QUINCY COMMERCE CENTER, LLC and OMLC, LLC v. Maritime Administration, William G. Schubert, Maritime Administrator in His Official…

United States Court of Appeals
For the First Circuit
No. 05-1527
QUINCY COMMERCE CENTER, LLC
and OMLC, LLC,
Plaintiffs, Appellants,
v.
MARITIME ADMINISTRATION, WILLIAM G. SCHUBERT,
MARITIME ADMINISTRATOR IN HIS OFFICIAL CAPACITY,
K. SPILLANE, LLC, MYRON BOWLING AUCTIONEERS,
PERFECTION MACHINERY, and MARCH FOURTH, LLC,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy Gertner, U.S. District Judge]
Before
Howard, Circuit Judge,
Coffin and Campbell, Senior Circuit Judges.
Edward Foye with whom Christopher Weld, Jr., Howard M. Cooper
and Todd & Weld LLP were on brief, for appellants.
Eric D. Miller, Attorney, Appellate Staff, Civil Division,
United States Department of Justice with whom Peter D. Keisler,
Assistant Attorney General, Michael J. Sullivan, United States
Attorney and Anthony J. Steinmeyer, Attorney, Appellate Staff,
Civil Division, United States Department of Justice, were on brief,
for appellees, Maritime Administration, et al.
Christopher J. Cunio with whom Harry L. Manion, III, Frank A.
Marinelli, Jaimie A. McKean, and Cooley Manion Jones LLP were on

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brief, for appellees K. Spillane, LLC and March Fourth, LLC.
Jay T. Farraher with whom Paul T. Fox, Gretchen N. Miller and
Greenberg Traurig, LLP were on brief, for appellees, Perfection
Machinery Sales, Inc., and Myron Bowling Auctioneers.
June 9, 2006

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HOWARD, Circuit Judge. Plaintiff Quincy Commerce Center,
LLC ("QCC"), has brought this appeal to challenge the district
court's entry of summary judgment against it on its claims under the
Administrative Procedures Act ("APA"), 5 U.S.C. § 701 et seq. QCC
argues that the Maritime Administration of the United States
("MARAD") and William G. Schubert, MARAD's Administrator (in his
official capacity), violated the Merchant Marine Acts of 1936 and
1970 ("MMA"), 46 U.S.C. app. §§ 1101 et seq., and the Coastal Zone
Management Act of 1972 ("CZMA"), 16 U.S.C. §§ 1451 et seq., and
otherwise acted unlawfully, in the course of auctioning off the
assets of the defunct Fore River Shipyard in Quincy, Massachusetts.
Plaintiff-intervenor OMLC, Inc. ("OMLC"), also appeals to challenge
the court's entry of summary judgment against it on its claim that
its exclusion from the auction was arbitrary and capricious. The
court explained its rulings in a comprehensive, 34-page memorandum
and order. See Quincy Commerce Ctr., LLC v. Maritime Admin., Civil
No. 03-10307-NG (D. Mass. filed Feb. 25, 2005). We draw heavily on
the court's fine work in setting forth the background.
Plaintiffs' claims challenged the legality of the January
16, 2003 outcry auction of the real estate on which the shipyard was
located, and certain personal property stored there. QCC asserts
standing to bring its claims because it was an unsuccessful bidder
for both the realty and personalty. OMLC premises its standing on
the fact that it sought, but was denied, eleventh-hour permission

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to bid for the realty. As set forth above, the primary defendants
are MARAD, the federal agency that oversaw the auction, and its
administrator. The Verified Second Amended Complaint also invoked
Fed. R. Civ. P. 19 to name as defendants K. Spillane, LLC
("Spillane"), the winning bidder for the realty; March Fourth, LLC
("March Fourth"), a corporate affiliate of Spillane and assignee of
Spillane's rights to the realty; Perfection Machinery Sales
("Perfection"), the winning bidder for the personalty; and Myron
Bowling Auctioneers ("Myron Bowling"), Perfection's bidding partner.
Michael Fox International, Inc. ("Fox"), was the auctioneer, but is
not a named party.
The Fore River Shipyard was founded in 1884 and has played
a historic role in the United States shipbuilding industry. In
1986, however, the declining shipyard was closed and sold to the
Massachusetts Water Resource Authority, which eventually conveyed
it to Massachusetts Heavy Industries, Inc. (“MHI”). In 1995, MHI
asked MARAD to guaranty a loan to finance the shipyard's reopening.
MARAD initially balked because, in its view, the project did not
meet the statutory requirement that it be "economically sound." 46
U.S.C. app. § 1274(d)(1)(A). But in the Coast Guard Authorization
Act of 1996, Congress enacted legislation which impelled MARAD to
provide the guaranty. See Pub. L. No. 104-324, § 1139(b), 110 Stat.
3901, 3989. In 1997, MARAD guaranteed a $55 million loan that MHI
obtained from Fleet Bank, taking a senior mortgage on the real

