UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

IN RE HAWAIIAN INSPECTION FEE ) PROCEEDING ) Docket DOT-OST-2010-0243

OPENING COMMENTS OF THE AIR TRANSPORT ASSOCIATION OF AMERICA, INC. IN SUPPORT OF THE PETITION FOR DECLARATORY ORDER

Roy Goldberg Sheppard Mullin Richter & Hampton, LLP 1300 I Street, N.W. Suite 1100 East Washington, D.C. 20005-3314 Tel. (202) 218-0007 Facsimile (202) 312-9425 Email: rgoldbergasheppardrnullin.com David A. Berg Doug Mullen Air Transport Association of America, Inc. 1301 Pennsylvania Avenue, N.W. Suite 1100 Washington, D.C. 20004-1278 Tel. (202) 626-4234 Facsimile (202) 626-4139 Email: dberg@airlines.org dmullenQairlines.org

Dated: November 1, 2010

### INTRODUCTION The Air Transportation Association of America, Inc. ("ATA"), on behalf of itself and its air carrier members,' hereby submits the following comments in response to the Department's Instituting Order dated September 30, 2010 ("IO"). The Department has properly

. instituted this proceeding "to determine the lawfulness of Hawaii's inspection fee statute as applied to air carriers." 2 As set forth below, the Department should issue an order declaring that Hawaii Revised Statute § 150A, as amended by Act 173 S.B. No. 2523 (2010) (hereafter the "Freight Fee Law"), as applied to air carriers, violates and is preempted by the Anti-Head Tax Act ("AHTA"), currently codified at 49 U.S.C. § 40116, and the Airline Deregulation Act ("ADA"), currently codified at 49 U.S.C. § 41713(b)(1). 

### SUMMARY OF ARGUMENT As amended by Act 173, the Freight Fee Law requires air carriers which sell transportation of freight into Hawaii by aircraft to bill their customers a freight inspection fee based on the net weight of the freight determined by pounds (the "Freight Fee"), and imposes a fine of fifty dollars or more per transaction if the air carrier fails to timely invoice its customers for the Freight Fee, and remit payment of the Freight Fee to the

1 The ATA is the principal trade and service organization for the U.S. scheduled service industry. Members are: ABX Air, AirTran Airways, Inc., Alaska Airlines, American Airlines, ASTAR Air Cargo, Atlas Air, Inc., Continental Airlines, Inc., Delta Air Lines, Inc., Evergreen International Airlines, Inc., Federal Express Corporation, Hawaiian Airlines, Inc., JetBlue Airways Corp., Southwest Airlines Co., United Air Lines, Inc., United Parcel Service Co., and US Airways, Inc. Associate members are Air Canada, Air Jamaica, and Mexicana Airlines. Hawaiian Airlines does not join in these Comments.

, 2 10, at 1.Hawaii Department of Agriculture ("HDOA"). Moreover, the HDOA has asserted that

Act 173 renders air carriers liable for these obligations retroactive to August 1, 2008. By requiring air carriers to invoice and remit the Freight Fee, the Freight Fee Law violates and is preempted by the Anti-Head Tax Act ("AHTA"), 49 U.S.C. § 40116, because it imposes a "charge" on the sale of the transportation of "property by aircraft." The AHTA prohibits the imposition of taxes, fees, and charges by state and local jurisdictions on airlines. Congress intended the AHTA to prevent the undue burden on interstate commerce and the economic harm on airlines, passengers, and shippers that would be inevitable if state and local governments were left to their own devices to raise general revenues on the back of commercial aviation. Only under certain enumerated exceptions to the statute's general prohibition may state and local authorities impose and collect fees and taxes in connection with the sale of air transportation, and no such exceptions apply here. The Freight Fee Law also violates the Airline Deregulation Act ("ADA"), 49 U.S.C. § 41713(b)(1), because it is a "law . . . related to a price, route, or service of an air carrier" for which no statutory exemption applies. Among other things, the Freight Fee and the associated fines: (I) "relate" to the "price" being charged by the air carriers because such charge must either be borne by the air carrier or passed on to its air freight customers; (2) "relate" to the "service" of the air carriers which are being forced to provide the "service" of billing, collecting, and remitting fees on behalf of their shipper customers; and (3) "relate" to the "routes" of air carriers because the burden imposed on carriers of needing to invoice, collect and remit the fees, or face significant monetarysanctions for failing to do so, may impact the decision of that carrier whether to provide

air service to Hawaii. As demonstrated below, the requirement in the Freight Fee Law for air carriers to bill and collect the Freight Fees from their shipper customers — or face significant monetary sanctions — imposes a significant administrative and financial burden on the airlines. Attached as Exhibits A, B and C hereto are declarations from officials from United Air Lines ("United") and Federal Express Corporation ("Fedex") which describe in detail the practical difficulties that the airlines must endure, and the significant costs they must incur, in order to attempt to comply with the requirements of the new law. Notably, however, even if there was no significant financial and administrative burden associated with the Freight Fee Law (and there clearly is), the Freight Fee Law is still unlawful because, as applied to air carriers, it constitutes a 

### per se violation of both the
AHTA and the ADA. The Department must not lose sight of the fact that allowing Hawaii to impose the Freight Fee would establish a dangerous precedent that is likely to be mimicked across the country by other revenue-strapped state and local governments. This would impose additional significant costs on air carriers that are already subject to enormous cost pressures from operating costs, labor, fuel, landing fees, terminal rents, other airport charges, and new federal regulatory requirements, and could force airlines to reduce or eliminate service to the states imposing the increased administrative and fiscal burden on the airlines. It is not difficult to imagine how quickly a proliferation of fees, taxes, and other charges by state and local governments could lead to a mushrooming effect that threatens to cripple the national air transportation system.

-3-STATEMENT OF FACTS The Hawaiian Freight Fee Law During the 2008 Legislative Special Session, the Hawaiian Legislature enacted HB 2843, which was codified as Hawaii Revised Statute Chapter 150A. The effective date of the statute was August 1, 2008. As originally enacted, Section 150A-5.3 stated: Inspection, quarantine, and eradication service fee and charge. There is imposed a fee for the inspection, quarantine, and eradication of invasive species contained in any freight, including but not limited to marine commercial container shipment, air freight, or any other means of transporting freight, foreign or domestic, that is brought into the State. The fee shall be paid by the person responsible for paying the freight chares to the transportation company, who shall collect the fee and forward the payment to the department at the port of disembarkation; provided that the transportation company shall not be liable for any fee that is not paid by the person responsible for paying the freight charges to the transportation company. The department shall deposit the fee into the pest inspection, quarantine, and eradication fund under section 150A-4.5. The fee shall be assessed on the net weight of the imported freight computed on the basis of 50 cents for every one thousand pounds of freight brought into the State, or part thereof. HAW. REV. STAT. § 150A-5.3 (2008). Hawaii Revised Statute § 150A-2 defines "freight" to mean "nonpassenger goods, cargo, or lading transported for pay." HAW.

REV. STAT. § 150A-2 (2008). See I.O. at 2 ("in 2008 Hawaii imposed a fee of 50 cents per thousand pounds of freight (net weight) on 'the person responsible for paying the freight charges' (i.e., the shipper in most instances) to the 'transportation company (i.e., the carrier by air and by water)"). In a letter dated September 12, 2008 3 to the Airlines Committee of Hawaii, the chairperson of the State of Hawaii Department of Agriculture stated that "U.S. mail is

3 Letter from Sandra Lee Kunimoto, Exhibit D hereto.

-4-generally not subject to inspection under federal law and is not subject to state agriculture

inspection and the new fee." 4 Act 173 Amended the Freight Fee Law to Impose New Obligations and Fines on Air Carriers On June 23, 2010, the Hawaiian Governor signed into law Act 173, which became effective July 1, 2010. 5 Act 173 amended Hawaii Revised Statute § 150A to impose on transportation companies — including air carriers — "fines for failure to timely pay, bill, or remit the past inspection, quarantine, and eradication service fee." As amended by Act 173, Hawaii Revised Statute § 150A-5.3 states that the "fee shall be assessed and collected on the net weight of the imported freight computed on the basis of 50 cents for every one thousand pounds of freight brought into the state, or part thereof" It further provides, 

### inter alia: The transportation company shall bill the fee to the person responsible for paying the freight charges to the transportation company within fifteen days of the delivery of the freight. The fee shall be paid by the person responsible for paying the freight charges to the transportation company within forty-five days of receipt of the bill. The transportation company shall collect the fee from the person responsible and forward the payment to the department at the port of disembarkation within forty-five days of receipt of the fee; provided that the transportation company shall not be liable for any fee that is not paid by the person responsible for paying the freight charges to the transportation company. Act 173 S.B. No. 2523 (2010). As amended by Act 173, the Freight Fee Law currently provides that if a "transportation company. . . . fails to [b]ill 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 to "[r]emit the fee to the [state] department within forty-five days of collecting the fee" the transportation company must "pay a fine of two times the

tater at 2.

5 To date, the new law has not appeared in the official Hawaii statutes, so there is no official cite.

-5-amount of the inspection, quarantine, and eradication service fee or $50, whichever is

higher." Act 173 S.B. No. 2523 (2010). 

### See I.O. at 2 ("Effective July 1, 2010, Hawaii amended [its Freight Fee Law] to penalize carriers that failed to comply within a specified period of time by imposing a fine equal to the higher of twice the inspection fee or $50"). As amended by Act 173, Hawaii Revised Statute § 150A-4.5 establishes "in the state treasury the pest inspection, quarantine, and eradication fund," which shall consist
of 

### inter alia, "[s]ervice fees, charges, and penalties collected under section 150A-5.3" and "Mines for violations of this chapter." 

### Id. In addition, the "moneys in the pest inspection, quarantine, and eradication fund shall be expended by [HDOA] for 

### [inter alia] the operation of biosecurity and pest inspection, quarantine, eradication, and monitoring programs, related facilities, the execution of emergency remedial measures when pests are detected in the course of inspection and quarantine activities by the department, training of inspectors, education of the agricultural industry, permit and certificate holders, and the general public as to import requirements, and for any other purposes deemed necessary to carry out the purposes of this chapter." 

### Id. In a memorandum "to Transportation Companies" dated July 7, 2010, the HDOA Plant Quarantine Branch ("PQB") stated that "both air and marine transportation companies that bring freight into the State have been required to collect the current service fee on incoming freight as of August 1, 2008, pursuant to Act 3 Session Law of Hawaii, 2008. 6 HDOA added that:

6 Memorandum from Carol L. Okada, Manager, Plant Quarantine Branch, to Transportation Companies re Requirements of Act 173, SLH 2010 (July 7, 2010), Exhibit 2 to Petition for Declaratory Order, at 1.

