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 ofHawai’i document should be addressed to: SANDRA LEE KUNIMOTO MYRA M. KAICHI Chairperson, Hawai‘i Board ofAgriculture 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 ofHawai ‘1 DepartmentofAgriculture

October 29, 2010COMMENTS OF THE STATE OF HAWAI’I DEPARTMENT OFAGRICULTURE
I. BACKGROUND. Uniquely among the States, Hawai’i is an isolated island environmentthatis at greatrisk ofdamage or destruction from the unchecked spread ofnon-native invasive species. Hawai’i’s fragile island ecosystems are constantly atrisk from insects, diseasebearing organisms, snakes, weeds, and other invasive pests. For example, the coqui frog, Salvinia molesta D.S. Mitchell, Miconia calvescens DC, ohiarust, nettle caterpillar, and the little fire ant are all present in Hawai’i, disrupting the delicate balance ofecosystems, crowding outnative species, and reducing the biodiversity ofthe Hawaiian islands. Other harmful species like the papaya mealybug, erythrina gall wasp, Asian citrus psyllid, and varroamite have the potential to devastate Hawai’i’s environment and agriculture ifallowed to spread. 1 Economic interests are clearly threatened but many of these species cause harm to public health and welfare as well. These constantthreats are addressed in partby inspections ofcargo arriving from out ofstate conducted by personnel ofthe Hawai’i Department ofAgriculture. As noted in the Order Instituting Proceedings, Hawai ‘i has engaged in inspection and quarantine programs formore than a century to fend offintroduction ofinvasive species. Order Instituting Proceeding, DOT-OST-2010-0243 (hereinafter, “Department’s Order”). Both the State ofHawai ‘i and the federal governmentconduct invasive pestinspections 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. ofAg. Ann. Rpt. FY 2008 at 37-40 (http:/Ihawaii.govlhdoalmeetings reportsflegislative-reports/2009legreports/ARO8%20- %20Program%20Highlights.pdf). 1Hawai ‘i ports ofentry; however, the two inspection programs are not identical. 2 In order to increase the scope ofexisting State inspections and to provide a funding source in addition to general revenues ofthe State, Act 3 (2008) provided for a freight inspection fee, applicable only to nonpassengerfreight. 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 DepartmentofAgriculture, but is not liable for any fee thatis notpaid by the person responsible forpaying the freightcharges 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 ofminimal 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 respectto 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, Learningfrom Quarantine Successes, Proc. Hawaiian Entomol. Soc., 2007, 39:57-61. Web. 26 Oct. 2010. http://scholarspace.manoa.hawaii.edu!bitstreaml10125/487/1/10_hollingsworth 57- 2pdf(“[Customs and Border Protection (CBP) (abranch ofthe Departmentof Homeland Security), with technical support from the U.S. Department ofAgriculture’s Animal and Plant Health Inspection Service (APHIS)] is responsible for enforcing regulations related to imports from foreign countries, while [State ofHawaii’s Department ofAgriculture (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 forpay.”

‘‘ The final form ofthe bill, Senate Bill No. 2523, S.D. 2, H.D. 2, is available at http://www.capitoLhawaii.gov/session20I0/bills/SB2523_HD2_.pdf. 2(A) Bill the fee, within fifteen days ofthe delivery ofthe freight, to the person responsible forpaying the freightcharges to the transportation company; or (B) Remit the fee to the department within forty-five days ofcollecting the

fee from the person responsible for paying the freightcharges to the transportation company, shall pay a fine oftwo times the amountofthe 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 offreight orpartthereofbrought 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 pestinspection, 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 ofpestinspection, quarantine, eradication, biosecurity, and monitoring programs, related facilities, and the execution ofemergency remedial measures when pests are detected in the course ofinspection and quarantine activities. HRS 

### §I50A4.5. Although the imposition offees and potential fines were only recently imposed, aircarriers have been responsible forproviding information on imports to the State since enactment ofChapter 150A in 1973. HRS §150A-5(1) requires: [a]ny person who receives for transport orbrings or causes to be broughtto the State as freight, air freight, baggage, or otherwise, for the purpose ofdebarkation or entry therein

... [tb immediately upon the arrival thereof, notify the department, in writing, ofthe arrival, giving the waybill number, container number, name and address ofthe consignor, name and address ofthe consignee or the consignee’s agentin the State, marks, number ofpackages, description of contents ofeach 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 otherplace where they are firstreceived ordischarged, Moreover, each waybill should contain all ofthe information required by HRS §150A-5(l). According to the United Nations Conference on Trade and Development, an

