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Ammex, Inc. v. Wenk

United States District Court, E.D. Michigan, Southern Division

June 1, 2018

AMMEX, INC., Plaintiff,
GORDON WENK, in his capacity as Director, Michigan Department of Agriculture & Rural Development, Defendant.



         After the United States Environmental Protection Agency designated southeast Michigan as not in attainment of national air-quality standards, Michigan came up with a plan to improve air quality in the region. This included enacting Michigan Compiled Laws § 290.650d. That statutory provision requires dispensing facilities in southeast Michigan to sell gasoline with a Reid Vapor Pressure of no more than 7.0 pounds per square inch during the summer. As Ammex, Inc.'s gas station is located in southeast Michigan, the Michigan Department of Agriculture & Rural Development intends to enforce § 290.650d against Ammex this summer.

         While Ammex's gas station is located in southeast Michigan, the station is more precisely located right before the Ambassador Bridge connecting the United States and Canada. In fact, the station is located beyond what United States Customs and Border Protection considers the “exit point” from the United States. Moreover, the station is part of a duty-free store and for a duty-free store to sell gasoline tax free, the gasoline must come from a foreign country (or foreign trade zone), stay beyond the exit point, and be sold to people leaving the United States. Indeed, the physical design of Ammex's gas station ensures that those who refuel there must immediately head into Canada. For these and related reasons, Ammex believes that MDARD would violate the Federal Constitution if it enforced Michigan Compiled Laws § 290.650d against it.

         The parties' disagreement, coupled with Ammex's present inability to find a foreign source of 7.0 RVP gasoline, led to this lawsuit. Ammex asks this Court to enjoin MDARD from enforcing § 290.650d (and associated laws) against it and to declare that § 290.650d cannot be lawfully applied to it. Moreover, with summer imminent, Ammex has sought a preliminary injunction. (R. 8.)

         As will be explained in detail below, the Court finds that Ammex is not likely to show that either the Supremacy Clause or the Foreign Commerce Clause bars MDARD from enforcing a 7.0 RVP standard against Ammex. As such, the Court will deny Ammex's motion for preliminary relief.



         Customs bonded warehouses have existed in America for over 170 years. See Xerox Corp. v. Harris Cty., Tex., 459 U.S. 145, 150-51 & n.7 (1982) (discussing Warehousing Act of 1846). They come in different varieties, but, speaking generally, they help ease the burden of federal import duties. In particular, a merchant engaged in international trade can store his goods in a customs bonded warehouse and either defer the import duty until he puts the goods into the stream of United States commerce or avoid the import duty entirely by taking his goods from the warehouse to another country. See 19 U.S.C. § 1557(a)(1); Xerox, 459 U.S. at 150-51 & n.7. And, depending on the type of customs bonded warehouse, the merchant may organize, repackage, and even transform his goods into new ones while they are warehoused. See 19 C.F.R. § 19.1. Thus, the purpose of customs bonded warehouses, or a key one at least, is “to encourage merchants here and abroad to make use of American ports.” Xerox, 459 U.S. at 151.

         A duty-free store, while still considered a customs bonded warehouse, see 19 U.S.C. § 1555(b); 19 C.F.R. § 19.1(a)(9), operates somewhat differently: the store's owner sells merchandise to those leaving the United States, see 19 C.F.R. § 19.35(a). Like proprietors of other customs bonded warehouses, the owner of a duty-free store does not pay an import duty on the goods he brings into his store from a foreign country (or foreign trade zone). Moreover, he can sell his goods free of federal, and at least in some instances, state taxes. See 19 U.S.C. § 1555(b)(8)(D), (E); Ammex, Inc. v. Dep't of Treasury, 726 N.W.2d 755, 766-69 (Mich. Ct. App. 2006). That makes items that are heavily taxed, such as liquor and cigarettes, popular at duty-free stores. And, in Congress' view, lower-cost goods not only “play a significant role in attracting international passengers to the United States, ” Pub. Law 100-418 (1988), they “induce foreign visitors to increase their expenditures for goods in the United States, ” S. Rep. 100-71 (1987).

