Alaska Shipping Companies, US Debate Jones Act Violations in Federal Court

The Department of Justice and two Alaska shipping companies squared off over a lesser-known element of the Jones Act in the U.S. District Court for the District of Alaska in a fight for a preliminary injunction against CBP penalties for seafood shipments. Recently granted expedited consideration by the court, both parties submitted their briefs over the PI and a temporary restraining order in a four-day span following the order. DOJ and the two companies, Kloosterboer International Forwarding and Alaska Reefer Management, also debated whether the companies' claims that CBP violated their due process rights when imposing the penalties had a likelihood of succeeding.

CBP recently issued penalty notices to KIF and ARM for shipping Alaska seafood from Alaska to the eastern U.S. via the Bayside, New Brunswick, Canada, port (see 2109070027). CBP said the companies violated the Jones Act -- the law that says that shipping between U.S. ports must be conducted by U.S.-flagged ships that were made in the U.S., otherwise known as coastwise vessels. KIF and ARM shipped seafood from a U.S. port in Alaska to the east coast in a Canada-flagged, non-coastwise qualified ship.

The two companies argue that their shipments do violate the Jones Act because they qualify for an exception laid out in the Third Proviso, which says the requirement to use coastwise-qualified vessels "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." What the companies took this to mean is that if the goods get on a Canadian rail line at some point in their journey, they're permitted under the Jones Act.

KIF's fish shipments start in Alaska, then travel via the foreign-flagged vessels through the Panama Canal and all the way to the Port of Bayside, Canada, where they're unloaded into trucks and meant to be shipped to Maine. But, transit directly to Maine from Bayside would be barred under the Jones Act.

KIF and ARM sought to qualify for the Third Proviso exception by putting the fish shipments on a train in Canada, sending them to a destination 100 feet away and sending them right back. From there, the shipments then set out to finish their trek to Maine and elsewhere in the U.S.

In its opposition to KIF's and ARM's motion for a preliminary injunction, CBP said that to qualify for the Third Proviso, the companies must clear three criteria: "1) there must be 'transportation of merchandise' over a 'through route'; 2) 'in part over Canadian rail lines'; and 3) the routes must be recognized by the [Surface Transportation Board] and rate tariffs for the routes must have been filed with the STB." And CBP found that KIF's and ARM's shipments did not meet any of the three requirements.

For starters, the border agency said that KIF's and ARM's use of the Bayside Canadian Railway is not " transportation" over a "through route," which is defined by the Supreme Court as requiring a "continuous carriage of goods" from one point to another. KIF's and ARM's use of the BCR is "not part of a continuous carriage of goods," CBP said. In fact, there is nothing about this process that resembles a continuous carriage of goods along a route, the brief argued. The goods move 100 feet along a track and then head back to their starting point. "There is no question that the movement of merchandise back and forth on the BCR is completely unlike what the Supreme Court described," the brief said.

KIF responded that "nothing could be further from the truth." The term "continuous" does not appear in the plain text of the Third Proviso, the plaintiffs argued. All the Third Proviso requires is transportation over through routes in part of Canadian rail lines. "Thus, as permitted, the Canadian rail component of the Bayside Program is merely a part of a longer through route, from Dutch Harbor to the eventual destination of the product in the United States," the plaintiffs said. "CBP is attempting impermissibly to re-write the Third Proviso."