-6-As a result of Act 173, from July 1, 2010, all transportation companies bringing freight into the State . . must bill the above-referenced service fee, within 15 days of freight delivery, to the person responsible for paying the freight charges and remit the payment, within 45 days of collecting it, to the HDOA, Plant Quarantine Branch (HDOA-PQB) at the port of disembarkation. Transportation companies that do not comply with this requirement will be subject to the fine [set forth in Act 173]. 

### Id. at 2 (emphasis in original). The agency further stated that "transportation companies continue to be subject to the fee collection requirement as of August 1, 2008, 

### and are responsible for payment of current and past due fees." Id. (emphasis added). The HDOA also has instructed that, "[a]long with the fee payments, a written statement" by transportation companies "should be provided to HDOA-PQB that reflects the collection period dates; port of entry for the freight for which the fees were collected; net weight of the freight for which each fee was collected, by flight/voyage; total net weight of all freight reported for the collection period; and the total fee amount paid." 

### Id. at 3. In addition, the Act instructs the HDOA to adopt new rules, or amend existing ones, to impose or increase the fees authorized to be charged under Chapter 150A, between July 1, 2010 and September 30, 2010, without regard to various State public notice and public hearing requirements. 7 The Act further instructs that if the HDOA has not completed these regulatory amendments by September 30, 2010, additional fees are to be automatically added. These additional fees are not insubstantial as applied to airlines because they include: (1) fees for any inspection conducted outside or regular working hours, to include overtime pay, staff mileage reimbursement, and meals; (2) fees for inspection during regular working hours but away from the port or department office, to include staff mileage



### 'See Act 173, Section 13(a).

-7-reimbursement; (3) a $50 per hour fee for follow-up inspections plus staff mileage

requirement; (4) a $50 fee per parcel for treatment or destruction of infested commodities performed by the department's plant quarantine branch; (5) a $50 fee per room per month for the use of a quarantine house operated by the department's plant quarantine branch; and (6) a storage fee of $5 per day for commodities stored at any department plant quarantine branch office, forty-eight hours after written notification. 8
The Freight Fee Law Imposes Onerous Financial and Administrative Burdens on Air Carriers Transporting Freight to Hawaii As explained in considerable detail in the airline declarations at Exhibits A, B and C hereto, the Freight Fee Law imposes a significant and unfair administrative and fiscal
burden on airlines. 9 1. The Freight Fee Law Requires Airlines to Spend Significant Sums to Modify their Billing Systems. The metric that the Freight Fee Law requires air carriers to use to determine the Freight Fee raises overwhelming practical problems and imposes large financial burdens on the carriers shipping freight to Hawaii. The Freight Fee Law states that the fee is to be "computed on the basis of 50 cents for every one thousand pounds of freight brought into the state, or part thereof." HAW. REV. STAT. § 150A-5.3 (2008). This metric is not consistent with the industry practice throughout much of the world outside of the United States -- whereby air carriers charge their cargo shippers based on the weight of the

8 1d.

9 See, e.g., Declaration of Jesse Cohen, United Air Lines, Inc. ("Cohen Deel."), Exhibit A hereto, 3; Declaration of Aashish Gahlaut, Federal Express Corporation ("Gahlaut Decl."), Exhibit B hereto, ¶ 3 (the Hawaiian Freight Fee "is requiring FedEx to bill and collect from its customers which ship cargo into Hawaii on board FedEx aircraft imposes a significant and unfair administrative and fiscal burden on FedEx").

-8-shipment as measured by kilograms. 10 Accordingly, air carriers will need to undergo the

considerable expense to modify their systems to process invoices for the Fees based on every thousand pounds, rather than kilograms." In addition, imposition of a minimum charge 50 cents per 1000 pounds is a completely non-standard way of pricing air cargo and is not easily meshed into carrier pricing systems that either price per pound, per kilo, or per piece. 12 The modifications to the airline internal systems will be extremely expensive. For example, Fedex states that airlines "[d]esigning and implementing" a rate change to comply with the new Freight Fee Law: is burdensome from both a business and IT perspective. It requires not only the dedication of IT personnel but [also] requires coordination of resources from Pricing, Marketing, Finance, Legal, Solutions, and Communications. In total, such a change would require over 1,000 man hours by FedEx personnel and could potentially take years to implement: 3 More specifically, in order for FedEx to bill for a new charge for shipments destined for Hawaii, FedEx would need to implement a change to FedEx's information technology infrastructure, which would require an intricate design and development process lasting well in excess of a year. The complexity is driven by the fact that the fees must be captured in a number of different systems including customer discount systems, rating systems, invoicing systems, accounting systems, pricing request systems, customer service systems, and automation systems: 4

"Cohen Decl. ¶ 4.

l Id.; see also Gahlaut Decl. ¶ 5.

12 Cohen Decl. ¶ 4. "Gahlaut Decl. ¶ 5.

14 Gahlauf Dccl. ¶ 4.

-9-Furthermore, there is no provision in the Hawaiian Freight Fee Law that enables

the airlines to recover the cost of dedicating internal resources to enabling airline systems to accommodate the requirements of the new Freight Fee law. 15 In addition, different billing processes and systems exist for domestic cargo transported in the United States, often billed directly to shippers, and international cargo, typically billed through individual country "Cargo Accounts Settlement System") ("CASS") processes. Since Hawaii imports product from virtually all parts of the world, collecting the fee per the new law would require changes to CASS processes virtually globally. These kinds of large scale changes typically require thousands of hours of programming and testing, resulting in hundreds of thousands of dollars in costs: 6 The time, resources, and personnel that airlines will need to devote to implementing the Hawaii Freight Fee serve no useful business purpose and will provide no additional value to the airline. Such time will detract from the amount of time, resources, and personnel that carriers may devote to issues of concern to air carrier customers, such as service enhancements. This burden extends 

### beyond the implementation phase as the Hawaii Freight Fee will continue to impose a burden both on the personnel and information infrastructure of carriers as long as it is being imposed: 7 2. Additional Expense from Customer Communications and Ongoing Efforts to Collect the Fees. The new Freight Fee also imposes a major administrative expense for airlines to communicate to all customers the new fee, as well as an ongoing expense in trying to

"Cohen DecI. 11 4. 16 1 , d ¶ 5.
"Gahlaut DecI. If 6.



### -10-ensure collection of the fee, and reconciliation of the invoiced amounts versus payment

amounts that are actually collected from shippers. This will require an extensive clerical effort that will mandate additional airline staffing. In addition, as a practical matter, many of the fees will end up being written off by carriers if disputed by the shipper, as the cost of pursuing such collections would significantly outweigh the income to be received from actual amount to be collected. 18 3. Further Expense From International Customer Communications, Foreign Exchange, and Billing Process Changes. The cost and administration of the communications effort that is required because of the new Freight Fee law extends beyond U.S. borders to virtually every single country with entities and persons that ship goods to Hawaii. In general, air cargo is either priced in local currency or in U.S. dollars (and as reflected above in nearly all areas the weight standard is the kilogram, not pounds). The largest economies in Asia, Canada and Europe that generate most of the world's exports have air cargo priced in local
currency. 19 Use of a 1000 pound standard by the new law results in an awkward 453.6 kilo standard, to which a fractional amount in local currency would need to be applied. Normal international cargo industry practice is to price at 45, 100, 300, 500, 1000 kilo weight breaks, so a price at 453.6 kilos is awkward and difficult to process. As an example, orchids from Thailand to Honolulu for use in making leis would need to be

18 Cohen Decl. I 6.

19 1d. 

## I 7.charged at Thai Baht 16.24 per 453.6 kilos to pay the fee. This metric will be difficult to

implement, explain and administer to customers throughout the world. 2° 4. No Means for Measuring Weight as Required in the Freight Fee Law. One of the primary airlines that transport cargo to Hawaii — Fedex — lacks the means of obtaining the weight data necessary to implement the Hawaii Freight Fee. 21 Pursuant to its Service Guide, FedEx measures the weight of packages that it transports for shippers, including those transported to Hawaii, in one of three ways: 1) using the customer supplied weight and/or dimensions, 2) using the dimensional weight calculated by FedEx, or 3) using the actual weight of the shipment as captured by FedEx. 22 The January 4, 2010 FedEx Service Guide provides that where the dimensional weight measure is used for FedEx Express packages, the dimensional weight is determined by multiplying a package's length by width by height in inches and dividing by 194 (for shipments within the U.S. and shipments between the U.S. and Puerto Rico) or 166 (for international shipments). 23 This is obviously not consistent with the Freight Fee Law, that requires the fee to be based on the net weight in terms of 1,000 pound increments. The second method FedEx uses when it measures the weight of the packages is to capture the actual weight, This "actual weight" measure includes the weight of the

20 , ; see also Gahlaut Decl. ¶ 4 ("The complexity" from the Freight Fee Law "is magnified by the international nature of FedEx's operations because any changes must be engineered for multiple automation platforms").

21 Declaration of Thomas P. Parker, Federal Express Corporation ("Parker Decl."), Exhibit C hereto, ¶ 3.

22 Parker Decl. If 4.

23 1d. ¶ 5 .

--I2-packaging and its contents and, in contrast to the Freight Fee Law, would not be the "net

weight" of the goods being shipped. 24 Furthermore, FedEx does not have any means of measuring the "net weight" of the packages that it transports and that measurement serves no relevant business purpose. FedEx regularly accepts packages for shipment with no way to determine what percentage of the total weight is comprised of the item being shipped and what percentage is attributable to the packaging. Where the dimensional weight is used, the "weight" registered for the package may vary significantly from the actual weight of the package. 25 FedEx also does not measure any weight for some of the packages that it transports, including some of the packages that it transports to Hawaii. In such instances, FedEx relies upon the weight provided by the customer at time of shipment. 26 Even if Hawaii were to modify the Freight Fee Law to apply to gross weight rather than net weight, there are substantial barriers to systematically weighing every package that is shipped via FedEx. 27 FedEx operates 22 flights to Hawaii per week. Eleven flights originate in Memphis, six flights originate in Oakland, and five flights originate in Los Angeles. 28 Currently, the major FedEx Express hubs have been equipped with the ability to measure the gross weight of packages, meaning that packages that pass through those hubs on the way to Hawaii would have their gross weight measured. These

24 M I 6. 251d 17. 26 m 8.

27 /d.. 11 9.

28 1d.. IF 10.

