Alaska Seafood Companies Granted Renewed Bid for Injunction Against Jones Act Penalties

The U.S. District Court for the District of Alaska granted two Alaska shipping companies' renewed bid for an injunction against CBP penalties for seafood shipments found in violation of the Jones Act, in an Oct. 10 order. After previously ruling against the companies since they hadn't fulfilled a particular part of an exception to the Jones Act, thereby failing to show a likelihood to succeed in their case, Judge Sharon Gleason ruled they now met this condition (Kloosterboer International Forwarding LLC, et al. v. United States, D. Alaska #3:21-00198).

“We are very appreciative of the Court’s ruling,” said Per Brautaset, president of Alaska Reefer Management. “Today’s order will allow us to immediately resume distributing Alaska seafood from the cold storage facility in Bayside, Canada, without the threat of further Customs fines. This will help to resolve shortages of frozen seafood that have already impacted food processors and their employees.”

Kloosterboer International Forwarding and Alaska Reefer Management, the two companies, face penalties in excess of $25 million for the alleged Jones Act violations. KIF and ARM ship seafood from Alaska to the eastern U.S. via the Bayside, New Brunswick, Canada port. CBP said this violates the Jones Act -- the law that says that shipping between U.S. ports must be conducted by U.S.-flagged, -made and -owned ships. The companies shipped seafood from a U.S. port in Alaska to the East Coast on a Canada-flagged ship.

KIF and ARM argue that their shipments qualify for the Third Proviso exception of the Jones Act, which says that the act doesn't apply to the transportation of merchandise between points in the U.S. "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).

A three-part test exists to qualify for the Third Proviso. A shipping company must prove that the transportation of the merchandise was with the use of a through route in part over Canadian rail lines, used a route recognized by the STB and that it had filed rate tariffs for the routes with the STB. KIF and ARM's injunction bid was first denied, since it failed this third prong of the test (see 2110050035).

So, the companies filed a rate tariff with STB and renewed their bid for the injunction (see 2109290075). Gleason had previously indicated that she would have signed off on the injunction bid the first time merely if this condition had been met since the plaintiffs show a sufficient likelihood to succeed on the merits of the case and irreparable harm caused by the CBP penalties. "Given the sudden issuance of significant penalties to Plaintiffs and their partners, including what appear to be questionable cumulative penalties on the same shipment, the Court finds Plaintiffs’ assertions of likely irreparable harm to their business operations if additional penalty notice are issued to be credible," the judge said as she granted the injunction.

The injunction stops the government from "ever issuing and enforcing any new Notices of Penalty for alleged violations of the Jones Act relating to shipments from Alaska to U.S. destinations through Bayside via the [Bayside Canadian Rail (BCR)] Route commenced or completed at any time from the date of this order until the date of the final judgment in this action, and regardless of the outcome of the action, on Plaintiff KIF and/or any other company or person in the chain of supply, transportation, and distribution of frozen seafood products from Alaska to U.S. destinations through Bayside, via the BCR Route, including any such products that are in ocean transit or in cold storage facilities in Alaska or Bayside.”

The Department of Justice had argued against the companies' request for the court to invoke the "constitutional tolling doctrine" to stop the penalties. Constitutional tolling allows the court to block the collection of penalties accrued during pending litigation, the court said. This argument included DOJ asserting that constitutional tolling should not apply when a party is only challenging the agency's interpretation of the statute rather than the validity of the statute itself. Tapping precedent from a district court in New Jersey, the judge held that the difference between the validity of a regulation and the validity of the interpretation of that regulation is not always clear. Also, this bifurcation can be overlooked since the penalties could be financially ruinous to KIF and ARM, the judge said.

DOJ also argued that the "plaintiffs ask this Court for a get-out-of-jail-free card for them and everyone they deal with in transporting seafood to Bayside." The court responded, "There is some merit to this contention; but the Court is not addressing the validity of the penalties already assessed in this order. Hence, while Plaintiffs may avoid additional penalties during the pendency of this case even if they do not prevail, they could well be liable for the sizeable penalties already noticed if they do not prevail."