Port Authority Terminal Operator Cannot Use the Constitution to Modify Its Lease Terms at New Jersey Facility

By US Army Corps of Engineers from USA (Patrol Boat Hocking in Newark Bay) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia CommonsThe Third Circuit Court of Appeals recently ruled against a private marine terminal operator at the Port Authority of New York and New Jersey (PANYNJ), which had challenged its lease at the port facility in Elizabeth, New Jersey. Maher Terminals v. Port Authority of N.Y. and N.J., et al., No. 14-3626, slip op. (3rd Cir., Oct. 1, 2015). The plaintiff claimed that the rent provisions of the lease violate the Tonnage Clause of the U.S. Constitution, U.S. Const. art. I, § 10, cl. 3, as well as several federal statutes related to maritime law. The court disagreed, although it noted that the claim “is not a typical landlord-tenant dispute.” Maher, slip op. at 3. It held that, as a land-based business, the plaintiff is not “within the class of plaintiffs that the Tonnage Clause or its related federal statutes were intended to protect.” Id. Most New York and New Jersey businesses will not have to deal with lease terms like this, but the case certainly illustrates the importance of understanding potential objections to a lease contract.

The plaintiff operates a business at the PANYNJ’s primary port facility under a lease agreement that took effect in 2000. Its business activities, according to the court, primarily consist of stevedoring, or loading and unloading cargo from ships. The lease charges two types of rent:  “Basic Rental” charges consisting of a fixed fee per acre, and “Container Throughput Rental” (CTR) charges based on the volume of cargo handled by the plaintiff. Id. at 4. The plaintiff could unload up to 356,000 containers during a calendar year without incurring CTR charges. The per-container charge for containers 356,001 through 980,000 is is $19.00, and it is $14.25 after that.

The lease also establishes minimum amounts of cargo the plaintiff must unload annually in order to keep the lease in effect. When the plaintiff first filed its complaint, the minimum number was 420,000 containers. This would effectively guarantee annual payment of CTR charges for 64,000 containers, but the lease sets an even higher minimum amount of guaranteed CTR payments, according to the court, which is equivalent to a total annual volume of 775,000 containers.

The plaintiff filed a federal lawsuit, claiming that the CTR provisions of the lease violate the Tonnage Clause and two related federal statutes:  the Rivers and Harbors Appropriation Act, 33 U.S.C. § 5(b); and the Water Resources Development Act, 33 U.S.C. § 2236. The Tonnage Clause prohibits state governments from taxing vessels involved in maritime trade, unless they are expressly authorized to do so by Congress. The two statutes generally prohibit state and local governments from levying duties and other fees on vessels, except in specific circumstances.

The district court dismissed the plaintiff’s lawsuit, finding that it was not subject to protection under the Tonnage Clause and that the federal statutory claims failed as a result. The Third Circuit affirmed the district court’s ruling, finding that “as a landside entity, is outside the Tonnage Clause’s zone of interests.” Maher, slip op. at 20.

Business formation attorney Samuel C. Berger represents businesses, business owners, and entrepreneurs in New York City and Northern New Jersey. We offer fixed-fee packages of legal services covering a wide range of matters, which help our clients understand their rights and obligations as business owners and allow them to run their businesses effectively and efficiently. Contact us online or at (212) 380-8117 today to schedule a confidential consultation with a member of our team.

More Blog Posts:

Four Factors to Consider When Negotiating a Commercial Real Estate Lease, New York & New Jersey Business Lawyer Blog, August 14, 2013

Commercial Real Estate Leases for New York and New Jersey Small Businesses, New York & New Jersey Business Lawyer Blog, July 3, 2013

New Jersey Governor Signs New Law Providing New Funds for Businesses in Development Areas, New York & New Jersey Business Lawyer Blog, January 17, 2012

Photo credit: By US Army Corps of Engineers from USA (Patrol Boat Hocking in Newark Bay) [CC BY 2.0], via Wikimedia Commons.