Court Opinion

ID: 2827789
Source: CourtListenerOpinion
Date Created: 2015-08-17 21:01:42.787708+00
Date Added: 2024-06-11T11:31:28.268688
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 13-2518

        INDUSTRIA Y DISTRIBUCTION DE ALIMENTOS; ASOCIACION DE
 INDUSTRIALES DE PUERTO RICO; CAMARA DE COMERCIO DE PUERTO RICO;
         ASOCIACION DE NAVIEROS DE PUERTO RICO; NORTON LILLY
   INTERNATIONAL; ISLAND STEVEDORING, INC.; PUERTO RICO SUPPLIES
    GROUP; TO-RICOS, LTD.; PLAZA PROVISION CO.; HORIZON LINES OF
 PUERTO RICO, INC.; CROWLEY PUERTO RICO SERVICES, INC.; SEA STAR
  LINES, INC.; V. SUAREZ & CO., INC; CAMARA DE MERCADEO; LUIS A.
                         AYALA COLON SUCRES,

                        Plaintiffs, Appellants,

                                  v.

TRAILER BRIDGE; FLEXITANK, INC., a/k/a Flexitank; PEREZ Y CIA DE
   PUERTO RICO, INC.; HARBOR BUNKERING CORPORATION; PLAZA LOIZA;
COLOSO FOODS, INC.; SUPERMERCADOS SELECTOS, INC.; B. FERNANDEZ &
   HERMANOS, INC.; PAN PEPIN INC.; SUPERMERCADOS CENTRO AHORROS,
  CORP.; TRAFON GROUP, INC.; PONCE CARIBBEAN DISTRIBUTORS, INC.;
 KRAFT FOODS, LLC; MOLINOS DE PUERTO RICO, INC.; SUCESORES PEDRO
 CORTES, INC.; COLOMER & SUAREZ,INC.; SUPERMERCADOS PLAZA LOIZA;
         MENDEZ & COMPANY, INC.; MARVEL SPECIALTIES, INC.,

                              Plaintiffs,

                                  v.

  VICTOR A. SUAREZ-MELENDEZ, in his official capacity as Interim
 Executive Director of the Commonwealth of PR's Ports Authority;
  MELBA I. ACOSTA-FEBO, in her official capacity as Secretary of
              the Treasury of the Commonwealth of PR,

                        Defendants, Appellees.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF PUERTO RICO

              [Hon. Bruce J. McGiverin, Magistrate Judge]
                             Before

                      Howard, Chief Judge,
               Lynch and Kayatta, Circuit Judges.

     Rafael Escalera-Rodríguez, with whom Carlos M. Hernández
Burgos and Reichard & Escalera were on brief, for appellants.
     Jorge   Martínez-Luciano,   with  whom   Martínez-Luciano   &
Rodríguez-Escudero, Guillermo San Antonio-Acha and GSA Law, LLC
were on brief, for appellee Víctor A. Suárez-Meléndez.
     Rosa Elena Pérez-Agosto, Assistant Solicitor General,
Department of Justice, with whom Margarita Mercado-Echegaray,
Solicitor General, and Tanaira Padilla-Rodríguez, Deputy Solicitor
General, were on brief, for appellee Melba I. Acosta-Febo, in her
official capacity as Secretary of Treasury for the Commonwealth of
Puerto Rico.
     Eyck Lugo-Rivera, with whom Eliseo Roques-Arroyo, Jelka L.
Duchesne-Sanabria and Edge Legal Strategies, P.S.C., were on
brief, for S2 Services Puerto Rico, LLC, amicus curiae.

                         August 17, 2015
            HOWARD, Chief Judge.      The appellants are three shipping

operators who pay a fee to Puerto Rico to conduct business out of

the Port of San Juan.     The Commonwealth supplied each company with

cargo-scanning technology, required them to scan all of their

inbound cargo, and then charged each an additional fee.                      The

question on appeal is whether the dormant Commerce Clause bars

Puerto Rico from charging the additional fee to defray the costs

of the scanning.     Because the operators have failed to establish

that the additional fee violates the Constitution, we affirm the

magistrate judge's decision holding the same.

