Monday, September 24, 2012

CIBA Vision: Questions of Law vs. Fact

In CIBA VISION Corporation v. United States, the Court of International Trade waded into one of those legal issues that I wonder about when my head is not occupied with more useful thoughts concerning beer and comic books. Specifically, the question of whether the meaning of a tariff term is a question of law or a question of fact.

The case involves the tariff classification of something called Nelfilcon Polymer Solution, which is used in the production of disposable soft contact lenses. This material is made through the acetalization of polyvinyl alcohol. You are on your own to figure out what that means (though I did provide a handy link). Apparently, after this process, the resulting material is 95% acetalized PVA (meaning Nelflicon) and used exclusively for molding into contact lenses.

Customs treated the material as "Polymers of vinyl acetate or of other vinyl esters, in primary forms; other vinyl polymers in primary forms: Other: Other: Other (3905.99.80). CIBA protested and asserted that the correct classification is under 3905.30.00 as "Polymers of vinyl acetate or of othervinyl esters, in primary forms; other vinyl polymers in primary forms: Polyvinyl alcohols, whether or not containing unhydrolyzed acetate groups."

In most classification cases, the Court will note that classification is a two step process. In the first step, the Court determines the meaning of the tariff language. That is a question of law. The second step is to determine whether the imported merchandise fits within the properly understood tariff term. That is a question of fact.

In this case, the parties agreed as to the nature of the merchandise and that it belongs in Heading 3905. The case turned entirely on which of two subheadings was applicable to the goods. More specifically, the question for the Court to decide was whether Nelfilcon is a form of PVA, in which case it falls in 3905.30.00.

The tariff term "polyvinyl alcohol" must be given its common and commercial meaning (which are presumed to be the same). To determine that meaning, the Court may rely on its own understanding of the term as well as on "lexicographic and scientific authorities." As a side note, I suspect the CIT uses the word "lexicographic" more than any other institution in the world outside of the International Journal of Lexicography.

Here, the Court was apparently presented with several good definitions of PVA from CIBA regulatory filings as well as various technical journals. Also, in HQ 964854 Customs refers to the merchandise as "an acetylized polyvinyl alcohol (PVA)." The Commerce Department lists certain types of PVA as excluded from an antidumping duty order and describes them as classifiable in 3905.30.00. While none of this is binding on the Court, it strikes me as pretty good evidence of the common and commercial meaning of the term. Nevertheless, the parties' Joint Statement of Material Facts does not contain the legal conclusion that the merchandise is commonly known as PVA.

Given this lack of a smoking gun agreement, the Court found that it was not able to fully embrace or exclude either proposed classification. Thus, it denied both motions for summary judgment.

This is where I split a legal hair. The Court denied the motion because "a genuine dispute of material fact exists as to the meaning of 'polyvinyl alcohol' . . . ." I don't think that is really correct. Rather, I think the Court is simply not satisfied that it has a sufficient basis on which to decide the question of law. In that case, there may still be grounds to deny the motion for summary judgment and reason enough to have a trial to sort out the common and commercial meaning based on documentary evidence and testimony, if that will help the Court.

The more vexing legal problem is, I think, the nature of that trial. The older I get and the more classification cases I read, the more I think we might be missing the point of these proceedings. In most cases, like this one, there is no dispute as to the nature of the merchandise. That can often be stipulated by the parties. The only dispute is the meaning and scope of various tariff terms. That means the only thing before the Court is often a question of pure legal interpretation. I think that means that field of information available for the Court to review is far and wide.

Basically, I think any example of usage or illustration of meaning is fair game for the Court to consider. That is radically different from what we often do in these cases, where we get bogged down in questions of whether a particular document using the language in question is admissible, for example, as a business record or otherwise authenticated as reliable.

When Courts review the Constitution, statutes, and even contracts, they use whatever scholarly sources they find to decide the meaning of terms. That is what judges do, they interpret laws. I doubt that a classification case should be any different. Granted, the Court might still want to have a trial (or maybe "hearing" is a better term) to consider various examples of usage and maybe hear from experts in the relevant field on their views as to usage. But, the focus would be squarely on the law, not on the facts (unless there were a material fact in dispute).

For now, I leave it to you my fellow customs lawyers to tell me where I have gone wrong. This is an idea I am batting around and I am fully willing to have it crushed on legal or practical grounds. For now, it strikes me as something worth considering.

Monday, September 17, 2012

Classification Pedagogy

The Court of International Trade, like all courts, sometimes puts on its collective professor's hat and does a little explicit teaching to the trade and, possibly, to the Court of Appeals for the Federal Circuit. I am not sure who was the intended audience for this lesson, but Telebrands Corp. v. United States is pretty explicit about the lesson for the day.

