Why Jurisdiction in U.S. Maritime Cases Matters

Questions regarding U.S. federal courts’ maritime jurisdiction and the sources of maritime law have bedeviled practitioners since the Founding of the Republic. While such questions are often handled routinely, in some cases interesting (meaning, unwanted) disputes arise regarding the choice of law and/or the choice of forum. These disputes arise due to a shifting kaleidoscope of factors: the uncertain boundaries of maritime law, the multiple sources of law (the U.S. Constitution, federal statutes, common law, state law, treaties, other international sources, and even commercial practice), the multiple venues in which maritime disputes may be heard, and the American federal structure with dual sources of sovereignty (federal and state).

The practical effect of the kaleidoscope of jurisdictional factors can be seen in two recent federal court decisions. Both cases concerned the definition of the relevant claims for the purpose of determining federal admiralty jurisdiction. The first case raised the question whether and in what forum the United States itself may be sued, and the second raised the question whether an in personam lawsuit commenced in state court may be removed to federal court along with an in rem claim that was later dismissed.

The first case, Nederland Shipping Corp. v. United States, 2021 U.S. App. LEXIS 33920 (3d Cir. Nov. 16, 2021), concerned a refusal by US. Customs and Border Protection to clear a vessel for departure at the port of Wilmington, Delaware, because of suspected illegal discharge of “bilge” into the port waters. In order to permit departure, the vessel owner entered into a surety contract with the U.S. Government and posted a bond to cover its potential liability, but the vessel remained unreleased for several weeks. The vessel owner sued the U.S. Government in the U.S. District Court for the District of Delaware for losses caused by the delayed release of the vessel.

This dispute raised two questions: (i) whether the United States waived its sovereign immunity to be sued on the contract, and, if yes, then (ii) whether the federal district court was the appropriate forum to resolve the dispute, rather than the U.S. Court of Federal Claims (which is the default forum for non-tort monetary damage actions against the United States).[1] The trial court dismissed the case on the ground that the U.S. Government may be sued for money damages only in the Court of Federal Claims in the absence of an independent source of jurisdiction. The Court of Appeals, finding that there was such an independent source of jurisdiction, reversed.

The parties and the Court of Appeals all agreed that, if the surety contract was maritime in nature, then the answer to both questions would be affirmative, because: (i) the United States has waived its sovereign immunity for damage actions in admiralty (46 USC § 30903), and (ii) it is well established that the federal courts have the authority to hear “all Cases of admiralty and maritime Jurisdiction.” U.S. Const. Art. III, § 2; 28 USC § 1333. Relying extensively on the Supreme Court’s decision in Norfolk Southern Ry. Co. v. Kirby, 543 U.S. 14 (2004), the Court of Appeals proceeded to find that the surety contract was maritime in nature, rejecting the Government’s arguments to the contrary.

The Court of Appeals found that the “primary objective of the Agreement was . . . to set the {vessel} free to pursue maritime commerce” (at *13), and it found support in other cases involving “contracts that provide security in exchange for a vessel’s freedom to continue on its journey” (at *14). The Court distinguished cases in which there was no surety contract (i.e., cases that focused directly on the vessel owner’s liability for pollution) or in which the surety contract was not intended to enable release of a vessel to engage in seagoing commerce – the core principle underlying admiralty jurisdiction. Finally, the Court of Appeals noted that the surety contract, which was drafted by the U.S. Government, stated that any dispute regarding payment under the contract would be brought in federal district court, and provided that the Government’s in rem claims against the vessel would attach to the security per Federal Supplemental Admiralty Rule E. These contractual provisions evinced the parties’ view at the time it was negotiated that the contract was indeed maritime in nature.

The second decision, Finney v. Bd of Comm’s of Port of New Orleans, 2021 U.S. Dist. LEXIS 238412 (E.D. La. Dec. 14, 2021), concerned state-federal relations, particularly the question whether a maritime cause of action commenced in state court could be removed to federal court. The plaintiff, a crane operator at the Port of New Orleans who was injured while loading a vessel, filed suit in state court, claiming injuries due to negligence on the part of the Port, the owner of the vessel, and in rem against the vessel itself. The in rem claim was later voluntarily dismissed by the plaintiff. The Port defendant removed the case to federal district court under 28 USC § 1441, after which the plaintiff moved to remand back to Louisiana state court. The federal court agreed with the plaintiff and remanded the case.