                                      I.

            We draw the facts from the magistrate judge's findings

following a bench trial.      See McDermott v. Marcus, Errico, Emmer

& Brooks, P.C., 775 F.3d 109, 113 (1st Cir. 2014).

            This matter stems from the aftermath of the terrorist

attacks of September 11, 2001, and the concomitant need to augment

port security.       Until 2008, Puerto Rico's port security was

predominantly limited to random and manual searches of cargo.                To

bolster   this   piecemeal   approach,       the   Legislative    Assembly   of

Puerto Rico passed a law calling for improved safety procedures.

P.R. Laws Ann. tit. 23, §§ 3221 et. seq.            The following year, the

Puerto    Rico   Ports   Authority    ("PRPA")     solicited     proposals    to

implement that law with respect to its busiest port, the Port of

San Juan.    In particular, it sought to craft a system where it

                                     - 3 -
would be able to scan all inbound cargo at the port.                         In due

course, PRPA reached an agreement with Rapiscan Systems, Inc.,

which assumed responsibility for the scanning.                   In turn, Rapiscan

Systems transferred its rights and obligations to a subsidiary, S2

Services Puerto Rico, LLC ("S2 Services").

            In late 2011, PRPA promulgated Regulation No. 8067,

which required the scanning of all inbound cargo at the Port of

San Juan.    The regulation permitted PRPA personnel, in the event

of undue delay, to reduce the amount of cargo scanned at a given

time.   Through these requirements, PRPA aimed to increase the

identification of unreported taxable goods and to improve security

and safety at the port.         S2 Services and the Puerto Rico Treasury

Department were responsible for carrying out this directive.

            As of 2013, Puerto Rico installed scanning technology at

the facilities of three shipping operators at the port of San Juan:

Crowley,    Horizon    Lines,      and    Sea    Star   Lines.      Except   during

particularly busy times, these three operators were required to

scan all containerized cargo (though not their bulk cargo) and

then have two S2 Service employees and one Treasury agent review

those scans. In total, 313,383 containers have been electronically

scanned, an amount substantially higher than the 7,142 containers

manually searched during a prior, analogous time period.

            To   pay   for   the    scanning,      PRPA   charged     all    vessels

carrying cargo into the Port of San Juan (including cargo carried

                                         - 4 -
by operators who did not have access to the scanning facilities)

an "Enhanced Security Fee" ("ESF").          PRPA assessed the ESF on top

of the existing fees that it already charged operators to utilize

the port.     The amount of the ESF varied based on the weight and

type of the vessel's cargo.          Since implementing the ESF, PRPA

billed Crowley, Horizon Lines, and Sea Star Lines with 63% of all

costs arising from the scanning procedure.               In total, PRPA has

collected $20,412,371.34 through the ESF, and it has used that

money to pay: $17,136,894 to S2 Services, $2 million to Treasury

employees,    $1.4   million   to   the    General    Security    Office,   and

$300,000 to the Office of Maritime Security.

             In response to Regulation 8067 and the ESF, thirty-two

businesses and organizations involved in importing cargo at the

Port of San Juan (along with associated trade groups) sued the

heads of PRPA and Puerto Rico's Treasury Department; they attacked

both the regulation and the fee.          The parties consented to proceed

before a magistrate judge, and the court conducted a bench trial.

The bulk of the evidence at trial centered on the constitutionality

of the scanning regulation and the permissibility of the ESF as

applied to all of the operators (as opposed to just the three with

access to the scanning technology).

             Following those proceedings, the court ruled that the

scanning     procedure    implemented        by      Regulation    8067     was

constitutional but that the ESF, as applied to the operators who

                                    - 5 -
did not have access to the scanning facilities, violated the

dormant Commerce Clause.     The court thus entered an injunction

prohibiting the government from collecting the ESF from those

shipping operators.   Neither the government nor the plaintiffs

appealed those decisions.