-13-include Memphis, Indianapolis, Newark, Guangzhou, China, and Cologne, Germany. 29

To capture the gross weight of those packages that do not travel through one of those hubs with weighing capability on the way to Hawaii would, however, require prohibitively high capital expenditures and years of implementation. Because many FedEx Express packages travel to Hawaii directly from hubs in Oakland, California and Los Angeles, California, which are not equipped to weigh packages, there is no infrastructure in place for obtaining even the gross weight of those packages. 30 In order for a hub to be equipped with the ability to weigh packages, the facility must effectively be re-engineered. This process would take several years between the necessary engineering analysis on the front end and the development and implementation of a design plan. 31 The cost of re-engineering a facility in order to give it the capability of capturing the gross weight of packages varies based on the age and design of the individual facility. The cost for equipping a given facility with this capability cannot even be assessed until an engineering study has been completed, a process which can take six (6) to twelve (12) months. 32 Estimates for re-engineering specific facilities to enable weighing have ranged from $3 million to $15 million. Because of the age and design of the facilities in Oakland and Los Angeles, the costs to re-engineer each of these facilities would be a capital intensive effort. 33

29 1d. 11. "Id. 1 12.

31 1d 1 13. "Id. 

### IF 14. "Id 

### ¶ 15.

-14-In response to the Department's query in the IO, Fedex states that, while safety

and efficiency are paramount to the business of FedEx, the safe and efficient operation of FedEx planes does not require the balance of weight as measured by individual packages. Rather, individual packages are placed into containers with a large number of other packages and it is those that are carefully loaded, weighed, and balanced. 34 5. Complications for Interline Billing Processes. The process for billing and collecting the Hawaiian Freight Fee becomes even more administratively complex, and for all practical purposes, uncollectible, with regard to interline cargo into Hawaii. 35 In these cases, the first carrier that is part of the interline relationship does not fly to Hawaii, and may not be aware of the fee. This renders it extremely complicated to ensure that the first carrier knows to and does in fact collect the Freight Fee when the shipment is obtained. The IATA clearinghouse would need to make significant changes in their software to accommodate this new fee, which as noted above, may be in a different currency unit and undoubtedly a different weight unit than the air freight charges and rates from the originating country. 36

6. Commercial Risk from Different Carrier Practices. Due to the administrative complexity and financial burden of collecting the new fee, some carriers may elect to simply absorb the fee and pay on their own, creating an unlevel playing field and increased commercial risk to carriers who do not pay the fee and try to collect from shippers correctly. Shippers may elect to shift their business to

" Id. 

### 11 16.

35 Cohen Decl. 11 8.

36 /d.

-15-carriers who absorb the charge. This creates an unfair disadvantage for those carriers that

seek to comply with the Freight Fee law by billing and collecting the charge from their

customers. 37

7. Negative Impact on Third Parties. In addition to imposing a significant burden on air carriers serving Hawaii, the Hawaiian Freight Fee also will have a significant negative impact on a number of third parties that rely upon air carriers for shipping freight to Hawaii. Such entities will also be required to implement systems to account for the billing of the Hawaiian Freight Fee. In the case of Fedex, such businesses include: (a) authorized FedEx ship centers, some of which are individually owned businesses; (b) shippers who maintain customized internal software for shipping via FedEx; (c) companies that provide custom IT services to shippers who ship via FedEx; (d) third-party providers of shipping hardware and software systems; and (e) all shippers who may ship to Hawaii to the extent they need to upload new software from FedEx. None of these businesses will receive any business benefit from the implementation of these systems. 38 Moreover, the administrative burden imposed by the Hawaii Freight Fee lacks justification because it imposes a significant worldwide burden on FedEx, FedEx customers, and businesses related to FedEx — all of which will need to implement systems to take into account the Hawaii Freight Fee — which is not justified by the size of the Hawaiian market, which comprises an incredibly small portion of FedEx's worldwide

" Id. ¶ 9. "Gahlaut Decl. ¶ 7.

-16-express shipping market. Yet this small size does not lessen the administrative burdens

that will be imposed on those impacted by this burden. 39 8. Duplication of Federal Agricultural Inspection Fees. Imposition of the Freight Fee with regard to transportation of freight on aircraft into Hawaii from foreign countries is duplicative of inspection fees that must be paid to the U.S. Department of Agriculture Animal and Plant Health Inspection Service ("APHIS"). 21 U.S.C. § 136a(a)(1). The current APHIS inspection fee for commercial aircraft flying from foreign countries into Hawaii (including ATA's member airlines) is $70.75 per landing. 7 C.F.R. § 354.3(e). In addition, aircraft passengers arriving from foreign countries are charged $5.00 in APHIS inspection fees. 7 C.F.R. § 354.3(f). The Anti-Head Tax Act The Anti-Head Tax Act ("AHTA") prohibits a "charge" on the "sale of air transportation," 49 U.S.C. § 40116(b)(3), and "air transportation" includes the transportation of "property by aircraft," 49 U.S.C. § 40102(a)(5), (23), (25). Congress intended the AHTA to prevent the undue burden on interstate commerce and the economic harm to airlines, passengers, and shippers that would be the natural result if state and local governments were left to their own devices to raise general revenues on the back of commercial aviation."' Only under certain inapplicable exceptions to the statute's general prohibition may state and local authorities impose and collect such taxes and fees.

39 1d. ¶ 8.

° See S. REP. 93-12, 1973 U.S.C.C.A.N. 1434, 1446-55, 1973 WL 12580 (Leg.Hist.) (Feb. 1, 1973).

-17-The prohibition against the imposition of a "tax, fee, head charge, or other

charge" on the "sale of air transportation" applies to the sale of transportation of freight by air. "Air transportation" — as used in the AHTA — includes "interstate air transportation," "foreign air transportation," and "the transportation of mail by aircraft" 49 U.S.C. § 40102(a)(5). "Interstate air transportation," in turn, includes the 

### "transportation of . . . property by aircraft as a common carrier for compensation, or the transportation of mail by aircraft" between two American states. § 40102(a)(25) (emphasis added). In addition, "foreign air transportation" includes the 

### "transportation of . . property by aircraft as a common carrier for compensation, or the transportation of mail by aircraft, between a place in the United States and a place outside the United States when any part of the transportation is by aircraft." § 40102(a)(23) (emphasis added). The Hawaii Legislature was aware of the AHTA when it enacted Act 173. The House Committee on Agriculture amended an earlier version of the new bill to change the Freight fee from a tax to a fee, acknowledging concerns that a tax "may conflict with federal laws, such as the Anti-Head Tax Act." Standing Committee Report No. 393-10 on HAI No. 2294 (Feb. 12, 2010). However, the AHTA covers fees as well as taxes. 41 The Airline Deregulation Act Under the Airline Deregulation Act ("ADA"), with certain limited (and inapplicable) exceptions, "a State . . . may not enact or enforce a law, regulation, or other

41 See id. at 1446 (ABTA "prohibits the levying of state or local head taxes; fees, or other charges"); Jalbert Leasing, Inc. v. Massachusetts Port Authority, 449 F.3d 1, 3 (1st Cir. 2006) (ABTA "prohibit[s] locally enacted head taxes and other fees").

-18-provision having the force and effect of law related to a price, route, or service of an air

carrier that may provide air transportation under this subpart." 49 U.S.C. § 41713(b)(1). As used in the ADA, "related to" expresses "a broad preemptive purpose"; a state law or enforcement action is "related to" a "price, route, or service" if it has a connection with reference to a price, route, or service. The Supreme Court in 

### Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383 (1992), held that the use of the words "related to" in the preemption provisions of the ADA "express a broad pre-emptive purpose" and prohibit all state laws "relating to" the rates, routes, or services of an air carrier. Congress expressly endorsed the holding in 

### Morales in 1994 when it enacted the recodified Title 49 into law, noting that it "did not intend to alter the broad preemption interpretation adopted by the United States Supreme Court in 

### Morales." H.R. Conf. Rep. No. 103-677 at p. 83 (1994); 

### see also Sanchez v. Aerovias de Mexico, S.A., 590 F.3d 1027, 1029 (9th Cir. 2010) ("Related to" . . "express[es] a broad preemptive purpose"; a state law or enforcement action is "related to" a "price, route, or service" 

### if it "has a connection with reference to a "price, route, or service') (citing 

### Buck v. Am. Airlines, Inc., 475 F.3d 29, 36 (1st Cir. 2007)). ADA preemption applies to both direct and indirect effects on air carriers. 

### ABC Charters, Inc. v. Bronson, 591 F. Supp. 2d 1272, 1300 (S.D. Fla. 2008) ("Regulation of . . . individuals or entities [other than air carriers], if such regulation will have an effect on price, route, or service of a direct or indirect carrier, is preempted"); 

### Marlow v. AMR Services Corp., 870 F. Supp. 295, 298 (D. Haw. 1994) (state enforcement actions which have a connection with or reference to airline rates, routes, or services are preempted by the ADA. The laws do not have to actually prescribe rates, routes, or service); 

### cf Rowe

-19-

### v. NH Motor Transp. Ass'n, 552 U.S. 364 (2008) (preemption under Federal Aviation

Administration Authorization Act even if the state law's effect on rates, routes, or services is only indirect). ATA Petition and DOT Instituting Order On July 28, 2010, the ATA filed a Petition for Declaratory Order with the Department, requesting that the Department institute a proceeding regarding the Freight Fee Law and declare that the Freight Fee Law, as applied to air carriers, is preempted by and violates the AHTA and the ADA. 42 In its Instituting Order dated September 30, 2010, the Department stated that the ATA's Petition raised "an issue of first impression for the Department," which had "not yet addressed whether inspection fees and responsibilities may be imposed on air carriers consistent with either the AHTA or the ADA." 43 The Department requested comments from interested parties to address whether the Freight Fee Law, as applied to air carriers, is preempted by either the AHTA or the ADA. 44

42 The day after the ATA filed its Petition for Declaratory Order, it filed a multi-count complaint in the U.S. District Court for the District of Hawaii which challenges the lawfulness of the Freight Fee Law as applied to air carriers, but also asserts that the Department has primary jurisdiction over the issue of whether the Freight Fee Law is preempted by the AHTA and the ADA. The Court set October 25, 2010 as the day for initial case management conference. However, the ATA and the State agreed to seek an adjournment of that date because of the pending DOT proceeding. The Court acceded to that request and no case management conference occurred on October 25.

43 10, at 4. 44 1d. at 5.

-20-

### ARGUMENT

I. THE FREIGHT FEE LAW, AS APPLIED TO AIR CARRIERS, IS 

### PREEMPTED AND PROHIBITED BY THE ANTI-HEAD TAX ACT. As applied to air carriers, the Freight Fee Law violates and is preempted by the Anti-Head Tax Act. Subsection (b) of the AHTA, as amended, provides that "Except as provided in subsection (c) . . . and [a statute relating to passenger facility charges], a State, a political subdivision of a State, and any person that has purchased or leased an airport . . . may not levy or collect a tax, fee, 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) (emphasis added).
A. 

