American Seafoods subsidiaries Alaska Reefer Management (ARM) and Kloosterboer International Forwarding (KIF) are continuing to operate the so-called Bayside Program, despite a judge’s ruling that it violates the Jones Act.
On 7 June, the U.S. Department of Homeland Security’s Customs and Border Protection requested an expedited consideration of its request to dissolve an injunction prohibiting it from fining ARM and KIF for their continued use of the Bayside Program, a 100-foot dead-end rail line in New Brunswick, Canada, used in transporting Alaska pollock to the U.S. East Coast.
In a 25 May ruling, U.S. District Court Judge for the District of Alaska Sharon L. Gleason found the Bayside Program to be in violation of the Jones Act, which attaches limits to the means and methods of transportation of domestically-caught seafood with the goal of encouraging the use of American-built and -operated transportation.
However, Gleason left in place an injunction on CBP that prevents it from issuing additional fines and prohibits it from collecting on the approximately USD 350 million (EUR 294.3 million) in Jones Act fines it had already issued in relation to the Bayside Program.
On 8 June, Gleason denied CBP’s request to expedite her decision on whether to lift the injunction, though she said she would rule “expeditiously on the underlying motion promptly upon receipt of defendants’ reply or the time for filing it has expired.” ARM and KIF had 14 days to file their reply following CPB’s 7 June motion.
“There is no urgent need for relief beyond CBP’s desire to resume its imposition of crushing penalties on its own timetable,” ARM and KIF said in a response to the motion filed by CBP.
However, CBP accused ARM and KIF of intentionally drawing out the legal process in order to maximize their use of the Bayside Program before they begin to face penalties for its use.
“The Court has ruled that Plaintiffs’ use of the BCR Route violates the Jones Act. The BCR Route has been illegal since its inception, up to, and including, during the pendency of this case. Defendants have been enjoined from enforcing the law for over seven months since 10 October, 2021. Plaintiffs may disagree about whether, depending on the outcome of the trial, the Court’s decision allows CBP to seek Jones Act penalties for Plaintiffs’ past utilization of the [Bayside] Route and lack of a rate tariff filing. The parties would benefit from clarification from the court on this point so that all parties understand the ramifications of the trial,” CBP wrote in its response.
Herm Gadway, a port director for the CBP overseeing CBP’s port of entry in Calais, Maine, U.S.A., wrote in a declaration to the court that KIF has conducted approximately 563 separate entries for frozen seafood using the Bayside Route between 19 October, 2021, and 7 June, 2022.
The CBP said the continued use of the Bayside Route flaunts U.S. law.
“The court’s constitutional tolling injunction is a form of permanent injunction. Under the court’s injunction, CBP is enjoined ‘from ever issuing and enforcing any new notices of penalty for alleged violations of the Jones Act relating to shipments from Alaska to U.S. destinations through Bayside via the [Bayside] Route commenced or completed at any time from the date of this order until the date of the final judgment in this action, and regardless of the outcome of the action.’ Thus, plaintiffs continue to be the beneficiaries of a permanent injunction even after the court has determined that plaintiffs’ use of the [Bayside] Route is illegal,” it wrote. “Every day the injunction remains in place, the United States is irreparably harmed by its inability to enforce the law. Plaintiffs have had due process, and an abundant opportunity to prove that the [Bayside] Route meets the requirements of the [Jones Act’s] Third Proviso – they failed. The court’s injunction, which now effectively allows the plaintiffs to violate the law with impunity, as become ‘an instrument of wrong.’”
Prior to Gleason’s issuance of the injunction against CBP’s fines, at least 26 million pounds of Alaska pollock had been stuck en route to the U.S., creating a short-term shortage of the species in the United States.
In May 2022, credit rating agency Standard and Poor’s issued a credit watch on American Seafoods’ parent company, ASG Parent LLC, warning it faced a “heightened refinancing risk because its first-lien term loan matures in August 2023.”
“In addition, its revolving credit facility matures in August 2022,” Standard and Poor’s said in a 25 May report. “While the company's operating performance has been generally in line with expectations, difficult credit market conditions could delay refinancing efforts.”
Standard and poor’s said it had placed a credit watch warning on all of ASC Parent LLC’s credit, including its “B” issuer credit rating.
“The credit watch placement reflects the possibility of a lower rating if the company is unable to refinance its term loan and revolver on satisfactory terms over the next few months. The credit watch placement reflects the heightened risk that ASG will be unable to refinance its debt capital structure on satisfactory terms over the next few months,” it said. “While the company's operating performance has been generally in line with expectations, difficult credit market conditions could delay refinancing efforts.”
Photo courtesy of U.S. District Court for the District of Alaska
