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CBP Overstepped Bounds in Hitting Rail Carrier with Narcotics Fines, Court Says

Monday, December 16, 2013
Sandler, Travis & Rosenberg Trade Report

The Eighth U.S. Circuit Court of Appeals upheld Dec. 12 a district court ruling that U.S. Customs and Border Protection exceeded its authority by imposing fines on rail carrier Union Pacific for allegedly failing to prevent the use of rail cars to smuggle large quantities of narcotics across the border from Mexico. Citing what it calls CBP’s “inconsistent, incomplete and at times even incomprehensible” reasoning, the court vacated 38 penalty cases totaling more than $37 million and directed the district court to enjoin CBP from penalizing UP for illegal drugs found on railcars that UP neither controls nor owns.

According to the court, UP has no railroad operations inside Mexico, no control over the Mexican railroads that bring trains to the U.S. border, no power to direct these Mexican railroads’ employees, and no legal authority to secure or search trains inside Mexico or at the border. Instead, UP only takes custody of trains crossing the border from Mexico once CBP has inspected them. Nevertheless, UP has worked to prevent the smuggling of narcotics from Mexico by hiring its own police force, constructing buildings for CBP’s use, participating in programs such as CBP’s Land Border Carrier Initiative Program and Customs-Trade Partnership Against Terrorism, and persuading one of its Mexican rail carrier partners to increase its security measures in Mexico. In one instance UP even discovered illegal drugs on a train that CBP itself had cleared (and was fined nonetheless).

The court rejects CBP’s “constitutionally suspect” argument that the Tariff Act of 1930 authorizes the heavy fines imposed on UP. CBP found UP liable for not exercising the “highest degree of care and diligence” (19 USC 1584(a)(2)), but no federal agency has ever complied with a 1988 directive from Congress to issue regulations defining that phrase. Instead, CBP has advanced an interpretation that “pushes the limits of the Fifth Amendment” by allowing the government to punish an innocent owner or recipient of property for misuse of the property while it is entirely under a third party’s control even if that misuse occurs without the third party’s knowledge and despite the third party’s best efforts to prevent it. No U.S. court has ever sanctioned such a scheme, the court adds, and in fact a line of Supreme Court cases stretching back more than 200 years has explained that “the highest degree of care and diligence” is nothing more than the normal, elevated standard of care expected of any common carrier.

In this light, the Tariff Act “certainly does not” authorize CBP to require UP to do more than reasonably possible to prevent Mexican drug cartels from hiding drugs on trains UP does not control (which the court says is the decisive point for this case) in a country in which UP has no operations. CBP argued that UP is responsible to ensure the railcars are inspected in Mexico, but the court said that the Mexican military already searches each U.S.-bound rail car at least twice before it reaches the U.S. border (an action UP pushed for) and that “CBP cannot reasonably expect private personnel hired by UP to outperform the Mexican military in what amounts to a warzone.” Moreover, UP did not own the majority of the rail cars at issue, meaning CBP transgressed unambiguous statutory limits on its authority by penalizing UP for drugs on those cars.

The appeals court did, however, overturn a district court injunction designed to force CBP to enact formal rules defining the “highest degree of care and diligence.” Whether CBP’s “blatant and ongoing noncompliance” with the congressional directive to issue such rules “is due to negligence, bureaucratic incompetence, strategic avoidance, or something more nefarious,” Congress did not specify a consequence for such noncompliance and the court will not now impose one.

(As a side note, one does not often see the seminal comic strip “Calvin and Hobbes” cited in a legal decision, but this one states that CBP’s “baffling” reasoning concerning UP’s alleged liability brings to mind Calvin’s statement that “the purpose of writing is to inflate weak ideas, obscure poor reasoning, and inhibit clarity” and that “with a little practice, writing can be an intimidating and impenetrable fog.”)

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