Kloosterboer Int'l Forwarding LLC v. United States
| Decision Date | 25 May 2022 |
| Docket Number | Case No. 3:21-cv-00198-SLG |
| Citation | 604 F.Supp.3d 853 |
| Parties | KLOOSTERBOER INTERNATIONAL FORWARDING LLC, et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants. |
| Court | U.S. District Court — District of Alaska |
David J. Abrams, Pro Hac Vice, David E. Ross, Pro Hac Vice, Edward E. McNally, Hector Torres, Pro Hac Vice, Kim Conroy, Pro Hac Vice, Marc E. Kasowitz, Pro Hac Vice, Kasowitz Benson Torres LLP, New York, NY, David Karl Gross, Birch Horton Bittner & Cherot, Anchorage, AK, for Plaintiffs.
Seth M. Beausang, Edward Bryan Wilson, Jacquelyn A. Traini, U.S. Attorney's Office, Anchorage, AK, Siobhan McIntyre, DOJ-USAO, Civil Division, Anchorage, AK, for Defendants.
Donald Michael Kaye, Pro Hac Vice, Squire Patton Boggs, Washington, DC, Emily Huggins Jones, Pro Hac Vice, Squire Patton Boggs (US) LLP, Cleveland, OH, James E. Torgerson, Stoel Rives LLP, Anchorage, AK, John J. Reilly, Pro Hac Vice, Squire Patton Boggs (US) LLP, New York, NY, Keith Bradley, Pro Hac Vice, Squire Patton Boggs, Denver, CO, for Amicus Lineage Logistics Holdings, LLC.
Sharon L. Gleason, UNITED STATES DISTRICT JUDGE Before the Court are the parties’ motions for summary judgment. Defendants United States of America, U.S. Department of Homeland Security, U.S. Customs and Border Protection ("CBP"), and Chris Magnus, in his official capacity as the Commissioner of CBP (collectively, "Defendants") filed their Motion for Summary Judgment at Docket 115.1 Plaintiffs Kloosterboer International Forwarding LLC ("KIF") and Alaska Reefer Management LLC ("ARM") (collectively, "Plaintiffs") filed their Motion for Partial Summary Judgment at Docket 117. Non-party Lineage Logistics Holdings, LLC ("Lineage") filed an amicus brief in support of Plaintiffs’ motion at Docket 124. Oral argument was not requested on the motions and was not necessary to the Court's determination.
Kloosterboer International Forwarding LLC ("KIF") is an Alaskan wholly-owned subsidiary of Alaska Reefer Management LLC ("ARM"). KIF and ARM arrange transportation and related services for the movement of frozen seafood products, in particular frozen pollock, from Alaska to the eastern United States on behalf of their customers. Plaintiffs are sophisticated actors in the seafood industry and have decades of experience operating their businesses.
Since 2012, Plaintiffs’ transportation route for the frozen seafood has been as follows: After seafood products are harvested and processed at sea by American Seafood Company ("ASC"), the frozen products are stored in KIF's Dutch Harbor, Alaska cold storage facility. The U.S.-bound product is then loaded onto non-coastwise-qualified vessels (i.e., foreign-flagged vessels), which are procured by ARM for shipment of the product to the Port of Bayside in New Brunswick, Canada. On arrival at Bayside, the seafood is unloaded from the vessels and moved directly into KIF's Bayside cold storage facility. KIF then arranges with third-party trucking transportation services to deliver the product to Plaintiffs’ customers in the eastern United States. Once the trailer trucks are loaded with product, they are driven directly onto a flat rail car on the Bayside Canadian Rail ("BCR") rail trackage, a registered Canadian railroad. The BCR is approximately 100 feet in length and located entirely within the Port of Bayside. Each truck travels the length of the BCR and back—in other words, from Point A to Point B then back to Point A. The truck is then driven off the BCR and proceeds directly to the Calais, Maine border crossing, where the driver submits a bill of lading to CBP and enters the United States. The frozen seafood products are then delivered to Plaintiffs’ customers in the United States. The Court refers to this transportation route as the "BCR Route."
