Wednesday, March 31, 2010

Domestic ADD Parties are not Beneficiaries of Surety Contracts

Usually, I stay away from antidumping cases. This is, after all, the Customs Law Blog. I leave it to others to run the trade law blog. But, Sioux Honey v. Hartford is an interesting case from many perspectives despite the underlying issues having to do with trade relief.

The theory in this case is that many sureties negligently issued bonds to new shippers of products subject to antidumping and countervailing duty orders and, as a result, caused injury to the domestic industry. That injury resulted, I gather, from the continued ability of the companies to export to the U.S. market at less than normal value when the importers were likely to subsequently default on the duties owed. Or something like that. As a result, the U.S. collected less in duties and distributed less to the domestic industries under the Continued Dumping and Subsidy Offset Act of 2000 (the "Byrd Amendment").

At base, the theory is that the domestic parties in a dumping case are third-party beneficiaries of the surety contract and, therefore, the surety owes a duty of care to the domestics. There is some logical sense to this. The dumping law, and in particular the CDSOA, is intended to protect the domestic industry from unfair competition and offset the expense of pursuing remedial measures. If a surety acts in a way that undercuts that protection, it seems that there might be some cause of action for relief.

At least so far, it seems that there is not. In this decision, the Court knocked some of the windout of the plaintiffs' sails by finding that the domestic industry is not a third-party beneficiary to a new shipper bond. In summary, the Court said that the contract is between the importer and the surety. The contract is intended to protect Customs and Border Protection by ensuring the collection of antidumping duties. That makes Customs the third-party beneficiary. Nothing in the contract, the customs regulations or the law makes the domestic industry a third-party beneficiary.

Having made that determination, the Court dismissed the claims that relate to the sureties or to the sureties and the United States together. The Court left in place claims against the United States.

One different claim was based on the alleged negligence of the sureties in issuing the bonds and, thereby, causing damage to the domestic industry. On this point, the Court could find no authority for the proposition that the sureties owed the domestics a duty of care. Without a duty of care, there can be no breach of that duty and, therefore, no negligence. Thus, that claim was also dismissed.

For my purposes, the more interesting issue had to do with whether the Court of International Trade had jurisdiction to hear the case in the first place. Almost every case in the CIT has the United States as the primary plaintiff or defendant. You may have noticed that this case is primarily a dispute between private parties: the domestic industries and the sureties. There are claims against the United States, but they were not considered at this stage of the litigation.

The jurisdiction theory is that the claims against the United States and against the private parties arise out of the same facts and, therefore, the Court has pendant-party jurisdiction. This common law concept is intended to vex law students and also allow federal courts to resolve all the related aspects of a single case in one action rather than require the parties to pursue claims in multiple courts. The Court disagreed on the grounds that common law pendant-party jurisdiction has been supplanted by a statutory grant of "supplemental jurisdiction" in 28 USC 1367.

The problem with this is that 1367 never mentions the Court of International Trade. Rather, it identifies only the district courts. This conundrum might solved by the fact that another provision of federal law gives the CIT all the powers in law and equity of a district court. The Court next faced an interesting question of whether the ability to exercise supplemental jurisdiction under 1367 is a power in law and equity. To cut to the chase, it is; although the question was close. Part of the reason for this is that the CIT is an Article III court, just like a district court, and, therefore, can reasonably be said to have possessed this power without the benefit of a statute. The statute granting it to district courts, when combined with the statute giving the CIT the same powers in law and equity imply that one way or another the CIT can hear the case.

Based on that analysis, the Court found that it had jurisdiction over all the claims. Nevertheless, because the plaintiffs could not prove that they are beneficiaries of the contract, they ultimately lacked standing to pursue claims against the sureties. As a result, as discussed at the top of this post, those claims were dismissed.

