Trade Adjustment Assistance is the too often overlooked part of the subject matter jurisdiction of the Court of International Trade. TAA is the federal program that provides benefits to workers and others who are separated from employment or otherwise injured as a result of international trade. The usual case has to do with factory workers who lose their jobs when their employer outsources production to a lower cost country. There are also TAA programs for agricultural producers including farmers and fishermen. [Side note: is there a gender neutral version of fishermen? "Fisher" seems stylistically inadequate.]
Steve M. Carl v. United States Secretary of Agriculture is an interesting TAA case relating to the Farmers Program. The only real issue in the case is when the plaintiff was required to file his claim in the Court of International Trade. The relevant statute, 19 U.S.C. § 2395, requires that someone denied TAA benefits commence an action in the CIT "within 60 days after notice" of the denial. This leads to the question of what constitutes notice of the denial.
This is more than just lawyers puzzling out the meaning of words. It matters to Mr. Carl because he filed the case within 60 days of receiving the letter notifying him that his claim was denied. But, he filed the case more than 60 days after the date on the letter itself. So, the question from the Court was which date controls and that question is not answered in the statute or the regulations.
The first important point the Court made in its analysis is that this Farmers Program case against the Secretary of Agriculture is different than the more common case against the Secretary of Labor. In Labor cases, the regulations provide for notice to the claimant via publication in the Federal Register. Absent such a regulation or any other means of so-called constructive notice, the Department of Agriculture is required to provide actual notice.
The second important point is that Agriculture had argued in a previous case that the date of receipt started the 60 day clock. Despite that, in this case, it was arguing that the date of the letter was relevant. The Court appeared troubled by this change and pointed out that in the prior case there was nearly a month between the date of the letter and the mailing date shown on the envelop. This creates the possibility that a claimant could lose significant time granted to him or her by Congress, solely as a result of a slow mailing process in the agency.
The Court did not come right out and adopt either date as the presumptive trigger for the filing period. It did not have to go that far to resolve this case. Rather, the Court compared the date of receipt (Approximately May 19) with the date on the letter (May 13). This is a six-day lag from drafting to delivery. Using the Court's own five-day mailing rule as a benchmark, the Court found that six days is an unreasonable portion, specifically 10%, of the plaintiff's 60-day filing time. Lacking any evidence of the date of mailing (the third possible trigger), the Court adopted the date of receipt as the relevant date. As a result, the Court found that the case was timely filed.
Thus, the case gets to move forward on the merits.
One additional note, this case was handled by Mr. Carl, pro se. However, he had assistance on the brief from Prof. Steve Schwinn of the John Marshall Law School in Chicago of which I am a two-time alum (J.D. and LL.M.) and adjunct professor. While I hardly know him, I give Steve a virtual high five for helping out. Regardless of the outcome, TAA cases are important and claimants deserve attention from the bar.
Wednesday, May 30, 2012
Saturday, May 19, 2012
Is Being A "Friend of the Court" Intervening?
There is a simple answer to the title question: No.
Being amicus curiae, or a "friend of the court," gives someone who is not a party to the case the ability to file a brief on some part of the controversy. This is often done in appellate cases and, in particular, in cases that have important policy considerations. It is less common in trial courts. The court has the discretion to permit someone to file as an amicus curiae. In contrast, someone with a demonstrable interest in the subject matter of a case can sometimes intervene on behalf of one side or the other. Intervenors become parties to the case, essentially additional plaintiffs or defendants. We see intervenors often in trade cases where either the foreign producers or domestic industry might intervene as plaintiffs or defendants to support the government decision, for example.
Corning Gilbert, Inc. v. United States poses an interesting question with respect to the status of amicus curiae in denied protest cases at the Court of International Trade. The underlying issue is the denial by Customs and Border Protection of a protest against the exclusion of merchandise found to infringe a U.S. patent in violation of 19 U.S.C. sec. 1337 (so-called "section 337"). Section 337 cases are initially decided by the International Trade Commission.
As is normally the case in a challenge to a denied protest, the importer is the plaintiff and the United States is the defendant. The case is before the Court for de novo review, meaning that the Court of International Trade is acting as a trial court and will render a decision based on the record made before it rather than reviewing the decision from Customs and Border Protection.
Note that the patent holder is not a party to the case. That may seem odd given that the purpose of section 337 is to protect U.S. patent holders (and others) from unfair competition by imports. The whole case seems to be about the patent holder's rights. Except that it is not.
