UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

HAWAII INSPECTION FEE Docket DOT-OST-2010-0243

PROCEEDING

COMMENTS OF THE STATE OF HAWAI’I

DEPARTMENT OF AGRICULTURE

MARK J. BENNETT Communications with respect to this

Attorney General of Hawai’i document should be addressed to:

SANDRA LEE KUNIMOTO MYRA M. KAICHI

Chairperson, Hawai ‘i Board of Agriculture myra.m.kaichi @ hawaii.gov

HAUNANI BURNS

haunani.f,burns @hawaii.gov

DEBORAH DAY EMERSON

deborah.d.emerson @hawaii.gov

Deputy Attorneys General

425 Queen Street

Honolulu, Hawai’i 96813

Telephone: (808) 586-1180

Facsimile: (808) 586-1205

Attorneys for the State of Hawai ‘1

Department of Agriculture

October 29, 2010
COMMENTS OF THE STATE OF HAWAI’I

DEPARTMENT OF AGRICULTURE

I. BACKGROUND.

Uniquely among the States, Hawai’i is an isolated island environment that is at

great risk of damage or destruction from the unchecked spread of non-native invasive

species. Hawai’i’s fragile island ecosystems are constantly at risk from insects, diseasebearing organisms, snakes, weeds, and other invasive pests. For example, the coqui frog,

Salvinia molesta D.S. Mitchell, Miconia calvescens DC, ohia rust, nettle caterpillar, and

the little fire ant are all present in Hawai’i, disrupting the delicate balance of ecosystems,

crowding out native species, and reducing the biodiversity of the Hawaiian islands.

Other harmful species like the papaya mealybug, erythrina gall wasp, Asian citrus

psyllid, and varroa mite have the potential to devastate Hawai’i’s environment and

agriculture if allowed to spread. 1 Economic interests are clearly threatened but many of

these species cause harm to public health and welfare as well.

These constant threats are addressed in part by inspections of cargo arriving from

out of state conducted by personnel of the Hawai’i Department of Agriculture. As noted

in the Order Instituting Proceedings, Hawai ‘i has engaged in inspection and quarantine

programs for more than a century to fend off introduction of invasive species. Order

Instituting Proceeding, DOT-OST-2010-0243 (hereinafter, “Department’s Order”). Both

the State of Hawai ‘i and the federal government conduct invasive pest inspections at

See 2008 Haw. Sess. Laws, Sp. Sess., Act 3 § I (“Act 3”) (available at

http://www.capitol.hawaii.gov/session2008lbillsfhb2843 cdl .htm); see also, Haw.

Dept. of Ag. Ann. Rpt. FY 2008 at 3 7-40

(http:/Ihawaii.govlhdoalmeetings reportsflegislative-reports/2009legreports/ARO8%20-

%20Program%20Highlights.pdf).

1
Hawai ‘i ports of entry; however, the two inspection programs are not identical. 2In order

to increase the scope of existing State inspections and to provide a funding source in

addition to general revenues of the State, Act 3 (2008) provided for a freight inspection

fee, applicable only to nonpassenger freight. 3 Effective August 1, 2008, the “Freight

Inspection Fee” is imposed upon the person responsible for paying the freight charges to

the transportation company. The transportation company is responsible for collecting the

fee and forwarding it to the Hawai’i Department of Agriculture, but is not liable for any

fee that is not paid by the person responsible for paying the freight charges to the

transportation company.

In 2010, the Hawai’i legislature further amended HRS Chapter 150A by enacting

Act 173 (Haw. Sess. Laws 20l0). In particular, Act 173 amended HRS §150A-5.3,

excluding certain bulk freight from the Freight Inspection Fee on the basis of minimal

invasive species risk (retroactively to July 1, 2007) and adding a new section (effective

July 1, 2010) that imposes fines for failure to pay, bill, or remit the Freight Inspection

Fee. With respect to air carriers, the fine is applicable only as follows:

A transportation company that fails to:

2 See, generally, Robert G. Hollingsworth and Lloyd L. Loope, Learning from

Quarantine Successes, Proc. Hawaiian Entomol. Soc., 2007, 39:57-61. Web. 26 Oct.

2010.

http://scholarspace.manoa.hawaii.edu!bitstreaml 10125/487/1/1 0_hollingsworth 57-

2pdf (“[Customs and Border Protection (CBP) (a branch of the Department of

Homeland Security), with technical support from the U.S. Department of Agriculture’s

Animal and Plant Health Inspection Service (APHIS)] is responsible for enforcing

regulations related to imports from foreign countries, while [State of Hawaii’s

Department of Agriculture (HDOA-Plant Quarantine branch)] enforces regulations

related to foreign and domestic imports.”)

Act 3 §2 (2008) amended Hawai’i Revised Statutes (“HRS”) §150A-2 to add the

definition: “Freight’ means nonpassenger goods, cargo, or lading, transported for pay.” ‘‘ The final form of the bill, Senate Bill No. 2523, S.D. 2, H.D. 2, is available at

http://www.capitoLhawaii.gov/session20I 0/bills/SB2523_HD2_.pdf.

2
(A) Bill the fee, within fifteen days of the delivery of the freight, to the

person responsible for paying the freight charges to the transportation

company; or

(B) Remit the fee to the department within forty-five days of collecting the

fee from the person responsible for paying the freight charges to the

transportation company,

shall pay a fine of two times the amount of the inspection, quarantine, and

eradication service fee or $50, whichever is higher. HRS § 150A-5.3.

The Freight Inspection Fee is 50 cents ($0.50) for every one thousand pounds of

net weight of freight or part thereof brought into the State. HRS § 150A-5.3, par. 2.

Hawai’i’s Freight Inspection Fee will be used to fund the costs associated with the

import inspections:

(a) There is established in the state treasury the pest inspection, quarantine, and

eradication fund, into which shall be deposited: ... (2) Service fees, charges, and

penalties collected under section 150A-5.3; ... (b) The moneys in the pest

inspection, quarantine, and eradication fund shall be expended ... for the operation

of pest inspection, quarantine, eradication, biosecurity, and monitoring programs,

related facilities, and the execution of emergency remedial measures when pests

are detected in the course of inspection and quarantine activities. HRS § I 50A4.5.

