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Friday, July 31, 2015
9th Circuit Rejects Hawaii Jones Act Suit
By Selected News Articles @ 5:29 PM :: 5792 Views :: Jones Act

Hawaii Shipping

From Court House News, July 31, 2015

HONOLULU - The Ninth Circuit refused Thursday to revive claims that federal cabotage rules, which prohibit foreign competition in the domestic shipping market, impaired interstate trade between Hawaii and the rest of the United States.

PDF: Court Ruling  (See summary below)

HB 2012: Keeping Up With the Jones Act

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Loadstar Reports on Jones Act Case Dismissal

by Michael Hansen, Hawaii Shippers Council, July 31, 2015

The London, UK-based online maritime news site The Loadstar reported on a civil suit brought by Honolulu attorney John S Carroll in federal district court in Hawaii on November 29, 2012. The suit was brought on behalf of eight plaintiffs against the United States of American seeking to have Hawaii exempted from Section 27 of the Merchant Marine Act of 1920 commonly known as the Jones Act.

The civil case No. 12-00638 in district court is known as “Novak v. United States.” It asserted that the imposition of cabotage on the Hawaii trade was unconstitutional restraint of trade in violation of the Commerce Clause. On April 26, 2013, Federal District Judge Leslie E. Kobayashi ordered the civil suit be dismissed with prejudice on the grounds of standing. To be dismissed with prejudice means that the plaintiffs to the complaint are barred from bringing another action on the same claim.

Carroll appealed the district court judgment on November 14, 2013 to the Ninth Circuit Court of Appeals seeking reversal of the standing issue. The Appeals Court in case 13-16383 affirmed the district court’s dismissal in their decision issued July 30, 2015.

Carroll filed a similar complaint (No. CV 09-00473) in federal district court in Hawaii on October 7, 2009, which was also dismissed with prejudice on December 8, 2009.

Key excerpts:

Loadstar: Court rejects new bid to kill Jones Act by shippers in Hawaii hit by cabotage rules

Another attempt to lift US cabotage restrictions was dismissed yesterday, when a court in Hawaii ruled against a class action brought by shippers against legislation which prohibits foreign companies from carrying US domestic cargo on ships.

The action, brought by six individuals and Kenner Inc, a Honolulu-based distributor of wires and cables, argued that shippers “suffered pecuniary injury when they purchased domestic ocean cargo shipping services on west coast-Hawaii routes”, and sued the United States, claiming the “root of their problem is found in the cabotage provisions of the Jones Act”.

Court documents said: “[The] plaintiffs’ theory is that, by excluding foreign competition, the cabotage restrictions have created an essentially monopolistic Hawaiian ocean shipping market that has resulted in high prices and a de facto duopoly of two established firms in the Hawaii-mainland shipping market.

“[The] plaintiffs contend that all Hawaii residents and businesses, including themselves, have been harmed not only by the increased shipping costs, but also by the resultant inflated costs of doing business in Hawaii, because higher shipping costs lead to higher prices for imported goods.”

The court also dismissed the argument that the Jones Act violates the country’s Commerce Clause, ruling that “the requirements of due process are satisfied if the law passed has a reasonable relation to a legitimate legislative purpose and is not arbitrary, capricious or discriminatory”.

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Journal of Commerce reports on Novak v United States

by Michael Hansen, Hawaii Shippers Council, August 4, 2015

The Journal of Commerce (JOC) reports on the Novak v United States appeal at the Ninth Circuit Court of Appeals in San Francisco, California. The suit was brought by eight persons in Hawaii against the U.S. seeking to exempt the State from Jones Act cabotage. The appeals court in their opinion issued on July 30th upheld the Hawaii District Court’s decision to dismiss the complaint with prejudice. The lead attorney for the plaintiffs is John S Carroll.

Court rejects new bid to kill Jones Act cabotage

JOC Staff | Aug 03, 2015

Hawaiian shippers frustrated with high freight rates had their hopes for change dashed last week after a U.S. federal court rejected their bid to strike cabotage provisions from the U.S. Merchant Marine Act.

The 9th Circuit Court of Appeals ruled Thursday that the six Hawaiian shippers who filed suit could not establish the standing to merit a ruling on a link between the higher prices Hawaiian shippers pay to move their goods and the 95-year-old Jones Act, which regulates shipping to and from U.S. states and territories.

The Hawaiian importers and exporters who filed the suit against the U.S. government said they “suffered pecuniary injury when they purchased domestic ocean cargo shipping services on the West Coast-Hawaii routes.” And they claimed the “root of their problem is found in the cabotage provisions of the Jones Act”.

Under said provisions, only U.S.-built and -flagged vessels may transport goods between two U.S. ports. The laws have had a significant impact on shipping to and from outlying U.S. jurisdictions such as Hawaii, Alaska, Guam and Puerto Rico — the last two falling under Jones Act authority despite their categorization as unincorporated U.S. territories.

Competition in the shipping sector is especially important for an isolated, small-market state such as Hawaii, where 80 percent of all goods, about 90 percent of food and 95 percent of energy resources are imported, the shippers said in their complaint.

“[The] plaintiffs’ theory is that, by excluding foreign competition, the cabotage restrictions have created an essentially monopolistic Hawaiian ocean shipping market that has resulted in high prices,” court documents read.

It’s not just the scarcity of foreign carriers in the market either, shippers have argued, but the scarcity of U.S. carriers in the domestic shipping industry.

Three carriers, Horizon Lines, Pasha Group and Matson Navigation Company, once dominated the Hawaiian market together. But, after Horizon Lines dissolved earlier this year and Pasha absorbed its competitor’s routes, Matson and Pasha now has a near-duopoly over what comes and goes between the Aloha State to other U.S. ports.

