What happened to EchoStar is the kind of thing that happens to importers and drawback claimants all the time. Basically, EchoStar lost its way in a maze of technical requirements and conflicting advice. That is a condition for which anyone who has worked in this field can find sympathy. But, drawback is a privilege, not a right, and securing a refund requires fealty to technical requirements that often seem ridiculous in a world in which "don't put form over substance" and "no harm no foul" are usually decent arguments.
What happened here is that EchoStar filed its drawback claims electronically. Customs and Border Protection rejected the claims on the grounds that it requires paper claim forms. EchoStar protested and filed a summons in the Court of International Trade when CBP denied the protests.
Leading up to the dispute, EchoStar worked with a service provider to prepare drawback claims. The service provider then contracted with a third company to make the claims. While planning this process, EchoStar relied on a "guidance" document published by CBP's San Francisco drawback office in 2010. The guidance document, which is not a regulation and is not published on the main CBP web site, stated that a complete claim must include a CBP Form 7551 and that claims filed with out a 7551 will be rejected. The guidance document also advised claimants to file through the Automatic Broker Interface ("ABI"), which was the then-current the electronic filing system. The guidance document distinguished between electronic claims filed in ABI and manual claims filed on paper.
EchoStar also had in its possession a "Drawback Summary" document from CBP. That document stated "[a]t this time, a full paper claim is still required."
EchoStar's service provider weighed in on this. It told EchoStar that its practice is to file electronically and then submit a paper copy of the claim as backup. EchoStar told the service provider it would seek guidance from CBP to resolve the question, but it failed to do that.
None of material is actually "law"-- not the guidance document, not the summary, and not the advice EchoStar might have received from whatever helpful CBP person happened to answer the phone.
The law requires a drawback entry and all the necessary documents to complete to complete the claim. The drawback entry is a Customs Form 7551. EchoStar filled out a 7551 and gave it to the contractor to make the claim. The contractor transferred some of the data from the 7551 to Customs via the ABI system. It did not, however, transmit the complete 7551 via ABI because at the relevant time ABI was not programmed to accept the 7551. In other words, it was impossible to file a complete drawback claim in ABI. Customs notified the contractor that it needed to submit the claims on paper or they would be cancelled. The contractor followed up with the paper documents within the time provided, but CBP denied the claims as untimely.
There are a couple questions that arise. First, do these facts, including the electronic submission of some of the 7551 data, constitute a sufficient drawback claim? Second, does providing the documents within the period demanded by Customs cure the defect in the claim?
On the first point, drawback entries must be filed using Customs Form 7551. 19 CFR 191.2(k). EchoStar did not file a 7551; it filed some of the data contained in a completed 7551. By the time of the claims, the law had been amended to allow CBP to accept electronic claims, but that law did not require CBP to accept electronic claims. Similarly, an amendment to the regulatory definition of "filing" to include electronic transmission to CBP did not mandate that CBP accept an electronic drawback claim and, in particular, not an incomplete claim. The Court, therefore, found that EchoStar had not established that it filed a complete claim electronically.
But, it did follow up with a paper claim within the time demanded by CBP. According to EchoStar, that should resolve the issue in its favor. Unfortunately, the law was not on EchoStar's side here either.
The drawback statute expressly states that extensions to the three year claim period will not be granted "unless it is established that [CBP] was responsible for the untimely filing." This exception does not come up much. We discussed in in relation to the Delphi case back in 2009. The Court looked at Delphi and another case and determined that this exception only applies where the claimant would have made a timely and complete claim but for the misleading advice from CBP.
EchoStar could not avail itself of the exception because it did not rely on advice from CBP. In fact, the contractor responsible for filing the claim advised EchoStar to submit paper copies of the drawback claim. EchoStar, based on its incomplete reading of non-binding documents, determined that the contractor misunderstood the requirements. And, EchoStar failed to follow through on its own advice to check with Customs to confirm whether the paper form is required. EchoStar also either ignored or did not fully read the Summary document that was in its possession. That document explicitly stated the requirement for a paper claim form.
Where does that leave us? If you are like me: queasy. If this were a contract dispute between two private parties in state court, the judge would likely find that EchoStar had substantially complied with its side of the bargain. It provided the information necessary to process the refund, but it did so incorrectly. The error was largely technical and did not prejudice the other side, which owed EchoStar the money. If the CIT were charged with doing the fair and just thing, it would be able to order the government to pay along those same lines. If this had gone to a jury, I am fairly certain the jury would have found a way to find for the plaintiff. That, however, is not the world in which the federal courts operate when the United States is the defendant. Instead, drawback is a privilege and the technical formalities are legal requirements. Substantial compliance does not seem to be sufficient, unless CBP caused the error.
That should serve as a reminder that what you in the trade community do for a living is complex. Mistakes can be costly. Do not ignore the warning signs that you are out of compliance. Non-lawyer trade pros should always work from the regulations to the rulings and only then to unofficial guidance. [Yes, lawyers, I can hear you. I know we should start with the statute.] After doing the reading, you should be able to put together a coherent set of requirements. If you have to ignore something or read something in a less than natural way to make it fit, you are probably on the wrong path. I know it sounds condescending, but it is generally in your best interests to leave it to the lawyers to figure out a way to protect your company's rights while also pushing the outer limits of the text.