Full opinion text
ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT, DISMISSING THE PETITION, OR FOR REMAND, AND PLAINTIFFS’ CROSS-MOTION FOR SUMMARY JUDGMENT BENNETT, Judge: Plaintiffs bring this claim for breach of contract and invoke our general jurisdiction. 28 U.S.C. § 1491. Plaintiffs are operators of ships and have contracts with defendant, now represented by the Maritime Administration, Department of Commerce (MARAD). Pursuant to the Merchant Marine Act of 1936, section 603(b), the contracts provide for operating-differential subsidies (ODS) to reimburse the plaintiff contractors for part of the “fair and reasonable cost of * * * wages * * * of officers and crews.” The purpose of the subsidies is to put the contractors on a parity of cost with foreign competition which with cheap labor operates for much less. In return for the subsidies the contractors agree to provide, for 20 years, specified services on essential trade routes with named vessels and American crews. None of the contracts contain a disputes clause. For purposes of these motions the contracts are substantially similar. This particular case arises as a result of the decision on August 8, 1968, by the Maritime Subsidy Board (MSB) of MARAD, which denied Grace Lines, Inc. (predecessor to plaintiff Prudential-Grace Lines, Inc.) ODS reimbursement for severance payments made by Grace to personnel who made up the last permanent crews of the Grace vessels SS Santa Paula and SS Santa Rosa before those vessels were retired by Grace in 1958. Following this decision and subsequent inquiry by plaintiffs, the MSB' issued Accounting Instruction 39 (2d Revision) on July 23, 1969. This document detailed the circumstances in which the MSB would consider severance payments made to Maritime employees by any American ship companies to be qualified for ODS reimbursement under section 603(b), supra, and article 1-4, supra, of the ODS agreements between plaintiffs and defendant. The effect of this instruction was to make nonsubsidizable all the severance pay plans arrived at through collective bargaining by plaintiffs in 1958 and 1961. Plaintiffs contend that their severance pay costs, arrived at by collective bargaining, are entirely fair and reasonable and thus reimbursable under their contracts. Plaintiffs say that the bargaining was at arm’s length and in good faith; that defendant had no legal authority to disallow costs so arrived at; that such disallowance was arbitrary, capricious, and not supported by substantial evidence, was an abuse of discretion, and was erroneous in both fact and law. Defendant, of course, takes the position that MSB had the authority and the duty under the Act and the ODS contracts to determine independently, for ODS purposes, the eligibility and fair and reasonable cost levels of severance pay expenditures notwithstanding that they were required by plaintiffs’ collective bargaining agreements and that defendant properly exercised its discretion, which is final and conclusive. Alternatively, the defendant suggests a remand to the board for reconsideration of whatever the court may determine as the appropriate bases for reimbursement of these expenses. The foregoing and subsidiary issues will be dealt with hereinafter. However, to set the stage for our legal conclusions which are in favor of plaintiffs, it is first necessary to make a regrettably, but unavoidably, detailed exposition of the basic factual circumstances from which this controversy arose and which point the way to its resolution. The essential facts are not in dispute and are all before the court in affidavits and exhibits submitted by the parties and consisting of approximately 3,000 pages which we have examined with care. To the extent necessary for resolution of the issue of liability in the case, the facts are as follows: Pre-1936 The problem of shipping has been a perennial one for Americans. From at least the time of the Civil .War, this country, the world’s largest industrial nation and exporter, has experienced a shortage of American-flag vessels necessary for the commercial and military requirements of this nation. For many years after the United States had embarked on an ambitious naval shipbuilding program, it did almost nothing to develop an adequate merchant marine auxiliary. This shortcoming was ludicrously evidenced in 1908 when President Theodore Roosevelt sent the Great White Fleet around the world to demonstrate this nation’s eminence as a naval power. His gesture, however, lost much of its lustre since it was humiliatingly necessary for a stream of foreign-flag tender vessels to accompany the fleet in order to service it on its voyage. Such a merchant marine as we have been able to develop is regarded as an instrument of national policy but is operated by private enterprise at considerable cost to the taxpayers for subsidies to keep it going. The effort though large has not been noted for its success. In 1914 only 19 American-flag vessels operated over trade routes to foreign countries and American possessions. This near total reliance of foreign-flag vessels had an enormous impact on this country when World War I (WWI) broke out. Only by confiscating German ships originally interned in what were neutral United States harbors, and by embarking on a 3-billion-dollar crash building program, was this nation able to meet the transportation requirements brought on by the war. By the time WWI ended, our United States-flag merchant marine was approximately five times the size of our pre-war fleet. After the war, however, the Government found it difficult to remove itself from the merchant marine business. Ships which had been constructed for the Government-owned merchant marine could not be sold by the Government to private operators because of the postwar decline in the shipping business. Additionally, these vessels had not been constructed to compete efficiently on post-war international trade routes. It was out of this background that Congress passed the Merchant Marine Act of 1928, 46 U.S.C. § 891, et seq., 45 Stat. 689. Congress in this and prior acts demonstrated its belief that it was necessary for the United States to develop a private merchant marine fleet so that it would never again be forced to rely on the ships of other nations to move its commerce in war or peace. The Merchant Marine Act of 1928, however, fell far short of the hopes of its sponsors. Though it indirectly provided for the payment of subsidies to American-flag shippers through mail contracts, the 1928 Act engendered its share of abuses. When the first mail contracts were negotiated under the 1928 Act, the United States was nearing the tip of its dizzy 1920’s economic ascendancy. Contractors awarded themselves large salaries and expense accounts and failed to safeguard themselves against periods of less prosperity and depression. Public opinion against such indirect subsidies quickly grew. Indeed, in 1933 Congress enacted legislation barring the Postmaster General from awarding mail subsidy contracts to any individual, company or corporation “which singly or in combination with other[s] * * * pay any salary or salary combined with bonus, to any officer, agent, or employee in excess of $17,500.” June 16, 1933, ch. 101, § 6, 48 Stat. 305; 46 U.S.C. § 891y (1934). Aside from problems created by the form of the subsidy payments, the 1928 legislation had little apparent effect on United States shipbuilding. The construction loan