3air waybill, “is the mostimportantcargo document issued by the carrier orits authorized cargo agent and serves several purposes. Most important ofthese is its evidentiary function. The Warsaw-system conventions and the Montreal Convention 1999 provide thatthe airwaybill or cargo receipt is prima facie evidence ofthe following:

• the conclusion ofthe contract ofcarriage and conditions ofcarriage.
• the receiptofthe goods (or acceptance ofthe cargo) by the carrier and the statements as to the weight, dimensions, packing ofthe cargo and number of packages.
• the stated quantity, volume and condition ofthe cargo (as against the carrier)... As the attached sample waybill shows, a waybill typically contains the waybill number (016-27758430), name and address ofthe consignor (Bandwagon Brokerage in LosAngeles), name and address ofthe consignee or the consignee’s agent (D Otani in Honolulu, and Commodity Forwarders in Los Angeles), marks, number ofpackages (235 pieces as well as the type ofcontainer), a description ofcontents ofeach package (produce), and port at which laden (LAXas well as theflightnumber), All ofthis information is standard in the shipping industry, and has been required since the original enactment ofHRS Chapter 150A. The sample also contains gross and net weight (2072.9 and 1957.7 lbs.) required by the State since 2008. See, Declaration ofDomingo Cravaiho. Itis notclearfrom the legislative history ofAct 173 as to why the Hawai’i Legislature chose “net weight” as the basis for the amount ofthe Freight Inspection Fee and the Legislature did not define “netweight.” However, transportation companies have several options readily available to them in meeting their obligations under the Freight

Carriage ofGoods byAir: A Guide to the InternationalLegal Framework, Reportby 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. 4Inspection Fee Law. For example, the carriers can bill the shippers for the fee based on the carriers’ existing knowledge ofa shipment’s netor “chargeable” weight. As an alternative, the carriers can require the shippers to declare the net weightofeach 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 attemptto avoid full payment ofthe fee due. For example, ifgross weights
are typically over 5,000 pounds for certain types offreight or from certain shippers, yet every shipmentresults in the fee being assessed on less than 1,000 pounds, the State would be free to question the underlying facts ofthese shipments. However, two things are important to rememberregarding this Freight Inspection Fee. First, the transportation carriers are notthe parties responsible forpaying the appropriate fee; itis the shippers who are liable forpaymentofthe fee. Second, given the thousand-pound increments forincreases in the fee (50 cents for each 1,000 pounds), it is probable that in many instances both the gross weight ofa shipment and the net weight ofthe shipmentwill fall within the same increment or will result in areduction of the fee by 50 cents (as was the case in the shipmentportrayed in the sample waybill). The statute’s imposition ofthe fee or net weight seems a logical choice by the Hawai’i Legislature and does notpose any credible implementation problems for carriers. As to concerns over standard and metric systems ofweight, kilograms can easily be converted to pounds by multiplying the number ofkilograms by 2.2 pounds. So, for example, a shipmentcontaining 70 kilograms would equal 154 pounds (70 kg x 2.2 conversion factor = 154 pounds). 6

6 See, http://manuelsweb.com/kgjbs.htm. 5Hawai’i’s efforts to preventthe introduction ofinvasive species, including its program ofinspections, 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 forprevention ofthe introduction ofinvasive species. The budgetary problems facing Hawai’i have severely impacted this program’s ability to function, and threaten to undermine its objectives. 7 The recentFreight Inspection Fee is a critical elementin 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 ofthe 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 AirTransportation Association ofAmerica’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 oflaw related to a price, route, or service ofan air carrier that may provide transportation under this subpart.” 49 U.S.C. 

### § 41713(b)(l). State action will be preempted ifthe law expressly references the air carrier’s prices, routes, or

See, Dan Nakaso, AdmiredAg 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.
6services, or has a “forbidden significanteffect 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 ifits effect on prices, routes, or services ofair carriers is “too tenuous, remote, or peripheral.” Id. ForATA’s preemption claim to prevail, ATA must show how Hawai’i’s Freight Inspection Fee significantly impacts the prices, routes, or services ofthe air carriers that are its members and that itrepresents 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 notfitinto either category. First, the cases where private consumer claims were preempted never address whether the governmentfees themselves were preempted, which is the issue in this case. Second, the imposition ofan 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 Actby 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 ofthis minorfee does not significantly affect any aspect ofthe air carriers’ business. A. Hawai’i’s Freight InsDection Fee Law Does Not Relate to or Significantly Affect Prices.

