Monday, November 28, 2011

Ford, Horizon & Cisco (Pun-based Title TBA)

The last month has been extremely busy and December does not look to be any less so. Consequently, you are about to get the shortest court decision summaries possible. Catch me in January, when it looks like I will have more breathing room, and I will do better.

Ford Motor Company v. United States

Ford, which is rapidly becoming the go-to litigant for interesting issues, challenged Customs' denial of a post-entry NAFTA claim in which it had failed to provide NAFTA certificates. The Court of International Trade dismissed Ford's challenge on the grounds that it failed to properly make the claim and, therefore, the Court lacked jurisdiction. The Federal Circuit reversed (see this prior post) holding that the lack of a NAFTA certificate was not jurisdictional. Rather, the Court had jurisdiction and the question to be decided was whether the claim was properly made.

On remand, the CIT had to decide whether Customs and Border Protection properly denied the post-entry claim. According to the Court, it did. The basis for this is that the NAFTA Agreement and the implementing regulations are very specific about the need to provide the NAFTA CO at the time of the claim. In this case, "the claim" is made when the importer asserts the right to duty-free entry, not at some subsequent point in time when the importer produces the document. Thus, the statute and NAFTA-specific regulations, in the context of a post-entry claim, require that the importer produce the Certificate of Origin. According to the Court, that trumps a general regulation permitting importers to produce documents supporting duty-free claims at a later time. Frankly, I am not sure that is correct but I am just giving you what the court said.

Horizon Lines LLC v. United States

This is another case involving the 50% duty on repairs to U.S.-flag vessels conducted outside the United States. See 19 USC 1466 for the details. In this case, the vessel was the Horizon Crusader, which had its bottom recoated with tin-free anti-fouling paint as an upgrade to comply with an international convention requiring the use of tin-free anti-fouling systems. Apparently, tin is not good for the ocean environment. [That makes me wonder just how awful the copper-based bottom paint I used to spray on my boat was for Lake Michigan.] The ship was, according to the Court, in good working order and any repairs done to the hull were incidental to the recoating operation. Consequently, this bottom painting operation was not a dutiable repair.

Judge Wallach, soon to be of the Court of Appeals for the Federal Circuit, gets extra points for distinguishing between classes of expert witnesses as percipient and non-percipient. Your run of the mill expert retained for his or her academic or professional expertise is a non-percipient expert. Experts who know a lot about a specific topic because they were actually involved in the facts that gave rise to the case are percipient experts. In Customs litigation, we traditionally use a lot of engineers, chemists, marketing people, and other personnel from the importer who know a lot about the products involved. They are percipient experts. In most courts, percipient and retained experts are treated slightly differently. In the CIT, they are treated basically the same.

Cisco Systems, Inc. v. United States

This is one of those cases that makes me wonder whether the Court of International still has a culture of cooperation and accommodation that moves cases toward decision on the merits. But that discussion is for another day. This case involves the classification of networking equipment. As a preliminary matter, the government moved to dismiss the case on the grounds that the protests filed with Customs and Border Protection were not sufficiently detailed to qualify as valid. This is the same issue we discussed in reference to Estee Lauder here. Based on that case, Customs and Border Protection should have seen how this would turn out. The Court of International Trade cited a line of cases stretching back to 1877 stating that technical precision is not required in a protest so long as it is sufficiently clear to permit Customs to understand what is in the mind of the protestant. Further, more recent cases have indicated that Customs has some level of duty to inquire when the protest is not sufficiently clear. Finally, protests are construed liberally in favor of finding them valid.

The gist of the claim is that Cisco described the merchandise as "networking equipment." The United States claims that this phrase is overly broad and does not specify the type of merchandise at issue. The Court noted that Customs has used the same phrase in its own publications to describe Cisco's products. Further, in relation to the entries at issue the description is sufficiently clear. And, because the protests were valid, the subsequent timely amendments were also valid. Thus, the motion to dismiss was denied.

The Court also denied the plaintiff's technical argument that the motion was procedurally defective and should have been treated as a motion for summary judgment. If you are interested in that level of detail, you are probably a party to the case. If you are not a party to the case and want to know more, read the decision.

