Thursday, June 19, 2008

Court Decisions

In reverse chronological order:

Auto Alliance: Discovery disputes are pretty rare in the Court of International Trade. This one seem like it was a doosey. Who hasn't wanted to depose opposing counsel? Turns out that it is hard to justify.

Optrex: Speaking of discovery disputes, this case also involved a contested privilege question. Here, the U.S. brought a penalty action against Optrex concerning the classification of LCD display panels. Initially, Optrex defended on the basis that it had sought the advice of counsel and, therefore, exercised reasonable care. That seemed to make sense until the Court of International Trade told Optrex that if its defense is based on seeking the advice of counsel, then Optrex had waived the privilege and must turn over that advice. Well, it now turns out that the advice to Optrex was that the classification it was using was probably wrong but that there was an argument that might possibly distinguish the products from the relevant Federal Circuit decision. Consequently, the advice from counsel included the caveat that applying for a binding ruling from Customs and Border Protection would be advisable. Optrex opted not to follow this advice. According to the Court, this constitutes negligence to the tune of 1.5 times the nearly $1 million in unpaid duties. So where does that leave the careful importer? If you have a reasonably defensible internal process, you might be better off not seeking advice of counsel. [Note: I did not say that. You imagined it.] If you get advice, you better follow it.

UPS: This is another round in the litigation over CBP's effort to assess penalties against a broker for misclassifying electronic components. The underlying issue in this part of the case has to do with the correct interpretation of 8473.30. That subheading covers "Parts and accessories of machines of heading 8471" and has two un-numbered subdivisions. The first is for "Not incorporating a cathode ray tube . . . ." The second is for "Other." The defendant argued that the language "[n]ot incorporating a a cathode ray tube" applies only to the finished article, not the part or accessory. Similarly, the "other" category requires only that the finished article, not the part or accessory include a CRT. The court rejected this attempted application of the so-called "last antecedent rule" as inconsistent with both the rules of grammar and common sense, which is pretty harsh language. The simple point seems to be that these subdivisions of the subheading are set off and indented but over the listing of tariff items. Everything below the limiting language has to conform to that limitation, not the language above.

Pomeroy: There is a similar issue raised in this classification case involving candle-powered lamps. The language in heading 9405 says this: "Lamps and lighting fittings including searchlights and spotlights and parts thereof, not elsewhere specified or included; illuminated signs, illuminated nameplates and the like, having a permanently fixed light source, and parts thereof not elsewhere specified or included . . . ." The issue was whether the phrase "having a permanently fixed light source" modifies "lamps and lighting fittings." This is a good illustration of the power of the semi-colon. The modifier only applies back to the items listed in the same grouping separated by the semi-colon. Thus, "having a permanently fixed light source" does not modify "lamps and lighting fittings."

Ahh, but there is a problem. Note 1(e) to Chapter 70 excludes from that chapter "Lamps or lighting fittings, illuminated signs, illuminated name-plates or the like, having a permanently fixed light source, or parts thereof," which it directs to 9405. Note that there is no semi-colon here. To me, that implies that "permanently fixed" limitation applies all the listed goods. So only lamps with permanently fixed light sources are excluded from Chapter 70. The Court does not need to address this issue directly because, finding ambiguity in the language, it looked to the Explanatory Notes for clarity. In the ENs, it found reason to preclude the classification of the lamps in Chapter 70.

These last two cases, surprisingly enough, illustrate why I think classification cases are so interesting. They are like intellectual puzzles with the HTS providing the rules. The only way to arrive at a legally correct classification is to apply the rules, in the proper order. Miss a rule, and you can get off the rails real fast. From the standpoint of an advocate, the fun is in trying to find the gaps that give us room to maneuver.

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