Saturday, July 04, 2015

Attorney's Fees for White Sauce Importer

Is this the final conclusion of the International Custom Products case? Plaintiff has asked for, and the Court of International Trade has partially ordered, an award of attorney's fees under the Equal Access to Justice Act (EAJA).

This case has a long and difficult history in the Court of International Trade and Court of Appeals for the Federal Circuit. I'm not going to do justice to the facts. Just understand that the company imported "white sauce," for which is obtained a tariff classification ruling from Customs and Border Protection in 1999. In 2009, via a "Notice of Action" (CF-29), Customs tried to change the classification in a way that resulted in a rate of duty increase of 2400%.

The request for fees relates to one of several ICP cases. This one involved 11 entries after the CF29 that CBP liquidated at the higher rate of duty. The CIT and later the Federal Circuit ruled for ICP, holding that CBP had not properly revoked or modified the prior ruling and that ICP had not materially misrepresented the nature of the merchandise.

Attorney's fees are available under the EAJA where a party prevails in a civil action against the United States for judicial review of an agency action to recoup fees and expenses. The exception is that is the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

The U.S. position must have been justified both at the agency level and in litigation. Furthermore, the U.S. bears the burden of proving that its position was "clearly reasonable." That means it must have had a reasonable basis in both law and fact. This does not mean that the U.S. was unjustified when it is merely incorrect. Rather, the question is whether a reasonable person could think it correct.

Here, the Court found that ICP is entitled to EAJA fees. The Notice of Action was issued in contravention of a binding ruling and CBP was fully aware of this conflict. Evidence showed that CBP officials argued that the ruling must be revoked before the classification changed. Someone else at CBP opined, for whatever reason, that there was no time to go through the revocation process and that the rate advance was the best approach. The rush appears to have been due to pending criminal and civil penalty investigations related to this merchandise.

Customs and the Department of Justice also argued that the rate advance was justified because the facts on which the ruling was issued were fraudulently reported. According to Customs, and testimony in the trial from a knowledgeable party, the "white sauce" base was really a means of importing butter while avoiding dairy quotas. But, according to the Court, Customs made no clear determination of the principal use of the product and did not articulate a means of making that determination. As a result, it appears to me, the Court was unable to find the fraudulent misrepresentation.

Next, the government argued that the imported white sauce did not match the description provided in the ruling request. But, three CBP lab analyses found the merchandise to be consistent with the description provided in the ruling request. On appeal, Customs gave up on this line of argument.

Based on those facts, the Court of International Trade found that the government's position was not substantially justified. As a result, ICP is entitled to attorney's fees under EAJA. Statutorily, attorney's fees under EAJA are limted to $125 per hour unless the Court finds that it should be increased to reflect the cost of living or the limited availability of qualified counsel. Here, the Court agreed to a cost of living adjustment.

Regarding the availability of counsel, the Court approved an adjustment for time expended by specialized customs counsel. The theory is that the case required counsel with specialized knowledge of customs law and practice and that such lawyers are in short supply. The Court agreed that there is a relatively small cadre of customs attorneys. And, this case was particularly complex, vexing even CBP officials.

Thus, fees were assessed at a rate higher than the statutory $125 per hour. But, the government objected to some of the billing on the grounds that it "blocked" together multiple activities in one time entry. The government also objected to billing in quarter hour increments. Both of these requests were denied and fees assessed accordingly.

The government did succeed in its objection to fees for motions seeking injuntions and restraining orders over which the Court lacked jurisdiction.  Other items that were vague, possibly not related to the litigation, and duplicative were subject to a blanket 33% or 66% reduction.

Overall, this case has likely been a nightmare for ICP. It has also likely costs an enormous amount in legal fees to defend. I'm not sticking up for the plaintiff, which has at least been linked to what might be described as very aggressive tariff engineering. On the other hand, this all could have been avoided had CBP taken the appropriate steps to revoke the ruling. It is hard to see how that would have undercut the fraud case CBP was apparently trying to make. Customs encourages importers to get rulings and holds importers to the results. That is a two-way street. So, in these circumstances, I applaud ICP's counsel for this part of the case.


Greg Teufel said...

Thanks for the applause on this part of the case. I am not sure what "tariff engineering" is, but can assure you that there was zero merit to any suggestion of fraud by ICP. What we proved at the trial that led up to this award was that everything ICP ever told the government about white sauce was true, there weren't any material omissions, and the imported white sauce always conformed to the tariff ruling. The attorney fee award confirms there was never any substantial justification for believing any kind of fraud or misrepresentation had occurred. The "investigation" consisted of inquiring into what ICP's customers did with white sauce, as if it could be somehow improper if they used white sauce inconsistently with the typical use. The government's approach to the case appears to have been based on some misguided notion that the classification at issue was an actual use provision rather than a principal use provision. Thanks for your interest in the case.

Greg Teufel said...

Today this award was upheld on appeal: