United States Court of Appeals
For the First Circuit
Nos. 02-1621, 02-1792
UNITED PARCEL SERVICE, INC., and
UNITED PARCEL SERVICE CO.,
Plaintiffs, Appellees/Cross Appellants,
v.
HONORABLE JUAN ANTONIO FLORES-GALARZA,
Secretary of the Department of the Treasury
of the Commonwealth of Puerto Rico, in his official capacity,
Defendant, Appellant/Cross Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen Consuelo Cerezo, U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella and Howard, Circuit Judges.
Luis Sanchez Betances, with whom Gerardo De Jesus Annoni and
Sanchez-Betances & Sifre, P.S.C. were on brief, for appellants.
Paul T. Friedman, with whom Ruth N. Borenstein, Morrison &
Foerster, LLP, Pedro J. Manzano and Fiddler Gonzalez & Rodriguez,
LLP, were on brief, for appellees.
February 4, 2003
HOWARD, Circuit Judge. The Commonwealth of Puerto Rico
has enacted a statutory regime that prohibits an interstate air
carrier from delivering any package unless the carrier first
provides proof that the package's addressee has paid the
appropriate excise tax, or the carrier prepays the amount of the
tax on the addressee's behalf. Plaintiffs United Parcel Service,
Inc., and United Parcel Service, Co., (collectively "UPS")
persuaded the district court to enjoin the Commonwealth's Treasury
Secretary from enforcing these delivery restrictions on the grounds
of federal preemption. The parties have filed cross-appeals which
raise difficult questions about the lawfulness and proper scope of
the injunction in light of arguably conflicting federal statutes
that, on the one hand, strip the district court of jurisdiction to
entertain suits seeking to restrain the collection of any Puerto
Rico tax and authorize the Commonwealth to exercise taxing
jurisdiction over packages as soon as they enter the island, and,
on the other hand, limit the Commonwealth's ability to regulate an
air carrier's service. In the end, we affirm the court's central
ruling but remand for reconsideration of several peripheral
matters.
Before us, Defendant Juan A. Flores-Galarza, in his
official capacity as the Secretary of the Department of the
Treasury of the Commonwealth of Puerto Rico (the "Secretary"),
contends that the district court erred in finding that it had
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jurisdiction over the controversy, that Puerto Rico's restrictions
on delivery were preempted by federal law, and that an
administrative fine imposed by the Secretary was invalid and
unenforceable. The Secretary also makes an alternative argument
that the injunction is overbroad. UPS's cross-appeal challenges
the district court's exclusion from the scope of the injunction a
statutory provision requiring the payment of license fees by air
carriers.
I. Factual and Procedural Background
The plaintiffs are corporate affiliates with common
controlling ownership engaged in the delivery of packages
worldwide. United Parcel Service Co. is authorized by the Federal
Aviation Administration to operate as an air carrier for the
transportation of property, and United Parcel Service, Inc. is
engaged in the transportation of property by motor vehicle. UPS
offers door-to-door delivery service and the delivery of packages
on an express or time-guaranteed basis. In certain circumstances,
UPS refunds delivery charges for express packages that have not
been timely delivered. UPS ships approximately 10,000 packages per
day to Puerto Rico from the continental United States. UPS's
delivery operations function as an integrated system, requiring
extensive planning and coordination among its operating facilities,
ground fleet, and air fleet. Delays and disruptions in operations
can affect thousands of packages in transit.
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Puerto Rico imposes an excise tax1 on "articles of use
and consumption," including those introduced from elsewhere. 13
P.R. Laws Ann. § 9005. The general tax rate is 5 percent of the
taxable price, although the rate varies depending on the article,
and there are numerous exemptions. See, e.g., 13 P.R. Laws Ann.
§ 9015, 9031. No interstate carrier transporting a package subject
to an excise levied by the Commonwealth may deliver the package to
its intended recipient unless the recipient (the "consignee")
presents a certificate from the Department of the Treasury
evidencing payment of the requisite tax. 13 P.R. Laws Ann. § 9066
("§ 9066"). If a carrier delivers a package without obtaining this
certificate, the carrier may be required to pay an administrative
fine to the Secretary, a tax on the package's contents, and any
surcharges and interest accrued from the date the items were
introduced into Puerto Rico. See id.; see also 13 P.R. Laws Ann.
§§ 8080(a), 8140(6).
As an alternative to the certificate system established
by § 9066, carriers such as UPS may prepay the taxes owed, deliver
the packages, and seek reimbursement from the packages' consignees.
13 P.R. Laws Ann. § 9077; Article 6.005 of Regulations for the
Administration and Enforcement of the Excise Tax of the
1
An excise tax is "[a] tax imposed on the manufacture, sale,
or use of goods (such as a cigarette tax), or an occupation or
activity (such as a license tax or an attorney occupation fee)."
Black's Law Dictionary 585 (7th ed. 1999).
-4-
Commonwealth of Puerto Rico (the "Articles"). To take advantage of
this alternative, carriers must comply with a complex statutory and
regulatory scheme resembling the federal customs system. Carriers
must provide the Department of the Treasury, on a daily basis, a
commercial invoice for each package that describes the package's
contents and their cost, as well as a "shipment manifest" that
lists packages by specific categories. See 1994 Procedure for
Freight Air and Ocean Forwarders Who Are Authorized for the
Secretary of the Treasury to Pay Taxes and Take Credit for Articles
Returned or Paid In Excess or Improperly ("1994 Procedure") ¶¶ 1-4,
8, 11.
Additionally, carriers who prepay taxes must make
packages available for inspection by Treasury agents, and give the
agents access to their facilities to supervise the processing of
packages. See 1994 Procedure ¶ 10. Carriers must create,
maintain, and make available for inspection extensive records
relating to the prepayment of fees. See 13 P.R. Laws Ann. §§ 8102,
8140(1); Articles 5.005(7),(11), 6.005. Puerto Rico also requires
prepaying carriers to post a bond in excess of the amount required
of all carriers under general licensing provisions.2 13 P.R. Laws
2
All carriers, even if they do not participate in the
prepayment mechanism, must obtain a license from the Secretary to
conduct business in the Commonwealth. See 13 P.R. Laws Ann. §
9060. The Secretary retains the discretion to deny, suspend, or
revoke such licenses. See 13 P.R. Laws Ann. § 9061; Article 5.005.