         Plaintiff Ammex, Inc. operates a duty-free store near the Ambassador Bridge that connects Detroit, Michigan to Windsor, Canada. While Ammex's store is in Wayne County, Michigan, it is “beyond the exit point” established by the United States Customs and Border Protection. (R. 20, PID 732). “Exit point, ” for CBP purposes, is not the “actual exit” from the United States but near the actual exit, see 19 C.F.R. §§ 19.1(a)(9), 19.35(d), 101.1(e); it is the point where a departing individual has “no practical alternative” other than to continue to a foreign country or return to this one through a CBP inspection facility, 19 C.F.R. § 19.35(d).

         While Ammex sells goods commonly found at duty-free stores, since the late 1990s Ammex has also sold gasoline. (See R. 29, PID 852.) Ammex's gas station is designed to ensure that cars that refuel there continue onto Canada afterwards. (R. 8, PID 94); see also Ammex, Inc. v. United States, 419 F.3d 1342, 1343 (Fed. Cir. 2005). Apparently, tax-free gas is popular: Ammex sells 400, 000 gallons a month. (See R. 29, PID 852-53.)


         In 1970, dissatisfied “with earlier efforts at air pollution abatement, ” Congress made major changes to the Clean Air Act. Friends of the Earth v. Carey, 535 F.2d 165, 168-69 (2d Cir. 1976). In particular, Congress directed the United States Environmental Protection Agency to establish National Ambient Air Quality Standards. Train v. Nat. Res. Def. Council, Inc., 421 U.S. 60, 65 (1975). But Congress did not intend the Environmental Protection Agency to battle air-pollution alone; instead, it directed each state to submit a plan-known as a state implementation plan or SIP-for implementing, maintaining, and enforcing the NAAQS. See id.; 42 U.S.C. § 7410(a)(1). The states' implementation plans were subject to EPA approval, as were any post-approval changes to the plans. See N. Ohio Lung Ass'n v. E.P.A., 572 F.2d 1143, 1147 (6th Cir. 1978). That is still true today. See 42 U.S.C. § 7410(k), (l).

         In 1990, Congress again made major changes to the Clean Air Act. For one, Congress set a national Reid Vapor Pressure standard for gasoline. See 42 U.S.C. § 7545(h). In particular, Congress ordered the EPA to promulgate regulations prohibiting anyone (in the “48 contiguous States”) from selling-or even “dispens[ing]” or “supply[ing]”-gasoline with an RVP higher than 9.0 pounds per square inch. See 42 U.S.C. § 7545(h)(1), (6). Moreover, it appears that Congress prohibited states from holding gasoline to a different RVP standard, see § 7545(c)(4)(A)(ii), unless the EPA both found the state's RVP standard was “necessary” to achieve a NAAQS and approved it as part of the state's implementation plan, see 42 U.S.C. § 7545(c)(4)(C)(i); 71 Fed. Reg. 46879, 46880 (Aug. 15, 2006).

         In 2004, the EPA designated eight counties in southeast Michigan as in “nonattainment” of the NAAQS for ozone. 71 Fed. Reg. 46879, 46880 (Aug. 15, 2006). This included Wayne County where Ammex is located. (R. 18, PID 562.)

         This forced Michigan to come up with a strategy to bring southeast Michigan into attainment. (See R. 18, PID 562.) Part of the strategy was to require gas stations to use lower RVP gasoline in the summer months. (R. 18, PID 562; see also R. 18, PID 537, 542). In particular, Michigan enacted House Bill 5508, which says in part, “Beginning June 1 through September 15 of 2007 and for that period of time each subsequent year, the vapor pressure standard shall be 7.0 psi for dispensing facilities in Wayne” and seven other counties in southeast Michigan. (R. 18, PID 542.) And the Bill defined “dispensing facilities” as “a site used for gasoline refueling.” (R. 18, PID 537.) Those two provisions of House Bill 5508 are now found in Michigan Compiled Laws § 290.650d and § 290.642, respectively. The Court will refer to § 290.650d, § 290.642, and associated state laws and regulations (e.g., Michigan Compiled Laws § 290.645(10) and Michigan Administrative Code Rules 285.561.1-3) as the “Summer-Fuel Laws.”