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estate on which the shipyard is located and a senior security
interest in the shipyard's personalty.
On December 31, 1999, MHI defaulted on its loan, and on
February 25, 2000, MARAD paid Fleet $59.1 million under its
guarantee. Soon thereafter MARAD took possession of the realty and
personalty. On March 13, 2000, MHI filed for bankruptcy under
chapter 11. In August 2000, MARAD petitioned the bankruptcy court
to lift the chapter 11 automatic stay so that it might sell the
assets of which it had taken custody. In support of its
application, MARAD submitted a declaration from Paul Stott, an
expert in the shipbuilding industry, who averred that reopening the
shipyard was not economically feasible because the costs of
restoration at the Fore River site would be prohibitive, and because
of reduced worldwide demand. The bankruptcy court granted MARAD's
petition and authorized MARAD to sell the shipyard's assets after
the end of the year.
MARAD first advertised the property in October 2000. The
agency received several offers in the year that followed, but all
proved to be unsatisfactory. In early 2002, MARAD began actively
soliciting offers from businesses that contemplated using the
facility to scrap ships. Local officials strongly objected, citing
environmental concerns, and MARAD abandoned this plan. Ultimately,
in August 2002, MARAD decided to sell the property at a public
auction and hired Fox to serve as auctioneer.

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MARAD publicized the auction by means of newspaper and
internet advertisements and direct mailings, and made a "Property
Information Package" available to parties interested in bidding.
The information package explained the rules of the auction and that
the realty would be sold separately from the personalty, which would
have to be removed from the property "immediately [after the
auction] or at such other times as permitted by MARAD and [Fox]."
A party wishing to bid first had to become a "potential bidder" by
demonstrating to MARAD's satisfaction that it had the financial
wherewithal to purchase the property. Next, a potential bidder had
to become "qualified" by submitting a sealed bid and a deposit. Any
bid for the realty had to include a "statement of intent" setting
forth "the bidder's plans to use the real property and the projected
impact on employment, the environment, and business and tax revenue
in the locality." In formulating the auction rules, MARAD retained
considerable authority. The rules informed bidders that MARAD
"reserves the right to share [bidders' intentions] with local
elected officials and [to] disqualify any bidders whose plans MARAD
deems unsatisfactory." The rules also stated:
The Sales Agent [Fox] may determine, in its
business judgment, but only upon receipt of
MARAD's consent, which Qualified Bid(s), if
any, is the highest or otherwise best offer,
and may reject at any time, any bid that, in
the Sales Agent's sole discretion, is (i)
inadequate or insufficient, (ii) not in
conformity with the requirements of the Bidding
Procedures, or the terms and conditions of
sale, or (iii) contrary to the best interests

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of MARAD or the United States of America. At
any time before or at the Sale, the Sales Agent
may impose such other bidding procedures and
terms and conditions as it may determine are in
the best interest of [MARAD] and other parties
in interest, and may modify or amend these
procedures.
The sale was conducted in two stages. MARAD first
required that written bids be submitted by December 31, 2002,
although it reserved the right to extend, and did extend, that
deadline to the date of the auction itself. Second, on January 16,
2003, MARAD engaged Fox to preside over a live public auction at
which the written bids were unsealed and qualified bidders were
afforded the opportunity to raise their bids beyond the highest
written bids. In the end, MARAD qualified six entities to bid on
the realty and two to bid on the personalty. No qualified bidder
stated an intention to use the property for ship scrapping. Nor did
any qualified bidder state explicitly that it intended to use the
property to run a shipyard or ship repair facility, although QCC
stated that it contemplated "redevelop[ing]" the site as a "vital
center of commercial activity" including "marine industry," and
Spillane stated that it was contemplating "marine related uses."
QCC says, however, that MARAD knew, or at least should have known,
that it truly intended to use the assets for merchant marine
purposes, while Spillane did not.
On December 31, 2002, QCC submitted a written bid of $1.5
million for the personalty. On January 13, 2003, Spillane submitted