To obtain a license, carriers must pay a license fee, submit a copy
of the income tax return and criminal record of each corporate
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Ann. § 9077. Finally, carriers must calculate and pay the taxes
owed by the consignees. 13 P.R. Laws Ann. § 9077; Article 6.005.
Unlike commercial carriers, the United States Postal
Service may deliver packages to destinations in Puerto Rico without
obtaining certificates from recipients or complying with the
prepayment scheme. Recipients of packages subject to the excise
tax must pay the tax directly to the Department of the Treasury
within two business days of receiving a package through the U.S.
mail. 13 P.R. Laws Ann. § 9068(b)(2).
As described in greater detail in the opinion of the
district court, United Parcel Service Inc., v. Flores-Galarza, 210
F. Supp. 2d 33, 38-40 (D.P.R. 2002), UPS has been required to alter
significantly the business practices it employs for the rest of the
United States to comply with the Commonwealth's prepayment scheme.3
UPS must, among other things, collect and process comprehensive
data on the contents of packages,4 perform tax ratings on these
officer, and post a bond. See 13 P.R. Laws Ann. §§ 9059,
9060(a)(1)-(6), 9064; Articles 5.004, 5.008.
3
If UPS chose not to comply with the Commonwealth's prepayment
scheme, delivery would be delayed until a consignee obtained
information about the contents of a package, determined the
applicable tax, paid the tax to the Secretary, obtained a
certificate authorizing delivery, and notified UPS that these steps
had been completed.
4
UPS does not require persons shipping to other parts of the
United States to identify the contents of a package or their value.
For packages being shipped to Puerto Rico, however, shippers must
complete two commercial invoices with this information so that UPS
can determine the amount of tax owed.
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contents, and delay the delivery of packages until all necessary
data have been obtained, or until Treasury agents have had an
opportunity to inspect the packages on site. UPS also bears the
burden of seeking reimbursement from consignees, pays additional
amounts if agents alter assessments on packages after they have
been delivered, and maintains a $1.5 million bond. UPS incurs more
than $4.6 million per year in costs associated with its compliance
with the prepayment scheme.
In 1994, Congress passed the Federal Aviation
Administration Authorization Act (the "FAA Authorization Act"),
which provided, in relevant part, that no state (defined to include
the Commonwealth of Puerto Rico) may "enact or enforce a law,
regulation, or other provision having the force and effect of a law
related to a price, route, or service of an air carrier . . . when
such carrier is transporting property by aircraft or by motor
vehicle." 49 U.S.C. § 41713(b)(4)(A). This legislation recodified
a preemption provision of the Airline Deregulation Act of 1978,
Pub. L. No. 95-504, § 105, 92 Stat. 1708.
In late 1997, the Senate of Puerto Rico passed a
resolution directing various Senate committees to investigate the
FAA Authorization Act's impact on existing statutes and regulations
of Puerto Rico affecting carriers' prices, routes and services.
It did so after reaching the preliminary conclusion that the
existing scheme might be in conflict with federal law. See S. Res.
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917, 13th Leg. Assem., 2d Ord. Sess. (P.R. 1997). Two years later,
the Puerto Rico legislature confirmed this conclusion, finding that
numerous laws and regulations, including those of the local excise
tax system, were impacting or affecting the prices, routes and
services of air carriers and affiliated motor carriers. See Act
No. 322, 13th Leg. Assem., 6th Ord. Sess. (P.R. 1999) ("Act 322").
In November 1999, the legislature passed Act 322, which would allow
air carriers to transport packages to consignees without
restriction, and require consignees to pay the excise tax within
two business days. Id. Under Act 322, air carriers would provide
the Secretary with "the minimum information agreed as necessary in
order for the Secretary to proceed to collect the excise taxes,
without unreasonably interfering in the ordinary course of business
in interstate commerce." Id. This new legislation also exempted
air carriers from licensing requirements. Id.
The provisions of Act 322 removing impediments to the
delivery of packages would not become effective until June 30,
2001. The legislature concluded that the intervening period would
be sufficient for the Department of the Treasury to develop and
implement an alternative system consistent with federal law. See
id. In the interim, Act 322 provided immediate relief for air
carriers by authorizing them to withhold five percent of the taxes
they prepaid to the Secretary to defray the costs associated with
the existing system. See id.
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Act 322's provisions allowing unrestricted delivery were
effective for only two business days before the statute was
repealed. In July 2001, the Puerto Rico legislature reinstated the
§ 9066 conditional ban on delivery, as well as the prepayment
alternative. During the two business days that Act 322 was
effective, UPS delivered packages without collecting excise taxes.
UPS provided the Secretary with commercial invoices for each
package delivered during those days, which included some, but not
all, of the information previously required to be included in daily
"shipment manifests."
On the same day that Act 322 was repealed, July 3, 2001,
UPS brought suit in the United States District Court for the
District of Puerto Rico to enjoin the enforcement of those statutes
and regulations affecting its delivery of packages. In its
complaint, UPS alleged that Puerto Rico’s restrictions on delivery
were preempted by the FAA Authorization Act and therefore violated
the Supremacy Clause, U.S. Const. art. VI, cl.2.5 UPS also alleged
that the scheme violated the Commerce Clause, U.S. Const. art. I,
§ 8, cl.3; Equal Protection Clause, U.S. Const. amend. XIV, cl. 1.;
and Takings Clause, U.S. Const. amend. V.
5
In particular, UPS sought to enjoin 13 P.R. Law Ann. §§ 8102,
8140, 9060, 9061, 9064, 9066, 9068, 9077; and the 1994 Procedure.