         In 2006, Michigan asked the EPA to approve most of House Bill 5508, including the 7.0 RVP standard and the associated enforcement provisions, as a revision to its state implementation plan. See (R. 18, PID 529); 71 Fed. Reg. 46879, 46880 (Aug. 15, 2006). The EPA reviewed Michigan's request to revise its implementation plan and found that it was consistent with the requirements of the Clean Air Act and that Act's implementing regulations. 71 Fed. Reg. 46879, 46881 (Aug. 15, 2006). But it did more. Because House Bill 5508 set an RVP for gasoline different than the national standard set by Congress, the EPA also found that the 7.0 RVP was “necessary” to achieve NAAQS. 71 Fed. Reg. 46879, 46881 (Aug. 15, 2006); 72 Fed. Reg. 4432, 4433 (Jan. 31, 2007). Upon making those findings, the EPA proposed to approve Michigan's SIP revision and solicited comments to the contrary. See 72 Fed. Reg. 4432, 4433-34 (Jan. 31, 2007). Ammex provided none. See id.

         On January 31, 2007, the EPA found Michigan's 7.0 RVP standard “necessary for Southeast Michigan to achieve the 8-hour NAAQS for ozone” and “approv[ed] [the] SIP revision submitted by the State of Michigan . . . establishing a 7.0 psi RVP fuel requirement for gasoline distributed in Southeast Michigan.” 72 Fed. Reg. 4432, 4434 (Jan. 31, 2007). The EPA further amended the Code of Federal Regulations to “incorporat[e] by reference” “House Bill 5508.” Id. at 4435.


         In the summer of 2012, the Michigan Department of Agriculture & Rural Development- the Michigan entity responsible for enforcing the Summer-Fuel Laws-tested gasoline Ammex was selling, found that it had an RVP of more than 7.0 psi, and thus issued Ammex a “Stop Sale Order.” (R. 13, PID 223.)

         The parties' dispute ended up in state court, but was resolved-for a time. Under a settlement, Ammex agreed to sell gas that complied with the 7.0 RVP standard “[b]etween June 1 and September 15 of each year.” (R. 13, PID 226.) The settlement contained a “retention of jurisdiction” provision giving MDARD three years to return to the state court where it filed suit to enforce the settlement agreement. (R. 13, PID 227.)

         Consistent with the settlement agreement, during the summers of 2013, 2014, 2015, 2016, and 2017, Ammex sold duty-free gasoline that had a RVP of 7.0 psi during the summer months.


         But Ammex says it cannot do that this upcoming summer. In particular, Ammex's foreign (or, more precisely, foreign trade zone) supplier has an issue with one of its tanks. And while there are other foreign sources where Ammex could obtain gasoline, Ammex claims that none of those sell 7.0 RVP gasoline. And while there are domestic sources that sell 7.0 RVP gasoline, buying from those would preclude Ammex from selling gasoline tax-free. In any event, says Ammex, domestic gasoline would have to be stored in different tanks which would be cost prohibitive. But see 19 C.F.R. § 19.36(e)(2). This rock and a hard place, coupled with MDARD's indication that it will require Ammex to comply with the 7.0 RVP standard this summer (R. 1, PID 4-5), prompted Ammex to file this lawsuit.

         Ammex's complaint consists of two counts. In Count I, Ammex says that the dormant side of the Foreign Commerce Clause prevents Wenk from enforcing the Summer-Fuel Laws against it. (R. 1, PID 12-14.) From Ammex's perspective, if Wenk enforced those laws, Michigan would be unconstitutionally discriminating against foreign commerce, regulating commerce beyond its borders, and infringing on Congress' right to be the “one voice” for the Nation on foreign commerce. (See R. 8, PID 82-86.) In Count II, Ammex asserts that the Supremacy Clause prevents Wenk from enforcing the Summer-Fuel Laws against it. (R. 1, PID 14-15.) From Ammex's perspective, Congress and U.S. Customs and Border Protection regulate the entire field of products sold at duty-free shops so Michigan laws that affect what can be sold are preempted. (See R. 8, PID 81-82.) Ammex also claims the Summer-Fuel Laws are preempted because they conflict with Congress' goals for duty-free shops. (Id.) For these reasons, Ammex asks this Court to enjoin MDARD's director, Gordon Wenk, from enforcing the Summer-Fuel Laws against it. (R. 1, PID 14-15.)

         And Ammex asks this Court to do so in a hurry. Ammex stresses that June 1, 2018 (the date when the Summer-Fuel Laws come into effect) is looming and that without an injunction in place it will either have to sell gas in violation of the 7.0 standard or simply not sell gas at all. It thus seeks a preliminary injunction. (R. 8.)