fund provided for by the 1928 Act was not advantageous enough to encourage the building of many American ships. Only 30 were built in 7 years. A February 24, 1936 Senate report indicated that “[f]or more than 3 years not a single merchant ship for our foreign commerce has been started in American shipyards.” The Merchant Marine Act of 19S6 It was in this factual framework that President Franklin D. Roosevelt sent a message to Congress on March 4, 1935, concerning “whether or not the United States should have an adequate merchant marine.” The President gave cogent reasons in the affirmative. He also charged that the mail contract subsidy program was a failure and called it “an unsatisfactory and not an honest way of providing the aid that Government ought to give to shipping.” He suggested that Congress end the mail contract subsidy subterfuge and honestly call a subsidy by its right name. Most importantly, he detailed just what the new subsidy plan should cover— * * * It must be based upon providing for American shipping Government aid to make up the differential between American and foreign shipping costs. It should cover first, the difference in the cost of building ships; second, the difference in the cost of operating ships; and finally, it should take into consideration the liberal subsidies that many foreign governments provide for their shipping. * * *. In its report to the Congress, following the President’s message, the Committee on Commerce noted that the reasons given by President Roosevelt for the development of a strong and independent merchant marine were “accentuated by the disturbed economic and political conditions existing in Europe and Asia today.” The committee warned that if hostilities were to break out, the foreign merchant fleet upon which the United States was dependent for the transportation of two-thirds of its foreign commerce would be withdrawn from the United States trade routes just as it had been in World War I. A new construction program, the committee noted, would also be responsive to the great increase in U.S. Navy shipbuilding then going on. If the Navy was to be expanded, so also must the auxiliary fleet. Otherwise, if hostilities were to arise, the efficiency of the Navy would be greatly diminished as no foreign vessels would be available to service its needs. A 1937 Maritime Commission report prepared in “collaboration with all the defense agencies of the Government” indicated that the U.S. merchant marine service was in a position “second only to that of the armed forces in the maintenance of an adequate defense establishment.” In detailing the basic principles of S. 3500, which became the Merchant Marine Act of 1936, the Senate committee pointed out that approximately 85 percent of the cost of constructing a ship was labor cost. The committee nevertheless thought that it was “wholly desirable that American wage scales and standards of living be maintained in shipbuilding for foreign trade.” As to the justification for paying a portion of such costs to the ship operator, the committee said: * * * It is the purpose of this bill to endeavor to place the American owner and operator of an American flag ship on a competitive parity with his foreign-flag competitor. “Parity” carries with it no guarantee of profits, and if there are to be any profits, they must be made in competition with foreign shipping. The 1936 Act empowered the Government to enter into contracts with American-flag ship operators to provide an operating-differential subsidy, a construction-differential subsidy, and a special subsidy designed to counterbalance that paid to foreign ship operations by foreign governments. The purpose of each subsidy was to permit American shippers to compete at parity with their foreign counterparts. In return for these subsidies, the Act imposed a number of obligations on the operators, chief among which was the duty to maintain United States registry. The new legislation did not cause investors to flock to put their money'1 into American-flag vessels. Despite the legislation, the principal obstacle to easy financing — the political vulnerability of subsidized profits — remained. The 1937 Economic Survey addressed this problem: * * * The general public does not know that the cyclical nature of the shipping industry requires large cash reserves; nor do people stop to realize that the continuation of private investment requires the payment of profits. The investor cannot be blamed for hesitating to put his money into an industry which, if profitable, is constantly subject to public and congressional condemnation on the ground of excessive subsidy. When the 1936 Act was passed, labor conditions in the American merchant marine were in desperate straits. Seamen were working long hours for low wages and were berthed in cramped, unsanitary, and poorly ventilated quarters. The great majority of young Americans who made up the excellent, well-disciplined WWI merchant marine crews had left the industry following the war because of the decline in wages and the quality of working conditions. These individuals had been replaced by less qualified personnel. In an attempt to remedy this situation, the Maritime Commission ordered changes in working and safety conditions aboard American-flag vessels. In addition, the 1936 Act included a minimum pay scale for United States seafaring employees. This minimum pay scale was not intended to interfere with seamen’s rights to obtain higher wages and benefits through collective bargaining, a right refused seamen from 1926 to 1937. No attention was given in the legislation to setting a maximum level on seamen’s wages. Section 301(a) only made reference to “minimum manning scales, * * * wage scales and * * * working conditions.” The ODS provision of the 1936 Act, section 603(b), was designed to cover cost increases caused shippers by the improvement in the wages and working conditions of American-flag vessel seamen. On June 30, 1937, 374 American-flag vessels (of 1,000 gross tons and over), aggregating 2,311,494 gross tons, were engaged in the carriage of dry cargo between the United States and foreign countries. Approximately half of these vessels received no Government aid in any form. Twenty-nine and two-tenths percent (29.2%) of the 1936 oceangoing, dry-cargo trade of the United States was carried in these American-flag vessels. Subsidized vessels carried 54 percent of this trade tonnage. Approximately 88 percent of these vessels would have been obsolescent (over 20 years old) Jby 1942. Subsidy Agreements World War II brought many of the same problems as World War I. Another crash shipbuilding program was necessary to meet the supply distribution needs of the nation. At the end of the war, this country had approximately 3,700 ships, the largest fleet in the world at that time. This fleet, in ever-dwindling size, has served this nation’s shipping needs almost to the present time. Various American shipping lines entered into ODS agreements with the United States shortly after the enactment of the 1936 Act. Though these agreements have had to be renewed at various times since the enactment of the 1936 legislation, their terms have remained essentially the same. This has been so because the original legislation remained substantially unchanged from 1936 until 1970. Grace Lines, Inc., initially entered into a subsidy contract with the United States on December 31, 1937. Operations under this contract were