It also requested relief from any other statute, regulation or
provision having the force and effect of law that fell within the
scope of the FAA Authorization Act's preemption provision.
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In the weeks immediately following the filing of the
complaint, the Secretary directed UPS to turn over shipping
manifests for the two-day period in July 2001 when Act 322 was in
effect. UPS agreed to do so, but only on the condition that the
information would not be used in connection with the pending
litigation. The Secretary rejected this offer. On November 26,
2001, the Secretary issued an administrative fine against UPS of
$14.24 million, citing UPS's failure to provide certain information
allegedly "agreed upon" at a meeting of the parties on June 29,
2001. This amount represented a $1000 fine for each package
delivered, based on the Secretary’s estimate that approximately
7120 packages were processed each day. UPS made a timely request
for reconsideration and an administrative hearing, reserving its
right to contest the validity of the fine.
In addition to pursuing its administrative remedies, UPS
requested that the district court grant a temporary restraining
order or preliminary injunction to prevent the Secretary from
enforcing the challenged scheme or the administrative fine. In
December 2001, the district court denied this request, concluding
that UPS failed to demonstrate that it would suffer irreparable
harm if forced to seek relief at the administrative level or that
bypassing the administrative process was justified under the
circumstances. In reaching its decision, the district court found
that the fine arose from a dispute over the information that the
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parties "purportedly agreed" would be provided to the Secretary.
UPS appealed the district court's decision to this Court.6
By March 2002, the Secretary had not responded to a
motion for summary judgment filed by UPS in August 2001, prior to
the emergence of the administrative fine controversy. The district
court ordered the Secretary to file an opposition by March 21,
2002.7 The Secretary opposed UPS’s motion for summary judgment on
April 8, 2002, but failed to submit any statement of contested
material facts as required by Local Rule 311.12.
In May 2002, the district court issued a series of
opinions and orders that, collectively, granted summary judgment in
favor of UPS and held that the FAA Authorization Act preempted
Puerto Rico’s statutory and regulatory scheme affecting the
delivery of packages. The district court permanently enjoined the
enforcement of all statutory and regulatory provisions challenged
by UPS except 13 P.R. Laws Ann. § 9059, a licensing requirement
6
United Parcel Service, Inc. v. Flores-Galarza, No. 01-2767.
UPS also asked this Court for injunctive relief pending appeal, or,
alternatively, an expedited appeal. We denied these requests, but
did so without prejudice to UPS's renewal of its request for
injunctive relief pending interlocutory appeal if the district
court denied a pending motion seeking the same relief.
7
The Secretary then moved to stay the proceedings pending
UPS's interlocutory appeal, or, alternatively, to enlarge the
period for discovery and for responding to the motion for summary
judgment. The district court denied this motion, citing the
Secretary’s failure to comply with Rule 56(f) of the Federal Rules
of Civil Procedure, and noting the ample six-month period following
the filing of the motion for summary judgment that the Secretary
could have utilized to conduct discovery.
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referenced in UPS's summary judgment papers but not expressly
included within UPS's request for relief. The district court also
invalidated the $14.24 million administrative fine imposed by the
Secretary on the ground that it was imposed pursuant to the
preempted scheme. The district court based its decision on the
papers filed by the parties, and did not convene a hearing before
imposing the injunction.8
The Secretary appealed, and UPS cross-appealed solely to
the extent the district court excluded the licensing provision, §
9059, from the scope of the permanent injunction. UPS also
obtained a voluntary dismissal of its appeal to this Court on the
issue of enforcement of the administrative fine. See note 6,
above. In July 2002, at the request of the Secretary, this Court
granted a stay of the permanent injunction pending resolution of
the appeal.9
8
The district court had previously scheduled for October 1,
2001 an evidentiary hearing consolidating UPS's requests for
preliminary and permanent injunctive relief. Citing a need to
first address a motion to dismiss for lack of subject matter
jurisdiction filed by the Secretary, the court cancelled the
hearing, but did not reschedule it before reaching a final decision
in this case.
9
The injunction was stayed by a 2-to-1 decision of a panel of
this Court. The majority noted that it could not be certain that
the appellant had shown a clear probability of success, but that
"the issues are complicated and in our view the equities and the
public interest justify maintaining the status quo ante for the
additional period necessary to entertain the appeal." Judge
Torruella voted against staying the permanent injunction, noting
that the Secretary had not demonstrated a probability of success,
and that UPS, unlike the Secretary, would suffer irreparable harm
if the stay was imposed.
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II. Analysis
We replay a familiar refrain. Summary judgment is
appropriate where there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law.
Rochester Ford Sales, Inc. v. Ford Motor Co., 287 F.3d 32, 38 (1st
Cir. 2002). We review de novo the district court's grant of
summary judgment. See id. In so doing, we construe the record in
the light most favorable to the nonmovant, resolving all reasonable
inferences in that party's favor. See id. Here, however, the
district court, acting within its discretion to manage its cases,
accepted the uncontested facts submitted by UPS because of the
Secretary's failure to comply with Local Rule 311.12 in its
opposition.10 See A.M. Capen's Co., Inc. v. American Trading and
Prod, Corp., 202 F.3d 469, (1st Cir. 2000). Because we confine our
review to the record at the time the district court made its ruling
on the motion for summary judgment, the facts set forth in UPS's
motion for summary judgment are not in dispute. See id. Those
10
The district court found UPS's statement of facts to be
uncontested and therefore admitted pursuant to Local Rule 311.12 of
the United States District Court for the District of Puerto Rico.
See Corrada Betances v. Sea-Land Service, Inc., 248 F.3d 40, 43
(1st Cir. 2001) ("[N]onmovant's failure to present a statement of
disputed facts, embroidered with citations to the record, justifies
deeming the facts presented in the movant's statement of undisputed
facts admitted"); Ruiz Rivera v. Riley, 209 F.3d 24, 28 (1st Cir.
