Monday, February 25, 2013

Customs Law from the 11th Circuit

Sometimes interesting customs law cases come from outside the Court of International Trade and the Court of Appeals for the Federal Circuit. In this case, it comes from the Eleventh Circuit, with a special guest appearance from the Court of International Trade.

The case is United States v. Izurieta, which involved two individuals (both named Izurieta), who started a trading company to import food products from Central America for distribution in the United States. It turns out that several entries of food products were contaminated with a number of nasty pathogens including E. coli and Salmonella. The legal problem for the defendants stems from their failure to redeliver the merchandise to Customs and Border Protection when demanded.

Keep in mind what happens to food when it arrives for entry. First, the paperwork or electronic data is examined by U.S. Customs and Border Protection. The goods then go through approval and possible inspection by the Department of Agriculture. Finally, food is subject to inspection by the FDA. Customs permits importers to take possession of the imported goods prior to FDA review on a conditional basis, pending release by the FDA. To make that work, Customs requires importers to post a bond. Under the Customs regulations and the terms of the bond, the importer may be required to redeliver the merchandise to Customs.



The question in this case is what happens if the importer fails to make redelivery. As most commercial importers know, the breach of the bond terms can result in a claim for liquidated damages. See 19 C.F.R. § 141.113. The United States Attorney for the Southern District of Florida believed that the failure to redeliver, export, destroy or make available for examination also constituted a criminal offense and charged the Izurietas with 18 U.S.C. § 545,which states, in part:

Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law
 
Shall be fined under this title or imprisoned not more than 20 years, or both.
 Is the failure to redeliver an importation that is contrary to law?
 
The problem for the government is that all of the above procedure is based on regulations rather than statutes. Further, another portion of the criminal law (18 U.S.C. § 554) covers smuggling goods out of the United States contrary to "law or regulation." Does that mean that it is not a crime to import goods contrary to a regulation?
 
The underlying issue here is that everyone has a right to a fair warning as to what the government considers to be illegal and that Congress, not the courts, has the job of defining criminal activity. This is a legal principal known as the "rule of lenity."
 
Applying this rule, the 11th Circuit found that the failure of Congress to include regulations in the statute creates some ambiguity as to its scope. Several Courts, however, have held that regulations may have the full force and effect of law when they are:
  • Legislative or substantive in nature,
  • Created as a result of a delegated "quasi-legislative" authority, and
  • Issued in conformity with congressionally-imposed procedural requirements such as notice and comment.

In this case, the regulation is substantive in that it clearly establishes the obligations of the importer. Further, it was the subject of significant notice and public comment.

Nevertheless, according to the Court of Appeals, nothing in the regulation creates a criminal liability. Rather, it establishes the purely civil terms of the contractual relationship between the importer and Customs as set out in the bond. So, even though the regulation has the force and effect of law, the liability it creates is entirely civil in nature and capped at three times the value of the merchandise. Because nothing in the regulatory framework or the allegedly corresponding criminal statute provides notice that the the failure to comply with a Notice to Redeliver invokes a potential criminal penalty, the indictment of these defendants for violating the regulation was invalid. Consequently, the Court vacated the convictions, including the related conviction for conspiracy.

An interesting side note is that the opinion was written by the Honorable Jane A. Restani, United States Court of International Trade, sitting by designation. CIT judges, as federal judges under Article III of the Constitution may, with the consent of the Chief Justice, sit in other federal courts. This, by the way, is a valuable service to the other Courts and also helps to keep the judges involved in a variety of legal issues. It does, however, raise the question of whether a CIT judge sitting in another court really wants a case about the conditional release of merchandise by Customs and Border Protection and the Food and Drug Administration. That strikes me as kind of like a mechanic having to work on her own car while visiting another dealership.

Friday, February 22, 2013

Feds join whistle-blower lawsuit against Lance Armstrong - CNN.com

The False Claims Act is a powerful tool. It allows individuals who have information concerning false statements made to the U.S. government to file a law suit on behalf of the United States when the false statements were made to secure some benefit from the government. The Justice Department then decides whether to take up the suit or to leave it to the private party to pursue. This applies in all sorts of interactions with the government. For example, there are often False Claims Act cases brought against doctors who over bill the federal government for Medicare patients. Whistle blowers also file these cases against government contractors. The False Claims Act can also be invoked where someone makes a false statement to the government to avoid some expense. The party bringing the suit (technically the  "relator" rather than the plaintiff) is initially anonymous and is entitled to a portion of the recovery, which can be substantial.

One place I have never seen a False Claims Act allegation is against a famous cyclist who may have made a false statement to the Postal Service to secure sponsorship. Kudos to the lawyer who made that connection.

Feds join whistle-blower lawsuit against Lance Armstrong - CNN.com

Thursday, February 21, 2013

Dependable Classification Solutions

Dependable Packaging Solutions v. United States involves the tariff classification of inexpensive open top glass vessles imported from China. As with most classification cases, there was no dispute as to the nature of the merchandise.

The two headings in question here were 7010 and 7013, which cover:

7010
Carboys, bottles, flasks, jars, pots, vials, ampoules and other containers, of glass, of a kind used for the conveyance or packing of goods; preserving jars of glass; stoppers, lids and other closures, of glass . . . .


7013
Glassware of a kind used for table, kitchen, toilet, office, indoor decoration or similar purposes (other than that of heading 7010 or 7018) . . . .
 
 Both of these headings require classification to be based on principal use. Plaintiff claimed that the goods, which were not imported with or designed for use with a secure closure, were "of a kind used for the conveyance or packing of goods." If that were correct, the vases would be classified in Heading 7010. This argument boils down to the clever argument that vases are used for the "wet transportation of flowers." Also relevant is the fact that the Explanatory Notes to 7013 specifically state that the heading covers vases. Of course, the Explanatory Notes are not binding, but are pursuasive interpretations of the scope of the headings.

