Sunday, January 07, 2018

Contain Yourself

The Container Store v. United States has an interesting history. It involves the tariff classification of elfa "top tracks" and "hanging standards." Top tracks are the horizontal mounting members that can be affixed to a wall. The hanging standards are vertically connected to the top tracks. The hanging standards have slots that can be used for mounting attachments such as shelves, baskets, and drawers allowing consumers to build customs storage solutions. I am pretty sure this is what we are talking about:


This may ring a bell with you, because we have been down this road before. We discussed the CIT decision in this case here. And, before that, we addressed the same question in a case called storeWALL

The reason this issue is back before the Court of Appeals for the Federal Circuit is that in customs law, few things are ever final and beyond subsequent question. Each time an importer has a classification dispute with Customs and files a protest, the denied protest can be the basis of a separate lawsuit. For reasons of history and Supreme Court precedent (that might be worth a second look), a CIT decision stating the classification of the merchandise does not preclude either party from challenging the decision again and re-litigating it. For the lawyers reading this, despite what you may have learned in Civil Procedure, normal rules of res judicata do not apply to customs litigation. 

In the first Container Store case, Judge Ridgway followed the Federal Circuit decision in storeWall and concluded that the merchandise is classifiable in Heading 9403 as parts of unit furniture. Apparently, the United States government was not happy with that result, and re-litigated the issue. This time, the case landed on the desk of Judge Barnett who reached a different conclusion. According to Judge Barnett, the metal components at issue here differ from the plastic storeWall products. He found that Chapter 94 Note 1(d) excludes the merchandise, which he found to be "parts of general use." Accordingly, they should be classified in Heading 8302. 

Heading 8302 covers:

Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal; and base metal parts thereof:
Heading 9403, on the other hand, covers "Other furniture and parts thereof . . . ."

Note 2 to Section XV states that parts of general use include "[a]rticles of heading  . . . 8302." Container Store does not dispute that parts of general use of Heading 8302 are excluded from Heading 9403. It argued, however, that the merchandise is not parts of general use. Spoiler: The Federal Circuit agreed with The Container Store.

Relevant here are the Explanatory Notes to the Harmonized System. With respect to Heading 8302, the Notes state:

This heading covers general purpose classes of base metal accessory fittings and mountings, such as are used largely on furniture, doors, windows, coachwork, etc. Goods within such general classes remain in this heading even if they are designed for particular uses (e.g., door handles or hinges for automobiles). The heading does not, however, extend to goods forming an essential part of the structure of the article, such as window frames or swivel devices for revolving chairs.
According to the Federal Circuit, the top tracks and hanging standards form the indispensable structural framework of the modular storage unit. Based on the Explanatory Note, these items are excluded from classification in 8302. That means, the goods are not excluded from Heading 9403.

This should not be seen as upending the law on parts of general use. It remains true that parts of general use are to be classified as such even if they are specialized to a specific task. The Federal Circuit addressed this in its discussion of its prior Honda decision. That case involved the classification of an oil bolt, which is a specialized fastener that also includes features allowing it to transfer oil. Honda argued that it was classifiable as a vehicle part, not a bolt. The Federal Circuit disagreed. The difference here is that there was no reason to exclude the oil bolts from the classification for fasteners. Here, the Explanatory Notes indicate that structural components are not included in Heading 8302.

Because the top tracks and hanging standard are not classifiable in 8302, they are not parts of general use. Because they are not parts of general use, they are not excluded from 9403. Having reached that conclusion, and consistent with storeWall, the Federal Circuit concluded that this merchandise is best classified in 9403.90.80 as parts of unit furniture.

Note that this does not follow directly from storeWALL as a matter of stare decisis. This is related to but different than the lack of res judicata mentioned above. Stare decisis is the legal principle that cases should be decided based on precedent. This is a fundamental characteristic of the common law system used in the U.S., Canada, the U.K., and other jurisdictions. But, stare decisis only applies to the legal determinations and not to the questions of fact nor to legal determinations not part of the prior holding. In a classification case, whether the item fits in a particular heading is a question of fact. So stare decisis does not apply to the final classification determination. And, storeWall did not address the question of parts of general use and Heading 8302. So, while the result is the same as storeWALL, that decision did not dictate the outcome.




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