2000)("[P]arties ignore [Local Rule 311.12] at their peril");
Ayala-Gerena v. Bristol Myers-Squibb Co., 95 F.3d 86, 95 (1st Cir.
1996); Laracuente v. Chase Manhattan Bank, 891 F.2d 17, 19 (1st
Cir. 1989); Alvarado-Morales v. Digital Equip. Corp., 843 F.2d 613,
615 (1st Cir. 1988).
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facts not included in UPS's statement, specifically those facts
relating to the administrative fine imposed after UPS sought
summary judgment, are considered in the light most favorable to the
Secretary. See Rochester Ford, 287 F.3d at 38. We review the
district court's grant of injunctive relief "in so far as it
involves no question of law" for abuse of discretion. Conservation
Law Found., Inc. v. Busey, 79 F.3d 1250, 1256 (1st Cir. 1996).
A. Federal Jurisdiction
As a threshold issue, the Secretary contends that a
provision of the Butler Act, codified at 48 U.S.C. § 872,11 deprived
the district court of jurisdiction over the action filed by UPS.
Under the Butler Act, "[n]o suit for the purpose of restraining the
assessment or collection of a tax imposed by the laws of Puerto
Rico shall be maintained in the United States District Court for
the District of Puerto Rico." 48 U.S.C. § 872. For the reasons
that follow, the prohibition does not apply to this case.
The Secretary contends that UPS has challenged the
statutory and regulatory mechanism for collecting the excise tax,
thus UPS seeks to restrain the assessment or collection of the tax
11
This provision of the Butler Act is analogous to the Tax
Injunction Act, 28 U.S.C. § 1341, which limits the jurisdiction of
federal district courts to entertain suits to enjoin the levying or
collection of a state tax. The two statutes employ different
language (i.e. the Tax Injunction Act includes an express exception
that the Butler Act lacks), but "have been construed in pari
materia." Trailer Marine Transp. Corp. v. Rivera-Vazquez, 977 F.2d
1, 5 (1st Cir. 1992) (citing Parker v. Agosto-Alicea, 878 F.2d 557,
558-59 (1st Cir. 1989)).
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within the meaning of the Butler Act. But the action initiated by
UPS sought to enjoin only those provisions of the laws and
regulations of Puerto Rico that prohibit or interfere with the
delivery of packages. UPS did not challenge the amount or validity
of the excise tax, nor the authority of the Secretary to assess or
collect it. The relief sought by UPS leaves the Secretary free to
collect the tax from those who owe it.
Not every statutory or regulatory obligation that may aid
the Secretary's ability to collect a tax is immune from attack in
federal court by virtue of the Butler Act's jurisdictional bar.
See Wells v. Malloy, 510 F.2d 74, 76-77 (2d Cir. 1975)(Friendly,
J.)(action questioning the constitutionality of a statute providing
for suspension of a driver's license for failure to pay motor
vehicle taxes did not constitute an attempt to restrain the
assessment or levy of the tax); see also Mobil Oil Corp. v. Tully,
639 F.2d 912, 918 (2d Cir. 1981)(holding that the "mere fact that
the [challenged provision] is contained in a tax law of the State
should not lead to automatic sanctuary" under the Tax Injunction
Act). Such an interpretation extends the concept of tax
collection, and therefore the breadth of the Butler Act, too far.
See Wells, 510 F.2d at 77 (rejecting as overbroad an interpretation
of tax collection that would include "anything that a state has
determined to be a likely method of securing payment").
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Like the Tax Injunction Act, the Butler Act's
jurisdictional bar extends to
cases where taxpayers were repeatedly using the federal
courts to raise questions of state or federal law going
to the validity of the particular taxes imposed upon them
-- not to a case where a taxpayer contended that an
unusual sanction for non-payment of a tax admittedly due
violated his constitutional rights, an issue which, once
determined, would be determined for him and all others.
Id. (notation omitted). Admittedly, the conditional ban on package
deliveries may not seem to be in some respects as unusual as the
drivers' license penalty in Wells. Nevertheless, because the
delivery ban targets third parties instead of those who owe the
tax, this is not a prototypical Tax Injunction Act or Butler Act
case. UPS does not seek to restrain a system that "produce[s]
money or other property directly." Id. Instead, by exposing
commercial carriers to fines and penalties (including the loss of
their license to do business in Puerto Rico) if they choose to
deliver a package without collecting a certificate from the
recipient, § 9066 produces tax money "indirectly through a more
general use of coercive power," id., using the threat of sanctions
against private parties who do not even owe the taxes at issue.12
12
In this respect, the case before us is distinguishable from
cases cited by the Secretary challenging payroll withholding as a
mechanism of tax collection. See United States v. American Friends
Society Comm., 419 U.S. 7 (1974); Sipe v. Amerada Hess Corp., 689
F.2d 396 (3d Cir. 1982). These challenges, which fell outside the
jurisdiction of the district courts under the Anti-Injunction Act,
26 U.S.C. § 7421(a) and the Tax Injunction Act, 28 U.S.C. § 1341,
respectively, attacked a method of tax collection. Section 9066 is
a conditional ban on package deliveries, not a method of tax
collection.
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This is not a system of tax collection within the meaning of the
Butler Act.
The fact that commercial carriers have the option -- a
perhaps generous characterization -- to participate in the
alternative prepayment system does not alter the equation. The
prepayment alternative would have no teeth independent of the §
9066 ban on service. It may thus be the case that, for all
practical purposes, commercial carriers have been conscripted into
making payments on behalf of taxpayers, thereby promoting the
Secretary's revenue raising efficiency as a condition of doing
business. But we should not deny a federal forum to a party
challenging the constitutionality of this system on the ground that
an adverse ruling could make the Secretary's job harder.13
B. Preemption under the FAA Authorization Act
Urging that Puerto Rico's restrictions on delivery are
not preempted by the FAA Authorization Act, the Secretary advances
two principal arguments. First, the Secretary notes that Puerto
Rico has a special taxing power under Section 3 of the Federal
Relations Act, 48 U.S.C. § 741a. According to the Secretary, the
13
Our decision in United States Brewers Association, Inc. v.
