Wednesday, April 25, 2012

I'm Exhausted

The Court of International Trade has handed down an interesting penalty decision in United States v. Nitek Electronics, Inc. concerning an importer who allegedly failed to properly deposit antidumping duties on malleable iron pipe from China. For our purposes, the interesting issue has to do with the scope of the administrative penalty case as compared with the court action.

In the administrative process, Customs and Border Protection issued both a pre-penalty and a penalty notice that asserted a "tentative culpability" of gross negligence. This means that the potential penalty was four times the duties owed. It also means that, to collect, Customs would have to show evidence of gross negligence such as a willful disregard of the rules. However, when the case came to Court, the Justice Department asserted a claim based on simple negligence. This requires only evidence that the importer failed to act with the degree of care a similarly situated, reasonably prudent importer would exercise. That's a different thing. Consequently, the defendant importer made the clever argument that because this is a different claim, Customs and Border Protection has failed to go through the full administrative process and, therefore, is improperly in Court. The defendant moved to dismiss claiming a lack of subject matter jurisdiction and that CBP failed to exhaust its administrative remedies.

On jurisdiction, there was considerable discussion over whether exhaustion is a jurisdictional requirement. The Court noted that exhaustion is not usually jurisdictional unless Congress has stated so in clear language. In this case, the penalty statute (19 USC 1592) does not include clear language making exhaustion jurisdictional. Thus, the Court found that it had jurisdiction to hear the case, meaning it has the power to review the matter. That is not the same as saying that Customs properly made the claim.

Turning to the claim itself, the Court found that its role in a penalty case is not to impose a penalty. Rather, these are collection cases in which the government is seeking to recover a penalty the government already imposed imposed. [I'm not sure a review of the case law would convince me of that, but take it as true for now.] According to the defendant, the fact that Customs never imposed a penalty based on simple (as opposed to gross) negligence means that the claim was not properly exhausted administratively. As I said, this is a clever argument. Kudos to the lawyers involved.

The government took the reasonable position that because the defendant had notice of a claim based on gross negligence, it necessarily had notice of a claim based on simple negligence. In the criminal world, I think this counts as the lesser included offense theory. We know from a case called U.S. v. Optrex, that Customs cannot increase the level of culpability once in Court. But, according to the United States, the same rule should not apply when moving downward.

The Court did not agree. Rather, it held that the statute requires more specificity in the claim and precision in the administrative process. Customs is required to notify the potential defendant of the change in the claim and Customs failed to do that here. Having failed to provide that notice, the Court found that Customs did not properly exhaust the administrative process. Further, in the absence of any asserted reason to grant a waiver, the Court held that the penalty claim against Nitek was barred.

There was still the matter of the collection of duties, as opposed to the penalty. On that front, the Court found the Customs had no need to exhaust administrative remedies or even to make a penalty claim. Thus, with the exception of six entries not properly included in the case, the duty collection case was permitted to proceed.

Tuesday, April 17, 2012

HMT Still in the Court

The U.S. Court of Appeals for the Federal Circuit, in a two to one decision, has denied Ford Motor Company additional HMT refunds for the pre-July 1, 1990 period and the so-called disputed claims after that date. This is a long and complicated story, and I am just back from a reunion of former judicial clerks at the Court of International Trade. That means you will not get the long version of this decision.

What it comes down to is that Ford, like many other companies, paid Harbor Maintenance Tax on exports from the U.S. The Supreme Court eventually decided that the HMT, as applied to exports, was unconstitutional. As a result, a lot of companies received very healthy refund checks from the U.S. and several customs lawyers bought sports cars. But, there have been lingering issues over the evidence necessary to establish a right to a refund for HMT payments made prior to July 1, 1990 and for certain disputed claims thereafter.

Normally, when the federal government has records of some transactions, the public is entitled to rely on these records to establish whatever facts they cover. But, with respect to HMT, Customs knows that there are errors in the pre-July 1, 1990 data. Those errors come from the exporters who reported the data, the banks that collected and transmitted the data to Customs, and from Customs. Also, not all HMT payments were unconstitutional. Some related to imports and domestic traffic. So, to support a claim for an HMT refund from this period, Customs passed a regulation under which it would accept:

other documentation offered as proof of payment of the fee, such as cancelled checks and/or affidavits from exporters attesting to the fact that all quarterly harbor maintenance tax payments made by the exporter were exclusively for exports.

