Opinion ID: 200320
Heading Depth: 2
Heading Rank: 2

Heading: Preemption under the FAA Authorization Act

Text: 28 Urging that Puerto Rico's restrictions on delivery are not preempted by the FAA Authorization Act, the Secretary advances two principal arguments. First, the Secretary notes that Puerto Rico has a special taxing power under Section 3 of the Federal Relations Act, 48 U.S.C. § 741a. According to the Secretary, the FAA Authorization Act cannot be read to limit this unique taxing authority by preempting statutes and regulations that merely implement it. Second, the Secretary contends that Congress did not intend to preempt the challenged statutes and regulations, which either fall outside the scope of the FAA Authorization Act's preemptive effect or are preserved under other provisions of federal law. Although ably pressed, both of these arguments ultimately come up short.
29 Section 3 of the Federal Relations Act provides in part that any excise tax imposed by Puerto Rico may be levied and collected ... as soon as the [taxable items] are manufactured, sold, used, or brought into the island. 48 U.S.C. § 741a. The Secretary says that the parcel delivery requirements merely implement Puerto Rico's taxing authority under the Federal Relations Act. So, he argues, this case does not involve a state statute that is subject to preemption by a federal statute, but instead involves only the interface between two federal statutes, the FAA Authorization Act and the Federal Relations Act. The case would thus turn on whether the FAA Authorization Act impliedly repealed the Federal Relations Act. The Secretary says it did not. 30 Pointing to Congress's 1927 addition of the language that the excise tax may be levied as soon as taxable goods are brought into Puerto Rico, and that U.S. Customs and Postal Service officials are directed to assist the appropriate officials of the Puerto Rican government in the collection of these taxes, 14 48 U.S.C. § 741a, the Secretary contends that Puerto Rico has specific Congressional authorization to restrict the delivery of packages as necessary to collect the excise tax. 31 Taken alone, Section 3 would seem to strengthen the Secretary's hand in challenges to the tax and perhaps even its no delivery feature, at least as to those challenges based on the Commerce Clause. In practice, Puerto Rico has wielded a unique power as a result of the Federal Relations Act. In the years following the 1927 amendment, Puerto Rico succeeded in imposing a state tax on oil imported into bonded warehouses where New York failed — the critical distinction between the two taxes being the specific taxing authority of Puerto Rico under the Federal Relations Act. Compare West India Oil Co. v. Domenech, 311 U.S. 20, 25-27, 61 S.Ct. 90, 85 L.Ed. 16 (1940)(permitting Puerto Rico to impose tax on fuel oil imported into bonded warehouses because of Puerto Rico's taxing authority under 48 U.S.C. § 741a), with McGoldrick v. Gulf Oil Corp., 309 U.S. 414, 60 S.Ct. 664, 84 L.Ed. 840, (1940) (invalidating a New York sales tax imposed on crude oil imported into warehouses under bond because of its conflict with federal statutes occupying the field). The West India Court allowed Puerto Rico to impose the tax, despite federal statutes enacted after the Federal Relations Act and its 1927 amendment indicating Congress's intent to regulate bonded warehouses. See West India, 311 U.S. at 29, 61 S.Ct. 90 ([C]onsidering the relationship of general Congressional legislation to legislation specifically applicable to our territories, and possessions, repeals by implication are not to be favored and will not be adjudged unless the legislative intention to repeal is clear.). 32 Despite Section 3 of the Federal Relations Act's reach, there does not appear to be any evidence that Congress focused at all on the delivery bar issue, much less intended a specific endorsement of a scheme in which carriers were to be barred from making deliveries until they produced certificates that as a practical matter could not be done on a widespread basis. Congress intended that the 1927 amendment to the Federal Relations Act resolve existing controversy over whether taxes could be imposed on goods still in their original packaging. 15 See H.R.Rep. No. 1370, at 2 (1926); S.Rep. No. 1011, at 2 (1926) Previously, courts had held that U.S. Customs and Postal Service officials could not withhold delivery of incoming articles, as such tax collected in this manner is in effect a customs duty. Id. Puerto Rico was thus hindered in its efforts to levy the tax, and Congress amended Section 3 of the Federal Relations Act [f]or the purpose of righting this situation. Id. The change gave express authority to federal officials to aid in the collection of the tax, and clarified that incoming articles were subject to Puerto Rico's taxing jurisdiction as soon as they entered the island (whether arriving from the United States mainland or from foreign countries). It neutralized the regulatory effect of the customs laws and regulations in so far as they protected articles from local taxation after their arrival. West India, 311 U.S. at 28, 61 S.Ct. 90. 