6th Circuit Says Federal Environmental Regulation Applies to Duty-Free Gas Station in Michigan

The U.S. Court of Appeals for the 6th Circuit affirmed a federal district court's decision to dismiss a challenge to the Michigan Department of Agriculture and Rural Development's enforcement of a federal gasoline-volatility regulation on a duty-free gas station on the Canadian border. The regulation applies to Ammex's gas station, even though the gas station sells gas only for export because cars must drive into Canada after filling up, the appeals court said (Ammex v. Gary McDowell, 6th Cir. #20-1250).

The duty-free gas station is located near the bridge to Canada, where patrons have no choice but to enter Canada after filling up at the station's pumps. This qualified the station to be marked a "border store," allowing it to sell its gas duty and tax free, also because it sources all its gas from foreign-trade zones. In 2012, MDARD began enforcing an Environmental Protection Agency rule requiring gas stations in Wayne County to issue low-pressure gasoline in the summer on Ammex.

Ammex lost its initial suit, with the 6th Circuit dismissing its case in 2019. It filed a new case with two new claims, arguing that the law doesn't apply to gas sold "for export only" and that even if the law does apply to its gas, it's an environmental regulation that conflicts with a federal customs statute and "must accordingly give way."

Ammex argued that despite the Summer Fuel Law applying to all "dispensing facilities" in Wayne County," there's a 1989 EPA notice that says that all gas sold for export only is exempt. The Eastern Michigan U.S. District Court said this exemption was irrelevant since the EPA issued a letter in November 2019 that considered the 1989 EPA Notice and the Summer Fuel Law and ultimately found the gas station to be within the state of Michigan and thus regulated by the federal volatility standards. "We agree with the district court that it is not necessary to reach beyond the text of the Summer Fuel Law," the appellate court said.

As for the conflict between federal environmental regulations and customs statutes, the 6th Circuit said that the Summer Fuel Law doesn't conflict with customs laws, and Ammex's argument rested on a "fundamental misreading" of customs laws. In particular, the gas station owner misread the Warehousing Act, since the company interpreted it to find that it gave the store, as a duty-free spot, the right to sell any merchandise duty-free of any description.

"The Withdrawal Statute, § 1557, does not grant Ammex, as a duty-free store, the positive right to sell all merchandise subject to duty, and certainly does not grant it the right to sell such merchandise in a manner that is free from other federal regulation," the opinion said. "The Warehousing Act ... instead describes the way in which Ammex, a duty-free retailer, may enter its merchandise into a bonded warehouse and later withdraw it for 'exportation,' 'transportation,' 'shipment,' or 'rewarehousing' and still preserve the merchandise’s duty-free status."