Perez, 592 F.2d 1212 (1st Cir. 1979) is not to the contrary.
There, the plaintiffs challenged the Commonwealth's tax on beer
produced by large manufacturers, seeking either to restrain the
imposition of the tax, or to require the Commonwealth to impose the
tax on all manufacturers. See id. at 1215. That case, unlike the
case now before us, directly attacked the Commonwealth's taxing
authority. See id.
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FAA Authorization Act cannot be read to limit this unique taxing
authority by preempting statutes and regulations that merely
implement it. Second, the Secretary contends that Congress did not
intend to preempt the challenged statutes and regulations, which
either fall outside the scope of the FAA Authorization Act's
preemptive effect or are preserved under other provisions of
federal law. Although ably pressed, both of these arguments
ultimately come up short.
1. The Role of the Federal Relations Act
Section 3 of the Federal Relations Act provides in part
that any excise tax imposed by Puerto Rico "may be levied and
collected . . . as soon as the [taxable items] are manufactured,
sold, used, or brought into the island." 48 U.S.C. § 741a. The
Secretary says that the parcel delivery requirements merely
implement Puerto Rico's taxing authority under the Federal
Relations Act. So, he argues, "this case does not involve a state
statute that is subject to preemption by a federal statute," but
instead involves only the interface between two federal statutes,
the FAA Authorization Act and the Federal Relations Act. The case
would thus turn on whether the FAA Authorization Act impliedly
repealed the Federal Relations Act. The Secretary says it did not.
Pointing to Congress's 1927 addition of the language that
the excise tax may be levied "as soon as" taxable goods are brought
into Puerto Rico, and that U.S. Customs and Postal Service
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officials "are directed to assist the appropriate officials of the
Puerto Rican government in the collection of these taxes,"14 48
U.S.C. § 741a, the Secretary contends that Puerto Rico has specific
Congressional authorization to restrict the delivery of packages as
necessary to collect the excise tax.
Taken alone, Section 3 would seem to strengthen the
Secretary's hand in challenges to the tax and perhaps even its "no
delivery" feature, at least as to those challenges based on the
Commerce Clause. In practice, Puerto Rico has wielded a unique
power as a result of the Federal Relations Act. In the years
following the 1927 amendment, Puerto Rico succeeded in imposing a
state tax on oil imported into bonded warehouses where New York
failed -- the critical distinction between the two taxes being the
specific taxing authority of Puerto Rico under the Federal
Relations Act. Compare West India Oil Co. v. Domenech, 311 U.S.
20, 25-27 (1940)(permitting Puerto Rico to impose tax on fuel oil
imported into bonded warehouses because of Puerto Rico's taxing
authority under 48 U.S.C. § 741a), with McGoldrick v. Gulf Oil
Corp., 309 U.S. 414, (1940) (invalidating a New York sales tax
imposed on crude oil imported into warehouses under bond because of
its conflict with federal statutes occupying the field). The West
India Court allowed Puerto Rico to impose the tax, despite federal
14
Section 3 of the Federal Relations Act was amended by the
Butler Act of 1927, ch. 503, 44 Stat. 1418, the same legislation
that imposed the federal jurisdictional limitation on tax suits
discussed in Section II.A., above.
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statutes enacted after the Federal Relations Act and its 1927
amendment indicating Congress's intent to regulate bonded
warehouses. See West India, 311 U.S. at 29 ("[C]onsidering the
relationship of general Congressional legislation to legislation
specifically applicable to our territories, and possessions,
repeals by implication are not to be favored and will not be
adjudged unless the legislative intention to repeal is clear.").
Despite Section 3 of the Federal Relations Act’s reach,
there does not appear to be any evidence that Congress focused at
all on the delivery bar issue, much less intended a specific
endorsement of a scheme in which carriers were to be barred from
making deliveries until they produced certificates that as a
practical matter could not be done on a widespread basis. Congress
intended that the 1927 amendment to the Federal Relations Act
resolve existing controversy over whether taxes could be imposed on
goods still in their original packaging.15 See H.R. Rep. No. 1370,
at 2 (1926); S. Rep. No. 1011, at 2 (1926) Previously, courts had
held that U.S. Customs and Postal Service officials could not
withhold delivery of incoming articles, "as such tax collected in
15
At the time of the amendment, the "original package"
distinction was significant: Existing Supreme Court precedent held
that state taxes on goods that were "imports" and not yet
"incorporated into the mass of property in the State" (such as
goods in their original packages) were invalid under the Import-
Export Clause, U.S. Const. art. I, § 10, cl. 2. See Low v. Austin,
80 U.S. (13 Wall.) 29 (1871); see also United States v.
International Bus. Mach. Corp., 517 U.S. 843 (1996)(chronicling the
rise and fall of the "original package" doctrine).
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this manner is in effect a customs duty." Id. Puerto Rico was
thus hindered in its efforts to levy the tax, and Congress amended
Section 3 of the Federal Relations Act "[f]or the purpose of
righting this situation." Id. The change gave express authority
to federal officials to aid in the collection of the tax, and
clarified that incoming articles were subject to Puerto Rico's
taxing jurisdiction "as soon as" they entered the island (whether
arriving from the United States mainland or from foreign
countries). It neutralized "the regulatory effect of the customs
laws and regulations in so far as they protected articles from
local taxation after their arrival." West India, 311 U.S. at 28.
Just as Congress did not have in mind the authority
claimed by Puerto Rico in this case, neither is there evidence that
Congress had this scheme in mind when it enacted the FAA
Authorization Act. We are left with two different federal statutes
(the Federal Relations Act and the FAA Authorization Act), neither
of which specifically address the issues raised in this case. As
to these issues, therefore, neither statute has any automatic
priority over the other.
