notice of its consequences before.MarAd issued its decision refusing to reopen Docket S-686. The Board clearly abused its discretion in denying plaintiffs’ requests to reopen.

III.

Having determined that MarAd’s October 11 refusal to reopen was a clear abuse of discretion, the next question is whether laches bars plaintiffs’ challenge to the June 2, 1982 order and the related May 23, 1983 contract. The record contains no clear statement about the trade routes on which USL was planning to operate its round-the-world service. Thus, the plaintiffs had no reason to know that their rights were threatened. Moreover, the Board’s 1981 decision in docket S-686 affirmatively misled the plaintiffs to believe that they were entitled to further administrative proceedings before the Board authorized a service that would affect their rights.

The additional material presented in the motions for summary judgment does not alter this conclusion. The plaintiffs did not know until the fall of 1984 that USL’s proposed service would compete directly with their services. See Skouras Affidavit at ¶¶ 24-28 (March 15, 1985); Staunton Affidavit at ¶¶ 10, 14-15. The plaintiffs may not be accused of lack of diligence for failing to discover the particulars of USL’s proposed service at an earlier date.

In any event, the plaintiffs would not have been able to seek judicial review until USL’s proposal had assumed a discernible form. A suit brought before plaintiffs knew that their rights were threatened would have been dismissed because the effect of the Board's decision would not yet have been “felt in a concrete way.” Abbott Laboratories v. Gardner, 387 U.S. 136, 148, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681 (1967). Because plaintiffs were justifiably ignorant of the threat to their rights until late 1984, their suit is not barred by laches. See Allen v. Carmen, 578 F.Supp. 951, 963 (D.D.C.1983).

Accordingly, the June 2 decision may be reviewed by the Court. The standard of review is whether the Board’s decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).

The Board did not provide notice or an opportunity to comment on USL’s May 1984 application to undertake extensive unsubsidized services. This omission was contrary to the Board’s established practice of giving the parties notice of USL’s applications for unsubsidized service. See p. 305 supra. Moreover, the failure to provide notice is manifestly inconsistent with the language of the 1981 decision in Docket S-686, which held that USL’s application raised a very important issue warranting careful consideration under General Order 80. See pp. 301-02 supra. The Board’s failure to adhere to the principles that it had announced in its earlier decisions is by itself sufficient reason to hold that the Board’s June 2,1982 order was arbitrary, capricious and an abuse of discretion.

Moreover, sound principles of administrative decision making require that important actions be taken only after the agency compiles an adequate record and announces a reasoned decision sufficient to provide a basis for judicial review. As our Court of Appeals has held in a similar case:

The distinct and steady trend of the courts has been to demand in informal adjudications procedures similar to those already required in informal rulemaking. Courts have required some explanation for agency action and, to ensure the adequacy of that explanation, some opportunity for interested parties to be informed of and comment upon the relevant evidence before the agency. Thus, despite the Supreme Court’s dictum in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., [435 U.S. 519, 524, 98 S.Ct. 1197, 1202, 55 L.Ed.2d 460 (1980),] that courts may not add to the procedural requirements of the APA except in “extremely rare” circumstances, we are justified in demanding some sort of procedures for notice, comment, and a statement of reasons as a necessary means of carrying out our responsibility for a thorough and searching review.

Independent U.S. Tanker Owners Committee v. Lems, 690 F.2d 908, 922-23 (D.C. Cir.1982) (footnotes omitted) (emphasis in original). Moreover, like the interim rule in Tanker Owners, General Order 80 gives this demand “a more concrete form” because “[i]t states the procedures MarAd must follow in considering applications” for authority to conduct unsubsidized services. Id. at 923.

The wisdom of this admonition becomes clear after considering what the Board has failed to do in this case. The Board acknowledged that

The non-subsidized operational flexibility requested by USL does represent a significant departure from authority previously granted to USL or any other subsidized operator. It will, in effect, enable USL to compete on a non-subsidized basis with virtually every other subsidized operator.

R. at 421. The Board then went on to concede that “[t]he impact of this competition is difficult to assess at this time” and that the number of vessels involved and their deployment was unknown. Id. Despite this lack of important information, the Board speculated that no harm would occur if it simply granted USL the authority to conduct the requested unsubsidized services for a period of five years. Apart from the fact that the Board offered no reason to support its conclusion that a mere five year contract would not raise the crucial issues that it had just identified, the assumption that the contract would last for only five years also proved to be unfounded. On May 23, 1983, USL obtained subsidy rights on trade routes purchased from Farrell; as part of the resulting ODS contract, USL received authority virtually identical to that granted in the June 2,1982 decision. The May 23 contract, however, lasts until 1995. The record thus suggests that the Board rushed to a decision without taking the time to balance carefully the potential consequences of its action. It did not create a record responding to the reasoned views of interested parties.

