Friday, January 04, 2013

Happy New Year Slip Op 13-1

I hate the inevitable New Year's Day news story about the first local baby born in the new year. Not just because I am generally curmudgeonly, but also because I am skeptical of the data. I wonder how many birth certificates that should legitimately list the time of birth as 11:58 PM are fudged to 12:00:03 AM at the behest of competitive hospital marketing staffs.

On the other hand, I can say with certainty that the first decision of the Court of International Trade for 2013 is: [drum roll please] United States v. Millenium Lumber. [Insert sounds of popping corks and a band playing Auld Lang Syne.]




There was a prior decision in the same case in 2012. That case was pretty procedural and held that the case should not be dismissed for failure to state a claim upon which relief can be granted. I'm not going to say more about that, and will move on to the merits.

This is a case in which the United States is seeking to collect almost $2 million in liquidated damages from Millenium and its surety. The alleged bond violation was the failure to present to Customs Canadian export permits for products covered by the Softwood Lumber Agreement.

Millenium's point is basically that it did not breach the bond because the goods were actually classifiable as entered and no export permit was required. Further, when Customs and Border Protection liquidated in an HTSUS classification requiring an export permit, it acted contrary to prior Customs rulings. According to Millenium, by failing to properly provide public notice and comments of a proposal to revoke or modify the rulings, Customs violated 19 U.S.C. § 1625. Consequently, the rulings stand and the underlying classification is correct.

There were several problems for Millenium. First and foremost, it had previously fully litigated the underlying classification case. That means that regardless of the ruling, the classification has been found by the Court of International Trade to require an export permit. In that prior litigation, Millenium raised the issue of notice and comment. Consequently, under several legal principals, Millenium is likely bound by the earlier case. But, § 1625 still requires Customs to comply with its own unmodified or revoked rulings when identical merchandise is subsequently imported. So, the Court looked at the application of the rulings to the imported goods.

That raises the second problem for Millenium. It turns out that the goods are not IDENTICAL to the goods described in the prior rulings. We should be pretty clear that the differences involved were, at least to my mind, pretty small. They had to do with whether the lumber was angle cut on one or both ends and whether the lumber was certain to be used in the construction of roof trusses. I seriously doubt that the rulings turned on those specific details (although they may have). But, the regulation concerning the application of rulings does say the goods must be IDENTICAL. Consequently, the Court of International Trade held that the rulings are inapplicable to these goods and, therefore, notice and comment under § 1625 was not necessary.

Once that issue was determined, things fell into place for the government. There appears to have been no real dispute that the goods, as classified by both Customs and Border Protection and the courts, required an export license from Canada. There also appears to have been no dispute that Millenium failed to get an export permit. Hence, there was a bond violation and liability for liquidated damages.

Keep in mind that as entered the importer would have no notice that the goods required an export permit. Thus, assuming a good faith classification, it had no cause to try and get the document. It was only the retroactive application of the changed classification that triggered the requirement for the license. Thus, this is probably a pretty bitter pill for the importer and the surety.

Making it even a little more bitter, the government moved for prejudgment interest on top of the liquidated damages. This is not unusual and, it should be understood, is not intended to punish the importer. Rather, the law allows for interest to compensate the government for the loss of the time value of the liquidated damages from the time of the demand. Despite arguments based basically on the defendant's perception that having to pay interest was unjust, the Court exercised its discretion and awarded prejudgment interest to compensate the U.S. for not having access to the money.

1 comment:

Anonymous said...

Larry, this comment is not related to the CIT case but rather to "new year" births. If the hospital recorded an 11:58pm birth as 12:00am, the parents would be deprived a tax deduction for 2012. Could the parents, if they wanted to, claim fraud against the hospital?