          The   magistrate     judge    next   turned    to    the

constitutionality of the ESF as applied to the three shipping

operators equipped with the scanning technology. As to these three

companies, the court concluded that the ESF was constitutional.

The three operators timely appealed that decision; they continue

to argue that the ESF violates the dormant Commerce Clause.1

                                II.

          We review the lower court's factual findings following

a bench trial for clear error and its legal conclusions de novo.

See Allstate Interiors & Exteriors, Inc. v. Stonestreet Constr.,

LLC, 730 F.3d 67, 74 (1st Cir. 2013).

          The Constitution's Commerce Clause serves as both an

affirmative grant of power to Congress, U.S. Const. art. I, § 8,

     1  We pause to highlight the fact that some of the lines PRPA
has drawn -- e.g., that only three shipping operators are required
to scan their cargo -- do strike us as odd.       Perhaps, as the
Commonwealth claims, this is simply the first step of many to come
in implementing the regulation. Perhaps not. Either way, we need
not dwell on such oddities.     The three shipping operators have
brought this appeal solely under the dormant Commerce Clause, and
have only targeted the ESF as applied to them. Our analysis is
therefore limited exclusively to that claim.

                               - 6 -
cl. 3, and "a further, negative command, known as the dormant

Commerce Clause."    Comptroller of Treasury of Md. v. Wynne, 135 S.

Ct. 1787, 1794 (2015).       This latter doctrine "precludes States

'from discriminat[ing] between transactions on the basis of some

interstate element,'" id., and inhibits "economic protectionism"

between the states, New Energy Co. of Ind. v. Limbach, 486 U.S.
269, 273-74 (1988).

           A litigant can wield the dormant Commerce Clause to

attack the propriety of a "user fee," i.e. a charge assessed for

the use of a government facility or service.             In such cases, we

apply a three-pronged test.        See Evansville-Vanderburgh Airport

Auth. Dist. v. Delta Airlines, Inc., 405 U.S. 707, 716-17 (1972).

A user fee is constitutional if it: "(1) is based on some fair

approximation of use of the facilities, (2) is not excessive in

relation to the benefits conferred, and (3) does not discriminate

against interstate commerce."      Nw. Airlines, Inc. v. Cty. of Kent,

510 U.S. 355, 368-69 (1994).         Those challenging the government

action carry the burden of persuasion.            See N.H. Motor Transp.

Ass'n v. Flynn, 751 F.2d 43, 47 (1st Cir. 1984).

                                    i.

           Turning to Evansville in the context of this case, we

first   consider   whether   the   user    fee   "is   based   on   some   fair

approximation of use of the facilities."           Nw. Airlines, 510 U.S.

at 369; cf. Capitol Greyhound Lines v. Brice, 339 U.S. 542, 546

                                   - 7 -
(1950) (noting that a "rough approximation" is sufficient).    This

is essentially a question of allocation; we ask whether the

government is charging each individual entity a fee that is

reasonably proportional to the entity's use, and whether the

government has reasonably drawn a line between those it is charging

and those it is not.    See Nw. Airlines, 510 U.S. at 368.

           PRPA attempts to assess a fee to these three operators

in an amount that is reasonably proportional to their use of the

scanning services.    PRPA requires the operators to scan nearly all

of their containerized cargo (though their bulk cargo is not

scanned), and then charges them an amount corresponding to the

total cargo they import (comprising both containerized and bulk

cargo).   While not perfect, the fee was intentionally designed to

approximate the operators' use of the scanning service.   Moreover,

these three operators are the only ones with access to the scanning

service and, given the unchallenged injunction entered by the lower

court, the only three that have to pay for it.2

           Despite this conceptually sound approach, we see two

potential flaws.     First, the operators could be importing so much

bulk cargo that the total amount of imports -- and thus the fee

     2 As noted previously, the plaintiffs succeeded below in
establishing that the Commonwealth improperly assessed the ESF to
operators without access to the scanning facilities. This likely
explains why, on appeal, the three shipping operators do not argue
that the other entities should also be required to pay the fee.