Prior to using the BCR Route, beginning in late 2000, ASC itself transported the frozen seafood from Dutch Harbor to the Port of Bayside on foreign-flagged vessels, then eventually on to Calais, Maine by truck. Beginning in 2009, ASC contracted with ARM to provide the transportation of the product on that same route.3 However, beginning in 2000 and continuing until 2012, when the product arrived at the Port of Bayside, it was first trucked away from the Port of Bayside to a rail terminal of the New Brunswick Southern Railway ("NBSR"). The NBSR carried the frozen seafood product to a separate rail terminal—not just back and forth like the BCR—over a distance of approximately 34 or 91 miles, depending on the destination terminal.4 The product then travelled by truck to the border crossing at Calais, Maine. The Court refers to this transportation route as the "NBSR Route."5
In 2017, CBP, the federal agency responsible for enforcing the cabotage laws of the United States, began investigating Plaintiffs’ BCR Route.6 As a result of the investigation, CBP determined that the BCR Route violated the Jones Act because, according to CBP, the BCR Route did not fall within an exception to the Jones Act known as the Third Proviso.7 In August of 2021, CBP began issuing numerous "Notices of Penalty" to KIF and other companies involved in the BCR Route supply chain—shippers, trucking firms, and storage facilities.8 As of the date of the filing of Plaintiffs’ complaint, KIF had received Notices of Penalty totaling approximately $25 million, and other companies in Plaintiffs’ supply chain had received Notices of Penalty totaling approximately $325 million.9
On September 28, 2021, the Court denied without prejudice Plaintiffs’ motion for a temporary restraining order and preliminary injunction. This was based, in part, on a finding that Plaintiffs had not filed a rate tariff for the BCR Route with the Surface Transportation Board ("STB"). Plaintiffs then promptly filed the applicable rate tariff and on October 1, 2021, filed a renewed motion for a temporary restraining order and preliminary injunction.10 On October 12, 2021, the Court granted Plaintiffs’ renewed motion.11 Pursuant to that order, the Court enjoined Defendants, during the pendency of this litigation or until further order of the Court, from: (1) enforcing any of the Notices of Penalty that CBP had issued relating to shipments via the BCR Route; and (2) issuing and enforcing any new Notices of Penalty relating to shipments via the BCR Route made at any time.12
On November 1, 2021, Defendants filed their answer to Plaintiffs’ complaint, as well as a counterclaim against KIF seeking to collect the civil penalties levied for the alleged violations of the Jones Act that gave rise to this litigation.13 Defendants served and filed the administrative record, comprising 1,369 pages, on November 15, 2021.14 On December 3, 2021, both Plaintiffs and Defendants filed cross-motions for summary judgment.15 The parties filed responses in opposition on December 17, 202116 and reply briefs on December 30, 2021.17
Each party seeks summary judgment in its favor on four counts raised in Plaintiffs’ complaint: (1) Count I, which alleges that the transportation of frozen seafood on the BCR Route complies with the Third Proviso of the Jones Act; (2) Counts II and III, which allege that CBP's issuance of the Notices of Penalty violated 19 U.S.C. §§ 1625(c)(1) and 1625(c)(2) by improperly modifying or revoking a prior agency interpretive ruling or treatment without complying with that statute's notice-and-comment provision; and (3) Count IV, which alleges that CBP's issuance of the Notices of Penalty violated KIF's right to due process under the Fifth Amendment of the United States Constitution. Defendants’ cross-motion additionally seeks summary judgment on Count V of Plaintiffs’ complaint, which alleges an Eighth Amendment violation. Defendants also seek the dissolution of the Court's preliminary injunction.
Federal Rule of Civil Procedure 56(a) directs a court to grant summary judgment if the movant "shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." In reviewing cross-motions for summary judgment, a court "review[s] each separately, giving the non-movant for each motion the benefit of all reasonable inferences."18
Count I seeks a declaratory judgment that Plaintiffs’ use of the BCR Route falls within the Third Proviso exception to the Jones Act. The Jones Act generally prohibits a maritime vessel from providing any part of the transportation of merchandise by water—or by land and water—between points in the United States, either directly or via a foreign port, unless the vessel is "coastwise-qualified,"19 i.e., U.S.-built, U.S.-registered, and U.S.-owned. The Jones Act was enacted to encourage and aid in the development of a vibrant U.S. maritime industry.20
The Third Proviso of the Jones Act creates an exception to the prohibition on non-coastwise-qualified vessels. As currently codified, the Third Proviso states that the general prohibition "does not apply to the transportation of merchandise between points in the continental United States, including Alaska, over through routes in part over Canadian rail lines and connecting water facilities if the routes are recognized by the Surface Transportation Board and rate tariffs for the routes have been filed with the Board."21 When originally enacted in 1920, the Third Proviso did not include Alaska. Interpreting the Third Proviso at that time, the Supreme Court stated that the purpose of the proviso was to "avoid disturbance" of then-"established" through routes in part over the Great Lakes and in part over Canadian rail.22 With the passage of the Alaska Statehood Act of 1958, the text of the Third Proviso was amended to extend the exception to through routes with coastwise points in Alaska.
The Third Proviso exception thus has three requirements:
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