7The Deregulation Act’s restriction regarding state laws relating to aircarrierprice has been more commonly invoked to preempt enforcement ofstate law consumer protection statutes against aircarriers. 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 impactprices by prescribing the mannerby which rate information is communicated to
consumers. See Morales, 504 U.S. at 388-390. That is notremotely the case with Hawai’i’s Freight Inspection Fee Law. The ATA’s Petition attempts to drastically expand the scope ofthese holdings and neutralize the forbidden significant effects analysis through its interpretation ofa single First Circuitcase, Buck v. Am. Airlines Inc., 476 F.3d 29 (1stCir. 2007).8 The ATA argues, in effect, that under Buck, any action which has the potential to affect an airline’s cost ofservices “relate[s]” to “prices” in violation ofthe Deregulation Act. See ATA Petition at 12-13. In Buck, purchasers ofnonrefundable airline tickets soughtto recover the governmenttaxes 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” ofan 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 ofthe law. Morales, 504 U.S. at 384-5. 8points to this language to argue that the Freight Inspection Fee Law, although in “one
sense separate from the base” charge cannotbe separated from “price” because itimpacts the “overall cost” ofaticket in violation ofthe Deregulation Act. ATA Petition at 13. This argumentfails for two reasons. First, the ATA’s application ofBuck confuses: (1) preemption ofconsumer state law claims to recover a government fee; with (2) preemption ofthe governmentfee itself. Buck did not address whether the imposition ofthe taxes and fees at issue were themselves preempted by the Deregulation Act. Buck merely stands for the proposition that ifa state law claim is preempted by the Deregulation Act, itis preempted regarding suits to recoverboth the base fare and the additional taxes and fees charged by the airline. Buck does not supportthe ATA’s expansive reading and the ATA cites no other authority for iteither. 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” ofa ticket. Airports assess numerous fees,
none ofwhich have been found to violate the Deregulation Act merely because they impact the overall cost ofa ticket. As explained by the Secretary ofTransportation, “itis within an airportproprietor’s authority to impose reasonable[, nondiscriminatory,] landing fees or other user fees, even ifsuch fees may resultin a decline in usage by a class ofuser or other indirect effects on users.” New England Legal Foundation v. Massachusetts Port, 883 F.2d 157, at 165 (citing the Secretary ofthe DOT, December 22, 1988). Moreover, as to the ATA’s argument that the Freight Inspection Fee indisputably relates to air carrierrates as a matterofthe common economic relationship between costs

9and prices, courts construing the Deregulation Acthave noted thatunder the peculiar circumstances ofairline pricing, such arelationship is not a matter ofsimple economics. As a matter ofairline economics, notevery airline cost has the requisite connection with and effect on fares tojustify preemption. Abdu Brisson v. Delta Airlines, Inc., 128 F.3d 77, 84 (CA2 NY) 1997. As the Supreme Courtrecognized in Morales, airline fare pricing is based on “yield management,” aunique formula largely controlled by the forces ofdemand and competition, not costs. See 504 U.S. at 389 (explaining yield management withoutusing the term “yield management”). Given the minimal rate ofthe Freight Inspection Fee and the factthat the fee billing, collection, and remittance requirement applies notjustto aircarriers but to all carriers bringing subject freight into the State otherthan by U.S. mail, it seems clear that the Freight Inspection Fee would have an inconsequential impact on aircarrierpricing. B. The Frei2ht Inspection Fee Law Does Not Relate to or Si2nificantly Affect Routes. The ATA next argues thatthe Freight Inspection Fee Law relates to the routes of aircarriers 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 ofstate law claims to
recover governmentfees, with (2) preemption ofthe 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 ofthis argument. In Sanchez, a Mexican citizen sued to recover a tourism tax collected by an airline and remitted to the Mexican government. The plaintiffargued that the tourism