         Wenk argues that this Court does not have subject-matter jurisdiction over Ammex's complaint for two reasons: because he, as a state official sued in his official capacity, is immune from suit in federal court and because the Clean Air Act requires Ammex to pursue relief in the Court of Appeals for the Sixth Circuit. (R. 7, PID 49-53.) The Court disagrees with Wenk.


         Although often referred to as Eleventh Amendment immunity, sovereign immunity extends beyond the text of the Eleventh Amendment and “limits the grant of judicial authority in Art. III.” Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 98 (1984); N. Ins. Co. of New York v. Chatham Cty., Ga., 547 U.S. 189, 193 (2006) (“Eleventh Amendment immunity . . . is convenient shorthand but something of a misnomer[.]” (internal quotation marks omitted)). Under the doctrine of sovereign immunity, absent waiver by Michigan or abrogation by Congress, Michigan and its instrumentalities cannot be sued in a federal court. See Pennhurst, 465 U.S. at 98-100; Regents of the Univ. of California v. Doe, 519 U.S. 425, 429 (1997). Moreover, a suit against a state official in his official capacity, like Ammex's suit against Wenk, is treated as a suit against the state itself. Kentucky v. Graham, 473 U.S. 159, 166 (1985).

         That said, some types of official-capacity suits can proceed in federal court under the Ex parte Young exception to sovereign immunity. The idea (courts sometimes call it a “fiction”) behind the Ex parte Young exception is that when a state law is contrary to federal law, any attempt by the official to enforce the state law is not on behalf of the state. See Virginia Office for Prot. & Advocacy v. Stewart, 563 U.S. 247, 254 (2011). Thus, under Ex parte Young, a plaintiff may sue a state official in his official capacity in federal court so long as the plaintiff seeks to enjoin the official from violating federal law now and in the future. See Edelman v. Jordan, 415 U.S. 651, 667-68 (1974); Diaz v. Michigan Dep't of Corr., 703 F.3d 956, 964 (6th Cir. 2013).

         Wenk says that is not what Ammex is seeking to do. In Wenk's view, House Bill 5508 and its 7.0 RVP standard are federal law. (R. 7, PID 41, 43.) So, says Wenk, Ammex's suit is not to prevent him from violating federal law but to avoid its own violation of federal law this summer. (R. 7, PID 50.) “This, ” says Wenk, “turns the Ex parte Young exception on its head.” (R. 7, PID 50.)

         Not so. “In determining whether the doctrine of Ex parte Young avoids an Eleventh Amendment bar to suit, a court need only conduct a straightforward inquiry into whether [the] complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective.” Verizon Maryland, Inc. v. Pub. Serv. Comm'n of Maryland, 535 U.S. 635, 645 (2002) (internal quotation marks and citation omitted). So the right-side-up view of the issue is not whether Ammex seeks to avoid complying with federal law but whether Ammex seeks to enjoin a state official from violating federal law. And in deciding whether Ammex has pled a violation of federal law, the Court need not assess (at any depth at least) the merits of Ammex's claims. See Muscogee (Creek) Nation v. Pruitt, 669 F.3d 1159, 1167 (10th Cir. 2012) (finding district court erred in applying Twombly and Iqbal's plausibility standard to conclude that Ex parte Young exception did not apply). Instead, for jurisdiction purposes, this Court merely determines whether Ammex has “state[d] a non-frivolous, substantial claim for relief against the [s]tate officers that does not merely allege a violation of federal law solely for the purpose of obtaining jurisdiction.” Id. (internal quotation marks omitted).

         Ammex has. As described in some detail above, Ammex has pled that if Wenk were to enforce the Summer-Fuel Laws against it this summer, he would violate the Federal Constitution. (See R. 1, PID 12-15.) Right or wrong, these claims are neither frivolous nor made solely for the purpose of manufacturing jurisdiction. As such, Michigan's sovereign immunity does not prevent a federal court from deciding Ammex's claims against Wenk. See Muscogee (Creek) Nation, 669 F.3d at 1167.