Although the imposition of fees and potential fines were only recently imposed,

air carriers have been responsible for providing information on imports to the State since

enactment of Chapter 150A in 1973. HRS §150A-5(1) requires:

[a]ny person who receives for transport or brings or causes to be brought to the

State as freight, air freight, baggage, or otherwise, for the purpose of debarkation

or entry therein ... [tb immediately upon the arrival thereof, notify the

department, in writing, of the arrival, giving the waybill number, container

number, name and address of the consignor, name and address of the consignee or

the consignee’s agent in the State, marks, number of packages, description of

contents of each package, port at which laden, and any other information that may

be necessary to locate or identify the same,’ and shall hold such articles at the

pier, airport, or any other place where they are first received or discharged,

Moreover, each waybill should contain all of the information required by HRS

§150A-5(l). According to the United Nations Conference on Trade and Development, an

3
air waybill, “is the most important cargo document issued by the carrier or its authorized

cargo agent and serves several purposes. Most important of these is its evidentiary

function. The Warsaw-system conventions and the Montreal Convention 1999 provide

that the air waybill or cargo receipt is prima facie evidence of the following:

• the conclusion of the contract of carriage and conditions of carriage.

• the receipt of the goods (or acceptance of the cargo) by the carrier and the

statements as to the weight, dimensions, packing of the cargo and number of

packages.

• the stated quantity, volume and condition of the cargo (as against the carrier)...

As the attached sample waybill shows, a waybill typically contains the waybill

number (016-2 7758430), name and address of the consignor (Bandwagon Brokerage in

Los Angeles), name and address of the consignee or the consignee’s agent (D Otani in

Honolulu, and Commodity Forwarders in Los Angeles), marks, number of packages (235

pieces as well as the type of container), a description of contents of each package

(produce), and port at which laden (LAX as well as the flight number), All of this

information is standard in the shipping industry, and has been required since the original

enactment of HRS Chapter 150A. The sample also contains gross and net weight (2072.9

and 1957.7 lbs.) required by the State since 2008. See, Declaration of Domingo

Cravaiho.

It is not clear from the legislative history of Act 173 as to why the Hawai’i

Legislature chose “net weight” as the basis for the amount of the Freight Inspection Fee

and the Legislature did not define “net weight.” However, transportation companies have

several options readily available to them in meeting their obligations under the Freight

Carriage of Goods by Air: A Guide to the International Legal Framework, Report by

the UNCTAD secretariat, 27 June 2006, web, 27 October 2010,

http://rO.unctad.org/ttl/docs-legal/rep

doc/Air%2OLaw%20Report.UNCTAD.SDTE.TLB.2006.1 .FINAL.pdf.

4
Inspection Fee Law. For example, the carriers can bill the shippers for the fee based on

the carriers’ existing knowledge of a shipment’s net or “chargeable” weight. As an

alternative, the carriers can require the shippers to declare the net weight of each

shipment and bill accordingly. Clearly, the State has the option to monitor the

information regarding shipments and fees collected and address practices and patterns

that appear to attempt to avoid full payment of the fee due. For example, if gross weights

are typically over 5,000 pounds for certain types of freight or from certain shippers, yet

every shipment results in the fee being assessed on less than 1,000 pounds, the State

would be free to question the underlying facts of these shipments.

However, two things are important to remember regarding this Freight Inspection

Fee. First, the transportation carriers are not the parties responsible for paying the

appropriate fee; it is the shippers who are liable for payment of the fee. Second, given

the thousand-pound increments for increases in the fee (50 cents for each 1,000 pounds),

it is probable that in many instances both the gross weight of a shipment and the net

weight of the shipment will fall within the same increment or will result in a reduction of

the fee by 50 cents (as was the case in the shipment portrayed in the sample waybill).

The statute’s imposition of the fee or net weight seems a logical choice by the Hawai’i

Legislature and does not pose any credible implementation problems for carriers.

As to concerns over standard and metric systems of weight, kilograms can easily

be converted to pounds by multiplying the number of kilograms by 2.2 pounds. So, for

example, a shipment containing 70 kilograms would equal 154 pounds (70 kg x 2.2

conversion factor = 154 pounds). 6

6 See, http://manuelsweb.com/kgjbs.htm.

5
Hawai’i’s efforts to prevent the introduction of invasive species, including its

program of inspections, are by no means flawless. However, these efforts play a vital

role in Hawai’i’s urgent need to maintain its agriculture and its unique ecosystem and

environment. The inspection program is the critical point for prevention of the

introduction of invasive species. The budgetary problems facing Hawai’i have severely

impacted this program’s ability to function, and threaten to undermine its objectives. 7

The recent Freight Inspection Fee is a critical element in maintaining these safeguards.

For these reasons, and for the reasons set forth below, Hawai’i’s Freight

Inspection Fee should be found to withstand preemptive challenge.

II. HAWAI’I’S FREIGHT INSPECTION FEE LAW DOES NOT VIOLATE

THE AIRLINE DEREGULATION ACT.

The primary purpose of the Airline Deregulation Act (Deregulation Act) was to

ensure “efficiency, innovation, and low prices” through “maximum reliance on

competitive market forces.” Morales v. Transworld Airlines, Inc., 504 U.S. 374, at 378,

(1992) (interpreting the substantially identical prior statute). The Air Transportation

Association of America’s (“ATA”) Petition dated July 28, 2010 (“ATA Petition”) argues

that the Freight Inspection Fee Law violates the Deregulation Act, which provides that

state or local authorities “may not enact or enforce a law, regulation, or other provision

having the force and effect of law related to a price, route, or service of an air carrier that

may provide transportation under this subpart.” 49 U.S.C. § 41713(b)(l). State action

will be preempted if the law expressly references the air carrier’s prices, routes, or

See, Dan Nakaso, Admired Ag Inspector Turns In His Badge, Star-Advertiser

(Honolulu), 28 October 2010, web, 28 October 2010,

http://www.staradvertiser.comlnews/20101028 Admired aginspector turns in his bad

ge.html.

