Thursday, December 13, 2007

Decisions, Decisions

I haven't commented on a court decision in a while, so now I will comment on three.

In U.S. v. National Semiconductor, the CIT (via Judge Musgrave) went back to the question of what interest might be due on unpaid duties where the violations were the subject of a prior disclosure. In a typical disclosure case, the importer pays the duties and the only penalty is the interest on the withheld amounts. The avoidance of larger penalties is the value of the the disclosure process. I blogged about this case previously when Judge Musgrave both declined to mitigate the interest penalty and ordered the importer to pay compensatory damages to make the U.S. whole for the loss of the time value of the money. That decision was overturned in part and sent back to the CIT for a new determination that does not award compensatory interest.

Now, in the remand decision, the Court of International Trade, at the urging of the United States has awarded pre-judgment interest in addition to the interest penalty under 19 U.S.C. § 1592. The basis for this is the Court's conclusion that the interest penalty is not punitive but is a form of liquidated damages. Liquidated damages are generally considered to be compensatory. Prejudgment interest, according the the Court, also makes the U.S. whole and is, therefore, appropriate.

The result may be legally correct. I suspect the Federal Circuit will see this issue as well. If the decision becomes final, it is certainly not going to encourage prior disclosures.

Another interesting case is Esso Standard Oil Co. (PR), v. United States, which may well be the last of its breed. This is a 520(c) case. This particular provision of the law allowed importers to request reliquidation of an entry up to a year after liquidation but only to correct mistakes of fact and inadvertences. The problem was that everyone who missed a protest date styled their claim as a mistake of fact or inadvertence and 520(c) cases became exercises in creative writing for lawyers and hair splitting for the courts. The whole mess was repealed when the protest period was extended to 180 days.

This case involved a clear mistake. Customs collected Harbor Maintenance Tax on transfers between the U.S. Virgin Islands to Puerto Rico. This was improper. Since 1988, the law had exempted these shipments from HMT. Despite that, Customs did not get around to changing its regulations or the automated systems until sometime after 1997. Looking at the regulations and relying on the automated system Esso, went right ahead and paid.

I suspect a lot of judges may have ruled differently than did Chief Judge Restani. The easy path for this case would be to say that when the "importer" paid the tax, it was making a judgment as to the legal requirement and, therefore, this is a mistake of law rather than a mistake of fact or inadvertence. The Court, however, started with the recognition that the law surrounding HMT is a mess; it is unclear that Congress fully contemplated how it would be administered. The Court then held that the payment under these circumstances was an inadvertence; defined as an oversight or involuntary accident.

The inadvertence, however, was not just the payer's failure to note the change in the law. Interestingly, the inadvertence (read that as "oversight") was also Customs' failure to update the regulations and its affirmative collection of a tax that was not legally owed. Ultimately, the Chief Judge said, "It is simply inexcusable for the master of the Customs laws to fail for almost a decade to amend the applicable regulation that governs the conduct of port officials collecting HMT and to continue to authorize incorrect software."

If that's the law, Customs and Border Protection ought to take a look at 19 CFR 10.16(c)(3), which purports to limit painting U.S.-origin components in a foreign assembly operation for purposes of 9802.00.80 to preservative, non-decorative painting. That has not been the law since 2004 when we won this case. Now I wonder how many importers have continued paying duty on painted U.S.-origin components.

Motorola, Inc. v. United States, is the last case. This is a Federal Circuit decision finishing up litigation over the classification of cell phone battery components. The interesting part of this case is that it cleans up a bit previously left dangling over whether two pre-importation ruling letters are sufficient to create a "treatment" requiring Customs and Border Protection to go through the steps of modifying or revoking the ruling before acting inconsistent with it. Turns out, to Motorola's bad fortune, that they are not. These PRL's apparently have very limited application. Too bad, it was a nice argument.

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