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Horizon Lines, Llc, v. United States

February 10, 2006


The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge


Plaintiff Horizon Lines, LLC ("Horizon") has filed this challenge under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701 et seq., to the ruling of the Bureau of Customs and Border Protection ("CBP" or "Customs") interpreting the Third Proviso to Section 27 of the Merchant Marine Act of 1920 ("Jones Act"), ch. 250, 41 Stat. 988, codified as amended at 46 U.S.C. app. § 883 (2004), to permit the transportation of frozen fish from Alaska to the East Coast of the United States in a foreign-flagged vessel via a foreign port and over Canadian rail lines without filing rate tariffs with the Surface Transportation Board ("STB"). In a previous opinion, the Court granted American Seafoods Company, LLC's ("ASC") Motion to Intervene as Defendant to protect its interest in a Customs ruling that is nearly identical to the one challenged by Horizon. Horizon Lines LLC v. United States, No. 05-952, slip op. at 6 (D.D.C. Sept. 23, 2005). Currently before the Court are cross-motions for summary judgment filed by Horizon, CBP and ASC, and ASC's Motion to Dismiss for Lack of Subject Matter Jurisdiction.


CBP is a government agency within the Department of Homeland Security responsible for interpreting and enforcing the cabotage laws of the United States, including the Jones Act.*fn1

The Jones Act is a protectionist statute that prohibits any goods "transported by water, or by land and water . . . between points in the United States . . . either directly or via a foreign port," from being shipped, "for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States." 46 U.S.C. app. § 883. Vessels meeting the requirements of § 883 are referred to as "Jones Act qualified." Foreign-flagged vessels are not Jones Act qualified, but may still engage in domestic, or "coastwise," trade if they meet certain statutory exemptions. The exemption at issue in this case, known as the Third Proviso, permits non-qualified vessels to transport merchandise . . . between points within the continental United States, including Alaska, over through routes heretofore or hereafter recognized by the Surface Transportation Board for which routes rate tariffs have been or shall hereafter be filed with the Board when such routes are in part over Canadian rail lines and their own or other connecting water facilities.

Id. Thus, CBP has found that a non-qualified vessel may engage in non-contiguous coastwise trade where:

a) through routes are utilized which have heretofore or are hereafter utilized by the [STB].

b) routes rate tariffs have been or shall hereafter be filed with the [STB], and have not subsequently been rejected for filing, have become effective according to their terms, and have not been subsequently suspended, or withdrawn by the [STB].

c) the routes utilized are in part over Canadian rail lines and their own or other connecting water facilities. (Headquarters Ruling Letter ("HRL") 112085 at 3; AR 69). Customs has also "held that 'over Canadian rail lines' means simply over rail trackage in Canada, and that 'their own or other connecting water facilities' means water facilities covered by a through route regardless of whether those facilities connect directly with the Canadian rail line covered by that through route." (Id.)

Plaintiff Horizon is a Jones Act qualified shipper and thus competes with non-qualified shippers and water carriers that operate in the U.S. non-contiguous domestic trade pursuant to an exception to the Jones Act. (Buchanan Aff. ¶ 6.) One such competitor is Sunmar Shipping, Inc. ("Sunmar"), which on August 9, 2003, received a Ruling Letter from CBP, which was then the U.S. Customs Service, finding that Sunmar's proposed method of shipping frozen fish from Dutch Harbor, Alaska to Boston, Massachusetts via New Brunswick, Nova Scotia was in compliance with the Third Proviso. (HRL 115446 ("Sunmar I") at 6; AR 48.) Specifically, Sunmar proposed to charter non-Jones Act qualified vessels to move the goods from Alaska to Bayside, New Brunswick, a port that is approximately 6 miles south of St. Stephen, New Brunswick, across the St. Croix River from the Calais, Maine point of entry to the United States. Rather than proceed directly to Calais, however, Sunmar proposed to move the goods in a triangular pattern, first by truck to either McAdam or St. John, New Brunswick and then via a Canadian rail carrier from McAdam to St. John or St. John to McAdam. (Sunmar I at 2; AR 44.) From there, the goods would be trucked to Calais and into the United States. (Id.) This method adds approximately 145 miles to the route prior to entry into the United States. (Plaintiff's Motion for Summary Judgment (Pl.'s Mot.) at 7.)

Notwithstanding the Third Proviso's explicit rate tariff filing requirement, Customs approved Sunmar's proposed method of shipping despite the fact that Sunmar did not intend to file rate tariffs for any portion of the route. The agency noted that frozen processed fish or seafood has been exempted since 1983 from any rate tariff filing requirement when transported by rail. (Sunmar I at 2, citing Exemption From Regulation -- Rail Transportation -- Frozen Food, Ex Parte No. 346 (Sub-No. 15), 367 I.C.C. 859 (Nov. 30, 1983); AR 44.) It also referenced the Interestate Commerce Commission Termination Act ("ICCTA"), which abolished the ICC, deregulated much of what had been under the ICC's jurisdiction, and vested all the ICC's remaining authority in the newly created STB. (Sunmar I at 4, citing ICCTA § 201(a), Pub. L. 104-88, 109 Stat. 803 (Dec. 29, 1995) (codified as amended at 49 U.S.C. § 702.) Section 204(a)(2) of the ICCTA abolished obsolete ICC regulations, and the STB's new regulations only required rail carriers to make rates and service terms publicly available upon formal request. 49 C.F.R. § 1300.2(a). Customs reasoned that, "although the statute specifies the filing of rate tariffs with the [STB], mechanistic adherence to that requirement in the present climate of deregulation would lead to an absurd result that cannot be justified." (Sunmar I at 5 (internal quotation marks omitted); AR 47.) "Accordingly," Customs concluded, Sunmar's proposal "is not prohibited merely because no tariffs may be filed to cover the movements." (Id.)

