On the surface, this case is about the tariff classification of Teva sports sandals. These are sandals in that they do not fully enclose the foot. However, they are designed for use in athletic pursuits including running, hiking, and some water sports. Here is a picture of the Terradactyl, one of the sandals at issue.
Deckers asserted that its imports should be classified as "training shoe" in HTSUS subheading 6404.11, which covers "Sports footwear; tennis shoes, basketball shoes, gym shoes, training shoes and the like . . . ."
What makes this case especially interesting is that Deckers first challenged the classification of these shoes in a 2001 case brought before the Court of International Trade. That case was designated a test case and apparently focused on whether the sandals were "Sports footwear." Deckers lost that case and the Court of Appeals for the Federal Circuit affirmed, holding that all of the products classifiable as sports footwear have uppers that completely cover the foot, precluding the classification of sandals as sports footwear.
In most areas of federal civil practice, that would be the end of the matter. But, this is not most areas of federal civil practice.
Rather than accept the decision for all of its pending cases, Deckers used a previously suspended case as a vehicle to try again. In the second Court of International Trade case, Deckers raised the new argument that the sandals are eo nomine classifiable as "training shoes" in 6404.11, separate and apart from whatever might be included in "sports footwear" or "and the like" footwear. In support of that proposition, Deckers submitted new evidence. The Court of International once again approved Customs and Border Protection's classification but did so on the basis of the prior Federal Circuit decision holding that sports footwear must cover the foot.
The issue on appeal is very fundamental to customs practice. So, a little background is necessary. When Customs and Border Protection denies a protest, the importer can challenge that decision in the Court of International Trade. Because most importers have repetitive entries, they usually has a series of protests, all of which are denied by Customs. Each of those protests and (as a technical matter) each entry on each protest, could be a separate cause of action before the Court. In a 1927 decision called United States v. Stone & Downer Co., the Supreme Court upheld a Court of Customs Appeals (now the Federal Circuit) rule that res judicata does not apply in classification cases. That means that the decision on one entry of merchandise does not automatically apply to the next entry. As a result, there is a history of re-litigating classification cases.
But, we live in a common law country. That means that the legal reasoning of prior cases (as opposed to findings of fact) applies to subsequent cases in the same or a lower court, even if the subsequent cases involve different parties and different merchandise. That allows for uniformity and predictability in the law. That principle is called stare decisis.
In this appeal, Deckers raised two arguments. First, the the Court of International improperly failed to analyze Deckers' new evidence, which would have shown the error in the conclusion of the first cases. Second, the stare decisis does not apply because Deckers presented a new issue of law in the form of the eo nomine classification as training shoes.
On the first issue, Deckers argument is that the Federal Circuit's analysis of the essential characteristics of all products under 6404, including sports footwear and training shoes, does not constitute a binding legal interpretation of training shoes for purposes of this case. According to the Court of Appeals, the prior ejusdem generis analysis determining the common characteristics of the products in 6404.11 does inform the meaning of the eo nomine designation "training shoes" and, therefore, cannot be ignored. That means that the prior Deckers case examined the meaning of "training shoes" and that the same legal issue is present here.
That slides nicely into the second issue: does stare decisis preclude a different result in this case? As was just explained, the Court of Appeals analyzed the same subheading in the prior Deckers case. Although that analysis took a different route (i.e., via ejusdem generis), the Court reached a legal determination that training shoes cover the entirety of the foot. Under stare decisis, that decision bound the Court of International Trade and the subsequent panel of the Court of Appeals for the Federal Circuit.
But, what if that prior legal decision is just plain wrong and anyone who understands tariff classification can see it? Does stare decisis foreclose ever looking at the issue again? Stone & Downer has led a lot of customs lawyers to assume that the answer is no. As I said, it is not that unusual to relitigate a classification issue on a different theory or different facts. But, what about on the same theory and facts? This appeal addressed that question.
Deckers argued that a prior decision called Schott Optical Glass permits re-litigation on the same theory and facts to permit the plaintiff to show that the original decision was based on clear error. This argument forced the Court on a long journey through the history of classification jurisprudence. If you are interested in these things, it is a very good read. But, I will spare you the details. It should suffice to say that the Court of Customs Appeals applied stare decisis except where it was convinced its prior decision was clearly erroneous. That practice continued in 1929 when the CCA was transformed into the Court of Customs and Patent Appeals. As a result, it became the practice that the Customs Court and later the Court of International Trade was bound by legal interpretations of the Court of Appeals. On appeal, the CCPA (which always sat en banc, meaning as a full court) would follow its prior decisions unless convinced there had been clear error.
When the Federal Circuit came into existent in 1982, it did two important things. First, it adopted all of the prior CCPA decisions as binding precedent of the Court. Second, because it sits in panels of three and only en banc when deemed necessary, it created a rule that no three-judge panel can overrule a prior decision of another panel. To do so, the full court would need to sit en banc.
That brings us back to Schott Optical Glass. In its second effort before the Court of International Trade, Schott tried to introduce evidence concerning the meaning of the term "optical glass," which is a pure question of law. The Court of International Trade refused to consider that evidence on the grounds that the question of law was already decided in the prior decision of the Court of Appeals. In the second appeal, the Federal Circuit held that Schott should have been permitted to introduce evidence to show clear error in that construction of the statute.
But, in this case, the Federal Circuit found that Schott does not go as far as it appears and, frankly, as far as many of us in the customs bar believed. Specifically, the Federal Circuit noted that Schott relied on cases in which an en banc court refused to follow an en banc court. That is true primarily because all CCPA and prior cases were heard en banc. It is not at all clear that that fact provided a foundation for the decision in Schott. Rather, it was an artifact of the circumstances.
Nevertheless, to square its rule requiring en banc consideration of prior panel decisions and the application of stare decisis, the Court of Appeals for the Federal Circuit announced:
We therefore hold that, while a party may challenge a prior construction of a tariff provision by a panel of this court in a classification case and may seek to introduce evidence of purported clear error in the prior classification to preserve the issue for potential en banc review, both the Court of International Trade and any subsequent panel of this court are bound by the earlier panel's classification construction. It is only as an en banc court that we can review and alter a tariff classification construction by a prior panel.
Why is this so important? First, it clarifies an issue that customs lawyers have long discussed and many have apparently misunderstood. Further, it will change the nature of litigation at the Court of International Trade. Currently, there is some sense that suspending a case pending the decision in a test case is a formality. If the test case comes out wrong, the thinking goes, we can re-litigate in one of the suspended cases. The decision in Deckers will make it much harder to do that. On the second pass through the Court of International Trade following a lost appeal, the CIT will now be far more likely to simply dismiss the case on the basis of the first decision. The plaintiff will need to make an effort to show clear error in the first Federal Circuit decision and then appeal to the Federal Circuit en banc, which is unusual. And, proving clear error is a high bar. In the alternative, counsel to importers will need to find truly new legal theories or factual differences to justify subsequent litigation.