6
services, or has a “forbidden significant effect upon the same.” Morales, 504 U.S. at 388.

Courts have construed the Deregulation Act’s “related to” language broadly but will not

preempt state action if its effect on prices, routes, or services of air carriers is “too

tenuous, remote, or peripheral.” Id. For ATA’s preemption claim to prevail, ATA must

show how Hawai’i’s Freight Inspection Fee significantly impacts the prices, routes, or

services of the air carriers that are its members and that it represents in this proceeding.

However, the caselaw ATA cites to support its claim under the Deregulation Act

is not applicable to a law like Hawai’i’s Freight Inspection Fee Law. The ATA relies on

cases where courts either (1) preempted private consumer claims against airlines to

refund government taxes and fees; or (2) preempted broad and intrusive state regulatory

schemes. See ATA Petition at 12-15. The Freight Inspection Fee Law does not fit into

either category. First, the cases where private consumer claims were preempted never

address whether the government fees themselves were preempted, which is the issue in

this case. Second, the imposition of an inspection fee fundamentally differs from state

laws that expressly prescribe how and when transportation carriers may ship their cargo.

The ATA attempts to extend these inapposite cases to challenge the Freight Inspection

Fee Law under the Deregulation Act.

The ATA argues that the Hawai ‘i Freight Inspection Fee Law violates the

Deregulation Act by significantly impacting all three prohibited categories: prices,

routes, and services. ATA Petition at 12. As discussed below, the ATA’s arguments

should fail because the imposition of this minor fee does not significantly affect any

aspect of the air carriers’ business.

A. Hawai’i’s Freight InsDection Fee Law Does Not Relate to or

Significantly Affect Prices.

7
The Deregulation Act’s restriction regarding state laws relating to air carrier price

has been more commonly invoked to preempt enforcement of state law consumer

protection statutes against air carriers. See, e.g., Morales, 504 U.S. 374 (deceptive

advertising restrictions that would have significant impact on fares preempted); American

Airlines, Inc. v. Wolens, 513 U.S. 219 (1995) (state consumer fraud statute that served as

a means to guide and police airline marketing practices preempted). Consumer

protection laws like those preempted by the Supreme Court in Morales and Wolens

clearly “relate” to prices because they either expressly reference fares or significantly

impact prices by prescribing the manner by which rate information is communicated to

consumers. See Morales, 504 U.S. at 388-390. That is not remotely the case with

Hawai’i’s Freight Inspection Fee Law.

The ATA’s Petition attempts to drastically expand the scope of these holdings and

neutralize the forbidden significant effects analysis through its interpretation of a single

First Circuit case, Buck v. Am. Airlines Inc., 476 F.3d 29 (1st Cir. 2007).8 The ATA

argues, in effect, that under Buck, any action which has the potential to affect an airline’s

cost of services “relate[s]” to “prices” in violation of the Deregulation Act. See ATA

Petition at 12-13. In Buck, purchasers of nonrefundable airline tickets sought to recover

the government taxes and fees prepaid to the airline. In finding their suits preempted by

the Deregulation Act, the First Circuit court explained that customers suing to enforce a

right guaranteed by state law could not avoid preemption by distinguishing the base

“price” of an airline ticket from its additional “fees”. Buck, 476 F.3d at 35. The ATA

8 As required by the Supreme Court, the Court’s focus should be on the effect of the law.

Morales, 504 U.S. at 384-5.

8
points to this language to argue that the Freight Inspection Fee Law, although in “one

sense separate from the base” charge cannot be separated from “price” because it impacts

the “overall cost” of a ticket in violation of the Deregulation Act. ATA Petition at 13.

This argument fails for two reasons. First, the ATA’s application of Buck

confuses: (1) preemption of consumer state law claims to recover a government fee; with

(2) preemption of the government fee itself. Buck did not address whether the imposition

of the taxes and fees at issue were themselves preempted by the Deregulation Act. Buck

merely stands for the proposition that if a state law claim is preempted by the

Deregulation Act, it is preempted regarding suits to recover both the base fare and the

additional taxes and fees charged by the airline. Buck does not support the ATA’s

expansive reading and the ATA cites no other authority for it either.

Second, the ATA’s argument is not supported by law or industry practice. Under

the ATA’s reasoning, any fee imposed by an airport would violate the Deregulation Act

by potentially impacting the “overall cost” of a ticket. Airports assess numerous fees,

none of which have been found to violate the Deregulation Act merely because they

impact the overall cost of a ticket. As explained by the Secretary of Transportation, “it is

within an airport proprietor’s authority to impose reasonable[, nondiscriminatory,]

landing fees or other user fees, even if such fees may result in a decline in usage by a

class of user or other indirect effects on users.” New England Legal Foundation v.

Massachusetts Port, 883 F.2d 157, at 165 (citing the Secretary of the DOT, December 22,

1988).

Moreover, as to the ATA’s argument that the Freight Inspection Fee indisputably

relates to air carrier rates as a matter of the common economic relationship between costs

9
and prices, courts construing the Deregulation Act have noted that under the peculiar

circumstances of airline pricing, such a relationship is not a matter of simple economics.

As a matter of airline economics, not every airline cost has the requisite connection with

and effect on fares to justify preemption. Abdu Brisson v. Delta Airlines, Inc., 128 F.3d

77, 84 (CA2 NY) 1997. As the Supreme Court recognized in Morales, airline fare

pricing is based on “yield management,” a unique formula largely controlled by the

forces of demand and competition, not costs. See 504 U.S. at 389 (explaining yield

management without using the term “yield management”). Given the minimal rate of the

Freight Inspection Fee and the fact that the fee billing, collection, and remittance

requirement applies not just to air carriers but to all carriers bringing subject freight into

the State other than by U.S. mail, it seems clear that the Freight Inspection Fee would

have an inconsequential impact on air carrier pricing.