The court noted that the claims fell within the federal “original jurisdiction,” so jurisdiction would certainly have vested if the case had initially been brought in federal court. However, since its first enactment in 1789, the statute establishing federal admiralty jurisdiction (28 USC § 1333(1)) has included a “saving to suitors” clause, which “sav{es} to suitors in all cases all other remedies to which they are entitled” – thus granting concurrent jurisdiction to state courts over maritime claims. This matters for removal purposes, because the – counter-intuitive but well-established – upshot is that, for removal purposes, federal district courts do not have “original jurisdiction” over maritime claims unless there is an independent basis for federal jurisdiction, such as diversity.

In rem proceedings provide such an independent basis for federal jurisdiction, because they have been recognized as exclusively federal in nature. In other words, an in rem proceeding is not an “other remedy” to which the authorization for remand would apply due to operation of the “saving to suitors” clause. Thus, it would appear that this case was properly removed to federal court. So why the remand?

This case, it should be recalled, involved both in personam claims against the Port and the vessel owner and an in rem claim against the vessel itself. There was no independent jurisdictional basis supporting removal of the in personam claims, and the court declined to exercise “supplemental jurisdiction” under 28 USC § 1367 to assert jurisdiction over the in personam claims after the in rem claim was voluntarily dismissed by the plaintiff. In fact, the court’s logic would have supported remand of the in personam claims even if the in rem claim had not been dismissed, which would have resulted in the potential awkwardness of parallel proceedings in state and federal courts arising from a single injury. That tension was avoided in this instance by the dismissal of the in rem claim, but it is clear that such a situation would be tolerated – indeed, anticipated – by the concept of dual sovereignties inherent in the United States’ federal system, as the court expressly noted.

One may ask, why does it matter whether a case proceeds in state or federal court? Or federal district court versus the Court of Federal Claims? To this question there are many answers – including perceived differences in procedures, scheduling, remedies, the degree of sympathy on the part of juries (if available) and judges, the level of skill and knowledge of the judges, etc. These are the sort of tactical objectives that lawyers love to thrash about and that, in fact, may very well influence the outcome of a dispute.

* * * * *

Please contact us at neil@neilellislaw.com for more information on developments in jurisdiction and sources of law in American maritime proceedings.

[1] The appeal also involved a separate issue whether the vessel owner could commence an action against the U.S. Government for compensation arising from unreasonable detention of the vessel, under the Act for Prevention of Pollution by Ships, 33 U.S.C. § 1904(h). That aspect of the appeal is not discussed further in this note.

Why the Department of Commerce’s Regulatory Revisions Matter

Recently the practice of antidumping and countervailing duty (anti-subsidy) law in the United States has included an increasing focus on the scope of AD/CVD orders and allegations of circumvention of such orders. Over the past 14 months, the U.S. Department of Commerce has undertaken to revise and update its regulations governing AD/CVD proceedings, leading to the recent publication of the most significant revisions to the regulations since they were promulgated in 1997. See Regulations to Improve Administration and Enforcement of Antidumping and Countervailing Duty Laws, 86 Fed. Reg. 52300 (Sept. 20, 2021).

The revisions affect several areas of AD/CVD practice, but those concerning scope and anti-circumvention inquiries have been particularly significant. This note will consider three important (though by no means the only important) aspects of the revised regulations – (i) the re-organization of the regulatory architecture governing scope and anti-circumvention inquiries; (ii) the more precise procedural structures imposed upon these inquiries; and (iii) the temporal impact on liquidation of entries subject to such inquiries.