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a written bid of $9 million for the realty. On the night before the
auction, MARAD and Fox determined that these were the bids that the
winning bidders would have to beat. That same night, in response
to a written request from Perfection that the winning bidder for the
personalty be afforded 18 months to remove it (or to abandon it at
the shipyard site), MARAD and Fox also agreed to give the winning
bidder a 12-months remove-or-abandon window. The provision of this
grace period was announced at the beginning of the auction, although
QCC alleges (and we shall assume for purposes of this appeal) that
it was communicated by a Fox representative to Perfection, which had
business ties to Fox, at some point prior to its public
announcement.
On the morning of January 16, 2003, within an hour of the
time at which the auction was scheduled to begin, a representative
of OMLC, which had not been qualified to bid by MARAD, appeared at
the auction site and stated that OMLC wished to bid on the realty.
MARAD declined to qualify OMLC. MARAD says that it based its
disqualification decision on OMLC's failure to submit written
documentation of its financial ability to purchase the property, and
the fact that OMLC's representative stated that the company wished
to use the site for "recycling," which MARAD understood to mean ship
scrapping. OMLC responds that it has evidence that these
explanations are pretextual.

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At the auction, Fox failed to elicit any bids for the
realty higher than Spillane's $9 million bid. QCC's bid was
approximately $3.3 million lower. Accordingly, MARAD declared
Spillane the winner and signed a memorandum of sale documenting its
decision. Perfection, however, doubled QCC's $1.5 million bid and
won the personalty with its bid of $3 million. Spillane assigned
its rights to the realty to March Fourth, which has since spent
millions of dollars redeveloping the property. Perfection has
resold most of the personalty to third parties who are not involved
in this litigation.
In February 2003, QCC brought this lawsuit, and OMLC later
intervened. The suit sought to enjoin or to nullify the sales of
the realty and personalty. QCC's primary argument was that, in
awarding the shipyard's assets to the highest bidders and not to
QCC, MARAD had violated the APA by neglecting its statutory duty
under the MMA to foster a merchant marine. See 46 U.S.C. app. §
1101 ("It is necessary for the national defense and development of
its foreign and domestic commerce that the United States shall have
a merchant marine . . . supplemented by efficient facilities for
shipbuilding and repair. It is declared to be the policy of the
United States to foster the development and encourage the
maintenance of such a merchant marine."). QCC premised this claim
on a foundational allegation that MARAD knew, or should have known,

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that QCC intended to use the assets for shipbuilding and ship
repair, and that Spillane did not.
QCC also asserted that MARAD had violated the APA by
proceeding with the sale of the personalty to Perfection even though
its auctioneer had disclosed the 12-month remove-or-abandon grace
period to Perfection, but not to other bidders, prior to the
auction. During the course of the pretrial proceedings, QCC set
forth an additional (and unpleaded) claim that, because MARAD could
have sold the shipyard's assets to QCC, thereby ensuring that they
remained devoted to marine uses, MARAD had violated the APA by
failing to provide the Massachusetts Office of Coastal Zone
Management with a formal determination allegedly required by the
CZMA: that the sale of the assets to the high bidders, irrespective
of whether the assets would be put to marine uses, was "consistent
to the maximum extent practicable with the enforceable policies of
approved State management programs." 16 U.S.C. § 1456(c)(1)(A); see
also 15 C.F.R. §§ 930.33-34 & 36 (requiring consistency
determinations if a contemplated activity affects a State’s coastal
zone or resource). Finally, OMLC claimed that its exclusion from
the bidding process violated the APA.
Following the denial of QCC's request for preliminary
injunctive relief, and after discovery concluded, the district court
entered summary judgments in favor of defendants. Insofar as is
relevant, the court first concluded, as a matter of law, that MARAD

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had met its statutory obligations under the MMA by rationally and
reasonably concluding that it would not be feasible to sell the
shipyard assets for merchant marine purposes, and that, in any
event, QCC's and Spillane's statements of intent did not put MARAD
on notice that QCC was more likely to put the assets to merchant
marine purposes than Spillane. Next, the court determined that,
even if Fox had selectively disclosed the 12-month remove-or-abandon
amendment to Perfection prior to the auction, MARAD did not act
arbitrarily or capriciously in approving the sale to Perfection, the
fairness of which was not materially undermined by the disclosure.
The court also summarily rejected QCC’s APA claim arising out of the
CZMA under the prudential standing doctrine because QCC was not
within the zone of interests that the CZMA sought to protect.
Finally, the court ruled MARAD had acted lawfully in declining to
qualify OMLC as a bidder because it reasonably understood that OMLC
was contemplating ship scrapping and permissibly decided not to sell
to such a buyer.
On appeal, QCC renews its arguments that MARAD disregarded
its statutory duties under the MMA and CZMA when it sold the
shipyard assets to the highest bidders and without the CZMA
consistency determination that would have led MARAD to conclude that
QCC's bid was to be preferred as a matter of federal law. QCC also
contends that the district court applied a standard of review that
was inappropriately deferential to the agency. Defendants respond

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that, under the circumstances of this case, the statute does not
impose on the agency the imperative claimed by QCC; that MARAD
satisfied any statutory obligations it might bear; that it is the
administrative record alone, and not background evidence such as the
knowledge and thought processes of MARAD officials, that should
inform our inquiry into the lawfulness of MARAD’s conduct; that the
district court applied the correct standard of review; and that, in
any event, QCC has forfeited its right to challenge the sales on the
ground that it planned to put the shipyard assets to marine uses
because it failed to apprise MARAD of its intentions and, more
importantly, its legal positions prior to the sales.
We think it an interesting question whether MARAD lawfully
could have sold the shipyard assets to the high bidders, and without
a CZMA consistency determination, had QCC argued to the agency prior
to the auction that it was entitled to preferred bidder status
because it was the only bidder planning to put the assets to
merchant marine purposes. But these are not questions that the
record leads us to ask. Read in a light most favorable to QCC, the
record supports our asking only whether MARAD violated the law when
it sold the assets to the high bidders, and without a CZMA
consistency determination, despite the existence of some background
evidence -- i.e., evidence outside the administrative record --
suggesting that QCC's statement of intent (which, again, was
materially identical to Spillane's with respect to the marine use

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issue) was sincere and that Spillane's was not. The answer to this
question is no.
The public record MARAD created in, for example, its
bankruptcy court filings and property information package put
interested parties on at least constructive notice that MARAD did
not foresee an economically viable shipyard operating again at the
Fore River site, and that it planned to offset the large financial
losses suffered under the reluctantly issued 1997 guaranty by
selling to the highest bidders who did not contemplate uses to which
local officials would object. But despite being on constructive
notice of MARAD's intentions, QCC never told MARAD that, under the
circumstances, the MMA required it to be treated as a preferred
bidder, or that the CZMA required a consistency determination that
would have alerted MARAD to QCC's preferred status. In our view,
these omissions preclude the MMA and CZMA claims made by QCC under
the APA.
Ordinarily, a party forfeits its right to challenge agency
action post hoc if it has failed to apprise the agency of its
positions in a timely manner. Cf., e.g., Dep't of Trans. v. Public
Citizen, 541 U.S. 752, 764-65 (2004) (declining to entertain
petitioners' argument that a federal agency inadequately considered
alternatives to its proposed action because petitioners had not
presented those alternatives to the agency); Vermont Yankee Nuclear
Power Corp. v. Natural Res. Def. Council, Inc., 435 U.S. 519, 553

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(1978) (persons challenging a federal agency action must "structure
their participation so that it . . . alerts the agency to the
[parties'] position and contentions"); Valley Citizens for a Safe
Env't v. Aldridge, 886 F.2d 458, 462-63 (1st Cir. 1989) (similar);
see also Honeywell Int'l, Inc. v. EPA, 372 F.3d 441, 449 (D.C. Cir.
2004). We believe that enforcement of this forfeiture principle is
appropriate here because the relief sought would have far-reaching
implications for third parties who have relied on the presumed
legitimacy and finality of the auction process, and who have
invested resources and ordered their affairs accordingly. Cf. Dir.,
Office of Workers' Comp. Programs v. North Am. Coal Corp., 626 F.2d
1137, 1143 (3d Cir. 1980) (restraint by courts asked to review
agency action under the APA "is particularly important in a case
with far-reaching implications" where the agency did not have a
timely opportunity for meaningful consideration of the objecting
party's position prior to taking action). If QCC believed that
public policy required MARAD to prefer QCC as a bidder, it was
obliged to notify MARAD of its belief at a time when MARAD could
meaningfully consider the issue and take favorable action without
harming the interests of others. Clearly, the time for such notice
was prior to the auction.
Of course, the situation would be different had QCC lacked
effective notice of MARAD's contemplated action, or had QCC lacked
an opportunity to make its positions known to the agency. See

