United Parcel Service, Inc. v. Flores-Galarza

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).

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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

-21-
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.

-23-
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.

-24-
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.

-27-
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.

-30-
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

-32-
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.

-33-
 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.

-34-