United Parcel Service, Inc. v. Flores-Galarza

Decision Date04 February 2003
Docket NumberNo. 02-1621.,No. 02-1792.,02-1621.,02-1792.
Citation318 F.3d 323
PartiesUNITED PARCEL SERVICE, INC., and United Parcel Service Co., Plaintiffs, Appellees/Cross Appellants, v. Honorable Juan Antonio FLORES-GALARZA, Secretary of the Department of the Treasury of the Commonwealth of Puerto Rico, in his official capacity, Defendant, Appellant/Cross Appellee.
CourtU.S. Court of Appeals — First Circuit

Luis Sanchez Betances, with whom Gerardo De Jesus Annoni and Sanchez-Betances & Sifre, P.S.C. were on brief, for appellants.

Paul T. Friedman, with whom Ruth N. Borenstein, Morrison & Foerster, LLP, Pedro J. Manzano and Fiddler Gonzalez & Rodriguez, LLP, were on brief, for appellees.

Before BOUDIN, Chief Judge, TORRUELLA and HOWARD, Circuit Judges.

HOWARD, Circuit Judge.

The Commonwealth of Puerto Rico has enacted a statutory regime that prohibits an interstate air carrier from delivering any package unless the carrier first provides proof that the package's addressee has paid the appropriate excise tax, or the carrier prepays the amount of the tax on the addressee's behalf. Plaintiffs United Parcel Service, Inc., and United Parcel Service, Co., (collectively "UPS") persuaded the district court to enjoin the Commonwealth's Treasury Secretary from enforcing these delivery restrictions on the grounds of federal preemption. The parties have filed cross-appeals which raise difficult questions about the lawfulness and proper scope of the injunction in light of arguably conflicting federal statutes that, on the one hand, strip the district court of jurisdiction to entertain suits seeking to restrain the collection of any Puerto Rico tax and authorize the Commonwealth to exercise taxing jurisdiction over packages as soon as they enter the island, and, on the other hand, limit the Commonwealth's ability to regulate an air carrier's service. In the end, we affirm the court's central ruling but remand for reconsideration of several peripheral matters.

Before us, Defendant Juan A. Flores-Galarza, in his official capacity as the Secretary of the Department of the Treasury of the Commonwealth of Puerto Rico (the "Secretary"), contends that the district court erred in finding that it had jurisdiction over the controversy, that Puerto Rico's restrictions on delivery were preempted by federal law, and that an administrative fine imposed by the Secretary was invalid and unenforceable. The Secretary also makes an alternative argument that the injunction is overbroad. UPS's cross-appeal challenges the district court's exclusion from the scope of the injunction a statutory provision requiring the payment of license fees by air carriers.

I. Factual and Procedural Background

The plaintiffs are corporate affiliates with common controlling ownership engaged in the delivery of packages worldwide. United Parcel Service Co. is authorized by the Federal Aviation Administration to operate as an air carrier for the transportation of property, and United Parcel Service, Inc. is engaged in the transportation of property by motor vehicle. UPS offers door-to-door delivery service and the delivery of packages on an express or time-guaranteed basis. In certain circumstances, UPS refunds delivery charges for express packages that have not been timely delivered. UPS ships approximately 10,000 packages per day to Puerto Rico from the continental United States. UPS's delivery operations function as an integrated system, requiring extensive planning and coordination among its operating facilities, ground fleet, and air fleet. Delays and disruptions in operations can affect thousands of packages in transit.

Puerto Rico imposes an excise tax1 on "articles of use and consumption," including those introduced from elsewhere. 13 P.R. Laws Ann. § 9005. The general tax rate is 5 percent of the taxable price, although the rate varies depending on the article, and there are numerous exemptions. See, e.g., 13 P.R. Laws Ann. § 9015, 9031. No interstate carrier transporting a package subject to an excise levied by the Commonwealth may deliver the package to its intended recipient unless the recipient (the "consignee") presents a certificate from the Department of the Treasury evidencing payment of the requisite tax. 13 P.R. Laws Ann. § 9066 ("§ 9066"). If a carrier delivers a package without obtaining this certificate, the carrier may be required to pay an administrative fine to the Secretary, a tax on the package's contents, and any surcharges and interest accrued from the date the items were introduced into Puerto Rico. See id.; see also 13 P.R. Laws Ann. §§ 8080(a), 8140(6).

As an alternative to the certificate system established by § 9066, carriers such as UPS may prepay the taxes owed, deliver the packages, and seek reimbursement from the packages' consignees. 13 P.R. Laws Ann. § 9077; Article 6.005 of Regulations for the Administration and Enforcement of the Excise Tax of the Commonwealth of Puerto Rico (the "Articles"). To take advantage of this alternative, carriers must comply with a complex statutory and regulatory scheme resembling the federal customs system. Carriers must provide the Department of the Treasury, on a daily basis, a commercial invoice for each package that describes the package's contents and their cost, as well as a "shipment manifest" that lists packages by specific categories. See 1994 Procedure for Freight Air and Ocean Forwarders Who Are Authorized for the Secretary of the Treasury to Pay Taxes and Take Credit for Articles Returned or Paid In Excess or Improperly ("1994 Procedure") ¶¶ 1-4, 8, 11.