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Honeywell, 372 F.3d at 449. Likewise, it would be different in
circumstances where the illegality of the agency's actions is so
obvious as to constitute a patent violation of the agency's primary
responsibility to act in accordance with federal law. See Public
Citizen, 541 U.S. at 765. But QCC does not argue either that it
lacked an opportunity to air its views or that the case presents
exceptional circumstances warranting relief from forfeiture. In
fact, QCC fails to present any developed response to the forfeiture
argument raised by Spillane and March Fourth in its brief other than
to say that, in light of the background evidence, MARAD was on
notice of its intentions. But this is like saying that, even in the
absence of an objection, a decision to admit evidence at trial
should be subject to challenge on appeal if the trial judge had
reason to know, as a factual matter, that the evidence was
inadmissible. The efficiency and fairness problems with applying
such a principle to the informal adjudications of a federal agency
are so obvious that they do not require further discussion.
In any event, we see no basis in the record for relieving
QCC of its forfeiture. As we have stated, MARAD's decision to sell
to the highest bidders who contemplated uses that were not
objectionable to local authorities could not have come as a surprise
to QCC. Moreover, prior to the auction, MARAD not only permitted,
but it actually required, bidders to make written submissions which
could and should have put the agency on notice of the bidders'

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intentions and, presumably, relevant legal views. And finally,
while the merits of QCC's statutory arguments are interesting, they
are far from being so one-sided as to convince us that there has
been a clear violation of the MMA or CZMA under the circumstances
of this case.
We recognize that we have taken a somewhat different tack
than the district court in rejecting QCC's APA claims which arise
out of the MMA and CZMA. But so long as our ruling does not cause
us to exceed our article III warrant, we may affirm on any ground
supported by the record. See, e.g., In re Miles, 436 F.3d 291, 293
(1st Cir. 2006). Here, we choose to base our decision on forfeiture
because the record clearly supports such a ruling and because we
think the merits of QCC's legal arguments are better left
unaddressed unless and until a situation arises in which MARAD has
had an opportunity to consider them prior to taking a challenged
course of action. See North Am. Coal Corp., 626 F.2d at 1143.
The remaining appellate arguments warrant little
discussion. Given the absence, even now, of any substantial
indication that QCC would have approached or bettered Perfection's
bid for the personalty had it learned the night before the auction
that it would have 12 months to remove or abandon the property, the
district court correctly concluded that MARAD did not act
arbitrarily or capriciously in permitting the sale to Perfection to
be completed. So too did the court correctly conclude that MARAD

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did not violate the APA in denying OMLC's last-minute request to
qualify as a bidder for the realty. The evidence OMLC offers to
show that the issue is trialworthy – evidence that OMLC's
representative stood ready to provide all the written documents
explicitly required by the property information package; that MARAD
issued its decision prior to completing a telephonic inquiry to
OMLC's banker which would have confirmed the company's ability to
pay more than the high written bid; and that MARAD officials
misunderstood OMLC's representative to be referring to ship
scrapping when he stated that he was interested in using the site
for "recycling" -- suggest, at most, that MARAD excluded OMLC for
reasons that in hindsight may have proved unsound. But even if this
is the case, it must be borne in mind that the decision to exclude
was made in a setting where OMLC, through its delay and late entry
into the bidding process, gave MARAD less than an hour to make the
complex evaluation of its qualifications as a bidder. In our view,
no reasonable factfinder could conclude that a decision to err on
the side of caution -- and not to risk losing the opportunity to
sell the assets to bidders with whom MARAD had become comfortable --
was arbitrary or capricious under the circumstances.
Affirmed.

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