Posted on September 9, 2021
The quickly escalating saga involves hundreds of millions of dollars in fines, a miniature Canadian railway and Donald Trump’s personal lawyer. And it stems from the way that one of Alaska’s biggest fishing companies, American Seafoods, is using an exemption in the federal law that typically allows only U.S. ships to move cargo between U.S. ports.
American Seafoods’ shipping subsidiary and an affiliate company, Kloosterboer International Forwarding, sued U.S. Customs and Border Protection in federal court Thursday.
They’re challenging $46 million in fines issued directly to American Seafoods, plus more than $300 million levied against industry partners over the past month — some of which are holding American Seafoods’ subsidiary liable.
In legal filings, the companies say the threatened penalties are paralyzing the Alaska seafood industry’s supply chain to a port called Bayside, on the East Coast, and have stranded millions of pounds of frozen fish destined for American customers.
“Cargo vessels are no longer being sent to Bayside with seafood for the eastern United States. Fishing vessels returning from the Bering Sea to Dutch Harbor are facing dangerously tight conditions as the limited cold storage capacity fills up with cargo that was destined to the United States,” an Anchorage-based lawyer for the companies, David Gross, said in a court filing Tuesday. “The entire transportation route used by plaintiffs has been paralyzed and will be irreparably damaged, absent court intervention.”
Officials at the American subsidiary that filed the lawsuit, Alaska Reefer Management, declined to comment beyond a prepared statement. A CBP spokesman also declined to comment.
American Seafoods says it has the world’s largest operation processing $400 million worth of pollock each year, on its huge ships with onboard factories.
The company, like other major Alaska seafood players, sells much of its harvest to Asian and European markets.
But it’s also a major supplier of pollock to U.S. customers, with products like fish sticks that end up at food banks and in school lunches. A little less than 15% of the company’s catch is shipped to the eastern U.S. on ships coordinated by Kloosterboer and American Seafoods’ shipping subsidiary, Alaska Reefer Management, according to court documents.
The Jones Act, a century-old federal law, typically requires American-flagged ships to move cargo between American ports. But the legislation contains an exception known as the “Third Proviso,” which allows companies to use foreign-flagged ships between U.S. ports if the routes include “Canadian rail lines” — and if they’re certified by an obscure federal agency called the Surface Transportation Board.
Alaska seafood companies have been using that exception since 2000, according to court documents.
Vessels flagged in countries like Singapore and the Bahamas first pick up frozen seafood products in Dutch Harbor, then travel to the Canadian port of Bayside, New Brunswick, just across the border from Maine.
From Bayside, the seafood would be trucked to a Canadian train, loaded and moved 20 miles between two stations — sometimes in the opposite direction of the U.S. border. Then the cargo would be loaded back onto the trucks to drive into the U.S.
In their court filings, the shippers say that both CBP and the Surface Transportation Board signed off on that practice, even though it was clear that the only purpose of the brief rail movement was to satisfy the requirements of the Jones Act.
They also argue that they made customs officials aware of a new, even shorter rail line that they switched to using in 2012 to satisfy the Jones Act: a 100-foot stretch of track that’s entirely within the Bayside port.
“The trucks travel the length of the Canadian rail trackage and back,” Gross said.
The seafood products’ 200-foot train ride now appears likely to be at the core of the companies’ legal dispute with CBP.
Other companies with Bering Sea fishing vessels, including O’Hara Corp., Glacier Fish Co. and Arctic Storm Inc., also ship their seafood with Kloosteboer and the American Seafoods subsidiary. And in court documents, they say they face their own threatened fines from CBP.
In addition to Gross, Kloosterboer and the American Seafoods subsidiary have hired a high-profile New York-based law firm, Kasowitz Benson Torres, which has experience on Jones Act cases.
One of the firm’s partners working on the lawsuit, Marc Kasowitz, represented former President Donald Trump in the investigation into Russian interference in the 2016 election.
In their court filings, the companies say they were “completely blindsided” by what they call the “draconian penalties” proposed by CBP.
U.S. District Court Judge Sharon Gleason, in an order late Friday, granted the companies expedited consideration of their request for a temporary restraining order and preliminary injunction against the agency. If Gleason ultimately grants that request, CBP would be barred from penalizing the companies under the Jones Act for shipping more seafood while the lawsuit plays out.
CBP’s response is due next week.