This case is really about protecting the importer from an improper exercise of authority by Customs and Border Protection in the exclusion of merchandise. In other words, the case is no longer about the patent holder (as it was at the International Trade Commission). Still, it seems clear that the patent holder might have something useful to tell the Court. And, in this case, the patent holder tried to exercise that opportunity by seeking permission to be an amicus party. Clearly, the patent holder would be arguing that the merchandise was properly excluded per the ITC order.
An important piece of background information is that the law specifically precludes intervenors in denied protest cases. 28 U.S.C. § 2631(j)(1)(A). So the patent holder had no opportunity to become an actual party. That left it with intervention as its only option.
But, the Court of International Trade noted its concern that status as amicus curiae might be used as an inappropriate alternative to intervention. That seemed to be the case because the patent holder wanted permission to file briefs in all motions and the ultimate disposition in the case, which is a acting a lot like a party. Given that, the Court denied the motion but stated that when, and if, the Court finds input from the patent holder on a given issue may be helpful, it will request a brief.
It is important to note that this does not create a blanket rule against amici in de novo customs litigation. That remains in the sound discretion of the trial court and other judges of the Court of International Trade have permitted amici in these cases, including in section 337 cases. What it does mean, though, is that the question is likely to get more attention now than prior to this decision.
Being amicus curiae, or a "friend of the court," gives someone who is not a party to the case the ability to file a brief on some part of the controversy. This is often done in appellate cases and, in particular, in cases that have important policy considerations. It is less common in trial courts. The court has the discretion to permit someone to file as an amicus curiae. In contrast, someone with a demonstrable interest in the subject matter of a case can sometimes intervene on behalf of one side or the other. Intervenors become parties to the case, essentially additional plaintiffs or defendants. We see intervenors often in trade cases where either the foreign producers or domestic industry might intervene as plaintiffs or defendants to support the government decision, for example.
Corning Gilbert, Inc. v. United States poses an interesting question with respect to the status of amicus curiae in denied protest cases at the Court of International Trade. The underlying issue is the denial by Customs and Border Protection of a protest against the exclusion of merchandise found to infringe a U.S. patent in violation of 19 U.S.C. sec. 1337 (so-called "section 337"). Section 337 cases are initially decided by the International Trade Commission.
As is normally the case in a challenge to a denied protest, the importer is the plaintiff and the United States is the defendant. The case is before the Court for de novo review, meaning that the Court of International Trade is acting as a trial court and will render a decision based on the record made before it rather than reviewing the decision from Customs and Border Protection.
Note that the patent holder is not a party to the case. That may seem odd given that the purpose of section 337 is to protect U.S. patent holders (and others) from unfair competition by imports. The whole case seems to be about the patent holder's rights. Except that it is not.
This case is really about protecting the importer from an improper exercise of authority by Customs and Border Protection in the exclusion of merchandise. In other words, the case is no longer about the patent holder (as it was at the International Trade Commission). Still, it seems clear that the patent holder might have something useful to tell the Court. And, in this case, the patent holder tried to exercise that opportunity by seeking permission to be an amicus party. Clearly, the patent holder would be arguing that the merchandise was properly excluded per the ITC order.
An important piece of background information is that the law specifically precludes intervenors in denied protest cases. 28 U.S.C. § 2631(j)(1)(A). So the patent holder had no opportunity to become an actual party. That left it with intervention as its only option.
But, the Court of International Trade noted its concern that status as amicus curiae might be used as an inappropriate alternative to intervention. That seemed to be the case because the patent holder wanted permission to file briefs in all motions and the ultimate disposition in the case, which is a acting a lot like a party. Given that, the Court denied the motion but stated that when, and if, the Court finds input from the patent holder on a given issue may be helpful, it will request a brief.
It is important to note that this does not create a blanket rule against amici in de novo customs litigation. That remains in the sound discretion of the trial court and other judges of the Court of International Trade have permitted amici in these cases, including in section 337 cases. What it does mean, though, is that the question is likely to get more attention now than prior to this decision.
Friday, May 18, 2012
CBP and Homeopathy
Here's something you may not know about me: I am an annoying science guy. That is not to say that I have any credentials or even skills in the hard sciences. Rather, it means I firmly believe in the sciences and the critical role of science in daily life and important policy decisions. Based on the evidence I see in the consensus of trained professionals, I accept the premise that vaccines are a boon to civilization, that humans are at least partially responsible for global warming, and that humans evolved from other primates over millions of years. I reject the premise that space aliens helped build ancient cultures, that $2 rubber bracelets improve athletic performance, and the anyone has psychic abilities. Bigfoot? Maybe, but only because it does not violate any established laws of nature for there to be a large undiscovered hominid loping around the wilderness. But, I won't really accept it until I see one on the front page of a paper that is not sold in the grocery store checkout aisle.