interrupted by reason of World War II, a contingency provided for in the contract. The 1937 agreement was amended by an agreement executed December 29, 1949, effective as of January 1, 1947. This amended agreement provided, among other things, for the postwar resumption of subsidized operations, subject to the terms and conditions set forth in the contract which was due to expire on December 31, 1957. A 1955 amendment, among other things, “requested” that the applied-for ODS agreement should be entered into at the same time as the execution of a contract for the construction of two new combination passenger-and-cargo vessels (replacements for the SS Santa Rosa and SS Santa Paula). This new ODS agreement, applicable here, was entered into by the parties on January 17, 1957. East Coast 1958 Collective Bargaining Following a brief resurgence of shipping trade brought about by the Korean conflict, seafaring employment on American-flag vessels began to decline steadily. Maritime employment on United States-flag vessels of 1,000 gross tons or greater decreased to 57,200 jobs on June 30, 1956, the lowest figure since the end of World War II. Shipowners were anxious to transfer their World War Il-vintage vessels to foreign-flag operations where labor costs were cheaper. By June 30, 1958, the number of available seafaring positions was down to 51,500. One year later this figure had been reduced further to 50,200. In view of this continuing decline in seafaring employment, considerable agitation began to be heard to include various forms of job protection in the labor contracts negotiated between the shippers and maritime employees. Unlike the situation in many other industries, maritime employees had no clearly defined, legally enforceable seniority, system or reemployment rights to protect their positions when a vessel was retired or sold to a foreign-flag operator. Displaced men had no choice but to present themselves to union hiring halls where their names would be placed on a list of men available for work. No “bumping” system existed. Employees were recalled to work roughly in the sequence in which they had lost their jobs. The hiring halls were conducted under a rudimentary industrywide seniority system in which union members were grouped according to length and recency of prior service. Groups with greater seniority were selected to fill job openings before groups with lesser seniority were called. Within a group, hiring was governed by length of unemployment. It came as no surprise, then, that the issue of severance pay for displaced maritime employees was raised along with a number of other job protection items in the 1958 round of collective bargaining between the American Merchant Marine Institute (AMMI) and the National Marine Engineers Beneficial Association .(MEBA). AMMI was a trade association of owners and operators of a substantial portion of the United States merchant fleet. Its principal function was to represent owners and operators in labor negotiations with unions representing the crews of ships owned and operated by AMMI members. MEBA was the collective bargaining agent for all licensed engineer officers of plaintiffs Farrell Lines, Gulf & South American, Lykes Bros., Moore-McCormack, United States Lines, and Grace Lines. MEBA proposed a number of measures at the 1958 bargaining, all designed to provide more employment for its members. These included an expanded vacation schedule, a demand for the employment of additional engineers on certain vessels, the right to extend their contract to foreign-flag vessels controlled by American interests, and, as a relatively minor matter, the right to some form of severance compensation when American-flag vessels were sold to foreign interests. Even though federal mediators were appointed to aid the AMMI-MEBA collective bargaining, the two parties were unable to settle their differences by the time their previous contract expired. MEBA went out on strike on June 15, 1958. This strike had the effect of shutting down work on every ship where MEBA members were part of the crew. Labor-management relations in the merchant marine industry were by no means uncomplicated or amicable in 1958. The multiplicity of labor unions, the great number and diversity of shipowners’ groups, foreign competition and technological advances in the industry set against the various applicable labor laws made negotiations between labor and management a most difficult process. Management was required to hire only American citizens on American-flag vessels and was only able to hire through unions such as MEBA. The workers were surely united and a strike by one almost always amounted to a strike by all. In such an atmosphere, a strike by one union would easily immobilize a ship. In addition to these factors, collective bargaining in the industry tended to be diverse and fragmented. Each union carefully watched the results of the bargaining of its fellow unions and then sought to improve on those results in its own bargaining. On June 20, 1958, after 5 days of strike, AMMI and MEBA reached an understanding on the major issues between them, agreeing to negotiate the remaining unsettled issues while the men returned to work. Among the issues not decided prior to June 20 was that of the suitability and practicability of severance pay and what form such a plan should take if approved. AMMI continued to oppose the adoption of such a plan while MEBA pressed strongly for it. AMMI was concerned about the cost of such a plan, but was also cognizant of the cost to it of a long and drawn out strike. Too, the Government was pressing for a prompt settlement of the dispute. MEBA, on the other hand, had given up th" ««tension of its contract to foreign vessels so was doubly concerned that it obtain some job protection benefit in the new contract. The Shipman Plan When the severance pay issue could not be resolved through negotiation, the matter was submitted to binding arbitration before Mitchell M. Shipman, the impartial arbitrator under the engineers’ contract. This submission was made pursuant to a clause in the June 20, 1958 settlement agreement between the two parties. It should be noted that AMMI was negotiating with MEBA over salaries and other fringe benefits paid to employees on subsidized vessels and also on non-subsidized vessels. This situation was common throughout the industry. Not every American-flag vessel was a subsidized vessel. Nor was every sailing by such a vessel a subsidized sailing. Also, not all trade routes were subsidized. Sailings had to be approved by the United States before they were eligible for subsidy and some voyages simply did. not qualify. As a result, it was certainly in AMMI’s best interests to bargain at arm’s length with unions representing its seafaring employees. While the Government might provide the difference in costs of AMMI-member subsidized voyages, AMMI members were still responsible for all of the charges on those voyages which did not qualify for subsidy. The Shipman severance pay arbitration took nearly a year to conclude. Each side was given an opportunity to present its position in the controversy. On July 9, 1959, Shipman concluded that: A severance pay program * * * [was] suitable and practical for the licensed engineers covered by the collective bargaining agreements between the Union and the respective Companies. He also determined the basic provisions of the severance plan, as provided in the June 