The underlying issue in Telebrands is the classification of something known as the PedEgg pedicure set. This is one of America's great "As Seen On TV" products; just behind the pocket fisherman, the in-the-egg egg beater, and spray-on hair


The PedEgg is similar to a cheese grater used to remove hard calloused skin from the foot. The genius of the PedEgg is that it conveniently collects the skin remnants inside the plastic egg shaped body. Important for our purposes, it also comes with two adhesive emery pads that are intended to be applied to the PedEgg body and used to finish the skin surface.

The Court was clearly interested in making a point, because it started its analysis with this statement (footnotes omitted):


Because there seems to be confusion in some of the Court cases about how classification is to proceed in general, the court sets forth the background here. Resolution of classification disputes under the HTSUS is guided by its General Rules of Interpretation (“GRI”). Honda of Am. Mfg. v. United States, 607 F.3d 771, 773 (Fed. Cir. 2010). What is clear from the legislative history of the World Customs Organization (“WCO”) and case law is that GRI 1 is paramount. It provides in relevant part, “classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes.” GRI 1. GRI 2 references specific issues such as unfinished goods and mixtures, not relevant here, and subsequent GRIs refer to ways of classifying goods which fit into more than one heading. GRI 2–3. The Explanatory Notes to GRI 1 state that “the terms of the headings and any relative Section or Chapter Notes are paramount, i.e., they are the first consideration in determining classification” and the GRIs are to be considered in numerical order. WCO, Explanatory Note V(a) to GRI 1, HTS. The headings and relevant notes are to be exhausted before inquiries, such as those of GRI 3, are considered, e.g., specificity or essential character. The HTSUS is designed so that most classification questions can be answered by GRI 1, so that there would be no need to delve into the less precise inquiries presented by GRI 3. Similarly, GRI 6 requires classification among the competing subheadings according to the terms of the subheadings and related notes and in the same way and order as in the previous GRIs. Thus, only after exhausting the terms of the subheadings and related notes would one turn to GRI 3 to choose between two or more potentially applicable subheadings.

All of which is true and too often forgotten. When you have a product that can be described by two or more headings, it is a mistake to ask which is more specific or to classify based on essential character until you have completely exhausted the legal notes applicable under General Rule of Interpretation 1.

In this case, the importer wanted to classify the PedEgg and the two emery pads as a manicure or pedicure set of 8214.20.90 as opposed to an other article of cutlery of 8214.90.90. That means that the product must constitute a set, and that is where the controversy arose.

According to the Court, this collection of items is not a set. The Court adopted a definition from Merriam-Webster.com that "a set." for GRI 1 purposes, is a collection of items to be used together or a group of things that belong together and are so used. In this case, the PedEgg is a single article to which the emery pads are intended to be affixed. They cannot be used on their own and are useful only when joined to the PedEgg shell. Thus, the Court found that the PedEgg and emery boards is a unitary item of cutlery rather than a collection of items to be used together.

There was another issue as to whether the PedEgg came in a container sufficient to satisfy the requirements of the set subheading. But, because the Court found it not to be a set, that issue became moot.

Often times people ask me to explain what I do for a living. I struggle to find good examples of classification cases that will make sense to someone who has never seen the HTSUS. This case will allow me to stop talking about shelf-bras and mellorine.

Friday, September 07, 2012

Pleading in Default Cases

One might reasonably assume that if Customs and Border Protection sues a company in the United States Court of International Trade to collect a penalty and the defendant company never shows up to defend itself, that it would be a slam dunk for the U.S. Usually, it is not too difficult to get a default judgment. But, sometimes it is. That was the case in United States v. Active Frontier International, Inc.

The case involved allegedly false declarations of origin on apparel imports. Customs asserted a penalty under section 592 of the Tariff Act of 1930 (19 USC 1592). AFI did not respond to the pre-penalty notice or the subsequent penalty notice. When it was sued in the Court of International Trade, AFI did not respond to the summons and complaint. That allowed the United States to seek a default judgment against AFI.

The problem for the U.S. was that to collect a penalty, the United States needed to assert that AFI had made a material false statement or omission in connection with the entries. The Court looked at the pleading for some facts to support a finding that the misstatement of origin was material. This is in an interesting question because compliance professionals are likely to simply assume that the country of origin is a material fact. But, the Court is essentially asking the government to at least assert in a pleading why that might be true.

In this case, the goods came from China. Initially, the government defined that false statement of origin as material because it prevented Customs from making a proper determination as to origin. The Court found this to be too circular to serve as a basis for finding the statement to be material. And, it was not enough for the government to simply state that the origin might affect the admissibility of the merchandise. In other words, the Court rejected implication from the pleadings and from Customs' Informed Compliance Publication that a false statement of origin is per se material.

For a statement to be material, it must be of "such a nature that knowledge of the [fact] would affect a person's decision-making; essential." For that U.S. to collect a Customs penalty it needs to show that the false statement was material, meaning it would affect Customs' decision-making. And, even in a motion for default judgment, the Court of International Trade will require that the United States plead facts showing why the allegedly false statement is material.

So, as we have said before, don't assume that a mistake is a violation and don't assume that Customs can collect duties or a penalty for every mistake. The details matter.