Friday, November 18, 2016

Perpetuating Testimony

I am on the record complaining about the amount of discovery that is requested in many, not all but many, customs cases before the U.S. Court of International Trade. My belief is that in many cases, mostly tariff classification cases, there is not a reasonable basis to dispute the nature of the product. That is not necessarily the case when issues like principal use or essential character are concerned. But, in many cases, the actual physical characteristics of the item are known and not reasonably subject to debate. That physical reality will usually trump arguments based on personal understandings, marketing, and intention. As a general rule, I don't think it matters that Malcom down in Engineering always calls the electric toothbrushes he designs "machine tools." Nor do I think it matters that an Import Specialist at the Port of Smallville, Kansas once said that the electric toothbrush should be classified as toothbrushes rather than as electromechanical domestic appliances. [Or whatever, I am just making this up. If you care, see (HQ 966794, Sep. 7, 2004).]

That said, there are times discovery is important. For example, in a penalty case when the issue is whether someone knew or had reason to know that a statement was false. Also in a penalty case, discovery is necessary when the issue is whether there was "contributory customs error." If the toothbrushes were misclassified because someone at CBP told the company to do it, that is a relevant area for discovery.

This is relevant because of Ganz U.S.A., LLC v. United States. Ganz imports gifts, collectibles, and home d├ęcor products. For reasons that relate to a customs valuation ruling, Customs and Border Protection has notified Ganz that it will assess a penalty of nearly $22.7 million, which is enough to get the attention of most companies. But, CBP has not yet filed an action in the Court of International Trade seeking to collect anything. At this point, Ganz is waiting to be sued.

Ganz also knows that it has a defense. According to the CIT opinion, if sued, Ganz will present evidence that the Port of Buffalo instructed Ganz that CBP would allow the company to maintain its current valuation practice pending a decision on the reconsideration of the relevant value ruling. Customs denies that it provided that instruction. Ganz believes that a retired former Supervisory Import Specialist from Buffalo knows the truth. This is the equivalent of a CIT-based Perry Mason Moment waiting to happen.



Ganz is not waiting around to be sued. Nor does it want to risk losing track of the potential witness. CIT Rule 27 provides an opportunity to reduce that risk. Under the Rule, a petition may ask the Court for an order authorizing the deposition of a witness "to perpetuate their testimony." In other words, Rule 27 allows parties to current or threatened litigation to get something on the record now for later use if needed. This option is not always available; it is intended to be used where there is a risk that the evidence might be lost. To be successful the petitioner must show:

(A) that the petitioner expects to be a party to an action cognizable in this court but cannot presently bring it or cause it to be brought;
(B) the subject matter of the expected action and the petitioner’s interest;
(C) the facts that the petitioner wants to establish by the proposed testimony and the reasons to perpetuate it;
(D) the names or a description of the persons whom the petitioner expects to be adverse parties and their addresses, so far as known; and
(E) the name, address, and expected substance of the testimony of each deponent.
 Here, Ganz is sitting on a substantial demand it apparently does not intend to pay. Thus, it has a reasonable expectation of future litigation in the Court of International Trade. Furthermore the penalty creates a clear interest for Ganz. Gans also knows exactly what information it needs and from whom.

Two important facts provide context for why Ganz wants to depose the witness now. First, customs penalty litigation can take a long time. While Ganz can technically force CBP to file suit by declining to extend a statute of limitations waiver, that hurts Ganz's efforts to resolve the case administratively. The Court will not put Ganz, the potential defendant, in that position. Combine that with the fact that the proposed witness is 68 years old. There is the real risk that his recollections will fade, or worse. At best, the witness might move to an inconvenient location.

Given these factors, the Court granted the petition to depose the witness to perpetuate his testimony. This is not particularly controversial. It is, however, a good reminder that this little-used tool is available to the parties. We should all make sure it is in our quiver.

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