### The MITA Applies to Transportation of Freight by Aircraft. As a threshold matter, it should be emphasized that the AHTA applies to the transportation of freight by air. The AHTA prohibits, among other things, a "tax, fee, head charge, or other charge on," inter alia,"the 

### sale of air transportation," 49 U.S.C. § 40116(b) (emphasis added). The term "air transportation" is not confined to passenger transportation but, rather, also includes interstate and foreign transportation of freight. Specifically, "air transportation" is statutorily defined in the federal aviation statutes to include "interstate air transportation," "foreign air transportation," and "the transportation of mail by aircraft." 49 U.S.C. § 40102(a)(5). The statutory definition of "interstate air transportation," in turn, includes "the transportation of passengers 

### or property by aircraft as a common carrier for compensation, or the transportation of mail by aircraft . . . ." 49

-21-U.S.C. § 40102(a)(25) (emphasis added). Similarly, the statutory definition of "foreign

transportation" includes the "transportation of passengers or property by aircraft as a common carrier for compensation, or the transportation of mail by aircraft, between a place in the United States and a place outside the United States when any part of the transportation is by aircraft." 49 U.S.C. § 40102(a)(23) (emphasis added). 45 "Freight" shipped aboard an aircraft constitutes "property." Thus, there can be no doubt that the AHTA applies to the transportation of freight by aircraft.
B. The Freight Fee Law Attaches a Fee Whenever Freight is Transported to Hawaii by Aircraft. The Freight Fee violates the AHTA because it requires imposition, collection and remittance of a fee whenever freight is transported via air into the State of Hawaii. Moreover, the Freight Fee is not a flat charge but rather is assessed on the "net weight of the imported freight computed on the basis of 50 cents for every one thousand pounds of freight brought into the State, or part thereof" See Tinicum Township Privilege Fee Proceeding, Order 2008-3-18, Docket OST-2007-29341, at 5 (holding that airport landing "privilege fee" as applied to cargo carriers violated and was preempted by the AHTA and suggesting that a fee would "constitute a prohibited charge on the sale of air transportation" if it was "imposed in connection with the sale of a ticket or waybill") (emphasis added). The potential fine for an air carrier violating the Freight Fee Law also may be determined based on the net weight of the transported freight. The fine is "two times the

45 See Port Authority of New York and New Jersey v. Department of Transp., 479 F.3d 21, 27 (D.C. Cir. 2007) (applying the definitions in 49 U.S.C. §§ 40102(a)(2) and 40102(a)(21) to a case involving 49 U.S.C. § 47129).

-22-amount of the inspection, quarantine, and eradication service fee or $50, whichever is

higher" for each occurrence when the air carrier fails to bill or remit the Freight Fee. The U.S. Supreme Court has construed the AHTA broadly in order to effectuate Congress' intent. Thus, the ban applies even if the charge is directly imposed on the carriers rather than their passengers. See, e.g., Aloha Airlines, supra, 464 U.S. 7, 12-13 (state tax on the annual gross income of airlines operating within Hawaii was preempted and barred by the AHTA despite the fact that the tax at issue was styled as a property tax and was imposed on airlines rather than their passengers). Lower courts have consistently given the AHTA broad application. 46
In Allegheny Airlines, Inc. v. City of Philadelphia, 453 Pa. 181, 309 A.2d 157 (1973), airlines challenged a City of Philadelphia ordinance which established a $3.00 "head tax" on some (but not all) passengers departing from Philadelphia airports, excluding continuous flight passengers who remained in Philadelphia not more than six hours. Id. at 183, 390 A.2d at 158. In ruling that the AHTA preempted and prohibited the charge, the court stated: This legislation, enacted pursuant to Congress' constitutional authority to regulate interstate commerce, has undeniably pre-empted any state, or local, intervention in the field of airport head taxes . . . The Act renders constitutionally invalid and

46 See, e.g., New England Legal Found. v. Mass. Port Auth., 883 F.2d 157, 170 n.22 (1st Cir. 1989) ("The prohibition is broader than just against head taxes"); Interface Group v. Massachusetts Port Authority, 816 F.2d 9, 16 (1st Cir. 1986) (even if the "primary beneficiaries of the [Anti-Head Tax Act] are air travelers, by prohibiting the levying of taxes on the carriage of persons, the statute, at least in some instances gives air carriers a 'benefit' that is 'especial,' at least when neither have to face diminished demand for costlier services nor have to absorb all or part of the charge by reducing ticket prices"); Indianapolis Airport v. American Airlines, 733 F.2d 1262, 1267 (7th Cir. 1984) ("Whether airline or passenger ultimately bears the cost of an airport fee depends on the conditions of supply and demand rather than on who is assessed the charge"); and see 119 Cong. Rec. 3349 (1973) ("The bill prohibits the levying of State or local head taxes, fees, gross receipts, taxes, or other such charges whether on passengers or on the carriage of such passengers in interstate commerce").

-23-impermissible existing state or local airport head taxes. The Federal Government, having exercised its express constitutional authority over interstate commerce, that field is not available for state or local action, Here . . . state intrusion is precluded. 

### Id. at 186, 309 A.2d at 159. Similarly here, the Hawaiian Freight Fee Law imposes impermissible charges on the transportation of freight by air, and should be declared unlawful on that basis. 47 In its brief to the Third Circuit in the 

### Tinicum case, the Department emphasized that the purpose of the AHTA was to "limit state and local taxation of aviation . . . ." Brief of Respondent DOT, July 29, 2008, available at 2008 WL 5583551 (3rd Cir.) (Appellate Brief), at 11. In connection with its ruling that the Tinicum "privilege fee" ran afoul of that purpose, the Department explained: The Department's reasonable interpretation of the [AHTA] comports with the AHTA's purpose to limit state and local taxation of aviation, and is consistent with long-standing judicial interpretation of the AHTA. 

### See, e.g., Northwest Airlines, Inc. v. County of Kent, 510 U.S. 355, 363 (1994) ("[c]oncerned that our decision in 

### Evansville 48 might prompt a proliferation of local taxes burdensome to interstate air transportation, Congress enacted the AHTA"); 

### Western Air Lines, Inc. v. Board of Equalization of State of South Dakota, 480 U.S. 123, 126 (1987) ("Congress acted [in the AHTA] to limit state taxation of air transportation"); 

### Aloha Airlines, Inc ("[n]othing in the legislative history of the [Airport Development Acceleration Act] suggests that Congress intended to limit 1513(a)'s preemptive effect to taxes on airline passengers or to save gross receipts taxes")' 

### Southwest Air Ambulance, Inc. v. City of Las Cruces, 268 F.3d 1162, 1173 (10th Cir. 2001) ("[i]t is unambiguously clear that Congress intended the AHTA to protect airlines from illegal state or municipal taxation based on gross receipts") . . .

47 The fact that the Freight Fee in connection with the net weight of subject shipments may be considered to be relatively small is no basis for determining that the Fee is not preempted by the AHTA. The fine for violating the Freight Fee Law — at least $50 per transaction — is certainly not small. In addition, the landing "privilege fee" in Tinicum was also relatively small. State and local governments should not be permitted to avoid the preemptive effect of the AHTA by initially setting fees at a relatively small level, only to subsequently increase the amount of the fees.

48 Evansville-Vanderburgh Airport Authority Dist. v. Delta Airlines, Inc., 405 U.S. 707 (1972).

-24-Id. The same considerations apply here as well. The Department's ruling that the

Hawaiian Freight Fee Law, as applied to air carriers, violates and is preempted by the AHTA is critical to protecting the airline industry and its members from a proliferation of state and local taxes on the transportation of freight into a state from either another state or a foreign country. Significantly, although the airlines subject to the Freight Fee Law are being unreasonably burdened by the requirements of the Freight Fee Law, such injury is not a prerequisite for the application of the express language of the AHTA.

C. The Three Cases Referred to by the DOT are Not Controlling Here. The TO refers to three court cases involving challenges to state inspection fees in California, Arizona and Guam. 49 However, the Department was not involved in these cases, and therefore could not exercise primary jurisdiction with regard to the issues that were raised. Furthermore, the facts and circumstances of these three cases demonstrate that none of them supports the upholding of the Hawaiian Freight Fee Law.

1. The Alaska Airlines Case.
In Alaska Airlines, Inc. v. California Dep't of Food and Agriculture, 33 Cal. App.
4 th 506, 39 Cal. Rptr. 2d 426 (1995), the AHTA was deemed by a state appeals court not to apply to a "service charge" imposed by the State of California on airlines for inspection of passengers and cargo because the charge was not based on the number of

' 9 10, at 4, n. 4 and n. 5.

-25-passengers or cargo items. Rather, the service charge had no connection whatsoever to

the volume of passengers or freight being transported; rather, it was imposed on a peraircraft basis, and applied even if the aircraft was entirely empty of passengers and cargo. The case involved the California Airport and Maritime Plant Quarantine, Inspection, and Plant Protection Act, whose purpose was to inspect "conveyances entering California through airport and maritime facilities to prevent the introduction or spread within . . . [California] . . . of pests." Under the statute, aircraft or ships arriving from certain specified foreign locations believed to be potential sources of exotic plant or animal pests were "assessed a 'service charge' of $85, in the case of aircraft, and $200, in the case of ships, upon initial arrival in California." Id., 39 Cal. Rptr. 2d at 427. California had "entered into an agreement with the United States Department of Agriculture whereby the inspection fees [were] turned over to that agency to help pay for federally mandated pest inspections." Id. The air carriers which filed suit "approve[d] generally" of the California statute and did "not object to the inspection program," but did "object to the payment of the $85 service charge." Id. at 428. The trial court granted the air carriers' motion for summary judgment that the $85 service charge was preempted by the AHTA. The appellate court reversed, concluding that "the trial court erred in finding that the inspection fee violates the [AHTA]." Id. at 432. However, the reasoning of the court fully supports a DOT finding here that the Hawaiian Freight Fee Law is preempted by the AHTA. Specifically, the appellate court stated: [The] facts establish that the inspection fee is not a direct head tax. It bears no relation to the number of passengers or cargo on the aircraft . .Id. at 430 (emphasis added), This language is critical because the Hawaiian Freight Fee

Law bears a direct relationship to the amount of cargo on the aircraft. Specifically, the fee is imposed in connection with the specific number of shipments that are carried onboard the aircraft, and is based on the weight of each such shipment. Thus, the inspection "service charge" at issue in Alaska Airlines was "charged even if the airplane [was] empty." Id. By contrast, if the aircraft traveling to Hawaii is empty, there will be no Freight Fee owed (or any obligation on the carrier to bill, collect and remit the fee to the State of Haw'aii). There is a further reason why the Department should not apply Alaska Airlines in support of the Hawaiian Freight Fee. The same year that the California appeals court decided Alaskan Airlines, the California Supreme Court separately held that the service charge imposed on ships (and by implication also the service charge imposed on airlines) violated the commerce clause of the U.S. Constitution because the service charges were imposed solely on the shipment of goods from foreign countries, and not on the transportation of goods from other states into California. Pacific Merchant Shipping Ass'n v. Voss, 12 Cal. 4 th 503, 48 Cal. Rptr. 2d 582, 907 P.2d 430 (1995), cert. denied, 517 U.S. 1221 (1996). As a result of this decision, the fees imposed on airlines transporting cargo into California is not lawful. Indeed, California acknowledges as much in the current website of the California Department of Food and Agriculture, which states as follows: In December 1991, the Pacific Merchant Shipping Association sued CDFA in a California state court alleging that the [airport and maritime plant quarantine inspection program] violated the Commerce Clause of the U.S. Constitution because it imposed a discriminatory and unreasonable burden on marine carriers that was not imposed upon domestic interstate commerce (trucks). The California Supreme Court agreed, struck down

-27-

### the program, and ordered CDFA to refund $22.5 million to marine and

airline carriers. Based on this ruling from the court, any new program would be tremendously challenging to craft and administer. 