One of my least favorite forms of woo is homeopathy. This is the branch of quack medicine that asserts two basic premises. First, a symptom can be alleviated by administering a substance that causes the same symptom. Second, the more dilute the dosage of of that substance, the more pronounced the affect. The first proposition is simply counter intuitive. The second is counter intuitive to the point of appearing crazy. But, that's homeopathy. If you have a stomach ache, you should take a solution of some herb that in high doses will cause a stomach ache but is so dilute that there may not be molecules of the herb present in the water or alcohol base. When you purchase a homeopathic remedy, you are likely purchasing really expensive water. Of course, merely being counter intuitive does not make it a sham. The fact that there are no good scientific studies validating the claims, that there is no theory explaining how it might work, and that people with real medical problems might forgo seeking science-based treatments is what makes it a dangerous sham.
Consumer protection lawyers around the country have discovered this fact and there are class-action lawsuits pending against companies that sell homeopathic remedies. See here for info on that.
Oddly enough, I missed an episode in which this touched on customs law, which is why I have this opportunity to rant.
In the October 5, 2011 Customs Bulletin, there is a proposed revocation of a tariff classification ruling on homeopathic remedies. According to Customs, "These products are homeopathic remedies for various psychosomatic ailments such as worry; apprehension; nervous tension; fear of failure; lack of
courage, lack of confidence, lack of presence of mind, lack of focus, and many similar complaints. They are not indicated to counteract physical ailments such as cancer or other illnesses; to the contrary, many of the merchandise’s labels contain warnings about seeking medical attention if the condition at
issue persists." The products for humans were labeled as bringing "courage and calm to face things that frighten or worry you, also aids the shy and the timid." Some were labeled to help "manage everyday stress."
In HQ H086082 (Oct. 15, 2010), Customs and Border Protection classified certain homeopathic remedies consisting of plant extracts in subheading 2208.90.80 as "undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 percent vol." Another homeopathic product, the "Rescue Remedy for Pets," was classified as a chemical product or preparation not elsewhere specified. Homeopathic pills for humans were classified in Heading 2106 as food preparations. In other words, none of these products were classified as medicaments of Heading 3004. The ruling even makes the somewhat editorial comment that the marketing toward "psychosomatic" conditions "emphasize the subject merchandise’s use as a remedy for general, non-physical ailments, and also underscore the fact
that they cannot replace medical science for the treatment of physical diseases." Now that I have seen that decision, the Annoying Science Guy shouts: "A victory for science and evidence-based medicine."
You should know that for tariff classification purposes, "medicaments" are for "therapeutic or prophylactic uses" and include "pastilles, tablets, drops, etc. of a kind suitable only for medicinal purposes, such as those based on [sulfur], charcoal, sodium tetraborate, sodium benzoate, potassium chlorate or magnesia . . . ." 3004 excludes infusions of herbs and herbal teas having laxative, diuretic, or other physiological effects or claiming to provide general health or well-being.
Here's the problem, in proposed H145541, which I think just became final, Customs revered course. It did so because it believes 3004, the medicament provision, to be a "use provision." As you probably know, that means that classification in 3004 depends upon the principal use of products of that class or kind in the United States at the time of exportation. Evidence of principal use includes:
One of my least favorite forms of woo is homeopathy. This is the branch of quack medicine that asserts two basic premises. First, a symptom can be alleviated by administering a substance that causes the same symptom. Second, the more dilute the dosage of of that substance, the more pronounced the affect. The first proposition is simply counter intuitive. The second is counter intuitive to the point of appearing crazy. But, that's homeopathy. If you have a stomach ache, you should take a solution of some herb that in high doses will cause a stomach ache but is so dilute that there may not be molecules of the herb present in the water or alcohol base. When you purchase a homeopathic remedy, you are likely purchasing really expensive water. Of course, merely being counter intuitive does not make it a sham. The fact that there are no good scientific studies validating the claims, that there is no theory explaining how it might work, and that people with real medical problems might forgo seeking science-based treatments is what makes it a dangerous sham.
Consumer protection lawyers around the country have discovered this fact and there are class-action lawsuits pending against companies that sell homeopathic remedies. See here for info on that.
Oddly enough, I missed an episode in which this touched on customs law, which is why I have this opportunity to rant.