         Wenk also claims that the Clean Air Act's judicial-review provision strips this Court of jurisdiction. (R. 7, PID 52.) That statutory provision provides, in relevant part, “[a] petition for review of the Administrator's action in approving or promulgating any implementation plan under section 7410 of this title . . . or any other final action of the Administrator under this chapter which is locally or regionally applicable may be filed only in the United States Court of Appeals for the appropriate circuit.” 42 U.S.C. § 7607(b)(1) (emphasis added). It further states that any such petition for review must “be filed within sixty days from the date notice of such promulgation, approval, or action appears in the Federal Register, except that if such petition is based solely on grounds arising after such sixtieth day, then any petition for review under this subsection shall be filed within sixty days after such grounds arise.” Id. (emphasis added). Wenk believes that Ammex challenges the EPA's approval of Michigan's revision to its SIP in 1997. (R. 7, PID 52.) Thus, in Wenk's view, Ammex filed this suit “two decades too late and in the wrong court.” (R. 7, PID 53.)

         The Court disagrees with Wenk.

         As an initial matter, it seems that the relevant EPA action was in 2007, not 1997. In 1997, the EPA merely approved a “summertime gasoline RVP limit of 7.8 psi for gasoline sold in Wayne” and other counties. 62 Fed. Reg. 24341, 24342 (May 5, 1997) (emphasis added). It was not until 2007 that EPA approved RVP of 7.0: “What action is EPA taking today? EPA is approving a SIP revision . . . establishing a 7.0 psi RVP fuel requirement for gasoline distributed in Southeast Michigan.” 72 Fed. Reg. 4432, 4434 (Jan. 31, 2007).

         But whether the relevant EPA action is the 1997 approval or the 2007 approval, what is not debatable is that the judicial-review provision's “any other final action” clause does not apply. See 42 U.S.C. § 7607(b)(1). That clause appears to be a catchall. See Id. And so it would only apply if none of the clauses that preceded it did. But one does. The first clause of the judicial review says, “[a] petition for review of the Administrator's action in approving or promulgating any implementation plan under section 7410 . . . .” See 42 U.S.C. § 7607(b)(1) (emphasis added). Section 7410 provides for EPA approval of revisions to state implementation plans and that is just what the EPA did in both 1997 and 2007.

         So the question then is whether Ammex's complaint seeks “review of the Administrator's action in approving . . . any implementation plan.” 42 U.S.C. § 7607(b)(1). If yes, then Ammex should have pursued relief in the Court of Appeals (and done so long ago); if no, then Ammex's suit is properly filed here.

         The answer is “no.” Ammex's lawsuit is limited to claims that the Summer-Fuel Laws cannot be enforced against it without violating the Constitution. Ammex is not saying that the EPA was wrong to “approv[e]” House Bill 5508 as a revision to Michigan's SIP. That is, Ammex neither claims that the EPA failed to follow proper procedures in approving a SIP revision nor claims that EPA's approval of a SIP revision was arbitrary or capricious. Instead, Ammex merely claims that the Summer-Fuel Laws cannot be lawfully applied to it. See Utah Power & Light Co. v. Envtl. Prot. Agency, 553 F.2d 215, 218 (D.C. Cir. 1977) (“Only by straining the meaning of the words ‘approving' and ‘promulgating' could it be said that challenges to interpretations or applications of EPA regulations constitute attacks on ‘the Administrator's action in approving or promulgating' any state implementation plan.”); In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, 264 F.Supp.3d 1040, 1047 (N.D. Cal. 2017) (finding that a “challenge to ‘a particular interpretation or application' of a SIP, which if accepted would not invalidate the SIP[, ] . . . is properly considered by the district court”).

         In arguing for a different result, Wenk primarily relies on California Dump Truck Owners Ass'n v. Nichols, 784 F.3d 500 (9th Cir. 2015), and decisions by the Fourth and Eighth Circuits discussed in Dump Truck Owners. But the plaintiffs' claims in those three cases are materially different from Ammex's claims in this case.

         In Dump Truck Owners, an association of dump-truck operators sought to enjoin the California Air Resources Board (CARB) from enforcing a state law regulating heavy-duty truck emissions. See 784 F.3d at 503, 507. The association claimed that the state law was preempted by federal law. Id. While the association's suit was pending in district court, the EPA approved the state law as a revision to California's SIP. Id. at 504. The association argued that the EPA's approval did not mean that the Clean Air Act's judicial-review provision stripped the district court of jurisdiction. According to the association, it was only challenging the state law and not the EPA's approval of the state law as a SIP revision. Id. at 505. And, the association argued, it was not challenging any provision of the SIP. ...

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