May 2010

Hawaii’s Intermediate Court of Appeals just published an opinion regarding the applicability of Hawaii’s General Excise Tax to charter vessels.  The case is Reel Hooker Sportfishing, Inc. v.  State of Hawaii – Department of Taxation and can be viewed here.

The main legal issue in this case is to what extent Hawaii’s state taxes can reach commercial operations in the federal domain.  Ben Lowenthal has a great post on the legal issues here.

Federal law (33 U.S.C. s. 5(b)) provides:

No taxes, tolls, operating charges, fees, or any other impositions whatever shall be levied upon or collected from any vessel or other water craft, or from its passengers or crew, by any non-Federal interest, if the vessel or water craft is operating on any navigable waters subject to the authority of the United States, or under the right to freedom of navigation on those waters, except for (1) fees charged under section 2236 of this title; (2) reasonable fees charged on a fair and equitable basis that (A) are used solely to pay the cost of a service fo the vessel or water craft; (B) enhance the safety and efficiency of interstate and foreign commerce; and (C) do not impose more than a small burden on interstate or foreign commerce; or (3) property taxes on vessels or watercraft, other than vessels or watercraft that are primarily engaged in foreign commerce if those taxes are permissible under the United States Constitution.

When you read the statute, it seems to be explicit in its prohibition on what taxes a non-Federal interest may assess against vessels.  The ICA disagreed with this position and upheld the GET on these vessel operators.

My take on this case is from a broader context.  Under U.S. Constitutional law, the state’s ability to regulate commerce on navigable waters stems solely from the Submerged Lands Act.  Absent some delegated authority in the Submerged Lands Act, the State does not have the authority to regulate commerce.  To be sure, however, this principle is honored in the breach with states pushing their enforcement authority beyond their territorial land mass and into the ocean.  See my posts on shark tour bans (Honolulu here, Maui here).

This issue formed the crux of the argument in the UFO Chuting case (see my post here –  and the amicus brief we filed sets out the Submerged Lands Act issue). 

Conceptually, this case makes sense:  a Hawaii business, collecting revenue on Hawaii’s land mass, receiving the benefits of Hawaii’s legal system and government should pay taxes on the revenues obtained therein.  But, the revenue they are collecting are for services provided outside the State of Hawaii and outside of the authority delegated to it by the Congress in the Submerged Lands Act.  Has the Congress stated what ability states have to tax these vessel operations?  Yes, in the the statute excerpted above.

It’ll be interesting to see what happens next.  An application for certiorari to the Hawaii Supreme Court?  U.S. Supreme Court cert petition?  Stay tuned.

  
 

If a tree falls in the woods…..

Or, if a worker is killed on land but his injury is caused by an Outer Continental Shelf activity, can he recover under the Outer Continental Shelf Lands Act?

The Ninth Circuit just released this case which addresses the applicable standard for determining application of the Outer Continental Shelf Lands Act.  The opinion is in the case of Valladolid v. Pacific Operations Offshore and can be downloaded here.

As the Court begins:

In this case, we consider whether an employee must be injured on the outer continental shelf to be eligible for workers’ compensation benefits under the Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C. § 1331 et seq.

The two other circuits that have considered this question have reached conflicting conclusions.

Conflicts between the circuits.  Signal one for a good case to go to the Supreme Court.  Ninth Circuit decision.  Signal two.

Facts: Roustabout was killed onshore, while working on activities related to an offshore oil platform.  Widow files for state worker’s compensation benefits, benefits under the Outer Continental Shelf Lands Act and the Longshore Harbor Workers Compensation Act.  The OCSLA and LHWCA benefits are denied.

Proceedings: As required by federal law, the claim was adjudicated by an Administrative Law Judge with an appeal to the Benefits Review Board.  This appeal followed.  The proceedings below:

The ALJ denied Petitioner’s OCSLA claim on the grounds that Valladolid’s injury had occurred outside the geographic situs of the outer continental shelf. The ALJ denied the LHWCA claim on two grounds: (1) Valladolid was not engaged in maritime employment, and (2) he was not injured on a maritime situs. The Benefits Review Board (“BRB”) upheld the ALJ’s denial of the OCSLA benefits under the “situs-of-injury” test, and affirmed the denial of LHWCA benefits on the maritime situs ground. The BRB did not reach the maritime employment issue.

