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When Contracts and Constitution Collide - Third Circuit Looks at the Tonnage Clause

And, in the Third Circuit, the contract wins.

Among the arcane provisions of the U.S. Constitution is the tonnage clause which prohibits the states from laying "any Duty of Tonnage" without the consent of Congress.  Roughly translated, states and local governments cannot tax cargo. 

So, if a municipal landowner leases land to a private company, can it charge rent based on the amount of cargo that passes through that land?

The Court of Appeals for the Third Circuit says YES.

In the case of Maher Terminals, LLC v. Port Authority of New York and New Jersey, the court held that a lease provision that charged rent on "container throughput" was not an unconstitutional duty of tonnage.

The court summarized its decision:

Although Maher Terminals, LLC (“Maher”) challenges the rent it must pay under its lease agreement (“the Lease”) with the Port Authority of New York and New Jersey (“the Port Authority”), this case is not a typical landlordtenant dispute. Maher, a landside marine terminal operator, asserts that the rent due under the Lease violates the U.S. Constitution’s Tonnage Clause, U.S. Const. art. I, § 10, cl. 3, as well as two related federal statutes, all of which historically have concerned taxes and fees imposed on vessels, their owners, and their passengers and crews. The District Court dismissed Maher’s complaint in its entirety, reasoning that Maher’s rent obligations did not violate the Tonnage Clause or its related statutes, and that Maher failed to establish admiralty jurisdiction for its remaining tort claim. We agree and hold that landside service providers like Maher are not within the class of plaintiffs that the Tonnage Clause or its related federal statutes were intended to protect, that is, they are outside each law’s zone of interests. Accordingly, we will affirm.

The decision is peppered with reference to the fact that the terminal operator did not object to the lease provisions when the terminal was exempted from container throughput fee and only brought suit when the fee started escalating per the terms of the lease. The court traced the history of the tonnage clause and the cases interpreting it.  The court noted the tonnage clause's protection of ships, their masters and cargo:

[T]he Tonnage Clause protects the rights of vessels to navigate free of local hindrances by prohibiting charges that the vessels do not choose to incur. Just as a tax on a vessel impedes the vessel’s ability to freely move in commerce, taxes on the people on board the vessel have the same effect. Taxes on certain people (the owner, captain, supercargo, and crew) directly impact where a vessel decides to make port by taxing those responsible for the vessel’s navigation, and taxes on passengers will likely indirectly impact a vessel’s decisions by reducing demand for passage on the vessel. The interests of these people are the same as the interests of the vessels they occupy, so the Tonnage Clause prohibits taxes on them just as it prohibits taxes on the vessels themselves.

The court found that the tonnage clause protects vessels and their owners/masters and not landside operators.  

There was a concurrence/dissenting opinion which would have rejected the district court's decision on the tonnage claim.

Stay tuned, we don't think we've heard the last of this one.

Territorial Status Case Headed for Supreme Court

October 1st and the Supreme Court just granted hearing in several cases.  Of note, to this humble island attorney, is the case of Puerto Rico v. Valle. Those pesky Insular Cases....(my posts here and here).

This case arises from a criminal prosecution in Puerto Rico.  A criminal defendant was convicted of federal crimes in federal court, but then subsequently tried and convicted of violations of Puerto Rico law.  He challenged the second conviction on Double Jeopardy grounds.  The Double Jeopardy clause of the U.S. Constitution provides:  Nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb.  Amend. V.  This provision does not protect criminal offenders who are charged for the same conduct by different sovereigns.  Consider a bank robber:  bank robbery is a federal crime (18 U.S.C. 2113) and armed robbery is a state crime.  Because a State and the Federal Government are separate sovereigns, no double jeopardy violation.

So, from a Constitutional perspective, is Puerto Rico the same sovereign as the federal government OR, as the Question Presented asks:  Whether the Commonwealth of Puerto Rico and the Federal Government are separate sovereigns for purposes of the Double Jeopardy Clause of the United States Constitution.

Puerto Rico says: No.  It has a Congressionally approved organic act and constitution which gave the people's sovereign power to the Puerto Rico government, which in turn, passed the criminal code.

Mr. Valle says:  Yes.  Under the Constitution, there are only two sovereigns:  states and the federal government and Puerto Rico is not a state.

SCOTUSBLOG has the cert briefs here.  When the merits briefs are available, we will post them here.

This blogger's answer?  Stay tuned.