Shook Wins Dismissal of $150 Million Putative Class Action Claim

Shook won a critical appellate victory resulting in the dismissal of a putative class action challenging the constitutionality of more than $150 million in Enhanced Security Fees (ESFs) charged in connection with a cargo container scanning program at the port of San Juan, Puerto Rico. On appeal from the partial denial of a motion to dismiss, in a published opinion, the First Circuit ruled the merchants who filed the suit lacked Article III standing to challenge the ESFs because they did not directly pay the ESFs, nor were they assessed the ESFs. Rather, the ESFs were imposed on third party ocean freight carriers that shipped the merchants’ goods into Puerto Rico, and the ocean freight carriers’ independent decision to pass their costs on to the merchants interrupted the chain of causation. Partner Mark Campbell and Associate Matt Light, with assistance from Partner Patrick Gregory, represented Rapiscan Systems, Inc. and its affiliate, S2 Services Puerto Rico, LLC, the Ports Authority’s contracted scanning providers in this action. 

In 2008, the Puerto Rico legislature passed an act requiring the Ports Authority to implement a fast track cargo inspection method to improve public safety (prior to this, inspection was limited to random manual searches). To comply with this mandate, the Ports Authority contracted Rapiscan, a leading security equipment manufacturer and service provider, and subsequently its affiliate, S2, to perform the scanning services. The Ports Authority financed the program by charging ESFs to the ocean freight carriers that carried cargo containers into Puerto Rico. In 2017, Puerto Rican merchants that used the ocean freight carriers’ shipping services filed suit against the Ports Authority, Rapiscan, and S2 under 42 U.S.C. § 1983, alleging the ESFs were unconstitutional under the Fifth and Fourteenth Amendments and the Commerce Clause of the U.S. Constitution. The merchants alleged they indirectly paid the ESFs because the ocean freight carriers passed the costs on to them and, thus, the ocean freight carriers were really the defendants’ “collection agents.”

The trial court dismissed the Fifth and Fourteenth Amendment claims but sustained the Commerce Clause claim on motions to dismiss, concluding the merchants’ indirect economic injury was “fairly traceable” to the defendants and that Rapiscan/S2 were not entitled to qualified immunity. On appeal, the First Circuit vacated the decision and held the merchants’ injury depended on the independent actions of the ocean freight carriers, the entities that were required to pay the ESFs to the Ports Authority, which interrupted the chain of causation necessary to establish Article III standing against the Ports Authority or Rapiscan/S2 (who were not involved in the assessment or collection of ESFs). For similar reasons, the First Circuit further held the merchants failed to show a favorable judgment against the Ports Authority or Rapiscan/S2 would redress their alleged injury because it would not necessarily cause the third party ocean freight carriers to lower their costs to the merchants. Accordingly, the First Circuit remanded the case for dismissal on jurisdiction grounds.

Law360 reported on the victory, calling it “a precedential decision” in “1st Circ. Frees Puerto Rican Agency From $150M Fees Suit,” May 4, 2020. 

The case is Dantzler v. S2 Services Puerto Rico, LLC, No. 18-2087 (1st Cir., May 1, 2020).