The compensation scheme is as follows:

Under the OCSLA workers’ compensation provision, LHWCA benefits are extended to:

[the] disability or death of an employee resulting from any injury occurring as the result of operations conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing, or transporting by pipeline the natural resources, or involving rights to the natural resources, of the subsoil and seabed of the outer Continental Shelf.

43 U.S.C. § 1333(b). The outer continental shelf is comprised of “all submerged lands lying seaward and outside of the area of lands beneath navigable waters”—that is, submerged lands lying outside the territorial jurisdiction of the states. Id. § 1331(a); see id. § 1301(a)(2). State jurisdiction over offshore lands generally extends three miles from the coast line, though in certain cases not relevant here, it may extend further. See id. § 1301(a)(2).

Precedent:

In Curtis v. Schlumberger Offshore Service, Inc., 849 F.2d 805 (3d Cir. 1988), the Third Circuit rejected the situs-of-injury test and held that a claimant need only satisfy a “but for” test in establishing that the injury occurred “as the result of” operations on the outer continental shelf. Id. at 809-11. Accordingly, an employee injured in a car accident on his way to meet a helicopter that would take him to an offshore platform was eligible for OCSLA disability benefits. Id. at 806, 811.

However, in Mills v. Director, Office of Workers’ Compensation Programs, 877 F.2d 356 (5th Cir. 1989) (en banc), the Fifth Circuit adopted a situs-of-injury requirement for OCSLA claims. Under Mills, an OCSLA claimant must show that the injury occurred on an outer continental shelf platform or on the waters above the outer continental shelf, in addition to satisfying the “but for” test. Id. at 362; see also Becker v. Tidewater, Inc., 586 F.3d 358, 366-67 (5th Cir. 2009); Pickett v. Petroleum Helicopters, Inc., 266 F.3d 366, 368 (5th Cir. 2001); Sisson v. Davis & Sons, Inc., 131 F.3d 555, 558 (5th Cir. 1998). Thus, a welder injured during the onshore construction of a platform destined for the outer continental shelf was not eligible for OCSLA disability benefits. Mills, 877 F.3d at 357, 362.

Result:  I’ll spare you the 10 pages of discussion of persuasive but not binding precedent, the legislative history (Shh, don’t tell Justice Scalia – per his concurrence in Jerman v. Carlislehe doesn’t like it), and the canons of statutory construction.  The Ninth Circuit rejected Mills and held that the OCSLA did not require the situs of the injury to be on the Outer Continental Shelf.

One to watch. 

Did an unsecured barge cause the New Orleans levee break during Hurricane Katrina?  The questions answered here are: who should pay to defend it?  And, does the terminal owner’s insurance company cover it?

A new maritime insurance case from the Second Circuit Court of Appeals answers some of the above (the insurance stuff anyway). The case…

On March 24, 2010, the Supreme Court heard oral argument in the case of Kawasaki Kisen Kaisha v. Regal Beloit Corporation and Union Pacific Railroad Company v. Regal-Beloit Corporation.  The oral argument transcript can be downloaded here.  My earlier post with briefs and decision below here.

This issue is which liability framework applies to cargo that is transported under a bill of lading but has some damage while on U.S. railways.  COGSA and the bill of lading is one framework.  The Carmack Amendment which governs rail carrier liability is another.

While the issue is a bit for the admiralty/interstate commerce wonks among us, the transcript yielded some gems:

Best “Canons of Statutory Interpretation in a Nutshell” Quote: 

MR. BALLENGER: Well, Your Honor, we don’t think that it is necessary for this Court to read the statute in a countertextual way. You just have to do what this Court has always done and read the statute as a whole, including giving some weight to that provision which is in the text of the statute and reading the rest of the statute in light of it.

Best “Random Thoughts of the Chief Justice” Quote:

CHIEF JUSTICE ROBERTS: This may not have anything to do with anything. Is there a reason the STB doesn’t appear on your brief?

Best “Those Darn Publishers of the U.S. Code” Quote:

JUSTICE SCALIA: Okay. Wait a minute now.