Tuesday, March 30, 2010

Pleading is the New Black

Every litigator knows the importance of pleadings. The complaint is the document that sets the parameters of your case. If you claim someone trespassed on your property, the complain needs to say that you own the property and that the defendant was there uninvited. For years, the federal courts have held parties to a standard called "notice pleading." Under this standard, the plaintiff needs to tell the defendant enough to notify the defendant the nature of the claim against it and the basic facts supporting the claim. The notice pleading standard was intended to avoid having meritorious claims dismissed on technicalities and make sure that plaintiffs get their day in court.

The pleading pendulum has swung a bit back toward a more technical style of pleading. Under a 2007 Supreme Court decision, plaintiffs need to include sufficient factual allegations to raise the right to relief above speculation even when read with the assumption that all the facts are true. So, it is not sufficient to plead the conclusion plaintiff hopes to be able to prove after completing discovery. We can debate whether that was ever sufficient, but it is clearly not enough now.

Recently, pleading has been an issue in cases at the Court of International Trade. This was an issue in Tip Top Pants and in Totes. Now, it is an issue in Nereida Trading Co., Inc. v. United States.

The specific issues in this decision have to do with whether Nereida properly plead claims under the fifth amendment and the Administrative Procedure Act.

The fifth amendment theory was that Customs and Border Protection improperly applied the presumption that Nereida had been reimbursed for antidumping duties because it failed to file a timely certificate to the contrary. According to the Court, the elements of a fifth amendment due process claim are a lack of both notice and an opportunity to be heard that results in a a fundamental unfairness under the circumstances. According to the facts it asserted, Nereida received prior notice of Customs' intent to liquidate based on the assumption of reimbursement and failed to timely respond. Thus, it did not plead a fifth amendment case.

The second issue involves the Administrative Procedure Act. The importer filed a typical customs protest, which CBP denied. That creates an opportunity for judicial review under 19 USC 1514 and 28 USC 1581(a). Nereida also claims a right to relief for an alleged "violation" of the APA. The problem with this claim is that the APA provides for judicial review under the Act only where there is no other adequate remedy in a court. Nereida asserted a claim seeking the same relief under 1851(a) and did not plead any facts showing that review of the denied protest was an inadequate remedy. Plus, the Court held that recognizing an independent cause of action allowing to APA review of protestable decisions would frustrate the remedy provided for in 19 USC 1514.

Accordingly, the Court dismissed both counts. There are other claims (including the denied protest) that remain alive in this case. So, there is probably more to this story. In the meantime, the takeaways from the case seem to be:
  • The CIT is looking closely at pleadings and is amenable to Rule 12(b)(5) motions to dismiss
  • Late responses and unfair results do not constitute a lack of due process
  • The APA neither trumps nor complements the existing scheme for judicial review of protestable decision.

Monday, March 29, 2010

Bersin in at CBP in Recess Appointment

Back in September of 2009, President Obama nominated Alan Bersin to take the helm at U.S. Customs and Border Protection. My original post, which includes his biographical details, is here.

To date, the Senate has not acted on the nomination. In fact, lots of nominations have languished. Some of that can be blamed on people being focused on health care and other pressing legislative issued. But, CBP commissioner is an important job that needs to be filled. The same can be said for TSA, but that is a different story (in brief, two nominees have backed out).

Apparently, the President is tired of waiting. Over the weekend, he exercised is constitutional prerogative to make recess appointments. In case any birther or other crank is worried about the legality of recess appointments, the Constitution specifically grants the President this authority in Article II, Section 2, Clause 3, which says "The President shall have power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." There is not even a limitation requiring that the appointment be in furtherance of the need for "a well regulated militia."

Bersin was among those appointed. So, we now have a new Commissioner of Customs and Border Protection. At least until the end of the next session of the Senate, at which time he will have to have been confirmed. As always, it will be interesting to see whether the change in leadership produces meaningful change visible to individual importers and others subject to Customs' regulatory oversight.

Wednesday, March 24, 2010

Courtesy Notices Endangered?

I just noticed a Federal Register Notice in which U.S. Customs and Border Protection is proposing to eliminate the mailed paper courtesy notice of liquidation (CBPF 4333-A). The reasoning is that an electronic ABI message is already sent to the importer and the broker. According to Customs, that makes the courtesy notice redundant.

