Lawyers for American Seafoods shipping subsidiaries Kloosterboer International Forwarding and Alaska Reefer Management are not backing down in their plea for an Alaska judge to issue a temporary restraining order against US Customs and Border Patrol (CBP) over $350 million in fines (€294.6 million) -- the highest recorded fines levied under Jones Act violations in history.

Lawyers for New York-based law firm Kasowitz Benson Torres -- which has notoriously gone to bat for former US President Donald Trump over sexual harassment and Russian collusion allegations -- told an Alaska District Court Tuesday that American Seafoods and other pollock companies have no alternative shipping route to the so-called Bayside Program, which is at the heart of their current dispute with CBP.

Attorney's for the ARM and KIF called the CBP's years-long investigation into the issue unconstitutional and said the system is consistent with CBP rulings on what constitutes a "through route" to satisfy requirements of the Jones Act.

They further alleged that nothing in the CBP's investigation, including the companies' "inadequate tariff filings" or videos of the 100-foot-long Bayside Canadian Railway (BCR) in operation, was unknown or a surprise to the federal agency.

"Not only had [American Seafoods shipping companies] been transparent regarding their use of the BCR rail line since 2012 [...] the Bayside Program was known to CBP and authorized by CBP’s multiple Ruling Letters that remain in full force [...] approving a substantially identical through route," American Seafoods' lawyers said.

"CBP sat back and watched the Bayside Program progress for well over four years without a single word."

(What does the Bayside Canadian Railway look like, anyway?)

Companies involved in the Bayside Program were unaware of the CBP's issue with the transportation system even after the fines were first issued in late August, attorneys for American said.

It was not until Sept. 10, when CBP filed its opposition to American's initial request for a restraining order, that the agency "disclosed the flawed reasoning underlying its unconstitutional and deficient Penalty Notices," attorneys added.

What is the Bayside Program?

The Bayside Program is a transportation route American Seafoods developed using an exemption to the Jones Act.

Under the program, Alaska Reefer Management (ARM), Kloosterboer International Forwarding (KIF) and Kloosterboer Dutch Harbor (KDH) -- all American Seafoods subsidiaries -- move fish stored in Dutch Harbor, Alaska onto foreign-built or owned vessels, which then transport the fish through the Panama Canal to the group's Kloosterboer Bayside facility in New Brunswick, Canada.

By law, the fish are supposed to be transported over the Canada-US border to customers along the US East Coast using “through routes" over Canadian rail lines.

Prior to 2012, the seafood companies utilized the New Brunswick Southern Railway (NBSR) as a through route over Canadian rail lines to ship their product from New Brunswick to Maine and other destinations in the United States.

The current dispute stems from a change American Seafoods and others made in 2012. Instead of using an established Canadian railway that would transport their product from one destination to another, they utilized a specially-built mini-railtrack, approximately 100 feet in length.

Fish loaded in trailers travels the length of the track and back, after which the product is driven by truck to the United States.

This special railway, called the Bayside Canadian Railway, is utilized for the “transportation” of their product over a “through route.”

CBP disagrees and says the mini-train is not a "through route" which means the companies are allegedly violating an exemption in the Jones Act.

Source: IntraFish, US Customs

No shipping alternatives

Also under dispute is whether or not there are alternatives to the unusual Bayside route for delivering fish to the US East Coast.

Four US shipping companies -- Alaska Marine Lines, Samson Tug & Barge, Matson Navigation and Coastal Transportation -- and the pro-Jones Act trade group American Maritime Partnership filed statements supporting CBP's enforcement action, and alleging the Bayside Program is not the sole option.

Attorneys for American Seafoods shipping companies said its rivals argument "defies the reality of the transportation situation in Dutch Harbor," and gave a litany of complications in shipping out of Alaska, including "congestion in western United States ports, a lack of cold storage in Dutch Harbor, a shortage of refrigerated containers[...] harsh weather conditions in the late fall and early winter, and delayed and unpredictable sailing schedules."

Competition with shipping companies transporting higher-value seafood products from Alaska is another factor, they argued.

Similar arguments were made by American Seafoods President Inge Andreassen in a separate filing Tuesday.

Andreassen warned that approximately 1.5 million pounds of pollock will be overdue for delivery to customers by end of September, and approximately 3 million pounds is likely at risk for October requirements.

Tiny railway the only option

Prior to 2012, the seafood companies utilized the New Brunswick Southern Railway (NBSR) as a through route over Canadian rail lines to ship their product from Alaska to Maine and other destinations in the United States.

In 2012, because plaintiffs believed the NBSR was too costly, they radically changed their method of transporting seafood, CBP alleged in court documents.

"[T]hey decided to utilize a specially-built mini-railtrack, approximately 100 feet in length, that goes nowhere," CBP alleged.

"The BCR was constructed solely as an attempt to make otherwise impermissible coastwise traffic appear to fall within the statutory exception. Plaintiffs are not using an existing and recognized route, or even a route," alleged the CBP in court documents.

The agency told the court that plaintiffs have not filed the required route and tariff rates with the US Surface Transportation Board (STB) in connection with their use of the BCR.

The lawyers defending the companies contend the BCR railway is not different from the previous rail system the companies used prior to 2012, adding that by CBP requiring a route to be a certain distance or “commercially sound” to qualify for an exemption the agency was changing the rules without proper notice.

Attorneys further argued CBP’s "abrupt change of its guidance" without notice to plaintiffs was unconstitutional, and the fines do not serve any public interest, but rather seek "the very destruction of an important sector of the frozen seafood market from Alaska to the US East Coast by burying all participants in massive and cumulative penalties for what, at most, are technical tariff violation[s]."

The CBP's demand for companies to return to a system similar to the former one using the New Brunswick Southern Railway (NBSR) is unrealistic and "uncertain" because that system has not been used in a decade.

The NBSR also lacks flatbed rail cars and proper loading equipment, claimed the pollock and shipping companies

"[C]raning the tractor trailers is not an option inasmuch as it would destroy the trailers," they added. Other options they said, could require the "creation of a rail bridge."

Irreparable harm

Lawyers for the companies also brought up the "irreparable harm" the companies face if the restraining order is not issued against the agency.

Kloosterboer International Forwarding faces $25 million (€21.2 million) in direct penalties issued to date -- equivalent to nearly 15 times its annual net income, according to the lawyers.

Alaska Reefer Management, meanwhile, faces claims from charterers and ship owners who have received penalty notices asserting Alaska Reefer Management is liable for over $65 million (€55 million) in penalties -- equivalent to more than 40 times its average net income.

"Neither [company is] able to cover these enormous penalties without facing destruction of their businesses," their lawyers said.

Alaska Reefer Management is a wholly-owned subsidiary of American Seafoods formed in 2009. In turn Alaska Reefer owns Kloosterboer International Forwarding.

Kloosterboer Dutch Harbor, the third link in this supply chain, has been owned by American Seafoods since 2007.

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