OMAHA, Neb. (AP) — A federal appeals court on Thursday upheld a lower court ruling that found U.S. border officials exceeded their authority when they imposed multimillion-dollar fines against Union Pacific Corp. for failing to discover illegal drugs in railcars that crossed into the country from Mexico.
A three-judge panel of the 8th U.S. Circuit Court of Appeals agreed with U.S. District Judge Joseph Bataillon that officials with U.S. Customs and Border Protection, referred to in the opinion as CBP, were wrong to fine the railroad almost $38 million and seize railroad equipment.
The government had argued in its appeal of Bataillon's 2011 ruling that the Tariff Act of 1930 allowed it to impose the fines. But the appeals panel ruled Tuesday that the act does not authorize penalties against the railroad for drugs found on railcars that Union Pacific "neither owns nor controls."
In at least one instance, the appeals panel noted, the railroad was fined more than $655,000 for an incident in which a Union Pacific police officer found nearly 82 pounds of marijuana on a train that U.S. border agents had missed.
"Despite UP's diligence, CBP imposed a fine against UP," Chief Judge William Jay Riley wrote for the panel. "CBP has never explained why UP's active role in uncovering the marijuana was not enough to absolve UP of liability."
In an emailed statement, Union Pacific said it was pleased with the appeals court's ruling.
"Union Pacific dedicates significant resources and invests millions of dollars to provide a safe and secure environment at our border operations," the statement said. "We value our relationship with Customs and Border Protection and look forward to continue working with CBP to help prevent drug smuggling on the U.S. side of the Mexico border."
In August 2011, Union Pacific resolved part of the long-running dispute with the federal government over the drug-smuggling fines by agreeing to invest $50 million in efforts to strengthen security in the rail supply chain at the Mexican border without admitting any fault. In turn, the government agreed to forgo millions in fines already imposed and provide the company five years of amnesty.
But the company proceeded with the lawsuit to challenge the agency's power to impose the fines and seize railcars.
Union Pacific has said it is not practical for the railroad to patrol trains in Mexico because its security officers have no authority there, cannot carry guns and would face serious safety threats from Mexican drug cartels.
According to the lawsuit, Customs and Border Protection agents found at least 4,514 pounds of marijuana hidden on Union Pacific trains between 2002 and 2008, and on at least one occasion about 257 pounds of cocaine was also found. The drugs are often found in false compartments on the railcars. The seizures took place at the Calexico, Calif., Nogales, Ariz., and Brownsville, Texas, crossings.
Union Pacific has said customs inspections themselves often leave the trains vulnerable. While agents check the Mexican railroad crew's paperwork, railcars on trains up to two miles long can stretch back into Mexico and sit unprotected.
While the appeals panel upheld the lower court's finding that U.S. officials exceeded their authority with the fines, it did vacate the lower court's injunction keeping U.S. officials from penalizing Union Pacific in the future for drugs found on railcars Union Pacific owns.
Phone and email messages left Thursday with the U.S. Department of Justice were not immediately returned.