MR. YANG: I’m sorry –

JUSTICE SCALIA: The paragraphing you say is wrong?

MR. YANG: From 5a to 6a, you will see 5a is the 1978 version of Carmack that was enacted in the 1978 codification.

JUSTICE SCALIA: Right. MR. YANG: The current version is reflected on the facing page. There was no paragraph indentation in 1978. And in 1995 when Congress changed the text, it did include a paragraph indentation, but the committee report — the conference report is very clear that Carmack was not changed. Also –

JUSTICE SCALIA: So all — you are saying that — I think what you are saying is that all we have to use the statutory statement that “nothing was meant to be changed or” is to say, well, that paragraphing in 3 is just wrong, right?

MR. YANG: Well, I don’t know — you mean the indentation?

JUSTICE SCALIA: The indentation.

MR. YANG: The indentation was inadvertent. And I would actually direct the Court to 73a, which is the other part of Carmack that now exists for motor transportation and freight forwarders. There is no indentation. The current version of the other half of Carmack does not provide the indentation. The indentation is inadvertent. And in ’95 — the ’95, which –

JUSTICE SCALIA: I’m losing you. 73a?

Best “Foreign Law-Phobes Watch Out! I see a Cite to Europe Law Coming” Quote:

JUSTICE SOTOMAYOR: I think Justice Breyer asked you why it made sense that there would be two rules in effect for what happens on the ocean and what happens on land; and if we had it, wouldn’t it create great difficulty. I think — you may correct me.

JUSTICE BREYER: Your point was –

MR. FREDERICK: That’s how the world –

JUSTICE BREYER: — if it creates such difficulty, why were the railroads in favor of it before?

MR. FREDERICK: Correct. And that’s how -that’s how Europe operates. Europe has separate conventions for rail and road that apply to damage that occur on land and the European nations have acceded to the various versions of Hague rules –

JUSTICE BREYER: Anything here that says on land? Anything in Carmack that says on land?

Best “I hope Chief Justice Roberts Nodded at Justice Sotomayor” Quote:

CHIEF JUSTICE ROBERTS: And that’s a different question with respect to liability and claims than with respect to venue.

MR. FREDERICK: Correct. And let me address that if I might.

JUSTICE SOTOMAYOR: Could I just — just briefly before you answer the Justice — the Chief.

MR. FREDERICK: Sure.

[The Chief Justice reminded counsel of his question later on.]

Best “Don’t Show Me No Stinkin’ Letter Briefs” Quote:

JUSTICE SCALIA: Wait. You say we have to defer to a letter brief in another case?

MR. FREDERICK: No –

JUSTICE SCALIA: I think most of my colleagues would not defer to a letter brief in this case. And you are saying that we owe deference to a letter brief in another case?

MR. FREDERICK: That is what this Court held –

JUSTICE SCALIA: Which I didn’t agree with, it seems to me.

Best “What Does “In” Mean” or “How Do You Politely Read a Statute to a Justice” Quote:

JUSTICE BREYER: Can we go back one more second? Can you just give me the citation in Carmack -not COGSA, but Carmack — that would get our intermodal shipment out of the board’s jurisdiction? Because what I’m thinking about is the intermodal shipment and the boat sinks near Hawaii. Okay? Now, on your reading of Carmack, not COGSA, what gets that shipment sunk in Hawaii — or Midway or Guam or someplace — what gets them out of Carmack? Which words?

MR. FREDERICK: Well, the — on 62A, the petition appendix defines the general jurisdiction.

JUSTICE BREYER: And it includes transport just as you defined it between the United States and another place — United States and a place in a foreign country.

MR. FREDERICK: Yes.

JUSTICE BREYER: So that’s what this is. This is a shipment between Shanghai and San Francisco.

MR. FREDERICK: And at (a)(2) — will you look at (a)(2), please? (A)(2) says jurisdiction under paragraph 1 applies only to transportation in the United States.

JUSTICE BREYER: Oh, sorry, between a place in — oh, transportation in the United States.

MR. FREDERICK: In the United States.

JUSTICE BREYER: Between a place in.

MR. FREDERICK: Exactly.

JUSTICE BREYER: Thank you.

MR. FREDERICK: Yes, thank you.

(Laughter. )