US Vies for Reconsideration in Alaska District Court Over Ruling Nixing Jones Act Penalties

The U.S. District Court for the District of Alaska should reconsider its ruling which found that the U.S. cannot pursue penalties for violations of the Jones Act from shipping companies Kloosterboer International Forwarding and Alaska Reefer Management, the U.S. argued in a July 14 brief. The court "without explanation" reached an opposite conclusion over whether CBP modified treatment of a Canadian rail line, thus requiring a notice-and-comment period. The U.S. argues that this switch was "erroneous," and that the court should revisit its ruling (Kloosterboer International Forwarding v. United States, D. Alaska #3:21-00198)

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 shipping between U.S. ports must be conducted by U.S.-flagged ships that are also U.S. made and owned. 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." 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.

The companies sought to fulfill the requirements of this exception by putting their fish shipments on a train in Canada, the Bayside Canadian Rail (BCR), 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. One of those parts says that the shipment must have used a route recognized by the STB and that it had filed rate tariffs for the routes with the STB. Litigation then commenced over whether the BCR endeavor passed this test and qualified for this exception to the Jones Act.

The court ruled that the BCR failed this test, making KIF and ARM's shipments subject to Jones Act penalties (see 2206020069). However, Judge Sharon Gleason ruled that since CBP previously accorded treatment to the BCR, allowing shipments to pass on the rail line without Jones Act penalties, CBP's change in practice without a notice-and-comment period nullifies the penalties. In its reconsideration motion, the U.S. said that Gleason previously ruled the opposite way and that these differing opinions need to be reconciled.

"A hypothetical will drive the point home," the brief said. "Suppose Plaintiffs had utilized the NBSR Route, which was the identical route addressed in the Sunmar letters, but the rate tariff for that route was no longer valid. The Court would agree that the United States could pursue penalties for that Jones Act violation. Yet, because Plaintiffs utilized the BCR Route without a rate tariff filing, a substantially identical route in the Court’s view, the Court concluded that the United States may not pursue penalties for that Jones Act violation."

On July 19, the court issued an order requesting that the plaintiffs file a response to the motion for reconsideration within seven days of the order.