B. The Frei2ht Inspection Fee Law Does Not Relate to or Si2nificantly

Affect Routes.

The ATA next argues that the Freight Inspection Fee Law relates to the routes of

air carriers because the “financial and administrative burden imposed by the new law

may impact whether and how the carrier chooses to serve the Hawaiian market.” ATA

Petition at 15. The ATA’s “route” argument is flawed for much the same reasons as its

“price” argument. First, the ATA again confuses (1) preemption of state law claims to

recover government fees, with (2) preemption of the government fees themselves. The

ATA cites only one case, Sanchez v. Compania Mexicana de Aviacion S.A., Case No.

CV-07-7 196 R (RCx), 2008 U.S. Dist. Lexis 86822 (March 25, 2008), in support of this

argument. In Sanchez, a Mexican citizen sued to recover a tourism tax collected by an

airline and remitted to the Mexican government. The plaintiff argued that the tourism

10
tax, which did not apply to Mexican citizens, had been wrongfully assessed by the airline.

Like the decision in Buck. the district court held that the tax was no less a part of the

price, routes, or services, than the fare itself, and that the plaintiff’s state law challenge

was preempted by the Deregulation Act on that basis. See Sanchez, supra. The Sanchez

court did not address whether the tourism tax was itself preempted by the Deregulation

Act.

Second, the ATA’s assertion that the Freight Inspection Fee Law will

significantly impact air carrier routes ignores the fact that airport fees already vary from

airport to airport. If a variance in airport fees were held to “relate to” routes of air

carriers, then the Deregulation Act would require all airports to impose the same fees.

However, the Department of Transportation is expressly forbidden from “set[ingj the

level of [landing or user fees.j” See Air Transport Ass’n of Am. Inc. v. U.S. Dept., 613

F.3d 206, 217, C.A.D.C., 2010. This necessarily means that “state and local authorities

will set the level of the fee[s] and they will not be uniform.” Id. (citation omitted).

Although courts have noted that there may be a point at which costs become so great that

they would compel air carriers to change their routes, see Air Transport Ass’n of Am. v.

City and County of S.F., 266 F.3d 1066, 1075 (9th Cir. 2001), there is no evidence that

the burden imposed by the Freight Inspection Fee Law would be more than a trivial

consideration in route planning.

C. The Freight Fee Law Does Not Relate to or Significantly Affect

Services.

The ATA’s final argument under the Deregulation Act is that the Freight

Inspection Fee Law would unlawfully impact the “services” of air carriers. Although the

ordinary meaning of the term “service” can be argued to include the act of collecting and

11
remitting a fee, it is clear that fee administration was not the kind of activity the

Deregulation Act sought to preempt. In Duncan v. Northwest Airlines. Inc., 208 F.3d

1112, 1114 n. 8 (9th Cir. 2000), the court emphasized that the Deregulation Act preempts

“only state laws and lawsuits that would adversely affect the economic deregulation of

the airlines and the forces of competition in the airline industry,” citing Charas v. Trans

World Airlines, Inc., 160 F.3d 1259, 1265-66 (9th Cir. 1998). While the Deregulation Act

is generally read broadly, the term “service” is not. Duncan at 1114. (“We interpreted

the term ‘service’ narrowly in order to prevent the ‘preemption of virtually everything an

airline does.”). “Congress used the word ‘service’ in the phrase ‘rates, routes, or

service’ in the [Deregulation Act’s] preemption clause to refer to the prices, schedules,

origins and destinations of the point-to-point transportation of passengers, cargo, or

mail.” Id. (citation omitted). Thus, while state laws that interfere with “the selection of

markets” or the “scheduling or frequency of transportation” are generally preempted,

those that relate to services like in-flight beverage services, baggage handling, or

smoking policies are not. Id. The administration of a fifty cent fee for freight inspection

is an even more attenuated ancillary activity.

The ATA’s Petition does not address the Ninth Circuit’s interpretation of

“service” or seriously analyze the Freight Inspection Fee for forbidden significant effects

on air carrier services. Instead, it attempts to characterize the Freight Inspection Fee Law

as similar to two preempted statutes, both of which expressly regulated the specific

procedures by which packages could be delivered and which substantially disrupted the

timely delivery of cargo. See United Parcel Service v. Flores-Galarza, 318 F.3d 323 (1st

Cir. 2003) (striking down a Puerto Rico law that prohibited delivery of packages until

12
complex tax payment certificate system was completed); New Hampshire Motor

Transport Ass’n v. Rowe, 552 U.S. 364 (2007) (striking down a Maine law that required

age verification of purchasers of tobacco products shipped in the state). The ATA

attempts to radically expand these holdings arguing that the obligation of air carriers to

bill, collect, and remit a simple freight inspection fee imposed on the shippers of the

freight places a similar burden on their transportation activities. ATA Petition at 5-6.

Comparing the impact of the preempted Puerto Rico and Maine statutes to that of the

Freight Inspection Fee Law clearly demonstrates that the ATA’s analogy is unwarranted.

In United Parcel Services a Puerto Rico law forbade carriers from delivering

packages until the recipient produced a certificate of tax-payment from the Puerto Rico

Department of the Treasury (“Treasury”). See id. at 326. Alternatively, carriers could

prepay the applicable tax and seek reimbursement from recipients. Id. However, in order

to take the alternative route, the carrier “must, among other things, collect and process

comprehensive data on the contents of packages, perform tax ratings on these contents,

and delay the delivery of packages....” id. at 327. The necessary delay in obtaining

certificates “significantly affects the timeliness and effectiveness of UPS’s service, which

includes the delivery of packages on an express or time-guarantee basis.” id. at 3 35-36.

The signature requirement challenged in Rowe was also intended to substantially

interfere with carrier deliveries. In Rowe, Maine required carriers shipping tobacco into

the State to verify the age of the purchaser and obtain his or her signature before

delivering their package. Like United Parcel Servic, and unlike the Freight Inspection

Fee Law in this case, the statute in Rowe “expressly references a carriers’ service of

providing the timely delivery of packages,” and would have the same practical effect:

13
“[d]elays in searching for the purchaser, making multiple delivery attempts if the

purchaser cannot be located, obtaining the purchaser’s signature, and verifying the

purchaser’s age all could affect timely deliveries.” Rowe, 448 F.3d at 79.