Ford gathered information from Customs via a FOIA request and supplemented that data with two affidavits from knowledgeable employees (aside: Hey, Paul. Hope all is well.). These statements supported the government's data and confirmed Ford's internal quality recordkeeping and procedures. Despite the added confirming documents, Customs denied the claims. The primary basis for this appears to have been that the source for the FOIA data was the same Customs' data the the Federal Circuit held was unreliable in a previous case brought by Chrysler. The Federal Circuit agreed that these documents were not sufficient to "clearly prove" that the payments were for export HMT because they "do not rule out the possibility of all exporter errors" or errors by bank personnel. Accordingly, the Court held the record evidence to be insufficient to support the claim.

Regarding the disputed claims in the post-July 1, 1990 period, the regulations require the exporter to produce documents demonstrating the entitlement to the refund. The regulation (19 CFR 24.24(e)(4)(iv)(C)) does not specify what documents are necessary to support a claim but does state that Customs will accept documents the agency "accepted with the payment." In this case, Ford argued that it did not have to provide the exact documents Customs accepted, rather that it needed to show documents of the same type that Customs accepted. The Federal Circuit agreed, but still held that Ford's documents were insufficient to show that Ford actually submitted the documents. Additional evidence would be required to show that. So, the Federal Circuit affirmed the Court of International Trade and Ford is out $2.5 million it certainly has a good faith belief that it paid.

There is a strong dissent in this case from Circuit Judge O'Malley.  Basically, Judge O'Malley points out that the majority opinion is based on some assumptions about what the data shows and how reliable the data is. These assumptions, according to the dissent, are not consistent with the rule that on summary judgment (which is the posture of this case), the court must make the inferences that are most favorable to Ford. Further, the majority appears to be making decisions regarding the weight of the evidence presented rather than deciding the case on the legal arguments. As Judge O'Malley views it, the Federal Circuit should not be weighing the evidence but only deciding whether there is a genuine issue of material fact, which she believes is present. As a result, she believes that the federal Circuit wrongly decided the case on the merits rather than sending it back for a trial. All in all, I have to say I agree with her.

Friday, April 13, 2012

Happy Blogaversary

On this day in 2005, I posed the question: Why a Customs Law Blog? I answered with this post, the first ever repeat in seven years.

I am a customs lawyer. This is a rare breed of American lawyer that concentrates on issues relating to the regulation of imports by the United States Bureau of Customs and Border Protection (formerly known as the Customs Service). I say "concentrates" because rules of professional ethics prevent me from saying I "specialize" in customs matters, so don't for one moment think that I am saying that. 
I suspect that if you collected every lawyer in America who was actively engaged in the practice of customs law, you would not exceed the needs of a large ballroom in a major metropolitan hotel. We tend to know one another. Also, the folks who work for the government tend to know us. That means I will not be tossing any virtual molotov cocktails at any of my colleagues in the field and especially not at those few judges before whom I regularly have to appear. That just won't happen. 
I will, however, from time to time, post my thoughts on developments in the area. I hope this is useful for in-house counsel, compliance managers, and other folks involved in the trade. If you happen to be a lawyer competing with me, please go away. 
Of course, that does not answer the question posed above: Why a customs law blog? To that, I answer, why not? The technology is readily accessible and free. I might have a thing or two to say. I like to write and I like to hear myself talk. I might be a perfect blogger, or maybe not. We'll see how it goes from here.

Monday, April 09, 2012

Reservist Permitted to Take Broker's Exam

Below is part of the text of a press release from my office. I am happy about this result so far and hope that Customs and Border Protection follows up with some public statement letting all Reservists know that they may become licensed customhouse brokers without having to give up their service in the Reserve.

William A. Nusbaum, a member of the U.S. Army Reserve, was permitted to sit for the April 2, Customs Broker Licensing Examination administered by U.S. Customs and Border Protection, which has also agreed that his status as a member of Reserve will not prevent him from receiving a broker’s license. This is a direct result of a lawsuit filed on behalf of Mr. Nusbaum in the U.S. Court of International Trade by Barnes, Richardson & Colburn. Prior to filing the suit, Mr. Nusbaum had been informed that his status as a member of the Army Reserve disqualified him from taking the test or being granted a license because he is an employee of the United States government.

Barnes, Richardson & Colburn filed the suit challenging the validity of Customs’ interpretation of its regulation and, in particular, its application to Reservists. On Friday, April 6, after Mr. Nusbaum took the test and after receiving assurances from the government that he will not be deemed ineligible for a customs broker’s license because of his service in the Reserve, Barnes, Richardson & Colburn asked the Court of International Trade to stay the case while the exams are graded and Mr. Nusbaum’s application is processed.

