Tuesday, June 25, 2013

Burning Questions of Fact

If you know me professionally, you know I have recently been going on ad nauseam about how there is almost never a dispute as to the facts in a classification case before the Court of International Trade.  As a result, my world view is that parties at the CIT should tee up the legal questions early and get the case resolved without a lot of time and effort going into probing the facts.

Now and then, I am reminded that this is not always the case. Today, my reminder comes in the form of Tyco Fire Products L.P. v. United States. Tyco involves glass liquid-filled bulbs used in fire sprinkler systems as triggers holding valves closed. When heated, the liquid expands and eventually breaks the glass bulb causing the valve to open and the sprinkler to activate. Similar bulbs are used in water heaters to keep vent doors open. When heated, the bulb breaks and the vent door closes. That chokes out fire in the water heater. What we are talking about is the red part of this Tyco sprinkler head.

Customs classified these bulbs as articles of glass in Chapter 70. Tyco argues that they belong in Chapter 84 as parts of machinery or equipment. The decision on that question of law comes down to the application of Note 1(c) to Chapter 84, which excludes "[l]aboratory glassware (heading 7017); machinery, appliances or other articles for technical uses or parts thereof, of glass (heading 7019 or 7020)." The relevant Explanatory Notes state that Note 1(c) is intended to exclude merchandise that has the character of an article of glass. An article loses its character as being "of glass" if, among other not relevant considerations, it has been combined with a high proportion of other materials.

Based on this, the Court set out to determine the essential character of the liquid-filled glass bulbs. If it is the glass, then the bulbs are excluded from Chapter 84 and Customs' classification is correct. Tyco asserted that the liquid imparts the essential character because it is the liquid that expands and shatters the glass. Thus, the liquid provides the main functional component. It is interesting to note that Tyco apparently did not claim that the product might be classified as the liquid.

For its part, the government argued that the glass supports the load from the valve or door and, therefore, performs a long-term and important function in the overall system.

Neither side presented evidence regarding other indicia of essential character such as relative values and weights.

As a result, the Court found itself with an unresolved and material question of fact. Under those circumstances, summary judgment is not appropriate.

Assuming the bulbs might be classified in Chapter 84 as parts, the Court found there to be a second unresolved question of material fact. To be classified as a part, the bulbs must be principally or solely used as part of the relevant device. According to the Court, that makes all parts provisions in the HTSUS into use provisions (a formulation I do not recall seeing expressed, but which makes sense). Under Additional U.S. Rule of Interpretation 1(a), to determine the principal use of the bulbs, the Court needed to determine the class or kind of product into which they fall and the most common use of that class ort kind of product in the United States.

Trying to resolve those issues, the Court found there to be a genuine issue of material fact as to the principal use of the bulbs other than the water heater bulbs. This was primarily because there was evidence before the Court of uses in applications other than fire sprinklers.

Consequently, the Court found two big questions of fact that need to be resolved before it can enter judgment. In other words, this is exactly not the kind of case that can be resolved quickly by focusing on the meaning of the tariff terms. Instead, this is the kind of case that may require extensive discovery on the issues of essential character and use. But, to get some value for my world view, the fact that the judge has distinctly pointed to the relevant questions of fact should help focus the rest of the proceeding on the questions that matter. If there is still discovery to be had, this decision should help avoid needless fishing.

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