In contrast, no provision of the Freight Inspection Fee Law dictates the conditions

under which air carriers deliver packages or the timeliness of their operations. The ATA

claims that a complete overhaul of its members’ financial and administrative procedures

is necessary to comply with the statute. See ATA Petition at 5-6. This claim

exaggerates, without basis, the effort needed to collect the fee under the Freight

Inspection Fee Law. Air carriers must obtain freight weight data from customers at the

point of origin and the Freight Inspection Fee can be billed and collected without much

greater effort in a manner comparable to billing and collecting shipping fees and costs.

Practically all businesses, including air carriers, routinely collect and remit similar taxes

and fees. Most importantly, air carriers are not required to hold off freight delivery while

the Hawai ‘i Department of Agriculture verifies remittance --- the Freight Inspection Fee

Law operates independently from the actual transportation of freight. Thus, while the

Freight Inspection Fee may have some minor effect on the way shippers’ costs are

calculated, the inconvenience fundamentally differs from the regulatory schemes

involving intrusive oversight and debilitating delays that were struck down in United

Parcel Service and Rowe, The ATA may not escape the clear distinction recognized by

the Ninth Circuit by depicting the Freight Inspection Fee Law as comparable to

regulatory schemes that expressly reference air carrier’s services and intentionally impact

their delivery schedule.

III. THE HAWAI’I FREIGHT INSPECTION FEE IS NOT PREEMPTED BY

49 U.S.C. * 40116 (THE AHTA).

14
A. The Anti-Head Tax Act does not apply to the fees imposed to fund

state inspections of frei2ht transported into Hawai’i.

The Anti-Head Tax Act (“AHTA”) prohibits individual States from levying any

tax, head charge, or other charge on (1) an individual traveling in air commerce; (2) the

transportation of an individual traveling in air commerce; (3) the sale of air

transportation; or (4) the gross receipts from that air commerce or transportation. 49

U.S.C. § 40116(b). The ATA complains that the Freight Inspection Fee Law is a Stateimposed tax, fee, head charge, or other charge on the sale of air transportation which

violates subsection (b)(3), because “air transportation” includes the transportation of

freight. As the U.S. Department of Transportation (“Department”) has noted, the

propriety of a Freight Inspection Fee and the imposition of fines on air carriers is one of

first impression for this Department. Department’s Order at page 4. As discussed below,

the AHTA was not intended to universally shelter air carriers from any and all state fees

and charges or exempt them from assisting those States, within whose boundaries the air

carriers land, in enforcing rules and regulations where necessary.

As this Department is aware, at least one court has addressed this very issue and

has held that agricultural inspection fees are not prohibited by the AHTA, even where

such fees may result in increased airfares paid by passengers. Alaska Airlines. Inc. v.

Department of Food and Agriculture, 33 Cal.App.4th 506, 39 Cal.Rptr.2d 426 (1995).

Alaska Airlines concerned the California Airport and Maritime Plant Quarantine,

Inspection, and Plant Protection Act, California Food & Agricultural Code, § 5341-5353

(“California Inspection Act”), enacted in response to the influx of the Mediterranean fruit

fly which threatened to decimate the California fruit industry. Alaska Airlines, 33

15
Cal.App.4th at 508-509. The California Inspection Act authorized the inspection of

aircraft entering California to prevent the introduction or spread of such pests and

assessed a flat fee of $85 upon the arrival of the aircraft. The fees collected were

deposited in a special fund to be used to implement the inspection program. Alaska

Airlines, 33 Cal.App.4th at 509. The California Appeals Court found that the fees were

based on criteria other than the number of passengers carried, that the fees were also

imposed on non-passenger flights and did not vary depending on the number of

passengers or passenger receipts, that inspections were also performed on air cargo and

air freight operations, and that the fee was charged even if the aircraft was empty. Alaska

Airlines, 33 Cal.App.4th at 513. The Court therefore concluded that the inspection fee

was not a head tax, and that it bore no relation to the number of passengers or cargo on

the aircraft, or traveling in air commerce, or receipts derived therefrom. Alaska Airlines,

33 Cal.App.4th at 5 13-14. The Court specifically found that the purpose and effect of the

California inspection fee was to fund the cost of the inspection of out-of-state-sourced

conveyances for pests, and not to mask a charge otherwise prohibited by the AHTA. Id.

The Court noted that “[ajlthough the inspection fee may have the effect of increasing the

operational costs of the airline thereby increasing the average fare per passenger, this is a

cost which is unrelated to the AHTA prohibitions. For the fee to be prohibited, it must

bear some rational relation to persons or the carriage of persons traveling in air

commerce. A fee which is based on other criteria is permitted, although passed on to

passengers in the form of increased fares.” Alaska Airlines, 33 Cal.App.4th at 514.

Like the California Inspection Act, the purpose of Hawai’i’s freight inspection

program seeks to protect Hawai ‘i’s flora, fauna, or agricultural resources by preventing

16
the introduction of invasive species into the State. 9 Hawai’i’s Freight Inspection Fee will

be used to fund the costs associated with the import inspections. It also is unrelated to the

number of passengers on a flight, if any. By contrast, unlike the California Inspection

Act, the Hawai’i Freight Inspection Fee is only assessed for the transportation of freight,

and is calculated on the weight of that freight. Implemented properly, it should not

increase the cost of airfare for passengers or the out-of-pocket cost of the airline,

although it will directly increase the cost to shippers by fifty cents per every thousand

pounds of freight transported.’°

Like the California Court, this Department should consider the purpose of the

AHTA, and the protections the AFITA was intended to provide. The AHTA was not

intended to prohibit, outright, any and all taxes or fees imposed by the states. The intent

was to prevent states from “double” taxing the air carriers for the same service or benefits

they would derive from existing federal taxes (which the states then receive from the

federal Airport and Airways Trust Fund), such as airport development and improvements,

or the carriage of passengers. See, discussion of legislative history of air transportation

taxes in Arizona v. Cochise Airlines, 128 Ariz. 432, 435, 626 P.2d 596, 599 (Ariz. App.,

1980). (“The Airport Development Acceleration Act of 1973 was preceded by the

Airport and Airway Development Act of 1970 and the Airport and Airway Revenue Act

Air carriers must hold suspect items at the airport, or any other place where they are

first received or discharged, in such a manner that they will not spread or be likely to

spread any infestation or infection of insects or diseases that may be present until

inspection and examination can be made by the inspector to determine whether or not

any article, or any portion thereof is infested or infected with or contains any pest. HRS

§ 150A-5(1).

