Saturday, June 15, 2013

Details on Equal Protection Case

As mentioned, the Federal Circuit has again dismissed efforts by importers to challenge separate and unequal rates of duty on  certain items of apparel. The cases were brought by Forever 21, Rack Room Shoes, and a company called Skiz, which was created for purposes of pursuing this case (more on that later).

This has been a tough case all along and the plaintiffs seem to have made a solid effort at getting a successful result. On its face, it seems to be an obvious proposition that a higher tariff on men's apparel than on women's apparel would discriminate against men. Imagine a sales tax in which men paid a higher rate at the cash register than do women. That would never be constitutional and that is similar to how the plaintiffs see this case.

Unfortunately, the Court of International and the Court of Appeals for the Federal Circuit have seen it differently. Rather than the tariff being a tax based on the gender or age of the buyer, the tariff is a tax on merchandise imported into the United States. That merchandise has no constitutional rights and the plaintiffs in this case are corporations without gender or age. That makes it hard for the plaintiffs to show that they have suffered discrimination. That raised problems relating to the legal standing of the plaintiffs to pursue this case.

With respect to Rack Room and Forever 21, the Court of Appeals for the Federal Circuit held that both companies (1) are sufficiently closely related to their customers, (2) their customers suffered an injury, and (3) the customers have no remedy on their own. As a result, Rack Room and Forever 21 are appropriate representatives for their customers and, therefore, had legal standing to pursue the case.

Skiz is another story. Skiz was created by one of the lawyers involved in the case specifically to be a plaintiff. Skiz imported merchandise, paid duties, and protested the collection of duties by Customs and Border Protection. Unfortunately, Skiz has no customers (of any age or gender) who may have been impacted by the differential duties. As a result, the Federal Circuit found that Skiz lacked standing to represent third parties and had no standing on its own. Thus, the case was dismissed with respect to Skiz.

With respect to the claims brought by Forever 21 and Rack Room, the issue had to do with pleading. The Courts have held that the different tariff rates do not constitute "facial discrimination." Because this is an equal protection case, the burden on the plaintiffs is to show facts indicating that Congress intended to discriminate based on gender and age. The first step in a court case would be for the plaintiffs to plead facts, which if true, show that it is "plausible" that Congress intended to discriminate. That is where Rack Room and Forever 21 ran into problems.

Rack Room's argument was that Congress could have created a tariff that did not rely on age and gender to differentiate between products. For example, the tariff might be higher or lower based on the size or weight of the product. From that, Rack Room asked the Court to infer that Congress intended the burden of the different rates to apply to people based on age and gender. The Federal Circuit was unwilling to make that jump. According to the Court, that would constitute an improper end run around the requirement that Rack Room plead facts plausibly showing discriminatory intent.

Forever 21 did not fare much better. It raised two main arguments. First, Forever 21 noted that the  Tariff Classification Study of 1960 included language suggesting that there is no rational basis to differentiate apparel duty rates based on the gender and age of the ultimate customer. From this, Forever 21 asks the Court to infer that Congress intended to perpetuate an unsupportable and discriminatory tariff.

The Court was not willing to make that inference. According to the Court, the study related to one category of merchandise. Further, it is not clear that the particular classification language discussed in the study carried over into the Tariff Schedule of the United States and then into the current Harmonized Tariff Schedule.

Forever 21's final argument is apparently a tour de force of legal research and a mysteriously odd lack of specificity. According to the company, there is an un-named treatise from 1892 discussing tariffs on wool clothing. According to the treatise, the product descriptions were intended to create lower tariffs on clothing intended to be worn by slaves. This presented two issues for the Court. First, the treatise was apparently not named nor quoted on the record. Second, assuming the treatise says what it is reported to say, the Court could not see a connection between the slavery-related tariffs and the current tariff schedule.

Based on this analysis, the Federal Circuit dismissed all three cases. That, of course, raises the question of whether this is the end of the case. Well, that is not up to me. There is a Supreme Court to answer questions exactly like this.

The underlying problem in this case is the determination that the discrimination embodied in the tariff schedule is not facially discriminatory. That is what requires the plaintiffs to show discriminatory intent. If any of the plaintiffs in this case or any of the numerous other cases currently pending in the Court of International Trade take this up to the Supreme Court, that seems to be the weak link to attack. Of course, I know the lawyers involved in this case, and I am pretty confident that they are way ahead of me on that point.

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