Reorganization of the Regulatory Architecture. In the prior version of the regulations, scope and anti-circumvention proceedings coexisted, somewhat uneasily, in the same section, 19 C.F.R. § 351.225, entitled simply “Scope Rulings”. But the simple title of this section belied its contents, in that several of its subsections extensively discussed anti-circumvention proceedings, following the roadmap set out in the governing statute (19 U.S.C. § 1677j). The important, but distinct, concept of scope determinations – clarifying ambiguous boundaries of AD/CVD orders and addressing unanticipated situations that inevitably arise in the real world – was relegated to a single subsection (351.225(k)), entitled “Other scope determinations”, as if an afterthought. This composite structure also created some ambiguities in the description of the procedures that applied in the two distinct types of proceedings.

The revised regulations reorganize and clarify the structure by setting out two separate sections governing the two types of inquiries. Section 351.225 now governs scope inquiries alone. Anti-circumvention inquiries have been moved to a new section 351.226, in which the statutory categories are described and the process, although similar to that of scope inquiries in many respects, is separately presented. Although this reorganization may be viewed as simply moving words around on the page (something appreciated only by lawyers), in fact the increased clarity in the governing regulations should be welcomed by interested parties as well as their counsel.

Revisions to the Process. For scope inquiries, Commerce has set out, in Section 351.225(c), a format for applications, to help ensure that Commerce receives the information it needs to determine whether to initiate a scope inquiry. This application form has since been posted on Commerce’s website at https://access.trade.gov/Resources/ADCVD_Resources.aspx. The pre-structured application format should prove to be valuable for parties requesting scope rulings, because it should obviate Commerce’s increasingly common practice in recent years of taking considerable time to review scope requests, only to reject them because of some deficiency and instruct the requester to resubmit with additional information or to respond to additional questions. This practice has delayed the process far beyond the regulatory timeline.

Moreover, under the revised regulations, Commerce will have 30 days to decide whether to accept or reject a scope ruling application; if it takes no action within that time period, the application will be “deemed accepted” and the inquiry deemed initiated on Day 31 (Section 351.225(d)). The deadline for Commerce to issues its scope ruling is 120 days from the date of initiation, which may be extended to 300 days (Section 351.25(e)).

For anti-circumvention inquiries Commerce has set out a parallel request format in Section 351.226(c), and Commerce must decide whether to accept or reject the request within 30 days, which may be extended to 45 (Section 351.226(d)). The preliminary determination is due 150 days after initiation, and the final determination must issue 300 days after initiation, which may be extended for another 65 days (Section 351.226(e)). The regulations also provide for detailed deadlines for parties, during the course of a proceeding, to submit factual information and rebuttals.

The key point for the purpose of this note is not the fact that there are deadlines, which existed in the previous version of the regulations. Rather, the significance is in Commerce’s apparent intent to live within time limits. The deadlines are self-imposed and therefore unilaterally waivable, so it will be interesting to see if Commerce is able to live within those temporal constraints. But parties to these proceedings can be sure that their filing deadlines will be scrupulously imposed, so they demand careful attention.

Although this note does not engage in a review of the substantive issues involved in scope and anti-circumvention proceedings, two significant developments are worth mentioning: First, in Section 351.225(k), Commerce has reorganized the hierarchy and has described more precisely the sources to which it will refer in making scope determinations. The famous “Diversified Products” criteria, over which practitioners have ruminated for decades, have been retained, but their role in the hierarchy has been redefined. Second, Commerce has added a specific subsection governing scope inquiries involving “mixed media” – in which scope merchandise is imported as part of a “kit” or larger package that includes non-scope items (Section 351.225(k)(3)). Such cases have led to disputes and litigation for many years. It will be interesting to see if the addition of a regulatory provision will provide much-needed clarity for such situations.

Temporal Impact on Liquidation. The prior version of the regulations created some confusion regarding the retroactive impact of scope rulings and affirmative anti-circumvention determinations. This uncertainty led to litigation, reflected, for example, in the Court of Appeals’ simultaneous decisions in Sunpreme, Inc. v. United States, 946 F.3d 1300 (Fed. Cir. 2020) (en banc), and United Steel & Fasteners, Inc. v. United States, 947 F.3d 794 (Fed. Cir. 2020). The revised regulations clarify the point that was sorted out through litigation – namely that entries whose liquidation has previously been suspended by Customs (for whatever reason) may be covered by a scope ruling or anti-circumvention determination, and hence subject to AD/CVD duties, even if the entries occurred prior to the date of initiation of the inquiry. See Sections 351.225(l) and 351.226(l).