In the October 5, 2011 Customs Bulletin, there is a proposed revocation of a tariff classification ruling on homeopathic remedies. According to Customs, "These products are homeopathic remedies for various psychosomatic ailments such as worry; apprehension; nervous tension; fear of failure; lack of
courage, lack of confidence, lack of presence of mind, lack of focus, and many similar complaints. They are not indicated to counteract physical ailments such as cancer or other illnesses; to the contrary, many of the merchandise’s labels contain warnings about seeking medical attention if the condition at
issue persists." The products for humans were labeled as bringing "courage and calm to face things that frighten or worry you, also aids the shy and the timid." Some were labeled to help "manage everyday stress."
In HQ H086082 (Oct. 15, 2010), Customs and Border Protection classified certain homeopathic remedies consisting of plant extracts in subheading 2208.90.80 as "undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 percent vol." Another homeopathic product, the "Rescue Remedy for Pets," was classified as a chemical product or preparation not elsewhere specified. Homeopathic pills for humans were classified in Heading 2106 as food preparations. In other words, none of these products were classified as medicaments of Heading 3004. The ruling even makes the somewhat editorial comment that the marketing toward "psychosomatic" conditions "emphasize the subject merchandise’s use as a remedy for general, non-physical ailments, and also underscore the fact
that they cannot replace medical science for the treatment of physical diseases." Now that I have seen that decision, the Annoying Science Guy shouts: "A victory for science and evidence-based medicine."
You should know that for tariff classification purposes, "medicaments" are for "therapeutic or prophylactic uses" and include "pastilles, tablets, drops, etc. of a kind suitable only for medicinal purposes, such as those based on [sulfur], charcoal, sodium tetraborate, sodium benzoate, potassium chlorate or magnesia . . . ." 3004 excludes infusions of herbs and herbal teas having laxative, diuretic, or other physiological effects or claiming to provide general health or well-being.
Here's the problem, in proposed H145541, which I think just became final, Customs revered course. It did so because it believes 3004, the medicament provision, to be a "use provision." As you probably know, that means that classification in 3004 depends upon the principal use of products of that class or kind in the United States at the time of exportation. Evidence of principal use includes:
- the physical characteristics of the goods
- the expectations of the ultimate purchasers
- channels of trade
- the environment of sale
- usage of the merchandise
- the economic practicality of so using the imported product
- recognition in the trade
If you think about those factors, you'll see where this is going. What's missing from the legal analysis? The fact that the merchandise actually performs the function for which it is used! Built into these factors is probably an assumption of economic rationality stating that people will not use a product in a way that it does not work. Unfortunately, that is not true with homeopathy, plastic holographic energy bracelets, perpetual motion machines, or miracle devices to improve gas mileage.
In the proposed revocation, Customs did an admirable job of reviewing each of the factors. It found that homeopathic remedies belong to the class or kind of goods that are prepared for therapeutic or prophylactic use rather than food or supplements. This was based on the marketing of these products as drugs [Note: that's my characterization, not CBP's] and the consumer expectation that they provide a therapeutic or prophylactic benefit. Customs and Border Protection did a public service by explaining the "Law of Infinitesimals" that govern homeopathic dilutions and by stating that there its labs have been unable to detect the extract in the preparation. Maybe that will raise some awareness.
In the end, though, Customs was bound by the law and ruled that these products are classified for tariff purposes in heading 3004 as medicaments. As a matter of law, I think CBP is correct. This is an unfortunate victory for the homeopathy industry because there is a substantial reduction in the rate of duty. Moreover, I fear this will result in some sort of statement that the United States government now classifies these products as medicaments, even though the tariff classification says nothing about effectiveness.
Thursday, May 17, 2012
Some News to Use
Colombia FTA Rules of Origin
Speaking of Free Trade Agreements, the International Trade Commission has published the modification to the HTSUS for the Colombia Agreement. Most relevant for many of you will be the rule of origin. See here.
Argentina May Lose GSP
It looks like Argentina will lose its status as a Beneficiary Developing Country for purposes of the Generalized System of Preferences. This is the result of a March 26, 2012 Presidential Proclamation and a finding by the President that Argentina has failed to act in good faith with respect to the enforcement of two arbitral awards against it. These award are based on the bilateral investment treaty between the U.S. and Argentina and are in excess of $300 million. The order becomes effective for goods entered or withdrawn from warehouse on or after May 28. Let's hope this is a game of chicken and that Argentina will blink soon.
New Sanctions on Yemen
On May 16, the President signed an Executive Order authorizing sanctions against entities that threaten the peaceful political transition in Yemen. The order blocks property and interests in property that is in the U.S. or the possession or control of a U.S. person where the property belongs to who has threatened the the stability of Yemen and the implementation of the November 23, 2011 agreement with the Yemeni opposition and of political and military leaders who have assisted in those efforts. As always, the sanctions are complicated and you should review the source document.
