Union Pacific Railroad v. United States Department of Homeland Security
738 F.3d 885 (2013)
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Rule of Law:
The Tariff Act of 1930, 19 U.S.C. § 1584(a)(2), does not authorize Customs and Border Protection (CBP) to impose penalties on a common carrier for unmanifested illegal drugs found on railcars that the carrier neither owned nor controlled, nor does it require a standard of 'highest degree of care and diligence' that is impossibly high or demands actions beyond the carrier's reasonable control and capabilities.
Facts:
- Between 2001 and 2006, U.S. Customs and Border Protection (CBP) found illegal drugs hidden on trains brought to the U.S. border by Mexican railroads, Ferrocarril Mexicano S.A. de C.V. (Ferromex) or Kansas City Southern de Mexico S.A. de C.V. (KCSM).
- Union Pacific Railroad Company (UP) had no railroad operations inside Mexico, no control over the Mexican railroads, no power to direct their employees, and no legal authority to secure or search trains inside Mexico.
- CBP refused to allow UP to search trains at the border before CBP conducted its own inspection; instead, CBP took custody of Mexican trains at the border, inspected them, and then allowed UP to take custody.
- UP employed over 200 commissioned police officers, 300 contract security officers, and nine canine drug detection teams, spending approximately $2.4 million annually on security at the international borders.
- UP had built numerous buildings and installed advanced screening machines for CBP's use at the border, and actively worked to persuade Ferromex to increase its security measures in Mexico, leading to searches by the Mexican military.
- On March 30, 2004, a UP police officer, working with a U.S. Immigration and Customs Enforcement (ICE) agent, found 37.15 kilograms of marijuana in a tank car that CBP personnel had previously inspected and cleared.
- Despite UP's lack of control over the trains until after CBP's inspections and its ownership of at most eleven of the railcars, CBP imposed almost $38 million in penalties against UP.
- UP explained to CBP that inspecting trains inside Mexico was not reasonably possible due to severe safety risks, evidenced by the U.S. Department of Agriculture withdrawing personnel from Mexico for security reasons.
Procedural Posture:
- Union Pacific Railroad Company (UP) exhausted its administrative remedies after Customs and Border Protection (CBP) imposed penalties for drug smuggling incidents.
- UP filed a complaint in the U.S. District Court for the District of Nebraska against the Department of Homeland Security (DHS) and its Secretary, seeking a judgment declaring the penalties void and enjoining future penalties.
- The government (U.S. Department of Homeland Security) filed separate enforcement complaints against UP in the U.S. District Court for the Southern District of Texas and the U.S. District Court for the Southern District of California seeking to collect the imposed penalties.
- In November 2010, the government's cases were transferred to the U.S. District Court for the District of Nebraska and consolidated with UP's existing case.
- UP moved for summary judgment, and the government moved for judgment on the administrative record.
- On March 14, 2012, the District Court for the District of Nebraska granted UP's motion for summary judgment, denied the government's motion, concluding that CBP lacked statutory authority and its actions were arbitrary and capricious; the court declared the fines null and void, reversed CBP's administrative decisions, vacated the penalties, and enjoined CBP from imposing future penalties until regulations were properly promulgated.
- The government appealed the District Court's decision to the United States Court of Appeals for the Eighth Circuit (Appellant: Government; Appellee: UP).
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Issue:
Does the Tariff Act of 1930, 19 U.S.C. § 1584(a)(2), authorize Customs and Border Protection (CBP) to impose penalties on Union Pacific Railroad Company (UP) for illegal drugs found on railcars that UP neither owned nor controlled, or for which UP exercised the common law 'highest degree of care and diligence' as a common carrier?
Opinions:
Majority - Chief Judge Riley
No, the Tariff Act does not authorize CBP to impose these penalties against UP. The court applied the principle of constitutional avoidance, noting that CBP's interpretation — which would punish an innocent owner for the misconduct of strangers over whom the owner had no control, or impose an impossibly high standard of care — raised grave Fifth Amendment due process concerns and pushed the outer limits of common law forfeiture tradition. The court emphasized its duty to adopt a statutory construction that avoids such constitutional questions. Analyzing the statutory text, the court found UP was not the 'person in charge' as defined by the Tariff Act and common law, because UP did not have control or custody of the trains until after CBP completed its inspection. Merely forwarding electronic manifest information to CBP, which would not accept it directly from Mexican railroads, did not make UP the 'person in charge.' Furthermore, the majority of penalties were for drugs found on railcars UP did not own, which clearly exceeded CBP's authority under § 1584(a)(2). Regarding the 'highest degree of care and diligence' standard, the court noted Congress explicitly directed the agency to define this term through formal rulemaking, which CBP failed to do for over two decades. CBP's 'leave no stone unturned' interpretation was deemed unreasonable, untethered to agency expertise, and unsupported by cited precedents. The court instead adopted the well-established common law meaning, which defines 'highest degree of care and diligence' as the normal, elevated standard of care expected of any common carrier, requiring everything 'reasonably consistent with the business of the carrier, and the means of conveyance employed.' This standard does not demand achieving the impossible or placing employees in grave danger in a foreign country beyond the carrier's control. UP's extensive security measures, cooperation with authorities, and efforts to influence Mexican railroads to increase security were found to meet this reasonable common law standard. As a remedy, the court affirmed the district court's finding that the penalties were unlawful and set them aside. However, it vacated the district court's injunction that required CBP to promulgate regulations, explaining that Congress did not specify a consequence for noncompliance with rulemaking timing provisions, and that no regulation could authorize penalties for railcars UP neither owned nor controlled. The case was remanded with instructions to issue a corrected injunction prohibiting penalties only for illegal drugs found on railcars that UP neither controls nor owns.
Analysis:
This case significantly clarifies the limits of administrative agency authority, particularly when an agency's interpretation of a statute raises constitutional doubts. It reinforces the doctrine of constitutional avoidance, compelling courts to choose statutory interpretations that prevent grave constitutional questions. For common carriers, the ruling defines the 'highest degree of care and diligence' as a reasonable standard within a carrier's control and operational capacity, rather than an unachievable, 'leave no stone unturned' burden. This decision could have broad implications for other administrative agencies seeking to impose penalties under broadly worded statutes, potentially requiring them to engage in formal rulemaking and demonstrate reasonableness and constitutional compliance in their enforcement practices.