20, 1958 agreement. The plan which AMMI and MEBA incorporated into their agreement on July 22, 1959, included the following excerpt from the Shipman award: Whenever a Company transfers a vessel to foreign registry, it shall give severance pay to the regular licensed engineers assigned to such vessel. . A transfer of a vessel shall include any disposition thereof regardless of whether (a) it occurs when the vessel is in active operation or in a laid-up status; and (b) is made directly by the Company or by the Company to an affiliate or subsidiary, which, in turn, makes the disposition to foreign registry. The regular licensed engineers entitled to severance pay shall be the full complement of licensed engineers permanently assigned to the vessel at the time of its last regular full voyage preceding the transfer, regardless of whether they were actually working on the vessel during said voyage. This plan, by its many terms, only applied to sales or transfers to foreign operators. It had no application to instances where an American-flag operator simply retired or laid-up one of its ships. In an affidavit submitted in this case, Shipman indicated that he fully considered the AMMI argument that severance pay should not accrue to seamen who suffer no economic loss arising out of the sale or transfer foreign of an American-flag vessel. Shipman explained his consideration of this question: 8. * * * In considering these matters I concluded that the MEBA severance program should not exclude rehired engineers from the severance benefits otherwise due them upon loss of their old jobs through the sale or transfer of the ships to foreign registry, nor should the employer’s acquisition of new ships affect the benefit. An important element in my reasoning on this issue was the sharp difference between the maritime industry and other industries with which I am familiar in respect of reemployment rights. The marine engineers who had lost their jobs as a result of sales and transfers of their ships to foreign registry had no reemployment rights under their collective bargaining agreement. On the other hand, collective bargaining agreements covering shore-side industries do normally provide that employees who lose their jobs because of the sale or closing of a plant or department will enjoy various reemployment rights under seniority systems. * * *. The AMMI-MEBA agreement set the stage for the remainder of the 1958 round of employer-union collective bargaining. The International Association of Masters, Mates & Pilots (MM&P), a trade association representing most of the licensed deck officers aboard the ships of the American Merchant Marine, and AMMI entered into negotiations -in mid-summer 1958. MM&P entered into its east coast negotiations asking that it" be given substantially the same agreement as that concluded between AMMI and MEBA. Shortly after the AMMI-MM&P negotiations began, a group of unsubsidized operators who normally were represented in negotiations by AMMI, broke off and conducted separate negotiations with the union. These separate negotiations produced an agreement known as the “Mobile agreement,” which was more favorable to MM&P than the east coast MEBA agreement or the west coast Pacific Maritime Association (PMA) — M&P agreement which had just been concluded. MM&P insisted at this juncture that AMMI accept the terms of the Mobile agreement. AMMI refused and a strike followed when the AMMI-MM&P contract expired on September 30, 1958. On October 6, 1958, the parties agreed to submit their dispute to arbitration conducted by Mr. George Meany, president of the AFL-CIO. Meany found that the agreement between the parties should be the same as the west coast PMA-MM&P agreement, with certain provisions of the Mobile agreement added. Meany noted that the severance pay issue was still being negotiated by AMMI and MEBA, with arbitration under Mr. Shipman required if the parties were unable to settle that dispute by a certain date. As part of his award, Meany directed that the AMMI-MM&P negotiations regarding severance pay be bound by the outcome of the AMMI-MEBA negotiations and possible arbitration. In making such an award, Meany implicitly recognized the parity principle long applicable to such agreements. When the Shipman award was rendered on July 9, 1958, it automatically became part of the east coast MM&P agreement. The Shipman award was also incorporated into the 1958 AMMI agreements with the American Radio Association (ARA), by memorandum dated September 1, 1960, and the Radio Officers Union of the Commercial Telegraphers Association (ROU), by an agreement dated May 12, 1960. The Staff Officers Association (SOA), representing all pursers except the chief purser, did not press the matter of inclusion of the Shipman award until the renewal of their AMMI agreement on October 2, 1961. Thus, by the formation of the 1961 agreements, the Shipman award was included in all the east coast merchant marine officers’ collectively bargained labor agreements. Circular Letter 8-60 On November 9, 1960, the Maritime Administration issued its Circular Letter No. 8-60 directing subsidized shipowners to explain and justify to MARAD as fair and reasonable all collective bargaining agreements thereafter made resulting in increases in subsidizable wage costs. This directive came, no doubt, in response to congressional criticism of skyrocketing subsidy costs. This matter had come to a head in the 84th Congress (1955-56) when serious congressional consideration was given to legislating a maximum to which the Government would subsidize wages, manning scales, and working conditions for all officers and crews serving on ODS-qualified vessels. From 1936 until 1955 MARAD had been in the habit of accepting collectively bargained wage agreements as ipso facto “fair and reasonable” under the terms of the 1936 Act and the various subsidy contracts (see article 1-4, footnote 3). This policy did not give rise to any serious problems until the mid-50’s. The increase in wages and fringe benefits was then thought, in, part, to be responsible for the decline of the American merchant fleet. Charges were leveled that Iess-than-good-faith bargaining was taking place as a result of the fact that government subsidies were paid for any wage, or benefit increase obtained through collective bargaining. Congressional desire to institute maximum subsidy levels, reflected in legislative proposals, found no support from those who would be directly affected by such legislation. The Maritime Administrator testified in opposition to H.R. 5734, indicating that the “fair and reasonable” language of section 603(b) of the 1936 Act gave the MSB sufficient authority to impose such maximum wage levels on its own. This determination was seemingly contrary to another statement by the Administrator that— * * * the legislative history of the 1936 act tends to indicate that the phrase “fair and reasonable” is the result of an agreement reached across the bargaining table. Mr. Francis T. Greene, president of AMMI, opposed the legislation for a number of reasons: * •* * (i) undesirability in peacetime of Government control of wages, (2) the limited scope of control provided by the bill would make it unsuccessful in achieving its aim, and (3) the powers provided for in the bill would be so exercised as to impair the principle of parity which is the foundation of the 1936 act. * * *. Together with his opposition to the bill, H.R. 5734, Greene also suggested that the MSB could set a maximum level on wages under the “fair and reasonable” clause of section 603(b). Union representatives, too, opposed the proposed legislation. In its report, the Merchant Marine and Fisheries Committee made the following recommendations pertinent here: 4. Immediate steps should be taken by the Federal Maritime Board to establish procedures under which determinations will be made that amounts paid out by the Government pursuant to operating-differential subsidy contracts are “fair and reasonable” within the meaning of section 603(b) of the Merchant Marine Act, 1936, as amended. * * *. This principle is applicable to each and every subsidizable item. 5. In its consideration of amounts reimbursed under subsidy contracts for wages paid to officers and crews, the Maritime Board shall make a completely independent determination that the amounts paid are fair and reasonable under the statute, and the mere fact that payment was made pursuant to a provision in a collective-bargaining agreement shall not be regarded as conclusive evidence of fairness and reasonableness, although weight should be given to such circumstances, x -x X Despite considerable activity, the final report of the committee did not recommend passage of H.R. 5734 and the bill never emerged from committee. As a result of the hearings, however, MAR-AD apparently believed it had been put on notice by Congress of its duty to take a completely independent look at subsidies claimed by shippers; hence, Circular Letter No. 8-60. From the foregoing, defendant takes the position that the board had authority under section 603(b), of the Act to make an independent determination as to whether plaintiffs’ costs were fair and reasonable; that Congress confirmed this in its hearings and H.Rep. No.1658, 84th Cong., 2d Sess., in 1955-1956; that Congress insisted the authority be used; that plaintiffs, through their trade association AMMI (Mr. Greene), conceded the board had this authority and plaintiffs were on notice it would be used; and that expenses incurred by collective bargaining were not per se fair and reasonable. The Shaughnessy Arbitration At oral argument and in their briefs, both parties informed the court that all questions pertinent to a decision in this case were raised by the 1961 sales to a Greek corporation of the Grace vessels, SS Santa Rosa and SS Santa Paula. These vessels were originally decommissioned in 1958 and were immediately replaced in the Grace American-flag fleet by two new vessels of the same name built under the 1936 Act’s construction differential subsidy (CDS) program. From 1958 to 1961, Grace maintained the two old vessels in a “mothball” status. Skeleton crews serviced both vessels during this period. AMMI, as representative for Grace, made an attempt during the 1961 round of collective bargaining to obtain ME BA’s acknowledgment that the sale of the Santa Rosa and Santa Paula did not fall within the terms and conditions of the Shipman severance pay award. MEBA, however, refused to sign the 1961 agreement until AMMI acknowledged that the two vessels were covered by the Shipman award. AMMI made such an acknowledgment, but reserved its right to offer any defenses against claims for severance. Following the sale of the two laid-up vessels in 1961, the individual engineers who had made up the crews of the two ships during their last voyage in 1958 applied for severance pay benefits under the Shipman arbitration award. These engineers contended they were part of the “full complement of licensed engineers permanently assigned to the vessel [s] at the time of * * * [their] last regular full voyage preceding the transfer * * Grace refused to make such severance payments, and the matter was referred to arbitration conducted by Dr. D. F. Shaughnessy. In its defense to the engineers’ claim, Grace first asserted that the Shipman award did not apply to the Santa Paula since that vessel was in laid-up status prior to the June 1958 Grace-MEBA agreement. It also asserted that the Shipman award did not cover either vessel since both were decommissioned before the Shipman award was made in July 1959. Dr. Shaughnessy answered these contentions by pointing out that the Ship-man award specifically referred to vessels which were in laid-up status at the time of the award and thereafter. As authority for this proposition, Shaughnessy cited two 1961 arbitration awards, wherein Shipman had applied his 1959 award to circumstances involving transfers foreign of vessels belonging to two unsubsidized carriers. On the question of whether acceptance of employment after a decommissioning, but before a sale foreign disqualified an employee for severance benefits, Shipman wrote: It is the Arbitrator’s view that the right to severance pay vests on the date of transfer of the vessel if the licensed engineer is otherwise eligible. It is immaterial that the engineer did not retain his employment status with the company. * * *. The permanent loss of employment opportunity, which is the essence of the Severance Pay Award remains unaffected. Grace also argued that the Shipman award should not apply since no crew members severed their employment relationship with Grace as a result of the lay-up and sales of the two vessels and since even more engineering positions than had been eliminated were provided by the replacement of the two old vessels. Though Shaughnessy expressed some reservation regarding the advisability of awarding severance pay to employees who had suffered no job loss as a result of a lay-up and sale foreign, he nevertheless determined that he was bound to apply the terms of the Ship-man award. He held that the engineers were covered by the terms of the Ship-man plan and became entitled to severance pay when Grace sold its two vessels. Shaughnessy explained his reasoning as follows: In the Shipman Award the Arbitrator specifically addressed himself to the question whether employment or an offer for employment with the same employer should be a basis for denying severance pay and the answer was in the negative. He said, in part: Further, in the face of the hiring hall system in operation in this industry, it would appear that an offer of a job by a Company to a displaced engineer may simply deprive another engineer of such opportunity. In the shore side analogy, such latter employee would receive the severance pay; but any such provision is, obviously impractical for maritime. Shaughnessy also pointed out that both the Edison and Dolphin-Traders arbitration opinions were appealed to the New York Supreme Court and were sustained. In concluding his opinion, Shaughnessy was unequivocal in his holding: The Shipment Award does not afford any exception to its application, where a Company which transfers a vessel to foreign registry,' acquires another American flag vessel offering an equal or greater number' of jobs as compared with the transferred vessel. if ->!- On the advice of its attorney, Grace instituted an action in the Supreme Court of New York, New York County, to vacate and set aside the Shaughnessy award. This request for relief was denied. Grace Line, Inc. v. National Marine Engineers’ Beneficial Ass’n, 38 Misc.2d 909, 239 N.Y.S.2d 293 (Sup.Ct.1963). In its opinion, the New York court expressed “its profound regret” that MEBA had pressed the severance pay claim. 