10 Moreover, if a shipper passes the cost of the freight inspection fee on to its consignee,

and the consignee passes the inspection fee on to its buyers, it is likely that the fee will

ultimately be borne by the consumer of the very goods transported into the State, again,

in the amount of fifty cents for every 1000 pounds, or portion thereof, of that shipment.

17
of 1970. In the 1970 Revenue Act, the Congress imposed various taxes upon air users to

finance certain airport improvements and development. The largest single component of

this tax package in terms of revenues to be produced for the Airport and Airway Trust

Fund was an eight percent tax on the price of domestic air passenger tickets. This tax,

codified as 26 U.S.C. § 4261 and 4262, is imposed upon all persons purchasing “taxable

transportation” as defined in 26 U.S.C. § 4262. It is clear from a reading of the latter

statute that “taxable transportation” includes both interstate and intrastate rights.”) See

also, Tinicum Township Privilege Fee Proceeding, DOT-OST-2007-29341, Order 2008-

3-18, 2008 WL 5550458 (“Tinicum DOT Decision”) at 14. (“Congress did not intend to

subject air passengers to both federal and state or local taxes for airport development, and

by the AHTA, intended to guard against ‘double’ taxation on air passengers and

inequities on airlines.”) The Hawai’i Freight Inspection Fee does not duplicate any of the

benefits derived from existing federal air transport taxes, and with inspections, the federal

CBP/APHIS is responsible for enforcing regulations related to imports only from foreign

countries, while the State of Hawai’i enforces regulations related to foreign and domestic

imports. See, footnote 2, supra. The Freight Inspection Fee is not dependent upon

passengers transported, and it should not increase the cost to the air carrier. At most, the

greatest imposition on the airlines will be the requirement that they calculate the fee

incurred, and add the Freight Inspection Fee to their invoice to their shippers at the time

they generate the bills. The Hawai’i Freight Inspection Fee, as enacted, is even less

intrusive on air carriers than the California Inspection Act. Like the Alaska Airlines

Court, this Department should find that the Hawai ‘i Freight Inspection Fee is not

prohibited by the AHTA.

18
Fifteen years prior to Alaska Airlines, the Arizona Appeals Court found that the

AHTA did not prohibit the Arizona transaction privilege tax assessed on freight. Arizona

v. Cochise Airlines, 626 P.2d 596. The Arizona statute required that an annual privilege

tax be assessed against freight and passenger carriers “for the purpose of raising public

money to be used in liquidating the outstanding obligations of the state and county

governments, to aid in defraying the necessary and ordinary expenses of the state and the

counties, to reduce or eliminate the annual tax levy on property for state and county

purposes, and to reduce the levy on property for public school education.” The tax would

be calculated at one per cent of the gross proceeds of sales or gross income for such

carriers. Cochise Airlines, 626 P.2d at 597. The Arizona Appeals Court first firmly

found that the AHTA preempted the Arizona tax insofar as it was imposed and calculated

on the transportation of persons, but did not prohibit the same tax as applied to

transporting freight. Cochise Airlines, 626 P.2d at 601.

Certainly, ignoring Cochise Airlines, an argument can be made that the

prohibition of charges on the sale of air transportation applies to freight. “Air

transportation” is expressly defined in the AHTA as, “foreign air transportation, interstate

air transportation, or the transportation of mail by aircraft.” 49 U.S.C. § 40102(a)(5).

“Foreign air transportation” is “the transportation of passengers or property by

aircraft....” Section 40l02(a)(23). “Interstate transportation” is “the transportation of

passengers or property by aircraft” when flown to specific destinations and transported

by aircraft. Section 40102(a)(25). “Property” is not defined in the AHTA.

Upon review of the purpose of the AHTA and the congressional intent to protect

airline passengers from burdensome charges, the State suggests that the “property”

19
referred to in the definitions included in “air transportation” means those tangible things

owned or possessed by air passengers, such as luggage or baggage to be transported by or

with a passenger. The State suggests that the AHTA, as drafted, prohibits charges on the

sale of air transportation of passengers or their baggage. Just as the Court in Cochise

Airlines held, the Department should also hold that the AHTA does not apply to

Hawai’i’s Freight Inspection Fee, and therefore does not prohibit the State from assessing

it against shippers of freight, or from assessing the accompanying penalties against air

carriers when incurred.

In 2008, this Department also addressed the applicability of the prohibitions of the

AHTA on a township privilege fee in Tinicum DOT Decision, supra, finding that the

Township’s privilege fee operated as an improper landing fee and added a surcharge to

the landing fee already paid by the Airlines. This Department noted that, “[t]hese added

costs consequently increase the Airlines’ expenses. It is also possible that the costs

would be passed through to the passengers in the form of increased air fares, thereby

making air transportation less attractive to the traveling public. Congress, in enacting the

AHTA, intended to respond to each of these concerns.” Tinicum DOT Decision, at 15.

In reaching its decision, this Department nevertheless expressly found that the privilege

fee was not a prohibited charge under the AHTA because it is not imposed on an

individual traveling in air commerce [ 401 16(b)(l)j, or on the transportation of such an

individual [*401 16(b)(2)]. As to the § 401 16(b)(3) prohibition, this Department alluded

to the possibility that the sale of air transportation could, indeed, apply to freight, stating,

“...the privilege fee does not constitute a prohibited charge on the sale of air

transportation, under the AHTA, because it is not imposed in connection with the sale of

20
a ticket or waybill” intimating that the § 401 16(b)(3) sale of air transportation could

include the transportation of cargo, shipment of which would be evidenced by a waybill.

