Alaska District Court Denied Bid for Injunction Against CBP Jones Act Violation Penalties

A federal district court denied two Alaska shipping companies' bid for an expedited temporary restraining order against CBP penalties for seafood shipments found to be in violation of the Jones Act. In a Sept. 28 opinion, Judge Sharon Gleason of the U.S. District Court for the District of Alaska held that the plaintiffs, Kloosterboer International Forwarding and Alaska Reefer Management, were unlikely to succeed in the case since the pair did not have a tariff filed to cover the transportation route in question.

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, -made and -owned ships, 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.

KIF and ARM said that their shipments qualified for a Jones Act exception, known as the Third Proviso, which says the act "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 (STB) and rate tariffs for the routes have been filed with the Board." The companies sought to fulfill the requirements of this exception by putting their fish shipments on a train in Canada, sending them to a destination 100 feet away and bringing the train right back. From there, the shipments finished their journey to Maine (see 2109170048).

There exists a three-part test to qualify for the Third Proviso. A shipping company must prove that the transportation of the merchandise must use a through route in part over Canadian rail lines, use a route recognized by the STB and have filed rate tariffs for the routes with the STB. Without even addressing the first two prongs of this test, Gleason said that KIF and ARM didn't have the rate tariffs and so were unlikely to succeed on the merits of their case.

The judge concluded the order denying the temporary restraining order against the CBP penalties by finding that the pair could try again when they can show they have filed a rate tariff for the Bayside Canadian Rail (BCR) route with the STB. "As a result of this outcome, which in large part is positive, we will not be able to resume trucking goods as fast as we had hoped,” said Per Brautaset, president of ARM. “However, we are encouraged and will continue to pursue the available legal and administrative options to resolve this issue.”

ARM attempted to skirt the judge's finding in this instance by adopting a previous rate tariff that had been assigned to ASC, ARM's predecessor. In 2006, ASC filed for a rate tariff with the STB for the New Brunswick Southern Railway route it was using. This rate tariff does not name ARM nor the BCR railroad and was effective until it was cancelled. ARM argued that it "steps into the shoes" of ASC for this rate tariff, but Gleason refused to find that a company that "assumes a shipping route from another company automatically receives the benefit of a previously filed tariff, especially when the successor company did not amend the tariff to reflect the new company and other participating carriers."

Gleason did express sympathy over the sheer size of CBP's fines, which total as much as $25 million. "Plaintiffs raise valid questions as to whether CBP’s Notices of Penalty are irreparably harming Plaintiffs’ supply chain, jobs, and good will with customers, among other alleged injuries," the order said. But until they establish a tariff for the BCR route with the STB, KIF and ARM are out of luck.