239 N.Y.S.2d at 298. Nevertheless, the court concluded that it was bound by the doctrine that “an award concludes the parties on all the issues, both of fact and law, submitted to the arbitrator.” Id. As long as the terms of the Shipman award were reasonably susceptible to the reading given them by Shaughnessy, the court was powerless to overturn the award. See National Cash Register Co. v. Wilson, 8 N.Y.2d 377, 383-384, 208 N.Y.S.2d 951, 955, 171 N.E.2d 302, 305 (1960); and cases cited at 239 N.Y.S.2d 298 (Grace Line, supra). This decision was appealed to the Appellate Division of the New York Supreme Court and was affirmed. 20 A.D.2d 759, 246 N.Y.S.2d 994 (1964). Appeal taken to the New York Court of Appeals was denied. 14 N.Y.2d 484, 199 N.E.2d 174 (1964). Certiorari was later denied by the United States Supreme Court. 379 U.S. 843, 85 S.Ct. 83, 13 L.Ed.2d 49 (1964). The 1961 Bargaining The first industrywide round of collective bargaining occurring after the publication of Circular Letter No. 8-60 came in 1961. AMMI contracts with MM&P, MEBA, ARA and the National Maritime Union (NMU), the representative of unlicensed crew members, expired on June 15, 1961. Despite efforts by the Federal Mediation and Conciliation Service and the Secretary of Labor, Arthur Goldberg, agreement between AMMI and MM&P, ARA and NMU was not reached until July 3, 1961, after a 17-day industrywide strike involving seven unions on both coasts. The strike forced President John F. Kennedy to appoint an emergency board of inquiry under the national emergency provisions of the Taft-Hartley Act. The east coast MEBA strike was not settled until August 23, 1961, after the United States District Court for the Southern District of New York, on petition by the Attorney General of the United States, had on July 3 issued a Taft-Hartley 80-day injunction against MEBA and two west coast unions and the emergency board of inquiry had been reconvened. The board of inquiry was influential in the settlement of all the disputes, even to the point of serving as a sort of arbitrator on particular issues. Severance pay was not an issue in the 1961 strike with any east coast union except NMU. The new AMMI agreement with MM&P, MEBA, and ARA continued to include the Shipman severance pay provisions. NMU demanded a severance pay provision in its 1961 contract, but AMMI refused. This matter, along with a number of others, became wrapped up in negotiations and “arbitration” conducted by the presidential board of inquiry. The resulting treatment of NMU’s request was favorable to the union. Though the settlement did not provide for a separate severance plan, as other union contracts had provided, NMU was permitted to use the funds of its Employment Security Fund, established in 1955, to provide severance benefits for its employees. Under the 1955 trust agreement establishing the Employment Security Fund, employees had agreed to pay to the fund 25 cents per day for each day worked by an NMU member on the vessel of a participating employer. Payments were originally intended to provide supplemental unemployment benefits for NMU members. This plan had been administered through the NMU Pension and Welfare Fund by a board of trustees appointed half by the union and half by the participating employers. By 1961, the Pension and Welfare Fund had accumulated a surplus, so it was this fund that the parties agreed to use to provide severance benefits. The Employment Security Fund, as modified by the 1961 contract, covered other in- . stances of job loss besides sales or transfers to foreign registry. Also included were job losses caused by shipwreck, lay-up, sales to other American-flag shippers and manning reductions. West Coast Collective Bargaining Extension of the Shipman plan to west coast unions did not come quite as quickly as it had come on the east coast. MEBA included a request for severance benefits in its 1958 collective bargaining with PMA, the west coast owners’ bargaining group. PMA, however, refused to accede to the request and a contract was agreed to with no reference to such benefits. After the Shipman award had been announced, MEBA attempted to persuade PMA to reopen negotiations to include a similar type of plan in- the agreement between the two parties but this effort failed. It was not until the 1961 collective bargaining round that the issue was raised again as a mandatory item of collective bargaining. The 1961 west coast round of collective bargaining was one of the most difficult and complex the maritime industry had ever faced. Coalitions of unions requested a number of radical, expensive changes in their employment contracts. PMA was not inclined to agree to any of these proposals and so PMA members were struck by MEBA, MM&P and ARA. The presidential board of inquiry, supra, was instrumental in settling the MEBA contract dispute. PMA had become convinced in the bargaining that was conducted after the June 15, 1961 contract expiration date that it would have to agree to accept a number of economic improvements — as opposed to unions’ more radical demands — in order to avoid a long, drawn-out strike. Since MEBA had had a severance plan in its east coast contract since 1959, considerations of parity made it impossible for PMA to hold back on such an item on the west coast. Finally, on July 1, 1961, PMA and MEBA drew up a memorandum of understanding of their settlement. Though MM&P had originally agreed to bargain with PMA in concert with MEBA, the union withdrew from this understanding shortly before the expiration of its contract on June 15, 1961. MM&P demanded bargaining in San Francisco simultaneous with the New York PMA-MEBA negotiations. MM& P’s proposals were unacceptable to PMA and the union went out on strike as soon as its contract expired. The board of inquiry’s efforts to negotiate were unsuccessful and MM&P became one of the unions against which the Federal Government sought and obtained an injunction. This injunction, granted on July 8, 1961, brought union members back to work for an 80-day cooling-off period. Once this term had run, however, the union again went out on strike. The principal issue continued to be the union’s rotational hiring proposal which PMA continued to reject. It was not until a special three-man panel, appointed by the Secretary of Labor and chaired by the Undersecretary of Labor, stepped in to mediate that the strike was settled. The Shipman severanee plan was included in the contract signed by PMA and MM&P. In its negotiations, ARA sought to obtain a uniform nationwide contract, including many provisions already contained in its east coast contract. Different work rules on the west coast caused PMA to be unwilling to agree to the ARA proposal. ARA went out on strike on June 15, 1961. When its dispute was not settled by July 3, it was included in the injunction obtained by the Government on that date. PMA’s decision to compromise on some economic matters averted a second ARA strike, and a contract between the parties was signed on the eve of the expiration of the 80-day injunction. The new contract included the Shipman severance plan. As a result of bargaining in 1964, PMA and MM&P reached an agreement that payments due under the Shipman plan would be paid to a committee administering the union’s hiring hall. This plan was thought advisable since it spread the benefit of job loss payments across the entire union membership. Similar negotiations with other unions •were not successful until 1969, when the engineers and radio officers also agreed that severance