                                 - 8 -
charged -- is grossly disproportionate to the containerized cargo

that is actually scanned.        Likewise, during particularly busy

times, PRPA exempts some containerized cargo from the scanning

procedures; if this occurs with significant frequency, then the

fee may not match the operators' use of the scanning service.

Ultimately, though, the burden lies with the three operators to

prove that either of these concerns renders the fee improper.         See

Flynn, 751 F.2d at 47.    This they have failed to do.    Specifically,

the operators have not produced evidence contrasting the total

amount of cargo imported with the amount of cargo actually scanned

for these three operators, nor have they provided specific evidence

that   the   bypassing   of   containerized   cargo   occurs   with   such

frequency that the ESF does not roughly correspond to their use of

the scanning technology.       While this record leaves us unable to

definitively hold that the fee is a fair approximation of the

operators' use of the scanning service, the operators' failure to

prove the converse requires us to rule against them on this first

Evansville factor.

             The second Evansville query is whether the fee that the

government charges is excessive when weighed against the benefits

conferred.     Though the case law utilizes the term "benefits" in

characterizing this factor, this label is somewhat of a misnomer.

Our task is actually fairly limited; we compare the fee with the

"costs incurred in connection with . . . [the] facilities."           Am.

                                  - 9 -
Airlines, 560 F.2d   at    1038.      In   other     words,    a   fee   is

unconstitutional only insofar as it is "excessive in relation to

costs incurred by the taxing authorities."                Evansville, 405 U.S.

at 719 (emphasis added).

             The    shipping     operators   again   fail   to   satisfy    their

burden.     PRPA charged these three operators roughly $ 18,617,449.

It then spent over $ 20 million to implement the scanning procedure

(specifically on the personnel necessary to conduct the scanning

which, despite the operators' contention, is clearly a necessary

expense related to the scanning service).             If we add the revenue

that PRPA collected from other operators, then PRPA brought in

$20,412,371.34, and spent 97% of that money on costs related to

the scanning service.          Admittedly, these numbers may not reflect

the entire picture.         But, the operators have failed to provide

other evidence establishing that PRPA collects an excessive amount

compared to what it spends on the scanning service.                  Since it was

the operators' burden to establish that proposition with "a record

sufficiently specific and detailed," their failure to do so defeats

their claim on this prong.          Flynn, 751 F.2d at 48.3

     3  The operators emphasize that a small portion of the ESF is
used to pay security fees that were previously paid for by another
tariff (which is still being charged), and that said money is not
used to directly pay for the scanning services. The operators do
not challenge the continued validity of that other tariff, so our
concern is solely with the ESF.       To the extent that certain
payments are made to general security-related items, the operators
have not established that this payment is anything more than de

                                      - 10 -
             The   final    move      in   the    Evansville   three-step    is   to

determine whether the regulation discriminates against interstate

commerce.     Where we have a facially neutral regulation, as we do

here (i.e., a Commonwealth corporation bringing cargo into the

port, just like an out-of-Commonwealth company, would also pay the

ESF), the law "will be upheld unless the burden imposed on such

commerce is clearly excessive in relation to the putative local

benefits."    Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

Notably, a party cannot satisfy its burden simply by showing that

a   government       action     affects          an   out-of-state    company     or

manufacturer.       See Exxon Corp. v. Governor of Md., 437 U.S. 117,

126 (1978).        Instead, the evidence must illustrate that the

government action interferes with interstate commerce by, for

example, dissuading competition from out-of-state corporations.

See, e.g., Family Winemakers of Cal. v. Jenkins, 592 F.3d 1, 10-

11 (1st Cir. 2010).

             On this point, not much need be said.                   The shipping

operators contend that because only out-of-Commonwealth companies

utilize     the    Port    of   San    Juan,      and   therefore    only   out-of-

Commonwealth entities will pay the ESF, the fee interferes with

commerce.     Fair enough.            But, as noted above, just because a

minimis. Indeed, even without such payments, the government would
still have collected less from these three operators than it paid
out on scanning-related costs.