33 Just as Congress did not have in mind the authority claimed by Puerto Rico in this case, neither is there evidence that Congress had this scheme in mind when it enacted the FAA Authorization Act. We are left with two different federal statutes (the Federal Relations Act and the FAA Authorization Act), neither of which specifically address the issues raised in this case. As to these issues, therefore, neither statute has any automatic priority over the other. 34 In our view, the Federal Relations Act and the FAA Authorization Act can co-exist harmoniously. Our analysis proceeds down a well worn path: where two federal statutes are alleged to be in conflict, we look to whether they touch upon the same subject, and if so, whether we can give effect to both statutes. See Rhode Island v. Narragansett Indian Tribe, 19 F.3d 685, 703 (1st Cir.1994). We are further guided by the familiar principle of construction that implied repeals are disfavored. Id. Here, the statutes at issue address two very different subjects: Puerto Rico's taxing authority on the one hand and deregulation of the air transportation industry on the other. 35 The Federal Relations Act does not suggest that Puerto Rico is empowered to impose restrictions on the delivery of packages by private carriers. The legislative history describing the purpose of the 1927 amendment includes the observation that Congress expected that the government of Puerto Rico would make use of this power so as not to unnecessarily place any barriers in the way of the free-trade conditions now existing between Puerto Rico and the mainland United States, which is [a] principal factor in the progress and prosperity of P[ue]rto Rico. H.R.Rep. No. 1370, at 2 (1926); S.Rep. No. 1011, at 2 (1926). We do not interpret the statute as conferring a broad authority to regulate the flow of packages in interstate commerce that conflicts with the FAA Authorization Act. To do so would be to manufacture a statutory conflict where none exists. 36 As a practical matter, it is not the case that the Secretary's exercise of his taxing authority necessitates the regulation of packages entering Puerto Rico. Packages arriving by U.S. mail are delivered without interference, and recipients are required to pay any applicable tax within 48 hours. See 13 P.R. Laws Ann. § 9068. The Secretary has introduced no evidence suggesting why this approach (or some other legislatively established process) would not be suitable for packages arriving by air carrier. Nor has he put forth a rational explanation for treating these two forms of delivery so differently. 16
37 The Secretary's second major argument is that Congress did not intend to preempt the challenged scheme, which either falls outside the scope of the preemption clause of the FAA Authorization Act, or is preserved under other provisions of federal law. So, the reasoning goes, the district court construed too broadly the scope of the FAA Authorization Act's express preemption provision, which provides that no state may 38 [E]nact or enforce a law, regulation, or other provision having the force and effect of a law related to a price, route, or service of an air carrier ... when such carrier is transporting property by aircraft or by motor vehicle. 39 49 U.S.C. § 41713 (emphasis added). In determining the scope of this provision, we look to Congress's intent, which is revealed in the language of the provision, as well as the structure and purpose of the statute. See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992)(interpreting the statutory predecessor to § 41713). 17 Setting aside those portions of the statute that indisputably apply to the facts of the current case, 18 the crux of the matter is whether the laws at issue are related to a price, route, or service of UPS. 40 The phrase related to has a broad meaning in ordinary usage: to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association or connection with. Id. (quoting Black's Law Dictionary 1158 (5th ed.1979)). When used in a preemption provision such as § 41713, it has a similarly broad reach. State laws and regulations having a connection with or reference to an air carrier's prices, routes or services are preempted under § 41713. See id. at 384, 112 S.Ct. 2031. A sufficient nexus exists if the law expressly references the air carrier's prices, routes or services, or has a forbidden significant effect upon the same. Id. at 388, 112 S.Ct. 2031. This interpretation is consistent with the purpose animating the FAA Authorization Act and Airline Deregulation Act, which sought to prevent states from interfering with the goal of federal deregulation of air transportation by imposing regulations of their own. See id. at 378, 112 S.Ct. 2031. 41 In his attempt to circumscribe the breadth of this interpretation, the Secretary suggests that only statutes and regulations that seek to set, control or manipulate an air carrier's prices, routes, or services are preempted by the FAA Authorization Act. This narrower interpretation would read the related to language out of the statute, an approach expressly rejected by the Supreme Court. 