### To avoid a Commerce Clause challenge, as well as address other United States constitutional issues, international trade agreements, and federal law preemption, California could either establish an assessment on all commerce in the state or get Congressional authority to impose a fee on foreign commerce. 50

Thus, the California inspection fee is not lawful as to airlines (or maritime entities). As a result, the existence of the service charge for agricultural inspections in California (which is not being paid by air carriers) can provide no viable 

### precedent for the Hawaiian Freight Fee as applied to air carriers.

2. The Arizona Case. The plaintiff in 

### Arizona Dept of Revenue v. Cochise Airlines, 128 Ariz. 432, 626 P.2d 596 (1980), Conchise Airlines, was "principally an intrastate airline with routes between various communities in Arizona." 

### Id. at 598. The "single issue presented" in 

### Arizona was whether the AHTA was violated by reason of the airline being "liable to pay transaction privilege taxes imposed by A.R.S. §§ 42-1309 and 42-1310(2)(d) on its intrastate operations." 

### Id., 626 P.2d at 597.

""Protecting California from Biological Pollution," at 19 (http://www.edfa.ea.gov/files/pdf/ProteetCalLegisReport.pdf) (emphasis added). Prior pages in this document from the California state government warn of pest infestation in a way that echoes what Hawaii claims is the justification for the Freight Fees. It is easy to imagine other states making similar assertions of the need to protect the state from pest infestation. Will each such state be allowed to impose an inspection fee and billing/collection/remittance requirement on air carriers flying into that state? Such precedent simply cannot be allowed.

-28-Section 42-1309 imposed "annual privilege taxes measured by the amount or

volume of business transacted by persons on account of their business activities" in order to, inter alio, "liquidat[e] the outstanding obligations of the state and county governments," aikl "to aid in defraying the necessary and ordinary expenses of the state and the counties . . . ." Section 42-1310(2)(d) imposed a tax lalt an amount equal to one per cent of the gross proceeds of sales or gross income from the business upon every person engaging in or continuing within [Arizona] in [connection with] [t]transporting for hire freight or passengers by railroads or aircraft from one point to another point in the state." Id. The court held that the Arizona transaction privilege taxes violated the AHTA insofar as they were applied to "the business of carrying persons" by aircraft. Id. at 599. The court stated: It is apparent from [the legislative] history [of the AHTA] that Congress was primarily concerned with the dual objectives of eliminating unpopular head taxes and making available additional federal funds for airport development. A close reading of the reported legislative history, however, fails to reveal any expression of an intent to confine the prohibitory terms of § 1513 to the head tax. (Id.) It is true that the court went on to also rule that the AHTA did not prohibit application of "the Arizona transaction privilege tax" to "transporting freight," Id. at 601. However, this issue was apparently dealt with sua sponte by the court, without input from the parties, much less from the DOT or any other airlines or their representatives. The entire treatment of this issue by the Arizona court is as follows: 

### Neither of the parties has alluded to the fact that, while A.R.S. § 42- 1310(2)(d) imposes a tax upon the transporting of freight as well as passengers, the relevant prohibition in 49 U.S.C. § 1513(a) refers only to the carriage of persons in air commerce. The doctrine of preemption or supremacy of federal legislation does not extend beyond actual points of

-29-conflict. There is accordingly no prohibition against the Arizona transaction privilege tax on transporting freight. Id. (emphasis added) (citations omitted). Simply put, the court was not apprised of the statutory language discussed above — including 49 U.S.C. § 40102(a)(5), (23), (25) — which unambiguously renders the AHTA applicable to the transportation of cargo. 51 As set forth above, the AHTA prohibits, among other things, a "tax, fee, head charge, or other charge on," inter alia, "the sale of air transportation," 49 U.S.C. § 40116(b) (emphasis added). Perhaps because the parties did not brief the issue, the Arizona court did not consider this clear statutory language and, as a result, its decision provides no guidance here.

3. 

### The Guam Case. The third case referenced by the DOT in the TO — Guam Fresh, Inc. v. Ada, 849 F.2d 436 (9 th Cir. 1988) — clearly has no relevance here because the issue there was whether the territory had the authority to inspect, not whether the territory had the authority to charge airlines for inspection fees (which they do not). The plaintiffs there were not airlines or their trade association. Rather, they were importers of produce into Guam. They claimed that Guam's laws concerning agricultural pests, plant disease and quarantine were preempted by Section 8 of the Plant Quarantine Act of 1912, as amended, 7 U.S.C. § 161 (1982), and did not raise the AHTA or the ADA because the issue was authority to inspect, not fees charged for inspection services. In holding that the Guam laws were not preempted by the Plant Quarantine Act the court accepted the territory's contention that the Act "restored to the states full police

51 The decision in Arizona is also inapposite because it involved a tax on intrastate activity rather than interstate activity.

-30-power to impose a quarantine on any articles not specifically interdicted by a federal

quarantine." 849 F.2d at 438; 

### see also id. ("the clear and manifest purpose of Congress, as indicated in the legislative history . . . was to overturn [a court decision] and restore the current regulatory scheme which existed prior to that decision"). In other words, the Guam case did not involve a challenge by airlines and, in addition, the court found that the Guam laws were specifically 

### authorized rather than 

### preempted by a federal statute. Here, there is no argument by Hawaii that either the ADA or the AHTA specifically 

### authorizes the.Freight Fee Law. Therefore, the case turned on Guam authority to inspect, not the fees imposed for such inspections. The Guam case is also inapposite because the ATA is not claiming that Hawaii is precluded from inspecting cargo being shipped into the State. Rather, the attempt to require air carriers to bill, collect and remit fees from shippers who are subject to inspection — under threat of significant financial penalties — is preempted by the ADA and the AHTA for the reasons stated above.

II. THE FREIGHT FEE LAW, AS APPLIED TO AIR CARRIERS, IS PREEMPTED AND PROHIBITED BY THE AIRLINE 

### DEREGULATION ACT. The Freight Fee is also preempted and barred by the express preemption provision of the Airline Deregulation Act ("ADA"), currently codified at 49 U.S.C. § 41713(b). Congress enacted the ADA in 1978 to deregulate the airline industry. 

### See 49 U.S.C. § 40101(a)(6), (a)(12)(A) (formerly codified at 49 U.S.C. § 1302(a)(4), (a)(9); 

### Gary v. The Air Group, Inc., 397 F.3d 183, 186 (3rd Cir. 2005). Under the ADA, with certain limited and inapplicable exceptions, "a State . . . may not 

### enact or enforce a law, regulation, or

-31-other provision 

### having the force and effect of law related to a price, route, or service of

an air carrier that may provide air transportation under this subpart." 49 U.S.C. § 41713 (b)(1) (emphasis added). In enacting the ADA, Congress determined that "maximum reliance on competitive market forces would best further the efficiency, innovation, and low prices as well as variety [and] quality. . . . of air transportation services." 

### Morales, supra, 504 U.S. 374, 378 (1992) (citation and internal quotation marks omitted). Congress included an express preemption provision in the ADA "[tbo ensure that the States would not undo federal deregulation with regulation of their own." 

### Id.; see also Taj Mahal Travel, Inc. v. Delta Airlines, Inc., 164 F.3d 186, 194 (3rd Cir. 1998) (Congress enacted the ADA to "prevent the states from re-regulating airline operations so that competitive market forces could function."); 

### Gary, 397 F.3d at 186. The Freight Fee Law, as applied to air carriers, violates and is preempted by the Airline Deregulation Act because both the Freight Fee which air carriers must bill, collect, and remit to the HDOA, and the large fines for failure to do so, impermissibly relate to the "price," the "route," and the "service" of the air carriers that are transporting freight into Hawaii. The phrase "related to a price, route, or service of an air carrier" is to be broadly
construed. In 

### Morales, supra, the Supreme Court examined whether the ADA preempted enforcement of state guidelines concerning regulation of air fare advertising. The Court focused on the preemption clause's "relating to" 52 language. 

### Id. at 383-86. Relying on

52The prior version of what is now 49 U.S.C. § 41713(b)(1) — 49 U.S.C. § 1305(a)(l) — preempted States from enacting or enforcing laws "relating to rates, routes, or services of any air carrier . . .." (emphasis added). Congress intended the revision to make no substantive change. (footnote continued) -32-its ERISA line of cases and the ordinary meaning of the statutory language, the Court

construed the phrase "relating to" broadly to preempt "State enforcement action having a connection with, or reference to, airline 'rates, routes, or services.'" Id. at 384. The Court stated: For purposes of the present case, the key phrase, obviously, is "relating to." The ordinary meaning of these words is a broad one — "to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with," Black's Law Dictionary 1158 (5th Ed. 1979) — and the words thus express a broad pre-emptive purpose. We have repeatedly recognized that in addressing the similarly worded preemption provision of [ERISA], 29 U.S.C. § 1144(a), which preempts all state laws "insofar as they. . . . relate to any employee benefit plan." We have said, for example, that the "breadth of [that provision's] preemptive reach is apparent from [its] language," . . . that it has a "broad scope," . . . and an "expansive sweep," . . . and that it is "broadly worded," . . . "deliberately expansive," . . . and "conspicuous for its breadth." . . . Since the relevant language of the ADA is identical, we think it appropriate to adopt the same standard here: 

### State enforcement actions having a connection with or reference to airline "rates, routes, or services" are pre-empted under [the ADA]. Id. at 383-84 (emphasis added). Based on this "broad preemptive purpose," the Court rejected contentions that the ADA only preempted states from actually prescribing rates, routes, or services, and that only state laws specifically aimed at the airline industry were preempted. Id. at 384-86. The Court held that the state law guidelines had the "forbidden significant effect" on the airlines' rates, routes, and services, primarily because they restricted fare advertising, which "relates to" price. Id. at 388-89; see also Hingson v. Pacific Southwest Airlines, 743 F.2d 1408, 1415 (9th Cir. 1984) NADA] preemption is not limited to those state laws or regulations that 

### conflict with federal law.

See American Airlines, Inc. v. Wolens, 513 U.S. 219, 221 n.1 (1995) (citing Pub. L. 103

- 272, § 1(a), 108 Stat. 745); see also Taj Mahal Travel, 164 F.3d at 191 n.3 ("the legislative history of these changes shows that Congress intended no substantive change to the meaning of the preemption section") (citing H.R. Rep. No. 103-180 at 305, reprinted in 1994 U.S.C.C.A.N. 818, 1122; H.R. Rep. No. 103-677 at 83, reprinted in 1994 U.S.C.C.A.N. 1715, 1755).