Tinicum DOT Decision, supra, at 3.

As discussed above, including freight in “air transportation” of § 401 16(b)(3) is

far too broad an interpretation of the term, “property”, particularly with respect to the

Hawai’i Freight Inspection Fee where the air carrier is only affected by the requirement

that it bill the shipper, and only incurs penalties when it does not bill or remit payments

received. 11

Accordingly, the State urges this Department to find that the AHTA does not

apply to the Hawai ‘i Freight Inspection Fee, and that the fee is therefore not preempted.

B. Alternatively, the Hawai’i Freight Inspection Fee is an allowable tax

pursuant to 49 U.S.C. § 40116(e)(1).

Alternatively, if the Hawai’i Freight Inspection Fee is found to be a prohibited

tax, fee, head charge, or other charge under § 40116(b), it is nevertheless excepted under

§ 401 16(e)(1). Subsection(e)(1) allows the States to levy or collect taxes not otherwise

prohibited under subsections (b) or (d). Subsection (e) specifically mentions property

taxes, net income taxes, franchise taxes, and sales or use taxes on the sale of goods or

services as possible allowable taxes.

The California Appeals Court reviewed preemption challenges to a city transient

parking tax (“TPT”) in Burbank-Glendale-Pasadena Airport Authority v. City of

Burbank, 64 Cal.App.4th 1217, 76 Cal.Rptr.2d 297, 299-300 (Cal.App. 2 Dist.,1998)

‘ It’s conceivable that had the Hawai’i Freight Inspection Fee been payable by the air

carrier rather than the shipper, an argument can be fashioned that the cost to the air

carrier would be passed through to passengers, thus creating a nexus between the fee and

the cost to the airline and the passenger; however, such an argument should again fail

when applied to all-air cargo carriers.

21
wherein the City of Burbank imposed a ten percent tax on the fee paid by the patron of a

valet parking service or the occupant of a parking space that is used for less than one

calendar month. The tax was to be paid by the occupant, but collected by the parking lot

operator and remitted to the City. Operators who failed to collect or remit the tax would

be required to pay the fee and a penalty. The Court succinctly set forth the analysis of an

AHTA tax challenge, stating,:

In deciding whether the TPT is preempted, we begin with the presumption

“that Congress did not intend to preempt areas of traditional state

regulation.” (Citation omitted.) Because the AHTA “unambiguously

forbids” the imposition of specific taxes on individuals traveling in air

commerce (citation omitted), our task is to determine whether the TPT

imposes a tax that is forbidden under section 40116(b), or one that is

permitted under subdivision (e). “Congress’ enactment of a provision

defining the preemptive reach of a statute implies that matters beyond that

reach are not pre-empted.” (Citations omitted.)

The AHTA “pre-empts a limited number of state taxes, including gross

receipts taxes imposed on the sale of air transportation or the carriage of

persons traveling in air commerce.” (Citation omitted.) State and local

governments remain free to impose taxes where the tax rate is based on

criteria other than those enumerated in section 40116(b). (Citation

omitted.) The fact that a particular tax may increase the cost of operating

an airport or airline, or that tax revenues may increase as the number of

flights increases, is not determinative. (Citation omitted.) Instead, for a

tax to be prohibited, “it must bear some rational relation to persons or the

carriage of persons traveling in air commerce. A fee which is based on

other criteria is permitted, although passed on to passengers in the form of

increased fares.” (Citation omitted.) Burbank, 64 Cal.App.4th 1217,

1222-23, 76 Cal.Rptr.2d 297, 299-300 (Cal.App. 2 Dist.,1998).

The Court found that the parking tax was based on parking, not air travel, and that it was

not a direct or indirect head tax on air travelers. Accordingly, the tax was not preempted

by the AHTA.

Similarly, as discussed above, the Hawai’i Freight Inspection Fee is not imposed

on the sale of air transportation or the carriage of persons traveling in air commerce. It is

22
not a gross receipts tax. It is imposed on shippers for the purpose of funding the

inspection of incoming freight for potential infestation. Again, the impact ofthe fee on

the air carrier is slight compared to the purpose to be served by the continued inspection

of such cargo transported into the State. And finally, there should be no increased fares

to the passengers, since such costs will likely be passed through the shippers to the

consignees.

IV. CONCLUSION.

For these reasons, the State of Hawai’i urges this Department to find that the

Hawai’i Plant Quarantine Law, as amended, Hawai’i Revised Statutes Chapter 150A (Act

173) and accompanying program requirements are not preempted by either 49 U.S.C.

§41713 or 49 U.S.C. §40116.

DATED: Honolulu, Hawai’i, October 29, 2010.

MARK J. BENNETT

Attorney General of Hawai’i

Deputy Attorney General

Attorney for the State of Hawai’i

Department of Agriculture

23
UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

HAWAII INSPECTION FEE Docket DOT-OST-2010-0243

PROCEEDING

DECLARATION OF DOMINGO CRAVALHO, JR.

1. I am currently employed by the State of Hawaii, Department of

Agriculture, Plant Quarantine Branch (State) as the Inspection and Compliance Section

Chief, and as an inspector.

2. In my capacity of Section Chief, I am responsible for, among other things,

overseeing the Freight Inspection program, codified at HRS Chapter 1 50A. I also

continue to conduct inspection of air cargo, when I am available to do so.

3. Attached to my Declaration is a copy of a United Airlines waybill, dated

January 9, 2010.

4. This waybill shows the waybill number (016-27758430), the name and

address ofthe consignor (Bandwagon Brokerage in Los Angeles), the name and address

ofthe consignee and the consignee’s agent (D Otani in Honolulu, and Commodity

Forwarders in Los Angeles), the number of packages (235 pieces), a description of

contents of each package (produce in all 235 packages), and the port at which the

shipment was laden (LAX as well as the flight number).