On July 21, 2003, Horizon petitioned CBP to revoke or modify Sunmar I, arguing that Sunmar failed to comply with the Third Proviso's tariff filing requirements and that the proposed route was "commercially absurd and purposeless," and thus contrary to the statutory intent of the Third Proviso. (Letter from Myles Ambrose, Counsel to Horizon Lines LLC, to Glen Vereb, Branch Chief, Entry Procedures and Carriers Branch, U.S. Customs and Border Protection (July 21, 2003) at 2; AR 21.) In response, CPB requested guidance from the STB regarding the rate tariff filing requirement. (Letter from Glen Vereb to Vernon Williams, Secretary, Surface Transportation Board (Sept. 24, 2003); AR 14.) STB informed Customs that, while the ICCTA had "eliminated tariff filing for rail carriers" and the Trucking Industry Regulatory Reform Act of 1994, Pub. L. No. 103-311, 108 Stat. 1683 (Aug. 26, 1994), had done the same for "motor carriers of property," the ICCTA continued to require "water carriers operating in the U.S. noncontiguous domestic trade . . . to file tariffs with the STB." (Letter from Melvin Clemens, Director, Surface Transportation Board to Glen Vereb (Dec. 4, 2003) ("STB Letter"), citing 49 U.S.C. § 13702; AR 12.) The tariff requirement for water carriers "applies to commodities otherwise exempted from regulation for rail or motor service." (Id.)

STB also observed that no tariffs "bearing the description 'routes rates [sic] tariffs'" are accepted by the STB; rather, all tariffs are "rate tariffs [that] are not route-specific." (Id.; AR 13.) Where rate tariff filings are required, however, carriers may provide route and other service information "so long as it is clearly identified for informational purposes only." (Id. (emphasis in original).) Further, STB found that the rate tariff filing requirement applied only to "common carriers . . . that hold out their services to the public generally," and opined that because CBP described Sunmar as "using chartered vessels[,] . . . Sunmar's operations could be considered private carriage and non-jurisdictional to the STB for tariff filing purposes." (Id.)

On January 21, 2004, CBP denied Horizon's request to revoke or modify Sunmar I. (HRL 116021 ("Sunmar II"); AR 7.) The agency ruled that because "Sunmar is using chartered foreign-flagged vessels, which are private carriage, Sunmar's operations are not within the jurisdiction of the STB [and] Sunmar . . . cannot file rate tariffs with the STB for any purpose, even informational." (Sunmar II at 4; AR 10.) "Thus," the agency concluded, "it was not possible for Sunmar to comply with the rate tariff filing requirements in the Third Proviso." (Id.) CBP further reasoned that Sunmar's inability to comply "should not result in a de facto exclusion of all chartered non-coastwise-qualified vessels from transporting merchandise coastwise in compliance with those remaining requirements of the Third Proviso [because] mechanistic adherence to that requirement for private carriage which is not within the jurisdiction of the STB is unjustified." (Id. (emphasis in original).) The agency also rejected Horizon's argument that the Third Proviso contained an implied "commercial usefulness" requirement, noting that the term "through route" has not previously been interpreted to require the most "direct" route. (Sunmar II at 5; AR 11.)

Horizon sought further reconsideration on March 17, 2004, arguing that CBP's response in Sunmar II took "unwarranted liberties with the statute" and posed "a significant risk to the military, economic and homeland security interests of the United States." (Letter from Myles Ambrose, Counsel for Horizon to Robert Bonner, Commissioner, Bureau of Customs and Border Protection (Mar. 17, 2004); AR 4.) Specifically, Horizon argued that CBP erred by failing to construe the Third Proviso narrowly and by declining to find that "sham" rail movement fell outside the protection of the Third Proviso. (Id. at 2; AR 5.) Customs again rejected Horizon's petition. In its March 28, 2005 Ruling Letter, it incorporated by reference its decision in Sunmar II and reiterated that "the plain language of a law . . . need not be followed where necessary to avert absurd or impossible results [such as] impossibility of compliance." (HRL 116185 at 2 (March 28, 2005) ("Sunmar III"); AR 2.)

Horizon commenced this action on May 15, 2005, challenging CBP's Sunmar rulings as "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law under § 706 of the Administrative Procedure Act. (Pl.'s Mot. at 9 quoting 5 U.S.C. § 706(2)(A).) ASC moved to intervene to protect its interest in HRL 115124 (Aug. 11, 2000) ("ASC Ruling"), an interest that CBP referred to in Sunmar I as "nearly identical" to that of Sunmar. (Sunmar I at 5; AR 47.) The parties, including defendant-intervenor ASC, have filed cross-motions for summary judgment. ASC has also filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction. In addition, the Court received briefs from amici curiae: one from Kennecott Holdings Corporation ("Kennecott") and Teck Cominco Alaska Incorporated ("Teck Cominco") in support of defendant's and defendant-intervenor's motions for summary judgment ("Kennecott Br.") and one from Totem Ocean Trailer Express, Inc. ("TOTE") in support of plaintiff's motion ("TOTE Br."). After reviewing the submissions of the parties and amici, the ...

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