Monday, December 21, 2009

The Oracle Says: Confirm it in Writing

This case follows in the footsteps of the decision in Aectra Refining and involves the question of what is necessary to perfect a claim for drawback. In this case, the claim was for the drawback of the Harbor Maintenance Tax and the Merchandise Processing Fee. It is also a good life lesson about the importance of the confirming memos we lawyers use to get things on paper (real or virtual) when others are content to leave them un-memorialized.

As background, you need to understand that in Aectra, the plaintiff did not claim drawback on MPF and HMT because, at the time of the initial claim, the law did not support the drawback-ability of those fees. Following a Federal Circuit decision in Texport Oil Co., the law provided for drawback of MPF but not HMT. Congress made HMT eligible for drawback in 2004 and retroactively applicable to pending claims. The specific issue in Aectra was whether Aectra’s protest was enough to establish a claim for drawback of HMT and MPF that was not asserted in the original claim. In Aectra, the Federal Circuit held that the protest could only challenge Customs and Border Protection’s decision on what was in the claim. Since the drawback on HMT and MPF was not asserted, Customs did not actually deny it, and the protest was not a basis for challenging the lack of drawback.

Delphi’s facts are a little different in an important way: in transmitting the claims to Customs, Delphi included a letter specifically stating that it was not waiving its claims to HMT and MPF drawback. Further, the letter confirmed Delphi’s understanding that Customs would permit it to file a protest if, after Texport, MPF and HMT drawback became permissible. Delphi claims that this correspondence was enough to protect its right to protest the denial of the HMT and MPF drawback. Not surprisingly, the government disagreed.

The Court rejected Delphi’s principal argument on the grounds that the notice letter did not constitute a complete and timely claim for drawback. The letter did not include a calculation of the drawback amount claimed for the MPF or HMT. Consequently, Customs did not have adequate notice of the claim. In addition, the subsequent protest, which occurred outside the three-year period in which a drawback claim can be amended, was neither sufficient nor timely to add HMT and MPF to the claim.

Delphi, however, had an additional argument that the three-year period to amend the claims was extended far enough to make the protest an adequate means of perfection. The question is what caused the extension. First, the Court held that it was not the mere futility of seeking drawback when the law did not permit it. Nor was it Customs’ delay in liquidating the claims (which happened beyond the three-year period). Rather, it was the fact that Delphi seems to have received advice from a drawback supervisor, who suggested that Delphi wait and perfect its claim via the protest process.

A couple important points about this: First, the Court is very clear that it might not have reached this conclusion had Delphi relied upon advice from “a low-level employee in some far-flung outpost . . . .” Instead, Delphi sought advice from the very official responsible for making the decision on the application of drawback to MPF and HMT. Second, this has to be distinguished from estoppel and equitable tolling. Those principles allow private parties to change the nature of their relationship by relying upon clear statements. If, for example, the landlord says that you can stay another month for free and, in reliance on that statement, you forgo looking for a new apartment, then you have every right to stay and might have a right to damages if he kicks you out during that extra month. [By the way, that’s not legal advice for squatters, your lease might vary. I never took that class.] The important point is that these principles don’t apply to the United States government. If an import specialist tells you that Thursdays are Duty-Free Day at Port Huron, you don’t get to skip paying duties.

This, however, is not an estoppel case. Rather, it is based on the drawback statute, which specifically provides for an extension of time to complete the claim when Customs is responsible for the late filing. 19 USC 1313(r)(1). The advice from Customs caused Delphi not to file a claim for HMT and MPF drawback until the protest after the liquidation of the claim. Because Customs caused the delay, 1313(r)(1) applies.

And how do we know Delphi received that advice? Because of the confirming letter it wrote to the very person who provided that advice. The letter asked the drawback supervisor to respond if he disagreed. He did not respond. In the Court of International Trade, that is as good as an agreement. Plus, his affidavit seems to have helped.

What do we learn from this? Maybe very little, because the circumstances are unusual. There are not many places where Customs’ delay results in an extension to file. But, it does show the value of documenting communications with decision makers. For Customs, it shows the perils of letting some communication from an importer or claimant sit on your desk unanswered.

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