Friday, June 04, 2010

More from the Courts

Honda of America Mfg., Inc. v. United States

We talked about this case when it was before the Court of International Trade and now the Court of Appeals for the Federal Circuit has spoken. The case involves the classification of oil bolts used in cars and motorcycles. Oil bolts are specialized fasteners that include a channel to permit the flow of oil while at the same time holding things in place. Customs classified the oil bolts as screws of 7318.15.80. Honda argued that the proper classification was as vehicle parts in Chapter 87.

The first problem for Honda is that Section XVII, Note 2(b) says that "parts" for purposes of Chapter 87 does not include "parts of general use." The second problem is that parts of general use is defined to include fasteners of 7318. Thus, Honda can only win if the fastener is not also described in 7318. Unfortunately, the oil bolts, despite their name, satisfy the legal definition of screws of 7318.15.80 and nothing in the tariff language or Explanatory Notes excludes specialized or multifunction screws from classification in Heading 7318.

One interesting aspect of the decision is the Court's discussion of deference to Customs. Honda argued that Customs' decision was inconsistent with earlier rulings and, therefore, not entitled to deference. The Court looked at several prior rulings and distinguished them, effectively avoiding the deference question.

It strikes me that the distinctions are not very solid. For example, the Court says that in F88921, Customs said that the the washer in question did not appear to have the characteristics of parts of general use. Customs was probably wrong there. The issue of whether something is a part of general use has only to do with its tariff classification, not with whether it is generic versus dedicated to a specific use. I think the Federal Circuit might have done us a favor by looking at those ruling and saying they appear to be incorrect. The result would be that Customs' current inconsistent position would not be entitled to deference. But, that lack of deference would not have changed the result because the Court would have gotten there even without deferring to the agency decision. In other words, a lack of Skidmore deference does not necessarily produce a win for the plaintiff. It just makes the burden a little lower.

This is the kind of case we all hate to see. The underlying merits have to do with the tariff classification of conveyor belts. The question for our purposes is when may the Court grant summary judgment.

A bit of background may be in order. When a case is before a court, there are two types of questions: law and fact. The "evidence" provides answers to the factual questions. Evidence might consist of business records, testimony, product samples, or other information. Questions of law have to do with the proper interpretation of statutes (including the tariff schedule) and regulations. In the Court of International Trade, where jury trials are almost unheard of, the judge decides both questions of fact and law.

In the typical classification case, there is usually no dispute as to the nature of the merchandise. That means there are often no material question of fact; only questions of law to be sorted out. If the only thing in question is the meaning of the law, either side can ask the court to issue a decision on summary judgment and, thereby, avoid the time and expense of a trial. As a guess, I would say that 95% of classification cases get resolved on summary judgment.

In this case, the plaintiff gave the government samples of some, but not all, of the merchandise at issue. Partially as a result of that decision, in its motion for summary judgment, the government argued that Sparks had failed to establish all the elements of its case. According to the government, that is grounds for summary judgment. Take note of that. The government's position is that if you seek summary judgment and fail to prove your own case, not only is your motion denied, but you lose the whole case.

That is contrary to what a lot of people might think. A simpler view would be that if you fail to prove your own case, then some question of fact remains for a trial. The proper result in that event would be for the judge to set the case down for trial. In other words, some people might think that a trial is the safety net under a weak motion for summary judgment.

Unfortunately, that is not the law. Remember, there are still no questions of fact. When a lawyer files a motion for summary judgment he or she is saying "Here are all the facts that matter, let's resolve this now." The risk is that the moving party has the burden of proof and failing to establish an essential element of the case on summary judgment is the same as saying it could not be proved at trial.. Thus, according to the Court of International Trade (relying on a Supreme Court decision called Celotex), "Summary judgment must be entered against a party who fails to make a showing sufficient to establish the existence of an essential element to its case."

Which brings us back to the samples. Spark did not put some samples into evidence. Samples are not required. But, in the absence of samples, the plaintiff will need testimony, business records, or other evidence to establish exactly what the merchandise is. Apparently, for some of the belting, Spark did not do that. As a result, the government simply sat back and said that Spark had failed to meet its burden of proof and, therefore, the government was entitled to summary judgment. The Court agreed.

On the classification of those products for which all the relevant facts were before the Court, one issue involved the proper application of legal Note 9 to Section XI, which is referenced in 5903.10.15. Another issue was whether there was sufficient evidence of the ability of the materials to bend around a 7 mm cylinder at the proper temperature. On these points, the government granted summary judgment to the government.

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