In our view, the Federal Relations Act and the FAA
Authorization Act can co-exist harmoniously. Our analysis proceeds
down a well worn path: where two federal statutes are alleged to be
in conflict, we look to whether they touch upon the same subject,
and if so, whether we can give effect to both statutes. See Rhode
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Island v. Narragansett Indian Tribe, 19 F.3d 685, 703 (1st Cir.
1994). We are further guided by the familiar principle of
construction that implied repeals are disfavored. Id. Here, the
statutes at issue address two very different subjects: Puerto
Rico's taxing authority on the one hand and deregulation of the air
transportation industry on the other.
The Federal Relations Act does not suggest that Puerto
Rico is empowered to impose restrictions on the delivery of
packages by private carriers. The legislative history describing
the purpose of the 1927 amendment includes the observation that
Congress expected that the government of Puerto Rico would "make
use of this power so as not to unnecessarily place any barriers in
the way of the free-trade conditions now existing" between Puerto
Rico and the mainland United States, "which is [a] principal factor
in the progress and prosperity of P[ue]rto Rico." H.R. Rep. No.
1370, at 2 (1926); S. Rep. No. 1011, at 2 (1926). We do not
interpret the statute as conferring a broad authority to regulate
the flow of packages in interstate commerce that conflicts with the
FAA Authorization Act. To do so would be to manufacture a
statutory conflict where none exists.
As a practical matter, it is not the case that the
Secretary's exercise of his taxing authority necessitates the
regulation of packages entering Puerto Rico. Packages arriving by
U.S. mail are delivered without interference, and recipients are
-22-
required to pay any applicable tax within 48 hours. See 13 P.R.
Laws Ann. § 9068. The Secretary has introduced no evidence
suggesting why this approach (or some other legislatively
established process) would not be suitable for packages arriving by
air carrier. Nor has he put forth a rational explanation for
treating these two forms of delivery so differently.16
2. Legislative Intent to Preempt
The Secretary's second major argument is that Congress
did not intend to preempt the challenged scheme, which either falls
outside the scope of the preemption clause of the FAA Authorization
Act, or is preserved under other provisions of federal law. So,
the reasoning goes, the district court construed too broadly the
scope of the FAA Authorization Act's express preemption provision,
which provides that no state may
[E]nact or enforce a law, regulation, or other provision
having the force and effect of a law related to a price,
route, or service of an air carrier . . . when such
carrier is transporting property by aircraft or by motor
vehicle.
49 U.S.C. § 41713 (emphasis added). In determining the scope of
this provision, we look to Congress's intent, which is revealed in
16
Instead of addressing whether packages delivered by air
carriers ought to be treated in the same manner as those delivered
by the U.S. mail, the Secretary appears to contend that he lacks
authority to impose comparable regulations on the U.S. postal
system, which is within the "exclusive domain of Congress."
Whether or not this is true, the plain language of Section 3 of the
Federal Relations Act instructs federal postal employees to aid
local officers in the collection of the tax. 48 U.S.C. § 741a.
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the language of the provision, as well as the structure and purpose
of the statute. See Morales v. Trans World Airlines, Inc., 504
U.S. 374, 383 (1992)(interpreting the statutory predecessor to §
41713).17 Setting aside those portions of the statute that
indisputably apply to the facts of the current case,18 the crux of
the matter is whether the laws at issue are "related to a price,
route, or service" of UPS.
The phrase "related to" has a broad meaning in ordinary
usage: "to stand in some relation; to have bearing or concern; to
pertain; refer; to bring into association or connection with." Id.
(quoting Black's Law Dictionary 1158 (5th ed. 1979)). When used in
17
The language of the preemption provision considered by the
Morales Court varied slightly from the language of 49 U.S.C. §
41713. There is reason to think the intervening amendments did not
narrow the provision's broad preemptive effect:
In substituting the word "related" for the prior word
"relating" and the word "price" for the word "rates" we
are intending no substantive change to the previously
enacted preemption provision in Section 105 of the
Federal Aviation Act and do not intend to impair the
applicability of prior judicial case law interpreting
these provisions. In particular, the conferees do not
intend to alter the broad preemption interpretation
adopted by the United States Supreme Court in Morales v.
TransWorld Airlines, Inc., 504 U.S. [374], 199 L.Ed. 157,
112 S.Ct 2031 (1992).
H.R. Rep. No. 103-240, at 83 (1994), reprinted in 1994 U.S.C.C.A.N.
1676, 1755.
18
The statute applies to Puerto Rico, which is included within
the definition of "state." Further, the Secretary does not deny
that the challenged restrictions are "law[s]" and "regulation[s],"
nor that UPS is an "air carrier" within the meaning of the statute.
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a preemption provision such as § 41713, it has a similarly broad
reach. State laws and regulations "having a connection with or
reference to" an air carrier's prices, routes or services are
preempted under § 41713. See id. at 384. A sufficient nexus
exists if the law expressly references the air carrier's prices,
routes or services, or has a "forbidden significant effect" upon
the same. Id. at 388. This interpretation is consistent with the
purpose animating the FAA Authorization Act and Airline
Deregulation Act, which sought to prevent states from interfering
with the goal of federal deregulation of air transportation by
imposing regulations of their own. See id. at 378.
In his attempt to circumscribe the breadth of this
interpretation, the Secretary suggests that only statutes and
regulations that "seek to set, control or manipulate" an air
carrier's prices, routes, or services are preempted by the FAA
Authorization Act. This narrower interpretation would read the
"related to" language out of the statute, an approach expressly
rejected by the Supreme Court.19 See id. at 385 ("Had the statute
19
The Secretary argues that the broad preemption standard
adopted in Morales has been overruled by a number of Supreme Court
cases narrowing the preemptive effect of the Employment Retirement
Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1144(a). See,
e.g. De Buono v. NYSA-ILA Medical and Clinical Services Fund, 520
U.S. 806 (1997); California Division of Labor Standards Enforcement
v. Dillingham Construction, N.A., Inc., 519 U.S. 316 (1997); New
York State Conference of Blue Cross & Blue Shield Plans v.