Saturday, November 05, 2011

Hitachi: Shall = Should

Sometimes, people complain that lawyers can't speak or write in simple English. Usually, I am sympathetic to this complaint. But, there are time when lawyer language has to be complicated to anticipate and avoid later arguments about what some text means. If your argument in a contract dispute is "We all know I was not supposed to paint the house in the rain," but you can't point to that in the contract, you are in a weak (but not untenable) position. If you have a contract that covers when, how, and in what conditions you are supposed to paint, it will be easier to resolve the dispute. So, up to a point, legalese has a place. Hitachi Home Products is all about how courts grapple with bad drafting and important points left out of laws.

Here is the regulation relating to how Customs and Border Protection is supposed to decide protests (19 CFR 174.21):
Except [for protests relating to exclusions], the port director shall review and act on a protest filed in accordance with section 514, Tariff Act of 1930, as amended (19 U.S.C. 1514 ), within 2 years from the date the protest was filed.
There is a similar use of "shall" in the statute, which also says that Customs "shall allow or deny such protest . . . ."

The issue in Hitachi Home Products was what happens when the two-year period runs out. The Court of International Trade previously held that nothing happens. There were two main reasons for this decision. First, neither the statute nor the regulation say what happens when the two years expires. As a general principal, the Courts will not step in and create a consequence when neither Congress nor the relevant agency have bothered to do so. Second, the protestant can force Customs to act by requesting accelerated disposition under 19 USC 1515(b). This will usually result in a denied protest, which can be reviewed by the Court in the ordinary course.

The Federal Circuit has now affirmed Hitachi and, for all intents and purposes, the decision is in line with the CIT decision. The Court of Appeals held that there is no rule in the law that makes a protest older than two years automatically approved. According to the Court, that is in part evident from the opportunity to request accelerated disposition.

The more interesting part to read is the dissent by relatively new Federal Circuit Judge Reyna, who comes to the Federal Circuit with a background in trade law. According to Judge Reyna, protests not decided within the two year period are deemed approved. The dissenting opinion is based largely on the fact that the statute and the regulation both impose a two year period in which Customs is to act and that the majority opinion effectively turns that limitation into a meaningless nullity. The dissent was also impressed by the fact that that the cases on which the majority relied all involved much shorter periods in which the agency was to act. The longer period given to Customs and Border Protection, according to the dissent, was intended to ensure that Customs acted on the protest. Also, when the protest law was amended in 1970, Congress changed the operative word from "may" to "shall." This indicates a Congressional intention that "shall" means "must."

But, that still leaves the pesky question of what happens when Customs and Border Protection fails to meet the requirement. According to the dissent, the answer is there in the statute. After two years, Customs must allow or deny the protest. A denial, the dissent notes, requires a written notice be sent to the protestant. An allowance, on the other hand, need not be the subject of a notice. Thus, the default result, which happens without action by CBP, is the allowance of the protest. The ability of the protestant to effectively force a denial through accelerated disposition should not, according to Judge Reyna, be used as the "escape valve" because it can result in cases being sent to the CIT without adequate review by Customs in a manner similar to the pre-1970 automatic referral process.

Overall, I think the dissent is interesting in that it pulls together a number of meaningful threads from the text, the legislative history, policy, and the history of customs litigation. On the other hand, as a general matter, I hate to do that when the answer might be right in the statute. In this case, the majority found the Congress provided no consequence. That usually means that "shall" really means "should." That is also a reasonable result.

Of course, the best result would be for Congress to take note and fix this. Protests should be decided within two years or be deemed approved. What, I wonder, should happen when a ruling request is more than two years old?

Friday, November 04, 2011

Airflow Remand: Worth Reading

Airflow Technologies is one of my favorite cases of the past few years. In it, the Federal Circuit reversed the Court of International Trade and held that the tariff description "straining cloth" in HTSUS heading 5911 only applies to cloth used for straining solid particles from liquids. Whatever clearing the air or other gases of particulates may be called, it is not straining. The Federal Circuit remanded to the Court of International Trade for additional consideration. The CIT has now issued its remand decision, and it is interesting.

