The U.S. Court of Appeals for the Second Circuit provided some helpful guidance on the extent of control that a foreign time charterer can have on a U.S.-flagged, Jones Act qualified vessel in Am. Cruise Lines v. United States, No. 22-1029, 2024 U.S. App. LEXIS 6233 (2d Cir. Mar. 15, 2024).

The Jones Act requires the approval of the U.S. Secretary of Transportation and the U.S. Maritime Administration before a vessel subject to the Jones Act is chartered or otherwise transferred to a non-U.S. citizen.  The goal is to keep the fleet of Jones Act qualified vessels under U.S. control.  The U.S. Maritime Administration has issued a general approval for time and voyage charters to non-U.S. citizens, but not for bareboat charters to non-U.S. citizens.  Unlike a time or voyage charterer, a bareboat charterer provides the crew and operates the vessel, and therefore controls it, which is why the bareboat charterer must remain a U.S. citizen.

In the Am. Cruise Lines case, the parties had styled their charter as a time charter and received the approval of the U.S. Maritime Administration.  The charter was between a U.S. owner, River 1, LLC (“River”), a subsidiary of Edison Chouest Offshore, and a non-U.S. time charterer, Viking USA LLC (“Viking”), for cruise ships sailing in the Mississippi river.  Such vessels are subject to the Jones Act’s coastwise trade requirements.  A competitor of Viking, American Cruise Lines (“ACL”), argued that the time charter was actually a disguised bareboat charter resulting in an impermissible transfer of control to a non-U.S. charterer.  ACL challenged the U.S. Maritime Administration’s approval of the charter on this basis.  The U.S. Court of Appeals for the Second Circuit affirmed the U.S. Maritime Administration’s decision.

The court rejected ACL’s argument that the following characteristics of the time charter led to impermissible foreign control: (i) the time charterer must “absorb certain standard operating costs and business risks,” including in respect of “liability for torts arising from passenger misconduct”; (ii) the time charterer “may direct that the vessel master be removed”; and (iii) the time charterer “used a pre-paid charter hire to advance the funds for the ship's construction and thus finance the ship.”  Am. Cruise Lines, 2024 U.S. App. LEXIS 6233, at *12-14.  The court upheld the arrangement whereby River managed the maritime activities while Viking managed the onboard entertainment activities.

The decision is interesting because it sheds some light on what constitutes impermissible foreign control under the Jones Act and the implementing regulations.  It validates the strategy used by Viking to penetrate the Mississippi river cruise market: partnering with a local company that builds, owns and operates the vessels, while Viking handles the cruising aspects and the onboard entertainment.