According to Lawrence Friedman, a partner in the Chicago office of Barnes/Richardson, “We hope that this positive result is applied generally to all Reservists. Customs should not read its regulations to prevent Reservists—many of whom are veterans—from applying their skills in logistics and compliance to private sector businesses. We hope the agency makes a public statement that the ranks of licensed customhouse brokers are open to our military Reservists.” Friedman added that “Barnes/Richardson is proud to have been able to help Mr. Nusbaum and similarly situated Reservists.”

Sunday, April 01, 2012

Gazing at a Gazebo Leads to Decision

The Court of International Trade does not actually preside over very many trials in classification cases. Most of those cases do not involve disputed facts and are resolved on motions and legal arguments without the need for witness testimony. There was, however, a trial in Target Stores v. United States, and I wish I had seen it.

The issue in the case was the proper tariff classification of imported gazebos with textile coverings. Customs and Border Protection wanted them classified in HTSUS Heading 6306 as tents. The importer asserted that the proper classification was in Heading 7308 as structures of iron or steel. It appears that this case involved a couple side shows, which bear discussion.

First, the United States attempted to give up on the case by proposing a stipulated judgment classifying much of the merchandise as proposed by plaintiff and some of it in Heading 4421 for wooden structures. But, in transmitting the proposed stipulation, the United States stated that it had no intention of applying that result to other cases currently pending before the Court of International Trade that appear to address the very same issues. Technically, either party can do this. Every entry on every denied protest represents a potentially separate cause of action. For reasons that may not make sense anymore, a CIT decision in one case does not bind it with respect to the next case covering the exact same parties and merchandise. For the lawyers out there and anyone else interested in the topic, the rules is that res judicata does not apply but stare decisis does. It is unclear how the Court addressed this dispute except that a trial was held, so the motion for entry of judgment must have been denied.

The second side issue had to do with the admissibility of a transcript and decision by the Canadian International Trade Tribunal ("CITT") regarding the same issue. That case, which was proffered as evidence by Target, is reported here. For background, note that the CITT is an administrative body more akin to the International Trade Commission than to the Court of International Trade. So the CITT is more like the ITC than the CIT. Appeals from the CITT go to the federal courts in Canada. The Court of International Trade avoided a decision on this issue by stating only that it did not need to look beyond U.S. law to make its determination.

The attempt to introduce the CITT transcript and decision as evidence raises very interesting issues of law. First, CIT Rule 44.1 certainly contemplates the introduction of evidence of foreign law, but it does not spell out for what purpose. It is easy to envision a situation in a value case where a question of foreign tax or labor law were relevant to showing costs of production. It is harder to see how a CITT decision on tariff classification could be more than an example of another experienced decision maker addressing the same question. In that case, the CITT decision would be entitled to respect similar to a law review article or other possibly persuasive writing.

What plaintiff wanted was for the Court to consider the CITT decision in the context of the internationally harmonized nature of the tariff schedule. This is a big-time issue of international law and American politics. There is a subset of American legal thinkers who are very adverse to the notion that the law of other countries can inform the decisions of U.S. courts. Given the fact that the HTSUS arises out of an international convention seeking the harmonization of tariff classification, this may be a special case in which foreign interpretations of the law are uniquely informative. Personally, I don't see it that way. In fact, I have argued against that proposition in a case the plaintiff relied upon in its response to the government's motion to exclude this evidence. While there may be some float toward referencing, if not outright reliance on, foreign classification decisions, I don't think the law is fully there as of yet. After all, the CIT has an obligation to make an independent and de novo interpretation of the law. So, looking to foreign decision should be no more persuasive than looking at any other non-binding reference (like this blog, for example).

On the actual merits, the trial appears to have been dominated by a single physical exhibit: a gazebo set up in the court room. That's what I would have liked to have seen. Based almost exclusively on its proximity to the exhibit, the Court found that the merchandise does not constitute tents. There are numerous features that distinguish these gazebos from tents including the lack of guy wires or ropes and anchor pegs, which show, in part, that gazebos are permanent structures while tents are temporary and portable shelters. Further, the Court noted that tents are intended as shelters from the elements while gazebos are typically used "during moments of acceptable ambient air temperatures and meteorological tranquility."

Thus, we have a judgment for the plaintiff.

Hitachi Stands: "Shall" Still Means "Should"

The Federal Circuit has refused to reconsider its earlier decision in Hitachi Home Electronics (America), Inc. v. United States. If you don't remember what this is about, go back and look at this earlier post. Without substantive comment, the majority refused to rehear the case. The original dissenter, Judge Reyna, was joined in his dissent by Judge Newman. The gist of the dissent is simple: Congress said that Customs must either approve or deny a protest within two years; there is no third alternative permitting continued consideration. The dissent is strongly worded and worth a read.