Additionally, carriers who prepay taxes must make packages available for inspection by Treasury agents, and give the agents access to their facilities to supervise the processing of packages. See 1994 Procedure ¶ 10. Carriers must create, maintain, and make available for inspection extensive records relating to the prepayment of fees. See 13 P.R. Laws Ann. §§ 8102, 8140(1); Articles 5.005(7),(11), 6.005. Puerto Rico also requires prepaying carriers to post a bond in excess of the amount required of all carriers under general licensing provisions.2 13 P.R. Laws Ann. § 9077. Finally, carriers must calculate and pay the taxes owed by the consignees. 13 P.R. Laws Ann. § 9077; Article 6.005.

Unlike commercial carriers, the United States Postal Service may deliver packages to destinations in Puerto Rico without obtaining certificates from recipients or complying with the prepayment scheme. Recipients of packages subject to the excise tax must pay the tax directly to the Department of the Treasury within two business days of receiving a package through the U.S. mail. 13 P.R. Laws Ann. § 9068(b)(2).

As described in greater detail in the opinion of the district court, United Parcel Service, Inc., v. Flores-Galarza, 210 F.Supp.2d 33, 38-40 (D.P.R.2002), UPS has been required to alter significantly the business practices it employs for the rest of the United States to comply with the Commonwealth's prepayment scheme.3 UPS must, among other things, collect and process comprehensive data on the contents of packages,4 perform tax ratings on these contents, and delay the delivery of packages until all necessary data have been obtained, or until Treasury agents have had an opportunity to inspect the packages on site. UPS also bears the burden of seeking reimbursement from consignees, pays additional amounts if agents alter assessments on packages after they have been delivered, and maintains a $1.5 million bond. UPS incurs more than $4.6 million per year in costs associated with its compliance with the prepayment scheme.

In 1994, Congress passed the Federal Aviation Administration Authorization Act (the "FAA Authorization Act"), which provided, in relevant part, that no state (defined to include the Commonwealth of Puerto Rico) may "enact or enforce a law, regulation, or other provision having the force and effect of a law related to a price, route, or service of an air carrier ... when such carrier is transporting property by aircraft or by motor vehicle." 49 U.S.C. § 41713(b)(4)(A). This legislation recodified a preemption provision of the Airline Deregulation Act of 1978, Pub.L. No. 95-504, § 105, 92 Stat. 1708.

In late 1997, the Senate of Puerto Rico passed a resolution directing various Senate committees to investigate the FAA Authorization Act's impact on existing statutes and regulations of Puerto Rico affecting carriers' prices, routes and services. It did so after reaching the preliminary conclusion that the existing scheme might be in conflict with federal law. See S. Res. 917, 13th Leg. Assem., 2d Ord. Sess. (P.R.1997). Two years later, the Puerto Rico legislature confirmed this conclusion, finding that numerous laws and regulations, including those of the local excise tax system, were impacting or affecting the prices, routes and services of air carriers and affiliated motor carriers. See Act No. 322, 13th Leg. Assem., 6th Ord. Sess. (P.R.1999) ("Act 322"). In November 1999, the legislature passed Act 322, which would allow air carriers to transport packages to consignees without restriction, and require consignees to pay the excise tax within two business days. Id. Under Act 322, air carriers would provide the Secretary with "the minimum information agreed as necessary in order for the Secretary to proceed to collect the excise taxes, without unreasonably interfering in the ordinary course of business in interstate commerce." Id. This new legislation also exempted air carriers from licensing requirements. Id.

The provisions of Act 322 removing impediments to the delivery of packages would not become effective until June 30, 2001. The legislature concluded that the intervening period would be sufficient for the Department of the Treasury to develop and implement an alternative system consistent with federal law. See id. In the interim, Act 322 provided immediate relief for air...

To continue reading

Request your trial
64 cases
  • Martínez v. U.S. Dep't of Health & Human Servs., CIVIL ACTION NO. 18-01206-WGY
    • United States
    • U.S. District Court — District of Puerto Rico
    • August 3, 2020
    ...be ‘no more burdensome to the defendant than necessary to provide complete relief to the plaintiffs.’ " United Parcel Serv., Inc. v. Flores–Galarza, 318 F.3d 323, 336 (1st Cir. 2003) (quoting Califano v. Yamasaki, 442 U.S. 682, 702, 99 S.Ct. 2545, 61 L.Ed.2d 176 (1979) ). "[T]he scope of in......
  • Direct Mktg. Ass'n v. Brohl
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • August 20, 2013
    ...cites two federal circuit court cases to argue that our interpretation of the TIA is overly broad: United Parcel Service Inc. v. Flores–Galarza (“UPS”), 318 F.3d 323, 330–32 (1st Cir.2003), and Wells v. Malloy, 510 F.2d 74, 77 (2d Cir.1975). In UPS, the First Circuit addressed whether the B......
  • Torres-Rosado v. Rotger-Sabat
    • United States
    • U.S. Court of Appeals — First Circuit
    • July 2, 2003
    ...be admitted when the other party fails to file oppositions in compliance with local rules. See, e.g, United Parcel Serv., Inc. v. Flores-Galarza, 318 F.3d 323, 330 & n. 10 (1st Cir.2003); Corrada Betances v. Sea-Land Serv., Inc., 248 F.3d 40, 43 (1st Cir.2001); Morales v. A.C. Orssleff's EF......
  • Ward v. New York
    • United States
    • U.S. District Court — Western District of New York
    • August 19, 2003
    ...The fact that the Statute is a public health law of general application distinguishes the instant case from United Parcel Service, Inc. v. Flores-Galarza, 318 F.3d 323 (1st Cir.2003), a case relied upon by Plaintiffs. Flores-Galarza involved a challenge to Puerto Rico's statutory scheme gov......
  • Request a trial to view additional results
2 firm's commentaries

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT