Two seafood shipping companies have settled a lawsuit challenging penalties and fines levied by U.S. Customs and Border Protection for violating the Jones Act, a more than 100-year old law requiring merchandise be transported by U.S. flagged vessels between U.S. ports.
An exception to the U.S. flagged vessel requirement allows seafood from Alaska to be transported to the mainland U.S. if it travels via Canadian rail.
The companies challenged the penalties and fines in the U.S. District Court of Alaska, saying they did not violate the Jones Act while transporting seafood from Alaska to the mainland U.S. because it was “transported” by Canadian rail.
According to court documents, Kloosterboer International Forwarding LLC (KIF) and Alaska Reefer Management LLC (ARM) arranged transportation and related services to move frozen seafood from Alaska to the East Coast via ocean shipping. For over a decade, the companies moved seafood from Dutch Harbor, Alaska, to a port in New Brunswick, Canada, on foreign-flagged vessels.
Once in Canada, KIF arranged for the seafood to be offloaded from the vessel onto trucks in the port.
The trucks were then driven onto a flatbed rail car on the Bayside Canadian Railway, a roughly 100-foot length of railroad track located entirely within the Port of Bayside, where they rode the length of the rail and back before being driven off the train cars and proceeding directly to a border crossing in Maine for final transport to the mainland U.S.
The Bayside Canadian Railway was specifically built and exclusively used to move the seafood to get around the Jones Act by using the rail in Canada.
Customs and Border Patrol began investigating the companies’ use of foreign-flagged vessels to transport merchandise in this manner, and decided there was a violation because ths short 100-feet of rail didn’t meet the Canadian rail exception. Several penalty notices were issued, and the companies responded with a lawsuit agains the federal government, claiming they were within the letter of the law and the penalties were unlawful.
The parties filed for summary judgement in the U.S. District Court of Alaska, and the Court ruled the companies’ utilization of the BCR for part of the transport of seafood from Alaska to the mainland U.S. was unlawful because there was no actual “transportation” of goods being done, which is a requirement to meet one of the exceptions under the Jones Act.
A settlement agreement was finalized between the companies and the U.S. in January. The agreement requires KIF and ARM to pay $9.5 million to the U.S. The companies also stopped using the BCR to transport seafood to the U.S. after this ruling.
“This is the second largest settlement of a case brought under the Jones Act in the history of our Nation,” said U.S. Attorney S. Lane Tucker for the District of Alaska. “Our prosecutors and law enforcement partners did a tremendous job successfully investigating and litigating this complex case. Our office will continue to dedicate resources to ensuring the laws in place to protect fair maritime commerce are followed by all industries in Alaska.”
“The resolution of this case sends a clear signal that CBP will use its law enforcement powers to detect and deter schemes that are designed to circumvent laws – such as the Jones Act — which are intended to protect U.S. industries,” said AnnMarie R. Highsmith, Executive Assistant Commissioner, Office of Trade, U.S. Customs and Border Protection.