10tax, which did not apply to Mexican citizens, had been wrongfully assessed by the airline. Like the decision in Buck. the district courtheld that the tax was no less apart ofthe price, routes, or services, than the fare itself, and that the plaintiff’s state law challenge
was preempted by the Deregulation Act on thatbasis. See Sanchez, supra. The Sanchez court did not address whetherthe tourism tax was itselfpreempted by the Deregulation Act. Second, the ATA’ s assertion thatthe Freight Inspection Fee Law will significantly impact air carrierroutes ignores the fact that airport fees already vary from airport to airport. Ifa variance in airport fees were held to “relate to” routes ofair carriers, then the Deregulation Act would require all airports to impose the same fees. However, the DepartmentofTransportation is expressly forbidden from “set[ingj the level of [landing or user fees.j” See AirTransport Ass’n ofAm. 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 ofthe fee[s] and they will notbe uniform.” Id. (citation omitted). Although courts have noted that there may be apoint at which costs become so great that they would compel air carriers to change theirroutes, see Air Transport Ass’n ofAm. v. City and County ofS.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 FreightFee Law Does Not Relate to or Significantly Affect Services. The ATA’s final argumentunder the Deregulation Act is that the Freight Inspection Fee Law would unlawfully impact the “services” ofair carriers. Although the ordinary meaning ofthe term “service” can be argued to include the act ofcollecting and

11remitting a fee, itis clear that fee administration was not the kind ofactivity the Deregulation Act sought to preempt. In Duncan v. Northwest Airlines. Inc., 208 F.3d 1112, 1114 n. 8 ( 9 th Cir. 2000), the courtemphasized that the Deregulation Actpreempts “only state laws and lawsuits that would adversely affect the economic deregulation of the airlines and the forces ofcompetition in the airline industry,” citing Charas v. Trans WorldAirlines, Inc., 160 F.3d 1259, 1265-66 ( 9 th 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 ofvirtually 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 ofthe point-to-pointtransportation ofpassengers, cargo, or mail.” Id. (citation omitted). Thus, while state laws that interfere with “the selection of markets” or the “scheduling or frequency oftransportation” are generally preempted, those thatrelate to services like in-flightbeverage services, baggage handling, or smoking policies are not. Id. The administration ofa 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 forforbidden significanteffects
on air carrier services. Instead, it attempts to characterize the Freight Inspection Fee Law
as similar to two preempted statutes, both ofwhich expressly regulated the specific procedures by which packages could be delivered and which substantially disrupted the timely delivery ofcargo. See United Parcel Service v. Flores-Galarza, 318 F.3d 323 (1st Cir. 2003) (striking down a Puerto Rico law thatprohibited delivery ofpackages until

12complex tax paymentcertificate system was completed); New Hampshire Motor Transport Ass’n v. Rowe, 552 U.S. 364 (2007) (striking down a Maine law thatrequired age verification ofpurchasers oftobacco products shipped in the state). The ATA attempts to radically expand these holdings arguing thatthe obligation ofaircarriers to bill, collect, and remit a simple freight inspection fee imposed on the shippers ofthe freightplaces a similarburden on their transportation activities. ATA Petition at 5-6. Comparing the impact ofthe preempted Puerto Rico and Maine statutes to that ofthe 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 recipientproduced acertificate oftax-payment from the Puerto Rico Department ofthe Treasury (“Treasury”). See id. at 326. Alternatively, carriers could prepay the applicable tax and seekreimbursement 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 ofpackages, perform tax ratings on these contents, and delay the delivery ofpackages....” id. at 327. The necessary delay in obtaining certificates “significantly affects the timeliness and effectiveness ofUPS’s service, which includes the delivery ofpackages on an express or time-guarantee basis.” id. at 335-36. The signature requirementchallenged 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 ofthe purchaser and obtain his or her signature before delivering theirpackage. 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 ofpackages,” and would have the same practical effect:

13“[d]elays in searching for the purchaser, making multiple delivery attempts ifthe purchaser cannotbe located, obtaining the purchaser’s signature, and verifying the purchaser’s age all could affect timely deliveries.” Rowe, 448 F.3d at79. In contrast, no provision ofthe Freight Inspection Fee Law dictates the conditions under which aircarriers deliverpackages or the timeliness oftheir operations. The ATA claims that acomplete overhaul ofits members’ financial and administrative procedures is necessary to comply with the statute. See ATA Petition at 5-6. This claim exaggerates, withoutbasis, the effortneeded to collect the fee under the Freight Inspection Fee Law. Aircarriers mustobtain freight weight data from customers at the pointoforigin and the Freight Inspection Fee can be billed and collected without much greater effortin 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 notrequired to hold offfreight delivery while the Hawai ‘i DepartmentofAgriculture verifies remittance

--- the Freight Inspection Fee Law operates independently from the actual transportation offreight. Thus, while the Freight Inspection Fee may have some minor effecton 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 notescape the clear distinction recognizedby the Ninth Circuitby depicting the Freight Inspection Fee Law as comparable to regulatory schemes thatexpressly 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).