-33-It preempts state laws and regulations 'relating to rates, routes, or services') (emphasis

in original); 

### Witty v. Delta Air Lines, Inc., 366 F.3d 380, 383 (5th Cir. 2004) (ADA not only "preempts the direct regulation of prices by states, but also preempts indirect regulation 'relating to' prices that have 'the forbidden significant effect' on such prices"). In the situation presented here, the Hawaiian Freight Fee, as applied to air carriers, clearly has a "connection with" air carrier "prices, routes, and services" and thus has the very "forbidden significant impact" described by the Court as prohibited by the ADA. The domestic airline industry is highly cost sensitive and fiercely competitive. To preserve their already small margins, airlines will be pressured either to pass through to customers the increased cost of doing business in Hawaii, to reduce their level of service to Hawaii or otherwise alter their routes, or both. As such,.the imposition of the Freight Fee has an indisputable impact on airline prices, routes, and services. A. The Freight Fee Law Relates to the "Price" Charged by Air Carriers. The Freight Fee and the associated fines "relate" to the "price" being charged by the air carriers because such charges must either be borne by the air carrier or passed on to its air freight customers. In 

### Buck v. American Airlines, supra, 476 F.3d 29, purchasers of unused nonrefundable airline tickets sought to recover the various fees and taxes they had paid when they bought their tickets. In holding that the claims were preempted by the ADA, the First Circuit rejected the plaintiffs' assertion that the taxes and fees were not part of the "price" of the tickets because they were separate from the 

### "fare prices (or rates) set by airlines." 

### Id. at 35. The court stated that "the ADA preempts laws that both explicitly refer to an airline's prices and those that have a significant effect upon prices," and that the "dichotomy" between (1) fares or rates charged for transportation, and (2)

-34-fares or taxes imposed by the government "blurs when conceptualized within the

contours of the 'significant effect' doctrine." 

### Id. at 34-35. The court explained: Although the fees are in one sense separate from the base fare, the two are inextricably intertwined. In all events, an air traveler's concern is with the overall cost of his or her ticket. Thus, when an airline establishes the base fare, it must take cognizance of any surcharges that will be imposed by operation of law. It is freshman-year economics that higher prices mean lower demand, and that consumers are sensitive to the full price that they must pay, not just the portion of the price that will stay in the seller's coffers. For that reason, an airline must account for the fees when setting its own rates. 

### Id. at 35-36 (emphasis added) (cited with approval by the Ninth Circuit in 

### Sanchez,
supra, 590 at 1030). Similarly here, even if the Freight Fee is in "one sense separate from the base" charge imposed for transportation of the freight, the imposition of the Freight Fee will nevertheless impact the "overall cost" of the air transportation being provided. As set forth above and in the declarations from Fedex and United attached as Exhibits A, B and C hereto, it will be enormously costly for airlines to attempt to comply with the Hawaii Freight Fee Law. For preemption to apply, there is no requirement that the Freight Fee Law "explicitly refer to" the amount of the rates charged by air carriers for transportation of freight into Hawaii. Rather, it is sufficient that the Freight Fee Law may have a "significant effect upon" such rates. As in 

### Buck, the air carriers subject to the Freight Fee Law must "account for the" Freight Fees "when setting [their] own rates." Since ATA's members will have to make tremendously costly system-wide programming and personnel changes in order to attempt compliance with Hawaii's Freight Fee Law, it isinevitable that these carriers will have to raise the "price" they charge in order to finance

these changes.
B. The Freight Fee Law Relates to the "Service" Provided by Air Carriers. The Freight Fee and the associated fines also relate to the "service" of the air carriers because they require the air carrier — under threat of significant monetary fines — to provide the "service" of billing, collecting, and remitting fees on behalf of its shipper

customers. In 

### United Parcel Service, Inc. v. Flores

- 

### Galarza, 318 F.3d 323 (1st Cir. 2003), a Puerto Rico law prohibited air carriers from delivering any package unless the carrier provided a "certificate" that the package's addressee had paid the appropriate state excise tax, or the carrier had instead prepaid the tax on the addressee's behalf. If a carrier delivered a "package without obtaining this certificate, the carrier [could] be required to pay an administrative fine to the [commonwealth], a tax on the package's contents, and any surcharges and interest accrued from the date the items were introduced into Puerto Rico." 

### Id. at 326. In holding that the ADA preempted the Puerto Rico law, the court stated: The challenged scheme both refers to and has a forbidden significant effect on UPS's prices, routes or services. Section 9066 — the linchpin of the scheme

— 

### forbids delivery unless and until a recipient produces a certificate from the Secretary. Compliance with this provision significantly effects the timeliness and effectiveness of UPS's service, which includes the delivery of packages on an express or time-guarantee basis. Likewise, the pre-payment mechanism imposes extensive requirements that must be met before a carrier may make a lawful delivery. These requirements create a substantial burden on UPS, in the form of labor, costs, and delays. The undisputed record ... shows that this burden directly and significantly affects UPS's routes and services, which depend upon an orderly flow of packages. 

### Id. at 335-36 (emphasis in original).

-36-Here too, the Freight Fee Law has a forbidden significant effect on air carriers'

services because, inter alia, the carriers must conform their billing infrastructure to accommodate the obligation to bill their freight customers the Freight Fee based on a series of complicated conversions, including local currency to U.S. dollars, kilos to pounds, and gross weight to net weight. The carriers must then report these shipments on a monthly or more frequent basis to the HDOA. Such requirements "create a,substantial burden" on the air carriers in the form of labor and costs.
In Sanchez v. Campania Mexicana de Aviacion S.A., Case No. CV

- 07

- 7196 R (RCx), 2008 U.S. Dist. LEXIS 86822 (March 25, 2008), aff'd on other grds., 361 Fed. App. 751 (9th Cir. Jan. 5, 2010), the court held that a claim that an airline improperly imposed a Mexican tourism tax on passengers transported from the United States to Mexico who were exempt from the tax was preempted by the ADA because, among other things: As the tourism tax is charged only on routes between Mexico and other countries and as the collection of the tourism tax at the time of ticketing is a service facilitating the flow of passengers through the airports in Mexico, [the claims] are preempted by the Airline Deregulation Act on the grounds that the claims are related to Mexican's routes and services. Id. at *9-10. Similarly here, the Freight Fee is charged only on routes between Hawaii and other states or countries and the billing and collection of the Fee "is a service facilitating the flow" of freight into Hawaii. See also Federal Express Corp. v. California Public Utilities Comm'n, 936 F.2d 1075, 1078 (9th Cir. 1991) (state regulation of trucking operations of air carriers — including "rates," "bills of lading," and "freight bills" — preempted by ADA) ("Most of the regulations . . . are obviously economic — they bear

-37-on price. Those regulations which are not patently economic — the rules on claims and

bills of lading, for example — relate to the terms on which the air carrier offers its services").
In 

### Rowe, supra, 552 U.S. 364, the Supreme Court held that Maine's tobacco delivery law — which required delivery trucks to verify the lawful status of recipients of tobacco shipped into the state — was preempted by the Federal Aviation Administration Authorization Act (the version of the ADA which applies to motor carriers) because the law would "require [motor] carriers to offer a system of services that the market does not now provide and which the carriers would prefer not to offer." 

### Id. at 372. The Court stated: We concede that the regulation here is less "direct" than it might be, for it tells 

### shippers what to choose rather than 

### carriers what to do. Nonetheless, the effect of the regulation is that carriers will have to offer tobacco delivery services that differ significantly from those that, in the absence of the regulation, the market might dictate. And that being so, treating sales restrictions and purchase restrictions differently from pre-emption purposes would make no sense. 

### Id. (citation and internal quotation marks omitted). Maine contended that the "regulation will impose no significant additional costs upon carriers." 

### Id. at 373. the Court rejected this argument, stating that "even were that is so (and the carriers deny it), Maine's reply is off the mark," because to "allow Maine to insist that the carriers provide a special checking system would allow other States to do the same," which "could easily lead to a patchwork of state service-determining laws, rules, and regulations" that would be "inconsistent with Congress' major legislative effort to leave such decisions, where federally unregulated, to the competitive marketplace." 

### Id. The same holds true here. The Freight Fee Law would impose significant additional costs upon air carriers. As set forth in the airline declarations attached as

-38-Exhibits A, B and C hereto, tremendous development, implementation, and maintenance

costs are required to bring airlines into compliance with the new law, not to mention the additional costs for carriers who choose or are forced to absorb the fees themselves in some or all instances. But regardless of the costs to air carriers in this particular case, it would still be unlawful under the ADA for Hawaii to insist that carriers provide a special system for billing, collecting, and remitting the Freight Fee. Indeed, such obligations by multiple states or local govermnents could easily lead to a "patchwork of state" laws that require such services to be performed throughout the 50 states, perhaps with each state or . local government imposing some variant on how the fee is to be calculated, billed, collected, and remitted. The huge burden inflicted by such a "patchwork" of state laws is anathema to Congress' clear legislative intention of rendering the aviation industry free from federal intrusive regulation by state and local governments.
C. 

### The Freight Fee Law Relates to the "Routes" of Air Carriers. The Freight Fee and the associated fines also relate to the "route" of the air carrier because the Freight Fee only applies to flights to Hawaii and the , financial and administrative burden imposed by the new law will impact whether and how the carrier chooses to serve the Hawaiian market. 

### See Sanchez v. Compania Mexicana de Aviacion,
supra, at *9-10 (challenge to airline collection of Mexican tourism tax preempted by ADA where it related to "route" of air carrier because the subject tax was "charged only on routes between Mexico and other countries"). The difficulty in collecting the Freight Fee by "interline" carriers is one example of the extreme difficulties carriers could often face if they attempt to charge their customers the fee instead of being forced to absorb it themselves.