Bad News for Dolphins
The WTO has reversed an earlier ruling. The Appellate Body determined that U.S. labeling rules for dolphin-safe tuna are technical barriers to trade that are more restrictive than necessary to accomplish the legitimate objective. It's probably bad news for tuna as well.
Chile Drawback Claims
Customs has noted that 19 USC 1313(j)(4)(B) limits the availability of drawback for certain goods exported to Chile. As a result, Chile FTA claims must be labeled as such. This relates to the phased-in elimination of drawback on goods subject to Chile FTA drawback. The law states that:
For purposes of subsections (a), (b), (f), (h), (j)(2), (p), and (q) of this section, if an article that is exported to Chile is a good subject to Chile FTA drawback, no customs duties on the good may be refunded, waived, or reduced, except as provided in subparagraph (B).
(B)The customs duties referred to in subparagraph (A) may be refunded, waived, or reduced by—
(i)100 percent during the 8-year period beginning on January 1, 2004;
(ii)75 percent during the 1-year period beginning on January 1, 2012;
(iii)50 percent during the 1-year period beginning on January 1, 2013; and
(iv)25 percent during the 1-year period beginning on January 1, 2014.
FYI, goods subject to Chile FTA drawback are all goods imported into the U.S. unless exempted. Exemptions include goods exported in the same condition as imported and goods entered under bond for transportation and exportation to Chile.
Sunday, May 06, 2012
Clear the Deckers
Sometimes, the process of tariff classification can force lawyers and judges down a rabbit hole of grammar and legal analysis. For me, Deckers Outdoor Corp. v. United States is one of those cases.
The only real issue in this case is the legal question of whether the tariff term "footwear of the slip-on type, that is held to the foot without the use of laces or buckles or other fasteners" includes UGG Classic Crochet boots. Here is an image for reference. Since this image is not from the official UGG web site, I can't vouch for it:
The question presented is whether U.S. Customs and Border Protection correctly treated this boot as a slip-on. According to the plaintiff, the term "slip-on" does not include boots (i.e., footwear that extends above the ankle). Rather, plaintiff asserted that a "slip-on" is a category of shoes that is exclusive of boots and, more specifically, exclusive of boots that must be pulled on manually. As I understand this, the argument is that a "slip-on" is what I would call a loafer. In women's shoes, it would also include mules and clogs (or so I am told).
These decisions must be made with great respect to the drafters of the tariff schedule, for good or ill. In this case, it might be ill. I say ill, because I think the decision turns on a potentially ungrammatical use of a comma and the word "that." Remember, the relevant language is: "footwear of the slip-on type, that is held to the foot without the use of laces or buckles or other fasteners."
Grammar Girl, Bryan Garner and other grammarians, correct me if I am wrong. The way I read that phrase, without the comma after "type" the "that" would mean that slip-on footwear may be held to the foot with OR without laces, etc. and this tariff item is applicable only to the latter. This is because "that" is a restrictive modifier. In that case, I think the comma is unnecessary. On the other hand, if slip-ons are necessarily held to the foot without laces, buckles, or other fasteners, then the proper word would be "which" and the comma would be appropriate. That is because "which" is not restrictive. Rather, it is descriptive. I'm not sure this matters here because, as a matter of obvious facts, these items have no laces, buckles, or fasteners. But, the analysis does matter for future cases.
The Court of International Trade took a slightly different approach and equated "that is" in the tariff language with the Latin id est (usually seen as "i.e."), meaning "in other words." The tariff phrase, as interpreted, would then be: "footwear of the slip-on type (i.e., held to the foot without the use of laces or buckles or other fasteners)." In that construction, the sentence is clear and it means that slip-on footwear never has laces, buckles, or fasteners." The sentence as written is enough of a jumble that it is hard to tell, but I think it actually means that slip-ons might have fasteners but that slip-on footwear with fasteners goes somewhere else in the tariff schedule.
Honestly, though, it is hard to tell and, as I said earlier, this may be a rabbit hole of over thinking.
The second issue was whether slip-on footwear might include pull-on boots. On that point, the Court looked to commercial usage including trade dictionaries and e-commerce web sites to find that the term "slip-on" is commonly applied to boots.
Thus, the Court of International Trade granted the government's motion to dismiss.
The only real issue in this case is the legal question of whether the tariff term "footwear of the slip-on type, that is held to the foot without the use of laces or buckles or other fasteners" includes UGG Classic Crochet boots. Here is an image for reference. Since this image is not from the official UGG web site, I can't vouch for it:
These decisions must be made with great respect to the drafters of the tariff schedule, for good or ill. In this case, it might be ill. I say ill, because I think the decision turns on a potentially ungrammatical use of a comma and the word "that." Remember, the relevant language is: "footwear of the slip-on type, that is held to the foot without the use of laces or buckles or other fasteners."