14A. The Anti-Head Tax Act does not apply to the fees imposed to fund state inspections offrei2ht transportedinto Hawai’i. The Anti-Head Tax Act (“AHTA”) prohibits individual States from levying any tax, head charge, orothercharge on (1) an individual traveling in air commerce; (2) the transportation ofan individual traveling in air commerce; (3) the sale ofair transportation; or (4) the gross receipts from that air commerce ortransportation. 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 ofairtransportation which violates subsection (b)(3), because “air transportation” includes the transportation of freight. As the U.S. DepartmentofTransportation (“Department”) has noted, the propriety ofaFreight Inspection Fee and the imposition offines on aircarriers is one of firstimpression forthis Department. Department’s Order atpage 4. As discussed below, the AHTA was notintended to universally shelter air carriers from any and all state fees and charges or exempt them from assisting those States, within whoseboundaries the air carriers land, in enforcing rules and regulations where necessary. As this Department is aware, at least one courthas addressed this very issue and has held that agricultural inspection fees are notprohibited by the AHTA, even where such fees may result in increased airfares paid by passengers. AlaskaAirlines. Inc. v. Department ofFood and Agriculture, 33 Cal.App.4th 506, 39 Cal.Rptr.2d426 (1995). Alaska Airlines concerned the CaliforniaAirport and Maritime Plant Quarantine, Inspection, and Plant Protection Act, California Food & Agricultural Code, 

### § 5341-5353 (“California Inspection Act”), enacted in response to the influx ofthe Mediterranean fruit fly which threatened to decimate the Californiafruitindustry. Alaska Airlines, 33

15Cal.App.4th at 508-509. The California Inspection Act authorized the inspection of aircraftentering Californiato preventthe introduction or spread ofsuch pests and assessed a flatfee of$85 upon the arrival ofthe aircraft. The fees collected were deposited in a special fund to be used to implementthe 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 ofpassengers carried, that the fees were also imposed on non-passengerflights and did notvary depending on the number of passengers orpassengerreceipts, that inspections were also performed on aircargo and air freight operations, and thatthe fee was charged even ifthe aircraft was empty. Alaska Airlines, 33 Cal.App.4th at 513. The Court therefore concluded that the inspection fee
was not ahead tax, and thatitbore no relation to the number ofpassengers orcargo 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 ofthe Californiainspection fee was to fund the costofthe inspection ofout-of-state-sourced conveyances forpests, and notto mask acharge otherwise prohibited by the AHTA. Id. The Court noted that “[ajlthough the inspection fee may have the effectofincreasing the operational costs ofthe airline thereby increasing the average fare perpassenger, this is a cost which is unrelated to the AHTA prohibitions. For the fee to be prohibited, itmust bear some rational relation to persons or the carriage ofpersons traveling in air
commerce. A fee which is based on other criteria is permitted, although passed on to passengers in the form ofincreased fares.” Alaska Airlines, 33 Cal.App.4th at 514. Like the California Inspection Act, the purpose ofHawai’i’s freight inspection program seeks to protect Hawai ‘i’s flora, fauna, or agricultural resources by preventing

16the introduction ofinvasive species into the State. 9 Hawai’i’s Freight Inspection Fee will be used to fund the costs associated with the importinspections. It also is unrelated to the numberofpassengers on a flight, ifany. By contrast, unlike the California Inspection Act, the Hawai’i Freight Inspection Fee is only assessed forthe transportation offreight, and is calculated on the weight ofthat freight. Implemented properly, it should not increase the cost ofairfare forpassengers or the out-of-pocket costofthe airline, although it will directly increase the costto shippers by fifty cents per every thousand pounds offreighttransported.’° Like the California Court, this Department should consider the purpose ofthe AHTA, and the protections the AFITA was intended to provide. The AHTA was not intended to prohibit, outright, any and all taxes or fees imposedby the states. The intent
was to prevent states from “double” taxing the air carriers for the same service orbenefits 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 ofpassengers. See, discussion oflegislative history ofair 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 precededby the Airport and Airway DevelopmentAct of 1970 and the Airport and Airway Revenue Act