19 See id. at 385, 112 S.Ct. 2031 (Had the statute been designed to pre-empt state law in such a limited fashion, it would have forbidden the states to ` regulate rates, routes and services.'). 42 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 affects the timeliness and effectiveness of UPS's service, which includes the delivery of packages on an express or time-guaranteed basis. Likewise, the prepayment 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 additional labor, costs, and delays. The undisputed record, as chronicled by the district court below, shows that this burden directly and significantly affects UPS's routes and services, which depend upon an orderly flow of packages. United Parcel Service, 210 F.Supp.2d at 38-40. The costs of this scheme necessarily have a negative effect on UPS's prices. See Federal Express Corp. v. California Pub. Util. Comm'n, 936 F.2d 1075, 1078 (9th Cir.1991) (Terms of service determine cost. To regulate them is to affect the price.). In view of the uncontroverted record, we must conclude that the challenged scheme falls within the scope of the FAA Authorization Act's preemption provision. 43 Against the weight of this authority, the Secretary argues for a presumption against preemption. This presumption only arises, however, if Congress legislates in a field traditionally occupied by the states. United States v. Locke, 529 U.S. 89, 108, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000) (citing Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947)). The Secretary does not dispute that there has been a longstanding federal presence in the field of air transportation. Instead, he says that the relevant field is state taxation. We think our earlier analysis of the Butler Act puts to rest the question of whether our task is to determine the validity of a Commonwealth tax. On the contrary, our task is to determine the preemptive effect of the FAA Authorization Act within the field of air transportation. No presumption against preemption is appropriate in this case because of Congress's significant — and undisputed — presence in the field of air transportation. 20 44 In the face of the specific substantive pre-emption provision of the FAA Authorization Act, Morales, 504 U.S. at 385, 112 S.Ct. 2031, the Secretary also asks us to conclude that the challenged scheme survives by virtue of other provisions of federal law or the FAA Authorization Act's legislative history. First, he points to 26 U.S.C. § 7653, a provision of the Internal Revenue Code that subjects articles manufactured in the mainland United States to a tax at the port of entry in Puerto Rico that is equal to (in rate and amount) the tax imposed upon articles manufactured in Puerto Rico. Like Section 3 of the Federal Relations Act, this provision prevents discriminatory taxation in favor of merchandise produced in Puerto Rico. Cf. 26 U.S.C. § 7652(a)(1) (subjecting articles of Puerto Rican manufacture entering the mainland United States to a tax equal to the internal revenue tax imposed in the United States upon the like articles of domestic manufacture). It is not a blanket authorization for Puerto Rico to regulate the delivery of goods. Indeed, Puerto Rico allows the unrestricted delivery of taxable merchandise through the U.S. mail. 45 The Secretary also looks to the FAA Authorization Act's legislative history for support for his position, in particular a statement that nothing in this amendment is intended to change the application of State tax laws to motor carriers. H.R. Conf. Rep. No. 103-677 at 85 (1994), reprinted in 1994 U.S.C.C.A.N. 1676, 1757. Even if we were bound by this fragment of the legislative history, the Secretary's interpretation of it is not consistent with its plain language, or with the overall purpose of the legislation. The taxes at issue in the case before us are generally applicable excise taxes, not taxes on motor carriers. Moreover, the regulatory authority retained by the states was not to be used as a guise for continued economic regulation as it relates to prices, routes or services. H.R. Conf. Rep. No. 103-677 at 84 (1994), reprinted in 1994 U.S.C.C.A.N. 1676, 1756. 46 Finally, the Secretary contends that the challenged scheme survives under the Federal Anti-Head Tax Act, 49 U.S.C. § 40116(e) (formerly 49 U.S.C. § 1513(b)), a provision that he characterizes as a savings clause. This statute prohibits the states from imposing a tax or head charge on air transportation, including taxes on air passengers and gross receipts from air transportation. See id. § 40116(b). The provision on which the Secretary relies, § 40116(e), preserves the right of the states to collect those taxes not otherwise barred by the statute. Far from a clear manifestation of congressional intent to permit Puerto Rico's ban on delivery, this broad provision merely preserves certain rights of taxation already held by the states. It creates no new rights for Puerto Rico, and adds nothing to the analysis where, as here, the right of Puerto Rico to levy and collect the excise tax is undisputed. 21