Industria Y Distribuction De Alimentos v. Trailer Bridge
| Decision Date | 17 August 2015 |
| Docket Number | No. 13–2518.,13–2518. |
| Citation | 797 F.3d 141 |
| Parties | INDUSTRIA Y DISTRIBUCTION DE ALIMENTOS; Asociacion De Industriales De Puerto Rico; Camara De Comercio De Puerto Rico ; Asociacion De Navieros De Puerto Rico; Norton Lilly International; Island Stevedoring, Inc. ; Puerto Rico Supplies Group; To–Ricos, Ltd.; Plaza Provision Co.; Horizon Lines of Puerto Rico, Inc.; Crowley Puerto Rico Services, Inc. ; Sea Star Lines, Inc.; V. Suarez & Co., Inc; Camara De Mercadeo ; Luis A. Ayala Colon Sucres, Plaintiffs, Appellants, v. TRAILER BRIDGE; Flexitank, Inc., a/k/a Flexitank; Perez y Cia De Puerto Rico, Inc.; Harbor Bunkering Corporation; Plaza Loiza ; Coloso Foods, Inc. ; Supermercados Selectos, Inc.; B. Fernandez & Hermanos, Inc.; Pan Pepin Inc.; Supermercados Centro Ahorros, Corp.; Trafon Group, Inc.; Ponce Caribbean Distributors, Inc.; Kraft Foods, LLC; Molinos De Puerto Rico, Inc.; Sucesores Pedro Cortes, Inc.; Colomer & Suarez, Inc.; Supermercados Plaza Loiza; Mendez & Company, Inc.; Marvel Specialties, Inc., Plaintiffs, v. Victor A. Suarez–Melendez, in his official capacity as Interim Executive Director of the Commonwealth of PR's Ports Authority; Melba I. Acosta–Febo, in her official capacity as Secretary of the Treasury of the Commonwealth of PR, Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
Rafael Escalera–Rodríguez, with whom Carlos M. Hernández Burgos and Reichard & Escalera were on brief, for appellants.
Jorge Martínez–Luciano, with whom Martínez–Luciano & Rodríguez–Escudero, Guillermo San Antonio–Acha and GSA Law, LLC were on brief, for appellee Víctor A. Suárez–Meléndez.
Rosa Elena Pérez–Agosto, Assistant Solicitor General, Department of Justice, with whom Margarita Mercado–Echegaray, Solicitor General, and Tanaira Padilla–Rodríguez, Deputy Solicitor General, were on brief, for appellee Melba I. Acosta–Febo, in her official capacity as Secretary of Treasury for the Commonwealth of Puerto Rico.
Eyck Lugo–Rivera, with whom Eliseo Roques–Arroyo, Jelka L. Duchesne–Sanabria and Edge Legal Strategies, P.S.C., were on brief, for S2 Services Puerto Rico, LLC, amicus curiae.
Before HOWARD, Chief Judge, LYNCH and KAYATTA, Circuit Judges.
The appellants are three shipping operators who pay a fee to Puerto Rico to conduct business out of the Port of San Juan. The Commonwealth supplied each company with cargo-scanning technology, required them to scan all of their inbound cargo, and then charged each an additional fee. The question on appeal is whether the dormant Commerce Clause bars Puerto Rico from charging the additional fee to defray the costs of the scanning. Because the operators have failed to establish that the additional fee violates the Constitution, we affirm the magistrate judge's decision holding the same.
We draw the facts from the magistrate judge's findings following a bench trial. See McDermott v. Marcus, Errico, Emmer & Brooks, P.C., 775 F.3d 109, 113 (1st Cir.2014).
This matter stems from the aftermath of the terrorist attacks of September 11, 2001, and the concomitant need to augment port security. Until 2008, Puerto Rico's port security was predominantly limited to random and manual searches of cargo. To bolster this piecemeal approach, the Legislative Assembly of Puerto Rico passed a law calling for improved safety procedures. P.R. Laws Ann. tit. 23, §§ 3221 et seq. The following year, the Puerto Rico Ports Authority (“PRPA”) solicited proposals to implement that law with respect to its busiest port, the Port of San Juan. In particular, it sought to craft a system where it would be able to scan all inbound cargo at the port. In due course, PRPA reached an agreement with Rapiscan Systems, Inc., which assumed responsibility for the scanning. In turn, Rapiscan Systems transferred its rights and obligations to a subsidiary, S2 Services Puerto Rico, LLC (“S2 Services”).
In late 2011, PRPA promulgated Regulation No. 8067, which required the scanning of all inbound cargo at the Port of San Juan. The regulation permitted PRPA personnel, in the event of undue delay, to reduce the amount of cargo scanned at a given time. Through these requirements, PRPA aimed to increase the identification of unreported taxable goods and to improve security and safety at the port. S2 Services and the Puerto Rico Treasury Department were responsible for carrying out this directive.