payments should be paid into union pension plans unless the displaced employees actually agreed to retire. The pursers agreed to a plan whereby men displaced by a foreign sale were granted bumping rights. If those rights were exercised, then the payments were directed to the union trust fund. 1962 On April 11, 1962, Ralph E. Casey, president of AMMI, filed a report with Donald W. Alexander, Maritime Administrator, detailing the results of the 1961 round of the collective bargaining. Casey indicated in the letter of transmittal accompanying his report that such report was filed pursuant to Circular Letter No. 8-60. The Casey report included the 1961 AMMI agreements with MEBA, MM&P, ARA and NMU. Section 43 of the AMMI-MEBA agreement referred specifically to the Shipman plan. Section 43. (1) The parties agree that the terms and provisions of the Shipman Arbitration Award dated July 9, 1959, establishing the severance program shall be deemed to be incorporated as part of the Agreement. The Shipman plan, furthermore, was set out in full text in section 45 of the AMMI-ARA July 3, 1961 agreement. A memorandum of understanding, also dated July 3, 1961, directing that severance benefits were to be paid to NMU members through the NMU Employment Security Fund, was also included in the materials which Casey turned over to the Maritime Administrator. Though the defendant now raises some question about whether all this material actually was reviewed by the MSB, it seems clear that the agreements reached their proper destination by August 6, 1962, at the latest. On that date the chief of the Office of Government Aid (OGA) delivered a memorandum to MSB/MARAD which specifically referred to the April 11, 1962 Casey report. Though the OGA memorandum indicated that the Casey report was too long, detailed, and complex for summarization, the report did contain one significant conclusion pertinent to the outcome of this case. The OGA determined that — - * * * it is our view * * * that the subsidized operators, working with and through their committees and organizations, on which non-subsidized operators were fully represented, negotiated diligently and with determination, suffering through a costly strike period until the “cooling off” provisions of the Taft-Hartley Act were invoked on the basis of a threat to the national health and security, and were subject to pressures from the public and Government — as well as economic ones — to reach final settlement with the unions. The reports submitted provide an excellent record of the issues involved and the various factors surrounding the 1961 wage negotiations. While we do not necessarily subscribe to all the statements made, in our opinion this record fully supports the operators’ contentions that the benefits granted to the several unions, under the circumstances, are justified and should be determined by the Board to be fair and reasonable for subsidy accounting purposes. * * *. [Emphasis supplied.] An MSB announcement issued November 6, 1962, also indicated that the board was familiar with the results of the 1961 round of collective bargaining. In its directive to “all subsidized operators” approving the 1961 agreements, the board “found and determined” that: A. The following costs are fair and reasonable and, * * * (3) the base wages, overtime rates and rates of contribution to the several pension, welfare and vacation funds contracted for in the spring and summer negotiations of 1961 between the Atlantic, Gulf and Pacific Coast subsidized operators and the International Organization of Masters, Mates and Pilots, National Marine Engineers Beneficial Association, American Radio. Association, National Maritime Union of America and Seafarers’ International Union, all as set forth in the respective agreements made as of June and July 1961. B. All other costs contracted for in said agreements identified in “A” above, are fair and reasonable and, if otherwise eligible under the definition of wages of Officers and Crews incorporated in the above-cited Manual of Procedures, shall be eligible for operating-differential subsidy rate-making and subsidy accrual purposes unless specific action to the contrary has been or shall be taken by the Board with respect to a particular cost item. Finally, a November 16, 1962 Maritime Administration Division of Labor Statistics document — Excerpts of Arbitrator’s Comments — obtained by plaintiffs in pretrial discovery, also indicates that defendant was familiar with the Shipman award at that time. In its brief the Government contends that the MSB was never “formally advised” of the existence of the NMU severance payment program. Defendant admits that “an unsigned text purporting to be the 1961 trust fund regulation amendment was received in the Board’s mail room later in that year,” but contends that the document failed to come to the MSB’s attention through no fault of defendant. Without passing judgment on the efficiency of MARAD’s mailroom operations, we think the record reveals that there were other occasions for the board to apprise itself of the existence of the NMU plan and that these occasions occurred long before the September 26, 1969 MSB determination that severance payments made from employer contributions to the NMU Employment Security Fund would have to be refunded. In the first place, as already noted, a copy of the NMU plan, together with the July 3, 1961 memorandum of understanding of the trustees of the NMU Pension and Welfare Plan and Employment Security Plan, was turned over to the board by Casey on April 11, 1962. Second, a February 20, 1964 OGA and Office of Program Planning (OPP) report to the MSB contained details of the 1963 operation of the NMU Employment Security Fund and referred specifically to $682,000 paid by the fund on “severance claims.” Third, a February 19, 1965 AMMI report to MARAD specifically noted that the NMU “Employment Security Plan was amended to provide an additional severance benefit * * [Emphasis supplied.] Fourth, the board specifically referred to the NMU Employment Security Plan at page 26 of Docket A — 25 (Revised) issued August 8, 1968. Finally, it strains credulity, in the face of elements contained in the voluminous record submitted in this case, to believe that the board did not know of the NMU severance arrangement until mid-1969, eight years after it had become operative. Dockets A-H, A-15, A-16 Under section 45 of the AMMI-MEBA agreement, MEBA was entitled to wage review in 1963. A July 23, 1963 agreement between the two parties extended the contract to June 15, 1965, and readjusted wages, but did not affect the severance pay plan established in the 1961 agreement between the two parties. Pursuant to Circular Letter No. 8-60, Casey requested that MARAD approve as fair and reasonable the increased labor costs resulting from the 1963 agreement. In a July 13, 1965 decision, Docket A-14, MSB approved in part and disapproved in part the resulting costs. The board based its review authority on language in the 1936 Act. It indicated that it had a “limited role in the review of collective bargaining agreements.” It stated that— * * * [i]ts function is exclusively that of determining how much money will be paid out by the Government under subsidy contracts with shipowners. The Board has no part in shaping the terms of the collective bargaining agreement; * * *. It merely informs the operators of the elements of the contract which it considers