Lawyerly Arguments on Drawback
There are a lot of practicing lawyers who secretly or not so secretly harbor desires throw in the legal towel and transition to a career that is their true passion. A third of them think they would be award-winning novelists if only they had time to write. Another third think they should be hedge fund managers, venture capitalists, or similar financial potentates. The remainder are an eclectic mix of future pastry chefs, bike shop owners (who are also excellent baristas), rock drummers, and other jobs where middle-aged hipsters with discretionary income will fit right in.
The rest of us actually like lawyering and sometimes get the opportunity to be creative at the same time. Such is the case in Flint Hills Resources v. United States, a not-so-recent decision of the U.S. Court of International Trade. The question was whether Customs and Border Protection properly denied refunds of Harbor Maintenance Tax ("HMT"), Merchandise Processing Fee ("MPF"), and Environmental Tax ("ET") for a group of petroleum drawback claims from the turn of the last century. Spoiler: it did but read on anyway.
The issue here is all about timing. Back in the day, meaning prior to 2004, the Court of Appeal for the Federal Circuit held that HMT was not subject to drawback because it was a non-discriminatory tax on harbor usage not sufficiently linked to importation. The same goes for ET. MPF, on the other hand, was held to be subject to drawback. Take a look at Texport Oil Co. v. United States. After the Federal Circuit held this to be the law (and after much consternation in the trade community), Congress amended the law to permit drawback of duties, taxes, and fees due upon importation.
The problem that quickly cropped up is whether people who had pending drawback claims at the time of the change in the law were entitled to drawback on HMT and ET. Many of those pending claims did not include a request that HMT and ET be refunded. After all, the law did not permit the refund, so why make the claim? It seems entirely prudent to have claimed a refund only of duty and MPF.
That is the situation facing the plaintiffs in Flint Hills. Customs processed the claims and did not refund the unclaimed HMT and ET. Why should it, there was no request that it do so? CBP is not obligated to hunt around for the maximum refund available to the claimant. It processes claims based on the documents presented. The claimants protested and argued that they are entitled to drawback on HMT and ET. CBP denied the protests, which then landed in the Court of International Trade.
Plaintiff had a number of very smart, lawyerly, and ultimately unsuccessful argument. First up is the scope of review. Customs’ basic argument for this entire case is that the drawback claims were not "complete" and, therefore, the protests were properly denied. The protests did not say they were denied for being incomplete. According to Plaintiffs, this means CBP accepted the claims as complete and cannot subsequently argue that they were incomplete. Clever.
Unfortunately, challenges to denied protests are not the kind of administrative review that depends on the legal determination CBP made in its decision. The protest is reviewed de novo, which means that the Court figures out what is right on its own. The Court did that here and, following several prior decisions of the Court of Appeals determined that a complete drawback claim states the full amount to be refunded. Having failed to include a claim for HMT and ET, the claimant was not entitled to their refund.
Related to this is an argument that the drawback claim can be complete while also incorrectly stating the amount to be refunded. For support, Plaintiff’s pointed to a Customs and Border Protection ruling that allowed a claim to be processed despite the claimant incorrectly seeking a 100% refund rather than the statutory 99%. Relying on that analysis, the Plaintiffs argued that an incorrect calculation does not constitute an incomplete claim.
Again, the Court was not persuaded. The Court pointed to several decisions defining a complete drawback claim as one that includes a correct calculation of the refund. A customs ruling was not enough to overcome that case law. The fact that the Federal Circuit qualified the leading decision by noting it was not aware of any authority to find otherwise, despite the CBP ruling being available, was not a big enough peg on which to hang that legal hat. [Note: I am conflating a couple arguments here, but they all relate to what constitutes a complete claim.]
Next, Plaintiffs argued that it did not need to make a complete claim within the three years it was originally entitled to make a claim. Under this theory, the claim for HMT and ET did not become available until 2004 when Congress amended the law. That would have given Plaintiffs additional time. Presumably the protest would have been a means to assert the additional claim within the three-year period. This is a good example of basic lawyering. When did the right to a claim accrue? When did the clock run out? Those are always important questions.
This did not work because the amendment said specifically that it applied to new claims and pending unliquidated claims. The Federal Circuit previously interpreted the statute as applying to pending claims that already included a complete claim for HMT and ET. These did not, so they were incomplete.
Finally, for our purposes, Plaintiffs argued that the amendment violated the separation of powers. This, again, is a creative bit of lawyering that was ultimately unsuccessful. The gist is that the Federal Circuit held that HMT was not subject to drawback and that decision was final. When Congress amended the law, it stated that the amendment was not intended to create a new right to drawback but to clarify that HMT was always subject to drawback. According to Plaintiffs, this shows that Congress simply rejected the decision of the judicial branch, overstepping into a judicial role.