Air carriers musthold suspectitems atthe airport, or any other place where they are firstreceived or discharged, in such a mannerthatthey will not spread orbe likely to spread any infestation or infection ofinsects ordiseases thatmay bepresentuntil inspection andexamination can be made by the inspectorto determine whetherornot any article, oranyportion thereof is infested or infected with or contains anypest. HRS 

### § 150A-5(1). 10 Moreover, ifa shipperpasses the costofthe freightinspection fee on to its consignee, and the consignee passes the inspection fee on to its buyers, itis likely that the fee will ultimatelybe borne by the consumer ofthe very goods transported into the State, again, in the amount offifty cents for every 1000 pounds, orportion thereof, ofthat shipment. 17of 1970. In the 1970 Revenue Act, the Congress imposed various taxes upon airusers to finance certain airport improvements and development. The largest single component of this tax package in terms ofrevenues to be produced for the Airport and Airway Trust Fund was an eightpercent tax on the price ofdomestic airpassengertickets. 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 areading ofthe 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 airpassengers to both federal and state or local taxes for airportdevelopment, and by the AHTA, intended to guard against ‘double’ taxation on airpassengers and inequities on airlines.”) The Hawai’i Freight Inspection Fee does not duplicate any ofthe benefits derived from existing federal air transporttaxes, and with inspections, the federal CBP/APHIS is responsible forenforcing regulations related to imports only from foreign countries, while the State ofHawai’i enforces regulations related to foreign and domestic imports. See, footnote 2, supra. The Freight Inspection Fee is not dependentupon passengers transported, and it should not increase the costto the air carrier. At most, the greatest imposition on the airlines will be the requirement thatthey calculate the fee incurred, and add the FreightInspection Fee to their invoice to their shippers atthe time they generate the bills. The Hawai’i Freight Inspection Fee, as enacted, is even less intrusive on aircarriers than the California Inspection Act. Like the Alaska Airlines Court, this Department should find thatthe Hawai‘i Freight Inspection Fee is not prohibited by the AHTA.

18Fifteen years prior to Alaska Airlines, the Arizona Appeals Courtfound that the AHTA did notprohibit 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 ofraising public money to be used in liquidating the outstanding obligations ofthe state and county governments, to aid in defraying the necessary and ordinary expenses ofthe 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 forpublic school education.” The tax would be calculated at one percentofthe gross proceeds ofsales 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 ofpersons, but did notprohibitthe 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 ofcharges on the sale ofair transportation applies to freight. “Air transportation” is expressly defined in the AHTA as, “foreign air transportation, interstate air transportation, or the transportation ofmail by aircraft.” 49 U.S.C. 

### § 40102(a)(5). “Foreign air transportation” is “the transportation ofpassengers or property by aircraft....” Section 40l02(a)(23). “Interstate transportation” is “the transportation of passengers orproperty by aircraft” when flown to specific destinations and transported by aircraft. Section 40102(a)(25). “Property” is not defined in the AHTA. Upon review ofthe purpose ofthe AHTA and the congressional intentto protect airline passengers from burdensome charges, the State suggests that the “property”

19referred to in the definitions included in “air transportation” means those tangible things owned orpossessed by airpassengers, such as luggage or baggage to be transportedby or with apassenger. The State suggests thatthe AHTA, as drafted, prohibits charges on the sale ofair transportation ofpassengers or theirbaggage. 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 notprohibitthe State from assessing it against shippers offreight, or from assessing the accompanying penalties against air carriers when incurred. In 2008, this Department also addressedthe applicability ofthe prohibitions ofthe 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 ofincreased airfares, thereby making airtransportation less attractive to the traveling public. Congress, in enacting the AHTA, intended to respond to each ofthese concerns.” Tinicum DOT Decision, at 15. In reaching its decision, this Departmentnevertheless expressly found thatthe privilege fee was not aprohibited charge underthe AHTA because it is not imposed on an individual traveling in air commerce 