I'm just wondering . . . does it really? What do you folks do with the 4333? Personally, I see it a lot when importers want to confirm liquidation dates for purposes of filing protests. While I am aware that the only official notice is the notebook down at the customhouse, I also know that few importers trot down there to check before filing a protest.

I'm all about automation and reducing redundant data. I'm also happy to save the U.S. government $3 million per year, and save a few tress as well. Let me know if you see any problem with this.

Tuesday, March 23, 2010

Broker Records

For my broker friends . . . .

Customs and Border Protection is proposing to amend the record keeping rules to (1) permit records to be kept anywhere in the U.S. and (2) to eliminate the 120-day paper document retention period. According to the notice,

The changes proposed in this document are intended to conform CBP's recordkeeping requirements to reflect modern business practices whereby documents are often generated, stored and transmitted in an electronic format. The proposed changes serve to remove duplicative recordkeeping requirements and streamline recordkeeping procedures for brokers who maintain electronic recordkeeping systems without compromising the agency's ability to monitor and enforce recordkeeping compliance.
Comments are due May 24, an auspicious date as it is my birthday.

Goodbye Ruby Tuesday

Today is Tuesday, March 23, 2010 and Customs and Border Protection has issued a Federal Register Notice implementing the Junta Anti-Democratic Efforts ("JADE") Act of 2008. First, can someone please stop the acronym madness in Congress? That is one of the most strained acronyms I've seen. I would like my congress person (are you listening Jan Shakowski?) to introduce the Lawyers Always Run Rare Yaks Act of 2010.

The JADE Act actually serves a laudable purpose by seeking to prohibit the importation of gems and precious stones from Burma and, in some cases, other locations. The idea here is that the traffic in these article supports the repressive regime in Burma. Specifically, the articles in question are jadeite, rubies, and jewelry containing them.

The original interim regulations were published here in 2009. Under the regulations, presenting an entry of the covered merchandise is a certification that the goods are not from Burma and do not contain Burmese jadeite or rubies. This certification needs to be made on the basis of a certificate from the exporter. Of course, record keeping obligations attach to the certificates.

So, you are warned. Make sure your documents are in order.

Monday, March 22, 2010

What I Learned at ICPA

It was great to be at the International Compliance Professionals Association meeting in Orlando last week. The information at the meeting is always good (although honestly some is better than other). The best thing, though, is the concentration of import and export geeks (and I mean that in the best possible way) together in one place talking about the details of what we do.

My session was entitled "Crisis in the Board Room" and focused on the myriad ways trade can break really bad. When that happens, it can quickly become an issue for the board room. So, we talked about financial reporting, audit committees, materiality levels, SOX, and proper internal policies to make sure large contingent liabilities are properly reported. In that context, I ran through a "parade of horribles" of penalty scenarios. It was late in the day and Disney World beckoned the many attendees who were there with families. So, I hope everyone in attendance thought it was worthwhile.

There were also good sessions on DDP transactions, export training, FTA and Buy American compliance, and many other topics.

I did find the Disney World setting mildly annoying by the end of the week. Too many people told me to "Have a magical day" while I was boarding yet another bus or monorail to get to dinner or a meeting. I also tired of the Mouse and his ears. The hotel fitness center does not need a sign featuring Mickey pumping iron. Even plates adorning the wall in the really good Cat Cora restaurant on the Boardwalk were arranged in the three-circle Mickey-head icon. The Contemporary Resort was great, but the place as a whole is very spread out. It made me wish I had rented a car, although the parking fees would probably have been outrageous.

For me, the best part of the meeting was meeting and reconnecting with so many people in the trade. Thanks to everyone who said they read this blog. The one consistent piece of criticism I received is that I don't post often enough. I'll see what I can do to rectify that. As always, if you have topic suggestions, comments, or criticism either put them in the comments to a post or send me a note at

See you all in Phoenix next year, but it is unlikely I will wear chaps (and that is good for all involved).

