Tuesday, September 17, 2013

Battle Over White Sauce Continues

I have been sitting on the latest decision in International Custom Products v. United States for a while now. This stems from a combination of being busy and also some white sauce fatigue. It appears that we are nearing the end of this very long-running dispute. If you need background, start with this post.
Also, the background section of this latest opinion from the Court of International Trade does a good job of setting the stage. The entirety of the dispute revolves around U.S. Customs and border Protection's classification of white sauce in 99 entries. CBP suspended the liquidation of most of those entries pending the results of the litigation. However, Customs liquidated 13 entries and denied the resulting protests. As a result of that denied protest, International Custom Products owes the United States $28,000,000 (I'll pause to let that sink in.)

The interesting thing about this decision is that it is purely procedural but entirely important. Usually, before an importer can get into the Court of International Trade to challenge a denied protest, the importer must pay all of the duties, charges, or exactions. See 28 U.S.C. 2637(a). In other words, denied protest cases are designed to allow the importer to secure a refund of overpaid duties, not to provide a way of avoiding the payment of duties. In this case, the plaintiff has not paid the $28 million Customs says is owed.

The problem here is that the plaintiff is suing the United States government. In the long history of English common law, it was generally impossible to sue the King. The sovereign is immune from most law suits. That followed over to the colonies and continues to be part of U.S. law. Today, sovereign immunity means that the U.S. government can only be sued when it consents and only within the terms of that consent. The U.S. has consented to a refund of duties suit in the United States Court of International Trade (it even created the Court, in part, for that very reason). But, the terms of that consent require the payment of the duties.

Because of this, the Court held that it lack denied protest jurisdiction (28 USC 1581(a)).

This left the plaintiff with one Hail Mary argument: the entire requirement that it pay $28 million as the price of admission to court is, in this case, unconstitutional. The requirement infringes the first amendment right to access the Court and violates the fifth amendment right to due process. That makes good practical sense, although the Court finds it to be legally wrong. In fact, the Court describes the claim as seeking "unprecedented and startling relief."

According to the Court, this requirement for pre-payment has been consistently upheld and applied for over 200 years. Nevertheless, the magnitude of the duty difference applicable in this case (2400%) makes it unique. In fact, the Court notes that the pre-payment requirement appears to give Customs and Border Protection an incentive to reclassify merchandise into the highest possible rate of duty to create an insurmountable barrier to judicial review. However, that harsh result does not, according to the Court, render the requirement unconstitutional. Thus, the case was dismissed.

Given the history of this case, I am certain we will be hearing more about white sauce and this issue from the Federal Circuit.



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