CINCINNATI (CN) – A duty-free gas station located immediately before the Ambassador Bridge that connects the United States and Canada argued Friday before a Sixth Circuit panel that the imposition of air quality standards on the fuel it sells is unconstitutional.
The station, owned and operated by Ammex Inc., is considered by U.S. Customs and Border Protection to be “beyond … the ‘exit point’” of the United States, and as a result, can sell gasoline only to people leaving the country. The fuel must also come from a foreign country or foreign trade zone.
The dispute stems from Michigan’s attempts to comply with air quality standards under the Clean Air Act.
Michigan passed House Bill 5508 in 2006, which included a Reid vapor pressure, or RVP, standard of no more than 7.0 pounds per square inch, or psi, during the summer.
Ammex’s exit-point gas station failed to meet the 7.0 psi standard in 2012, but a settlement in state court resolved the dispute.
The station proceeded to sell gas that complied with applicable standards through 2017.
In 2018, however, Ammex’s supplier could not provide it with 7.0 psi gasoline, and it claimed it could find no other foreign sources for the fuel.
It filed a lawsuit in federal court claiming the “summer-fuel laws” violate both the Foreign Commerce and Supremacy Clauses of the U.S. Constitution.
U.S. District Court Judge Laurie Michelson denied Ammex’s request for a preliminary injunction, however, and sided with the director of the Michigan Department of Agricultural and Rural Development, or MDARD.
Judge Michelson ruled last June that Ammex’s constitutional claims were likely to fail because the summer-fuel laws were federal in nature, at least partially because the U.S. Environmental Protection Agency is ultimately responsible for enforcing them.
“The EPA required Michigan to lower ozone and the only feasible plan included a 7.0 RVP standard, it appears that Michigan’s enactment of that standard had no legal effect unless and until the EPA found it ‘necessary,’ and the 7.0 RVP standard remains the law unless and until the EPA says otherwise,” she wrote in her opinion. “Short of the EPA actually promulgating [the statute], how could it be more federal?”
Michelson went further, however, and ruled that even if the regulations were not federal, Ammex’s arguments would fail.
Although she conceded the gas station is outside the exit point of the United States, she noted the company “must comply with other Michigan laws that affect its viability to engage in commerce,” and so the sale of fuel would not be considered foreign commerce.
“Depositing fuel into Ammex’s storage tanks,” she continued, “and then pumping fuel from those tanks into vehicles are two acts that occur within Michigan’s borders. So Michigan is arguably regulating within – not beyond – its borders.”
Duane Morris attorney Robert Palumbos argued on behalf of Ammex in the Sixth Circuit on Friday, telling the Cincinnati-based appeals court that MDARD lacks the authority to enforce foreign commerce regulations against his client.
U.S. Circuit Judge Richard Allen Griffin immediately interrupted Palumbos, and asked why the air quality regulations are not federal law.
“[The regulation] is federally enforceable,” the attorney answered, “but it remains state law.”
“The Michigan Legislature passed it. The governor signed it,” Palumbos added.
Judge Griffin opined on the process used to pass air quality regulations, and pointed out that states cannot alter regulations without approval of the EPA.
“As applied to exports … [the EPA’s] volatility requirements do not apply,” Palumbos said.
Judge Griffin disputed the attorney’s claim that the gasoline sold by his client is an export, and said that because the station is located in Michigan, “it’s under the jurisdiction of the state of Michigan.”
Palumbos argued evidence in the record shows that the fuel purchased at his client’s gas station is usually not combusted until after customers are in Canada, which makes the gas an export.
He said Michigan’s attempt to control the goods Ammex can sell “into a foreign market is unconstitutional.”
Judge Griffin, who was born in Traverse City, Michigan, recalled that he has driven across the bridge numerous times for dinners in Canada, but then returned immediately to the United States.
“How can you say [the gas] is all used in a foreign country?” he asked. “We’re supposed to assume people cross the Ambassador Bridge and just keep going?”
The attorney responded that customers are expected to declare the unused fuel if they cross into Canada but immediately return to the United States.
“I’m in trouble now,” Judge Griffin quipped.
Assistant Attorney General Elizabeth Morrisseau argued on behalf of MDARD, telling the panel “the Foreign Commerce clause has no application in this litigation whatsoever.”
“Ammex doesn’t export gasoline,” she said flatly. “If they did, Starbucks would export lattes … and Tim Horton’s would export double doubles” when cars crossed the border.
“The issue here,” she continued, “is not whether Ammex can sell gasoline. … They must sell a certain type of gasoline.”
Morrisseau argued duty-free laws are about avoiding taxes, but not every other type of regulation imposed on commerce.
“Ammex cannot bootstrap its duty-free status into a law-free status,” she said.
U.S. Circuit Judges Helene White and John K. Bush also sat on the panel. No timetable has been set for the court’s decision.Follow @@kkoeninger44
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.