Saturday, March 06, 2010

Old Friends

Today I kicked an old computer to the curb. Actually, I boxed it up and left it on my front step as a donation to a charity that collects old computers for schools. I started thinking that it would be cool to have all my old computers in a collection. I know there are virtual museums of obsolete computers, so I hereby create my virtual collection of my old computers.

Ohio Scientific Challenger 1P

I bought this computer sometime in 1978 for around $350, which gave me a total of 4K of RAM. The whole compute was on a single motherboard enclosed in a metal case. Video output was via an RF converter that beamed a monochrome signal to a Sears black and white TV. The RF output was always flukey. Data storage was via a Radio Shack cassette tape deck. I distinctly recall playing a submarine game in which I was able to control a sub icon moving left and right while releasing torpedoes straight up at surface ships. The graphics quality was worse than an original Space Invaders game but it entertained me for hours. The computer had a BASIC compiler and I had a book of basic games that I keyed in by hand. Here is a review.

My C1P ended up meeting a horrible death. As I said, the video output was flukey. The antenna on the RF converter connected via a basic RCA-style jack. So, I figured I might be able to physically connect the TV. First, keep in mind that I had no idea how this might work. Second, I was an idiot. Third, the chassis for this computer was metal. With the back of the TV off and the TV plugged into the wall, I pulled the TV toward the computer. I guess "toward" is the wrong word. I actually pushed the TV against the computer. The large spark and puff of smoke that resulted was shocking, and yet given an rudimentary knowledge of physics should have been completely expected. The power surge through the chassis wiped the computer. It never powered up again.

Zenith Z89

The C1P was reasonably quickly replaced by a second-hand Zenith Z89. This was a giant brick of a computer that included a really exceptionally smooth keyboard, green monochrome monitor, and two 5 1/4-inch floppy drives. No hard drive to be found. This is the computer that introduced me to the concept of word processing, via WordStar. Brilliant! Anyone remember "dot commands" for formatting? The machine ran CP/M, not DOS. There was no what you see is what you get document formatting. So, to format you included a period followed by a text command in the right margin. Match this with an incredibly slow and loud daisy-wheel printer, and you are ready for college (circa 1981). This computer served me well for most of my college career. I minored in computer science. Most students at that time did not have their own computers. I had a computer and a 300 baud modem. That meant that I was able to dial in to the university computer system and do my homework form my room. That was very sweet and also made my roommates, who had the same homework to do, very happy. The computer died a slow and painful death when the transformer that powered the screen failed.

Kaypro 2000

Kaypro is best known as the maker of early portable computers. These were luggable boxes that had the form factor of sewing machines in their cases and weighed in the neighborhood of 30 pounds. But, Kaypro eventually dropped its dedication to CP/M and started producing DOS based IBM PC clones. And that is exactly what this machine was--an entirely uninteresting workhorse of a computer that was a clone of an IBM XT. Kaypro tweaked the specs a bit by using a faster clock rate on the CPU and providing a bigger hard drive. Yes, this was my first hard drive. It was 20 MB. The monitor was amber and could be switch between text and graphics modes for play some rudimentary games. I played a lot of "Where in the World is Carmen San Diego" on that machine. It got me through law school and my time as as a clerk in New York.

Send in the Clones

At this point things get murky. That is primarily because the computers were all sort of the same. I know the next computer I had was a Gateway, which at that pre-millennial time was still known as Gateway2000. I think it has a 386SX processor. That was followed by an equally nondescript Dell. At work, we've had all sorts of basic PC from our firts IBM PC Jrs. running DOS 4.0 to Dells and HPs. Today, the office is mostly full of Toshiba and Lenovo notebooks. I have also owned HP and Gateway laptops at home.

Gateway Profile

Which brings me to the computer that departed today. It was a Gateway Profile 4, the first all-in-one form factor computer I owned. This computer turned me into a fan of the all-in-one design. It was Gateway's attempt to cash in on the first Apple iMac. Remember the original, translucent bubble design, which now makes a great aquarium? The Profile sat nicely on my desk, taking up very little room. I am not a big gamer and have never been particularly worried about maximizing graphics capabilities or swapping out screens. As a workhorse computer, this was just fine. And, Gateway was clever enough with the design to let me add RAM and a swap the original CD-ROM for a DVD-ROM, when that became available. In other words, I always liked this computer.

