Friday, February 21, 2014

Protests Must be Filed in the Correct Port

The U.S Court of International Trade has sent an important reminder (or three) to importers who hope to have their liquidations reviewed administratively by Customs and Border Protection and then judicially in the CIT. Follow the rules. And, follow them the way Customs interprets the rules.

In Netchem, Inc. v. United States, the plaintiff imported something known as lanthanum oxide. Originally, Customs classified the merchandise as certain rare-earth oxides of 2846.90.20, which are duty free. Subsequently, Customs reclassified the merchandise under 2846.90.80 as other compounds or mixtures of rare-earth metals, which has a duty rate of 3.7%. Clearly, this did not please Netchem, which filed a protest with the Port of Buffalo.

Of the 56 entries covered by the protest, only 26 had liquidated when the protest was filed. Further, some fraction of the entries were filed at ports other than Buffalo. The Port of Buffalo denied the protest noting that it included entries from other ports.

After 30 days, Netchem filed suit in the Court of International Trade seeking review of the protest. Apparently, Netchem had requested accelerated disposition and did not realize that the protest had been affirmatively denied. On the basis of what it believed to be a deemed denial, it went to Court challenging the deemed denial of 43 entries. At the time of the summons, Netchem had paid the liquidated duties on 18 of the 43 entries. According to the Court, only one entry was both protested after liquidation and had liquidated duties fully paid at the time of the summons.

The United States moved to dismiss the case on the ground that the Court of International Trade lacks jurisdiction to review the otherwise final liquidations.

The Court broker the importer's problems down as follows:

1.     17 of the Entries Were Protested Prior to Liquidation

Protests must be submitted to Customs within 180 days following the date of the contested liquidation. A protest is not valid if it is filed prior to liquidation. Without a valid protest, the Court held it had no jurisdiction to review the liquidation.

2.     25 of the Entries Were Unpaid

The law requires that an importer seeking to challenge a denied protest pay all liquidated duties, charges, or exactions at the time the suit is commenced. 28 USC 2637(a). The courts have held this requirement is jurisdictional, meaning that failing to pay the amounts owed keeps an importer out of court. Therefore, there was no valid case before the Court of International Trade for these entries.

3.     One Protest was Filed at the Wrong Port

Customs' protest regulations require that the protest be filed "with the port director whose decision is protested." 19 CFR 174.12(d). Netchem apparently included entries from Detroit, Port Huron and New York in a protest filed with CBP in Buffalo. Hence, the United States argued that the protest was not validly filed and the Court of International Trade lacks jurisdiction to review.

This was a closer question for the Court. There is an important legal distinction in play. If the place of filing the protest is jurisdictional, then the case should be dismissed as not having been properly brought. If it is not jurisdictional, then the Court can review the case and decide whether CBP properly denied the protest for having been filed at the wrong port. The results might (or might not be the same) but the process is different in a meaningful way.

Reviewing the current statute and its history, the Court found an "unbroken" chain of authority linking the place of filing the protest to the Court's grant of jurisdiction. But, there is also a case called Avecia, which appears to be contrary. In Avecia, the Court held that the regulations cannot trump the statutory grant of authority. The Court here found that because Customs had denied the protests in Avecia on their merits rather than simply denying them as filed at the wrong port, Customs waived the place of filing requirement. Since that did not happen here, Avecia, does not control.

Maybe.

I hate to fall into the lazy habit of suggesting that we will have to wait to see what the Federal Circuit does with the decision. But, the reality is that most of these cases get appealed. I think this is a reasonable decision, but Avecia is also reasonable and I doubt that a port director's delegation of authority to someone to deny a protest counts as a waiver for purposes of sovereign immunity. But, it is not up to me. I like Avecia; it does some equity in these kinds of cases. But, we may find that it is not the law because the law tells Customs to make regulations and the regulations include the place of filing requirement.

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