Furie Operating Alaska LLC’s effort to fend off a $15 million federal fine has suffered a setback.
A federal judge on March 27 denied Furie’s motion to dismiss the government’s claim to the fine, which was imposed for an alleged violation of the Jones Act.
The Jones Act is a shipping law that forbids using foreign ships to move cargo between U.S. ports. The longstanding law is meant to protect the American shipping and shipbuilding industries.
U.S. Customs and Border Protection, or CBP, an agency within the Department of Homeland Security, accuses Furie of violating the Jones Act when it used a foreign ship in 2011 to carry the Spartan 151 jack-up drilling rig partway from Texas to Alaska’s Cook Inlet.
Furie has used the rig to explore the inlet for oil and natural gas.
Furie sued first
CBP hit Furie with the $15 million penalty on Oct. 13, 2011, and subsequently sent the company a number of bills demanding payment.
Furie never paid, and on Aug. 7, 2012, sued Homeland Security and CBP. Furie challenged the penalty as unwarranted, and said the looming liability was making it hard for the company to secure investors.
The government responded to Furie’s suit with a counterclaim, asking the court to enforce the fine.
A foreign-flag, heavy-haul ship, the Kang Sheng Kou, carried the Spartan rig from Texas to Vancouver, British Columbia. 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.
Furie recently moved to dismiss the government’s counterclaim. The company said it didn’t violate the Jones Act, arguing the jack-up rig wasn’t “merchandise” within the meaning of the law. Rather, the rig was a “vessel” merely being relocated to a new drilling site.
If Furie violated any maritime law, it would have been the “towing statute,” which governs the transport of vessels, the company said.
Transport of the rig aboard the foreign ship was a “dry tow,” Furie said.
The towing statute, like the Jones Act, requires the use of American-owned ships for transporting cargos between U.S. ports. But violations of the towing statute can carry smaller penalties.
Judge sides with government
Government lawyers opposed Furie’s motion to dismiss the counterclaim.
And ultimately, U.S. District Judge John W. Sedwick sided with the government.
At issue, the judge wrote in his 18-page ruling, was CBP’s interpretation of the Jones Act and the towing statute.
Agency officials chose to fine Furie under the Jones Act, and this wasn’t improper, the judge held.
“The term ‘merchandise’ is not defined in the Jones Act,” the judge wrote. “CBP has construed the term broadly to include all goods. Indeed, the act itself, while not defining merchandise, suggests that it is a broad term by specifically noting that government-owned goods and valueless materials are encompassed within the definition.”
The judge further noted that CBP had long regarded vessels, when carried aboard another vessel, as merchandise under the Jones Act.
“Therefore, a vessel can constitute merchandise under the Jones Act, and the court cannot dismiss the government’s counterclaim based solely on the argument that CBP has improperly broadened the term ‘merchandise’ under the act,” Sedwick wrote.
Furie also argued the rig wasn’t cargo being bought or sold, and so its transport to Alaska could not constitute a violation. But the judge also rejected this argument.
With Sedwick’s denial of Furie’s motion, the case will now proceed toward trial.