In addition, Commerce has revoked the final sentence of the previous version of section 351.225(l)(2), which explained that, if a preliminary scope determination was negative, Commerce would direct Customs to cease the suspension of liquidation and refund any previous cash deposits. The revocation of that provision means that in future scope proceedings, a preliminary negative scope determination will have no “real life” impact. Rather, the status quo will remain in effect – cash deposits on prior entries will remain with the Treasury and cash deposits will continue to be required on subsequent entries until Commerce issues its final scope ruling.

As a coda, on September 27, Commerce published a notice in the Federal Register explaining that parties wishing to receive notices of scope inquiries under specific AD/CVD orders must file requests to be included on the relevant “annual inquiry service list”. See Scope Ruling Application; Annual Inquiry Service List; and Informational Sessions, 86 Fed. Reg. 53205 (Sept. 27, 2021). The September 27 notice provides specific deadlines for the filing of such requests. This process will eliminate the automatic inclusion, in scope service lists, of all parties from prior segments of AD/CVD proceedings, which had the effect of creating long, stale, burdensome service lists. Although the filing requirement creates another deadline to be watched, the streamlining of service lists in scope proceedings is to be welcomed.

* * * * *

Through his 38 years of experience in the international trade regulatory field, Neil Ellis has worked extensively on issues involving the scope of AD/CVD orders and anti-circumvention inquiries. Please contact us at neil@neilellislaw.com for more information on such proceedings and on other important regulatory revisions recently enacted by Commerce.

Russia’s Market Economy Status in Play?

The U.S. Department of Commerce published in the Federal Register today its notice of initiation of the investigation of Urea Ammonium Nitrate Solutions from Russia and Trinidad and Tobago. 86 Fed. Reg. 40008. Of great significance is the fact that petitioners alleged that Russia functions as a non-market economy (NME) and that Commerce therefore should calculate the Russian exporters’ dumping margins on the basis of the NME methodology used primarily for China and Vietnam. The Notice makes it appear that Commerce will use both market economy and NME methodologies to calculate dumping margins, as it goes through the process of considering which category should apply.

This development means that the burden placed on the Russian exporters in this investigation will likely be heavy, as they will have to submit Normal Value data based on two different methodologies. But the implications are broader. If Russia is found to be a NME, this would be the first time that a country that had “graduated” to market economy status, as Russia did in 2002, would be returned to NME status. The impact would be felt not just for the specific product and exporters involved in the UANS investigation, but across all anti-dumping (and countervailing duty) proceedings involving Russia – including, for example, various steel and other fertilizer products. It has further implications for “suspension agreements” involving Russian exports, which were converted from NME to market economy architecture in the years after the 2002 determination. That range of cases and agreements will be impacted despite the fact that the Russian exporters and U.S. importers of such products are not participants, and have no standing as “interested parties,” in the current UANS investigation.

The broad impact of a market economy determination is one reason that Commerce, in 2001-02, opened a country-wide inquiry into Russia’s economic status – independent of any specific anti-dumping proceeding – and applied its determination prospectively when it determined that Russia should be treated as a market economy. Further, the market economy-vs.-NME determination is subject to a range of criteria, some economic and some quasi-political, which means that the decision can be swayed by geopolitical considerations. And to state the obvious, the United States’ geopolitical relationship with Russia is very different today from 2001-02. Finally, tucked away in U.S. anti-dumping law is a provision (19 U.S.C. § 1677(18)(D)) that Commerce’s determinations on NME status “shall not be subject to judicial review” – thus ensuring that such geopolitical/economic determinations are final.

* * * * *

Neil Ellis was extensively involved in the negotiation of NME-based suspension agreements between Commerce and Russia in the late 1990s, and in the 2001-02 proceedings that resulted in Commerce’s decision to treat Russia as a market economy. For more information on the economic and political issues underlying NME status determinations, please contact us at neil@neilellislaw.com.