### [ 401 16(b)(l)j, or on the transportation ofsuch an individual [*401 16(b)(2)]. As to the 

### § 401 16(b)(3) prohibition, this Department alluded to the possibility thatthe sale ofair transportation could, indeed, apply to freight, stating, “...the privilege fee does not constitute a prohibited charge on the sale ofair transportation, under the AHTA, because it is not imposed in connection with the sale of

20a ticket or waybill” intimating thatthe 

### § 401 16(b)(3) sale ofairtransportation could include the transportation ofcargo, shipment ofwhich would be evidenced by a waybill. Tinicum DOT Decision, supra, at 3. As discussed above, including freight in “airtransportation” of

### § 401 16(b)(3) is far too broad an interpretation ofthe term, “property”, particularly with respect to the Hawai’i Freight Inspection Fee where the air carrieris only affectedby the requirement that itbill the shipper, and only incurs penalties when it does notbill orremitpayments received. 1 1 Accordingly, the State urges this Department to find that the AHTA does not apply to the Hawai ‘i FreightInspection Fee, and that the fee is therefore notpreempted. B. Alternatively, the Hawai’i FreightInspection Fee is an allowable tax pursuantto 49 

### U.S.C. § 40116(e)(1). Alternatively, ifthe Hawai’i Freight Inspection Fee is found to be aprohibited tax, fee, head charge, or othercharge 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 ofgoods or services as possible allowable taxes. The California Appeals Courtreviewed 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 thathad the Hawai’i Freight Inspection Fee been payable by the air carrierratherthan the shipper, an argumentcan 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-aircargo carriers. 21wherein the City ofBurbank imposed a ten percent tax on the fee paid by the patron ofa valet parking service or the occupant ofa parking space that is used for less than one calendar month. The tax was to be paid by the occupant, butcollected by the parking lot operator and remitted to the City. Operators who failed to collect orremitthe tax would be required to pay the fee and a penalty. The Court succinctly set forth the analysis ofan AHTA tax challenge, stating,: In deciding whether the TPT is preempted, we begin with the presumption “that Congress did not intend to preempt areas oftraditional state regulation.” (Citation omitted.) Because the AHTA “unambiguously forbids” the imposition ofspecific 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 thatis permitted under subdivision (e). “Congress’ enactmentofa provision defining the preemptive reach ofa statute implies that matters beyond that reach are notpre-empted.” (Citations omitted.) The AHTA “pre-empts a limited number ofstate taxes, including gross receipts taxes imposed on the sale ofair 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 otherthan those enumerated in section 40116(b). (Citation omitted.) The fact that a particular tax may increase the cost ofoperating an airport or airline, orthat tax revenues may increase as the number of flights increases, is not determinative. (Citation omitted.) Instead, for a tax to be prohibited, “itmustbear some rational relation to persons orthe carriage ofpersons traveling in air commerce. A fee which is based on othercriteriais 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 notpreempted by the AHTA. Similarly, as discussed above, the Hawai’i Freight Inspection Fee is notimposed
on the sale ofair transportation or the carriage ofpersons traveling in air commerce. It is

22not a gross receipts tax. It is imposed on shippers forthe purpose offunding the inspection ofincoming freight forpotential infestation. Again, the impact ofthe fee on the air carrieris slight compared to the purpose to be servedby the continued inspection ofsuch cargo transported into the State. And finally, there shouldbe no increased fares to the passengers, since such costs will likelybe passed through the shippers to the consignees. IV. CONCLUSION. Forthese reasons, the State ofHawai’i urges this Departmentto findthatthe Hawai’i Plant Quarantine Law, as amended, Hawai’i Revised Statutes Chapter 150A (Act 173) and accompanying program requirements are notpreemptedby either49 U.S.C. §41713 or49 U.S.C. §40116. DATED: Honolulu, Hawai’i, October 29, 2010. MARKJ. BENNETT Attorney General ofHawai’i