Grammar Girl, Bryan Garner and other grammarians, correct me if I am wrong. The way I read that phrase, without the comma after "type" the "that" would mean that slip-on footwear may be held to the foot with OR without laces, etc. and this tariff item is applicable only to the latter. This is because "that" is a restrictive modifier. In that case, I think the comma is unnecessary. On the other hand, if slip-ons are necessarily held to the foot without laces, buckles, or other fasteners, then the proper word would be "which" and the comma would be appropriate. That is because "which" is not restrictive. Rather, it is descriptive. I'm not sure this matters here because, as a matter of obvious facts, these items have no laces, buckles, or fasteners. But, the analysis does matter for future cases.
The Court of International Trade took a slightly different approach and equated "that is" in the tariff language with the Latin id est (usually seen as "i.e."), meaning "in other words." The tariff phrase, as interpreted, would then be: "footwear of the slip-on type (i.e., held to the foot without the use of laces or buckles or other fasteners)." In that construction, the sentence is clear and it means that slip-on footwear never has laces, buckles, or fasteners." The sentence as written is enough of a jumble that it is hard to tell, but I think it actually means that slip-ons might have fasteners but that slip-on footwear with fasteners goes somewhere else in the tariff schedule.
Honestly, though, it is hard to tell and, as I said earlier, this may be a rabbit hole of over thinking.
The second issue was whether slip-on footwear might include pull-on boots. On that point, the Court looked to commercial usage including trade dictionaries and e-commerce web sites to find that the term "slip-on" is commonly applied to boots.
Thus, the Court of International Trade granted the government's motion to dismiss.
Wednesday, April 25, 2012
I'm Exhausted
The Court of International Trade has handed down an interesting penalty decision in United States v. Nitek Electronics, Inc. concerning an importer who allegedly failed to properly deposit antidumping duties on malleable iron pipe from China. For our purposes, the interesting issue has to do with the scope of the administrative penalty case as compared with the court action.
In the administrative process, Customs and Border Protection issued both a pre-penalty and a penalty notice that asserted a "tentative culpability" of gross negligence. This means that the potential penalty was four times the duties owed. It also means that, to collect, Customs would have to show evidence of gross negligence such as a willful disregard of the rules. However, when the case came to Court, the Justice Department asserted a claim based on simple negligence. This requires only evidence that the importer failed to act with the degree of care a similarly situated, reasonably prudent importer would exercise. That's a different thing. Consequently, the defendant importer made the clever argument that because this is a different claim, Customs and Border Protection has failed to go through the full administrative process and, therefore, is improperly in Court. The defendant moved to dismiss claiming a lack of subject matter jurisdiction and that CBP failed to exhaust its administrative remedies.
On jurisdiction, there was considerable discussion over whether exhaustion is a jurisdictional requirement. The Court noted that exhaustion is not usually jurisdictional unless Congress has stated so in clear language. In this case, the penalty statute (19 USC 1592) does not include clear language making exhaustion jurisdictional. Thus, the Court found that it had jurisdiction to hear the case, meaning it has the power to review the matter. That is not the same as saying that Customs properly made the claim.
Turning to the claim itself, the Court found that its role in a penalty case is not to impose a penalty. Rather, these are collection cases in which the government is seeking to recover a penalty the government already imposed imposed. [I'm not sure a review of the case law would convince me of that, but take it as true for now.] According to the defendant, the fact that Customs never imposed a penalty based on simple (as opposed to gross) negligence means that the claim was not properly exhausted administratively. As I said, this is a clever argument. Kudos to the lawyers involved.
The government took the reasonable position that because the defendant had notice of a claim based on gross negligence, it necessarily had notice of a claim based on simple negligence. In the criminal world, I think this counts as the lesser included offense theory. We know from a case called U.S. v. Optrex, that Customs cannot increase the level of culpability once in Court. But, according to the United States, the same rule should not apply when moving downward.
The Court did not agree. Rather, it held that the statute requires more specificity in the claim and precision in the administrative process. Customs is required to notify the potential defendant of the change in the claim and Customs failed to do that here. Having failed to provide that notice, the Court found that Customs did not properly exhaust the administrative process. Further, in the absence of any asserted reason to grant a waiver, the Court held that the penalty claim against Nitek was barred.
There was still the matter of the collection of duties, as opposed to the penalty. On that front, the Court found the Customs had no need to exhaust administrative remedies or even to make a penalty claim. Thus, with the exception of six entries not properly included in the case, the duty collection case was permitted to proceed.