Eventually, though, it simply was not up to snuff. I wiped it clean of everything except the kid's games and put it in the basement for him minus an internet connection. As it happens, for three years, the computer was almost never used. As a result, last night, I turned it on just long enough to make sure it works and delete any lingering information. After that, I boxed it up and this morning it went to the front step and to a better cause.

Today, I am typing an a Dell XPS One. Also an all-in-one design. It has a bright, wide screen and a cool side mounted DVD slot. What it is missing is a multi-touch screen like the new HP Touchsmart line. I bought this a few years too early for that feature. My other computer, an aging HP laptop with a well-designed dock that includes a drive bay is coming up on five years old. So, that may be the next one out on the street.

Ooh, maybe it is time to start thinking about the possibility of considering computer shopping.

Friday, March 05, 2010

Monitor Classifications

BenQ America Corp. v. United States seeks to resolve the interesting question of how to differentiate between general purpose video monitors and monitors of data processing applications. The former products are classifiable in Heading 8528 while the latter are classifiable in 8471. At least they were in 2004 when this merchandise was entered. The tariff schedule has now changed.

Under the relevant version of the tariff schedule, monitors that were capable of receiving data signals only from the central processing unit of an automatic data processing machine, were deemed to be units of ADP systems in 8471. Other monitors that were capable of receiving signals from other sources, such as DVD players, were deemed to be video monitors of 8528. BenQ made a noble effort to apply a principal use, principal function argument based on the fact that 99% of the monitors were used in conjunction with a computer. The Court, however, did a careful and thorough analysis of the relevant legal notes and the commentary in the Explanatory Notes and rejected the argument. Instead, it found a bright line and applied it resulting in a victory for the United States.

Today, ADP monitors have been moved out of 8471 and expressly plunked down in 8528. Ignoring CRT-based monitors, the relevant language now reads:

8528 Monitors and projectors, not incorporating television (con.) reception apparatus; reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus (con.):

Other monitors:

8528.51.00 00 Of a kind solely or principally used in an automatic data processing system of heading 8471 . . . . . Free

Guess what that means? The current language is based on principal use. BenQ's data showed 99% of actual use with ADP systems and 87% of purchasers intending to use the monitors with ADP systems. While the use of the specific item in question is of limited evidentiary value (because the legal question is the principal use of the class or kind of merchandise), this data [Note: I refuse to say "these data"] is indicative of a principal use with ADP equipment. So today, BenQ might win the fight.

Thursday, March 04, 2010

Patently Off Topic

To remind my faithful (and often retired) readers that I am still here and still looking out for their best interests, I offer this off topic post. Basically, it is a link to the blog post by Gary Odom on Patent Prospector. In the post, Odom dissects a Court of Appeals for the Federal Circuit decision involving the patentability of baseball cards that incorporate a small piece of "game worn" jersey. Cool idea, but was it obvious? If so, the Patent and Trademark Office never should have granted a patent on it.

Patent law is interesting to me and it is made doubly so because the patent bar and the customs bar share the same appellate body--the Court of Appeals for the Federal Circuit. Customs and trade cases only make up about 5% of the Court's docket. The majority of the remainder is patent appeals. On those occasions I when I have argued at the Federal Circuit, I invariably seem to be at the end of the session after two patent cases (or a patent case and a federal merit selection case). Recently, it was put to me by someone who should know that Federal Circuit jurisprudence in customs classification cases has been impacted by the patent work that takes up so much of the Court's time and effort. I gather that relates to the fact that reading the claims of a patent might be similar to piecing together a classification based on the various General Rules of Interpretation, legal notes, and heading language. But, I am not certain I see the connection.

Anyway, the Patent Prospector post is worth reading. Also, the comments are quite full of interesting opinions.