It’s perhaps understandable why so few carriers jump into the domestic shipping marketplace. It’s an expensive endeavor: Not only to staff a ship with U.S. nationals who require higher wages and salaries, but to build a ship that can legally travel Jones Act lanes in the first place.

“It’s a fact that the cost to build a ship in the U.S. has become so great that the carriers just can’t replace them,” Michael Hansen, president of the Hawaii Shippers Council, told Hawaii Business in 2012. “U.S.-built ships cost at least three times the amount of foreign-built.”

There is now evidence that U.S.-built ships cost closer to four to five times the cost of foreign-built crafts, Hansen told in an e-mail Monday.

In the same Hawaii Business story, one of the six shippers who filed suit against the government blamed the Jones Act for the death of his once-thriving business. According to Patrick Novak, the CEO of the French Gourmet pastry company was forced to close its doors in April 2012, less than 20 years after opening shop, as a direct result of the higher prices Jones Act carriers charged him.

“It wiped us out,” Novak said.

Novak’s argument, however, failed to persuade the 9th Circuit Court of Appeals.

The court’s judges dismissed the case on the grounds that the shippers’ claims were too broad to show causation or redressability.

“The district court dismissed the action with prejudice, concluding that plaintiffs failed to satisfy what it framed as prudential standing requirements because they alleged only generalized grievances shared with all residents and businesses in Hawaii,” wrote Judge Richard Clifton in his opinion.

The court also ruled the Jones Act does not violate the country’s Commerce Clause, ruling that “the requirements of due process are satisfied if the law passed has a reasonable relation to a legitimate legislative purpose and is not arbitrary, capricious or discriminatory.”

The court did not rule whether the higher freight rates Hawaiian shippers pay and the Jones Act are linked does not matter. Instead, the six Hawaiian shippers who brought their claim before the court framed the Jones Act as in violation of the Commerce Clause — a suggestion the court rejected.

“That the regulation may be a ‘restraint of trade’ does not matter,” the judges ruled. “The Commerce Clause does not limit the power of Congress to regulate interstate commerce. Quite the opposite, it is well established that, by virtue of the Commerce Clause, Congress has broad authority to regulate the channels and instrumentalities of interstate commerce, as well as any activity substantially relating to interstate commerce.”

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Jones Act Challenge Fails

by Michael Hansen, Hawaii Shippers Council, August 4, 2015

Widely respected American admiralty attorney Charles Papavizas, Partner, Winston & Strawn LLP, posted an op-ed on his law firm’s website commenting on the Hawaii Jones Act lawsuit known as “Novak v. United States” (Hawaii District Court Case No. 1:12-cv-00638 LEK-RLP / Appeals Court Case No. 13-16383). The lead attorney representing the plaintiffs was Mr. John S. Carroll.

Winston & Strawn LLP is an international law firm based in Chicago with additional offices in the U.S., Europe and Asia. Mr. Papavizas is a partner in Winston & Strawn’s Washington, D.C. office, chair of his firm’s maritime and admiralty practice, and frequently consulted and author of many papers and articles on Jones Act cabotage. Mr. Papavizas and his firm typically represent Jones Act industry interests in domestic maritime matters.

Key quotes:

The U.S. Court of Appeals for the Ninth Circuit turned away a challenge to the Jones Act on July 30, 2015. The case, brought in Hawaii by certain shipper interests, argued that the Jones Act impaired interstate trade and therefore violated the United States Constitution.

The U.S. District Court in Hawaii had dismissed the case, concluding that the challengers lacked standing. The U.S. Court of Appeals affirmed that decision and, more importantly, concluded that the constitutional challenge would not have prevailed anyway. The appellate court concluded that whether the Jones Act is a “restraint of trade” is irrelevant because the Commerce Clause of the U.S. Constitution gave Congress broad authority to impose such a restraint.

The Court of Appeals also noted that there was no proof that shipping rates to Hawaii would decline even if the Jones Act were repealed, but it failed to note the potential impact on the transportation of merchandise between the U.S. mainland and Hawaii – in U.S. interstate commerce – of other U.S. domestic laws such as the Internal Revenue Code and Immigration and Nationality Act. It can be argued that even without the Jones Act, the costs of interstate ocean transportation would not be significantly different than it would be with the Jones Act in place.

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Jones Act

The panel affirmed the district court’s dismissal of an action challenging the constitutionality of the Jones Act’s cabotage provisions, which prohibit foreign competition in the domestic shipping market.

Plaintiffs alleged that the Jones Act’s provisions impaired interstate trade between Hawaii and the rest of the United States to such an extent that they violated the Constitution. Plaintiffs are individuals and a corporation who reside in Hawaii and claim to have suffered pecuniary injury when they purchased domestic ocean cargo shipping services on west coast Hawaii routes.

The panel held that plaintiffs did not meet their burden to show causation or redressability, two requisite elements for Article III standing. The panel further held that although it was possible that plaintiffs could establish standing if they amended their complaint, any amendment would be futile because plaintiffs’ Commerce Clause challenge to the Jones Act would fail on the merits. The panel held that an amended complaint would be subject to dismissal for failure to state a claim because the enactment of the Jones Act was not beyond the authority assigned to Congress under the Commerce Clause. The panel also rejected plaintiffs’ claim alleging that the Jones Act violated protections guaranteed under the Due Process Clause of the Fifth Amendment. Finally, the panel held that the district court did not violate plaintiffs’ procedural due process by ruling on the government’s motion to dismiss without an oral hearing.

Judge Friedland concurred. She wrote separately to express her view that San Diego County Gun Rights Committee v. Reno, 98F.3d 1121 (9th Cir. 19966), which drove the majority opinion’s conclusion that plaintiffs lacked Article III standing, should be reconsidered in an appropriate case.


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