In the administrative process, Customs and Border Protection issued both a pre-penalty and a penalty notice that asserted a "tentative culpability" of gross negligence. This means that the potential penalty was four times the duties owed. It also means that, to collect, Customs would have to show evidence of gross negligence such as a willful disregard of the rules. However, when the case came to Court, the Justice Department asserted a claim based on simple negligence. This requires only evidence that the importer failed to act with the degree of care a similarly situated, reasonably prudent importer would exercise. That's a different thing. Consequently, the defendant importer made the clever argument that because this is a different claim, Customs and Border Protection has failed to go through the full administrative process and, therefore, is improperly in Court. The defendant moved to dismiss claiming a lack of subject matter jurisdiction and that CBP failed to exhaust its administrative remedies.
On jurisdiction, there was considerable discussion over whether exhaustion is a jurisdictional requirement. The Court noted that exhaustion is not usually jurisdictional unless Congress has stated so in clear language. In this case, the penalty statute (19 USC 1592) does not include clear language making exhaustion jurisdictional. Thus, the Court found that it had jurisdiction to hear the case, meaning it has the power to review the matter. That is not the same as saying that Customs properly made the claim.
Turning to the claim itself, the Court found that its role in a penalty case is not to impose a penalty. Rather, these are collection cases in which the government is seeking to recover a penalty the government already imposed imposed. [I'm not sure a review of the case law would convince me of that, but take it as true for now.] According to the defendant, the fact that Customs never imposed a penalty based on simple (as opposed to gross) negligence means that the claim was not properly exhausted administratively. As I said, this is a clever argument. Kudos to the lawyers involved.
The government took the reasonable position that because the defendant had notice of a claim based on gross negligence, it necessarily had notice of a claim based on simple negligence. In the criminal world, I think this counts as the lesser included offense theory. We know from a case called U.S. v. Optrex, that Customs cannot increase the level of culpability once in Court. But, according to the United States, the same rule should not apply when moving downward.
The Court did not agree. Rather, it held that the statute requires more specificity in the claim and precision in the administrative process. Customs is required to notify the potential defendant of the change in the claim and Customs failed to do that here. Having failed to provide that notice, the Court found that Customs did not properly exhaust the administrative process. Further, in the absence of any asserted reason to grant a waiver, the Court held that the penalty claim against Nitek was barred.
There was still the matter of the collection of duties, as opposed to the penalty. On that front, the Court found the Customs had no need to exhaust administrative remedies or even to make a penalty claim. Thus, with the exception of six entries not properly included in the case, the duty collection case was permitted to proceed.
Tuesday, April 17, 2012
HMT Still in the Court
The U.S. Court of Appeals for the Federal Circuit, in a two to one decision, has denied Ford Motor Company additional HMT refunds for the pre-July 1, 1990 period and the so-called disputed claims after that date. This is a long and complicated story, and I am just back from a reunion of former judicial clerks at the Court of International Trade. That means you will not get the long version of this decision.
What it comes down to is that Ford, like many other companies, paid Harbor Maintenance Tax on exports from the U.S. The Supreme Court eventually decided that the HMT, as applied to exports, was unconstitutional. As a result, a lot of companies received very healthy refund checks from the U.S. and several customs lawyers bought sports cars. But, there have been lingering issues over the evidence necessary to establish a right to a refund for HMT payments made prior to July 1, 1990 and for certain disputed claims thereafter.
Normally, when the federal government has records of some transactions, the public is entitled to rely on these records to establish whatever facts they cover. But, with respect to HMT, Customs knows that there are errors in the pre-July 1, 1990 data. Those errors come from the exporters who reported the data, the banks that collected and transmitted the data to Customs, and from Customs. Also, not all HMT payments were unconstitutional. Some related to imports and domestic traffic. So, to support a claim for an HMT refund from this period, Customs passed a regulation under which it would accept:
Ford gathered information from Customs via a FOIA request and supplemented that data with two affidavits from knowledgeable employees (aside: Hey, Paul. Hope all is well.). These statements supported the government's data and confirmed Ford's internal quality recordkeeping and procedures. Despite the added confirming documents, Customs denied the claims. The primary basis for this appears to have been that the source for the FOIA data was the same Customs' data the the Federal Circuit held was unreliable in a previous case brought by Chrysler. The Federal Circuit agreed that these documents were not sufficient to "clearly prove" that the payments were for export HMT because they "do not rule out the possibility of all exporter errors" or errors by bank personnel. Accordingly, the Court held the record evidence to be insufficient to support the claim.