As a result, the Board failed to grapple with a number of issues that the parties now claim to be pivotal. For example, the plaintiffs argue that General Order 80 entitles them to a hearing, as well as findings concerning the adequacy of U.S.-flag service on affected trade routes. In part because plaintiffs had no notice or opportunity to comment before the June 2, 1982 decision, MarAd did not pass on that question. The plaintiffs also contend that the Merchant Marine Act itself requires the Board to conduct a hearing or at least to make factual findings. The Court of Appeals has held that section 605(c) of the Act does not impose such a hearing or fact-finding requirement on requests for authority to conduct unsubsidized operations. Sea Land Service, Inc. v. Dole, 723 F.2d 975, 979 (D.C.Cir.1983), cert. denied, — U.S. -, 105 S.Ct. 103, 83 L.Ed.2d 47 (1984). However, the court explicitly declined to decide “whether the Secretary can permit nonsubsidized operations of contract vessels without considering the impact upon essential services thereby affected.” Id. at 978. The Court of Appeals also did not decide whether “equivalent standards or lesser standards should be inferred from the totality of the Act.” Id. at 978 n. 3. Again, the Board’s precipitous 1982 action deprived the plaintiffs of the opportunity to press these important issues before the administrative agency properly charged with deciding them in the first instance.

Other important issues suffer from the paucity of the Board’s reasoning. The Board noted, for example, that the recent Snyder Amendment, 46 U.S.C. § 1184(a), “indicates that unfettered, unsubsidized operations, at least for a limited time period ... [are] not inconsistent with the Act.” R. at 420. It is not clear whether the Board was suggesting that the Snyder Amendment simply limited its discretion to hold hearings pursuant to an otherwise applicable General Order 80, or whether it meant instead that the Snyder Amendment had of its own force nullified the General Order — a proposition that would conflict with the well-established rule that an agency may alter a regulation only by resort to appropriate administrative procedures. See Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983); National Wildlife Federation v. Clark, No. 83-2648 slip op. at 2 (D.D.C. October 3, 1984).

The Board must be given an opportunity to develop an adequate record and to articulate a reasoned basis for its decision. See American Maritime Association, supra, 558-59. On remand, “MarAd should permit a new round of comments upon the application and publish a thorough and reasoned explanation for whatever decision is reached.” Independent U.S. Tanker Owners, supra, 690 F.2d at 931.

IV.

There remains the question of the relief to which plaintiffs are entitled as a matter of equity. It is undisputed that in reliance on the June 2,1982 decision, USL has spent over one billion dollars on Jumbo Econ-ships, port facilities and support services. Verdón Affidavit at ¶ 22. These arrangements involve extensive financing, numerous contracts and hundreds of new jobs. Verdón Supplemental Affidavit at ¶ 5. USL would almost certainly be seriously harmed if its proposed service were simply cancelled at this time.

On the other hand, there is the risk that plaintiffs will be unfairly harmed if USL is allowed to go forward. The Board has recognized that USL’s nonsubsidized service will have a substantial though unpredictable impact on USL’s competitors. R. at 421. For example, the uncontroverted portions of the affidavit of Vincent P. Staunton, Staff Vice President of Pricing and Regulatory Services at Sea-Land, establish that the proposed service “would provide USL with more than enough additional annual one-way capacity to carry every load which Sea-Land’s U.S.-flag vessels have carried in thise trades in any years since those services began.” Staunton Affidavit at ¶ 16 (emphasis in original). Similarly, Waterman may face grave financial difficulties because of USL’s activities. The exigencies of the shipping industry have already driven Waterman into reorganization under Chapter 11 of the Bankruptcy Code. The enormous carrying capacity of USL’s planned unsubsidized service poses a competitive threat that might prevent Waterman from recovering. See Affidavit of Joseph M. Farrell at ¶¶ 12-15.