As of 2013, Puerto Rico installed scanning technology at the facilities of three shipping operators at the port of San Juan: Crowley, Horizon Lines, and Sea Star Lines. Except during particularly busy times, these three operators were required to scan all containerized cargo (though not their bulk cargo) and then have two S2 Service employees and one Treasury agent review those scans. In total, 313,383 containers have been electronically scanned, an amount substantially higher than the 7,142 containers manually searched during a prior, analogous time period.
To pay for the scanning, PRPA charged all vessels carrying cargo into the Port of San Juan (including cargo carried by operators who did not have access to the scanning facilities) an “Enhanced Security Fee” (“ESF”). PRPA assessed the ESF on top of the existing fees that it already charged operators to utilize the port. The amount of the ESF varied based on the weight and type of the vessel's cargo. Since implementing the ESF, PRPA billed Crowley, Horizon Lines, and Sea Star Lines with 63% of all costs arising from the scanning procedure. In total, PRPA has collected $20,412,371.34 through the ESF, and it has used that money to pay: $17,136,894 to S2 Services, $2 million to Treasury employees, $1.4 million to the General Security Office, and $300,000 to the Office of Maritime Security.
In response to Regulation 8067 and the ESF, thirty-two businesses and organizations involved in importing cargo at the Port of San Juan (along with associated trade groups) sued the heads of PRPA and Puerto Rico's Treasury Department; they attacked both the regulation and the fee. The parties consented to proceed before a magistrate judge, and the court conducted a bench trial. The bulk of the evidence at trial centered on the constitutionality of the scanning regulation and the permissibility of the ESF as applied to all of the operators (as opposed to just the three with access to the scanning technology).
Following those proceedings, the court ruled that the scanning procedure implemented by Regulation 8067 was constitutional but that the ESF, as applied to the operators who did not have access to the scanning facilities, violated the dormant Commerce Clause. The court thus entered an injunction prohibiting the government from collecting the ESF from those shipping operators. Neither the government nor the plaintiffs appealed those decisions.
The magistrate judge next turned to the constitutionality of the ESF as applied to the three shipping operators equipped with the scanning technology. As to these three companies, the court concluded that the ESF was constitutional. The three operators timely appealed that decision; they continue to argue that the ESF violates the dormant Commerce Clause.1
We review the lower court's factual findings following a bench trial for clear error and its legal conclusions de novo. See Allstate Interiors & Exteriors, Inc. v. Stonestreet Constr., LLC, 730 F.3d 67, 74 (1st Cir.2013).
The Constitution's Commerce Clause serves as both an affirmative grant of power to Congress, U.S. Const. art. I, § 8, cl. 3, and “a further, negative command, known as the dormant Commerce Clause.” Comptroller of Treasury of Md. v. Wynne, ––– U.S. ––––, 135 S.Ct. 1787, 1794, 191 L.Ed.2d 813 (2015). This latter doctrine “precludes States ‘from discriminat[ing] between transactions on the basis of some interstate element,’ ” id., and inhibits “economic protectionism” between the states, New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273–74, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988).
A litigant can wield the dormant Commerce Clause to attack the propriety of a “user fee,” i.e. a charge assessed for the use of a government facility or service. In such cases, we apply a three-pronged test. See Evansville–Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S. 707, 716–17, 92 S.Ct. 1349, 31 L.Ed.2d 620 (1972). A user fee is constitutional if it: “(1) is based on some fair approximation of use of the facilities, (2) is not excessive in relation to the benefits conferred, and (3) does not discriminate against interstate commerce.”Nw. Airlines, Inc. v. Cty. of Kent, 510 U.S. 355, 368–69, 114 S.Ct. 855, 127 L.Ed.2d 183 (1994). Those challenging the government action carry the burden of persuasion. See N.H. Motor Transp. Ass'n v. Flynn, 751 F.2d 43, 47 (1st Cir.1984).
Turning to Evansville in the context of this case, we first consider whether the user fee “is based on some fair approximation of use of the facilities.” Nw. Airlines, 510 U.S. at 369, 114 S.Ct. 855 ; cf. Capitol Greyhound Lines v. Brice, 339 U.S. 542, 546, 70 S.Ct. 806, 94 L.Ed. 1053 (1950) (). This is essentially a question of allocation; we ask whether the government is charging each individual entity a fee that is reasonably proportional to the entity's use, and whether the government has reasonably drawn a line between those it is charging and those it is not. See Nw. Airlines, 510 U.S. at 368, 114 S.Ct. 855.
PRPA attempts to assess a fee to these three operators in an amount that is reasonably proportional to their use of the scanning services. PRPA requires the operators to scan nearly all of their containerized cargo (though their bulk cargo is not scanned), and then charges them an amount corresponding to the total cargo they import (comprising both containerized and bulk cargo). While not perfect, the fee was intentionally designed to approximate the operators' use of the scanning service. Moreover, these three operators are the only ones with access...
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