Regarding the disputed claims in the post-July 1, 1990 period, the regulations require the exporter to produce documents demonstrating the entitlement to the refund. The regulation (19 CFR 24.24(e)(4)(iv)(C)) does not specify what documents are necessary to support a claim but does state that Customs will accept documents the agency "accepted with the payment." In this case, Ford argued that it did not have to provide the exact documents Customs accepted, rather that it needed to show documents of the same type that Customs accepted. The Federal Circuit agreed, but still held that Ford's documents were insufficient to show that Ford actually submitted the documents. Additional evidence would be required to show that. So, the Federal Circuit affirmed the Court of International Trade and Ford is out $2.5 million it certainly has a good faith belief that it paid.
There is a strong dissent in this case from Circuit Judge O'Malley. Basically, Judge O'Malley points out that the majority opinion is based on some assumptions about what the data shows and how reliable the data is. These assumptions, according to the dissent, are not consistent with the rule that on summary judgment (which is the posture of this case), the court must make the inferences that are most favorable to Ford. Further, the majority appears to be making decisions regarding the weight of the evidence presented rather than deciding the case on the legal arguments. As Judge O'Malley views it, the Federal Circuit should not be weighing the evidence but only deciding whether there is a genuine issue of material fact, which she believes is present. As a result, she believes that the federal Circuit wrongly decided the case on the merits rather than sending it back for a trial. All in all, I have to say I agree with her.
What it comes down to is that Ford, like many other companies, paid Harbor Maintenance Tax on exports from the U.S. The Supreme Court eventually decided that the HMT, as applied to exports, was unconstitutional. As a result, a lot of companies received very healthy refund checks from the U.S. and several customs lawyers bought sports cars. But, there have been lingering issues over the evidence necessary to establish a right to a refund for HMT payments made prior to July 1, 1990 and for certain disputed claims thereafter.
Normally, when the federal government has records of some transactions, the public is entitled to rely on these records to establish whatever facts they cover. But, with respect to HMT, Customs knows that there are errors in the pre-July 1, 1990 data. Those errors come from the exporters who reported the data, the banks that collected and transmitted the data to Customs, and from Customs. Also, not all HMT payments were unconstitutional. Some related to imports and domestic traffic. So, to support a claim for an HMT refund from this period, Customs passed a regulation under which it would accept:
other documentation offered as proof of payment of the fee, such as cancelled checks and/or affidavits from exporters attesting to the fact that all quarterly harbor maintenance tax payments made by the exporter were exclusively for exports.
Ford gathered information from Customs via a FOIA request and supplemented that data with two affidavits from knowledgeable employees (aside: Hey, Paul. Hope all is well.). These statements supported the government's data and confirmed Ford's internal quality recordkeeping and procedures. Despite the added confirming documents, Customs denied the claims. The primary basis for this appears to have been that the source for the FOIA data was the same Customs' data the the Federal Circuit held was unreliable in a previous case brought by Chrysler. The Federal Circuit agreed that these documents were not sufficient to "clearly prove" that the payments were for export HMT because they "do not rule out the possibility of all exporter errors" or errors by bank personnel. Accordingly, the Court held the record evidence to be insufficient to support the claim.
Regarding the disputed claims in the post-July 1, 1990 period, the regulations require the exporter to produce documents demonstrating the entitlement to the refund. The regulation (19 CFR 24.24(e)(4)(iv)(C)) does not specify what documents are necessary to support a claim but does state that Customs will accept documents the agency "accepted with the payment." In this case, Ford argued that it did not have to provide the exact documents Customs accepted, rather that it needed to show documents of the same type that Customs accepted. The Federal Circuit agreed, but still held that Ford's documents were insufficient to show that Ford actually submitted the documents. Additional evidence would be required to show that. So, the Federal Circuit affirmed the Court of International Trade and Ford is out $2.5 million it certainly has a good faith belief that it paid.
There is a strong dissent in this case from Circuit Judge O'Malley. Basically, Judge O'Malley points out that the majority opinion is based on some assumptions about what the data shows and how reliable the data is. These assumptions, according to the dissent, are not consistent with the rule that on summary judgment (which is the posture of this case), the court must make the inferences that are most favorable to Ford. Further, the majority appears to be making decisions regarding the weight of the evidence presented rather than deciding the case on the legal arguments. As Judge O'Malley views it, the Federal Circuit should not be weighing the evidence but only deciding whether there is a genuine issue of material fact, which she believes is present. As a result, she believes that the federal Circuit wrongly decided the case on the merits rather than sending it back for a trial. All in all, I have to say I agree with her.
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