Moreover, the public has a strong interest in insuring that MarAd’s decisions are made after full consideration of factors that might do severe harm to the American shipping industry. To do otherwise would undermine the Merchant Marine Act’s goal of creating “a strong domestic merchant marine capable of competing with foreign carriers in the world market.” American Maritime Association, supra, at 548. In a more general sense, the public interest also favors insuring that important administrative decisions are properly made. Where the agency’s decision making process is found wanting, the equities favor a remand that permits correction of the error. token, the equities do not favor the outright injunction of USL’s billion-dollar enterprise. Rather, an accompanying order will declare the October 11, 1984 refusal to reopen to be a clear abuse of discretion, declare the June 2, 1982 and May 23, 1983 orders to be arbitrary, capricious and an abuse of discretion to the extent that they grant USL the authority to conduct unsubsidized services, and remand this action to MarAd for notice and comment proceedings consistent with this opinion. USL need not, however, cease its current operations pending a decision by the Board.

The plaintiffs have raised significant issues regarding the proper administration of America’s Merchant Marine. They have also established that their interests are likely to be injured by USL’s unsubsidized service. In the interest of encouraging an expedited resolution of this case, the accompanying order will require USL to file an appropriate application for its unsubsidized services by a date certain. The Board should then, “with all dispatch,” notify interested parties and give them an opportunity to comment on the issues thus raised. The plaintiffs are, of course, free to challenge any unreasonable agency delay by appropriate judicial action. See Telecommunications Research and Action Center v. FCC, 750 F.2d 70, 79-81 (D.C.Cir.1984); 5 U.S.C. § 706(1).

The Court of Appeals has already provided guidance as to how to balance these competing interests. In Tanker Owners, supra, the court stated that “we think the status quo should be maintained during the pendency of [the remand] proceedings.” 690 F.2d at 931. At this time, there is no reason to express an opinion as to the proper disposition of the issues that have been remanded to the Board. By the same

      . The pending cross-motions are styled as motions for summary judgment and will be treated as such for purposes of determining (1) whether this action is barred by laches; and (2) the nature of the equitable relief to which plaintiffs may be entitled. To the extent that the motions seek review of agency action, they will be treated as motions for judgment on the administrative record. See Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 1244, 36 L.Ed.2d 106 (1973) (per curiam); Aeron Marine Shipping Co. v. United States, 525 F.Supp. 527, 544-45 (D.D.C. 1981), modified on other grounds, 695 F.2d 567 (D.C.Cir.1982).

      . Section 605(c) provides, among other things, that:
      No contract shall be made under this title with respect to a vessel to be operated in an essential service served by citizens of the United States which would be in addition to the existing service, or services, unless the Secretary of Transportation shall determine after proper hearing of all parties that the service already provided by vessels of United States registry is inadequate, and that in the accomplishment of the purposes and policy of this Chapter additional vessels should be operated thereon....
      The Secretary has delegated this task to the Maritime Administrator, who has in turn delegated it to the Maritime Subsidy Board.

      . General Order 80 is set forth at 46 C.F.R. §§ 281.11-281.17. Among other things, General Order 80 requires (1) that each application to undertake an unsubsidized voyage show a "definite need” for the proposed voyage, 46 C.F.R. § 281.15(a); and (2) that, in certain circumstances, applicants must obtain the written consent of U.S.-flag operators providing service on the route to be served, 46 C.F.R. § 281.11(d). The General Order also authorizes the Maritime Administrator to call an informal public hearing when the proposed unsubsidized operations are or may become a regular service, and requires that any such hearing shall consider the adequacy of existing U.S.-flag service on the trade route on which the proposed nonsubsidized service is to be performed. 46 C.F.R. § 281.13.

      . See note 2 supra.

      . The Maritime Administrator refers to Prudential’s letter of September 17, 1984, R. at 809, but this letter does not appear in the administrative record.

      . Independent U.S. Tanker Owners Committee v. Lewis, 690 F.2d 908, 926 (D.C.Cir.1982).

      . See pp. 301-302 supra.

      . R. at 311.

      . The Snyder Amendment provides that under certain circumstances
      [a]ny operator receiving operating differential subsidy funds may elect, for all or a portion of its ships, to suspend its operating differential subsidy contract with all attendant statutory and contractual restrictions, except as to those pertaining to the domestic intercoastal or coastwide service, including any agreement providing for the replacement of vessels----

      . This ruling assumes that this case will be promptly remanded to MarAd for further proceedings. Should the defendant on USL choose to appeal, it may be necessary to consider whether interim injunctive relief might be appropriate pending the resolution of the appeal. The Court intimates no opinion as to the proper disposition of this issue, should it arise.

      . Tanker Owners, supra at 911.