subsidizable. [Emphasis supplied.] The board also rejected the proposition that the terms of any collectively bargained agreement were ipso facto “fair and reasonable” In Docket A-14, the board reduced the dollar value of the wages and fringe benefits provisions'of the agreement, rejected the pension plan concluded by the parties and refused to subsidize payments to the MEBA training fund and a separate escrow account. In a companion opinion announced on July 13, 1963, in Dockets A-15 and A-16, the board also disallowed certain payments which were to be made or had been made under agreements between AMMI-NMU and PMA-MM&P and going back as far as 1961. Plaintiffs protested the three board announcements to the Secretary of Commerce, John T. Connor. Without waiting for plaintiffs’ specific objections to the three opinions, the Secretary reviewed the board actions on his own motion and substantially muted their effect. Mr. Connor noted that, in 1964, $177,000,000 was paid to subsidize maritime wages, that this amount constituted 85 percent of the ODS payments made and that the American taxpayer was forced to absorb every increase in maritime wages. Nevertheless, the Secretary reversed the MSB’s actions in A-14, A-15 and A-16 on the grounds that the retroactive effect of the board’s actions, taken without notice or hearing, would work undue hardships on shippers because of the substantial disallowances contained in the three board opinions. In concluding his announcement, Secretary Connor detailed procedures with respect to future MARAD review of collective bargaining agreements. These procedures provided that any controversy or contested point regarding subsidy for wages or other items should first be placed before a panel of “disinterested” individuals. It would be the duty of that panel to pass on such items of dispute and to make a report to the MSB for that body’s final decision on the matter. Both the panel and the MSB were instructed that “the concern to reduce or to hold down the maritime subsidy budget should not be the predominant consideration, * * *.” As a result of Connor’s action, agreements reached between shippers and unions prior to 1965 remained substantially unaffected by MSB action. The procedures outlined by Secretary Connor in his July 23, 1965 opinion letter, however, were not followed when the MSB considered plaintiff Grace’s claim for severance pay subsidy in 1966 (Docket A-25) and 1968 (Docket A-25, Revised), as we will now see. Subsidy Reimbursement In May 1965, Grace Lines submitted its application for subsidy reimbursement for payments made in connection with the 1961 sales of the SS Santa Rosa and SS Santa Paula. This claim was rejected on June 7, 1965, by a MARAD district controller. The rejection letter indicated that the severance payments which Grace was required to make pursuant to its MEBA contract did “not come within the definition of wages allowable for subsidy.” Shortly after its letter to Grace, MARAD issued Accounting Instruction No. 39 informing “all subsidized operators” that severance payments were not considered “eligible” for ODS. MARAD noted that this decision had been made by its Office of Government Aid after that office had considered the definition of “wages of officers and crews” contained in the 1957 MARAD Manual of General Procedures for Determining Operating-Differential Subsidy Rates and a 1956 report of the U.S. House of Representatives Committee on Merchant Marine and Fisheries. The 1957 Manual definition of “wages” relied upon by OGA, and quoted in AI-39, was as follows : “Wages consist of the fair and reasonable cost of payments made by the operators directly to or for the benefit of * * * members of the crew complement and relief complement of subsidized vessels for services rendered and required for the efficient and economical operation of such vessels * * *. (emphasis added.).” Plaintiff protested the adverse board ruling and on April 12, 1966, the board issued Docket No. A-25, Severance Pay for Transfer or Sale of a Vessel to Foreign Registry. In this opinion the board reiterated its authority to review such matters and rejected Grace’s protest. The board gave a number of reasons for its decision : * * * In the present case severance pay made long after layup of the ship on account of the sale foreign of the SS Santa Paula and SS Santa Rosa certainly was not for services rendered by the MEBA members of the former crew and required for efficient and economical operation of such vessels. In fact, they were paid for non-operation of the ships. * * *. [Emphasis in original.] ****** Nor can the Board agree that denial of operating-differential subsidy on severance pay is contrary to the policy against retroactivity laid down by the Secretary of Commerce in his Order and Opinion of July 23, 1965. The instant disallowance for subsidy is plainly governed by the long standing definition of subsidizable wages of officers and crews * * * [found in the 1957 Manual, supra.] ****** * * * [Severance pay to any officers or unlicensed crewmen paid in accordance with a union contract provision relating to sale or transfer foreign of a ship does not come within the definition of subsidizable wages, and therefore is not eligible for operating-differential subsidy rate-making or subsidy accrual. Plaintiffs, thereafter, once again petitioned Secretary of Commerce Connor contending that such severance payments provided for in their contracts were “wages” since they were part of the crews’ compensation earned working on a subsidized vessel. Mr. Connor accepted plaintiffs’ protest and referred the matter to his general counsel for study. While making clear that the question of whether severance payments were “fair and reasonable” was not being considered, the general counsel determined that severance payments were “wages” and, hence, eligible for subsidy. He rejected the board’s contention that the severance payments were not compensation for the actual physical operation of the ships. The general counsel concluded that— * * * the Board’s affirmation of the accounting instruction in question which would deny severance pay on legal grounds cannot be sustained. Whether the payments in a specific case are determined, as a matter of administrative discretion, to be fair and reasonable and eligible for subsidy reimbursement, is a separate matter. ****** In further examining the issue, the Board might take into consideration (1) whether the employees receiving severance pay lose their jobs with the company because of the sale or transfer of a vessel to foreign registry, (2) whether they secure other employment, and (3) the reasonableness of payments to employees in a specific case. The general counsel also made note of the July 23, 1965 decision of Secretary Connor in which he negated the MSB’s opinions in Dockets A-14, A-15, and A-16. The general counsel suggested that the Secretary’s “injunction against a retroactive application of a stricter standard,” might be “relevant for consideration as to any severance payments made pursuant to a collective bargaining agreement entered into prior to July 23, 1965 .” Secretary Connor adopted the opinion of his general counsel on November 25, 1966. Docket A-25 was remanded to the MSB for withdrawal of Accounting Instruction No. 39 and reconsideration of this issue. Docket A-25 (Revised) The board was in no hurry to respond to the Secretary’s remand order. In April 1967 the board informed all subsidized