5. This sample also contains gross and net weight (2072.9 and 1957.7 lbs.) of

the 235 pieces packed in the container, the type of container (LD8), and the weight of the

pallet upon which the container sits (ULD 0400 pounds).
6. Based upon a waybill, State inspectors are able to identify shipments

which should be inspected for possible invasive species.

7. This waybill shows that the container was inspected, and all but three of

the 235 boxes were released to the consignee or its agent.

8. This waybill further shows that the three suspect boxes were held pending

identification of pests found in the boxes.

9. If a shipper sends the State a manifest ofthe shipment, State staff and I are

able to pre-determine, subject to any changes prompted by a visual inspection ofthe

cargo at unloading, which containers will be inspected.

10. Not all containers are detained for inspection.

11. Unlike the State inspectors who must prioritize which waybills and

shipments to scrutinize, the carrier sees all waybills.

12. Carrier cargo unloading personnel often assist the State inspectors with

identifying high risk or suspect containers that should be inspected.

I, DOMINGO CRAVALHO, JR., declare under penalty of perjury that the

foregoing is true and correct to the best ofmy knowledge.

DATED: Honolulu, Hawaii, October 28, 2010.

DVALHO,JR.

2
Shippers Name and Address I Shipper’s Account Number Not Negotiable UN ITED Al RLINES BANDWAGON BROKERAGE I 51.7226-0015

dO: COMMODITY FORWAKubds AirWayBill M 3. BOX 66100,

CHICAGO IL 11101 S LA CIENEGA BLVD 60666 LOS ANGELES CA 90045 Issued by

Copies 1, and3 vi this Air Wayblit are originals and have the same validity.

Consianee’s Name and Address

D OThN I PRODUCE Consignee’s Account Number

agreed thai the goods desorthed herein are accepted In apperant good order m condibon

1321 HART S TREET as rrote tar carriage SUBJECT TO THE CONDITIONS OF CONTRACT ON THE

REVERSE HEREOF. ALL GOODS MAY BE CARRIED BY ANY OTHER MEANS INCLUDING ROAD

HONOLULU 11 I UNITED STATES 96817 OR ANY O?KER CARRIER UNLESS SPECIFIC CONTRARY INSTRUCTiONS ARE GIVEN

(808> 832—9600 HEREON BY THE SHIPPER, AND SHIPPER AGREES THAT THE SHIPMENT MAY BE CARRIED

VIA INTERMEDIATE STOPPING PLACES WHICH THE CARRIER DEEMS APPROPRIATE. THE SHIPPERS M7ENT1ON IS DRAWN TO THE NOTICE CONCERNING CARRIER’S LIMITATION OF

LIABILITY, Shipper may inciease such limitation of lability by declaring a higher for carnage and

paying a supplemental charge II reqisrad

e..,.,.,

COMMODITY FORWARDERS, INC ‘“,“ W82394 TEL* 1-310-348-8855 BO

LOS ANGELES

Agents IATA Code

01—1—1071/0016

MItOfl or ueparture yoor. or tirsi camer any tcequesteo outing

LOS ANGELES UA935/9

To by rirs i..amer •-‘-

HNL UNITED AIRLINES

Airpolt or Vestination

HONOLULU INTL

SIGNATURE

H5fl0Ilfl l,..u,.,.o,ru,,

NOTIFY

“PERISHABLE

CONSIGNEE

CARGO*

UPON

DO NOT

ARRIVAL 1

DELAY”

FAA

KEEP

SECURITYIN CHILL

NUMBER:

WHILE NOT

WP-94-01-033

IN TRANSIT WHEN POSSIBLE 1

These commodIties, technology or software were exported from Ihe United States UN I TED STATES Diversion contrey Ia SCI

in accordance with the Export Admlrrlslrafiori Regulations. Ultanate destination U.S. law prohite4

COMMODITY FORWARDERS INC

Signature of Stripper of its Agent

I 1/9/2010 LAX

‘I,.- -

.,6 LAX 27758430 CCSP - SCREENED 016-27758430

Account No.

‘P MAX FREE

INSURANCE. If cant., offers thswaace, and mcli msia.nca a

, , requreated in accordance wIth the conelions thereof. IndIcate amount to ‘‘V. VU be insurad m figures in bce at ikgdAznoisd of Iniuraicri.

Chargeable

Weight

No. of Gross kg NCle Glass

Pieces Weight Commodity

Item No.

LD8

i,k1-)

‘1

Nature end Quantity of Goads

(Inci. Dimensions of Volume)

235-PRODUCE

LAX-282393 LAX-282394

LAX-282395

CONT# DQF 1263 UA

a

at me parucuiars on me ,

C

conatlns dangerous goods, such part is property desaibed by name .arriage by air according to the apphcabte Dangerous Good Regulatio

sin proper
UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

HAWAII INSPECTION FEE Docket DOT-OST-2010-0243

PROCEEDING

PROOF OF SERVICE

I HEREBY CERTIFY that on the date and by the method ofservice noted

below, a true and correct copy ofthe foregoing COMMENTS OF THE STATE OF

HAWAI’I DEPARTMENT OF AGRICULTURE; DECLARATION OF DOMINGO

CRAVALHO, JR. was served on the following at their last known addresses, and that no

indication has been received that any transmission failed.

Served Electronically by e-mail: Transmitted:

M. Roy Goldberg, Esq. November 1, 2010

rgoldberg@sheppardmullin.com

Christopher M. Loveland, Esq.

cloveland@sheppardrnullin.com

Attorneys for Petitioner Air Transport Association

Paul S. Smith, Esq. November 1, 2010

Senior Trial Attorney

U.S. Department of Transportation

Paul.Smithdot.gov

Served by First Class Mail:

David A. Berg November 1, 2010

Vice President and General Counsel

Air Transport Association of America, Inc.

1301 Pennsylvania Avenue, N.W.

Washington, DC 20004

DATED: Honolulu, Hawai’i, November 1, 2010.

/

Myra . Kaichi -

Deputy Attorney General, State of Hawai’i