-39-

### III. HAWAII IS CHARGING FOR INSPECTION OF AIRCRAFT ARRIVING

FROM FOREIGN COUNTRIES DESPITE THE FACT THAT THE FEDERAL GOVERNMENT ALSO IMPOSES FEES FOR THE INSPECTION OF AIRCRAFT LANDING IN HAWAII FROM FOREIGN 

### COUNTRIES. Imposition of the Hawaiian Freight Fee is especially improper with regard to aircraft traveling to Hawaii from foreign countries because the U.S. Department of Agriculture Animal Plant and Health Inspection Service ("APHIS") already imposes significant fees on aircraft for agricultural inspection of flights landing in Hawaii from foreign countries. 21 U.S.C. § 136a(a)(A). The current APHIS fee imposed on aircraft entering the United States (including Hawaii) is $70.75 per commercial aircraft landing. 7 U.S.C. § 354.3(e). In addition, aircraft passengers arriving from foreign countries are charged $5.00 in APHIS fees. 7 C.F.R. § 354.3(1). In its IO, the Department states that "Hawaii maintains its own inspection program independent from the Federal Government, which scrutinizes freight from foreign sources through [APHIS]." TO, at 2. Yet this does not change the fact that both Hawaii and APHIS inspect aircraft arriving into Hawaii from foreign countries. The Department also states that it "understand[s] that APHIS . . . does not inspect for precisely the same inbound pests as Hawaii." Id. at 2 n. 

### 1. However, the basis for this statement is not provided, and it is not clear the extent to which APHIS and the State of Hawaii have clearly delineated different areas of inspection responsibility. In any case, the factual determination of whether the State and APHIS inspect for the same or different pests is irrelevant to the legal determination that the fee is preempted and prohibited by the AHTA and the ADA.The Department also states that "the Federal govermnent reportedly inspects

domestic freight outbound from Hawaii to the mainland in order to protect the latter from invasive species found on the islands." Id. If anything, this demonstrates the conduct of the federal government in preempting the field of agricultural inspection between Hawaii and the mainland.

IV. PERMITTING HAWAII TO REQUIRE AIR CARRIERS TO BILL AND COLLECT STATE INSPECTION FEES WOULD ESTABLISH A 

### DANGEROUS PRECEDENT. If Hawaii is permitted to impose its Freight Fee Law on air carriers it may establish a precedent for other state governments (and county and local governments as well) to impose similar "inspection fees" or other charges which the government claim are necessary to raise revenue, especially in the current difficult economic climate. This precedent would directly conflict with Congress' intention in the AHTA as described above. Such a precedent merely serves to inflict upon the U.S. airline industry a disproportionate share of the shared obligation to fund necessary state and local government services. The fact that airlines are regulated and are required to maintain certain records should not give state and local govermnents a free hand to take advantage of the situation and look to the airlines to fund their revenue shortfalls for programs to serve Hawaii residents. The precedent that Hawaii want to set here would completely upset the balance struck by the AHTA, giving state and local authorities the incentive to fund programs on the backs of airlines, passengers, and shippers that do no reside and Hawaii and would not benefit from the inspection services. Multiply this fee and penalty provision by 49

-41-other states and each local government near an airport and this precedent would create an

unmanageable fee structure that Congress abolished with the AHTA after the 

### Evansville decision. Such a new precedent should not be allowed. Although the Department acknowledges that the question of whether state inspection fee imposed on air carriers like the Hawaiian Freight Fee is preempted by the AHTA and the ADA is "an issue of first impression for the Department," 53 the Department states that "both California and Guam operate aircraft inspection services for the same purpose and also impose fees, and there may be others." 54 However, neither California nor Guam — nor any other United States state, territory or possession — seeks to impose the type of burdensome billing and collection requirement on airlines that is the case with the Hawaiian Freight Fee Law. With regard to the California fee, the Department cites 

### Alaska Airlines, Inc.,
supra, 33 Cal. App. 4 th 506, 39 Cal. Rptr. 426. However, as set forth in Section I above, that case is distinguishable because, 

### inter alia, the fee was not based on the number of shipments on board the aircraft or the weight of such shipments. In addition, as set forth in Section I above the 

### Guam Fresh case clearly has no relevance here. 

### CONCLUSION For the reasons set forth above, ATA, on behalf of its member airlines, respectfully requests that the DOT grant this Petition for Declaratory Order and rule that the Hawaiian Freight Fee Law, as applied to air carriers, is preempted and prohibited by the Anti-Head Tax Act and the Airline Deregulation Act.

at 4.
54 1.0. 

### at 4 n. 5.

-42-Respectfully submitted:

ter & Hampton, LLP Roy therg Sheppard Mullin 1300 I Street, N. Suite 1100 East Washington, D.C. 20005-3314 Tel. (202) 218-0007 Facsimile (202) 312-9425 Email: rgoldberg@sheppardmullin.com 

## ..tof David A. Berg Doug Mullen Air Transport Association of America, Inc. 1301 Pennsylvania Avenue, N.W. Suite 1100 Washington, D.C. 20004-1278 Tel. (202) 626-4234 Facsimile (202) 626-4139 Email: dberg@airlines.org dmullen@airlines.org

Dated: November 1, 2010

## EXHIBIT AUNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. IN RE HAWAIIAN INSPECTION FEE PROCEEDING Docket DOT-OST-2010-0243

DECLARATION OF JESSE COHEN UNITED AIR LINES, INC. I, Jesse Cohen, hereby declare the following: 1. I am the Managing Director — Cargo Planning and Revenue Management for United Air Lines, Inc. ("United"). I am over eighteen years of age and have personal knowledge of the statements contained herein, unless stated otherwise. 2. United operates multiple daily flights of aircraft to Hawaii from the mainland of the United States and from foreign countries, and transports cargo aboard such aircraft on behalf of shippers located outside of Hawaii.
3. AS set forth below, the freight inspection fee (the "Freight Fee") that the State of Hawaii is requiring United to bill and collect from its customers which ship cargo into Hawaii on board United aircraft imposes a significant and unfair administrative and fiscal burden on United. Expense of Modifying Multiple Billing Systems 4. Hawaii requires that carriers bill and collect the Freight Fee based on the net weight of the freight being shipped, as measured by pounds. This metric is not consistent with the industry practice throughout much of the world, whereby carriers charge their cargo shippers based on the weight of the shipment as measured by kilograms. In addition, the basis of charging fifty cents (500) per 1000 pounds is also a completely non-standard way of pricing air cargo and is not easily meshed into carrier pricing systems that either price per pound, kilo, or per piece. Therefore, the new Freight Fee law means that United must devote significant internal resources to revise our billing and accounting systems to reflect this new metric. As a result, these internal resources cannot be used for other pressing needs of our airline. Moreover, there is no provision in the Hawaiian law that enables our airline to recover the cost of dedicating internal resources to enabling our systems to accommodate the requirements of the new Freight Fee law. 5. In addition, different billing processes and systems exist for domestic cargo transported in the United States, often billed directly to shippers, and international cargo, typically billed through individual country "Cargo Accounts Settlement System") ("CASS") processes.Sihce Hawaii imports product from virtually all parts of the world, collecting the fee per the new law would require changes to CASS processes virtually globally. These kinds of large scale changes typically require thousands of hours of programming and testing, resulting in hUndreds of thousands of dollars in costs. US Customer Communications and Ongoing Administrative Expense for Collections
6. The new Freight Fee imposes a major administrative expense for United to communicate to all customers the new fee, as well as an ongoing expense in trying to ensure collection of the fee, and reconciliation of the invoiced amounts versus payments amounts that are actually cdllected from shippers. This will require a large clerical effort that would need additional airline staffing. Many of the fees would end up being written off by United if disputed by the shipper, as the cost of pursuing such collections would significantly outweigh the income to be received from actual amount to be collected. International Customer Communications, Foreign Exchange, and Billing Process Changes 7. The cost and administration of the communications effort that is required because of the new Freight Fee law extends beyond U.S. borders to virtually every single country that could pdssibly ship to Hawaii. There are two considerations here. In general, air cargo is either priced in local currency or in U.S. dollars (and as reflected above in nearly all areas the weight standard is the kilogram, not pounds). The largest economies in Asia, Canada and Europe that generate most of the world's exports have air cargo priced in local currency. Use of a 1000 lb standard by the new law results in an awkward 453.6 kilo standard, to which a fractional amount in local currency would need to be applied. Normal international cargo industry practice is to price at 45, 100, 300, 500, 1000 kilo weight breaks, so a price at 453.6 kilos is awkward and difficult to process. As an example, orchids from Thailand to Honolulu for use in making leis would need to be charged at Thai Baht 16.24 per 453.6 kilos to pay the fee. This is all very difficult to implement, explain and administer to customers all over the \Odd. Interline Billing Processes
8. The process for billing and collecting the Hawaiian Freight Fee becomes even more administratively complex, and for all practical purposes, uncollectible, with regard to interline cargo into Hawaii. In these cases, the first carrier that is part of the interline relationship does not fly to Hawaii, and may not be aware of the fee. This renders it extremely complicated to ensure that the first carrier knows to and does in fact collect the FrOght Fee when the shipment is obtained. The IATA clearinghouse would need to make significant changes in their software to accommodate this new fee, which as noted above, may be in a different currency unit and undoubtedly a different weight unit than the air freight charges and rates from the originating country. Commercial Risk from Different Carrier Practices

WO2-EAST:9AGG1\200349018.1 -2-9. Due to the administrative complexity and financial burden of collecting the new fee, some cagiers may elect to simply absorb the fee and pay on their own, creating an unlevel playing field and increased commercial risk to carriers who do not pay the fee and try to collect from shappers correctly. Shippers may elect to shift their business to carriers who absorb the charge. This creates an unfair disadvantage for those carriers that seek to comply with the Freight Fee law by billing and collecting the charge from their customers. I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. EXecuted on October 26, 2010, in Elk Grove Village, Illinois.

