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Furie suit contesting fine stays alive Alaska federal judge declines to dismiss company’s challenge of $15 million Jones Act penalty for alleged illegal rig transport Wesley Loy For Petroleum News
Furie Operating Alaska LLC has won a round in its fight to fend off a $15 million Jones Act penalty.
A federal judge has denied a government motion to throw out a lawsuit Furie filed against U.S. Customs and Border Protection, which imposed the fine. CBP is an agency within the Department of Homeland Security.
Furie sued in August 2012 in an effort to nullify the fine, which the company has called arbitrary and excessive.
The fine stems from Furie’s use of a foreign-flagged ship to haul a jack-up drilling rig part of the way from Texas to Alaska in 2011. CBP officials said the transport constituted a violation of the Jones Act, a shipping law.
Furie tried to appeal the fine to the government, but these efforts were unsuccessful and the company finally sued in U.S. District Court in Anchorage.
Lawyers for the government moved for dismissal of the suit, arguing the court lacked jurisdiction because the penalty assessment was not a “final agency action.”
Federal Judge John W. Sedwick, however, denied the motion in a 12-page order and opinion issued April 15.
It means, apparently, that if the government really wants to collect the $15 million from Furie, it will have to prevail in the case Furie filed.
The voyage Furie, headquartered in League City, Texas, is using the Spartan 151 jack-up rig to explore for natural gas in Cook Inlet.
In 2011, the company used a foreign-flag, heavy-haul ship to carry the rig from Texas to Vancouver, British Columbia. Furie has said no suitable U.S. ships were available to safety carry the Spartan 151 around South America, the rig being too big to go through the Panama Canal.
From Vancouver, Furie used U.S. tugs to tow the rig the rest of the way to Alaska.
CBP officials in October 2011 imposed a $15 million fine, saying use of the foreign-flag transport ship for part of the journey violated the Jones Act. The act prohibits shipping merchandise between U.S. points, either directly or via a foreign port, unless the transport vessel is U.S.-built and documented and owned by U.S. citizens.
At the time it moved the rig, Furie was trying to gain a Jones Act waiver to use the foreign transport ship.
Escopeta Oil Co., which Furie acquired in June 2011, had received such a waiver for a different rig and ship in 2006 from then-Homeland Security Secretary Michael Chertoff. 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.
Ultimately, Homeland Security Secretary Janet Napolitano would deny Furie a new waiver. But the company went ahead and completed the rig move to Alaska.
Furie said Napolitano and other officials indicated they wouldn’t seize the rig, and might mitigate any Jones Act penalty.
CBP officials determined the value of the rig was $15 million, and so that’s the penalty they imposed.
Interfering with business Furie petitioned twice for mitigation, but CBP denied these. The agency also denied requests for reconsideration.
CBP billed Furie three times for the $15 million, threatening to send the matter to collections.
Furie never paid, and filed its lawsuit.
In its motion to dismiss, the government argued Furie was under no obligation to pay, that payment would be necessary only if the government sued and won a judgment for the money.
Thus, the government argued, Furie’s suit was premature and should be thrown out.
Furie argued the Jones Act penalty, though uncollected, was working a hardship on the company. The looming 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’s president, Damon Kade, said in a Dec. 14 declaration.
Judge Sedwick ruled the argument that the penalty was not a final agency action until the government sued to enforce it was “without merit.”
He noted that federal officials had denied Furie’s petitions and requests for reconsideration, and had sent the company three bills, indicating CBP had reached “the culmination of the agency’s decision-making process.”
In the government’s view, Sedwick observed, Furie would have to wait until a collection action was filed before it could raise any judicial challenge to CBP’s decision. Furie couldn’t predict when such an action would be filed.
“In the meantime, while it waits it is subject to a $15 million penalty and possible sanctions for non-payment, and such a substantial liability certainly interferes with its ability to conduct business,” Sedwick wrote.
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