This, however, was not a successful argument. Basically, Congress has the power to amend laws in light of judicial decisions with which it disagrees. When it does so, Congress is not ignoring or contravening a judicial decision. Rather, it is changing the law to affect what it considers to be the correct policy. Law is not static. Congress gets to re-write it so long as Congress stays in the lanes set by the Constitution. The Judiciary interprets the laws. Here, Congress wrote a new law and the fact that it effectively overruled a CAFC decision does not make it improper.
The rest of us actually like lawyering and sometimes get the opportunity to be creative at the same time. Such is the case in Flint Hills Resources v. United States, a not-so-recent decision of the U.S. Court of International Trade. The question was whether Customs and Border Protection properly denied refunds of Harbor Maintenance Tax ("HMT"), Merchandise Processing Fee ("MPF"), and Environmental Tax ("ET") for a group of petroleum drawback claims from the turn of the last century. Spoiler: it did but read on anyway.
The issue here is all about timing. Back in the day, meaning prior to 2004, the Court of Appeal for the Federal Circuit held that HMT was not subject to drawback because it was a non-discriminatory tax on harbor usage not sufficiently linked to importation. The same goes for ET. MPF, on the other hand, was held to be subject to drawback. Take a look at Texport Oil Co. v. United States. After the Federal Circuit held this to be the law (and after much consternation in the trade community), Congress amended the law to permit drawback of duties, taxes, and fees due upon importation.
The problem that quickly cropped up is whether people who had pending drawback claims at the time of the change in the law were entitled to drawback on HMT and ET. Many of those pending claims did not include a request that HMT and ET be refunded. After all, the law did not permit the refund, so why make the claim? It seems entirely prudent to have claimed a refund only of duty and MPF.
That is the situation facing the plaintiffs in Flint Hills. Customs processed the claims and did not refund the unclaimed HMT and ET. Why should it, there was no request that it do so? CBP is not obligated to hunt around for the maximum refund available to the claimant. It processes claims based on the documents presented. The claimants protested and argued that they are entitled to drawback on HMT and ET. CBP denied the protests, which then landed in the Court of International Trade.
Plaintiff had a number of very smart, lawyerly, and ultimately unsuccessful argument. First up is the scope of review. Customs’ basic argument for this entire case is that the drawback claims were not "complete" and, therefore, the protests were properly denied. The protests did not say they were denied for being incomplete. According to Plaintiffs, this means CBP accepted the claims as complete and cannot subsequently argue that they were incomplete. Clever.
Unfortunately, challenges to denied protests are not the kind of administrative review that depends on the legal determination CBP made in its decision. The protest is reviewed de novo, which means that the Court figures out what is right on its own. The Court did that here and, following several prior decisions of the Court of Appeals determined that a complete drawback claim states the full amount to be refunded. Having failed to include a claim for HMT and ET, the claimant was not entitled to their refund.
Related to this is an argument that the drawback claim can be complete while also incorrectly stating the amount to be refunded. For support, Plaintiff’s pointed to a Customs and Border Protection ruling that allowed a claim to be processed despite the claimant incorrectly seeking a 100% refund rather than the statutory 99%. Relying on that analysis, the Plaintiffs argued that an incorrect calculation does not constitute an incomplete claim.
Again, the Court was not persuaded. The Court pointed to several decisions defining a complete drawback claim as one that includes a correct calculation of the refund. A customs ruling was not enough to overcome that case law. The fact that the Federal Circuit qualified the leading decision by noting it was not aware of any authority to find otherwise, despite the CBP ruling being available, was not a big enough peg on which to hang that legal hat. [Note: I am conflating a couple arguments here, but they all relate to what constitutes a complete claim.]
Next, Plaintiffs argued that it did not need to make a complete claim within the three years it was originally entitled to make a claim. Under this theory, the claim for HMT and ET did not become available until 2004 when Congress amended the law. That would have given Plaintiffs additional time. Presumably the protest would have been a means to assert the additional claim within the three-year period. This is a good example of basic lawyering. When did the right to a claim accrue? When did the clock run out? Those are always important questions.
This did not work because the amendment said specifically that it applied to new claims and pending unliquidated claims. The Federal Circuit previously interpreted the statute as applying to pending claims that already included a complete claim for HMT and ET. These did not, so they were incomplete.
Finally, for our purposes, Plaintiffs argued that the amendment violated the separation of powers. This, again, is a creative bit of lawyering that was ultimately unsuccessful. The gist is that the Federal Circuit held that HMT was not subject to drawback and that decision was final. When Congress amended the law, it stated that the amendment was not intended to create a new right to drawback but to clarify that HMT was always subject to drawback. According to Plaintiffs, this shows that Congress simply rejected the decision of the judicial branch, overstepping into a judicial role.
This, however, was not a successful argument. Basically, Congress has the power to amend laws in light of judicial decisions with which it disagrees. When it does so, Congress is not ignoring or contravening a judicial decision. Rather, it is changing the law to affect what it considers to be the correct policy. Law is not static. Congress gets to re-write it so long as Congress stays in the lanes set by the Constitution. The Judiciary interprets the laws. Here, Congress wrote a new law and the fact that it effectively overruled a CAFC decision does not make it improper.
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