Travelers Insurance Co., 514 U.S. 645 (1995). While the Morales
Court undoubtedly took its interpretive cues from the ERISA
preemption jurisprudence then in existence, it does not follow that
any change in ERISA law necessitates a parallel change in the law
-25-
been designed to pre-empt state law in such a limited fashion, it
would have forbidden the states to 'regulate rates, routes and
services.'").
The challenged scheme both refers to and has a forbidden
significant effect on UPS's prices, routes or services. Section
9066 -- the linchpin of the scheme -- forbids delivery unless and
until a recipient produces a certificate from the Secretary.
Compliance with this provision significantly affects the timeliness
and effectiveness of UPS's service, which includes the delivery of
packages on an express or time-guaranteed basis. Likewise, the
prepayment mechanism imposes extensive requirements that must be
met before a carrier may make a lawful delivery. These
requirements create a substantial burden on UPS, in the form of
additional labor, costs, and delays. The undisputed record, as
chronicled by the district court below, shows that this burden
directly and significantly affects UPS's routes and services, which
depend upon an orderly flow of packages. United Parcel Service,
210 F. Supp. 2d at 38-40. The costs of this scheme necessarily
have a negative effect on UPS's prices. See Federal Express Corp.
v. California Pub. Util. Comm'n, 936 F.2d 1075, 1078 (9th Cir.
1991) ("Terms of service determine cost. To regulate them is to
affecting air carriers. As Judge Easterbrook has put it: "[I]f
developments in pension law have undercut holdings in air-
transportation law, it is for the Supreme Court itself to make the
adjustment. Our marching orders are clear: follow decisions until
the Supreme Court overrules them." United Airlines, Inc. v. Mesa
Airlines, Inc., 219 F.3d 605, 608 (7th Cir. 2000).
-26-
affect the price."). In view of the uncontroverted record, we must
conclude that the challenged scheme falls within the scope of the
FAA Authorization Act's preemption provision.
Against the weight of this authority, the Secretary
argues for a presumption against preemption. This presumption only
arises, however, if Congress legislates in a field traditionally
occupied by the states. United States v. Locke, 529 U.S. 89, 108
(2000) (citing Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230
(1947)). The Secretary does not dispute that there has been a
longstanding federal presence in the field of air transportation.
Instead, he says that the relevant field is "state taxation." We
think our earlier analysis of the Butler Act puts to rest the
question of whether our task is to determine the validity of a
Commonwealth tax. On the contrary, our task is to determine the
preemptive effect of the FAA Authorization Act within the field of
air transportation. No presumption against preemption is
appropriate in this case because of Congress's significant -- and
undisputed -- presence in the field of air transportation.20
In the face of the "specific substantive pre-emption
provision" of the FAA Authorization Act, Morales, 504 U.S. at 385,
the Secretary also asks us to conclude that the challenged scheme
20
The Secretary likewise urges us to conclude that preemption
should not occur here, because, in adopting and enforcing the
scheme, Puerto Rico is merely acting within a "sphere of authority"
under a "dual system of federal and state regulation." Again, the
Secretary insists that the relevant field is "taxation," which we
reject for the reasons discussed above.
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survives by virtue of other provisions of federal law or the FAA
Authorization Act's legislative history. First, he points to 26
U.S.C. § 7653, a provision of the Internal Revenue Code that
subjects articles manufactured in the mainland United States to a
tax at the port of entry in Puerto Rico that is equal to (in rate
and amount) the tax imposed upon articles manufactured in Puerto
Rico. Like Section 3 of the Federal Relations Act, this provision
prevents discriminatory taxation in favor of merchandise produced
in Puerto Rico. Cf. 26 U.S.C. § 7652(a)(1) (subjecting articles of
Puerto Rican manufacture entering the mainland United States to "a
tax equal to the internal revenue tax imposed in the United States
upon the like articles of domestic manufacture"). It is not a
blanket authorization for Puerto Rico to regulate the delivery of
goods. Indeed, Puerto Rico allows the unrestricted delivery of
taxable merchandise through the U.S. mail.
The Secretary also looks to the FAA Authorization Act's
legislative history for support for his position, in particular a
statement that "nothing in this amendment is intended to change the
application of State tax laws to motor carriers." H.R. Conf. Rep.
No. 103-677 at 85 (1994), reprinted in 1994 U.S.C.C.A.N. 1676,
1757. Even if we were bound by this fragment of the legislative
history, the Secretary's interpretation of it is not consistent
with its plain language, or with the overall purpose of the
legislation. The taxes at issue in the case before us are
-28-
generally applicable excise taxes, not taxes on motor carriers.
Moreover, the regulatory authority retained by the states was not
"to be used as a guise for continued economic regulation as it
relates to prices, routes or services." H.R. Conf. Rep. No. 103-
677 at 84 (1994), reprinted in 1994 U.S.C.C.A.N. 1676, 1756.
Finally, the Secretary contends that the challenged
scheme survives under the Federal Anti-Head Tax Act, 49 U.S.C. §
40116(e) (formerly 49 U.S.C. § 1513(b)), a provision that he
characterizes as a "savings clause." This statute prohibits the
states from imposing a tax or "head charge" on air transportation,
including taxes on air passengers and gross receipts from air
transportation. See id. § 40116(b). The provision on which the
Secretary relies, § 40116(e), preserves the right of the states to
collect those taxes not otherwise barred by the statute. Far from
a clear manifestation of congressional intent to permit Puerto
Rico's ban on delivery, this broad provision merely preserves
certain rights of taxation already held by the states. It creates
no new rights for Puerto Rico, and adds nothing to the analysis
where, as here, the right of Puerto Rico to levy and collect the
excise tax is undisputed.21
21
Although we address the merits of the Secretary's arguments
regarding these federal provisions (i.e. portions of the Internal
Revenue Code, the legislative history of the FAA Authorization Act,
or the Anti-Head Tax Act), we note that the Secretary raises these
issues for the first time on appeal. See Higgins v. New Balance
Athletic Shoe, Inc., 194 F.3d 252, 259 (1st Cir. 1999)("[A]bsent
exceptional circumstances, not present here -- we consider on
appeal only arguments that were before the nisi prius court").
