Shippers’ Law: Can cities, states control terminals?

Date: Friday, June 1, 2018
Source: American Shipper

  To what degree can state and local governments regulate shipping terminals?
   That question is at the heart of two legal battles on the West Coast that are centered on proposed bulk marine terminals in Oakland, Calif., and Longview, Wash., on the Columbia River.
   In May, a federal judge invalidated an effort by the City of Oakland to prevent the export of coal and petcoke through a planned new bulk materials terminal on its waterfront. (Oakland Bulk & Oversized Terminal v. City of Oakland. No. 16-07014. U.S. District Court, Northern Calif. May 15.)
   U.S. District Court Judge Vince Chhabria found a development agreement for the terminal that “froze in place the local regulations that existed at the time the agreement was signed. This means, generally speaking, that any regulations adopted by Oakland thereafter would not apply to the shipping terminal.
   “But the agreement contains an important exception: A regulation that postdates the development agreement can be applied to the shipping terminal if the city determines that the failure to apply the new regulation would pose a ‘substantial danger’ to the health or safety of people in Oakland. The agreement specifies that any such determination by the city must be supported by ‘substantial evidence,’” the judge said.
   When the Oakland City Council learned that coal was one of the commodities the terminal might handle, it passed an ordinance banning coal operations at bulk material facilities and applied the ordinance to the terminal, citing that it would pose a danger to the health and safety of nearby residents.
   Chhabria said the City Council relied on information that is “riddled with inaccuracies, major evidentiary gaps, erroneous assumptions and faulty analyses.” As a result, he found applying the ordinance to the terminal was a breach of the development agreement.
   However, he left the door open for further action. Chhabria did not strike down the ordinance and said, “The city remains free, of course, to pursue future regulation of the project.”
   Local politicians and activists vowed to continue efforts to block coal shipments.
   Chhabria focused on the information the city relied upon when drawing up its ordinance, not other issues raised by the developer, such as its contention that the ordinance was a “textbook violation” of the Commerce Clause in the U.S. Constitution that gives Congress the power to “regulate commerce with foreign nations and among the several states” and is pre-empted by three federal statutes: the Interstate Commerce Commission Termination Act (ICCTA), the Hazardous Materials Transportation Act and the 1984 Shipping Act.
   The Commerce Clause is very much at the center of litigation over the proposed Millennium Bulk Terminal Coal Export Facility on the Columbia River, where Lighthouse Resources, an integrated coal company, contends the Washington governor and other state officials have “unreasonably delayed and denied a number of permits and approvals for a port facility that would enable the export of coal to U.S. allies and trading partners in Asia.” 
   The lawsuit (Lighthouse Resources Inc. et al. vs. Jay Inslee et al., No. 18-05005. U.S. District Court, W.D. Wash.) said the state’s “actions have both the intent and effect of discriminating against and unduly burdening foreign and interstate commerce, in violation of the U.S. Constitution’s dormant commerce clause, the ICCTA and the federal Ports and Waterways Safety Act.” 
   A motion for dismissal of that suit was denied in late May and the full case is now scheduled to be heard in May 2019. A report in the Tacoma Daily News said the judge is encouraging some claims to be heard sooner. There is also ongoing litigation in state court, where Lighthouse is challenging permit denials.
    Six states — Wyoming, Kansas, Montana, Nebraska, South Dakota and Utah — filed an amicus brief supporting Lighthouse Resources on May 8.
   Wyoming and Montana noted they “generated tax revenues of just over $800 million from coal mining and coal-power generation,” money used to “fund essential services to the citizens of the states, including water and highway infrastructure and education.”
   The six states said they “have a broad interest in ensuring that no single state can engage in a pattern of discrimination that results in control over any other state’s ability to engage in a lawful activity involving interstate or foreign commerce.”
   “Today it is coal, tomorrow it could be natural gas or non-organic produce. The interests of interior states in developing foreign trade are now subject to the barriers erected by the policy whims of states that control access to international markets through their ports,” the brief said.
   The states say Washington state agencies “have denied every necessary permit” for the proposed terminal and that Gov. Jay Inslee and other officials “have a long-documented public opposition to fossil fuels, and coal in particular.”
   Lighthouse said it initiated the lawsuit in federal court “not to challenge the outcome of a specific permitting process, but to stop the defendants’ violation of the Dormant Foreign and Domestic Commerce Clause provisions of the United States Constitution.” While there is no actual “Dormant Commerce Clause” in the Constitution, courts have found that restrictions on state power are inherent in the Commerce Clause.
   The six Midwest states said Washington State asserts “parallel, state-level proceedings” require the federal court “to abstain from ruling on Lighthouse’s Commerce Clause claims.”
   They further contend the U.S. District court should reject that request for abstention “because the Commerce Clause claims raise important federal questions that impact the economic interests of other states.”
   While the U.S. Supreme Court counseled in its 1941 Pullman decision that “abstention by federal courts in order to avoid decisions of federal constitutional questions when the case may be disposed of on questions of state law,” it pointed to other decisions that said abstention “is an extraordinary and narrow exception to the duty of a district court to adjudicate a controversy.”
   We’ll keep an eye on these legal battles and their potential implications for other ports and terminals.

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