Examining the products, the Court found no reason to question that they are what is commonly known as bud vases. The entry documents and marketing literature also referred to the merchandise as vases.

Despite the semantic conclusion that these are vases and, therefore, most likely classifiable in 7013, the Court did the right thing and completed the principal use analysis. That analysis requires applying the Carborundum Factors to the merchandise. Those factors are:
  • The physical characteristics of the merchdise
  • Expectations ofthe ultimate purchasers
  • Channels of trade
  • The environment of the sale
  • Use in the same manner which defines the class
  • The economic practicality of the specified use
The Court made a number of key findings regarding these factors. First, the vases are nearly identical to other products identified as "vases" that are used for decorative purposes. Next, consumers pay extra for flowers in the vases, meaning that the vases have value beyond mere transport. Related to this point, the vase can be resued, indicating that they have decorative value. When sold, these vases are often displayed with flowers, again indicating a decorative use. Finally, there was no evidence that the vases were practically and economically used as packing containers.

You may wonder, as I did, why this went to Court. I think it has to do with this last point. According to evidence from the plaintiff, these vases were used in a non-traditional way. Specifically, the flower was placed in the vase and the vase filled with liquid. At that point, the vase, liquid, and flower, was placed in a plastic sleeve and a partitioned box for shipment. In other words, these vases were used for transport and not just to the end customer. That makes for a plausible argument that these are containers for the packing of goods.

Unfortunately for Dependable, this case turns on the principal use of goods of the same class or kind, not on the particular use of these vases. Thus, the Court held the vases to be classified in 7013.

Update

UPDATED TO ADD LINK TO FCBA/CITBA EVENT.

In case you were wondering, I am here. I've had a lot going on at work and have also been trying to finalize a law review article. Luckily, I have been able to enlist the services of a recent John Marshall Law School grad to finish up some of the detail work. I hope that is coming to an end and that I can get it published.

Also on the update front, I'll be speaking at the Georgetown 2013 International Trade Update on March 1. The program start on February 28. This is always a good program. It is worth the effort to attend. The details are here. Then, on March 21, I'll be in New York to speak at a program sponsored by the Federal Circuit Bar Association and the Customs and International Trade Bar Association. In between, I'll be at the ICPA conference. Yes, there are a lot of air miles between those events.

As always, if you see me at any event, please introduce yourself.

Tuesday, February 05, 2013

Detentions, Exclusions & Protests

This post is really just an elaborate link to this article on my law firm's web site. The article talks about what I call the magic space of time in which you can challenge Customs and Border Protection's exclusion of merchandise in the Court of International Trade. This gap is the time between the merchandise being "detained" and Customs actually seizing it. In the space, the merchandise is technically "excluded" and the exclusion is protestable.

Go read the article.

Note to self: a Bing search for images of "Customs Seizures" terns up lots of NSFW content. I am reminded that  Customs and Border Protection also has jurisdiction over obscene material entering the country.

Friday, February 01, 2013

New Proposal on Counterfeits

Currently, when Customs and Border Protection detains merchandise suspected of being counterfeit, it has to do a fairly difficult dance with respect to dealing with the owner of the trademark. This is because the importer has rights under the federal Trade Secrets Act that protect it from Customs releasing business proprietary information to the anyone including the trademark owner. Consequently, the Import Specialist who suspects a product is counterfeit cannot simply send a complete sample to the trademark holder and ask for confirmation.

Rather, at the time the merchandise is presented to Customs for examination, Customs may provide pictures or samples of the merchandise and its packaging, provided that identifying information has been removed or obliterated. The information that needs to be removed includes serial numbers, dates of manufacture, UPC codes, patch numbers, exporter, importer, etc. For the trademark owner, much of that information is very helpful in determining whether the product is counterfeit.

Note that after an actual seizure, Customs can provide much of that information and samples to the rights owner for examination, testing, or use in conjunction with civil trademark infringement actions.

On January 3, 2013, Congressman Ted Poe (R-TX) introduced H.R. 22 to address this issue. Under the proposed law:

It shall not be a violation of this section for an officer or employee of U.S. Customs and Border Protection, upon detention and thereafter, to provide to the owner of a copyright or a registered mark, or to any person who may be injured by a violation of section 1201 of title 17-- 
     (1) any information appearing on the merchandise, including its retail packaging,
     (2) a sample of the merchandise and its retail packaging, or
     (3) digital images of the merchandise and its retail packaging,
as it was presented to U.S. Customs and Border Protection, without redaction, whether imported into or exported from the United States, or attempted to be exported from the United States, for purposes of determining whether the merchandise or its retail packaging infringes the copyright, bears or consists of a counterfeit mark of the registered mark, or is in violation of section 1201 of title 17, as the case may be.
 
After the merchandise is actually seized, Customs may provide more information to the trademark holder including, but not limited to, the following:

  1. The date of importation.
  2. The port of entry.
  3. The description of the merchandise from the entry.
  4. The quantity involved.
  5. The country of origin of the merchandise.
  6. The name and address of the foreign manufacturer.
  7. The name and address of the exporter.
  8. The name and address of the importer.
  9. Photographic or digital images of the merchandise
In addition to these changes, the proposal designates certain aircraft parts, motor vehicle equipment, and semiconductors as "critical merchandise." The Secretary of Homeland Security would be able to permitted to designate other products as critical merchandise of counterfeits present a danger to the health, safety, and welfare of consumers or to the national security. For critical merchandise, Customs and Border Protection would be empowered to provide unredacted information and samples to the U.S. trademark holder upon detention without having to wait until a decision is made to seize the goods.