Thursday, February 04, 2016

Ford Motors and the Missing $6.2 Million

One would think that if everyone involved agreed that the United States federal government owes a taxpayer a refund of over $6 million that the government would pay it. One would hope that would not be controversial. Unfortunately, it is and it points up a problem in litigation.

This thought is brought to you by Ford Motor Company v. United States, in which the Federal Circuit refused to order Customs and Border Protection to pay Ford the refund. Instead, the issue was sent back to the Court of International Trade for another round of litigation.

The background on this case is complicated and a bit of a mess. Ford imported some Jaguar cars and deposited estimated duties at the time of entry. It must have flagged the entries for ACS Reconciliation because it subsequently filed nine reconciling entries seeking a $6.2 million refund. The reconciliations were filed between June of 2005 and October of 2006. Normally, Customs has a year to liquidate the entry and can extend that time by up to three one-year extension periods. If not liquidated within the one-year period or within an extension period, the entry is deemed liquidated based on the information provided by the importer. In this case, that would be with the lower duty liability Ford asserted in the reconciliation. In April of 2009, Ford filed suit claiming the entries were deemed liquidated and seeking payment of the refund.

Part of the problem is how Ford had to file the case. Because there were no liquidations of the entries, Ford had nothing to protest. Consequently, it could not file a case under 28 USC 1581(a), as is the normal course of action. Instead, it filed under 28 USC 1581(i), which is subject to a two year statute of limitations but is only available to a plaintiff when challenging a denied protest is impossible, futile, or manifestly inadequate.

After Ford filed its case, Customs affirmatively liquidated five of the nine entries. At that point, the Court of International Trade dismissed the case with respect to those five entries on the grounds that (a) jurisdiction was available, meaning the case was not properly filed. The CIT refused to decide the issue with respect to the remaining four entries, saying that all nine could be protested and challenged under 1581(a). Customs then liquidated the remaining entries and denied all refunds.

Ford appealed. That is not this appeal, that was Ford I, also known as Ford Motors and the Cursed Reconciliation. In that decision the CAFC held that the liquidations by Customs subsequent to the filing of the (i) case did not defeat the subject matter jurisdiction the Court had under the properly filed (i) case.

Back in the CIT, it was determined that all but one of the claims was filed beyond the two-year statute of limitations for an (i) case. For the remaining case, the CIT declined to exercise its discretion to decide the case. According to the CIT, the most efficient approach is for all of the cases to decided together in an (a) case. Ford appealed, again, in what is now Ford II, Ford Motors and the Federal Circuit.

If this was not already an excessively lawyer post, it is about to get worse. The first issue has to do with whether the two-year statute of limitations is jurisdictional. If so, the Court of International Trade would lack the power to review and decide the cases that were filed beyond the two-year deadline. Frankly, it shocks me that this is a question, but it is. Recent Supreme Court cases, including United States v. Kwai Fun Wong have expressed the view that Courts should not find a jurisdictional bar without very clear direction from Congress. Congress need not use any "magic words," though I suggest "Colloportus" would be an appropriate way to lock the courthouse doors. Here, the Federal Circuit found no jurisdictional bar in a statute of limitations and, effectively shouted "Alohomora." Rather than a jurisdictional bar, the statute of limitations is a run-of-the-mill statement of the litigant's filing obligations. [We'll come back to that.]

That means the Court should look to the merits of the case. The first part of the merits was whether the CIT abused its discretion when it refused to issue a declaratory judgment on Ford's claims that were timely filed. Trial courts, including the Court of International Trade, hold "unique and substantial discretion" in deciding whether to issue declaratory relief. On the previous remand, the CIT declined to exercise that discretion, finding that it would be more efficient to adjudicate all the claims in a 1581(a) case after CBP denied the protests. There is merit to this as a 1581(a) case is a de novo case where all the issues are decided on the basis of the evidence presented to the Court. a 1581(i) case is more limited review of the administrative process. Based on all of this and the generally wide latitude given a trial court's discretionary decisions, the Federal Circuit affirmed the CIT's decision to withhold declaratory relief.

Regarding the claims that were filed beyond the statute of limitations, the Federal Circuit noted that Customs liquidated these entries and the claims remain subject to litigation under 1581(a) in the CIT. Consequently, the Federal Circuit is certain (enough) that the CIT would not have exercised its discretion on these cases either. So, the Court of Appeals affirmed the decision.

What that means is that this is all headed to the Court of International Trade, again. There, the CIT will have to figure out what to do with a case that was filed late, but where the statute of limitations is not technically jurisdictional. Assuming the cases are decided on the merits, it appears that Ford should be able to collect the $6.2 million, perhaps in a Goblet of Fire.

This case is lousy with technicalities. It is actually the sort of technical decision that makes non-lawyers wonder why we can't just get to the correct result. I admit to having that feeling myself--often. Circuit Judge Newman, in a fine dissenting opinion, expressed just that frustration.

The litigation problem here is that as lawyers we all have clients and responsibilities. Once we are in Court, it is sometimes hard to see the heart of the issue through the technical legal arguments. The fact that there may be a good legal argument against refunding this money does not obviate the underlying fact that Ford has apparently overpaid customs duties by a whopping $6.2 million. It appears (though there is some ambiguity) that Customs agrees with this proposition. If that's true, it would be nice if Customs just did the right thing and refunded the money. Otherwise, the U.S. is enjoying what we lawyers call an unjust enrichment. But, the law and the rules are there to protect taxpayers as well. A company that overpays can't sit on its rights or improperly assert those rights. If it does, it risks being out of luck. That system creates an impasse the often can't be bridged without a trip or two to court.


Heather said...

Star Trek, Alton Brown, sports, and now Harry Potter, all combined with Customs nerdery. How do I go about adopting you into my circle of friends?

The Goblet of Fire is awakened only when there is a TriWizard Tournament, and it acts as an impartial judge of wit and wisdom amongst contestants to find the best one to represent a student body in the competition. It does not dispense money like a money geyser. Ford should not have to compete in a TriWizard Tournament to win back the gold that is rightfully theirs, and the Wizengamot should agree to that.

Larry said...

Thanks, Heather, glad to know someone noticed.