Judge backs Jones Act penalties for American Seafoods’ transit system

Federal judge Sharon Gleason this week denied a petition to block new Jones Act penalties for American Seafoods Company’s (ASC) “Canadian railway” programme. It was found by the judge that the paperwork that ASC used in connection with its inventive rail operation was out of order. Therefore ASC’s rail system, devised to avoid Jones Act penalties, was noncompliant.

ASC and its partners face federal fines totalling about $350m for alleged violations of the Jones Act. Since 2017 the US Customs & Border Protection (CBP) had been investigating the logistical arrangement that ASC created for its transport of pollock from Alaska to Maine.

The US Jones Act does not permit foreign-flagged or foreign-crewed vessels to transit from one American port directly to another.

To get round this, ASC subsidiary Alaska Reefer Management (ARM), chartered foreign-flag reefer ships to transport fish from Dutch Harbor to New Brunswick, Canada via the Panama Canal. At Bayside, New Brunswick, the fish is offloaded at a terminal operated by an ARM subsidiary, Kloosterboer International.

That pollock cargo is then loaded into truck trailers and driven onto a two-car, one-track train on a miniature rail line. The Bayside Canadian Railway (BCR) carries each laden truck about 100 feet to the south, then 100 feet back north, completing what is then defined as a round-trip Canadian rail journey.

Then, from the BCR’s loading ramp. the truck drives over the border into Maine, completing a 7,500 nm foreign-flag cargo shipment between two US points.

The Jones Act ordinarily bans foreign-flag vessels from transporting cargo in US coastal trade. However, there is a clause in the Jones Act, the so-called Third Proviso, that exempts shipment routes that are “in part over Canadian rail lines.” ARM and Kloosterboer International maintain that the Bayside Canadian Railway – small as it may be – is indeed a “Canadian rail line” for the purposes of compliance. US CBP did not agree. In August it issued fines totalling more than $350m to ARM, ASC, Kloosterboer and other participants in the Bayside programme.

Kloosterboer and ARM filed suit, contending that the threat of additional Jones Act penalties was currently preventing them from delivering millions of pounds of fish to their US East Coast customers. They sought a temporary restraining order and a preliminary injunction to prevent CBP from charging them with any further violations of the Jones Act until litigation was completed.

US District Judge Sharon L Gleason denied the petition. She noted that, in ARM’s attempts to match precisely the letter of the Third Proviso, it forgot to dot its i’s and cross its t’s. To meet the clause’s requirements, ARM relied on outdated railroad “rate tariff” paperwork from 2006, which had been filed by a different company for use on a different Canadian railroad. The Third Proviso requires that the rail route used must be recognized by the US Surface Transportation Board (STB) and that rate tariffs for the route must have been filed with the STB.

“[ARM and Kloosterboer] have not demonstrated that they are in compliance with the Jones Act insofar as they have not demonstrated that a tariff for the BCR Route has been filed with the [US Surface Transportation Board]. In addition, the record indicates that [they] are not diligently pursuing all available administrative remedies. In these circumstances, the balance of equities and public interest tip decidedly against [them], and the entry of a preliminary injunction is not warranted at this time,” Gleason ruled.

That leaves the CBP entitled to impose more penalties if American Seafoods continues to move fish along the Bayside route. However, she also left the door open for ARM and Kloosterboer to renew their request for an injunction – provided they properly register the rate tariffs they charge themselves for the use of their own miniature Canadian railroad, as required by the Third Proviso.

She also found that they might succeed on the merits in later litigation.