The federal government has filed a counterclaim against Furie Operating Alaska LLC seeking collection of a previously imposed $15 million civil penalty against the company.
The counterclaim arises in a lawsuit Furie brought in 2012 to try to defeat the penalty, which customs officials assessed for a violation of the shipping law known as the Jones Act.
The counterclaim escalates the standoff between Furie and the U.S. Department of Homeland Security. The department says Furie in 2011 unlawfully used a foreign ship to transport a jack-up drilling rig part of the way from Texas to Alaska’s Cook Inlet.
Department officials say Furie completed the transport for “commercial expediency,” knowing it lacked a waiver of the Jones Act provision requiring the use of only American-owned ships for transport of merchandise between U.S. ports.
Penalty based on rig’s value
The Spartan 151 rig arrived in Cook Inlet on Aug. 11, 2011.
Furie since has been using the rig to explore for natural gas in the inlet.
On Oct. 13, 2011, an official with Customs and Border Protection, a Homeland Security agency, hit Furie with a $15 million civil penalty.
The penalty was based on a Jones Act provision that says the CBP may recover an amount equal to the value of merchandise unlawfully transported.
The $15 million penalty was based on “an independent appraisal” of the rig’s value, says the counterclaim filed on June 28 in U.S. District Court in Anchorage.
Government lawyers are asking the court to dismiss Furie’s claims and enter a judgment against the company for $15 million plus interest, costs and attorney fees.
Largest ever?
The counterclaim says Furie, based in League City, Texas, hasn’t paid any portion of the $15 million penalty.
But Furie has said the looming penalty nevertheless has caused hardship for the company. In a December 2012 declaration, Furie’s president, Damon Kade, said the fine, and the refusal of officials to mitigate it, “has made it difficult for Furie to secure investors in its resource exploration and development venture.”
Furie took an aggressive posture, suing Homeland Security Secretary Janet Napolitano and CBP on Aug. 7, 2012. The suit called the $15 million penalty “unwarranted and unprecedented,” the largest ever assessed for an alleged Jones Act violation.
In its counterclaim, the government denies the penalty is the largest. At least one other penalty of an equal amount has been imposed, and it was arguably larger because of inflation, the counterclaim says.
The voyage
The arrival of the Spartan 151 culminated years of effort to bring a jack-up rig to Cook Inlet.
The effort began with Escopeta Oil Co., which Furie acquired in mid-2011.
In 2006, the Homeland Security secretary at that time, Michael Chertoff, granted Escopeta a Jones Act waiver to use a foreign ship to transport a different jack-up rig to Alaska. The waiver was based on national security considerations, including Southcentral Alaska’s need for new gas supplies and the presence of Joint Base Elmendorf-Richardson in Anchorage.
As it turned out, that rig never was brought to Alaska.
In 2011, the company lined up the Spartan 151 jack-up and asked Homeland Security to reconfirm the Chertoff waiver, or grant a new one. Homeland Security officials including Secretary Napolitano denied these requests.
Despite the lack of a waiver, the company used a foreign-flag, heavy-haul ship, the Kang Sheng Kou, to carry the jack-up rig from Texas to Vancouver, British Columbia. From there, Furie hired U.S. tugs to tow the rig the rest of the way to Alaska.
In its lawsuit, Furie said it had to use the foreign ship for part of the journey, as no U.S. ship capable of doing the job was available.
Justice Department lawyers initially asked the court to throw out Furie’s lawsuit as premature. Although CBP sent Furie three bills demanding payment, Furie had no real obligation to pay the $15 million until the government sued to collect, the lawyers argued.
Federal Judge John W. Sedwick ultimately declined to dismiss Furie’s suit.
Now, with its counterclaim, the government has gone to court to enforce the penalty. The question from here is, how much if anything will Furie have to pay?