W02-EAST:9ROGI \200349018.1 -3-

## EXHIBIT BFedEx Services 3640 Hacks Cross Road Building 0, 3rd Floor Memphis, TN 38125



### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. IN RE HAWAIIAN INSPECTION FEE ) PROCEEDING ) Docket DOT-OST-2010-0243

DECLARATION OF AASIIISH GAIILAUT FEDERAL EXPRESS CORPORATION 

### I, Aashish Gahlaut, hereby declare the following: 1. I am a Director of Marketing FedEx Corporate Services, Inc. In that capacity, I have obtained personal knowledge of the business of Federal Express Corporation ("FedEx") I am over eighteen years of age and have personal knowledge of the statements contained herein, unless stated otherwise. 2. I have been employed in my position since June 2000. In my role, I head a department called pricing science and engineering, which is tasked with engineering the implementation of fees related to shipping. 3. As set forth below, the freight inspection fee that the State of Hawaii ("Hawaii Freight Fee") is requiring FedEx to bill and collect from its customers which ship cargo into Hawaii on board FedEx aircraft imposes a significant and unfair administrative and fiscal burden on FedEx. 4. In order for FedEx to bill for a new charge for shipments destined for Hawaii, FedEx would need to implement a change to FedEx's information technology ("IT") infrastructure, which would require an intricate design and development process lasting well in excess of a year. The complexity is driven by the fact that the fees must be captured in a number of different systems including customer discount systems, rating systems, invoicing systems, accounting systems, pricing request systems, customer service systems, and automation systems. The complexity is magnified by the international nature of FedEx's operations because any changes must be engineered for multiple automation platforms. 5. Designing and implementing such a rate change is burdensome from both a business and IT perspective. It requires not only the dedication of IT personnel but requires coordination of resources from Pricing, Marketing, Finance, Legal, Solutions, and Communications. In total, such a change would require over 1,000 man hours by FedEx personnel and could potentially take years to implement.6. The time, resources, and personnel that FedEx will need to devote to implementing the Hawaii Freight Fee serves no useful business purpose for FedEx and provides no additional value to FedEx's customers. Such time will detract from the amount of time, resources, and personnel that FedEx can devote to issues of concern to FedEx's customers such as service enhancements. This burden extends beyond the implementation phase as the Hawaii Freight Fee will continue to impose a burden both on the personnel and information infrastructure at FedEx as long as it is being imposed. 7. The Hawaii Freight Fee will have a significant negative impact on a number of third parties that rely upon FedEx because such entities will also be required to implement systems to account for the billing of the Hawaii Freight Fee. Such businesses include: (a) authorized FedEx ship centers, some of which are individually owned businesses; (b) shippers who maintain customized internal software for shipping via FedEx; (c) companies that provide custom IT services to shippers who ship via FedEx; (d) third-party providers of shipping hardware and software systems; and (e) all shippers who may ship to Hawaii to the extent they need to upload new software from FedEx. None of these businesses will receive any business benefit from the implementation of these systems. 8. The administrative burden imposed by the Hawaii Freight Fee lacks justification because it imposes a significant worldwide burden on FedEx, FedEx customers, and businesses related to FedEx — all of which will need to implement systems to take into account the Hawaii Freight Fee — which is not justified by the size of the Hawaiian market, which comprises an incredibly small portion of FedEx's worldwide express shipping market. Yet this small size does not lessen the administrative burdens that will be imposed on those impacted by this burden.
I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on October 21

, 2010, at 

### e-Y4 , Tennessee.

W02-EAST:9RGG1\200349018.1 -2-

## EXHIBIT C

### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. IN RE HAWAIIAN INSPECTION FEE PROCEEDING Docket DOT-OST-2010-0243

DECLARATION OF THOMAS PARKER FEDERAL EXPRESS CORPORATION 

### I, Thomas P. Parker, hereby declare the following: — 1. I am the Managing Director for Express Business Solutions, Global Air Ops, Manifesting and Movement Applications for Federal Express Corporation ("FedEx Express"). I am over eighteen years of age and have personal knowledge of the statements contained herein, unless stated otherwise. 2. I have been employed by FedEx for twenty-four (24) years and have served in my current rote at FedEx since 2006. I am responsible for the creation of the actual weight-scaling systems used in FedEx Express hubs, and for preparing various dimensional weighting reports to senior management, for supporting the global air ops network, international manifesting and applications of clearance systems. 3. As set forth below, FedEx does not have the means of obtaining the weight data necessary to implement the freight inspection fee that the State of Hawaii is requiring FedEx to bill and collect from its shipping customers. 4. Pursuant to its Service Guide, FedEx measures the weight of packages that it transports for shippers, including those transported to Hawaii, in one of three ways: 1) using the customer supplied weight and/or dimensions, 2) using the dimensional weight calculated by FedEx Express, or 3) using the actual weight of the shipment as captured by FedEx. 5. The January 4, 2010 FedEx Service Guide provides that where the dimensional weight measure is used for FedEx Express packages, the dimensional weight is determined by multiplying a package's length by width by height in inches and dividing by 194 (for shipments within the U.S. and shipments between the U.S. and Puerto Rico) or 166 (for international shipments). 6. The second method FedEx uses when it measures the weight of the packages is to capture the actual weight. This "actual weight" measure includes the weight of the packaging and itscontents and thus may not be the "net weight" that the state of Hawaii seeks to require FedEx to measure. 7. FedEx does not have any means of measuring the "net weight" of the packages that it transports and that measurement serves no relevant business purpose. FedEx regularly accepts packages for shipment with no way to determine what percentage of the total weight is comprised of the item being shipped and what percentage is attributable to the packaging. Where the dimensional weight is used, the "weighf' registered for the package may vary significantly from the actual weight of the package. 8. FedEx does not measure any weight for some of the packages that it transports, including some of the packages that it transports to Hawaii In such instances, FedEx relies upon. the weight provided by the customer at time of shipment 9. Even if Hawaii were to modify the provision to apply to gross weight, there are substantial barriers to systematically weighing every package that is shipped via FedEx. 10. FedEx flies twenty-two (22) trips to Hawaii per week. Eleven (11) originate in Memphis, TN, six (6) originate from Oakland, CA, and five (5) originate from Los Angeles, CA. 11. Currently, the major FedEx Express hubs have been equipped with the ability to measure the gross weight of packages, meaning that packages that pass through those hubs on the way to Hawaii would have their gross weight measured. These include Memphis, TN, Indianapolis, IN, Newark, NJ, Guangzhou, China, and Cologne, Germany. 12. To capture the gross weight of those packages that do not travel through one of those hubs with weighing capability on the way to Hawaii would, however, require prohibitively high capital expenditures and years of implementation. Because many FedEx Express packages travel to Hawaii directly from hubs in Oakland, California and Los Angeles, California, which are not equipped to weigh packages, there is no infrastructure in place for obtaining even the gross weight of those packages. 13, In order for a hub to be equipped with the ability to weigh packages, the facility must effectively be re-engineered. This process takes multiple years between the necessary engineering analysis on the front end and the development and implementation of a design plan. 14. The cost of re-engineering a facility in order to give it the capability of capturing the gross weight of packages varies based on the age and design of the individual facility. The cost for equipping a given facility with this capability cannot even be assessed until an engineering study has been completed, a process which can take six (6) to twelve (12) months. 15. Estimates for re-engineering specific facilities to enable weighing have ranged from $3 million to $15 million. Because of the age and design of the facilities in Oakland and Los Angeles, the costs to re-engineer each of these facilities would a capital intensive effort.

WOZZAST9RGG11200349018.1 -2-16. Safety and efficiency are paramount to the business of FedEx Express. The safe and efficient operation of FedEx planes does not require the balance of weight as measured by individual packages. Rather, individual packages are placed into containers with a large number of

• other packages and it is those that are carefully loaded, weighed, and balanced.
I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct Executed on October 2010, at /0e0c o dir , Tennessee. 

# A Thomas P. Parker

W02-EAST:9RGGI12,003491:11&I -3-

# Exhibit DLINDA LINGLE Governor SANDRA LEE KUNIMOTO Chairperson, Board of Agriculture DUANE K. OKAMOTO Deputy to the Chairperson

State of Hawaii DEPARTMENT OF AGRICULTURE 1428 South King Street Honolulu, Hawaii 96814-2512 September 12, 2008

Mr. Alan Ogawa Ms. Lori Peters Airlines Committee of Hawaii Honolulu International Airport 300 Rodgers Blvd., #62 Honolulu, Hawaii 96819-1832 Dear Mr. Ogawa and Ms. Peters: SUBJECT: Act 3, Special Session 2008, Relating to Invasive Species Thank you for your letter dated July 18, 2008. During the 2008 Legislative Special Session, the legislature passed HB2843 which became Act 3 that revised HRS Chapter 150A to read as follows: 150A-5.3 Inspection, quarantine, and eradication service fee and charge. There is imposed a fee for the inspection, quarantine, and eradication of invasive species contained in any freight, including but not limited to marine commercial container shipment, air freight, or any other means of transporting freight, foreign or domestic, that is brought into the state. The fee shall be paid by the person responsible for paying the freight charges to the transportation company, who shall collect the fee and forward the payment to the department at the port of disembarkation; provided that the transportation company shall not be liable for any fee that is not paid by the person responsible for paying the freight charges to the transportation company. The department shall deposit the fee into the pest inspection, quarantine, and eradication fund under section 150A-4.5. The fee shall be assessed on the net weight of the imported freight computed on the basis of 50 cents for every on thousand pounds of freight brought into the state, or part thereof. The effective date of Act 3 was August 1, 2008. Act 3 defines "freight" to mean non-passenger goods, cargo, or lading transported for pay. Act 3 imposes the fee on any freight brought into the State,Mr. Alan Ogawa

Ms. Lori Peters September 12, 2008 Page 2
whether by marine commercial container, air freight or other means of transporting freight. Please note; however, that U.S. mail is generally not subject to inspection under federal law and is not subject to state agricultural inspection and the new fee. Act 3 provides for the fee to be "computed on the basis of 50 cents for every 1,000 pounds of freight brought into the state, or part thereof' (emphasis added). Thus, freight weighing less than 1,000 pounds would be assessed $.50, the minimum fee, and freight weighing 1,001 pounds would be assessed $1.00. It's our understanding that cargo transiting the State and not terminating in Hawaii is not subject to agricultural inspection and not subject to the Act 3 fee. However, HDOA inspectors do inspect or monitor transiting shipments of high risk items, such as bees from New Zealand or Australia (suspect for the varroa mite), to assure no escape if the bee cargo is removed from the aircraft to an open cargo area for re-loading on another aircraft. HDOA absorbs the costs of such inspections. Under Act 3, the entity responsible for collecting the fee is the entity that brings the freight into the State. Air freight consolidators and transportation companies are free to work out their own financial arrangements if they feel the need to make adjustments because of the fee. These are matters outside the HDOA's jurisdiction. Act 3 doesn't authorize HDOA to specify a timeframe for remittance of the collected fee. The responsible transportation company should please send remittance to the Hawaii Department of Agriculture, c/o Plant Quarantine Branch, 1849 Auiki St., Honolulu, HI 96819. A transmittal letter indicating the period covered by the remittance and the total amount submitted will be appreciated. HDOA will do its best to cover the wide range of responsibilities and services provided through its programs with the various sources of funds available given the current economic circumstances. We look forward to working with the transportation industry in improving and enhancing the State's biosecurity cargo inspection programs.

Sandra Lee Kunimoto Chairperson, Board of Agriculture C: Lyle Wong, Plant Industry Division Carol Okada, Plant Quarantine Branch