Sunday, February 07, 2010
The Court of Appeals for the Federal Circuit has affirmed the decision of the Court of International dismissing Totes-Isotoner Corp. v. United States. As in the decision from the CIT, this case turns more on technical issues concerning the pleading of the case than it does on the merits. Thus, it is unclear whether this is the last word on whether tariff items that differentiate among products based on the gender or age of their intended users are unconstitutional.
On its face, this seems like an easy question. If there were a sales tax of 14% assessed on gloves purchased by men and 12.6% of gloves purchased by women, it seems unlikely that the tax would last long before being declared unconstitutional as a violation of equal protection. But, a customs duty of 14% on men's gloves versus 12.6% on women's gloves is harder to analyze.
There were lots of issues before the Federal Circuit. We'll discuss each:
The government took the position that the right way for Totes to challenge the assessment of an allegedly unconstitutional tariff was via an administrative protest. Totes, on the other hand, skipped the protest process and proceeded on the basis of the Court of International Trade's residual jurisdiction, 28 USC 1581(i). The Federal Circuit re-affirmed it position that Customs has no authority to declare a statute unconstitutional. Thus, a protest would not provide a remedy in this case. Totes, therefore, was correct is bringing the case under subsection (i).
Standing is an interesting issue in this case. The requirement that the plaintiff have standing to bring the suit is intended to limit cases to those brought by the injured party. In this case, the question is whether Totes, as the importer but not as a glove-wearing man, was the right party to bring the complaint. Every importer of men's gloves regardless of gender, according to the government's argument, pays the same rate of duty. So Totes is not really injured by discrimination. The CIT held that Totes is an appropriate plaintiff, and the Federal Circuit agreed.
According to the Federal Circuit, Totes has suffered an injury in that it has paid the higher rate of duty. In addition, as the importer and reseller of the gloves, it has a close relationship with the ultimate purchasers of the gloves. Finally, purchasers have no ability to challenge the assessment of duties because they are not the importers. Finally, the purchasers of gloves have an interest in being free of discrimination. Thus, Totes has standing to be the plaintiff. It is worth noting that Totes did not claim to be seeking standing on behalf of purchasers but only on behalf of its client the importer. Nevertheless, the Federal Circuit analyzed this as a derivative standing case.
The government next argued that the determination of rates of duties is a political question not subject to review by the courts. In other words, because duty rates are the result of international negotiation involving economic and foreign policy, they should be free from judicial oversight. But, this is not a case involving a pure international obligation. Rather, the negotiated agreement was implemented by the Congress in a run-of-the-mill statute. According to the Federal Circuits, it is the job and duty of the courts to review statutes for constitutionality. Thus, the political question doctrine did not bar Totes from making its case.
So far, so good for Totes. Frankly, they are doing better than I expected. My first reaction to this case was that it would be dismissed on the grounds of standing and that the only way to make this challenge would be by having individual men as plaintiffs, proving that the added duty is passed on to purchasers and that it dis-proportionally affects men. So, Totes is way ahead of where I thought they would be. But, it is at this point that things go south.
Failure to State a Claim
The Court of International Trade held that Totes' complaint failed to allege facts that state a claim for which it is entitled to relief. In other words, it did not provide the facts necessary to show illegal discrimination.
The Federal Circuit's analysis was a little different than the CIT's, but it got to the same place. The Federal Circuit started from the premise that disparate impact alone can, in some cases, establish a violation of the equal protection clause. But, according to the Court, in the tariff context (as distinct from jury selection, employment, and housing), more is necessary. The plaintiff has to show an intent to discriminate. The first reason for this is that the tariff system is not really focused on the buyer. Rather, it is an effort to strike a balance based on product type, country of origin, and other economic and policy factors. The difference in duties between men's and women's gloves, therefore, is likely because they are different products affected by different economic conditions. Without evidence of an intent to discriminate against men, the Federal Circuit was unwilling to assume a discriminatory purpose.
The second reason the Federal Circuit took this approach is that the Supreme Court has long held that Congress has broad authority to craft taxes to raise revenue. Taxing often includes the power to differentiate between group. I guess that is why there are multiple income tax rates.
Because of these concerns, the Court held that the tariff differential is not facially discriminatory. In the absence of facial discrimination, a plaintiff needs to discriminatory intent, not just disparate impact. Totes did not plead any evidence of discriminatory intent. Consequently, the Federal Circuit affirmed the dismissal for failure to state a claim.
There is an interesting concurring opinion in this case. The concurrence states that there is no reason to treat equal protection cases arising under the tariff laws different from any other equal protection case. Rather, the concurrence focuses on the fact that Totes' argument is based entirely on the presence of a facially discriminatory tariff. Totes, apparently, did make a disparate impact argument. But, according to the concurrence, because the tariff is not facially discriminatory because it is directed at products, not people and is borne by importers not persons of gender (to coin a stupid phrase). Consequently, traditional equal protection law requires a showing of discriminatory intent. That showing is missing, so according to the concurrence, the case should be dismissed.
If this decision stands, it appears that Tote's or another plaintiff will have to show a Congressional intent to discriminate against men in the tariff rate applicable to gloves. That may be a an impossible task. Clearly, though, we will all be waiting to see what happens next.