Filter media is complicated to classify for two reasons. First, the media itself can be made of various materials from paper to fiber glass to textiles. Second, the imported product is often not just the media but the media housed or supported in some way. Think about a basic furnace filter as an example. Although everyone calls those things "furnace filters," Customs and Border Protection tends to think of them as the just the media. To CBP, a "filter" is advanced beyond simply mounted media. You tell me whether that seems consistent with the common and commercial meaning the next time you buy a furnace filter or replacement filter for a humidifier.

This case deals with just the media, imported in bulk rolls. Customs and Border Protection has lots of rulings putting various textile filter media in Heading 5911 on the theory that it is a textile product for technical uses. Importers have suggested 5603, other nonwoven products. Of course, 5603 is duty free. Over time, there seems to have been a drift toward a conclusion that filter media of textiles belong in 5911, which is dutiable. In some ways, I like that. I like a simple rule that importers can implement. But, this is more complicated than that. Heading 5911 only covers textile products and articles for technical uses if they are "specified in Note 7" to Chapter 59. That adds a limitation that importers, Customs, and the Courts cannot ignore.

Because 5603 excludes products of 5911, the Court first looked at whether the filter media was classifiable in 5911. This resulted in a detailed analysis that gave meaning to all the relevant limitations in Note 7.

The note is broken down into two sections, the first part, 7(a), states that 5911 includes:
Textile products in the piece, cut to length or simply cut to rectangular (including square) shape (other than those having the character of the products of headings 5908 to 5910), the following only:
(i) Textile fabrics, felt and felt-lined woven fabrics, coated, covered or laminated with rubber, leather or other material, of a kind used for card clothing, and similar fabrics of a kind used for other technical purposes, including narrow fabrics made of velvet impregnated with rubber, for covering weaving spindles (weaving beams);
(ii) Bolting cloth;
(iii) Straining cloth of a kind used in oil presses or the like, of textile material or of human hair;
(iv) Flat woven textile fabrics with multiple warp or weft, whether or not felted, impregnated or coated, of a kind used in machinery or for other technical purposes;
(v) Textile fabric reinforced with metal, of a kind used for technical purposes;
(vi) Cords, braids and the like, whether or not coated, impregnated or reinforced with metal, of a kind used in industry as packing or lubricating materials;

The Government contended that the filter media fell within Note 7(a)(i) as being similar to felt, which is also a non-woven product.The Court, however, found that ts is not sufficient to be similar to felt. Rather, the note requires that the media be similar to felt that is coated, covered or laminated with rubber and of a kind used for card clothing or a similar fabric of a kind used for technical purposes. Although the media is covered with a tackifying adhesive and polyester backing, it is not coated, covered, or laminated with rubber, leather, or another material, is not used for card clothing, and according to the Court, is not similar to coated fabrics used for other technical purposes. [Note: read the opinion if you want to know what the heck card clothing is. The answer is interesting.] There were no significant arguments that the media fell within any other provision of Note 7(a).

Note 7(b) covers:
Textile articles (other than those of headings 5908 to 5910) of a kind used for technical purposes (for example, textile fabrics and felts, endless or fitted with linking devices, of a kind used in papermaking or similar machines (for example, for pulp or asbestos-cement), gaskets, washers, polishing discs and other machinery parts).

This part of the opinion is another very interesting careful parsing of the tariff language. Many people read these texts and assume that "goods," "products," and "materials," are all just equivalent ways of saying "stuff." That is not the case. Rather, the law assumes that when different words are used in the same statute, there is a reason for it. In this case, the question was whether the filter media qualifies as an "article" for purposes of 7(b).

Note that 7(a) covers "products" and 7(b) covers "articles." Consequently, the CIT found they have different meanings. According to the Court's analysis, a textile product is a material (e.g., fabric). A textile article is an object with a fixed identity and dimension (e.g., textile gaskets). This is consistent with the examples in each rule. 7(a) focuses on fabrics and materials. 7(b) mentioned gaskets, washers, and polishing disks. Also, the Explanatory Notes refer to textile articles being produced from textile products. This product is bulk rolls of textile filter media, thus, according to the Court, it is not an article for purpose of 7(b).

Consequently, the goods are not classifiable in 5911. That leaves 5603. Even though 5603 excludes goods of 5911, because the filter media is not 5911, it stays in 5603.

Now, if only someone would address the issue of the furnace filter. That would make me a happier man.

Up Next: Hitachi! I shall do it soon. But I need not. Read it and you will understand.