-29-
C. The Scope of the Injunction
Beyond the issue of whether injunctive relief is proper
in this case -- a question we answer in the affirmative -- lies the
issue of whether the particular relief granted was appropriate. A
district court has broad discretion to fashion an appropriate
equitable remedy, but the relief imposed should be "no more
burdensome to the defendant than necessary to provide complete
relief to the plaintiffs." Califano v. Yamasaki, 442 U.S. 682
(1979); Tamko Roofing Products, Inc. v. Ideal Roofing Co., Ltd.,
282 F.3d 23, 40 (1st Cir. 2002). Both the Secretary and UPS (in
its cross-appeal) challenge the scope of the injunction, alleging
that it goes too far or not far enough depending on the point of
view.22
While several of the parties' submissions touched on
matters relevant to the remedy question, the scope issues discussed
below were not fully briefed by the parties in anticipation of the
22
In particular, the Secretary contends that the injunction
should not extend to 13 P.R. Laws Ann. §§ 8102, 9060, 9061, 9064,
or any provision affecting the "motor vehicles" or "household
goods" exceptions to 49 U.S.C. § 41713(b)(4)(B)(i)-(ii). UPS
contends that the injunction should have precluded enforcement of
a licensing provision, 13 P.R. Laws Ann. § 9059, a proposition
disputed by the Secretary on appeal. The Secretary also challenges
the district court's invalidation of the $14.24 million
administrative fine through the injunction, an issue we treat as
distinct from the question of which statutes and regulations ought
to be enjoined and address separately below.
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injunction.23 In view of the public policy implications of this
case, we conclude that the parties should be afforded an additional
opportunity to present the court with their positions as to the
nature and scope of the remedy. We therefore affirm in principle
part but remand on three selected issues for further proceedings
consistent with this opinion.
The issues to be addressed on remand should be limited to
those pertaining to the scope of the district court's injunction
that the parties have briefed and argued on appeal. Of these, the
one that seems closest is whether the court is now empowered to,
and should, invalidate the $14.24 million administrative fine
imposed by the Secretary during the course of this litigation. As
previously noted, the court enjoined the Secretary from enforcing
the fine because it thought the sanction had been imposed pursuant
to the preempted legal regime. On appeal, the Secretary says that
the court did not appreciate that the fine was imposed under the
short-lived Act No. 322 (and not the preempted regime), and that,
because UPS has not yet exhausted its state remedies with respect
to the fine, the court should have abstained under Younger v.
Harris, 401 U.S. 37 (1971), and related comity-based doctrines.
UPS responds that the fine was indeed imposed (for retaliatory
reasons) pursuant to the preempted regime, and that the Secretary's
23
Perhaps this was because the district court, in cancelling
the October 1, 2001 hearing, used language suggesting that there
would be an opportunity for further argument and record development
in connection with any injunction it might enter.
-31-
other arguments are therefore beside the point. Because a
substantial amount of money is at stake and more comprehensive
briefing and record development may be helpful, prudence dictates
that the district court be afforded an opportunity to revisit the
matter after hearing from the parties.
The second issue open to revisiting on remand is whether
the statutory savings clauses that allow states to regulate motor
vehicle safety and the transportation of household goods, 49 U.S.C.
§ 41713(b)(4)(B)(i)-(ii), should limit the scope of the injunction.
It is not clear that the Secretary presented any argument below on
the basis of these clauses and, to the extent they are relied upon
as grounds for a claim that no injunction should issue, the claim
is forfeited. See Higgins, 194 F.3d at 259. This would not
necessarily be true so far as the clauses are relied upon for
purposes of arguing for a narrower injunction; but we are at a loss
to understand how either clause might curtail the relief sought by
UPS, and the Secretary's brief is not very enlightening on this
point. If the Secretary has some serious argument as to how the
injunction needs minor modifications on account of these clauses,
we do not foreclose him from presenting such an argument on remand.
But it is not yet apparent that the Secretary has such an argument.
Finally, the district court originally described as
preempted and then reinstated 13 P.R. Laws Ann. § 9059, which
imposes a licensing fee of $2000 per year on air carriers. UPS has
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cross-appealed, citing authorities suggesting that other courts
have found similar licensing fees to be preempted by the FAA
Authorization Act. The issue is not directly addressed by the
district court and, in view of the remand on other issues, we think
it would be useful to have the district court's explanation of its
position clarified before the matter is reviewed. We thus leave
the district court free in the first instance to affirm or modify
the injunction, with respect to § 9059, as it finds appropriate.
III. Conclusion
For the reasons stated above, we affirm the district
court's amended judgment but remand as to the three issues
identified above, as to which our affirmance is provisional, and we
retain jurisdiction for any further appellate proceedings that may
be required. Central Maine Power Co. v. FERC, 252 F.3d 34, 48 (1st
Cir. 2001).
The district court is directed to address and resolve the
three remaining issues within 120 days of the date of this decision
and is at liberty to modify the injunction as may be required by
the resolution of those issues, any such resolution being
reviewable by a timely filed new appeal or appeals in accordance
with usual practice. A copy of the district court's new decision
shall be filed with the clerk of this court and transmitted to this
panel.
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The stay of the injunction pending appeal previously
issued by this court is vacated forthwith. Further, the mandate of
this court shall issue forthwith. In re Grand Jury Proceedings,
183 F.3d 71, 79 (1st Cir. 1999). This does not affect the right of
any party to petition for rehearing or rehearing en banc.
It is so ordered.
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