In May 1984, entrepreneur Mark W. Yonge of Monmouth County, New Jersey founded Rainbow Navigation for the sole purpose of serving the route between the United States and United States military base at Keflavik, Iceland.
 Using money he earned from a ship-chartering company, Yonge chartered Amazonia from the Department of Transportation and renamed it Rainbow Hope.
 The company consisted of one ship, a crew of 22, and seven full-time employees.
 Icelandic companies had serviced the Iceland route since the late 1960s.
 Yonge submitted a bid quoting the same rates that the Icelandic companies were charging and invoked the Cargo Preference Act of 1904.
 Rainbow won an $11 million contract to carry 70% of the cargo on the route, and immediately began to work the route under contract to the Military Sealift Command.

According to an official of the U.S. State Department speaking on the condition of anonymity, "Almost right at the start, Iceland let their feelings be known about losing the business... For the Icelanders, who are entirely dependent on seagoing trade, it was an issue of national sovereignty."
 Minister Counselor for the Icelandic Embassy in Washington, Hordur Bjarnason informed the Reagan Administration that Iceland "could not accept that a foreign shipping company would have a monopoly on carrying the cargo to Iceland."

Before Rainbow Hope ever left the pier, the Department of Transportation approached Rainbow trying to defuse the situation.
 The New York Times characterized the ensuing fight as Rainbow Navigation versus "the Navy, the National Security Council and the Departments of State, Defense, Justice and Transportation to the President himself."
 During 1985, Iceland raised the matter with the United States Department of State at least six times, including a meeting in Lisbon in June of that year between Secretary of State George Shultz and Foreign Minister of Iceland Geir Hallgrimsson.
 Shultz described the matter as a "major irritant in U.S.–Icelandic relations" and relations were strained to the point that Iceland threatened to start boarding U.S.-flagged ships and to close the Keflavik base.

Shultz's State Department attempted to solve the problem in a number of ways.
 It tried and failed to have the 1904 Cargo Preference Act amended.
 It made an offer to pay Icelandic shipping firms monetary damages for loss of the route, which was refused.
 President Reagan asked United States Secretary of the Navy John F. Lehman, Jr. to determine if Rainbow's claim under the Cargo Preference Act was valid, and on 8 August 1985, Lehman declared Rainbow's rates to be "excessive and unreasonable."
 Within four days, Rainbow pressed suits in United States District Court against "the Department of the Navy and various other federal agencies" as well as "the Secretary of the Navy and various other government officials in their personal capacities."
 The suits demanded declaratory and injunctive relief from the federal agencies and monetary damages from the named individuals.
 The International Organization of Masters, Mates & Pilots, representing Rainbow Hope's crew, joined Rainbow in the suits.

On 15 October 1985, the District Court issued its order, granting Rainbow's requests for declaratory and injunctive relief, and ordered the government to withdraw a call for new bids.
  The government appealed the finding.
 On 27 January 1986, the panel of the D.C. Circuit Court of appeals consisting of future Supreme Court Justice Antonin Scalia, future Starr Report special prosecutor Kenneth Starr and Senior Circuit Judge Carl E. McGowan upheld Rainbow's victory.
 During the appeal, the government's attorneys conceded that Lehman's finding of Rainbow's rates to be "excessive and unreasonable" was politically motivated, and the court found some arguments put forth by Shultz and Lehman "extraordinary" and having "no rational basis".
 In particular, Scalia wrote that the "factual basis for (Lehman's) assertion (wa)s utterly lacking."
 During this time, Transportation Secretary Elizabeth Dole supported Rainbow, according to the Chic
In May 1984, entrepreneur Mark W. Yonge of Monmouth County, New Jersey founded Rainbow Navigation for the sole purpose of serving the route between the United States and United States military base at Keflavik, Iceland.  Using money he earned from a ship-chartering company, Yonge chartered Amazonia from the Department of Transportation and renamed it Rainbow Hope.  The company consisted of one ship, a crew of 22, and seven full-time employees.  Icelandic companies had serviced the Iceland route since the late 1960s.  Yonge submitted a bid quoting the same rates that the Icelandic companies were charging and invoked the Cargo Preference Act of 1904.  Rainbow won an $11 million contract to carry 70% of the cargo on the route, and immediately began to work the route under contract to the Military Sealift Command.
According to an official of the U.S. State Department speaking on the condition of anonymity, "Almost right at the start, Iceland let their feelings be known about losing the business... For the Icelanders, who are entirely dependent on seagoing trade, it was an issue of national sovereignty."  Minister Counselor for the Icelandic Embassy in Washington, Hordur Bjarnason informed the Reagan Administration that Iceland "could not accept that a foreign shipping company would have a monopoly on carrying the cargo to Iceland."
Before Rainbow Hope ever left the pier, the Department of Transportation approached Rainbow trying to defuse the situation.  The New York Times characterized the ensuing fight as Rainbow Navigation versus "the Navy, the National Security Council and the Departments of State, Defense, Justice and Transportation to the President himself."  During 1985, Iceland raised the matter with the United States Department of State at least six times, including a meeting in Lisbon in June of that year between Secretary of State George Shultz and Foreign Minister of Iceland Geir Hallgrimsson.  Shultz described the matter as a "major irritant in U.S.–Icelandic relations" and relations were strained to the point that Iceland threatened to start boarding U.S.-flagged ships and to close the Keflavik base.
Shultz's State Department attempted to solve the problem in a number of ways.  It tried and failed to have the 1904 Cargo Preference Act amended.  It made an offer to pay Icelandic shipping firms monetary damages for loss of the route, which was refused.  President Reagan asked United States Secretary of the Navy John F. Lehman, Jr. to determine if Rainbow's claim under the Cargo Preference Act was valid, and on 8 August 1985, Lehman declared Rainbow's rates to be "excessive and unreasonable."  Within four days, Rainbow pressed suits in United States District Court against "the Department of the Navy and various other federal agencies" as well as "the Secretary of the Navy and various other government officials in their personal capacities."  The suits demanded declaratory and injunctive relief from the federal agencies and monetary damages from the named individuals.  The International Organization of Masters, Mates & Pilots, representing Rainbow Hope's crew, joined Rainbow in the suits.
On 15 October 1985, the District Court issued its order, granting Rainbow's requests for declaratory and injunctive relief, and ordered the government to withdraw a call for new bids.   The government appealed the finding.  On 27 January 1986, the panel of the D.C. Circuit Court of appeals consisting of future Supreme Court Justice Antonin Scalia, future Starr Report special prosecutor Kenneth Starr and Senior Circuit Judge Carl E. McGowan upheld Rainbow's victory.  During the appeal, the government's attorneys conceded that Lehman's finding of Rainbow's rates to be "excessive and unreasonable" was politically motivated, and the court found some arguments put forth by Shultz and Lehman "extraordinary" and having "no rational basis".  In particular, Scalia wrote that the "factual basis for (Lehman's) assertion (wa)s utterly lacking."  During this time, Transportation Secretary Elizabeth Dole supported Rainbow, according to the Chic
MV Geysir