Deputy Attorney General Attorney forthe State ofHawai’i Department ofAgriculture

23UNITED 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 employedby the State ofHawaii, Department of Agriculture, Plant Quarantine Branch (State) as the Inspection and Compliance Section Chief, and as an inspector. 2. In my capacity ofSection Chief, I amresponsible for, among otherthings, overseeing the Freight Inspection program, codified at HRS Chapter 150A. I also continueto conduct inspection ofair cargo, when I am available to do so. 3. Attachedto my Declaration is a copy ofaUnited 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 ofpackages (235 pieces), a description of contents ofeach package (produce in all 235 packages), and the port at which the shipment was laden (LAX as well as the flightnumber). 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 ofcontainer (LD8), and the weight ofthe palletupon which the container sits (ULD 0400 pounds).6. Basedupon awaybill, State inspectors are able to identify shipments which shouldbe inspected forpossible invasive species. 7. This waybill shows that the container was inspected, and all but three of the 235 boxes were releasedto the consignee or its agent. 8. This waybill further shows that the three suspectboxes were held pending identification ofpests found in theboxes. 9. Ifa shipper sends the State amanifest ofthe shipment, State staffand I are able to pre-determine, subjectto any changes promptedby avisual inspection ofthe cargo at unloading, which containers will be inspected. 10. Not all containers are detained for inspection. 11. Unlike the State inspectors who mustprioritize 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 shouldbe inspected. I, DOMINGO CRAVALHO, JR., declare under penalty of perjury that the foregoing is true and correctto thebest ofmy knowledge. DATED: Honolulu, Hawaii, October 28, 2010.

DVALHO, JR.

2Shippers Name andAddress I Shipper’s Account Number Not Negotiable UNITED AlRLINES 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 AirWayblit are originals and have the same validity. Consianee’s Name andAddress D OThNI PRODUCE Consignee’s Account Number agreed thai the goods desorthed herein are accepted In apperantgood order m condibon 1321 HART STREET as rrotetarcarriage SUBJECTTO THE CONDITIONS OF CONTRACTON THE REVERSE HEREOF. ALL GOODS MAY BECARRIED BYANY OTHERMEANS INCLUDINGROAD 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 THATTHE SHIPMENTMAY BE CARRIED VIA INTERMEDIATE STOPPINGPLACES WHICH THE CARRIER DEEMS APPROPRIATE. THE SHIPPERSM7ENT1ON IS DRAWN TO THE NOTICE CONCERNINGCARRIER’S LIMITATION OF LIABILITY, Shippermay inciease such limitationof labilityby declaring a higherforcarnage and paying a supplementalcharge IIreqisrad 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 Airpoltor Vestination HONOLULU INTL SIGNATURE

H5fl0Ilfl l,..u,.,.o,ru,, “PERISHABLE CARGO* DO NOT DELAY” KEEP IN CHILL WHILE NOT IN TRANSIT WHEN POSSIBLE 1 NOTIFY CONSIGNEE UPON ARRIVAL 1 FAA SECURITYNUMBER: WP-94-01-033 _____________

These commodIties, technologyor software were exportedfrom Ihe United States UNITED STATES Diversioncontrey Ia SCI inaccordancewith theExportAdmlrrlslrafiori Regulations. Ultanate destination U.S. lawprohite4

COMMODITY FORWARDERS INC Signature ofStripper ofits Agent I 1/9/2010 LAX ‘I,.-

- .,6 LAX 

### 27758430 CCSP

- 

### SCREENED 016-27758430

AccountNo.

‘P MAX FREE INSURANCE. Ifcant., offers thswaace, and mclimsia.nca a

, , requreatedin accordancewIththeconelions thereof. IndIcateamountto

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Weight No. of Gross kg NCle Glass Pieces Commodity Weight Item No. LD8 i,k1-)



## ‘1 Nature end Quantity ofGoads (Inci. Dimensions ofVolume)
235-PRODUCE LAX-282393 LAX-282394 LAX-282395
CONT#DQF 1263 UA



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at me parucuiars on me , conatlns dangerous goods, such part is property desaibed by name .arriage by air according to the apphcabte Dangerous Good Regulatio s in properUNITED 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, atrue 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 Electronicallyby e-mail: Transmitted: M. Roy Goldberg, Esq. November 1, 2010 rgoldberg@sheppardmullin.com Christopher M. Loveland, Esq. cloveland@sheppardrnullin.com Attorneys forPetitioner Air Transport Association Paul S. Smith, Esq. November 1, 2010 SeniorTrial Attorney U.S. Department ofTransportation Paul.Smithdot.gov Served by First Class Mail: David A. Berg November 1, 2010 Vice President and General Counsel Air Transport Association ofAmerica, Inc. 1301 PennsylvaniaAvenue, N.W. Washington, DC 20004 DATED: Honolulu, Hawai’i, November 1, 2010. 

## / Myra

. Kaichi

- Deputy Attorney General, State ofHawai’i