                                           - 11 -
facially neutral policy has an impact on an out-of-state company

(even exclusively so), it does not necessarily follow that the

policy burdens commerce.        Id.    While the shipping operators make

some   rumblings   that   the    scanning      requirement    interferes   with

commerce, they do not even attempt to fill the logical gap with

any argumentation respecting the fee.           Nor, we note, have we found

evidence in this record which could sustain such an argument.               The

shipping operators therefore fall far short of their burden on

this final Evansville factor.

                                       ii.

           Though the shipping operators take a few swings at the

Evansville analysis above, their central argument really takes

place on a different playing field.                They attack the ESF by

claiming that they (and the Commonwealth more generally) receive

no benefit from the scanning procedure and that it is "wholly

ineffective."      They home in on the magistrate judge's statement

that the operators received a "reputational benefit" from the

scanning -- a finding that they insist was clearly erroneous --

and then go to great lengths to argue that the scanning is in fact

detrimental to their business.          Thus, they conclude: no user fee

was ever appropriate; any fee is necessarily excessive given the

lack of any benefit; and, any burden on interstate commerce

necessarily   outweighs    the    benefit      created   by   this   government

service.

                                      - 12 -
             This argument misses the point; our decision in American

Airlines explains why.     In that case, a number of airlines paid a

"landing fee" at Logan Airport in exchange for use of the runways.

The airport (through MassPort) increased the fee it charged in

order to pay for three new projects at the airport which were

"deemed by the airlines of little or no use to them." Am. Airlines,
560 F.2d at 1037.      Over a dormant Commerce Clause challenge, we

sided   with   MassPort   and    emphatically   rejected   the   idea   that

"customer judgments of benefits received" form any part of the

constitutional analysis.        Id. at 1038.    Instead, the service must

merely be "relevant to the operation of the [entity]."              Id. at

1039.   Thus, so long as the expenditures "were made for legitimate

. . . objectives," and so long as the state does not run "wild and

tax users for all extravagances," the actual service that the

government     provides    is     immaterial     when   considering      the

constitutionality of a user fee.       Id.

             Therefore, whether the shipping operators here obtain a

reputational benefit from the scanning, whether they approve of

the scanning from a business perspective, or whether it is the

optimal way for PRPA to secure its ports, are not dispositive.

Indeed, these questions all boil down to whether the scanning

procedure is sound public policy, not whether the user fee is

constitutionally valid.     But, the Commerce Clause inquiry for user

fees has never been, and is not now, whether the government service

                                    - 13 -
or facility is ideal or advantageous.                For good reason.       If the

heart of the dormant Commerce Clause beats to protect interstate

commerce, then it is irrelevant whether a government service is

beneficial.          That is, the success or failure of the service or

facility       itself   has   little   bearing      on   whether   the   user    fee

restricts the flow of commerce.           Ultimately then, since PRPA has

done       nothing   more   than   increase   its    fee   to   pay   for   a   new,

legitimate service -- one which, despite any shortcomings, is

clearly relevant to the operation of the port -- and since said

fee satisfies Evansville (which is essentially a short-hand test

for determining whether a user fee infects interstate commerce),

we reject the operators' policy-based contention.4

                                       III.

               The three shipping operators have failed to prove that

the ESF, as applied to them, violates the dormant Commerce Clause.

Accordingly, we affirm.

       The operators also argue that they are involuntary subjects
       4

of the scanning requirement and thus cannot be "users" required to
pay a user fee. The shipping operators provide no case law for
this proposition, nor do they provide any theoretical argument
that would support their position. In any event, the operators
can hardly be said to be "involuntary" users for dormant Commerce
Clause purposes. The scanning is simply a service provided for
using the port; a port that the operators voluntarily operate out
of. In choosing to do so, they have tacitly agreed to "share both
the benefits and the costs of [PRPA's] decisions, including the
imprudent ones." Am. Airlines, 560 F.2d at 1039.

                                       - 14 -