The Canaveral Port Authority, which paid $750,000 in civil penalties to settle a Federal Maritime Commission investigation into the Florida port's awarding of exclusive tug franchises, is being sued for damages by a tugboat company that says it was hurt by the franchise arrangement.
Tugz International filed suit in U.S. District Court in Orlando, Fla., on Dec. 15 to recover damages it alleges were caused by Port Canaveral's refusal to grant it a tug franchise between July 2000 and July 2003.
The case may open a door that will allow other port tenants or service providers to recover damages when they have been wronged by a port authority. The FMC does not have the authority to recover damages on behalf of a party that has filed a complaint. But the federal court may determine that the Tugz complaint should be settled under the Shipping Act of 1984, with the FMC having primary jurisdiction.
In July 2003, the port settled with the FMC after the commission found it had violated Section 10b of the Shipping Act of 1984 by unreasonably refusing to deal or negotiate with Tugz. In addition to the civil penalties, the port agreed to eliminate the franchise system, through which the port authority restricted the number of tug operators serving the port.
Tugz did not sign the port authority's settlement agreement with the FMC. The tug operator said the FMC settlement did not release the port from private civil claims.
Scott Perwin, a Miami attorney representing Tugz, said the case is based on a clause in Article I of the U.S. Constitution that gives Congress the authority to regulate interstate commerce. In 1994 the Supreme Court further refined that authority when it ruled that a city could not prevent an out-of-town business from competing in a local market by giving preferential treatment to a local operator. Perwin said Florida law gives the Canaveral Port Authority quasi-municipal status as a "special district."
"The remedy we're pleading is fairly well based on Supreme Court principles and accepted legal practices," Perwin said. He said the Tugz lawsuit avoids making antitrust claims against the port. He said in some cases the courts will dismiss a case because municipalities can claim antitrust immunity in some circumstances.
Port Canaveral was one of three Florida ports that allegedly granted exclusive tug and towing operations to a single company. It was a practice that stretched back some 40 years, although the formal franchises came about in the 1980s.
Tugz International sought franchises at Canaveral, and was one of two operators that applied to operate at Port Everglades. After the FMC launched a formal investigation in January 2002, Port Everglades, at Fort Lauderdale, and Port Manatee, near Tampa, agreed to stop giving exclusive franchises, and were dropped from the investigation.
Port Canaveral and Port Everglades represented a new book of business for an old company, according to Tugz general counsel Frederick Goldsmith. Tugz is an affiliate of the Cleveland-based Great Lakes Group, whose flagship company is Great Lakes Towing. Goldsmith said Tugz built and chartered tugs to other companies, but the Florida ports were the company's first venture into commercial towing.
The settlement agreement with the FMC last July was a reversal of a 20-year-old ruling that allowed Port Canaveral to use franchises to regulate the local towing market, said Hugh Welsh, former deputy general counsel for the Port Authority of New York and New Jersey.
When the franchise system was established at Port Canaveral, business at the port was slow, and port officials said unrestricted tug operations could have led to cutthroat competition over too little business. Things are different at Port Canaveral today. In fiscal 2002, the port handled 4.2 million tons of cargo and 3.8 million cruise passengers.
Welsh said litigation between ports and tug operators is uncommon. It's more common for a stevedoring company that wants to open shop in a port to accuse the port authority of showing favoritism to an existing tenant.
Even if Tugz International wins its case, Welsh doesn't believe that the decision will have far-reaching effect in the maritime industry. He said very few port authorities have the legal authority to restrict competition, or to grant franchises.
Ports generally are seen as economic-development engines for their regions. They make money from property leases, so they thrive in a free marketplace, Welsh said. "It's in the port authority's interest to let the market control."